10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-26481

(Exact name of registrant as specified in its charter)

NEW YORK	16-0816610
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
220 LIBERTY STREET, WARSAW, NEW YORK	14569
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (585)786-1100

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the regsitrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The registrant had 13,809,890 shares of Common Stock, $0.01 par value, outstanding as of October 28, 2013.

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended September 30, 2013

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Statements of Financial Condition - at September 30, 2013 (Unaudited) and December 31, 2012		3
	Consolidated Statements of Income (Unaudited) - Three and nine months ended September 30, 2013 and 2012		4
	Consolidated Statements of Comprehensive (Loss) Income (Unaudited) - Three and nine months ended September 30, 2013 and 2012		5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Nine months ended September 30, 2013 and 2012		6
	Consolidated Statements of Cash Flows (Unaudited) - Nine months ended September 30, 2013 and 2012		7
	Notes to Consolidated Financial Statements (Unaudited)		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		50
ITEM 4.	Controls and Procedures		51
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings		52
ITEM 1A.	Risk Factors		52
ITEM 6.	Exhibits		52
	Signatures		53

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

	September 30, 2013			December 31, 2012
(Dollars in thousands, except share and per share data)	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	99,290		$	60,342
Federal funds sold and interest-bearing deposits in other banks		94			94
Total cash and cash equivalents		99,384			60,436
Securities available for sale, at fair value		583,551			823,796
Securities held to maturity, at amortized cost (fair value of $246,117 and $18,478, respectively)		245,708			17,905
Loans held for sale		2,810			1,518
Loans (net of allowance for loan losses of $26,685 and $24,714, respectively)		1,752,987			1,681,012
Company owned life insurance		48,695			47,386
Premises and equipment, net		36,558			36,618
Goodwill and other intangible assets, net		50,095			50,389
Other assets		47,729			44,805
Total assets	$	2,867,517		$	2,763,865
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	542,517		$	501,514
Interest-bearing demand		519,283			449,744
Savings and money market		757,454			655,598
Time deposits		594,931			654,938
Total deposits		2,414,185			2,261,794
Short-term borrowings		188,146			179,806
Other liabilities		17,341			68,368
Total liabilities		2,619,672			2,509,968
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized, 1,496 and 1,499 shares issued, respectively		149			150
Series B-1 8.48% preferred stock, $100 par value, 200,000 shares authorized, 171,927 and 173,210 shares issued, respectively		17,193			17,321
Total preferred equity		17,342			17,471
Common stock, $0.01 par value, 50,000,000 shares authorized and 14,161,597 shares issued		142			142
Additional paid-in capital		67,458			67,710
Retained earnings		182,751			172,244
Accumulated other comprehensive (loss) income		(13,318	)		3,253
Treasury stock, at cost – 351,707 and 373,888 shares, respectively		(6,530	)		(6,923	)
Total shareholders’ equity		247,845			253,897
Total liabilities and shareholders’ equity	$	2,867,517		$	2,763,865

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

	Three months ended September 30,						Nine months ended September 30,
(In thousands, except per share amounts)	2013			2012			2013		2012
Interest income:
Interest and fees on loans	$	20,332		$	21,048		$	60,775	$	60,096
Interest and dividends on investment securities		4,291			4,251			12,938		12,384
Total interest income		24,623			25,299			73,713		72,480
Interest expense:
Deposits		1,624			2,029			4,960		6,596
Short-term borrowings		196			171			539		456
Total interest expense		1,820			2,200			5,499		7,052
Net interest income		22,803			23,099			68,214		65,428
Provision for loan losses		2,770			1,764			6,672		4,608
Net interest income after provision for loan losses		20,033			21,335			61,542		60,820
Noninterest income:
Service charges on deposits		2,728			2,292			7,437		6,101
ATM and debit card		1,283			1,219			3,849		3,368
Broker-dealer fees and commissions		568			609			1,917		1,630
Company owned life insurance		422			433			1,275		1,300
Net gain on disposal of investment securities		—			596			1,224		2,164
Loan servicing		227			142			452		645
Net (loss) gain on sale of loans held for sale		(101	)		323			134		981
Impairment charges on investment securities		—			—			—		(91	)
Net (loss) gain on disposal of other assets		—			(114	)		39		(79	)
Other		1,042			853			2,771		2,475
Total noninterest income		6,169			6,353			19,098		18,494
Noninterest expense:
Salaries and employee benefits		9,473			12,438			28,408		30,565
Occupancy and equipment		2,959			2,915			9,163		8,400
Professional services		814			1,452			2,844		3,243
Computer and data processing		689			976			2,205		2,462
Supplies and postage		518			899			1,806		1,930
FDIC assessments		367			356			1,092		957
Advertising and promotions		209			261			676		499
Other		1,980			2,321			5,861		5,800
Total noninterest expense		17,009			21,618			52,055		53,856
Income before income taxes		9,193			6,070			28,585		25,458
Income tax expense		3,029			1,805			9,422		8,341
Net income	$	6,164		$	4,265		$	19,163	$	17,117
Preferred stock dividends		365			368			1,100		1,105
Net income available to common shareholders	$	5,799		$	3,897		$	18,063	$	16,012
Earnings per common share (Note 3):
Basic	$	0.42		$	0.28		$	1.32	$	1.17
Diluted	$	0.42		$	0.28		$	1.31	$	1.16
Cash dividends declared per common share	$	0.19		$	0.14		$	0.55	$	0.41
Weighted average common shares outstanding:
Basic		13,745			13,703			13,734		13,692
Diluted		13,787			13,759			13,774		13,748

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

	Three months ended September 30,						Nine months ended September 30,
( Dollars in thousands)	2013			2012			2013			2012
Net income	$	6,164		$	4,265		$	19,163		$	17,117
Other comprehensive (loss) income, net of tax:
Securities available for sale:
Net unrealized (losses) gains arising during the period		(382	)		3,051			(16,428	)		4,860
Reclassification adjustment for gains included in income		—			(360	)		(739	)		(1,307	)
Reclassification adjustment for impairment charges included in income		—			—			—			55
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period		(47	)		—			(47	)		—
		(429	)		2,691			(17,214	)		3,608
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period		47			—			47			—
Pension and post-retirement obligations:
Net amortization of actuarial loss and prior service credit included in income		198			203			596			608
Total other comprehensive (loss) income		(184	)		2,894			(16,571	)		4,216
Total comprehensive income	$	5,980		$	7,159		$	2,592		$	21,333

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Nine months ended September 30, 2013 and 2012

(Dollars in thousands, except per share data)	Preferred Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance at January 1, 2012	$	17,473		$	142	$	67,247		$	158,079		$	945		$	(6,692	)	$	237,194
Comprehensive income:
Net income		—			—		—			17,117			—			—			17,117
Other comprehensive income, net of tax		—			—		—			—			4,216			—			4,216
Total comprehensive income																			21,333
Purchases of common stock for treasury		—			—		—			—			—			(554	)		(554	)
Repurchase of Series B-1 8.48% preferred stock		(2	)		—		—			—			—			—			(2	)
Share-based compensation plans:
Share-based compensation		—			—		373			—			—			—			373
Stock options exercised		—			—		(5	)		—			—			31			26
Restricted stock awards issued, net		—			—		(140	)		—			—			140			—
Excess tax benefit on share-based compensation		—			—		97			—			—			—			97
Directors’ retainer		—			—		(10	)		—			—			107			97
Cash dividends declared:
Series A 3% Preferred-$2.25 per share		—			—		—			(3	)		—			—			(3	)
Series B-1 8.48% Preferred-$6.36 per share		—			—		—			(1,102	)		—			—			(1,102	)
Common-$0.41 per share		—			—		—			(5,617	)		—			—			(5,617	)
Balance at September 30, 2012	$	17,471		$	142	$	67,562		$	168,474		$	5,161		$	(6,968	)	$	251,842
Balance at January 1, 2013	$	17,471		$	142	$	67,710		$	172,244		$	3,253		$	(6,923	)	$	253,897
Comprehensive income:
Net income		—			—		—			19,163			—			—			19,163
Other comprehensive loss, net of tax		—			—		—			—			(16,571	)		—			(16,571	)
Total comprehensive income																			2,592
Purchases of common stock for treasury		—			—		—			—			—			(229	)		(229	)
Repurchase of Series A 3% preferred stock		(1	)		—		—			—			—			—			(1	)
Repurchase of Series B-1 8.48% preferred stock		(128	)		—		(2	)		—			—			—			(130	)
Share-based compensation plans:
Share-based compensation		—			—		312			—			—			—			312
Stock options exercised		—			—		(5	)		—			—			71			66
Restricted stock awards issued, net		—			—		(446	)		—			—			446			—
Excess tax expense on share-based compensation		—			—		(118	)		—			—			—			(118	)
Directors’ retainer		—			—		7			—			—			105			112
Cash dividends declared:
Series A 3% Preferred-$2.25 per share		—			—		—			(3	)		—			—			(3	)
Series B-1 8.48% Preferred-$6.36 per share		—			—		—			(1,097	)		—			—			(1,097	)
Common-$0.55 per share		—			—		—			(7,556	)		—			—			(7,556	)
Balance at September 30, 2013	$	17,342		$	142	$	67,458		$	182,751		$	(13,318	)	$	(6,530	)	$	247,845

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

	Nine months ended September 30,
(Dollars in thousands)	2013			2012
Cash flows from operating activities:
Net income	$	19,163		$	17,117
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,145			2,761
Net amortization of premiums on securities		3,656			3,958
Provision for loan losses		6,672			4,608
Share-based compensation		312			373
Deferred income tax expense		1,907			3,684
Proceeds from sale of loans held for sale		22,963			42,847
Originations of loans held for sale		(27,413	)		(40,867	)
Increase in company owned life insurance		(1,275	)		(1,300	)
Net gain on sale of loans held for sale		(134	)		(981	)
Net gain on disposal of investment securities		(1,224	)		(2,164	)
Impairment charges on investment securities		—			91
Net (gain) loss on sale and disposal of other assets		(39	)		79
Decrease in other assets		6,878			4,745
Increase in other liabilities		215			3,419
Net cash provided by operating activities		34,826			38,370
Cash flows from investing activities:
Purchases of available for sale securities		(194,360	)		(245,020	)
Purchases of held to maturity securities		(9,228	)		(10,803	)
Proceeds from principal payments, maturities and calls on available for sale securities		123,864			136,912
Proceeds from principal payments, maturities and calls on held to maturity securities		8,886			14,479
Proceeds from sales of securities available for sale		1,327			2,303
Net loan originations		(76,010	)		(102,391	)
Purchases of company owned life insurance		(34	)		(34	)
Proceeds from sales of other assets		469			549
Purchases of premises and equipment		(2,870	)		(4,554	)
Net cash received in branch acquisition		—			195,778
Net cash used in investing activities		(147,956	)		(12,781	)
Cash flows from financing activities:
Net increase in deposits		152,391			113,301
Net increase (decrease) in short-term borrowings		8,340			(112,416	)
Repurchase of preferred stock		(131	)		(2	)
Purchase of common stock for treasury		(229	)		(554	)
Proceeds from stock options exercised		66			26
Excess tax (expense) benefit on share-based compensation, net		(118	)		97
Cash dividends paid to common and preferred shareholders		(8,241	)		(6,579	)
Net cash provided by (used in) financing activities		152,078			(6,127	)
Net increase in cash and cash equivalents		38,948			19,462
Cash and cash equivalents, beginning of period		60,436			57,583
Cash and cash equivalents, end of period	$	99,384		$	77,045
Supplemental information:
Cash paid for interest	$	5,738		$	8,046
Cash paid for income taxes		4,006			3,787
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		655			250
Accrued and declared unpaid dividends		2,977			2,287
(Decrease) increase in net unsettled security purchases		(51,061	)		11,148
Securities transferred from available for sale to held to maturity (at fair value)		227,330			—
Loans transferred from held for sale to held for investment		3,292			—
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core deposit intangible asset		—			77,912
Deposits and other liabilities		—			287,331

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Financial Institutions, Inc., a financial holding company organized under the laws of New York State (“New York” or “NYS”), and its subsidiaries provide deposit, lending and other financial services to individuals and businesses in Central and Western New York. The Company has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern Pennsylvania. Financial Institutions, Inc. owns all of the capital stock of Five Star Bank, a New York State chartered bank, and Five Star Investment Services, Inc., a financial services subsidiary offering noninsured investment products and investment advisory services. References to “the Company” mean the consolidated reporting entities and references to “the Bank” mean Five Star Bank.

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years’ consolidated financial statements are re-classified whenever necessary to conform to the current year’s presentation. These consolidated financial statements should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates relate to the determination of the allowance for loan losses, assumptions used in the defined benefit pension plan accounting, the carrying value of goodwill and deferred tax assets, and the valuation and other than temporary impairment considerations related to the securities portfolio.

Reclassifications

Certain reclassifications have been made to the prior years’ financial statements in order to reflect retrospective adjustments made to the balance of goodwill at December 31, 2012 to reflect the effect of these measurement period adjustments made in accordance with accounting requirements. The reclassifications had no impact on shareholders’ equity or net income.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income (e.g., unrealized gains or losses on available-for-sale investment securities) and separately present reclassification adjustments and current period other comprehensive income. The provisions of ASU No. 2013-02 also requires that entities present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., unrealized gains or losses on available-for-sale investment securities) and the income statement line item affected by the reclassification (e.g., realized gains (losses) on sales of investment securities). If a component is not required to be reclassified to net income in its entirety (e.g., amortization of defined benefit plan items), entities would instead cross reference to the related note to the financial statements for additional information (e.g., pension footnote). The Company adopted the provisions of ASU No. 2013-02 effective January 1, 2013. As the Company provided these required disclosures in the notes to the consolidated financial statements, the adoption of ASU No. 2013-02 had no impact on the Company’s consolidated statements of income and condition. See Note 8 – Accumulated Other Comprehensive Income to the consolidated financial statements for the disclosures required by ASU No. 2013-02.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(2.) BRANCH ACQUISITIONS

On January 19, 2012, the Bank entered into agreements with First Niagara Bank, National Association (“First Niagara”) to acquire four retail bank branches in Medina, Brockport, Batavia and Waterloo, New York (the “First Niagara Branches”) and four retail bank branches previously owned by HSBC Bank USA, National Association (“HSBC”) in Elmira, Elmira Heights, Horseheads and Albion, New York (the “HSBC Branches”). First Niagara assigned its rights to the HSBC branches in connection with its acquisition of HSBC’s Upstate New York banking franchise. Under the terms of the agreements, the Bank assumed substantially all related deposits and purchased the related branch premises and certain performing loans. The transaction to acquire the First Niagara Branches was completed on June 22, 2012 and the transaction to acquire the HSBC Branches was completed on August 17, 2012. The combined assets acquired and deposits assumed in the two transactions were recorded at their estimated fair values as follows (in thousands):

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,167
Core deposit intangible asset		2,042
Other assets		601
Total assets acquired	$	287,161
Deposits assumed	$	286,819
Other liabilities		342
Total liabilities assumed	$	287,161

The transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. The Company acquired the loan portfolios at a fair value discount, net of market premium, of $824 thousand. The discount represented expected credit losses, net of market interest rate adjustments. The discount on loans receivable is being amortized to interest income over the estimated remaining life of the acquired loans using the level yield method. The time deposit premium of $335 thousand is being accreted over the estimated remaining life of the related deposits as a reduction of interest expense. The core deposit intangible asset is being amortized on an accelerated basis over the estimated average life of the core deposits.

During the nine months ended September 30, 2013, the Company recorded a decrease to the estimated fair value of liabilities assumed and an increase to the related deferred income taxes based upon information obtained subsequent to the acquisition. In addition to changes in those assets and liabilities, the revisions resulted in a reduction in goodwill of approximately $432 thousand. The final purchase price allocation was completed during the three months ended September 30, 2013, and the Company has recorded final goodwill totaling approximately $11.2 million in connection with the acquisitions. All goodwill and core deposit intangible assets arising from this acquisition are expected to be deductible for tax purposes.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(3.) EARNINGS PER COMMON SHARE (“EPS”)

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts).

	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income available to common shareholders	$	5,799		$	3,897		$	18,063		$	16,012
Less: Earnings allocated to participating securities		—			—			—			3
Net income available to common shareholders for EPS	$	5,799		$	3,897		$	18,063		$	16,009
Weighted average common shares outstanding:
Total shares issued		14,162			14,162			14,162			14,162
Unvested restricted stock awards		(64	)		(99	)		(70	)		(116	)
Treasury shares		(353	)		(360	)		(358	)		(354	)
Total basic weighted average common shares outstanding		13,745			13,703			13,734			13,692
Incremental shares from assumed:
Exercise of stock options		12			4			8			4
Vesting of restricted stock awards		30			52			32			52
Total diluted weighted average common shares outstanding		13,787			13,759			13,774			13,748
Basic earnings per common share	$	0.42		$	0.28		$	1.32		$	1.17
Diluted earnings per common share	$	0.42		$	0.28		$	1.31		$	1.16
For each of the periods presented, average shares subject to the following instruments were excluded from the computation of diluted EPS because the effect would be antidilutive:
Stock options		86			295			154			309
Restricted stock awards		—			—			3			1
		86			295			157			310

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES

The amortized cost and fair value of investment securities are summarized below (in thousands):

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
September 30, 2013
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	112,697	$	1,683	$	2,082	$	112,298
Mortgage-backed securities:
Federal National Mortgage Association		155,677		2,029		4,551		153,155
Federal Home Loan Mortgage Corporation		34,137		918		62		34,993
Government National Mortgage Association		62,775		2,690		—		65,465
Collateralized mortgage obligations:
Federal National Mortgage Association		66,251		548		2,086		64,713
Federal Home Loan Mortgage Corporation		105,507		308		3,942		101,873
Government National Mortgage Association		48,400		1,170		281		49,289
Privately issued		—		1,341		—		1,341
Total collateralized mortgage obligations		220,158		3,367		6,309		217,216
Total mortgage-backed securities		472,747		9,004		10,922		470,829
Asset-backed securities		18		406		—		424
Total available for sale securities	$	585,462	$	11,093	$	13,004		583,551
Securities held to maturity:
State and political subdivisions	$	245,708	$	409	$	—	$	246,117
December 31, 2012
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	128,097	$	3,667	$	69	$	131,695
State and political subdivisions		188,997		6,285		72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394		188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430		—		66,856
Government National Mortgage Association		56,166		3,279		—		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865		2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911		—		80,492
Government National Mortgage Association		70,989		2,168		—		73,157
Privately issued		73		1,025		—		1,098
Total collateralized mortgage obligations		210,448		6,969		2		217,415
Total mortgage-backed securities		479,986		16,072		190		495,868
Asset-backed securities		121		902		—		1,023
Total available for sale securities	$	797,201	$	26,926	$	331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573	$	—	$	18,478

Sales and calls of securities available for sale were as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2013		2012		2013		2012
Proceeds from sales	$	—	$	633	$	1,327	$	2,303
Gross realized gains		—		596		1,224		2,164

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

During the third quarter of 2013, the Company transferred $227.3 million of available for sale state and municipal debt securities to the held to maturity category, reflecting the Company’s intent to hold those securities to maturity. Transfers of investment securities into the held to maturity category from the available for sale category are made at fair value at the date of transfer. The related $78 thousand of unrealized holding gains that were included in the transfer are retained in accumulated other comprehensive income and in the carrying value of the held to maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

The scheduled maturities of securities available for sale and securities held to maturity at September 30, 2013 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized		Fair
	Cost		Value
Debt securities available for sale:
Due in one year or less	$	399	$	405
Due from one to five years		27,911		28,804
Due after five years through ten years		226,693		222,567
Due after ten years		330,459		331,775
	$	585,462	$	583,551
Debt securities held to maturity:
Due in one year or less	$	25,145	$	25,236
Due from one to five years		104,563		104,770
Due after five years through ten years		115,955		116,055
Due after ten years		45		56
	$	245,708	$	246,117

There were no unrealized losses in held to maturity securities at September 30, 2013 or December 31, 2012. Unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
September 30, 2013
U.S. Government agencies and government sponsored enterprises	$	63,080	$	2,066	$	2,812	$	16	$	65,892	$	2,082
Mortgage-backed securities:
Federal National Mortgage Association		103,595		4,551		—		—		103,595		4,551
Federal Home Loan Mortgage Corporation		4,081		62		—		—		4,081		62
Collateralized mortgage obligations:
Federal National Mortgage Association		49,555		2,085		517		1		50,072		2,086
Federal Home Loan Mortgage Corporation		92,536		3,942		—		—		92,536		3,942
Government National Mortgage Association		6,313		281		—		—		6,313		281
Total collateralized mortgage obligations		148,404		6,308		517		1		148,921		6,309
Total mortgage-backed securities		256,080		10,921		517		1		256,597		10,922
Total temporarily impaired securities	$	319,160	$	12,987	$	3,329	$	17	$	322,489	$	13,004

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2012
U.S. Government agencies and government sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		—		—		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		—		—		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		1,173		2		1,173		2
Total collateralized mortgage obligations		—		—		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331

The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2013 was 81 compared to 52 at December 31, 2012. At September 30, 2013, the Company had positions in 5 investment securities with a fair value of $3.3 million and a total unrealized loss of $17 thousand that have been in a continuous unrealized loss position for more than 12 months. There were a total of 76 securities positions in the Company’s investment portfolio, with a fair value of $319.2 million and a total unrealized loss of $13.0 million at September 30, 2013, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.

The Company reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information then available to management.

No impairment was recorded in the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the Company recognized an OTTI charge of $91 thousand related to a privately issued whole loan CMO that was determined to be impaired due to credit quality.

Based on management’s review and evaluation of the Company’s debt securities as of September 30, 2013, the debt securities with unrealized losses were not considered to be OTTI. As of September 30, 2013, the Company does not have the intent to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. Accordingly, as of September 30, 2013, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Company’s consolidated statements of income.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS

The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands):

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
September 30, 2013
Commercial business	$	253,928	$	(3	)	$	253,925
Commercial mortgage		450,602		(1,037	)		449,565
Residential mortgage		117,650		(26	)		117,624
Home equity		311,521		5,105			316,626
Consumer indirect		591,242		26,846			618,088
Other consumer		23,683		161			23,844
Total	$	1,748,626	$	31,046			1,779,672
Allowance for loan losses							(26,685	)
Total loans, net						$	1,752,987
December 31, 2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.8 million and $1.5 million as of September 30, 2013 and December 31, 2012, respectively.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

Past Due Loans Aging

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans
September 30, 2013
Commercial business	$	72	$	4	$	—	$	76	$	4,078	$	249,774	$	253,928
Commercial mortgage		53		—		—		53		2,835		447,714		450,602
Residential mortgage		434		—		—		434		1,337		115,879		117,650
Home equity		417		20		—		437		911		310,173		311,521
Consumer indirect		1,172		258		—		1,430		1,161		588,651		591,242
Other consumer		117		20		9		146		7		23,530		23,683
Total loans, gross	$	2,265	$	302	$	9	$	2,576	$	10,329	$	1,735,721	$	1,748,626
December 31, 2012
Commercial business	$	160	$	—	$	—	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		—		—		331		1,799		412,152		414,282
Residential mortgage		376		—		—		376		2,040		130,925		133,341
Home equity		675		10		—		685		939		280,879		282,503
Consumer indirect		1,661		163		—		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453

There were no loans past due greater than 90 days and still accruing interest as of September 30, 2013 and December 31, 2012. There were $9 thousand and $18 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2013 and December 31, 2012, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying loans, however, forgiveness of principal is rarely granted. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, or substituting or adding a new borrower or guarantor.

The following table presents information related to loans modified in a TDR during the periods indicated (dollars in thousands).

	Quarter-to-Date						Year-to-Date
	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
September 30, 2013
Commercial business		—	$	—	$	—		3	$	1,462	$	1,454
Commercial mortgage		—		—		—		—		—		—
Total		—	$	—	$	—		3	$	1,462	$	1,454
September 30, 2012
Commercial business		1	$	103	$	103		3	$	536	$	536
Commercial mortgage		—		—		—		4		648		648
Total		1	$	103	$	103		7	$	1,184	$	1,184

- 15 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

All of the loans identified as TDRs by the Company were previously on nonaccrual status and reported as impaired loans prior to restructuring. The modifications primarily related to extending the amortization periods of the loans. All loans restructured during the nine months ended September 30, 2013 were classified as nonaccrual as of September 30, 2013. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classification did not have a material impact on the Company’s determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring.

There were no loans modified as a TDR within the previous 12 months that defaulted during the three months ended September 30, 2013 or 2012. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Impaired Loans

Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on impaired loans for the three month periods ended as of the dates indicated (in thousands):

	Recorded Investment(1)		Unpaid Principal Balance(1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2013
With no related allowance recorded:
Commercial business	$	276	$	460	$	—	$	583	$	—
Commercial mortgage		737		759		—		707		—
		1,013		1,219		—		1,290		—
With an allowance recorded:
Commercial business		3,802		3,822		649		4,108		—
Commercial mortgage		2,098		2,098		603		2,227		—
		5,900		5,920		1,252		6,335		—
	$	6,913	$	7,139	$	1,252	$	7,625	$	—
December 31, 2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	—	$	755	$	—
Commercial mortgage		911		1,002		—		1,310		—
		1,874		2,427		—		2,065		—
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		—
Commercial mortgage		888		888		310		1,858		—
		3,338		3,338		974		3,972		—
	$	5,212	$	5,765	$	974	$	6,037	$	—

⁽¹⁾  Difference between recorded investment and unpaid principal balance represents partial charge-offs.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “Uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

The following table sets forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):

	Commercial Business		Commercial Mortgage
September 30, 2013
Uncriticized	$	237,601	$	427,902
Special mention		6,159		6,703
Substandard		10,168		15,997
Doubtful		—		—
Total	$	253,928	$	450,602
December 31, 2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		—		—
Total	$	258,706	$	414,282

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following table sets forth the Company’s retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands):

	Residential Mortgage		Home Equity		Consumer Indirect		Other Consumer
September 30, 2013
Performing	$	116,313	$	310,610	$	590,081	$	23,667
Non-performing		1,337		911		1,161		16
Total	$	117,650	$	311,521	$	591,242	$	23,683
December 31, 2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657

- 17 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

Allowance for Loan Losses

Loans and the related allowance for loan losses are presented below as of the dates indicated (in thousands):

	Commercial Business		Commercial Mortgage		Residential Mortgage		Home Equity		Consumer Indirect		Other Consumer		Total
September 30, 2013
Loans:
Ending balance	$	253,928	$	450,602	$	117,650	$	311,521	$	591,242	$	23,683	$	1,748,626
Evaluated for impairment:
Individually	$	4,078	$	2,835	$	—	$	—	$	—	$	—	$	6,913
Collectively	$	249,850	$	447,767	$	117,650	$	311,521	$	591,242	$	23,683	$	1,741,713
Allowance for loan losses:
Ending balance	$	4,410	$	8,281	$	729	$	1,383	$	11,416	$	466	$	26,685
Evaluated for impairment:
Individually	$	649	$	603	$	—	$	—	$	—	$	—	$	1,252
Collectively	$	3,761	$	7,678	$	729	$	1,383	$	11,416	$	466	$	25,433
September 30, 2012
Loans:
Ending balance	$	245,404	$	403,924	$	139,785	$	275,345	$	538,058	$	27,599	$	1,630,115
Evaluated for impairment:
Individually	$	3,621	$	3,388	$	—	$	—	$	—	$	—	$	7,009
Collectively	$	241,783	$	400,536	$	139,785	$	275,345	$	538,058	$	27,599	$	1,623,106
Allowance for loan losses:
Ending balance	$	4,276	$	6,648	$	796	$	1,232	$	10,808	$	541	$	24,301
Evaluated for impairment:
Individually	$	620	$	664	$	—	$	—	$	—	$	—	$	1,284
Collectively	$	3,656	$	5,984	$	796	$	1,232	$	10,808	$	541	$	23,017

The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2013 (in thousands):

	Commercial Business			Commercial Mortgage		Residential Mortgage		Home Equity			Consumer Indirect		Other Consumer		Total
Three months ended September 30, 2013
Beginning balance	$	4,755		$	7,125	$	701	$	1,424		$	11,095	$	490	$	25,590
Charge-offs		163			35		34		30			2,131		253		2,646
Recoveries		59			122		12		16			666		96		971
Provision (credit)		(241	)		1,069		50		(27	)		1,786		133		2,770
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685
Nine months ended September 30, 2013
Beginning balance	$	4,884		$	6,581	$	740	$	1,282		$	10,715	$	512	$	24,714
Charge-offs		694			144		281		352			5,778		734		7,983
Recoveries		301			279		42		126			2,230		304		3,282
Provision		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

- 18 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2012 (in thousands):

	Commercial Business		Commercial Mortgage			Residential Mortgage		Home Equity		Consumer Indirect		Other Consumer		Total
Three months ended September 30, 2012
Beginning balance	$	4,364	$	6,713		$	801	$	1,164	$	10,618	$	460	$	24,120
Charge-offs		337		27			47		80		1,846		201		2,538
Recoveries		50		91			8		15		722		69		955
Provision (credit)		199		(129	)		34		133		1,314		213		1,764
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301
Nine months ended September 30, 2012
Beginning balance	$	4,036	$	6,418		$	858	$	1,242	$	10,189	$	517	$	23,260
Charge-offs		536		374			280		177		4,648		605		6,620
Recoveries		282		167			106		35		2,195		268		3,053
Provision (credit)		494		437			112		132		3,072		361		4,608
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301

Risk Characteristics

Commercial business loans primarily consist of loans to small to midsize businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, inferring higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties.

Residential mortgage loans and home equities (comprised of home equity loans and home equity lines) are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill totaled $48.5 million as of September 30, 2013 and December 31, 2012. The goodwill relates to the Company’s primary subsidiary and reporting unit, Five Star Bank. The Company performs a goodwill impairment test on an annual basis or more frequently if events and circumstances warrant.

The Company recorded a core deposit intangible asset of $2.0 million in connection with the 2012 branch acquisitions which will be amortized on an accelerated basis over the remaining estimated average life of the core deposits of approximately 8.3 years. The amortization expense is included in other noninterest expense on the consolidated statements of income and is deductible for tax purposes.

Amortization expense for the core deposit intangible was $95 thousand and $294 thousand for the three and nine months ended September 30, 2013, respectively. Amortization expense for the three and nine months ended September 30, 2012 was $86 thousand. As of September 30, 2013, estimated core deposit intangible amortization expense for each of the next five years is as follows (in thousands):

2013 (remainder of year)	$	92
2014		341
2015		296
2016		251
2017		205
2018		160

(7.) SHAREHOLDERS’ EQUITY

Common Stock

The changes in shares of common stock were as follows for the nine month periods ended September 30, 2013 and 2012:

	Outstanding			Treasury			Issued
September 30, 2013
Shares outstanding at December 31, 2012		13,787,709			373,888			14,161,597
Restricted stock awards issued		43,035			(43,035	)		—
Restricted stock awards forfeited		(18,977	)		18,977			—
Stock options exercised		3,800			(3,800	)		—
Treasury stock purchases		(11,349	)		11,349			—
Directors’ retainer		5,672			(5,672	)		—
Shares outstanding at September 30, 2013		13,809,890			351,707			14,161,597
September 30, 2012
Shares outstanding at December 31, 2011		13,803,116			358,481			14,161,597
Restricted stock awards issued		57,541			(57,541	)		—
Restricted stock awards forfeited		(49,684	)		49,684			—
Stock options exercised		1,650			(1,650	)		—
Treasury stock purchases		(33,150	)		33,150			—
Directors’ retainer		5,816			(5,816	)		—
Shares outstanding at September 30, 2012		13,785,289			376,308			14,161,597

- 20 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of other comprehensive income (loss) for the nine month periods ended September 30, 2013 and 2012 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
September 30, 2013
Securities available for sale:
Net unrealized losses arising during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for gains included in income		(1,224	)		(485	)		(739	)
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period		(78	)		(31	)		(47	)
Net unrealized loss on investment securities		(28,507	)		(11,293	)		(17,214	)
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period		78			31			47
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,023			405			618
Pension and post-retirement obligations, net		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)
September 30, 2012
Securities available for sale:
Net unrealized gains arising during the period	$	8,048		$	3,188		$	4,860
Reclassification adjustment for gains included in income		(2,164	)		(857	)		(1,307	)
Reclassification adjustment for impairment charges included in income		91			36			55
Net unrealized gain on investment securities		5,975			2,367			3,608
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,043			413			630
Pension and post-retirement obligations, net		1,007			399			608
Other comprehensive income	$	6,982		$	2,766		$	4,216

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the nine month period ended September 30, 2013 (in thousands):

	Net Unrealized Gains (Losses) on Securities Available for Sale			Net Unrealized Gains on Securities Transferred from Available for Sale to Held to Maturity		Pension and Post-retirement Obligations			Total
Balance at beginning of year	$	16,060		$	—	$	(12,807	)	$	3,253
Other comprehensive loss before reclassifications		(16,428	)		—		596			(15,832	)
Amounts reclassified from accumulated other comprehensive income		(786	)		47		—			(739	)
Net current period other comprehensive loss		(17,214	)		47		596			(16,571	)
Balance at end of period	$	(1,154	)	$	47	$	(12,211	)	$	(13,318	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the nine month period ended September 30, 2013 (in thousands):

Details About Accumulated Other Comprehensive Income Components	Amount Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Consolidated Statement of Income
Realized gain on sale of investment securities	$	1,224		Net gain on disposal of investment securities
		(485	)	Income tax expense
	$	739		Net of tax
Pension and post-retirement obligations
Amortization of prior service benefit (1)	$	36		Salaries and employee benefits
Amortization of actuarial losses (1)		(1,023	)	Salaries and employee benefits
		(987	)	Total before tax
		391		Income tax benefit
	$	(596	)	Net of tax

⁽¹⁾  These items are included in the computation of net periodic pension cost. See Note 10 – Employee Benefit Plans for additional information.

- 22 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(9.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain stock-based compensation plans that were approved by the Company’s shareholders and are administered by the Company’s Board of Directors, or the Management Development and Compensation Committee of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the success and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.

The Company awarded grants of 33,035 shares of restricted common stock to certain members of management during the nine months ended September 30, 2013. Fifty percent of the shares subject to each grant will be earned based upon achievement of an EPS performance requirement for the Company’s fiscal year ended December 31, 2013. The remaining fifty percent of the shares will be earned based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over a three-year performance period ended December 31, 2015. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest based on the recipient’s continuous service to the Company on December 31, 2015.

The grant-date fair value of the TSR portion of the award granted during the nine month period ended September 30, 2013 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.88 years, (ii) risk free interest rate of 0.42%, (iii) expected dividend yield of 3.59% and (iv) expected stock price volatility over the expected term of the TSR award of 37.2%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of our common stock on the date of grant.

In addition, the Company granted 1,000 shares of restricted common stock to management during the nine months ended September 30, 2013. The shares will vest after completion of a three-year service requirement. The market price of the restricted stock on the date of grant was $20.70.

During the nine months ended September 30, 2013, the Company granted 9,000 shares of restricted common stock to directors, of which 4,500 shares vested immediately and 4,500 shares will vest after completion of a one-year service requirement. The market price of the restricted stock on the date of grant was $19.81.

The restricted stock awards granted to management and directors in 2013 do not have rights to dividends or dividend equivalents.

The following is a summary of restricted stock award activity for the nine month period ended September 30, 2013:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year		79,580		$	16.89
Granted		43,035			16.94
Vested		(38,598	)		17.04
Forfeited		(18,977	)		16.60
Outstanding at end of period		65,040		$	16.92

As of September 30, 2013, there was $468 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.7 years.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(9.) SHARE-BASED COMPENSATION PLANS (Continued)

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during 2013 or 2012. The following is a summary of stock option activity for the nine months ended September 30, 2013 (dollars in thousands, except per share amounts):

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term		Value
Outstanding at beginning of year		319,275		$	20.22
Exercised		(3,800	)		17.35
Expired		(103,076	)		21.15
Outstanding and exercisable at end of period		212,399		$	19.83		2.8 years	$	236

As of September 30, 2013, all compensation expense related to stock options had been fully recognized in previous periods.

The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) of option exercises for the nine months ended September 30, 2013 and 2012 was $9 thousand and $2 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the nine months ended September 30, 2013 and 2012 was $66 thousand and $26 thousand, respectively.

The Company amortizes the expense related to restricted stock awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income is as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Salaries and employee benefits	$	85	$	38	$	164	$	258
Other noninterest expense		22		17		148		115
Total share-based compensation expense	$	107	$	55	$	312	$	373

(10.) EMPLOYEE BENEFIT PLANS

The components of the Company’s net periodic benefit expense for its pension and post-retirement obligations were as follows (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Service cost	$	516		$	510		$	1,548		$	1,528
Interest cost on projected benefit obligation		505			505			1,515			1,516
Expected return on plan assets		(921	)		(803	)		(2,763	)		(2,409	)
Amortization of unrecognized prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of unrecognized loss		341			349			1,023			1,043
Net periodic pension expense	$	429		$	549		$	1,287		$	1,642

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of income. The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2013 fiscal year.

- 24 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(11.) COMMITMENTS AND CONTINGENCIES

The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond amounts recognized in the Company’s financial statements.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for on-balance sheet instruments.

Off-balance sheet commitments consist of the following (in thousands):

	September 30, 2013		December 31, 2012
Commitments to extend credit	$	444,769	$	435,948
Standby letters of credit		9,786		9,223

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company also extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements, the Company may enter into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value. Forward sales commitments totaled $2.8 million and $1.8 million at September 30, 2013 and December 31, 2012, respectively. In addition, the net change in the fair values of these derivatives was recognized as other noninterest income or other noninterest expense in the consolidated statements of income.

(12.) FAIR VALUE MEASUREMENTS

Determination of Fair Value – Assets Measured at Fair Value on a Recurring and Nonrecurring Basis

Valuation Hierarchy

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:

• Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2—Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

• Level 3—Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.

Collateral dependent impaired loans: Fair value of impaired loans with specific allocations of the allowance for loan losses is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that we believe market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company’s loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other real estate owned (Foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments to is not material.

- 26 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

The following tables present for each of the fair-value hierarchy levels the Company’s assets that are measured at fair value on a recurring and non-recurring basis as of the dates indicated (in thousands).

	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	112,298	$	—	$	112,298
Mortgage-backed securities		—		470,829		—		470,829
Asset-backed securities		—		424		—		424
	$	—	$	583,551	$	—	$	583,551
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,810	$	—	$	2,810
Collateral dependent impaired loans		—		—		4,648		4,648
Other assets:
Loan servicing rights		—		—		1,632		1,632
Other real estate owned		—		—		424		424
	$	—	$	2,810	$	6,704	$	9,514
December 31, 2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	131,695	$	—	$	131,695
State and political subdivisions		—		195,210		—		195,210
Mortgage-backed securities		—		495,868		—		495,868
Asset-backed securities				1,023				1,023
	$	—	$	823,796	$	—	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	1,518	$	—	$	1,518
Collateral dependent impaired loans		—		—		2,364		2,364
Other assets:
Loan servicing rights		—		—		1,719		1,719
Other real estate owned		—		—		184		184
	$	—	$	1,518	$	4,267	$	5,785

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2013. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month periods ended September 30, 2013 and 2012.

- 27 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands).

Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Collateral dependent impaired loans	$	4,648	Appraisal of collateral (1)	Appraisal adjustments (2)	25% - 100% discount
			Discounted cash flow	Discount rate	4.7% (3)
				Risk premium rate	12.0% (3)
Loan servicing rights		1,632	Discounted cash flow	Discount rate	5.2% (3)
				Constant prepayment rate	12.9% (3)
Other real estate owned		424	Appraisal of collateral (1)	Appraisal adjustments (2)	6% - 43% discount

⁽¹⁾  Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

⁽²⁾  Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾  Weighted averages.

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the nine months ended September 30, 2013. The Company transferred all of the assets classified as Level 3 assets at December 31, 2011 to Level 2 during the nine months ended September 30, 2012. The transfers of the $1.5 million of pooled trust preferred securities out of Level 3 was primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

The estimated fair value approximates carrying value for cash and cash equivalents, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

Securities held to maturity: The fair value of the Company’s investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Loans: The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time deposits: The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

- 28 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of the dates indicated.

	Level in	September 30, 2013				December 31, 2012
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	99,384	$	99,384	$	60,436	$	60,436
Securities available for sale	Level 2		583,551		583,551		823,796		823,796
Securities held to maturity	Level 2		245,708		246,117		17,905		18,478
Loans held for sale	Level 2		2,810		2,810		1,518		1,547
Loans	Level 2		1,748,339		1,757,838		1,678,648		1,701,419
Loans (1)	Level 3		4,648		4,648		2,364		2,364
Accrued interest receivable	Level 1		8,671		8,671		7,843		7,843
FHLB and FRB stock	Level 2		12,620		12,620		12,321		12,321
Financial liabilities:
Non-maturity deposits	Level 1		1,819,254		1,819,254		1,606,856		1,606,856
Time deposits	Level 2		594,931		596,641		654,938		658,342
Short-term borrowings	Level 1		188,146		188,146		179,806		179,806
Accrued interest payable	Level 1		3,580		3,580		3,819		3,819

⁽¹⁾  Comprised of collateral dependent impaired loans.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2012. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

FORWARD LOOKING INFORMATION

Statements and financial analysis contained in this document that are not historical facts are forward looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”). Forward looking statements describe our future plans, strategies and expectations and are based on certain assumptions. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “projects,” and other similar expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements.

We caution readers not to place undue reliance on any forward looking statements, which speak only as of the date made, and advise readers that various factors, including those identified under the heading “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected.

Except as required by law, we do not undertake, and specifically disclaim any obligation to publicly release any revisions to any forward looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

GENERAL

Financial Institutions, Inc. is a financial holding company headquartered in New York State that provides banking and nonbanking financial services to individuals and businesses primarily located in our Western and Central New York footprint. We have also expanded our indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern Pennsylvania. Through our wholly-owned banking subsidiary, Five Star Bank, we provide a wide range of services, including business and consumer loan and depository services, as well as other traditional banking services. Through our nonbanking subsidiary, Five Star Investment Services, Inc., we provide brokerage and investment advisory services to supplement our banking business. References in this report to “the Company”, “we”, “our” or “us” mean the consolidated reporting entity and references to “the Bank” mean Five Star Bank.

Our primary sources of revenue are net interest income (predominantly from interest earned on our loans and securities, net of interest paid on deposits and other funding sources), and noninterest income, particularly fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.

Our business strategy is to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking needs of the businesses, professionals and other residents of the local communities surrounding our banking centers. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from our larger competitors, allowing us to maintain long-standing and broad based banking relationships with our customers. Our core customers are primarily comprised of households, small- to medium-sized businesses, professionals and community organizations who prefer to build a banking relationship with a community bank that offers and combines high quality, competitively-priced banking products with personalized service. We believe that our level of personal service provides us with a competitive advantage over larger banks, which tend to consolidate decision-making authority outside local communities.

A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that we are well-positioned to be a strong competitor within our market area because of our focus on community banking needs and customer service, our comprehensive suite of deposit and loan products typically found at larger banks, our highly experienced management team and our strategically located banking centers. A central part of our strategy is generating core deposits to support growth of a diversified and high-quality loan portfolio.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

RECENT DEVELOPMENTS

New Capital Rules

On July 2, 2013, the Federal Reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to the Company and the Bank. The FDIC and the OCC have subsequently approved these rules. The final rules were adopted following the issuance of proposed rules by the Federal Reserve in June 2012, and implement the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The rules include new risk-based capital and leverage ratios, which would be phased in from 2015 to 2019, and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. The new minimum capital level requirements applicable to the Company and the Bank under the final rules would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The final rules also establish a “capital conservation buffer” above the new regulatory minimum capital requirements, which must consist entirely of common equity Tier 1 capital. The capital conservation buffer will be phased-in over four years beginning on January 1, 2016, as follows: the maximum buffer will be 0.625% of risk-weighted assets for 2016, 1.25% for 2017, 1.875% for 2018, and 2.5% for 2019 and thereafter. This will result in the following minimum ratios beginning in 2019: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. Under the final rules, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Basel III provided discretion for regulators to impose an additional buffer, the “countercyclical buffer,” of up to 2.5% of common equity Tier 1 capital to take into account the macro-financial environment and periods of excessive credit growth. However, the final rules permit the countercyclical buffer to be applied only to “advanced approach” banks ( i.e., banks with $250 billion or more in total assets or $10 billion or more in total foreign exposures), which currently excludes the Company and the Bank. The final rules also implement revisions and clarifications consistent with Basel III regarding the various components of Tier 1 capital, including common equity, unrealized gains and losses, as well as certain instruments that will no longer qualify as Tier 1 capital, some of which will be phased out over time. However, the final rules provide that small depository institution holding companies with less than $15 billion in total assets as of December 31, 2009 (which includes the Company) will be able to permanently include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

The final rules also contain revisions to the prompt corrective action framework, which is designed to place restrictions on insured depository institutions, including the Bank, if their capital levels begin to show signs of weakness. These revisions take effect January 1, 2015. Under the prompt corrective action requirements, which are designed to complement the capital conservation buffer, insured depository institutions will be required to meet the following increased capital level requirements in order to qualify as “well capitalized:” (i) a new common equity Tier 1 capital ratio of 6.5%; (ii) a Tier 1 capital ratio of 8% (increased from 6%); (iii) a total capital ratio of 10% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 5% (increased from 4%).

The final rules set forth certain changes for the calculation of risk-weighted assets, which we will be required to utilize beginning January 1, 2015. The “standardized approach” final rule utilizes an increased number of credit risk exposure categories and risk weights, and also addresses: (i) an alternative standard of creditworthiness consistent with Section 939A of the Dodd-Frank Act; (ii) revisions to recognition of credit risk mitigation; (iii) rules for risk weighting of equity exposures and past due loans; (iv) revised capital treatment for derivatives and repo-style transactions; and (v) disclosure requirements for top-tier banking organizations with $50 billion or more in total assets that are not subject to the “advance approach rules” that apply to banks with greater than $250 billion in consolidated assets. Based on our current capital composition and levels, we believe that we would be in compliance with the requirements as set forth in the final rules if they were presently in effect.

2013 Branch Consolidations

During the second quarter of 2013, the Company announced that it would be consolidating its Pavilion and North Java branches into nearby branches. The Company transferred customer accounts and employees effective October 31, 2013. These branch consolidations are one component of the Company’s long term strategic plan, which provides for the optimal combination of branches and online/mobile banking technologies, supported by highly experienced bankers, to offer customers convenience and high service levels while maintaining an efficient, competitive cost structure. Expenses related to the consolidation of these two branches are not expected to be material.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

2012 Branch Acquisitions

On January 19, 2012, the Bank entered into agreements with First Niagara Bank, National Association (“First Niagara”) to acquire four retail bank branches in Medina, Brockport, Batavia and Waterloo, New York (the “First Niagara Branches”) and four retail bank branches previously owned by HSBC Bank USA, National Association (“HSBC”) in Elmira, Elmira Heights, Horseheads and Albion, New York (the “HSBC Branches”). First Niagara assigned its rights to the HSBC branches in connection with its acquisition of HSBC’s Upstate New York banking franchise. Under the terms of the agreements, the Bank assumed substantially all related deposits and purchased the related branch premises and certain performing loans. The transaction to acquire the First Niagara Branches was completed on June 22, 2012 and the transaction to acquire the HSBC Branches was completed on August 17, 2012. The combined assets acquired and deposits assumed in the two transactions were recorded at their estimated fair values as follows (in thousands):

	FNFG Branches		HSBC Branches		Total
Cash	$	63,579	$	132,199	$	195,778
Loans		58,245		17,390		75,635
Bank premises and equipment		1,504		434		1,938
Goodwill		4,690		6,477		11,167
Core deposit intangible asset		1,421		621		2,042
Other assets		452		149		601
Total assets acquired	$	129,891	$	157,270	$	287,161
Deposits assumed	$	129,564	$	157,255	$	286,819
Other liabilities		327		15		342
Total liabilities assumed	$	129,891	$	157,270	$	287,161

The transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. The Company acquired the loan portfolios at a fair value discount, net of market premium, of $824 thousand. The discount represented expected credit losses, net of market interest rate adjustments. The discount on loans receivable is being amortized to interest income over the estimated remaining life of the acquired loans using the level yield method. The time deposit premium of $335 thousand is being accreted over the estimated remaining life of the related deposits as a reduction of interest expense. The core deposit intangible asset is being amortized on an accelerated basis over the estimated average life of the core deposits.

During the nine months ended September 30, 2013, the Company recorded a decrease to the estimated fair value of liabilities assumed and an increase to the related deferred income taxes based upon information obtained subsequent to the acquisition. In addition to changes in those assets and liabilities, the revisions resulted in a reduction in goodwill of approximately $432 thousand. The final purchase price allocation was completed during the three months ended September 30, 2013, and the Company has recorded final goodwill totaling approximately $11.2 million in connection with the acquisitions. All goodwill and core deposit intangible assets arising from this acquisition are expected to be deductible for tax purposes.

RESULTS OF OPERATIONS

Summary of Performance

Net income increased $1.9 million or 45% to $6.2 million for the third quarter of 2013 compared to $4.3 million for the third quarter of 2012. Net income available to common shareholders for the third quarter of 2013 was $5.8 million, or $0.42 per diluted share, compared with $3.9 million, or $0.28 per diluted share, for the third quarter of last year. Return on average equity was 9.93% and return on average assets was 0.88% for the third quarter of 2013 compared to 6.77% and 0.65% , respectively, for the third quarter of 2012.

Net income for the nine months ended September 30, 2013 totaled $19.2 million, an increase of $2.1 million or 12% from $17.1 million for the same period in 2012. For the first nine months of 2013, net income available to common shareholders was $18.1 million, or $1.31 per diluted share, compared with $16.0 million, or $1.16 per diluted share, for the first nine months of 2012. Return on average equity was 10.13% and return on average assets was 0.92% for the nine months ended September 30, 2013 compared to 9.32% and 0.92%, respectively, for the same period in 2012.

Net income for the three and nine months ended September 30, 2012 was reduced by expenses related to the branch acquisitions. Pre-tax acquisition expenses were approximately $1.9 million for the three months ended September 30, 2012 and $3.0 million for the nine months ended September 30, 2012, consisting mainly of professional fees, computer and data processing and supplies and postage expended to facilitate the purchase of the branches.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Net income for the three and nine months ended September 30, 2012 was further reduced by expenses incurred in connection with the retirement of our former President and Chief Executive Officer. Pre-tax retirement-related expenses were approximately $2.6 million for the three and nine months ended September 30, 2012, consisting of separation pay and a supplemental executive retirement plan (“SERP”) for our former President and Chief Executive Officer.

Net Interest Income and Net Interest Margin

Net interest income is the primary source of our revenue. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.

Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds (“net free funds”), principally noninterest-bearing demand deposits and stockholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt investment securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis.

The following table reconciles interest income per the consolidated statements of income to interest income adjusted to a fully taxable equivalent basis (dollars in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Interest income per consolidated statements of income	$	24,623	$	25,299	$	73,713	$	72,480
Adjustment to fully taxable equivalent basis		679		603		1,963		1,678
Interest income adjusted to a fully taxable equivalent basis		25,302		25,902		75,676		74,158
Interest expense per consolidated statements of income		1,820		2,200		5,499		7,052
Net interest income on a taxable equivalent basis	$	23,482	$	23,702	$	70,177	$	67,106

Leverage Strategy

During the first quarter of 2013, we utilized the proceeds of short-term FHLB advances to purchase high-quality investment securities as part of a leverage strategy of approximately $100 million. Our purchase of investment securities was comprised of mortgage-backed securities, U.S. Government agencies and sponsored enterprise bonds and tax-exempt municipal bonds. All of the securities purchased were of high credit quality with a low to moderate duration. This strategy allowed us to increase net interest income by taking advantage of the positive interest rate spread between the FHLB advances and the newly acquired investment securities. While the underlying leverage strategy contributed to a lower net interest margin, it successfully increased net interest income by approximately $280 thousand and $830 thousand for the third quarter and nine months ended September 30, 2013, respectively.

Analysis of Net Interest Income for the Three Months ended September 30, 2013 and September 30, 2012

Net interest income on a taxable equivalent basis for the three months ended September 30, 2013, was $23.5 million, a decrease of $220 thousand or 1% versus the comparable quarter last year. The decrease in taxable equivalent net interest income was primarily attributable to unfavorable rate variances (as the impact of changes in the interest rate environment and product pricing reduced taxable equivalent net interest income by $2.2 million), partly offset by favorable volume variances (as changes in the balances and mix of earning assets and interest-bearing liabilities added $2.0 million to taxable equivalent net interest income).

The net interest margin for the third quarter of 2013 was 3.62%, 34 basis points lower than 3.96% for the same period in 2012. This comparable period decrease was a function of a 32 basis point decrease in interest rate spread, combined with a 2 basis point lower contribution from net free funds (due principally to lower rates on interest-bearing liabilities reducing the value of noninterest-bearing deposits and other net free funds). The lower interest rate spread was a net result of a 42 basis point decrease in the yield on earning assets and a 10 basis point decrease in the cost of interest-bearing liabilities.

The Federal Reserve has left the targeted Federal funds rate unchanged at zero to 25 basis points since 2008. In April 2012, the Federal Reserve announced that interest rates will likely remain at exceptionally low levels through late 2014. The Federal Reserve Board continues to indicate there is the potential for these short-term rates to remain unchanged until certain inflation and unemployment rates are achieved.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The yield on earning assets was 3.90% for the third quarter of 2013, 42 basis points lower than the third quarter of 2012. Loan yields decreased 51 basis points to 4.59%, also impacted by the low interest rate environment. Commercial mortgage and consumer indirect loans in particular, down 51 and 76 basis points, respectively, experienced lower yields given the competitive pricing pressures in the low interest rate environment. The yield on investment securities dropped 18 basis points to 2.42%, also impacted by the low interest rate environment, prepayments of mortgage-related investment securities and the previously mentioned leverage strategy. Overall, earning asset rate changes reduced interest income by $2.5 million.

The cost of average interest-bearing liabilities of 0.36% in the third quarter of 2013 was 10 basis points lower than the third quarter of 2012, reflecting the low interest rate environment, mitigated by a focus on product pricing to retain balances. The cost of short-term funding decreased 5 basis points to 0.38% for the third quarter of 2013. The interest-bearing liability rate changes resulted in $281 thousand of lower interest expense.

Average interest-earning assets were $2.58 billion for third quarter 2013, an increase of $192.9 million or 8% from the comparable quarter last year, with average loans up $117.2 million and average securities up $75.8 million. The growth in average loans was comprised of $97.1 million and $40.5 million increases in consumer and commercial loans, respectively, partially offset by a $20.4 million decline in residential mortgages. The growth in average securities was primarily a result of the previously described leverage strategy.

Average interest-bearing liabilities of $2.00 billion in the third quarter of 2013 were $106.3 million or 6% higher than the third quarter of 2012. On average, interest-bearing deposits grew $56.8 million, while noninterest-bearing demand deposits (a principal component of net free funds) were up $80.2 million. The increase in average interest-bearing deposits was primarily attributable to a $53.2 million increase in public deposit balances due largely to the seasonality of municipal cash flows and successful business development efforts in our newly acquired branches. Average short-term borrowings increased $49.5 million between the third quarter periods of 2013 and 2012, primarily a result of the previously described leverage strategy.

Analysis of Net Interest Income for the Nine Months ended September 30, 2013 and September 30, 2012

Net interest income on a taxable equivalent basis for the first nine months of 2013 was $70.2 million, an increase of $3.1 million or 5% versus the same period last year. The increase in taxable equivalent net interest income was primarily attributable to a favorable volume variance (as changes in the balances and mix of earning assets and interest-bearing liabilities added $8.7 million to taxable equivalent net interest income), partially offset by an unfavorable rate variance (as the impact of changes in the interest rate environment and product pricing decreased taxable equivalent net interest income by $5.6 million).

The net interest margin for the first nine months of 2013 was 3.66%, 31 basis points lower than 3.97% for the same period last year. This comparable period decrease was a function of a 29 basis point decrease in interest rate spread, combined with a 2 basis point lower contribution from net free funds. The lower interest rate spread was a net result of a 44 basis point decrease in the yield on earning assets and a 15 basis point decrease in the cost of interest-bearing liabilities.

The yield on earning assets was 3.94% for the first nine months of 2013, 44 basis points lower than the same period last year, attributable to decreases in the yields on the investment security portfolio (down 30 basis points, to 2.40%) and loan portfolio (down 44 basis points to 4.69%).

The cost on interest-bearing liabilities of 0.37% for the first nine months of 2013 was 15 basis points lower than the same period in 2012. Rates on interest-bearing deposits were down 17 basis points to 0.36%. The cost of short-term borrowings decreased 5 basis points to 0.39%.

Average interest-earning assets were $2.56 billion for the first nine months of 2013, an increase of $303.7 million or 13% from the comparable period last year, with average loans up $170.0 million and average securities up $133.7 million. The growth in average loans was comprised of increases in all loan categories, with consumer loans up $127.5 million, commercial loans up $41.4 million and residential mortgage loans up $1.1 million.

Average interest-bearing liabilities of $2.01 billion in the first nine months of 2013 were $211.4 million or 12% higher than the first nine months of 2012. On average, interest-bearing deposits grew $166.5 million, while noninterest-bearing demand deposits were up $92.7 million and average short-term borrowings increased $44.9 million. The increase in average deposits was primarily attributable to retail deposits assumed in the branch acquisitions.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table sets forth certain information relating to the consolidated balance sheets and reflects the average yields earned on interest-earning assets, as well as the average rates paid on interest-bearing liabilities for the periods indicated (in thousands).

	Three months ended September 30,
	2013								2012
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	126		$	—		0.15	%	$	168		$	—		0.16	%
Investment securities (1):
Taxable		579,483			3,031		2.09			551,770			3,131		2.27
Tax-exempt (2)		242,078			1,939		3.20			194,026			1,723		3.55
Total investment securities		821,561			4,970		2.42			745,796			4,854		2.60
Loans:
Commercial business		256,256			2,823		4.37			248,060			2,884		4.62
Commercial mortgage		442,178			5,569		5.00			409,884			5,672		5.51
Residential mortgage		121,462			1,481		4.88			141,808			1,826		5.15
Home equity		309,970			3,115		3.99			271,131			2,919		4.28
Consumer indirect		605,286			6,679		4.38			544,527			7,034		5.14
Other consumer		23,641			665		11.16			26,179			713		10.84
Total loans		1,758,793			20,332		4.59			1,641,589			21,048		5.10
Total interest-earning assets		2,580,480			25,302		3.90			2,387,553			25,902		4.32
Allowance for loan losses		(26,020	)							(24,604	)
Other noninterest-earning assets		230,120								244,548
Total assets	$	2,784,580							$	2,607,497
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	466,889		$	211		0.18	%	$	425,739		$	152		0.14	%
Savings and money market		719,452			248		0.14			611,564			227		0.15
Time deposits		603,434			1,165		0.77			695,682			1,650		0.94
Total interest-bearing deposits		1,789,775			1,624		0.36			1,732,985			2,029		0.47
Short-term borrowings		207,491			196		0.38			157,973			171		0.43
Total interest-bearing liabilities		1,997,266			1,820		0.36			1,890,958			2,200		0.46
Noninterest-bearing demand deposits		527,438								447,204
Other noninterest-bearing liabilities		13,673								18,625
Shareholders’ equity		246,203								250,710
Total liabilities and shareholders’ equity	$	2,784,580							$	2,607,497
Net interest income (tax-equivalent)				$	23,482							$	23,702
Interest rate spread							3.54	%							3.86	%
Net earning assets	$	583,214							$	496,595
Net interest margin (tax-equivalent)							3.62	%							3.96	%
Ratio of average interest-earning assets to average interest-bearing liabilities							129.20	%							126.26	%

⁽¹⁾  Investment securities are shown at amortized cost and include non-performing securities.

⁽²⁾  The interest on tax-exempt securities is calculated on a tax equivalent basis assuming a Federal tax rate of 35%.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

	Nine months ended September 30,
	2013								2012
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	223		$	—		0.19	%	$	119		$	—		0.21	%
Investment securities (1):
Taxable		600,620			9,293		2.06			524,756			9,268		2.35
Tax-exempt (2)		228,587			5,608		3.27			170,798			4,794		3.74
Total investment securities		829,207			14,901		2.40			695,554			14,062		2.70
Loans:
Commercial business		257,172			8,548		4.44			239,319			8,343		4.66
Commercial mortgage		431,440			16,251		5.04			407,928			16,743		5.48
Residential mortgage		125,017			4,689		5.00			123,930			4,896		5.27
Home equity		299,474			9,208		4.11			249,044			7,961		4.27
Consumer indirect		596,260			20,049		4.50			519,175			20,216		5.20
Other consumer		24,412			2,030		11.12			24,391			1,937		10.61
Total loans		1,733,775			60,775		4.69			1,563,787			60,096		5.13
Total interest-earning assets		2,563,205			75,676		3.94			2,259,460			74,158		4.38
Allowance for loan losses		(25,700	)							(24,305	)
Other noninterest-earning assets		247,142								240,035
Total assets	$	2,784,647							$	2,475,190
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	483,428		$	525		0.15	%	$	409,331		$	443		0.14	%
Savings and money market		717,583			710		0.13			557,800			761		0.18
Time deposits		628,694			3,725		0.79			696,051			5,392		1.03
Total interest-bearing deposits		1,829,705			4,960		0.36			1,663,182			6,596		0.53
Short-term borrowings		184,236			539		0.39			139,330			456		0.44
Total interest-bearing liabilities		2,013,941			5,499		0.37			1,802,512			7,052		0.52
Noninterest-bearing demand deposits		503,734								411,036
Other noninterest-bearing liabilities		14,027								16,268
Shareholders’ equity		252,945								245,374
Total liabilities and shareholders’ equity	$	2,784,647							$	2,475,190
Net interest income (tax-equivalent)				$	70,177							$	67,106
Interest rate spread							3.57	%							3.86	%
Net earning assets	$	549,264							$	456,948
Net interest margin (tax-equivalent)							3.66	%							3.97	%
Ratio of average interest-earning assets to average interest-bearing liabilities							127.27	%							125.35	%

⁽¹⁾  Investment securities are shown at amortized cost and include non-performing securities.

⁽²⁾  The interest on tax-exempt securities is calculated on a tax equivalent basis assuming a Federal tax rate of 35%.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table presents, on a tax equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the periods indicated. The change in interest not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands):

	Three months ended September 30, 2013 vs. 2012									Nine months ended September 30, 2013 vs. 2012
	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in:
Interest income:
Federal funds sold and interest-earning deposits	$	—		$	—		$	—		$	—		$	—		$	—
Investment securities:
Taxable		152			(252	)		(100	)		1,251			(1,226	)		25
Tax-exempt		397			(181	)		216			1,473			(659	)		814
Total investment securities		549			(433	)		116			2,724			(1,885	)		839
Loans:
Commercial business		93			(154	)		(61	)		604			(399	)		205
Commercial mortgage		428			(531	)		(103	)		932			(1,424	)		(492	)
Residential mortgage		(252	)		(93	)		(345	)		43			(250	)		(207	)
Home equity		399			(203	)		196			1,561			(314	)		1,247
Consumer indirect		735			(1,090	)		(355	)		2,788			(2,955	)		(167	)
Other consumer		(71	)		23			(48	)		2			91			93
Total loans		1,332			(2,048	)		(716	)		5,930			(5,251	)		679
Total interest income		1,881			(2,481	)		(600	)		8,654			(7,136	)		1,518
Interest expense:
Deposits:
Interest-bearing demand		16			43			59			80			2			82
Savings and money market		38			(17	)		21			187			(238	)		(51	)
Time deposits		(202	)		(283	)		(485	)		(486	)		(1,181	)		(1,667	)
Total interest-bearing deposits		(148	)		(257	)		(405	)		(219	)		(1,417	)		(1,636	)
Short-term borrowings		49			(24	)		25			135			(52	)		83
Total interest expense		(99	)		(281	)		(380	)		(84	)		(1,469	)		(1,553	)
Net interest income	$	1,980		$	(2,200	)	$	(220	)	$	8,738		$	(5,667	)	$	3,071

Provision for Loan Losses

The provision for loan losses is based upon credit loss experience, growth or contraction of specific segments of the loan portfolio, and the estimate of losses inherent in the current loan portfolio. There were provisions for loan losses of $2.8 million and $6.7 million for the three and nine month periods ended September 30, 2013, compared with provisions of $1.8 million and $4.6 million for the corresponding periods in 2012, respectively. See the “Allowance for Loan Losses” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Income

The following table details the major categories of noninterest income for the periods presented (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013		2012
Service charges on deposits	$	2,728		$	2,292		$	7,437	$	6,101
ATM and debit card		1,283			1,219			3,849		3,368
Broker-dealer fees and commissions		568			609			1,917		1,630
Company owned life insurance		422			433			1,275		1,300
Net gain on disposal of investment securities		—			596			1,224		2,164
Loan servicing		227			142			452		645
Net (loss) gain on sale of loans held for sale		(101	)		323			134		981
Impairment charges on investment securities		—			—			—		(91	)
Net (loss) gain on disposal of other assets		—			(114	)		39		(79	)
Other		1,042			853			2,771		2,475
Total noninterest income	$	6,169		$	6,353		$	19,098	$	18,494

Service charges on deposit accounts increased $436 thousand or 19% in the third quarter of 2013 and $1.3 million or 22% for the nine months ended September 30, 2013, compared to the same periods a year earlier. ATM and debit card income increased $64 thousand or 5% in the third quarter of 2013 and $481 thousand or 14% for the nine months ended September 30, 2013, compared to the same periods a year earlier. These increases reflect volume related growth in fees resulting from the 2012 branch acquisitions coupled with the second quarter 2013 retail checking account repositioning that involved simplifying the suite of products offered to customers and modifications to the fee structure for our accounts. Our fee waiver process was also reevaluated, which resulted in a reduction in the number of fee waivers and an increase in service charges. The Company expects the income from service charges on deposits to gradually stabilize over the longer term as customers determine the optimal mix of our products and services to best suit their banking needs.

Management continues to focus on diversifying its sources of revenue to further reduce the Company’s reliance on traditional spread-based interest income, as fee-based activities are a relatively stable revenue source during periods of changing interest rates.

Broker-dealer fees and commissions were down $41 thousand or 7% and up $287 thousand or 18%, respectively, in the three and nine months ended September 30, 2013, compared to the same periods of 2012. Broker-dealer fees and commissions fluctuate mainly due to sales volume, which increased during the first nine months of 2013 as a result of favorable market conditions and new business opportunities.

There were no sales of investment securities during the three months ended September 30, 2013. We recognized pre-tax gains on investment securities of $1.2 million from the sale of pooled trust-preferred securities during the nine month period ended September 30, 2013. Each of the securities had been written down in prior periods and included in non-performing assets at the end of the quarter preceding its sale. We recognized pre-tax gains on investment securities of $596 thousand and $2.2 million, respectively, during the three and nine month periods ended September 30, 2012, from the sale of pooled trust-preferred securities. The amount and timing of our sale of investments securities is dependent on a number of factors, including our prudent efforts to realize gains while managing duration, premium and credit risk.

Loan servicing income represents fees earned primarily for servicing mortgage loans sold to third parties, net of amortization expense and impairment losses, if any, associated with capitalized loan servicing assets. Loan servicing income was up $85 thousand in the third quarter of 2013 and down $193 thousand for the nine months ended September 30, 2013, compared to the same periods a year ago. The year-to-date decrease was a result of more rapid amortization of servicing rights due to loans paying off, lower fees collected due to a decrease in the sold and serviced portfolio and adjustments to the valuation allowance for capitalized mortgage servicing assets.

Gains from the sale of loans held for sale decreased $424 thousand in the third quarter of 2013 and $847 thousand for the nine months ended September 30, 2013, compared to the same periods a year earlier. The decrease was primarily due to lower loan origination volume and margins resulting from higher interest rates.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Expense

The following table details the major categories of noninterest expense for the periods presented (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2013		2012		2013		2012
Salaries and employee benefits	$	9,473	$	12,438	$	28,408	$	30,565
Occupancy and equipment		2,959		2,915		9,163		8,400
Professional services		814		1,452		2,844		3,243
Computer and data processing		689		976		2,205		2,462
Supplies and postage		518		899		1,806		1,930
FDIC assessments		367		356		1,092		957
Advertising and promotions		209		261		676		499
Other		1,980		2,321		5,861		5,800
Total noninterest expense	$	17,009	$	21,618	$	52,055	$	53,856

During the three and nine month periods ended September 30, 2013, salaries and employee benefits decreased by $3.0 million or 24% and $2.2 million or 7%, respectively, when compared to the same periods one year earlier. Included in salaries and employee benefits for the three and nine month periods ended September 30, 2012 are pre-tax costs of approximately $2.6 million that were incurred in association with the retirement of our CEO. After adjusting for these expenses, the decrease in salaries and employee benefits for the three month period ended September 30, 2013 when compared to the same period in 2012 was primarily attributable to lower incentive compensation expense, while expenses for the nine month periods were comparable. The number of full time equivalent employees decreased to 619 at September 30, 2013 compared to 623 at September 30, 2012.

Occupancy and equipment expense increased by $44 thousand in the third quarter of 2013 and $763 thousand for the nine months ended September 30, 2013, when compared to the same periods one year earlier. The increases were primarily related to the growth in the branch network related to the 2012 branch acquisitions.

Professional fees, computer and data processing and supplies and postage, decreased collectively by $1.3 million in the third quarter of 2013 and $780 thousand for the nine months ended September 30, 2013, when compared to the same periods one year earlier, due to expenses related to the branch acquisition transactions.

FDIC assessments increased $11 thousand or 3% in the third quarter of 2013 and $135 thousand or 14% for the nine months ended September 30, 2013, compared to the same periods a year earlier. The increased assessments are a direct result of the growth in our balance sheet.

Advertising and promotions costs were down $52 thousand in the third quarter of 2013 and up $177 thousand for the nine months ended September 30, 2013, compared to the same periods a year earlier, due to the timing of marketing campaigns and promotions, and new product launches. We proactively market our products but vary the timing based on projected benefits and needs.

Other noninterest expense was $2.0 million and $5.9 million for the three and nine months ended September 30, 2013, respectively, compared to $2.3 million and $5.8 million for the same periods in 2012, respectively. The three and nine month periods ended September 30, 2013, included $95 thousand and $294 thousand, respectively, of core deposit intangible amortization expense related to the 2012 branch acquisitions. There was $86 thousand of amortization expense during the three and nine months ended September 30, 2012. Other noninterest expense for the 2012 periods also included expenses related to the aforementioned branch acquisitions.

The efficiency ratio for the third quarter of 2013 was 56.95% compared with 73.04% for the third quarter of 2012, and 58.72% for the nine months ended September 30, 2013, compared to 64.29% for the same period a year ago. The 2012 efficiency ratios were elevated as a result of the aforementioned branch acquisition and CEO retirement expenses. The efficiency ratio is calculated by dividing total noninterest expense, excluding other real estate expense and amortization of intangible assets, by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Income Taxes

We recorded income tax expense of $3.0 million in the third quarter of 2013, compared to of $1.8 million in the third quarter of 2012. For the nine month period ended September 30, 2013, income tax expense totaled $9.4 million compared to $8.3 million in the same period of 2012. These changes were due in part to a $3.1 million increase in pre-tax income for both the three and nine month periods of 2013, compared to the same periods in the prior year. Our effective tax rate was 33.0% for the three and nine months ended September 30, 2013, compared to 29.7% and 32.8% for the three and nine months ended September 30, 2012, respectively. The lower effective tax rates in 2012 were a result of the greater impact of tax-exempt income on lower taxable income. Effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities and earnings on company owned life insurance.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION

INVESTING ACTIVITIES

Investment Securities

The following table sets forth selected information regarding the composition of our investment securities portfolio as of the dates indicated (in thousands):

	Investment Securities Portfolio Composition
	September 30, 2013				December 31, 2012
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
U.S. Government agencies and government-sponsored enterprise securities	$	112,697	$	112,298	$	128,097	$	131,695
State and political subdivisions		—		—		188,997		195,210
Mortgage-backed securities:
Agency mortgage-backed securities		472,747		469,488		479,913		494,770
Non-Agency mortgage-backed securities		—		1,341		73		1,098
Asset-backed securities (1)		18		424		121		1,023
Total available for sale securities		585,462		583,551		797,201		823,796
Securities held to maturity:
State and political subdivisions		245,708		246,117		17,905		18,478
Total investment securities	$	831,170	$	829,668	$	815,106	$	842,274

⁽¹⁾  Includes non-performing investment securities. See “Non-Performing Assets and Potential Problem Loans” under the section titled “Lending Activities” included herein for additional information.

The available for sale (“AFS”) investment securities portfolio decreased $240.2 million or 29%, from $823.8 million at December 31, 2012 to $583.6 million at September 30, 2013. The decrease was largely attributable to the transfer of available for sale state and municipal debt securities to the held to maturity category during the third quarter of 2013, combined with scheduled principal paydowns on amortizing securities and a change in the net unrealized gain/loss on the AFS portfolio.

During the third quarter of 2013, the Company transferred $227.3 million of available for sale state and municipal debt securities to the held to maturity category, reflecting the Company’s intent to hold those securities to maturity. Transfers of investment securities into the held to maturity category from the available for sale category are made at fair value at the date of transfer. The related $78 thousand of unrealized holding gains that were included in the transfer are retained in accumulated other comprehensive income and in the carrying value of the held to maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

The AFS portfolio had net unrealized losses totaling $1.9 million at September 30, 2013 compared to net unrealized gains of $26.6 million at December 31, 2012. The unrealized loss on the AFS portfolio was predominantly caused by changes in market interest rates. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. The transfer of securities from available for sale to held to maturity is expected to reduce the fair value fluctuations in the available for sale portfolio.

As previously discussed, we utilized the proceeds from short-term FHLB advances to purchase high-quality investment securities as part of a leverage strategy of approximately $100 million. Our purchase of investment securities was comprised of mortgage-backed securities, U.S. Government agencies and sponsored enterprise bonds and tax-exempt municipal bonds. This strategy allowed us to increase net interest income by taking advantage of the positive interest rate spread between the FHLB advances and the newly acquired investment securities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Impairment Assessment

We review investment securities on an ongoing basis for the presence of OTTI with formal reviews performed quarterly. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses or the security is intended to be sold or will be required to be sold. The amount of the impairment related to non-credit related factors is recognized in other comprehensive income. Evaluating whether the impairment of a debt security is other than temporary involves assessing the intent to sell the debt security or the likelihood of being required to sell the security before the recovery of its amortized cost basis. In determining whether the other-than-temporary impairment includes a credit loss, we use our best estimate of the present value of cash flows expected to be collected from the debt security considering factors such as: the length of time and the extent to which the fair value has been less than the amortized cost basis, adverse conditions specifically related to the security, an industry, or a geographic area, the historical and implied volatility of the fair value of the security, the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future, failure of the issuer of the security to make scheduled interest or principal payments, any changes to the rating of the security by a rating agency, and recoveries or additional declines in fair value subsequent to the balance sheet date. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

Securities Deemed to be Other-Than-Temporarily Impaired

There were no securities deemed to be other-than-temporarily impaired during the nine months ended September 30, 2013. During the nine months ended September 30, 2012, we recognized an OTTI charge of $91 thousand on a privately issued whole loan CMO that we determined was other-than-temporarily impaired due to credit quality.

LENDING ACTIVITIES

The following table sets forth selected information regarding the composition of the Company’s loan portfolio as of the dates indicated (in thousands).

	Loan Portfolio Composition
	September 30, 2013					December 31, 2012
	Amount		% of Total			Amount		% of Total
Commercial business	$	253,925		14.3	%	$	258,675		15.2	%
Commercial mortgage		449,565		25.3			413,324		24.2
Total commercial		703,490		39.6			671,999		39.4
Residential mortgage		117,624		6.6			133,520		7.8
Home equity		316,626		17.8			286,649		16.8
Consumer indirect		618,088		34.7			586,794		34.4
Other consumer		23,844		1.3			26,764		1.6
Total consumer		958,558		53.8			900,207		52.8
Total loans		1,779,672		100.0	%		1,705,726		100.0	%
Allowance for loan losses		26,685					24,714
Total loans, net	$	1,752,987				$	1,681,012

Total loans increased $73.9 million to $1.78 billion at September 30, 2013 from $1.71 billion as of December 31, 2012. The increase in loans was attributable to organic growth, primarily in the commercial and consumer loan portfolios, partially offset by a decline in residential mortgages.

Commercial loans increased $31.5 million and represented 39.6% of total loans as of September 30, 2013, a result of our continued commercial business development efforts.

Residential mortgage loans decreased $15.9 million to $117.6 million as of September 30, 2013 in comparison to $133.5 million as of December 31, 2012. This category of loans decreased as the majority of newly originated and refinanced residential mortgages were sold to the secondary market rather than being added to our portfolio, coupled with our focus in home equity lending.

Our home equity portfolio, which consists of home equity loans and lines, totaled $316.6 million as of September 30, 2013, up $30.0 million or 10% compared to December 31, 2012. We continue to grow our home equity portfolio as the lower origination cost and convenience to customers has made these products an increasingly attractive alternative to conventional residential mortgage loans. As of September 30, 2013, approximately 74% of the loans in the home equity portfolio were first lien positions.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The consumer indirect portfolio increased $31.3 million to $618.1 million as of September 30, 2013, from $586.8 million as of December 31, 2012. During the first nine months of 2013 we originated $224.9 million in indirect auto loans with a mix of approximately 48% new auto and 52% used auto. During the first nine months of 2012, we originated $242.2 million in indirect auto loans with an equal mix of new auto and used auto.

Loans Held for Sale and Loan Servicing Rights

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate mortgages and totaled $2.8 million and $1.5 million at September 30, 2013 and December 31, 2012, respectively.

We sell certain qualifying newly originated or refinanced residential real estate mortgages on the secondary market. Residential real estate mortgages serviced for others, which are not included in the consolidated statements of financial condition, amounted to $245.3 million as of September 30, 2013 and $273.3 million as of December 31, 2012.

Allowance for Loan Losses

The following table sets forth an analysis of the activity in the allowance for loan losses for the periods indicated (in thousands).

	Loan Loss Analysis
	Three months ended September 30,						Nine months ended September 30,
	2013			2012			2013			2012
Balance as of beginning of period	$	25,590		$	24,120		$	24,714		$	23,260
Charge-offs:
Commercial business		163			337			694			536
Commercial mortgage		35			27			144			374
Residential mortgage		34			47			281			280
Home equity		30			80			352			177
Consumer indirect		2,131			1,846			5,778			4,648
Other consumer		253			201			734			605
Total charge-offs		2,646			2,538			7,983			6,620
Recoveries:
Commercial business		59			50			301			282
Commercial mortgage		122			91			279			167
Residential mortgage		12			8			42			106
Home equity		16			15			126			35
Consumer indirect		666			722			2,230			2,195
Other consumer		96			69			304			268
Total recoveries		971			955			3,282			3,053
Net charge-offs		1,675			1,583			4,701			3,567
Provision for loan losses		2,770			1,764			6,672			4,608
Balance at end of period	$	26,685		$	24,301		$	26,685		$	24,301
Net loan charge-offs to average loans (annualized)		0.38	%		0.38	%		0.36	%		0.30	%
Allowance for loan losses to total loans		1.50	%		1.46	%		1.50	%		1.46	%
Allowance for loan losses to non-performing loans		258	%		233	%		258	%		233	%

The allowance for loan losses represents the estimated amount of probable credit losses inherent in our loan portfolio. We perform periodic, systematic reviews of the loan portfolio to estimate probable losses in the respective loan portfolios. In addition, we regularly evaluate prevailing economic and business conditions, industry concentrations, changes in the size and characteristics of the portfolio and other pertinent factors. The process we use to determine the overall allowance for loan losses is based on this analysis. Based on this analysis, we believe the allowance for loan losses is adequate as of September 30, 2013.

Assessing the adequacy of the allowance for loan losses involves substantial uncertainties and is based upon management’s evaluation of the amounts required to meet estimated charge-offs in the loan portfolio after weighing a variety of factors, including the risk-profile of our loan products and customers.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The adequacy of the allowance for loan losses is subject to ongoing management review. While management evaluates currently available information in establishing the allowance for loan losses, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review a financial institution’s allowance for loan losses. Such agencies may require the financial institution to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Net charge-offs of $1.7 million in the third quarter of 2013 represented 0.38% of average loans on an annualized basis compared to $1.6 million or 0.38% in the third quarter of 2012. For the nine months ended September 30, 2013 net charge-offs of $4.7 million represented 0.36% of average loans compared to $3.6 million or 0.30% of average loans for same period in 2012. See the “Non-Performing Assets and Potential Problem Loans” section for further discussion.

The allowance for loan losses was $26.7 million at September 30, 2013, compared with $24.7 million at December 31, 2012. The ratio of the allowance for loan losses to total loans was 1.50% at September 30, 2013, compared with 1.45% at December 31, 2012. The ratio of allowance for loan losses to non-performing loans was 258% at September 30, 2013, compared with 271% at December 31, 2012.

Non-Performing Assets and Potential Problem Loans

The table below sets forth the amounts and categories of the Company’s non-performing assets at the dates indicated (in thousands).

	Non-Performing Assets
	September 30, 2013			December 31, 2012
Nonaccrual loans:
Commercial business	$	4,078		$	3,413
Commercial mortgage		2,835			1,799
Residential mortgage		1,337			2,040
Home equity		911			939
Consumer indirect		1,161			891
Other consumer		7			25
Total nonaccrual loans		10,329			9,107
Accruing loans 90 days or more delinquent		9			18
Total non-performing loans		10,338			9,125
Foreclosed assets		424			184
Non-performing investment securities		128			753
Total non-performing assets	$	10,890		$	10,062
Non-performing loans to total loans		0.58	%		0.53	%
Non-performing assets to total assets		0.38	%		0.36	%

Changes in the level of nonaccrual loans typically represent increases for loans that reach a specified past due status, offset by reductions for loans that are charged-off, paid down, sold, transferred to foreclosed real estate, or are no longer classified as nonaccrual because they have returned to accrual status. Activity in nonaccrual loans for the three and nine month periods ended September 30, 2013 was as follows (in thousands):

	Three months			Nine months
	ended			ended
	September 30, 2013			September 30, 2013
Nonaccrual loans, beginning of period	$	11,279		$	9,107
Additions		4,534			16,599
Payments		(2,527	)		(6,113	)
Charge-offs		(2,459	)		(7,487	)
Returned to accruing status		(469	)		(1,122	)
Transferred to other real estate or repossessed assets		(29	)		(655	)
Nonaccrual loans, end of period	$	10,329		$	10,329

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-performing assets include non-performing loans, foreclosed assets and non-performing investment securities. Non-performing assets at September 30, 2013 were $10.9 million, an increase of $828 thousand from $10.1 million at December 31, 2012. The primary component of non-performing assets is non-performing loans, which were $10.3 million or 0.58% of total loans at September 30, 2013, an increase of $1.2 million from $9.1 million or 0.53% of total loans at December 31, 2012. The Company’s ratio of non-performing loans to total loans continues to compare favorably to its peer group average, which was 1.85% of total loans at June 30, 2013, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of June 30, 2013 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

The increase in non-performing loans during the first nine months of 2013 was due to the addition of one credit relationship consisting of commercial business and commercial mortgage loans with unpaid principal balances totaling $2.4 million at September 30, 2013.

Approximately $6.2 million, or 60%, of the $10.3 million in non-performing loans as of September 30, 2013 were current with respect to payment of principal and interest, but were classified as non-accruing because repayment in full of principal and/or interest was uncertain. Included in nonaccrual loans are troubled debt restructurings (“TDRs”) of $1.9 million and $636 thousand at September 30, 2013 and December 31, 2012, respectively. We had no TDRs that were accruing interest as of September 30, 2013 or December 31, 2012.

Foreclosed assets consist of real property formerly pledged as collateral to loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed asset holdings represented 5 properties totaling $424 thousand at September 30, 2013 and 5 properties totaling $184 thousand at December 31, 2012.

Non-performing investment securities for which we have stopped accruing interest were $128 thousand at September 30, 2013, compared to $753 thousand at December 31, 2012. Non-performing investment securities are included in non-performing assets at fair value and are comprised of one pooled trust preferred security at September 30, 2013. There have been no securities transferred to non-performing status since the first quarter of 2009. During the first nine months of 2013, we recognized gains totaling $1.2 million from the sale of four pooled trust-preferred securities. The four securities had a fair value of $550 thousand at December 31, 2012.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes management to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. Management considers loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified $19.3 million and $13.8 million in loans that continued to accrue interest which were classified as substandard as of September 30, 2013 and December 31, 2012, respectively. Included in potential problem loans at September 30, 2013 is one credit relationship consisting of a single commercial mortgage loan with an unpaid principal balance totaling $8.4 million which was downgraded to substandard status from special mention during the third quarter of 2013. The downgrade necessitated a provision and increase in our allowance for losses of approximately $960 thousand. As of October 31, 2013, the loan became 60 days past due and we continue to monitor the credit closely and evaluate our options relative to the credit.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FUNDING ACTIVITIES

Deposits

The following table summarizes the composition of our deposits at the dates indicated (dollars in thousands):

	Deposit Composition
	September 30, 2013					December 31, 2012
	Amount		% of Total			Amount		% of Total
Noninterest-bearing demand	$	542,517		22.5	%	$	501,514		22.2	%
Interest-bearing demand		519,283		21.5			449,744		19.9
Savings and money market		757,454		31.4			655,598		28.9
Time deposits < $100,000		377,416		15.6			432,506		19.2
Time deposits of $100,000 or more		217,515		9.0			222,432		9.8
Total deposits	$	2,414,185		100.0	%	$	2,261,794		100.0	%

We offer a variety of deposit products designed to attract and retain customers, with the primary focus on building and expanding long-term relationships. At September 30, 2013, total deposits were $2.41 billion, an increase of $152.4 million in comparison to $2.26 billion as of December 31, 2012. Public deposit balances increased $139.2 million during the first nine months of 2013 due largely to the seasonality of municipal cash flows and successful business development efforts in our newly acquired branches. Time deposits were approximately 25% and 29% of total deposits at September 30, 2013 and December 31, 2012, respectively. Depositors remain hesitant to invest in time deposits, such as certificates of deposit, for long periods due to the low interest rate environment. This has resulted in lower amounts being placed in time deposits for generally shorter terms.

Nonpublic deposits, the largest component of our funding sources, totaled $1.82 billion and $1.81 billion at September 30, 2013 and December 31, 2012, respectively, and represented 75% and 80% of total deposits as of the end of each period, respectively. We have managed this segment of funding through a strategy of competitive pricing that minimizes the number of customer relationships that have only a single service high cost deposit account.

As an additional source of funding, we offer a variety of public (municipal) deposit products to the many towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 27% of our total deposits. There is a high degree of seasonality in this component of funding, because the level of deposits varies with the seasonal cash flows for these public customers. We maintain the necessary levels of short-term liquid assets to accommodate the seasonality associated with public deposits. Total public deposits were $593.4 million and $454.2 million at September 30, 2013 and December 31, 2012, respectively, and represented 25% and 20% of total deposits as of the end of each period, respectively.

We had no traditional brokered deposits at September 30, 2013 or December 31, 2012, however, we do participate in the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. CDARS and ICS deposits are considered brokered deposits for regulatory reporting purposes. Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal CDARS deposits totaled $52.6 million and $61.0 million at September 30, 2013 and December 31, 2012, respectively. ICS deposits totaled $61.3 million and $18.1 million at September 30, 2013 and December 31, 2012, respectively.

Borrowings

The following table summarizes our borrowings as of the dates indicated (in thousands):

	September 30,		December 31,
	2013		2012
Short-term borrowings:
Customer repurchase agreements	$	46,646	$	40,806
Short-term FHLB borrowings		141,500		139,000
Total short-term borrowings	$	188,146	$	179,806

We classify borrowings as short-term or long-term in accordance with the original terms of the agreement. There were no long-term borrowings outstanding as of September 30, 2013 or December 31, 2012.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $52 million of immediate credit capacity with FHLB as of September 30, 2013. We had approximately $463 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) Discount Window, none of which was outstanding at September 30, 2013. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had approximately $120 million of credit available under unsecured federal funds purchased lines with various banks at September 30, 2013. Additionally, we had approximately $101 million of unencumbered liquid securities available for pledging.

Federal funds purchased are overnight borrowings with correspondent banks. Short-term repurchase agreements are secured overnight borrowings with customers. Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings, which we typically utilize to address short term funding needs as they arise. Short-term FHLB borrowings at September 30, 2013 consisted of $41.5 million in overnight borrowings and $100.0 million in short-term advances. Short-term FHLB borrowings at December 31, 2012 consisted of $99.0 million in overnight borrowings and $40.0 million in short-term advances.

As previously discussed, during the first quarter of 2013 we leveraged our balance sheet through the execution of short-term FHLB advances in order to acquire investment securities to take advantage of the positive interest rate spread and increase net interest income.

Shareholders’ Equity

Shareholders’ equity was $247.8 million at September 30, 2013, a decrease of $6.1 million from $253.9 million at December 31, 2012. Net income for the first nine months of 2013 increased shareholders’ equity by $19.2 million, which was partially offset by common and preferred stock dividends declared of $8.7 million. Accumulated other comprehensive income included in shareholders’ equity decreased $16.6 million due primarily to net unrealized losses on securities available for sale that arose during the first nine months of 2013. As previously discussed, approximately $227.3 million in available for sale securities were transferred at fair value to held to maturity during the third quarter 2013 as a means of mitigating the fair value fluctuations in the available for sale portfolio and reducing the volatility of shareholder’s equity.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The objective of maintaining adequate liquidity is to assure our ability to meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the servicing and repayment of debt and preferred equity obligations, the ability to fund new and existing loan commitments, to take advantage of new business opportunities and to satisfy other operating requirements. We achieve liquidity by maintaining a strong base of core customer funds, maturing short-term assets, the ability to sell or pledge securities, lines of credit, and access to the financial and capital markets.

Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits and wholesale funds, as well as the results of its operations and capital expenditures. The strength of the Bank’s liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources that include credit lines with the other banking institutions, the FHLB and the FRB.

The primary sources of liquidity for the parent company are dividends from the Bank and access to financial and capital markets. Dividends from the Bank are limited by various regulatory requirements related to capital adequacy and earnings trends. The Bank relies on cash flows from operations, core deposits, borrowings and short-term liquid assets. As a secondary source of liquidity, the Company also has the ability to draw up to $20.0 million on a revolving credit line with a correspondent bank.

The Company’s cash and cash equivalents were $99.4 million as of September 30, 2013, up $39.0 million from $60.4 million as of December 31, 2012. Net cash provided by operating activities totaled $34.8 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled $148.0 million, which included cash outflows of $76.0 million for net loan originations and $69.5 million from investment securities transactions. Net cash provided by financing activities of $152.1 million was attributed to increases of $152.4 million and $8.3 million in deposits and short-term borrowings, respectively, partly offset by $8.2 million in dividend payments.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Resources

Banks and financial holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on our consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets (all as defined in the regulations). These minimum amounts and ratios are included in the table below.

The Company’s and the Bank’s Tier 1 capital consists of shareholders’ equity excluding unrealized gains and losses on securities available for sale (except for unrealized losses which have been determined to be other than temporary and recognized as expense in the consolidated statements of income), goodwill and other intangible assets and disallowed portions of deferred tax assets. Tier 1 capital for the Company includes, subject to limitation, $17.3 million and $17.5 million of preferred stock at September 30, 2013 and December 31, 2012, respectively. The Company and the Bank’s total capital are comprised of Tier 1 capital for each entity plus a permissible portion of the allowance for loan losses.

The Tier 1 and total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, excluding goodwill and other intangible assets and disallowed portions of deferred tax assets, allocated by risk weight category and certain off-balance-sheet items (primarily loan commitments and standby letters of credit). The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets and disallowed portions of deferred tax assets.

The following table reflects the ratios and their components (dollars in thousands):

	September 30,			December 31,
	2013			2012
Total shareholders’ equity	$	247,845		$	253,897
Less: Unrealized (loss) gain on securities available for sale, net of tax		(1,154	)		16,060
Net unrecognized gain on available for sale securities transferred to held to maturity, net of tax		47			—
Unrecognized net periodic pension & postretirement benefits (costs), net of tax		(12,211	)		(12,807	)
Disallowed goodwill and other intangible assets		50,095			50,389
Tier 1 capital	$	211,068		$	200,255
Adjusted average total assets (for leverage capital purposes)	$	2,749,797		$	2,596,122
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets)		7.68	%		7.71	%
Total Tier 1 capital	$	211,068		$	200,255
Plus: Qualifying allowance for loan losses		24,152			23,355
Total risk-based capital	$	235,220		$	223,610
Net risk-weighted assets	$	1,929,604		$	1,867,032
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets)		10.94	%		10.73	%
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets)		12.19	%		11.98	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company’s and the Bank’s actual and required regulatory capital ratios were as follows (dollars in thousands):

		Actual					For Capital Adequacy Purposes					Well Capitalized
		Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2013
Tier 1 leverage:	Company	$	211,068		7.68	%	$	109,992		4.00	%	$	137,490		5.00	%
	Bank		201,551		7.34			109,821		4.00			137,276		5.00
Tier 1 capital:	Company		211,068		10.94			77,184		4.00			115,776		6.00
	Bank		201,551		10.46			77,041		4.00			115,562		6.00
Total risk-based capital:	Company		235,220		12.19			154,368		8.00			192,960		10.00
	Bank		225,659		11.72			154,083		8.00			192,604		10.00
December 31, 2012
Tier 1 leverage:	Company	$	200,255		7.71	%	$	103,845		4.00	%	$	129,806		5.00	%
	Bank		192,136		7.41			103,681		4.00			129,601		5.00
Tier 1 capital:	Company		200,255		10.73			74,681		4.00			112,022		6.00
	Bank		192,136		10.31			74,526		4.00			111,789		6.00
Total risk-based capital:	Company		223,610		11.98			149,363		8.00			186,703		10.00
	Bank		215,443		11.56			149,052		8.00			186,315		10.00

The leverage ratio decreased as of September 30, 2013 when compared to December 31, 2012 primarily as a result an increase in average assets. See the “Recent Developments—New Capital Rules” section of this Management’s Discussion and Analysis for a description of the new capital ratios that will be phased-in beginning in 2015.

Dividend Restrictions

In the ordinary course of business the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk were presented at December 31, 2012 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on March 18, 2013. The following is an update of the discussion provided therein.

Portfolio Composition

There was no material change in the composition of assets, deposit liabilities or borrowings from December 31, 2012 to September 30, 2013. See the section titled “Analysis of Financial Condition” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of asset, deposit and borrowing activity during the period.

Net Interest Income at Risk

A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on net interest income as well as economic value of equity. At September 30, 2013, the Company was generally asset sensitive, meaning that, in most cases, net interest income tends to rise as interest rates rise and decline as interest rates fall.

Net interest income at risk is measured by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of different magnitudes over a period of 12 months. The following table sets forth the estimated changes to net interest income over the 12-month period ending September 30, 2014 assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	Changes in Interest Rate
	-100 bp			+100 bp			+200 bp			+300 bp
Change in net interest income	$	(1,577	)	$	2,421		$	4,011		$	4,151
% Change		(1.72	)%		2.64	%		4.37	%		4.53	%

In addition to the changes in interest rate scenarios listed above, other scenarios are typically modeled to measure interest rate risk. These scenarios vary depending on the economic and interest rate environment.

The simulations referenced above are based on management’s assumption as to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of the yield curve. It also includes certain assumptions about the future pricing of loans and deposits in response to changes in interest rates. Further, it assumes that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. While this simulation is a useful measure as to net interest income at risk due to a change in interest rates, it is not a forecast of the future results and is based on many assumptions that, if changed, could cause a different outcome.

Economic Value of Equity At Risk

The economic (or “fair”) value of financial instruments on our balance sheet will also vary under the interest rate scenarios previously discussed. This is measured by simulating changes in our economic value of equity (“EVE”), which is calculated by subtracting the estimated fair value of liabilities from the estimated fair value of assets. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at current replacement rates for each account type, while fair values of non-financial assets and liabilities are assumed to equal book value and do not vary with interest rate fluctuations. An economic value simulation is a static measure for balance sheet accounts at a given point in time, but this measurement can change substantially over time as the characteristics of our balance sheet evolve and as interest rate and yield curve assumptions are updated.

The amount of change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including the stated interest rate or spread relative to current market rates or spreads, the likelihood of prepayment, whether the rate is fixed or floating, and the maturity date of the instrument. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical data (back-testing).

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The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at September 30, 2013 and December 31, 2012. The analysis additionally presents a measurement of the interest rate sensitivity at September 30, 2013 and December 31, 2012. EVE amounts are computed under each respective Pre- Shock Scenario and Rate Shock Scenario. An increase in the EVE amount is considered favorable, while a decline is considered unfavorable.

	September 30, 2013								December 31, 2012
	EVE		Change			Percentage Change			EVE		Change		Percentage Change
Rate Shock Scenario
Pre-Shock Scenario		459,774								392,732
+ 200 Basis Points	$	439,636	$	(20,137	)		(4.38	)%	$	392,904	$	172		0.04	%

The Pre-Shock Scenario EVE was $459.8 million at September 30, 2013, compared to $392.7 million at December 31, 2012. The increase in the Pre-Shock Scenario EVE at September 30, 2013, compared to December 31, 2012 resulted primarily from a more favorable valuation of non-maturity deposits that reflected alternative funding rate changes used for discounting future cash flows.

The +200 basis point Rate Shock Scenario EVE increased from $392.9 million at December 31, 2012 to $439.6 million at September 30, 2013, reflecting the more favorable valuation of non-maturity deposits. The percentage change in the EVE amount from the Pre-Shock Scenario to the +200 basis point Rate Shock Scenario decreased from 0.04% at December 31, 2012 to (4.38)% at September 30, 2013. The increase in sensitivity resulted from a reduced benefit in the valuation of non-maturity deposits and greater sensitivity for investment securities in the +200 basis point Rate Shock Scenario EVE as of September 30, 2013, compared to December 31, 2012.

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures

As of September 30, 2013, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company has experienced no material developments in its legal proceedings from the disclosure included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, dated March 18, 2013, as filed with the Securities and Exchange Commission.

ITEM 1A. Risk Factors

The Company has experienced no material changes in its risk factors from the disclosure included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, dated March 18, 2013, as filed with the Securities and Exchange Commission.

ITEM 6. Exhibits

(a) The following is a list of all exhibits filed or incorporated by reference as part of this Report:

Exhibit Number	Description	Location
10.1	Separation and release agreement between Financial Institutions, Inc. and Karl F. Krebs		Filed Herewith
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Principal Executive Officer		Filed Herewith
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Principal Financial Officer		Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed Herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FINANCIAL INSTITUTIONS, INC.
/s/ Martin K. Birmingham	, November 5, 2013
Martin K. Birmingham
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kevin B. Klotzbach	, November 5, 2013
Kevin B. Klotzbach
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Michael D. Grover	, November 5, 2013
Michael D. Grover
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT AND RELEASE OF ALL CLAIMS

This Separation Agreement and Release of all Claims ( “Agreement”) is entered into by and between Financial Institutions, Inc., a bank holding company chartered under the laws of the State of New York, having its principal office at 220 Liberty St., Warsaw, New York 14569, and its subsidiaries and affiliates (collectively referred to as the “Company”); and Karl F. Krebs (the “Executive” or “you”), an individual residing at 9130 Beech Meadows Court, Clarence Center, New York 14032.

1. Resignation. You agree that your resignation from the Company was effective at the close of business on April 15, 2013 (the “Separation Date”), and that you resigned your employment in all capacities with the Company.

2. Final Compensation and Benefits. You acknowledge and agree that you have received your regular wages and employment-related benefits through the Separation Date, all of which were paid in accordance with the Company’s regular payroll schedule and benefit policies and practices. You acknowledge and agree that your payment for employment-related benefits through the Separation Date included payment for all of your accrued and unused vacation time. You acknowledge and agree that you have also received reimbursement of any appropriately documented expenses that were incurred but unpaid up through the Separation Date that were a result of conducting business activities on behalf of the Company. You received and may retain such wages and employment-related benefits described in this Paragraph 2 even if you decide not to sign this Agreement. You acknowledge and agree that the payments you received that are described in this Paragraph 2 are all wages and employment-related benefits due to you based on your employment with the Company.

3. Termination of Compensation and Benefits.

a) You acknowledge and agree that all of your compensation and employment-related benefits ended on the Separation Date or the last day of the month in which your employment ended, depending upon the benefit. You have or will receive additional information regarding the date on which each benefit ended as well as your rights to insurance continuation (at your expense) and your retirement benefits. To the extent that you have such rights, nothing in this Agreement will impair them.

b) You will forfeit all rights under the Financial Institutions, Inc. Annual Incentive Plan as of the Separation Date. All of your equity compensation awards granted to you by the Company or any of its affiliates that remain outstanding and unvested as of the Separation Date shall be terminated effective as of the Separation Date and be forfeited without consideration.

4. Company Property.

a) To the extent you have not already done so, by no later than September 13, 2013, you shall return to the Company all documents (and all copies thereof) and other property belonging to the Company that you have in your possession or control, with the exception of any property that the Company authorizes you in writing to retain. The documents and property to be returned by you include, but are not limited to, all files, correspondence, e-mail, memoranda, notes, notebooks, drawings, records, plans, forecasts, reports, studies, analyses, compilations of data, proposals, agreements, financial information, research and development information, customer information, marketing information, operational and personnel information, specifications, code, software, databases, computer-recorded information, tangible property and equipment (including, but not limited to, facsimile machines, mobile telephones and servers), credit cards, entry cards, identification badges and keys; and any materials of any kind which contain or embody any proprietary or confidential information of the Company (and all reproductions thereof in whole or in part). You agree to make a diligent search to locate any such documents, property and information. To the extent such Company documents and property now contain notations that you claim are attorney-client privileged, you may redact such attorney-client privileged information prior to returning the Company documents and property.

b) If you have used any computer, server, or e-mail system owned by you or a member of your immediately family to receive, store, review, prepare or transmit any Company confidential or proprietary data, materials or information, then on or before September 13, 2013, you shall provide the Company with a computer-useable copy of all such information and then permanently delete and expunge such confidential or proprietary information from those systems. To the extent such electronic information now contains (as an attachment or otherwise) notations that you claim are attorney-client privileged, you may redact such attorney-client privileged information prior to providing it to the Company in computer-useable form.

c) On or before September 13, 2013, you agree to provide a signed and notarized certification that, after a diligent efforts to locate Company documents and property in your possession, you have complied with Paragraphs 4(a) and 4(b) above and/or that there was no Company confidential or proprietary data, material or information on any computer, server or e-mail system owned by you or a member of your immediate family, and therefore that no copying or deletion of such information was necessary. On or before September 13, 2013, you and your attorneys also agree to provide a signed and notarized certification that you and they have destroyed any unredacted originals and/or copies of the attorney-client privileged materials referenced in the last sentence of Paragraphs 4(a) and 4(b) above.

d) You further agree that if you discover any Company documents or property in your possession or on your computer, server or e-mail system in the future, you will immediately return such documents or information to the Company and delete them from such computer, server or e-mail system

2

e) Although you have returned the Company cell phone, the Company will allow you to retain the cell phone number for your personal use, at your expense, and both parties agree to execute any documents necessary to accomplish the transfer of that cell phone number. You will bear the expense and pay any fees associated with that transfer. You further agree that you will forward any Company-related telephone calls or voice mail messages you receive at that cell phone number to Kevin B. Klotzbach (CFO) or another Company officer on the same business day you receive such call/message.

5. Separation Benefits. In consideration of your acceptance of the terms of this Agreement, including but not limited to the obligations imposed by Paragraphs 9 to 11 of this Agreement and the Release of All Claims contained in Paragraph 6 of this Agreement, and provided you have signed this Agreement and the revocation period set forth in Paragraph 22 has expired with no revocation, the Company will provide you with the separation benefits described in this Paragraph 5.

a) The Company will pay a separation pay benefit in the total amount of Five Hundred Twenty-Five Thousand Dollars ($525,000.00). This separation pay benefit will be paid as follows:

(i) Within fifteen (15) days of the Company’s receipt of written payment/wiring instructions from you, which you agree to provide after the Effective Date of this Agreement, as defined in Paragraph 22 below, the Company will pay a lump sum cash payment of One Hundred Seventy-Five Thousand Dollars ($175,000.00).

(ii) The remaining separation pay benefit of Three Hundred Fifty Thousand Dollars ($350,000.00) will be paid to you in equal bi-weekly installments, less required payroll deductions and withholdings, for a period of fifty-two (52) installments in accordance with the Company’s regular payroll schedule and practice. These installments will begin on the Company’s first regular pay period after September 14, 2013, provided you have executed this Agreement and the revocation period set forth in Paragraph 22 has expired with no revocation.

b) The Company will not seek to recoup the Transit Valley Country Club full-year dues it has already paid on your behalf for 2013. Any dues, fees, assessments or other charges you incur at Transit Valley Country Club after the Separation Date are your responsibility.

c) In the event that the Company receives an inquiry from a future prospective employer, the Company will only disclose the position you held and the duration of your employment, unless you authorize in writing that additional information to be disclosed.

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d) The Company makes no representations to you regarding the taxability and/or tax implications of this Agreement. You are solely responsible for any tax consequences associated with the payments made pursuant to this Agreement, regardless of whether the Company should have contributed and withheld taxes from the amounts paid (including Social Security and Medicare). You agree to defend, indemnify, reimburse and hold the Company harmless for any and all taxes, contributions, withholdings, fees, assessments, interest, costs, penalties and other charges that may be imposed on the Company by the Internal Revenue Service, the New York State Tax Department or any other federal, state or local taxing authority by reason of the payment made pursuant to paragraph 5(a)(i) above, the absence of withholdings and deductions made from that payment and/or your non-payment or late payment of taxes due with respect to that payment, and you alone assume all liability for all such amounts.

e) You agree that you are not entitled to any other compensation or benefits of any kind or description from the Company, its successors, assigns, affiliates or related companies, or from or under any employee benefit plan or fringe benefit plan sponsored by the Company, its successors, assigns, affiliates or related companies, other than as described in this Agreement, and except for vested benefits under the any qualified retirement plans in which you participate.

f) You acknowledge and agree that, in the absence of this Agreement, you are not entitled to any of the separation benefits set forth in this Paragraph 5.

6. Krebs’ Release Of All Claims Against Company.

a) By signing this Agreement you agree that you are releasing and waiving your right to bring any legal claim of any nature against the Company arising from conduct or events that took place before you signed this Agreement. The claims you are giving up include, but are not limited to, claims related, directly or indirectly, to ownership interests in the Company (except as might be determined by a court or other legal authority as part of a legal action related to the value of common shares, in which you belong to a recovering group or class, but in which you are not a named plaintiff or class representative) and your employment relationship with the Company, including your separation from employment. This Agreement is intended to be interpreted in the broadest possible manner to include all actual or potential legal claims you may have against the Company, except as expressly provided otherwise in Paragraph 6(e).

b) Specifically, you agree that you are fully and forever giving up all of your legal rights and claims against the Company, whether or not presently known to you, arising from conduct or events occurring before you signed this Agreement. You agree that the legal rights and claims you are waiving include all rights and claims under, as amended, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967 (the “ADEA”), the Older Workers Benefit Protection Act of 1990 (the “OWBPA”), the Rehabilitation Act of 1973, the Civil Rights Acts of 1866 and 1991, the Americans With Disabilities Act of 1990 (the “ADA”), the Genetic Information Nondiscrimination Act of 2008 (“GINA”), the Equal Pay Act of 1963, the Family and Medical Leave Act of 1993 (“FMLA”), the Employee Retirement Income Security Act of 1974 (“ERISA”), the New York Human Rights Law and any similar federal, state or local statute, regulation, order or common law. You specifically agree that you are releasing claims of discrimination, harassment and/or retaliation based upon age, race, color, sex, sexual orientation or preference, marital status, religion, national origin, citizenship, veteran status, disability, genetic predisposition or carrier status and other legally protected categories and/or activities.

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c) You also agree that the legal rights and claims you are giving up include your legal rights and claims under the anti-retaliation provisions of the Sarbanes-Oxley Act, 18 U.S.C. § 1514A and the Dodd-Frank Act, 12 U.S.C. § 5567 and/or legal rights and claims under the federal Worker Adjustment and Retraining Notification Act of 1989 (“WARN”), the New York Worker Adjustment and Retraining Notification Act (“NY WARN”), the New York Labor Law (except unemployment insurance and minimum wage claims), the New York Business Corporation Law, and any similar federal, state or local statute, regulation, order or common law. You agree that the legal rights and claims you are giving up include all common law rights and claims, such as a breach of express or implied contract, tort (whether negligent or intentional), wrongful discharge, constructive discharge, infliction of emotional distress, defamation, promissory estoppel, and any claim for fraud, omission or misrepresentation, breach of express or implied duties, or violation of public policy or policies, practices, or procedures of the Company.

d) You further agree that you are giving up and releasing any damages or relief of whatever nature or description, including, but not limited to, compensatory damages, punitive damages, penalties, interest, and equitable forms of relief, as well as any claim for attorney’s fees or costs, which may arise from any of the claims waived, discharged or released in this Paragraph 6.

e) The claims you are giving up and releasing do not include your vested rights, if any, under any qualified retirement plan in which you participate, and your COBRA, unemployment insurance and workers’ compensation rights, if any. Nothing in this Agreement shall be construed to constitute a waiver of: (i) any claims you may have against the Company that arise from conduct or events that occur after the date that you sign this Agreement; (ii) your right to file an administrative charge with any governmental agency alleging employment discrimination or challenging the validity of this release of all claims; (iii) your right to participate in any administrative or court investigation, hearing or proceeding; or (iv) any other right that you cannot waive as a matter of law. You agree, however, to waive and release any right to receive any individual remedy or to recover any individual monetary or non-monetary damages as a result of any administrative charge, complaint or lawsuit filed by you or anyone on your behalf. In addition, the release of all claims set forth in this Agreement does not affect your rights as expressly created by this Agreement, and does not limit your ability to enforce this Agreement or to challenge the enforceability of this Agreement.

f) You agree that the release of all claims described in this Paragraph 6 applies not only to the Company, but also to the Company’s predecessors, successors and their past, current and future parents, subsidiaries, related entities, and all of their members, shareholders, officers, directors, agents, attorneys, employees, and assigns.

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7. Company Release Of All Claims Against Krebs.

a) By signing this Agreement, the Company agrees that it is releasing and waiving its right to bring any legal claim of any nature against you. The claims the Company is giving up include, but are not limited to, claims related, directly or indirectly, to your employment relationship with the Company, including your separation from employment. This Agreement is intended to be interpreted in the broadest possible manner to include all actual or potential legal claims the Company may have against you, except as expressly provided otherwise in Paragraph 7(d).

b) Specifically, the Company agrees that it is fully and forever giving up all of its legal rights and claims against you, whether or not presently known to it, that are based on events occurring before the Company signs this Agreement. The Company agrees that the legal rights and claims it is waiving include rights and claims under federal, state or local statute, regulations, orders or common law, including breach of express or implied contract, tort (whether negligent or intentional), wrongful discharge, constructive discharge, infliction of emotional distress, defamation, promissory estoppel, and any claim for fraud, omission or misrepresentation, breach of express or implied duties, or violation of public policy or policies, practices, or procedures of the Company.

c) The Company further agrees that it is giving up and releasing any damages or relief of whatever nature or description, including, but not limited to, compensatory damages, punitive damages, penalties, interest, and equitable forms of relief, as well as any claim for attorney’s fees or costs, which may arise from any of the claims waived, discharged or released in this Paragraph 7.

d) The claims the Company is giving up and releasing do not include any COBRA, unemployment insurance or workers’ compensation rights that the Company may have. Nothing in this Agreement shall be construed to constitute a waiver of (i) any claims the Company may have against you that arise from acts or omissions that occur after the date that the Company signs this Agreement; (ii) the Company’s right to file an administrative charge with any governmental agency; (iii) the Company’s right to participate in any administrative or court investigation, hearing or proceeding; or (iv) any claims that the Company cannot waive as a matter of law. The Company agrees, however, to waive and release any right to receive any individual remedy or to recover any monetary damages as a result of any administrative charge, proceeding, arbitration or lawsuit brought by the Company or on its behalf for the claims waived and released herein. In addition, this Waiver and Release does not affect the Company’s rights as expressly created by this Agreement, and does not limit its ability to enforce this Agreement and/or to challenge the enforceability of this Agreement.

8. No Pending Action. You represent that, as of the date that you sign this Agreement, you have not filed any charge, complaint or action in any forum against the Company. This Agreement may be used as a complete defense in the future if you bring a lawsuit based on any claim that you have released.

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9. Confidential Information and Insider Information. You agree and acknowledge as follows:

(a) In the course of your employment with the Company you have acquired access to and become acquainted with confidential information about the professional business and financial affairs of the Company.

(b) You shall not at any time, whether before or after the termination of your employment, use, copy, disclose or make available any Confidential Information (as defined in Paragraph 9(c) below) to any individual, corporation, partnership, trust, governmental body or other entity; except that you may use, copy or disclose any Confidential Information (i) to the extent it becomes publicly available through no fault on your part, and (ii) to the extent you are required to do so pursuant to applicable law or pursuant to a final order of a court or arbitrator having jurisdiction thereof; provided, however, that prior to such disclosure you shall promptly notify the Company in writing of any such order or request to disclose and shall cooperate fully with the Company in protecting against any such disclosure by narrowing the scope of such disclosure and/or obtaining a protective order with respect to the permitted use of the Confidential Information.

(c) For purposes of this Agreement, “Confidential Information” shall mean all information pertaining to the business and operations of the Company that is not generally available to the public and the Company desires to keep confidential, including, but not limited to, information relating to the Company’s products, services, relationship with its regulators, suppliers, business partners, operations, research, trade secrets, intellectual property, finances and all documents and other tangible items relating to or containing any such information. “Confidential Information” shall also include any information not described herein but that is regarded as confidential under Article 1 (Confidentiality) of the Executive Agreement dated July 2, 2012 between you and Financial Institutions, Inc. You acknowledge that the Confidential Information is vital, sensitive, confidential and proprietary to the Company.

(d) You are currently aware of material non-public information regarding the Company and will comply with the terms of the Company’s Insider Trading Policy dated October 12, 2012 regarding “Post-Termination Transactions.” You agree that you will not trade in the Company’s securities until the material non-public information of which you are aware either becomes public or is no longer material to the Company.

10. No Derogatory Statements/Communications or Operational Interference.

a) You agree that you will not directly or indirectly make, or cause to be made, any written or oral statement or other communication that is derogatory or disparaging to the Company or the Company’s predecessors, successors or their past, current or future parents, subsidiaries, related entities, or any of their members, shareholders, officers, directors, agents, attorneys, employees, or assigns. The inclusion of specific individuals in this provision (including, but not limited to, shareholders, officers, directors, agents, attorneys and employees) to protect them from derogatory or disparaging remarks is a material term of this Agreement and intended to make such individuals third-party beneficiaries of this particular provision of the Agreement, with all applicable rights to enforce its terms in the event of a violation. You also agree that you will not directly or indirectly initiate any communications with any directors, shareholders, or employees of the Company regarding the business or operations of the Company, except as required to perform the requirements set forth in this Agreement, as required to perform services on behalf of a new employer, or as otherwise expressly requested by the Company or required by applicable law.

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b) The Company agrees that the members of its Board of Directors and its Senior Management (specifically, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and/or Director of Human Resources) will not directly or indirectly make, or cause to be made, any written or oral statement or other communication that is derogatory or disparaging to you. Communications between the individuals listed above and/or with their attorneys shall not violate this provision.

c) Nothing in this Agreement is intended to or shall prevent or limit the parties from providing testimony or information in response to a valid subpoena, court order, regulatory request or other judicial, administrative or legal process or otherwise as required by law. The parties agree that they will notify the other party in writing as promptly as practicable after receiving any request for testimony or information regarding the other party in response to a subpoena, court order, regulatory request or other judicial, administrative or legal process or otherwise as required by law, regarding the anticipated testimony or information to be provided and at least fourteen (14) days prior to providing such testimony or information (or, if such notice is not possible under the circumstances, with as much prior notice as is possible).

11. Confidentiality of Agreement.

a) You agree to keep the terms of this Agreement, all documents relating to this Agreement, and the benefit being paid under it, completely confidential. You shall not disclose any information concerning the existence or terms of this Agreement or provide a copy of this Agreement to anyone, except as follows: (i) to the extent necessary to report income to appropriate taxing authorities; (ii) to communicate with your attorneys, your investment or financial advisors or your accountants as necessary for obtaining legal and/or financial planning advice (in which case such person or entity shall be informed of the confidential nature of this Agreement); (iii) in response to a judicial order or subpoena issued by a state or federal court or governmental agency or any other order of a court of competent jurisdiction or a discovery request pursuant to established Rules of Civil Procedure in a civil action in state or federal court or in response to any other discovery request or deposition question made or posed.

b) The Company’s Board of Directors and its Senior Management (specifically, Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, and/or Director of Human Resources) agree to keep the terms and the existence of this Agreement completely confidential and shall not disclose any information concerning the existence or terms of this Agreement or provide a copy of this Agreement to anyone, except as follows: (i) to the extent necessary to process the payments required in Section 5 above and/or to report that this Agreement and/or those payments to appropriate regulatory and taxing authorities (including the SEC); (ii) to communicate with its attorneys, its investment or financial advisors or its accountants as necessary for obtaining legal and/or financial advice (in which case such person or entity shall be informed of the confidential nature of this Agreement); (iii) in response to a judicial order or subpoena issued by a state or federal court or governmental agency or any other order of a court of competent jurisdiction or a discovery request pursuant to established Rules of Civil Procedure in a civil action in state or federal court or in response to any other discovery request or deposition question made or posed.

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c) Additionally, nothing herein precludes a party from apprising any attorney, court, arbitrator, administrative agency or governmental body of the existence and/or terms of this Agreement in order to enforce this Agreement, to challenge the enforceability of this Agreement and/or to support an argument that a claim/defense is barred by reason of the waivers and releases contained herein or to counter any such argument.

12. Interim Obligations. You understand and agree that the obligations contained in Paragraphs 9 to 11 above are material provisions of this Agreement, for which good and sufficient consideration is provided. However, you also acknowledge and agree that those provisions could be undermined and/or rendered ineffective if you take actions between the date you were first presented with a draft of this Agreement and the Effective Date of this Agreement (“Interim Period”) that would be violations of Paragraphs 9 to 11 of this Agreement if taken after the Effective Date of this Agreement. Accordingly, as a material inducement for the Company to enter this Agreement, you represent and warrant that, during the Interim Period, you did not and will not take any actions, directly or indirectly, that would be violations of this Agreement if they occurred after the Effective Date of this Agreement. This includes, but is not limited to, disclosing confidential information, making derogatory statements concerning the Company or any of the entities/individuals listed in Paragraph 10, and/or disclosing the terms of this Agreement or the amounts or benefits to be paid under this Agreement (other than as allowed in Paragraph 11).

13. Remedies. In the event that either Party breaches any of its obligations under this Agreement, the other Party may, at its option, obtain monetary damages, a court order requiring the other Party to comply with this Agreement, or other legal and equitable remedies as appropriate. A court, jury, arbitrator and/or agency of competent jurisdiction shall determine the nature, extent and value of any damages caused by a breach of this Agreement, including whether a breach of this Agreement requires the return of some or all of the benefits provided under Paragraph 5 above and/or the discontinuance of any Party’s remaining obligations under this Agreement. The Parties, in addition to any other rights they may have at law or in equity, shall have the right to seek enforcement of this Agreement in an action at law or in equity and the prevailing party in such an action to enforce this Agreement shall have the right to recover reasonable legal fees, costs and expenses, to the extent permitted by law and to the extent that such recovery does not result in the invalidation of this Agreement.

14. Future Employment. You agree that neither you, nor anyone acting on your behalf, will apply for or seek employment with the Company in the future. You agree that in the event you apply for or seek employment with the Company in the future, the Company is under no obligation to consider that application and may deny said application based on this Agreement.

15. No Admission of Liability. You agree that neither any payment under this Agreement, nor any term or condition of it, shall be construed by either you or the Company, at any time, as an admission of liability or wrongdoing by the Company.

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16. Binding Nature. This Agreement shall bind, be transferable to, and/or be enforceable by or against, the Company’s successors and assigns, now and in the future. This Agreement shall also bind, be transferable to and/or be enforceable by or against, all persons who might assert a legal right or claim on your behalf, such as your heirs, personal representatives and assigns, now and in the future.

17. Governing Law/Interpretation/Legal Proceedings.

a) This Agreement shall be governed, construed, and interpreted, and the rights of you and the Company shall be determined in accordance with New York law, without regard to its conflicts of laws principles, except to the extent that the law of the United States governs any matter set forth herein, in which case such Federal law shall govern.

b) Disputes arising under it shall be heard exclusively by the state or federal courts located in Monroe County, New York. Neither party waives any right it may have to remove such an action to the United States District Court located in Monroe County, New York.

c) The parties further agree that, whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions, which shall be fully severable and given full force and effect. However, in the event you or anyone on your behalf takes legal action asserting claims released through this Agreement, and the Release of All Claims in Paragraph 6 of this Agreement or any portion thereof is determined by any court, arbitrator or agency of competent jurisdiction to be unenforceable for any reason, then the Company shall have the option to rescind this entire Agreement, and immediately recover from you any payments made pursuant to Paragraph 5 above, or to require that you execute another release that is legal and enforceable, without further consideration, payments or compensation.

18. Scope of Agreement.

a) You agree that no promise, inducement or other agreement not expressly contained or referred to in this Agreement has been made conferring any benefit upon you. You also agree that this Agreement contains the entire agreement between the Company and you regarding your termination and supersedes and renders null and void any and all prior or contemporaneous oral or written understandings, statements, representations or promises, including, but not limited to, any agreement regarding benefits (severance, change in control or otherwise) set forth in that certain Executive Agreement dated July 2, 2012 between you and Financial Institutions, Inc. (the “Executive Agreement”).

b) Notwithstanding the foregoing, otherwise than as specified below, you acknowledge that nothing set forth herein shall alter in any manner your continuing obligations pursuant to the terms of the Executive Agreement, including the provisions contained therein regarding Confidentiality (Article 1), Non-Competition (Article 2) and Non-Solicitation (Article 2), and you agree that such continuing obligations survive the termination of your employment with the Company and continue to be binding upon you after the Separation Date. The Company agrees that, notwithstanding any other provisions herein or in the Executive Agreement, the
Non-Competition and Non-Solicitation provisions of the Executive Agreement terminate six months after the Separation Date.

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19. Voluntary Agreement. You agree that you are voluntarily signing this Agreement, that you have not been pressured into agreeing to its terms and that you have enough information to decide whether to sign it. If, for any reason, you believe that this Agreement is not entirely voluntary, or if you believe that you do not have enough information, then you should not sign this Agreement.

20. Attorney Consultation. You are advised to consult with an attorney of your choice before signing this Agreement. By signing this Agreement, you acknowledge that you have had an opportunity to do so.

21. Period to Consider Agreement. You represent and warrant that the Company has given you a reasonable period of time, of at least twenty-one (21) days, to consider all the terms of this Agreement and for the purpose of consulting with an attorney. A draft of this Agreement was first given to you on August 1, 2013. If you execute this Agreement prior to the expiration of the 21-day period, you represent and warrant that you have freely and willingly elected to do so. The parties further agree that changes to this agreement after August 1, 2013, whether material or immaterial, do not restart the 21-day period.

22. Revocation Period; Effective Date. After you have accepted this Agreement, you will have an additional 7 calendar days in which to revoke your acceptance. If you do not revoke your acceptance, then the 8^th day after the date of your signature will be the “Effective Date” of the Agreement, and you may not thereafter revoke it. To revoke this Agreement, you agree to send written notice to: Martin K. Birmingham, Chief Executive Officer, Five Star Bank, 220 Liberty Street, Warsaw, New York 14569. You acknowledge and agree that if you exercise your right to revoke this Agreement, your resignation of employment will remain valid and effective on the Separation Date and you will not be entitled to the separation benefits in Paragraph 5.

23. Section 409A.

a) The compensation and benefits under this Agreement are intended to comply with or be exempt from the requirements of Section 409A of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations and other official guidance promulgated and issued thereunder (collectively, “Section 409A”), and this Agreement will be interpreted in a manner consistent with that intent.

b) The preceding provisions, however, shall not be construed as a guarantee by the Company of any particular tax effect to you under this Agreement. The Company shall not be liable to you for any payment made under this Agreement that is determined to result in an additional tax, penalty or interest under Section 409A, nor for reporting in good faith any payment made under this Agreement as an amount includible in gross income under Section 409A.

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c) References to “termination of employment” and similar terms used in this Agreement mean, to the extent necessary to comply with Section 409A, the date that you first incur a “separation from service” within the meaning of Section 409A.

d) Notwithstanding anything in this Agreement to the contrary, if at the time of your separation from service with the Company you are a “specified employee” as defined in Section 409A, and any payment payable under this Agreement as a result of such separation from service is required to be delayed by six months pursuant to Section 409A, then the Company will make such payment on the date that is six months following your separation from service with the Company. The amount of such payment will equal the sum of the payments that would have been paid to you during the six-month period immediately following your separation from service had the payment commenced as of such date. Each payment under this Agreement shall be designated as a “separate payment” within the meaning of Section 409A.

24. Dodd-Frank Clawback. Notwithstanding any other provision of this Agreement to the contrary, in order to comply with Section 10D of the Securities Exchange Act of 1934, as amended, and any regulations promulgated, or national securities exchange listing conditions adopted, with respect thereto (collectively, the “Clawback Requirements”), if the Company is required to prepare an accounting restatement due to the material noncompliance of the Company with any financial reporting requirements under the securities laws, then you shall return to the Company, or forfeit if not yet paid, the amount of any “incentive-based compensation” (as defined under the Clawback Requirements) received during the three-year period preceding the date on which the Company is required to prepare the accounting restatement, based on the erroneous data, in excess of what would have been paid to you under the accounting restatement as determined by the Company in accordance with the Clawback Requirements and any policy adopted by the Company pursuant to the Clawback Requirements.

[SIGNATURES ON FOLLOWING PAGE]

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IN WITNESS WHEREOF, the Executive and the Company by its duly authorized agent, have hereunder executed this Agreement and intend to be legally bound by its provisions.

Karl F. Krebs	Financial Institutions, Inc., on behalf of itself and its subsidiaries and affiliates
/s/ Karl F. Krebs	(By)	/s/ Martin K. Birmingham
	Name: Martin K. Birmingham
Date: September 4, 2013	Date: September 10, 2013

STATE OF NEW YORK)

COUNTY OF                 ) ss:

On the          day of                 , 2013, before me, the undersigned, personally appeared Karl F. Krebs, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in the capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

NOTARY PUBLIC

STATE OF NEW YORK)

COUNTY OF                  ) ss:

On the          day of                 , 2013, before me, the undersigned, personally appeared                  personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in the capacity, and that by his/her signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument and he/she is a                     of Financial Institutions, Inc., described in, and who, on behalf of Financial Institutions, Inc. and its subsidiaries and affiliates, executed the within instrument.

NOTARY PUBLIC

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EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Martin K. Birmingham, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Financial Institutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2013	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kevin B. Klotzbach, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Financial Institutions, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2013	/s/ Kevin B. Klotzbach
	Kevin B. Klotzbach
	Chief Financial Officer

EX-32

Exhibit 32

Certification pursuant to

18 U.S.C. Section 1350,

as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Martin K. Birmingham, President and Chief Executive Officer, and Kevin B. Klotzbach, Chief Financial Officer of Financial Institutions, Inc. (the “Company”), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2013 and that to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 5, 2013	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 5, 2013	/s/ Kevin B. Klotzbach
	Kevin B. Klotzbach
	Chief Financial Officer
	(Principal Financial Officer)

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. A signed original of this written statement required by Section 906 has been provided to Financial Institutions, Inc. and will be retained by Financial Institutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Share-Based Compensation Plans

9 Months Ended

Sep. 30, 2013

Share-Based Compensation Plans [Abstract]

Share-Based Compensation Plans

(9.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain stock-based compensation plans that were approved by the Company's shareholders and are administered by the Company's Board of Directors, or the Management Development and Compensation Committee of the Board. The share-based compensation plans were established to allow for the grant of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the success and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company's success.

The Company awarded grants of 33,035 shares of restricted common stock to certain members of management during the nine months ended September 30, 2013. Fifty percent of the shares subject to each grant will be earned based upon achievement of an EPS performance requirement for the Company's fiscal year ended December 31, 2013. The remaining fifty percent of the shares will be earned based on the Company's achievement of a relative total shareholder return ("TSR") performance requirement, on a percentile basis, compared to a defined group of peer companies over a three-year performance period ended December 31, 2015. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest based on the recipient's continuous service to the Company on December 31, 2015.

The grant-date fair value of the TSR portion of the award granted during the nine month period ended September 30, 2013 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.88 years, (ii) risk free interest rate of 0.42%, (iii) expected dividend yield of 3.59% and (iv) expected stock price volatility over the expected term of the TSR award of 37.2%. The grant-date fair value of all other restricted stock awards is equal to the closing market price of our common stock on the date of grant.

In addition, the Company granted 1,000 shares of restricted common stock to management during the nine months ended September 30, 2013. The shares will vest after completion of a three-year service requirement. The market price of the restricted stock on the date of grant was $20.70.

During the nine months ended September 30, 2013, the Company granted 9,000 shares of restricted common stock to directors, of which 4,500 shares vested immediately and 4,500 shares will vest after completion of a one-year service requirement. The market price of the restricted stock on the date of grant was $19.81.

The restricted stock awards granted to management and directors in 2013 do not have rights to dividends or dividend equivalents.

The following is a summary of restricted stock award activity for the nine month period ended September 30, 2013:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	79,580		$	16.89
Granted	43,035			16.94
Vested	(38,598	)		17.04
Forfeited	(18,977	)		16.60
Outstanding at end of period	65,040		$	16.92

As of September 30, 2013, there was $468 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.7 years.

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during 2013 or 2012. The following is a summary of stock option activity for the nine months ended September 30, 2013 (dollars in thousands, except per share amounts):

					Weighted
				Weighted	Average
				Average	Remaining		Aggregate
	Number of			Exercise	Contractual		Intrinsic
	Options			Price	Term		Value
Outstanding at beginning of year	319,275		$	20.22
Exercised	(3,800	)		17.35
Expired	(103,076	)		21.15
Outstanding and exercisable at end of period	212,399		$	19.83	2.8 years	$	236

As of September 30, 2013, all compensation expense related to stock options had been fully recognized in previous periods.

The aggregate intrinsic value (the amount by which the market price of the stock on the date of exercise exceeded the market price of the stock on the date of grant) of option exercises for the nine months ended September 30, 2013 and 2012 was $9 thousand and $2 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the nine months ended September 30, 2013 and 2012 was $66 thousand and $26 thousand, respectively.

The Company amortizes the expense related to restricted stock awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of income for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of income is as follows (in thousands):

	Three months ended					Nine months ended
	September 30,					September 30,
		2013		2012		2013		2012
Salaries and employee benefits	$	85	$	38	$	164	$	258
Other noninterest expense		22		17		148		115
Total share-based compensation expense	$	107	$	55	$	312	$	373

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Accumulated Other Comprehensive Income (Loss) (Components Of Other Comprehensive Income (Loss)) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accumulated Other Comprehensive Income (Loss) [Abstract]
Net unrealized gains (losses) arising during the period, Pre-tax Amount			$ (27,205)	$ 8,048
Reclassification adjustment for gains included in income, Pre-tax Amount			(1,224)	(2,164)
Reclassification adjustment for impairment charges included in income, Pre-tax Amount				91
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period, Pre-tax Amount			(78)
Net unealized gains (losses) on investment securities, Pre-tax Amount			(28,507)	5,975
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period, Pre-tax Amount			78
Amortization of prior service credit, Pre-tax Amount			(36)	(36)
Amortization of actuarial losses, Pre-tax Amount			1,023	1,043
Pension and post-retirement obligations, net, Pre-tax Amount			987	1,007
Other comprehensive income (loss), Pre-tax Amount			(27,442)	6,982
Net unrealized gains (losses) arising during the period, Tax Effect			(10,777)	3,188
Reclassification adjustment for gains included in income, Tax Effect			(485)	(857)
Reclassification adjustment for impairment charges included in income, Tax Effect				36
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period, Tax Effect			(31)
Net unrealized gains (losses) on investment securities, Tax Effect			(11,293)	2,367
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period, Tax Effect			31
Amortization of prior service credit, Tax Effect			(14)	(14)
Amortization of actuarial losses, Tax Effect			405	413
Pension and post-retirement obligations, net, Tax Effect			391	399
Other comprehensive income (loss), Tax Effect			(10,871)	2,766
Net unrealized gains (losses) arising during the period, Net-of-tax Amount	(382)	3,051	(16,428)	4,860
Reclassification adjustment for gains included in income, Net-of-tax Amount		(360)	(739)	(1,307)
Reclassification adjustment for impairment charges included in income, Net-of-tax Amount				55
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period, Net-of-tax Amount	(47)		(47)
Net unrealized (losses) gains on securities available for sale	(429)	2,691	(17,214)	3,608
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period, Net-of-tax Amount	47		47
Amortization of prior service credit, Net-of-tax Amount			(22)	(22)
Amortization of actuarial losses, Net-of-tax Amount			618	630
Pension and post-retirement obligations, net, Net-of-tax Amount	198	203	596	608
Other comprehensive income (loss), Net-of-tax Amount			$ (16,571)	$ 4,216

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Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Interest income:
Interest and fees on loans	$ 20,332	$ 21,048	$ 60,775	$ 60,096
Interest and dividends on investment securities	4,291	4,251	12,938	12,384
Total interest income	24,623	25,299	73,713	72,480
Interest expense:
Deposits	1,624	2,029	4,960	6,596
Short-term borrowings	196	171	539	456
Total interest expense	1,820	2,200	5,499	7,052
Net interest income	22,803	23,099	68,214	65,428
Provision for loan losses	2,770	1,764	6,672	4,608
Net interest income after provision for loan losses	20,033	21,335	61,542	60,820
Noninterest income:
Service charges on deposits	2,728	2,292	7,437	6,101
ATM and debit card	1,283	1,219	3,849	3,368
Broker-dealer fees and commissions	568	609	1,917	1,630
Company owned life insurance	422	433	1,275	1,300
Net gain on disposal of investment securities		596	1,224	2,164
Loan servicing	227	142	452	645
Net (loss) gain on sale of loans held for sale	(101)	323	134	981
Impairment charges on investment securities				(91)
Net (loss) gain on disposal of other assets		(114)	39	(79)
Other	1,042	853	2,771	2,475
Total noninterest income	6,169	6,353	19,098	18,494
Noninterest expense:
Salaries and employee benefits	9,473	12,438	28,408	30,565
Occupancy and equipment	2,959	2,915	9,163	8,400
Professional services	814	1,452	2,844	3,243
Computer and data processing	689	976	2,205	2,462
Supplies and postage	518	899	1,806	1,930
FDIC assessments	367	356	1,092	957
Advertising and promotions	209	261	676	499
Other	1,980	2,321	5,861	5,800
Total noninterest expense	17,009	21,618	52,055	53,856
Income before income taxes	9,193	6,070	28,585	25,458
Income tax expense	3,029	1,805	9,422	8,341
Net income	6,164	4,265	19,163	17,117
Preferred stock dividends	365	368	1,100	1,105
Net income available to common shareholders	$ 5,799	$ 3,897	$ 18,063	$ 16,012
Earnings per common share (Note 3):
Basic	$ 0.42	$ 0.28	$ 1.32	$ 1.17
Diluted	$ 0.42	$ 0.28	$ 1.31	$ 1.16
Cash dividends declared per common share	$ 0.19	$ 0.14	$ 0.55	$ 0.41
Weighted average common shares outstanding:
Basic	13,745	13,703	13,734	13,692
Diluted	13,787	13,759	13,774	13,748

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Branch Acquisitions

9 Months Ended

Sep. 30, 2013

Branch Acquisitions [Abstract]

Branch Acquisitions

(2.) BRANCH ACQUISITIONS

On January 19, 2012, the Bank entered into agreements with First Niagara Bank, National Association ("First Niagara") to acquire four retail bank branches in Medina, Brockport, Batavia and Waterloo, New York (the "First Niagara Branches") and four retail bank branches previously owned by HSBC Bank USA, National Association ("HSBC") in Elmira, Elmira Heights, Horseheads and Albion, New York (the "HSBC Branches"). First Niagara assigned its rights to the HSBC branches in connection with its acquisition of HSBC's Upstate New York banking franchise. Under the terms of the agreements, the Bank assumed substantially all related deposits and purchased the related branch premises and certain performing loans. The transaction to acquire the First Niagara Branches was completed on June 22, 2012 and the transaction to acquire the HSBC Branches was completed on August 17, 2012. The combined assets acquired and deposits assumed in the two transactions were recorded at their estimated fair values as follows (in thousands):

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,167
Core deposit intangible asset		2,042
Other assets		601
Total assets acquired	$	287,161
Deposits assumed	$	286,819
Other liabilities		342
Total liabilities assumed	$	287,161

The transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. The Company acquired the loan portfolios at a fair value discount, net of market premium, of $824 thousand. The discount represented expected credit losses, net of market interest rate adjustments. The discount on loans receivable is being amortized to interest income over the estimated remaining life of the acquired loans using the level yield method. The time deposit premium of $335 thousand is being accreted over the estimated remaining life of the related deposits as a reduction of interest expense. The core deposit intangible asset is being amortized on an accelerated basis over the estimated average life of the core deposits.

During the nine months ended September 30, 2013, the Company recorded a decrease to the estimated fair value of liabilities assumed and an increase to the related deferred income taxes based upon information obtained subsequent to the acquisition. In addition to changes in those assets and liabilities, the revisions resulted in a reduction in goodwill of approximately $432 thousand. The final purchase price allocation was completed during the three months ended September 30, 2013, and the Company has recorded final goodwill totaling approximately $11.2 million in connection with the acquisitions. All goodwill and core deposit intangible assets arising from this acquisition are expected to be deductible for tax purposes.

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2013

Investment Securities [Abstract]

Amortized Cost And Fair Value Of Investment Securities

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
September 30, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	112,697	$	1,683	$	2,082	$	112,298
Mortgage-backed securities:
Federal National Mortgage Association		155,677		2,029		4,551		153,155
Federal Home Loan Mortgage Corporation		34,137		918		62		34,993
Government National Mortgage Association		62,775		2,690		-		65,465
Collateralized mortgage obligations:
Federal National Mortgage Association		66,251		548		2,086		64,713
Federal Home Loan Mortgage Corporation		105,507		308		3,942		101,873
Government National Mortgage Association		48,400		1,170		281		49,289
Privately issued		-		1,341		-		1,341
Total collateralized mortgage obligations		220,158		3,367		6,309		217,216
Total mortgage-backed securities		472,747		9,004		10,922		470,829
Asset-backed securities		18		406		-		424
Total available for sale securities	$	585,462	$	11,093	$	13,004		583,551
Securities held to maturity:
State and political subdivisions	$	245,708	$	409	$	-	$	246,117
December 31, 2012
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	128,097	$	3,667	$	69	$	131,695
State and political subdivisions		188,997		6,285		72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394		188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430		-		66,856
Government National Mortgage Association		56,166		3,279		-		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865		2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911		-		80,492
Government National Mortgage Association		70,989		2,168		-		73,157
Privately issued		73		1,025		-		1,098
Total collateralized mortgage obligations		210,448		6,969		2		217,415
Total mortgage-backed securities		479,986		16,072		190		495,868
Asset-backed securities		121		902		-		1,023
Total available for sale securities	$	797,201	$	26,926	$	331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573	$	-	$	18,478

Sales And Calls Of Securities Available For Sale

	Three months ended				Nine months ended
	September 30,				September 30,
		2013		2012		2013		2012
Proceeds from sales	$	-	$	633	$	1,327	$	2,303
Gross realized gains		-		596		1,224		2,164

Scheduled Maturities Of Securities Available For Sale And Securities Held To Maturity

		Amortized		Fair
		Cost		Value
Debt securities available for sale:
Due in one year or less	$	399	$	405
Due from one to five years		27,911		28,804
Due after five years through ten years		226,693		222,567
Due after ten years		330,459		331,775
	$	585,462	$	583,551
Debt securities held to maturity:
Due in one year or less	$	25,145	$	25,236
Due from one to five years		104,563		104,770
Due after five years through ten years		115,955		116,055
Due after ten years		45		56
	$	245,708	$	246,117

Investments' Gross Unrealized Losses And Fair Value

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
September 30, 2013
U.S. Government agencies and government
sponsored enterprises	$	63,080	$	2,066	$	2,812	$	16	$	65,892	$	2,082
Mortgage-backed securities:
Federal National Mortgage Association		103,595		4,551		-		-		103,595		4,551
Federal Home Loan Mortgage Corporation		4,081		62		-		-		4,081		62
Collateralized mortgage obligations:
Federal National Mortgage Association		49,555		2,085		517		1		50,072		2,086
Federal Home Loan Mortgage Corporation		92,536		3,942		-		-		92,536		3,942
Government National Mortgage Association		6,313		281		-		-		6,313		281
Total collateralized mortgage obligations		148,404		6,308		517		1		148,921		6,309
Total mortgage-backed securities		256,080		10,921		517		1		256,597		10,922
Total temporarily impaired securities	$	319,160	$	12,987	$	3,329	$	17	$	322,489	$	13,004

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
December 31, 2012
U.S. Government agencies and government
sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		-		-		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		-		-		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,173		2		1,173		2
Total collateralized mortgage obligations		-		-		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331

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Share-Based Compensation Plans (Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 468
Expected recognition expense period, weighted average period in years	1 year 8 months 12 days
Aggregate intrinsic value	9	2
Total cash received as a result of option exercises	$ 66	$ 26
TSR Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	2 years 10 months 17 days
Risk free interest rate	0.42%
Expected dividend yield	3.59%
Expected stock price volatility	37.20%
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	43,035
Weighted average market price of restricted stock on the date of grant	$ 16.94
Restricted Stock Awards [Member] | EPS Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
EPS percentage of award, one year performance period	50.00%
Restricted Stock Awards [Member] | TSR Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
TSR percentage of award, three year performance period	50.00%
Management Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	33,035
Management Stock Incentive Plan [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	1,000
Award vesting period	3 years
Market price	$ 20.70
Director Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Required service period	1 year
Market price	$ 19.81
Director Stock Incentive Plan [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	9,000
Director Stock Incentive Plan [Member] | Restricted Stock Awards [Member] | Vested Immediately [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	4,500
Director Stock Incentive Plan [Member] | Restricted Stock Awards [Member] | Vested After Completion of One-Year Service Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	4,500

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2013

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(10.) EMPLOYEE BENEFIT PLANS

The components of the Company's net periodic benefit expense for its pension and post-retirement obligations were as follows (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
		2013			2012			2013			2012
Service cost	$	516		$	510		$	1,548		$	1,528
Interest cost on projected benefit obligation		505			505			1,515			1,516
Expected return on plan assets		(921	)		(803	)		(2,763	)		(2,409	)
Amortization of unrecognized prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of unrecognized loss		341			349			1,023			1,043
Net periodic pension expense	$	429		$	549		$	1,287		$	1,642

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of income. The Company's funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2013 fiscal year.

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Loans (Retail Loan Portfolio Categorized By Payment Status) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,748,626	$ 1,675,453
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	117,650	133,341
Residential Mortgage [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	116,313	131,301
Residential Mortgage [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,337	2,040
Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	311,521	282,503
Home Equity [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	310,610	281,564
Home Equity [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	911	939
Consumer Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	591,242	559,964
Consumer Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	590,081	559,073
Consumer Indirect [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,161	891
Other Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	23,683	26,657
Other Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	23,667	26,632
Other Consumer [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 16	$ 25

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Share-Based Compensation Plans (Summary Of Restricted Stock Award Activity) (Details) (Restricted Stock Awards [Member], USD $)	9 Months Ended
	Sep. 30, 2013
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding at beginning of year, Number of Shares	79,580
Granted, Number of Shares	43,035
Vested, Number of Shares	(38,598)
Forfeited, number of shares	(18,977)
Outstanding at end of period, Number of Shares	65,040
Outstanding at beginning of year, Weighted Average Market Price at Grant Date	$ 16.89
Granted, Weighted Average Market Price at Grant Date	$ 16.94
Vested, Weighted Average Market Price at Grant Date	$ 17.04
Forfeited, Weighted Average Market Price at Grant Date	$ 16.60
Outstanding at end of period, Weighted Average Market Price at Grant Date	$ 16.92

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Investment Securities (Summary Of Amortized Cost And Fair Value Of Investment Securities) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Investment [Line Items]
Securities available for sale, Amortized Cost	$ 585,462	$ 797,201
Securities available for sale, Unrealized Gains	11,093	26,926
Securities available for sale, Unrealized Losses	13,004	331
Securities available for sale, Fair Value	583,551	823,796
Securities held to maturity, Amortized Cost	245,708	17,905
Securities held to maturity, Fair Value	246,117	18,478
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	112,697	128,097
Securities available for sale, Unrealized Gains	1,683	3,667
Securities available for sale, Unrealized Losses	2,082	69
Securities available for sale, Fair Value	112,298	131,695
State And Political Subdivisions [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost		188,997
Securities available for sale, Unrealized Gains		6,285
Securities available for sale, Unrealized Losses		72
Securities available for sale, Fair Value		195,210
Securities held to maturity, Amortized Cost	245,708	17,905
Securities held to maturity, Unrealized Gains	409	573
Securities held to maturity, Fair Value	246,117	18,478
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	472,747	479,986
Securities available for sale, Unrealized Gains	9,004	16,072
Securities available for sale, Unrealized Losses	10,922	190
Securities available for sale, Fair Value	470,829	495,868
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	155,677	147,946
Securities available for sale, Unrealized Gains	2,029	4,394
Securities available for sale, Unrealized Losses	4,551	188
Securities available for sale, Fair Value	153,155	152,152
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	34,137	65,426
Securities available for sale, Unrealized Gains	918	1,430
Securities available for sale, Unrealized Losses	62
Securities available for sale, Fair Value	34,993	66,856
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	62,775	56,166
Securities available for sale, Unrealized Gains		3,279
Securities available for sale, Fair Value	65,465	59,445
Securities held to maturity, Unrealized Gains	2,690
Collateralized Mortgage Obligations [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	220,158	210,448
Securities available for sale, Unrealized Gains	3,367	6,969
Securities available for sale, Unrealized Losses	6,309	2
Securities available for sale, Fair Value	217,216	217,415
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	66,251	60,805
Securities available for sale, Unrealized Gains	548	1,865
Securities available for sale, Unrealized Losses	2,086	2
Securities available for sale, Fair Value	64,713	62,668
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	105,507	78,581
Securities available for sale, Unrealized Gains	308	1,911
Securities available for sale, Unrealized Losses	3,942
Securities available for sale, Fair Value	101,873	80,492
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	48,400	70,989
Securities available for sale, Unrealized Gains	1,170	2,168
Securities available for sale, Unrealized Losses	281
Securities available for sale, Fair Value	49,289	73,157
Collateralized Mortgage Obligations [Member] | Privately Issued [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost		73
Securities available for sale, Unrealized Gains	1,341	1,025
Securities available for sale, Fair Value	1,341	1,098
Asset-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	18	121
Securities available for sale, Unrealized Gains	406	902
Securities available for sale, Fair Value	$ 424	$ 1,023

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2013

Shareholders' Equity [Abstract]

Changes In Shares Of Common Stock

	Outstanding		Treasury		Issued
September 30, 2013
Shares outstanding at December 31, 2012	13,787,709		373,888		14,161,597
Restricted stock awards issued	43,035		(43,035	)	-
Restricted stock awards forfeited	(18,977	)	18,977		-
Stock options exercised	3,800		(3,800	)	-
Treasury stock purchases	(11,349	)	11,349		-
Directors' retainer	5,672		(5,672	)	-
Shares outstanding at September 30, 2013	13,809,890		351,707		14,161,597
September 30, 2012
Shares outstanding at December 31, 2011	13,803,116		358,481		14,161,597
Restricted stock awards issued	57,541		(57,541	)	-
Restricted stock awards forfeited	(49,684	)	49,684		-
Stock options exercised	1,650		(1,650	)	-
Treasury stock purchases	(33,150	)	33,150		-
Directors' retainer	5,816		(5,816	)	-
Shares outstanding at September 30, 2012	13,785,289		376,308		14,161,597

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Goodwill And Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill And Other Intangible Assets [Abstract]

Estimated Core Deposit Intangible Amortization Expense

2013 (remainder of year)	$	92
2014		341
2015		296
2016		251
2017		205
2018		160

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Loans (Summary Of Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended		12 Months Ended
	Sep. 30, 2013		Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 1,013	[1]	$ 1,874	[1]
Recorded Investment, With an allowance recorded	5,900	[1]	3,338	[1]
Recorded Investment	6,913	[1]	5,212	[1]
Unpaid Principal Balance, With no related allowance recorded	1,219	[1]	2,427	[1]
Unpaid Principal Balance, With an allowance recorded	5,920	[1]	3,338	[1]
Unpaid Principal Balance	7,139	[1]	5,765	[1]
Related Allowance	1,252		974
Average Recorded Investment, With no related allowance recorded	1,290		2,065
Average Recorded Investment, With an allowance recorded	6,335		3,972
Average Recorded Investment	7,625		6,037
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded
Interest Income Recognized
Commercial Business [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	276	[1]	963	[1]
Recorded Investment, With an allowance recorded	3,802	[1]	2,450	[1]
Unpaid Principal Balance, With no related allowance recorded	460	[1]	1,425	[1]
Unpaid Principal Balance, With an allowance recorded	3,822	[1]	2,450	[1]
Related Allowance	649		664
Average Recorded Investment, With no related allowance recorded	583		755
Average Recorded Investment, With an allowance recorded	4,108		2,114
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	737	[1]	911	[1]
Recorded Investment, With an allowance recorded	2,098	[1]	888	[1]
Unpaid Principal Balance, With no related allowance recorded	759	[1]	1,002	[1]
Unpaid Principal Balance, With an allowance recorded	2,098	[1]	888	[1]
Related Allowance	603		310
Average Recorded Investment, With no related allowance recorded	707		1,310
Average Recorded Investment, With an allowance recorded	2,227		1,858
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded

[1] Difference between recorded investment and unpaid principal balance represents partial charge-offs.

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Branch Acquisitions (Schedule Of Assets Purchased And Liabilities Assumed) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Branch Acquisitions [Abstract]
Cash	$ 195,778
Loans	75,635
Bank premises and equipment	1,938
Goodwill	11,167
Core deposit intangible asset	2,042
Other assets	601
Total assets acquired	287,161
Deposits assumed	286,819
Other liabilities	342
Total liabilities assumed	$ 287,161

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Investment Securities (Scheduled Maturities Of Securities Available For Sale And Securities Held To Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Investment Securities [Abstract]
Debt securities available for sale, Due in one year or less, Amortized Cost	$ 399
Debt securities available for sale, Due from one to five years, Amortized Cost	27,911
Debt securities available for sale, Due after five years through ten years, Amortized Cost	226,693
Debt securities available for sale, Due after ten years, Amortized Cost	330,459
Debt securities available for sale, Amortized Cost	585,462
Debt securities available for sale, Due in one year or less, Fair Value	405
Debt securities available for sale, Due from one to five years, Fair Value	28,804
Debt securities available for sale, Due after five years through ten years, Fair Value	222,567
Debt securities available for sale, Due after ten years, Fair Value	331,775
Debt securities available for sale, Fair Value	583,551
Debt securities held to maturity, Due in one year or less, Amortized Cost	25,145
Debt securities held to maturity, Due from one to five years, Amortized Cost	104,563
Debt securities held to maturity, Due after five years through ten years, Amortized Cost	115,955
Debt securities held to maturity, Due after ten years, Amortized Cost	45
Debt securities held to maturity, Amortized Cost	245,708
Debt securities held to maturity, Due in one year or less, Fair Value	25,236
Debt securities held to maturity, Due from one to five years, Fair Value	104,770
Debt securities held to maturity, Due after five years through ten years, Fair Value	116,055
Debt securities held to maturity, Due after ten years, Fair Value	56
Debt securities held to maturity, Fair Value	$ 246,117

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Loans (Changes In The Allowance For Loan Losses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 25,590	$ 24,120	$ 24,714	$ 23,260
Charge-offs	2,646	2,538	7,983	6,620
Recoveries	971	955	3,282	3,053
Provision (credit)	2,770	1,764	6,672	4,608
Ending balance	26,685	24,301	26,685	24,301
Allowance for loan losses, Individually Evaluated for impairment	1,252	1,284	1,252	1,284
Allowance for loan losses, Collectively Evaluated for impairment	25,433	23,017	25,433	23,017
Loans, Ending balance	1,748,626	1,630,115	1,748,626	1,630,115	1,675,453
Loans, Individually Evaluated for impairment	6,913	7,009	6,913	7,009
Loans, Collectively Evaluated for impairment	1,741,713	1,623,106	1,741,713	1,623,106
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	4,755	4,364	4,884	4,036
Charge-offs	163	337	694	536
Recoveries	59	50	301	282
Provision (credit)	(241)	199	(81)	494
Ending balance	4,410	4,276	4,410	4,276
Allowance for loan losses, Individually Evaluated for impairment	649	620	649	620
Allowance for loan losses, Collectively Evaluated for impairment	3,761	3,656	3,761	3,656
Loans, Ending balance	253,928	245,404	253,928	245,404	258,706
Loans, Individually Evaluated for impairment	4,078	3,621	4,078	3,621
Loans, Collectively Evaluated for impairment	249,850	241,783	249,850	241,783
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	7,125	6,713	6,581	6,418
Charge-offs	35	27	144	374
Recoveries	122	91	279	167
Provision (credit)	1,069	(129)	1,565	437
Ending balance	8,281	6,648	8,281	6,648
Allowance for loan losses, Individually Evaluated for impairment	603	664	603	664
Allowance for loan losses, Collectively Evaluated for impairment	7,678	5,984	7,678	5,984
Loans, Ending balance	450,602	403,924	450,602	403,924	414,282
Loans, Individually Evaluated for impairment	2,835	3,388	2,835	3,388
Loans, Collectively Evaluated for impairment	447,767	400,536	447,767	400,536
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	701	801	740	858
Charge-offs	34	47	281	280
Recoveries	12	8	42	106
Provision (credit)	50	34	228	112
Ending balance	729	796	729	796
Allowance for loan losses, Collectively Evaluated for impairment	729	796	729	796
Loans, Ending balance	117,650	139,785	117,650	139,785	133,341
Loans, Collectively Evaluated for impairment	117,650	139,785	117,650	139,785
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,424	1,164	1,282	1,242
Charge-offs	30	80	352	177
Recoveries	16	15	126	35
Provision (credit)	(27)	133	327	132
Ending balance	1,383	1,232	1,383	1,232
Allowance for loan losses, Collectively Evaluated for impairment	1,383	1,232	1,383	1,232
Loans, Ending balance	311,521	275,345	311,521	275,345	282,503
Loans, Collectively Evaluated for impairment	311,521	275,345	311,521	275,345
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	11,095	10,618	10,715	10,189
Charge-offs	2,131	1,846	5,778	4,648
Recoveries	666	722	2,230	2,195
Provision (credit)	1,786	1,314	4,249	3,072
Ending balance	11,416	10,808	11,416	10,808
Allowance for loan losses, Collectively Evaluated for impairment	11,416	10,808	11,416	10,808
Loans, Ending balance	591,242	538,058	591,242	538,058	559,964
Loans, Collectively Evaluated for impairment	591,242	538,058	591,242	538,058
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	490	460	512	517
Charge-offs	253	201	734	605
Recoveries	96	69	304	268
Provision (credit)	133	213	384	361
Ending balance	466	541	466	541
Allowance for loan losses, Collectively Evaluated for impairment	466	541	466	541
Loans, Ending balance	23,683	27,599	23,683	27,599	26,657
Loans, Collectively Evaluated for impairment	$ 23,683	$ 27,599	$ 23,683	$ 27,599

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Commitments And Contingencies (Tables)

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies [Abstract]

Off-Balance Sheet Commitments

		September 30,		December 31,
		2013		2012
Commitments to extend credit	$	444,769	$	435,948
Standby letters of credit		9,786		9,223

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Fair Value Measurements (Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013		Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 583,551		$ 823,796
Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	4,648	[1]
Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,632
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	424	[1]
Measured On A Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	583,551		823,796
Measured On A Recurring Basis [Member] | U.S. Government Agencies And Government Sponsored Enterprises [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	112,298		131,695
Measured On A Recurring Basis [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale			195,210
Measured On A Recurring Basis [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	470,829		495,868
Measured On A Recurring Basis [Member] | Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	424		1,023
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	583,551		823,796
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | U.S. Government Agencies And Government Sponsored Enterprises [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	112,298		131,695
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale			195,210
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	470,829		495,868
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	424		1,023
Measured On A Nonrecurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	9,514		5,785
Measured On A Nonrecurring Basis [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	2,810		1,518
Measured On A Nonrecurring Basis [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	4,648		2,364
Measured On A Nonrecurring Basis [Member] | Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,632		1,719
Measured On A Nonrecurring Basis [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	424		184
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	2,810		1,518
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	2,810		1,518
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	6,704		4,267
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	4,648		2,364
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member] | Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,632		1,719
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	$ 424		$ 184

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

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Fair Value Measurements (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Fair Value Measurements [Abstract]
Transferred assets out of Level 3	$ 1.5

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Loans (Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	$ 1,748,626	$ 1,675,453
Net Deferred Loan (Fees) Costs	31,046	30,273
Loans, Net	1,779,672	1,705,726
Allowance for loan losses	(26,685)	(24,714)
Total loans, net	1,752,987	1,681,012
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	253,928	258,706
Net Deferred Loan (Fees) Costs	(3)	(31)
Loans, Net	253,925	258,675
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	450,602	414,282
Net Deferred Loan (Fees) Costs	(1,037)	(958)
Loans, Net	449,565	413,324
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	117,650	133,341
Net Deferred Loan (Fees) Costs	(26)	179
Loans, Net	117,624	133,520
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	311,521	282,503
Net Deferred Loan (Fees) Costs	5,105	4,146
Loans, Net	316,626	286,649
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	591,242	559,964
Net Deferred Loan (Fees) Costs	26,846	26,830
Loans, Net	618,088	586,794
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	23,683	26,657
Net Deferred Loan (Fees) Costs	161	107
Loans, Net	$ 23,844	$ 26,764

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Loans (Tables)

9 Months Ended

Sep. 30, 2013

Loans [Abstract]

Loan Portfolio

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
September 30, 2013
Commercial business	$	253,928	$	(3	)	$	253,925
Commercial mortgage		450,602		(1,037	)		449,565
Residential mortgage		117,650		(26	)		117,624
Home equity		311,521		5,105			316,626
Consumer indirect		591,242		26,846			618,088
Other consumer		23,683		161			23,844
Total	$	1,748,626	$	31,046			1,779,672
Allowance for loan losses							(26,685	)
Total loans, net						$	1,752,987
December 31, 2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012

Recorded Investment By Loan Class In Current And Nonaccrual Loans

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past						Total
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Loans
September 30, 2013
Commercial business	$	72	$	4	$	-	$	76	$	4,078	$	249,774	$	253,928
Commercial mortgage		53		-		-		53		2,835		447,714		450,602
Residential mortgage		434		-		-		434		1,337		115,879		117,650
Home equity		417		20		-		437		911		310,173		311,521
Consumer indirect		1,172		258		-		1,430		1,161		588,651		591,242
Other consumer		117		20		9		146		7		23,530		23,683
Total loans, gross	$	2,265	$	302	$	9	$	2,576	$	10,329	$	1,735,721	$	1,748,626
December 31, 2012
Commercial business	$	160	$	-	$	-	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		-		-		331		1,799		412,152		414,282
Residential mortgage		376		-		-		376		2,040		130,925		133,341
Home equity		675		10		-		685		939		280,879		282,503
Consumer indirect		1,661		163		-		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453

Information Related To Loans Modified In A TDR

	Quarter-to-Date					Year-to-Date
			Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification
			Outstanding		Outstanding			Outstanding		Outstanding
	Number of		Recorded		Recorded	Number of		Recorded		Recorded
	Contracts		Investment		Investment	Contracts		Investment		Investment
September 30, 2013
Commercial business	-	$	-	$	-	3	$	1,462	$	1,454
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	3	$	1,462	$	1,454
September 30, 2012
Commercial business	1	$	103	$	103	3	$	536	$	536
Commercial mortgage	-		-		-	4		648		648
Total	1	$	103	$	103	7	$	1,184	$	1,184

Summary Of Impaired Loans

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
September 30, 2013
With no related allowance recorded:
Commercial business	$	276	$	460	$	-	$	583	$	-
Commercial mortgage		737		759		-		707		-
		1,013		1,219		-		1,290		-
With an allowance recorded:
Commercial business		3,802		3,822		649		4,108		-
Commercial mortgage		2,098		2,098		603		2,227		-
		5,900		5,920		1,252		6,335		-
	$	6,913	$	7,139	$	1,252	$	7,625	$	-
December 31, 2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	-	$	755	$	-
Commercial mortgage		911		1,002		-		1,310		-
		1,874		2,427		-		2,065		-
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		-
Commercial mortgage		888		888		310		1,858		-
		3,338		3,338		974		3,972		-
	$	5,212	$	5,765	$	974	$	6,037	$	-

(1) Difference between recorded investment and unpaid principal balance represents partial charge-offs.

Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification

		Commercial		Commercial
		Business		Mortgage
September 30, 2013
Uncriticized	$	237,601	$	427,902
Special mention		6,159		6,703
Substandard		10,168		15,997
Doubtful		-		-
Total	$	253,928	$	450,602
December 31, 2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		-		-
Total	$	258,706	$	414,282

Retail Loan Portfolio Categorized By Payment Status

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
September 30, 2013
Performing	$	116,313	$	310,610	$	590,081	$	23,667
Non-performing		1,337		911		1,161		16
Total	$	117,650	$	311,521	$	591,242	$	23,683
December 31, 2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657

Loans And The Related Allowance For Loan Losses

		Commercial		Commercial		Residential		Home		Consumer		Other
		Business		Mortgage		Mortgage		Equity		Indirect		Consumer		Total
September 30, 2013
Loans:
Ending balance	$	253,928	$	450,602	$	117,650	$	311,521	$	591,242	$	23,683	$	1,748,626
Evaluated for impairment:
Individually	$	4,078	$	2,835	$	-	$	-	$	-	$	-	$	6,913
Collectively	$	249,850	$	447,767	$	117,650	$	311,521	$	591,242	$	23,683	$	1,741,713
Allowance for loan losses:
Ending balance	$	4,410	$	8,281	$	729	$	1,383	$	11,416	$	466	$	26,685
Evaluated for impairment:
Individually	$	649	$	603	$	-	$	-	$	-	$	-	$	1,252
Collectively	$	3,761	$	7,678	$	729	$	1,383	$	11,416	$	466	$	25,433
September 30, 2012
Loans:
Ending balance	$	245,404	$	403,924	$	139,785	$	275,345	$	538,058	$	27,599	$	1,630,115
Evaluated for impairment:
Individually	$	3,621	$	3,388	$	-	$	-	$	-	$	-	$	7,009
Collectively	$	241,783	$	400,536	$	139,785	$	275,345	$	538,058	$	27,599	$	1,623,106
Allowance for loan losses:
Ending balance	$	4,276	$	6,648	$	796	$	1,232	$	10,808	$	541	$	24,301
Evaluated for impairment:
Individually	$	620	$	664	$	-	$	-	$	-	$	-	$	1,284
Collectively	$	3,656	$	5,984	$	796	$	1,232	$	10,808	$	541	$	23,017

Changes In The Allowance For Loan Losses

		Commercial			Commercial		Residential		Home			Consumer		Other
		Business			Mortgage		Mortgage		Equity			Indirect		Consumer		Total
Three months ended September 30, 2013
Beginning balance	$	4,755		$	7,125	$	701	$	1,424		$	11,095	$	490	$	25,590
Charge-offs		163			35		34		30			2,131		253		2,646
Recoveries		59			122		12		16			666		96		971
Provision (credit)		(241	)		1,069		50		(27	)		1,786		133		2,770
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685
Nine months ended September 30, 2013
Beginning balance	$	4,884		$	6,581	$	740	$	1,282		$	10,715	$	512	$	24,714
Charge-offs		694			144		281		352			5,778		734		7,983
Recoveries		301			279		42		126			2,230		304		3,282
Provision		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

		Commercial		Commercial			Residential		Home		Consumer		Other
		Business		Mortgage			Mortgage		Equity		Indirect		Consumer		Total
Three months ended September 30, 2012
Beginning balance	$	4,364	$	6,713		$	801	$	1,164	$	10,618	$	460	$	24,120
Charge-offs		337		27			47		80		1,846		201		2,538
Recoveries		50		91			8		15		722		69		955
Provision (credit)		199		(129	)		34		133		1,314		213		1,764
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301
Nine months ended September 30, 2012
Beginning balance	$	4,036	$	6,418		$	858	$	1,242	$	10,189	$	517	$	23,260
Charge-offs		536		374			280		177		4,648		605		6,620
Recoveries		282		167			106		35		2,195		268		3,053
Provision (credit)		494		437			112		132		3,072		361		4,608
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301

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Consolidated Statement Of Changes In Shareholders' Equity (USD $) In Thousands, unless otherwise specified	Series A 3% Preferred Stock [Member] Retained Earnings [Member]	Series A 3% Preferred Stock [Member]	Series B-1 8.48% Preferred Stock [Member] Retained Earnings [Member]	Series B-1 8.48% Preferred Stock [Member]	Preferred Equity [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2011					$ 17,473	$ 142	$ 67,247	$ 158,079	$ 945	$ (6,692)	$ 237,194
Comprehensive income:
Net income								17,117			17,117
Other comprehensive (loss) income, net of tax									4,216		4,216
Total comprehensive income											21,333
Purchases of common stock for treasury										(554)	(554)
Repurchase of Series B-1 8.48% preferred stock					(2)						(2)
Share-based compensation plans:
Share-based compensation							373				373
Stock options exercised							(5)			31	26
Restricted stock awards issued, net							(140)			140
Excess tax (expense) benefit on share-based compensation							97				97
Directors' retainer							(10)			107	97
Cash dividends declared:
Preferred stock dividends per share	(3)	(3)	(1,102)	(1,102)							(1,105)
Common stock dividends per share								(5,617)			(5,617)
Balance at Sep. 30, 2012					17,471	142	67,562	168,474	5,161	(6,968)	251,842
Balance at Dec. 31, 2012					17,471	142	67,710	172,244	3,253	(6,923)	253,897
Comprehensive income:
Net income								19,163			19,163
Other comprehensive (loss) income, net of tax									(16,571)		(16,571)
Total comprehensive income											2,592
Purchases of common stock for treasury										(229)	(229)
Repurchase of Series A 3% preferred stock					(1)						(1)
Repurchase of Series B-1 8.48% preferred stock					(128)		(2)				(130)
Share-based compensation plans:
Share-based compensation							312				312
Stock options exercised							(5)			71	66
Restricted stock awards issued, net							(446)			446
Excess tax (expense) benefit on share-based compensation							(118)				(118)
Directors' retainer							7			105	112
Cash dividends declared:
Preferred stock dividends per share	(3)	(3)	(1,097)	(1,097)							(1,100)
Common stock dividends per share								(7,556)			(7,556)
Balance at Sep. 30, 2013					$ 17,342	$ 142	$ 67,458	$ 182,751	$ (13,318)	$ (6,530)	$ 247,845

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Cash flows from operating activities:
Net income	$ 4,265	$ 19,163	$ 17,117
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,145	2,761
Net amortization of premiums on securities		3,656	3,958
Provision for loan losses	1,764	6,672	4,608
Share-based compensation	55	312	373
Deferred income tax expense		1,907	3,684
Proceeds from sale of loans held for sale		22,963	42,847
Originations of loans held for sale		(27,413)	(40,867)
Increase in company owned life insurance	(433)	(1,275)	(1,300)
Net gain on sale of loans held for sale	(323)	(134)	(981)
Net gain on disposal of investment securities	(596)	(1,224)	(2,164)
Impairment charges on investment securities			91
Net (gain) loss on sale and disposal of other assets	114	(39)	79
Decrease in other assets		6,878	4,745
Increase in other liabilities		215	3,419
Net cash provided by operating activities		34,826	38,370
Cash flows from investing activities:
Purchases of available for sale securities		(194,360)	(245,020)
Purchases of held to maturity securities		(9,228)	(10,803)
Proceeds from principal payments, maturities and calls on available for sale securities		123,864	136,912
Proceeds from principal payments, maturities and calls on held to maturity securities		8,886	14,479
Proceeds from sales of securities available for sale	633	1,327	2,303
Net loan originations		(76,010)	(102,391)
Purchases of company owned life insurance		(34)	(34)
Proceeds from sales of other assets		469	549
Purchases of premises and equipment		(2,870)	(4,554)
Net cash received in branch acquisition			195,778
Net cash used in investing activities		(147,956)	(12,781)
Cash flows from financing activities:
Net increase in deposits		152,391	113,301
Net increase (decrease) in short-term borrowings		8,340	(112,416)
Repurchase of preferred stock		(131)	(2)
Purchase of common stock for treasury		(229)	(554)
Proceeds from stock options exercised		66	26
Excess tax (expense) benefit on share-based compensation		(118)	97
Cash dividends paid to common and preferred shareholders		(8,241)	(6,579)
Net cash provided by (used in) financing activities		152,078	(6,127)
Net increase in cash and cash equivalents		38,948	19,462
Cash and cash equivalents, beginning of period		60,436	57,583
Cash and cash equivalents, end of period	77,045	99,384	77,045
Supplemental information:
Cash paid for interest		5,738	8,046
Cash paid for income taxes		4,006	3,787
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		655	250
Accrued and declared unpaid dividends	2,287	2,977	2,287
(Decrease) increase in net unsettled security purchases	11,148	(51,061)	11,148
Securities transferred from available for sale to held to maturity (at fair value)		227,330
Loans transferred from held for sale to held for investment		3,292
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core deposit intangible asset			77,912
Deposits and other liabilities			$ 287,331

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Earnings Per Common Share ("EPS")

9 Months Ended

Sep. 30, 2013

Earnings Per Common Share ("EPS") [Abstract]

Earnings Per Common Share ("EPS")

(3.) EARNINGS PER COMMON SHARE ("EPS")

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts).

		Three months ended						Nine months ended
		September 30,						September 30,
		2013			2012			2013			2012
Net income available to common shareholders	$	5,799		$	3,897		$	18,063		$	16,012
Less: Earnings allocated to participating securities		-			-			-			3
Net income available to common shareholders for EPS	$	5,799		$	3,897		$	18,063		$	16,009
Weighted average common shares outstanding:
Total shares issued		14,162			14,162			14,162			14,162
Unvested restricted stock awards		(64	)		(99	)		(70	)		(116	)
Treasury shares		(353	)		(360	)		(358	)		(354	)
Total basic weighted average common shares outstanding		13,745			13,703			13,734			13,692
Incremental shares from assumed:
Exercise of stock options		12			4			8			4
Vesting of restricted stock awards		30			52			32			52
Total diluted weighted average common shares outstanding		13,787			13,759			13,774			13,748
Basic earnings per common share	$	0.42		$	0.28		$	1.32		$	1.17
Diluted earnings per common share	$	0.42		$	0.28		$	1.31		$	1.16

For each of the periods presented, average shares subject to the following instruments were excluded from the computation of diluted EPS because the effect would be antidilutive:

Stock options	86	295	154	309
Restricted stock awards	-	-	3	1
	86	295	157	310

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Basis of Presentation And Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2013

Basis of Presentation And Summary Of Significant Accounting Policies [Abstract]

Basis Of Presentation And Summary Of Significant Accounting Policies

(1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Financial Institutions, Inc., a financial holding company organized under the laws of New York State ("New York" or "NYS"), and its subsidiaries provide deposit, lending and other financial services to individuals and businesses in Central and Western New York. The Company has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern Pennsylvania. Financial Institutions, Inc. owns all of the capital stock of Five Star Bank, a New York State chartered bank, and Five Star Investment Services, Inc., a financial services subsidiary offering noninsured investment products and investment advisory services. References to "the Company" mean the consolidated reporting entities and references to "the Bank" mean Five Star Bank.

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders' equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years' consolidated financial statements are re-classified whenever necessary to conform to the current year's presentation. These consolidated financial statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates relate to the determination of the allowance for loan losses, assumptions used in the defined benefit pension plan accounting, the carrying value of goodwill and deferred tax assets, and the valuation and other than temporary impairment considerations related to the securities portfolio.

Reclassifications

Certain reclassifications have been made to the prior years' financial statements in order to reflect retrospective adjustments made to the balance of goodwill at December 31, 2012 to reflect the effect of these measurement period adjustments made in accordance with accounting requirements. The reclassifications had no impact on shareholders' equity or net income.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income (e.g., unrealized gains or losses on available-for-sale investment securities) and separately present reclassification adjustments and current period other comprehensive income. The provisions of ASU No. 2013-02 also requires that entities present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., unrealized gains or losses on available-for-sale investment securities) and the income statement line item affected by the reclassification (e.g., realized gains (losses) on sales of investment securities). If a component is not required to be reclassified to net income in its entirety (e.g., amortization of defined benefit plan items), entities would instead cross reference to the related note to the financial statements for additional information (e.g., pension footnote). The Company adopted the provisions of ASU No. 2013-02 effective January 1, 2013. As the Company provided these required disclosures in the notes to the consolidated financial statements, the adoption of ASU No. 2013-02 had no impact on the Company's consolidated statements of income and condition. See Note 8 –Accumulated Other Comprehensive Income to the consolidated financial statements for the disclosures required by ASU No. 2013-02.

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Investment Securities (Investments' Gross Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	$ 319,160	$ 46,936
Securities available for sale, Less than 12 months, Unrealized Losses	12,987	327
Securities available for sale, 12 months or longer, Fair Value	3,329	4,140
Securities available for sale, 12 months or longer, Unrealized Losses	17	4
Securities available for sale, Fair Value, Total	322,489	51,076
Securities available for sale, Unrealized Losses, Total	13,004	331
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	63,080	13,265
Securities available for sale, Less than 12 months, Unrealized Losses	2,066	67
Securities available for sale, 12 months or longer, Fair Value	2,812	2,967
Securities available for sale, 12 months or longer, Unrealized Losses	16	2
Securities available for sale, Fair Value, Total	65,892	16,232
Securities available for sale, Unrealized Losses, Total	2,082	69
State And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value		8,471
Securities available for sale, Less than 12 months, Unrealized Losses		72
Securities available for sale, Fair Value, Total		8,471
Securities available for sale, Unrealized Losses, Total		72
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	256,080	25,200
Securities available for sale, Less than 12 months, Unrealized Losses	10,921	188
Securities available for sale, 12 months or longer, Fair Value	517	1,173
Securities available for sale, 12 months or longer, Unrealized Losses	1	2
Securities available for sale, Fair Value, Total	256,597	26,373
Securities available for sale, Unrealized Losses, Total	10,922	190
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	103,595	25,200
Securities available for sale, Less than 12 months, Unrealized Losses	4,551	188
Securities available for sale, Fair Value, Total	103,595	25,200
Securities available for sale, Unrealized Losses, Total	4,551	188
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	4,081
Securities available for sale, Less than 12 months, Unrealized Losses	62
Securities available for sale, Fair Value, Total	4,081
Securities available for sale, Unrealized Losses, Total	62
Collateralized Mortgage Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	148,404
Securities available for sale, Less than 12 months, Unrealized Losses	6,308
Securities available for sale, 12 months or longer, Fair Value	517	1,173
Securities available for sale, 12 months or longer, Unrealized Losses	1	2
Securities available for sale, Fair Value, Total	148,921	1,173
Securities available for sale, Unrealized Losses, Total	6,309	2
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	49,555
Securities available for sale, Less than 12 months, Unrealized Losses	2,085
Securities available for sale, 12 months or longer, Fair Value	517	1,173
Securities available for sale, 12 months or longer, Unrealized Losses	1	2
Securities available for sale, Fair Value, Total	50,072	1,173
Securities available for sale, Unrealized Losses, Total	2,086	2
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	92,536
Securities available for sale, Less than 12 months, Unrealized Losses	3,942
Securities available for sale, Fair Value, Total	92,536
Securities available for sale, Unrealized Losses, Total	3,942
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	6,313
Securities available for sale, Less than 12 months, Unrealized Losses	281
Securities available for sale, Fair Value, Total	6,313
Securities available for sale, Unrealized Losses, Total	$ 281

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2013

Accumulated Other Comprehensive Income (Loss) [Abstract]

Components Of Other Comprehensive Income (Loss)

								Net-of-tax
		Pre-tax Amount			Tax Effect			Amount
September 30, 2013
Securities available for sale:
Net unrealized losses arising during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for gains included in income		(1,224	)		(485	)		(739	)
Reclassification adjustment for net unrealized holding gains on
securities transferred to held to maturity during the period		(78	)		(31	)		(47	)
Net unrealized loss on investment securities		(28,507	)		(11,293	)		(17,214	)
Net unrealized holding gains on securities transferred from available for
sale to held to maturity during the period		78			31			47
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,023			405			618
Pension and post-retirement obligations, net		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)
September 30, 2012
Securities available for sale:
Net unrealized gains arising during the period	$	8,048		$	3,188		$	4,860
Reclassification adjustment for gains included in income		(2,164	)		(857	)		(1,307	)
Reclassification adjustment for impairment charges included in income		91			36			55
Net unrealized gain on investment securities		5,975			2,367			3,608
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,043			413			630
Pension and post-retirement obligations, net		1,007			399			608
Other comprehensive income	$	6,982		$	2,766		$	4,216

Components Of Accumulated Other Comprehensive Income (Loss)

					Net Unrealized
					Gains on
					Securities
		Net Unrealized			Transferred from
		Gains (Losses) on			Available for Sale		Pension and
		Securities			to Held to		Post-retirement
		Available for Sale			Maturity		Obligations			Total
Balance at beginning of year	$	16,060		$	-	$	(12,807	)	$	3,253
Other comprehensive loss before reclassifications		(16,428	)		-		596			(15,832	)
Amounts reclassified from accumulated other
comprehensive income		(786	)		47		-			(739	)
Net current period other comprehensive loss		(17,214	)		47		596			(16,571	)
Balance at end of period	$	(1,154	)	$	47	$	(12,211	)	$	(13,318	)

Amounts Reclassified Out Of Each Component Of Accumulated Other Comprehensive Income (Loss)

		Amount
		Reclassified from
		Accumulated
		Other
Details About Accumulated Other		Comprehensive		Affected Line Item in the
Comprehensive Income Components		Income		Consolidated Statement of Income
Realized gain on sale of investment securities	$	1,224		Net gain on disposal of investment securities
		(485	)	Income tax expense
	$	739		Net of tax
Pension and post-retirement obligations
Amortization of prior service benefit (1)	$	36		Salaries and employee benefits
Amortization of actuarial losses (1)		(1,023	)	Salaries and employee benefits
		(987	)	Total before tax
		391		Income tax benefit
	$	(596	)	Net of tax

(1) These items are included in the computation of net periodic pension cost. See Note 10 – Employee Benefit Plans for additional information.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Measurements [Abstract]

Assets Measured At Fair Value On A Recurring And Non-Recurring Basis

		Quoted Prices in
		Active Markets		Significant
		for Identical		Other		Significant
		Assets or		Observable		Unobservable
		Liabilities		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	112,298	$	-	$	112,298
Mortgage-backed securities		-		470,829		-		470,829
Asset-backed securities		-		424		-		424
	$	-	$	583,551	$	-	$	583,551
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	2,810	$	-	$	2,810
Collateral dependent impaired loans		-		-		4,648		4,648
Other assets:
Loan servicing rights		-		-		1,632		1,632
Other real estate owned		-		-		424		424
	$	-	$	2,810	$	6,704	$	9,514
December 31, 2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	131,695	$	-	$	131,695
State and political subdivisions		-		195,210		-		195,210
Mortgage-backed securities		-		495,868		-		495,868
Asset-backed securities				1,023				1,023
	$	-	$	823,796	$	-	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,518	$	-	$	1,518
Collateral dependent impaired loans		-		-		2,364		2,364
Other assets:
Loan servicing rights		-		-		1,719		1,719
Other real estate owned		-		-		184		184
	$	-	$	1,518	$	4,267	$	5,785

Additional Quantitative Information About Assets Measured At Fair Value On A Recurring And Non-Recurring Basis

		Fair			Unobservable Input
Asset		Value	Valuation Technique	Unobservable Input	Value or Range
Collateral dependent impaired loans	$	4,648	Appraisal of collateral (1)	Appraisal adjustments (2)	25% - 100% discount
			Discounted cash flow	Discount rate	4.7% (3)
				Risk premium rate	12.0% (3)
Loan servicing rights		1,632	Discounted cash flow	Discount rate	5.2% (3)
				Constant prepayment rate	12.9% (3)
Other real estate owned		424	Appraisal of collateral (1)	Appraisal adjustments (2)	6% - 43% discount

⁽¹⁾ Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

⁽²⁾ Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾ Weighted averages.

Carrying Amount, Estimated Fair Value, And Placement In Fair Value Hierarchy Of Financial Instruments

	Level in		September 30, 2013				December 31, 2012
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	99,384	$	99,384	$	60,436	$	60,436
Securities available for sale	Level 2		583,551		583,551		823,796		823,796
Securities held to maturity	Level 2		245,708		246,117		17,905		18,478
Loans held for sale	Level 2		2,810		2,810		1,518		1,547
Loans	Level 2		1,748,339		1,757,838		1,678,648		1,701,419
Loans (1)	Level 3		4,648		4,648		2,364		2,364
Accrued interest receivable	Level 1		8,671		8,671		7,843		7,843
FHLB and FRB stock	Level 2		12,620		12,620		12,321		12,321
Financial liabilities:
Non-maturity deposits	Level 1		1,819,254		1,819,254		1,606,856		1,606,856
Time deposits	Level 2		594,931		596,641		654,938		658,342
Short-term borrowings	Level 1		188,146		188,146		179,806		179,806
Accrued interest payable	Level 1		3,580		3,580		3,819		3,819

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Investment Securities (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 security	Sep. 30, 2012	Sep. 30, 2013 security	Sep. 30, 2012	Dec. 31, 2012 security
Investment [Line Items]
State and municipal debt securities transferred from available for sale to held to maturity			$ 227,330
Unrealized holding gains included in accumulated other comprehensive income and in the carrying value of the held to maturity securities			78
Gross realized gains		596	1,224	2,164
Number of security positions, unrealized loss position	81		81		52
Number of security positions, unrealized loss position for more than 12 months	5		5
Fair value, continuous unrealized loss position for more than 12 months	3,329		3,329		4,140
Unrealized loss, continuous unrealized loss position for more than 12 months	17		17		4
Number of security positions, unrealized loss position for less than 12 months	76		76
Fair value, continuous unrealized loss position for less than 12 months	319,160		319,160		46,936
Unrealized loss, continuous unrealized loss position for less than 12 months	12,987		12,987		327
OTTI charge recognized			0
Mortgage-Backed Securities - Privately Issued Whole Loan CMOs [Member]
Investment [Line Items]
OTTI charge recognized				$ 91

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Accumulated Other Comprehensive Income (Loss) (Amounts Reclassified Out Of Each Component Of Accumulated Other Comprehensive Income (Loss)) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013		Sep. 30, 2012
Accumulated Other Comprehensive Income Loss [Line Items]
Net gain on disposal of investment securities		$ 596	$ 1,224		$ 2,164
Income tax expense			485		857
Net of tax		(360)	(739)		(1,307)
Amortization of prior service benefit			36		36
Amortization of actuarial losses			1,023		1,043
Total before tax			987		1,007
Income tax expense			391		399
Pension and post-retirement obligations, net, Net-of-tax Amount	198	203	596		608
Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Pension and post-retirement obligations, net, Net-of-tax Amount			(596)
Reclassification Out Of Accumulated Other Comprehensive Income [Member] | Realized Gain on Sale of Investment Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Net gain on disposal of investment securities			1,224
Income tax expense			(485)
Net of tax			739
Reclassification Out Of Accumulated Other Comprehensive Income [Member] | Pension And Post-Retirement Obligations [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Amortization of prior service benefit			36	[1]
Amortization of actuarial losses			(1,023)	[1]
Total before tax			(987)
Income tax expense			$ 391

[1] (1) These items are included in the computation of net periodic pension cost. See Note 10 - Employee Benefit Plans for additional information.

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Goodwill And Other Intangible Assets (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012
Goodwill [Line Items]
Goodwill	$ 48,500,000		$ 48,500,000		$ 48,500,000
Core deposit intangible assets, gross carrying amount	2,000,000		2,000,000
Core deposits intangible amortization expense	$ 95,000	$ 86,000	$ 294,000	$ 86,000
Core Deposits [Member]
Goodwill [Line Items]
Estimated average live			8 years 9 months 18 days

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Loans (Information Related To Loans Modified In A TDR) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013 loan	Sep. 30, 2012 loan	Sep. 30, 2013 loan	Sep. 30, 2012 loan
Financing Receivable, Modifications [Line Items]
Number of Contracts		1	3	7
Pre-Modification Outstanding Recorded Investment		$ 103	$ 1,462	$ 1,184
Post-Modification Outstanding Recorded Investment		103	1,454	1,184
Commercial Business [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts		1	3	3
Pre-Modification Outstanding Recorded Investment		103	1,462	536
Post-Modification Outstanding Recorded Investment		103	1,454	536
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts				4
Pre-Modification Outstanding Recorded Investment				648
Post-Modification Outstanding Recorded Investment				$ 648

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Consolidated Statements Of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Securities held to maturity, fair value	$ 246,117	$ 18,478
Loans, allowance for loan losses	$ 26,685	$ 24,714
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	14,161,597	14,161,597
Treasury stock, shares	351,707	373,888
Series A 3% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	1,533	1,533
Preferred stock, shares issued	1,496	1,499
Series B-1 8.48% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	200,000	200,000
Preferred stock, shares issued	171,927	173,210

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Goodwill And Other Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill And Other Intangible Assets [Abstract]

Goodwill And Other Intangible Assets

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill totaled $48.5 million as of September 30, 2013 and December 31, 2012. The goodwill relates to the Company's primary subsidiary and reporting unit, Five Star Bank. The Company performs a goodwill impairment test on an annual basis or more frequently if events and circumstances warrant.

The Company recorded a core deposit intangible asset of $2.0 million in connection with the 2012 branch acquisitions which will be amortized on an accelerated basis over the remaining estimated average life of the core deposits of approximately 8.3 years. The amortization expense is included in other noninterest expense on the consolidated statements of income and is deductible for tax purposes.

Amortization expense for the core deposit intangible was $95 thousand and $294 thousand for the three and nine months ended September 30, 2013, respectively. Amortization expense for the three and nine months ended September 30, 2012 was $86 thousand. As of September 30, 2013, estimated core deposit intangible amortization expense for each of the next five years is as follows (in thousands):

2013 (remainder of year)	$	92
2014		341
2015		296
2016		251
2017		205
2018		160

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Consolidated Statements Of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Consolidated Statements Of Comprehensive (Loss) Income [Abstract]
Net income	$ 6,164	$ 4,265	$ 19,163	$ 17,117
Other comprehensive (loss) income, net of tax:
Net unrealized (losses) gains arising during the period	(382)	3,051	(16,428)	4,860
Reclassification adjustment for gains included in income		(360)	(739)	(1,307)
Reclassification adjustment for impairment charges included in income				55
Reclassification adjustment for net unrealized holding gains on securities transferred to held to maturity during the period	(47)		(47)
Net unrealized (losses) gains on securities available for sale	(429)	2,691	(17,214)	3,608
Net unrealized holding gains on securities transferred from available for sale to held to maturity during the period	47		47
Pension and post-retirement obligations:
Net amortization of actuarial loss and prior service credit included in income	198	203	596	608
Total other comprehensive (loss) income	(184)	2,894	(16,571)	4,216
Total comprehensive income	$ 5,980	$ 7,159	$ 2,592	$ 21,333

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Share-Based Compensation Plans (Summary Of Stock Option Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Share-Based Compensation Plans [Abstract]
Outstanding at beginning of year, Number of Options	319,275
Exercised, Number of Options	(3,800)
Expired, Number of Options	(103,076)
Outstanding and exercisable at the end of period, Number of Options	212,399
Outstanding at beginning of year, Weighted Average Exercise Price	$ 20.22
Exercised, Weighted Average Exercise Price	$ 17.35
Expired, Weighted Average Exercise Price	$ 21.15
Outstanding and exercisable at end of period, Weighted Average Exercise Price	$ 19.83
Outstanding and exercisable at the end of period, Weighted Average Remaining Contractual Term	2 years 9 months 18 days
Outstanding and exercisable at the end of period, Aggregate Intrinsic Value	$ 236

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Consolidated Statements Of Financial Condition (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Cash and cash equivalents:
Cash and due from banks	$ 99,290	$ 60,342
Federal funds sold and interest-bearing deposits in other banks	94	94
Total cash and cash equivalents	99,384	60,436
Securities available for sale, at fair value	583,551	823,796
Securities held to maturity, at amortized cost (fair value of $246,117 and $18,478, respectively)	245,708	17,905
Loans held for sale	2,810	1,518
Loans (net of allowance for loan losses of $26,685 and $24,714, respectively)	1,752,987	1,681,012
Company owned life insurance	48,695	47,386
Premises and equipment, net	36,558	36,618
Goodwill and other intangible assets, net	50,095	50,389
Other assets	47,729	44,805
Total assets	2,867,517	2,763,865
Deposits:
Noninterest-bearing demand	542,517	501,514
Interest-bearing demand	519,283	449,744
Savings and money market	757,454	655,598
Time deposits	594,931	654,938
Total deposits	2,414,185	2,261,794
Short-term borrowings	188,146	179,806
Other liabilities	17,341	68,368
Total liabilities	2,619,672	2,509,968
Shareholders' equity:
Total preferred equity	17,342	17,471
Common stock, $0.01 par value, 50,000,000 shares authorized; 14,161,597 shares issued	142	142
Additional paid-in capital	67,458	67,710
Retained earnings	182,751	172,244
Accumulated other comprehensive (loss) income	(13,318)	3,253
Treasury stock, at cost - 351,707 and 373,888 shares, respectively	(6,530)	(6,923)
Total shareholders' equity	247,845	253,897
Total liabilities and shareholders' equity	2,867,517	2,763,865
Series A 3% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	149	150
Series B-1 8.48% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	$ 17,193	$ 17,321

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Goodwill And Other Intangible Assets (Estimated Core Deposit Intangible Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Goodwill And Other Intangible Assets [Abstract]
2013 (remainder of year)	$ 92
2014	341
2015	296
2016	251
2017	205
2018	$ 160

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Share-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2013

Share-Based Compensation Plans [Abstract]

Summary Of Restricted Stock Award Activity

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	79,580		$	16.89
Granted	43,035			16.94
Vested	(38,598	)		17.04
Forfeited	(18,977	)		16.60
Outstanding at end of period	65,040		$	16.92

Summary Of Stock Option Activity

					Weighted
				Weighted	Average
				Average	Remaining		Aggregate
	Number of			Exercise	Contractual		Intrinsic
	Options			Price	Term		Value
Outstanding at beginning of year	319,275		$	20.22
Exercised	(3,800	)		17.35
Expired	(103,076	)		21.15
Outstanding and exercisable at end of period	212,399		$	19.83	2.8 years	$	236

Share-Based Compensation Expense Included In Consolidated Statements Of Income

	Three months ended					Nine months ended
	September 30,					September 30,
		2013		2012		2013		2012
Salaries and employee benefits	$	85	$	38	$	164	$	258
Other noninterest expense		22		17		148		115
Total share-based compensation expense	$	107	$	55	$	312	$	373

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Earnings Per Common Share ("EPS") (Tables)

9 Months Ended

Sep. 30, 2013

Earnings Per Common Share ("EPS") [Abstract]

Reconciliation Of Earnings And Shares Used In Calculating Basic And Diluted EPS

		Three months ended						Nine months ended
		September 30,						September 30,
		2013			2012			2013			2012
Net income available to common shareholders	$	5,799		$	3,897		$	18,063		$	16,012
Less: Earnings allocated to participating securities		-			-			-			3
Net income available to common shareholders for EPS	$	5,799		$	3,897		$	18,063		$	16,009
Weighted average common shares outstanding:
Total shares issued		14,162			14,162			14,162			14,162
Unvested restricted stock awards		(64	)		(99	)		(70	)		(116	)
Treasury shares		(353	)		(360	)		(358	)		(354	)
Total basic weighted average common shares outstanding		13,745			13,703			13,734			13,692
Incremental shares from assumed:
Exercise of stock options		12			4			8			4
Vesting of restricted stock awards		30			52			32			52
Total diluted weighted average common shares outstanding		13,787			13,759			13,774			13,748
Basic earnings per common share	$	0.42		$	0.28		$	1.32		$	1.17
Diluted earnings per common share	$	0.42		$	0.28		$	1.31		$	1.16

Shares Excluded From Computation Of Diluted EPS

Stock options	86	295	154	309
Restricted stock awards	-	-	3	1
	86	295	157	310

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Loans (Recorded Investment By Loan Class In Current And Nonaccrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 2,265	$ 3,330
60-89 Days Past Due	302	208
Greater Than 90 Days	9	18
Total Past Due	2,576	3,556
Nonaccrual	10,329	9,107
Current	1,735,721	1,662,790
Total loans	1,748,626	1,675,453	1,630,115
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	72	160
60-89 Days Past Due	4
Total Past Due	76	160
Nonaccrual	4,078	3,413
Current	249,774	255,133
Total loans	253,928	258,706	245,404
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	53	331
Total Past Due	53	331
Nonaccrual	2,835	1,799
Current	447,714	412,152
Total loans	450,602	414,282	403,924
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	434	376
Total Past Due	434	376
Nonaccrual	1,337	2,040
Current	115,879	130,925
Total loans	117,650	133,341	139,785
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	417	675
60-89 Days Past Due	20	10
Total Past Due	437	685
Nonaccrual	911	939
Current	310,173	280,879
Total loans	311,521	282,503	275,345
Consumer Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,172	1,661
60-89 Days Past Due	258	163
Total Past Due	1,430	1,824
Nonaccrual	1,161	891
Current	588,651	557,249
Total loans	591,242	559,964	538,058
Other Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	117	127
60-89 Days Past Due	20	35
Greater Than 90 Days	9	18
Total Past Due	146	180
Nonaccrual	7	25
Current	23,530	26,452
Total loans	$ 23,683	$ 26,657	$ 27,599

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Accumulated Other Comprehensive Income (Loss) (Components Of Accumulated Other Comprehensive Income (Loss)) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of year			$ 3,253
Other comprehensive loss before reclassifications			(15,832)
Amounts reclassified from accumulated other comprehensive income			(739)
Net current period other comprehensive loss	(184)	2,894	(16,571)	4,216
Balance at end of period	(13,318)		(13,318)
Net Unrealized Gains And Losses On Securities Available For Sale [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of year			16,060
Other comprehensive loss before reclassifications			(16,428)
Amounts reclassified from accumulated other comprehensive income			(786)
Net current period other comprehensive loss			(17,214)
Balance at end of period	(1,154)		(1,154)
Net Unrealized Gains On Securities Transferred From Available For Sale To Held To Maturity [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Amounts reclassified from accumulated other comprehensive income			47
Net current period other comprehensive loss			47
Balance at end of period	47		47
Pension And Post-Retirement Obligations [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Balance at beginning of year			(12,807)
Other comprehensive loss before reclassifications			596
Net current period other comprehensive loss			596
Balance at end of period	$ (12,211)		$ (12,211)

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Fair Value Measurements (Additional Quantitative Information About Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 4,648	[1]
Discount rate	4.70%	[2]
Risk premium rate	12.00%	[2]
Loan Servicing Rights [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	1,632
Discount rate	5.20%	[2]
Constant prepayment rate	12.90%	[2]
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 424	[1]
Minimum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	25.00%	[3]
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	6.00%	[3]
Maximum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	100.00%	[3]
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	43.00%	[3]

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

[2] Weighted averages.

[3] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

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Investment Securities (Sales And Calls Of Securities Available For Sale) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Investment Securities [Abstract]
Proceeds from sales		$ 633	$ 1,327	$ 2,303
Gross realized gains		$ 596	$ 1,224	$ 2,164

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Earnings Per Common Share ("EPS") (Reconciliation Of Earnings And Shares Used In Calculating Basic And Diluted EPS) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings Per Common Share ("EPS") [Abstract]
Net income available to common shareholders for EPS	$ 5,799	$ 3,897	$ 18,063	$ 16,012
Less: Earnings allocated to participating securities				3
Net income available to common shareholders for EPS	$ 5,799	$ 3,897	$ 18,063	$ 16,009
Total shares issued	14,162	14,162	14,162	14,162
Unvested restricted stock awards	(64)	(99)	(70)	(116)
Treasury shares	(353)	(360)	(358)	(354)
Total basic weighted average common shares outstanding	13,745	13,703	13,734	13,692
Exercise of stock options	12	4	8	4
Vesting of restricted stock awards	30	52	32	52
Total diluted weighted average common shares outstanding	13,787	13,759	13,774	13,748
Basic earnings per common share	$ 0.42	$ 0.28	$ 1.32	$ 1.17
Diluted earnings per common share	$ 0.42	$ 0.28	$ 1.31	$ 1.16

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Earnings Per Common Share ("EPS") (Shares Excluded from Computation of Diluted EPS) (Details) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	86	295	157	310
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	86	295	154	309
Restricted Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS			3	1

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Loans

9 Months Ended

Sep. 30, 2013

Loans [Abstract]

Loans

(5.) LOANS

The Company's loan portfolio consisted of the following as of the dates indicated (in thousands):

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
September 30, 2013
Commercial business	$	253,928	$	(3	)	$	253,925
Commercial mortgage		450,602		(1,037	)		449,565
Residential mortgage		117,650		(26	)		117,624
Home equity		311,521		5,105			316,626
Consumer indirect		591,242		26,846			618,088
Other consumer		23,683		161			23,844
Total	$	1,748,626	$	31,046			1,779,672
Allowance for loan losses							(26,685	)
Total loans, net						$	1,752,987
December 31, 2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.8 million and $1.5 million as of September 30, 2013 and December 31, 2012, respectively.

Past Due Loans Aging

The Company's recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past						Total
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Loans
September 30, 2013
Commercial business	$	72	$	4	$	-	$	76	$	4,078	$	249,774	$	253,928
Commercial mortgage		53		-		-		53		2,835		447,714		450,602
Residential mortgage		434		-		-		434		1,337		115,879		117,650
Home equity		417		20		-		437		911		310,173		311,521
Consumer indirect		1,172		258		-		1,430		1,161		588,651		591,242
Other consumer		117		20		9		146		7		23,530		23,683
Total loans, gross	$	2,265	$	302	$	9	$	2,576	$	10,329	$	1,735,721	$	1,748,626
December 31, 2012
Commercial business	$	160	$	-	$	-	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		-		-		331		1,799		412,152		414,282
Residential mortgage		376		-		-		376		2,040		130,925		133,341
Home equity		675		10		-		685		939		280,879		282,503
Consumer indirect		1,661		163		-		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453

There were no loans past due greater than 90 days and still accruing interest as of September 30, 2013 and December 31, 2012. There were $9 thousand and $18 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2013 and December 31, 2012, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring ("TDR") when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying loans, however, forgiveness of principal is rarely granted. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, or substituting or adding a new borrower or guarantor.

The following table presents information related to loans modified in a TDR during the periods indicated (dollars in thousands).

	Quarter-to-Date					Year-to-Date
			Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification
			Outstanding		Outstanding			Outstanding		Outstanding
	Number of		Recorded		Recorded	Number of		Recorded		Recorded
	Contracts		Investment		Investment	Contracts		Investment		Investment
September 30, 2013
Commercial business	-	$	-	$	-	3	$	1,462	$	1,454
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	3	$	1,462	$	1,454
September 30, 2012
Commercial business	1	$	103	$	103	3	$	536	$	536
Commercial mortgage	-		-		-	4		648		648
Total	1	$	103	$	103	7	$	1,184	$	1,184

All of the loans identified as TDRs by the Company were previously on nonaccrual status and reported as impaired loans prior to restructuring. The modifications primarily related to extending the amortization periods of the loans. All loans restructured during the nine months ended September 30, 2013 were classified as nonaccrual as of September 30, 2013. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classification did not have a material impact on the Company's determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring.

There were no loans modified as a TDR within the previous 12 months that defaulted during the three months ended September 30, 2013 or 2012. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Impaired Loans

Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on impaired loans for the three month periods ended as of the dates indicated (in thousands):

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
September 30, 2013
With no related allowance recorded:
Commercial business	$	276	$	460	$	-	$	583	$	-
Commercial mortgage		737		759		-		707		-
		1,013		1,219		-		1,290		-
With an allowance recorded:
Commercial business		3,802		3,822		649		4,108		-
Commercial mortgage		2,098		2,098		603		2,227		-
		5,900		5,920		1,252		6,335		-
	$	6,913	$	7,139	$	1,252	$	7,625	$	-
December 31, 2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	-	$	755	$	-
Commercial mortgage		911		1,002		-		1,310		-
		1,874		2,427		-		2,065		-
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		-
Commercial mortgage		888		888		310		1,858		-
		3,338		3,338		974		3,972		-
	$	5,212	$	5,765	$	974	$	6,037	$	-

(1) Difference between recorded investment and unpaid principal balance represents partial charge-offs.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings: Special Mention: Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company's credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered "Uncriticized" or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

The following table sets forth the Company's commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):

		Commercial		Commercial
		Business		Mortgage
September 30, 2013
Uncriticized	$	237,601	$	427,902
Special mention		6,159		6,703
Substandard		10,168		15,997
Doubtful		-		-
Total	$	253,928	$	450,602
December 31, 2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		-		-
Total	$	258,706	$	414,282

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following table sets forth the Company's retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands):

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
September 30, 2013
Performing	$	116,313	$	310,610	$	590,081	$	23,667
Non-performing		1,337		911		1,161		16
Total	$	117,650	$	311,521	$	591,242	$	23,683
December 31, 2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657

Allowance for Loan Losses

Loans and the related allowance for loan losses are presented below as of the dates indicated (in thousands):

		Commercial		Commercial		Residential		Home		Consumer		Other
		Business		Mortgage		Mortgage		Equity		Indirect		Consumer		Total
September 30, 2013
Loans:
Ending balance	$	253,928	$	450,602	$	117,650	$	311,521	$	591,242	$	23,683	$	1,748,626
Evaluated for impairment:
Individually	$	4,078	$	2,835	$	-	$	-	$	-	$	-	$	6,913
Collectively	$	249,850	$	447,767	$	117,650	$	311,521	$	591,242	$	23,683	$	1,741,713
Allowance for loan losses:
Ending balance	$	4,410	$	8,281	$	729	$	1,383	$	11,416	$	466	$	26,685
Evaluated for impairment:
Individually	$	649	$	603	$	-	$	-	$	-	$	-	$	1,252
Collectively	$	3,761	$	7,678	$	729	$	1,383	$	11,416	$	466	$	25,433
September 30, 2012
Loans:
Ending balance	$	245,404	$	403,924	$	139,785	$	275,345	$	538,058	$	27,599	$	1,630,115
Evaluated for impairment:
Individually	$	3,621	$	3,388	$	-	$	-	$	-	$	-	$	7,009
Collectively	$	241,783	$	400,536	$	139,785	$	275,345	$	538,058	$	27,599	$	1,623,106
Allowance for loan losses:
Ending balance	$	4,276	$	6,648	$	796	$	1,232	$	10,808	$	541	$	24,301
Evaluated for impairment:
Individually	$	620	$	664	$	-	$	-	$	-	$	-	$	1,284
Collectively	$	3,656	$	5,984	$	796	$	1,232	$	10,808	$	541	$	23,017

The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2013 (in thousands):

		Commercial			Commercial		Residential		Home			Consumer		Other
		Business			Mortgage		Mortgage		Equity			Indirect		Consumer		Total
Three months ended September 30, 2013
Beginning balance	$	4,755		$	7,125	$	701	$	1,424		$	11,095	$	490	$	25,590
Charge-offs		163			35		34		30			2,131		253		2,646
Recoveries		59			122		12		16			666		96		971
Provision (credit)		(241	)		1,069		50		(27	)		1,786		133		2,770
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685
Nine months ended September 30, 2013
Beginning balance	$	4,884		$	6,581	$	740	$	1,282		$	10,715	$	512	$	24,714
Charge-offs		694			144		281		352			5,778		734		7,983
Recoveries		301			279		42		126			2,230		304		3,282
Provision		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2012 (in thousands):

		Commercial		Commercial			Residential		Home		Consumer		Other
		Business		Mortgage			Mortgage		Equity		Indirect		Consumer		Total
Three months ended September 30, 2012
Beginning balance	$	4,364	$	6,713		$	801	$	1,164	$	10,618	$	460	$	24,120
Charge-offs		337		27			47		80		1,846		201		2,538
Recoveries		50		91			8		15		722		69		955
Provision (credit)		199		(129	)		34		133		1,314		213		1,764
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301
Nine months ended September 30, 2012
Beginning balance	$	4,036	$	6,418		$	858	$	1,242	$	10,189	$	517	$	23,260
Charge-offs		536		374			280		177		4,648		605		6,620
Recoveries		282		167			106		35		2,195		268		3,053
Provision (credit)		494		437			112		132		3,072		361		4,608
Ending balance	$	4,276	$	6,648		$	796	$	1,232	$	10,808	$	541	$	24,301

Risk Characteristics

Commercial business loans primarily consist of loans to small to midsize businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, inferring higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company's commercial real estate loans and on the value of such properties.

Residential mortgage loans and home equities (comprised of home equity loans and home equity lines) are generally made on the basis of the borrower's ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

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Commitments And Contingencies (Off-Balance Sheet Commitments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 444,769	$ 435,948
Standby Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 9,786	$ 9,223

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2013

Employee Benefit Plans [Abstract]

Components Of Net Periodic Benefit Expense

	Three months ended						Nine months ended
	September 30,						September 30,
		2013			2012			2013			2012
Service cost	$	516		$	510		$	1,548		$	1,528
Interest cost on projected benefit obligation		505			505			1,515			1,516
Expected return on plan assets		(921	)		(803	)		(2,763	)		(2,409	)
Amortization of unrecognized prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of unrecognized loss		341			349			1,023			1,043
Net periodic pension expense	$	429		$	549		$	1,287		$	1,642

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Loans (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 2,810	$ 1,518
Past due greater than 90 days	9	18
Other Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past due greater than 90 days	$ 9	$ 18

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2013

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

(8.) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of other comprehensive income (loss) for the nine month periods ended September 30, 2013 and 2012 (in thousands):

								Net-of-tax
		Pre-tax Amount			Tax Effect			Amount
September 30, 2013
Securities available for sale:
Net unrealized losses arising during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for gains included in income		(1,224	)		(485	)		(739	)
Reclassification adjustment for net unrealized holding gains on
securities transferred to held to maturity during the period		(78	)		(31	)		(47	)
Net unrealized loss on investment securities		(28,507	)		(11,293	)		(17,214	)
Net unrealized holding gains on securities transferred from available for
sale to held to maturity during the period		78			31			47
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,023			405			618
Pension and post-retirement obligations, net		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)
September 30, 2012
Securities available for sale:
Net unrealized gains arising during the period	$	8,048		$	3,188		$	4,860
Reclassification adjustment for gains included in income		(2,164	)		(857	)		(1,307	)
Reclassification adjustment for impairment charges included in income		91			36			55
Net unrealized gain on investment securities		5,975			2,367			3,608
Pension and post-retirement obligations:
Amortization of prior service credit		(36	)		(14	)		(22	)
Amortization of actuarial losses		1,043			413			630
Pension and post-retirement obligations, net		1,007			399			608
Other comprehensive income	$	6,982		$	2,766		$	4,216

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the nine month period ended September 30, 2013 (in thousands):

					Net Unrealized
					Gains on
					Securities
		Net Unrealized			Transferred from
		Gains (Losses) on			Available for Sale		Pension and
		Securities			to Held to		Post-retirement
		Available for Sale			Maturity		Obligations			Total
Balance at beginning of year	$	16,060		$	-	$	(12,807	)	$	3,253
Other comprehensive loss before reclassifications		(16,428	)		-		596			(15,832	)
Amounts reclassified from accumulated other
comprehensive income		(786	)		47		-			(739	)
Net current period other comprehensive loss		(17,214	)		47		596			(16,571	)
Balance at end of period	$	(1,154	)	$	47	$	(12,211	)	$	(13,318	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the nine month period ended September 30, 2013 (in thousands):

		Amount
		Reclassified from
		Accumulated
		Other
Details About Accumulated Other		Comprehensive		Affected Line Item in the
Comprehensive Income Components		Income		Consolidated Statement of Income
Realized gain on sale of investment securities	$	1,224		Net gain on disposal of investment securities
		(485	)	Income tax expense
	$	739		Net of tax
Pension and post-retirement obligations
Amortization of prior service benefit (1)	$	36		Salaries and employee benefits
Amortization of actuarial losses (1)		(1,023	)	Salaries and employee benefits
		(987	)	Total before tax
		391		Income tax benefit
	$	(596	)	Net of tax

(1) These items are included in the computation of net periodic pension cost. See Note 10 – Employee Benefit Plans for additional information.

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Investment Securities

9 Months Ended

Sep. 30, 2013

Investment Securities [Abstract]

Investment Securities

(4.) INVESTMENT SECURITIES

The amortized cost and fair value of investment securities are summarized below (in thousands):

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
September 30, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	112,697	$	1,683	$	2,082	$	112,298
Mortgage-backed securities:
Federal National Mortgage Association		155,677		2,029		4,551		153,155
Federal Home Loan Mortgage Corporation		34,137		918		62		34,993
Government National Mortgage Association		62,775		2,690		-		65,465
Collateralized mortgage obligations:
Federal National Mortgage Association		66,251		548		2,086		64,713
Federal Home Loan Mortgage Corporation		105,507		308		3,942		101,873
Government National Mortgage Association		48,400		1,170		281		49,289
Privately issued		-		1,341		-		1,341
Total collateralized mortgage obligations		220,158		3,367		6,309		217,216
Total mortgage-backed securities		472,747		9,004		10,922		470,829
Asset-backed securities		18		406		-		424
Total available for sale securities	$	585,462	$	11,093	$	13,004		583,551
Securities held to maturity:
State and political subdivisions	$	245,708	$	409	$	-	$	246,117
December 31, 2012
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	128,097	$	3,667	$	69	$	131,695
State and political subdivisions		188,997		6,285		72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394		188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430		-		66,856
Government National Mortgage Association		56,166		3,279		-		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865		2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911		-		80,492
Government National Mortgage Association		70,989		2,168		-		73,157
Privately issued		73		1,025		-		1,098
Total collateralized mortgage obligations		210,448		6,969		2		217,415
Total mortgage-backed securities		479,986		16,072		190		495,868
Asset-backed securities		121		902		-		1,023
Total available for sale securities	$	797,201	$	26,926	$	331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573	$	-	$	18,478

Sales and calls of securities available for sale were as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
		2013		2012		2013		2012
Proceeds from sales	$	-	$	633	$	1,327	$	2,303
Gross realized gains		-		596		1,224		2,164

During the third quarter of 2013, the Company transferred $227.3 million of available for sale state and municipal debt securities to the held to maturity category, reflecting the Company's intent to hold those securities to maturity. Transfers of investment securities into the held to maturity category from the available for sale category are made at fair value at the date of transfer. The related $78 thousand of unrealized holding gains that were included in the transfer are retained in accumulated other comprehensive income and in the carrying value of the held to maturity securities. This amount will be amortized as an adjustment to interest income over the remaining life of the securities. This will offset the impact of amortization of the net premium created in the transfer. There were no gains or losses recognized as a result of this transfer.

The scheduled maturities of securities available for sale and securities held to maturity at September 30, 2013 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

		Amortized		Fair
		Cost		Value
Debt securities available for sale:
Due in one year or less	$	399	$	405
Due from one to five years		27,911		28,804
Due after five years through ten years		226,693		222,567
Due after ten years		330,459		331,775
	$	585,462	$	583,551
Debt securities held to maturity:
Due in one year or less	$	25,145	$	25,236
Due from one to five years		104,563		104,770
Due after five years through ten years		115,955		116,055
Due after ten years		45		56
	$	245,708	$	246,117

There were no unrealized losses in held to maturity securities at September 30, 2013 or December 31, 2012. Unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
September 30, 2013
U.S. Government agencies and government
sponsored enterprises	$	63,080	$	2,066	$	2,812	$	16	$	65,892	$	2,082
Mortgage-backed securities:
Federal National Mortgage Association		103,595		4,551		-		-		103,595		4,551
Federal Home Loan Mortgage Corporation		4,081		62		-		-		4,081		62
Collateralized mortgage obligations:
Federal National Mortgage Association		49,555		2,085		517		1		50,072		2,086
Federal Home Loan Mortgage Corporation		92,536		3,942		-		-		92,536		3,942
Government National Mortgage Association		6,313		281		-		-		6,313		281
Total collateralized mortgage obligations		148,404		6,308		517		1		148,921		6,309
Total mortgage-backed securities		256,080		10,921		517		1		256,597		10,922
Total temporarily impaired securities	$	319,160	$	12,987	$	3,329	$	17	$	322,489	$	13,004

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
December 31, 2012
U.S. Government agencies and government
sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		-		-		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		-		-		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,173		2		1,173		2
Total collateralized mortgage obligations		-		-		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331

The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2013 was 81 compared to 52 at December 31, 2012. At September 30, 2013, the Company had positions in 5 investment securities with a fair value of $3.3 million and a total unrealized loss of $17 thousand that have been in a continuous unrealized loss position for more than 12 months. There were a total of 76 securities positions in the Company's investment portfolio, with a fair value of $319.2 million and a total unrealized loss of $13.0 million at September 30, 2013, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company's portfolio fluctuates as market interest rates change.

The Company reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment ("OTTI") with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information then available to management.

No impairment was recorded in the nine months ended September 30, 2013. During the nine months ended September 30, 2012, the Company recognized an OTTI charge of $91 thousand related to a privately issued whole loan CMO that was determined to be impaired due to credit quality.

Based on management's review and evaluation of the Company's debt securities as of September 30, 2013, the debt securities with unrealized losses were not considered to be OTTI. As of September 30, 2013, the Company does not have the intent to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. Accordingly, as of September 30, 2013, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Company's consolidated statements of income.

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Consolidated Statement Of Changes In Shareholders' Equity (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Common stock dividends per share, declared	$ 0.55	$ 0.41
Series A 3% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 2.25	$ 2.25
Preferred stock, dividend percentage	3.00%	3.00%
Series B-1 8.48% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 6.36	$ 6.36
Preferred stock, dividend percentage	8.48%	8.48%

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Shareholders' Equity (Details)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Shareholders Equity [Line Items]
Treasury stock, beginning balance	373,888
Shares issued, beginning balance	14,161,597
Stock options exercised	3,800
Treasury stock, ending balance	351,707
Shares issued, ending balance	14,161,597
Common Stock [Member]
Shareholders Equity [Line Items]
Shares outstanding, beginning balance	13,787,709	13,803,116
Restricted stock awards issued	43,035	57,541
Restricted stock awards forfeited	(18,977)	(49,684)
Stock options exercised	3,800	1,650
Treasury stock purchases	(11,349)	(33,150)
Directors' retainer	5,672	5,816
Shares outstanding, ending balance	13,809,890	13,785,289
Treasury Stock [Member]
Shareholders Equity [Line Items]
Treasury stock, beginning balance	373,888	358,481
Restricted stock awards issued	(43,035)	(57,541)
Restricted stock awards forfeited	18,977	49,684
Stock options exercised	(3,800)	(1,650)
Treasury stock purchases	11,349	33,150
Directors' retainer	(5,672)	(5,816)
Treasury stock, ending balance	351,707	376,308
Issued [Member]
Shareholders Equity [Line Items]
Shares issued, beginning balance	14,161,597	14,161,597
Restricted stock awards issued
Restricted stock awards forfeited
Stock options exercised
Treasury stock purchases
Directors' retainer
Shares issued, ending balance	14,161,597	14,161,597

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Loans (Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,748,626	$ 1,675,453
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	253,928	258,706
Commercial Business [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	237,601	240,291
Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,159	6,591
Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	10,168	11,824
Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	450,602	414,282
Commercial Mortgage [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	427,902	400,576
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,703	6,495
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,997	7,211
Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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Branch Acquisitions (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012 HSBC Bank USA [Member] store	Sep. 30, 2013 First Niagara Bank [Member]	Dec. 31, 2012 First Niagara Bank [Member] store
Significant Acquisitions and Disposals [Line Items]
Number of bank branches		4		4
Reduction in goodwill	$ 432
Loan portfolio at fair value discount			824
Time deposit premium			335
Goodwill	$ 11,167

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Fair Value Measurements (Carrying Amount, Estimated Fair Value, And Placement In Fair Value Hierarchy Of Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013		Dec. 31, 2012
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	$ 583,551		$ 823,796
Carrying Amount [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	99,384		60,436
Accrued interest receivable	8,671		7,843
Non-maturity deposits	1,819,254		1,606,856
Short-term borrowings	188,146		179,806
Accrued interest payable	3,580		3,819
Carrying Amount [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	583,551		823,796
Securities held to maturity	245,708		17,905
Loans held for sale	2,810		1,518
Loans	1,748,339		1,678,648
FHLB and FRB stock	12,620		12,321
Time deposits	594,931		654,938
Carrying Amount [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	4,648	[1]	2,364	[1]
Estimated Fair Value [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	99,384		60,436
Accrued interest receivable	8,671		7,843
Non-maturity deposits	1,819,254		1,606,856
Short-term borrowings	188,146		179,806
Accrued interest payable	3,580		3,819
Estimated Fair Value [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	583,551		823,796
Securities held to maturity	246,117		18,478
Loans held for sale	2,810		1,547
Loans	1,757,838		1,701,419
FHLB and FRB stock	12,620		12,321
Time deposits	596,641		658,342
Estimated Fair Value [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	$ 4,648	[1]	$ 2,364	[1]

[1] Comprised of collateral dependent impaired loans.

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Share-Based Compensation Plans (Share-Based Compensation Expense Included In Consolidated Statements Of Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 107	$ 55	$ 312	$ 373
Salaries and Employee Benefits [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	85	38	164	258
Other Noninterest Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	$ 22	$ 17	$ 148	$ 115

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Commitments And Contingencies

9 Months Ended

Sep. 30, 2013

Commitments And Contingencies [Abstract]

Commitments And Contingencies

(11.) COMMITMENTS AND CONTINGENCIES

The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond amounts recognized in the Company's financial statements.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for on-balance sheet instruments.

Off-balance sheet commitments consist of the following (in thousands):

		September 30,		December 31,
		2013		2012
Commitments to extend credit	$	444,769	$	435,948
Standby letters of credit		9,786		9,223

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each customer's creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management's credit evaluation of the borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company also extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements, the Company may enter into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value. Forward sales commitments totaled $2.8 million and $1.8 million at September 30, 2013 and December 31, 2012, respectively. In addition, the net change in the fair values of these derivatives was recognized as other noninterest income or other noninterest expense in the consolidated statements of income.

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Shareholders' Equity

9 Months Ended

Sep. 30, 2013

Shareholders' Equity [Abstract]

Shareholders' Equity

(7.) SHAREHOLDERS' EQUITY

Common Stock

The changes in shares of common stock were as follows for the nine month periods ended September 30, 2013 and 2012:

	Outstanding		Treasury		Issued
September 30, 2013
Shares outstanding at December 31, 2012	13,787,709		373,888		14,161,597
Restricted stock awards issued	43,035		(43,035	)	-
Restricted stock awards forfeited	(18,977	)	18,977		-
Stock options exercised	3,800		(3,800	)	-
Treasury stock purchases	(11,349	)	11,349		-
Directors' retainer	5,672		(5,672	)	-
Shares outstanding at September 30, 2013	13,809,890		351,707		14,161,597
September 30, 2012
Shares outstanding at December 31, 2011	13,803,116		358,481		14,161,597
Restricted stock awards issued	57,541		(57,541	)	-
Restricted stock awards forfeited	(49,684	)	49,684		-
Stock options exercised	1,650		(1,650	)	-
Treasury stock purchases	(33,150	)	33,150		-
Directors' retainer	5,816		(5,816	)	-
Shares outstanding at September 30, 2012	13,785,289		376,308		14,161,597

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Branch Acquisitions (Tables)

9 Months Ended

Sep. 30, 2013

Branch Acquisitions [Abstract]

Schedule Of Assets Purchased And Liabilities Assumed

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,167
Core deposit intangible asset		2,042
Other assets		601
Total assets acquired	$	287,161
Deposits assumed	$	286,819
Other liabilities		342
Total liabilities assumed	$	287,161

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Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

(12.) FAIR VALUE MEASUREMENTS

Determination of Fair Value – Assets Measured at Fair Value on a Recurring and Nonrecurring Basis Valuation Hierarchy

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, "Fair Value Measurements and Disclosures," establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:

• Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
• Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
• Level 3 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity's own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company's valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.

Collateral dependent impaired loans: Fair value of impaired loans with specific allocations of the allowance for loan losses is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on management's historical knowledge, changes in market conditions from the time of valuation, and/or management's expertise and knowledge of the client and the client's business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that we believe market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company's loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other real estate owned (Foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on management's historical knowledge, changes in market conditions from the time of valuation, and/or management's expertise and knowledge of the client and client's business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments to is not material.

Assets Measured at Fair Value

The following tables present for each of the fair-value hierarchy levels the Company's assets that are measured at fair value on a recurring and non-recurring basis as of the dates indicated (in thousands).

		Quoted Prices in
		Active Markets		Significant
		for Identical		Other		Significant
		Assets or		Observable		Unobservable
		Liabilities		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
September 30, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	112,298	$	-	$	112,298
Mortgage-backed securities		-		470,829		-		470,829
Asset-backed securities		-		424		-		424
	$	-	$	583,551	$	-	$	583,551
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	2,810	$	-	$	2,810
Collateral dependent impaired loans		-		-		4,648		4,648
Other assets:
Loan servicing rights		-		-		1,632		1,632
Other real estate owned		-		-		424		424
	$	-	$	2,810	$	6,704	$	9,514
December 31, 2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	131,695	$	-	$	131,695
State and political subdivisions		-		195,210		-		195,210
Mortgage-backed securities		-		495,868		-		495,868
Asset-backed securities				1,023				1,023
	$	-	$	823,796	$	-	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,518	$	-	$	1,518
Collateral dependent impaired loans		-		-		2,364		2,364
Other assets:
Loan servicing rights		-		-		1,719		1,719
Other real estate owned		-		-		184		184
	$	-	$	1,518	$	4,267	$	5,785

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2013. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month periods ended September 30, 2013 and 2012.

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands).

		Fair			Unobservable Input
Asset		Value	Valuation Technique	Unobservable Input	Value or Range
Collateral dependent impaired loans	$	4,648	Appraisal of collateral (1)	Appraisal adjustments (2)	25% - 100% discount
			Discounted cash flow	Discount rate	4.7% (3)
				Risk premium rate	12.0% (3)
Loan servicing rights		1,632	Discounted cash flow	Discount rate	5.2% (3)
				Constant prepayment rate	12.9% (3)
Other real estate owned		424	Appraisal of collateral (1)	Appraisal adjustments (2)	6% - 43% discount

⁽¹⁾ Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

⁽²⁾ Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾ Weighted averages.

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the nine months ended September 30, 2013. The Company transferred all of the assets classified as Level 3 assets at December 31, 2011 to Level 2 during the nine months ended September 30, 2012. The transfers of the $1.5 million of pooled trust preferred securities out of Level 3 was primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

The estimated fair value approximates carrying value for cash and cash equivalents, Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

Securities held to maturity: The fair value of the Company's investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans: The fair value of the Company's loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time deposits: The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company's time deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.

The following presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company's financial instruments as of the dates indicated.

	Level in		September 30, 2013				December 31, 2012
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	99,384	$	99,384	$	60,436	$	60,436
Securities available for sale	Level 2		583,551		583,551		823,796		823,796
Securities held to maturity	Level 2		245,708		246,117		17,905		18,478
Loans held for sale	Level 2		2,810		2,810		1,518		1,547
Loans	Level 2		1,748,339		1,757,838		1,678,648		1,701,419
Loans (1)	Level 3		4,648		4,648		2,364		2,364
Accrued interest receivable	Level 1		8,671		8,671		7,843		7,843
FHLB and FRB stock	Level 2		12,620		12,620		12,321		12,321
Financial liabilities:
Non-maturity deposits	Level 1		1,819,254		1,819,254		1,606,856		1,606,856
Time deposits	Level 2		594,931		596,641		654,938		658,342
Short-term borrowings	Level 1		188,146		188,146		179,806		179,806
Accrued interest payable	Level 1		3,580		3,580		3,819		3,819

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 28, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013
Entity Registrant Name	FINANCIAL INSTITUTIONS INC
Entity Central Index Key	0000862831
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		13,809,890

XML

Basis Of Presentation And Summary Of Significant Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2013

Basis of Presentation And Summary Of Significant Accounting Policies [Abstract]

Nature Of Operations

Nature of Operations

Financial Institutions, Inc., a financial holding company organized under the laws of New York State ("New York" or "NYS"), and its subsidiaries provide deposit, lending and other financial services to individuals and businesses in Central and Western New York. The Company has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern Pennsylvania. Financial Institutions, Inc. owns all of the capital stock of Five Star Bank, a New York State chartered bank, and Five Star Investment Services, Inc., a financial services subsidiary offering noninsured investment products and investment advisory services. References to "the Company" mean the consolidated reporting entities and references to "the Bank" mean Five Star Bank.

Basis Of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders' equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years' consolidated financial statements are re-classified whenever necessary to conform to the current year's presentation. These consolidated financial statements should be read in conjunction with the Company's 2012 Annual Report on Form 10-K. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Subsequent Events

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued.

Use Of Estimates

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates relate to the determination of the allowance for loan losses, assumptions used in the defined benefit pension plan accounting, the carrying value of goodwill and deferred tax assets, and the valuation and other than temporary impairment considerations related to the securities portfolio.

Reclassifications

Reclassifications

Certain reclassifications have been made to the prior years' financial statements in order to reflect retrospective adjustments made to the balance of goodwill at December 31, 2012 to reflect the effect of these measurement period adjustments made in accordance with accounting requirements. The reclassifications had no impact on shareholders' equity or net income.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 does not amend any existing requirements for reporting net income or other comprehensive income in the financial statements. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income (e.g., unrealized gains or losses on available-for-sale investment securities) and separately present reclassification adjustments and current period other comprehensive income. The provisions of ASU No. 2013-02 also requires that entities present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source (e.g., unrealized gains or losses on available-for-sale investment securities) and the income statement line item affected by the reclassification (e.g., realized gains (losses) on sales of investment securities). If a component is not required to be reclassified to net income in its entirety (e.g., amortization of defined benefit plan items), entities would instead cross reference to the related note to the financial statements for additional information (e.g., pension footnote). The Company adopted the provisions of ASU No. 2013-02 effective January 1, 2013. As the Company provided these required disclosures in the notes to the consolidated financial statements, the adoption of ASU No. 2013-02 had no impact on the Company's consolidated statements of income and condition. See Note 8 –Accumulated Other Comprehensive Income to the consolidated financial statements for the disclosures required by ASU No. 2013-02.

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Commitments And Contingencies (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Commitments And Contingencies [Abstract]
Forward sales commitments	$ 2.8	$ 1.8

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Employee Benefit Plans (Components Of Net Periodic Benefit Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Benefit Plans [Abstract]
Service cost	$ 516	$ 510	$ 1,548	$ 1,528
Interest cost on projected benefit obligation	505	505	1,515	1,516
Expected return on plan assets	(921)	(803)	(2,763)	(2,409)
Amortization of unrecognized prior service credit	(12)	(12)	(36)	(36)
Amortization of unrecognized loss	341	349	1,023	1,043
Net periodic pension expense	$ 429	$ 549	$ 1,287	$ 1,642