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, 2014

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 14,098,212 shares of Common Stock, $0.01 par value, outstanding as of October 28, 2014.

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended September 30, 2014

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Statements of Financial Condition — at September 30, 2014 (Unaudited) and December 31, 2013		3
	Consolidated Statements of Income (Unaudited) — Three and nine months ended September 30, 2014 and 2013		4
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited) — Three and nine months ended September 30, 2014 and 2013		5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) — Nine months ended September 30, 2014 and 2013		6
	Consolidated Statements of Cash Flows (Unaudited) — Nine months ended September 30, 2014 and 2013		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		48
ITEM 4.	Controls and Procedures		49
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings		50
ITEM 1A.	Risk Factors		50
ITEM 6.	Exhibits		50
	Signatures		51

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

(Dollars in thousands, except share and per share data)	September 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	87,582		$	59,598
Federal funds sold and interest-bearing deposits in other banks		—			94
Total cash and cash equivalents		87,582			59,692
Securities available for sale, at fair value		585,479			609,400
Securities held to maturity, at amortized cost (fair value of $291,158 and $250,657, respectively)		285,967			249,785
Loans held for sale		1,029			3,381
Loans (net of allowance for loan losses of $27,244 and $26,736, respectively)		1,880,601			1,806,883
Company owned life insurance		55,454			49,171
Premises and equipment, net		36,602			36,009
Goodwill and other intangible assets, net		68,887			50,002
Other assets		53,703			64,313
Total assets	$	3,055,304		$	2,928,636
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	571,549		$	535,472
Interest-bearing demand		530,783			470,733
Savings and money market		805,522			717,928
Certificates of deposit		630,970			595,923
Total deposits		2,538,824			2,320,056
Short-term borrowings		215,967			337,042
Other liabilities		22,755			16,699
Total liabilities		2,777,546			2,673,797
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,492 and 1,496 shares issued, respectively		149			149
Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized; 171,906 and 171,927 shares issued, respectively		17,191			17,193
Total preferred equity		17,340			17,342
Common stock, $0.01 par value; 50,000,000 shares authorized; 14,397,509 and 14,161,597 shares issued, respectively		144			142
Additional paid-in capital		72,803			67,574
Retained earnings		198,569			186,137
Accumulated other comprehensive (loss) income		(5,446	)		(10,187	)
Treasury stock, at cost – 303,244 and 332,242 shares, respectively		(5,652	)		(6,169	)
Total shareholders’ equity		277,758			254,839
Total liabilities and shareholders’ equity	$	3,055,304		$	2,928,636

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(In thousands, except per share amounts)	Three months ended					Nine months ended
	September 30,					September 30,
	2014		2013			2014		2013
Interest income:
Interest and fees on loans	$	20,671	$	20,332		$	61,168	$	60,775
Interest and dividends on investment securities		4,458		4,291			13,903		12,938
Total interest income		25,129		24,623			75,071		73,713
Interest expense:
Deposits		1,627		1,624			4,729		4,960
Short-term borrowings		244		196			706		539
Total interest expense		1,871		1,820			5,435		5,499
Net interest income		23,258		22,803			69,636		68,214
Provision for loan losses		2,015		2,770			5,879		6,672
Net interest income after provision for loan losses		21,243		20,033			63,757		61,542
Noninterest income:
Service charges on deposits		2,277		2,728			6,768		7,437
ATM and debit card		1,263		1,283			3,694		3,849
Investment advisory		524		568			1,647		1,917
Company owned life insurance		421		422			1,249		1,275
Insurance income		922		92			979		189
Investments in limited partnerships		187		241			894		538
Loan servicing		120		227			450		452
Net gain on disposal of investment securities		515		—			1,777		1,224
Net gain (loss) on sale of loans held for sale		76		(101	)		231		134
Net gain (loss) on disposal of other assets		72		—			61		39
Other		884		709			2,445		2,044
Total noninterest income		7,261		6,169			20,195		19,098
Noninterest expense:
Salaries and employee benefits		9,725		9,473			28,044		28,408
Occupancy and equipment		3,131		2,959			9,505		9,163
Professional services		976		814			3,332		2,844
Computer and data processing		725		689			2,225		2,205
Supplies and postage		507		518			1,554		1,806
FDIC assessments		390		367			1,200		1,092
Advertising and promotions		216		209			609		676
Other		2,285		1,980			6,507		5,861
Total noninterest expense		17,955		17,009			52,976		52,055
Income before income taxes		10,549		9,193			30,976		28,585
Income tax expense		3,365		3,029			9,541		9,422
Net income	$	7,184	$	6,164		$	21,435	$	19,163
Preferred stock dividends		366		365			1,097		1,100
Net income available to common shareholders	$	6,818	$	5,799		$	20,338	$	18,063
Earnings per common share (Note 3):
Basic	$	0.49	$	0.42		$	1.47	$	1.32
Diluted	$	0.49	$	0.42		$	1.46	$	1.31
Cash dividends declared per common share	$	0.19	$	0.19		$	0.57	$	0.55
Weighted average common shares outstanding:
Basic		13,953		13,745			13,840		13,734
Diluted		14,007		13,787			13,890		13,774

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in thousands)	Three months ended						Nine months ended
	September 30,						September 30,
	2014			2013			2014		2013
Net income	$	7,184		$	6,164		$	21,435	$	19,163
Other comprehensive income (loss), net of tax:
Net unrealized (losses) gains on securities available for sale		(1,745	)		(382	)		4,683		(17,167	)
Pension and post-retirement obligations		19			198			58		596
Total other comprehensive (loss) income, net of tax		(1,726	)		(184	)		4,741		(16,571	)
Comprehensive income	$	5,458		$	5,980		$	26,176	$	2,592

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, 2014 and 2013

(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, 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	)
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 benefit 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
Balance at January 1, 2014	$	17,342		$	142	$	67,574		$	186,137		$	(10,187	)	$	(6,169	)	$	254,839
Comprehensive income:
Net income		—			—		—			21,435			—			—			21,435
Other comprehensive income, net of tax		—			—		—			—			4,741			—			4,741
Issuance of common stock for acqusition		—			2		5,398			—			—			—			5,400
Purchases of common stock for treasury		—			—		—			—			—			(195	)		(195	)
Repurchase of Series B-1 8.48% preferred stock		(2	)		—		—			—			—			—			(2	)
Share-based compensation plans:
Share-based compensation		—			—		383			—			—			—			383
Stock options exercised		—			—		2			—			—			158			160
Restricted stock awards issued, net		—			—		(554	)		—			—			554			—
Cash dividends declared:
Series A 3% Preferred-$2.25 per share		—			—		—			(3	)		—			—			(3	)
Series B-1 8.48% Preferred-$6.36 per share		—			—		—			(1,094	)		—			—			(1,094	)
Common-$0.57 per share		—			—		—			(7,906	)		—			—			(7,906	)
Balance at September 30, 2014	$	17,340		$	144	$	72,803		$	198,569		$	(5,446	)	$	(5,652	)	$	277,758

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)	Nine months ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	21,435		$	19,163
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,247			3,145
Net amortization of premiums on securities		2,435			3,656
Provision for loan losses		5,879			6,672
Share-based compensation		383			312
Deferred income tax expense		802			1,907
Proceeds from sale of loans held for sale		12,649			22,963
Originations of loans held for sale		(10,919	)		(27,413	)
Increase in company owned life insurance		(1,249	)		(1,275	)
Net gain on sale of loans held for sale		(231	)		(134	)
Net gain on disposal of investment securities		(1,777	)		(1,224	)
Net gain on sale and disposal of other assets		(61	)		(39	)
Decrease in other assets		5,420			6,878
Increase (decrease) in other liabilities		(61	)		215
Net cash provided by operating activities		37,952			34,826
Cash flows from investing activities:
Purchases of available for sale securities		(179,203	)		(194,360	)
Purchases of held to maturity securities		(50,394	)		(9,228	)
Proceeds from principal payments, maturities and calls on available for sale securities		123,625			123,864
Proceeds from principal payments, maturities and calls on held to maturity securities		26,432			8,886
Proceeds from sales of securities available for sale		76,100			1,327
Net loan originations		(79,138	)		(76,010	)
Purchases of company owned life insurance		(5,034	)		(34	)
Proceeds from sales of other assets		1,289			469
Purchases of premises and equipment		(4,448	)		(2,870	)
Cash consideration paid for acquisition, net of cash acquired		(7,995	)		—
Net cash used in investing activities		(98,766	)		(147,956	)
Cash flows from financing activities:
Net increase in deposits		218,768			152,391
Net (decrease) increase in short-term borrowings		(121,075	)		8,340
Repurchase of preferred stock		(2	)		(131	)
Purchase of common stock for treasury		(195	)		(229	)
Proceeds from stock options exercised		160			66
Excess tax (expense) benefit on share-based compensation, net		—			(118	)
Cash dividends paid to common and preferred shareholders		(8,952	)		(8,241	)
Net cash provided by financing activities		88,704			152,078
Net increase in cash and cash equivalents		27,890			38,948
Cash and cash equivalents, beginning of period		59,692			60,436
Cash and cash equivalents, end of period	$	87,582		$	99,384
Supplemental information:
Cash paid for interest	$	5,056		$	5,738
Cash paid for income taxes		9,739			4,006
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		394			655
Accrued and declared unpaid dividends		3,032			2,977
Increase (decrease) in net unsettled security purchases		1,724			(51,061	)
Securities transferred from available for sale to held to maturity (at fair value)		12,802			227,330
Loans transferred from held for sale to held for investment		853			3,292
Common stock issued for acquisition		5,400			—

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., (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York” or “NYS”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the “Bank”). 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. On August 1, 2014, the Company acquired Scott Danahy Naylon Co., Inc., a full service insurance agency located in Amherst, New York. As a result of the acquisition the Company now provides insurance and risk consulting services through its wholly-owned insurance subsidiary, Scott Danahy Naylon, LLC (“SDN”). The consolidated financial statements include the accounts of the Company, the Bank and SDN. All significant intercompany balances and transactions have been eliminated in the consolidation. References to “the Company” mean the consolidated reporting entity.

Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. 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 2013 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 and determined that there were no subsequent events.

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, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment (“OTTI”) considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company’s consolidated statements of income and condition.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(2.) BUSINESS COMBINATIONS

On August 1, 2014, the Company completed the acquisition of Scott Danahy Naylon Co., Inc., a full service insurance agency located in Amherst, New York. Consideration for the acquisition included both cash and stock totaling $16.9 million, including up to $3.4 million of future payments, contingent upon SDN meeting certain revenue performance targets through 2017. The estimated fair value of the contingent consideration at the date of acquisition was $3.2 million, which was estimated using a probability-weighted discounted cash flow model. As a result of the acquisition, the Company recorded goodwill of $12.6 million and other intangible assets of $6.6 million. The goodwill is not expected to be deductible for income tax purposes. Pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Company’s consolidated financial statements.

This acquisition was accounted for under the acquisition method in accordance with FASB ASC Topic 805. Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. Due to the timing of the closing of the acquisition, the fair values of other intangibles recorded are subject to adjustment as additional information becomes available to indicate a more accurate or appropriate fair value for the intangibles during the measurement period, which is not to exceed one year from the acquisition date.

The following table summarizes the consideration paid for Scott Danahy Naylon Co., Inc. and the amounts of the assets acquired and liabilities assumed.

Consideration paid:
Cash	$	8,100
Stock		5,400
Contingent consideration		3,227
Fair value of total consideration transferred		16,727
Fair value of assets acquired:
Cash		105
Identified intangible assets		6,640
Premises and equipment, accounts receivable and other assets		1,094
Total identifiable assets acquired		7,839
Fair value of liabilities assumed:
Deferred tax liability		2,556
Other liabilities		1,173
Total liabilities assumed		3,729
Fair value of net assets acquired		4,110
Goodwill resulting from acquisition	$	12,617

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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 September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Net income available to common shareholders	$	6,818		$	5,799		$	20,338		$	18,063
Weighted average common shares outstanding:
Total shares issued		14,318			14,162			14,214			14,162
Unvested restricted stock awards		(64	)		(64	)		(64	)		(70	)
Treasury shares		(301	)		(353	)		(310	)		(358	)
Total basic weighted average common shares outstanding		13,953			13,745			13,840			13,734
Incremental shares from assumed:
Exercise of stock options		26			12			25			8
Vesting of restricted stock awards		28			30			25			32
Total diluted weighted average common shares outstanding		14,007			13,787			13,890			13,774
Basic earnings per common share	$	0.49		$	0.42		$	1.47		$	1.32
Diluted earnings per common share	$	0.49		$	0.42		$	1.46		$	1.31
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			5			154
Restricted stock awards		—			—			1			3
		—			86			6			157

(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, 2014
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	115,830	$	916	$	1,468	$	115,278
Mortgage-backed securities:
Federal National Mortgage Association		182,986		1,720		2,228		182,478
Federal Home Loan Mortgage Corporation		30,784		588		42		31,330
Government National Mortgage Association		51,449		1,912		—		53,361
Collateralized mortgage obligations:
Federal National Mortgage Association		78,874		367		1,358		77,883
Federal Home Loan Mortgage Corporation		93,063		211		3,418		89,856
Government National Mortgage Association		33,113		755		110		33,758
Privately issued		—		1,294		—		1,294
Total collateralized mortgage obligations		205,050		2,627		4,886		202,791
Total mortgage-backed securities		470,269		6,847		7,156		469,960
Asset-backed securities		—		241		—		241
Total available for sale securities	$	586,099	$	8,004	$	8,624	$	585,479
Securities held to maturity:
State and political subdivisions		268,708		5,356		58		274,006
Mortgage-backed securities:
Federal National Mortgage Association		3,300		—		37		3,263
Government National Mortgage Association		13,959		—		70		13,889
Total held to maturity securities	$	285,967	$	5,356	$	165	$	291,158

- 10 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2013
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	135,840	$	1,414	$	2,802	$	134,452
Mortgage-backed securities:
Federal National Mortgage Association		173,507		1,511		4,810		170,208
Federal Home Loan Mortgage Corporation		36,737		562		205		37,094
Government National Mortgage Association		61,832		2,152		142		63,842
Collateralized mortgage obligations:
Federal National Mortgage Association		63,838		261		3,195		60,904
Federal Home Loan Mortgage Corporation		102,660		169		5,856		96,973
Government National Mortgage Association		43,734		913		586		44,061
Privately issued		—		1,467		—		1,467
Total collateralized mortgage obligations		210,232		2,810		9,637		203,405
Total mortgage-backed securities		482,308		7,035		14,794		474,549
Asset-backed securities		18		381		—		399
Total available for sale securities	$	618,166	$	8,830	$	17,596	$	609,400
Securities held to maturity:
State and political subdivisions	$	249,785	$	1,340	$	468	$	250,657

Investment securities with a total fair value of $785.9 million and $763.1 million at September 30, 2014 and December 31, 2013, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

During the third quarter of 2014, the Company transferred $12.8 million of available for sale mortgage backed 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 $51 thousand of unrealized holding losses 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, 2014 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	$	186	$	189
Due from one to five years		93,032		93,453
Due after five years through ten years		237,569		237,720
Due after ten years		255,312		254,117
	$	586,099	$	585,479
Debt securities held to maturity:
Due in one year or less	$	23,898	$	23,993
Due from one to five years		133,714		136,201
Due after five years through ten years		111,096		113,812
Due after ten years		17,259		17,152
	$	285,967	$	291,158

- 11 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

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

	Three months ended September 30,				Nine months ended September 30,
	2014		2013		2014		2013
Proceeds from sales and calls	$	14,672	$	—	$	76,100	$	1,327
Gross realized gains		515		—		1,777		1,224

Unrealized losses on investment securities 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, 2014
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	44,780	$	299	$	40,918	$	1,169	$	85,698	$	1,468
Mortgage-backed securities:
Federal National Mortgage Association		44,078		208		64,400		2,020		108,478		2,228
Federal Home Loan Mortgage Corporation		—		—		3,478		42		3,478		42
Collateralized mortgage obligations:
Federal National Mortgage Association		18,649		121		29,146		1,237		47,795		1,358
Federal Home Loan Mortgage Corporation		—		—		77,992		3,418		77,992		3,418
Government National Mortgage Association		2,249		8		5,350		102		7,599		110
Total collateralized mortgage obligations		20,898		129		112,488		4,757		133,386		4,886
Total mortgage-backed securities		64,976		337		180,366		6,819		245,342		7,156
Total available for sale securities		109,756		636		221,284		7,988		331,040		8,624
Securities held to maturity:
State and political subdivisions		9,504		58		—		—		9,504		58
Mortgage-backed securities:
Federal National Mortgage Association		3,264		37		—		—		3,264		37
Government National Mortgage Association		13,889		70		—		—		13,889		70
Total held to maturity securities		26,657		165		—		—		26,657		165
Total	$	136,413	$	801	$	221,284	$	7,988	$	357,697	$	8,789
December 31, 2013
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	86,177	$	2,788	$	2,717	$	14	$	88,894	$	2,802
Mortgage-backed securities:
Federal National Mortgage Association		103,778		3,491		20,689		1,319		124,467		4,810
Federal Home Loan Mortgage Corporation		14,166		205		—		—		14,166		205
Government National Mortgage Association		14,226		142		—		—		14,226		142
Collateralized mortgage obligations:
Federal National Mortgage Association		35,632		2,586		11,760		609		47,392		3,195
Federal Home Loan Mortgage Corporation		72,655		4,980		15,762		876		88,417		5,856
Government National Mortgage Association		8,396		586		—		—		8,396		586
Total collateralized mortgage obligations		116,683		8,152		27,522		1,485		144,205		9,637
Total mortgage-backed securities		248,853		11,990		48,211		2,804		297,064		14,794
Total available for sale securities		335,030		14,778		50,928		2,818		385,958		17,596
Securities held to maturity:
State and political subdivisions		72,269		468		—		—		72,269		468
Total	$	407,299	$	15,246	$	50,928	$	2,818	$	458,227	$	18,064

- 12 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2014 was 122 compared to 331 at December 31, 2013. At September 30, 2014, the Company had positions in 55 investment securities with a fair value of $221.3 million and a total unrealized loss of $8.0 million that have been in a continuous unrealized loss position for more than 12 months. There were a total of 67 securities positions in the Company’s investment portfolio, with a fair value of $136.4 million and a total unrealized loss of $801 thousand at September 30, 2014, 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.

Based on management’s review and evaluation of the Company’s debt securities as of September 30, 2014, the debt securities with unrealized losses were not considered to be other than temporarily impaired. As of September 30, 2014, the Company did not intend 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, 2014, 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.

(5.) LOANS

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

	Principal Amount Outstanding		Net Deferred Loan Costs (Fees)			Loans, Net
September 30, 2014
Commercial business	$	275,027	$	80		$	275,107
Commercial mortgage		470,566		(1,081	)		469,485
Residential mortgage		103,183		(139	)		103,044
Home equity		376,062		6,641			382,703
Consumer indirect		630,441		25,774			656,215
Other consumer		21,096		195			21,291
Total	$	1,876,375	$	31,470			1,907,845
Allowance for loan losses							(27,244	)
Total loans, net						$	1,880,601
December 31, 2013
Commercial business	$	265,751	$	15		$	265,766
Commercial mortgage		470,312		(1,028	)		469,284
Residential mortgage		113,101		(56	)		113,045
Home equity		320,658		5,428			326,086
Consumer indirect		609,390		26,978			636,368
Other consumer		22,893		177			23,070
Total	$	1,802,105	$	31,514			1,833,619
Allowance for loan losses							(26,736	)
Total loans, net						$	1,806,883

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $1.0 million and $3.4 million as of September 30, 2014 and December 31, 2013, respectively.

- 13 -

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, 2014
Commercial business	$	787	$	27	$	—	$	814	$	3,258	$	270,955	$	275,027
Commercial mortgage		—		62		—		62		2,460		468,044		470,566
Residential mortgage		334		—		—		334		656		102,193		103,183
Home equity		521		97		—		618		464		374,980		376,062
Consumer indirect		1,814		492		—		2,306		1,300		626,835		630,441
Other consumer		87		31		7		125		39		20,932		21,096
Total loans, gross	$	3,543	$	709	$	7	$	4,259	$	8,177	$	1,863,939	$	1,876,375
December 31, 2013
Commercial business	$	558	$	199	$	—	$	757	$	3,474	$	261,520	$	265,751
Commercial mortgage		800		—		—		800		9,663		459,849		470,312
Residential mortgage		542		—		—		542		1,078		111,481		113,101
Home equity		750		143		—		893		925		318,840		320,658
Consumer indirect		2,129		476		—		2,605		1,471		605,314		609,390
Other consumer		126		72		6		204		5		22,684		22,893
Total loans, gross	$	4,905	$	890	$	6	$	5,801	$	16,616	$	1,779,688	$	1,802,105

There were no loans past due greater than 90 days and still accruing interest as of September 30, 2014 and December 31, 2013. There were $7 thousand and $6 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2014 and December 31, 2013, 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 seldom 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, 2014
Commercial business		—	$	—	$	—		1	$	1,381	$	1,381
Commercial mortgage		—		—		—		—		—		—
Total		—	$	—	$	—		1	$	1,381	$	1,381
September 30, 2013
Commercial business		—	$	—	$	—		3	$	1,462	$	1,454
Commercial mortgage		—		—		—		—		—		—
Total		—	$	—	$	—		3	$	1,462	$	1,454

- 14 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

All of the loans identified as TDRs by the Company during the nine months ended September 30, 2014 and 2013 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. 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 nine months ended September 30, 2014 or 2013. 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, 2014
With no related allowance recorded:
Commercial business	$	1,536	$	1,998	$	—	$	1,553	$	—
Commercial mortgage		1,108		1,247		—		1,092		—
		2,644		3,245		—		2,645		—
With an allowance recorded:
Commercial business		1,722		1,733		1,331		1,868		—
Commercial mortgage		1,352		1,352		269		1,520		—
		3,074		3,085		1,600		3,388		—
	$	5,718	$	6,330	$	1,600	$	6,033	$	—
December 31, 2013
With no related allowance recorded:
Commercial business	$	1,777	$	2,273	$	—	$	659	$	—
Commercial mortgage		875		906		—		760		—
		2,652		3,179		—		1,419		—
With an allowance recorded:
Commercial business		1,697		1,717		201		3,196		—
Commercial mortgage		8,788		9,188		1,057		3,758		—
		10,485		10,905		1,258		6,954		—
	$	13,137	$	14,084	$	1,258	$	8,373	$	—

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

- 15 -

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, 2014
Uncriticized	$	255,436	$	453,726
Special mention		8,593		6,898
Substandard		10,998		9,942
Doubtful		—		—
Total	$	275,027	$	470,566
December 31, 2013
Uncriticized	$	250,553	$	449,447
Special mention		6,311		6,895
Substandard		8,887		13,970
Doubtful		—		—
Total	$	265,751	$	470,312

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, 2014
Performing	$	102,527	$	375,598	$	629,141	$	21,050
Non-performing		656		464		1,300		46
Total	$	103,183	$	376,062	$	630,441	$	21,096
December 31, 2013
Performing	$	112,023	$	319,733	$	607,919	$	22,882
Non-performing		1,078		925		1,471		11
Total	$	113,101	$	320,658	$	609,390	$	22,893

- 16 -

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, 2014
Loans:
Ending balance	$	275,027	$	470,566		$	103,183		$	376,062	$	630,441	$	21,096	$	1,876,375
Evaluated for impairment:
Individually	$	3,258	$	2,460		$	—		$	—	$	—	$	—	$	5,718
Collectively	$	271,769	$	468,106		$	103,183		$	376,062	$	630,441	$	21,096	$	1,870,657
Allowance for loan losses:
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244
Evaluated for impairment:
Individually	$	1,331	$	269		$	—		$	—	$	—	$	—	$	1,600
Collectively	$	4,427	$	7,219		$	592		$	1,658	$	11,292	$	456	$	25,644
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
The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2014 (in thousands):
	Commercial Business		Commercial Mortgage			Residential Mortgage			Home Equity		Consumer Indirect		Other Consumer		Total
Three months ended September 30, 2014
Beginning balance	$	5,402	$	7,633		$	618		$	1,607	$	11,446	$	460	$	27,166
Charge-offs		105		111			16			73		2,606		272		3,183
Recoveries		61		45			5			7		1,029		99		1,246
Provision (credit)		400		(79	)		(15	)		117		1,423		169		2,015
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244
Nine months ended September 30, 2014
Beginning balance	$	4,273	$	7,743		$	676		$	1,367	$	12,230	$	447	$	26,736
Charge-offs		176		276			163			335		7,392		765		9,107
Recoveries		158		58			34			47		3,129		310		3,736
Provision (credit)		1,503		(37	)		45			579		3,325		464		5,879
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244

- 17 -

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, 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 (credit)		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

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, which are primarily automobiles. 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

Intangible assets include core deposit intangibles, customer relationship intangibles, trade name intangibles and goodwill. Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Other intangible assets with definite lives include core deposit intangibles, customer relationship intangibles and trade name intangibles.

Goodwill is not subject to amortization and is instead evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when the carrying value of goodwill exceeds its implied fair value.

The following table presents the changes in the carrying amount of goodwill for the period indicated:

Balance, December 31, 2013	$	48,536
Addition from the SDN acquisition		12,617
Balance, September 30, 2014	$	61,153

Goodwill and other intangible assets added during the period relates to the SDN acquisition, which was completed on August 1, 2014. See Note 2 – Business Combinations for additional information.

The following table presents the changes in other intangible assets and the related accumulated amortization for the periods indicated:

	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Gross Other Intangible Assets:
Balance at beginning of period	$	2,042		$	2,042		$	2,042		$	2,042
Additions from the SDN acquisition		6,640			—			6,640			—
Balance at end of period		8,682			2,042			8,682			2,042
Accumulated Amortization:
Balance at beginning of period		(752	)		(388	)		(576	)		(189	)
Amortization		(196	)		(95	)		(372	)		(294	)
Balance at end of period		(948	)		(483	)		(948	)		(483	)
Net carrying value at end of period	$	7,734		$	1,559		$	7,734		$	1,559

Other intangible assets are amortized on either an accelerated or straight-line basis over their respective estimated useful lives ranging from three to 20 years and reviewed for impairment at least annually. The weighted average amortization period remaining for the Company’s other intangible assets is 17.8 years.

As of September 30, 2014, the estimated other intangible asset amortization expense for the remainder of 2014 and each of the next five years is as follows (in thousands):

2014 (remainder of year)	$	248
2015		942
2016		864
2017		778
2018		689
2019		611

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(7.) SHAREHOLDERS’ EQUITY

Common Stock

The changes in shares of common stock were as follows for the nine months ended September 30, 2014 and 2013:

	Outstanding			Treasury			Issued
September 30, 2014
Shares outstanding at December 31, 2013		13,829,355			332,242			14,161,597
Shares issued for the SDN acquisition		235,912			—			235,912
Restricted stock awards issued		43,242			(43,242	)		—
Restricted stock awards forfeited		(13,609	)		13,609			—
Stock options exercised		8,467			(8,467	)		—
Treasury stock purchases		(9,102	)		9,102			—
Shares outstanding at September 30, 2014		14,094,265			303,244			14,397,509
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

(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, 2014 and 2013 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
September 30, 2014
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	9,923		$	3,931		$	5,992
Reclassification adjustment for net gains included in net income (1)		(2,167	)		(858	)		(1,309	)
Total securities available for sale and transferred securities		7,756			3,073			4,683
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		132			52			80
Total pension and post-retirement obligations		96			38			58
Other comprehensive income	$	7,852		$	3,111		$	4,741
September 30, 2013
Securities available for sale:
Change in unrealized gain/loss during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for net gains included in net income (1)		(1,224	)		(485	)		(739	)
Total securities available for sale		(28,429	)		(11,262	)		(17,167	)
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		1,023			405			618
Total pension and post-retirement obligations		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)

⁽¹⁾  Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

Activity in accumulated other comprehensive income (loss), net of tax, for the nine month periods ended September 30, 2014 and 2013 was as follows (in thousands):

	Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)
September 30, 2014
Balance at beginning of year	$	(5,337	)	$	(4,850	)	$	(10,187	)
Other comprehensive income before reclassifications		5,992			—			5,992
Amounts reclassified from accumulated other comprehensive income		(1,309	)		58			(1,251	)
Net current period other comprehensive income		4,683			58			4,741
Balance at end of period	$	(654	)	$	(4,792	)	$	(5,446	)
September 30, 2013
Balance at beginning of year	$	16,060		$	(12,807	)	$	3,253
Other comprehensive (loss) income before reclassifications		(16,428	)		—			(16,428	)
Amounts reclassified from accumulated other comprehensive income		(739	)		596			(143	)
Net current period other comprehensive (loss) income		(17,167	)		596			(16,571	)
Balance at end of period	$	(1,107	)	$	(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 periods ended September 30, 2014 and 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
	Nine months ended
	September 30,
	2014			2013
Realized gain on sale of investment securities	$	1,777		$	1,224		Net gain on disposal of investment securities
Amortization of unrealized holding gains (losses) on investment securities transferred from available for sale to held to maturity		390			—		Interest income
		2,167			1,224		Total before tax
		(858	)		(485	)	Income tax expense
		1,309			739		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		36			36		Salaries and employee benefits
Net actuarial losses (1)		(132	)		(1,023	)	Salaries and employee benefits
		(96	)		(987	)	Total before tax
		38			391		Income tax benefit
		(58	)		(596	)	Net of tax
Total reclassified for the period	$	1,251		$	143

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

- 21 -

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 22,642 shares of restricted common stock to certain members of management during the nine months ended September 30, 2014. 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, 2014. 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, 2016. 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, 2016.

The grant date fair value of the TSR portion of the award granted during the nine months ended September 30, 2014 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.87 years, (ii) risk free interest rate of 0.62%, (iii) expected dividend yield of 3.59% and (iv) expected stock price volatility over the expected term of the TSR award of 39.4%. The model resulted in a grant date fair value of $10.54 for the TSR portion of the award. 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 11,600 shares of restricted common stock to management during the nine months ended September 30, 2014. The shares will vest after completion of a three-year service requirement. The weighted average market price of the restricted stock awards on the date of grant was $21.26.

During the nine months ended September 30, 2014, the Company granted 9,000 restricted shares of 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 $22.82.

The restricted stock awards granted to management and directors in 2014 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, 2014:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year		65,040		$	16.92
Granted		43,242			18.76
Vested		(33,728	)		18.17
Forfeited		(13,609	)		18.04
Outstanding at end of period		60,945		$	17.28

As of September 30, 2014, there was $578 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 years.

- 22 -

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 2014 or 2013. The following is a summary of stock option activity for the nine months ended September 30, 2014 (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		192,934		$	19.83
Exercised		(8,467	)		18.87
Expired		(23,436	)		23.64
Outstanding and exercisable at end of period		161,031		$	19.34		2.1	$	506

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, 2014 and 2013 was $35 thousand and $9 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the nine months ended September 30, 2014 and 2013 was $160 thousand and $66 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,
	2014		2013		2014		2013
Salaries and employee benefits	$	52	$	85	$	208	$	164
Other noninterest expense		26		22		175		148
Total share-based compensation expense	$	78	$	107	$	383	$	312

(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,
	2014			2013			2014			2013
Service cost	$	479		$	516		$	1,438		$	1,548
Interest cost on projected benefit obligation		573			505			1,720			1,515
Expected return on plan assets		(1,029	)		(921	)		(3,088	)		(2,763	)
Amortization of prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of net actuarial losses		44			341			132			1,023
Net periodic pension expense	$	55		$	429		$	166		$	1,287

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 2014 fiscal year.

- 23 -

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, 2014		December 31, 2013
Commitments to extend credit	$	441,425	$	431,236
Standby letters of credit		11,023		8,618

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 $742 thousand at September 30, 2014. There were no forward sales commitments outstanding as of December 31, 2013. 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.

- 24 -

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 is not material.

- 25 -

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, 2014
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	115,278	$	—	$	115,278
Mortgage-backed securities		—		469,960		—		469,960
Asset-backed securities		—		241		—		241
	$	—	$	585,479	$	—	$	585,479
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	1,029	$	—	$	1,029
Collateral dependent impaired loans		—		—		1,474		1,474
Other assets:
Loan servicing rights		—		—		1,398		1,398
Other real estate owned		—		—		509		509
	$	—	$	1,029	$	3,381	$	4,410
December 31, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	134,452	$	—	$	134,452
Mortgage-backed securities		—		474,549		—		474,549
Asset-backed securities		—		399		—		399
	$	—	$	609,400	$	—	$	609,400
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	3,381	$	—	$	3,381
Collateral dependent impaired loans		—		—		9,227		9,227
Other assets:
Loan servicing rights		—		—		1,565		1,565
Other real estate owned		—		—		333		333
	$	—	$	3,381	$	11,125	$	14,506

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2014 and 2013. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month periods ended September 30, 2014 and 2013.

- 26 -

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	$	1,474	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 100% discount
			Discounted cash flow	Discount rate	4.5%(3)
				Risk premium rate	10.0%(3)
Loan servicing rights		1,398	Discounted cash flow	Discount rate	5.3%(3)
				Constant prepayment rate	11.7%(3)
Other real estate owned		509	Appraisal of collateral (1)	Appraisal adjustments (2)	9% - 58% 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, 2014 and 2013.

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.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

The following table 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, 2014				December 31, 2013
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	87,582	$	87,582	$	59,692	$	59,692
Securities available for sale	Level 2		585,479		585,479		609,400		609,400
Securities held to maturity	Level 2		285,967		291,158		249,785		250,657
Loans held for sale	Level 2		1,029		1,038		3,381		3,381
Loans	Level 2		1,879,127		1,889,258		1,797,656		1,802,407
Loans (1)	Level 3		1,474		1,474		9,227		9,227
Accrued interest receivable	Level 1		8,615		8,615		8,150		8,150
FHLB and FRB stock	Level 2		13,250		13,250		19,663		19,663
Financial liabilities:
Non-maturity deposits	Level 1		1,907,854		1,907,854		1,724,133		1,724,133
Time deposits	Level 2		630,970		631,676		595,923		596,928
Short-term borrowings	Level 1		215,967		215,967		337,042		337,042
Accrued interest payable	Level 1		3,786		3,786		3,407		3,407

⁽¹⁾  Comprised of collateral dependent impaired loans.

(13.) BUSINESS SEGMENTS

The Company has two reportable operating segments, banking and insurance, which are delineated by the consolidated subsidiaries of Financial Institutions, Inc. The banking segment includes all of the Company’s retail and commercial banking operations. The insurance segment includes the activities of Scott Danahy Naylon, a full service insurance agency that provides a broad range of insurance services to both personal and business clients. The Company operated as one business segment until the acquisition of SDN on August 1, 2014, at which time the new “Insurance” segment was created for financial reporting purposes. Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the Holding Company and Other column below, along with amounts to eliminate balances and transactions between segments.

The following tables present information regarding our business segments as of and for the periods indicated (in thousands).

	September 30, 2014
	Banking		Insurance		Holding Company and Other			Consolidated Totals
Goodwill	$	48,536	$	12,617	$	—		$	61,153
Other intangible assets, net		1,206		6,528		—			7,734
Total assets(1)		3,035,803		19,847		(346	)		3,055,304

⁽¹⁾  The negative balance for total assets in the “Holding Company and Other” column results from the elimination of holding company cash held in deposit accounts at the Bank and other reclassifications.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(13.) BUSINESS SEGMENTS (Continued)

	Three months ended September 30, 2014
	Banking			Insurance(1)			Holding Company and Other			Consolidated Totals
Net interest income	$	23,258		$	—		$	—		$	23,258
Provision for loan losses		(2,015	)		—			—			(2,015	)
Noninterest income		6,684			670			(93	)		7,261
Noninterest expense		(16,794	)		(640	)		(521	)		(17,955	)
Income (loss) before income taxes		11,133			30			(614	)		10,549
Income tax (expense) benefit		(3,584	)		(12	)		231			(3,365	)
Net income (loss)	$	7,549		$	18		$	(383	)	$	7,184

	Nine months ended September 30, 2014
	Banking			Insurance(1)			Holding Company and Other			Consolidated Totals
Net interest income	$	69,636		$	—		$	—		$	69,636
Provision for loan losses		(5,879	)		—			—			(5,879	)
Noninterest income		19,779			670			(254	)		20,195
Noninterest expense		(50,315	)		(640	)		(2,021	)		(52,976	)
Income (loss) before income taxes		33,221			30			(2,275	)		30,976
Income tax (expense) benefit		(10,480	)		(12	)		951			(9,541	)
Net income (loss)	$	22,741		$	18		$	(1,324	)	$	21,435

⁽¹⁾  Reflects activity from SDN since August 1, 2014, the date of acquisition.

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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, 2013. 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,” “project,” 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, 2013, 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, providing banking and nonbanking financial services to individuals, municipalities and businesses primarily 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 (“the Bank”), we offer a wide range of services, including business and consumer loan and depository services, brokerage and investment advisory services, as well as other financial services and traditional banking services. During February 2014, the Bank formed a wholly-owned subsidiary, Five Star REIT, Inc. as a special purpose real estate investment trust. For further discussion of Five Star REIT, Inc., refer to the “Income Taxes” section of this Management’s Discussion and Analysis. We also offer insurance services through our wholly-owned insurance subsidiary, Scott Danahy Naylon, LLC (“SDN”), a full service insurance agency. References in this report to “the Company”, “we”, “our” or “us” mean the consolidated reporting entity, references to “the Bank” mean Five Star Bank and references to “SDN” mean Scott Danahy Naylon, LLC.

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 consists of focusing on and understanding the individualized banking needs of the businesses and residents of the communities we serve. 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 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

EXECUTIVE OVERVIEW

Acquisition of Scott Danahy Naylon Co., Inc.

On August 1, 2014, we completed the acquisition of Scott Danahy Naylon Co., Inc., a full service insurance agency located in a suburb of Buffalo, New York. Consideration for the acquisition included both cash and stock totaling $16.9 million, including up to $3.4 million of future payments, contingent upon SDN meeting certain revenue performance targets through 2017. As a result of the acquisition, the Company recorded goodwill of $12.6 million and other intangible assets of $6.6 million. SDN now operates as a subsidiary of Financial Institutions, Inc. and an affiliate of Five Star Bank.

We expect to realize the following benefits from this acquisition:

• Grow and diversify our noninterest income by entering the insurance line of business

• Platform agency, defined by industry standards as an agency with $5 million or more in annual revenue, for us to add independent agencies or individual producers in the future

• Retain capable management with extensive experience in the insurance industry

• Potential synergies with our commercial lending business as SDN profile includes over 70% commercial-related activities

• Improved presence and brand recognition in the Buffalo marketplace

Summary of 2014 Third Quarter Results

Net income increased $1.0 million or 17% to $7.2 million for the third quarter of 2014 compared to $6.2 million for the third quarter of 2013. Net income available to common shareholders for the third quarter of 2014 was $6.8 million, or $0.49 per diluted share, compared with $5.8 million, or $0.42 per diluted share, for the third quarter of last year. Return on average common equity was 10.55% and return on average assets was 0.95% for the third quarter of 2014 compared to 10.05% and 0.88%, respectively, for the third quarter of 2013.

Net interest income totaled $23.3 million in the third quarter 2014, up from $22.8 million in the third quarter 2013. Average earning assets were up $176.7 million, led by a $144.3 million increase in loans and a $32.5 million increase in investment securities in the third quarter of 2014 compared to the same quarter in 2013. The growth in earning assets was offset by a narrowing net interest margin. Third quarter 2014 net interest margin was 3.46%, a decrease of 16 basis points from 3.62% reported in the third quarter of 2013.

Noninterest income totaled $7.3 million in the third quarter of 2014, compared to $6.2 million in the third quarter of 2013. The increase in noninterest income compared to the third quarter of 2013 was primarily due to gains from the sale of securities and insurance income resulting from the SDN acquisition.

Noninterest expense in the third quarter of 2014 totaled $18.0 million compared with $17.0 million in the third quarter of 2013. The increase in noninterest expense was largely due to incremental expenses from the addition of SDN operations and higher salaries and benefits expense associated and the hiring of additional loan officers and related personnel.

The provision for loans losses decreased to $2.0 million in the third quarter of 2014 compared to $2.8 million in the third quarter of 2013. The third quarter 2013 provision for loans losses included a $960 thousand reserve related to one credit relationship. Net charge-offs during the recent quarter were $1.9 million, up from $1.7 million in the third quarter of 2013. Net charge-offs expressed as an annualized percentage of average loans outstanding were 0.40% during the third quarter of 2014 compared with 0.38% in the third quarter of 2013.

The period end allowance for loan losses to total loans decreased to 1.43% at September 30, 2014 from 1.46% at December 31, 2013. Non-performing loans declined by $8.4 million or 51% to $8.2 million or 0.43% of total loans when comparing September 30, 2014 to December 31, 2013. The decreases reflect meaningful improvement in commercial mortgage non-performing loans.

Our leverage ratio decreased to 7.34% as of September 30, 2014 from 7.68% at September 30, 2013. Our tier 1 risk-based capital ratio was 10.44% and 10.94% at September 30, 2014 and 2013, respectively. Regulatory capital ratios decreased as of September 30, 2014 when compared to September 30, 2013 primarily as a result of the SDN acquisition.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

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,
	2014		2013		2014		2013
Interest income per consolidated statements of income	$	25,129	$	24,623	$	75,071	$	73,713
Adjustment to fully taxable equivalent basis		721		679		2,117		1,963
Interest income adjusted to a fully taxable equivalent basis		25,850		25,302		77,188		75,676
Interest expense per consolidated statements of income		1,871		1,820		5,435		5,499
Net interest income on a taxable equivalent basis	$	23,979	$	23,482	$	71,753	$	70,177

2014 Leverage Strategy

During the first quarter of 2014, we utilized the proceeds of short-term Federal Home Loan Bank (“FHLB”) advances to purchase investment securities of approximately $50 million. During the second quarter of 2014 we sold approximately $42 million of securities purchased in the first quarter and utilized the proceeds to fund growth in our home equity portfolio. During the third quarter of 2014, we utilized the proceeds of short-term FHLB advances to purchase an additional $25 million of investment securities. Our purchases of investment securities were comprised of high-quality 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.

Analysis of Net Interest Income for the Three Months ended September 30, 2014 and 2013

Net interest income on a taxable equivalent basis for the three months ended September 30, 2014, was $24.0 million, an increase of $497 thousand or 2% versus the comparable quarter last year. The increase in taxable equivalent net interest income was attributable to a change in the mix and increase in the volume of earning assets and interest-bearing liabilities, which added $1.6 million to taxable equivalent net interest income, partly offset by the impact of changes in the interest rate environment and product pricing, which reduced taxable equivalent net interest income by $1.1 million.

Actions by the Federal Open Market Committee of the Federal Reserve Board have maintained low interest rates on interest-earning assets, which has compressed net interest income and net interest margins for the banking industry by maintaining low rates on interest-earning assets. Throughout 2013 and thus far into 2014, margins in the banking industry were pressured downward as higher-yielding legacy assets rolled off and were reinvested in the current low rate environment. Low interest rates, coupled with a competitive lending environment, have proven challenging for the profitability of the banking industry.

The net interest margin for the third quarter of 2014 was 3.46%, 16 basis points lower than 3.62% for the same period in 2013. This comparable period decrease was due to a corresponding decrease in the interest rate spread, a net result of an 17 basis point decrease in the yield on earning assets and a 1 basis point decrease in the cost of interest-bearing liabilities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

For the third quarter of 2014, the yield on average earning assets of 3.73% was 17 basis points lower than during the third quarter of 2013. Loan yields decreased 28 basis points during the third quarter of 2014 to 4.31%. Consumer indirect loans in particular, down 48 basis points, experienced lower yields given the competitive pricing pressures in a low interest rate environment. The yield on investment securities increased slightly to 2.43%. Overall, earning asset rate changes reduced interest income by $1.1 million during the third quarter of 2014, but that was more than offset by a favorable increase in the volume of earning assets that increased interest income by $1.7 million, which collectively drove a $548 thousand increase in interest income.

The cost of average interest-bearing liabilities of 0.35% in the third quarter of 2014 was 1 basis point lower than the third quarter of 2013. Rates on interest-bearing deposits were down 2 basis points to 0.34% and the cost of short-term funding decreased 1 basis point to 0.37% for the third quarter of 2014. The interest-bearing liability rate changes resulted in $80 thousand of lower interest expense, which was partly offset by a $131 thousand volume-related increase in interest expense.

Average interest-earning assets were $2.76 billion for the third quarter 2014, an increase of $176.7 million or 7% from the comparable quarter last year, with average loans up $144.3 million and average securities up $32.5 million. The growth in average loans was comprised of increases in most loan categories, with consumer and commercial loans up $112.5 million and $48.0 million, respectively, partially offset by a $16.2 million decrease in residential mortgage loans.

Average interest-bearing liabilities of $2.14 billion in third quarter of 2014 were $141.7 million or 7% higher than the third quarter of 2013. On average, interest-bearing deposits grew $89.2 million, while noninterest-bearing demand deposits were up $29.0 million. The increase in average interest-bearing deposits was primarily attributable to a $76.8 million increase in public deposit balances due largely to the seasonality of municipal cash flows. Average short-term borrowings increased $52.5 million between the third quarter periods, largely due to the incremental borrowings associated with the previously mentioned 2014 leverage strategy.

Analysis of Net Interest Income for the Nine Months ended September 30, 2014 and September 30, 2013

Net interest income on a taxable equivalent basis for the first nine months of 2014 was $71.8 million, an increase of $1.6 million or 2% 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 $5.1 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 $3.5 million).

The net interest margin for the first nine months of 2014 was 3.48%, 18 basis points lower than 3.66% for the same period last year. This comparable period decrease was a function of a 16 basis point decrease in interest rate spread to 3.41% during the first nine months of 2014, combined with a 2 basis point lower contribution from net free funds. The lower interest rate spread was a net result of a 19 basis point decrease in the yield on earning assets and a 3 basis point decrease in the cost of interest-bearing liabilities.

The yield on earning assets was 3.75% for the first nine months of 2014, 19 basis points lower than the same period last year, primarily attributable to a decrease in the yields on the loan portfolio (down 33 basis points to 4.36%), partially offset by an increase in the yields on the investment securities portfolio (up 3 basis points, to 2.43%).

The cost on interest-bearing liabilities of 0.34% for the first nine months of 2014 was 3 basis points lower than the same period in 2013. Rates on interest-bearing deposits were down 3 basis points to 0.33% and the cost of short-term borrowings decreased 2 basis points to 0.37%.

Average interest-earning assets were $2.75 billion for the first nine months of 2014, an increase of $189.7 million or 7% from the comparable period last year, with average loans up $141.1 million and average securities up $48.7 million. The growth in average loans was comprised of increases in most loan categories, with consumer and commercial loans up $101.2 million and $55.8 million, respectively, partially offset by a $16.0 million decrease in residential mortgage loans.

Average interest-bearing liabilities of $2.15 billion in the first nine months of 2014 were $138.8 million or 7% higher than the first nine months of 2013. On average, interest-bearing deposits grew $70.0 million, while noninterest-bearing demand deposits (a principal component of net free funds) were up $36.0 million and average short-term borrowings increased $68.8 million.

- 33 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following tables set 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,
	2014								2013
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	51		$	—		0.28	%	$	126		$	—		0.15	%
Investment securities (1):
Taxable		589,054			3,117		2.12			579,483			3,031		2.09
Tax-exempt (2)		264,976			2,062		3.11			242,078			1,939		3.20
Total investment securities		854,030			5,179		2.43			821,561			4,970		2.42
Loans:
Commercial business		273,239			2,878		4.18			256,256			2,823		4.37
Commercial mortgage		473,168			5,847		4.90			442,178			5,569		5.00
Residential mortgage		105,255			1,247		4.74			121,462			1,481		4.88
Home equity		377,360			3,685		3.88			309,970			3,115		3.99
Consumer indirect		653,192			6,420		3.90			605,286			6,679		4.38
Other consumer		20,847			594		11.30			23,641			665		11.16
Total loans		1,903,061			20,671		4.31			1,758,793			20,332		4.59
Total interest-earning assets		2,757,142			25,850		3.73			2,580,480			25,302		3.90
Allowance for loan losses		(27,853	)							(26,020	)
Other noninterest-earning assets		256,631								230,120
Total assets	$	2,985,920							$	2,784,580
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	486,311		$	151		0.12	%	$	466,889		$	211		0.18	%
Savings and money market		758,306			222		0.12			719,452			248		0.14
Time deposits		634,400			1,254		0.78			603,434			1,165		0.77
Total interest-bearing deposits		1,879,017			1,627		0.34			1,789,775			1,624		0.36
Short-term borrowings		259,995			244		0.37			207,491			196		0.38
Total interest-bearing liabilities		2,139,012			1,871		0.35			1,997,266			1,820		0.36
Noninterest-bearing demand deposits		556,485								527,438
Other noninterest-bearing liabilities		16,777								13,673
Shareholders’ equity		273,646								246,203
Total liabilities and shareholders’ equity	$	2,985,920							$	2,784,580
Net interest income (tax-equivalent)				$	23,979							$	23,482
Interest rate spread							3.38	%							3.54	%
Net earning assets	$	618,130							$	583,214
Net interest margin (tax-equivalent)							3.46	%							3.62	%
Ratio of average interest-earning assets to average interest-bearing liabilities							128.90	%							129.20	%

⁽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,
	2014								2013
	Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	153		$	—		0.10	%	$	223		$	—		0.19	%
Investment securities (1):
Taxable		621,605			9,971		2.14			600,620			9,293		2.06
Tax-exempt (2)		256,318			6,049		3.15			228,587			5,608		3.27
Total investment securities		877,923			16,020		2.43			829,207			14,901		2.40
Loans:
Commercial business		271,190			8,701		4.29			257,172			8,548		4.44
Commercial mortgage		473,263			17,045		4.82			431,440			16,251		5.04
Residential mortgage		109,030			3,926		4.80			125,017			4,689		5.00
Home equity		351,212			10,396		3.96			299,474			9,208		4.11
Consumer indirect		648,901			19,301		3.98			596,260			20,049		4.50
Other consumer		21,251			1,799		11.32			24,412			2,030		11.12
Total loans		1,847,847			61,168		4.36			1,733,775			60,775		4.69
Total interest-earning assets		2,752,923			77,188		3.75			2,563,205			75,676		3.94
Allowance for loan losses		(27,389	)							(25,700	)
Other noninterest-earning assets		249,560								247,142
Total assets	$	2,975,094							$	2,784,647
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	502,170		$	462		0.12	%	$	483,428		$	525		0.15	%
Savings and money market		770,008			689		0.12			717,583			710		0.13
Time deposits		627,550			3,578		0.76			628,694			3,725		0.79
Total interest-bearing deposits		1,899,728			4,729		0.33			1,829,705			4,960		0.36
Short-term borrowings		253,017			706		0.37			184,236			539		0.39
Total interest-bearing liabilities		2,152,745			5,435		0.34			2,013,941			5,499		0.37
Noninterest-bearing demand deposits		539,693								503,734
Other noninterest-bearing liabilities		14,803								14,027
Shareholders’ equity		267,853								252,945
Total liabilities and shareholders’ equity	$	2,975,094							$	2,784,647
Net interest income (tax-equivalent)				$	71,753							$	70,177
Interest rate spread							3.41	%							3.57	%
Net earning assets	$	600,178							$	549,264
Net interest margin (tax-equivalent)							3.48	%							3.66	%
Ratio of average interest-earning assets to average interest-bearing liabilities							127.88	%							127.27	%

⁽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%.

- 35 -

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									Nine months ended
	September 30, 2014 vs. 2013									September 30, 2014 vs. 2013
	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in:
Interest income:
Federal funds sold and interest-earning deposits	$	—		$	—		$	—		$	—		$	—		$	—
Investment securities:
Taxable		51			35			86			331			347			678
Tax-exempt		179			(56	)		123			660			(219	)		441
Total investment securities		230			(21	)		209			991			128			1,119
Loans:
Commercial business		182			(127	)		55			456			(303	)		153
Commercial mortgage		384			(106	)		278			1,527			(733	)		794
Residential mortgage		(193	)		(41	)		(234	)		(582	)		(181	)		(763	)
Home equity		660			(90	)		570			1,542			(354	)		1,188
Consumer indirect		505			(764	)		(259	)		1,682			(2,430	)		(748	)
Other consumer		(80	)		9			(71	)		(267	)		36			(231	)
Total loans		1,458			(1,119	)		339			4,358			(3,965	)		393
Total interest income		1,688			(1,140	)		548			5,349			(3,837	)		1,512
Interest expense:
Deposits:
Interest-bearing demand		9			(69	)		(60	)		19			(82	)		(63	)
Savings and money market		12			(38	)		(26	)		50			(71	)		(21	)
Time deposits		61			28			89			(7	)		(140	)		(147	)
Total interest-bearing deposits		82			(79	)		3			62			(293	)		(231	)
Short-term borrowings		49			(1	)		48			193			(26	)		167
Total interest expense		131			(80	)		51			255			(319	)		(64	)
Net interest income	$	1,557		$	(1,060	)	$	497		$	5,094		$	(3,518	)	$	1,576

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 $2.0 million and $5.9 million for the three and nine month periods ended September 30, 2014, compared with provisions of $2.8 million and $6.7 million for the corresponding periods in 2013, 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,
	2014		2013			2014		2013
Service charges on deposits	$	2,277	$	2,728		$	6,768	$	7,437
ATM and debit card		1,263		1,283			3,694		3,849
Investment advisory		524		568			1,647		1,917
Company owned life insurance		421		422			1,249		1,275
Insurance income		922		92			979		189
Investments in limited partnerships		187		241			894		538
Loan servicing		120		227			450		452
Net gain on disposal of investment securities		515		—			1,777		1,224
Net gain (loss) on sale of loans held for sale		76		(101	)		231		134
Net gain (loss) on disposal of other assets		72		—			61		39
Other		884		709			2,445		2,044
Total noninterest income	$	7,261	$	6,169		$	20,195	$	19,098

Service charges on deposit accounts decreased $451 thousand or 17% in the third quarter of 2014 and $669 thousand or 9% for the nine months ended September 30, 2014, compared to the same periods a year earlier. Service charges on deposit accounts for 2013 reflected a retail checking account repositioning that involved simplifying the suite of products offered to customers and modifications to the fee structure for our accounts. As noted at that time, the income from service charges on deposits subsequently stabilized as customers determined the optimal mix of our products and services to best suit their banking needs.

ATM and debit card income decreased $20 thousand or 2% in the third quarter of 2014 and $155 thousand or 4% for the nine months ended September 30, 2014, compared to the same periods a year earlier. The decreases are primarily attributable to lower transaction volumes due to card reissuance associated with third-party security breaches.

Investment advisory income decreased $44 thousand or 8% and $270 thousand or 14%, respectively, in the three and nine months ended September 30, 2014, compared to the same periods of 2013. Investment advisory income fluctuates mainly due to sales volume, which decreased during the first nine months of 2014.

Insurance income was $922 thousand and $979 thousand for the three and nine months ended September 30, 2014, respectively. The quarterly and year to date amounts include $670 thousand which was generated by SDN.

We have investments in limited partnerships, primarily small business investment companies, and account for these investments under the equity method. Income from investments in limited partnerships was $187 thousand and $894 thousand for the three and nine months ended September 30, 2014, respectively. The income from these equity method investments fluctuates based on the performance of the underlying investments.

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 decreased $107 thousand and $2 thousand during the three and nine months ended September 30, 2014, compared to the same periods a year earlier. The decreases were the result of lower fees collected due to a decrease in the sold and serviced portfolio.

We recognized pre-tax gains on investment securities of $515 thousand from the sale of two agency securities during the third quarter of 2014. During the first and second quarters of 2014 we recognized pre-tax gains on investment securities of $313 thousand and $949 thousand, respectively, from the sale of one pooled trust preferred security which had been classified as non-performing, three mortgage backed securities and 19 agency securities. There were no sales of investment securities during the three months ended September 30, 2013. During the first and second quarters of 2013 we recognized pre-tax gains on investment securities of $892 thousand and $332 thousand, respectively, 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.

Other noninterest income increased $175 thousand or 25% in the third quarter of 2014 and $401 thousand or 20% for the nine months ended September 30, 2014, compared to the same periods a year earlier. Merchant services income, dividends on FHLB stock and credit card correspondent income comprised the majority of the increases.

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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,
	2014		2013		2014		2013
Salaries and employee benefits
Salaries	$	7,851	$	7,462	$	22,150	$	22,020
Employee benefits		1,874		2,011		5,894		6,388
Total salaries and employee benefits		9,725		9,473		28,044		28,408
Occupancy and equipment		3,131		2,959		9,505		9,163
Professional services		976		814		3,332		2,844
Computer and data processing		725		689		2,225		2,205
Supplies and postage		507		518		1,554		1,806
FDIC assessments		390		367		1,200		1,092
Advertising and promotions		216		209		609		676
Other		2,285		1,980		6,507		5,861
Total noninterest expense	$	17,955	$	17,009	$	52,976	$	52,055

Salaries and employee benefits increased by $252 thousand in the third quarter of 2014 and decreased by $364 thousand for the nine months ended September 30, 2014, compared to the same periods a year earlier. An increase in salaries expense was primarily due to the acquisition of SDN and the hiring of additional loan officers, partially offset by a decrease in severance expense. A decrease in employee benefits was primarily due to lower expense related to our defined benefit retirement plans, partially offset by higher medical expenses. We recognized a combined net periodic pension expense of $55 thousand and $166 thousand, respectively, on our pension and post-retirement obligations during the three and nine months ended September 30, 2014 compared to $429 thousand and $1.3 million, respectively, during the three and nine months ended September 30, 2013.

Occupancy and equipment expense increased by $172 thousand in the third quarter of 2014 and $342 thousand for the nine months ended September 30, 2014, when compared to the same periods one year earlier. The increases were primarily related to higher contractual service expenses and incremental expenses from the SDN facility.

Professional fees increased $162 thousand in the third quarter of 2014 and $488 thousand in the nine months ended September 30, 2014, compared to the same periods a year earlier. The increases were largely due to professional services associated with the acquisition of SDN and the hiring of additional loan officers and related personnel as part of our expansion initiatives.

Supplies and postage expense decreased by $11 thousand and $252 thousand for the three and nine months ended September 30, 2014, respectively, compared to the same periods of 2013. The prior year-to-date amount included expenses for additional print materials related to our retail checking account repositioning incurred during the first quarter of 2013.

FDIC assessments increased $23 thousand or 6% in the third quarter of 2014 and $108 thousand or 10% for the nine months ended September 30, 2014, compared to the same periods a year earlier. The increased assessments are a direct result of the growth in our balance sheet.

Other noninterest expense was $2.3 million in the third quarter of 2014 and $6.5 million for the nine months ended September 30, 2014, representing increases of $305 thousand and $646 thousand, respectively, from the same periods in 2013. The increases were largely due to higher intangible asset amortization due to the SDN acquisition, combined with an increase in electronic banking activities and deposit expenses.

The efficiency ratio for the third quarter of 2014 was 57.65% compared with 56.95% for the third quarter of 2013, and 58.24% for the nine months ended September 30, 2014, compared to 58.72% for the same period a year ago. 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 indicates a more efficient allocation of resources.

- 38 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Income Taxes

We recorded income tax expense of $3.4 million in the third quarter of 2014, compared to of $3.0 million in the third quarter of 2013. For the nine months ended September 30, 2014, income tax expense totaled $9.5 million compared to $9.4 million in the same period of 2013. The effective tax rates for the three and nine month periods ended September 30, 2014 were 31.9% and 30.8%, respectively, in comparison to 33.0% for the three and nine months ended September 30, 2013. Our effective tax rate in the third quarter of 2014 was higher than the first six months of 2014 due to non-deductible one-time expenses associated with the acquisition of SDN. When comparing three and nine month periods of 2014 to the comparable periods in 2013, our lower effective tax rate reflects New York State tax savings generated by our real estate investment trust, which became effective during February 2014. More information about our real estate investment trust follows. 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.

During February 2014, the Bank formed a wholly-owned subsidiary, Five Star REIT, Inc. (the “REIT”), to acquire a portion of the Bank’s assets, which will primarily be qualifying mortgage related loans. The Bank made an initial contribution of mortgage related loans to the REIT in return for common stock of the REIT. The REIT expects to purchase mortgage related loans from the Bank on a periodic basis going forward. The REIT entered into service agreements with the Bank for administrative and investment services. The formation of the REIT lowered the effective tax rate for 2014.

In March 2014, the New York legislature approved changes in the state tax law which will lower our state income tax rate from 7.1% to 6.5%. The changes will be phased in over two years, beginning in 2015. This lower state tax rate going forward will reduce the benefit provided by the Company’s existing deferred tax items. We do not expect that the tax law changes will have a material impact on our consolidated statements of income and condition.

- 39 -

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, 2014				December 31, 2013
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Securities available for sale:
U.S. Government agencies and government-sponsored enterprise securities	$	115,830	$	115,278	$	135,840	$	134,452
Mortgage-backed securities:
Agency mortgage-backed securities		470,269		468,666		482,308		473,082
Non-Agency mortgage-backed securities		—		1,294		—		1,467
Asset-backed securities		—		241		18		399
Total available for sale securities		586,099		585,479		618,166		609,400
Securities held to maturity:
State and political subdivisions		268,708		274,006		249,785		250,657
Agency mortgage-backed securities		17,259		17,152		—		—
Total held to maturity securities		285,967		291,158		249,785		250,657
Total investment securities	$	872,066	$	876,637	$	867,951	$	860,057

The available for sale (“AFS”) investment securities portfolio decreased $23.9 million to $585.5 million at September 30, 2014 from $609.4 million at December 31, 2013. The decrease was largely attributable to the transfer of available for sale mortgage-backed securities to the held to maturity category during the third quarter of 2014, combined with scheduled principal paydowns on amortizing securities and a change in the net unrealized gain/loss on the AFS portfolio. The AFS portfolio had net unrealized losses totaling $620 thousand at September 30, 2014 compared to net unrealized losses of $8.8 million December 31, 2013. The fair value of most of the investment securities in the AFS portfolio fluctuate as market interest rates change.

During the third quarter of 2014, the Company transferred $12.8 million of available for sale mortgage backed 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 $51 thousand of unrealized holding losses 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.

During the nine months ended September 30, 2014 we recognized gains of $1.8 million from the sale of AFS securities with an amortized cost totaling $74.3 million. The securities sold were comprised of one pooled trust preferred security, three mortgage backed securities and 19 agency securities.

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.

- 40 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

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, 2014 and 2013.

LENDING ACTIVITIES

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

	Loan Portfolio Composition
	September 30, 2014					December 31, 2013
	Amount		% of Total			Amount		% of Total
Commercial business	$	275,107		14.4	%	$	265,766		14.5	%
Commercial mortgage		469,485		24.6			469,284		25.6
Total commercial		744,592		39.0			735,050		40.1
Residential mortgage		103,044		5.4			113,045		6.2
Home equity		382,703		20.1			326,086		17.8
Consumer indirect		656,215		34.4			636,368		34.7
Other consumer		21,291		1.1			23,070		1.2
Total consumer		1,060,209		55.6			985,524		53.7
Total loans		1,907,845		100.0	%		1,833,619		100.0	%
Allowance for loan losses		27,244					26,736
Total loans, net	$	1,880,601				$	1,806,883

Total loans increased $74.2 million to $1.91 billion at September 30, 2014 from $1.83 billion at December 31, 2013. The increase in loans was attributable to organic growth, primarily in the home equity and consumer indirect loan portfolios, partially offset by a decline in residential mortgages.

Commercial loans increased $9.5 million and represented 39% of total loans as of September 30, 2014, a result of our continued commercial business development efforts.

Residential mortgage loans decreased $10.0 million to $103.0 million as of September 30, 2014 in comparison to $113.0 million as of December 31, 2013. This category of loans decreased due to our focus on home equity lending. We continue to sell the majority of newly originated and refinanced residential mortgages to the secondary market rather than adding them to our portfolio.

Our home equity portfolio, which consists of home equity loans and lines, totaled $382.7 million as of September 30, 2014, up $56.6 million or 17% compared to December 31, 2013. As of September 30, 2014, our home equity portfolio was comprised of $253.3 million of home equity loans and $129.4 million of home equity lines. This compares to $197.4 million of home equity loans and $128.7 million of home equity lines as of December 31, 2013. 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, 2014, approximately 79% of the loans in the home equity portfolio were first lien positions.

The consumer indirect portfolio increased $19.8 million to $656.2 million as of September 30, 2014, from $636.4 million as of December 31, 2013, reflecting our continued focus on consumer indirect lending. During the first nine months of 2014, we originated $234.1 million in indirect auto loans with a mix of approximately 42% new auto and 58% used auto. This compares $224.9 million in indirect auto loans with a mix of approximately 48% new auto and 52% used auto for the same period in 2013.

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 $1.0 million and $3.4 million as of September 30, 2014 and December 31, 2013, 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 our consolidated statements of financial condition, amounted to $220.3 million as of September 30, 2014, a decrease from $237.9 million as of December 31, 2013, as runoff has outpaced production in the first nine months of 2014.

- 41 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

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,
	2014			2013			2014			2013
Balance as of beginning of period	$	27,166		$	25,590		$	26,736		$	24,714
Charge-offs:
Commercial business		105			163			176			694
Commercial mortgage		111			35			276			144
Residential mortgage		16			34			163			281
Home equity		73			30			335			352
Consumer indirect		2,606			2,131			7,392			5,778
Other consumer		272			253			765			734
Total charge-offs		3,183			2,646			9,107			7,983
Recoveries:
Commercial business		61			59			158			301
Commercial mortgage		45			122			58			279
Residential mortgage		5			12			34			42
Home equity		7			16			47			126
Consumer indirect		1,029			666			3,129			2,230
Other consumer		99			96			310			304
Total recoveries		1,246			971			3,736			3,282
Net charge-offs		1,937			1,675			5,371			4,701
Provision for loan losses		2,015			2,770			5,879			6,672
Balance at end of period	$	27,244		$	26,685		$	27,244		$	26,685
Net loan charge-offs to average loans (annualized)		0.40	%		0.38	%		0.38	%		0.36	%
Allowance for loan losses to total loans		1.43	%		1.50	%		1.43	%		1.50	%
Allowance for loan losses to non-performing loans		333	%		258	%		333	%		258	%

The allowance for loan losses represents the estimated amount of credit losses inherent in our loan portfolio. We perform periodic, systematic reviews of the loan portfolio to estimate inherent 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, 2014.

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.

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 $1.9 million in the third quarter of 2014 represented 0.40% of average loans on an annualized basis compared to $1.7 million or 0.38% in the third quarter of 2013. For the nine months ended September 30, 2014 net charge-offs of $5.4 million represented 0.38% of average loans compared to $4.7 million or 0.36% of average loans for same period in 2013.

The allowance for loan losses was $27.2 million at September 30, 2014, compared with $26.7 million at December 31, 2013. The ratio of the allowance for loan losses to total loans was 1.43% at September 30, 2014, compared with 1.46% at December 31, 2013. The ratio of allowance for loan losses to non-performing loans was 333% at September 30, 2014, compared with 161% at December 31, 2013. The higher allowance to non-performing loans ratio at September 30, 2014 was driven by a reduction in non-performing loans. See the “Non-Performing Assets and Potential Problem Loans” section for further discussion.

- 42 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-Performing Assets and Potential Problem Loans

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

	Non-Performing Assets
	September 30, 2014			December 31, 2013
Nonaccrual loans:
Commercial business	$	3,258		$	3,474
Commercial mortgage		2,460			9,663
Residential mortgage		656			1,078
Home equity		464			925
Consumer indirect		1,300			1,471
Other consumer		39			5
Total nonaccrual loans		8,177			16,616
Accruing loans 90 days or more delinquent		7			6
Total non-performing loans		8,184			16,622
Foreclosed assets		509			333
Non-performing investment securities		—			128
Total non-performing assets	$	8,693		$	17,083
Non-performing loans to total loans		0.43	%		0.91	%
Non-performing assets to total assets		0.28	%		0.58	%

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 months ended September 30, 2014 was as follows (in thousands):

	Three months ended September 30, 2014			Nine months ended September 30, 2014
Nonaccrual loans, beginning of period	$	8,885		$	16,616
Additions		4,641			15,004
Payments		(1,631	)		(12,940	)
Charge-offs		(3,025	)		(8,728	)
Returned to accruing status		(610	)		(1,381	)
Transferred to other real estate or repossessed assets		(83	)		(394	)
Nonaccrual loans, end of period	$	8,177		$	8,177

Non-performing assets include non-performing loans, foreclosed assets and non-performing investment securities. Non-performing assets at September 30, 2014 were $8.7 million, a decrease of $8.4 million from $17.1 million at December 31, 2013. The primary component of non-performing assets is non-performing loans, which were $8.2 million or 0.43% of total loans at September 30, 2014, a decrease of $8.4 million from $16.6 million or 0.91% of total loans at December 31, 2013. The decrease in non-performing loans was driven by the resolution, during the second quarter of 2014, of a single commercial mortgage which had been modified as a troubled debt restructuring and placed on nonaccrual status during the fourth quarter 2013. Approximately $4.6 million, or 56%, of the $8.2 million in non-performing loans as of September 30, 2014 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 $3.0 million at September 30, 2014. We had no TDRs that were accruing interest as of September 30, 2014.

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 nine properties totaling $509 thousand at September 30, 2014 and four properties totaling $333 thousand at December 31, 2013.

During the second quarter of 2014 the last of the remaining non-performing pooled trust preferred investment security was sold. These securities had been transferred to non-performing status in years prior to 2010 and included in non-performing assets at fair value.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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 $15.2 million and $9.7 million in loans that continued to accrue interest which were classified as substandard as of September 30, 2014 and December 31, 2013, respectively.

FUNDING ACTIVITIES

Deposits

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

	Deposit Composition
	September 30, 2014					December 31, 2013
	Amount		% of Total			Amount		% of Total
Noninterest-bearing demand	$	571,549		22.5	%	$	535,472		23.1	%
Interest-bearing demand		530,783		20.9			470,733		20.3
Savings and money market		805,522		31.7			717,928		30.9
Certificates of deposit < $100,000		352,793		13.9			369,915		16.0
Certificates of deposit of $100,000 or more		278,177		11.0			226,008		9.7
Total deposits	$	2,538,824		100.0	%	$	2,320,056		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, 2014, total deposits were $2.54 billion, representing an increase of $218.8 million in comparison to $2.32 billion as of December 31, 2013. Certificates of deposit were approximately 25% and 26% of total deposits at September 30, 2014 and December 31, 2013, 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 $1.83 billion and $1.79 billion at September 30, 2014 and December 31, 2013, respectively, and represented 72% and 77% 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 30% 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 $708.4 million and $533.5 million at September 30, 2014 and December 31, 2013, respectively, and represented 28% and 23% of total deposits as of the end of each period, respectively. The increase in public deposits during the first nine months of 2014 was due largely to seasonality coupled with successful business development efforts.

We had no traditional brokered deposits at September 30, 2014 or December 31, 2013; 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 and ICS deposits totaled $75.6 million and $64.1 million, respectively, at September 30, 2014, compared to $61.3 million and $56.4 million, respectively, at December 31, 2013.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Borrowings

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

	September 30,		December 31,
	2014		2013
Short-term borrowings:
Repurchase agreements	$	48,767	$	39,042
Short-term FHLB borrowings		167,200		298,000
Total short-term borrowings	$	215,967	$	337,042

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, 2014 or December 31, 2013.

Federal funds purchased are short-term borrowings that typically mature within one to ninety days. 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, 2014 consisted of $167.2 million in short-term advances. Short-term FHLB borrowings at December 31, 2013 consisted of $198.0 million in overnight borrowings and $100.0 million in short-term advances. We utilized deposit inflows during the first nine months of 2014 to pay down overnight FHLB borrowings outstanding at the end of 2013.

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $27 million of immediate credit capacity with FHLB as of September 30, 2014. We had approximately $443 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) Discount Window, none of which was outstanding at September 30, 2014. 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, 2014. Additionally, we had approximately $73 million of unencumbered liquid securities available for pledging.

Shareholders’ Equity

Shareholders’ equity was $277.8 million at September 30, 2014, an increase of $22.9 million from $254.8 million at December 31, 2013. Net income for the year and stock issued for the acquisition of SDN increased shareholders’ equity by $21.4 million and $5.4 million, respectively, which were partially offset by common and preferred stock dividends declared of $9.0 million. Accumulated other comprehensive income included in shareholders’ equity increased $4.7 million during the first nine months of 2014 due primarily to lower net unrealized losses on securities available for sale.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The objective of maintaining adequate liquidity is to assure that we meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of matured borrowings, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. We achieve liquidity by maintaining a strong base of core customer funds, maturing short-term assets, our 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. 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.

Our cash and cash equivalents were $87.6 million as of September 30, 2014, up $27.9 million from $59.7 million as of December 31, 2013. Our net cash provided by operating activities totaled $38.0 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 $98.8 million, which included outflows of $79.1 million for net loan originations and $3.4 million from net investment securities transactions. Net cash provided by financing activities of $88.7 million was attributed to a $218.8 million increase in deposits, partially offset by a $121.1 million decrease in short-term borrowings and $9.0 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 of preferred stock at September 30, 2014 and December 31, 2013. 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,
	2014			2013
Total shareholders’ equity	$	277,758		$	254,839
Less: Unrealized loss on securities available for sale, net of tax		(374	)		(5,293	)
Net unrecognized gain on available for sale securities transferred to held to maturity, net of tax		(280	)		(44	)
Unrecognized net periodic pension & postretirement benefits (costs), net of tax		(4,792	)		(4,850	)
Disallowed goodwill and other intangible assets		68,887			50,002
Tier 1 capital	$	214,137		$	215,024
Adjusted average total assets (for leverage capital purposes)	$	2,921,009		$	2,816,491
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets)		7.34	%		7.63	%
Total Tier 1 capital	$	214,317		$	215,024
Plus: Qualifying allowance for loan losses		25,685			24,854
Total risk-based capital	$	240,002		$	239,878
Net risk-weighted assets	$	2,053,263		$	1,986,473
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets)		10.44	%		10.82	%
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets)		11.69	%		12.08	%

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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, 2014
Tier 1 leverage:	Company	$	214,317		7.34	%	$	116,840		4.00	%	$	146,050		5.00	%
	Bank		211,337		7.22			117,149		4.00			146,436		5.00
Tier 1 capital:	Company		214,317		10.44			82,131		4.00			123,196		6.00
	Bank		211,337		10.29			82,127		4.00			123,191		6.00
Total risk-based capital:	Company		240,002		11.69			164,261		8.00			205,326		10.00
	Bank		237,021		11.54			164,255		8.00			205,318		10.00
December 31, 2013
Tier 1 leverage:	Company	$	215,024		7.63	%	$	112,660		4.00	%	$	140,825		5.00	%
	Bank		204,336		7.27			112,498		4.00			140,622		5.00
Tier 1 capital:	Company		215,024		10.82			79,459		4.00			119,188		6.00
	Bank		204,336		10.31			79,291		4.00			118,937		6.00
Total risk-based capital:	Company		239,878		12.08			158,918		8.00			198,647		10.00
	Bank		229,139		11.56			158,583		8.00			198,228		10.00

Regulatory capital ratios decreased as of September 30, 2014 when compared to December 31, 2013 primarily as a result of the SDN acquisition. Goodwill of $12.6 million and other intangible assets of $6.6 million were recorded in conjunction with the acquisition. Such goodwill and intangibles are excluded from regulatory capital as calculated under regulatory accounting practices.

Basel III Capital Rules

On July 2, 2013, the FRB approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. On July 9, 2013, the FDIC also approved, as an interim final rule, the regulatory capital requirements for U.S. banks, following the actions of the FRB. On April 8, 2014, the FDIC adopted as final its interim final rule, which is identical in substance to the final rules issued by the FRB in July 2013.

The phase-in period for the final rules will begin for the Company on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Management believes that the Company’s capital levels will remain characterized as “well-capitalized” under the new rules. The final rules approved by the FRB and the FDIC in July 2013 and April 2014, respectively, did not address the proposed liquidity coverage ratio test and the net stable funding ratio test called for by the Basel III liquidity framework. Management will continue to monitor the developments related to these proposals and their potential impact to our capital requirements.

Dividend Restrictions

In the ordinary course of business we are 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, 2013 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on March 12, 2014. 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, 2013 to September 30, 2014. 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, 2014, 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, 2015 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
Parallel Shifts in the Yield Curve
Change in net interest income	$	(1,964	)	$	1,367		$	3,381		$	3,157
% Change		(2.07	)%		1.44	%		3.57	%		3.33	%

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 parallel shifts in 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, 2014 and December 31, 2013. The analysis additionally presents a measurement of the interest rate sensitivity at September 30, 2014 and December 31, 2013. 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, 2014								December 31, 2013
	EVE		Change			Percentage Change			EVE		Change			Percentage Change
Rate Shock Scenario:
Pre-Shock Scenario	$	506,993							$	466,008
- 100 Basis Points		502,879	$	(4,114	)		(0.81	)%		476,323	$	10,315			2.21	%
+ 100 Basis Points		499,124		(7,869	)		(1.55	)		452,155		(13,853	)		(2.97	)
+ 200 Basis Points		487,705		(19,288	)		(3.80	)		435,424		(30,584	)		(6.56	)

The Pre-Shock Scenario EVE was $507.0 million at September 30, 2014, compared to $466.0 million at December 31, 2013. The increase in the Pre-Shock Scenario EVE at September 30, 2014, compared to December 31, 2013 resulted primarily from a more favorable valuation of non-maturity deposits, fixed-rate residential loans and mortgage backed securities that reflected alternative funding and investment rate changes used for discounting future cash flows.

The +200 basis point Rate Shock Scenario EVE increased from $435.4 million at December 31, 2013 to $487.7 million at September 30, 2014, 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 (6.56)% at December 31, 2013 to (3.80)% at September 30, 2014. The decrease in sensitivity resulted from an increased benefit in the valuation of non-maturity deposits in the +200 basis point Rate Shock Scenario EVE as of September 30, 2014, compared to December 31, 2013.

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures

As of September 30, 2014, 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 its 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 and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2014, 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 Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting

The acquisition of Scott Danahy Naylon Co., Inc. was consummated on August 1, 2014, at which time Scott Danahy Naylon, LLC (“SDN”) became a consolidated subsidiary of the Company. The Company is in the process of reviewing the internal control structure of SDN and, if necessary, will make appropriate changes as it integrates SDN into the Company’s overall internal control over financial reporting process. In connection with the foregoing evaluation by the Company’s Chief Executive Officer and its Chief Financial Officer, other than as noted above, no changes in the Company’s internal control over financial reporting have occurred during the quarter ended September 30, 2014 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, 2013, dated March 12, 2014, 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, 2013, dated March 12, 2014, 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 Kenneth V. Winn	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 to18 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

* Management contract or compensatory plan or arrangement

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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 4, 2014
Martin K. Birmingham
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kevin B. Klotzbach	, November 4, 2014
Kevin B. Klotzbach
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Michael D. Grover	, November 4, 2014
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 (this “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 Kenneth V. Winn (the “Executive” or “you”), an individual residing at 259 Vollmer Parkway, Rochester, New York, 14623.

1. Separation Date. Your employment with the Company ended at the close of business on August 19, 2014 (the “Separation Date”).

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 August 24, 2014 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, all Company-issued automobiles, 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.

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 August 24, 2014 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.

c) 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.

5. Separation Benefits. In consideration of your acceptance of the terms of this Agreement, including but not limited to the obligations imposed by Paragraphs 8 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 21 has expired with no revocation, the Company will provide you with the separation benefits, to which you would not otherwise be entitled, described in this Paragraph 5.

a) The Company will pay you a separation pay benefit in the total amount of One Hundred Eighty Four Thousand Five Hundred Dollars ($184,500), less required payroll deductions and withholdings. This separation pay benefit will be paid in equal bi-weekly installments beginning on the Company’s first regular pay period after the Effective Date (as defined in Paragraph 21) and will continue for a period of 47 weeks.

b) 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 this Paragraph 5, 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.

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c) 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.

d) 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. RELEASE OF ALL CLAIMS.

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.

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

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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.

7. 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.

8. 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 8(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

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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 17, 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.

9. 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.

b) Nothing in this Agreement is intended to or shall prevent or limit the Company 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.

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10. Future Cooperation and Transition Services. You agree that for a period of 30 days after the Separation Date, upon reasonable request of the Company, you will do whatever is necessary to assure an orderly transition of your work and responsibilities, to meet with Company representatives as necessary, and to otherwise fully cooperate with these efforts. You further agree that any separation benefits paid during this 30-day transition period shall serve as adequate consideration for such transition services and that you are not owed any additional compensation for such transition services.

11. Confidentiality of Agreement. 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 spouse, 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.

12. Interim Obligations. You understand and agree that the obligations contained in Paragraphs 8 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 8 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 9, not assisting with the transition of your job duties as described 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 you breach any of your obligations under this Agreement, the Company may, at its option, obtain monetary damages, a court order requiring the you 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 the Company’s remaining obligations under this Agreement. The Company, in addition to any other rights it 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.

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14. 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.

15. 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.

16. 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.

17. 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”).

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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 but not limited to the provisions contained therein regarding Confidentiality (Article 1) 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. In consideration of your execution of this Agreement, however, the Company hereby waives its right to enforce the Non-Competition provision contained in Section 2.2 of the Executive Agreement against you.

18. 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.

19. 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.

20. 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 19, 2014. 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 19, 2014, whether material or immaterial, do not restart the 21-day period.

21. 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: Paula Dolan, Director – Human Resources, 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.

22. 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.

23. Regulatory Prohibition. Notwithstanding any other provision of this Agreement to the contrary, any payments made to you pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)) and 12 C.F.R. Part 359.

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.

[Signature Page Follows]

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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.

Kenneth V. Winn		Financial Institutions, Inc., on behalf of itself and its subsidiaries and affiliates
/s/ Kenneth V. Winn
	(By)	/s/ Martin K. Birmingham
Date: August 28, 2014	Name:	Martin K. Birmingham
	Date: September 2, 2014

STATE OF NEW YORK)

COUNTY OF                     ) ss:

On the                     day of                     , 2014, before me, the undersigned, personally appeared Kenneth V. Winn, 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

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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 4, 2014	/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 4, 2014	/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, 2014 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 4, 2014	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 4, 2014	/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.

XML

Investment Securities (Narrative) (Details) (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2014 security	Sep. 30, 2014 security	Sep. 30, 2013	Dec. 31, 2013 security
Investment Securities [Abstract]
Securities pledged as collateral	$ 785,900,000	$ 785,900,000		$ 763,100,000
Securities transferred from available for sale to held to maturity (at fair value)	12,800,000	12,802,000	227,330,000
State and municipal debt securities transferred from available for sale to held to maturity	12,800,000	12,802,000	227,330,000
Unrealized holding losses included in accumulated other comprehensive income and in the carrying value of the held to maturity securities		51,000
Number of security positions, unrealized loss position	122	122		331
Number of security positions, unrealized loss position for more than 12 months	55	55
Fair value, continuous unrealized loss position for more than 12 months	221,284,000	221,284,000		50,928,000
Securities available for sale, 12 months or longer, Unrealized Losses	7,988,000	7,988,000		2,818,000
Number of security positions, unrealized loss position for less than 12 months	67	67
Securities, less than 12 months, Fair Value	136,413,000	136,413,000		407,299,000
Securities, less than 12 months, Unrealized Losses	$ 801,000	$ 801,000		$ 15,246,000

XML

Goodwill And Other Intangible Assets (Other Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Net carrying value at end of period	$ 7,734		$ 7,734
Other Intangible Assets [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Other Intangible Assets, Balance at beginning of period	2,042	2,042	2,042	2,042
Additions from the SDN acquisition	6,640		6,640
Gross Other Intangible Assets, Balance at end of period	8,682	2,042	8,682	2,042
Accumulated Amortization: Balance at beginning of period	(752)	(388)	(576)	(189)
Amortization	(196)	(95)	(372)	(294)
Accumulated Amortization: Balance at end of period	(948)	(483)	(948)	(483)
Net carrying value at end of period	$ 7,734	$ 1,559	$ 7,734	$ 1,559

XML

Loans (Summary Of Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Sep. 30, 2014		Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 2,644	[1]	$ 2,652	[1]
Recorded Investment, With an allowance recorded	3,074	[1]	10,485	[1]
Recorded Investment	5,718	[1]	13,137	[1]
Unpaid Principal Balance, With no related allowance recorded	3,245	[1]	3,179	[1]
Unpaid Principal Balance, With an allowance recorded	3,085	[1]	10,905	[1]
Unpaid Principal Balance	6,330	[1]	14,084	[1]
Related Allowance	1,600		1,258
Average Recorded Investment, With no related allowance recorded	2,645		1,419
Average Recorded Investment, With an allowance recorded	3,388		6,954
Average Recorded Investment	6,033		8,373
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	1,536	[1]	1,777	[1]
Recorded Investment, With an allowance recorded	1,722	[1]	1,697	[1]
Unpaid Principal Balance, With no related allowance recorded	1,998	[1]	2,273	[1]
Unpaid Principal Balance, With an allowance recorded	1,733	[1]	1,717	[1]
Related Allowance	1,331		201
Average Recorded Investment, With no related allowance recorded	1,553		659
Average Recorded Investment, With an allowance recorded	1,868		3,196
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	1,108	[1]	875	[1]
Recorded Investment, With an allowance recorded	1,352	[1]	8,788	[1]
Unpaid Principal Balance, With no related allowance recorded	1,247	[1]	906	[1]
Unpaid Principal Balance, With an allowance recorded	1,352	[1]	9,188	[1]
Related Allowance	269		1,057
Average Recorded Investment, With no related allowance recorded	1,092		760
Average Recorded Investment, With an allowance recorded	1,520		3,758
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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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, 2014		Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	$ 585,479		$ 609,400
Securities held to maturity, fair value	291,158		250,657
Carrying Amount [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	87,582		59,692
Accrued interest receivable	8,615		8,150
Non-maturity deposits	1,907,854		1,724,133
Short-term borrowings	215,967		337,042
Accrued interest payable	3,786		3,407
Carrying Amount [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	585,479		609,400
Securities held to maturity, fair value	285,967		249,785
Loans held for sale	1,029		3,381
Loans	1,879,127		1,797,656
FHLB and FRB stock	13,250		19,663
Time deposits	630,970		595,923
Carrying Amount [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	1,474	[1]	9,227	[1]
Estimated Fair Value [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	87,582		59,692
Accrued interest receivable	8,615		8,150
Non-maturity deposits	1,907,854		1,724,133
Short-term borrowings	215,967		337,042
Accrued interest payable	3,786		3,407
Estimated Fair Value [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	585,479		609,400
Securities held to maturity, fair value	291,158		250,657
Loans held for sale	1,038		3,381
Loans	1,889,258		1,802,407
FHLB and FRB stock	13,250		19,663
Time deposits	631,676		596,928
Estimated Fair Value [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	$ 1,474	[1]	$ 9,227	[1]

[1] Comprised of collateral dependent impaired loans.

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Goodwill And Other Intangible Assets (Estimated Core Deposit Intangible Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Goodwill And Other Intangible Assets [Abstract]
2014 (remainder of year)	$ 248
2015	942
2016	864
2017	778
2018	689
2019	$ 611

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Loans (Recorded Investment By Loan Class In Current And Nonaccrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 3,543	$ 4,905
60-89 Days Past Due	709	890
Greater Than 90 Days	7	6
Total Past Due	4,259	5,801
Nonaccrual	8,177	16,616
Current	1,863,939	1,779,688
Total loans	1,876,375	1,802,105	1,748,626
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	787	558
60-89 Days Past Due	27	199
Total Past Due	814	757
Nonaccrual	3,258	3,474
Current	270,955	261,520
Total loans	275,027	265,751	253,928
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		800
60-89 Days Past Due	62
Total Past Due	62	800
Nonaccrual	2,460	9,663
Current	468,044	459,849
Total loans	470,566	470,312	450,602
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	334	542
Total Past Due	334	542
Nonaccrual	656	1,078
Current	102,193	111,481
Total loans	103,183	113,101	117,650
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	521	750
60-89 Days Past Due	97	143
Total Past Due	618	893
Nonaccrual	464	925
Current	374,980	318,840
Total loans	376,062	320,658	311,521
Consumer Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,814	2,129
60-89 Days Past Due	492	476
Total Past Due	2,306	2,605
Nonaccrual	1,300	1,471
Current	626,835	605,314
Total loans	630,441	609,390	591,242
Other Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	87	126
60-89 Days Past Due	31	72
Greater Than 90 Days	7	6
Total Past Due	125	204
Nonaccrual	39	5
Current	20,932	22,684
Total loans	$ 21,096	$ 22,893	$ 23,683

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

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, 2014
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	115,278	$	-	$	115,278
Mortgage-backed securities		-		469,960		-		469,960
Asset-backed securities		-		241		-		241
	$	-	$	585,479	$	-	$	585,479
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,029	$	-	$	1,029
Collateral dependent impaired loans		-		-		1,474		1,474
Other assets:
Loan servicing rights		-		-		1,398		1,398
Other real estate owned		-		-		509		509
	$	-	$	1,029	$	3,381	$	4,410
December 31, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	134,452	$	-	$	134,452
Mortgage-backed securities		-		474,549		-		474,549
Asset-backed securities		-		399		-		399
	$	-	$	609,400	$	-	$	609,400
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	3,381	$	-	$	3,381
Collateral dependent impaired loans		-		-		9,227		9,227
Other assets:
Loan servicing rights		-		-		1,565		1,565
Other real estate owned		-		-		333		333
	$	-	$	3,381	$	11,125	$	14,506

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	$	1,474	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 100% discount
			Discounted cash flow	Discount rate	4.5% (3)
				Risk premium rate	10.0% (3)
Loan servicing rights		1,398	Discounted cash flow	Discount rate	5.3% (3)
				Constant prepayment rate	11.7% (3)
Other real estate owned		509	Appraisal of collateral (1)	Appraisal adjustments (2)	9% - 58% 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, 2014				December 31, 2013
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	87,582	$	87,582	$	59,692	$	59,692
Securities available for sale	Level 2		585,479		585,479		609,400		609,400
Securities held to maturity	Level 2		285,967		291,158		249,785		250,657
Loans held for sale	Level 2		1,029		1,038		3,381		3,381
Loans	Level 2		1,879,127		1,889,258		1,797,656		1,802,407
Loans (1)	Level 3		1,474		1,474		9,227		9,227
Accrued interest receivable	Level 1		8,615		8,615		8,150		8,150
FHLB and FRB stock	Level 2		13,250		13,250		19,663		19,663
Financial liabilities:
Non-maturity deposits	Level 1		1,907,854		1,907,854		1,724,133		1,724,133
Time deposits	Level 2		630,970		631,676		595,923		596,928
Short-term borrowings	Level 1		215,967		215,967		337,042		337,042
Accrued interest payable	Level 1		3,786		3,786		3,407		3,407

⁽¹⁾ Comprised of collateral dependent impaired loans.

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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, 2014	Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Abstract]
Change in unrealized gain/loss during the period, Pre-tax Amount			$ 9,923		$ (27,205)
Reclassification adjustment for net gains included in net income, Pre-tax Amount			(2,167)	[1]	(1,224)	[1]
Total securities available for sale and transferred securities, Pre-tax Amount			7,756		(28,429)
Prior service credit, Pre-tax Amount			(36)		(36)
Net actuarial losses, Pre-tax Amount			132		1,023
Total pension and post-retirement obligations, Pre-tax Amount			96		987
Other comprehensive income (loss), Pre-tax Amount			7,852		(27,442)
Change in unrealized gain/loss during the period, Tax Effect			3,931		(10,777)
Reclassification adjustment for net gains included in net income, Tax Effect			(858)	[1]	(485)	[1]
Total securities available for sale and transferred securities, Tax Effect			3,073		(11,262)
Prior service credit, Tax Effect			(14)		(14)
Net actuarial losses, Tax Effect			52		405
Total pension and post-retirement obligations, Tax Effect			38		391
Other comprehensive income (loss), Tax Effect			3,111		(10,871)
Change in unrealized gain/loss during the period, Net-of-tax Amount			5,992		(16,428)
Reclassification adjustment for net gains included in net income, Net-of-tax Amount			(1,309)	[1]	(739)	[1]
Total securities available for sale and transferred securities, Net-of-tax Amount	(1,745)	(382)	4,683		(17,167)
Prrior service credit, Net-of-tax Amount			(22)		(22)
Net actuarial losses, Net-of-tax Amount			80		618
Total pension and post-retirement obligations, Net-of-tax Amount	19	198	58		596
Other comprehensive income (loss), Net-of-tax Amount			$ 4,741		$ (16,571)

[1] Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company's reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

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Business Segments (Business Segment Assets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Segment Reporting Information [Line Items]
Goodwill	$ 61,153		$ 48,536
Other intangible assets, net	7,734
Assets	3,055,304	[1]	2,928,636
Banking [Member]
Segment Reporting Information [Line Items]
Goodwill	48,536
Other intangible assets, net	1,206
Assets	3,035,803	[1]
Insurance [Member]
Segment Reporting Information [Line Items]
Goodwill	12,617
Other intangible assets, net	6,528
Assets	19,847	[1]
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Assets	$ (346)	[1]

[1] The negative balance for total assets in the Holding Company and Other column results from the elimination of holding company cash held in deposit accounts at the Bank and other reclassifications.

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2014

Investment Securities [Abstract]

Amortized Cost And Fair Value Of Investment Securities

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
September 30, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	115,830	$	916	$	1,468	$	115,278
Mortgage-backed securities:
Federal National Mortgage Association		182,986		1,720		2,228		182,478
Federal Home Loan Mortgage Corporation		30,784		588		42		31,330
Government National Mortgage Association		51,449		1,912		-		53,361
Collateralized mortgage obligations:
Federal National Mortgage Association		78,874		367		1,358		77,883
Federal Home Loan Mortgage Corporation		93,063		211		3,418		89,856
Government National Mortgage Association		33,113		755		110		33,758
Privately issued		-		1,294		-		1,294
Total collateralized mortgage obligations		205,050		2,627		4,886		202,791
Total mortgage-backed securities		470,269		6,847		7,156		469,960
Asset-backed securities		-		241		-		241
Total available for sale securities	$	586,099	$	8,004	$	8,624	$	585,479
Securities held to maturity:
State and political subdivisions		268,708		5,356		58		274,006
Mortgage-backed securities:
Federal National Mortgage Association		3,300		-		37		3,263
Government National Mortgage Association		13,959		-		70		13,889
Total held to maturity securities	$	285,967	$	5,356	$	165	$	291,158

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	135,840	$	1,414	$	2,802	$	134,452
Mortgage-backed securities:
Federal National Mortgage Association		173,507		1,511		4,810		170,208
Federal Home Loan Mortgage Corporation		36,737		562		205		37,094
Government National Mortgage Association		61,832		2,152		142		63,842
Collateralized mortgage obligations:
Federal National Mortgage Association		63,838		261		3,195		60,904
Federal Home Loan Mortgage Corporation		102,660		169		5,856		96,973
Government National Mortgage Association		43,734		913		586		44,061
Privately issued		-		1,467		-		1,467
Total collateralized mortgage obligations		210,232		2,810		9,637		203,405
Total mortgage-backed securities		482,308		7,035		14,794		474,549
Asset-backed securities		18		381		-		399
Total available for sale securities	$	618,166	$	8,830	$	17,596	$	609,400
Securities held to maturity:
State and political subdivisions	$	249,785	$	1,340	$	468	$	250,657

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	$	186	$	189
Due from one to five years		93,032		93,453
Due after five years through ten years		237,569		237,720
Due after ten years		255,312		254,117
	$	586,099	$	585,479
Debt securities held to maturity:
Due in one year or less	$	23,898	$	23,993
Due from one to five years		133,714		136,201
Due after five years through ten years		111,096		113,812
Due after ten years		17,259		17,152
	$	285,967	$	291,158

Sales And Calls Of Securities Available For Sale

		Three months ended				Nine months ended
		September 30,				September 30,
		2014		2013		2014		2013
Proceeds from sales and calls	$	14,672	$	-	$	76,100	$	1,327
Gross realized gains		515		-		1,777		1,224

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, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	44,780	$	299	$	40,918	$	1,169	$	85,698	$	1,468
Mortgage-backed securities:
Federal National Mortgage Association		44,078		208		64,400		2,020		108,478		2,228
Federal Home Loan Mortgage Corporation		-		-		3,478		42		3,478		42
Collateralized mortgage obligations:
Federal National Mortgage Association		18,649		121		29,146		1,237		47,795		1,358
Federal Home Loan Mortgage Corporation		-		-		77,992		3,418		77,992		3,418
Government National Mortgage Association		2,249		8		5,350		102		7,599		110
Total collateralized mortgage obligations		20,898		129		112,488		4,757		133,386		4,886
Total mortgage-backed securities		64,976		337		180,366		6,819		245,342		7,156
Total available for sale securities		109,756		636		221,284		7,988		331,040		8,624
Securities held to maturity:
State and political subdivisions		9,504		58		-		-		9,504		58
Mortgage-backed securities:
Federal National Mortgage Association		3,264		37		-		-		3,264		37
Government National Mortgage Association		13,889		70		-		-		13,889		70
Total held to maturity securities		26,657		165		-		-		26,657		165
Total	$	136,413	$	801	$	221,284	$	7,988	$	357,697	$	8,789
December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	86,177	$	2,788	$	2,717	$	14	$	88,894	$	2,802
Mortgage-backed securities:
Federal National Mortgage Association		103,778		3,491		20,689		1,319		124,467		4,810
Federal Home Loan Mortgage Corporation		14,166		205		-		-		14,166		205
Government National Mortgage Association		14,226		142		-		-		14,226		142
Collateralized mortgage obligations:
Federal National Mortgage Association		35,632		2,586		11,760		609		47,392		3,195
Federal Home Loan Mortgage Corporation		72,655		4,980		15,762		876		88,417		5,856
Government National Mortgage Association		8,396		586		-		-		8,396		586
Total collateralized mortgage obligations		116,683		8,152		27,522		1,485		144,205		9,637
Total mortgage-backed securities		248,853		11,990		48,211		2,804		297,064		14,794
Total available for sale securities		335,030		14,778		50,928		2,818		385,958		17,596
Securities held to maturity:
State and political subdivisions		72,269		468		-		-		72,269		468
Total	$	407,299	$	15,246	$	50,928	$	2,818	$	458,227	$	18,064

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Loans (Retail Loan Portfolio Categorized By Payment Status) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,876,375	$ 1,802,105
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	103,183	113,101
Residential Mortgage [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	102,527	112,023
Residential Mortgage [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	656	1,078
Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	376,062	320,658
Home Equity [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	375,598	319,733
Home Equity [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	464	925
Consumer Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	630,441	609,390
Consumer Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	629,141	607,919
Consumer Indirect [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,300	1,471
Other Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	21,096	22,893
Other Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	21,050	22,882
Other Consumer [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 46	$ 11

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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, 2014	Sep. 30, 2014	Sep. 30, 2013
Investment Securities [Abstract]
Proceeds from sales and calls	$ 14,672	$ 76,100	$ 1,327
Gross realized gains	$ 515	$ 1,777	$ 1,224

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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, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Common Share ("EPS") [Abstract]
Net income available to common shareholders	$ 6,818	$ 5,799	$ 20,338	$ 18,063
Total shares issued	14,318	14,162	14,214	14,162
Unvested restricted stock awards	(64)	(64)	(64)	(70)
Treasury shares	(301)	(353)	(310)	(358)
Total basic weighted average common shares outstanding	13,953	13,745	13,840	13,734
Exercise of stock options	26	12	25	8
Vesting of restricted stock awards	28	30	25	32
Total diluted weighted average common shares outstanding	14,007	13,787	13,890	13,774
Basic earnings per common share	$ 0.49	$ 0.42	$ 1.47	$ 1.32
Diluted earnings per common share	$ 0.49	$ 0.42	$ 1.46	$ 1.31

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Goodwill And Other Intangible Assets (Narrative) (Details) (Other Intangible Assets [Member])	9 Months Ended
	Sep. 30, 2014
Finite-Lived Intangible Assets [Line Items]
Weighted average amortization period	17 years 9 months 18 days
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated average life	3 years
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated average life	20 years

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Fair Value Measurements (Narrative) (Details) (USD $)	Sep. 30, 2014	Sep. 30, 2013
Fair Value Measurements [Abstract]
Level 1 to Level 2 transfers, assets amount	$ 0	$ 0
Level 2 to Level 1 transfers, assets amount	0	0
Level 1 to Level 2 transfers, liabilities amount	0	0
Level 2 to Level 1 transfers, liabilities amount	0	0
Liabilities measured at fair value on recurring basis	0	0
Liabilities measured at fair value on nonrecurring basis	0	0
Assets measured at fair value on recurring basis using significant unobservable inputs	$ 0	$ 0

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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, 2014
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding at beginning of year, Number of Shares	65,040
Granted, Number of Shares	43,242
Vested, Number of Shares	(33,728)
Forfeited, number of shares	(13,609)
Outstanding at end of period, Number of Shares	60,945
Outstanding at beginning of year, Weighted Average Market Price at Grant Date	$ 16.92
Granted, Weighted Average Market Price at Grant Date	$ 18.76
Vested, Weighted Average Market Price at Grant Date	$ 18.17
Forfeited, Weighted Average Market Price at Grant Date	$ 18.04
Outstanding at end of period, Weighted Average Market Price at Grant Date	$ 17.28

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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, 2014 contract	Sep. 30, 2013 contract	Sep. 30, 2014 contract	Sep. 30, 2013 contract
Financing Receivable, Modifications [Line Items]
Number of Contracts			1	3
Pre-Modification Outstanding Recorded Investment			$ 1,381	$ 1,462
Post-Modification Outstanding Recorded Investment			1,381	1,454
Commercial Business [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts			1	3
Pre-Modification Outstanding Recorded Investment			1,381	1,462
Post-Modification Outstanding Recorded Investment			1,381	1,454
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment

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Basis of Presentation And Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2014

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., (the Company) is a financial holding company organized in 1931 under the laws of New York State (New York or NYS). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the Bank). 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. On August 1, 2014, the Company acquired Scott Danahy Naylon Co., Inc., a full service insurance agency located in Amherst, New York. As a result of the acquisition the Company now provides insurance and risk consulting services through its wholly-owned insurance subsidiary, Scott Danahy Naylon, LLC (SDN). The consolidated financial statements include the accounts of the Company, the Bank and SDN. All significant intercompany balances and transactions have been eliminated in the consolidation. References to the Company mean the consolidated reporting entity.

Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. 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 years presentation. These consolidated financial statements should be read in conjunction with the Companys 2013 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 and determined that there were no subsequent events.

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, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment (OTTI) considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's consolidated statements of income and condition.

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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, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercised, Number of Options
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding at beginning of year, Number of Options	192,934
Exercised, Number of Options	(8,467)
Expired, Number of Options	(23,436)
Outstanding and exercisable at end of period, Number of Options	161,031
Outstanding at beginning of year, Weighted Average Exercise Price	$ 19.83
Exercised, Weighted Average Exercise Price	$ 18.87
Expired, Weighted Average Exercise Price	$ 23.64
Outstanding and exercisable at end of period, Weighted Average Exercise Price	$ 19.34
Outstanding and exercisable at end of period, Weighted Average Remaining Contractual Term	2 years 1 month 6 days
Outstanding and exercisable at end of period, Aggregate Intrinsic Value	$ 506

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Investment Securities (Investments' Gross Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	$ 109,756	$ 335,030
Securities available for sale, Less than 12 months, Unrealized Losses	636	14,778
Securities available for sale, 12 months or longer, Fair Value	221,284	50,928
Securities available for sale, 12 months or longer, Unrealized Losses	7,988	2,818
Securities available for sale, Fair Value, Total	331,040	385,958
Securities available for sale, Unrealized Losses, Total	8,624	17,596
Securities held to maturity, Less than 12 months, Fair Value	26,657
Securities held to maturity, Less than 12 months, Unrealized Losses	165
Securities held to maturity, Fair Value, Total	26,657
Securities held to maturity, Unrealized Losses, Total	165
Total Securities, Less than 12 months, Fair Value	136,413	407,299
Total Securities, Less than 12 months, Unrealized Losses	801	15,246
Total Securities, 12 months or longer, Fair Value	221,284	50,928
Total Securities, 12 months or longer, Unrealized Losses	7,988	2,818
Total Securities, Fair Value	357,697	458,227
Total Securities, Unrealized Losses	8,789	18,064
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	44,780	86,177
Securities available for sale, Less than 12 months, Unrealized Losses	299	2,788
Securities available for sale, 12 months or longer, Fair Value	40,918	2,717
Securities available for sale, 12 months or longer, Unrealized Losses	1,169	14
Securities available for sale, Fair Value, Total	85,698	88,894
Securities available for sale, Unrealized Losses, Total	1,468	2,802
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Less than 12 months, Fair Value	9,504	72,269
Securities held to maturity, Less than 12 months, Unrealized Losses	58	468
Securities held to maturity, Fair Value, Total	9,504	72,269
Securities held to maturity, Unrealized Losses, Total	58	468
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	64,976	248,853
Securities available for sale, Less than 12 months, Unrealized Losses	337	11,990
Securities available for sale, 12 months or longer, Fair Value	180,366	48,211
Securities available for sale, 12 months or longer, Unrealized Losses	6,819	2,804
Securities available for sale, Fair Value, Total	245,342	297,064
Securities available for sale, Unrealized Losses, Total	7,156	14,794
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	44,078	103,778
Securities available for sale, Less than 12 months, Unrealized Losses	208	3,491
Securities available for sale, 12 months or longer, Fair Value	64,400	20,689
Securities available for sale, 12 months or longer, Unrealized Losses	2,020	1,319
Securities available for sale, Fair Value, Total	108,478	124,467
Securities available for sale, Unrealized Losses, Total	2,228	4,810
Securities held to maturity, Less than 12 months, Fair Value	3,264
Securities held to maturity, Less than 12 months, Unrealized Losses	37
Securities held to maturity, Fair Value, Total	3,264
Securities held to maturity, Unrealized Losses, Total	37
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		14,166
Securities available for sale, Less than 12 months, Unrealized Losses		205
Securities available for sale, 12 months or longer, Fair Value	3,478
Securities available for sale, 12 months or longer, Unrealized Losses	42
Securities available for sale, Fair Value, Total	3,478	14,166
Securities available for sale, Unrealized Losses, Total	42	205
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		14,226
Securities available for sale, Less than 12 months, Unrealized Losses		142
Securities available for sale, Fair Value, Total		14,226
Securities available for sale, Unrealized Losses, Total		142
Securities held to maturity, Less than 12 months, Fair Value	13,889
Securities held to maturity, Less than 12 months, Unrealized Losses	70
Securities held to maturity, Fair Value, Total	13,889
Securities held to maturity, Unrealized Losses, Total	70
Collateralized Mortgage Obligations [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	20,898	116,683
Securities available for sale, Less than 12 months, Unrealized Losses	129	8,152
Securities available for sale, 12 months or longer, Fair Value	112,488	27,522
Securities available for sale, 12 months or longer, Unrealized Losses	4,757	1,485
Securities available for sale, Fair Value, Total	133,386	144,205
Securities available for sale, Unrealized Losses, Total	4,886	9,637
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	18,649	35,632
Securities available for sale, Less than 12 months, Unrealized Losses	121	2,586
Securities available for sale, 12 months or longer, Fair Value	29,146	11,760
Securities available for sale, 12 months or longer, Unrealized Losses	1,237	609
Securities available for sale, Fair Value, Total	47,795	47,392
Securities available for sale, Unrealized Losses, Total	1,358	3,195
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		72,655
Securities available for sale, Less than 12 months, Unrealized Losses		4,980
Securities available for sale, 12 months or longer, Fair Value	77,992	15,762
Securities available for sale, 12 months or longer, Unrealized Losses	3,418	876
Securities available for sale, Fair Value, Total	77,992	88,417
Securities available for sale, Unrealized Losses, Total	3,418	5,856
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	2,249	8,396
Securities available for sale, Less than 12 months, Unrealized Losses	8	586
Securities available for sale, 12 months or longer, Fair Value	5,350
Securities available for sale, 12 months or longer, Unrealized Losses	102
Securities available for sale, Fair Value, Total	7,599	8,396
Securities available for sale, Unrealized Losses, Total	$ 110	$ 586

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2014

Accumulated Other Comprehensive Income (Loss) [Abstract]

Components Of Other Comprehensive Income (Loss)

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
September 30, 2014
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	9,923		$	3,931		$	5,992
Reclassification adjustment for net gains included in net income (1)		(2,167	)		(858	)		(1,309	)
Total securities available for sale and transferred securities		7,756			3,073			4,683
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		132			52			80
Total pension and post-retirement obligations		96			38			58
Other comprehensive income	$	7,852		$	3,111		$	4,741
September 30, 2013
Securities available for sale:
Change in unrealized gain/loss during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for net gains included in net income (1)		(1,224	)		(485	)		(739	)
Total securities available for sale		(28,429	)		(11,262	)		(17,167	)
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		1,023			405			618
Total pension and post-retirement obligations		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)

(1) Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company's reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

Components Of Accumulated Other Comprehensive Income (Loss)

		Securities
		Available for			Pension and			Accumulated
		Sale and			Post-			Other
		Transferred			retirement			Comprehensive
		Securities			Obligations			Income (Loss)
September 30, 2014
Balance at beginning of year	$	(5,337	)	$	(4,850	)	$	(10,187	)
Other comprehensive income before reclassifications		5,992			-			5,992
Amounts reclassified from accumulated other comprehensive income		(1,309	)		58			(1,251	)
Net current period other comprehensive income		4,683			58			4,741
Balance at end of period	$	(654	)	$	(4,792	)	$	(5,446	)
September 30, 2013
Balance at beginning of year	$	16,060		$	(12,807	)	$	3,253
Other comprehensive (loss) income before reclassifications		(16,428	)		-			(16,428	)
Amounts reclassified from accumulated other comprehensive income		(739	)		596			(143	)
Net current period other comprehensive (loss) income		(17,167	)		596			(16,571	)
Balance at end of period	$	(1,107	)	$	(12,211	)	$	(13,318	)

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

		Amount Reclassified from
Details About Accumulated Other		Accumulated Other					Affected Line Item in the
Comprehensive Income Components		Comprehensive Income					Consolidated Statement of Income
		Nine months ended
		September 30,
		2014			2013
Realized gain on sale of investment securities	$	1,777		$	1,224		Net gain on disposal of investment securities
Amortization of unrealized holding gains (losses)
on investment securities transferred from
available for sale to held to maturity		390			-		Interest income
		2,167			1,224		Total before tax
		(858	)		(485	)	Income tax expense
		1,309			739		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		36			36		Salaries and employee benefits
Net actuarial losses (1)		(132	)		(1,023	)	Salaries and employee benefits
		(96	)		(987	)	Total before tax
		38			391		Income tax benefit
		(58	)		(596	)	Net of tax
Total reclassified for the period	$	1,251		$	143

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

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Shareholders' Equity (Tables)

9 Months Ended

Sep. 30, 2014

Shareholders' Equity [Abstract]

Changes In Shares Of Common Stock

	Outstanding		Treasury		Issued
September 30, 2014
Shares outstanding at December 31, 2013	13,829,355		332,242		14,161,597
Shares issued for the SDN acquisition	235,912		-		235,912
Restricted stock awards issued	43,242		(43,242	)	-
Restricted stock awards forfeited	(13,609	)	13,609		-
Stock options exercised	8,467		(8,467	)	-
Treasury stock purchases	(9,102	)	9,102		-
Shares outstanding at September 30, 2014	14,094,265		303,244		14,397,509
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

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Shareholders' Equity (Details)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Treasury stock, beginning balance	332,242
Shares issued, beginning balance	14,161,597	14,161,597
Shares issued for the SDN acquisition	235,912
Restricted stock awards issued
Restricted stock awards forfeited
Stock options exercised
Treasury stock purchases
Directors' retainer
Treasury stock, ending balance	303,244
Shares issued, ending balance	14,397,509	14,161,597
Common Stock [Member]
Shares outstanding, beginning balance	13,829,355	13,787,709
Shares issued for the SDN acquisition	235,912
Restricted stock awards issued	43,242	43,035
Restricted stock awards forfeited	(13,609)	(18,977)
Stock options exercised	8,467	3,800
Treasury stock purchases	(9,102)	(11,349)
Directors' retainer		5,672
Shares outstanding, ending balance	14,094,265	13,809,890
Treasury Stock [Member]
Treasury stock, beginning balance	332,242	373,888
Restricted stock awards issued	(43,242)	(43,035)
Restricted stock awards forfeited	13,609	18,977
Stock options exercised	(8,467)	(3,800)
Treasury stock purchases	9,102	11,349
Directors' retainer		(5,672)
Treasury stock, ending balance	303,244	351,707

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Loans (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 1,029	$ 3,381
Past due greater than 90 days	7	6
Other Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past due greater than 90 days	$ 7	$ 6

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Share-Based Compensation Plans (Tables)

9 Months Ended

Sep. 30, 2014

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	65,040		$	16.92
Granted	43,242			18.76
Vested	(33,728	)		18.17
Forfeited	(13,609	)		18.04
Outstanding at end of period	60,945		$	17.28

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	192,934		$	19.83
Exercised	(8,467	)		18.87
Expired	(23,436	)		23.64
Outstanding and exercisable at end of period	161,031		$	19.34	2.1	$	506

Share-Based Compensation Expense Included In Consolidated Statements Of Income

	Three months ended				Nine months ended
	September 30,				September 30,
		2014		2013		2014		2013
Salaries and employee benefits	$	52	$	85	$	208	$	164
Other noninterest expense		26		22		175		148
Total share-based compensation expense	$	78	$	107	$	383	$	312

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2014

Employee Benefit Plans [Abstract]

Components Of Net Periodic Benefit Expense

		Three months ended						Nine months ended
		September 30,						September 30,
		2014			2013			2014			2013
Service cost	$	479		$	516		$	1,438		$	1,548
Interest cost on projected benefit obligation		573			505			1,720			1,515
Expected return on plan assets		(1,029	)		(921	)		(3,088	)		(2,763	)
Amortization of prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of net actuarial losses		44			341			132			1,023
Net periodic pension expense	$	55		$	429		$	166		$	1,287

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income	$ 7,184	$ 21,435	$ 19,163
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,247	3,145
Net amortization of premiums on securities		2,435	3,656
Provision for loan losses	2,015	5,879	6,672
Share-based compensation	78	383	312
Deferred income tax expense		802	1,907
Proceeds from sale of loans held for sale		12,649	22,963
Originations of loans held for sale		(10,919)	(27,413)
Increase in company owned life insurance	(421)	(1,249)	(1,275)
Net gain on sale of loans held for sale	(76)	(231)	(134)
Net gain on disposal of investment securities	(515)	(1,777)	(1,224)
Net gain on sale and disposal of other assets	(72)	(61)	(39)
Decrease in other assets		5,420	6,878
(Increase) decrease in other liabilities		(61)	215
Net cash provided by operating activities		37,952	34,826
Cash flows from investing activities:
Purchases of available for sale securities		(179,203)	(194,360)
Purchases of held to maturity securities		(50,394)	(9,228)
Proceeds from principal payments, maturities and calls on available for sale securities		123,625	123,864
Proceeds from principal payments, maturities and calls on held to maturity securities		26,432	8,886
Proceeds from sales of securities available for sale	14,672	76,100	1,327
Net loan originations		(79,138)	(76,010)
Purchases of company owned life insurance		(5,034)	(34)
Proceeds from sales of other assets		1,289	469
Purchases of premises and equipment		(4,448)	(2,870)
Cash consideration paid for acquisition, net of cash acquired		(7,995)
Net cash used in investing activities		(98,766)	(147,956)
Cash flows from financing activities:
Net increase in deposits		218,768	152,391
Net (decrease) increase in short-term borrowings		(121,075)	8,340
Repurchase of preferred stock		(2)	(131)
Purchase of common stock for treasury		(195)	(229)
Proceeds from stock options exercised		160	66
Excess tax (expense) benefit on share-based compensation, net			(118)
Cash dividends paid to common and preferred shareholders		(8,952)	(8,241)
Net cash provided by financing activities		88,704	152,078
Net increase in cash and cash equivalents		27,890	38,948
Cash and cash equivalents, beginning of period		59,692	60,436
Cash and cash equivalents, end of period	87,582	87,582	99,384
Supplemental information:
Cash paid for interest		5,056	5,738
Cash paid for income taxes		9,739	4,006
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		394	655
Accrued and declared unpaid dividends	3,032	3,032	2,977
Increase (decrease) in net unsettled security purchases	1,724	1,724	(51,061)
Securities transferred from available for sale to held to maturity (at fair value)	12,800	12,802	227,330
Loans transferred from held for sale to held for investment		853	3,292
Common stock issued for acquisition		$ 5,400

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Commitments And Contingencies (Tables)

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies [Abstract]

Off-Balance Sheet Commitments

		September 30,		December 31,
		2014		2013
Commitments to extend credit	$	441,425	$	431,236
Standby letters of credit		11,023		8,618

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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, 2014	Dec. 31, 2013
Investment [Line Items]
Securities available for sale, Amortized Cost	$ 586,099	$ 618,166
Securities available for sale, Unrealized Gains	8,004	8,830
Securities available for sale, Unrealized Losses	8,624	17,596
Securities available for sale, Fair Value	585,479	609,400
Securities held to maturity, Amortized Cost	285,967	249,785
Securities held to maturity, Unrealized Gains	5,356
Securities held to maturity, Unrealized Losses	165
Securities held to maturity, Fair Value	291,158	250,657
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	115,830	135,840
Securities available for sale, Unrealized Gains	916	1,414
Securities available for sale, Unrealized Losses	1,468	2,802
Securities available for sale, Fair Value	115,278	134,452
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Amortized Cost	268,708	249,785
Securities held to maturity, Unrealized Gains	5,356	1,340
Securities held to maturity, Unrealized Losses	58	468
Securities held to maturity, Fair Value	274,006	250,657
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	470,269	482,308
Securities available for sale, Unrealized Gains	6,847	7,035
Securities available for sale, Unrealized Losses	7,156	14,794
Securities available for sale, Fair Value	469,960	474,549
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	182,986	173,507
Securities available for sale, Unrealized Gains	1,720	1,511
Securities available for sale, Unrealized Losses	2,228	4,810
Securities available for sale, Fair Value	182,478	170,208
Securities held to maturity, Amortized Cost	3,300
Securities held to maturity, Unrealized Losses	37
Securities held to maturity, Fair Value	3,263
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	30,784	36,737
Securities available for sale, Unrealized Gains	588	562
Securities available for sale, Unrealized Losses	42	205
Securities available for sale, Fair Value	31,330	37,094
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	51,449	61,832
Securities available for sale, Unrealized Gains	1,912	2,152
Securities available for sale, Unrealized Losses		142
Securities available for sale, Fair Value	53,361	63,842
Securities held to maturity, Amortized Cost	13,959
Securities held to maturity, Unrealized Losses	70
Securities held to maturity, Fair Value	13,889
Collateralized Mortgage Obligations [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	205,050	210,232
Securities available for sale, Unrealized Gains	2,627	2,810
Securities available for sale, Unrealized Losses	4,886	9,637
Securities available for sale, Fair Value	202,791	203,405
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	78,874	63,838
Securities available for sale, Unrealized Gains	367	261
Securities available for sale, Unrealized Losses	1,358	3,195
Securities available for sale, Fair Value	77,883	60,904
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	93,063	102,660
Securities available for sale, Unrealized Gains	211	169
Securities available for sale, Unrealized Losses	3,418	5,856
Securities available for sale, Fair Value	89,856	96,973
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	33,113	43,734
Securities available for sale, Unrealized Gains	755	913
Securities available for sale, Unrealized Losses	110	586
Securities available for sale, Fair Value	33,758	44,061
Collateralized Mortgage Obligations [Member] | Privately Issued [Member]
Investment [Line Items]
Securities available for sale, Unrealized Gains	1,294	1,467
Securities available for sale, Fair Value	1,294	1,467
Asset-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost		18
Securities available for sale, Unrealized Gains	241	381
Securities available for sale, Fair Value	$ 241	$ 399

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Goodwill And Other Intangible Assets (Changes In Carrying Amount Of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Goodwill And Other Intangible Assets [Abstract]
Goodwill, beginning balance	$ 48,536
Addition from the SDN acquisition	12,617
Goodwill, ending balance	$ 61,153

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Business Segments (Business Segment Information) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013
Segment Reporting Information [Line Items]
Net interest income	$ 23,258		$ 22,803	$ 69,636		$ 68,214
Provision for loan losses	(2,015)		(2,770)	(5,879)		(6,672)
Noninterest income	7,261		6,169	20,195		19,098
Noninterest expense	(17,955)		(17,009)	(52,976)		(52,055)
Income before income taxes	10,549		9,193	30,976		28,585
Income tax (expense) benefit	(3,365)		(3,029)	(9,541)		(9,422)
Net income	7,184		6,164	21,435		19,163
Banking [Member]
Segment Reporting Information [Line Items]
Net interest income	23,258			69,636
Provision for loan losses	(2,015)			(5,879)
Noninterest income	6,684			19,779
Noninterest expense	(16,794)			(50,315)
Income before income taxes	11,133			33,221
Income tax (expense) benefit	(3,584)			(10,480)
Net income	7,549			22,741
Insurance [Member]
Segment Reporting Information [Line Items]
Noninterest income	670	[1]		670	[1]
Noninterest expense	(640)	[1]		(640)	[1]
Income before income taxes	30	[1]		30	[1]
Income tax (expense) benefit	(12)	[1]		(12)	[1]
Net income	18	[1]		18	[1]
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Noninterest income	(93)			(254)
Noninterest expense	(521)			(2,021)
Income before income taxes	(614)			(2,275)
Income tax (expense) benefit	231			951
Net income	$ (383)			$ (1,324)

[1] Reflects activity from SDN since August 1, 2014, the date of acquisition.

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Consolidated Statements Of Financial Condition (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Cash and cash equivalents:
Cash and due from banks	$ 87,582		$ 59,598
Federal funds sold and interest-bearing deposits in other banks			94
Total cash and cash equivalents	87,582		59,692
Securities available for sale, at fair value	585,479		609,400
Securities held to maturity, at amortized cost (fair value of $291,158 and $250,657, respectively)	285,967		249,785
Loans held for sale	1,029		3,381
Loans (net of allowance for loan losses of $27,244 and $26,736, respectively)	1,880,601		1,806,883
Company owned life insurance	55,454		49,171
Premises and equipment, net	36,602		36,009
Goodwill and other intangible assets, net	68,887		50,002
Other assets	53,703		64,313
Total assets	3,055,304	[1]	2,928,636
Deposits:
Noninterest-bearing demand	571,549		535,472
Interest-bearing demand	530,783		470,733
Savings and money market	805,522		717,928
Certificates of deposit	630,970		595,923
Total deposits	2,538,824		2,320,056
Short-term borrowings	215,967		337,042
Other liabilities	22,755		16,699
Total liabilities	2,777,546		2,673,797
Shareholders' equity:
Total preferred equity	17,340		17,342
Common stock, $0.01 par value; 50,000,000 shares authorized; 14,397,509 and 14,161,597 shares issued, respectively	144		142
Additional paid-in capital	72,803		67,574
Retained earnings	198,569		186,137
Accumulated other comprehensive (loss) income	(5,446)		(10,187)
Treasury stock, at cost - 303,244 and 332,242 shares, respectively	(5,652)		(6,169)
Total shareholders' equity	277,758		254,839
Total liabilities and shareholders' equity	3,055,304		2,928,636
Series A 3% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	149		149
Series B-1 8.48% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	$ 17,191		$ 17,193

[1] The negative balance for total assets in the Holding Company and Other column results from the elimination of holding company cash held in deposit accounts at the Bank and other reclassifications.

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Loans (Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	$ 1,876,375	$ 1,802,105
Net Deferred Loan Costs (Fees)	31,470	31,514
Loans, Net	1,907,845	1,833,619
Allowance for loan losses	(27,244)	(26,736)
Total loans, net	1,880,601	1,806,883
Commercial Business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	275,027	265,751
Net Deferred Loan Costs (Fees)	80	15
Loans, Net	275,107	265,766
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	470,566	470,312
Net Deferred Loan Costs (Fees)	(1,081)	(1,028)
Loans, Net	469,485	469,284
Residential Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	103,183	113,101
Net Deferred Loan Costs (Fees)	(139)	(56)
Loans, Net	103,044	113,045
Home Equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	376,062	320,658
Net Deferred Loan Costs (Fees)	6,641	5,428
Loans, Net	382,703	326,086
Consumer Indirect [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	630,441	609,390
Net Deferred Loan Costs (Fees)	25,774	26,978
Loans, Net	656,215	636,368
Other Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	21,096	22,893
Net Deferred Loan Costs (Fees)	195	177
Loans, Net	$ 21,291	$ 23,070

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Consolidated Statement Of Changes In Shareholders' Equity (USD $) In Thousands, unless otherwise specified	Series A 3% Preferred Stock [Member] Preferred Equity [Member]	Series A 3% Preferred Stock [Member] Retained Earnings [Member]	Series A 3% Preferred Stock [Member]	Series B-1 8.48% Preferred Stock [Member] Preferred Equity [Member]	Series B-1 8.48% Preferred Stock [Member] Additional Paid-In Capital [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, 2012								$ 17,471	$ 142	$ 67,710	$ 172,244	$ 3,253	$ (6,923)	$ 253,897
Comprehensive income:
Net income											19,163			19,163
Other comprehensive income (loss), net of tax												(16,571)		(16,571)
Repurchases of stock	(1)		(1)	(128)	(2)		(130)						(229)	(229)
Share-based compensation plans:
Share-based compensation										312				312
Stock options exercised										(5)			71	66
Restricted stock awards issued, net										(446)			446
Excess tax 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
Balance at Dec. 31, 2013								17,342	142	67,574	186,137	(10,187)	(6,169)	254,839
Comprehensive income:
Net income											21,435			21,435
Other comprehensive income (loss), net of tax												4,741		4,741
Issuance of common stock for acquisition									2	5,398				5,400
Repurchases of stock				(2)			(2)						(195)	(195)
Share-based compensation plans:
Share-based compensation										383				383
Stock options exercised										2			158	160
Restricted stock awards issued, net										(554)			554
Cash dividends declared:
Preferred stock dividends per share		(3)	(3)			(1,094)	(1,094)							(1,097)
Common stock dividends per share											(7,906)			(7,906)
Balance at Sep. 30, 2014								$ 17,340	$ 144	$ 72,803	$ 198,569	$ (5,446)	$ (5,652)	$ 277,758

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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, 2014	Sep. 30, 2013	Sep. 30, 2014		Sep. 30, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain on disposal of investment securities	$ 515		$ 1,777		$ 1,224
Interest income	23,258	22,803	69,636		68,214
Total before tax			(2,167)	[1]	(1,224)	[1]
Income tax expense			858	[1]	485	[1]
Net of tax			(1,309)	[1]	(739)	[1]
Prior service credit			(36)		(36)
Net actuarial losses			132		1,023
Total before tax			96		987
Income tax benefit			(38)		(391)
Total pension and post-retirement obligations, Net-of-tax Amount	19	198	58		596
Net income available to common shareholders	6,818	5,799	20,338		18,063
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income available to common shareholders			1,251		143
Reclassification out of Accumulated Other Comprehensive Income [Member] | Realized Gain on Sale of Investment Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain on disposal of investment securities			1,777		1,224
Interest income			390
Total before tax			2,167		1,224
Income tax expense			(858)		(485)
Net of tax			1,309		739
Reclassification out of Accumulated Other Comprehensive Income [Member] | Pension And Post-Retirement Items [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Prior service credit			36	[2]	36	[2]
Net actuarial losses			(132)	[2]	(1,023)	[2]
Total before tax			(96)		(987)
Income tax benefit			38		391
Total pension and post-retirement obligations, Net-of-tax Amount			$ (58)		$ (596)

[1] Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company's reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

[2] These items are included in the computation of net periodic pension expense. See Note 10 Employee Benefit Plans for additional information.

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Business Combinations (Narrative) (Details) (Scott Danahy Naylon Co., Inc. [Member], USD $) In Millions, unless otherwise specified	0 Months Ended	9 Months Ended
	Aug. 01, 2014	Sep. 30, 2014	Aug. 01, 2014
Scott Danahy Naylon Co., Inc. [Member]
Significant Acquisitions and Disposals [Line Items]
Consideration including both cash and stock	$ 16.9
Contingent future payments			$ 3.4
Estimated fair value measurement period, number of years		1 year

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Commitments And Contingencies (Narrative) (Details) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Commitments And Contingencies [Abstract]
Forward sales commitments	$ 742,000	$ 0

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

9 Months Ended

Sep. 30, 2014

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

Nature Of Operations

Nature of Operations

Financial Institutions, Inc., (the Company) is a financial holding company organized in 1931 under the laws of New York State (New York or NYS). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the Bank). 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. On August 1, 2014, the Company acquired Scott Danahy Naylon Co., Inc., a full service insurance agency located in Amherst, New York. As a result of the acquisition the Company now provides insurance and risk consulting services through its wholly-owned insurance subsidiary, Scott Danahy Naylon, LLC (SDN). The consolidated financial statements include the accounts of the Company, the Bank and SDN. All significant intercompany balances and transactions have been eliminated in the consolidation. References to the Company mean the consolidated reporting entity.

Basis Of Presentation

Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. 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 years presentation. These consolidated financial statements should be read in conjunction with the Companys 2013 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 and determined that there were no subsequent events.

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, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment (OTTI) considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The objective of this guidance is to clarify when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be derecognized and the real estate property recognized. ASU No. 2014-04 states that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, ASU No. 2014-04 requires interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for interim and annual reporting periods beginning after December 15, 2014. The adoption of ASU No. 2014-04 is not expected to have a material impact on the Company's consolidated statements of income and condition.

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Business Combinations (Schedule Of Assets Purchased And Liabilities Assumed) (Details) (Scott Danahy Naylon Co., Inc. [Member], USD $) In Thousands, unless otherwise specified	0 Months Ended
	Aug. 01, 2014	Aug. 01, 2014
Scott Danahy Naylon Co., Inc. [Member]
Significant Acquisitions and Disposals [Line Items]
Cash	$ 8,100
Stock	5,400
Contingent consideration	3,227
Fair value of total consideration transferred	16,727
Cash		105
Identified intangible assets		6,640
Premises and equipment, accounts receivable and other assets		1,094
Total identifiable assets acquired		7,839
Deferred tax liability		2,556
Other liabilities		1,173
Total liabilities assumed		3,729
Fair value of net assets acquired		4,110
Goodwill resulting from acquisition	$ 12,617

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

9 Months Ended

Sep. 30, 2014

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,
		2014			2013			2014			2013
Net income available to common shareholders	$	6,818		$	5,799		$	20,338		$	18,063
Weighted average common shares outstanding:
Total shares issued		14,318			14,162			14,214			14,162
Unvested restricted stock awards		(64	)		(64	)		(64	)		(70	)
Treasury shares		(301	)		(353	)		(310	)		(358	)
Total basic weighted average common shares outstanding		13,953			13,745			13,840			13,734
Incremental shares from assumed:
Exercise of stock options		26			12			25			8
Vesting of restricted stock awards		28			30			25			32
Total diluted weighted average common shares outstanding		14,007			13,787			13,890			13,774
Basic earnings per common share	$	0.49		$	0.42		$	1.47		$	1.32
Diluted earnings per common share	$	0.49		$	0.42		$	1.46		$	1.31

Shares Excluded From Computation Of Diluted EPS

Stock options	-	86	5	154
Restricted stock awards	-	-	1	3
	-	86	6	157

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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, 2014		Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 585,479		$ 609,400
Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,474	[1]
Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,398
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	509	[1]
Measured On A Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	585,479		609,400
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	115,278		134,452
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	469,960		474,549
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	241		399
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 1 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
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Asset-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale
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	585,479		609,400
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	115,278		134,452
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	469,960		474,549
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	241		399
Measured On A Nonrecurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	4,410		14,506
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	1,029		3,381
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	1,474		9,227
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	1,398		1,565
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	509		333
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
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	1,029		3,381
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	1,029		3,381
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	3,381		11,125
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	1,474		9,227
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	1,398		1,565
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	$ 509		$ 333

[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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Consolidated Statement Of Changes In Shareholders' Equity (Parenthetical) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Common stock dividends per share, declared	$ 0.57	$ 0.55
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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Consolidated Statements Of Financial Condition (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Series A 3% Preferred Stock [Member]	Dec. 31, 2013 Series A 3% Preferred Stock [Member]	Sep. 30, 2014 Series B-1 8.48% Preferred Stock [Member]	Dec. 31, 2013 Series B-1 8.48% Preferred Stock [Member]
Securities held to maturity, fair value	$ 291,158	$ 250,657
Loans, allowance for loan losses	$ 27,244	$ 26,736
Preferred stock, par value			$ 100	$ 100	$ 100	$ 100
Preferred stock, shares authorized			1,533	1,533	200,000	200,000
Preferred stock, shares issued			1,492	1,496	171,906	171,927
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	14,397,509	14,161,597
Treasury stock, shares	303,244	332,242
Preferred stock, dividend percentage			3.00%	3.00%	8.48%	8.48%

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Share-Based Compensation Plans

9 Months Ended

Sep. 30, 2014

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 Companys shareholders and are administered by the Companys 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 Companys success.

The Company awarded grants of 22,642 shares of restricted common stock to certain members of management during the nine months ended September 30, 2014. Fifty percent of the shares subject to each grant will be earned based upon achievement of an EPS performance requirement for the Companys fiscal year ended December 31, 2014. The remaining fifty percent of the shares will be earned based on the Companys 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, 2016. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest based on the recipients continuous service to the Company on December 31, 2016.

The grant date fair value of the TSR portion of the award granted during the nine months ended September 30, 2014 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.87 years, (ii) risk free interest rate of 0.62%, (iii) expected dividend yield of 3.59% and (iv) expected stock price volatility over the expected term of the TSR award of 39.4%. The model resulted in a grant date fair value of $10.54 for the TSR portion of the award. 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 11,600 shares of restricted common stock to management during the nine months ended September 30, 2014. The shares will vest after completion of a three-year service requirement. The weighted average market price of the restricted stock awards on the date of grant was $21.26.

During the nine months ended September 30, 2014, the Company granted 9,000 restricted shares of 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 $22.82.

The restricted stock awards granted to management and directors in 2014 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, 2014:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	65,040		$	16.92
Granted	43,242			18.76
Vested	(33,728	)		18.17
Forfeited	(13,609	)		18.04
Outstanding at end of period	60,945		$	17.28

As of September 30, 2014, there was $578 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 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 2014 or 2013. The following is a summary of stock option activity for the nine months ended September 30, 2014 (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	192,934		$	19.83
Exercised	(8,467	)		18.87
Expired	(23,436	)		23.64
Outstanding and exercisable at end of period	161,031		$	19.34	2.1	$	506

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, 2014 and 2013 was $35 thousand and $9 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the nine months ended September 30, 2014 and 2013 was $160 thousand and $66 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,
		2014		2013		2014		2013
Salaries and employee benefits	$	52	$	85	$	208	$	164
Other noninterest expense		26		22		175		148
Total share-based compensation expense	$	78	$	107	$	383	$	312

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 28, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014
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		14,098,212

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2014

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(10.) EMPLOYEE BENEFIT PLANS

The components of the Companys 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,
		2014			2013			2014			2013
Service cost	$	479		$	516		$	1,438		$	1,548
Interest cost on projected benefit obligation		573			505			1,720			1,515
Expected return on plan assets		(1,029	)		(921	)		(3,088	)		(2,763	)
Amortization of prior service credit		(12	)		(12	)		(36	)		(36	)
Amortization of net actuarial losses		44			341			132			1,023
Net periodic pension expense	$	55		$	429		$	166		$	1,287

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 2014 fiscal year.

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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, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Interest income:
Interest and fees on loans	$ 20,671	$ 20,332	$ 61,168	$ 60,775
Interest and dividends on investment securities	4,458	4,291	13,903	12,938
Total interest income	25,129	24,623	75,071	73,713
Interest expense:
Deposits	1,627	1,624	4,729	4,960
Short-term borrowings	244	196	706	539
Total interest expense	1,871	1,820	5,435	5,499
Net interest income	23,258	22,803	69,636	68,214
Provision for loan losses	2,015	2,770	5,879	6,672
Net interest income after provision for loan losses	21,243	20,033	63,757	61,542
Noninterest income:
Service charges on deposits	2,277	2,728	6,768	7,437
ATM and debit card	1,263	1,283	3,694	3,849
Investment advisory	524	568	1,647	1,917
Company owned life insurance	421	422	1,249	1,275
Insurance income	922	92	979	189
Investments in limited partnerships	187	241	894	538
Loan servicing	120	227	450	452
Net gain on disposal of investment securities	515		1,777	1,224
Net gain (loss) on sale of loans held for sale	76	(101)	231	134
Net gain (loss) on disposal of other assets	72		61	39
Other	884	709	2,445	2,044
Total noninterest income	7,261	6,169	20,195	19,098
Noninterest expense:
Salaries and employee benefits	9,725	9,473	28,044	28,408
Occupancy and equipment	3,131	2,959	9,505	9,163
Professional services	976	814	3,332	2,844
Computer and data processing	725	689	2,225	2,205
Supplies and postage	507	518	1,554	1,806
FDIC assessments	390	367	1,200	1,092
Advertising and promotions	216	209	609	676
Other	2,285	1,980	6,507	5,861
Total noninterest expense	17,955	17,009	52,976	52,055
Income before income taxes	10,549	9,193	30,976	28,585
Income tax expense	3,365	3,029	9,541	9,422
Net income	7,184	6,164	21,435	19,163
Preferred stock dividends	366	365	1,097	1,100
Net income available to common shareholders	$ 6,818	$ 5,799	$ 20,338	$ 18,063
Earnings per common share (Note 3):
Basic	$ 0.49	$ 0.42	$ 1.47	$ 1.32
Diluted	$ 0.49	$ 0.42	$ 1.46	$ 1.31
Cash dividends declared per common share	$ 0.19	$ 0.19	$ 0.57	$ 0.55
Weighted average common shares outstanding:
Basic	13,953	13,745	13,840	13,734
Diluted	14,007	13,787	13,890	13,774

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Investment Securities

9 Months Ended

Sep. 30, 2014

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, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	115,830	$	916	$	1,468	$	115,278
Mortgage-backed securities:
Federal National Mortgage Association		182,986		1,720		2,228		182,478
Federal Home Loan Mortgage Corporation		30,784		588		42		31,330
Government National Mortgage Association		51,449		1,912		-		53,361
Collateralized mortgage obligations:
Federal National Mortgage Association		78,874		367		1,358		77,883
Federal Home Loan Mortgage Corporation		93,063		211		3,418		89,856
Government National Mortgage Association		33,113		755		110		33,758
Privately issued		-		1,294		-		1,294
Total collateralized mortgage obligations		205,050		2,627		4,886		202,791
Total mortgage-backed securities		470,269		6,847		7,156		469,960
Asset-backed securities		-		241		-		241
Total available for sale securities	$	586,099	$	8,004	$	8,624	$	585,479
Securities held to maturity:
State and political subdivisions		268,708		5,356		58		274,006
Mortgage-backed securities:
Federal National Mortgage Association		3,300		-		37		3,263
Government National Mortgage Association		13,959		-		70		13,889
Total held to maturity securities	$	285,967	$	5,356	$	165	$	291,158

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	135,840	$	1,414	$	2,802	$	134,452
Mortgage-backed securities:
Federal National Mortgage Association		173,507		1,511		4,810		170,208
Federal Home Loan Mortgage Corporation		36,737		562		205		37,094
Government National Mortgage Association		61,832		2,152		142		63,842
Collateralized mortgage obligations:
Federal National Mortgage Association		63,838		261		3,195		60,904
Federal Home Loan Mortgage Corporation		102,660		169		5,856		96,973
Government National Mortgage Association		43,734		913		586		44,061
Privately issued		-		1,467		-		1,467
Total collateralized mortgage obligations		210,232		2,810		9,637		203,405
Total mortgage-backed securities		482,308		7,035		14,794		474,549
Asset-backed securities		18		381		-		399
Total available for sale securities	$	618,166	$	8,830	$	17,596	$	609,400
Securities held to maturity:
State and political subdivisions	$	249,785	$	1,340	$	468	$	250,657

Investment securities with a total fair value of $785.9 million and $763.1 million at September 30, 2014 and December 31, 2013, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

During the third quarter of 2014, the Company transferred $12.8 million of available for sale mortgage backed 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 $51 thousand of unrealized holding losses 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, 2014 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	$	186	$	189
Due from one to five years		93,032		93,453
Due after five years through ten years		237,569		237,720
Due after ten years		255,312		254,117
	$	586,099	$	585,479
Debt securities held to maturity:
Due in one year or less	$	23,898	$	23,993
Due from one to five years		133,714		136,201
Due after five years through ten years		111,096		113,812
Due after ten years		17,259		17,152
	$	285,967	$	291,158

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

		Three months ended				Nine months ended
		September 30,				September 30,
		2014		2013		2014		2013
Proceeds from sales and calls	$	14,672	$	-	$	76,100	$	1,327
Gross realized gains		515		-		1,777		1,224

Unrealized losses on investment securities 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, 2014
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	44,780	$	299	$	40,918	$	1,169	$	85,698	$	1,468
Mortgage-backed securities:
Federal National Mortgage Association		44,078		208		64,400		2,020		108,478		2,228
Federal Home Loan Mortgage Corporation		-		-		3,478		42		3,478		42
Collateralized mortgage obligations:
Federal National Mortgage Association		18,649		121		29,146		1,237		47,795		1,358
Federal Home Loan Mortgage Corporation		-		-		77,992		3,418		77,992		3,418
Government National Mortgage Association		2,249		8		5,350		102		7,599		110
Total collateralized mortgage obligations		20,898		129		112,488		4,757		133,386		4,886
Total mortgage-backed securities		64,976		337		180,366		6,819		245,342		7,156
Total available for sale securities		109,756		636		221,284		7,988		331,040		8,624
Securities held to maturity:
State and political subdivisions		9,504		58		-		-		9,504		58
Mortgage-backed securities:
Federal National Mortgage Association		3,264		37		-		-		3,264		37
Government National Mortgage Association		13,889		70		-		-		13,889		70
Total held to maturity securities		26,657		165		-		-		26,657		165
Total	$	136,413	$	801	$	221,284	$	7,988	$	357,697	$	8,789
December 31, 2013
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	86,177	$	2,788	$	2,717	$	14	$	88,894	$	2,802
Mortgage-backed securities:
Federal National Mortgage Association		103,778		3,491		20,689		1,319		124,467		4,810
Federal Home Loan Mortgage Corporation		14,166		205		-		-		14,166		205
Government National Mortgage Association		14,226		142		-		-		14,226		142
Collateralized mortgage obligations:
Federal National Mortgage Association		35,632		2,586		11,760		609		47,392		3,195
Federal Home Loan Mortgage Corporation		72,655		4,980		15,762		876		88,417		5,856
Government National Mortgage Association		8,396		586		-		-		8,396		586
Total collateralized mortgage obligations		116,683		8,152		27,522		1,485		144,205		9,637
Total mortgage-backed securities		248,853		11,990		48,211		2,804		297,064		14,794
Total available for sale securities		335,030		14,778		50,928		2,818		385,958		17,596
Securities held to maturity:
State and political subdivisions		72,269		468		-		-		72,269		468
Total	$	407,299	$	15,246	$	50,928	$	2,818	$	458,227	$	18,064

The total number of security positions in the investment portfolio in an unrealized loss position at September 30, 2014 was 122 compared to 331 at December 31, 2013. At September 30, 2014, the Company had positions in 55 investment securities with a fair value of $221.3 million and a total unrealized loss of $8.0 million that have been in a continuous unrealized loss position for more than 12 months. There were a total of 67 securities positions in the Companys investment portfolio, with a fair value of $136.4 million and a total unrealized loss of $801 thousand at September 30, 2014, 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 Companys 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.

Based on managements review and evaluation of the Companys debt securities as of September 30, 2014, the debt securities with unrealized losses were not considered to be other than temporarily impaired. As of September 30, 2014, the Company did not intend 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, 2014, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Companys consolidated statements of income.

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Earnings Per Common Share ("EPS")

9 Months Ended

Sep. 30, 2014

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,
		2014			2013			2014			2013
Net income available to common shareholders	$	6,818		$	5,799		$	20,338		$	18,063
Weighted average common shares outstanding:
Total shares issued		14,318			14,162			14,214			14,162
Unvested restricted stock awards		(64	)		(64	)		(64	)		(70	)
Treasury shares		(301	)		(353	)		(310	)		(358	)
Total basic weighted average common shares outstanding		13,953			13,745			13,840			13,734
Incremental shares from assumed:
Exercise of stock options		26			12			25			8
Vesting of restricted stock awards		28			30			25			32
Total diluted weighted average common shares outstanding		14,007			13,787			13,890			13,774
Basic earnings per common share	$	0.49		$	0.42		$	1.47		$	1.32
Diluted earnings per common share	$	0.49		$	0.42		$	1.46		$	1.31

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	5	154
Restricted stock awards	-	-	1	3
	-	86	6	157

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Consideration Paid And The Amounts Of The Recognized Assets Acquired And Liabilities Assumed

Consideration paid:
Cash	$	8,100
Stock		5,400
Contingent consideration		3,227
Fair value of total consideration transferred		16,727
Fair value of assets acquired:
Cash		105
Identified intangible assets		6,640
Premises and equipment, accounts receivable and other assets		1,094
Total identifiable assets acquired		7,839
Fair value of liabilities assumed:
Deferred tax liability		2,556
Other liabilities		1,173
Total liabilities assumed		3,729
Fair value of net assets acquired		4,110
Goodwill resulting from acquisition	$	12,617

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Commitments And Contingencies

9 Months Ended

Sep. 30, 2014

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 Companys financial statements.

The Companys 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,
		2014		2013
Commitments to extend credit	$	441,425	$	431,236
Standby letters of credit		11,023		8,618

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 customers creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on managements 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 $742 thousand at September 30, 2014. There were no forward sales commitments outstanding as of December 31, 2013. 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, 2014

Shareholders' Equity [Abstract]

Shareholders' Equity

(7.) SHAREHOLDERS EQUITY

Common Stock

The changes in shares of common stock were as follows for the nine months ended September 30, 2014 and 2013:

	Outstanding		Treasury		Issued
September 30, 2014
Shares outstanding at December 31, 2013	13,829,355		332,242		14,161,597
Shares issued for the SDN acquisition	235,912		-		235,912
Restricted stock awards issued	43,242		(43,242	)	-
Restricted stock awards forfeited	(13,609	)	13,609		-
Stock options exercised	8,467		(8,467	)	-
Treasury stock purchases	(9,102	)	9,102		-
Shares outstanding at September 30, 2014	14,094,265		303,244		14,397,509
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

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Share-Based Compensation Plans (Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 578
Aggregate intrinsic value	35	9
Total cash received as a result of option exercises	$ 160	$ 66
TSR Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value	$ 10.54
Expected term	2 years 10 months 13 days
Risk free interest rate	0.62%
Expected dividend yield	3.59%
Expected stock price volatility	39.40%
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	43,242
Grant date fair value	$ 18.76
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	22,642
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	11,600
Grant date fair value	$ 21.26
Award vesting period	1 year
Required service period	3 years
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
Grant date fair value	$ 22.82
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
Minimum [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year 9 months 18 days

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Loans

9 Months Ended

Sep. 30, 2014

Loans [Abstract]

Loans

(5.) LOANS

The Companys loan portfolio consisted of the following as of the dates indicated (in thousands):

		Principal		Net Deferred
		Amount		Loan Costs
		Outstanding		(Fees)			Loans, Net
September 30, 2014
Commercial business	$	275,027	$	80		$	275,107
Commercial mortgage		470,566		(1,081	)		469,485
Residential mortgage		103,183		(139	)		103,044
Home equity		376,062		6,641			382,703
Consumer indirect		630,441		25,774			656,215
Other consumer		21,096		195			21,291
Total	$	1,876,375	$	31,470			1,907,845
Allowance for loan losses							(27,244	)
Total loans, net						$	1,880,601
December 31, 2013
Commercial business	$	265,751	$	15		$	265,766
Commercial mortgage		470,312		(1,028	)		469,284
Residential mortgage		113,101		(56	)		113,045
Home equity		320,658		5,428			326,086
Consumer indirect		609,390		26,978			636,368
Other consumer		22,893		177			23,070
Total	$	1,802,105	$	31,514			1,833,619
Allowance for loan losses							(26,736	)
Total loans, net						$	1,806,883

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $1.0 million and $3.4 million as of September 30, 2014 and December 31, 2013, respectively.

Past Due Loans Aging

The Companys 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, 2014
Commercial business	$	787	$	27	$	- $		814	$	3,258	$	270,955	$	275,027
Commercial mortgage		-		62		-		62		2,460		468,044		470,566
Residential mortgage		334		-		-		334		656		102,193		103,183
Home equity		521		97		-		618		464		374,980		376,062
Consumer indirect		1,814		492		-		2,306		1,300		626,835		630,441
Other consumer		87		31		7		125		39		20,932		21,096
Total loans, gross	$	3,543	$	709	$	7	$	4,259	$	8,177	$	1,863,939	$	1,876,375
December 31, 2013
Commercial business	$	558	$	199	$	- $		757	$	3,474	$	261,520	$	265,751
Commercial mortgage		800		-		-		800		9,663		459,849		470,312
Residential mortgage		542		-		-		542		1,078		111,481		113,101
Home equity		750		143		-		893		925		318,840		320,658
Consumer indirect		2,129		476		-		2,605		1,471		605,314		609,390
Other consumer		126		72		6		204		5		22,684		22,893
Total loans, gross	$	4,905	$	890	$	6	$	5,801	$	16,616	$	1,779,688	$	1,802,105

There were no loans past due greater than 90 days and still accruing interest as of September 30, 2014 and December 31, 2013. There were $7 thousand and $6 thousand in consumer overdrafts which were past due greater than 90 days as of September 30, 2014 and December 31, 2013, 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 seldom 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, 2014
Commercial business	-	$	-	$	-	1	$	1,381	$	1,381
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	1	$	1,381	$	1,381
September 30, 2013
Commercial business	-	$	-	$	-	3	$	1,462	$	1,454
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	3	$	1,462	$	1,454

All of the loans identified as TDRs by the Company during the nine months ended September 30, 2014 and 2013 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. 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 Companys 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 nine months ended September 30, 2014 or 2013. 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, 2014
With no related allowance recorded:
Commercial business	$	1,536	$	1,998	$	-	$	1,553	$	-
Commercial mortgage		1,108		1,247		-		1,092		-
		2,644		3,245		-		2,645		-
With an allowance recorded:
Commercial business		1,722		1,733		1,331		1,868		-
Commercial mortgage		1,352		1,352		269		1,520		-
		3,074		3,085		1,600		3,388		-
	$	5,718	$	6,330	$	1,600	$	6,033	$	-
December 31, 2013
With no related allowance recorded:
Commercial business	$	1,777	$	2,273	$	-	$	659	$	-
Commercial mortgage		875		906		-		760		-
		2,652		3,179		-		1,419		-
With an allowance recorded:
Commercial business		1,697		1,717		201		3,196		-
Commercial mortgage		8,788		9,188		1,057		3,758		-
		10,485		10,905		1,258		6,954		-
	$	13,137	$	14,084	$	1,258	$	8,373	$	-

(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 managements close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Companys 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 Companys commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):

		Commercial		Commercial
		Business		Mortgage
September 30, 2014
Uncriticized	$	255,436	$	453,726
Special mention		8,593		6,898
Substandard		10,998		9,942
Doubtful		-		-
Total	$	275,027	$	470,566
December 31, 2013
Uncriticized	$	250,553	$	449,447
Special mention		6,311		6,895
Substandard		8,887		13,970
Doubtful		-		-
Total	$	265,751	$	470,312

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 Companys retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands):

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
September 30, 2014
Performing	$	102,527	$	375,598	$	629,141	$	21,050
Non-performing		656		464		1,300		46
Total	$	103,183	$	376,062	$	630,441	$	21,096
December 31, 2013
Performing	$	112,023	$	319,733	$	607,919	$	22,882
Non-performing		1,078		925		1,471		11
Total	$	113,101	$	320,658	$	609,390	$	22,893

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, 2014
Loans:
Ending balance	$	275,027	$	470,566	$	103,183	$	376,062	$	630,441	$	21,096	$	1,876,375
Evaluated for impairment:
Individually	$	3,258	$	2,460	$	-	$	-	$	-	$	-	$	5,718
Collectively	$	271,769	$	468,106	$	103,183	$	376,062	$	630,441	$	21,096	$	1,870,657
Allowance for loan losses:
Ending balance	$	5,758	$	7,488	$	592	$	1,658	$	11,292	$	456	$	27,244
Evaluated for impairment:
Individually	$	1,331	$	269	$	-	$	-	$	-	$	-	$	1,600
Collectively	$	4,427	$	7,219	$	592	$	1,658	$	11,292	$	456	$	25,644
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

The following table sets forth the changes in the allowance for loan losses for the three and nine month periods ended September 30, 2014 (in thousands):

		Commercial		Commercial			Residential			Home		Consumer		Other
		Business		Mortgage			Mortgage			Equity		Indirect		Consumer		Total
Three months ended September 30, 2014
Beginning balance	$	5,402	$	7,633		$	618		$	1,607	$	11,446	$	460	$	27,166
Charge-offs		105		111			16			73		2,606		272		3,183
Recoveries		61		45			5			7		1,029		99		1,246
Provision (credit)		400		(79	)		(15	)		117		1,423		169		2,015
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244
Nine months ended September 30, 2014
Beginning balance	$	4,273	$	7,743		$	676		$	1,367	$	12,230	$	447	$	26,736
Charge-offs		176		276			163			335		7,392		765		9,107
Recoveries		158		58			34			47		3,129		310		3,736
Provision (credit)		1,503		(37	)		45			579		3,325		464		5,879
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244

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 (credit)		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

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 borrowers 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 Companys 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, which are primarily automobiles. 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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Goodwill And Other Intangible Assets

9 Months Ended

Sep. 30, 2014

Goodwill And Other Intangible Assets [Abstract]

Goodwill And Other Intangible Assets

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets include core deposit intangibles, customer relationship intangibles, trade name intangibles and goodwill. Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Other intangible assets with definite lives include core deposit intangibles, customer relationship intangibles and trade name intangibles.

Goodwill is not subject to amortization and is instead evaluated for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. Impairment exists when the carrying value of goodwill exceeds its implied fair value.

The following table presents the changes in the carrying amount of goodwill for the period indicated:

Balance, December 31, 2013	$	48,536
Addition from the SDN acquisition		12,617
Balance, September 30, 2014	$	61,153

Goodwill and other intangible assets added during the period relates to the SDN acquisition, which was completed on August 1, 2014. See Note 2 Business Combinations for additional information.

The following table presents the changes in other intangible assets and the related accumulated amortization for the periods indicated:

		Three months ended						Nine months ended
		September 30,						September 30,
		2014			2013			2014			2013
Gross Other Intangible Assets:
Balance at beginning of period	$	2,042		$	2,042		$	2,042		$	2,042
Additions from the SDN acquisition		6,640			-			6,640			-
Balance at end of period		8,682			2,042			8,682			2,042
Accumulated Amortization:
Balance at beginning of period		(752	)		(388	)		(576	)		(189	)
Amortization		(196	)		(95	)		(372	)		(294	)
Balance at end of period		(948	)		(483	)		(948	)		(483	)
Net carrying value at end of period	$	7,734		$	1,559		$	7,734		$	1,559

Other intangible assets are amortized on either an accelerated or straight-line basis over their respective estimated useful lives ranging from three to 20 years and reviewed for impairment at least annually. The weighted average amortization period remaining for the Companys other intangible assets is 17.8 years.

As of September 30, 2014, the estimated other intangible asset amortization expense for the remainder of 2014 and each of the next five years is as follows (in thousands):

2014 (remainder of year)	$	248
2015		942
2016		864
2017		778
2018		689
2019		611

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2014

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, 2014 and 2013 (in thousands):

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
September 30, 2014
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	9,923		$	3,931		$	5,992
Reclassification adjustment for net gains included in net income (1)		(2,167	)		(858	)		(1,309	)
Total securities available for sale and transferred securities		7,756			3,073			4,683
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		132			52			80
Total pension and post-retirement obligations		96			38			58
Other comprehensive income	$	7,852		$	3,111		$	4,741
September 30, 2013
Securities available for sale:
Change in unrealized gain/loss during the period	$	(27,205	)	$	(10,777	)	$	(16,428	)
Reclassification adjustment for net gains included in net income (1)		(1,224	)		(485	)		(739	)
Total securities available for sale		(28,429	)		(11,262	)		(17,167	)
Amortization of pension and post-retirement items:
Prior service credit		(36	)		(14	)		(22	)
Net actuarial losses		1,023			405			618
Total pension and post-retirement obligations		987			391			596
Other comprehensive loss	$	(27,442	)	$	(10,871	)	$	(16,571	)

(1) Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company's reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

Activity in accumulated other comprehensive income (loss), net of tax, for the nine month periods ended September 30, 2014 and 2013 was as follows (in thousands):

		Securities
		Available for			Pension and			Accumulated
		Sale and			Post-			Other
		Transferred			retirement			Comprehensive
		Securities			Obligations			Income (Loss)
September 30, 2014
Balance at beginning of year	$	(5,337	)	$	(4,850	)	$	(10,187	)
Other comprehensive income before reclassifications		5,992			-			5,992
Amounts reclassified from accumulated other comprehensive income		(1,309	)		58			(1,251	)
Net current period other comprehensive income		4,683			58			4,741
Balance at end of period	$	(654	)	$	(4,792	)	$	(5,446	)
September 30, 2013
Balance at beginning of year	$	16,060		$	(12,807	)	$	3,253
Other comprehensive (loss) income before reclassifications		(16,428	)		-			(16,428	)
Amounts reclassified from accumulated other comprehensive income		(739	)		596			(143	)
Net current period other comprehensive (loss) income		(17,167	)		596			(16,571	)
Balance at end of period	$	(1,107	)	$	(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 periods ended September 30, 2014 and 2013 (in thousands):

		Amount Reclassified from
Details About Accumulated Other		Accumulated Other					Affected Line Item in the
Comprehensive Income Components		Comprehensive Income					Consolidated Statement of Income
		Nine months ended
		September 30,
		2014			2013
Realized gain on sale of investment securities	$	1,777		$	1,224		Net gain on disposal of investment securities
Amortization of unrealized holding gains (losses)
on investment securities transferred from
available for sale to held to maturity		390			-		Interest income
		2,167			1,224		Total before tax
		(858	)		(485	)	Income tax expense
		1,309			739		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		36			36		Salaries and employee benefits
Net actuarial losses (1)		(132	)		(1,023	)	Salaries and employee benefits
		(96	)		(987	)	Total before tax
		38			391		Income tax benefit
		(58	)		(596	)	Net of tax
Total reclassified for the period	$	1,251		$	143

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

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Employee Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Employee Benefit Plans [Abstract]
Service cost	$ 479	$ 516	$ 1,438	$ 1,548
Interest cost on projected benefit obligation	573	505	1,720	1,515
Expected return on plan assets	(1,029)	(921)	(3,088)	(2,763)
Amortization of prior service credit	(12)	(12)	(36)	(36)
Amortization of net actuarial losses	44	341	132	1,023
Net periodic pension expense	$ 55	$ 429	$ 166	$ 1,287

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Commitments And Contingencies (Off-Balance Sheet Commitments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 441,425	$ 431,236
Standby Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 11,023	$ 8,618

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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, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 78	$ 107	$ 383	$ 312
Salaries and Employee Benefits [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	52	85	208	164
Other Noninterest Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 26	$ 22	$ 175	$ 148

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Business Segments (Tables)

9 Months Ended

Sep. 30, 2014

Business Segments [Abstract]

Business Segment Assets

	September 30, 2014
						Holding
						Company and			Consolidated
		Banking		Insurance		Other			Totals
Goodwill	$	48,536	$	12,617	$	-		$	61,153
Other intangible assets, net		1,206		6,528		-			7,734
Total assets(1)		3,035,803		19,847		(346	)		3,055,304

^{(1) The negative balance for total assets in the Holding Company and Other column results from the elimination of holding company cash held in deposit accounts at the Bank and other reclassifications.}

Business Segment Information

	Three months ended September 30, 2014
								Holding
								Company and			Consolidated
		Banking			Insurance(1)			Other			Totals
Net interest income	$	23,258		$	-		$	-		$	23,258
Provision for loan losses		(2,015	)		-			-			(2,015	)
Noninterest income		6,684			670			(93	)		7,261
Noninterest expense		(16,794	)		(640	)		(521	)		(17,955	)
Income (loss) before income taxes		11,133			30			(614	)		10,549
Income tax (expense) benefit		(3,584	)		(12	)		231			(3,365	)
Net income (loss)	$	7,549		$	18		$	(383	)	$	7,184

	Nine months ended September 30, 2014
								Holding
								Company and			Consolidated
		Banking			Insurance(1)			Other			Totals
Net interest income	$	69,636		$	-		$	-		$	69,636
Provision for loan losses		(5,879	)		-			-			(5,879	)
Noninterest income		19,779			670			(254	)		20,195
Noninterest expense		(50,315	)		(640	)		(2,021	)		(52,976	)
Income (loss) before income taxes		33,221			30			(2,275	)		30,976
Income tax (expense) benefit		(10,480	)		(12	)		951			(9,541	)
Net income (loss)	$	22,741		$	18		$	(1,324	)	$	21,435

⁽¹⁾ Reflects activity from SDN since August 1, 2014, the date of acquisition.

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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, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 27,166		$ 26,736
Charge-offs	3,183		9,107
Recoveries	1,246		3,736
Provision (credit)	2,015		5,879
Loans, Ending balance	1,876,375	1,748,626	1,876,375	1,748,626	1,802,105
Loans, Individually Evaluated for impairment	5,718	6,913	5,718	6,913
Loans, Collectively Evaluated for impairment	1,870,657	1,741,713	1,870,657	1,741,713
Ending balance	27,244	26,685	27,244	26,685
Allowance for loan losses, Individually Evaluated for impairment	1,600	1,252	1,600	1,252
Allowance for loan losses, Collectively Evaluated for impairment	25,644	25,433	25,644	25,433
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	5,402	4,755	4,273	4,884
Charge-offs	105	163	176	694
Recoveries	61	59	158	301
Provision (credit)	400	(241)	1,503	(81)
Loans, Ending balance	275,027	253,928	275,027	253,928	265,751
Loans, Individually Evaluated for impairment	3,258	4,078	3,258	4,078
Loans, Collectively Evaluated for impairment	271,769	249,850	271,769	249,850
Ending balance	5,758	4,410	5,758	4,410
Allowance for loan losses, Individually Evaluated for impairment	1,331	649	1,331	649
Allowance for loan losses, Collectively Evaluated for impairment	4,427	3,761	4,427	3,761
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	7,633	7,125	7,743	6,581
Charge-offs	111	35	276	144
Recoveries	45	122	58	279
Provision (credit)	(79)	1,069	(37)	1,565
Loans, Ending balance	470,566	450,602	470,566	450,602	470,312
Loans, Individually Evaluated for impairment	2,460	2,835	2,460	2,835
Loans, Collectively Evaluated for impairment	468,106	447,767	468,106	447,767
Ending balance	7,488	8,281	7,488	8,281
Allowance for loan losses, Individually Evaluated for impairment	269	603	269	603
Allowance for loan losses, Collectively Evaluated for impairment	7,219	7,678	7,219	7,678
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	618	701	676	740
Charge-offs	16	34	163	281
Recoveries	5	12	34	42
Provision (credit)	(15)	50	45	228
Loans, Ending balance	103,183	117,650	103,183	117,650	113,101
Loans, Collectively Evaluated for impairment	103,183	117,650	103,183	117,650
Ending balance	592	729	592	729
Allowance for loan losses, Collectively Evaluated for impairment	592	729	592	729
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,607	1,424	1,367	1,282
Charge-offs	73	30	335	352
Recoveries	7	16	47	126
Provision (credit)	117	(27)	579	327
Loans, Ending balance	376,062	311,521	376,062	311,521	320,658
Loans, Collectively Evaluated for impairment	376,062	311,521	376,062	311,521
Ending balance	1,658	1,383	1,658	1,383
Allowance for loan losses, Collectively Evaluated for impairment	1,658	1,383	1,658	1,383
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	11,446	11,095	12,230	10,715
Charge-offs	2,606	2,131	7,392	5,778
Recoveries	1,029	666	3,129	2,230
Provision (credit)	1,423	1,786	3,325	4,249
Loans, Ending balance	630,441	591,242	630,441	591,242	609,390
Loans, Collectively Evaluated for impairment	630,441	591,242	630,441	591,242
Ending balance	11,292	11,416	11,292	11,416
Allowance for loan losses, Collectively Evaluated for impairment	11,292	11,416	11,292	11,416
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	460	490	447	512
Charge-offs	272	253	765	734
Recoveries	99	96	310	304
Provision (credit)	169	133	464	384
Loans, Ending balance	21,096	23,683	21,096	23,683	22,893
Loans, Collectively Evaluated for impairment	21,096	23,683	21,096	23,683
Ending balance	456	466	456	466
Allowance for loan losses, Collectively Evaluated for impairment	$ 456	$ 466	$ 456	$ 466

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Business Segments

9 Months Ended

Sep. 30, 2014

Business Segments [Abstract]

Business Segments

(13.) BUSINESS SEGMENTS

The Company has two reportable operating segments, banking and insurance, which are delineated by the consolidated subsidiaries of Financial Institutions, Inc. The banking segment includes all of the Companys retail and commercial banking operations. The insurance segment includes the activities of Scott Danahy Naylon, a full service insurance agency that provides a broad range of insurance services to both personal and business clients. The Company operated as one business segment until the acquisition of SDN on August 1, 2014, at which time the new "Insurance" segment was created for financial reporting purposes. Holding company amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the Holding Company and Other column below, along with amounts to eliminate balances and transactions between segments.

The following tables present information regarding our business segments as of and for the periods indicated (in thousands).

	September 30, 2014
						Holding
						Company and			Consolidated
		Banking		Insurance		Other			Totals
Goodwill	$	48,536	$	12,617	$	-		$	61,153
Other intangible assets, net		1,206		6,528		-			7,734
Total assets(1)		3,035,803		19,847		(346	)		3,055,304

^{(1) The negative balance for total assets in the Holding Company and Other column results from the elimination of holding company cash held in deposit accounts at the Bank and other reclassifications.}

	Three months ended September 30, 2014
								Holding
								Company and			Consolidated
		Banking			Insurance(1)			Other			Totals
Net interest income	$	23,258		$	-		$	-		$	23,258
Provision for loan losses		(2,015	)		-			-			(2,015	)
Noninterest income		6,684			670			(93	)		7,261
Noninterest expense		(16,794	)		(640	)		(521	)		(17,955	)
Income (loss) before income taxes		11,133			30			(614	)		10,549
Income tax (expense) benefit		(3,584	)		(12	)		231			(3,365	)
Net income (loss)	$	7,549		$	18		$	(383	)	$	7,184

	Nine months ended September 30, 2014
								Holding
								Company and			Consolidated
		Banking			Insurance(1)			Other			Totals
Net interest income	$	69,636		$	-		$	-		$	69,636
Provision for loan losses		(5,879	)		-			-			(5,879	)
Noninterest income		19,779			670			(254	)		20,195
Noninterest expense		(50,315	)		(640	)		(2,021	)		(52,976	)
Income (loss) before income taxes		33,221			30			(2,275	)		30,976
Income tax (expense) benefit		(10,480	)		(12	)		951			(9,541	)
Net income (loss)	$	22,741		$	18		$	(1,324	)	$	21,435

⁽¹⁾ Reflects activity from SDN since August 1, 2014, the date of acquisition.

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Loans (Tables)

9 Months Ended

Sep. 30, 2014

Loans [Abstract]

Loan Portfolio

		Principal		Net Deferred
		Amount		Loan Costs
		Outstanding		(Fees)			Loans, Net
September 30, 2014
Commercial business	$	275,027	$	80		$	275,107
Commercial mortgage		470,566		(1,081	)		469,485
Residential mortgage		103,183		(139	)		103,044
Home equity		376,062		6,641			382,703
Consumer indirect		630,441		25,774			656,215
Other consumer		21,096		195			21,291
Total	$	1,876,375	$	31,470			1,907,845
Allowance for loan losses							(27,244	)
Total loans, net						$	1,880,601
December 31, 2013
Commercial business	$	265,751	$	15		$	265,766
Commercial mortgage		470,312		(1,028	)		469,284
Residential mortgage		113,101		(56	)		113,045
Home equity		320,658		5,428			326,086
Consumer indirect		609,390		26,978			636,368
Other consumer		22,893		177			23,070
Total	$	1,802,105	$	31,514			1,833,619
Allowance for loan losses							(26,736	)
Total loans, net						$	1,806,883

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, 2014
Commercial business	$	787	$	27	$	- $		814	$	3,258	$	270,955	$	275,027
Commercial mortgage		-		62		-		62		2,460		468,044		470,566
Residential mortgage		334		-		-		334		656		102,193		103,183
Home equity		521		97		-		618		464		374,980		376,062
Consumer indirect		1,814		492		-		2,306		1,300		626,835		630,441
Other consumer		87		31		7		125		39		20,932		21,096
Total loans, gross	$	3,543	$	709	$	7	$	4,259	$	8,177	$	1,863,939	$	1,876,375
December 31, 2013
Commercial business	$	558	$	199	$	- $		757	$	3,474	$	261,520	$	265,751
Commercial mortgage		800		-		-		800		9,663		459,849		470,312
Residential mortgage		542		-		-		542		1,078		111,481		113,101
Home equity		750		143		-		893		925		318,840		320,658
Consumer indirect		2,129		476		-		2,605		1,471		605,314		609,390
Other consumer		126		72		6		204		5		22,684		22,893
Total loans, gross	$	4,905	$	890	$	6	$	5,801	$	16,616	$	1,779,688	$	1,802,105

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, 2014
Commercial business	-	$	-	$	-	1	$	1,381	$	1,381
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	1	$	1,381	$	1,381
September 30, 2013
Commercial business	-	$	-	$	-	3	$	1,462	$	1,454
Commercial mortgage	-		-		-	-		-		-
Total	-	$	-	$	-	3	$	1,462	$	1,454

Summary Of Impaired Loans

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
September 30, 2014
With no related allowance recorded:
Commercial business	$	1,536	$	1,998	$	-	$	1,553	$	-
Commercial mortgage		1,108		1,247		-		1,092		-
		2,644		3,245		-		2,645		-
With an allowance recorded:
Commercial business		1,722		1,733		1,331		1,868		-
Commercial mortgage		1,352		1,352		269		1,520		-
		3,074		3,085		1,600		3,388		-
	$	5,718	$	6,330	$	1,600	$	6,033	$	-
December 31, 2013
With no related allowance recorded:
Commercial business	$	1,777	$	2,273	$	-	$	659	$	-
Commercial mortgage		875		906		-		760		-
		2,652		3,179		-		1,419		-
With an allowance recorded:
Commercial business		1,697		1,717		201		3,196		-
Commercial mortgage		8,788		9,188		1,057		3,758		-
		10,485		10,905		1,258		6,954		-
	$	13,137	$	14,084	$	1,258	$	8,373	$	-

(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, 2014
Uncriticized	$	255,436	$	453,726
Special mention		8,593		6,898
Substandard		10,998		9,942
Doubtful		-		-
Total	$	275,027	$	470,566
December 31, 2013
Uncriticized	$	250,553	$	449,447
Special mention		6,311		6,895
Substandard		8,887		13,970
Doubtful		-		-
Total	$	265,751	$	470,312

Retail Loan Portfolio Categorized By Payment Status

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
September 30, 2014
Performing	$	102,527	$	375,598	$	629,141	$	21,050
Non-performing		656		464		1,300		46
Total	$	103,183	$	376,062	$	630,441	$	21,096
December 31, 2013
Performing	$	112,023	$	319,733	$	607,919	$	22,882
Non-performing		1,078		925		1,471		11
Total	$	113,101	$	320,658	$	609,390	$	22,893

Loans And The Related Allowance For Loan Losses

		Commercial		Commercial		Residential		Home		Consumer		Other
		Business		Mortgage		Mortgage		Equity		Indirect		Consumer		Total
September 30, 2014
Loans:
Ending balance	$	275,027	$	470,566	$	103,183	$	376,062	$	630,441	$	21,096	$	1,876,375
Evaluated for impairment:
Individually	$	3,258	$	2,460	$	-	$	-	$	-	$	-	$	5,718
Collectively	$	271,769	$	468,106	$	103,183	$	376,062	$	630,441	$	21,096	$	1,870,657
Allowance for loan losses:
Ending balance	$	5,758	$	7,488	$	592	$	1,658	$	11,292	$	456	$	27,244
Evaluated for impairment:
Individually	$	1,331	$	269	$	-	$	-	$	-	$	-	$	1,600
Collectively	$	4,427	$	7,219	$	592	$	1,658	$	11,292	$	456	$	25,644
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

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, 2014
Beginning balance	$	5,402	$	7,633		$	618		$	1,607	$	11,446	$	460	$	27,166
Charge-offs		105		111			16			73		2,606		272		3,183
Recoveries		61		45			5			7		1,029		99		1,246
Provision (credit)		400		(79	)		(15	)		117		1,423		169		2,015
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244
Nine months ended September 30, 2014
Beginning balance	$	4,273	$	7,743		$	676		$	1,367	$	12,230	$	447	$	26,736
Charge-offs		176		276			163			335		7,392		765		9,107
Recoveries		158		58			34			47		3,129		310		3,736
Provision (credit)		1,503		(37	)		45			579		3,325		464		5,879
Ending balance	$	5,758	$	7,488		$	592		$	1,658	$	11,292	$	456	$	27,244

		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 (credit)		(81	)		1,565		228		327			4,249		384		6,672
Ending balance	$	4,410		$	8,281	$	729	$	1,383		$	11,416	$	466	$	26,685

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Loans (Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,876,375	$ 1,802,105
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	275,027	265,751
Commercial Business [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	255,436	250,553
Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	8,593	6,311
Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	10,998	8,887
Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	470,566	470,312
Commercial Mortgage [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	453,726	449,447
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,898	6,895
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,942	13,970
Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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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, 2014	Dec. 31, 2013
Investment Securities [Abstract]
Debt securities available for sale, Due in one year or less, Amortized Cost	$ 186
Debt securities available for sale, Due from one to five years, Amortized Cost	93,032
Debt securities available for sale, Due after five years through ten years, Amortized Cost	237,569
Debt securities available for sale, Due after ten years, Amortized Cost	255,312
Debt securities available for sale, Amortized Cost	586,099
Debt securities available for sale, Due in one year or less, Fair Value	189
Debt securities available for sale, Due from one to five years, Fair Value	93,453
Debt securities available for sale, Due after five years through ten years, Fair Value	237,720
Debt securities available for sale, Due after ten years, Fair Value	254,117
Debt securities available for sale, Fair Value	585,479
Debt securities held to maturity, Due in one year or less, Amortized Cost	23,898
Debt securities held to maturity, Due from one to five years, Amortized Cost	133,714
Debt securities held to maturity, Due after five years through ten years, Amortized Cost	111,096
Debt securities held to maturity, Due after ten years, Amortized Cost	17,259
Held-to-maturity Securities, Total	285,967	249,785
Debt securities held to maturity, Due in one year or less, Fair Value	23,993
Debt securities held to maturity, Due from one to five years, Fair Value	136,201
Debt securities held to maturity, Due after five years through ten years, Fair Value	113,812
Debt securities held to maturity, Due after ten years, Fair Value	17,152
Securities held to maturity, Fair Value	$ 291,158	$ 250,657

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Consolidated Statements Of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Consolidated Statements Of Comprehensive Income (Loss) [Abstract]
Net income	$ 7,184	$ 6,164	$ 21,435	$ 19,163
Other comprehensive income (loss), net of tax:
Net unrealized (losses) gains on securities available for sale	(1,745)	(382)	4,683	(17,167)
Pension and post-retirement obligations	19	198	58	596
Total other comprehensive (loss) income, net of tax	(1,726)	(184)	4,741	(16,571)
Comprehensive income	$ 5,458	$ 5,980	$ 26,176	$ 2,592

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Business Combinations

9 Months Ended

Sep. 30, 2014

Business Combinations [Abstract]

Business Combinations

(2.) BUSINESS COMBINATIONS

On August 1, 2014, the Company completed the acquisition of Scott Danahy Naylon Co., Inc., a full service insurance agency located in Amherst, New York. Consideration for the acquisition included both cash and stock totaling $16.9 million, including up to $3.4 million of future payments, contingent upon SDN meeting certain revenue performance targets through 2017. The estimated fair value of the contingent consideration at the date of acquisition was $3.2 million, which was estimated using a probability-weighted discounted cash flow model. As a result of the acquisition, the Company recorded goodwill of $12.6 million and other intangible assets of $6.6 million. The goodwill is not expected to be deductible for income tax purposes. Pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Companys consolidated financial statements.

This acquisition was accounted for under the acquisition method in accordance with FASB ASC Topic 805. Accordingly, the assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. Due to the timing of the closing of the acquisition, the fair values of other intangibles recorded are subject to adjustment as additional information becomes available to indicate a more accurate or appropriate fair value for the intangibles during the measurement period, which is not to exceed one year from the acquisition date.

The following table summarizes the consideration paid for Scott Danahy Naylon Co., Inc. and the amounts of the assets acquired and liabilities assumed.

Consideration paid:
Cash	$	8,100
Stock		5,400
Contingent consideration		3,227
Fair value of total consideration transferred		16,727
Fair value of assets acquired:
Cash		105
Identified intangible assets		6,640
Premises and equipment, accounts receivable and other assets		1,094
Total identifiable assets acquired		7,839
Fair value of liabilities assumed:
Deferred tax liability		2,556
Other liabilities		1,173
Total liabilities assumed		3,729
Fair value of net assets acquired		4,110
Goodwill resulting from acquisition	$	12,617

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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, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year			$ (10,187)	$ 3,253
Other comprehensive (loss) income before reclassifications			5,992	(16,428)
Amounts reclassified from accumulated other comprehensive income			(1,251)	(143)
Net current period other comprehensive (loss) income	(1,726)	(184)	4,741	(16,571)
Balance at end of period	(5,446)	(13,318)	(5,446)	(13,318)
Securities Available For Sale and Transferred Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year			(5,337)	16,060
Other comprehensive (loss) income before reclassifications			5,992	(16,428)
Amounts reclassified from accumulated other comprehensive income			(1,309)	(739)
Net current period other comprehensive (loss) income			4,683	(17,167)
Balance at end of period	(654)	(1,107)	(654)	(1,107)
Pension And Post-Retirement Items [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year			(4,850)	(12,807)
Amounts reclassified from accumulated other comprehensive income			58	596
Net current period other comprehensive (loss) income			58	596
Balance at end of period	$ (4,792)	$ (12,211)	$ (4,792)	$ (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, 2014
Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 1,474	[1]
Discount rate	4.50%	[2]
Risk premium rate	10.00%	[2]
Loan Servicing Rights [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	1,398
Discount rate	5.30%	[2]
Constant prepayment rate	11.70%	[2]
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 509	[1]
Minimum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	35.00%	[3]
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	9.00%	[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	58.00%	[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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Goodwill And Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2014

Goodwill And Other Intangible Assets [Abstract]

Changes In Carrying Amount Of Goodwill

Balance, December 31, 2013	$	48,536
Addition from the SDN acquisition		12,617
Balance, September 30, 2014	$	61,153

Other Intangible Assets

		Three months ended						Nine months ended
		September 30,						September 30,
		2014			2013			2014			2013
Gross Other Intangible Assets:
Balance at beginning of period	$	2,042		$	2,042		$	2,042		$	2,042
Additions from the SDN acquisition		6,640			-			6,640			-
Balance at end of period		8,682			2,042			8,682			2,042
Accumulated Amortization:
Balance at beginning of period		(752	)		(388	)		(576	)		(189	)
Amortization		(196	)		(95	)		(372	)		(294	)
Balance at end of period		(948	)		(483	)		(948	)		(483	)
Net carrying value at end of period	$	7,734		$	1,559		$	7,734		$	1,559

Estimated Core Deposit Intangible Amortization Expense

2014 (remainder of year)	$	248
2015		942
2016		864
2017		778
2018		689
2019		611

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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, 2014	Sep. 30, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	86	6	157
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	86	5	154
Restricted Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS		1	3

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2014

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 entitys 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 companys creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Companys 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 Companys 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 bonds 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 managements historical knowledge, changes in market conditions from the time of valuation, and/or managements expertise and knowledge of the client and the clients 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 Companys 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 managements historical knowledge, changes in market conditions from the time of valuation, and/or managements expertise and knowledge of the client and clients 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 is not material.

Assets Measured at Fair Value

The following tables present for each of the fair-value hierarchy levels the Companys 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, 2014
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	115,278	$	-	$	115,278
Mortgage-backed securities		-		469,960		-		469,960
Asset-backed securities		-		241		-		241
	$	-	$	585,479	$	-	$	585,479
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,029	$	-	$	1,029
Collateral dependent impaired loans		-		-		1,474		1,474
Other assets:
Loan servicing rights		-		-		1,398		1,398
Other real estate owned		-		-		509		509
	$	-	$	1,029	$	3,381	$	4,410
December 31, 2013
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	134,452	$	-	$	134,452
Mortgage-backed securities		-		474,549		-		474,549
Asset-backed securities		-		399		-		399
	$	-	$	609,400	$	-	$	609,400
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	3,381	$	-	$	3,381
Collateral dependent impaired loans		-		-		9,227		9,227
Other assets:
Loan servicing rights		-		-		1,565		1,565
Other real estate owned		-		-		333		333
	$	-	$	3,381	$	11,125	$	14,506

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2014 and 2013. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the nine month periods ended September 30, 2014 and 2013.

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	$	1,474	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 100% discount
			Discounted cash flow	Discount rate	4.5% (3)
				Risk premium rate	10.0% (3)
Loan servicing rights		1,398	Discounted cash flow	Discount rate	5.3% (3)
				Constant prepayment rate	11.7% (3)
Other real estate owned		509	Appraisal of collateral (1)	Appraisal adjustments (2)	9% - 58% 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, 2014 and 2013.

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 Companys 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 bonds terms and conditions, among other things.

Loans: The fair value of the Companys 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 Companys time deposit liabilities do not take into consideration the value of the Companys long-term relationships with depositors, which may have significant value.

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

	Level in		September 30, 2014				December 31, 2013
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	87,582	$	87,582	$	59,692	$	59,692
Securities available for sale	Level 2		585,479		585,479		609,400		609,400
Securities held to maturity	Level 2		285,967		291,158		249,785		250,657
Loans held for sale	Level 2		1,029		1,038		3,381		3,381
Loans	Level 2		1,879,127		1,889,258		1,797,656		1,802,407
Loans (1)	Level 3		1,474		1,474		9,227		9,227
Accrued interest receivable	Level 1		8,615		8,615		8,150		8,150
FHLB and FRB stock	Level 2		13,250		13,250		19,663		19,663
Financial liabilities:
Non-maturity deposits	Level 1		1,907,854		1,907,854		1,724,133		1,724,133
Time deposits	Level 2		630,970		631,676		595,923		596,928
Short-term borrowings	Level 1		215,967		215,967		337,042		337,042
Accrued interest payable	Level 1		3,786		3,786		3,407		3,407

⁽¹⁾ Comprised of collateral dependent impaired loans.