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 June 30, 2016

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 14,528,319 shares of Common Stock, $0.01 par value, outstanding as of July 28, 2016.

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2016

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION		3
ITEM 1.	Financial Statements		3
	Consolidated Statements of Financial Condition - at June 30, 2016 (Unaudited) and December 31, 2015		3
	Consolidated Statements of Income (Unaudited) - Three and six months ended June 30, 2016 and 2015		4
	Consolidated Statements of Comprehensive Income (Unaudited) - Three and six months ended June 30, 2016 and 2015		5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Six months ended June 30, 2016 and 2015		6
	Consolidated Statements of Cash Flows (Unaudited) - Six months ended June 30, 2016 and 2015		7
	Notes to Consolidated Financial Statements (Unaudited)		8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		54
ITEM 4.	Controls and Procedures		55
PART II.	OTHER INFORMATION		56
ITEM 1.	Legal Proceedings		56
ITEM 1A.	Risk Factors		56
ITEM 6.	Exhibits		57
	Signatures		58

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands, except share and per share data)	June 30, 2016			December 31, 2015
ASSETS
Cash and due from banks	$	67,624		$	60,121
Securities available for sale, at fair value		619,719			544,395
Securities held to maturity, at amortized cost (fair value of $490,833 and $490,064, respectively)		478,549			485,717
Loans held for sale		209			1,430
Loans (net of allowance for loan losses of $28,525 and $27,085, respectively)		2,183,306			2,056,677
Company owned life insurance		62,456			63,045
Premises and equipment, net		40,562			39,445
Goodwill and other intangible assets, net		76,252			66,946
Other assets		56,912			63,248
Total assets	$	3,585,589		$	3,381,024
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	626,240		$	641,972
Interest-bearing demand		560,284			523,366
Savings and money market		960,325			928,175
Time deposits		711,156			637,018
Total deposits		2,858,005			2,730,531
Short-term borrowings		338,300			293,100
Long-term borrowings, net of issuance costs of $975 and $1,010, respectively		39,025			38,990
Other liabilities		28,083			24,559
Total liabilities		3,263,413			3,087,180
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,492 shares issued		149			149
Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized; 171,906 shares issued		17,191			17,191
Total preferred equity		17,340			17,340
Common stock, $0.01 par value; 50,000,000 shares authorized; 14,692,214 and 14,397,509 shares issued, respectively		147			144
Additional paid-in capital		81,255			72,690
Retained earnings		227,184			218,920
Accumulated other comprehensive loss		(654	)		(11,327	)
Treasury stock, at cost – 163,695 and 207,317 shares, respectively		(3,096	)		(3,923	)
Total shareholders’ equity		322,176			293,844
Total liabilities and shareholders’ equity	$	3,585,589		$	3,381,024

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				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Interest income:
Interest and fees on loans	$	22,368	$	20,446	$	44,425	$	40,583
Interest and dividends on investment securities		5,877		5,513		11,455		10,373
Other interest income		1		—		1		—
Total interest income		28,246		25,959		55,881		50,956
Interest expense:
Deposits		2,086		1,827		4,045		3,447
Short-term borrowings		344		213		683		443
Long-term borrowings		617		515		1,235		515
Total interest expense		3,047		2,555		5,963		4,405
Net interest income		25,199		23,404		49,918		46,551
Provision for loan losses		1,952		1,288		4,320		4,029
Net interest income after provision for loan losses		23,247		22,116		45,598		42,522
Noninterest income:
Service charges on deposits		1,755		1,964		3,479		3,843
Insurance income		1,183		1,057		2,855		2,665
ATM and debit card		1,421		1,283		2,746		2,476
Investment advisory		1,365		541		2,608		1,028
Company owned life insurance		486		493		1,854		960
Investments in limited partnerships		36		55		92		529
Loan servicing		112		96		228		263
Net gain on sale of loans held for sale		78		39		156		108
Net gain on disposal of investment securities		1,387		—		2,000		1,062
Net gain on disposal of other assets		82		16		86		20
Other		1,011		911		2,029		1,798
Total noninterest income		8,916		6,455		18,133		14,752
Noninterest expense:
Salaries and employee benefits		10,818		10,606		22,432		20,829
Occupancy and equipment		3,664		3,375		7,289		7,074
Professional services		2,833		866		4,280		1,834
Computer and data processing		913		810		1,717		1,512
Supplies and postage		464		508		1,058		1,071
FDIC assessments		441		415		877		833
Advertising and promotions		347		238		724		477
Other		2,640		2,418		4,961		4,617
Total noninterest expense		22,120		19,236		43,338		38,247
Income before income taxes		10,043		9,335		20,393		19,027
Income tax expense		2,892		2,750		5,624		5,641
Net income	$	7,151	$	6,585	$	14,769	$	13,386
Preferred stock dividends		366		366		731		731
Net income available to common shareholders	$	6,785	$	6,219	$	14,038	$	12,655
Earnings per common share (Note 3):
Basic	$	0.47	$	0.44	$	0.97	$	0.90
Diluted	$	0.47	$	0.44	$	0.97	$	0.90
Cash dividends declared per common share	$	0.20	$	0.20	$	0.40	$	0.40
Weighted average common shares outstanding:
Basic		14,434		14,078		14,415		14,071
Diluted		14,489		14,121		14,477		14,118

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)	Three months ended					Six months ended
	June 30,					June 30,
	2016		2015			2016		2015
Net income	$	7,151	$	6,585		$	14,769	$	13,386
Other comprehensive income (loss), net of tax:
Net unrealized (losses) gains on securities available for sale		3,311		(6,207	)		10,394		(2,946	)
Pension and post-retirement obligations		140		140			279		275
Total other comprehensive income (loss), net of tax		3,451		(6,067	)		10,673		(2,671	)
Comprehensive income	$	10,602	$	518		$	25,442	$	10,715

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)

Six months ended June 30, 2016 and 2015

(Dollars in thousands, except per share data)	Preferred Equity		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at January 1, 2015	$	17,340	$	144	$	72,955		$	203,312		$	(9,011	)	$	(5,208	)	$	279,532
Comprehensive income:
Net income		—		—		—			13,386			—			—			13,386
Other comprehensive income, net of tax		—		—		—			—			(2,671	)		—			(2,671	)
Purchases of common stock for treasury		—		—		—			—			—			(41	)		(41	)
Share-based compensation plans:
Share-based compensation		—		—		370			—			—			—			370
Stock options exercised		—		—		2			—			—			163			165
Restricted stock awards issued, net		—		—		(1,060	)		—			—			1,060			—
Excess tax benefit on share-based compensation		—		—		1			—			—			—			1
Stock awards		—		—		11			—			—			43			54
Cash dividends declared:
Series A 3% Preferred-$1.50 per share		—		—		—			(2	)		—			—			(2	)
Series B-1 8.48% Preferred-$4.24 per share		—		—		—			(729	)		—			—			(729	)
Common-$0.40 per share		—		—		—			(5,630	)		—			—			(5,630	)
Balance at June 30, 2015	$	17,340	$	144	$	72,279		$	210,337		$	(11,682	)	$	(3,983	)	$	284,435
Balance at January 1, 2016	$	17,340	$	144	$	72,690		$	218,920		$	(11,327	)	$	(3,923	)	$	293,844
Comprehensive income:
Net income		—		—		—			14,769			—			—			14,769
Other comprehensive income, net of tax		—		—		—			—			10,673			—			10,673
Common stock issued		—		3		8,097			—			—			—			8,100
Share-based compensation plans:
Share-based compensation		—		—		432			—			—			—			432
Stock options exercised		—		—		19			—			—			767			786
Restricted stock awards issued, net		—		—		(17	)		—			—			17			—
Excess tax benefit on share-based compensation		—		—		13			—			—			—			13
Stock awards		—		—		21			—			—			43			64
Cash dividends declared:
Series A 3% Preferred-$1.50 per share		—		—		—			(2	)		—			—			(2	)
Series B-1 8.48% Preferred-$4.24 per share		—		—		—			(729	)		—			—			(729	)
Common-$0.40 per share		—		—		—			(5,774	)		—			—			(5,774	)
Balance at June 30, 2016	$	17,340	$	147	$	81,255		$	227,184		$	(654	)	$	(3,096	)	$	322,176

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)	Six months ended
	June 30,
	2016			2015
Cash flows from operating activities:
Net income	$	14,769		$	13,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,990			2,671
Net amortization of premiums on securities		1,503			1,547
Provision for loan losses		4,320			4,029
Share-based compensation		432			370
Deferred income tax expense		(150	)		202
Proceeds from sale of loans held for sale		7,671			7,321
Originations of loans held for sale		(6,294	)		(6,906	)
Income on company owned life insurance		(1,854	)		(960	)
Net gain on sale of loans held for sale		(156	)		(108	)
Net gain on disposal of investment securities		(2,000	)		(1,062	)
Net gain on sale and disposal of other assets		(86	)		(20	)
(Increase) decrease in other assets		(780	)		1,009
Increase in other liabilities		2,434			820
Net cash provided by operating activities		22,799			22,299
Cash flows from investing activities:
Purchases of available for sale securities		(176,913	)		(241,906	)
Purchases of held to maturity securities		(23,699	)		(39,570	)
Proceeds from principal payments, maturities and calls on available for sale securities		57,707			57,787
Proceeds from principal payments, maturities and calls on held to maturity securities		31,147			16,394
Proceeds from sales of securities available for sale		62,275			29,508
Net loan originations		(131,323	)		(101,567	)
Proceeds from company owned life insurance, net of purchases		2,443			(34	)
Proceeds from sales of other assets		318			167
Purchases of premises and equipment		(3,422	)		(2,891	)
Cash consideration paid for acquisition, net of cash acquired		(868	)		—
Net cash used in investing activities		(182,335	)		(282,112	)
Cash flows from financing activities:
Net increase in deposits		127,474			205,711
Net increase in short-term borrowings		45,200			15,796
Issuance of long-term debt		—			40,000
Debt issuance costs		—			(1,060	)
Purchase of common stock for treasury		—			(41	)
Proceeds from stock options exercised		786			165
Excess tax benefit on share-based compensation, net		13			1
Cash dividends paid to common and preferred shareholders		(6,434	)		(6,356	)
Net cash provided by financing activities		167,039			254,216
Net increase in cash and cash equivalents		7,503			(5,597	)
Cash and cash equivalents, beginning of period		60,121			58,151
Cash and cash equivalents, end of period	$	67,624		$	52,554
Supplemental information:
Cash paid for interest	$	5,492		$	3,166
Cash paid for income taxes		3,224			1,539
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		374			130
Accrued and declared unpaid dividends		3,256			3,182
Increase in net unsettled security purchases		1,250			4,023
Common stock issued for acquisition		8,100			—
Assets acquired and liabilities assumed in business combinations:
Fair value of assets acquired		4,848			—
Fair value of liabilities assumed		1,845			—

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. The Company provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon, LLC (“Scott Danahy Naylon”) and Courier Capital, LLC (“Courier Capital”). 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 Bank has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Acquired on January 5, 2016, Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans across nine states.

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years’ consolidated financial statements are re-classified whenever necessary to conform to the current year’s presentation. These consolidated financial statements should be read in conjunction with the Company’s 2015 Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders’ equity as previously reported.

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable 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, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The effective date was recently deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted as of the original effective date – interim and annual periods beginning on or after December 15, 2016. The Company continues to assess the potential impact of ASU 2014-09 on its accounting and disclosures.

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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 (Continued)

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is assessing the impact of ASU 2016-01 on its accounting and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) – Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. The Company is assessing the impact of ASU 2016-09 on its accounting and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(2.) BUSINESS COMBINATIONS

Courier Capital Acquisition

On January 5, 2016, the Company completed the acquisition of Courier Capital Corporation, a registered investment advisory and wealth management firm with approximately $1.2 billion in assets under management. Consideration for the acquisition totaled $9.0 million and included stock of $8.1 million and $918 thousand of cash. The acquisition also included up to $2.8 million of potential future payments of stock and up to $2.2 million of potential future cash bonuses contingent upon Courier Capital meeting certain EBITDA performance targets through 2018. In addition, the Company purchased two pieces of real property in Buffalo and Jamestown, New York used by Courier Capital for total cash considerations of $1.3 million. As a result of the acquisition, the Company recorded goodwill of $6.0 million and other intangible assets of $3.9 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 presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values.

Cash	$	50
Identified intangible assets		3,928
Premises and equipment, accounts receivable and other assets		870
Deferred tax liability		(1,797	)
Other liabilities		(48	)
Net assets acquired	$	3,003

The amounts assigned to goodwill and other intangible assets for the Courier Capital acquisition are as follows:

	Amount allocated		Useful life (in years)
Goodwill	$	6,015		n/a
Other intangible assets – customer relationships		3,900		20
Other intangible assets – other		28		5
	$	9,943

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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						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income available to common shareholders	$	6,785		$	6,219		$	14,038		$	12,655
Weighted average common shares outstanding:
Total shares issued		14,692			14,398			14,686			14,398
Unvested restricted stock awards		(75	)		(100	)		(77	)		(87	)
Treasury shares		(183	)		(220	)		(194	)		(240	)
Total basic weighted average common shares outstanding		14,434			14,078			14,415			14,071
Incremental shares from assumed:
Exercise of stock options		21			22			24			22
Vesting of restricted stock awards		34			21			38			25
Total diluted weighted average common shares outstanding		14,489			14,121			14,477			14,118
Basic earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
Diluted earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
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		—			—			—			—
Restricted stock awards		8			3			4			2
		8			3			4			2

- 11 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES

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

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2016
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	241,583	$	6,550	$	7	$	248,126
Mortgage-backed securities:
Federal National Mortgage Association		311,783		8,776		—		320,559
Federal Home Loan Mortgage Corporation		30,743		772		—		31,515
Government National Mortgage Association		17,390		737		14		18,113
Collateralized mortgage obligations:
Federal National Mortgage Association		363		—		1		362
Federal Home Loan Mortgage Corporation		77		—		1		76
Privately issued		—		784		—		784
Total mortgage-backed securities		360,356		11,069		16		371,409
Asset-backed securities		—		184		—		184
Total available for sale securities	$	601,939	$	17,803	$	23	$	619,719
Securities held to maturity:
State and political subdivisions		294,507		10,061		1		304,567
Mortgage-backed securities:
Federal National Mortgage Association		12,047		290		—		12,337
Government National Mortgage Association		25,978		307		4		26,281
Collateralized mortgage obligations:
Federal National Mortgage Association		54,246		525		11		54,760
Federal Home Loan Mortgage Corporation		76,655		1,038		2		77,691
Government National Mortgage Association		15,116		85		4		15,197
Total mortgage-backed securities		184,042		2,245		21		186,266
Total held to maturity securities	$	478,549	$	12,306	$	22	$	490,833
December 31, 2015
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	260,748	$	1,164	$	1,049	$	260,863
Mortgage-backed securities:
Federal National Mortgage Association		209,671		1,092		2,333		208,430
Federal Home Loan Mortgage Corporation		24,564		282		194		24,652
Government National Mortgage Association		26,465		943		4		27,404
Collateralized mortgage obligations:
Federal National Mortgage Association		16,998		90		154		16,934
Federal Home Loan Mortgage Corporation		5,175		1		91		5,085
Privately issued		—		809		—		809
Total mortgage-backed securities		282,873		3,217		2,776		283,314
Asset-backed securities		—		218		—		218
Total available for sale securities	$	543,621	$	4,599	$	3,825	$	544,395
Securities held to maturity:
State and political subdivisions		294,423		6,562		4		300,981
Mortgage-backed securities:
Federal National Mortgage Association		9,242		14		79		9,177
Government National Mortgage Association		25,607		33		159		25,481
Collateralized mortgage obligations:
Federal National Mortgage Association		56,791		—		818		55,973
Federal Home Loan Mortgage Corporation		80,570		—		1,120		79,450
Government National Mortgage Association		19,084		19		101		19,002
Total mortgage-backed securities		191,294		66		2,277		189,083
Total held to maturity securities	$	485,717	$	6,628	$	2,281	$	490,064

- 12 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

Investment securities with a total fair value of $856.5 million at June 30, 2016 were pledged and encumbered as collateral to secure public deposits and for other purposes required or permitted by law.

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

	Three months ended June 30,				Six months ended June 30,
	2016		2015		2016		2015
Proceeds from sales	$	44,648	$	—	$	62,275	$	29,508
Gross realized gains		1,387		—		2,000		1,073
Gross realized losses		—		—		—		11

The scheduled maturities of securities available for sale and securities held to maturity at June 30, 2016 are shown below (in thousands). Actual 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	$	5,042	$	5,047
Due from one to five years		175,737		179,161
Due after five years through ten years		306,996		317,590
Due after ten years		114,164		117,921
	$	601,939	$	619,719
Debt securities held to maturity:
Due in one year or less	$	38,909	$	39,051
Due from one to five years		176,378		182,498
Due after five years through ten years		92,311		96,184
Due after ten years		170,951		173,100
	$	478,549	$	490,833

- 13 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

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 Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2016
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	9,997	$	3	$	1,637	$	4	$	11,634	$	7
Mortgage-backed securities:
Government National Mortgage Association		1,258		14		—		—		1,258		14
Collateralized mortgage obligations:
Federal National Mortgage Association		362		1		—		—		362		1
Federal Home Loan Mortgage Corporation		64		1		—		—		64		1
Total mortgage-backed securities		1,684		16		—		—		1,684		16
Total available for sale securities		11,681		19		1,637		4		13,318		23
Securities held to maturity:
State and political subdivisions		832		1		—		—		832		1
Mortgage-backed securities:
Government National Mortgage Association		—		—		1,635		4		1,635		4
Collateralized mortgage obligations:
Federal National Mortgage Association		4,119		11		—		—		4,119		11
Federal Home Loan Mortgage Corporation		1,196		2		—		—		1,196		2
Government National Mortgage Association		3,695		4		—		—		3,695		4
Total mortgage-backed securities		9,010		17		1,635		4		10,645		21
Total held to maturity securities		9,842		18		1,635		4		11,477		22
Total temporarily impaired securities	$	21,523	$	37	$	3,272	$	8	$	24,795	$	45
December 31, 2015
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	82,298	$	735	$	26,302	$	314	$	108,600	$	1,049
Mortgage-backed securities:
Federal National Mortgage Association		123,774		2,134		9,562		199		133,336		2,333
Federal Home Loan Mortgage Corporation		12,660		194		—		—		12,660		194
Government National Mortgage Association		1,405		4		—		—		1,405		4
Collateralized mortgage obligations:
Federal National Mortgage Association		7,778		154		—		—		7,778		154
Federal Home Loan Mortgage Corporation		4,998		91		—		—		4,998		91
Total mortgage-backed securities		150,615		2,577		9,562		199		160,177		2,776
Total available for sale securities		232,913		3,312		35,864		513		268,777		3,825
Securities held to maturity:
State and political subdivisions		3,075		4		—		—		3,075		4
Mortgage-backed securities:
Federal National Mortgage Association		5,666		79		—		—		5,666		79
Government National Mortgage Association		8,790		159		—		—		8,790		159
Collateralized mortgage obligations:
Federal National Mortgage Association		55,973		818		—		—		55,973		818
Federal Home Loan Mortgage Corporation		79,323		1,120		—		—		79,323		1,120
Government National Mortgage Association		14,559		101		—		—		14,559		101
Total mortgage-backed securities		164,311		2,277		—		—		164,311		2,277
Total held to maturity securities		167,386		2,281		—		—		167,386		2,281
Total temporarily impaired securities	$	400,299	$	5,593	$	35,864	$	513	$	436,163	$	6,106

- 14 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.) INVESTMENT SECURITIES (Continued)

The Company had 29 security positions in the investment portfolio in an unrealized loss position at June 30, 2016 compared to 174 at December 31, 2015. At June 30, 2016, the Company had positions in 6 investment securities with a fair value of $3.3 million and a total unrealized loss of $8 thousand that have been in a continuous unrealized loss position for more than 12 months. At June 30, 2016, there were a total of 23 securities positions in the Company’s investment portfolio with a fair value of $21.5 million and a total unrealized loss of $37 thousand that had been in a continuous unrealized loss position for less than 12 months. At December 31, 2015, the Company had positions in 14 investment securities with a fair value of $35.9 million and a total unrealized loss of $513 thousand that had been in a continuous unrealized loss position for more than 12 months. At December 31, 2015, there were a total of 160 securities positions in the Company’s investment portfolio with a fair value of $400.3 million and a total unrealized loss of $5.6 million that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on 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. There was no impairment recorded during the six months ended June 30, 2016 and 2015.

Based on management’s review and evaluation of the Company’s debt securities as of June 30, 2016, the debt securities with unrealized losses were not considered to be other-than-temporarily impaired. As of June 30, 2016, 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 June 30, 2016, 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.

- 15 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS

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

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
June 30, 2016
Commercial business	$	349,076	$	356		$	349,432
Commercial mortgage		615,547		(1,406	)		614,141
Residential real estate loans		402,538		5,829			408,367
Residential real estate lines		122,360		2,694			125,054
Consumer indirect		672,018		24,890			696,908
Other consumer		17,752		177			17,929
Total	$	2,179,291	$	32,540			2,211,831
Allowance for loan losses							(28,525	)
Total loans, net						$	2,183,306
December 31, 2015
Commercial business	$	313,475	$	283		$	313,758
Commercial mortgage		567,481		(1,380	)		566,101
Residential real estate loans		376,023		5,051			381,074
Residential real estate lines		124,766		2,581			127,347
Consumer indirect		652,494		24,446			676,940
Other consumer		18,361		181			18,542
Total	$	2,052,600	$	31,162			2,083,762
Allowance for loan losses							(27,085	)
Total loans, net						$	2,056,677

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $209 thousand and $1.4 million as of June 30, 2016 and December 31, 2015, respectively.

- 16 -

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
June 30, 2016
Commercial business	$	46	$	—	$	—	$	46	$	2,312	$	346,718	$	349,076
Commercial mortgage		—		—		—		—		1,547		614,000		615,547
Residential real estate loans		562		52		—		614		1,485		400,439		402,538
Residential real estate lines		315		—		—		315		182		121,863		122,360
Consumer indirect		1,221		233		—		1,454		1,015		669,549		672,018
Other consumer		99		25		11		135		4		17,613		17,752
Total loans, gross	$	2,243	$	310	$	11	$	2,564	$	6,545	$	2,170,182	$	2,179,291
December 31, 2015
Commercial business	$	321	$	612	$	—	$	933	$	3,922	$	308,620	$	313,475
Commercial mortgage		68		146		—		214		947		566,320		567,481
Residential real estate loans		723		395		—		1,118		1,848		373,057		376,023
Residential real estate lines		199		34		—		233		235		124,298		124,766
Consumer indirect		1,975		286		—		2,261		1,467		648,766		652,494
Other consumer		98		13		8		119		13		18,229		18,361
Total loans, gross	$	3,384	$	1,486	$	8	$	4,878	$	8,432	$	2,039,290	$	2,052,600

There were no loans past due greater than 90 days and still accruing interest as of June 30, 2016 and December 31, 2015. There were $11 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of June 30, 2016 and December 31, 2015, 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. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reductions in the interest rate for the remaining term of the loan, extensions of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

The following table presents information related to loans modified in a TDR during the quarterly 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
June 30, 2016
Commercial business		1	$	214	$	214		3	$	526	$	526
Commercial mortgage		—		—		—		1		550		550
Total		1	$	214	$	214		4	$	1,076	$	1,076
June 30, 2015
Commercial business		2	$	1,342	$	1,342		2	$	1,342	$	1,342
Commercial mortgage		—		—		—		1		682		330
Total		2	$	1,342	$	1,342		3	$	2,024	$	1,672

- 17 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.) LOANS (Continued)

The loans identified as a TDR by the Company during the six month periods ended June 30, 2016 and 2015 were previously reported as impaired loans prior to restructuring. Each of the loans restructured during the six months ended June 30, 2016 and 2015 were on nonaccrual status at the end of the respective period. The modifications related to collateral concessions and forbearance agreements. 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 classifications 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 six months ended June 30, 2016 or 2015. 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 six 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
June 30, 2016
With no related allowance recorded:
Commercial business	$	1,209	$	1,752	$	—	$	1,678	$	—
Commercial mortgage		777		986		—		1,114		—
		1,986		2,738		—		2,792		—
With an allowance recorded:
Commercial business		1,103		1,103		476		1,323		—
Commercial mortgage		770		900		131		510		—
		1,873		2,003		607		1,833		—
	$	3,859	$	4,741	$	607	$	4,625	$	—
December 31, 2015
With no related allowance recorded:
Commercial business	$	1,441	$	1,810	$	—	$	1,352	$	—
Commercial mortgage		937		1,285		—		1,013		—
		2,378		3,095		—		2,365		—
With an allowance recorded:
Commercial business		2,481		2,481		996		1,946		—
Commercial mortgage		10		10		10		449		—
		2,491		2,491		1,006		2,395		—
	$	4,869	$	5,586	$	1,006	$	4,760	$	—

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

- 18 -

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
June 30, 2016
Uncriticized	$	333,564	$	594,576
Special mention		8,796		15,098
Substandard		6,716		5,873
Doubtful		—		—
Total	$	349,076	$	615,547
December 31, 2015
Uncriticized	$	298,413	$	551,603
Special mention		4,916		9,015
Substandard		10,146		6,863
Doubtful		—		—
Total	$	313,475	$	567,481

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 Real Estate Loans		Residential Real Estate Lines		Consumer Indirect		Other Consumer
June 30, 2016
Performing	$	401,053	$	122,178	$	671,003	$	17,737
Non-performing		1,485		182		1,015		15
Total	$	402,538	$	122,360	$	672,018	$	17,752
December 31, 2015
Performing	$	374,175	$	124,531	$	651,027	$	18,340
Non-performing		1,848		235		1,467		21
Total	$	376,023	$	124,766	$	652,494	$	18,361

- 19 -

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):

					Residential		Residential
	Commercial Business		Commercial Mortgage		Real Estate Loans		Real Estate Lines		Consumer Indirect		Other Consumer		Total
June 30, 2016
Loans:
Ending balance	$	349,076	$	615,547	$	402,538	$	122,360	$	672,018	$	17,752	$	2,179,291
Evaluated for impairment:
Individually	$	2,281	$	1,532	$	—	$	—	$	—	$	—	$	3,813
Collectively	$	346,795	$	614,015	$	402,538	$	122,360	$	672,018	$	17,752	$	2,175,478
Allowance for loan losses:
Ending balance	$	6,197	$	9,496	$	1,444	$	318	$	10,696	$	374	$	28,525
Evaluated for impairment:
Individually	$	466	$	129	$	—	$	—	$	—	$	—	$	595
Collectively	$	5,731	$	9,367	$	1,444	$	318	$	10,696	$	374	$	27,930
June 30, 2015
Loans:
Ending balance	$	292,674	$	538,034	$	95,259	$	391,645	$	641,871	$	19,141	$	1,978,624
Evaluated for impairment:
Individually	$	4,643	$	3,070	$	—	$	—	$	—	$	—	$	7,713
Collectively	$	288,031	$	534,964	$	95,259	$	391,645	$	641,871	$	19,141	$	1,970,911
Allowance for loan losses:
Ending balance	$	5,334	$	9,358	$	465	$	1,198	$	10,676	$	469	$	27,500
Evaluated for impairment:
Individually	$	1,247	$	707	$	—	$	—	$	—	$	—	$	1,954
Collectively	$	4,087	$	8,651	$	465	$	1,198	$	10,676	$	469	$	25,546

The following table sets forth the changes in the allowance for loan losses for the three and six month periods ended June 30, 2016 (in thousands):

							Residential			Residential
	Commercial Business			Commercial Mortgage			Real Estate Loans			Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended June 30, 2016
Beginning balance	$	5,436		$	9,715		$	1,384		$	345		$	10,297		$	391		$	27,568
Charge-offs		(42	)		(8	)		(134	)		(47	)		(1,898	)		(119	)		(2,248	)
Recoveries		69			6			100			3			994			81			1,253
Provision (credit)		734			(217	)		94			17			1,303			21			1,952
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525
Six months ended June 30, 2016
Beginning balance	$	5,540		$	9,027		$	1,347		$	345		$	10,458		$	368		$	27,085
Charge-offs		(644	)		(12	)		(180	)		(51	)		(4,396	)		(276	)		(5,559	)
Recoveries		169			11			125			7			2,164			203			2,679
Provision		1,132			470			152			17			2,470			79			4,320
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525

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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 six month periods ended June 30, 2015 (in thousands):

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
Three months ended June 30, 2015
Beginning balance	$	5,395		$	8,156		$	558		$	1,430		$	11,205		$	447		$	27,191
Charge-offs		(13	)		(201	)		(22	)		(154	)		(1,841	)		(154	)		(2,385	)
Recoveries		86			7			13			9			1,196			95			1,406
Provision (credit)		(134	)		1,396			(84	)		(87	)		116			81			1,288
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500
Six months ended June 30, 2015
Beginning balance	$	5,621		$	8,122		$	570		$	1,485		$	11,383		$	456		$	27,637
Charge-offs		(1,154	)		(810	)		(77	)		(238	)		(4,263	)		(413	)		(6,955	)
Recoveries		134			96			46			19			2,301			193			2,789
Provision		733			1,950			(74	)		(68	)		1,255			233			4,029
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500

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

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

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill totaled $66.4 and $60.4 million as of June 30, 2016 and December 31, 2015, respectively. The Company performs a goodwill impairment test on an annual basis as of September 30 or more frequently if events and circumstances warrant.

	Banking		Non-Banking		Total
Balance, December 31, 2015	$	48,536	$	11,866	$	60,402
Acquisition		—		6,015		6,015
Balance, June 30, 2016	$	48,536	$	17,881	$	66,417

Goodwill and other intangible assets added during the period relates to the Courier Capital acquisition, which was completed on January 5, 2016. See Note 2 – Business Combinations for additional information.

The Company has other intangible assets that are amortized, consisting of core deposit intangibles and other intangibles (primarily related to customer relationships). Changes in the gross carrying amount, accumulated amortization and net book value, were as follows (in thousands):

	June 30,			December 31,
	2016			2015
Other intangibles assets:
Gross carrying amount	$	12,610		$	8,682
Accumulated amortization		(2,775	)		(2,138	)
Net book value	$	9,835		$	6,544

Amortization expense for total other intangible assets was $315 thousand and $637 thousand for the three and six months ended June 30, 2016, $238 thousand and $481 thousand for the three and six months ended June 30, 2015, respectively. As of June 30, 2016, the estimated amortization expense of other intangible assets for the remainder of 2016 and each of the next five years is as follows (in thousands):

2016 (remainder of year)	$	612
2017		1,144
2018		1,035
2019		937
2020		840
2021		738

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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 six month periods ended June 30, 2016 and 2015:

	Outstanding			Treasury			Issued
June 30, 2016
Shares outstanding at December 31, 2015		14,190,192			207,317			14,397,509
Common stock issued for acquisition		294,705			—			294,705
Restricted stock awards issued		8,800			(8,800	)		—
Restricted stock awards forfeited		(7,983	)		7,983			—
Stock options exercised		40,561			(40,561	)		—
Stock awards		2,244			(2,244	)		—
Shares outstanding at June 30, 2016		14,528,519			163,695			14,692,214
June 30, 2015
Shares outstanding at December 31, 2014		14,118,048			279,461			14,397,509
Restricted stock awards issued		49,084			(49,084	)		—
Restricted stock awards forfeited		(2,271	)		2,271			—
Stock options exercised		3,722			(3,722	)		—
Treasury stock purchases		(1,791	)		1,791			—
Stock awards		2,363			(2,363	)		—
Shares outstanding at June 30, 2015		14,184,135			213,374			14,397,509

(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the components of other comprehensive income (loss) for the three and six month periods ended June 30, 2016 and 2015 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
Three months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	6,810		$	2,629		$	4,181
Reclassification adjustment for net gains included in net income (1)		(1,417	)		(547	)		(870	)
Total securities available for sale and transferred securities		5,393			2,082			3,311
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		239			91			148
Total pension and post-retirement obligations		227			87			140
Other comprehensive income	$	5,620		$	2,169		$	3,451
Three months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(9,986	)	$	(3,822	)	$	(6,164	)
Reclassification adjustment for net gains included in net income (1)		(69	)		(26	)		(43	)
Total securities available for sale and transferred securities		(10,055	)		(3,848	)		(6,207	)
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		235			87			148
Total pension and post-retirement obligations		223			83			140
Other comprehensive loss	$	(9,832	)	$	(3,765	)	$	(6,067	)

⁽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 LOSS (Continued)

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
Six months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	19,006		$	7,335		$	11,671
Reclassification adjustment for net gains included in net income (1)		(2,079	)		(802	)		(1,277	)
Total securities available for sale and transferred securities		16,927			6,533			10,394
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		478			184			294
Total pension and post-retirement obligations		454			175			279
Other comprehensive income	$	17,381		$	6,708		$	10,673
Six months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(3,590	)	$	(1,386	)	$	(2,204	)
Reclassification adjustment for net gains included in net income (1)		(1,208	)		(466	)		(742	)
Total securities available for sale and transferred securities		(4,798	)		(1,852	)		(2,946	)
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		471			181			290
Total pension and post-retirement obligations		447			172			275
Other comprehensive loss	$	(4,351	)	$	(1,680	)	$	(2,671	)

⁽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 loss, net of tax, for the three and six month periods ended June 30, 2016 and 2015 was as follows (in thousands):

	Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Loss
Three months ended June 30, 2016
Balance at beginning of period	$	6,387		$	(10,492	)	$	(4,105	)
Other comprehensive income before reclassifications		4,181			—			4,181
Amounts reclassified from accumulated other comprehensive loss		(870	)		140			(730	)
Net current period other comprehensive income		3,311			140			3,451
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Three months ended June 30, 2015
Balance at beginning of period	$	4,886		$	(10,501	)	$	(5,615	)
Other comprehensive loss before reclassifications		(6,164	)		—			(6,164	)
Amounts reclassified from accumulated other comprehensive loss		(43	)		140			97
Net current period other comprehensive income (loss)		(6,207	)		140			(6,067	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

	Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Loss
Six months ended June 30, 2016
Balance at beginning of period	$	(696	)	$	(10,631	)	$	(11,327	)
Other comprehensive income before reclassifications		11,671			—			11,671
Amounts reclassified from accumulated other comprehensive loss		(1,277	)		279			(998	)
Net current period other comprehensive income		10,394			279			10,673
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Six months ended June 30, 2015
Balance at beginning of period	$	1,625		$	(10,636	)	$	(9,011	)
Other comprehensive loss before reclassifications		(2,204	)		—			(2,204	)
Amounts reclassified from accumulated other comprehensive loss		(742	)		275			(467	)
Net current period other comprehensive income (loss)		(2,946	)		275			(2,671	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

The following tables present the amounts reclassified out of each component of accumulated other comprehensive loss for the three and six month periods ended June 30, 2016 and 2015 (in thousands):

Details About Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Consolidated Statement of Income
	Three months ended June 30,
	2016			2015
Realized gain on sale of investment securities	$	1,387		$	—		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		30			69		Interest income
		1,417			69		Total before tax
		(547	)		(26	)	Income tax expense
		870			43		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		12			12		Salaries and employee benefits
Net actuarial losses (1)		(239	)		(235	)	Salaries and employee benefits
		(227	)		(223	)	Total before tax
		87			83		Income tax benefit
		(140	)		(140	)	Net of tax
Total reclassified for the period	$	730		$	(97	)

⁽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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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

Details About Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss						Affected Line Item in the Consolidated Statement of Income
	Six months ended June 30,
	2016			2015
Realized gain on sale of investment securities	$	2,000		$	1,062		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		79			146		Interest income
		2,079			1,208		Total before tax
		(802	)		(466	)	Income tax expense
		1,277			742		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		24			24		Salaries and employee benefits
Net actuarial losses (1)		(478	)		(471	)	Salaries and employee benefits
		(454	)		(447	)	Total before tax
		175			172		Income tax benefit
		(279	)		(275	)	Net of tax
Total reclassified for the period	$	998		$	467

⁽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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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 (the “MD&C 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 MD&C Committee approved the grant of restricted stock units (“RSUs”) and performance share units (“PSUs”) shown in the table below to certain members of management during the first six months of 2016.

			Weighted
			Average
	Number of		Per Share
	Underlying		Grant Date
	Shares		Fair Value
RSUs		14,500	$	24.21
PSUs		24,084		22.94

The grant-date fair value for the RSUs granted during the six month period ended June 30, 2016 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

The number of PSUs that ultimately vest is contingent on achieving specified EPS targets and specified total shareholder return (“TSR”) targets relative to the SNL Small Cap Bank & Thrifts Index. Thirty 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, 2016. The remaining seventy percent of the shares will be earned based on the Company’s achievement of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrifts Index over a three-year performance period ended December 31, 2018. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest on February 24, 2019 assuming the recipient’s continuous service to the Company.

The grant-date fair value for the EPS portion of the PSUs granted during the six month period ended June 30, 2016 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares. The grant-date fair value of the TSR portion of the PSUs granted during the six month period ended June 30, 2016 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.85 years, (ii) risk free interest rate of 0.88%, (iii) expected dividend yield of 2.99% and (iv) expected stock price volatility over the expected term of the TSR award of 24.3%.

During the six months ended June 30, 2016, the Company issued a total of 2,244 shares of common stock in-lieu of cash for the annual retainer of four non-employee directors and granted a total of 8,800 restricted shares of common stock to non-employee directors, of which 4,400 shares vested immediately and 4,400 shares will vest after completion of a one-year service requirement. The market price of the stock and restricted stock on the date of grant was $28.38.

The following is a summary of restricted stock award activity for the six month period ended June 30, 2016:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year		82,908		$	17.23
Granted		8,800			28.38
Vested		(9,770	)		25.56
Forfeited		(7,983	)		19.47
Outstanding at end of period		73,955		$	17.22

At June 30, 2016, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $1.3 million. This cost is expected to be recognized over a weighted-average period of 2.1 years.

- 27 -

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 2016 or 2015. The following is a summary of stock option activity for the six months ended June 30, 2016 (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		102,249		$	19.21
Exercised		(40,561	)		19.39
Expired		(2,000	)		19.70
Outstanding and exercisable at end of period		59,688		$	19.07		1.3	$	418

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 six months ended June 30, 2016 and 2015 was $334 thousand and $39 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the six months ended June 30, 2016 and 2015 was $787 thousand and $165 thousand, respectively.

The Company amortizes the expense related to stock-based compensation 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				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Salaries and employee benefits	$	157	$	113	$	255	$	191
Other noninterest expense		146		154		177		179
Total share-based compensation expense	$	303	$	267	$	432	$	370

(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						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Service cost	$	721		$	581		$	1,442		$	1,162
Interest cost on projected benefit obligation		602			583			1,203			1,166
Expected return on plan assets		(1,150	)		(1,205	)		(2,300	)		(2,410	)
Amortization of prior service credit		(12	)		(12	)		(24	)		(24	)
Amortization of net actuarial losses		239			235			478			471
Net periodic pension expense	$	400		$	182		$	799		$	365

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 2016 fiscal year.

- 28 -

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):

	June 30, 2016		December 31, 2015
Commitments to extend credit	$	518,186	$	514,818
Standby letters of credit		11,750		11,746

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 which may require payment by the customer of a termination 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 $617 thousand and $1.3 million at June 30, 2016 and December 31, 2015, respectively. In addition, the net change in the fair values of these derivatives was recognized as other noninterest income or other noninterest expense in the consolidated statements of income.

(12.) FAIR VALUE MEASUREMENTS

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

Valuation Hierarchy

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

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

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

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

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

- 29 -

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.

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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 (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
June 30, 2016
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	248,126	$	—	$	248,126
Mortgage-backed securities		—		371,409		—		371,409
Asset-backed securities		—		184		—		184
	$	—	$	619,719	$	—	$	619,719
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	209	$	—	$	209
Collateral dependent impaired loans		—		—		1,232		1,232
Other assets:
Loan servicing rights		—		—		1,183		1,183
Other real estate owned		—		—		281		281
	$	—	$	209	$	2,696	$	2,905
December 31, 2015
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	260,863	$	—	$	260,863
Mortgage-backed securities		—		283,314		—		283,314
Asset-backed securities		—		218		—		218
	$	—	$	544,395	$	—	$	544,395
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	1,430	$	—	$	1,430
Collateral dependent impaired loans		—		—		1,485		1,485
Other assets:
Loan servicing rights		—		—		1,241		1,241
Other real estate owned		—		—		163		163
	$	—	$	1,430	$	2,889	$	4,319

There were no transfers between Levels 1 and 2 during the six months ended June 30, 2016 and 2015. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the six month periods ended June 30, 2016 and 2015.

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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	$	1,232	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 50% discount
Loan servicing rights		1,183	Discounted cash flow	Discount rate	4.4% (3)
				Constant prepayment rate	15.4% (3)
Other real estate owned		281	Appraisal of collateral (1)	Appraisal adjustments (2)	13% - 72% 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 six months ended June 30, 2016.

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.

Long-term borrowings: Long-term borrowings consist of $40 million of subordinated notes issued during the second quarter of 2015. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(12.) FAIR VALUE MEASUREMENTS (Continued)

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

	Level in		June 30, 2016				December 31, 2015
	Fair Value Measurement Hierarchy		Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents		Level 1	$	67,624	$	67,624	$	60,121	$	60,121
Securities available for sale		Level 2		619,719		619,719		544,395		544,395
Securities held to maturity		Level 2		478,549		490,833		485,717		490,064
Loans held for sale		Level 2		209		215		1,430		1,430
Loans		Level 2		2,182,074		2,202,286		2,055,192		2,046,235
Loans (1)		Level 3		1,232		1,232		1,485		1,485
Accrued interest receivable		Level 1		8,919		8,919		8,609		8,609
FHLB and FRB stock		Level 2		22,086		22,086		19,991		19,991
Financial liabilities:
Non-maturity deposits		Level 1		2,146,849		2,146,849		2,093,513		2,093,513
Time deposits		Level 2		711,156		712,905		637,018		636,159
Short-term borrowings		Level 1		338,300		338,300		293,100		293,100
Long-term borrowings		Level 2		39,025		37,566		38,990		40,313
Accrued interest payable		Level 1		5,147		5,147		4,676		4,676

⁽¹⁾  Comprised of collateral dependent impaired loans.

(13.) SEGMENT REPORTING

The Company has two reportable segments: Banking and Non-Banking. These reportable segments have been identified and organized based on the nature of the underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available.

The banking segment includes all of the Company’s retail and commercial banking operations. The non-banking 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, and Courier Capital, an investment advisor and wealth management firm that provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. The Company operated as two business segments (banking and insurance) until the acquisition of Courier Capital on January 5, 2016, at which time the insurance segment was re-named as the non-banking segment to reflect the inclusion of Courier Capital which has similar products, services and reporting, as noted above. Holding company amounts primarily reflect the 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).

	Banking		Non-Banking		Holding Company and Other		Consolidated Totals
June 30, 2016
Goodwill	$	48,536	$	17,881	$	—	$	66,417
Other intangible assets, net		3,733		6,102		—		9,835
Total assets		3,553,354		30,315		1,920		3,585,589
December 31, 2015
Goodwill	$	48,536	$	11,866	$	—	$	60,402
Other intangible assets, net		829		5,715		—		6,544
Total assets		3,356,987		20,315		3,722		3,381,024

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(13.) SEGMENT REPORTING (Continued)

	Banking			Non-Banking (1)			Holding Company and Other			Consolidated Totals
Three months ended June 30, 2016
Net interest income (expense)	$	25,816		$	—		$	(617	)	$	25,199
Provision for loan losses		(1,952	)		—			—			(1,952	)
Noninterest income		6,944			2,050			(78	)		8,916
Noninterest expense		(18,054	)		(1,764	)		(2,302	)		(22,120	)
Income (loss) before income taxes		12,754			286			(2,997	)		10,043
Income tax (expense) benefit		(3,889	)		(112	)		1,109			(2,892	)
Net income (loss)	$	8,865		$	174		$	(1,888	)	$	7,151
Six months ended June 30, 2016
Net interest income	$	51,153		$	—		$	(1,235	)	$	49,918
Provision for loan losses		(4,320	)		—			—			(4,320	)
Noninterest income		13,807			4,534			(208	)		18,133
Noninterest expense		(36,399	)		(3,570	)		(3,369	)		(43,338	)
Income (loss) before income taxes		24,241			964			(4,812	)		20,393
Income tax (expense) benefit		(6,990	)		(376	)		1,742			(5,624	)
Net income (loss)	$	17,251		$	588		$	(3,070	)	$	14,769
	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended June 30, 2015
Net interest income	$	23,919		$	—		$	(515	)	$	23,404
Provision for loan losses		(1,288	)		—			—			(1,288	)
Noninterest income		5,522			1,033			(100	)		6,455
Noninterest expense		(17,668	)		(1,050	)		(518	)		(19,236	)
Income (loss) before income taxes		10,485			(17	)		(1,133	)		9,335
Income tax (expense) benefit		(3,107	)		5			352			(2,750	)
Net income (loss)	$	7,378		$	(12	)	$	(781	)	$	6,585
Six months ended June 30, 2015
Net interest income	$	47,066		$	—		$	(515	)	$	46,551
Provision for loan losses		(4,029	)		—			—			(4,029	)
Noninterest income		12,353			2,626			(227	)		14,752
Noninterest expense		(34,947	)		(2,237	)		(1,063	)		(38,247	)
Income (loss) before income taxes		20,443			389			(1,805	)		19,027
Income tax (expense) benefit		(6,056	)		(154	)		569			(5,641	)
Net income (loss)	$	14,387		$	235		$	(1,236	)	$	13,386

⁽¹⁾  Includes activity from Courier Capital since January 5, 2016 (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, 2015. 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 based on other than historical data are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

• statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of Financial Institutions, Inc. (the “Parent”) and our subsidiaries (together, the “Company,” “we,” “our” or “us”); and

• statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this document and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which we refer to as the Form 10-K, including, but not limited to, those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such differences include, but are not limited to:

• If we experience greater credit losses than anticipated, earnings may be adversely impacted;

• Our tax strategies and the value of our deferred tax assets could adversely affect our operating results and regulatory capital ratios;

• Geographic concentration may unfavorably impact our operations;

• We depend on the accuracy and completeness of information about or from customers and counterparties;

• Our insurance brokerage subsidiary is subject to risk related to the insurance industry;

• Our investment advisory and wealth management operations are subject to risk related to the financial services industry;

• Our inability to successfully implement our growth strategies;

• We are subject to environmental liability risk associated with our lending activities;

• Commercial real estate and business loans increase our exposure to credit risks;

• Our indirect lending involves risk elements in addition to normal credit risk;

• We accept deposits that do not have a fixed term and which may be withdrawn by the customer at any time for any reason;

• Any future FDIC insurance premium increases may adversely affect our earnings;

• We are highly regulated and may be adversely affected by changes in banking laws, regulations and regulatory practices;

• New or changing tax and accounting rules and interpretations could significantly impact our strategic initiatives, results of operations, cash flows, and financial condition;

• Legal and regulatory proceedings and related matters could adversely affect us and banking industry in general;

• A breach in security of our or third party information systems, including the occurrence of a cyber incident or a deficiency in cyber security, may subject us to liability, result in a loss of customer business or damage our brand image;

• We face competition in staying current with technological changes to compete and meet customer demands;

• We rely on other companies to provide key components of our business infrastructure;

• We use financial models for business planning purposes that may not adequately predict future results;

• We may not be able to attract and retain skilled people;

• Acquisitions may disrupt our business and dilute shareholder value;

• We are subject to interest rate risk;

• Our business may be adversely affected by conditions in the financial markets and economic conditions generally;

• The fiscal and monetary policies of the federal government and its agencies have a significant impact on our earnings;

• The soundness of other financial institutions could adversely affect us;

• The value of our goodwill and other intangible assets may decline in the future;

• A future proxy contest for the election of directors at our annual meeting or proposals arising out of shareholder initiatives could cause us to incur additional substantial costs and could negatively affect our business;

• We operate in a highly competitive industry and market area;

• Severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business;

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MANAGEMENT’S DISCUSSION AND ANALYSIS

• Liquidity is essential to our businesses;

• We may need to raise additional capital in the future and such capital may not be available on acceptable terms or at all;

• We rely on dividends from our subsidiaries for most of our revenue;

• We may not pay or may reduce the dividends on our common stock;

• We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could dilute our current shareholders or negatively affect the value of our common stock;

• Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect; and

• The market price of our common stock may fluctuate significantly in response to a number of factors.

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 described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Item 1A, Risk Factors in the Form 10-K for further information. 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. (the “Parent”) 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. The Company provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon, LLC (“Scott Danahy Naylon”) and Courier Capital, LLC (“Courier Capital”). 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 Bank has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Courier Capital, which we acquired on January 5, 2016, provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans across nine states.

Our primary sources of revenue are net interest income (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 insurance and 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 has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking needs of individuals, municipalities and businesses of the local communities surrounding our primary service areas. 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 larger competitors, resulting in long-standing and broad based banking relationships. Our core customers are primarily small to medium-sized businesses, individuals and community organizations, which prefer to build banking, insurance and wealth management relationships with a community bank that combines high quality, competitively-priced products and services with personalized service. Because of our identity and origin as a locally operated bank, we believe that our level of personal service provides 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, loan, insurance and wealth management products typically found at larger banks, our highly experienced management team and our strategically located banking centers. We believe that the foregoing factors all help to grow our core deposits, which supports a central element of our business strategy, namely the growth of a diversified and high-quality loan portfolio.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

EXECUTIVE OVERVIEW

Summary of 2016 Second Quarter Results

Net income increased $566 thousand or 9% to $7.2 million for the second quarter of 2016 compared to $6.6 million for the second quarter of 2015. Net income available to common shareholders for the second quarter of 2016 was $6.8 million, or $0.47 per diluted share, compared with $6.2 million, or $0.44 per diluted share, for the second quarter of last year. Return on average equity was 9.07% and return on average assets was 0.80% for the second quarter of 2016 compared to 9.19% and 0.78%, respectively, for the second quarter of 2015.

Net interest income totaled $25.2 million in the second quarter 2016, up from $23.4 million in the second quarter 2015. Average earning assets were up $236.9 million, led by a $191.1 million increase in average loans in the second quarter of 2016 compared to the same quarter in 2015. The increase in average loans was primarily attributable to organic commercial loan growth. Second quarter 2016 net interest margin was 3.23%, a slight decrease from 3.24% reported in the second quarter of 2015.

The provision for loans losses was $2.0 million in the second quarter of 2016 compared to $1.3 million in the second quarter of 2015. Net charge-offs during the recent quarter were $1.0 million, unchanged from the second quarter of 2015. Net charge-offs expressed as an annualized percentage of average loans outstanding were 0.19% during the second quarter of 2016 compared with 0.20% in the second quarter of 2015. 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 regarding the decreases in the provision for loan losses and net-charge-offs.

Noninterest income totaled $8.9 million in the second quarter of 2016, compared to $6.5 million in the second quarter of 2015. Included in the second quarter of 2016 are net gains realized from the sale of investment securities totaling $1.4 million. The higher noninterest income in the second quarter 2016 compared to the same quarter last year is also a result of the investment advisory income from Courier Capital. The increases in insurance income and ATM and debit income were partially offset by a decrease in service charges on deposits when comparing the second quarter periods.

Noninterest expense in the second quarter of 2016 totaled $22.1 million compared with $19.2 million in the second quarter of 2015. The increase in noninterest expense reflected higher professional services associated with responding to the proxy contest with Clover Partners, L.P., which amounted to $1.7 million in the second quarter of 2016. The second quarter of 2016 also included increases in salaries and employee benefits and occupancy and equipment costs reflecting the addition of Courier Capital.

The regulatory Common equity Tier 1 ratio and Total risk-based capital ratio were 9.63%, and 13.08%, respectively, for the second quarter of 2016. See the “Liquidity and Capital Management” section of this Management’s Discussion and Analysis for further discussion regarding regulatory capital and the Basel III capital rules.

Courier Capital Acquisition

On January 5, 2016, we completed the acquisition of Courier Capital Corporation, a registered investment advisory and wealth management firm with approximately $1.2 billion in assets under management. Consideration for the acquisition totaled $9.0 million and included stock of $8.1 million and $918 thousand of cash. The acquisition also included $2.8 million of potential future payments of stock and $2.2 million of potential future cash bonuses contingent upon Courier Capital meeting certain EBITDA performance targets through 2018. In addition, the Company purchased two pieces of real property in Buffalo and Jamestown, New York used by Courier Capital for total cash considerations of $1.3 million. As a result of the acquisition, we recorded goodwill of $6.0 million and other intangible assets of $3.9 million. The goodwill is not expected to be deductible for income tax purposes. Courier Capital now operates as a subsidiary of Financial Institutions, Inc. and an affiliate of Five Star Bank and Scott Danahy Naylon.

We expect to realize the following benefits from this acquisition:

• Grow and diversify our noninterest income by offering investment advisory services

• Further increase revenue by cross-selling between our banking, insurance and wealth management lines of business

• Retain capable management with extensive experience in the investment advisory and wealth management industry

• Improve our presence and brand recognition in the Buffalo marketplace

• Provide access to a new customer base in our target expansion markets of Rochester and Buffalo

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MANAGEMENT’S DISCUSSION AND ANALYSIS

2016 Outlook

We began 2016 in a strong financial condition and with positive momentum. We expect net interest income to increase in 2016. We anticipate an increase in earning assets as we remain focused on loan growth, which will be primarily funded through deposit gathering. However, the benefit to net interest income from increased earning assets is expected to be partially offset by slight downward pressure on net interest margin. We plan to maintain a disciplined approach to loan pricing, but asset yields remain under pressure due to the low interest rate environment and flattening of the yield curve, while the opportunity for deposit repricing remains limited.

We expect our commercial loan portfolio to grow in a manner that is consistent with our strategic initiatives and continued support of middle market small business lending. Automobile loan originations remained strong through the first half of 2016, reflecting the positive impact from our investment in building automotive dealer relationships. The residential real estate portfolio, which includes both first and junior lien residential real estate related products, is expected to increase as we remain focused on the customer experience and our convenient application process.

We anticipate the increase in total loans will modestly outpace growth in total deposits. This anticipated outcome reflects our continued focus on targeting loyal relationship-based deposit customers rather than those that are more price sensitive. We expect to continue managing our overall cost of funds using short-term borrowings, as well as our continued shift in mix of deposits towards low- and no-cost demand deposits and money market deposit accounts.

Noninterest income during 2016 is expected to be higher than 2015, reflecting our continued efforts to increase both account and transaction-based fee income, coupled with the benefit of revenue from our fee-based subsidiaries, Scott Danahy Naylon and Courier Capital. We anticipate that the results of these efforts will further reduce our reliance on traditional spread-based net interest income, as fee-based activities are a relatively stable revenue source during periods of changing interest rates.

Noninterest expense is expected to increase in 2016 with the addition of Courier Capital, coupled with higher salaries and benefits costs associated with our expansion initiatives, including the opening of additional financial solution centers. We remain committed to diligent expense control and implemented several initiatives designed to reduce operating expenses late in the first quarter of 2016. We expect those specific savings to be reflected throughout the remainder of the year, however we do plan to continue to invest in our business with a focus on revenue enhancing initiatives to further accelerate our growth in the communities we serve.

We do not expect significant changes in overall asset quality and allowance measurements.

The effective tax rate for 2016 is expected to be slightly higher than it was in 2015, as the lower effective tax rate in 2015 was partly driven by historic tax credits claimed in 2015. However, our 2016 effective tax rate will continue to reflect the positive impacts of tax-exempt income (including the $911 thousand of non-taxable company owned life death benefit proceeds received in the first quarter of 2016), tax advantaged investments, the formation of our real estate investment trust in early 2014 and benefits from New York State tax law changes that began going into effect during 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Net interest income is our primary source of 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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
Interest income per consolidated statements of income	$	28,246	$	25,959	$	55,881	$	50,956
Adjustment to fully taxable equivalent basis		785		777		1,578		1,529
Interest income adjusted to a fully taxable equivalent basis		29,031		26,736		57,459		52,485
Interest expense per consolidated statements of income		3,047		2,555		5,963		4,405
Net interest income on a taxable equivalent basis	$	25,984	$	24,181	$	51,496	$	48,080

Analysis of Net Interest Income for the Three Month Periods ended June 30, 2016 and 2015

Net interest income on a taxable equivalent basis for the three months ended June 30, 2016, was $26.0 million, an increase of $1.8 million versus the comparable quarter last year. The increase in net interest income was due to an increase in average earning assets of $236.9 million or 8% compared to the second quarter of 2015.

The net interest margin for the second quarter of 2016 was 3.23%, 1 basis point lower than 3.24% for the same period in 2015. This comparable period decrease was a function of a 2 basis point decrease in interest rate spread, partially offset by a higher contribution from net free funds of 1 basis point (due principally to increases in average noninterest-bearing deposits and other net free funds). The lower interest rate spread was a result of a 5 basis point increase in the cost of average interest-bearing liabilities partly offset by a 3 basis point increase in the yield on earning assets.

For the second quarter of 2016, the yield on average earning assets of 3.61% was 3 basis points higher than the second quarter of 2015. Loan yields decreased 1 basis point to 4.17% when comparing the second quarter of 2016 to the same period in 2015. The yield on investment securities increased 4 basis points during the second quarter of 2016 to 2.48%. Overall, the earning asset rate changes increased interest income by $5 thousand during the second quarter of 2016.

Average interest-earning assets were $3.23 billion for the second quarter 2016, an increase of $236.9 million or 8% from the comparable quarter last year, with average loans up $191.1 million and average securities up $45.6 million. The growth in average loans reflected increases in most loan categories. Commercial loans, in particular, were up $142.4 million or 18% from the second quarter of 2015. Loans represented 66.7% of average interest-earning assets during second quarter of 2016 compared to 65.6% during the second quarter of 2015. The increase in the volume of average loans resulted in a $2.0 million increase in interest income, partially offset by a $107 thousand decrease due to the unfavorable rate variance. Securities represented 33.3% of average interest-earning assets during the second quarter of 2016 compared to 34.4% during the second quarter of 2015. The increase in the volume of average securities resulted in a $260 thousand increase in interest income, coupled with a $112 thousand increase due to the favorable rate variance.

The cost of average interest-bearing liabilities of 0.48% in the second quarter of 2016 was 5 basis points higher than the second quarter of 2015. The cost of average interest-bearing deposits increased 2 basis points to 0.37% and the cost of short-term borrowings increased 27 basis points to 0.65% in the second quarter of 2016 compared to the same quarter of 2015. The cost of long-term borrowings for the second quarter of 2016 was 6.33% compared to 6.23% for the same quarter of 2015, reflecting the issuance of $40 million of subordinated notes during the second quarter of 2015. Overall, interest-bearing liability rate and volume increases resulted in $492 thousand of higher interest expense.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Average interest-bearing liabilities of $2.55 billion in the second quarter of 2016 were $181.7 million or 8% higher than the second quarter of 2015. On average, interest-bearing deposits grew $188.5 million, while noninterest-bearing demand deposits (a principal component of net free funds) were up $34.5 million. The increase in average deposits was due in part to seasonal inflows of municipal deposits, successful business development efforts in retail banking, and an increase in deposits from our Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs. For further discussion of the CDARS and ICS programs, refer to the “Funding Activities - Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit rate and volume changes resulted in $258 thousand of higher interest expense during the second quarter of 2016. Average borrowings decreased $6.8 million compared to the second quarter of 2015. Overall, short and long-term borrowing rate and volume changes resulted in $234 thousand of higher interest expense during the second quarter of 2016.

Analysis of Net Interest Income for the Six Months ended June 30, 2016 and June 30, 2015

Net interest income on a taxable equivalent basis for the first six months of 2016 was $51.5 million compared to $48.1 million for the same period last year. The increase in net interest income was due to an increase in average earning assets of $274.5 million or 9% compared to the first six months of 2015.

The net interest margin for the first six months of 2016 was 3.25%, 8 basis points lower than 3.33% for the same period last year. This comparable period decrease was a function of a 10 basis point decrease in interest rate spread to 3.15% during the first six months of 2016, partially offset by a 2 basis point higher contribution from net free funds. The lower interest rate spread was a net result of a 10 basis point increase in the cost of interest-bearing liabilities.

The yield on earning assets was 3.63% for the first six months of 2016 and 2015. A decrease in the yield on the loan portfolio during the period (down 3 basis points to 4.19%), was offset by an increase in the yield on the investment securities portfolio (up 2 basis points, to 2.48%). Overall, earning asset rate changes reduced interest income by $87 thousand during the first half of 2016, but that was more than offset by a favorable volume variance that increased interest income by $5.1 million, which collectively drove a $5.0 million increase in interest income.

The cost of interest-bearing liabilities of 0.48% for the first six months of 2016 was 10 basis points higher than the same period in 2015. Rates on interest-bearing deposits were up 2 basis points to 0.36% for the first six months of 2016 versus the same period in 2015. The cost of short-term borrowings for the first six months of 2016 was 0.63% or 26 basis points higher that 0.37% for the same period last year. The cost of long-term borrowings for the first half of 2016 was 6.33% compared to 6.20% for the first half of 2015 due to the issuance of the Subordinated Notes in April 2015. Overall, interest-bearing liability rate and volume increases resulted in $513 thousand and $1.0 million of higher interest expense, respectively.

Average interest-earning assets were $3.18 billion for the first six months of 2016, an increase of $274.5 million or 9% from the comparable period last year, with average loans up $192.1 million and average securities up $82.3 million. The growth in average loans was comprised of increases in most loan categories. Commercial loans, in particular, were up $148.4 million or 19% from the first half of 2015. Residential real estate loans increased $30.3 million or 12% and consumer indirect loans increased $17.9 million or 3% when comparing the first six months of 2016 with the same period in 2015.

Average interest-bearing liabilities of $2.50 billion in the first six months of 2016 were $196.7 million or 9% higher than the first six months of 2015. On average, interest-bearing deposits grew $195.8 million, while noninterest-bearing demand deposits were up $43.7 million and average short-term borrowings decreased $21.5 million. Average long-term borrowings increased $22.4 million during the first half of 2016 due to the issuance of the subordinated notes in April 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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

	Three months ended June 30,
	2016								2015
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	316		$	—		0.49	%	$	26		$	—		0.39	%
Investment securities (1):
Taxable		784,166			4,419		2.25			741,355			4,069		2.20
Tax-exempt (2)		291,054			2,243		3.08			288,285			2,221		3.08
Total investment securities		1,075,220			6,662		2.48			1,029,640			6,290		2.44
Loans:
Commercial business		329,901			3,458		4.22			284,535			2,922		4.12
Commercial mortgage		606,360			6,872		4.56			509,317			5,823		4.59
Residential real estate loans		391,826			3,850		3.93			357,442			3,699		4.14
Residential real estate lines		125,212			1,182		3.80			129,167			1,168		3.63
Consumer indirect		683,722			6,491		3.82			664,222			6,281		3.79
Other consumer		17,562			516		11.81			18,848			553		11.76
Total loans		2,154,583			22,369		4.17			1,963,531			20,446		4.18
Total interest-earning assets		3,230,119			29,031		3.61			2,993,197			26,736		3.58
Allowance for loan losses		(28,307	)							(27,924	)
Other noninterest-earning assets		305,948								297,838
Total assets	$	3,507,760							$	3,263,111
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	579,497		$	208		0.14	%	$	561,570		$	197		0.14	%
Savings and money market		1,017,911			330		0.13			929,701			289		0.12
Time deposits		698,505			1,547		0.89			616,145			1,341		0.87
Total interest-bearing deposits		2,295,913			2,085		0.37			2,107,416			1,827		0.35
Short-term borrowings		213,826			344		0.65			226,577			213		0.38
Long-term borrowings		39,015			618		6.33			33,053			515		6.23
Total borrowings		252,841			962		1.52			259,630			728		1.12
Total interest-bearing liabilities		2,548,754			3,047		0.48			2,367,046			2,555		0.43
Noninterest-bearing demand deposits		621,912								587,396
Other noninterest-bearing liabilities		19,923								21,320
Shareholders’ equity		317,171								287,349
Total liabilities and shareholders’ equity	$	3,507,760							$	3,263,111
Net interest income (tax-equivalent)				$	25,984							$	24,181
Interest rate spread							3.13	%							3.15	%
Net earning assets	$	681,365							$	626,151
Net interest margin (tax-equivalent)							3.23	%							3.24	%
Ratio of average interest-earning assets to average interest-bearing liabilities							126.73	%							126.45	%

⁽¹⁾  Investment securities are shown at amortized cost.

⁽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

	Six months ended June 30,
	2016								2015
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	193		$	1		0.53	%	$	75		$	—		0.23	%
Investment securities (1):
Taxable		759,125			8,524		2.25			686,299			7,532		2.20
Tax-exempt (2)		292,286			4,510		3.09			282,792			4,370		3.09
Total investment securities		1,051,411			13,034		2.48			969,091			11,902		2.46
Loans:
Commercial business		323,022			6,705		4.17			274,729			5,646		4.14
Commercial mortgage		594,251			13,585		4.60			494,095			11,374		4.64
Residential real estate loans		386,952			7,682		3.91			356,658			7,419		4.16
Residential real estate lines		126,264			2,390		3.81			129,305			2,334		3.64
Consumer indirect		680,927			13,022		3.85			662,982			12,707		3.86
Other consumer		17,744			1,041		11.80			19,290			1,103		11.53
Total loans		2,129,160			44,425		4.19			1,937,059			40,583		4.22
Total interest-earning assets		3,180,764			57,460		3.63			2,906,225			52,485		3.63
Allowance for loan losses		(27,973	)							(27,904	)
Other noninterest-earning assets		303,814								311,400
Total assets	$	3,456,605							$	3,189,721
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	575,960		$	411		0.14	%	$	556,564		$	353		0.13	%
Savings and money market		991,770			654		0.13			884,709			506		0.12
Time deposits		678,521			2,981		0.88			609,169			2,588		0.86
Total interest-bearing deposits		2,246,251			4,046		0.36			2,050,442			3,447		0.34
Short-term borrowings		217,576			683		0.63			239,103			443		0.37
Long-term borrowings		39,006			1,235		6.33			16,618			515		6.20
Total borrowings		256,582			1,918		1.50			255,721			958		0.75
Total interest-bearing liabilities		2,502,833			5,964		0.48			2,306,163			4,405		0.38
Noninterest-bearing demand deposits		619,751								576,011
Other noninterest-bearing liabilities		20,842								21,386
Shareholders’ equity		313,179								286,161
Total liabilities and shareholders’ equity	$	3,456,605							$	3,189,721
Net interest income (tax-equivalent)				$	51,496							$	48,080
Interest rate spread							3.15	%							3.25	%
Net earning assets	$	677,931							$	600,062
Net interest margin (tax-equivalent)							3.25	%							3.33	%
Ratio of average interest-earning assets to average interest-bearing liabilities							127.09	%							126.02	%

⁽¹⁾  Investment securities are shown at amortized cost.

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table presents, on a tax equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the periods indicated. The change in interest income 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									Six months ended
	June 30, 2016 vs. 2015									June 30, 2016 vs. 2015
	Volume			Rate			Total			Volume			Rate			Total
Increase (decrease) in:
Interest income:
Federal funds sold and interest-earning deposits	$	—		$	—		$	—		$	1		$	—		$	1
Investment securities:
Taxable		239			111			350			815			177			992
Tax-exempt		21			1			22			146			(6	)		140
Total investment securities		260			112			372			961			171			1,132
Loans:
Commercial business		475			61			536			1,001			58			1,059
Commercial mortgage		1,100			(51	)		1,049			2,291			(80	)		2,211
Residential mortgage		344			(193	)		151			611			(348	)		263
Home equity		(36	)		50			14			(56	)		112			56
Consumer indirect		185			25			210			343			(28	)		315
Other consumer		(38	)		1			(37	)		(90	)		28			(62	)
Total loans		2,030			(107	)		1,923			4,100			(258	)		3,842
Total interest income		2,290			5			2,295			5,062			(87	)		4,975
Interest expense:
Deposits:
Interest-bearing demand		6			5			11			12			46			58
Savings and money market		28			13			41			65			83			148
Time deposits		182			24			206			303			90			393
Total interest-bearing deposits		216			42			258			380			219			599
Short-term borrowings		(13	)		144			131			(43	)		283			240
Long-term borrowings		94			9			103			709			11			720
Total borrowings		81			153			234			666			294			960
Total interest expense		297			195			492			1,046			513			1,559
Net interest income	$	1,993		$	(190	)	$	1,803		$	4,016		$	(600	)	$	3,416

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. The provision for loan losses for the three and six month periods ended June 30, 2016 were $2.0 million and $4.3 million, respectively, compared to $1.3 million and $4.0 million for the corresponding periods in 2015.

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				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Service charges on deposits	$	1,755	$	1,964	$	3,479	$	3,843
Insurance income		1,183		1,057		2,855		2,665
ATM and debit card		1,421		1,283		2,746		2,476
Investment advisory		1,365		541		2,608		1,028
Company owned life insurance		486		493		1,854		960
Investments in limited partnerships		36		55		92		529
Loan servicing		112		96		228		263
Net gain on sale of loans held for sale		78		39		156		108
Net gain on disposal of investment securities		1,387		—		2,000		1,062
Net gain (loss) on disposal of other assets		82		16		86		20
Other		1,011		911		2,029		1,798
Total noninterest income	$	8,916	$	6,455	$	18,133	$	14,752

Service charges on deposit accounts for the six months ended June 30, 2016 decreased $364 thousand, or 9%, compared to the same period in 2015. The decrease was primarily due to a decrease in the amount of checking account overdraft activity.

Insurance income increased $190 thousand, or 7%, to $2.9 million for the first six months of 2016 compared to $2.7 million for the first half of 2015 reflecting successful business development efforts to drive increases in our fee-based revenue.

Investment advisory income increased to $2.6 million in the first half of 2016 compared to $1.0 million in the first half of 2015, reflecting the contribution from Courier Capital which was acquired early in the first quarter 2016 as part of our strategy to diversify our business lines and increase noninterest income through additional fee-based services.

Income from company owned life insurance increased to $1.9 million in the first six months of 2016 compared to $960 thousand in the same period in 2015, as the first quarter of 2016 included $911 thousand of death benefit proceeds.

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 $92 thousand and $529 thousand for the six months ended June 30, 2016 and 2015, respectively. The income from these equity method investments fluctuates based on the performance of the underlying investments.

During the first half of 2016, we recognized net gains on investment securities totaling $2.0 million from the sale of 17 agency securities and nine mortgage backed securities. The $1.1 million in gains realized during the first quarter of 2015 resulted from the sale of six agency securities and nine mortgage backed securities. The amount and timing of our sale of investment securities is dependent on a number of factors, including our prudent efforts to realize gains while managing duration, premium and credit risk.

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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 June 30,				Six months ended June 30,
	2016		2015		2016		2015
Salaries and employee benefits	$	10,818	$	10,606	$	22,432	$	20,829
Occupancy and equipment		3,664		3,375		7,289		7,074
Professional services		2,833		866		4,280		1,834
Computer and data processing		913		810		1,717		1,512
Supplies and postage		464		508		1,058		1,071
FDIC assessments		441		415		877		833
Advertising and promotions		347		238		724		477
Other		2,640		2,418		4,961		4,617
Total noninterest expense	$	22,120	$	19,236	$	43,338	$	38,247

Salaries and employee benefits expense increased by $1.6 million or 8% in the first half of 2016 compared to the same period in 2015, reflecting the addition of Courier Capital as well as additional personnel to support organic growth as part of the Company’s expansion initiatives.

Occupancy and equipment expense was relatively flat at $7.3 million, as the incremental expenses associated with Courier Capital’s operations were offset by the favorable impact of lower snow plowing and lawn maintenance costs compared to a year ago.

Professional services increased $2.4 million when comparing the first six months of 2016 to the same period in 2015. The current year includes approximately $2.1 million of professional services associated with the proxy contest.

Computer and data processing expense increased $205 thousand, or 14%, when comparing the first half of 2016 to the first half of 2015 primarily due to information technology projects to maintain and improve our infrastructure.

Advertising and promotions expense was $724 thousand for the six month period ended June 30, 2016 compared to $477 thousand for the same time period in 2015. The increase was due to advertising campaigns implemented during the current year to build recognition of our brand in the Rochester and Buffalo markets.

Other noninterest expense was $5.0 million in the first six months of 2016 compared to $4.6 million in the first six months of 2015. Other noninterest expense for the first six months ended June 30, 2016 included an increase of $195 thousand in intangible asset amortization attributable to the Courier Capital acquisition.

Our efficiency ratio for the six months ended June 30, 2016 was 63.97% compared with 61.13% for the first half of 2015. The increase in the efficiency ratio is a result of noninterest expenses increasing at a higher rate than noninterest income during the comparable periods. The higher level of noninterest expense is associated with the aforementioned proxy contest. 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 on investment securities and proceeds from company owned life insurance. 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.

Income Taxes

For the six months ended June 30, 2016 and 2015, we recorded income tax expense of $5.6 million. The effective tax rates for the year-to-date periods in 2016 and 2015 were 27.6% and 29.6%, respectively. The decrease in the effective tax rate was primarily due to the non-taxable death benefits proceeds on company owned life insurance received in the first quarter of 2016. 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. In addition, our effective tax rate reflects the New York State tax savings generated by our real estate investment trust.

In March 2014, the New York legislature approved changes in the state tax law that will be phased-in over two years, beginning in 2015. The primary changes that impact us include the repeal of the Article 32 franchise tax on banking corporations (“Article 32”) for 2015, expanded nexus standards for 2015 and a reduction in the corporate tax rate for 2016. The repeal of Article 32 and the expanded nexus standards lowered our taxable income apportioned to New York to approximately 85% in both 2016 and 2015. In addition, our New York state income tax rate was reduced from 7.1% to 6.5% in 2016.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION

INVESTING ACTIVITIES

Investment Securities

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

	Investment Securities Portfolio Composition
	June 30, 2016				December 31, 2015
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Securities available for sale (“AFS”):
U.S. Government agencies and government-sponsored enterprise securities	$	241,583	$	248,126	$	260,748	$	260,863
Mortgage-backed securities:
Agency mortgage-backed securities		360,356		370,625		282,873		282,505
Non-Agency mortgage-backed securities		—		784		—		809
Asset-backed securities		—		184		—		218
Total AFS securities		601,939		619,719		543,621		544,395
Securities held to maturity (“HTM”):
State and political subdivisions		294,507		304,567		294,423		300,981
Mortgage-backed securities		184,042		186,266		191,294		189,083
Total HTM securities		478,549		490,833		485,717		490,064
Total investment securities	$	1,080,488	$	1,110,552	$	1,029,338	$	1,034,459

The AFS investment securities portfolio increased $75.3 million or 14%, from $544.4 million at December 31, 2015 to $619.7 million at June 30, 2016. The AFS portfolio had net unrealized gains totaling $17.8 million and $774 thousand at June 30, 2016 and December 31, 2015, respectively. The unrealized gains in the AFS portfolio were predominantly caused by changes in market interest rates. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

Impairment Assessment

We review investment securities on an ongoing basis for the presence of other than temporary impairment (“OTTI”) and perform formal reviews quarterly. Declines in the fair value of HTM and AFS 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 OTTI 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. There were no securities deemed to be other-than-temporarily impaired during the six month periods ended June 30, 2016 and 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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
	June 30, 2016					December 31, 2015
	Amount		% of Total			Amount		% of Total
Commercial business	$	349,432		15.8	%	$	313,758		15.0	%
Commercial mortgage		614,141		27.8			566,101		27.2
Total commercial		963,573		43.6			879,859		42.2
Residential real estate loans		408,367		18.5			381,074		18.3
Residential real estate lines		125,054		5.6			127,347		6.1
Consumer indirect		696,908		31.5			676,940		32.5
Other consumer		17,929		0.8			18,542		0.9
Total consumer		1,248,258		56.4			1,203,903		57.8
Total loans		2,211,831		100.0	%		2,083,762		100.0	%
Less: Allowance for loan losses		28,525					27,085
Total loans, net	$	2,183,306				$	2,056,677

Total loans increased $128.1 million to $2.21 billion at June 30, 2016 from $2.08 billion at December 31, 2015. The increase in loans was attributable to organic growth, primarily in the commercial loan portfolios.

Commercial loans increased $83.7 million and represented 43.6% of total loans as of June 30, 2016, a result of our continued commercial business development efforts.

The consumer indirect portfolio totaled $696.9 million and represented 31.5% of total loans as of June 30, 2016. During the first half of 2016, we originated $157.8 million in indirect auto loans with a mix of approximately 41% new auto and 59% used auto. During the first half of 2015, we originated $149.3 million in indirect auto loans with a mix of approximately 41% new auto and 59% used auto. Our origination volumes and mix of new and used vehicles financed fluctuate depending on general market conditions.

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 $209 thousand and $1.4 million as of June 30, 2016 and December 31, 2015, respectively.

We sell certain qualifying newly originated or refinanced residential real estate mortgages on the secondary market. Residential real estate mortgages serviced for others, which are not included in the consolidated statements of financial condition, amounted to $186.5 million and $196.0 million as of June 30, 2016 and December 31, 2015, respectively.

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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 June 30,						Six months ended June 30,
	2016			2015			2016			2015
Balance as of beginning of period	$	27,568		$	27,191		$	27,085		$	27,637
Charge-offs:
Commercial business		42			13			644			1,154
Commercial mortgage		8			201			12			810
Residential real estate loans		134			58			180			197
Residential real estate lines		47			118			51			118
Consumer indirect		1,898			1,841			4,396			4,263
Other consumer		119			154			276			413
Total charge-offs		2,248			2,385			5,559			6,955
Recoveries:
Commercial business		69			86			169			134
Commercial mortgage		6			7			11			96
Residential real estate loans		100			20			125			61
Residential real estate lines		3			2			7			4
Consumer indirect		994			1,196			2,164			2,301
Other consumer		81			95			203			193
Total recoveries		1,253			1,406			2,679			2,789
Net charge-offs		995			979			2,880			4,166
Provision for loan losses		1,952			1,288			4,320			4,029
Balance at end of period	$	28,525		$	27,500		$	28,525		$	27,500
Net loan charge-offs to average loans (annualized)		0.19	%		0.20	%		0.27	%		0.43	%
Allowance for loan losses to total loans		1.29	%		1.37	%		1.29	%		1.37	%
Allowance for loan losses to non-performing loans		435	%		257	%		435	%		257	%

The allowance for loan losses represents the estimated amount of probable credit losses inherent in our loan portfolio. We perform periodic, systematic reviews of the loan portfolio to estimate probable losses in the respective loan portfolios. In addition, we regularly evaluate prevailing economic and business conditions, industry concentrations, changes in the size and characteristics of the portfolio and other pertinent factors. The process we use to determine the overall allowance for loan losses is based on this analysis. Based on this analysis, we believe the allowance for loan losses is adequate as of June 30, 2016.

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 increase the allowance based on their judgments about information available to them at the time of their examination.

Net charge-offs of $995 thousand in the second quarter of 2016 represented 0.19% of average loans on an annualized basis compared to $979 thousand or 0.20% in the second quarter of 2015. For the six months ended June 30, 2016, net charge-offs of $2.9 million represented 0.27% of average loans, compared to $4.2 million or 0.43% of average loans for the same period in 2015. The first quarter of 2015 included charge-offs for two commercial loan relationships totaling $1.7 million. The allowance for loan losses was $28.5 million at June 30, 2016, compared with $27.1 million at December 31, 2015. The ratio of the allowance for loan losses to total loans was 1.29% at June 30, 2016 and 1.30% at December 31, 2015. The ratio of allowance for loan losses to non-performing loans was 435% at June 30, 2016, compared with 321% at December 31, 2015.

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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
	June 30, 2016			December 31, 2015
Nonaccrual loans:
Commercial business	$	2,312		$	3,922
Commercial mortgage		1,547			947
Residential real estate loans		1,485			1,848
Residential real estate lines		182			235
Consumer indirect		1,015			1,467
Other consumer		4			13
Total nonaccrual loans		6,545			8,432
Accruing loans or consumer overdrafts 90 days or more delinquent		11			8
Total non-performing loans		6,556			8,440
Foreclosed assets		281			163
Total non-performing assets	$	6,837		$	8,603
Non-performing loans to total loans		0.30	%		0.41	%
Non-performing assets to total assets		0.19	%		0.25	%

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 six months ended June 30, 2016 was as follows (in thousands):

	Three months			Six months
	ended			ended
	June 30, 2016			June 30, 2016
Nonaccrual loans, beginning of period	$	8,558		$	8,432
Additions		3,351			9,356
Payments		(2,822	)		(4,784	)
Charge-offs		(2,189	)		(5,423	)
Returned to accruing status		(119	)		(662	)
Transferred to other real estate or repossessed assets		(234	)		(374	)
Nonaccrual loans, end of period	$	6,545		$	6,545

Non-performing assets include non-performing loans and foreclosed assets. Non-performing assets at June 30, 2016 were $6.8 million, a decrease of $1.8 million from $8.6 million at December 31, 2015. The primary component of non-performing assets is non-performing loans, which were $6.6 million or 0.30% of total loans at June 30, 2016, compared with $8.4 million or 0.41% of total loans at December 31, 2015.

Approximately $2.8 million, or 42%, of the $6.6 million in non-performing loans as of June 30, 2016 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 $2.0 million and $2.4 million at June 30, 2016 and December 31, 2015, respectively. We had no TDRs that were accruing interest as of June 30, 2016 or December 31, 2015.

Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed asset holdings represented five properties totaling $281 thousand at June 30, 2016 and four properties totaling $163 thousand at December 31, 2015.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes us 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. We consider loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified $8.7 million and $12.1 million in loans that continued to accrue interest which were classified as substandard as of June 30, 2016 and December 31, 2015, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FUNDING ACTIVITIES

Deposits

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

	Deposit Composition
	June 30, 2016					December 31, 2015
	Amount		% of Total			Amount		% of Total
Noninterest-bearing demand	$	626,240		21.9	%	$	641,972		23.5	%
Interest-bearing demand		560,284		19.6			523,366		19.2
Savings and money market		960,325		33.6			928,175		34.0
Certificates of deposit < $250,000		590,524		20.7			545,044		19.9
Certificates of deposit of $250,000 or more		120,632		4.2			91,974		3.4
Total deposits	$	2,858,005		100.0	%	$	2,730,531		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 June 30, 2016, total deposits were $2.86 billion, representing an increase of $127.5 million for the year. Time deposits were approximately 25% of total deposits at June 30, 2016 and 23% at December 31, 2015.

Nonpublic deposits, the largest component of our funding sources, totaled $1.82 billion at June 30, 2016 and December 31, 2015, and represented 64% and 66% 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 various public entities, including the 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 $757.9 million and $675.7 million at June 30, 2016 and December 31, 2015, respectively, and represented 27% and 25% of total deposits as of the end of each period, respectively. The increase in public deposits during 2016 was due largely to successful business development efforts.

We had no traditional brokered deposits at June 30, 2016 or December 31, 2015; however, we do participate in the CDARS and 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 $131.7 million and $148.4 million, respectively, at June 30, 2016, compared to $92.9 million and $146.6, respectively, at December 31, 2015.

Borrowings

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the applicable agreement. Outstanding borrowings consisted of the following as of the dates indicated (in thousands):

	June 30,		December 31,
	2016		2015
Short-term borrowings - Short-term FHLB borrowings	$	338,300	$	293,100
Long-term borrowings - Subordinated notes		39,025		38,990
Total borrowings	$	377,325	$	332,090

Short-term Borrowings

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $13 million of immediate credit capacity with the FHLB as of June 30, 2016. We had approximately $500 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) discount window, none of which was outstanding at June 30, 2016. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had approximately $140 million of credit available under unsecured federal funds purchased lines with various banks as of June 30, 2016. Additionally, we had approximately $235 million of unencumbered liquid securities available for pledging.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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 up to one year and include overnight borrowings which we typically utilize to address short term funding needs as they arise. Short-term FHLB borrowings at June 30, 2016 consisted of $176.8 million in overnight borrowings and $161.5 million in short-term advances. Short-term FHLB borrowings at December 31, 2015 consisted of $116.8 million in overnight borrowings and $176.3 million in short-term advances.

The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. At June 30, 2016, no amounts have been drawn on the line of credit.

Long-term Borrowings

On April 15, 2015, we issued $40.0 million of Subordinated Notes in a registered public offering. The Subordinated Notes bear interest at a fixed rate of 6.0% per year, payable semi-annually, for the first 10 years. From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then current three-month London Interbank Offered Rate (LIBOR) plus 3.944%, payable quarterly. The Subordinated Notes are redeemable by us at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest. Proceeds, net of debt issuance costs of $1.1 million, were $38.9 million. The Subordinated Notes qualify as Tier 2 capital for regulatory purposes.

LIQUIDITY AND CAPITAL MANAGEMENT

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.

We manage liquidity for the Bank by 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 source of our non-deposit borrowings is FHLB advances, of which we had $338.3 million outstanding at June 30, 2016. In addition to this amount, we have additional collateralized wholesale borrowing capacity of approximately $650 million from various funding sources which include the FHLB, Federal Reserve Bank, and commercial banks that we can use to fund lending activities, liquidity needs, and/or to adjust and manage our asset and liability position.

The Parent’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of nonbank subsidiaries, repurchases of our stock, and acquisitions. The Parent obtains funding to meet obligations from dividends received from the Bank, net taxes collected from subsidiaries included in the federal consolidated tax return, and the issuance of debt and equity securities. In addition, the Parent maintains a revolving line of credit with a commercial bank for an aggregate amount of up to $20.0 million, all of which was available at June 30, 2016. The line of credit has a one year term and matures in May 2017. Funds drawn would be used for general corporate purposes and backup liquidity.

Cash and cash equivalents were $67.6 million as of June 30, 2016, up $7.5 million from $60.1 million as of December 31, 2015. Net cash provided by operating activities totaled $22.8 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled $182.3 million, which included outflows of $131.3 million for net loan originations and $49.5 million from net investment securities transactions. Net cash provided by financing activities of $167.0 million was attributed to a $127.5 million increase in deposits and a $45.2 million increase in short-term borrowings, partly offset by $6.4 million in dividend payments.

Capital Management

We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company, and/or the Bank specifically, at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.

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.

- 51 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Shareholders’ equity was $322.2 million at June 30, 2016, an increase of $28.3 million from $293.8 million at December 31, 2015. Net income for the year and stock issued for the acquisition of Courier Capital increased shareholders’ equity by $14.8 million and $8.1 million, respectively, which were partially offset by common and preferred stock dividends declared of $6.5 million. Accumulated other comprehensive income included in shareholders’ equity increased $10.7 million during the first six months of 2016 due primarily to higher net unrealized gains on securities available for sale.

The FRB and FDIC have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banks and bank holding companies. The final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks became effective for the Company on January 1, 2015, with full compliance with all of the final requirements phased in over a multi-year schedule, to be fully phased-in by January 1, 2019. As of June 30, 2016, the Company’s capital levels remained characterized as “well-capitalized” under the new rules.

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

	June 30,			December 31,
	2016			2015
Common shareholders’ equity	$	304,836		$	276,504
Less: Goodwill and other intangible assets, net of deferred tax liabilities		69,151			61,217
Net unrealized (loss) gain on investment securities (1)		9,698			(696	)
Net periodic pension & postretirement benefits plan adjustments		(10,352	)		(10,631	)
Other		179			201
Common equity Tier 1 (“CET1”) capital		236,160			226,413
Plus: Preferred stock		17,340			17,340
Less: Other		120			301
Tier 1 Capital		253,380			243,452
Plus: Qualifying allowance for loan losses		28,525			27,085
Subordinated Notes		39,025			38,990
Total regulatory capital	$	320,930		$	309,527
Adjusted average total assets (for leverage capital purposes)	$	3,429,128		$	3,287,646
Total risk-weighted assets	$	2,452,780		$	2,318,536
Regulatory Capital Ratios
Tier 1 leverage (Tier 1 capital to adjusted average assets)		7.39	%		7.41	%
CET1 capital (CET1 capital to total risk-weighted assets)		9.63			9.77
Tier 1 capital (Tier 1 capital to total risk-weighted assets)		10.33			10.50
Total risk-based capital (Total regulatory capital to total risk-weighted assets)		13.08			13.35

⁽¹⁾  Includes unrealized gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category.

Basel III Capital Rules

The BCBS rules include a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, increase the minimum Tier 1 capital to risk-weighted assets ratio from 4.0% to 6.0%, require a minimum total capital to risk-weighted assets ratio of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A new capital conservation buffer is also established above the regulatory minimum capital requirements, effectively increasing the minimum required risk-weighted asset ratios. This capital conservation buffer is being phased-in beginning on January 1, 2016 at 0.625% of risk-weighted assets and will increase each subsequent year by an additional 0.625% until reaching its final level of 2.5% on January 1, 2019. Banking institutions with a capital conservation buffer below the minimum level will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. Strict eligibility criteria for regulatory capital instruments were also implemented under the final rules. The final rules also revised the definition and calculation of Tier 1 capital, total capital, and risk-weighted assets.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table presents actual and required capital ratios as of June 30, 2016 and December 31, 2015 for the Company and the Bank under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of those dates based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules (in thousands):

						Minimum Capital					Minimum Capital					Required to be
						Required – Basel III					Required – Basel III					Considered Well
	Actual					Phase-in Schedule					Fully Phased-in					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
June 30, 2016
Tier 1 leverage:
Company	$	253,380		7.39	%	$	137,165		4.00	%	$	137,165		4.00	%	$	171,456		5.00	%
Bank		274,992		8.04			136,838		4.00			136,838		4.00			171,047		5.00
CET1 capital:
Company		236,160		9.63			125,705		5.13			171,695		7.00			159,431		6.50
Bank		274,992		11.26			125,144		5.13			170,928		7.00			158,719		6.50
Tier 1 capital:
Company		253,380		10.33			162,497		6.63			208,486		8.50			196,222		8.00
Bank		274,992		11.26			161,771		6.63			207,556		8.50			195,346		8.00
Total capital:
Company		320,930		13.08			211,552		8.63			257,542		10.50			245,278		10.00
Bank		303,517		12.43			210,608		8.63			256,392		10.50			244,183		10.00
December 31, 2015
Tier 1 leverage:
Company	$	243,452		7.41	%	$	131,506		4.00	%	$	131,506		4.00	%	$	164,382		5.00	%
Bank		265,487		8.09			131,188		4.00			131,188		4.00			163,985		5.00
CET1 capital:
Company		226,413		9.77			104,334		4.50			162,297		7.00			150,705		6.50
Bank		265,487		11.49			103,971		4.50			161,733		7.00			150,180		6.50
Tier 1 capital:
Company		243,452		10.50			139,112		6.00			197,076		8.50			185,483		8.00
Bank		265,487		11.49			138,628		6.00			196,389		8.50			184,837		8.00
Total capital:
Company		309,527		13.35			185,483		8.00			243,446		10.50			231,854		10.00
Bank		292,572		12.66			184,837		8.00			242,599		10.50			231,046		10.00

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.

- 53 -

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk were presented at December 31, 2015 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on March 8, 2016. 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, 2015 to June 30, 2016. 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 June 30, 2016, the Company was slightly asset sensitive, meaning that net interest income increases in rising rate conditions.

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 June 30, 2017 assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	Changes in Interest Rate
	-100 bp			+100 bp			+200 bp			+300 bp
Change in net interest income	$	(822	)	$	570		$	1,592		$	(5	)
% Change		(0.80	)%		0.55	%		1.55	%		0.00	%

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

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

- 54 -

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 June 30, 2016 and December 31, 2015. The analysis additionally presents a measurement of the interest rate sensitivity at June 30, 2016 and December 31, 2015. 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.

	June 30, 2016								December 31, 2015
	EVE		Change			Percentage Change			EVE		Change			Percentage Change
Rate Shock Scenario:
Pre-Shock Scenario	$	505,639							$	497,349
- 100 Basis Points		538,742	$	33,103			6.55	%		508,973	$	11,624			2.34	%
+ 100 Basis Points		492,771		(12,868	)		(2.54	)		480,888		(16,461	)		(3.31	)
+ 200 Basis Points		472,886		(32,753	)		(6.48	)		460,567		(36,782	)		(7.40	)
+ 300 Basis Points		440,533		(65,106	)		(12.88	)		429,381		(67,968	)		(13.67	)

The Pre-Shock Scenario EVE was $505.6 million at June 30, 2016, compared to $497.3 million at December 31, 2015. The increase in the Pre-Shock Scenario EVE at June 30, 2016, compared to December 31, resulted primarily from a more favorable valuation of non-maturity deposits that reflected alternative funding rate changes used for discounting future cash flows.

The +200 basis point Rate Shock Scenario EVE increased from $460.6 million at December 31, 2015 to $472.9 million at June 30, 2016, 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 to (7.40)% at December 31, 2015 to (6.48)% at June 30, 2016. 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 June 30, 2016, compared to December 31, 2015.

ITEM 4. Controls and Procedures

Evaluation of disclosure controls and procedures

As of June 30, 2016, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the 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 Courier Capital Corporation was consummated on January 5, 2016, at which time Courier Capital, LLC (“Courier Capital”) became a consolidated subsidiary of the Company. The Company is in the process of reviewing the internal control structure of Courier Capital and, if necessary, will make appropriate changes as it integrates Courier Capital 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 June 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

- 55 -

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, 2015, dated March 8, 2016, as filed with the Securities and Exchange Commission (“SEC”).

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, dated March 8, 2016, as filed with the SEC, as updated by the factor below. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by the forward-looking statements contained in this report.

Our investment advisory and wealth management operations are subject to risk related to the financial services industry.

The financial services industry is subject to extensive regulation at the federal and state levels. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business. The securities laws and other laws that govern the activities of our registered investment advisor are complex and subject to rapid change. The activities of our investment advisory and wealth management operations are subject primarily to provisions of the Investment Advisers Act of 1940, as amended and the Employee Retirement Income Act of 1940, as amended (“ERISA”). We are a fiduciary under ERISA. Our investment advisory services are also subject to state laws including anti-fraud laws and regulations. Any claim of noncompliance, regardless of merit or ultimate outcome, could subject us to investigation by the SEC or other regulatory authorities. Our compliance processes may not be sufficient to prevent assertions that we failed to comply with any applicable law, rule or regulation. If our investment advisory and wealth management operations are subject to investigation by the SEC or other regulatory authorities or if litigation is brought by clients based on our failure to comply with applicable regulations, our results of operations could be materially adversely effected.

In addition, the majority of our investment advisory revenue is from fees based on assets under management. The value of the assets under management is determined, in part by market conditions that can be volatile. As a result, investment advisory revenues and profitability can fluctuate with market conditions.

- 56 -

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
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer	Filed Herewith
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer	Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

- 57 -

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	, August 5, 2016
Martin K. Birmingham
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Kevin B. Klotzbach	, August 5, 2016
Kevin B. Klotzbach
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
/s/ Michael D. Grover	, August 5, 2016
Michael D. Grover
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

- 58 -

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: August 5, 2016	/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: August 5, 2016	/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 June 30, 2016 and that:

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: August 5, 2016	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: August 5, 2016	/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

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Jul. 28, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016
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		14,528,319

XML

Consolidated Statements Of Financial Condition - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 67,624	$ 60,121
Securities available for sale, at fair value	619,719	544,395
Securities held to maturity, at amortized cost (fair value of $490,833 and $490,064, respectively)	478,549	485,717
Loans held for sale	209	1,430
Loans (net of allowance for loan losses of $28,525 and $27,085, respectively)	2,183,306	2,056,677
Company owned life insurance	62,456	63,045
Premises and equipment, net	40,562	39,445
Goodwill and other intangible assets, net	76,252	66,946
Other assets	56,912	63,248
Total assets	3,585,589	3,381,024
Deposits:
Noninterest-bearing demand	626,240	641,972
Interest-bearing demand	560,284	523,366
Savings and money market	960,325	928,175
Time deposits	711,156	637,018
Total deposits	2,858,005	2,730,531
Short-term borrowings	338,300	293,100
Long-term borrowings, net of issuance costs of $975 and $1,010, respectively	39,025	38,990
Other liabilities	28,083	24,559
Total liabilities	3,263,413	3,087,180
Shareholders' equity:
Total preferred equity	17,340	17,340
Common stock, $0.01 par value; 50,000,000 shares authorized; 14,692,214 and 14,397,509	147	144
Additional paid-in capital	81,255	72,690
Retained earnings	227,184	218,920
Accumulated other comprehensive loss	(654)	(11,327)
Treasury stock, at cost - 163,695 and 207,317 shares, respectively	(3,096)	(3,923)
Total shareholders' equity	322,176	293,844
Total liabilities and shareholders' equity	3,585,589	3,381,024
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	$ 17,191

XML

Consolidated Statements Of Financial Condition (Parenthetical) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Securities held to maturity, fair value	$ 490,833	$ 490,064
Loans, allowance for loan losses	28,525	27,085
Debt issuance costs	$ 975	$ 1,010
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	14,692,214	14,397,509
Treasury stock, shares	163,695	207,317
Series A 3% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	1,533	1,533
Preferred stock, shares issued	1,492	1,492
Preferred stock, dividend percentage	3.00%	3.00%
Series B-1 8.48% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	200,000	200,000
Preferred stock, shares issued	171,906	171,906
Preferred stock, dividend percentage	8.48%	8.48%

XML

Consolidated Statements Of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Interest income:
Interest and fees on loans	$ 22,368	$ 20,446	$ 44,425	$ 40,583
Interest and dividends on investment securities	5,877	5,513	11,455	10,373
Interest and Other Income	1		1
Total interest income	28,246	25,959	55,881	50,956
Interest expense:
Deposits	2,086	1,827	4,045	3,447
Short-term borrowings	344	213	683	443
Long-term borrowings	617	515	1,235	515
Total interest expense	3,047	2,555	5,963	4,405
Net interest income	25,199	23,404	49,918	46,551
Provision for loan losses	1,952	1,288	4,320	4,029
Net interest income after provision for loan losses	23,247	22,116	45,598	42,522
Noninterest income:
Service charges on deposits	1,755	1,964	3,479	3,843
Insurance income	1,183	1,057	2,855	2,665
ATM and debit card	1,421	1,283	2,746	2,476
Investment advisory	1,365	541	2,608	1,028
Company owned life insurance	486	493	1,854	960
Investments in limited partnerships	36	55	92	529
Loan servicing	112	96	228	263
Net gain on sale of loans held for sale	78	39	156	108
Net gain on disposal of investment securities	1,387		2,000	1,062
Net gain on disposal of other assets	82	16	86	20
Other	1,011	911	2,029	1,798
Total noninterest income	8,916	6,455	18,133	14,752
Noninterest expense:
Salaries and employee benefits	10,818	10,606	22,432	20,829
Occupancy and equipment	3,664	3,375	7,289	7,074
Professional services	2,833	866	4,280	1,834
Computer and data processing	913	810	1,717	1,512
Supplies and postage	464	508	1,058	1,071
FDIC assessments	441	415	877	833
Advertising and promotions	347	238	724	477
Other	2,640	2,418	4,961	4,617
Total noninterest expense	22,120	19,236	43,338	38,247
Income before income taxes	10,043	9,335	20,393	19,027
Income tax expense	2,892	2,750	5,624	5,641
Net income	7,151	6,585	14,769	13,386
Preferred stock dividends	366	366	731	731
Net income available to common shareholders	$ 6,785	$ 6,219	$ 14,038	$ 12,655
Earnings per common share (Note 3):
Basic	$ 0.47	$ 0.44	$ 0.97	$ 0.90
Diluted	0.47	0.44	0.97	0.90
Cash dividends declared per common share	$ 0.20	$ 0.20	$ 0.40	$ 0.40
Weighted average common shares outstanding:
Basic	14,434	14,078	14,415	14,071
Diluted	14,489	14,121	14,477	14,118

XML

Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 7,151	$ 6,585	$ 14,769	$ 13,386
Other comprehensive income (loss), net of tax:
Net unrealized (losses) gains on securities available for sale	3,311	(6,207)	10,394	(2,946)
Pension and post-retirement obligations	140	140	279	275
Total other comprehensive income (loss), net of tax	3,451	(6,067)	10,673	(2,671)
Comprehensive income	$ 10,602	$ 518	$ 25,442	$ 10,715

XML

Consolidated Statements Of Changes In Shareholders' Equity - USD ($) $ in Thousands	Series A 3% Preferred Stock [Member] Retained Earnings [Member]	Series A 3% Preferred Stock [Member]	Series B-1 8.48% Preferred Stock [Member] Retained Earnings [Member]	Series B-1 8.48% Preferred Stock [Member]	Preferred Equity [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2014					$ 17,340	$ 144	$ 72,955	$ 203,312	$ (9,011)	$ (5,208)	$ 279,532
Comprehensive income:
Net income								13,386			13,386
Other comprehensive income, net of tax									(2,671)		(2,671)
Purchases of common stock for treasury										(41)	(41)
Share-based compensation plans:
Share-based compensation							370				370
Stock options exercised							2			163	165
Restricted stock awards issued, net							(1,060)			1,060
Excess tax benefit on share-based compensation							1				1
Stock awards							11			43	54
Cash dividends declared:
Preferred stock dividends per share	$ (2)	$ (2)	$ (729)	$ (729)
Common stock dividends per share								(5,630)			(5,630)
Balance at Jun. 30, 2015					17,340	144	72,279	210,337	(11,682)	(3,983)	284,435
Balance at Dec. 31, 2015					17,340	144	72,690	218,920	(11,327)	(3,923)	293,844
Comprehensive income:
Net income								14,769			14,769
Other comprehensive income, net of tax									10,673		10,673
Common stock issued						3	8,097				8,100
Share-based compensation plans:
Share-based compensation							432				432
Stock options exercised							19			767	786
Restricted stock awards issued, net							(17)			17
Excess tax benefit on share-based compensation							13				13
Stock awards							21			43	64
Cash dividends declared:
Preferred stock dividends per share	$ (2)	$ (2)	$ (729)	$ (729)
Common stock dividends per share								(5,774)			(5,774)
Balance at Jun. 30, 2016					$ 17,340	$ 147	$ 81,255	$ 227,184	$ (654)	$ (3,096)	$ 322,176

XML

Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Common stock dividends per share, declared	$ 0.40	$ 0.40
Series A 3% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 1.50	$ 1.50
Preferred stock, dividend percentage	3.00%	3.00%
Series B-1 8.48% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 4.24	$ 4.24
Preferred stock, dividend percentage	8.48%	8.48%

XML

Consolidated Statements Of Cash Flows $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)
Cash flows from operating activities:
Net income	$ 7,151	$ 14,769	$ 13,386
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,990	2,671
Net amortization of premiums on securities		1,503	1,547
Provision for loan losses	1,952	4,320	4,029
Share-based compensation	303	432	370
Deferred income tax expense		(150)	202
Proceeds from sale of loans held for sale		7,671	7,321
Originations of loans held for sale		(6,294)	(6,906)
Income on company owned life insurance	(486)	(1,854)	(960)
Net gain on sale of loans held for sale	(78)	(156)	(108)
Net gain on disposal of investment securities	(1,387)	(2,000)	(1,062)
Net gain on sale and disposal of other assets	(82)	(86)	(20)
(Increase) decrease in other assets		(780)	1,009
Increase in other liabilities		2,434	820
Net cash provided by operating activities		22,799	22,299
Cash flows from investing activities:
Purchases of available for sale securities		(176,913)	(241,906)
Purchases of held to maturity securities		(23,699)	(39,570)
Proceeds from principal payments, maturities and calls on available for sale securities		57,707	57,787
Proceeds from principal payments, maturities and calls on held to maturity securities		31,147	16,394
Proceeds from sales of securities available for sale	44,648	62,275	29,508
Net loan originations		(131,323)	(101,567)
Proceeds from company owned life insurance, net of purchases		2,443	(34)
Proceeds from sales of other assets		318	167
Purchases of premises and equipment		(3,422)	(2,891)
Cash consideration paid for acquisition, net of cash acquired		(868)
Net cash used in investing activities		(182,335)	(282,112)
Cash flows from financing activities:
Net increase in deposits		127,474	205,711
Net decrease in short-term borrowings		45,200	15,796
Issuance of long-term debt			40,000
Debt issuance costs			(1,060)
Purchase of common stock for treasury			(41)
Proceeds from stock options exercised		786	165
Excess tax benefit on share-based compensation, net		13	1
Cash dividends paid to common and preferred shareholders		(6,434)	(6,356)
Net cash provided by financing activities		167,039	254,216
Net increase in cash and cash equivalents		7,503	(5,597)
Cash and cash equivalents, beginning of period		60,121	58,151
Cash and cash equivalents, end of period	67,624	67,624	52,554
Supplemental information:
Cash paid for interest		5,492	3,166
Cash paid for income taxes		3,224	1,539
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		374	130
Accrued and declared unpaid dividends	$ 3,256	3,256	3,182
Increase in net unsettled security purchases		1,250	$ 4,023
Common stock issued for acquisition		8,100
Assets acquired and liabilities assumed in business combinations:
Fair value of assets acquired		4,848
Fair value of liabilities assumed		$ 1,845

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Basis of Presentation And Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

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. The Company provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon, LLC ("Scott Danahy Naylon") and Courier Capital, LLC ("Courier Capital"). 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 Bank has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Acquired on January 5, 2016, Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans across nine states.

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders' equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years' consolidated financial statements are re-classified whenever necessary to conform to the current year's presentation. These consolidated financial statements should be read in conjunction with the Company's 2015 Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported.

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable 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, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The effective date was recently deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted as of the original effective date – interim and annual periods beginning on or after December 15, 2016. The Company continues to assess the potential impact of ASU 2014-09 on its accounting and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is assessing the impact of ASU 2016-01 on its accounting and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn't convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. The Company is assessing the impact of ASU 2016-09 on its accounting and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures.

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Business Combinations

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Business Combinations

(2.) BUSINESS COMBINATIONS

Courier Capital Acquisition

On January 5, 2016, the Company completed the acquisition of Courier Capital Corporation, a registered investment advisory and wealth management firm with approximately $1.2 billion in assets under management. Consideration for the acquisition totaled $9.0 million and included stock of $8.1 million and $918 thousand of cash. The acquisition also included up to $2.8 million of potential future payments of stock and up to $2.2 million of potential future cash bonuses contingent upon Courier Capital meeting certain EBITDA performance targets through 2018. In addition, the Company purchased two pieces of real property in Buffalo and Jamestown, New York used by Courier Capital for total cash considerations of $1.3 million. As a result of the acquisition, the Company recorded goodwill of $6.0 million and other intangible assets of $3.9 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 presents the allocation of acquisition cost to the assets acquired and liabilities assumed, based on their estimated fair values.

Cash	$	50
Identified intangible assets		3,928
Premises and equipment, accounts receivable and other assets		870
Deferred tax liability		(1,797	)
Other liabilities		(48	)
Net assets acquired	$	3,003

The amounts assigned to goodwill and other intangible assets for the Courier Capital acquisition are as follows:

	Amount		Useful life
	allocated		(in years)
Goodwill	$	6,015	n/a
Other intangible assets – customer relationships		3,900	20
Other intangible assets – other		28	5
	$	9,943

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Earnings Per Common Share ("EPS")

6 Months Ended

Jun. 30, 2016

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						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income available to common shareholders	$	6,785		$	6,219		$	14,038		$	12,655
Weighted average common shares outstanding:
Total shares issued		14,692			14,398			14,686			14,398
Unvested restricted stock awards		(75	)		(100	)		(77	)		(87	)
Treasury shares		(183	)		(220	)		(194	)		(240	)
Total basic weighted average common shares outstanding		14,434			14,078			14,415			14,071
Incremental shares from assumed:
Exercise of stock options		21			22			24			22
Vesting of restricted stock awards		34			21			38			25
Total diluted weighted average common shares outstanding		14,489			14,121			14,477			14,118
Basic earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
Diluted earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
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		-			-			-			-
Restricted stock awards		8			3			4			2
		8			3			4			2

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Investment Securities

6 Months Ended

Jun. 30, 2016

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
June 30, 2016
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	241,583	$	6,550	$	7	$	248,126
Mortgage-backed securities:
Federal National Mortgage Association		311,783		8,776		-		320,559
Federal Home Loan Mortgage Corporation		30,743		772		-		31,515
Government National Mortgage Association		17,390		737		14		18,113
Collateralized mortgage obligations:
Federal National Mortgage Association		363		-		1		362
Federal Home Loan Mortgage Corporation		77		-		1		76
Privately issued		-		784		-		784
Total mortgage-backed securities		360,356		11,069		16		371,409
Asset-backed securities		-		184		-		184
Total available for sale securities	$	601,939	$	17,803	$	23	$	619,719
Securities held to maturity:
State and political subdivisions		294,507		10,061		1		304,567
Mortgage-backed securities:
Federal National Mortgage Association		12,047		290		-		12,337
Government National Mortgage Association		25,978		307		4		26,281
Collateralized mortgage obligations:
Federal National Mortgage Association		54,246		525		11		54,760
Federal Home Loan Mortgage Corporation		76,655		1,038		2		77,691
Government National Mortgage Association		15,116		85		4		15,197
Total mortgage-backed securities		184,042		2,245		21		186,266
Total held to maturity securities	$	478,549	$	12,306	$	22	$	490,833

December 31, 2015
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	260,748	$	1,164	$	1,049	$	260,863
Mortgage-backed securities:
Federal National Mortgage Association		209,671		1,092		2,333		208,430
Federal Home Loan Mortgage Corporation		24,564		282		194		24,652
Government National Mortgage Association		26,465		943		4		27,404
Collateralized mortgage obligations:
Federal National Mortgage Association		16,998		90		154		16,934
Federal Home Loan Mortgage Corporation		5,175		1		91		5,085
Privately issued		-		809		-		809
Total mortgage-backed securities		282,873		3,217		2,776		283,314
Asset-backed securities		-		218		-		218
Total available for sale securities	$	543,621	$	4,599	$	3,825	$	544,395
Securities held to maturity:
State and political subdivisions		294,423		6,562		4		300,981
Mortgage-backed securities:
Federal National Mortgage Association		9,242		14		79		9,177
Government National Mortgage Association		25,607		33		159		25,481
Collateralized mortgage obligations:
Federal National Mortgage Association		56,791		-		818		55,973
Federal Home Loan Mortgage Corporation		80,570		-		1,120		79,450
Government National Mortgage Association		19,084		19		101		19,002
Total mortgage-backed securities		191,294		66		2,277		189,083
Total held to maturity securities	$	485,717	$	6,628	$	2,281	$	490,064

Investment securities with a total fair value of $856.5 million at June 30, 2016 were pledged and encumbered as collateral to secure public deposits and for other purposes required or permitted by law.

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

		Three months ended				Six months ended
		June 30,				June 30,
		2016		2015		2016		2015
Proceeds from sales	$	44,648	$	-	$	62,275	$	29,508
Gross realized gains		1,387		-		2,000		1,073
Gross realized losses		-		-		-		11

The scheduled maturities of securities available for sale and securities held to maturity at June 30, 2016 are shown below (in thousands).

Actual 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	$	5,042	$	5,047
Due from one to five years		175,737		179,161
Due after five years through ten years		306,996		317,590
Due after ten years		114,164		117,921
	$	601,939	$	619,719
Debt securities held to maturity:
Due in one year or less	$	38,909	$	39,051
Due from one to five years		176,378		182,498
Due after five years through ten years		92,311		96,184
Due after ten years		170,951		173,100
	$	478,549	$	490,833

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
June 30, 2016
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	9,997	$	3	$	1,637	$	4	$	11,634	$	7
Mortgage-backed securities:
Government National Mortgage Association		1,258		14		-		-		1,258		14
Collateralized mortgage obligations:
Federal National Mortgage Association		362		1		-		-		362		1
Federal Home Loan Mortgage Corporation		64		1		-		-		64		1
Total mortgage-backed securities		1,684		16		-		-		1,684		16
Total available for sale securities		11,681		19		1,637		4		13,318		23
Securities held to maturity:
State and political subdivisions		832		1		-		-		832		1
Mortgage-backed securities:
Government National Mortgage Association		-		-		1,635		4		1,635		4
Collateralized mortgage obligations:
Federal National Mortgage Association		4,119		11		-		-		4,119		11
Federal Home Loan Mortgage Corporation		1,196		2		-		-		1,196		2
Government National Mortgage Association		3,695		4		-		-		3,695		4
Total mortgage-backed securities		9,010		17		1,635		4		10,645		21
Total held to maturity securities		9,842		18		1,635		4		11,477		22
Total temporarily impaired securities	$	21,523	$	37	$	3,272	$	8	$	24,795	$	45
December 31, 2015
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	82,298	$	735	$	26,302	$	314	$	108,600	$	1,049
Mortgage-backed securities:
Federal National Mortgage Association		123,774		2,134		9,562		199		133,336		2,333
Federal Home Loan Mortgage Corporation		12,660		194		-		-		12,660		194
Government National Mortgage Association		1,405		4		-		-		1,405		4
Collateralized mortgage obligations:
Federal National Mortgage Association		7,778		154		-		-		7,778		154
Federal Home Loan Mortgage Corporation		4,998		91		-		-		4,998		91
Total mortgage-backed securities		150,615		2,577		9,562		199		160,177		2,776
Total available for sale securities		232,913		3,312		35,864		513		268,777		3,825
Securities held to maturity:
State and political subdivisions		3,075		4		-		-		3,075		4
Mortgage-backed securities:
Federal National Mortgage Association		5,666		79		-		-		5,666		79
Government National Mortgage Association		8,790		159		-		-		8,790		159
Collateralized mortgage obligations:
Federal National Mortgage Association		55,973		818		-		-		55,973		818
Federal Home Loan Mortgage Corporation		79,323		1,120		-		-		79,323		1,120
Government National Mortgage Association		14,559		101		-		-		14,559		101
Total mortgage-backed securities		164,311		2,277		-		-		164,311		2,277
Total held to maturity securities		167,386		2,281		-		-		167,386		2,281
Total temporarily impaired securities	$	400,299	$	5,593	$	35,864	$	513	$	436,163	$	6,106

The Company had 29 security positions in the investment portfolio in an unrealized loss position at June 30, 2016 compared to 174 at December 31, 2015. At June 30, 2016, the Company had positions in 6 investment securities with a fair value of $3.3 million and a total unrealized loss of $8 thousand that have been in a continuous unrealized loss position for more than 12 months. At June 30, 2016, there were a total of 23 securities positions in the Company's investment portfolio with a fair value of $21.5 million and a total unrealized loss of $37 thousand that had been in a continuous unrealized loss position for less than 12 months. At December 31, 2015, the Company had positions in 14 investment securities with a fair value of $35.9 million and a total unrealized loss of $513 thousand that had been in a continuous unrealized loss position for more than 12 months. At December 31, 2015, there were a total of 160 securities positions in the Company's investment portfolio with a fair value of $400.3 million and a total unrealized loss of $5.6 million that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on 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. There was no impairment recorded during the six months ended June 30, 2016 and 2015.

Based on management's review and evaluation of the Company's debt securities as of June 30, 2016, the debt securities with unrealized losses were not considered to be other-than-temporarily impaired. As of June 30, 2016, 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 June 30, 2016, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Company's consolidated statements of income.

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Loans

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Loans

(5.) LOANS

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

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
June 30, 2016
Commercial business	$	349,076	$	356		$	349,432
Commercial mortgage		615,547		(1,406	)		614,141
Residential real estate loans		402,538		5,829			408,367
Residential real estate lines		122,360		2,694			125,054
Consumer indirect		672,018		24,890			696,908
Other consumer		17,752		177			17,929
Total	$	2,179,291	$	32,540			2,211,831
Allowance for loan losses							(28,525	)
Total loans, net						$	2,183,306
December 31, 2015
Commercial business	$	313,475	$	283		$	313,758
Commercial mortgage		567,481		(1,380	)		566,101
Residential real estate loans		376,023		5,051			381,074
Residential real estate lines		124,766		2,581			127,347
Consumer indirect		652,494		24,446			676,940
Other consumer		18,361		181			18,542
Total	$	2,052,600	$	31,162			2,083,762
Allowance for loan losses							(27,085	)
Total loans, net						$	2,056,677

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $209 thousand and $1.4 million as of June 30, 2016 and December 31, 2015, respectively.

Past Due Loans Aging

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

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Total Loans
June 30, 2016
Commercial business	$	46	$	-	$	-	$	46	$	2,312	$	346,718	$	349,076
Commercial mortgage		-		-		-		-		1,547		614,000		615,547
Residential real estate loans		562		52		-		614		1,485		400,439		402,538
Residential real estate lines		315		-		-		315		182		121,863		122,360
Consumer indirect		1,221		233		-		1,454		1,015		669,549		672,018
Other consumer		99		25		11		135		4		17,613		17,752
Total loans, gross	$	2,243	$	310	$	11	$	2,564	$	6,545	$	2,170,182	$	2,179,291
December 31, 2015
Commercial business	$	321	$	612	$	-	$	933	$	3,922	$	308,620	$	313,475
Commercial mortgage		68		146		-		214		947		566,320		567,481
Residential real estate loans		723		395		-		1,118		1,848		373,057		376,023
Residential real estate lines		199		34		-		233		235		124,298		124,766
Consumer indirect		1,975		286		-		2,261		1,467		648,766		652,494
Other consumer		98		13		8		119		13		18,229		18,361
Total loans, gross	$	3,384	$	1,486	$	8	$	4,878	$	8,432	$	2,039,290	$	2,052,600

There were no loans past due greater than 90 days and still accruing interest as of June 30, 2016 and December 31, 2015. There were $11 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of June 30, 2016 and December 31, 2015, 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. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reductions in the interest rate for the remaining term of the loan, extensions of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

The following table presents information related to loans modified in a TDR during the quarterly 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
June 30, 2016
Commercial business	1	$	214	$	214	3	$	526	$	526
Commercial mortgage	-		-		-	1		550		550
Total	1	$	214	$	214	4	$	1,076	$	1,076
June 30, 2015
Commercial business	2	$	1,342	$	1,342	2	$	1,342	$	1,342
Commercial mortgage	-		-		-	1		682		330
Total	2	$	1,342	$	1,342	3	$	2,024	$	1,672

The loans identified as a TDR by the Company during the six month periods ended June 30, 2016 and 2015 were previously reported as impaired loans prior to restructuring. Each of the loans restructured during the six months ended June 30, 2016 and 2015 were on nonaccrual status at the end of the respective period. The modifications related to collateral concessions and forbearance agreements. 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 classifications 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 six months ended June 30, 2016 or 2015. 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 six 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
June 30, 2016
With no related allowance recorded:
Commercial business	$	1,209	$	1,752	$	-	$	1,678	$	-
Commercial mortgage		777		986		-		1,114		-
		1,986		2,738		-		2,792		-
With an allowance recorded:
Commercial business		1,103		1,103		476		1,323		-
Commercial mortgage		770		900		131		510		-
		1,873		2,003		607		1,833		-
	$	3,859	$	4,741	$	607	$	4,625	$	-
December 31, 2015
With no related allowance recorded:
Commercial business	$	1,441	$	1,810	$	-	$	1,352	$	-
Commercial mortgage		937		1,285		-		1,013		-
		2,378		3,095		-		2,365		-
With an allowance recorded:
Commercial business		2,481		2,481		996		1,946		-
Commercial mortgage		10		10		10		449		-
		2,491		2,491		1,006		2,395		-
	$	4,869	$	5,586	$	1,006	$	4,760	$	-

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

Credit Quality Indicators

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

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

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

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

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

		Commercial		Commercial
		Business		Mortgage
June 30, 2016
Uncriticized	$	333,564	$	594,576
Special mention		8,796		15,098
Substandard		6,716		5,873
Doubtful		-		-
Total	$	349,076	$	615,547
December 31, 2015
Uncriticized	$	298,413	$	551,603
Special mention		4,916		9,015
Substandard		10,146		6,863
Doubtful		-		-
Total	$	313,475	$	567,481

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		Residential
		Real Estate		Real Estate		Consumer		Other
		Loans		Lines		Indirect		Consumer
June 30, 2016
Performing	$	401,053	$	122,178	$	671,003	$	17,737
Non-performing		1,485		182		1,015		15
Total	$	402,538	$	122,360	$	672,018	$	17,752
December 31, 2015
Performing	$	374,175	$	124,531	$	651,027	$	18,340
Non-performing		1,848		235		1,467		21
Total	$	376,023	$	124,766	$	652,494	$	18,361

Allowance for Loan Losses

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

						Residential		Residential
		Commercial		Commercial		Real Estate		Real Estate		Consumer		Other
		Business		Mortgage		Loans		Lines		Indirect		Consumer		Total
June 30, 2016
Loans:
Ending balance	$	349,076	$	615,547	$	402,538	$	122,360	$	672,018	$	17,752	$	2,179,291
Evaluated for impairment:
Individually	$	2,281	$	1,532	$	-	$	-	$	-	$	-	$	3,813
Collectively	$	346,795	$	614,015	$	402,538	$	122,360	$	672,018	$	17,752	$	2,175,478
Allowance for loan losses:
Ending balance	$	6,197	$	9,496	$	1,444	$	318	$	10,696	$	374	$	28,525
Evaluated for impairment:
Individually	$	466	$	129	$	-	$	-	$	-	$	-	$	595
Collectively	$	5,731	$	9,367	$	1,444	$	318	$	10,696	$	374	$	27,930
June 30, 2015
Loans:
Ending balance	$	292,674	$	538,034	$	95,259	$	391,645	$	641,871	$	19,141	$	1,978,624
Evaluated for impairment:
Individually	$	4,643	$	3,070	$	-	$	-	$	-	$	-	$	7,713
Collectively	$	288,031	$	534,964	$	95,259	$	391,645	$	641,871	$	19,141	$	1,970,911
Allowance for loan losses:
Ending balance	$	5,334	$	9,358	$	465	$	1,198	$	10,676	$	469	$	27,500
Evaluated for impairment:
Individually	$	1,247	$	707	$	-	$	-	$	-	$	-	$	1,954
Collectively	$	4,087	$	8,651	$	465	$	1,198	$	10,676	$	469	$	25,546

The following table sets forth the changes in the allowance for loan losses for the three and six month periods ended June 30, 2016 (in thousands):

								Residential			Residential
		Commercial			Commercial			Real Estate			Real Estate			Consumer			Other
		Business			Mortgage			Loans			Lines			Indirect			Consumer			Total
Three months ended June 30, 2016
Beginning balance	$	5,436		$	9,715		$	1,384		$	345		$	10,297		$	391		$	27,568
Charge-offs		(42	)		(8	)		(134	)		(47	)		(1,898	)		(119	)		(2,248	)
Recoveries		69			6			100			3			994			81			1,253
Provision (credit)		734			(217	)		94			17			1,303			21			1,952
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525
Six months ended June 30, 2016
Beginning balance	$	5,540		$	9,027		$	1,347		$	345		$	10,458		$	368		$	27,085
Charge-offs		(644	)		(12	)		(180	)		(51	)		(4,396	)		(276	)		(5,559	)
Recoveries		169			11			125			7			2,164			203			2,679
Provision		1,132			470			152			17			2,470			79			4,320
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525

The following table sets forth the changes in the allowance for loan losses for the three and six month periods ended June 30, 2015 (in thousands):

								Residential			Residential
		Commercial			Commercial			Real Estate			Real Estate			Consumer			Other
		Business			Mortgage			Loans			Lines			Indirect			Consumer			Total
Three months ended June 30, 2015
Beginning balance	$	5,395		$	8,156		$	558		$	1,430		$	11,205		$	447		$	27,191
Charge-offs		(13	)		(201	)		(22	)		(154	)		(1,841	)		(154	)		(2,385	)
Recoveries		86			7			13			9			1,196			95			1,406
Provision (credit)		(134	)		1,396			(84	)		(87	)		116			81			1,288
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500
Six months ended June 30, 2015
Beginning balance	$	5,621		$	8,122		$	570		$	1,485		$	11,383		$	456		$	27,637
Charge-offs		(1,154	)		(810	)		(77	)		(238	)		(4,263	)		(413	)		(6,955	)
Recoveries		134			96			46			19			2,301			193			2,789
Provision		733			1,950			(74	)		(68	)		1,255			233			4,029
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500

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

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

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Goodwill And Other Intangible Assets

6 Months Ended

Jun. 30, 2016

Goodwill And Other Intangible Assets [Abstract]

Goodwill And Other Intangible Assets

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying amount of goodwill totaled $66.4 and $60.4 million as of June 30, 2016 and December 31, 2015, respectively. The Company performs a goodwill impairment test on an annual basis as of September 30 or more frequently if events and circumstances warrant.

	Banking		Non-Banking		Total
Balance, December 31, 2015	$	48,536	$	11,866	$	60,402
Acquisition		-		6,015		6,015
Balance, June 30, 2016	$	48,536	$	17,881	$	66,417

Goodwill and other intangible assets added during the period relates to the Courier Capital acquisition, which was completed on January 5, 2016. See Note 2 – Business Combinations for additional information.

The Company has other intangible assets that are amortized, consisting of core deposit intangibles and other intangibles (primarily related to customer relationships). Changes in the gross carrying amount, accumulated amortization and net book value, were as follows (in thousands):

	June 30,			December 31,
	2016			2015
Other intangibles assets:
Gross carrying amount	$	12,610		$	8,682
Accumulated amortization		(2,775	)		(2,138	)
Net book value	$	9,835		$	6,544

Amortization expense for total other intangible assets was $315 thousand and $637 thousand for the three and six months ended June 30, 2016, $238 thousand and $481 thousand for the three and six months ended June 30, 2015, respectively. As of June 30, 2016, the estimated amortization expense of other intangible assets for the remainder of 2016 and each of the next five years is as follows (in thousands):

2016 (remainder of year)	$	612
2017		1,144
2018		1,035
2019		937
2020		840
2021		738

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Shareholders' Equity

6 Months Ended

Jun. 30, 2016

Shareholders' Equity [Abstract]

Shareholders' Equity

(7.) SHAREHOLDERS' EQUITY

Common Stock

The changes in shares of common stock were as follows for the six month periods ended June 30, 2016 and 2015:

	Outstanding		Treasury		Issued
June 30, 2016
Shares outstanding at December 31, 2015	14,190,192		207,317		14,397,509
Common stock issued for acquisition	294,705		-		294,705
Restricted stock awards issued	8,800		(8,800	)	-
Restricted stock awards forfeited	(7,983	)	7,983		-
Stock options exercised	40,561		(40,561	)	-
Stock awards	2,244		(2,244	)	-
Shares outstanding at June 30, 2016	14,528,519		163,695		14,692,214
June 30, 2015
Shares outstanding at December 31, 2014	14,118,048		279,461		14,397,509
Restricted stock awards issued	49,084		(49,084	)	-
Restricted stock awards forfeited	(2,271	)	2,271		-
Stock options exercised	3,722		(3,722	)	-
Treasury stock purchases	(1,791	)	1,791		-
Stock awards	2,363		(2,363	)	-
Shares outstanding at June 30, 2015	14,184,135		213,374		14,397,509

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss [Abstract]

Accumulated Other Comprehensive Loss

(8.) ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the components of other comprehensive income (loss) for the three and six month periods ended June 30, 2016 and 2015 (in thousands):

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
Three months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	6,810		$	2,629		$	4,181
Reclassification adjustment for net gains included in net income (1)		(1,417	)		(547	)		(870	)
Total securities available for sale and transferred securities		5,393			2,082			3,311
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		239			91			148
Total pension and post-retirement obligations		227			87			140
Other comprehensive income	$	5,620		$	2,169		$	3,451
Three months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(9,986	)	$	(3,822	)	$	(6,164	)
Reclassification adjustment for net gains included in net income (1)		(69	)		(26	)		(43	)
Total securities available for sale and transferred securities		(10,055	)		(3,848	)		(6,207	)
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		235			87			148
Total pension and post-retirement obligations		223			83			140
Other comprehensive loss	$	(9,832	)	$	(3,765	)	$	(6,067	)

(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.

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
Six months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	19,006		$	7,335		$	11,671
Reclassification adjustment for net gains included in net income (1)		(2,079	)		(802	)		(1,277	)
Total securities available for sale and transferred securities		16,927			6,533			10,394
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		478			184			294
Total pension and post-retirement obligations		454			175			279
Other comprehensive income	$	17,381		$	6,708		$	10,673
Six months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(3,590	)	$	(1,386	)	$	(2,204	)
Reclassification adjustment for net gains included in net income (1)		(1,208	)		(466	)		(742	)
Total securities available for sale and transferred securities		(4,798	)		(1,852	)		(2,946	)
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		471			181			290
Total pension and post-retirement obligations		447			172			275
Other comprehensive loss	$	(4,351	)	$	(1,680	)	$	(2,671	)

(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 loss, net of tax, for the three and six month periods ended June 30, 2016 and 2015 was as follows (in thousands):

		Securities
		Available for			Pension and			Accumulated
		Sale and			Post-			Other
		Transferred			retirement			Comprehensive
		Securities			Obligations			Loss
Three months ended June 30, 2016
Balance at beginning of period	$	6,387		$	(10,492	)	$	(4,105	)
Other comprehensive income before reclassifications		4,181			-			4,181
Amounts reclassified from accumulated other comprehensive loss		(870	)		140			(730	)
Net current period other comprehensive income		3,311			140			3,451
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Three months ended June 30, 2015
Balance at beginning of period	$	4,886		$	(10,501	)	$	(5,615	)
Other comprehensive loss before reclassifications		(6,164	)		-			(6,164	)
Amounts reclassified from accumulated other comprehensive loss		(43	)		140			97
Net current period other comprehensive income (loss)		(6,207	)		140			(6,067	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

		Securities
		Available for			Pension and			Accumulated
		Sale and			Post-			Other
		Transferred			retirement			Comprehensive
		Securities			Obligations			Loss
Six months ended June 30, 2016
Balance at beginning of period	$	(696	)	$	(10,631	)	$	(11,327	)
Other comprehensive income before reclassifications		11,671			-			11,671
Amounts reclassified from accumulated other comprehensive loss		(1,277	)		279			(998	)
Net current period other comprehensive income		10,394			279			10,673
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Six months ended June 30, 2015
Balance at beginning of period	$	1,625		$	(10,636	)	$	(9,011	)
Other comprehensive loss before reclassifications		(2,204	)		-			(2,204	)
Amounts reclassified from accumulated other comprehensive loss		(742	)		275			(467	)
Net current period other comprehensive income (loss)		(2,946	)		275			(2,671	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

The following tables present the amounts reclassified out of each component of accumulated other comprehensive loss for the three and six month periods ended June 30, 2016 and 2015 (in thousands):

		Amount Reclassified from
Details About Accumulated Other		Accumulated Other					Affected Line Item in the
Comprehensive Loss Components		Comprehensive Loss					Consolidated Statement of Income
		Three months ended
		June 30,
		2016			2015
Realized gain on sale of investment securities	$	1,387		$	-		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		30			69		Interest income
		1,417			69		Total before tax
		(547	)		(26	)	Income tax expense
		870			43		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		12			12		Salaries and employee benefits
Net actuarial losses (1)		(239	)		(235	)	Salaries and employee benefits
		(227	)		(223	)	Total before tax
		87			83		Income tax benefit
		(140	)		(140	)	Net of tax
Total reclassified for the period	$	730		$	(97	)

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

		Amount Reclassified from
Details About Accumulated Other		Accumulated Other					Affected Line Item in the
Comprehensive Loss Components		Comprehensive Loss					Consolidated Statement of Income
		Six months ended
		June 30,
		2016			2015
Realized gain on sale of investment securities	$	2,000		$	1,062		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		79			146		Interest income
		2,079			1,208		Total before tax
		(802	)		(466	)	Income tax expense
		1,277			742		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		24			24		Salaries and employee benefits
Net actuarial losses (1)		(478	)		(471	)	Salaries and employee benefits
		(454	)		(447	)	Total before tax
		175			172		Income tax benefit
		(279	)		(275	)	Net of tax
Total reclassified for the period	$	998		$	467

(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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Share-Based Compensation Plans

6 Months Ended

Jun. 30, 2016

Share-Based Compensation Plans [Abstract]

Share-Based Compensation Plans

(9.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain stock-based compensation plans that were approved by the Company's shareholders and are administered by the Company's Board of Directors, or the Management Development and Compensation Committee (the "MD&C 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 MD&C Committee approved the grant of restricted stock units ("RSUs") and performance share units ("PSUs") shown in the table below to certain members of management during the first six months of 2016.

		Weighted
		Average
	Number of	Per Share
	Underlying	Grant Date
	Shares	Fair Value
RSUs	14,500	$	24.21
PSUs	24,084		22.94

The grant-date fair value for the RSUs granted during the six month period ended June 30, 2016 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

The number of PSUs that ultimately vest is contingent on achieving specified EPS targets and specified total shareholder return ("TSR") targets relative to the SNL Small Cap Bank & Thrifts Index. Thirty 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, 2016. The remaining seventy percent of the shares will be earned based on the Company's achievement of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrifts Index over a three-year performance period ended December 31, 2018. The shares earned based on the achievement of the EPS and TSR performance requirements, if any, will vest on February 24, 2019 assuming the recipient's continuous service to the Company.

The grant-date fair value for the EPS portion of the PSUs granted during the six month period ended June 30, 2016 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares. The grant-date fair value of the TSR portion of the PSUs granted during the six month period ended June 30, 2016 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.85 years, (ii) risk free interest rate of 0.88%, (iii) expected dividend yield of 2.99% and (iv) expected stock price volatility over the expected term of the TSR award of 24.3%.

During the six months ended June 30, 2016, the Company issued a total of 2,244 shares of common stock in-lieu of cash for the annual retainer of four non-employee directors and granted a total of 8,800 restricted shares of common stock to non-employee directors, of which 4,400 shares vested immediately and 4,400 shares will vest after completion of a one-year service requirement. The market price of the stock and restricted stock on the date of grant was $28.38.

The following is a summary of restricted stock award activity for the six month period ended June 30, 2016:

			Weighted
			Average
			Market
	Number of		Price at
	Shares		Grant Date
Outstanding at beginning of year	82,908		$	17.23
Granted	8,800			28.38
Vested	(9,770	)		25.56
Forfeited	(7,983	)		19.47
Outstanding at end of period	73,955		$	17.22

At June 30, 2016, the total unrecognized compensation cost related to the nonvested awards granted and expected to vest was $1.3 million. This cost is expected to be recognized over a weighted-average period of 2.1 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 2016 or 2015. The following is a summary of stock option activity for the six months ended June 30, 2016 (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	102,249		$	19.21
Exercised	(40,561	)		19.39
Expired	(2,000)			19.70
Outstanding and exercisable at end of period	59,688		$	19.07	1.3	$	418

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 six months ended June 30, 2016 and 2015 was $334 thousand and $39 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the six months ended June 30, 2016 and 2015 was $787 thousand and $165 thousand, respectively.

The Company amortizes the expense related to stock-based compensation 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				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Salaries and employee benefits	$	157	$	113	$	255	$	191
Other noninterest expense		146		154		177		179
Total share-based compensation expense	$	303	$	267	$	432	$	370

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2016

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(10.) EMPLOYEE BENEFIT PLANS

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

	Three months ended						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Service cost	$	721		$	581		$	1,442		$	1,162
Interest cost on projected benefit obligation		602			583			1,203			1,166
Expected return on plan assets	(1,150		)		(1,205	)		(2,300	)		(2,410	)
Amortization of prior service credit		(12	)		(12	)		(24	)		(24	)
Amortization of net actuarial losses		239			235			478			471
Net periodic pension expense	$	400		$	182		$	799		$	365

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 2016 fiscal year.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies [Abstract]

Commitments And Contingencies

(11.) COMMITMENTS AND CONTINGENCIES

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

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

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

			December 31,
	June 30, 2016		2015
Commitments to extend credit	$	518,186	$	514,818
Standby letters of credit		11,750		11,746

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 which may require payment by the customer of a termination 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 $617 thousand and $1.3 million at June 30, 2016 and December 31, 2015, respectively. In addition, the net change in the fair values of these derivatives was recognized as other noninterest income or other noninterest expense in the consolidated statements of income.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Fair Value Measurements [Abstract]

Fair Value Measurements

(12.) FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

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

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

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

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

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

Assets Measured at Fair Value

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

	Quoted Prices
	in Active
	Markets for		Significant
	Identical		Other		Significant
	Assets or		Observable		Unobservable
	Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2016
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	248,126	$	-	$	248,126
Mortgage-backed securities		-		371,409		-		371,409
Asset-backed securities		-		184		-		184
	$	-	$	619,719		-	$	619,719
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	209	$	-	$	209
Collateral dependent impaired loans		-		-		1,232		1,232
Other assets:
Loan servicing rights		-		-		1,183		1,183
Other real estate owned		-		-		281		281
	$	-	$	209	$	2,696	$	2,905
December 31, 2015
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	260,863	$	-	$	260,863
Mortgage-backed securities		-		283,314		-		283,314
Asset-backed securities		-		218		-		218
	$	-	$	544,395	$	-	$	544,395
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,430	$	-	$	1,430
Collateral dependent impaired loans		-		-		1,485		1,485
Other assets:
Loan servicing rights		-		-		1,241		1,241
Other real estate owned		-		-		163		163
	$	-	$	1,430	$	2,889	$	4,319

There were no transfers between Levels 1 and 2 during the six months ended June 30, 2016 and 2015. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the six month periods ended June 30, 2016 and 2015.

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	$	1,232	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 50% discount
Loan servicing rights		1,183	Discounted cash flow	Discount rate	4.4	% (3)
				Constant prepayment rate	15.4	% (3)
Other real estate owned		281	Appraisal of collateral (1)	Appraisal adjustments (2)	13% - 72% 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 six months ended June 30, 2016.

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.

Long-term borrowings: Long-term borrowings consist of $40 million of subordinated notes issued during the second quarter of 2015. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy.

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

	Level in	June 30, 2016				December 31, 2015
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	67,624	$	67,624	$	60,121	$	60,121
Securities available for sale	Level 2		619,719		619,719		544,395		544,395
Securities held to maturity	Level 2		478,549		490,833		485,717		490,064
Loans held for sale	Level 2		209		215		1,430		1,430
Loans	Level 2		2,182,074		2,202,286		2,055,192		2,046,235
Loans (1)	Level 3		1,232		1,232		1,485		1,485
Accrued interest receivable	Level 1		8,919		8,919		8,609		8,609
FHLB and FRB stock	Level 2		22,086		22,086		19,991		19,991
Financial liabilities:
Non-maturity deposits	Level 1		2,146,849		2,146,849		2,093,513		2,093,513
Time deposits	Level 2		711,156		712,905		637,018		636,159
Short-term borrowings	Level 1		338,300		338,300		293,100		293,100
Long-term borrowings	Level 2		39,025		37,566		38,990		40,313
Accrued interest payable	Level 1		5,147		5,147		4,676		4,676

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Segment Reporting

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Reporting

(13.) SEGMENT REPORTING

The Company has two reportable segments: Banking and Non-Banking. These reportable segments have been identified and organized based on the nature of the underlying products and services applicable to each segment, the type of customers to whom those products and services are offered and the distribution channel through which those products and services are made available.

The banking segment includes all of the Company's retail and commercial banking operations. The non-banking 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, and Courier Capital, an investment advisor and wealth management firm that provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. The Company operated as two business segments (banking and insurance) until the acquisition of Courier Capital on January 5, 2016, at which time the insurance segment was re-named as the non-banking segment to reflect the inclusion of Courier Capital which has similar products, services and reporting, as noted above. Holding company amounts primarily reflect the 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).

					Holding
					Company and		Consolidated
	Banking		Non-Banking		Other		Totals
June 30, 2016
Goodwill	$	48,536	$	17,881	$	-	$	66,417
Other intangible assets, net		3,733		6,102		-		9,835
Total assets		3,553,354		30,315		1,920		3,585,589
December 31, 2015
Goodwill	$	48,536	$	11,866	$	-	$	60,402
Other intangible assets, net		829		5,715		-		6,544
Total assets		3,356,987		20,315		3,722		3,381,024

							Holding
							Company and			Consolidated
	Banking			Non-Banking (1)			Other			Totals
Three months ended June 30, 2016
Net interest income (expense)	$	25,816		$	-		$	(617	)	$	25,199
Provision for loan losses		(1,952	)		-			-			(1,952	)
Noninterest income		6,944			2,050			(78	)		8,916
Noninterest expense		(18,054	)		(1,764	)		(2,302	)		(22,120	)
Income (loss) before income taxes		12,754			286			(2,997	)		10,043
Income tax (expense) benefit		(3,889	)		(112	)		1,109			(2,892	)
Net income (loss)	$	8,865		$	174		$	(1,888	)	$	7,151
Six months ended June 30, 2016
Net interest income	$	51,153		$	-		$	(1,235	)	$	49,918
Provision for loan losses		(4,320	)		-			-			(4,320	)
Noninterest income		13,807			4,534			(208	)		18,133
Noninterest expense		(36,399	)		(3,570	)		(3,369	)		(43,338	)
Income (loss) before income taxes		24,241			964			(4,812	)		20,393
Income tax (expense) benefit		(6,990	)		(376	)		1,742			(5,624	)
Net income (loss)	$	17,251		$	588		$	(3,070	)	$	14,769

							Holding
							Company and			Consolidated
	Banking			Non-Banking			Other			Totals
Three months ended June 30, 2015
Net interest income	$	23,919		$	-		$	(515	)	$	23,404
Provision for loan losses		(1,288	)		-			-			(1,288	)
Noninterest income		5,522			1,033			(100	)		6,455
Noninterest expense		(17,668	)		(1,050	)		(518	)		(19,236	)
Income (loss) before income taxes		10,485			(17	)		(1,133	)		9,335
Income tax (expense) benefit		(3,107	)		5			352			(2,750	)
Net income (loss)	$	7,378		$	(12	)	$	(781	)	$	6,585
Six months ended June 30, 2015
Net interest income	$	47,066		$	-		$	(515	)	$	46,551
Provision for loan losses		(4,029	)		-			-			(4,029	)
Noninterest income		12,353			2,626			(227	)		14,752
Noninterest expense		(34,947	)		(2,237	)		(1,063	)		(38,247	)
Income (loss) before income taxes		20,443			389			(1,805	)		19,027
Income tax (expense) benefit		(6,056	)		(154	)		569			(5,641	)
Net income (loss)	$	14,387		$	235		$	(1,236	)	$	13,386

⁽¹⁾      Includes activity from Courier Capital since January 5, 2016 (the date of acquisition).

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

6 Months Ended

Jun. 30, 2016

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. The Company provides diversified financial services through its subsidiaries, Five Star Bank, Scott Danahy Naylon, LLC ("Scott Danahy Naylon") and Courier Capital, LLC ("Courier Capital"). 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 Bank has also expanded its indirect lending network to include relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. Acquired on January 5, 2016, Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans across nine states.

Basis Of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of Financial Institutions, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles ("GAAP"). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders' equity and cash flows for the periods indicated, and contain adequate disclosure to make the information presented not misleading. Prior years' consolidated financial statements are re-classified whenever necessary to conform to the current year's presentation. These consolidated financial statements should be read in conjunction with the Company's 2015 Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year presentation. Such reclassifications did not impact net income or shareholders' equity as previously reported.

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 there were no material recognizable 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, and assumptions used in the defined benefit pension plan accounting.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The effective date was recently deferred for one year to the interim and annual periods beginning on or after December 15, 2017. Early adoption is permitted as of the original effective date – interim and annual periods beginning on or after December 15, 2016. The Company continues to assess the potential impact of ASU 2014-09 on its accounting and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10) - Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 is intended to improve the recognition and measurement of financial instruments by requiring equity investments to be measured at fair value with changes in fair value recognized in net income; requiring public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured and amortized at cost on the balance sheet; and requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. ASU 2016-01 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2017. The amendments should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption. The Company is assessing the impact of ASU 2016-01 on its accounting and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn't convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements, with certain practical expedients available. Early adoption is permitted. The Company is assessing the impact of ASU 2016-02 on its accounting and disclosures.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also allows an employer to repurchase more of an employee's shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election for forfeitures as they occur. The guidance is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those years. Early adoption is permitted. The Company is assessing the impact of ASU 2016-09 on its accounting and disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is assessing the impact of ASU 2016-13 on its accounting and disclosures.

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Business Combinations (Tables)

6 Months Ended

Jun. 30, 2016

Business Combinations [Abstract]

Schedule Of Assets Purchased And Liabilities Assumed

Cash	$	50
Identified intangible assets		3,928
Premises and equipment, accounts receivable and other assets		870
Deferred tax liability		(1,797	)
Other liabilities		(48	)
Net assets acquired	$	3,003

Goodwill And Other Intangible Assets Acquired

	Amount		Useful life
	allocated		(in years)
Goodwill	$	6,015	n/a
Other intangible assets – customer relationships		3,900	20
Other intangible assets – other		28	5
	$	9,943

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

6 Months Ended

Jun. 30, 2016

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

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

	Three months ended						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income available to common shareholders	$	6,785		$	6,219		$	14,038		$	12,655
Weighted average common shares outstanding:
Total shares issued		14,692			14,398			14,686			14,398
Unvested restricted stock awards		(75	)		(100	)		(77	)		(87	)
Treasury shares		(183	)		(220	)		(194	)		(240	)
Total basic weighted average common shares outstanding		14,434			14,078			14,415			14,071
Incremental shares from assumed:
Exercise of stock options		21			22			24			22
Vesting of restricted stock awards		34			21			38			25
Total diluted weighted average common shares outstanding		14,489			14,121			14,477			14,118
Basic earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
Diluted earnings per common share	$	0.47		$	0.44		$	0.97		$	0.90
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		-			-			-			-
Restricted stock awards		8			3			4			2
		8			3			4			2

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2016

Investment Securities [Abstract]

Amortized Cost And Fair Value Of Investment Securities

		Amortized		Unrealized		Unrealized		Fair
		Cost		Gains		Losses		Value
June 30, 2016
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	241,583	$	6,550	$	7	$	248,126
Mortgage-backed securities:
Federal National Mortgage Association		311,783		8,776		-		320,559
Federal Home Loan Mortgage Corporation		30,743		772		-		31,515
Government National Mortgage Association		17,390		737		14		18,113
Collateralized mortgage obligations:
Federal National Mortgage Association		363		-		1		362
Federal Home Loan Mortgage Corporation		77		-		1		76
Privately issued		-		784		-		784
Total mortgage-backed securities		360,356		11,069		16		371,409
Asset-backed securities		-		184		-		184
Total available for sale securities	$	601,939	$	17,803	$	23	$	619,719
Securities held to maturity:
State and political subdivisions		294,507		10,061		1		304,567
Mortgage-backed securities:
Federal National Mortgage Association		12,047		290		-		12,337
Government National Mortgage Association		25,978		307		4		26,281
Collateralized mortgage obligations:
Federal National Mortgage Association		54,246		525		11		54,760
Federal Home Loan Mortgage Corporation		76,655		1,038		2		77,691
Government National Mortgage Association		15,116		85		4		15,197
Total mortgage-backed securities		184,042		2,245		21		186,266
Total held to maturity securities	$	478,549	$	12,306	$	22	$	490,833
December 31, 2015
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	260,748	$	1,164	$	1,049	$	260,863
Mortgage-backed securities:
Federal National Mortgage Association		209,671		1,092		2,333		208,430
Federal Home Loan Mortgage Corporation		24,564		282		194		24,652
Government National Mortgage Association		26,465		943		4		27,404
Collateralized mortgage obligations:
Federal National Mortgage Association		16,998		90		154		16,934
Federal Home Loan Mortgage Corporation		5,175		1		91		5,085
Privately issued		-		809		-		809
Total mortgage-backed securities		282,873		3,217		2,776		283,314
Asset-backed securities		-		218		-		218
Total available for sale securities	$	543,621	$	4,599	$	3,825	$	544,395
Securities held to maturity:
State and political subdivisions		294,423		6,562		4		300,981
Mortgage-backed securities:
Federal National Mortgage Association		9,242		14		79		9,177
Government National Mortgage Association		25,607		33		159		25,481
Collateralized mortgage obligations:
Federal National Mortgage Association		56,791		-		818		55,973
Federal Home Loan Mortgage Corporation		80,570		-		1,120		79,450
Government National Mortgage Association		19,084		19		101		19,002
Total mortgage-backed securities		191,294		66		2,277		189,083
Total held to maturity securities	$	485,717	$	6,628	$	2,281	$	490,064

Sales And Calls Of Securities Available For Sale

		Three months ended				Six months ended
		June 30,				June 30,
		2016		2015		2016		2015
Proceeds from sales	$	44,648	$	-	$	62,275	$	29,508
Gross realized gains		1,387		-		2,000		1,073
Gross realized losses		-		-		-		11

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	$	5,042	$	5,047
Due from one to five years		175,737		179,161
Due after five years through ten years		306,996		317,590
Due after ten years		114,164		117,921
	$	601,939	$	619,719
Debt securities held to maturity:
Due in one year or less	$	38,909	$	39,051
Due from one to five years		176,378		182,498
Due after five years through ten years		92,311		96,184
Due after ten years		170,951		173,100
	$	478,549	$	490,833

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
June 30, 2016
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	9,997	$	3	$	1,637	$	4	$	11,634	$	7
Mortgage-backed securities:
Government National Mortgage Association		1,258		14		-		-		1,258		14
Collateralized mortgage obligations:
Federal National Mortgage Association		362		1		-		-		362		1
Federal Home Loan Mortgage Corporation		64		1		-		-		64		1
Total mortgage-backed securities		1,684		16		-		-		1,684		16
Total available for sale securities		11,681		19		1,637		4		13,318		23
Securities held to maturity:
State and political subdivisions		832		1		-		-		832		1
Mortgage-backed securities:
Government National Mortgage Association		-		-		1,635		4		1,635		4
Collateralized mortgage obligations:
Federal National Mortgage Association		4,119		11		-		-		4,119		11
Federal Home Loan Mortgage Corporation		1,196		2		-		-		1,196		2
Government National Mortgage Association		3,695		4		-		-		3,695		4
Total mortgage-backed securities		9,010		17		1,635		4		10,645		21
Total held to maturity securities		9,842		18		1,635		4		11,477		22
Total temporarily impaired securities	$	21,523	$	37	$	3,272	$	8	$	24,795	$	45
December 31, 2015
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	82,298	$	735	$	26,302	$	314	$	108,600	$	1,049
Mortgage-backed securities:
Federal National Mortgage Association		123,774		2,134		9,562		199		133,336		2,333
Federal Home Loan Mortgage Corporation		12,660		194		-		-		12,660		194
Government National Mortgage Association		1,405		4		-		-		1,405		4
Collateralized mortgage obligations:
Federal National Mortgage Association		7,778		154		-		-		7,778		154
Federal Home Loan Mortgage Corporation		4,998		91		-		-		4,998		91
Total mortgage-backed securities		150,615		2,577		9,562		199		160,177		2,776
Total available for sale securities		232,913		3,312		35,864		513		268,777		3,825
Securities held to maturity:
State and political subdivisions		3,075		4		-		-		3,075		4
Mortgage-backed securities:
Federal National Mortgage Association		5,666		79		-		-		5,666		79
Government National Mortgage Association		8,790		159		-		-		8,790		159
Collateralized mortgage obligations:
Federal National Mortgage Association		55,973		818		-		-		55,973		818
Federal Home Loan Mortgage Corporation		79,323		1,120		-		-		79,323		1,120
Government National Mortgage Association		14,559		101		-		-		14,559		101
Total mortgage-backed securities		164,311		2,277		-		-		164,311		2,277
Total held to maturity securities		167,386		2,281		-		-		167,386		2,281
Total temporarily impaired securities	$	400,299	$	5,593	$	35,864	$	513	$	436,163	$	6,106

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Loans (Tables)

6 Months Ended

Jun. 30, 2016

Loans [Abstract]

Loan Portfolio

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
June 30, 2016
Commercial business	$	349,076	$	356		$	349,432
Commercial mortgage		615,547		(1,406	)		614,141
Residential real estate loans		402,538		5,829			408,367
Residential real estate lines		122,360		2,694			125,054
Consumer indirect		672,018		24,890			696,908
Other consumer		17,752		177			17,929
Total	$	2,179,291	$	32,540			2,211,831
Allowance for loan losses							(28,525	)
Total loans, net						$	2,183,306
December 31, 2015
Commercial business	$	313,475	$	283		$	313,758
Commercial mortgage		567,481		(1,380	)		566,101
Residential real estate loans		376,023		5,051			381,074
Residential real estate lines		124,766		2,581			127,347
Consumer indirect		652,494		24,446			676,940
Other consumer		18,361		181			18,542
Total	$	2,052,600	$	31,162			2,083,762
Allowance for loan losses							(27,085	)
Total loans, net						$	2,056,677

Recorded Investment By Loan Class In Current And Nonaccrual Loans

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Total Loans
June 30, 2016
Commercial business	$	46	$	-	$	-	$	46	$	2,312	$	346,718	$	349,076
Commercial mortgage		-		-		-		-		1,547		614,000		615,547
Residential real estate loans		562		52		-		614		1,485		400,439		402,538
Residential real estate lines		315		-		-		315		182		121,863		122,360
Consumer indirect		1,221		233		-		1,454		1,015		669,549		672,018
Other consumer		99		25		11		135		4		17,613		17,752
Total loans, gross	$	2,243	$	310	$	11	$	2,564	$	6,545	$	2,170,182	$	2,179,291
December 31, 2015
Commercial business	$	321	$	612	$	-	$	933	$	3,922	$	308,620	$	313,475
Commercial mortgage		68		146		-		214		947		566,320		567,481
Residential real estate loans		723		395		-		1,118		1,848		373,057		376,023
Residential real estate lines		199		34		-		233		235		124,298		124,766
Consumer indirect		1,975		286		-		2,261		1,467		648,766		652,494
Other consumer		98		13		8		119		13		18,229		18,361
Total loans, gross	$	3,384	$	1,486	$	8	$	4,878	$	8,432	$	2,039,290	$	2,052,600

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
June 30, 2016
Commercial business	1	$	214	$	214	3	$	526	$	526
Commercial mortgage	-		-		-	1		550		550
Total	1	$	214	$	214	4	$	1,076	$	1,076
June 30, 2015
Commercial business	2	$	1,342	$	1,342	2	$	1,342	$	1,342
Commercial mortgage	-		-		-	1		682		330
Total	2	$	1,342	$	1,342	3	$	2,024	$	1,672

Summary Of Impaired Loans

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
June 30, 2016
With no related allowance recorded:
Commercial business	$	1,209	$	1,752	$	-	$	1,678	$	-
Commercial mortgage		777		986		-		1,114		-
		1,986		2,738		-		2,792		-
With an allowance recorded:
Commercial business		1,103		1,103		476		1,323		-
Commercial mortgage		770		900		131		510		-
		1,873		2,003		607		1,833		-
	$	3,859	$	4,741	$	607	$	4,625	$	-
December 31, 2015
With no related allowance recorded:
Commercial business	$	1,441	$	1,810	$	-	$	1,352	$	-
Commercial mortgage		937		1,285		-		1,013		-
		2,378		3,095		-		2,365		-
With an allowance recorded:
Commercial business		2,481		2,481		996		1,946		-
Commercial mortgage		10		10		10		449		-
		2,491		2,491		1,006		2,395		-
	$	4,869	$	5,586	$	1,006	$	4,760	$	-

(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
June 30, 2016
Uncriticized	$	333,564	$	594,576
Special mention		8,796		15,098
Substandard		6,716		5,873
Doubtful		-		-
Total	$	349,076	$	615,547
December 31, 2015
Uncriticized	$	298,413	$	551,603
Special mention		4,916		9,015
Substandard		10,146		6,863
Doubtful		-		-
Total	$	313,475	$	567,481

Retail Loan Portfolio Categorized By Payment Status

		Residential		Residential
		Real Estate		Real Estate		Consumer		Other
		Loans		Lines		Indirect		Consumer
June 30, 2016
Performing	$	401,053	$	122,178	$	671,003	$	17,737
Non-performing		1,485		182		1,015		15
Total	$	402,538	$	122,360	$	672,018	$	17,752
December 31, 2015
Performing	$	374,175	$	124,531	$	651,027	$	18,340
Non-performing		1,848		235		1,467		21
Total	$	376,023	$	124,766	$	652,494	$	18,361

Changes In The Allowance For Loan Losses

						Residential		Residential
		Commercial		Commercial		Real Estate		Real Estate		Consumer		Other
		Business		Mortgage		Loans		Lines		Indirect		Consumer		Total
June 30, 2016
Loans:
Ending balance	$	349,076	$	615,547	$	402,538	$	122,360	$	672,018	$	17,752	$	2,179,291
Evaluated for impairment:
Individually	$	2,281	$	1,532	$	-	$	-	$	-	$	-	$	3,813
Collectively	$	346,795	$	614,015	$	402,538	$	122,360	$	672,018	$	17,752	$	2,175,478
Allowance for loan losses:
Ending balance	$	6,197	$	9,496	$	1,444	$	318	$	10,696	$	374	$	28,525
Evaluated for impairment:
Individually	$	466	$	129	$	-	$	-	$	-	$	-	$	595
Collectively	$	5,731	$	9,367	$	1,444	$	318	$	10,696	$	374	$	27,930
June 30, 2015
Loans:
Ending balance	$	292,674	$	538,034	$	95,259	$	391,645	$	641,871	$	19,141	$	1,978,624
Evaluated for impairment:
Individually	$	4,643	$	3,070	$	-	$	-	$	-	$	-	$	7,713
Collectively	$	288,031	$	534,964	$	95,259	$	391,645	$	641,871	$	19,141	$	1,970,911
Allowance for loan losses:
Ending balance	$	5,334	$	9,358	$	465	$	1,198	$	10,676	$	469	$	27,500
Evaluated for impairment:
Individually	$	1,247	$	707	$	-	$	-	$	-	$	-	$	1,954
Collectively	$	4,087	$	8,651	$	465	$	1,198	$	10,676	$	469	$	25,546

								Residential			Residential
		Commercial			Commercial			Real Estate			Real Estate			Consumer			Other
		Business			Mortgage			Loans			Lines			Indirect			Consumer			Total
Three months ended June 30, 2016
Beginning balance	$	5,436		$	9,715		$	1,384		$	345		$	10,297		$	391		$	27,568
Charge-offs		(42	)		(8	)		(134	)		(47	)		(1,898	)		(119	)		(2,248	)
Recoveries		69			6			100			3			994			81			1,253
Provision (credit)		734			(217	)		94			17			1,303			21			1,952
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525
Six months ended June 30, 2016
Beginning balance	$	5,540		$	9,027		$	1,347		$	345		$	10,458		$	368		$	27,085
Charge-offs		(644	)		(12	)		(180	)		(51	)		(4,396	)		(276	)		(5,559	)
Recoveries		169			11			125			7			2,164			203			2,679
Provision		1,132			470			152			17			2,470			79			4,320
Ending balance	$	6,197		$	9,496		$	1,444		$	318		$	10,696		$	374		$	28,525

								Residential			Residential
		Commercial			Commercial			Real Estate			Real Estate			Consumer			Other
		Business			Mortgage			Loans			Lines			Indirect			Consumer			Total
Three months ended June 30, 2015
Beginning balance	$	5,395		$	8,156		$	558		$	1,430		$	11,205		$	447		$	27,191
Charge-offs		(13	)		(201	)		(22	)		(154	)		(1,841	)		(154	)		(2,385	)
Recoveries		86			7			13			9			1,196			95			1,406
Provision (credit)		(134	)		1,396			(84	)		(87	)		116			81			1,288
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500
Six months ended June 30, 2015
Beginning balance	$	5,621		$	8,122		$	570		$	1,485		$	11,383		$	456		$	27,637
Charge-offs		(1,154	)		(810	)		(77	)		(238	)		(4,263	)		(413	)		(6,955	)
Recoveries		134			96			46			19			2,301			193			2,789
Provision		733			1,950			(74	)		(68	)		1,255			233			4,029
Ending balance	$	5,334		$	9,358		$	465		$	1,198		$	10,676		$	469		$	27,500

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Goodwill And Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2016

Goodwill And Other Intangible Assets [Abstract]

Changes In Carrying Amount Of Goodwill

	Banking		Non-Banking		Total
Balance, December 31, 2015	$	48,536	$	11,866	$	60,402
Acquisition		-		6,015		6,015
Balance, June 30, 2016	$	48,536	$	17,881	$	66,417

Other Intangible Assets

	June 30,			December 31,
	2016			2015
Other intangibles assets:
Gross carrying amount	$	12,610		$	8,682
Accumulated amortization		(2,775	)		(2,138	)
Net book value	$	9,835		$	6,544

Estimated Core Deposit Intangible Amortization Expense

2016 (remainder of year)	$	612
2017		1,144
2018		1,035
2019		937
2020		840
2021		738

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2016

Shareholders' Equity [Abstract]

Changes In Shares Of Common Stock

	Outstanding		Treasury		Issued
June 30, 2016
Shares outstanding at December 31, 2015	14,190,192		207,317		14,397,509
Common stock issued for acquisition	294,705		-		294,705
Restricted stock awards issued	8,800		(8,800	)	-
Restricted stock awards forfeited	(7,983	)	7,983		-
Stock options exercised	40,561		(40,561	)	-
Stock awards	2,244		(2,244	)	-
Shares outstanding at June 30, 2016	14,528,519		163,695		14,692,214
June 30, 2015
Shares outstanding at December 31, 2014	14,118,048		279,461		14,397,509
Restricted stock awards issued	49,084		(49,084	)	-
Restricted stock awards forfeited	(2,271	)	2,271		-
Stock options exercised	3,722		(3,722	)	-
Treasury stock purchases	(1,791	)	1,791		-
Stock awards	2,363		(2,363	)	-
Shares outstanding at June 30, 2015	14,184,135		213,374		14,397,509

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Loss [Abstract]

Components Of Other Comprehensive Income (Loss)

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
Three months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	6,810		$	2,629		$	4,181
Reclassification adjustment for net gains included in net income (1)		(1,417	)		(547	)		(870	)
Total securities available for sale and transferred securities		5,393			2,082			3,311
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		239			91			148
Total pension and post-retirement obligations		227			87			140
Other comprehensive income	$	5,620		$	2,169		$	3,451
Three months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(9,986	)	$	(3,822	)	$	(6,164	)
Reclassification adjustment for net gains included in net income (1)		(69	)		(26	)		(43	)
Total securities available for sale and transferred securities		(10,055	)		(3,848	)		(6,207	)
Amortization of pension and post-retirement items:
Prior service credit		(12	)		(4	)		(8	)
Net actuarial losses		235			87			148
Total pension and post-retirement obligations		223			83			140
Other comprehensive loss	$	(9,832	)	$	(3,765	)	$	(6,067	)

(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.

		Pre-tax						Net-of-tax
		Amount			Tax Effect			Amount
Six months ended June 30, 2016
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	19,006		$	7,335		$	11,671
Reclassification adjustment for net gains included in net income (1)		(2,079	)		(802	)		(1,277	)
Total securities available for sale and transferred securities		16,927			6,533			10,394
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		478			184			294
Total pension and post-retirement obligations		454			175			279
Other comprehensive income	$	17,381		$	6,708		$	10,673
Six months ended June 30, 2015
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(3,590	)	$	(1,386	)	$	(2,204	)
Reclassification adjustment for net gains included in net income (1)		(1,208	)		(466	)		(742	)
Total securities available for sale and transferred securities		(4,798	)		(1,852	)		(2,946	)
Amortization of pension and post-retirement items:
Prior service credit		(24	)		(9	)		(15	)
Net actuarial losses		471			181			290
Total pension and post-retirement obligations		447			172			275
Other comprehensive loss	$	(4,351	)	$	(1,680	)	$	(2,671	)

(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			Loss
Three months ended June 30, 2016
Balance at beginning of period	$	6,387		$	(10,492	)	$	(4,105	)
Other comprehensive income before reclassifications		4,181			-			4,181
Amounts reclassified from accumulated other comprehensive loss		(870	)		140			(730	)
Net current period other comprehensive income		3,311			140			3,451
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Three months ended June 30, 2015
Balance at beginning of period	$	4,886		$	(10,501	)	$	(5,615	)
Other comprehensive loss before reclassifications		(6,164	)		-			(6,164	)
Amounts reclassified from accumulated other comprehensive loss		(43	)		140			97
Net current period other comprehensive income (loss)		(6,207	)		140			(6,067	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

		Securities
		Available for			Pension and			Accumulated
		Sale and			Post-			Other
		Transferred			retirement			Comprehensive
		Securities			Obligations			Loss
Six months ended June 30, 2016
Balance at beginning of period	$	(696	)	$	(10,631	)	$	(11,327	)
Other comprehensive income before reclassifications		11,671			-			11,671
Amounts reclassified from accumulated other comprehensive loss		(1,277	)		279			(998	)
Net current period other comprehensive income		10,394			279			10,673
Balance at end of period	$	9,698		$	(10,352	)	$	(654	)
Six months ended June 30, 2015
Balance at beginning of period	$	1,625		$	(10,636	)	$	(9,011	)
Other comprehensive loss before reclassifications		(2,204	)		-			(2,204	)
Amounts reclassified from accumulated other comprehensive loss		(742	)		275			(467	)
Net current period other comprehensive income (loss)		(2,946	)		275			(2,671	)
Balance at end of period	$	(1,321	)	$	(10,361	)	$	(11,682	)

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 Loss Components		Comprehensive Loss					Consolidated Statement of Income
		Three months ended
		June 30,
		2016			2015
Realized gain on sale of investment securities	$	1,387		$	-		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		30			69		Interest income
		1,417			69		Total before tax
		(547	)		(26	)	Income tax expense
		870			43		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		12			12		Salaries and employee benefits
Net actuarial losses (1)		(239	)		(235	)	Salaries and employee benefits
		(227	)		(223	)	Total before tax
		87			83		Income tax benefit
		(140	)		(140	)	Net of tax
Total reclassified for the period	$	730		$	(97	)

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

		Amount Reclassified from
Details About Accumulated Other		Accumulated Other					Affected Line Item in the
Comprehensive Loss Components		Comprehensive Loss					Consolidated Statement of Income
		Six months ended
		June 30,
		2016			2015
Realized gain on sale of investment securities	$	2,000		$	1,062		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		79			146		Interest income
		2,079			1,208		Total before tax
		(802	)		(466	)	Income tax expense
		1,277			742		Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		24			24		Salaries and employee benefits
Net actuarial losses (1)		(478	)		(471	)	Salaries and employee benefits
		(454	)		(447	)	Total before tax
		175			172		Income tax benefit
		(279	)		(275	)	Net of tax
Total reclassified for the period	$	998		$	467

(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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Share-Based Compensation Plans (Tables)

6 Months Ended

Jun. 30, 2016

Share-Based Compensation Plans [Abstract]

Summary Of Restricted Stock Units And Performance Share Units Activity

		Weighted
		Average
	Number of	Per Share
	Underlying	Grant Date
	Shares	Fair Value
RSUs	14,500	$	24.21
PSUs	24,084		22.94

Summary Of Restricted Stock Award Activity

			Weighted
			Average
			Market
	Number of		Price at
	Shares		Grant Date
Outstanding at beginning of year	82,908		$	17.23
Granted	8,800			28.38
Vested	(9,770	)		25.56
Forfeited	(7,983	)		19.47
Outstanding at end of period	73,955		$	17.22

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	102,249		$	19.21
Exercised	(40,561	)		19.39
Expired	(2,000)			19.70
Outstanding and exercisable at end of period	59,688		$	19.07	1.3	$	418

Share-Based Compensation Expense Included In Consolidated Statements Of Income

	Three months ended				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Salaries and employee benefits	$	157	$	113	$	255	$	191
Other noninterest expense		146		154		177		179
Total share-based compensation expense	$	303	$	267	$	432	$	370

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Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2016

Employee Benefit Plans [Abstract]

Components Of Net Periodic Benefit Expense

	Three months ended						Six months ended
	June 30,						June 30,
	2016			2015			2016			2015
Service cost	$	721		$	581		$	1,442		$	1,162
Interest cost on projected benefit obligation		602			583			1,203			1,166
Expected return on plan assets	(1,150		)		(1,205	)		(2,300	)		(2,410	)
Amortization of prior service credit		(12	)		(12	)		(24	)		(24	)
Amortization of net actuarial losses		239			235			478			471
Net periodic pension expense	$	400		$	182		$	799		$	365

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Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2016

Commitments And Contingencies [Abstract]

Off-Balance Sheet Commitments

			December 31,
	June 30, 2016		2015
Commitments to extend credit	$	518,186	$	514,818
Standby letters of credit		11,750		11,746

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Measurements [Abstract]

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

	Quoted Prices
	in Active
	Markets for		Significant
	Identical		Other		Significant
	Assets or		Observable		Unobservable
	Liabilities		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2016
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	248,126	$	-	$	248,126
Mortgage-backed securities		-		371,409		-		371,409
Asset-backed securities		-		184		-		184
	$	-	$	619,719		-	$	619,719
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	209	$	-	$	209
Collateral dependent impaired loans		-		-		1,232		1,232
Other assets:
Loan servicing rights		-		-		1,183		1,183
Other real estate owned		-		-		281		281
	$	-	$	209	$	2,696	$	2,905
December 31, 2015
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	260,863	$	-	$	260,863
Mortgage-backed securities		-		283,314		-		283,314
Asset-backed securities		-		218		-		218
	$	-	$	544,395	$	-	$	544,395
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,430	$	-	$	1,430
Collateral dependent impaired loans		-		-		1,485		1,485
Other assets:
Loan servicing rights		-		-		1,241		1,241
Other real estate owned		-		-		163		163
	$	-	$	1,430	$	2,889	$	4,319

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	$	1,232	Appraisal of collateral (1)	Appraisal adjustments (2)	35% - 50% discount
Loan servicing rights		1,183	Discounted cash flow	Discount rate	4.4	% (3)
				Constant prepayment rate	15.4	% (3)
Other real estate owned		281	Appraisal of collateral (1)	Appraisal adjustments (2)	13% -72% 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	June 30, 2016				December 31, 2015
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	67,624	$	67,624	$	60,121	$	60,121
Securities available for sale	Level 2		619,719		619,719		544,395		544,395
Securities held to maturity	Level 2		478,549		490,833		485,717		490,064
Loans held for sale	Level 2		209		215		1,430		1,430
Loans	Level 2		2,182,074		2,202,286		2,055,192		2,046,235
Loans (1)	Level 3		1,232		1,232		1,485		1,485
Accrued interest receivable	Level 1		8,919		8,919		8,609		8,609
FHLB and FRB stock	Level 2		22,086		22,086		19,991		19,991
Financial liabilities:
Non-maturity deposits	Level 1		2,146,849		2,146,849		2,093,513		2,093,513
Time deposits	Level 2		711,156		712,905		637,018		636,159
Short-term borrowings	Level 1		338,300		338,300		293,100		293,100
Long-term borrowings	Level 2		39,025		37,566		38,990		40,313
Accrued interest payable	Level 1		5,147		5,147		4,676		4,676

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Business Segment Assets

					Holding
					Company and		Consolidated
	Banking		Non-Banking		Other		Totals
June 30, 2016
Goodwill	$	48,536	$	17,881	$	-	$	66,417
Other intangible assets, net		3,733		6,102		-		9,835
Total assets		3,553,354		30,315		1,920		3,585,589
December 31, 2015
Goodwill	$	48,536	$	11,866	$	-	$	60,402
Other intangible assets, net		829		5,715		-		6,544
Total assets		3,356,987		20,315		3,722		3,381,024

Business Segment Profit (Loss)

							Holding
							Company and			Consolidated
	Banking			Non-Banking (1)			Other			Totals
Three months ended June 30, 2016
Net interest income (expense)	$	25,816		$	-		$	(617	)	$	25,199
Provision for loan losses		(1,952	)		-			-			(1,952	)
Noninterest income		6,944			2,050			(78	)		8,916
Noninterest expense		(18,054	)		(1,764	)		(2,302	)		(22,120	)
Income (loss) before income taxes		12,754			286			(2,997	)		10,043
Income tax (expense) benefit		(3,889	)		(112	)		1,109			(2,892	)
Net income (loss)	$	8,865		$	174		$	(1,888	)	$	7,151
Six months ended June 30, 2016
Net interest income	$	51,153		$	-		$	(1,235	)	$	49,918
Provision for loan losses		(4,320	)		-			-			(4,320	)
Noninterest income		13,807			4,534			(208	)		18,133
Noninterest expense		(36,399	)		(3,570	)		(3,369	)		(43,338	)
Income (loss) before income taxes		24,241			964			(4,812	)		20,393
Income tax (expense) benefit		(6,990	)		(376	)		1,742			(5,624	)
Net income (loss)	$	17,251		$	588		$	(3,070	)	$	14,769

							Holding
							Company and			Consolidated
	Banking			Non-Banking			Other			Totals
Three months ended June 30, 2015
Net interest income	$	23,919		$	-		$	(515	)	$	23,404
Provision for loan losses		(1,288	)		-			-			(1,288	)
Noninterest income		5,522			1,033			(100	)		6,455
Noninterest expense		(17,668	)		(1,050	)		(518	)		(19,236	)
Income (loss) before income taxes		10,485			(17	)		(1,133	)		9,335
Income tax (expense) benefit		(3,107	)		5			352			(2,750	)
Net income (loss)	$	7,378		$	(12	)	$	(781	)	$	6,585
Six months ended June 30, 2015
Net interest income	$	47,066		$	-		$	(515	)	$	46,551
Provision for loan losses		(4,029	)		-			-			(4,029	)
Noninterest income		12,353			2,626			(227	)		14,752
Noninterest expense		(34,947	)		(2,237	)		(1,063	)		(38,247	)
Income (loss) before income taxes		20,443			389			(1,805	)		19,027
Income tax (expense) benefit		(6,056	)		(154	)		569			(5,641	)
Net income (loss)	$	14,387		$	235		$	(1,236	)	$	13,386

⁽¹⁾      Includes activity from Courier Capital since January 5, 2016, the date of acquisition.

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Basis of Presentation And Summary Of Significant Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2016 state
Number of states in which services are provided	44
Courier Capital [Member]
Number of states in which services are provided	9

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Business Combinations (Narrative) (Details) - Courier Capital [Member] $ in Thousands	Jan. 05, 2016 USD ($) property
Significant Acquisitions and Disposals [Line Items]
Assets under management	$ 1,200,000
Consideration including both cash and stock	9,000
Cash	8,100
Common stock issued for acquisition	918
Potential future stock payments	2,800
Potential future cash payments	$ 2,200
Number of properties | property	2
Payments to properties	$ 1,300
Identified intangible assets	3,928
Goodwill	$ 6,015

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Business Combinations (Schedule Of Assets Purchased And Liabilities Assumed) (Details) - Courier Capital [Member] $ in Thousands	Jan. 05, 2016 USD ($)
Significant Acquisitions and Disposals [Line Items]
Cash	$ 50
Identified intangible assets	3,928
Premises and equipment, accounts receivable and other assets	870
Deferred tax liability	(1,797)
Other liabilities	(48)
Net assets acquired	$ 3,003

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Business Combinations (Goodwill And Other Intangible Assets Acquired) (Details) $ in Thousands	Jan. 05, 2016 USD ($)
Customer Relationships [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	20 years
Other Intangible Assets [Member]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	5 years
Courier Capital [Member]
Goodwill	$ 6,015
Goodwill and other intangible assets acquired	9,943
Courier Capital [Member] | Customer Relationships [Member]
Other intangible assets	3,900
Courier Capital [Member] | Other Intangible Assets [Member]
Other intangible assets	$ 28

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Earnings Per Common Share ("EPS") (Reconciliation Of Earnings And Shares Used In Calculating Basic And Diluted EPS) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Net income available to common shareholders for EPS	$ 6,785	$ 6,219	$ 14,038	$ 12,655
Total shares issued	14,692	14,398	14,686	14,398
Unvested restricted stock awards	(75)	(100)	(77)	(87)
Treasury shares	(183)	(220)	(194)	(240)
Total basic weighted average common shares outstanding	14,434	14,078	14,415	14,071
Exercise of stock options	21	22	24	22
Vesting of restricted stock awards	34	21	38	25
Total diluted weighted average common shares outstanding	14,489	14,121	14,477	14,118
Basic earnings per common share	$ 0.47	$ 0.44	$ 0.97	$ 0.90
Diluted earnings per common share	$ 0.47	$ 0.44	$ 0.97	$ 0.90
Antidilutive shares excluded from computation of diluted EPS	8	3	4	2
Stock Options [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Antidilutive shares excluded from computation of diluted EPS
Restricted Stock Awards [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Antidilutive shares excluded from computation of diluted EPS	8	3	4	2

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Investment Securities (Narrative) (Details) $ in Thousands	Jun. 30, 2016 USD ($) security	Dec. 31, 2015 USD ($) security
Investment Securities [Abstract]
Securities pledged as collateral	$ 856,500
Number of security positions, unrealized loss position | security	29	174
Number of security positions, unrealized loss position for more than 12 months | security	6	14
Securities, 12 months or longer, Fair Value	$ 3,272	$ 35,864
Securities, 12 months or longer, Unrealized Losses	$ 8	$ 513
Number of security positions, unrealized loss position for less than 12 months | security	23	160
Securities, less than 12 months, Fair Value	$ 21,523	$ 400,299
Securities, less than 12 months, Unrealized Losses	$ 37	$ 5,593

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Investment Securities (Summary Of Amortized Cost And Fair Value Of Investment Securities) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Investment [Line Items]
Securities available for sale, Amortized Cost	$ 601,939	$ 543,621
Securities available for sale, Unrealized Gains	17,803	4,599
Securities available for sale, Unrealized Losses	23	3,825
Securities available for sale	619,719	544,395
Securities held to maturity, Amortized Cost	478,549	485,717
Securities held to maturity, Unrealized Gains	12,306	6,628
Securities held to maturity, Unrealized Losses	22	2,281
Securities held to maturity, fair value	490,833	490,064
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	241,583	260,748
Securities available for sale, Unrealized Gains	6,550	1,164
Securities available for sale, Unrealized Losses	7	1,049
Securities available for sale	248,126	260,863
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Amortized Cost	294,507	294,423
Securities held to maturity, Unrealized Gains	10,061	6,562
Securities held to maturity, Unrealized Losses	1	4
Securities held to maturity, fair value	304,567	300,981
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	363	16,998
Securities available for sale, Unrealized Gains		90
Securities available for sale, Unrealized Losses	1	154
Securities available for sale	362	16,934
Securities held to maturity, Amortized Cost	54,246	56,791
Securities held to maturity, Unrealized Gains	525
Securities held to maturity, Unrealized Losses	11	818
Securities held to maturity, fair value	54,760	55,973
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	77	5,175
Securities available for sale, Unrealized Gains		1
Securities available for sale, Unrealized Losses	1	91
Securities available for sale	76	5,085
Securities held to maturity, Amortized Cost	76,655	80,570
Securities held to maturity, Unrealized Gains	1,038
Securities held to maturity, Unrealized Losses	2	1,120
Securities held to maturity, fair value	77,691	79,450
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities held to maturity, Amortized Cost	15,116	19,084
Securities held to maturity, Unrealized Gains	85	19
Securities held to maturity, Unrealized Losses	4	101
Securities held to maturity, fair value	15,197	19,002
Collateralized Mortgage Obligations [Member] | Privately Issued [Member]
Investment [Line Items]
Securities available for sale, Unrealized Gains	784	809
Securities available for sale	784	809
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	360,356	282,873
Securities available for sale, Unrealized Gains	11,069	3,217
Securities available for sale, Unrealized Losses	16	2,776
Securities available for sale	371,409	283,314
Securities held to maturity, Amortized Cost	184,042	191,294
Securities held to maturity, Unrealized Gains	2,245	66
Securities held to maturity, Unrealized Losses	21	2,277
Securities held to maturity, fair value	186,266	189,083
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	311,783	209,671
Securities available for sale, Unrealized Gains	8,776	1,092
Securities available for sale, Unrealized Losses		2,333
Securities available for sale	320,559	208,430
Securities held to maturity, Amortized Cost	12,047	9,242
Securities held to maturity, Unrealized Gains	290	14
Securities held to maturity, Unrealized Losses		79
Securities held to maturity, fair value	12,337	9,177
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	30,743	24,564
Securities available for sale, Unrealized Gains	772	282
Securities available for sale, Unrealized Losses		194
Securities available for sale	31,515	24,652
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	17,390	26,465
Securities available for sale, Unrealized Gains	737	943
Securities available for sale, Unrealized Losses	14	4
Securities available for sale	18,113	27,404
Securities held to maturity, Amortized Cost	25,978	25,607
Securities held to maturity, Unrealized Gains	307	33
Securities held to maturity, Unrealized Losses	4	159
Securities held to maturity, fair value	26,281	25,481
Asset-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Unrealized Gains	184	218
Securities available for sale	$ 184	$ 218

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Investment Securities (Sales And Calls Of Securities Available For Sale) (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016	Jun. 30, 2015
Investment Securities [Abstract]
Proceeds from sales	$ 44,648	$ 62,275	$ 29,508
Gross realized gains	$ 1,387	2,000	1,073
Gross realized losses			$ 11

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Investment Securities (Scheduled Maturities Of Securities Available For Sale And Securities Held To Maturity) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Investment Securities [Abstract]
Debt securities available for sale, Due in one year or less, Amortized Cost	$ 5,042
Debt securities available for sale, Due from one to five years, Amortized Cost	175,737
Debt securities available for sale, Due after five years through ten years, Amortized Cost	306,996
Debt securities available for sale, Due after ten years, Amortized Cost	114,164
Debt securities available for sale, Amortized Cost	601,939
Debt securities available for sale, Due in one year or less, Fair Value	5,047
Debt securities available for sale, Due from one to five years, Fair Value	179,161
Debt securities available for sale, Due after five years through ten years, Fair Value	317,590
Debt securities available for sale, Due after ten years, Fair Value	117,921
Debt securities available for sale, Fair Value	619,719
Debt securities held to maturity, Due in one year or less, Amortized Cost	38,909
Debt securities held to maturity, Due from one to five years, Amortized Cost	176,378
Debt securities held to maturity, Due after five years through ten years, Amortized Cost	92,311
Debt securities held to maturity, Due after ten years, Amortized Cost	170,951
Securities held to maturity, Amortized Cost	478,549	$ 485,717
Debt securities held to maturity, Due in one year or less, Fair Value	39,051
Debt securities held to maturity, Due from one to five years, Fair Value	182,498
Debt securities held to maturity, Due after five years through ten years, Fair Value	96,184
Debt securities held to maturity, Due after ten years, Fair Value	173,100
Securities held to maturity, Fair Value	$ 490,833	$ 490,064

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Investment Securities (Investments' Gross Unrealized Losses And Fair Value) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	$ 11,681	$ 232,913
Securities available for sale, Less than 12 months, Unrealized Losses	19	3,312
Securities available for sale, 12 months or longer, Fair Value	1,637	35,864
Securities available for sale, 12 months or longer, Unrealized Losses	4	513
Securities available for sale, Fair Value, Total	13,318	268,777
Securities available for sale, Unrealized Losses, Total	23	3,825
Securities held to maturity, Less than 12 months, Fair Value	9,842	167,386
Securities held to maturity, Less than 12 months, Unrealized Losses	18	2,281
Securities held to maturity, 12 months or longer, Fair Value	1,635
Securities held to maturity, 12 months or longer, Unrealized Losses	4
Securities held to maturity, Fair Value, Total	11,477	167,386
Securities held to maturity, Unrealized Losses, Total	22	2,281
Total Securities, Less than 12 months, Fair Value	21,523	400,299
Total Securities, Less than 12 months, Unrealized Losses	37	5,593
Total Securities, 12 months or longer, Fair Value	3,272	35,864
Total Securities, 12 months or longer, Unrealized Losses	8	513
Total Securities, Fair Value	24,795	436,163
Total Securities, Unrealized Losses	45	6,106
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	9,997	82,298
Securities available for sale, Less than 12 months, Unrealized Losses	3	735
Securities available for sale, 12 months or longer, Fair Value	1,637	26,302
Securities available for sale, 12 months or longer, Unrealized Losses	4	314
Securities available for sale, Fair Value, Total	11,634	108,600
Securities available for sale, Unrealized Losses, Total	7	1,049
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Less than 12 months, Fair Value	832	3,075
Securities held to maturity, Less than 12 months, Unrealized Losses	1	4
Securities held to maturity, Fair Value, Total	832	3,075
Securities held to maturity, Unrealized Losses, Total	1	4
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	362	7,778
Securities available for sale, Less than 12 months, Unrealized Losses	1	154
Securities available for sale, Fair Value, Total	362	7,778
Securities available for sale, Unrealized Losses, Total	1	154
Securities held to maturity, Less than 12 months, Fair Value	4,119	55,973
Securities held to maturity, Less than 12 months, Unrealized Losses	11	818
Securities held to maturity, Fair Value, Total	4,119	55,973
Securities held to maturity, Unrealized Losses, Total	11	818
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	64	4,998
Securities available for sale, Less than 12 months, Unrealized Losses	1	91
Securities available for sale, Fair Value, Total	64	4,998
Securities available for sale, Unrealized Losses, Total	1	91
Securities held to maturity, Less than 12 months, Fair Value	1,196	79,323
Securities held to maturity, Less than 12 months, Unrealized Losses	2	1,120
Securities held to maturity, Fair Value, Total	1,196	79,323
Securities held to maturity, Unrealized Losses, Total	2	1,120
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities held to maturity, Less than 12 months, Fair Value	3,695	14,559
Securities held to maturity, Less than 12 months, Unrealized Losses	4	101
Securities held to maturity, Fair Value, Total	3,695	14,559
Securities held to maturity, Unrealized Losses, Total	4	101
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	1,684	150,615
Securities available for sale, Less than 12 months, Unrealized Losses	16	2,577
Securities available for sale, 12 months or longer, Fair Value		9,562
Securities available for sale, 12 months or longer, Unrealized Losses		199
Securities available for sale, Fair Value, Total	1,684	160,177
Securities available for sale, Unrealized Losses, Total	16	2,776
Securities held to maturity, Less than 12 months, Fair Value	9,010	164,311
Securities held to maturity, Less than 12 months, Unrealized Losses	17	2,277
Securities held to maturity, 12 months or longer, Fair Value	1,635
Securities held to maturity, 12 months or longer, Unrealized Losses	4
Securities held to maturity, Fair Value, Total	10,645	164,311
Securities held to maturity, Unrealized Losses, Total	21	2,277
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		123,774
Securities available for sale, Less than 12 months, Unrealized Losses		2,134
Securities available for sale, 12 months or longer, Fair Value		9,562
Securities available for sale, 12 months or longer, Unrealized Losses		199
Securities available for sale, Fair Value, Total		133,336
Securities available for sale, Unrealized Losses, Total		2,333
Securities held to maturity, Less than 12 months, Fair Value		5,666
Securities held to maturity, Less than 12 months, Unrealized Losses		79
Securities held to maturity, Fair Value, Total		5,666
Securities held to maturity, Unrealized Losses, Total		79
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		12,660
Securities available for sale, Less than 12 months, Unrealized Losses		194
Securities available for sale, Fair Value, Total		12,660
Securities available for sale, Unrealized Losses, Total		194
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	1,258	1,405
Securities available for sale, Less than 12 months, Unrealized Losses	14	4
Securities available for sale, Fair Value, Total	1,258	1,405
Securities available for sale, Unrealized Losses, Total	14	4
Securities held to maturity, Less than 12 months, Fair Value		8,790
Securities held to maturity, Less than 12 months, Unrealized Losses		159
Securities held to maturity, 12 months or longer, Fair Value	1,635
Securities held to maturity, 12 months or longer, Unrealized Losses	4
Securities held to maturity, Fair Value, Total	1,635	8,790
Securities held to maturity, Unrealized Losses, Total	$ 4	$ 159

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Loans (Narrative) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) contract	Jun. 30, 2015 USD ($) contract	Jun. 30, 2016 USD ($) contract	Jun. 30, 2015 USD ($) contract	Dec. 31, 2015 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 209		$ 209		$ 1,430
Number of Contracts | contract	1	2	4	3
Pre-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 1,076	$ 2,024
Commercial Business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of Contracts | contract	1	2	3	2
Pre-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 526	$ 1,342

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Loans (Loan Portfolio) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	$ 2,179,291	$ 2,052,600
Net Deferred Loan Costs (Fees)	32,540	31,162
Loans, Net	2,211,831	2,083,762
Allowance for loan losses	(28,525)	(27,085)
Total loans, net	2,183,306	2,056,677
Commercial Business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	349,076	313,475
Net Deferred Loan Costs (Fees)	356	283
Loans, Net	349,432	313,758
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	615,547	567,481
Net Deferred Loan Costs (Fees)	(1,406)	(1,380)
Loans, Net	614,141	566,101
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	402,538	376,023
Net Deferred Loan Costs (Fees)	5,829	5,051
Loans, Net	408,367	381,074
Residential Real Estate Lines [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	122,360	124,766
Net Deferred Loan Costs (Fees)	2,694	2,581
Loans, Net	125,054	127,347
Consumer Indirect [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	672,018	652,494
Net Deferred Loan Costs (Fees)	24,890	24,446
Loans, Net	696,908	676,940
Other Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, Gross	17,752	18,361
Net Deferred Loan Costs (Fees)	177	181
Loans, Net	$ 17,929	$ 18,542

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Loans (Recorded Investment By Loan Class In Current And Nonaccrual Loans) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	$ 2,564	$ 4,878
Nonaccrual	6,545	8,432
Current	2,170,182	2,039,290
Total loans	2,179,291	2,052,600	$ 1,978,624
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	2,243	3,384
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	310	1,486
Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	11	8
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	46	933
Nonaccrual	2,312	3,922
Current	346,718	308,620
Total loans	349,076	313,475	292,674
Commercial Business [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	46	321
Commercial Business [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans		612
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans		214
Nonaccrual	1,547	947
Current	614,000	566,320
Total loans	615,547	567,481	538,034
Commercial Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans		68
Commercial Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans		146
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	614	1,118
Nonaccrual	1,485	1,848
Current	400,439	373,057
Total loans	402,538	376,023	95,259
Residential Real Estate Loans [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	562	723
Residential Real Estate Loans [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	52	395
Residential Real Estate Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	315	233
Nonaccrual	182	235
Current	121,863	124,298
Total loans	122,360	124,766	391,645
Residential Real Estate Lines [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	315	199
Residential Real Estate Lines [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans		34
Consumer Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,454	2,261
Nonaccrual	1,015	1,467
Current	669,549	648,766
Total loans	672,018	652,494	641,871
Consumer Indirect [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,221	1,975
Consumer Indirect [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	233	286
Other Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	135	119
Nonaccrual	4	13
Current	17,613	18,229
Total loans	17,752	18,361	$ 19,141
Other Consumer [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	99	98
Other Consumer [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	25	13
Other Consumer [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	$ 11	$ 8

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Loans (Information Related To Loans Modified In A TDR) (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) contract	Jun. 30, 2015 USD ($) contract	Jun. 30, 2016 USD ($) contract	Jun. 30, 2015 USD ($) contract
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	2	4	3
Pre-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 1,076	$ 2,024
Post-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 1,076	$ 1,672
Commercial Business [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract	1	2	3	2
Pre-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 526	$ 1,342
Post-Modification Outstanding Recorded Investment	$ 214	$ 1,342	$ 526	$ 1,342
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract			1	1
Pre-Modification Outstanding Recorded Investment			$ 550	$ 682
Post-Modification Outstanding Recorded Investment			$ 550	$ 330

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Loans (Summary Of Impaired Loans) (Details) - USD ($) $ in Thousands		6 Months Ended	12 Months Ended
		Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	[1]	$ 1,986	$ 2,378
Recorded Investment, With an allowance recorded	[1]	1,873	2,491
Recorded Investment	[1]	3,859	4,869
Unpaid Principal Balance, With no related allowance recorded	[1]	2,738	3,095
Unpaid Principal Balance, With an allowance recorded	[1]	2,003	2,491
Unpaid Principal Balance	[1]	4,741	5,586
Related Allowance		607	1,006
Average Recorded Investment, With no related allowance recorded		2,792	2,365
Average Recorded Investment, With an allowance recorded		1,833	2,395
Average Recorded Investment		4,625	4,760
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]	1,209	1,441
Recorded Investment, With an allowance recorded	[1]	1,103	2,481
Unpaid Principal Balance, With no related allowance recorded	[1]	1,752	1,810
Unpaid Principal Balance, With an allowance recorded	[1]	1,103	2,481
Related Allowance		476	996
Average Recorded Investment, With no related allowance recorded		1,678	1,352
Average Recorded Investment, With an allowance recorded		1,323	1,946
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]	777	937
Recorded Investment, With an allowance recorded	[1]	770	10
Unpaid Principal Balance, With no related allowance recorded	[1]	986	1,285
Unpaid Principal Balance, With an allowance recorded	[1]	900	10
Related Allowance		131	10
Average Recorded Investment, With no related allowance recorded		1,114	1,013
Average Recorded Investment, With an allowance recorded		510	449
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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Loans (Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 2,179,291	$ 2,052,600
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	349,076	313,475
Commercial Business [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	333,564	298,413
Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	8,796	4,916
Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,716	10,146
Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	615,547	567,481
Commercial Mortgage [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	594,576	551,603
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,098	9,015
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	5,873	6,863
Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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Loans (Retail Loan Portfolio Categorized By Payment Status) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 2,179,291	$ 2,052,600
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	402,538	376,023
Residential Real Estate Loans [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	401,053	374,175
Residential Real Estate Loans [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,485	1,848
Residential Real Estate Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	122,360	124,766
Residential Real Estate Lines [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	122,178	124,531
Residential Real Estate Lines [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	182	235
Consumer Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	672,018	652,494
Consumer Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	671,003	651,027
Consumer Indirect [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,015	1,467
Other Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	17,752	18,361
Other Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	17,737	18,340
Other Consumer [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 15	$ 21

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Loans (Changes In The Allowance For Loan Losses) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 27,568	$ 27,191	$ 27,085	$ 27,637
Charge-offs	(2,248)	(2,385)	(5,559)	(6,955)
Recoveries	1,253	1,406	2,679	2,789
Provision (credit)	1,952	1,288	4,320	4,029
Ending balance	28,525	27,500	28,525	27,500
Allowance for loan losses, Individually Evaluated for impairment	595	1,954	595	1,954
Allowance for loan losses, Collectively Evaluated for impairment	27,930	25,546	27,930	25,546
Loans, Ending balance	2,179,291	1,978,624	2,179,291	1,978,624	$ 2,052,600
Loans, Individually Evaluated for impairment	3,813	7,713	3,813	7,713
Loans, Collectively Evaluated for impairment	2,175,478	1,970,911	2,175,478	1,970,911
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	5,436	5,395	5,540	5,621
Charge-offs	(42)	(13)	(644)	(1,154)
Recoveries	69	86	169	134
Provision (credit)	734	(134)	1,132	733
Ending balance	6,197	5,334	6,197	5,334
Allowance for loan losses, Individually Evaluated for impairment	466	1,247	466	1,247
Allowance for loan losses, Collectively Evaluated for impairment	5,731	4,087	5,731	4,087
Loans, Ending balance	349,076	292,674	349,076	292,674	313,475
Loans, Individually Evaluated for impairment	2,281	4,643	2,281	4,643
Loans, Collectively Evaluated for impairment	346,795	288,031	346,795	288,031
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	9,715	8,156	9,027	8,122
Charge-offs	(8)	(201)	(12)	(810)
Recoveries	6	7	11	96
Provision (credit)	(217)	1,396	470	1,950
Ending balance	9,496	9,358	9,496	9,358
Allowance for loan losses, Individually Evaluated for impairment	129	707	129	707
Allowance for loan losses, Collectively Evaluated for impairment	9,367	8,651	9,367	8,651
Loans, Ending balance	615,547	538,034	615,547	538,034	567,481
Loans, Individually Evaluated for impairment	1,532	3,070	1,532	3,070
Loans, Collectively Evaluated for impairment	614,015	534,964	614,015	534,964
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,384	558	1,347	570
Charge-offs	(134)	(22)	(180)	(77)
Recoveries	100	13	125	46
Provision (credit)	94	(84)	152	(74)
Ending balance	1,444	465	1,444	465
Allowance for loan losses, Collectively Evaluated for impairment	1,444	465	1,444	465
Loans, Ending balance	402,538	95,259	402,538	95,259	376,023
Loans, Collectively Evaluated for impairment	402,538	95,259	402,538	95,259
Residential Real Estate Lines [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	345	1,430	345	1,485
Charge-offs	(47)	(154)	(51)	(238)
Recoveries	3	9	7	19
Provision (credit)	17	(87)	17	(68)
Ending balance	318	1,198	318	1,198
Allowance for loan losses, Collectively Evaluated for impairment	318	1,198	318	1,198
Loans, Ending balance	122,360	391,645	122,360	391,645	124,766
Loans, Collectively Evaluated for impairment	122,360	391,645	122,360	391,645
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	10,297	11,205	10,458	11,383
Charge-offs	(1,898)	(1,841)	(4,396)	(4,263)
Recoveries	994	1,196	2,164	2,301
Provision (credit)	1,303	116	2,470	1,255
Ending balance	10,696	10,676	10,696	10,676
Allowance for loan losses, Collectively Evaluated for impairment	10,696	10,676	10,696	10,676
Loans, Ending balance	672,018	641,871	672,018	641,871	652,494
Loans, Collectively Evaluated for impairment	672,018	641,871	672,018	641,871
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	391	447	368	456
Charge-offs	(119)	(154)	(276)	(413)
Recoveries	81	95	203	193
Provision (credit)	21	81	79	233
Ending balance	374	469	374	469
Allowance for loan losses, Collectively Evaluated for impairment	374	469	374	469
Loans, Ending balance	17,752	19,141	17,752	19,141	$ 18,361
Loans, Collectively Evaluated for impairment	$ 17,752	$ 19,141	$ 17,752	$ 19,141

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Goodwill And Other Intangible Assets (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Goodwill And Other Intangible Assets [Abstract]
Goodwill	$ 66,417		$ 66,417		$ 60,402
Amortization during the year	$ 315	$ 238	$ 637	$ 481

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Goodwill And Other Intangible Assets (Changes In Carrying Amount Of Goodwill) (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($)
Goodwill [Line Items]
Goodwill, beginning balance	$ 60,402
Acquisition	6,015
Goodwill, ending balance	66,417
Banking [Member]
Goodwill [Line Items]
Goodwill, beginning balance	48,536
Goodwill, ending balance	48,536
Non-Banking [Member]
Goodwill [Line Items]
Goodwill, beginning balance	11,866
Acquisition	6,015
Goodwill, ending balance	$ 17,881

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Goodwill And Other Intangible Assets (Changes In The Accumulated Amortization And Net Book Value) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Goodwill And Other Intangible Assets [Abstract]
Gross carrying amount	$ 12,610		$ 12,610		$ 8,682
Accumulated amortization	(2,775)		(2,775)		(2,138)
Net carrying value at end of period	9,835		9,835		$ 6,544
Amortization during the year	$ 315	$ 238	$ 637	$ 481

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Goodwill And Other Intangible Assets (Estimated Core Deposit Intangible Amortization Expense) (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Goodwill And Other Intangible Assets [Abstract]
2016 (remainder of year)	$ 612
2017	1,144
2018	1,035
2019	937
2020	840
2021	$ 738

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Shareholders' Equity (Changes In Shares Of Common Stock) (Details) - USD ($)	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Shareholders Equity [Line Items]
Treasury stock, beginning balance	207,317
Shares issued, beginning balance	14,397,509	14,397,509
Common stock issued for aquisition	294,705
Restricted stock awards issued
Restricted stock awards forfeited
Stock options exercised
Treasury stock purchases
Stock awards
Treasury stock, ending balance	163,695
Shares issued, ending balance	14,692,214	14,397,509
Common Stock [Member]
Shareholders Equity [Line Items]
Shares outstanding, beginning balance	14,190,192	14,118,048
Common stock issued for aquisition	294,705
Restricted stock awards issued	8,800	49,084
Restricted stock awards forfeited	(7,983)	(2,271)
Stock options exercised	40,561	3,722
Treasury stock purchases		(1,791)
Stock awards	$ 2,244	$ 2,363
Shares outstanding, ending balance	14,528,519	14,184,135
Treasury Stock [Member]
Shareholders Equity [Line Items]
Treasury stock, beginning balance	207,317	279,461
Restricted stock awards issued	(8,800)	(49,084)
Restricted stock awards forfeited	7,983	2,271
Stock options exercised	(40,561)	(3,722)
Treasury stock purchases		1,791
Stock awards	$ (2,244)	$ (2,363)
Treasury stock, ending balance	163,695	213,374

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Accumulated Other Comprehensive Loss (Components Of Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Loss [Abstract]
Change in unrealized gain/loss during the period, Pre-tax Amount	$ 6,810	$ (9,986)	$ 19,006	$ (3,590)
Reclassification adjustment for net gains included in net income, Pre-tax Amount	(1,417)	(69)	(2,079)	(1,208)
Total securities available for sale and transferred securities, Pre-tax Amount	5,393	(10,055)	16,927	(4,798)
Prior service credit, Pre-tax Amount	(12)	(12)	(24)	(24)
Net actuarial losses, Pre-tax Amount	239	235	478	471
Total pension and post-retirement obligations, Pre-tax Amount	227	223	454	447
Other comprehensive income (loss), Pre-tax Amount	5,620	(9,832)	17,381	(4,351)
Change in unrealized gain/loss during the period, Tax Effect	2,629	(3,822)	7,335	(1,386)
Reclassification adjustment for net gains included in net income, Tax Effect	(547)	(26)	(802)	(466)
Total securities available for sale and transferred securities, Tax Effect	2,082	(3,848)	6,533	(1,852)
Prior service credit, Tax Effect	(4)	(4)	(9)	(9)
Net actuarial losses, Tax Effect	91	87	184	181
Total pension and post-retirement obligations, Tax Effect	87	83	175	172
Other comprehensive income (loss), Tax Effect	2,169	(3,765)	6,708	(1,680)
Change in unrealized gain/loss during the period, Net-of-tax Amount	4,181	(6,164)	11,671	(2,204)
Reclassification adjustment for net gains included in net income, Net-of-tax Amount	(870)	(43)	(1,277)	(742)
Total securities available for sale and transferred securities, Net-of-tax Amount	3,311	(6,207)	10,394	(2,946)
Prior service credit, Net-of-tax Amount	(8)	(8)	(15)	(15)
Net actuarial losses, Net-of-tax Amount	148	148	294	290
Total pension and post-retirement obligations, Net-of-tax Amount	140	140	279	275
Other comprehensive income (loss), Net-of-tax Amount	$ 3,451	$ (6,067)	$ 10,673	$ (2,671)

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Accumulated Other Comprehensive Loss (Components Of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year	$ (4,105)	$ (5,615)	$ (11,327)	$ (9,011)
Other comprehensive income before reclassifications	4,181	(6,164)	11,671	(2,204)
Amounts reclassified from accumulated other comprehensive loss	(730)	97	(998)	(467)
Net current period other comprehensive income (loss)	3,451	(6,067)	10,673	(2,671)
Balance at end of period	(4,105)	(5,615)	(11,327)	(9,011)	$ (654)	$ (11,682)
Securities Available For Sale and Transferred Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year	6,387	4,886	(696)	1,625
Other comprehensive income before reclassifications	4,181	(6,164)	11,671	(2,204)
Amounts reclassified from accumulated other comprehensive loss	(870)	(43)	(1,277)	(742)
Net current period other comprehensive income (loss)	3,311	(6,207)	10,394	(2,946)
Balance at end of period	6,387	4,886	(696)	1,625	9,698	(1,321)
Pension And Post-Retirement Obligations [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance at beginning of year	(10,492)	(10,501)	(10,631)	(10,636)
Other comprehensive income before reclassifications
Amounts reclassified from accumulated other comprehensive loss	140	140	279	275
Net current period other comprehensive income (loss)	140	140	279	275
Balance at end of period	$ (10,492)	$ (10,501)	$ (10,631)	$ (10,636)	$ (10,352)	$ (10,361)

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Accumulated Other Comprehensive Loss (Amounts Reclassified Out Of Each Component Of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net gain on disposal of investment securities	$ 1,387		$ 2,000	$ 1,062
Interest income	25,199	$ 23,404	49,918	46,551
Prior service credit	(12)	(12)	(24)	(24)
Net actuarial losses	239	235	478	471
Income before income taxes	10,043	9,335	20,393	19,027
Income tax (expense) benefit	(2,892)	(2,750)	(5,624)	(5,641)
Net income	7,151	6,585	14,769	13,386
Total reclassified for the period	730	(97)	998	467
Securities Available For Sale and Transferred Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total reclassified for the period	870	43	1,277	742
Pension And Post-Retirement Obligations [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total reclassified for the period	(140)	(140)	(279)	(275)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Total reclassified for the period	730	(97)	998	467
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	1,387		2,000	1,062
Interest income	30	69	79	146
Income before income taxes	1,417	69	2,079	1,208
Income tax (expense) benefit	(547)	(26)	(802)	(466)
Net income	870	43	1,277	742
Reclassification out of Accumulated Other Comprehensive Income [Member] | Pension And Post-Retirement Obligations [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Prior service credit	12	12	24	24
Net actuarial losses	(239)	(235)	(478)	(471)
Income before income taxes	(227)	(223)	(454)	(447)
Income tax (expense) benefit	87	83	175	172
Net income	$ (140)	$ (140)	$ (279)	$ (275)

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Share-Based Compensation Plans (Narrative) (Details) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) item $ / shares shares	Jun. 30, 2015 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options awarded	0	0
Restricted shares of common stock awarded	8,800
Grant date fair value | $ / shares	$ 28.38
Shares issued in lieu of cash	2,244
Number of non-employee directors | item	4
Unrecognized compensation expense | $	$ 1,300
Expected recognition expense period, weighted average period in years	2 years 1 month 6 days
Aggregate intrinsic value | $	$ 334	$ 39
Total cash received as a result of option exercises | $	$ 787	$ 165
EPS Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
EPS percentage of award, one year performance period	30.00%
TSR Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
TSR percentage of award, three year performance period	70.00%
Expected term	2 years 10 months 6 days
Risk free interest rate	0.88%
Expected dividend yield	2.99%
Expected stock price volatility	24.30%
Vested Immediately [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	4,400
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	4,400
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted shares of common stock awarded	8,800
Grant date fair value | $ / shares	$ 28.38
Management Stock Incentive Plan [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years

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Share-Based Compensation Plans (Summary Of Restricted Stock Units And Performance Share Units Activity) (Details)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Granted, Number of Shares | shares	8,800
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 28.38
RSUs [Member]
Granted, Number of Shares | shares	14,500
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 24.21
PSUs [Member]
Granted, Number of Shares | shares	24,084
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 22.94

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Share-Based Compensation Plans (Summary Of Restricted Stock Award Activity) (Details)	6 Months Ended
	Jun. 30, 2016 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted, Number of Shares | shares	8,800
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 28.38
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding at beginning of year, Number of Shares | shares	82,908
Granted, Number of Shares | shares	8,800
Vested, Number of Shares | shares	(9,770)
Forfeited, number of shares | shares	(7,983)
Outstanding at end of period, Number of Shares | shares	73,955
Outstanding at beginning of year, Weighted Average Market Price at Grant Date | $ / shares	$ 17.23
Granted, Weighted Average Market Price at Grant Date | $ / shares	28.38
Vested, Weighted Average Market Price at Grant Date | $ / shares	25.56
Forfeited, Weighted Average Market Price at Grant Date | $ / shares	19.47
Outstanding at end of period, Weighted Average Market Price at Grant Date | $ / shares	$ 17.22

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Share-Based Compensation Plans (Summary Of Stock Option Activity) (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
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	102,249
Exercised, Number of Options	(40,561)
Expired, Number of Options	(2,000)
Outstanding and exercisable at end of period, Number of Options	59,688
Outstanding at beginning of year, Weighted Average Exercise Price	$ 19.21
Exercised, Weighted Average Exercise Price	19.39
Expired, Weighted Average Exercise Price	19.70
Outstanding and exercisable at end of period, Weighted Average Exercise Price	$ 19.07
Outstanding and exercisable at end of period, Weighted Average Remaining Contractual Term	1 year 3 months 18 days
Outstanding and exercisable at end of period, Aggregate Intrinsic Value	$ 418

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Share-Based Compensation Plans (Share-Based Compensation Expense Included In Consolidated Statements Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 303	$ 267	$ 432	$ 370
Salaries and Employee Benefits [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	157	113	255	191
Other Noninterest Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 146	$ 154	$ 177	$ 179

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Employee Benefit Plans (Components Of Net Periodic Benefit Expense) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Employee Benefit Plans [Abstract]
Service cost	$ 721	$ 581	$ 1,442	$ 1,162
Interest cost on projected benefit obligation	602	583	1,203	1,166
Expected return on plan assets	(1,150)	(1,205)	(2,300)	(2,410)
Amortization of prior service credit	(12)	(12)	(24)	(24)
Amortization of net actuarial losses	239	235	478	471
Net periodic pension expense	$ 400	$ 182	$ 799	$ 365

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Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Commitments And Contingencies [Abstract]
Forward sales commitments	$ 617	$ 1,300

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Commitments and Contingencies (Off-Balance Sheet Commitments) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 518,186	$ 514,818
Standby Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 11,750	$ 11,746

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Fair Value Measurements (Narrative) (Details) - USD ($)	Jun. 30, 2016	Jun. 30, 2015
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
Subordinated Notes Due April 15, 2030 [Member]
Long-term borrowings		$ 40,000,000

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Fair Value Measurements (Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 619,719	$ 544,395
Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,232
Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,183
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	281
Measured On A Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	619,719	544,395
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	248,126	260,863
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	371,409	283,314
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	184	218
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	619,719	544,395
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	248,126	260,863
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	371,409	283,314
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	184	218
Measured On A Recurring Basis [Member] | Level 3 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 3 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 3 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 3 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 Nonrecurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	2,905	4,319
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	209	1,430
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	1,232	1,485
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	1,183	1,241
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	281	163
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	209	1,430
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	209	1,430
Measured On A Nonrecurring Basis [Member] | Level 2 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 2 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 2 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 3 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	2,696	2,889
Measured On A Nonrecurring Basis [Member] | Level 3 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 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	1,232	1,485
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	1,183	1,241
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	$ 281	$ 163

XML

Fair Value Measurements (Additional Quantitative Information About Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($)
Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 1,232
Loan Servicing Rights [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 1,183
Discount rate	4.40%
Constant prepayment rate	15.40%
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 281
Minimum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	35.00%
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	13.00%
Maximum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	50.00%
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	72.00%

XML

Fair Value Measurements (Carrying Amount, Estimated Fair Value, And Placement In Fair Value Hierarchy Of Financial Instruments) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	$ 619,719	$ 544,395
Securities held to maturity, fair value	490,833	490,064
Carrying Amount [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	67,624	60,121
Accrued interest receivable	8,919	8,609
Non-maturity deposits	2,146,849	2,093,513
Short-term borrowings	338,300	293,100
Accrued interest payable	5,147	4,676
Carrying Amount [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	619,719	544,395
Securities held to maturity, fair value	478,549	485,717
Loans held for sale	209	1,430
Loans	2,182,074	2,055,192
FHLB and FRB stock	22,086	19,991
Time deposits	711,156	637,018
Long-term borrowings	39,025	38,990
Carrying Amount [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	1,232	1,485
Estimated Fair Value [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	67,624	60,121
Accrued interest receivable	8,919	8,609
Non-maturity deposits	2,146,849	2,093,513
Short-term borrowings	338,300	293,100
Accrued interest payable	5,147	4,676
Estimated Fair Value [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	619,719	544,395
Securities held to maturity, fair value	490,833	490,064
Loans held for sale	215	1,430
Loans	2,202,286	2,046,235
FHLB and FRB stock	22,086	19,991
Time deposits	712,905	636,159
Long-term borrowings	37,566	40,313
Estimated Fair Value [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans	$ 1,232	$ 1,485

XML

Segment Reporting (Narrative) (Details)	6 Months Ended
	Jun. 30, 2016 segment
Segment Reporting [Abstract]
Number of reportable segments	2

XML

Segment Reporting (Business Segment Assets) (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Segment Reporting Information [Line Items]
Goodwill	$ 66,417	$ 60,402
Other intangible assets, net	9,835	6,544
Assets	3,585,589	3,381,024
Banking [Member]
Segment Reporting Information [Line Items]
Goodwill	48,536	48,536
Other intangible assets, net	3,733	829
Assets	3,553,354	3,356,987
Non-Banking [Member]
Segment Reporting Information [Line Items]
Goodwill	17,881	11,866
Other intangible assets, net	6,102	5,715
Assets	30,315	20,315
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Assets	$ 1,920	$ 3,722

XML

Segment Reporting (Business Segment Profit (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015		Jun. 30, 2016	Jun. 30, 2015
Segment Reporting Information [Line Items]
Net interest income (expense)	$ 25,199	$ 23,404		$ 49,918	$ 46,551
Provision for loan losses	(1,952)	(1,288)		(4,320)	(4,029)
Noninterest income	8,916	6,455		18,133	14,752
Noninterest expense	(22,120)	(19,236)		(43,338)	(38,247)
Income before income taxes	10,043	9,335		20,393	19,027
Income tax (expense) benefit	(2,892)	(2,750)		(5,624)	(5,641)
Net income	7,151	6,585		14,769	13,386
Banking [Member]
Segment Reporting Information [Line Items]
Net interest income (expense)	25,816	23,919		51,153	47,066
Provision for loan losses	(1,952)	(1,288)		(4,320)	(4,029)
Noninterest income	6,944	5,522		13,807	12,353
Noninterest expense	(18,054)	(17,668)		(36,399)	(34,947)
Income before income taxes	12,754	10,485		24,241	20,443
Income tax (expense) benefit	(3,889)	(3,107)		(6,990)	(6,056)
Net income	8,865	7,378		17,251	14,387
Non-Banking [Member]
Segment Reporting Information [Line Items]
Noninterest income	2,050	1,033	[1]	4,534	2,626	[1]
Noninterest expense	(1,764)	(1,050)	[1]	(3,570)	(2,237)	[1]
Income before income taxes	286	(17)	[1]	964	389	[1]
Income tax (expense) benefit	(112)	5	[1]	(376)	(154)	[1]
Net income	174	(12)	[1]	588	235	[1]
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Net interest income (expense)	(617)	(515)		(1,235)	(515)
Noninterest income	(78)	(100)		(208)	(227)
Noninterest expense	(2,302)	(518)		(3,369)	(1,063)
Income before income taxes	(2,997)	(1,133)		(4,812)	(1,805)
Income tax (expense) benefit	1,109	352		1,742	569
Net income	$ (1,888)	$ (781)		$ (3,070)	$ (1,236)

[1] Includes activity from Courier Capital since January 5, 2016 (the date of acquisition).