10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012

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

FINANCIAL INSTITUTIONS, INC.

(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

Securities registered under Section 12(b) of the Exchange Act:

Title of each class	Name of exchange on which registered
Common stock, par value $.01 per share	NASDAQ Global Select Market

Securities registered under Section 12(g) of the Exchange Act: NONE

Indicate by check mark if the regsitrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 past 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K.  ¨

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 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	¨	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 aggregate market value of the registrant’s common stock, par value $0.01 per share, held by non-affiliates of the registrant, as computed by reference to the June 30, 2012 closing price reported by NASDAQ, was approximately $216,222,000.

As of March 1, 2013, there were outstanding, exclusive of treasury shares, 13,803,158 shares of the registrant’s common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement for the 2013 Annual Meeting of Shareholders are incorporated by reference in Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business		5
Item 1A.	Risk Factors		18
Item 1B.	Unresolved Staff Comments		25
Item 2.	Properties		25
Item 3.	Legal Proceedings		25
Item 4.	Mine Safety Disclosures		25
PART II
Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities		26
Item 6.	Selected Financial Data		28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		56
Item 8.	Financial Statements and Supplementary Data		59
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		115
Item 9A.	Controls and Procedures		115
Item 9B.	Other Information		115
PART III
Item 10.	Directors, Executive Officers and Corporate Governance		116
Item 11.	Executive Compensation		116
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		116
Item 13.	Certain Relationships and Related Transactions, and Director Independence		116
Item 14.	Principal Accountant Fees and Services		116
PART IV
Item 15.	Exhibits and Financial Statement Schedules		117
	Signatures		120

PART I

FORWARD LOOKING INFORMATION

Statements in this Annual Report on Form 10-K that are based on other than historical data are forward-looking 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” or “FII”) and its subsidiaries (collectively “the Company,” “we,” “our,” “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 Annual Report on 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;

• Geographic concentration may unfavorably impact our operations;

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

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

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

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

• Ongoing financial reform legislation may result in new regulations that could require us to maintain higher capital levels and/or increase our costs of operations or limit certain activities or lines of business;

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

• If our security systems, or those of merchants, merchant acquirers or other third parties containing information about customers, are compromised, we may be subject to liability and damage to our reputation;

• We could be subject to losses if we fail to properly safeguard sensitive and confidential information;

• Our information systems may experience an interruption or breach in security;

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

• We may not be able to attract and retain skilled people and our ongoing leadership transition may be unsuccessful;

• The potential for business interruption exists throughout our organization;

• 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;

• Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies;

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

• We may be required to recognize an impairment of goodwill:

• 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;

• 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;

• The market price for our common stock varies, and you should purchase common stock for long-term investment only;

• 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 negatively affect the value of our common stock;

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• We may not pay dividends on our common stock; and

• Our certificate of incorporation, our bylaws, and certain banking laws contain anti-takeover provisions.

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 this 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.

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ITEM 1. BUSINESS

GENERAL

Financial Institutions, Inc. is a financial holding company organized in 1931 under the laws of New York State (“New York” or “NYS”). Through its subsidiaries, including its wholly-owned, New York chartered banking subsidiary, Five Star Bank, Financial Institutions, Inc. provides a broad array of deposit, lending and other financial services to retail, commercial, and municipal customers in Western and Central New York. All references in this Annual Report on Form 10-K to the parent are to Financial Institutions, Inc. (“FII”). Unless otherwise indicated, or unless the context requires otherwise, all references in this Annual Report on Form 10-K to “the Company,” “we,” “our” or “us” means Financial Institutions, Inc. and its subsidiaries on a consolidated basis. Five Star Bank is referred to as Five Star Bank, “FSB” or “the Bank”. FII is a legal entity separate and distinct from its subsidiaries, assisting those subsidiaries by providing financial resources and oversight. Our executive offices are located at 220 Liberty Street, Warsaw, New York.

We conduct business primarily through our banking subsidiary, Five Star Bank, which adopted its current name in 2005 when we merged three of our bank subsidiaries, Wyoming County Bank, National Bank of Geneva and Bath National Bank into our New York chartered bank subsidiary, First Tier Bank & Trust, which was renamed Five Star Bank. In addition, our business operations include a wholly-owned broker-dealer and investment adviser subsidiary, Five Star Investment Services, Inc. (“FSIS”).

Our Business Strategy

Our business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking needs of the businesses, professionals and other residents of the local communities surrounding our banking centers. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from larger competitors, resulting in long-standing and broad based banking relationships. Our core customers are primarily comprised of small- to medium-sized businesses, individuals and community organizations who prefer to build a banking relationship with a community bank that offers and combines high quality, competitively-priced banking 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 and loan products typically found at larger banks, our highly experienced management team and our strategically located banking centers. A central part of our strategy is generating core deposits to support growth of a diversified and high-quality loan portfolio.

MARKET AREAS AND COMPETITION

We provide a wide range of banking and financial services to individuals, municipalities and businesses through a network of over 50 offices and an extensive ATM network in fifteen contiguous counties of Western and Central New York: Allegany, Cattaraugus, Cayuga, Chautauqua, Chemung, Erie, Genesee, Livingston, Monroe, Ontario, Orleans, Seneca, Steuben, Wyoming and Yates counties. Our banking activities, though concentrated in the communities where we maintain branches, also extend into neighboring counties. In addition, we have expanded our consumer indirect lending presence to the Capital District of New York and Northern Pennsylvania.

Our market area is economically diversified in that we serve both rural markets and the larger more affluent markets of suburban Rochester and suburban Buffalo. Rochester and Buffalo are the two largest metropolitan areas in New York outside of New York City, with a combined metropolitan area of over two million people. We anticipate continuing to increase our presence in and around these metropolitan statistical areas in the coming years.

We face significant competition in both making loans and attracting deposits, as both Western and Central New York have a high density of financial institutions. Our competition for loans comes principally from commercial banks, savings banks, savings and loan associations, mortgage banking companies, credit unions, insurance companies and other financial service companies. Our most direct competition for deposits has historically come from commercial banks, savings banks and credit unions. We face additional competition for deposits from non-depository competitors such as the mutual fund industry, securities and brokerage firms and insurance companies. We generally compete with other financial service providers on factors such as: level of customer service, responsiveness to customer needs, availability and pricing of products, and geographic location.

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The following table presents the Bank’s market share percentage for total deposits as of June 30, 2012, in each county where we have operations. The table also indicates the ranking by deposit size in each market. All information in the table was obtained from SNL Financial of Charlottesville, Virginia, which compiles deposit data published by the FDIC as of June 30, 2012 and updates the information for any bank mergers and acquisitions completed subsequent to the reporting date.

County	Market Share			Market Rank		Number of Branches
Allegany		6.6	%		4		1
Cattaraugus		24.0	%		2		5
Cayuga		3.6	%		11		1
Chautauqua		1.2	%		9		1
Chemung		17.1	%		3		3
Erie		0.4	%		12		3
Genesee		20.4	%		3		5
Livingston		30.7	%		1		5
Monroe		1.6	%		9		5
Ontario		13.9	%		3		5
Orleans		23.7	%		2		2
Seneca		20.7	%		2		2
Steuben		28.6	%		1		7
Wyoming		46.8	%		1		5
Yates		38.6	%		1		2

INVESTMENT ACTIVITIES

Our investment policy is contained within our overall Asset-Liability Management and Investment Policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, need for collateral and desired risk parameters. In pursuing these objectives, we consider the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability, pledgeable nature and risk diversification. Our Treasurer, guided by our Asset-Liability Committee (“ALCO”), is responsible for investment portfolio decisions within the established policies.

Our investment securities strategy centers on providing liquidity to meet loan demand and redeeming liabilities, meeting pledging requirements, managing credit risks, managing overall interest rate risks and maximizing portfolio yield. Our current policy generally limits security purchases to the following:

• U.S. treasury securities;

• U.S. government agency securities, which are securities issued by official Federal government bodies (e.g. the Government National Mortgage Association (“GNMA”) and U.S. government-sponsored enterprise (“GSE”) securities, which are securities issued by independent organizations that are in part sponsored by the federal government (e.g., the Federal Home Loan Bank (“FHLB”) system, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), the Small Business Administration (“SBA”) and the Federal Farm Credit Bureau);

• Mortgage-backed securities (“MBS”) include mortgage-backed pass-through securities (“pass-throughs”) and collateralized mortgage obligations (“CMO”) issued by GNMA, FNMA and FHLMC;

• Investment grade municipal securities, including revenue, tax and bond anticipation notes, statutory installment notes and general obligation bonds;

• Certain creditworthy un-rated securities issued by municipalities;

• Certificates of deposit;

• Equity securities at the holding company level; and

• Limited partnership investments in Small Business Investment Companies.

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LENDING ACTIVITIES

General

We offer a broad range of loans including commercial business and revolving lines of credit, commercial mortgages, equipment loans, residential mortgage loans and home equity loans and lines of credit, home improvement loans, automobile loans and personal loans. Newly originated and refinanced fixed rate residential mortgage loans are either retained in our portfolio or sold to the secondary market with servicing rights retained.

We continually evaluate and update our lending policy. The key elements of our lending philosophy include the following:

• To ensure consistent underwriting, employees must share a common view of the risks inherent in lending activities as well as the standards to be applied in underwriting and managing credit risk;

• Pricing of credit products should be risk-based;

• The loan portfolio must be diversified to limit the potential impact of negative events; and

• Careful, timely exposure monitoring through dynamic use of our risk rating system is required to provide early warning and assure proactive management of potential problems.

Commercial Business and Commercial Mortgage Lending

We originate commercial business loans in our primary market areas and underwrite them based on the borrower’s ability to service the loan from operating income. We offer a broad range of commercial lending products, including term loans and lines of credit. Short and medium-term commercial loans, primarily collateralized, are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition of real estate, expansion and improvements) and the purchase of equipment. Commercial business loans are offered to the agricultural industry for short-term crop production, farm equipment and livestock financing. As a general practice, where possible, a collateral lien is placed on any available real estate, equipment or other assets owned by the borrower and a personal guarantee of the owner is obtained. As of December 31, 2012, $84.3 million, or 33%, of our aggregate commercial business loan portfolio were at fixed rates, while $174.4 million, or 67%, were at variable rates.

We also offer commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures and, to a smaller extent, agricultural real estate financing. Commercial mortgage loans are secured by first liens on the real estate and are typically amortized over a 10 to 20 year period. The underwriting analysis includes credit verification, appraisals and a review of the borrower’s financial condition and repayment capacity. As of December 31, 2012, $142.4 million, or 34%, of our aggregate commercial mortgage portfolio were at fixed rates, while $270.9 million, or 66%, were at variable rates.

We utilize government loan guarantee programs where available and appropriate.

Government Guarantee Programs

We participate in government loan guarantee programs offered by the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2012, we had loans with an aggregate principal balance of $62.8 million that were covered by guarantees under these programs. The guarantees typically only cover a certain percentage of these loans. By participating in these programs, we are able to broaden our base of borrowers while minimizing credit risk.

Residential Mortgage Lending

We originate fixed and variable rate one-to-four family residential mortgages collateralized by owner-occupied properties located in our market areas. We offer a variety of real estate loan products, which are generally amortized over periods of up to 30 years. Loans collateralized by one-to-four family residential real estate generally have been originated in amounts of no more than 80% of appraised value or have mortgage insurance. Mortgage title insurance and hazard insurance are normally required. We sell certain one-to-four family residential mortgages to the secondary mortgage market and typically retain the right to service the mortgages. To assure maximum salability of the residential loan products for possible resale, we have formally adopted the underwriting, appraisal, and servicing guidelines of the FHLMC as part of our standard loan policy. As of December 31, 2012, our residential mortgage servicing portfolio totaled $273.3 million, the majority of which has been sold to FHLMC. As of December 31, 2012, our residential mortgage loan portfolio totaled $133.5 million, or 8% of our total loan portfolio. We do not engage in sub-prime or other high-risk residential mortgage lending as a line-of-business.

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Consumer Lending

We offer a variety of loan products to our consumer customers, including home equity loans and lines of credit, automobile loans, secured installment loans and various other types of secured and unsecured personal loans. At December 31, 2012, outstanding consumer loan balances were concentrated in indirect automobile loans and home equity products.

We originate indirect consumer loans for a mix of new and used vehicles through franchised new car dealers. The consumer indirect loan portfolio is primarily comprised of loans with terms that typically range from 36 to 84 months. We have expanded our relationships with franchised new car dealers in Western, Central and the Capital District of New York, and Northern Pennsylvania. As of December 31, 2012, our consumer indirect portfolio totaled $586.8 million, or 34% of our total loan portfolio. The consumer indirect loan portfolio is primarily fixed rate loans with relatively short durations.

We also originate, independently of the indirect loans described above, consumer automobile loans, recreational vehicle loans, boat loans, home improvement loans, closed-end home equity loans, home equity lines of credit, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 180 months and vary based upon the nature of the collateral and the size of loan. The majority of the consumer lending program is underwritten on a secured basis using the customer’s home or the financed automobile, mobile home, boat or recreational vehicle as collateral. As of December 31, 2012, $152.9 million, or 53%, of our home equity portfolio was at fixed rates, while $133.7 million, or 47%, was at variable rates. Approximately 69% of the loans in our home equity portfolio are first lien positions at December 31, 2012. The other consumer portfolio totaled $26.8 million as of December 31, 2012, all but $1.3 million of which were fixed rate loans.

Credit Administration

Our loan policy establishes standardized underwriting guidelines, as well as the loan approval process and the committee structures necessary to facilitate and ensure the highest possible loan quality decision-making in a timely and businesslike manner. The policy establishes requirements for extending credit based on the size, risk rating and type of credit involved. The policy also sets limits on individual loan officer lending authority and various forms of joint lending authority, while designating which loans are required to be approved at the committee level.

Our credit objectives are as follows:

• Compete effectively and service the legitimate credit needs of our target market;

• Enhance our reputation for superior quality and timely delivery of products and services;

• Provide pricing that reflects the entire relationship and is commensurate with the risk profiles of our borrowers;

• Retain, develop and acquire profitable, multi-product, value added relationships with high quality borrowers;

• Focus on government guaranteed lending and establish a specialization in this area to meet the needs of the small businesses in our communities; and

• Comply with the relevant laws and regulations.

Our policy includes loan reviews, under the supervision of the Audit and Risk Oversight committees of the Board of Directors and directed by our Chief Risk Officer, in order to render an independent and objective evaluation of our asset quality and credit administration process.

Risk ratings are assigned to loans in the commercial business and commercial mortgage portfolios. The risk ratings are specifically used as follows:

• Profile the risk and exposure in the loan portfolio and identify developing trends and relative levels of risk;

• Identify deteriorating credits;

• Reflect the probability that a given customer may default on its obligations; and

• Assist with risk-based pricing.

Through the loan approval process, loan administration and loan review program, management seeks to continuously monitor our credit risk profile and assesses the overall quality of the loan portfolio and adequacy of the allowance for loan losses.

We have several procedures in place to assist in maintaining the overall quality of our loan portfolio. Delinquent loan reports are monitored by credit administration to identify adverse levels and trends. Loans, including impaired loans, are generally classified as non-accruing if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-collateralized and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accruing if repayment in full of principal and/or interest is uncertain.

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Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. The allowance reflects management’s estimate of the amount of probable loan losses in the portfolio, based on factors such as:

• Specific allocations for individually analyzed credits;

• Risk assessment process;

• Historical net charge-off experience;

• Evaluation of the loan portfolio with loan reviews;

• Levels and trends in delinquent and non-accruing loans;

• Trends in volume and terms of loans;

• Effects of changes in lending policy;

• Experience, ability and depth of management;

• National and local economic trends and conditions;

• Concentrations of credit;

• Interest rate environment;

• Customer leverage;

• Information (availability of timely financial information); and

• Collateral values.

Our methodology in the estimation of the allowance for loan losses includes the following:

1. Impaired commercial business and commercial mortgage loans, generally in excess of $50 thousand are reviewed individually and assigned a specific loss allowance, if considered necessary, in accordance with U.S. generally accepted accounting principles (“GAAP”).

2. The remaining portfolios of commercial business and commercial mortgage loans are segmented by risk rating into the following loan classification categories: uncriticized or pass, special mention, substandard and doubtful. Uncriticized loans, special mention loans, substandard loans and all doubtful loans not assigned a specific loss allowance are assigned allowance allocations based on historical net loan charge-off experience for each of the respective loan categories, supplemented with additional reserve amounts, if considered necessary, based upon qualitative factors. These qualitative factors include the levels and trends in delinquent and non-accruing loans, trends in volume and terms of loans, effects of changes in lending policy, experience, ability, and depth of management, national and local economic trends and conditions, concentrations of credit, interest rate environment, customer leverage, information (availability of timely financial information), and collateral values, among others.

3. The retail loan portfolio is segmented into the following types of loans: residential real estate, home equity (home equity loans and lines of credit), consumer indirect and other consumer. Allowance allocations for the real estate related loan portfolios (residential and home equity) are based on the average loss experience for the previous eight quarters, supplemented with qualitative factors similar to the elements described above. Allowance allocations for the consumer indirect and other consumer portfolios are based on vintage analyses performed with historical loss experience at 36 months and 24 months aging, respectively. The allocations on these portfolios are also supplemented with qualitative factors.

Management presents a quarterly review of the adequacy of the allowance for loan losses to our Board of Directors based on the methodology described above. See also the section titled “Allowance for Loan Losses” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

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SOURCES OF FUNDS

Our primary sources of funds are deposits, borrowed funds, scheduled amortization and prepayments of principal from loans and mortgage-backed securities, maturities and calls of investment securities and funds provided by operations.

Deposits

We maintain a full range of deposit products and accounts to meet the needs of the residents and businesses in our primary service area. Products include an array of checking and savings account programs for individuals and businesses, including money market accounts, certificates of deposit, sweep investment capabilities as well as Individual Retirement Accounts and other qualified plan accounts. We rely primarily on competitive pricing of our deposit products, customer service and long-standing relationships with customers to attract and retain these deposits and seek to make our services convenient to the community by offering 24-hour ATM access at some of our facilities, access to other ATM networks available at other local financial institutions and retail establishments, and telephone banking services including account inquiry and balance transfers. We also take advantage of the use of technology by allowing our customers banking access via the Internet and various advanced systems for cash management for our business customers.

We had no traditional brokered deposits at December 31, 2012; however, we do participate in the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. 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 $61.0 million and $18.1 million, respectively, at December 31, 2012.

Borrowings

We have access to a variety of borrowing sources and use both short-term and long-term borrowings to support our asset base. Borrowings from time-to-time include federal funds purchased, securities sold under agreements to repurchase and FHLB advances. We also offer customers a deposit account that sweeps balances in excess of an agreed upon target amount into overnight repurchase agreements.

OPERATING SEGMENTS

Our primary operating segment is our subsidiary bank, FSB. Our brokerage subsidiary, FSIS, is also deemed an operating segment; however, it does not meet the applicable thresholds for separate disclosure requirements.

OTHER INFORMATION

All of the reports we file with the SEC, including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments thereto may be read at the public reference facility maintained by the SEC at its public reference room at 100 F. Street, N.E., Room 1580, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room and you can request copies of the documents upon payment of a duplicating fee, by writing to the SEC. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC which can be accessed at www.sec.gov.

We also make available, free of charge, through our website, all reports filed with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with, or furnished to, the SEC. These filings may be viewed by accessing the Company Filings subsection of the SEC Filings section under the Investor Relations tab on our website (www.fiiwarsaw.com). Information available on our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K.

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SUPERVISION AND REGULATION

The Company and our subsidiaries are subject to an extensive system of laws and regulations that are intended primarily for the protection of customers and depositors and not for the protection of our security holders. These laws and regulations govern such areas as capital, permissible activities, allowance for loan losses, loans and investments, and rates of interest that can be charged on loans. Described below are elements of selected laws and regulations. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described.

Holding Company Regulation. As a bank holding company and financial holding company, we are subject to comprehensive regulation by the Board of Governors of the Federal Reserve System, frequently referred to as the Federal Reserve Board (“FRB”), under the Bank Holding Company Act, as amended by, among other laws, the Gramm-Leach-Bliley Act of 1999 (the “Gramm-Leach-Bliley Act”), and by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in 2010. We must file reports with the FRB and such additional information as the FRB may require, and our holding company and non-banking affiliates are subject to examination by the FRB. Under FRB policy, a bank holding company must serve as a source of strength for its subsidiary banks. Under this policy, the FRB may require, and has required in the past, a holding company to contribute additional capital to an undercapitalized subsidiary bank. The Bank Holding Company Act provides that a bank holding company must obtain FRB approval before:

• Acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares);

• Acquiring all or substantially all of the assets of another bank or bank holding company, or

• Merging or consolidating with another bank holding company.

The Bank Holding Company Act generally prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by FRB regulation or order, have been identified as activities closely related to the business of banking or managing or controlling banks. The list of activities permitted by the FRB includes, among other things: lending; operating a savings institution, mortgage company, finance company, credit card company or factoring company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting as an insurance agent for certain types of credit related insurance; leasing property on a full-payout, non-operating basis; selling money orders, travelers’ checks and United States Savings Bonds; real estate and personal property appraising; providing tax planning and preparation services; and, subject to certain limitations, providing securities brokerage services for customers. These activities may also be affected by federal legislation.

The Gramm-Leach-Bliley Act amended portions of the Bank Holding Company Act to authorize bank holding companies, such as us, directly or through non-bank subsidiaries to engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity. In order to undertake these activities, a bank holding company must become a “financial holding company” by submitting to the appropriate Federal Reserve Bank a declaration that the company elects to be a financial holding company and a certification that all of the depository institutions controlled by the company are well capitalized and well managed.

Broker-Dealer and Related Regulatory Supervision. FSIS is a member of, and is subject to the regulatory supervision of, the Financial Industry Regulatory Authority. Areas subject to this regulatory review include compliance with trading rules, financial reporting, investment suitability for clients, and compliance with stock exchange rules and regulations. FSIS is also subject to the supervision of the Investor Protection Bureau of the New York Attorney General’s Office for its investment advisory business.

Depository Institution Regulation. Our bank subsidiary is subject to regulation by the Federal Deposit Insurance Corporation (“FDIC”). This regulatory structure includes:

• Real estate lending standards, which provide guidelines concerning loan-to-value ratios for various types of real estate loans;

• Risk-based capital rules, including accounting for interest rate risk, concentration of credit risk and the risks posed by non-traditional activities;

• Rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks;

• Rules restricting types and amounts of equity investments; and

• Rules addressing various safety and soundness issues, including operations and managerial standards, standards for asset quality, earnings and compensation standards.

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The Dodd-Frank Act. The Dodd-Frank Act, enacted in July 2010, significantly changed the bank regulatory structure and affected the lending, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act (as amended) implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things, has or will:

• Centralized responsibility for consumer financial protection by creating a new agency, the Bureau of Consumer Financial Protection, with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that apply to all banks and certain others, including the examination and enforcement powers with respect to any bank with more than $10 billion in assets.

• Require new capital rules and apply the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies.

• Changed the assessment base for federal deposit insurance from the amount of insured deposits to consolidated average assets less tangible capital. As a result, this change generally imposes more deposit insurance cost on institutions with assets of $10 billion or more.

• Increase the minimum ratio of net worth to insured deposits of the Deposit Insurance Fund from 1.15% to 1.35% and require the FDIC, in setting assessments, to offset the effect of the increase on institutions with assets of less than $10 billion.

• Provide for new disclosure and other requirements relating to executive compensation and corporate governance, including guidelines or regulations on incentive-based compensation and a prohibition on compensation arrangements that encourage inappropriate risks or that could provide excessive compensation.

• Repealed the federal prohibitions on the payment of interest on commercial demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

• Allow de novo interstate branching by banks.

• Increased the authority of the FRB to examine us and our non-bank subsidiary.

• Required all bank holding companies to serve as a source of financial strength to their depository institution subsidiaries in the event such subsidiaries suffer from financial distress.

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on us and the financial services industry more generally. Provisions in the legislation may require us to maintain higher capital levels and/or increase our cost of operations and limit certain activities or lines of business.

Capital Adequacy Requirements. The FRB and FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to bank holding companies and banks. In addition, these regulatory agencies may from time to time require that a bank holding company or bank maintain capital above the minimum levels, based on its financial condition or actual or anticipated growth.

The FRB’s risk-based guidelines establish a two-tier capital framework. Tier 1 capital generally consists of common shareholders’ equity, retained earnings, a limited amount of qualifying perpetual preferred stock, qualifying trust preferred securities and non-controlling interests in the equity accounts of consolidated subsidiaries, less goodwill and certain intangibles. Tier 2 capital generally consists of certain hybrid capital instruments and perpetual debt, mandatory convertible debt securities and a limited amount of subordinated debt, qualifying preferred stock, loan loss allowance, and unrealized holding gains on certain equity securities. The sum of Tier 1 and Tier 2 capital represents qualifying total capital, at least 50% of which must consist of Tier 1 capital.

Risk-based capital ratios are calculated by dividing Tier 1 and total capital by risk-weighted assets. Assets and off-balance sheet exposures are assigned to one of four categories of risk-weights, based primarily on relative credit risk. For bank holding companies, generally the minimum Tier 1 risk-based capital ratio is 4% and the minimum total risk-based capital ratio is 8%. Our Tier 1 and total risk-based capital ratios under these guidelines at December 31, 2012 were 10.70% and 11.96%, respectively.

The FRB’s leverage capital guidelines establish a minimum leverage ratio determined by dividing Tier 1 capital by adjusted average total assets. The minimum leverage ratio is 3% for bank holding companies that meet certain specified criteria, including having the highest regulatory rating. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2012, we had a leverage ratio of 7.70%. See also the section titled “Capital Resources” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 11, Regulatory Matters, of the notes to consolidated financial statements, included in this Annual Report on Form 10-K.

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In June 2012, the U.S. federal banking agencies issued three notices of proposed rulemaking that would revise and replace the current regulatory capital rules. The proposals were initially intended to be effective on January 1, 2013, but the agencies have deferred implementation due to the volume of comments related to the proposed rules. In the Basel III notice of proposed rulemaking, the agencies proposal included the implementation of a new common equity Tier 1 minimum capital requirement and a higher minimum Tier 1 capital requirement. Common equity is the highest quality equity and most loss absorbing form of capital and establishes the base of Tier 1 common equity as adjusted for minority interests and various deductions. The minimum Tier 1 common equity ratio under Basel III is 4.5%. Depending on the final form of the Basel III capital standards, the outcome will likely result in a higher capital requirement, greater volatility in regulatory capital and the elimination of trust preferred instruments in regulatory capital. It is expected that final rules will be issued in 2013.

Future rulemaking and regulatory changes on capital requirements may impact the Company as it continues to grow and evaluate M&A activity.

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal bank regulatory agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements within these categories. This act imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank’s compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of five percent of the bank’s assets at the time it became “undercapitalized” or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent’s general unsecured creditors. In addition, the Federal Deposit Insurance Corporation Improvement Act requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness relating generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet these standards.

The various federal bank regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by the Federal Deposit Insurance Corporation Improvement Act, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. These regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized. Under the regulations, a “well capitalized” institution must have a Tier 1 risk-based capital ratio of at least 6%, a total risk-based capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive or order. An institution is “adequately capitalized” if it has a Tier 1 risk-based capital ratio of at least 4%, a total risk-based capital ratio of at least 8% and a leverage ratio of at least 4% (3% in certain circumstances). An institution is “undercapitalized” if it has a Tier 1 risk-based capital ratio of less than 4%, a total risk-based capital ratio of less than 8% or a leverage ratio of less than 4% (3% in certain circumstances). An institution is “significantly undercapitalized” if it has a Tier 1 risk-based capital ratio of less than 3%, a total risk-based capital ratio of less than 6% or a leverage ratio of less than 3%. An institution is “critically undercapitalized” if its tangible equity is equal to or less than 2% of total assets. Generally, an institution may be reclassified in a lower capitalization category if it is determined that the institution is in an unsafe or unsound condition or engaged in an unsafe or unsound practice.

As of December 31, 2012, our subsidiary bank met the requirements to be classified as “well-capitalized”.

Dividends. The FRB policy is that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition, and that it is inappropriate for a bank holding company experiencing serious financial problems to borrow funds to pay dividends. Furthermore, a bank that is classified under the prompt corrective action regulations as “undercapitalized” will be prohibited from paying any dividends.

Our primary source for cash dividends is the dividends we receive from our subsidiary bank. Our bank is subject to various regulatory policies and requirements relating to the payment of dividends, including requirements to maintain capital above regulatory minimums. Approval of the New York State Department of Financial Services is required prior to paying a dividend if the dividend declared by the Bank exceeds the sum of the Bank’s net profits for that year and its retained net profits for the preceding two calendar years.

Federal Deposit Insurance Assessments. The Bank is a member of the FDIC and pays an insurance premium to the FDIC based upon its assessable deposits on a quarterly basis. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government.

Under the Dodd-Frank Act, a permanent increase in deposit insurance was authorized to $250,000. The coverage limit is per depositor, per insured depository institution for each account ownership category.

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The Dodd-Frank Act also set a new minimum Deposit Insurance Fund (“DIF”) reserve ratio at 1.35% of estimated insured deposits. The FDIC is required to attain this ratio by September 30, 2020. The Dodd-Frank Act also required the FDIC to define the deposit insurance assessment base for an insured depository institution as an amount equal to the institution’s average consolidated total assets during the assessment period minus average tangible equity. Premiums for the Bank are now calculated based upon the average balance of total assets minus average tangible equity as of the close of business for each day during the calendar quarter.

The FDIC has the flexibility to adopt actual rates that are higher or lower than the total base assessment rates adopted without notice and comment, if certain conditions are met.

DIF-insured institutions pay a Financing Corporation (“FICO”) assessment in order to fund the interest on bonds issued in the 1980s in connection with the failures in the thrift industry. For the fourth quarter of 2012, the FICO assessment was equal to 0.64 basis points computed on assets as required by the Dodd-Frank Act. These assessments will continue until the bonds mature in 2019.

The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. It is also authorized to terminate a depository bank’s deposit insurance upon a finding by the FDIC that the bank’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency. The termination of deposit insurance for the Bank would have a material adverse effect on our earnings, operations and financial condition.

Transactions with Affiliates. FII and FSB are affiliates within the meaning of the Federal Reserve Act. The Federal Reserve Act imposes limitations on a bank with respect to extensions of credit to, investments in, and certain other transactions with, its parent bank holding company and the holding company’s other subsidiaries. Furthermore, bank loans and extensions of credit to affiliates also are subject to various collateral requirements.

Community Reinvestment Act. Under the Community Reinvestment Act, every FDIC-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The Community Reinvestment Act requires the appropriate federal banking regulator, in connection with the examination of an insured institution, to assess the institution’s record of meeting the credit needs of its community and to consider this record in its evaluation of certain applications, such as a merger or the establishment of a branch. An unsatisfactory rating may be used as the basis for the denial of an application and will prevent a bank holding company of the institution from making an election to become a financial holding company.

As of its last Community Reinvestment Act examination, the Bank received a rating of “outstanding.”

Interstate Branching. Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state (e.g., a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state could establish a branch. Applications to establish such branches must still be filed with the appropriate primary federal regulator.

Privacy Rules. Federal banking regulators, as required under the Gramm-Leach-Bliley Act, have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to non-affiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties. The privacy provisions of the Gramm-Leach-Bliley Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.

Anti-Terrorism Legislation. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (“USA Patriot Act”), enacted in 2001:

• prohibits banks from providing correspondent accounts directly to foreign shell banks;

• imposes due diligence requirements on banks opening or holding accounts for foreign financial institutions or wealthy foreign individuals;

• requires financial institutions to establish an anti-money-laundering (“AML”) compliance program; and

• generally eliminates civil liability for persons who file suspicious activity reports.

The USA Patriot Act also increases governmental powers to investigate terrorism, including expanded government access to account records. The Department of the Treasury is empowered to administer and make rules to implement the Act, which to some degree, affects our record-keeping and reporting expenses. Should the Bank’s AML compliance program be deemed insufficient by federal regulators, we would not be able to grow through acquiring other institutions or opening de novo branches.

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Volcker Rule. The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of three percent (3%) of Tier 1 Capital in private equity and hedge funds (known as the “Volcker Rule”). The Federal Reserve released a final rule on February 9, 2011 (effective on April 1, 2011) which requires a “banking entity,” a term that is defined to include bank holding companies like the parent, to bring its proprietary trading activities and investments into compliance with the Dodd-Frank Act restrictions no later than two years after the earlier of: (1) July 21, 2012, or (2) 12 months after the date on which interagency final rules are adopted. Pursuant to the compliance date final rule, banking entities are permitted to request an extension of this timeframe from the Federal Reserve. On October 11, 2011, the federal banking agencies released for comment proposed regulations implementing the Volcker Rule. The public comment period closed on February 13, 2012 and a final rule has not yet been published. The parent will be reviewing the implications of the interagency rules on its investments once those rules are issued and will plan for any adjustments of its activities or its holdings in order to be in compliance by the announced compliance date.

Ability-to-Repay and Qualified Mortgage Rule. Pursuant to the Dodd Frank Act, the CFPB issued a final rule on January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance.

Incentive Compensation Policies and Restrictions. In July 2010, the federal banking agencies issued guidance that applies to all banking organizations supervised by the agencies (thereby including both the Parent Company and the Bank). Pursuant to the guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk management; and (3) be supported by strong corporate governance including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation.

In addition, in March 2011, the federal banking agencies, along with the Federal Housing Finance Agency, and the SEC, released a proposed rule intended to ensure that regulated financial institutions design their incentive compensation arrangements to account for risk. Specifically, the proposed rule would require compensation practices at the Parent Company and at the Bank to be consistent with the following principles: (1) compensation arrangements appropriately balance risk and financial reward; (2) such arrangements are compatible with effective controls and risk management; and (3) such arrangements are supported by strong corporate governance. In addition, financial institutions with $1 billion or more in assets would be required to have policies and procedures to ensure compliance with the rule and would be required to submit annual reports to their primary federal regulator. The comment period has closed but a final rule has not yet been published.

Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act of 2002 implemented a broad range of corporate governance, accounting and reporting measures for companies that have securities registered under the Exchange Act, including publicly-held bank holding companies such as Financial Institutions. Specifically, the Sarbanes-Oxley Act of 2002 and the various regulations promulgated thereunder, established, among other things: (i) requirements for audit committees, including independence, expertise, and responsibilities; (ii) responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (iii) the forfeiture of bonuses or other incentive-based compensation and profits from the sale of the reporting company’s securities by the Chief Executive Officer and Chief Financial Officer in the twelve-month period following the initial publication of any financial statements that later require restatement; (iv) the creation of an independent accounting oversight board; (v) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (vi) disclosure and reporting obligations for the reporting company and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading during pension blackout periods; (vii) a prohibition on personal loans to directors and officers, except certain loans made by insured financial institutions on non-preferential terms and in compliance with other bank regulatory requirements; and (viii) a range of civil and criminal penalties for fraud and other violations of the securities laws.

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Consumer Laws and Regulations. In addition to the laws and regulations discussed herein, the Bank is also subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include, among others, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act and the Real Estate Settlement Procedures Act. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. The Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations. The Check Clearing for the 21st Century Act (the “Check 21 Act”), which became effective on October 28, 2004, creates a new negotiable instrument, called a “substitute check”, which banks are required to accept as the legal equivalent of a paper check if it meets the requirements of the Check 21 Act. The Check 21 Act is designed to facilitate check truncation, to foster innovation in the check payment system, and to improve the payment system by shortening processing times and reducing the volume of paper checks.

Other Future Legislation and Changes in Regulations. In addition to the specific proposals described above, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes our operating environment in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to us or our subsidiaries could have a material effect on our business.

Impact of Inflation and Changing Prices

Our financial statements included herein have been prepared in accordance with GAAP, which requires us to measure financial position and operating results principally using historic dollars. Changes in the relative value of money due to inflation or recession are generally not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In our view, changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate. While interest rates are generally influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude. Interest rates are sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.

Regulatory and Economic Policies

Our business and earnings are affected by general and local economic conditions and by the monetary and fiscal policies of the U.S. government, its agencies and various other governmental regulatory authorities. The FRB regulates the supply of money in order to influence general economic conditions. Among the instruments of monetary policy available to the FRB are (i) conducting open market operations in U.S. government obligations, (ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or changing reserve requirements against certain borrowings by financial institutions and their affiliates. These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason, the policies of the FRB could have a material effect on our earnings.

EMPLOYEES

At December 31, 2012, we had 662 employees. None of the employees are subject to a collective bargaining agreement and management believes its relations with employees are good.

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EXECUTIVE OFFICERS OF REGISTRANT

The following table sets forth current information regarding our executive officers and certain other significant employees (ages are as of May 8, 2013, the date of the 2013 Annual Meeting of Shareholders).

Name	Age	Started     In	Positions/Offices
Martin K. Birmingham	46	2005	President and Chief Executive Officer since March 2013. Previously, President and Chief of Community Banking of the Company and the Bank from August 2012. Executive Vice President and Regional President/ Commercial Banking Executive Officer of the Bank since 2009. Senior Vice President and Regional President of the Bank since 2005. Senior Team Leader and Regional President of the Rochester Market at Bank of America (formally Fleet Boston Financial) from 2000 to 2005.
Richard J. Harrison	67	2003	Executive Vice President and Chief Operating Officer of the Company and the Bank since August 2012. Executive Vice President and Senior Retail Lending Administrator of the Bank since 2009. Senior Vice President and Senior Retail Lending Administrator of the Bank since 2005.
Kevin B. Klotzbach	60	2001	Senior Vice President and Treasurer of the Bank since 2005.
Karl F. Krebs	57	2009	Executive Vice President and Chief Financial Officer of the Company and the Bank since 2009. Senior Financial Specialist at West Valley Environmental Services, LLC, an environmental remediation services firm, prior to joining the Company in 2009. President of Robar General Funding Corp., a mortgage and construction loan broker, from 2006 to 2008. Senior Vice President and Line-of-Business Finance Director at Five Star Bank from 2005 to 2006.
R. Mitchell McLaughlin	55	1981	Executive Vice President and Chief Information Officer of the Bank since 2009. Senior Vice President and Chief Information Officer of the Bank since 2006.
John L. Rizzo	63	2007	Senior Vice President and Corporate Secretary of the Company and the Bank since 2010. General counsel for the Company and the Bank since 2007. Genesee County (New York) Attorney from 1976 to 2010.
Kenneth V. Winn	55	2004	Executive Vice President and Chief Risk Officer of the Company and the Bank since July 2012. Senior Vice President and Senior Credit Compliance Administrator since 2006.

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ITEM 1A. RISK FACTORS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

CREDIT RISKS

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

As a lender, we are exposed to the risk that customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans may not be sufficient to assure repayment. Credit losses are inherent in the business of making loans and could have a material adverse impact on our results of operations.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral, and we provide an allowance for estimated loan losses based on a number of factors. We believe that the allowance for loan losses is adequate. However, if our assumptions or judgments are wrong, the allowance for loan losses may not be sufficient to cover the actual credit losses. We may have to increase the allowance in the future in response to the request of one of our primary banking regulators, to adjust for changing conditions and assumptions, or as a result of any deterioration in the quality of our loan portfolio. The actual amount of future provisions for credit losses may vary from the amount of past provisions.

Geographic concentration may unfavorably impact our operations.

Substantially all of our business and operations are concentrated in the Western and Central New York region. As a result of this geographic concentration, our results depend largely on economic conditions in these and surrounding areas. Deterioration in economic conditions in our market could:

• increase loan delinquencies;

• increase problem assets and foreclosures;

• increase claims and lawsuits;

• decrease the demand for our products and services; and

• decrease the value of collateral for loans, especially real estate, in turn reducing customers’ borrowing power, the value of assets associated with non-performing loans and collateral coverage.

Generally, we make loans to small to mid-sized businesses whose success depends on the regional economy. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. Adverse economic and business conditions in our market areas could reduce our growth rate, affect our borrowers’ ability to repay their loans and, consequently, adversely affect our business, financial condition and performance. For example, we place substantial reliance on real estate as collateral for our loan portfolio. A sharp downturn in real estate values in our market area could leave many of these loans inadequately collateralized. If we are required to liquidate the collateral securing a loan to satisfy the debt during a period of reduced real estate values, the impact on our results of operations could be materially adverse.

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

In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, and other financial information. We may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.

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

A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage regardless of whether we knew, had reason to know of, or caused the release of such substance. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Our indirect lending involves risk elements in addition to normal credit risk.

A portion of our current lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located in Western, Central and the Capital District of New York, and Northern Pennsylvania. These loans are for the purchase of new or used automobiles. We serve customers that cover a range of creditworthiness, and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, such loans involve risks elements in addition to normal credit risk. Potential risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through dealers, the absence of assured continued employment of the borrower, the varying general creditworthiness of the borrower, changes in the local economy, and difficulty in monitoring collateral. While indirect automobile loans are secured, such loans are secured by depreciating assets and characterized by LTV ratios that could result in us not recovering the full value of an outstanding loan upon default by the borrower. If the economic environment in our primary market area contracts, we may experience higher levels of delinquencies, charge-offs and repossessions.

REGULATORY/LEGAL/COMPLIANCE RISKS

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

We are subject to extensive supervision, regulation and examination. This regulatory structure gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only compliance with applicable laws and regulations (including laws and regulations governing consumer credit, and anti-money laundering and anti-terrorism laws), but also capital adequacy, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. As part of this regulatory structure, we are subject to policies and other guidance developed by the regulatory agencies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Under this structure the regulatory agencies have broad discretion to impose restrictions and limitations on our operations if they determine, among other things, that our operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

This supervisory framework could materially impact the conduct, growth and profitability of our operations. Any failure on our part to comply with current laws, regulations, other regulatory requirements or safe and sound banking practices or concerns about our financial condition, or any related regulatory sanctions or adverse actions against us, could increase our costs or restrict our ability to expand our business and result in damage to our reputation.

Ongoing financial reform legislation may result in new regulations that could require us to maintain higher capital levels and/or increase our costs of operations or limit certain activities or lines of business.

The Dodd-Frank Act has significantly changed the current bank regulatory structure and affects the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the rulemaking of the Dodd-Frank Act will not be known for many months or years, making it difficult to anticipate the overall financial impact on us. However, compliance with this new law and its implementing regulations are expected to result in additional operating costs that could have a material adverse effect on our financial condition and results of operations.

The federal banking agencies have proposed rules that would substantially amend the regulatory risk-based capital rules. The proposed rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The proposed rules include new minimum risk-based capital and leverage ratios, which would be phased in over the next several years and would refine the definition of what constitutes “capital” for purposes of calculating those ratios. While the proposed Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Company and the Bank.

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

The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s stockholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect us are described in the section captioned “Supervision and Regulation” included in Part I, Item 1, “Business”. These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. These laws, regulations, rules, standards, policies, and interpretations are constantly evolving and may change significantly over time.

OPERATIONAL RISKS

If our security systems, or those of merchants, merchant acquirers or other third parties containing information about customers, are compromised, we may be subject to liability and damage to our reputation.

As part of our business, we collect, process and retain sensitive and confidential client and customer information on our behalf and on behalf of other third parties. Customer data also may be stored on systems of third-party service providers and merchants that may have inadequate security systems. Third-party carriers regularly transport customer data, and may lose sensitive customer information. Unauthorized access to our networks or any of our other information systems potentially could jeopardize the security of confidential information stored in our computer systems or transmitted by our customers or others. If our security systems or those of merchants, processors or other third-party service providers are compromised such that this confidential information is disclosed to unauthorized parties, we may be subject to liability. For example, in the event of a security breach, we may incur losses related to fraudulent use of debit cards issued by us as well as the operational costs associated with reissuing cards. Although we take preventive measures to address these factors, such measures are costly and may become more costly in the future. Moreover, these measures may not protect us from liability, which may not be adequately covered by insurance, or from damage to our reputation.

We could be subject to losses if we fail to properly safeguard sensitive and confidential information.

As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations. We maintain a system of internal controls designed to provide reasonable assurance that fraudulent activity, including misappropriation of assets, fraudulent financial reporting, and unauthorized access to sensitive or confidential data is either prevented or timely detected. Our systems or our third-party service providers’ systems could be victimized by unauthorized users or corrupted by computer viruses or other malicious software code, or authorized persons could inadvertently or intentionally release confidential or proprietary information. Such disclosure could, among other things:

• seriously damage our reputation,

• allow competitors access to our proprietary business information,

• subject us to liability for a failure to safeguard client data,

• result in the loss of our existing customers,

• subject us to regulatory action, and

• require significant capital and operating expenditures to investigate and remediate the breach.

Our information systems may experience an interruption or breach in security.

We rely heavily on communications and information systems to conduct our business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

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

Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant delay and expense.

We may not be able to attract and retain skilled people and our ongoing leadership transition may be unsuccessful.

Our success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them. Further, the rural location of our principal executive offices and many of our bank branches make it difficult for us to attract skilled people to such locations. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.

On January 30, 2012, we eliminated the position of Retail Banking Executive previously held by John J. Witkowski, our former Executive Vice President and on June 30, 2012, George D. Hagi, our Executive Vice President and Chief Risk Officer retired and was replaced by Kenneth V. Winn. In August 2012, Peter G. Humphrey retired as our President and Chief Executive Officer. Following Mr. Humphrey’s retirement, our Board of Directors appointed John E. Benjamin to serve as Interim Chief Executive Officer in August 2012. At the same time, we also announced the promotion of Richard Harrison as Chief Operating Officer and Martin Birmingham as President and Chief of Community Banking. In March 2013, Mr. Birmingham was appointed to the position of President and Chief Executive Officer. These changes in key management could create uncertainty among our employees, customers, and other third parties with whom we do business and could result in changes to the strategic direction of our business, which could negatively affect our business, financial condition and results of operations. Any failure of our management to work together to effectively manage our operations, our inability to hire other key management, and any failure to effectively integrate new management into our controls, systems and procedures could adversely affect our business, financial condition and results of operations.

The potential for business interruption exists throughout our organization.

Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and the vast array of associates and key executives in our day-to-day and ongoing operations. Failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes, but is not limited to, operational or technical failures, ineffectiveness or exposure due to interruption in third party support as expected, as well as the loss of key individuals or failure on the part of key individuals to perform properly. Although management has established policies and procedures, including implementation and testing of a comprehensive contingency plan, to address such failures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

Acquisitions may disrupt our business and dilute shareholder value.

A key component of our strategy to grow and improve profitability is to expand our branch network into communities within or adjacent to markets where we currently conduct business. We intend to continue to pursue a growth strategy for our business. As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. We seek merger or acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services.

Acquiring other banks, businesses, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things:

• difficulty in estimating the value of the target company;

• payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term;

• potential exposure to unknown or contingent liabilities of the target company;

• exposure to potential asset quality issues of the target company;

• there may be volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts;

• challenge and expense of integrating the operations and personnel of the target company;

• inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and / or other projected benefits;

• potential disruption to our business;

• potential diversion of our management’s time and attention;

• the possible loss of key employees and customers of the target company; and

• potential changes in banking or tax laws or regulations that may affect the target company.

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EXTERNAL RISKS

We are subject to interest rate risk.

Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities; and (iii) the average duration of our mortgage-backed securities portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

Although management believes it has implemented effective asset and liability management strategies to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.

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

From December 2007 through June 2009, the U.S. economy was in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced. Although economic conditions have begun to improve, certain sectors, such as real estate, remain weak and unemployment remains high. Local governments and many businesses are still in serious difficulty due to lower consumer spending and reduced tax collections.

Market conditions also led to the failure or merger of several prominent financial institutions and numerous regional and community-based financial institutions. These failures had a significant negative impact on the capitalization level of the deposit insurance fund of the FDIC, which, in turn, has led to past increases in deposit insurance premiums paid by financial institutions.

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent on the business environment in the markets where we operate, in the State of New York and in the United States as a whole. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment, natural disasters; or a combination of these or other factors.

Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the Federal Reserve impact us significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and we routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due us. Any such losses could have a material adverse effect on our financial condition and results of operations.

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We may be required to recognize an impairment of goodwill.

Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. Significant and sustained declines in our stock price and market capitalization, significant declines in our expected future cash flows, significant adverse changes in the business climate or slower growth rates could result in impairment of goodwill. During 2012, the annual impairment test performed as of September 30 indicated that the fair value of our single reporting unit exceeded the fair value of its assets and liabilities. In the event that we conclude that all or a portion of our goodwill may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings, which could have a material adverse impact on our results of operations or financial condition. Such a charge would have no impact on tangible capital. At December 31, 2012, we had goodwill of $49.0 million, representing approximately 19% of shareholders’ equity. For further discussion, see Note 1, Summary of Significant Accounting Policies, and Note 7, Goodwill and Other Intangible Assets, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

We operate in a highly competitive industry and market area.

We face substantial competition in all areas of our operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loan associations, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking. Also, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.

Our ability to compete successfully depends on a number of factors, including, among other things:

• the ability to develop, maintain and build upon long-term customer relationships based on top quality service, high ethical standards and safe, sound assets;

• the ability to expand our market position;

• the scope, relevance and pricing of products and services offered to meet customer needs and demands;

• the rate at which we introduce new products and services relative to our competitors;

• customer satisfaction with our level of service; and

• industry and general economic trends.

Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.

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

Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

LIQUIDITY RISKS

Liquidity is essential to our businesses.

Our liquidity could be impaired by an inability to access the capital markets or unforeseen outflows of cash. This situation may arise due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects third parties or us. Our efforts to monitor and manage liquidity risk may not be successful or sufficient to deal with dramatic or unanticipated reductions in our liquidity. In such events, our cost of funds may increase, thereby reducing our net interest income, or we may need to sell a portion of our investment and/or loan portfolio, which, depending upon market conditions, could result in us realizing a loss.

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

We may need to raise additional capital in the future to provide sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.

In addition, we are highly regulated, and our regulators could require us to raise additional common equity in the future. We and our regulators perform a variety of analyses of our assets, including the preparation of stress case scenarios, and as a result of those assessments we could determine, or our regulators could require us, to raise additional capital.

We cannot assure that such capital will be available on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers, depositors of the Bank or counterparties participating in the capital markets, or a downgrade of our debt rating, may adversely affect our capital costs and ability to raise capital and, in turn, our liquidity. An inability to raise additional capital on acceptable terms when needed could have a material adverse impact on our business, financial condition, results of operations or liquidity.

We rely on dividends from our subsidiaries for most of our revenue.

We are a separate and distinct legal entity from our subsidiaries. A substantial portion of our revenue comes from dividends from our Bank subsidiary. These dividends are the principal source of funds we use to pay dividends on our common and preferred stock, and to pay interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that our Bank subsidiary and nonbank subsidiary may pay to us. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event our bank subsidiary is unable to pay dividends to us, we may not be able to service debt, pay obligations, or pay dividends on our common and preferred stock. The inability to receive dividends from our bank subsidiary could have a material adverse effect on our business, financial condition, and results of operations.

RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK

The market price for our common stock varies, and you should purchase common stock for long-term investment only.

Although our common stock is currently traded on the NASDAQ Global Select Market, we cannot assure you that there will, at any time in the future, be an active trading market for our common stock. Even if there is an active trading market for our common stock, we cannot assure you that you will be able to sell all of your shares of common stock at one time or at a favorable price, if at all. As a result, you should purchase shares of common stock described herein only if you are capable of, and seeking, to make a long-term investment in 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 negatively affect the value of our common stock.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

We may not pay dividends on our common stock.

Holders of our common stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. This could adversely affect the market price of our common stock.

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

Provisions of our certificate of incorporation, our bylaws, and federal and state banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may discourage others from initiating a potential merger, takeover or other change of control transaction, which, in turn, could adversely affect the market price of our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We own a 27,400 square foot building in Warsaw, New York that serves as our headquarters, and principal executive and administrative offices. Additionally, we are obligated under a lease commitment through 2017 for a 17,750 square foot regional administrative facility in Pittsford, New York.

We are engaged in the banking business through 52 branch offices, of which 36 are owned and 16 are leased, in fifteen contiguous counties of Western and Central New York: Allegany, Cattaraugus, Cayuga, Chautauqua, Chemung, Erie, Genesee, Livingston, Monroe, Ontario, Orleans, Seneca, Steuben, Wyoming and Yates Counties. The operating leases for our branch offices expire at various dates through the year 2036 and generally include options to renew.

We believe that our properties have been adequately maintained, are in good operating condition and are suitable for our business as presently conducted, including meeting the prescribed security requirements. For additional information, see Note 6, Premises and Equipment, Net, and Note 10, Commitments and Contingencies, in the accompanying financial statements included in Part II, Item 8, of this Annual Report on Form 10-K.

ITEM 3. LEGAL PROCEEDINGS

From time to time we are a party to or otherwise involved in legal proceedings arising in the normal course of business. Management does not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material adverse effect on our business, results of operations or financial condition.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market under the ticker symbol “FISI.” At December 31, 2012, 13,787,709 shares of our common stock were outstanding and held by approximately 1,400 shareholders of record. During 2012, the high sales price of our common stock was $19.52 and the low sales price was $15.22. The closing price per share of common stock on December 31, 2012, the last trading day of our fiscal year, was $18.63. We declared dividends of $0.57 per common share during the year ended December 31, 2012. See additional information regarding the market price and dividends paid in Part II, Item 6, “Selected Financial Data”.

We have paid regular quarterly cash dividends on our common stock and our Board of Directors presently intends to continue this practice, subject to our results of operations and the need for those funds for debt service and other purposes. See the discussions in the section captioned “Supervision and Regulation” included in Part I, Item 1, “Business”, in the section captioned “Liquidity and Capital Resources” included in Part II, Item 7, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 11, Regulatory Matters, in the accompanying financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”, all of which are included elsewhere in this report and incorporated herein by reference thereto.

Equity Compensation Plan Information

The following table sets forth, as of December 31, 2012, information about our equity compensation plans that have been approved by our shareholders, including the number of shares of our common stock exercisable under all outstanding options, warrants and rights, the weighted average exercise price of all outstanding options, warrants and rights and the number of shares available for future issuance under our equity compensation plans. We have no equity compensation plans that have not been approved by our shareholders.

							Number of securities
				Weighted average			remaining for future
	Number of securities to			exercise price			issuance under equity
	be issued upon exercise			of outstanding			compensation plans
	of outstanding options,			options, warrants			(excluding securities
	warrants and rights			and rights			reflected in column (a))
Plan Category	(a)			(b)			(c)
Equity compensation plans approved by shareholders		398,855	(1)	$	20.22	(1)		651,464	(2)
Equity compensation plans not approved by shareholders		—		$	—			—

⁽¹⁾  Includes 79,580 shares of unvested restricted stock awards outstanding as of December 31, 2012. The weighted average exercise price excludes such awards.

⁽²⁾  Represents the 940,000 aggregate shares approved for issuance under our two active equity compensation plans, reduced by 373,297 shares, which are the 227,623 restricted stock awards issued under these plans to date plus an adjustment of 145,674 shares. Pursuant to the terms of the plans, for purposes of calculating the number of shares available for issuance, each share of common stock granted pursuant to a restricted stock award shall count as 1.64 shares of common stock.

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Stock Performance Graph

The stock performance graph below compares (a) the cumulative total return on our common stock for the period beginning December 31, 2007 as reported by the NASDAQ Global Select Market, through December 31, 2012, (b) the cumulative total return on stocks included in the NASDAQ Composite Index over the same period, and (c) the cumulative total return, as compiled by SNL Financial L.C., of Major Exchange (NYSE, AMEX and NASDAQ) Banks with $1 billion to $5 billion in assets over the same period. Cumulative return assumes the reinvestment of dividends. The graph was prepared by SNL Financial, LC and is expressed in dollars based on an assumed investment of $100.

	Period Ending
Index	12/31/07		12/31/08		12/31/09		12/31/10		12/31/11		12/31/12
Financial Institutions, Inc.		100.00		83.16		71.33		117.63		103.06		122.99
NASDAQ Composite		100.00		60.02		87.24		103.08		102.26		120.42
SNL Bank $1B-$5B Index		100.00		82.94		59.45		67.39		61.46		75.75

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ITEM 6. SELECTED FINANCIAL DATA

	At or for the year ended December 31,
(Dollars in thousands, except selected ratios and per share data)	2012			2011			2010			2009			2008
Selected financial condition data:
Total assets	$	2,764,034		$	2,336,353		$	2,214,307		$	2,062,389		$	1,916,919
Loans, net		1,681,012			1,461,516			1,325,524			1,243,265			1,102,330
Investment securities		841,701			650,815			694,530			620,074			606,038
Deposits		2,261,794			1,931,599			1,882,890			1,742,955			1,633,263
Borrowings		179,806			150,698			103,877			106,390			70,820
Shareholders’ equity		253,897			237,194			212,144			198,294			190,300
Common shareholders’ equity (1)		236,426			219,721			158,359			144,876			137,226
Tangible common shareholders’ equity (2)		185,606			182,352			120,990			107,507			99,577
Selected operations data:
Interest income	$	97,567		$	95,118		$	96,509		$	94,482		$	98,948
Interest expense		9,051			13,255			17,720			22,217			33,617
Net interest income		88,516			81,863			78,789			72,265			65,331
Provision for loan losses		7,128			7,780			6,687			7,702			6,551
Net interest income after provision for loan losses		81,388			74,083			72,102			64,563			58,780
Noninterest income (loss) (3)		24,777			23,925			19,454			18,795			(48,778	)
Noninterest expense		71,397			63,794			60,917			62,777			57,461
Income (loss) before income taxes		34,768			34,214			30,639			20,581			(47,459	)
Income tax expense (benefit)		11,319			11,415			9,352			6,140			(21,301	)
Net income (loss)	$	23,449		$	22,799		$	21,287		$	14,441		$	(26,158	)
Preferred stock dividends and accretion		1,474			3,182			3,725			3,697			1,538
Net income (loss) applicable to common shareholders	$	21,975		$	19,617		$	17,562		$	10,744		$	(27,696	)
Stock and related per share data:
Earnings (loss) per common share:
Basic	$	1.60		$	1.50		$	1.62		$	0.99		$	(2.54	)
Diluted		1.60			1.49			1.61			0.99			(2.54	)
Cash dividends declared on common stock		0.57			0.47			0.40			0.40			0.54
Common book value per share (1)		17.15			15.92			14.48			13.39			12.71
Tangible common book value per share (2)		13.46			13.21			11.06			9.94			9.22
Market price (NASDAQ: FISI):
High		19.52			20.36			20.74			15.99			22.50
Low		15.22			12.18			10.91			3.27			10.06
Close		18.63			16.14			18.97			11.78			14.35
Performance ratios:
Net income (loss), returns on:
Average assets		0.93	%		1.00	%		0.98	%		0.71	%		-1.37	%
Average equity		9.46			9.82			10.07			7.43			-14.30
Average common equity (1)		9.53			9.47			11.14			7.61			-16.84
Average tangible common equity (2)		11.74			11.55			14.59			10.37			-21.87
Common dividend payout ratio (4)		35.63			31.33			24.69			40.40			NA
Net interest margin (fully tax-equivalent)		3.95			4.04			4.07			4.04			3.93
Efficiency ratio (5)		62.87	%		60.55	%		60.36	%		65.52	%		64.07	%

⁽¹⁾  Excludes preferred shareholders’ equity.

⁽²⁾  Excludes preferred shareholders’ equity, goodwill and other intangible assets.

⁽³⁾  The 2012, 2011, 2010, 2009 and 2008 figures include other-than-temporary impairment (“OTTI”) charges of $91 thousand, $18 thousand, $594 thousand, $4.7 million and $68.2 million, respectively.

⁽⁴⁾  Common dividend payout ratio equals dividends declared during the year divided by earnings per share for the year. There is no ratio shown for years where we both declared a dividend and incurred a loss because the ratio would result in a negative payout since the dividend declared (paid out) will always be greater than 100% of earnings.

⁽⁵⁾  Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities and proceeds from company owned life insurance included in income (all from continuing operations).

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	At or for the year ended December 31,
(Dollars in thousands, except per share data)	2012			2011			2010			2009			2008
Capital ratios:
Leverage ratio		7.70	%		8.63	%		8.31	%		7.96	%		8.05	%
Tier 1 capital ratio		10.70			12.20			12.34			11.95			11.83
Total risk-based capital ratio		11.96			13.45			13.60			13.21			13.08
Equity to assets (3)		9.84			10.20			9.75			9.55			9.60
Common equity to assets (1) (3)		9.15			9.10			7.28			6.94			8.63
Tangible common equity to tangible assets (2)(3)		7.56	%		7.58	%		5.65	%		5.19	%		6.78	%
Asset quality:
Non-performing loans	$	9,125		$	7,076		$	7,582		$	8,681		$	8,196
Non-performing assets		10,062			9,187			8,895			10,442			9,252
Allowance for loan losses		24,714			23,260			20,466			20,741			18,749
Net loan charge-offs	$	5,674		$	4,986		$	6,962		$	5,710		$	3,323
Non-performing loans to total loans		0.53	%		0.48	%		0.56	%		0.69	%		0.73	%
Non-performing assets to total assets		0.36			0.39			0.40			0.51			0.48
Net charge-offs to average loans		0.36			0.36			0.54			0.47			0.32
Allowance for loan losses to total loans		1.45			1.57			1.52			1.64			1.67
Allowance for loan losses to non-performing loans		271	%		329	%		270	%		239	%		229	%
Other data:
Number of branches		52			50			50			50			51
Full time equivalent employees		628			575			577			572			600

⁽¹⁾  Excludes preferred shareholders’ equity.

⁽²⁾  Excludes preferred shareholders’ equity, goodwill and other intangible assets. Ratios calculated using average balances for the periods shown.

- 29 -

SELECTED QUARTERLY DATA

	Fourth		Third		Second		First
(Dollars in thousands, except per share data)	Quarter		Quarter		Quarter		Quarter
2012
Interest income	$	25,087	$	25,299	$	23,731	$	23,450
Interest expense		1,999		2,200		2,343		2,509
Net interest income		23,088		23,099		21,388		20,941
Provision for loan losses		2,520		1,764		1,459		1,385
Net interest income, after provision for loan losses		20,568		21,335		19,929		19,556
Noninterest income		6,283		6,353		6,690		5,451
Noninterest expense		17,541		21,618		16,581		15,657
Income before income taxes		9,310		6,070		10,038		9,350
Income tax expense		2,978		1,805		3,382		3,154
Net income	$	6,332	$	4,265	$	6,656	$	6,196
Preferred stock dividends		369		368		368		369
Net income applicable to common shareholders	$	5,963	$	3,897	$	6,288	$	5,827
Earnings per common share (1):
Basic	$	0.44	$	0.28	$	0.46	$	0.43
Diluted		0.43		0.28		0.46		0.42
Market price (NASDAQ: FISI):
High	$	19.39	$	19.52	$	17.66	$	17.99
Low		17.61		16.50		15.51		15.22
Close		18.63		18.64		16.88		16.17
Dividends declared	$	0.16	$	0.14	$	0.14	$	0.13
2011
Interest income	$	23,875	$	23,774	$	23,830	$	23,639
Interest expense		2,721		3,156		3,577		3,801
Net interest income		21,154		20,618		20,253		19,838
Provision for loan losses		2,162		3,480		1,328		810
Net interest income, after provision for loan losses		18,992		17,138		18,925		19,028
Noninterest income		5,767		8,036		4,974		5,148
Noninterest expense		16,279		17,012		15,153		15,350
Income before income taxes		8,480		8,162		8,746		8,826
Income tax expense		2,718		2,664		3,027		3,006
Net income	$	5,762	$	5,498	$	5,719	$	5,820
Preferred stock dividends		369		368		370		2,075
Net income applicable to common shareholders	$	5,393	$	5,130	$	5,349	$	3,745
Earnings per common share (1):
Basic	$	0.39	$	0.38	$	0.39	$	0.33
Diluted		0.39		0.37		0.39		0.33
Market price (NASDAQ: FISI):
High	$	17.26	$	17.98	$	17.93	$	20.36
Low		12.18		13.63		15.20		16.40
Close		16.14		14.26		16.42		17.52
Dividends declared	$	0.13	$	0.12	$	0.12	$	0.10

⁽¹⁾  Earnings per share data is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per common share amounts may not equal the total for the year.

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2012 FOURTH QUARTER RESULTS

Net income was $6.3 million for the fourth quarter of 2012 compared with $5.8 million for the fourth quarter of 2011. After preferred dividends, fourth quarter diluted earnings per share for 2012 was $0.43 compared with $0.39 per share for the fourth quarter of 2011.

Net interest income totaled $23.1 million for the three months ended December 31, 2012, an increase of $1.9 million or 9% over the fourth quarter of 2011. Average earning assets increased $293.1 million during the fourth quarter 2012 compared to the same quarter last year, the result of a $219.6 million increase in average loans combined with a $73.5 million increase in investment securities.

The net interest margin on a tax-equivalent basis was 3.92% in the fourth quarter of 2012, compared with 4.07% in the fourth quarter of 2011. Our yield on earning-assets decreased 33 basis points in the fourth quarter of 2012 compared with the same quarter last year, a result of cash flows being reinvested in the current low interest rate environment, which includes the impact of investing the cash from the branch acquisitions into lower yielding securities. The cost of interest-bearing liabilities decreased 22 basis points compared with the fourth quarter of 2011, primarily a result of the continued downward re-pricing of our certificates of deposit.

The provision for loan losses was $2.5 million for the fourth quarter of 2012 compared with $2.2 million for the fourth quarter of 2011. Net charge-offs for the fourth quarter of 2012 were $2.1 million, or 0.50% annualized, of average loans, compared to $1.9 million, or 0.51% annualized, of average loans in the fourth quarter of 2011. See the sections “Allowance for Loan Losses” and “Non-performing Assets and Potential Problem Loans” for additional information on net charge-offs and non-performing loans.

Noninterest income totaled $6.3 million for the fourth quarter of 2012, a 9% increase over the fourth quarter of 2011. The majority of the increase related to a $452 thousand increase in income from service charges on deposit accounts when comparing the fourth quarter 2012 compared with the same quarter last year.

Noninterest expense was $17.5 million for the fourth quarter of 2012, an increase of $1.3 million or 8% from the fourth quarter of 2011. The increases in expenses across all categories for the fourth quarter of 2012 compared to the fourth quarter of 2011 reflect higher infrastructure costs to support the increased number of branches and employees.

Income tax expense for the fourth quarter of 2012 was $3.0 million compared to $2.7 million for the fourth quarter of 2011. The change in income tax expense was primarily due to an $830 thousand increase in pretax income between the periods.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial position and results of operations and should be read in conjunction with the information set forth under Part I, Item 1A, “Risks Factors”, and our consolidated financial statements and notes thereto appearing under Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

OVERVIEW

Business Overview

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

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 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.

2012 Significant Events

Branch Acquisitions. During 2012, we successfully completed the acquisition of eight retail bank branch locations in Upstate New York. Former HSBC Bank USA, N.A. branches located in Albion, Elmira, Elmira Heights, and Horseheads were acquired in August, complementing the former First Niagara Bank, N.A. locations in Batavia, Brockport, Medina, and Seneca Falls acquired in June. Through the acquisition we assumed deposits of $286.8 million and acquired in-market performing loans of $75.6 million. The acquisition of these branch offices was a marked success. We were able to integrate the offices and customer accounts seamlessly. Through detailed planning, we ensured that our sales and support staff members were ready to assist customers with any questions or issues. The feedback we received from our customers was positive and executing on our detailed planning process ultimately resulted in deposit retention rates that were better than expected. We incurred approximately $3.0 million in pre-tax expense during 2012 related to the branch acquisitions.

The combined assets acquired and deposits assumed in the two transactions were recorded at their estimated fair values as follows:

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,599
Core deposit intangible asset		2,042
Other assets		339
Total assets acquired	$	287,331
Deposits assumed	$	286,819
Other liabilities		512
Total liabilities assumed	$	287,331

In anticipation of the branch acquisitions, we leveraged our balance sheet through the execution of short-term FHLB advances in order to “pre-acquire” investment securities. This strategy allowed us to purchase securities over time and carry out a dollar cost averaging strategy. Our purchase of investment securities was comprised of mortgage-backed securities, U.S. Government agencies and sponsored enterprise bonds and tax-exempt municipal bonds. The cash received at the time of closing the transactions was used to pay down the short-term FHLB advances used to fund the purchase of the investment securities.

For detailed information on the accounting for the branch acquisitions, see Note 2, Branch Acquisitions, of the notes to consolidated financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Leadership Transition. In August 2012, Peter G. Humphrey our former President and Chief Executive Officer retired. Mr. Humphrey continues to serve as a member of our Board of Directors. Following Mr. Humphrey’s retirement, our Board of Directors appointed John E. Benjamin to serve as our Interim Chief Executive Officer in August 2012. At the same time, we also announced the promotion of Richard Harrison as Chief Operating Officer and Martin Birmingham as President and Chief of Community Banking. Mr. Harrison and Mr. Birmingham were instrumental in the structuring, negotiating and integrating the branch office acquisitions. We incurred approximately $2.6 million in pre-tax expense during 2012 related to the retirement of Mr. Humphrey.

The Board of Directors subsequently appointed Mr. Birmingham as President and Chief Executive Officer, effective March 1, 2013.

2012 Performance Summary

Our net income was $23.4 million for the year ended December 31, 2012, compared to a net income of $22.8 million for the year ended December 31, 2011. For 2012, net income available to common shareholders was $22.0 million, or $1.60 per diluted common share, compared to 2011 net income available to common shareholders of $19.6 million, or $1.49 per diluted common share. Cash dividends of $0.57 and $0.47 per common share were declared in 2012 and 2011, respectively.

We had total assets of $2.764 billion at December 31, 2012 compared to $2.336 billion at December 31, 2011. At December 31, 2012, shareholders’ equity totaled $253.9 million with book value per common share at $17.15, compared to $237.2 million with book value per common share at $15.92 at the end of 2011. The Tier 1 capital ratio was 10.70% as of December 31, 2012 compared to 12.20% at December 31, 2011.

Key factors behind these results are discussed below.

• At December 31, 2012, total loans were $1.706 billion, up $220.9 million or 15% from year-end 2011. At December 31, 2012, total loans included $64.5 million in loans obtained in the branch acquisitions. Total deposits at December 31, 2012, were $2.262 billion, up $330.2 million or 17% from year-end 2011, primarily attributable to $286.8 million in retail deposits assumed from the branch acquisitions. Our deposit mix remains favorably weighted in demand, savings and money market accounts, which comprised 71% of total deposits at the end of 2012 compared to 64% of total deposits at the end of 2011.

• Nonperforming loans were $9.1 million or 0.53% of total loans at December 31, 2012, compared to $7.1 million or 0.48% of total loans at December 31, 2011.

• The provision for loan losses was $7.1 million and $7.8 million, respectively, for 2012 and 2011. Net charge-offs were $5.7 million in 2012 (or 0.36% of average loans) compared to $5.0 million in 2011 (or 0.36% of average loans).

• At year-end 2012, the allowance for loan losses of $24.7 million represented 1.45% of total loans (covering 271% of non-performing loans), compared to $23.3 million or 1.57% (covering 329% of non-performing loans) at year-end 2011. Excluding loans acquired in the branch acquisitions during 2012, the allowance for loan losses was 1.51% of total loans at year-end 2012.

• Taxable equivalent net interest income was $90.8 million for 2012 or 8% higher than $83.9 million in 2011. Taxable equivalent interest income increased $2.7 million, while interest expense decreased by $4.2 million. The increase in taxable equivalent net interest income was a function of a favorable volume variance (increasing taxable equivalent net interest income by $11.7 million), partially offset by an unfavorable rate variance (decreasing taxable equivalent net interest income by $4.8 million).

• The net interest margin for 2012 was 3.95%, 9 basis points lower than 4.04% in 2011.

• Noninterest income was $24.8 million for 2012 compared to $23.9 million for 2011. Core fee-based revenues (defined as service charges on deposit accounts, ATM and debit fees, and broker-dealer fees and commissions) totaled $15.4 million for 2012, a $580 thousand or 4% increase from $14.9 million in 2011. Net mortgage banking income was $2.0 million for 2012, an increase of $323 thousand or 19% from $1.7 million in 2011.

• Net investment securities gains (defined as net gain on sales and calls of investment securities and impairment charges on investment securities) were $2.6 million for 2012 compared to $3.0 million for 2011.

• Noninterest expense for 2012 was $71.4 million, an increase of $7.6 million or 12% over 2011. As previously mentioned, noninterest expense for 2012 includes pre-tax expenses of approximately $3.0 million related to the branch acquisitions and $2.6 million incurred in association with the retirement of our former CEO. Noninterest expense for 2011 includes a loss on extinguishment of debt of $1.1 million, recognized as a result of redeeming our 10.20% junior subordinated debentures. Excluding these expenses, which we consider to be non-recurring in nature, noninterest expense increased $3.1 million or 5% when comparing 2012 to 2011.

- 33 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED

DECEMBER 31, 2012 AND DECEMBER 31, 2011

Net Interest Income and Net Interest Margin

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

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

The following table reconciles interest income per the consolidated statements of income to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands):

	2012		2011		2010
Interest income per consolidated statements of income	$	97,567	$	95,118	$	96,509
Adjustment to fully taxable equivalent basis		2,284		2,062		1,895
Interest income adjusted to a fully taxable equivalent basis		99,851		97,180		98,404
Interest expense per consolidated statement of income		9,051		13,255		17,720
Net interest income on a taxable equivalent basis	$	90,800	$	83,925	$	80,684

Taxable equivalent net interest income of $90.8 million for 2012 was $6.9 million or 8% higher than 2011. The impact of a decline in average yields on our assets was diminished by a $217.4 million or 10% increase in interest-earning assets. The average balance of loans rose $199.6 million or 14% to $1.593 billion, reflecting growth in every loan category. Consistent with our strategic plan, we continue to pursue loan development efforts in the commercial and consumer indirect lending portfolios in accordance with prudent underwriting standards.

The increase in taxable equivalent net interest income was a function of a favorable volume variance as balance sheet changes in both volume and mix increased taxable equivalent net interest income by $11.7 million, partially offset by an unfavorable rate variance that decreased taxable equivalent net interest income by $4.8 million. The change in mix and volume of earning assets increased taxable equivalent interest income by $11.2 million, while the change in volume and composition of interest-bearing liabilities decreased interest expense by $474 thousand, for a net favorable volume impact of $11.7 million on taxable equivalent net interest income. Rate changes on earning assets reduced interest income by $8.5 million, while changes in rates on interest-bearing liabilities lowered interest expense by $3.7 million, for a net unfavorable rate impact of $4.8 million.

The net interest margin for 2012 was 3.95% compared to 4.04% in 2011.

The decrease in net interest margin was attributable to a 7 basis point lower contribution from net free funds (primarily attributable to lower rates on interest-bearing liabilities reducing the value of noninterest-bearing deposits and other net free funds). The interest rate spread decreased by 2 basis points to 3.85% for the year ended December 31, 2012, as a 32 basis point decrease in the yield on earning assets more than offset the 30 basis point decrease in the cost of interest-bearing liabilities.

The Federal Reserve left the Federal funds rate unchanged at 0.25% during 2010 through 2012. During 2011, the Federal Reserve disclosed that short-term interest rates would be held near zero through at least the middle of 2013, in anticipation of low growth and little risk of inflation. In April 2012, the Federal Reserve further announced that interest rates will likely remain at exceptionally low levels through late 2014. As a result of the Federal Reserve’s policy, we expect net interest margin and interest rate spread to continue to tighten.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

For 2012, the yield on average earning assets of 4.35% was 32 basis points lower than 2011. Loan yields decreased 44 basis points to 5.09%. Commercial mortgage and consumer indirect loans in particular, down 28 and 84 basis points, respectively, continued to experience lower yields given the competitive pricing pressures and re-pricing of loans in a low interest rate environment. The yield on investment securities dropped 27 basis points to 2.66%, also impacted by the lower interest rate environment, prepayments of mortgage-related investment securities and the impact of investing the excess cash related to our branch acquisitions into low yielding securities. Overall, earning asset rate changes reduced interest income by $8.5 million.

The cost of average interest-bearing liabilities of 0.50% in 2012 was 30 basis points lower than 2011. The average cost of interest-bearing deposits was 0.50% in 2012, 24 basis points lower than 2011, reflecting the sustained low-rate environment. The cost of borrowings decreased 110 basis points to 0.48% for 2012, primarily a result of the redemption of the Company’s 10.20% junior subordinated debentures during the third quarter of 2011. The interest-bearing liability rate changes reduced interest expense by $3.7 million during 2012.

Average interest-earning assets of $2.297 billion in 2012 were $217.4 million or 10% higher than 2011. Average investment securities increased $17.9 million while average loans increased $199.6 million or 14%. The growth in average loans was comprised of increases in all loan categories, with consumer loans up $130.5 million, commercial loans up $63.4 million and residential mortgage loans up $5.6 million.

Average interest-bearing liabilities of $1.825 billion in 2012 were up $162.9 million or 10% versus 2011. The impacts of the recent recession continue to positively impact our deposit balances, as consumers tend to save more when consumer confidence is low. On average, interest-bearing deposits grew $156.2 million, while average noninterest-bearing demand deposits (a principal component of net free funds) increased by $62.0 million. Average borrowings increased $6.7 million, representing a $22.6 million increase and $15.9 million decrease in short-term and long-term borrowings, respectively.

- 35 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following tables present, for the periods indicated, information regarding: (i) the average balance sheet; (ii) the amount of interest income from interest-earning assets and the resulting annualized yields (tax-exempt yields have been adjusted to a tax-equivalent basis using the applicable Federal tax rate in each year); (iii) the amount of interest expense on interest-bearing liabilities and the resulting annualized rates; (iv) net interest income; (v) net interest rate spread; (vi) net interest income as a percentage of average interest-earning assets (“net interest margin”); and (vii) the ratio of average interest-earning assets to average interest-bearing liabilities. Investment securities are at amortized cost for both held to maturity and available for sale securities. Loans include net unearned income, net deferred loan fees and costs and non-accruing loans. Dollar amounts are shown in thousands.

	Years ended December 31,
	2012								2011								2010
	Average					Average			Average					Average			Average					Average
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
Interest-earning assets:
Federal funds sold and other interest-earning deposits	$	113		$	—		0.29	%	$	140		$	—		0.20	%	$	5,034		$	10		0.21	%
Investment securities:
Taxable		525,912			12,202		2.32			545,112			14,185		2.60			571,856			17,101		2.99
Tax-exempt		177,731			6,526		3.67			140,657			5,890		4.19			108,900			5,416		4.97
Total investment securities		703,643			18,728		2.66			685,769			20,075		2.93			680,756			22,517		3.31
Loans:
Commercial business		242,100			11,263		4.65			215,598			10,311		4.78			206,167			9,939		4.82
Commercial mortgage		407,737			22,182		5.44			370,843			21,216		5.72			338,149			20,389		6.03
Residential mortgage		127,363			6,637		5.21			121,742			6,868		5.64			138,954			8,157		5.87
Home equity		257,537			10,984		4.27			216,428			9,572		4.42			202,189			9,224		4.56
Consumer indirect		533,589			27,371		5.13			444,527			26,549		5.97			382,977			25,379		6.63
Other consumer		25,058			2,686		10.72			24,686			2,589		10.49			26,950			2,789		10.35
Total loans		1,593,384			81,123		5.09			1,393,824			77,105		5.53			1,295,386			75,877		5.86
Total interest-earning assets		2,297,140			99,851		4.35			2,079,733			97,180		4.67			1,981,176			98,404		4.97
Less: Allowance for loan losses		24,305								21,567								20,883
Other noninterest-earning assets		246,423								218,983								206,303
Total assets	$	2,519,258							$	2,277,149							$	2,166,596
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	423,096			598		0.14		$	383,122			614		0.16		$	382,517			705		0.18
Savings and money market		586,329			998		0.17			451,030			1,056		0.23			414,953			1,133		0.27
Certificates of deposit		693,353			6,866		0.99			712,411			9,764		1.37			726,330			13,015		1.79
Total interest-bearing deposits		1,702,778			8,462		0.50			1,546,563			11,434		0.74			1,523,800			14,853		0.97
Short-term borrowings		121,735			589		0.48			99,122			500		0.50			49,104			365		0.74
Long-term borrowings		—			—		—			15,905			1,321		8.31			37,043			2,502		6.75
Total borrowings		121,735			589		0.48			115,027			1,821		1.58			86,147			2,867		3.33
Total interest-bearing liabilities		1,824,513			9,051		0.50			1,661,590			13,255		0.80			1,609,947			17,720		1.10
Noninterest-bearing deposits		430,240								368,268								329,853
Other liabilities		16,506								15,041								15,485
Shareholders’ equity		247,999								232,250								211,311
Total liabilities and shareholders’ equity	$	2,519,258							$	2,277,149							$	2,166,596
Net interest income (tax-equivalent)				$	90,800							$	83,925							$	80,684
Interest rate spread							3.85	%							3.87	%							3.87	%
Net earning assets	$	472,627							$	418,143							$	371,229
Net interest margin (tax-equivalent)							3.95	%							4.04	%							4.07	%
Ratio of average interest-earning assets to average interest-bearing liabilities		125.90	%							125.17	%							123.06	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Rate/Volume Analysis

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

	Change from 2012 to 2011									Change from 2011 to 2010
Increase (decrease) in:	Volume			Rate			Total			Volume			Rate			Total
Interest income:
Federal funds sold and other interest-earning deposits	$	—		$	—		$	—		$	(5	)	$	(5	)	$	(10	)
Investment securities:
Taxable		(487	)		(1,496	)		(1,983	)		(772	)		(2,144	)		(2,916	)
Tax-exempt		1,422			(786	)		636			1,418			(944	)		474
Total investment securities		935			(2,282	)		(1,347	)		646			(3,088	)		(2,442	)
Loans:
Commercial business		1,239			(287	)		952			452			(80	)		372
Commercial mortgage		2,041			(1,075	)		966			1,905			(1,078	)		827
Residential mortgage		308			(539	)		(231	)		(980	)		(309	)		(1,289	)
Home equity		1,763			(351	)		1,412			636			(288	)		348
Consumer indirect		4,879			(4,057	)		822			3,829			(2,659	)		1,170
Other consumer		39			58			97			(237	)		37			(200	)
Total loans		10,269			(6,251	)		4,018			5,605			(4,377	)		1,228
Total interest income		11,204			(8,533	)		2,671			6,246			(7,470	)		(1,224	)
Interest expense:
Deposits:
Interest-bearing demand		60			(76	)		(16	)		1			(92	)		(91	)
Savings and money market		271			(329	)		(58	)		93			(170	)		(77	)
Certificates of deposit		(255	)		(2,643	)		(2,898	)		(245	)		(3,006	)		(3,251	)
Total interest-bearing deposits		76			(3,048	)		(2,972	)		(151	)		(3,268	)		(3,419	)
Short-term borrowings		110			(21	)		89			281			(146	)		135
Long-term borrowings		(660	)		(661	)		(1,321	)		(1,662	)		481			(1,181	)
Total borrowings		(550	)		(682	)		(1,232	)		(1,381	)		335			(1,046	)
Total interest expense		(474	)		(3,730	)		(4,204	)		(1,532	)		(2,933	)		(4,465	)
Net interest income	$	11,678		$	(4,803	)	$	6,875		$	7,778		$	(4,537	)	$	3,241

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 was $7.1 million for the year ended December 31, 2012 compared with $7.8 million for 2011. See the “Allowance for Loan Losses” section of this Management’s Discussion and Analysis for further discussion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Income

The following table summarizes our noninterest income for the years ended December 31 (in thousands):

	2012			2011			2010
Service charges on deposits	$	8,627		$	8,679		$	9,585
ATM and debit card		4,716			4,359			3,995
Broker-dealer fees and commissions		2,104			1,829			1,283
Company owned life insurance		1,751			1,424			1,107
Loan servicing		617			835			1,124
Net gain on sale of loans held for sale		1,421			880			650
Net gain on disposal of investment securities		2,651			3,003			169
Impairment charges on investment securities		(91	)		(18	)		(594	)
Net (loss) gain on sale and disposal of other assets		(381	)		67			(203	)
Other		3,362			2,867			2,338
Total noninterest income	$	24,777		$	23,925		$	19,454

The components of noninterest income fluctuated as discussed below.

Service charges on deposits decreased slightly during 2012 compared to 2011. An increase in the number of customer accounts, including those added from the branch acquisitions in June and August of 2012, helped offset decreases in service charge income related to changes in customer behavior and regulatory changes that included the requirement that customers opt-in for overdraft coverage for certain types of electronic banking activities.

ATM and debit card income was $4.7 million for 2012, an increase of $357 thousand or 8%, compared to 2011. The increased popularity of electronic banking and transaction processing has resulted in higher ATM and debit card point-of-sale usage income.

Broker-dealer fees and commissions were up $275 thousand or 15%, compared to 2011. Broker-dealer fees and commissions fluctuate mainly due to sales volume, which continued to increase during 2012 as a result of improving market and economic conditions and our renewed focus on this line of business.

During the third quarter of 2011 we purchased an additional $18.0 million of company owned life insurance. The increased amount of insurance was largely responsible for the $327 thousand increase in company owned life insurance income for 2012.

Loan servicing income represents fees earned for servicing mortgage and indirect auto loans sold to third parties, net of amortization expense and impairment losses, if any, associated with capitalized loan servicing assets. Loan servicing income was down $218 thousand or 26% for the year ended December 31, 2012 compared to 2011. Loan servicing income decreased as a result of more rapid amortization of servicing rights due to loans paying off, lower fees collected due to a decrease in the sold and serviced portfolio and write-downs on capitalized mortgage servicing assets.

Net gain on loans held for sale was $1.4 million in 2012, an increase of $541 thousand or 61%, compared to 2011, mainly due to increased origination volume related primarily to refinancing activity, a result of low interest rates.

Net gains from the sales of investment securities were $2.7 million for the year ended December 31, 2012, compared to $3.0 million for the year ended December 31, 2011. During 2012, we recognized gains totaling $2.6 million from the sale of five pooled trust-preferred securities. Net gains for 2011 included $2.3 million from the sale of four pooled trust-preferred securities and $730 thousand from the sale of eight mortgage-backed securities. The amount and timing of our sale of investments securities is dependent on a number of factors, including our prudent efforts to realize gains while managing duration, premium and credit risk.

Due to their proximity to our existing locations, we consolidated four branches as part of the branch acquisitions. The majority of the loss on the disposal of other assets for 2012 was due to write-off of leasehold improvements and other fixed assets for these branches that were closed.

Other noninterest income increased $495 thousand or 17% for the year ended December 31, 2012, compared to 2011. Income from our investment in several limited partnerships and dividends from FHLB stock comprised the majority of the year-over-year increase.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Expense

The following table summarizes our noninterest expense for the years ended December 31 (in thousands):

	2012		2011		2010
Salaries and employee benefits	$	40,127	$	35,743	$	32,844
Occupancy and equipment		11,419		10,868		10,818
Professional services		4,133		2,617		2,197
Computer and data processing		3,271		2,437		2,487
Supplies and postage		2,497		1,778		1,772
FDIC assessments		1,300		1,513		2,507
Advertising and promotions		929		1,259		1,121
Loss on extinguishment of debt		—		1,083		—
Other		7,721		6,496		7,171
Total noninterest expense	$	71,397	$	63,794	$	60,917

The components of noninterest expense fluctuated as discussed below.

Salaries and employee benefits (which includes salary-related expenses and fringe benefit expenses) was $40.1 million for 2012, up $4.4 million or 12% from 2011. As discussed earlier, salaries and employee benefits for 2012 included pre-tax costs of approximately $2.6 million that were incurred in association with the retirement of our former CEO. After adjusting for these expenses, the increase in salaries and employee benefits for 2012 when compared to the prior year is attributable to higher pension costs along with increased staffing levels. Full time equivalent employees increased by 9% to 628 at December 31, 2012 from 575 at December 31, 2011, primarily due to the branch acquisitions.

Occupancy and equipment increased by $551 thousand or 5% when comparing 2012 to 2011. The increase was primarily related to the growth in the branch network related to the branch acquisitions.

Professional services expense of $4.1 million in 2012 increased $1.5 million or 58% from 2011. Professional fees increased primarily due to legal expenses related to the branch acquisitions. The management transition described earlier also contributed to the increase in professional fees.

Computer and data processing and supplies and postage expense increased, collectively, by $1.6 million when comparing 2012 to 2011. The year-over-year increase was due to expenses related to the branch acquisition transactions.

FDIC assessments decreased $213 thousand for the year ended December 31, 2012, compared to 2011, primarily a result of changes implemented by the FDIC in the method of calculating assessment rates which became effective in the second quarter of 2011.

Advertising and promotions costs were $330 thousand or 26% lower in 2012 compared to 2011 due to the timing of marketing campaigns and promotions, coupled with cost management strategies.

We redeemed all of our 10.20% junior subordinated debentures during the third quarter of 2011. As a result of the redemption, we recognized a loss on extinguishment of debt of $1.1 million, consisting of a redemption premium of $852 thousand and a write-off of the remaining unamortized issuance costs of $231 thousand in 2011.

Other noninterest expense increased $1.2 million or 19% during 2012 compared to 2011. The increases in other noninterest expenses were primarily related to the branch acquisition transactions.

The efficiency ratio for the year ended December 31, 2012 was 62.87% compared with 60.55% for 2011. The higher efficiency ratio is attributable to the additional expenses related to the branch acquisitions and retirement of our former CEO, as previously discussed. The efficiency ratio is calculated by dividing total noninterest expense, excluding other real estate expense and amortization of intangible assets, by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities. Taxes are not part of this calculation. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease would indicate a more efficient allocation of resources.

Income Taxes

We recognized income tax expense of $11.3 million for 2012 compared to $11.4 million for 2011. The lower tax provision was primarily attributable to a decrease in our effective tax rate to 32.6% for 2012 compared to 33.4% for 2011. The lower effective tax rate in 2012 was a result of the greater impact of tax-exempt income on lower taxable income. Effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities and earnings on company owned life insurance.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED

DECEMBER 31, 2011 AND DECEMBER 31, 2010

Net Interest Income and Net Interest Margin

Net interest income in the consolidated statements of income (which excludes the taxable equivalent adjustment) was $81.9 million in 2011, compared to $78.8 million in 2010. The taxable equivalent adjustments (the adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that income been subject to a taxation using a tax rate of 35%) of $2.1 million and $1.9 million for 2011 and 2010, respectively, resulted in fully taxable equivalent net interest income of $83.9 million in 2011 and $80.7 million in 2010.

Taxable equivalent net interest income of $83.9 million for 2011 was $3.2 million or 4% higher than 2010. The impact of a decline in average yields on our assets was diminished by a 5% increase in interest-earning assets. The average balance of loans rose $98.4 million or 8% to $1.394 billion, reflecting growth in the commercial and consumer indirect loan portfolios, and the average balance of interest-earning assets rose $98.6 million to $2.080 billion.

The increase in taxable equivalent net interest income was a function of a favorable volume variance (as balance sheet changes in both volume and mix increased taxable equivalent net interest income by $7.8 million), partially offset by an unfavorable rate variance (decreasing taxable equivalent net interest income by $4.5 million). The change in mix and volume of earning assets increased taxable equivalent interest income by $6.3 million, while the change in volume and composition of interest-bearing liabilities decreased interest expense by $1.5 million, for a net favorable volume impact of $7.8 million on taxable equivalent net interest income. Rate changes on earning assets reduced interest income by $7.4 million, while changes in rates on interest-bearing liabilities lowered interest expense by $2.9 million, for a net unfavorable rate impact of $4.5 million.

The net interest margin for 2011 was 4.04% compared to 4.07% in 2010. The slight decrease in net interest margin was attributable to a 3 basis point lower contribution from net free funds (primarily attributable to lower rates on interest-bearing liabilities reducing the value of noninterest-bearing deposits and other net free funds). The interest rate spread remained unchanged from the year ended December 31, 2010 at 3.87%, as a 30 basis point decrease in the yield on earning assets offset the 30 basis point decrease in the cost of interest-bearing liabilities.

The Federal Reserve left the Federal funds rate unchanged at 0.25% during 2011 and 2010.

For 2011, the yield on average earning assets of 4.67% was 30 basis points lower than 2010. Loan yields decreased 33 basis points to 5.53%. Commercial mortgage and consumer indirect loans in particular, down 31 and 66 basis points, respectively, experienced lower yields given the competitive pricing pressures and re-pricing of loans in a low interest rate environment. The yield on investment securities dropped 38 basis points to 2.93%, also impacted by the lower interest rate environment and prepayments of mortgage-related investment securities. Overall, earning asset rate changes reduced interest income by $7.5 million.

The cost of average interest-bearing liabilities of 0.80% in 2011 was 30 basis points lower than 2010. The average cost of interest-bearing deposits was 0.74% in 2011, 23 basis points lower than 2010, reflecting the low-rate environment, mitigated by a focus on product pricing to retain balances. The cost of borrowings decreased 175 basis points to 1.58% for 2011, primarily a result of the redemption of the 10.20% junior subordinated debentures. The interest-bearing liability rate changes reduced interest expense by $2.9 million.

Average interest-earning assets of $2.080 billion in 2011 were $98.6 million or 5% higher than 2010. Average investment securities increased $5.0 million while average loans increased $98.4 million or 8%. Commercial loans increased $42.1 million and consumer loans increased $73.5 million, offset by a $17.2 million decrease in residential mortgage loans.

Average interest-bearing liabilities of $1.662 billion in 2011 were up $51.6 million or 3% versus 2010. On average, interest-bearing deposits grew $22.8 million, while average noninterest-bearing demand deposits (a principal component of net free funds) increased by $38.4 million. Average borrowings increased $28.9 million, representing a $50.0 million increase and $21.1 million decrease in short-term and long-term borrowings, respectively.

Provision for Loan Losses

The provision for loan losses was $7.8 million for the year ended December 31, 2011 compared with $6.7 million for 2010.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Income

Service charges on deposits were $8.7 million in 2011, which was $906 thousand or 9% lower than 2010. The decrease was primarily due to changes in customer behavior and regulatory changes that included requirements for customers to opt-in for overdraft coverage for certain types of electronic banking activities.

ATM and debit card income was $4.4 million for 2011, an increase of $364 thousand or 9%, compared to 2010. The increased popularity of electronic banking and transaction processing has resulted in higher ATM and debit card point-of-sale usage income.

Broker-dealer fees and commissions were up $546 thousand or 43%, compared to 2010, as a result of improving market and economic conditions and our renewed focus on this line of business.

Company owned life insurance income was up $317 thousand or 29% for the year ended December 31, 2011 compared to the same period in 2010. The increase was the result of an additional $18.0 million investment in company owned life insurance during the third quarter of 2011.

Loan servicing income was down $289 thousand or 26% for the year ended December 31, 2011 compared to 2010. Loan servicing income decreased as a result of more rapid amortization of servicing rights due to loans paying off, lower fees collected due to a decrease in the sold and serviced portfolio and write-downs on capitalized mortgage servicing assets.

Net gain on loans held for sale was $880 thousand in 2011, an increase of $230 thousand or 35%, compared to 2010, mainly due to the $153 thousand gain relating to the servicing retained sale of $13.0 million of indirect auto loans during the third quarter of 2011.

Net gains from the sales of investment securities were $3.0 million for the year ended December 31, 2011, compared to $169 thousand in 2010. Net gains from the sales of investment securities in 2011 included net gains of $2.3 million from the sale of four pooled trust-preferred securities that had been written down in prior periods and included in non-performing assets. Net gains of $730 thousand from the sale of eight mortgage-backed securities were also recognized during 2011.

Other noninterest income increased $529 thousand or 23% for the year ended December 31, 2011, compared to 2010. Other noninterest income for 2011 includes $152 thousand related to insurance proceeds received for losses relating to an irregular instance of fraudulent debit card activity recorded in the fourth quarter of 2010. Merchant services fees paid by customers for account management and electronic processing of transactions and income from our capital investment in several limited partnerships also contributed to the 2011 increases.

Noninterest Expense

Salaries and employee benefits (which includes salary-related expenses and fringe benefit expenses) was $35.7 million for 2011, up $2.9 million or 9% from 2010. Average full-time equivalent employees (“FTEs”) were 576 for 2011, about the same as 577 for 2010. Salary-related expenses increased $2.0 million for the year ended December 31, 2011, compared to 2010, reflecting an increase in estimated incentive compensation, which was previously limited under the TARP Capital Purchase Program. Fringe benefit expenses increased $672 thousand or 9%, primarily attributable to higher medical expenses.

Professional services expense of $2.6 million in 2011 increased $420 thousand or 19% from 2010, primarily due to legal and shareholder expenses related to our common stock offering and redemption of our Series A preferred stock and 10.20% junior subordinated debentures. We also recognized a loss on extinguishment of debt of $1.1 million in connection with the redemption of the 10.20% junior subordinated debentures during 2011.

FDIC assessments decreased $1.0 million for the year ended December 31, 2011, compared to 2010, primarily a result of changes implemented by the FDIC in the method of calculating assessment rates which became effective in the second quarter of 2011.

Advertising and promotions expenses were $138 thousand or 12% higher in 2011 compared to 2010 due to increases in business development expenses and the opening of a new branch in suburban Rochester in the third quarter of 2011.

Other noninterest expense decreased $404 thousand or 6% during 2011 compared to 2010. The 2010 expense includes a loss of approximately $1.0 million relating to irregular instances of fraudulent debit card activity.

The efficiency ratio for the year ended December 31, 2011 was 60.55% compared with 60.36% for 2010.

Income Taxes

We recognized income tax expense of $11.4 million for 2011 compared to $9.4 million for 2010. The change was due in part to a $3.6 million increase in pretax income between the years. In addition, during 2010, we recorded non-recurring tax benefits of $1.2 million related to valuation of our deferred tax assets as a result of the NYS repeal of the experience method for determining bad debts and re-valuing at the highest Federal statutory rate of 35%. Our effective tax rates were 33.4% in 2011 and 30.5% in 2010.

- 41 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION

OVERVIEW

At December 31, 2012, we had total assets of $2.764 billion, an increase of 18% from $2.336 billion as of December 31, 2011, largely attributable to the branch acquisitions combined with our continued core business growth in both loans and deposits. Net loans were $1.681 billion as of December 31, 2012, up $219.5 million, or 15%, when compared to $1.462 billion as of December 31, 2011. The increase in net loans was primarily attributed to the continued expansion of the indirect lending program, commercial business development efforts and loans acquired in the branch acquisition. At December 31, 2012, total loans included $64.5 million in loans obtained in the branch acquisitions. Non-performing assets totaled $10.1 million as of December 31, 2012, up $875 thousand from a year ago. Total deposits amounted to $2.262 billion and $1.932 billion as of December 31, 2012 and 2011, respectively. As of December 31, 2012, borrowed funds totaled $179.8 million, compared to $150.7 million as of December 31, 2011. Book value per common share was $17.15 and $15.92 as of December 31, 2012 and 2011, respectively. As of December 31, 2012 our total shareholders’ equity was $253.9 million compared to $237.2 million a year earlier.

INVESTING ACTIVITIES

The following table summarizes the composition of the available for sale and held to maturity security portfolios (in thousands).

	Investment Securities Portfolio Composition
	At December 31,
	2012				2011				2010
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
Securities available for sale:
U.S. Government agency and government-sponsored enterprise securities	$	128,097	$	131,695	$	94,947	$	97,712	$	141,591	$	140,784
State and political subdivisions		188,997		195,210		119,099		124,424		105,622		105,666
Mortgage-backed securities:
Agency mortgage-backed securities		479,913		494,770		390,375		401,596		414,502		417,709
Non-Agency mortgage-backed securities		73		1,098		327		2,089		981		1,572
Asset-backed securities		121		1,023		297		1,697		564		637
Total available for sale securities		797,201		823,796		605,045		627,518		663,260		666,368
Securities held to maturity:
State and political subdivisions		17,905		18,478		23,297		23,964		28,162		28,849
Total investment securities	$	815,106	$	842,274	$	628,342	$	651,482	$	691,422	$	695,217

Our investment policy is contained within our overall Asset-Liability Management and Investment Policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, need for collateral and desired risk parameters. In pursuing these objectives, we consider the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability, pledgeable nature and risk diversification. Our Treasurer, guided by ALCO, is responsible for investment portfolio decisions within the established policies.

Impairment Assessment

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

- 42 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

As of December 31, 2012, management does not have the intent to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. Management does not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2012, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in our consolidated statements of income. The following discussion provides further details of our assessment of the securities portfolio by investment category.

U.S. Government Agencies and Government Sponsored Enterprises (“GSE”). As of December 31, 2012, there were six securities in an unrealized loss position in the U.S. Government agencies and GSE portfolio with unrealized losses totaling $69 thousand. Of these, three were in an unrealized loss position for 12 months or longer and had an aggregate amortized cost of $3.0 million and unrealized losses of $2 thousand. The decline in fair value is attributable to changes in interest rates, and not credit quality, and because we do not have the intent to sell these securities and it is likely that we will not be required to sell the securities before their anticipated recovery, we do not consider these securities to be other-than-temporarily impaired at December 31, 2012.

State and Political Subdivisions. As of December 31, 2012, the state and political subdivisions (“municipals”) portfolio totaled $213.1 million, of which $195.2 million was classified as available for sale. As of that date, $17.9 million was classified as held to maturity with a fair value of $18.5 million. As of December 31, 2012, there were 36 municipals in an unrealized loss position, all of which were available for sale and in an unrealized loss position for less than 12 months. Those 36 securities had an aggregate amortized cost of $8.5 million and unrealized losses totaling $72 thousand.

Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because we do not have the intent to sell these securities and it is not likely that we will be required to sell the securities before their anticipated recovery, we do not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Agency Mortgage-backed Securities. With the exception of the non-Agency mortgage-backed securities (“non-Agency MBS”) discussed below, all of the mortgage-backed securities held by us as of December 31, 2012, were issued by U.S. Government sponsored entities and agencies (“Agency MBS”), primarily FNMA. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA. The GNMA mortgage-backed securities are backed by the full faith and credit of the U.S. Government.

As of December 31, 2012, there were ten securities in the Agency MBS portfolio that were in an unrealized loss position. Of these, three were in an unrealized loss position for 12 months or longer and had an aggregate amortized cost of $1.2 million and unrealized losses of $2 thousand. Given the high credit quality inherent in Agency MBS, we do not consider any of the unrealized losses as of December 31, 2012 on such MBS to be credit related or other-than-temporary. As of December 31, 2012, we did not intend to sell any of Agency MBS that were in an unrealized loss position, all of which were performing in accordance with their terms.

Non-Agency Mortgage-backed Securities. Our non-Agency MBS portfolio consists of positions in two privately issued whole loan collateralized mortgage obligations with a fair value of $1.1 million and net unrealized gains of $1.0 million as of December 31, 2012. As of that date, each of the two non-Agency MBS were rated below investment grade. None of these securities were in an unrealized loss position.

Asset-backed Securities (“ABS”). As of December 31, 2012, the fair value of our ABS portfolio totaled $1.0 million and consisted of positions in six securities, the majority of which are pooled trust preferred securities (“TPS”) issued primarily by insurance companies and, to a lesser extent, financial institutions located throughout the United States. As a result of some issuers defaulting and others electing to defer interest payments, we considered the TPS to be non-performing and stopped accruing interest on these investments during 2009. As of December 31, 2012, each of the securities in the ABS portfolio was rated below investment grade. None of these securities were in an unrealized loss position.

During 2012, we recognized gains totaling $2.6 million from the sale of five TPS. The five securities had a fair value of $1.1 million at December 31, 2011. We continue to monitor the market for these securities and evaluate the potential for future dispositions.

Other Investments. As a member of the FHLB the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. At December 31, 2012, our ownership of FHLB and FRB stock totaled $8.4 million and $3.9 million, respectively and is included in other assets and recorded at cost, which approximates fair value.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

LENDING ACTIVITIES

Total loans were $1.706 billion at December 31, 2012, an increase of $220.9 million or 15% from December 31, 2011. Commercial loans increased $44.9 million or 7% and represented 39.4% of total loans at the end of 2012. Residential mortgage loans were $133.5 million, up $19.6 million or 17% and represented 7.8% of total loans at December 31, 2012, while consumer loans increased $156.4 million to represent 52.8% of total loans at December 31, 2012 compared to 50.1% at December 31, 2011. The composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, is summarized as follows (in thousands):

	Loan Portfolio Composition
	At December 31,
	2012					2011					2010					2009					2008
	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Commercial business	$	258,675		15.2	%	$	233,836		15.7	%	$	211,031		15.7	%	$	206,383		16.3	%	$	180,100		16.1	%
Commercial mortgage		413,324		24.2			393,244		26.5			352,930		26.2			330,748		26.2			285,383		25.5
Total commercial		671,999		39.4			627,080		42.2			563,961		41.9			537,131		42.5			465,483		41.6
Residential mortgage		133,520		7.8			113,911		7.7			129,580		9.6			144,215		11.4			177,683		15.8
Home equity		286,649		16.8			231,766		15.6			208,327		15.5			200,684		15.9			189,794		16.9
Consumer indirect		586,794		34.4			487,713		32.9			418,016		31.1			352,611		27.9			255,054		22.8
Other consumer		26,764		1.6			24,306		1.6			26,106		1.9			29,365		2.3			33,065		2.9
Total consumer		900,207		52.8			743,785		50.1			652,449		48.5			582,660		46.1			477,913		42.6
Total loans		1,705,726		100.0	%		1,484,776		100.0	%		1,345,990		100.0	%		1,264,006		100.0	%		1,121,079		100.0	%
Allowance for loan losses		24,714					23,260					20,466					20,741					18,749
Total loans, net	$	1,681,012				$	1,461,516				$	1,325,524				$	1,243,265				$	1,102,330

As of December 31, 2012, the residential mortgage portfolio consisted of $28.2 million of loans acquired with the branch acquisitions and $105.3 million of organic loans. The decrease in organic residential mortgage loans from $129.6 million to $113.9 million to $105.3 million for the periods ending December 31, 2010, 2011 and 2012, respectively, and the increase in consumer indirect loans from $418.0 million to $487.7 million to $586.8 million for the same periods reflects a strategic shift to increase our consumer indirect loan portfolio, while placing less emphasis on expanding our residential mortgage loan portfolio, coupled with our practice of selling the majority of our fixed-rate residential mortgages in the secondary market with servicing rights retained.

Commercial loans increased during 2012 as we continued our commercial business development efforts. 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.

The Company participates in various lending programs in which guarantees are supplied by U.S. government agencies, such as the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2012, the principal balance of such loans (included in commercial loans) was $62.5 million and the guaranteed portion amounted to $43.1 million. Most of these loans were guaranteed by the SBA.

Commercial business loans were $258.7 million at the end of 2012, up $24.8 million or 11% since year-end 2011, and comprised 15.2% of total loans outstanding at December 31, 2012. We typically originate business loans of up to $15.0 million for small to mid-sized businesses in our market area for working capital, equipment financing, inventory financing, accounts receivable financing, or other general business purposes. Loans of this type are in a diverse range of industries. Within the commercial business classification, loans to finance agricultural production totaled approximately 1% of commercial business loans as of December 31, 2012. As of December 31, 2012, commercial business SBA loans accounted for a total of $38.9 million or 15% of our commercial business loan portfolio.

Commercial mortgage loans totaled $413.3 million at December 31, 2012, up $20.1 million or 5% from December 31, 2011, and comprised 24.2% of total loans, compared to 26.5% at December 31, 2011. Commercial mortgage includes both owner occupied and non-owner occupied commercial real estate loans. Approximately 46% and 45% of the commercial mortgage portfolio at December 31, 2012 and 2011, respectively, was owner occupied commercial real estate. The majority of our commercial real estate loans are secured by office buildings, manufacturing facilities, distribution/warehouse facilities, and retail centers, which are generally located in our local market area. As of December 31, 2012, commercial mortgage SBA loans accounted for a total of $18.1 million or 4% of our commercial mortgage loan portfolio.

Our current lending standards for commercial real estate and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing and / or pre-sales, minimum debt-service coverage ratios, minimum borrower equity, and maximum loan to cost. Currently, the maximum standard for LTV is 85%, with lower limits established for certain higher risk types, such as raw land which has a 65% LTV maximum.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Residential mortgage loans totaled $133.5 million at the end of 2012, up $19.6 million or 17% from the prior year and comprised 7.8% of total loans outstanding at December 31, 2012 and 7.7% at December 31, 2011. Residential mortgage loans include conventional first lien home mortgages and we generally limit the maximum loan to 85% of collateral value without credit enhancement (e.g. PMI insurance). As part of management’s historical practice of originating and servicing residential mortgage loans, the majority of our fixed-rate residential mortgage loans are sold in the secondary market with servicing rights retained. Residential mortgage products continue to be underwritten using FHLMC and FNMA secondary marketing guidelines.

Consumer loans totaled $900.2 million at December 31, 2012, up $156.4 million or 21% compared to 2011, and represented 52.8% of the 2012 year-end loan portfolio versus 50.1% at year-end 2011. Loans in this classification include indirect consumer, home equity and other consumer installment loans. 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. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

Consumer indirect loans amounted to $586.8 million at December 31, 2012 up $99.1 million or 20% compared to 2011, and represented 34.4% of the 2012 year-end loan portfolio versus 32.9% at year-end 2011. The loans are primarily for the purchase of automobiles (both new and used) and light duty trucks primarily to individuals, but also to corporations and other organizations. The loans are originated through dealerships and assigned to us with terms that typically range from 36 to 84 months. During the year ended December 31, 2012, we originated $324.6 million in indirect loans with a mix of approximately 49% new auto and 51% used vehicles. This compares with $266.7 million in indirect loans with a mix of approximately 46% new auto and 54% used vehicles for the same period in 2011. The increase in loans for new autos reflects changes in market conditions in 2012. We do business with over 400 franchised auto dealers located in Western, Central, and the Capital District of New York, and Northern Pennsylvania.

Home equity consists of home equity lines, as well as home equity loans, some of which are first lien positions. Home equities amounted to $286.6 million at December 31, 2012 up $54.9 million or 24% compared to 2011, and represented 16.8% of the 2012 year-end loan portfolio versus 15.6% at year-end 2011. The increase included home equities acquired in the branch acquisitions, which totaled $26.8 million at December 31, 2012. The portfolio had a weighted average LTV at origination of approximately 54% and 53% at December 31, 2012 and 2011, respectively. Approximately 69% of the loans in the home equity portfolio were first lien positions at December 31, 2012 and 2011.

Our underwriting guidelines for home equity products includes a combination of borrower FICO (credit score), the LTV of the property securing the loan and evidence of the borrower having sufficient income to repay the loan. Currently, for home equity products, the maximum acceptable LTV is 90%. The average FICO score for new home equity production was 758 in 2012 compared to 755 in 2011.

Other consumer loans totaled $26.8 million at December 31, 2012, up $2.5 million or 10% compared to 2011, and represented 1.6% of the loan portfolio at December 31, 2012 and 2011. The increase in other consumer loans is attributed to loans acquired in the branch acquisitions, which totaled $3.4 million at December 31, 2012. Other consumer consists of personal loans (collateralized and uncollateralized) and deposit account collateralized loans.

Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an appropriate allowance for loan losses, and sound nonaccrual and charge off policies.

An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analyses by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our core footprint. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2012, no significant concentrations, as defined above, existed in our portfolio in excess of 10% of total loans.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Loans Held for Sale and Loan Servicing Rights. Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate mortgages and totaled $1.5 million and $2.4 million as of December 31, 2012 and 2011, 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 $273.3 million and $297.8 million as of December 31, 2012 and 2011, respectively.

During 2011, we sold $13.0 million of indirect auto loans, which were reclassified from portfolio to loans held for sale during the second quarter of 2011. The loan servicing asset for the sold and serviced indirect auto loans, included in other assets in the consolidated statements of financial condition, was $250 thousand and $574 thousand as of December 31, 2012 and 2011, respectively.

Allowance for Loan Losses

The following table summarizes the activity in the allowance for loan losses (in thousands).

	Loan Loss Analysis
	Year Ended December 31,
	2012			2011			2010			2009			2008
Allowance for loan losses, beginning of year	$	23,260		$	20,466		$	20,741		$	18,749		$	15,521
Charge-offs:
Commercial business		729			1,346			3,426			2,360			720
Commercial mortgage		745			751			263			355			1,192
Residential mortgage		326			152			290			225			320
Home equity		305			449			259			195			110
Consumer indirect		6,589			4,713			4,669			3,637			2,011
Other consumer		874			877			909			1,058			1,106
Total charge-offs		9,568			8,288			9,816			7,830			5,459
Recoveries:
Commercial business		336			401			326			428			684
Commercial mortgage		261			245			501			150			315
Residential mortgage		130			90			21			12			26
Home equity		44			44			36			20			19
Consumer indirect		2,769			2,066			1,485			1,030			548
Other consumer		354			456			485			480			544
Total recoveries		3,894			3,302			2,854			2,120			2,136
Net charge-offs		5,674			4,986			6,962			5,710			3,323
Provision for loan losses		7,128			7,780			6,687			7,702			6,551
Allowance for loan losses, end of year	$	24,714		$	23,260		$	20,466		$	20,741		$	18,749
Net charge-offs to average loans		0.36	%		0.36	%		0.54	%		0.47	%		0.32	%
Allowance to end of period loans		1.45	%		1.57	%		1.52	%		1.64	%		1.67	%
Allowance to end of period non-performing loans		271	%		329	%		270	%		239	%		229	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table sets forth the allocation of the allowance for loan losses by loan category as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which actual losses may occur. The total allowance is available to absorb losses from any segment of the loan portfolio (in thousands).

	Allowance for Loan Losses by Loan Category
	At December 31,
	2012					2011					2010					2009					2008
			Percentage					Percentage					Percentage					Percentage					Percentage
	Loan		of loans by			Loan		of loans by			Loan		of loans by			Loan		of loans by			Loan		of loans by
	Loss		category to			Loss		category to			Loss		category to			Loss		category to			Loss		category to
	Allowance		total loans			Allowance		total loans			Allowance		total loans			Allowance		total loans			Allowance		total loans
Commercial business	$	4,884		15.2	%	$	4,036		15.7	%	$	3,712		15.7	%	$	4,407		16.3	%	$	3,300		16.1	%
Commercial mortgage		6,581		24.2			6,418		26.5			6,431		26.2			6,638		26.2			4,635		25.5
Residential mortgage		740		7.8			858		7.7			1,013		9.6			1,251		11.4			2,516		15.8
Home equity		1,282		16.8			1,242		15.6			972		15.5			1,043		15.9			2,374		16.9
Consumer indirect		10,715		34.4			10,189		32.9			7,754		31.1			6,837		27.9			5,152		22.8
Other consumer		512		1.6			517		1.6			584		1.9			565		2.3			772		2.9
Total	$	24,714		100.0	%	$	23,260		100.0	%	$	20,466		100.0	%	$	20,741		100.0	%	$	18,749		100.0	%

Management believes that the allowance for loan losses at December 31, 2012 is adequate to cover probable losses in the loan portfolio at that date. Factors beyond our control, however, such as general national and local economic conditions, can adversely impact the adequacy of the allowance for loan losses. As a result, no assurance can be given that adverse economic conditions or other circumstances will not result in increased losses in the portfolio or that the allowance for loan losses will be sufficient to meet actual loan losses. See Part I, Item 1A “Risk Factors” for the risks impacting this estimate. Management presents a quarterly review of the adequacy of the allowance for loan losses to our Board of Directors based on the methodology that is described in further detail in Part I, Item I “Business” under the section titled “Lending Activities”. See also “Critical Accounting Estimates” for additional information on the allowance for loan losses.

Non-performing Assets and Potential Problem Loans

The following table sets forth information regarding non-performing assets (in thousands):

	Non-performing Assets
	At December 31,
	2012			2011			2010			2009			2008
Non-accruing loans:
Commercial business	$	3,413		$	1,259		$	947		$	650		$	510
Commercial mortgage		1,799			2,928			3,100			2,288			2,670
Residential mortgage		2,040			1,644			2,102			2,376			3,365
Home equity		939			682			875			880			1,143
Consumer indirect		891			558			514			621			445
Other consumer		25			—			41			7			56
Total non-accruing loans		9,107			7,071			7,579			6,822			8,189
Restructured accruing loans		—			—			—			—			—
Accruing loans contractually past due over 90 days		18			5			3			1,859			7
Total non-performing loans		9,125			7,076			7,582			8,681			8,196
Foreclosed assets		184			475			741			746			1,007
Non-performing investment securities		753			1,636			572			1,015			49
Total non-performing assets	$	10,062		$	9,187		$	8,895		$	10,442		$	9,252
Non-performing loans to total loans		0.53	%		0.48	%		0.56	%		0.69	%		0.73	%
Non-performing assets to total assets		0.36	%		0.39	%		0.40	%		0.51	%		0.48	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-performing assets include non-performing loans, foreclosed assets and non-performing investment securities. Non-performing assets at December 31, 2012 were $10.1 million, an increase of $875 thousand from the $9.2 million balance at December 31, 2011. The primary component of non-performing assets is non-performing loans, which were $9.1 million or 0.53% of total loans at December 31, 2012, an increase of $2.0 million from $7.1 million or 0.48% of total loans at December 31, 2011. The Company’s ratio of non-performing loans to total loans continues to compare favorably to its peer group average, which was 2.48% of total loans at September 30, 2012, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of September 30, 2012 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

Approximately $4.2 million, or 46%, of the $9.1 million in non-performing loans as of December 31, 2012 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. For non-accruing loans outstanding as of December 31, 2012, the amount of interest income forgone totaled $555 thousand. Included in nonaccrual loans are troubled debt restructurings (“TDRs”) of $636 thousand at December 31, 2012. We had no TDRs that were accruing interest as of December 31, 2012.

Foreclosed assets consist of real property formerly pledged as collateral to loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed asset holdings represented 5 properties totaling $184 thousand at December 31, 2012 and 8 properties totaling $475 thousand at December 31, 2011.

Non-performing investment securities for which we have stopped accruing interest were $753 thousand at December 31, 2012, compared to $1.6 million at December 31, 2011. Non-performing investment securities are included in non-performing assets at fair value and are comprised of pooled trust preferred securities. There have been no securities transferred to non-performing status since the first quarter of 2009. During 2012, we recognized gains totaling $2.6 million from the sale of five ABS securities. The five securities had a fair value of $1.1 million at December 31, 2011. We continue to monitor the market for these securities and evaluate the potential for future dispositions.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes management to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. Management considers loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified $13.8 million and $8.6 million in loans that continued to accrue interest which were classified as substandard as of December 31, 2012 and 2011, respectively. Included in potential problem loans at December 31, 2012 is one credit relationship which we internally downgraded to substandard status from special mention during the fourth quarter 2012. The relationship consists of commercial business and commercial mortgage loans with unpaid principal balances totaling $3.4 million. The downgrade necessitated a provision and increase in our allowance for losses of approximately $400 thousand. These loans were performing in accordance with their contractual terms as of December 31, 2012, however, we continue to monitor this relationship closely.

In addition, we currently have a large commercial relationship with an Industrial Development Agency project in our market area. The relationship consists of a $14.1 million first lien mortgage position and $3.5 million second lien mortgage on a manufacturing facility. Recent events with the underlying third party tenant of the project has resulted in our monitoring the credit relationship more closely and including the first mortgage loan as “uncriticized—watch” and the second mortgage loan as “special mention” in our loan rating system. The loans are current as of December 31, 2012.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

FUNDING ACTIVITIES

Deposits

The following table summarizes the composition of our deposits (dollars in thousands).

	At December 31,
	2012					2011					2010
	Amount		Percent			Amount		Percent			Amount		Percent
Noninterest-bearing demand	$	501,514		22.2	%	$	393,421		20.3	%	$	350,877		18.6	%
Interest-bearing demand		449,744		19.9			362,555		18.8			374,900		19.9
Savings and money market		655,598		28.9			474,947		24.6			417,359		22.2
Certificates of deposit < $100,000		432,506		19.2			486,496		25.2			555,840		29.5
Certificates of deposit of $100,000 or more		222,432		9.8			214,180		11.1			183,914		9.8
Total deposits	$	2,261,794		100.0	%	$	1,931,599		100.0	%	$	1,882,890		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 December 31, 2012, total deposits were $2.262 billion, representing an increase of $330.2 million for the year. The increase is largely attributable to $286.8 million in nonpublic (retail) deposits assumed from the branch acquisitions. Certificates of deposit were approximately 29% and 36% of total deposits at December 31, 2012 and 2011, respectively. Depositors remain hesitant to invest in certificates of deposit for long periods due to the low interest rate environment. This has resulted in lower amounts being placed in time deposits for generally shorter terms.

Nonpublic deposits, the largest component of our funding sources, represented 80% of total deposits and totaled $1.789 billion and $1.541 billion as of December 31, 2012 and 2011, 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.

We had no traditional brokered deposits at December 31, 2012 or 2011, however, we do participate in the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs, which enables depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal CDARS deposits totaled $61.0 million and $46.5 million at December 31, 2012 and 2011, respectively. ICS deposits totaled $18.1 million at December 31, 2012. There were non ICS deposits outstanding at December 31, 2011.

As an additional source of funding, we offer a variety of public (municipal) deposit products to the many towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 25% 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 $454.2 million and $390.2 million, as of December 31, 2012 and 2011, respectively, and represented 20% of total deposits as of the end of each period. In general, the number of public relationships remained stable in comparison to the prior year.

Borrowings

There were no long-term borrowings outstanding as of December 31, 2012 and 2011. Outstanding short-term borrowings are summarized as follows as of December 31 (in thousands):

	2012		2011
Short-term borrowings:
Federal funds purchased	$	—	$	11,597
Repurchase agreements		40,806		36,301
Short-term FHLB borrowings		139,000		102,800
Total short-term borrowings	$	179,806	$	150,698

We classify borrowings as short-term or long-term in accordance with the original terms of the agreement.

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $5 million of immediate credit capacity with FHLB as of December 31, 2012. We had approximately $452 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) Discount Window, none of which was outstanding at December 31, 2012. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had approximately $120 million of credit available under unsecured federal funds purchased lines with various banks as of December 31, 2012. Additionally, we had approximately $150 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 less than one year and include overnight borrowings which the Company typically utilizes to address short term funding needs as they arise. Short-term FHLB borrowings at December 31, 2012 consisted of $99.0 million in overnight borrowings and $40.0 million in short-term advances. Short-term FHLB borrowings at December 31, 2011 consisted of $65.0 million in overnight borrowings and $37.8 million in short-term advances.

The following table summarizes information relating to our short-term borrowings (dollars in thousands).

	At or for the Year Ended December 31,
	2012			2011			2010
Year-end balance	$	179,806		$	150,698		$	77,110
Year-end weighted average interest rate		0.54	%		0.39	%		0.21	%
Maximum outstanding at any month-end	$	229,598		$	188,355		$	77,110
Average balance during the year	$	121,735		$	99,122		$	49,104
Average interest rate for the year		0.48	%		0.50	%		0.74	%

There were no long-term borrowings outstanding at December 31, 2012 and 2011. In August 2011, the Company redeemed all of the 10.20% junior subordinated debentures at a redemption price equaling 105.1% of the principal amount redeemed, plus all accrued and unpaid interest. As a result of the redemption, the Company recognized a loss on extinguishment of debt of $1.1 million, consisting of the redemption premium of $852 thousand and the write-off of the remaining unamortized issuance costs of $231 thousand.

Shareholders’ Equity

Total shareholders’ equity was $253.9 million at December 31, 2012, an increase of $16.7 million from $237.2 million at December 31, 2011. Net income for the year increased shareholders’ equity by $23.4 million, which was partially offset by common and preferred stock dividends declared of $9.3 million. Accumulated other comprehensive income included in shareholders’ equity increased $2.3 million during the year due primarily to higher net unrealized gains on securities available for sale. For detailed information on shareholders’ equity, see Note 12, Shareholders’ Equity, of the notes to consolidated financial statements.

The Company and Bank are subject to various regulatory capital requirements. At December 31, 2012, both the Company and the Bank exceeded all regulatory requirements. For detailed information on regulatory capital, see Note 11, Regulatory Matters, of the notes to consolidated financial statements.

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value of goodwill totaled $49.0 million and $37.4 million as of December 31, 2012 and 2011, respectively. We performed a qualitative assessment of goodwill at the reporting unit level, Five Star Bank, to determine if it was more likely than not that the fair value of the reporting unit is less than its carrying value. In performing a qualitative analysis, factors considered include, but are not limited to, business strategy, financial performance and market and regulatory dynamics. The results of the qualitative assessment for 2012 indicated that it was not more likely than not that the fair value of the reporting unit is less than its carrying value. Consequently, no additional quantitative two-step impairment test was required, and no impairment was recorded in 2012.

The change in the balance for goodwill during the years ended December 31 was as follows (in thousands):

	2012		2011
Goodwill, beginning of year	$	37,369	$	37,369
Branch acquisitions		11,599		—
Impairment		—		—
Goodwill, end of year	$	48,968	$	37,369

Declines in the market value of our publicly traded stock price or declines in our ability to generate future cash flows may increase the potential that goodwill recorded on our consolidated statements of financial condition be designated as impaired and that we may incur a goodwill write-down in the future.

The Company’s other intangible assets consisted entirely of a core deposit intangible asset. The gross carrying amount and accumulated amortization for the core deposit intangible asset was $2.0 million and $190 thousand, respectively, at December 31, 2012. The Company had no other intangible assets as of December 31, 2011. Core deposit intangible amortization expense, included in other noninterest expense on the consolidated statements of income, was $190 thousand for the year ended December 31, 2012. There was no core deposit intangible amortization expense for the years ended December 31, 2011 and 2010. For further discussion, see Note 1, Summary of Significant Accounting Policies, and Note 7, Goodwill and Other Intangible Assets, to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

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

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

The primary sources of liquidity for FII are dividends from the Bank and access to financial and capital markets. Dividends from the Bank are limited by various regulatory requirements related to capital adequacy and earnings trends. The Bank relies on cash flows from operations, core deposits, borrowings and short-term liquid assets. FSIS relies on cash flows from operations and funds from FII when necessary.

Our cash and cash equivalents were $60.4 million as of December 31, 2012, up $2.8 million from $57.6 million as of December 31, 2011. Our net cash provided by operating activities totaled $38.7 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 $99.1 million, which included outflows of $151.3 million for net loan originations and $138.4 million from net investment securities transactions, substantially offset by $195.8 million in cash received through the branch acquisitions. Net cash provided by financing activities of $63.2 million was attributed to a $43.4 million increase in deposits and a $29.1 million increase in short-term borrowings, partly offset by $8.9 million in dividend payments.

Contractual Obligations and Other Commitments

The following table summarizes the maturities of various contractual obligations and other commitments (in thousands):

	At December 31, 2012
	Within 1		Over 1 to 3		Over 3 to 5		Over 5
	year		years		Years		years		Total
On-Balance sheet:
Certificates of deposit (1)	$	495,423	$	127,045	$	31,721	$	749	$	654,938
Supplemental executive retirement plans		159		506		618		1,402		2,685
Off-Balance sheet:
Limited partnership investments (2)	$	402	$	804	$	402	$	—	$	1,608
Commitments to extend credit (3)		435,948		—		—		—		435,948
Standby letters of credit (3)		4,161		4,996		66		—		9,223
Operating leases		1,433		2,689		2,023		4,347		10,492

⁽¹⁾  Includes the maturity of certificates of deposit amounting to $100 thousand or more as follows: $58.7 million in three months or less; $39.5 million between three months and six months; $79.5 million between six months and one year; and $44.7 million over one year.

⁽²⁾  We have committed to capital investments in several limited partnerships of up to $6.3 million, of which we have contributed $4.7 million as of December 31, 2012, including $951 thousand during 2012.

⁽³⁾  We do not expect all of the commitments to extend credit and standby letters of credit to be funded. Thus, the total commitment amounts do not necessarily represent our future cash requirements.

Off-Balance Sheet Arrangements

With the exception of obligations in connection with our irrevocable loan commitments, operating leases and limited partnership investments, we had no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. For additional information on off-balance sheet arrangements, see Note 1, Summary of Significant Accounting Policies and Note 10, Commitments and Contingencies, in the notes to the accompanying consolidated financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Security Yields and Maturities Schedule

The following table sets forth certain information regarding the amortized cost (“Cost”), weighted average yields (“Yield”) and contractual maturities of our debt securities portfolio as of December 31, 2012. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Actual maturities may differ from the contractual maturities presented because borrowers may have the right to call or prepay certain investments. We have stopped accruing interest on our asset-backed securities. No tax-equivalent adjustments were made to the weighted average yields (in thousands).

	Due in one year or less					Due from one to five years					Due after five years through ten years					Due after ten years					Total
	Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield			Cost		Yield
Available for sale debt securities:
U.S. Government agencies and government-sponsored enterprises	$	18,557		1.89	%	$	23,973		2.20	%	$	72,633		1.77	%	$	12,934		0.87	%	$	128,097		1.78	%
State and political subdivisions		10,064		3.64			68,677		2.21			110,256		2.06			—		—			188,997		2.20
Mortgage-backed securities		346		3.76			1,829		3.65			135,235		1.82			342,576		2.33			479,986		2.19
Asset-backed securities		—		—			—		—			—		—			121		—			121		—
		28,967		2.52			94,479		2.24			318,124		1.89			355,631		2.27			797,201		2.13
Held to maturity debt securities:
State and political subdivisions		12,886		2.24			4,164		3.69			768		4.78			87		5.53			17,905		2.70
	$	41,853		2.43	%	$	98,643		2.30	%	$	318,892		1.90	%	$	355,718		2.28	%	$	815,106		2.14	%

Contractual Loan Maturity Schedule

The following table summarizes the contractual maturities of our loan portfolio at December 31, 2012. Loans, net of deferred loan origination costs, include principal amortization and non-accruing loans. Demand loans having no stated schedule of repayment or maturity and overdrafts are reported as due in one year or less (in thousands).

	Due in less than one year		Due from one to five years		Due after five years		Total
Commercial business	$	158,620	$	87,051	$	13,004	$	258,675
Commercial mortgage		134,797		212,004		66,523		413,324
Residential mortgage		28,496		64,013		41,011		133,520
Home equity		49,190		129,284		108,175		286,649
Consumer indirect		204,831		362,478		19,485		586,794
Other consumer		10,647		13,874		2,243		26,764
Total loans	$	586,581	$	868,704	$	250,441	$	1,705,726
Loans maturing after one year:
With a predetermined interest rate			$	249,428	$	131,385	$	380,813
With a floating or adjustable rate				619,276		119,056		738,332
Total loans maturing after one year			$	868,704	$	250,441	$	1,119,145

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Resources

The FRB has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of bank holding companies on a consolidated basis. The guidelines require a minimum Tier 1 leverage ratio of 4.00%, a minimum Tier 1 capital ratio of 4.00% and a minimum total risk-based capital ratio of 8.00%. The following table reflects the ratios and their components (in thousands):

	2012			2011
Total shareholders’ equity	$	253,897		$	237,194
Less: Unrealized gain on securities available for sale, net of tax		16,060			13,570
Unrecognized net periodic pension & postretirement benefits (costs), net of tax		(12,807	)		(12,625	)
Disallowed goodwill and other intangible assets		50,820			37,369
Disallowed deferred tax assets		—			1,794
Tier 1 capital	$	199,824		$	197,086
Adjusted average total assets (for leverage capital purposes)	$	2,595,691		$	2,282,755
Tier 1 leverage ratio (Tier 1 capital to adjusted average total assets)		7.70	%		8.63	%
Total Tier 1 capital	$	199,824		$	197,086
Plus: Qualifying allowance for loan losses		23,352			20,239
Total risk-based capital	$	223,176		$	217,325
Net risk-weighted assets	$	1,866,764		$	1,616,119
Tier 1 capital ratio (Tier 1 capital to net risk-weighted assets)		10.70	%		12.20	%
Total risk-based capital ratio (Total risk-based capital to net risk-weighted assets)		11.96	%		13.45	%

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP and are consistent with predominant practices in the financial services industry. Application of critical accounting policies, which are those policies that management believes are the most important to our financial position and results, requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes and are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions and judgments, which, in turn, may affect amounts reported in the financial statements.

We have numerous accounting policies, of which the most significant are presented in Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets, liabilities, revenues and expenses are reported in the consolidated financial statements and how those reported amounts are determined. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies with respect to the allowance for loan losses, valuation of goodwill and deferred tax assets, the valuation of securities and determination of OTTI, and accounting for defined benefit plans require particularly subjective or complex judgments important to our financial position and results of operations, and, as such, are considered to be critical accounting policies as discussed below. These estimates and assumptions are based on management’s best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. We adjust these estimates and assumptions when facts and circumstances dictate. Illiquid credit markets and volatile equity have combined with declines in consumer spending to increase the uncertainty inherent in these estimates and assumptions. As future events cannot be determined with precision, actual results could differ significantly from our estimates.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Adequacy of the Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of subjective measurements including management’s assessment of the internal risk classifications of loans, changes in the nature of the loan portfolio, industry concentrations, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for loan losses, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. We believe the level of the allowance for loan losses is appropriate as recorded in the consolidated financial statements.

For additional discussion related to our accounting policies for the allowance for loan losses, see the sections titled “Allowance for Loan Losses” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements.

Valuation of Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill has an indefinite useful life and is not amortized, but is tested for impairment. GAAP requires goodwill to be tested for impairment at our reporting unit level on an annual basis, which for us is September 30th, and more frequently if events or circumstances indicate that there may be impairment. Currently, our goodwill is evaluated at the entity level as there is only one reporting unit.

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value. In testing goodwill for impairment, GAAP permits us to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the totality of events and circumstances, we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test would be unnecessary. However, if we conclude otherwise, we would then be required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, Step 2 of the goodwill impairment test is performed to measure the value of impairment loss, if any.

Valuation of Deferred Tax Assets

The determination of deferred tax expense or benefit is based on changes in the carrying amounts of assets and liabilities that generate temporary differences. The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income based on estimates and assumptions (after consideration of historical taxable income as well as tax planning strategies). If these estimates and related assumptions change, we may be required to record valuation allowances against our deferred tax assets resulting in additional income tax expense in the consolidated statements of income. Management evaluates deferred tax assets on a quarterly basis and assesses the need for a valuation allowance, if any. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in valuation allowance from period to period are included in our tax provision in the period of change. For additional discussion related to our accounting policy for income taxes see Note 15, Income Taxes, of the notes to consolidated financial statements.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Valuation and Other Than Temporary Impairment of Securities

We record all of our securities that are classified as available for sale at fair value. The fair value of equity securities are determined using public quotations, when available. Where quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant judgment or estimation. Fair values of public bonds and those private securities that are actively traded in the secondary market have been determined through the use of third-party pricing services using market observable inputs. Private placement securities and other corporate fixed maturities for which we do not receive a public quotation are valued using a variety of acceptable valuation methods. Market rates used are applicable to the yield, credit quality and average maturity of each security. Private equity securities may also utilize internal valuation methodologies appropriate for the specific asset. Fair values might also be determined using broker quotes or through the use of internal models or analysis.

Securities are evaluated quarterly to determine whether a decline in their fair value is other than temporary. Management utilizes criteria such as, the current intent or requirement to hold or sell the security, the magnitude and duration of the decline and, when appropriate, consideration of negative changes in expected cash flows, creditworthiness, near term prospects of issuers, the level of credit subordination, estimated loss severity, and delinquencies, to determine whether a loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable. Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit issues or concerns, or the security is intended to be sold. The amount of impairment related to non-credit related factors on securities not intended to be sold is recognized in other comprehensive income.

Defined Benefit Pension Plan

Management is required to make various assumptions in valuing its defined benefit pension plan assets and liabilities. These assumptions include, but are not limited to, the expected long-term rate of return on plan assets, the weighted average discount rate used to value certain liabilities and the rate of compensation increase. We use a third-party specialist to assist in making these estimates and assumptions. Changes in these estimates and assumptions are reasonably possible and may have a material impact on our consolidated financial statements, results of income or liquidity.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1, Summary of Significant Accounting Policies—Recent Accounting Pronouncements, in the notes to consolidated financial statements for a discussion of recent accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Asset-Liability Management

The principal objective of our interest rate risk management is to evaluate the interest rate risk inherent in assets and liabilities, determine the appropriate level of risk to us given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with the guidelines approved by our Board of Directors. Management is responsible for reviewing with the Board of Directors our activities and strategies, the effect of those strategies on the net interest income, the fair value of the portfolio and the effect that changes in interest rates will have on the portfolio and exposure limits. Management has developed an Asset-Liability Policy that meets the strategic objectives and regularly reviews the activities of the Bank.

Portfolio Composition

Our balance sheet assets are a mix of fixed and variable rate assets with consumer indirect loans, commercial loans, and MBSs comprising a significant portion of our assets. Our consumer indirect loan portfolio comprised 21% of assets and is primarily fixed rate loans with relatively short durations. Our commercial loan portfolio totaled 24% of assets and is a combination of fixed and variable rate loans, lines and mortgages. The MBS portfolio, including collateralized mortgages obligations, totaled 18% of assets with durations averaging three to five years.

Our liabilities are made up primarily of deposits, which account for approximately 90% of total liabilities. Of these deposits, the majority, or 53%, is in nonpublic variable rate and noninterest bearing products including demand (both noninterest and interest- bearing), savings and money market accounts. In addition, fixed rate nonpublic certificate of deposit products make up 27% of total deposits. The bank also has a significant amount of public deposits, which represented 20% of total deposits as of December 31, 2012.

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 December 31, 2012, the Company is generally asset sensitive, meaning that, in most cases, net interest income tends to rise as interest rates rise and decline as interest rates fall. The following table sets forth the results of the modeling analysis as of December 31, 2012 (dollars in thousands):

	Changes in Interest Rate
	-100 bp			+100 bp			+200 bp			+300 bp
Change in net interest income	$	(106	)	$	2,611		$	5,492		$	6,565
% Change		(0.12	)%		2.85	%		5.99	%		7.16	%

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. As of December 31, 2012, a 300 basis point increase in rates would increase net interest income by $6.6 million, or 7.2%, over the following twelve-month period. A 100 basis point decrease in rates would decrease net interest income by $106 thousand, or 0.1%, over the following twelve-month period.

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

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

Economic Value of Equity At Risk

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

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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 historical data (back-testing).

The table below shows estimated changes in our EVE under different interest rate scenarios relative to a base case of current interest rates.

	Changes in Interest Rate
	-100 bp			+100 bp			+200 bp			+300 bp
Change in EVE	$	27,739		$	3,684		$	172		$	(15,721	)
% Change		7.06	%		0.94	%		0.04	%		(4.00	)%

As of December 31, 2012, a 300 basis point increase in rates would decrease the economic value of equity by $15.7 million, or 4.0%. A 100 basis point decrease in rates would increase the economic value of equity by $27.7 million, or 7.0%. Embedded options within the current balance sheet such as caps, floors, and calls as well as changes in prepayment speeds and a decompression of deposit rates in rising interest rate scenarios are affecting the results, particularly as market rates begin to rise with rates increasing 100 and 200 basis points. Embedded optionality sometimes outweighs impacts of the movement in the direction of interest rates. This is evidenced in the results under the plus 100 and plus 200 basis point scenarios.

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Interest Rate Sensitivity Gap

The following table presents an analysis of our interest rate sensitivity gap position at December 31, 2012. All interest-earning assets and interest-bearing liabilities are shown based on the earlier of their contractual maturity or re-pricing date. The expected maturities are presented on a contractual basis or, if more relevant, based on projected call dates. Investment securities are at amortized cost for both securities available for sale and securities held to maturity. Loans, net of deferred loan origination costs, include principal amortization adjusted for estimated prepayments (principal payments in excess of contractual amounts) and non-accruing loans. Because the interest rate sensitivity levels shown in the table could be changed by external factors such as loan prepayments and liability decay rates or by factors controllable by us, such as asset sales, it is not an absolute reflection of our potential interest rate risk profile (in thousands).

	At December 31, 2012
				Over Three			Over
	Three			Months			One Year
	Months			Through			Through			Over
	or Less			One Year			Five Years			Five Years			Total
INTEREST-EARNING ASSETS:
Federal funds sold and interest-earning deposits in other banks	$	—		$	94		$	—		$	—		$	94
Investment securities		98,857			137,633			344,016			234,600			815,106
Loans		521,041			306,079			749,167			130,957			1,707,244
Total interest-earning assets	$	619,898		$	443,806		$	1,093,183		$	365,557			2,522,444
Cash and due from banks														60,342
Other assets (1)														181,248
Total assets													$	2,764,034
INTEREST-BEARING LIABILITIES:
Interest-bearing demand, savings and money market	$	1,105,342		$	—		$	—		$	—		$	1,105,342
Certificates of deposit		154,826			340,379			158,984			749			654,938
Borrowings		139,806			40,000			—			—			179,806
Total interest-bearing liabilities	$	1,399,974		$	380,379		$	158,984		$	749			1,940,086
Noninterest-bearing deposits														501,514
Other liabilities														68,537
Total liabilities														2,510,137
Shareholders’ equity														253,897
Total liabilities and shareholders’ equity													$	2,764,034
Interest sensitivity gap	$	(780,076	)	$	63,427		$	934,199		$	364,808		$	582,358
Cumulative gap	$	(780,076	)	$	(716,649	)	$	217,550		$	582,358
Cumulative gap ratio (2)		44.3	%		59.7	%		111.2	%		130.0	%
Cumulative gap as a percentage of total assets		(28.2	)%		(25.9	)%		7.9	%		21.1	%

⁽¹⁾  Includes net unrealized gain on securities available for sale and allowance for loan losses.

⁽²⁾  Cumulative total interest-earning assets divided by cumulative total interest-bearing liabilities.

For purposes of interest rate risk management, we direct more attention on simulation modeling, such as “net interest income at risk” as previously discussed, rather than gap analysis. The net interest income at risk simulation modeling is considered by management to be more informative in forecasting future income at risk.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

	Page
Management’s Report on Internal Control over Financial Reporting		60
Report of Independent Registered Public Accounting Firm (on Internal Control over Financial Reporting)		61
Report of Independent Registered Public Accounting Firm (on the Consolidated Financial Statements)		62
Consolidated Statements of Financial Condition at December 31, 2012 and 2011		63
Consolidated Statements of Income for the years ended December 31, 2012, 2011 and 2010		64
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010		65
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December  31, 2012, 2011 and 2010		66
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010		68
Notes to Consolidated Financial Statements		69

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Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Financial Institutions, Inc. and its subsidiaries (the “Company”), as such term is defined in Exchange Act Rules 13a-15(f). The Company’s system of internal control over financial reporting has been designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Any system of internal control over financial reporting, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and based on such criteria, we believe that, as of December 31, 2012, the Company’s internal control over financial reporting was effective.

The Company’s independent registered public accounting firm that audited the Company’s consolidated financial statements has issued an attestation report on internal control over financial reporting as of December 31, 2012. That report appears herein.

/s/ Martin K. Birmingham	/s/ Karl F. Krebs
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer
March 18, 2013	March 18, 2013

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Financial Institutions, Inc.:

We have audited Financial Institutions, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also includes performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Financial Institutions, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition of Financial Institutions, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report dated March 18, 2013 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Rochester, New York

March 18, 2013

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Financial Institutions, Inc.:

We have audited the accompanying consolidated statements of financial condition of Financial Institutions, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Financial Institutions, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 18, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Rochester, New York

March 18, 2013

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition

	December 31,
(Dollars in thousands, except share and per share data)	2012			2011
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	60,342		$	57,489
Federal funds sold and interest-bearing deposits in other banks		94			94
Total cash and cash equivalents		60,436			57,583
Securities available for sale, at fair value		823,796			627,518
Securities held to maturity, at amortized cost (fair value of $18,478 and $23,964, respectively)		17,905			23,297
Loans held for sale		1,518			2,410
Loans (net of allowance for loan losses of $24,714 and $23,260, respectively)		1,681,012			1,461,516
Company owned life insurance		47,386			45,556
Premises and equipment, net		36,618			33,085
Goodwill and other intangible assets, net		50,820			37,369
Other assets		44,543			48,019
Total assets	$	2,764,034		$	2,336,353
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	501,514		$	393,421
Interest-bearing demand		449,744			362,555
Savings and money market		655,598			474,947
Certificates of deposit		654,938			700,676
Total deposits		2,261,794			1,931,599
Short-term borrowings		179,806			150,698
Other liabilities		68,537			16,862
Total liabilities		2,510,137			2,099,159
Commitments and contingencies (Note 10)
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,499 and 1,500 shares issued, respectively		150			150
Series B-1 8.48% preferred stock, $100 par value, 200,000 shares authorized; 173,210 and 173,235 shares issued, respectively		17,321			17,323
Total preferred equity		17,471			17,473
Common stock, $0.01 par value, 50,000,000 shares authorized and 14,161,597 shares issued		142			142
Additional paid-in capital		67,710			67,247
Retained earnings		172,244			158,079
Accumulated other comprehensive income		3,253			945
Treasury stock, at cost – 373,888 and 358,481 shares, respectively		(6,923	)		(6,692	)
Total shareholders’ equity		253,897			237,194
Total liabilities and shareholders’ equity	$	2,764,034		$	2,336,353

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income

	Years ended December 31,
(Dollars in thousands, except per share amounts)	2012			2011			2010
Interest income:
Interest and fees on loans	$	81,123		$	77,105		$	75,877
Interest and dividends on investment securities		16,444			18,013			20,622
Other interest income		—			—			10
Total interest income		97,567			95,118			96,509
Interest expense:
Deposits		8,462			11,434			14,853
Short-term borrowings		589			500			365
Long-term borrowings		—			1,321			2,502
Total interest expense		9,051			13,255			17,720
Net interest income		88,516			81,863			78,789
Provision for loan losses		7,128			7,780			6,687
Net interest income after provision for loan losses		81,388			74,083			72,102
Noninterest income:
Service charges on deposits		8,627			8,679			9,585
ATM and debit card		4,716			4,359			3,995
Broker-dealer fees and commissions		2,104			1,829			1,283
Company owned life insurance		1,751			1,424			1,107
Loan servicing		617			835			1,124
Net gain on sale of loans held for sale		1,421			880			650
Net gain on disposal of investment securities		2,651			3,003			169
Impairment charges on investment securities		(91	)		(18	)		(594	)
Net (loss) gain on sale and disposal of other assets		(381	)		67			(203	)
Other		3,362			2,867			2,338
Total noninterest income		24,777			23,925			19,454
Noninterest expense:
Salaries and employee benefits		40,127			35,743			32,844
Occupancy and equipment		11,419			10,868			10,818
Professional services		4,133			2,617			2,197
Computer and data processing		3,271			2,437			2,487
Supplies and postage		2,497			1,778			1,772
FDIC assessments		1,300			1,513			2,507
Advertising and promotions		929			1,259			1,121
Loss on extinguishment of debt		—			1,083			—
Other		7,721			6,496			7,171
Total noninterest expense		71,397			63,794			60,917
Income before income taxes		34,768			34,214			30,639
Income tax expense		11,319			11,415			9,352
Net income	$	23,449		$	22,799		$	21,287
Preferred stock dividends		1,474			1,877			3,358
Accretion of discount on Series A preferred stock		—			1,305			367
Net income available to common shareholders	$	21,975		$	19,617		$	17,562
Earnings per common share (Note 16):
Basic	$	1.60		$	1.50		$	1.62
Diluted	$	1.60		$	1.49		$	1.61
Cash dividends declared per common share	$	0.57		$	0.47		$	0.40
Weighted average common shares outstanding:
Basic		13,696			13,067			10,767
Diluted		13,751			13,157			10,845

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

	Years ended December 31,
(Dollars in thousands)	2012			2011			2010
Net income	$	23,449		$	22,799		$	21,287
Other comprehensive income:
Unrealized gains on securities:
Change in net unrealized securities gains arising during period		6,682			22,350			(16	)
Deferred tax expense		(2,646	)		(8,855	)		(19	)
Reclassification adjustment for gains included in income before income taxes		(2,560	)		(2,985	)		425
Related tax expense (benefit)		1,014			1,183			(168	)
Change in net unrealized gains on securities, net of tax		2,490			11,693			222
Change in pension and post-retirement obligations:
Change in net actuarial gain\loss		(300	)		(9,979	)		(2,192	)
Related tax expense		118			3,953			950
Change in pension and post-retirement obligations, net of tax		(182	)		(6,026	)		(1,242	)
Other comprehensive income (loss)		2,308			5,667			(1,020	)
Comprehensive income	$	25,757		$	28,466		$	20,267

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

Years ended December 31, 2012, 2011 and 2010

(Dollars in thousands, except per share data)	Preferred Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
Balance at January 1, 2010	$	53,418		$	113	$	26,940		$	131,371		$	(3,702	)	$	(9,846	)	$	198,294
Comprehensive income:
Net income		—			—		—			21,287			—			—			21,287
Other comprehensive loss, net of tax		—			—		—			—			(1,020	)		—			(1,020	)
Total comprehensive income																			20,267
Purchases of common stock for treasury		—			—		—			—			—			(69	)		(69	)
Share-based compensation plans:
Share-based compensation		—			—		1,031			—			—			—			1,031
Stock options exercised		—			—		(74	)		—			—			290			216
Restricted stock awards issued, net		—			—		(1,853	)		—			—			1,853			—
Directors’ retainer		—			—		(15	)		—			—			112			97
Accrued undeclared cumulative dividend on Series A preferred stock, net of accretion		367			—		—			(367	)		—			—			—
Cash dividends declared:
Series A 3% preferred-$3.00 per share		—			—		—			(5	)		—			—			(5	)
Series A preferred-$250.00 per share		—			—		—			(1,876	)		—			—			(1,876	)
Series B-1 8.48% preferred-$8.48 per share		—			—		—			(1,477	)		—			—			(1,477	)
Common-$0.40 per share		—			—		—			(4,334	)		—			—			(4,334	)
Balance at December 31, 2010	$	53,785		$	113	$	26,029		$	144,599		$	(4,722	)	$	(7,660	)	$	212,144
Comprehensive income:
Net income		—			—		—			22,799			—			—			22,799
Other comprehensive income, net of tax		—			—		—			—			5,667			—			5,667
Total comprehensive income																			28,466
Issuance of common stock		—			29		43,098			—			—			—			43,127
Purchases of common stock for treasury		—			—		—			—			—			(215	)		(215	)
Repurchase of Series A 3% preferred stock		(3	)		—		—			—			—			—			(3	)
Repurchase of warrant issued to U.S. Treasury		—			—		(2,080	)		—			—			—			(2,080	)
Redemption of Series A preferred stock		(37,515	)		—		68			—			—			—			(37,447	)
Repurchase of Series B-1 8.48% preferred stock		(99	)		—		—			—			—			—			(99	)
Share-based compensation plans:
Share-based compensation		—			—		1,105			—			—			—			1,105
Stock options exercised		—			—		(28	)		—			—			119			91
Restricted stock awards issued, net		—			—		(954	)		—			—			954			—
Excess tax benefit on share-based compensation		—			—		21			—			—			—			21
Directors’ retainer		—			—		(12	)								110			98
Accretion of discount on Series A preferred stock		1,305			—		—			(1,305	)		—			—			—
Cash dividends declared:
Series A 3% preferred-$3.00 per share		—			—		—			(5	)		—			—			(5	)
Series A preferred-$53.24 per share		—			—		—			(399	)		—			—			(399	)
Series B-1 8.48% preferred-$8.48 per share		—			—		—			(1,473	)		—			—			(1,473	)
Common-$0.47 per share		—			—		—			(6,137	)		—			—			(6,137	)
Balance at December 31, 2011	$	17,473		$	142	$	67,247		$	158,079		$	945		$	(6,692	)	$	237,194

Continued on next page

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Continued)

Years ended December 31, 2012, 2011 and 2010

(Dollars in thousands, except per share data)	Preferred Equity			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2011	$	17,473		$	142	$	67,247		$	158,079		$	945	$	(6,692	)	$	237,194
Balance carried forward
Comprehensive income:
Net income		—			—		—			23,449			—		—			23,449
Other comprehensive income, net of tax		—			—		—			—			2,308		—			2,308
Total comprehensive income																		25,757
Purchases of common stock for treasury		—			—		—			—			—		(557	)		(557	)
Repurchase of Series B-1 8.48% preferred stock		(2	)		—		—			—			—		—			(2	)
Share-based compensation plans:
Share-based compensation		—			—		526			—			—		—			526
Stock options exercised		—			—		(10	)		—			—		79			69
Restricted stock awards issued, net		—			—		(140	)		—			—		140			—
Excess tax benefit on share-based compensation		—			—		97			—			—		—			97
Directors’ retainer		—			—		(10	)							107			97
Cash dividends declared:
Series A 3% Preferred-$3.00 per share		—			—		—			(5	)		—		—			(5	)
Series B-1 8.48% Preferred-$8.48 per share		—			—		—			(1,469	)		—		—			(1,469	)
Common-$0.57 per share		—			—		—			(7,810	)		—		—			(7,810	)
Balance at December 31, 2012	$	17,471		$	142	$	67,710		$	172,244		$	3,253	$	(6,923	)	$	253,897

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Years ended December 31,
(Dollars in thousands)	2012			2011			2010
Cash flows from operating activities:
Net income	$	23,449		$	22,799		$	21,287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,828			3,466			3,537
Net amortization of premiums on securities		5,284			5,722			3,005
Provision for loan losses		7,128			7,780			6,687
Share-based compensation		526			1,105			1,031
Deferred income tax expense		6,343			6,510			2,468
Proceeds from sale of loans held for sale		55,067			32,839			42,195
Originations of loans held for sale		(52,754	)		(31,231	)		(44,262	)
Increase in company owned life insurance		(1,751	)		(1,424	)		(1,107	)
Net gain on sale of loans held for sale		(1,421	)		(880	)		(650	)
Net gain on disposal of investment securities		(2,651	)		(3,003	)		(169	)
Impairment charges on investment securities		91			18			594
Net loss (gain) on sale and disposal of other assets		381			(67	)		203
Contributions to defined benefit pension plan		(8,000	)		(10,000	)		(4,300	)
Loss on extinguishment of debt		—			1,083			—
Increase in other assets		(4,249	)		(7,756	)		(353	)
Increase in other liabilities		7,429			5,057			5,261
Net cash provided by operating activities		38,700			32,018			35,427
Cash flows from investing activities:
Purchases of investment securities:
Available for sale		(322,191	)		(158,013	)		(430,952	)
Held to maturity		(15,484	)		(17,188	)		(19,791	)
Proceeds from principal payments, maturities and calls on investment securities:
Available for sale		175,679			168,976			219,974
Held to maturity		20,819			21,986			30,885
Proceeds from sales of securities available for sale		2,823			44,514			122,090
Net increase in loans, excluding sales		(151,311	)		(157,110	)		(89,507	)
Loans sold or participated to others		—			13,033			—
Purchases of company owned life insurance		(79	)		(18,079	)		(79	)
Proceeds from sales of other assets		734			705			611
Purchases of premises and equipment		(5,840	)		(3,678	)		(2,438	)
Net cash received in branch acquisitions		195,778			—			—
Net cash used in investing activities		(99,072	)		(104,854	)		(169,207	)
Cash flows from financing activities:
Net increase in deposits		43,376			48,709			139,935
Net increase in short-term borrowings		29,108			73,588			17,567
Repayments of long-term borrowings		—			(26,767	)		(20,080	)
Proceeds from issuance of common stock, net of issuance costs		—			43,127			—
Purchases of common stock for treasury		(557	)		(215	)		(69	)
Repurchase of preferred stock		(2	)		(37,549	)		—
Repurchase of warrant issued to U.S. Treasury		—			(2,080	)		—
Proceeds from stock options exercised		69			91			216
Excess tax benefit on share-based compensation		97			21			—
Cash dividends paid to preferred shareholders		(1,474	)		(2,118	)		(3,358	)
Cash dividends paid to common shareholders		(7,392	)		(5,446	)		(4,332	)
Net cash provided by financing activities		63,225			91,361			129,879
Net increase (decrease) in cash and cash equivalents		2,853			18,525			(3,901	)
Cash and cash equivalents, beginning of period		57,583			39,058			42,959
Cash and cash equivalents, end of period	$	60,436		$	57,583		$	39,058

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accounting and reporting policies conform to general practices within the banking industry and to U.S. generally accepted accounting principles (“GAAP”). Prior years’ consolidated financial statements are re-classified whenever necessary to conform to the current year’s presentation.

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

The following is a description of the Company’s significant accounting policies.

(a.) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

(b.) Use of Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenue and expenses during the reporting period. Material estimates relate to the determination of the allowance for loan losses, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment (“OTTI”) considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting. These estimates and assumptions are based on management’s best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. As future events cannot be determined with precision, actual results could differ significantly from the Company’s estimates.

(c.) Cash Flow Reporting

Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings.

Supplemental cash flow information is summarized as follows for the years ended December 31 (in thousands):

	2012		2011			2010
Cash payments:
Interest expense	$	10,438	$	15,668		$	17,676
Income taxes		4,014		5,191			6,923
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans	$	322	$	305		$	561
Accrued and declared unpaid dividends		2,562		2,144			1,694
Accretion of preferred stock discount		—		1,305			367
Increase (decrease) in net unsettled security purchases		51,135		(67	)		(317	)
Net transfer of portfolio loans to held for sale		—		13,576			—
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core deposit intangible asset		77,912		—			—
Deposits and other liabilities		287,331		—			—

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d.) Investment Securities

Investment securities are classified as either available for sale or held to maturity. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are recorded at amortized cost. Other investment securities are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported as a component of comprehensive income and shareholders’ equity.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Securities are evaluated periodically to determine whether a decline in their fair value is other than temporary. Management utilizes criteria such as, the current intent to hold or sell the security, the magnitude and duration of the decline and, when appropriate, consideration of negative changes in expected cash flows, creditworthiness, near term prospects of issuers, the level of credit subordination, estimated loss severity, and delinquencies, to determine whether a loss in value is other than temporary. The term “other than temporary” is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable. Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit issues or concerns, or the security is intended to be sold. The amount of impairment related to non-credit related factors is recognized in other comprehensive income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

(e.) Loans Held for Sale and Loan Servicing Rights

The Company generally makes the determination of whether to identify a mortgage as held for sale at the time the loan is closed based on the Company’s intent and ability to hold the loan. Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount, by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination cost and fees are deferred at origination of the loans and recognized as part of the gain or loss on sale of the loans, determined using the specific identification method, in the consolidated statements of income.

The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. Mortgage-servicing rights (“MSRs”) represent the cost of acquiring the contractual rights to service loans for others. MSRs are recorded at their fair value at the time a loan is sold and servicing rights are retained. MSRs are reported in other assets in the consolidated statements of financial position and are amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions to estimate future net servicing income, which include estimates of the cost to service the loan, the discount rate, an inflation rate and prepayment speeds. On a quarterly basis, the Company evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs the Company stratifies the related mortgage loans on the basis of their predominant risk characteristics, such as interest rates, year of origination and term, using discounted cash flows and market-based assumptions. Impairment of MSRs is recognized through a valuation allowance, determined by estimating the fair value of each stratum and comparing it to its carrying value. Subsequent increases in fair value are adjusted through the valuation allowance, but only to the extent of the valuation allowance. No impairment loss related to the MSRs was recognized during the years ended December 31, 2012 or 2010. The Company recognized an impairment loss related to the MSRs of $35 thousand during the year ended December 31, 2011.

Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, and paying taxes and insurance from escrow funds when due. Loan servicing income (a component of noninterest income in the consolidated statements of income) consists of fees earned for servicing mortgage loans sold to third parties, net of amortization expense and impairment losses associated with capitalized mortgage servicing assets.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. The servicing asset is reported in other assets in the consolidated statements of financial position and amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired. Management reviewed the servicing asset related to the automobile loan servicing rights for impairment as of December 31, 2012 and determined that no valuation allowance was necessary.

(f.) Loans

Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income and unamortized deferred fees and costs on originated loans. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized into net interest income over the contractual life of the related loans or over the commitment period as an adjustment of yield. Interest income on loans is based on the principal balance outstanding computed using the effective interest method.

A loan is considered delinquent when a payment has not been received in accordance with the contractual terms. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for retail loans is discontinued when loans reach specific delinquency levels. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, if management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan may be returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance (generally a minimum of six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The Company’s loan policy dictates the guidelines to be followed in determining when a loan is charged-off. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off, and are reported in aggregate to the Bank’s Board of Directors. Commercial business and commercial mortgage loans are charged-off when a determination is made that the financial condition of the borrower indicates that the loan will not be collectible in the ordinary course of business. Residential mortgage loans and home equities are generally charged-off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Indirect and other consumer loans, both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due, unless the collateral is in the process of repossession in accordance with the Company’s policy.

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial condition, grants a significant concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings generally remain on nonaccrual status until there is a sustained period of payment performance (usually six months or longer) and there is a reasonable assurance that the payments will continue. See Allowance for Loan Losses below for further policy discussion and see Note 5 – Loans for additional information.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(g.) Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, standby letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Company periodically evaluates the credit risks inherent in these commitments and establishes loss allowances for such risks if and when these are deemed necessary.

The Company recognizes as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding at December 31, 2012 had original terms ranging from one to five years.

Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected.

(h.) Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis and is based upon periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. Specific allowances are established for impaired loans. Impaired commercial business and commercial mortgage loans are individually evaluated and measured for impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate, a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, impairment is based on the fair value of the collateral when foreclosure is probable. If the recorded investment in impaired loans exceeds the measure of estimated fair value, a specific allowance is established as a component of the allowance for loan losses. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures unless the loan has been subject to a troubled debt restructure. At December 31, 2012, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type. The Company applies an estimated loss rate to each loan group. The loss rate is based on historical experience and as a result can differ from actual losses incurred in the future. The historical loss rate is adjusted for qualitative factors such as levels and trends of delinquent and non-accruing loans, trends in volume and terms, effects of changes in lending policy, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit risk, interest rates, highly leveraged borrowers, information risk and collateral risk. The qualitative factors are reviewed at least quarterly and adjustments are made as needed.

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

(i.) Other Real Estate Owned

Other real estate owned consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or “cost” (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of other real estate owned are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of other real estate owned was $184 thousand and $475 thousand at December 31, 2012 and 2011, respectively.

(j.) Company Owned Life Insurance

The Company holds life insurance policies on certain current and former employees. The Company is the owner and beneficiary of the policies. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and any increase in cash surrender value is recorded as noninterest income on the consolidated statements of income. In the event of the death of an insured individual under these policies, the Company would receive a death benefit which would be recorded as noninterest income.

(k.) Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The Company generally amortizes buildings and building improvements over a period of 15 to 39 years and software, furniture and equipment over a period of 3 to 10 years. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Premises and equipment are periodically reviewed for impairment or when circumstances present indicators of impairment.

(l.) Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill has an indefinite useful life and is not amortized, but is tested for impairment. GAAP requires goodwill to be tested for impairment at the Company’s reporting unit level on an annual basis, which for the Company is September 30^th, and more frequently if events or circumstances indicate that there may be impairment. Currently, the Company’s goodwill is evaluated at the entity level as there is only one reporting unit.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value. In testing goodwill for impairment, GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the totality of events and circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test would be unnecessary. However, if the Company concludes otherwise, it would then be required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, Step 2 of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company’s intangible assets relate to core deposits. Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life of approximately nine and a half years. Intangible assets with indefinite useful lives are not amortized until their lives are determined to be definite. Intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value. See Note 7—Goodwill and Other Intangible Assets.

(m.) Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) Stock

The non-marketable investments in FHLB and FRB stock are included in other assets in the consolidated statements of financial condition at par value or cost and are periodically reviewed for impairment. The dividends received relative to these investments are included in other noninterest income in the consolidated statements of income.

As a member of the FHLB system, the Company is required to maintain a specified investment in FHLB of New York (“FHLBNY”) stock in proportion to its volume of certain transactions with the FHLB. FHLBNY stock totaled $8.4 million and $6.8 million as of December 31, 2012 and 2011, respectively.

As a member of the FRB system, the Company is required to maintain a specified investment in FRB stock based on a ratio relative to the Company’s capital. FRB stock totaled $3.9 million as of December 31, 2012 and 2011.

(n.) Equity Method Investments

The Company has investments in limited partnerships and accounts for these investments under the equity method. These investments are included in other assets in the consolidated statements of financial condition and totaled $4.7 million and $4.0 million as of December 31, 2012 and 2011, respectively.

(o.) Treasury Stock

Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost.

(p.) Employee Benefits

The Company participates in a non-contributory defined benefit pension plan for certain employees who previously met participation requirements. The Company also provides post-retirement benefits, principally health and dental care, to employees of a previously acquired entity. The Company has closed the pension and post-retirement plans to new participants. The actuarially determined pension benefit is based on years of service and the employee’s highest average compensation during five consecutive years of employment. The Company’s policy is to at least fund the minimum amount required by the Employment Retirement Income Security Act of 1974. The cost of the pension and post-retirement plans are based on actuarial computations of current and future benefits for employees, and is charged to noninterest expense in the consolidated statements of income.

The Company recognizes an asset or a liability for a plans’ overfunded status or underfunded status, respectively, in the consolidated financial statements and reports changes in the funded status as a component of other comprehensive income, net of applicable taxes, in the year in which changes occur.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(q.) Share-Based Compensation Plans

Compensation expense for stock options and restricted stock awards is based on the fair value of the award on the measurement date, which, for the Company, is the date of grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model. The fair value of restricted stock awards is generally the market price of the Company’s stock on the date of grant.

Share-based compensation expense is included in the consolidated statements of income under salaries and employee benefits for awards granted to management and in other noninterest expense for awards granted to directors.

(r.) Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recognized on deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the assets may not be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

(s.) Earnings Per Common Share

The Company calculates earnings per common share (“EPS”) using the two-class method in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, “Earnings Per Share”. The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities. Certain of the restricted shares issued under the Company’s share-based compensation plan are entitled to dividends at the same rate as common stock. The Company has determined that these outstanding non-vested stock awards qualify as participating securities.

Basic EPS is computed by dividing distributed and undistributed earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Distributed and undistributed earnings available to common shareholders represent net income reduced by preferred stock dividends and distributed and undistributed earnings available to participating securities. Common shares outstanding include common stock and vested restricted stock awards. Diluted EPS reflects the assumed conversion of all potential dilutive securities. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 16—Earnings Per Common Share.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

(t.) Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The provisions of ASU No. 2011-04 provide a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) extends the prohibition on applying a blockage factor in valuing financial instruments with quoted prices in active markets; (3) creates an exception to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks by allowing the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities; and (5) enhances disclosure requirements for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU No. 2011-04 had no material impact on the Company’s consolidated financial statements. See Note 18 – Fair Value Measurements to the consolidated financial statements for the enhanced disclosures required by ASU No. 2011-04.In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Under either method, entities are required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. ASU No. 2011-05 also eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 was effective for the Company’s interim reporting period beginning on or after January 1, 2012, with retrospective application required. In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” The provisions of ASU No. 2011-12 defer indefinitely the requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. ASU No. 2011-12, which shares the same effective date as ASU No. 2011-05, does not defer the requirement for entities to present components of comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted the provisions of ASU No. 2011-05 and ASU No. 2011-12 which resulted in a new statement of comprehensive income beginning with the interim period ended March 31, 2012. The adoption of ASU No. 2011-05 and ASU No. 2011-12 had no material impact on the Company’s statements of income and financial condition.

In September 2011, the FASB issued ASU No. 2011-08 “Testing Goodwill for Impairment.” The provisions of ASU 2011-08 permit an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is required. ASU No. 2011-08 includes examples of events and circumstances that may indicate that a reporting unit’s fair value is less than its carrying amount. The provisions of ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed beginning in 2012. The adoption of ASU No. 2011-08 did not have a material impact on the Company’s consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” The provisions of ASU No. 2012-02 permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test, as is currently required by GAAP. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not have any indefinite-lived intangible assets other than goodwill, therefore the adoption of ASU No. 2012-02 is expected to have no material impact on the Company’s consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company’s consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(2.) BRANCH ACQUISITIONS

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

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,599
Core deposit intangible asset		2,042
Other assets		339
Total assets acquired	$	287,331
Deposits assumed	$	286,819
Other liabilities		512
Total liabilities assumed	$	287,331

The transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and in certain cases are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values becomes available.

The operating results of the acquired branches included in the Company’s consolidated statement of income for the year ended December 31, 2012 reflect only amounts from the acquisition dates through December 31, 2012. The operating results of the acquired branches prior to the acquisition dates were not material for purposes of supplemental disclosure under the FASB guidance on business combinations.

The Company acquired the loan portfolios at a fair value discount of $824 thousand. The discount represents expected credit losses, net of market interest rate adjustments. The discount on loans receivable will be amortized to interest income over the estimated remaining life of the acquired loans using the level yield method. The core deposit intangible asset will be amortized on an accelerated basis over a period of approximately nine and a half years. The time deposit premium of $335 thousand will be accreted over the estimated remaining life of the related deposits as a reduction of interest expense.

Preliminary goodwill of $11.6 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created and the economies of scale expected from combining the operations of the acquired branches with those of the Bank. All goodwill and core deposit intangible assets arising from this acquisition are expected to be deductible for tax purposes.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(3.) INVESTMENT SECURITIES

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

	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
December 31, 2012
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	128,097	$	3,667	$	69	$	131,695
State and political subdivisions		188,997		6,285		72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394		188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430		—		66,856
Government National Mortgage Association		56,166		3,279		—		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865		2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911		—		80,492
Government National Mortgage Association		70,989		2,168		—		73,157
Privately issued		73		1,025		—		1,098
Total collateralized mortgage obligations		210,448		6,969		2		217,415
Total mortgage-backed securities		479,986		16,072		190		495,868
Asset-backed securities		121		902		—		1,023
Total available for sale securities	$	797,201	$	26,926	$	331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573	$	—	$	18,478
December 31, 2011
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	94,947	$	2,770	$	5	$	97,712
State and political subdivisions		119,099		5,336		11		124,424
Mortgage-backed securities:
Federal National Mortgage Association		98,679		2,944		—		101,623
Federal Home Loan Mortgage Corporation		63,838		1,017		—		64,855
Government National Mortgage Association		73,226		3,376		—		76,602
Collateralized mortgage obligations:
Federal National Mortgage Association		28,339		581		7		28,913
Federal Home Loan Mortgage Corporation		22,318		675		1		22,992
Government National Mortgage Association		103,975		2,654		18		106,611
Privately issued		327		1,762		—		2,089
Total collateralized mortgage obligations		154,959		5,672		26		160,605
Total mortgage-backed securities		390,702		13,009		26		403,685
Asset-backed securities		297		1,400		—		1,697
Total available for sale securities	$	605,045	$	22,515	$	42	$	627,518
Securities held to maturity:
State and political subdivisions	$	23,297	$	667	$	—	$	23,964

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(3.) INVESTMENT SECURITIES (Continued)

Interest and dividends on securities for the years ended December 31 are summarized as follows (in thousands):

	2012		2011		2010
Taxable interest and dividends	$	12,202	$	14,185	$	17,101
Tax-exempt interest and dividends		4,242		3,828		3,521
Total interest and dividends on securities	$	16,444	$	18,013	$	20,622

Sales and calls of securities available for sale for the years ended December 31 were as follows (in thousands):

	2012		2011		2010
Proceeds from sales	$	2,823	$	44,514	$	122,090
Gross realized gains		2,651		3,051		173
Gross realized losses		—		48		4

The scheduled maturities of securities available for sale and securities held to maturity at December 31, 2012 are shown below. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations (in thousands).

	Amortized Cost		Fair Value
Debt securities available for sale:
Due in one year or less	$	28,967	$	29,165
Due from one to five years		94,479		98,341
Due after five years through ten years		318,124		326,802
Due after ten years		355,631		369,488
	$	797,201	$	823,796
Debt securities held to maturity:
Due in one year or less	$	12,886	$	12,974
Due from one to five years		4,164		4,455
Due after five years through ten years		768		931
Due after ten years		87		118
	$	17,905	$	18,478

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(3.) INVESTMENT SECURITIES (Continued)

There were no unrealized losses in held to maturity securities at December 31, 2012 or December 31, 2011. Unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31 are summarized 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
December 31, 2012
U.S. Government agencies and government sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		—		—		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		—		—		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		1,173		2		1,173		2
Total collateralized mortgage obligations		—		—		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331
December 31, 2011
U.S. Government agencies and government sponsored enterprises	$	2,177	$	1	$	5,246	$	4	$	7,423	$	5
State and political subdivisions		452		2		646		9		1,098		11
Mortgage-backed securities:
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		1,817		7		1,817		7
Federal Home Loan Mortgage Corporation		—		—		388		1		388		1
Government National Mortgage Association		6,138		18		—		—		6,138		18
Total collateralized mortgage obligations		6,138		18		2,205		8		8,343		26
Total mortgage-backed securities		6,138		18		2,205		8		8,343		26
Total temporarily impaired securities	$	8,767	$	21	$	8,097	$	21	$	16,864	$	42

The total number of security positions in the investment portfolio in an unrealized loss position at December 31, 2012 was 52 compared to 14 at December 31, 2011. At December 31, 2012, the Company had positions in six investment securities with an amortized cost of $4.1 million and an unrealized loss of $4 thousand that have been in a continuous unrealized loss position for more than 12 months. There were a total of 46 securities positions in the Company’s investment portfolio, with an amortized cost of $47.3 million and a total unrealized loss of $327 thousand at December 31, 2012, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates, average life or credit spreads subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(3.) INVESTMENT SECURITIES (Continued)

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 available to management.

The following summarizes the amounts of OTTI recognized during the years ended December 31 by investment category (in thousands).

	2012		2011		2010
Mortgage-backed securities—Privately issued whole loan CMOs	$	91	$	18	$	—
Asset-backed securities—Trust preferred securities		—		—		526
Asset-backed securities—Other		—		—		68
Total OTTI	$	91	$	18	$	594

Based on management’s review and evaluation of the Company’s debt securities as of December 31, 2012, the debt securities with unrealized losses were not considered to be OTTI. As of December 31, 2012, the Company does not intend to sell any debt securities which have an unrealized loss, it is unlikely the Company will be required to sell these securities before recovery and the Company expects to recover the entire amortized cost of these impaired securities. Accordingly, as of December 31, 2012, 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.

(4.) LOANS HELD FOR SALE AND LOAN SERVICING RIGHTS

Loans held for sale were entirely comprised of residential real estate mortgages and totaled $1.5 million and $2.4 million as of December 31, 2012 and 2011, respectively.

The Company sells 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 $273.3 million and $297.8 million as of December 31, 2012 and 2011, respectively. In connection with these mortgage-servicing activities, the Company administered escrow and other custodial funds which amounted to approximately $5.6 million and $5.9 million as of December 31, 2012 and 2011, respectively.

The activity in capitalized mortgage servicing assets is summarized as follows for the years ended December 31 (in thousands):

	2012			2011			2010
Mortgage servicing assets, beginning of year	$	1,609		$	1,642		$	1,534
Originations		554			319			408
Amortization		(526	)		(352	)		(300	)
Mortgage servicing assets, end of year		1,637			1,609			1,642
Valuation allowance		(168	)		(210	)		(175	)
Mortgage servicing assets, net, end of year	$	1,469		$	1,399		$	1,467

During 2011, the Company sold $13.0 million of indirect auto loans under a 90%/10% participation agreement, recognizing a gain of $153 thousand. The loans were reclassified from portfolio to loans held for sale during the second quarter of 2011. The loan servicing asset for these loans, included in other assets in the consolidated statements of financial condition, was $250 thousand and $574 thousand as of December 31, 2012 and 2011, respectively. The Company will continue to service the loans for a fee in accordance with the participation agreement.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS

The Company’s loan portfolio consisted of the following at December 31 (in thousands):

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012
2011
Commercial business	$	233,727	$	109		$	233,836
Commercial mortgage		394,034		(790	)		393,244
Residential mortgage		113,865		46			113,911
Home equity		227,853		3,913			231,766
Consumer indirect		465,807		21,906			487,713
Other consumer		24,138		168			24,306
Total	$	1,459,424	$	25,352			1,484,776
Allowance for loan losses							(23,260	)
Total loans, net						$	1,461,516

The Company’s significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves.

Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on substantially the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. Borrowings by these related parties amounted to $292 thousand and $378 thousand at December 31, 2012 and 2011, respectively. During 2012, new borrowings amounted to $50 thousand (including borrowings of executive officers and directors that were outstanding at the time of their election), and repayments and other reductions were $136 thousand.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(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 December 31 (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans
2012
Commercial business	$	160	$	—	$	—	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		—		—		331		1,799		412,152		414,282
Residential mortgage		376		—		—		376		2,040		130,925		133,341
Home equity		675		10		—		685		939		280,879		282,503
Consumer indirect		1,661		163		—		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453
2011
Commercial business	$	35	$	—	$	—	$	35	$	1,259	$	232,433	$	233,727
Commercial mortgage		165		—		—		165		2,928		390,941		394,034
Residential mortgage		517		—		—		517		1,644		111,704		113,865
Home equity		749		68		—		817		682		226,354		227,853
Consumer indirect		984		92		—		1,076		558		464,173		465,807
Other consumer		106		10		5		121		—		24,017		24,138
Total loans, gross	$	2,556	$	170	$	5	$	2,731	$	7,071	$	1,449,622	$	1,459,424

There were no loans past due greater than 90 days and still accruing interest as of December 31, 2012 and December 31, 2011. There were $18 thousand and $5 thousand in consumer overdrafts which were past due greater than 90 days as of December 31, 2012 and December 31, 2011, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2012, 2011 and 2010. For the years ended December 31, 2012, 2011 and 2010, estimated interest income of $555 thousand, $438 thousand, and $474 thousand, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS (Continued)

Troubled Debt Restructurings

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

The following presents, by loan class, information related to loans modified in a TDR during the years ended December 31 (in thousands).

	Number of Contracts		Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
2012
Commercial business		3	$	536	$	536
Commercial mortgage		4		648		648
Total		7	$	1,184	$	1,184
2011
Commercial business		6	$	142	$	142
Commercial mortgage		1		280		280
Total		7	$	422	$	422

All of the loans identified as TDRs by the Company were previously on nonaccrual status and reported as impaired loans prior to restructuring. The modifications primarily related to extending the amortization periods of the loans and releasing collateral in consideration of payment. All loans restructured during the years ended December 31, 2012 and 2011 were on nonaccrual status at the end of those respective years. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classification did not have a material impact on the Company’s determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring.

For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due. One commercial business loan restructured during 2012 with a balance of $52 thousand at December 31, 2012 was in default. One commercial real estate loan restructured during 2011 with a balance of $261 thousand at December 31, 2011 was in default. These defaults did not significantly impact the Company’s determination of the allowance for loan losses.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS (Continued)

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 data on impaired loans at December 31 (in thousands):

	Recorded Investment(1)		Unpaid Principal Balance(1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	—	$	755	$	—
Commercial mortgage		911		1,002		—		1,310		—
		1,874		2,427		—		2,065		—
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		—
Commercial mortgage		888		888		310		1,858		—
		3,338		3,338		974		3,972		—
	$	5,212	$	5,765	$	974	$	6,037	$	—
2011
With no related allowance recorded:
Commercial business	$	342	$	1,266	$	—	$	361	$	—
Commercial mortgage		605		696		—		583		—
		947		1,962		—		944		—
With an allowance recorded:
Commercial business		917		917		436		1,033		—
Commercial mortgage		2,323		2,323		644		2,172		—
		3,240		3,240		1,080		3,205		—
	$	4,187	$	5,202	$	1,080	$	4,149	$	—

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

During the year ended December 31, 2010, the Company’s average investment in impaired loans was $4.5 million. There was no interest income recognized on impaired loans during the year ended December 31, 2010.

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.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS (Continued)

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 not meeting 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 December 31 (in thousands):

	Commercial Business		Commercial Mortgage
2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		—		—
Total	$	258,706	$	414,282
2011
Uncriticized	$	221,477	$	383,700
Special mention		7,445		2,388
Substandard		4,805		7,946
Doubtful		—		—
Total	$	233,727	$	394,034

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 December 31 (in thousands):

	Residential Mortgage		Home Equity		Consumer Indirect		Other Consumer
2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657
2011
Performing	$	112,221	$	227,171	$	465,249	$	24,138
Non-performing		1,644		682		558		—
Total	$	113,865	$	227,853	$	465,807	$	24,138

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS (Continued)

Allowance for Loan Losses

The following tables set forth the changes in the allowance for loan losses for the years ended December 31 (in thousands):

	Commercial			Commercial Mortgage			Residential Mortgage			Home Equity			Consumer Indirect			Other Consumer			Total
2012
Allowance for loan losses:
Beginning balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Charge-offs		(729	)		(745	)		(326	)		(305	)		(6,589	)		(874	)		(9,568	)
Recoveries		336			261			130			44			2,769			354			3,894
Provision		1,241			647			78			301			4,346			515			7,128
Ending balance	$	4,884		$	6,581		$	740		$	1,282		$	10,715		$	512		$	24,714
Evaluated for impairment:
Individually	$	664		$	310		$	—		$	—		$	—		$	—		$	974
Collectively	$	4,220		$	6,271		$	740		$	1,282		$	10,715		$	512		$	23,740
Loans:
Ending balance	$	258,706		$	414,282		$	133,341		$	282,503		$	559,964		$	26,657		$	1,675,453
Evaluated for impairment:
Individually	$	3,413		$	1,799		$	—		$	—		$	—		$	—		$	5,212
Collectively	$	255,293		$	412,483		$	133,341		$	282,503		$	559,964		$	26,657		$	1,670,241
2011
Allowance for loan losses:
Beginning balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Charge-offs		(1,346	)		(751	)		(152	)		(449	)		(4,713	)		(877	)		(8,288	)
Recoveries		401			245			90			44			2,066			456			3,302
Provision (credit)		1,269			493			(93	)		675			5,082			354			7,780
Ending balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Evaluated for impairment:
Individually	$	436		$	644		$	—		$	—		$	—		$	—		$	1,080
Collectively	$	3,600		$	5,774		$	858		$	1,242		$	10,189		$	517		$	22,180
Loans:
Ending balance	$	233,727		$	394,034		$	113,865		$	227,853		$	465,807		$	24,138		$	1,459,424
Evaluated for impairment:
Individually	$	1,259		$	2,928		$	—		$	—		$	—		$	—		$	4,187
Collectively	$	232,468		$	391,106		$	113,865		$	227,853		$	465,807		$	24,138		$	1,455,237

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(5.) LOANS (Continued)

	Commercial			Commercial Mortgage			Residential Mortgage			Home Equity			Consumer Indirect			Other Consumer			Total
2010
Allowance for loan losses:
Beginning balance	$	4,407		$	6,638		$	1,251		$	1,043		$	6,837		$	565		$	20,741
Charge-offs		(3,426	)		(263	)		(290	)		(259	)		(4,669	)		(909	)		(9,816	)
Recoveries		326			501			21			36			1,485			485			2,854
Provision (credit)		2,405			(445	)		31			152			4,101			443			6,687
Ending balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Evaluated for impairment:
Individually	$	149		$	883		$	—		$	—		$	—		$	—		$	1,032
Collectively	$	3,563		$	5,548		$	1,013		$	972		$	7,754		$	584		$	19,434
Loans:
Ending balance	$	210,948		$	353,537		$	129,553		$	205,070		$	400,221		$	25,937		$	1,325,266
Evaluated for impairment:
Individually	$	948		$	3,100		$	—		$	—		$	—		$	—		$	4,048
Collectively	$	210,000		$	350,437		$	129,553		$	205,070		$	400,221		$	25,937		$	1,321,218

Risk Characteristics

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

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

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

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

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(6.) PREMISES AND EQUIPMENT, NET

Major classes of premises and equipment at December 31 are summarized as follows (in thousands):

	2012			2011
Land and land improvements	$	4,883		$	4,330
Buildings and leasehold improvements		43,402			40,590
Furniture, fixtures, equipment and vehicles		24,440			23,414
Premises and equipment		72,725			68,334
Accumulated depreciation and amortization		(36,107	)		(35,249	)
Premises and equipment, net	$	36,618		$	33,085

Depreciation and amortization expense relating to premises and equipment, included in occupancy and equipment expense in the consolidated statements of income, amounted to $3.6 million for the year ended December 31, 2012 and $3.5 million for the years ended December 31, 2011 and 2010.

(7.) GOODWILL AND OTHER INTANGIBLE ASSETS

The change in the balance for goodwill during the years ended December 31, 2012 and 2011 was as follows (in thousands):

	2012		2011
Goodwill, beginning of year	$	37,369	$	37,369
Branch acquisitions		11,599		—
Impairment		—		—
Goodwill, end of year	$	48,968	$	37,369

Pursuant to the adoption of ASU 2011-08 in 2012, the Company first performed a qualitative assessment of goodwill at the reporting unit level, the Bank, to determine if it was more likely than not that the fair value of the reporting unit is less than its carrying value. In performing a qualitative analysis, factors considered include, but are not limited to, business strategy, financial performance and market and regulatory dynamics. The results of the qualitative assessment for 2012 indicated that it was not more likely than not that the fair value of the reporting unit is less than its carrying value. Consequently, no additional quantitative two-step impairment test was required, and no impairment was recorded in 2012. In 2011 and 2010, prior to the adoption of ASU 2011-08, the Company performed a quantitative impairment test that did not result in any impairment.

Declines in the market value of the Company’s publicly traded stock price or declines in the Company’s ability to generate future cash flows may increase the potential that goodwill recorded on the Company’s consolidated statement of financial condition be designated as impaired and that the Company may incur a goodwill write-down in the future.

The amount of goodwill to be deducted for tax purposes was $11.3 million at December 31, 2012.

The Company’s other intangible assets consisted entirely of a core deposit intangible asset. The gross carrying amount and accumulated amortization for the core deposit intangible asset was $2.0 million and $190 thousand, respectively, at December 31, 2012. The Company had no other intangible assets as of December 31, 2011. Core deposit intangible amortization expense, included in other noninterest expense on the consolidated statements of income, was $190 thousand for the year ended December 31, 2012. There was no core deposit intangible amortization expense for the years ended December 31, 2011 and 2010.

Estimated core deposit intangible amortization expense for each of the next five years is as follows:

2013	$	386
2014		341
2015		296
2016		251
2017		205

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(8.) DEPOSITS

A summary of deposits as of December 31 are as follows (in thousands):

	2012		2011
Noninterest-bearing demand	$	501,514	$	393,421
Interest-bearing demand		449,744		362,555
Savings and money market		655,598		474,947
Certificates of deposit, due:
Within one year		495,423		547,874
One to two years		91,052		84,687
Two to three years		35,993		17,974
Three to five years		31,721		50,000
Thereafter		749		141
Total certificates of deposit		654,938		700,676
Total deposits	$	2,261,794	$	1,931,599

Certificates of deposit in denominations of $100,000 or more at December 31, 2012 and 2011 amounted to $222.4 million and $214.2 million, respectively.

Interest expense by deposit type for the years ended December 31 is summarized as follows (in thousands):

	2012		2011		2010
Interest-bearing demand	$	598	$	614	$	705
Savings and money market		998		1,056		1,133
Certificates of deposit		6,866		9,764		13,015
Total interest expense on deposits	$	8,462	$	11,434	$	14,853

(9.) BORROWINGS

There were no long-term borrowings outstanding as of December 31, 2012 and 2011. Outstanding short-term borrowings are summarized as follows as of December 31 (in thousands):

	2012		2011
Short-term borrowings:
Federal funds purchased	$	—	$	11,597
Repurchase agreements		40,806		36,301
Short-term FHLB borrowings		139,000		102,800
Total short-term borrowings	$	179,806	$	150,698

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the agreement. At December 31, 2012, the Company’s short-term borrowings had a weighted average rate of 0.54%.

Short-term Borrowings

Federal funds purchased are short-term borrowings that typically mature within one to ninety days. Short-term repurchase agreements are secured overnight borrowings with customers. Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which the Company typically utilizes to address short term funding needs as they arise. Short-term FHLB borrowings at December 31, 2012 consisted of $99.0 million in overnight borrowings and $40.0 million in short-term advances. Short-term FHLB borrowings at December 31, 2011 consisted of $65.0 million in overnight borrowings and $37.8 million in short-term advances.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(9.) BORROWINGS (Continued)

Long-term Borrowings

The Company has credit capacity with the FHLB and can borrow through facilities that include an overnight line of credit, amortizing and term advances, and repurchase agreements. The FHLB credit capacity is collateralized by securities from the Company’s investment portfolio and certain qualifying loans. The Company may be required to provide additional collateral based on the fair value of the underlying securities. There were no FHLB borrowings outstanding as of December 31, 2012 and 2011.

In February 2001, the Company formed Financial Institutions Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities. The Company’s $502 thousand investment in the common equity of the Trust was classified in the consolidated statements of financial condition as other assets and $16.7 million of related 10.20% junior subordinated debentures were classified as long-term borrowings. In 2001, the Company incurred costs relating to the issuance of the debentures totaling $487 thousand. These costs, which were included in other assets on the consolidated statements of financial condition, were deferred and were being amortized to interest expense using the straight-line method over a twenty year period.

In August 2011, the Company redeemed all of the 10.20% junior subordinated debentures at a redemption price equaling 105.1% of the principal amount redeemed, plus all accrued and unpaid interest. As a result of the redemption, the Company recognized a loss on extinguishment of debt of $1.1 million, consisting of the redemption premium of $852 thousand and the write-off of the remaining unamortized issuance costs of $231 thousand.

(10.) COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

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 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 as of December 31 consist of the following (in thousands):

	2012		2011
Commitments to extend credit	$	435,948	$	374,266
Standby letters of credit		9,223		8,855

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

The Company also extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters 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 $1.8 million and $2.9 million at December 31, 2012 and 2011, 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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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(10.) COMMITMENTS AND CONTINGENCIES (Continued)

Lease Obligations

The Company is obligated under a number of noncancellable operating lease agreements for land, buildings and equipment. Certain of these leases provide for escalation clauses and contain renewal options calling for increased rentals if the lease is renewed. Future minimum payments by year and in the aggregate, under the noncancellable leases with initial or remaining terms of one year or more, are as follows at December 31, 2012 (in thousands):

2013	$	1,433
2014		1,384
2015		1,305
2016		1,197
2017		826
Thereafter		4,347
	$	10,492

Rent expense relating to these operating leases, included in occupancy and equipment expense in the statements of income, was $1.6 million, $1.5 million and $1.4 million in 2012, 2011 and 2010, respectively.

Contingent Liabilities

In the ordinary course of business there are various threatened and pending legal proceedings against the Company. Based on consultation with outside legal counsel, management believes that the aggregate liability, if any, arising from such litigation would not have a material adverse effect on the Company’s consolidated financial statements.

(11.) REGULATORY MATTERS

General

The supervision and regulation of financial and bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds regulated by the FDIC and the banking system as a whole, and not for the protection of shareholders or creditors of bank holding companies. The various bank regulatory agencies have broad enforcement power over financial holding companies and banks, including the power to impose substantial fines, operational restrictions and other penalties for violations of laws and regulations and for safety and soundness considerations.

Capital

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 initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material impact on the Company’s consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

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

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

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(11.) REGULATORY MATTERS (Continued)

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

The Company’s and the Bank’s actual and required regulatory capital ratios were as follows as of December 31 (in thousands):

							For Capital
		Actual					Adequacy Purposes					Well Capitalized
		Amount		Ratio			Amount		Ratio			Amount		Ratio
2012
Tier 1 leverage:	Company	$	199,824		7.70	%	$	103,828		4.00	%	$	129,785		5.00	%
	Bank		191,704		7.40			103,664		4.00			129,580		5.00
Tier 1 capital:	Company		199,824		10.70			74,671		4.00			112,006		6.00
	Bank		191,704		10.29			74,515		4.00			111,773		6.00
Total risk-based capital:	Company		223,176		11.96			149,341		8.00			186,677		10.00
	Bank		215,008		11.54			149,031		8.00			186,289		10.00
2011
Tier 1 leverage:	Company	$	197,086		8.63	%	$	91,310		4.00	%	$	114,138		5.00	%
	Bank		184,639		8.10			91,192		4.00			113,990		5.00
Tier 1 capital:	Company		197,086		12.20			64,645		4.00			96,967		6.00
	Bank		184,639		11.46			64,445		4.00			96,667		6.00
Total risk-based capital:	Company		217,325		13.45			129,290		8.00			161,612		10.00
	Bank		204,817		12.71			128,890		8.00			161,112		10.00

As of December 31, 2012, the Company and Bank were considered “well capitalized” under all regulatory capital guidelines. Such determination has been made based on the Tier 1 leverage, Tier 1 capital and total risk-based capital ratios.

Federal Reserve Requirements

The Bank is required to maintain a reserve balance at the FRB of New York. The reserve requirement for the Bank totaled $1.0 million as of December 31, 2012 and 2011.

Dividend Restrictions

In the ordinary course of business, the Company is dependent upon dividends from Five Star Bank to provide funds for the payment of interest expense on the junior subordinated debentures, 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. The Company is no longer subject to the limitations prescribed by the terms of the Treasury’s TARP Capital Purchase Program. See Note 12—Shareholders’ Equity.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(12.) SHAREHOLDERS’ EQUITY

The Company’s authorized capital stock consists of 50,210,000 shares of capital stock, 50,000,000 of which are common stock, par value $0.01 per share, and 210,000 of which are preferred stock, par value $100 per share, which is designated into two classes, Class A of which 10,000 shares are authorized, and Class B of which 200,000 shares are authorized. There are two series of Class A preferred stock: Series A 3% preferred stock and the Series A preferred stock. There is one series of Class B preferred stock: Series B-1 8.48% preferred stock. There were 174,709 shares and 174,735 shares of preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively.

Common Stock

The following table sets forth the changes in the number of shares of common stock for the years ended December 31:

	Outstanding			Treasury			Issued
2012
Shares outstanding at beginning of year		13,803,116			358,481			14,161,597
Restricted stock awards issued, net of forfeitures		7,857			(7,857	)		—
Stock options exercised		4,250			(4,250	)		—
Treasury stock purchases		(33,330	)		33,330			—
Directors’ retainer		5,816			(5,816	)		—
Shares outstanding at end of year		13,787,709			373,888			14,161,597
2011
Shares outstanding at beginning of year		10,937,506			410,616			11,348,122
Shares issued in common stock offering		2,813,475			—			2,813,475
Restricted stock awards issued, net of forfeitures		51,070			(51,070	)		—
Stock options exercised		6,357			(6,357	)		—
Treasury stock purchases		(11,181	)		11,181			—
Directors’ retainer		5,889			(5,889	)		—
Shares outstanding at end of year		13,803,116			358,481			14,161,597

Issuance of Common Stock

In March 2011, the Company completed the sale of 2,813,475 shares of its common stock through an underwritten public offering at a price of $16.35 per share. The net proceeds of the offering, after deducting underwriting discounts and commissions and offering expenses, were $43.1 million. A portion of the proceeds from this offering was used to redeem the Company’s Series A preferred stock and the 10.20% junior subordinated debentures.

Preferred Stock

Series A 3% Preferred Stock. There were 1,499 shares and 1,500 shares of Series A 3% preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively. Holders of Series A 3% preferred stock are entitled to receive an annual dividend of $3.00 per share, which is cumulative and payable quarterly. Holders of Series A 3% preferred stock have no pre-emptive right in, or right to purchase or subscribe for, any additional shares of the Company’s capital stock and have no voting rights. Dividend or dissolution payments to the Class A shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments can be declared and paid, or set apart for payment, to the holders of Class B preferred stock or common stock. The Series A 3% preferred stock is not convertible into any other of the Company’s securities.

Series B-1 8.48% Preferred Stock. There were 173,210 shares and 173,235 shares of Series B-1 8.48% preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively. Holders of Series B-1 8.48% preferred stock are entitled to receive an annual dividend of $8.48 per share, which is cumulative and payable quarterly. Holders of Series B-1 8.48% preferred stock have no pre-emptive right in, or right to purchase or subscribe for, any additional shares of the Company’s common stock and have no voting rights. Accumulated dividends on the Series B-1 8.48% preferred stock do not bear interest, and the Series B-1 8.48% preferred stock is not subject to redemption. Dividend or dissolution payments to the Class B shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments are declared and paid, or set apart for payment, to the holders of common stock. The Series B-1 8.48% preferred stock is not convertible into any other of the Company’s securities.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(12.) SHAREHOLDERS’ EQUITY (Continued)

Redemption of Series A Preferred Stock and Warrant

In December 2008, under the Treasury’s TARP Capital Purchase Program, the Company entered into a Securities Purchase Agreement—Standard Terms with the Treasury pursuant to which, among other things, the Company sold to the Treasury for an aggregate purchase price of $37.5 million, 7,503 shares of fixed rate cumulative perpetual preferred stock, Series A (“Series A” preferred stock) and a warrant to purchase up to 378,175 shares of the Company’s common stock, par value $0.01 per share, at an exercise price of $14.88 per share (the “Warrant”), of the Company.

Pursuant to the terms of the Purchase Agreement, the Company’s ability to declare or pay dividends on any of its shares was limited. Specifically, the Company was prohibited from paying any dividend with respect to shares of common stock, other junior securities or preferred stock ranking pari passu with the Series A preferred stock or repurchasing or redeeming any shares of the Company’s common stock, other junior securities or preferred stock ranking pari passu with the Series A preferred stock in any quarter unless all accrued and unpaid dividends were paid on the Series A preferred stock for all past dividend periods (including the latest completed dividend period), subject to certain limited exceptions.

The $37.5 million in proceeds was allocated to the Series A preferred stock and the Warrant based on their relative fair values at issuance ($35.5 million was allocated to the Series A preferred stock and $2.0 million to the Warrant). The resulting discount for the Series A preferred stock was to be accreted over five years through retained earnings as a preferred stock dividend. The Warrant was to remain in additional paid-in-capital at its initial book value until it was exercised or expired.

In February 2011, the Company redeemed one-third, or $12.5 million, of the Series A preferred stock. In March 2011, the remaining $25.0 million of the Series A preferred stock was redeemed. The unamortized discount related to the Series A preferred stock was charged to retained earnings upon redemption. The complete redemption of the Series A preferred stock removed the TARP restrictions pertaining to the Company’s ability to declare and pay dividends and repurchase its common stock, as well as certain restrictions associated with executive compensation.

In May 2011, the Company repurchased the Warrant issued to the Treasury. The repurchase price of $2.1 million was recorded as a reduction of additional paid-in capital.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(13.) OTHER COMPREHENSIVE INCOME

Other comprehensive income is reported in the accompanying consolidated statements of comprehensive income and changes in shareholders’ equity. Information related to other comprehensive income for the years ended December 31 was as follows (in thousands):

	Pre-tax Amount			Tax Expense (Benefit)			Net-of-tax Amount
2012
Securities available for sale:
Change in net unrealized gain/loss during the period	$	6,682		$	2,646		$	4,036
Reclassification adjustment for gains included in income		(2,651	)		(1,050	)		(1,601	)
Reclassification adjustment for impairment charges included in income		91			36			55
		4,122			1,632			2,490
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans		(300	)		(118	)		(182	)
Other comprehensive income	$	3,822		$	1,514		$	2,308
2011
Securities available for sale:
Change in net unrealized gain/loss during the period	$	22,350		$	8,855		$	13,495
Reclassification adjustment for gains included in income		(3,003	)		(1,190	)		(1,813	)
Reclassification adjustment for impairment charges included in income		18			7			11
		19,365			7,672			11,693
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans		(9,979	)		(3,953	)		(6,026	)
Other comprehensive income	$	9,386		$	3,719		$	5,667
2010
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(16	)	$	19		$	(35	)
Reclassification adjustment for gains included in income		(169	)		(67	)		(102	)
Reclassification adjustment for impairment charges included in income		594			235			359
		409			187			222
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans		(2,192	)		(950	)		(1,242	)
Other comprehensive loss	$	(1,783	)	$	(763	)	$	(1,020	)

The components of accumulated other comprehensive income (loss), net of tax, as of December 31 were as follows (in thousands):

	2012			2011
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans	$	(12,807	)	$	(12,625	)
Net unrealized gain on securities available for sale		16,060			13,570
	$	3,253		$	945

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(14.) SHARE-BASED COMPENSATION

The Company maintains certain stock-based compensation plans, approved by the Company’s shareholders that are administered by the Board, or the Management Development and Compensation Committee (the “Compensation Committee”) of the Board. In May 2009, the shareholders of the Company approved two share-based compensation plans, the 2009 Management Stock Incentive Plan (“Management Plan”) and the 2009 Directors’ Stock Incentive Plan (“Director’s Plan”), and collectively with the Management Plan, “the Plans”. An aggregate of 690,000 shares of the Company’s common stock have been reserved for issuance by the Company under the terms of the Management Plan pursuant to the grant of incentive stock options (not to exceed 500,000 shares), non-qualified stock options and restricted stock grants, all which are defined in the plan. An aggregate of 250,000 shares of the Company’s common stock have been reserved for issuance by the Company under the terms of the Director’s Plan pursuant to the grant of non-qualified stock options and restricted stock grants, all which are defined in the plan. Under both plans, for purposes of calculating the number of shares of common stock available for issuance, each share of common stock granted pursuant to a restricted stock grant shall count as 1.64 shares of common stock. As of December 31, 2012, there were approximately 200,000 and 451,000 shares available for grant under the Director’s Plan and Management Plan, respectively, of which 61% were available for issuance as restricted stock grants.

Under the Plans, the Board, in the case of the Director’s Plan, or the Compensation Committee, in the case of the Management Plan, may establish and prescribe grant guidelines including various terms and conditions for the granting of stock-based compensation. For stock options, the exercise price of each option equals the market price of the Company’s stock on the date of the grant. All options expire after a period of ten years from the date of grant and generally become fully exercisable over a period of 3 to 5 years from the grant date. When option recipients exercise their options, the Company issues shares from treasury stock and records the proceeds as additions to capital. Shares of restricted stock granted to employees generally vest over 2 to 3 years from the grant date. Fifty percent of the shares of restricted stock granted to non-employee directors generally vests on the date of grant and the remaining fifty percent generally vests one year from the grant date. Vesting of the shares may be based on years of service, established performance measures or both. If restricted stock grants are forfeited before they vest, the shares are reacquired into treasury stock.

The share-based compensation plans were established to allow for the granting 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 share-based compensation expense for the years ended December 31 was as follows (in thousands):

	2012		2011		2010
Stock options:
Management Stock Incentive Plan	$	12	$	55	$	110
Director Stock Incentive Plan		—		14		43
Total stock options		12		69		153
Restricted stock awards:
Management Stock Incentive Plan		382		917		761
Director Stock Incentive Plan		132		119		117
Total restricted stock awards		514		1,036		878
Total share-based compensation	$	526	$	1,105	$	1,031

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(14.) SHARE-BASED COMPENSATION (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 2012, 2011 or 2010. There was no unrecognized compensation expense related to unvested stock options as of December 31, 2012. The following is a summary of stock option activity for the year ended December 31, 2012 (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		368,058		$	20.70
Granted		—			—
Exercised		(4,250	)		15.85
Forfeited		—			—
Expired		(44,533	)		24.55
Outstanding at end of period		319,275		$	20.22		2.6 years	$	71
Exercisable at end of period		319,275		$	20.22		2.6 years	$	71

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 years ended December 31, 2012, 2011 and 2010 was $10 thousand, $31 thousand, and $59 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the years ended December 31, 2012, 2011 and 2010 was $69 thousand, $91 thousand, and $216 thousand, respectively. The tax benefits realized in connection with these stock option exercises were not significant.

The following is a summary of restricted stock award activity for the year ended December 31, 2012:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year		166,654		$	14.34
Granted		57,541			17.32
Vested		(94,931	)		12.79
Forfeited		(49,684	)		16.67
Outstanding at end of period		79,580		$	16.89

As of December 31, 2012, there was $458 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.31 years.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(15.) INCOME TAXES

The income tax expense for the years ended December 31 consisted of the following (in thousands):

	2012		2011		2010
Current tax expense:
Federal	$	4,021	$	3,747	$	5,781
State		955		1,158		1,103
Total current tax expense		4,976		4,905		6,884
Deferred tax expense (benefit):
Federal		5,262		5,584		2,852
State		1,081		926		(384	)
Total deferred tax expense		6,343		6,510		2,468
Total income tax expense	$	11,319	$	11,415	$	9,352

Income tax expense differed from the statutory federal income tax rate for the years ended December 31 as follows:

	2012			2011			2010
Statutory federal tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) resulting from:
Tax exempt interest income		(4.6	)		(4.3	)		(4.2	)
Non-taxable earnings on company owned life insurance		(1.8	)		(1.5	)		(1.3	)
State taxes, net of federal tax benefit		3.8			4.0			1.5
Nondeductible expenses		0.3			0.4			0.6
Other, net		(0.1	)		(0.2	)		(1.1	)
Effective tax rate		32.6	%		33.4	%		30.5	%

Total income tax expense was allocated as follows for the years ended December 31 (in thousands):

	2012		2011		2010
Income tax expense	$	11,319	$	11,415		$	9,352
Shareholder’s equity		1,514		3,718			(763	)

The Company’s net deferred tax asset is included in other assets in the consolidated statements of condition. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31 (in thousands):

	2012		2011
Deferred tax assets:
Other than temporary impairment of investment securities	$	5,283	$	11,326
Allowance for loan losses		9,791		9,106
Share-based compensation		1,111		1,437
SERP agreements		734		285
Deferred compensation		868		499
Interest on nonaccrual loans		732		716
Accrued pension costs		—		538
Tax attribute carryforward benefits		—		463
Other		798		467
Gross deferred tax assets		19,317		24,837
Deferred tax liabilities:
Net unrealized gain on securities available for sale		10,536		8,903
Depreciation and amortization		1,827		1,741
Prepaid pension costs		1,648		—
Loan servicing assets		681		781
Deferred loan origination costs		—		930
Gross deferred tax liabilities		14,692		12,355
Net deferred tax asset	$	4,625	$	12,482

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(15.) INCOME TAXES (Continued)

The Company recognizes deferred income taxes for the estimated future tax effects of differences between the tax and financial statement bases of assets and liabilities considering enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in other assets in the Company’s consolidated statements of condition. The Company also assesses the likelihood that deferred tax assets will be realizable based on, among other considerations, future taxable income and establishes, if necessary, a valuation allowance for those deferred tax assets determined to not likely be realizable. A deferred tax asset valuation allowance is recognized if, based on the weight of available evidence (both positive and negative), it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of deferred tax benefits depends upon the existence of sufficient taxable income within the carry-back and carry-forward periods. Management’s judgment is required in determining the appropriate recognition of deferred tax assets and liabilities, including projections of future taxable income.

Based upon the Company’s historical and projected future levels of pre-tax and taxable income, the scheduled reversals of taxable temporary differences to offset future deductible amounts, and prudent and feasible tax planning strategies, management believes it is more likely than not that the deferred tax assets will be realized. As such, no valuation allowance has been recorded as of December 31, 2012 or 2011.

The Company and its subsidiaries are subject to federal and New York State (“NYS”) income taxes. The federal income tax years currently open for audits are 2007 through 2012. The NYS income tax years currently open for audits are 2009 through 2012.

At December 31, 2012, the Company had no federal or NYS net operating loss or tax credit carryforwards.

The Company’s unrecognized tax benefits and changes in unrecognized tax benefits were not significant as of or for the years ended December 31, 2012 and 2011. There were no interest or penalties recorded in the income statement in income tax expense for the year ended December 31, 2012. As of December 31, 2012, there were no amounts accrued for interest or penalties related to uncertain tax positions.

(16.) EARNINGS PER COMMON SHARE

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS for each of the years ended December 31 (in thousands, except per share amounts).

	2012			2011			2010
Net income available to common shareholders	$	21,975		$	19,617		$	17,562
Less: Earnings allocated to participating securities		2			38			105
Net income available to common shareholders for EPS	$	21,973		$	19,579		$	17,457
Weighted average common shares outstanding:
Total shares issued		14,162			13,599			11,348
Unvested restricted stock awards		(107	)		(166	)		(154	)
Treasury shares		(359	)		(366	)		(427	)
Total basic weighted average common shares outstanding		13,696			13,067			10,767
Incremental shares from assumed:
Exercise of stock options		4			3			6
Vesting of restricted stock awards		51			65			27
Exercise of warrant		—			22			45
Total diluted weighted average common shares outstanding		13,751			13,157			10,845
Basic earnings per common share	$	1.60		$	1.50		$	1.62
Diluted earnings per common share	$	1.60		$	1.49		$	1.61

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	303	339	353
Restricted stock awards	1	—	—
	304	339	353

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

The Company participates in The New York State Bankers Retirement System (the “Plan”), a defined benefit pension plan covering substantially all employees, subject to the limitations related to the plan closure effective December 31, 2006. The benefits are based on years of service and the employee’s highest average compensation during five consecutive years of employment. The defined benefit plan was closed to new participants effective December 31, 2006. Only employees hired on or before December 31, 2006 and who met participation requirements on or before January 1, 2008 are eligible to receive benefits.

The following table provides a reconciliation of the Company’s changes in the plan’s benefit obligations, fair value of assets and a statement of the funded status as of and for the year ended December 31 (in thousands):

	2012			2011
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	48,303		$	38,381
Service cost		2,037			1,756
Interest cost		2,017			2,027
Actuarial loss		3,291			7,939
Benefits paid and plan expenses		(2,023	)		(1,800	)
Projected benefit obligation at end of period		53,625			48,303
Change in plan assets:
Fair value of plan assets at beginning of period		46,943			38,731
Actual return on plan assets		4,865			12
Employer contributions		8,000			10,000
Benefits paid and plan expenses		(2,023	)		(1,800	)
Fair value of plan assets at end of period		57,785			46,943
Funded (unfunded) status at end of period	$	4,160		$	(1,360	)

The accumulated benefit obligation was $48.0 million and $43.3 million at December 31, 2012 and 2011, respectively.

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 Internal Revenue Code. The Company had no minimum required contribution for the 2013 fiscal year, but for tax purposes chose to contribute $8.0 million to its pension plan prior to December 31, 2012.

Estimated benefit payments under the pension plan over the next ten years at December 31, 2012 are as follows (in thousands):

2013	$	1,637
2014		1,724
2015		1,882
2016		2,106
2017		2,284
2018 – 2022		13,128

Net periodic pension cost consists of the following components for the years ended December 31 (in thousands):

	2012			2011			2010
Service cost	$	2,037		$	1,756		$	1,633
Interest cost on projected benefit obligation		2,017			2,027			1,933
Expected return on plan assets		(3,211	)		(2,653	)		(2,444	)
Amortization of unrecognized loss		1,370			608			458
Amortization of unrecognized prior service cost		20			19			11
Net periodic pension cost	$	2,233		$	1,757		$	1,591

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS (Continued)

The actuarial assumptions used to determine the net periodic pension cost were as follows:

	2012			2011			2010
Weighted average discount rate		4.27	%		5.38	%		5.89	%
Rate of compensation increase		3.00	%		3.00	%		3.50	%
Expected long-term rate of return		7.00	%		7.00	%		7.50	%

The actuarial assumptions used to determine the projected benefit obligation were as follows:

	2012			2011			2010
Weighted average discount rate		3.84	%		4.27	%		5.38	%
Rate of compensation increase		3.00	%		3.00	%		3.00	%

The weighted average discount rate was based upon the projected benefit cash flows and the market yields of high grade corporate bonds that are available to pay such cash flows.

The weighted average expected long-term rate of return is estimated based on current trends in the Plan’s assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No. 27, “Selection of Economic Assumptions for Measuring Pension Obligations”, for long term inflation, and the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the long-term rate of return:

Equity securities	Dividend discount model, the smoothed earnings yield model and the equity risk premium model
Fixed income securities	Current yield-to-maturity and forecasts of future yields
Other financial instruments	Comparison of the specific investment’s risk to that of fixed income and equity instruments and using judgment

The long term rate of return considers historical returns. Adjustments were made to historical returns in order to reflect expectations of future returns. These adjustments were due to factor forecasts by economists and long-term U.S. Treasury yields to forecast long-term inflation. In addition forecasts by economists and others for long-term GDP growth were factored into the development of assumptions for earnings growth and per capital income.

The Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for Plan assets are shown in the table below. Cash equivalents consist primarily of short term investment funds. Equity securities primarily include investments in common stock and depository receipts. Fixed income securities include corporate bonds, government issues and mortgage backed securities. Other financial instruments primarily include rights and warrants.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS (Continued)

Effective September 2011, the Plan revised its investment guidelines. The Plan currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio at the time of purchase or greater than 8% at market value in any one issuer. In addition, the following are prohibited:

Equity securities	Short sales Unregistered securities Margin purchases
Fixed income securities	Mortgage backed derivatives that have an inverse floating rate coupon or that are interest only securities Any ABS that is not issued by the U.S. Government or its agencies or its instrumentalities Generally securities of less than Baa2/BBB quality may not be purchased Securities of less than A-quality may not in the aggregate exceed 10% of the investment manager’s portfolio
Other financial instruments	Unhedged currency exposure in countries not defined as “high income economies” by the World Bank

Prior to September 2011 investments in emerging countries as defined by the Morgan Stanley Emerging Markets Index and structured notes were prohibited.

All other investments not prohibited by the Plan are permitted. At December 31, 2012 and 2011, the Plan held certain investments which are no longer deemed acceptable to acquire. These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the Plan.

										Weighted
										Average
	2013			Percentage of Plan Assets						Expected
	Target			at December 31,						Long-term
	Allocation			2012			2011			Rate of Return
Asset category:
Cash equivalents		0 – 20	%		12.8	%		10.6	%		0.38	%
Equity securities		40 – 60			45.5			47.9			3.95
Fixed income securities		40 – 60			41.7			41.5			1.90
Other financial instruments		0 – 5			—			—			—

- 104 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS (Continued)

Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value (see Note 18—Fair Value Measurements). There were no assets classified as Level 3 assets during the years ended December 31, 2012 and 2011. The major categories of Plan assets measured at fair value on a recurring basis as of December 31 are presented in the following table (in thousands).

	Level 1		Level 2		Level 3		Total
	Inputs		Inputs		Inputs		Fair Value
2012
Cash equivalents:
Foreign currencies		60		—		—		60
Government issues		—		314		—		314
Short term investment funds		—		7,083		—		7,083
Total cash equivalents		60		7,397		—		7,457
Equity securities:
Common stock		25,447		—		—		25,447
Depository receipts		569		—		—		569
Preferred stock		113		—		—		113
Real estate investment fund		113		—		—		113
Total equity securities		26,242		—		—		26,242
Fixed income securities:
Auto loan receivable		—		313		—		313
Collateralized mortgage obligations		—		6,262		—		6,262
Corporate Bonds		—		5,456		—		5,456
FHLMC		—		717		—		717
FNMA		—		2,867		—		2,867
GNMA I		—		31		—		31
GNMA II		—		133		—		133
Government Issues		—		8,231		—		8,231
Municipals		—		63		—		63
Other Asset Backed		—		14		—		14
Total fixed income securities		—		24,087		—		24,087
Total Plan investments	$	26,302		31,484		—		57,786

- 105 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS (Continued)

	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
2011
Cash equivalents:
Foreign currencies		81		—		—		81
Short term investment funds		—		4,901		—		4,901
Total cash equivalents		81		4,901		—		4,982
Equity securities:
Common stock		21,951		—		—		21,951
Depository receipts		473		—		—		473
Preferred stock		69		—		—		69
Total equity securities		22,493		—		—		22,493
Fixed income securities:
Auto loan receivable		—		6		—		6
Collateralized mortgage obligations		—		4,587		—		4,587
Corporate Bonds		—		4,171		—		4,171
FHLMC		—		809		—		809
FNMA		—		2,500		—		2,500
GNMA I		—		34		—		34
GNMA II		—		175		—		175
Government Issues		—		7,078		—		7,078
Municipals		—		55		—		55
Other Asset Backed		—		53		—		53
Total fixed income securities		—		19,468		—		19,468
Total Plan investments	$	22,574		24,369		—		46,943

At December 31, 2012 the portfolio was managed by two investment firms, with control of the portfolio split approximately 49% and 43% under the control of the investment managers with the remaining 8% under the direct control of the Plan. A portfolio concentration in the State Street Bank & Trust Co. Short Term Investment Fund of 12% and 10% existed at December 31, 2012 and 2011, respectively.

Postretirement Benefit Plan

An entity acquired by the Company provided health and dental care benefits to retired employees who met specified age and service requirements through a postretirement health and dental care plan in which both the acquired entity and the retirees shared the cost. The plan provided for substantially the same medical insurance coverage as for active employees until their death and was integrated with Medicare for those retirees aged 65 or older. In 2001, the plan’s eligibility requirements were amended to curtail eligible benefit payments to only retired employees and active employees who had already met the then-applicable age and service requirements under the Plan. In 2003, retirees under age 65 began contributing to health coverage at the same cost-sharing level as that of active employees. Retirees ages 65 or older were offered new Medicare supplemental plans as alternatives to the plan historically offered. The cost sharing of medical coverage was standardized throughout the group of retirees aged 65 or older. In addition, to be consistent with the administration of the Company’s dental plan for active employees, all retirees who continued dental coverage began paying the full monthly premium. The accrued liability included in other liabilities in the consolidated statements of financial condition related to this plan amounted to $118 thousand and $122 thousand as of December 31, 2012 and 2011, respectively. The postretirement expense for the plan that was included in salaries and employee benefits in the consolidated statements of income was not significant for the years ended December 31, 2012, 2011 and 2010. The plan is not funded.

- 106 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(17.) EMPLOYEE BENEFIT PLANS (Continued)

The components of accumulated other comprehensive loss related to the defined benefit plan and postretirement benefit plan, on a pre-tax basis as of December 31 are summarized below (in thousands):

	2012			2011
Defined benefit plan:
Net actuarial loss	$	(21,428	)	$	(21,160	)
Prior service cost		(93	)		(113	)
		(21,521	)		(21,273	)
Postretirement benefit plan:
Net actuarial loss		(195	)		(210	)
Prior service credit		508			575
		313			365
Total recognized in accumulated other comprehensive loss	$	(21,208	)	$	(20,908	)

Changes in plan assets and benefit obligations recognized in other comprehensive loss on a pre-tax basis during the years ended December 31 are as follows (in thousands):

	2012			2011
Defined benefit plan:
Net actuarial loss	$	(1,638	)	$	(10,580	)
Amortization of net loss		1,370			608
Amortization of prior service cost		20			19
		(248	)		(9,953	)
Postretirement benefit plan:
Net actuarial gain		15			42
Amortization of prior service credit		(67	)		(68	)
		(52	)		(26	)
Total recognized in other comprehensive loss	$	(300	)	$	(9,979	)

For the year ending December 31, 2013, the estimated net loss and prior service cost for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost is $1.3 million and $20 thousand, respectively.

Defined Contribution Plan

Employees that meet specified eligibility conditions are eligible to participate in the Company sponsored 401(k) plan. Under the plan, participants may make contributions, in the form of salary deferrals, up to the maximum Internal Revenue Code limit. The Company matches a participant’s contributions up to 4.5% of compensation, calculated as 100% of the first 3% of compensation and 50% of the next 3% of compensation deferred by the participant. The Company may also make additional discretionary matching contributions, although no such additional discretionary contributions were made in 2012, 2011 or 2010. The expense included in salaries and employee benefits in the consolidated statements of income for this plan amounted to $1.0 million in 2012 and 2011 and $936 thousand in 2010.

Supplemental Executive Retirement Plans

The Company has non-qualified Supplemental Executive Retirement Plans (“SERPs”) covering four former executives. The unfunded pension liability related to the SERPs was $2.2 million and $1.0 million at December 31, 2012 and 2011, respectively. SERP expense was $1.3 million, $67 thousand, and $262 thousand for 2012, 2011 and 2010, respectively.

- 107 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(18.) 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. 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.

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.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(18.) FAIR VALUE MEASUREMENTS (Continued)

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.

- 109 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(18.) FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

The following table presents 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 December 31 (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
2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	131,695	$	—	$	131,695
State and political subdivisions		—		195,210		—		195,210
Mortgage-backed securities		—		495,868		—		495,868
Asset-backed securities:
Trust preferred securities		—		754		—		754
Other		—		269		—		269
	$	—	$	823,796	$	—	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	1,518	$	—	$	1,518
Collateral dependent impaired loans		—		—		2,364		2,364
Other assets:
Loan servicing rights		—		—		1,719		1,719
Other real estate owned		—		—		184		184
	$	—	$	1,518	$	4,267	$	5,785
2011
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	—	$	97,712	$	—	$	97,712
State and political subdivisions		—		124,424		—		124,424
Mortgage-backed securities		—		403,685		—		403,685
Asset-backed securities:
Trust preferred securities		—		—		1,636		1,636
Other		—		61		—		61
	$	—	$	625,882	$	1,636	$	627,518
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,410	$	—	$	2,410
Collateral dependent impaired loans		—		—		2,160		2,160
Other assets:
Loan servicing rights		—		—		1,973		1,973
Other real estate owned		—		—		475		475
	$	—	$	2,410	$	4,608	$	7,018

There were no transfers between level 1 and 2 during the years ended December 31, 2012 and 2011. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the years ended December 31, 2012 and 2011.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(18.) 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	$	2,364	Appraisal of collateral  (1)	Appraisal adjustments (2)	16% – 100% discount
			Discounted cash flow	Discount rate	4.9%(3)
				Risk premium rate	10.1%(3)
Loan servicing rights		1,719	Discounted cash flow	Discount rate	4.1%(3)
				Constant prepayment rate	28.9%(3)
Other real estate owned		184	Appraisal of collateral  (1)	Appraisal adjustments (2)	20% – 55% 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 December 31, 2012. The Company transferred all of the assets classified as Level 3 assets at December 31, 2011 to Level 2 during the three months ended March 31, 2012. The transfers of the $1.5 million of pooled trust preferred securities out of Level 3 was primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

The reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31 is as follows (in thousands):

	2012			2011
Securities available for sale, beginning of period	$	1,636		$	572
Sales		(360	)		(2,478	)
Principal paydowns and other		—			(53	)
Total gains (losses) realized/unrealized:
Included in earnings		331			2,263
Included in other comprehensive income		(102	)		1,332
Transfers from Level 3 to Level 2		(1,505	)		—
Securities available for sale, end of period	$	—		$	1,636

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(18.) FAIR VALUE MEASUREMENTS (Continued)

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, FHLB and FRB stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

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

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

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

The following presents the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of December 31(in thousands):

	Level in	2012				2011
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	60,436	$	60,436	$	57,583	$	57,583
Securities available for sale	Level 2		823,796		823,796		625,882		625,882
Securities available for sale (1)	Level 3		—		—		1,636		1,636
Securities held to maturity	Level 2		17,905		18,478		23,297		23,964
Loans held for sale	Level 2		1,518		1,547		2,410		2,442
Loans	Level 2		1,678,648		1,701,419		1,459,356		1,490,999
Loans (2)	Level 3		2,364		2,364		2,160		2,160
Accrued interest receivable	Level 1		7,843		7,843		7,655		7,655
FHLB and FRB stock	Level 2		12,321		12,321		10,674		10,674
Financial liabilities:
Non-maturity deposits	Level 1		1,606,856		1,606,856		1,230,923		1,230,923
Time deposits	Level 2		654,938		658,342		700,676		702,720
Short-term borrowings	Level 1		179,806		179,806		150,698		150,698
Accrued interest payable	Level 1		3,819		3,819		5,207		5,207

⁽¹⁾  Comprised of trust preferred asset-backed securities.

⁽²⁾  Comprised of collateral dependent impaired loans.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(19.) PARENT COMPANY FINANCIAL INFORMATION

Condensed financial statements pertaining only to the Parent are presented below (in thousands).

Condensed Statements of Condition	December 31,
	2012		2011
Assets:
Cash and due from subsidiary	$	6,602	$	11,621
Investment in and receivables due from subsidiary		246,535		223,577
Other assets		3,563		4,337
Total assets	$	256,700	$	239,535
Liabilities and shareholders’ equity:
Other liabilities	$	2,803	$	2,341
Shareholders’ equity		253,897		237,194
Total liabilities and shareholders’ equity	$	256,700	$	239,535

Condensed Statements of Income	Years ended December 31,
	2012		2011		2010
Dividends from subsidiary and associated companies	$	4,000	$	9,233	$	23,151
Management and service fees from subsidiary		517		1,161		1,163
Other income (loss)		24		78		(134	)
Total income		4,541		10,472		24,180
Operating expenses		2,732		3,787		4,005
Loss on extinguishment of debt		—		1,083		—
Total expenses		2,732		4,870		4,005
Income before income tax benefit and equity in undistributed earnings of subsidiary		1,809		5,602		20,175
Income tax benefit		991		1,539		1,323
Income before equity in undistributed earnings of subsidiary		2,800		7,141		21,498
Equity in undistributed earnings (excess distributions) of subsidiary		20,649		15,658		(211	)
Net income	$	23,449	$	22,799	$	21,287

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012, 2011 and 2010

(19.) PARENT COMPANY FINANCIAL INFORMATION (Continued)

Condensed Statements of Cash Flows	Years ended December 31,
	2012			2011			2010
Cash flows from operating activities:
Net income	$	23,449		$	22,799		$	21,287
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in (undistributed earnings) excess distributions of subsidiary		(20,649	)		(15,658	)		211
Depreciation and amortization		65			116			193
Share-based compensation		526			1,105			1,031
Decrease in other assets		805			771			980
Increase (decrease) in other liabilities		44			(534	)		8
Net cash provided by operating activities		4,240			8,599			23,710
Cash flows from financing activities:
Redemption of junior subordinated debentures		—			(16,702	)		—
Proceeds from issuance of preferred and common shares, net of issuance costs		—			43,127			—
Purchase of preferred and common shares		(559	)		(37,764	)		(69	)
Repurchase of warrant issued to U.S. Treasury		—			(2,080	)		—
Proceeds from stock options exercised		69			91			216
Dividends paid		(8,866	)		(7,564	)		(7,690	)
Other		97			20			—
Net cash used in financing activities		(9,259	)		(20,872	)		(7,543	)
Net (decrease) increase in cash and cash equivalents		(5,019	)		(12,273	)		16,167
Cash and cash equivalents as of beginning of year		11,621			23,894			7,727
Cash and cash equivalents as of end of the year	$	6,602		$	11,621		$	23,894

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Effectiveness of Controls and Procedures

As of the end of the period covered by this report, 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 (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (“Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.

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

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management Report on Internal Control over Financial Reporting and Attestation Report of Independent Registered Public Accounting Firm

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Management assessed the Company’s internal control over financial reporting based on criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has concluded that, as of December 31, 2012, the Company maintained effective internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting is included under Item 8 “Financial Statements and Supplementary Data” in Part II of this Form 10-K.

KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K, and has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting. The Report of Independent Registered Public Accounting Firm that attests the effectiveness of internal control over financial reporting is included under Item 8 “Financial Statements and Supplementary Data” in Part II of this Form 10-K.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

- 115 -

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

In response to this Item, the information set forth in the Company’s Proxy Statement for its 2013 Annual Meeting of Shareholders (the “2013 Proxy Statement”) to be filed within 120 days following the end of the Company’s fiscal year, under the headings “Election of Directors,” “Business Experience and Qualification of Directors,” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference.

The information under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this Form 10-K is also incorporated herein by reference.

Information concerning the Company’s Audit Committee and the Audit Committee’s financial expert is set forth under the caption “Corporate Governance Information” in the 2013 Proxy Statement and is incorporated herein by reference.

The Company has adopted a Code of Business Conduct and Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is posted on the Company’s internet website at www.fiiwarsaw.com under the Corporate Overview/Governance Documents tabs of the Investor Relations drop down menu. In addition, the Company will provide a copy of the Code of Business Conduct and Ethics to anyone, without charge, upon request addressed to Director of Human Resources at Financial Institutions, Inc., 220 Liberty Street, Warsaw, NY 14569. The Company intends to disclose any amendment to, or waiver from, a provision of its Code of Business Conduct and Ethics that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and that relates to any element of the Code of Business Conduct and Ethics, by posting such information on the Company’s website.

ITEM 11. EXECUTIVE COMPENSATION

In response to this Item, the information set forth in the 2013 Proxy Statement under the heading “Elements of Executive Compensation” is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

In response to this Item, the information set forth in the 2013 Proxy Statement under the heading “Beneficial Ownership of Common Stock” is incorporated herein by reference. The information under the heading “Equity Compensation Plan Information” in Part II, Item 5 of this Form 10-K is also incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In response to this Item, the information set forth in the 2013 Proxy Statement under the headings “Certain Relationships and Related Party Transactions” and “Corporate Governance Information” is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

In response to this Item, the information set forth in the 2013 Proxy Statement under the headings “Audit Committee Report” and “Independent Registered Public Accounting Firm” is incorporated herein by reference.

- 116 -

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) FINANCIAL STATEMENTS

Reference is made to the Index to Consolidated Financial Statements of Financial Institutions, Inc. and subsidiaries under Item 8 “Financial Statements and Supplementary Data” in Part II of this Annual Report on Form 10-K.

(b) EXHIBITS

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

Exhibit Number	Description	Location
3.1	Amended and Restated Certificate of Incorporation of the Company	Incorporated by reference to Exhibits 3.1, 3.2 and 3.3 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009
3.2	Amended and Restated Bylaws of the Company	Incorporated by reference to Exhibit 3.4 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009
10.1	1999 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 of the S-1 Registration Statement
10.2	Amendment Number One to the 1999 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated July 28, 2006
10.3	Form of Non-Qualified Stock Option Agreement Pursuant to the 1999 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated July 28, 2006
10.4	Form of Restricted Stock Award Agreement Pursuant to the 1999 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated July 28, 2006
10.5	Form of Restricted Stock Award Agreement Pursuant to the 1999 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated January 23, 2008
10.6	1999 Directors Stock Incentive Plan	Incorporated by reference to Exhibit 10.2 of the S-1 Registration Statement
10.7	Amendment to the 1999 Director Stock Incentive Plan	Incorporated by reference to Exhibit 10.7 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009
10.8	2009 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.8 of the Form 10-Q for the quarterly period ended June 30, 2009, dated August 5, 2009
10.9	2009 Directors’ Stock Incentive Plan	Incorporated by reference to Exhibit 10.9 of the Form 10-Q for the quarterly period ended June 30, 2009, dated August 5, 2009
10.10	Form of Restricted Stock Award Agreement Pursuant to the 2009 Directors’ Stock Incentive Plan	Filed Herewith
10.11	Form of Restricted Stock Award Agreement Pursuant to the 2009 Management Stock Incentive Plan (Special, one-time Award)	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated January 19, 2010
10.12	Form of Restricted Stock Award Agreement Pursuant to the 2009 Management Stock Incentive Plan (LTIP Award)	Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated March 1, 2010

- 117 -

Exhibit Number	Description	Location
10.13	Form of “Service Based” Restricted Stock Award Agreement Pursuant to the 2009 Management Stock Incentive Plan	Incorporated by reference to Exhibit 10.12 of the Form 10-K for the year ended December 31, 2011, dated March 9, 2012
10.14	Form of 2012 Performance Program Master Agreement	Incorporated by reference to Exhibit 10.13 of the Form 10-K for the year ended December 31, 2011, dated March 9, 2012
10.15	Form of 2012 Performance Program Award Certificate	Incorporated by reference to Exhibit 10.14 of the Form 10-K for the year ended December 31, 2011, dated March 9, 2012
10.16	Form of 2013 Performance Program Master Agreement	Filed Herewith
10.17	Form of 2013 Performance Program Award Certificate	Filed Herewith
10.18	Amended and Restated Executive Agreement between Financial Institutions, Inc. and Peter G. Humphrey	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated July 5, 2012
10.19	Amended and Restated Executive Agreement between Financial Institutions, Inc. and Martin K. Birmingham	Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated July 5, 2012
10.20	Executive Agreement between Financial Institutions, Inc. and Karl F. Krebs	Incorporated by reference to Exhibit 10.3 of the Form 8-K, dated July 5, 2012
10.21	Executive Agreement between Financial Institutions, Inc. and Ronald Mitchell McLaughlin	Incorporated by reference to Exhibit 10.4 of the Form 8-K, dated July 5, 2012
10.22	Executive Agreement between Financial Institutions, Inc. and Kenneth V. Winn	Incorporated by reference to Exhibit 10.5 of the Form 8-K, dated July 5, 2012
10.23	Separation and release agreement between Five Star Bank and George D. Hagi	Incorporated by reference to Exhibit 10.6 of the Form 8-K, dated July 5, 2012
10.24	Voluntary Retirement Agreement with Ronald A. Miller	Incorporated by reference to Exhibit 10.2 of the Form 8-K, dated September 26, 2008
10.25	Amendment to Voluntary Retirement Agreement with Ronald A. Miller	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated March 3, 2010
10.26	Separation and release agreement between Financial Institutions, Inc. and Peter G. Humphrey	Incorporated by reference to Exhibit 10.2 of the Form 10-Q for the quarterly period ended September 30, 2012, dated November 6, 2012
10.27	Supplemental Executive Retirement Agreement between Financial Institutions, Inc. and Peter G. Humphrey	Incorporated by reference to Exhibit 10.3 of the Form 10-Q for the quarterly period ended September 30, 2012, dated November 6, 2012
10.28	Assignment, Purchase and Assumption Agreement dated January 19, 2012 between First Niagara Bank, National Association and Five Star Bank	Incorporated by reference to Exhibit 10.24 of the Form 10-K for the year ended December 31, 2011, dated March 9, 2012
10.29	Amendment No. 1 to Assignment, Purchase and Assumption Agreement, effective as of August 16, 2012, by and between Five Star Bank and First Niagara Bank, National Association	Incorporated by reference to Exhibit 10.1 of the Form 10-Q for the quarterly period ended September 30, 2012, dated November 6, 2012
10.30	Purchase and Assumption Agreement dated January 19, 2012 between First Niagara Bank, National Association and Five Star Bank	Incorporated by reference to Exhibit 10.25 of the Form 10-K for the year ended December 31, 2011, dated March 9, 2012
10.31	Amendment No. 1 to Purchase and Assumption Agreement, effective as of June 21, 2012, by and between Five Star Bank and First Niagara Bank, National Association.	Incorporated by reference to Exhibit 10.1 of the Form 8-K, dated June 28, 2012

- 118 -

Exhibit Number	Description	Location
10.32	Underwriting Agreement dated March 9, 2011 between Financial Institutions, Inc. and Keefe, Bruyette & Woods, Inc., as representative of the underwriters	Incorporated by reference to Exhibit 1.1 of the Form 8-K, dated March 9, 2011
21	Subsidiaries of Financial Institutions, Inc.	Filed Herewith
23	Consent of Independent Registered Public Accounting Firm	Filed Herewith
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Principal Executive Officer	Filed Herewith
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Principal Financial Officer	Filed Herewith
32	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed Herewith
*101.INS	XBRL Instance Document
*101.SCH	XBRL Taxonomy Extension Schema Document
*101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
*101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the information in this exhibit shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement, prospectus or other document filed under the Securities Act of 1933, or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filings.

- 119 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		FINANCIAL INSTITUTIONS, INC.
March 18, 2013	By:	/s/ Martin K. Birmingham
		Martin K. Birmingham
		President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ Martin K. Birmingham	President and Chief Executive Officer	March 18, 2013
Martin K. Birmingham	(Principal Executive Officer)
/s/ Karl F. Krebs	Executive Vice President and Chief Financial Officer	March 18, 2013
Karl F. Krebs	(Principal Financial and Accounting Officer)
/s/ Karl V. Anderson, Jr.	Director	March 18, 2013
Karl V. Anderson, Jr.
/s/ John E. Benjamin	Director, Chairman	March 18, 2013
John E. Benjamin
/s/ Barton P. Dambra	Director	March 18, 2013
Barton P. Dambra
/s/ Samuel M. Gullo	Director	March 18, 2013
Samuel M. Gullo
/s/ Susan R. Holliday	Director	March 18, 2013
Susan R. Holliday
/s/ Peter G. Humphrey	Director	March 18, 2013
Peter G. Humphrey
/s/ Erland E. Kailbourne	Director	March 18, 2013
Erland E. Kailbourne
/s/ Robert N. Latella	Director, Vice Chairman	March 18, 2013
Robert N. Latella
/s/ James L. Robinson	Director	March 18, 2013
James L. Robinson
/s/ James H. Wyckoff	Director	March 18, 2013
James H. Wyckoff

- 120 -

EX-10.10

Exhibit 10.10

RESTRICTED STOCK AWARD AGREEMENT

Pursuant to the

FINANCIAL INSTITUTIONS, INC.

2009 DIRECTORS’ STOCK INCENTIVE PLAN

Name of Director:	[FIRST] [LAST]
Date of Grant:	[DATE]
Number of Shares:	XXXX
Value of each Share on Date of Grant:	$XX.XX
Vesting Schedule:	The Vested Percentage of the Number of Shares set forth above shall be determined as of the following Vesting Date(s):
	Vesting Date Date of Grant The day prior to the Company’s first annual meeting of shareholders following the Date of Grant	Vested Percentage 50% Remaining 50%

This RESTRICTED STOCK AGREEMENT (this “Agreement”), dated as of [DATE], is made between Financial Institutions, Inc. (the “Company”) and the above-named individual (the “Director”) to record the grant to the Director by the Company’s Board of Directors (the “Board”)of an award of restricted stock (the “Award”) on the Date of Grant set forth above pursuant to Section 6 the Financial Institutions, Inc. 2009 Directors’ Stock Incentive Plan (the “Plan”).

The Company and the Director hereby agree as follows:

Section 1. Grant of Shares. The Board hereby grants to the Director, as of the Date of Grant, subject to and in accordance with the terms and conditions of the Plan and this Agreement, the Number of Shares set forth above of the Company’s Common Stock, par value $.01 per share (the “Common Stock”). The grant of shares of Common Stock to the Director, evidenced by this Agreement, is an award of restricted stock (as defined in the Plan) and such shares of restricted stock are referred to herein as the “Shares.”

Section 2. Vesting of Shares. Subject to Section 3 below, provided that the Director provides continuous services as a director of the Company through the Vesting Date(s) set forth above, ownership of the Shares shall vest pursuant to the Vesting Schedule set forth above. If the Director ceases to be a director of the Company for any reason before the Shares vest, the Shares shall be immediately forfeited.

Section 3. Change in Control. Subject to the Board’s discretion under the terms of the Plan, if prior to the latest of the Vesting Dates set forth above there is a change in control (as that term is defined in the Plan) of the Company, then all of the Director’s unvested Shares that have not been forfeited shall fully vest as of the date of the change in control.

Section 4. Forfeiture. Shares that do not become vested in accordance with the vesting criteria set forth in Section 2 of this Agreement shall be forfeited to the Company.

Section 5. Dividends. No dividends shall accrue or be paid to the Director with respect to any Shares subject to the Award that have not become vested Shares or that are subject to any restrictions or conditions on the record date for dividends, unless the Board provides otherwise.

Section 6. Rights as Shareholder. Except for the transfer and other restrictions set forth elsewhere in this Agreement (including the limitations on dividends set forth in Section 5 above) and in the Plan, the Director, as record holder of the Shares, shall possess all the rights of a holder of the Company’s Common Stock (including voting and dividend rights); provided, however, that prior to becoming vested and transferable the certificates representing such Shares shall be held by the Company for the benefit of the Director. As the Shares become vested Shares, the Company shall, as applicable, either remove the notations on any Shares issued in book entry form which have vested or deliver to the Director a certificate or certificates evidencing the number of vested Shares. As noted above, the Director shall not receive any dividends on unvested Shares, and such dividends shall be permanently forfeited.

Section 7. Legend. Each share certificate representing the Shares shall bear a legend indicating that such Shares are “Restricted Stock” and are subject to the provisions of this Agreement and the Plan.

Section 8. No Transferability. The Shares may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated until they become fully vested and transferable in accordance with Section 2 of this Agreement and then only to the extent permitted under this Agreement and the Plan and by applicable securities laws. Prior to full vesting and transferability, all rights with respect to the Shares granted to a Director under the Plan shall be available, during such Director’s lifetime, only to such Director.

Section 9. Stock Power. Concurrently with the execution of this Agreement, the Director shall deliver to the Company a stock power, endorsed in blank, relating to the Shares. Such stock power shall be in the form attached hereto as Exhibit A. The stock power with respect to any certificate representing Shares that do not vest shall be completed in the name of the Company by an officer of the Company, and the Shares shall be returned to either authorized but unissued shares or treasury shares, depending on their original source.

Section 10. Adjustment of Shares. As provided by the Plan, in the event of any change in the Common Stock of the Company by reason of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of Shares, or of any similar change affecting the Common Stock, the Shares shall be adjusted automatically consistent with such change to prevent substantial dilution or enlargement of the rights granted to, or available for, the Director hereunder.

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Section 11. No Employment or Service Rights. Neither the Plan nor this Award shall not confer upon the Director any right with respect to continuance as a director of the Company, nor shall they interfere in any way with any right the Company may have to terminate the Director’s position as a director at any time.

Section 12. Coordination with Plan. The Director hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms and provisions thereof including any that may conflict with those contained in this Agreement. Capitalized terms used in this Agreement shall have the meaning given to such terms under the Plan.

Section 13. Notices. All notices to the Company shall be in writing and sent to the Company’s Director of Human Resources at the Company’s offices. Notices to the Director shall be addressed to the Director at the Director’s address as it appears on the Company’s records.

Section 14. Amendment. The Company may alter, amend or terminate this Agreement only with the Director’s consent, except as otherwise expressly provided by the Plan or this Agreement.

Section 15. Governing Law. This Agreement shall be governed by the laws of the State of New York, without reference to principles of conflict of laws, and construed accordingly.

IN WITNESS WHEREOF, the Board and the Director have caused this Agreement to be executed on the date set forth opposite their respective signatures, it being further understood that the Date of Grant may differ from the date of signature.

Dated:	FOR THE BOARD:
	By:
	Name:
	Title:
Dated:	DIRECTOR:
	By:
	Name:

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EXHIBIT A

STOCK POWER

FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to Financial Institutions, Inc. (the “Company”), XXXX shares of the Company’s common stock represented by Certificate No. XXXXXXX. The undersigned authorizes the Secretary of the Company to transfer the stock on the books of the Company in the event of the forfeiture of any shares issued under the Restricted Stock Award Agreement dated as of [DATE], between the Company and the undersigned.

Dated:

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EX-10.16

Exhibit 10.16

FINANCIAL INSTITUTIONS, INC.

2009 MANAGEMENT STOCK INCENTIVE PLAN

2013 PERFORMANCE PROGRAM

MASTER AGREEMENT

This 2013 Performance Program Master Agreement (this “Master Agreement”) relating to a grant (the “Award”) of restricted stock of Financial Institutions, Inc. (the “Company”), dated as of the Award Date set forth in the Award Certificate, is made by and between the Company and each Participant pursuant to the Financial Institutions, Inc. 2009 Management Stock Incentive Plan (the “Plan”). The Award Certificate is included with and made part of this Master Agreement. In this Master Agreement and each Award Certificate, unless the context otherwise requires, words and expressions shall have the meanings given to them in the Plan, except as herein defined.

Section 1. Definitions. For purposes of the Award and this Master Agreement, the following terms shall have the following meanings:

(a) “Award Certificate” means the separate certificate given to each Participant specifying the Award Date, Number of Shares, Award Period, Payout Percentage, the applicable Performance Requirements and for each Performance Requirement, the Percentage of Shares subject to each Performance Requirement and the applicable Measurement Period and Service Period for such Participant’s Award.

(b) “Award Period” means the period beginning on the starting date and ending on the end date specified in the Participant’s Award Certificate.

(c) “Board” means the Board of Directors of Financial Institutions, Inc.

(d) “Code” means the Internal Revenue Code of 1986, as amended.

(e) “Committee” means the Management Development and Compensation Committee of the Board. Any reference herein to the Committee shall be deemed to include any person to whom any duty of the Committee has been delegated pursuant to Section 6(a) of this Master Agreement.

(f) “Common Stock” means the shares of common stock of the Company, par value $0.01 per share.

(g) “Disability” means (i) in the case of a Participant whose employment with the Company or a Subsidiary is subject to the terms of an employment or consulting agreement that includes a definition of “Disability,” the meaning set forth in such employment or consulting agreement during the period that such employment or consulting agreement remains in effect; and (ii) in all other cases, the meaning as set forth under the Company’s long-term disability plan applicable to the Participant as may be amended from time to time, and in the event the Company does not maintain any such plan with respect to a Participant, a physical or mental condition resulting from bodily injury, disease or mental disorder which renders the Participant incapable of continuing his or her usual and customary employment with the Company or a Subsidiary, as the case may be, for a period of not less than 120 days or such other period as may be required by applicable law.

(h) “Earned Shares” means Shares that have become earned based on achievement of specified performance requirements in accordance with the provisions of Schedule A to this Master Agreement.

(i) “Fair Market Value” means the closing price of the Company’s Common Stock on the listing exchange on the relevant date, or, if there was no trading in such stock on the relevant date, the closing price on the last preceding day on which there was trading activity.

(j) “Participant” means an employee who has received an Award Certificate under which an Award has been granted under the Plan.

(k) “Retirement” shall mean the resignation or termination of employment after attainment of an age and years of service required for payment of an immediate pension pursuant to the terms of any qualified defined benefit retirement plan maintained by the Company or a Subsidiary in which the Participant participates; provided, however, that no resignation or termination prior to a Participant’s 62nd birthday shall be deemed a retirement unless the Committee so determines in its sole discretion; and provided further that the resignation or termination of employment other than a termination of employment for Cause after attainment of age 62 shall be deemed a retirement if the Participant does not participate in a qualified defined benefit retirement plan maintained by the Company or a Subsidiary.

(l) “Service Period” means the period beginning on the starting date and ending on the end date specified in the Participant’s Award Certificate that is applicable to

(m) “Subsidiary” means any subsidiary of the Company within the meaning of Rule 405 of the Securities Act of 1933, as amended.

(n) “Vested Shares” means Earned Shares that have become vested, nonforfeitable and transferable based on satisfaction of specified service requirements in accordance with the provisions of Schedule A to this Master Agreement.

Section 2. Grant of Restricted Stock. Subject to the provisions of this Master Agreement and the provisions of the Plan and the Award Certificate, the Committee grants to the Participant named in the Award Certificate, as of the Award Date, an Award of the Number of Shares of the Company’s Common Stock set forth in the Award Certificate. The grant of shares of Common Stock to the Participant is an award of restricted stock (as defined in the Plan), and such shares of restricted stock are referred to herein as the “Shares.”

Section 3. Earned and Vested Shares. Subject to Section 4 of this Master Agreement, the number of Shares, if any, that shall become Earned Shares and Vested Shares is, in each case, determined in accordance with the provisions of Schedule A to this Master Agreement. Shares that do not become both Earned Shares and Vested Shares in accordance with the provisions of Schedule A to this Master Agreement shall be forfeited to the Company.

2

Section 4. Effects of Certain Events.

(a) General. Subject to Sections 4(b) through 4(d) of this Master Agreement, in the event that a Participant’s employment with the Company is terminated before all or a portion of the Shares become Vested Shares, all Shares that are not Vested Shares as of the date of such termination are automatically forfeited.

(b) Death or Disability. In the event of a Participant’s death or termination of employment due to Disability during the Award Period, performance shall be calculated as of the date of the Participant’s death or termination of employment due to Disability, and the Earned Shares, if any, from such performance, shall be distributed on a pro-rata basis as soon as administratively practicable following the Participant’s death or termination of employment due to Disability. The pro-rata portion shall be determined by multiplying the number of Earned Shares by a fraction, the numerator of which is the number of completed months in the Award Period during which the participant was employed by the Company or a Subsidiary, and the denominator of which is the number of months in the Award Period.

(c) Retirement. If a Participant terminates employment during the Award Period due to Retirement, then the Award shall continue and the Earned Shares shall be distributed on a pro-rata basis on the date that active Participants receive such distributions under this Master Agreement, based on actual performance during the applicable Measurement Period. The pro-rata portion shall be determined as follows:

(i) With respect to the portion of the Award that is subject to the EPS Performance Requirement, the pro-rata portion shall be determined by multiplying the number of Earned Shares subject to the EPS Performance Requirement by a fraction, the numerator of which is the number of completed months in the EPS Measurement Period during which the participant was employed by the Company or a Subsidiary, and the denominator of which is the number of months in the EPS Measurement Period. For the avoidance of doubt, because the EPS Measurement Period is one year, a Participant who terminates employment due to Retirement after the end of the EPS Measurement Period shall receive the full number of Earned Shares subject to the EPS Performance Requirement without proration.

(ii) With respect to the portion of the Award that is subject to the Relative TSR Performance Requirement, the pro-rata portion shall be determined by multiplying the number of Earned Shares subject to the Relative TSR Performance Requirement by a fraction, the numerator of which is the number of completed months in the TSR Measurement Period during which the participant was employed by the Company or a Subsidiary, and the denominator of which is the number of months in the TSR Measurement Period. For the avoidance of doubt, because the TSR Measurement Period is three years, a Participant who terminates employment due to Retirement at any time during the Award Period shall receive a pro-rated portion of the Earned Shares subject to the Relative TSR Performance Requirement.

(d) Change in Control. In the event of a change in control of the Company (as defined in the Plan), all of a Participant’s Shares shall immediately become Vested Shares, unless directed otherwise by a resolution of the Committee adopted prior to and specifically relating to the occurrence of such change in control.

3

Section 5. Dividends. No dividends shall accrue or be paid to the Participant with respect to any Shares subject to the Award that have not become Vested Shares or that are subject to any restrictions or conditions on the record date for dividends, unless the Committee provides otherwise.

Section 6. Miscellaneous

(a) Administration. The Award shall be administered by the Committee. The Committee shall have authority to interpret the Award, the Award Certificate and this Master Agreement, to prescribe rules and regulations relating to the Award, the Award Certificate and this Master Agreement, to take any other actions it deems necessary or advisable for the administration of the Award, the Award Certificate and this Master Agreement and shall retain all general authority granted to it under Section 2 of the Plan. In accordance with applicable law, the Committee may delegate any of the responsibilities under this Master Agreement to the Chief Executive Officer of the Company or the Finance or Human Resources departments of the Company, or may receive recommendations from such individuals and departments regarding such responsibilities.

(b) Amendment. The Committee may, at any time, amend, modify or terminate this Master Agreement; provided, however that termination of this Master Agreement after the end of the applicable Measurement Period but before Shares become Vested Shares will not reduce Participants’ rights to receive Vested Shares for the Performance Period. Termination or amendment of this Master Agreement during the applicable Measurement Period may be retroactive to the beginning of such Measurement Period, at the discretion of the Committee. If a change in control occurs, no amendment or termination may adversely affect existing Awards without the consent of the Participant.

(c) Adjustments. As provided by the Plan, in the event of any change in the Common Stock of the Company by reason of any stock dividend, stock split, recapitalization, reorganization, merger, consolidation, split-up, combination, or exchange of Shares, or of any similar change affecting the Common Stock, the Shares shall be adjusted automatically consistent with such change to prevent substantial dilution or enlargement of the rights granted to, or available for, the Participant hereunder. Furthermore, the Committee shall adjust the Performance Requirements to the extent (if any) it determines that the adjustment is necessary or advisable to preserve the intended incentives and benefits to reflect any material change in corporate capitalization, any material corporate transaction (such as a reorganization, combination, separation, merger, acquisition, or any combination of the foregoing), or any complete or partial liquidation of the Company, or any other similar special circumstances, including the issuance of a significant number of shares of Common Stock.

(d) No Transferability. The Shares may not be sold, transferred, pledged, assigned, encumbered, or otherwise alienated or hypothecated until they become fully vested and transferable in accordance with this Master Agreement and then only to the extent permitted under this Master Agreement, the Award Certificate, the Plan and by applicable securities laws. Prior to full vesting and transferability, all rights with respect to the Shares granted to a Participant under the Plan shall be available, during such Participant’s lifetime, only to such Participant.

4

(e) No Right to Continued Employment. The terms and conditions of the Award, the Award Certificate, this Master Agreement and the Plan shall not be deemed to constitute a contract of employment between the Company and a Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without notice, except as otherwise provided in a written employment agreement. Nothing in the Award, the Award Certificate, this Master Agreement or the Plan shall be deemed to give a Participant the right to be retained in the service of the Company as an employee or to interfere with the right of the Company to discipline or discharge a Participant at any time.

(f) Rights as a Shareholder. Except for the transfer and other restrictions set forth elsewhere in this Master Agreement (including the limitations on dividends set forth in Section 5 of this Master Agreement), the Award Certificate and the Plan, the Participant, as record holder of the Shares, shall possess all the rights of a holder of the Company’s Common Stock (including voting); provided, however, that prior to becoming vested and transferable the certificates representing such Shares shall be held by the Company for the benefit of the Participant. As the Shares become Vested Shares, the Company shall, as applicable, either remove the notations on any Shares issued in book entry form which have vested or deliver to the Participant a certificate or certificates evidencing the number of Vested Shares (or, in either case, such lesser number of Shares as may result after giving effect to Section 6(g) of this Master Agreement).

(g) Withholding Taxes. The Company shall be entitled to require payment of any amounts required by federal, state or local tax law to be withheld with respect to the transfer or vesting of the Shares, or any other taxable event related thereto. The Company may permit the Participant to make such payment in one or more of the forms specified below:

(i) by cash or check made payable to the Company;

(ii) by the deduction of such amount from other compensation payable to the Participant, including without limitation, salary, bonus and other compensation;

(iii) by tendering shares of Common Stock already owned by the Participant or Vested Shares which have a then current fair market value not greater than the amount necessary to satisfy the Company’s withholding obligation based on the minimum statutory withholding rates for federal, state and local income tax and payroll tax purposes; or

(iv) in any combination of the foregoing.

In the event the Participant fails to provide timely payment of all sums required by the Company pursuant to this Section, the Company shall have the right and option, but not obligation, to treat such failure as an election by the Participant to provide all or any portion of such required payment by means of tendering Vested Shares in accordance with Section 6(g)(iii) of this Master Agreement.

(h) Legend. Each share certificate representing the Shares shall bear a legend indicating that such Shares are “Restricted Stock” and are subject to the provisions of this Master Agreement and the Plan.

5

(i) Stock Power. Concurrently with the grant of the Award, the Participant shall deliver to the Company a stock power, endorsed in blank, relating to the Shares. Such stock power shall be in the form attached to the Award Certificate as Exhibit A. The stock power with respect to any certificate representing Shares that do not vest shall be completed in the name of the Company by an officer of the Company, and the Shares shall be returned to either authorized but unissued shares or treasury shares, depending on their original source.

(j) Coordination with Plan and the Award Certificate. The Participant hereby acknowledges receipt of a copy of the Plan and the Award Certificate and agrees to be bound by all of the terms and provisions thereof including any that may conflict with those contained in this Master Agreement.

(k) Notices. All notices to the Company shall be in writing and sent to the Company’s Director of Human Resources at the Company’s offices. Notices to the Participant shall be addressed to the Participant at the Participant’s home or work address, including via interoffice mail, as it appears on the Company’s records. Any such notices may be made in electronic format or through means of online or other electronic transmission.

(l) Compensation Recovery Policy. Notwithstanding any other provision of this Master Agreement to the contrary, any Shares granted and/or issued hereunder, and/or any amount received with respect to any sale of any such Shares, shall be subject to potential cancellation, recoupment, rescission, payback or other action in accordance with the terms of the Company’s compensation recovery policy, if any, or any similar policy that the Company may adopt from time to time (the “Policy”). The Participant agrees and consents to the Company’s application, implementation and enforcement of (i) the Policy that may apply to the Participant and (ii) any provision of applicable law relating to cancellation, rescission, payback or recoupment of compensation, including, but not limited to Section 10D of the Securities Exchange Act of 1934, as amended, and any regulations promulgated, or national securities exchange listing conditions adopted, with respect thereto, and expressly agrees that the Company may take such actions as are necessary to effectuate the Policy or applicable law without further consent or action being required by the Participant. To the extent that the terms of this Master Agreement and the Policy or any similar policy conflict, then the terms of such policy shall prevail.

(m) Excise Tax Cap. In the event that a Participant becomes entitled to any payment or benefit under this Master Agreement (such benefits together with any other payments or benefits payable to the Participant under any other agreement with the Participant, or plan or policy of the Company, are referred to in the aggregate as the “Total Payments”), if all or any part of the Total Payments will be subject to the tax imposed by Section 4999 of the Code, or any similar tax that may hereafter be imposed (the “Excise Tax”), then:

(i) Within 30 days following the Participant’s termination of employment, the Company will notify the Participant in writing: (1) whether the payments and benefits under this Master Agreement, when added to any other payments and benefits making up the Total Payments, exceed an amount equal to 299% of the Participant’s “base amount” as defined in Section 280G(b)(3) of the Code (the “299% Amount”); and (2) the amount that is equal to the 299% Amount.

6

(ii) The payments and benefits under this Master Agreement shall be reduced such that the Total Payments do not exceed the 299% Amount, so that no portion of the payments and benefits under this Master Agreement will be subject to the Excise Tax. Any payment or benefit so reduced will be permanently forfeited and will not be paid to the Participant.

(iii) The calculation of the 299% Amount and the determination of how much the Participant’s payments and benefits must be reduced in order to avoid application of the Excise Tax will be made by the Company’s public accounting firm prior to the Participant’s termination of employment, which firm must be reasonably acceptable to the Participant (the “Accounting Firm”). The Company will cause the Accounting Firm to provide detailed supporting calculations of its determinations to the Company and the Participant. Notice must be given to the Accounting Firm within 15 business days after an event entitling the Participant to a payment under this Master Agreement. All fees and expenses of the Accounting Firm will be borne solely by the Company.

(iv) For purposes of making the reduction of amounts payable under this Master Agreement, such amounts will be eliminated in compliance with the requirements of Section 409A of the Code, to the extent applicable.

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

(o) Governing Law. This Master Agreement, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of New York, without reference to principles of conflict of laws, and construed accordingly.

*        *        *        *        *

7

FINANCIAL INSTITUTIONS, INC.

2009 MANAGEMENT STOCK INCENTIVE PLAN

2013 PERFORMANCE PROGRAM MASTER AGREEMENT

SCHEDULE A

Section 1. Definitions. For purposes of the Award and this Master Agreement, the following terms shall have the following meanings:

(a) “Company TSR” means the compound annual growth rate, expressed as a percentage with one decimal point, in the value of a share of common stock in the Company due to stock appreciation and dividends, assuming dividends are reinvested, during the TSR Measurement Period. For this purpose, the “Beginning Stock Price” shall mean the average closing sales prices of the Company’s common stock on the NASDAQ Stock Market for the 20-day trading period immediately prior to the beginning of the TSR Measurement Period; and, the “Ending Stock Price” shall mean the average closing sales prices of the Company’s common stock on the NASDAQ Stock Market for the 20-day trading period immediately prior to the last day of the TSR Measurement Period (or such other period as the Committee may determine). Where “Y” is the number of fractional Shares resulting from the deemed reinvestment of dividends paid during the Award Period, the Company TSR is calculated as follows:

( Ending Stock Price x (1 + Y) Beginning Stock Price ) ^1/3 -1

(b) “Earnings Per Share” or “EPS” means diluted earnings per share, as such amount is reported on the Company’s audited financial statements for the EPS Measurement Period.

(c) “EPS Measurement Period” means the period beginning on January 1, 2013 and ending on December 31, 2013.

(d) “Measurement Period” means the EPS Measurement Period or the TSR Measurement Period, as applicable.

(e) “Payout Percentage” means, with regard to any Participant, the threshold, target and maximum percentage of Shares that may become Earned Shares based on attainment of the Performance Requirements, each as set forth in a Participant’s Award Certificate.

(f) “Performance Goals” means the threshold, target and maximum performance goals for each Performance Requirement, as set forth in Section 5 of Schedule A to this Master Agreement.

(g) “Performance Requirements” means the performance requirements, as set forth in Section 5 of Schedule A to this Master Agreement.

(h) “Reference Group” means all companies whose common stock is included in the Company’s peer group, as determined by the Committee, at the start of the TSR Measurement Period, other than (i) companies that cease to be included in the Company’s peer group during the TSR Measurement Period solely due to merger, acquisition, liquidation or similar events fundamentally changing the identity and nature of the company, as determined by the Committee in its sole discretion, and (ii) companies that cease to be included in the Company’s peer group other than on account of events described in the preceding clause (i) and which also cease to have common stock publicly traded on an exchange or on a recognized market system or the over-the-counter market.

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(i) “Reference Group TSR” means the compound annual growth rate, expressed as a percentage with one decimal point, in the value of the shares of common stock of the companies in the Reference Group during the TSR Measurement Period. The Reference Group TSR is calculated in a manner consistent with the calculation of Company TSR.

(j) “Relative Total Shareholder Return” or “Relative TSR” means the comparison of the Company TSR to the Reference Group TSR.

(k) “Service Period” means the period beginning on the starting date and ending on the end date specified in the Participant’s Award Certificate.

(l) “TSR Measurement Period” means the period beginning on January 1, 2013 and ending on December 31, 2015.

Section 2. Earned Shares. Subject to the Committee’s authority to adjust the number of Earned Shares as described in Section 7 of this Schedule A, the Earned Shares at the end of the Performance Period is determined based on the achievement of:

(a) the Gateway Requirement, as set forth in Section 3 of this Schedule A;

(b) the Individual Performance Requirement, as set forth in Section 4 of this Schedule A; and

(c) the Performance Requirements, as set forth in Section 5 of this Schedule A.

Gateway Requirement. If Five Star Bank’s Composite “CAMELS” rating in place on December 31, 2015 is not a composite rating of “2” or better, all Shares issued under this Master Agreement shall be forfeited and shall not become Vested Shares. [If Five Star Bank needs to meet the CAMELS rating as of Dec. 31st of each year, then Section 3 should read: “If Five Star Bank’s Composite “CAMELS” rating in place as of December 31st of each year in the Award Period is not a composite rating of “2” or better, all Shares issued under this Master Agreement shall be forfeited and shall not become Vested Shares.”]

Section 3. Individual Performance Requirement. If the Participant does not receive a minimum performance rating of “satisfactory” for the Performance Period, as determined by the Company in its sole discretion, all Shares issued under this Master Agreement shall be forfeited and shall not become Earned Shares.

9

Section 4. Performance Requirements. The Shares are divided into two components based on the Performance Requirement that applies to such Shares as set forth in a Participant’s Award Certificate. The applicable Performance Goals at threshold, target and maximum for each Performance Requirement are as follows:

	Performance Goals
Performance Requirement	Threshold			Target			Maximum
Earnings Per Share	$	[	]	$	[	]	$	[	]
Relative TSR		[	]%		[	]%		[	]%

(a) Below Threshold. In the event that the Company’s actual performance for the relevant period does not meet the threshold for a Performance Requirement, no Shares shall be Earned Shares for such Performance Requirement.

(b) Performance Goals Achievement. For each Performance Requirement, the Number of Shares that become Earned Shares based on the achievement of that Performance Requirement’s Performance Goals at threshold, target and maximum is equal to the product of (i) the Number of Shares subject to the Performance Requirement; and (ii) the Payout Percentage set forth in the Participant’s Award Certificate at threshold, target or maximum, respectively, rounded down to a whole number.

(c) Interpolation. If the Company’s actual performance for the Performance Period is between threshold and target for the Performance Requirement, or between target and maximum for the Performance Requirement, the number of Earned Shares for that Performance Requirement is equal to the product of: (i) the Number of Shares subject to the Performance Requirement; and (ii) the actual performance achievement, determined using straight line interpolation between the threshold and the target (or the target and maximum, as applicable) from the Participant’s Payout Percentage set forth in the Participant’s Award Certificate, rounded down to a whole number.

(d) Above Maximum. If the Company’s actual performance for the Performance Period is at or above maximum for a Performance Requirement, the number of Earned Shares is equal to the product of: (i) the Number of Shares subject to the Award; and (ii) the Payout Percentage set forth in the Participant’s Award Certificate at maximum, rounded down to a whole number.

(e) Negative TSR Modifier. Regardless of the level of achievement against the Relative TSR Performance Requirement, in the event that Company TSR is less than zero, the number of Earned Shares for the Relative TSR Performance Requirement shall be determined pursuant to this Section; provide, however, that the number of Earned Shares shall not exceed the product of: (i) the Number of Shares subject to the Relative TSR Performance Requirement; and (ii) the Performance Range set forth in the Participant’s Award Certificate at target, rounded down to a whole number.

(f) Earned Shares. The total number of Number of Shares that become Earned Shares shall be the sum of the number of Earned Shares for each Performance Requirement.

10

Section 5. Actual Performance. The Committee shall review and approve the actual Earnings Per Share for the EPS Measurement Period and the Relative TSR for the TSR Measurement Period.

Section 6. Final Number of Earned Shares. The number of Earned Shares may be adjusted upward or downward by the Committee, in its sole and absolute discretion, to a whole number, not to exceed the Number of Shares set forth in that Participant’s Award Certificate.

Section 7. Vested Shares. Subject to Section 4 of the Master Agreement, the Earned Shares shall become Vested Shares only if the Participant provides substantial services to the Company or a Subsidiary and remains in the continuous employment of the Company or a Subsidiary through the last day of the Service Period.

EXAMPLE (for illustration purposes only)

Suppose a Participant received an Award and his or her Award Certificate provided for a Number of Shares of 1,000 and a Payout Percentage as follows:

Threshold	Target			Maximum
40%		80	%		100	%

The Performance Requirements and Performance Goals were as set forth above in this Schedule A. Suppose the performance results for the Performance Period are as follows:

Performance Requirement	Performance Result			Level Achieved
Earnings Per Share	$	[	]	Target
Relative TSR		[	]%	Maximum

The Earned Shares for each Performance Requirement would be determined as follows:

• The number of Earned Shares for the Earnings Per Shares Performance Requirement would be 400 Shares (1,000 Shares x 80% (Target) x 50%).

• The number of Earned Shares for the Relative TSR Performance Requirement would be 500 Shares (1,000 Shares x 100% (Maximum) x 50% (Weighting Percentage)).

• The total number of Earned Shares for the Award would be 900 Shares (400 Earned Shares for the Earnings Per Shares Performance Requirement plus 500 Earned Shares for the Relative TSR Performance Requirement).

11

EX-10.17

Exhibit 10.17

FINANCIAL INSTITUTIONS, INC.

2009 MANAGEMENT STOCK INCENTIVE PLAN

2013 PERFORMANCE PROGRAM

AWARD CERTIFICATE

Financial Institutions, Inc., a New York financial holding company (the “Company”), hereby grants to the Participant as of the Award Date set forth below, a restricted stock award to receive the Number of Shares (the “Shares”) as set forth below (the “Award”). Each Share subject to the Award consists of a share of restricted stock issued under the 2009 Management Stock Incentive Plan (the “Plan”), which become earned and vested in accordance with the provisions of the 2013 Performance Program Master Agreement (the “Master Agreement”).

Award Date:	¨
Participant:	¨
Number of Shares:	¨
Award Period	The three-year period beginning on January 1, 2013 and ending on December 31, 2015

Subject to the provisions of the Master Agreement, the table below sets forth the Percentage of Shares subject to the Award that shall become Earned Shares based on achievement of the applicable Performance Requirement during the applicable Measurement Period. The Earned Shares, if any, shall become Vested Shares on the last day of the Service Period set forth below based on continuous service to the Company through the Service Period.

Percentage of Shares	Performance Requirement	Measurement Period	Service Period
[50]	Earnings Per Share	January 1, 2013 through December 31, 2013	January 1, 2013 through December 31, 2015
[50]	Relative Total Shareholder Return	January 1, 2013 through December 31, 2015	January 1, 2013 through December 31, 2015

The Payout Percentage below sets forth the percentage of Shares that become Earned Shares based on achievement of the applicable Performance Requirement at threshold, target and maximum levels of performance.

Payout Percentage:	Threshold			Target			Maximum
		[40	]%		[80	]%		[100	]%

The Award is subject to the terms and conditions set forth in this Award Certificate, the Plan and the Master Agreement. All terms and provisions of the Plan and the Master Agreement, as the same may be amended from time to time, are incorporated and made part of this Award Certificate. If any provision of this Award Certificate is in conflict with the terms of the Plan or the Master Agreement, then the terms of the Plan or the Master Agreement, as applicable, shall govern. All capitalized terms used in this Award Certificate and not defined herein shall have the meanings assigned to them in the Plan or the Master Agreement. The Participant hereby expressly acknowledges receipt of a copy of the Plan and the Master Agreement.

(signature page immediately follows)

IN WITNESS WHEREOF, the parties have executed this Award Certificate as of the Award Date.

FINANCIAL INSTITUTIONS, INC.

By:

Name:

Title:

The Participant hereby accepts and agrees to be bound by all of the terms and conditions of this Award Certificate, the Master Agreement and the Plan.

PARTICIPANT

SCHEDULE A

STOCK POWER

FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to Financial Institutions, Inc. (the “Company”), [            ] shares of the Company’s common stock represented by Certificate No. [            ]. The undersigned authorizes the Secretary of the Company to transfer the stock on the books of the Company in the event that either: (a) any shares are forfeited under the terms of the Company’s 2013 Performance Program Master Agreement (the “Master Agreement”); or (b) any shares are transferred to the Company in satisfaction of the withholding obligations of the undersigned as provided in the Plan and the Master Agreement.

Dated:

PARTICIPANT

EX-21

Exhibit 21

SUBSIDIARIES OF REGISTRANT

Name	State or Jurisdiction of Incorporation or Organization
Five Star Bank		New York
Five Star Investment Services, Inc.		New York

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Financial Institutions, Inc.:

We consent to incorporation by reference in the Registration Statements No. 333-40544, 333-87338, 333-172651 and 333-172652 on Form S-8 and Registration Statements No. 333-156855 and 333-160843 on Form S-3 of Financial Institutions, Inc. of our reports, dated March 18, 2013, relating to the consolidated statements of financial condition of Financial Institutions, Inc. and subsidiaries (the Company) as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the effectiveness of internal control over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on Form 10-K of Financial Institutions, Inc.

/s/ KPMG LLP

Rochester, New York

March 18, 2013

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 annual report on Form 10-K 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: March 18, 2013	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

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

I, Karl F. Krebs, certify that:

1. I have reviewed this annual report on Form 10-K 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: March 18, 2013	/s/ Karl F. Krebs
	Karl F. Krebs
	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 Karl F. Krebs, 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 Annual Report of the Company on Form 10-K for the period ended December 31, 2012 and that to the best of his knowledge:

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

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

Date: March 18, 2013	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: March 18, 2013	/s/ Karl F. Krebs
	Karl F. Krebs
	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

Regulatory Matters (Tables)

12 Months Ended

Dec. 31, 2012

Regulatory Matters [Abstract]

Actual And Required Capital Ratios

							For Capital
			Actual				Adequacy Purposes				Well Capitalized
			Amount	Ratio			Amount	Ratio			Amount	Ratio
2012
Tier 1 leverage:	Company	$	199,824	7.70	%	$	103,828	4.00	%	$	129,785	5.00	%
	Bank		191,704	7.40			103,664	4.00			129,580	5.00
Tier 1 capital:	Company		199,824	10.70			74,671	4.00			112,006	6.00
	Bank		191,704	10.29			74,515	4.00			111,773	6.00
Total risk-based capital:	Company		223,176	11.96			149,341	8.00			186,677	10.00
	Bank		215,008	11.54			149,031	8.00			186,289	10.00
2011
Tier 1 leverage:	Company	$	197,086	8.63	%	$	91,310	4.00	%	$	114,138	5.00	%
	Bank		184,639	8.10			91,192	4.00			113,990	5.00
Tier 1 capital:	Company		197,086	12.20			64,645	4.00			96,967	6.00
	Bank		184,639	11.46			64,445	4.00			96,667	6.00
Total risk-based capital:	Company		217,325	13.45			129,290	8.00			161,612	10.00
	Bank		204,817	12.71			128,890	8.00			161,112	10.00

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Parent Company Financial Information (Condensed Statements Of Condition) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Other assets	$ 44,543	$ 48,019
Total assets	2,764,034	2,336,353
Other liabilities	68,537	16,862
Shareholders' equity	253,897	237,194
Total liabilities and shareholders' equity	2,764,034	2,336,353
Parent Company [Member]
Cash and due from subsidiary	6,602	11,621
Investment in and receivables due from subsidiary	246,535	223,577
Other assets	3,563	4,337
Total assets	256,700	239,535
Other liabilities	2,803	2,341
Shareholders' equity	253,897	237,194
Total liabilities and shareholders' equity	$ 256,700	$ 239,535

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Investment Securities (Interest And Dividends On Securities) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Investment Securities [Abstract]
Taxable interest and dividends	$ 12,202	$ 14,185	$ 17,101
Tax-exempt interest and dividends	4,242	3,828	3,521
Total interest and dividends on securities	$ 16,444	$ 18,013	$ 20,622

XML

Summary Of Significant Accounting Policies (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Significant Accounting Policies [Line Items]
Impairment loss related to the MSRs		$ 35,000
Days past due when loans are generally placed on nonaccrual status, in days	90 days
Days past due when loans are generally charged-off in full, in days	120 days
General period after loans become current, accrual status returned, in months	6 months
Other real estate owned	184,000	475,000
FHLB stock	8,400,000	6,800,000
FRB stock	3,900,000	3,900,000
Equity method investments, asset amount	$ 4,700,000	$ 4,000,000
Minimum [Member]
Significant Accounting Policies [Line Items]
Standby letters of credit outstanding original term, in years	1 year
Minimum [Member] | Building and Building Improvements [Member]
Significant Accounting Policies [Line Items]
Premise and equipment, estimated useful lives, in years	15 years
Minimum [Member] | Software, Furniture And Equipment [Member]
Significant Accounting Policies [Line Items]
Premise and equipment, estimated useful lives, in years	3 years
Maximum [Member]
Significant Accounting Policies [Line Items]
Standby letters of credit outstanding original term, in years	5 years
Maximum [Member] | Building and Building Improvements [Member]
Significant Accounting Policies [Line Items]
Premise and equipment, estimated useful lives, in years	39 years
Maximum [Member] | Software, Furniture And Equipment [Member]
Significant Accounting Policies [Line Items]
Premise and equipment, estimated useful lives, in years	10 years
Core Deposits [Member]
Significant Accounting Policies [Line Items]
Intangible assets with definite useful lives, estimated life	9 years 6 months

XML

Goodwill And Other Intangible Assets (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Goodwill And Other Intangible Assets [Abstract]
Goodwill deducted for tax purposes	$ 11,300,000
Core deposit intangible assets, gross carrying amount	2,000,000
Core deposit intangible assets, accumulated amortization	190,000
Core deposits intangible amortization expense	$ 190,000

XML

Investment Securities (Sales Of Securities Available For Sale) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Investment Securities [Abstract]
Proceeds from sales	$ 2,823	$ 44,514	$ 122,090
Gross realized gains	2,651	3,051	173
Gross realized losses		$ 48	$ 4

XML

Commitments And Contingencies (Narrative) (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Commitments And Contingencies [Abstract]
Forward sales commitments	$ 1.8	$ 2.9
Rent expense	$ 1.6	$ 1.5	$ 1.4

XML

Employee Benefit Plans (Target Allocation, Percentage Of Plan Assets And Weighted Average Expected Rate Of Return) (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash And Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Target Allocation, Minimum	0.00%
Target Allocation, Maximum	20.00%
Percentage of Plan Assets	12.80%	10.60%
Weighted Average Expected Long-term Rate of Return	0.38%
Equity Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Target Allocation, Minimum	40.00%
Target Allocation, Maximum	60.00%
Percentage of Plan Assets	45.50%	47.90%
Weighted Average Expected Long-term Rate of Return	3.95%
Fixed Income Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Target Allocation, Minimum	40.00%
Target Allocation, Maximum	60.00%
Percentage of Plan Assets	41.70%	41.50%
Weighted Average Expected Long-term Rate of Return	1.90%
Other Financial Instruments [Member]
Defined Benefit Plan Disclosure [Line Items]
Target Allocation, Minimum	0.00%
Target Allocation, Maximum	5.00%

XML

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

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

		Quoted Prices in
		Active Markets		Significant
		for Identical		Other		Significant
		Assets or		Observable		Unobservable
		Liabilities		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	131,695	$	-	$	131,695
State and political subdivisions		-		195,210		-		195,210
Mortgage-backed securities		-		495,868		-		495,868
Asset-backed securities:
Trust preferred securities		-		754		-		754
Other		-		269		-		269
	$	-	$	823,796	$	-	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,518	$	-	$	1,518
Collateral dependent impaired loans		-		-		2,364		2,364
Other assets:
Loan servicing rights		-		-		1,719		1,719
Other real estate owned		-		-		184		184
	$	-	$	1,518	$	4,267	$	5,785
2011
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	97,712	$	-	$	97,712
State and political subdivisions		-		124,424		-		124,424
Mortgage-backed securities		-		403,685		-		403,685
Asset-backed securities:
Trust preferred securities		-		-		1,636		1,636
Other		-		61		-		61
	$	-	$	625,882	$	1,636	$	627,518
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	2,410	$	-	$	2,410
Collateral dependent impaired loans		-		-		2,160		2,160
Other assets:
Loan servicing rights		-		-		1,973		1,973
Other real estate owned		-		-		475		475
	$	-	$	2,410	$	4,608	$	7,018

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	$	2,364	Appraisal of collateral (1)	Appraisal adjustments (2)	16% - 100% discount
			Discounted cash flow	Discount rate	4.9	% (3)
				Risk premium rate	10.1	% (3)
Loan servicing rights		1,719	Discounted cash flow	Discount rate	4.1	% (3)
				Constant prepayment rate	28.9	% (3)
Other real estate owned		184	Appraisal of collateral (1)	Appraisal adjustments (2)	20% -55% 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

		2012			2011
Securities available for sale, beginning of period	$	1,636		$	572
Sales		(360	)		(2,478	)
Principal paydowns and other		-			(53	)
Total gains (losses) realized/unrealized:
Included in earnings		331			2,263
Included in other comprehensive income		(102	)		1,332
Transfers from Level 3 to Level 2		(1,505	)		-
Securities available for sale, end of period	$	-		$	1,636

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

	Level in		2012				2011
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	60,436	$	60,436	$	57,583	$	57,583
Securities available for sale	Level 2		823,796		823,796		625,882		625,882
Securities available for sale (1)	Level 3		-		-		1,636		1,636
Securities held to maturity	Level 2		17,905		18,478		23,297		23,964
Loans held for sale	Level 2		1,518		1,547		2,410		2,442
Loans	Level 2		1,678,648		1,701,419		1,459,356		1,490,999
Loans (2)	Level 3		2,364		2,364		2,160		2,160
Accrued interest receivable	Level 1		7,843		7,843		7,655		7,655
FHLB and FRB stock	Level 2		12,321		12,321		10,674		10,674
Financial liabilities:
Non-maturity deposits	Level 1		1,606,856		1,606,856		1,230,923		1,230,923
Time deposits	Level 2		654,938		658,342		700,676		702,720
Short-term borrowings	Level 1		179,806		179,806		150,698		150,698
Accrued interest payable	Level 1		3,819		3,819		5,207		5,207

⁽¹⁾ Comprised of trust preferred asset-backed securities.

⁽²⁾ Comprised of collateral dependent impaired loans.

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Loans (Tables)

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loan Portfolio

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012
2011
Commercial business	$	233,727	$	109		$	233,836
Commercial mortgage		394,034		(790	)		393,244
Residential mortgage		113,865		46			113,911
Home equity		227,853		3,913			231,766
Consumer indirect		465,807		21,906			487,713
Other consumer		24,138		168			24,306
Total	$	1,459,424	$	25,352			1,484,776
Allowance for loan losses							(23,260	)
Total loans, net						$	1,461,516

Recorded Investment By Loan Class In Current And Nonaccrual Loans

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past						Total
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Loans
2012
Commercial business	$	160	$	-	$	-	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		-		-		331		1,799		412,152		414,282
Residential mortgage		376		-		-		376		2,040		130,925		133,341
Home equity		675		10		-		685		939		280,879		282,503
Consumer indirect		1,661		163		-		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453
2011
Commercial business	$	35	$	-	$	-	$	35	$	1,259	$	232,433	$	233,727
Commercial mortgage		165		-		-		165		2,928		390,941		394,034
Residential mortgage		517		-		-		517		1,644		111,704		113,865
Home equity		749		68		-		817		682		226,354		227,853
Consumer indirect		984		92		-		1,076		558		464,173		465,807
Other consumer		106		10		5		121		-		24,017		24,138
Total loans, gross	$	2,556	$	170	$	5	$	2,731	$	7,071	$	1,449,622	$	1,459,424

Information Related To Loans Modified In A TDR

			Pre-		Post-
			Modification             Modification
			Outstanding	Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
2012
Commercial business	3	$	536	$	536
Commercial mortgage	4		648		648
Total	7	$	1,184	$	1,184
2011
Commercial business	6	$	142	$	142
Commercial mortgage	1		280		280
Total	7	$	422	$	422

Summary Of Impaired Loans

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	-	$	755	$	-
Commercial mortgage		911		1,002		-		1,310		-
		1,874		2,427		-		2,065		-
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		-
Commercial mortgage		888		888		310		1,858		-
		3,338		3,338		974		3,972		-
	$	5,212	$	5,765	$	974	$	6,037	$	-
2011
With no related allowance recorded:
Commercial business	$	342	$	1,266	$	-	$	361	$	-
Commercial mortgage		605		696		-		583		-
		947		1,962		-		944		-
With an allowance recorded:
Commercial business		917		917		436		1,033		-
Commercial mortgage		2,323		2,323		644		2,172		-
		3,240		3,240		1,080		3,205		-
	$	4,187	$	5,202	$	1,080	$	4,149	$	-

(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
2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		-		-
Total	$	258,706	$	414,282
2011
Uncriticized	$	221,477	$	383,700
Special mention		7,445		2,388
Substandard		4,805		7,946
Doubtful		-		-
Total	$	233,727	$	394,034

Retail Loan Portfolio Categorized By Payment Status

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657
2011
Performing	$	112,221	$	227,171	$	465,249	$	24,138
Non-performing		1,644		682		558		-
Total	$	113,865	$	227,853	$	465,807	$	24,138

Changes In The Allowance For Loan Losses

					Commercial			Residential			Home			Consumer			Other
		Commercial			Mortgage			Mortgage			Equity			Indirect			Consumer			Total
2012
Allowance for loan losses:
Beginning balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Charge-offs		(729	)		(745	)		(326	)		(305	)		(6,589	)		(874	)		(9,568	)
Recoveries		336			261			130			44			2,769			354			3,894
Provision		1,241			647			78			301			4,346			515			7,128
Ending balance	$	4,884		$	6,581		$	740		$	1,282		$	10,715		$	512		$	24,714
Evaluated for impairment:
Individually	$	664		$	310		$	-		$	-		$	-		$	-		$	974
Collectively	$	4,220		$	6,271		$	740		$	1,282		$	10,715		$	512		$	23,740
Loans:
Ending balance	$	258,706		$	414,282		$	133,341		$	282,503		$	559,964		$	26,657		$	1,675,453
Evaluated for impairment:
Individually	$	3,413		$	1,799		$	-		$	-		$	-		$	-		$	5,212
Collectively	$	255,293		$	412,483		$	133,341		$	282,503		$	559,964		$	26,657		$	1,670,241
2011
Allowance for loan losses:
Beginning balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Charge-offs		(1,346	)		(751	)		(152	)		(449	)		(4,713	)		(877	)		(8,288	)
Recoveries		401			245			90			44			2,066			456			3,302
Provision (credit)		1,269			493			(93	)		675			5,082			354			7,780
Ending balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Evaluated for impairment:
Individually	$	436		$	644		$	-		$	-		$	-		$	-		$	1,080
Collectively	$	3,600		$	5,774		$	858		$	1,242		$	10,189		$	517		$	22,180
Loans:
Ending balance	$	233,727		$	394,034		$	113,865		$	227,853		$	465,807		$	24,138		$	1,459,424
Evaluated for impairment:
Individually	$	1,259		$	2,928		$	-		$	-		$	-		$	-		$	4,187
Collectively	$	232,468		$	391,106		$	113,865		$	227,853		$	465,807		$	24,138		$	1,455,237
					Commercial			Residential			Home			Consumer			Other
		Commercial			Mortgage			Mortgage			Equity			Indirect			Consumer			Total
2010
Allowance for loan losses:
Beginning balance	$	4,407		$	6,638		$	1,251		$	1,043		$	6,837		$	565		$	20,741
Charge-offs		(3,426	)		(263	)		(290	)		(259	)		(4,669	)		(909	)		(9,816	)
Recoveries		326			501			21			36			1,485			485			2,854
Provision (credit)		2,405			(445	)		31			152			4,101			443			6,687
Ending balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Evaluated for impairment:
Individually	$	149		$	883		$	-		$	-		$	-		$	-		$	1,032
Collectively	$	3,563		$	5,548		$	1,013		$	972		$	7,754		$	584		$	19,434
Loans:
Ending balance	$	210,948		$	353,537		$	129,553		$	205,070		$	400,221		$	25,937		$	1,325,266
Evaluated for impairment:
Individually	$	948		$	3,100		$	-		$	-		$	-		$	-		$	4,048
Collectively	$	210,000		$	350,437		$	129,553		$	205,070		$	400,221		$	25,937		$	1,321,218

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Commitments And Contingencies (Off-Balance Sheet Commitments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	435,948	374,266
Standby Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 9,223	$ 8,855

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Deposits (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deposits:
Time deposits, $100,000 or more	$ 222.4	$ 214.2

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Share-Based Compensation (Summary Of Stock Option Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Share-Based Compensation [Abstract]
Outstanding at beginning of year, Number of Options	368,058
Granted, Number of Options
Exercised, Number of Options	(4,250)
Forfeited, Number of Options
Expired, Number of Options	(44,533)
Outstanding at end of period, Number of Options	319,275
Exercisable at the end of period, Number of Options	319,275
Outstanding at beginning of year, Weighted Average Exercise Price	$ 20.70
Granted, Weighted Average Exercise Price
Exercised, Weighted Average Exercise Price	$ 15.85
Forfeited, Weighted Average Exercise Price
Expired, Weighted Average Exercise Price	$ 24.55
Outstanding at end of period, Weighted Average Exercise Price	$ 20.22
Exercisable at end of period, Weighted Average Exercise Price	$ 20.22
Outstanding at the end of period, Weighted Average Remaining Contractual Term	2 years 7 months 6 days
Exercisable at the end of period, Weighted Average Remaining Contractual Term	2 years 7 months 6 days
Outstanding at the end of period, Aggregate Intrinsic Value	$ 71
Exercisable at the end of period, Aggregate Intrinsic Value	$ 71

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Investment Securities (Investments' Gross Unrealized Losses And Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	$ 46,936	$ 8,767
Securities available for sale, Less than 12 months, Unrealized Losses	327	21
Securities available for sale, 12 months or longer, Fair Value	4,140	8,097
Securities available for sale, 12 months or longer, Unrealized Losses	4	21
Securities available for sale, Fair Value, Total	51,076	16,864
Securities available for sale, Unrealized Losses, Total	331	42
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	13,265	2,177
Securities available for sale, Less than 12 months, Unrealized Losses	67	1
Securities available for sale, 12 months or longer, Fair Value	2,967	5,246
Securities available for sale, 12 months or longer, Unrealized Losses	2	4
Securities available for sale, Fair Value, Total	16,232	7,423
Securities available for sale, Unrealized Losses, Total	69	5
State And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	8,471	452
Securities available for sale, Less than 12 months, Unrealized Losses	72	2
Securities available for sale, 12 months or longer, Fair Value		646
Securities available for sale, 12 months or longer, Unrealized Losses		9
Securities available for sale, Fair Value, Total	8,471	1,098
Securities available for sale, Unrealized Losses, Total	72	11
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	25,200	6,138
Securities available for sale, Less than 12 months, Unrealized Losses	188	18
Securities available for sale, 12 months or longer, Fair Value	1,173	2,205
Securities available for sale, 12 months or longer, Unrealized Losses	2	8
Securities available for sale, Fair Value, Total	26,373	8,343
Securities available for sale, Unrealized Losses, Total	190	26
Mortgage-Backed Securities [Member] | FNMA [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value	25,200
Securities available for sale, Less than 12 months, Unrealized Losses	188
Securities available for sale, 12 months or longer, Fair Value		1,817
Securities available for sale, 12 months or longer, Unrealized Losses		7
Securities available for sale, Fair Value, Total	25,200	1,817
Securities available for sale, Unrealized Losses, Total	188	7
Mortgage-Backed Securities [Member] | FHLMC [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, 12 months or longer, Fair Value		388
Securities available for sale, 12 months or longer, Unrealized Losses		1
Securities available for sale, Fair Value, Total		388
Securities available for sale, Unrealized Losses, Total		1
Mortgage-Backed Securities [Member] | GNMA I [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value		6,138
Securities available for sale, Less than 12 months, Unrealized Losses		18
Securities available for sale, Fair Value, Total		6,138
Securities available for sale, Unrealized Losses, Total		18
Collateralized Mortgage Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Less than 12 months, Fair Value		6,138
Securities available for sale, Less than 12 months, Unrealized Losses		18
Securities available for sale, 12 months or longer, Fair Value	1,173	2,205
Securities available for sale, 12 months or longer, Unrealized Losses	2	8
Securities available for sale, Fair Value, Total	1,173	8,343
Securities available for sale, Unrealized Losses, Total	2	26
Collateralized Mortgage Obligations [Member] | FNMA [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, 12 months or longer, Fair Value	1,173
Securities available for sale, 12 months or longer, Unrealized Losses	2
Securities available for sale, Fair Value, Total	1,173
Securities available for sale, Unrealized Losses, Total	$ 2

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Fair Value Measurements (Additional Quantitative Information About Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 2,364	[1]
Discount rate	4.90%	[2]
Risk premium rate	10.10%	[2]
Loan Servicing Rights [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	1,719
Discount rate	4.10%	[2]
Constant prepayment rate	28.90%	[2]
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 184	[1]
Minimum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	16.00%	[3]
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	20.00%	[3]
Maximum [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	100.00%	[3]
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Appraisal adjustments	55.00%	[3]

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

[2] Weighted averages.

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

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Borrowings (Narrative) (Details) (USD $)	1 Months Ended		12 Months Ended				12 Months Ended				12 Months Ended
	Aug. 31, 2011	Feb. 28, 2001	Dec. 31, 2011	Dec. 31, 2012	Feb. 28, 2001 Common Equity Of Financial Institutions Statutory Trust I [Member]	Dec. 31, 2011 Federal Funds Purchased [Member]	Dec. 31, 2012 Federal Funds Purchased [Member] Minimum [Member]	Dec. 31, 2012 Federal Funds Purchased [Member] Maximum [Member]	Dec. 31, 2012 Short-term FHLB Borrowings [Member]	Dec. 31, 2011 Short-term FHLB Borrowings [Member]	Dec. 31, 2012 Short-term FHLB Borrowings [Member] Maximum [Member]	Dec. 31, 2012 FHLB Overnight Borrowings [Member]	Dec. 31, 2011 FHLB Overnight Borrowings [Member]	Dec. 31, 2012 FHLB Short-Term Advances [Member]	Dec. 31, 2011 FHLB Short-Term Advances [Member]
Short-term Debt [Line Items]
Short-term borrowings, weighted average rate				0.54%
Short-term debt maturity period							1 day	90 days			1 year
Short-term borrowings			$ 150,698,000	$ 179,806,000		$ 11,597,000			$ 139,000,000	$ 102,800,000		$ 99,000,000	$ 65,000,000	$ 40,000,000	$ 37,800,000
Other Assets			48,019,000	44,543,000	502,000
Long-term borrowings		16,700,000
Interest rate on junior subordinated debentures		10.20%
Cost related to issuance of debentures		487,000
Deferred cost amortization period, in years		20 years
Redemption price percentage of principal amount redeemed	105.10%
Loss on extinguishment of debt	1,100,000		1,083,000
Redemption premium	852,000
Write-off of the unamortized issuance costs	$ 231,000

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Other Comprehensive Income (Components Of Accumulated Other Comprehensive Income (Loss)) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Other Comprehensive Income [Abstract]
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans	$ (12,807)	$ (12,625)
Net unrealized gain on securities available for sale	16,060	13,570
Accumulated other comprehensive income (loss)	$ 3,253	$ 945

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Regulatory Matters (Narrative) (Details) (USD $)	Dec. 31, 2012	Dec. 31, 2011
Preferred Equity [Member]
Tier 1 capital	$ 17,500,000
Federal Reserve Bank Of New York [Member]
Reserve requirement	$ 1,000,000	$ 1,000,000

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Share-Based Compensation (Narrative) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 item	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of share-based compensation plans	2
Calculation of common stock under incentive plans, each restricted common stock share grant represented amount in shares	1.64
Percentage available for issuance as restricted stock grants	61.00%
Expiration period	10 years
Aggregate intrinsic value	$ 10	$ 31	$ 59
Total cash received as a result of option exercises	69	91	216
Unrecognized compensation expense	$ 458
Expected recognition expense period, weighted average period in years	1 year 3 months 22 days
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage, date of grant	50.00%
Vesting percentage, one year from date of grant	50.00%
Management Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate shares reserved for issuance	690,000
Shares available for grant	451,000
Director Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate shares reserved for issuance	250,000
Shares available for grant	200,000
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Minimum [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	2 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	5 years
Maximum [Member] | Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Maximum [Member] | Management Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of grants authorized	500,000

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Borrowings (Summary Of Outstanding Short-Term Borrowings) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Short-term Debt [Line Items]
Total short-term borrowings	$ 179,806	$ 150,698
Federal Funds Purchased [Member]
Short-term Debt [Line Items]
Total short-term borrowings		11,597
Repurchase Agreements [Member]
Short-term Debt [Line Items]
Total short-term borrowings	40,806	36,301
Short-term FHLB Borrowings [Member]
Short-term Debt [Line Items]
Total short-term borrowings	$ 139,000	$ 102,800

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Goodwill And Other Intangible Assets (Change In The Balance For Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Goodwill And Other Intangible Assets [Abstract]
Goodwill, Beginning Balance	$ 37,369	$ 37,369
Branch acquisitions	11,599
Impairment
Goodwill, Ending Balance	$ 48,968	$ 37,369

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Employee Benefit Plans

12 Months Ended

Dec. 31, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

(17.) EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plan

The Company participates in The New York State Bankers Retirement System (the "Plan"), a defined benefit pension plan covering substantially all employees, subject to the limitations related to the plan closure effective December 31, 2006. The benefits are based on years of service and the employee's highest average compensation during five consecutive years of employment. The defined benefit plan was closed to new participants effective December 31, 2006. Only employees hired on or before December 31, 2006 and who met participation requirements on or before January 1, 2008 are eligible to receive benefits.

The following table provides a reconciliation of the Company's changes in the plan's benefit obligations, fair value of assets and a statement of the funded status as of and for the year ended December 31 (in thousands):

		2012			2011
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	48,303		$	38,381
Service cost		2,037			1,756
Interest cost		2,017			2,027
Actuarial loss		3,291			7,939
Benefits paid and plan expenses		(2,023	)		(1,800	)
Projected benefit obligation at end of period		53,625			48,303
Change in plan assets:
Fair value of plan assets at beginning of period		46,943			38,731
Actual return on plan assets		4,865			12
Employer contributions		8,000			10,000
Benefits paid and plan expenses		(2,023	)		(1,800	)
Fair value of plan assets at end of period		57,785			46,943
Funded (unfunded) status at end of period	$	4,160		$	(1,360	)

The accumulated benefit obligation was $48.0 million and $43.3 million at December 31, 2012 and 2011, respectively.

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 Internal Revenue Code. The Company had no minimum required contribution for the 2013 fiscal year, but for tax purposes chose to contribute $8.0 million to its pension plan prior to December 31, 2012.

Estimated benefit payments under the pension plan over the next ten years at December 31, 2012 are as follows (in thousands):

2013	$	1,637
2014		1,724
2015		1,882
2016		2,106
2017		2,284
2018 - 2022		13,128

Net periodic pension cost consists of the following components for the years ended December 31 (in thousands):

		2012			2011			2010
Service cost	$	2,037		$	1,756		$	1,633
Interest cost on projected benefit obligation		2,017			2,027			1,933
Expected return on plan assets		(3,211	)		(2,653	)		(2,444	)
Amortization of unrecognized loss		1,370			608			458
Amortization of unrecognized prior service cost		20			19			11
Net periodic pension cost	$	2,233		$	1,757		$	1,591

The actuarial assumptions used to determine the net periodic pension cost were as follows:

	2012		2011		2010
Weighted average discount rate	4.27	%	5.38	%	5.89	%
Rate of compensation increase	3.00	%	3.00	%	3.50	%
Expected long-term rate of return	7.00	%	7.00	%	7.50	%

The actuarial assumptions used to determine the projected benefit obligation were as follows:

	2012		2011		2010
Weighted average discount rate	3.84	%	4.27	%	5.38	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%

The weighted average discount rate was based upon the projected benefit cash flows and the market yields of high grade corporate bonds that are available to pay such cash flows.

The weighted average expected longterm rate of return is estimated based on current trends in the Plan's assets as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No. 27, "Selection of Economic Assumptions for Measuring Pension Obligations", for long term inflation, and the real and nominal rate of investment return for a specific mix of asset classes. The following assumptions were used in determining the longterm rate of return:

Equity securities	Dividend discount model, the smoothed earnings yield model and the equity risk premium
	model
Fixed income securities	Current yieldtomaturity and forecasts of future yields
Other financial instruments	Comparison of the specific investment's risk to that of fixed income and equity instruments
	and using judgment

The long term rate of return considers historical returns. Adjustments were made to historical returns in order to reflect expectations of future returns. These adjustments were due to factor forecasts by economists and longterm U.S. Treasury yields to forecast longterm inflation. In addition forecasts by economists and others for longterm GDP growth were factored into the development of assumptions for earnings growth and per capital income.

The Plan's overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. The target allocations for Plan assets are shown in the table below. Cash equivalents consist primarily of short term investment funds. Equity securities primarily include investments in common stock and depository receipts. Fixed income securities include corporate bonds, government issues and mortgage backed securities. Other financial instruments primarily include rights and warrants.

Effective September 2011, the Plan revised its investment guidelines. The Plan currently prohibits its investment managers from purchasing any security greater than 5% of the portfolio at the time of purchase or greater than 8% at market value in any one issuer. In addition, the following are prohibited:

Equity securities	Short sales
	Unregistered securities
	Margin purchases
Fixed income securities	Mortgage backed derivatives that have an inverse floating rate coupon or that are interest
	only securities
	Any ABS that is not issued by the U.S. Government or its agencies or its instrumentalities
	Generally securities of less than Baa2/BBB quality may not be purchased
	Securities of less than A-quality may not in the aggregate exceed 10% of the investment
	manager's portfolio
Other financial instruments	Unhedged currency exposure in countries not defined as "high income economies" by the
	World Bank

Prior to September 2011 investments in emerging countries as defined by the Morgan Stanley Emerging Markets Index and structured notes were prohibited.

All other investments not prohibited by the Plan are permitted. At December 31, 2012 and 2011, the Plan held certain investments which are no longer deemed acceptable to acquire. These positions will be liquidated when the investment managers deem that such liquidation is in the best interest of the Plan.

						Weighted
						Average
	2013	Percentage of Plan Assets				Expected
	Target	at December 31,				Long-term
	Allocation	2012		2011		Rate of Return
Asset category:
Cash equivalents	0– 20%	12.8	%	10.6	%	0.38	%
Equity securities	40– 60	45.5		47.9		3.95
Fixed income securities	40– 60	41.7		41.5		1.90
Other financial instruments	0– 5	-		-		-

Assets are segregated by the level of the valuation inputs within the fair value hierarchy established by ASC Topic 820 utilized to measure fair value (see Note 18 - Fair Value Measurements). There were no assets classified as Level 3 assets during the years ended December 31, 2012 and 2011. The major categories of Plan assets measured at fair value on a recurring basis as of December 31 are presented in the following table (in thousands).

		Level 1	Level 2	Level 3	Total
		Inputs	Inputs	Inputs	Fair Value
2012
Cash equivalents:
Foreign currencies		60	-	-	60
Government issues		-	314	-	314
Short term investment funds		-	7,083	-	7,083
Total cash equivalents		60	7,397	-	7,457
Equity securities:
Common stock		25,447	-	-	25,447
Depository receipts		569	-	-	569
Preferred stock		113	-	-	113
Real estate investment fund		113	-	-	113
Total equity securities		26,242	-	-	26,242
Fixed income securities:
Auto loan receivable		-	313	-	313
Collateralized mortgage obligations		-	6,262	-	6,262
Corporate Bonds		-	5,456	-	5,456
FHLMC		-	717	-	717
FNMA		-	2,867	-	2,867
GNMA I		-	31	-	31
GNMA II		-	133	-	133
Government Issues		-	8,231	-	8,231
Municipals		-	63	-	63
Other Asset Backed		-	14	-	14
Total fixed income securities		-	24,087	-	24,087
Total Plan investments	$	26,302	31,484	-	57,786

		Level 1	Level 2	Level 3	Total
		Inputs	Inputs	Inputs	Fair Value
2011
Cash equivalents:
Foreign currencies		81	-	-	81
Short term investment funds		-	4,901	-	4,901
Total cash equivalents		81	4,901	-	4,982
Equity securities:
Common stock		21,951	-	-	21,951
Depository receipts		473	-	-	473
Preferred stock		69	-	-	69
Total equity securities		22,493	-	-	22,493
Fixed income securities:
Auto loan receivable		-	6	-	6
Collateralized mortgage obligations		-	4,587	-	4,587
Corporate Bonds		-	4,171	-	4,171
FHLMC		-	809	-	809
FNMA		-	2,500	-	2,500
GNMA I		-	34	-	34
GNMA II		-	175	-	175
Government Issues		-	7,078	-	7,078
Municipals		-	55	-	55
Other Asset Backed		-	53	-	53
Total fixed income securities		-	19,468	-	19,468
Total Plan investments	$	22,574	24,369	-	46,943

At December 31, 2012 the portfolio was managed by two investment firms, with control of the portfolio split approximately 49% and 43% under the control of the investment managers with the remaining 8% under the direct control of the Plan. A portfolio concentration in the State Street Bank & Trust Co. Short Term Investment Fund of 12% and 10% existed at December 31, 2012 and 2011, respectively.

Postretirement Benefit Plan

An entity acquired by the Company provided health and dental care benefits to retired employees who met specified age and service requirements through a postretirement health and dental care plan in which both the acquired entity and the retirees shared the cost. The plan provided for substantially the same medical insurance coverage as for active employees until their death and was integrated with Medicare for those retirees aged 65 or older. In 2001, the plan's eligibility requirements were amended to curtail eligible benefit payments to only retired employees and active employees who had already met the then-applicable age and service requirements under the Plan. In 2003, retirees under age 65 began contributing to health coverage at the same cost-sharing level as that of active employees. Retirees ages 65 or older were offered new Medicare supplemental plans as alternatives to the plan historically offered. The cost sharing of medical coverage was standardized throughout the group of retirees aged 65 or older. In addition, to be consistent with the administration of the Company's dental plan for active employees, all retirees who continued dental coverage began paying the full monthly premium. The accrued liability included in other liabilities in the consolidated statements of financial condition related to this plan amounted to $118 thousand and $122 thousand as of December 31, 2012 and 2011, respectively. The postretirement expense for the plan that was included in salaries and employee benefits in the consolidated statements of income was not significant for the years ended December 31, 2012, 2011 and 2010. The plan is not funded.

The components of accumulated other comprehensive loss related to the defined benefit plan and postretirement benefit plan, on a pre-tax basis as of December 31 are summarized below (in thousands):

		2012			2011
Defined benefit plan:
Net actuarial loss	$	(21,428	)	$	(21,160	)
Prior service cost		(93	)		(113	)
		(21,521	)		(21,273	)
Postretirement benefit plan:
Net actuarial loss		(195	)		(210	)
Prior service credit		508			575
		313			365
Total recognized in accumulated other comprehensive loss	$	(21,208	)	$	(20,908	)

Changes in plan assets and benefit obligations recognized in other comprehensive loss on a pre-tax basis during the years ended December 31 are as follows (in thousands):

		2012			2011
Defined benefit plan:
Net actuarial loss	$	(1,638	)	$	(10,580	)
Amortization of net loss		1,370			608
Amortization of prior service cost		20			19
		(248	)		(9,953	)
Postretirement benefit plan:
Net actuarial gain		15			42
Amortization of prior service credit		(67	)		(68	)
		(52	)		(26	)
Total recognized in other comprehensive loss	$	(300	)	$	(9,979	)

For the year ending December 31, 2013, the estimated net loss and prior service cost for the plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost is $1.3 million and $20 thousand, respectively.

Defined Contribution Plan

Employees that meet specified eligibility conditions are eligible to participate in the Company sponsored 401(k) plan. Under the plan, participants may make contributions, in the form of salary deferrals, up to the maximum Internal Revenue Code limit. The Company matches a participant's contributions up to 4.5% of compensation, calculated as 100% of the first 3% of compensation and 50% of the next 3% of compensation deferred by the participant. The Company may also make additional discretionary matching contributions, although no such additional discretionary contributions were made in 2012, 2011 or 2010. The expense included in salaries and employee benefits in the consolidated statements of income for this plan amounted to $1.0 million in 2012 and 2011 and $936 thousand in 2010.

Supplemental Executive Retirement Plans

The Company has non-qualified Supplemental Executive Retirement Plans ("SERPs") covering four former executives. The unfunded pension liability related to the SERPs was $2.2 million and $1.0 million at December 31, 2012 and 2011, respectively. SERP expense was $1.3 million, $67 thousand, and $262 thousand for 2012, 2011 and 2010, respectively.

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Branch Acquisitions (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 store	Jun. 22, 2012
Core Deposits [Member]
Significant Acquisitions and Disposals [Line Items]
Intangible asset amortization period, years	9 years 6 months
HSBC Bank USA [Member]
Significant Acquisitions and Disposals [Line Items]
Number of bank branches	4
First Niagara Bank [Member]
Significant Acquisitions and Disposals [Line Items]
Number of bank branches	4
Estimated fair value refinement period, number of years	1 year
Loan portfolio at fair value discount		$ 824
Time deposit premium		335
Goodwill		$ 11,599

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Share-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2012

Share-Based Compensation [Abstract]

Share-Based Compensation Expense Included In Consolidated Statements Of Income

		2012		2011		2010
Stock options:
Management Stock Incentive Plan	$	12	$	55	$	110
Director Stock Incentive Plan		-		14		43
Total stock options		12		69		153
Restricted stock awards:
Management Stock Incentive Plan		382		917		761
Director Stock Incentive Plan		132		119		117
Total restricted stock awards		514		1,036		878
Total share-based compensation	$	526	$	1,105	$	1,031

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	368,058		$	20.70
Granted	-			-
Exercised	(4,250	)		15.85
Forfeited	-			-
Expired	(44,533	)		24.55
Outstanding at end of period	319,275		$	20.22	2.6 years	$	71
Exercisable at end of period	319,275		$	20.22	2.6 years	$	71

Summary Of Restricted Stock Award Activity

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	166,654		$	14.34
Granted	57,541			17.32
Vested	(94,931	)		12.79
Forfeited	(49,684	)		16.67
Outstanding at end of period	79,580		$	16.89

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Deposits (Interest Expense By Deposits Type) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Deposits:
Interest-bearing demand	$ 598	$ 614	$ 705
Savings and money market	998	1,056	1,133
Certificates of deposit	6,866	9,764	13,015
Total interest expense on deposits	$ 8,462	$ 11,434	$ 14,853

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Earnings Per Common Share (Average Shares Subject To Instruments Excluded From Computation Of Diluted EPS Because The Effect Would Be Antidilutive) (Details) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Average shares subject to instruments excluded from computation of diluted EPS	304	339	353
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Average shares subject to instruments excluded from computation of diluted EPS	303	339	353
Restricted Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Average shares subject to instruments excluded from computation of diluted EPS	1

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Borrowings (Tables)

12 Months Ended

Dec. 31, 2012

Borrowings [Abstract]

Summary Of Outstanding Short-Term Borrowings

		2012		2011
Short-term borrowings:
Federal funds purchased	$	-	$	11,597
Repurchase agreements		40,806		36,301
Short-term FHLB borrowings		139,000		102,800
Total short-term borrowings	$	179,806	$	150,698

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Investment Securities (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012 security	Dec. 31, 2011 security
Investment Securities [Abstract]
Number of security positions, unrealized loss position	52	14
Number of security positions, unrealized loss position for more than 12 months	6
Amortized cost, continuous unrealized loss position for more than 12 months	$ 4,100,000
Unrealized loss, continuous unrealized loss position for more than 12 months	4,000	21,000
Number of security positions, unrealized loss position for less than 12 months	46
Amortized cost, continuous unrealized loss position for less than 12 months	47,300,000
Unrealized loss, continuous unrealized loss position for less than 12 months	$ 327,000	$ 21,000

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Loans (Retail Loan Portfolio Categorized By Payment Status) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,675,453	$ 1,459,424	$ 1,325,266
Residential Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	133,341	113,865	129,553
Residential Mortgage [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	131,301	112,221
Residential Mortgage [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	2,040	1,644
Home Equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	282,503	227,853	205,070
Home Equity [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	281,564	227,171
Home Equity [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	939	682
Consumer Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	559,964	465,807	400,221
Consumer Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	559,073	465,249
Consumer Indirect [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	891	558
Other Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	26,657	24,138	25,937
Other Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	26,632	24,138
Other Consumer [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 25

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Fair Value Measurements (Carrying Amount, Estimated Fair Value, And Placement In Fair Value Hierarchy Of Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	$ 823,796		$ 627,518
Carrying Amount [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	60,436		57,583
Accrued interest receivable	7,843		7,655
Non-maturity deposits	1,606,856		1,230,923
Short-term borrowings	179,806		150,698
Accrued interest payable	3,819		5,207
Carrying Amount [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	823,796		625,882
Securities held to maturity	17,905		23,297
Loans held for sale	1,518		2,410
Loans	1,678,648		1,459,356
FHLB and FRB stock	12,321		10,674
Time deposits	654,938		700,676
Carrying Amount [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale			1,636	[1]
Loans	2,364	[2]	2,160	[2]
Estimated Fair Value [Member] | Level 1 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	60,436		57,583
Accrued interest receivable	7,843		7,655
Non-maturity deposits	1,606,856		1,230,923
Short-term borrowings	179,806		150,698
Accrued interest payable	3,819		5,207
Estimated Fair Value [Member] | Level 2 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	823,796		625,882
Securities held to maturity	18,478		23,964
Loans held for sale	1,547		2,442
Loans	1,701,419		1,490,999
FHLB and FRB stock	12,321		10,674
Time deposits	658,342		702,720
Estimated Fair Value [Member] | Level 3 Inputs [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale			1,636	[1]
Loans	$ 2,364	[2]	$ 2,160	[2]

[1] Comprised of trust preferred asset-backed securities.

[2] Comprised of collateral dependent impaired loans.

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Loans (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 loan	Dec. 31, 2011 loan	Dec. 31, 2010
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, related parties	$ 292	$ 378
Loans, related parties, new borrowings	50
Loans, related parties, repayments and other reductions	136
Past due greater than 90 days	18	5
Number of TDR loans in default	1	1
TDRs in default, amount	52	261
Average recorded investment	6,037	4,149	4,500
Days past due when loans are generally placed on nonaccrual status, in days	90 days
Days Past Due When Loans Are Generally Placed On Nonaccrual Status, In Days	90 days
Accrued Interest According To Original Contractual Terms [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Estimated interest income	555	438	474
Consumer Overdrafts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past due greater than 90 days	$ 18	$ 5

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Parent Company Financial Information (Tables)

12 Months Ended

Dec. 31, 2012

Parent Company Financial Information [Abstract]

Condensed Statements Of Condition

Condensed Statements of Condition		December 31,
		2012		2011
Assets:
Cash and due from subsidiary	$	6,602	$	11,621
Investment in and receivables due from subsidiary		246,535		223,577
Other assets		3,563		4,337
Total assets	$	256,700	$	239,535
Liabilities and shareholders' equity:
Other liabilities	$	2,803	$	2,341
Shareholders' equity		253,897		237,194
Total liabilities and shareholders' equity	$	256,700	$	239,535

Condensed Statements Of Income

Condensed Statements of Income		Years ended December 31,
		2012		2011	2010
Dividends from subsidiary and associated companies	$	4,000	$	9,233	$	23,151
Management and service fees from subsidiary		517		1,161		1,163
Other income (loss)		24		78		(134	)
Total income		4,541		10,472		24,180
Operating expenses		2,732		3,787		4,005
Loss on extinguishment of debt		-		1,083		-
Total expenses		2,732		4,870		4,005
Income before income tax benefit and equity in undistributed
earnings of subsidiary		1,809		5,602		20,175
Income tax benefit		991		1,539		1,323
Income before equity in undistributed earnings of subsidiary		2,800		7,141		21,498
Equity in undistributed earnings (excess distributions) of subsidiary		20,649		15,658		(211	)
Net income	$	23,449	$	22,799	$	21,287

Condensed Statements Of Cash Flows

Condensed Statements of Cash Flows		Years ended December 31,
		2012			2011		2010
Cash flows from operating activities:
Net income	$	23,449		$	22,799		$	21,287
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in (undistributed earnings) excess distributions of subsidiary		(20,649	)		(15,658	)		211
Depreciation and amortization		65			116			193
Share-based compensation		526			1,105			1,031
Decrease in other assets		805			771			980
Increase (decrease) in other liabilities		44			(534	)		8
Net cash provided by operating activities		4,240			8,599			23,710
Cash flows from financing activities:
Redemption of junior subordinated debentures		-			(16,702	)		-
Proceeds from issuance of preferred and common shares, net of issuance costs		-			43,127			-
Purchase of preferred and common shares		(559	)		(37,764	)		(69	)
Repurchase of warrant issued to U.S. Treasury		-			(2,080	)		-
Proceeds from stock options exercised		69			91			216
Dividends paid		(8,866	)		(7,564	)		(7,690	)
Other		97			20			-
Net cash used in financing activities		(9,259	)		(20,872	)		(7,543	)
Net (decrease) increase in cash and cash equivalents		(5,019	)		(12,273	)		16,167
Cash and cash equivalents as of beginning of year		11,621			23,894			7,727
Cash and cash equivalents as of end of the year	$	6,602		$	11,621		$	23,894

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Summary Of Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

The accounting and reporting policies conform to general practices within the banking industry and to U.S. generally accepted accounting principles ("GAAP"). Prior years' consolidated financial statements are re-classified whenever necessary to conform to the current year's presentation.

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

The following is a description of the Company's significant accounting policies.

(a.) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

(b.) Use of Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenue and expenses during the reporting period. Material estimates relate to the determination of the allowance for loan losses, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment ("OTTI") considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting. These estimates and assumptions are based on management's best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. As future events cannot be determined with precision, actual results could differ significantly from the Company's estimates.

(c.) Cash Flow Reporting

Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings.

Supplemental cash flow information is summarized as follows for the years ended December 31 (in thousands):

		2012		2011			2010
Cash payments:
Interest expense	$	10,438	$	15,668		$	17,676
Income taxes		4,014		5,191			6,923
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans	$	322	$	305		$	561
Accrued and declared unpaid dividends		2,562		2,144			1,694
Accretion of preferred stock discount		-		1,305			367
Increase (decrease) in net unsettled security purchases		51,135		(67	)		(317	)
Net transfer of portfolio loans to held for sale		-		13,576			-
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core
deposit intangible asset		77,912		-			-
Deposits and other liabilities		287,331		-			-

(d.) Investment Securities

Investment securities are classified as either available for sale or held to maturity. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are recorded at amortized cost. Other investment securities are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported as a component of comprehensive income and shareholders' equity.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Securities are evaluated periodically to determine whether a decline in their fair value is other than temporary. Management utilizes criteria such as, the current intent to hold or sell the security, the magnitude and duration of the decline and, when appropriate, consideration of negative changes in expected cash flows, creditworthiness, near term prospects of issuers, the level of credit subordination, estimated loss severity, and delinquencies, to determine whether a loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable. Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit issues or concerns, or the security is intended to be sold. The amount of impairment related to non-credit related factors is recognized in other comprehensive income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

(e.) Loans Held for Sale and Loan Servicing Rights

The Company generally makes the determination of whether to identify a mortgage as held for sale at the time the loan is closed based on the Company's intent and ability to hold the loan. Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount, by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination cost and fees are deferred at origination of the loans and recognized as part of the gain or loss on sale of the loans, determined using the specific identification method, in the consolidated statements of income.

The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. Mortgage-servicing rights ("MSRs") represent the cost of acquiring the contractual rights to service loans for others. MSRs are recorded at their fair value at the time a loan is sold and servicing rights are retained. MSRs are reported in other assets in the consolidated statements of financial position and are amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions to estimate future net servicing income, which include estimates of the cost to service the loan, the discount rate, an inflation rate and prepayment speeds. On a quarterly basis, the Company evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs the Company stratifies the related mortgage loans on the basis of their predominant risk characteristics, such as interest rates, year of origination and term, using discounted cash flows and market-based assumptions. Impairment of MSRs is recognized through a valuation allowance, determined by estimating the fair value of each stratum and comparing it to its carrying value. Subsequent increases in fair value are adjusted through the valuation allowance, but only to the extent of the valuation allowance. No impairment loss related to the MSRs was recognized during the years ended December 31, 2012 or 2010. The Company recognized an impairment loss related to the MSRs of $35 thousand during the year ended December 31, 2011.

Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, and paying taxes and insurance from escrow funds when due. Loan servicing income (a component of noninterest income in the consolidated statements of income) consists of fees earned for servicing mortgage loans sold to third parties, net of amortization expense and impairment losses associated with capitalized mortgage servicing assets.

Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. The servicing asset is reported in other assets in the consolidated statements of financial position and amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired. Management reviewed the servicing asset related to the automobile loan servicing rights for impairment as of December 31, 2012 and determined that no valuation allowance was necessary.

(f.) Loans

Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income and unamortized deferred fees and costs on originated loans. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized into net interest income over the contractual life of the related loans or over the commitment period as an adjustment of yield. Interest income on loans is based on the principal balance outstanding computed using the effective interest method.

A loan is considered delinquent when a payment has not been received in accordance with the contractual terms. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for retail loans is discontinued when loans reach specific delinquency levels. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, if management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management's practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan may be returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance (generally a minimum of six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The Company's loan policy dictates the guidelines to be followed in determining when a loan is charged-off. All charge offs are approved by the Bank's senior loan officers or loan committees, depending on the amount of the charge off, and are reported in aggregate to the Bank's Board of Directors. Commercial business and commercial mortgage loans are charged-off when a determination is made that the financial condition of the borrower indicates that the loan will not be collectible in the ordinary course of business. Residential mortgage loans and home equities are generally charged-off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Indirect and other consumer loans, both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due, unless the collateral is in the process of repossession in accordance with the Company's policy.

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial condition, grants a significant concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings generally remain on nonaccrual status until there is a sustained period of payment performance (usually six months or longer) and there is a reasonable assurance that the payments will continue. See Allowance for Loan Losses below for further policy discussion and see Note 5 – Loans for additional information.

(g.) Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, standby letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Company periodically evaluates the credit risks inherent in these commitments and establishes loss allowances for such risks if and when these are deemed necessary.

The Company recognizes as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding at December 31, 2012 had original terms ranging from one to five years.

Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected.

(h.) Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis and is based upon periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. Specific allowances are established for impaired loans. Impaired commercial business and commercial mortgage loans are individually evaluated and measured for impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, impairment is based on the fair value of the collateral when foreclosure is probable. If the recorded investment in impaired loans exceeds the measure of estimated fair value, a specific allowance is established as a component of the allowance for loan losses. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures unless the loan has been subject to a troubled debt restructure. At December 31, 2012, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired.

General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type. The Company applies an estimated loss rate to each loan group. The loss rate is based on historical experience and as a result can differ from actual losses incurred in the future. The historical loss rate is adjusted for qualitative factors such as levels and trends of delinquent and non-accruing loans, trends in volume and terms, effects of changes in lending policy, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit risk, interest rates, highly leveraged borrowers, information risk and collateral risk. The qualitative factors are reviewed at least quarterly and adjustments are made as needed.

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

(i.) Other Real Estate Owned

Other real estate owned consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or "cost" (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of other real estate owned are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of other real estate owned was $184 thousand and $475 thousand at December 31, 2012 and 2011, respectively.

(j.) Company Owned Life Insurance

The Company holds life insurance policies on certain current and former employees. The Company is the owner and beneficiary of the policies. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and any increase in cash surrender value is recorded as noninterest income on the consolidated statements of income. In the event of the death of an insured individual under these policies, the Company would receive a death benefit which would be recorded as noninterest income.

(k.) Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The Company generally amortizes buildings and building improvements over a period of 15 to 39 years and software, furniture and equipment over a period of 3 to 10 years. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Premises and equipment are periodically reviewed for impairment or when circumstances present indicators of impairment.

(l.) Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill has an indefinite useful life and is not amortized, but is tested for impairment. GAAP requires goodwill to be tested for impairment at the Company's reporting unit level on an annual basis, which for the Company is September 30^th, and more frequently if events or circumstances indicate that there may be impairment. Currently, the Company's goodwill is evaluated at the entity level as there is only one reporting unit.

Impairment exists when a reporting unit's carrying value of goodwill exceeds its implied fair value. In testing goodwill for impairment, GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the totality of events and circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test would be unnecessary. However, if the Company concludes otherwise, it would then be required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, Step 2 of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company's intangible assets relate to core deposits. Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life of approximately nine and a half years. Intangible assets with indefinite useful lives are not amortized until their lives are determined to be definite. Intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value. See Note 7 - Goodwill and Other Intangible Assets.

(m.) Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") Stock

The non-marketable investments in FHLB and FRB stock are included in other assets in the consolidated statements of financial condition at par value or cost and are periodically reviewed for impairment. The dividends received relative to these investments are included in other noninterest income in the consolidated statements of income.

As a member of the FHLB system, the Company is required to maintain a specified investment in FHLB of New York ("FHLBNY") stock in proportion to its volume of certain transactions with the FHLB. FHLBNY stock totaled $8.4 million and $6.8 million as of December 31, 2012 and 2011, respectively.

As a member of the FRB system, the Company is required to maintain a specified investment in FRB stock based on a ratio relative to the Company's capital. FRB stock totaled $3.9 million as of December 31, 2012 and 2011.

(n.) Equity Method Investments

The Company has investments in limited partnerships and accounts for these investments under the equity method. These investments are included in other assets in the consolidated statements of financial condition and totaled $4.7 million and $4.0 million as of December 31, 2012 and 2011, respectively.

(o.) Treasury Stock

Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost.

(p.) Employee Benefits

The Company participates in a non-contributory defined benefit pension plan for certain employees who previously met participation requirements. The Company also provides post-retirement benefits, principally health and dental care, to employees of a previously acquired entity. The Company has closed the pension and post-retirement plans to new participants. The actuarially determined pension benefit is based on years of service and the employee's highest average compensation during five consecutive years of employment. The Company's policy is to at least fund the minimum amount required by the Employment Retirement Income Security Act of 1974. The cost of the pension and post-retirement plans are based on actuarial computations of current and future benefits for employees, and is charged to noninterest expense in the consolidated statements of income.

The Company recognizes an asset or a liability for a plans' overfunded status or underfunded status, respectively, in the consolidated financial statements and reports changes in the funded status as a component of other comprehensive income, net of applicable taxes, in the year in which changes occur.

(q.) Share-Based Compensation Plans

Compensation expense for stock options and restricted stock awards is based on the fair value of the award on the measurement date, which, for the Company, is the date of grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model. The fair value of restricted stock awards is generally the market price of the Company's stock on the date of grant.

Share-based compensation expense is included in the consolidated statements of income under salaries and employee benefits for awards granted to management and in other noninterest expense for awards granted to directors.

(r.) Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recognized on deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the assets may not be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

(s.) Earnings Per Common Share

The Company calculates earnings per common share ("EPS") using the two-class method in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 260, "Earnings Per Share". The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities. Certain of the restricted shares issued under the Company's share-based compensation plan are entitled to dividends at the same rate as common stock. The Company has determined that these outstanding non-vested stock awards qualify as participating securities.

Basic EPS is computed by dividing distributed and undistributed earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Distributed and undistributed earnings available to common shareholders represent net income reduced by preferred stock dividends and distributed and undistributed earnings available to participating securities. Common shares outstanding include common stock and vested restricted stock awards. Diluted EPS reflects the assumed conversion of all potential dilutive securities. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 16 - Earnings Per Common Share.

(t.) Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The provisions of ASU No. 2011-04 provide a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) extends the prohibition on applying a blockage factor in valuing financial instruments with quoted prices in active markets; (3) creates an exception to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity's net exposure to either of those risks by allowing the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) aligns the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities; and (5) enhances disclosure requirements for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU No. 2011-04 had no material impact on the Company's consolidated financial statements. See Note 18 – Fair Value Measurements to the consolidated financial statements for the enhanced disclosures required by ASU No. 2011-04.In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Under either method, entities are required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. ASU No. 2011-05 also eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 was effective for the Company's interim reporting period beginning on or after January 1, 2012, with retrospective application required. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The provisions of ASU No. 2011-12 defer indefinitely the requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. ASU No. 2011-12, which shares the same effective date as ASU No. 2011-05, does not defer the requirement for entities to present components of comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted the provisions of ASU No. 2011-05 and ASU No. 2011-12 which resulted in a new statement of comprehensive income beginning with the interim period ended March 31, 2012. The adoption of ASU No. 2011-05 and ASU No. 2011-12 had no material impact on the Company's statements of income and financial condition.

In September 2011, the FASB issued ASU No. 2011-08 "Testing Goodwill for Impairment." The provisions of ASU 2011-08 permit an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is required. ASU No. 2011-08 includes examples of events and circumstances that may indicate that a reporting unit's fair value is less than its carrying amount. The provisions of ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed beginning in 2012. The adoption of ASU No. 2011-08 did not have a material impact on the Company's consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment." The provisions of ASU No. 2012-02 permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test, as is currently required by GAAP. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not have any indefinite-lived intangible assets other than goodwill, therefore the adoption of ASU No. 2012-02 is expected to have no material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company's consolidated financial statements.

XML

Loans (Loan Portfolio) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	$ 1,675,453	$ 1,459,424	$ 1,325,266
Net Deferred Loan (Fees) Costs	30,273	25,352
Loans, Net	1,705,726	1,484,776
Allowance for loan losses	(24,714)	(23,260)
Total loans, net	1,681,012	1,461,516
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	258,706	233,727	210,948
Net Deferred Loan (Fees) Costs	(31)	109
Loans, Net	258,675	233,836
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	414,282	394,034	353,537
Net Deferred Loan (Fees) Costs	(958)	(790)
Loans, Net	413,324	393,244
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	133,341	113,865	129,553
Net Deferred Loan (Fees) Costs	179	46
Loans, Net	133,520	113,911
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	282,503	227,853	205,070
Net Deferred Loan (Fees) Costs	4,146	3,913
Loans, Net	286,649	231,766
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	559,964	465,807	400,221
Net Deferred Loan (Fees) Costs	26,830	21,906
Loans, Net	586,794	487,713
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans, Gross	26,657	24,138	25,937
Net Deferred Loan (Fees) Costs	107	168
Loans, Net	$ 26,764	$ 24,306

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Tax Expense (Benefit)

		2012		2011		2010
Current tax expense:
Federal	$	4,021	$	3,747	$	5,781
State		955		1,158		1,103
Total current tax expense		4,976		4,905		6,884
Deferred tax expense (benefit):
Federal		5,262		5,584		2,852
State		1,081		926		(384	)
Total deferred tax expense		6,343		6,510		2,468
Total income tax expense	$	11,319	$	11,415	$	9,352

Income Tax Expense Differed From Statutory Federal Income Tax Rate

	2012		2011		2010
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
Tax exempt interest income	(4.6	)	(4.3	)	(4.2	)
Non-taxable earnings on company owned life insurance	(1.8	)	(1.5	)	(1.3	)
State taxes, net of federal tax benefit	3.8		4.0		1.5
Nondeductible expenses	0.3		0.4		0.6
Other, net	(0.1	)	(0.2	)	(1.1	)
Effective tax rate	32.6	%	33.4	%	30.5	%

Income Tax Expense Allocation

		2012		2011		2010
Income tax expense	$	11,319	$	11,415	$	9,352
Shareholder's equity		1,514		3,718		(763	)

Net Deferred Tax Assets

		2012		2011
Deferred tax assets:
Other than temporary impairment of investment securities	$	5,283	$	11,326
Allowance for loan losses		9,791		9,106
Share-based compensation		1,111		1,437
SERP agreements		734		285
Deferred compensation		868		499
Interest on nonaccrual loans		732		716
Accrued pension costs		-		538
Tax attribute carryforward benefits		-		463
Other		798		467
Gross deferred tax assets		19,317		24,837
Deferred tax liabilities:
Net unrealized gain on securities available for sale		10,536		8,903
Depreciation and amortization		1,827		1,741
Prepaid pension costs		1,648		-
Loan servicing assets		681		781
Deferred loan origination costs		-		930
Gross deferred tax liabilities		14,692		12,355
Net deferred tax asset	$	4,625	$	12,482

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Summary Of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Summary Of Supplemental Cash Flow Information

		2012		2011			2010
Cash payments:
Interest expense	$	10,438	$	15,668		$	17,676
Income taxes		4,014		5,191			6,923
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans	$	322	$	305		$	561
Accrued and declared unpaid dividends		2,562		2,144			1,694
Accretion of preferred stock discount		-		1,305			367
Increase (decrease) in net unsettled security purchases		51,135		(67	)		(317	)
Net transfer of portfolio loans to held for sale		-		13,576			-
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core
deposit intangible asset		77,912		-			-
Deposits and other liabilities		287,331		-			-

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Summary Of Significant Accounting Policies (Policy)

12 Months Ended

Dec. 31, 2012

Summary Of Significant Accounting Policies [Abstract]

Principles Of Consolidation

(a.) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use Of Estimates

(b.) Use of Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenue and expenses during the reporting period. Material estimates relate to the determination of the allowance for loan losses, the carrying value of goodwill and deferred tax assets, the valuation and other than temporary impairment ("OTTI") considerations related to the securities portfolio, and assumptions used in the defined benefit pension plan accounting. These estimates and assumptions are based on management's best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. As future events cannot be determined with precision, actual results could differ significantly from the Company's estimates.

Cash Flow Reporting

(c.) Cash Flow Reporting

Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings.

Supplemental cash flow information is summarized as follows for the years ended December 31 (in thousands):

		2012		2011			2010
Cash payments:
Interest expense	$	10,438	$	15,668		$	17,676
Income taxes		4,014		5,191			6,923
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans	$	322	$	305		$	561
Accrued and declared unpaid dividends		2,562		2,144			1,694
Accretion of preferred stock discount		-		1,305			367
Increase (decrease) in net unsettled security purchases		51,135		(67	)		(317	)
Net transfer of portfolio loans to held for sale		-		13,576			-
Assets acquired and liabilities assumed in branch acquisition:
Loans and other non-cash assets, excluding goodwill and core
deposit intangible asset		77,912		-			-
Deposits and other liabilities		287,331		-			-

Investment Securities

(d.) Investment Securities

Investment securities are classified as either available for sale or held to maturity. Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are recorded at amortized cost. Other investment securities are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported as a component of comprehensive income and shareholders' equity.

Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Securities are evaluated periodically to determine whether a decline in their fair value is other than temporary. Management utilizes criteria such as, the current intent to hold or sell the security, the magnitude and duration of the decline and, when appropriate, consideration of negative changes in expected cash flows, creditworthiness, near term prospects of issuers, the level of credit subordination, estimated loss severity, and delinquencies, to determine whether a loss in value is other than temporary. The term "other than temporary" is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable. Declines in the fair value of investment securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit issues or concerns, or the security is intended to be sold. The amount of impairment related to non-credit related factors is recognized in other comprehensive income. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Loans Held For Sale And Loan Servicing Rights

(e.) Loans Held for Sale and Loan Servicing Rights

The Company generally makes the determination of whether to identify a mortgage as held for sale at the time the loan is closed based on the Company's intent and ability to hold the loan. Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount, by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination cost and fees are deferred at origination of the loans and recognized as part of the gain or loss on sale of the loans, determined using the specific identification method, in the consolidated statements of income.

The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. Mortgage-servicing rights ("MSRs") represent the cost of acquiring the contractual rights to service loans for others. MSRs are recorded at their fair value at the time a loan is sold and servicing rights are retained. MSRs are reported in other assets in the consolidated statements of financial position and are amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions to estimate future net servicing income, which include estimates of the cost to service the loan, the discount rate, an inflation rate and prepayment speeds. On a quarterly basis, the Company evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs the Company stratifies the related mortgage loans on the basis of their predominant risk characteristics, such as interest rates, year of origination and term, using discounted cash flows and market-based assumptions. Impairment of MSRs is recognized through a valuation allowance, determined by estimating the fair value of each stratum and comparing it to its carrying value. Subsequent increases in fair value are adjusted through the valuation allowance, but only to the extent of the valuation allowance. No impairment loss related to the MSRs was recognized during the years ended December 31, 2012 or 2010. The Company recognized an impairment loss related to the MSRs of $35 thousand during the year ended December 31, 2011.

Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, and paying taxes and insurance from escrow funds when due. Loan servicing income (a component of noninterest income in the consolidated statements of income) consists of fees earned for servicing mortgage loans sold to third parties, net of amortization expense and impairment losses associated with capitalized mortgage servicing assets.

Automobile loan servicing rights are accounted for using the amortization method. A servicing asset is established at fair value at the time of the sale. The servicing asset is reported in other assets in the consolidated statements of financial position and amortized to noninterest income in the consolidated statements of income in proportion to and over the period of estimated net servicing income. Impairment, if any, is recognized when carrying value exceeds the fair value as determined by calculating the present value of expected net future cash flows. The primary risk characteristic for measuring servicing assets is payoff rates of the underlying loan pools. Valuation calculations rely on the predicted payoff assumption and, if actual payoff is quicker than expected, then future value would be impaired. Management reviewed the servicing asset related to the automobile loan servicing rights for impairment as of December 31, 2012 and determined that no valuation allowance was necessary.

Loans

(f.) Loans

Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income and unamortized deferred fees and costs on originated loans. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized into net interest income over the contractual life of the related loans or over the commitment period as an adjustment of yield. Interest income on loans is based on the principal balance outstanding computed using the effective interest method.

A loan is considered delinquent when a payment has not been received in accordance with the contractual terms. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for retail loans is discontinued when loans reach specific delinquency levels. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, if management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management's practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan may be returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance (generally a minimum of six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The Company's loan policy dictates the guidelines to be followed in determining when a loan is charged-off. All charge offs are approved by the Bank's senior loan officers or loan committees, depending on the amount of the charge off, and are reported in aggregate to the Bank's Board of Directors. Commercial business and commercial mortgage loans are charged-off when a determination is made that the financial condition of the borrower indicates that the loan will not be collectible in the ordinary course of business. Residential mortgage loans and home equities are generally charged-off or written down when the credit becomes severely delinquent and the balance exceeds the fair value of the property less costs to sell. Indirect and other consumer loans, both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due, unless the collateral is in the process of repossession in accordance with the Company's policy.

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial condition, grants a significant concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate or face amount of the loan, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. Troubled debt restructurings generally remain on nonaccrual status until there is a sustained period of payment performance (usually six months or longer) and there is a reasonable assurance that the payments will continue. See Allowance for Loan Losses below for further policy discussion and see Note 5 Loans for additional information.

Off-Balance Sheet Financial Instruments

(g.) Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, standby letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Company periodically evaluates the credit risks inherent in these commitments and establishes loss allowances for such risks if and when these are deemed necessary.

The Company recognizes as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding at December 31, 2012 had original terms ranging from one to five years.

Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected.

Allowance For Loan Losses

(h.) Allowance for Loan Losses

The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis and is based upon periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. Specific allowances are established for impaired loans. Impaired commercial business and commercial mortgage loans are individually evaluated and measured for impairment based on the present value of expected future cash flows discounted at the loan's effective interest rate, a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, impairment is based on the fair value of the collateral when foreclosure is probable. If the recorded investment in impaired loans exceeds the measure of estimated fair value, a specific allowance is established as a component of the allowance for loan losses. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged-off when deemed uncollectible.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loans obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures unless the loan has been subject to a troubled debt restructure. At December 31, 2012, there were no commitments to lend additional funds to those borrowers whose loans were classified as impaired.

General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type. The Company applies an estimated loss rate to each loan group. The loss rate is based on historical experience and as a result can differ from actual losses incurred in the future. The historical loss rate is adjusted for qualitative factors such as levels and trends of delinquent and non-accruing loans, trends in volume and terms, effects of changes in lending policy, the experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit risk, interest rates, highly leveraged borrowers, information risk and collateral risk. The qualitative factors are reviewed at least quarterly and adjustments are made as needed.

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

Other Real Estate Owned

(i.) Other Real Estate Owned

Other real estate owned consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are recorded at the lower of fair value of the asset acquired less estimated costs to sell or "cost" (defined as the fair value at initial foreclosure). At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for loan losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for loan losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of other real estate owned are included in income when title has passed and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of other real estate owned was $184 thousand and $475 thousand at December 31, 2012 and 2011, respectively.

Company Owned Life Insurance

(j.) Company Owned Life Insurance

The Company holds life insurance policies on certain current and former employees. The Company is the owner and beneficiary of the policies. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and any increase in cash surrender value is recorded as noninterest income on the consolidated statements of income. In the event of the death of an insured individual under these policies, the Company would receive a death benefit which would be recorded as noninterest income.

Premises And Equipment

(k.) Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The Company generally amortizes buildings and building improvements over a period of 15 to 39 years and software, furniture and equipment over a period of 3 to 10 years. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Premises and equipment are periodically reviewed for impairment or when circumstances present indicators of impairment.

Goodwill And Other Intangible Assets

(l.) Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in accordance with the purchase method of accounting for business combinations. Goodwill has an indefinite useful life and is not amortized, but is tested for impairment. GAAP requires goodwill to be tested for impairment at the Company's reporting unit level on an annual basis, which for the Company is September 30^th, and more frequently if events or circumstances indicate that there may be impairment. Currently, the Company's goodwill is evaluated at the entity level as there is only one reporting unit.

Impairment exists when a reporting unit's carrying value of goodwill exceeds its implied fair value. In testing goodwill for impairment, GAAP permits the Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after assessing the totality of events and circumstances, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test would be unnecessary. However, if the Company concludes otherwise, it would then be required to perform the first step (Step 1) of the goodwill impairment test, and continue to the second step (Step 2), if necessary. Step 1 compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, Step 2 of the goodwill impairment test is performed to measure the amount of impairment loss, if any.

Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company's intangible assets relate to core deposits. Intangible assets with definite useful lives are amortized on an accelerated basis over their estimated life of approximately nine and a half years. Intangible assets with indefinite useful lives are not amortized until their lives are determined to be definite. Intangible assets are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value. See Note 7 - Goodwill and Other Intangible Assets.

Federal Home Loan Bank ("FHLB") And Federal Reserve Bank ("FRB") Stock

(m.) Federal Home Loan Bank ("FHLB") and Federal Reserve Bank ("FRB") Stock

The non-marketable investments in FHLB and FRB stock are included in other assets in the consolidated statements of financial condition at par value or cost and are periodically reviewed for impairment. The dividends received relative to these investments are included in other noninterest income in the consolidated statements of income.

As a member of the FHLB system, the Company is required to maintain a specified investment in FHLB of New York ("FHLBNY") stock in proportion to its volume of certain transactions with the FHLB. FHLBNY stock totaled $8.4 million and $6.8 million as of December 31, 2012 and 2011, respectively.

As a member of the FRB system, the Company is required to maintain a specified investment in FRB stock based on a ratio relative to the Company's capital. FRB stock totaled $3.9 million as of December 31, 2012 and 2011.

Equity Method Investments

(n.) Equity Method Investments

The Company has investments in limited partnerships and accounts for these investments under the equity method. These investments are included in other assets in the consolidated statements of financial condition and totaled $4.7 million and $4.0 million as of December 31, 2012 and 2011, respectively.

Treasury Stock

(o.) Treasury Stock

Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost.

Employee Benefits

(p.) Employee Benefits

The Company participates in a non-contributory defined benefit pension plan for certain employees who previously met participation requirements. The Company also provides post-retirement benefits, principally health and dental care, to employees of a previously acquired entity. The Company has closed the pension and post-retirement plans to new participants. The actuarially determined pension benefit is based on years of service and the employee's highest average compensation during five consecutive years of employment. The Company's policy is to at least fund the minimum amount required by the Employment Retirement Income Security Act of 1974. The cost of the pension and post-retirement plans are based on actuarial computations of current and future benefits for employees, and is charged to noninterest expense in the consolidated statements of income.

The Company recognizes an asset or a liability for a plans' overfunded status or underfunded status, respectively, in the consolidated financial statements and reports changes in the funded status as a component of other comprehensive income, net of applicable taxes, in the year in which changes occur.

Share-Based Compensation Plans

(q.) Share-Based Compensation Plans

Compensation expense for stock options and restricted stock awards is based on the fair value of the award on the measurement date, which, for the Company, is the date of grant and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model. The fair value of restricted stock awards is generally the market price of the Company's stock on the date of grant.

Share-based compensation expense is included in the consolidated statements of income under salaries and employee benefits for awards granted to management and in other noninterest expense for awards granted to directors.

Income Taxes

(r.) Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recognized on deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the assets may not be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Earnings Per Common Share

(s.) Earnings Per Common Share

The Company calculates earnings per common share ("EPS") using the two-class method in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 260, "Earnings Per Share". The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities. Certain of the restricted shares issued under the Company's share-based compensation plan are entitled to dividends at the same rate as common stock. The Company has determined that these outstanding non-vested stock awards qualify as participating securities.

Basic EPS is computed by dividing distributed and undistributed earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Distributed and undistributed earnings available to common shareholders represent net income reduced by preferred stock dividends and distributed and undistributed earnings available to participating securities. Common shares outstanding include common stock and vested restricted stock awards. Diluted EPS reflects the assumed conversion of all potential dilutive securities. A reconciliation of the weighted-average shares used in calculating basic earnings per common share and the weighted average common shares used in calculating diluted earnings per common share for the reported periods is provided in Note 16 - Earnings Per Common Share.

Recent Accounting Pronouncements

(t.) Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The provisions of ASU No. 2011-04 provide a consistent definition of fair value and common requirements for the measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards ("IFRS"). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) extends the prohibition on applying a blockage factor in valuing financial instruments with quoted prices in active markets; (3) creates an exception to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity's net exposure to either of those risks by allowing the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) aligns the fair value measurement of instruments classified within an entity's shareholders' equity with the guidance for liabilities; and (5) enhances disclosure requirements for Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to qualitatively describe the sensitivity of fair value measurements to changes in unobservable inputs and the interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The Company adopted the provisions of ASU No. 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU No. 2011-04 had no material impact on the Company's consolidated financial statements. See Note 18 Fair Value Measurements to the consolidated financial statements for the enhanced disclosures required by ASU No. 2011-04.In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income." The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Under either method, entities are required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented. ASU No. 2011-05 also eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU No. 2011-05 was effective for the Company's interim reporting period beginning on or after January 1, 2012, with retrospective application required. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The provisions of ASU No. 2011-12 defer indefinitely the requirement for entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which net income is presented and the statement in which other comprehensive income is presented. ASU No. 2011-12, which shares the same effective date as ASU No. 2011-05, does not defer the requirement for entities to present components of comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted the provisions of ASU No. 2011-05 and ASU No. 2011-12 which resulted in a new statement of comprehensive income beginning with the interim period ended March 31, 2012. The adoption of ASU No. 2011-05 and ASU No. 2011-12 had no material impact on the Company's statements of income and financial condition.

In September 2011, the FASB issued ASU No. 2011-08 "Testing Goodwill for Impairment." The provisions of ASU 2011-08 permit an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity believes, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further impairment testing is required. ASU No. 2011-08 includes examples of events and circumstances that may indicate that a reporting unit's fair value is less than its carrying amount. The provisions of ASU No. 2011-08 are effective for annual and interim goodwill impairment tests performed beginning in 2012. The adoption of ASU No. 2011-08 did not have a material impact on the Company's consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment." The provisions of ASU No. 2012-02 permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test, as is currently required by GAAP. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company does not have any indefinite-lived intangible assets other than goodwill, therefore the adoption of ASU No. 2012-02 is expected to have no material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component and to present either on the face of the statement where net income is presented, or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendments are effective for annual and interim reporting periods beginning on or after December 15, 2012. The Company is currently in the process of evaluating the ASU but does not expect it will have a material impact on the Company's consolidated financial statements.

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Employee Benefit Plans (Estimated Benefit Payments Under The Pension Plan) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Employee Benefit Plans [Abstract]
2013	$ 1,637
2014	1,724
2015	1,882
2016	2,106
2017	2,284
2018-2022	$ 13,128

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Investment Securities (Scheduled Maturities Of Securities Available For Sale And Securities Held To Maturity) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Investment Securities [Abstract]
Debt securities available for sale, Due in one year or less, Amortized Cost	$ 28,967
Debt securities available for sale, Due from one to five years, Amortized Cost	94,479
Debt securities available for sale, Due after five years through ten years, Amortized Cost	318,124
Debt securities available for sale, Due after ten years, Amortized Cost	355,631
Debt securities available for sale, Amortized Cost	797,201
Debt securities available for sale, Due in one year or less, Fair Value	29,165
Debt securities available for sale, Due from one to five years, Fair Value	98,341
Debt securities available for sale, Due after five years through ten years, Fair Value	326,802
Debt securities available for sale, Due after ten years, Fair Value	369,488
Debt securities available for sale, Fair Value	823,796
Debt securities held to maturity, Due in one year or less, Amortized Cost	12,886
Debt securities held to maturity, Due from one to five years, Amortized Cost	4,164
Debt securities held to maturity, Due after five years through ten years, Amortized Cost	768
Debt securities held to maturity, Due after ten years, Amortized Cost	87
Debt securities held to maturity, Amortized Cost	17,905
Debt securities held to maturity, Due in one year or less, Fair Value	12,974
Debt securities held to maturity, Due from one to five years, Fair Value	4,455
Debt securities held to maturity, Due after five years through ten years, Fair Value	931
Debt securities held to maturity, Due after ten years, Fair Value	118
Debt securities held to maturity, Fair Value	$ 18,478

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Earnings Per Common Share (Tables)

12 Months Ended

Dec. 31, 2012

Earnings Per Common Share [Abstract]

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

		2012			2011			2010
Net income available to common shareholders	$	21,975		$	19,617		$	17,562
Less: Earnings allocated to participating securities		2			38			105
Net income available to common shareholders for EPS	$	21,973		$	19,579		$	17,457
Weighted average common shares outstanding:
Total shares issued		14,162			13,599			11,348
Unvested restricted stock awards		(107	)		(166	)		(154	)
Treasury shares		(359	)		(366	)		(427	)
Total basic weighted average common shares outstanding		13,696			13,067			10,767
Incremental shares from assumed:
Exercise of stock options		4			3			6
Vesting of restricted stock awards		51			65			27
Exercise of warrant		-			22			45
Total diluted weighted average common shares outstanding		13,751			13,157			10,845
Basic earnings per common share	$	1.60		$	1.50		$	1.62
Diluted earnings per common share	$	1.60		$	1.49		$	1.61

Average Shares Subject To Instruments Excluded From Computation Of Diluted EPS Because The Effect Would Be Antidilutive

Stock options	303	339	353
Restricted stock awards	1	-	-
	304	339	353

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Branch Acquisitions (Tables)

12 Months Ended

Dec. 31, 2012

Branch Acquisitions [Abstract]

Schedule Of Assets Purchased And Liabilities Assumed

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,599
Core deposit intangible asset		2,042
Other assets		339
Total assets acquired	$	287,331
Deposits assumed	$	286,819
Other liabilities		512
Total liabilities assumed	$	287,331

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Investment Securities (Tables)

12 Months Ended

Dec. 31, 2012

Investment Securities [Abstract]

Amortized Cost And Fair Value Of Investment Securities

		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
December 31, 2012
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	128,097	$	3,667		$	69	$	131,695
State and political subdivisions		188,997		6,285			72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394			188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430			-		66,856
Government National Mortgage Association		56,166		3,279			-		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865			2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911			-		80,492
Government National Mortgage Association		70,989		2,168			-		73,157
Privately issued		73		1,025			-		1,098
Total collateralized mortgage obligations		210,448		6,969			2		217,415
Total mortgage-backed securities		479,986		16,072			190		495,868
Asset-backed securities		121		902			-		1,023
Total available for sale securities	$	797,201	$	26,926	$		331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573		$	-	$	18,478
December 31, 2011
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	94,947	$	2,770		$	5	$	97,712
State and political subdivisions		119,099		5,336			11		124,424
Mortgage-backed securities:
Federal National Mortgage Association		98,679		2,944			-		101,623
Federal Home Loan Mortgage Corporation		63,838		1,017			-		64,855
Government National Mortgage Association		73,226		3,376			-		76,602
Collateralized mortgage obligations:
Federal National Mortgage Association		28,339		581			7		28,913
Federal Home Loan Mortgage Corporation		22,318		675			1		22,992
Government National Mortgage Association		103,975		2,654			18		106,611
Privately issued		327		1,762			-		2,089
Total collateralized mortgage obligations		154,959		5,672			26		160,605
Total mortgage-backed securities		390,702		13,009			26		403,685
Asset-backed securities		297		1,400			-		1,697
Total available for sale securities	$	605,045	$	22,515		$	42	$	627,518
Securities held to maturity:
State and political subdivisions	$	23,297	$	667		$	-	$	23,964

Interest And Dividends On Securities

		2012		2011		2010
Taxable interest and dividends	$	12,202	$	14,185	$	17,101
Tax-exempt interest and dividends		4,242		3,828		3,521
Total interest and dividends on securities	$	16,444	$	18,013	$	20,622

Sales Of Securities Available For Sale

		2012		2011		2010
Proceeds from sales	$	2,823	$	44,514	$	122,090
Gross realized gains		2,651		3,051		173
Gross realized losses		-		48		4

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	$	28,967	$	29,165
Due from one to five years		94,479		98,341
Due after five years through ten years		318,124		326,802
Due after ten years		355,631		369,488
	$	797,201	$	823,796
Debt securities held to maturity:
Due in one year or less	$	12,886	$	12,974
Due from one to five years		4,164		4,455
Due after five years through ten years		768		931
Due after ten years		87		118
	$	17,905	$	18,478

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
December 31, 2012
U.S. Government agencies and government
sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		-		-		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		-		-		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,173		2		1,173		2
Total collateralized mortgage obligations		-		-		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331
December 31, 2011
U.S. Government agencies and government
sponsored enterprises	$	2,177	$	1	$	5,246	$	4	$	7,423	$	5
State and political subdivisions		452		2		646		9		1,098		11
Mortgage-backed securities:
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,817		7		1,817		7
Federal Home Loan Mortgage Corporation		-		-		388		1		388		1
Government National Mortgage Association		6,138		18		-		-		6,138		18
Total collateralized mortgage obligations		6,138		18		2,205		8		8,343		26
Total mortgage-backed securities		6,138		18		2,205		8		8,343		26
Total temporarily impaired securities	$	8,767	$	21	$	8,097	$	21	$	16,864	$	42

Summary Of The Amounts Of OTTI Recognized

	2012		2011			2010
Mortgage-backed securities – Privately issued whole loan CMOs	$	91	$	18	$		-
Asset-backed securities - Trust preferred securities		-		-			526
Asset-backed securities - Other		-		-			68
Total OTTI	$	91	$	18	$		594

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash flows from operating activities:
Net income	$ 23,449	$ 22,799	$ 21,287
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,828	3,466	3,537
Net amortization of premiums on securities	5,284	5,722	3,005
Provision for loan losses	7,128	7,780	6,687
Share-based compensation	526	1,105	1,031
Deferred income tax expense	6,343	6,510	2,468
Proceeds from sale of loans held for sale	55,067	32,839	42,195
Originations of loans held for sale	(52,754)	(31,231)	(44,262)
Increase in company owned life insurance	(1,751)	(1,424)	(1,107)
Net gain on sale of loans held for sale	(1,421)	(880)	(650)
Net gain on disposal of investment securities	(2,651)	(3,003)	(169)
Impairment charges on investment securities	91	18	594
Net loss (gain) on sale and disposal of other assets	381	(67)	203
Contributions to defined pension plan	(8,000)	(10,000)	(4,300)
Loss on extinguishment of debt		1,083
Increase in other assets	(4,249)	(7,756)	(353)
Increase in other liabilities	7,429	5,057	5,261
Net cash provided by operating activities	38,700	32,018	35,427
Cash flows from investing activities:
Available for sale	(322,191)	(158,013)	(430,952)
Held to maturity	(15,484)	(17,188)	(19,791)
Proceeds from principal payments, maturities and calls on investment securities:
Available for sale	175,679	168,976	219,974
Held to maturity	20,819	21,986	30,885
Proceeds from sales of securities available for sale	2,823	44,514	122,090
Net increase in loans, excluding sales	(151,311)	(157,110)	(89,507)
Loans sold or participated to others		13,033
Purchases of company owned life insurance	(79)	(18,079)	(79)
Proceeds from sales of other assets	734	705	611
Purchases of premises and equipment	(5,840)	(3,678)	(2,438)
Net cash received in branch acquisitions	195,778
Net cash used in investing activities	(99,072)	(104,854)	(169,207)
Cash flows from financing activities:
Net increase in deposits	43,376	48,709	139,935
Net increase in short-term borrowings	29,108	73,588	17,567
Repayments of long-term borrowings		(26,767)	(20,080)
Proceeds from issuance of common stock, net of issuance costs		43,127
Purchases of common stock for treasury	(557)	(215)	(69)
Repurchase of preferred stock	(2)	(37,549)
Repurchase of warrant issued to U.S. Treasury		(2,080)
Proceeds from stock options exercised	69	91	216
Excess tax benefit on share-based compensation	97	21
Cash dividends paid to preferred shareholders	(1,474)	(2,118)	(3,358)
Cash dividends paid to common shareholders	(7,392)	(5,446)	(4,332)
Net cash provided by financing activities	63,225	91,361	129,879
Net increase (decrease) in cash and cash equivalents	2,853	18,525	(3,901)
Cash and cash equivalents, beginning of period	57,583	39,058	42,959
Cash and cash equivalents, end of period	$ 60,436	$ 57,583	$ 39,058

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Loans Held For Sale And Loan Servicing Rights (Tables)

12 Months Ended

Dec. 31, 2012

Loans Held For Sale And Loan Servicing Rights [Abstract]

Activity In Capitalized Mortgage Servicing Assets

		2012			2011			2010
Mortgage servicing assets, beginning of year	$	1,609		$	1,642		$	1,534
Originations		554			319			408
Amortization		(526	)		(352	)		(300	)
Mortgage servicing assets, end of year		1,637			1,609			1,642
Valuation allowance		(168	)		(210	)		(175	)
Mortgage servicing assets, net, end of year	$	1,469		$	1,399		$	1,467

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Shareholders' Equity (Narrative) (Details) (USD $)	1 Months Ended	12 Months Ended		12 Months Ended		12 Months Ended		1 Months Ended			12 Months Ended		12 Months Ended		1 Months Ended	12 Months Ended
	Mar. 31, 2011	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011 Common Stock [Member]	Dec. 31, 2012 Preferred Class A [Member]	Dec. 31, 2012 Series A 3% Preferred Stock [Member]	Dec. 31, 2011 Series A 3% Preferred Stock [Member]	Mar. 31, 2011 Series A Preferred Stock [Member]	Feb. 28, 2011 Series A Preferred Stock [Member]	Dec. 31, 2008 Series A Preferred Stock [Member]	Dec. 31, 2012 Series A Preferred Stock [Member]	Dec. 31, 2012 Preferred Class B [Member]	Dec. 31, 2012 Series B-1 8.48% Preferred Stock [Member]	Dec. 31, 2011 Series B-1 8.48% Preferred Stock [Member]	May 31, 2011 Warrant [Member]	Dec. 31, 2012 Warrant [Member]	Dec. 31, 2008 Warrant [Member]
Shareholders Equity [Line Items]
Capital shares authorized			50,210,000
Common stock, shares authorized		50,000,000	50,000,000
Common stock, par value		$ 0.01	$ 0.01														$ 0.01
Common stock sale, price per share	$ 16.35
Preferred stock, shares authorized			210,000		10,000							200,000	200,000	200,000
Preferred stock, par value			$ 100										$ 100	$ 100
Preferred stock, rate						3.00%							8.48%
Preferred stock, shares issued		174,735	174,709			1,499	1,500			7,503			173,210	173,235
Preferred stock, shares outstanding		174,735	174,709			1,499	1,500						173,210	173,235
Shares issued in common stock offering	2,813,475			2,813,475
Proceeds from issuance of common stock, net of issuance costs	$ 43,100,000	$ 43,127,000
Junior subordinated debentures interest rate	10.20%
Preferred stock, dividend per share						$ 3.00							$ 8.48
Proceeds from preferred stock										37,500,000	35,500,000					2,000,000
Warrant to purchase shares, number of shares																	378,175
Warrant exercise price																	14.88
Preferred Stock redemption percentage									33.00%
Redemption of Series A preferred stock		37,447,000						25,000,000	12,500,000
Repurchase price															$ 2,100,000

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Parent Company Financial Information (Condensed Statements Of Cash Flows) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Net income	$ 23,449	$ 22,799	$ 21,287
Depreciation and amortization	3,828	3,466	3,537
Share-based compensation	526	1,105	1,031
Decrease in other assets	(4,249)	(7,756)	(353)
Increase (decrease) in other liabilities	7,429	5,057	5,261
Net cash provided by operating activities	38,700	32,018	35,427
Repurchase of warrant issued to U.S. Treasury		2,080
Repurchase of warrant issued to U.S. Treasury		(2,080)
Proceeds from stock options exercised	69	91	216
Net cash provided by financing activities	63,225	91,361	129,879
Net increase (decrease) in cash and cash equivalents	2,853	18,525	(3,901)
Cash and cash equivalents, beginning of period	57,583	39,058	42,959
Cash and cash equivalents, end of period	60,436	57,583	39,058
Parent Company [Member]
Net income	23,449	22,799	21,287
Equity in (undistributed earnings) excess distributions of subsidiary	(20,649)	(15,658)	211
Depreciation and amortization	65	116	193
Share-based compensation	526	1,105	1,031
Decrease in other assets	805	771	980
Increase (decrease) in other liabilities	44	(534)	8
Net cash provided by operating activities	4,240	8,599	23,710
Redemption of junior subordinated debentures		(16,702)
Proceeds from issuance of preferred and common shares, net of issuance costs		43,127
Purchase of preferred and common shares	(559)	(37,764)	(69)
Repurchase of warrant issued to U.S. Treasury		(2,080)
Proceeds from stock options exercised	69	91	216
Dividends paid	(8,866)	(7,564)	(7,690)
Other	97	20
Net cash provided by financing activities	(9,259)	(20,872)	(7,543)
Net increase (decrease) in cash and cash equivalents	(5,019)	(12,273)	16,167
Cash and cash equivalents, beginning of period	11,621	23,894	7,727
Cash and cash equivalents, end of period	$ 6,602	$ 11,621	$ 23,894

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2012

Shareholders' Equity [Abstract]

Changes In Shares Of Common Stock

	Outstanding		Treasury		Issued
2012
Shares outstanding at beginning of year	13,803,116		358,481		14,161,597
Restricted stock awards issued, net of forfeitures	7,857		(7,857	)	-
Stock options exercised	4,250		(4,250	)	-
Treasury stock purchases	(33,330	)	33,330		-
Directors' retainer	5,816		(5,816	)	-
Shares outstanding at end of year	13,787,709		373,888		14,161,597
2011
Shares outstanding at beginning of year	10,937,506		410,616		11,348,122
Shares issued in common stock offering	2,813,475		-		2,813,475
Restricted stock awards issued, net of forfeitures	51,070		(51,070	)	-
Stock options exercised	6,357		(6,357	)	-
Treasury stock purchases	(11,181	)	11,181		-
Directors' retainer	5,889		(5,889	)	-
Shares outstanding at end of year	13,803,116		358,481		14,161,597

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Investment Securities (Summary Of Amortized Cost And Fair Value Of Investment Securities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	$ 797,201	$ 605,045
Securities available for sale, Unrealized Gains	26,926	22,515
Securities available for sale, Unrealized Losses	331	42
Securities available for sale, Fair Value	823,796	627,518
Securities held to maturity, Amortized Cost	17,905	23,297
Securities held to maturity, Fair Value	18,478	23,964
U.S. Government Agencies And Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	128,097	94,947
Securities available for sale, Unrealized Gains	3,667	2,770
Securities available for sale, Unrealized Losses	69	5
Securities available for sale, Fair Value	131,695	97,712
State And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	188,997	119,099
Securities available for sale, Unrealized Gains	6,285	5,336
Securities available for sale, Unrealized Losses	72	11
Securities available for sale, Fair Value	195,210	124,424
Securities held to maturity, Amortized Cost	17,905	23,297
Securities held to maturity, Unrealized Gains	573	667
Securities held to maturity, Fair Value	18,478	23,964
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	479,986	390,702
Securities available for sale, Unrealized Gains	16,072	13,009
Securities available for sale, Unrealized Losses	190	26
Securities available for sale, Fair Value	495,868	403,685
Mortgage-Backed Securities [Member] | FNMA [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	147,946	98,679
Securities available for sale, Unrealized Gains	4,394	2,944
Securities available for sale, Unrealized Losses	188
Securities available for sale, Fair Value	152,152	101,623
Mortgage-Backed Securities [Member] | FHLMC [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	65,426	63,838
Securities available for sale, Unrealized Gains	1,430	1,017
Securities available for sale, Fair Value	66,856	64,855
Mortgage-Backed Securities [Member] | GNMA I [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	56,166	73,226
Securities available for sale, Unrealized Gains	3,279	3,376
Securities available for sale, Fair Value	59,445	76,602
Collateralized Mortgage Obligations [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	210,448	154,959
Securities available for sale, Unrealized Gains	6,969	5,672
Securities available for sale, Unrealized Losses	2	26
Securities available for sale, Fair Value	217,415	160,605
Collateralized Mortgage Obligations [Member] | FNMA [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	60,805	28,339
Securities available for sale, Unrealized Gains	1,865	581
Securities available for sale, Unrealized Losses	2	7
Securities available for sale, Fair Value	62,668	28,913
Collateralized Mortgage Obligations [Member] | FHLMC [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	78,581	22,318
Securities available for sale, Unrealized Gains	1,911	675
Securities available for sale, Unrealized Losses		1
Securities available for sale, Fair Value	80,492	22,992
Collateralized Mortgage Obligations [Member] | GNMA I [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	70,989	103,975
Securities available for sale, Unrealized Gains	2,168	2,654
Securities available for sale, Unrealized Losses		18
Securities available for sale, Fair Value	73,157	106,611
Collateralized Mortgage Obligations [Member] | Privately Issued [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	73	327
Securities available for sale, Unrealized Gains	1,025	1,762
Securities available for sale, Fair Value	1,098	2,089
Asset-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Securities available for sale, Amortized Cost	121	297
Securities available for sale, Unrealized Gains	902	1,400
Securities available for sale, Fair Value	$ 1,023	$ 1,697

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Goodwill And Other Intangible Assets (Estimated Core Deposit Intangible Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Goodwill And Other Intangible Assets [Abstract]
2013	$ 386
2014	341
2015	296
2016	251
2017	$ 205

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Consolidated Statements Of Financial Condition (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Cash and cash equivalents:
Cash and due from banks	$ 60,342	$ 57,489
Federal funds sold and interest-bearing deposits in other banks	94	94
Total cash and cash equivalents	60,436	57,583
Securities available for sale, at fair value	823,796	627,518
Securities held to maturity, at amortized cost (fair value of $18,478 and $23,964, respectively)	17,905	23,297
Loans held for sale	1,518	2,410
Loans (net of allowance for loan losses of $24,714 and $23,260, respectively)	1,681,012	1,461,516
Company owned life insurance	47,386	45,556
Premises and equipment, net	36,618	33,085
Goodwill and other intangible assets, net	50,820	37,369
Other assets	44,543	48,019
Total assets	2,764,034	2,336,353
Deposits:
Noninterest-bearing demand	501,514	393,421
Interest-bearing demand	449,744	362,555
Savings and money market	655,598	474,947
Certificates of deposit	654,938	700,676
Total deposits	2,261,794	1,931,599
Short-term borrowings	179,806	150,698
Other liabilities	68,537	16,862
Total liabilities	2,510,137	2,099,159
Commitments and contingencies (Note 10)
Shareholders' equity:
Total preferred equity	17,471	17,473
Common stock, $0.01 par value, 50,000,000 shares authorized; 14,161,597 shares issued	142	142
Additional paid-in capital	67,710	67,247
Retained earnings	172,244	158,079
Accumulated other comprehensive income	3,253	945
Treasury stock, at cost - 373,888 and 358,481 shares, respectively	(6,923)	(6,692)
Total shareholders' equity	253,897	237,194
Total liabilities and shareholders' equity	2,764,034	2,336,353
Series A 3% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	150	150
Series B-1 8.48% Preferred Stock [Member]
Shareholders' equity:
Total preferred equity	$ 17,321	$ 17,323

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Employee Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2012

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Reconciliation Of The Plan's Benefit Obligations, Fair Value Of Assets And The Funded Status

		2012			2011
Change in projected benefit obligation:
Projected benefit obligation at beginning of period	$	48,303		$	38,381
Service cost		2,037			1,756
Interest cost		2,017			2,027
Actuarial loss		3,291			7,939
Benefits paid and plan expenses		(2,023	)		(1,800	)
Projected benefit obligation at end of period		53,625			48,303
Change in plan assets:
Fair value of plan assets at beginning of period		46,943			38,731
Actual return on plan assets		4,865			12
Employer contributions		8,000			10,000
Benefits paid and plan expenses		(2,023	)		(1,800	)
Fair value of plan assets at end of period		57,785			46,943
Funded (unfunded) status at end of period	$	4,160		$	(1,360	)

Estimated Benefit Payments Under The Pension Plan

2013	$	1,637
2014		1,724
2015		1,882
2016		2,106
2017		2,284
2018 - 2022		13,128

Components Of Net Periodic Benefit Expense

		2012			2011			2010
Service cost	$	2,037		$	1,756		$	1,633
Interest cost on projected benefit obligation		2,017			2,027			1,933
Expected return on plan assets		(3,211	)		(2,653	)		(2,444	)
Amortization of unrecognized loss		1,370			608			458
Amortization of unrecognized prior service cost		20			19			11
Net periodic pension cost	$	2,233		$	1,757		$	1,591

Target Allocation, Percentage Of Plan Assets And Weighted Average Expected Rate Of Return

						Weighted
						Average
	2013	Percentage of Plan Assets				Expected
	Target	at December 31,				Long-term
	Allocation	2012		2011		Rate of Return
Asset category:
Cash equivalents	0– 20%	12.8	%	10.6	%	0.38	%
Equity securities	40– 60	45.5		47.9		3.95
Fixed income securities	40– 60	41.7		41.5		1.90
Other financial instruments	0– 5	-		-		-

The Major Categories Of Plan Assets Measured At Fair Value On a Recurring Basis

		Level 1	Level 2	Level 3	Total
		Inputs	Inputs	Inputs	Fair Value
2012
Cash equivalents:
Foreign currencies		60	-	-	60
Government issues		-	314	-	314
Short term investment funds		-	7,083	-	7,083
Total cash equivalents		60	7,397	-	7,457
Equity securities:
Common stock		25,447	-	-	25,447
Depository receipts		569	-	-	569
Preferred stock		113	-	-	113
Real estate investment fund		113	-	-	113
Total equity securities		26,242	-	-	26,242
Fixed income securities:
Auto loan receivable		-	313	-	313
Collateralized mortgage obligations		-	6,262	-	6,262
Corporate Bonds		-	5,456	-	5,456
FHLMC		-	717	-	717
FNMA		-	2,867	-	2,867
GNMA I		-	31	-	31
GNMA II		-	133	-	133
Government Issues		-	8,231	-	8,231
Municipals		-	63	-	63
Other Asset Backed		-	14	-	14
Total fixed income securities		-	24,087	-	24,087
Total Plan investments	$	26,302	31,484	-	57,786

		Level 1	Level 2	Level 3	Total
		Inputs	Inputs	Inputs	Fair Value
2011
Cash equivalents:
Foreign currencies		81	-	-	81
Short term investment funds		-	4,901	-	4,901
Total cash equivalents		81	4,901	-	4,982
Equity securities:
Common stock		21,951	-	-	21,951
Depository receipts		473	-	-	473
Preferred stock		69	-	-	69
Total equity securities		22,493	-	-	22,493
Fixed income securities:
Auto loan receivable		-	6	-	6
Collateralized mortgage obligations		-	4,587	-	4,587
Corporate Bonds		-	4,171	-	4,171
FHLMC		-	809	-	809
FNMA		-	2,500	-	2,500
GNMA I		-	34	-	34
GNMA II		-	175	-	175
Government Issues		-	7,078	-	7,078
Municipals		-	55	-	55
Other Asset Backed		-	53	-	53
Total fixed income securities		-	19,468	-	19,468
Total Plan investments	$	22,574	24,369	-	46,943

Components Of Accumulated Other Comprehensive Loss Related To Defined Benefit Plan And Postretirement Benefit Plan

		2012			2011
Defined benefit plan:
Net actuarial loss	$	(21,428	)	$	(21,160	)
Prior service cost		(93	)		(113	)
		(21,521	)		(21,273	)
Postretirement benefit plan:
Net actuarial loss		(195	)		(210	)
Prior service credit		508			575
		313			365
Total recognized in accumulated other comprehensive loss	$	(21,208	)	$	(20,908	)

Changes In Plan Assets And Benefit Obligations Recognized In Other Comprehensive Loss

		2012			2011
Defined benefit plan:
Net actuarial loss	$	(1,638	)	$	(10,580	)
Amortization of net loss		1,370			608
Amortization of prior service cost		20			19
		(248	)		(9,953	)
Postretirement benefit plan:
Net actuarial gain		15			42
Amortization of prior service credit		(67	)		(68	)
		(52	)		(26	)
Total recognized in other comprehensive loss	$	(300	)	$	(9,979	)

Net Periodic Pension Cost [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Actuarial Assumptions Used

	2012		2011		2010
Weighted average discount rate	4.27	%	5.38	%	5.89	%
Rate of compensation increase	3.00	%	3.00	%	3.50	%
Expected long-term rate of return	7.00	%	7.00	%	7.50	%

Projected Benefit Obligation [Member]

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Actuarial Assumptions Used

	2012		2011		2010
Weighted average discount rate	3.84	%	4.27	%	5.38	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%

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Earnings Per Common Share (Reconciliation Of Earnings And Shares Used In Calculating Basic And Diluted EPS) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Earnings Per Common Share [Abstract]
Net income available to common shareholders	$ 21,975	$ 19,617	$ 17,562
Less: Earnings allocated to participating securities	2	38	105
Net income available to common shareholders for EPS	$ 21,973	$ 19,579	$ 17,457
Total shares issued	14,162	13,599	11,348
Unvested restricted stock awards	(107)	(166)	(154)
Treasury shares	(359)	(366)	(427)
Total basic weighted average common shares outstanding	13,696	13,067	10,767
Exercise of stock options	4	3	6
Vesting of restricted stock awards	51	65	27
Exercise of warrant		22	45
Total diluted weighted average common shares outstanding	13,751	13,157	10,845
Basic earnings per common share	$ 1.60	$ 1.50	$ 1.62
Diluted earnings per common share	$ 1.60	$ 1.49	$ 1.61

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Parent Company Financial Information (Condensed Statements Of Income) (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended	12 Months Ended
	Aug. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Loss on extinguishment of debt	$ 1,100		$ 1,083
Income before income tax benefit and equity in undistributed earnings of subsidiary		34,768	34,214	30,639
Income tax benefit		(11,319)	(11,415)	(9,352)
Net income		23,449	22,799	21,287
Parent Company [Member]
Dividends from subsidiary and associated companies		4,000	9,233	23,151
Management and service fees from subsidiary		517	1,161	1,163
Other income (loss)		24	78	(134)
Total income		4,541	10,472	24,180
Operating expenses		2,732	3,787	4,005
Loss on extinguishment of debt			1,083
Total expenses		2,732	4,870	4,005
Income before income tax benefit and equity in undistributed earnings of subsidiary		1,809	5,602	20,175
Income tax benefit		991	1,539	1,323
Income before equity in undistributed earnings of subsidiary		2,800	7,141	21,498
Equity in undistributed earnings (excess distributions) of subsidiary		20,649	15,658	(211)
Net income		$ 23,449	$ 22,799	$ 21,287

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Consolidated Statement Of Changes In Shareholders' Equity (USD $) In Thousands, unless otherwise specified	Series A 3% Preferred Stock [Member] Retained Earnings [Member]	Series A 3% Preferred Stock [Member]	Series A Preferred Stock [Member] Retained Earnings [Member]	Series A Preferred Stock [Member]	Series B-1 8.48% Preferred Stock [Member] Retained Earnings [Member]	Series B-1 8.48% Preferred Stock [Member]	Preferred Equity [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2009							$ 53,418	$ 113	$ 26,940	$ 131,371	$ (3,702)	$ (9,846)	$ 198,294
Comprehensive income:
Net income										21,287			21,287
Other comprehensive income (loss), net of tax											(1,020)		(1,020)
Total Comprehensive income													20,267
Purchases of common stock for treasury												(69)	(69)
Share-based compensation plans:
Share-based compensation									1,031				1,031
Stock options exercised									(74)			290	216
Restricted stock awards issued, net									(1,853)			1,853
Directors ' retainer									(15)			112	97
Accretion of discount on Series A preferred stock							367			(367)			(367)
Cash dividends declared:
Preferred stock dividends	(5)	(5)	(1,876)	(1,876)	(1,477)	(1,477)							(3,358)
Common- dividend per share										(4,334)			(4,334)
Balance at Dec. 31, 2010							53,785	113	26,029	144,599	(4,722)	(7,660)	212,144
Comprehensive income:
Net income										22,799			22,799
Other comprehensive income (loss), net of tax											5,667		5,667
Total Comprehensive income													28,466
Issuance of common stock								29	43,098				43,127
Purchases of common stock for treasury												(215)	(215)
Repurchase of Series A 3% preferred stock							(3)						(3)
Repurchase of warrant issued to U.S. Treasury									(2,080)				(2,080)
Redemption of Series A preferred stock							(37,515)		68				(37,447)
Repurchase of Series B-1 8.48% preferred stock							(99)						(99)
Share-based compensation plans:
Share-based compensation									1,105				1,105
Stock options exercised									(28)			119	91
Restricted stock awards issued, net									(954)			954
Excess tax benefit on share-based compensation									21				21
Directors ' retainer									(12)			110	98
Accretion of discount on Series A preferred stock							1,305			(1,305)			(1,305)
Cash dividends declared:
Preferred stock dividends	(5)	(5)	(399)	(399)	(1,473)	(1,473)							(1,877)
Common- dividend per share										(6,137)			(6,137)
Balance at Dec. 31, 2011							17,473	142	67,247	158,079	945	(6,692)	237,194
Comprehensive income:
Net income										23,449			23,449
Other comprehensive income (loss), net of tax											2,308		2,308
Total Comprehensive income													25,757
Purchases of common stock for treasury												(557)	(557)
Repurchase of Series B-1 8.48% preferred stock							(2)						(2)
Share-based compensation plans:
Share-based compensation									526				526
Stock options exercised									(10)			79	69
Restricted stock awards issued, net									(140)			140
Excess tax benefit on share-based compensation									97				97
Directors ' retainer									(10)			107	97
Cash dividends declared:
Preferred stock dividends	(5)	(5)			(1,469)	(1,469)							(1,474)
Common- dividend per share										(7,810)			(7,810)
Balance at Dec. 31, 2012							$ 17,471	$ 142	$ 67,710	$ 172,244	$ 3,253	$ (6,923)	$ 253,897

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Income Taxes (Income Tax Expense Allocation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Abstract]
Income tax expense	$ 11,319	$ 11,415	$ 9,352
Shareholder's equity	$ 1,514	$ 3,718	$ (763)

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Loans Held For Sale And Loan Servicing Rights (Narrative) (Details) (USD $)			12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2011 Indirect Auto Loans [Member]	Dec. 31, 2012 Loan Servicing Assets [Member]	Dec. 31, 2011 Loan Servicing Assets [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 1,518,000	$ 2,410,000	$ 13,000,000
Residential real estate mortgages serviced for others	273,300,000	297,800,000
Escrow and other custodial funds	5,600,000	5,900,000
Gain on sale of loans			153,000
Other assets	$ 44,543,000	$ 48,019,000		$ 250,000	$ 574,000
Participation agreement percentage, numerator			90.00%
Participation agreement percentage, denominator			10.00%

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Employee Benefit Plans (Reconciliation Of The Plan's Benefit Obligations, Fair Value Of Assets And The Funded Status) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Employee Benefit Plans [Abstract]
Projected benefit obligation at beginning of period	$ 48,303	$ 38,381
Service cost	2,037	1,756	1,633
Interest cost	2,017	2,027	1,933
Actuarial loss	3,291	7,939
Benefits paid and plan expenses	(2,023)	(1,800)
Projected benefit obligation at end of period	53,625	48,303	38,381
Fair value of plan assets at beginning of period	46,943	38,731
Actual return on plan assets	4,865	12
Employer contributions	8,000	10,000
Fair value of plan assets at end of period	57,785	46,943	38,731
Funded (unfunded) status at end of period	$ 4,160	$ (1,360)

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Goodwill And Other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2012

Goodwill And Other Intangible Assets [Abstract]

Change In The Balance For Goodwill

		2012		2011
Goodwill, beginning of year	$	37,369	$	37,369
Branch acquisitions		11,599		-
Impairment		-		-
Goodwill, end of year	$	48,968	$	37,369

Estimated Core Deposit Intangible Amortization Expense

2013	$	386
2014		341
2015		296
2016		251
2017		205

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Loans (Summary Of Impaired Loans) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012		Dec. 31, 2011		Dec. 31, 2010
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	$ 1,874	[1]	$ 947	[1]
Recorded Investment, With an allowance recorded	3,338	[1]	3,240	[1]
Recorded Investment	5,212	[1]	4,187	[1]
Unpaid Principal Balance, With no related allowance recorded	2,427	[1]	1,962	[1]
Unpaid Principal Balance, With an allowance recorded	3,338	[1]	3,240	[1]
Unpaid Principal Balance	5,765	[1]	5,202	[1]
Related Allowance	974		1,080
Average Recorded Investment, With no related allowance recorded	2,065		944
Average Recorded Investment, With an allowance recorded	3,972		3,205
Average Recorded Investment	6,037		4,149		4,500
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	963	[1]	342	[1]
Recorded Investment, With an allowance recorded	2,450	[1]	917	[1]
Unpaid Principal Balance, With no related allowance recorded	1,425	[1]	1,266	[1]
Unpaid Principal Balance, With an allowance recorded	2,450	[1]	917	[1]
Related Allowance	664		436
Average Recorded Investment, With no related allowance recorded	755		361
Average Recorded Investment, With an allowance recorded	2,114		1,033
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	911	[1]	605	[1]
Recorded Investment, With an allowance recorded	888	[1]	2,323	[1]
Unpaid Principal Balance, With no related allowance recorded	1,002	[1]	696	[1]
Unpaid Principal Balance, With an allowance recorded	888	[1]	2,323	[1]
Related Allowance	310		644
Average Recorded Investment, With no related allowance recorded	1,310		583
Average Recorded Investment, With an allowance recorded	1,858		2,172
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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Share-Based Compensation

12 Months Ended

Dec. 31, 2012

Share-Based Compensation [Abstract]

Share-Based Compensation

(14.) SHARE-BASED COMPENSATION

The Company maintains certain stock-based compensation plans, approved by the Company's shareholders that are administered by the Board, or the Management Development and Compensation Committee (the "Compensation Committee") of the Board. In May 2009, the shareholders of the Company approved two share-based compensation plans, the 2009 Management Stock Incentive Plan ("Management Plan") and the 2009 Directors' Stock Incentive Plan ("Director's Plan"), and collectively with the Management Plan, "the Plans". An aggregate of 690,000 shares of the Company's common stock have been reserved for issuance by the Company under the terms of the Management Plan pursuant to the grant of incentive stock options (not to exceed 500,000 shares), non-qualified stock options and restricted stock grants, all which are defined in the plan. An aggregate of 250,000 shares of the Company's common stock have been reserved for issuance by the Company under the terms of the Director's Plan pursuant to the grant of non-qualified stock options and restricted stock grants, all which are defined in the plan. Under both plans, for purposes of calculating the number of shares of common stock available for issuance, each share of common stock granted pursuant to a restricted stock grant shall count as 1.64 shares of common stock. As of December 31, 2012, there were approximately 200,000 and 451,000 shares available for grant under the Director's Plan and Management Plan, respectively, of which 61% were available for issuance as restricted stock grants.

Under the Plans, the Board, in the case of the Director's Plan, or the Compensation Committee, in the case of the Management Plan, may establish and prescribe grant guidelines including various terms and conditions for the granting of stock-based compensation. For stock options, the exercise price of each option equals the market price of the Company's stock on the date of the grant. All options expire after a period of ten years from the date of grant and generally become fully exercisable over a period of 3 to 5 years from the grant date. When option recipients exercise their options, the Company issues shares from treasury stock and records the proceeds as additions to capital. Shares of restricted stock granted to employees generally vest over 2 to 3 years from the grant date. Fifty percent of the shares of restricted stock granted to non-employee directors generally vests on the date of grant and the remaining fifty percent generally vests one year from the grant date. Vesting of the shares may be based on years of service, established performance measures or both. If restricted stock grants are forfeited before they vest, the shares are reacquired into treasury stock.

The share-based compensation plans were established to allow for the granting 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 share-based compensation expense for the years ended December 31 was as follows (in thousands):

		2012		2011		2010
Stock options:
Management Stock Incentive Plan	$	12	$	55	$	110
Director Stock Incentive Plan		-		14		43
Total stock options		12		69		153
Restricted stock awards:
Management Stock Incentive Plan		382		917		761
Director Stock Incentive Plan		132		119		117
Total restricted stock awards		514		1,036		878
Total share-based compensation	$	526	$	1,105	$	1,031

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 2012, 2011 or 2010. There was no unrecognized compensation expense related to unvested stock options as of December 31, 2012. The following is a summary of stock option activity for the year ended December 31, 2012 (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	368,058		$	20.70
Granted	-			-
Exercised	(4,250	)		15.85
Forfeited	-			-
Expired	(44,533	)		24.55
Outstanding at end of period	319,275		$	20.22	2.6 years	$	71
Exercisable at end of period	319,275		$	20.22	2.6 years	$	71

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 years ended December 31, 2012, 2011 and 2010 was $10 thousand, $31 thousand, and $59 thousand, respectively. The total cash received as a result of option exercises under stock compensation plans for the years ended December 31, 2012, 2011 and 2010 was $69 thousand, $91 thousand, and $216 thousand, respectively. The tax benefits realized in connection with these stock option exercises were not significant.

The following is a summary of restricted stock award activity for the year ended December 31, 2012:

				Weighted
				Average
				Market
	Number of			Price at
	Shares			Grant Date
Outstanding at beginning of year	166,654		$	14.34
Granted	57,541			17.32
Vested	(94,931	)		12.79
Forfeited	(49,684	)		16.67
Outstanding at end of period	79,580		$	16.89

As of December 31, 2012, there was $458 thousand of unrecognized compensation expense related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 1.31 years.

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Deposits (Tables)

12 Months Ended

Dec. 31, 2012

Deposits:

Summary Of Deposits

		2012		2011
Noninterest-bearing demand	$	501,514	$	393,421
Interest-bearing demand		449,744		362,555
Savings and money market		655,598		474,947
Certificates of deposit, due:
Within one year		495,423		547,874
One to two years		91,052		84,687
Two to three years		35,993		17,974
Three to five years		31,721		50,000
Thereafter		749		141
Total certificates of deposit		654,938		700,676
Total deposits	$	2,261,794	$	1,931,599

Interest Expense By Deposits Type

		2012		2011		2010
Interest-bearing demand	$	598	$	614	$	705
Savings and money market		998		1,056		1,133
Certificates of deposit		6,866		9,764		13,015
Total interest expense on deposits	$	8,462	$	11,434	$	14,853

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Employee Benefit Plans (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Accumulated benefit obligation	$ 48,000,000	$ 43,300,000
Contribution to pension plan in excess of minimum required contribution	8,000,000
Investment strategy, percentage in long-term growth	97.00%
Investment strategy, percentage in near-term benefit payments	3.00%
Maximum percentage of securities purchasing allowed of the portfolio at any time	5.00%
Maximum market value purchase percentage allowed of any one issuer	8.00%
Expense included in salaries and employee benefits	1,000,000	1,000,000	936,000
Postretirement Benefit Plan, Accrued liabilities	118,000	122,000
Estimated net loss for the plan that will be amortized from accumulated other comprehensive income	1,300,000
Estimated prior service cost for the plan that will be amortized from accumulated other comprehensive income	20,000
Maximum percent of participant's contribution match	4.50%
Street Bank & Trust Co. Short Term Investment Fund [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentage of Plan Assets	12.00%	10.00%
Investment Firm One [Member]
Defined Benefit Plan Disclosure [Line Items]
Portfolio management, controlled percentage	49.00%
Investment Firm Two [Member]
Defined Benefit Plan Disclosure [Line Items]
Portfolio management, controlled percentage	43.00%
Defined Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Portfolio management, controlled percentage	8.00%
First 3% Of Participant's Contribution [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentage employer matches of the employee's percentage contribution matched	100.00%
Percentage for which the employer contributes a matching contribution	3.00%
Next 3% Of Participant's Contribution [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentage employer matches of the employee's percentage contribution matched	50.00%
Percentage for which the employer contributes a matching contribution	3.00%
SERP [Member]
Defined Benefit Plan Disclosure [Line Items]
Unfunded pension liability	2,200,000	1,000,000
Pension expense	$ 1,300,000	$ 67,000	$ 262,000

XML

Earnings Per Common Share

12 Months Ended

Dec. 31, 2012

Earnings Per Common Share [Abstract]

Earnings Per Common Share

(16.) EARNINGS PER COMMON SHARE

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS for each of the years ended December 31 (in thousands, except per share amounts).

		2012			2011			2010
Net income available to common shareholders	$	21,975		$	19,617		$	17,562
Less: Earnings allocated to participating securities		2			38			105
Net income available to common shareholders for EPS	$	21,973		$	19,579		$	17,457
Weighted average common shares outstanding:
Total shares issued		14,162			13,599			11,348
Unvested restricted stock awards		(107	)		(166	)		(154	)
Treasury shares		(359	)		(366	)		(427	)
Total basic weighted average common shares outstanding		13,696			13,067			10,767
Incremental shares from assumed:
Exercise of stock options		4			3			6
Vesting of restricted stock awards		51			65			27
Exercise of warrant		-			22			45
Total diluted weighted average common shares outstanding		13,751			13,157			10,845
Basic earnings per common share	$	1.60		$	1.50		$	1.62
Diluted earnings per common share	$	1.60		$	1.49		$	1.61

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	303	339	353
Restricted stock awards	1	-	-
	304	339	353

XML

Loans (Changes In The Allowance For Loan Losses) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 23,260	$ 20,466	$ 20,741
Charge-offs	(9,568)	(8,288)	(9,816)
Recoveries	3,894	3,302	2,854
Provision (credit)	7,128	7,780	6,687
Ending balance	24,714	23,260	20,466
Allowance for loan losses, Individually Evaluated for impairment	974	1,080	1,032
Allowance for loan losses, Collectively Evaluated for impairment	23,740	22,180	19,434
Loans, Ending balance	1,675,453	1,459,424	1,325,266
Loans, Individually Evaluated for impairment	5,212	4,187	4,048
Loans, Collectively Evaluated for impairment	1,670,241	1,455,237	1,321,218
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	4,036	3,712	4,407
Charge-offs	(729)	(1,346)	(3,426)
Recoveries	336	401	326
Provision (credit)	1,241	1,269	2,405
Ending balance	4,884	4,036	3,712
Allowance for loan losses, Individually Evaluated for impairment	664	436	149
Allowance for loan losses, Collectively Evaluated for impairment	4,220	3,600	3,563
Loans, Ending balance	258,706	233,727	210,948
Loans, Individually Evaluated for impairment	3,413	1,259	948
Loans, Collectively Evaluated for impairment	255,293	232,468	210,000
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	6,418	6,431	6,638
Charge-offs	(745)	(751)	(263)
Recoveries	261	245	501
Provision (credit)	647	493	(445)
Ending balance	6,581	6,418	6,431
Allowance for loan losses, Individually Evaluated for impairment	310	644	883
Allowance for loan losses, Collectively Evaluated for impairment	6,271	5,774	5,548
Loans, Ending balance	414,282	394,034	353,537
Loans, Individually Evaluated for impairment	1,799	2,928	3,100
Loans, Collectively Evaluated for impairment	412,483	391,106	350,437
Residential Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	858	1,013	1,251
Charge-offs	(326)	(152)	(290)
Recoveries	130	90	21
Provision (credit)	78	(93)	31
Ending balance	740	858	1,013
Allowance for loan losses, Collectively Evaluated for impairment	740	858	1,013
Loans, Ending balance	133,341	113,865	129,553
Loans, Collectively Evaluated for impairment	133,341	113,865	129,553
Home Equity [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,242	972	1,043
Charge-offs	(305)	(449)	(259)
Recoveries	44	44	36
Provision (credit)	301	675	152
Ending balance	1,282	1,242	972
Allowance for loan losses, Collectively Evaluated for impairment	1,282	1,242	972
Loans, Ending balance	282,503	227,853	205,070
Loans, Collectively Evaluated for impairment	282,503	227,853	205,070
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	10,189	7,754	6,837
Charge-offs	(6,589)	(4,713)	(4,669)
Recoveries	2,769	2,066	1,485
Provision (credit)	4,346	5,082	4,101
Ending balance	10,715	10,189	7,754
Allowance for loan losses, Collectively Evaluated for impairment	10,715	10,189	7,754
Loans, Ending balance	559,964	465,807	400,221
Loans, Collectively Evaluated for impairment	559,964	465,807	400,221
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	517	584	565
Charge-offs	(874)	(877)	(909)
Recoveries	354	456	485
Provision (credit)	515	354	443
Ending balance	512	517	584
Allowance for loan losses, Collectively Evaluated for impairment	512	517	584
Loans, Ending balance	26,657	24,138	25,937
Loans, Collectively Evaluated for impairment	$ 26,657	$ 24,138	$ 25,937

XML

Fair Value Measurements (Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012		Dec. 31, 2011
Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	$ 2,364	[1]
Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,719
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	184	[1]
Measured On A Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	823,796		627,518
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]
Assets at fair value	131,695		97,712
Measured On A Recurring Basis [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	195,210		124,424
Measured On A Recurring Basis [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	495,868		403,685
Measured On A Recurring Basis [Member] | Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	754		1,636
Measured On A Recurring Basis [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	269		61
Measured On A Recurring 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 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]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
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]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	823,796		625,882
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]
Assets at fair value	131,695		97,712
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	195,210		124,424
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]
Assets at fair value	495,868		403,685
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	754
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	269		61
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value			1,636
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]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | State And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
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]
Assets at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Trust Preferred Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value			1,636
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Other [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	5,785		7,018
Measured On A Nonrecurring Basis [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,518		2,410
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	2,364		2,160
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	1,719		1,973
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	184		475
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Loan Servicing Rights [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 1 Inputs [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,518		2,410
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets at fair value	1,518		2,410
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	4,267		4,608
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	2,364		2,160
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	1,719		1,973
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	$ 184		$ 475

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

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Consolidated Statement Of Changes In Shareholders' Equity (Parenthetical) (USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Common stock dividends per share, declared	$ 0.57	$ 0.47	$ 0.40
Series A 3% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 3.00	$ 3.00	$ 3.00
Series A Preferred Stock [Member]
Preferred stock dividends per share, declared		$ 53.24	$ 250.00
Series B-1 8.48% Preferred Stock [Member]
Preferred stock dividends per share, declared	$ 8.48	$ 8.48	$ 8.48

XML

Consolidated Statements Of Financial Condition (Parenthetical) (Series A 3% Preferred Stock [Member], USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	1,533	1,533
Preferred stock, shares issued	1,499	1,500

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Borrowings

12 Months Ended

Dec. 31, 2012

Borrowings [Abstract]

Borrowings

(9.) BORROWINGS

There were no long-term borrowings outstanding as of December 31, 2012 and 2011. Outstanding short-term borrowings are summarized as follows as of December 31 (in thousands):

		2012		2011
Short-term borrowings:
Federal funds purchased	$	-	$	11,597
Repurchase agreements		40,806		36,301
Short-term FHLB borrowings		139,000		102,800
Total short-term borrowings	$	179,806	$	150,698

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the agreement. At December 31, 2012, the Company's short-term borrowings had a weighted average rate of 0.54%.

Short-term Borrowings

Federal funds purchased are short-term borrowings that typically mature within one to ninety days. Short-term repurchase agreements are secured overnight borrowings with customers. Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which the Company typically utilizes to address short term funding needs as they arise. Short-term FHLB borrowings at December 31, 2012 consisted of $99.0 million in overnight borrowings and $40.0 million in short-term advances. Short-term FHLB borrowings at December 31, 2011 consisted of $65.0 million in overnight borrowings and $37.8 million in short-term advances.

Long-term Borrowings

The Company has credit capacity with the FHLB and can borrow through facilities that include an overnight line of credit, amortizing and term advances, and repurchase agreements. The FHLB credit capacity is collateralized by securities from the Company's investment portfolio and certain qualifying loans. The Company may be required to provide additional collateral based on the fair value of the underlying securities. There were no FHLB borrowings outstanding as of December 31, 2012 and 2011.

In February 2001, the Company formed Financial Institutions Statutory Trust I (the "Trust") for the sole purpose of issuing trust preferred securities. The Company's $502 thousand investment in the common equity of the Trust was classified in the consolidated statements of financial condition as other assets and $16.7 million of related 10.20% junior subordinated debentures were classified as long-term borrowings. In 2001, the Company incurred costs relating to the issuance of the debentures totaling $487 thousand. These costs, which were included in other assets on the consolidated statements of financial condition, were deferred and were being amortized to interest expense using the straight-line method over a twenty year period.

In August 2011, the Company redeemed all of the 10.20% junior subordinated debentures at a redemption price equaling 105.1% of the principal amount redeemed, plus all accrued and unpaid interest. As a result of the redemption, the Company recognized a loss on extinguishment of debt of $1.1 million, consisting of the redemption premium of $852 thousand and the write-off of the remaining unamortized issuance costs of $231 thousand.

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Employee Benefit Plans (Actuarial Assumptions Used, Projected Benefit Obligation) (Details)	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Employee Benefit Plans [Abstract]
Weighted average discount rate	3.84%	4.27%	5.38%
Rate of compensation increase	3.00%	3.00%	3.00%

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Income Taxes (Income Tax Expense Differed From Statutory Federal Income Tax Rate) (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Abstract]
Statutory federal tax rate	35.00%	35.00%	35.00%
Tax exempt interest income	(4.60%)	(4.30%)	(4.20%)
Non-taxable earnings on company owned life insurance	(1.80%)	(1.50%)	(1.30%)
State taxes, net of federal tax benefit	3.80%	4.00%	1.50%
Nondeductible expenses	0.30%	0.40%	0.60%
Other, net	(0.10%)	(0.20%)	(1.10%)
Effective tax rate	32.60%	33.40%	30.50%

XML

Income Taxes (Narrative) (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Federal [Member]
Income Tax Contingency [Line Items]
Federal income tax years currently open for audtis	2012	2011	2010	2009	2008	2007
New York State [Member]
Income Tax Contingency [Line Items]
Federal income tax years currently open for audtis	2012	2011	2010	2009

XML

Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2012	Mar. 01, 2013	Jun. 30, 2012
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2012
Document Fiscal Period Focus	FY
Document Fiscal Year Focus	2012
Entity Registrant Name	FINANCIAL INSTITUTIONS INC
Entity Central Index Key	0000862831
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		13,803,158
Entity Well-known Seasoned Issuer	No
Entity Public Float			$ 216,222,000
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No

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Commitments And Contingencies

12 Months Ended

Dec. 31, 2012

Commitments And Contingencies [Abstract]

Commitments And Contingencies

(10.) COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

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 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 as of December 31 consist of the following (in thousands):

		2012		2011
Commitments to extend credit	$	435,948	$	374,266
Standby letters of credit		9,223		8,855

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

The Company also extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters 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 $1.8 million and $2.9 million at December 31, 2012 and 2011, 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.

Lease Obligations

The Company is obligated under a number of noncancellable operating lease agreements for land, buildings and equipment. Certain of these leases provide for escalation clauses and contain renewal options calling for increased rentals if the lease is renewed. Future minimum payments by year and in the aggregate, under the noncancellable leases with initial or remaining terms of one year or more, are as follows at December 31, 2012 (in thousands):

2013	$	1,433
2014		1,384
2015		1,305
2016		1,197
2017		826
Thereafter		4,347
	$	10,492

Rent expense relating to these operating leases, included in occupancy and equipment expense in the statements of income, was $1.6 million, $1.5 million and $1.4 million in 2012, 2011 and 2010, respectively.

Contingent Liabilities

In the ordinary course of business there are various threatened and pending legal proceedings against the Company. Based on consultation with outside legal counsel, management believes that the aggregate liability, if any, arising from such litigation would not have a material adverse effect on the Company's consolidated financial statements.

XML

Commitments And Contingencies (Leases Future Minimum Payments By Years And In The Aggregate) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Commitments And Contingencies [Abstract]
2013	$ 1,433
2014	1,384
2015	1,305
2016	1,197
2017	826
Thereafter	4,347
Lease obligations, total	$ 10,492

XML

Share-Based Compensation (Summary Of Restricted Stock Award Activity) (Details) (USD $)	12 Months Ended
	Dec. 31, 2012
Share-Based Compensation [Abstract]
Outstanding at beginning of year, Number of Shares	166,654
Granted, Number of Shares	57,541
Vested, Number of Shares	(94,931)
Forfeited, number of shares	(49,684)
Outstanding at end of period, Number of Shares	79,580
Outstanding at beginning of year, Weighted Average Market Price at Grant Date	$ 14.34
Granted, Weighted Average Market Price at Grant Date	$ 17.32
Vested, Weighted Average Market Price at Grant Date	$ 12.79
Forfeited, Weighted Average Market Price at Grant Date	$ 16.67
Outstanding at end of period, Weighted Average Market Price at Grant Date	$ 16.89

XML

Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Interest income:
Interest and fees on loans	$ 81,123	$ 77,105	$ 75,877
Interest and dividends on investment securities	16,444	18,013	20,622
Other interest income			10
Total interest income	97,567	95,118	96,509
Interest expense:
Deposits	8,462	11,434	14,853
Short-term borrowings	589	500	365
Long-term borrowings		1,321	2,502
Total interest expense	9,051	13,255	17,720
Net interest income	88,516	81,863	78,789
Provision for loan losses	7,128	7,780	6,687
Net interest income after provision for loan losses	81,388	74,083	72,102
Noninterest income:
Service charges on deposits	8,627	8,679	9,585
ATM and debit card	4,716	4,359	3,995
Broker-dealer fees and commissions	2,104	1,829	1,283
Company owned life insurance	1,751	1,424	1,107
Loan servicing	617	835	1,124
Net gain on sale of loans held for sale	1,421	880	650
Net gain on disposal of investment securities	2,651	3,003	169
Impairment charges on investment securities	(91)	(18)	(594)
Net (loss) gain on sale and disposal of other assets	(381)	67	(203)
Other	3,362	2,867	2,338
Total noninterest income	24,777	23,925	19,454
Noninterest expense:
Salaries and employee benefits	40,127	35,743	32,844
Occupancy and equipment	11,419	10,868	10,818
Professional services	4,133	2,617	2,197
Computer and data processing	3,271	2,437	2,487
Supplies and postage	2,497	1,778	1,772
FDIC assessments	1,300	1,513	2,507
Advertising and promotions	929	1,259	1,121
Loss on extinguishment of debt		1,083
Other	7,721	6,496	7,171
Total noninterest expense	71,397	63,794	60,917
Income before income taxes	34,768	34,214	30,639
Income tax expense	11,319	11,415	9,352
Net income	23,449	22,799	21,287
Preferred stock dividends	1,474	1,877	3,358
Accretion of discount on Series A preferred stock		1,305	367
Net income available to common shareholders	$ 21,975	$ 19,617	$ 17,562
Earnings per common share (Note 16):
Basic	$ 1.60	$ 1.50	$ 1.62
Diluted	$ 1.60	$ 1.49	$ 1.61
Cash dividends declared per common share	$ 0.57	$ 0.47	$ 0.40
Weighted average common shares outstanding:
Basic	13,696	13,067	10,767
Diluted	13,751	13,157	10,845

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Loans Held For Sale And Loan Servicing Rights

12 Months Ended

Dec. 31, 2012

Loans Held For Sale And Loan Servicing Rights [Abstract]

Loans Held For Sale And Loan Servicing Rights

(4.) LOANS HELD FOR SALE AND LOAN SERVICING RIGHTS

Loans held for sale were entirely comprised of residential real estate mortgages and totaled $1.5 million and $2.4 million as of December 31, 2012 and 2011, respectively.

The Company sells 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 $273.3 million and $297.8 million as of December 31, 2012 and 2011, respectively. In connection with these mortgage-servicing activities, the Company administered escrow and other custodial funds which amounted to approximately $5.6 million and $5.9 million as of December 31, 2012 and 2011, respectively.

The activity in capitalized mortgage servicing assets is summarized as follows for the years ended December 31 (in thousands):

		2012			2011			2010
Mortgage servicing assets, beginning of year	$	1,609		$	1,642		$	1,534
Originations		554			319			408
Amortization		(526	)		(352	)		(300	)
Mortgage servicing assets, end of year		1,637			1,609			1,642
Valuation allowance		(168	)		(210	)		(175	)
Mortgage servicing assets, net, end of year	$	1,469		$	1,399		$	1,467

During 2011, the Company sold $13.0 million of indirect auto loans under a 90%/10% participation agreement, recognizing a gain of $153 thousand. The loans were reclassified from portfolio to loans held for sale during the second quarter of 2011. The loan servicing asset for these loans, included in other assets in the consolidated statements of financial condition, was $250 thousand and $574 thousand as of December 31, 2012 and 2011, respectively. The Company will continue to service the loans for a fee in accordance with the participation agreement.

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Investment Securities

12 Months Ended

Dec. 31, 2012

Investment Securities [Abstract]

Investment Securities

(3.) INVESTMENT SECURITIES

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

		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
December 31, 2012
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	128,097	$	3,667		$	69	$	131,695
State and political subdivisions		188,997		6,285			72		195,210
Mortgage-backed securities:
Federal National Mortgage Association		147,946		4,394			188		152,152
Federal Home Loan Mortgage Corporation		65,426		1,430			-		66,856
Government National Mortgage Association		56,166		3,279			-		59,445
Collateralized mortgage obligations:
Federal National Mortgage Association		60,805		1,865			2		62,668
Federal Home Loan Mortgage Corporation		78,581		1,911			-		80,492
Government National Mortgage Association		70,989		2,168			-		73,157
Privately issued		73		1,025			-		1,098
Total collateralized mortgage obligations		210,448		6,969			2		217,415
Total mortgage-backed securities		479,986		16,072			190		495,868
Asset-backed securities		121		902			-		1,023
Total available for sale securities	$	797,201	$	26,926	$		331	$	823,796
Securities held to maturity:
State and political subdivisions	$	17,905	$	573		$	-	$	18,478
December 31, 2011
Securities available for sale:
U.S. Government agencies and government
sponsored enterprises	$	94,947	$	2,770		$	5	$	97,712
State and political subdivisions		119,099		5,336			11		124,424
Mortgage-backed securities:
Federal National Mortgage Association		98,679		2,944			-		101,623
Federal Home Loan Mortgage Corporation		63,838		1,017			-		64,855
Government National Mortgage Association		73,226		3,376			-		76,602
Collateralized mortgage obligations:
Federal National Mortgage Association		28,339		581			7		28,913
Federal Home Loan Mortgage Corporation		22,318		675			1		22,992
Government National Mortgage Association		103,975		2,654			18		106,611
Privately issued		327		1,762			-		2,089
Total collateralized mortgage obligations		154,959		5,672			26		160,605
Total mortgage-backed securities		390,702		13,009			26		403,685
Asset-backed securities		297		1,400			-		1,697
Total available for sale securities	$	605,045	$	22,515		$	42	$	627,518
Securities held to maturity:
State and political subdivisions	$	23,297	$	667		$	-	$	23,964

Interest and dividends on securities for the years ended December 31 are summarized as follows (in thousands):

		2012		2011		2010
Taxable interest and dividends	$	12,202	$	14,185	$	17,101
Tax-exempt interest and dividends		4,242		3,828		3,521
Total interest and dividends on securities	$	16,444	$	18,013	$	20,622

Sales and calls of securities available for sale for the years ended December 31 were as follows (in thousands):

		2012		2011		2010
Proceeds from sales	$	2,823	$	44,514	$	122,090
Gross realized gains		2,651		3,051		173
Gross realized losses		-		48		4

The scheduled maturities of securities available for sale and securities held to maturity at December 31, 2012 are shown below. Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations (in thousands).

		Amortized		Fair
		Cost		Value
Debt securities available for sale:
Due in one year or less	$	28,967	$	29,165
Due from one to five years		94,479		98,341
Due after five years through ten years		318,124		326,802
Due after ten years		355,631		369,488
	$	797,201	$	823,796
Debt securities held to maturity:
Due in one year or less	$	12,886	$	12,974
Due from one to five years		4,164		4,455
Due after five years through ten years		768		931
Due after ten years		87		118
	$	17,905	$	18,478

There were no unrealized losses in held to maturity securities at December 31, 2012 or December 31, 2011. Unrealized losses on investment securities available for sale and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31 are summarized 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
December 31, 2012
U.S. Government agencies and government
sponsored enterprises	$	13,265	$	67	$	2,967	$	2	$	16,232	$	69
State and political subdivisions		8,471		72		-		-		8,471		72
Mortgage-backed securities:
Federal National Mortgage Association		25,200		188		-		-		25,200		188
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,173		2		1,173		2
Total collateralized mortgage obligations		-		-		1,173		2		1,173		2
Total mortgage-backed securities		25,200		188		1,173		2		26,373		190
Total temporarily impaired securities	$	46,936	$	327	$	4,140	$	4	$	51,076	$	331
December 31, 2011
U.S. Government agencies and government
sponsored enterprises	$	2,177	$	1	$	5,246	$	4	$	7,423	$	5
State and political subdivisions		452		2		646		9		1,098		11
Mortgage-backed securities:
Collateralized mortgage obligations:
Federal National Mortgage Association		-		-		1,817		7		1,817		7
Federal Home Loan Mortgage Corporation		-		-		388		1		388		1
Government National Mortgage Association		6,138		18		-		-		6,138		18
Total collateralized mortgage obligations		6,138		18		2,205		8		8,343		26
Total mortgage-backed securities		6,138		18		2,205		8		8,343		26
Total temporarily impaired securities	$	8,767	$	21	$	8,097	$	21	$	16,864	$	42

The total number of security positions in the investment portfolio in an unrealized loss position at December 31, 2012 was 52 compared to 14 at December 31, 2011. At December 31, 2012, the Company had positions in six investment securities with an amortized cost of $4.1 million and an unrealized loss of $4 thousand that have been in a continuous unrealized loss position for more than 12 months. There were a total of 46 securities positions in the Company's investment portfolio, with an amortized cost of $47.3 million and a total unrealized loss of $327 thousand at December 31, 2012, that have been in a continuous unrealized loss position for less than 12 months. The unrealized loss on these investment securities was predominantly caused by changes in market interest rates, average life or credit spreads 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 available to management.

The following summarizes the amounts of OTTI recognized during the years ended December 31 by investment category (in thousands).

	2012		2011			2010
Mortgage-backed securities – Privately issued whole loan CMOs	$	91	$	18	$		-
Asset-backed securities - Trust preferred securities		-		-			526
Asset-backed securities - Other		-		-			68
Total OTTI	$	91	$	18	$		594

Based on management's review and evaluation of the Company's debt securities as of December 31, 2012, the debt securities with unrealized losses were not considered to be OTTI. As of December 31, 2012, the Company does not intend to sell any debt securities which have an unrealized loss, it is unlikely the Company will be required to sell these securities before recovery and the Company expects to recover the entire amortized cost of these impaired securities. Accordingly, as of December 31, 2012, 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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Income Taxes

12 Months Ended

Dec. 31, 2012

Income Taxes [Abstract]

Income Taxes

(15.) INCOME TAXES

The income tax expense for the years ended December 31 consisted of the following (in thousands):

		2012		2011		2010
Current tax expense:
Federal	$	4,021	$	3,747	$	5,781
State		955		1,158		1,103
Total current tax expense		4,976		4,905		6,884
Deferred tax expense (benefit):
Federal		5,262		5,584		2,852
State		1,081		926		(384	)
Total deferred tax expense		6,343		6,510		2,468
Total income tax expense	$	11,319	$	11,415	$	9,352

Income tax expense differed from the statutory federal income tax rate for the years ended December 31 as follows:

	2012		2011		2010
Statutory federal tax rate	35.0	%	35.0	%	35.0	%
Increase (decrease) resulting from:
Tax exempt interest income	(4.6	)	(4.3	)	(4.2	)
Non-taxable earnings on company owned life insurance	(1.8	)	(1.5	)	(1.3	)
State taxes, net of federal tax benefit	3.8		4.0		1.5
Nondeductible expenses	0.3		0.4		0.6
Other, net	(0.1	)	(0.2	)	(1.1	)
Effective tax rate	32.6	%	33.4	%	30.5	%

Total income tax expense was allocated as follows for the years ended December 31 (in thousands):

		2012		2011		2010
Income tax expense	$	11,319	$	11,415	$	9,352
Shareholder's equity		1,514		3,718		(763	)

The Company's net deferred tax asset is included in other assets in the consolidated statements of condition. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31 (in thousands):

		2012		2011
Deferred tax assets:
Other than temporary impairment of investment securities	$	5,283	$	11,326
Allowance for loan losses		9,791		9,106
Share-based compensation		1,111		1,437
SERP agreements		734		285
Deferred compensation		868		499
Interest on nonaccrual loans		732		716
Accrued pension costs		-		538
Tax attribute carryforward benefits		-		463
Other		798		467
Gross deferred tax assets		19,317		24,837
Deferred tax liabilities:
Net unrealized gain on securities available for sale		10,536		8,903
Depreciation and amortization		1,827		1,741
Prepaid pension costs		1,648		-
Loan servicing assets		681		781
Deferred loan origination costs		-		930
Gross deferred tax liabilities		14,692		12,355
Net deferred tax asset	$	4,625	$	12,482

The Company recognizes deferred income taxes for the estimated future tax effects of differences between the tax and financial statement bases of assets and liabilities considering enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in other assets in the Company's consolidated statements of condition. The Company also assesses the likelihood that deferred tax assets will be realizable based on, among other considerations, future taxable income and establishes, if necessary, a valuation allowance for those deferred tax assets determined to not likely be realizable. A deferred tax asset valuation allowance is recognized if, based on the weight of available evidence (both positive and negative), it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of deferred tax benefits depends upon the existence of sufficient taxable income within the carry-back and carry-forward periods. Management's judgment is required in determining the appropriate recognition of deferred tax assets and liabilities, including projections of future taxable income.

Based upon the Company's historical and projected future levels of pre-tax and taxable income, the scheduled reversals of taxable temporary differences to offset future deductible amounts, and prudent and feasible tax planning strategies, management believes it is more likely than not that the deferred tax assets will be realized. As such, no valuation allowance has been recorded as of December 31, 2012 or 2011.

The Company and its subsidiaries are subject to federal and New York State ("NYS") income taxes. The federal income tax years currently open for audits are 2007 through 2012. The NYS income tax years currently open for audits are 2009 through 2012.

At December 31, 2012, the Company had no federal or NYS net operating loss or tax credit carryforwards.

The Company's unrecognized tax benefits and changes in unrecognized tax benefits were not significant as of or for the years ended December 31, 2012 and 2011. There were no interest or penalties recorded in the income statement in income tax expense for the year ended December 31, 2012. As of December 31, 2012, there were no amounts accrued for interest or penalties related to uncertain tax positions.

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Regulatory Matters

12 Months Ended

Dec. 31, 2012

Regulatory Matters [Abstract]

Regulatory Matters

(11.) REGULATORY MATTERS

General

The supervision and regulation of financial and bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds regulated by the FDIC and the banking system as a whole, and not for the protection of shareholders or creditors of bank holding companies. The various bank regulatory agencies have broad enforcement power over financial holding companies and banks, including the power to impose substantial fines, operational restrictions and other penalties for violations of laws and regulations and for safety and soundness considerations.

Capital

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 initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material impact on the Company's consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

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

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

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

The Company's and the Bank's actual and required regulatory capital ratios were as follows as of December 31 (in thousands):

							For Capital
			Actual				Adequacy Purposes				Well Capitalized
			Amount	Ratio			Amount	Ratio			Amount	Ratio
2012
Tier 1 leverage:	Company	$	199,824	7.70	%	$	103,828	4.00	%	$	129,785	5.00	%
	Bank		191,704	7.40			103,664	4.00			129,580	5.00
Tier 1 capital:	Company		199,824	10.70			74,671	4.00			112,006	6.00
	Bank		191,704	10.29			74,515	4.00			111,773	6.00
Total risk-based capital:	Company		223,176	11.96			149,341	8.00			186,677	10.00
	Bank		215,008	11.54			149,031	8.00			186,289	10.00
2011
Tier 1 leverage:	Company	$	197,086	8.63	%	$	91,310	4.00	%	$	114,138	5.00	%
	Bank		184,639	8.10			91,192	4.00			113,990	5.00
Tier 1 capital:	Company		197,086	12.20			64,645	4.00			96,967	6.00
	Bank		184,639	11.46			64,445	4.00			96,667	6.00
Total risk-based capital:	Company		217,325	13.45			129,290	8.00			161,612	10.00
	Bank		204,817	12.71			128,890	8.00			161,112	10.00

As of December 31, 2012, the Company and Bank were considered "well capitalized" under all regulatory capital guidelines. Such determination has been made based on the Tier 1 leverage, Tier 1 capital and total risk-based capital ratios.

Federal Reserve Requirements

The Bank is required to maintain a reserve balance at the FRB of New York. The reserve requirement for the Bank totaled $1.0 million as of December 31, 2012 and 2011.

Dividend Restrictions

In the ordinary course of business, the Company is dependent upon dividends from Five Star Bank to provide funds for the payment of interest expense on the junior subordinated debentures, 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. The Company is no longer subject to the limitations prescribed by the terms of the Treasury's TARP Capital Purchase Program. See Note 12 -Shareholders' Equity.

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Shareholders' Equity (Changes In Shares Of Common Stock) (Details)	1 Months Ended	12 Months Ended
	Mar. 31, 2011	Dec. 31, 2012	Dec. 31, 2012 Common Stock [Member]	Dec. 31, 2011 Common Stock [Member]	Dec. 31, 2012 Treasury Stock [Member]	Dec. 31, 2011 Treasury Stock [Member]	Dec. 31, 2011 Issued [Member]	Dec. 31, 2012 Issued [Member]
Shareholders Equity [Line Items]
Shares outstanding, beginning balance			13,803,116	10,937,506
Treasury stock, beginning balance		358,481			358,481	410,616
Shares Issued		14,161,597					11,348,122	14,161,597
Shares issued in common stock offering	2,813,475			2,813,475			2,813,475
Restricted stock awards issued, net of forfeitures			7,857	51,070	(7,857)	(51,070)
Stock options exercised		4,250	4,250	6,357	(4,250)	(6,357)
Treasury stock purchases			(33,330)	(11,181)	33,330	11,181
Directors' retainer			5,816	5,889	(5,816)	(5,889)
Shares outstanding, ending balance			13,787,709	13,803,116
Treasury stock, ending balance		373,888			373,888	358,481
Shares Issued		14,161,597					14,161,597	14,161,597

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Goodwill And Other Intangible Assets

12 Months Ended

Dec. 31, 2012

Goodwill And Other Intangible Assets [Abstract]

Goodwill And Other Intangible Assets

(7.) GOODWILL AND OTHER INTANGIBLE ASSETS

The change in the balance for goodwill during the years ended December 31, 2012 and 2011 was as follows (in thousands):

		2012		2011
Goodwill, beginning of year	$	37,369	$	37,369
Branch acquisitions		11,599		-
Impairment		-		-
Goodwill, end of year	$	48,968	$	37,369

Pursuant to the adoption of ASU 2011-08 in 2012, the Company first performed a qualitative assessment of goodwill at the reporting unit level, the Bank, to determine if it was more likely than not that the fair value of the reporting unit is less than its carrying value. In performing a qualitative analysis, factors considered include, but are not limited to, business strategy, financial performance and market and regulatory dynamics. The results of the qualitative assessment for 2012 indicated that it was not more likely than not that the fair value of the reporting unit is less than its carrying value. Consequently, no additional quantitative two-step impairment test was required, and no impairment was recorded in 2012. In 2011 and 2010, prior to the adoption of ASU 2011-08, the Company performed a quantitative impairment test that did not result in any impairment.

Declines in the market value of the Company's publicly traded stock price or declines in the Company's ability to generate future cash flows may increase the potential that goodwill recorded on the Company's consolidated statement of financial condition be designated as impaired and that the Company may incur a goodwill write-down in the future.

The amount of goodwill to be deducted for tax purposes was $11.3 million at December 31, 2012.

The Company's other intangible assets consisted entirely of a core deposit intangible asset. The gross carrying amount and accumulated amortization for the core deposit intangible asset was $2.0 million and $190 thousand, respectively, at December 31, 2012. The Company had no other intangible assets as of December 31, 2011. Core deposit intangible amortization expense, included in other noninterest expense on the consolidated statements of income, was $190 thousand for the year ended December 31, 2012. There was no core deposit intangible amortization expense for the years ended December 31, 2011 and 2010.

Estimated core deposit intangible amortization expense for each of the next five years is as follows:

2013	$	386
2014		341
2015		296
2016		251
2017		205

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Loans Held For Sale And Loan Servicing Rights (Activity In Capitalized Mortgage Serving Assets) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Loans Held For Sale And Loan Servicing Rights [Abstract]
Mortgage servicing assets, beginning of year	$ 1,609	$ 1,642	$ 1,534
Originations	554	319	408
Amortization	(526)	(352)	(300)
Mortgage servicing assets, end of year	1,637	1,609	1,642
Valuation allowance	(168)	(210)	(175)
Mortgage servicing assets, net, end of year	$ 1,469	$ 1,399	$ 1,467

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Fair Value Measurements (Changes In Level 3 Fair Value Measurements) (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Fair Value Measurements [Abstract]
Securities available for sale, beginning of period	$ 1,636,000	$ 1,636,000	$ 572,000
Sales		(360,000)	(2,478,000)
Principal paydowns and other			(53,000)
Total gains (losses) realized/unrealized: Included in earnings		331,000	2,263,000
Total gains (losses) realized/unrealized: Included in other comprehensive income		(102,000)	1,332,000
Transfers from Level 3 to Level 2		(1,505,000)
Securities available for sale, end of period			1,636,000
Transferred assets out of Level 3	$ 1,500,000

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Loans

12 Months Ended

Dec. 31, 2012

Loans [Abstract]

Loans

(5.) LOANS

The Company's loan portfolio consisted of the following at December 31 (in thousands):

		Principal		Net Deferred
		Amount		Loan (Fees)
		Outstanding		Costs			Loans, Net
2012
Commercial business	$	258,706	$	(31	)	$	258,675
Commercial mortgage		414,282		(958	)		413,324
Residential mortgage		133,341		179			133,520
Home equity		282,503		4,146			286,649
Consumer indirect		559,964		26,830			586,794
Other consumer		26,657		107			26,764
Total	$	1,675,453	$	30,273			1,705,726
Allowance for loan losses							(24,714	)
Total loans, net						$	1,681,012
2011
Commercial business	$	233,727	$	109		$	233,836
Commercial mortgage		394,034		(790	)		393,244
Residential mortgage		113,865		46			113,911
Home equity		227,853		3,913			231,766
Consumer indirect		465,807		21,906			487,713
Other consumer		24,138		168			24,306
Total	$	1,459,424	$	25,352			1,484,776
Allowance for loan losses							(23,260	)
Total loans, net						$	1,461,516

The Company's significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves.

Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on substantially the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. Borrowings by these related parties amounted to $292 thousand and $378 thousand at December 31, 2012 and 2011, respectively. During 2012, new borrowings amounted to $50 thousand (including borrowings of executive officers and directors that were outstanding at the time of their election), and repayments and other reductions were $136 thousand.

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 December 31 (in thousands):

						Greater
		30-59 Days		60-89 Days		Than 90		Total Past						Total
		Past Due		Past Due		Days		Due		Nonaccrual		Current		Loans
2012
Commercial business	$	160	$	-	$	-	$	160	$	3,413	$	255,133	$	258,706
Commercial mortgage		331		-		-		331		1,799		412,152		414,282
Residential mortgage		376		-		-		376		2,040		130,925		133,341
Home equity		675		10		-		685		939		280,879		282,503
Consumer indirect		1,661		163		-		1,824		891		557,249		559,964
Other consumer		127		35		18		180		25		26,452		26,657
Total loans, gross	$	3,330	$	208	$	18	$	3,556	$	9,107	$	1,662,790	$	1,675,453
2011
Commercial business	$	35	$	-	$	-	$	35	$	1,259	$	232,433	$	233,727
Commercial mortgage		165		-		-		165		2,928		390,941		394,034
Residential mortgage		517		-		-		517		1,644		111,704		113,865
Home equity		749		68		-		817		682		226,354		227,853
Consumer indirect		984		92		-		1,076		558		464,173		465,807
Other consumer		106		10		5		121		-		24,017		24,138
Total loans, gross	$	2,556	$	170	$	5	$	2,731	$	7,071	$	1,449,622	$	1,459,424

There were no loans past due greater than 90 days and still accruing interest as of December 31, 2012 and December 31, 2011. There were $18 thousand and $5 thousand in consumer overdrafts which were past due greater than 90 days as of December 31, 2012 and December 31, 2011, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2012, 2011 and 2010. For the years ended December 31, 2012, 2011 and 2010, estimated interest income of $555 thousand, $438 thousand, and $474 thousand, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

Troubled Debt Restructurings

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

The following presents, by loan class, information related to loans modified in a TDR during the years ended December 31 (in thousands).

			Pre-		Post-
			Modification             Modification
			Outstanding	Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
2012
Commercial business	3	$	536	$	536
Commercial mortgage	4		648		648
Total	7	$	1,184	$	1,184
2011
Commercial business	6	$	142	$	142
Commercial mortgage	1		280		280
Total	7	$	422	$	422

All of the loans identified as TDRs by the Company were previously on nonaccrual status and reported as impaired loans prior to restructuring. The modifications primarily related to extending the amortization periods of the loans and releasing collateral in consideration of payment. All loans restructured during the years ended December 31, 2012 and 2011 were on nonaccrual status at the end of those respective years. Nonaccrual loans that are restructured remain on nonaccrual status, but may move to accrual status after they have performed according to the restructured terms for a period of time. The TDR classification did not have a material impact on the Company's determination of the allowance for loan losses because the modified loans were impaired and evaluated for a specific reserve both before and after restructuring.

For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due. One commercial business loan restructured during 2012 with a balance of $52 thousand at December 31, 2012 was in default. One commercial real estate loan restructured during 2011 with a balance of $261 thousand at December 31, 2011 was in default. These defaults did not significantly impact the Company's determination of the allowance for loan losses.

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 data on impaired loans at December 31 (in thousands):

				Unpaid				Average		Interest
		Recorded		Principal		Related		Recorded		Income
		Investment(1)		Balance(1)		Allowance		Investment		Recognized
2012
With no related allowance recorded:
Commercial business	$	963	$	1,425	$	-	$	755	$	-
Commercial mortgage		911		1,002		-		1,310		-
		1,874		2,427		-		2,065		-
With an allowance recorded:
Commercial business		2,450		2,450		664		2,114		-
Commercial mortgage		888		888		310		1,858		-
		3,338		3,338		974		3,972		-
	$	5,212	$	5,765	$	974	$	6,037	$	-
2011
With no related allowance recorded:
Commercial business	$	342	$	1,266	$	-	$	361	$	-
Commercial mortgage		605		696		-		583		-
		947		1,962		-		944		-
With an allowance recorded:
Commercial business		917		917		436		1,033		-
Commercial mortgage		2,323		2,323		644		2,172		-
		3,240		3,240		1,080		3,205		-
	$	4,187	$	5,202	$	1,080	$	4,149	$	-

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

During the year ended December 31, 2010, the Company's average investment in impaired loans was $4.5 million. There was no interest income recognized on impaired loans during the year ended December 31, 2010.

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 not meeting 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 December 31 (in thousands):

		Commercial Commercial
		Business		Mortgage
2012
Uncriticized	$	240,291	$	400,576
Special mention		6,591		6,495
Substandard		11,824		7,211
Doubtful		-		-
Total	$	258,706	$	414,282
2011
Uncriticized	$	221,477	$	383,700
Special mention		7,445		2,388
Substandard		4,805		7,946
Doubtful		-		-
Total	$	233,727	$	394,034

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 December 31 (in thousands):

		Residential		Home		Consumer		Other
		Mortgage		Equity		Indirect		Consumer
2012
Performing	$	131,301	$	281,564	$	559,073	$	26,632
Non-performing		2,040		939		891		25
Total	$	133,341	$	282,503	$	559,964	$	26,657
2011
Performing	$	112,221	$	227,171	$	465,249	$	24,138
Non-performing		1,644		682		558		-
Total	$	113,865	$	227,853	$	465,807	$	24,138

Allowance for Loan Losses

The following tables set forth the changes in the allowance for loan losses for the years ended December 31 (in thousands):

					Commercial			Residential			Home			Consumer			Other
		Commercial			Mortgage			Mortgage			Equity			Indirect			Consumer			Total
2012
Allowance for loan losses:
Beginning balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Charge-offs		(729	)		(745	)		(326	)		(305	)		(6,589	)		(874	)		(9,568	)
Recoveries		336			261			130			44			2,769			354			3,894
Provision		1,241			647			78			301			4,346			515			7,128
Ending balance	$	4,884		$	6,581		$	740		$	1,282		$	10,715		$	512		$	24,714
Evaluated for impairment:
Individually	$	664		$	310		$	-		$	-		$	-		$	-		$	974
Collectively	$	4,220		$	6,271		$	740		$	1,282		$	10,715		$	512		$	23,740
Loans:
Ending balance	$	258,706		$	414,282		$	133,341		$	282,503		$	559,964		$	26,657		$	1,675,453
Evaluated for impairment:
Individually	$	3,413		$	1,799		$	-		$	-		$	-		$	-		$	5,212
Collectively	$	255,293		$	412,483		$	133,341		$	282,503		$	559,964		$	26,657		$	1,670,241
2011
Allowance for loan losses:
Beginning balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Charge-offs		(1,346	)		(751	)		(152	)		(449	)		(4,713	)		(877	)		(8,288	)
Recoveries		401			245			90			44			2,066			456			3,302
Provision (credit)		1,269			493			(93	)		675			5,082			354			7,780
Ending balance	$	4,036		$	6,418		$	858		$	1,242		$	10,189		$	517		$	23,260
Evaluated for impairment:
Individually	$	436		$	644		$	-		$	-		$	-		$	-		$	1,080
Collectively	$	3,600		$	5,774		$	858		$	1,242		$	10,189		$	517		$	22,180
Loans:
Ending balance	$	233,727		$	394,034		$	113,865		$	227,853		$	465,807		$	24,138		$	1,459,424
Evaluated for impairment:
Individually	$	1,259		$	2,928		$	-		$	-		$	-		$	-		$	4,187
Collectively	$	232,468		$	391,106		$	113,865		$	227,853		$	465,807		$	24,138		$	1,455,237
					Commercial			Residential			Home			Consumer			Other
		Commercial			Mortgage			Mortgage			Equity			Indirect			Consumer			Total
2010
Allowance for loan losses:
Beginning balance	$	4,407		$	6,638		$	1,251		$	1,043		$	6,837		$	565		$	20,741
Charge-offs		(3,426	)		(263	)		(290	)		(259	)		(4,669	)		(909	)		(9,816	)
Recoveries		326			501			21			36			1,485			485			2,854
Provision (credit)		2,405			(445	)		31			152			4,101			443			6,687
Ending balance	$	3,712		$	6,431		$	1,013		$	972		$	7,754		$	584		$	20,466
Evaluated for impairment:
Individually	$	149		$	883		$	-		$	-		$	-		$	-		$	1,032
Collectively	$	3,563		$	5,548		$	1,013		$	972		$	7,754		$	584		$	19,434
Loans:
Ending balance	$	210,948		$	353,537		$	129,553		$	205,070		$	400,221		$	25,937		$	1,325,266
Evaluated for impairment:
Individually	$	948		$	3,100		$	-		$	-		$	-		$	-		$	4,048
Collectively	$	210,000		$	350,437		$	129,553		$	205,070		$	400,221		$	25,937		$	1,321,218

Risk Characteristics

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

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

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

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

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Premises And Equipment, Net

12 Months Ended

Dec. 31, 2012

Premises And Equipment, Net [Abstract]

Premises And Equipment, Net

(6.) PREMISES AND EQUIPMENT, NET

Major classes of premises and equipment at December 31 are summarized as follows (in thousands):

		2012			2011
Land and land improvements	$	4,883		$	4,330
Buildings and leasehold improvements		43,402			40,590
Furniture, fixtures, equipment and vehicles		24,440			23,414
Premises and equipment		72,725			68,334
Accumulated depreciation and amortization		(36,107	)		(35,249	)
Premises and equipment, net	$	36,618		$	33,085

Depreciation and amortization expense relating to premises and equipment, included in occupancy and equipment expense in the consolidated statements of income, amounted to $3.6 million for the year ended December 31, 2012 and $3.5 million for the years ended December 31, 2011 and 2010.

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Deposits

12 Months Ended

Dec. 31, 2012

Deposits:

Deposits

(8.) DEPOSITS

A summary of deposits as of December 31 are as follows (in thousands):

		2012		2011
Noninterest-bearing demand	$	501,514	$	393,421
Interest-bearing demand		449,744		362,555
Savings and money market		655,598		474,947
Certificates of deposit, due:
Within one year		495,423		547,874
One to two years		91,052		84,687
Two to three years		35,993		17,974
Three to five years		31,721		50,000
Thereafter		749		141
Total certificates of deposit		654,938		700,676
Total deposits	$	2,261,794	$	1,931,599

Certificates of deposit in denominations of $100,000 or more at December 31, 2012 and 2011 amounted to $222.4 million and $214.2 million, respectively.

Interest expense by deposit type for the years ended December 31 is summarized as follows (in thousands):

		2012		2011		2010
Interest-bearing demand	$	598	$	614	$	705
Savings and money market		998		1,056		1,133
Certificates of deposit		6,866		9,764		13,015
Total interest expense on deposits	$	8,462	$	11,434	$	14,853

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Loans (Information Related To Loans Modified In A TDR) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012 loan	Dec. 31, 2011 loan
Financing Receivable, Modifications [Line Items]
Number of Contracts	7	7
Pre-Modification Outstanding Recorded Investment	$ 1,184	$ 422
Post-Modification Outstanding Recorded Investment	1,184	422
Commercial Business [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	3	6
Pre-Modification Outstanding Recorded Investment	536	142
Post-Modification Outstanding Recorded Investment	536	142
Commercial Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	4	1
Pre-Modification Outstanding Recorded Investment	648	280
Post-Modification Outstanding Recorded Investment	$ 648	$ 280

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Other Comprehensive Income (Summarization Of Components Of Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Other Comprehensive Income [Abstract]
Change in net unrealized gain/loss during the period, Pre-tax Amount	$ 6,682	$ 22,350	$ (16)
Reclassification adjustment for gains included in income, Pre-tax Amount	(2,651)	(3,003)	(169)
Reclassification adjustment for impairment charges included in income, Pre-tax Amount	91	18	594
Securities available for sale, Pre-tax Amount	4,122	19,365	409
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans, Pre-tax Amount	(300)	(9,979)	(2,192)
Other comprehensive income (loss), Pre-tax Amount	3,822	9,386	(1,783)
Change in net unrealized gain/loss during the period, Tax Expense (Benefit)	2,646	8,855	19
Reclassification adjustment for gains included in income, Tax Expense (Benefit)	(1,050)	(1,190)	(67)
Reclassification adjustment for impairment charges included in income, Tax Expense (Benefit)	36	7	235
Securities available for sale, Tax Expense (Benefit)	1,632	7,672	187
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans, Tax Expense (Benefit)	(118)	(3,953)	(950)
Other comprehensive income (loss), Pre-tax Amount, Tax Expense (Benefit)	1,514	3,719	(763)
Change in net unrealized gain/loss during the period, Net-of-tax Amount	4,036	13,495	(35)
Reclassification adjustment for gains included in income, Net-of-tax Amount	(1,601)	(1,813)	(102)
Reclassification adjustment for impairment charges included in income, Net-of-tax Amount	55	11	359
Change in net unrealized gains on securities, net of tax	2,490	11,693	222
Change in net actuarial gain/loss and prior service cost on defined benefit pension and post-retirement plans, Net-of-tax Amount	(182)	(6,026)	(1,242)
Other comprehensive income (loss), Net-of-tax Amount	$ 2,308	$ 5,667	$ (1,020)

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Loans (Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 1,675,453	$ 1,459,424	$ 1,325,266
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	258,706	233,727	210,948
Commercial Business [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	240,291	221,477
Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,591	7,445
Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	11,824	4,805
Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	414,282	394,034	353,537
Commercial Mortgage [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	400,576	383,700
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,495	2,388
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	7,211	7,946
Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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Employee Benefit Plans (Actuarial Assumptions Used, Net Periodic Pension Cost) (Details)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Employee Benefit Plans [Abstract]
Weighted average discount rate	4.27%	5.38%	5.89%
Rate of compensation increase	3.00%	3.00%	3.50%
Expected long-term rate of return	7.00%	7.00%	7.50%

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Loans (Recorded Investment By Loan Class In Current And Nonaccrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 3,330	$ 2,556
60-89 Days Past Due	208	170
Greater Than 90 Days	18	5
Total Past Due	3,556	2,731
Nonaccrual	9,107	7,071
Current	1,662,790	1,449,622
Total Loans	1,675,453	1,459,424	1,325,266
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	160	35
Total Past Due	160	35
Nonaccrual	3,413	1,259
Current	255,133	232,433
Total Loans	258,706	233,727	210,948
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	331	165
Total Past Due	331	165
Nonaccrual	1,799	2,928
Current	412,152	390,941
Total Loans	414,282	394,034	353,537
Residential Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	376	517
Total Past Due	376	517
Nonaccrual	2,040	1,644
Current	130,925	111,704
Total Loans	133,341	113,865	129,553
Home Equity [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	675	749
60-89 Days Past Due	10	68
Total Past Due	685	817
Nonaccrual	939	682
Current	280,879	226,354
Total Loans	282,503	227,853	205,070
Consumer Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	1,661	984
60-89 Days Past Due	163	92
Total Past Due	1,824	1,076
Nonaccrual	891	558
Current	557,249	464,173
Total Loans	559,964	465,807	400,221
Other Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	127	106
60-89 Days Past Due	35	10
Greater Than 90 Days	18	5
Total Past Due	180	121
Nonaccrual	25
Current	26,452	24,017
Total Loans	$ 26,657	$ 24,138	$ 25,937

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Income Taxes (Income Tax Expense) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Income Taxes [Abstract]
Federal	$ 4,021	$ 3,747	$ 5,781
State	955	1,158	1,103
Total current tax expense	4,976	4,905	6,884
Federal	5,262	5,584	2,852
State	1,081	926	(384)
Total deferred tax expense	6,343	6,510	2,468
Total income tax expense	$ 11,319	$ 11,415	$ 9,352

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Premises And Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2012

Premises And Equipment, Net [Abstract]

Major Classes Of Premises And Equipment

		2012			2011
Land and land improvements	$	4,883		$	4,330
Buildings and leasehold improvements		43,402			40,590
Furniture, fixtures, equipment and vehicles		24,440			23,414
Premises and equipment		72,725			68,334
Accumulated depreciation and amortization		(36,107	)		(35,249	)
Premises and equipment, net	$	36,618		$	33,085

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Branch Acquisitions (Schedule Of Assets Purchased And Liabilities Assumed) (Details) (First Niagara Bank [Member], USD $) In Thousands, unless otherwise specified	Jun. 22, 2012
First Niagara Bank [Member]
Significant Acquisitions and Disposals [Line Items]
Cash	$ 195,778
Loans	75,635
Bank premises and equipment	1,938
Goodwill	11,599
Core deposit intangible asset	2,042
Other assets	339
Total assets acquired	287,331
Deposits assumed	286,819
Other liabilities	512
Total liabilities assumed	$ 287,331

XML

Other Comprehensive Income

12 Months Ended

Dec. 31, 2012

Other Comprehensive Income [Abstract]

Other Comprehensive Income

(13.) OTHER COMPREHENSIVE INCOME

Other comprehensive income is reported in the accompanying consolidated statements of comprehensive income and changes in shareholders' equity. Information related to other comprehensive income for the years ended December 31 was as follows (in thousands):

		Pre-tax			Tax Expense			Net-of-tax
		Amount			(Benefit)			Amount
2012
Securities available for sale:
Change in net unrealized gain/loss during the period	$	6,682		$	2,646		$	4,036
Reclassification adjustment for gains included in income		(2,651	)		(1,050	)		(1,601	)
Reclassification adjustment for impairment charges included in income		91			36			55
		4,122			1,632			2,490
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(300	)		(118	)		(182	)
Other comprehensive income	$	3,822		$	1,514		$	2,308
2011
Securities available for sale:
Change in net unrealized gain/loss during the period	$	22,350		$	8,855		$	13,495
Reclassification adjustment for gains included in income		(3,003	)		(1,190	)		(1,813	)
Reclassification adjustment for impairment charges included in income		18			7			11
		19,365			7,672			11,693
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(9,979	)		(3,953	)		(6,026	)
Other comprehensive income	$	9,386		$	3,719		$	5,667
2010
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(16	)	$	19		$	(35	)
Reclassification adjustment for gains included in income		(169	)		(67	)		(102	)
Reclassification adjustment for impairment charges included in income		594			235			359
		409			187			222
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(2,192	)		(950	)		(1,242	)
Other comprehensive loss	$	(1,783	)	$	(763	)	$	(1,020	)

The components of accumulated other comprehensive income (loss), net of tax, as of December 31 were as follows (in thousands):

		2012			2011
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans	$	(12,807	)	$	(12,625	)
Net unrealized gain on securities available for sale		16,060			13,570
	$	3,253		$	945

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Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(18.) 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. 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.

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.

Assets Measured at Fair Value

The following table presents 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 December 31 (in thousands).

		Quoted Prices in
		Active Markets		Significant
		for Identical		Other		Significant
		Assets or		Observable		Unobservable
		Liabilities		Inputs		Inputs
		(Level 1)		(Level 2)		(Level 3)		Total
2012
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	131,695	$	-	$	131,695
State and political subdivisions		-		195,210		-		195,210
Mortgage-backed securities		-		495,868		-		495,868
Asset-backed securities:
Trust preferred securities		-		754		-		754
Other		-		269		-		269
	$	-	$	823,796	$	-	$	823,796
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	1,518	$	-	$	1,518
Collateral dependent impaired loans		-		-		2,364		2,364
Other assets:
Loan servicing rights		-		-		1,719		1,719
Other real estate owned		-		-		184		184
	$	-	$	1,518	$	4,267	$	5,785
2011
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises	$	-	$	97,712	$	-	$	97,712
State and political subdivisions		-		124,424		-		124,424
Mortgage-backed securities		-		403,685		-		403,685
Asset-backed securities:
Trust preferred securities		-		-		1,636		1,636
Other		-		61		-		61
	$	-	$	625,882	$	1,636	$	627,518
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	-	$	2,410	$	-	$	2,410
Collateral dependent impaired loans		-		-		2,160		2,160
Other assets:
Loan servicing rights		-		-		1,973		1,973
Other real estate owned		-		-		475		475
	$	-	$	2,410	$	4,608	$	7,018

There were no transfers between level 1 and 2 during the years ended December 31, 2012 and 2011. There were no liabilities measured at fair value on a recurring or nonrecurring basis during the years ended December 31, 2012 and 2011.

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	$	2,364	Appraisal of collateral (1)	Appraisal adjustments (2)	16% - 100% discount
			Discounted cash flow	Discount rate	4.9	% (3)
				Risk premium rate	10.1	% (3)
Loan servicing rights		1,719	Discounted cash flow	Discount rate	4.1	% (3)
				Constant prepayment rate	28.9	% (3)
Other real estate owned		184	Appraisal of collateral (1)	Appraisal adjustments (2)	20% -55% 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 December 31, 2012. The Company transferred all of the assets classified as Level 3 assets at December 31, 2011 to Level 2 during the three months ended March 31, 2012. The transfers of the $1.5 million of pooled trust preferred securities out of Level 3 was primarily the result of using observable pricing information or a third party pricing quote that appropriately reflects the fair value of those securities, without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

The reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31 is as follows (in thousands):

		2012			2011
Securities available for sale, beginning of period	$	1,636		$	572
Sales		(360	)		(2,478	)
Principal paydowns and other		-			(53	)
Total gains (losses) realized/unrealized:
Included in earnings		331			2,263
Included in other comprehensive income		(102	)		1,332
Transfers from Level 3 to Level 2		(1,505	)		-
Securities available for sale, end of period	$	-		$	1,636

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, FHLB and FRB stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

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

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

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

The following presents the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company's financial instruments as of December 31(in thousands):

	Level in		2012				2011
	Fair Value				Estimated				Estimated
	Measurement		Carrying		Fair		Carrying		Fair
	Hierarchy		Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	60,436	$	60,436	$	57,583	$	57,583
Securities available for sale	Level 2		823,796		823,796		625,882		625,882
Securities available for sale (1)	Level 3		-		-		1,636		1,636
Securities held to maturity	Level 2		17,905		18,478		23,297		23,964
Loans held for sale	Level 2		1,518		1,547		2,410		2,442
Loans	Level 2		1,678,648		1,701,419		1,459,356		1,490,999
Loans (2)	Level 3		2,364		2,364		2,160		2,160
Accrued interest receivable	Level 1		7,843		7,843		7,655		7,655
FHLB and FRB stock	Level 2		12,321		12,321		10,674		10,674
Financial liabilities:
Non-maturity deposits	Level 1		1,606,856		1,606,856		1,230,923		1,230,923
Time deposits	Level 2		654,938		658,342		700,676		702,720
Short-term borrowings	Level 1		179,806		179,806		150,698		150,698
Accrued interest payable	Level 1		3,819		3,819		5,207		5,207

⁽¹⁾ Comprised of trust preferred asset-backed securities.

⁽²⁾ Comprised of collateral dependent impaired loans.

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Income Taxes (Net Deferred Tax Assets) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Income Taxes [Abstract]
Other than temporary impairment of investment securities	$ 5,283	$ 11,326
Allowance for loan losses	9,791	9,106
Share-based compensation	1,111	1,437
SERP agreements	734	285
Deferred compensation	868	499
Interest on nonaccrual loans	732	716
Accrued pension costs		538
Tax attribute carryforward benefits		463
Other	798	467
Gross deferred tax assets	19,317	24,837
Net unrealized gain on securities available for sale	10,536	8,903
Depreciation and amortization	1,827	1,741
Prepaid pension costs	1,648
Loan servicing assets	681	781
Deferred loan origination costs		930
Gross deferred tax liabilities	14,692	12,355
Net deferred tax asset	$ 4,625	$ 12,482

XML

Summary Of Significant Accounting Policies (Summary Of Supplemental Cash Flow Information) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Summary Of Significant Accounting Policies [Abstract]
Interest expense	$ 10,438	$ 15,668	$ 17,676
Income taxes	4,014	5,191	6,923
Real estate and other assets acquired in settlement of loans	322	305	561
Accrued and declared unpaid dividends	2,562	2,144	1,694
Accretion of preferred stock discount		1,305	367
Increase (decrease) in net unsettled security purchases	51,135	(67)	(317)
Net transfer of portfolio to held for sale		13,576
Loans and other non-cash assets, excluding goodwill and core deposit intangible asset	77,912
Deposits and other liabilities	$ 287,331

XML

Employee Benefit Plans (The Major Categories Of Plan Assets Measured At Fair Value On a Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	$ 7,457	$ 4,982
Equity securities	26,242	22,493
Fixed income securities	24,087	19,468
Total Plan investments	57,786	46,943
Foreign Currencies [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	60	81
Government Issues [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	314
Fixed income securities	8,231	7,078
Municipals [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	63	55
Short-term Investments Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	7,083	4,901
Common Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	25,447	21,951
Depository Receipts [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	569	473
Preferred Equity [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	113	69
Real Estate Investment Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	113
Auto Loans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	313	6
Collateralized Mortgage Obligations [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	6,262	4,587
Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	5,456	4,171
FHLMC [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	717	809
FNMA [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	2,867	2,500
GNMA I [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	31	34
GNMA II [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	133	175
Other Assets Backed [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	14	53
Level 1 Inputs [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	60	81
Equity securities	26,242	22,493
Total Plan investments	26,302	22,574
Level 1 Inputs [Member] | Foreign Currencies [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	60	81
Level 1 Inputs [Member] | Common Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	25,447	21,951
Level 1 Inputs [Member] | Depository Receipts [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	569	473
Level 1 Inputs [Member] | Preferred Equity [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	113	69
Level 1 Inputs [Member] | Real Estate Investment Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities	113
Level 2 Inputs [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	7,397	4,901
Fixed income securities	24,087	19,468
Total Plan investments	31,484	24,369
Level 2 Inputs [Member] | Government Issues [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	314
Fixed income securities	8,231	7,078
Level 2 Inputs [Member] | Municipals [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	63	55
Level 2 Inputs [Member] | Short-term Investments Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents	7,083	4,901
Level 2 Inputs [Member] | Auto Loans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	313	6
Level 2 Inputs [Member] | Collateralized Mortgage Obligations [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	6,262	4,587
Level 2 Inputs [Member] | Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	5,456	4,171
Level 2 Inputs [Member] | FHLMC [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	717	809
Level 2 Inputs [Member] | FNMA [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	2,867	2,500
Level 2 Inputs [Member] | GNMA I [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	31	34
Level 2 Inputs [Member] | GNMA II [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	133	175
Level 2 Inputs [Member] | Other Assets Backed [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities	14	53
Level 3 Inputs [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents
Equity securities
Fixed income securities
Total Plan investments
Level 3 Inputs [Member] | Foreign Currencies [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents
Level 3 Inputs [Member] | Government Issues [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents
Fixed income securities
Level 3 Inputs [Member] | Municipals [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | Short-term Investments Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Cash equivalents
Level 3 Inputs [Member] | Common Stock [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities
Level 3 Inputs [Member] | Depository Receipts [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities
Level 3 Inputs [Member] | Preferred Equity [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities
Level 3 Inputs [Member] | Real Estate Investment Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Equity securities
Level 3 Inputs [Member] | Auto Loans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | Collateralized Mortgage Obligations [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | Corporate Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | FHLMC [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | FNMA [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | GNMA I [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | GNMA II [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities
Level 3 Inputs [Member] | Other Assets Backed [Member]
Defined Benefit Plan Disclosure [Line Items]
Fixed income securities

XML

Other Comprehensive Income (Tables)

12 Months Ended

Dec. 31, 2012

Other Comprehensive Income [Abstract]

Summarization Of Components Of Other Comprehensive Income

		Pre-tax			Tax Expense			Net-of-tax
		Amount			(Benefit)			Amount
2012
Securities available for sale:
Change in net unrealized gain/loss during the period	$	6,682		$	2,646		$	4,036
Reclassification adjustment for gains included in income		(2,651	)		(1,050	)		(1,601	)
Reclassification adjustment for impairment charges included in income		91			36			55
		4,122			1,632			2,490
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(300	)		(118	)		(182	)
Other comprehensive income	$	3,822		$	1,514		$	2,308
2011
Securities available for sale:
Change in net unrealized gain/loss during the period	$	22,350		$	8,855		$	13,495
Reclassification adjustment for gains included in income		(3,003	)		(1,190	)		(1,813	)
Reclassification adjustment for impairment charges included in income		18			7			11
		19,365			7,672			11,693
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(9,979	)		(3,953	)		(6,026	)
Other comprehensive income	$	9,386		$	3,719		$	5,667
2010
Securities available for sale:
Change in net unrealized gain/loss during the period	$	(16	)	$	19		$	(35	)
Reclassification adjustment for gains included in income		(169	)		(67	)		(102	)
Reclassification adjustment for impairment charges included in income		594			235			359
		409			187			222
Change in net actuarial gain/loss and prior service cost on defined
benefit pension and post-retirement plans		(2,192	)		(950	)		(1,242	)
Other comprehensive loss	$	(1,783	)	$	(763	)	$	(1,020	)

Components Of Accumulated Other Comprehensive Income (Loss)

		2012			2011
Net actuarial loss and prior service cost on defined benefit pension and post-retirement plans	$	(12,807	)	$	(12,625	)
Net unrealized gain on securities available for sale		16,060			13,570
	$	3,253		$	945

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Employee Benefit Plans (Changes In Plan Assets And Benefit Obligations Recognized In Other Comprehensive Loss) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Defined Benefit Plan Disclosure [Line Items]
Amortization of net loss	$ (1,370)	$ (608)	$ (458)
Total recognized in other comprehensive loss	(300)	(9,979)	(2,192)
Defined Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Net actuarial gain (loss)	(1,638)	(10,580)
Amortization of net loss	1,370	608
Amortization of prior service cost (credit)	20	19
Total recognized in other comprehensive loss	(248)	(9,953)
Postretirement Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Net actuarial gain (loss)	15	42
Amortization of prior service cost (credit)	(67)	(68)
Total recognized in other comprehensive loss	$ (52)	$ (26)

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Consolidated Statements Of Comprehensive Income (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Consolidated Statements Of Comprehensive Income [Abstract]
Net income	$ 23,449	$ 22,799	$ 21,287
Unrealized gains on securities:
Change in net unrealized securities gains arising during period	6,682	22,350	(16)
Deferred tax expense	(2,646)	(8,855)	(19)
Reclassification adjustment for gains included in income before income taxes	(2,560)	(2,985)	425
Related tax expense (benefit)	1,014	1,183	(168)
Change in net unrealized gains on securities, net of tax	2,490	11,693	222
Change in pension and post-retirement obligations:
Change in net actuarial gain\loss	(300)	(9,979)	(2,192)
Related tax expense	118	3,953	950
Change in pension and post-retirement obligations, net of tax	(182)	(6,026)	(1,242)
Other comprehensive income (loss)	2,308	5,667	(1,020)
Total Comprehensive income	$ 25,757	$ 28,466	$ 20,267

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Share-Based Compensation (Share-Based Compensation Expense Included In Consolidated Statements Of Income) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation	$ 526	$ 1,105	$ 1,031
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	12	69	153
Stock Options [Member] | Management Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	12	55	110
Stock Options [Member] | Director Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards		14	43
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	514	1,036	878
Restricted Stock Awards [Member] | Management Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	382	917	761
Restricted Stock Awards [Member] | Director Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share based compensation expense, stock options and restricted stock awards	$ 132	$ 119	$ 117

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Branch Acquisitions

12 Months Ended

Dec. 31, 2012

Branch Acquisitions [Abstract]

Branch Acquisitions

(2.) BRANCH ACQUISITIONS

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

Cash	$	195,778
Loans		75,635
Bank premises and equipment		1,938
Goodwill		11,599
Core deposit intangible asset		2,042
Other assets		339
Total assets acquired	$	287,331
Deposits assumed	$	286,819
Other liabilities		512
Total liabilities assumed	$	287,331

The transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at their estimated fair values on the acquisition dates. Fair values are preliminary and in certain cases are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to fair values becomes available.

The operating results of the acquired branches included in the Company's consolidated statement of income for the year ended December 31, 2012 reflect only amounts from the acquisition dates through December 31, 2012. The operating results of the acquired branches prior to the acquisition dates were not material for purposes of supplemental disclosure under the FASB guidance on business combinations.

The Company acquired the loan portfolios at a fair value discount of $824 thousand. The discount represents expected credit losses, net of market interest rate adjustments. The discount on loans receivable will be amortized to interest income over the estimated remaining life of the acquired loans using the level yield method. The core deposit intangible asset will be amortized on an accelerated basis over a period of approximately nine and a half years. The time deposit premium of $335 thousand will be accreted over the estimated remaining life of the related deposits as a reduction of interest expense.

Preliminary goodwill of $11.6 million is calculated as the purchase premium after adjusting for the fair value of net assets acquired and represents the value expected from the synergies created and the economies of scale expected from combining the operations of the acquired branches with those of the Bank. All goodwill and core deposit intangible assets arising from this acquisition are expected to be deductible for tax purposes.

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Investment Securities (Summary Of The Amounts Of OTTI Recognized) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Total OTTI	$ 91	$ 18	$ 594
Mortgage-Backed Securities - Privately Issued Whole Loan CMOs [Member]
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Total OTTI	91	18
Asset-Backed Securities - Trust Preferred Securities [Member]
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Total OTTI			526
Asset-Backed Securities - Other [Member]
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items]
Total OTTI			$ 68

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Regulatory Matters (Actual And Required Capital Ratios) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Parent Company [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage, Actual Amount	$ 199,824	$ 197,086
Tier 1 leverage, Actual Ratio	7.70%	8.63%
Tier 1 leverage, For Capital Adequacy Purposes, Amount	103,828	91,310
Tier 1 leverage, For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 leverage, Well Capitalized, Amount	129,785	114,138
Tier 1 leverage, Well Capitalized, Ratio	5.00%	5.00%
Tier 1 capital, Actual Amount	199,824	197,086
Tier 1 capital, Actual Ratio	10.70%	12.20%
Tier 1 capital, For Capital Adequacy Purposes, Amount	74,671	64,645
Tier 1 capital, For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 capital, Well Capitalized, Amount	112,006	96,967
Tier 1 capital, Well Capitalized, Ratio	6.00%	6.00%
Total risk-based capital, Actual Amount	223,176	217,325
Total risk-based capital, Actual Ratio	11.96%	13.45%
Total risk-based capital, For Capital Adequacy Purposes, Amount	149,341	129,290
Total risk-based capital, For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Total risk-based capital, Well Capitalized, Amount	186,677	161,612
Total risk-based capital, Well Capitalized, Ratio	10.00%	10.00%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Tier 1 leverage, Actual Amount	191,704	184,639
Tier 1 leverage, Actual Ratio	7.40%	8.10%
Tier 1 leverage, For Capital Adequacy Purposes, Amount	103,664	91,192
Tier 1 leverage, For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 leverage, Well Capitalized, Amount	129,580	113,990
Tier 1 leverage, Well Capitalized, Ratio	5.00%	5.00%
Tier 1 capital, Actual Amount	191,704	184,639
Tier 1 capital, Actual Ratio	10.29%	11.46%
Tier 1 capital, For Capital Adequacy Purposes, Amount	74,515	64,445
Tier 1 capital, For Capital Adequacy Purposes, Ratio	4.00%	4.00%
Tier 1 capital, Well Capitalized, Amount	111,773	96,667
Tier 1 capital, Well Capitalized, Ratio	6.00%	6.00%
Total risk-based capital, Actual Amount	215,008	204,817
Total risk-based capital, Actual Ratio	11.54%	12.71%
Total risk-based capital, For Capital Adequacy Purposes, Amount	149,031	128,890
Total risk-based capital, For Capital Adequacy Purposes, Ratio	8.00%	8.00%
Total risk-based capital, Well Capitalized, Amount	$ 186,289	$ 161,112
Total risk-based capital, Well Capitalized, Ratio	10.00%	10.00%

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Employee Benefit Plans (Components Of Accumulated Other Comprehensive Loss Related To Defined Benefit Plan And Postretirement Benefit Plan) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Defined Benefit Plan Disclosure [Line Items]
Total recognized in accumulated other comprehensive loss	$ (21,208)	$ (20,908)
Defined Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Net actuarial loss	(21,428)	(21,160)
Prior service credit (cost)	(93)	(113)
Total recognized in accumulated other comprehensive loss	(21,521)	(21,273)
Postretirement Benefit Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Net actuarial loss	(195)	(210)
Prior service credit (cost)	508	575
Total recognized in accumulated other comprehensive loss	$ 313	$ 365

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Premises And Equipment, Net (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 72,725	$ 68,334
Accumulated depreciation and amortization	(36,107)	(35,249)
Premises and equipment, net	36,618	33,085
Land and Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	4,883	4,330
Buildings And Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	43,402	40,590
Furniture, Fixtures, Equipment And Vehicles [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 24,440	$ 23,414

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Parent Company Financial Information

12 Months Ended

Dec. 31, 2012

Parent Company Financial Information [Abstract]

Parent Company Financial Information

(19.) PARENT COMPANY FINANCIAL INFORMATION

Condensed financial statements pertaining only to the Parent are presented below (in thousands).

Condensed Statements of Condition		December 31,
		2012		2011
Assets:
Cash and due from subsidiary	$	6,602	$	11,621
Investment in and receivables due from subsidiary		246,535		223,577
Other assets		3,563		4,337
Total assets	$	256,700	$	239,535
Liabilities and shareholders' equity:
Other liabilities	$	2,803	$	2,341
Shareholders' equity		253,897		237,194
Total liabilities and shareholders' equity	$	256,700	$	239,535

Condensed Statements of Income		Years ended December 31,
		2012		2011	2010
Dividends from subsidiary and associated companies	$	4,000	$	9,233	$	23,151
Management and service fees from subsidiary		517		1,161		1,163
Other income (loss)		24		78		(134	)
Total income		4,541		10,472		24,180
Operating expenses		2,732		3,787		4,005
Loss on extinguishment of debt		-		1,083		-
Total expenses		2,732		4,870		4,005
Income before income tax benefit and equity in undistributed
earnings of subsidiary		1,809		5,602		20,175
Income tax benefit		991		1,539		1,323
Income before equity in undistributed earnings of subsidiary		2,800		7,141		21,498
Equity in undistributed earnings (excess distributions) of subsidiary		20,649		15,658		(211	)
Net income	$	23,449	$	22,799	$	21,287

Condensed Statements of Cash Flows		Years ended December 31,
		2012			2011		2010
Cash flows from operating activities:
Net income	$	23,449		$	22,799		$	21,287
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in (undistributed earnings) excess distributions of subsidiary		(20,649	)		(15,658	)		211
Depreciation and amortization		65			116			193
Share-based compensation		526			1,105			1,031
Decrease in other assets		805			771			980
Increase (decrease) in other liabilities		44			(534	)		8
Net cash provided by operating activities		4,240			8,599			23,710
Cash flows from financing activities:
Redemption of junior subordinated debentures		-			(16,702	)		-
Proceeds from issuance of preferred and common shares, net of issuance costs		-			43,127			-
Purchase of preferred and common shares		(559	)		(37,764	)		(69	)
Repurchase of warrant issued to U.S. Treasury		-			(2,080	)		-
Proceeds from stock options exercised		69			91			216
Dividends paid		(8,866	)		(7,564	)		(7,690	)
Other		97			20			-
Net cash used in financing activities		(9,259	)		(20,872	)		(7,543	)
Net (decrease) increase in cash and cash equivalents		(5,019	)		(12,273	)		16,167
Cash and cash equivalents as of beginning of year		11,621			23,894			7,727
Cash and cash equivalents as of end of the year	$	6,602		$	11,621		$	23,894

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Deposits (Summary Of Deposits) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Dec. 31, 2011
Deposits:
Noninterest-bearing demand	$ 501,514	$ 393,421
Interest-bearing demand	449,744	362,555
Savings and money market	655,598	474,947
Certificates of deposit, due: Within one year	495,423	547,874
Certificates of deposit, due: One to two years	91,052	84,687
Certificates of deposit, due: Two to three years	35,993	17,974
Certificates of deposit, due: Three to five years	31,721	50,000
Certificates of deposit, due: Thereafter	749	141
Total certificates of deposit	654,938	700,676
Total deposits	$ 2,261,794	$ 1,931,599

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Commitments And Contingencies (Tables)

12 Months Ended

Dec. 31, 2012

Commitments And Contingencies [Abstract]

Off-Balance Sheet Commitments

		2012		2011
Commitments to extend credit	$	435,948	$	374,266
Standby letters of credit		9,223		8,855

Leases Future Minimum Payments By Years And In The Aggregate

2013	$	1,433
2014		1,384
2015		1,305
2016		1,197
2017		826
Thereafter		4,347
	$	10,492

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Shareholders' Equity

12 Months Ended

Dec. 31, 2012

Shareholders' Equity [Abstract]

Shareholders' Equity

(12.) SHAREHOLDERS' EQUITY

The Company's authorized capital stock consists of 50,210,000 shares of capital stock, 50,000,000 of which are common stock, par value $0.01 per share, and 210,000 of which are preferred stock, par value $100 per share, which is designated into two classes, Class A of which 10,000 shares are authorized, and Class B of which 200,000 shares are authorized. There are two series of Class A preferred stock: Series A 3% preferred stock and the Series A preferred stock. There is one series of Class B preferred stock: Series B-1 8.48% preferred stock. There were 174,709 shares and 174,735 shares of preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively.

Common Stock

The following table sets forth the changes in the number of shares of common stock for the years ended December 31:

	Outstanding		Treasury		Issued
2012
Shares outstanding at beginning of year	13,803,116		358,481		14,161,597
Restricted stock awards issued, net of forfeitures	7,857		(7,857	)	-
Stock options exercised	4,250		(4,250	)	-
Treasury stock purchases	(33,330	)	33,330		-
Directors' retainer	5,816		(5,816	)	-
Shares outstanding at end of year	13,787,709		373,888		14,161,597
2011
Shares outstanding at beginning of year	10,937,506		410,616		11,348,122
Shares issued in common stock offering	2,813,475		-		2,813,475
Restricted stock awards issued, net of forfeitures	51,070		(51,070	)	-
Stock options exercised	6,357		(6,357	)	-
Treasury stock purchases	(11,181	)	11,181		-
Directors' retainer	5,889		(5,889	)	-
Shares outstanding at end of year	13,803,116		358,481		14,161,597

Issuance of Common Stock

In March 2011, the Company completed the sale of 2,813,475 shares of its common stock through an underwritten public offering at a price of $16.35 per share. The net proceeds of the offering, after deducting underwriting discounts and commissions and offering expenses, were $43.1 million. A portion of the proceeds from this offering was used to redeem the Company's Series A preferred stock and the 10.20% junior subordinated debentures.

Preferred Stock

Series A 3% Preferred Stock. There were 1,499 shares and 1,500 shares of Series A 3% preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively. Holders of Series A 3% preferred stock are entitled to receive an annual dividend of $3.00 per share, which is cumulative and payable quarterly. Holders of Series A 3% preferred stock have no pre-emptive right in, or right to purchase or subscribe for, any additional shares of the Company's capital stock and have no voting rights. Dividend or dissolution payments to the Class A shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments can be declared and paid, or set apart for payment, to the holders of Class B preferred stock or common stock. The Series A 3% preferred stock is not convertible into any other of the Company's securities.

Series B-1 8.48% Preferred Stock. There were 173,210 shares and 173,235 shares of Series B-1 8.48% preferred stock issued and outstanding as of December 31, 2012 and 2011, respectively. Holders of Series B-1 8.48% preferred stock are entitled to receive an annual dividend of $8.48 per share, which is cumulative and payable quarterly. Holders of Series B-1 8.48% preferred stock have no pre-emptive right in, or right to purchase or subscribe for, any additional shares of the Company's common stock and have no voting rights. Accumulated dividends on the Series B-1 8.48% preferred stock do not bear interest, and the Series B-1 8.48% preferred stock is not subject to redemption. Dividend or dissolution payments to the Class B shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments are declared and paid, or set apart for payment, to the holders of common stock. The Series B-1 8.48% preferred stock is not convertible into any other of the Company's securities.

Redemption of Series A Preferred Stock and Warrant

In December 2008, under the Treasury's TARP Capital Purchase Program, the Company entered into a Securities Purchase Agreement -Standard Terms with the Treasury pursuant to which, among other things, the Company sold to the Treasury for an aggregate purchase price of $37.5 million, 7,503 shares of fixed rate cumulative perpetual preferred stock, Series A ("Series A" preferred stock) and a warrant to purchase up to 378,175 shares of the Company's common stock, par value $0.01 per share, at an exercise price of $14.88 per share (the "Warrant"), of the Company.

Pursuant to the terms of the Purchase Agreement, the Company's ability to declare or pay dividends on any of its shares was limited. Specifically, the Company was prohibited from paying any dividend with respect to shares of common stock, other junior securities or preferred stock ranking pari passu with the Series A preferred stock or repurchasing or redeeming any shares of the Company's common stock, other junior securities or preferred stock ranking pari passu with the Series A preferred stock in any quarter unless all accrued and unpaid dividends were paid on the Series A preferred stock for all past dividend periods (including the latest completed dividend period), subject to certain limited exceptions.

The $37.5 million in proceeds was allocated to the Series A preferred stock and the Warrant based on their relative fair values at issuance ($35.5 million was allocated to the Series A preferred stock and $2.0 million to the Warrant). The resulting discount for the Series A preferred stock was to be accreted over five years through retained earnings as a preferred stock dividend. The Warrant was to remain in additional paid-in-capital at its initial book value until it was exercised or expired.

In February 2011, the Company redeemed one-third, or $12.5 million, of the Series A preferred stock. In March 2011, the remaining $25.0 million of the Series A preferred stock was redeemed. The unamortized discount related to the Series A preferred stock was charged to retained earnings upon redemption. The complete redemption of the Series A preferred stock removed the TARP restrictions pertaining to the Company's ability to declare and pay dividends and repurchase its common stock, as well as certain restrictions associated with executive compensation.

In May 2011, the Company repurchased the Warrant issued to the Treasury. The repurchase price of $2.1 million was recorded as a reduction of additional paid-in capital.

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Employee Benefit Plans (Components Of Net Periodic Benefit Expense) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Employee Benefit Plans [Abstract]
Service cost	$ 2,037	$ 1,756	$ 1,633
Interest cost on projected benefit obligation	2,017	2,027	1,933
Expected return on plan assets	(3,211)	(2,653)	(2,444)
Amortization of unrecognized loss	1,370	608	458
Amortization of unrecognized prior service cost	20	19	11
Net periodic pension cost	$ 2,233	$ 1,757	$ 1,591