10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended              March 31, 2019            

or

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

For the transition period from ________ to ________

Commission File Number:     000-26481     

(Exact name of registrant as specified in its charter)

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

(585) 786-1100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes  ☑    No  ☐    

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

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	FISI	Nasdaq Global Select Market

The registrant had 15,984,188 shares of Common Stock, $0.01 par value, outstanding as of April 30, 2019.

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended March 31, 2019

TABLE OF CONTENTS

		PAGE
PART I.	FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Consolidated Statements of Financial Condition (Unaudited) - at March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Income (Unaudited) - Three months ended March 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income (Unaudited) - Three months ended March 31, 2019 and 2018	5
	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) - Three months ended March 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows (Unaudited) - Three months ended March 31, 2019 and 2018	7
	Notes to Consolidated Financial Statements (Unaudited)	8
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	49
ITEM 4.	Controls and Procedures	50
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	51
ITEM 6.	Exhibits	51
	Signatures	52

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PART I. FINANCIAL INFORMATION

ITEM 1.      Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands, except share and per share data)	March 31, 2019			December 31, 2018
ASSETS
Cash and due from banks	$	79,786		$	102,755
Securities available for sale, at fair value		427,545			445,677
Securities held to maturity, at amortized cost (fair value of $436,974 and $439,581, respectively)		438,984			446,581
Loans held for sale		2,069			2,868
Loans (net of allowance for loan losses of $33,327 and $33,914, respectively)		3,075,852			3,052,684
Company owned life insurance		67,550			67,116
Premises and equipment, net		42,092			42,839
Goodwill and other intangible assets, net		75,850			76,173
Other assets		92,813			75,005
Total assets	$	4,302,541		$	4,311,698
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	732,631		$	755,460
Interest-bearing demand		707,430			622,482
Savings and money market		1,016,666			968,897
Time deposits		1,052,110			1,020,068
Total deposits		3,508,837			3,366,907
Short-term borrowings		287,300			469,500
Long-term borrowings, net of issuance costs of $780 and $798, respectively		39,220			39,202
Other liabilities		58,931			39,796
Total liabilities		3,894,288			3,915,405
Shareholders’ equity:
Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,435 shares issued		143			143
Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized;    171,847 shares issued		17,185			17,185
Total preferred equity		17,328			17,328
Common stock, $0.01 par value; 50,000,000 shares authorized; 16,056,178 shares issued		161			161
Additional paid-in capital		122,524			122,704
Retained earnings		289,111			279,867
Accumulated other comprehensive loss		(18,554	)		(21,281	)
Treasury stock, at cost – 115,368 and 127,580 shares, respectively		(2,317	)		(2,486	)
Total shareholders’ equity		408,253			396,293
Total liabilities and shareholders’ equity	$	4,302,541		$	4,311,698

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

(In thousands, except per share amounts)	Three months ended March 31,
	2019			2018
Interest income:
Interest and fees on loans	$	36,466		$	29,758
Interest and dividends on investment securities		4,946			5,641
Other interest income		102			78
Total interest income		41,514			35,477
Interest expense:
Deposits		6,799			3,456
Short-term borrowings		2,305			1,701
Long-term borrowings		618			618
Total interest expense		9,722			5,775
Net interest income		31,792			29,702
Provision for loan losses		1,193			2,949
Net interest income after provision for loan losses		30,599			26,753
Noninterest income:
Service charges on deposits		1,680			1,738
Insurance income		1,378			1,399
ATM and debit card		1,443			1,421
Investment advisory		2,216			1,778
Company owned life insurance		410			450
Investments in limited partnerships		232			568
Loan servicing		110			115
Income from derivative instruments, net		168			171
Net gain on sale of loans held for sale		182			96
Net (loss) gain on investment securities		(53	)		—
Net gain on other assets		49			3
Other		1,305			1,168
Total noninterest income		9,120			8,907
Noninterest expense:
Salaries and employee benefits		14,001			13,429
Occupancy and equipment		4,586			4,407
Professional services		1,158			883
Computer and data processing		1,223			1,235
Supplies and postage		534			512
FDIC assessments		512			508
Advertising and promotions		520			977
Amortization of intangibles		323			288
Other		2,314			1,865
Total noninterest expense		25,171			24,104
Income before income taxes		14,548			11,556
Income tax expense		3,027			2,268
Net income	$	11,521		$	9,288
Preferred stock dividends		365			365
Net income available to common shareholders	$	11,156		$	8,923
Earnings per common share (Note 3):
Basic	$	0.70		$	0.56
Diluted	$	0.70		$	0.56
Cash dividends declared per common share	$	0.25		$	0.24

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(Dollars in thousands)	Three months ended March 31,
	2019			2018
Net income	$	11,521		$	9,288
Other comprehensive income (loss), net of tax:
Securities available for sale and transferred securities		5,503			(6,270	)
Hedging derivative instruments		(254	)		(104	)
Pension and post-retirement obligations		261			127
Total other comprehensive income (loss), net of tax		5,510			(6,247	)
Comprehensive income	$	17,031		$	3,041

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Three months ended March 31, 2019 and 2018

(Dollars in thousands, except per share data)	Preferred Equity		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Shareholders’ Equity
Balance at December 31, 2017	$	17,329	$	161	$	121,058		$	257,078		$	(11,916	)	$	(2,533	)	$	381,177
Comprehensive income:
Net income		—		—		—			9,288			—			—			9,288
Other comprehensive loss, net of tax		—		—		—			—			(6,247	)		—			(6,247	)
Purchases of common stock for treasury		—		—		—			—			—			(113	)		(113	)
Share-based compensation plans:
Share-based compensation		—		—		302			—			—			—			302
Stock options exercised		—		—		(1	)		—			—			77			76
Restricted stock awards forfeited		—		—		446			—			—			(446	)		—
Cash dividends declared:
Series A 3% Preferred-$0.75 per share		—		—		—			(1	)		—			—			(1	)
Series B-1 8.48% Preferred-$2.12 per    share		—		—		—			(364	)		—			—			(364	)
Common-$0.24 per share		—		—		—			(3,816	)		—			—			(3,816	)
Balance at March 31, 2018	$	17,329	$	161	$	121,805		$	262,185		$	(18,163	)	$	(3,015	)	$	380,302
Balance at December 31, 2018	$	17,328	$	161	$	122,704		$	279,867		$	(21,281	)	$	(2,486	)	$	396,293
Cumulative-effect adjustment		—		—		—			(710	)		—			—			(710	)
Balance at January 1, 2019	$	17,328	$	161	$	122,704		$	279,157		$	(21,281	)	$	(2,486	)	$	395,583
Comprehensive income:
Net income		—		—		—			11,521			—			—			11,521
Other comprehensive income, net of tax		—		—		—			—			5,510			—			5,510
Reclassification of income tax effects		—		—		—			2,783			(2,783	)		—			—
Purchases of common stock for treasury		—		—		—			—			—			(193	)		(193	)
Share-based compensation plans:
Share-based compensation		—		—		182			—			—			—			182
Restricted stock units released		—		—		(362	)		—			—			362			—
Cash dividends declared:
Series A 3% Preferred-$0.75 per share		—		—		—			(1	)		—			—			(1	)
Series B-1 8.48% Preferred-$2.12 per    share		—		—		—			(364	)		—			—			(364	)
Common-$0.25 per share		—		—		—			(3,985	)		—			—			(3,985	)
Balance at March 31, 2019	$	17,328	$	161	$	122,524		$	289,111		$	(18,554	)	$	(2,317	)	$	408,253

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)	Three months ended March 31,
	2019			2018
Cash flows from operating activities:
Net income	$	11,521		$	9,288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,103			1,610
Net amortization of premiums on securities		528			671
Provision for loan losses		1,193			2,949
Share-based compensation		182			302
Deferred income tax expense (benefit)		951			(2,691	)
Proceeds from sale of loans held for sale		5,992			5,389
Originations of loans held for sale		(5,011	)		(4,098	)
Income on company owned life insurance		(410	)		(450	)
Net gain on sale of loans held for sale		(182	)		(96	)
Net loss (gain) on investment securities		53			—
Net gain on other assets		(49	)		(3	)
Decrease (increase) in other assets		1,471			7,587
Increase (decrease) in other liabilities		(2,984	)		(3,351	)
Net cash provided by operating activities		15,358			17,107
Cash flows from investing activities:
Purchases of available for sale securities		(7,681	)		—
Purchases of held to maturity securities		(4,466	)		(2,767	)
Proceeds from principal payments, maturities and calls on available for sale securities		25,390			6,167
Proceeds from principal payments, maturities and calls on held to maturity securities		12,842			16,883
Proceeds from sales of securities available for sale		4,948			—
Net loan originations		(24,361	)		(60,644	)
Purchases of company owned life insurance, net of proceeds received		(24	)		(7	)
Proceeds from sales of other assets		250			24
Purchases of premises and equipment		(575	)		(383	)
Net cash provided by (used in) investing activities		6,323			(40,727	)
Cash flows from financing activities:
Net increase in deposits		141,930			169,835
Net decrease in short-term borrowings		(182,200	)		(118,600	)
Purchases of common stock for treasury		(193	)		(113	)
Proceeds from stock options exercised		—			76
Cash dividends paid to common and preferred shareholders		(4,187	)		(3,859	)
Net cash (used in) provided by financing activities		(44,650	)		47,339
Net (decrease) increase in cash and cash equivalents		(22,969	)		23,719
Cash and cash equivalents, beginning of period		102,755			99,195
Cash and cash equivalents, end of period	$	79,786		$	122,914

See accompanying notes to the consolidated financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

Nature of Operations

Financial Institutions, Inc. (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Company provides diversified financial services through its subsidiaries, Five Star Bank, SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the “Bank”). The Bank also has indirect lending network relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated and contain adequate disclosure to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

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

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.

Use of Estimates

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

Cash Flow Reporting

Supplemental cash flow information is summarized as follows for the three months ended March 31 (in thousands):

	2019		2018
Supplemental information:
Cash paid for interest	$	8,524	$	6,492
Cash paid for income taxes		1,248		1,571
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		—		370
Accrued and declared unpaid dividends		4,350		4,181
Decrease in net unsettled security purchases		1,473		—

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. In July 2018, ASU 2018-11, Leases (Topic 842): Targeted Improvements was issued to allow companies to choose to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings rather than recasting prior year results. The adoption of ASU 2016-02, as of January 1, 2019, resulted in an increase of approximately $22.7 million in assets and approximately $23.4 million in liabilities on the Company’s financial statements from recording additional lease contracts where the Company is a lessee.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is evaluating the new guidance and expects it to have an impact on the Company’s statements of income and financial condition, the significance of which is not yet known, nor can it be reasonably estimated currently. Due to the significant differences in the new authoritative guidance from existing GAAP, the implementation of this guidance may result in material changes in our accounting for credit losses on financial instruments and will be impacted by the Company’s loan and securities portfolios’ composition, attributes and quality in addition to prevailing economic conditions and forecasts at the time of adoption. As part of the Company’s evaluation process, it has established a steering committee and working group, including individuals from various functional areas, to assess processes and related controls, portfolio segmentation, model development, system requirements and needed resources.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASU 2017-08, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities. These amendments: (a) expand and refine hedge accounting for both financial and non-financial risk components, (b) align the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and (c) include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. The amendments related to cash flow and net investment hedges existing at the date of adoption should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to presentation and disclosure should be applied prospectively. The adoption of ASU 2017-12, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJ Act”). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period. The amendments should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the federal corporate income tax rate in the TCJ Act is recognized. The adoption of ASU 2018-02, as of January 1, 2019, resulted in the Company reclassifying approximately $2.8 million from accumulated other comprehensive income (loss) to retained earnings.

(2.)BUSINESS COMBINATIONS

2018 Activity – HNP Capital Acquisition

On June 1, 2018, the Company completed the acquisition of HNP Capital, a Securities and Exchange Commission (“SEC”)-registered investment advisor with approximately $344 million in assets under management as of June 30, 2018. Consideration for the acquisition totaled $5.1 million in cash. As a result of the acquisition, the Company recorded goodwill of $2.6 million and other intangible assets of $2.5 million. The goodwill and other intangible assets are expected to be deductible for income tax purposes. The allocation of acquisition cost to the assets acquired and liabilities assumed and pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Company’s consolidated financial statements.

(3.)EARNINGS PER COMMON SHARE (“EPS”)

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

	Three months ended March 31,
	2019			2018
Net income available to common shareholders	$	11,156		$	8,923
Weighted average common shares outstanding:
Total shares issued		16,056			16,056
Unvested restricted stock awards		(3	)		(19	)
Treasury shares		(123	)		(147	)
Total basic weighted average common shares outstanding		15,930			15,890
Incremental shares from assumed:
Exercise of stock options		—			6
Vesting of restricted stock awards		48			45
Total diluted weighted average common shares outstanding		15,978			15,941
Basic earnings per common share	$	0.70		$	0.56
Diluted earnings per common share	$	0.70		$	0.56

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

Stock options	—	—
Restricted stock awards	10	4
Total	10	4

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.)INVESTMENT SECURITIES

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

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	145,072	$	113	$	809	$	144,376
Mortgage-backed securities:
Federal National Mortgage Association		240,973		202		2,366		238,809
Federal Home Loan Mortgage Corporation		38,903		86		634		38,355
Government National Mortgage Association		5,103		22		5		5,120
Collateralized mortgage obligations:
Federal National Mortgage Association		127		—		1		126
Federal Home Loan Mortgage Corporation		36		—		—		36
Privately issued		—		723		—		723
Total mortgage-backed securities		285,142		1,033		3,006		283,169
Total available for sale securities	$	430,214	$	1,146	$	3,815	$	427,545
Securities held to maturity:
State and political subdivisions	$	232,160	$	2,236	$	225	$	234,171
Mortgage-backed securities:
Federal National Mortgage Association		11,276		69		114		11,231
Federal Home Loan Mortgage Corporation		4,167		27		109		4,085
Government National Mortgage Association		39,844		50		520		39,374
Collateralized mortgage obligations:
Federal National Mortgage Association		59,584		31		1,474		58,141
Federal Home Loan Mortgage Corporation		75,029		6		1,624		73,411
Government National Mortgage Association		16,924		—		363		16,561
Total mortgage-backed securities		206,824		183		4,204		202,803
Total held to maturity securities	$	438,984	$	2,419	$	4,429	$	436,974
December 31, 2018
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	155,102	$	—	$	3,074	$	152,028
Mortgage-backed securities:
Federal National Mortgage Association		258,984		44		6,325		252,703
Federal Home Loan Mortgage Corporation		35,962		13		1,275		34,700
Government National Mortgage Association		5,364		21		76		5,309
Collateralized mortgage obligations:
Federal National Mortgage Association		133		—		—		133
Federal Home Loan Mortgage Corporation		37		—		—		37
Privately issued		—		767		—		767
Total mortgage-backed securities		300,480		845		7,676		293,649
Total available for sale securities	$	455,582	$	845	$	10,750	$	445,677

- 11 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.)INVESTMENT SECURITIES (Continued)

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions	$	234,845	$	876	$	1,211	$	234,510
Mortgage-backed securities:
Federal National Mortgage Association		11,602		8		261		11,349
Federal Home Loan Mortgage Corporation		4,583		—		193		4,390
Government National Mortgage Association		37,450		14		923		36,541
Collateralized mortgage obligations:
Federal National Mortgage Association		62,103		1		2,179		59,925
Federal Home Loan Mortgage Corporation		78,200		—		2,597		75,603
Government National Mortgage Association		17,798		—		535		17,263
Total mortgage-backed securities		211,736		23		6,688		205,071
Total held to maturity securities	$	446,581	$	899	$	7,899	$	439,581

Investment securities with a total fair value of $702.5 million and $751.0 million at March 31, 2019 and December 31, 2018, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

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

	Three months ended March 31,
	2019		2018
Proceeds from sales	$	4,948	$	—
Gross realized gains		—		—
Gross realized losses		53		—

The scheduled maturities of securities available for sale and securities held to maturity at March 31, 2019 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized		Fair
	Cost		Value
Debt securities available for sale:
Due in one year or less	$	28,200	$	28,009
Due from one to five years		137,192		136,577
Due after five years through ten years		183,515		182,284
Due after ten years		81,307		80,675
Total available for sale securities	$	430,214	$	427,545
Debt securities held to maturity:
Due in one year or less	$	49,502	$	49,598
Due from one to five years		147,735		149,579
Due after five years through ten years		74,536		73,735
Due after ten years		167,211		164,062
Total held to maturity securities	$	438,984	$	436,974

- 12 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.)INVESTMENT SECURITIES (Continued)

Unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored    enterprises	$	—	$	—	$	112,425	$	809	$	112,425	$	809
Mortgage-backed securities:
Federal National Mortgage Association		—		—		224,846		2,366		224,846		2,366
Federal Home Loan Mortgage Corporation		—		—		31,365		634		31,365		634
Government National Mortgage Association		—		—		4,522		5		4,522		5
Collateralized mortgage obligations:
Federal National Mortgage Association		70		1		19		—		89		1
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		70		1		260,758		3,005		260,828		3,006
Total available for sale securities		70		1		373,183		3,814		373,253		3,815
Securities held to maturity:
State and political subdivisions		2,717		1		24,312		224		27,029		225
Mortgage-backed securities:
Federal National Mortgage Association		—		—		7,696		114		7,696		114
Federal Home Loan Mortgage Corporation		—		—		2,619		109		2,619		109
Government National Mortgage Association		6,518		16		21,908		504		28,426		520
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56,114		1,474		56,114		1,474
Federal Home Loan Mortgage Corporation		—		—		72,277		1,624		72,277		1,624
Government National Mortgage Association		—		—		16,561		363		16,561		363
Total mortgage-backed securities		6,518		16		177,175		4,188		183,693		4,204
Total held to maturity securities		9,235		17		201,487		4,412		210,722		4,429
Total temporarily impaired securities	$	9,305	$	18	$	574,670	$	8,226	$	583,975	$	8,244
December 31, 2018
Securities available for sale:
U.S. Government agencies and government sponsored    enterprises	$	—	$	—	$	152,028	$	3,074	$	152,028	$	3,074
Mortgage-backed securities:
Federal National Mortgage Association		251		1		247,615		6,324		247,866		6,325
Federal Home Loan Mortgage Corporation		—		—		33,918		1,275		33,918		1,275
Government National Mortgage Association		—		—		4,667		76		4,667		76
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56		—		56		—
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		251		1		286,262		7,675		286,513		7,676
Total available for sale securities		251		1		438,290		10,749		438,541		10,750

- 13 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(4.)INVESTMENT SECURITIES (Continued)

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions		35,751		91		49,534		1,120		85,285		1,211
Mortgage-backed securities:
Federal National Mortgage Association		1,518		3		8,695		258		10,213		261
Federal Home Loan Mortgage Corporation		1,467		5		2,923		188		4,390		193
Government National Mortgage Association		11,783		82		22,516		841		34,299		923
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		57,973		2,179		57,973		2,179
Federal Home Loan Mortgage Corporation		—		—		75,603		2,597		75,603		2,597
Government National Mortgage Association		—		—		17,263		535		17,263		535
Total mortgage-backed securities		14,768		90		184,973		6,598		199,741		6,688
Total held to maturity securities		50,519		181		234,507		7,718		285,026		7,899
Total temporarily impaired securities	$	50,770	$	182	$	672,797	$	18,467	$	723,567	$	18,649

The total number of security positions in the investment portfolio in an unrealized loss position at March 31, 2019 was 323 compared to 571 at December 31, 2018. At March 31, 2019, the Company had positions in 314 investment securities with a fair value of $574.7 million and a total unrealized loss of $8.2 million that have been in a continuous unrealized loss position for more than 12 months. At March 31, 2019, there were a total of nine securities positions in the Company’s investment portfolio with a fair value of $9.3 million and a total unrealized loss of $18 thousand that had been in a continuous unrealized loss position for less than 12 months. At December 31, 2018, the Company had positions in 435 investment securities with a fair value of $672.8 million and a total unrealized loss of $18.5 million that had been in a continuous unrealized loss position for more than 12 months. At December 31, 2018, there were a total of 136 securities positions in the Company’s investment portfolio with a fair value of $50.8 million and a total unrealized loss of $182 thousand that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.

The Company reviews investment securities on an ongoing basis for the presence of other than temporary impairment (“OTTI”) with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information then available to management. There was no impairment recorded during the three months ended March 31, 2019 and 2018.

Based on management’s review and evaluation of the Company’s debt securities as of March 31, 2019, the debt securities with unrealized losses were not considered to be OTTI. As of March 31, 2019, the Company did not intend to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. Accordingly, as of March 31, 2019, 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.

- 14 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.)LOANS

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

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
March 31, 2019
Commercial business	$	552,834	$	911		$	553,745
Commercial mortgage		995,183		(1,924	)		993,259
Residential real estate loans		525,036		9,655			534,691
Residential real estate lines		105,592		3,031			108,623
Consumer indirect		872,410		30,352			902,762
Other consumer		15,941		158			16,099
Total	$	3,066,996	$	42,183			3,109,179
Allowance for loan losses							(33,327	)
Total loans, net						$	3,075,852
December 31, 2018
Commercial business	$	557,040	$	821		$	557,861
Commercial mortgage		960,265		(2,071	)		958,194
Residential real estate loans		514,981		9,174			524,155
Residential real estate lines		106,712		3,006			109,718
Consumer indirect		888,732		31,185			919,917
Other consumer		16,590		163			16,753
Total	$	3,044,320	$	42,278			3,086,598
Allowance for loan losses							(33,914	)
Total loans, net						$	3,052,684

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.1 million and $2.9 million as of March 31, 2019 and December 31, 2018, respectively.

Past Due Loans Aging

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

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans
March 31, 2019
Commercial business	$	328	$	150	$	—	$	478	$	594	$	551,762	$	552,834
Commercial mortgage		443		375		—		818		909		993,456		995,183
Residential real estate loans		924		367		—		1,291		2,225		521,520		525,036
Residential real estate lines		150		15		—		165		252		105,175		105,592
Consumer indirect		1,388		497		—		1,885		1,822		868,703		872,410
Other consumer		87		8		2		97		—		15,844		15,941
Total loans, gross	$	3,320	$	1,412	$	2	$	4,734	$	5,802	$	3,056,460	$	3,066,996
December 31, 2018
Commercial business	$	227	$	1	$	—	$	228	$	912	$	555,900	$	557,040
Commercial mortgage		574		—		—		574		1,586		958,105		960,265
Residential real estate loans		1,295		242		—		1,537		2,391		511,053		514,981
Residential real estate lines		102		—		—		102		255		106,355		106,712
Consumer indirect		2,424		698		—		3,122		1,989		883,621		888,732
Other consumer		139		3		8		150		—		16,440		16,590
Total loans, gross	$	4,761	$	944	$	8	$	5,713	$	7,133	$	3,031,474	$	3,044,320

- 15 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.)LOANS (Continued)

There were no loans past due greater than 90 days and still accruing interest as of March 31, 2019 and December 31, 2018. There were $2 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, 2019 and December 31, 2018, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, 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, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

There were no loans modified as a TDR during the three months ended March 31, 2019 and 2018. There were no loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, 2019 and 2018. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Impaired Loans

Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and twelve-month period ended December 31, 2018 (in thousands):

	Recorded Investment (1)		Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2019
With no related allowance recorded:
Commercial business	$	221	$	292	$	—	$	356	$	—
Commercial mortgage		1,333		2,109		—		1,730		—
		1,554		2,401		—		2,086		—
With an allowance recorded:
Commercial business		504		504		181		660		—
Commercial mortgage		19		19		2		20		—
		523		523		183		680		—
	$	2,077	$	2,924	$	183	$	2,766	$	—
December 31, 2018
With no related allowance recorded:
Commercial business	$	319	$	487	$	—	$	1,156	$	—
Commercial mortgage		2,013		2,789		—		692		—
		2,332		3,276		—		1,848		—
With an allowance recorded:
Commercial business		725		725		205		2,458		—
Commercial mortgage		21		21		1		1,936		—
		746		746		206		4,394		—
	$	3,078	$	4,022	$	206	$	6,242	$	—

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

- 16 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.)LOANS (Continued)

Credit Quality Indicators

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

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

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

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

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

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

	Commercial Business		Commercial Mortgage
March 31, 2019
Uncriticized	$	524,977	$	979,254
Special mention		18,266		4,186
Substandard		9,591		11,743
Doubtful		—		—
Total	$	552,834	$	995,183
December 31, 2018
Uncriticized	$	531,756	$	943,991
Special mention		16,499		10,633
Substandard		8,785		5,641
Doubtful		—		—
Total	$	557,040	$	960,265

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

	Residential Real Estate Loans		Residential Real Estate Lines		Consumer Indirect		Other Consumer
March 31, 2019
Performing	$	522,811	$	105,340	$	870,588	$	15,939
Non-performing		2,225		252		1,822		2
Total	$	525,036	$	105,592	$	872,410	$	15,941
December 31, 2018
Performing	$	512,590	$	106,457	$	886,743	$	16,582
Non-performing		2,391		255		1,989		8
Total	$	514,981	$	106,712	$	888,732	$	16,590

- 17 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.)LOANS (Continued)

Allowance for Loan Losses

The following table sets forth the changes in the allowance for loan losses for the three-month periods ended as of the dates indicated (in thousands):

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
March 31, 2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489		$	33,914
Charge-offs		(130	)		—			(31	)		—			(2,982	)		(309	)		(3,452	)
Recoveries		103			17			6			2			1,424			120			1,672
Provision (credit)		(2,118	)		1,080			178			(39	)		2,011			81			1,193
Ending balance	$	12,167		$	6,316		$	1,265		$	173		$	13,025		$	381		$	33,327
Evaluated for impairment:
Individually	$	181		$	2		$	—		$	—		$	—		$	—		$	183
Collectively	$	11,986		$	6,314		$	1,265		$	173		$	13,025		$	381		$	33,144
Loans:
Ending balance	$	552,834		$	995,183		$	525,036		$	105,592		$	872,410		$	15,941		$	3,066,996
Evaluated for impairment:
Individually	$	725		$	1,352		$	—		$	—		$	—		$	—		$	2,077
Collectively	$	552,109		$	993,831		$	525,036		$	105,592		$	872,410		$	15,941		$	3,064,919
March 31, 2018
Allowance for loan losses:
Beginning balance	$	15,668		$	3,696		$	1,322		$	180		$	13,415		$	391		$	34,672
Charge-offs		(105	)		(4	)		(19	)		(94	)		(2,994	)		(433	)		(3,649	)
Recoveries		120			7			69			3			1,330			93			1,622
Provision (credit)		(741	)		1,774			28			129			1,481			278			2,949
Ending balance	$	14,942		$	5,473		$	1,400		$	218		$	13,232		$	329		$	35,594
Evaluated for impairment:
Individually	$	1,699		$	719		$	—		$	—		$	—		$	—		$	2,418
Collectively	$	13,243		$	4,754		$	1,400		$	218		$	13,232		$	329		$	33,176
Loans:
Ending balance	$	463,526		$	823,305		$	470,111		$	112,428		$	866,598		$	16,482		$	2,752,450
Evaluated for impairment:
Individually	$	4,453		$	2,791		$	—		$	—		$	—		$	—		$	7,244
Collectively	$	459,073		$	820,514		$	470,111		$	112,428		$	866,598		$	16,482		$	2,745,206

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, potentially resulting in 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.

- 18 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(5.)LOANS (Continued)

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines) are generally made based on 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.

(6.)LEASES

Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2047.  One building lease is subleased for terms extending through 2021.

The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities:

		March 31,			December 31,
	Balance Sheet Location	2019			2018
Operating Lease Right of Use Assets:
Gross carrying amount	Other assets	$	22,980		$	—
Accumulated amortization	Other assets		(478	)		—
Net book value		$	22,502		$	—
Operating Lease Liabilities:
Right of use lease obligations	Other liabilities	$	23,852		$	—

For the three months ended March 31, 2019, the weighted average remaining lease term for operating leases was 21.6 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.74%.  The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate.

The following table represents lease costs and other lease information:

	Three months ended March 31,
	2019			2018
Lease costs:
Operating lease costs	$	693		$	—
Variable lease costs (1)		96			—
Sublease income		(12	)		—
Net lease costs	$	777		$	—
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	688		$	—
Right of use assets obtained in exchange for new operating lease liabilities	$	325		$	—

⁽¹⁾ Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(6.)LEASES (Continued)

Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more, are as follows at March 31, 2019 (in thousands):

Twelve months ended March 31,
2020	$	2,677
2021		2,479
2022		2,159
2023		1,784
2024		1,381
Thereafter		26,799
Total future minimum operating lease payments		37,279
Amounts representing interest		(13,427	)
Present value of net future minimum operating lease payments		23,852

(7.)GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The carrying amount of goodwill totaled $66.1 million as of both March 31, 2019 and December 31, 2018. The Company performs a goodwill impairment test on an annual basis as of October 1st or more frequently if events and circumstances warrant.

	Banking		Non-Banking		Total
Balance, December 31, 2018	$	48,536	$	17,526	$	66,062
No activity during the period		—		—		—
Balance, March 31, 2019	$	48,536	$	17,526	$	66,062

Other Intangible Assets

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

	March 31,			December 31,
	2019			2018
Other intangibles assets:
Gross carrying amount	$	15,925		$	15,925
Accumulated amortization		(6,137	)		(5,814	)
Net book value	$	9,788		$	10,111

Amortization expense for total other intangible assets was $323 thousand and $288 thousand for the three months ended March 31, 2019 and  2018, respectively. As of March 31, 2019, the estimated amortization expense of other intangible assets for the remainder of 2019 and each of the next five years is as follows (in thousands):

2019 (remainder of year)	$	927
2020		1,134
2021		1,014
2022		923
2023		852
2024		783

- 20 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.)DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the first quarter of 2019 and in 2018, such derivatives were used to hedge the variable cash flows associated with short-term borrowings.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company’s cash flow hedge derivatives did not have any hedge ineffectiveness recognized in earnings during the three months ended March 31, 2019 and 2018. During the next twelve months, the Company estimates that $337 thousand will be reclassified as an increase to interest expense.

Interest Rate Swaps

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Mortgage Banking Derivatives

The Company 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.

- 21 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(8.)DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES (Continued)

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of March 31, 2019 and December 31, 2018 (in thousands):

					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018
Derivatives designated as hedging instruments
Cash flow hedges	$	100,000	$	100,000	Otherassets	$	243	$	631	Other liabilities	$	—	$	—
Total derivatives	$	100,000	$	100,000		$	243	$	631		$	—	$	—
Derivatives not designated as hedging instruments
Interest rate swaps (1)	$	121,454	$	71,977	Other assets	$	3,261	$	1,803	Other liabilities	$	3,587	$	2,006
Credit contracts		46,754		36,670	Other assets		20		—	Other liabilities		30		24
Mortgage banking		11,898		7,519	Other assets		132		83	Other liabilities		23		27
Total derivatives	$	180,106	$	116,166		$	3,413	$	1,886		$	3,640	$	2,057

⁽¹⁾ The Company secured its obligations under these contracts with $3.4 million and $1.3 million in cash at March 31, 2019 and December 31, 2018, respectively.

Effect of Derivative Instruments on the Income Statement

The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three months ended March 31, 2019 and 2018 (in thousands):

		Gain (loss) recognized in income
	Line item of gain (loss)	Three months ended March 31,
Undesignated derivatives	recognized in income	2019		2018
Interest rate swaps	Income from derivative instruments, net	$	101	$	—
Credit contracts	Income from derivative instruments, net		14		174
Mortgage banking	Income from derivative instruments, net		53		(3	)
Total undesignated		$	168	$	171

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(9.)SHAREHOLDERS’ EQUITY

Common Stock

The changes in shares of common stock were as follows for the three months ended March 31, 2019 and 2018:

	Outstanding			Treasury			Issued
March 31, 2019
Shares at December 31, 2018		15,928,598			127,580			16,056,178
Restricted stock units released		18,580			(18,580	)		—
Treasury stock purchases		(6,368	)		6,368			—
Shares at March 31, 2019		15,940,810			115,368			16,056,178
March 31, 2018
Shares at December 31, 2017		15,924,938			131,240			16,056,178
Restricted stock awards forfeited		(23,901	)		23,901			—
Stock options exercised		4,000			(4,000	)		—
Treasury stock purchases		(3,622	)		3,622			—
Shares at March 31, 2018		15,901,415			154,763			16,056,178

(10.)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
March 31, 2019
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	7,184		$	1,811		$	5,373
Reclassification adjustment for net gains included in net income (1)		174			44			130
Total securities available for sale and transferred securities		7,358			1,855			5,503
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(340	)		(86	)		(254	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(16	)		(4	)		(12	)
Amortization of net actuarial loss included in income		366			93			273
Total pension and post-retirement obligations		350			89			261
Other comprehensive income	$	7,368		$	1,858		$	5,510

March 31, 2018
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(8,465	)	$	(2,134	)	$	(6,331	)
Reclassification adjustment for net gains included in net income (1)		82			21			61
Total securities available for sale and transferred securities		(8,383	)		(2,113	)		(6,270	)
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(139	)		(35	)		(104	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(18	)		(5	)		(13	)
Amortization of net actuarial loss included in income		187			47			140
Total pension and post-retirement obligations		169			42			127
Other comprehensive loss	$	(8,353	)	$	(2,106	)	$	(6,247	)

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

- 23 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

Activity in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2019 and 2018 was as follows (in thousands):

	Hedging Derivative Instruments			Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)
March 31, 2019
Balance at beginning of period	$	(276	)	$	(7,769	)	$	(13,236	)	$	(21,281	)
Reclassification of income tax effects to retained earnings		—			(681	)		(2,102	)		(2,783	)
Other comprehensive income (loss) before reclassifications		(254	)		5,373			—			5,119
Amounts reclassified from accumulated other comprehensive    income (loss)		—			130			261			391
Net current period other comprehensive income (loss)		(254	)		5,503			261			5,510
Balance at end of period	$	(530	)	$	(2,947	)	$	(15,077	)	$	(18,554	)
March 31, 2018
Balance at beginning of period	$	—		$	(3,275	)	$	(8,641	)	$	(11,916	)
Other comprehensive income (loss) before reclassifications		(104	)		(6,331	)		—			(6,435	)
Amounts reclassified from accumulated other comprehensive    income (loss)		—			61			127			188
Net current period other comprehensive income (loss)		(104	)		(6,270	)		127			(6,247	)
Balance at end of period	$	(104	)	$	(9,545	)	$	(8,514	)	$	(18,163	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 (in thousands):

Details About Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Consolidated Statement of Income
	Three months ended
	March 31,
	2019			2018
Realized (loss) gain on sale of investment securities	$	(53	)	$	—		Net (loss) gain on investment securities
Amortization of unrealized holding gains (losses)    on investment securities transferred from    available for sale to held to maturity		(121	)		(82	)	Interest income
		(174	)		(82	)	Total before tax
		44			21		Income tax expense
		(130	)		(61	)	Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		16			18		Salaries and employee benefits
Net actuarial losses (1)		(366	)		(187	)	Salaries and employee benefits
		(350	)		(169	)	Total before tax
		89			42		Income tax expense
		(261	)		(127	)	Net of tax
Total reclassified for the period	$	(391	)	$	(188	)

⁽¹⁾ These items are included in the computation of net periodic pension expense. See Note 12 – Employee Benefit Plans for additional information.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(11.)SHARE-BASED COMPENSATION PLANS

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

The MD&C Committee approved the grant of restricted stock units (“RSUs”) and performance share units (“PSUs”) shown in the table below to certain members of management during the three months ended March 31, 2019.

	Number of Underlying Shares		Weighted Average Per Share Grant Date Fair Value
RSUs		17,658	$	26.96
PSUs		17,658		27.79

The grant-date fair value for the RSUs granted during the three months ended March 31, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

Fifty percent of the PSUs that ultimately vest is contingent on achieving specified total shareholder return (“TSR”) targets relative to the SNL Small Cap Bank & Thrift Index, a market index the MD&C Committee has selected as a peer group for this purpose. These shares will be earned based on the Company’s achievement of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrift Index over a three-year performance period ended December 31, 2021. The shares earned based on the achievement of the TSR performance requirement, if any, will vest on February 26, 2022 assuming the recipient’s continuous service to the Company.  The remaining fifty percent of the PSUs that ultimately vest is contingent upon achievement of an EPS performance requirement for the Company’s fiscal year ended December 31, 2021.  The shares earned based on the achievement of the EPS performance requirement, if any, will vest on February 26, 2022 assuming the recipient’s continuous service to the Company.  

The grant-date fair value of the TSR portion of PSUs granted during the three months ended March 31, 2019 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.84 years, (ii) risk free interest rate of 2.43%, (iii) expected dividend yield of 3.20% and (iv) expected stock price volatility over the expected term of the TSR award of 21.3%. The Monte Carlo simulation model is a risk analysis method that selects a random value from a range of estimates.  The grant-date fair value of the EPS portion of PSUs granted during the three months ended March 31, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

The Company previously granted restricted stock awards to certain members of management and non-employee directors.  There were no restricted stock awards granted during the quarter ended March 31, 2019.  The following is a summary of restricted stock awards and restricted stock units activity for the three months ended March 31, 2019:

	Number of Shares			Weighted Average Market Price at Grant Date
Outstanding at beginning of year		130,571		$	28.04
Granted		35,316			27.38
Vested		(18,580	)		24.21
Forfeited		(21,865	)		26.12
Outstanding at end of period		125,442		$	28.76

At March 31, 2019, there was $2.1 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of 2.2 years.

- 25 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

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

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during the first three months of 2019 or 2018. There was no unrecognized compensation expense related to unvested stock options as of March 31, 2019. There was no stock option activity for the three months ended March 31, 2019.

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 three months ended March 31, 2018 was $52 thousand. The total cash received as a result of option exercises under stock compensation plans for the three months ended March 31, 2018 was $76 thousand.

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

	Three months ended March 31,
	2019		2018
Salaries and employee benefits	$	151	$	268
Other noninterest expense		31		34
Total share-based compensation expense	$	182	$	302

(12.)EMPLOYEE BENEFIT PLANS

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

	Three months ended March 31,
	2019			2018
Service cost	$	802		$	836
Interest cost on projected benefit obligation		695			598
Expected return on plan assets		(1,184	)		(1,321	)
Amortization of unrecognized prior service credit		(16	)		(18	)
Amortization of unrecognized net actuarial loss		366			187
Net periodic benefit expense	$	663		$	282

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of income. The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2019 fiscal year.

- 26 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(13.)COMMITMENTS AND CONTINGENCIES

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

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

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

	March 31, 2019		December 31, 2018
Commitments to extend credit	$	685,014	$	687,875
Standby letters of credit		12,152		11,977

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 which 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.

(14.)FAIR VALUE MEASUREMENTS

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

Valuation Hierarchy

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

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

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

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

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

- 27 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(14.)FAIR VALUE MEASUREMENTS (Continued)

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

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

Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.

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

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

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

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

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

- 28 -

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(14.)FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

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

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
March 31, 2019
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	144,376		$	—	$	144,376
Mortgage-backed securities		—		283,169			—		283,169
Other assets:
Hedging derivative instruments		—		243			—		243
Fair value adjusted through comprehensive income	$	—	$	427,788		$	—	$	427,788
Other assets:
Derivative instruments - interest rate products	$	—	$	3,261		$	—	$	3,261
Derivative instruments - credit contracts		—		20			—		20
Derivative instruments - mortgage banking		—		132			—		132
Other liabilities:
Derivative instruments - interest rate products		—		(3,587	)		—		(3,587	)
Derivative instruments - credit contracts		—		(30	)		—		(30	)
Derivative instruments - mortgage banking		—		(23	)		—		(23	)
Fair value adjusted through net income	$	—	$	(227	)	$	—	$	(227	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,069		$	—	$	2,069
Collateral dependent impaired loans		—		—			1,894		1,894
Other assets:
Loan servicing rights		—		—			1,030		1,030
Other real estate owned		—		—			41		41
Total	$	—	$	2,069		$	2,965	$	5,034

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2019.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(14.)FAIR VALUE MEASUREMENTS (Continued)

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2018
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	152,028		$	—	$	152,028
Mortgage-backed securities		—		293,649			—		293,649
Other assets:
Hedging derivative instruments		—		631			—		631
Fair value adjusted through comprehensive income	$	—	$	446,308		$	—	$	446,308
Other assets:
Derivative instruments - interest rate products	$	—	$	1,803		$	—	$	1,803
Derivative instruments - mortgage banking		—		83			—		83
Other liabilities:
Derivative instruments - interest rate products		—		(2,006	)		—		(2,006	)
Derivative instruments - credit contracts		—		(24	)		—		(24	)
Derivative instruments - mortgage banking		—		(27	)		—		(27	)
Fair value adjusted through net income	$	—	$	(171	)	$	—	$	(171	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,868		$	—	$	2,868
Collateral dependent impaired loans		—		—			2,872		2,872
Other assets:
Loan servicing rights		—		—			1,022		1,022
Other real estate owned		—		—			230		230
Total	$	—	$	2,868		$	4,124	$	6,992

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2018. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2018.

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

Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Collateral dependent impaired loans	$	1,894	Appraisal of collateral (1)	Appraisal adjustments (2)	25% (3)
Loan servicing rights		1,030	Discounted cash flow	Discount rate	10.2% (3)
				Constant prepayment rate	13.4% (3)
Other real estate owned		41	Appraisal of collateral (1)	Appraisal adjustments (2)	11% (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⁾ Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾ Weighted averages.

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the three months ended March 31, 2019.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(14.)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, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable.

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

	Level in	March 31, 2019				December 31, 2018
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	79,786	$	79,786	$	102,755	$	102,755
Securities available for sale	Level 2		427,545		427,545		445,677		445,677
Securities held to maturity	Level 2		438,984		436,974		446,581		439,581
Loans held for sale	Level 2		2,069		2,069		2,868		2,868
Loans	Level 2		3,073,958		3,061,505		3,049,812		3,006,161
Loans (1)	Level 3		1,894		1,894		2,872		2,872
Accrued interest receivable	Level 1		13,429		13,429		11,990		11,990
FHLB and FRB stock	Level 2		21,056		21,056		26,375		26,375
Derivative instruments – cash flow hedge	Level 2		243		243		631		631
Derivative instruments – interest rate products	Level 2		3,261		3,261		1,803		1,803
Derivative instruments – credit contracts	Level 2		20		20		—		—
Derivative instruments – mortgage banking	Level 2		132		132		83		83
Financial liabilities:
Non-maturity deposits	Level 1		2,456,727		2,456,727		2,346,839		2,346,839
Time deposits	Level 2		1,052,110		1,048,583		1,020,068		1,014,532
Short-term borrowings	Level 1		287,300		287,300		469,500		469,500
Long-term borrowings	Level 2		39,220		39,641		39,202		38,415
Accrued interest payable	Level 1		10,478		10,478		9,280		9,280
Derivative instruments – interest rate products	Level 2		3,587		3,587		2,006		2,006
Derivative instruments – credit contracts	Level 2		30		30		24		24
Derivative instruments – mortgage banking	Level 2		23		23		27		27

⁽¹⁾ Comprised of collateral dependent impaired loans.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

(15.)SEGMENT REPORTING

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

The Banking segment includes all of the Company’s retail and commercial banking operations. The Non-Banking segment includes the activities of SDN, a full-service insurance agency that provides a broad range of insurance services to both personal and business clients, and Courier Capital and HNP Capital, our investment advisor and wealth management firms that provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Holding company amounts are the primary differences between segment amounts and consolidated totals and are reflected in the Holding Company and Other column below, along with amounts to eliminate balances and transactions between segments.

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

	Banking		Non-Banking		Holding Company and Other			Consolidated Totals
March 31, 2019
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		180		9,608		—			9,788
Total assets		4,267,432		35,448		(339	)		4,302,541
December 31, 2018
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		213		9,898		—			10,111
Total assets		4,272,439		35,975		3,284			4,311,698

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2019
Net interest income (expense)	$	32,409		$	—		$	(617	)	$	31,792
Provision for loan losses		(1,193	)		—			—			(1,193	)
Noninterest income		6,266			3,026			(172	)		9,120
Noninterest expense		(21,453	)		(3,041	)		(677	)		(25,171	)
Income (loss) before income taxes		16,029			(15	)		(1,466	)		14,548
Income tax (expense) benefit		(3,344	)		—			317			(3,027	)
Net income (loss)	$	12,685		$	(15	)	$	(1,149	)	$	11,521

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2018
Net interest income (expense)	$	30,317		$	—		$	(615	)	$	29,702
Provision for loan losses		(2,949	)		—			—			(2,949	)
Noninterest income		6,430			2,624			(147	)		8,907
Noninterest expense		(20,480	)		(2,665	)		(959	)		(24,104	)
Income (loss) before income taxes		13,318			(41	)		(1,721	)		11,556
Income tax (expense) benefit		(2,632	)		8			356			(2,268	)
Net income (loss)	$	10,686		$	(33	)	$	(1,365	)	$	9,288

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

This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2018. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.

FORWARD LOOKING INFORMATION

Statements and financial analysis contained in this Quarterly Report on Form 10-Q that are based on other than historical data are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

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

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

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Form 10-K”), including, but not limited to, those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such material differences include, but are not limited to:

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

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

• Geographic concentration may unfavorably impact our operations;

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

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

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

• We may be unable to successfully implement our growth strategies, including the integration and successful management of newly-acquired businesses;

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

• Our commercial business and mortgage loans increase our exposure to credit risks;

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

• Lack of seasoning in portions of our loan portfolio could increase risk of credit defaults in the future;

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

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

• We are highly regulated, and any adverse regulatory action may result in additional costs, loss of business opportunities, and reputational damage;

• We make certain assumptions and estimates in preparing our financial statements that may prove to be incorrect, which could significantly impact our results of operations, cash flows and financial condition, and we are subject to new or changing accounting rules and interpretations, and the failure by us to correctly interpret or apply these evolving rules and interpretations could have a material adverse effect;

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

• A breach in security of our or third-party information systems, including the occurrence of a cyber incident or a deficiency in cybersecurity, or a failure by us to comply with New York State cybersecurity regulations, may subject us to liability, result in a loss of customer business or damage our brand image;

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

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

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

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

• Acquisitions may disrupt our business and dilute shareholder value;

• We are subject to interest rate risk, and a rising rate environment may reduce our income and result in higher defaults on our loans;

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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

• The policies of the Federal Reserve have a significant impact on our earnings;

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

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

• 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;

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

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

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

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

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Item 1A, Risk Factors, in the Form 10-K for further information. Except as required by law, we do not undertake, and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

GENERAL

The Parent is a financial holding company headquartered in New York State, providing diversified financial services through its subsidiaries, Five Star Bank (the “Bank”), SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York-chartered banking subsidiary, the Bank. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

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

Our business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking and other financial needs of individuals, municipalities and businesses of the local communities surrounding our primary service area. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from larger competitors, resulting in long-standing and broad-based banking relationships. Our core customers are primarily small- to medium-sized businesses, individuals and community organizations who prefer to build banking, insurance and wealth management relationships with a community bank that combines high quality, competitively-priced products and services with personalized service. Because of our identity and origin as a locally operated bank, we believe that our level of personal service provides a competitive advantage over larger banks, which tend to consolidate decision-making authority outside local communities.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that we are well-positioned to be a strong competitor within our market area because of our focus on community banking needs and customer service, our comprehensive suite of deposit, loan, insurance and wealth management products typically found at larger banks, our highly experienced management team and our strategically located banking centers. We have evolved to meet changing customer needs by opening what we refer to as financial solution center branches. These financial solution center branches have a smaller footprint than our traditional branches, focus on technology to provide solutions that fit our customer preferences for transacting business with us, and are staffed by certified personal bankers who are trained to meet a broad array of customer needs. In recent years, we have opened four financial solution centers in the Rochester and Buffalo markets. We believe that the foregoing factors all help to grow our core deposits, which supports a central element of our business strategy - the growth of a diversified and high-quality loan portfolio.

EXECUTIVE OVERVIEW

Summary of 2019 First Quarter Results

Net income increased $2.2 million, or 24%, to $11.5 million for the first quarter of 2019 compared to $9.3 million for the first quarter of 2018. Net income available to common shareholders for the first quarter of 2019 was $11.2 million, or $0.70 per diluted share, compared with $8.9 million, or $0.56 per diluted share, for the first quarter of last year. Return on average common equity was 11.79% and return on average assets was 1.09% for the first quarter of 2019 compared to 9.95% and 0.92%, respectively, for the first quarter of 2018.

Net interest income totaled $31.8 million in the first quarter of 2019, up from $29.7 million in the first quarter of 2018. This increase was driven by growth in interest-earning assets. Average interest-earning assets were up $176.1 million, led by a $328.0 million increase in average loans in the first quarter of 2019 compared to the same quarter in 2018.

The provision for loan losses was $1.2 million in the first quarter of 2019 compared to $2.9 million in the first quarter of 2018. Net charge-offs during the recent quarter were $1.8 million, down from $2.0 million in the first quarter of 2018. Net charge-offs expressed as an annualized percentage of average loans outstanding were 0.23% during the first quarter of 2019 compared with 0.30% in the first quarter of 2018. See the “Allowance for Loan Losses” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion regarding the decrease in the provision for loan losses and the decrease in net-charge-offs.

Noninterest income totaled $9.1 million in the first quarter of 2019, compared to $8.9 million in the first quarter of 2018. The increase is primarily attributed to increases in investment advisory income and net gain on sale of loans held for sale, partially offset by a decrease in income from investments in limited partnerships. Investment advisory income was $2.2 million in the first quarter of 2019, $438 thousand higher than the first quarter of 2018. The increase was primarily driven by the June 2018 acquisition of HNP Capital.  The increases in net gain on sale of loans held for sale was driven by an increase in the number and value of transactions executed in the quarter. Income from investments in limited partnerships was $336 thousand lower in the first quarter of 2019 compared to the first quarter of 2018.  Income from these investments fluctuate based on the maturity and performance of the underlying investments.  

Noninterest expense in the first quarter of 2019 totaled $25.2 million compared with $24.1 million in the first quarter of 2018. The increase in noninterest expense was primarily the result of increases in salaries and employee benefits, occupancy and equipment and professional services, partially offset by a decrease in advertising and promotions expenses. The increase in salaries and employee benefits was a result of investments in Bank personnel and 2018 acquisition of HNP Capital.  The increase in occupancy and equipment was primarily the result of investments in software and facilities.  The increase in professional services expense was primarily related to the timing of fees for consulting and advisory projects.  The decrease in advertising and promotions expense was related to the timing of expenses for the Five Star Bank branding campaign.

The regulatory Common Equity Tier 1 Ratio and Total Risk-Based Capital Ratio were 9.87%, and 12.50%, respectively, for the first quarter of 2019. See the “Liquidity and Capital Management” section of this Management’s Discussion and Analysis for further discussion regarding regulatory capital and the Basel III capital rules.

RESULTS OF OPERATIONS

Net Interest Income and Net Interest Margin

Net interest income is our primary source of revenue, comprising 78% of revenue during the three months ended March 31, 2019. 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.

- 35 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

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

	Three months ended March 31,
	2019		2018
Interest income per consolidated statements of income	$	41,514	$	35,477
Adjustment to fully taxable equivalent basis		302		366
Interest income adjusted to a fully taxable equivalent basis		41,816		35,843
Interest expense per consolidated statements of income		9,722		5,775
Net interest income on a taxable equivalent basis	$	32,094	$	30,068

Analysis of Net Interest Income for the Three Months Ended March 31, 2019 and 2018

Net interest income on a taxable equivalent basis for the three months ended March 31, 2019, was $32.1 million, an increase of $2.0 million versus the comparable quarter last year of $30.1 million. The increase in net interest income was due to an increase in average earning assets of $176.1 million or 5% compared to the first quarter of 2018.

The net interest margin for the first quarter of 2018 was 3.24%, six-basis points higher than 3.18% for the same period in 2018. This comparable period increase was a function of an 11-basis point higher contribution from net free funds, partially offset by a five-basis point decrease in interest rate spread. The lower interest rate spread was a result of a 44-basis point increase in the yield on average interest-earning assets and a 49-basis point increase in the cost of average interest-bearing liabilities.

For the first quarter of 2019, the yield on average earning assets of 4.23% was 44 basis points higher than the first quarter of 2018 of 3.79%. Loan yields increased 41 basis points during the first quarter of 2019 to 4.77% from 4.36%. The yield on investment securities increased five basis points during the first quarter of 2019 to 2.37% from 2.32%. Overall, the earning asset rate changes increased interest income by $3.0 million during the first quarter of 2019 and a favorable volume variance increased interest income by $3.0 million, which collectively drove a $6.0 million increase in interest income.

Average interest-earning assets were $4.00 billion for the first quarter of 2019 compared to $3.82 billion for the first quarter of 2018, an increase of $176.1 million or 5% from the comparable quarter last year, with average loans up $328.0 million from $2.76 billion to $3.09 billion and average securities down $148.0 million from $1.03 billion to $886.9 million. The growth in average loans reflected increases in most loan categories. Commercial loans, in particular, were up $250.4 million from $1.27 billion to $1.53 billion or 20% from the first quarter of 2018.    Loans represented 77.4% of average interest-earning assets during the first quarter of 2019 compared to 72.3% during the first quarter of 2018. The increase in the volume of average loans resulted in a $3.9 million increase in interest income, in addition to a $2.8 million increase due to the favorable rate variance. Securities represented 22.2% of average interest-earning assets during first quarter of 2019 compared to 27.1% during the first quarter of 2018. The decrease in the volume of average securities resulted in a $876 thousand decrease in interest income, partially offset by a $117 thousand increase due to the favorable rate variance.

The cost of average interest-bearing liabilities of 1.27% in the first quarter of 2019 compared to 0.78% in the first quarter of 2018 was 49-basis points higher than the first quarter of 2018. The cost of average interest-bearing deposits increased 47 basis points from 0.55% to 1.02% and the cost of short-term borrowings increased 102 basis points from 1.68% to 2.70% in the first quarter of 2019 compared to the same quarter of 2018. The increase in the cost of short-term borrowings was a result of increases in the federal funds rate. The cost of long-term borrowings for the first quarter of 2019 decreased one basis point from 6.31% to 6.30% in the first quarter of 2019 compared to the same quarter of 2018. Overall, interest-bearing liability rate and volume increases resulted in $3.9 million of higher interest expense.

Average interest-bearing liabilities of $3.10 billion in the first quarter of 2019 were $104.1 million or 3% higher than the first quarter of 2018. On average, interest-bearing deposits grew $169.2 million from $2.54 billion to $2.71 billion, while noninterest-bearing demand deposits (a principal component of net free funds) were up $39.2 million from $688.1 million to $727.3 million. The increase in average deposits was due to successful business development efforts in municipal and retail banking, and an increase in deposits from our Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs. For further discussion of the CDARS and ICS programs, refer to the “Funding Activities - Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit rate and volume changes resulted in $3.3 million of higher interest expense during the first quarter of 2019. Average borrowings decreased $65.1 million from $450.9 million to $385.8 million compared to the first quarter of 2018. Overall, short and long-term borrowing rate and volume changes resulted in $604 thousand of higher interest expense during the first quarter of 2019.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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

	Three months ended March 31,
	2019								2018
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
Interest-earning assets:
Federal funds sold and interest-earning deposits	$	17,955		$	102		2.30	%	$	21,941		$	78		1.43	%
Investment securities (1):
Taxable		653,547			3,807		2.33			754,101			4,263		2.26
Tax-exempt (2)		233,331			1,441		2.47			280,730			1,744		2.49
Total investment securities		886,878			5,248		2.37			1,034,831			6,007		2.32
Loans:
Commercial business		547,182			7,243		5.37			453,250			5,223		4.67
Commercial mortgage		977,818			12,573		5.21			821,311			9,866		4.87
Residential real estate loans		529,522			5,129		3.87			470,612			4,388		3.73
Residential real estate lines		109,529			1,427		5.28			115,614			1,257		4.41
Consumer indirect		911,252			9,600		4.27			885,723			8,516		3.90
Other consumer		16,226			494		12.36			16,978			508		12.13
Total loans		3,091,529			36,466		4.77			2,763,488			29,758		4.36
Total interest-earning assets		3,996,362			41,816		4.23			3,820,260			35,843		3.79
Less: Allowance for loan losses		(34,633	)							(35,402	)
Other noninterest-earning assets		321,262								301,775
Total assets	$	4,282,991							$	4,086,633
Interest-bearing liabilities:
Deposits:
Interest-bearing demand	$	668,448			336		0.20	%	$	671,991			203		0.12	%
Savings and money market		965,829			985		0.41			1,012,574			452		0.18
Time deposits		1,076,687			5,478		2.06			857,184			2,801		1.33
Total interest-bearing deposits		2,710,964			6,799		1.02			2,541,749			3,456		0.55
Short-term borrowings		346,546			2,305		2.70			411,760			1,701		1.68
Long-term borrowings		39,209			618		6.30			39,138			618		6.31
Total borrowings		385,755			2,923		3.06			450,898			2,319		2.08
Total interest-bearing liabilities		3,096,719			9,722		1.27			2,992,647			5,775		0.78
Noninterest-bearing demand deposits		727,321								688,123
Other noninterest-bearing liabilities		57,993								25,012
Shareholders’ equity		400,958								380,851
Total liabilities and shareholders’ equity	$	4,282,991							$	4,086,633
Net interest income (tax-equivalent)				$	32,094							$	30,068
Interest rate spread							2.96	%							3.01	%
Net earning assets	$	899,643							$	827,613
Net interest margin (tax-equivalent)							3.24	%							3.18	%
Ratio of average interest-earning assets to average    interest-bearing liabilities							129.05	%							127.65	%

⁽¹⁾ Investment securities are shown at amortized cost.

⁽²⁾ The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21% for the three-month periods ended March 31, 2019 and 2018, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

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

	Three months ended March 31, 2019 vs. 2018
Increase (decrease) in:	Volume			Rate			Total
Interest income:
Federal funds sold and interest-earning deposits	$	(16	)	$	40		$	24
Investment securities:
Taxable		(583	)		127			(456	)
Tax-exempt		(293	)		(10	)		(303	)
Total investment securities		(876	)		117			(759	)
Loans:
Commercial business		1,176			844			2,020
Commercial mortgage		1,976			731			2,707
Residential real estate loans		566			175			741
Residential real estate lines		(69	)		239			170
Consumer indirect		251			833			1,084
Other consumer		(23	)		9			(14	)
Total loans		3,877			2,831			6,708
Total interest income		2,985			2,988			5,973
Interest expense:
Deposits:
Interest-bearing demand		(1	)		134			133
Savings and money market		(22	)		555			533
Time deposits		843			1,834			2,677
Total interest-bearing deposits		820			2,523			3,343
Short-term borrowings		(303	)		907			604
Long-term borrowings		1			(1	)		—
Total borrowings		(302	)		906			604
Total interest expense		518			3,429			3,947
Net interest income	$	2,467		$	(441	)	$	2,026

Provision for Loan Losses

The provision for loan losses is based upon credit loss experience, growth or contraction of specific segments of the loan portfolio, and the estimate of losses inherent in the current loan portfolio. The provision for loan losses for the three months ended March 31, 2019 was $1.2 million compared to $2.9 million for the corresponding period in 2018.  The decrease in provision is primarily the result of favorable asset quality trends.

See the “Allowance for Loan Losses” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Income

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

	Three months ended March 31,
	2019			2018
Service charges on deposits	$	1,680		$	1,738
Insurance income		1,378			1,399
ATM and debit card		1,443			1,421
Investment advisory		2,216			1,778
Company owned life insurance		410			450
Investments in limited partnerships		232			568
Loan servicing		110			115
Income from derivative instruments, net		168			171
Net gain on sale of loans held for sale		182			96
Net (loss) gain on investment securities		(53	)		—
Net gain on other assets		49			3
Other		1,305			1,168
Total noninterest income	$	9,120		$	8,907

Investment advisory income for the three months ended March 31, 2019 increased $438 thousand to $2.2 million compared to $1.8 million during the three months ended March 31, 2018, reflecting higher assets under management driven by the acquisition of HNP Capital in the second quarter of 2018.

We have investments in limited partnerships, primarily small business investment companies, and account for these investments under the equity method. The income from these equity method investments fluctuates based on the maturity and performance of the underlying investments.

During the first quarter of 2019, we recognized net losses on investment securities totaling $53 thousand from the sale of one agency security.  During the first quarter of 2018, we had no sales of investment securities. The amount and timing of our sale of investment securities is dependent on several factors, including our prudent efforts to realize gains while managing duration, premium and credit risk.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Expense

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

	Three months ended March 31,
	2019		2018
Salaries and employee benefits	$	14,001	$	13,429
Occupancy and equipment		4,586		4,407
Professional services		1,158		883
Computer and data processing		1,223		1,235
Supplies and postage		534		512
FDIC assessments		512		508
Advertising and promotions		520		977
Amortization of intangibles		323		288
Other		2,314		1,865
Total noninterest expense	$	25,171	$	24,104

Salaries and employee benefits expense increased by $572 thousand to $14.0 million in the first quarter of 2019 compared to $13.4 million during the same period in 2018, primarily due to investments in Bank personnel and the acquisition of HNP Capital in the second quarter of 2018.

Occupancy and equipment expense increased $179 thousand to $4.6 million in the first quarter of 2019 compared to $4.4 million during the same period in 2018, primarily as a result of investments in software and facilities.

Professional services expense increased $275 thousand to $1.2 million when comparing the first quarter of 2019 to the same period in 2018, primarily as a result of the timing of fees for consulting and advisory projects.

Advertising and promotions expense decreased $457 thousand to $520 thousand when comparing the first quarter of 2019 to the same period in 2018, as a result of the timing of expenses related to the Five Star Bank branding campaign.

Our efficiency ratio for the first quarter of 2019 was 60.99% compared with 61.85% for the first quarter of 2018. The lower efficiency ratio is a result of the higher net interest income associated with our organic growth initiatives. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.

Income Taxes

For the three months ended March 31, 2019, we recorded income tax expense of $3.0 million, versus $2.3 million for the same period in the prior year. The effective tax rates for the first quarters of 2019 and 2018 were 20.8% and 19.6%, respectively. Effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities and earnings on company owned life insurance. In addition, our effective tax rate for 2019 and 2018 reflects the New York State tax benefit generated by our real estate investment trust.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION

INVESTING ACTIVITIES

Investment Securities

The following table summarizes the composition of our investment securities portfolio as of the dates indicated (in thousands):

	Investment Securities Portfolio Composition
	March 31, 2019				December 31, 2018
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Securities available for sale:
U.S. Government agency and government-sponsored enterprise    securities	$	145,072	$	144,376	$	155,102	$	152,028
Mortgage-backed securities:
Agency mortgage-backed securities		285,142		282,446		300,480		292,882
Non-Agency mortgage-backed securities		—		723		—		767
Total available for sale securities		430,214		427,545		455,582		445,677
Securities held to maturity:
State and political subdivisions		232,160		234,171		234,845		234,510
Mortgage-backed securities		206,824		202,803		211,736		205,071
Total held to maturity securities		438,984		436,974		446,581		439,581
Total investment securities	$	869,198	$	864,519	$	902,163	$	885,258

The available for sale (“AFS”) investment securities portfolio decreased $18.1 million from $445.7 million at December 31, 2018 to $427.5 million at March 31, 2019. The AFS portfolio had net unrealized losses totaling $2.7 million and $9.9 million at March 31, 2019 and December 31, 2018, respectively. The unrealized losses in the AFS portfolio were predominantly caused by changes in market interest rates. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

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 March 31, 2019. 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. No tax-equivalent adjustments were made to the weighted average yields (dollars 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	$	5,026		1.78	%	$	80,849		2.28	%	$	59,197		2.39	%	$	—		0.00	%	$	145,072		2.31	%
Mortgage-backed securities		23,174		1.51			56,343		2.29			124,318		2.56			81,307		2.37			285,142		2.37
		28,200		1.56			137,192		2.28			183,515		2.51			81,307		2.37			430,214		2.35
Held to maturity debt securities:
State and political subdivisions		49,502		2.27			145,294		2.14			37,364		1.79			—		—			232,160		2.11
Mortgage-backed securities		—		—			2,441		2.30			37,172		1.78			167,211		2.46			206,824		2.33
		49,502		2.27			147,735		2.14			74,536		1.79			167,211		2.46			438,984		2.21
Total investment securities	$	77,702		2.01	%	$	284,927		2.21	%	$	258,051		2.30	%	$	248,518		2.43	%	$	869,198		2.28	%

- 41 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Impairment Assessment

We review investment securities on an ongoing basis for the presence of other than temporary impairment (“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 for available for sale securities 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 OTTI includes a credit loss, we use our best estimate of the present value of cash flows expected to be collected from the debt security considering factors such as: 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. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. There were no securities deemed to be OTTI during the three months ended March 31, 2019 and 2018.

LENDING ACTIVITIES

The following table summarizes the composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, as of the dates indicated (in thousands).

	Loan Portfolio Composition
	March 31, 2019					December 31, 2018
	Amount		% of Total			Amount		% of Total
Commercial business	$	553,745		17.8	%	$	557,861		18.1	%
Commercial mortgage		993,259		32.0			958,194		31.0
Total commercial		1,547,004		49.8			1,516,055		49.1
Residential real estate loans		534,691		17.2			524,155		17.0
Residential real estate lines		108,623		3.5			109,718		3.6
Consumer indirect		902,762		29.0			919,917		29.8
Other consumer		16,099		0.5			16,753		0.5
Total consumer		1,562,175		50.2			1,570,543		50.9
Total loans		3,109,179		100.0	%		3,086,598		100.0	%
Less: Allowance for loan losses		33,327					33,914
Total loans, net	$	3,075,852				$	3,052,684

Total loans increased $22.6 million to $3.11 billion at March 31, 2019 from $3.09 billion at December 31, 2018. The increase in loans was attributable to our organic growth initiatives.

Commercial loans increased $30.9 million during the three months ended March 31, 2019 and represented 49.8% of total loans as of March 31, 2019 as a result of our continued commercial business development efforts.

The consumer indirect portfolio totaled $902.8 million and represented 29.0% of total loans as of March 31, 2019. During the first quarter of 2019, we originated $76.1 million in indirect auto loans with a mix of approximately 32% new auto and 68% used auto. During the first quarter of 2018, we originated $108.9 million in indirect auto loans with a mix of approximately 38% new auto and 62% used auto. Our origination volumes and mix of new and used vehicles financed fluctuate depending on general market conditions.

Loans Held for Sale and Loan Servicing Rights

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $2.1 million and $2.9 million as of March 31, 2019 and December 31, 2018, respectively.

We sell certain qualifying newly originated or refinanced residential real estate loans on the secondary market. Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $173.5 million and $171.5 million as of March 31, 2019 and December 31, 2018, respectively.

- 42 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Allowance for Loan Losses

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

	Loan Loss Analysis
	Three months ended March 31,
	2019			2018
Allowance for loan losses, beginning of period	$	33,914		$	34,672
Charge-offs:
Commercial business		130			105
Commercial mortgage		—			4
Residential real estate loans		31			19
Residential real estate lines		—			94
Consumer indirect		2,982			2,994
Other consumer		309			433
Total charge-offs		3,452			3,649
Recoveries:
Commercial business		103			120
Commercial mortgage		17			7
Residential real estate loans		6			69
Residential real estate lines		2			3
Consumer indirect		1,424			1,330
Other consumer		120			93
Total recoveries		1,672			1,622
Net charge-offs		1,780			2,027
Provision for loan losses		1,193			2,949
Allowance for loan losses, end of period	$	33,327		$	35,594
Net loan charge-offs to average loans (annualized)		0.23	%		0.30	%
Allowance for loan losses to total loans		1.07	%		1.27	%
Allowance for loan losses to non-performing loans		574	%		332	%

The allowance for loan losses represents the estimated amount of probable credit losses inherent in our loan portfolio. We perform periodic, systematic reviews of the loan portfolio to estimate probable losses in the respective loan portfolios. In addition, we regularly evaluate prevailing economic and business conditions, industry concentrations, changes in the size and characteristics of the portfolio and other pertinent factors. The process we use to determine the overall allowance for loan losses is based on this analysis. Based on this analysis, we believe the allowance for loan losses is adequate as of March 31, 2019.

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

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

Net charge-offs of $1.8 million in the first quarter of 2019 represented 0.23% of average loans on an annualized basis compared to $2.0 million or 0.30% in the first quarter of 2018. The decrease in net charge-offs in the three months ended March 31, 2019 is primarily due to improved credit quality of our outstanding loan portfolio.  The allowance for loan losses was $33.3 million at March 31, 2019, compared with $33.9 million at December 31, 2018. The ratio of the allowance for loan losses to total loans was 1.07% and 1.10% at March 31, 2019 and December 31, 2018, respectively. The ratio of allowance for loan losses to non-performing loans was 574% at March 31, 2019, compared with 475% at December 31, 2018.

- 43 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-Performing Assets and Potential Problem Loans

The table below summarizes our non-performing assets at the dates indicated (in thousands).

	Non-Performing Assets
	March 31, 2019			December 31, 2018
Nonaccrual loans:
Commercial business	$	594		$	912
Commercial mortgage		909			1,586
Residential real estate loans		2,225			2,391
Residential real estate lines		252			255
Consumer indirect		1,822			1,989
Other consumer		—			—
Total nonaccrual loans		5,802			7,133
Accruing loans 90 days or more delinquent		2			8
Total non-performing loans		5,804			7,141
Foreclosed assets		41			230
Total non-performing assets	$	5,845		$	7,371
Non-performing loans to total loans		0.19	%		0.23	%
Non-performing assets to total assets		0.14	%		0.17	%

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

	Three months ended March 31, 2019
Nonaccrual loans, beginning of period	$	7,133
Additions		5,228
Payments		(2,481	)
Charge-offs		(3,213	)
Returned to accruing status		(865	)
Transferred to other real estate or repossessed assets		—
Nonaccrual loans, end of period	$	5,802

Non-performing assets include non-performing loans and foreclosed assets. Non-performing assets at March 31, 2019 were $5.8 million, a decrease of $1.5 million from the $7.4 million balance at December 31, 2018. The primary component of non-performing assets is non-performing loans, which were $5.8 million or 0.19% of total loans at March 31, 2019, compared with $7.1 million or 0.23% of total loans at December 31, 2018.

Approximately $468 thousand, or 8%, of the $5.8 million in non-performing loans as of March 31, 2019 were current with respect to payment of principal and interest but were classified as non-accruing because repayment in full of principal and/or interest was uncertain. Included in nonaccrual loans are troubled debt restructurings (“TDRs”) of $337 thousand and $546 thousand at March 31, 2019 and December 31, 2018, respectively. We had one TDR of $574 thousand that was accruing interest as of March 31, 2019 and one TDR of $580 thousand that was accruing interest as of December 31, 2018.

Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Foreclosed asset holdings represented one property totaling $41 thousand at March 31, 2019 and three properties totaling $230 thousand at December 31, 2018.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes us to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. We consider loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified $19.8 million and $11.9 million in loans that continued to accrue interest which were classified as substandard as of March 31, 2019 and December 31, 2018, respectively.

- 44 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

FUNDING ACTIVITIES

Deposits

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

	Deposit Composition
	March 31, 2019					December 31, 2018
	Amount		% of Total			Amount		% of Total
Noninterest-bearing demand	$	732,631		20.9	%	$	755,460		22.4	%
Interest-bearing demand		707,430		20.1			622,482		18.5
Savings and money market		1,016,666		29.0			968,897		28.8
Time deposits <   $250,000		819,679		23.4			810,434		24.1
Time deposits of   $250,000 or more		232,431		6.6			209,634		6.2
Total deposits	$	3,508,837		100.0	%	$	3,366,907		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 March 31, 2019, total deposits were $3.51 billion, representing an increase of $141.9 million from December 31, 2018. Time deposits were approximately 30% of total deposits at March 31, 2019 and December 31, 2018, respectively.

Nonpublic deposits, the largest component of our funding sources, totaled $2.14 billion and $2.16 billion at March 31, 2019 and December 31, 2018, respectively, and represented 61% and 64% of total deposits as of the end of each period, respectively. We have managed this segment of funding through a strategy of competitive pricing that minimizes the number of customer relationships that have only a single service high cost deposit account.

As an additional source of funding, we offer a variety of public (municipal) deposit products to the towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 30% of our total deposits. There is a high degree of seasonality in this component of funding, because the level of deposits varies with the seasonal cash flows for these public customers. We maintain the necessary levels of short-term liquid assets to accommodate the seasonality associated with public deposits. Total public deposits were $975.6 million and $832.1 million at March 31, 2019 and December 31, 2018, respectively, and represented 28% and 25% of total deposits as of the end of each period, respectively. The increase in public deposits during 2019 was due largely to seasonality.

We also participate in CDARS and 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. Prior to the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”) enacted on May 14, 2018, all CDARS and ICS deposits were considered brokered deposits for regulatory reporting purposes.  With the enactment of EGRRCPA, reciprocal CDARS and ICS deposits, subject to certain restrictions, are no longer required to be reported as brokered deposits.  CDARS deposits and ICS deposits, the majority of which were reciprocal, totaled $225.1 million and $166.5 million, respectively, at March 31, 2019, compared to $224.9 million and $149.6 million, respectively, at December 31, 2018, and collectively represented 11% of total deposits as of the end of each period, respectively.

Borrowings

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

	March 31,		December 31,
	2019		2018
Short-term borrowings - FHLB	$	287,300	$	405,500
Short-term borrowings - Other		—		64,000
Long-term borrowings - Subordinated notes, net		39,220		39,202
Total borrowings	$	326,520	$	508,702

- 45 -

MANAGEMENT’S DISCUSSION AND ANALYSIS

Short-term Borrowings

Short-term Federal Home Loan Bank (“FHLB”) borrowings have original maturities of less than one year and include overnight borrowings which we typically utilize to address short term funding needs as they arise. Short-term FHLB borrowings at March 31, 2019 consisted of $90.8 million in overnight borrowings and $196.5 million in short-term borrowings. The maximum amount of short-term FHLB borrowings outstanding at any month-end during the three months ended March 31, 2019 was $380.3 million. Short-term FHLB borrowings at December 31, 2018 consisted of $200.0 million in overnight borrowings and $205.5 million in short-term borrowings.

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $36.6 million of immediate credit capacity with the FHLB as of March 31, 2019. We had approximately $677.9 million in secured borrowing capacity at the Federal Reserve Bank (“FRB”) discount window, none of which was outstanding at March 31, 2019. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had approximately $145.0 million of credit available under unsecured federal funds purchased lines with various banks as of March 31, 2019 and December 31, 2018, with $64.0 million outstanding at December 31, 2018. Additionally, we had approximately $148.9 million of unencumbered liquid securities available for pledging.

The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. At March 31, 2019, no amounts have been drawn on the line of credit.

Long-term Borrowings

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

LIQUIDITY AND CAPITAL MANAGEMENT

Liquidity

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

Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, 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 other banking institutions, the FHLB and the FRB. The primary source of our non-deposit borrowings is FHLB advances, of which we had $287.3 million outstanding at March 31, 2019. In addition to this amount, we have additional collateralized wholesale borrowing capacity of approximately $859.5 million from various funding sources which include the FHLB, the FRB, and commercial banks that we can use to fund lending activities, liquidity needs, and/or to adjust and manage our asset and liability position.

The Parent’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, repurchases of our stock, and acquisitions. The Parent obtains funding to meet obligations from dividends received from the Bank, net taxes collected from subsidiaries included in the federal consolidated tax return, and the issuance of debt and equity securities. In addition, the Parent maintains a revolving line of credit with a commercial bank for an aggregate amount of up to $20.0 million, all of which was available at March 31, 2019. The line of credit has a one-year term and matures in May 2019. Funds drawn would be used for general corporate purposes and backup liquidity.

Cash and cash equivalents were $79.8 million as of March 31, 2019, down $23.0 million from $102.8 million as of December 31, 2018. Net cash provided by operating activities totaled $15.4 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash provided by investing activities totaled $6.3 million, which included inflows of $31.0 million from net investment securities transactions and was partially offset by outflows of $24.4 million for net loan originations. Net cash used in financing activities of $44.7 million was attributed to a $182.2 million decrease in short-term borrowings and by $4.2 million in dividend payments, partially offset by a $141.9 million increase in deposits.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Management

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

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

Shareholders’ equity was $408.3 million at March 31, 2019, an increase of $12.0 million from $396.3 million at December 31, 2018. Net income for the three months ended March 31, 2019 increased shareholders’ equity by $11.5 million, which was partially offset by common and preferred stock dividends declared of $4.4 million. Accumulated other comprehensive loss included in shareholders’ equity decreased $2.7 million during the first three months of 2018 due primarily to lower net unrealized losses on securities available for sale, partially offset by a reclassification of certain income tax effects to retained earnings.

The FRB and FDIC have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banks and bank holding companies. The final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks became effective for the Company on January 1, 2015 and was fully phased-in on January 1, 2019. As of March 31, 2019, the Company’s capital levels remained characterized as “well-capitalized” under the new rules.

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

	March 31,			December 31,
	2019			2018
Common shareholders’ equity	$	390,925		$	378,965
Less: Goodwill and other intangible assets		72,966			73,291
Net unrealized loss on investment securities (1)		(2,947	)		(7,769	)
Hedging derivative instruments		(530	)		(276	)
Net periodic pension and postretirement benefits plan adjustments		(15,077	)		(13,236	)
Other		—			—
Common Equity Tier 1 (“CET1”) Capital		336,513			326,955
Plus: Preferred stock		17,328			17,328
Less: Other		—			—
Tier 1 Capital		353,841			344,283
Plus: Qualifying allowance for loan losses		33,327			33,914
Subordinated Notes		39,220			39,202
Total regulatory capital	$	426,388		$	417,399
Adjusted average total assets (for leverage capital purposes)	$	4,231,427		$	4,218,972
Total risk-weighted assets	$	3,411,153		$	3,371,541
Regulatory Capital Ratios
Tier 1 Leverage (Tier 1 capital to adjusted average assets)		8.36	%		8.16	%
CET1 Capital (CET1 capital to total risk-weighted assets)		9.87			9.70
Tier 1 Capital (Tier 1 capital to total risk-weighted assets)		10.37			10.21
Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets)		12.50			12.38

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

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MANAGEMENT’S DISCUSSION AND ANALYSIS

BCBS Capital Rules

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

The following table presents actual and required capital ratios as of March 31, 2019 and December 31, 2018 for the Company and the Bank under the BCBS Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of those dates based on the phase-in provisions of the BCBS Capital Rules and the minimum required capital levels as of January 1, 2019 when the BCBS Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the BCBS Capital Rules (in thousands):

						Minimum Capital					Minimum Capital					Required to be
						Required – Basel III					Required – Basel III					Considered Well
	Actual					Phase-in Schedule					Fully Phased-in					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
March 31, 2019
Tier 1 leverage:
Company	$	353,841		8.36	%	$	169,257		4.00	%	$	169,257		4.00	%	$	211,571		5.00	%
Bank		382,740		9.06			168,921		4.00			168,921		4.00			211,151		5.00
CET1 capital:
Company		336,513		9.87			238,781		7.00			238,781		7.00			221,725		6.50
Bank		382,740		11.25			238,106		7.00			238,106		7.00			221,099		6.50
Tier 1 capital:
Company		353,841		10.37			289,948		8.50			289,948		8.50			272,892		8.00
Bank		382,740		11.25			289,129		8.50			289,129		8.50			272,122		8.00
Total capital:
Company		426,388		12.50			358,171		10.50			358,171		10.50			341,115		10.00
Bank		416,067		12.23			357,160		10.50			357,160		10.50			340,152		10.00
December 31, 2018
Tier 1 leverage:
Company	$	344,283		8.16	%	$	168,759		4.00	%	$	168,759		4.00	%	$	210,949		5.00	%
Bank		372,939		8.86			168,335		4.00			168,335		4.00			210,419		5.00
CET1 capital:
Company		326,955		9.70			214,936		6.38			236,008		7.00			219,150		6.50
Bank		372,939		11.09			214,286		6.38			235,294		7.00			218,488		6.50
Tier 1 capital:
Company		344,283		10.21			265,509		7.88			286,581		8.50			269,723		8.00
Bank		372,939		11.09			264,706		7.88			285,715		8.50			268,908		8.00
Total capital:
Company		417,399		12.38			332,940		9.88			354,012		10.50			337,154		10.00
Bank		406,853		12.10			331,933		9.88			352,942		10.50			336,135		10.00

Dividend Restrictions

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

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ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk

Market risk refers to the potential impact on earnings or capital arising from movements in interest rates.  The Bank’s market risk management framework has been developed to control both short-term and long-term exposure within Board approved policy limits and is monitored by the Asset-Liability Management Committee and Board of Directors.  Quantitative and qualitative disclosures about market risk were presented at December 31, 2018 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 8, 2019. The following is an update of the discussion provided therein.

Portfolio Composition

There was no material change in the composition of assets, deposit liabilities or borrowings from December 31, 2018 to March 31, 2019. See the section titled “Analysis of Financial Condition” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of asset, deposit and borrowing activity during the period.

Net Interest Income at Risk

A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on net interest income as well as economic value of equity.

Net interest income at risk is measured by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of different magnitudes over a period of 12 months. The following table sets forth the estimated changes to net interest income over the 12-month period ending March 31, 2020 assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	Changes in Interest Rate
	-200 bp			-100 bp			+100 bp			+200 bp
Estimated change in net interest income	$	(3,115	)	$	(521	)	$	(1,596	)	$	(3,436	)
% Change		(2.25	)%		(0.38	)%		(1.15	)%		(2.48	)%

In the rising rate environments, the model results indicate decreases in net interest income compared to the flat rate scenario over a one-year timeframe.  This is a result of assumed short term deposit and borrowing costs increasing faster than anticipated repricing of assets.  However, as intermediate and longer-term assets continue to mature and are replaced at higher yields, net interest income improves over longer term timeframes.  Model results in the declining rate environments also indicate decreases in net interest income as assets are repricing downward at a greater magnitude than liabilities over the one-year timeframe.

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

Economic Value of Equity At Risk

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

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

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The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at March 31, 2019 and December 31, 2018 (dollars in thousands). The analysis additionally presents a measurement of the interest rate sensitivity at March 31, 2019 and December 31, 2018.    EVE amounts are computed under each respective Pre- Shock Scenario and Rate Shock Scenario. An increase in the EVE amount is considered favorable, while a decline is considered unfavorable.  The following table sets forth the estimated changes to EVE assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

	March 31, 2019								December 31, 2018
Rate Shock Scenario:	EVE		Change			Percentage Change			EVE		Change			Percentage Change
Pre-Shock Scenario	$	591,119							$	557,468
- 200 Basis Points		638,291	$	47,172			7.98	%		599,223	$	41,755			7.49	%
- 100 Basis Points		609,776		18,657			3.16			568,602		11,134			2.00
+ 100 Basis Points		553,845		(37,274	)		(6.31	)		523,577		(33,891	)		(6.08	)
+ 200 Basis Points		512,464		(78,655	)		(13.31	)		485,798		(71,670	)		(12.86	)

The increase in the Pre-Shock Scenario EVE at March 31, 2019 compared to December 31, 2018 resulted primarily from a more favorable valuation of non-maturity deposits and certain fixed rate assets that reflected alternative funding rate changes used for discounting future cash flows. The increase in the +200 basis point Rate Shock Scenario EVE also reflects this more favorable valuation of non-maturity deposits and certain fixed rate assets.

ITEM 4.      Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of March 31, 2019, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

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

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.        Legal Proceedings

The Company has experienced no material developments in its legal proceedings from the disclosure included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 8, 2019.

ITEM 6.      Exhibits

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

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

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SIGNATURES

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

FINANCIAL INSTITUTIONS, INC.

/s/ Martin K. Birmingham	, May 8, 2019
Martin K. Birmingham
President and Chief Executive Officer
(Principal Executive Officer)

/s/ Justin K. Bigham	, May 8, 2019
Justin K. Bigham
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)

/s/ Michael D. Grover	, May 8, 2019
Michael D. Grover
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)

- 52 -

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

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

I, Martin K. Birmingham, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 8, 2019	/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, Justin K. Bigham, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 8, 2019	/s/ Justin K. Bigham
	Justin K. Bigham
	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 Justin K. Bigham, Chief Financial Officer of Financial Institutions, Inc. (the “Company”), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2019 and that:

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

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

Date: May 8, 2019	/s/ Martin K. Birmingham
	Martin K. Birmingham
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 8, 2019	/s/ Justin K. Bigham
	Justin K. Bigham
	Chief Financial Officer
	(Principal Financial Officer)

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

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Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019
Trading Symbol	FISI
Entity Registrant Name	FINANCIAL INSTITUTIONS INC
Entity Central Index Key	0000862831
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		15,984,188

XML

Consolidated Statements Of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 79,786	$ 102,755
Securities available for sale, at fair value	427,545	445,677
Securities held to maturity, at amortized cost (fair value of $436,974 and $439,581, respectively)	438,984	446,581
Loans held for sale	2,069	2,868
Loans (net of allowance for loan losses of $33,327 and $33,914, respectively)	3,075,852	3,052,684
Company owned life insurance	67,550	67,116
Premises and equipment, net	42,092	42,839
Goodwill and other intangible assets, net	75,850	76,173
Other assets	92,813	75,005
Total assets	4,302,541	4,311,698
Deposits:
Noninterest-bearing demand	732,631	755,460
Interest-bearing demand	707,430	622,482
Savings and money market	1,016,666	968,897
Time deposits	1,052,110	1,020,068
Total deposits	3,508,837	3,366,907
Short-term borrowings	287,300	469,500
Long-term borrowings, net of issuance costs of $780 and $798, respectively	39,220	39,202
Other liabilities	58,931	39,796
Total liabilities	3,894,288	3,915,405
Shareholders’ equity:
Total preferred equity	17,328	17,328
Common stock, $0.01 par value; 50,000,000 shares authorized; 16,056,178 shares issued	161	161
Additional paid-in capital	122,524	122,704
Retained earnings	289,111	279,867
Accumulated other comprehensive loss	(18,554)	(21,281)
Treasury stock, at cost – 115,368 and 127,580 shares, respectively	(2,317)	(2,486)
Total shareholders’ equity	408,253	396,293
Total liabilities and shareholders’ equity	4,302,541	4,311,698
Series A 3% Preferred Stock [Member]
Shareholders’ equity:
Total preferred equity	143	143
Series B-1 8.48% Preferred Stock [Member]
Shareholders’ equity:
Total preferred equity	$ 17,185	$ 17,185

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Consolidated Statements Of Financial Condition (Parenthetical) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Securities held to maturity, fair value	$ 436,974	$ 439,581
Loans, allowance for loan losses	33,327	33,914
Debt issuance costs	$ 780	$ 798
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	16,056,178	16,056,178
Treasury stock, shares	115,368	127,580
Series A 3% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	1,533	1,533
Preferred stock, shares issued	1,435	1,435
Preferred stock, dividend percentage	3.00%	3.00%
Series B-1 8.48% Preferred Stock [Member]
Preferred stock, par value	$ 100	$ 100
Preferred stock, shares authorized	200,000	200,000
Preferred stock, shares issued	171,847	171,847
Preferred stock, dividend percentage	8.48%	8.48%

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Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest income:
Interest and fees on loans	$ 36,466	$ 29,758
Interest and dividends on investment securities	4,946	5,641
Other interest income	102	78
Total interest income	41,514	35,477
Interest expense:
Deposits	6,799	3,456
Short-term borrowings	2,305	1,701
Long-term borrowings	618	618
Total interest expense	9,722	5,775
Net interest income	31,792	29,702
Provision for loan losses	1,193	2,949
Net interest income after provision for loan losses	30,599	26,753
Noninterest income:
Service charges on deposits	1,680	1,738
Insurance income	1,378	1,399
ATM and debit card	1,443	1,421
Investment advisory	2,216	1,778
Company owned life insurance	410	450
Investments in limited partnerships	232	568
Loan servicing	110	115
Income from derivative instruments, net	168	171
Net gain on sale of loans held for sale	182	96
Net (loss) gain on investment securities	(53)
Net gain on other assets	49	3
Other	1,305	1,168
Total noninterest income	9,120	8,907
Noninterest expense:
Salaries and employee benefits	14,001	13,429
Occupancy and equipment	4,586	4,407
Professional services	1,158	883
Computer and data processing	1,223	1,235
Supplies and postage	534	512
FDIC assessments	512	508
Advertising and promotions	520	977
Amortization of intangibles	323	288
Other	2,314	1,865
Total noninterest expense	25,171	24,104
Income before income taxes	14,548	11,556
Income tax expense	3,027	2,268
Net income	11,521	9,288
Preferred stock dividends	365	365
Net income available to common shareholders	$ 11,156	$ 8,923
Earnings per common share (Note 3):
Basic	$ 0.70	$ 0.56
Diluted	0.70	0.56
Cash dividends declared per common share	$ 0.25	$ 0.24

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Consolidated Statements Of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 11,521	$ 9,288
Other comprehensive income (loss), net of tax:
Securities available for sale and transferred securities	5,503	(6,270)
Hedging derivative instruments	(254)	(104)
Pension and post-retirement obligations	261	127
Total other comprehensive income (loss), net of tax	5,510	(6,247)
Comprehensive income	$ 17,031	$ 3,041

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Consolidated Statements Of Changes In Shareholders' Equity - USD ($) $ in Thousands	Total	Series A 3% Preferred Stock [Member]	Series B-1 8.48% Preferred Stock [Member]	Preferred Equity [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Retained Earnings [Member] Series A 3% Preferred Stock [Member]	Retained Earnings [Member] Series B-1 8.48% Preferred Stock [Member]	Accumulated Other Comprehensive Loss [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2017	$ 381,177			$ 17,329	$ 161	$ 121,058	$ 257,078			$ (11,916)	$ (2,533)
Comprehensive income:
Net income	9,288						9,288
Other comprehensive income (loss), net of tax	(6,247)									(6,247)
Purchases of common stock for treasury	(113)										(113)
Share-based compensation plans:
Share-based compensation	302					302
Stock options exercised	76					(1)					77
Restricted stock awards forfeited						446					(446)
Cash dividends declared:
Preferred stock dividends per share		$ (1)	$ (364)					$ (1)	$ (364)
Common stock dividends per share	(3,816)						(3,816)
Balance at Mar. 31, 2018	380,302			17,329	161	121,805	262,185			(18,163)	(3,015)
Cumulative-effect adjustment	(710)						(710)
Balance at Dec. 31, 2018	396,293			17,328	161	122,704	279,867			(21,281)	(2,486)
Adjusted Balance at Dec. 31, 2018	395,583			17,328	161	122,704	279,157			(21,281)	(2,486)
Comprehensive income:
Net income	11,521						11,521
Other comprehensive income (loss), net of tax	5,510									5,510
Reclassification of income tax effects							2,783			(2,783)
Purchases of common stock for treasury	(193)										(193)
Share-based compensation plans:
Share-based compensation	182					182
Restricted stock units released						(362)					362
Cash dividends declared:
Preferred stock dividends per share		$ (1)	$ (364)					$ (1)	$ (364)
Common stock dividends per share	(3,985)						(3,985)
Balance at Mar. 31, 2019	$ 408,253			$ 17,328	$ 161	$ 122,524	$ 289,111			$ (18,554)	$ (2,317)

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Consolidated Statements Of Changes In Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Common stock dividends per share, declared	$ 0.25	$ 0.24
Series A 3% Preferred Stock [Member]
Preferred stock, dividend percentage	3.00%	3.00%	3.00%
Preferred stock dividends per share, declared	$ 0.75	$ 0.75
Series B-1 8.48% Preferred Stock [Member]
Preferred stock, dividend percentage	8.48%	8.48%	8.48%
Preferred stock dividends per share, declared	$ 2.12	$ 2.12

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Consolidated Statements Of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 11,521	$ 9,288
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,103	1,610
Net amortization of premiums on securities	528	671
Provision for loan losses	1,193	2,949
Share-based compensation	182	302
Deferred income tax expense (benefit)	951	(2,691)
Proceeds from sale of loans held for sale	5,992	5,389
Originations of loans held for sale	(5,011)	(4,098)
Income on company owned life insurance	(410)	(450)
Net gain on sale of loans held for sale	(182)	(96)
Net loss (gain) on investment securities	53
Net gain on other assets	(49)	(3)
Decrease (increase) in other assets	1,471	7,587
Increase (decrease) in other liabilities	(2,984)	(3,351)
Net cash provided by operating activities	15,358	17,107
Cash flows from investing activities:
Purchases of available for sale securities	(7,681)
Purchases of held to maturity securities	(4,466)	(2,767)
Proceeds from principal payments, maturities and calls on available for sale securities	25,390	6,167
Proceeds from principal payments, maturities and calls on held to maturity securities	12,842	16,883
Proceeds from sales of securities available for sale	4,948
Net loan originations	(24,361)	(60,644)
Purchases of company owned life insurance, net of proceeds received	(24)	(7)
Proceeds from sales of other assets	250	24
Purchases of premises and equipment	(575)	(383)
Net cash provided by (used in) investing activities	6,323	(40,727)
Cash flows from financing activities:
Net increase in deposits	141,930	169,835
Net decrease in short-term borrowings	(182,200)	(118,600)
Purchases of common stock for treasury	(193)	(113)
Proceeds from stock options exercised		76
Cash dividends paid to common and preferred shareholders	(4,187)	(3,859)
Net cash (used in) provided by financing activities	(44,650)	47,339
Net (decrease) increase in cash and cash equivalents	(22,969)	23,719
Cash and cash equivalents, beginning of period	102,755	99,195
Cash and cash equivalents, end of period	$ 79,786	$ 122,914

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Basis of Presentation And Summary Of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation And Summary Of Significant Accounting Policies

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

Nature of Operations

Financial Institutions, Inc. (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Company provides diversified financial services through its subsidiaries, Five Star Bank, SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the “Bank”). The Bank also has indirect lending network relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated and contain adequate disclosure to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

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

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.

Use of Estimates

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

Cash Flow Reporting

Supplemental cash flow information is summarized as follows for the three months ended March 31 (in thousands):

	2019		2018
Supplemental information:
Cash paid for interest	$	8,524	$	6,492
Cash paid for income taxes		1,248		1,571
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		—		370
Accrued and declared unpaid dividends		4,350		4,181
Decrease in net unsettled security purchases		1,473		—

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

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. In July 2018, ASU 2018-11, Leases (Topic 842): Targeted Improvements was issued to allow companies to choose to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings rather than recasting prior year results. The adoption of ASU 2016-02, as of January 1, 2019, resulted in an increase of approximately $22.7 million in assets and approximately $23.4 million in liabilities on the Company’s financial statements from recording additional lease contracts where the Company is a lessee.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is evaluating the new guidance and expects it to have an impact on the Company’s statements of income and financial condition, the significance of which is not yet known, nor can it be reasonably estimated currently. Due to the significant differences in the new authoritative guidance from existing GAAP, the implementation of this guidance may result in material changes in our accounting for credit losses on financial instruments and will be impacted by the Company’s loan and securities portfolios’ composition, attributes and quality in addition to prevailing economic conditions and forecasts at the time of adoption. As part of the Company’s evaluation process, it has established a steering committee and working group, including individuals from various functional areas, to assess processes and related controls, portfolio segmentation, model development, system requirements and needed resources.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASU 2017-08, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities. These amendments: (a) expand and refine hedge accounting for both financial and non-financial risk components, (b) align the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and (c) include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. The amendments related to cash flow and net investment hedges existing at the date of adoption should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to presentation and disclosure should be applied prospectively. The adoption of ASU 2017-12, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

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

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJ Act”). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period. The amendments should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the federal corporate income tax rate in the TCJ Act is recognized. The adoption of ASU 2018-02, as of January 1, 2019, resulted in the Company reclassifying approximately $2.8 million from accumulated other comprehensive income (loss) to retained earnings.

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Business Combinations

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Business Combinations

(2.)BUSINESS COMBINATIONS

2018 Activity – HNP Capital Acquisition

On June 1, 2018, the Company completed the acquisition of HNP Capital, a Securities and Exchange Commission (“SEC”)-registered investment advisor with approximately $344 million in assets under management as of June 30, 2018. Consideration for the acquisition totaled $5.1 million in cash. As a result of the acquisition, the Company recorded goodwill of $2.6 million and other intangible assets of $2.5 million. The goodwill and other intangible assets are expected to be deductible for income tax purposes. The allocation of acquisition cost to the assets acquired and liabilities assumed and pro forma results of operations for this acquisition have not been presented because the effect of this acquisition was not material to the Company’s consolidated financial statements.

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Earnings Per Common Share ("EPS")

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Common Share ("EPS")

(3.)EARNINGS PER COMMON SHARE (“EPS”)

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

	Three months ended March 31,
	2019			2018
Net income available to common shareholders	$	11,156		$	8,923
Weighted average common shares outstanding:
Total shares issued		16,056			16,056
Unvested restricted stock awards		(3	)		(19	)
Treasury shares		(123	)		(147	)
Total basic weighted average common shares outstanding		15,930			15,890
Incremental shares from assumed:
Exercise of stock options		—			6
Vesting of restricted stock awards		48			45
Total diluted weighted average common shares outstanding		15,978			15,941
Basic earnings per common share	$	0.70		$	0.56
Diluted earnings per common share	$	0.70		$	0.56

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

Stock options	—	—
Restricted stock awards	10	4
Total	10	4

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Investment Securities

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Investment Securities

(4.)INVESTMENT SECURITIES

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

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	145,072	$	113	$	809	$	144,376
Mortgage-backed securities:
Federal National Mortgage Association		240,973		202		2,366		238,809
Federal Home Loan Mortgage Corporation		38,903		86		634		38,355
Government National Mortgage Association		5,103		22		5		5,120
Collateralized mortgage obligations:
Federal National Mortgage Association		127		—		1		126
Federal Home Loan Mortgage Corporation		36		—		—		36
Privately issued		—		723		—		723
Total mortgage-backed securities		285,142		1,033		3,006		283,169
Total available for sale securities	$	430,214	$	1,146	$	3,815	$	427,545
Securities held to maturity:
State and political subdivisions	$	232,160	$	2,236	$	225	$	234,171
Mortgage-backed securities:
Federal National Mortgage Association		11,276		69		114		11,231
Federal Home Loan Mortgage Corporation		4,167		27		109		4,085
Government National Mortgage Association		39,844		50		520		39,374
Collateralized mortgage obligations:
Federal National Mortgage Association		59,584		31		1,474		58,141
Federal Home Loan Mortgage Corporation		75,029		6		1,624		73,411
Government National Mortgage Association		16,924		—		363		16,561
Total mortgage-backed securities		206,824		183		4,204		202,803
Total held to maturity securities	$	438,984	$	2,419	$	4,429	$	436,974
December 31, 2018
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	155,102	$	—	$	3,074	$	152,028
Mortgage-backed securities:
Federal National Mortgage Association		258,984		44		6,325		252,703
Federal Home Loan Mortgage Corporation		35,962		13		1,275		34,700
Government National Mortgage Association		5,364		21		76		5,309
Collateralized mortgage obligations:
Federal National Mortgage Association		133		—		—		133
Federal Home Loan Mortgage Corporation		37		—		—		37
Privately issued		—		767		—		767
Total mortgage-backed securities		300,480		845		7,676		293,649
Total available for sale securities	$	455,582	$	845	$	10,750	$	445,677

(4.)INVESTMENT SECURITIES (Continued)

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions	$	234,845	$	876	$	1,211	$	234,510
Mortgage-backed securities:
Federal National Mortgage Association		11,602		8		261		11,349
Federal Home Loan Mortgage Corporation		4,583		—		193		4,390
Government National Mortgage Association		37,450		14		923		36,541
Collateralized mortgage obligations:
Federal National Mortgage Association		62,103		1		2,179		59,925
Federal Home Loan Mortgage Corporation		78,200		—		2,597		75,603
Government National Mortgage Association		17,798		—		535		17,263
Total mortgage-backed securities		211,736		23		6,688		205,071
Total held to maturity securities	$	446,581	$	899	$	7,899	$	439,581

Investment securities with a total fair value of $702.5 million and $751.0 million at March 31, 2019 and December 31, 2018, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

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

	Three months ended March 31,
	2019		2018
Proceeds from sales	$	4,948	$	—
Gross realized gains		—		—
Gross realized losses		53		—

The scheduled maturities of securities available for sale and securities held to maturity at March 31, 2019 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized		Fair
	Cost		Value
Debt securities available for sale:
Due in one year or less	$	28,200	$	28,009
Due from one to five years		137,192		136,577
Due after five years through ten years		183,515		182,284
Due after ten years		81,307		80,675
Total available for sale securities	$	430,214	$	427,545
Debt securities held to maturity:
Due in one year or less	$	49,502	$	49,598
Due from one to five years		147,735		149,579
Due after five years through ten years		74,536		73,735
Due after ten years		167,211		164,062
Total held to maturity securities	$	438,984	$	436,974

(4.)INVESTMENT SECURITIES (Continued)

Unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored    enterprises	$	—	$	—	$	112,425	$	809	$	112,425	$	809
Mortgage-backed securities:
Federal National Mortgage Association		—		—		224,846		2,366		224,846		2,366
Federal Home Loan Mortgage Corporation		—		—		31,365		634		31,365		634
Government National Mortgage Association		—		—		4,522		5		4,522		5
Collateralized mortgage obligations:
Federal National Mortgage Association		70		1		19		—		89		1
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		70		1		260,758		3,005		260,828		3,006
Total available for sale securities		70		1		373,183		3,814		373,253		3,815
Securities held to maturity:
State and political subdivisions		2,717		1		24,312		224		27,029		225
Mortgage-backed securities:
Federal National Mortgage Association		—		—		7,696		114		7,696		114
Federal Home Loan Mortgage Corporation		—		—		2,619		109		2,619		109
Government National Mortgage Association		6,518		16		21,908		504		28,426		520
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56,114		1,474		56,114		1,474
Federal Home Loan Mortgage Corporation		—		—		72,277		1,624		72,277		1,624
Government National Mortgage Association		—		—		16,561		363		16,561		363
Total mortgage-backed securities		6,518		16		177,175		4,188		183,693		4,204
Total held to maturity securities		9,235		17		201,487		4,412		210,722		4,429
Total temporarily impaired securities	$	9,305	$	18	$	574,670	$	8,226	$	583,975	$	8,244
December 31, 2018
Securities available for sale:
U.S. Government agencies and government sponsored    enterprises	$	—	$	—	$	152,028	$	3,074	$	152,028	$	3,074
Mortgage-backed securities:
Federal National Mortgage Association		251		1		247,615		6,324		247,866		6,325
Federal Home Loan Mortgage Corporation		—		—		33,918		1,275		33,918		1,275
Government National Mortgage Association		—		—		4,667		76		4,667		76
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56		—		56		—
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		251		1		286,262		7,675		286,513		7,676
Total available for sale securities		251		1		438,290		10,749		438,541		10,750

(4.)INVESTMENT SECURITIES (Continued)

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions		35,751		91		49,534		1,120		85,285		1,211
Mortgage-backed securities:
Federal National Mortgage Association		1,518		3		8,695		258		10,213		261
Federal Home Loan Mortgage Corporation		1,467		5		2,923		188		4,390		193
Government National Mortgage Association		11,783		82		22,516		841		34,299		923
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		57,973		2,179		57,973		2,179
Federal Home Loan Mortgage Corporation		—		—		75,603		2,597		75,603		2,597
Government National Mortgage Association		—		—		17,263		535		17,263		535
Total mortgage-backed securities		14,768		90		184,973		6,598		199,741		6,688
Total held to maturity securities		50,519		181		234,507		7,718		285,026		7,899
Total temporarily impaired securities	$	50,770	$	182	$	672,797	$	18,467	$	723,567	$	18,649

The total number of security positions in the investment portfolio in an unrealized loss position at March 31, 2019 was 323 compared to 571 at December 31, 2018. At March 31, 2019, the Company had positions in 314 investment securities with a fair value of $574.7 million and a total unrealized loss of $8.2 million that have been in a continuous unrealized loss position for more than 12 months. At March 31, 2019, there were a total of nine securities positions in the Company’s investment portfolio with a fair value of $9.3 million and a total unrealized loss of $18 thousand that had been in a continuous unrealized loss position for less than 12 months. At December 31, 2018, the Company had positions in 435 investment securities with a fair value of $672.8 million and a total unrealized loss of $18.5 million that had been in a continuous unrealized loss position for more than 12 months. At December 31, 2018, there were a total of 136 securities positions in the Company’s investment portfolio with a fair value of $50.8 million and a total unrealized loss of $182 thousand that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.

The Company reviews investment securities on an ongoing basis for the presence of other than temporary impairment (“OTTI”) with formal reviews performed quarterly. When evaluating debt securities for OTTI, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intention to sell the debt security or whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information then available to management. There was no impairment recorded during the three months ended March 31, 2019 and 2018.

Based on management’s review and evaluation of the Company’s debt securities as of March 31, 2019, the debt securities with unrealized losses were not considered to be OTTI. As of March 31, 2019, the Company did not intend to sell any of the securities in a loss position and believes that it is not likely that it will be required to sell any such securities before the anticipated recovery of amortized cost. Accordingly, as of March 31, 2019, management has concluded that unrealized losses on its investment securities are temporary and no further impairment loss has been realized in the Company’s consolidated statements of income.

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Loans

3 Months Ended

Mar. 31, 2019

Loans And Leases Receivable Disclosure [Abstract]

Loans

(5.)LOANS

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

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
March 31, 2019
Commercial business	$	552,834	$	911		$	553,745
Commercial mortgage		995,183		(1,924	)		993,259
Residential real estate loans		525,036		9,655			534,691
Residential real estate lines		105,592		3,031			108,623
Consumer indirect		872,410		30,352			902,762
Other consumer		15,941		158			16,099
Total	$	3,066,996	$	42,183			3,109,179
Allowance for loan losses							(33,327	)
Total loans, net						$	3,075,852
December 31, 2018
Commercial business	$	557,040	$	821		$	557,861
Commercial mortgage		960,265		(2,071	)		958,194
Residential real estate loans		514,981		9,174			524,155
Residential real estate lines		106,712		3,006			109,718
Consumer indirect		888,732		31,185			919,917
Other consumer		16,590		163			16,753
Total	$	3,044,320	$	42,278			3,086,598
Allowance for loan losses							(33,914	)
Total loans, net						$	3,052,684

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.1 million and $2.9 million as of March 31, 2019 and December 31, 2018, respectively.

Past Due Loans Aging

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

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans
March 31, 2019
Commercial business	$	328	$	150	$	—	$	478	$	594	$	551,762	$	552,834
Commercial mortgage		443		375		—		818		909		993,456		995,183
Residential real estate loans		924		367		—		1,291		2,225		521,520		525,036
Residential real estate lines		150		15		—		165		252		105,175		105,592
Consumer indirect		1,388		497		—		1,885		1,822		868,703		872,410
Other consumer		87		8		2		97		—		15,844		15,941
Total loans, gross	$	3,320	$	1,412	$	2	$	4,734	$	5,802	$	3,056,460	$	3,066,996
December 31, 2018
Commercial business	$	227	$	1	$	—	$	228	$	912	$	555,900	$	557,040
Commercial mortgage		574		—		—		574		1,586		958,105		960,265
Residential real estate loans		1,295		242		—		1,537		2,391		511,053		514,981
Residential real estate lines		102		—		—		102		255		106,355		106,712
Consumer indirect		2,424		698		—		3,122		1,989		883,621		888,732
Other consumer		139		3		8		150		—		16,440		16,590
Total loans, gross	$	4,761	$	944	$	8	$	5,713	$	7,133	$	3,031,474	$	3,044,320

(5.)LOANS (Continued)

There were no loans past due greater than 90 days and still accruing interest as of March 31, 2019 and December 31, 2018. There were $2 thousand and $8 thousand in consumer overdrafts which were past due greater than 90 days as of March 31, 2019 and December 31, 2018, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, 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, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

There were no loans modified as a TDR during the three months ended March 31, 2019 and 2018. There were no loans modified as a TDR within the previous 12 months that defaulted during the three months ended March 31, 2019 and 2018. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Impaired Loans

Management has determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and twelve-month period ended December 31, 2018 (in thousands):

	Recorded Investment (1)		Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2019
With no related allowance recorded:
Commercial business	$	221	$	292	$	—	$	356	$	—
Commercial mortgage		1,333		2,109		—		1,730		—
		1,554		2,401		—		2,086		—
With an allowance recorded:
Commercial business		504		504		181		660		—
Commercial mortgage		19		19		2		20		—
		523		523		183		680		—
	$	2,077	$	2,924	$	183	$	2,766	$	—
December 31, 2018
With no related allowance recorded:
Commercial business	$	319	$	487	$	—	$	1,156	$	—
Commercial mortgage		2,013		2,789		—		692		—
		2,332		3,276		—		1,848		—
With an allowance recorded:
Commercial business		725		725		205		2,458		—
Commercial mortgage		21		21		1		1,936		—
		746		746		206		4,394		—
	$	3,078	$	4,022	$	206	$	6,242	$	—

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

(5.)LOANS (Continued)

Credit Quality Indicators

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

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

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

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

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

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

	Commercial Business		Commercial Mortgage
March 31, 2019
Uncriticized	$	524,977	$	979,254
Special mention		18,266		4,186
Substandard		9,591		11,743
Doubtful		—		—
Total	$	552,834	$	995,183
December 31, 2018
Uncriticized	$	531,756	$	943,991
Special mention		16,499		10,633
Substandard		8,785		5,641
Doubtful		—		—
Total	$	557,040	$	960,265

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

	Residential Real Estate Loans		Residential Real Estate Lines		Consumer Indirect		Other Consumer
March 31, 2019
Performing	$	522,811	$	105,340	$	870,588	$	15,939
Non-performing		2,225		252		1,822		2
Total	$	525,036	$	105,592	$	872,410	$	15,941
December 31, 2018
Performing	$	512,590	$	106,457	$	886,743	$	16,582
Non-performing		2,391		255		1,989		8
Total	$	514,981	$	106,712	$	888,732	$	16,590

(5.)LOANS (Continued)

Allowance for Loan Losses

The following table sets forth the changes in the allowance for loan losses for the three-month periods ended as of the dates indicated (in thousands):

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
March 31, 2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489		$	33,914
Charge-offs		(130	)		—			(31	)		—			(2,982	)		(309	)		(3,452	)
Recoveries		103			17			6			2			1,424			120			1,672
Provision (credit)		(2,118	)		1,080			178			(39	)		2,011			81			1,193
Ending balance	$	12,167		$	6,316		$	1,265		$	173		$	13,025		$	381		$	33,327
Evaluated for impairment:
Individually	$	181		$	2		$	—		$	—		$	—		$	—		$	183
Collectively	$	11,986		$	6,314		$	1,265		$	173		$	13,025		$	381		$	33,144
Loans:
Ending balance	$	552,834		$	995,183		$	525,036		$	105,592		$	872,410		$	15,941		$	3,066,996
Evaluated for impairment:
Individually	$	725		$	1,352		$	—		$	—		$	—		$	—		$	2,077
Collectively	$	552,109		$	993,831		$	525,036		$	105,592		$	872,410		$	15,941		$	3,064,919
March 31, 2018
Allowance for loan losses:
Beginning balance	$	15,668		$	3,696		$	1,322		$	180		$	13,415		$	391		$	34,672
Charge-offs		(105	)		(4	)		(19	)		(94	)		(2,994	)		(433	)		(3,649	)
Recoveries		120			7			69			3			1,330			93			1,622
Provision (credit)		(741	)		1,774			28			129			1,481			278			2,949
Ending balance	$	14,942		$	5,473		$	1,400		$	218		$	13,232		$	329		$	35,594
Evaluated for impairment:
Individually	$	1,699		$	719		$	—		$	—		$	—		$	—		$	2,418
Collectively	$	13,243		$	4,754		$	1,400		$	218		$	13,232		$	329		$	33,176
Loans:
Ending balance	$	463,526		$	823,305		$	470,111		$	112,428		$	866,598		$	16,482		$	2,752,450
Evaluated for impairment:
Individually	$	4,453		$	2,791		$	—		$	—		$	—		$	—		$	7,244
Collectively	$	459,073		$	820,514		$	470,111		$	112,428		$	866,598		$	16,482		$	2,745,206

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, potentially resulting in 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.

(5.)LOANS (Continued)

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines) are generally made based on 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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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

(6.)LEASES

Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2047.  One building lease is subleased for terms extending through 2021.

The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities:

		March 31,			December 31,
	Balance Sheet Location	2019			2018
Operating Lease Right of Use Assets:
Gross carrying amount	Other assets	$	22,980		$	—
Accumulated amortization	Other assets		(478	)		—
Net book value		$	22,502		$	—
Operating Lease Liabilities:
Right of use lease obligations	Other liabilities	$	23,852		$	—

For the three months ended March 31, 2019, the weighted average remaining lease term for operating leases was 21.6 years and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.74%.  The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate.

The following table represents lease costs and other lease information:

	Three months ended March 31,
	2019			2018
Lease costs:
Operating lease costs	$	693		$	—
Variable lease costs (1)		96			—
Sublease income		(12	)		—
Net lease costs	$	777		$	—
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	688		$	—
Right of use assets obtained in exchange for new operating lease liabilities	$	325		$	—

⁽¹⁾ Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.

(6.)LEASES (Continued)

Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more, are as follows at March 31, 2019 (in thousands):

Twelve months ended March 31,
2020	$	2,677
2021		2,479
2022		2,159
2023		1,784
2024		1,381
Thereafter		26,799
Total future minimum operating lease payments		37,279
Amounts representing interest		(13,427	)
Present value of net future minimum operating lease payments		23,852

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Goodwill And Other Intangible Assets

3 Months Ended

Mar. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill And Other Intangible Assets

(7.)GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The carrying amount of goodwill totaled $66.1 million as of both March 31, 2019 and December 31, 2018. The Company performs a goodwill impairment test on an annual basis as of October 1st or more frequently if events and circumstances warrant.

	Banking		Non-Banking		Total
Balance, December 31, 2018	$	48,536	$	17,526	$	66,062
No activity during the period		—		—		—
Balance, March 31, 2019	$	48,536	$	17,526	$	66,062

Other Intangible Assets

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

	March 31,			December 31,
	2019			2018
Other intangibles assets:
Gross carrying amount	$	15,925		$	15,925
Accumulated amortization		(6,137	)		(5,814	)
Net book value	$	9,788		$	10,111

Amortization expense for total other intangible assets was $323 thousand and $288 thousand for the three months ended March 31, 2019 and  2018, respectively. As of March 31, 2019, the estimated amortization expense of other intangible assets for the remainder of 2019 and each of the next five years is as follows (in thousands):

2019 (remainder of year)	$	927
2020		1,134
2021		1,014
2022		923
2023		852
2024		783

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Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

(8.)DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During the first quarter of 2019 and in 2018, such derivatives were used to hedge the variable cash flows associated with short-term borrowings.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company’s cash flow hedge derivatives did not have any hedge ineffectiveness recognized in earnings during the three months ended March 31, 2019 and 2018. During the next twelve months, the Company estimates that $337 thousand will be reclassified as an increase to interest expense.

Interest Rate Swaps

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Mortgage Banking Derivatives

The Company 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.

(8.)DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES (Continued)

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of March 31, 2019 and December 31, 2018 (in thousands):

					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018
Derivatives designated as hedging instruments
Cash flow hedges	$	100,000	$	100,000	Otherassets	$	243	$	631	Other liabilities	$	—	$	—
Total derivatives	$	100,000	$	100,000		$	243	$	631		$	—	$	—
Derivatives not designated as hedging instruments
Interest rate swaps (1)	$	121,454	$	71,977	Other assets	$	3,261	$	1,803	Other liabilities	$	3,587	$	2,006
Credit contracts		46,754		36,670	Other assets		20		—	Other liabilities		30		24
Mortgage banking		11,898		7,519	Other assets		132		83	Other liabilities		23		27
Total derivatives	$	180,106	$	116,166		$	3,413	$	1,886		$	3,640	$	2,057

⁽¹⁾ The Company secured its obligations under these contracts with $3.4 million and $1.3 million in cash at March 31, 2019 and December 31, 2018, respectively.

Effect of Derivative Instruments on the Income Statement

The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three months ended March 31, 2019 and 2018 (in thousands):

		Gain (loss) recognized in income
	Line item of gain (loss)	Three months ended March 31,
Undesignated derivatives	recognized in income	2019		2018
Interest rate swaps	Income from derivative instruments, net	$	101	$	—
Credit contracts	Income from derivative instruments, net		14		174
Mortgage banking	Income from derivative instruments, net		53		(3	)
Total undesignated		$	168	$	171

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Shareholders' Equity

3 Months Ended

Mar. 31, 2019

Stockholders Equity Note [Abstract]

Shareholders' Equity

(9.)SHAREHOLDERS’ EQUITY

Common Stock

The changes in shares of common stock were as follows for the three months ended March 31, 2019 and 2018:

	Outstanding			Treasury			Issued
March 31, 2019
Shares at December 31, 2018		15,928,598			127,580			16,056,178
Restricted stock units released		18,580			(18,580	)		—
Treasury stock purchases		(6,368	)		6,368			—
Shares at March 31, 2019		15,940,810			115,368			16,056,178
March 31, 2018
Shares at December 31, 2017		15,924,938			131,240			16,056,178
Restricted stock awards forfeited		(23,901	)		23,901			—
Stock options exercised		4,000			(4,000	)		—
Treasury stock purchases		(3,622	)		3,622			—
Shares at March 31, 2018		15,901,415			154,763			16,056,178

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Accumulated Other Comprehensive Income (Loss)

(10.)ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table presents the components of other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 (in thousands):

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
March 31, 2019
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	7,184		$	1,811		$	5,373
Reclassification adjustment for net gains included in net income (1)		174			44			130
Total securities available for sale and transferred securities		7,358			1,855			5,503
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(340	)		(86	)		(254	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(16	)		(4	)		(12	)
Amortization of net actuarial loss included in income		366			93			273
Total pension and post-retirement obligations		350			89			261
Other comprehensive income	$	7,368		$	1,858		$	5,510

March 31, 2018
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(8,465	)	$	(2,134	)	$	(6,331	)
Reclassification adjustment for net gains included in net income (1)		82			21			61
Total securities available for sale and transferred securities		(8,383	)		(2,113	)		(6,270	)
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(139	)		(35	)		(104	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(18	)		(5	)		(13	)
Amortization of net actuarial loss included in income		187			47			140
Total pension and post-retirement obligations		169			42			127
Other comprehensive loss	$	(8,353	)	$	(2,106	)	$	(6,247	)

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

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

Activity in accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2019 and 2018 was as follows (in thousands):

	Hedging Derivative Instruments			Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)
March 31, 2019
Balance at beginning of period	$	(276	)	$	(7,769	)	$	(13,236	)	$	(21,281	)
Reclassification of income tax effects to retained earnings		—			(681	)		(2,102	)		(2,783	)
Other comprehensive income (loss) before reclassifications		(254	)		5,373			—			5,119
Amounts reclassified from accumulated other comprehensive    income (loss)		—			130			261			391
Net current period other comprehensive income (loss)		(254	)		5,503			261			5,510
Balance at end of period	$	(530	)	$	(2,947	)	$	(15,077	)	$	(18,554	)
March 31, 2018
Balance at beginning of period	$	—		$	(3,275	)	$	(8,641	)	$	(11,916	)
Other comprehensive income (loss) before reclassifications		(104	)		(6,331	)		—			(6,435	)
Amounts reclassified from accumulated other comprehensive    income (loss)		—			61			127			188
Net current period other comprehensive income (loss)		(104	)		(6,270	)		127			(6,247	)
Balance at end of period	$	(104	)	$	(9,545	)	$	(8,514	)	$	(18,163	)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 (in thousands):

Details About Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Consolidated Statement of Income
	Three months ended
	March 31,
	2019			2018
Realized (loss) gain on sale of investment securities	$	(53	)	$	—		Net (loss) gain on investment securities
Amortization of unrealized holding gains (losses)    on investment securities transferred from    available for sale to held to maturity		(121	)		(82	)	Interest income
		(174	)		(82	)	Total before tax
		44			21		Income tax expense
		(130	)		(61	)	Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		16			18		Salaries and employee benefits
Net actuarial losses (1)		(366	)		(187	)	Salaries and employee benefits
		(350	)		(169	)	Total before tax
		89			42		Income tax expense
		(261	)		(127	)	Net of tax
Total reclassified for the period	$	(391	)	$	(188	)

⁽¹⁾ These items are included in the computation of net periodic pension expense. See Note 12 – Employee Benefit Plans for additional information.

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Share-Based Compensation Plans

3 Months Ended

Mar. 31, 2019

Share Based Compensation [Abstract]

Share-Based Compensation Plans

(11.)SHARE-BASED COMPENSATION PLANS

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

The MD&C Committee approved the grant of restricted stock units (“RSUs”) and performance share units (“PSUs”) shown in the table below to certain members of management during the three months ended March 31, 2019.

	Number of Underlying Shares		Weighted Average Per Share Grant Date Fair Value
RSUs		17,658	$	26.96
PSUs		17,658		27.79

The grant-date fair value for the RSUs granted during the three months ended March 31, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

Fifty percent of the PSUs that ultimately vest is contingent on achieving specified total shareholder return (“TSR”) targets relative to the SNL Small Cap Bank & Thrift Index, a market index the MD&C Committee has selected as a peer group for this purpose. These shares will be earned based on the Company’s achievement of a relative TSR performance requirement, on a percentile basis, compared to the SNL Small Cap Bank & Thrift Index over a three-year performance period ended December 31, 2021. The shares earned based on the achievement of the TSR performance requirement, if any, will vest on February 26, 2022 assuming the recipient’s continuous service to the Company.  The remaining fifty percent of the PSUs that ultimately vest is contingent upon achievement of an EPS performance requirement for the Company’s fiscal year ended December 31, 2021.  The shares earned based on the achievement of the EPS performance requirement, if any, will vest on February 26, 2022 assuming the recipient’s continuous service to the Company.  

The grant-date fair value of the TSR portion of PSUs granted during the three months ended March 31, 2019 was determined using the Monte Carlo simulation model on the date of grant, assuming the following (i) expected term of 2.84 years, (ii) risk free interest rate of 2.43%, (iii) expected dividend yield of 3.20% and (iv) expected stock price volatility over the expected term of the TSR award of 21.3%. The Monte Carlo simulation model is a risk analysis method that selects a random value from a range of estimates.  The grant-date fair value of the EPS portion of PSUs granted during the three months ended March 31, 2019 is equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

The Company previously granted restricted stock awards to certain members of management and non-employee directors.  There were no restricted stock awards granted during the quarter ended March 31, 2019.  The following is a summary of restricted stock awards and restricted stock units activity for the three months ended March 31, 2019:

	Number of Shares			Weighted Average Market Price at Grant Date
Outstanding at beginning of year		130,571		$	28.04
Granted		35,316			27.38
Vested		(18,580	)		24.21
Forfeited		(21,865	)		26.12
Outstanding at end of period		125,442		$	28.76

At March 31, 2019, there was $2.1 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of 2.2 years.

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

The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. There were no stock options awarded during the first three months of 2019 or 2018. There was no unrecognized compensation expense related to unvested stock options as of March 31, 2019. There was no stock option activity for the three months ended March 31, 2019.

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 three months ended March 31, 2018 was $52 thousand. The total cash received as a result of option exercises under stock compensation plans for the three months ended March 31, 2018 was $76 thousand.

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

	Three months ended March 31,
	2019		2018
Salaries and employee benefits	$	151	$	268
Other noninterest expense		31		34
Total share-based compensation expense	$	182	$	302

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2019

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

Employee Benefit Plans

(12.)EMPLOYEE BENEFIT PLANS

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

	Three months ended March 31,
	2019			2018
Service cost	$	802		$	836
Interest cost on projected benefit obligation		695			598
Expected return on plan assets		(1,184	)		(1,321	)
Amortization of unrecognized prior service credit		(16	)		(18	)
Amortization of unrecognized net actuarial loss		366			187
Net periodic benefit expense	$	663		$	282

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of income. The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2019 fiscal year.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments And Contingencies

(13.)COMMITMENTS AND CONTINGENCIES

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

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

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

	March 31, 2019		December 31, 2018
Commitments to extend credit	$	685,014	$	687,875
Standby letters of credit		12,152		11,977

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 which 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.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

(14.)FAIR VALUE MEASUREMENTS

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

Valuation Hierarchy

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

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

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

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

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

(14.)FAIR VALUE MEASUREMENTS (Continued)

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

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

Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.

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

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

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

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

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

(14.)FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

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

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
March 31, 2019
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	144,376		$	—	$	144,376
Mortgage-backed securities		—		283,169			—		283,169
Other assets:
Hedging derivative instruments		—		243			—		243
Fair value adjusted through comprehensive income	$	—	$	427,788		$	—	$	427,788
Other assets:
Derivative instruments - interest rate products	$	—	$	3,261		$	—	$	3,261
Derivative instruments - credit contracts		—		20			—		20
Derivative instruments - mortgage banking		—		132			—		132
Other liabilities:
Derivative instruments - interest rate products		—		(3,587	)		—		(3,587	)
Derivative instruments - credit contracts		—		(30	)		—		(30	)
Derivative instruments - mortgage banking		—		(23	)		—		(23	)
Fair value adjusted through net income	$	—	$	(227	)	$	—	$	(227	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,069		$	—	$	2,069
Collateral dependent impaired loans		—		—			1,894		1,894
Other assets:
Loan servicing rights		—		—			1,030		1,030
Other real estate owned		—		—			41		41
Total	$	—	$	2,069		$	2,965	$	5,034

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2019.

(14.)FAIR VALUE MEASUREMENTS (Continued)

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2018
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	152,028		$	—	$	152,028
Mortgage-backed securities		—		293,649			—		293,649
Other assets:
Hedging derivative instruments		—		631			—		631
Fair value adjusted through comprehensive income	$	—	$	446,308		$	—	$	446,308
Other assets:
Derivative instruments - interest rate products	$	—	$	1,803		$	—	$	1,803
Derivative instruments - mortgage banking		—		83			—		83
Other liabilities:
Derivative instruments - interest rate products		—		(2,006	)		—		(2,006	)
Derivative instruments - credit contracts		—		(24	)		—		(24	)
Derivative instruments - mortgage banking		—		(27	)		—		(27	)
Fair value adjusted through net income	$	—	$	(171	)	$	—	$	(171	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,868		$	—	$	2,868
Collateral dependent impaired loans		—		—			2,872		2,872
Other assets:
Loan servicing rights		—		—			1,022		1,022
Other real estate owned		—		—			230		230
Total	$	—	$	2,868		$	4,124	$	6,992

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2018. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2018.

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

Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Collateral dependent impaired loans	$	1,894	Appraisal of collateral (1)	Appraisal adjustments (2)	25% (3)
Loan servicing rights		1,030	Discounted cash flow	Discount rate	10.2% (3)
				Constant prepayment rate	13.4% (3)
Other real estate owned		41	Appraisal of collateral (1)	Appraisal adjustments (2)	11% (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⁾ Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾ Weighted averages.

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the three months ended March 31, 2019.

(14.)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, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable.

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

	Level in	March 31, 2019				December 31, 2018
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	79,786	$	79,786	$	102,755	$	102,755
Securities available for sale	Level 2		427,545		427,545		445,677		445,677
Securities held to maturity	Level 2		438,984		436,974		446,581		439,581
Loans held for sale	Level 2		2,069		2,069		2,868		2,868
Loans	Level 2		3,073,958		3,061,505		3,049,812		3,006,161
Loans (1)	Level 3		1,894		1,894		2,872		2,872
Accrued interest receivable	Level 1		13,429		13,429		11,990		11,990
FHLB and FRB stock	Level 2		21,056		21,056		26,375		26,375
Derivative instruments – cash flow hedge	Level 2		243		243		631		631
Derivative instruments – interest rate products	Level 2		3,261		3,261		1,803		1,803
Derivative instruments – credit contracts	Level 2		20		20		—		—
Derivative instruments – mortgage banking	Level 2		132		132		83		83
Financial liabilities:
Non-maturity deposits	Level 1		2,456,727		2,456,727		2,346,839		2,346,839
Time deposits	Level 2		1,052,110		1,048,583		1,020,068		1,014,532
Short-term borrowings	Level 1		287,300		287,300		469,500		469,500
Long-term borrowings	Level 2		39,220		39,641		39,202		38,415
Accrued interest payable	Level 1		10,478		10,478		9,280		9,280
Derivative instruments – interest rate products	Level 2		3,587		3,587		2,006		2,006
Derivative instruments – credit contracts	Level 2		30		30		24		24
Derivative instruments – mortgage banking	Level 2		23		23		27		27

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Segment Reporting

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Reporting

(15.)SEGMENT REPORTING

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

The Banking segment includes all of the Company’s retail and commercial banking operations. The Non-Banking segment includes the activities of SDN, a full-service insurance agency that provides a broad range of insurance services to both personal and business clients, and Courier Capital and HNP Capital, our investment advisor and wealth management firms that provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. Holding company amounts are the primary differences between segment amounts and consolidated totals and are reflected in the Holding Company and Other column below, along with amounts to eliminate balances and transactions between segments.

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

	Banking		Non-Banking		Holding Company and Other			Consolidated Totals
March 31, 2019
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		180		9,608		—			9,788
Total assets		4,267,432		35,448		(339	)		4,302,541
December 31, 2018
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		213		9,898		—			10,111
Total assets		4,272,439		35,975		3,284			4,311,698

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2019
Net interest income (expense)	$	32,409		$	—		$	(617	)	$	31,792
Provision for loan losses		(1,193	)		—			—			(1,193	)
Noninterest income		6,266			3,026			(172	)		9,120
Noninterest expense		(21,453	)		(3,041	)		(677	)		(25,171	)
Income (loss) before income taxes		16,029			(15	)		(1,466	)		14,548
Income tax (expense) benefit		(3,344	)		—			317			(3,027	)
Net income (loss)	$	12,685		$	(15	)	$	(1,149	)	$	11,521

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2018
Net interest income (expense)	$	30,317		$	—		$	(615	)	$	29,702
Provision for loan losses		(2,949	)		—			—			(2,949	)
Noninterest income		6,430			2,624			(147	)		8,907
Noninterest expense		(20,480	)		(2,665	)		(959	)		(24,104	)
Income (loss) before income taxes		13,318			(41	)		(1,721	)		11,556
Income tax (expense) benefit		(2,632	)		8			356			(2,268	)
Net income (loss)	$	10,686		$	(33	)	$	(1,365	)	$	9,288

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

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Nature Of Operations

Nature of Operations

Financial Institutions, Inc. (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Company provides diversified financial services through its subsidiaries, Five Star Bank, SDN Insurance Agency, LLC (“SDN”), Courier Capital, LLC (“Courier Capital”) and HNP Capital, LLC (“HNP Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly-owned New York chartered banking subsidiary, Five Star Bank (the “Bank”). The Bank also has indirect lending network relationships with franchised automobile dealers in the Capital District of New York and Northern and Central Pennsylvania. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

Basis Of Presentation

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated and contain adequate disclosure to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s 2018 Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Reclassifications

Reclassifications

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

Subsequent Events

Subsequent Events

The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.

Use Of Estimates

Use of Estimates

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

Cash Flow Reporting

Cash Flow Reporting

Supplemental cash flow information is summarized as follows for the three months ended March 31 (in thousands):

	2019		2018
Supplemental information:
Cash paid for interest	$	8,524	$	6,492
Cash paid for income taxes		1,248		1,571
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		—		370
Accrued and declared unpaid dividends		4,350		4,181
Decrease in net unsettled security purchases		1,473		—

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). ASU 2016-02 establishes a right of use model that requires a lessee to record a right of use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. In July 2018, ASU 2018-11, Leases (Topic 842): Targeted Improvements was issued to allow companies to choose to recognize the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings rather than recasting prior year results. The adoption of ASU 2016-02, as of January 1, 2019, resulted in an increase of approximately $22.7 million in assets and approximately $23.4 million in liabilities on the Company’s financial statements from recording additional lease contracts where the Company is a lessee.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends guidance on reporting credit losses for financial assets held at amortized cost basis and available for sale debt securities. Topic 326 eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses based on historical experience, current conditions and reasonable and supportable forecasts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted beginning after December 15, 2018. The Company is evaluating the new guidance and expects it to have an impact on the Company’s statements of income and financial condition, the significance of which is not yet known, nor can it be reasonably estimated currently. Due to the significant differences in the new authoritative guidance from existing GAAP, the implementation of this guidance may result in material changes in our accounting for credit losses on financial instruments and will be impacted by the Company’s loan and securities portfolios’ composition, attributes and quality in addition to prevailing economic conditions and forecasts at the time of adoption. As part of the Company’s evaluation process, it has established a steering committee and working group, including individuals from various functional areas, to assess processes and related controls, portfolio segmentation, model development, system requirements and needed resources.

In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities. These amendments shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASU 2017-08, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815) – Targeted Improvements to Accounting for Hedging Activities. These amendments: (a) expand and refine hedge accounting for both financial and non-financial risk components, (b) align the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and (c) include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption was permitted, including adoption in an interim period. The amendments related to cash flow and net investment hedges existing at the date of adoption should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to presentation and disclosure should be applied prospectively. The adoption of ASU 2017-12, as of January 1, 2019, did not have a significant impact on the Company’s financial statements.

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

In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220) – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 permits a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (the “TCJ Act”). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption was permitted, including adoption in any interim period. The amendments should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the federal corporate income tax rate in the TCJ Act is recognized. The adoption of ASU 2018-02, as of January 1, 2019, resulted in the Company reclassifying approximately $2.8 million from accumulated other comprehensive income (loss) to retained earnings.

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

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Summary Of Supplemental Cash Flow Information

	2019		2018
Supplemental information:
Cash paid for interest	$	8,524	$	6,492
Cash paid for income taxes		1,248		1,571
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		—		370
Accrued and declared unpaid dividends		4,350		4,181
Decrease in net unsettled security purchases		1,473		—

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

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

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

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

	Three months ended March 31,
	2019			2018
Net income available to common shareholders	$	11,156		$	8,923
Weighted average common shares outstanding:
Total shares issued		16,056			16,056
Unvested restricted stock awards		(3	)		(19	)
Treasury shares		(123	)		(147	)
Total basic weighted average common shares outstanding		15,930			15,890
Incremental shares from assumed:
Exercise of stock options		—			6
Vesting of restricted stock awards		48			45
Total diluted weighted average common shares outstanding		15,978			15,941
Basic earnings per common share	$	0.70		$	0.56
Diluted earnings per common share	$	0.70		$	0.56

Shares Excluded From Computation Of Diluted EPS

EPS because the effect would be antidilutive:

Stock options	—	—
Restricted stock awards	10	4
Total	10	4

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Amortized Cost And Fair Value Of Investment Securities

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

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	145,072	$	113	$	809	$	144,376
Mortgage-backed securities:
Federal National Mortgage Association		240,973		202		2,366		238,809
Federal Home Loan Mortgage Corporation		38,903		86		634		38,355
Government National Mortgage Association		5,103		22		5		5,120
Collateralized mortgage obligations:
Federal National Mortgage Association		127		—		1		126
Federal Home Loan Mortgage Corporation		36		—		—		36
Privately issued		—		723		—		723
Total mortgage-backed securities		285,142		1,033		3,006		283,169
Total available for sale securities	$	430,214	$	1,146	$	3,815	$	427,545
Securities held to maturity:
State and political subdivisions	$	232,160	$	2,236	$	225	$	234,171
Mortgage-backed securities:
Federal National Mortgage Association		11,276		69		114		11,231
Federal Home Loan Mortgage Corporation		4,167		27		109		4,085
Government National Mortgage Association		39,844		50		520		39,374
Collateralized mortgage obligations:
Federal National Mortgage Association		59,584		31		1,474		58,141
Federal Home Loan Mortgage Corporation		75,029		6		1,624		73,411
Government National Mortgage Association		16,924		—		363		16,561
Total mortgage-backed securities		206,824		183		4,204		202,803
Total held to maturity securities	$	438,984	$	2,419	$	4,429	$	436,974
December 31, 2018
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	155,102	$	—	$	3,074	$	152,028
Mortgage-backed securities:
Federal National Mortgage Association		258,984		44		6,325		252,703
Federal Home Loan Mortgage Corporation		35,962		13		1,275		34,700
Government National Mortgage Association		5,364		21		76		5,309
Collateralized mortgage obligations:
Federal National Mortgage Association		133		—		—		133
Federal Home Loan Mortgage Corporation		37		—		—		37
Privately issued		—		767		—		767
Total mortgage-backed securities		300,480		845		7,676		293,649
Total available for sale securities	$	455,582	$	845	$	10,750	$	445,677

(4.)INVESTMENT SECURITIES (Continued)

	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions	$	234,845	$	876	$	1,211	$	234,510
Mortgage-backed securities:
Federal National Mortgage Association		11,602		8		261		11,349
Federal Home Loan Mortgage Corporation		4,583		—		193		4,390
Government National Mortgage Association		37,450		14		923		36,541
Collateralized mortgage obligations:
Federal National Mortgage Association		62,103		1		2,179		59,925
Federal Home Loan Mortgage Corporation		78,200		—		2,597		75,603
Government National Mortgage Association		17,798		—		535		17,263
Total mortgage-backed securities		211,736		23		6,688		205,071
Total held to maturity securities	$	446,581	$	899	$	7,899	$	439,581

Sales Of Securities Available For Sale

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

	Three months ended March 31,
	2019		2018
Proceeds from sales	$	4,948	$	—
Gross realized gains		—		—
Gross realized losses		53		—

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

The scheduled maturities of securities available for sale and securities held to maturity at March 31, 2019 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

	Amortized		Fair
	Cost		Value
Debt securities available for sale:
Due in one year or less	$	28,200	$	28,009
Due from one to five years		137,192		136,577
Due after five years through ten years		183,515		182,284
Due after ten years		81,307		80,675
Total available for sale securities	$	430,214	$	427,545
Debt securities held to maturity:
Due in one year or less	$	49,502	$	49,598
Due from one to five years		147,735		149,579
Due after five years through ten years		74,536		73,735
Due after ten years		167,211		164,062
Total held to maturity securities	$	438,984	$	436,974

Investments Gross Unrealized Losses And Fair Value

Unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
March 31, 2019
Securities available for sale:
U.S. Government agency and government sponsored    enterprises	$	—	$	—	$	112,425	$	809	$	112,425	$	809
Mortgage-backed securities:
Federal National Mortgage Association		—		—		224,846		2,366		224,846		2,366
Federal Home Loan Mortgage Corporation		—		—		31,365		634		31,365		634
Government National Mortgage Association		—		—		4,522		5		4,522		5
Collateralized mortgage obligations:
Federal National Mortgage Association		70		1		19		—		89		1
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		70		1		260,758		3,005		260,828		3,006
Total available for sale securities		70		1		373,183		3,814		373,253		3,815
Securities held to maturity:
State and political subdivisions		2,717		1		24,312		224		27,029		225
Mortgage-backed securities:
Federal National Mortgage Association		—		—		7,696		114		7,696		114
Federal Home Loan Mortgage Corporation		—		—		2,619		109		2,619		109
Government National Mortgage Association		6,518		16		21,908		504		28,426		520
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56,114		1,474		56,114		1,474
Federal Home Loan Mortgage Corporation		—		—		72,277		1,624		72,277		1,624
Government National Mortgage Association		—		—		16,561		363		16,561		363
Total mortgage-backed securities		6,518		16		177,175		4,188		183,693		4,204
Total held to maturity securities		9,235		17		201,487		4,412		210,722		4,429
Total temporarily impaired securities	$	9,305	$	18	$	574,670	$	8,226	$	583,975	$	8,244
December 31, 2018
Securities available for sale:
U.S. Government agencies and government sponsored    enterprises	$	—	$	—	$	152,028	$	3,074	$	152,028	$	3,074
Mortgage-backed securities:
Federal National Mortgage Association		251		1		247,615		6,324		247,866		6,325
Federal Home Loan Mortgage Corporation		—		—		33,918		1,275		33,918		1,275
Government National Mortgage Association		—		—		4,667		76		4,667		76
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		56		—		56		—
Federal Home Loan Mortgage Corporation		—		—		6		—		6		—
Total mortgage-backed securities		251		1		286,262		7,675		286,513		7,676
Total available for sale securities		251		1		438,290		10,749		438,541		10,750

(4.)INVESTMENT SECURITIES (Continued)

	Less than 12 months				12 months or longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
December 31, 2018 (continued)
Securities held to maturity:
State and political subdivisions		35,751		91		49,534		1,120		85,285		1,211
Mortgage-backed securities:
Federal National Mortgage Association		1,518		3		8,695		258		10,213		261
Federal Home Loan Mortgage Corporation		1,467		5		2,923		188		4,390		193
Government National Mortgage Association		11,783		82		22,516		841		34,299		923
Collateralized mortgage obligations:
Federal National Mortgage Association		—		—		57,973		2,179		57,973		2,179
Federal Home Loan Mortgage Corporation		—		—		75,603		2,597		75,603		2,597
Government National Mortgage Association		—		—		17,263		535		17,263		535
Total mortgage-backed securities		14,768		90		184,973		6,598		199,741		6,688
Total held to maturity securities		50,519		181		234,507		7,718		285,026		7,899
Total temporarily impaired securities	$	50,770	$	182	$	672,797	$	18,467	$	723,567	$	18,649

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Loans (Tables)

3 Months Ended

Mar. 31, 2019

Loans And Leases Receivable Disclosure [Abstract]

Loan Portfolio

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

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
March 31, 2019
Commercial business	$	552,834	$	911		$	553,745
Commercial mortgage		995,183		(1,924	)		993,259
Residential real estate loans		525,036		9,655			534,691
Residential real estate lines		105,592		3,031			108,623
Consumer indirect		872,410		30,352			902,762
Other consumer		15,941		158			16,099
Total	$	3,066,996	$	42,183			3,109,179
Allowance for loan losses							(33,327	)
Total loans, net						$	3,075,852
December 31, 2018
Commercial business	$	557,040	$	821		$	557,861
Commercial mortgage		960,265		(2,071	)		958,194
Residential real estate loans		514,981		9,174			524,155
Residential real estate lines		106,712		3,006			109,718
Consumer indirect		888,732		31,185			919,917
Other consumer		16,590		163			16,753
Total	$	3,044,320	$	42,278			3,086,598
Allowance for loan losses							(33,914	)
Total loans, net						$	3,052,684

Recorded Investment By Loan Class In Current And Nonaccrual Loans

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

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans
March 31, 2019
Commercial business	$	328	$	150	$	—	$	478	$	594	$	551,762	$	552,834
Commercial mortgage		443		375		—		818		909		993,456		995,183
Residential real estate loans		924		367		—		1,291		2,225		521,520		525,036
Residential real estate lines		150		15		—		165		252		105,175		105,592
Consumer indirect		1,388		497		—		1,885		1,822		868,703		872,410
Other consumer		87		8		2		97		—		15,844		15,941
Total loans, gross	$	3,320	$	1,412	$	2	$	4,734	$	5,802	$	3,056,460	$	3,066,996
December 31, 2018
Commercial business	$	227	$	1	$	—	$	228	$	912	$	555,900	$	557,040
Commercial mortgage		574		—		—		574		1,586		958,105		960,265
Residential real estate loans		1,295		242		—		1,537		2,391		511,053		514,981
Residential real estate lines		102		—		—		102		255		106,355		106,712
Consumer indirect		2,424		698		—		3,122		1,989		883,621		888,732
Other consumer		139		3		8		150		—		16,440		16,590
Total loans, gross	$	4,761	$	944	$	8	$	5,713	$	7,133	$	3,031,474	$	3,044,320

Summary Of Impaired Loans

The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as of the dates indicated and average recorded investment and interest income recognized on impaired loans for the three months ended March 31, 2019 and twelve-month period ended December 31, 2018 (in thousands)

	Recorded Investment (1)		Unpaid Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
March 31, 2019
With no related allowance recorded:
Commercial business	$	221	$	292	$	—	$	356	$	—
Commercial mortgage		1,333		2,109		—		1,730		—
		1,554		2,401		—		2,086		—
With an allowance recorded:
Commercial business		504		504		181		660		—
Commercial mortgage		19		19		2		20		—
		523		523		183		680		—
	$	2,077	$	2,924	$	183	$	2,766	$	—
December 31, 2018
With no related allowance recorded:
Commercial business	$	319	$	487	$	—	$	1,156	$	—
Commercial mortgage		2,013		2,789		—		692		—
		2,332		3,276		—		1,848		—
With an allowance recorded:
Commercial business		725		725		205		2,458		—
Commercial mortgage		21		21		1		1,936		—
		746		746		206		4,394		—
	$	3,078	$	4,022	$	206	$	6,242	$	—

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

Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification

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

	Commercial Business		Commercial Mortgage
March 31, 2019
Uncriticized	$	524,977	$	979,254
Special mention		18,266		4,186
Substandard		9,591		11,743
Doubtful		—		—
Total	$	552,834	$	995,183
December 31, 2018
Uncriticized	$	531,756	$	943,991
Special mention		16,499		10,633
Substandard		8,785		5,641
Doubtful		—		—
Total	$	557,040	$	960,265

Retail Loan Portfolio Categorized By Payment Status

The following table sets forth the Company’s retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands):

	Residential Real Estate Loans		Residential Real Estate Lines		Consumer Indirect		Other Consumer
March 31, 2019
Performing	$	522,811	$	105,340	$	870,588	$	15,939
Non-performing		2,225		252		1,822		2
Total	$	525,036	$	105,592	$	872,410	$	15,941
December 31, 2018
Performing	$	512,590	$	106,457	$	886,743	$	16,582
Non-performing		2,391		255		1,989		8
Total	$	514,981	$	106,712	$	888,732	$	16,590

Changes In The Allowance For Loan Losses

The following table sets forth the changes in the allowance for loan losses for the three-month periods ended as of the dates indicated (in thousands):

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
March 31, 2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489		$	33,914
Charge-offs		(130	)		—			(31	)		—			(2,982	)		(309	)		(3,452	)
Recoveries		103			17			6			2			1,424			120			1,672
Provision (credit)		(2,118	)		1,080			178			(39	)		2,011			81			1,193
Ending balance	$	12,167		$	6,316		$	1,265		$	173		$	13,025		$	381		$	33,327
Evaluated for impairment:
Individually	$	181		$	2		$	—		$	—		$	—		$	—		$	183
Collectively	$	11,986		$	6,314		$	1,265		$	173		$	13,025		$	381		$	33,144
Loans:
Ending balance	$	552,834		$	995,183		$	525,036		$	105,592		$	872,410		$	15,941		$	3,066,996
Evaluated for impairment:
Individually	$	725		$	1,352		$	—		$	—		$	—		$	—		$	2,077
Collectively	$	552,109		$	993,831		$	525,036		$	105,592		$	872,410		$	15,941		$	3,064,919
March 31, 2018
Allowance for loan losses:
Beginning balance	$	15,668		$	3,696		$	1,322		$	180		$	13,415		$	391		$	34,672
Charge-offs		(105	)		(4	)		(19	)		(94	)		(2,994	)		(433	)		(3,649	)
Recoveries		120			7			69			3			1,330			93			1,622
Provision (credit)		(741	)		1,774			28			129			1,481			278			2,949
Ending balance	$	14,942		$	5,473		$	1,400		$	218		$	13,232		$	329		$	35,594
Evaluated for impairment:
Individually	$	1,699		$	719		$	—		$	—		$	—		$	—		$	2,418
Collectively	$	13,243		$	4,754		$	1,400		$	218		$	13,232		$	329		$	33,176
Loans:
Ending balance	$	463,526		$	823,305		$	470,111		$	112,428		$	866,598		$	16,482		$	2,752,450
Evaluated for impairment:
Individually	$	4,453		$	2,791		$	—		$	—		$	—		$	—		$	7,244
Collectively	$	459,073		$	820,514		$	470,111		$	112,428		$	866,598		$	16,482		$	2,745,206

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Summary of Classification of Right of Use Assets and Lease Liabilities

The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities:

		March 31,			December 31,
	Balance Sheet Location	2019			2018
Operating Lease Right of Use Assets:
Gross carrying amount	Other assets	$	22,980		$	—
Accumulated amortization	Other assets		(478	)		—
Net book value		$	22,502		$	—
Operating Lease Liabilities:
Right of use lease obligations	Other liabilities	$	23,852		$	—

Summary of Lease Costs and Other Lease Information

The following table represents lease costs and other lease information:

	Three months ended March 31,
	2019			2018
Lease costs:
Operating lease costs	$	693		$	—
Variable lease costs (1)		96			—
Sublease income		(12	)		—
Net lease costs	$	777		$	—
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	688		$	—
Right of use assets obtained in exchange for new operating lease liabilities	$	325		$	—

⁽¹⁾ Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.

Summary of Future Minimum Payments Under Non-cancellable Operating Leases

Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more, are as follows at March 31, 2019 (in thousands):

Twelve months ended March 31,
2020	$	2,677
2021		2,479
2022		2,159
2023		1,784
2024		1,381
Thereafter		26,799
Total future minimum operating lease payments		37,279
Amounts representing interest		(13,427	)
Present value of net future minimum operating lease payments		23,852

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Goodwill And Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill And Intangible Assets Disclosure [Abstract]

Changes In Carrying Amount Of Goodwill

	Banking		Non-Banking		Total
Balance, December 31, 2018	$	48,536	$	17,526	$	66,062
No activity during the period		—		—		—
Balance, March 31, 2019	$	48,536	$	17,526	$	66,062

Gross Carrying Amount Accumulated Amortization and Net Book Value

	March 31,			December 31,
	2019			2018
Other intangibles assets:
Gross carrying amount	$	15,925		$	15,925
Accumulated amortization		(6,137	)		(5,814	)
Net book value	$	9,788		$	10,111

Estimated Core Deposit Intangible Amortization Expense

Amortization expense for total other intangible assets was $323 thousand and $288 thousand for the three months ended March 31, 2019 and  2018, respectively. As of March 31, 2019, the estimated amortization expense of other intangible assets for the remainder of 2019 and each of the next five years is as follows (in thousands):

2019 (remainder of year)	$	927
2020		1,134
2021		1,014
2022		923
2023		852
2024		783

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Derivative Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2019

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Fair Values of Derivative Instruments on the Balance Sheet

					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018		sheet line item	Mar. 31, 2019		Dec. 31, 2018
Derivatives designated as hedging instruments
Cash flow hedges	$	100,000	$	100,000	Otherassets	$	243	$	631	Other liabilities	$	—	$	—
Total derivatives	$	100,000	$	100,000		$	243	$	631		$	—	$	—
Derivatives not designated as hedging instruments
Interest rate swaps (1)	$	121,454	$	71,977	Other assets	$	3,261	$	1,803	Other liabilities	$	3,587	$	2,006
Credit contracts		46,754		36,670	Other assets		20		—	Other liabilities		30		24
Mortgage banking		11,898		7,519	Other assets		132		83	Other liabilities		23		27
Total derivatives	$	180,106	$	116,166		$	3,413	$	1,886		$	3,640	$	2,057

⁽¹⁾ The Company secured its obligations under these contracts with $3.4 million and $1.3 million in cash at March 31, 2019 and December 31, 2018, respectively.

Effect of Derivative Instruments on the Income Statement

		Gain (loss) recognized in income
	Line item of gain (loss)	Three months ended March 31,
Undesignated derivatives	recognized in income	2019		2018
Interest rate swaps	Income from derivative instruments, net	$	101	$	—
Credit contracts	Income from derivative instruments, net		14		174
Mortgage banking	Income from derivative instruments, net		53		(3	)
Total undesignated		$	168	$	171

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Shareholders' Equity (Tables)

3 Months Ended

Mar. 31, 2019

Stockholders Equity Note [Abstract]

Changes In Shares Of Common Stock

	Outstanding			Treasury			Issued
March 31, 2019
Shares at December 31, 2018		15,928,598			127,580			16,056,178
Restricted stock units released		18,580			(18,580	)		—
Treasury stock purchases		(6,368	)		6,368			—
Shares at March 31, 2019		15,940,810			115,368			16,056,178
March 31, 2018
Shares at December 31, 2017		15,924,938			131,240			16,056,178
Restricted stock awards forfeited		(23,901	)		23,901			—
Stock options exercised		4,000			(4,000	)		—
Treasury stock purchases		(3,622	)		3,622			—
Shares at March 31, 2018		15,901,415			154,763			16,056,178

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2019

Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]

Components Of Other Comprehensive Income (Loss)

	Pre-tax Amount			Tax Effect			Net-of-tax Amount
March 31, 2019
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	7,184		$	1,811		$	5,373
Reclassification adjustment for net gains included in net income (1)		174			44			130
Total securities available for sale and transferred securities		7,358			1,855			5,503
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(340	)		(86	)		(254	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(16	)		(4	)		(12	)
Amortization of net actuarial loss included in income		366			93			273
Total pension and post-retirement obligations		350			89			261
Other comprehensive income	$	7,368		$	1,858		$	5,510

March 31, 2018
Securities available for sale and transferred securities:
Change in unrealized gain/loss during the period	$	(8,465	)	$	(2,134	)	$	(6,331	)
Reclassification adjustment for net gains included in net income (1)		82			21			61
Total securities available for sale and transferred securities		(8,383	)		(2,113	)		(6,270	)
Hedging derivative instruments:
Change in unrealized gain/loss during the period		(139	)		(35	)		(104	)
Pension and post-retirement obligations:
Amortization of prior service credit included in income		(18	)		(5	)		(13	)
Amortization of net actuarial loss included in income		187			47			140
Total pension and post-retirement obligations		169			42			127
Other comprehensive loss	$	(8,353	)	$	(2,106	)	$	(6,247	)

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

Components Of Accumulated Other Comprehensive Income (Loss)

	Hedging Derivative Instruments			Securities Available for Sale and Transferred Securities			Pension and Post- retirement Obligations			Accumulated Other Comprehensive Income (Loss)
March 31, 2019
Balance at beginning of period	$	(276	)	$	(7,769	)	$	(13,236	)	$	(21,281	)
Reclassification of income tax effects to retained earnings		—			(681	)		(2,102	)		(2,783	)
Other comprehensive income (loss) before reclassifications		(254	)		5,373			—			5,119
Amounts reclassified from accumulated other comprehensive    income (loss)		—			130			261			391
Net current period other comprehensive income (loss)		(254	)		5,503			261			5,510
Balance at end of period	$	(530	)	$	(2,947	)	$	(15,077	)	$	(18,554	)
March 31, 2018
Balance at beginning of period	$	—		$	(3,275	)	$	(8,641	)	$	(11,916	)
Other comprehensive income (loss) before reclassifications		(104	)		(6,331	)		—			(6,435	)
Amounts reclassified from accumulated other comprehensive    income (loss)		—			61			127			188
Net current period other comprehensive income (loss)		(104	)		(6,270	)		127			(6,247	)
Balance at end of period	$	(104	)	$	(9,545	)	$	(8,514	)	$	(18,163	)

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

Details About Accumulated Other Comprehensive Income (Loss) Components	Amount Reclassified from Accumulated Other Comprehensive Income (Loss)						Affected Line Item in the Consolidated Statement of Income
	Three months ended
	March 31,
	2019			2018
Realized (loss) gain on sale of investment securities	$	(53	)	$	—		Net (loss) gain on investment securities
Amortization of unrealized holding gains (losses)    on investment securities transferred from    available for sale to held to maturity		(121	)		(82	)	Interest income
		(174	)		(82	)	Total before tax
		44			21		Income tax expense
		(130	)		(61	)	Net of tax
Amortization of pension and post-retirement items:
Prior service credit (1)		16			18		Salaries and employee benefits
Net actuarial losses (1)		(366	)		(187	)	Salaries and employee benefits
		(350	)		(169	)	Total before tax
		89			42		Income tax expense
		(261	)		(127	)	Net of tax
Total reclassified for the period	$	(391	)	$	(188	)

⁽¹⁾ These items are included in the computation of net periodic pension expense. See Note 12 – Employee Benefit Plans for additional information.

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Share-Based Compensation Plans (Tables)

3 Months Ended

Mar. 31, 2019

Share Based Compensation [Abstract]

Summary Of Restricted Stock Units And Performance Share Units Activity

	Number of Underlying Shares		Weighted Average Per Share Grant Date Fair Value
RSUs		17,658	$	26.96
PSUs		17,658		27.79

Summary of Restricted Stock Awards and Restricted Stock Units Activity

	Number of Shares			Weighted Average Market Price at Grant Date
Outstanding at beginning of year		130,571		$	28.04
Granted		35,316			27.38
Vested		(18,580	)		24.21
Forfeited		(21,865	)		26.12
Outstanding at end of period		125,442		$	28.76

Share-Based Compensation Expense Included In Consolidated Statements Of Income

	Three months ended March 31,
	2019		2018
Salaries and employee benefits	$	151	$	268
Other noninterest expense		31		34
Total share-based compensation expense	$	182	$	302

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Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2019

Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]

Components Of Net Periodic Benefit Expense

	Three months ended March 31,
	2019			2018
Service cost	$	802		$	836
Interest cost on projected benefit obligation		695			598
Expected return on plan assets		(1,184	)		(1,321	)
Amortization of unrecognized prior service credit		(16	)		(18	)
Amortization of unrecognized net actuarial loss		366			187
Net periodic benefit expense	$	663		$	282

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Off-Balance Sheet Commitments

	March 31, 2019		December 31, 2018
Commitments to extend credit	$	685,014	$	687,875
Standby letters of credit		12,152		11,977

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

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

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
March 31, 2019
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	144,376		$	—	$	144,376
Mortgage-backed securities		—		283,169			—		283,169
Other assets:
Hedging derivative instruments		—		243			—		243
Fair value adjusted through comprehensive income	$	—	$	427,788		$	—	$	427,788
Other assets:
Derivative instruments - interest rate products	$	—	$	3,261		$	—	$	3,261
Derivative instruments - credit contracts		—		20			—		20
Derivative instruments - mortgage banking		—		132			—		132
Other liabilities:
Derivative instruments - interest rate products		—		(3,587	)		—		(3,587	)
Derivative instruments - credit contracts		—		(30	)		—		(30	)
Derivative instruments - mortgage banking		—		(23	)		—		(23	)
Fair value adjusted through net income	$	—	$	(227	)	$	—	$	(227	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,069		$	—	$	2,069
Collateral dependent impaired loans		—		—			1,894		1,894
Other assets:
Loan servicing rights		—		—			1,030		1,030
Other real estate owned		—		—			41		41
Total	$	—	$	2,069		$	2,965	$	5,034

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2019. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2019.

	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2018
Measured on a recurring basis:
Securities available for sale:
U.S. Government agency and government sponsored enterprises	$	—	$	152,028		$	—	$	152,028
Mortgage-backed securities		—		293,649			—		293,649
Other assets:
Hedging derivative instruments		—		631			—		631
Fair value adjusted through comprehensive income	$	—	$	446,308		$	—	$	446,308
Other assets:
Derivative instruments - interest rate products	$	—	$	1,803		$	—	$	1,803
Derivative instruments - mortgage banking		—		83			—		83
Other liabilities:
Derivative instruments - interest rate products		—		(2,006	)		—		(2,006	)
Derivative instruments - credit contracts		—		(24	)		—		(24	)
Derivative instruments - mortgage banking		—		(27	)		—		(27	)
Fair value adjusted through net income	$	—	$	(171	)	$	—	$	(171	)
Measured on a nonrecurring basis:
Loans:
Loans held for sale	$	—	$	2,868		$	—	$	2,868
Collateral dependent impaired loans		—		—			2,872		2,872
Other assets:
Loan servicing rights		—		—			1,022		1,022
Other real estate owned		—		—			230		230
Total	$	—	$	2,868		$	4,124	$	6,992

There were no transfers between Levels 1 and 2 during the three months ended March 31, 2018. There were no liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2018.

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

Asset	Fair Value		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Collateral dependent impaired loans	$	1,894	Appraisal of collateral (1)	Appraisal adjustments (2)	25% (3)
Loan servicing rights		1,030	Discounted cash flow	Discount rate	10.2% (3)
				Constant prepayment rate	13.4% (3)
Other real estate owned		41	Appraisal of collateral (1)	Appraisal adjustments (2)	11% (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⁾ Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

⁽³⁾ Weighted averages.

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the three months ended March 31, 2019.

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

	Level in	March 31, 2019				December 31, 2018
	Fair Value			Estimated				Estimated
	Measurement	Carrying		Fair		Carrying		Fair
	Hierarchy	Amount		Value		Amount		Value
Financial assets:
Cash and cash equivalents	Level 1	$	79,786	$	79,786	$	102,755	$	102,755
Securities available for sale	Level 2		427,545		427,545		445,677		445,677
Securities held to maturity	Level 2		438,984		436,974		446,581		439,581
Loans held for sale	Level 2		2,069		2,069		2,868		2,868
Loans	Level 2		3,073,958		3,061,505		3,049,812		3,006,161
Loans (1)	Level 3		1,894		1,894		2,872		2,872
Accrued interest receivable	Level 1		13,429		13,429		11,990		11,990
FHLB and FRB stock	Level 2		21,056		21,056		26,375		26,375
Derivative instruments – cash flow hedge	Level 2		243		243		631		631
Derivative instruments – interest rate products	Level 2		3,261		3,261		1,803		1,803
Derivative instruments – credit contracts	Level 2		20		20		—		—
Derivative instruments – mortgage banking	Level 2		132		132		83		83
Financial liabilities:
Non-maturity deposits	Level 1		2,456,727		2,456,727		2,346,839		2,346,839
Time deposits	Level 2		1,052,110		1,048,583		1,020,068		1,014,532
Short-term borrowings	Level 1		287,300		287,300		469,500		469,500
Long-term borrowings	Level 2		39,220		39,641		39,202		38,415
Accrued interest payable	Level 1		10,478		10,478		9,280		9,280
Derivative instruments – interest rate products	Level 2		3,587		3,587		2,006		2,006
Derivative instruments – credit contracts	Level 2		30		30		24		24
Derivative instruments – mortgage banking	Level 2		23		23		27		27

⁽¹⁾ Comprised of collateral dependent impaired loans.

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Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Business Segment Assets

	Banking		Non-Banking		Holding Company and Other			Consolidated Totals
March 31, 2019
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		180		9,608		—			9,788
Total assets		4,267,432		35,448		(339	)		4,302,541
December 31, 2018
Goodwill	$	48,536	$	17,526	$	—		$	66,062
Other intangible assets, net		213		9,898		—			10,111
Total assets		4,272,439		35,975		3,284			4,311,698

Business Segment Profit (Loss)

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2019
Net interest income (expense)	$	32,409		$	—		$	(617	)	$	31,792
Provision for loan losses		(1,193	)		—			—			(1,193	)
Noninterest income		6,266			3,026			(172	)		9,120
Noninterest expense		(21,453	)		(3,041	)		(677	)		(25,171	)
Income (loss) before income taxes		16,029			(15	)		(1,466	)		14,548
Income tax (expense) benefit		(3,344	)		—			317			(3,027	)
Net income (loss)	$	12,685		$	(15	)	$	(1,149	)	$	11,521

	Banking			Non-Banking			Holding Company and Other			Consolidated Totals
Three months ended March 31, 2018
Net interest income (expense)	$	30,317		$	—		$	(615	)	$	29,702
Provision for loan losses		(2,949	)		—			—			(2,949	)
Noninterest income		6,430			2,624			(147	)		8,907
Noninterest expense		(20,480	)		(2,665	)		(959	)		(24,104	)
Income (loss) before income taxes		13,318			(41	)		(1,721	)		11,556
Income tax (expense) benefit		(2,632	)		8			356			(2,268	)
Net income (loss)	$	10,686		$	(33	)	$	(1,365	)	$	9,288

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Basis of Presentation And Summary Of Significant Accounting Policies (Summary Of Supplemental Cash Flow Information) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Supplemental information:
Cash paid for interest	$ 8,524	$ 6,492
Cash paid for income taxes	1,248	1,571
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans		370
Accrued and declared unpaid dividends	4,350	$ 4,181
Decrease in net unsettled security purchases	$ 1,473

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Basis of Presentation And Summary Of Significant Accounting Policies (Narrative) (Details) $ in Millions	Jan. 01, 2019 USD ($)
Significant Accounting Policies [Line Items]
Reclassification from AOCI to retained earnings	$ 2.8
ASU 2016-02 [Member]
Significant Accounting Policies [Line Items]
Cumulative-effect adjustment on assets	22.7
Cumulative-effect adjustment on liabilities	$ 23.4

XML

Business Combinations (Narrative) (Details) - HNP Capital [Member] - USD ($) $ in Millions	Jun. 01, 2018	Jun. 30, 2018
Business Acquisition [Line Items]
Assets under management		$ 344.0
Consideration for acquisition in cash	$ 5.1
Goodwill	2.6
Identified intangible assets	$ 2.5

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Earnings Per Common Share ("EPS") (Reconciliation Of Earnings And Shares Used In Calculating Basic And Diluted EPS) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income available to common shareholders	$ 11,156	$ 8,923
Total shares issued	16,056	16,056
Unvested restricted stock awards	(3)	(19)
Treasury shares	(123)	(147)
Total basic weighted average common shares outstanding	15,930	15,890
Exercise of stock options		6
Vesting of restricted stock awards	48	45
Total diluted weighted average common shares outstanding	15,978	15,941
Basic earnings per common share	$ 0.70	$ 0.56
Diluted earnings per common share	$ 0.70	$ 0.56

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Earnings Per Common Share ("EPS") (Shares Excluded from Computation of Diluted EPS) (Details) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	10	4
Restricted Stock Awards [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive shares excluded from computation of diluted EPS	10	4

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Investment Securities (Amortized Cost And Fair Value Of Investment Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment [Line Items]
Securities available for sale, Amortized Cost	$ 430,214	$ 455,582
Securities available for sale, Unrealized Gains	1,146	845
Securities available for sale, Unrealized Losses	3,815	10,750
Securities available for sale	427,545	445,677
Securities held to maturity, Amortized Cost	438,984	446,581
Securities held to maturity, Unrealized Gains	2,419	899
Securities held to maturity, Unrealized Losses	4,429	7,899
Securities held to maturity, fair value	436,974	439,581
U.S. Government Agency And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	145,072	155,102
Securities available for sale, Unrealized Gains	113
Securities available for sale, Unrealized Losses	809	3,074
Securities available for sale	144,376	152,028
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Amortized Cost	232,160	234,845
Securities held to maturity, Unrealized Gains	2,236	876
Securities held to maturity, Unrealized Losses	225	1,211
Securities held to maturity, fair value	234,171	234,510
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	127	133
Securities available for sale, Unrealized Losses	1
Securities available for sale	126	133
Securities held to maturity, Amortized Cost	59,584	62,103
Securities held to maturity, Unrealized Gains	31	1
Securities held to maturity, Unrealized Losses	1,474	2,179
Securities held to maturity, fair value	58,141	59,925
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	36	37
Securities available for sale	36	37
Securities held to maturity, Amortized Cost	75,029	78,200
Securities held to maturity, Unrealized Gains	6
Securities held to maturity, Unrealized Losses	1,624	2,597
Securities held to maturity, fair value	73,411	75,603
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities held to maturity, Amortized Cost	16,924	17,798
Securities held to maturity, Unrealized Losses	363	535
Securities held to maturity, fair value	16,561	17,263
Collateralized Mortgage Obligations [Member] | Privately Issued [Member]
Investment [Line Items]
Securities available for sale, Unrealized Gains	723	767
Securities available for sale	723	767
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	285,142	300,480
Securities available for sale, Unrealized Gains	1,033	845
Securities available for sale, Unrealized Losses	3,006	7,676
Securities available for sale	283,169	293,649
Securities held to maturity, Amortized Cost	206,824	211,736
Securities held to maturity, Unrealized Gains	183	23
Securities held to maturity, Unrealized Losses	4,204	6,688
Securities held to maturity, fair value	202,803	205,071
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	240,973	258,984
Securities available for sale, Unrealized Gains	202	44
Securities available for sale, Unrealized Losses	2,366	6,325
Securities available for sale	238,809	252,703
Securities held to maturity, Amortized Cost	11,276	11,602
Securities held to maturity, Unrealized Gains	69	8
Securities held to maturity, Unrealized Losses	114	261
Securities held to maturity, fair value	11,231	11,349
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	38,903	35,962
Securities available for sale, Unrealized Gains	86	13
Securities available for sale, Unrealized Losses	634	1,275
Securities available for sale	38,355	34,700
Securities held to maturity, Amortized Cost	4,167	4,583
Securities held to maturity, Unrealized Gains	27
Securities held to maturity, Unrealized Losses	109	193
Securities held to maturity, fair value	4,085	4,390
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Amortized Cost	5,103	5,364
Securities available for sale, Unrealized Gains	22	21
Securities available for sale, Unrealized Losses	5	76
Securities available for sale	5,120	5,309
Securities held to maturity, Amortized Cost	39,844	37,450
Securities held to maturity, Unrealized Gains	50	14
Securities held to maturity, Unrealized Losses	520	923
Securities held to maturity, fair value	$ 39,374	$ 36,541

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Investment Securities (Narrative) (Details)	3 Months Ended
	Mar. 31, 2019 USD ($) Security	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($) Security
Investments [Abstract]
Securities pledged as collateral	$ 702,500,000		$ 751,000,000
Number of security positions, unrealized loss position | Security	323		571
Number of security positions, unrealized loss position for more than 12 months | Security	314		435
Securities, 12 months or longer, Fair Value	$ 574,670,000		$ 672,797,000
Securities, 12 months or longer, Unrealized Losses	$ 8,226,000		$ 18,467,000
Number of security positions, unrealized loss position for less than 12 months | Security	9		136
Securities, less than 12 months, Fair Value	$ 9,305,000		$ 50,770,000
Securities, less than 12 months, Unrealized Losses	18,000		$ 182,000
Impairment recorded	$ 0	$ 0

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Investment Securities (Sales Of Securities Available For Sale) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Investments [Abstract]
Proceeds from sales	$ 4,948
Gross realized losses	$ 53

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Investment Securities (Scheduled Maturities Of Securities Available For Sale And Securities Held To Maturity) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investments [Abstract]
Debt securities available for sale, Due in one year or less, Amortized Cost	$ 28,200
Debt securities available for sale, Due from one to five years, Amortized Cost	137,192
Debt securities available for sale, Due after five years through ten years, Amortized Cost	183,515
Debt securities available for sale, Due after ten years, Amortized Cost	81,307
Securities available for sale, Amortized Cost	430,214	$ 455,582
Debt securities available for sale, Due in one year or less, Fair Value	28,009
Debt securities available for sale, Due from one to five years, Fair Value	136,577
Debt securities available for sale, Due after five years through ten years, Fair Value	182,284
Debt securities available for sale, Due after ten years, Fair Value	80,675
Debt securities available for sale, Fair Value	427,545	445,677
Debt securities held to maturity, Due in one year or less, Amortized Cost	49,502
Debt securities held to maturity, Due from one to five years, Amortized Cost	147,735
Debt securities held to maturity, Due after five years through ten years, Amortized Cost	74,536
Debt securities held to maturity, Due after ten years, Amortized Cost	167,211
Securities held to maturity, Amortized Cost	438,984	446,581
Debt securities held to maturity, Due in one year or less, Fair Value	49,598
Debt securities held to maturity, Due from one to five years, Fair Value	149,579
Debt securities held to maturity, Due after five years through ten years, Fair Value	73,735
Debt securities held to maturity, Due after ten years, Fair Value	164,062
Securities held to maturity, Fair Value	$ 436,974	$ 439,581

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Investment Securities (Investments Gross Unrealized Losses And Fair Value) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	$ 70	$ 251
Securities available for sale, Less than 12 months, Unrealized Losses	1	1
Securities available for sale, 12 months or longer, Fair Value	373,183	438,290
Securities available for sale, 12 months or longer, Unrealized Losses	3,814	10,749
Securities available for sale, Fair Value, Total	373,253	438,541
Securities available for sale, Unrealized Losses, Total	3,815	10,750
Securities held to maturity, Less than 12 months, Fair Value	9,235	50,519
Securities held to maturity, Less than 12 months, Unrealized Losses	17	181
Securities held to maturity, 12 months or longer, Fair Value	201,487	234,507
Securities held to maturity, 12 months or longer, Unrealized Losses	4,412	7,718
Securities held to maturity, Fair Value, Total	210,722	285,026
Securities held to maturity, Unrealized Losses, Total	4,429	7,899
Total Securities, Less than 12 months, Fair Value	9,305	50,770
Total Securities, Less than 12 months, Unrealized Losses	18	182
Total Securities, 12 months or longer, Fair Value	574,670	672,797
Total Securities, 12 months or longer, Unrealized Losses	8,226	18,467
Total Securities, Fair Value	583,975	723,567
Total Securities, Unrealized Losses	8,244	18,649
U.S. Government Agency And Government Sponsored Enterprises [Member]
Investment [Line Items]
Securities available for sale, 12 months or longer, Fair Value	112,425	152,028
Securities available for sale, 12 months or longer, Unrealized Losses	809	3,074
Securities available for sale, Fair Value, Total	112,425	152,028
Securities available for sale, Unrealized Losses, Total	809	3,074
State And Political Subdivisions [Member]
Investment [Line Items]
Securities held to maturity, Less than 12 months, Fair Value	2,717	35,751
Securities held to maturity, Less than 12 months, Unrealized Losses	1	91
Securities held to maturity, 12 months or longer, Fair Value	24,312	49,534
Securities held to maturity, 12 months or longer, Unrealized Losses	224	1,120
Securities held to maturity, Fair Value, Total	27,029	85,285
Securities held to maturity, Unrealized Losses, Total	225	1,211
Collateralized Mortgage Obligations [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	70
Securities available for sale, Less than 12 months, Unrealized Losses	1
Securities available for sale, 12 months or longer, Fair Value	19	56
Securities available for sale, Fair Value, Total	89	56
Securities available for sale, Unrealized Losses, Total	1
Securities held to maturity, 12 months or longer, Fair Value	56,114	57,973
Securities held to maturity, 12 months or longer, Unrealized Losses	1,474	2,179
Securities held to maturity, Fair Value, Total	56,114	57,973
Securities held to maturity, Unrealized Losses, Total	1,474	2,179
Collateralized Mortgage Obligations [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, 12 months or longer, Fair Value	6	6
Securities available for sale, Fair Value, Total	6	6
Securities held to maturity, 12 months or longer, Fair Value	72,277	75,603
Securities held to maturity, 12 months or longer, Unrealized Losses	1,624	2,597
Securities held to maturity, Fair Value, Total	72,277	75,603
Securities held to maturity, Unrealized Losses, Total	1,624	2,597
Collateralized Mortgage Obligations [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities held to maturity, 12 months or longer, Fair Value	16,561	17,263
Securities held to maturity, 12 months or longer, Unrealized Losses	363	535
Securities held to maturity, Fair Value, Total	16,561	17,263
Securities held to maturity, Unrealized Losses, Total	363	535
Mortgage-Backed Securities [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value	70	251
Securities available for sale, Less than 12 months, Unrealized Losses	1	1
Securities available for sale, 12 months or longer, Fair Value	260,758	286,262
Securities available for sale, 12 months or longer, Unrealized Losses	3,005	7,675
Securities available for sale, Fair Value, Total	260,828	286,513
Securities available for sale, Unrealized Losses, Total	3,006	7,676
Securities held to maturity, Less than 12 months, Fair Value	6,518	14,768
Securities held to maturity, Less than 12 months, Unrealized Losses	16	90
Securities held to maturity, 12 months or longer, Fair Value	177,175	184,973
Securities held to maturity, 12 months or longer, Unrealized Losses	4,188	6,598
Securities held to maturity, Fair Value, Total	183,693	199,741
Securities held to maturity, Unrealized Losses, Total	4,204	6,688
Mortgage-Backed Securities [Member] | Federal National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, Less than 12 months, Fair Value		251
Securities available for sale, Less than 12 months, Unrealized Losses		1
Securities available for sale, 12 months or longer, Fair Value	224,846	247,615
Securities available for sale, 12 months or longer, Unrealized Losses	2,366	6,324
Securities available for sale, Fair Value, Total	224,846	247,866
Securities available for sale, Unrealized Losses, Total	2,366	6,325
Securities held to maturity, Less than 12 months, Fair Value		1,518
Securities held to maturity, Less than 12 months, Unrealized Losses		3
Securities held to maturity, 12 months or longer, Fair Value	7,696	8,695
Securities held to maturity, 12 months or longer, Unrealized Losses	114	258
Securities held to maturity, Fair Value, Total	7,696	10,213
Securities held to maturity, Unrealized Losses, Total	114	261
Mortgage-Backed Securities [Member] | Federal Home Loan Mortgage Corporation [Member]
Investment [Line Items]
Securities available for sale, 12 months or longer, Fair Value	31,365	33,918
Securities available for sale, 12 months or longer, Unrealized Losses	634	1,275
Securities available for sale, Fair Value, Total	31,365	33,918
Securities available for sale, Unrealized Losses, Total	634	1,275
Securities held to maturity, Less than 12 months, Fair Value		1,467
Securities held to maturity, Less than 12 months, Unrealized Losses		5
Securities held to maturity, 12 months or longer, Fair Value	2,619	2,923
Securities held to maturity, 12 months or longer, Unrealized Losses	109	188
Securities held to maturity, Fair Value, Total	2,619	4,390
Securities held to maturity, Unrealized Losses, Total	109	193
Mortgage-Backed Securities [Member] | Government National Mortgage Association [Member]
Investment [Line Items]
Securities available for sale, 12 months or longer, Fair Value	4,522	4,667
Securities available for sale, 12 months or longer, Unrealized Losses	5	76
Securities available for sale, Fair Value, Total	4,522	4,667
Securities available for sale, Unrealized Losses, Total	5	76
Securities held to maturity, Less than 12 months, Fair Value	6,518	11,783
Securities held to maturity, Less than 12 months, Unrealized Losses	16	82
Securities held to maturity, 12 months or longer, Fair Value	21,908	22,516
Securities held to maturity, 12 months or longer, Unrealized Losses	504	841
Securities held to maturity, Fair Value, Total	28,426	34,299
Securities held to maturity, Unrealized Losses, Total	$ 520	$ 923

XML

Loans (Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	$ 3,066,996	$ 3,044,320
Net Deferred Loan (Fees) Costs	42,183	42,278
Loans, Net	3,109,179	3,086,598
Allowance for loan losses	(33,327)	(33,914)
Total loans, net	3,075,852	3,052,684
Commercial Business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	552,834	557,040
Net Deferred Loan (Fees) Costs	911	821
Loans, Net	553,745	557,861
Commercial Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	995,183	960,265
Net Deferred Loan (Fees) Costs	(1,924)	(2,071)
Loans, Net	993,259	958,194
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	525,036	514,981
Net Deferred Loan (Fees) Costs	9,655	9,174
Loans, Net	534,691	524,155
Residential Real Estate Lines [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	105,592	106,712
Net Deferred Loan (Fees) Costs	3,031	3,006
Loans, Net	108,623	109,718
Consumer Indirect [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	872,410	888,732
Net Deferred Loan (Fees) Costs	30,352	31,185
Loans, Net	902,762	919,917
Other Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Principal Amount Outstanding	15,941	16,590
Net Deferred Loan (Fees) Costs	158	163
Loans, Net	$ 16,099	$ 16,753

XML

Loans (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) contract	Mar. 31, 2018 contract	Dec. 31, 2018 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 2,069		$ 2,868
Past due greater than 90 days and still accruing interest	$ 0		0
Number of loans modified as TDR | contract	0	0
Number of loans modified as TDR that defaulted within the previous 12 months | contract	0	0
Days past due when loans are generally placed on nonaccrual status, in days	90 days	90 days
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans held for sale	$ 2,100		2,900
Consumer Overdrafts [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Past due greater than 90 days and still accruing interest	$ 2		$ 8

XML

Loans (Recorded Investment By Loan Class In Current And Nonaccrual Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	$ 4,734	$ 5,713
Nonaccrual	5,802	7,133
Current	3,056,460	3,031,474
Total Loans	3,066,996	3,044,320	$ 2,752,450
30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	3,320	4,761
60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,412	944
Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	2	8
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	478	228
Nonaccrual	594	912
Current	551,762	555,900
Total Loans	552,834	557,040	463,526
Commercial Business [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	328	227
Commercial Business [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	150	1
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	818	574
Nonaccrual	909	1,586
Current	993,456	958,105
Total Loans	995,183	960,265	823,305
Commercial Mortgage [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	443	574
Commercial Mortgage [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	375
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,291	1,537
Nonaccrual	2,225	2,391
Current	521,520	511,053
Total Loans	525,036	514,981	470,111
Residential Real Estate Loans [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	924	1,295
Residential Real Estate Loans [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	367	242
Residential Real Estate Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	165	102
Nonaccrual	252	255
Current	105,175	106,355
Total Loans	105,592	106,712	112,428
Residential Real Estate Lines [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	150	102
Residential Real Estate Lines [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	15
Consumer Indirect [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,885	3,122
Nonaccrual	1,822	1,989
Current	868,703	883,621
Total Loans	872,410	888,732	866,598
Consumer Indirect [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	1,388	2,424
Consumer Indirect [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	497	698
Other Consumer [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	97	150
Current	15,844	16,440
Total Loans	15,941	16,590	$ 16,482
Other Consumer [Member] | 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	87	139
Other Consumer [Member] | 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	8	3
Other Consumer [Member] | Greater than 90 Days [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due Loans	$ 2	$ 8

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Loans (Summary Of Impaired Loans) (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	[1]	$ 1,554	$ 2,332
Recorded Investment, With an allowance recorded	[1]	523	746
Recorded Investment	[1]	2,077	3,078
Unpaid Principal Balance, With no related allowance recorded	[1]	2,401	3,276
Unpaid Principal Balance, With an allowance recorded	[1]	523	746
Unpaid Principal Balance	[1]	2,924	4,022
Related Allowance		183	206
Average Recorded Investment, With no related allowance recorded		2,086	1,848
Average Recorded Investment, With an allowance recorded		680	4,394
Average Recorded Investment		2,766	6,242
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded
Interest Income Recognized
Commercial Business [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	[1]	221	319
Recorded Investment, With an allowance recorded	[1]	504	725
Unpaid Principal Balance, With no related allowance recorded	[1]	292	487
Unpaid Principal Balance, With an allowance recorded	[1]	504	725
Related Allowance		181	205
Average Recorded Investment, With no related allowance recorded		356	1,156
Average Recorded Investment, With an allowance recorded		660	2,458
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded
Commercial Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment, With no related allowance recorded	[1]	1,333	2,013
Recorded Investment, With an allowance recorded	[1]	19	21
Unpaid Principal Balance, With no related allowance recorded	[1]	2,109	2,789
Unpaid Principal Balance, With an allowance recorded	[1]	19	21
Related Allowance		2	1
Average Recorded Investment, With no related allowance recorded		1,730	692
Average Recorded Investment, With an allowance recorded		20	1,936
Interest Income Recognized, With no related allowance recorded
Interest Income Recognized, With an allowance recorded

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

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Loans (Commercial Loan Portfolio Categorized By Internally Assigned Asset Classification) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 3,066,996	$ 3,044,320
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	552,834	557,040
Commercial Business [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	524,977	531,756
Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	18,266	16,499
Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,591	8,785
Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans
Commercial Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	995,183	960,265
Commercial Mortgage [Member] | Uncriticized [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	979,254	943,991
Commercial Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	4,186	10,633
Commercial Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	11,743	5,641
Commercial Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans

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Loans (Retail Loan Portfolio Categorized By Payment Status) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 3,066,996	$ 3,044,320
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	525,036	514,981
Residential Real Estate Loans [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	522,811	512,590
Residential Real Estate Loans [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	2,225	2,391
Residential Real Estate Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	105,592	106,712
Residential Real Estate Lines [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	105,340	106,457
Residential Real Estate Lines [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	252	255
Consumer Indirect [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	872,410	888,732
Consumer Indirect [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	870,588	886,743
Consumer Indirect [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,822	1,989
Other Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,941	16,590
Other Consumer [Member] | Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	15,939	16,582
Other Consumer [Member] | Non-Performing [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 2	$ 8

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Loans (Changes In The Allowance For Loan Losses) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	$ 33,914	$ 34,672
Charge-offs	(3,452)	(3,649)
Recoveries	1,672	1,622
Provision (credit)	1,193	2,949
Ending balance	33,327	35,594
Allowance for loan losses, Individually Evaluated for impairment	183	2,418
Allowance for loan losses, Collectively Evaluated for impairment	33,144	33,176
Loans, Ending balance	3,066,996	2,752,450	$ 3,044,320
Loans, Individually Evaluated for impairment	2,077	7,244
Loans, Collectively Evaluated for impairment	3,064,919	2,745,206
Commercial Business [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	14,312	15,668
Charge-offs	(130)	(105)
Recoveries	103	120
Provision (credit)	(2,118)	(741)
Ending balance	12,167	14,942
Allowance for loan losses, Individually Evaluated for impairment	181	1,699
Allowance for loan losses, Collectively Evaluated for impairment	11,986	13,243
Loans, Ending balance	552,834	463,526	557,040
Loans, Individually Evaluated for impairment	725	4,453
Loans, Collectively Evaluated for impairment	552,109	459,073
Commercial Mortgage [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	5,219	3,696
Charge-offs		(4)
Recoveries	17	7
Provision (credit)	1,080	1,774
Ending balance	6,316	5,473
Allowance for loan losses, Individually Evaluated for impairment	2	719
Allowance for loan losses, Collectively Evaluated for impairment	6,314	4,754
Loans, Ending balance	995,183	823,305	960,265
Loans, Individually Evaluated for impairment	1,352	2,791
Loans, Collectively Evaluated for impairment	993,831	820,514
Residential Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	1,112	1,322
Charge-offs	(31)	(19)
Recoveries	6	69
Provision (credit)	178	28
Ending balance	1,265	1,400
Allowance for loan losses, Collectively Evaluated for impairment	1,265	1,400
Loans, Ending balance	525,036	470,111	514,981
Loans, Collectively Evaluated for impairment	525,036	470,111
Residential Real Estate Lines [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	210	180
Charge-offs		(94)
Recoveries	2	3
Provision (credit)	(39)	129
Ending balance	173	218
Allowance for loan losses, Collectively Evaluated for impairment	173	218
Loans, Ending balance	105,592	112,428	106,712
Loans, Collectively Evaluated for impairment	105,592	112,428
Consumer Indirect [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	12,572	13,415
Charge-offs	(2,982)	(2,994)
Recoveries	1,424	1,330
Provision (credit)	2,011	1,481
Ending balance	13,025	13,232
Allowance for loan losses, Collectively Evaluated for impairment	13,025	13,232
Loans, Ending balance	872,410	866,598	888,732
Loans, Collectively Evaluated for impairment	872,410	866,598
Other Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Beginning balance	489	391
Charge-offs	(309)	(433)
Recoveries	120	93
Provision (credit)	81	278
Ending balance	381	329
Allowance for loan losses, Collectively Evaluated for impairment	381	329
Loans, Ending balance	15,941	16,482	$ 16,590
Loans, Collectively Evaluated for impairment	$ 15,941	$ 16,482

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Leases (Narrative) (Details)	3 Months Ended
	Mar. 31, 2019 BuildingLease
Leases [Abstract]
Operating leases term description	The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2047
Sublease extension terms	One building lease is subleased for terms extending through 2021
Number of buildings subleased	1
Operating leases, weighted average remaining lease term	21 years 7 months 6 days
Operating leases, weighted-average discount rate	3.74%

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Leases (Summary of Classification of Right of Use Assets and Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Operating Lease Right of Use Assets:
Gross carrying amount	$ 22,980
Accumulated amortization	(478)
Net book value	$ 22,502
Operating Lease, Right-of-Use Asset, Statement of Financial Position [Extensible List]	us-gaap:OtherAssets	us-gaap:OtherAssets
Operating Lease Liabilities:
Right of use lease obligations	$ 23,852
Operating Lease, Liability, Statement of Financial Position [Extensible List]	us-gaap:OtherLiabilities	us-gaap:OtherLiabilities

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Leases (Summary of Lease Costs and Other Lease Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Lease costs:
Operating lease costs	$ 693
Variable lease costs	96	[1]
Sublease income	(12)
Net lease costs	777
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	688
Right of use assets obtained in exchange for new operating lease liabilities	$ 325

[1] Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.

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Leases (Summary of Future Minimum Payments Under Non-cancellable Operating Leases (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Leases [Abstract]
2020	$ 2,677
2021	2,479
2022	2,159
2023	1,784
2024	1,381
Thereafter	26,799
Total future minimum operating lease payments	37,279
Amounts representing interest	(13,427)
Present value of net future minimum operating lease payments	$ 23,852

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Goodwill And Other Intangible Assets (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Carrying amount of goodwill	$ 66,062		$ 66,062
Amortization during the year	$ 323	$ 288

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Goodwill And Other Intangible Assets (Changes In Carrying Amount Of Goodwill) (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Goodwill [Line Items]
Goodwill, beginning balance	$ 66,062
Goodwill, ending balance	66,062
Banking [Member]
Goodwill [Line Items]
Goodwill, beginning balance	48,536
Goodwill, ending balance	48,536
Non-Banking [Member]
Goodwill [Line Items]
Goodwill, beginning balance	17,526
Goodwill, ending balance	$ 17,526

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Goodwill And Other Intangible Assets (Gross Carrying Amount Accumulated Amortization and Net Book Value) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Goodwill And Intangible Assets Disclosure [Abstract]
Gross carrying amount	$ 15,925	$ 15,925
Accumulated amortization	(6,137)	(5,814)
Net book value	$ 9,788	$ 10,111

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Goodwill And Other Intangible Assets (Estimated Core Deposit Intangible Amortization Expense) (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
2019 (remainder of year)	$ 927
2020	1,134
2021	1,014
2022	923
2023	852
2024	$ 783

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Derivative Instruments and Hedging Activities (Narrative) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Derivative Instruments And Hedging Activities Disclosure [Abstract]
Estimated to be reclassified as an increase to interest expense	$ 337

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Derivative Instruments and Hedging Activities (Fair Values of Derivative Instruments on the Balance Sheet) (Details) - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Derivatives Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount		$ 100,000	$ 100,000
Derivatives Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives		243	631
Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount		180,106	116,166
Derivatives Not Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives		3,413	1,886
Derivatives Not Designated as Hedging Instruments [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Liability derivatives		3,640	2,057
Cash Flow Hedging [Member] | Derivatives Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount		100,000	100,000
Cash Flow Hedging [Member] | Derivatives Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives		243	631
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount	[1]	121,454	71,977
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives	[1]	3,261	1,803
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Liability derivatives	[1]	3,587	2,006
Credit Contract [Member] | Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount		46,754	36,670
Credit Contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives		20
Credit Contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Liability derivatives		30	24
Mortgage Banking [Member] | Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Gross notional amount		11,898	7,519
Mortgage Banking [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Asset derivatives		132	83
Mortgage Banking [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Liability derivatives		$ 23	$ 27

[1] The Company secured its obligations under these contracts with $3.4 million and $1.3 million in cash at March 31, 2019 and December 31, 2018, respectively.

XML

Derivative Instruments and Hedging Activities (Fair Values of Derivative Instruments on the Balance Sheet) (Paranthetical) (Details) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Obligations secured with cash	$ 3.4	$ 1.3

XML

Derivative Instruments and Hedging Activities (Effect of Derivative Instruments on the Income Statement) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income	$ 168	$ 171
Derivatives Not Designated as Hedging Instruments [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income	168	171
Interest Rate Swap [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Income from Derivative Instruments, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income	101
Credit Contract [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Income from Derivative Instruments, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income	14	174
Mortgage Banking [Member] | Derivatives Not Designated as Hedging Instruments [Member] | Income from Derivative Instruments, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income	$ 53	$ (3)

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Shareholders' Equity (Changes In Shares Of Common Stock) (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Shareholders Equity [Line Items]
Treasury stock, beginning balance	127,580
Shares issued, beginning balance	16,056,178	16,056,178
Restricted stock units released
Restricted stock awards forfeited
Stock options exercised
Treasury stock purchases
Treasury stock, ending balance	115,368
Shares issued, ending balance	16,056,178	16,056,178
Common Stock [Member]
Shareholders Equity [Line Items]
Shares, beginning balance	15,928,598	15,924,938
Restricted stock units released	18,580
Restricted stock awards forfeited		(23,901)
Stock options exercised		4,000
Treasury stock purchases	(6,368)	(3,622)
Shares, ending balance	15,940,810	15,901,415
Treasury Stock [Member]
Shareholders Equity [Line Items]
Treasury stock, beginning balance	127,580	131,240
Restricted stock units released	(18,580)
Restricted stock awards forfeited		23,901
Stock options exercised		(4,000)
Treasury stock purchases	6,368	3,622
Treasury stock, ending balance	115,368	154,763

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Accumulated Other Comprehensive Income (Loss) (Components Of Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Other comprehensive income (loss), Pre-tax Amount		$ 7,368	$ (8,353)
Other comprehensive income (loss), Tax Effect		1,858	(2,106)
Other comprehensive income (loss), before Reclassifications, Net-of-tax Amount		5,119	(6,435)
Amounts reclassified from accumulated other comprehensive income (loss)		391	188
Total other comprehensive income (loss), net of tax		5,510	(6,247)
Securities Available for Sale and Transferred Securities [Member]
Other comprehensive income (loss), before Reclassifications, Pre-tax Amount		7,184	(8,465)
Reclassification, Pre-tax Amount	[1]	174	82
Other comprehensive income (loss), Pre-tax Amount		7,358	(8,383)
Other comprehensive income (loss), before Reclassifications, Tax Effect		1,811	(2,134)
Reclassification, Tax Effect	[1]	44	21
Other comprehensive income (loss), Tax Effect		1,855	(2,113)
Other comprehensive income (loss), before Reclassifications, Net-of-tax Amount		5,373	(6,331)
Amounts reclassified from accumulated other comprehensive income (loss)	[1]	130	61
Total other comprehensive income (loss), net of tax		5,503	(6,270)
Accumulated Net Gain (Loss) from Cash Flow Hedges Including Portion Attributable to Noncontrolling Interest [Member]
Other comprehensive income (loss), Pre-tax Amount		(340)	(139)
Other comprehensive income (loss), Tax Effect		(86)	(35)
Total other comprehensive income (loss), net of tax		(254)	(104)
Accumulated Defined Benefit Plans Adjustment, Net Prior Service Including Portion Attributable to Noncontrolling Interest [Member]
Other comprehensive income (loss), Pre-tax Amount		(16)	(18)
Other comprehensive income (loss), Tax Effect		(4)	(5)
Total other comprehensive income (loss), net of tax		(12)	(13)
Accumulated Defined Benefit Plans Adjustment, Net Gain (Loss) Including Portion Attributable to Noncontrolling Interest [Member]
Other comprehensive income (loss), Pre-tax Amount		366	187
Other comprehensive income (loss), Tax Effect		93	47
Total other comprehensive income (loss), net of tax		273	140
Accumulated Defined Benefit Plans Adjustment Including Portion Attributable to Noncontrolling Interest [Member]
Other comprehensive income (loss), Pre-tax Amount		350	169
Other comprehensive income (loss), Tax Effect		89	42
Total other comprehensive income (loss), net of tax		$ 261	$ 127

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

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Accumulated Other Comprehensive Income (Loss) (Components Of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands		3 Months Ended
	Jan. 01, 2019	Mar. 31, 2019	Mar. 31, 2018
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	$ 396,293	$ 396,293	$ 381,177
Reclassification from AOCI to retained earnings	2,800
Other comprehensive income (loss) before reclassifications		5,119	(6,435)
Amounts reclassified from accumulated other comprehensive income (loss)		391	188
Total other comprehensive income (loss), net of tax		5,510	(6,247)
Balance		408,253	380,302
Hedging Derivative Instruments [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	(276)	(276)
Other comprehensive income (loss) before reclassifications		(254)	(104)
Total other comprehensive income (loss), net of tax		(254)	(104)
Balance		(530)	(104)
Securities Available-For-Sale and Transferred Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	(7,769)	(7,769)	(3,275)
Reclassification from AOCI to retained earnings		(681)
Other comprehensive income (loss) before reclassifications		5,373	(6,331)
Amounts reclassified from accumulated other comprehensive income (loss)		130	61
Total other comprehensive income (loss), net of tax		5,503	(6,270)
Balance		(2,947)	(9,545)
Pension And Post-Retirement Obligations [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	(13,236)	(13,236)	(8,641)
Reclassification from AOCI to retained earnings		(2,102)
Amounts reclassified from accumulated other comprehensive income (loss)		261	127
Total other comprehensive income (loss), net of tax		261	127
Balance		(15,077)	(8,514)
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance	$ (21,281)	(21,281)	(11,916)
Reclassification from AOCI to retained earnings		(2,783)
Total other comprehensive income (loss), net of tax		5,510	(6,247)
Balance		$ (18,554)	$ (18,163)

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Accumulated Other Comprehensive Income (Loss) (Amounts Reclassified Out Of Each Component Of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net (loss) gain on investment securities		$ (53)
Interest income		31,792	$ 29,702
Income before income taxes		14,548	11,556
Income tax expense		(3,027)	(2,268)
Net income		11,521	9,288
Total reclassified for the period		(391)	(188)
Securities Available for Sale and Transferred Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassification before tax	[1]	(174)	(82)
Reclassification tax	[1]	44	21
Total reclassified for the period	[1]	(130)	(61)
Prior Service Credit [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassification before tax	[2]	16	18
Net Actuarial Losses [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassification before tax	[2]	(366)	(187)
Pension And Post-Retirement Obligations [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Reclassification before tax		(350)	(169)
Reclassification tax		89	42
Total reclassified for the period		(261)	(127)
Reclassification out of Accumulated Other Comprehensive Income | Securities Available for Sale and Transferred Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net (loss) gain on investment securities		(53)
Interest income		(121)	(82)
Income before income taxes		(174)	(82)
Income tax expense		44	21
Net income		$ (130)	$ (61)

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

[2] These items are included in the computation of net periodic pension expense. See Note 12 – Employee Benefit Plans for additional information.

XML

Share-Based Compensation Plans (Summary Of Restricted Stock Units And Performance Share Units Activity) (Details)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
RSUs [Member]
Granted, Number of Shares | shares	17,658
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 26.96
PSUs [Member]
Granted, Number of Shares | shares	17,658
Granted, Weighted Average Market Price at Grant Date | $ / shares	$ 27.79

XML

Share-Based Compensation Plans (Narrative) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 0
Stock options awarded	0	0
Stock options activity	$ 0
Aggregate intrinsic value		$ 52,000
Proceeds from stock options exercised		$ 76,000
Restricted Stock Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options awarded	0
Unrecognized compensation expense	$ 2,100,000
Expected recognition expense period, weighted average period in years	2 years 2 months 12 days
PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options awarded	17,658
TSR Performance Requirement [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	2 years 10 months 2 days
Risk free interest rate	2.43%
Expected dividend yield	3.20%
Expected stock price volatility	21.30%
Management Stock Incentive Plan [Member] | TSR Performance Requirement [Member] | PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage upon achievement of targets	50.00%
Required service period	3 years
Share-based vesting date	Feb. 26, 2022
Management Stock Incentive Plan [Member] | EPS Performance Requirement [Member] | PSUs [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting percentage upon achievement of targets	50.00%
Share-based vesting date	Feb. 26, 2022

XML

Share-Based Compensation Plans (Summary of Restricted Stock Awards and Restricted Stock Units Activity) (Details) - Restricted Stock Awards and Restricted Stock Units [Member]	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding at beginning of year, Number of Shares | shares	130,571
Granted, Number of Shares | shares	35,316
Vested, Number of Shares | shares	(18,580)
Forfeited, number of shares | shares	(21,865)
Outstanding at end of period, Number of Shares | shares	125,442
Outstanding at beginning of year, Weighted Average Market Price at Grant Date | $ / shares	$ 28.04
Granted, Weighted Average Market Price at Grant Date | $ / shares	27.38
Vested, Weighted Average Market Price at Grant Date | $ / shares	24.21
Forfeited, Weighted Average Market Price at Grant Date | $ / shares	26.12
Outstanding at end of period, Weighted Average Market Price at Grant Date | $ / shares	$ 28.76

XML

Share-Based Compensation Plans (Share-Based Compensation Expense Included In Consolidated Statements Of Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 182	$ 302
Salaries and Employee Benefits [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	151	268
Other Noninterest Expense [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total share-based compensation expense	$ 31	$ 34

XML

Employee Benefit Plans (Components Of Net Periodic Benefit Expense) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Defined Benefit Pension Plans And Defined Benefit Postretirement Plans Disclosure [Abstract]
Service cost	$ 802	$ 836
Interest cost on projected benefit obligation	695	598
Expected return on plan assets	(1,184)	(1,321)
Amortization of unrecognized prior service credit	(16)	(18)
Amortization of unrecognized net actuarial loss	366	187
Net periodic benefit expense	$ 663	$ 282

XML

Employee Benefit Plans (Narrative) (Details)	12 Months Ended
	Dec. 31, 2019 USD ($)
Minimum [Member] | Scenario Forecast [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer contribution	$ 0

XML

Commitments And Contingencies (Off-Balance Sheet Commitments) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Commitments To Extend Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 685,014	$ 687,875
Standby Letters Of Credit [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet commitments	$ 12,152	$ 11,977

XML

Fair Value Measurements (Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale	$ 427,545	$ 445,677
Collateral Dependent Impaired Loans [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	1,894
Loan Servicing Rights [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	1,030
Other Real Estate Owned [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	41
Measured On A Recurring Basis [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	427,788	446,308
Liabilities at fair value	(227)	(171)
Measured On A Recurring Basis [Member] | Derivative Instruments [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	3,587	2,006
Measured On A Recurring Basis [Member] | Derivative Instruments [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	30	24
Measured On A Recurring Basis [Member] | Derivative Instruments [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	23	27
Measured On A Recurring Basis [Member] | U.S. Government Agency And Government Sponsored Enterprises [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale	144,376	152,028
Measured On A Recurring Basis [Member] | Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale	283,169	293,649
Measured On A Recurring Basis [Member] | Derivative Instruments, Assets [Member] | Cash Flow Hedging [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	243	631
Measured On A Recurring Basis [Member] | Derivative Instruments, Assets [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	3,261	1,803
Measured On A Recurring Basis [Member] | Derivative Instruments, Assets [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	20
Measured On A Recurring Basis [Member] | Derivative Instruments, Assets [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	132	83
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
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Derivative Instruments [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Derivative Instruments [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Derivative Instruments [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | U.S. Government Agency And Government Sponsored Enterprises [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 1 Inputs [Member] | Derivative Instruments, Assets [Member] | Cash Flow Hedging [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] | Derivative Instruments, Assets [Member] | Interest Rate Products [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] | Derivative Instruments, Assets [Member] | Credit Contract [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] | Derivative Instruments, Assets [Member] | Mortgage Banking [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	427,788	446,308
Liabilities at fair value	(227)	(171)
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	3,587	2,006
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	30	24
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value	23	27
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | U.S. Government Agency And Government Sponsored Enterprises [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale	144,376	152,028
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale	283,169	293,649
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments, Assets [Member] | Cash Flow Hedging [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	243	631
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments, Assets [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	3,261	1,803
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments, Assets [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	20
Measured On A Recurring Basis [Member] | Level 2 Inputs [Member] | Derivative Instruments, Assets [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	132	83
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
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Derivative Instruments [Member] | Interest Rate Products [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Derivative Instruments [Member] | Credit Contract [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Derivative Instruments [Member] | Mortgage Banking [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities at fair value
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | U.S. Government Agency And Government Sponsored Enterprises [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Mortgage-Backed Securities [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Securities available for sale
Measured On A Recurring Basis [Member] | Level 3 Inputs [Member] | Derivative Instruments, Assets [Member] | Cash Flow Hedging [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] | Derivative Instruments, Assets [Member] | Interest Rate Products [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] | Derivative Instruments, Assets [Member] | Credit Contract [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] | Derivative Instruments, Assets [Member] | Mortgage Banking [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	5,034	6,992
Liabilities at fair value	0		$ 0
Measured On A Nonrecurring Basis [Member] | Loans Held For Sale [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	2,069	2,868
Measured On A Nonrecurring Basis [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	1,894	2,872
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	1,030	1,022
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	41	230
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	2,069	2,868
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Loans Held For Sale [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	2,069	2,868
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Loan Servicing Rights [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 2 Inputs [Member] | Other Real Estate Owned [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	2,965	4,124
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member] | Loans Held For Sale [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value
Measured On A Nonrecurring Basis [Member] | Level 3 Inputs [Member] | Collateral Dependent Impaired Loans [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Assets at fair value	1,894	2,872
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	1,030	1,022
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	$ 41	$ 230

XML

Fair Value Measurements (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Mar. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Level 1 to Level 2 transfers, assets amount	$ 0	$ 0
Level 2 to Level 1 transfers, assets amount	0	0
Level 2 to Level 1 transfers, liabilities amount	0	0
Assets measured at fair value on recurring basis using significant unobservable inputs	0
Measured On A Nonrecurring Basis [Member]
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Liabilities measured at fair value on nonrecurring basis	$ 0	$ 0

XML

Fair Value Measurements (Additional Quantitative Information About Assets Measured At Fair Value On A Recurring And Non-Recurring Basis) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Collateral Dependent Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 1,894
Collateral Dependent Impaired Loans [Member] | Appraisal Adjustments [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input Value or Range	25.00%
Loan Servicing Rights [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 1,030
Loan Servicing Rights [Member] | Discount Rate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input Value or Range	10.20%
Loan Servicing Rights [Member] | Constant Prepayment Rate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input Value or Range	13.40%
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Assets at fair value	$ 41
Other Real Estate Owned [Member] | Appraisal Adjustments [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Unobservable Input Value or Range	11.00%

XML

Fair Value Measurements (Carrying Amount, Estimated Fair Value, And Placement In Fair Value Hierarchy Of Financial Instruments) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Securities available for sale	$ 427,545	$ 445,677
Securities held to maturity, fair value	436,974	439,581
Carrying Amount [Member] | Level 1 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents	79,786	102,755
Accrued interest receivable	13,429	11,990
Non-maturity deposits	2,456,727	2,346,839
Short-term borrowings	287,300	469,500
Accrued interest payable	10,478	9,280
Carrying Amount [Member] | Level 2 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Securities available for sale	427,545	445,677
Securities held to maturity, fair value	438,984	446,581
Loans held for sale	2,069	2,868
Loans	3,073,958	3,049,812
FHLB and FRB stock	21,056	26,375
Time deposits	1,052,110	1,020,068
Long-term borrowings	39,220	39,202
Carrying Amount [Member] | Level 2 Inputs [Member] | Cash Flow Hedging [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	243	631
Carrying Amount [Member] | Level 2 Inputs [Member] | Interest Rate Products [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	3,261	1,803
Derivative instruments, liabilities	3,587	2,006
Carrying Amount [Member] | Level 2 Inputs [Member] | Credit Contract [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	20
Derivative instruments, liabilities	30	24
Carrying Amount [Member] | Level 2 Inputs [Member] | Mortgage Banking [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	132	83
Derivative instruments, liabilities	23	27
Carrying Amount [Member] | Level 3 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Loans	1,894	2,872
Estimated Fair Value [Member] | Level 1 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Cash and cash equivalents	79,786	102,755
Accrued interest receivable	13,429	11,990
Non-maturity deposits	2,456,727	2,346,839
Short-term borrowings	287,300	469,500
Accrued interest payable	10,478	9,280
Estimated Fair Value [Member] | Level 2 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Securities available for sale	427,545	445,677
Securities held to maturity, fair value	436,974	439,581
Loans held for sale	2,069	2,868
Loans	3,061,505	3,006,161
FHLB and FRB stock	21,056	26,375
Time deposits	1,048,583	1,014,532
Long-term borrowings	39,641	38,415
Estimated Fair Value [Member] | Level 2 Inputs [Member] | Cash Flow Hedging [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	243	631
Estimated Fair Value [Member] | Level 2 Inputs [Member] | Interest Rate Products [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	3,261	1,803
Derivative instruments, liabilities	3,587	2,006
Estimated Fair Value [Member] | Level 2 Inputs [Member] | Credit Contract [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	20
Derivative instruments, liabilities	30	24
Estimated Fair Value [Member] | Level 2 Inputs [Member] | Mortgage Banking [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Derivative instruments, assets	132	83
Derivative instruments, liabilities	23	27
Estimated Fair Value [Member] | Level 3 Inputs [Member]
Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items]
Loans	$ 1,894	$ 2,872

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Segment Reporting (Narrative) (Details)	3 Months Ended
	Mar. 31, 2019 Segment
Segment Reporting [Abstract]
Number of reportable segments	2

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Segment Reporting (Business Segment Assets) (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Segment Reporting Information [Line Items]
Goodwill	$ 66,062	$ 66,062
Other intangible assets, net	9,788	10,111
Total assets	4,302,541	4,311,698
Banking [Member]
Segment Reporting Information [Line Items]
Goodwill	48,536	48,536
Other intangible assets, net	180	213
Total assets	4,267,432	4,272,439
Non-Banking [Member]
Segment Reporting Information [Line Items]
Goodwill	17,526	17,526
Other intangible assets, net	9,608	9,898
Total assets	35,448	35,975
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Total assets	$ (339)	$ 3,284

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Segment Reporting (Business Segment Profit (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Segment Reporting Information [Line Items]
Net interest income (expense)	$ 31,792	$ 29,702
Provision for loan losses	(1,193)	(2,949)
Noninterest income	9,120	8,907
Noninterest expense	(25,171)	(24,104)
Income before income taxes	14,548	11,556
Income tax (expense) benefit	(3,027)	(2,268)
Net income	11,521	9,288
Banking [Member]
Segment Reporting Information [Line Items]
Net interest income (expense)	32,409	30,317
Provision for loan losses	(1,193)	(2,949)
Noninterest income	6,266	6,430
Noninterest expense	(21,453)	(20,480)
Income before income taxes	16,029	13,318
Income tax (expense) benefit	(3,344)	(2,632)
Net income	12,685	10,686
Non-Banking [Member]
Segment Reporting Information [Line Items]
Noninterest income	3,026	2,624
Noninterest expense	(3,041)	(2,665)
Income before income taxes	(15)	(41)
Income tax (expense) benefit		8
Net income	(15)	(33)
Holding Company and Other [Member]
Segment Reporting Information [Line Items]
Net interest income (expense)	(617)	(615)
Noninterest income	(172)	(147)
Noninterest expense	(677)	(959)
Income before income taxes	(1,466)	(1,721)
Income tax (expense) benefit	317	356
Net income	$ (1,149)	$ (1,365)