FINANCIAL INSTITUTIONS, INC. REPORTS FIRST QUARTER RESULTS

WARSAW, N.Y., April 27, 2011 — Financial Institutions, Inc. (Nasdaq: FISI) (the “Company”), the parent company of Five Star Bank, today reported net income for the quarter ended March 31, 2011 of $5.8 million, an increase of 9% compared to net income of $5.3 million for the same period last year. After preferred dividends, first quarter diluted earnings per share was $0.33 compared with $0.40 per share for the first quarter of 2010. First quarter earnings per share was reduced by $1.2 million, or $0.11 per common share, for accelerated discount accretion related to the Company’s redemption of the preferred stock that had been issued to the U.S. Treasury pursuant to the Troubled Asset Relief Program’s Capital Purchase Program (the “CPP preferred stock”).

Highlights for the first quarter of 2011 were as follows:

“The positive performance we saw throughout 2010 continued in the first quarter of 2011,” said Peter G. Humphrey, President and Chief Executive Officer. “We maintained our solid asset quality, reflecting the strong credit underwriting and origination processes that we have in place, and our net interest margin remained strong. We believe that as the economy continues to gain traction, our strong capital levels and liquidity will enable us to operate from a position of strength, capitalize on growth opportunities in our markets, and drive improved shareholder value.”

Net Interest Income and Net Interest Margin

Net interest income totaled $19.8 million for the three months ended March 31, 2011, an increase of $586 thousand or 3% over the first quarter of 2010, primarily from lower funding costs. Average earning assets increased $95.4 million or 5% in the first quarter of 2011 compared with the first quarter last year, with most of the growth in the investment securities, the consumer indirect and commercial mortgage loan portfolios.

The net interest margin on a tax-equivalent basis was 4.05% in the first quarter of 2011, compared with 4.12% in the same quarter in 2010. The Company’s yield on earning-assets decreased 28 basis points in the first quarter of 2011 compared with the same quarter last year, a result of cash flows being reinvested in the current low interest rate environment. The cost of interest-bearing liabilities decreased 23 basis points compared with the first quarter of 2010, a result of the continued re-pricing of the Company’s certificates of deposit.

Noninterest Income

Noninterest income for the quarter ended March 31, 2011 was $5.1 million, an increase of $1.1 million from the same period last year. There were no other-than-temporary impairment charges (“OTTI”) on investment securities during the first quarter of 2011 compared to $526 thousand during the first quarter of 2010. Absent the OTTI charges, noninterest income increased $539 thousand or 12% when comparing the first quarter of 2011 to that of 2010. Service charges on deposit accounts declined 6% compared to the same period last year mainly due to a change in consumer behavior, triggered in part by heightened consumer protection regulations. Higher origination volumes and increased income from mortgage banking activities during the first quarter of 2011, coupled with a favorable valuation adjustment to capitalized mortgage servicing assets, resulted in a combined increase of $231 thousand in loan servicing income and gains from the sale of loans held for sale from the first quarter of 2010. Income from the Company’s capital investment in several limited partnerships accounted for the majority of the $308 thousand increase in other noninterest income when comparing the first quarter of 2011 to the same quarter last year.

Noninterest Expense

Noninterest expense was $15.4 million for the first quarter of 2011, an increase of $612 thousand or 4% from the first quarter of 2010. Salaries and benefits expense rose by $154 thousand compared to the first quarter of 2010, reflecting higher employee benefit costs and salaries due to annual merit increases. Full time equivalent employees totaled 574 and 581 at March 31, 2011 and 2010, respectively. Other noninterest expense increased $288 thousand during the first quarter of 2011 compared to the same quarter last year, due in part to higher lending expenses associated with increased loan application volumes.

Balance Sheet and Capital Management

Total loans were $1.354 billion at March 31, 2011, up $5.1 million from December 31, 2010. Total investment securities were $718.1 million at March 31, 2011, up $23.6 million or 3% from December 31, 2010.

Deposits were $1.970 billion at March 31, 2011, an increase of $86.7 million or 5% compared with the end of 2010. Public deposit balances were up $110.3 million during the most recent quarter due largely to the seasonality of municipal cash flows. The Company’s deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 63% of total deposits at March 31, 2011.

Total shareholders’ equity was $222.8 million at March 31, 2011, an increase of $10.7 million from $212.1 million at December 31, 2010. During February 2011, the Company redeemed $12.5 million of CPP preferred stock issued to the U.S. Treasury. During March 2011, the Company successfully completed a follow-on common equity offering, issuing 2,813,475 shares of common stock at a price of $16.35 per share before associated offering expenses. After deducting underwriting and other offering costs, the Company received net proceeds of approximately $43.1 million. Prior to the end of the first quarter of 2011, the Company utilized a portion of the net proceeds to redeem the remaining $25.0 million in CPP preferred stock.

“We made significant progress on our strategic initiative to improve the quality of our capital. We successfully completed an underwritten public common equity offering that resulted in net proceeds of over $43 million and were very pleased with both the institutional and retail investor interest that our offering generated,” said Humphrey. “We also fully redeemed the CPP preferred stock issued to the U.S. Treasury, and the combination of these two capital transactions resulted in significant improvement in our capital structure.”

The Company’s tangible common equity as a percent of tangible assets was 7.44% as of March 31, 2011, with a tangible common book value per share of $12.17, as compared to 5.56% and $11.06, respectively, at December 31, 2010. The Company’s leverage ratio improved to 9.11% at the end of the first quarter when compared to 8.31% at the end of 2010. The Company’s capital ratios exceed the regulatory thresholds required to be classified as a “well capitalized” institution as established by the Company’s primary banking regulators.

Asset Quality and Provision for Loan Losses

Non-performing assets were $8.5 million or 0.37% of total assets at March 31, 2011, down from $8.9 million or 0.40% at the end of last year. The ratio of non-performing loans to total loans was 0.54% at the end of the first quarter of 2011 versus 0.56% at December 31, 2010. This ratio continues to compare favorably to the average of our peer group, which was 3.57% of total loans at December 31, 2010, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of December 31, 2010 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

Net charge-offs for the first quarter of 2011 amounted to $1.2 million, up $584 thousand in comparison to the same period a year ago.  On an annualized basis, net charge-offs as a percentage of average loans were 0.35% for the first quarter of 2011, compared to 0.18% for the first quarter of 2010.  In the first quarter of 2011, the Company’s provision for loan losses increased to $810 thousand compared to $418 thousand in the first quarter of 2010. Net charge-offs and the provision for loan losses for the first quarter of 2010 were favorably impacted by a $354 thousand recovery on one commercial real estate relationship that was charged-off during 2008 and 2009.

The allowance for loan losses totaled $20.1 million at March 31, 2011 compared to $20.5 million at December 31, 2010. The ratio of allowance for loan losses to non-performing loans was 275% at March 31, 2011, up from 270% at December 31, 2010.

About Financial Institutions, Inc.

With over $2.2 billion in assets, Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Five Star Investment Services, Inc. Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of over 50 offices and more than 70 ATMs in Western and Central New York State. Five Star Investment Services provides brokerage and insurance products and services within the same New York State markets. The consolidated entity employs over 600 individuals. Financial Institutions, Inc. was named to the 2010 Sandler O’Neill Sm-All Stars list of the top performing publicly-traded small-cap banks and thrifts in the nation and was included in the top 100 best performing community banks in the United States according to a ranking released in April 2011 by SNL Financial. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at the Company’s website: www.fiiwarsaw.com.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current beliefs or projections. There are a number of important factors that could affect the Company’s forward-looking statements which include its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, the attitudes and preferences of its customers, the competitive environment, fluctuations in the fair value of securities in the investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors please see the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. The Company undertakes no obligation to revise these statements following the date of this press release.

*****

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

1

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

2

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

3