EX-99.1

FINANCIAL INSTITUTIONS, INC. CONTINUES STRONG PERFORMANCE,
ANNOUNCES 80% INCREASE IN YTD EARNINGS

WARSAW, N.Y., October 28, 2010 — Financial Institutions, Inc. (Nasdaq: FISI) (the “Company”), the parent company of Five Star Bank, today announced financial results for the third quarter ended September 30, 2010. Net income was $5.7 million for the third quarter of 2010 compared with $3.4 million for the third quarter of 2009, bringing the Company’s year-to-date net income to $16.2 million or an 80% increase over the same period a year ago. After preferred dividends, third quarter diluted earnings per share was $0.43, an 87% increase from the $0.23 per share earned during the third quarter of 2009. On a year to date basis, diluted earnings per share increased $0.66 to $1.23 per share as compared to $0.57 per share for the same period last year.

•

Net interest income increased for the 10^th consecutive quarter and $1.7 million or 9% compared to the third quarter of 2009

•

Capital remains well above regulatory minimums, with the leverage ratio increasing for the fifth consecutive quarter

•

Book value per common share increased to $14.87 at September 30, 2010, an increase of 11% from $13.39 at December 31, 2009

•

Recognized a one-time tax benefit of $606 thousand in the third quarter of 2010 related to a change in New York State tax law

“I am very pleased with our third quarter results for several reasons. We continue to be active lenders in our market place, which is driving our revenue growth, while maintaining solid asset quality. We have also been very focused on expense control. The combination of these initiatives has resulted in a 59.5% efficiency ratio,” stated Peter G. Humphrey, President and Chief Executive Officer. “This back-to-basics banking approach, started several years ago, is truly paying off.”

The Company also announced that it has been named to the Sandler O’Neill Sm-All Stars list of the top performing publicly-traded small-cap banks and thrifts in the nation. Of the 503 banks and thrifts with a market cap of less than $2 billion, Financial Institutions, Inc. was one of only 32 selected for the 2010 Sm-All Stars list. Selection for the Sandler O’Neill list is based on growth, profitability, credit quality, and capital strength.

“We are proud to be named to this elite list of high performing small-cap banks and thrifts,” said Humphrey. “Receiving this distinct honor is a testament to our commitment to deliver long-term value to our customers, communities and shareholders.”

Net interest income totaled $19.8 million for the three months ended September 30, 2010, an increase of $1.7 million or 9% over the third quarter of 2009 and up $117 thousand or 1% compared with the second quarter of 2010. The increase in net interest income compared to the third quarter of 2009 resulted from a higher net interest margin and earning-asset growth. Average earning assets increased $114.1 million or 6% in the third quarter compared with the same quarter last year, with most of the growth in indirect consumer loans and investment securities. The increase in average indirect consumer loans reflected the Company’s expansion into new markets in New York State’s Capital district.

The net interest margin on a tax-equivalent basis was 4.06% in the third quarter of 2010, compared with 3.99% in the third quarter of 2009 and 4.09% in the second quarter of 2010. The increase in the net interest margin compared with the third quarter of last year resulted primarily from the rate of decline in the Company’s cost of interest-bearing liabilities exceeding the decline in the earning-assets yield. The Company’s yield on earning-assets decreased 24 basis points in the third quarter of 2010 compared with the same quarter last year. This was due to the effect of reinvesting cash flows in the low interest rate environment and a substantial portion of earning asset growth being concentrated in lower yielding mortgage-backed securities. The cost of interest-bearing liabilities decreased 37 basis points compared with the third quarter of 2009 due to continued downward changes in the Company’s interest-bearing deposit rates, a result of the continued re-pricing of the Company’s certificates of deposit.

Net interest income for the nine months ended September 30, 2010 totaled $58.7 million, an increase of $5.6 million or 11% compared with $53.1 million for the same period last year. Average earning assets increased $131.8 million through the first nine months of 2010 compared with the same period last year, while the tax-equivalent net interest margin increased 6 basis points to 4.09% in the first nine months of 2010. A decrease of 26 basis points in the Company’s tax-equivalent earning-assets yield in the first nine months of 2010 was offset by a decrease of 38 basis points in the cost of interest-bearing liabilities.

Noninterest income totaled $5.1 million for the third quarter of 2010, compared to $4.4 million in the third quarter of 2009 and $5.0 million in the second quarter of 2010. The Company recognized net gains on the sale of investment securities of $70 thousand in the third quarter of 2010, down from $1.7 million in the third quarter of 2009 and consistent with the second quarter of 2010. There were no other-than-temporary impairment (“OTTI”) charges on investment securities during the second or third quarters of 2010. Noninterest income for the third quarter of 2009 included $2.3 million of OTTI charges. Adjusted for the effect of net gains on sales and OTTI charges on investment securities, noninterest income for third quarter of 2010 was up $58 thousand or 1% from the same quarter last year and up $158 thousand or 3% from second quarter of 2010.

Noninterest income totaled $14.2 million for the first nine months of 2010, compared to $13.6 million for the same period last year. The Company recognized net gains on the sale of investment securities of $139 thousand during the first nine months of 2010, compared to $2.9 million during the same period last year. OTTI charges on investment securities totaled $526 thousand and $4.1 million for the nine-month periods ended September 30, 2010 and 2009, respectively. Adjusted for the effect of net gains on sales and OTTI charges on investment securities, noninterest income for the first nine months of 2010 decreased slightly by $218 thousand from the same period last year.

Noninterest expense was $14.9 million for the third quarter of 2010, down $206 thousand or 1% from the third quarter of 2009 and up $66 thousand from the second quarter of 2010.

For the first nine months of 2010 noninterest expense was $44.5 million, a decrease of $3.1 million or 7% over the first nine months of 2009. Salaries and employee benefits decreased $1.0 million or 4% compared with the first nine months of 2009, primarily from lower incentive compensation and pension benefit costs. FDIC assessments decreased $1.2 million or 38% compared with the first nine months of 2009 primarily due to a special assessment on all FDIC-insured banks in 2009. The special assessment for the Company was $923 thousand during the second quarter of 2009.

The Company’s effective tax rates were 27.4% and 31.5% for the three and nine months ended September 30, 2010, respectively, compared with 27.8% and 27.3% in the same periods last year, respectively. Certain amendments to the New York State (“NYS”) tax law pertaining to banking corporations were enacted during the third quarter of 2010. One of the amendments conformed the NYS bad debt deduction allowed for banks to that allowed for federal income tax purposes. As a result, the Company adjusted its deferred tax asset accordingly and recorded a one-time tax benefit of $606 thousand during the quarter ended September 30, 2010.

Total loans were $1.326 billion at September 30, 2010, up $34.8 million or 3% from June 30, 2010 and up $62.0 million or 5% from December 31, 2009. Total investment securities were $719.6 million at September 30, 2010, up $40.7 million or 6% from June 30, 2010 and up $99.6 million or 16% from December 31, 2009.

Deposits were $1.946 billion at September 30, 2010, an increase of $124.5 million from the end of the second quarter and up $203.4 million compared with the end of 2009. Public deposit balances increased $73.4 million during the last 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 60.8% of total deposits at the end of the third quarter.

Total shareholders’ equity was $216.2 million at September 30, 2010, a $4.5 million increase from June 30, 2010, due to a net increase of $3.6 million in the Company’s retained earnings, an increase of $1.0 million due to stock based compensation items and a $548 thousand increase in accumulated other comprehensive income, offset by a net change in treasury stock of $202 thousand. The Company’s tangible common equity as a percent of tangible assets was 5.66% as of September 30, 2010, while its tangible common book value per share increased to $11.45.

The Company’s leverage ratio improved to 8.66% at the end of the third quarter compared to 8.45% at the end of last quarter and 7.96% at year-end, which comfortably exceeded the regulatory thresholds required to be classified as a “well capitalized” institution as established by the Company’s primary banking regulators.

Non-performing assets were $8.5 million or 0.38% of total assets at September 30, 2010, down from $12.5 million at June 30, 2010, but up from $7.9 million at this time last year. As previously disclosed, the Company had a $5.0 million participation interest in one commercial business loan, included in nonaccrual loans at June 30, 2010, for which it allocated a $2.5 million specific reserve during the second quarter of 2010. During the third quarter of 2010, the Company made the decision to sell and subsequently sold its interest in the loan. The loan was sold for $1.9 million, resulting in a charge-off of $3.1 million, representing the previously established specific reserve of $2.5 million and an additional $600 thousand.

The ratio of non-performing loans to total loans was 0.56% at September 30, 2010 versus 0.88% at June 30, 2010, and 0.46% at September 30, 2009. This ratio continues to compare favorably to the average of our peer group, which was 3.67% of total loans at June 30, 2010, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of June 30, 2010 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

The provision for loan losses was $2.2 million for the third quarter of 2010, compared to $2.1 million last quarter and $2.6 million in the third quarter of 2009. Net charge-offs were $4.3 million, or 1.30% annualized, of average loans, up from $866 thousand, or 0.27% annualized, of average loans in the second quarter of 2010 and up from $2.5 million, or 0.79% annualized, of average loans in the third quarter of 2009.

The allowance for loan losses was $19.7 million at September 30, 2010, compared with $21.8 million at June 30, 2010 and $20.8 million at September 30, 2009. The ratio of the allowance for loan losses to total loans was 1.49% at September 30, 2010, compared with 1.69% at June 30, 2010 and 1.65% at September 30, 2009. The ratio of allowance for loan losses to non-performing loans was 268% at September 30, 2010, compared with 192% at June 30, 2010 and 357% at September 30, 2009.

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. 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.

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, 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 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)


	2010							2009
	September 30,			June 30,		March 31,		December 31,		September 30,
SELECTED BALANCE SHEET DATA
*(Amounts in thousands)*
Cash and cash equivalents:
Cash and due from banks	$	73,354			43,326		38,081		42,874		48,721
Federal funds sold and interest-earning deposits		94			93		33,793		85		11,385

Total cash and cash equivalents		73,448			43,419		71,874		42,959		60,106
Investment securities:
Available for sale		687,955			651,533		648,667		580,501		625,744
Held-to-maturity		31,669			27,404		34,556		39,573		45,056

Total investment securities		719,624			678,937		683,223		620,074		670,800
Loans:
Commercial business		206,137			208,618		208,976		206,383		218,793
Commercial mortgage		340,307			334,043		331,870		330,748		317,804
Residential mortgage		137,376			139,112		142,406		144,636		148,479
Home equity		204,583			200,929		200,287		200,684		198,538
Consumer indirect		411,237			381,464		356,873		352,611		345,448
Other consumer		26,741			27,417		27,769		29,365		31,332

Total loans		1,326,381			1,291,583		1,268,181		1,264,427		1,260,394
Allowance for loan losses		19,732			21,825		20,586		20,741		20,782

Total loans, net		1,306,649			1,269,758		1,247,595		1,243,686		1,239,612
Total interest-earning assets ^{(1) (2)}		2,033,109			1,958,411		1,979,875		1,881,887		1,934,786
Goodwill		37,369			37,369		37,369		37,369		37,369
Total assets		2,249,531			2,142,931		2,156,055		2,062,389		2,138,205
Deposits:
Noninterest-bearing demand		345,257			328,937		308,822		324,303		298,972
Interest-bearing demand		398,682			370,584		409,094		363,698		383,982
Savings and money market		439,615			399,972		426,330		368,603		402,042
Certificates of deposit		762,843			722,452		705,628		686,351		712,182

Total deposits		1,946,397			1,821,945		1,849,874		1,742,955		1,797,178
Borrowings		66,736			93,654		83,454		106,390		120,113
Total interest-bearing liabilities		1,667,876			1,586,662		1,624,506		1,525,042		1,618,319
Shareholders’ equity		216,189			211,699		203,603		198,294		195,935
Common shareholders’ equity ⁽³⁾		162,497			158,100		150,095		144,876		142,605
Tangible common shareholders’ equity ⁽⁴⁾		125,128			120,731		112,726		107,507		105,176
Securities available for sale – fair value adjustment
included in shareholders’ equity, net of tax	$	7,965			7,481		3,263		1,655		4,778
Common shares outstanding		10,931			10,942		10,920		10,820		10,818
Treasury shares		417			406		428		528		530
CAPITAL RATIOS
Leverage ratio		8.66	%		8.45		8.32		7.96		7.89
Tier 1 risk-based capital		12.68	%		12.73		12.37		11.95		10.73
Total risk based capital		13.93	%		13.99		13.63		13.21		11.98
Common equity to assets		7.22	%		7.38		6.96		7.02		6.67
Tangible common equity to tangible assets ⁽⁴⁾		5.66	%		5.73		5.32		5.31		5.01
Common book value per share	$	14.87			14.45		13.74		13.39		13.18
Tangible common book value per share ⁽⁴⁾	$	11.45			11.03		10.32		9.94		9.72

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


							Quarterly Trends
	Nine months ended						2010								2009
	September 30,						Third			Second		First			Fourth			Third
	2010			2009			Quarter			Quarter		Quarter			Quarter			Quarter
SELECTED INCOME STATEMENT DATA
*(Dollar amounts in thousands)*
Interest income	$	72,212			70,092			24,186			24,202		23,824			24,390			23,697
Interest expense		13,491			17,042			4,393			4,526		4,572			5,175			5,619

Net interest income		58,721			53,050			19,793			19,676		19,252			19,215			18,078
Provision for loan losses		4,707			6,614			2,184			2,105		418			1,088			2,620

Net interest income after provision
for loan losses		54,014			46,436			17,609			17,571		18,834			18,127			15,458

Noninterest income:
Service charges on deposits		7,260			7,480			2,528			2,502		2,230			2,585			2,643
ATM and debit card		3,034			2,639			1,046			1,054		934			971			920
Broker-dealer fees and commissions		1,002			741			263			359		380			281			238
Company owned life insurance		822			806			271			282		269			290			271
Loan servicing		687			1,031			267			140		280			277			304
Net gain on sale of loans held for sale		374			545			197			115		62			154			129
Net gain on investment securities		139			2,928			70			63		6			501			1,721
Impairment charge on investment securities		(526	)		(4,101	)		—			—		(526	)		(565	)		(2,318	)
Net (loss) gain on other assets		(186	)		177			(188	)		—		2			3			19
Other		1,574			1,366			677			451		446			686			479

Total noninterest income		14,180			13,612			5,131			4,966		4,083			5,183			4,406

Noninterest expense:
Salaries and employee benefits		24,422			25,421			8,131			8,044		8,247			8,213			8,253
Occupancy and equipment		8,177			8,289			2,736			2,670		2,771			2,773			2,730
FDIC assessments		1,865			3,026			629			634		602			625			753
Computer and data processing		1,738			1,757			552			615		571			583			578
Professional services		1,618			1,972			534			478		606			552			532
Supplies and postage		1,318			1,414			442			431		445			432			473
Advertising and promotions		877			650			338			352		187			299			227
Other		4,529			5,131			1,574			1,646		1,309			1,640			1,596

Total noninterest expense		44,544			47,660			14,936			14,870		14,738			15,117			15,142

Income before income taxes		23,650			12,388			7,804			7,667		8,179			8,193			4,722
Income tax expense		7,461			3,384			2,141			2,469		2,851			2,756			1,313

Net income	$	16,189			9,004			5,663			5,198		5,328			5,437			3,409

Preferred stock dividends		2,792			2,770			932			931		929			927			927
Net income applicable to
common shareholders	$	13,397			6,234			4,731			4,267		4,399			4,510			2,482

STOCK AND RELATED PER SHARE DATA
Net income per share – basic	$	1.24			0.58			0.44			0.39		0.41			0.42			0.23
Net income per share – diluted	$	1.23			0.57			0.43			0.39		0.40			0.42			0.23
Cash dividends declared on common stock	$	0.30			0.30			0.10			0.10		0.10			0.10			0.10
Common dividend payout ratio ⁽⁵⁾		24.19	%		51.72			22.73			25.64		24.39			23.81			43.48
Dividend yield (annualized)		2.27	%		4.02			2.25			2.26		2.77			3.37			3.98
Stock price (Nasdaq: FISI):
High	$	19.94			15.99			19.94			19.48		15.40			12.25			15.00
Low	$	10.91			3.27			14.14			14.07		10.91			9.71			9.90
Close	$	17.66			9.97			17.66			17.76		14.62			11.78			9.97

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


						Quarterly Trends
	Nine months ended					2010						2009
	September 30,					Third		Second		First		Fourth		Third
	2010			2009		Quarter		Quarter		Quarter		Quarter		Quarter
SELECTED AVERAGE BALANCES
*(Amounts in thousands)*
Federal funds sold and interest-earning deposits	$	6,513			44,209		842		4,479	14,366		16,457		39,945
Investment securities ⁽¹⁾		672,876			593,533		668,175		692,162	658,181		657,299		585,830
Loans ⁽²⁾:
Commercial business		206,439			201,744		206,071		208,327	204,905		211,626		216,235
Commercial mortgage		335,291			300,175		337,992		334,253	333,579		326,313		310,476
Residential mortgage		140,702			165,841		137,451		140,946	143,780		146,853		149,815
Home equity		200,806			192,097		202,621		199,865	199,903		199,367		195,601
Consumer indirect		371,743			301,110		397,161		364,801	352,778		349,231		334,123
Other consumer		27,243			31,090		26,541		27,060	28,145		29,903		30,754

Total loans		1,282,224			1,192,057		1,307,837		1,275,252	1,263,090		1,263,293		1,237,004
Total interest-earning assets		1,961,613			1,829,799		1,976,854		1,971,893	1,935,637		1,937,049		1,862,779
Goodwill		37,369			37,369		37,369		37,369	37,369		37,369		37,369
Total assets		2,145,101			2,005,656		2,163,633		2,158,912	2,112,192		2,117,775		2,040,030
Interest-bearing liabilities:
Interest-bearing demand		380,065			362,870		360,947		386,703	392,896		374,787		361,147
Savings and money market		408,228			377,877		402,601		420,774	401,294		400,966		369,562
Certificates of deposit		718,043			681,204		749,021		715,168	689,284		697,292		699,011
Borrowings		89,358			81,675		83,634		89,753	94,811		114,721		94,642

Total interest-bearing liabilities		1,595,694			1,503,626		1,596,203		1,612,398	1,578,285		1,587,766		1,524,362
Noninterest-bearing demand deposits		324,955			288,918		336,591		324,790	313,227		308,491		298,723
Total deposits		1,831,291			1,710,869		1,849,160		1,847,435	1,796,701		1,781,536		1,728,443
Total liabilities		1,936,290			1,812,692		1,947,549		1,951,241	1,909,662		1,919,352		1,845,010
Shareholders’ equity		208,811			192,964		216,084		207,671	202,530		198,423		195,020
Common equity ⁽³⁾		155,261			139,771		162,448		154,122	149,066		145,055		141,741
Tangible common equity⁽⁴⁾	$	117,892			102,226		125,079		116,753	111,697		107,654		104,269
Common shares outstanding:
Basic		10,762			10,726		10,778		10,761	10,746		10,742		10,738
Diluted		10,824			10,764		10,870		10,846	10,801		10,785		10,779
SELECTED AVERAGE YIELDS/
RATES AND RATIOS
*(Tax equivalent basis)*
Federal funds sold and interest-earning deposits		0.21	%		0.22		0.23		0.20		0.21		0.22		0.20
Investment securities		3.40	%		4.17		3.30		3.44		3.47		3.55		3.79
Loans		5.88	%		6.01		5.79		5.88		5.97		6.00		6.01
Total interest-earning assets		5.01	%		5.27		4.95		5.01		5.08		5.12		5.19
Interest-bearing demand		0.19	%		0.22		0.18		0.19		0.20		0.20		0.19
Savings and money market		0.28	%		0.28		0.27		0.28		0.28		0.30		0.29
Certificates of deposit		1.84	%		2.62		1.75		1.83		1.95		2.20		2.49
Borrowings		3.34	%		3.78		3.12		3.55		3.34		2.84		3.35
Total interest-bearing liabilities		1.13	%		1.51		1.09		1.13		1.17		1.29		1.46
Net interest rate spread		3.88	%		3.76		3.86		3.88		3.91		3.83		3.73
Net interest rate margin		4.09	%		4.03		4.06		4.09		4.12		4.06		3.99
Net income (annualized returns on):
Average assets		1.01	%		0.60		1.04		0.97		1.02		1.02		0.66
Average equity		10.37	%		6.24		10.40		10.04		10.67		10.87		6.93
Average common equity ⁽⁶⁾		11.54	%		5.96		11.55		11.11		11.97		12.33		6.95
Average tangible common equity ⁽⁷⁾		15.19	%		8.15		15.01		14.66		15.97		16.62		9.45
Efficiency ratio ⁽⁸⁾		59.50	%		67.51		59.05		59.16		60.31		59.93		63.43

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


								Quarterly Trends
	Nine months ended							2010				2009
	September 30,					Third		Second		First		Fourth		Third
	2010			2009		Quarter		Quarter		Quarter		Quarter		Quarter
ASSET QUALITY DATA
*(Dollar amounts in thousands)*
Nonaccrual loans	$	7,364			5,816		7,364		11,304		6,685		6,822		5,816
Accruing loans past due 90 days or more		1			1		1		61		2		1,859		1

Total non-performing loans		7,365			5,817		7,365		11,365		6,687		8,681		5,817
Foreclosed assets		463			696		463		500		771		746		696
Non-performing investment securities		648			1,431		648		646		661		1,015		1,431

Total non-performing assets	$	8,476			7,944		8,476		12,511		8,119		10,442		7,944

Net loan charge-offs	$	5,716			4,581		4,277		866		573		1,129		2,452
Net charge-offs to average loans (annualized)		0.60	%		0.51		1.30		0.27		0.18		0.35		0.79
Total non-performing loans to total loans		0.56	%		0.46		0.56		0.88		0.53		0.69		0.46
Total non-performing assets to total assets		0.38	%		0.37		0.38		0.58		0.38		0.51		0.37
Allowance for loan losses to total loans		1.49	%		1.65		1.49		1.69		1.62		1.64		1.65
Allowance for loan losses to
non-performing loans		268	%		357		268		192		308		239		357

⁽¹⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

⁽⁴⁾ Excludes preferred shareholders’ equity, goodwill and other intangible assets.

⁽⁵⁾ Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.

⁽⁶⁾ Net income available to common shareholders divided by average common equity.

⁽⁷⁾ Net income available to common shareholders divided by average tangible equity.

⁽⁸⁾ Efficiency ratio equals noninterest expense less other real estate expense and amortization of intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.


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