EX-99.1

Financial Institutions, Inc. Reports Quarterly Net Income Increase of 16% to $6.7 Million

WARSAW, N.Y., July 25, 2012 — Financial Institutions, Inc. (Nasdaq: FISI) (the “Company”), the parent company of Five Star Bank, today announced financial results for the second quarter ended June 30, 2012. Net income was $6.7 million for the second quarter of 2012, a 16% increase compared with $5.7 million for the second quarter of 2011, bringing the Company’s net income for the first half of 2012 to $12.9 million compared to $11.5 million in 2011. After preferred dividends, second quarter earnings per diluted share was $0.46 compared with $0.39 per share for the second quarter of 2011. On a year to date basis, diluted earnings per share increased $0.16 or 22% to $0.88 per share as compared to $0.72 per share for the same period last year.

•

Increased quarterly dividend on common stock by 8% from $0.13 to $0.14 per share

•

First Niagara branch acquisition closed and fully converted on June 22, 2012

- Assumed deposits of $129.3 million and acquired in-market performing loans of $58.6 million at closing

•

Net interest income increased $1.1 million or 6% compared to the second quarter of 2011

•

Realized pre-tax gains of $1.2 million from the sales of investment securities

•

Excluding loans acquired from First Niagara, total loans grew $45.0 million during the second quarter

•

Common and tangible book value per share increased to $16.61 and $13.44, respectively, at June 30, 2012

“Our consistent, relationship-focused approach to community banking is making a positive difference for our customers and the company, as evidenced by our outstanding operating performance in the second quarter,” said Peter G. Humphrey, President and Chief Executive Officer. “Along with the recent acquisition of four retail branch locations, commercial and indirect loan volumes have helped strengthen our presence in a very competitive environment.”

On June 22, Five Star Bank completed its acquisition of four First Niagara Bank, N.A. retail branch locations in the Upstate New York communities of Batavia, Brockport, Medina, and Seneca Falls. Accounts were promptly converted to Five Star Bank’s systems with minimal disruption to customers and operations. Five Star Bank is also slated to close on the acquisition of four HSBC Bank USA, N.A. retail branch locations in the communities of Albion, Elmira, Elmira Heights, and Horseheads in mid-August, subject to regulatory approval.

“The success of our recent conversion is a testament to the scalability of our entire Five Star Bank team and we look forward to repeating that success with our HSBC branch conversion next month,” said Humphrey. “We believe our ability to complete these transitions quickly, coupled with Five Star Bank’s strong community banking brand recognition, provide us many benefits and an immediate opportunity to strengthen our competitive advantage in the Western and Central New York market areas.”

“Our second quarter results include $1.0 million of pre-tax expense or $0.04 per diluted share after taxes related to the recent acquisition of the four First Niagara branches,” said Karl Krebs, Executive Vice President and Chief Financial Officer.

Net interest income totaled $21.4 million for the three months ended June 30, 2012, an increase of $1.1 million or 6% compared with the second quarter of 2011. Average earning assets increased $184.1 million or 9% in the second quarter of 2012 compared with the second quarter last year, due to growth in the loan portfolio. Average total loans were up $183.2 million or 13% during the second quarter of 2012 compared to the second quarter of 2011, including a double digit increase in the commercial, home equity and consumer indirect portfolios.

The net interest margin on a tax-equivalent basis was 3.89% in the second quarter of 2012, compared with 4.00% in the second quarter of 2011. The Company’s yield on earning-assets decreased 38 basis points in the second quarter of 2012 compared with the same quarter last year, a result of cash flows being reinvested in the current low interest rate environment, which includes the impact of investing the excess cash from our branch acquisition into low yielding securities. The cost of interest-bearing liabilities decreased 34 basis points compared with the second quarter of 2011, primarily a result of the redemption of the Company’s 10.20% junior subordinated debentures during the third quarter of 2011 as well as the continued re-pricing of the Company’s certificates of deposit.

Noninterest income totaled $6.7 million in the second quarter of 2012, compared with $5.0 million in the second quarter of 2011. Reflected in those amounts were net pre-tax gains on investment securities of $1.2 million in the second quarter of 2012 and $4 thousand in the second quarter of 2011. The Company recognized gains from the sale of two pooled trust-preferred securities that had been written down in prior periods and included in non-performing assets.

Excluding gains from investment securities in both periods, noninterest income in the second quarter of 2012 totaled $5.5 million, compared with $5.0 million in the same quarter last year. The improvement in noninterest income as compared with the earlier quarter resulted predominantly from increases in company owned life insurance, loan servicing income and net gains from the sale of loans held for sale, partially offset by a decline in service charges on deposit accounts. An additional $18.0 million investment in company owned life insurance during the third quarter of 2011 was largely responsible for the $162 thousand increase in company owned life insurance income. A decrease in the valuation allowance for capitalized mortgage servicing assets resulted in the $160 thousand increase in loan servicing income. Gains from the sale of residential mortgage loans held for sale were $208 thousand higher than in the second quarter of 2011 due to increased origination volume. Service charges on deposit accounts were down $269 thousand in the second quarter primarily due to lower overdraft fee income.

Noninterest expense in the second quarter of 2012 totaled $16.6 million, compared with $15.2 million in the second quarter of 2011. Included in the 2012 amount are branch acquisition-related expenses considered to be non-operating in nature. Exclusive of those expenses, noninterest operating expense was $15.6 million in the second quarter of 2012, an increase of $435 thousand from the same period last year. When comparing the second quarter of 2012 to the same quarter in 2011, the higher level of operating expense was due, in large part, to an increase in other noninterest expense, which included $249 thousand of severance expense associated with the retirement of one of our executive officers during the second quarter of 2012.

Total loans were $1.624 billion at June 30, 2012, up $103.1 million or 7% from March 31, 2012 and up $139.4 million or 9% from December 31, 2011. At June 30, 2012, total loans included $58.1 million in loans obtained in the First Niagara branch acquisition. Total investment securities were $787.2 million at June 30, 2012, up $63.5 million from March 31, 2012 and up $136.4 million from December 31, 2011.

Deposits were $2.135 billion at June 30, 2012, an increase of $68.7 million from the end of the first quarter and up $203.7 million compared with the end of 2011, largely due to $129.3 million in retail deposits assumed from the First Niagara branch acquisition. Public deposit balances decreased to 23% of total deposits at June 30, 2012, compared to 26% and 20% of total deposits at March 31, 2012 and December 31, 2011, respectively, due largely to the seasonality of municipal cash flows and the impact of the branch acquisition. The Company’s deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 67% of total deposits at the end of the second quarter.

Shareholders’ equity was $246.9 million at June 30, 2012, compared with $240.0 million at March 31, 2012 and $237.2 million at December 31, 2011. Net income for the quarter increased shareholders’ equity by $6.7 million, which was partially offset by common and preferred stock dividends of $2.3 million. Accumulated other comprehensive income included in shareholders’ equity increased $2.4 million during the second quarter due primarily to higher net unrealized gains on securities available for sale.The Company’s leverage ratio and total risk-based capital ratio decreased to 8.27% and 12.64%, respectively, at June 30, 2012, compared to 8.80% and 13.47%, respectively, at March 31, 2012, all of which exceeded the regulatory thresholds required to be classified as a “well capitalized” institution as established by the Company’s primary banking regulators. Balance sheet growth, primarily related to the completed and upcoming branch acquisitions, resulted in the lower capital ratios.

In the second quarter 2012, U.S. banking regulators issued proposed rules for the U.S. adoption of the Basel III regulatory capital framework. The proposals narrow the definition of capital, increase the minimum levels of required capital, introduce capital buffers and increase the risk weights for various asset classes. On a fully-phased-in pro forma basis, the Company is currently estimated to exceed the proposed capital levels.

In his concluding remarks, Mr. Humphrey added, “We are committed to enhancing shareholder value by utilizing our earnings to support future growth of the balance sheet and returning a portion of earnings to shareholders as future cash dividends. Our Board of Directors believes this represents a prudent and balanced approach to rewarding shareholders for their support while continuing to grow the Company. This is evidenced by our recent acquisition as well as an 8% increase in our quarterly dividend to 14 cents per share.”

Non-performing loans increased to $11.3 million or 0.70% of total loans at June 30, 2012, compared to $8.2 million or 0.54% of total loans at March 31, 2012 and $7.1 million or 0.48% of total loans at December 31, 2011. The increase in non-performing loans is primarily attributable to two commercial relationships. Our ratio of non-performing loans to total loans continues to compare favorably to the average of our peer group, which was 3.05% of total loans at March 31, 2012, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of March 31, 2012 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion).

Net charge-offs of $1.1 million represented 0.29% of average loans on an annualized basis compared to $882 thousand or 0.24% in the first quarter of 2012. The provision for loan losses was $1.5 million for the second quarter of 2012, compared to $1.4 million for the first quarter of 2012. For the first six months of 2012, the provision for loan losses exceeded net charge-offs by $860 thousand as we continue to maintain the allowance for loan losses consistent with the growth in our loan portfolio and trends in asset quality.

The allowance for loan losses was $24.1 million at June 30, 2012, compared with $23.8 million at March 31, 2012 and $23.3 million at December 31, 2011. The ratio of the allowance for loan losses to total loans was 1.49% at June 30, 2012, compared with 1.56% at March 31, 2012 and 1.57% at December 31, 2011. Contributing to this ratio decline were the loans obtained in the First Niagara branch acquisition, which were recorded at fair market value as of the acquisition date with no allowance carried over. The ratio of allowance for loan losses to non-performing loans was 213% at June 30, 2012, compared with 289% at March 31, 2012 and 329% at December 31, 2011.

With over $2.6 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 investment advice, brokerage and insurance products and services within the same New York State markets. Financial Institutions, Inc. and its subsidiaries employ 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 news release contains financial information determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). We believe that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors’ assessments of business and performance trends in comparison to others in the financial services industry. In addition, we believe the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company’s results and to assess performance in relation to the company’s ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP disclosures are used in this news release, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in this document.

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, whether it experiences greater credit losses than expected, the attitudes and preferences of its customers, its ability to successfully integrate recently acquired bank branches and profitably operate newly opened bank branches, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors and other factors that could affect the Company’s forward-looking statements, 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. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.


	2012					2011
	June 30,			March 31,		December 31,		September 30,		June 30,

SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	61,813			77,025		57,583		67,601		46,084
Investment securities:
Available for sale		765,216			699,497		627,518		679,487		706,958
Held-to-maturity		22,016			24,196		23,297		23,127		24,091

Total investment securities		787,232			723,693		650,815		702,614		731,049
Loans held for sale		1,682			2,053		2,410		2,403		14,511
Loans:
Commercial business		245,437			233,764		233,836		223,796		217,430
Commercial mortgage		413,983			406,521		393,244		381,541		357,463
Residential mortgage		142,900			112,148		113,911		116,432		120,789
Home equity		264,911			237,019		231,766		222,640		215,637
Consumer indirect		531,645			508,085		487,713		465,910		431,611
Other consumer		25,278			23,491		24,306		24,808		25,122

Total loans		1,624,154			1,521,028		1,484,776		1,435,127		1,368,052
Allowance for loan losses		24,120			23,763		23,260		22,977		20,632

Total loans, net		1,600,034			1,497,265		1,461,516		1,412,150		1,347,420
Total interest-earning assets ^{(2) (3)}		2,389,171			2,226,472		2,115,622		2,115,822		2,094,684
Goodwill and other intangible assets, net		43,858			37,369		37,369		37,369		37,369
Total assets		2,622,751			2,460,820		2,336,353		2,358,811		2,282,944
Deposits:
Noninterest-bearing demand		422,165			404,186		393,421		395,267		358,574
Interest-bearing demand		420,386			435,701		362,555		404,925		376,306
Savings and money market		584,278			530,754		474,947		476,122		438,173
Certificates of deposit		708,442			695,928		700,676		707,357		699,186

Total deposits		2,135,271			2,066,569		1,931,599		1,983,671		1,872,239
Borrowings		200,824			117,347		150,698		103,075		159,097
Total interest-bearing liabilities		1,913,930			1,779,730		1,688,876		1,691,479		1,672,762
Shareholders’ equity		246,946			239,962		237,194		240,855		233,733
Common shareholders’ equity ⁽⁴⁾		229,473			222,489		219,721		223,376		216,254
Tangible common shareholders’ equity ⁽¹⁾		185,615			185,120		182,352		186,007		178,885
Unrealized gain on investment securities, net of tax	$	14,487			12,316		13,570		14,743		11,486
Common shares outstanding		13,812			13,812		13,803		13,806		13,806
Treasury shares		350			350		359		356		356
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		8.27	%		8.80		8.63		8.67		9.30
Tier 1 risk-based capital		11.39	%		12.22		12.20		12.23		13.71
Total risk-based capital		12.64	%		13.47		13.45		13.49		14.96
Common equity to assets		8.75	%		9.04		9.40		9.47		9.47
Tangible common equity to tangible assets ⁽¹⁾		7.20	%		7.64		7.93		8.01		7.97
Common book value per share	$	16.61			16.11		15.92		16.18		15.66
Tangible common book value per share ⁽¹⁾		13.44			13.40		13.21		13.47		12.96

⁽¹⁾ See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

⁽²⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)


						Quarterly Trends
	Six months ended					2012								2011
	June 30,					Second		First			Fourth			Third		Second
	2012			2011		Quarter		Quarter			Quarter			Quarter		Quarter
SELECTED INCOME STATEMENT DATA:
Interest income	$	47,181			47,469		23,731		23,450			23,875			23,774		23,830
Interest expense		4,852			7,378		2,343		2,509			2,721			3,156		3,577

Net interest income		42,329			40,091		21,388		20,941			21,154			20,618		20,253
Provision for loan losses		2,844			2,138		1,459		1,385			2,162			3,480		1,328

Net interest income after provision
for loan losses		39,485			37,953		19,929		19,556			18,992			17,138		18,925

Noninterest income:
Service charges on deposits		3,809			4,348		1,974		1,835			2,074			2,257		2,243
ATM and debit card		2,149			2,139		1,072		1,077			1,103			1,117		1,123
Broker-dealer fees and commissions		1,021			788		434		587			500			541		402
Loan servicing		503			598		409		94			173			64		249
Company owned life insurance		867			545		441		426			457			422		279
Net gain on sale of loans held for sale		658			341		325		333			221			318		117
Net gain on investment securities		1,568			7		1,237		331			656			2,340		4
Impairment charge on investment securities		(91	)		—		—		(91	)		(18	)		—		—
Net gain (loss) on sale of other assets		35			37		29		6			23			7		(8	)
Other		1,622			1,319		769		853			578			970		565

Total noninterest income		12,141			10,122		6,690		5,451			5,767			8,036		4,974

Noninterest expense:
Salaries and employee benefits		17,753			17,255		8,822		8,931			9,080			9,104		8,854
Occupancy and equipment		5,485			5,487		2,715		2,770			2,659			2,722		2,644
Professional services		1,791			1,253		1,080		711			794			570		571
Computer and data processing		1,486			1,251		886		600			583			603		648
Supplies and postage		1,031			876		573		458			441			461		424
FDIC assessments		601			775		304		297			301			437		168
Advertising and promotions		238			418		137		101			364			477		253
Loss on extinguishment of debt		—			—		—		—			—			1,083		—
Other		3,853			3,188		2,064		1,789			2,057			1,555		1,591

Total noninterest expense		32,238			30,503		16,581		15,657			16,279			17,012		15,153

Income before income taxes		19,388			17,572		10,038		9,350			8,480			8,162		8,746
Income tax expense		6,536			6,033		3,382		3,154			2,718			2,664		3,027

Net income	$	12,852			11,539		6,656		6,196			5,762			5,498		5,719

Preferred stock dividends		737			2,445		368		369			369			368		370
Net income available to
common shareholders	$	12,115			9,094		6,288		5,827			5,393			5,130		5,349

FINANCIAL RATIOS AND STOCK DATA:
Earnings per share – basic	$	0.89			0.73		0.46		0.43			0.39			0.38		0.39
Earnings per share – diluted	$	0.88			0.72		0.46		0.42			0.39			0.37		0.39
Cash dividends declared on common stock	$	0.27			0.22		0.14		0.13			0.13			0.12		0.12
Common dividend payout ratio ⁽²⁾		30.34	%		30.14		30.43		30.23			33.33			31.58		30.77
Dividend yield (annualized)		3.22	%		2.70		3.34		3.23			3.20			3.34		2.93
Return on average assets		1.07	%		1.04		1.08		1.06			0.98			0.95		1.01
Return on average equity		10.65	%		10.43		10.94		10.36			9.44			9.07		10.03
Return on average common equity ⁽³⁾		10.82	%		9.64		11.12		10.51			9.53			9.13		10.17
Return on average tangible common equity ⁽¹⁾		12.99	%		11.99		13.36		12.62			11.43			10.97		12.35
Efficiency ratio ⁽¹⁾		59.52	%		59.32		60.41		58.59			60.49			62.97		58.68
Stock price (Nasdaq: FISI):
High	$	17.99			20.36		17.66		17.99			17.26			17.98		17.93
Low	$	15.22			15.20		15.51		15.22			12.18			13.63		15.20
Close	$	16.88			16.42		16.88		16.17			16.14			14.26		16.42

⁽¹⁾ See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

⁽²⁾ Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.

⁽³⁾ Net income available to common shareholders divided by average common equity.


						Quarterly Trends
	Six months ended					2012				2011
	June 30,					Second		First		Fourth		Third		Second
	2012			2011		Quarter		Quarter		Quarter		Quarter		Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest-earning deposits	$	94			186		94		94		94		93		116
Investment securities ⁽²⁾		670,157			698,138		715,431		624,883	654,260		692,944			714,490
Loans ⁽³⁾:
Commercial business		234,901			209,977		237,936		231,865	225,274		216,980			212,260
Commercial mortgage		406,939			361,247		411,871		402,007	392,493		368,071			361,265
Residential mortgage		114,893			125,915		115,621		114,166	116,320		118,952			123,294
Home equity		237,879			210,558		242,208		233,550	226,597		217,808			212,439
Consumer indirect		506,360			424,818		517,859		494,861	477,017		450,813			431,728
Other consumer		23,487			24,971		23,420		23,554	24,168		24,644			24,717

Total loans		1,524,459			1,357,486		1,548,915		1,500,003	1,461,869		1,397,268			1,365,702
Total interest-earning assets		2,194,710			2,055,810		2,264,440		2,124,980	2,116,223		2,090,305			2,080,308
Goodwill and other intangible assets, net		37,694			37,369		38,020		37,369	37,369		37,369			37,369
Total assets		2,408,309			2,245,197		2,473,888		2,342,730	2,322,303		2,294,856			2,268,359
Interest-bearing liabilities:
Interest-bearing demand		401,037			393,842		409,720		392,353	378,584		366,567			391,899
Savings and money market		530,622			451,447		553,701		507,543	464,904		436,336			468,130
Certificates of deposit		696,237			719,943		689,103		703,372	703,571		706,435			707,608
Borrowings		129,906			87,888		162,718		97,093	127,914		155,534			97,794

Total interest-bearing liabilities		1,757,802			1,653,120		1,815,242		1,700,361	1,674,973		1,664,872			1,665,431
Noninterest-bearing demand deposits		392,753			354,213		398,353		387,153	388,670		375,518			358,349
Total deposits		2,020,649			1,919,445		2,050,877		1,990,421	1,935,729		1,884,856			1,925,986
Total liabilities		2,165,632			2,022,098		2,229,046		2,102,217	2,080,177		2,054,477			2,039,750
Shareholders’ equity		242,677			223,099		244,842		240,513	242,126		240,379			228,609
Common equity ⁽⁴⁾		225,204			190,328		227,369		223,040	224,649		222,900			211,051
Tangible common equity⁽¹⁾	$	187,510			152,959		189,349		185,671	187,280		185,531			173,682
Common shares outstanding:
Basic		13,686			12,489		13,697		13,675	13,636		13,635			13,631
Diluted		13,742			12,593		13,750		13,733	13,722		13,704			13,707
SELECTED AVERAGE YIELDS:
*(Tax equivalent basis)*
Federal funds sold and interest-earning deposits		0.25	%		0.22		0.21		0.29		0.18		0.18		0.22
Investment securities		2.75	%		2.98		2.68		2.83		2.79		2.95		2.96
Loans		5.15	%		5.66		5.06		5.24		5.38		5.45		5.60
Total interest-earning assets		4.42	%		4.75		4.31		4.53		4.58		4.62		4.69
Interest-bearing demand		0.15	%		0.17		0.14		0.15		0.15		0.16		0.16
Savings and money market		0.20	%		0.24		0.18		0.22		0.23		0.23		0.24
Certificates of deposit		1.08	%		1.48		1.03		1.13		1.22		1.31		1.42
Borrowings		0.44	%		2.85		0.43		0.46		0.45		1.10		2.63
Total interest-bearing liabilities		0.56	%		0.90		0.52		0.59		0.64		0.75		0.86
Net interest rate spread		3.86	%		3.85		3.79		3.94		3.94		3.87		3.83
Net interest rate margin		3.97	%		4.02		3.89		4.05		4.07		4.02		4.00

⁽¹⁾ See Appendix A – Non-GAAP Reconciliation for the computation of this Non-GAAP measure.

⁽²⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands)


	2012						2011
	June 30,			March 31,			December 31,		September 30,			June 30,

ASSET QUALITY DATA:
Allowance for Loan Losses
Beginning balance	$	23,763			23,260			22,977		20,632			20,119
Net loan charge-offs (recoveries):
Commercial business		(11	)		(22	)		880		14			115
Commercial mortgage		166			105			131		36			11
Residential mortgage		99			36			89		(9	)		7
Home equity		82			(5	)		39		121			148
Consumer indirect		661			668			652		855			402
Other consumer		105			100			88		118			132

Total net charge-offs		1,102			882			1,879		1,135			815
Provision for loan losses		1,459			1,385			2,162		3,480			1,328

Ending balance	$	24,120			23,763			23,260		22,977			20,632

Supplemental information
Period end loans:
Originated loans	$	1,566,025			1,521,028			1,484,776		1,435,127			1,368,052
Acquired loans		58,129			—			—		—			—

Total loans	$	1,624,154			1,521,028			1,484,776		1,435,127			1,368,052

Allowance for loan losses to total loans		1.49	%		1.56			1.57		1.60			1.51
Allowance for loan losses for originated
loans to originated loans		1.54	%		1.56			1.57		1.60			1.51
Net charge-offs (recoveries) to average loans (annualized):
Commercial business		-0.02	%		-0.04			1.55		0.03			0.22
Commercial mortgage		0.16	%		0.10			0.13		0.04			0.01
Residential mortgage		0.34	%		0.13			0.30		-0.03			0.02
Home equity		0.14	%		-0.01			0.07		0.22			0.28
Consumer indirect		0.51	%		0.54			0.54		0.75			0.37
Other consumer		1.80	%		1.70			1.44		1.90			2.14
Total loans		0.29	%		0.24			0.51		0.32			0.24
Non-performing loans:
Commercial business		4,150			1,863			1,259		2,380			712
Commercial mortgage		3,598			3,040			2,928		2,330			2,862
Residential mortgage		1,918			1,929			1,644		1,996			2,262
Home equity		973			934			682		501			472
Consumer indirect		695			444			558		586			667
Other consumer		4			12			5		4			4

Total non-performing loans		11,338			8,222			7,076		7,797			6,979
Foreclosed assets		270			258			475		582			599
Non-performing investment securities		1,145			1,505			1,636		5,341			6,963

Total non-performing assets	$	12,753			9,985			9,187		13,720			14,541

Total non-performing loans to total loans		0.70	%		0.54			0.48		0.54			0.51
Total non-performing loans to originated loans		0.72	%		0.54			0.48		0.54			0.51
Total non-performing assets to total assets		0.49	%		0.41			0.39		0.58			0.64
Allowance for loan losses to non-performing loans		213	%		289			329		295			296

FINANCIAL INSTITUTIONS, INC.
Appendix A — Non-GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)


	Six months ended						2012									2011
	June 30,						Second			First			Fourth			Third			Second
	2012			2011			Quarter			Quarter			Quarter			Quarter			Quarter
Computation of efficiency ratio:
Noninterest expense	$	32,238			30,503			16,581			15,657			16,279			17,012			15,153
Other real estate owned expense		(59	)		(98	)		(22	)		(37	)		(75	)		(120	)		(39	)

Adjusted noninterest expense (non-GAAP)	$	32,179			30,405			16,559			15,620			16,204			16,892			15,114
Net interest income on a tax equivalent basis	$	43,404			41,139			21,956			21,448			21,657			21,129			20,787
Noninterest income		12,141			10,122			6,690			5,451			5,767			8,036			4,974
Net gain on disposal of investment securities		(1,568	)		(7	)		(1,237	)		(331	)		(656	)		(2,340	)		(4	)
Impairment charges on investment securities		91			—			—			91			18			—			—

Adjusted total revenue (non-GAAP)	$	54,068			51,254			27,409			26,659			26,786			26,825			25,757

Efficiency ratio (non-GAAP) ⁽¹⁾		59.52	%		59.32			60.41			58.59			60.49			62.97			58.68
Average tangible common equity:
Average total shareholders’ equity	$	242,677			223,099			244,842			240,513			242,126			240,379			228,609
Average goodwill and other intangible assets, net		(37,694	)		(37,369	)		(38,020	)		(37,369	)		(37,369	)		(37,369	)		(37,369	)
Average Preferred equity		(17,473	)		(32,771	)		(17,473	)		(17,473	)		(17,477	)		(17,479	)		(17,558	)

Average tangible common equity (non-GAAP)	$	187,510			152,959			189,349			185,671			187,280			185,531			173,682

Return on average tangible common equity ⁽²⁾		12.99	%		11.99			13.36			12.62			11.43			10.97			12.35
Net operating income:
Net income	$	12,852			11,539			6,656			6,196			5,762			5,498			5,719
Branch acquisition expenses, net of tax		704			—			646			58			—			—			—
Net operating income (non-GAAP)	$	13,556			11,539			7,302			6,254			5,762			5,498			5,719

Net operating income available to common shareholders:
Net income available to common shareholders	$	12,115			9,094			6,288			5,827			5,393			5,130			5,349
Branch acquisition expenses, net of tax		704			—			646			58			—			—			—
Net operating income available to common
shareholders (non-GAAP)	$	12,819			9,094			6,934			5,885			5,393			5,130			5,349

Financial ratios computed on an operating basis:
Earnings per share – basic	$	0.94			0.73			0.51			0.43			0.39			0.38			0.39
Earnings per share – diluted	$	0.93			0.72			0.50			0.43			0.39			0.37			0.39
Weighted average shares outstanding – basic		13,686			12,489			13,697			13,675			13,636			13,635			13,631
Weighted average shares outstanding – diluted		13,742			12,593			13,750			13,733			13,722			13,704			13,707
Efficiency ratio		57.51	%		59.32			56.79			58.26			60.49			62.97			58.68
Return on average assets		1.13	%		1.04			1.19			1.07			0.98			0.95			1.01
Return on average equity		11.23	%		10.43			11.99			10.46			9.44			9.07			10.03
Return on average common equity		11.45	%		9.64			12.27			10.61			9.53			9.13			10.17
Return on average tangible common equity		13.75	%		11.99			14.73			12.75			11.43			10.97			12.35

⁽¹⁾ Efficiency ratio equals noninterest expense less other real estate expense as a percentage of adjusted total revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.

FINANCIAL INSTITUTIONS, INC.
Appendix A — Non-GAAP Reconciliation (Unaudited)
(In thousands, except per share amounts)


	2012					2011
	June 30,			March 31,		December 31,		September 30,		June 30,

Ending tangible assets:
Total assets	$	2,622,751			2,460,820		2,336,353		2,358,811		2,282,944
Less: Goodwill and other intangible assets, net		43,858			37,369		37,369		37,369		37,369

Tangible assets (non-GAAP)	$	2,578,893			2,423,451		2,298,984		2,321,442		2,245,575

Ending tangible common equity:
Total shareholders’ equity		246,946			239,962		237,194		240,855		233,733
Less: Goodwill and other intangible assets, net		43,858			37,369		37,369		37,369		37,369
Less: Preferred equity		17,473			17,473		17,473		17,479		17,479

Tangible common equity (non-GAAP)	$	185,615			185,120		182,352		186,007		178,885

Tangible common equity to tangible assets ⁽¹⁾		7.20	%		7.64		7.93		8.01		7.97
Common shares outstanding		13,812			13,812		13,803		13,806		13,806
Tangible common book value per share ⁽²⁾	$	13.44			13.40		13.21		13.47		12.96


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