Financial Institutions, Inc. Announces Fourth Quarter and Year-End Results; Reports Non-Cash OTTI Charge; Retains 'Well-Capitalized' Position


WARSAW, N.Y., Jan. 28, 2009 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (Nasdaq:FISI) (the "Company"), the parent company of Five Star Bank, today reported a net loss of $3.1 million (or $0.33 loss per share) for the quarter ended December 31, 2008, compared to net income of $4.1 million (or $0.34 earnings per diluted share) for the 2007 fourth quarter. For the year ended December 31, 2008, the Company's net loss totaled $26.2 million (or $2.56 loss per share), compared to net income of $16.4 million (or $1.33 diluted earnings per share) in 2007.

Highlights for the fourth quarter of 2008 include:



  * Core business operations absent the other-than-temporary
    impairment ("OTTI") charge continued to improve, driven by net
    interest income of $17.3 million for the fourth quarter, which
    increased $567 thousand from the third quarter of 2008 and $2.1
    million from the fourth quarter of last year. On a year-to-date
    basis net interest income increased to $65.3 million in 2008, a
    $7.3 million or 12% increase compared to 2007. The increases
    reflect improved net interest margin and growth of the loan
    portfolio.

  * Incurred a pre-tax non-cash charge of $29.9 million during the
    fourth quarter and $68.2 million for the year ended
    December 31, 2008 for OTTI on certain investment securities.

  * Retained a "well-capitalized" equity position with total equity
    capital of $190.3 million, which includes $37.5 million in
    preferred equity issued in December 2008 under the U.S. Treasury
    Department's Capital Purchase Program. As of December 31, 2008,
    the leverage capital ratio was 8.05% and total risk-based capital
    ratio was 13.08%.

  * During the fourth quarter, loans increased $43.0 million to
    $1.121 billion at December 31, 2008 compared with $1.078 billion
    at September 30, 2008. Consumer indirect auto loans accounted for
    $27.1 million and commercial-related loans accounted for $13.9
    million of the fourth quarter increase in loans. Total loans
    increased $156.9 million or 16% for the one year period ending
    December 31, 2008. Indirect auto loans increased $120.1 million
    or 89%, and commercial-related increased $35.5 million or 8%
    during that same one year period.

  * Net interest margin increased 9 basis points, to 4.07% for the
    fourth quarter of 2008, compared with 3.98% for the third quarter
    of 2008. For the year ended December 31, 2008, net interest
    margin improved to 3.93%, 40 basis points higher than the
    comparable prior year period. The improved net interest margin
    resulted principally from lower funding costs and the benefits
    associated with a higher percentage of earning assets being
    deployed in higher yielding loan assets.

  * The provision for loan losses for the fourth quarter was
    $2.6 million, or $1.3 million more than fourth quarter net
    charge offs of $1.3 million, which represented 0.46% (annualized)
    of average loans. For the year ended December 31, 2008, the
    provision for loan losses was $6.6 million and net charge offs
    were $3.3 million or 0.32% of average loans. The allowance for
    loan losses at December 31, 2008 was $18.7 million or 1.67%
    of total loans, as compared to 1.61% of total loans at
    December 31, 2007.

Peter G. Humphrey, President and CEO of FII, commented, "Our fourth quarter results are reflective of the challenges presented by the disruption in the financial and capital markets. The other-than-temporary impairment charge reflects our recognition of the deterioration of specific securities in our investment portfolio. We are obviously disappointed in our annual results, but remain confident in the strength of our community banking franchise and our opportunities that lie ahead. Our core operations continue to perform well, driven by an expanding net interest margin, solid loan portfolio quality and effective cost controls. We are well positioned to weather this difficult period due to our core banking franchise and core earnings capacity that is built on a foundation of diversified and prudent lending, stable core deposits, and a strong capital position. The Company remains "well capitalized," and has utilized the U.S. Treasury Department's Capital Purchase Program as an attractive source of capital to support our marketplace opportunities."

Included in the fourth quarter 2008 results is a pre-tax non-cash OTTI charge on certain investment securities of $29.9 million, comprised principally of pooled trust preferred securities, and to a lesser extent, privately issued whole loan collateralized mortgage obligations and charges on auction rate preferred equity securities collateralized by preferred stock of Fannie Mae and Freddie Mac. For the year ended December 31, 2008, OTTI charges totaled $68.2 million.

In the third quarter, a tax benefit recognized on the OTTI charge was based on the treatment of a substantial portion of the charge being classified as a capital loss for tax purposes, which significantly limited the tax benefit. Subsequently, on October 3, 2008, the Emergency Economic Stabilization Act was enacted, which included a provision permitting banks, under certain circumstances, to recognize losses relating to Fannie Mae and Freddie Mac preferred stock as an ordinary loss, therefore the fourth quarter results reflect the recognition of a $12.0 million tax benefit associated with the third quarter OTTI charge.

Net Interest Income

Net interest income was $17.3 million for the fourth quarter of 2008, up $567 thousand or 3% from the third quarter of 2008 and $2.1 million or 14% compared with the fourth quarter of 2007. Net interest margin improved to 4.07% in the fourth quarter of 2008, compared with 3.98% in the third quarter of 2008 and 3.75% in the fourth quarter of 2007. For the year ended 2008, net interest income was $65.3 million, compared with $58.1 million for the same period in 2007. Net interest margin improved to 3.93% versus 3.53% on a year to date comparative basis. The improved net interest income and net interest margin resulted principally from lower funding costs and the benefits associated with a higher percentage of earning assets being deployed in higher yielding loan assets.

Noninterest Income (Loss)

Noninterest income (loss) for the fourth quarter of 2008 was $(25.1) million, compared with $(29.3) million and $5.0 million in the third quarter of 2008 and the fourth quarter of 2007, respectively. For the year ended December 31, 2008, noninterest income (loss) was $(48.8) million, compared with $20.7 million for the same period in 2007. The 2008 periods reflect OTTI charges on investment securities totaling $29.9 million for the fourth quarter and $68.2 million for the year ended December 31, 2008. Absent the OTTI charges in 2008, noninterest income would have been $4.8 million in the fourth quarter versus $5.2 million in the third quarter of 2008 and $5.0 million in the fourth quarter of 2007. The decrease, exclusive of OTTI charges, is primarily the result of lower service charges on deposits and broker-dealer fees and commissions offset by higher income from company owned life insurance due to a $20.0 million purchase of company owned life insurance made during the third quarter of 2008. For the full year 2008 noninterest income exclusive of OTTI charges was $19.4 million, compared with $20.7 million for full year 2007. The decrease is attributable to lower service charges on deposit accounts and 2007 including proceeds from corporate owned life insurance.

Noninterest Expense

Noninterest expense for the fourth quarter of 2008 was $15.4 million, compared with $14.5 million in the fourth quarter of 2007, respectively. The fourth quarter of 2008 results include a $557 thousand prepayment charge on the early repayment of borrowed funds and also a $259 thousand increase in FDIC insurance expense compared with the fourth quarter of last year. For the year ended December 31, 2008, noninterest expense was $57.5 million compared with $57.4 million for the same period in 2007. Total salaries and benefits cost declined $1.7 million for the full year 2008 compared with 2007, and was offset by a $599 thousand increase in occupancy and equipment expense, a $385 thousand increase in FDIC insurance cost, and the $557 thousand prepayment charge on borrowed finds.

Balance Sheet

Total assets at December 31, 2008 were $1.917 billion, up $59.0 million from $1.858 billion at December 31, 2007. Total loans were $1.121 billion at December 31, 2008, an increase of $156.9 million from $964.2 million at December 31, 2007, principally from a $120.1 million increase in indirect auto loans. Total deposits increased $57.3 million to $1.633 billion at December 31, 2008, versus $1.576 billion at December 31, 2007. Total borrowings, including junior subordinated debentures, increased $2.6 million to $70.8 million at December 31, 2008, up from $68.2 million at December 31, 2007. Total shareholders' equity at December 31, 2008 was $190.3 million, compared with $195.3 million at December 31, 2007. The Company's leverage ratio was 8.05% and total risk-based capital ratio was 13.08% at December 31, 2008, which is within the regulatory standard to be deemed a well-capitalized institution.

Asset Quality

The Company recorded a provision for loan losses of $2.6 million for the fourth quarter of 2008, compared with $351 thousand in the fourth quarter of 2007. The increase in the provision for loan losses is primarily due to growth in the loan portfolio and the changing mix of the loan portfolio together with higher net charge offs. Net charge offs of $1.3 million for the fourth quarter of 2008 represented 46 basis points (annualized) of average loans. For the year ended December 31, 2008, net charge-offs were $3.3 million, or 32 basis points of average loans, compared with $1.6 million, or 18 basis points of average loans, for the year ended December 31, 2007. The increase in net charge-offs in 2008 related principally to the commercial mortgage and consumer indirect loan portfolios.

The allowance for loan losses was $18.7 million at December 31, 2008, compared with $15.5 million at December 31, 2007. Non-performing loans were $8.2 million at December 31, 2008, compared with $7.6 million and $8.1 million at September 30, 2008 and December 31, 2007, respectively. The ratio of allowance for loan losses to non-performing loans improved to 229% at December 31, 2008 versus 192% at December 31, 2007.

About Financial Institutions, Inc.

With $1.9 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 includes approximately 670 employees. 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, and general economic and credit market conditions nationally and regionally. 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)

                                     2008                    2007
                  ---------------------------------------- ---------
                    Dec. 31, Sept. 30,  June 30, March 31,  Dec. 31,
                  ---------- --------- --------- --------- ---------

 SELECTED BALANCE 
  SHEET DATA
(Amounts in 
 thousands)

 Cash and cash
  equivalents     $   55,187    76,704    63,049   102,999    46,673

 Investment
  securities:
  Available for
   sale              547,506   607,357   669,752   688,504   695,241
  Held-to-maturity    58,532    64,434    56,508    57,631    59,479
                  ---------- --------- --------- --------- ---------
   Total
    investment
    securities       606,038   671,791   726,260   746,135   754,720

 Loans held for
  sale                 1,013     1,008       926     1,099       906

 Loans:
  Commercial         158,543   156,809   140,745   144,976   136,780
  Commercial real
   estate            262,234   248,267   250,872   245,148   245,797
  Agriculture         44,706    46,490    45,231    44,162    47,367
  Residential real
   estate            177,683   173,893   172,396   168,738   166,863
  Consumer
   indirect          255,054   227,971   177,967   142,565   134,977
  Consumer direct
   and home 
   equity            222,859   224,693   223,538   226,855   232,389
                  ---------- --------- --------- --------- ---------
   Total loans     1,121,079 1,078,123 1,010,749   972,444   964,173
  Allowance for
   loan losses        18,749    17,420    16,038    15,549    15,521
                  ---------- --------- --------- --------- ---------
   Total loans,
    net            1,102,330 1,060,703   994,711   956,895   948,652

 Total assets      1,916,919 1,945,819 1,895,448 1,912,652 1,857,876
 Total interest-
  earning assets   1,743,141 1,789,499 1,749,808 1,771,676 1,722,122

 Deposits:
  Noninterest-
   bearing demand    292,586   293,027   288,258   268,419   286,362
  Interest-bearing
   demand            344,616   376,098   338,290   356,758   335,314
  Savings and
   money market      348,594   383,456   372,317   380,167   346,639
  Certificates of
   deposit           647,467   607,833   596,890   622,628   607,656
                  ---------- --------- --------- --------- ---------
   Total deposits  1,633,263 1,660,414 1,595,755 1,627,972 1,575,971

 Borrowings           70,820   114,684    89,465    70,336    68,210
 Total interest-
  bearing
 liabilities       1,411,497 1,482,071 1,396,962 1,429,889 1,357,819
 Net interest-
  earning assets     331,644   307,428   352,846   341,787   364,303
 Shareholders'
  equity             190,300   152,770   188,998   197,364   195,322
 Common
  shareholders'
  equity (1)         137,226   135,195   171,417   179,783   177,741
 Tangible common
  shareholders'
  equity (2)          99,577    97,468   133,614   141,903   139,786
 Securities
  available for
  sale - fair
  value
  adjustment
  included in
  shareholders'
  equity, net of
  tax             $    3,463    (9,797)   (5,803)      944      (500)

 Common shares
  outstanding         10,798    10,806    10,913    10,992    11,011
 Treasury shares         550       542       435       356       337

 CAPITAL RATIOS

 Leverage ratio         8.05%     7.37      9.17      9.38      9.35
 Tier 1 risk-based
  capital              11.83%    11.10     14.58     15.34     15.74
 Total risk based
  capital              13.08%    12.35     15.83     16.59     16.99
 Common equity to
  assets                7.16%     6.95      9.04      9.40      9.57
 Tangible common
  equity to
  tangible assets
  (2)                   5.30%     5.11      7.19      7.57      7.68

 Common book value
  per share       $    12.71     12.51     15.71     16.36     16.14
 Tangible common
  book value per
  share (2)       $     9.22      9.02     12.24     12.91     12.69

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

                                                Years ended
                                                December 31,
                                            ---------------------
                                              2008         2007
                                            --------     --------

 SELECTED INCOME STATEMENT DATA

 (Dollar amounts in thousands)

 Interest income                            $ 98,948      105,212
 Interest expense                             33,617       47,139
                                            --------     --------
  Net interest income                         65,331       58,073
 Provision for loan losses                     6,551          116
                                            --------     --------
  Net interest income after provision for
   loan losses                                58,780       57,957
                                            --------     --------

 Noninterest income (loss):
  Service charges on deposits                 10,497       10,932
  ATM and debit card                           3,313        2,883
  Broker-dealer fees and commissions           1,458        1,396
  Loan servicing                                 664          928
  Company owned life insurance                   563        1,255
  Net gain on sale of loans held for sale        339          779
  Net gain (loss) on sale of other assets        305          102
  Net gain on investment securities              288          207
  Impairment charge on investment
   securities                                (68,215)          --
  Other                                        2,010        2,198
                                            --------     --------
   Total noninterest income (loss)           (48,778)      20,680
                                            --------     --------

 Noninterest expense:
  Salaries and employee benefits              31,437       33,175
  Occupancy and equipment                     10,502        9,903
  Computer and data processing                 2,433        2,126
  Professional services                        2,141        2,080
  Supplies and postage                         1,800        1,662
  Advertising and promotions                   1,453        1,402
  Other                                        7,695        7,080
                                            --------     --------
   Total noninterest expense                  57,461       57,428
                                            --------     --------

   (Loss) income before income taxes         (47,459)      21,209
 Income tax expense (benefit)                (21,301)       4,800
                                            --------     --------
   Net (loss) income                        $(26,158)      16,409
                                            ========     ========
 Preferred stock dividends                     1,538        1,483
  Net (loss) income applicable to
   common shareholders                      $(27,696)      14,926
                                            ========     ========


 STOCK AND RELATED PER SHARE DATA

 Net (loss) income per share - basic        $  (2.56)        1.34
 Net (loss) income per share - diluted      $  (2.56)        1.33
 Cash dividends declared                    $   0.54         0.46
 Common dividend payout ratio (3)                NA%        34.33
 Dividend yield (annualized)                    3.76%        2.58

 Stock price (Nasdaq:FISI):
  High                                      $  22.50        23.71
  Low                                       $  10.06        16.18
  Close                                     $  14.35        17.82

                                     Quarterly Trends
                     ------------------------------------------------
                                      2008                     2007
                     --------------------------------------  --------
                      Fourth     Third    Second     First    Fourth
                      Quarter   Quarter   Quarter   Quarter   Quarter
                     --------  --------  --------  --------  --------

 SELECTED INCOME 
 STATEMENT DATA
 (Dollar amounts in 
  thousands)

 Interest income     $ 24,582    24,558    24,536    25,272    26,397
 Interest expense       7,269     7,812     8,349    10,187    11,192
                     --------  --------  --------  --------  --------
   Net interest 
    income             17,313    16,746    16,187    15,085    15,205
 Provision for loan
  losses                2,586     1,891     1,358       716       351
                     --------  --------  --------  --------  --------
   Net interest 
    income after 
    provision
    for loan losses    14,727    14,855    14,829    14,369    14,854
                     --------  --------  --------  --------  --------

 Noninterest income
  (loss):
  Service charges on
   deposits             2,685     2,794     2,518     2,500     2,818
  ATM and debit card      853       852       856       752       805
  Broker-dealer fees 
   and
   commissions            235       363       401       459       343
  Loan servicing          134       112       232       186       221
  Company owned life
   insurance              294       223        27        19       116
  Net gain on sale 
   of loans held for 
   sale                    35        48        92       164       190
  Net gain (loss) on 
   sale of other 
   assets                  51       102       115        37       (58)
  Net gain on 
   investment
   securities              56        12        47       173        88
  Impairment charge 
   on investment 
   securities         (29,870)  (34,554)   (3,791)       --        --
  Other                   421       700       435       454       479
                     --------  --------  --------  --------  --------
   Total noninterest
    income (loss)     (25,106)  (29,348)      932     4,744     5,002
                     --------  --------  --------  --------  --------

 Noninterest expense:
  Salaries and 
   employee benefits    7,811     7,021     8,169     8,436     8,240
  Occupancy and 
   equipment            2,713     2,642     2,567     2,580     2,582
  Computer and data
   processing             669       603       580       581       533
  Professional 
   services               637       467       480       557       533
  Supplies and 
   postage                447       475       437       441       379
  Advertising and
   promotions             548       472       283       150       396
  Other                 2,569     1,729     1,869     1,528     1,880
                     --------  --------  --------  --------  --------
   Total noninterest
    expense            15,394    13,409    14,385    14,273    14,543
                     --------  --------  --------  --------  --------

   (Loss) income 
    before income 
    taxes             (25,773)  (27,902)    1,376     4,840     5,313
 Income tax expense
  (benefit)           (22,631)      524      (255)    1,061     1,215
                     --------  --------  --------  --------  --------
   Net (loss) income $ (3,142)  (28,426)    1,631     3,779     4,098
                     ========  ========  ========  ========  ========
 Preferred stock
  dividends               426       371       370       371       370
   Net (loss) income
    applicable to 
    common
    shareholders     $ (3,568)  (28,797)    1,261     3,408     3,728
                     ========  ========  ========  ========  ========


 STOCK AND RELATED PER
  SHARE DATA

 Net (loss) income 
  per share - basic  $  (0.33)    (2.68)     0.12      0.31      0.34
 Net (loss) income 
  per share - 
  diluted            $  (0.33)    (2.68)     0.12      0.31      0.34
 Cash dividends 
  declared           $   0.10      0.15      0.15      0.14      0.13
 Common dividend 
  payout ratio (3)         NA%       NA    125.00     45.16     38.24
 Dividend yield
  (annualized)           2.77%     2.98      3.76      2.97      2.89

 Stock price
  (Nasdaq:FISI):
  High               $  20.27     22.50     20.00     20.78     19.80
  Low                $  10.06     14.82     15.25     15.10     16.42
  Close              $  14.35     20.01     16.06     18.95     17.82

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

                                                 Years ended
                                                 December 31,
                                           ------------------------
                                              2008          2007
                                           ----------    ----------
 SELECTED AVERAGE BALANCES
 (Amounts in thousands)

 Investment securities (4)                 $  721,551       811,118
 Loans (5):
  Commercial                                  149,927       119,823
  Commercial real estate                      247,475       244,357
  Agriculture                                  45,035        53,356
  Residential real estate                     171,262       165,226
  Consumer indirect                           185,197       118,152
  Consumer direct and home equity             224,343       236,910
                                           ----------    ----------
   Total loans                              1,023,239       937,824
 Total interest-earning assets              1,772,179     1,781,468
 Total assets                               1,905,345     1,907,037

 Interest-bearing liabilities:
  Interest-bearing demand                     347,702       338,326
  Savings and money market                    369,926       346,131
  Certificates of deposit                     617,381       672,239
  Borrowings                                   91,715        80,609
                                           ----------    ----------
   Total interest-bearing liabilities       1,426,724     1,437,305

 Noninterest-bearing demand deposits          280,467       266,239
 Total deposits                             1,615,476     1,622,935
 Total liabilities                          1,722,440     1,721,510
 Net earning assets                           345,455       344,163
 Shareholders' equity                         182,905       185,527
 Common equity (1)                            164,454       167,935
 Tangible common equity (2)                $  126,643       129,818
 Common shares outstanding:
  Basic                                        10,818        11,154
  Diluted                                      10,818        11,184

 SELECTED AVERAGE YIELDS/
 RATES AND RATIOS
 (Tax equivalent basis)

 Investment securities                           4.84%         4.90
 Loans                                           6.61%         7.30
 Total interest-earning assets                   5.83%         6.17
 Interest-bearing demand                         0.93%         1.70
 Savings and money market                        1.02%         1.69
 Certificates of deposit                         3.62%         4.63
 Borrowings                                      4.65%         5.49
 Total interest-bearing liabilities              2.36%         3.28
 Net interest rate spread                        3.47%         2.89
 Net interest rate margin                        3.93%         3.53

 Net (loss) income (annualized returns on):
  Average assets                                -1.37%         0.86
  Average equity                               -14.30%         8.84
  Average common equity (6)                    -16.84%         8.89
  Average tangible common equity (7)           -21.87%        11.50
 Efficiency ratio (8)                           64.07%        71.57
 Equity to assets                                9.60%         9.73
 Common equity to assets (6)                     8.63%         8.81
 Tangible common equity to tangible assets
  (7)                                            6.78%         6.95

                                 Quarterly Trends
               ------------------------------------------------------
                                    2008                      2007
               ------------------------------------------- ----------
                 Fourth      Third     Second      First      Fourth
                 Quarter    Quarter    Quarter    Quarter    Quarter
               ---------- ---------- ---------- ---------- ----------
 SELECTED
  AVERAGE
  BALANCES
 (Amounts in
  thousands)

 Investment
  securities 
  (4)          $  666,917    721,419    744,648    753,823    786,343
 Loans (5):
  Commercial      158,517    150,373    150,380    140,340    129,438
  Commercial
   real estate    253,179    246,746    244,688    245,232    242,336
  Agriculture      44,299     45,965     44,504     45,373     50,448
  Residential
   real estate    175,200    173,175    169,925    166,682    167,551
  Consumer
   indirect       244,891    200,586    156,728    137,756    132,372
  Consumer
   direct and
   home equity    222,235    222,241    223,906    229,035    232,228
               ---------- ---------- ---------- ---------- ----------
   Total loans  1,098,321  1,039,086    990,131    964,418    954,373
 Total 
  interest
  -earning
  assets        1,782,938  1,774,201  1,771,801  1,759,635  1,756,169
 Total assets   1,924,174  1,908,577  1,897,514  1,890,874  1,884,712

 Interest-
  bearing
   liabilities:
  Interest-
   bearing 
   demand         360,970    342,188    342,463    345,102    337,179
  Savings and
   money 
   market         373,034    366,449    378,799    361,425    358,198
  Certificates
   of deposit     629,111    591,025    615,950    633,599    635,825
  Borrowings      105,164    118,023     73,902     69,335     71,092
               ---------- ---------- ---------- ---------- ----------
   Total
    interest-
    bearing
    liabilities 1,468,279  1,417,685  1,411,114  1,409,461  1,402,294

 Noninterest-
  bearing
  demand
  deposits        284,643    294,136    275,570    267,322    276,535
 Total 
  deposits      1,647,758  1,593,798  1,612,782  1,607,448  1,607,737
 Total
  liabilities   1,766,239  1,727,473  1,702,211  1,693,300  1,694,297
 Net earning
  assets          314,659    356,516    360,687    350,174    353,875
 Shareholders'
  equity          157,935    181,104    195,303    197,574    190,415
 Common equity
  (1)             136,887    163,527    177,722    179,993    172,834
 Tangible
  common
  equity (2)   $   99,191    125,754    139,872    142,067    134,832
 Common shares
  outstanding:
  Basic            10,717     10,738     10,879     10,938     11,022
  Diluted          10,717     10,738     10,928     10,975     11,043

 SELECTED
  AVERAGE
  YIELDS/
  RATES AND
  RATIOS
 (Tax
  equivalent
  basis)

 Investment
  securities         4.72%      4.66       4.92       5.05       5.13
 Loans               6.35%      6.52       6.65       6.97       7.25
 Total interest
  -earning
  assets             5.69%      5.73       5.83       6.05       6.28
 Interest-
  bearing
  demand             0.69%      0.86       0.89       1.30       1.61
 Savings and
  money market       0.68%      0.93       1.02       1.47       1.70
 Certificates
  of deposit         3.09%      3.33       3.72       4.31       4.54
 Borrowings          4.23%      4.30       5.05       5.51       5.63
 Total interest
  -bearing
  liabilities        1.97%      2.19       2.38       2.91       3.17
 Net interest
  rate spread        3.72%      3.54       3.45       3.14       3.11
 Net interest
  rate margin        4.07%      3.98       3.94       3.73       3.75

 Net (loss)
  income
  (annualized
  returns on):
  Average
   assets           -0.65%     -5.93       0.35       0.80       0.86
  Average
   equity           -7.91%    -62.44       3.36       7.69       8.54
  Average
   common
   equity (6)      -10.37%    -70.06       2.85       7.62       8.56
  Average
   tangible
   common
   equity (7)      -14.31%    -91.10       3.63       9.65      10.97
 Efficiency
  ratio (8)         66.65%     58.10      64.21      67.64      66.84
 Equity to
  assets             8.21%      9.49      10.29      10.45      10.10
 Common equity
  to assets (6)      7.11%      8.57       9.37       9.52       9.17
 Tangible
  common equity
  to tangible
  assets (7)         5.26%      6.72       7.52       7.67       7.30

 FINANCIAL INSTITUTIONS, INC.
 Summary of Quarterly Financial Data (Unaudited)
                                                      Years ended
                                                      December 31,
                                                 --------------------
                                                   2008        2007
                                                 --------    --------

 ASSET QUALITY DATA
 (Dollar amounts in thousands)

 Nonaccrual loans                                $  8,189       8,075
 Accruing loans past due 90 days or more                7           2
                                                 --------    --------
  Total non-performing loans                        8,196       8,077
 Foreclosed assets                                  1,007       1,421
 Non-performing investment securities                  49          --
                                                 --------    --------
  Total non-performing assets                       9,252       9,498
                                                 ========    ========

 Net loan charge-offs                            $  3,323       1,643
 Net charge-offs to average loans (annualized)       0.32%       0.18
 Total non-performing loans to total loans           0.73%       0.84
 Total non-performing assets to total assets         0.48%       0.51
 Allowance for loan losses to total loans            1.67%       1.61
 Allowance for loan losses to
    non-performing loans                              229%        192

                                       Quarterly Trends
                            ---------------------------------------
                                          2008               2007
                            ------------------------------- -------
                             Fourth  Third   Second  First   Fourth
                            Quarter Quarter Quarter Quarter Quarter
                            ------- ------- ------- ------- -------
 ASSET QUALITY DATA
 (Dollar amounts in 
  thousands)

 Nonaccrual loans           $ 8,189   7,609   6,254   7,353   8,075
 Accruing loans past due 90
  days or more                    7      32       1       2       2
                            ------- ------- ------- ------- -------
  Total non-performing loans  8,196   7,641   6,255   7,355   8,077
 Foreclosed assets            1,007   1,009   1,235   1,257   1,421
 Non-performing investment
  securities                     49      --      --      --      --
                            ------- ------- ------- ------- -------
  Total non-performing 
   assets                     9,252   8,650   7,490   8,612   9,498
                            ======= ======= ======= ======= =======

 Net loan charge-offs       $ 1,257     509     869     687     441
 Net charge-offs to average
  loans (annualized)           0.46%   0.20    0.35    0.29    0.18
 Total non-performing loans
  to total loans               0.73%   0.71    0.62    0.76    0.84
 Total non-performing assets
  to total assets              0.48%   0.44    0.40    0.45    0.51
 Allowance for loan losses
  to total loans               1.67%   1.62    1.59    1.60    1.61
 Allowance for loan losses 
  to non-performing loans       229%    228     256     211     192

 (1)  Excludes preferred shareholders' equity.
 (2)  Excludes preferred shareholders' equity, goodwill and other 
       intangible assets.
 (3)  Common dividend payout ratio equals dividends declared during 
       the period divided by earnings per share for the equivalent 
       period. There is no ratio shown for periods where the Company 
       both declares a dividend and incurs a loss during the period
       because the ratio would result in a negative payout since the 
       dividend declared (paid out) will always be greater than 100% 
       of earnings.
 (4)  Average investment securities shown at amortized cost.
 (5)  Includes nonaccrual loans.
 (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, 
       proceeds from company owned life insurance included in income 
       and net gain on sale of trust relationships.


            

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