GlobeNewswire Inc | Apr 28, 2021 04:05PM EDT

April 28, 2021

WARSAW, N.Y., April 28, 2021 (GLOBE NEWSWIRE) -- Financial Institutions, Inc. (NASDAQ:FISI) (the Company we or us), parent company of Five Star Bank (the Bank), SDN Insurance Agency, LLC (SDN), Courier Capital, LLC (Courier Capital) and HNP Capital, LLC (HNP Capital), today reported financial and operational results for the first quarter ended March 31, 2021.

Net income for the quarter was $20.7million compared to $1.1 million in the first quarter of 2020. After preferred dividends, net income available to common shareholders was $20.3 million, or $1.27 per diluted share, compared to $762 thousand, or $0.05 per diluted share, in the first quarter of 2020.

Net income for both periods was significantly impacted by provision for credit losses. In the first quarter of 2020, provision of $13.9 million was driven by the adoption of the current expected credit loss standard (CECL) and the impact of the COVID-19 pandemic on the economic environment. The designated loss driver for the Companys CECL model is the national unemployment forecast, which spiked in early 2020 at the onset of the pandemic. In the first quarter of 2021, provision was a benefit of $2.0 million due to continued improvement in the national unemployment forecast and positive trends in qualitative factors, resulting in a release of credit loss reserves.

Pre-tax pre-provision income(1) for the quarter was the highest in Company history at $24.1 million, an increase of $8.7 million from the first quarter of 2020.

We are very pleased to report another solid quarter for our Company, reflecting strong underlying performance across our businesses, said President and Chief Executive Officer Martin K. Birmingham. In addition to the positive provision impact, we reported continued growth in net interest income and noninterest income. We are also benefitting from cost savings as an outcome of the enterprise standardization program. These positive factors contributed to an efficiency ratio below 53% and record pre-tax pre-provision income for the quarter.

The pace of activity has not slowed in 2021. We continue to assist new and existing customers with the Paycheck Protection Program (PPP), helping them obtain approximately $96 million of new loans and completing the forgiveness process for approximately $87 million of loans in the first quarter. We completed the acquisition of Landmark Group, significantly increasing awareness of our insurance offerings in the Rochester market and supporting our strategy of diversifying revenue. We also repurchased more than 230 thousand shares of common stock under our stock repurchase program at favorable pricing.

As infection rates decline in our markets and vaccination rates rise, we are seeing signs of an expanded re-opening of the economy. I remain cautiously optimistic about the strength and timing of the economic recovery. We believe that our strong balance sheet, diversified business model and talented associates position us to perform well in this environment. The continued health, safety and financial well-being of our customers, associates and communities remains a key focus of the Company.

Chief Financial Officer and Treasurer W. Jack Plants II added, Net interest margin was 3.29% for the quarter. Net interest income and net interest margin (NIM) benefited from the positive impact of PPP loan forgiveness and recognition of approximately $2.9 million of deferred fees in the quarter. Excluding all impacts of PPP loans, NIM was 3.15% for the first quarter of 2021 compared to 3.14% for the fourth quarter of 2020. NIM continues to be pressured by the interest rate environment and the lower respective yield of our excess liquidity position, driven by the increase in total deposits, up $929 million from the year earlier period.

Stock Repurchase Program

On November 4, 2020, the Company announced a stock repurchase program for up to 801,879 shares of common stock, or approximately 5% of the Companys outstanding common shares. Shares may be repurchased in open market transactions and pursuant to any trading plan adopted in accordance with Rule 10b5-1 of theSecurities Exchange Act of 1934. The timing and number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The repurchase program does not obligate the Company to purchase any shares and it may be extended, modified or discontinued at any time.

No shares were repurchased in 2020 under this program. Year-to-date, the Company has repurchased 238,439 shares for an average repurchase price of $24.30 per share, inclusive of transaction costs.

Insurance Subsidiary Acquisition

On February 1, 2021, the Companys insurance subsidiary SDN completed the acquisition of assets of Landmark Group (Landmark). A staple of the Rochester community since 1984, Landmark was an independent insurance brokerage firm delivering insurance, surety and risk management solutions across many business sectors including construction, manufacturing, real estate and technology, as well as individual personal insurance. Landmark Founder and Chairman Kelly M. Shea and President Christopher K. Shea remain with SDN to lead Rochester operations and continue their long-term relationship with clients.

Net Interest Income and Net Interest Margin

Net interest income was $37.9 million for the quarter, an increase of $1.7 million from the fourth quarter of 2020 and $4.7 million higher than the first quarter of 2020.

-- Average interest-earning assets for the quarter were $4.67 billion, $35.1 million higher than the fourth quarter of 2020 and $616.3 million higher than the first quarter of 2020. The increase was primarily the result of changes in the level of Federal Reserve interest-earning cash, $53.9 million lower than the fourth quarter of 2020 and $63.7 million higher than the first quarter of 2020; an increase in investment securities, $51.6 million higher than the fourth quarter of 2020 and $134.7 million higher than the first quarter of 2020; and growth in loans, $37.4 million higher than the fourth quarter of 2020 and $417.8 million higher than the first quarter of 2020. The average balance of PPP loans net of deferred fees was $248.5 million in the first quarter of 2021 and $262.4 million in the fourth quarter of 2020.

Net interest margin was 3.29% as compared to 3.13% in the fourth quarter of 2020 and 3.31% in the first quarter of 2020. Excluding the impact of lower-yielding PPP loans and related loan origination fees amortized over the term of the loan or upon loan forgiveness, net interest margin was 3.15% in the first quarter of 2021 and 3.14% in the fourth quarter of 2020.

-- Our net interest margin has been impacted by the interest rate environment that reflects a flatter yield curve and lower rates. In the fourth quarter of 2020 and first quarter of 2021, our excess liquidity position placed further pressure on net interest margin. Excess liquidity has been deployed into the investment securities portfolio, albeit at lower comparative yields, based on current market conditions.

Noninterest Income

Noninterest income was $13.0million for the quarter, an increase of $1.6 million from the fourth quarter of 2020 and an increase of $3.0 million from the first quarter of 2020.

-- Service charges on deposits of $1.3 million was $197 thousand lower than the fourth quarter of 2020 and $295 thousand lower than the first quarter of 2020. Insufficient fund fees after the first quarter of 2020 remain lower than historic levels due to higher consumer account balances, likely due to the positive impact of stimulus programs. These fees are typically higher in the fourth quarter than the first quarter. -- Insurance income of $1.4 million was $518 thousand higher than the fourth quarter of 2020 due to contingent revenue received in the first quarter each year combined with the impact of the February 2021 acquisition of Landmark. Income was relatively flat as compared to the first quarter of 2020. -- Card interchange income of $2.0 million was relatively unchanged as compared to the fourth quarter of 2020 and $356 thousand higher than the first quarter of 2020 primarily due to the impact of COVID-19 on customer behavior in the last half of March 2020. -- Investment advisory fees of $2.8 million was $177 thousand higher than the fourth quarter of 2020 and $526 thousand higher than the first quarter of 2020 as a result of an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts. -- Income from investments in limited partnerships of $855 thousand was $615 thousand higher than the fourth quarter of 2020 and $642 thousand higher than the first quarter of 2020. The Company has made several investments in limited partnerships, primarily small business investment companies, and accounts for these investments under the equity method. Income from these investments fluctuates based on the maturity and performance of the underlying investments. -- Income from derivative instruments, net was $1.9 million, $971 thousand higher than the fourth quarter of 2020 and $1.1 million higher than the first quarter of 2020. Income from derivative instruments, net is based on the number and value of interest rate swap transactions executed during the quarter combined with the impact of changes in the fair market value of borrower-facing trades, which were positively impacted by the recent increase in longer-term interest rates. -- Net gain on sale of loans held for sale of $1.1 million was $519 thousand lower than the fourth quarter of 2020 as a result of a decrease in volume of residential real estate loans and $826 thousand higher than the first quarter of 2020 due to higher loan volume combined with an increase in transaction margin.

Noninterest Expense

Noninterest expense was $26.7million in the quarter compared to $26.5 million in the fourth quarter of 2020 and $27.7 million in the first quarter of 2020.

-- Salaries and employee benefits expense of $14.5 million was $302 thousand higher than the fourth quarter of 2020, primarily due to investments in personnel and the timing of merit increases effective in early March. The decrease of $549 thousand from the first quarter of 2020 reflects a streamlining of retail branches to better align with shifting customer needs and preferences, including the 2020 closure of seven branches. -- Professional services expense of $1.9 million was $543 thousand higher than the fourth quarter of 2020 and $257 thousand lower than the first quarter of 2020 primarily due to the timing and level of audit fees and fees for consulting and advisory projects, including the Companys improvement initiatives. Expenses related to improvement initiatives totaled $180 thousand in the first quarter of 2021, $56 thousand in the fourth quarter of 2020 and $599 thousand in the first quarter of 2020. -- Computer and data processing expense of $3.1 million was $98 thousand higher than the fourth quarter of 2020 and $448 thousand higher than the first quarter of 2020 due to investments in technology. The year-over-year increase also reflects costs related to the Banks online and mobile platform, Five Star Bank Digital Banking, launched in the second quarter of 2020. -- FDIC assessments were $765 thousand in the quarter compared to $737 thousand in the fourth quarter of 2020 and $372 thousand in the first quarter of 2020. The increase as compared to the first quarter of 2020 was the result of an increase in total assets combined with the impact of a $70 thousand credit from 2018 that was utilized in the first quarter of 2020.

Income Taxes

Income tax expense was $5.3 million for the quarter compared to $1.7 million in the fourth quarter of 2020 and $322 thousand in the first quarter of 2020. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the first quarter of 2021, fourth quarter of 2020, and first quarter of 2020, resulting in income tax expense reductions of approximately $244 thousand, $915 thousand and $197 thousand, respectively.

The effective tax rate was 20.5% for the quarter compared to 10.9% for the fourth quarter of 2020 and 22.2% for the first quarter of 2020. The Companys effective tax rates differ from statutory rates because of interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments.

Balance Sheet and Capital Management

Total assets were $5.33billion at March 31, 2021, up $416.8 million from December 31, 2020, and up $857.3million from March 31, 2020.

Investment securities were $1.01 billion at March 31, 2021, up $109.6 million from December 31, 2020, and up $218.5 million from March 31, 2020. The Companys initial 2020 investment strategy was to reinvest cash flow from the portfolio; however, the focus was redirected to deploying excess liquidity into cash flowing agency mortgage backed securities given the elevated cash position experienced across the banking system. Increased purchase activity in the first quarter of 2021 resulted from the continued execution of the strategy to reallocate excess Federal Reserve cash balances into collateral eligible agency mortgage backed securities that demonstrated higher yields, on a relative basis.

Total loans were $3.65 billion at March 31, 2020, up $59.2 million, or 1.6%, from December 31, and up $417.2million, or 12.9%, from March 31, 2020.

-- Commercial business loans totaled $816.9 million, up $22.8 million, or 2.9%, from December 31, 2020, and up $228.1 million, or 38.7%, from March 31, 2020. PPP loans net of deferred fees were $255.6 million and $248.0 million at March 31, 2021, and December 31, 2020, respectively, and are included in commercial business loans. Accordingly, commercial business loans excluding the impact of PPP increased 2.8% from December 31, 2020, and decreased 4.7% from March 31, 2020. -- Commercial mortgage loans totaled $1.28 billion, up $22.9 million, or 1.8%, from December 31, 2020, and up $169.5 million, or 15.3%, from March 31, 2020. -- Residential real estate loans totaled $601.6 million, up $1.8 million, or 0.3%, from December 31, 2020, and up $21.8million, or 3.8%, from March 31, 2020. -- Consumer indirect loans totaled $857.8million, up $17.4 million, or 2.1%, from December 31, 2020 and up $14.1 million, or 1.7%, from March 31, 2020.

Total deposits were $4.72billion at March 31, 2021, $437.6 million higher than December 31, 2020, and $928.8million higher than March 31, 2020. The increase from December 31, 2020, was the result of a seasonal increase in public deposits combined with growth in the non-public and reciprocal deposit portfolios. The increase from March 31, 2020, was due to growth in non-public, reciprocal and public deposits. Public deposit balances represented 24% of total deposits at March 31, 2021, compared to 20% of total deposits at December 31, 2020, and 27% at March 31, 2020.

There were no short-term borrowings outstanding at March 31, 2021, a decrease of $5.3 million and $109.5 million from December 31, 2020, and March 31, 2020, respectively. The decline is the result of the Companys decision to utilize brokered deposits as a cost-effective alternative to Federal Home Loan Bank borrowings. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. In February 2020, the Company entered a long-term brokered sweep arrangement as a stable alternative borrowing source to diversify the wholesale funding base.

Shareholders equity was $466.3million at March 31, 2021, compared to $468.4 million at December 31, 2020, and $439.4million at March 31, 2020. Common book value per share was $28.36 at March 31, 2021, an increase of $0.24 or 0.9% from $28.12 at December 31, 2020, and an increase of $2.01 or 7.6% from $26.35 at March 31, 2020. Tangible common book value per share(1) was $23.66 at March 31, 2021, an increase of $0.14 or 0.6% from $23.52 at December 31, 2020, and an increase of $1.97 or 9.1% from $21.69 at March 31, 2020.

The common equity to assets ratio was 8.42% at March 31, 2021, compared to 9.18% at December 31, 2020, and 9.44% at March 31, 2020. Tangible common equity to tangible assets(1), or the TCE ratio, was 7.13%, 7.80% and 7.90% at March 31, 2021, December 31, 2020, and March 31, 2020, respectively. The primary driver of declines in both ratios compared to prior periods was the significant increase in total assets, specifically the increase in liquidity.The ratios were impacted to a lesser degree by a decrease in accumulated other comprehensive income (loss) associated with unrealized losses in the available for sale securities portfolio and the impact of share repurchases during the first quarter of 2021, partially offset by the positive impact of earnings.

During the first quarter of 2021, the Company declared a common stock dividend of $0.27 per common share, an increase of 3.8% over the previous dividend. The dividend returned 21% of first quarter net income to common shareholders.

The Companys regulatory capital ratios at March 31, 2021, compared to the prior quarter and prior year:

-- Leverage Ratio was 8.35%, compared to 8.25% and 8.78% at December 31, 2020, and March 31, 2020, respectively. -- Common Equity Tier 1 Capital Ratio was 10.22%, compared to 10.18% and 10.05% at December 31, 2020, and March 31, 2020, respectively. -- Tier 1 Capital Ratio was 10.66%, compared to 10.63% and 10.53% at December 31, 2020, and March 31, 2020, respectively. -- Total Risk-Based Capital Ratio was 13.53%, compared to 13.61% and 12.54% at December 31, 2020, and March 31, 2020, respectively.

Credit Quality

Non-performing loans were $9.7 million at March 31, 2021, compared to $9.5 million at December 31, 2020, and $12.4million at March 31, 2020. Net charge-offs were $887 thousand in the quarter, $1.5 million lower than the fourth quarter of 2020 and $9.3 million lower than the first quarter of 2020. Higher first quarter 2020 non-performing loans and charge-offs were the result of one commercial credit that was downgraded and partially charged-off. The borrowers business was related to the hospitality industry and the downgrade and charge-off were precipitated by the impact of COVID-19. The ratio of annualized net charge-offs to total average loans was 0.10% in the current quarter, 0.27% in the fourth quarter of 2020 and 1.27% in the first quarter of 2020.

Foreclosed assets at March 31, 2021, were $3.0 million, unchanged from December 31, 2020, and an increase of $2.2 million from March 31, 2020. The increase from March 31, 2020, is attributable to the commercial credit previously described; the loan was partially charged off during the first quarter of 2020 and foreclosure occurred in the third quarter.

At March 31, 2021, the allowance for credit losses - loans to total loans ratio was 1.36% compared to 1.46% at December 31, 2020, and 1.34% at March 31, 2020. PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the March 31, 2020, allowance for credit losses - loans to total loans ratio(1) was 1.47%, a decrease of ten basis points from 1.57% at December 31, 2020.

Provision (benefit) for credit losses - loans was a $1.7 million benefit in the quarter compared to provisions of $5.4 million in the fourth quarter of 2020 and $13.4 million in the first quarter of 2020. Changes in the allowance for unfunded commitments, also included in provision (benefit) for credit losses, were a $276 thousand decrease in the first quarter of 2021 and increases of $73 thousand and $493 thousand in the fourth and first quarters of 2020, respectively.

The Company has remained strategically focused on the importance of credit discipline, allocating what we believe are the necessary resources to credit and risk management functions as the loan portfolio has grown.The total non-performing loans to total loans ratio was 0.27% at March 31, 2021, 0.26% at December 31, 2020, and 0.38% at March 31, 2020. The ratio of allowance for credit losses - loans to non-performing loans was 514% at March 31, 2021, compared to 551% at December 31, 2020, and 350% at March 31, 2020.

Subsequent Events

The Company is required, under generally accepted accounting principles, to evaluate subsequent events through the filing of its consolidated financial statements for the quarter ended March 31, 2021, on Form 10-Q. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of March 31, 2021, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an earnings conference call and audio webcast on April 29, 2021, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and W. Jack Plants II, Chief Financial Officer and Treasurer. The live webcast will be available in listen-only mode on the Companys website at www.fiiwarsaw.com. Within the United States, listeners may also access the call by dialing 1-888-346-9290 and requesting the Financial Institutions, Inc. call.The webcast replay will be available on the Companys website for at least 30days.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, SDN, Courier Capital and HNP Capital. Five Star Bank provides a wide range of consumer and commercial banking and lending services to individuals, municipalities and businesses through a network of more than 45 offices throughout Western and Central New York State. SDN provides a broad range of insurance services to personal and business clients. Courier Capital and HNP Capital provide customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.Financial Institutions, Inc. and its subsidiaries employ approximately 600 individuals. The Companys stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at www.fiiwarsaw.com.

Non-GAAP Financial Information

In addition to results presented in accordance with U.S. generally accepted accounting principles (GAAP), this press release contains certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to GAAP measures is included in Appendix A to this document.

The Company believes that providing certain non-GAAP financial measures provides investors with information useful in understanding our financial performance, performance trends and financial position. Our management uses these measures for internal planning and forecasting purposes and we believe that our presentation and discussion, together with the accompanying reconciliations, allows investors, security analysts and other interested parties to view our performance and the factors and trends affecting our business in a manner similar to management. These non-GAAP measures should not be considered a substitute for GAAP measures and we strongly encourage investors to review our consolidated financial statements in their entirety and not to rely on any single financial measure to evaluate the Company. Non-GAAP financial measures have inherent limitations, are not uniformly applied and are not audited. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies non-GAAP financial measures having the same or similar names.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by Section21E of the Securities Exchange Act of 1934, as amended, that involve significant risks and uncertainties. In this context, forward-looking statements often address our expected future business and financial performance and financial condition, and often contain words such as expect, anticipate, intend, plan, believe, seek, see, will, would, estimate, forecast, target, preliminary, or range. Statements herein are based on certain assumptions and analyses by the Company and factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: the impact of the COVID-19 pandemic on the Companys customers, business, and results of operations as well as the economy in Western New York and the United States, the Companys ability to implement its strategic plan, whether the Company experiences greater credit losses than expected, whether the Company experiences breaches of its, or third party, information systems, the attitudes and preferences of the Companys customers, the Companys ability to successfully integrate and profitably operate Landmark Group and other acquisitions, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Companys compliance with regulatory requirements, changes in interest rates, and general economic and credit market conditions nationally and regionally. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Companys Annual Report on Form 10-K, its Quarterly Reports onForm 10-Qand other documents filed with the SEC.Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

(1) See AppendixA Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

For additional information contact:

Shelly J. DoranDirector of Investor and External Relations585-627-1362sjdoran@five-starbank.com



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

2021 2020 March 31, December September June 30, March 31, 31, 30,SELECTED BALANCE SHEET DATA:Cash and cash $ 344,790 $ 93,878 $ 282,070 $ 119,610 $ 152,168 equivalentsInvestment securities:Available for sale 753,489 628,059 515,971 469,413 444,845 Held-to-maturity, 256,127 271,966 290,946 309,872 346,239 netTotal investment 1,009,616 900,025 806,917 779,285 791,084 securitiesLoans held for sale 5,685 4,305 7,076 6,654 3,822 Loans: Commercial business 816,936 794,148 818,135 818,691 588,868 Commercial mortgage 1,276,841 1,253,901 1,202,046 1,140,326 1,107,376 Residential real 601,609 599,800 596,902 585,035 579,800 estate loansResidential real 85,362 89,805 94,017 97,427 102,113 estate linesConsumer indirect 857,804 840,421 840,579 828,105 843,668 Other consumer 15,834 17,063 16,860 16,237 15,402 Total loans 3,654,386 3,595,138 3,568,539 3,485,821 3,237,227 Allowance forcredit losses - 49,828 52,420 49,395 46,316 43,356 loansTotal loans, net 3,604,558 3,542,718 3,519,144 3,439,505 3,193,871 Totalinterest-earning 4,963,264 4,520,416 4,577,057 4,314,490 4,116,688 assetsGoodwill and otherintangible assets, 74,528 73,789 74,062 74,342 74,629 netTotal assets 5,329,056 4,912,306 4,959,201 4,680,930 4,471,768 Deposits: Noninterest-bearing 1,099,608 1,018,549 1,013,176 1,008,958 732,917 demandInterest-bearing 873,390 731,885 786,059 727,676 724,670 demandSavings and money 1,826,621 1,642,340 1,724,463 1,368,805 1,270,253 marketTime deposits 916,395 885,593 841,230 888,569 1,059,345 Total deposits 4,716,014 4,278,367 4,364,928 3,994,008 3,787,185 Short-term - 5,300 5,300 105,300 109,500 borrowingsLong-term 73,679 73,623 39,258 39,308 39,291 borrowings, netTotalinterest-bearing 3,690,085 3,338,741 3,396,310 3,129,658 3,203,059 liabilitiesShareholders? 466,284 468,363 456,361 448,045 439,393 equityCommonshareholders? 448,962 451,035 439,033 430,717 422,065 equityTangible common 374,434 377,246 364,971 356,375 347,436 equity ^(1)Accumulated othercomprehensive $ (10,572 ) $ 2,128 $ (209 ) $ (496 ) $ (2,082 )income (loss) Common shares 15,829 16,042 16,038 16,038 16,020 outstandingTreasury shares 271 58 62 62 80 CAPITAL RATIOS AND PER SHARE DATA:Leverage ratio 8.35 % 8.25 % 8.42 % 8.49 % 8.78 %Common equity Tier 10.22 % 10.18 % 10.19 % 10.27 % 10.05 %1 capital ratioTier 1 capital 10.66 % 10.63 % 10.66 % 10.76 % 10.53 %ratioTotal risk-based 13.53 % 13.61 % 12.74 % 12.83 % 12.54 %capital ratioCommon equity to 8.42 % 9.18 % 8.85 % 9.20 % 9.44 %assetsTangible commonequity to tangible 7.13 % 7.80 % 7.47 % 7.74 % 7.90 %assets ^(1) Common book value $ 28.36 $ 28.12 $ 27.38 $ 26.86 $ 26.35 per shareTangible commonbook value per $ 23.66 $ 23.52 $ 22.76 $ 22.22 $ 21.69 share ^(1) ___________

^(1) See AppendixA ? Reconciliation to Non-GAAP Financial Measures for thecomputation of this Non-GAAP measure.

FINANCIAL INSTITUTIONS, INC.Selected Financial Information (Unaudited)(Amounts in thousands, except per share amounts) 2021 2020 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter SELECTED INCOME STATEMENTDATA: Interest income $ 41,273 $ 40,168 $ 39,719 $ 39,759 $ 41,653 Interest expense 3,416 3,987 4,220 5,578 8,529 Net interest income 37,857 36,181 35,499 34,181 33,124 Provision (benefit) (1,981 ) 5,495 4,028 3,746 13,915 for credit lossesNet interest income after provisionfor credit losses 39,838 30,686 31,471 30,435 19,209 Noninterest income: Service charges on 1,292 1,489 1,254 480 1,587 depositsInsurance income 1,396 878 1,357 819 1,349 Card interchange 1,958 1,960 1,943 1,776 1,602 incomeInvestment advisory 2,772 2,595 2,443 2,251 2,246 Company owned life 657 505 470 462 465 insuranceInvestments in 855 240 (105 ) (244 ) 213 limited partnershipsLoan servicing 97 143 49 50 7 Income from derivativeinstruments, net 1,875 904 1,931 1,940 746 Net gain on sale of 1,078 1,597 1,397 612 252 loans held for saleNet gain oninvestment 74 150 554 674 221 securitiesNet gain (loss) on (5 ) (69 ) (55 ) (1 ) 64 other assetsNet loss on tax (85 ) (155 ) (40 ) (40 ) (40 )credit investmentsOther 995 1,099 1,019 934 1,198 Total noninterest 12,959 11,336 12,217 9,713 9,910 incomeNoninterest expense: Salaries and 14,465 14,163 15,085 15,074 15,014 employee benefitsOccupancy and 3,382 3,248 3,263 3,388 3,756 equipmentProfessional 1,895 1,352 1,242 1,580 2,152 servicesComputer and data 3,121 3,023 3,250 2,699 2,673 processingSupplies and postage 484 442 463 517 553 FDIC assessments 765 737 594 539 372 Advertising and 324 554 955 545 555 promotionsAmortization of 271 273 280 287 294 intangiblesRestructuring - 130 1,362 - - chargesOther 2,033 2,612 1,981 1,946 2,301 Total noninterest 26,740 26,534 28,475 26,575 27,670 expenseIncome before income 26,057 15,488 15,213 13,573 1,449 taxesIncome tax expense 5,347 1,688 2,940 2,441 322 Net income 20,710 13,800 12,273 11,132 1,127 Preferred stock 365 365 365 366 365 dividendsNet income available to commonshareholders $ 20,345 $ 13,435 $ 11,908 $ 10,766 $ 762 FINANCIAL RATIOS: Earnings per share ? $ 1.28 $ 0.84 $ 0.74 $ 0.67 $ 0.05 basicEarnings per share ? $ 1.27 $ 0.84 $ 0.74 $ 0.67 $ 0.05 dilutedCash dividendsdeclared on common $ 0.27 $ 0.26 $ 0.26 $ 0.26 $ 0.26 stockCommon dividend 21.09 % 30.95 % 35.14 % 38.81 % 520.00 %payout ratioDividend yield 3.62 % 4.60 % 6.72 % 5.60 % 5.76 %(annualized)Return on average 1.66 % 1.10 % 1.02 % 0.97 % 0.10 %assetsReturn on average 17.92 % 11.86 % 10.72 % 10.05 % 1.03 %equityReturn on average 18.28 % 12.00 % 10.82 % 10.11 % 0.72 %common equityReturn on average tangible commonequity ^(1) 21.88 % 14.38 % 13.02 % 12.25 % 0.88 %Efficiency ratio ^ 52.51 % 55.79 % 60.12 % 61.16 % 64.26 %(2)Effective tax rate 20.5 % 10.9 % 19.3 % 18.0 % 22.2 %

(1)See AppendixA Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.(2)The efficiency ratio is calculated by dividing noninterest expense by net revenue, i.e., the sum of net interest income (fully taxable equivalent) and noninterest income before net gains on investment securities. This is a banking industry measure not required by GAAP.

FINANCIAL INSTITUTIONS, INC.Selected Financial Information (Unaudited)(Amounts in thousands) 2021 2020 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter SELECTED AVERAGE BALANCES:Federal funds sold and interest-earning deposits $ 123,042 $ 176,950 $ 121,929 $ 92,214 $ 59,309 Investment securities ^ 914,569 862,956 769,673 766,636 779,894 (1)Loans: Commercial business 798,866 803,536 808,582 757,588 570,886 Commercial mortgage 1,284,290 1,243,035 1,180,747 1,133,832 1,100,660 Residential real estate 602,866 599,773 590,483 581,651 578,407 loansResidential real estate 87,681 91,856 95,288 99,543 102,680 linesConsumer indirect 842,873 840,210 830,647 827,030 846,800 Other consumer 16,167 16,948 16,445 15,155 15,466 Total loans 3,632,743 3,595,358 3,522,192 3,414,799 3,214,899 Total interest-earning 4,670,354 4,635,264 4,413,794 4,273,649 4,054,102 assetsGoodwill and other 74,214 73,942 74,220 74,504 74,797 intangible assets, netTotal assets 5,045,180 4,992,886 4,775,333 4,624,360 4,376,125 Interest-bearing liabilities:Interest-bearing demand 790,996 774,688 704,550 712,300 667,533 Savings and money market 1,724,577 1,722,938 1,574,068 1,329,632 1,143,628 Time deposits 863,924 871,103 867,479 984,832 1,116,736 Short-term borrowings 1,178 9,188 57,856 110,272 169,827 Long-term borrowings, 73,636 71,481 39,314 39,297 39,279 netTotal interest-bearing 3,454,311 3,449,398 3,243,267 3,176,333 3,137,003 liabilitiesNoninterest-bearing 1,044,733 997,607 987,908 912,238 721,975 demand depositsTotal deposits 4,424,230 4,366,336 4,134,005 3,939,002 3,649,872 Total liabilities 4,576,545 4,530,043 4,320,057 4,178,921 3,934,909 Shareholders? equity 468,635 462,843 455,276 445,439 441,216 Common equity 451,311 445,515 437,948 428,111 423,888 Tangible common equity ^ $ 377,097 $ 371,573 $ 363,728 $ 353,607 $ 349,091 (2)Common shares outstanding:Basic 15,889 16,032 16,031 16,018 16,006 Diluted 15,972 16,078 16,058 16,047 16,069 SELECTED AVERAGE YIELDS: (Tax equivalent basis)Investment securities 1.91 % 2.06 % 2.23 % 2.49 % 2.48 %Loans 4.13 % 3.97 % 4.02 % 4.14 % 4.61 %Total interest-earning 3.59 % 3.46 % 3.60 % 3.76 % 4.15 %assetsInterest-bearing demand 0.13 % 0.13 % 0.14 % 0.14 % 0.21 %Savings and money market 0.21 % 0.25 % 0.28 % 0.31 % 0.56 %Time deposits 0.51 % 0.66 % 0.92 % 1.39 % 1.83 %Short-term borrowings 41.07 % 8.49 % 1.60 % 1.03 % 2.11 %Long-term borrowings, 5.77 % 5.76 % 6.31 % 6.29 % 6.29 %netTotal interest-bearing 0.40 % 0.46 % 0.52 % 0.71 % 1.09 %liabilitiesNet interest rate spread 3.19 % 3.00 % 3.08 % 3.05 % 3.06 %Net interest margin 3.29 % 3.13 % 3.22 % 3.23 % 3.31 %

(1)Includes investment securities at adjusted amortized cost.(2)See AppendixA Reconciliation to Non-GAAP Financial Measures for the computation of this Non-GAAP measure.

FINANCIAL INSTITUTIONS, INC.Selected Financial Information (Unaudited)(Amounts in thousands) 2021 2020 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter ASSET QUALITY DATA:Allowance forCredit Losses - LoansBeginningbalance, prior toadoption of $ 52,420 $ 49,395 $ 46,316 $ 43,356 $ 30,482 CECLImpact of - - - - 9,594 adopting CECLBeginning balance, afteradoption of 52,420 49,395 46,316 43,356 40,076 CECLNet loancharge-offs (recoveries):Commercial (152 ) 747 (88 ) (1,458 ) 8,183 businessCommercial 203 80 603 1,072 - mortgageResidentialreal estate 6 (3 ) (7 ) (6 ) 88 loansResidentialreal estate 70 - - - (3 )linesConsumer 743 1,462 (115 ) 1,175 1,756 indirectOther consumer 17 112 95 3 119 Totalnet 887 2,398 488 786 10,143 charge-offsProvision(benefit) for (1,705 ) 5,423 3,567 3,746 13,423 credit losses- loansEnding balance $ 49,828 $ 52,420 $ 49,395 $ 46,316 $ 43,356 Netcharge-offs (recoveries) to averageloans (annualized):Commercial -0.08 % 0.37 % -0.04 % -0.77 % 5.77 %businessCommercial 0.06 % 0.03 % 0.20 % 0.38 % 0.00 %mortgageResidentialreal estate 0.00 % 0.00 % 0.00 % 0.00 % 0.06 %loansResidentialreal estate 0.32 % 0.00 % 0.00 % 0.00 % -0.01 %linesConsumer 0.36 % 0.69 % -0.05 % 0.57 % 0.83 %indirectOther consumer 0.44 % 2.64 % 2.31 % 0.08 % 3.09 % Total 0.10 % 0.27 % 0.06 % 0.09 % 1.27 %loans Supplementalinformation ^ (1)Non-performing loans:Commercial $ 1,742 $ 1,975 $ 2,628 $ 4,918 $ 5,507 businessCommercial 3,402 2,906 3,372 4,140 2,984 mortgageResidentialreal estate 2,519 2,587 3,305 2,992 1,971 loansResidentialreal estate 256 323 207 177 143 linesConsumer 1,482 1,495 1,244 868 1,777 indirectOther consumer 287 231 147 87 2 Totalnon-performing 9,688 9,517 10,903 13,182 12,384 loansForeclosed 2,966 2,966 2,999 679 749 assetsTotalnon-performing $ 12,654 $ 12,483 $ 13,902 $ 13,861 $ 13,133 assets Totalnon-performing loansto total loans 0.27 % 0.26 % 0.31 % 0.38 % 0.38 %Totalnon-performing assetsto total 0.24 % 0.25 % 0.28 % 0.30 % 0.29 %assetsAllowance forcredit losses - loansto total loans 1.36 % 1.46 % 1.38 % 1.33 % 1.34 %Allowance forcredit losses - loanstonon-performing 514 % 551 % 453 % 351 % 350 %loans (1)At period end.

FINANCIAL INSTITUTIONS, INC.AppendixA ? Reconciliation to Non-GAAP Financial Measures (Unaudited)(In thousands, except per share amounts)

2021 2020 First Fourth Third Second First Quarter Quarter Quarter Quarter Quarter Endingtangible assets:Total assets $ 5,329,056 $ 4,912,306 $ 4,959,201 $ 4,680,930 $ 4,471,768 Less:Goodwill and otherintangibleassets, net 74,528 73,789 74,062 74,342 74,629 Tangible $ 5,254,528 $ 4,838,517 $ 4,885,139 $ 4,606,588 $ 4,397,139 assets Endingtangible commonequity:Commonshareholders? $ 448,962 $ 451,035 $ 439,033 $ 430,717 $ 422,065 equityLess:Goodwill and otherintangibleassets, net 74,528 73,789 74,062 74,342 74,629 Tangible $ 374,434 $ 377,246 $ 364,971 $ 356,375 $ 347,436 common equity Tangiblecommon equity to tangibleassets ^(1) 7.13 % 7.80 % 7.47 % 7.74 % 7.90 % Common shares 15,829 16,042 16,038 16,038 16,020 outstandingTangiblecommon book value pershare ^(2) $ 23.66 $ 23.52 $ 22.76 $ 22.22 $ 21.69 Averagetangible assets:Average $ 5,045,180 $ 4,992,886 $ 4,775,333 $ 4,624,360 $ 4,376,125 assetsLess: Averagegoodwill and otherintangible 74,214 73,942 74,220 74,504 74,797 assets, netAveragetangible $ 4,970,966 $ 4,918,944 $ 4,701,113 $ 4,549,856 $ 4,301,328 assets Averagetangible commonequity:Average $ 451,311 $ 445,515 $ 437,948 $ 428,111 $ 423,888 common equityLess: Averagegoodwill and otherintangible 74,214 73,942 74,220 74,504 74,797 assets, netAveragetangible $ 377,097 $ 371,573 $ 363,728 $ 353,607 $ 349,091 common equity Net income available tocommon $ 20,345 $ 13,435 $ 11,908 $ 10,766 $ 762 shareholdersReturn onaverage tangiblecommonequity ^(3) 21.88 % 14.38 % 13.02 % 12.25 % 0.88 % Pre-taxpre-provision income:Net income $ 20,710 $ 13,800 $ 12,273 $ 11,132 $ 1,127 Add: Income 5,347 1,688 2,940 2,441 322 tax expenseAdd:Provision (1,981 ) 5,495 4,028 3,746 13,915 (benefit) forcredit lossesPre-taxpre-provision $ 24,076 $ 20,983 $ 19,241 $ 17,319 $ 15,364 income Total loansexcluding PPP loans:Total loans $ 3,654,386 $ 3,595,138 $ 3,568,539 $ 3,485,821 Less: Total 255,595 247,951 264,138 261,468 PPP loansTotal loansexcluding PPP $ 3,398,791 $ 3,347,187 $ 3,304,401 $ 3,224,352 loans Allowance forcredit losses $ 49,828 $ 52,420 $ 49,395 $ 46,316 - loansAllowance forcredit losses - loans tototal loansexcluding PPP 1.47 % 1.57 % 1.49 % 1.44 % loans ^(4)

(1)Tangible common equity divided by tangible assets.(2)Tangible common equity divided by common shares outstanding.(3)Net income available to common shareholders (annualized)divided by average tangible common equity.(4)Allowance for credit losses loans divided by total loans excluding PPP loans.