GlobeNewswire Inc | Jan 31, 2022 04:05PM EST

January 31, 2022

WARSAW, N.Y., Jan. 31, 2022 (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 fourth quarter and year ended December 31, 2021.

Results for the Fourth Quarter

-- Net income was $19.6 million compared to $13.8 million in 2020. After preferred dividends, net income available to common shareholders was $19.2 million, or $1.21 per diluted share, compared to $13.4 million, or $0.84 per diluted share, in 2020. -- Results for 2021 and 2020 were positively impacted by a reduction in income tax expense of approximately $1.7 million and $915 thousand, respectively, for federal and state tax benefits related to tax credit investments. These tax credit investments also generated a net loss of $493 thousand in 2021 and $155 thousand in 2020, recorded in noninterest income, reducing the net positive impact to $1.2 million in 2021 and $760 thousand in 2020. -- Reflected in the increase in net income was a $1.2 million benefit for credit losses in the current quarter as compared to a provision of $5.5 million in the fourth quarter of 2020. Ongoing improvement in the national unemployment forecast, positive trends in qualitative factors and a reduction in specific reserves resulted in a release of overall credit loss reserves and a corresponding benefit for credit losses. -- Pre-tax pre-provision income(1) was the second highest in Company history at $22.6 million, an increase of $1.7 million from the fourth quarter of 2020.

Results for the Year

-- Net income was $77.7 million compared to $38.3 million in 2020. After preferred dividends, net income available to common shareholders was $76.2 million, or $4.78 per diluted share, compared to $36.9 million, or $2.30 per diluted share, in 2020. -- Results for 2021 and 2020 were positively impacted by a reduction in income tax expense of approximately $2.6 million and $1.5 million, respectively, for federal and state tax benefits related to tax credit investments placed in service. These tax credit investments also generated a net loss of $431 thousand in 2021 and $275 thousand in 2020, recorded in noninterest income, reducing the net positive impact to $2.2 million in 2021 and $1.2 million in 2020. -- Reflected in the increase in net income was an $8.3 million benefit for credit losses in the current year as compared to a provision of $27.2 million in 2020. Improvement in the national unemployment forecast, positive trends in qualitative factors, a reduction in specific reserves and lower net charge-offs resulted in the release of overall credit loss reserves and a corresponding benefit for credit losses in each quarter of 2021. Results for 2020 were negatively impacted by a higher than historical provision for credit losses, driven by the adoption of the current expected credit loss (CECL) standard and the impact of COVID-19 on the economic environment. -- Pre-tax pre-provision income was $88.9 million, an increase of $16.0 million from 2020.

We ended 2021 with another strong quarter, reporting the highest net interest income and second highest pre-tax pre-provision income in our history said President and Chief Executive Officer Martin K. Birmingham. Continued improvement in the economy and a reduction in specific loan reserves resulted in our fourth consecutive quarter with a benefit for credit losses. Commercial loan pipelines remain healthy and, excluding the impact of Paycheck Protection Program (PPP) loans, we grew the total loan portfolio by 2.5% from September 30th.

We earned record net income of $78 million in 2021, with every business line providing positive contributions. Loan and deposit growth were strong at 8% (excluding PPP loans) and 13%, respectively, versus the year-ago period. Our insurance and wealth management businesses performed well, evidencing growth and increased profitability.

Our investment in an integrated customer relationship management solution will give all lines of business a single shared view of the customer. This will create a unified approach to customer engagement and help us better educate and interact with our customers and community partners, expanding these critical relationships. We also continue execution on opportunities to deliver BaaS solutions and other digital transformation solutions. We believe these investments position us well to capitalize on industry changes and deliver positive outcomes supporting long-term shareholder value. I thank my teammates for their hard work on behalf of our customers, communities and shareholders.

Chief Financial Officer and Treasurer W. Jack Plants II added, While quarterly operating expense did increase, we generated positive operating leverage for the year while making short-term investments to support strategic initiatives and future operating metrics. We also continued to execute on our share repurchase program, buying back approximately 102,000 shares during the quarter at an average price of $31.45 per share.

Net Interest Income and Net Interest Margin

Net interest income was $40.9 million for the quarter, an increase of $2.6 million from the third quarter of 2021 and an increase of $4.7 million from the fourth quarter of 2020.

-- Average interest-earning assets for the quarter were $5.18 billion, an increase of $212.2 million from the third quarter of 2021 due to a $184.6 million increase in investment securities and a $36.5 million increase in total loans, partially offset by a $8.9 million decrease in Federal Reserve interest-earning cash. The quarterly increase in the investment securities portfolio was attributable to the continued management of excess liquidity, compounded by the seasonal inflow of municipal deposits at the beginning of the quarter. Average interest-earning assets for the quarter were $543.7 million higher than the fourth quarter of 2020 due to a $498.9 million increase in investment securities and a $73.4 million increase in total loans, partially offset by a $28.6 million decrease in Federal Reserve interest-earning cash. -- 2021 loan growth was muted by PPP loan forgiveness. The average balance of PPP loans net of deferred fees was $82.1 million in the quarter as compared to $141.3 million in the third quarter of 2021 and $262.4 million in the fourth quarter of 2020.

Net interest margin was 3.15% as compared to 3.07% in the third quarter of 2021 and 3.13% in the fourth quarter of 2020. Excluding the impact of PPP loans and PPP loan origination fees accreted over the term of the loan or upon loan forgiveness, net interest margin was 2.98% in the fourth quarter of 2021, 3.05% in the third 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. Our excess liquidity position has placed further pressure on net interest margin in 2021, resulting in higher average balances of interest-earning cash and investment securities, albeit at lower comparative yields, based on current market conditions. In the third and fourth quarters, we shifted excess liquidity from interest-earning cash to investment securities with the intention of reducing net interest margin compression. We expect the investment securities portfolio to serve as a source of liquidity to fund future loan growth.

Net interest income was $154.7 million for the year, $15.7 million higher than 2020, primarily as a result of an increase in average interest-earning assets and the impact of PPP revenue. Net interest margin was 3.14% for the year, a decrease of eight basis points from 2020. Excluding the impact of PPP loans and PPP loan origination fees accreted over the term of the loan or upon loan forgiveness, net interest margin was 3.05% for the year, down 19 basis points from 3.24% in 2020.

Noninterest Income

Noninterest income was $11.7million for the quarter, a decrease of $409 thousand from the third quarter of 2021 and an increase of $338 thousand from the fourth quarter of 2020.

-- Insurance income of $1.3 million was $521 thousand lower than the third quarter of 2021 primarily as a result of the timing of commercial policy renewals. The increase of $465 thousand from the fourth quarter of 2020 was driven by two 2021 bolt-on acquisitions and growth in the legacy SDN business, including the impact of increasing insurance premiums. -- Investment advisory income of $3.0 million was $76 thousand higher than the third quarter of 2021 and $450 thousand higher than the fourth quarter of 2020 due to an increase in assets under management driven by a combination of market gains, new customer accounts and contributions to existing accounts. -- Company owned life insurance income of $821 thousand was $45 thousand higher than the third quarter of 2021 and $316 thousand higher than the fourth quarter of 2020. We made additional investments in company-owned life insurance of $20.0 million in the third quarter of 2021 and $30.0 million in the fourth quarter of 2020 to take advantage of attractive tax-equivalent yields and partially offset employee benefit expenses. -- Income from investments in limited partnerships of $294 thousand was $400 thousand lower than the third quarter of 2021 and $54 thousand higher than the fourth 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 $1.0 million, $658 thousand higher than the third quarter of 2021 and $131 thousand higher than the fourth 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. -- Net gain on sale of loans held for sale of $482 thousand was $118 thousand lower than the third quarter of 2021 and $1.1 million lower than the fourth quarter of 2020 as a result of lower transaction volume. Sales volumes and margins were at historically high levels in the fourth quarter of 2020, driven by mortgage refinancing activity. -- A net loss on tax credit investments of $493 thousand was recognized in the fourth quarter as compared to $129 thousand in the third quarter of 2021 and $155 thousand in the fourth quarter of 2020. These losses include the amortization of tax credit investments, partially offset by New York investment tax credits that are refundable and recorded in noninterest income.

Noninterest income was $46.9 million for the year, $3.7 million higher than 2020.

-- Insurance income of $5.8 million was $1.3 million higher than the previous year due to acquisition activity and growth in the legacy SDN business. -- Investment advisory income of $11.7 million was $2.1 million higher than 2020 as a result of growth in assets under management as previously described. -- Income from investments in limited partnerships of $2.1 million was $2.0 million higher than 2020 based on the performance of underlying investments. -- Income from derivative instruments, net of $2.7 million was $2.8 million lower than 2020. Fee income per transaction in 2021 was higher than in 2020, however, swap fee income decreased $2.2 million as a result of fewer swap relationships. Mortgage derivative income was $589 thousand lower than 2020, primarily as a result of fewer mortgage loans in the pipeline.

Noninterest Expense

Noninterest expense was $29.9million in the quarter compared to $29.2 million in the third quarter of 2021 and $26.5 million in the fourth quarter of 2020.

-- Salaries and employee benefits expense of $16.1 million was $313 thousand higher than the third quarter of 2021 primarily due to severance expense related to a redesign of the Banks retail branch structure. Expense was $1.9 million higher than the fourth quarter of 2020 due to higher incentive compensation and commissions, investments in personnel and the impact of 2021 acquisitions. -- Occupancy and equipment expense of $3.9 million was $621 thousand higher than the fourth quarter of 2020 primarily as a result of the purchase of personal computers and security equipment for multiple locations, timing of routine repairs and maintenance in the retail branch network, and expenses related to two Five Star Bank branches opened in June 2021. Expense was relatively unchanged as compared to the third quarter of 2021. -- Computer and data processing expense of $4.0 million was $373 thousand higher than the third quarter of 2021 and $929 thousand higher than the fourth quarter of 2020 as a result of the Companys strategic investments in technology, including digital banking initiatives and a customer relationship management solution across all lines of business.

Noninterest expense was $112.8 million for the year, $3.5 million higher than 2020.

-- Salaries and employee benefits expense of $60.9 million was $1.6 million higher than the previous year due to the factors described above. -- Computer and data processing expense of $14.1 million was $2.5 million higher than 2020 as a result of strategic investments in technology described above. -- Third quarter 2020 restructuring charges of $1.4 million represent non-recurring real estate related charges related to the 2020 closure of six bank branches and a staffing reduction. Additional related restructuring charges of $111 thousand were incurred in the fourth quarter of 2021 as a result of property valuation adjustments.

Income Taxes

Income tax expense was $4.2 million for the quarter compared to $4.6 million in the third quarter of 2021 and $1.7 million in the fourth quarter of 2020. The Company recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the fourth quarter of 2021, third quarter of 2021, and fourth quarter of 2020, resulting in income tax expense reductions of approximately $1.7 million, $535 thousand, and $915 thousand, respectively.

The effective tax rate was 17.7% for the quarter compared to 21.0% for the third quarter of 2021 and 10.9% for the fourth quarter of 2020. The effective tax rate for the year was 20.1%, up from 16.2% in 2020. The year-over-year increase in effective tax rates is the result of higher pre-tax earnings in comparison to the prior year. 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 $5.52billion at December 31, 2021, down $102.4 million from September 30, 2021, and up $608.5million from December 31, 2020.

Investment securities were $1.38 billion at December 31, 2021, up $68.0 million from September 30, 2021, and up $484.1 million from December 31, 2020. The Companys primary investment strategy for 2020 was to reinvest cash flow from the securities portfolio; however, the focus was redirected during the second half of the year to deploy excess liquidity into cash flowing agency mortgage backed securities, given our elevated cash position. The strategy continued throughout 2021 due to the continued excess liquidity position and the ability to reallocate excess Federal Reserve cash balances into securities that demonstrated higher yields, on a relative basis.

Total loans were $3.68 billion at December 31, 2021, up $25.5 million, or 0.7%, from September 30, 2021, and up $84.3million, or 2.3%, from December 31, 2020.

-- Commercial business loans totaled $638.3 million, down $47.9 million, or 7.0%, from September 30, 2021, and down $155.9 million, or 19.6%, from December 31, 2020. Declines were driven by the forgiveness or repayment of PPP loans. PPP loans net of deferred fees are included in commercial business loans and were $55.3 million at December 31, 2021, $116.7 million at September 30, 2021, and $248.0 million at December 31, 2020. Accordingly, commercial business loans excluding the impact of PPP loans increased 2.4% from September 30, 2021 and increased 6.7% from December 31, 2020. -- Commercial mortgage loans totaled $1.41 billion, up $64.2 million, or 4.8%, from September 30, 2021, and up $158.9 million, or 12.7%, from December 31, 2020. -- Residential real estate loans totaled $577.3 million, down $6.8 million, or 1.2%, from September 30, 2021, and down $22.5million, or 3.8%, from December 31, 2020. -- Consumer indirect loans totaled $958.0million, up $17.5 million, or 1.9%, from September 30, 2021 and up $117.6 million, or 14.0%, from December 31, 2020.

Total loans, excluding PPP loans net of deferred fees, were $3.62 billion at December 31, 2021, up $86.8 million, or 2.5%, from September 30, 2021, and up $276.9million, or 8.3%, from December 31, 2020.

Total deposits were $4.83 billion at December 31, 2021, $147.9 million lower than September 30, 2021, and $548.7million higher than December 31, 2020. The decrease from September 30, 2021, was primarily the result of a seasonal decrease in public deposits, which occurred during the last few weeks of the fourth quarter, and lower non-public and reciprocal deposits. The increase from December 31, 2020, was the result of growth in all deposit categories public, non-public and reciprocal. Public deposit balances represented 23% of total deposits at December 31, 2021, compared to 24% at September 30, 2021, and 20% at December 31, 2020.

Short-term borrowings were $30.0 million at December 31, 2021, as compared to $0 at September 30, 2021 and $5.3 million at December 31, 2020. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.

Shareholders equity was $505.1million at December 31, 2021, compared to $494.0million at September 30, 2021, and $468.4million at December 31, 2020. Common book value per share was $30.98 at December 31, 2021, an increase of $0.89 or 3.0% from $30.09 at September 30, 2021, and an increase of $2.86 or 10.2% from $28.12 at December 31, 2020. Tangible common book value per share(1) was $26.26 at December 31, 2021, an increase of $0.88 or 3.5% from $25.38 at September 30, 2021, and an increase of $2.74 or 11.6% from $23.52 at December 31, 2020.

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. No shares were repurchased in 2020. During the first and fourth quarters of 2021, the Company repurchased a total of 340,688 shares for an average repurchase price of $26.44 per share, inclusive of transaction costs.

The common equity to assets ratio was 8.84% at December 31, 2021, compared to 8.48% at September 30, 2021, and 9.18% at December 31, 2020. Tangible common equity to tangible assets(1), or the TCE ratio, was 7.59%, 7.25% and 7.80% at December 31, 2021, September 30, 2021, and December 31, 2020, respectively. The primary driver of declines in both ratios as compared to the prior year was a significant increase in total assets. 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 2021 share repurchases, partially offset by the positive impact of earnings.

During the fourth quarter of 2021, the Company declared a common stock dividend of $0.27 per common share. The dividend returned 22% of fourth quarter net income to common shareholders.

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

-- Leverage Ratio was 8.23%, compared to 8.36% and 8.25% at September 30, 2021, and December 31, 2020, respectively. -- Common Equity Tier 1 Capital Ratio was 10.28%, compared to 10.24% and 10.14% at September 30, 2021, and December 31, 2020, respectively. -- Tier 1 Capital Ratio was 10.68%, compared to 10.66% and 10.59% at September 30, 2021, and December 31, 2020, respectively. -- Total Risk-Based Capital Ratio was 13.12%, compared to 13.25% and 13.56% at September 30, 2021, and December 31, 2020, respectively.

Credit Quality

Non-performing loans were $12.2 million at December 31, 2021, as compared to $6.7 million at September 30, 2021, and $9.5million at December 31, 2020. Net charge-offs were $4.7 million in the quarter as compared $587 thousand in the third quarter of 2021 and $2.4 million in the fourth quarter of 2020. The ratio of annualized net charge-offs to average loans was 0.51% in the current quarter, 0.06% in the third quarter of 2021 and 0.27% in the fourth quarter of 2020. One commercial mortgage loan was downgraded to non-performing status with a $3.8 million partial charge-off in the fourth quarter of 2021, contributing to the increase in non-performing loans and fourth quarter charge-offs.

Foreclosed assets were $0 at December 31, 2021, and September 30, 2021, down from $3.0 million at December 31, 2020. The decrease from the prior year period was primarily the result of the sale of an asset on which foreclosure occurred in the third quarter of 2020.

At December 31, 2021, the allowance for credit losses - loans to total loans ratio was 1.08% compared to 1.24% at September 30, 2021, and 1.46% at December 31, 2020. PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the December 31, 2021, allowance for credit losses - loans to total loans ratio(1) was 1.09%, a decrease of 19 basis points from 1.28% at September 30, 2021, and a decrease of 48 basis points from 1.57% at December 31, 2020.

Provision (benefit) for credit losses - loans was a $1.1 million benefit in the quarter compared to a benefit of $334 thousand in the third quarter of 2021 and a provision of $5.4 million in the fourth quarter of 2020. Changes in the allowance for unfunded commitments, also included in provision (benefit) for credit losses, were a $104 thousand decrease in the fourth quarter of 2021, a $206 thousand decrease in the third quarter of 2021, and a $72 thousand increase in the fourth quarter of 2020.

Provision throughout 2020 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, resulting in a 2020 provision of $27.2 million. Provision was a benefit in each quarter of 2021 as a result of continued improvement in the national unemployment forecast and positive trends in qualitative factors, resulting in the release of credit loss reserves.

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 0.33% at December 31, 2021, 0.18% at September 30, 2021, and 0.26% at December 31, 2020. The ratio of allowance for credit losses - loans to non-performing loans was 326% at December 31, 2021, 681% at September 30, 2021, and 551% at December 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 year ended December 31, 2021, on Form 10-K. As a result, the Company will continue to evaluate the impact of any subsequent events on critical accounting assumptions and estimates made as of December 31, 2021, and will adjust amounts preliminarily reported, if necessary.

Conference Call

The Company will host an earnings conference call and audio webcast on February 1, 2022, 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 (844) 200 6205 and providing the access code 642486.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; legal and regulatory proceedings and related matters, such as the action described in our reports filed with the SEC, could adversely affect us and the banking industry in general; the Companys ability to successfully integrate and profitably operate Landmark Group, North Woods 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 December September June 30, March 31, December 31, 30, 31,SELECTED BALANCE SHEET DATA:Cash and cash $ 79,112 $ 288,426 $ 206,387 $ 344,790 $ 93,878 equivalentsInvestment securities:Available for sale 1,178,515 1,097,950 902,845 753,489 628,059 Held-to-maturity, 205,581 218,135 218,858 256,127 271,966 netTotal investment 1,384,096 1,316,085 1,121,703 1,009,616 900,025 securitiesLoans held for sale 6,202 5,916 3,929 5,685 4,305 Loans: Commercial business 638,293 686,191 731,208 816,936 794,148 Commercial mortgage 1,412,788 1,348,550 1,315,404 1,276,841 1,253,901 Residential real 577,299 584,091 590,303 601,609 599,800 estate loansResidential real 78,531 79,196 80,781 85,362 89,805 estate linesConsumer indirect 958,048 940,537 899,018 857,804 840,421 Other consumer 14,477 15,334 15,454 15,834 17,063 Total loans 3,679,436 3,653,899 3,632,168 3,654,386 3,595,138 Allowance forcredit losses - 39,676 45,444 46,365 49,828 52,420 loansTotal loans, net 3,639,760 3,608,455 3,585,803 3,604,558 3,542,718 Totalinterest-earning 5,105,608 5,189,075 4,906,087 4,963,264 4,520,416 assetsGoodwill and otherintangible assets, 74,400 74,659 74,262 74,528 73,789 netTotal assets 5,520,779 5,623,193 5,295,102 5,329,056 4,912,306 Deposits: Noninterest-bearing 1,107,561 1,144,852 1,121,827 1,099,608 1,018,549 demandInterest-bearing 864,528 893,976 799,299 873,390 731,885 demandSavings and money 1,933,047 2,015,855 1,796,813 1,826,621 1,642,340 marketTime deposits 921,954 920,280 941,282 916,395 885,593 Total deposits 4,827,090 4,974,963 4,659,221 4,716,014 4,278,367 Short-term 30,000 - - - 5,300 borrowingsLong-term 73,911 73,834 73,756 73,679 73,623 borrowings, netTotalinterest-bearing 3,823,440 3,903,945 3,611,150 3,690,085 3,338,741 liabilitiesShareholders? 505,142 494,013 487,126 466,284 468,363 equityCommonshareholders? 487,850 476,721 469,834 448,962 451,035 equityTangible common 413,450 402,062 395,572 374,434 377,246 equity ^(1)Accumulated othercomprehensive $ (13,207 ) $ (12,116 ) $ (5,934 ) $ (10,572 ) $ 2,128 (loss) income Common shares 15,746 15,842 15,842 15,829 16,042 outstandingTreasury shares 354 258 258 271 58 CAPITAL RATIOS AND PER SHARE DATA:Leverage ratio 8.23 % 8.36 % 8.16 % 8.35 % 8.25 %Common equity Tier 10.28 % 10.24 % 10.38 % 10.22 % 10.14 %1 capital ratioTier 1 capital 10.68 % 10.66 % 10.81 % 10.66 % 10.59 %ratioTotal risk-based 13.12 % 13.25 % 13.54 % 13.53 % 13.56 %capital ratioCommon equity to 8.84 % 8.48 % 8.87 % 8.42 % 9.18 %assetsTangible commonequity to tangible 7.59 % 7.25 % 7.58 % 7.13 % 7.80 %assets ^(1) Common book value $ 30.98 $ 30.09 $ 29.66 $ 28.36 $ 28.12 per shareTangible commonbook value per $ 26.26 $ 25.38 $ 24.97 $ 23.66 $ 23.52 share ^(1)

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



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

Year Ended 2021 2020 December31, Fourth Third Second First Fourth 2021 2020 Quarter Quarter Quarter Quarter Quarter SELECTED INCOME STATEMENTDATA: Interest income $ 167,205 $ 161,299 $ 43,753 $ 41,227 $ 40,952 $ 41,273 $ 40,168 Interest expense 12,475 22,314 2,885 2,954 3,220 3,416 3,987 Net interest 154,730 138,985 40,868 38,273 37,732 37,857 36,181 income(Benefit)provision for (8,336 ) 27,184 (1,192 ) (541 ) (4,622 ) (1,981 ) 5,495 credit lossesNet interestincome after 163,066 111,801 42,060 38,814 42,354 39,838 30,686 provisionfor credit lossesNoninterest income:Service charges on 5,571 4,810 1,490 1,502 1,287 1,292 1,489 depositsInsurance income 5,750 4,403 1,343 1,864 1,147 1,396 878 Card interchange 8,498 7,281 2,228 2,118 2,194 1,958 1,960 incomeInvestment 11,672 9,535 3,045 2,969 2,886 2,772 2,595 advisoryCompany owned life 2,947 1,902 821 776 693 657 505 insuranceInvestments inlimited 2,081 104 294 694 238 855 240 partnershipsLoan servicing 415 249 122 105 91 97 143 Income (loss) from derivativeinstruments, net 2,695 5,521 1,035 377 (592 ) 1,875 904 Net gain on saleof loans held for 2,950 3,858 482 600 790 1,078 1,597 saleNet gain (loss) oninvestment 71 1,599 - - (3 ) 74 150 securitiesNet gain (loss) on 441 (61 ) 155 138 153 (5 ) (69 )other assetsNet (loss) gain ontax credit (431 ) (275 ) (493 ) (129 ) 276 (85 ) (155 )investmentsOther 4,246 4,250 1,152 1,069 1,030 995 1,099 Total noninterest 46,906 43,176 11,674 12,083 10,190 12,959 11,336 incomeNoninterest expense:Salaries and 60,893 59,336 16,111 15,798 14,519 14,465 14,163 employee benefitsOccupancy and 14,371 13,655 3,869 3,834 3,286 3,382 3,248 equipmentProfessional 6,535 6,326 1,437 1,600 1,603 1,895 1,352 servicesComputer and data 14,112 11,645 3,952 3,579 3,460 3,121 3,023 processingSupplies and 1,769 1,975 408 447 430 484 442 postageFDIC assessments 2,624 2,242 682 697 480 765 737 Advertising and 1,704 2,609 470 474 436 324 554 promotionsAmortization of 1,060 1,134 259 264 266 271 273 intangiblesRestructuring 111 1,492 111 - - - 130 chargesOther 9,571 8,840 2,598 2,476 2,464 2,033 2,612 Total noninterest 112,750 109,254 29,897 29,169 26,944 26,740 26,534 expenseIncome before 97,222 45,723 23,837 21,728 25,600 26,057 15,488 income taxesIncome tax expense 19,525 7,391 4,225 4,553 5,400 5,347 1,688 Net income 77,697 38,332 19,612 17,175 20,200 20,710 13,800 Preferred stock 1,460 1,461 365 364 366 365 365 dividendsNet incomeavailable to commonshareholders $ 76,237 $ 36,871 $ 19,247 $ 16,811 $ 19,834 $ 20,345 $ 13,435 FINANCIAL RATIOS: Earnings per share $ 4.81 $ 2.30 $ 1.22 $ 1.06 $ 1.25 $ 1.28 $ 0.84 ? basicEarnings per share $ 4.78 $ 2.30 $ 1.21 $ 1.05 $ 1.25 $ 1.27 $ 0.84 ? dilutedCash dividendsdeclared on common $ 1.08 $ 1.04 $ 0.27 $ 0.27 $ 0.27 $ 0.27 $ 0.26 stockCommon dividend 22.45 % 45.22 % 22.13 % 25.47 % 21.60 % 21.09 % 30.95 %payout ratioDividend yield 3.40 % 4.62 % 3.37 % 3.49 % 3.61 % 3.62 % 4.60 %(annualized)Return on average 1.46 % 0.82 % 1.39 % 1.27 % 1.52 % 1.66 % 1.10 %assetsReturn on average 16.01 % 8.49 % 15.55 % 13.74 % 17.01 % 17.92 % 11.86 %equityReturn on average 16.29 % 8.50 % 15.81 % 13.94 % 17.34 % 18.28 % 12.00 %common equityReturn on average tangible commonequity ^(1) 19.37 % 10.25 % 18.69 % 16.50 % 20.69 % 21.88 % 14.38 %Efficiency ratio ^ 55.76 % 60.22 % 56.76 % 57.76 % 56.02 % 52.51 % 55.79 %(2)Effective tax rate 20.1 % 16.2 % 17.7 % 21.0 % 21.1 % 20.5 % 10.9 %

(1)See Appendix A 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)

Year Ended 2021 2020 December31, Fourth Third Second First Fourth 2021 2020 Quarter Quarter Quarter Quarter Quarter SELECTED AVERAGE BALANCES: Federal funds sold andinterest- $ 169,504 $ 112,802 $ 148,293 $ 157,229 $ 249,312 $ 123,042 $ 176,950 earning depositsInvestment securities ^(1) 1,129,012 794,908 1,361,898 1,177,237 1,056,898 914,569 862,956 Loans: Commercial business 734,748 735,535 649,926 700,797 791,412 798,866 803,536 Commercial mortgage 1,327,772 1,164,827 1,392,375 1,331,063 1,302,136 1,284,290 1,243,035 Residential real estate 593,375 587,620 586,358 588,585 595,925 602,866 599,773 loansResidential real estate 82,210 97,321 78,594 79,766 82,926 87,681 91,856 linesConsumer indirect 896,769 836,168 946,551 917,402 878,884 842,873 840,210 Other consumer 15,305 16,007 14,997 14,718 15,356 16,167 16,948 Total loans 3,650,179 3,437,478 3,668,801 3,632,331 3,666,639 3,632,743 3,595,358 Total interest-earning 4,948,695 4,345,188 5,178,992 4,966,797 4,972,849 4,670,354 4,635,264 assetsGoodwill and otherintangible 74,411 74,364 74,544 74,470 74,412 74,214 73,942 assets, netTotal assets 5,335,808 4,693,225 5,582,987 5,368,054 5,340,745 5,045,180 4,992,886 Interest-bearing liabilities:Interest-bearing demand 827,891 714,904 880,723 796,371 842,832 790,996 774,688 Savings and money market 1,864,567 1,443,692 1,997,508 1,876,394 1,856,659 1,724,577 1,722,938 Time deposits 907,973 959,541 923,080 908,351 935,885 863,924 871,103 Short-term borrowings 538 86,495 982 - - 1,178 9,188 Long-term borrowings, net 73,749 47,387 73,864 73,786 73,709 73,636 71,481 Total interest-bearing 3,674,718 3,252,019 3,876,157 3,654,902 3,709,085 3,454,311 3,449,398 liabilitiesNoninterest-bearing demand 1,105,227 905,412 1,134,100 1,149,120 1,091,490 1,044,733 997,607 depositsTotal deposits 4,705,658 4,023,549 4,935,411 4,730,236 4,726,866 4,424,230 4,366,336 Total liabilities 4,850,417 4,241,989 5,082,583 4,872,180 4,864,559 4,576,545 4,530,043 Shareholders? equity 485,391 451,236 500,404 495,874 476,186 468,635 462,843 Common equity 468,085 433,908 483,112 478,582 458,868 451,311 445,515 Tangible common equity ^(2) $ 393,674 $ 359,544 $ 408,568 $ 404,112 $ 384,456 $ 377,097 $ 371,573 Common shares outstanding: Basic 15,841 16,022 15,815 15,837 15,825 15,889 16,032 Diluted 15,937 16,063 15,928 15,936 15,913 15,972 16,078 SELECTED AVERAGE YIELDS: (Tax equivalent basis)Investment securities 1.75 % 2.31 % 1.65 % 1.72 % 1.77 % 1.91 % 2.06 %Loans 4.05 % 4.18 % 4.14 % 3.96 % 3.98 % 4.13 % 3.97 %Total interest-earning 3.39 % 3.73 % 3.37 % 3.31 % 3.31 % 3.59 % 3.46 %assetsInterest-bearing demand 0.14 % 0.15 % 0.14 % 0.15 % 0.14 % 0.13 % 0.13 %Savings and money market 0.18 % 0.33 % 0.16 % 0.17 % 0.19 % 0.21 % 0.25 %Time deposits 0.40 % 1.24 % 0.30 % 0.35 % 0.43 % 0.51 % 0.66 %Short-term borrowings 22.33 % 1.85 % 0.35 % 0.00 % 0.00 % 41.07 % 8.49 %Long-term borrowings, net 5.75 % 6.09 % 5.74 % 5.75 % 5.73 % 5.77 % 5.76 %Total interest-bearing 0.34 % 0.69 % 0.30 % 0.32 % 0.35 % 0.40 % 0.46 %liabilitiesNet interest rate spread 3.05 % 3.04 % 3.07 % 2.99 % 2.96 % 3.19 % 3.00 %Net interest margin 3.14 % 3.22 % 3.15 % 3.07 % 3.06 % 3.29 % 3.13 %

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

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

Year Ended 2021 2020 December31, Fourth Third Second First Fourth 2021 2020 Quarter Quarter Quarter Quarter Quarter ASSET QUALITY DATA:Allowance forCredit Losses - LoansBeginningbalance, prior toadoption of $ 52,420 $ 30,482 $ 45,444 $ 46,365 $ 49,828 $ 52,420 $ 49,395 CECLImpact of - 9,594 - - - - - adopting CECLBeginning balance, afteradoption of 52,420 40,076 45,444 46,365 49,828 52,420 49,395 CECLNet loancharge-offs (recoveries):Commercial (212 ) 7,384 177 50 (287 ) (152 ) 747 businessCommercial 3,814 1,755 3,618 - (7 ) 203 80 mortgageResidentialreal estate 56 72 32 21 (3 ) 6 (3 )loansResidentialreal estate 141 (3 ) 11 60 - 70 - linesConsumer 1,256 4,278 674 265 (426 ) 743 1,462 indirectOther consumer 705 329 168 191 329 17 112 Total net charge-offs(recoveries) 5,760 13,815 4,680 587 (394 ) 887 2,398 Provision(benefit) for (6,984 ) 26,159 (1,088 ) (334 ) (3,857 ) (1,705 ) 5,423 credit losses -loansEnding balance $ 39,676 $ 52,420 $ 39,676 $ 45,444 $ 46,365 $ 49,828 $ 52,420 Net charge-offs(recoveries)to average loans(annualized):Commercial -0.03 % 1.00 % 0.11 % 0.03 % -0.15 % -0.08 % 0.37 %businessCommercial 0.29 % 0.15 % 1.03 % 0.00 % 0.00 % 0.06 % 0.03 %mortgageResidentialreal estate 0.01 % 0.01 % 0.02 % 0.01 % 0.00 % 0.00 % 0.00 %loansResidentialreal estate 0.17 % 0.00 % 0.05 % 0.30 % 0.00 % 0.32 % 0.00 %linesConsumer 0.14 % 0.51 % 0.28 % 0.11 % -0.19 % 0.36 % 0.69 %indirectOther consumer 4.61 % 2.06 % 4.43 % 5.15 % 8.58 % 0.44 % 2.64 %Total loans 0.16 % 0.40 % 0.51 % 0.06 % -0.04 % 0.10 % 0.27 % Supplementalinformation ^ (1)Non-performing loans:Commercial $ 1,399 $ 1,975 $ 1,399 $ 1,046 $ 1,555 $ 1,742 $ 1,975 businessCommercial 6,414 2,906 6,414 874 885 3,402 2,906 mortgageResidentialreal estate 2,373 2,587 2,373 2,457 2,615 2,519 2,587 loansResidentialreal estate 200 323 200 192 280 256 323 linesConsumer 1,780 1,495 1,780 2,104 1,250 1,482 1,495 indirectOther consumer - 231 - 3 50 287 231 Totalnon-performing 12,166 9,517 12,166 6,676 6,635 9,688 9,517 loansForeclosed - 2,966 - - 646 2,966 2,966 assetsTotalnon-performing $ 12,166 $ 12,483 $ 12,166 $ 6,676 $ 7,281 $ 12,654 $ 12,483 assets Totalnon-performing 0.33 % 0.26 % 0.33 % 0.18 % 0.18 % 0.27 % 0.26 %loansto total loansTotalnon-performing 0.22 % 0.25 % 0.22 % 0.12 % 0.14 % 0.24 % 0.25 %assetsto total assetsAllowance forcredit losses - 1.08 % 1.46 % 1.08 % 1.24 % 1.28 % 1.36 % 1.46 %loansto total loansAllowance forcredit losses -loans 326 % 551 % 326 % 681 % 699 % 514 % 551 %tonon-performingloans

(1)At period end.

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

Year Ended 2021 2020 December31, Fourth Third Second First Fourth 2021 2020 Quarter Quarter Quarter Quarter Quarter Ending tangible assets:Total assets $ 5,520,779 $ 5,623,193 $ 5,295,102 $ 5,329,056 $ 4,912,306 Less: Goodwill andother intangible 74,400 74,659 74,262 74,528 73,789 assets, netTangible assets $ 5,446,379 $ 5,548,534 $ 5,220,840 $ 5,254,528 $ 4,838,517 Ending tangible common equity:Commonshareholders? $ 487,850 $ 476,721 $ 469,834 $ 448,962 $ 451,035 equityLess: Goodwill andother intangible 74,400 74,659 74,262 74,528 73,789 assets, netTangible common $ 413,450 $ 402,062 $ 395,572 $ 374,434 $ 377,246 equity Tangible commonequity to tangible 7.59 % 7.25 % 7.58 % 7.13 % 7.80 %assets ^(1) Common shares 15,747 15,842 15,842 15,829 16,042 outstandingTangible commonbook value per $ 26.26 $ 25.38 $ 24.97 $ 23.66 $ 23.52 share ^(2) Average tangible assets:Average assets $ 5,335,808 $ 4,693,225 $ 5,582,987 $ 5,368,054 $ 5,340,745 $ 5,045,180 $ 4,992,886 Less: Averagegoodwill and other 74,411 74,364 74,544 74,470 74,412 74,214 73,942 intangible assets,netAverage tangible $ 5,261,397 $ 4,618,861 $ 5,508,443 $ 5,293,584 $ 5,266,333 $ 4,970,966 $ 4,918,944 assets Average tangible common equity:Average common $ 468,085 $ 433,908 $ 483,112 $ 478,582 $ 458,868 $ 451,311 $ 445,515 equityLess: Averagegoodwill and other 74,411 74,364 74,544 74,470 74,412 74,214 73,942 intangible assets,netAverage tangible $ 393,674 $ 359,544 $ 408,568 $ 404,112 $ 384,456 $ 377,097 $ 371,573 common equity Net incomeavailable to $ 76,237 $ 36,871 $ 19,247 $ 16,811 $ 19,834 $ 20,345 $ 13,435 common shareholdersReturn on averagetangible common 19.37 % 10.25 % 18.69 % 16.50 % 20.69 % 21.88 % 14.38 %equity ^(3) Pre-taxpre-provision income:Net income $ 77,697 $ 38,332 $ 19,612 $ 17,175 $ 20,200 $ 20,710 $ 13,800 Add: Income tax 19,525 7,391 4,225 4,553 5,400 5,347 1,688 expenseAdd: Provision(benefit) for (8,336 ) 27,184 (1,192 ) (541 ) (4,622 ) (1,981 ) 5,495 credit lossesPre-taxpre-provision $ 88,886 $ 72,907 $ 22,645 $ 21,187 $ 20,978 $ 24,076 $ 20,983 income Total loansexcluding PPP loans:Total loans $ 3,679,436 $ 3,595,138 $ 3,679,436 $ 3,653,899 $ 3,632,168 $ 3,654,386 $ 3,595,138 Less: Total PPP 55,344 247,951 55,344 116,653 171,942 255,595 247,951 loansTotal loans $ 3,624,092 $ 3,347,187 $ 3,624,092 $ 3,537,246 $ 3,460,226 $ 3,398,791 $ 3,347,187 excluding PPP loans Allowance forcredit losses - $ 39,676 $ 52,420 $ 39,676 $ 45,444 $ 46,365 $ 49,828 $ 52,420 loansAllowance forcredit losses -loans to 1.09 % 1.57 % 1.09 % 1.28 % 1.34 % 1.47 % 1.57 %total loansexcluding PPP 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.