Growing Our Communities

Financial Institutions, Inc. 2016 Annual Report Corporate Profile Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, Scott Danahy Naylon and Courier 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 50 offices and 60 ATMs throughout Western and Central New York State. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 45 states. Courier Capital provides 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 650 individuals. Financial Institutions, Inc. 2016 Annual Report Growing Our Communities

Fellow Shareholders In 2016, we made tremendous progress in growing our Company. We acquired a premier advisory and wealth management firm, Kevin B. Klotzbach (Chief Financial Officer and Treasurer), Martin K. Birmingham (President and Chief Executive Officer) continued our branch and William L. Kreienberg (Chief Corporate Development Executive and General Counsel) transformation which included the opening of two new Five Star Bank financial solution centers, attracted quality talent throughout the organization, and increased the common stock dividend. These accomplishments and others were achieved in accordance with our long-term strategic plan. We are pleased that we were able to deliver strong results in-line with that plan. Financial Institutions, Inc. 2016 Annual Report Growing Our Communities

Long-Term Strategic Plan As communicated to shareholders and analysts in 2016, our long-term strategic Loans (Net) [$ in Billions] plan provides the framework for measuring our progress. The plan defines our $2.31

priorities in seven areas: $2.06 $2.00 $1.88 $1.81 Loan Growth $1.68 • Targeting mid-to-high single digit loan growth across all loan classes $1.00

• Emphasis on commercial lending to fuel growth and build broader ‘12 ‘13 ‘14 ‘15 ‘16 relationships Deposit Growth • Targeting a growth rate sufficient to fund loan growth Deposits [$ in Billions] • Emphasis on growing core deposits that enhance shareholder value Profitability and Shareholder Returns $3.00 $3.00 • Targeting continued improvement in return on average assets (“ROAA”) $2.73 $2.45 and return on average equity (“ROAE”) as a result of balance sheet growth $2.32 $2.26 and margin expansion $2.00 • Planned growth in tangible book value as earnings expand beyond ‘12 ‘13 ‘14 ‘15 ‘16 dividend distribution • Dividend growth Increase Fee-Based Revenue Through Existing Platforms • Targeting noninterest income at 25%-30% of total revenue (net interest Dividends & income plus noninterest income) Tangible Common 1 • Emphasis on realizing the benefits of existing insurance and wealth Book Value [Per Share]

management platforms through customer sharing across all platforms, Tangible Common Book Value hiring of incremental producers and organic growth Cash Dividends Declared $15.62 Expense Discipline • Targeting an efficiency ratio in the top one-third of comparable peers 0.9 $15.00 $14.77 • Continuation of expense management discipline and compensation $13.71 $13.56 structure aligned to achieve results $0.80 $0.81 $13.49 $0.77 Strong Credit Culture $0.74 • Maintain balance between volume and risk to sustain our credit discipline 0.7 $12.00 • Asset quality remains a priority Maximize Market Disruption Opportunities • Continue to capitalize on market disruption in Western New York banking $0.57 • Leveraging 200 years of rural and small town New York banking to expand 0.5 $9.00 in the larger markets of Rochester and Buffalo

‘12 ‘13 ‘14 ‘15 ‘16 Financial Institutions, Inc. 2016 Annual Report 03

2016 Highlights We reported diluted earnings per share (“EPS”) of $2.10 for 2016, an Net Income & EPS [$ in Millions, except per share amounts] increase of 10.5% over the prior year. This was accomplished through successful execution of our strategic plan. Net Income Available to Common Shareholders Diluted EPS

$30.0 $30.5 • Total interest-earning assets, assets, loans and deposits reached $27.9 record-high year-end levels. $26.9 • Total loans grew 12.3%, to $2.3 billion. $24.1 • Total deposits grew 9.7%, to $3.0 billion. $20.0 $22.0 • ROAA improved from 0.87% in 2015 to 0.90% in 2016. $2.10 $2.00 $1.90 • ROAE improved from 9.78% in 2015 to 10.01% in 2016. $1.75 $1.60 • Tangible common book value 1 per share increased from $14.77 in 2015 to $15.62 in 2016. $10.0 • Total shareholder return for 2016 was 25.6%. • Noninterest income grew 17.9%, to $35.8 million, and represented 25.8% of total net interest income plus noninterest income.

• Our 2016 efficiency ratio was 60.92%, in the top 38% ‘12 ‘13 ‘14 ‘15 ‘16 in our peer group. • We maintained our strong credit culture as evidenced by the Net Interest Income & Noninterest Income improvement in portfolio credit quality with non-performing assets [$ in Millions] to total assets of 0.17% at year-end, as compared to 0.25% Net Interest Income Noninterest Income in the prior year. Percent of Noninterest Income to Total Revenue $35.8 • We made progress on our expansion in Rochester and Buffalo, $30.3 opening two new branches in Rochester during the year and $25.4 $24.8 finalizing construction on a branch that opened in downtown $24.8

Buffalo in February of 2017. $100.0 $102.7 $95.3 $91.6 $93.8 $88.5

$75.0 Common stock delivered Total interest-earning assets, assets, loans % 24.1% 25.8 and deposits reached 21.9% 21.3% 21.3% 25.6% Record-high $50.0 total shareholder return year-end levels $25.0

‘12 ‘13 ‘14 ‘15 ‘16 (1) This is a non-GAAP measure. Refer to footnote 1 on page 07. Financial Institutions, Inc. 2016 Annual Report Growing Our Communities

Acquisition of Courier Capital We acquired Courier Capital, a well-respected advisory and wealth management firm based in Western New York, on January 5, 2016. The firm was founded in 1967 and it has offices in Buffalo and Jamestown. Courier Capital, with over $1.3 billion in assets under management, offers customized investment management, investment consulting and retirement plan services to individuals, businesses and institutions.

The acquisition of Courier Capital reflects our commitment to expand the Company’s noninterest income base and offer a variety of financial solutions to our customers. Our retail and business customers value the personal attention we deliver. We view the addition of Courier Capital to our family of diversified financial services as a wonderful platform to support the growth of the advisory and wealth management business. Performance subsequent to the acquisition has met our expectations, and we are experiencing synergies between our banking, insurance and wealth management platforms.

Opportunity, Vision and Investments Western New York is undergoing yet another round of consolidation among large banks, resulting in disruption and opportunity for growth. Our community banking approach, with personal service coupled with local leadership and decision-making power, positions us to capitalize on this disruption, especially in the larger markets of Rochester and Buffalo. We are investing in all markets that we serve – in branches, technology, products, and talented, hard-working people – to take advantage of this opportunity to grow our businesses.

We opened two new financial solution centers in 2016 and another in the first quarter of 2017. Our 2016 openings were in the Rochester suburb of Brighton in the first quarter and at the recently-renamed Five Star Bank Plaza in downtown Rochester in December. In February 2017, we opened our fourth financial solution center at Fountain Plaza in downtown Buffalo.

Five Star Bank’s financial solution center concept illustrates how we are evolving to meet the needs of our customers by accommodating a wide spectrum of customer preferences with no teller lines, no barriers between bank associates and customers, and hands- on support. Customers have the ability to choose their banking experience by accessing available on-site technology devices, mobile banking demonstrations, and a staff of Certified Personal Bankers. These bankers are trained to meet a broad array of customer needs, whether processing a transaction, opening an account or providing advice to help customers make an informed financial decision. They are empowered to serve as trusted financial advisers to all of our customers. We are working creatively and diligently to deliver a better customer experience.

During the first quarter of 2017, we relocated our Rochester regional administrative center comprised of administrative, finance, lending, management and marketing associates to two-plus floors at Five Star Bank Plaza, an existing 20-story building in downtown Rochester that has long served as a regional bank location. The Financial Institutions, Inc. and Five Star Bank headquarters, with approximately 120 employees, remains in Warsaw, New York, where significant administrative, board and management functions continue. Financial Institutions, Inc. 2016 Annual Report 05

A key factor in our move was a commitment to the revitalization of downtown Rochester. This new downtown office will increase Five Star Bank’s presence and visibility in Rochester and enhance our ability to increase market share in this key market. Today our name lights the sky over the community, representing a dramatic milestone for our organization.

We have also been taking advantage of the market disruption in Western New York to add talent to our organization. We invested in talent across all segments of our business in 2016 – from retail to small business to large commercial, fueling organic growth which is expected to drive future revenue. Many were attracted by our community banking approach to the customers we serve. These new associates will also assist us in the build-out of our commercial lending and mortgage banking businesses as well as the enhancement of regulatory compliance and enterprise risk management.

We continued our focus on small business lending in 2016 and Branch Transformation Effort added senior leadership. Community banks such as Five Star are gaining momentum in becoming financial partners of choice We have been undergoing a major transformation effort for small companies. We become fully engaged with our that has not only impacted the way we design today’s business partners, providing a wide range of financial solutions solution centers, but has also influenced the way we to assist them in their operating and growth plans. Local approach staffing, technology and the experience we leadership and decision-making capabilities enable us to be seek to provide in our traditional branches. agile and timely in responding to the needs of our customers. Our success in small business lending is illustrated by the fact We are transitioning staff from the traditional teller and that Five Star Bank was the #2 SBA lender in the combined platform roles to a universal banker role, which we Rochester and Buffalo markets and the #32 SBA lender in the call the Certified Personal Banker. This allows for more U. S. for the 2016 SBA year ended September 30, 2016. efficient staffing and a higher quality experience for our customers, who can now have the majority of their Traditional mortgage banking has not been a large component financial needs met by one person. We also continue of our loan business in recent history. Strategic hires made in to add high-value technologies, such as instant-issue 2016 and to-date in 2017 are expected to result in a significant debit card machines, in more of our locations. Our goal increase in Five Star Bank mortgage lending. is to offer the best experience possible whether the customer is seeking self-service, assisted service or a full-service banking experience.

Dividends and Total Shareholder Return In November of 2016, the Company’s Board of Directors increased the quarterly dividend to common shareholders by 5%, to $0.21 per share per quarter. The increase in dividend was made possible by our growth in earnings and a commitment to our shareholders. The Company has a demonstrated history of strong dividend growth as evidenced by a 60% increase in the dividend rate since the fourth quarter of 2011. In 2016, our common stock delivered a strong 25.6% total return to shareholders. Financial Institutions, Inc. 2016 Annual Report Growing Our Communities

Commitment to Our Communities We understand that the success of our Company is directly linked to the success of our communities. Accordingly, we are committed to investing in and supporting the communities we serve whether it be through charitable investments, volunteer activities or product offerings. In 2016, we made significant investments through various donations and community sponsorships across our entire operating footprint including: donations via a community-wide United Way challenge grant; donations to seven Community Action Groups; contributions to five agencies providing housing services; food bank donations; our Coats for Kids initiative provided 750 new winter coats to elementary school students in need; and many more. Our employees are involved in more than 400 different community and professional organizations and provide hundreds of hours of volunteer service every year. Five Star Bank’s comprehensive product offerings include several products tailored to meet the needs of the under-banked or low to moderate income residents in the communities we serve, including programs to assist home buyers with grants and savings programs.

Furthering our commitment in 2017, we added two Community Development Officers to our organization and they will play an important role in the execution of Five Star Bank’s Community Reinvestment Act (CRA) program to increase access to affordable loan and deposit services for low and moderate income clients. We are proud of the many contributions we are making toward enhancing the quality of life, economic vitality and future outlook for those in need.

Conclusion 2016 was an eventful and successful year for our Company. We grew our organization on many levels, and on behalf of Financial Institutions, Inc. and its management, I want to express my gratitude for the results delivered by our dedicated employees. My teammates accomplished so much in 2016 and I am proud to be their partner. I also thank our Board of Directors for their continued support and counsel.

We remain committed to our long-term strategic plan to drive strong shareholder returns. I believe we are very well- positioned for 2017 as we chart a path for growth that is grounded in thoughtful, well-executed investments in our business, our people and our communities. When our customers, employees and communities thrive, we all do well.

We thank you for your investment in our Company and for your continued support.

Cordially,

Martin K. Birmingham President & CEO Five Year Financial Highlights 07

(Dollars in thousands, except per share data) At or for the year ended December 31 2016 2015 2014 2013 2012 Selected financial condition data: Total assets $ 3,710,340 $ 3,381,024 $ 3,089,521 $ 2,928,636 $ 2,763,865 Loans, net 2,309,227 2,056,677 1,884,365 1,806,883 1,681,012 Investment securities 1,083,264 1,030,112 916,932 859,185 841,701 Deposits 2,995,222 2,730,531 2,450,527 2,320,056 2,261,794 Borrowings 370,561 332,090 334,804 337,042 179,806 Shareholders’ equity 320,054 293,844 279,532 254,839 253,897 Common shareholders’ equity 302,714 276,504 262,192 237,497 236,426 Tangible commmon shareholders’ equity(1) 227,074 209,558 193,553 187,495 186,037

Selected operations data: Interest income $ 115,231 $ 105,450 $ 101,055 $ 98,931 $ 97,567 Interest expennse 12,541 10,137 7,281 7,337 9,051 Net interest income 102,690 95,313 93,774 91,594 88,516 Provision for looan losses 9,638 7,381 7,789 9,079 7,128 Net interest income after provision for loan losses 93,052 87,932 85,985 82,515 81,388 Noninterest income 35,760 30,337 25,350 24,833 24,777 Noninterest expense 84,671 79,393 72,355 69,441 71,397 Income before income taxes 44,141 38,876 38,980 37,907 34,768 Income tax expense 12,210 10,539 9,625 12,377 11,319 Net income $ 31,931 $ 28,337 $ 29,355 $ 25,530 $ 23,449 Preferred stock dividends and accretion 1,462 1,462 1,462 1,466 1,474 Net income avvailable to common shareholders $ 30,469 $ 26,875 $ 27,893 $ 24,064 $ 21,975

Stock and related per share data: Earnings per common share: Basic $ 2.11 $ 1.91 $ 2.01 $ 1.75 $ 1.60 Diluted $ 2.10 $ 1.90 $ 2.00 $ 1.75 $ 1.60 Cash dividendds declared on common stock $ 0.81 $ 0.80 $ 0.77 $ 0.74 $ 0.57 Common book value per share $ 20.82 $ 19.49 $ 18.57 $ 17.17 $ 17.15 Tangible commmon book value per share(1) $ 15.62 $ 14.77 $ 13.71 $ 13.56 $ 13.49 Market price (NASDAQ: FISI): High $ 34.55 $ 29.04 $ 27.02 $ 26.59 $ 19.52 Low $ 25.98 $ 21.67 $ 19.72 $ 17.92 $ 15.22 Close $ 34.20 $ 28.00 $ 25.15 $ 24.71 $ 18.63

Performance ratios: Net income, returns on: Average asssets 0.90% 0.87% 0.98% 0.91% 0.93% Average equity 10.01% 9.78% 10.80% 10.10% 9.46% Average commmon equity 10.10% 9.87% 10.96% 10.23% 9.53% Average tangible common equity(1) 13.51% 13.16% 14.12% 13.00% 11.74% Average tanngible assets(1) 0.88% 0.84% 0.95% 0.87% 0.89% Common dividend payout ratio 38.39% 41.88% 38.31% 42.29% 35.63% Net interest margin (fully tax-equivalent) 3.24% 3.28% 3.50% 3.64% 3.95% Effective tax rate 27.7% 27.1% 24.7% 32.7% 32.6% Efficiency ratio (2) 60.92% 61.58% 58.59% 58.48% 62.87%

Capital ratios: Leverage ratio(3) 7.36% 7.41% 7.35% 7.63% 7.71% Common equity Tier 1 ratio(3) 9.59% 9.77% n/a n/a n/a Tier 1 capital ratio(3) 10.26% 10.50% 10.47% 10.82% 10.73% Total risk-based capital ratio(3) 12.97% 13.35% 11.72% 12.08% 11.98% Average equity to average assets 8.99% 8.86% 9.08% 9.01% 9.84% Common equity to assets 8.16% 8.18% 8.49% 8.11% 8.55% Tangible common equity to tangible assets(1) 6.25% 6.32% 6.41% 6.51% 6.86%

Asset quality: Non-performinng loans $ 6,326 $ 8,440 $ 10,153 $ 16,622 $ 9,125 Non-performing assets $ 6,433 $ 8,603 $ 10,347 $ 17,083 $ 10,062 Allowance for loan losses $ 30,934 $ 27,085 $ 27,637 $ 26,736 $ 24,714 Net loan charge-offs $ 5,789 $ 7,933 $ 6,888 $ 7,057 $ 5,674 Non-performing loans to total loans 0.27% 0.41% 0.53% 0.91% 0.53% Non-performing assets to total assets 0.17% 0.25% 0.33% 0.58% 0.36% Net charge-offs to average loans 0.26% 0.40% 0.37% 0.40% 0.36% Allowance for loan losses to total loans 1.32% 1.30% 1.45% 1.46% 1.45% Allowance for loan losses to non-performing loans 489% 321% 272% 161% 271%

Other data: Number of branches 52 50 49 50 52 Full time equivalent employees 631 660 622 608 628

(1) This is a non-GAAP measure that we believe isuseful in understanding our financial performance and condition. Refer to the GAAP to Non-GAAP Reconciliation on page 32 of the Company’s Form 10-K for the year ended December 31, 2016, (2) Efficiency ratio provides a ratio of operating expenses to operating income. Efficiency ratio equals noninterest expense less other real estate expense and amortization and impairment of goodwill and other intangible assets as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities, proceeds from company owned life insurance, adjustments to contingent liabilities and amortizations of tax credit investment. The efficiency ratio is not a financial measurement required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance. (3) 2016 and 2015 ratios calculated under Basel III rules, which became effective January 1, 2015.

Five Star Bank Jonathan W. Chase Board of Directors Executive Management Senior Retail Lending Administrator Shelly J. Doran Karl V. Anderson, Jr. 2 3 6 Director of Investor and Of Counsel at Snavely, Martin K. Birmingham 1 External Relations Plaskov and Mullen, PLLC President and Chief Executive Officer 1 Sonia M. Dumbleton John E. Benjamin 2 6 Kevin B. Klotzbach 1 Controller and Corporate Secretary President of Benridge, LLC Executive Vice President, Chief Financial Officer and Treasurer Lois E. Ellis Martin K. Birmingham Senior Compliance Administrator, CRA President and CEO of William L. Kreienberg 1 Officer Financial Institutions, Inc. Executive Vice President, and Five Star Bank Chief Corporate Development Executive Jon M. Fogle and General Counsel Commercial Market Executive Andrew W. Dorn, Jr. 3 4 and Rochester Regional President Co-Managing Director and Director Jeffrey . P Kenefick 1 of Government and Community Executive Vice President, Chief Community, Michael D. Grover Relations of Energy Solutions Commercial and Strategic Development Chief Accounting Officer, Consortium, LLC Officer Financial Reporting and Tax Manager Robert M. Glaser2 3 Michael D. Burneal 1 Edward “Ted” S. Oexle President of Glaser Consulting, LLC Senior Vice President, Chief Risk and C&I Lending Executive and Enterprise Administration Officer Buffalo Regional President Samuel M. Gullo 2 4 Owner and Operator of Paula D. Dolan 1 Randall R. Phillips Family Furniture Senior Vice President, Director of Human Loan Review Administrator 3 5 6 Resources and Enterprise Planning, Brenda B. Schell Susan R. Holliday Diversity and Inclusion Officer Audit Manager CEO of Dumbwaiter Design, LLC 3 4 5 Joseph L. Dugan Steven L. Yantz Erland E. Kailbourne Senior Vice President, Retail Growth and Commercial Market Executive Chairman of Albany International Profitability Executive Corporation David A. Young 3 Charles J. Guarino Senior Commercial Banker Robert N. Latella Senior Vice President, Chief Retail Lending Chairman of Financial Institutions, Executive Inc. and Five Star Bank; Of Counsel at Barclay Damon, LLP; and COO of

Scott Danahy Naylon, LLC Integrated Nano-Technologies, LLC

Five Star Bank Kim E. VanGelder 5 6 William E. Gallagher Chief Information Officer and Senior Senior Vice Presidents Managing Director Vice President of Eastman Kodak Glenn W. Quackenbush Company Thomas K. Arcuri Executive Vice President Senior Commercial Banker James H. Wyckoff, PhD4 5 William H. Scott, Jr. University of Virginia Curry Memorial Scott D. Bader Executive Vice President Professor of Education and Policy Technology Services Director and Director of the Center for Samuel Burruano, Jr. Education Policy and Workforce Assistant General Counsel and Director Courier Capital, LLC Competitiveness of Regulatory Compliance Craig J. Burton Thomas J. Hanlon Commercial Real Estate Executive Executive Vice President, Chief Operating Officer Vito Caraccio Commercial Market Executive William H. Gurney and Director of Business Banking Sales Executive Vice President David G. Case Bruce Kaz Chief Commercial Credit Officer Executive Vice President Randy M. Ordines Executive Vice President

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Above: Robert N. Latella (Chairman of the Board) and Martin K. Birmingham (President and Chief Executive Officer) Left: Executive Management Committee (front) William L. Kreienberg, Martin K. Birmingham, Kevin B. Klotzbach (back) Michael D. Burneal, Paula D. Dolan, Joseph L. Dugan, and Charles J. Guarino

Investor Information

Corporate Headquarters Investor Relations Contacts 220 LibertyS treet Shelly J. Doran Warsaw, New York 14569 Director of Investor and External Relations SJDoran@five-starbank.com Corporate Website or Financial results, corporate announcements, dividend news and Kevin B. Klotzbach corporate governance information is available on the Company’s Executive Vice President, CFO and Treasurer website: www.fiiwarsaw.com KBKlotzbach@five-starbank.com

Annual Meeting Legal Counsel The 2017 Annual Meeting of Shareholders will be held at 10:00 a.m. HarterS ecrest & Emery LLP EDT on June 21, 2017, at 220 LibertyS treet in Warsaw, New York. Rochester, New York

Transfer Agent Independent Auditors Our transfer agent, American Stock Transfer & Trust Co., maintains KPMG LLP the records for our registered shareholders and can assist you Rochester, New York with a variety of stockholder services including address changes, certificate replacement and other inquiries regarding your account. Affiliates Five Star Bank American Stock Transfer & Trust Co. Scott Danahy Naylon, LLC 6201 15th Avenue Courier Capital, LLC Brooklyn, New York 11219 Regional Administrative Centers Phone: (800) 937-5449 Rochester Fax: (718) 236-2641 Five Star Bank Plaza Website: www.astfinancial.com 100 Chestnut Street Rochester, New York 14604 Stock Exchange Information NASDAQ Global Select Market Buffalo Ticker Symbol: FISI 300 Spindrift Drive Amherst, New York 14221 Form 10-K and Other Reports This Annual Report includes the Financial Institutions, Inc. Annual Report on Form 10-K. The Form 10-K Report filed with the U.S. Securities and Exchange Commission in March 2017 also contains additional information including exhibits.

The Form 10-K can be viewed at www.fiiwarsaw.com, in the SEC ® filings tab, and is also available without charge upon request to Sonia M. Dumbleton, Corporate Secretary, 220 Liberty Street, Warsaw, New York 14569. ®

220 Liberty Street, Warsaw, NY 14569 585.786.1100 | www.fiiwarsaw.com