Delivering on a brighter tomorrow. Financial Institutions, Inc. 2019 Annual Report Financial Institutions, Inc. provides diversified financial services through its subsidiaries Five Star Bank, SDN Insurance Agency, LLC, Courier Capital, LLC and HNP Capital, LLC. 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 throughout Western and Central New York State. Additional Five Star Bank information is available at www.five-starbank.com. SDN Insurance® 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 700 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at www.fiiwarsaw.com. Corporate Profile Fellow Shareholders As I write this annual letter to shareholders, the world is confronting one of the greatest health threats of our lifetime. The COVID-19 crisis has impacted the global economy and our thoughts remain with the individuals and communities who have been impacted. Our guiding principles through this crisis have been the safety and health of our associates, serving our customers to the highest standards and doing our part to slow community spread of the virus so that the most vulnerable can get the care they need. COVID-19 — Extraordinary Crisis It is now more critical than ever that individuals and businesses continue to have access to their financial institution and the ability to work with their trusted financial advisors. In many ways, we have brought certainty to customers, friends and neighbors dealing with so much uncertainty. In March, we enacted our business continuity plan. Our first steps related to social-distancing initiatives — the creation of less-dense work environments, resiliency through use of alternative locations, the implementation of non-essential business travel and visitor restrictions. Shortly thereafter, we adopted measures to limit customer traffic in most of our branch locations. We appreciate our retail associates’ unwavering dedication to our customers and their teammates. On March 23rd, recognizing the impact of economic stress caused by the crisis, we rolled out a series of solutions to support our customers and allow them to focus on their health and safety. These actions included the waiving or elimination of several types of fees, offering the opportunity for loan payment relief or deferrals and offering unsecured personal loans at a low rate. Business customers are faced with challenging and unique circumstances. Five Star Bank’s relationship managers are highly skilled in providing tailored financial solutions and they have been actively reaching out to learn how we can help. Small businesses are critically important to our local economies and we are focused on providing small business customers timely solutions that improve financial well-being, including those specific to Small Business Administration (SBA) relief programs and other relief programs available through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Leveraging our strong historic commitment to small businesses and status as a Preferred SBA lender, we have been helping clients navigate newly passed legislation to take advantage of the Payroll Protection Program to source needed funds to cover operating expenses. Our associates at Courier Capital, HNP Capital and SDN Insurance® have been working with investment and insurance customers to determine appropriate actions that are responsive to the economic impact of the crisis. We entered the crisis in a position of strength based on our diversified business model, strong levels of capital and liquidity, historically strong asset quality metrics and a disciplined risk management and underwriting process. We are here for our customers, employees and communities in good and bad times — a safe harbor in this storm of uncertainty, volatility and anxiety. We do not know how this crisis will end, how long it will last, how much economic damage it will cause or how fast or slow the recovery will be. As the situation develops and we better understand the impacts on our company, we will continue to communicate with shareholders on our evolving strategies and expectations. Financial Institutions, Inc. 2019 Annual Report 01 20 19 2019 — A Year of Accomplishment and Strong Performance Net Income, Earnings per 2019 was a year of great accomplishment Share & Dividends for our company. We generated the [$ in Millions, except per share amounts] highest net income and pre-tax pre- Net Income Available to Common Shareholders (1) provision income in company history and Diluted Earnings per Common Share strengthened our capital ratios. There Cash Dividends Declared were many contributing factors to these per Common Share $47.4 positive outcomes including growth in commercial and residential loans, the positive impact of balance sheet $38.1 repositioning – including the rotation of securities into loans and rightsizing of our $32.1 $2.96 consumer indirect portfolio, gains from $30.5 a timely investment securities sale, our interest rate swap program supporting $26.926.9 $2.39 commercial borrowers, expense control $2$2.$2.132 13 and benefits from tax credit investments. $2.10$2$$2.1100 $1.901 9900 $1.00 We remain focused on driving long-term $0.96 $0.85$0$0.$ 85 shareholder value and are continually $0.81$0$0.881 seeking ways to improve profitability as $0.80800 demonstrated by the diverse ways we positively impacted net income in 2019. Net income for the year was $48.9 million ‘15 ‘16 ‘17 ‘18 ‘19 compared to $39.5 million in 2018. After preferred dividends, net income available to common shareholders was $47.4 Total Loans million, or $2.96 per diluted share, $3,221 [$ in Millions] compared to $38.1 million, or $2.39 per $3,087 diluted share, in 2018. Pre-tax pre- $2,735 provision income(1) was $67.5 million $2,340 compared to $58.5 million in 2018. $2,084 Growth in total loans was 4.4%, led by $920 $876 $850 a strong 15.5% increase in commercial $752 $677 $634 $677 mortgage loans and a 9.2% increase in $582 residential real estate loans, partially $550 $16 offset by a 7.6% decrease in the consumer $508 $18 $17 $18 indirect portfolio. Consumer indirect $19 $1,678 loans continued the decline that we $1,516 $1,259 strategically implemented in 2018, as $880 $1,020 we maintain our focus on growing the relationship-based commercial and ‘15 ‘16 ‘17 ‘18 ‘19 residential loan categories while Commercial Consumer Other Residential Consumer scaling back consumer indirect lending. Real Estate Indirect Our consumer indirect loan portfolio at year-end represented 26.4% of the total loan portfolio, down from 29.8% Growing Noninterest Income at December 31, 2018. [$ in Millions] We concluded our initiative of redeploying assets from investment securities into higher-yielding loans to improve $30.3 $35.8 $34.7 $36.5 $40.4 the interest-earning asset mix. ‘15 ‘16 ‘17 ‘18 ‘19 Financial Highlights (1) Non-GAAP measure; refer to GAAP to Non-GAAP reconciliation on page 10. We generated the highest net income and pre-tax pre-provision income in company history and strengthened our capital ratios. The initiative resulted in a $115 million Total deposits grew $189 million in Total Deposits decrease in total investment securities 2019, to $3.6 billion, driven by growth [$ in Millions] in 2019 and contributed to a 10-basis in the non-public (excluding CDs), $3,556 point improvement in net interest public, brokered and reciprocal $3,367 margin, to 3.28%, as compared deposit portfolios. We lowered CD $3,000 $3,210 to 3.18% in 2018. Our investment rates in the second half of the year, $2,995 $2,376 securities portfolio comprised 17.7% $2,731 leading to a $40 million roll-off of $2,347 of total assets at year-end as $2,000 high-cost, non-public CDs. $2,358 compared to 20.7% one year ago. $2,293 $1,180 $2,094 As our loan portfolio grew over the $1,000 $1,020 $852 Noninterest income grew by 10.7% past five years, we added significant $702 in 2019, to $40 million. Key drivers resources to the credit and risk $637 of the increase were a third quarter management functions. We remain ‘15 ‘16 ‘17 ‘18 ‘19 repositioning of our securities portfolio strategically focused on the that generated a $1.6 million gain, a importance of credit discipline $1.3 million increase in income from and support what we believe is an Total Investment Securities derivative instruments arranged for effective risk and control environment. Repositioning Our Balance Sheet by Deploying our commercial borrowers related to At year-end 2019, the ratio of Securities into Loans [$ in Millions] interest rate swap transactions, and non-performing loans to total loans a $1.1 million increase in investment was 27 basis points and net charge- advisory fees. offs to average loans for the year was 37 basis points. $1,030$1,083 $1,041 $892 $777 We recognized the need for affordable and special needs housing in our In 2019, common book value per share ‘15 ‘16 ‘17 ‘18 ‘19 markets and in 2018 we initiated a increased 10.8%, from $23.79 at program to provide both debt and year-end 2018 to $26.35. Tangible equity financing for these types of common book value per share(2) Common Book Value & projects. In late 2019, we recognized increased 13.9%, from $19.01 at federal and state tax benefits related year-end 2018 to $21.66 — the 11th Tangible Common to tax credit investments placed in consecutive annual increase.