fisi-ex991

WARSAW, N.Y., July 29, 2020 – 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 second quarter ended June 30, 2020.

Net income for the quarter was $11.1 million compared to $11.4 million for the second quarter of 2019. After preferred dividends, net income available to common shareholders was $10.8 million for the quarter, or $0.67 per diluted share, compared to $11.0 million, or $0.69 per diluted share, for the second quarter of 2019.

Pre-tax pre-provision income⁽¹⁾ was $17.3 million for the quarter compared to $16.7 million for the second quarter of 2019.

President and Chief Executive Officer Martin K. Birmingham stated, “In our new normal of working together yet apart, we have delivered uninterrupted critical banking services to our customers. We implemented an array of actions for consumers and businesses, helping 1,700 small businesses and 18,000 small business employees through the Small Business Administration Payroll Protection Program (“PPP”) and thousands of consumers through our COVID-19 CARES relief efforts. This was accomplished with 65 percent of our associates working from home or at remote sites.

“We could not have accomplished this without a dedicated workforce. I thank all our associates for their continued commitment to our company, our customers, our communities and each other. They have worked diligently to deliver quality care to our customers in a challenging environment — adapting to new working environments and demonstrating our organization’s ability to efficiently operate in a fast-changing world.

“To provide enhanced digital capabilities during a time when many customers are hesitant or unable to visit a branch, we moved forward with the launch of our new digital banking platform. Now more than ever, consumers and businesses need the ability to do their banking anywhere and anytime and have access to a comprehensive overview of their finances in one convenient location. Five Star Bank Digital Banking represents a major upgrade from the previous platform, leveraging the latest technology to provide new features and financial tools that significantly enhance the digital banking experience for businesses and individuals. This platform was successfully rolled out during the second quarter.

“We also developed a re-entry plan. Our approach will be unique to each of our offices to keep customers and associates safe, the Bank resilient, support the community and remain responsive to direction from New York State and the Centers for Disease Control. We have proven during the pandemic that we are flexible, can work remotely and have the resiliency and redundancy to maintain services, and we will continue all of this as we move forward. We fully expect and are committed to maintaining remote access for the foreseeable future, and that will result in a less dense workplace and flexibility should the situation turn negative again. We were thoughtful going in at the start of this pandemic and are being thoughtful as we proceed.

“I am pleased that we were able to deliver strong net income and pre-tax pre-provision income in the quarter, despite headwinds. Our diversified revenue contributed to this outcome, as well as our efforts in helping existing and new customers obtain nearly $270 million of PPP loans in the quarter. The stability of our markets is also a strength for us in these challenging times.

“We believe our loan loss reserves, combined with strong levels of capital and liquidity, position us well to continue to deliver services to our customers in these unprecedented times. However, much uncertainty remains because of COVID-19 and the future impact it may have on the economy. We will pay close attention to conditions across our markets, the United States and the global economy to address any deterioration promptly.”

During the second quarter of 2020, Five Star Bank completed the multi-phase launch of a new online and mobile platform — Five Star Bank Digital Banking. The new platform provides a single dashboard to make payments and deposits, transfer and send money, create budgets, set financial goals and easily integrate external investment, loan and other transactional accounts. Consumers can access a comprehensive financial tool to do all their banking from home, and business owners and employees who may be working remotely can also access powerful financial tools to assist with daily finances.

The Company’s enterprise standardization program is focused on improving operational efficiency and enhancing future profitability. On July 17, 2020, in connection with the program, Five Star Bank announced changes to adapt to a full-service branch model to streamline retail branches to better align with shifting customer needs and preferences. The transformation will result in six branch closures and a reduction in staffing.

The announcement was the result of a nine-month comprehensive assessment of all lines of business and functional areas, conducted in partnership with a leading process improvement organization. The data-driven analysis identified, among other things, overlapping service areas, automation opportunities and streamlining of processes and operations that would enhance customer experiences and facilitate the long-term sustainability of current and future branches.

The announced consolidations represent about ten percent of the branch network and impact approximately six percent of the total workforce. Where possible, those impacted were offered alternative roles or the opportunity to apply for open positions in other areas of the company. Separated associates will receive a comprehensive severance package based on tenure.

The enterprise standardization program has only partially concluded as we continue to evaluate activities and functions across the organization, focusing on ways to improve operational efficiency while enhancing the employee and customer experience.

Net interest income was $34.2 million for the quarter, an increase of $1.1 million from the first quarter of 2020 and $1.7 million higher than the second quarter of 2019.

Noninterest income was $9.8 million for the quarter compared to $10.0 million in the first quarter of 2020 and $9.2 million in the second quarter of 2019.

Noninterest expense was $26.7 million in the quarter compared to $27.7 million in the first quarter of 2020 and $25.0 million in the second quarter of 2019.

Income tax expense was $2.4 million for the quarter compared to $322 thousand for the first quarter of 2020 and $2.9 million for the second quarter of 2019. The effective tax rate was 18.0% for the quarter compared to 22.2% for the first quarter of 2020 and 20.5% for the second quarter of 2019. The Company’s 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.

Total assets were $4.68 billion at June 30, 2020, up $209.2 million from March 31, 2020, and up $367.0 million from June 30, 2019.

Investment securities were $779.3 million at June 30, 2020, down $11.8 million from March 31, 2020, and down $25.8 million from June 30, 2019. The Company’s 2020 investment strategy has been to reinvest cash flow from the portfolio; however, the Bank experienced notable municipal maturities and a slight increase in prepayment behavior during the quarter which limited full reinvestment, resulting in a decline in total investment securities during the quarter. The remaining decrease from June 30, 2019, was primarily the result of the redeployment of assets from investment securities into loans to improve the interest-earning asset mix.

Total loans were $3.49 billion at June 30, 2020, up $248.6 million, or 7.7%, from March 31, 2020, and up $334.1 million, or 10.6%, from June 30, 2019. Second quarter closings of PPP loans totaled $268.5 million. The loans carry a 1% interest rate and the Company recorded net PPP loan origination fees of approximately $7.7 million which are being amortized over a 24-month period.

Total deposits were $3.99 billion at June 30, 2020, $206.8 million higher than March 31, 2020, and $522.0 million higher than June 30, 2019. The increase from March 31, 2020, was driven by growth in non-public demand and savings, partially offset by a decrease in public deposits due to the seasonality of municipal deposits. Growth in non-public deposits was in part attributable to PPP loan proceeds received by customers. The increase from June 30, 2019 was driven by growth in non-public deposits and the reciprocal deposit portfolio. Public deposit balances represented 23% of total deposits at June 30, 2020, compared to 27% of total deposits at March 31, 2020, and 26% at June 30, 2019.

Short-term borrowings were $105.3 million at June 30, 2020, a decrease of $4.2 million from March 31, 2020 and a decrease of $203.2 million from June 30, 2019. The lower level of short-term borrowings at June 30, 2020, is attributable to growth in non-public deposits, reducing the need to utilize short-term borrowings as a funding source. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits, which reached a seasonal low point during the second quarter. In February 2020, the Company entered a long-term brokered sweep arrangement as a stable alternative borrowing source to diversify the wholesale borrowing base.

Shareholders’ equity was $448.0 million at June 30, 2020, compared to $439.4 million at March 31, 2020, and $422.4 million at June 30, 2019. Common book value per share was $26.86 at June 30, 2020, an increase of $0.51 or 1.9% from $26.35 at March 31, 2020, and an increase of $1.54 or 6.1% from $25.32 at June 30, 2019. Tangible common book value per share⁽¹⁾ was $22.22 at June 30, 2020, an increase of $0.53 or 2.4% from $21.69 at March 31, 2020, and an increase of $1.62 or 7.9% from $20.60 at June 30, 2019.

During the second quarter of 2020, the Company declared a common stock dividend of $0.26 per common share. The dividend returned 39% of second quarter net income to common shareholders.

The Company’s regulatory capital ratios at June 30, 2020, compared to the prior quarter and prior year:

Non-performing loans were $13.2 million at June 30, 2020, compared to $12.4 million at March 31, 2020, and $11.5 million at June 30, 2019. Net charge-offs were $786 thousand in the quarter, $9.4 million lower than the first quarter of 2020 and $461 thousand lower than the second quarter of 2019. The decrease from the first quarter of 2020 is primarily attributable to one commercial credit that was partially charged-off during the first quarter of 2020. The borrower’s business was related to the hospitality industry and the charge-off was precipitated by the impact of COVID-19. The ratio of annualized net charge-offs to total average loans was 0.09% in the quarter, 1.27% in the first quarter of 2020 and 0.16% in the second quarter of 2019.

The Company adopted CECL effective January 1, 2020, which resulted in an increase to the allowance for credit losses - loans of $9.6 million and established a reserve for unfunded commitments of $2.1 million, for a total pre-tax cumulative effect adjustment of $11.7 million.

At June 30, 2020, the allowance for credit losses - loans to total loans ratio was 1.33% compared to 1.34% at March 31, 2020, and 1.09% at June 30, 2019. The PPP loans are fully guaranteed by the Small Business Administration. Excluding PPP loans, the allowance for credit losses – loans to total loans ratio was 1.44% at June 30, 2020. The provision for credit losses was $3.7 million in the quarter compared to $13.9 million in the first quarter of 2020 and $2.4 million in the second quarter of 2019. Higher provisioning in 2020 reflects higher charge-offs in the first quarter of 2020 and deterioration in the economic environment as a result of the impact of COVID-19, which adversely impacted our unemployment forecast, the designated loss driver for our CECL model.

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 0.38% at June 30, 2020, unchanged from March 31, 2020, and two basis points higher than 0.36% at June 30, 2019. The ratio of allowance for credit losses on loans to non-performing loans was 351% at June 30, 2020, compared to 350% at March 31, 2020, and 300% at June 30, 2019.

The Company will host an earnings conference call and audio webcast on July 30, 2020, at 8:30 a.m. Eastern Time. The call will be hosted by Martin K. Birmingham, President and Chief Executive Officer, and Justin K. Bigham, Chief Financial Officer. The live webcast will be available in listen-only mode on the Company’s 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 Company’s website for at least 30 days.

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 50 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 650 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.

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.

This press release may contain forward-looking statements as defined by Section 21E 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 Company’s customers, business, and results of operations as well as the economy in Western New York and the United States, the Company’s 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 Company’s customers, the Company’s ability to successfully integrate and profitably operate SDN, Courier Capital, HNP Capital and other acquisitions, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and the Company’s 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 Company’s Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and 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 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)

	2020						2019
	June 30,			March 31,			December 31,			September 30,			June 30,
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents	$	119,610		$	152,168		$	112,947		$	136,815		$	108,988
Investment securities:
Available for sale		469,413			444,845			417,917			395,441			406,509
Held-to-maturity, net		309,872			346,239			359,000			386,305			398,610
Total investment securities		779,285			791,084			776,917			781,746			805,119
Loans held for sale		6,654			3,822			4,224			6,398			2,045
Loans:
Commercial business		818,691			588,868			572,040			574,455			594,923
Commercial mortgage		1,140,326			1,107,376			1,106,283			1,035,450			1,010,071
Residential real estate loans		585,035			579,800			572,350			558,656			546,031
Residential real estate lines		97,427			102,113			104,118			107,615			108,006
Consumer indirect		828,105			843,668			850,052			863,614			876,116
Other consumer		16,237			15,402			16,144			16,630			16,537
Total loans		3,485,821			3,237,227			3,220,987			3,156,420			3,151,684
Allowance for credit losses - loans		46,316			43,356			30,482			31,668			34,434
Total loans, net		3,439,505			3,193,871			3,190,505			3,124,752			3,117,250
Total interest-earning assets		4,314,490			4,116,688			4,058,107			3,979,493			4,007,797
Goodwill and other intangible assets, net		74,342			74,629			74,923			75,225			75,534
Total assets		4,680,930			4,471,768			4,384,178			4,332,737			4,313,945
Deposits:
Noninterest-bearing demand		1,008,958			732,917			707,752			755,296			719,150
Interest-bearing demand		727,676			724,670			627,842			707,153			677,846
Savings and money market		1,368,805			1,270,253			1,039,892			1,011,873			966,509
Time deposits		888,569			1,059,345			1,180,189			1,111,892			1,108,484
Total deposits		3,994,008			3,787,185			3,555,675			3,586,214			3,471,989
Short-term borrowings		105,300			109,500			275,500			211,400			308,500
Long-term borrowings, net		39,308			39,291			39,273			39,255			39,237
Total interest-bearing liabilities		3,129,658			3,203,059			3,162,696			3,081,573			3,100,576
Shareholders’ equity		448,045			439,393			438,947			432,617			422,354
Common shareholders’ equity		430,717			422,065			421,619			415,289			405,026
Tangible common equity ⁽¹⁾		356,375			347,436			346,696			340,064			329,492
Accumulated other comprehensive loss	$	(496	)	$	(2,082	)	$	(14,513	)	$	(11,734	)	$	(13,160	)

Common shares outstanding		16,038			16,020			16,003			15,997			15,995
Treasury shares		62			80			97			103			105
CAPITAL RATIOS AND PER SHARE DATA:
Leverage ratio		8.49	%		8.78	%		9.00	%		8.86	%		8.55	%
Common equity Tier 1 capital ratio		10.27	%		10.05	%		10.31	%		10.06	%		9.95	%
Tier 1 capital ratio		10.76	%		10.53	%		10.80	%		10.55	%		10.45	%
Total risk-based capital ratio		12.83	%		12.54	%		12.77	%		12.57	%		12.57	%
Common equity to assets		9.20	%		9.44	%		9.62	%		9.58	%		9.39	%
Tangible common equity to tangible assets ⁽¹⁾		7.74	%		7.90	%		8.05	%		7.99	%		7.77	%

Common book value per share	$	26.86		$	26.35		$	26.35		$	25.96		$	25.32
Tangible common book value per share ⁽¹⁾	$	22.22		$	21.69		$	21.66		$	21.26		$	20.60

⁽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)

	Six Months Ended						2020						2019
	June 30,						Second			First			Fourth			Third			Second
	2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter
SELECTED INCOME STATEMENT
DATA:
Interest income	$	81,412		$	84,162		$	39,759		$	41,653		$	42,179		$	42,459		$	42,648
Interest expense		14,107			19,906			5,578			8,529			9,006			9,976			10,184
Net interest income		67,305			64,256			34,181			33,124			33,173			32,483			32,464
Provision for credit losses		17,661			3,547			3,746			13,915			2,653			1,844			2,354
Net interest income after provision for credit losses		49,644			60,709			30,435			19,209			30,520			30,639			30,110
Noninterest income:
Service charges on deposits		2,067			3,436			480			1,587			1,880			1,925			1,756
Insurance income		2,168			2,250			819			1,349			881			1,439			872
ATM and debit card		3,378			3,182			1,776			1,602			1,796			1,801			1,739
Investment advisory		4,497			4,543			2,251			2,246			2,375			2,269			2,327
Company owned life insurance		927			834			462			465			465			459			424
Investments in limited partnerships		(31	)		376			(244	)		213			(140	)		116			144
Loan servicing		57			214			50			7			116			102			104
Income (loss) from derivative
instruments, net		2,686			123			1,940			746			1,261			890			(45	)
Net gain on sale of loans held for sale		1,035			589			731			304			324			439			407
Net gain (loss) on investment securities		895			113			674			221			(44	)		1,608			166
Net gain (loss) on other assets		63			58			(1	)		64			(27	)		(2	)		9
Net loss on tax credit investments		(80	)		-			(40	)		(40	)		(528	)		-			-
Other		2,132			2,635			934			1,198			1,308			1,315			1,330
Total noninterest income		19,794			18,353			9,832			9,962			9,667			12,361			9,233
Noninterest expense:
Salaries and employee benefits		30,088			27,250			15,074			15,014			14,669			14,411			13,249
Occupancy and equipment ⁽¹⁾		7,144			6,725			3,388			3,756			3,446			3,381			3,252
Professional services		3,732			2,090			1,580			2,152			1,806			1,528			932
Computer and data processing ⁽¹⁾		5,372			4,760			2,699			2,673			2,576			2,647			2,424
Supplies and postage		1,070			1,032			517			553			482			522			498
FDIC assessments		911			998			539			372			-			7			486
Advertising and promotions		1,100			1,606			545			555			1,226			745			1,086
Amortization of intangibles		581			639			287			294			302			309			316
Other		4,418			5,074			2,065			2,353			2,261			2,336			2,760
Total noninterest expense		54,416			50,174			26,694			27,722			26,768			25,886			25,003
Income before income taxes		15,022			28,888			13,573			1,449			13,419			17,114			14,340
Income tax expense		2,763			5,966			2,441			322			312			4,281			2,939
Net income		12,259			22,922			11,132			1,127			13,107			12,833			11,401
Preferred stock dividends		731			731			366			365			365			365			366
Net income available to common
shareholders	$	11,528		$	22,191		$	10,766		$	762		$	12,742		$	12,468		$	11,035
FINANCIAL RATIOS:
Earnings per share – basic	$	0.72		$	1.39		$	0.67		$	0.05		$	0.80		$	0.78		$	0.69
Earnings per share – diluted	$	0.72		$	1.39		$	0.67		$	0.05		$	0.79		$	0.78		$	0.69
Cash dividends declared on common stock	$	0.52		$	0.50		$	0.26		$	0.26		$	0.25		$	0.25		$	0.25
Common dividend payout ratio		72.22	%		35.97	%		38.81	%		520.00	%		31.25	%		32.05	%		36.23	%
Dividend yield (annualized)		5.62	%		3.46	%		5.60	%		5.76	%		3.09	%		3.29	%		3.44	%
Return on average assets		0.55	%		1.08	%		0.97	%		0.10	%		1.21	%		1.19	%		1.06	%
Return on average equity		5.56	%		11.32	%		10.05	%		1.03	%		11.88	%		11.86	%		11.01	%
Return on average common equity		5.44	%		11.45	%		10.11	%		0.72	%		12.02	%		12.00	%		11.12	%
Return on average tangible common
equity ⁽²⁾		6.60	%		14.21	%		12.25	%		0.88	%		14.64	%		14.69	%		13.73	%
Efficiency ratio ⁽³⁾		62.78	%		60.39	%		61.26	%		64.31	%		62.05	%		59.52	%		59.79	%
Effective tax rate		18.4	%		20.7	%		18.0	%		22.2	%		2.3	%		25.0	%		20.5	%

	Six Months Ended						2020						2019
	June 30,						Second			First			Fourth			Third			Second
	2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter
SELECTED AVERAGE BALANCES:
Federal funds sold and interest- earning deposits	$	75,761		$	18,050		$	92,214		$	59,309		$	32,494		$	19,370		$	18,145
Investment securities ⁽¹⁾		773,265			866,138			766,636			779,894			774,520			785,595			845,624
Loans:
Commercial business		664,237			562,618			757,588			570,886			567,998			586,293			577,884
Commercial mortgage		1,117,247			994,271			1,133,832			1,100,660			1,073,527			1,021,931			1,010,544
Residential real estate loans		580,029			534,986			581,651			578,407			566,256			553,382			540,390
Residential real estate lines		101,111			108,673			99,543			102,680			106,011			107,290			107,826
Consumer indirect		836,915			901,556			827,030			846,800			856,823			868,927			891,967
Other consumer		15,310			15,972			15,155			15,466			16,100			16,141			15,721
Total loans		3,314,849			3,118,076			3,414,799			3,214,899			3,186,715			3,153,964			3,144,332
Total interest-earning assets		4,163,875			4,002,264			4,273,649			4,054,102			3,993,729			3,958,929			4,008,101
Goodwill and other intangible assets, net		74,651			75,871			74,504			74,797			75,093			75,401			75,711
Total assets		4,500,243			4,291,670			4,624,360			4,376,125			4,299,342			4,260,810			4,300,254
Interest-bearing liabilities:
Interest-bearing demand		689,917			664,577			712,300			667,533			660,738			632,540			660,747
Savings and money market		1,236,630			981,439			1,329,632			1,143,628			1,014,434			956,410			996,878
Time deposits		1,050,784			1,086,670			984,832			1,116,736			1,120,823			1,099,212			1,096,544
Short-term borrowings		140,049			334,939			110,272			169,827			241,557			328,952			323,461
Long-term borrowings, net		39,288			39,218			39,297			39,279			39,262			39,244			39,227
Total interest-bearing liabilities		3,156,668			3,106,843			3,176,333			3,137,003			3,076,814			3,056,358			3,116,857
Noninterest-bearing demand deposits		817,106			720,727			912,238			721,975			725,590			717,473			714,205
Total deposits		3,794,437			3,453,413			3,939,002			3,649,872			3,521,585			3,405,635			3,468,374
Total liabilities		4,056,915			3,883,446			4,178,921			3,934,909			3,861,542			3,831,409			3,884,843
Shareholders’ equity		443,328			408,224			445,439			441,216			437,800			429,401			415,411
Common equity		426,000			390,896			428,111			423,888			420,472			412,073			398,083
Tangible common equity ⁽²⁾	$	351,349		$	315,025		$	353,607		$	349,091		$	345,379		$	336,672		$	322,372
Common shares outstanding:
Basic		16,012			15,950			16,018			16,006			15,995			15,991			15,970
Diluted		16,058			15,997			16,047			16,069			16,072			16,056			16,015
SELECTED AVERAGE YIELDS: (Tax equivalent basis)
Investment securities		2.48	%		2.38	%		2.49	%		2.48	%		2.40	%		2.40	%		2.38	%
Loans		4.37	%		4.80	%		4.14	%		4.61	%		4.70	%		4.77	%		4.82	%
Total interest-earning assets		3.95	%		4.26	%		3.76	%		4.15	%		4.22	%		4.29	%		4.29	%
Interest-bearing demand		0.17	%		0.21	%		0.14	%		0.21	%		0.21	%		0.22	%		0.21	%
Savings and money market		0.43	%		0.43	%		0.31	%		0.56	%		0.48	%		0.44	%		0.44	%
Time deposits		1.62	%		2.12	%		1.39	%		1.83	%		1.94	%		2.12	%		2.17	%
Short-term borrowings		1.69	%		2.71	%		1.03	%		2.11	%		2.21	%		2.51	%		2.71	%
Long-term borrowings, net		6.29	%		6.30	%		6.29	%		6.29	%		6.29	%		6.30	%		6.30	%
Total interest-bearing liabilities		0.90	%		1.29	%		0.71	%		1.09	%		1.16	%		1.30	%		1.31	%
Net interest rate spread		3.05	%		2.97	%		3.05	%		3.06	%		3.06	%		2.99	%		2.98	%
Net interest margin		3.27	%		3.26	%		3.23	%		3.31	%		3.33	%		3.29	%		3.28	%

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

	Six Months Ended						2020						2019
	June 30,						Second			First			Fourth			Third			Second
	2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter
ASSET QUALITY DATA:
Allowance for Credit Losses - Loans
Beginning balance, prior to adoption of CECL	$	30,482		$	33,914		$	43,356		$	30,482		$	31,668		$	34,434		$	33,327
Impact of adopting CECL		9,594			-			-			9,594			-			-			-
Beginning balance, after adoption of CECL		40,076			33,914			43,356			40,076			31,668			34,434			33,327
Net loan charge-offs (recoveries):
Commercial business		6,725			37			(1,458	)		8,183			1,942			10			10
Commercial mortgage		1,072			(14	)		1,072			-			-			2,994			3
Residential real estate loans		82			101			(6	)		88			156			40			76
Residential real estate lines		(3	)		(3	)		-			(3	)		3			7			(1	)
Consumer indirect		2,931			2,580			1,175			1,756			1,523			1,317			1,022
Other consumer		122			326			3			119			215			242			137
Total net charge-offs		10,929			3,027			786			10,143			3,839			4,610			1,247
Provision for credit losses - loans		17,169			3,547			3,746			13,423			2,653			1,844			2,354
Ending balance	$	46,316		$	34,434		$	46,316		$	43,356		$	30,482		$	31,668		$	34,434

Net charge-offs (recoveries) to average loans (annualized):
Commercial business		2.04	%		0.01	%		-0.77	%		5.77	%		1.36	%		0.01	%		0.01	%
Commercial mortgage		0.19	%		0.00	%		0.38	%		0.00	%		0.00	%		1.16	%		0.00	%
Residential real estate loans		0.03	%		0.04	%		0.00	%		0.06	%		0.11	%		0.03	%		0.06	%
Residential real estate lines		-0.01	%		-0.01	%		0.00	%		-0.01	%		0.01	%		0.03	%		-0.01	%
Consumer indirect		0.70	%		0.58	%		0.57	%		0.83	%		0.71	%		0.60	%		0.46	%
Other consumer		1.60	%		4.12	%		0.08	%		3.09	%		5.30	%		5.93	%		3.51	%
Total loans		0.66	%		0.20	%		0.09	%		1.27	%		0.48	%		0.58	%		0.16	%

Supplemental information ⁽¹⁾
Non-performing loans:
Commercial business	$	4,918		$	638		$	4,918		$	5,507		$	1,177		$	2,884		$	638
Commercial mortgage		4,140			6,836			4,140			2,984			3,146			2,867			6,836
Residential real estate loans		2,992			2,283			2,992			1,971			2,484			2,526			2,283
Residential real estate lines		177			282			177			143			102			182			282
Consumer indirect		868			1,399			868			1,777			1,725			1,326			1,399
Other consumer		87			25			87			2			6			3			25
Total non-performing loans		13,182			11,463			13,182			12,384			8,640			9,788			11,463
Foreclosed assets		679			37			679			749			468			91			37
Total non-performing assets	$	13,861		$	11,500		$	13,861		$	13,133		$	9,108		$	9,879		$	11,500

Total non-performing loans to total loans		0.38	%		0.36	%		0.38	%		0.38	%		0.27	%		0.31	%		0.36	%
Total non-performing assets to total assets		0.30	%		0.27	%		0.30	%		0.29	%		0.21	%		0.23	%		0.27	%
Allowance for credit losses - loans to total loans		1.33	%		1.09	%		1.33	%		1.34	%		0.95	%		1.00	%		1.09	%
Allowance for credit losses - loans to non-performing loans		351	%		300	%		351	%		350	%		353	%		324	%		300	%

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

	Six Months Ended						2020						2019
	June 30,						Second			First			Fourth			Third			Second
	2020			2019			Quarter			Quarter			Quarter			Quarter			Quarter
Ending tangible assets:
Total assets							$	4,680,930		$	4,471,768		$	4,384,178		$	4,332,737		$	4,313,945
Less: Goodwill and other intangible assets, net								74,342			74,629			74,923			75,225			75,534
Tangible assets							$	4,606,588		$	4,397,139		$	4,309,255		$	4,257,512		$	4,238,411

Ending tangible common equity:
Common shareholders’ equity							$	430,717		$	422,065		$	421,619		$	415,289		$	405,026
Less: Goodwill and other intangible assets, net								74,342			74,629			74,923			75,225			75,534
Tangible common equity							$	356,375		$	347,436		$	346,696		$	340,064		$	329,492

Tangible common equity to tangible assets ⁽¹⁾								7.74	%		7.90	%		8.05	%		7.99	%		7.77	%

Common shares outstanding								16,038			16,020			16,003			15,997			15,995
Tangible common book value per share ⁽²⁾							$	22.22		$	21.69		$	21.66		$	21.26		$	20.60

Average tangible assets:
Average assets	$	4,500,243		$	4,291,670		$	4,624,360		$	4,376,125		$	4,299,342		$	4,260,810		$	4,300,254
Less: Average goodwill and other intangible assets, net		74,651			75,871			74,504			74,797			75,093			75,401			75,711
Average tangible assets	$	4,425,592		$	4,215,799		$	4,549,856		$	4,301,328		$	4,224,249		$	4,185,409		$	4,224,543

Average tangible common equity:
Average common equity	$	426,000		$	390,896		$	428,111		$	423,888		$	420,472		$	412,073		$	398,083
Less: Average goodwill and other intangible assets, net		74,651			75,871			74,504			74,797			75,093			75,401			75,711
Average tangible common equity	$	351,349		$	315,025		$	353,607		$	349,091		$	345,379		$	336,672		$	322,372

Net income available to common shareholders	$	11,528		$	22,191		$	10,766		$	762		$	12,742		$	12,468		$	11,035
Return on average tangible common equity ⁽³⁾		6.60	%		14.21	%		12.25	%		0.88	%		14.64	%		14.69	%		13.73	%

Pre-tax pre-provision income:
Net income	$	12,259		$	22,922		$	11,132		$	1,127		$	13,107		$	12,833		$	11,401
Add: Income tax expense		2,763			5,966			2,441			322			312			4,281			2,939
Add: Provision for credit losses		17,661			3,547			3,746			13,915			2,653			1,844			2,354
Pre-tax pre-provision income	$	32,683		$	32,435		$	17,319		$	15,364		$	16,072		$	18,958		$	16,694