FINANCIAL INSTITUTIONS INC

FORWARD LOOKING INFORMATION

Statements and financial analysis contained in this Annual Report on Form 10-K that are based on other than historical data are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

•

statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations, and performance of Financial Institutions, Inc. (the “Parent” or “FII”) and its subsidiaries (collectively, the “Company,” “we,” “our,” or “us”); and

•

preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “projects” or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this Annual Report on Form 10-K, including, but not limited to, those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such material differences include, but are not limited to:

Credit Risks and Risks Related to Banking Activities

•

If we experience greater credit losses than anticipated, earnings may be adversely impacted;

•

We are subject to risks and losses resulting from fraudulent activities that could adversely impact our financial performance and results of operations;

•

Geographic concentration in our loan portfolio may unfavorably impact our operations;

•

Our commercial business and commercial mortgage loans increase our exposure to credit risks;

•

If our non-performing assets increase, our earnings will be adversely affected;

•

If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected;

•

Our indirect and consumer lending involves risk elements in addition to normal credit risk;

•

Lack of seasoning in portions of our loan portfolio could increase risk of credit defaults in the future;

•

We accept deposits that do not have a fixed term, and which may be withdrawn by the customer at any time for any reason;

•

Municipal deposits are price sensitive and could result in an increase in interest expense or funding fluctuations;

•

We are subject to environmental liability risk associated with our lending activities; and

•

We operate in a highly competitive industry and market area.

Legal and Regulatory Risks

•

Legal and regulatory proceedings and related matters, such as the action brought by a class of consumers against us as described in Part I, Item 3, “Legal Proceedings,” could adversely affect us and the banking industry in general;

•

Any future Federal Deposit Insurance Corporation (“FDIC”) insurance premium increases may adversely affect our earnings;

•

We are highly regulated, and any adverse regulatory action may result in additional costs, loss of business opportunities, and reputational damage;

•

Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act (“BSA”), Office of Foreign Asset Control (“OFAC”) sanction regulations, or other applicable state and federal laws could subject us to fines, penalties, or other regulatory actions;

•

We are subject to the Community Reinvestment Act (the “CRA”) and fair lending laws, and failure to comply with these laws could lead to material penalties;

•

The policies of the Federal Reserve Board have a significant impact on our earnings; and

•

We offer financial services to a limited number of New York State-licensed cannabis businesses under New York State’s regulatory framework, with supporting policy and procedures, enhanced due diligence, monitoring, and required regulatory reporting. While federal law continues to classify cannabis as illegal, the risk of strict federal enforcement remains uncertain. Any significant change in federal enforcement posture could affect our ability to continue services these customers and could increase our legal, regulatory, or compliance-related obligations.

Risks Related to Non-Banking Activities

•

Our investment advisory and wealth management operations are subject to risk related to the regulation of the financial services industry and market volatility.

• 3 -

Strategic and Operational Risks

•

We make certain assumptions and estimates in preparing our financial statements that may prove to be incorrect, which could significantly impact our results of operations, cash flows and financial condition, and we are subject to new or changing accounting rules and interpretations, and the failure by us to correctly interpret or apply these evolving rules and interpretations could have a material adverse effect;

•

The value of our goodwill and other intangible assets may decline in the future;

•

We may be unable to successfully implement our growth strategies, including the integration and successful management of newly acquired businesses;

•

Acquisitions may disrupt our business and dilute shareholder value;

•

Our tax strategies and the value of our deferred tax assets and liabilities could adversely affect our operating results and regulatory capital ratios;

•

Liquidity is essential to our businesses;

•

We rely on dividends from our subsidiaries for most of our revenue; and

•

If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.

Market Risks

•

We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments;

•

The soundness of other financial institutions could adversely affect us; and

•

We may need to raise additional capital in the future, and such capital may not be available on acceptable terms or at all.

Technology and Cybersecurity Risks

•

Emerging technology, including cloud computing and artificial intelligence (“AI”), introduces new risks while possibly being essential to support business strategy;

•

We rely on third parties to provide critical business services and protect the confidentiality, integrity, and availability of confidential data;

•

We, or our service providers, may experience a cyber-attack, system failure, natural disaster, or other uncontrollable event that may disrupt business operations; and

•

We are subject to evolving laws and regulations relating to cybersecurity protection and data privacy, and failure to comply could expose us to regulatory liability, reputational risk and financial risk.

Risks Related to our Common Stock

•

We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions;

•

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could dilute our current shareholders or negatively affect the value of our common stock;

•

Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect; and

•

The market price of our common stock may fluctuate significantly in response to a number of factors.

General Risk Factors

•

We may not be able to attract and retain skilled people;

•

Loss of key employees may disrupt relationships with certain customers;

•

We use financial models for business planning purposes that may not adequately predict future results;

•

We depend on the accuracy and completeness of information about or from customers and counterparties;

•

Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict;

•

Severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could significantly impact our business;

•

Negative public opinion could damage our reputation and impact business operations and revenues; and

•

Environmental, social and governance matters, and any related reporting obligations may impact our business.

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K for further information. Except as required by law, we do not undertake and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

• 4 -