About Financial Institutions

Financial Institutions, Inc. operates as the financial holding company for Five Star Bank that provides a range of banking services to consumer, commercial and municipal customers in Western and Central New York. The bank offers deposit products, which include checking and NOW accounts, savings accounts, and certificates of deposit, as its principal source of funding. The bank’s deposits are insured up to the maximum permitted by the Bank Insurance Fund (the Insurance Fund) of the Federal Deposit Insurance Corporation (FDIC). The bank offers a variety of loan products to its customers, including commercial and consumer loans. In February 2022, the company opened a commercial loan production office in Ellicott City (Baltimore), Maryland. In January 2023, the company opened a commercial production office in Syracuse, New York, further expanding its footprint to the Mid-Atlantic and Central New York regions. Additionally, the company is focused on the continued expansion of product delivery channels and are investing in its digital banking platform to allow for greater flexibility in the customer experience. The company’s BaaS and FinTech relationships offer BaaS to financial technology firms and other non-bank financial service providers, allowing them to provide banking services to their clients. The company’s five direct wholly-owned subsidiaries include the bank, which provides a full range of banking services to consumer, commercial and municipal customers in Western and Central New York; SDN, which sells various premium-based insurance policies on a commission basis to commercial and consumer customers; Courier Capital and HNP Capital, which both provide customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans; CHIL, which oversees the company’s banking-as-a-Service (BaaS) and financial technology (FinTech) relationships. SDN Insurance Agency, LLC (SDN) SDN is a full-service insurance agency. It offers personal, commercial and financial services products. Most lines of personal insurance are provided, including automobile, homeowners, boat, recreational vehicle, landlord and umbrella coverage. Commercial insurance products are also provided, consisting of property, liability, automobile, inland marine, workers compensation, bonds, crop and umbrella insurance. SDN also provides the following financial services products, such as life and disability insurance, Medicare supplements, long-term care, annuities, mutual funds, retirement programs and New York State disability. Courier Capital, LLC (Courier Capital) Courier Capital is an SEC-registered investment advisory and wealth management firm with offices in Buffalo and Jamestown. Courier Capital offers customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses and institutions. HNP Capital, LLC (HNP Capital) HNP Capital is an SEC (the Securities and Exchange Commission)-registered investment advisory and wealth management firm with offices in Rochester, New York. HNP Capital offers customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses and institutions. Corn Hill Innovation Labs, LLC (CHIL) CHIL was initially established to manage a joint venture with Alloy Labs Alliance, a group of innovative community banks, to launch CHUCK, an open network for peer-to-peer payments for consumers and small businesses. CHIL’s scope has since expanded to oversee the company’s BaaS and FinTech relationships. CHIL is based in Western New York, with its main office in Rochester, New York. Five Star REIT, Inc.(Five Star REIT) Five Star REIT, Inc., a wholly owned subsidiary of the bank, operates as a real estate investment trust that holds residential mortgages and commercial real estate loans. Five Star REIT provides additional flexibility and planning opportunities for the business of the bank. Lending Activities The company offers a range of loans, including commercial business and revolving lines of credit, commercial mortgages, equipment loans, residential mortgage loans and home equity loans and lines of credit, home improvement loans, automobile loans and personal loans. Newly originated and refinanced fixed rate residential mortgage loans are either retained in its portfolio or sold to the secondary market with servicing rights retained. Commercial Business and Commercial Mortgage Lending The company primarily originates commercial business loans in its market areas and underwrite them based on the borrower’s ability to service the loan from operating income. The company offers a broad range of commercial lending products, including term loans and lines of credit. Short and medium-term commercial loans, primarily collateralized, are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition of real estate, expansion and improvements) and the purchase of equipment. The company offers commercial business loans to customers in the agricultural industry for short-term crop production, farm equipment and livestock financing. The company also offers commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures. Commercial mortgage loans are secured by first liens on the real estate and are typically amortized over a 10 to 20-year period. The company utilizes government loan guarantee programs when available and appropriate. Government Guarantee Programs The company participates in other government loan guarantee programs offered by the Small Business Administration (SBA), the U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. Residential Real Estate Lending The company originates fixed and variable rate one-to-four family residential mortgages collateralized by owner-occupied properties located in its market areas. The company offers a variety of real estate loan products, including home improvement loans, closed-end home equity loans, and home equity lines of credit, which are generally amortized over periods of up to 30 years. Loans collateralized by one-to-four family residential real estate generally have been originated in amounts of no more than 80% of appraised value or have mortgage insurance. The company sells certain one-to-four family residential mortgages to the secondary mortgage market and typically retain the right to service the mortgages. The residential real estate lines portfolio primarily consists of variable rate lines. Consumer Lending The company offers a variety of loan products to its consumer customers, including automobile loans, secured installment loans and other types of secured and unsecured personal loans. The company originates indirect consumer loans for a mix of new and used vehicles through franchised new car dealers. The consumer indirect loan portfolio is primarily includes loans with terms that typically range from 36 to 84 months. The company has developed relationships with franchised new car dealers in Western, Central and the Capital District of New York, and Northern and Central Pennsylvania. The company also originates, independently of the indirect loans described above, consumer automobile loans, recreational vehicle loans, boat loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans. The terms of these loans typically range from 12 to 60 months and vary based upon the nature of the collateral and the size of loan. Deposits The company maintains a range of deposit products and accounts to meet the needs of the residents and businesses in its primary service area. Products include an array of checking and savings account programs for individuals and businesses, including money market accounts, certificates of deposit, and sweep investment capabilities, as well as Individual Retirement Accounts and other qualified plan accounts. It offers a choice of various delivery systems and channels, including telephone, mail, online, automated teller machines (ATMs), debit cards, point-of-sale transactions, automated clearing house transactions (ACH), remote deposit, and mobile banking through telephone or wireless devices. Investment Portfolio As of December 31, 2022, the company’s investment portfolio included the U.S. government agency and government-sponsored enterprise (GSE) securities; and mortgage-backed securities, such as agency and non-agency mortgage-backed securities. Market Area The company provides a wide range of banking and financial services to individuals, municipalities and businesses through a network of offices and an extensive ATM network throughout Western and Central New York. The region includes the counties of Allegany, Cattaraugus, Cayuga, Chautauqua, Chemung, Erie, Genesee, Livingston, Monroe, Ontario, Orleans, Schuyler, Seneca, Steuben, Wayne, Wyoming and Yates. The company’s banking activities, though concentrated in the communities where it maintains branches, also extend into neighboring counties. In addition, the company’s consumer indirect lending presence includes the Capital District of New York and Northern and Central Pennsylvania, and it has commercial loan production offices in Baltimore, Maryland and Syracuse, New York, serving the Mid-Atlantic and Central New York regions. Business Strategy The company’s business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking and other financial services needs of individuals, municipalities and businesses of the communities surrounding its primary service area. Customers The company’s core customers are primarily small- to medium-sized businesses, individuals and community organizations who prefer to build banking, insurance and wealth management relationships with a community bank that offers high quality, competitively-priced products and services with personalized service. Supervision and Regulation The company is subject to comprehensive regulation by the Board of Governors of the Federal Reserve System, frequently referred to as the Federal Reserve Board (FRB or Federal Reserve), under the Bank Holding Company Act (the BHC Act), as amended by, among other laws, the Gramm-Leach-Bliley Act of 1999 (the Gramm-Leach-Bliley Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The bank is subject to regulation by the Federal Deposit Insurance Corporation (FDIC). The company, the bank, Five Star REIT, SDN, Courier Capital, HNP Capital and CHIL are affiliates within the meaning of the Federal Reserve Act. In addition to the laws and regulations discussed herein, the bank is subject to certain consumer federal and state laws and regulations that are designed to protect consumers in transactions with banks. These laws and regulations include, among others, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. Various governmental requirements, including Sections 23A and 23B of the Federal Reserve Act and the FRB’s Regulation W, limit borrowings by the company and its nonbank subsidiaries from the bank, and also limit various other transactions between the company and its nonbank subsidiaries, on the one hand, and the bank, on the other. Courier Capital and HNP Capital are providers of investment consulting and financial planning services and, as such, are each considered an ‘investment adviser’ under the U.S. Investment Advisers Act of 1940, as amended (the Advisers Act). The company is a member of the Federal Home Loan Bank (FHLB) system and the Federal Reserve Bank (FRB) system. Courier Capital and HNP Capital are subject to each of these obligations and, as applicable, restrictions, and are also subject to examination by the SEC’s Office of Compliance, Investigations, and Examinations to assess their overall compliance with the Advisers Act and the effectiveness of their internal controls. History Financial Institutions, Inc. was founded in 1817. The company was incorporated in 1931 under the laws of New York State.