UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-26481
| A. | Full title of the plan and the address of the plan, if different from that of the issuer named below: |
FINANCIAL INSTITUTIONS, INC. 401(k) PLAN
| B. | Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: |
220 Liberty Street
Warsaw, New York, 14569
FINANCIAL INSTITUTIONS, INC.
401(k) PLAN
| INDEX | ||||
| PAGE | ||||
| 3 | ||||
| Financial Statements: |
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| Statements of Net Assets Available for Benefits at December 31, 2017 and 2016 |
4 | |||
| 5 | ||||
| 6 | ||||
| Supplemental Schedule: |
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| Schedule H, Line 4i – Schedule of Assets (Held at End of Year) |
12 | |||
| 13 | ||||
| Exhibits |
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| 23.1 |
Consent of Independent Registered Public Accounting Firm | |||
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and the Plan Administrator of the
Financial Institutions, Inc. 401(k) Plan:
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of Financial Institutions, Inc. 401(k) Plan (the Plan) as of December 31, 2017 and 2016, and the related statements of changes in net assets available for benefits for the years then ended, and the related notes and supplemental schedule (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2017 and 2016, and the changes in net assets available for benefits for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public ac-counting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2017 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ Bonadio & Co., LLP
We have served as the Company’s auditor since 2006.
Amherst, New York
June 18, 2018
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Assets |
||||||||
| Investments at fair value |
$ | 45,806,783 | $ | 42,784,685 | ||||
| Notes receivable from participants |
912,736 | 941,433 | ||||||
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|
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| Net assets available for benefits |
$ | 46,719,519 | $ | 43,726,118 | ||||
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See accompanying notes to financial statements.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
| Years ended December 31, | ||||||||
| 2017 | 2016 | |||||||
| Additions to net assets attributed to: |
||||||||
| Contributions: |
||||||||
| Participant |
$ | 2,490,707 | $ | 2,471,842 | ||||
| Rollovers |
671,006 | 72,486 | ||||||
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|
|
|
|
|||||
| Total contributions |
3,161,713 | 2,544,328 | ||||||
| Interest income on notes receivable from participants |
48,655 | 53,894 | ||||||
| Net appreciation in fair value of investments |
6,353,327 | 3,394,330 | ||||||
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|
|||||
| Total additions |
9,563,695 | 5,992,552 | ||||||
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|
|||||
| Deductions to net assets attributed to: |
||||||||
| Benefits paid to participants |
6,431,834 | 3,783,305 | ||||||
| Administrative expenses |
138,460 | 95,823 | ||||||
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|
|||||
| Total deductions |
6,570,294 | 3,879,128 | ||||||
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|
|||||
| Net increase |
2,993,401 | 2,113,424 | ||||||
| Net assets available for benefits at beginning of year |
43,726,118 | 41,612,694 | ||||||
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|
|||||
| Net assets available for benefits at end of year |
$ | 46,719,519 | $ | 43,726,118 | ||||
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See accompanying notes to financial statements.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(1.) DESCRIPTION OF THE PLAN
The following description of the Financial Institutions, Inc. 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a complete description of the Plan.
General
The Plan was originally established in 1986 and has since been amended. The Plan is a defined contribution plan covering all employees of Financial Institutions, Inc. (the “Company”) and its subsidiaries who have attained the age of 20-1/2.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”) and is administered by the Executive Management Committee of the Company. Charles Schwab Bank (“Schwab”) serves as the Plan’s custodian and trustee. Milliman, Inc. is a party-in-interest of the Plan and serves as record keeper to maintain the individual accounts for each Plan participant.
Contributions
Eligible participants may contribute up to 100% of their pre-tax annual compensation, as defined by the Plan, subject to annual limits established by the Internal Revenue Service (“IRS”). Participants may also contribute rollovers from other qualified plans.
All Plan participants who are older than 50 as of the beginning of the calendar year or who attain age 50 during the calendar year whose elective contributions have reached the IRS limit are permitted under the Plan to make catch-up contributions up to the IRS catch-up contribution limit.
Employees not opting out of participation in the Plan are treated as if they had elected to contribute 3% of their salary with automatic increases to 4% in the third year, 5% in the fourth year and 6% in the fifth and subsequent years.
Until December 31, 2015, for each participant, the Company made contributions to the Plan equal to 100% of the first 3% of the participant’s eligible compensation contributed and 50% of the next 3% of the participant’s eligible compensation contributed. Effective January 1, 2016, the Plan was amended and the Company’s matching contribution was discontinued. The Company may make an additional discretionary matching contribution; however no discretionary contribution was declared for the years ended December 31, 2017 or 2016.
Investment Options
Participants direct the investment of their contributions and the Company’s matching contributions into various investment options offered by the Plan. Investment options currently available include various mutual funds, a common/collective trust fund and common stock of the Company.
Participant Accounts
Each participant’s account is credited with the participant’s and the Company’s contributions and plan earnings/losses and is charged with an allocation of administrative expenses if the Company does not pay those expenses from its own assets. All amounts in participant accounts are participant directed.
Vesting
Participants are vested immediately in their contributions and the earnings/losses thereon. Participants become fully vested in Company contributions after two years of continuous service.
Forfeited Accounts
When certain terminations of participation occur, the nonvested portion of the participant’s account, as defined by the Plan, represents a forfeiture. Such forfeitures are used for payment of Plan administrative expenses or to reduce future employer contributions. Forfeitures used for Plan administrative expenses totaled $47,181 and $44,621 for the years ended December 31, 2017 and 2016, respectively. There were no forfeitures used to reduce employer contributions for the years ended December 31, 2017 and 2016. Accumulated forfeitures available for payment of Plan administrative expenses or to reduce future employer contributions totaled $41,402 and $63,997 as of December 31, 2017 and 2016, respectively.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(1.) DESCRIPTION OF THE PLAN (Continued)
Payment of Benefits
Participants may withdraw all or a portion of their vested balance upon termination of employment due to separation from service, retirement, disability, or death, or upon financial hardship as defined in the Internal Revenue Code (“IRC”). When a participant terminates employment, the participant may elect to receive benefits in a lump-sum distribution or a deferred annuity. If the participant’s vested account balance is $1,000 or less a lump-sum cash payment is made.
Withdrawal of an active employee’s before-tax contributions prior to a participant reaching age 59-1/2 may only be made on account of financial hardship as determined by the Trustee.
Notes Receivable from Participants
The minimum amount participants may borrow from the Plan is $1,000. Participants may borrow from their accounts up to the lesser of $50,000 or 50% of their vested account balance. Note terms must not exceed five years unless the proceeds are to be used for the purchase of a principal residence, in which case the repayment period may not exceed 15 years. The notes are secured by the participants’ accounts and generally bear interest at 2% above the prime rate (rates range from 5.25% to 7.75% for notes outstanding at December 31, 2017) at the time of the note origination. Principal and interest are paid ratably through after-tax payroll deductions.
Administrative Expenses
A portion of the Plan’s administrative expenses are paid by the Company. All investment related expenses, and the balance of administrative expenses, are paid by the Plan and participants.
(2.) SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”).
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value as of the last trading date for the periods presented. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year. Investment management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are reflected as a component of net appreciation (depreciation) in fair value of investments.
Fair Value Measurements
The Plan performs fair value measurements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). Refer to Note 3 for the fair value measurement disclosures associated with the Plan’s investments.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of net assets available for benefits and the changes in net assets available for benefits during the reporting period. Actual results could differ from those estimates.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(2.) SIGNIFICANT ACCOUNTING POLICIES (Continued)
Risks and Uncertainties
The Plan provides for a choice of investment options, including various mutual funds, a common/collective trust fund and common stock of the Company. The Plan’s exposure to credit loss in the event of nonperformance of investments is limited to the carrying value of such investments. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statements of net assets available for benefits and participant account balances.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes receivable are reclassified as distributions in accordance with the terms of the Plan document.
Contributions
Contributions from participants and any related employer match are recognized on the accrual basis as participants earn salary deferrals. Additional discretionary employer matching contributions are recognized when declared by the Company.
Distributions
Distributions are recorded by the Plan when paid.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(3.) FAIR VALUE MEASUREMENTS
The Plan performs fair value measurements in accordance with the guidance provided by ASC 820. When determining the fair value measurements for assets and liabilities required to be recorded at their fair values, the Plan considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the assets or liabilities, such as inherent risk, transfer restrictions, and risk of nonperformance.
ASC 820 establishes a fair value hierarchy that requires the Plan to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. An asset’s or liability’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:
Level 1: observable inputs based on quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities.
Investments Measured at Fair Value on a Recurring Basis
The fair value of the Plan’s assets at December 31, 2017 and 2016, by level within the fair value hierarchy, is presented as follows:
| Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total | |||||||||||||
| December 31, 2017 |
||||||||||||||||
| Cash and cash equivalents |
$ | 964,367 | $ | — | $ | — | $ | 964,367 | ||||||||
| Mutual funds |
38,499,133 | — | — | 38,499,133 | ||||||||||||
| Financial Institutions, Inc. common stock |
2,390,781 | — | — | 2,390,781 | ||||||||||||
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| $41,854,281 | $ | — | $ | — | 41,854,281 | |||||||||||
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|||||||||||
| Common/collective trust fund (a) |
3,952,502 | |||||||||||||||
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| Total investments |
$ | 45,806,783 | ||||||||||||||
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| December 31, 2016 |
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| Cash and cash equivalents |
$ | 1,349,321 | $ | — | $ | — | $ | 1,349,321 | ||||||||
| Mutual funds |
34,258,631 | — | — | 34,258,631 | ||||||||||||
| Financial Institutions, Inc. common stock |
2,748,449 | — | — | 2,748,449 | ||||||||||||
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| $38,356,401 | $ | — | $ | — | 38,356,401 | |||||||||||
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| Common/collective trust fund (a) |
4,428,284 | |||||||||||||||
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| Total investments |
$ | 42,784,685 | ||||||||||||||
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| (a) | In accordance with Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statements of net assets available for benefits. |
There were no transfers between Level 1 and Level 2 or 3 during the years ended December 31, 2017 and 2016.
The Plan’s valuation techniques used to measure the fair values of cash and cash equivalents, mutual funds and Financial Institutions, Inc. common stock that were classified as Level 1 in the table above were derived from quoted market prices as substantially all of these instruments have active markets.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(3.) FAIR VALUE MEASUREMENTS (Continued)
The following is a description of the valuation methodologies used for instruments held by the Plan measured at fair value:
Cash and cash equivalents: Cash and cash equivalents are valued at cost plus accrued interest, which approximates fair value.
Mutual funds: The shares of registered investment companies are valued at quoted market prices.
Common stock: The Company’s common stock is traded on a national securities exchange and is valued at the last reported sales price on the last day of the Plan year.
Common/collective trust fund: The Plan offers participants the Union Bond & Trust Company Stable Value Fund, managed by Morley Capital Management, Inc. (the Morley Stable Value Fund), which invests primarily in benefit responsive investment contracts with insurance companies, banks, and other financial institutions and is reported at fair value in the statements of net assets available for benefits.
The trustee of the common/collective trust uses various valuation techniques to measure the fair value of the assets within the fund. The fair value of conventional investment contracts is determined using a discounted cash flow methodology where the individual contract cash flows are discounted at the prevailing interpolated yield curve rate as of year end. Underlying investments of the synthetic investment contracts are generally valued as follows: domestic and foreign fixed income securities are valued at fair value based on market values obtained from independent pricing services, quotes by dealers who are market makers in these securities, or by a methodology approved by the trustee. Accrued interest, if any, on the underlying investments is added to the fair value of the investments for presentation purposes. Commercial paper and other investment securities with less than 60 days to maturity when purchased are valued at amortized cost, which approximates fair value. Investments in regulated investment companies, collective investment trusts and separate accounts are valued at the net asset value per share/unit. The fair value of the wrap contracts is determined using the market approach discounting methodology which incorporates the difference between current market level rates for contract level wrap fees and the wrap fee being charged. The difference is calculated as a dollar value and discounted by the prevailing interpolated yield curve as of year end.
(4.) PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will be entitled to the entire amount of their account balances at the date of such termination.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2017 and 2016
(5.) TAX STATUS
The IRS has determined and informed the Company by a letter dated October 27, 2016, that the Plan is designed in accordance with applicable sections of the IRC. The Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. Therefore, the Plan administrator believes the Plan was qualified and the related trust was tax-exempt as of December 31, 2017 and 2016.
(6.) PARTY-IN-INTEREST TRANSACTIONS
Transactions in shares of the Company’s common stock qualify as party-in-interest transactions under the provisions of ERISA. During the year ended December 31, 2017 and 2016, the Plan made purchases of approximately $68,000 and $59,000 and sales of approximately $396,000 and $632,000, respectively, of the Company’s common stock. Notes receivable from participants, totaling $912,736 and $941,433 at December 31, 2017 and 2016, respectively, are also considered party-in-interest transactions.
The Plan invests in the Schwab Retirement Advantage Money Fund and the Schwab Government Money Fund, which are managed by Charles Schwab Bank, custodian of the Plan. Transactions in such investments qualify as party-in-interest transactions.
(7.) SUBSEQUENT EVENTS
Subsequent events and transactions have been evaluated through June 18, 2018, which is the date the financial statements were available to be issued. There were no events or transactions discovered during this evaluation that require recognition or disclosure in the financial statements.
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
EIN 16-0816610, PLAN # 002
SCHEDULE H, LINE 4i – SCHEDULE OF ASSETS (HELD AT END OF YEAR)
| December 31, 2017 | ||||||||
| (a) |
(b) Identity of issue, borrower, lessor, or similar party |
(c) Description of investment including maturity date, rate of interest, collateral, par, or maturity value |
(e) Current value |
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| Cash and Cash Equivalents: | ||||||||
| Cash |
$ | 40,901 | ||||||
| * | Schwab Government Money Fund |
923,466 shares | 923,466 | |||||
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| 964,367 | ||||||||
| Mutual Funds: | ||||||||
| Oakmark Equity Income Fund |
166,044 shares | 5,344,949 | ||||||
| Brown Advisory Growth Equity Fund |
253,498 shares | 5,272,755 | ||||||
| Vanguard 500 Index Fund |
21,227 shares | 5,239,213 | ||||||
| American Funds Fundamental Investors Fund |
84,370 shares | 5,235,181 | ||||||
| Dodge & Cox Income Fund |
309,377 shares | 4,257,034 | ||||||
| Brown Capital Management Small Company Fund |
30,233 shares | 2,738,845 | ||||||
| American Funds Europacific Growth Fund |
42,841 shares | 2,360,098 | ||||||
| Vanguard Mid Cap Index Fund |
12,195 shares | 2,335,930 | ||||||
| Mutual Global Discovery Fund |
60,019 shares | 1,945,800 | ||||||
| Vanguard Small Cap Value Index Fund |
54,160 shares | 1,723,387 | ||||||
| DFA Inflation Protected Securities I Fund |
66,515 shares | 781,549 | ||||||
| Aberdeen Emerging Markets Fund |
41,073 shares | 662,922 | ||||||
| Vanguard Selected Value Fund |
19,235 shares | 601,470 | ||||||
|
|
|
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| 38,499,133 | ||||||||
| Common/collective trust: | ||||||||
| Morley Stable Value Fund |
149,106 shares | 3,952,502 | ||||||
| * | Financial Institutions, Inc. Company Stock | 76,874 shares | 2,390,781 | |||||
| * | Notes receivable from participants | 5.25%-7.75%, due through 2032 | 912,736 | |||||
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| $ | 46,719,519 | |||||||
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| * | Denotes party-in-interest |
Column (d), cost, has been omitted, as all investments are participant directed.
See accompanying notes to financial statements.
- 12 -
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
| FINANCIAL INSTITUTIONS, INC. 401(k) PLAN | ||||
| Date: June 18, 2018 |
/s/ Kevin B. Klotzbach | |||
|
| ||||
| Kevin B. Klotzbach | ||||
| Executive Vice President, Chief Financial Officer and Treasurer | ||||
| Date: June 18, 2018 |
/s/ Michael D. Grover | |||
|
| ||||
| Michael D. Grover | ||||
| Senior Vice President, Chief Accounting Officer, Financial Reporting and Tax Manager | ||||
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