FISI Financial Institutions Inc

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Financial Institutions, Inc.
__________________________________________
(Exact name of registrant as specified in its charter)

Not Applicable
______________________________________________
Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On April 22, 2015, Financial Institutions, Inc. issued a press release to report financial results for the first quarter ended March 31, 2015. The press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit 99.1 Press Release issued April 22, 2015

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit Index

FINANCIAL INSTITUTIONS, INC. ANNOUNCES FIRST QUARTER EARNINGS

WARSAW, N.Y., April 22, 2015 – Financial Institutions, Inc. (the “Company”) (Nasdaq: FISI), the parent company of Five Star Bank, today reported financial results for the quarter ended March 31, 2015. The Company’s financial results for the first quarter of 2015 include the results of operations from the acquisition of Scott Danahy Naylon (“SDN”), an insurance agency the Company acquired in August 2014.

Net income for the first quarter 2015 was $6.8 million, compared to $7.9 million for the fourth quarter 2014, and $7.2 million for the first quarter 2014. After preferred dividends, first quarter 2015 net income available to common shareholders was $6.4 million or $0.46 per diluted share, compared with $7.6 million or $0.54 per share for the fourth quarter 2014, and $6.9 million or $0.50 per share for the first quarter 2014.

The Company’s President and Chief Executive Officer Martin K. Birmingham stated, “We are very pleased that our strategy for revenue growth and diversification to enhance long term profitability has been making meaningful progress. The 30% increase in quarterly noninterest income as compared with the prior year’s first quarter, a primary objective of our growth strategy, has among other benefits had an offsetting effect on the net interest margin pressures that have impacted the industry for some time. We are encouraged by the loan opportunities that developed as the quarter progressed, which ultimately led to the majority of our loan growth and a strong pipeline.”

“In the first quarter, we grew our loans and deposits at or above the levels achieved in 2014. This growth suggests successful initial execution of our organic growth initiatives, which includes developing the opportunity rich markets of Rochester and Buffalo. Average earnings assets in the first quarter increased by 1% from the fourth quarter of 2014 and 3% from the first quarter of 2014. Among other achievements in the quarter, total deposits reached the highest level in Company history, growing by 10% to $2.7 billion at the end of the first quarter from $2.5 billion at December 31, 2014.”

First Quarter 2015 Highlights and Recent Developments:

On April 15, 2015, the Company successfully completed the sale of $40 million in aggregate principal amount of its 6.00% fixed to floating rate subordinated notes due 2030 (the “Notes”). The Company intends to treat the Notes as Tier 2 regulatory capital and use the net proceeds of the offering for general corporate purposes, including but not limited to, contributing capital to Five Star Bank, its wholly-owned subsidiary, organic growth initiatives, and potential acquisitions to expand its banking and other complementary non-banking businesses should accretive opportunities arise.

Kevin B. Klotzbach, the Company’s Executive Vice President and Chief Financial Officer commented, “We are gratified that the progress made last year to position Financial Institutions for growth in its top line and the continued execution of our plan in the first quarter resulted in the strong demand for our recently completed Notes offering. Due to institutional investor interest in the Company, we increased the aggregate offering amount of the Notes to $40 million from the initially intended amount of $35 million. We have further bolstered our capital position, which provided a measure of financial flexibility to capitalize on potential growth opportunities.”

Net Interest Income and Net Interest Margin

Net interest income was $23.1 million in the first quarter 2015 compared to $24.1 million in the fourth quarter 2014 and $23.3 million in the first quarter 2014. When comparing the first quarter 2015 to the fourth quarter 2014, average earning assets increased $36.6 million, including increases of $5.5 million and $30.9 million in loans and investment securities, respectively. Average earning assets were up $69.1 million, led by a $65.9 million increase in loans in the first quarter of 2015 compared to the same quarter in 2014. The growth in earning assets was offset by decreases in net interest margin. First quarter 2015 net interest margin was 3.43%, a decrease of 13 basis points from 3.56% for the fourth quarter of 2014 and a 9 basis point decrease from 3.52% for the first quarter of 2014. The receipt of non-recurring loan prepayment income resulted in higher net interest income and a larger net interest margin during the fourth quarter of 2014.

Noninterest Income

Noninterest income was $8.3 million for the first quarter 2015 compared to $5.2 million for the fourth quarter 2014 and $6.4 million in the first quarter 2014. Included in these totals are gains realized from the sale of investment securities. Exclusive of those gains, noninterest income was $7.2 million in the first quarter 2015, $4.9 million in the fourth quarter 2014 and $6.0 million in the first quarter 2014. The fourth quarter 2014 reflects $2.3 million of amortization of an historic tax credit investment in a community-based project. These types of investments are amortized in the first year the project is placed in service and the Company recognized the amortization as contra-income, included in noninterest income, with an offsetting tax benefit that reduced income tax expense. The higher noninterest income in the first quarter 2015 compared to the first quarter 2014 is primarily a result of a $1.6 million increase in insurance income, reflecting the contributions from SDN, which was acquired during the third quarter 2014 as part of the Company’s strategy to diversify its business lines and increase noninterest income through additional fee-based services.

Noninterest Expense

Noninterest expense was $19.0 million for the first quarter 2015 compared to $19.4 million for the fourth quarter 2014 and $17.2 million in the first quarter 2014. Salaries and employee benefits expense increased $967 thousand from the first quarter 2014, reflecting higher pension costs, additional personnel as a result of the SDN acquisition and the hiring of additional personnel associated with the Company’s expansion initiatives. Other noninterest expense for the first quarter 2015 included an increase of $153 thousand in intangible asset amortization attributable to the SDN acquisition.

Income Tax Expense

Income tax expense was $2.9 million in the first quarter 2015, compared to $84 thousand in the fourth quarter 2014 and $3.1 million in the first quarter 2014. Lower income tax expense during the fourth quarter 2014 was primarily driven by the favorable impact of $3.0 million in Federal and New York State historic tax credits realized in the fourth quarter 2014, as discussed above. As a result of the historic tax credits, the fourth quarter 2014 effective tax rate was 1.0%, compared with an effective tax rate of 29.8% for the first quarter 2015 and 30.0% in the first quarter 2014.

Balance Sheet and Capital Management

Total assets were $3.20 billion at March 31, 2015, up $107.6 million from $3.09 billion at December 31, 2014 and up $181.5 million from $3.02 billion at March 31, 2014.

Cash and cash equivalents were $136.0 million at March 31, 2015, up $77.8 million from December 31, 2014 and up $63.6 million from March 31, 2014. The higher cash and cash equivalents balance resulted from strong public deposit inflows at the end of the first quarter of 2015.

Total loans were $1.92 billion at March 31, 2015, up $11.0 million from December 31, 2014 and up $74.1 million from March 31, 2014. The year-to-date increase in loans is primarily attributable to organic commercial loan growth. The increase in loans from the prior year is primarily attributable to growth in commercial, home equity and consumer indirect loans. Total investment securities were $945.5 million at March 31, 2015, up $28.6 million or 3% from the end of the prior quarter and up $17.3 million or 2% compared with the March 31, 2014.

Total deposits were $2.70 billion at March 31, 2015, an increase of $254.2 million from December 31, 2014 and an increase of $171.3 million from March 31, 2014. The increase during the first quarter of 2015 was mainly due to seasonal inflows of municipal deposits, while the year-over-year increase was due to higher municipal deposits as well as successful business development efforts. Public deposit balances represented 30% of total deposits at March 31, 2015, compared to 25% at December 31, 2014 and 28% at March 31, 2014.

Short-term borrowings were $175.6 million at March 31, 2015, down $159.2 million from December 31, 2014 and down $21.2 million from March 31, 2014. Short-term borrowings are often utilized to manage the seasonal outflows of municipal deposits.

Shareholders’ equity was $286.7 million at March 31, 2015, compared with $279.5 million at December 31, 2014 and $262.9 million at March 31, 2014. Common book value per share was $19.01 at March 31, 2015, an increase of $0.44 from $18.57 at December 31, 2014 and $1.29 from $17.72 at March 31, 2014. Tangible common book value per share was $14.18 at March 31, 2015, compared to $13.71 at December 31, 2014 and $14.12 at March 31, 2014.

During the first quarter of 2015, the Company declared a common stock dividend of $0.20 per common share, consistent with the prior quarter and up by 5%, or $0.01 per share, from the first quarter of 2014. The first quarter 2015 dividend returned 43% of the quarter’s net income to common shareholders.

The Company’s leverage ratio was 7.53% at March 31, 2015, compared to 7.35% at December 31, 2014 and 7.51% at March 31, 2014. Goodwill and intangible assets recorded during the third quarter 2014 in conjunction with the addition of SDN resulted in a reduction in capital ratios upon acquisition. Such goodwill and intangible assets are excluded from regulatory capital under regulatory accounting practices.

Credit Quality

Non-performing loans at March 31, 2015 increased $919 thousand compared with December 31, 2014, primarily due to a $690 thousand increase in non-performing commercial loans. Included in non-performing loans at March 31, 2015 is one $2.6 million commercial credit relationship which we placed on nonaccrual status during the first quarter 2015. This downgrade resulted in an increase in our provision and allowance for losses of approximately $800 thousand. The loans comprising this credit relationship are performing in accordance with their contractual terms as of March 31, 2015 and the Company continues to monitor this relationship closely. The ratio of non-performing loans to total loans was 0.58% at March 31, 2015 compared with 0.53% at December 31, 2014 and 0.88% at March 31, 2014.

The provision for loans losses for the first quarter 2015 was $2.7 million, an increase of $831 thousand from the prior quarter and $635 thousand from the first quarter 2014. The increase in the provision for loan losses in the first quarter 2015 was primarily related to the credit relationship placed on nonaccrual status referenced above. Net charge-offs were $3.2 million during the first quarter 2015, a $1.7 million increase compared to the prior quarter and $1.5 million from the first quarter 2014. The increase in net charge-offs was primarily driven by the first quarter 2015 charge-off of two commercial loan relationships totaling $1.7 million that had been previously reserved by the Company. The ratio of annualized net charge-offs to total average loans was 0.68% during the current quarter, compared to 0.32% during the prior quarter and 0.37% during the first quarter 2014.

The ratio of allowance for loans losses to total loans was 1.41% at March 31, 2015, compared with 1.45% at December 31, 2014 and 1.47% at March 31, 2014. The ratio of allowance for loans losses to non-performing loans was 246% at March 31, 2015, compared with 272% at December 31, 2014 and 167% at March 31, 2014.

About Financial Institutions, Inc.

Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Scott Danahy Naylon. Five Star Bank provides a wide range of consumer and commercial banking services to individuals, municipalities and businesses through a network of over 50 offices and more than 60 ATMs throughout Western and Central New York State. Scott Danahy Naylon provides a broad range of insurance services to personal and business clients across 44 states. 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 and is a member of the NASDAQ OMX ABA Community Bank Index. Additional information is available at the Company’s website: www.fiiwarsaw.com.

Non-GAAP Financial Information

This news release contains financial information, such as tangible common equity, determined by methods other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that non-GAAP financial measures provide a meaningful comparison of the underlying operational performance of the Company, and facilitate investors’ assessments of its business and performance trends. In addition, the Company believes the exclusion of these non-operating items enables management to perform a more effective evaluation and comparison of the Company’s results and to assess performance in relation to the company’s ongoing operations. These disclosures should not be viewed as a substitute for financial measures determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Where non-GAAP disclosures are used in this news release, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in Appendix A to this document.

Safe Harbor Statement

This press release may contain forward-looking statements as defined by federal securities laws. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Actual results could differ materially from current beliefs or projections. There are a number of important factors that could affect the Company’s forward-looking statements, which include its ability to implement its strategic plan, its ability to redeploy investment assets into loan assets, whether it experiences greater credit losses than expected, breaches of its third party information systems, the attitudes and preferences of its customers, its ability to successfully integrate and profitably operate acquired businesses, the competitive environment, fluctuations in the fair value of securities in its investment portfolio, changes in the regulatory environment and general economic and credit market conditions nationally and regionally. For more information about these factors and other factors that could affect the Company’s forward-looking statements, please see the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q on file with the SEC. All of these factors should be carefully reviewed, and readers should not place undue reliance on these forward-looking statements. Except as required by law, the Company undertakes no obligation to revise these statements following the date of this press release.

*****

1

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)
(Amounts in thousands, except per share amounts)

FINANCIAL INSTITUTIONS, INC.
Selected Financial Information (Unaudited)

(Amounts in thousands)

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

2

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

3

Financial Institutions (NASDAQ:FISI)
Historical Stock Chart
From Mar 2024 to Apr 2024

Financial Institutions (NASDAQ:FISI)
Historical Stock Chart
From Apr 2023 to Apr 2024