Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
| o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-26481
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, NY 14569
FINANCIAL INSTITUTIONS, INC.
401(k) PLAN
401(k) PLAN
Index
| Page | ||||||||
| A. Financial Statements and Schedule | ||||||||
| 2 | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5-9 | ||||||||
| 10 | ||||||||
| 11 | ||||||||
| 12 | ||||||||
B. Exhibits |
||||||||
| 23.1 Consent of Independent Registered Public Accounting Firm | ||||||||
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and the Plan Administrator of the
Financial Institutions, Inc. 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits of Financial
Institutions, Inc. 401(k) Plan as of December 31, 2007 and 2006, and the related statements of
changes in net assets available for benefits for the years then ended. These financial statements
are the responsibility of the Plan’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the Plan’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the net assets available for benefits of Financial Institutions, Inc. 401(k) Plan as of
December 31, 2007 and 2006, and the changes in its net assets available for benefits for the years
then ended in conformity with accounting principles generally accepted in the United States.
Our audit was performed for the purpose of forming an opinion on the basic financial statements
taken as a whole. Supplemental Schedules H, Line 4i — Schedule of Assets (Held at End of Year) and
H, Line 4j — Schedule of Reportable Transactions, as of and for the year ended December 31, 2007
are presented for the purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the Department of Labor’s Rules
and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of the Plan’s management. The
supplemental schedules have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole
/s/ Bonadio & Co., LP
Pittsford, New York
June 26, 2008
June 26, 2008
2
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2007 AND 2006
DECEMBER 31, 2007 AND 2006
| 2007 | 2006 | |||||||
ASSETS: |
||||||||
Investments, at fair value -
|
||||||||
Cash and cash equivalents |
$ | 11,935 | $ | 19,234,115 | ||||
Mutual funds |
18,370,159 | 971,761 | ||||||
Common/collective trust, primarily consisting of
fully benefit-responsive investment contracts |
3,939,918 | — | ||||||
Financial Institutions, Inc. common stock |
744,644 | 780,104 | ||||||
Participant loans |
453,395 | 375,123 | ||||||
Total investments |
23,520,051 | 21,361,103 | ||||||
Receivables - |
||||||||
Employer contributions |
31,513 | 321,919 | ||||||
Participant contributions |
61,699 | 59,973 | ||||||
Other |
5,921 | 5,649 | ||||||
Total receivables |
99,133 | 387,541 | ||||||
NET ASSETS, at fair value |
23,619,184 | 21,748,644 | ||||||
ADJUSTMENT FROM FAIR VALUE TO CONTRACT
VALUE FOR ALL FULLY BENEFIT-RESPONSIVE
INVESTMENT CONTRACTS |
31,085 | — | ||||||
NET ASSETS AVAILABLE FOR BENEFITS |
$ | 23,650,269 | $ | 21,748,644 | ||||
The accompanying notes are an integral part of these statements.
3
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
| 2007 | 2006 | |||||||
ADDITIONS: |
||||||||
Investment income - |
||||||||
Net appreciation in fair value of investments |
$ | 1,830,888 | $ | 2,311,958 | ||||
Interest from participant loans |
30,149 | 30,385 | ||||||
Total investment income |
1,861,037 | 2,342,343 | ||||||
Contributions and transfers - |
||||||||
Transfers in from other plans |
97,104 | 373,506 | ||||||
Participant |
1,783,987 | 1,703,622 | ||||||
Employer |
872,682 | 602,951 | ||||||
Total contributions and transfers |
2,753,773 | 2,680,079 | ||||||
Total additions |
4,614,810 | 5,022,422 | ||||||
DEDUCTIONS: |
||||||||
Benefits paid to participants |
(2,678,879 | ) | (6,626,004 | ) | ||||
Expenses |
(34,306 | ) | — | |||||
Total deductions |
(2,713,185 | ) | (6,626,004 | ) | ||||
CHANGE IN NET ASSETS AVAILABLE FOR BENEFITS |
1,901,625 | (1,603,582 | ) | |||||
NET ASSETS AVAILABLE FOR BENEFITS — beginning of year |
21,748,644 | 23,352,226 | ||||||
NET ASSETS AVAILABLE FOR BENEFITS — end of year |
$ | 23,650,269 | $ | 21,748,644 | ||||
The accompanying notes are an integral part of these statements.
4
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FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006
DECEMBER 31, 2007 AND 2006
| 1. | DESCRIPTION OF PLAN |
|
The following description of the Financial Institutions, Inc. 401(k) Plan (the Plan) is
provided for general information purposes only. Participants should refer to the Plan
agreement for a more complete description of the Plan’s provisions. |
||
General |
||
The Plan is a defined contribution plan sponsored and administered by Financial Institutions,
Inc. (the Company). The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). |
||
Administration of the Plan is the responsibility of the Executive Committee of the Company.
Effective January 1, 2007, the Charles Schwab Trust Company (Schwab) serves as the Plan’s
custodian and trustee. In 2006, Fidelity Investments Institutional Brokerage Group (Fidelity)
was the custodian and trustee. In each respective year, Schwab and Fidelity (collectively,
Custodian or Trustee) held the assets of the Plan and invested, controlled, and disbursed the
funds of the Plan in accordance with the Plan agreement. Effective January 1, 2007, Milliman,
Inc. is the record keeper for the Plan (party-in-interest). In 2006, the Burke Group was the
record keeper. |
||
Eligibility |
||
All employees of the Company and its subsidiaries are eligible to participate in the Plan on
the later of the date of employment or attainment of age 20-1/2. Participants become eligible
to receive the employer match upon participation in the Plan. |
||
Contributions |
||
Eligible participants may contribute up to 100% of their pre-tax annual compensation, as
defined by the Plan. Participants may also contribute amounts representing distributions from
other qualified defined benefit or defined contribution plans. Participants direct the
investment of their contributions and the Company’s matching contributions into various
investment options offered by the Plan. Participants are able to select the Company’s common
stock as an investment option for up to 25% of their total account balance. The Company
matches a participant’s contributions up to 4.5% of compensation, calculated as 100% of the
first 3% of compensation and 50% of the next 3% of compensation deferred by the participant.
In 2006, the Company matched 25% of the first 8% of participant compensation deferral. The
Company may also make additional discretionary matching contributions. During the year ended
December 31, 2006, the Company declared a discretionary contribution of $257,514. This
discretionary contribution was paid in 2007. No discretionary contribution was declared for
the year ended December 31, 2007. Contributions are subject to certain limitations. |
||
Participant Accounts |
||
Each participant’s account is credited with the participant’s contributions, the Company’s
matching contributions, and all earnings or losses (realized or unrealized) thereon. |
||
Vesting |
||
Company and participant contributions are fully vested at the time of contribution. Earnings
are also immediately vested. |
5
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| 1. | DESCRIPTION OF PLAN (Continued) |
|
Payment of Benefits (Continued) |
||
The participant’s account balance will be distributed 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). Distributions are recorded by the Plan when paid. |
||
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 account attributable to
Company contributions is $1,000 or less, the form of the distribution is at the discretion of
the Plan administrator. An unpaid loan balance at the time a participant withdraws from the
Plan is presented as a benefit paid to participants on the statement of changes in net assets
available for benefits. |
||
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. |
||
Participant Loans |
||
Participants may borrow from their accounts up to the lesser of $50,000 or 50% of their
account balance. Loan terms must not exceed five years unless the loan is used for the
purchase of a principal residence, in which case the repayment period may not exceed 15 years.
The loans are secured by the participants’ accounts and bear interest at 2% above the prime
rate (ranging from 6.0% to 10.5%) at the time of the loan origination. Principal and interest
are paid ratably through after-tax payroll deductions. |
||
Plan Expenses |
||
In 2007, plan expenses included payments for the services of the Custodian and record keeper.
In 2006, expenses related to the administration and investment activity of the Plan were paid
for by the Company, at its discretion, and therefore were not reflected in the accompanying
financial statements. |
||
| 2. | SIGNIFICANT ACCOUNTING POLICIES |
|
Basis of Accounting |
||
The financial statements have been prepared on the accrual basis in conformity with accounting
principles generally accepted in the United States. |
||
Estimates |
||
The preparation of financial statements in conformity with generally accepted accounting
principles 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. |
||
Investments |
||
Investments consist of mutual funds and a common/collective trust, and are carried at fair
value. Participant loans are carried at their outstanding balances, which approximate fair
value. Transactions are accounted for on a trade date basis. Investment income includes
interest, dividends, and realized and unrealized gains and losses applicable to the Plan’s
share in the funds. |
6
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| 2. | SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
Investments (Continued) |
||
Investments are exposed to various risks, such as interest rate, market and credit risk. Due
to the level of risk associated with certain investments and the level of uncertainty related
to changes in the value of investments, it is at least reasonably possible that changes in the
near term would materially affect participants’ account balances and the amounts reported in
the statements of net assets available for benefits and the statements of changes in net
assets available for benefits. |
||
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. |
||
| 3. | INVESTMENTS |
|
The following investments represented 5% or more of the Plan’s net assets at December 31: |
| 2007 | 2006 | |||||||
Morley Stable Value Common/Collective Trust |
$ | 3,939,918 | ||||||
Growth Fund of America |
$ | 3,760,783 | ||||||
Fundamental Investors Fund |
$ | 2,961,851 | ||||||
Oakmark Equity Income Fund |
$ | 2,616,633 | ||||||
Columbia Acorn Fund |
$ | 1,847,876 | ||||||
Mutual Discovery Fund |
$ | 1,726,286 | ||||||
Pimco Total Return Administrative Fund |
$ | 1,429,407 | ||||||
Europacific Growth Fund |
$ | 1,350,570 | ||||||
Fidelity Cash Reserves Fund |
$ | 19,234,115 | ||||||
Net appreciation in fair value of investments for the years ended December 31, 2007 and 2006
was as follows:
| 2007 | 2006 | |||||||
Mutual funds |
$ | 1,740,509 | $ | 2,167,217 | ||||
Common/collective trust fund |
235,430 | — | ||||||
Financial Institutions, Inc. common stock |
(145,051 | ) | 144,741 | |||||
| $ | 1,830,888 | $ | 2,311,958 | |||||
Investment in Common/Collective Trust |
||
In 2007, the Plan began offering participants the Union Bond & Trust Company Stable Value
Fund, managed by Morley Capital Management, Inc. (the Morley Fund). The Morley Fund invests
primarily in benefit responsive investment contracts with insurance companies, banks, and
other financial institutions. While investments are typically recorded at fair value,
contract value is the relevant measurement attribute for the portion of the Plan’s assets that
are invested in fully benefit responsive investment contracts because contract value is the
amount participants would receive if they were to initiate permitted transactions under the
terms of the Plan. |
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| 3. | INVESTMENTS (Continued) |
|
Investment in Common/Collective Trust (Continued) |
||
As required by the Financial Accounting Standards Board Staff Position FSP AAG INV-1,
Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment
Companies Subject to the AICPA Investment Company Guide and Defined Contribution Health and
Welfare and Pension Plans (the FSP), the accompanying statement of net assets available for
benefits reflects both the fair value of the investment in the Morley Fund and an adjustment
to contract value as it relates to fully benefit-responsive contracts held by the Morley Fund. |
||
| 4. | RECONCILIATION OF EMPLOYEE BENEFIT PLAN (FORM 5500) TO STATEMENTS OF
NET ASSETS AVAILABLE FOR BENEFITS AND CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS |
|
The following is a reconciliation of net assets reported on the statements of net assets
available for benefits to Forms 5500 as of December 31, 2007 and 2006: |
| 2007 | 2006 | |||||||
Net assets available for benefits |
$ | 23,650,269 | $ | 21,748,644 | ||||
Participant contributions receivable |
(61,699 | ) | (59,973 | ) | ||||
Employer contributions receivable |
(31,513 | ) | (29,939 | ) | ||||
Other receivables |
(5,921 | ) | (5,649 | ) | ||||
Adjustment for valuation of common/collective trust |
(97,511 | ) | — | |||||
Other |
(1,186 | ) | 393 | |||||
Net assets as reported on line 1(l) of Form 5500
(Schedule H) |
$ | 23,452,439 | $ | 21,653,476 | ||||
The following is a reconciliation of change in net assets available for benefits as reported
on the statements of changes in net assets available for benefits to Form 5500 for the years
ended December 31, 2007 and 2006:
| 2007 | 2006 | |||||||
Change in net assets available for benefits |
$ | 1,901,625 | $ | (1,603,582 | ) | |||
Change in participant contributions receivable |
(1,726 | ) | (59,973 | ) | ||||
Change in employer contributions receivable |
(1,574 | ) | (29,939 | ) | ||||
Change in other receivables |
(272 | ) | (5,649 | ) | ||||
Distribution payable at December 31, 2005 |
— | 45,140 | ||||||
Adjustment for valuation of common/collective trust |
(97,511 | ) | — | |||||
Other |
(1,579 | ) | 393 | |||||
Net income (loss) as reported on line 2(k) of Form
5500 (Schedule H) |
$ | 1,798,963 | $ | (1,653,610 | ) | |||
| 5. | PLAN TERMINATION |
|
Although it has not expressed any intent to do so, the Company has the right under the Plan to
discontinue its contributions at any time and 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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| 6. | TAX STATUS |
|
The Internal Revenue Service has determined and informed the Company by a letter dated March
28, 2000, that the Plan is designed in accordance with applicable sections of the Internal
Revenue Code (IRC). Although the Plan has been amended since receiving the determination
letter, the Plan administrator believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC. Accordingly, there is no
provision for income taxes in the accompanying financial statements due to the applicable
exemption under the IRC. |
||
| 7. | RELATED-PARTY TRANSACTIONS |
|
Plan investments include common stock of the Company, which totaled $744,644 and $780,104 at
December 31, 2007 and 2006, respectively. Transactions in this common stock qualify as
party-in-interest transactions. The Burke Group, a subsidiary of the Company through
September 11, 2005, was the Plan record keeper through December 31, 2006. The Company paid
all costs related to these record keeping services. Participant loans, totaling $453,395 and
$375,123 at December 31, 2007 and 2006, respectively, are also considered party-in-interest
transactions. |
||
| 8. | PLAN CHANGES |
|
Effective January 1, 2007, the Plan document was re-written. The revised Plan document,
incorporates certain administrative changes to comply with recent regulatory changes. The
revised Plan also includes a change to employer match provisions. In addition, the Plan
changed its custodian and record keeper in 2007 (Note 1). |
||
| 9. | SUBSEQUENT EVENTS |
|
Stock Price |
||
On June 25, 2008, the closing market value of the Company’s common stock was $16.46 per share,
which represents a decrease of approximately 7.6% from the December 31, 2007 market value of
$17.82 per share. This decrease in the market value resulted in an unrealized loss of
approximately $56,830 for the 41,787 shares of the Company’s common stock held by the Plan at
December 31, 2007. |
||
| 10. | RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
|
In September 2006, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No.157 (SFAS 157) “Fair Value Measurements”. SFAS 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about fair value
measurements. SFAS 157 applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not require any new fair value measurements.
SFAS 157 clarifies that fair value should be based on the assumptions market participants
would use when pricing an asset or liability and establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions. The provisions of SFAS 157 are
effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. Plan management does not expect the adoption
of SFAS 157 to have a material impact on the Plan’s financial statements. (Alternatively,
depending on the status the following may replace the last sentence: Plan management is
currently evaluating the impact that the adoption of SFAS 157 will have on the Plan’s
financial statements.) |
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Schedule I
FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
SCHEDULE H, LINE 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2007
DECEMBER 31, 2007
| (b) | (c) | (e) | ||||||
| (a) | Identity of Issue | Description of Investment | Current Value | |||||
Cash |
Cash | $ | 11,935 | |||||
Morley Stable Value Fund |
Common/Collective Trust | 3,939,918 | ||||||
Growth Fund of America |
Mutual Fund | 3,760,783 | ||||||
Fundamental Investors Fund |
Mutual Fund | 2,961,851 | ||||||
Oakmark Equity Income Fund |
Mutual Fund | 2,616,633 | ||||||
Columbia Acorn Fund |
Mutual Fund | 1,847,876 | ||||||
Mutual Discovery Fund |
Mutual Fund | 1,726,286 | ||||||
Pimco Total Return Administrative Fund |
Mutual Fund | 1,429,407 | ||||||
Europacific Growth Fund |
Mutual Fund | 1,350,570 | ||||||
Selected American Shares Fund |
Mutual Fund | 1,120,034 | ||||||
Vanguard 500 Index Signal Fund |
Mutual Fund | 789,630 | ||||||
Vanguard Mid Cap Index Signal Fund |
Mutual Fund | 481,106 | ||||||
Janus Mid Cap Value Fund |
Mutual Fund | 165,288 | ||||||
Vanguard Small Cap Value Index Fund |
Mutual Fund | 120,695 | ||||||
| * | Financial Institutions, Inc. Company Stock |
Common Stock of Plan Sponsor | 744,644 | |||||
| * | Participant loans |
6.0% — 10.5%, due through 2022 | 453,395 | |||||
| $ | 23,520,051 | |||||||
| * | Denotes party-in-interest |
The accompanying notes are an integral part of these schedules.
10
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Schedule II
FINANCIAL INSTITUTIONS, INC. 401(K) PLAN
SCHEDULE H, line 4j — SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
FOR THE YEAR ENDED DECEMBER 31, 2007
| I. | Individual 5% Transactions |
| (h) | ||||||||||||||||||||
| Current | ||||||||||||||||||||
| Value of | ||||||||||||||||||||
| (c) | (d) | (g) | Asset on | (i) | ||||||||||||||||
| (a) | (b) | Purchase | Selling | Cost of | Transaction | Net Gain | ||||||||||||||
| Identity of Party Involved | Description of Asset | Price | Price | Asset | Date | or (Loss) | ||||||||||||||
Columbia Acorn Fund |
Mutual Fund | $ | 1,690,033 | $ | — | $ | 1,690,033 | $ | 1,690,033 | N/A | ||||||||||
Fundamental Investors Fund |
Mutual Fund | $ | 2,482,316 | $ | — | $ | 2,482,316 | $ | 2,482,316 | N/A | ||||||||||
Morley Stable Value Fund |
Mutual Fund | $ | 4,313,102 | $ | — | $ | 4,313,102 | $ | 4,313,102 | N/A | ||||||||||
Growth Fund of America |
Mutual Fund | $ | 3,957,395 | $ | — | $ | 3,957,395 | $ | 3,957,395 | N/A | ||||||||||
Mutual Discovery Fund |
Mutual Fund | $ | 1,648,656 | $ | — | $ | 1,648,656 | $ | 1,648,656 | N/A | ||||||||||
Oakmark Equity Income Fund |
Mutual Fund | $ | 2,236,813 | $ | — | $ | 2,236,813 | $ | 2,236,813 | N/A | ||||||||||
Selected American Shares Fund |
Mutual Fund | $ | 1,213,802 | $ | — | $ | 1,213,802 | $ | 1,213,802 | N/A | ||||||||||
| II. | Series of Transactions, Not Involving Securities, With a Single Person |
|
None |
||
| III. | Series of Transactions Involving Securities of the Same Issue |
|
None |
||
| IV. | Securities Transactions with the Same Person |
|
None |
The accompanying notes are an integral part of these schedules.
11
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SIGNATURE
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 27, 2008 | /s/ Peter G. Humphrey | |||
| Peter G. Humphrey | ||||
| President and Chief Executive Officer | ||||
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