8-K

 

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

Date of Report (Date of Earliest Event Reported): April 25, 2012

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

New York	0-26481	16-0816610
_____________________ (State or other jurisdiction	_____________ (Commission	______________ (I.R.S. Employer
of incorporation)	File Number)	Identification No.)
220 Liberty Street, Warsaw, New York		14569
_________________________________ (Address of principal executive offices)		___________ (Zip Code)

Registrant’s telephone number, including area code: 585-786-1100

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 25, 2012, Financial Institutions, Inc. issued a press release to report financial results for the first quarter ended March 31, 2012. 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 25, 2012

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.

	Financial Institutions, Inc.
April 25, 2012	By:	/s/ Karl F. Krebs
		Name: Karl F. Krebs
		Title: Executive Vice President and Chief Financial Officer

Exhibit Index

Exhibit No.	Description
99.1	Press Release issued April 25, 2012

EX-99.1

NEWS RELEASE 220 Liberty Street Warsaw, NY 14569

For Additional Information:

Karl F. Krebs

Executive VP & CFO

Phone: 585.786.1125

Email: KFKrebs@fiiwarsaw.com

FINANCIAL INSTITUTIONS, INC. REPORTS 2012 FIRST QUARTER
EARNINGS OF $6.2 MILLION; ASSET GROWTH TO RECORD SIZE

WARSAW, N.Y., April 25, 2012 — Financial Institutions, Inc. (Nasdaq: FISI) (the “Company”), the parent company of Five Star Bank, today reported net income for the quarter ended March 31, 2012 of $6.2 million, an increase of 6% compared to net income of $5.8 million for the same period last year. After preferred dividends, first quarter earnings per diluted share was $0.42 compared with $0.33 per share for the first quarter of 2011.

Highlights for the first quarter of 2012 were as follows:

• Net interest margin remained strong at 4.05%

• Net interest income increased $1.1 million or 6% compared to the first quarter of 2011

• Realized a pre-tax gain of $331 thousand from the sale of an investment security

• Total loans grew $36.3 million or 2% during the first quarter

• Net loan charge-offs were $882 thousand or an annualized 0.24% of average loans for the first quarter

• Allowance for loan losses was 1.56% of total loans at March 31, 2012 while the provision for loan losses totaled $1.4 million for the first quarter of 2012

• Capital remains well above regulatory minimums, with a leverage ratio of 8.80% and a total risk-based capital ratio of 13.47%

• Common and tangible book value per share were $16.11 and $13.40, respectively, at March 31, 2012

“While many expect 2012 to remain a challenging year for most businesses, we followed up a great close to 2011 with an even better start to 2012” commented Peter G. Humphrey, President and Chief Executive Officer. “While one quarter does not make a year, we’re encouraged by not only our asset growth, but by the level of earnings considering the prolonged low interest rate environment.”

Mr. Humphrey continued, “We look forward to the remainder of 2012 and building on our first quarter success. We remain energized by the previously announced branch acquisition and the fact that it will help fund our strong earning asset growth. The Five Star team has been actively working towards a smooth integration of the acquired branches both culturally and operationally.”

Net Interest Income and Net Interest Margin

Net interest income totaled $20.9 million for the three months ended March 31, 2012, an increase of $1.1 million or 6% over the first quarter of 2011, primarily from lower funding costs. Average earning assets increased $93.9 million or 5% in the first quarter of 2012 compared with the first quarter last year, due to growth in the loan portfolio. Average total loans were up $150.8 million or 11% during the first quarter of 2012 compared to the first quarter of 2011, led by an 18% increase in the average consumer indirect portfolio.

The net interest margin on a tax-equivalent basis was 4.05% in both the first quarter of 2012 and 2011. The Company’s yield on earning-assets decreased 27 basis points in the first quarter of 2012 compared with the same quarter last year, a result of cash flows being reinvested in the current low interest rate environment. The cost of interest-bearing liabilities decreased 35 basis points compared with the first quarter of 2011, primarily a result of the redemption of the Company’s 10.20% junior subordinated debentures during the third quarter of 2011 as well as the continued re-pricing of the Company’s certificates of deposit.

Noninterest Income

Total noninterest income for the first quarter of 2012 was $5.5 million, an increase of 6% from $5.1 million for the first quarter of 2011. Noninterest income for the first quarter of 2012 compared to the same quarter last year includes increases in broker-dealer fees and commissions, company owned life insurance, net gains on sale of loans held for sale and net gain on investment securities. These increases were partially offset by declines in service charges on deposit accounts and loan servicing income. Broker-dealer fees and commissions were up $201 thousand or 52% mainly due to increased sales volume. An additional $18.0 million investment in company owned life insurance during the third quarter of 2011 was largely responsible for the $160 thousand increase in income. Gains from the sale of loans held for sale were $109 thousand higher than in the first quarter of 2011 due to increased origination volume. The Company recognized a $331 thousand pre-tax gain from the sale of a pooled trust-preferred security that had been written down in prior periods and included in non-performing assets. Service charges on deposit accounts were down $270 thousand in the first quarter primarily due to lower overdraft fee income. Loan servicing income decreased by $255 thousand as a result of more rapid amortization of servicing rights due to loans paying off, lower fees collected due to a decrease in the sold and serviced portfolio and write-downs on capitalized mortgage servicing assets.

Noninterest Expense

Total noninterest expense for the first quarter of 2012 was $15.7 million, an increase of $307 thousand from $15.4 million for the first quarter of 2011. When comparing the first quarter of 2012 to the same quarter last year, noninterest expense for 2012 includes increases in salaries and employee benefits and other noninterest expense of $530 thousand and $192 thousand, respectively, partially offset by a $310 thousand decrease in FDIC assessments. Higher salaries and employee benefits expense reflects increases in pension expense and in estimated incentive compensation, which was previously limited under the TARP Capital Purchase Program. Changes made by the FDIC pertaining to the method of calculating assessment rates resulted in the lower FDIC assessments. Other noninterest expense for the first quarter included $125 thousand of severance expense associated with workforce realignment in a continued effort to reduce future costs.

Balance Sheet

Total loans were $1.521 billion at March 31, 2012, up $36.3 million or 2% from December 31, 2011. Total investment securities were $723.7 million at March 31, 2012, up $72.9 million or 11% from December 31, 2011.

Deposits were $2.067 billion at March 31, 2012, an increase of $135.0 million or 7% from December 31, 2011. Public deposit balances increased $143.1 million during the first quarter of 2012 due largely to the seasonality of municipal cash flows. The Company’s deposit mix remains favorably weighted in lower cost demand, savings and money market accounts, which comprised 66.3% of total deposits at the end of the first quarter.

Shareholders’ equity was $240.0 million at March 31, 2012, compared with $237.2 million at December 31, 2011. Net income for the quarter increased shareholders’ equity by $6.2 million, which was partially offset by common and preferred stock dividends of $2.1 million. Accumulated other comprehensive income included in shareholders’ equity decreased $1.1 million during the first quarter due primarily to lower net unrealized gains on securities available for sale.

The Company’s leverage ratio and total risk-based capital ratio increased to 8.80% and 13.47%, respectively, at March 31, 2012, compared to 8.63% and 13.45%, respectively, at December 31, 2011, all of which exceeded the regulatory thresholds required to be classified as a “well capitalized” institution as established by the Company’s primary banking regulators.

Credit Quality

Non-performing loans at March 31, 2012 were $8.2 million or 0.54% of total loans as compared to $7.1 million or 0.48% of total loans at December 31, 2011. The average of our peer group was 2.95% of total loans at December 31, 2011, the most recent period for which information is available (Source: Federal Financial Institutions Examination Council — Bank Holding Company Performance Report as of December 31, 2011 — Top-tier bank holding companies having consolidated assets between $1 billion and $3 billion). Net charge-offs of $882 thousand in the first quarter of 2012 represented 0.24% of average loans on an annualized basis compared to $1.2 million or 0.35% in the first quarter of 2011. The provision for loan losses totaled $1.4 million in the first quarter, exceeding charge-offs by $503 thousand, as we continue to maintain the allowance for loan losses consistent with the growth in our loan portfolio and trends in asset quality. The allowance equaled 289% of non-performing loans and 1.56% of total loans.

About Financial Institutions, Inc.

With over $2.4 billion in assets, Financial Institutions, Inc. provides diversified financial services through its subsidiaries, Five Star Bank and Five Star Investment Services, Inc. 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 70 ATMs in Western and Central New York State. Five Star Investment Services provides investment advice, brokerage and insurance products and services within the same New York State markets. Financial Institutions, Inc. and its subsidiaries employ over 600 individuals. The Company’s stock is listed on the Nasdaq Global Select Market under the symbol FISI. Additional information is available at the Company’s website: www.fiiwarsaw.com.

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, the attitudes and preferences of its customers, 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.

*****

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

	2012			2011
	March 31,			December 31,		September 30,		June 30,		March 31,
SELECTED BALANCE SHEET DATA
(Amounts in thousands)
Cash and cash equivalents	$	77,025			57,583		67,601		46,084		94,535
Investment securities:
Available for sale		699,497			627,518		679,487		706,958		692,812
Held-to-maturity		24,196			23,297		23,127		24,091		25,284
Total investment securities		723,693			650,815		702,614		731,049		718,096
Loans held for sale		2,053			2,410		2,403		14,511		1,666
Loans:
Commercial business		233,764			233,836		223,796		217,430		209,379
Commercial mortgage		406,521			393,244		381,541		357,463		361,713
Residential mortgage		112,148			113,911		116,432		120,789		123,594
Home equity		237,019			231,766		222,640		215,637		209,961
Consumer indirect		508,085			487,713		465,910		431,611		422,821
Other consumer		23,491			24,306		24,808		25,122		25,051
Total loans		1,521,028			1,484,776		1,435,127		1,368,052		1,352,519
Allowance for loan losses		23,763			23,260		22,977		20,632		20,119
Total loans, net		1,497,265			1,461,516		1,412,150		1,347,420		1,332,400
Total interest-earning assets (1) (2)		2,226,472			2,115,622		2,115,822		2,094,684		2,068,014
Goodwill		37,369			37,369		37,369		37,369		37,369
Total assets		2,460,820			2,336,353		2,358,811		2,282,944		2,295,116
Deposits:
Noninterest-bearing demand		404,186			393,421		395,267		358,574		354,312
Interest-bearing demand		435,701			362,555		404,925		376,306		424,897
Savings and money market		530,754			474,947		476,122		438,173		464,076
Certificates of deposit		695,928			700,676		707,357		699,186		726,296
Total deposits		2,066,569			1,931,599		1,983,671		1,872,239		1,969,581
Borrowings		117,347			150,698		103,075		159,097		68,762
Total interest-bearing liabilities		1,779,730			1,688,876		1,691,479		1,672,762		1,684,031
Shareholders’ equity		239,962			237,194		240,855		233,733		222,823
Common shareholders’ equity (3)		222,489			219,721		223,376		216,254		205,248
Tangible common shareholders’ equity (4)		185,120			182,352		186,007		178,885		167,879
Securities available for sale – fair value adjustment
included in shareholders’ equity, net of tax	$	12,316			13,570		14,743		11,486		2,633
Common shares outstanding		13,812			13,803		13,806		13,806		13,793
Treasury shares		350			359		356		356		369
CAPITAL RATIOS
Leverage ratio		8.80	%		8.63		8.67		9.30		9.11
Tier 1 risk-based capital		12.22	%		12.20		12.23		13.71		13.48
Total risk-based capital		13.47	%		13.45		13.49		14.96		14.73
Common equity to assets		9.04	%		9.40		9.47		9.47		8.94
Tangible common equity to tangible assets (4)		7.64	%		7.93		8.01		7.97		7.44
Common book value per share	$	16.11			15.92		16.18		15.66		14.88
Tangible common book value per share (4)	$	13.40			13.21		13.47		12.96		12.17

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

	2012			2011
	First			Year ended			Fourth Third				Second			First
	Quarter			December 31,			Quarter Quarter				Quarter			Quarter
SELECTED INCOME STATEMENT DATA
(Dollar amounts in thousands)
Interest income	$	23,450			95,118			23,875		23,774		23,830			23,639
Interest expense		2,509			13,255			2,721		3,156		3,577			3,801
Net interest income		20,941			81,863			21,154		20,618		20,253			19,838
Provision for loan losses		1,385			7,780			2,162		3,480		1,328			810
Net interest income after provision
for loan losses		19,556			74,083			18,992		17,138		18,925			19,028
Noninterest income:
Service charges on deposits		1,835			8,679			2,074		2,257		2,243			2,105
ATM and debit card		1,077			4,359			1,103		1,117		1,123			1,016
Broker-dealer fees and commissions		587			1,829			500		541		402			386
Company owned life insurance		426			1,424			457		422		279			266
Net gain on sale of loans held for sale		333			880			221		318		117			224
Net gain on investment securities		331			3,003			656		2,340		4			3
Loan servicing		94			835			173		64		249			349
Impairment charge on investment securities		(91	)		(18	)		(18	)	—		—			—
Net gain (loss) on disposal of other assets		6			67			23		7		(8	)		45
Other		853			2,867			578		970		565			754
Total noninterest income		5,451			23,925			5,767		8,036		4,974			5,148
Noninterest expense:
Salaries and employee benefits		8,931			35,439			9,080		9,104		8,854			8,401
Occupancy and equipment		2,770			10,868			2,659		2,722		2,644			2,843
Professional services		711			2,617			794		570		571			682
Computer and data processing		600			2,437			583		603		648			603
Supplies and postage		458			1,778			441		461		424			452
FDIC assessments		297			1,513			301		437		168			607
Advertising and promotions		101			1,259			364		477		253			165
Loss on extinguishment of debt		—			1,083			—		1,083		—			—
Other		1,789			6,800			2,057		1,555		1,591			1,597
Total noninterest expense		15,657			63,794			16,279		17,012		15,153			15,350
Income before income taxes		9,350			34,214			8,480		8,162		8,746			8,826
Income tax expense		3,154			11,415			2,718		2,664		3,027			3,006
Net income	$	6,196			22,799			5,762		5,498		5,719			5,820
Preferred stock dividends		369			3,182			369		368		370			2,075
Net income applicable to
common shareholders	$	5,827			19,617			5,393		5,130		5,349			3,745
STOCK AND RELATED PER SHARE DATA
Net income per share – basic	$	0.43			1.50			0.39		0.38		0.39			0.33
Net income per share – diluted	$	0.42			1.49			0.39		0.37		0.39			0.33
Cash dividends declared on common stock	$	0.13			0.47			0.13		0.12		0.12			0.10
Common dividend payout ratio (5)		30.23	%		31.33			33.33		31.58		30.77			30.30
Dividend yield (annualized)		3.23	%		2.91			3.20		3.34		2.93			2.31
Stock price (Nasdaq: FISI):
High	$	17.99			20.36			17.26		17.98		17.93			20.36
Low	$	15.22			12.18			12.18		13.63		15.20			16.40
Close	$	16.17			16.14			16.14		14.26		16.42			17.52

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

	2012			2011
	First			Year ended		Fourth		Third		Second		First
	Quarter			December 31,		Quarter		Quarter		Quarter		Quarter
SELECTED AVERAGE BALANCES
(Amounts in thousands)
Federal funds sold and interest-earning deposits	$	94			140		94		93		116		258
Investment securities (1)		624,883			685,769		654,260		692,944		714,490		681,604
Loans (2):
Commercial business		231,865			215,598		225,274		216,980		212,260		207,669
Commercial mortgage		402,007			370,843		392,493		368,071		361,265		361,228
Residential mortgage		114,166			121,742		116,320		118,952		123,294		128,567
Home equity		233,550			216,428		226,597		217,808		212,439		208,656
Consumer indirect		494,861			444,527		477,017		450,813		431,728		417,833
Other consumer		23,554			24,686		24,168		24,644		24,717		25,226
Total loans		1,500,003			1,393,824		1,461,869		1,397,268		1,365,702		1,349,179
Total interest-earning assets		2,124,980			2,079,733		2,116,223		2,090,305		2,080,308		2,031,041
Goodwill		37,369			37,369		37,369		37,369		37,369		37,369
Total assets		2,342,730			2,277,149		2,322,303		2,294,856		2,268,359		2,221,778
Interest-bearing liabilities:
Interest-bearing demand		392,353			383,122		378,584		366,567		391,899		395,807
Savings and money market		507,543			451,030		464,904		436,336		468,130		434,579
Certificates of deposit		703,372			712,411		703,571		706,435		707,608		732,414
Borrowings		97,093			115,027		127,914		155,534		97,794		77,870
Total interest-bearing liabilities		1,700,361			1,661,590		1,674,973		1,664,872		1,665,431		1,640,670
Noninterest-bearing demand deposits		387,153			368,268		388,670		375,518		358,349		350,032
Total deposits		1,990,421			1,914,831		1,935,729		1,884,856		1,925,986		1,912,832
Total liabilities		2,102,217			2,044,899		2,080,177		2,054,477		2,039,750		2,004,250
Shareholders’ equity		240,513			232,250		242,126		240,379		228,609		217,528
Common equity (3)		223,040			207,189		224,649		222,900		211,051		169,376
Tangible common equity (4)	$	185,671			169,820		187,280		185,531		173,682		132,007
Common shares outstanding:
Basic		13,675			13,067		13,636		13,635		13,631		11,336
Diluted		13,733			13,157		13,722		13,704		13,707		11,467
SELECTED AVERAGE YIELDS/
RATES AND RATIOS
(Tax equivalent basis)
Federal funds sold and interest-earning deposits		0.29	%		0.20		0.18		0.18		0.22		0.21
Investment securities		2.83	%		2.93		2.79		2.95		2.96		3.00
Loans		5.24	%		5.53		5.38		5.45		5.60		5.71
Total interest-earning assets		4.53	%		4.67		4.58		4.62		4.69		4.80
Interest-bearing demand		0.15	%		0.16		0.15		0.16		0.16		0.17
Savings and money market		0.22	%		0.23		0.23		0.23		0.24		0.24
Certificates of deposit		1.13	%		1.37		1.22		1.31		1.42		1.54
Borrowings		0.46	%		1.58		0.45		1.10		2.63		3.12
Total interest-bearing liabilities		0.59	%		0.80		0.64		0.75		0.86		0.94
Net interest rate spread		3.94	%		3.87		3.94		3.87		3.83		3.86
Net interest rate margin		4.05	%		4.04		4.07		4.02		4.00		4.05
Net income (annualized returns on):
Average assets		1.06	%		1.00		0.98		0.95		1.01		1.06
Average equity		10.36	%		9.82		9.44		9.07		10.03		10.85
Average common equity (6)		10.51	%		9.47		9.53		9.13		10.17		8.97
Average tangible common equity (7)		12.62	%		11.55		11.43		10.97		12.35		11.51
Efficiency ratio (8)		58.59	%		60.55		60.49		62.97		58.68		59.97

FINANCIAL INSTITUTIONS, INC.
Summary of Quarterly Financial Data (Unaudited)

	2012			2011
	First			Year ended		Fourth Third			Second		First
	Quarter			December 31,		Quarter Quarter			Quarter		Quarter
ASSET QUALITY DATA
(Dollar amounts in thousands)
Nonaccrual loans	$	8,217			7,071		7,071	7,793		6,975		7,315
Accruing loans past due 90 days or more		5			5		5	4		4		3
Total non-performing loans		8,222			7,076		7,076	7,797		6,979		7,318
Foreclosed assets		258			475		475	582		599		568
Non-performing investment securities		1,505			1,636		1,636	5,341		6,963		567
Total non-performing assets	$	9,985			9,187		9,187	13,720		14,541		8,453
Allowance for loan losses		23,763			23,260		23,260	22,977		20,632		20,119
Provision for loan losses		1,385			7,780		2,162	3,480		1,328		810
Net loan charge-offs		882			4,986		1,879	1,135		815		1,157
Net charge-offs to average loans (annualized)		0.24	%		0.36		0.51	0.32		0.24		0.35
Total non-performing loans to total loans		0.54	%		0.48		0.48	0.54		0.51		0.54
Total non-performing assets to total assets		0.41	%		0.39		0.39	0.58		0.64		0.37
Allowance for loan losses to total loans		1.56	%		1.57		1.57	1.60		1.51		1.49
Allowance for loan losses to
non-performing loans		289	%		329		329	295		296		275

⁽¹⁾ Includes investment securities at adjusted amortized cost and non-performing investment securities.

⁽²⁾ Includes nonaccrual loans.

⁽³⁾ Excludes preferred shareholders’ equity.

⁽⁴⁾ Excludes preferred shareholders’ equity, goodwill and other intangible assets.

⁽⁵⁾ Common dividend payout ratio equals dividends declared during the period divided by earnings per share for the equivalent period.

⁽⁶⁾ Net income available to common shareholders divided by average common equity.

⁽⁷⁾ Net income available to common shareholders divided by average tangible equity.

⁽⁸⁾ Efficiency ratio equals noninterest expense less other real estate expense as a percentage of net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains and impairment charges on investment securities.