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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐ | Preliminary Proxy Statement | |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule14a-6(e)(2)) | |
☒ | Definitive Proxy Statement | |
☐ | Definitive Additional Materials | |
☐ | Soliciting Material Pursuant to§240.14a-12 |
FINANCIAL INSTITUTIONS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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☐ | Fee computed on table below per Exchange Act Rules14a-6(i)(1) and 0-11. | |||
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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April 28, 2017
Fellow Shareholders:
You are cordially invited to attend the 2017 Annual Meeting of Shareholders of Financial Institutions, Inc. We will hold the meeting on June 21, 2017 at 10:00 a.m. at our Corporate Headquarters at 220 Liberty Street in Warsaw, New York. We hope that you will be able to attend. We will provide an update on the Company and how we are executing on our strategies and initiatives. It’s also an important opportunity for us to hear directly from you.
Enclosed you will find a letter from ournon-executive Chairman of the Board, a notice setting forth the business expected to come before the meeting, our proxy statement, a form of proxy and a copy of our 2016 Annual Report to Shareholders. Your vote is very important to us. Whether or not you plan to attend the meeting in person, we hope that your shares are represented and voted.
We performed well in 2016 as a result of our focus on our community banking franchise and complementary businesses coupled with the talent of our associates and their belief in our culture of leadership, teamwork and service.
Thank you for your investment in Financial Institutions, Inc. I am proud to be part of this Company with such talented and dedicated people and a Board comprised of accomplished members, all of whom are committed to our success and, as a result, your investment.
Cordially,
/s/ Martin K. Birmingham |
Martin K. Birmingham |
President and Chief Executive Officer |
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April 28, 2017
Dear Fellow Shareholders:
As always, our Board remains focused on its critical mission of providing active engagement and oversight of Financial Institutions, Inc.’s strategy, capabilities, leadership and risk management. Our efforts are directed at ensuring that the Company is well-positioned to continue creating value for our shareholders. It is our pleasure to be part of this remarkable Company that plays such a vital role in the economic well-being of our customers, our employees and the communities we serve.
As your representatives, the Board and I are committed to, and value, hearing from our shareholders. This past year, I had the opportunity to meet with, and obtain direct feedback from, our shareholders about our business strategies, governance practices and emerging issues. I found these conversations extremely informative, shared your feedback with the full Board, and took them into account in our deliberations.
Strategy
In 2016, the Board remained highly engaged in the Company’s strategic approach to creating shareholder value. As in prior years, we held an offsite meeting with the extended leadership team and outside experts to discuss and evaluate our strategic priorities. Through these discussions, the Board gained a deeper understanding of the Company’s opportunities and challenges. The result is a more refined strategic vision that is well understood and fully supported by the Board. At our annual retreat in the summer of 2016, the Board also devoted significant time and discussion to a review of the execution of the 2015-2017 strategic plan and approval of the strategic plan for the 2017-2019 period.
Talent Development and Succession Planning
Talent development and succession planning continue to be important components of the Board’s governance responsibilities. The Board is actively involved in the ongoing review of our succession plan and the actions of management relating to the implementation of that plan. For example, in the summer of 2016, the Board evaluated and endorsed a comprehensive organizational restructuring developed by management to reinforce a strategic focus on revenue generation and growth across all of our lines of business. We believe this restructuring will contribute to the development of our team by allowing them to gain valuable training and experience as they progress toward senior leadership roles in the Company.
Executive Compensation
An important focus for the Board is executive compensation. The Board, through our Management Development & Compensation Committee, is actively engaged to ensure that the structure of our programs provide appropriate incentives for our executive leadership while effectively aligning their interests with those of our shareholders. We believe that the linkage of our incentive plans to Company strategy properly correlates compensation to Company performance. We regularly utilize best practices, including the use of an independent compensation consultant and the solicitation of feedback from our shareholders. In response to shareholder feedback, the key compensation performance measures of return on average assets (“ROAA”) and return on average equity (“ROAE”) in the annual incentive plan were replaced with total loan growth and core deposit growth for 2017. We believe these two annual performance measures more directly align with the Company’s strategic plan and annual business plan.
Engagement
There are several ways in which the Board receives investor feedback. Through a combination of formal management presentations and informal conversations, we provide updates regarding developments at the Company and we listen to your views on strategy, business and financial issues. This past year, the Chair of our Management Development and Compensation Committee and I had the opportunity to engage with many of our investors. The Board is also actively engaged with our regulators, customers and key community leaders to gain further insights on our performance and underlying opportunities we may not yet have fully pursued.
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Board Effectiveness and Composition
We are focused on ensuring that the Board is composed of capable Directors of high integrity to represent the long-term interests of shareholders. Refreshing our Board with new perspectives and new ideas is critical to a forward-looking and strategic Board. Ensuring diverse perspectives, including a mix of skills, experience, geography and backgrounds, is critical to representing the interests of shareholders effectively. Since 2013, four new directors, or 36% of the Board, joined as new members. Over the past 18 months, we have had a full rotation of Board committee chairs and we expanded diversity representation on the Board.
Also, in response to shareholder feedback, we established a Director Resignation Policy in late 2016, which would require greater accountability by our directors in the event any nominee does not receive a majority of votes in favor for his or her election as a director.
We are pleased to add Don Boswell in the slate of director nominees this year. As the President and CEO of Western New York Public Broadcasting, Don’s knowledge of and connections in Buffalo, one of the Company’s largest growth markets, will add a unique and important perspective as we continue to pursue organic growth initiatives. In addition, Don has extensive corporate governance experience, including previous service on the board of a large and sophisticated banking organization.
I also want to note that after 15 years of distinguished service, Jack Benjamin will retire from the Board and not stand forre-election. Jack’s extensive business and market knowledge, judgment and leadership made him an invaluable voice on our Board. His deep understanding of our business and culture, especially having served as Chairman of the Board and interim Chief Executive Officer, has benefited the Company enormously. We thank him for his dedication and leadership.
Conclusion
As stewards of the Company, the Board is committed to helping Financial Institutions, Inc. deliver strong returns for our shareholders and protecting that value over the long term. I know I speak for the full Board when I say that it is a privilege to serve this great Company and its shareholders. I hope that you find this Proxy Statement informative, and we look forward to continuing our dialogue with you in the year to come.
Sincerely,
/s/ Robert N. Latella |
Robert N. Latella |
Chairman of the Board |
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FINANCIAL INSTITUTIONS, INC.
220 Liberty Street
Warsaw, New York 14569
(585)786-1100
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on June 21, 2017
The Annual Meeting of Shareholders of Financial Institutions, Inc. will be held at the Company’s corporate headquarters located at 220 Liberty Street, Warsaw, New York 14569 on Wednesday, June 21, 2017, at 10:00 a.m. (the “Annual Meeting”) for the following purposes:
1. | ElectionofDirectors. To elect four directors, each to serve until the Company’s 2020 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified; |
2. | AdvisoryVoteonExecutiveCompensation. To vote on anon-binding, advisory resolution to approve the compensation paid to our named executive officers for the fiscal year ended December 31, 2016, as described in the “Compensation Discussion and Analysis,” executive compensation tables and enclosed narrative disclosures in this Proxy Statement (commonly referred to as a “say on pay” vote); |
3. | RatificationofIndependentRegisteredPublicAccountingFirm. To vote on a proposal to ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017; and |
4. | OtherBusiness. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
The record date for the Annual Meeting is April 24, 2017. Only our shareholders of record at the close of business on that date may vote at the meeting or any adjournment or postponement of the meeting. A copy of our Annual Report to Shareholders, including our Annual Report on Form10-K, for the fiscal year ended December 31, 2016 (“Annual Report”) is being mailed with this Proxy Statement.
It is important that your shares be represented and voted at the Annual Meeting whether or not you plan to attend. You may vote by mail or Internet. Instructions for voting by Internet are provided on the enclosed proxy card or the voting instructions provided by your broker.
By Order of the Board of Directors | ||
/s/ Sonia Dumbleton | ||
Sonia M. Dumbleton | ||
Corporate Secretary |
Warsaw, New York
April 28, 2017
Important Notice Regarding the Availability of
Proxy Materials for the Annual Meeting of Shareholders to be held on June 21, 2017
Our Proxy Statement is attached. Financial and other information concerning our Company is contained in our Annual Report to Shareholders for the year ended December 31, 2016. Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including the Proxy Statement, annual report and a proxy card, and by notifying you of the availability of these proxy materials on the Internet. This Proxy Statement and our Annual Report are available on theCompanyFilings subsection under theSECFilings section under theInvestorRelations tab on our website atwww.fiiwarsaw.com.
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Management Development & Compensation Committee Interlocks and Insider Participation | 56 | |||
Notice Pursuant to Section 726(d) of the New York Business Corporation Law | 56 | |||
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220 Liberty Street
Warsaw, New York 14569
(585)786-1100
PROXY STATEMENT
INTRODUCTION
The Financial Institutions, Inc. Board of Directors (the “Board”) is using this Proxy Statement to solicit proxies from the holders of its common stock for use at the Financial Institutions, Inc. 2017 Annual Meeting of Shareholders and any adjournment or postponement thereof (the “Meeting” or the “Annual Meeting”). The notice of meeting, this Proxy Statement and the enclosed form of proxy card are first being mailed to our shareholders on or about May 1, 2017. In this Proxy Statement, we may also refer to Financial Institutions, Inc. and its subsidiaries as “Financial Institutions,” the “Company,” “we,” “our” or “us”.
Financial Institutions is the holding company for Five Star Bank, Scott Danahy Naylon, LLC and Courier Capital, LLC. In this Proxy Statement, we may also refer to Five Star Bank as the “Bank”.
INFORMATION ABOUT THE MEETING, VOTING AND PROXIES
What are the date, time and place of the meeting?
Date: | June 21, 2017 | |
Time: | 10:00 a.m., local time | |
Place: | Corporate Headquarters of Financial Institutions, Inc. | |
220 Liberty Street | ||
Warsaw, New York 14569 |
What matters are to be voted upon at the meeting?
At the meeting, record holders of our common stock as of April 24, 2017 will consider and vote on proposals to:
• | Elect four directors, each to serve a term expiring at the Company’s 2020 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified (see “Proposal 1 – Election of Directors” on page 11); |
• | Approve anon-binding, advisory resolution to approve the compensation paid to our named executive officers for the fiscal year ended December 31, 2016, as described in the “Compensation Discussion and Analysis,” executive compensation tables and enclosed narrative disclosures in this Proxy Statement (see “Proposal 2 - Advisory Vote to Approve the Compensation of Our Named Executive Officers” on page 52); and |
• | Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017 (see “Proposal 3 - Ratification of Appointment of Independent Registered Public Accounting Firm” on page 54). |
As of the date of this Proxy Statement, these three proposals are the only matters that our Board of Directors intends to present at the Annual Meeting. Our Board does not know of any other business to be presented at the meeting. If other business is properly brought before the Annual Meeting, the persons named on the enclosed proxy card will vote on these other matters in their discretion, subject to compliance with Rule14a-4(c) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
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How does the Board recommend that I vote?
The Board recommends that you vote:
• | FOR the election of each of the four nominees for director named in this Proxy Statement (DonaldK.Boswell,AndrewW.Dorn,Jr.,RobertM.Glaser,andSusanR.Holliday), each to serve for a term expiring at the Company’s 2020 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified; |
• | FOR the proposal to approve anon-binding, advisory resolution to approve the compensation paid to our named executive officers for the fiscal year ended December 31, 2016, as described in the “Compensation Discussion and Analysis,” executive compensation tables and enclosed narrative disclosures in this proxy statement; and |
• | FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. |
Who can vote at the Meeting?
Our shareholders of record as of the close of business on April 24, 2017 are entitled to vote (in person or by proxy) at the Annual Meeting and at any adjournment or postponement thereof. On that date, there were 14,536,015 shares of our common stock (each, a share) outstanding and entitled to vote. No securities other than our common stock are entitled to be voted at the Annual Meeting.
How many shares must be present to conduct the Meeting?
We must have a “quorum” present in person or by proxy to hold the meeting. A quorum is a majority of the shares entitled to vote that are either present in person or by proxy. For purposes of determining whether a quorum exists, we count as present any shares that are voted by proxy over the Internet, by mail or that are represented in person at the Annual Meeting. Proxies received but marked as abstentions and brokernon-votes, which are described below, will be counted for the purpose of determining the existence of a quorum. An inspector of elections appointed for the meeting will determine whether a quorum is present and will tabulate votes cast by proxy or in person at the meeting. If a quorum is not present, we expect to adjourn the Annual Meeting until we obtain a quorum.
What is the difference between a “record holder” and a “beneficial owner”?
If your shares are registered directly in your name with our transfer agent, you are considered the “record holder” of your shares. If, on the other hand, your shares are held in a brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of shares held in street name. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote and you are also invited to attend the meeting. Since a beneficial owner is not the record holder, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from your broker, bank or other nominee that holds your shares, giving you the right to vote your shares at the meeting. Your broker, bank or other nominee has provided you with instructions regarding how to direct the voting of your shares.
How do I vote before the Meeting?
If you are a record holder, you may vote your shares by mail by completing, signing and returning the enclosed proxy card. For your convenience, you may also vote your shares via the Internet by following the instructions on the enclosed proxy card. If you vote via the Internet, you do not need to return your proxy card.
If you hold shares beneficially in the name of your broker, bank or other nominee, commonly referred to as “street name,” you may vote by submitting voting instructions to your broker. For directions on how to vote shares held beneficially in street name, please refer to the voting instruction card provided by your broker, bank or other nominee.
By completing and returning a proxy card, participants in the Financial Institutions, Inc. 401(k) Retirement Savings Plan (which we refer to as the “Plan”) who hold shares of our common stock in their Plan accounts, direct the trustee of the Plan to vote these shares as indicated on the proxy card. Any shares in a Plan account for which no instruction is received will be voted by the trustee proportionally based upon the votes cast by other plan account holders whose Plan accounts hold such shares.
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With respect to the election of directors (Proposal 1), you may either vote for all four of the nominees to the Board of Directors named on the enclosed proxy card, withhold authority to vote for any nominee(s) you specify or you may withhold authority to vote for all of the nominees as a group. You may vote for, against, or abstain from voting on the proposal to approve anon-binding, advisory resolution to approve the compensation paid to our named executive officers for the fiscal year ended December 31, 2016 (Proposal 2) and the proposal to ratify the appointment of our independent registered public accounting firm for the fiscal year ending December 31, 2017 (Proposal 3).
May I vote at the Meeting?
Yes, you may vote your shares at the meeting if you attend in person. If your shares are held by a broker, bank, or other nominee and you wish to vote at the meeting, you must bring to the meeting a letter from the broker, bank, or other nominee confirming (1) your beneficial ownership of the shares, (2) that the broker, bank, or other nominee is not voting the shares at the meeting, and (3) granting you a legal proxy to vote the shares in person or at the meeting.Youwillnotbeabletovotesharesyouholdinstreetnamethroughabank,brokerorothernomineeinpersonattheAnnualMeetingunlessyouhavealegalproxyfromthatbank,brokerorothernomineeissuedinyournamegivingyoutherighttovoteyourshares. For information on how to obtain directions to the meeting, please contact us at (585)786-1100. Even if you plan to attend the meeting in person, we recommend that you also submit your proxy card or voting instructions as described above so that your vote will be counted if you later decide not to attend the meeting in person.
What does it mean if I receive more than one set of proxy materials?
You may receive more than one set of these proxy materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you may receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a shareholder of record and your shares are registered in more than one name, you will receive more than one proxy card. To ensure that all of your shares are voted, please vote using each proxy card or voting instruction form that you receive or, if you vote by Internet, you will need to enter each of your Control Numbers. Remember, you may vote by Internet or by signing, dating and returning the proxy card in the postage-paid envelope provided, or by voting by ballot at the Annual Meeting.
How many votes do I have?
Each share that you own as of the close of business on April 24, 2017 entitles you to one vote on each matter voted upon at the meeting. As of the close of business on April 24, 2017, there were 14,536,015 shares of our common stock outstanding. Holders of our common stock do not have cumulative voting rights.
Can I change my vote after I submit my proxy?
Yes, you may change your vote or revoke your proxy at any time before the vote at the meeting. If you are a record holder, you may revoke your proxy and change your vote at any time before the polls close at the meeting by:
• | Properly submitting a later dated proxy; |
• | Notifying the Corporate Secretary of Financial Institutions in writing before the meeting that you have revoked your proxy; or |
• | Voting in person at the meeting. |
If you have instructed a broker, bank or other nominee to vote your shares, you may submit a new, later-dated voting instruction form or contact your bank, broker or other nominee. You may also vote in person at the Annual Meeting if you obtain a legal proxy as described in the answer to the question above entitled “May I vote at the meeting?”
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How are my shares voted if I submit a proxy but do not specify how I want to vote?
If you submit a properly executed proxy card and specify how you want to vote, the persons named on the proxy card (or, if applicable, their substitutes) will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your shares will be voted as the Board of Directors recommends, which is:
• | FOR the election of each of the four nominees for director named in this Proxy Statement (DonaldK.Boswell,AndrewW.Dorn,Jr.,RobertM.Glaser,andSusanR.Holliday), each to serve for a term expiring at the Company’s 2020 Annual Meeting of Shareholders and until their respective successors are duly elected and qualified; |
• | FOR the proposal to approve anon-binding, advisory resolution to approve the compensation paid to our named executive officers for the fiscal year ended December 31, 2016, as described in the “Compensation Discussion and Analysis,” executive compensation tables and enclosed narrative disclosures in this proxy statement; and |
• | FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. |
With respect to the transaction of such other business as may properly come before the meeting and any adjournment or postponement thereof, subject to compliance with Rule14a-4(c) of the Exchange Act, each proxy received will be voted in accordance with the best judgment of the persons named on the enclosed proxy card. At this time, the Board of Directors knows of no such other business.
What is a brokernon-vote?
If you are a beneficial owner whose shares of record are held by a broker, you may instruct your broker how to vote your shares. If you do not give instructions to your broker, the broker will determine if it has the discretionary authority to vote on the particular matter. Under the rules of the New York Stock Exchange (“NYSE”), which are also applicable to NASDAQ-listed companies, brokers have the discretion to vote on routine matters such as Proposal 3, but do not have discretion to vote onnon-routine matters such as Proposals 1 and 2. Therefore, if you do not provide voting instructions to your broker or other nominee, your broker or other nominee may only vote your shares on Proposal 3.
A brokernon-vote occurs when a broker has not received voting instructions from the beneficial owner of the shares and the broker cannot vote the shares because the matter is not considered a routine matter under NYSE rules. Brokernon-votes, if any, will be counted for purposes of calculating whether a quorum is present at the meeting, but will not be counted for purposes of determining the number of votes cast with respect to a particular proposal.
Your vote is important and we strongly encourage you to vote your shares by following the instructions provided on the voting instruction card you receive from your broker. Please return your voting instruction card to your broker and contact the person responsible for your account to ensure that a proxy is voted on your behalf.
What vote is required to elect directors?
Our shareholders elect directors by a plurality vote, which means that the four director nominees for election who receive the highest number of “FOR” votes will be elected as directors.
If your shares are held by a bank, broker or other nominee in street name and you do not vote your shares, the bank, broker, or other nominee cannot vote such shares for the election of directors. If you do not vote for the election of directors because the authority to vote is withheld, because a proxy is not returned, because the broker holding the shares does not vote, or because of some other reason, the shares will not count in determining the total number of votes for each nominee. Proxy cards signed and returned to the Company unmarked will be voted FOR the four nominees for directors named in this proxy statement (DonaldK.Boswell,AndrewW.Dorn,Jr.,RobertM.Glaser,andSusanR.Holliday).
What happens if one or more of the nominees for director do not receive a majority of the votes cast?
Any nominee for director who receives a greater number of votes WITHHELD from his or her election than votes FOR shall tender his or her resignation to the Board. The Board’s Nominating and Governance Committee will then make a recommendation to the independent directors who were not required to submit their resignation whether to accept or reject the resignation(s) or take other appropriate action with respect to the director nominee(s) who did not receive a majority of votes. Within 90 days of the Annual Meeting, the independent directors will, after due deliberation, determine what action is to be taken.
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What vote is required to approve thenon-binding, advisory resolution to approve the compensation paid to our named executive officers?
This matter is being submitted to enable our shareholders to approve, on an advisory andnon-binding basis, the compensation of our named executive officers for the year ended December 31, 2016. In order to be approved on an advisory,non-binding basis, this proposal must receive the “FOR” vote of a majority of the votes cast on the matter. Abstentions will have no effect on the proposal. Brokernon-votes will also have no effect on this proposal as brokers are not entitled to vote on such proposals in the absence of voting instructions from the beneficial owner. Although the advisory vote on the compensation of our named executive officers isnon-binding, our Management Development & Compensation Committee values the opinions expressed by our shareholders in their vote on this proposal and will review the results of the vote and evaluate whether any actions are necessary to address such results.
What vote is required to ratify the appointment of KPMG LLP as our independent registered public accounting firm?
In order for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017 to be approved, this proposal must receive the “FOR” vote of a majority of the votes cast on the matter. Brokers will have no authority to vote on this proposal without receiving voting instructions from the beneficial owner and therefore there will be no brokernon-votes on this proposal. If you vote to ABSTAIN on this proposal, your shares will not be voted FOR or AGAINST this proposal, will not be counted as votes cast or shares withheld on this proposal and, accordingly, abstentions will have no effect on this proposal.
Although shareholder ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017 is not required, we believe that it is advisable to give shareholders an opportunity to ratify this appointment. If such ratification is not approved at the Annual Meeting, the Board’s Audit Committee may reconsider its appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017 and reserves the discretion to appoint KPMG LLP or another independent registered public accounting firm.
Who pays for the solicitation of proxies?
We will pay for the entire cost of soliciting proxies. We will also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to the beneficial owners of our shares. In addition, our directors and employees may solicit proxies in person, by telephone, via the Internet, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. In addition, we have engaged Saratoga Proxy Consulting, LLC, 520 8th Avenue, 14th Floor, New York, New York 10018 to assist in proxy solicitation and collection at a cost of $6,500, plusout-of-pocket expenses.
How can I find out the results of the voting at the Meeting?
We will report the voting results in a filing with the U.S. Securities and Exchange Commission (“SEC”) on a Current Report on Form8-K within four business days following the conclusion of the Annual Meeting. If the official results are not available at that time, we will provide preliminary voting results in the Form8-K and will provide the final results in an amendment to the Form8-K as soon as practicable after they become available.
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What is the deadline to propose actions for consideration at next year’s annual meeting of shareholders?
You may submit proposals for consideration at our 2018 annual meeting of shareholders. For a shareholder proposal to be considered for inclusion in our proxy statement for the annual meeting next year pursuant to Rule14a-8 of the Exchange Act, our Corporate Secretary must receive the written proposal at our corporate headquarters no later than December 29, 2017. Such proposals also must comply with Rule14a-8 of the Exchange Act. Such proposals should be addressed to:
Corporate Secretary
Financial Institutions, Inc.
220 Liberty Street
Warsaw, New York 14569
For a shareholder to bring business before the annual meeting of shareholders that is not intended to be included in our proxy statement pursuant to Rule14a-8 of the Exchange Act, the shareholder must give timely notice to our Corporate Secretary in accordance with ourBy-laws and include in such notice the information required by ourBy-laws. In general, ourBy-laws require that the notice be received by our Corporate Secretary no later than 90 days and not more than 120 days prior to theone-year anniversary date of the Annual Meeting. However, if the 2018 annual meeting is more than thirty days before or more than sixty days after theone-year anniversary date of the Annual Meeting, then notice will need to be received by our Corporate Secretary by the later of (i) 90 days prior to the 2018 annual meeting or (ii) ten days following the date public disclosure of the date of the 2018 annual meeting was first made public.
In addition, in order for any shareholder proposals submitted outside of Rule14a-8 of the Exchange Act to be considered “timely” for purposes of Rule14a-4(c) of the Exchange Act, the proposal must be received at our principal executive offices not later than 60 days prior to the scheduled date of the 2018 annual meeting of shareholders.
How can I obtain additional copies of these materials or copies of other documents?
Complete copies of this Proxy Statement and the 2016 Annual Report, which includes our Annual Report of Form10-K for the year ended December 31, 2016, are also available on theCompanyFilings subsection under theSECFilings section under theInvestorRelations tab on our website atwww.fiiwarsaw.com.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of April 24, 2017, the beneficial ownership of shares of Financial Institutions, Inc. common and preferred stock by (a) all current directors and nominees, (b) all named executive officers, and (c) all of our current directors, nominees and executive officers as a group. Beneficial ownership means that the individual has or shares voting power or investment power with respect to the shares of stock or the individual has the right to acquire the shares of stock within 60 days of April 24, 2017.
Name | Title of class | Number of shares beneficially owned | Number of shares included in the previous column which the individual or group has the right to acquire within 60 days of April 24, 2017 | Percent of class outstanding(1) | ||||||||||||
Directors(2): | ||||||||||||||||
Karl V. Anderson, Jr. | Common | 15,505 | 2,000 | * | ||||||||||||
John E. Benjamin | Common | 21,555 | 2,000 | * | ||||||||||||
Martin K. Birmingham | Common | 98,118 | — | * | ||||||||||||
Andrew W. Dorn, Jr. | Common | 12,808 | — | * | ||||||||||||
Robert M. Glaser | Common | 10,834 | — | * | ||||||||||||
Samuel M. Gullo | Common | 21,736 | 4,000 | * | ||||||||||||
Susan R. Holliday | Common | 23,335 | 2,000 | * | ||||||||||||
Erland E. Kailbourne | Common | 43,112 | 4,000 | * | ||||||||||||
Robert N. Latella | Common | 20,251 | 4,000 | * | ||||||||||||
Kim E. VanGelder | Common | 2,016 | — | * | ||||||||||||
James H. Wyckoff | Common | 427,540 | (3) | — | 2.94 | % | ||||||||||
Class A Preferred | 69 | (4) | — | 4.62 | % | |||||||||||
Class B Preferred | 8,565 | (5) | — | 4.98 | % | |||||||||||
Nominee: | ||||||||||||||||
Donald K. Boswell | Common | — | — | * | ||||||||||||
Named executive officers who are not Directors(2): | ||||||||||||||||
Michael D. Burneal | Common | 6,606 | — | * | ||||||||||||
Jeffrey P. Kenefick | Common | 14,007 | — | * | ||||||||||||
Kevin B. Klotzbach | Common | 28,814 | — | * | ||||||||||||
William L. Kreienberg | Common | 23,164 | — | * | ||||||||||||
All current directors, nominees and executive officers as a group (26 persons) | Common | 799,350 | 22,200 | 5.49 | % | |||||||||||
Class A Preferred | 69 | — | 4.62 | % | ||||||||||||
Class B Preferred | 8,565 | — | 4.98 | % |
* | Denotes less than 1% |
(1) | As reported by such persons as of April 24, 2017 with percentages based on 14,536,015 shares of Common Stock, 1,492 shares of Series A Preferred Stock and 171,906 shares of SeriesB-1 Preferred Stock, respectively, outstanding on April 24, 2017, including shares the individual or group has a right to acquire within 60 days of April 24, 2017 (as indicated in the column above), which increases both the number of shares owned by such individual or group and the number of shares outstanding. |
(2) | Except as set forth in the footnotes below, each person has sole investment and voting power with respect to the stock beneficially owned by such person. |
(3) | Includes 66,995 shares held by Mr. Wyckoff’s spouse. |
(4) | Includes 8 shares held by Mr. Wyckoff’s spouse and 19 shares held in trust. |
(5) | Includes 855 shares held by Mr. Wyckoff’s spouse. |
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To our knowledge, the following persons were the beneficial owners of more than 5% of the outstanding shares of common stock of the Company as of April 24, 2017.
Name and Address of Beneficial Owner | Number of shares beneficially owned | Percent of outstanding common stock(1) | ||||||
BlackRock, Inc. | 1,119,071 | (2) | 7.70 | % | ||||
Dimensional Fund Advisors LP | 834,925 | (3) | 5.74 | % |
* | Denotes less than 1% |
(1) | Based on 14,536,015 shares of Common Stock outstanding as of April 24, 2017. |
(2) | Based on information set forth in Amendment number 7 to Schedule 13G filed with the SEC on January 24, 2017 by BlackRock, Inc. reporting beneficial ownership in the following manner: sole voting power, 1,089,280 shares; and sole dispositive power, 1,119,071 shares. Blackrock, Inc. is reporting beneficial ownership for the following subsidiaries: BlackRock Advisors, LLC, BlackRock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, BlackRock Financial Management, Inc., BlackRock Fund Advisors, BlackRock Institutional Trust Company, N.A., and BlackRock Investment Management, LLC. |
(3) | Based on information set forth in Schedule 13G filed with the SEC on February 9, 2017 by Dimensional Fund Advisors LP (“Dimensional”) reporting beneficial ownership in the following manner: sole voting power, 797,137 shares; and sole dispositive power, 834,925 shares. Dimensional reports beneficial ownership for four investment companies it advises orsub-advises and certain comingled funds, group trusts and separate accounts it advises. Dimensional disclaims beneficial ownership of all such shares. |
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PROPOSAL 1 – ELECTION OF DIRECTORS
OurBy-laws provide for a classified Board of Directors, with directors divided into three classes of approximately equal number. One class is elected at each annual meeting of shareholders for a term expiring at the third successive annual meeting and until their respective successors have been elected and qualified. The Board of Directors is authorized by ourBy-laws to fix, from time to time, the number of directors that constitute the whole Board of Directors. The Board size is currently set at eleven members. John E. Benjamin, whose term expires in 2017, has elected to retire as a Director and is not standing forre-election. Accordingly, Mr. Benjamin’s term as a director will expire at the Annual Meeting. The nominees for director at the 2017 Annual Meeting are:DonaldK.Boswell,AndrewW.Dorn,Jr.,RobertM.Glaser,andSusanR.Holliday. Messrs. Dorn and Glaser and Ms. Holliday are nominated forre-election to the Board and Mr. Boswell is nominated for his first term as a director. Each of these individuals has been nominated by the Board of Directors, upon the recommendation of its Nominating and Governance Committee, to stand for election for a term expiring at the Company’s annual meeting to be held in 2020 and until his or her respective successors are duly elected and qualified. The sole nominee standing for election for the first time, Mr. Boswell, was recommended to the Nominating and Governance Committee by current members of the Board of Directors and executive officers of the Company.
The nominees recommended by the Board of Directors have consented to serving as nominees for election to the Board, to being named in this proxy statement and to serving as members of the Board if elected by the Company’s shareholders. As of the date of this proxy statement, the Company has no reason to believe that any nominee will be unable or unwilling to serve if elected as a director. However, if for any reason a nominee becomes unable to serve or for good cause will not serve if elected, the Board upon the recommendation of its Nominating and Governance Committee may designate substitute nominees, in which event the shares represented by proxies returned to us will be voted for such substitute nominees. If any substitute nominees are so designated, the Company will file an amended proxy statement that, as applicable, identifies the substitute nominees, discloses that such nominees have consented to being named in the amended proxy statement and to serve as directors if elected, and includes certain biographical and other information about such nominees required by the applicable rules promulgated by the SEC.
Our corporate governance guidelines were amended during 2016 to include a director resignation policy. If any nominee receives a majority of WITHHELD votes rather than FOR votes, that nominee will be required to immediately submit his or her resignation to the Board (brokernon-votes will not be counted as either for or withheld). The Board’s Nominating and Governance Committee will then make a recommendation to the independent directors who were elected with a majority of FOR votes as to whether that resignation should be accepted or rejected or whether another action is appropriate. Within 90 days of the Annual Meeting, the independent directors will, after due deliberation, determine what action is to be taken. The director nominee(s) who received a majority of WITHHELD votes shall play no part in these deliberations or in the decision reached by the independent directors.
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The Board believes that its director nominees bring or will bring special skills, experience and expertise to the Board as a result of their other business activities and associations.
Core Qualifications and Experiences All of our Director Nominees Possess | Diversity of Skills and Experiences Represented on our Board | |||||
✓ Integrity, business judgment and commitment ✓ Demonstrated management ability ✓ Extensive experience in the public, private ornot-for-profit sectors ✓ Leadership and expertise in their respective fields ✓ Financial literacy ✓ Active involvement in educational, charitable and community organizations in the communities we serve | ✓ Financial industry ✓ Complex regulated industries ✓ Risk management ✓ Reputational considerations ✓ Corporate governance ✓ Technology and cyber security ✓ Accounting & preparation of financial statements ✓ Compliance ✓In-market experience | ✓ Business ethics ✓ Strategic thinking ✓ Operations ✓ Knowledge of growth markets ✓ Credit evaluation ✓ Environmental, social & governance factors ✓ Human capital management ✓ Academia ✓ Government, public policy & regulatory affairs |
The business experience of each Director or director nominee of the Company for at least the past five years, and the experience and qualifications supporting his or her service are set forth on the following pages. The ages shown are as of December 31, 2016.
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The Board of Directors unanimously recommends that shareholders elect nominees Donald K. Boswell, Andrew W. Dorn, Jr., Robert M. Glaser, and Susan R. Holliday, and recommends that you vote “FOR ALL NOMINEES”
Donald K. Boswell
DirectorSince: New Nominee | ||
Age: 65 | Independent | |
Qualifications: |
President and CEO of the Western New York Public Broadcasting Association(WNED-TV/AM/FM) since 1998
Prior Business Experience
• | North Texas Public Broadcasting, Inc., Dallas/Fort Worth/Denton: Executive Vice President and COO (1997); Acting President (1996–1997); Vice President of Marketing and Corporate Development (1986–1996); and Vice President of Development (1982–1986) |
• | KCTS-TV, Seattle: Vice President of Development (1981–1982) |
• | WVIA-TV/FM, Pittston, Pennsylvania: Corporate Underwriting Specialist and Director of Community Relations/Producer (1977–1981) |
Current Private Company Boards
• | New Era Cap Company |
Past Other Company Boards
• | HSBC Bank USA, N.A. |
CurrentNot-for-Profit Boards
• | 43 x 79 Group (Chair) |
• | American Friends for the Art Gallery of Ontario (Chair) |
• | HealthNow New York, Inc. (Vice Chair) |
• | PBS (Vice Chair) |
• | AAA of Central and Western New York, Inc. |
• | Buffalo Niagara Convention & Visitors Bureau |
• | PBS Foundation |
Education
• | Pennsylvania State University BS and M.Ed. |
• | Management Development Certificate, The Wharton School at The University of Pennsylvania |
• | Honorary Doctorate of Laws and Letters, Canisius College and D’Youville College |
Andrew W. Dorn, Jr.
Director Since: 2014 | Term Expires: 2017 | |
Age: 66 | Independent | |
Qualifications: |
Co-Managing Director and Director of Government and Community Relations of Energy Solutions Consortium, LLC, a private company focused on the development of combined cycle power generation, since 2015
Prior Business Experience
• | Managing member of Moundsville Power LLC (2012–2015) |
• | Chairman and Chief Financial Officer of Demand Response Partners, Inc. (2008–2015) |
• | President and Chief Investment Officer of Hunterview LLC (2008–2013) |
• | Led formation of Great Lakes Bancorp, parent company of Greater Buffalo Savings Bank; President and Chief Executive Officer (1997–2008 sale) |
• | Led formation of Jamestown Savings Bank; President and Chief Executive Officer (1994–1997 sale) |
Past Public Company Boards
• | Great Lakes Bancorp |
CurrentNot-for-Profit Boards
• | Buffalo Urban League |
• | The Western New York Foundation |
• | Willowbank Foundation |
PastNot-for-Profit Boards
• | Brooks Memorial Hospital (Vice Chairman) |
• | Chautauqua County Fund for the Arts (Chairman) |
• | D’Youville College (Chairman) |
• | Northern Chautauqua Chamber of Commerce (President) |
• | United Way of Chautauqua County (Vice Chairman) |
• | Served on several additional community andnot-for-profit boards in Erie and Chautauqua counties |
Education
• | University at Buffalo - State University of New York |
• | MBA, Canisius College |
Robert M. Glaser
Director Since: 2014 | Term Expires: 2017 | |
Age:70 | Independent | |
Qualifications: |
Certified Public Accountant and President of Glaser Consulting, LLC, a strategic consulting company, since 2016
Prior Business Experience
• | Retired Chairman of the Board of Freed Maxick CPAs, P.C. (2011– 2015) |
• | Joined Freed Maxick as a partner in 1981 and served as Chairman and Managing Director (1994–2011) |
• | Price Waterhouse (1968–1981) |
Former Appointed Positions
• | Independent Judicial Election Qualification Commission for the Eighth Judicial District |
• | Chairman of the Erie County Fiscal Stability Authority |
Private Company Boards
• | NA Realty Fund I and NA Realty Fund II |
• | Shanor Electric Supply, Inc. (Vice Chairman) |
• | Noco, Inc. |
PastNot-for-Profit Boards
• | Audit Committee for Kaleida Health |
• | CPA Associates, Inc. |
• | Served on severalnot-for-profit and cultural boards in Western New York |
Education
• | Canisius College |
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The Board of Directors unanimously recommends that shareholders elect the nominees, Donald K. Boswell, Andrew W. Dorn, Jr., Robert M. Glaser, and Susan R. Holliday, and recommends that you vote “FOR ALL NOMINEES”
Susan R. Holliday
Director Since: 2002 | Term Expires: 2017 | |
Age: 61 | Independent | |
Qualifications: |
Chief Executive Officer of Dumbwaiter Design, LLC, afull-service web design and development firm, since 2011
Prior Business Experience
• | President and Publisher of the Rochester Business Journal (1988–sale in 2016) |
Past Public Company Boards
• | Rochester Gas & Electric Corp |
Current Private Company Boards
• | Complemar Partners, Inc. |
Past Other Company Boards
• | Key Bank of New York |
CurrentNot-for-Profit Boards
• | University of Rochester Medical Center (Chair) |
• | Finger Lakes Health Systems Agency (Vice-Chairman, Regional Consortium on Health Care) |
• | Health Care Trustees of New York State |
• | Greater Rochester Chamber of Commerce (Past Chair) |
• | Rochester Institute of Technology (Vice Chair) |
PastNot-for-Profit Boards
• | United Way of Greater Rochester (Vice Chair) |
• | Rochester Museum & Science Center (Chair) |
• | Served on several additional community andnot-for-profit boards |
Education
• | Cornell University |
• | MBA, Rochester Institute of Technology |
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Directors Continuing in Office
Karl V. Anderson, Jr.
Director Since: 2006 | Term Expires: 2018 | |
Age: 70 | Independent | |
Qualifications: |
Has practiced law in Western New York since 1972 and operated a solo law practice since 2009
Became Of Counsel at the law firm Snavely, Plaskov and Mullen, PLLC in 2016
Prior Business Experience
• | Director of National Bank of Geneva and Bath National Bank until their merger with and into the Bank in 2005 |
• | President and Chief Executive Officer of Bank of Avoca from 1981 to 2002 when it was acquired by the Company, and a director from 1980 to 2002 |
PastNot-for-Profit Boards
• | Ira Davenport Memorial Hospital in Bath, New York (Board President) |
• | District Director for Boy Scouts of America |
Education
• | University at Buffalo - State University of New York |
• | JD, Albany Law School |
Martin K. Birmingham
Director Since: 2013 | Term Expires: 2019 | |
Age: 50 | ||
Qualifications: |
President and Chief Executive Officer of the Company and the Bank since March of 2013
Prior Business Experience
• | President and Chief of Community Banking of the Bank (2012–2013) |
• | Senior Vice President, Commercial Banking Executive and Rochester Region President of the Bank (2005–2012); promoted to Executive Vice President in 2009 |
• | President, CEO and Director of subsidiary, The National Bank of Geneva, 2005 |
• | President of Rochester Region, Bank of America (2004–2005) |
• | Progressive corporate banking roles including Regional President, Fleet Financial Group (acquired by Bank of America in 2004) (1989–2004) |
CurrentNot-for-Profit Boards
• | Federal Reserve Bank of NY Community Depository Institutions Advisory Council |
• | New York Bankers Association |
• | AAA of Central and Western New York, Inc. (Past Chair and Past Vice-Chair) |
• | St. John Fisher College (Chairman) |
• | Greater Rochester Chamber of Commerce |
• | MCC Foundation |
• | University of Rochester Medical Center |
PastNot-for-Profit Boards
• | The Strong National Museum; St. Ann’s of Greater Rochester Foundation; United Way; American Red Cross; Seneca Park Zoo Society; and YMCA of Greater Rochester |
Education
• | St. Lawrence University |
• | MBA, Simon Business School at the University of Rochester |
Samuel M. Gullo
Director Since:200 | TermExpires: 2019 | |
Age: 68 | Independent | |
Qualifications: |
Owner and operator of Family Furniture, a retail furniture sales business in Perry, New York, since 1976
Active real estate owner and developer in Wyoming, Genesee and Livingston counties for more than 40 years
Prior Business Experience
• | Owner and Chief Executive Officer of American Classic Outfitters (2002—2009) |
• | Director of subsidiary Wyoming County Bank until its merger with the Bank in 2005 |
CurrentNot-for-Profit Boards
• | Vice Chairman and director of the Wyoming County Business Center |
PastNot-for-Profit Boards
• | Current member, past director and past President of the Wyoming County Chamber of Commerce (formerly the Wyoming County Business Development Corporation) |
• | Iroquois Trail Council, Boy Scouts of America |
Education
• | Niagara University |
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Directors Continuing in Office
Erland E. Kailbourne
Director Since:2005 | Term Expires:2018 | |
Age: 75 | Independent | |
Qualifications: |
Chairman of the Board of Albany International Corporation (NYSE:AIN), a global advanced textiles and materials processing company, since 2008
Prior Business Experience
• | Retired as Chairman and CEO of Fleet National Bank New York NA, a banking subsidiary of Fleet Financial Group, Inc., in 1998 (served with the Fleet organization or its predecessors for 37 years before retirement in 1998) |
• | Served as Chairman of the Board of the Company and the Bank (2006–2010) |
Other Positions
• | Former director of the New York Independent System Operator (“NYISO”) |
• | Former board member of SUNY – State University of New York (Vice Chairman) |
• | Former member of the New York State Banking Department Board |
• | Former National Bank Examiner |
Current Public Company Boards
• | Albany International Corporation |
• | Rand Capital Corporation |
Current Private Company Boards
• | AlleganyCo-op Insurance Group |
• | REV LNG LLC |
PastNot-for-Profit Boards
• | Former Director and Chair of the John R. Oishei Foundation |
• | Former Trustee and Chair of The Max and Marian Farash Charitable Foundation |
• | Served on several additional community andnot-for-profit boards |
Education
• | State University College at Alfred |
• | Honorary Doctorate of Science, State University of New York |
Robert N. Latella
Director Since:2005 | Term Expires:2018 | |
Age: 74 | Independent | |
Qualifications: |
Chairman of the Board of the Company since 2014
Of Counsel at the law firm Barclay Damon, LLP since 2009, and Chief Operating Officer of Integrated Nano-Technologies, LLC, a research and development organization, since 2009
Prior Business Experience
• | Vice Chairman of the Board of the Company (2012–2014) |
• | Partner of Barclay Damon, LLP |
• | (2004 to 2009) |
• | Chief Operating Officer of the Genesee Corporation |
• | Chief Financial Officer of The Case Hoyt Corporation |
• | Managing Partner of Harter Secrest & Emery LLP |
Past Public Company Boards
• | Genesee Corporation |
CurrentNot-for-Profit Boards
• | University of Rochester Medical Center (Former Chair) |
• | Highland Hospital of Rochester (Senior Member of Board and Former Chair) |
• | Highland Community Development Corporation |
• | Highland Living Center |
• | The Highlands at Brighton |
PastNot-for-Profit Boards
• | Former Trustee and Chair of Monroe Community College |
• | Monroe Community College Foundation, Inc. |
• | Served on several additional community andnot-for-profit boards |
Education
• | Fordham College |
• | LLB, Vanderbilt University School of Law |
• | LLM, New York University School of Law |
Kim E. VanGelder
Director Since:2016 | Term Expires: 2019 | |
Age: 52 | Independent | |
Qualifications: |
Chief Information Officer (since 2004) and Senior Vice President (since 2014) of Eastman Kodak Company, a global technology company focused on imaging
Prior Business Experience
• | Progressive information technology roles at Kodak since 1984 including leading the group responsible for defining Kodak’s global information technology architecture and standards and building the organization responsible for supporting Kodak’s worldwide SAP implementation. Also served as Director of Worldwide Customer Operations from 2011 to 2014. |
CurrentNot-for-Profit Boards
• | Rochester Institute of Technology |
• | Rochester Area Community Foundation |
• | Western New York Society for Information Management |
PastNot-for-Profit Boards
• | Former Member of Dean’s Advisory Council for Golisano College of Computing and Information Sciences, Rochester Institute of Technology |
Education
• | Rochester Institute of Technology |
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Directors Continuing in Office
James H. Wyckoff, PhD
Director Since: 1985 | Term Expires: 2019 | |
Age: 65 | Independent | |
Qualifications: |
University of Virginia Curry Memorial Professor of Education and Policy since 2011 and Director of the Center for Education Policy and Workforce Competitiveness since 2010
Additional Current Academic Roles
• | University of Virginia, Professor at the Curry School of Education and the Frank Batten School of Leadership and Public Policy since 2008 |
Prior Academic Experience
• | Served on the faculty of the University at Albany – State University of New York, progressing from Assistant Professor to Professor (1986–2007) |
• | Served as Chair of the Department of Public Administration and Policy and as Acting Dean of the Graduate School of Public Affairs at the University of Albany |
Past Academic Service
• | President of the Association for Education Finance and Policy |
• | Policy Council for the Association of Public Policy Analysis and Management |
• | Four National Research Council panels |
Education
• | Denison University |
• | PhD, University of North Carolina |
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The Board of Directors believes that effective corporate governance is best accomplished if the roles of Chairman of the Board and Chief Executive Officer (“CEO”) are separated. The Board of Directors believes that separating these two positions allows each person to focus on his or her individual responsibilities, which is essential in the current business and economic environment. Under this structure, our CEO can focus his attention on theday-to-day operations and performance of the Company and can work to implement our long-term strategic plans. At the same time, ournon-executive Chairman of the Board can focus his attention on long-term strategic issues, setting the agenda for, and presiding at, Board meetings, working collaboratively with our other Board members, and providing insight and guidance to our CEO.
Traditionally, we have separated the roles of Chairman of the Board and CEO and, although we believe that the separation of the roles of Chairman of the Board and CEO is appropriate in the current environment, our board leadership structure may change in the future as our business and industry, and corporate governance practices more generally, evolve.
Board of Director’s Role in Risk Oversight
The Board of Directors is actively engaged in the oversight of risks that could affect us. This oversight is conducted primarily through our Board committees. Our Risk Oversight Committee has oversight of our credit, investment, liquidity, interest rate, operational, legal and compliance, data security and electronic data processing security risks. Our Audit Committee focuses on financial risks, including those that could arise from our accounting and financial reporting processes. Our Management Development & Compensation Committee focuses on the risks arising from our compensation policies and programs and, in particular, our executive compensation programs and policies.
Our Board of Directors has affirmatively determined that each of our directors, except for Mr. Birmingham, is independent under the independence standards of NASDAQ. Relationships described in the section titled “Certain Relationships and Related Party Transactions” were taken into consideration when determining independence.
In 2016, our Board of Directors amended our corporate governance guidelines to, among other things, include a new director resignation policy for director nominees who receive a majority of WITHHELD votes at the Annual Meeting in which they stand for election. If the election is uncontested, i.e. if the number of director nominees does not exceed the number of Board seats up for election and proxies are not being solicited by anyone other than the Company, then once the vote has been tabulated and certified and it is established that a director nominee has received more WITHHELD votes than FOR votes, with brokernon-votes not being counted as either, then the director shall immediately submit his or her resignation to the Board.
At such time, the Nominating and Governance Committee shall evaluate what is in the best interests of the Company and the shareholders and shall make a recommendation to the independent directors of the Board. This recommendation may include accepting or rejecting the resignation or taking other appropriate action, which may include addressing what the independent directors believe to be the cause of the WITHHELD votes or determining that the director should not stand for renomination in the future. Within 90 days of the Annual Meeting, the independent directors will make a determination as to the action to be taken, which the Company shall publicly announce promptly thereafter. The director who did not receive a majority vote at his or her election shall not participate in either the deliberations of the independent directors or their final decision.
Our corporate governance guidelines may be viewed by accessing theGovernanceDocuments subsection of theCorporateOverview section under theInvestorRelations tab on our website atwww.fiiwarsaw.com.
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Our Board of Directors conducts business through board and committee meetings. The Board meets on a regularly scheduled basis during the year to review significant developments affecting us and to act on matters that require Board approval. It also holds special meetings when an important matter requires Board action between regularly scheduled meetings. During 2016, our Board of Directors met 14 times. All directors attended more than 75% of the Board meetings and the meetings of committees on which they serve. The Board of Directors has established the following five standing committees: Audit; Management Development & Compensation; Executive; Nominating and Governance; and Risk Oversight. All the committees function under written charters that outline their respective authority, membership, meetings, duties and responsibilities. These committee charters may be viewed by accessing theGovernance Documents subsection of theCorporate Overview section under theInvestor Relations tab on our website atwww.fiiwarsaw.com.
Audit Committee
The Audit Committee monitors our financial reporting process and system of internal controls. Its duties include: (i) reviewing and assessing the performance of the internal audit department and our independent auditors; (ii) engaging, evaluating, replacing, compensating and overseeing our independent auditors; (iii) reviewing all reports of the independent auditors and responses to such reports; (iv) approving the services to be performed by the independent auditors andpre-approving all audit andnon-audit services and fees; (v) evaluating the independence of the independent auditor; (vi) establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls and auditing matters; (vii) establishing procedures for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; (viii) reviewing and discussing with management and the independent auditors our annual and quarterly financial statements, including our disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and any material changes in accounting principles or practices used in preparing the financial statements prior to the filing of reports onForms 10-K or10-Q with the SEC; and (ix) reviewing and approving related persons transactions. The Audit Committee is required by its charter to meet at least four times annually.
In carrying out its responsibilities, the Committee seeks, in its sole discretion and authority, appropriate third party counsel and advisors and approves the associated fees and terms of engagement.
The Audit Committee members are Chair Mr. Glaser and Messrs. Anderson, Benjamin, and Gullo. Mr. Glaser is the committee’s “audit committee financial expert” as defined by SEC rules. Our Board of Directors has affirmatively determined that all committee members are “independent” as defined in SEC and NASDAQ rules applicable to audit committees.
Executive Committee
The Executive Committee is charged with assisting the Board of Directors with strategic planning matters for the Company and its subsidiaries. The Executive Committee’s primary responsibilities include: (i) assisting the Board in its oversight responsibility for strategic planning, and merger, acquisition, branching and other business expansion proposals; (ii) acting on behalf of the Board on resolutions involving routine operational matters, and such other matters as are specifically delegated to the Committee by the Board, subject, in each case, to the limitations set forth in the Company’s By-laws; and (iii) acting on behalf of the Board to implement emergency CEO and Named Executive Officer succession plan(s) developed by the Management & Development Compensation Committee. The Committee members are Chair Mr. Kailbourne, Ms. Holliday and Messrs. Anderson, Dorn, Glaser and Latella.
Management Development & Compensation Committee
The Management Development & Compensation (“MD&C”) Committee is responsible for (i) determining executive compensation as further described in the Compensation Discussion and Analysis section of this proxy statement; (ii) reviewing and making recommendations to the full Board with regard to compensation of directors; (iii) retaining, compensating and overseeing, in its sole discretion, compensation consultants, legal counsel or other advisers as described in further detail on page 32 of this Proxy Statement; (iv) reviewing the risks arising from our compensation policies and programs; and (v) overseeing the creation of development plans and succession plans for our CEO and other executive officers. Our Board of Directors has affirmatively determined that all committee members are “independent” under NASDAQ listing standards. The MD&C Committee is required by its charter to meet at least three times annually. The MD&C Committee met nine times during 2016. The MD&C Committee members are Chair Mr. Dorn and Messrs. Gullo, Kailbourne and Wyckoff.
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Nominating and Governance Committee
The Nominating and Governance (“NG”) Committee is charged with assisting the Board of Directors in governance matters for the Company and its subsidiaries, including: (i) identifying qualified individuals to become Directors; (ii) recommending qualified director nominees for election at the annual meeting of shareholders; (iii) determining membership on Board committees; (iv) recommending and monitoring the Corporate Governance Policy; (v) developing and administering orientation and development programs for directors; and (vi) addressing corporate governance issues. The Committee members are Chair Ms. Holliday, Ms. VanGelder and Messrs. Kailbourne and Wyckoff. Our Board of Directors has affirmatively determined that all committee members are considered “independent” under applicable NASDAQ listing standards. The NG Committee met six times during 2016.
The NG Committee considers recommendations for director candidates made by shareholders. Such recommendations should be sent to the attention of our corporate secretary at our corporate headquarters. The NG Committee evaluates all director candidates on the same basis, provided that current directors may be evaluated primarily on the basis of their record of performance as a director of the Company. All nominees should possess personal and professional integrity, good business judgment, and experience and skills that will enable them, in conjunction with current Board members, to effectively serve the long-term interest of the Company and its shareholders. The consideration process for evaluating director candidates includes, but is not limited to, determining whether the candidate is “independent” under applicable SEC and NASDAQ listing standards and whether the candidate fits the Board’s then current needs for diversity, geographic connections to the Company’s market region and professional expertise. The NG Committee conducts such investigations and interviews of director candidates as it deems necessary to make a fair evaluation. Candidates determined to be qualified by a majority vote of the NG Committee may be proposed to the Board as a nominee for election, appointed to fill a vacancy, or held in reserve in a prospective director pool. Our Corporate Governance Policy tasks the NG Committee with composing a board of directors that reflects diverse experience, gender, race, personal qualities and accomplishments. The NG Committee implements this policy through discussions among committee members and assesses its effectiveness annually as part of its self-evaluation process.
The NG Committee believes the years of service provided by our continuing directors have given them extensive knowledge of our business and the banking industry. The NG Committee engages in a thorough vetting process of Director nominees and an annual evaluation of each of our directors. This process helps provide for a Board that is engaged and continually refreshed. The NG Committee has discussed implementing age and term limits for members of our Board of Directors and determined that such limits are not currently needed.
Risk Oversight Committee
The Risk Oversight Committee is responsible for assisting the Board in establishing prudent levels of risk consistent with our strategic objectives, and in reviewing our risk management framework and processes, including the significant policies, procedures and practices employed to identify, measure, monitor and control our risk profile. The committee also has governance oversight fornon-bank subsidiaries of the Company. The committee meets with our Chief Risk and Enterprise Administration Officer at least on a quarterly basis, and reports to the Board on various levels of risk associated with our approved business and financial plans relative to credit risk, investment risk, liquidity risk, interest rate risk, operational risk, and legal and compliance risk. The committee members are Chair Mr. Anderson, Mr. Benjamin, Mses. Holiday and VanGelder. Our Board of Directors has affirmatively determined that all committee members are “independent” under NASDAQ listing standards.
Board Member Attendance at Annual Shareholders’ Meetings
Directors are expected to attend our annual meeting of shareholders absent extenuating circumstances. All of the current directors attended last year’s annual meeting of shareholders.
Communications with the Board of Directors
Shareholders may communicate with the Board of Directors or any individual director by sending such communication to the attention of our Corporate Secretary at our corporate headquarters, who will forward all such communication to the Board or the individual directors, as appropriate.
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We have a written Code of Business Conduct and Ethics to assist our directors, officers, and employees in adhering to their ethical and legal responsibilities. Additionally we have a Code of Ethics for our CEO, Chief Financial Officer (“CFO”) and senior financial officers that describes the conduct expected to be employed in the finance area. The current versions of these policies may be viewed by accessing theGovernance Documents subsection of theCorporate Overview section under theInvestor Relations tab on our website (www.fiiwarsaw.com). In addition, we will provide a copy of the Code of Business Conduct and Ethics to any shareholder, without charge, upon request addressed to our Director of Human Resources at our corporate headquarters. We intend to disclose within four business days any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and that relates to any element of the Code of Business Conduct and Ethics, by posting such information on our website.
We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on our Board of Directors. In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties to us, the skill levels required of members of the Board and the competitive market for director compensation. The following table sets forth total 2016 director compensation.
Director Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2)(3) ($) | All Other Compensation(4) ($) | Total ($) | ||||||||||||
Karl V. Anderson, Jr. | 37,000 | 24,974 | — | 61,974 | ||||||||||||
John E. Benjamin | 33,500 | 24,974 | — | 58,474 | ||||||||||||
Andrew W. Dorn, Jr. | 37,000 | 24,974 | — | 61,974 | ||||||||||||
Robert M. Glaser | 40,000 | 24,974 | — | 64,974 | ||||||||||||
Samuel M. Gullo | 33,500 | 24,974 | — | 58,474 | ||||||||||||
Susan R. Holliday | 37,000 | 24,974 | — | 61,974 | ||||||||||||
Erland E. Kailbourne | 37,000 | 24,974 | — | 61,974 | ||||||||||||
Robert N. Latella | 70,000 | 24,974 | 9,000 | 103,974 | ||||||||||||
Kim E. VanGelder | 33,500 | 24,974 | — | 58,474 | ||||||||||||
James H. Wyckoff | 33,500 | 24,974 | — | 58,474 |
(1) | Includes retainer fees, including any retainer fees for which the director has elected to receive shares of our common stock in lieu of cash. The number of shares of stock received by each director in lieu of cash during 2016 was as follows: 1,254 shares for Mr. Dorn, 678 shares for Mr. Glaser, 1,254 shares for Mr. Kailbourne, and 1,136 shares for Ms. VanGelder. |
(2) | The amount shown for each director represents the aggregate grant date fair value, calculated in accordance with FASB ASC 718, of the 880 shares of restricted stock granted under the 2015 Long-Term Incentive Plan. |
(3) | Each of the directors had 440 shares of unvested restricted stock awards as of December 31, 2016. With the exception of Mses. Holiday and VanGelder and Messrs. Dorn, Glaser and Wyckoff, each director had 4,000 stock options outstanding as of December 31, 2016. Ms. Holliday had 2,000 stock options outstanding and Ms. VanGelder and Messrs. Dorn, Glaser and Wyckoff had no stock options outstanding as of December 31, 2016. |
(4) | Mr. Latella received a car allowance equal to $750 a month for his service as Chairman of the Board during 2016. |
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Compensation Paid to Board Members
Under the compensation plan in place fornon-employee members of the Board during 2016, directors were eligible to receive annual cash retainers for serving on our Board of Directors and for serving on the Board of our wholly-owned subsidiary, Five Star Bank. In April 2016, the members of the Board of Directors voluntarily elected to forgo payment of the retainer for serving on the Board of our wholly-owned subsidiary, Five Star Bank, in response to economic uncertainties, potential flattening of the yield curve and expense pressures, including the potential expense of a proxy contest. Actual retainers received are shown in the chart above.
Directors may elect to receive any portion of their annual retainer in an equivalent grant of shares of our common stock. Directors who have not met their individual share ownership requirements are required to elect at least 50% of their annual retainer in an equivalent grant of shares of our common stock. Elections to receive shares are made in advance of the first payment and are irrevocable for the 2016 Board term.
We granted stock elected by a Director in lieu of cash from the Financial Institutions 2015 Long Term Incentive Plan as outright shares of common stock with a fair market value equal to the cash-based director fees that the Director would otherwise have received.
Set forth below is the fee schedule fornon-employee directors.
Company | Five Star Bank(1) | |||||||
Annual Retainer Fees: | ||||||||
Chair | $ | 70,000 | $ | 35,000 | ||||
Chair of the Audit Committee | 40,000 | 20,000 | ||||||
Chair of Committees except Audit and Executive | 37,000 | 18,000 | ||||||
Other Directors | 33,500 | 16,500 |
(1) | Board members voluntarily waived receipt of the Five Star Bank retainer in 2016. |
We reimburse board members, other than the chairman, for reasonable travel expenses to attend meetings. The Chairman of the Board receives an automobile allowance of $750 per month.
Restricted Share Awards
For the fiscal year ended December 31, 2016,non-employee members of the Board received a grant of restricted shares on June 3, 2016 from the Financial Institutions 2015 Long Term Incentive Plan with a value of $25,000. The number of full shares was calculated by dividing the $25,000 by $28.38, the closing price of the Company’s common stock on the date of grant, which was the same date as the 2016 annual meeting of shareholders.
Our restricted stock agreements with each of the directors provides that fifty percent (50%) of the shares vests immediately upon the date of the grant, and if the director remains in continuous service as our director, the remaining fifty percent (50%) of the shares vest on the day prior to our next annual meeting of shareholders. Subject to the terms of the individual award agreements, if the director ceases to serve as our director prior to the shares vesting, the shares will be immediately forfeited. The 2016 restricted share awards do not entitle Directors to receive any dividends paid with respect to the unvested shares of restricted stock.
Stock Ownership Requirements for Directors
As discussed under “Stock Ownership Requirements” on page 42,non-employee directors were subject to a $150,000 minimum stock ownership requirement during 2016. All of our directors, except Ms. VanGelder, met their stock ownership levels as of December 31, 2016. Ms. VanGelder intends to meet the stock ownership requirement within the required timeframe.
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The Executive Officers of the Company and the Bank are identified in the following table, which also sets forth their respective offices and periods served as an Executive Officer of the Company or the Bank. The ages shown are as of December 31, 2016.
Name | Age | Office & Position(s) | ||||
Martin K. Birmingham | 50 | President and Chief Executive Officer | ||||
Kevin B. Klotzbach | 63 | Executive Vice President, Chief Financial Officer and Treasurer | ||||
William L. Kreienberg | 58 | Executive Vice President, Chief Corporate Development Executive and General Counsel | ||||
Jeffrey P. Kenefick | 50 | Executive Vice President, Chief Community, Commercial and Strategic Development Officer | ||||
Michael D. Burneal | 58 | Senior Vice President, Chief Risk and Enterprise Administration Officer | ||||
Samuel J. Burruano, Jr. | 48 | Senior Vice President, Assistant General Counsel and Director of Regulatory Compliance | ||||
Craig J. Burton | 59 | Senior Vice President, Commercial Real Estate Executive | ||||
Vito W. Caraccio | 51 | Senior Vice President, Commercial Market Executive and Director of Business Banking Sales | ||||
David G. Case | 53 | Senior Vice President, Chief Commercial Credit Officer | ||||
Paula D. Dolan | 62 | Senior Vice President, Director of Human Resources and Enterprise Planning, Diversity and Inclusion Officer | ||||
Joseph L. Dugan | 54 | Senior Vice President, Retail Growth and Profitability Executive | ||||
Sonia M. Dumbleton | 54 | Senior Vice President, Controller and Corporate Secretary | ||||
Michael D. Grover | 45 | Senior Vice President, Chief Accounting Officer, Financial Reporting and Tax Manager | ||||
Charles J. Guarino | 41 | Senior Vice President, Chief Retail Lending Executive | ||||
Edward “Ted” S. Oexle | 60 | Senior Vice President, C&I Lending Executive and Buffalo Regional President |
Martin K. Birmingham, a member of our Board of Directors, is the President and Chief Executive Officer of the Company and the Bank, and his biographical information is set forth above under “Proposal 1 – Election of Directors.”
Jeffrey P. Kenefick has been Executive Vice President, Chief Community, Commercial and Strategic Development Officer of the Company and the Bank since June 2016. Prior to that, he had been Executive Vice President and Commercial Banking Executive of the Company and the Bank since May 2013. He joined the Bank as Senior Vice President/ Commercial Banking Executive and Regional President in February 2006. Prior to joining the Company, he held various Vice President positions, including Vice President/Corporate Banking at Citizens Bank, N.A. and Vice President/Western New York Middle Market Lending at M&T Bank.
Kevin B. Klotzbach has been Executive Vice President, Chief Financial Officer and Treasurer of the Company and the Bank since April 2013. Mr. Klotzbach joined the Company as Vice President and Treasurer in 2001 and was promoted to Senior Vice President in 2005. Prior to joining us, Mr. Klotzbach actively managed fixed income portfolios at several other financial institutions, including Merrill Lynch Asset Management and Empire of America.
William L. Kreienberg has been Executive Vice President, Chief Corporate Development Executive and General Counsel of the Company and the Bank since November 2016. He joined our Company as Executive Vice President, General Counsel and Chief Risk Officer in December 2014. Mr. Kreienberg has practiced law since 1984 and served as a Partner at the law firm of Harter Secrest & Emery LLP, from April 1996 until December 2014.
Michael D. Burneal has been Senior Vice President, Chief Risk and Enterprise Administration Officer of the Bank since November 2016. Prior to that, he had been Senior Vice President and Chief Information Officer of the Bank since September 2014 and served as Senior Vice President/Banking Services Manager from January 2010 to September 2014. Mr. Burneal joined the Bank in 2004 as Loan Operations Manager and was promoted to Vice President/Banking Services Manager in January 2007. Prior to joining the Bank, he held financial management positions at Sovereign Bank, First Federal Savings and Loan and Columbia Banking.
Samuel J. Burruano, Jr. joined the Bank as Senior Vice President, Assistant General Counsel and Director of Regulatory Compliance in October 2016. Prior to joining the Bank, he held various legal and compliance positions at First Niagara Bank, NA since March 2011, most recently serving as Assistant General Counsel, Retail Services. Mr. Burruano has practiced law since 1993 and was an attorney at the law firm of Hiscock & Barclay, LLP, from December 1993 until March 2011.
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Craig J. Burton joined the Bank as Senior Vice President, Commercial Real Estate Executive in November 2016. Prior to joining the Bank, he was Senior Vice President and Team Leader of Commercial Real Estate Banking at First Niagara Bank, NA since June 2007. Prior to working at First Niagara Bank, NA, Mr. Burton held various commercial real estate positions at Bank of America (formerly Fleet National Bank), Chase Manhattan Bank and Goldome Realty Credit Corporation.
Vito W. Caraccio has been Senior Vice President, Commercial Market Executive and Director of Business Banking Sales of the Bank since January 2017. He joined the Bank as Senior Vice President, Director of Business Banking Sales in August 2016. Prior to joining the Bank, Mr. Caraccio was Senior Vice President, Corporate Banking Team Leader at First Niagara Financial Group since July 2013. Previously, he was Senior Vice President, Business Development Leader & Relationship Manager at J.P. Morgan Chase Bank, N.A. from 2005 to 2013. Prior to working at J.P. Morgan Cash Bank, N.A., Mr. Caraccio held various commercial banking positions at KeyBank National Association, Fleet National Bank and The Bank of New York.
David G. Case has been Senior Vice President, Chief Commercial Credit Officer of the Bank since May 2014. Prior to that, he had been Senior Vice President, Commercial Market Executive and Regional President of the Bank since September 2012. Mr. Case joined the Bank in 2005 as Senior Vice President, Commercial Market Executive. Prior to joining the Bank, he held various commercial and corporate banking positions at Charter One Bank, State Street Bank, Fleet Bank and Chase Manhattan Bank.
Paula D. Dolan has been Senior Vice President and Director of Human Resources and Enterprise Planning of the Company since December 2014. Ms. Dolan joined the Company in September 2013 as Senior Vice President and Director of Human Resources. Before joining the Company, Ms. Dolan worked at Hillside Family of Agencies (“Hillside”), a non-profit provider of integrated services to children and families throughout Central and Western New York, starting as a consultant in 2010, and was Hillside’s Manager of Compensation and Human Resource Information Systems until September 2013. Previously, she was a Senior Human Resources Consultant with First Niagara Consulting/Burke Group from 2007 to 2010. Prior to working at First Niagara, Ms. Dolan held human resources positions at Unity Health Systems, HR Works, Eastman Kodak Company, Rochester Community Savings Bank and Jones & Laughlin Steel Corporation.
Joseph L. Dugan joined the Bank as Senior Vice President, Retail Growth and Profitability Executive in July 2016. Prior to joining the Bank, he worked at Canandaigua National Bank, starting as Senior Vice President, Sales and Marketing in January 2001, and served as Executive Vice President of Customer Value Management since 2007, as well as serving as President of CNB’s Wealth Subsidiaries since 2011. Prior to working at Canandaigua National Bank, Mr. Dugan held various banking positions at PNC Bank Corporation and Chase-Lincoln First Bank.
Sonia M. Dumbleton has been Senior Vice President, Controller and Corporate Secretary of the Company and the Bank since May 2013. Prior to that, she was Senior Vice President and Controller of the Bank since 2006. Ms. Dumbleton held various positions, including Vice President and Controller, within the Accounting department of the Bank and its predecessor banks from 1984 to 2005. Ms. Dumbleton is a licensed insurance broker in the State of New York.
Michael D. Grover has been Senior Vice President of Financial Reporting and Tax and Chief Accounting Officer of the Company and the Bank since April 2013. Prior to that, he had been Senior Vice President of Financial Reporting and Tax of the Bank since 2008. Mr. Grover joined the Company in 1999 as a Senior Accountant. Mr. Grover was promoted to Accounting Manager in 2000. Prior to joining the Company he worked in public accounting with both local and national firms and is a Certified Public Accountant.
Charles J. Guarino has been the Bank’s Senior Vice President, Chief Retail Lending Executive since June 2016. Prior to that, he had been Senior Vice President/Retail Banking Executive since June 2015, and served as Senior Vice President/Director of Marketing from 2012 to 2015 and as Vice President/Retail Automated Decisioning Administrator from 2005 to 2012. Mr. Guarino held various positions, including Assistant Vice President/Director of Marketing, within the Marketing department of the Bank and its predecessor banks from 1997 to 2005.
Edward “Ted” S. Oexle joined the Bank as Senior Vice President, C&I Lending Executive and Buffalo Regional President in October 2016. Prior to joining the Bank, he was Senior Vice President, Commercial Banking at Key Bank since 2012. Prior to working at Key Bank, Mr. Oexle held various senior commercial lending and banking positions at Greater Buffalo Savings Bank, HSBC Bank USA and Fleet Bank.
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COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis, which we refer to as the CD&A, provides detail about the compensation programs for our executive officers named in the Summary Compensation Table and referred to in this CD&A and in the subsequent tables as our named executive officers (the “NEOs”). These named executive officers are:
Martin K. Birmingham - President and Chief Executive Officer
Kevin B. Klotzbach - Executive Vice President, Chief Financial Officer and Treasurer
William L. Kreienberg - Executive Vice President, Chief Corporate Development Executive and General Counsel
Jeffrey P. Kenefick - Executive Vice President, Chief Community, Commercial and Strategic Development Executive
Michael D. Burneal – Senior Vice President, Chief Risk and Enterprise Administration Officer
This CD&A includes the philosophy and objectives of the Management Development & Compensation Committee of our Board of Directors, which we refer to as the MD&C Committee, descriptions of each of the elements of our executive compensation programs and the basis for the compensation earned by our named executive officers during 2016.
EXECUTIVE SUMMARY
2016 Performance Highlights
We have highlighted certain key aspects of our 2016 performance below. We encourage you to read the following highlights as a background to the discussion of our compensation elements and practices that follows. We believe that our overall operating results reflected solid performance and thoughtful management of our balance sheet given the uncertain pace of interest-rate increases.
In 2016, the Company delivered strong operating results. Financial highlights included:
• | Diluted earnings per share of $2.10 for 2016, an increase of 10.5% over the prior year. |
• | Total interest-earning assets, assets, loans and deposits reached record-highyear-end levels. |
• | Total loans grew 12.3%, to $2.3 billion. |
• | Total deposits grew 9.7%, to $3.0 billion. |
• | ROAA improved from 0.87% in 2015 to 0.90% in 2016. |
• | ROAE improved from 9.78% in 2015 to 10.01% in 2016. |
• | Total shareholder return for 2016 was 25.6%. |
• | Noninterest income grew 17.9%, to $35.8 million, and represented 25.8% of total net interest income plus noninterest income. |
• | Our 2016 efficiency ratio(1) was 60.92%, in the top 38% of our peer group. |
• | We maintained our strong credit culture as evidenced by the improvement in portfolio credit quality withnon-performing assets to total assets of 0.17% atyear-end, as compared to 0.25% in the prior year. |
• | We made progress on our expansion in Rochester and Buffalo, opening two new branches in Rochester during the year and finalizing construction on a branch that opened in downtown Buffalo in February 2017. |
(1) | Efficiency ratio provides a ratio of operating expenses to operating income. Efficiency ratio equals noninterest expense less other real estate expense and amortization and impairment of goodwill and other intangible assets as a percentage of net revenue, defined as the sum oftax-equivalent net interest income and noninterest income before net gains on investment securities, proceeds from company owned life insurance, adjustments to contingent liabilities and amortizations of tax credit investment. The efficiency ratio is not a financial measurement required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance. |
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2016 Results of Performance-Based Compensation Elements
The Management Development & Compensation (“MD&C”) Committee has reviewed our 2016 performance against Board approved business plans and budgets. The MD&C Committee also has reviewed a broad array of performance measures compared to both a custom peer group of publicly traded regional banking and financial institutions (collectively the “Regional Peer Group”) and a broader market index, the SNL Small Cap U.S. Bank and Thrift index (the “SNL Peer Group”). Our Regional Peer Group and the SNL Peer Group are described on page 33. The MD&C Committee believes that the performance measures shown below, which were used in our compensation determinations, provide a good overview of elements of performance that can be compared across companies.
Our annual cash incentive plan used two relative performance measures in 2016, Return on Average Assets (“ROAE”) and Return on Average Equity (“ROAE”) as compared to the SNL Peer Group. The exhibit below illustrates our performance compared to the average performance for banks in the SNL peer group for the period from October 1, 2015 to September 30, 2016. This time period is used to meet financial reporting requirements.
Return on Average Assets(1) | Return on Average Equity(2) | |
(1) | Return on average assets equals net income divided by average assets. |
(2) | Return on average equity equals net income divided by average shareholder’s equity. |
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The annual cash incentive plan also uses two absolute performance metrics that compare actual performance to the Company’s annual business plan established at the start of the year. The Board and the Committee routinely challenges management to prepare an annual business plan requiring performance closely aligned with our strategic plan of growth and profitability. Although 2016 included unforeseen challenges that impacted expenses and net interest margin, such as the expenses associated with the proxy contest and the flattening of the yield curve, performance for the year reflected the successful efforts of the Company to grow loans outstanding and noninterest income. Performance on the Earnings Per Share (“EPS”) and Net Charge Offs/Average Loans performance measures were:
Earnings Per Share(1) | Net Charge Offs/ Average Assets(2) |
(1) | Earnings per share equals net income available to common shareholders divided by weighted average diluted shares outstanding. |
(2) | Net Charge Offs / Average Assets equals net charge offs divided by average loans. A lower percentage indicates better performance. |
Our Long Term Equity Incentive Plan awards use Relative Total Shareholder Return (“rTSR”) as a performance measure, measuring our performance over three years relative to the designated peer group. Our3-Year rTSR performance result measured as of December 31, 2016 resulted in executives forfeiting restricted shares granted in 2014 that were not earned under the terms of the grant, as described in greater detail in the chart below. It is the Committee’s position that the forfeiture of these restricted share grants based on our performance demonstrates that our equity incentive plan is directly aligned with shareholder interests.
Our1-Year rTSR measures the first year of performance under the 2016 equity grant program using our performance relative to the SNL Peer Group Median; the3-Year TSR measures the performance under the 2014 equity grant program using the median of the 2014 compensation peer group of 20 regional peers as described in the 2015 proxy.
1 Year Total Shareholder Return
| 3 Year Total Shareholder Return
| |
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Components of Compensation
Below is a summary of the compensation elements in our executive compensation program for our named executive officers (“NEOs”).
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THE MD&C COMMITTEE
The MD&C Committee is a standing Committee that operates pursuant to a charter that has been approved by our Board of Directors. Each member of the MD&C Committee is independent as defined under applicable NASDAQ rules. While we rely on input from the CEO and executives for certain information and data, the MD&C Committee is fully responsible for all aspects of compensation decisions for our named executive officers.
The MD&C Committee is authorized to perform the following duties relating to executive compensation:
• | Review and approve the performance goals and objectives for our CEO and evaluate performance in light of these goals and objectives; |
• | Review performance goals, objectives and performance of our other named executive officers; |
• | Review and approve the compensation of our named executive officers and certain senior executives who report directly to our CEO; |
• | Administer and have discretionary authority over the issuance of equity awards under our equity compensation plans, including the discretion to modify plan payouts as appropriate to ensure plan objectives are met; |
• | Approve our executive and senior management compensation programs, which include our annual cash incentive plan and our long-term equity-based incentive plan, and approve the corporate performance objectives in these plans each year; |
• | Review and monitor development and succession plans for our executive officers; |
• | Approve change of control, severance and termination arrangements for our executive officers; |
• | Approve the peer groups to be used in competitive compensation analysis; |
• | Evaluate the competitive market data for our executives and senior management reporting directly to our CEO using the approved peer groups; |
• | Evaluate comparative compensation levels for directors, including our Chairman of the Board, using the approved peer groups and make recommendations for director compensation to the full Board for approval; |
• | Evaluate the risks associated with our compensation philosophy and all compensation programs, including those of our named executive officers; and |
• | Appoint and determine the appropriate fees for independent compensation consultants, legal counsel, and other MD&C Committee advisors. |
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2016 MD&C Committee Actions
• | The MD&C Committee Chair participated in a number of meetings with significant shareholders where shareholder representatives were encouraged to provide feedback on executive compensation. Feedback received was reviewed with the Committee and taken into account during the Committee’s deliberations and decisions. |
• | In February of 2016, consistent with a comprehensive corporate expense initiative, the MD&C Committee approved management’s recommendation to reduce the CEO’s salary by 3% and maintain other NEO base salaries at their 2015 rate throughout 2016, in response to economic uncertainties, potential flattening of the yield curve and expense pressures, including the potential expense of a proxy contest. |
• | The MD&C Committee recommended to the Board of Directors, and the Board of Directors unanimously approved, that thenon-employee members of the Board of Directors voluntarily waive the portion of the 2016 retainer associated with service on the Board of Directors of Five Star Bank in response to economic uncertainties, potential flattening of the yield curve and expense pressures, including the potential expense of a proxy contest. |
• | The MD&C Committee’s independent compensation consultant, McLagan, conducted a market analysis of our Regional Peer Group in September 2016. This analysis assisted in the setting of promotional salary changes in 2016 and merit changes for January 1, 2017. |
• | In early 2016, McLagan conducted a market analysis using the 2016 peer group described below which resulted in changes to annual incentive opportunities at threshold, target and maximum, and long-term incentive opportunities for our NEOs effective January 1, 2016. The Committee made further changes to the annual incentive opportunities in early 2017 for our NEOs effective January 1, 2017. |
• | In response to shareholder feedback, the MD&C Committee reviewed the performance measures in the annual incentive plan and for 2017 replaced the relative performance measures, ROAA and ROAE, with two annual performance measures directly aligned with the Company’s strategic plan and annual business plan: total loan growth and core deposit growth. |
• | In response to market practices and the advice of our independent compensation consultant, the MD&C Committee revised the equity grant practices for NEOs for 2017 to provide a balance between time vested and performance-based awards in the overall grant. |
• | The MD&C Committee actively developed and implemented plans for management succession including for the announced 2016 retirement of our Chief Operating Officer to ensure the placement of highly qualified executives in key management positions both now and in the future. |
• | The MD&C Committee, along with our independent compensation consultant, was actively involved in the review and consideration of market and peer practices related to the availability and design of plans to assure continuity and availability of executives in the event of a change in control of the Company. |
• | The MD&C Committee reviewed the market data and internal equity considerations and approved our CEO’s compensation recommendations for the Chief Risk and Enterprise Administration Executive, and the Chief Corporate Development Executive and General Counsel. |
Management Succession Planning
The MD&C Committee was actively involved in the ongoing review of our succession plan and supported management in actions taken during the year in support of the plan. The plan and resulting actions reflects our strong commitment to recruiting and retaining highly qualified executives and our support for employee development and internal succession opportunities. The plan provides organization alternatives in the event of both planned and unplanned succession needs. The MD&C Committee feels comfortable that we are prepared for succession events and will continue to review succession preparation.
The MD&C Committee Independent Compensation Consultant
The MD&C Committee retains McLagan, an Aon Hewitt Company, as its independent compensation consultant. McLagan reports directly to the Chair of the MD&C Committee. McLagan has no personal or business relationship with any member of the MD&C Committee. McLagan is retained solely by the MD&C Committee and provides no other services to us that are not specifically authorized by the MD&C Committee.
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The MD&C Committee assessed the independence of McLagan in light of the SEC rules regarding compensation advisor independence. As part of this assessment, the MD&C Committee reviewed McLagan’s responses to questions addressing factors related to its independence and concluded that the services provided by McLagan to the MD&C Committee do not raise any conflicts of interest. Aon Corporation is the parent of McLagan as well as Aon Hewitt and Radford. At the request of management, Aon Hewitt provided employee benefits brokerage services to us in 2016. Radford provides equity valuation and data hosting services for the Company’s equity plans.
The MD&C Committee retains McLagan to:
• | Obtain information on compensation levels, programs, practices and reported pay for both executives and directors within certain peer groups and the broader market; and |
• | Provide the MD&C Committee with a report on compensation trends among our peers and the broader market. |
While McLagan provides reports and recommendations to the MD&C Committee regarding our executive compensation programs, the MD&C Committee is solely responsible for determining the form of compensation, the final amount, and the level of performance targets used in our executive compensation plans.
During 2016, the MD&C Committee requested McLagan provide the following assistance:
• | Review and update our peer groups based on parameters determined by the MD&C Committee; |
• | Analyze and present competitive market data of total executive compensation including base pay, annual cash incentive awards, long-term equity-based incentive awards and elements of other compensation; |
• | Assist in the review and design of annual and long-term equity-based incentive plans; and |
• | Analyze and present market practices on the availability and design of compensation practices and agreements related to a change in control. |
The Role of Executive Officers with the MD&C Committee
The MD&C Committee reviews and discusses with the CEO his evaluation of the job performance and leadership of the other NEOs as well as his recommendations for compensation for the other NEOs. The MD&C Committee evaluates the performance of the CEO with input from the Board. The MD&C Committee has final discretion over all compensation decisions regarding our CEO and each of our other NEOs.
The MD&C Committee has delegated to our CEO authority to approve the adoption, amendment or termination of our benefit plans if the action is expected to have an estimated annual impact on our Statement of Income of $500,000 or less.
In 2016, our Director of Human Resources and Enterprise Planning and our Chief Corporate Development Executive and General Counsel regularly attended MD&C Committee meetings and assisted with the collection and presentation of required materials. The MD&C Committee Chair also has access to independent legal counsel as needed.
Shareholder Input and Outreach
At our 2016 Annual Meeting of Shareholders, over 72% of the votes cast in the “say on pay” advisory vote were “FOR” approval of our executive compensation.
During 2016, the MD&C Committee has taken a number of proactive steps to fully understand any feedback from our shareholders on our executive compensation programs and practices. We continued to engage in a dialogue with individual and institutional shareholders to solicit their input on a range of topics including executive compensation through meetings at investor conferences, meetings at their offices, meetings at our offices and by telephone. We also proactively sought the input from Institutional Shareholder Services (“ISS”) and Glass Lewis & Co. (“Glass Lewis”), the two major institutional proxy advisory firms, to seek their perspective as well. At our 2016 Annual Meeting both ISS and Glass Lewis recommended “FOR” our Say on Pay proposal.
Management also requested engagement with most of the largest institutional holders and with key individual shareholders of FII stock, in total representing more than a majority of the outstanding shares. The MD&C Committee Chair or Chairman of the Board of Directors (or both) participated in those meetings and all relevant feedback from those interactions was shared with the entire MD&C Committee. We continue to seek and welcome feedback from shareholders on this topic for consideration by the MD&C Committee.
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While shareholders had limited specific feedback on the Company’s plans, they were generally supportive and shared their general positions on executive compensation. Shareholder input included:
• | Compensation for executives should be largely variable based on the Company’s performance. |
• | Compensation goals should include a balance of goals tied to the Company’s annual business plan achievement and progress toward the Company’s long-term strategic plan. |
• | Compensation plans should include a selection of performance goals that include goals based on both individual executive performance and Company performance. |
• | Compensation plans should be structured to encourage executives to continually act in the interests of shareholders. |
When reviewing this input, the Committee found strong alignment with the shareholder input and the Committee’s past decisions and ongoing work. Reference to alignment with shareholder input is included in the description of compensation plans and related decisions throughout the CD&A.
Based on the results of a 2012 shareholder vote, the Board implemented an annual advisory vote on executive compensation. The next vote by shareholders regarding the frequency of advisory votes on executive compensation will occur no later than our annual meeting in 2018.
The MD&C Committee Assessment of Compensation Risk
With information provided by management, the MD&C Committee has reviewed the design and operation of our incentive compensation arrangements for all employees, including our NEOs, for the purpose of determining whether such programs might encourage inappropriate risk-taking by participants that would be reasonably likely to have a material adverse effect on us.
With oversight by the MD&C Committee, we have designed our compensation program to avoid excessive risk-taking and related financial consequences. To this end, we:
• | Use both short and long-term compensation and performance measures to balance the time horizon of decision-making; |
• | Use a variety of performance measures that ensure a balanced focus on performance; |
• | Include maximum potential award levels for performance-based awards; |
• | Have a clawback policy in place in the event financial results are negatively adjusted after a plan payment is made; and |
• | Use discretion in determining performance results as needed to adjust for either positive or negative performance variables to ensure results appropriately reflect actual performance. |
The MD&C Committee concluded that our compensation plans, programs and policies, considered as a whole, including applicable risk-mitigation features, are not reasonably likely to have a material adverse effect on us.
HOW COMPENSATION DECISIONS ARE MADE
We Follow a Consistent Compensation Philosophy
We believe that executive compensation should be directly linked to continuous improvements in corporate performance while remaining competitive relative to the compensation and compensation practices of our peers. Our compensation philosophy describes the framework for our decision-making and, we believe, includes the compensation features included in the shareholder input described above.
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To achieve our executive compensation philosophy, we designed our program to:
• | Drive performance relative to our clearly-defined goals, balancing short-term operational objectives with long-term strategic goals; |
• | Align our executives’ long-term interests with those of our shareholders by placing a substantial portion of total compensation at risk, contingent on our performance and the executive’s continued employment; |
• | Ensure that compensation programs vary compensation both up and down in relationship to changes in our performance and the NEO’s individual performance; |
• | Align our executives’ compensation with stock price performance over time; |
• | Attract and retain our highly-qualified executives needed to achieve our financial goals, and maintain a stable executive management group; |
• | Limit financial risk under the compensation plans through risk-balanced plan design and by using recoupment (“clawback”) provisions; and |
• | Use data and independent expertise to fully understand the compensation market and compensation practices. |
We Compare our Compensation and Performance to Peers
To attract, retain and motivate qualified executives, we periodically complete a market analysis of the total compensation package we offer our NEOs against a peer group of comparable institutions in our industry whose executives managesimilarly-sized balance sheets and constituencies. We believe that our peer group fairly represents the market for executive talent in which we compete and includes institutions that share our business and market challenges. We use survey and peer group information as a point of reference, but we do not benchmark or target our compensation levels against this competitive information.
The peer group includes publicly-traded financial institutions that generally adhere to the following criteria applicable during the selection in 2015:
• | headquarters in the Northeastern, Midwest and Middle Atlantic U.S., excluding major metropolitan areas; |
• | Asset size from $1.5 billion to $6.0 billion; with return on average assets greater than 0.5%; andnon-performing assets/total assets: < 2%; and with a similar business model including the exclusion of banks with thrift charters; and |
• | Some exceptions to the general selection criteria were made for banks that are direct competitors in our market areas. |
The following Regional Peer Group established in 2015 was utilized by the MD&C Committee for the 2016 NEO compensation decisions.
1st Source Corporation | Horizon Bancorp | |
Arrow Financial Corporation | Lakeland Bancorp, Inc. | |
Berkshire Hills Bancorp, Inc. | MainSource Financial Group, Inc. | |
Brookline Bancorp, Inc. | Merchants Bancshares, Inc. | |
Camden National Corporation | Meridian Bancorp, Inc. | |
Chemung Financial Corporation | Metro Bancorp Inc. | |
City Holding Company | MidWestOne Financial Group, Inc. | |
CNB Financial Corporation | NBT Bancorp Inc. | |
Enterprise Bancorp, Inc. | NewBridge Bancorp | |
First Busey Corporation | Peoples Bancorp Inc. | |
First Commonwealth Financial Corporation | S&T Bancorp, Inc. | |
First Community Bancshares, Inc. | Tompkins Financial Corporation | |
First Financial Corporation | TowneBank | |
First Merchants Corporation | Washington Trust Bancorp, Inc. | |
FirstMid-Illinois Bancshares, Inc. |
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At the time we confirmed our 2016 Regional Peer Group, our assets ($3.38 billion) were near the peer group median of $3.62 billion.
For 2016, the MD&C Committee also used a peer group to measure relative Total Shareholder Return performance over time under our Long Term Equity-Based Incentive Plan awards and for the relative performance measures in the Annual Cash Incentive Plan. We determined that a broader market index is an appropriate measure of this performance metric and selected the SNL Small Cap U.S. Bank & Thrift Index as the peer group for this purpose. The SNL Peer Group includes all publicly traded (NYSE, NYSE MKT, NASDAQ, OTC) Banks and Thrifts in SNL’s coverage universe with $250M to $1B total common market capitalization.
We Consider Individual Performance
The MD&C Committee believes that the individual performance of our NEOs is relevant in all compensation decisions. We formally consider individual performance in determining annual merit base salary changes and for the determination of the individual performance portion of the annual cash incentive plan and as a gateway requirement in our long-term equity-based incentive plan.
We measure individual performance for our NEOs, using an annual goal-setting process that aligns individual goals with our annual business plan, our strategic plan and other key strategic initiatives. Individual performance is assessed after the completion of the year.
A summary of the 2016 individual performance of NEOs follows:
Mr. Birmingham’s performance was evaluated by the MD&C Committee with input from our Chairman. Highlights of Mr. Birmingham’s 2016 performance included the successful achievement of key financial targets, the acquisition of Courier Capital (“Courier”), the management of the unsuccessful proxy contest initiated by an activist hedge fund, enhanced shareholder engagement, the successful execution of our strategic planning initiatives focused on enhancing shareholder value, the organization restructuring focused on strategic and revenue growth, the continued development of a highly-qualified executive team, the ongoing focus on increasing long-term shareholder value through profitable strategic growth andin-depth market knowledge.
Mr. Birmingham evaluated the job performance of the remaining NEOs reporting his evaluation to the MD&C Committee for their approval. The MD&C Committee considered the role of each NEO in achieving the successful operating results for 2016 including strong earnings, growth in commercial lending, retail expansion and continued strong credit metrics. The MD&C Committee also considered the participation of executives in the proxy contest activities and related shareholder engagement. Mr. Klotzbach oversaw the management of our finances including the acquisition and integration of Courier Capital, LLC, capital planning and the ongoing oversight of expense management. Mr. Kreienberg led the Company’s successful Enterprise Risk Management process, took on the added responsibilities of Corporate Development, and managed the Company’s response to a number of key legal, regulatory and compliance activities. Mr. Kenefick led our commercial lending group for the first half of the year where loan growth exceeded expectations and successfully took on the broader role of community and strategic development for the latter half of the year. Mr. Burneal as Chief Information Officer for the majority of the year oversaw the successful implementation of the Company’s strategic technology plan including the introduction of the Financial Solution Center branch concept from design to implementation.
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2016 COMPENSATION DECISIONS
Base salary
Base salary is the only component of our executives’ total direct compensation that is notat-risk based on our performance and/or stock price variations. The MD&C Committee reviews the base salaries of our NEOs annually and whenever an NEO changes position.
During February 2016, the MD&C Committee reviewed base salary market data and individual performance of our NEOs. At that time, management was in the process of planning a series of actions related to a comprehensive corporate expense initiative. The MD&C Committee approved management’s recommendation to reduce the CEO’s salary by 3% and maintain NEO base salaries at their 2015 rate throughout 2016, in response to economic uncertainties, potential flattening of the yield curve and expense pressures, including the potential expense of a proxy contest.
The Committee agreed to management’s recommendation, acknowledging that a review of the market data and the NEO’s individual performance would have otherwise resulted in an increase to base salary for each for 2016.
These decisions remained in effect for the year. Mr. Birmingham’s salary was reduced from $515,000 to $500,000 effective February 29, 2016. Messrs. Klotzbach, Kreienberg, and Kenefick’s salaries remained $280,000, $260,000 and $220,000 respectively. Mr. Burneal, who was not a 2016 Named Executive Officer, had a salary of $164,800.
Mr. Kreienberg’s duties and responsibilities expanded during the year. In July 2016, he was named Executive Vice President, Chief Administrative Officer, General Counsel and Chief Risk Officer and in November he was named Executive Vice President, Chief Corporate Development Executive and General Counsel. Both of these positions were an expansion of his prior role of Chief Risk Officer and General Counsel. Due to the commitment to maintain NEO salaries at the 2015 rate throughout 2016, a base salary change, based on the market data for these new positions, was deferred. Mr. Kenefick was also promoted in July 2016 to Executive Vice President, Chief Community, Commercial and Strategic Development Executive and an associated market based increase for the position was also deferred.
Mr. Burneal, who was not a named executive officer in 2016, received two market adjustments in 2016. Based on a review of the market for the position he held at that time, Chief Information Officer, Mr. Burneal’s salary was increased from $164,800 to $182,000 in July 2016. On October 31, 2016, Mr. Burneal was promoted to the position of Senior Vice President, Chief Risk and Enterprise Administration Officer, and based on a review of the market data by the Committee’s compensation consultant and discussion by the Committee, his base salary was adjusted to $220,000.
The MD&C Committee followed their normal practice of reviewing market data and individual performance for NEOs in early 2017 and provided base salary increases to Messrs. Birmingham and Klotzbach and base salary and promotional increases to Messrs. Kreienberg and Kenefick.
Annual Cash Incentive Plan
Our annual cash incentive plan is a performance-based cash plan designed to reward eligible employees, including our NEOs, for the achievement of our specific Company financial goals and successful individual performance. The primary objective of the plan is to provide our NEOs with a direct link between their compensation and their attainment ofpre-established annual performance goals that result in attaining and surpassing annual financial performance goals and that contribute to our long-term strategic goals.
Incentive Opportunity
We set target incentive opportunities based on a percentage of base salary that reflects a market level target compensation opportunity for each NEO. The threshold and maximum percentages reflect both the MD&C Committee’s review of market data and the MD&C Committee’s judgment of the level of award opportunity appropriate for the performance goals established. The differences in opportunity also reflect each NEO’s relative responsibility for achieving the Company performance goals based on his position.
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Name | Award as a Percent of Salary (Interpolated between performance levels) | |||||||||||
Threshold | Target | Maximum | ||||||||||
Martin K. Birmingham | 3 | % | 40 | % | 65 | % | ||||||
Kevin B. Klotzbach | 2 | % | 30 | % | 50 | % | ||||||
William L. Kreienberg | 2 | % | 30 | % | 50 | % | ||||||
Jeffrey P. Kenefick | 2 | % | 30 | % | 50 | % | ||||||
Michael D. Burneal | 1 | % | 25 | % | 40 | % |
Gateway Performance Criteria
Our annual cash incentive plan uses two gateway prerequisite performance criteria to receive an award under the plan as follows:
• | We must receive a CAMELS rating that equals or exceeds the target CAMELS rating determined by the MD&C Committee at the beginning of the year. The CAMELS rating, which is assigned by the Uniform Financial Institutions Rating System, is based on performance in six areas: the adequacy of capital, the quality of assets, the capability of management, the quality and level of earnings, the adequacy of liquidity, and sensitivity to market risk. We are prohibited by applicable banking regulations from publicly disclosing our CAMELS rating. |
• | Executives must be employed at the time of payment and must receive a minimum performance evaluation rating of satisfactory or better to be eligible for any payout. |
The Committee determined these performance criteria were met for 2016.
Company Performance Goals and Results
The Committee utilized four performance goals in the Annual Incentive Plan for 2016. They were Earnings per Share (“EPS”), Relative Return on Average Assets (“ROAA”), Relative Return on Average Equity (“ROAE”) and Net Charge-Offs (“NCO”).
We weighted these performance measures as follows for purposes of calculating our annual cash incentive plan awards:
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We set the goals for each Company performance measure, based on our performance expectations in the 2016 strategic plan and budget that our Board of Directors approved in early 2016. We established the threshold and maximum level for each performance measure after analyzing the performance required and the potential shareholder value created at each award level. The chart below shows our 2016 Company performance goals and results.
Performance Measure | 2016 Performance Goals | 2016 Actual Results | ||||||
Threshold | Target | Maximum | ||||||
EPS | $1.66 | $1.95 | $2.05 | $2.10 | ||||
NCO | 0.45% | 0.38% | 0.23% | 0.26% | ||||
Relative ROAE | 25th Percentile | 50th Percentile | 75th Percentile | 60th Percentile | ||||
Relative ROAA | 25th Percentile | 50th Percentile | 75th Percentile | 29th Percentile |
Individual Performance
We measure individual job performance for our NEOs, using an annual goal-setting process that aligns individual goals with our annual strategic plan and other key strategic initiatives. We assess job performance against these goals after the completion of the year. We determine the individual component of the annual incentive plan by increasing or decreasing the individual portion (50% for Mr. Burneal, 20% for all other NEOs) of the earned incentive award based on the NEOs’ individual performance. For a description of our assessment of our NEOs’ individual performance for 2016, see “How Compensation Decisions Are Made” above.
2016 Earned Awards
Based on Company performance goal achievement above maximum for EPS, between target and maximum for the net charge-offs and ROAE performance measures and achievement between threshold and target for the ROAA performance measure, we determined that our NEOs met their combined performance goals somewhat above target. Based solely on our financial performance results at somewhat above target, our NEOs were entitled to awards as follows, subject to adjustment for individual performance: Mr. Birmingham - $239,800; Mr. Klotzbach - $102,815; Mr. Kreienberg - $95,472; Mr. Kenefick - $80,784; and Mr. Burneal – $64,856.
A portion of the incentive earned for financial results is adjusted, either positively or negatively, based on individual performance. Based on the 2016 individual performance described above on page 34, the Committee positively adjusted 20% of the incentive earned based on financial performance (50% of the award earned by Mr. Burneal) by 15%.
Name | 2016 Earned Award | Incentive as a Percent of Year End 2016 Base Salary | ||||||
Martin K. Birmingham | $ | 246,994 | 49 | % | ||||
Kevin B. Klotzbach | $ | 105,900 | 38 | % | ||||
William L. Kreienberg | $ | 98,336 | 38 | % | ||||
Jeffrey P. Kenefick | $ | 83,207 | 38 | % | ||||
Michael D. Burneal | $ | 69,720 | 32 | % |
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2017 Annual Cash Incentive Plan Design
Following the interaction with individual and institutional shareholders in 2016, the MD&C Committee, with input from its compensation advisor, revised the performance goals in the annual cash incentive plan for 2017. The two relative performance measures were deleted in favor of the addition of goals directly related to the Company’s key strategic goals of growing loans and core deposits. These changes were directly the result of shareholder input indicating a desire for strong alignment between executive compensation and the achievement of the Company’s strategic plan. The design of the Annual Incentive Plan for 2017 is:
The Committee believes the revised set of goals:
• | Reflect our annual financial and operational performance; |
• | Are key contributors to the achievement of our strategic plan and the creation of shareholder value; |
• | Are tracked in the ordinary course of business; and |
• | Can be effectively communicated to all plan participants. |
During the review of the performance goals and in conjunction with the Committee’s annual market analysis of peers, the Committee also aligned the incentive opportunity of NEOs with market practices and the Company’s compensation philosophy. The opportunities under the plan for 2017 are:
Name | Award as a Percent of Salary (Interpolated between performance levels) | |||||||||||
Threshold | Target | Maximum | ||||||||||
Martin K. Birmingham | 12.5 | % | 50 | % | 75 | % | ||||||
Kevin B. Klotzbach | 10 | % | 40 | % | 60 | % | ||||||
William L. Kreienberg | 10 | % | 40 | % | 60 | % | ||||||
Jeffrey P. Kenefick | 7.5 | % | 30 | % | 45 | % | ||||||
Michael D. Burneal | 7.5 | % | 30 | % | 45 | % |
Long Term Equity-Based Incentive Plan
In 2016, we issued a performance-based RSU award to each of our NEOs under our 2015 Long-Term Incentive Plan that focuses our NEOs on both long-term shareholder return and key financial performance in the year of grant. The vesting requirement for these awards encourages retention of our NEOs. No stock options were granted in 2016. We annually review and approve the plan design.
More information on the status of existing equity grants is included in theOutstandingEquityAwardsatDecember 31,2016 table on page 47.
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Structure of Awards
• | The awards are granted in the form of performance-based RSUs settled upon vesting in shares of Financial Institutions, Inc. common stock. Units are subject to the gateway performance requirements as described below. Thirty percent of the units granted are earned based upon achievement of an annual EPS measure and seventy percent of the units will be earned based on a three-year relative TSR measure, on a percentile basis. The units earned based on the achievement of the EPS and TSR measures, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company. The combination of EPS and3-Year relative TSR compared to our compensation peer group provide a strong performance-based incentive for our NEOs that aligns with shareholder value creation. |
• | For NEOs, the grant date value of the award is based on a percentage of base salary as shown below. |
Gateway Performance Criteria
Like our cash incentive plans, our long-term equity-based incentive plan uses two gateway prerequisite performance criteria to receive an award under the plan as follows:
• | The Company’s regulatory safety and soundness assessment must equal or exceed the expectations of the MD&C Committee set at the beginning of the year. As noted, we must receive a CAMELS rating that equals or exceeds the target CAMELS rating determined by the MD&C Committee at the beginning of the year. The CAMELS rating, which is assigned by the Uniform Financial Institutions Rating System, is based on performance in six areas: the adequacy of capital, the quality of assets, the capability of management, the quality and level of earnings, the adequacy of liquidity, and sensitivity to market risk. We are prohibited by applicable banking regulations from publicly disclosing our CAMELS rating. |
• | Executives must be employed at the time of payment and must receive a minimum performance evaluation rating of satisfactory or better to be eligible for any payout. |
The Committee determined these performance criteria were met for 2016.
The structure of the 2016 awards and the 2016 performance results follows:
Name | 2016 Grant Date Value of RSUs as a % of Base Salary | |||||||||||
Threshold | Target | Maximum | ||||||||||
Martin K. Birmingham | 18 | % | 50 | % | 75 | % | ||||||
Messrs. Klotzbach, Kreienberg & Kenefick | 11 | % | 30 | % | 45 | % | ||||||
Michael D. Burneal | 11 | % | 20 | % | 30 | % |
Performance Measures & Measurement Period | 2016 Performance Goals | 2016 Actual Results | ||||||
Threshold | Target | Maximum(1) | ||||||
30% Grant Year EPS (01/01/2016 – 12/31/2016) | $1.70 | $2.00 | $2.10 | $2.10 | ||||
3-Year Relative TSR(2) (01/01/2016 – 12/31/2018) | 40th Percentile | 50th Percentile | 80th Percentile | N/A (Determined as |
(1) | RSU awards are granted at the target level and results are interpolated for performance between Threshold and Maximum. |
(2) | If our absolute TSR is less than 0% for the performance period and our performance relative to the peer group is greater than the 50th percentile, the number of shares earned will not exceed Target. |
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The following table includes the details of the RSUs grant made to NEOs in February 2016 and the units earned on the 30% of the shares that were subject to theone-year EPS performance goal. These units were earned at the maximum level based on 2016 EPS results. The units earned based on 2016 EPS performance remain subject to three-year time vesting and continued employment.
Name | RSUs Grant February 2016 | Award Granted at Target (#) | FY 2016 EPS Performance as a % of Target | RSUs Earned Subject to Vesting (#) | ||||||||||
Martin K. Birmingham | Subject to Grant Year EPS Performance | 2,885 | 150 | % | 4,327 | |||||||||
Subject to 3-Year Relative TSR Performance | 6,730 | Determined as of 12/31/2018 | ||||||||||||
Kevin B. Klotzbach | Subject to Grant Year EPS Performance | 943 | 150 | % | 1,414 | |||||||||
Subject to 3-Year Relative TSR Performance | 2,200 | Determined as of 12/31/2018 | ||||||||||||
William L. Kreienberg | Subject to Grant Year EPS Performance | 875 | 150 | % | 1,313 | |||||||||
Subject to 3-Year Relative TSR Performance | 2,043 | Determined as of 12/31/2018 | ||||||||||||
Jeffrey P. Kenefick | Subject to Grant Year EPS Performance | 741 | 150 | % | 1,111 | |||||||||
Subject to 3-Year Relative TSR Performance | 1,728 | Determined as of 12/31/2018 | ||||||||||||
Michael D. Burneal | Subject to Grant Year EPS Performance | 370 | 150 | % | 555 | |||||||||
Subject to 3-Year Relative TSR Performance | 863 | Determined as of 12/31/2018 |
2017 Long Term Equity Incentive Plan Design
As a part of the Committee’s review of compensation plan design following the engagement with shareholders and the market analysis performed by the Committee’s compensation advisor, the Committee redesigned the structure of the equity awards for 2017. The redesign resulted in RSU grants with 50% of the units granted earned subject to3-Year Relative TSR performance using the SNL Small Cap Bank & Thrift Index. The performance-based shares vest three years from the date of grant subject to attaining the required gateway performance. The remaining 50% of the grant vests subject to the attainment of the required gateway performance and continuous employment through the third anniversary of the date of the grant. More details on these awards will be disclosed in the Company’s 2018 proxy statement.
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ADDITIONAL ELEMENTS OF COMPENSATION
401(k) Retirement Savings Plan
We maintain a 401(k) Retirement Savings Plan, which we refer to as the 401(k) Plan, which is available to all eligible employees including NEOs. Participants may elect up to 25% of their account balance to be invested in our common stock under the 401(k) Plan. In addition, the 401(k) Plan provides forcatch-up contributions for eligible employees. All NEOs participate in the 401(k) Plan.
Pension Plan
We maintain a defined benefit pension plan, which we refer to as the DB Plan, in which all of the NEOs participate. The DB Plan has two Tiers of participation. Tier One, which includes Messrs. Birmingham, Klotzbach, Kenefick and Burneal, provides for an age and service-based traditional pension benefit. Tier Two, which includes Mr. Kreienberg, provides a cash balance type benefit that is valued based on a hypothetical account balance based on pay and interest credits. Information regarding the pension benefits of our NEOs can be found in the Pension Benefits Table.
Other Benefits
Eligible employees, including our NEOs, may participate in our health and welfare benefit programs, including medical (including a high deductible health plan), dental, vision coverage, disability and life insurance. These benefits are offered to all employees as a part of our competitive total compensation program.
Perquisites and Other Personal Benefits
We provide our NEOs with perquisites that the MD&C Committee believes are reasonable and consistent with our overall compensation program, and allow our NEOs to more effectively discharge their responsibilities to the Company. Messrs. Birmingham, Klotzbach, Kreienberg and Kenefick were provided with Company-owned automobiles in 2016. We have over fifty retail and commercial banking offices located in a 10,000 square mile footprint throughout western and central New York. We believe the regular presence of our NEOs in the markets we serve is best accomplished by providing them with the use of a Company-owned vehicle. We also reimburse Messrs. Birmingham, Klotzbach, Kreienberg and Kenefick for membership costs for various clubs and organizations. The MD&C Committee believes such memberships provide important opportunities for business development activities and demonstrate our philosophy of community involvement in the markets in which we do business. The amounts attributable to each of our NEOs for personal use of a Company-owned vehicle and membership reimbursements are included in the “All Other Compensation” column in the Summary Compensation Table.
Agreements with Named Executive Officers
Executive Agreements:
In 2016, executive agreements were in place for Messrs. Birmingham and Klotzbach that provide forchange-in-control severance benefits, protection of our confidential and proprietary information andnon-competition andnon-solicitation restrictions in the event the executive’s employment with us terminates.
We believe that severance protection, particularly in the context of achange-in-control transaction, can play a valuable role in attracting and retaining key executive officers in the banking industry. We consider these severance protections to be an important part of an executive’s compensation and consistent with similar benefits offered by our competition. The occurrence or potential occurrence of achange-in-control transaction will create uncertainty regarding the continued employment of our executive officers. These transactions often result in significant organizational changes, particularly at the executive level. We believe thatchange-in-control benefits mitigate against the potential negative consequences to executives of actively pursuing possiblechange-in-control transactions that may be in the best interest of shareholders.
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Accordingly, the Agreements provide for the continuation of compensation in the event of certain terminations within a specified period following achange-in-control for Messrs. Birmingham and Klotzbach. The Agreements use a “double trigger,” which means that acceleration of vesting and severance payments requires both thechange-in-control event and a qualifying termination of employment, consisting of the executive’s involuntary termination without cause or voluntary termination for good reason within 12 months following achange-in-control transaction. In the event of a qualifying termination (involuntary termination without cause or voluntary termination for good reason) within the12-month period following achange-in-control, the executive will receive an amount equal to two times the sum of his base salary (three times the sum of his base salary for Mr. Birmingham) for the calendar year ending just before the date on which thechange-in-control occurred plus the average of the executive’s annual incentive compensation for the three calendar years ending before the date on which thechange-in-control occurred. We will pay these amounts in equal installments following the executive’s termination date for the continuation period. The agreement with Mr. Birmingham provides a continuation period of three years. The agreement with Mr. Klotzbach provides a continuation period of two years. We will also continue to pay for health and dental coverage, for up to 18 months, for each executive and his covered dependents. In addition, all restricted share and RSU awards, stock options and other rights that the executive may hold to purchase or otherwise acquire shares of our common stock will immediately become fully vested at the maximum level and, in the case of stock options, exercisable in full for the total number of shares that are or might become purchasable thereunder.
In all cases, the executive’s payments and benefits will be reduced, if necessary, to ensure that the payments and benefits to the executive will not be subject to the “golden parachute” excise tax imposed by Section 4999 of the Internal Revenue Code and the payments are deductible by us.
In the event of termination due to achange-in-control, thenon-competition andnon-solicitation provisions of the Agreements are effective during the period the executive is receiving any compensation or benefits from us under the Agreement. If the executive terminates and is not entitled to compensation under the agreement, thenon-competition andnon-solicitation provisions of the Agreements are effective for six months following the executive’s termination of employment. If the executive’s employment terminates with eligibility for compensation or benefits under another arrangement with us, thenon-competition andnon-solicitation provisions of the Agreement will be effective for the greater of: (i) the period of time during which the executive is receiving any compensation or benefits from us; or (ii) thesix-months following the executive’s termination of employment. Further information regarding the benefits under the Agreements is included under the Potential Payments Upon Termination of Employment or Change in Control section on page 50.
OTHER COMPENSATION CONSIDERATIONS
Stock Ownership Requirements
To demonstrate the strong commitment of our Board and our NEOs to our performance and to further promote our commitment to sound corporate governance, the MD&C Committee approved in January 2015 a revision to our policy on share ownership increasing most requirements to 150% of the requirement in 2014. Executive officer and director stock ownership guidelines have been adopted as follows:
Position | Required Ownership | |
CEO | 3x Annual Base Salary | |
CFO and Treasurer/ Chief Corporate Development Executive and General Counsel | 1.5x Annual Base Salary | |
Other NEOs | 1x Annual Base Salary | |
Non-employee Directors | Shares with a value at least equal to $150,000 |
Shares that count toward satisfaction of the stock ownership requirements include: shares owned outright by such person or his or her immediate family members residing in the same household, 401(k) funds invested in shares of our stock, shares acquired upon stock option exercises, shares held in trust for the benefit of such person and earned performance-based shares.
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All covered executive officers and directors are required to achieve their stock ownership requirement within five years from their election as director or, in the case of an executive, from the most recent annual measurement period. Those subject to the requirements must retain at least 75% of shares issued to them by the Company until the holding requirement is met. Once achieved, ownership of the required amount must be maintained for as long as the individual holds an executive officer position or serves as a director. For 2016, all members of our Board of Directors have met their stock ownership requirement except Ms. VanGelder who joined the Board in June 2016. For 2016, all of our NEOs met their respective stock ownership requirement. Mr. Burneal first became subject to the stock ownership requirement in February 2017 and is committed to meeting the requirement within the required timeframe.
Clawback Provision
All of our executive incentive compensation plan documents and award agreements incorporate a clawback provision which states that if the MD&C Committee determines that a covered individual received a payment, bonus, retention award, or incentive compensation award that was determined using materially inaccurate criteria, then the amount that was paid as a result of the materially inaccurate criteria shall be repaid to us by the employee. To date, no clawback action has been required.
Policy Regarding Derivatives, Pledging and Hedging
Our Board of Directors has adopted a policy that prohibits all executive officers, including our NEOs, and members of our Board of Directors from pledging shares on margin, trading in derivative securities of our common stock, or engaging in the purchase or sale of any other financial instruments (including forward contracts, equity swaps, collars and exchange funds) that are designed to hedge or offset any decrease in the market value of our common stock.
Tax and Accounting Implications
The financial reporting and income tax consequences of individual compensation elements are important considerations for the MD&C Committee when analyzing the overall level of executive compensation and the individual components of executive compensation. Overall, the MD&C Committee seeks to balance its objective of ensuring an effective compensation package for our NEOs with the benefit from deductibility of compensation, while ensuring an appropriate and transparent impact on reported earnings and other closely followed financial measures.
Our 2009 Management Stock Incentive Plan and the Financial Institutions, Inc. 2015 Long-Term Incentive Plan are structured to allow us, but not require us, to pay compensation exempt from Section 162(m) of the Internal Revenue Code. Section 162(m) of the Code generally provides that we may not deduct compensation that is paid to certain individuals each year of more than $1,000,000 per individual, unless an exception applies. Compensation pursuant to stock options and other performance-based compensation may be exempted from the limitations imposed under Section 162(m) if certain requirements are met. The MD&C Committee believes that shareholders’ interests are best served if our discretion and flexibility in awarding compensation is not restricted, even though some compensation awards may result innon-deductible compensation expenses. Accordingly, the MD&C Committee may grant awards and enter into agreements under which the related compensation is not fully deductible under Section 162(m) if the MD&C Committee determines such arrangements are in the best interests of our shareholders.
Under Financial Accounting Standards Board Accounting Standards Codification Topic 718, we are required to recognize compensation expense on our income statement over the requisite service period or performance period based on the grant date fair value of stock options, restricted shares and RSUs.
MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE REPORT
The MD&C Committee of the Company’s Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the MD&C Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form10-K and in this Proxy Statement.
THE MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE
Andrew W. Dorn, Jr., Chairman
Samuel M. Gullo
Erland E. Kailbourne
James H. Wyckoff
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The following table contains information concerning the compensation earned by our NEOs for each of the fiscal years ended December 31, 2016, 2015 and 2014 in which they were an NEO.
Name & Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Non-equity Incentive Plan Compensation ($)(2) | Change in Pension Value ($)(3) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||
Martin K. Birmingham | 2016 | 502,692 | 233,923 | 246,995 | 49,397 | 9,543 | 1,042,550 | |||||||||||||||||||||
President and Chief Executive Officer | 2015 | 514,000 | 200,921 | 209,417 | 13,916 | 22,638 | 960,892 | |||||||||||||||||||||
2014 | 420,000 | 91,151 | 235,957 | 83,387 | 21,182 | 851,677 | ||||||||||||||||||||||
Kevin B. Klotzbach | 2016 | 280,000 | 76,488 | 105,900 | 65,046 | 16,546 | 543,980 | |||||||||||||||||||||
EVP, Chief Financial Officer and Treasurer | 2015 | 280,000 | 66,337 | 87,992 | 30,625 | 28,669 | 493,623 | |||||||||||||||||||||
2014 | 230,000 | 40,334 | 99,986 | 177,097 | 26,679 | 574,096 | ||||||||||||||||||||||
William L. Kreienberg | 2016 | 260,000 | 71,013 | 98,336 | 13,250 | 9,794 | 452,393 | |||||||||||||||||||||
EVP, Chief Corporate Development Executive and General Counsel | 2015 | 260,000 | 76,386 | 88,775 | — | 20,627 | 445,788 | |||||||||||||||||||||
Jeffrey P. Kenefick | 2016 | 220,000 | 60,086 | 83,208 | 47,466 | 2,754 | 413,514 | |||||||||||||||||||||
EVP, Chief Community, Commercial and Strategic Development Officer | 2015 | 220,000 | 52,116 | 84,416 | 16,285 | 13,280 | 386,097 | |||||||||||||||||||||
2014 | 209,100 | 36,665 | 108,830 | 79,007 | 12,553 | 446,155 | ||||||||||||||||||||||
Michael D. Burneal | 2016 | 177,192 | 30,179 | 69,720 | 71,987 | 1,290 | 350,368 | |||||||||||||||||||||
SVP, Chief Risk and Enterprise Administration Officer |
(1) | The grant date fair value of all stock awards has been calculated in accordance with FASB ASC 718. In the case of restricted shares and RSUs subject to a service requirement only, the value is determined by multiplying the number of units granted by the closing price of our stock on the grant date reduced by the present value of the dividends expected to be paid on the underlying shares. For RSUs subject to both service and performance requirements awarded during 2016, amounts shown reflect the grant date fair value of such awards for theone- and three-year performance periods beginning in 2016 based on the probable outcome of performance conditions related to these RSU awards at the grant date. The 2016 RSU awards include both market-related (TSR) and internal (EPS) performance goals as described under the caption “Long-Term Equity-Based Incentive Plan” in the Compensation Discussion and Analysis section of this proxy statement. Consistent with the applicable accounting standards, the grant date fair value of the market-related TSR component has been determined using a Monte Carlo simulation model, which is a risk analysis method that selects a random value from a range of estimates. The table below sets forth the grant date fair value for the RSU awards granted during 2016: |
Executive Name | Probable Outcome of Performance Conditions Grant Date Fair Value ($) * | Market-related Component Grant Date Fair Value ($) ** | Maximum Outcome of Performance Conditions Grant Date Fair Value ($) | |||||||||
Martin K. Birmingham | 69,846 | 164,077 | 268,834 | |||||||||
Kevin B. Klotzbach | 22,830 | 53,658 | 87,891 | |||||||||
William L. Kreienberg | 21,184 | 49,829 | 81,617 | |||||||||
Jeffrey P. Kenefick | 17,940 | 42,146 | 69,043 | |||||||||
Michael D. Burneal | 8,958 | 21,221 | 34,658 |
* | Amounts shown represent the grant date fair value of the RSU awards subject to the internal EPS performance goal (i) based on the probable or target outcome as of the date the goals were set and (ii) based on achieving the maximum level of performance for the one year performance period beginning in 2016. The grant date fair value of the EPS goal component of the RSU awards awarded on February 24, 2016 was $24.21 per share, which was the closing share price of our common stock on that date reduced by the present value of the dividends expected to be paid on the underlying shares. |
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** | Amounts shown represent the grant date fair value of RSU awards subject to the market-related TSR goal component of the RSU awards, for which expense recognition is not subject to probable or maximum outcome assumptions. The weighted-average grant date fair value of the market-related TSR goal component of the RSU awards awarded on February 24, 2016 was $24.38 per share for Mr. Birmingham; $24.39 per share for Messrs. Klotzbach, Kreienberg and Kenefick; and $24.59 per share for Mr. Burneal, which was determined using a Monte Carlo simulation model. The significant assumptions used in this simulation model were a volatility rate of 24.3%, a risk-free interest rate of 0.88%, and a dividend yield rate of 2.99%. |
(2) | The amount in this column for Mr. Kenefick includes $15,279 of his 2013non-equity incentive plan award, which was deferred and paid in 2015 upon satisfying certain performance measures. |
(3) | The amounts reported in this column reflect the aggregate change in the actuarial present value of each NEO’s accrued pension benefit under our defined benefit pension plan based on the assumptions used for FASB ASC 715 at each measurement date. As such, changes reflect changes in value due to an increase or decrease in the FASB ASC 715 discount rates, changes in the mortality tables, and changes due to the accrual of plan benefits. Mr. Kreienberg was not eligible to participate in our defined benefit pension plan at December 31, 2015. |
(4) | Amounts reported in this column for 2016 are itemized in the table below captioned “All Other Compensation.” |
All Other Compensation
The following table sets forth details of “All Other Compensation”, as presented above in the Summary Compensation Table for 2016.
Executive Name | Use of Company Vehicle ($) | Club Memberships ($) | Other ($)(1) | Total ($) | ||||||||||||
Martin K. Birmingham | 4,098 | 4,755 | 690 | 9,543 | ||||||||||||
Kevin B. Klotzbach | 8,687 | 5,879 | 1,980 | 16,546 | ||||||||||||
William L. Kreienberg | 6,814 | 1,690 | 1,290 | 9,794 | ||||||||||||
Jeffrey P. Kenefick | 1,884 | 180 | 690 | 2,754 | ||||||||||||
Michael D. Burneal | — | — | 1,290 | 1,290 |
(1) | This column discloses the taxable portion of group term life insurance. |
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2016 Grants of Plan-Based Awards
The following table shows the plan-based awards granted during the fiscal year ended December 31, 2016 to each of our NEOs.
Estimated future payouts undernon-equity incentive plan awards(1) | Estimated future payouts under equity incentive plan awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant date fair value of stock awards(3) ($) | |||||||||||||||||||||||||||||||||
Executive Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||
Martin K. Birmingham | 02/24/16 | 15,000 | 200,000 | 325,000 | 3,461 | 9,615 | 14,422 | — | 233,923 | |||||||||||||||||||||||||||
Kevin B. Klotzbach | 02/24/16 | 5,600 | 84,000 | 140,000 | 1,152 | 3,143 | 4,714 | — | 76,488 | |||||||||||||||||||||||||||
William L. Kreienberg | 02/24/16 | 5,200 | 78,000 | 130,000 | 1,070 | 2,918 | 4,377 | — | 71,013 | |||||||||||||||||||||||||||
Jeffrey P. Kenefick | 02/24/16 | 4,400 | 66,000 | 110,000 | 905 | 2,469 | 3,704 | — | 60,086 | |||||||||||||||||||||||||||
Michael D. Burneal | 02/24/16 | 2,200 | 55,000 | 88,000 | 678 | 1,233 | 1,850 | — | 30,179 |
(1) | This represents the annual cash incentive opportunity under our 2016 annual cash incentive plan at threshold, target or maximum performance. The amount actually paid for 2016 is set forth in the Summary Compensation Table under the“Non-Equity Incentive Plan Compensation” column. Please refer to the Compensation Discussion and Analysis under the caption “Annual Cash Incentive Plan” for additional information about the performance conditions applicable to each payment. |
(2) | These columns show the potential number of shares that our NEOs could earn under our 2016 long-term equity-based incentive plan at threshold, target or maximum performance. The measures and potential payouts are described in more detail in the Compensation Discussion and Analysis section of this proxy statement under the caption “Long-Term Equity-Based Incentive Plan”. |
(3) | See footnote 1 to the “Summary Compensation Table” for a description of the method used to determine the grant date fair value of stock awards. |
For additional information regarding our annual cash incentive plan and our long-term equity-based incentive plan, please see the discussions under “Annual Cash Incentive Plan” and “Long-Term Equity-Based Incentive Plan” in the Compensation Discussion and Analysis.
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Outstanding Equity Awards at December 31, 2016
Option awards | Stock awards | |||||||||||||||||||||||||||
Executive Name | Number of securities underlying unexercised options Exercisable (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($)(6) | Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#) | Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(6) | |||||||||||||||||||||
Martin K. Birmingham | — | — | — | 9,975 | (1) | 341,145 | 22,266 | (7) | 761,497 | |||||||||||||||||||
Kevin B. Klotzbach | — | — | — | 3,600 | (2) | 123,120 | 7,746 | (7) | 264,913 | |||||||||||||||||||
William L. Kreienberg | — | — | — | 3,382 | (3) | 115,664 | 4,459 | (7) | 152,498 | |||||||||||||||||||
Jeffrey P. Kenefick | — | — | — | 2,984 | (4) | 102,053 | 6,289 | (7) | 215,084 | |||||||||||||||||||
Michael D. Burneal | — | — | — | 2,155 | (5) | 73,701 | 863 | (7) | 29,515 |
(1) | 2,862 shares vested on February 18, 2017, 2,786 shares vest on February 25, 2018 and 4,327 shares vest on February 24, 2019. |
(2) | 1,266 shares vested on February 18, 2017, 920 shares vest on February 25, 2018 and 1,414 shares vest on February 24, 2019. |
(3) | 1,500 shares vest on January 14, 2018, 569 shares vest on February 25, 2018 and 1,313 shares vest on February 24, 2019. |
(4) | 1,151 shares vested on February 18, 2017, 722 shares vest on February 25, 2018 and 1,111 shares vest on February 24, 2019. |
(5) | 800 shares vested on February 18, 2017, 800 shares vest on February 25, 2018 and 555 shares vest on February 24, 2019. |
(6) | Market values calculated using $34.20 per share, which was the closing market price of our common stock on December 31, 2016. |
(7) | Represents the maximum number of restricted share awards subject to TSR performance measures granted on February 18, 2014 and February 25, 2015, and target number of RSU awards subject to a TSR performance measure granted on February 24, 2016. Of the restricted share and RSU awards reported for Messrs. Birmingham, Klotzbach, Kreienberg, Kenefick and Burneal, 3,716, 1,644, 0, 1,495 and 0, respectively, were forfeited on January 25, 2017, subject to the TSR performance measure not being satisfied, 11,820, 3,902, 2,416, 3,066 and 0, respectively, will vest on February 25, 2018, subject to the TSR performance measure and recipient’s continued employment with the Company and 6,730, 2,200, 2,043, 1,728 and 863, respectively, will vest on February 24, 2019, subject to the TSR performance measure and recipient’s continued employment with the Company. |
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Option Exercises and Stock Vested in 2016
The following table provides information about stock options exercised by our NEOs during 2016 and restricted shares and RSUs held by our NEOs that vested in 2016.
Option Awards | Stock Awards | |||||||||||||||
Executive Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise(1) ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting(2) ($) | ||||||||||||
Martin K. Birmingham | — | — | — | — | ||||||||||||
Kevin B. Klotzbach | 1,500 | 10,950 | — | — | ||||||||||||
William L. Kreienberg | — | — | — | — | ||||||||||||
Jeffrey P. Kenefick | 5,000 | 39,725 | — | — | ||||||||||||
Michael D. Burneal | — | — | — | — |
(1) | Value realized on exercise is the difference between the market price on the date of exercise and the exercise price of the options exercised, multiplied by the number of options exercised. |
(2) | Represents the number of vested shares multiplied by the closing market price of our common stock on the date of vesting. |
We maintain a defined benefit pension plan in which our NEOs included below have an accumulating benefit. The following Pension Benefits table provides information regarding the present value of the accumulated benefit and years of credited service for our NEOs under the New York State Bankers Retirement System Volume Submitter Plan as adopted by Financial Institutions, Inc. (the “New York Bankers Retirement Plan”). The present value of accumulated benefits was determined using the same assumptions used for financial reporting purposes under generally accepted accounting principles for 2016. None of our NEOs received pension payments during 2016.
Executive Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefits(1) ($) | |||||||
Martin K. Birmingham | New York Bankers Retirement Plan | 10.8 | 281,757 | |||||||
Kevin B. Klotzbach | New York Bankers Retirement Plan | 14.3 | 713,940 | |||||||
William L. Kreienberg | New York Bankers Retirement Plan | 1.0 | 13,250 | |||||||
Jeffrey P. Kenefick | New York Bankers Retirement Plan | 9.8 | 259,432 | |||||||
Michael D. Burneal | New York Bankers Retirement Plan | 11.4 | 270,116 |
(1) | The Present Value of Accumulated Benefits was determined using the same assumptions used for financial reporting purposes under U.S. generally accepted accounting principles. For a discussion of the valuation method and all material assumptions applied in quantifying the present value of the accumulated benefits, refer to Note 17 – Employee Benefit Plans to our consolidated financial statements in our Annual Report on Form10-K for the year ended December 31, 2016. |
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Benefits under the defined benefit pension plan are based on years of service and the NEO’s highest average compensation during five consecutive years of employment. Compensation used to determine benefits is all wages, and other compensation as reported on the NEO’s formW-2. Normal retirement age for NEOs who first participated in our plan prior to January 1, 2004 is age 62 with ten years of vesting service, as defined in the plan. Normal retirement age is age 65 for any NEO who first participated in the plan on or after January 1, 2004. The normal retirement benefit is an annual pension benefit calculated as follows:
Basic Benefit for employees whose Date of Participation is prior to January 1, 2016
For benefit service accrued prior to January 1, 2004:
• | 1.75% of average highest five consecutive years’ compensation multiplied by credited service accrued prior to January 1, 2004 up to 35 years; plus |
For benefit service accrued on or after January 1, 2004 through December 31, 2015:
• | 1.50% of average highest five consecutive years’ compensation, multiplied by credited service accrued on or after January 1, 2004 through December 31, 2015, provided that such service shall not exceed the difference between (i) 35 and (ii) the participant’s years of benefit earned prior to January 1, 2004 (up to 35); plus |
For benefit service accrued on or after January 1, 2016:
• | 1.30% of average highest five consecutive years’ compensation multiplied by credited service accrued on or after January 1, 2016; plus |
Each of the above formulas are increased by 1.25% of average highest five consecutive years’ compensation multiplied by credited service accrued prior to January 1, 2016 in excess of 35 years up to 5 years; minus
Offset Benefit
Each of the above formulas are reduced by 0.49% of the average final three years’ compensation, up to covered compensation, multiplied by credited service accrued prior to January 1, 2016 up to 35 years.
Basic Benefit for employees whose Date of Participation is January 1, 2016 or later
The actuarial equivalent of the participant’s Cash Balance Account, which is credited with service credits equal to 5% of compensation earned each credit period and interest credits of 4% per credit period.
The normal benefit form is payable as a single life pension with sixty payments guaranteed for employees whose Date of Participation is prior to January 1, 2016. For employees whose Date of Participation is January 1, 2016 or later, the normal benefit form is payable as a single life pension. There are a number of optional forms of benefit available to participants, all of which are adjusted actuarially.
For employees whose Date of Participation is prior to January 1, 2016, early retirement benefits are available at age 55 under the plan and are reduced from the basic benefits calculation shown above. The amount of the reduction depends on a participant’s enrollment and vesting in the plan as of January 1, 2004. For employees whose Date of Participation is January 1, 2016 or later, a participant may receive their cash balance benefit at any age, provided that they have completed at least three years of vesting service. Messrs. Klotzbach, Kreienberg and Burneal are eligible for retirement.
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Potential Payments Upon Termination of Employment or Change in Control
As discussed under “Agreements with Named Executive Officers,” on page 41, we have entered into executive agreements (the “agreements”), which include change of control provisions, with Messrs. Birmingham and Klotzbach. The agreements are designed to promote stability and continuity of our senior management. The agreements include a “double trigger” structure which provides that the executive officer will not receive a “change of control” payment unless both (i) a change in control occurs and (ii) the executive’s employment terminates involuntarily for reasons other than for cause or voluntarily for good reason within a year, in either case following the change in control.
Under the agreements, a change of control will be deemed to have occurred if:
1. | any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (“Act”)), other than Financial Institutions, Inc (“FII”) or a subsidiary of FII, becomes the beneficial owner (within the meaning of Rule13d-3 under the Act) of FII securities possessing twenty percent (20%) or more of the voting power for the election of directors of FII; or |
2. | there is consummated |
i. | any consolidation, share exchange or merger of FII in which FII is not the continuing or surviving corporation or pursuant to which any shares of FII’s common stock are to be converted into cash, securities or other property, provided that the transaction is not with a corporation which was a subsidiary of FII immediately before the transaction; or |
ii. | any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of FII; or |
3. | “approved directors” constitute less than a majority of the entire Board of Directors, with “approved directors” defined to mean the members of the Board of Directors of FII as of the date of the agreements and any subsequently elected members who are nominated or approved by at least three quarters of the approved directors on the Board prior to such election. |
Achange-in-control termination under the agreements requires that within 12 months following a change in control: (i) the executive’s employment is terminated other than for cause; or (ii) the executive terminates employment for “good reason.” Termination for “good reason” means that the executive has terminated employment because the executive’s compensation has been reduced, or the executive’s job duties have been materially changed or the executive’s principal place of employment has changed by more than 75 miles. If the circumstances that create the “good reason” are resolved upon notice, a “good reason” termination is generally not available.
Each of the agreements requires that the executive not disclose or use confidential information of the Company both during and after the conclusion of the executive’s employment, and not solicit employees of the Company and not compete with the Company during the term of the agreement and during the greater of any period for which the executive is entitled to receive compensation or six months thereafter.
Each of the agreements includes a continuation multiple and a continuation period which are used to calculate potential payments under the agreement as follows:
Executive Name | Continuation Multiple | Continuation Period | ||
Martin K. Birmingham | Three | 36 months | ||
Kevin B. Klotzbach | Two | 24 months |
In the event an executive experiences a termination that qualifies after a change in control, compensation and benefits under the agreements include: (1) payment of the sum of the base salary for the most recent calendar year ending before the date of the change in control and the average of the annual incentive compensation earned for the three most recent calendar years ending before the date of the change in control multiplied by the continuation multiple, payable in equal installments over the continuation period; (2) the immediate vesting of all stock options, restricted shares and RSUs; and (3) payment of the cost to continue medical and dental benefits for a period not to exceed 18 months.
The agreements also include a provision that limitschange-in-control payments to executives in order to eliminate any potential excise taxes under Section 280G of the Internal Revenue Code. In the event the calculated payment exceeds the 280G limit, the benefits will be reduced to an amount below the limit.
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The equity awards outstanding as of December 31, 2016 for each of the NEOs were issued under the 2009 Management Stock Incentive Plan and the Financial Institutions, Inc. 2015 Long-Term Incentive Plan. Under the 2009 Management Stock Incentive Plan and the Financial Institutions, Inc. 2015 Long-Term Incentive Plan, upon death, disability or retirement of a participant, the following will occur: (1) forfeiture of all equity awards that are subject solely to the passage of time; and (2) the vesting of a pro rata portion of all equity awards whose vesting is based wholly or partially based on the achievement of performance-based goals, as determined by the MD&C Committee in its sole discretion.
The following table includes the amount of compensation payable to each of the NEOs upon a termination of employment under certain circumstances on December 31, 2016.
Executive Name | Benefit | Resignation ($) | Termination Without Cause or For Good Reason Following a Change in Control ($)(3) | Death, Disability or a Change in Control ($) | ||||||||||
Martin K. Birmingham | Pay continuation | — | 2,192,370 | — | ||||||||||
Equity award vesting(1) | — | 1,102,642 | 1,102,642 | |||||||||||
Health benefits continuation | — | 18,684 | — | |||||||||||
|
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|
| |||||||||
Total | — | 3,313,696 | 1,102,642 | |||||||||||
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Kevin B. Klotzbach | Pay continuation | — | 755,918 | — | ||||||||||
Equity award vesting(1) | — | 388,033 | 388,033 | |||||||||||
Health benefits continuation | — | 1,422 | — | |||||||||||
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Total | — | 1,145,373 | 388,033 | |||||||||||
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William L. Kreienberg(2) | Equity award vesting(1) | — | — | 268,162 | ||||||||||
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Jeffrey P. Kenefick(2) | Equity award vesting(1) | — | — | 317,137 | ||||||||||
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Michael D. Burneal(2) | Equity award vesting(1) | — | — | 103,216 | ||||||||||
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(1) | The figures shown reflect the value of those equity awards that would accelerate, calculated using a price per share of $34.20 which was the closing sales price for a share of our common stock on December 31, 2016. |
(2) | The amount reported for Messrs. Kreienberg, Kenefick and Burneal is the value of equity awards vesting provided under the 2009 Management Stock Incentive Plan and the Financial Institutions, Inc. 2015 Long-Term Incentive Plan as they are not parties to an Executive Agreement. |
(3) | The agreements also include a provision that limitschange-in-control payments to executives in order to eliminate any potential excise taxes under Section 280G of the Internal Revenue Code. In the event the calculated payment exceeds the 280G limit, the benefits will be reduced to an amount below the limit. |
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PROPOSAL 2 – ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS
We believe that our compensation policies and procedures for our named executive officers are competitive yet conservative, are focused on pay for performance principles, and are strongly aligned with the long-term interests of our shareholders. We also believe that we and our shareholders both benefit from responsive corporate governance policies and constructive and consistent dialogue. We are providing our shareholders the opportunity to vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the SEC’s rules. This proposal, commonly known as a “Say on Pay” proposal, gives you as a shareholder the opportunity to endorse the compensation for our named executive officers by voting to approve or not approve such compensation as described in this Proxy Statement. We encourage you to review the tables and our narrative discussion included in this Proxy Statement.
This “Say on Pay” proposal is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 14A to the Exchange Act. Section 14A of the Exchange Act also requires us to submit anon-binding, advisory resolution to shareholders at least once every six years to determine whether advisory votes on executive compensation paid to our named executive officers should be held very one, two or three years. At the 2012 Annual Meeting of Shareholders, shareholders approved an advisory resolution to vote annually to approve, on an advisory basis, the compensation of our named executive officers. In accordance with the results of this vote, the Board determined to implement an advisory vote on executive compensation every year until the next vote on the frequency of shareholder votes on executive compensation, which will occur at the 2018 Annual Meeting of Shareholders.
Pursuant to Section 14A of the Securities Exchange Act of 1934, we are asking you to approve the compensation of our named executive officers as described under Compensation Discussion and Analysis and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this Proxy Statement. Accordingly, we recommend that you vote “FOR” the following resolution at the Annual Meeting:
“RESOLVED, that on an advisory basis, the 2016 compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and related disclosures in this Proxy Statement for its 2017 Annual Meeting of Shareholders is hereby approved.”
The outcome of this advisory vote isnon-binding and does not overrule any decision by us or our Board (or any committee thereof), create or imply any change to our fiduciary duties or those of our Board (or any committee thereof), or create of imply any additional fiduciary duties for us or our Board (or any committee thereof). Although the advisory vote on the compensation of our named executive officers isnon-binding, our Management Development & Compensation Committee will review the results of the vote and evaluate whether any actions are necessary to address such results.
The Board of Directors unanimously recommends that the shareholders approve the Say on Pay resolution and, accordingly, recommends a vote “FOR” this proposal.
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Our Audit Committee assists the Board of Directors in its general oversight of financial reporting process, internal controls and audit functions as well as risk management relating to those areas. The Audit Committee conducts business in accordance with its charter and meets regularly. The Audit Committee met eight times during 2016. At various times during the 2016 fiscal year, the Audit Committee met with KPMG LLP (“KPMG”) and the internal auditors, with and without management present.
Management is responsible for our internal controls and financial reporting process. Our independent registered public accounting firm, KPMG, is responsible for performing an independent audit of (i) our consolidated financial statements and (ii) the effectiveness of our internal controls over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States) and to issue reports thereon. The Audit Committee’s responsibility is to monitor and oversee the financial reporting and audit processes.
In connection with these responsibilities, our Audit Committee met with management and the independent accountants and reviewed and discussed our December 31, 2016 audited consolidated financial statements. The Audit Committee also discussed with the independent accountants matters required to be discussed by Auditing Standard No. 1301, “Communications with Audit Committees,” as adopted by the Public Company Oversight Board. The Audit Committee received written disclosures and the letter from the independent accountants required by the applicable sections of the Public Company Accounting Oversight Board regarding the independent accountants’ communications with the audit committee, concerning independence, discussed with the independent accountant the independent accountant’s independence from management and the Company, and considered the compatibility ofnon-audit services with KPMG’s independence.
Based upon the Audit Committee’s discussions with management and the independent accountants and its review of the information described above, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in our Annual Report on Form10-K for the year ended December 31, 2016, to be filed with the U.S. Securities and Exchange Commission.
THE AUDIT COMMITTEE
Robert M. Glaser, Chair
Karl V. Anderson, Jr.
John E. Benjamin
Samuel M. Gullo
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Independent Registered Public Accounting Firm
The following table presents fees for professional services rendered by KPMG for the audit of our annual financial statements for 2016 and 2015, and fees billed for other services rendered by KPMG.
2016 | 2015 | |||||||
Audit Fees(1) | $ | 449,300 | $ | 443,070 | ||||
Audit Related Fees(2) | 14,120 | 23,120 | ||||||
Tax Fees(3) | 81,430 | 88,920 | ||||||
All Other Fees(4) | — | — | ||||||
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Total fees | $ | 544,850 | $ | 555,110 | ||||
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(1) | Audit fees include fees for services that normally would be provided by KPMG in connection with statutory and regulatory filings or engagements and that generally only an independent accountant can provide. In addition to fees for the audit of our annual financial statements, the audit of the effectiveness of our internal control over financial reporting and the review of our quarterly financial statements in accordance with generally accepted auditing standard, this category contains fees for comfort letters, statutory audits, consents, and assistance with and review of documents filed with the SEC. |
(2) | Audit related fees consist of services rendered in connection with regulatory compliance procedures. |
(3) | Tax fees are fees for professional services rendered by KPMG for tax compliance, tax advice, and tax planning. |
(4) | There were no additional fees, other than those reported as audit fees, audit related fees and tax fees, paid or payable to KPMG for the fiscal years ended December 31, 2016 and 2015. |
Pre-Approval Policy
Procedures have been adopted that require Audit Committeepre-approval of all permissible services to be performed by the independent accountant, including the fees and other compensation to be paid to the independent accountant, with the exception of certain routine additional professional services that may be performed at the request of management withoutpre-approval. The additional professional services include tax assistance, research and compliance, assistance researching accounting literature and assistance in due diligence activities. The engagement letter entered into with KPMG for tax compliance services and tax consulting services states such services will not exceed $10,000 per quarter and that a listing of the additional services provided to us each quarter, if any, will be provided to the Audit Committee at their next meeting. All of the accounting services and fees reflected in the table above were reviewed and approved by the Audit Committee.
PROPOSAL 3 – RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Our Board has ratified the decision of the Audit Committee to appoint KPMG to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2017. Although we are not required to do so, we are seeking shareholder ratification of this appointment as a matter of good corporate governance. KPMG has audited our financial statements since 1995. Representatives of KPMG will be present at the meeting to make a statement, if they desire to do so, and will be available to respond to questions from our shareholders.
If the shareholders fail to ratify the appointment, the Board may reconsider whether to retain KPMG and reserves the discretion to retain KPMG as our independent registered public accounting firm. Even if the appointment is ratified, the Board in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the Board determines that such change would be in our best interests and our shareholders.
The Board of Directors unanimously recommends that the shareholders vote “FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our Related Party Transaction Policy provides for the oversight of related party transactions by our Chief Risk Officer. Pursuant to such policy, our Chief Risk Officer is notified whenever a potential related party transaction is being contemplated. Our Chief Risk Officer refers any potential transactions, with appropriate supporting detail, to the Audit Committee of our Board of Directors. The Audit Committee determines whether the transaction is a related party transaction as such term is defined under Item 404(a) of RegulationS-K. If the Audit Committee determines that the potential transaction would be a related party transaction, then the Audit Committee determines whether to approve or decline the proposed transaction. The Audit Committee has not established a written policy regarding the factors it considers in deciding whether to approve a potential related party transaction. Instead, the Audit Committee considers all factors that it deems appropriate and then decides whether to approve the transaction using its business judgment.
During 2016, neither we nor any of our subsidiaries was a party to any transaction or series of transactions in which the amount involved exceeded $120,000 and which any director, executive officer or related party had or will have a direct or indirect material interest other than:
• | Compensation arrangements described within this document; and |
• | The transactions described below. |
During 2016, our directors and executive officers and their respective affiliates were customers of and had loans and/or other transactions with us and/or our subsidiaries. All such loans and other transactions were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time they were made for comparable loans and other transactions with persons not related to us, and did not involve more than the normal risk of collectability or present other unfavorable features.
Loans to directors and executive officers are subject to limitations contained in the Federal Reserve Act. All loans to our directors and executive officers are made in conformity with the Federal Reserve Act and applicable regulations. Presently we have such loans and expect to have similar loans with our directors, executive officers, substantial shareholders and their affiliates in the future.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities to file with the U.S. Securities and Exchange Commission reports of transactions in and ownership of our common stock. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely on review of the copies of such reports and representations that no other reports are required, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were, with two exceptions, complied with during the fiscal year ended December 31, 2016.
Due to administrative oversight, Mr. Latella filed, one business day later than required, a Form 4 reporting the exercise of stock options. In addition, we are aware of one required Section 16(a) form that has not yet been filed. Mr. Benjamin has informed us that he disposed of 1,250 shares of our common stock held in his personal brokerage account several years ago but that this disposition was not timely reported and has still not been reported
MANAGEMENT DEVELOPMENT & COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Management Development & Compensation Committee (“MD&C”) consists of Messrs. Dorn, Gullo, Kailbourne and Wyckoff. We have no MD&C Committee interlocks. Each of our MD&C Committee members is an independent, outside director. None of our MD&C Committee members is a current officer or employee of the Company. None of the members of the MD&C Committee has served as an officer or an employee of the Company and none of our executive officers has served as a member of a compensation committee or director of any entity which has an executive officer serving as a member of our MD&C Committee or our Board of Directors.
NOTICE PURSUANT TO SECTION 726(d) OF THE NEW YORK BUSINESS CORPORATION LAW
On August 31, 2016, we renewed our policies of management and professional liability primary insurance and excess directors’ and officers’ liability insurance, each for aone-year term, at a total premium cost of $330,007, including broker of record commissions. The primary liability policy is carried with AIG National Union Fire Insurance Company of Pittsburgh, PA and the excess policies are carried with CNA Continental Casualty Company, Travelers Casualty and Surety Company of America, AIG Illinois National Insurance Company and AIG Specialty Insurance Company. Policies cover all directors and officers of Financial Institutions, Inc. and its subsidiaries. The Board Risk Oversight Committee oversees the insurance renewal process.
The SEC’s “householding” rules permit us to deliver only one Notice of Annual Meeting and Proxy Statement or Notice of Internet Availability of Proxy Materials to shareholders who share an address unless otherwise requested. This procedure reduces printing and mailing costs. If you share an address with another shareholder and have received only one set of proxy materials, you may request a separate copy of these materials at no cost to you by writing to the Company’s Corporate Secretary at Financial Institutions, Inc., 220 Liberty Street, Warsaw, New York 14569, or by calling our Corporate Secretary at (585)786-1100. Alternatively, if you are currently receiving multiple copies of the proxy materials at the same address and wish to receive a single copy in the future, you may contact us by calling or writing to us at the telephone number or address given above.
If you are a beneficial owner (i.e., your shares are held in the name of a bank, broker or other holder of record), the bank, broker or other holder of record may deliver only one copy of the proxy materials to shareholders who have the same address unless the bank, broker or other holder of record has received contrary instructions from one or more of the shareholders. If you wish to receive a separate copy of the proxy materials, now or in the future, you may contact us at the address or telephone number above and we will promptly deliver a separate copy. Beneficial owners sharing an address who are currently receiving multiple copies of the proxy materials and wish to receive a single copy in the future should contact their bank, broker or other holder of record to request that only a single copy be delivered to all shareholders at the shared address in the future.
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The Board of Directors knows of no other matters to be presented at the meeting. However, if any other matters properly come before the meeting, the persons named in the enclosed proxy will vote on such matters in accordance with their best judgment.
AVAILABILITY OF ANNUAL REPORT ON FORM10-K
SHAREHOLDERS MAY RECEIVE A COPY OF OUR ANNUAL REPORT ON FORM10-K FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION WITHOUT CHARGE ON REQUEST TO THE CORPORATE SECRETARY, FINANCIAL INSTITUTIONS, INC., 220 LIBERTY STREET, WARSAW, NEW YORK 14569. SHAREHOLDERS MAY ALSO VIEW THE ANNUAL REPORT ON FORM10-K AT OUR WEBSITE (www.fiiwarsaw.com), UNDER THE INVESTOR RELATIONS TAB.
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0 ⬛
FINANCIAL INSTITUTIONS, INC.
ANNUAL MEETING OF SHAREHOLDERS
June 21, 2017
The undersigned hereby appoints Kevin B. Klotzbach and Sonia M. Dumbleton, or either of them, with full powers of substitution, attorneys and proxies to represent the undersigned at the Annual Meeting of Shareholders of Financial Institutions, Inc. to be held on June 21, 2017 and at any adjournment or adjournments thereof, with all the power the undersigned would possess if personally present, and to vote as set forth on the reverse all shares of stock which the undersigned may be entitled to vote at said meeting, hereby revoking any earlier proxy for said meeting.
(Continued and to be signed on the other side.)
⬛ 1.1 | 14475 ⬛ |
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ANNUAL MEETING OF SHAREHOLDERS OF
FINANCIAL INSTITUTIONS, INC.
June 21, 2017
PROXY VOTING INSTRUCTIONS
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INTERNET - Access “www.voteproxy.com” and follow theon-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page.
Vote online until 11:59 PM EST on June 20, 2017.
MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.
IN PERSON - You may vote your shares in person by attending the Annual Meeting.
GO GREEN -e-Consent makes it easy to go paperless. Withe-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. |
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COMPANY NUMBER
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ACCOUNT NUMBER
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NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The Notice of Meeting, proxy statement and annual report are available on the Company Filings subsection under the SEC Filings section under the Investor Relations tab at www.fiiwarsaw.com |
i Please detach along perforated line and mail in the envelope providedIF you are not voting via the Internet. i
⬛ | 20433000000000000000 5 | 062117 |
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE FOUR DIRECTOR NOMINEES AND “FOR” PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ☒
1. Election of Directors: | FOR | AGAINST | ABSTAIN | |||||||||||||||||
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FOR ALL NOMINEES
WITHHOLD AUTHORITY FOR ALL NOMINEES | NOMINEES: ¡ Donald K. Boswell ¡ Andrew W. Dorn, Jr. ¡ Robert M. Glaser ¡ Susan R. Holliday | 2.
3. | Advisory vote to approve the compensation of our named executive officers.
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. | ☐
☐ | ☐
☐ | ☐
☐ | |||||||||||||
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FOR ALL EXCEPT (See instructions below) | |||||||||||||||||||
4. | In their discretion, the proxies are authorized to vote upon such other business, if any, as may properly come before the meeting. | |||||||||||||||||||
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTEDFOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THIS PROXY AND DESCRIBED IN THE PROXY STATEMENT ANDFOR PROPOSALS 2 AND 3. | ||||||||||||||||||||
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here:🌑 |
PLEASE COMPLETE, DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
*** YOUR PROXY VOTE IS IMPORTANT *** | |||||||||||||||||||
No matter how many shares you own, please sign, date and mail your proxy now, even if you plan to attend the meeting.
It is important that you vote so that Financial Institutions, Inc. will not have to bear the unnecessary expense of another solicitation of proxies. | ||||||||||||||||||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | ☐ |
Signature of Shareholder | Date: | Signature of Shareholder | Date: |
⬛ | Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. | ⬛ |
Table of Contents
ANNUAL MEETING OF SHAREHOLDERS OF
FINANCIAL INSTITUTIONS, INC.
June 21, 2017
GO GREEN
e-Consent makes it easy to go paperless. Withe-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. |
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL:
The Notice of Meeting, proxy statement and annual report
are available on the Company Filings subsection under the SEC Filings section
under the Investor Relations tab at www.fiiwarsaw.com
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
i Please detach along perforated line and mail in the envelope provided. i
⬛ | 20433000000000000000 5 | 062117 |
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE FOUR DIRECTOR NOMINEES AND “FOR” PROPOSALS 2 AND 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ☒
1. Election of Directors: | FOR | AGAINST | ABSTAIN | |||||||||||||||||
☐
☐ |
FOR ALL NOMINEES
WITHHOLD AUTHORITY FOR ALL NOMINEES | NOMINEES: ¡ Donald K. Boswell ¡ Andrew W. Dorn, Jr. ¡ Robert M. Glaser ¡ Susan R. Holliday | 2.
3. | Advisory vote to approve the compensation of our named executive officers.
Ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. | ☐
☐ | ☐
☐ | ☐
☐ | |||||||||||||
☐ |
FOR ALL EXCEPT (See instructions below) | |||||||||||||||||||
4. | In their discretion, the proxies are authorized to vote upon such other business, if any, as may properly come before the meeting. | |||||||||||||||||||
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTEDFOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THIS PROXY AND DESCRIBED IN THE PROXY STATEMENT ANDFOR PROPOSALS 2 AND 3. | ||||||||||||||||||||
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT”and fill in the circle next to each nominee you wish to withhold, as shown here:🌑 |
PLEASE COMPLETE, DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
*** YOUR PROXY VOTE IS IMPORTANT *** | |||||||||||||||||||
No matter how many shares you own, please sign, date and mail your proxy now, even if you plan to attend the meeting.
It is important that you vote so that Financial Institutions, Inc. will not have to bear the unnecessary expense of another solicitation of proxies. | ||||||||||||||||||||
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | ☐ |
Signature of Shareholder | Date: | Signature of Shareholder | Date: |
⬛ | Note: | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person. | ⬛ |