• Income Available to Common Shareholders: $13.1 million or 84 cents per diluted share.
• Return on Average Assets (ROA): 89 basis points for the third quarter.
• Efficiency Ratio: 65% for the third quarter.
• Total Deposit Growth: $173.3 million or 3.4% from June 30th.
• Total Loans: Slight decrease from June 30th, 2024.
• Net Interest Margin: 289 basis points for the third quarter.
• Net Interest Income: $40.7 million, down $512,000 from the linked quarter.
• Non-Interest Income: $9.4 million in the third quarter.
• Non-Interest Expense: $32.5 million in the third quarter.
• Provision for Credit Losses: $3.1 million in the third quarter.
• Effective Tax Rate: 7.4% for the third quarter.
• Tangible Common Equity (TCE) Ratio: 6.93% as of September 30th.
• Common Equity Tier One Ratio: 10.28% as of September 30th.

• Warning! GuruFocus has detected 7 Warning Signs with FISI.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Financial Institutions Inc (NASDAQ:FISI) reported strong deposit growth of $173.3 million or 3.4% from June 30th.
• The company achieved incremental net interest margin expansion, with a net interest margin of 2.89% for the third quarter.
• Solid expense management was highlighted, with non-interest expenses down modestly from the previous quarter.
• The company successfully reduced reliance on broker deposits, which were down over $313 million from the previous year.
• Credit quality remains strong, with zero commercial net charge-offs reported in the third quarter.

Negative Points

• Income available to common shareholders decreased to $13.1 million from $25.3 million in the previous quarter.
• Non-performing loans increased due to a $15.5 million commercial relationship moved to non-accrual status.
• The company experienced a decrease in total loans, with declines in commercial business and consumer indirect loans.
• Net interest income decreased by $512,000 from the linked quarter, impacted by the reversal of interest income for a single commercial relationship.
• The company is winding down its banking as a service offering, which was determined not to contribute to franchise value as anticipated.

Q & A Highlights

Q: Can you provide perspective on how you're thinking about the margin given potential rate cuts and cash flow expectations? A: Martin K. Birmingham, CEO: Over 30% of our loan portfolio is priced off of SOFR and prime, which adjust with rate cuts. We modeled that we would be fairly neutral for the first 50 basis points of cuts, expecting a longer lag for deposit repricing. However, competitors have been more aggressive, prompting us to adjust rates faster. We expect to remain in a neutral band in the near term.

Q: Does the rebuilding of the commercial pipeline give you confidence for mid-single-digit growth in 2025? A: Martin K. Birmingham, CEO: Yes, it does. We've been selective over the past 18 months due to the operating environment but are now signaling to our lending teams and customers our interest in rebuilding the pipeline to support growth in 2025.

Q: How do you view expenses going into 2025, and are there any anticipated expenditures? A: W. Jack Plants, CFO: We are focused on reinvesting in core lines for future growth while maintaining prudent expense management. The exit from our banking as a service (BaaS) offering, which involved 14 FTEs, will allow us to redirect resources to mature lines, avoiding additional hiring costs.

Q: What are your expectations for loan and deposit betas on the way down through 2025? A: W. Jack Plants, CFO: Initially, we expected a slower downward repricing for the first few rate cuts, but we've shortened the lag more than anticipated. In the near term, the impact on margin should be neutral, with betas catching up to historical levels over time.

Q: Do you expect any one-time costs associated with the BaaS wind down? A: W. Jack Plants, CFO: No material one-time costs are expected from the BaaS wind down.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.