Financial Institutions(US:FISI)2022-10-28 15:10Financial Data and Key Metrics Changes - The company reported net income available to common shareholders of $13.5 million or $0.88 per diluted share, impacted by a $4.3 million provision for credit losses and $312,000 in income from the Paycheck Protection Program [7] - Pre-tax pre-provision income for the quarter increased by $770,000 or 3.9% from the prior year [7] - Net interest income was $43.1 million, up $1.5 million from the linked quarter, with a net interest margin (NIM) of 328 basis points, up 9 basis points from the linked quarter [25][26] Business Line Data and Key Metrics Changes - Organic loan growth was 2.7% from June 30, with commercial loans growing 4.8% from the end of the second quarter [8] - The residential portfolio grew 0.7% during the quarter but was down 1.2% from the same quarter in 2021 [15] - The consumer indirect portfolio stood at $997.4 million, down 4% from the linked quarter but up 6% from the year-ago period [17] Market Data and Key Metrics Changes - The company is experiencing pricing pressures amid an inflationary environment, impacting loan growth and customer borrowing behavior [13][14] - The commercial business portfolio is expected to drive mid to high single-digit growth in total loans for the full year [37] Company Strategy and Development Direction - The company is focusing on building its Five Star brand in the Mid-Atlantic market, leveraging the new team that has brought in approximately $69 million in outstandings [10][11] - The Banking-as-a-Service (BaaS) operating system is being developed to offer banking products through FinTech partners, aiming for lower-cost deposits and enhanced loan diversification [19][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenges posed by the current economic environment, including inflation and rising interest rates, but remains confident in the strength of the loan portfolio [13][14] - The company expects continued operational efficiencies and is focused on strategic initiatives to improve profitability and operating leverage over time [48] Other Important Information - Non-interest income for the third quarter was $12.7 million, up 11.4% from the second quarter, with significant contributions from insurance and investment advisory services [28] - The company anticipates a low single-digit decline in non-interest income for the full year, reflecting pressures on mortgage banking revenue and wealth management fees [43] Q&A Session Summary Question: Margin outlook and balance sheet reaction to rate hikes - Management expects modest margin expansion through the fourth quarter and into 2023, with deposit betas increasing [52] Question: Provision for credit losses and reserve levels - The coverage ratio is currently about 114 basis points, and provisions will align with expected charge-offs and loan growth [54] Question: Cash flows from securities portfolio - Projected principal cash flow from the securities portfolio is about $150 million over the next 12 months [58] Question: Managing liquidity and loan growth focus - The company plans to use cash flow to support loan growth, particularly in the commercial sector [61] Question: Share buyback considerations - Management is cautious about share repurchases due to current capital ratios and market valuations [70]