Financial Institutions(US:FISI)2021-10-29 15:27Financial Data and Key Metrics Changes - The company reported net income of $17.2 million or $1.50 per diluted share, down from $20.2 million or $1.25 per share in the second quarter, but significantly higher than $12.3 million or $0.74 per share in the third quarter of 2020 [6] - Pre-tax pre-provision income for the quarter was $21.2 million, an increase of $209,000 from the second quarter of 2021 and $1.9 million from the third quarter of 2020 [7] - Net interest income for the quarter was $38.3 million, an increase of $541,000 from the linked quarter due to one basis point of margin expansion [11] Business Line Data and Key Metrics Changes - Non-interest income was $12.1 million, up $1.9 million from the second quarter of 2021, driven by insurance business, swap fees, and limited partnership investments [22] - The insurance income increased by $717,000 due to the timing of commercial renewals and the impact of the acquisition of Northwoods Capital Benefits [23] - Total loans increased by $22 million or 0.6% from June 30, with commercial business loans decreasing by 6.2% and residential real estate loans down by 1.1% [28] Market Data and Key Metrics Changes - Total deposits at quarter end were $316 million higher than at June 30, driven by the seasonality of public deposits returning at quarter end [30] - The company experienced a decline in its TCE ratio from 7.58% to 7.25%, negatively impacted by growth in total assets due to seasonal inflow of public deposits [32] Company Strategy and Development Direction - The company is focusing on enhancing its digital banking platform and has implemented a customer relationship management solution to improve customer engagement [46][48] - The company is pursuing Banking-as-a-Service (BaaS) opportunities and has established a pipeline of potential Fintech partnerships [48] - The strategic plan emphasizes community banking services while embracing innovation and technology [52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the normalization of credit performance indicators and the potential for reserve releases in the coming quarters [60] - The company anticipates mid-single digit growth in its total loan portfolio, excluding the impact of PPP loans [34] - The effective tax rate for 2021 is expected to be within the range of 20% to 21% [43] Other Important Information - The company completed the relocation of its Five Star Bank branch in Almira, which is part of a downtown revitalization initiative [8] - The company is investing in technology and personnel to support strategic initiatives, including digital banking and enhanced customer experience [25] Q&A Session Summary Question: Outlook for loan growth and commercial pipelines - Management indicated strong and healthy commercial loan pipelines, with some challenges due to M&A activity and supply chain constraints [56][58] Question: Credit reserves and potential releases - Management does not expect to release specific reserves until borrowers return to normal paying status, but positive trends could lead to reserve releases in the future [60] Question: Banking-as-a-Service capabilities - The company has been modernizing its foundation and is well-positioned to integrate with Fintech partners [66][68] Question: M&A activity and criteria for potential partners - The company remains open to M&A opportunities that are geographically and economically accretive [71][72] Question: Hotel portfolio performance - The hotel portfolio is performing well, with borrowers demonstrating a return to normalcy [78][79] Question: Margin dynamics and yield expectations - Management noted that credit spreads have held up well, but bond pricing has put pressure on margins [81] Question: Expense growth expectations for 2022 - Management is currently working on the 2022 budget and expects to provide an update during the next earnings call [83]