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Financial Institutions(FISI) - 2024 Q3 - Earnings Call Transcript
FISIFinancial Institutions(FISI)2024-10-25 14:42
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Financial Data and Key Metrics Changes - In Q3 2024, income available to common shareholders was 13.1millionor13.1 million or 0.84 per diluted share, down from 25.3millionor25.3 million or 1.62 per diluted share in the previous quarter, which included a 13.5millionpre−taxgainfromthesaleoftheinsurancebusiness[4]−Returnonaverageassets(ROAA)forQ3was89basispoints,withanefficiencyratioof6513.5 million pre-tax gain from the sale of the insurance business [4] - Return on average assets (ROAA) for Q3 was 89 basis points, with an efficiency ratio of 65%. Year-to-date ROAA was 90 basis points, and the efficiency ratio was 72%, impacted by a fraud event and the insurance sale [4] - Adjusted ROAA for the first nine months was 100 basis points, with an efficiency ratio of 65% [4] Business Line Data and Key Metrics Changes - Total deposits grew by 173.3 million or 3.4% from June 30, 2024, with public and non-public deposits increasing, offsetting a decrease in reciprocal balances [8][9] - Total loans decreased slightly from June 30, 2024, with increases in commercial mortgage and stability in residential loans offset by declines in commercial business and consumer indirect loans [10] - Non-performing loans increased due to a 15.5millioncommercialrelationshipmovedtonon−accrual,buttherewerezerocommercialnetcharge−offsinQ3[11]MarketDataandKeyMetricsChanges−Thecompanyexperiencedintensecompetitionintheresidentiallendingspace,withresidentialloansremainingflatat15.5 million commercial relationship moved to non-accrual, but there were zero commercial net charge-offs in Q3 [11] Market Data and Key Metrics Changes - The company experienced intense competition in the residential lending space, with residential loans remaining flat at 724.4 million [13] - The Mid-Atlantic portfolio showed strong credit quality, with loans totaling 338millionasofSeptember30,2024[12]CompanyStrategyandDevelopmentDirection−Thecompanyiswindingdownitsbankingasaserviceoffering,whichrepresentedonlyabout2338 million as of September 30, 2024 [12] Company Strategy and Development Direction - The company is winding down its banking as a service offering, which represented only about 2% of total deposits, to focus on core community banking opportunities [5][6] - Strategic actions taken include the sale of the insurance business and adjustments within the indirect business to support the core community banking franchise [26] Management's Comments on Operating Environment and Future Outlook - Management remains focused on liquidity, capital, and earnings amid a challenging operating environment, with a common equity Tier 1 ratio of 10.28%, up 85 basis points from year-end 2023 [26] - The company expects loan growth to be at the low end of the guided range of 1% to 3% for 2024, with a focus on rebuilding the commercial pipeline [19][30] Other Important Information - Non-interest income for Q3 was 9.4 million, down from 24millioninthepreviousquarter,primarilyduetotheabsenceofgainsfromtheinsurancebusinesssale[20]−Thecompanyrecordedaprovisionforcreditlossesof24 million in the previous quarter, primarily due to the absence of gains from the insurance business sale [20] - The company recorded a provision for credit losses of 3.1 million in Q3, compared to $2 million in the previous quarter [23] Q&A Session Summary Question: Thoughts on margin with potential rate cuts in 2024 - Management indicated that over 30% of the loan portfolio is priced off SOFR prime, and they expect to remain neutral in margin impact with future rate cuts [28][29] Question: Outlook for loan growth and rebuilding the commercial pipeline - Management expressed confidence in mid-single-digit growth for 2025 as they focus on rebuilding the pipeline [30] Question: Expense management and future guidance - Management emphasized a focus on prudent expense management and indicated that exiting the banking as a service line would redirect resources to core business lines [31] Question: Expectations for loan to deposit betas during rate cuts - Management noted that deposit betas have shortened more than anticipated, and they expect them to align with historical trends over time [33] Question: Commentary on loan roll-off rates and yield pickup - Management confirmed that they have been selective in pricing requirements to maintain and expand margin, which has affected loan growth [34] Question: Anticipated one-time costs associated with the wind-down - Management stated that there would be no material one-time costs associated with the wind-down of the banking as a service offering [35]