Financial Institutions (FISI) Q3 Earnings call transcript Oct 25, 2024
2min read Financial Institutions, Inc. (FISI) recently held its third quarter 2024 earnings call, revealing a period of growth, strategic adjustments, and a focus on maintaining financial stability amidst a challenging environment. Led by President and CEO, Marty Birmingham, and CFO, Jack Plants, the call provided insightful updates on the company's financial performance and future outlook.
Strong Deposit Growth and Margin Strategies
The third quarter of 2024 saw significant deposit growth for FISI, with total deposits increasing by $173.3 million or 3.4% from June 30. This growth was attributed to a combination of public and nonpublic deposit increases, which more than offset a decrease in reciprocal balances. The company's focus on managing funding costs effectively was also highlighted, with a reduction in short-term borrowings and broker deposits by about $307 million or 54% since year-end 2023.
In terms of margins, FISI reported a net interest margin of 289 basis points, up 2 basis points from the second quarter. However, the margin was negatively impacted by a commercial relationship placed on nonaccrual, which reduced it by 3 basis points. The company's approach to managing interest-bearing liabilities and disintermediation from noninterest-bearing accounts was also discussed, with a focus on maintaining a stable average total deposits and managing funding costs effectively.
Exit from Banking as a Service (BaaS) Business
One of the most significant announcements from the call was FISI's decision to exit its Banking as a Service (BaaS) offering. This decision was made after careful review and consideration of balance sheet allocation, with only about 2% of the bank's total deposits being BaaS-related. The move is expected to have minimal impact on the company's future financial performance, as the BaaS deposits amounted to $103 million on September 30 and averaged $109 million in the third quarter with a cost of 3.84%. The company intends to redeploy its investments in this area towards its core community banking franchise, focusing on opportunities for deposit gathering among its existing markets and customer bases.
Looking Ahead: Maintaining a Focus on Growth and Liquidity
Looking forward, FISI remains optimistic about its growth prospects, particularly in its community banking business. The company is seeing good opportunities for deposit gathering and is confident in the health of its portfolios, despite an increase in nonperforming loans in the third quarter. The commercial pipeline is in a rebuilding phase, with expectations of mid-single-digit growth in 2025. FISI also plans to continue its focus on expense management and prudent investment in its core lines of business for future growth.
Conclusion
FISI's third quarter 2024 earnings call painted a picture of a company focused on strategic adjustments, maintaining financial stability, and positioning itself for future growth. The exit from the BaaS business and the focus on deposit gathering and credit disciplined loan growth are clear indications of the company's commitment to its core community banking franchise. As FISI looks ahead to 2025, it remains optimistic about its prospects, particularly in the context of a challenging operating environment.
