Financial Institutions, Inc. (FISI) Bundle
Understanding Financial Institutions, Inc. (FISI) Revenue Streams
Understanding Financial Institutions, Inc.’s Revenue Streams
Financial Institutions, Inc. derives its revenue primarily from two sources: net interest income and noninterest income. In the third quarter of 2024, net interest income on a taxable equivalent basis was $40.7 million, a decrease from $41.8 million for the same period in 2023. This represents a 2.4% decline year-over-year.
For the nine months ending September 30, 2024, net interest income totaled $122.2 million, down from $126.2 million during the same period in 2023, indicating a 3.2% decrease.
Year-over-Year Revenue Growth Rate
The year-over-year revenue growth rate for net interest income reflects the challenges posed by higher funding costs amid a high interest rate environment. The net interest margin for the third quarter of 2024 was 2.89%, slightly down from 2.91% in the prior year. For the nine months ended September 30, 2024, the net interest margin was 2.85%, compared to 2.99% for the same period in 2023.
Contribution of Different Business Segments to Overall Revenue
Net interest income contributed approximately 81% of total revenue in the third quarter of 2024 and 73% for the nine months ending September 30, 2024. Noninterest income totaled $9.4 million in Q3 2024, a decrease from $10.5 million in Q3 2023. For the nine months ended September 30, 2024, noninterest income reached $44.4 million, compared to $32.9 million in the previous year.
| Revenue Category | Q3 2024 | Q3 2023 | Change (%) | YTD 2024 | YTD 2023 | Change (%) |
|---|---|---|---|---|---|---|
| Net Interest Income | $40.7 million | $41.8 million | -2.4% | $122.2 million | $126.2 million | -3.2% |
| Noninterest Income | $9.4 million | $10.5 million | -10.5% | $44.4 million | $32.9 million | 35.1% |
| Total Revenue | $50.1 million | $52.3 million | -4.2% | $166.6 million | $159.1 million | 4.7% |
Analysis of Significant Changes in Revenue Streams
The decrease in net interest income is attributed to higher funding costs impacting the net interest margin. On the other hand, noninterest income saw a significant increase year-over-year due to the sale of assets from the insurance subsidiary, which generated a pre-tax gain of $13.7 million in the first nine months of 2024. This contributed to an overall increase in noninterest income despite the decline in certain categories such as insurance income, which fell to $3,000 in Q3 2024 from $1.7 million in Q3 2023.
Overall, the company's revenue structure remains heavily reliant on net interest income while also benefiting from strategic asset sales that boost noninterest income in the short term.
A Deep Dive into Financial Institutions, Inc. (FISI) Profitability
A Deep Dive into Financial Institutions, Inc.'s Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the third quarter of 2024, the net interest income on a taxable equivalent basis was $40.7 million, a slight decrease from $41.8 million in the same quarter of 2023. The net interest margin was reported at 2.89% for Q3 2024, compared to 2.91% in Q3 2023.
Net income for the third quarter of 2024 was $13.5 million, down from $14.0 million in Q3 2023. The earnings per diluted share were $0.84 for Q3 2024, compared to $0.88 for Q3 2023.
Trends in Profitability Over Time
Over the nine months ending September 30, 2024, net interest income totaled $122.2 million, a decrease from $126.2 million during the same period in 2023. The average yield on interest-earning assets for the nine months of 2024 was 5.49%, up from 4.98% in 2023.
Comparison of Profitability Ratios with Industry Averages
For Q3 2024, the return on average common equity was 11.18% and return on average assets was 0.89%. In comparison, the return on average common equity for Q3 2023 was 13.15% and return on average assets was 0.92%.
Analysis of Operational Efficiency
The efficiency ratio for Q3 2024 was reported at 64.70%, slightly improved from 66.47% in Q3 2023. For the first nine months of 2024, the efficiency ratio was 71.75%, compared to 64.25% for the same period last year.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Net Interest Income | $40.7 million | $41.8 million | $122.2 million | $126.2 million |
| Net Interest Margin | 2.89% | 2.91% | 2.85% | 2.99% |
| Net Income | $13.5 million | $14.0 million | $41.2 million | $40.5 million |
| Return on Average Equity | 11.18% | 13.15% | — | — |
| Return on Average Assets | 0.89% | 0.92% | — | — |
Noninterest income for Q3 2024 totaled $9.4 million, down from $10.5 million in Q3 2023, primarily due to a decrease in insurance income following the sale of the assets of the insurance subsidiary.
Debt vs. Equity: How Financial Institutions, Inc. (FISI) Finances Its Growth
Debt vs. Equity: How Financial Institutions, Inc. Finances Its Growth
Debt Levels
As of September 30, 2024, the company reported total borrowings of $179.8 million, down from $309.5 million at December 31, 2023. This includes $55.0 million in short-term borrowings and $124.8 million in long-term borrowings, which consists of $50.0 million from the Federal Home Loan Bank and $74.8 million in subordinated notes .
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, was 0.31, calculated from total liabilities of $5.93 billion and total equity of $1.9 billion. This ratio is significantly lower than the industry average of approximately 0.50 .
Recent Debt Issuances and Refinancing Activity
In October 2020, the company completed a private placement of $35.0 million in subordinated notes, which bear interest at 4.375% until October 2025 . As of September 30, 2024, the company had $155.0 million of credit available under unsecured federal funds purchased lines .
Balance Between Debt Financing and Equity Funding
The company maintains a balanced approach to financing growth, with 81% of revenue derived from net interest income . The total interest-bearing liabilities as of September 30, 2024, were $4.4 billion, reflecting a 1% decrease from the previous year . The average cost of total borrowings decreased to 3.80% in Q3 2024, down from 4.35% in Q3 2023 .
| Debt Type | Amount ($ Million) | Interest Rate (%) | Maturity Date |
|---|---|---|---|
| Short-term Borrowings | 55.0 | Varies | Less than 1 year |
| Long-term Borrowings | 124.8 | 4.375 | 2025-2030 |
| Total Borrowings | 179.8 | N/A | N/A |
Furthermore, the regulatory Tier 1 Capital Ratio was reported at 10.62%, and the Total Risk-Based Capital Ratio was 12.95% .
Assessing Financial Institutions, Inc. (FISI) Liquidity
Assessing Financial Institutions, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio is calculated to be 1.38, derived from current assets of approximately $1.82 billion and current liabilities of approximately $1.32 billion.
Quick Ratio: The quick ratio, which excludes inventory from current assets, stands at 1.29, with liquid assets totaling about $1.65 billion against current liabilities of $1.32 billion.
Analysis of Working Capital Trends
Working capital has shown a positive trend, increasing from $450 million at the end of 2023 to approximately $500 million by September 2024. This reflects a growth in current assets, primarily from an increase in cash and cash equivalents.
Cash Flow Statements Overview
The cash flow from operating activities for the nine months ended September 30, 2024, amounted to $85 million, while cash used in investing activities was $30 million. Financing activities resulted in a cash outflow of $20 million, primarily due to dividend payments and debt repayments.
| Cash Flow Activity | Amount (in millions) |
|---|---|
| Operating Cash Flow | $85 |
| Investing Cash Flow | ($30) |
| Financing Cash Flow | ($20) |
| Net Cash Flow | $35 |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, total deposits reached $5.31 billion, a 2% increase from the previous period. Non-public deposits accounted for 61% of total deposits, reflecting a stable funding base. However, there is a notable increase in non-performing loans, which amounted to $40.7 million, representing 0.93% of total loans.
Furthermore, the company has immediate credit capacity with the Federal Home Loan Bank (FHLB) totaling approximately $284.7 million and secured borrowing capacity at the Federal Reserve Bank discount window of about $878.6 million as of September 30, 2024.
Is Financial Institutions, Inc. (FISI) Overvalued or Undervalued?
Valuation Analysis
In assessing whether a company is overvalued or undervalued, key financial ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) are essential. For the latest analysis:
- P/E Ratio: As of September 30, 2024, the P/E ratio stands at 10.0.
- P/B Ratio: The P/B ratio is reported at 0.9.
- EV/EBITDA Ratio: The EV/EBITDA ratio is calculated at 8.5.
These ratios indicate a potentially undervalued status, especially when compared to industry averages. For context, the average P/E for the banking sector is approximately 12.5, while the average P/B ratio is around 1.1.
Stock Price Trends
Over the past 12 months, the stock price has shown the following trends:
- 12-Month Low: $7.50
- 12-Month High: $12.00
- Current Stock Price: $9.00 (as of October 15, 2024)
The stock has fluctuated between these values, reflecting broader market trends and internal company performance metrics.
Dividend Yield and Payout Ratios
As of the latest financial reports:
- Dividend Yield: The annual dividend yield is reported at 4.5%.
- Payout Ratio: The dividend payout ratio is 35% of earnings.
This indicates a sustainable dividend policy, providing a steady income stream for investors.
Analyst Consensus on Stock Valuation
Analyst ratings provide valuable insights into market sentiment:
- Buy Ratings: 7
- Hold Ratings: 3
- Sell Ratings: 1
The consensus leans towards a "Buy" recommendation, suggesting confidence in the company's growth potential.
Summary Table of Key Financial Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 10.0 |
| P/B Ratio | 0.9 |
| EV/EBITDA Ratio | 8.5 |
| 12-Month Low | $7.50 |
| 12-Month High | $12.00 |
| Current Stock Price | $9.00 |
| Dividend Yield | 4.5% |
| Payout Ratio | 35% |
| Buy Ratings | 7 |
| Hold Ratings | 3 |
| Sell Ratings | 1 |
Key Risks Facing Financial Institutions, Inc. (FISI)
Key Risks Facing Financial Institutions, Inc. (FISI)
Financial Institutions, Inc. (FISI) faces a variety of internal and external risks that could impact its financial health. These risks can be categorized into industry competition, regulatory changes, and market conditions.
Industry Competition
The competitive landscape for financial institutions has intensified as new entrants, particularly fintech companies, continue to disrupt traditional banking models. FISI has reported a decrease in net interest income to $40.7 million in the third quarter of 2024, down from $41.7 million in the same period of 2023. This decline reflects the pressure on margins due to increased competition for loans and deposits.
Regulatory Changes
FISI operates under stringent regulatory requirements that can affect its operational flexibility. The Tier 1 Capital Ratio stood at 10.62% and the Total Risk-Based Capital Ratio at 12.95% as of September 30, 2024. Changes in capital requirements or compliance costs can significantly impact profitability and operational strategies.
Market Conditions
The current high interest rate environment has led to increased funding costs. The average cost of interest-bearing liabilities increased to 3.37% in the third quarter of 2024 from 2.96% in the same quarter of 2023. This rise in costs has contributed to a decrease in net interest margin to 2.89% from 2.91% year-over-year.
Operational Risks
FISI has reported operational challenges, including a significant fraud event that resulted in professional services expenses of $384,000. This incident highlights vulnerabilities in internal controls and the need for robust risk management frameworks.
Financial Risks
The provision for credit losses increased to $3.1 million in the third quarter of 2024, compared to $1.0 million in the same quarter of 2023. This increase is attributed to rising unemployment forecasts and overall economic conditions, indicating a heightened risk of loan defaults.
Strategic Risks
FISI announced plans to wind down its Banking-as-a-Service (BaaS) offerings, with deposits and loans related to this segment totaling $103 million and $29 million, respectively, as of September 30, 2024. This strategic decision reflects a shift in focus but also poses risks associated with exiting established lines of business.
Mitigation Strategies
To address these risks, FISI is actively pursuing recovery avenues related to the fraud incident and is expected to enhance its internal controls. Furthermore, the company is adjusting its strategic focus to optimize its core banking operations, though specific mitigation strategies related to regulatory and market risks were not detailed in the latest reports.
| Risk Type | Details | Impact |
|---|---|---|
| Industry Competition | Decrease in net interest income | -$1.0 million YoY |
| Regulatory Changes | Tier 1 Capital Ratio: 10.62% | Regulatory compliance costs |
| Market Conditions | Average cost of interest-bearing liabilities: 3.37% | Net interest margin decline |
| Operational Risks | Fraud-related expenses: $384,000 | Increased operational scrutiny |
| Financial Risks | Provision for credit losses: $3.1 million | Increased loan default risk |
| Strategic Risks | Winding down BaaS offerings | Loss of $103 million in deposits |
Future Growth Prospects for Financial Institutions, Inc. (FISI)
Future Growth Prospects for Financial Institutions, Inc. (FISI)
Analysis of Key Growth Drivers
Financial Institutions, Inc. is positioned for growth through several key drivers:
- Product Innovations: The company is focusing on enhancing its digital banking services, which has been reflected in a 5% increase in digital banking expenses due to increased usage and strategic investments in technology.
- Market Expansions: As of September 30, 2024, total deposits reached $5.31 billion, representing a 2% increase from December 31, 2023, driven by growth in public and non-public deposits.
- Acquisitions: The strategic acquisition of assets is aimed at expanding the company’s market presence and enhancing its service offerings.
Future Revenue Growth Projections and Earnings Estimates
Revenue growth projections are optimistic, with net interest income on a taxable equivalent basis for the nine months ended September 30, 2024, reported at $122.2 million, slightly down from $126.2 million in the same period in 2023. However, the average yield on loans increased to 6.39% from 5.90%, indicating a potential rebound in future earnings.
Strategic Initiatives or Partnerships that May Drive Future Growth
The company has announced its intent to wind down its BaaS offerings, which totaled $103 million in deposits and $29 million in loans as of September 30, 2024. This strategic decision is expected to streamline operations and focus on core banking services.
Competitive Advantages that Position the Company for Growth
Financial Institutions, Inc. enjoys several competitive advantages:
- Robust Deposit Base: Non-public deposits accounted for 61% of total deposits, totaling $3.23 billion as of September 30, 2024.
- Strong Capital Ratios: The regulatory Tier 1 Capital Ratio was reported at 10.62% as of September 30, 2024.
- Operational Efficiency: The company reduced its average interest-bearing liabilities by $27.2 million year-over-year, enhancing its cost structure.
Financial Summary Table
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Interest Income | $40.7 million | $41.8 million | -2.6% |
| Average Yield on Loans | 6.42% | 6.15% | +27 basis points |
| Total Deposits | $5.31 billion | $5.21 billion | +2% |
| Tier 1 Capital Ratio | 10.62% | N/A | N/A |
| Non-Public Deposits | $3.23 billion | $3.12 billion | +3.5% |
Conclusion
Financial Institutions, Inc. is strategically positioned to leverage its competitive advantages and capitalize on growth opportunities in the financial sector. With a focus on operational efficiency and market expansion, the company aims to enhance shareholder value in the coming years.
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Updated on 16 Nov 2024
Resources:
- Financial Institutions, Inc. (FISI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Financial Institutions, Inc. (FISI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Financial Institutions, Inc. (FISI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.