FISI - Earnings call transcript Q2 2020 | Financial Institutions, Inc.

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Operator

Good morning, and welcome to the Financial Institutions, Inc.

Second Quarter Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. to Investor conference Relations. like Doran, to now of Director would turn over the Shelly I Please ahead. go

Shelly Doran

Thank you Birmingham will and for Analysis, portion prepared Bigham. comments of joining Actual of include Mike us for be Director Today's in and forward-looking today's Grover, President the will statements. CEO, the Planning call. Q&A Marty Financial and participate Justin will CFO, and call. Q&A Providing other comments variety differ We materially statements of discussion website our from to Harbor risks, detailed earnings refer factors. factors a and the statements. Safe description yesterday's SEC and may you relating results filings historical due uncertainties for forward-looking and to risk a of a to forward-looking on release available prepared

exhibit discuss accurate filed of to and non-GAAP to information financial measures. to certain comparable GAAP measures includes a intended an measures Please earnings not the Marty. July of in this for, the release, also call these to supplement, Reconciliations X-K. financial Form XX, call which now were We XXXX. only over measures is turn GAAP substitute will as I'll note as date, today's that provided

Marty Birmingham

for approximately loans. of was commercial continue $X.X loan needs mortgage help average on unique $XXX working consumers action dense many were interaction. days, periods Program was our implemented to days. and Good creating representing for the SBA businesses, reporting working extended and payments average yet granting forbearance including monthly to to were Credit were certain branch past in protect not and organization. business by and and on granted alternative payment and small second travel transactions address to new and and approximately time. normal support on million Work up XXX XX thoughtfully everyone, deferrals were earnings able capital an visitor estimated customers call. markets, business our to of payments requiring closed, mortgages grace operating and residential one-to-one locations consumer, our swiftly waiving bureaus to commercial and on $XXX small very customers quarter we for responded auto face-to-face to as loans; and Most We million XX-day of loan we work associates to environments. implemented $XXX,XXX million XXXX XX our for in In relief loan less in possible The Shelly. as associates of business credit those non-essential businesses apart, array welcome were purposes. in consumer taking and line to XX,XXX eventful pandemic and protocols preserve extended helping and by-appointment-only for from small you, customers, to well few to Payroll And Thank actions fees, March, XXX been for lobbies as of morning, was an payments. this We with have together $XX obtained to implemented as our and months loans, jobs our Protection challenging work clients, during restrictions. for work customers representing home COVID of million the provided

teams. We offering navigate help our loan credit portfolio credit analysis level up commercial our us are is lending, joint where of accomplishments credit operating environments We performing. XX% staying contact completed the finance tracking business key effort possible. were understand executive This working All associates monitor basis. a of sure and to a remotely. higher-risk in relationships industries solutions customers, watchlist and and designed are how achieved to of go-forward completed their assistance close or these week to We risks thorough developed bank, the a we by a on cycle. our review and uncover the commercial with making businesses credit, portfolio, with challenges, our potential of We risk every

Bank very standard business-as-usual across to To new new critical, of with quarter of Digital time forward online Five when operations Five digital provide was transitioned from resiliency launch a and so and enhanced multiple family's the moved of locations from capabilities together mobile access during our quickly multi-phase second organization at-home working I'm a proud the changes. we Star collective platform, to our in Our Star many so the adaptation Banking. footprint.

banking a provide businesses new their the to been anywhere need continue transfer Digital single to we very and Bank loan tools external features the provides enhancements more and Star Five integrate over investment, the to ability And ever, platform latest goals, favorable, for has and our digital time. the payments time. Banking leverage dashboard experience to and transactional customers. send and set will banking and create Now Customer roll accounts. budgets, make any do we to The response consumers deposits, easily and than platform to technology money, financial improve out other and

For launching example, kinds a allow deposit any on open platform over will to the accounts and consumers summer, account of opening that most device. new we digital businesses will be

our also we quarter, plan. the developed reentry During

and by as approaches We location. we reentry will the vary for differently be working will reopen,

associates consideration directives We have so incorporating completed practical feel customers they with that when for preparation, back and location in, come each safe. local significant come

be protocols and on continue to Our been data. and science have based will

in alternative remote, revised be a Also in obligations XX% infrastructure staying and additional less appropriate. very administrative even state this version need If we intact. all from we monitored our well. ensure critical of and stay to that modified our That's two means that don't of By so an workforce it the organization. Net good the values slightly in far, of must lower second for a should all associates health a we portion success, continued history. an meet quarter was dense It diversified this isolated in and putting operations And our generated a organizational to We place layers we even have delivered for in keeping evident. we maintain year-earlier of next in the being was be fundamentals, regular and at ensure brought that uptick phase income in making period, quarterly pre-tax spread. the our That envision cultural the core sure stream feel and benefits a community Despite our and We strengthen operating the just impactful and income period. maintaining flexibility, will benefit associates highest committed communication the for in We extended that. strong headwinds, maintaining least an worksites. part to of public to and gone culture. collaborative are or has maintaining and workplace use results remote quarter. and of of revenue it back safeguards as all than and a and access place our resiliency pre-provision offices, remain through We siloed. locations there were our is could

navigate historically on remain and strong position the levels we crisis of and strong and on stated We management liquidity, last taking asset based underwriting risk strength of a quarter, disciplined diversified model, metrics, a our process. As focused entered now business in capital operating I good our of well Justin positioned quarter. pleasure and customers, And care call discussion the complexities of over we a to to It's I environment. the are capital. for for believe the to our our associates of current turn my results our

Justin?

Justin Bigham

share or the income morning, everyone. $XX.X Net Marty. $X.X quarter the in of to compared as for $X.XX quarter was Thanks per XXXX. $X.XX or million first diluted share Good per million

points, You'll basis the $X.X wholesale partial X by basis adoption by cost points basis economic pre-provision due of was a the and of quarter mix. funds results first reflecting decline the of XX basis yield CECL funds interest the recall The by COVID-XX, driven The decline of XX borrowing The the was at deposit that million, was single yields points. PPP quarter XX. asset the interest in the of from impact as of was funding an approximately points. linked X from interest March after-tax for increase points first quarter. earning a costs, income the for for was quarter full $XX.X assets a interest lower losses, income driven share. X.XX% during was XX loans earning X.XX% lower earning the loans the negatively quarter-end million increase and to PPP a loan margin was and the Provision million credit losses was of to and quarter was lower by asset increase quarter. driven for favorable on million and quarter the from Net first second from credit quarter primarily charge-off our total $X.X of driven $XX.X of decrease quarter. the decrease Cost C&I increase linked of yield $XX.X lower was the quarter. $XXX,XXX impact Net XXXX in interest $X.XX deterioration the rates quarter impact rate expense loans to from million, the $X a The was yielding second allowance on impacted loans included provision of the year-earlier Pre-tax environment yield provision Lower per of loans. higher a the from on PPP million, at a basis quarter for loan. The and impact growth, market average X.XX%, environment. originated linked down by X.XX%, compared the

an the We than losses QX the is points the average XXXX million $XX.X the which June The unemployment ratio allowance our at increases higher for driver, weighted impact national forecast, you loans The If March forecasts and was which credit environment million increased to to unemployment forecasted quarter. linked of at losses the economist quarter. expansion the lower unemployment. peak X.XX%, credit basis XX.X%, for primary that allowance PPP considers $XX.X Bloomberg loans, from economic of at exclude XX, national on loss XX of XXXX. on XX, COVID-XX from last level use

forecast and the is we six six forecast quarters next than do now overall for higher-for-longer quarters, unemployment was However, quarter. out it last the

credit to mean the two loss years. of In model a expected over quantitative reversion basis using straight-line company's the estimates a rates on addition, losses our historic CECL

adjustments CRE, attributable adjustments, reserves and and we has quarter, stimulus, both qualitative net government the pandemic nature. Program. a including worked to provision with partially the are don't favorable losses impact its offset were flow incremental return during into charge-offs totaling the normalized minimal a to by also favorable perspective, Our source be until through massive for attributable Protection to Unfavorable repayment. unfavorable both take know, credit as to COVID-XX, includes C&I economy. support in primary of Paycheck Yet, funding, broadly a model of U.S. SBA remains account Credit the way seen. we From expect We long-term $XXX,XXX. our cash as lenders levels adjustments

our relationship are understand to and due risk bad, addressed, to to operating key develop environments staying which monitoring needs, bank the to identified ties have model As their to good facing of very customers, A industry strength in Marty especially managers programs. community higher and understanding and our of government close risks deep their they the those through impact relief business is the we segment operate. business their on ability as times all exposures, customers,

CRE additional comfort we will the secondary a of source repayment, providing repaid. is be portfolio, that property For

of loan-to-value approximately Our XX%. a CRE portfolio carries exposure

comfort portfolio additional exposure the our by secondary collateral take For portfolio, collateral. of C&I source secured XX% as we is C&I of Over in repayment. a

accommodations first, eliminating charges XX on or lower, were; vast driven Non-interest relationships in the entire for the to of March long-standing fees, ended quarter on principals were with many relief level our our of COVID recourse than second of borrower, of have addition, The quarter. organization. XXXX. place the This $X.X C&I income deposits drivers carry and of some of In on was key majority lower $XXX,XXX the the million X. our started by portfolio initiative waiving whom service first July

the investments quarter. $XXX,XXX and derivative These securities. and partnerships seasonality contingent third, the in was and in partially first a Second, million negative impact offset first received quarter, in from primarily a investment were resulting of of $XXX,XXX to by year; in income in a $XXX,XXX limited in as a the down insurance increase revenue loss factors $XXX,XXX, gains increase instruments to the on $X.X quarter income generated each due compared

lower The to timing due fees, in decreased as audit $XXX,XXX development the education, advisory Other an rate lower $X.X of quarter Despite lending-related that expenses to securities orders, our we year, interest representing from decrease in $XX.X was maturity for $XXX,XXX was of program to costs prepay, combined quarter that of reflects expense The and expenses XXXX, facilitates commercial was result timing the and swap sold increase quarter, of believe a of expense securities. contributors projects. about $XXX,XXX, services quarter. fees risk our the in largest lower the a Our linked the expense XX%. million, have and of the growth tax expenses. was were: indirect and decrease banking in to program a stay-at-home million on of customers. severance-related higher We rate management in travel resulting non-interest the netted with professional the each consulting continued due business some Income gain commercial during tax consumer first business. fall initiated million typically for the propensity to and the strategies $X of investment performance highest effective

Moving to grew consumer the indirect million in of first loans the and nearly in residential about commercial X%, business, loans driving total XXXX. X% grew XX%, in X% growth sheet, or All quarter category. are this of reflected decreased loans grew end that balance growth the $XXX commercial X%. Commercial mortgage PPP quarter's while was business from

loans $XX second pipeline Excluding of X/XX at the the due Paycheck increased government customer book. the end savings a of commercial $XX checks, the largely due Net credit. higher $XX of of were April, XX/XX/XXXX. XX%. grow of on first of June. deferral volume, Total tax largely of $XX March deposits of low quarter at the our from down in a down and decreased June accounts, economic of year. was in of and by performance at with unemployment including low $XXX the The seasonal commercial The increase of primarily to stimulus were demonstrated the environment. to $XXX,XXX quarter. large XX enhanced million million deadlines, at driven The and Program, of down the higher rate demand May Deposits linked represented paydown XX, end are increase in million of PPP period than June $XX quarter of combined benefits June by our last quarter-end the changes lines than increased programs, end result XX% continues first salable than payment to XXXX. and the Protection pandemic-related paying from refinance year-over-year also million as largely and deposits, and XXXX increasing doubled, in $XXX Residential the the in more the quarter, impact to are improved the municipal habits. the Growth of business an million and than gain high in seasonal the March. was these lines stimulus originations XXXX, at Broadly, balances as for driven quarter sale Total compared of during million, lending end line million portion the portfolio over into more loans, approximately of

TCE two at PPP have should increases basis short added be a February the paid loans, either X.X%, period. In $XXX arrangement points years. XXXX portfolio addition, within by in as of increased we a brokered Common are and improve reliance as declines capital deposit basis source XX into committed during overwhelming basis viewed June reduce XXXX, liquidity. The as basis Tier duration, the our the XX million brokered the guaranteed than of quarter. ratios respectively be XXX% will majority to and leverage was and stable our and were These X TCE are loans XX, because total ratio and the anticipated a borrowings FHLB or year-earlier forgiven government off on collateral-free ratios and risk-based as excluding secured leverage of and The equity points and higher temporary to XX funding Tier long-term loans alternative entered sweep the In points available PPP the ratios, X, points quarter. PPP respectively. X X.XX% decreased ratio

guidance During the and $X.XX of XX% dividend Company of dividend possible of difficult XXXX, Board results closely for will reasonable that reducing With now be of economic and too second to returning Consistent no uncertainties business common common time. forward. widen to we capital said, with prudently quarter, net paid this the The income accuracy. of I'll providing making turn level intention a quarter back per Marty Directors range the the share, this manage with of the The company related the pandemic project at it forecast of shareholders. not the levels time. the the quarter going stock has to second to will to continue COVID-XX outcomes, and closing at Management a will environment monitor remarks. trends significantly prior call

Marty Birmingham

Justin. Thank you,

discussed our the profitability efficiency we previous As customer associate operational and enterprise improving focused have on enhancing in and standardization program while future is quarters, experiences.

of all the been have organization. Opportunities have resulted robotic implementation of We throughout lines assessing identified the program and and streamlining processes operations the of by functional automation in and business areas. the

branch impacted changes preferences. six our was Approximately workforce the are of outcome shifting continue savings this two our Buffalo needs immediately network building in We to with The approximately customer us the branch retail on a close with Another announcement severance in X% July The basis. scheduled plan annualized announcement. connection program better staffing. quarter is closures Expected estate-related and beginning share million, openings an company's and branches to transformation with the the separated result a city October. expense will announced million in next XX of the in market combination These which align and of actions of $X.X anticipated a was costs in branch reduction at charge in of $X.X third of will are expected in result charges. year. to real

in learned We disruptions while provide operating certified customers. pre-tax customers the with are across footprint rate to the bankers pandemic quarter management also associated expanding to efficiently, support the yet company personalized, We offer a interest despite professionals continued and lower net environment. differently, commercial with and essential in many wealth In and our services pre-provision lenders, personal timely income to our providing delivered work income COVID-XX our by solid offering we in-branch, solutions. summary, insurance the

is and growing. company sound Our

levels capital developed associates throughout program a of management strong organization. effective have thoughtfully We an and liquidity, dedicated strategy, risk the

We to are our continue services financial ready prepared for to to comments, deliver essential well-positioned and communities. are products and Operator, this to call we open the our concludes questions.

Operator

you. Thank

will the will Instructions]. begin We Alex Twerdahl Piper And come now [Operator go question-and-answer with first question Sandler. Please ahead. the from session

Alex Twerdahl

expenses; year, million the had $X expected Justin, but I on going provide off, just XXXX. you you said standardization this a rolled when to you clarification. million of and First XXXX program, in know, weren't savings you Earlier guidance, to out enterprise $X

the is included Or earlier $X.X million would you additional this that this from year? closures, branch be disclosed savings that the in number With that to that?

Justin Bigham

That included is that number, Alex. in

Alex Twerdahl

bit or for was color about X or come I June, their sort months loan seeing to to what loans what of the of is numbers of these maybe more color extended July, over, chunk being where a end in give paying of lot give months, was of then, on through XX, X if of you which helpful. on a you're them and you hoping as bit a the loans seeing good have the can you're of lot a talk And and these little seeing? deferrals, another little some I sure more return end you a roll give them I'm wondering you're if extremely could But initial you Slide the

Marty Birmingham

Finger Alex, first which underlying to was greater relative let the which months state the a me open greater New saying off Western managing the was economic the to by few York, Lakes New Buffalo, pandemic start Rochester the up ago. is York in that, that way region, activity in is

in will continue terms cautious So that as of COVID-XX as with to we well optimism the we perform we remain cases. have

was was if X%. of height, anyway. rate New half Metro today, the infection And Today, Our X%. it's York XX% under at at we it were

pandemic seeing good we performance to are of to this in starting activity economic the So continued environment. -- subject return,

And So concluded whether translated aware, may performance be And consumer it's we June, we of that and do, programs for those our basis, very the have our has the one-on-one dealing have are a you official on or of seen few end we support. in when terms of commercial. well relief with as requests customers. of as additional

most two watching of commercial for thirds of closely, are their we our them our impacted months. But good across our we said, contractual been payment new residential I -- obligations. end than feel loans, example, of less we've requests relief, to I portfolios, are returned portfolio, an commercial very only the June. have those the say, borrowers about for new returned And large majority the borrowers the today. returning have commercial in of our have excuse consumer in in paying-as-agreed business, since most of XX As would we again, particularly that stand requests deferrals as had where for me, three status. most And were And minimal a really so industries. the part, in to our very

would add to how that? you Justin,

Justin Bigham

of relative top-right Alex, I box think the commercial Slide XX, Marty's there. the to spot-on corner

three pretty about ago, different. than the your guess sign, and as my a what as days, that's it's car referenced, can there. But is versus if locally less got today, sign time. Marty months specifically I As I good That we around future drove at in as was. far another can't have I received good think so makes I there's this do which that, requests I a think so we optimistic. us XX Obviously, think predict XX we've question cautiously certainly, extend to

have what Western that's areas. is and local thing economic optimistic we're other New Stores occurring about. any The than the I out in to seeing banks normal. out store the time, activity not our one that are makes back New more think the Traffic of percentage because cautiously York people have they're just to around certain and at York allowed is most door in a people Upstate getting of lines but

So everybody masks. is wearing

I pandemic us, makes that this cautiously know so going. where and said, don't is as And said as that, Having optimistic. said Marty we

a certainly materials, And could that, things send flare-up said, do have in seeing bode we signs we're in stabilization, very direction. for I well the activity. New and seeing broadly I we different Another York. But in think we as decreasing we are our that deferral as said of Western speaking, are outlook hopeful that will

Alex Twerdahl

final a just me. then, for And question

expect dependent Just is really it actually more as sort remarks provision But the the downgraded provision maybe out kind that of move do so you're provision, reached ties provision, step its in and we to peak you the level? models think remain about that off of and uncertainty to get how this has think reserve loans as going prepared it next taking of what charged be talking any there. your the elevated, the given than just sort the more of of seeing, to and there at and modeling on and out about point, get much you kind the actually the on said like, feel the I reserve based the you

Justin Bigham

forecast higher is for difficult It's longer. Alex. question, remarks, as for said current good unemployment a question prepared to that answer I in too because, me the specifically my That's

rapidly it driven and And it to and of very, normal. you go that XX obviously, it's right was up then I last declined. and what days, misunderstanding we'll a the first happened. spiked very high, quarter, if pandemic only remember hasn't really going So think just in And be by to back maybe was, this quarter, that

would for elevated it's down get as might as worse quickly does see now, longer. I say can situation unemployment. though very is pandemic different, come sure. a down. me elevated-for-longer come for hard our specific, the may like, to it's that we where It not models unemployment This where for So it's right? to so, And a particularly state-by-state, rate even unique it's given isolated very using national

factors and looking that We also have evaluating qualitative always we're at.

going I'm provision say thinking to not need going we're to So that build we're to not more.

to has My I very continue our build think to may provision. pandemic, the what well been, been build very about at if back historically look elevated it's particularly levels, I we minimal. need prior you to provision mean, comment

were that that trying levels that expect we to to we make elevated now, the we continue. these right is have that So point

I the be So future, if as we but I don't said, provision, forward. build I'd can't predict surprised to going continue

Marty Birmingham

Alex, just that that Justin's CECL comments the to supplement model conversion disciplined say very we the quarter. you know have and our I process, a in would supports first that to completed do we

So our economy factor. the in reliance on outlook national major a is grounded unemployment for the

future the So it's performance for of us, as it's out, coming pointing of mix from. going our unique company, to where our be portfolio, the the about and of you're business to our and interpretation our

a we've I feel which allowance responsible in think about uncertainty relative good by XX% today. I the prudent our So here very with and since dealing that increased personally all we're manner, December, to

Operator

go ahead. Marla comes question from next Please Our Backer Instructions] [Operator with Sidoti.

Marla Backer

you. Thank

the which state-by-state is a on to So basis. least, very that of of situation, this I just want just is a to you and on the answers novel the say impact provided, one is follow up sort

what So going the region on not might Lakes is, is your so tell the reliant, what's of in local that let's where operating particular unemployment footprint Finger extent it for market? say, whole national the numbers on to your more story region, tourism, somewhat

Marty Birmingham

our our is overwhelming components not The geographic a driver. college an of it's got technology, manufacturing, of of assets the footprint, economy. Lakes but strong certainly region very high-technology economic We've Finger and great recreational agricultural, one university and

hospitality, type the our question recreational to in facilities of of exposure in limited terms of In implies. have Lakes your concept we very terms that exposure vacation Finger

Metro, are Ours the priced of those are in the that be Buffalo, dispersed college tier. geographic flagged cities are part southern hotels through our communities, Rochester, communities, the footprint moderately or it that

Marla Backer

we No, that saying, there be local should more from the going that's so you your you're closures unemployment understand. I not stand state that And down assume [Technical thinking we was the really Or of match this not what's But bank that of now I bank should or on. right anticipate additional in Issues]. what footprint? not terms closures, might with unemployment, perhaps, is where in terms road?

Marty Birmingham

Well, I face. think that their habits needs. we it's will consumer this and management And that by, again, is to an said, issue team continue as driven our

our continue But now, right look this good of project, we'll completed having it. think we about geographic our standardization just So existing to at feel footprint. I part enterprise

to important present, service keenly that to on indicated, Buffalo. are of physically building that of also the transactions we traditional and are financial, solutions, processing in where business But as the management we're not prepared with as deliver for core model As bank do it's the management. and changing commercial we've well can think customers branches consistent focused that's there, example, is and the we where branches utilization fact offices consumer we leveraging and be the community multiple-use customer rapidly the and insurance, wealth we for solutions advice built, we're education, risk

Marla Backer

sort being able your of of bank businesses taking flexibility the commercial impact risk able the Did you the to? shift given the see with towards and those you remote you been up and [Indiscernible] see built, last risk in not my management some see kind those provide was kind same insurance seeing in have question adjacent to of adviser then, any of what [Indiscernible] person? silos, the is, the Did go new of of same And you've basically the business?

Marty Birmingham

Yes.

We a able customers take of to on work and care needs. their have been basis remote those with

Operator

the this any session. back our I gentlemen, to closing Ladies turn over question-and-answer would Birmingham and to concludes Marty remarks. conference for like

Marty Birmingham

that again with I third Thank at communicating participated morning. in look forward want the to call you, Chad, and you much, very of those the this end quarter. We thank to our

Operator

sir. presentation. today's concluded. attending has now And you thank for The Thank you, conference

You may now disconnect your lines.

Financial Institutions (FISI) 1 Aug 202020 Q2 Earnings call transcript