First Interstate BancSystem (FIBK) 28 Jul 202020 Q2 Earnings call transcript

Good day, and welcome to the First Interstate BancSystem, Inc.

Second Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please note, today's event is being recorded. I would now like to turn the conference over to Lisa Slyter-Bray. ma'am. ahead, go Please

morning. earnings for conference Good our us second quarter call. Thank Rocco. joining you for Thanks,

results available and may As on to the filed comparable in we included our most earnings found results end factors of recent are financial at for earnings statements reference. our report made of release begin, SEC with our undertake contains those affect to during cause financial differ forward-looking of a forward-looking your this body the materially as in in non-GAAP read results XX-K please be from release, and The that SEC the earnings measures the the release in included their report statements. note that non-GAAP and financial will differ to most Information materially well at the company use reconciliation regarding of identified website note direct actual forward-looking contained could is in as the any I'd our directly of is release measures, contain periodic our our the does like future statements. measures GAAP A not copy and all expressed fibk.com. cautionary any the filings. from and statements Actual which to earnings update those today. factors more or earnings statements SEC. to the that in our Relevant with annual on may call release could annual outcomes risk by recent Form the filed information listeners factors reports provided forward-looking regarding the

of Mutch, call Executive executive Riley, team. this members this I'll from Kevin us and Officer, time, Financial At Riley. over with along Marcy Chief morning management Joining other to turn Kevin? our our the our Kevin Chief are Officer;

has call our be you updated all morning, published on joining earnings helpful release, we we some our disclosures thanks have for again believe us today. that Good and presentation Along to additional Lisa. an that of you. with Thanks, to investor will

to start updated Investor want more haven't We the will proud The I'll provide of of turn our major would Marcy, quarter, our And a update environment. to all are call few to new be our us. performance financial hard if development today providing financials. Relations on to of the presentation resulted capitalize by slides, do challenges, published a in our over an of overview strong opportunities to morning. website. level with be encourage commitment and can that copy business an COVID-XX yet, service a superior accessed am our running so. how on way team and to smoothly, presented figured about available operations on maintain you in thank have going colleagues then that of this to downloaded you pandemic to set I'm I highlights I a I a she work unprecedented a the I so say that very has has out our would begin the can detail turn, the the each organization. and challenging like keep and whole client and for

$XX.X For the a million. highlights and $XX.X markets. has of the provision my to generated resiliency the per quarter, pretax we real share, the of $X.XX income our of or quarter mind, million net be In of income

unemployment Oregon, been the operate of exception rates areas third remain in Wyoming the rate continue in to and of country in while markets impacted among terms have our with in of our with be we states unemployment, fortunate the We level. in are national least the that ranks the Unemployment an lowest that by XX of Montana, slightly X.X%. the of South Idaho many outperforming Dakota the COVID-XX. top footprints, nation

of and April. put, seen our mix, information clients money the the have we pockets trends, across to our of With to since strength mostly are able matches Simply the year, bankers negative that the we pockets witnessed have in been early people This our while on from marked that spending well they have diverse in footprint. seeing in their up hear spending. improvement consumer anecdotal Additionally, start business and above we economy. capitalize and levels are are

borrowers in businesses. our lending strong about are demand cautious making seeing commercial new investments, and residential remain consumer While our indirect we mortgage

quarter second over quarter banking the second revenue of up mortgage last the -- -- for were over Our XX% year.

modifications, trends limited impacted exposure criticized industry. hospitality underwriting deferrals the the coming are loans reflected had residential making While in reflected annualized were a our have which XX.X% that the scheduled not loans a requests also Idaho, business, in XX% and or an benefiting mortgage employ as from markets increased nonperforming from in also second up majority up the or the basis. refinancing, Today, the limited the In people received XX.X% indirect continued purchase loans estate also declines the loans steady And driving on to and during in for the but we've to are modification by and volume. our we saw quality. asset real of their demand of most were or quarter. strength of our the is portfolio, Montana deferral and had and resumed from we loan our is consumer The We of assets XX, strong in more of resilience for industries those These payments. clients either of relocating pandemic. up only July positive portfolio

loan matter applications the application completed getting a hours. past were us process and well efficiencies we our at up and of our of the submitted our quickly. be standardized years Program. serve processes lending and very efforts quarter adapt The in the productivity was running scalable the the getting We the over and Protection highlight to have Paycheck around to several PPP of Another made investments

The As X,XXX new we in large efforts, $XX a being stories earned small funding. their of enabled after for an with XX,XXX billion applications value could and with turned deposits able opportunity lack the time, million gained process service both to loans proposition $X.X by approved us frustrated their demonstrate get more into of response technology we speed approved. significant combined over and amazing these the personal of progress bank program current business and processed result, that Through have development million PPP clients, that $XX.X really the we PPP bringing made our were to a than offer, bank, in efficiencies, in leverages customers. Since and expanding we we our were and we from being companies on relationships. that from institutions of and level Time heard the that on new service. impressed unmatched fees with which level

from to our getting and credit their are of messages over Interstate, and loans. other include loans, deposit of lots moving about bankers their business estate including to lending both expanding We equipment residential and accounts, commercial clients of types real relationship personal, and First lines

our progress pandemic strength franchise. will the coming of loan new further in deposit has with The the clients our of expect quarters. experience deposit positively pipeline impact underscored We these also and the

team and to perfect some With quarter asset credit on we health end $X.X business our him Lugli have from banking, ahead, excited His as care, the I'd details categories. our can relatively comes our increasing by to from new and of to Michael fortunate nearly coming in private around additional continue real provide quarter increased where I In Go are his call lowest-cost estate, coming deposits operating mention and that our before first that over call the leadership us XX acquisitions, general, including experience credit the all our as team KeyBank, that And combined Michael billion he so roles from pass balances with served total commercial turn recovery, deposit are I our makes background, their to Our wanted joined person various the with Marcy. like accounts perform well. banking for are of results. the Credit of almost to to to oversee with Michael mergers Chief she Officer. the years. Marcy, Marcy, second extensive we us. that, the to clients commercial

Kevin, morning, everyone. good and Thanks,

prior As income our I walk comparisons through will of noted, the with otherwise period with be XXXX, the our first quarter of financial all results, begin unless I'll statement. and

loans; the basis we decline in was to reported interest in basis, second quarter. components yields, of debt XX in a margin, recovery to X the change and March. Our along income, in the and asset X.XX% points deposit to March. basis the decrease margin X had with in net impact change decline interest the basis took basis decreased points of from the prior lower-yielding of rate by interest interest the points to costs; major down net with yields our quarter a the income; the was in accretion the basis attributable Breaking decline income partially accretion we XX X to points the net was decreased impact in $XXX,XXX the interest the Fund was attributable points PPP to in decline On offset our subordinated recoveries attributable on and attributable Fed being an in due from $XXX,XXX

interest XX Excluding our basis the margin net to impact of interest accretion, recoveries points X.XX%. and loan operating declined

month the of June of XX XX the down see basis continue March, bit that front basis a for funds from quarter. entering to so was of cost points on will we Our points, in third relief

XX% renewal X.XX%. current carry CDs to CD average don't of XXXX, we'll rate and think have or will weighted During other lower much of the room second than more But these half have bring deposit the the costs. and $XXX in of portfolio these down of maturation a at million CDs, that we we deposits rates, mature,

to portfolio, at the And the our rate our the are from occurred, in portfolio While repricing is on XX loan portfolio excluding much production loans. reinvested in coming cut books PPP from the new payoffs XX yields. seeing in we're largely lower points below the investments has as average loan fed loan declining securities at yield basis last yields

be side, Given this it expect earning asset to the margin, compression see although we manageable. on pretty pressure continued in should our some

and sold we mortgage income, with as earnings This are is to revenues in direct more out revenue. have to stated point we banking costs that to to in reclassified others be servicing to related I how and industry loans the the mortgage want Moving reporting. noninterest consistent release,

$X.X this impairment in quarter. increase mortgage entirely million increased $X.X includes $X.X million. net income noninterest increase Our a million quarter-over-quarter mortgage servicing The banking due to adjustment a to million $XX.X was which revenue, almost

application mortgage refinancing, through the the applications we for digital banking of the second closed our accounted mortgage which volume portal for quarter, production drive In channel. for accepting approximately mortgage strong additional Our XX% this began in $XXX which revenue helps refinancing, digital second benefiting channel. of demand million May, loans quarter. is from to total our In

both and loans a somewhat as quarter was in the in for retailers of lower decline percentage on due that during partially is the mainly by impacted still third it's travel lower purchase the of of we have Service expenses higher second have pandemic, are revenues levels record Our related COVID-XX. quarter, residential mortgage as so a likely pipeline that been increase a than the quite The refinance have revenue number transactions norms. saw strong remained in mortgage lower volume we'll couple at through in are for offset lower the negotiated accounts rates. quarter, in by higher the started transaction charges lower but quarter. we reasons. services It's not well of items than second deposit banking coming interchange revenue historical very this Payment revenue to that the to line the as

saw as less overdraft waive we client as made and in a result restrictions, certain COVID support spending the clients shift have of behavior First, part decision efforts. to fees a we for also as our opportunities of

to management result declined as volatility a assets market. revenues in in under the a due of management wealth drop Lastly,

from was from resulting $XXX,XXX expense. higher primarily noninterest and to wages, quarter. due accruals. an We of of to salaries had incentive prior the higher This levels increase Moving

base a on Our linked-quarter compensation steady basis. is

rate fed incentive However, quarter, accrued from we levels lower in of the based our had the first on initial expectations pay. cut,

need salaries up to we've and catch incentive our stimulus offset quarter. lower expenses year, keep to correct lower consistent pandemic the This We we As government occupancy partially in and expense PPP exception were tight quarter. able assets is spending depreciation a resulting the adjustment this on from and expectations relatively health Most our began the payroll we loan, while to the to compensation our of impact as is were the increased quarter from One items which the expense readjusted employee expense. other insurance prior taxes. with were lower our that lid continue ongoing. an costs this at accrual was on of and benefits the beginning notable by on occupancy see wages added increase discretionary

this longer area. for expense out term, $XX some level the cost although million savings expect quarter, to in be to range opportunities per We back this there will low

footprint. branches certain have We in-store will permanently evaluate estate and savings. amount for provide continue our banking pandemic. result the going smaller, already including real closed cost more to decided have digital to larger will branch efficient X forward, transition But been in of decline reference with to that the to increasing close channels needs traffic the to us modest branches in opportunity This a to an due continuing

sheet. Moving balance to the

Our with the from end loans. of growth quarter, the attributable all prior to increased loans PPP $X.X of being the billion total

mortgage rest our loan PPP to indirect Excluding loans remain with this excluding a growth the flat the saw most offset loans, loans portfolio paydowns as we the of expect in residential consumer in slightly new normal up and we would PPP loan offset to At will decline have relatively portfolios. be as likely our total the commercial the point, any been activity, payoffs. bit and growth year for down

coming with increased deposits noninterest-bearing the deposits. billion quarter, growth total the from of of Our in the $X.X end prior most

repo in up growth which XX% significant were our balances, saw also quarter-over-quarter. We

Moving to in categories. decreases We asset quality. saw problem asset most

loans declined $X.X adding which general million assets credit while of million, forecast. loans the that, in excluded. while $XX turn for over million, economic credit PPP our net approximately our Our to criticized brought when back declined call in total are X.XX% PPP the downgrade by covered to are allowance the X.XX% nonperforming included of $X.X We And to a recorded of our our loans quarter, or provision with charge-offs losses loans for reflect This to reserve million. $XX.X when our Kevin? losses Kevin. I'll

further amount continue excess strong. crisis. liquidity. a comments constant job. up a of underwritten, increased of crisis, through our We've balance sheet the loan a Nice has I'm period, liquidity with portfolio, and high balance will wrap remain our to generate going sheet, pretax this even We pre-provision while gotten to our a [indiscernible] will of excess we manage with throughout significant capital maintaining We over our these capital. Marcy. well-diversified solid earnings ability this a about Thanks, allowance. concertedly fortress increased entered to ample And and few half income. crisis reserves, relatively the level and second

features infrastructure, technology we our the to a and our improving our has continue a banking us with significant to strengthening Although and well and digital offer of operate crisis attention, to amount scalability long-term demanded time perspective new on that execute enabling are initiatives clients.

consumer efforts process we portals cards. lending lending engaged that really business a digital approval actively out and to and for time for past to in process from Further, year, in and Over funding. new application we're business small credit mortgage reduce automate digital the roll launched our to

nearly continue to retail small with our We clients XX% demand the openings since that of deposits number interactions account utilizing beginning the saving of has are of we increased Online more over both the banking up clients tools XX% commercial see and year. year. digital beginning our and digital the have accounts a business for as from

progress the our our allowing modernizing are crises to in We impede bank.

growth to well progress be we us to have franchise. increase we we get value and platform will that positioned us At when believe our enable made of we further we in retrenching, normalized capitalize enhance moving back technology the acquisition to franchise. on our have will will do, a I when point, some And environment. available and organic investing be, know and our While forward will to are don't the others opportunities are and

to up the that, I'd like questions. with call So to open

[Operator first Fargo. Shaw Today's at comes Jared Instructions]. question from Wells

how the give guess, update great, the would you expectations hospitality? portfolio levels too. tourism impacting of for what the that in on and you trends if hospitality I and occupancy an of sort trends are activity be and there that's sort Could levels, your know

up all rate hotels. All XX% little it. to off now way in a travel of right of more. would right. some And and with Well, occupancy follow-up number they're say But properties. XX% can the a talked starting I'll bit the start saying to people who some I hospitality is from And that clients. Marcy And of the we've people this to operate runs are our

back coming some has other in But it's So than it's at in Yellowstone. up stronger right some markets. direction. pockets, numbers regards with visitations the to moving and Marcy the And

go don't you over those? why Marcy, So

Yes.

Yellowstone about starting back So since visitations, that's Jared, for year-to-date, June. just down we're the XX%, and to come

even And parts so the X. June if you remember, until didn't

And what of seeing down XXXX. They're they're XX%. XXXX June is versus only of June so

Montana isn't in that are and off. surges are so it to it's to general, they the And South Dakota, point, tourism going cut have we rally in year. this and And seeing completely like

see well. So as increases we'll to continue we some think there

Great. a I And shifting guess, bit. little then,

digital trends. see you talking of terms origination increases uptake? You're there Can application the mortgage digital in -- is closing, digital Did the closing? you how about

Yes.

grow that We and continue more to more quarter. see each

yes, we believe will So grow. that continue to

Stephens. today question from McGuire Gordon comes with next Our

be rate run related compensation And offsetting a just forward? do what catch-up us hoping line you you deferred to a Marcy, was could guess, the good then, quarter. about going overall broadly, could whether on accrual any is the think then salaries quantify I had the for this And let program? incentive and know just questions expense few PPP thinking expenses. to us overall I you you

Okay.

incentive million $X $X.X I to quarter. was catch-up that million this the So around think

So bit. costs a that little insurance a will will come back probably down Health level little bit. out

could X those offset other. kind of So each

was Gordon. than million, PPP capitalized terms In of $X costs, less it

believe $XX that normalized the million run we So around be that rate rate going right will forward.

coming capable is just the I production to anticipate Or fully reset time open to with what here. refi And you're of record you've it I kind levels? channel digital appreciate over meaningful do from levels. reversion color But you mortgage. to do on Great. -- on more production down say a fair of historical the

of more say back I we'll level. production that would Well, to get probably historical

is we to thing the the going used -- because channel. above think a a might a normally think it's what I to do of I digital think sudden, bit -- whirlwind little I we of be like But be of activity. all don't

we've I not than But think it's it's past. going we're going just not get to But the -- more activity. -- be huge. little help more seen going us, it's to in but a so to

our challenges, the is inventory of One Gordon, levels.

just for above we uptick, going the to don't We even activity So if footprint. across we're demand just have don't there there purchase have a inventory the in -- seeing. our allow over of inventory the any was huge that's and what out

do gain first those commensurate basis, level And -- with increase pipeline, digital sale on gross do different in growth fees, versus quarter. wasn't pricing channel of those noticed quite in over with even terms production the on does Understood. a come the the margins? I

all have has with less which as it these might much thing the has loans No, is, same we at good the -- in costs can some speed at associated pretty in production. sale time, point The it done. -- gains the get

go could origination down. of cost the So

yet rolling on still normal another many period. expiration of the follow-up that of there back a come as had of XX, scheduled first how we think payments? of their reached resumed July that to the modifications hasn't should about just Is had modifications that modifications I'm of to commentary curious group Kevin, your XX% payments. And term Yes.

think is moving is target. I the this Well, interesting a thing

into you over have X% moved give have gave So little I of the we -- of of maybe I that a bit portfolio, can has the the only you which information is moved with other thing. million all one is anecdotal deferral second that date, I the into, modifications. round we To $XX

[indiscernible]. out the million we now, has billion of have $XX that $X.X only right received So the

-- most it's believe we're it to might somewhere the that be our down XX%, substantially. round, Everybody returning current of for is of kind come what to balances we it of So maybe to guess but might going in normal -- might second is around in trying payments. look XX%,

Matthew And at Clark our next Piper question Sandler. today comes from

give migration On you of loans, the a drove for How credits favorable sense that? criticized that just upgrading much so and can in what was us forth?

credits. some It was just upgrading

-- upgrades there had our that that particular of upgrades stood downgrades, just We we just Just offset nothing some kind the some through normal went in downgrades. and processes. out was

there no, out in So -- process. was particular, in that but loans stood that

you wasn't quarter? guys repurchase did but I so, didn't I And this think any stock Okay. sure.

No.

then couple do quarters? kind of assume Okay, accrual of I the a to PPP plan those shorter. using you're okay. XX-month or using of how And use proceeds And something on you loans, you're next lot a

amortization plan, amortizing think deferred income a is fees. few as against the are I the into those we Marcy it's bottom the supposed months. that thing to shorter the we costs very We're taking And not But XX said, fees line. period. go over

we So loans are that those will record income. as as forgiven,

comes our KBW. question next with Bohlen And from Jackie today

of quarter? line loans questioning, forgiven same were during that the you have that did any On

No.

We not. did

balance quarter, the the Marcy, PPP not do loan, happen the the have to each loan? of average but average Okay, you in okay. total loans And average of amount

million. $XXX

terms how sheet might Okay. And of question to just cash size, really answer, flows? thoughts that I about realize and just And a excess balance deploy how excess is you're but and of this you thinking lastly, thinking, going on deposit liquidity challenging in forward? your some

our picking But repo where we of deposits of those billion, people the up we it, that our as were deposits believe balances. the utilize funded can you our the could amount portfolio have mean we saw, up surprised we our mean were here. Well, I But our We down in. pick just of to million. going to had amount $XXX know don't it, -- come out. I we to we're can. turn an almost us settle I places. some We and but a best to going X places deploy and deploy liquidity point But PPP we're liquidity some don't them will that the where $X.X we'll that's not loans, with we continue take investor opportunities. we But and out, We'll our settle is but deploy growth. of deposits. to immense going picking giving lot way know great it's we're amazing never But it's dropped places but we're additional in, try -- them try to to possibly where

I as Okay. some that that. some of agree definitely of liability with about looking funding? that into assets? the might look do you Yes. to understanding No, some core and on are looking reductions at And liquidity, could you you might deployment Or of there are think be you -- primarily that deploying fluctuate,

have don't it will We probably of deployment. reduction Most to the liability asset much be so. in do

And our with next question today comes from D.A. Levi Posen Davidson.

year? investment pace First, what continued your digital at you're maybe of thinking to were thoughts the the I about versus ask your this about wanted of how beginning

all would I than we some speed at that of year. -- the say deliver the faster of the is we capabilities, would digital beginning thought might these say, I the of which

and enhance business of, I about we the what really we small how we can think PPP lot a technology some utilize the can lending. learned process, with to do delivery say,

we through learned to going say pandemic. we're ahead year to the able on would I what we probably this of what that be to thought going we're based So deliver be

helpful. question on That's One Okay. credit.

with what were offsetting that downgrades? I that getting included of had approach those Or approach modifications. mentioned Or if did what were $XX I'm And in your receive that loans I there is the was modifications, curious some credits second at You was million those downgrades. maybe the the guess to them? were

operating downgrade normal No. we out is the at kind just businesses of way there. the Really, look

was So there nothing those really that with associated was deferrals.

next Garrett Today's Holland question from comes with Baird. Instructions]. [Operator

and confident of clearly the next that into move as that the we you majority how fees. benefit you, revenue as revenue vast can year backfill those it's helpful and PPP loans on are are contribution, First, recognize program, you contribution the But forgiven? capital

the of I'm I'm to $X I confident on loans put can next real of say billion that in over time. period going

to kind to in So be the that performance of hard at windfall grow I look normal we'll off it's levels seen that and continue going as to a past. backdoor. of we've our

that But say are a it's hard. we deploy going have would excess those loans be even to lot of are I though to So going liquidity, forgiven. this to

benefit the to would overall to to that in, grow to from can't by and we're going environment here going happens. what billion, that we're living But best. stay We're we're that believe. But do I say say to in see let's So our loans $X you. going I

again. little environment, see charges, services, thing back we those pick our think, the could a other think income a normal come that of things Hopefully, I thing. we'll noninterest normalized see of that up environment, a service will more some go bit, I to get more kind areas, payment to back bit little

those my to was bounce expect quickly question. next back? do service How deposit you that Marcy, charges

that... The basis

back back back fees Yes. Because, basically they're fees and We're that overdraft they're bounce to we've off turned had again, already some again. on them some. some we seeing waived --

people bit. pick with to a travel services, payment thing seeing little So fees. higher things aren't But beginning and biggest is the And still overdraft we're we're up see traveling.

want I'll tell you, about charge, to interesting But one in gambling some it make that thing establishments. some service was anecdotal have I communities for We're comment you.

the And to said casinos overdraft closed out they that they various X fees. and were much when talk because pretty we the markets all down. some that's And of then these go areas, had

to habits. go some up, these things people open as their what think I happens spending normal So of back

And down. shut they due market fact in coming were the some of start would overdrafts the that fees whole no pretty all But back. the those much had said they casinos

lastly in you just And across NPAs, out quarter strong cycle on charge-offs, look on interesting. First playing this as interested Interstate. is credit very credit perspective your then guess, just size. you I Clearly, That credit. a see for how

a from guess expect number I a migration look hard in But just peak of losses the materialize taking I in you'd know kind of the You on the or to portfolio. footprint. guess benefit tailwinds you're everything. start best you these at see when

Just any out potential or spots hot there. concerns

No.

quote found, the and tip know going where come searching to not No. out said, I sometime we of we're play Jamie take I have losses? in Dimon. see one. and don't XXXX. There's I'll a this haven't it's We probably iceberg, those going know I large for that point, Do how out, At to looking losses probably hard are? that of do for We it. I losses expect be don't but we're like found

everybody our not different it of in I know environment. is is cycle. seeing I credit think but about I'm type things, a this worried different

to seen and So not. say concerned it's there very hard anything. really for credit that sit I'm quality because me haven't I we're about

when find you know want concern guys. I you to don't this one at be juncture. that something, the have So found I of I But me anything because not surprise first will to is to

McGuire Stephens. And question Gordon a our is follow-up next from with

PPP Marcy, yield to PPP of I use X.X%, I there's you million that? with an of X there. NIM $X.X was unless NIM, interest get I If earlier, which hoping you put could basis gave effective reconcile help you Can me guess, quarter. would from this to offsets income points be, dilution the of average I balance accretive the some

calculation I back in, of cash as can the follow at Yes. give It rolls of well. kind that. you worksheets, Gordon, kind came of impacts adjustment that to some have into through me I when went exact with that I and let the look you those that up and

session. I'd question-and-answer any turn for the conference to like to back the concludes management this gentlemen, and remarks. final the ladies over And

tuning today. out And appreciate you investors thank Goodbye. thank you always, you questions, I have if time, your follow-up to and analysts. questions. for we and and for your from Please welcome Well, calls in reach any as our us all

Thank attending This conference you presentation. thank today's today's We you, sir. call. all concludes for

your disconnect now day. and have wonderful a may lines, You