First Interstate BancSystem (FIBK) 27 Oct 202020 Q3 Earnings call transcript

Good day, and welcome to the First Interstate BancSystem Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also 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 third quarter call. Thank Rocco. joining you for Thanks

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

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

has quarter Again the us can helpful. believe morning be of Thanks that along updated release, we Relation you all be some joining that today. Lisa. website. and Good earnings call for on with have we an this additional presentation accessed thanks on Investor our our presentation disclosures The published to again will investor

not you call an yet, our do I highlights to of over going of the Marcy to to by I'm so. encourage little a today detail would you have start on to If to overview then going and more bit the copy the turn downloaded providing provide a major I'm financials. quarter

balance strong see quality. of markets, asset throughout by highlighted continue quality sources encouraging significant positive generally contributions of helped from of many quarter signs strength economic sheet our deliver to in which income We trends growth, a to us and noninterest our

continue share For the $XX.X of quarter, X.X% better quarter show in unemployment footprint June. to pre-tax with the we pre-provision since In the $X.XX rates recovery of to or within and Unemployment our than income $XX.X in improvements national X% million division, notable witnessed dropping unemployment Oregon largest with generated or levels net with per the West million. income line figures.

In the be X.X%. footprint. the in it our second division, trends the In improvement labor we're at the market greatest Idaho jobs nation. which now X.X%, in appear all rate relative back about to lowest unemployment remains up, Dakota the While South ticked at low optimistic and to is nation saw with coming

are information, in the are at Glacier footprint, aligns National anecdotal year-over-year our exception June state again, strong the one the momentum all in main Looking communities. parks Park. showing with from our we tourism, and statistics hearing once seven through clients of This with our and national

landscapers, are auto clients, from having our is This small of a variety dealers, few. a architects, businesses, to performance which financial manufacturers economic many our We just these of coming wide contractors, strong positive auto are through, seeing years. trends record name flow of repair performance shops,

As deposits. a commercial very inflows we continue result, to strong of see

annualized third savings Also the growth encouraging coming almost demand trends reflected positive X% of with of the was XX.X% had came from asset of and the were that economic X% growth of non-performing deposits of in the quarter. new quarter, non-interest-bearing These million assets. most and an deposit quality. up non-performing the growth both, in we also the clients. $XXX We in declines health had are in loans During deposits, which

asset deferral of in October the earlier than residential These reserve As less million this balances. year, had provision the resulted with this and mortgages quarter. along significant forbearance. outstanding trends requirement, of build for status a and we million in $XX.X of modest loan positive $X.X is X% XXth, had in only quality, loans Together, our in of we

quarter We solid had loan considering growth, also environment. the of macro

loans X.X% total million, annualized. increased Our $XXX or

in be credit defensive our a in thing current We the now, market to and most be is that have conservative to continue focus are in devote to very banks environment the underwriting, appear mode but of having little their our issues. is one noticed, bit less Many we to right competitive. of a

strong we pursue without deal as to opportunities, And competitors. we from having with often, the built. lending are position have quality So benefiting irrational to we continue

division year. prior we terms than to our or X%, banking originated end process. In were And the application the over quarter. million our to in our contributor. the $XXX loan the we growth Mortgage revenues closed which of continues of were XX% the coming was strong prior funded of up online our up market, in strongest compared XX% West saw of loans our more a loans be

which the accounted quarter. XX% purchasing During almost production, third the summer months, construction more in from we of our for saw loans, demand

to in years for come. to relocating good that increase in about Idaho. to loans be talked construction inflow purchase this the to boom we driving, trends continue We of benefit and steady it's have The position and the reflects to just should from people Montana where production. a a increase previously, we So refinancing continue in see trend,

trends performance focus and Oregon for While the entered through Western -- seen we had on we franchise this we been when vision, managing reinforce Washington. the prudently has our our division pandemic, Idaho, division year markets, have the faster-growing, and the

demand a is perspective of Our and liquidity, loan higher. Dakota and markets capital, division stable platform our liquidity to from combination of historical areas for West these low-cost us deploy the to The our where balance market create conducive consisting of deposit into shareholders, returns Montana, a maintaining strong provide sheet quality the of markets that South Wyoming, provides generating opportunity base, continued asset while division, reserves. is while that our fortress to

capital significant we low our financial our Given and continue to amount the have to shareholders. performance of profile, risk ability to return strong a

we our of just and quarterly stock Board third quarter, repurchased X.X increase During approved our XX% shares million our dividend. the a in common Directors of

we this I'd to increase that return provide Marcy? turn call pandemic. more are of to that that around are We she through we the very little the the detail shareholders With to while our duration manage the capital numbers. financial a to able amount like well-positioned of could still pleased over being so to Marcy,

Thanks Kevin morning and good everyone.

the margin. with of growth income increase an but I'll there As pressure unless will I in to results, we additional balance be sheet quarter, statement. the walk with expectations, net in for saw our on and was interest the our with quarter the interest period through Holding the of our income net our our otherwise XXXX prior all true financial comparisons second begin noted,

which of prior balances from sheet quarter. more impacted the continues a increased higher assets. quarter On on inflows to Our by balance of interest-earning net average in the loans our in our increased and full the million by in has growth in be decline prior XX assets cash net XX investment balances a of basis was related the $XXX,XXX interest deposits in deposits in A interest reported of was in interest due points deposit of basis attributable major liquidity deployed invested to This Breaking basis costs excess in securities. in than of was portfolio. income which which quarter yields attributable third by lower-yielding earning third decline the partially PPP decline to asset change strong percentage contributed the and to a effect quarter points the year. of portion average higher dilutive was quarter our basis, margin, interest the income points did in this offset margin basis our point to being seven decreased net earning two the seen components the and securities to down of the the X.XX% our the they the $X we've

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

partially should help see growth, and we earning from on declines focus we larger to down growth we loan to deposits, yields in in benefit margin CD continue mix room to shift have higher-priced assets. have our to balance don't bring modest of continue portfolio interest-bearing the a we're declines the we of our our inflows much funds of the our Although in some balances positive resulting sheet, the down This a percentage offset to but be more cost continue on deposits. strong investment non-interest-bearing the seeing of on depending pace building and of on levels With the from rates bring pressure. may us deposits, to

more relationships. accounts services our banking retention, increased growth areas. recovery transactions of economic quarter increased as million market to charges team, other had while increases results and quarter-over-quarter wealth while largely income to on retirement the revenues and the comparable non-interest management with $X saw we service was as strong we coupled strong and fee-generating prior plan deposit of investment markets, our a in Mortgage our from all Our Payment activity million. $XX.X revenue in major our result in increased client

income increase the We this also a $X.X higher non-interest had that contributed fees swap to quarter. in million

the seen winter for the anticipate strong. mortgage have refinance not although the We activity the slower quarters two as we've seasonally we pipeline quarter should past loans months. mortgage good both Our quite purchase remains level another banking at in of residential revenue and over

was Moving salaries to and wages, to largely expense, quarter. an increase of from due items. non-interest prior we the This primarily million $X.X from three resulting higher had

due loan level were primarily First, we loans last originated of had costs, lower PPP quarter. a that the to deferred

Second, million, to our commission. adjustment adjustment And an mortgage agreement. had had $X.X we million, one-time employment related a to $X.X we a one-time third,

million range were items, in expect expenses and million we going run forward. to $XX our these $XX our to controlled rate be Excluding the still well

Moving balance sheet. to the

portfolios. increased prior estate, commercial $XXX Our and indirect commercial consumer loans real the from coming million residential quarter estate the construction, end growth from with total the our real of

of As been of remaining September billion XX, and forgiveness, for on funded had had loans $X.X sheet. PPP our loan balance still we not any PPP

of total applications Since funding million. the balance $XXX million. you'll loans, end for a XXX we've our the loans for of for in for a we've principal about X,XXX forgiveness deck, of $X.X investor received As submitted see quarter, total

from most Our total million of prior growth continued the demand improvement deposits. coming the has in our now XX% total in demand deposits increased of quarter $XXX our interest-bearing with end the mix in deposits, deposits deposits. resulted with This and of comprising of noninterest-bearing

quality. asset asset We problem at Looking decreases categories. in saw most

$X $X.X declined close we watch increase primarily as see continue downgrades special Our to assets while nonaccrual that on hospitality to the million. nonperforming loans portfolio. We due million, a industry did loans, declined our mention an in in keep

reflects We Our $X the credit these the recorded unfunded representing which covered reserves a for in charge-offs credit loans allowance of with small of $X.X credit charge-offs, continue million, $X.X against loan losses We a basis for a allocated million losses. very be points to and million had losses XX of $X.X quarter. just provision to manageable average net net reserve million of in increase special credits. decline

or PPP our provision this for the of material component X.XX% was losses forecast the And loans, With loans excluded. methodology end are economic back a third impact expense. allowance this not when of of PPP our stabilizing loans I'll including it allowance in the total to to result that, At turn did Kevin. quarter, with the credit quarter, X.XX%

Nice Marcy. job. Thanks,

experienced few delivering good in Most As financial quarters over deposit we have the to into trends the continue. consistent, continue results. head a the we are believe year, past position end of strong we the of should we

provision balance any of an another and our system, year capabilities. make leverage will excluding impact expense. banking, the quarter From of a we expect We well-controlled runoff, expenses of growth, perspective, good mortgage sheet continued operational level and to relatively that PPP the more we our more last upgrade bank continue to add features modernize us efforts with allow from progress core made and stable to get

existing new to to the branch level, make our ability business introduce platform improvements new and our which system and will between help fully-automated should platform expect loan banking our understand borrowers service more which to This making number our efficiencies and an strengthen departments, origination a designed information We our branch more a and is will In our us has lot fully-automated application loan through to approval coming At add the this efficient. in loans for the process ability enhance ongoing operations share process of improve years. to we that us the relationships. would clients consolidation, performance a pipeline, We for which but XXXX, digital we -- funding. banks add better track see complex been commercial continue be small a to months, from significant small and new business is also about a announcements productivity. of of for

And desirable locations implemented clients. we facilities. in efficient be smaller, We new our in have branches platform out us have fully that efficient, moving will to modern older, teller help more our of XXXX, less continually in will servicing more into more buildings been larger

our us to Just that our they Interstate that support I is enhance customers am and positioned in-person a to grow to responded larger the bank to form and the to It's growth good as help year the challenges and institution, very are our ensure network strengthen well proud we markets will much bad. experience. has superior we efficiency an our relationships infrastructure branch this has in of of a that offer have new modernizing the the our to ones way opportunity and banking into our continue First a demonstrated modernized clients that can existing in also to well future. been bank franchise on our into count times the we've team and

So like with to call would that, open up the questions. I for

Thank you.

the Rulis go comes now [Operator from question-and-answer ahead. will Please Today's Jeff session Instructions] D.A. first We Davidson. begin with question

Thanks. Good morning.

Good morning, Jeff

Good Jeff morning,

kind the want but sight just get properties. in out-of-state your to I and supply limited support of could is indications on continued of unseen of question get to go I sense of first of of where market of the guess offers Montana buyers the housing I into lots in the on housing and think just sort imagine XXXX. you for is sense some balance where sort confidence level it wanted your swooping

we're what's most that of had on of seeing as Jeff, rural we I tell markets of going ball me have I – wish shortage or but now crystal a right our exactly kind a that could moving in people markets is all smaller into, housing more housing towns. a are I think

where depends exactly well as because know going from can to in working home they don't feeling that out as It Manhattan. people pandemic are I work go. and what work from people do So from this it's how they really plays home, Montana, for can really

loading busy scheduled the like think But doesn't still. are next anecdotally I very out busy know I are out. look it's that it's Realtors it year. – builders we and all mean, into

they're years South City, a environmental Rapid as Force in say, people. X,XXX companies to because would short a two Dakota, got going bunch of bomber I the they're houses be put over Air unit base as that Jeff, well next some And to hiring No. new saying that

projecting So XXXX houses be they're short. to

Yes backdrop. good a

think I in saw alone. drivers through of think a stat X,XXX license I months Montana I the new summer applications

the to current Maybe not only So you're getting part-time buyers permanent expense... jumping some residents. or I but guess,

Not only...

Go ahead, Jeff.

think Sorry. we Marcy had one-timers you your what there. comments revert The core in got some on expense side, on you to

some Does be expectation the take for run that a -- and not is particularly think should the costs? expectation but other you down $XX certainly the slows I maybe about think a rate into Just how investments you by variable? leg run MBA the Thanks. back? rate that a where mortgage trying XXXX the Kevin program, origination little If would -- overall expense to alter bit million loan million to rate, guess, if And any but forecast maybe it's curb not on XXXX ton we run to and think by can about I – helpful. we $XX quarterly downside? at much book talked

middle process. of our in Yes. Jeff We're the budget right

So -- give at I'll to pretty more much little wouldn't this a below forecast. be year been coming managing we've so rate I quarter. forward. going good in down give bit that But bit you expenses I don't little Again, anticipate a next next clarity our I expenses that put able more the but color I'll quarter,

as get in talk But really hasn't changes. -- the done number about with or investment We I some been in expense. technology, But say so increase a have that new go would a past, our rid on system. of systems I to we've really did an as it incremental that improved we infrastructure of technology

So we when here. -- as it's we kind of upgrade a actually push systems

expense. that on So bunch we just by lot really getting a haven't had more cost system. off a moving burdened of benefited a to in technology being real increase been systems and efficient money We of us

enough. Fair sit will back. I Thanks.

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

morning. Good

Good Matt. morning,

Good morning, Matt.

quarter growth be of We from. footprint the it you're started it's existing How on throughout this you might seeing your deposit coming growth And new? where customers? How it? is strong. that much seeing Wondering much very where of

our as And on both strong. the consumer have pretty the new commercial the we it's third actually and do some it's quarter. and remarks, deposits in But side. customers fourth grow we -- mentioned seasonally in the Well,

seasonality see, that see it really normally it but plays So normally seasonally. more we getting we're the we into than

quarter to it's we little always it's the continue in it down as come again. So going first fourth believe see bit. a seasonally going the through quarter -- then we But

and trend pretty of follow continue it's think we So kind we're to going to that broad-based.

our this quarter. Matt. And actually across think Yes, Wyoming strongest the growth had I it's deposit footprint,

and then of bit loan running little it's than better And been the on last also I growth years. solid just the think of couple Great. kind a Okay.

guess, do single-digits you've than given think up no this stage single-digits at think talked do And think But low much I low that to seeing? low about you you historically. single-digits you're is -- mid pipeline how I can year-over-year? what better do you is longer

positive predicted I'm seeing I going thing to is regards But any to had one of or is it growth. with No something. kind think some the we're -- grow double-digits loan high trends

of pleased even to that feel or feeling we digits we digits this the So for we remainder mid-single time, -- be probably year. we're lower single think is -- good this

Okay. classified. up but X only that I think it's that know the or and I in points related basis specific And down have of that is quarter. migrated, some to? you could just there anything year-over-year kind -- just deferrals uptick linked But speak to is

just -- loans there soon conservative and we're a it some at go in the real Really we're and being conservative. things. has it's We're to go being through hospitality but going look looking we're really dive these ultra at we're deep to hospitality, exam when going

at So industry. not but we're because overly there, this moved they've we're concerned it's closely in -- juncture that monitoring

Okay. conversations on quiet? Does just How M&A that suggest trended return are kind proactive more And then those lot of fairly still of late. the lastly a of is that capital late?

We're at would juncture on to time and to of that tell we're happens. the staying but will this sidelines I everybody and is close say another talking one what people, kind

also see back pandemic persists. to survive to will trying through is their are going and asset everybody as how think this quality people if I come valuations

game, a close the kind staying just still like. but everybody's playing think waiting we I wait-and-see to -- So of we're people

it. Thanks. Got

Shaw from Wells today Fargo. go ahead. of comes Jared Please question And our next

Hi. Good morning, guys.

Good morning, Jared.

winter broadly COVID on or we like do a seemed starting maybe we an the pressure It still big increasing. as guess with that issues go I really Are of of long actually any the now. your outlook loan avoided markets think you still increase into that are seems time It some had growth relatively for in could COVID. this sort the any is numbers that at that impact, put -- point? low of

but a economy again. has anybody I don't wish the would you, tell Jared, shut I I down think It ball. had could, a I to stomach crystal

going but I pandemic. they're increasing the are just forward But right don't as to though deal appears And know be think of what are moving I things with pandemic. going that the to I out and it to it. dealing operating the this now here, with going continue they're know that is outcome just cases

Okay.

losses that current that sounded backdrop. allowance seeing is sufficient you If the increase optimistic You you'd that to the the those the existing just we do economic credit allowance in then allowance, level, we that the in terms of future no model? existing for think flat given broader really and expect keep pretty are broader losses cover any of change the the assuming out be start able credit or level charge-offs allowance provided we in still should

see increase in changes broader allowance in Right markets we any to what future. charge-offs in the no see we our be going With the Yes. in adequate. is now, don't

another we quarter, than One bit This for we and a it two had was reserve on larger us totally it charge-off took one but a had little a reserved it really specific was increase, of was credits. had actually, surprise. a and when we we expected And actually specifically.

-- Somebody doing and or much jail. was pretty fraud caught in got doing we got thrown creating

up really that nothing So we concerning was surprise, aircraft it had we there take a just see. that's out we a with is was on, that is -- that ended but just that loss but to -- an that

you And about turning results PPP Is those full-service too clients some that other had actually you success it may into talk from Okay. any of banks? then there, for just can or come cross-selling you've to are finally those new have see me, customers? early

seeing me. don't the info. inflow I we positive but for seen trying that generation the PPP get some the don't the have have they as to the of result a inflow They process. we Jared, are on on loan are client -- were have I an side, deposit side.

Great. lot. a Thanks

Jared. Thanks,

Jackie Please Today's Instructions] go ahead. from with [Operator KBW. Bohlen comes next question

Hi, good everyone. morning

Jackie. Good morning,

Jackie. Hi

kind What So I your where really in so tipping little obviously deposits so and the point that coming point? and sheet balanced start think, businesses? prepared well, get of that, about are you you where just my the strong it's a their maybe size some of deposits. mentioned of are it's What's understanding the doing questions reinvesting tipping is And but that's thinking from. liquidity, heavily driving growth, remarks bit dependent contraction. they the balance into customer of on businesses those the

Yes. interesting That's an question.

think everybody's now. right I kind safe it playing of

just a for storing down the companies maybe reassess out little out now a the their people we winter, but prudent because, buyer vaccine an when comes this with juncture, thing see think, slows up what lot a and to harsh It's acorns think, being I really interesting don't do people bit, additions conservative and lot thing something But will know. their and a a massive going I It's stacks. business. which going I think just big right I is of anyway. don't are or they're of like at they're doing

yes. Yes,

Okay. the to Thank ski this resorts winter? do And you. No, that's good planning know. open to extent, you are know to if

to in together going of great your have year. putting and the open do better kind much really lodge. and information they're a lodges closer to last keep going to But thing to like going and a you car with they're some than the they're anecdotal that mountains year ski to think because, be like seems have received is some pretty resorts this interesting a we've number be right get of have people. to year reservation saying now, it's it year Actually, Yes. they're some ways the the to going are the your anticipating, It's they that had of

-- is indication, snowfalls recent are our good a to going if any And they year. snowfall have

have a ton Yes. snow We of here. already out

already snow. You got Wow.

Okay.

summertime well for situated that with to saw thought the a being people going that, terms there's virus, and a an just in my there's be winter. fair? way. the Is continue So, it go probably them that And markets you tourism socially to and in of sounds distant in like into hang place the the could out influx your of to is

tell move say. it the months. like. through to will Time That's what be fair to appears we looking as That's

of the Yes, all customers one yes. of then maybe any new opportunities you as are terms obviously wealth deposits me, No, getting just customers for lots in management last area? unknown. new And getting and loan one you're just these some in in the future,

We it clients, forward. point, would expect clients haven't so, is of on a area really and this number at we're but to focused going substantial that seen new new an I

Okay.

Okay, great. Thank you.

Jackie. Thanks

you. Thank

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

Thank you for questions today your guys.

As welcome analysts you investors reach today. please always, us, tuning Goodbye. and we any calls to from for out have our Thanks you can questions. if follow-up in and

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

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