First Interstate BancSystem (FIBK) 31 Jul 222022 Q2 Earnings call transcript

Hello, and welcome to the First Interstate BancSystem, Incorporated Second Quarter Earnings Conference Call. My name is Harry, and I'll be coordinating your call today. [Operator instructions] I'd now like to hand you over to our first speaker, Lisa Slyter-Bray to begin. Lisa, please go ahead.

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

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

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

of our so. Investor not an copy on start I'm updated release, believe joining The we do Lisa. today. you interest be And had have helpful. details yet, published call quarter. an and will overview in footprint, on successfully of Core to the that highlights has the entire performance website. then very And additional our the in a accelerated you net asset Relations our growth, we be our investor and good along accessed with earnings further providing turn team our I major in to morning, the loan I'm from pleased to encourage us going to thanks our all quarter, Thanks, if for improvement addition on have disclosures by financials. today quality, expansion Good you that conversion. across this provide contribution call Great again presentation to of quarter. I'll margin, can resulting presentation Again, downloaded with We more our to System this Western in the Marcy significant on over executing

resulted All share, other as this in in $X.XX acquisition a some excluding our of related and items. substantial earnings per we profitability expenses in generated increase

revenue strong benefits our see merger, economic accelerating than with XX.X% our loans. In ratio in healthy conditions X.X% to XX% from We adjusted improved progressed, quarter, production the of which as are the prior excluding XX.X% following higher growth markets, our quarter loan contributed June. annualized our annualized growth, the scale was period, ending loan the prior particularly as to throughout Underlying growth, of PPP XX% to our the the increased month the growth given performance, second strong with quarter. our our starting efficiency from

and capitalizing third we into half year. the this Our Headed pipeline the momentum, on quarter, we strong well resulted in a balanced second portfolios. in the production of have increases going of the major are most into

legacy the level the markets legacy higher the seeing Overall, Eastern rate network with a including in the leading with every year. second Interstate loan Wyoming, last First which, of an Washington growth First Montana, We are with branch Idaho, was you contributing pleased quarter headwind as particularly XX% in growth know, footprint, Interstate of positively, market are the had charge. we annualized

we always, a was basis are of reflected it new in was second discipline first production As average interest the our result, the in new And maintaining loan impact production than in pricing. higher points the our XX The quarter. on higher rates. as quarter rate

higher our in in from intended us liquidity both allowed to benefit assets, basis higher interest we net into rates, to we our assets, loans portfolio. discussed As deploy XX in and resulting of a earning This yielding excess last margin. increase interest investment quarter, more the points

More importantly, quarter. We saw expanded our a to the keeping on XX margin our our - of X.XX%. with our core earning in increase assets funds cost prior basis points core significant while flat net yield interest

little our non-interest-bearing a bit by the we deposits and interest-bearing declined than in stickiness the FIB more the of legacy deposits performance our and footprint While anticipated were encouraged of the we overall. demand originally quarter,

of During expensive the not part portion non-relationship-acquired we retain large quarter, a chose as attrition balances. our on was discretionary to the

strategic shareholders we quarter Additionally, product repurchase our increase our activity. are the our drive second financial capital and during here. this approach to able of to from we with the performance of share client incremental taking pricing were strong in environment our With return resumption position, capital a to and growth proactive and to

some shares price During And results. annualized to with ahead, yielding an our call details the Go paid second repurchased common dividend Marcy. on I on at and quarter, second that, quarter a we to of a the will $XX.XX basis. Marcy X.X% average stock provide weighted the additional X.X turn of over million

morning, good Kevin. everyone. And Thanks,

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

from significant will the merger. the portion Of course, impact a Great of variance Western be full quarter the

through So just items, I with my on statement. move other focus notable start and as will income any I review, I'll the

average improved an along saw in as $XX.X million, we with interest income yields increase net Our assets. increased by earning

quarter basis prior the XX interest Our to from points margin X.XX%. reported net increased

accretion prior a by purchase PPP yields income, at assets, was accounting favorable basis X.XX% our our interest unchanged of points. shift net XX basis our related in margin increased driven our XX adjusted increased funds quarter on and from mix earning while and points to Excluding cost the

excess quarter. on second redeployment the basis, increased earning from an of average XX.X% the With to up liquidity our in prior quarter, loans continued XX.X% in of the assets

current of our interest continuation asset purchases anticipate Looking expansion ahead, see mix we of We a continue the net changes a quarter. to to yield. security be to the factors. continued positive believe we're third due into a well positioned Investment margin number to in book earning accretive

production the higher adjustable and And rates at rate currently the Fed or increases. at continue on securities above roll-off New books and is to is yields. rate from recent loans coming will benefit loan variable and

as of into as some offset quarter this to the a more this third on to we seeing provide will clients. attract believe, raise anticipated markets, what funding increases deposit new can pricing All beginning advantage local in we're competitive head costs. based than We're our we us to our

any our deposit the result, our a we cost funding yield to to coming expect expect higher and exceed that costs increase assets As in in quarters. quarter. relatively into should the a cycle, you see still the to over increases on earning next this should beta low a of said, That see deposits

payment market impact the to the allowed under results to Great from assets the adding from million. Our We saw Management business management Wealth businesses, $XX business. continued wealth negative Adding Great quarter $X.X pullback. full services strong quarter-over-quarter Western's total to non-interest offset our well income increased as as Western's of us impact million

revenues Excluding the $X.X servicing had million flat. mortgage recovery rights banking mortgage impairment we of were our quarter, last

headwinds mortgage, by approximately driven of made management, that expect Going fourth outlook, from will wealth million forward, them for and non-interest to of on lower us swap rates. our range remain we the new a markets we we as market help million. demand from the the to the income given million, to offset $XX run we head year interest of the the last see have adjusting relatively run the $XX stable into half as from incremental When fee reduction the volumes compared overall be rate resulting XXXX, should back with to income, $XX rate down the higher production increased slight quarter prior mortgage and rate quarter's expect we

non-interest to the attributable total what Exclusive we expect Western's acquisition-related $XX.X to expense. non-interest primarily quarter, Great operations with quarter. one of of our increased million expense month from expenses, Moving additional was the told to which last consistent and you prior

sheet. be will million By quarterly the operating more we the run With expenses fourth for the expect Moving core to balance realize cost approximately still rate we savings transaction. quarter the of in system now May, to of to conversion the XXXX, start our total $XXX of projected late for completion the

growth $XXX prior for ag. our with held excluding of the end loans of Our investment loans exception in all increased PPP portfolios major million, the of from with the quarter

of June remaining in As $XXX,XXX net approximately balance associated of fees. had of deferred $XX.X sheet, PPP loans loan remaining we on XXth, million our

prior Our investment continue to rates. of as approximately billion the of the quarter, portfolio from advantage end by higher we increased take $X.X

a interest in that $XXX impact million, million of million fixed - $X me, $XXX was the the of years rate when duration terminated or a At years excuse of swap portfolio end also X.X We XXXX. forward investment $XX.X through This forward starting, remaining will the Xst. income X.X include accreted hedge. gain the May million into resulted quarter, be June the on starting you our pay

On the liability side.

to cost, base in total legacy outflows year-to-date came we the X.X%, was over decline of our saw attributable the deposits in but A our higher jumbo expectations in meaningful our deposit in saw savings from non-relationship the the first which line a Great carried $X.X and growth remain from decreased Our runoff that unseasonal Western. intentional of given Within portion deposits balances. we primarily of quarter. billion, decline footprint, CD with

demand the which typically quarter, position the flat base. this our liquidity strong our aggregate, balances deposits headed into stability In we deposit our run-off non-interest-bearing that of cash interest-bearing in quarter, see of just about Given out during balances. funded reflects our and the were we core

charge-offs, with which acquisition. We the in loans the the added the across criticized portfolio the Moving of assets classified strong was level portfolio were loans criticized our or and saw point problem to driven just of asset largely one our low Western The loans net The progress performance working quality. non-performing reflected loans. average trends and in in is of also $XXX,XXX in through continued declines in quarter. loan basis decline very by Great positive in

the was last declined economic portfolio. our in Given offset quarter, a to positive by provision negative loss more toward allowance million. the a Relative the $X.X and million bias trends the low negative a portfolio, trends outlook of positive in we recorded of for the level the $XX.X quarter,

portfolio, loan PCD as allowance there sheet, a goodwill. acquired and As release loans, to the was remain This balance of net investment $XX.X for resulted while our our XXX%. a held which our was part the of in loans coverage percentage reserves acquired specific of to adjustment at loans certain non-performing of on reevaluation of as million a to of booked unchanged brought X.XX%, relatively reduction an

As credit held marks on resulted had regulatory after I'll call a X mentioned, loans to in that, investor increase tangible back the On and goodwill impact over just to basis, Kevin. further adjustments with these the adjusted portfolio. of on we million, our presentation, the of to in tax the acquired And and sale to PCD initial I noted also for a slide a combined addition the $XX.X capital. turn of decrease corresponding

our Thanks. with up Thanks, Marcy. on few outlook. a comments I'll wrap

remained we remain a activity, or on loan in rates we demand resilient, markets material our impact and quality. loan have see or growth. positive Our production many not strong higher economic Loan asset catalysts seen continuing for having yet and pressures inflationary trend

than our from well, already we believe I performing who we to us capitalize and work we Omaha with the acquired markets better markets. place This are where have from continue and activity expected As new footprint. more seeing mentioned First development where joined accelerate on colleagues And earlier, are Colorado Interstate Great Western our legacy we trends efforts new very in markets. Lincoln these includes leadership area in and business in can Arizona, put economic effectively the strong in we our to

it loan headwinds of higher, will we move decline a payoffs, to one Additionally, that which are than rates see likely in less growth. the as is

of that and optimistic catalysts we the over seeing, which we digit is the growth our these a half Given from improvement achieve mid-single loan second outlook are can trends annualized we year, are quarter the the ago. an

capital that initial been credit has proactive we take resolve some you of shareholders. loss our through are acquired the of belong to assumptions. for responsibility improved, on While acquisition, those the growth able proud be it all noted onset outlook should inside of that and that We management that We to benefit very the were our the well we challenges continue practices, our of recoup seriously, that the marks marks credit to constituents. we've told

loan levels As expansion, with the targets. run the in profitability. synergies Marcy to expansion in continue lead see net of excess we us, cost after Great core now the repurchase behind we more system the this the should our capital growth, improvement margin And continue margin. Western even to of from finally, our from projected savings activity, realization conversion internal more to of seeing we quarter's expect continued our of we continued mentioned, levels in merger combination And of interest merger. some will The that

to macroeconomic continue perform environment. potential the markets and recessionary are we the well, mindful concerns of broader our While

we Given successful perform I very end in of in end entire how well materializes of at want are well our has to remarks the for team to been positioned we a of whatever prepared May. the economic strength we the the are franchise, to what type believe reiterate proud environment my of conversion future.

right noted that together synergies the we one. the our Gallup organization, of similarities experiencing our coming two as from are positive we result poll published in cultures one sign now the a And a organizations are heading have of We are onset. The recent survey our are of direction. the we

from employee XX colleagues this support happier to our we acquisition, Believe agreed all encouraged our This related of sponsored Grant in have states. million could not has across donation in our million $X through the Lastly, Campaign. footprint foundation in as to across the support local, be $XX for our donate to not I this effort. footprint with the of part profits for Local

cohesive We are truly company. as one moving together

open comments. we'll call up the that, with for So

the Wells Thank you, Kevin. of if your proceed. line Shaw now first is our instructions] Jared [Operator And of is Jared, open question to like line from you'd Fargo.

Hey, good morning. Thank you.

Good morning, Jared.

on credit that the bank? was the migrating there? and Western, toward just Great the performance one at, the provision, side call or and everybody. the be Maybe starting it, XXX we day most level of just guess about with ratio reverse of much how and provision that here then Hey, provision the thinking better reversal I And allowance should combined ex-PPP how

million was reflective of entire the Jared, credit portfolio. know, of So of the provision That reversal the of you $X.X by slightly really was quality offset kind bias. a negative

factor factors. qualitative higher for macroeconomic So

we outlook. it by of terms a day at In economic which probably again, around one, offset negative to and XXX see day do, to more be of now going to we continue toward will as credit CECL negative slightly we one, as improvement, back bias we're expect a were XXX

any So negatively in way we'll or turning was conditions another, would it's see the not one. to are hard today. quickly unless It of shift it's big only stable to I basis from we economic points, the we day something say, X expect more than to how stay kind go it here. back one

Yeah.

add I think bit, a right. Jared, to I'll just that, little

asset will think at, the asset they quality offset though little other, we I the macroeconomic factors that each they looking right believe the we're now improvement continue so to in short - run, in offset. is worse, they thing even might improve be might all get bit could a quality macroeconomics,

pretty this should something point allowance we changes. So from drastically think until be our much stable

Yeah.

be about in to pace terms appetite the thinking the out? should work that any how sort Great resolution? for that, remaining that of sales of trying or resolve you're And Western, of that Okay. Or we helping then continued in loans the to from like change either

I is wholesale you the selling the Jared, expected. The of to through not I just and thing think it think rid well, is that the of getting of we're as working so. at, of kind look - any way it. going going very It's loans, pace we it's be going is

the through end criticized will course likely business north the and of held come work sale the in the just off year. We'll the Yeah. of for by book most

data been funding the to on is you've then side, low, And Thanks. which able Okay. great. keep extremely

how we defend to or for the go look potential forward terms about stability we of does thinking in you'll this from with here? deposit mix DDA what level As be here, should at beta? And do deposits the growth how

Yeah.

I sensitive. that think these with you last cycle, – rate pretty asset our afford know, because we're very we deposit aggressive pricing were because could it we

last beta we not which the we're see saw – so it And look, that going was to XX%. about time,

able to to be position are market. think We share the the And fact are of - to our deposit we other I in within banks defend have the costs. unable our unwilling to ability to our some it's product give going some that increase pricing also, area due or market to to a employees deposit the increase take

some past market to future areas So the of possibly And our specific we're going going projections do either. rate be deposit hikes. the the we in at in that share. beta saw will into it to But not it's not price eat defend raising and earnings to grow

And then trends of finally still the of great. similar all? slow started down me, coastal from at to into on you the in Okay, areas? seeing just -are for some that has update Or terms migration markets any

No. and robust. It's pretty continuing, it's

economic we kind have So activity it's footprint, is yet. not like we much our in come down said, much that strong, seen throughout of remarks, my pretty and

Great. Thanks.

if continue your line question. And line of Jeff, our Jeff now your of D.A. is from next open, to you'd the with question Rulis Davidson. is like

Thanks. morning. Good

Jeff. morning, Good

of closing Gorzka Andrew Rulis. This deal a specifically on is had on conversion, I question actually the to just deal. Jeff the for [ph] and relating

has guys seeing departures or just net Now both of that new personnel those, gone? we're you additions? flow how Are wondering through

question you again? Can clarify that

conversion through the and we're of Now GWB. closing that

you your employee are about just Just departures? flow, seeing additions personnel guys team wondering or to

is that talking the unexpected of in you're employees Western. about you're Great Well, area? Is thing - what and talking departures about that

Right.

I frankly, We're people typical quite - it's going banks. back of seeing and bank, to we mean, of lose normal anything outside you're and no, from some But not there. in a banker a here other swapping forth

see So on. we of no, really stay we that wanted major do any departure employees to not

wondering, And for expectation gain Okay. mortgage/ question, just second sale you. XXXX, Thank on for

I think comment too at that little a us bit know, on to that's early this point. You for

we across we think out intend we've that roll Great I about product digital Western have to before, talked a footprint. the

So I'm But not that increased speak to to point, going some XXXX product. at hoping volume see this from we're to expectations.

Thank you. Okay.

is was June question growth to Next guiding in mid-single Loan pulled in in hard. digits. anticipation Was demand the with in the due June getting XX%, of higher rates at now forward future? to and growth

No.

be will that like in little I think and And digits, - off was think fact just we're past going growth we've have or fourth in be the when the I you lines that. I it in harder quarter third quarter seen a due the like seasonally [ph] where normally to say know, mid-single a good the quarter. to we you think the growth fourth stuff will pay

you that headwind. have So

mid-single we're So that's saying digits. why

know, but hoping digits. be we're than why targeting You other, that one mid-single the quarter we're will better that's

the into be year, so That's Yes. of second just to the half clear.

me. you. Thank last it. question And Got from

CETX and the going wondering with TCE about linked quarter? Just buyback ratio ratio at down the appetite forward X.X%,

we Board as and million, think still $X.X at regards move bought do to I million, believe forward. our we look thing position the the have continue capital will to And authorized - is buyback repurchases. we we Well, share $X excess and we to with have we back

quarter. Congrats on you. the Thank Okay.

Thank you.

Thank you.

the question. your Stephens. line will open Stephens, now. like open would line to you is question Thank Andrew Terrell Andrew, And with from of proceed our of your next be if you. of your line Terrell now, Andrew comes

me? Can you hear

you. we Now ahead. hear can Go

Hi, Andrew.

Hi, Hey, Marcy. Kevin.

start of run in for wanted million I that. the the $XX cost about still to limit saves. of some any rate? has was XQ. does on rate expense realized maybe opportunity the of announced maybe XQ better ability? million expected, by that kind And do you reiterated the that annually I to been when $XXX Or Marcy, How million much the think investments, I Sorry you do inflation, side, to you think, deal, $XXX continued curious date? than there's run

I…

Yeah.

So Andrew, we anticipating on where in that going are quarter. other changes not that any we're or fourth to $XXX seen us line the be. right inflation to investments take we're million above expected with we've other in that based

Yes.

Andrew, think another it - I'll way. thing the is put I

I are think of in bit some anticipated, have seeing better creeping we're than a we the in. we but that little expenses expenses inflationary

some are wages pressure other in the putting that Soaring areas. on of

of So than we we're I because is offset better where because doing seeing anticipated. being costs think inflation we're increased

Yeah, understood.

how a Okay. like And of just announced percentage the do date? saves much you realized cost have, total to you've

you here, all - are that. back of my They're are head. kind let's people sitting on finance - shaking They their to get

Yeah, get to can we back you…

- Yeah no Thank and you. problem. then

of most will the the the year. But Andrew, half in be second it, of

So again play conversion may okay… in, so,

it. Got Yes.

move the to bank looks growth actions Or net overall thoughts half. deposits. year? in half higher pricing the of the acquired to back move taking those what the of you're cost the of It then prevent on in Wanted the And any for over to or quarter this of Okay. on just anticipate more of you Do some second deposit like expect that? out of kind do of the mostly kind you from kind balances. was runoff higher the beta

that anticipate Yeah. of any would those to great second we say in That's that go saw I we amounts out a don't quarter. large question. the

maybe outflows. what deposits we're But will pricing much around other at from our the to tide pretty remainder of year. of flat stem the looking being think with the here I is

on Got question ratio. really just The And last sound efficiency just the - it, solid. trends revenue okay.

in XQ, it you rates ratio, the think Do this continued number like -type can low got down Fed benefit half? savings XQ. get through, the do efficiency you can coming a it improved XX% you the in from but think lot to You've work cost you back interest a quarter,

We're hoping. hoping. We're

this were we we continue to quarter, than lower come go down. We'll yes, Yes. should

I'll questions. my taking you appreciate step back. I Okay.

you. All right. Thank

Andrew. you, Thank

Matthew Sandler. next is of from line of open. now Piper question your the is our Matthew, Thank line Clark And you.

Hey, good morning.

Matt. Hi,

Matt. Morning,

of by Andrew, run one a comp, there if follow to growth for core but in not we than fair realized Yeah. to you like Shifting saves the the we even by end assume up core That rate amount year, good NIM, to going know the ask. on was mine seem annual of what that that that come June? I whether a was the cost trying in happen the does Do be if might a left core to still should and can of down Just saw of NIM that. sense or you your It question some expansion here larger the XQ? margin we was average get margin. month there's to might see in core be

don't we that give Matt, So, information. out normally

so going we cost have of net have core little of Again, our to even to loans XX% do bit - higher reprice bit think to quarter. And see little interest of a are it that. we continue funds, our expansion a going we I'm leave margin just immediately part at of that I should portfolio investment if next

it going expand. just tell but try not We're will be, you to number might the what to

rate know Yeah, a of you. on might we - deposits kind deposit to - lower No. be or out see. you I trying the in you offerings on going the mentioned then But hear that that comments be is XX the guess your ratio. cycle, I deposit the increases be I'm did promotional beta to this some cost on to the quarter I and you basis spot might of coming rates given of kind it right of no kind now? not might any stretch, on to on for happen points promotion loan hone using reason now to,

ahead… go - that's So

who the to it We're to market. promotional the start at trying heard of that on about we're offered, those our to come talking to - rates not it were be rates we're mean little first look so But are Well, be a trying it. up. going I earnings I protecting premature to bit all, be the going call. haven't feel will

credit You have unions there. out

of making other are there customers, have money. offering a return and banks online money, You a we're that lot their our on want out

surgical, So again, very we - that deposits return. areas we're pricing. kind have - of in if I we're to to the proactively that to to just it's to very move we to have in to increases, be customers give direction. try going But going and customers price strategic, to where But and cautious. trying be to think our to think We're go want we hog our wild not going I have with that regard we believe

Okay. Thank you.

instructions] open. your line Thank McGratty proceed. the Chris And Chris, line is KBW. question is next from you. [Operator of of Please now our

Great. Thanks. Kevin the I'm prepared balance your sheet remixing or Marcy, interested the in remarks. comment in on

the You down cash in took quite a bit quarter.

flows then to two off some be there'll flat you And amount remix bond book. if guiding monthly quarterly What's also, So presumably, what or the I part forward? And do question. you're that the Thanks. deposits, cash think - guess the run? is reasonable of cash you going maybe to need

Yes.

I to of cash to a $XXX holding cash in deposits, the So would is going million. $XXX coming flat. to million of regards balances, the investment part we're And to your of, say, was try balances below portfolio quarter. about regard question flow the hold off Chris? With cash What

the will Just on up… an average basis, loans come

Yeah…

Quarter-over-quarter.

We expect portfolio runoff. that we to growth continue can see some of to loan with fund that security

Got it.

get the thoughts just given interested strategies to pricing of or sensitivity lock the months? any do about a in what there seen steps I'm in. market reduce is next Okay, kind if cut swaps futures we or great. peers, of might - And asset your it reduce the in be some doing take you cuts we've to lock-in some for of XX

rid little bit we why of flow, got Chris, to into leads of changing the sub a So balance million the and to [ph] rate swap, rid start down that's we that a the - of That from Yeah. did why we - got protect the environment. sheet some that $XXX

was have that another at So out $XXX actions. we're one that there. took swap We looking and million other actually do

interest one be I looking we do at and but taking cycle, what portfolio you're to in do investment one We're whole So how rate want we all But cycle. invest we trying in that. didn't rate hear to we saying, of to want interest we don't are - that. at just looking like the it are cautious

Thank great. you. Okay,

Thank you.

further We being this no time. at questions have registered

hand So closing any to it's Kevin my to Riley remarks. for pleasure back

to questions. Good-bye. And and as in your investors the for follow-up any analysts. And we out you thanks for today. tuning welcome you if Please to our questions. have call always, from calls Thank reach us

the call you your everyone today, concludes. now joined Thank disconnect who to has this line. may you And