First Interstate BancSystem (FIBK) 26 Oct 222022 Q3 Earnings call transcript

Good morning. Thank you for attending today's First Interstate BancSystem, Inc.

Third Quarter Earnings Conference Call. My name is Bethany, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end. now Lisa pass BancSystem. Slyter-Bray would to conference I host, our with Instructions] like the to over [Operator First Interstate go ahead. Please

our Thanks, joining Call. Thank morning. Third for Bethany. Conference Quarter you Earnings Good us for

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

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

of have yet, you published Investor Relations we so. off all we additional provide a more on presentation again our Again, accessed today morning, presentation along if release, the has investor the Lisa. quarter, I I'll going downloaded providing believe call our of financials. today. updated highlights turn Good quarter, Marcy thanks to you not encourage to call copy this I'm be to the have our of us on an for you website. by on be do that an will can earnings Thanks, then overview and And over The helpful. to and disclosures that joining our with major start details to

which included will of did another of $XX part loss quarter, related the some in the we of $XX.X our financial of later to call, a margin per million in $X.XX which we growth, we a a investment all acquisition which on accrual. as repositioning performance. net During litigation continue $X and the quarter, portfolio, in million quality, income expansion meaningful positive improvement securities the resulted in expenses trends share or million the and sale diluted generated asset the third in discuss of in see of We loan

and all are structure portfolio. of seeing ability growth healthy in higher the rate over improved our XX%. of increased of and profitability the demand total we capitalize footprint across and our in quarter, across the of our share net growth levels resulting on $X.XX to per these commitments from driver growth the funding annualized with very XX.X%. markets prior significant our a strong generated Excluding a on an in of the of loan contribution a return had items, earnings was equity The reflects this company pricing with Loan

expected, we out coming pleased earlier our than are through headwinds acquired see portfolio. credit-related net growth working We to our even of while markets within new

our the potentially be along could However, and is have diligent setting on portfolios like the since up are back half our residential, best types selected to environment footprint overheating. certain lending, The Interstate. XXXX multifamily that keeping with I consumer be eye joining isolated of we and First of remain pockets of banking seen

with backdrop, new stable has strength the we quarter. and yields footprint and allowing to on approaching economic production the to Against X% to Our continued our have win structure of active, balance experience us sheet. been required we healthy competitors conditions saw capitalize less that pricing in deals our the

has fund said, outflows to resulted during mainly our points to further -- That deposits we for relatively deposit deposits, base of another stabilized loyal, position over in It's the strong, points to has positive rates adjusted has the flat. interest in of out base, the expansion funds. half and appearing stabilizing up net right has result our the successful foundation momentum the as our combination slowed a lot as liquidity, side, to the basis Last than with net to which acceleration the rates driving high-cost are relationships and the to realizing the and cost quarter third add we XXX resolving growth want of in acquired we excess expected, on offer of a low-cost concentrated of marks serves give positive willing a XX long-term noting quarter, basis without growth of have who customers the the to profitable continued On repricing in the let the that to begin expanding faster XXXX, the is October last to Grouted integration execution during at end three strong and much materially now in of into credit have were selectively is quarter, ability would non-relationship employees, make year. ability asset retain active have problem this go a deposits lower to Western, franchise larger We're higher deposit the September. the for quarter, month interest margin quarters. both institution. well. Great now back our team of impacting and fourth a synergies The the our ahead of of exceptionally the which start entire savings is and adjusted higher utilizing a of our began projected loan to that be margin worked of through of worth allowing we plan. of of we worked of been anticipate decisioning the significantly municipalities. integration I hard And loans to in attrition high-cost us smooth cost our pace capitalizing

our continue conditions positive our as are we economic quality, to healthy managing markets see always, in we While and risk asset in in trends proactive portfolio. being in

office we is be size sale. result, industry in with no have not held criticized are two information on are the don't office the resolved decline to by trends recession-resistant in the a a These the work-from-home And market. the well as This systematic our It exceptionally signs being these two nonperforming remainder risk Outside the a this are quarter, concerns to any occupants some As the portfolio. metro performing smaller see and metro medical. and in moved property of single shortly. results concerns of of in the property. in we loans for significant credits office third properties, markets significant long-term on at time, in second well, by that provide like office quarter many should book. a portfolio took And I'll continue Otherwise, one that, perform both quarter. charge-off credit creating to with the the properties is concern and CRE of impacted this to Marcy and any turn evidenced credits we CRE additional our this any for over with call

everyone. Thanks, Kevin, good and morning,

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

$XX.X growth expansion. interest net to loan and due strong million, our Our by increased income net primarily margin interest

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

was our PPP-related yields basis interest from investments loans, cash. in adjusted our margin accretion increased and This increased shift earning accounting also prior on mix by favorable purchase the Excluding X.XX%. and driven asset net points quarter and to income, XX a

deposits XX assets. basis to on we call, raising indicated last basis we funds quarter, than began was average but third increase interest-earning on the which total this our during pricing points, more point As cost the of on our XX by increased offset

loans $XXX With from on million on prior plan average increased production to our excess deposit as an quarter, in overnight XX.X% funding ended can earning basis, XX.X% help growth a in To XX%, quarter. the source in loan-to-deposit up third from ratio of borrowings, the quarter, the added redeployment with temporary loan the loan which our quarter of to XX.X% quarter. the third assets strong the We continued up prior in be we of flows. quickly FHLB fund use adjusted based a that and we in liquidity,

number the Looking a positioned in loans to shift toward We net expansion see our fourth continued interest are ahead, continued asset to quarter. factors. due earning we we mix of believe well in margin in a anticipate the

the investment on purchases, yields coming environment. accretive flowing off cash or the current trend the above extent book lower-yielding production they into is at are higher books be investment loan yields. will currently would yields rates today's New loan with roll-off security the higher at there Otherwise, To is securities to and portfolio. in

loans, earnings. $X.X saw rate increases. Additionally, accretive XX% sale Fed of and quarter, to $XXX end roughly reinvestment effect will million to the at And will of the as benefit the securities mid-September billion rate rate earning run the deck, recent cash, course, of is future the and from variable of the treasury you the in investor be assets immediately continue of which of

than costs. of will All increases more anticipated to offset some this funding

cycle. we Although in deposit we seen to be rising prior rate on XX% continue the our expect we've to below date, that beta to based interest had trends interest-bearing

will loss securities. EPS year Our deferred gain, mid-September sale in which from U.S. income the million, the previously swap $XX sale we an annualized the total the yield loss. terminated On which on investment realization accretion in to on the million The on X.XX%, we the due sold of noninterest $XXX $XX.X $X.XX the $XX.X quarter. primarily The of a proceeds loss of the X, which had reinvested million. earn-back note note the note were of down September to X.X million at and last on netted decreased triggered average result Treasury quarter-over-quarter the to

income mortgage declines Excluding banking and offset securities and an further from by was swap prior in noninterest our revenue balances, investment declined as million quarter in increase management. the to $XX.X million payment wealth $X.X services

footprint. Western the continuation Primarily due declined swap by of and valuation run quarter, from prior excluding changes the expectation As the environment charges $XXX,XXX impact NSF driven impact lowered income, the mortgage, income have our million unfavorable expected, Great the $XX overdraft the to wealth service of in fourth for fee to million changes. any and from to MSR quarter, we be our for for rate $XX noninterest

increased acquisition expense total quarter. the noninterest and to expenses, $X.X expense. Moving noninterest million our from litigation-related Exclusive of prior

While the in higher Western salaries were and declined by efficiencies quarter, performance-related compensation realized offset Great from the partially accruals. wages acquisition

in of the performance the losses, donation were million Our $X for expenses insurance, rest also responsible fraud FDIC Increases and increase expense. IT in resulted in advertising an of variance. our

we from to the prior in -- fourth range XXXX. XX% adjustments to directly increased for of outlook tied million expenses million performance-related quarter. be the to is Approximately the to $XX expense ahead in expense to quarter the the now quarter, $XX expect fourth fourth of Looking noninterest

balance Moving to sheet. the

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

in balance of remaining only $X As our sheet. XX, we September had on million PPP loans

flow portfolio decline Our the duration a prior million quarter fair At the value. of in portfolio was end cash to activity normal end of market the of the investment investment from $XXX the years. the due quarter, and decreased X.X

straight-line a $XXX XXXX. in pay million be the accreted an through that income swap, which million forward-starting fixed resulted $X.X quarter, gain third our we basis into During July terminated on will

the that the related outflows municipal business to related deposits moved side, and and deposit is with remained off balances current as On to million, and deposits we mostly total in third July decreased relatively due over our practice. the stable. Management liability our sheet, Great of occurred in $XXX the outflows deposits our customary Western balance August, $XX quarter, mainly to million remainder Wealth These

noted in deposits Kevin are earlier, October As relatively unchanged. total so far

criticized to of across in loans XX% acquisition. Moving which was decline reduction we positive year-to-date to assets asset Once criticized allowed to and declines Western quality. a and restructure loans in the result with again, rated us saw of upgrade of XX% the many The trends we've largely loans. in the Great the nonperforming portfolio taken, charge-offs a added

quality are are XX pleased at Western asset September pre-Great metrics We the that combined already levels. approaching

to for this quarter Our $XX was were million or two net of of charge-offs was of attributable to resolution one against acquired Metro loan XX and an held related basis average earlier. related charge-offs to the net the that discussed it, property The credits: restructure a higher loans. loan was quarter Kevin of that other reserve the specific points office level PCD the primarily the

million the credits, recoveries resulting economic the conservative partially credit for a forecast was for a more in $X.X Strong by third performance, in two had losses loan net these growth improved Excluding quarter. we provision the of offset credit quarter. and

our our outlook. the approach forecast and a reflects allowance always, with methodology economic more taking As cautious a for we're input conservative

loans While basis at at compared shares at declined back And stock exceed increased $XX.XX during of to authorization, loans I'll And coverage repurchase quarter to September investment points and percentage repurchased completed strong few XX share quarter, at the for which announced our guidelines. internal X.X a million our previously XXX% the the common our Kevin. policy X.XX%, allowance for as to continue prior capital finally, to levels so, quarter. even of share, that, million call X the of we our our end held of end with the turn the our per nonperforming to a XXX% remained

want just to million. the a million to $XXX our going of noninterest On of to forecast in you, bit for the expense, that some to the I numbers misspoke. update talked Marcy. Marcy quarter $XXX range be Thanks, of little it's

with up So with other wrap I'll a comments. few that,

We quality strength The continue leverage operating cycle expense saw positive approach margin year-end, growth remained our and risk expect the trends we into seen this our seasonally to to The improve. generating and the to should financial remain quarter. to slower through Loan to and than third solid likely strong our in quarter. credit our management. at a continued while continuation committed of pace sheet tailwinds interest although us positioned net positive leaves well balance conservative for shareholders of control returns remaining the continue should

that banking newer Western revenue opportunities mortgage continue Chief ability businesses, long deliver make underway our Specialty merger will the including efforts areas and who While profitable expansion to near recently to performance are The term, foundation businesses growth we generate continue and We targeted these enhance financial strong further the Banking XXXX these to company Great we the term. in the our a us significant will Officer, our the investments synergies indirect the to across where building services remain. added into help realize and beyond. markets currently over oversee lending, of in in payment for

dividend to profitability a comfortable payment, believe teams a it the on our profile with economic our increase our value yield of from we we pleased seeing bringing with across current our that have we strong robust to never balance position footprint, long-term we near-term through quarterly our a and price. the potential us the financial better build While stock execution to our shareholders. $X.XX for our should backdrop stress leaves period manage been in a are to franchise in with of creates and announce ability environment emerge. X.X% confidence are in outlook, our current And Against strength economic some our sheet, strong uncertainty, our feeling

call And questions. the I for up that, so with will open

is Our KBW. with line Thank Please from Chris the ahead. of you. Instructions] go McGratty question first [Operator

morning. Good Great.

Chris. morning, Good

for question Marcy, first maybe you.

referred your rates, in, And loan X.XX% you in margin of margin September? interested in I'm the you was Your the interest-bearing of margin to given deposit the quarter, of speed spot kind -- yields? had that of also, in core kind of if where month

then deposit PPP so September again, the for accretion be XX September. And income to average are So, excluding X.XXs operating in margin, about the high basis, costs September, X.X%, month and basis recoveries, and would yields loan interest-bearing and the points. operating mid at around of then at

guess Great. , tough into there's then path expansion that. is you I right, like Okay. curve forward the to a decent XXXX. the forward for assuming Thank And assuming it would -- but continued feel

you remark and So that, I guess maybe ultimately, if a could could, on environment. you think margins where in this go

Yes.

is we Yes, we're there's where next year, assuming margin not but curve to might the agree going decent forward we remark for on path up think end a the right, that expansion.

will as there, assumptions. as your be ours on math Your Chris, based good

sheet you more cash the that. what purchases to into investment mix presume maybe it. about just mean question. helpful a in of balance month. fairly the loan be you per deck guess going portfolio color large Got Thank the I you're a put and in I for new have selective was And do book. flows I and money

Yes.

correct. That's

one, I you just to off early year, I on Okay. And expenses color about left think then how cost guess, jumping to XX% on 'XX? that's and in maybe could. I the point do What's that then And tied cadence guide number? for next gave, into last we the saves relative performance. from the appreciate the The not if

part into the million So performance objectives. off you of million, of $XXX to XX% that’s core can rate million like going expenses back if are that next $XXX that of run the $XXX kind $X part its of you that safely But $X at related midpoint guidance, most million million look year. for as to to

Okay.

that cost the would be would number? saves be full in So that --

Yes.

Yes.

Okay. Thank you. Great.

You bet.

you. Thank

Our go from Clark Piper Matthew with line the question of comes ahead. next Please Sandler.

morning. Good Hi.

Good morning, Matt.

Good morning, Matt.

$XXX what's here? outlook discussion, was what for the Were it add those term overnight? borrowings. looks like and costs? borrowings from on million margin about the your not, those of And out Just rounding If did you

And those just overnight. deposit are go they the -- and portfolio off goes down loan and into up based what and on we rolls growth. So will flows Matt, investment

to don't different I them materially quarter-over-quarter. expect go again, So from that

late were balance Okay. added average the sheet. And in the quarter? have then I double-check -- they to I can

in July. They started

Yes, they started in July.

as And Can from, perspective? Okay. fourth to the to and coming it's has a sounds stronger in speak geographic Thank perspective outlook, Got probably competitive well but seeing shifting a then historically than what it the you're slower, you. pipeline quarter. it. loan the where been growth from seasonally as it and both you like

to is it's growth but great. across loan footprint getting whole legacy, we is stronger speed. Well, With Western regard in looks we're a growth the -- the up strong, that geography, pipeline anticipate continued and footprint, the little picking Great

And so, part we're What of seeing good was your last production there. the question?

from Just customers coming regional existing larger competitively, banks or it mostly or is banks?

Well, new my that's it's I is as right Again, competitive there existing. already But that, a remarks there. said less usage now. in you it's environment, out tell out in the line would competitive it's

and I quarter that say structure saw we're and third we were in that the we're the at want. we we that getting fourth of type competition good, structures As the is price market the out we low and just want, would levels, last there. the and participate that today ridiculously didn't quarter there's seems like getting market. banks And in pricing the year, not it less things were

latest one deal And see it days? M&A appetite last and was And -- GWB just sure you wanted What's marks know for on in M&A. Okay. you I you obviously, prove the a to me success. these given GW the the your make deal numbers. then can that credit securities market on to for

acquisition, well So thinks was that Matt, that be this been integrated. should market a comfortable that's good I

I told me. don't know you

that about lines. said, invest specialty like company our on, of need We're As can to services. we on different so better the some to We're the continuing out We're I some continue Great in going to of on some talked get Western to modernize. in those the technology focused invest invest and of making we're synergies in we focused we footprint. products new to areas

when about to for continue I XXXX open infrastructure to going a that's position want to we the don't we're build to -- in going something. prepared. acquisition while be we at we're said When happen, ago, comes to probably, institution. like look but we'd we're know to a that So larger I have hoping in be want an a

Thank you. Got it.

Thank you.

Wells comes the Jared next go line Our from question Shaw Please of ahead. Fargo. with

morning. Good Hi, everybody.

morning, Good Jared.

Jared. morning, Good

deterioration, and with out I guess for over allowance -- as here portfolio as be GWB shifting that we specific the allowance you settling then ratio, seasons, allowance loans charge-off. of about reserve thinking sort think mentioned level a I but also Where should economic the where down to ratio? came the the the with quarter, -- this broader

around considering. Jared, be is think, you this right level I should what

Okay.

So around if that see see keep we the any to backfill growth, right level? this of loan we'll XXX% sort

That's correct.

Yes.

Okay.

can And income in the any you for fourth then -- Sorry. expectation what's quarter? -- the accretion

to deck, the five four -- in that's Jared,

Page XX.

XX Page the of deck.

look You number. what done into can then far so kind kind of and of back that at we've

Okay. And -- just then as

to scheduled accretion. Five to six. of Jared, five it six will

Got it.

I then rightsizing And of deposit Okay. here? should the deposits, as can that expect And of and with forward? the as DDA outflows we we some we -- interest-bearing thinking growth, look should sort go and from muni we this how of about mix be on we guess, at quarter,

because almost fourth a see flowing we special should deposit So CDs It's we more stay Hopefully, in same. have was into just runoff. much out XXXX, mix where CD expect growth I they'll wouldn't little there. maybe the Usually, a into kind of to stabilize. bit back quarter. it pretty the But

expect see year, to the we wouldn't to going quarter. normal growth of So seasonal normalized then next But hopefully, runoff, return a into could runoff. kind little And I bit trends. of fourth just back we'll

Great. had. all much. That’s I Okay. Thanks very

you. Thank

line Our from comes D.A. the next ahead. Jeff go of Rulis Davidson. question with Please

Good Thanks. morning.

Jeff. morning, Good

priority from sort the of side, thoughts dividend of finished Any of capital, thinking additional about the authorization, buyback here? the you up you've question pickup. we see but going a and I deployment forward capital of A on addressed the -- -- on guess, kind on M&A we if did kind

to the dividends, capital at we about and action use always we thing see we of look love And at. is in want different share One, of looked ongoing levers repurchase we with then we'd the organic institution and the and look decide always where to always basis we had there's talked and look mostly forward to first. Jeff, our at that it And investments had where But kind to we capital, stuff. opportunity -- growth take. pull. we're as regards at what on strength to an at

it's So to love our lot. generating. but to that generate type, We're ongoing an have I'd capital all a we're going

I loan into So don't loan go take growth, will organic think our but remaining all that capital.

So point have some to we're road. to going have decision down the

if that right the completion Okay. flexible. on Is you then, tools read mean fair? reauthorization, may the that, necessarily look doesn't And you just of that staying I buyback that sideline at

Yes, a summary. that's fair

industry Or then, expenses. over didn't that growth just for Jumping cost about 'XX Okay. kind guess endpoint you enter be do you at on $XXX of you're of the settling could get a clear how saves of maybe little have completely trends? of to to appreciate million bit Western, you. in view 'XX. that's 'XX rate Great growth tailwind into Great kind tracking that million Got Western $XXX expenses, I from to related if do thinking think I to And But complete? the more modest? a I much

doesn't we any get way done. do we over say away, we time. at the better No, get Great acquisitions, cost that right I are much The on, those rid that of would don't Western have a pretty linger saves

Great the us. cost of are the saw we acquisition saves behind all So, Western that with

and and of outlook is forward, something we to the stuff Now concerned wages where inflation go we're that have about. looking with

to growing So control, we regard can industry under I inflation that. norms with expenses we'll would too keep and probably Hopefully, our say track we from to get much.

on addressing? to think net -- charge-offs, as each? credits were the anything Kevin, two else you of shape. said basically, the do follow-on one it kind have in else charged And is, in still Thanks. you anything loan majority is the amount will, credits I office good at curious area was kind real looking there last the on that to And you side? off, up, in clean the of the that that the chunkier a dollar to kind then on other chunkier that said that's metro think, estate of the of if you're I one Okay. just you But is portfolio

At this all. on nothing more point, would the that at we're chunky any stuff come not seeing radar in. There's

with going So us. you Marcy to question. the is regards other side, that's kind But the of behind

Yes.

XX lines again, it on for the deck, for So $X.X that's office $X.X page million Jeff, the loan it that and the it's of out, property. PCD million metro

Thanks. I that. had. Thank you. Got it. all That’s I missed

Thanks, Jeff.

Thanks. Awesome.

Thank you.

question Stephens. with next Andrew Terrell Please the ahead. of from comes line Our go

morning, morning, Good Hi. Good Kevin. Marcy.

Good morning, Andrew.

Good morning, Andrew.

running of Most Hi. out in a move mine in some spot to do you square feel of you're good maybe kind over the go? good just quarters. higher beta a asked that of we off I as deposits the guess, if past of done But could have been job couple and already. forward? like Is I there addressed more deposits. any Or you've

think as Western. guess, of runoffs Interstate these like they a out We had realized. most portfolio larger again, deposit we're good deposits Yes. in than that I I And some came And didn't of out chunkier relationships feel spot. a Great legacy, come First we

most right of So behind that's now, look us. we at

to if hopefully So out, a be behind we of something goes chunk, us. it's going think most at smaller that's but

just what kind further that in spot then us And bond of the out September? book on with I portfolio, quarter. Can the And help are any month or the yield of of on you movement portfolio Marcy, a color securities repositioning the then, Okay. was lot efforts either securities this there, appreciate the the possible? all in

X.X% around It's yes. right going about is off on. three coming yield the So --

can't just the it's the I deck. Let number in me I top grab head. of that. off know my remember the

was the it X.X%, think at rate. spot I

What question, X.X%. rest Yes, the Yes, Andrew? of was the X.X%.

investment He's the repositioning talking about portfolio.

it's what's at right look to any going But opportunities major the and Fed We with before continue happen looking else just now, at do. do to -- to repositioning. is we're there everything we

small But expect there. maybe incremental balance should sheet you adjustments some

was September an average the the John. So portfolio in in The basis on Andrew, on its of month FTE yield mid XXX. the

helpful. Very Perfect.

Okay. Thanks questions. the taking for

Thanks, Andrew.

Thank you.

go a McGratty next Please with the question KBW. is Our from of Chris line ahead. follow-up

follow-up. Thanks for

see steps banks margin? appreciate new Is quarter any sensitivity. rate bigger steps lot with lock a down I some this You of in swaps to there what take you or to derivative some floors did. take or

looking balance managers. Yes. We're as sheet that at

As the that sheet from that balance upside as sensitivity do all redo some of of trying process we're picked a as our so is I to rates of balance don't up the that taking Chris, sheet lose said out here. that we've in asset-sensitive bit we're the prior, in kind we little of fall already being and

So balance less sensitive. we the be are asset to repositioning sheet

Okay. Thanks.

time. There this s closing to additional to Riley pass like are conference back for Kevin any waiting I the would no at remarks.

for your thank all Again, you questions.

always, Goodbye. we calls analysts. have reach and follow-ups for Again, you any our investors out tuning if questions. us in thanks from today. Please welcome to As

First That concludes the Interstate Inc. BancSystem,

Third the Quarter enjoy you your day. all rest Earnings Conference Call. I of hope

You disconnect lines. may now your