First Interstate BancSystem (FIBK) 31 Jan 242023 Q4 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the First Interstate BancSystem, Inc. Fourth Quarter Earnings Call. This call is being recorded on Wednesday, January 31.

I would now like to turn the conference over to Andrea Walton. Please go ahead.

morning. Good joining fourth for call. earnings for us you quarter our conference Thank

outcomes from we the forward-looking will or that please statements. differ provided results As note call information begin, those expressed those by during this Actual may statements. materially contain

direct filed undertake could results to read the forward-looking to in update made actual and and release available recent our with statements the forward-looking earnings non-GAAP listeners any regarding annual report today. as the from most any earnings the statements identified in release SEC website our that is the of measures, our with A contains statements all on not and are recent fibk.com. note risk in well on which our forward-looking cause our our The like earnings reports at I'd to differ periodic cautionary in financial contained filings. the release, the to report of included SEC copy Form factors as materially factors XX-K does SEC. Relevant annual in more company filed

and measures our reconciliation directly end non-GAAP use of release, may their release measures found to of the is for financial included regarding earnings body at the comparable the earnings financial GAAP in most of reference. Information be the a the your

members along other our Officer; and Executive with Kevin our Marcy Chief from Chief us Riley, Joining our Financial this morning Officer, are management management Mutch, of team.

the this call to Kevin? time, over At I'll Kevin turn Riley.

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

so. to If encourage you yet, downloaded do a I not you have copy would

call the turn And going by the then major to of of the providing our over to financials. details provide today overview more to highlights quarter. on I'm start Marcy I'll an

financial Our balance fourth the quarter, this quarter statement net the in performance her economic challenging reflected some we strong remarks. both In and There income that fourth million Marcy or share. our environment. to on parts $XX.X sheet moving in generated income will go results in generate $X.XX per were ability the over

our For the disciplined on excluding quarter, generate draws on production X.X% underwriting reflects pricing to efforts lines returns about we This new approximated remain criteria. loan in The strong and new the risk-adjusted production. construction quarter. our new during rate,

prior commercial projects quarter, moving to being portfolio, declined. into construction construction while lines and Additionally, continue as we see also the completed the with real estate undrawn

forward. The back the the healthy for to going will banking half rate strong of resulting these confident while increase Even challenging modestly capital in continue pressures near-term us XXXX, to us lessen with focused ability also remaining in allow filed to saw in selectively December, in while able expected our lead some strong December X the our quarter. million on saw profile the we X-K during relationships. And lastly, to balance maintaining but ratios is pay we XXXX. where repurchase earnings the up providing and retaining setting shares deposits declines in you probably sheet liquidity high-cost seasonal environment to were a deposits dividend utilized time pressure with the are and flexibility this, a We we

to invested future drive the and of year, profitability. last in Over areas efficiencies course we

previously, mortgage noted we we our process. streamlined As standardized and

strategic decisions In to evaluate reduction December. of profitability same short, company, to the quarter. the resulting enhanced to we value also discussed strengthen workforce in provide of existing products of an We credit delivered we to functions. suite have to the support such clients, our business make which our structure improvements line long-term the allowed At franchise. in and time, consumer on realigned a our of promise and us we services last operational and of as These cost our card, continue

additional with Go she And some details ahead, our fourth around that, over to so Marcy. results. quarter I'll turn call Marcy, provide can the

and good Kevin, everyone. Thanks, morning,

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

in our as Our $X.X interest on million total increase in by funding decreased earning assets yield net costs. income the increase the our outpaced was average

decrease first a the the see Our reported to quarter net we prior XXXX. from we did margin pressure was interest than points less margin on continue half FTE as of net of basis interest in X.XX%, X our

basis interest costs, net to funding which which a also purchase accretion, quarter offset and prior the accounting expansion adjusted points margin, portfolio, flows to investment I'll Our reinvesting yield discuss basis loan higher point our back cash from overall X excluding from due decreased a into reduction by minute. X the X.XX% in

year our the our the Looking majority mix interest along repriced market anticipate and begin first of and the deposits to will income supports and repricing our costs already in maturing in increase margin assets, adjustable have of deposits into as ahead, rates That, second the confidence net of slowed. we the customer deposit time has XXXX. the with shift rate half that both half near cost the of higher moderating

income total Our quarter-over-quarter. increased $X.X noninterest million

of by line a increase driven in the gain with our assets. generally performed business sale with on the fee fixed Our net expectations,

assessment card which to a costs employee result expense earlier. Other $XX.X $X.X but were million special $XX.X that increase noninterest our included in new million. clients higher Moving million of expenses offset would items higher as and rewards from expense. the our the $XXX of we approximate our higher noted, in accruals our a noninterest lot quarterly in from Kevin of total was reduction in and result noise We as expense there's Adjusting of the severance was increase and lower the FDIC rewards partially as of million $X.X quarter, an Salaries of workforce a mentioned $X.X lower an of program. number. benefits of accrual engagement by saw credit prior million million, for had incentive

by increased million end Loans modestly to the for Moving the the quarter. $XX sheet. prior balance investment from held of

indicated, much in of was Kevin of construction into movement completed financing. real As growth projects commercial driven estate the by permanent loans the

Our $XXX outstanding the under $XXX of million the X.X%. construction just a totaled This commercial lines fourth at on commitments previous rate a at the end approximately of average from represents weighted about quarter. million decline quarter

the our impact value. million the had back up approximately $XXX million increase to increase securities, the into X.X% flows expect was portfolio reinvest market and of the lessen $XXX We those on chose in which of new cash locking we're portfolio, We continue average half in to securities primarily quarter. to weighted to commitments. We in due lines limited in this of an during as XXXX, seeing from margin fund yield fair back a

returns market near Going along decision on in that at fourth I time. will margin the in interest cash values in reinvest forward, quarter, with fair point we roughly to the the basis market a the contribute flows cash net our given would some reduction may the in available depending flows, increased the the selectively reinvest note term. X the of to

deposit deposits outflows by quarter. saw decreased $XXX we On the million total fourth liability seasonal the half during of side, the latter as

we also retail of sheet. some pointed have given our higher out, balance high let As we on runoff cost CDs Kevin liquidity the level

a is noisy little as well. asset to quality. Moving This

increase criticized back for are the loans, and loans positive While in credit million increase loans investment to of we nonperforming nonperforming an reported outcome. the for We these we as trends. underlying transfer a held arose the overall restructure moved opportunity in for seeing loans. $XX and held-for-sale into favorable This more portfolio accounted

nonperforming transfer for transfer, criticized declined also this Excluding the million. $X in loans The increase most loans. accounted of

which the in $XX second consecutive by more Finally, quarter, loans total was improvement. quarter the watch decreased than million of

course the anticipate to the we with workout be will XXXX. enter normal associated the our the bank either half will these we agreements upgraded in underlying or Through credits the of credits of process, quality exit improve second borrowers and

during performed for at we we due continued near- as of $X.X in of the credit which in believe showing loans. And outlook. or with finally, held and basis million allowance leverage quarter, basis our remain quarter-over-quarter our XX modestly point of charge-offs X manage the for was to million, ratios AOCI losses credit by low average ratio points We improvement, investment. earnings total long-term to asset summary, loans $X.X recorded remained shift increasing credit flat value well underlying capital to In credit positive we losses quarter. the quality exposure. increased provision quarter a all for generated book the in confident risk-weighted and Net other this our and increased regulatory total Tangible X.XX% a

remain declared share, attracting flexibility X.X% dedicated serving to we per new Going of continues and period. dividend to households which lastly, our forward, to opportunities growth on give our our of to position capital closing and average annualized needs advantage customers yield the allows take a price the us us the of the strong the $X.XX to stock equates in a bank. And to of common

the I'll Kevin. call to over back turn with that, And Kevin?

Thanks, Marcy.

comments up and outlook year. the our I'll wrap Now few with on coming for a priorities

focus positions conservatively We well will expense which loan This XXXX, of conditions to did This even levels, challenging. in if as goals us portfolio. was level well well. In perform are manage one entering to as a XXXX. our to economic a be of XXXX with year underwritten remain this capital continue high liquidity a our we

mentioned, our and December, actions risk cost guidance. investment a in our in and that in workforce these our efficiencies. The leverage reflected as help management. efforts As will improvements are savings These enhance from we expense reduction and restructuring some well process completed in technology offset from will organizational our as automation

conditions still expect the change this seeing but In are and we to borrowers, from the near reluctance weather as some potential economic term, improves.

low that expecting flat in total balance be up or to Given XXXX. digits single loan are we outlook,

demands able respond However, growth be of additional if opportunities. increase, given our the market to we'll quickly sheet, strength balance to

of in offerings. bringing Solutions business relationships new continue are our and this, we services. As always, Treasury improvements the our restructured expanding mind. make recently leadership, Considering of top delivery and products efforts We aligning business, in our development to customer our

new in loan investing to which speed and are and client origination small process. us system, experience a our origination up business will allow streamline We consumer our

business are in clients. We This products offer to will XXXX. with card offerings as of the business suite our our comprehensive us allow did a attractive, more consumer card enhancing we to credit

to continuing automate processes We journey manual efficient. are also us more our make to

to on now, tough While deliver improves. can these opportunities that advantage is so the environment when effectively this we taking more are the of environment we right time capitalize

back Coupled notably culture we disciplined win. as we operating improved We the sets for us diverse will footprint, believe a focused us XXXX. the profitability our well XXXX. our well of and power. confident return expense remain believe with and improving up of talent closing, and second the our to strong leverage In of ongoing of half run into that value future year in on revenue half earnings discipline, growth this in optimistic with our long-term our and positions the franchise look are people the We rate

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

Andrew First Terrell Instructions] Stephens. question [Operator at comes from

margin. expansion at was the mean quarter? few Maybe us parts expect kind loan remind my the yields and maybe in XXXX trajectory first you and of the can would loan if points then there the And I on of throughout here. the yield as then a in fourth rate you do construction just this saw upward any from good One, saw moves X you loan fund-ups. holding quarter XX/XX. bigger question And aside, you the question we basis headwinds, [indiscernible] maybe just spot lingering the yields kind picture to similar

Yes.

spot X.X%. Again, yield construction $XXX loan about on average at happening a the the fundings of X.X%. about So million yields quarter. were The those weighted there

of So year get will pressure the back that of be there the which to the should off continue half to as half portfolio year. the in taper from some first we

few part second we loan the question. in of yields What's going points QX of -- that think they terms And are average. there'll be basis forward, the a than higher

yields like quarterly per X-basis-point-or-so quarter? you guess, basis, a going on of I in similar XXXX a kind loan would pickup just expect then And throughout Yes.

kind mid-single in of it somewhere. should digits Yes, be there right

the... Marcy on then Okay,

but half, ahead. the yes. assuming, -- first In Go

Yes.

book flow for that to pay kind coming the liquidity first Plan or back securities into borrowings? plan Or build flow preference bond mean, in a the to Okay. is quarter. obviously, Is portfolio a bond the I use the reinvest now? book of there bigger down of cash to cash off XQ. in the amount right

doing Andrew, the we're reinvesting, to we'll might time, we will think, market rates going make accordingly. the if market gives -- take during give But thing us I the period see market -- and quarter first it's good decisions that the if how what us has it the is probably are deposits also. the But And route. pay down we'll shifted just in seasonally that if dramatically, also then borrowings. of

moving I that, factors. to doesn't but no So to there's either you materially we're much. of project for way move going -- -- -- There's it numbers of hard the at kind a couple know be we it's that looked

right? NII,

NII.

Right.

guide. C&I assumptions? And assume liability-sensitive guidance? I influential X here. varying Okay. just that as the and we change to maybe I'm or understand we curve guess to know were I if But no And guys driver big NII the could on the a forward understand guide guidance. trying kind are kind asset based flex the assume how sit of I'm full see last on forward or we the how that How slightly cuts, -- to rate those then that rate are trying margin. to of conversely is cuts just slightly you of

rate So be more than to going if benefit us. that's there's a to X cuts,

We the have XX% year over our and the XX% half matures book the of of in end year. by of the CD first

that our product. XX% index are our of have money deposits the market We in

we'll So the borrowing our that's in benefit of some see And reprice. going then costs. to

to going be think on the likely. deposit I most lag there's our on -- a bit a side, of deposit

set on a bit -- comes the push So potentially rate would through. the through Fed those cut will slower that deposits than little that

all. in see nothing. without the environment, a rate at -- NII rate any In cuts we So half back flat growing still

rate see more the with you'll cuts benefit NII. increase, to as regards So

So increase the have NII run grow rate all no we XXXX. with -- at of in numbers should but half the and back

last XXXX. using for Is as presume $XXX rate sneak it. so I like or that kind I one as it operating can we within run Okay. grow of That's sounds helpful. that be Marcy, kind appreciate should just fair? And I throughout then expense guidance, one. your if of the million expenses we work

fair. That's

fair. That's

question McGratty KBW. at next The comes from Chris

assuming This Liesch for is On that your you expectations? NII guidance your deposit XXXX, on noninterest-bearing for Chris for decline McGratty. Andrew are and mid-single-digit mix beta what

deposit NII expectations and?

the NII expectations go expectations your that beta your and guidance? deposit NII Yes, into

the and beta XX% then So quarter, spot of end year fourth in at our the the the was at with XX%. beta

We of the go some believe deposits through that the continue rest into of as we we'll to out migration noninterest-bearing see year. higher cost

that's slowing. But

basis going into move but higher is the to second we it Yes, slowing, assume quarter. that's of a couple points

should for just capital, million had then targets? capital $XX think from you of capital specific on And just about a share priorities us repurchase you And any estate Okay. that can the single we XXXX? have remind you stockholder. your How if

our year capital we We have. to our or maintain to internal future. levels some have or will throughout a dividend that don't about strive healthy into tell publish we the talk internal I that is But things you the priority what and

would second been priority at first organic our priority. that's capital. the really time for repurchase So shelved. I things be really say, go would this well, to would then that with share say has I use growth And capital unless

priorities So those probably point. our at biggest are this

comes at UBS. from question next Brody The Preston

you Marcy, net within that the interest that you half the have cuts of the beta did 'XX? in the assuming income you're give back guidance, down with

think So assuming there's assuming do half, -- we if lag. in down, under we to guidance. the we're better actually some didn't some We back rates than down come the our beta give think potential we're there's in assumptions, our

benefit could that December, go is we So if see assume come which will modestly in we the from it up rates XX% there. some down, it

I is The to FTE? that wanted or just is Okay. clarify. itself, GAAP guide NII that

accounting. Well, Yes. GAAP. it's ex-purchase is That

Ex-PAA. Okay.

just Okay. guidance, the I to... want expense

just be The is clear, GAAP. to Brody, guide,

includes... Which

accounting. purchase includes which Yes,

just million expense, the you're you wanted year. says $XX you're the that -- severance $XX.X clarify, increase, I a expecting that the to assuming low single-digit it including that, stuff and that I'm charges FDIC, -- excluding had but the million includes means On that last

am thinking implies out, like up? [XXX, next kind towards year, that kind in the if X% it for So $XX.X million the correctly? of that expenses about I X% just of looking -- more of midpoint I you're took Is XXX] that to kind of like

fair a think yes. about way it, That's to

You're right on it.

from comes Jeff D.A. question Rulis next The Davidson. from

I get were -- side. kind safe Great to that those of I assume On Is just credits. into legacy group. credit wanted guess, loan ag to first, that that Western fair?

moved talking nonperforming? about that Are the ones into you

Correct.

Okay. need out performance payment they is Yes, were on X that nonperforming yes, months move Great credits. -- Western thing we we like restructuring into for legacy temporary And what But believe is we performing. that's the loans. can we're them account of those rows before a because

quarter out nonperforming those So third the this move into we of believe will year. of loans

it in move less? going is messaging was or that I to it the -- of follow heard that I to allows for I held Is you to investment sort Yes, the moving it. move? through. appreciate just those like prepared. that the up seems of more

And kind Yes. is that also into it's of were the able these to loans. performing we restructure messaging

more getting that think of cleaned that's I kind of message up. the they're So

the is is ag What from? they're -- come did of represents? And that there pretty maybe type that of mix, type what type if in of but a that, granular geography

and or it's dairy that down in area. Arizona It's California,

of the that on to including some your broad-based? of All likely bulk is basis that to XX Or right. those is of of net loans ag points, that XX that? contribute to And charge-offs guide

juncture, Well, talking those we're we're on loans that's looking broad but any -- not just charge-offs at at kind this based. of

Okay.

segment. no So particular

to 'XX? in basis where you of that's for are think the XX you XX points Just cycle

that, we're forecasting haven't that. I Yes, we guess the s thing but hit

Got it.

discussion the maybe some do you that running commitments. segments the or on digit, that trying may the off see on expectations within 'XX in what within peg within versus areas flat or guess of guide overall I be low got single -- of would to flat loan And But growth? you growth kind Okay. segment, growth construction

I and every -- would industry kind is, have way in the say verticals. we're we we're our of franchise different --

this to across think hard at we to different much be say point, growth verticals. going be it's So all brought that's that's going pretty to

focus continue we'll our I focus business We'll continue to on on to initiatives. think growth. small C&I

of point, broad-based footprint. going pretty XX-state course, and All of it's spread to Kevin's the those things, across but to be

Okay.

the growth pointing of the that's of kind balance bit the pretty completion, but QX, construction full albeit modest a contribution, real again, largely of 'XX commercial timing estate for mixed year? a So to from

correct. That's

from comes question Sandler. next The from Adam Butler Piper

This is Matthew Clark. Adam for on

could reductions that just commentary if was in lower completed curious provide staffing the were if I more revenue producers? or around producing I was First, improvements wondering by office the it in producing some back -- you maybe lower December. was efficiency surrounded

with on also in through reduction, they broad just some that I remarks, and But I based as would people as putting in risk management were to excesses various doing, that levels the with the say, needed we made staff said we up. to the that where well regards so we we efficiencies on of say to should out. bring plan we and we that as took really more our be company that, kind It's would levels bounce went that workload we looked I at the expense adding, that. looked of IT, have into, order those would say areas reductions at in might at. and

down happen NIM of to the on relative Okay. spot deposits of the the the to first NIM the month the rate the you December? or on the NII end I have second, guys either there. appreciate and quarter the in Do December fourth then guidance at I appreciate in or interest-bearing quarter. color And

I'm Go ahead, have Marcy. we that. sure

the margin in because lower cycle we net reprice of X.XX% it And had and quarter was saw there early CDs majority was fourth in so than vast the December. our our November we pressure So interest December and average.

those on of deposits, in that in a flows value also higher factor cash basis the also was -- borrowings impacted decline recovering reinvest We in portfolio that NIM our then a couple by noninterest-bearing point then investment and fair there. resulted decision portfolio were market to lower December. And our investment

than first quarter more the we that So about in to fourth mid-XXXs average expect when number. line NIM, that's it talk quarter our we be where and lower with

[indiscernible] color I time. appreciate the the thanks for and

just guidance. I want purchase excluding clarify That NIM was to that That accounting. thing.

Timur Next Braziler from Wells Fargo. question from comes

had and doubled looking leading give the geographies that of it, us over population just years? been that's inability supply given might your with at into Can an Maybe you shortage construction your find some housing feel within update the and other a like there the been areas that period. COVID, couple your things, of are migration, some past balances maybe migration to you during maybe of geographies on where have that your that up of know I along trending geographies in-migration how just if to of there now workers. some of any overbuilt stand over

markets. the I in has slowed of would there's bit, majority say a I a definitely but the think shortage houses our migration probably of

So markets any see right we really don't now having accesses.

there's housing. So for need a

area good So anything in right our overbuilding. of might think I'd only in one pretty don't some not areas now cities been our But that we big Portland the that that, and shape. we're we everybody's besides any like into The where there's -- say markets rest seeing be flock the is Seattle. I of are of -- that any not

basis X I don't that's you reinvestment I can incremental as of X.X% at understand in And driving bond points move that correctly hear guess the that slightly? portfolio that. bond I remixing or pressure the from NIM I Okay. maybe you're guess Did Marcy, XQ. margin

earning But that by doesn't more the NII is fair And balance just earnings because asset reinvest, market but greater thing really not margin in as to our then NII, all, getting that but you NII. earning biggest It you're would reducing the improves, the earning were forecast the assets any think affect first net margin. when before bigger denominator. same more looking asset impacted is portfolio at balances. the down is investment bringing and adds the overall really interest of not we I value

to and of AOCI love accounting headwind. with lastly, your thoughts you that purchase us give an of easier stand at in or with as less more the update would a of M&A M&A Interstate? rearview, Got headwinds on 'XX how the into story Kevin, Maybe just a hear capital bit the some deployment becomes less little it. fits And on then where First updated

you from have That's I as probably other there. think being heard you tell that a great institutions, there's question, lot that Timur. out I more a conversations had would are

As you always disciplined strategy. our know, on very we're M&A

a We many, to And been make institutions of and have the priority seller have touch believe years. better in list our we itself. franchise we would up that for with these many banks it's

but So open to I more sake we're steadfast better. And believe think there, to do going going the come there to our put we'll with if are stay for wanted out But franchise but just that something. doing to something do not then something probably they activities we're institutions something, make us, to partner we're together. will and we the of

Preston is question Brody from follow-up UBS. Next at a

the It at other clarify take should looking said ones. on if flattish about average for that. wanted just reinvestments of guess maybe cash in and guidance you I a couple flow like past. had the kind year. the I be loans I what sounds just I security and there of earning to assets the

Yes.

Yes, it, that's exactly look we how at Brody.

Okay.

get fourth kind the margin by XQ? to are guidance of NII, to in so quarter? the up we're on where if thinking And so mid-X.XXs like kind Marcy, that a gets the step pretty ex-PAA in XQ time good implies we the And ex-PAA the you on by NIM of the margin,

assuming believe in it the comfortably We the that of cuts X year, that that's assuming mark back half be the and could stable deposits, discussed. we've over X% rate

So...

further I call no are turn the comments. closing for over will questions. back There

questions. your for all you Thank

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

gentlemen, ask We and disconnect for participating, this you lines. for today. concludes you we that thank and your your please Ladies call conference