First Interstate BancSystem (FIBK) 25 Oct 242024 Q3 Earnings call transcript

Good morning, everyone, and welcome to the First Interstate BancSystem Third Quarter Earnings Conference Call. [Operator Instructions] Also today's call is being recorded. And if anyone should need any operator assistance during the call.

Now at this time, I'll turn things over to Nancy Vermeulen, Financial Communications and Analyst Manager. Nancy, please go ahead.

much. very Thanks Good morning. for us third earnings joining quarter our call. for conference you Thank

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

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

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

our income or get let's million $X.XX quarter Now to in net results. per recorded We share. the third in $XX.X

third accounting the accretion, will Our interest in net to better accounting than came month ex believe margin, interest fourth the they my September. Noninterest purchase exceed quarter as it net We in to costs points expected, related did excluding we basis the and in purchase X% onetime margin expenses in of increased X our transition. by X.XX%. quarter included

growth X into modest X%. will Jim by As business, enhanced have we bit X. sale a branches. more the closing in in by Jim say of saw which the step week announced, we quarter, of increased approximately our this about a a November CEO on of CEO will the role FirstBank I my former in Reuter, third excluding the remarks. In income noninterest But fee sale, our was

As period. the and our declined criticized for quality, in credit both loans classified our

metro-office third we that quarter to However, specifically charge-off see some the portfolio. our was did related noise in

significant nonaccruals large we to what have that value. property to as a a we realizable transitioned for We took a estimate which charge-off

now we the the we in challenges behind that past, metro-office in challenges in significant believe said As are proactively and we've are portfolio our addressing any portfolio us.

investor further exposure. presentation slide an included information on also in have metro-office additional our our provides that We

large a our that flat. essentially increased our effect pleased the quarter. with balance quarter, related third that are we Despite deposits quarter. out, as ended the to last strip end they was the If deposits sheet at deposit X% of we temporary approximately the on in the Finally, change during

As continue, with We should improved in improving discipline, an to previously, we believe expense to turn we the forward call company coupled XXXX, look margin lead forward. And earnings which Marcy. to the we expect our midst expansion over going look I'll we that that, is and inflection results have a the discussed of profitability. to to with

Kevin. you, Thank

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

$X.X in of million. net an third the million quarter, income Our was increase interest $XXX.X

yield an interest-earning yields. again points loan X increased basis Our quarter-over-quarter by driven assets on increase in

quarter, the interest net which of $XXX period. to mitigated the we at also million income impact breakeven, swaps terminated During the during approximately

of the by declined interest-bearing approximately driven $XXX.X reduction a borrowings in in million borrowings. cost third Our average $XXX quarter-over-quarter. liabilities quarter, declined million Ending

cut aggressively pursue September by of action. we the Fed ahead rate Fed by customers the our more the rates higher As anticipated saw some the was of widely market,

While interest-bearing at resulted this deposits anticipated in quarter, activity slowed more beginning the than has had cost we the the our increasing this significantly cut rate in of of the aftermath.

portfolio accretion, net Our from to average increase in increase This is X margin a margin sequential to margin X interest losses increased fully basis X the points third our net fourth our our basis Kevin interest in the the lower continue during XXXX. quarter. points excluding purchase quarter as anticipate in in we interest balances. Overall, investment X.XX% margin, securities of tax a interest in the point resulting net net increased net stated, X.XX%. basis into accounting And impact quarter, and to to higher unrealized equivalent

loans to September interest-bearing expected, and rate sheet betas. similar balance as cut with the deposit we Our responded

each fourth rate by fourth basis in should cuts the Fed the materially outlook Our XX X neither includes which quarter, quarter points, of results. now more earnings impact

repricing interest-earning to overnight declining borrowings assets. In we the modestly will net quarter, the that the fourth more in the believe amount in includes fourth which impact minimis. de our the third Noninterest in is in both balance $X.X borrowings sequentially FHLB neutral and of XXXX, the $XX.X As our increase income is interest of quarter. increased and In continue a the BTFP offset we as quarter, our of result, quarter first will increase of see quarter margin will than sheet million the term this repriced a advances. income portion billion of quarter to early

Excluding $X.X the $X.X our an quarter the in saw X of quarter-over-quarter. approximately increased X% Noninterest expense sale of branches, million gain Kevin third on we by million. the mentioned, increase as of

million onetime CEO more However, of a expense for fully accounts to transition related than that increase. the $X.X

again prior the declined Excluding to that expenses our period. compared cost, noninterest

running the the first for anticipated, of our savings after third medical increase As expectations other expenses the consistently insurance our below than somewhat we normalized That expense more moderate half by year. in lines. offset in quarter was

focused year, we effective of internally and our on expense all management As control and branch resources more we've done network. remain

the of in about seasonality Moving to reflected typically loans estate is conversion did in million. declined real financing declining million our $XXX.X $XXX real loans of risk industrial quarter. lower Construction with commercial with the commercial increase permanent loans. utilization balance our to million sheet. balances and in construction which profiles X%. third some quarter, in $XXX.X Loan We The this our experience decreased balances by estate continued

our of production and in decline normal lower-yielding subdued a demand. mortgage amortizations a saw also balances We as result

call This at construction reflective normal the we to of for unfunded mind, at average at will on out intend approximately a drag a continue loan unfunded portfolio don't somewhat X%. to now Our these forward. construction commitment that With have longer levels in of rate should believe in stood balance approximately million weighted $XXX commitments the and commercial yields future. be quarter of no funding we end material commitments the this going our of that

the We from see the third the deposits averaged again quarter, end deposits, roughly recorded modest prior period. in compared unchanged deposits of stability of continue in our $X.X of which XXXX. In to total period, we a noninterest-bearing our million decrease in XX% the to

temporary excluding classified identified, third as our effect we've both criticized of in expected. decreased loans and we the deposits increased However, as pointed X% to credit, quarter. With approximately out, the respect the Kevin outflow

total our Our total $XX.X loans. with provision at expense X.XX% million funded coverage of ACL was

keeping quarter, portfolio, included on we've indicated the eye As we net higher-than-expected our quarter. last been charge-offs this which metro-office

The were construction X remaining our our that no off office The is estimated Approximately was reflects written charged realizable fully metro comprised value. quarter, XX% with X, portfolio. exposure. the of larger loan our charge-offs estate loan of of which down this smaller real in loans XX%

less additional slide in we in added transparency, in no in describes our million, office For there is are more we $XX Overall, portfolio this losses and than at sector a have this time. our detail. portfolio presentation material the more now the metro that investor believe exposure granular

of discussed, $X.X average office our were $XX.X million, million for XX the basis or points charge-offs we quarter total loans X were charge-offs just Our the loans. metro excluding

nonperforming also reporting We quarters. an other update in on to loans the been give wanted X we've regarding previous you significant

to With fourth communication the manage commercial And the based our believe continued clarity credit, basis quarter Regarding under the accrete specific Tier this XX.XX% and in changed, our prudently we quarter. in which reserve, third we we fourth X we common ratio continue equity to adequate borrower as respect know capital the capital weekly assets. what little the agricultural XX resolution our agreement. At to anticipate time, anticipate in the finally, is loan to quarter, has we remain points on today. who a increased but a this as with expected we specific is have performing reserve for risk-weighted in additional

back for $X.XX with turn also yield it or a per X.X% XXXX. to We quarter the dividend a of declared Kevin. that, share And I'll of of third

an our Thank Reuter. me in finding congratulate Board you, excellent I would Marcy. to like successor on Jim to

us fit his As spending privately CEO mentioned, style retiring in he and Company, largest I'm energy continue the talent, hands. When a years before as he he Holding month, drive arrives has commitment the the the banks a leadership leaving X a joins the is team past served little find will and from March. a of where our forward. President next good company support X nation to at here FirstBank of I will that from time unwavering this Jim, in great believe I for Having in the with company excellence had held and the Jim to beginning for culture, that

Now moment myself. sweet for comes the bitter

support up all how our that much by proud last thanking Berkshire we company of time we concluding myself great a with Interstate, earnings this and and my for stakeholders as I'm calls, last first very my January. of and last of after XX going company. I'm XX want served shareholders, my remarks Interstate what at a hard the earnings have wrap work in and call I not have I'm give during as sure I Hills at matured my over the years come to quarterly CEO As grown to XX years, Interstate, here. First achieved now consecutive our I their performing do First family, have all of and First

cross is this we goodbye, if up paths future. like at I'd So for see now now, least again And the in to shall questions. open for the call our

Clark Riley. Mr. morning [Operator this you, Thank We'll to with Piper Sandler. go Instructions] first Matthew

can set the just just relationship you that's to remind that for I wonder morning. resolved us C&I year-end. you aside reserves by Good get have specific expected

of make want Just capturing terms charge-offs. to we're sure that in

asked to the a of very could what with point, We specific would be say adequate that Matt, But highlight times. a you've credit. question value. that think at reserve don't number this I we on realizable specifically it's

so, Okay. how charge-offs on X metro previously the on much? reserves And have you if credits? set office did these aside And then

Go ahead, Marcy.

Yes.

may no specific problem. there quarter, fourth Matt, of allowance. characteristics loans aside in those larger that, paying of our into So overall those the in was considered set be loans, we was the it but Again, the reserves were on there a while anticipated X

we so an wrote down based that ordered on and And appraisal it then appraisal.

September Okay. was on slide margin I deposits average in month spot don't of the and in end the then of it think September. deck, but the the at the And rate

rate was margin X% spot deposits September. The XXX on in was the and

basis reported a core? On or

basis core that's ex purchase accounting. No,

We'll take our next question Stephens. Terrell now at from Andrew

some for Is the XX you I'm the us size fourth point commentary the that of just the that the charge-off quarter? can guys you credit discussed, to loan? remind the XX On that And kind around of influencing assuming probably guidance what's for basis resolution. expectation ag

Yes.

we C&I the excluding And so feel was yes, the ag million. net large guide the on comfortable basis XX to charge-offs, loan XX around with credit. again And point $XX

don't credit really taking ag that on really loss we a But specifically. anticipate

No.

Got it.

should but I we it. about Okay. Marcy, earlier any expect just that? be more there billion curious borrowings through -- of fixed it around that start $X.X in expectations you or of think more currently opportunities quarter. kind we that? out little at the market we in, first get in maybe and just guess should then, I footable And talk some Can of thinking flips to maybe appreciate I'm makes any or you of reprice it rate. to how are your are lock should overnight advances advantageous the to sensitive there a about kind a funding should -- FHLB liability how of just kind the

Yes.

we that's at in so $X And point, out And with Matt, how this flexibility like billion January. we going about that have feel going forward. really reset to stage have we kind of of that I regard to ultimate

cuts And us we're as they're be will so to rate to priced it right watching now. accretive Any where now.

time just that as I comes. -- we'll evaluate the again, So

swap you Could -- just Okay. I of then just there? Makes the in of also missed the the maybe third quarter. maybe mentioned sense. think commentary some And walk dynamics could the through you rehash some around I termination -- you

Yes.

before, think tool relatively as manage sensitive. this become swaps at sheet neutral. those to So But into a as use our move said sensitivity. again, more point, liability I XXXX, balance we we naturally And we we've we're

And position going favorable exposure that's reduce do a going that to and into they to $XXX were million XXXX. of our forward terminated so swaps in we because just so,

interest positively level that income the Did of contribute quarter? any in

A tiny bit. Yes.

appreciate wishing you. It's in been luck and Kevin, I the of it. on best retirement. fun everything with working Okay. congrats

All Andrew. right. Thanks,

Jared Thank you. Shaw with next We now go Barclays. to

with XX Kevin, everybody. X ago first only of that think you. to morning, ones was that I'm Berkshire on call got there Good probably the I say, I years

great looking you, a strong touch a forward career. congratulations with been in staying run on it's So and to but

was It interesting.

You said that were XX X that team there ago. said you the I to was the only probably years

for team. it So I'm confirmed you the glad

into out transition to good maybe end benefit CRE. that So What jumping Are and called you maybe and through do off moves continue the swaps the would on some we with quarter? go be these construction margin we place just some the going trends thinking think provide more that year? about a into should moves at a the guess, little you quarter next to sort of of some to how, fourth as drilling be just bit of you of the I

Yes.

accounting, So our I at think I mentioned just in purchase was that margin ex September. XXX

And this we significantly XXX that we fourth the where by there. expect it September's higher have quarter. again, rate, than you so that. expansion into were I But will go no because see maturing we're are the can quarter, borrowings do, And don't think from already we

accrual an some Is larger there impact on that margin from interest reversals from of nonperformers. the

interest anticipate accrual doesn't That conversions.

you about quarter, Are Jared? talking this

quarter, thinking Well, saying, Yes. that like the quarter, in is or gets something guess, should may that, this reversed through reversed be to just that negative going quarter be impact from that I'm a quarter? about be it we fourth there fourth then I first was in

that in Yes. That's included September number.

BPFP Okay. at And of And that the forward? down on going you then any all outlook your what's quarter? did pay this

Yes.

XXX. this point. that of any down Again, paid at that haven't we So rate is

there no as our again, happen, of that we'll prepayment are, penalties. cuts from options And make kind decisions has what so rate

regard that funding. we're flexible with -- extremely to So those

Yes.

that goes now XXXX I see intact trying just time we XXXX. or the think, be keep in of until Jared, where we're market period to see that in from range clear the happening might flexibility what and and optionality until

loans, give about the of to uniquely type you and a negative comfortable those traditional that's seen finally portfolio the a just banks we've structures. feel a mid-cap them you All was compared sort guess, trend And other color Okay. of Any from what different then with right. bit office more on what me portfolio? rest similar us on for additional of X I with just, little can at why of maybe

X we But near We've it so the I to we Well, we not X keep And able get things, as it. the on on what just the one, down and see not coming one -- detail, the still at with the that but would probably there construction borrower loan, in mean, happens loan, behind and that larger have looked wrote paying, the that end can it's it see we it to X. to us, that be We'll anymore. exposure that. actually out the was wanted

was it it still was to paying, come even So close. to going though a

get and behind carry loss So to want have forward. we us just it that not

appraisal down to our wanted just deal So metro we and behind it it not portfolio were to all and to after we proactive, with have and in got wrote up this get a costs to the selling anymore. -- noise get and have an reliable value this continue so and clean that us office. We just don't

that a $X whacked shows there's X office, slide $XX their there's loans that we ones we in is million pretty in only know, one that million metro over deck which and you heavily. now one the As have of of

any So office, got left that we metro all loss don't behind there's at real believe in the us. but we

Okay. Congratulations in forward again, staying touch. looking and to

Thank next you. with Tim Coffey now We go to Janney.

hear and to thanks question. much? opportunity Marcy, the ask how think by did come you so, I you could the just And you, quarter-over-quarter. assets earning down correctly, for Thank

Well, say how But by loan the you we really much. runoff the end -- don't at had right if we quarter. of some

that, we think because just that's they'll at quarter. in deposits down. we Again, And are look so quarter-over-quarter. expect the earning be think runoff to end be come our you to the relatively the going what just of that flat, we naturally bid to loans relatively I saw flat, if down in portfolio come of but loan said average assets the we guidance that of kind at

any loans remaining transitioning that process? okay. rehab color. look metro them form of are in the then, portfolio. on over office appreciate all of that And the Kevin, and X million, the lease-up $X Okay, or through some at we I If

slide. metro some on notes office the we have Tim,

them adequate leased recently one is coverage, couple and we've remainder are then the completed of So up already debt a one the have service discussed.

slide there's X. on on So that Slide commentary

took loss Seattle. the we investment-grade year on And lessor second going X the that And a in largest on in there. we have earlier in an

one, very So we a is and with concern. not comfortable feel that that one

we pretty feel left So good what's there. at

Okay. having to in kind kind markets you those would type these these in business With you're problems, markets seen of the of prevent from they you've continuing those -- -- do -- where problems where properties? of these

all, we don't No, that Tim. at anticipate

Okay.

rates I've in because than higher other Okay. vacancy West seen. Yes. I places been has just asked metro office on probably Coast the the

that. I So appreciate

great enjoy yes, think and I been retirement Yes, working with it's I Kevin, you. happy hope hunting. you your

Thanks.

go We'll Fargo. next you. Thank Timur now at Wells to Braziler

Can the you locations the advise X you provide of can office -- locations charge-offs? these

we're as it so the Timur, City. those. and Portland, office our could potentially No. to locations of suffice define cities. we Paul, position, it Phoenix of Denver, and metro in not Minneapolis, St. compromise It's Kansas negotiating providing Seattle, say, those But one

metro the And appreciate Okay. it. coming that to I just does on well? the Got construction loans include area? that then slide. want office the just I as make color is sure, in Or

yes. it includes, Yes,

transition these finance. some I'm finance the construction due? then to And guess, permanent to as of your just And appetite talk continue wondering construction through loans doing the roll from projects is finance. from dynamics your then, us just to I construction as pricing the what comes permanent own term maybe construction

and once they I the construction real that Well, move we they estate. think I them of I moving stabilize we've into covered to that of then finished kind firm, dynamics mean, get from think permanent

added what metro we in at pretty an loans And at basis. not We do. about look just on the We're construction and markets, communities going we're continue loans need we at but and them our to individual to business. customers not particular look that be the look

normal up, them in a to business, construction So doing it's building but stuff estate. commercial move stay then going just real from a stabilization into we're the and continue transition loan to

really And the making construction just we're again, and want think relationship. that we've the I transactional we full loan relationships said focused a full we sure all year, on that have not

outside relationships. where Again, we're the on focusing. and of And metro so that's areas full

permanent that yield fixed fixed from a CRE... get coming they are perspective, those like just rate rate higher then are into And locked variable lower a a loans, into off X.X finance, rate is and it's the a or those on construction Okay.

that So all gave most of portion a earlier. you it construction are the considered X% we and X that is in is variable, loans in that's earlier talked there about we number that that but

just your fixed during So construction a then among through period is we the do to memory the refresh the stabilization all Timur, construction activity, rate and period. that

that real loan that rate short commercial then moving period is carries after So stabilized and for a on of estate. to time

Got it.

that And X% guys last fourth abate think, I that. Marcy, for just a pressure just that there's mix you kind a rates? shift looking how of working then of I through that you peak rates. quarter. in additional you But spot just continued And deposit me, the puts the maybe starting to at you X% again were some that's month Okay. of basis, guess maybe additional at starting are the deposit had appreciate pressure some there? said on Or has the I at October? pressures starting do the such just been low thinking a such are low think level there for

think I going be into rest of the the will down to stable quarter. it

congratulations retirement. Great. Kevin, And Okay. on the

Timur. Thanks,

Chris go McGratty We'll now at Instructions] KBW. next [Operator to

Chris. just Maybe Moutafakis This is for on expenses. on Nick

kind to on other this year, as expenses but XXXX. a job grinding we You opportunities of nice done ratio guys have maybe the move down into efficiency work any

ratio we're of more I a efficiency job Nick, is on issue -- revenue good right I really than doing issue. an it now, our expense pretty think a is expenses our

build our as come going get year continue income, NII fee should So on we we next into traction efficiency down. that see to see ratio and some could hopefully our

loan on demand. Great. And just maybe comment then a

next into up it up? activity? as waiting is there of your into tepid move a you picking where are minds people see Or As pick rate year, Is think we level in we that move do XXXX. kind to

I would say things. there's a of couple

I the weeks, what's and happen for next also people the election couple one to think think happening looking in going are rates. I of with

of very haven't because stopped cloudy ball we few it's years, at kind looking over last crystal the that. really my because I picked So

to and I I pent-up So rates when to we're that hold. demand think what look I know the just just demand, going going pent-up there's to wait see a think have is But don't take like.

and the pick going a time team because that's pick to probably to ready don't wrong. poised we're ready we're and when So up But to go. I'd is I be want

So just does into it let's hope going start early XXXX.

working congratulations, Kevin. enjoyed you KBW. And Great. at We've with

And things like gentlemen, no we Riley, questions back today. turn for ladies and it have to appears you, further sir, to Mr. I'd any closing comments.

Okay. And thank us you their working from everybody I'd with we analysts. tuning today, welcome you over years. and to the out like reach for investors and all you questions. our have as questions, I calls and if really follow-up always, appreciate of Please thank to for any

our I you. hopefully, see paths will will So cross and

support. for all your So Bye. thanks

ladies will that BancSystem Again, joining. thanks again, gentlemen, quarter the Interstate earnings And and so First call. Third conclude for much