First Interstate BancSystem(FIBK) - 2024 Q3 - Quarterly Results

Overview of Third Quarter 2024 Performance Financial Highlights First Interstate BancSystem reported Q3 2024 net income of $55.5 million ($0.54/share), with NIM up to 3.01% and CET1 to 11.83%, despite charge-offs and CEO transition costs Net Income and EPS | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Income | $55.5 M | $60.0 M | $72.7 M | | EPS (diluted) | $0.54 | $0.58 | $0.70 | - James A. Reuter was appointed as the new President and Chief Executive Officer, effective November 1, 2024[2] - Net interest margin increased by 4 basis points to 3.01% compared to the second quarter of 2024[3] - Criticized loans decreased by $14.7 million from the previous quarter, largely due to charge-offs. Net charge-offs for the quarter were $27.4 million, including $22.1 million from the metro office portfolio[3] - Non-interest expense included $3.8 million related to the CEO transition[3] - The Common Equity Tier 1 (CET1) capital ratio improved by 30 basis points to 11.83% compared to Q2 2024[3] Dividend Declaration The board declared a quarterly dividend of $0.47 per common share, yielding 6.3% annualized based on Q3 average stock price Quarterly Dividend Details | Dividend Metric | Value | | :--- | :--- | | Dividend per Share | $0.47 | | Payable Date | November 14, 2024 | | Record Date | November 4, 2024 | | Annualized Yield (based on Q3 avg. price) | 6.3% | Financial Performance Analysis Net Interest Income Net interest income reached $205.5 million in Q3 2024, increasing 1.9% sequentially, with net interest margin expanding 4 basis points to 3.01% Net Interest Income and Margin | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Net Interest Income | $205.5 M | $201.7 M | $213.7 M | | Net Interest Margin | 3.01% | 2.97% | 3.05% | | Net FTE Interest Margin | 3.04% | 3.00% | 3.07% | - The sequential increase in NII was primarily due to higher interest and fees on loans and lower interest expense from reduced average debt balances[5] - The year-over-year decrease in NII was driven by higher costs of interest-bearing deposits[5] - Interest accretion from acquired loans contributed $4.4 million to NII in Q3 2024, down from $5.1 million in Q2 2024 and $5.2 million in Q3 2023[5] Provision for Credit Losses Provision for credit losses significantly increased to $19.8 million due to $27.4 million in net charge-offs, primarily from metro office loans, with allowance for credit losses at 1.25% of loans Credit Loss Metrics | Metric | Q3 2024 | Q2 2024 | Q3 2023 | | :--- | :--- | :--- | :--- | | Provision for Credit Losses | $19.8 M | $9.0 M | ($0.1 M) | | Net Charge-offs | $27.4 M | $13.5 M | $1.1 M | | Net Charge-offs / Avg. Loans (annualized) | 0.60% | 0.30% | 0.02% | - Net charge-offs in Q3 2024 included a $15.9 million metro office commercial real estate loan and a $6.2 million metro office construction real estate loan[7] - The allowance for credit losses was 1.25% of period-end loans, compared to 1.28% at the end of Q2 2024[8] Non-Interest Income Non-interest income rose to $46.4 million in Q3 2024, up 8.9% sequentially, primarily driven by a $2.6 million gain from a branch sale Non-Interest Income Breakdown | Income Category | Q3 2024 ($M) | Q2 2024 ($M) | Q3 2023 ($M) | | :--- | :--- | :--- | :--- | | Payment services revenues | 18.7 | 18.6 | 19.2 | | Wealth management revenues | 9.6 | 9.4 | 8.7 | | Other income | 7.6 | 4.4 | 3.9 | | Total non-interest income | 46.4 | 42.6 | 42.0 | - The primary driver for the increase in non-interest income was a $2.6 million gain-on-sale of a branch during the quarter[9] Non-Interest Expense Non-interest expense reached $159.4 million in Q3, increasing 1.6% sequentially due to $3.8 million in CEO transition costs, partially offset by lower fees Non-Interest Expense Breakdown | Expense Category | Q3 2024 ($M) | Q2 2024 ($M) | Q3 2023 ($M) | | :--- | :--- | :--- | :--- | | Salaries and wages | 70.9 | 66.3 | 65.4 | | Employee benefits | 19.7 | 16.9 | 19.7 | | Other expenses | 48.2 | 51.1 | 54.6 | | Total non-interest expense | 159.4 | 156.9 | 161.1 | - Expenses for Q3 2024 included $3.8 million related to the CEO transition, which primarily impacted the 'Salaries and wages' line item[12][13] - Other expenses decreased sequentially due to lower FDIC assessment fees and professional fees[14] Balance Sheet and Capital Analysis Balance Sheet Overview Total assets decreased 2.3% quarter-over-quarter to $29.6 billion as of September 30, 2024, driven by declines in loans, cash, and investment securities Consolidated Balance Sheet Summary | Balance Sheet Item | Sep 30, 2024 ($B) | Jun 30, 2024 ($B) | Sep 30, 2023 ($B) | | :--- | :--- | :--- | :--- | | Total Assets | 29.60 | 30.29 | 30.54 | | Total Liabilities | 26.23 | 27.06 | 27.46 | | Total Stockholders' Equity | 3.37 | 3.23 | 3.09 | - Investment securities decreased by $126.0 million (1.5%) during the quarter to $8.28 billion, primarily due to normal pay-downs and maturities[16] Loan Portfolio Loans held for investment decreased 1.1% quarter-over-quarter to $18.03 billion, primarily due to declines in construction and commercial loans, despite growth in commercial real estate Loan Portfolio Composition | Loan Category | Sep 30, 2024 ($M) | Jun 30, 2024 ($M) | % Change QoQ | | :--- | :--- | :--- | :--- | | Commercial Real Estate | 9,219.3 | 9,054.5 | 1.8% | | Construction | 1,307.9 | 1,519.9 | -13.9% | | Residential Real Estate | 2,217.8 | 2,246.4 | -1.3% | | Commercial | 2,919.7 | 3,052.9 | -4.4% | | Total Loans Held for Investment | 18,027.1 | 18,235.0 | -1.1% | - The ratio of loans held for investment to deposits decreased to 78.8% from 79.7% in the prior quarter[19] Deposits and Funding Total deposits remained stable at $22.86 billion, decreasing only $6.6 million QoQ, with non-interest-bearing deposits declining while other funding sources saw significant decreases - Total deposits decreased by a modest $6.6 million QoQ. Excluding a large temporary deposit that was withdrawn, deposits increased by approximately 1%[3][20] - Securities sold under repurchase agreements decreased by 24.9% QoQ to $557.2 million[20] - Long-term debt decreased by 64.2% QoQ, primarily due to the reclassification of a $250.0 million FHLB borrowing to other borrowed funds as its maturity fell below one year[21] Capital Position The company's capital position strengthened, remaining 'well-capitalized' with the CET1 ratio increasing 30 basis points to 11.83%, while distributing $49.1 million in common stock dividends - The Company is considered to be "well-capitalized" as of September 30, 2024, having exceeded all regulatory capital adequacy requirements[22] Regulatory Capital Ratios | Capital Ratio | Sep 30, 2024 | Jun 30, 2024 | | :--- | :--- | :--- | | Common Equity Tier 1 (CET1) | 11.83% | 11.53% | | Tier 1 Risk-Based Capital | 11.83% | 11.53% | | Total Risk-Based Capital | 14.11% | 13.80% | | Leverage Ratio | 8.57% | 8.44% | - During the third quarter, the Company paid common stock dividends of approximately $49.1 million, or $0.47 per share[22] Credit Quality Credit Quality Summary Credit quality showed mixed results, with non-performing assets increasing 2.3% to $178.9 million, while criticized loans decreased to $603.3 million primarily due to charge-offs Credit Quality Metrics | Metric | Sep 30, 2024 ($M) | Jun 30, 2024 ($M) | % Change QoQ | | :--- | :--- | :--- | :--- | | Non-performing assets | 178.9 | 174.9 | 2.3% | | Criticized loans | 603.3 | 618.0 | -2.4% | - The increase in non-performing assets was primarily due to a rise in non-accrual loans[24] - The decrease in criticized loans was driven by $22.1 million of charge-offs related to a commercial real estate loan and a construction real estate loan in the metro office portfolio[24] Supplementary Information Non-GAAP Financial Measures The report utilizes non-GAAP financial measures, including tangible book value and net FTE interest margin, to provide investors with a clearer view of performance by excluding certain items - The company uses non-GAAP measures to evaluate performance relative to capital adequacy and to present continuing operations without unpredictable acquisition-related costs[25] - Key non-GAAP measures include: tangible common stockholders' equity, tangible book value per common share, return on average tangible common stockholders' equity, and net FTE interest margin ratio[25] Forward-Looking Statements This press release contains forward-looking statements, cautioning that actual results may differ materially due to various inherent risks, including regulatory changes, economic conditions, and credit losses - The report identifies numerous risk factors that could cause actual results to differ from forward-looking statements[27] - Examples of risk factors include: changes in governmental regulations, a decline in economic conditions, loan credit losses exceeding estimates, changes in interest rates, and cybersecurity risks[27] Conference Call and Company Information First Interstate BancSystem, Inc. will host a conference call on October 25, 2024, at 11:00 a.m. ET to discuss Q3 results, operating as a financial holding company across 14 states - A conference call to discuss Q3 2024 results is scheduled for Friday, October 25, 2024, at 11:00 a.m. Eastern Time[30] - First Interstate BancSystem, Inc. is a community banking-focused holding company operating in 14 states, including Arizona, Colorado, Idaho, Iowa, Kansas, and Montana[31] Financial Statements and Tables Consolidated Statements of Income Presents a detailed breakdown of the company's revenues and expenses for Q3 2024, with comparisons to the four preceding quarters Consolidated Balance Sheets Details the company's assets, liabilities, and stockholders' equity as of September 30, 2024, with comparisons to the four preceding quarter-ends Loans and Deposits Provides a detailed composition of the company's loan portfolio and deposit base as of September 30, 2024, with historical comparisons Credit Quality Details key credit quality indicators, including allowance for credit losses, net charge-offs, non-performing assets, and criticized loans Selected Ratios - Annualized Lists key annualized financial and capital ratios, including return on assets, return on equity, efficiency ratio, and regulatory capital ratios Average Balance Sheets Presents average balances for assets, liabilities, and equity, with corresponding interest income/expense and average rates for net interest margin analysis Non-GAAP Financial Measures Provides a reconciliation of GAAP measures to their non-GAAP counterparts, such as tangible book value and adjusted net interest margin