First Interstate BancSystem(US:FIBK)2021-10-27 18:52Financial Data and Key Metrics Changes - The company reported net income of $47.1 million or $0.76 per share, which includes $0.08 of merger-related expenses and $0.02 related to legal claims settlement. Excluding these items, earnings per share was $0.86, a 25% increase from the prior quarter [8][10] - Net interest income excluding PPP increased at a similar pace as the second quarter, and fee income showed strong sequential increases, resulting in a 12% growth in non-interest income [11][12] - Total deposits increased by $442 million, with nearly half of the growth coming from non-interest-bearing deposits [10][33] Business Line Data and Key Metrics Changes - Loan growth was below expectations, but annualized loan growth excluding Wyoming was over 4% for the quarter [12] - The digital mortgage application portal accounted for approximately 5% of total mortgage application volume, with rapid growth expected as training for staff is rolled out [14][15] - Non-interest income increased by $4.4 million quarter-over-quarter to $39.7 million, driven by higher business credit card volume and a return to historic levels of mortgage banking revenues [28][29] Market Data and Key Metrics Changes - Economic activity in the company's market remains healthy, driving strong inflows of core deposits despite supply chain and labor challenges [10] - The company noted strong demand and production across the organization, with the exception of Wyoming, indicating a robust market environment [12] Company Strategy and Development Direction - The company is focused on integrating the merger with Great Western Bancorp, with positive feedback from employees and a strong outlook for organic growth in attractive markets [18][19] - Investments in technology are expected to enhance productivity and service delivery across various business lines, including mortgage and small business services [14][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to generate higher levels of net interest income due to increased earning assets, despite challenges in loan growth [36] - The company is well-positioned to meet loan demand and is committed to maintaining pricing and underwriting standards [36][37] Other Important Information - The company recorded $6.6 million in acquisition expenses and $1.2 million for legal claims settlement, with non-interest expenses expected to rise approximately 1% year-over-year [30][31] - The allowance for loan losses remained stable at 1.4%, with no provision expense recorded due to stable asset quality [34][35] Q&A Session Summary Question: Update on Great Western results and conservative growth outlook - Management indicated that if problem assets are cleaned up before the acquisition closes, organic loan growth could occur sooner than expected [42][43] Question: Timing of the merger close and its impact - Management noted potential delays in acquisition approvals due to Fed leadership changes, but still expects the merger to close in the first quarter [44][45] Question: Expectations for fee income in 2022 - Management anticipates continued growth in fee income, contingent on improvements in supply chain and labor issues [46] Question: Non-interest expense guidance - Non-interest expense growth is based on last year's numbers, with expectations for consistency in operating run rate [47] Question: Liquidity and cash management going into the deal - Management plans to prudently manage cash levels as deposits continue to grow, aiming to reduce excess cash on the balance sheet [49][50] Question: Loan growth expectations for the fourth quarter - Management confirmed expectations for growth in average loans excluding PPP [51] Question: Allowance ratio and qualitative reserves - Management is considering adjustments to qualitative factors for allowance as economic conditions improve, potentially leading to a decrease toward day one levels [52]