First Interstate BancSystem(FIBK) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $50.2 million or $0.49 per share, a decrease from $52.1 million in the previous quarter [20] - The fully tax equivalent net interest margin increased by 2 basis points to 3.22%, while the net interest margin excluding purchase accounting accretion increased by 6 basis points to 3.14% [20] - Non-interest income decreased by $5 million to $42 million, driven by seasonality in Payment Services and lower trust fees in Wealth Management [20] - Non-interest expenses were $160.6 million, a slight reduction of $300,000 from the prior quarter [21] - Loan balances declined by $467.6 million, attributed to lower customer demand and intentional runoff of the indirect lending portfolio [22] - Deposits declined by $282.8 million, reflecting seasonal trends, but were roughly flat compared to the same period last year [22] - The common equity Tier 1 capital ratio improved by 37 basis points to 12.53% [24] Business Line Data and Key Metrics Changes - The company is exiting 12 locations in Arizona and Kansas, with associated deposit balances of $740 million and about $200 million in loans included in the transaction [9] - The average branch size is approximately $76 million, smaller than the peer average, prompting a review of the branch network [8] Market Data and Key Metrics Changes - The company anticipates modest deposit growth in 2025, with a 12 basis point decline in interest-bearing deposit costs in the first quarter [28] - The loan-to-deposit ratio finished the first quarter at 76.4% [23] Company Strategy and Development Direction - The company is refocusing on organic growth and relationship banking, deemphasizing large-scale mergers and acquisitions [6] - Capital will be deployed to areas of strength, with a focus on optimizing the branch network and enhancing brand presence [7][15] - The company plans to begin repositioning, opening, or consolidating branches later in 2025 [8] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing economic uncertainty and did not provide 2026 guidance but indicated expectations for medium-term net interest income improvement [7] - The company is optimistic about credit quality, with a proactive approach to managing credit concerns [13] - Management expects net interest income to increase by 3.5% to 5.5% for the full year 2025 compared to 2024 [29] Other Important Information - The company has hired a new Chief Risk Officer, Nathan Jones, to enhance credit and enterprise risk management [17] - A new director of marketing and client experience has been appointed to reinvigorate the brand [15] Q&A Session Summary Question: Can you provide the spot rate on deposits and average margin in March? - The interest-bearing deposit cost in March was 1.77%, and the margin was 3.14% [35] Question: Can you elaborate on the types of industrial credits and agricultural loans that migrated this quarter? - The majority of downgrades were from five credits, including two agricultural and three commercial real estate credits [37] Question: How do you see the risk of having to build more reserves from here? - The reserve ratio was deemed appropriate at 1.24%, with ongoing assessments to adjust as necessary [40][41] Question: Is the dividend preservation the number one priority? - Dividends are a priority, but the company is also considering other options for capital deployment [54] Question: Can you share any color on the percentage of the construction book expected to be completed in the next twelve months? - No specific percentage was provided, but the company is proactively managing construction loans [102] Question: What is the expected efficiency ratio for the branches? - The non-interest expense as a percentage of deposits for the branches is expected to be in the mid-2s range [70] Question: How should we think about capital deployment timing? - Capital deployment decisions will be made on a quarter-by-quarter basis, considering various options [74]