First Interstate BancSystem(FIBK) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net income of $108.8 million or $1.08 per diluted share in Q4 2025, compared to $71.4 million or $0.69 per diluted share in Q3 2025 [15] - Net interest income decreased by $0.4 million or 0.2% to $206.4 million compared to the prior quarter, and decreased by $7.9 million or 3.7% compared to Q4 2024 [15][16] - Non-interest income was $106.6 million, an increase of $62.9 million from the prior quarter, driven by a gain on sale of $62.7 million associated with divestitures [17] - Non-interest expense was $166.7 million for Q4 2025, an increase of $8.8 million from the prior quarter [17] - The fully tax-equivalent net interest margin was 3.38% for Q4 2025, compared to 3.36% in Q3 2025 and 3.20% in Q4 2024 [16][22] Business Line Data and Key Metrics Changes - Loans decreased by $632.8 million in Q4 2025, including $62.8 million of continued amortization of the indirect portfolio and $72.5 million in loans moving to held for sale [19] - Total deposits decreased by $516.7 million to $22.1 billion as of December 31, 2025, driven by the sale of $641.6 million of deposits in the Arizona and Kansas transaction [19] - Criticized loans decreased by $112.3 million or 9.6% in Q4 2025, and non-performing assets decreased by $47.3 million or 26% [9][18] Market Data and Key Metrics Changes - The ratio of loans held for investment to deposits was 68.8% at the end of Q4 2025, compared to 70.1% at the end of Q3 2025 and 77.5% at the end of December 2024 [20] - The company maintained a proactive approach to credit, with net charge-offs for the full year of 2025 at 24 basis points of average loans, in line with long-term expectations [18] Company Strategy and Development Direction - The company has focused on improving core profitability, optimizing the balance sheet, and refocusing capital investment in geographies with strong market share and growth potential [6][10] - Strategic actions included branch divestitures in Arizona, Kansas, and Nebraska, outsourcing the consumer credit card product, and discontinuing originations and indirect lending [6][10] - A new, flatter organizational structure was implemented to enhance decision-making and support organic growth [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for organic growth following the restructuring of the banking organization and the addition of new team members in growth markets [32][54] - The company anticipates a slight decline in total loans for 2026, with expectations for modest growth in the latter half of the year [24][25] - Management highlighted the importance of maintaining disciplined credit management while pursuing profitable growth opportunities [56] Other Important Information - The company declared a dividend of $0.47 per common share, equating to a 5.7% annualized yield based on the average closing price during Q4 2025 [22] - The share repurchase authorization was increased to $300 million, with approximately $180 million of capacity remaining under the program [21] Q&A Session Summary Question: Loan balances and production outlook - Management noted that a significant portion of the decline in loan balances was due to payoffs of criticized loans, which is viewed positively [31] - There was improved loan production in December, and management is optimistic about the reorganization's impact on growth [32] Question: Margin expectations - Management expects net interest margin to improve sequentially, with a target of north of 3.5% by the end of 2026 [34] Question: Reinvestment rates on new loans and securities - New loan production is currently in the low- to mid-6% range, while securities have seen a slight decrease in reinvestment rates [38] Question: Buyback activity and capital management - Management plans to continue executing share buybacks, with a focus on approaching peer median capital levels [39] Question: Credit quality and criticized loans - Management is optimistic about continued improvement in credit quality, with proactive management strategies in place [40] Question: Expense guidance and seasonality - Management anticipates flat to slightly lower expenses in 2026, with a focus on maintaining discipline across controllable expenses [44][46] Question: Market opportunities in Colorado - Management expressed confidence in the current branch network and team in Colorado, with potential for future expansion [61][62]