FIRST INTERSTATE BANCSYSTEM INC Q4 FY2024 earnings call

• Jim Reuter emphasized the bank's attributes like low-cost deposit base, strong market presence, and client-centric approach, focusing on full relationship banking and aligning incentives with deposit growth, loan pricing, etc., while expecting a decline in M&A. They discontinued indirect lending originations, which is 4% of loan balances with 30-40% amortizing in 12 months.
• Marcy Mutch discussed deposit growth of $151.5 million, net income, interest margin expansion, fee businesses with modest increases in treasury management and wealth management, non-interest expenses increasing due to medical insurance and short-term incentives, balance sheet changes including deposits and loans, and dividend declaration of $0.47 per share.
• David Della Camera reviewed 2025 guidance, including deposits increasing in low-single digits, loans having modest growth focusing on back half, net interest income expected to increase 5-7% vs 2024, non-interest income modestly higher, non-interest expense to increase 3-5% due to normalization and advertising, and $1-2 million in first quarter expenses for indirect lending discontinuation.

For the fourth quarter, the company reported net income of $52.1 million or $0.50 per share, compared to $55.5 million or $0.54 per share in the third quarter of 2024. Deposits increased by $151.5 million, while loans declined by $182.2 million. The fully tax equivalent net interest margin increased 16 basis points to 3.2%, and excluding purchase accounting accretion, it was 3.08%. Net charge-offs totaled $55.2 million, and the provision expense was $33.7 million. Deposits contributed 151.5 million to the balance sheet, and loans saw a decline, with commercial real estate loans having some movement due to construction to permanent financing.

• Deposits are expected to increase in the low-single digits with normal seasonality.
• Loans will have modest growth, focusing on the back half of 2025, with the indirect lending portfolio amortizing 30-40% of balances in 12 months.
• Net interest income is anticipated to increase 5% to 7% in 2025 compared to 2024.
• Non-interest income is expected to be modestly higher year-over-year, excluding property sales in 2024.
• Non-interest expense is forecasted to increase 3% to 5% due to normalization of some expenses and additional advertising in the second half of 2025.
• $1 million to $2 million in first quarter expenses are anticipated related to the discontinuation of indirect lending.

• Criticized assets increased in the fourth quarter, mostly in the commercial real estate portfolio, with specific loans facing challenges like slower lease-up or property-specific issues.
• Credit policy and process changes were implemented to enhance portfolio monitoring, including expanding reviews of the portfolio.

Q: Around the margin, asked about spot rate on deposits and borrowings at year-end.

A: December full month interest-bearing deposit cost was $187 million, margin for the month 310 ex-purchase accounting; borrowings had higher rates in January with a step down.

Q: About criticized loans, third-party review, sizing of CRE relationships, and C&I inflows.

A: Third-party review confirmed credit ratings were right, criticized loans in Great Western Bank footprint with no marks, $160 million in four CRE loans (largest $58M, smallest ~$30M), and C&I inflows were mostly normal activity with no significant issues.

Q: On reserve, reserve level and charge-off pace.

A: Reserve level is felt to be adequate, charge-offs expected to be balanced throughout the year.

Q: On expense side, lending staff hires and staff morale.

A: No plans to acquire lending teams, staff morale is positive with changes viewed positively.

Q: On loan growth, sizing of modest loan growth and indirect runoff.

A: Loans expected to be flattish on the year with indirect, a little down in first half, growth in second half.

Q: On deposit growth guidance and non-accrual interest recovery.

A: No significant change in deposit mix expected, non-accrual interest recovery in fourth quarter was above typical with net movement in loans.

Q: On capital allocation, dividend and potential buyback.

A: No big departure in capital allocation philosophy, guidance on capital plans to be shared at next call.

Q: On fee income, payment volume growth trend.

A: Fee income expected to have some growth in 2025 but not material.

Q: On technology and loan yield.

A: Technology stack has tools, loan yields expected to move modestly higher through the year.

Q: On senior living vertical and underlying credit pressure.

A: Criticized loans in senior living were specific to properties, not a vertical issue.

Q: On underwriting confidence and capital review.

A: Confident in underwriting with third-party review affirming credit discipline, capital plans to be reviewed ongoing.

Q: On average earning asset base inflection.

A: Average earning assets expected to hit a bottom with borrowings amortizing, inflection in back end of the year.