FIRST INTERSTATE BANCSYSTEM INC Q1 FY2025 earnings call

• Jim Reuter discussed the bank's longer-term strategy of deemphasizing large-scale M&A and refocusing on organic growth, including evaluating the branch network and exiting 12 locations in Arizona and Kansas. - Credit management: Proactive approach with criticized loans increasing $252.8 million, mainly in commercial real estate; nonperforming assets increased $52.8 million; completed external credit review. - Brand reinvigoration: Hired new director of marketing and client experience, increased investment in digital delivery channels. - New hires: Recently hired new Chief Risk Officer Nathan Jones. - Capital: Capital ratios improved due to balance sheet reduction, dividend remains a key priority.

For the first quarter of 2025, the company reported net income of $50.2 million or $0.49 per share compared to $52.1 million in the fourth quarter of 2024. The fully tax equivalent net interest margin increased 2 basis points to 3.22%, and excluding purchase accounting accretion, it increased 6 basis points to 3.14%. Noninterest income was $42 million, a decrease of $5 million from the prior quarter. Noninterest expenses were $160.6 million, a reduction of $0.3 million over the prior quarter. Loan balances declined by $467.6 million in the first quarter, deposits declined by $282.8 million, and borrowings declined by $607.5 million. The loan-to-deposit ratio finished the first quarter at 76.4%, net charge-offs totaled $9 million or 21 basis points, and provision expense totaled $20 million.

• While not providing 2026 guidance due to economic uncertainty, expect medium-term net interest income expectations and longer-term brand strategy. - Anticipate net interest income to increase 3.5% to 5.5% for 2025 over 2024, with quarterly numbers improving sequentially. - Expect 2026 net interest income to increase in the high single-digits over 2025 assuming flat loan balances. - Anticipate a meaningful step-up in the net interest margin in the second quarter, with margin excluding purchase accounting expected to increase around 10 to 15 basis points from the first quarter. - Noninterest expense guidance: 2% to 4% increase in 2025 versus 2024, including increase in advertising expense.

• Economic uncertainty affecting loan production and customer demand. - Credit risks in commercial real estate, including multifamily and industrial properties. - Potential impact of macroeconomic factors on credit quality and loan performance. - Uncertainty around branch network optimization and its impact on expenses and earnings.

Q: Just on the margin, do you have the spot rate on deposits at the end of March and the average margin in March?

A: Yes, sure. So interest-bearing deposit cost in March was 1.77%. We think that's a little bit lower into April on a spot basis. Margin in March was 3.14%. There was a little bit of nonaccrual impact during the month. So the actual effect of margin into April is higher and borrowings were – had declined towards the end of the month. So we start into April quite a bit higher than that.

Q: Just on the credit, calling out industrial or some select industrial credits and ag. Can you give us some better color as to the types of industrial credits and the type of ag that migrated this quarter? And I guess, what gives you comfort that the broader – those two broader portfolios are okay?

A: Yes. So on the nonperforming side, about – there were five credits that represented the majority two ag credits, three commercial real estate credits. The ag credits were different underlying properties. Property types, the commercial real estate a couple different as well within the criticized book, so about $75 million of multi and then some industrial as well. The industrial is really general industrial warehouse there isn't a specific underlying type that represents a majority of the book. It's a diversified underlying book. As those loans as they were downgraded, we looked very carefully at all of them. We're comfortable with where they are based on what we know and again, on the NPL side, as they move into nonperforming, there's a specific collateral review that occurs to make sure we're collateralized. And then any specific reserves would occur at that time, if necessary.