First Interstate BancSystem, Inc. Q4 FY2025 earnings call

• Strategic Actions: Announced branch divestitures in Arizona, Kansas, Nebraska; outsourced consumer credit card product; discontinued indirect lending originations. Authorized $300 million share repurchase, repurchased ~3.7 million shares by year-end 2025.
• Credit Quality: Criticized loans decreased by $112.3 million or 9.6%, non-performing assets decreased by $47.3 million or 26% in Q4. Net charge-offs for full year 2025 were 24 basis points of average loans.
• Branch Network Optimization: Closed Arizona and Kansas branches, sold 11 Nebraska branches, consolidated branches in Nebraska, North Dakota, and Minnesota. Building out commercial banking team in Colorado and opening new branches in Montana.
• Organizational Redesign: Transitioned to a flatter banking organization structure with new State Presidents, aiming to speed up decision-making and drive organic growth.

Loan balances declined in the fourth quarter due to factors like intentional non-relationship loan run-off, branch transactions, etc. Deposits decreased by $516.7 million to $22.1 billion, but excluding sold deposits, deposits increased. Net interest income decreased compared to prior year but net interest margin improved. Non-interest income was up due to a gain on branch sale. Credit quality improved with criticized loans and non-performing assets decreasing, though net charge-offs were elevated in the quarter.

• Balance Sheet: Assumes low single-digit deposit growth in 2026 with normal seasonality. Total loans expected to be flat to slightly lower in 2026, excluding indirect portfolio run-off contributing 1%-2% decline.
• Net Interest Margin: Anticipates sequential improvement in net interest margin due to improving loan-deposit spread and loan repricing. First quarter NII expected to be ~3% lower than Q4 2025 due to fewer accrual days and deposit seasonality.
• Expenses: Anticipates flat to slightly lower expenses in 2026 compared to 2025, with normalization in medical insurance expense and reinvestment in growth initiatives.

There are forward-looking statements, and actual results may differ due to factors identified in the company's SEC filings, including risks related to economic conditions, interest rate fluctuations, credit risk, and competitive pressures.

Q: Jeff Rulis on loan balances and production A: James Reuter discussed loan balance declines due to criticized loan payoffs, improved production in December, and banking org redesign as a growth catalyst.

Q: Matthew Clark on margin and buyback A: David Camera talked about margin expectations north of 3.5% by year-end 2026 and continued share buyback activity.

Q: Kelly Motta on expenses A: David Camera explained expense seasonality and guidance around flat expenses.

Q: Andrew Terrell on criticized loans A: James Reuter discussed ongoing credit improvement but no absolute predictions.

Q: Jared Shaw on Colorado market A: James Reuter talked about Colorado as an exciting market with built-out teams and potential for additional locations.

Q: Timur Braziler on loan maturities A: James Reuter discussed loan maturities and opportunities to retain relationships.

Q: Timothy Coffey on loan-to-deposit ratio A: James Reuter and David Camera talked about long-term loan-to-deposit ratio targets and near-term guidance.

Q: Jeff Rulis on 2027 trends A: David Camera and James Reuter discussed margin improvement and capital considerations for 2027