• Net Income: $55.5 million in the third quarter, or $0.54 per share.
• Net Interest Margin (excluding purchase accounting accretion): Increased by 5 basis points to 2.97%.
• Net Interest Income: $205.5 million, an increase of $3.8 million from the previous quarter.
• Noninterest Income: Increased to $46.4 million, with a 3% increase excluding a $2.6 million gain from a branch sale.
• Noninterest Expenses: Increased by $2.5 million, including a $3.8 million onetime CEO transition cost.
• Loan Balances: Decreased by $207.9 million in the third quarter.
• Deposits: Ended essentially flat, with a 1% increase excluding a large temporary deposit outflow.
• Provision Expense: $19.8 million, with funded ACL coverage at 1.25% of total loans.
• Total Charge-offs: $27.4 million, with $5.3 million excluding two significant metro office loans.
• Common Equity Tier 1 Capital Ratio: Increased 30 basis points to 11.83%.
• Dividend: Declared a dividend of $0.47 per share, yielding 6.3% for the third quarter.

• Warning! GuruFocus has detected 7 Warning Signs with FIBK.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• First Interstate BancSystem Inc (NASDAQ:FIBK) recorded a net income of $55.5 million in the third quarter, or $0.54 per share.
• The net interest margin, excluding purchase accounting accretion, increased by 5 basis points to 2.97%, with expectations to exceed 3% in the fourth quarter.
• Noninterest expenses came in better than expected, despite including onetime costs related to the CEO transition.
• Criticized and classified loans both declined in the third quarter, indicating improved credit quality.
• Deposits remained stable, ending essentially flat, with a 1% increase when excluding a large temporary deposit outflow.

Negative Points

• There was significant charge-off noise related to the metro-office portfolio, including a large property transitioning to nonaccruals.
• Loan balances decreased by $207.9 million in the third quarter, with declines in construction and mortgage balances.
• The cost of interest-bearing deposits increased more than anticipated due to customers pursuing higher rates ahead of the Fed's rate cut.
• Noninterest expense increased by $2.5 million, primarily due to a onetime expense related to the CEO transition.
• The company experienced higher-than-expected net charge-offs, particularly from two metro office loans, impacting overall financial performance.

Q & A Highlights

Q: Can you remind us of the specific reserves set aside for the C&I relationship expected to resolve by year-end? A: We don't specifically highlight reserves on a credit, but we believe the reserve is adequate for the realizable value. - Kevin Riley, CEO

Q: Did you have reserves set aside for the charge-offs on the two metro office credits? A: There were no specific reserves, but the characteristics of those loans were considered in our overall allowance. We anticipated potential issues and ordered an appraisal to write down the larger loan. - Marcy Mutch, CFO

Q: What is the spot rate on deposits at the end of September and the average margin in September? A: The spot rate on deposits was 2%, and the core margin, excluding purchase accounting, was 3.03% in September. - Marcy Mutch, CFO

Q: Can you discuss the $1.7 billion of borrowings that will reprice early in the first quarter? A: We have about $1 billion resetting in January, providing flexibility. Rate cuts will be accretive, and we'll evaluate options as the time comes. - Marcy Mutch, CFO

Q: Could you explain the swap termination in the third quarter? A: We terminated $550 million of swaps to reduce exposure going into 2025, as we become more liability sensitive. This contributed slightly to interest income. - Marcy Mutch, CFO

Q: What are your expectations for loan demand as we move into next year? A: There's potential pent-up demand, but it's uncertain when it will materialize. We're ready to respond when it does. - Kevin Riley, CEO

Q: How do you view the transition from construction to permanent finance in your loan portfolio? A: We continue to support loans needed by our customers and communities, focusing on full relationships outside metro areas. - Marcy Mutch, CFO

Q: Are there any opportunities to work on expenses as we move into 2025? A: Our efficiency ratio is more of a revenue issue. As NII builds and fee income gains traction, the efficiency ratio should improve. - Marcy Mutch, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.