First Interstate BancSystem’s Earnings Call: A Balanced Outlook

First Interstate Bancsystem ((FIBK)) has held its Q1 earnings call. Read on for the main highlights of the call.

First Interstate BancSystem’s recent earnings call revealed a balanced sentiment, highlighting both positive strides and ongoing challenges. The company reported improvements in net interest margins and strategic moves like branch sales to optimize capital. However, concerns were raised regarding credit quality, with increases in criticized loans and nonperforming assets, alongside declines in loan and deposit balances. Overall, the sentiment was neutral, as positive and negative aspects were evenly matched.

Net Interest Margin Improvement

The earnings call highlighted an improvement in the net interest margin, with the fully tax equivalent net interest margin increasing by 2 basis points to 3.22%. Excluding purchase accounting accretion, the net interest margin saw a 6 basis point rise to 3.14%. This improvement signifies a positive trend in the company’s financial health.

Reduction in Borrowings

First Interstate BancSystem successfully reduced its borrowings by $607.5 million in the first quarter of 2025, marking a significant reduction of over $1 billion compared to the third quarter of 2024. This reduction reflects the company’s efforts to streamline its financial operations and improve its balance sheet.

Dividend Declaration

The company declared a dividend of $0.47 per share, providing a yield of 6.1% for the first quarter of 2025. This move underscores First Interstate BancSystem’s commitment to returning value to its shareholders, even amid challenging market conditions.

Branch Sale and Strategic Realignment

In a strategic move, First Interstate BancSystem announced the sale of 12 branches in Arizona and Kansas. This sale is expected to result in a tangible book value accretion of roughly 2% and an improvement in the common equity Tier 1 ratio by approximately 30 to 40 basis points, indicating a strategic realignment to enhance capital efficiency.

Criticized Loan Increase

The earnings call revealed an increase in criticized loans by $252.8 million, primarily within commercial real estate. This increase reflects challenges in the sector, particularly with multifamily downgrades due to slower lease-up activity, highlighting areas of concern for the company.

Nonperforming Assets Increase

Nonperforming assets rose by $52.8 million, with significant contributions from agriculture and commercial real estate credits. This increase poses a challenge to the company’s credit management strategies, necessitating close monitoring and strategic adjustments.

Loan Balance Decline

Loan balances declined by $467.6 million in the first quarter, attributed to lower customer demand and intentional runoff of the indirect lending portfolio. This decline indicates a cautious approach by the company in response to market conditions.

Deposit Decline

Deposits saw a decline of $282.8 million in the first quarter, reflecting seasonal trends. However, the decline was approximately half compared to the first quarter of 2024, suggesting some stabilization in deposit levels.

Forward-Looking Guidance

Looking ahead, First Interstate BancSystem’s management outlined a strategic shift towards organic growth and relationship banking, moving away from large-scale mergers and acquisitions. The divestiture of 12 branches is expected to enhance the capital position by 30 to 40 basis points. The company anticipates a net interest income increase of 3.5% to 5.5% for 2025 over 2024, with further improvements projected into 2026. Additionally, the net interest margin is expected to expand by 10 to 15 basis points in the second quarter, with continued improvement throughout the year. Noninterest expenses are forecasted to rise by 2% to 4% in 2025, excluding branch sale impacts.

In conclusion, First Interstate BancSystem’s earnings call presented a mixed bag of results, with improvements in net interest margins and strategic capital optimization efforts counterbalanced by challenges in credit quality and declines in loan and deposit balances. The company’s forward-looking guidance suggests a focus on organic growth and capital efficiency, setting the stage for potential future improvements.