First Interstate BancSystem’s Earnings Call Highlights Growth Amid Challenges

First Interstate Bancsystem ((FIBK)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for First Interstate BancSystem painted a picture of cautious optimism. The company showcased its robust capital and liquidity positions, alongside notable net income growth and an improved net interest margin. These positive indicators were tempered by challenges such as declining loan volumes, increased criticized loans, and a decrease in noninterest income. Despite these hurdles, the company remains optimistic about future growth, although immediate challenges in loan and deposit volumes persist.

Strong Capital and Liquidity Position

First Interstate BancSystem ended the quarter with a commendable 72% loan-to-deposit ratio, minimal short-term borrowings, and no broker deposits. The common equity Tier 1 capital ratio saw an improvement to 13.43%, and the company anticipates continued accretion in this area.

Net Income Growth

The company reported a significant increase in net income for the second quarter, reaching $71.7 million, or $0.69 per diluted share. This marks an improvement from $50.2 million, or $0.49 per diluted share, in the first quarter, highlighting a positive trend in profitability.

Improved Net Interest Margin

First Interstate BancSystem achieved a 12 basis point increase in its net interest margin, reaching 3.26%. This was driven by improved repricing and the payoff of lower-yielding loans, contributing to the company’s financial health.

Expense Discipline

The company demonstrated effective expense management, with noninterest expense declining by $5.5 million to $155.1 million. This was largely due to lower seasonal payroll taxes and reductions in incentive-based compensation.

Positive Deposit Profile

A notable 93% of the deposit base is located in areas where First Interstate holds a top 10 market share, with 70% of deposits in markets growing faster than the national average. This positions the company well for future growth.

Loan Decline

Loans held for investment saw a decline of $1 billion, influenced by strategic decisions and the continued amortization of the indirect lending portfolio. This reflects a cautious approach in the current economic environment.

Criticized Loans Increase

The company experienced a $176.9 million, or 17.2%, increase in criticized loans, primarily due to slower lease-up in the multifamily book. This remains an area of concern that the company is closely monitoring.

Noninterest Income Decrease

Noninterest income decreased by $0.9 million from the previous quarter, impacted by a $7.3 million valuation allowance related to loans in a branch transaction. This represents a challenge that the company aims to address.

Deposit Decline

Deposits declined by $102.2 million in the second quarter, although they remain approximately flat compared to the prior year. This indicates stability in the deposit base despite the quarterly decline.

Forward-Looking Guidance

Looking ahead, First Interstate BancSystem’s management provided guidance for fiscal year 2025, projecting a high single-digit increase in net interest income for 2026. They expect continued margin improvement with generally flat total loan balances. The company remains focused on core profitability and optimizing the balance sheet, with expectations of ongoing capital and liquidity strength.

In summary, First Interstate BancSystem’s earnings call reflected a balanced view of its current financial standing and future prospects. While the company faces challenges with loan and deposit volumes, its strong capital position, net income growth, and strategic focus on profitability provide a solid foundation for future growth.