First Interstate Bancsystem ((FIBK)) has held its Q4 earnings call. Read on for the main highlights of the call.
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During the recent earnings call, First Interstate Bancsystem conveyed a balanced sentiment characterized by both achievements and challenges. The bank highlighted successful initiatives such as deposit growth and reduced borrowings, which have positively impacted their capital ratios and expanded their net interest margin. However, the company also faced hurdles, including a decline in net income, a reduction in the loan portfolio, and an increase in criticized assets and net charge-offs. This mixed sentiment reflects both positive strides and ongoing challenges for the bank.
Deposit Growth
First Interstate Bancsystem reported a notable deposit growth of $151.5 million in the fourth quarter, primarily driven by an increase in checking and low-cost deposits. This growth is a positive indicator of the bank’s efforts to strengthen its funding base and improve liquidity.
Reduction in Borrowings
The bank achieved a significant reduction in borrowings, cutting borrowed funds by $1 billion during 2024, with half of this reduction occurring in the fourth quarter alone. This move has likely contributed to better capital ratios and reflects the bank’s strategic focus on improving financial stability.
Net Interest Margin Expansion
The net interest margin expanded by 16 basis points, reaching 3.2% in the fourth quarter. This increase suggests improved profitability from the bank’s interest-earning activities, a critical factor for its overall financial performance.
Capital Ratios
The common equity Tier 1 capital ratio rose to 12.16% by the end of the quarter, demonstrating the bank’s strong capital position and its ability to absorb potential losses, which is essential for maintaining investor confidence.
Decline in Net Income
Despite positive developments, First Interstate Bancsystem experienced a decline in net income, which fell to $52.1 million or $0.50 per share, down from $55.5 million or $0.54 per share in the previous quarter. This decrease highlights the challenges the bank faces amidst a changing financial landscape.
Loan Portfolio Reduction
The bank’s loan portfolio decreased by $182.2 million in the fourth quarter, with no single category driving this reduction. This contraction indicates cautious lending practices or reduced demand for loans, which could impact future revenue streams.
Increased Criticized Assets
Criticized assets saw an increase in the fourth quarter, with over 90% of the net increase attributed to four loans totaling about $160 million. This rise could signal potential credit quality issues that the bank may need to address going forward.
High Net Charge-Offs
First Interstate Bancsystem reported high net charge-offs totaling $55.2 million, primarily due to the charge-off of a non-performing Commercial & Industrial (C&I) credit. This situation underscores the importance of maintaining robust credit risk management practices.
Forward-Looking Guidance
Looking ahead, the bank provided guidance for 2025, expecting low-single-digit deposit growth and modest loan growth, particularly in the latter half of the year. They anticipate a 5% to 7% increase in net interest income, driven by continued net interest margin expansion. The bank plans to phase out indirect lending originations, with a considerable portion of the portfolio expected to amortize within the next year. Additionally, non-interest income is projected to rise modestly, while non-interest expenses are forecasted to increase by 3% to 5% over 2024 levels.
In summary, First Interstate Bancsystem’s earnings call painted a picture of cautious optimism, with several strategic achievements counterbalanced by immediate challenges. The bank’s efforts in deposit growth and borrowings reduction are commendable, yet declining net income and rising criticized assets present areas requiring attention. Forward-looking guidance suggests a continued focus on steady growth and prudent financial management.
