First Interstate BancSystem, Inc.

Good day and welcome to the first Interstate Bank System's third quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on the touchtone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To answer your question, please press star then 2. Please also note today's event is being recorded. I would now like to turn the conference over to Lisa Slater-Bray. Please go ahead, ma'am.

Thanks, Rocco. Good morning. Thank you for joining us for our third quarter earnings conference call. As we begin, please note that the information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those expressed by those statements. I'd like to direct all listeners to read the cautionary note regarding forward-looking statements and factors that could affect future results contained in our most recent annual report on Form 10-K filed with the SEC and in our earnings release, as well as the risk factors identified in the annual report and our more recent periodic reports filed with the SEC. Relevant factors that could cause actual results to differ materially from any forward-looking statements are included in the earnings release and in our SEC filings. The company does not undertake to update any forward-looking statements made today. A copy of our earnings release, which contains non-GAAP financial measures, is available on our website at fibk.com. Information regarding our use of the non-GAAP financial measures may be found in the body of the earnings release, and reconciliation to their most directly comparable GAAP financial measures is included at the end of the earnings release for your reference. Joining us for management this morning are Kevin Riley, our Chief Executive Officer, and Marcy Mutch, our Chief Financial Officer, along with other members of our management team. At this time, I'll turn the call over to Kevin Riley. Kevin?

Thanks, Lisa. Good morning, and thanks again to all of you for joining us on the call today. Again this quarter, along with our earnings release, we have published an updated investor presentation that has some additional disclosures that we believe will be helpful. The presentation can be accessed on our investment relation website, and if you have not downloaded a copy yet, I would encourage you to do so. I'm going to start today by providing an overview of the major highlights of the quarter, and then I'm going to turn the call over to Marcie to provide a little bit more detail on our financials. We continue to see encouraging signs of economic strength through our markets, which helped us to deliver a strong Quarter, highlighted by quality balance sheet growth, significant contributions from many of our sources of non-interest income, and generally positive trends in asset quality. For the quarter, we generated net income of $48.3 million, or $0.76 per share, and pre-tax, pre-provision income of $68.2 million. Unemployment rates within our footprint continue to show notable improvements in the quarter with unemployment levels in line with or better than national figures. In the West Division, Oregon witnessed the largest recovery with unemployment dropping 3.6% to 8% since June. While Iowa ticked up, it remains low relative to the nation at 6.1%. In the Market Division, South Dakota saw the greatest improvement in labor trends with unemployment rate now at 4.1%, which is the second lowest in the nation. In all, jobs appear to be coming back, and we're optimistic about our footprint. Looking at the seven main state and national parks in our footprint, once again, through June, statistics are showing strong year-over-year momentum in tourism, with the one exception of Glacier National Park. This aligns with all the anecdotal information we are hearing from our clients and our communities. We are seeing these positive economic trends flow through our financial performance of our clients, many of which are having record years. This strong performance is coming from a wide variety of businesses. Auto dealers, auto repair shops, architects, contractors, landscapers, small manufacturers, just to name a few. As a result, we continue to see very strong inflows of commercial deposits. During the third quarter, we had annualized deposit growth of 16.3%, with most of the growth coming in non-interest-bearing deposits, which were up $372 million in the quarter. Also encouraging was that 9% of the demand deposits and almost 7% of the savings growth came from new clients. These positive economic trends are also reflected in the health of asset quality. We had declines in both non-performing loans and non-performing assets. As of October 16th, we had only $77.1 million of loans in deferral status and $6.1 million of residential mortgages in forbearance. Together, this is less than 1% of outstanding loan balances. These positive trends in asset quality, along with the significant reserve bill we had earlier in the year, resulted in a modest provision requirement for this quarter. We also had a solid quarter of loan growth considering the macro environment. Our total loans increased 120 million, or 4.7% annualized. We continue to be very conservative in our underwriting, but one thing we have noticed is that the current environment is a little bit less competitive. Many of the banks in our market appear to be in a defensive mode right now and are having to devote most of their focus to credit issues. So we are benefiting from the strong position we have built and we continue to pursue quality lending opportunities without having to deal as often with irrational competitors. In terms of our market, we saw the strongest loan growth coming in our West Division. which was up more than 3% compared to the end of the prior quarter. Mortgage banking continues to be a strong contributor and our revenues were up 38% over the prior year. 158 million of our closed loans or 27% of the loans we funded were originated in our online application process. During the summer months, we saw more demand from purchase and construction loans. which accounted for almost 50% of our production in the third quarter. So it's just that refinancing boom driving the increase in production. The increase in purchase and construction loans reflects the trends we have talked about previously where we continue to see a steady inflow of people relocating to Montana and Idaho. We should be in a good position to continue to benefit from this trend for years to come. While our focus this year has clearly been on managing through the pandemic, the performance and trends we have seen reinforce the vision we had for our franchise when we entered the faster-growing division, western division, markets Idaho, Oregon, and Washington. Our market division, consisting of our historical markets of Montana, South Dakota, and Wyoming, continued to provide stable, low-cost deposit base. while our West division provides us the opportunity to deploy that liquidity into areas where loan demand is higher. The combination of these markets create a platform that is conducive to generating strong returns for our shareholders while maintaining a fortress balance sheet from the perspective of capital, liquidity, asset quality, and reserves. Given our strong financial performance and low risk profile, We continue to have the ability to return a significant amount of capital to our shareholders. During the third quarter, we repurchased 1.4 million shares of our common stock, and our board of directors just approved a 12% increase in our quarterly dividend. We are very pleased that we are able to increase the amount of capital that we return to our shareholders while still being well-positioned to manage through the duration of this pandemic. With that, I'd like to turn the call over to Marcie so she could provide a little more detail around the financial numbers. Marcie.