First Interstate BancSystem, Inc.

Hello everyone and welcome to the first Interstate Bank System Inc. fourth quarter earnings call. My name is Nadia and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypad. I will now hand over to your host, Lisa Slicer, ready to begin. Lisa, please go ahead.

Thanks, Nadia. Good morning. Thank you for joining us for our fourth 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 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 filing. The company does not undertake to update any of the 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 non-GAAP financial measures may be found in the body of the earnings release, and a 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 Marcie 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 our call today. Again this quarter, along with our earnings release, we have published an updated investor presentation that has additional disclosures that we believe would be helpful. The presentation can be accessed on our investor relations website, and if you have not downloaded a copy yet, I encourage you to do so. I'm going to start off today by providing an overview of the major highlights of the And then I'll turn the call over to Marcy to provide more details on our financials. Our fourth quarter performance tapped off a very strong year for the company as we executed well on the integration of our merger with Great Western, realizing cost synergies we projected for the transaction while continuing to generate solid organic loan growth throughout our footprint. Specific to the fourth quarter, it was a bit noisy. with a handful of cleanup items that should set the stage for a strong 2023. While these items had a 7 cent impact on earnings per share in the quarter, we continued to execute well and saw continued positive trends in our loan growth, core margin expansion, and asset quality. As a result, excluding selected items, which we will walk you through, the company generated $0.89 of earnings per share. It is worth noting that this quarter included a $0.07 less contribution from purchase accounting accretion because of fewer early payoffs. We also added to our already robust allowance for credit losses despite continued improvement in asset quality and only two basis points of net charge-offs in the quarter. As you can see on slide 10, of the investor deck, our ACL coverage ratio has expanded meaningfully over the last two quarters. With this strong financial performance and a positive shift in AOCI, we saw a 2.3% increase in our book value per share and a 4% increase in our tangible book value per share from the end of the prior quarter. The banking environment continues to be favorable for us in the fourth quarter. which we were able to take advantage of given our strong capital and liquidity position. Many banks seemingly pulled back on loan production due to capital and funding constraints. We were pleased with our ability to win deals. In our larger footprint and increasing production from our newer markets, we saw plenty of high-quality lending opportunities. As a result, while maintaining our conservative underwriting criteria, we were able to generate our highest level of loan growth of the year with total loans increasing and the annual rate of 11.1%. Going forward, we will be selected in our growth opportunities as the environment remains uncertain and funding is less bountiful. As such, we are prudently planning for a slower pace of growth in 2023 than we experienced in the second half of 2022. The largest area of growth during the quarter came in our commercial real estate, much of which was the result of construction loans moving into this portfolio. The majority of these projects were multi-family properties, which given the high constraint in many of our markets and the significant demand of affordable housing, are strong, low leverage credits that we are adding to the balance sheet. The average rate on our new loan production in the fourth quarter was between 5.5% and 6%, which was up considerably from the prior quarter and progressively increased as the quarter went on. However, the average rate on loans funding on the balance sheet was lower, as prior construction commitments made earlier in the year funded this quarter. This trend will impact us for the next several months with projects in process. On the deposit side, we indicated on our last earnings call that we expected balance to be relatively flat in the fourth quarter, and they were earlier in the quarter. The outflow in the fourth quarter was concentrated in the month of December. While it appears the outflows were largely seasonal in nature, there is an element of depositors putting some of their excess liquidity to work. While our base case for 2023 suggests flat deposit balances year over year, we do expect normal seasonal declines in the first quarter. We also anticipate a mix shift out of non-interest bearing and lower cost balances into our indexed money market and CD specials. You should expect to see deposit betas increase accordingly, but remain relatively benign over the full cycle when compared to prior cycles. In terms of time deposits, as a third quarter, we continue to selectively utilize our ability to offer higher rates to add and to retain profitable long-term relationships. While this has placed some upward pressure on our deposit costs, to this point, the expansion in earning asset yields has outpaced those increases, and our adjusted net interest margin expanded by another two basis points this quarter. While this margin expansion trend will be harder to sustain going forward due to the balance sheet mix, we do anticipate to see good year-over-year net interest income growth in 2023. Despite the more challenging economic conditions, our asset quality trends were favorable again this quarter, with total non-performing assets declining by 24% and net charge-offs of just two basis points. Criticized loan balances were vastly higher, however, There was nothing unusual about the inflows we experienced here. As you know, credit was the biggest question mark heading into the acquisition, and our board recognized that as well. During the fourth quarter, we exceeded targeted reductions of non-performing assets and criticized loans set by our board. This resulted in a $4.2 million incentive compensation adjustment you see referenced in our material. Overall, the portfolio continues to perform extremely well, and we are pleased with the significant improvements we have made since closing the Great Western Acquisition. And with that, I'll turn the call over to Marcie for some additional details around the fourth quarter results. Go ahead, Marcie.