Good morning and thank you for attending today's First Interstate BancSystem First Quarter Earnings Call. My name is Jason, and I'll be the moderator for your call today. All lines will be muted during the presentation portion of the call with an opportunity for question-and-answer at the end. I would now like to pass the conference over to Lisa Slyter-Bray.

Thanks, Jason. Good morning. Thank you for joining our first 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 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 www.fibk.com. Information regarding our use of the 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 from 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. Thank, Lisa, and just let everybody know I'm traveling. So, it might sound a little different because I'm in a different location than my team. Well, let me start off. 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 add some additional disclosures that we believe will be helpful, especially to understand some of the purchase accounting and transaction costs impacting the quarter. The presentation can be accessed on our Investor Relations website, and if you haven't downloaded a copy yet, I would encourage you to do so. I'm going to start off by providing an overview of the major highlights of the quarter, and the progress we are making on the integration. And then, I'll turn the call over to Marcy to provide some more detail on our financials. In short, we feel really good where we stand, just three months into this merger. Results for the quarter were strong. Our adjusted net interest margins saw meaningful expansion, Underlying trends in both loans and deposits are favorable. We made meaningful progress toward resolving acquired problem credits. Our balance sheet remains highly flexible allowing us to take advantage of recent rate increases. The acquisition was accretive to our tangible book value, offsetting a significant portion of the OCI impact for the quarter. Our capital levels are strong and we are well prepared for system integration in May. And the cultural integration of these two organizations is going extremely well. For the quarter, our loan production and deposit inflows were favorable relative to what is traditionally a seasonally slow period. As we complete our integration, we expect to capitalize in some of the most vibrant,…

Thanks, Kevin, and good morning, everyone. As I walk through our financial results, unless otherwise noted, all of the prior period comparisons will be with the fourth quarter of 2021. Of course, the primary driver of the variances in each area will be the partial quarter impact from the Great Western merger, which closed on February 1. I'll begin with our income statement. On a GAAP basis, our net interest income increased by $56.2 million while the growth in our earning, while the growth in our earning assets from the acquisition was a primary driver, so too was the sequential expansion of our adjusted net interest margin as well as the increased contribution from accretion on purchased loans. Our reported net interest margin increased 11 basis points from the prior quarter to 2.8%. Excluding purchase accounting accretion and PPP income, our adjusted net interest margin increased 19 basis points from the prior quarter to 2.65%. This was driven by a favorable mix shift and an expansion in our yield on earning assets, primarily in our investment securities portfolio. On an average basis, loans increased to 56% of earning assets in the first quarter, up from 53% in the prior quarter. Our securities yield expanded 23 basis points, which was partially attributable to the repositioning we did after the Great Western investment -- after adding Great Western's investment portfolio, along with higher new investment yields, which were 2.2% in the first quarter. Looking ahead, we believe we are well positioned to see a continued expansion in our net interest margin due to a number of factors. We anticipate a continuation of the positive mix changes to our earning assets in the second quarter. Investment securities purchases continue to be accretive to book yields in the current environment, and we expect to…

Thanks, Marcy. I'll wrap up with a few comments on our outlook. Despite the inflationary pressures and higher interest rates, loan demand remains robust, and our pipeline remains strong across all asset classes in all margins. Pricing appears to be firming, and we expect to see the usual seasonal increases at the construction lines during the second and third quarters of this year. With the progress that we have been made in reducing Great Western's problem loans, the headwinds that we expected to have the total loan growth post closing have been meaningfully reduced. Based on our strong pipeline, we are optimistic for growth in excess of low single-digit outlook we previously gave for the combined company over the remainder of 2022. This should lead to further improvement in our earning assets mix, and additional expansion, our net interest margin. Combined with cost savings that we will see after system perversion, we are optimistic about the level of profitability that we'll be able to generate during the second half of the year. Another benefit of resolving the product loans at a faster pace than initially expected is that we have been able to devote more time and attention to executing on potential revenue synergies. We've been able to make more progress than we expected on putting the groundwork in place to take advantage of our larger footprint to drive growth in home loans, indirect lending, commercial and consumer credit cards and treasury management solutions. While we may see some small incremental benefits in 2022, we are setting the stage this year to see positive impacts from these efforts in 2023. And finally, we've been relatively conservative with respect to capital leading up to the closing of the merger. But we have the merger completed and more clarity around the credit quality and the acquired loan portfolio we have the ability to evaluate and consider options to optimize our capital. So with that, I'd like to open the call up to questions.

Our first question is from is from Jeff Rulis with D.A. Davidson. Please proceed.

Just a question on -- assuming there are some lockups or incentives aligned with -- I guess, through the conversion in mid-May. Any preliminary thoughts on retention or departures that you might see, I guess it could be a little -- to be determined, but what's your gauge on that as we approach conversion?

The lockups that we put into place for our producers are lockups that are in place for a year. So, that -- we're hoping that we'll continue to lock them up as they've been locked up so far since the transaction closed.

Got it. I guess the folks that you did stock through conversion, that departure is to be assumed, I suppose, or...

Yes, the one who gave retention bonuses -- yes, the one that gave retention bonus through conversions, they'll get the retention bonus once the conversion is done, and they'll move on. But the producers we gave lockups for over a 12-month period.

Fair enough. Kevin, on the -- just taking a different angle. Would a buyback be considered now with the deal closed, I guess, there was a discussion of some technical trading headwinds as you approach to close. And I just wanted to check in on capital use post? Or as we head forward and is buyback part of that discussion?

Well, as you know, we've always talked about the different things that we use capital for and buybacks is always part of the discussion. Right now, we probably -- we have more capital than we had pre-pandemic. And as you saw around endemic it we did some special dividends. We did some share buybacks. So everything is on the table, and we're looking at the options as we speak, so time will tell where we go.

Okay. And one last one on -- just looking forward on the maybe the credit path of NPA resolution from here, noting that the PCD balance is down and what you've moved into held for sale. But any kind of major mile posts that you see on the remaining NPAs going forward on potential resolution? Or is it more of a, that group is going to be a methodical work down from here?

I would say that, from this point on, it's kind of more like business as usual. There's no real big pool of anything. I think you will see some upgrades as the economy is improving in some areas, and you'll see some that were, we'll show the door and then we'll free right other ones. So, it's just going to be normal kind of working out of where we are with regards to these classified assets. But no, there is no real bucket that we are concerned of, as a bunch that we have to work on. So, it's not of just kind of working through them. So kind of like we have done with First Interstate over the years.

Okay. So again, no super low hanging fruit that you chunky resolution, it's just going to be the 139 left is sort of a work down process from here is the idea.

Yes.

Thank you for your question. Our next question is with Matthew Clark from Piper Sandler. Please proceed.

First one on the expense outlook. The fourth quarter run rate expectations of $160 million, I'm a little surprised that, it won't be lower than that given all the cost saves that are still yet to come, $56 million on an annualized basis. Can you just give us a sense for what might be masking some of that?

Again, Matt, I think when you take that extra 13 million and add it to the expenses that we did at deal announcement, plus our couple of percent just increase year over year in our budget. And then, we also have built into their some inflationary wage increases. Our wage increases related to inflationary pressures. And between all of that, that will be the run rate announcement and you add that on an annual basis, $14 million to that. We're kind of right in line with where we thought we'd be.

Okay. And then on the fee income run rate of $52 million to $54 million by the fourth quarter. I think some of that's accounting related to, but what else is getting you from that $44.5 million this quarter on a core basis up to that $5 million to $4 million range by the fourth quarter?

Again, I just think when you include the run rate from Great Western, we expect mortgage to be pretty flattish ex-MSR impact as we go into the back half of the year. We're just feeling positive about where we expect to be from a fee perspective. And again, part of that's the $14 million re-class.

Right. And there was $1.8 million of that in this quarter. Is that right for the re-class?

Yes.

Did I hear that correctly? Okay. Okay. And then on the pipeline, Kevin, you mentioned it's strong. I know the comparisons are distorted having just closed on the deal. But I guess, how would you size up that pipeline relative to the growth you might anticipate coming out of it, where it's coming from?

Yes, I always from what I get to my Chief Credit Officer is that they have approved $1.6 billion of loans and wrote something that sticks to the phones. Just it doesn't mean they're all going to be booked because they could be put by some other intention, but the approval process is probably at the highest level we ever seen.

Our next question comes from Jared Shaw with Wells Fargo. Please go ahead.

I guess maybe just going back to the growth, Kevin, you sound pretty optimistic about the geography and the job formation, people moving in, strong credit. You referenced competition slackening. I guess why not be more optimistic on growth. I guess you're saying we're off of the low single digits, but with the faster cleanup, what would have to happen to get you up to sort of mid-single digits or high single digits?

Well, it's always our goal, Jared, to grow as fast as we possibly grow. But again, we're in a risk business, and we want to make sure we're taking the appropriate risk in that growth. So, it's -- we're very optimistic that growth is going to be better than what we have seen maybe in the past, but the fact that matter, I don't want to -- you know me, I don't want to ever get out too far ahead of people and promise too much and under deliver. So, I rather hedge my bet with regards to what we think growth might be and it comes up better than that. You trust me I am going to turn down the business.

Yes, I think we optimistic about line usage, we're optimistic about line usage. We're seeing a slowdown in the pace of payoffs. And so, both those things to make are encouraging to us.

Okay. That's great color. And then, I'm just looking at the asset quality side and you referenced the $31 million remaining loan balances that could be exited. Are those already -- I guess a couple of questions. One, are they already marked. Is there -- is that sort of reflective of what you expect their worth? And is that included in the held-for-sale category?

Yes.

It is -- excuse me, it is not. Go, hold on, Michael?

Yes. This is Michael. The $31 million that you're referring to relates to the TDRs that we're anticipating doing over the next couple of quarters, so we rightsized some loans in the first quarter. And so, what you're seeing is that will be through we've taken the charge. So, now we just need to put together and re-document the loans so that we can upgrade the remaining balances up from classified.

Okay. So, not necessarily charge as you take that next step that's already been reflected in the valuation?

That's correct.

Okay. And then just finally for me, I guess, with the stronger environment purchasing securities. What -- where do you see securities potentially going as a percentage of assets? And is that something that would be phased out over the year? Or if there's good pricing, good opportunity, you potentially get there faster?

Yes. So, I do think we have the opportunity to deploy some of our cash into the investment securities portfolio. We see some good opportunities there. So I would expect, as a percentage of earning assets to go up a little bit, but of course, our first hope is to deploy that into the loan portfolio.

Thank you for your question. Our next question comes from Chris McGrady from KBW. Please proceed.

I guess a question on the balance sheet, understanding the excess cash position and the ability to remix. How should we be thinking about just growth in balance sheet? Maybe a comment on what you're assuming for deposit growth over the balance of the year?

That's a good question. Chris. Go ahead. Go ahead, Marcy. Go ahead.

So deposit growth generally goes up as we go through the next couple of quarters. We have seen a little bit higher pace of outflows for tax payments this quarter than normal. But overall through the second and the third quarter, we'd expect deposits to grow modestly and then kind of flatten out as we go into the end of the year or potentially slightly decline.

Okay. And then, is there a targeted mix that you're looking to get for the cash position? And if so, when you think you can get there?

So, there's not a targeted mix, but it's definitely down from where it is now. So, I think we have a lot of flexibility to put that to work either in the loan portfolio or the investment portfolio to increase overall net interest income.

Okay. And then maybe a final one. You provided the guidance on the fourth quarter where fees and expenses were going to exit. One of the questions we're getting a lot on this quarter is exit run rate of net interest income for this year. And so I'm interested in your thoughts if the forward curve would play out, how should we think about putting all the pieces together and kind of an exit run rate for spread income?

So, Chris said, isn't really something that we've disclosed in the past. I think if you look at -- I think we said we had three interest rate hikes in our budget most likely it could be more than that. I mean I think we've given you all the pieces to be able to do the math there. In terms of what our variable rate loans are immediately reprice there like 27% of the loan portfolio. Investment portfolio is 13%. The investment portfolio immediately reprices. We expect deposit betas to be low. So, I mean you can make some assumptions and kind of get there on your own based on what you think rates are going to do. Your crystal ball is probably as clear as ours.

Thank you for your question. Our next question is from Andrew Dorell with Stephens Bank. Please proceed.

So most of might have been asked and answered at this point, but just from a kind of bigger picture. Kevin, when -- we announced this transaction back in September. I know one of the slides in the presentation gave us kind of a rundown of the pro forma P&L and paid kind of operating earnings in 2023 at $365 million I know there were some kind of conservative assumptions already and a lot has changed since then. But do you feel more comfortable in achieving that $3.65 pro forma EPS in 2023 to date compared to when you announced the transaction?

I would say I would be very disappointed, if we don't do better than the $365 million.

Okay. And then just on the -- back on the capital management piece, can you just remind us how much you have, if any, in back authorization right now, that would be helpful.

Go ahead, Marcy.

Yes. I think we have 1.9 million shares left under our current authorization.

Thank you for your question. Our next question comes from Todd McKellen from RBC Wealth Management. Please proceed.

My questions have been answered. Thank you.

Thanks, Todd. Call monitor, we have any more questions?

There are no more questions waiting at this time.

Well, I'd like to thank everybody for your questions. And as always, we welcome calls from our investors and analysts. Please be out to us, if you have any further follow-up questions, and thank you for tuning today. And have a good day. Take care. Bye.

That concludes the First Interstate BancSystem first quarter earnings call. Thank you for your participation. You may now disconnect your lines.