Kevin Riley - Chief Executive Officer Marcy Mutch - Chief Financial Officer Lisa Slyter-Bray - Executive Assistant

Thanks Stanly. 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 filings. 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 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. 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 some additional disclosures that we believe will be helpful. The presentation can be accessed on our investor website and if you haven't downloaded a copy yet, I would encourage you to do so. I'm going to start off today by providing an overview of the major highlights for the quarter and then I'll turn the call over to Marcy to provide more details on our financials. We delivered another strong quarter as healthy economic conditions across our markets resulted in strong deposit inflows, a strong level of new loan production and further improvement in asset quality. Combined with our disciplined expense management, this produced a strong quarter of earnings with net income coming in at $51.2 million or $0.83 per diluted shares. Excluding $0.06 per share of merger related expenses, our earnings per share was $0.03 higher than the operating earnings per share in the prior quarter. While we're disappointed with our net loan growth in the quarter, the highlight was exceptional levels of loan production that we had. Although we are still seeing some impact from supply chain disruption and labor shortages causing projects and investments to be delayed, we had a strong level of new loan production with all of our markets making strong contributions. We are particularly pleased with the positive trends we are seeing in the Mountain Division as Montana led all of the markets. This is indicative of both increasing demand and our improved business development efforts. While we had extremely a productive quarter of new business development, this was offset by an unusually high level of loan pay offs,…

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 third quarter of 2021 and I'll begin with our income statement. On a GAAP basis, our net interest income decreased by $5.1 million, which was primarily due to a $4.5 million decrease in PPP loan income. Accretion income was also $400,000 lower on a linked quarter basis. Excluding the impact of PPP and accretion income, our net interest income was relatively flat compared with the prior quarter. Our net interest margin declined 22 basis points from the prior quarter to 2.69%, partially attributable to the lower level of PPP income. Excluding PPP from both periods, our net interest margin decreased by 15 basis points primarily due to a shift in the mix of our earning assets towards investment securities and cash, along with the modestly lower loan yields. This offset a 1 basis point decline in our cost of funds. Yields on new loan production were about 20 basis points lower than the prior quarter, but still in a very high 3% range. This decline is attributable to an intentional shift in the mix of new production to our variable rate loans, which were about 54% of the total production in the quarter. Our non-interest income decreased $2.3 million quarter-over-quarter to $37.4 million, primarily due to lower mortgage banking revenues which was partially offset by higher wealth management and swap revenues. Moving to total non-interest expense, we recorded $5 million in acquisition related expenses in the fourth quarter, excluding acquisition related expenses in both periods, and the litigation accrual last quarter, we were pleased with our expense management in the quarter with non-interest expense declining by $900,000. Moving to the balance sheet, our loans…

Nice job Marcy. Top of our priority list this year is executing a smooth and efficient integration at Great Western’s operation. After the system conversion is complete in May, we should realize most of the cost savings projected for the transaction starting in the third quarter. As our franchise grows to more than $32 billion in assets with more than 300 branches across 14 states, we believe it is important that we continue to maintain a culture that has led to a long track record of success. That culture includes, a strong commitment to making our communities that we live and work positive. We are excited to support the effort of the $20 million contribution to the First Interstate Foundation that we announced with the deal. These funds will allow us to continue to make impact in our legacy communities and immediately provide support across our expanded footprint. As I mentioned earlier, we’ve already seen Great Western’s commercial banking teams shift its focus back toward business development, which we expect to continue after the merger. With the progress that Great Western has made working down its problem loans prior to the closing, we should have fewer headwinds to our total loan growth that we expect at the time we announce the deal. Combined with strong levels of loan production that we are currently seeing at both, First Interstate and Great Western, we believe our original performer growth expectations may prove conservative. As we look ahead to the year we're excited by a number of catalyst that we have in place to deliver strong performance. Economic conditions in our markets are fundamentally healthy. We are seeing increasing loan demand and will increase our exposure to faster growing markets following the closure of the merger. Both First Interstate and Great Western have good momentum and business development that should only accelerate as we leverage the combined strength of each organization. We’ll start seeing the accretive benefits of the transaction in a more meaningful way during the second half of the year following the system conversion. Our balance sheet is very well positioned to benefit from rising interest rates and we have the technology and the products to stay relevant in this highly competitive marketplace. So with that, I'll open the call up for questions.

Thank you. Our first question comes from Jared Shaw of Wells Fargo. Jared, please go ahead.

Hey! Good morning guys.

Good morning Jared.

Good morning Jared.

I guess maybe starting with loan growth, you know your tone sounds optimistic, but you know then when we look at the original announcement guide at 3% to 4%, that seems pretty light compared to the optimism that we've seen from peers with growth. I guess with Great Western being able to close more of those troubled loans earlier, why aren't you more aggressive in looking at your loan growth or setting your loan growth targets for the year. It still seems pretty low.

Well, as – Jared as you know in the past, we always considered what are estimates are, what we could do. We feel good about it but we don't want to get out over our skis with regards to projecting more than what we have already projected.

And I think well, we do feel optimistic about Great Western, but they're resolving their problem loans at a pretty good pace, so we just still look at that at this point at a net zero.

Okay. I guess you know if we did see growth come in better than expected, what would be driving that? Would that be in lower pay downs, higher utilization, new customer acquisition. I guess where do you see the most optimism to potentially…

I see the most optimism if the marketplace hopefully gets some rational thought process in what they are doing with regards to loans. I mean I think in the fourth quarter people believed that interest rates are going to be zero for a long extended period of time and they were doing things that I would say that are pretty risky to put on their balance sheet. People put a lot of loan growth on at rates that I'm sure they probably have a little bit indigestion on right now.

Okay. And then can you just give us an update or a reminder of what happens with the B shares and how much of that is automatic versus something needing to happen and you know so when do you think those could be gone and the stock potentially able to be included in some indexes?

Right now my belief is that there will be – they go away at the end of March.

Well, it’s at the record date of the annual shareholder meeting and it’s automatic.

Its automatic and we believe it’s at the end of March.

Okay, so there's no vote required, no procedure, it's just…

No, no.

That’s all done.

Then I guess just finally for me. You know that announcement, it sounds like Mark was going to be staying on as part of the management and he’s not on this list I guess. Any update on what is going on there and any other thoughts on who from Great Western could be involved going forward?

Well, we have two people from Great Western that we announced are moving forward with us; the CIO, Scott and their Chief Risk Officer, Karlyn will be moving on with us to take over those positions at the combined institution. Mark has decided to move on and pursue other interests.

Okay. Thanks so much for taking the questions.

Thank you, Jared. The next question comes from Matthew Clark of Piper Sandler. Matthew, please go ahead.

Hey, good morning!

Good morning Matt!

Good morning Matt!

Maybe getting back to the payoff activity, you know it sounds like it's a function of a number of things, but do you have a sense for how much of that might have been unusual or outsized or there are any lumpy payoffs. I’m trying to get a sense for your pay off expectations going forward and whether or not you need that, because that phenomenon may not necessarily change in the near term and kind of what your embedded assumptions are for growth that drives that mid-single digit NII growth.

Yeah, you know. This is just – you know you can’t just totally predict it Mark, so I’ll give you my own opinion on what's going to happen. You know what we're seeing right now is that you know people were forcing gross in their balance sheet in the fourth quarter and they were doing stuff. I think people are not in the mood of forcing that activity as much, so I think pay downs we're seeing might subside a little bit due to the fact that the aggressiveness of people trying to book low rate deals is slowing.

Okay, okay. And then on the core NIM outlook being relatively stable here in the first quarter, that's encouraging, but also a little surprising to me given that you had deposits up and loans down this quarter and what that you know can do to your average earning assets in the upcoming quarters. So I guess what other – you know what's also helping to kind of stabilize your view there?

You know again, I think the first group will be the low point for next year, but that said we are seeing some better yields on the investment portfolio than we've seen in the past and so that’s going to help drive that to be a little bit better than you might expect.

Okay. And then just on the excess cash and you continuing to build and I know you know you guys are keep your powder dry with rates expected to go up, but you know how quickly might we see you know redeploy that excess cash here this year?

Well, we're going to be diligent on it. We're going to continue to deploy it and I wouldn’t make a projection that we will not have this much cash on the balance sheet as we go from quarter-to-quarter. It will continue to move down as we go out throughout the year. As we invest these in security portfolio or into loans.

Okay, and then just the timing of the $5 million coming out of revenue from the overdraft loan, when does that start? And how is it…

It starts April 1.

Okay, thank you.

Thank you, Matthew. The next question comes from Jeffrey Rulis at D.A. Davidson. Jeff, please go ahead.

Thank you. Good morning!

Good morning Jeff!

So this is actually Jeff’s associate on for Jeff this morning.

Can you speak up? We can’t hear you.

Yeah, this is Andrew on for Jeff Rulis at D. A. Davidson. First question, does the fact that Great Western had net loan growth in Q4 change your outlook for consolidated growth in 2022? I believe you guys did not expect any net growth out of Great Western through 2023.

Well, as I would say, one quarter doesn't make a trend. Do we feel better about the future? Absolutely! And we're hoping that continues, so it could change our outlook, but I don't want to have one quarter change the whole view of what might happen. So it makes us feel that we were conservative at this juncture and we hope to see better results moving forward.

Okay, thank you very much. That was it from me. I will step away.

Thank you, Jeff. Our final question comes from Andrew Terrel from Stephens. Andrew, please go ahead.

Hey! Good morning!

Good morning Andrew!

Good morning Andrew!

Hey! Maybe just to start, Marcy, I was a little surprised to hear the guidance, for I think it was relatively flat deposit growth in 2022 on an organic basis. I was hoping you could just provide just some more context there. Is there any kind of intentional run-offs you're anticipating to kind of improve deposit mix or just you know maybe talk to the drivers behind that.

You know, I just think with the PPP loan impact gone, the stimulus impact gone and just what the markets are seeing just with the munis, you know there could be some fluctuations in muni deposits and things like that, we just don't expect. It'll be flat year-over-year, which was the expectation. Its following our normal seasonal trend. So again down in the first quarter and then building back up as we go through the year, but relatively flat year-over-year.

Andrew, as you move through the year, if we don't have the normal run down of deposits that we normally see in the first quarter over the history of this company outside of the PPP process, you know we could have positive loan growth – I mean positive deposit growth. The question is when does it stop? A lot of our customers have higher than average balances of deposits. When do they start utilizing that you know and do we see a run down? If we don't see a normal seasonal run down in the first quarter our deposits normally grow starting in the second quarter through third quarter and then kind of slowdown in the fourth. So we don't know when they are going to start utilizing those deposits. Maybe it's a new place in banking where people keep higher balances, but we just don't want to over forecast. Deposits continue to grow when we're kind of charting new territory here with regards to how consumers are behaving.

But so far the indications are that we follow historical trends.

Okay.

We’ll know more at the end of the first quarter, because our deposits will grow in the second and third, because we are as you know, we are a tourist industry. Kind of we have big tourist industry here and that brings a lot of extra money into our markets, which causes our deposit to grow.

Okay, that’s really helpful color, I appreciate it. And then maybe on, I heard your point on kind of full realization of cost synergies. I forget about the main conversion process. I was curious, I appreciate your guide on low single digit expense growth. Just thinking about kind of a $56 million in cost saves coming from Great Western. Any reason to think this number might have potentially changed given any potential wage inflation pressures at Great Western or should we still kind of view that $56 million as a good kind of net number.

I think, you too should feel good about that. We already have the plans in place, so we feel good about it, so you should feel good about it.

Okay. And just last one for me, I think we've generally seen a dividend increase in the first quarter. I think it's the same here and $0.41 per share. Is it more just related to kind of pending merger? Anything changed with the dividend and strategy and then can you just remind us how you are thinking about potential for a buy back at these levels?

Well I will tell you, buybacks are probably not going to happen at this level. The dividend payout ratio might be a little higher this year just due to purchase accounting and stuff like that, but we're going to maintain what we can with regards to the dividend and if next year hopefully pans out the way we think it's going to be with the success of Great Western integration, dividend should increase from there out.

Okay. Thanks for taking my questions.

Thanks Andrew. :

Thank you, Andrew. There are currently no further question registered. There are no additional questions waiting at this time, so I’ll pass the conference over to the management team for closing remarks.

Thank you all for your questions. As always, we welcome calls from our Investors and Analysts. Please reach out to us if you have any follow-up questions. Thanks for tuning in today and goodbye!

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