Q1 2024 First Interstate BancSystem Inc Earnings Call

unknown: BF-WATCH TV 2021

Operator: Please stand by; we're about to begin. Good morning, everyone, and welcome to today's First Interstate BancSystem First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing Star 1 on your telephone keypad, and you may withdraw yourself from the queue by pressing Star 2. Also, today's call is being recorded, and I will be standing by if anyone should need assistance. And now, at this time, I'd like to turn the call over to Ms. Andrea Walton. Please go ahead, ma'am.

Okay.

Operator: Please standby we're about to begin.

Andrea Walton: Good morning, everyone and welcome to today's first Interstate baked system at first quarter earnings Conference call.

Operator: At this time all participants are in a listen only mode. Later, you will have the opportunity to ask questions. During the question and answer session. You may registered to ask a question at any time by pressing star one on your telephone keypad and you may withdraw yourself from the queue by pressing star too.

Andrea Walton: Also today's call is being recorded and I will be standing by if anyone should meet assistance and now at this time I'd like to turn the call over to MS. Andrea Walter. Please go ahead ma'am.

Operator: Thanks.

Andrea Walton: Thanks. Good morning. Thank you for joining us for our first quarter earnings conference call. As we begin, please note that the information provided during this call will contain forward-looking statements, and actual results or outcomes may differ materially from those expressed by those statements.

Andrea Walton: Good morning, Thank you for joining us for our first quarter earnings conference call. As we begin. Please note that the information provided during this call will contain forward looking statements.

Andrea Walton: Actual results or outcomes may differ materially from those expressed by those statements.

Andrea Walton: 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.

Andrea Walton: 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.

Andrea Walton: 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.

Andrea Walton: 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 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 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?

Andrea Walton: 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 <unk> Dot com information regarding our use of the non-GAAP financial measures may be found in the body of the earnings release.

Andrea Walton: And a reconciliation to their most directly comparable GAAP financial measures is included at the end of the earnings release for your reference.

Andrea Walton: 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.

Kevin P. Riley: Thanks, Andrea. Good morning.

Kevin P. Riley: Thanks, Andrea good morning, and thanks again to all of you for joining us on our call today.

Kevin P. Riley: 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 includes some additional disclosures, which 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 would encourage you to do so. I'm going to start today by providing an overview of the major highlights of the quarter.

Kevin P. Riley: Again this quarter along with our earnings release, we have published an updated investor presentation.

Kevin P. Riley: Some additional disclosures, which we believe will be helpful depressed.

Kevin P. Riley: The presentation can be accessed on our Investor Relations website. If you have not downloaded a copy yet I would encourage you to do so.

Kevin P. Riley: I'm going to start today by providing an overview of the major highlights of the quarter.

Kevin P. Riley: And then I'll turn the call over to Marcy to provide more details on our financial... We had solid performance in the first quarter, with results generally in line or exceeding expectations. We generated $58.4 million in net income, or $0.57 per share.

Kevin P. Riley: And then I'll turn the call over to Marcia to provide more details on our financials.

Marcy: We had solid performance in the first quarter with results generally in line or exceeding expectations, we generated $58 4 million and net income or 57 cents per share at this point, we believe our margin has stabilized and we anticipate that our margin will expand in.

Kevin P. Riley: At this point, we believe our margin has stabilized, and we anticipate that our margin will expand in the second quarter. We continue to focus on controllable expenses and remain pleased with our progress. We recorded $160.2 million in non-interest expense in the quarter, which included a couple of one-time items. And we continue to invest in our feed business and processes to generate greater efficiency. Loan demand from our customers is still muted, particularly in our real estate.

Kevin P. Riley: The second quarter.

Kevin P. Riley: We continue to focus on controllable expenses and remain pleased with our progress.

Kevin P. Riley: We recorded $162 million and noninterest expense in the corner, which included a couple of one time items and we continue to invest in our feed business and processes to generate greater efficiencies.

Kevin P. Riley: While demand from our customers still muted, particularly in our real estate book.

Kevin P. Riley: We remain disciplined in our new loan underwriting and pricing criteria. We continue to focus new production in areas where we can develop full-paying relationships, which include C&I and our small business products. Our deposit performance was generally in line with expectations, with seasonal weaknesses in business deposits. We also allowed $185 million of fully collateralized, high-cost municipal deposits to lead the balance sheet.

Kevin P. Riley: We remain disciplined in our new loan underwriting and pricing criteria.

Kevin P. Riley: We continue to focus new production in areas, where we can develop full banking relationships, which include C&I and small business products.

Kevin P. Riley: Our deposit performance was generally in line with expectations with seasonal weaknesses in business deposits. We also will add $185 million are fully collateralized high cost municipal deposits to leave the balance sheet.

Kevin P. Riley: The increase in our interest-bearing deposit costs slowed materially, increasing only six basis points quarter over quarter. Total funding cost increased by 15 basis points, as we expected due to late fourth quarter deposit out. We anticipate the second quarter to reflect a flattening of our total cost of funds. During the quarter, we experienced higher cash flows from our investment portfolio due to our $300 million Treasury security maturity. We reinvested some cash flows early in the quarter, but we generally utilize those funds to support the seasonal and high-cost municipal outflows I just mentioned.

Kevin P. Riley: The increase in our interest bearing deposit costs slowed materially increasing only six basis points quarter over quarter.

Kevin P. Riley: Total funding cost increased 15 basis points as we expected due to late fourth quarter deposit outflows.

Kevin P. Riley: We anticipate the second quarter to reflect a flattening of our total cost of funds.

Kevin P. Riley: During the quarter, we experienced higher cash flows from our investment portfolio due to a 300 million dollar Treasury security mature.

Kevin P. Riley: We reinvested some cash flows early in the quarter, but we generally utilize those funds to support the seasonal and high cost municipal outflows I just mentioned.

Kevin P. Riley: We also acted earlier in the quarter, when the market was pricing in more expected rate cuts, to extend some of our borrowings at lower rates. This included shifting $1 billion from the FHLB to the Bank Term Funding Program at a rate of 4.76%, which matures in January of 2025. We also extended $1 billion of our remaining FHLB advances with terms of $12 to $18 million.

Kevin P. Riley: We also acted earlier in the quarter when the market was pricing and more expected rate cuts to extend some of our borrowings at lower rates. This includes shifting 1 billion from the U S. H L. B.

Kevin P. Riley: Bank term funding program at a rate of 476%.

Kevin P. Riley: This matures in January of 2025, we also extended 1 billion of our remaining S. H L. P advances with terms of 12 to 18 months.

Kevin P. Riley: While we still characterize our balance sheet as modestly liability sensitive, we tilt more toward neutral considering these actions, which improve our position in a higher for longer range. You'll see that our updated guidance includes an expectation of two rate cuts in 2024 instead of three. However, even considering this reduction in our rate cut expectations, we are reiterating our guidance for NII. Given our profitability and prudent balance sheet management, we continue to see increases in our capital ratios in the first quarter while also continuing to pay a healthy dividend to our shareholders. Now I will hand the call off to Marcy to provide some additional details around our first quarter results. Go ahead, Marcy.

Kevin P. Riley: Why are we still characterize our balance sheet as modestly liability sensitive we tilt more toward neutral considering these actions, which improved our position and are higher for longer rate environment you'll.

Marcy: You'll see that our updated guidance includes an expectation for two rate cuts in 2024 instead of three however, even considering this reduction in a rate cut expectations. We are reiterating our guidance for NII.

Marcy: Given our profitability and prudent balance sheet management, we continue to see increases in our capital ratios in the first quarter, while also continuing to pay a healthy dividend to our shareholders now I will hand, the call off to Marci to provide some additional details around our first quarter results.

Kevin P. Riley: Marci.

Marcy D. Mutch: 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 2023, and I'll begin with our income statement. Our net interest income was $200.1 million in the first quarter, a decrease of $7.7 million. Our yield on interest-earning assets increased five basis points, which was more than offset by a 15 basis point increase in our funding costs.

Marcy: 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 2023, and I'll begin with our income statement.

Marcy D. Mutch: Our net interest income was $201 million in the first quarter, a decrease of $7 $7 million our yield on interest, earning assets increased five basis points, which was more than offset by a 15 basis point increase in our funding costs. Additionally.

Marcy D. Mutch: Additionally, there was one less accrual day in the first quarter. As Kevin noted, we repositioned our borrowings mix in the quarter, which reduced our borrowing cost by 47 basis points from the prior quarter. This also partially offset the impact of a higher average level of borrowings in the period.

Marcy D. Mutch: Additionally, there was one less accrual day in the first quarter.

Marcy D. Mutch: As Kevin noted, we repositioned our borrowings mixed in the quarter, which reduced our borrowing cost by 47 basis points from the prior quarter. This also partially offset the impact of a higher average level of borrowings in the period.

Marcy D. Mutch: Turning to our net interest margin, in the first quarter, our net interest margin on an FTE basis decreased 8 basis points to 2.93%. Excluding purchase accounting accretion, our net interest margin was 2.84%, a 10 basis point reduction from the prior quarter. Pressure on our margins softened in the period as we saw deposits increase later in the quarter as seasonally expected. As Kevin mentioned, we believe our margin bottomed in the first quarter and should expand in the second quarter.

Marcy D. Mutch: Turning to our net interest margin in the first quarter, our net interest margin on an FTE basis decreased eight basis points to 293% excluding purchase accounting accretion our net interest margin was $2 eight 4%, a 10 basis point reduction from the prior quarter.

Marcy D. Mutch: Pressure on our margin softened in the period as we saw deposits increase later in the quarter as seasonally expected.

Marcy D. Mutch: As Kevin mentioned, we believe our margin bottomed in the first quarter and should expand in the second quarter.

Marcy D. Mutch: In our construction portfolio, just under $200 million of commercial construction loans funded in the first quarter, and about $500 million of commitments remain. We expect the pace of this funding to decelerate in the back half of 2024, and the drag on loan yields to lessen.

Marcy D. Mutch: In our construction portfolio, just under $200 million of commercial construction loans funded up in the first quarter and about $500 million of commitments remain.

Marcy D. Mutch: We expect the pace of this funding to decelerate in the back half of 2024, and the drag on loan yields to lessen.

Marcy D. Mutch: Additionally, the moderation in our interest-bearing deposit costs and the slowing mixed shift out of non-interest-bearing deposits further eases margin pressure. So, even with a reduction in our rate cut expectations down to two, we reiterate our net interest income guidance we gave last quarter. This is included in the summary of our guidance that can be found in our investor presentation.

Marcy D. Mutch: Additionally, the moderation in our interest bearing deposit cost and the slowing mix shift out of noninterest bearing deposits further eases margin pressure.

Marcy D. Mutch: So even with a reduction in a rate cut expectations down to two we reiterate our net interest income guidance. We gave last quarter. This is included in the summary of our guidance that can be found in our investor presentation.

Marcy D. Mutch: Non-interest income was $42 million in the first quarter, a decrease of $2.4 million from the prior period, which was again in line with our expectations. The decline from the prior quarter was driven by a $2.9 million gain on the disposition of assets in the fourth quarter. Our lines of business perform generally in line with expectations, and we continue to make investments in areas such as our treasury services business, which positions us well to add customers and increase our fee-based revenues over time.

Marcy D. Mutch: Noninterest income was $42 million in the first quarter, a decrease of $2 $4 million from the prior period, which was again in line with our expectations.

Marcy D. Mutch: The decline from the prior quarter was driven by a $2 9 million dollar gain on the disposition of assets in the fourth quarter.

Marcy D. Mutch: Our lines of business performed generally in line with expectations and we continue to make investments into areas such as our treasury services business, which positions us well to add customers and increase our fee based revenues over time.

Marcy D. Mutch: Moving to non-interest expense, we were pleased to report $160.2 million in total non-interest expenses this quarter, a decrease of $5.8 million. There were a few moving parts in that reported number, which included a $1.5 million accrual for the FDIC special assessment and $2 million of OREO expenses. These were offset by a $1.1 million reversal of our prior year incentive accrual, as well as lower medical claims. While we are very pleased with our expense performance this quarter, and while we maintain our discipline in this area, the reported number this quarter was marginally lower than what we expect going forward. That said, we have modestly reduced our expense guidance.

Marcy D. Mutch: Moving to noninterest expense, we were pleased to report $162 million in total non interest expenses. This quarter a decrease of $5 8 million. There were a few moving parts in that reported number which included a $1 5 million accrual for the FDIC Special assessment.

Marcy D. Mutch: And $2 million of Oreo expenses.

Marcy D. Mutch: These were offset by a $1 $1 million reversal of a prior year incentive accrual as well as lower medical claims.

Marcy D. Mutch: Well, we are very pleased with our expense performance this quarter and while we maintain our discipline in this area. The reported number this quarter was marginally lower than what we expect going forward.

Marcy D. Mutch: That said, we have reduced our expense guidance modestly this takes into consideration the positive performance from the quarter, while anticipating the quarterly expenses for the remainder of the year will be slightly higher than this quarter's figure.

Marcy D. Mutch: This takes into consideration the positive performance from the quarter while anticipating that quarterly expenses for the remainder of the year will be slightly higher than this quarter's figure. Moving to the balance sheet, loan balances declined $76.8 million in the first quarter, primarily due to expected seasonal declines in our agricultural lines, which were down $73.3 million. We also experienced positive migration out of our construction portfolio as stabilized projects moved into the commercial real estate portfolio. The construction portfolio declined $217.3 million during the quarter, and the commercial real estate portfolio increased $191.2 million. On the liability side, total deposits declined by $513.1 million.

Marcy D. Mutch: Moving to the balance sheet loan balances declined $76 $8 million in the first quarter, primarily due to expected seasonal declines in our agricultural lines, which were down $73 $3 million. We also experienced positive migration out of our construction portfolio is stable.

Marcy D. Mutch: Life projects moved into the commercial real estate portfolio.

Marcy D. Mutch: The construction portfolio decline $217 $3 million during the quarter and the commercial real estate portfolio increased $191 $2 million.

Marcy D. Mutch: On the liability side total deposits declined $513 $1 million.

Marcy D. Mutch: Kevin already mentioned the decision we made in the quarter to allow two high-cost, fully collateralized municipal deposits totaling $185 million to leave the balance sheet. Excluding this decline, total deposits declined about 1.4% quarter over quarter due to normal seasonal declines in our business portfolio. Our seasonality assumptions include increases in business deposits toward the end of the second and into the third quarter. We expect deposits to increase from March 31st to year-end.

Marcy D. Mutch: Kevin already mentioned the decision we made in the quarter to allow to high cost fully collateralized municipal deposits totaling $185 million to leave the balance sheet.

Marcy D. Mutch: Excluding this decline total deposits declined about one 4% quarter over quarter due to normal seasonal declines in our business portfolio.

Marcy D. Mutch: Our seasonality assumptions include increases in business deposits toward the end of the second and into the third quarter. We expect deposits to increase from March 31st two year end.

Marcy D. Mutch: As we noted in the Investor Deck, our deposit base is granular, our non-interest-bearing deposits seem to be stabilizing, and we retain a steady mix of business and consumer accounts. Moving to Asset Quality, our provision for asset quality totaled $5.3 million in the first quarter. This comprised a funded provision of $8.4 million with a release of unfunded provision of $3 million. The unfunded release was driven by a continued reduction in off-balance sheet commitments. Net charge-offs were $8.4 million, or 18 basis points of loan.

Marcy D. Mutch: As we noted in the investor deck, our deposit base as granular our noninterest bearing deposits seem to be stabilizing and we retain a steady mix of business and consumer accounts.

Marcy D. Mutch: Moving to asset quality, our provision totaled $5 $3 million in the first quarter. This comprised a funded provision of $8 $4 million with a relief of unfunded provision of $3 million. The unfunded release was driven by a continued reduction in off balance sheet commitments.

Marcy D. Mutch: Net charge offs were $8 $4 million or 18 basis points of loans.

Marcy D. Mutch: We saw generally positive trends within the portfolio during the quarter. Criticized loans, which include non-performing loans, decreased $58.3 million, or 8.5%, driven by both upgrades and loan payoffs. Non-performing loans increased $63.7 million, or 57.2%, primarily due to the movement of a $54.4 million C&I relationship to nonaccrual. We have been working closely with this borrower, who is taking meaningful actions to stabilize performance. We are cautiously optimistic about a positive resolution. We have also added a disclosure in our investor presentation related to our commercial real estate portfolio. This portfolio is granular and diversified by both property type and geography.

Marcy D. Mutch: We saw generally positive trends within the portfolio during the quarter criticized loans, which include nonperforming loans decreased $58 $3 million or eight 5% driven by both upgrades and loan payoffs.

Marcy D. Mutch: Nonperforming loans increased $63 $7 million or 57, 2%, primarily due to the movement of a $54 $4 million C&I relationship to nonaccrual.

Marcy D. Mutch: We have been working closely with this borrower who is taking meaningful action to stabilize performance.

Marcy D. Mutch: We are cautiously optimistic about a positive resolution.

Marcy D. Mutch: We also added a disclosure in our investor presentation related to our commercial real estate portfolio.

Marcy D. Mutch: This portfolio is granular and diversified by both property type and geography.

Marcy D. Mutch: Our most recent cash flow stress testing exercise has reinforced our view that it is well underwritten, can support higher rates, and that we should expect stable performance. Overall, our earnings continue to support our strong dividends. This, coupled with a reduction in off-balance sheet commitments and a modest reduction in loans, drove continued accretion in our capital ratios in the quarter. Our CET1 ratio improved 29 basis points to 11.37%. With that, I'll turn the call back to Kevin. Okay?

Marcy D. Mutch: The most recent cash flow stress testing exercise has reinforced our view that it is well underwritten can't support higher rates and that we should expect stable performance.

Kevin: Overall, our earnings continue to support our strong dividend this coupled with a reduction in off balance sheet commitments and a modest reduction in loans drove continued accretion in our capital ratios in the quarter. Our CET one ratio improved 29 basis points to 11, three 7% with that I'll turn the call.

Marcy D. Mutch: Back to Kevin go ahead.

Kevin: Thanks Marci I.

Kevin: I am pleased with how we executed in the first quarter and remain optimistic about our performance for the remainder of 'twenty 'twenty four and into 2025.

Kevin P. Riley: I am pleased with how we executed in the first quarter and remain optimistic about our performance for the remainder of 2024 and into 2025. Our strong levels of liquidity and capital provide us with flexibility to respond to market opportunities. Our liability repricing has slowed maturely, and we anticipate a tailwind from asset repricing in the second half of the year.

Kevin P. Riley: Our strong levels of liquidity and capital provides us with flexibility to respond to market opportunities are.

Kevin P. Riley: Our liability repricing has slowed materially and we anticipate a tailwind from asset repricing in the second half of the year.

Kevin P. Riley: We are well positioned to be able to respond when customers demand begins to rebound.

Kevin P. Riley: In the meantime, we will keep enhancing our service to our existing customers and working to add to our customer base.

Kevin P. Riley: Two new stress testing within our loan portfolio gives us confidence that our borrowers are well positioned as loans reprice.

Kevin P. Riley: We are well positioned to be able to respond when customer demand begins to rebound. In the meantime, we will keep enhancing our service to our existing customers and working to add to our customer base. Our continued stress testing within our loan portfolio gives us confidence that our borrowers are well positioned at loans repriced. I'm also pleased with our continued expense discipline while making investments in our own infrastructure and systems. This will allow us to maintain a strong near-term earnings profile while investing in the long-term success of the institution.

Kevin P. Riley: I'm also pleased with our continued expense discipline, while balancing investments in our own infrastructure and systems. This will allow us to maintain a strong near term earnings profile, while investing in the long term success of the institution.

Kevin P. Riley: <unk> of our company provides us with the ability to continue attracting new relationships, serving the needs of our existing customers and further enhancing the value of our franchise in years to come.

Kevin P. Riley: The strength of our company provides us with the ability to continue attracting new relationships, serving the needs of our existing customers, and further enhancing the value of our franchise in years to come. So with that, I'll open the call up for questions.

Speaker Change: So with that I'll open the call up for questions.

Kevin P. Riley: Okay.

Kevin P. Riley: Alright.

Speaker Change: [noise] Ted you may removed from the queue at any time.

Speaker Change: With that stark.

Kevin P. Riley: Two last questions.

Operator: If you would like to ask a question, you may press star 1 on your keyboard or press star 2 on your tablet. We'll go first this morning to Andrew Terrell of...

Speaker Change: Uh huh.

Robert Andrew Terrell: We'll go first this morning to Andrew <unk> of Stephens.

Robert Andrew Terrell: Hey, good morning.

Robert Andrew Terrell: Good morning, Andrew.

Robert Andrew Terrell: Hey, if I could just start on the, um, the $54 million C&I loan that was placed on non-accrual this quarter. It sounds like you guys are maybe cautiously optimistic about... A positive resolution here. I was just hoping for maybe some incremental color. Could you share what type of industry this is in and then maybe give us some comfort about the collateral that they could support this relationship?

Robert Andrew Terrell: Hey, if I could just start on the the $54 million C&I loan that was placed on non accrual this quarter. It sounds like you guys are maybe cautiously optimistic about.

Robert Andrew Terrell: A positive resolution here I was just hoping for maybe some incremental color could you share what type of industry that says and then maybe give us some comfort about the collateral that they could support this relationship.

Kevin P. Riley: Yes, it's a it's a distribution company. It's kind of, you know, deals with construction, you know, doors and stuff It's a sizable company with over a hundred million dollars in revenue It had some, you know, I would say some management issues but what they have done is They have replaced some of the senior management and they have also brought in a consultant which we're working with and at this point we feel pretty optimistic that The the issues that they have will be resolved and there'll be a positive outcome on this company

Speaker Change: Yes, it's a it's a distribution company is kind of a deals with construction doors and stuff its a sizable company with over $100 million in revenue.

Kevin P. Riley: It had some you know I would say, it's amazement issues, but what they have done is they have replaced some of the senior management and they have also brought in a consult which we're working with at this point, we feel pretty optimistic that.

Kevin P. Riley: The issues that they have will be resolved and there'll be a positive outcome on this company.

Speaker Change: Okay understood I appreciate it.

Robert Andrew Terrell: Okay, I understand. I appreciate it.

Robert Andrew Terrell: If I could ask Marcy, I think we previously talked about being comfortably above that kind of 3% level in the core NIM and the back half of this year. It obviously seems like the margins are kind of stabilizing and inflecting as we previously talked about. Just as you see it today, do you feel like the 3% plus coordinate in the back half of the year is still in the cards?

Robert Andrew Terrell: If I could ask from Marci I think we previously talked about being comfortably above that kind of 3% level in the core NIM in the back half of this year.

Robert Andrew Terrell: And obviously it seems like the margins kind of stabilizing and infecting like we'd previously talked about and I'm just as you see it today do you feel like the 3% plus core NIM in the back half of the year is still in the cards.

Marcy D. Mutch: Yes, absolutely.

Marcy: Yes, absolutely.

Robert Andrew Terrell: Okay, and then just looking at the rate curve today, it looks like there's one kind of forward cut baked in. If we were to take rate cuts off the table, do you think your NII guide would still stay the same for the year? Or would it impact that? If we weren't to get rate cuts, would that impact the 3% core number?

Marcy: Okay, and then with just looking at like the rate curve today. It looks like there's one kind of forward cut baked in if we were to take rate cuts off the table do you think your NII guide would still stay the same for the year or would it impact that.

Robert Andrew Terrell: If we werent to get rate cuts, what an impact of 3% core NIM.

Kevin P. Riley: I think with some of the actions we've taken, Andrew, with restructuring and stuff like that, we feel good that our guidance won't really change much if the rate decreases don't come about because I think we really have restructured the balance sheet to be higher for longer.

Robert Andrew Terrell: I think it was somebody actions, we've taken to Andrew was restructured some of that where we're we feel good that our guidance won't really change much if the if the rate increases are don't come rate decreases don't come about because I think we really have restructured the balance sheet for higher for longer.

Robert Andrew Terrell: Yeah, okay. I appreciate it. And if I could, I have just one more on the municipal funding. Could you share kind of the timing of when that occurred throughout the quarter and then what the rate was on the $185 million?

Speaker Change: Yep Okay.

Speaker Change: I appreciate it and then if I could ask just one more on the municipal funding.

Andrew: Could you share kind of the timing of when that occurred throughout the quarter and then what the rate was on the 185 million.

Kevin P. Riley: Yeah, so it was over 5%. And timing in the quarter. Some kind of. One was January, and one was March. Kind of split 50-50 there.

Speaker Change: Yeah, so it was over 5%.

Kevin P. Riley: And timing in the quarter.

Kevin P. Riley: Some kind of.

Kevin P. Riley: One would you Andy Murray and one was March.

Kevin P. Riley: Kind of split 50 50 there.

Robert Andrew Terrell: Got it. All right. Thank you for taking the questions.

Kevin P. Riley: Okay.

Speaker Change: Got it alright, thank you for taking the questions.

Operator: Thanks, Andrew. Thank you. We go next to Chris McGratty at KB.

Speaker Change: Thanks, Andrew Andrew.

Operator: Thank you well go next now to Chris Mcgratty at K B W.

Christopher Edward McGratty: Oh, great. Good morning. Kevin, just following up on the prior question on the CNI credit, the 54 million, where does that rank in terms of, like, largest relationships? Or can you help contextualize, you know, the largest relationship?

Christopher Edward McGratty: Oh, great good morning.

Operator:

Christopher Edward McGratty: Kevin just following up on the prior question on the C&I credit the the 54 million where does that rank in terms of like largest relationships or can you help contextualize.

Christopher Edward McGratty: Largest relationship to the bank.

Kevin P. Riley: Yeah, we only have five relationships over $50 million, so it is one of our larger relationships. We are a more granular portfolio, but that's one of our larger relationships.

Christopher Edward McGratty: Yeah, we only have five relationships over $50 million. So it is one of our larger relationships. So.

Kevin P. Riley: Yeah, we we are a more granular portfolio, but that's one of our larger relationships.

Christopher Edward McGratty: Okay, that's perfect. Thanks. And then I just wanted to circle back on the material weakness in the queue. Any update there in terms of resolution costs and any potential impact that it could have on overall strategy? Yeah.

Speaker Change: That's perfect. Thanks, and then just wanted to circle back on the material weakness in the queue just any update there.

Christopher Edward McGratty: A resolution cost and any potential impact it could have an overall strategy. Thanks.

Christopher Edward McGratty: So Chris we don't expect any costs related to resolving this material weakness you'll see in the Q. We've removed we remediated certain parts of the finding you know because it was an aggregation of different.

Christopher Edward McGratty: Yeah, so, Chris, we don't expect any costs related to, um... Resolving this Material Weakness, you'll see in the queue, we've remediated certain parts of the finding, you know, because it was an aggregation of different issues, and so we've remediated about half of them, and the other half is kind of left to be remediated, but we expect to have those wrapped up well before the end of the year.

Christopher Edward McGratty: Issues and so we've remediated about half of them and the other half is kind of left to be remediated, but we expect to have those wrapped up.

Christopher Edward McGratty: Well well within this calendar year.

Chris: Okay, and then based on that Marci it wouldn't affect I guess strategic dividends kept uses of capital or anything else you year over year no no absolutely not none okay perfect. Thank you.

Marcy D. Mutch: Okay. And based on that, Marcy, it wouldn't affect strategic dividends, the use of the capital, anything else, your view?

Marcy D. Mutch: Matt.

Marcy D. Mutch: Yeah.

Marcy D. Mutch: And ladies and gentlemen, just a quick reminder, star one please for questions. This morning, we'll go next to no two tomorrow, Bruce Brasilia, a at Wells Fargo.

Marcy D. Mutch: No, nothing. Absolutely not. Nothing. Perfect. Thank you. You bet.

Operator: And ladies and gentlemen, just a quick reminder, star number one please for questions this morning. We'll go next to Timur Braziler at Wells Fargo.

Timur Felixovich Braziler: Hi, good morning.

Operator: Lawrence anymore.

Operator: Kevin your comments about fixed asset repricing.

Timur Felixovich Braziler: Kevin, your comments about fixed asset replacement at the end of the year. Can you just remind us what the magnitude is both on the loans and security side and then just kind of the cadence of that magnitude?

Operator: End of the year can you just remind us what the magnitude is both on the loans and security side, and then just kind of the cadence of that magnitude.

Kevin P. Riley: I missed the first part of your question, Timur. Could you repeat it?

Kevin: I missed the first part of your question teamwork could you repeat it.

Timur Felixovich Braziler: Sure, Kevin, you mentioned the fixed asset repricing benefiting margin trends in the back end of the year. Can you just talk to the magnitude of that, both on the securities and loan side, and then the cadence of

Timur: Sure Kevin you mentioned, the fixed asset repricing benefiting margin trends in the back end of the year can you just talk to the magnitude of that both on the securities on loan side, and then the cadence as well.

Kevin P. Riley: The securities side, it's in the slide deck, Timur, on page 13. We really don't disclose the loan repricing cadence, but it's in our guidance for... But it is built within the guidance that we give on overall NII.

Timur Felixovich Braziler: Mark is going to hit on one of the securities side. We it's in the slide deck team are on page 13, we really don't disclose kind of the the the loan repricing a cadence, but it's in our guidance, but it is felt within the guidance that.

Kevin P. Riley: We give an overall NII.

Timur Felixovich Braziler: Okay, got it. And then, Marcy, maybe, um, do you have the spot rate for deposit costs at quarter end just to give us a better framework of kind of where the You bet. So they were 188 for the

Kevin P. Riley: Okay got it and then Marty maybe do you have the spot rate for deposit costs at quarter end, just to give us a better framework I've kind of worth it.

Timur Felixovich Braziler: Yeah.

Marcy: You bet. So they were 188 for the quarter and 189 for March.

Marcy D. Mutch: You bet. So they were $188 for the quarter and $189 for...

Speaker Change: Uh huh.

Marcy D. Mutch: Okay.

Timur Felixovich Braziler: for interest-bearing, interest-bearing, that's interest-bearing, Timur. That's just interest-bearing, Timur. Yes. Okay. I got it. And then just one last one for me on the credit conversation. Any reserves allocated to that C&I credit? And then maybe just talk more about the relationship between the growth in non-performing loans versus the allowance ratio and kind of how we should think about the interplay between the two.

Marcy: Non interest bearing.

Speaker Change: That just since you're bearing tumor yeah.

Timur Felixovich Braziler: Okay.

Timur Felixovich Braziler: Got it and then just one last one for me on the credit conversation any reserves allocated to the C&I credit and then maybe just talk about more.

Timur Felixovich Braziler: The relationship with the growth in nonperforming loans versus the allowance ratio and kind of how we should think about the interplay between the two.

Kevin P. Riley: I'll give you a little bit of color on the thing is, yeah, we recognize a reserve on that C&I credit, and that's baked into the overall reserve. We don't disclose exactly what that would be, but that reserve is baked into the overall reserve.

Timur: Yeah, well I'll give you a little bit of color on the thing is yeah, we recognize a reserve.

Kevin P. Riley: And that a C&I credit and that's baked into the overall reserve, we don't disclose exactly what that would be but that.

Kevin P. Riley: That reserve is baked into the overall reserve in regards to nonperforming in the country.

Kevin P. Riley: In regards to non-performing loans in the coverage, we feel comfortable where we are with regard to non-performing loans. And as we said before, we believe, as we said when some went in last month, that some of these are being restructured, and they are paying down. So we still feel that we're in good shape with regard to dealing with the non-performing loans that are there. Yeah, again, we don't see any systemic issues. We're happy with the improvement and criticized loans overall. We see our credit quality as being stable from here on out. In terms of the reserve, at the level we are, we feel adequately reserved for what we're seeing within the portfolio.

Kevin P. Riley: We feel comfortable where we're at with regards to nonperforming loans and as we said before we we believe as we said when someone in last month that somebody's youre being restructured and the pay down so we still feel that Oh.

Kevin P. Riley: We're in good shape with regards to dealing with the nonperforming loans that are there you know again, we don't see any systemic issues. You know were happy with the improvement in criticized loans. Overall, you know we see our credit quality has been stable you know from here on out and as terms of the reserve you know at the level we are.

Kevin P. Riley: We feel adequately reserved for what we're seeing you know within the portfolio.

Kevin P. Riley: Yeah.

Speaker Change: Great. Thanks for the questions.

Speaker Change: Thanks anymore.

Speaker Change: Thank you and just a final reminder, ladies and gentlemen, Please press star one for any further questions today.

Timur Felixovich Braziler: Great. Thanks for the questions. Thanks, Timur. Thank you.

Kevin P. Riley: And ladies and gentlemen, it appears we have no further questions. This morning, Mr. Reilly I'll hand things back to you Sir for any closing comments.

Operator: Thank you. And just a final reminder, ladies and gentlemen, please press star 1 for any... And ladies and gentlemen, it appears we have no further questions this morning. Mr. Riley, I'll hand things back to you. Okay, thank you for your questions today on the call. And, as always, we welcome calls from our investors and analysts. Please reach out to us if you have any further follow-up questions. Thanks for tuning in today. Bye. Thank you, Mr. Riley. Ladies and gentlemen, that will conclude the first interstate... First Quarter Earnings Call. Again, we'd like to thank you all.

Speaker Change: Okay. Thank you for your questions today on the call and as always we welcome calls from our investors and analysts. Please reach out to US if you have any further follow up questions.

Operator: You for tuning in today.

Operator: Hi.

Operator: Thank you Mr. Riley, ladies and gentlemen that will conclude the first Interstate bank system first quarter earnings call again, we'd like to thank you all so much for joining us and wish you all a great day Goodbye.

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