First Interstate outlines mid-single-digit NII growth for 2026 while executing branch divestitures and share repurchases

Earnings Call Insights: First Interstate BancSystem (FIBK) Q3 2025

MANAGEMENT VIEW

* CEO James Reuter explained that "this continues to be an exciting and busy time at First Interstate," noting ongoing priorities to refocus capital investment, optimize the balance sheet, and improve core profitability. He highlighted the active execution of a share repurchase authorization and the closure of branch divestitures in Arizona and Kansas, with additional Nebraska branch sales and closures planned to "improve density in areas where we have strong market share and growth potential."
* Reuter described a focus on organic growth, stating the approach will be to "grow full relationships in a disciplined manner" and emphasizing that recent strategic actions, alongside slower-than-expected growth, have increased capital ratios.
* The CEO reported that "nonperforming assets decreased $11.9 million or 6% to $185.6 million as of September 30, 2025," and that net charge-offs decreased $3.5 million in the third quarter to $2.3 million.
* CFO David Camera stated, "For the third quarter of the year, the company reported net income of $71.4 million or $0.69 per diluted share compared to $71.7 million or $0.69 per diluted share in the second quarter." He shared that "net interest income decreased $0.4 million compared to the prior quarter or 0.2% to $206.8 million."
* Camera added, "Yield on average loans increased 3 basis points to 5.68% in the third quarter."

OUTLOOK

* Management reported, "from the anticipated fourth quarter annualized level, which includes the impact of the Arizona and Kansas divestiture, we anticipate net interest income expansion around mid-single digits in 2026, assuming approximately flat total loans and modest deposit growth."
* CFO Camera commented, "Our current expectation is to keep expense growth to a low single-digit increase over the anticipated full year 2025 level."
* There was no explicit change in long-term guidance language, but incremental commentary was provided on the positive impacts of branch transactions and capital deployment strategies.

FINANCIAL RESULTS

* Net income for the quarter was $71.4 million or $0.69 per diluted share, with net interest income at $206.8 million.
* Noninterest income was $43.7 million, up $2.6 million from the prior quarter, while noninterest expense was $157.9 million, an increase of $2.8 million from the prior period.
* Loans decreased by $519 million in the third quarter, and total deposits decreased $25.6 million to $22.6 billion as of September 30, 2025.
* Regulatory capital ratios strengthened, with the common equity Tier 1 capital ratio ending the quarter at 13.9%, an increase of 47 basis points from the prior quarter.
* A dividend of $0.47 per common share was declared.
* Management highlighted an anticipated $60 million pretax gain from the Arizona and Kansas divestiture in the fourth quarter and ongoing expense reductions from branch exits.

Q&A

* Andrew Terrell, Stephens: Asked about the outlook for loan growth in 2026. CEO Reuter responded that "loan growth is our #1 focus," acknowledged recent challenges from less demand and higher payoff activity, but expressed optimism for growth in 2026, citing changes to credit culture, streamlined approvals, and targeted recruiting efforts.
* Terrell (Stephens): Inquired about capital deployment and the potential for increased share repurchases. CFO Camera stated, "our focus right now isn't on the securities restructure. It's on the repurchases...there is optionality there...we're not intending to hold excess capital."
* Kelly Motta, KBW: Asked about new loan production and headwinds from intentional runoff. CFO Camera noted production in the "low 6s to high 6s" range for loan yields and said, "we've been pretty intentional about that in 2025 ... we feel like we're getting closer to where we're comfortable from that perspective."
* Jeff Rulis, D.A. Davidson: Sought clarity on net charge-off guidance. CFO Camera replied, "the way we think about our charge-off guide is that's kind of our longer-term expectation," and that there may be "volatility on a quarterly basis."
* Jared Shaw, Barclays: Questioned competitive dynamics in target markets. CEO Reuter stated, "It's more competitive in metro markets ... we'll remain disciplined ... we're not going to chase growth for growth's sake, but we want to grow, but we're going to be smart about it."
* Matthew Clark, Piper Sandler: Asked about CET1 targets. CFO Camera indicated, "from a target perspective, we'd kind of guide you from a CET1 perspective, more in line with the peers in the near term."
* Timur Braziler, Wells Fargo: Queried deposit beta assumptions and NII growth. CFO Camera responded, "we anticipate capturing a higher beta than that...impact starts coming more meaningfully in '26 as we see those rates come down."

SENTIMENT ANALYSIS

* Analysts maintained a neutral to slightly positive tone, focusing questions on growth, capital allocation, and expense discipline, with repeated interest in the outlook for loan growth and capital redeployment.
* Management tone was confident and forward-looking in prepared remarks, with CEO Reuter emphasizing "optimistic about our growth in '26" and CFO Camera frequently highlighting optionality and discipline. In Q&A, management responses remained measured and pragmatic, often reiterating a disciplined approach and using phrases such as "we're going to be very disciplined" and "we're not intending to hold excess capital."
* Compared to the previous quarter, the tone remained constructive, but the current quarter featured more detailed discussion of capital management and branch optimization, with management exuding greater confidence in the strategic direction for 2026.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter saw an acceleration of branch optimization, with the closure and sale of branches in Arizona, Kansas, and Nebraska, compared to the previous quarter's focus on credit card outsourcing and initial branch transaction announcements.
* Guidance for mid-single-digit NII growth in 2026 was reiterated, compared to high single-digit guidance the previous quarter, but now includes more explicit commentary on the impact of the branch transactions and expense controls.
* Analysts continued to focus on credit trends, loan growth outlook, and capital deployment, but questions this quarter centered more on the practical execution of branch optimization and share repurchases.
* Management's confidence in achieving improved efficiency and organic growth was more pronounced, with additional detail on talent acquisition, incentive structures, and operational streamlining.

RISKS AND CONCERNS

* Management acknowledged weaker-than-expected loan production, increased competition for deals, and muted demand for real estate lending as headwinds.
* Risks from larger loan payoffs and ongoing intentional runoff of nonrelationship loans were cited as factors influencing loan balances.
* Credit quality improvement was noted, but management underscored the ongoing nature of credit risk management and did not provide specific criticized loan forecasts.
* Analyst concerns focused on the sustainability of NII growth, the impact of lower loan balances, and the ability to deploy excess capital effectively.

FINAL TAKEAWAY

During the third quarter, First Interstate BancSystem advanced its strategic focus by optimizing its branch network, executing share repurchases, and maintaining strong capital positions. Management reaffirmed its disciplined approach to loan growth, capital allocation, and cost control, with a clear expectation for mid-single-digit net interest income growth in 2026. The company highlighted ongoing investments in talent and operational efficiency while acknowledging competitive and credit-related headwinds, positioning itself for long-term shareholder value creation as it enters 2026.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fibk/earnings/transcripts]

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