Skip to content
    FIBK
    Earnings call· Jun 2026(Q2 FY26)

    FIRST INTERSTATE BANCSYSTEM INC FIBK

    Jul 24, 2026 Source

    Executive summary

    First Interstate BancSystem Q2 FY26 — NIM Expansion and Capital Deployment

    First Interstate BancSystem delivered strong Q2 FY26 earnings, driven by continued net interest margin expansion and effective capital deployment through share repurchases. While proactive portfolio management led to a larger-than-expected decline in loan balances and deposits, the company is focused on optimizing its balance sheet and improving profitability. Management anticipates continued fixed asset repricing tailwinds and expects earning assets to stabilize in Q3 FY26, supporting future NII growth.

    Highlights

    5

    • Net interest margin expanded for the ninth consecutive quarter, reaching 3.48% in Q2 FY26, up from 3.43% in Q1 FY26.

    • Net income increased significantly to $83.9 million ($0.87 per diluted share) in Q2 FY26, up from $60.2 million ($0.61 per diluted share) in Q1 FY26.

    • Criticized loans decreased by $95.8 million (9.3%) QoQ and 22% over the past 12 months.

    • Common Equity Tier 1 (CET1) capital ratio strengthened to 14.54%, an increase of 24 basis points from the prior quarter.

    • Increased share repurchase authorization by an additional $150 million, bringing the total to $450 million, and repurchased $69 million in shares during the quarter.

    Concerns

    4

    • Loan balances decreased by $447 million in Q2 FY26, primarily due to elevated payoffs of non-relationship and out-of-market credits.

    • Total deposits decreased by $441.7 million to $21.4 billion, with $244 million attributed to a branch sale and continued pressure in higher-cost deposit categories.

    • Net charge-offs increased by $7.3 million to $9.7 million (27 basis points of average loans) in Q2 FY26.

    • Mortgage production trailed expectations, leading to a more meaningful near-term decline in that portfolio.

    Guidance & targets

    7
    CategoryTargetConfidence
    Loan payoff activity
    accelerated payoff activity to continue
    high materiality
    Medium
    Ending loans and earning asset base
    lower ending loans in a smaller earning asset base
    high materiality
    High
    Asset repricing tailwinds
    accelerating into 2027
    high materiality
    High
    Return profile and Net Interest Margin
    sequential improvement in our return profile through the remainder of 2026 and provide an even greater benefit to our net interest margin into 2027
    high materiality
    High
    Average earning assets
    bottom
    high materiality
    High
    Ending earning assets
    flat to improving from here and then higher
    high materiality
    High
    Average earning assets
    4Q being higher from an average
    high materiality
    High

    Operational metrics

    14
    Net income
    $83.9Mup from $60.2M in Q1 FY26
    Q2 FY26

    Reported net income.

    Diluted EPS
    $0.87up from $0.61 in Q1 FY26
    Q2 FY26

    Reported diluted earnings per share.

    Total funding costs
    4 bpsdecreased compared to Q1 FY26
    Q2 FY26

    Total funding costs.

    Noninterest income
    $61.7Mup $20.6M from Q1 FY26
    Q2 FY26

    Driven by a gain from branch transaction.

    OREO expense
    increased $1.7Mcompared to Q1 FY26
    Q2 FY26

    Driven by a valuation adjustment in Q1 FY26.

    Loans held for investment to deposits ratio
    66.6%down from 67.3% in Q1 FY26 and 72.3% in Q2 FY25
    Q2 FY26

    Ratio of loans held for investment to deposits.

    Leverage ratio
    9.59%up from 9.56% in Q1 FY26
    Q2 FY26

    Leverage ratio.

    Average deposits per average diluted share
    improved ~2%YoY
    prior 12 months

    Key metric focused on internally to enhance franchise productivity.

    Average deposits per branch
    improved 6%YoY
    prior 12 months

    Key metric focused on internally to enhance franchise productivity.

    Net interest income per share
    improved 4%YoY
    prior 12 months

    Key metric focused on internally to enhance franchise productivity.

    Relationship Managers added
    14
    YTD

    Added to revenue-generating roles as part of operating model efficiencies.

    Out-of-market loan portfolio
    ~$600M
    current

    Portfolio targeted for exit due to limited relationship value; $100M paid off in Q2 FY26.

    New loan yields
    low to mid-6s
    Q2 FY26

    Yields on new loan originations, depending on type.

    Fixed asset repricing coupon
    mid-4s
    through 2027

    Coupon on loans maturing and repricing through 2027, offering significant reinvestment opportunity.

    Industry KPIs

    13
    MetricValueDetails
    Loansdecreased $447MUSD
    Deposits$21.4BUSD
    Rotce ROE—
    Cet1 ratio14.54%%
    Capital returns$69MUSD
    Fee income lines—
    Allowance reserves1.28%%
    Net interest income$202.2MUSD
    Net interest margin3.48%%
    Net charge offs npls$9.7MUSD
    Total operating expenses$158.9MUSD
    Provision for credit losses$3.2M reductionUSD
    Efficiency ratio operating leverage—

    Deals & partnerships

    1
    Nebraska branch transactionSale of branches and associated deposits.

    Branch transaction that closed during the second quarter, resulting in a gain of $19.5 million and a decrease of $244 million in deposits.

    Risks & headwinds

    4
    Elevated loan payoffscontinued through the rest of 2026

    $447M decline in loans in Q2 FY26

    Mitigation: Focused on relationship-driven growth, adding RMs, proactive portfolio management to exit non-relationship credits.

    Deposit balance declinenear-term

    $441.7M decrease in total deposits to $21.4B

    Mitigation: Focusing on protecting and growing core relationships, allowing higher-cost money to exit the balance sheet.

    Mortgage production trailing expectationsnear-term

    more meaningful near-term decline in that portfolio

    Higher cost deposit categories pressurenear-term

    expectation for continued pressure in higher cost deposit categories

    Mitigation: Allowing higher cost money to exit, focusing on relationship growth and an enhanced deposit profile.

    What to watch in Q3 FY26

    5

    Average Earning Assets Stabilization

    Q3 FY26
    CurrentDeclined in Q2 FY26
    TargetBottom in Q3 FY26

    Why it matters

    Stabilization of earning assets is crucial for NII growth and overall balance sheet health, especially given recent declines.

    3Q would be the bottom from an average earning asset perspective because 2Q ended lower on an ending on an average basis, but kind of ending earning assets flat to improving from here and then higher into the back half.

    Q&A highlights

    6

    How much of the loan book is non-relationship and targeted for exit? When will earning assets stabilize and grow?

    The 'out-of-market' portfolio is about $600 million, with $100 million paid off this quarter. Average earning assets are expected to bottom in Q3 FY26, with ending earning assets flat to improving from Q2 FY26 and higher in Q4 FY26.

    “3Q would be the bottom from an average earning asset perspective because 2Q ended lower on an ending on an average basis, but kind of ending earning assets flat to improving from here and then higher into the back half.”

    asked by Matthew Clark · answered by David Camera

    2 min read6 chapters

    Detailed Narrative

    01

    Balance Sheet Optimization and Loan Portfolio Management

    The company is actively managing its loan portfolio, intentionally allowing payoffs of non-relationship and out-of-market credits, which contributed to a $447 million decline in loans this quarter. This proactive approach is expected to continue through 2026, pulling forward future payoff expectations, but is seen as beneficial for long-term relationship-driven growth and balance sheet quality. The 'out-of-market' portfolio is approximately $600 million, with $100 million paid off in Q2 FY26.

    02

    Net Interest Margin Expansion

    First Interstate BancSystem achieved its ninth consecutive quarter of net interest margin expansion, reaching 3.48% fully taxable equivalent. This was driven by continued fixed asset repricing, with investment security yields increasing from 2.72% to 2.98%, and declining total deposit costs, which fell 3 basis points QoQ to 1.17%. Management anticipates this trend to accelerate into 2027, providing significant NII upside.

    03

    Capital Management and Shareholder Returns

    The company remains committed to disciplined capital deployment, repurchasing $69 million of shares in Q2 FY26 and increasing its total share repurchase authorization to $450 million. The CET1 ratio improved to 14.54%, providing flexibility for continued shareholder returns and accretive growth. A dividend of $0.47 per common share was declared, equating to a 5.3% annualized yield.

    04

    Operating Model Efficiencies and Strategic Investments

    Management is executing on operating model efficiencies, aligning staffing levels with an emphasis on revenue-generating roles, including adding 14 relationship managers year-to-date. Investments in new branding efforts, data management, and securing key locations in core markets are aimed at enhancing long-term earnings power and efficiency, with recognized savings mostly within the Q2 run rate.

    05

    Deposit Trends and Mix Improvement

    Despite a total deposit decrease of $441.7 million, partly due to a $244 million branch sale, the deposit mix improved with noninterest-bearing balances returning to growth both quarterly and year-over-year (adjusted for sales). The company is strategically allowing higher-cost deposits to exit the balance sheet to protect and grow core relationships, leading to a decline in interest-bearing balances.

    06

    Credit Quality Improvement

    Criticized loans decreased significantly by $95.8 million (9.3%) QoQ and 22% over the past 12 months, reflecting successful credit workout and proactive portfolio management. While net charge-offs increased to $9.7 million due to resolutions of previously reserved credits, the overall trend in criticized assets is positive, and the allowance for credit losses decreased to 1.28% of loans.

    AI-generated summary of the company’s earnings call. Not investment advice.