10-K: First Interstate BancSystem Reports Strong 2025 Earnings

First Interstate BancSystem, Inc. reported a significant increase in net income for 2025, driven by strategic divestitures and improved credit quality, despite a decrease in total assets and loans.

Summary

• Net income increased 33.7% to $302.1 million ($2.94 diluted EPS) in 2025, up from $226.0 million ($2.19 diluted EPS) in 2024.
• Total assets decreased 8.6% to $26.6 billion as of December 31, 2025, from $29.1 billion in 2024.
• Deposits decreased $927.3 million to $22.1 billion, primarily due to branch sales.
• Loans held for investment, net of deferred fees and costs, decreased 14.8% to $15.2 billion.
• Net interest income increased $3.8 million during 2025, primarily due to lower costs of funds.
• Net interest margin increased 28 basis points to 3.30% in 2025 from 3.02% in 2024.
• Provision for credit losses decreased to $26.8 million in 2025 from $67.8 million in 2024.
• Noninterest income increased $55.3 million, largely driven by a $62.7 million pre-tax gain from the sale of Arizona and Kansas branches.
• Noninterest expense increased $2.9 million, with higher occupancy and professional fees partially offset by lower FDIC insurance premiums.
• The company completed the divestiture of banking operations in Arizona and Kansas in October 2025, selling 12 branches, approximately $641.6 million in deposits, and $291.5 million in loans.
• Exited the indirect lending origination business in early 2025 and outsourced the consumer credit card portfolio in mid-2025, resulting in the sale of $74.2 million of loans.
• Initiated a transformation from a layered, regional and market structure to a flatter model in Q4 2025, expected to be nearly complete in Q1 2026.
• The Board approved a stock repurchase program of up to $150 million in August 2025, which was increased by an additional $150 million in January 2026, totaling $300 million.
• Repurchased 3,653,914 shares for $117.6 million in 2025.
• Redeemed $100.0 million of 2020 Subordinated Notes in August 2025 and Trust Preferred Securities of HF Financial Capital Trust III ($5.2 million) and HF Trust IV ($7.2 million) in October 2025.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, highlighting strong net income growth and improved efficiency driven by strategic actions, despite a decrease in overall assets and loans. The proactive management of credit risk and capital, coupled with a significant stock repurchase authorization, indicates a healthy financial position and a commitment to shareholder returns. However, the decline in total assets and loans, along with ongoing economic uncertainties and regulatory changes, temper the overall positive outlook.

Positives

• Net income increased significantly by 33.7% year-over-year to $302.1 million.
• Diluted earnings per share increased from $2.19 in 2024 to $2.94 in 2025.
• Net interest margin improved by 28 basis points to 3.30% in 2025.
• Provision for credit losses decreased substantially to $26.8 million in 2025 from $67.8 million in 2024.
• Noninterest income saw a significant boost from a $62.7 million gain on the sale of Arizona and Kansas branches.
• The efficiency ratio improved to 59.19% in 2025 from 62.30% in 2024.
• Return on average assets increased to 1.09% from 0.75%, and return on average common stockholders' equity increased to 8.83% from 6.92%.
• Maintained strong capital ratios, exceeding all regulatory requirements to be deemed well-capitalized.
• Available borrowing capacity of $5.0 billion with the Federal Home Loan Bank (FHLB) and $3.9 billion with the Federal Reserve Bank (FRB) as of February 19, 2026.
• Criticized assets improved in the fourth quarter of 2025 compared to the third quarter.
• Reduction in special FDIC assessment accrual, including a $1.6 million reversal during 2025.
• Board authorized an increase of $150.0 million to the stock repurchase program, bringing the total authorization to $300.0 million since August 2025.

Negatives

• Total assets decreased by $2,496.8 million (8.6%) to $26.6 billion as of December 31, 2025.
• Total deposits decreased by $927.3 million, partly due to the Arizona and Kansas branch sales.
• Loans held for investment, net of deferred fees and costs, decreased by $2,643.3 million (14.8%) to $15.2 billion.
• Payment services revenues decreased $5.7 million, mainly related to the outsourcing of consumer credit cards.
• Mortgage banking revenues decreased $0.8 million.
• Experienced increased credit stress in certain grain credit relationships in 2025 due to lower commodity prices and elevated input costs.
• Slower lease-up in the commercial real estate multi-family portfolio contributed to an increase in criticized assets in mid-2025.
• Weaker than anticipated loan production, including muted demand for certain commercial real estate and construction lending.
• Goodwill of $1,100.9 million represents 31.9% of total stockholders' equity, posing a potential impairment risk.
• Investment securities had gross unrealized losses of $443.2 million as of December 31, 2025, for securities in a continuous loss position for more than twelve months.
• Non-accrual loans to loans held for investment increased to 0.88% in 2025 from 0.78% in 2024.

Risks

• New or changes in existing governmental regulations, or in their interpretation or enforcement, could materially adversely affect the company.
• Negative developments in the banking industry, such as the 2023 bank failures, could lead to increased regulatory scrutiny, deposit volatility, and liquidity issues.
• Tax legislative initiatives or assessments, including changes in corporate tax rates or new taxes like the 1% excise tax on share buybacks, could negatively impact results.
• The company may be subject to more stringent capital requirements in the future, such as those from Basel IV (Basel III Endgame), which could adversely affect operations and profitability.
• Changes in accounting standards could materially negatively impact financial statements.
• Failure to comply with laws and regulations, including the Community Reinvestment Act (CRA) and fair lending laws, could lead to material penalties and reputational harm.
• Non-compliance with the USA PATRIOT Act, OFAC guidelines, and the Bank Secrecy Act (BSA) could result in serious legal, financial, and reputational consequences.
• Federal deposit insurance assessment rates could increase further in the future, increasing expenses.
• Lending risks and risks associated with loan portfolio concentrations, particularly in commercial real estate and commercial business loans, could lead to substantial credit losses.
• A decline in economic conditions in the company's primary market areas (Colorado, Idaho, Iowa, Minnesota, Missouri, Montana, Nebraska, North Dakota, Oregon, South Dakota, Washington, and Wyoming) could reduce demand for products and services and negatively impact loan credit quality.
• Credit losses on loans exceeding estimated amounts could adversely affect earnings.
• United States trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact business, financial condition, and results of operations.
• The soundness of other financial institutions could adversely affect the company due to interdependencies in the financial services industry.
• Liquidity risks, including the inability to meet cash flow needs, loss of deposits, or inability to access funding sources, could impair cash flows.
• Changes in interest rates may have an adverse effect on demand for products and services and on profitability, particularly in a declining rate environment where deposit costs may not decrease as quickly as asset yields.
• Changes in interest rates may have an adverse effect on the value of investment securities, leading to realized losses if securities in an unrealized loss position are sold.
• Cybersecurity risks, including denial-of-service attacks, network intrusions, and other malicious behavior, could result in disclosure of confidential information, business disruptions, and significant legal, operational, and financial exposure.
• Privacy, information security, and data protection laws, rules, and regulations could affect or limit how personal information is collected and used, increasing compliance and technology costs.
• Goodwill and other intangible assets may become impaired, adversely impacting results of operations and financial condition.
• Reliance on third parties for key components of business infrastructure exposes the company to operational disruptions and reputational harm.
• Events that may tarnish the company's reputation, including mainstream and social media contagion, could adversely affect client relationships and business opportunities.
• The loss of services of key members of the management team and directors could adversely affect the company's ability to operate or execute its strategy.
• Inability to attract and retain qualified employees could adversely impact operations and business strategy.
• Costs associated with repossessed properties, including potential environmental remediation, may adversely impact results of operations.
• Failure to maintain effective operational processes, policies and procedures, and internal control over financial reporting could impact the ability to accurately and timely report financial results.
• Inability to effectively implement technology-facilitated products and services or successfully market them to clients could negatively impact the business.
• The development and use of Artificial Intelligence (AI) by the company or others, or the inability to effectively and timely implement its use, may adversely affect the company.
• Acquisitions, mergers, strategic partnerships, divestitures, and other transactions introduce a broad range of anticipated and unanticipated risks, including integration costs and failure to achieve expected benefits.
• Significant competition from new or existing financial institutions and non-banks may reduce the client base or necessitate price adjustments.
• Investing in technology, and the inability or failure to integrate technologies into operations, may negatively affect business and earnings.
• Volatility in the price and trading volume of common stock may be unfavorable.
• Anti-takeover provisions in the certificate of incorporation and regulations may make it more difficult for a third party to acquire control.
• Changes in the dividend policy or ability to pay dividends could adversely affect stockholders.
• The company may fail to realize the anticipated benefits of its stock repurchase program.
• Common stock is equity and is subordinate to existing and future indebtedness.
• General risk factors include the effect of global conditions, natural catastrophic events (earthquakes, floods, fires, drought), and the impact of climate change and environmental sustainability matters.

Future Outlook

The company expects continued volatility in economic markets, potentially including recessionary signs due to uncertain U.S. policies like new tariffs and trade policies, which could impact deposit levels and credit quality. The Federal Reserve has indicated further interest rate decreases during 2026. The transformation to a flatter banking organization model is expected to be nearly complete in Q1 2026. The sale of 11 Nebraska branches is anticipated to close in Q2 2026, and several other branches are slated for closure by the end of February 2026. Management expects approximately $50.1 million of callable investment securities to be called in 2026. The legal and regulatory environment for emerging technologies like AI is expected to evolve, potentially increasing costs and compliance risks.

Management Comments

• Our vision is to meet people where they are and help them reach where they want to be.
• Rooted in the principles of community banking, we build lasting relationships and make thoughtful decisions that serve our employees, clients, communities and shareholders.
• Our long-term philosophy emphasizes providing high-quality financial products and services, delivering exceptional client service, influencing business leadership within our communities through professional and dedicated bankers, supporting our communities through financial contributions and socially responsible leadership, and cultivating a strong corporate culture.
• Building on this foundation, we are executing a strategic plan intended to refocus capital investment, optimize our balance sheet and improve core profitability, while continuing to advance our business in a disciplined and prudent manner.
• We believe these proactive steps, together with our disciplined underwriting standards on new production, position us well to continue supporting stable asset quality over time and in various economic scenarios.
• Our management is not aware of any events that are reasonably likely to have a material adverse effect on our liquidity, capital resources, or operations.
• Our management is not aware of any regulatory recommendations regarding liquidity, which if implemented, would have a material adverse effect on us.

Industry Context

StockSavvy.ai notes that the banking industry is undergoing rapid technological change, with increasing competition from financial technology (fintech) companies and internet banks, which often operate with less regulatory burden. The company's focus on enhancing its omni-channel experience and investing in technology, including AI, is a direct response to these trends. The ongoing regulatory scrutiny, particularly after the 2023 bank failures, and evolving capital requirements (Basel III Endgame) highlight a challenging operating environment for regional banks. The company's strategic divestitures and branch network optimization reflect a broader industry trend of rationalizing physical footprints and focusing on core, profitable markets.

Comparison to Industry Standards

• For the year ended December 31, 2025, First Interstate BancSystem's cumulative total shareholder return was $112.22, compared to $187.14 for the NASDAQ Composite Index, $196.00 for the KBW NASDAQ Bank Index, and $152.71 for the KBW NASDAQ Regional Banking Index (assuming a $100 investment on December 31, 2020). This indicates underperformance relative to both broad market and banking sector indices over the five-year period.
• The company's Core Return on Average Tangible Common Equity (Core ROATCE) and Total Shareholder Return (TSR) performance metrics for executive compensation are benchmarked against 'Comparator Banks,' which are the component companies of the KBW Nasdaq Regional Banking Index (KRX).

Management Changes

Corporate Governance

Legal Proceedings

• Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of any such ongoing or anticipated matters to have a material, adverse effect on our business, financial condition, or operating results.

Related Party Transactions

• Certain executive officers, directors, and greater than 5% shareholders, and entities related to them, engaged in transactions with the Company in the ordinary course of business, including being deposit clients and incurring indebtedness.
• Loans to related parties totaled $2.1 million at December 31, 2025, down from $5.1 million at December 31, 2024.
• During 2025, new loans and advances to related parties totaled $4.2 million, loan repayments were $5.0 million, and $2.2 million of loans were removed or added due to changes in related parties.
• The Parent Company and a FIB branch office lease premises from an affiliated entity, with total future minimum rental commitments to this related entity of $1.6 million.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, improved efficiency, and expanded stock repurchase program. Potential dilution from future equity issuances. Underperformance relative to broader market and banking indices over 5 years.
• Employees: Impacted by the transformation to a flatter organizational model. Benefit from competitive wages, comprehensive benefits, and growth/development programs. Equity compensation plans are a key part of total rewards. Subject to non-solicitation and non-competition clauses in employment agreements.
• Customers: Benefit from enhanced omni-channel experience and local decision-making. Impacted by branch closures in certain markets. Potential for increased costs or reduced services due to regulatory changes (e.g., interchange fees).
• Communities: Benefit from the company's commitment to community plans, philanthropy, and employee volunteerism. Impacted by branch closures in certain areas.
• Creditors: Subordinated debentures rank junior to senior indebtedness. Redemption of subordinated notes and trust preferred securities reduces debt.

Next Steps

• Complete the transformation to a flatter banking organization model in Q1 2026.
• Close the sale of 11 Nebraska branches at the beginning of Q2 2026.
• Close four additional Nebraska branches, one in Minnesota, and one in North Dakota at the end of February 2026.
• Continue to evaluate and apply the provisions of the One Big Beautiful Bill Act (OBBBA).
• Monitor regulatory developments related to AI and other emerging technologies.
• Continue to monitor interest rate risk exposure and may enter into new derivative contracts.
• Continue stock repurchases under the authorized $300.0 million program.
• Pay quarterly dividend of $0.47 per share on February 20, 2026.

Key Dates

Recommendation

The company demonstrated strong net income growth and improved efficiency in 2025, driven by strategic divestitures and a reduction in credit loss provisions. The increased stock repurchase authorization signals confidence and a commitment to shareholder returns. However, the decline in total assets and loan portfolio, coupled with ongoing economic uncertainties, competitive pressures, and the evolving regulatory landscape, suggest a period of strategic realignment rather than aggressive growth. While the company is well-capitalized and proactively managing risks, the underperformance relative to broader banking indices over the past five years indicates that significant upside may be limited in the short term. A 'hold' recommendation reflects the positive operational improvements and shareholder-friendly actions, balanced against the challenges of asset contraction and market volatility.

Keywords

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