10-Q: First Interstate BancSystem Reports Strong Q3 Earnings

First Interstate BancSystem reported a significant increase in net income and improved net interest margin for Q3 2025, driven by lower credit loss provisions and reduced interest expense.

Summary

• Net income for the three months ended September 30, 2025, increased by $15.9 million to $71.4 million, or $0.69 per diluted share, compared to $55.5 million, or $0.54 per diluted share, for the same period in 2024.
• For the nine months ended September 30, 2025, net income rose by $19.4 million to $193.3 million, or $1.87 per diluted share, up from $173.9 million, or $1.69 per diluted share, in the prior year.
• Net interest income increased by $1.3 million to $206.8 million for the three months ended September 30, 2025, and by $11.7 million to $619.0 million for the nine months ended September 30, 2025, primarily due to decreased interest expense on other borrowed funds.
• The provision for credit losses was $0 million for the three months ended September 30, 2025, a significant decrease from $19.8 million in the same period of 2024.
• Total assets decreased by $1,804.5 million (6.2%) to $27,332.9 million as of September 30, 2025, from $29,137.4 million at December 31, 2024.
• Loans held for investment, net of deferred fees and costs, decreased by $2,010.5 million to $15,834.4 million as of September 30, 2025.
• Total deposits decreased by $410.6 million (1.8%) to $22,605.0 million as of September 30, 2025.
• The company ceased originating indirect loans as of February 28, 2025, and completed the outsourcing of its consumer credit card portfolio in June 2025, resulting in a $4.3 million gain.
• The sale of Arizona and Kansas branches closed on October 10, 2025, involving approximately $645 million in deposits and $305 million in loans, with an anticipated pre-tax gain of approximately $60 million.
• A new stock repurchase program was adopted on August 28, 2025, authorizing up to $150.0 million in repurchases by March 31, 2027. Approximately $60.2 million (1.9 million shares) had been repurchased by October 31, 2025.

Sentiment

Score: 7

Explanation: The company reported strong net income growth and improved net interest margin, coupled with significantly lower credit loss provisions and net charge-offs. Strategic actions like branch sales and debt redemptions are positive. However, a decrease in total assets, loans, and deposits, along with an increase in non-accrual loans, present some headwinds. The overall sentiment is positive due to strong profitability and capital position, despite some balance sheet contraction and credit quality concerns in specific segments.

Positives

• Net income significantly increased for both the three-month ($71.4M vs $55.5M) and nine-month ($193.3M vs $173.9M) periods ended September 30, 2025, compared to 2024.
• Diluted earnings per common share improved to $0.69 for Q3 2025 and $1.87 for the nine months ended September 30, 2025, from $0.54 and $1.69 respectively in 2024.
• Net interest income increased, and net interest margin improved to 3.34% for Q3 2025 and 3.27% for the nine months ended September 30, 2025, indicating better profitability from core lending activities.
• Provision for credit losses was $0 million for Q3 2025 and $19.7 million for the nine months ended September 30, 2025, substantially lower than the prior year periods, reflecting improved credit quality or lower expected losses.
• Net charge-offs decreased significantly to $2.3 million (0.06% annualized) for Q3 2025 and $17.1 million (0.13% annualized) for the nine months ended September 30, 2025, from $27.4 million (0.60% annualized) and $49.3 million (0.36% annualized) respectively in 2024.
• Other borrowed funds were reduced to zero as of September 30, 2025, from $1,567.5 million at December 31, 2024, improving the company's funding structure.
• Stockholders' equity increased by $144.7 million (4.4%) to $3,448.7 million, partly due to a decrease in unrealized losses on available-for-sale securities.
• The company's capital ratios exceed all regulatory requirements to be deemed well-capitalized, demonstrating strong financial health.
• The sale of Arizona and Kansas branches is expected to generate an approximately $60 million pre-tax gain.
• Wealth management revenues increased by $0.8 million for Q3 2025 and $1.7 million for the nine months ended September 30, 2025, driven by higher trust and estate fees.

Negatives

• Total assets decreased by $1,804.5 million (6.2%) to $27,332.9 million as of September 30, 2025, compared to December 31, 2024.
• Loans held for investment, net of deferred fees and costs, decreased by $2,010.5 million (11.3%) to $15,834.4 million as of September 30, 2025.
• Total deposits decreased by $410.6 million (1.8%) to $22,605.0 million as of September 30, 2025.
• Investment securities decreased by $438.8 million (5.7%) to $7,305.8 million as of September 30, 2025.
• Non-accrual loans increased by $43.3 million (31.3%) to $181.6 million as of September 30, 2025, from $138.3 million at December 31, 2024, primarily in commercial real estate and agricultural real estate.
• Total non-performing assets increased by $40.0 million to $185.6 million as of September 30, 2025, from $145.6 million at December 31, 2024.
• The allowance for credit losses to non-performing loans ratio decreased to 112.95% from 144.44%, indicating less coverage for non-performing assets.
• Gross unrealized losses on investment securities in a continuous loss position for more than twelve months totaled $495.6 million as of September 30, 2025.
• Payment services revenues decreased by $1.9 million for Q3 2025 and $4.0 million for the nine months ended September 30, 2025, primarily due to lower credit and debit card interchange revenue.
• Other income decreased by $1.7 million for Q3 2025 and $3.1 million for the nine months ended September 30, 2025, partly due to a valuation allowance for loans transferred to held for sale and a gain on branch sale in the prior year.

Risks

• The company may not realize the anticipated benefits of its stock repurchase program, and the timing and level of shares repurchased may have an adverse impact on its reputation, investor confidence, and stock price.
• The existence of the repurchase program could cause the price of common stock to be higher than it otherwise would be and potentially reduce market liquidity.
• Purchasing shares under the repurchase program will reduce cash available for capital expenditures, strategic investments, and other operating requirements.
• Future changes in interest rates could materially adversely affect the company, as interest rates are highly sensitive to many factors beyond its control.
• Continued volatility in economic markets, including potential recessionary signs, changes in U.S. policies (e.g., tariffs), could impact deposit levels and credit quality, potentially increasing credit losses.
• Macroeconomic conditions contributed to slower lease-up in the multifamily portfolio, which could lead to increased criticized assets if not managed effectively.
• The effectiveness of disclosure controls and procedures and internal control over financial reporting is subject to inherent limitations, including cost, judgments, assumptions, human error, and fraud risk.

Future Outlook

The company anticipates continued volatility in economic markets, potentially including recessionary signs due to changes in U.S. policies, which could impact deposit levels and credit quality. The Federal Reserve's recent rate decreases in September and October 2025 have benefited the company's cost of funds. The company expects to close the sale of eleven Nebraska branches in early 2026 and plans to close four additional Nebraska branches in the first quarter of 2026 to enhance operational efficiency and long-term success. No material impact is expected from the One Big Beautiful Bill Act or recent accounting standard updates.

Management Comments

• The company expects to see continued volatility in the economic markets, which may include recessionary signs in the economy resulting from, among other things, uncertain conditions due to changes in U.S. policies like the implementation of new tariffs, retaliatory tariffs, and other trade policies.
• These branch closures are intended to enhance operational efficiency and better position the Company for long-term success.

Industry Context

First Interstate BancSystem's performance reflects a banking sector navigating a dynamic interest rate environment, with recent Federal Reserve rate cuts impacting funding costs. The strategic divestiture of branches and cessation of indirect lending align with broader industry trends towards optimizing physical footprints, streamlining operations, and focusing on core, higher-margin banking services. The increase in non-accrual loans, particularly in commercial and agricultural real estate, suggests some localized or sector-specific credit quality pressures, even as overall credit loss provisions decreased, possibly indicating a more cautious approach to specific segments or an improvement in other areas. The strong capital ratios position the company well against potential economic headwinds.

Legal Proceedings

• The company is involved in various claims and litigation in the normal course of business. Management, after consultation with legal counsel, does not expect the ultimate liability or disposition of these matters to have a material adverse effect on the consolidated financial condition, results of operations, or liquidity.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, higher EPS, and a new stock repurchase program. Quarterly dividends maintained at $0.47 per share.
• Employees: Potential impact from branch sales and closures in Arizona, Kansas, and Nebraska, which may lead to workforce adjustments.
• Customers: Customers in divested or closed branch locations will transition to new banking providers or alternative service channels.
• Creditors: Improved net interest margin and reduced other borrowed funds indicate a stronger financial position, potentially enhancing creditworthiness. Issuance of new subordinated notes provides additional capital.
• Regulatory Authorities: The company continues to exceed all capital adequacy requirements, demonstrating compliance and financial stability.

Next Steps

• Closing of the Purchase and Assumption Agreement with Security First Bank for eleven Nebraska branches, anticipated in early 2026.
• Closure of four additional branches in Nebraska in the first quarter of 2026.
• Continued monitoring of interest rate risk exposure and potential entry into new derivative contracts.
• Ongoing stock repurchases under the $150.0 million program through March 31, 2027.
• Payment of a $0.47 per common share dividend on November 20, 2025.

Key Dates

Recommendation

The company demonstrated strong financial performance with a significant increase in net income and EPS, driven by improved net interest margin and a substantial reduction in credit loss provisions. Strategic initiatives like branch divestitures and the cessation of indirect lending are expected to enhance operational efficiency and profitability, with the Arizona/Kansas branch sale alone projected to yield a $60 million pre-tax gain. The robust capital ratios, exceeding all regulatory requirements, provide a solid foundation. While there's a slight increase in non-accrual loans and a decrease in overall loan and deposit balances, these are largely offset by strategic portfolio adjustments and strong liquidity management, including the elimination of other borrowed funds. The ongoing stock repurchase program further signals management's confidence and commitment to shareholder value. Given these factors, the stock presents a compelling 'buy' opportunity for long-term investors.

Keywords

Banking, Financial Services, SEC Filing, 10-Q, Earnings, Net Income, Net Interest Margin, Credit Losses, Loans, Deposits, Investment Securities, Branch Sales, Stock Repurchase, Capital Ratios, Non-performing Assets, Interest Rate Risk, FIBK