First Interstate BancSystem (NASDAQ:FIBK) reported third-quarter net income of $62.2 million, or $0.65 per diluted share, compared with $83.9 million, or $0.87 per diluted share, in the second quarter. The sequential decline reflected lower non-interest income, which had included a $19.5 million gain in the prior quarter from a Nebraska branch transaction.
Net interest income increased $4 million, or 2%, from the prior quarter to $206.2 million. Fully taxable equivalent net interest margin expanded to 3.55% from 3.48% in the second quarter and 3.36% a year earlier, marking the company’s 10th consecutive quarter of margin expansion.
Chief Executive Officer Jim Reuter said the company continued to execute its multiyear strategy of improving the franchise’s earnings power through relationship banking, branch optimization, targeted market investments and balance-sheet repositioning.
“Our primary objective is to protect and strengthen the quality of the deposit franchise and add new customers,” Reuter said. He said client acquisition remained strong in the Rocky Mountain region and that lending production remained concentrated in relationship-based clients with operating deposits and related services.
Margin Gains and Deposit Mix
Chief Financial Officer David Della Camera said loan yields increased 5 basis points during the quarter to 5.67%, while total funding costs fell 4 basis points. Deposit costs benefited from the departure of a large, high-cost, fully collateralized customer whose relationship did not meet the company’s long-term return objectives.
The exit contributed roughly 3 basis points of net interest margin improvement during the quarter, according to Della Camera, and did not materially affect net interest income. Excluding that account, deposits increased during the period.
Total deposits declined $52.8 million to $21.4 billion, but the company said its deposit mix improved as non-interest-bearing balances rose for a second consecutive quarter. Della Camera said interest-bearing deposit costs were 1.51% for the full month of September, compared with 1.49% for the third quarter overall.
Management said it expects underlying deposits to remain relatively stable in the fourth quarter, supported by customer acquisition and continued growth in non-interest-bearing balances. Della Camera noted that fourth-quarter deposit trends are typically stronger early in the quarter and weaker later in the period.
Reuter added that the company has seen growth in the number of clients, which he attributed to branding efforts and bankers expanding customer relationships. He said client growth can support deposits and fee-income opportunities over time.
Loans, Credit and Asset Repricing
Loans decreased $296 million in the third quarter, affected by a $47.7 million reduction in indirect lending, a $64.9 million decline in the retained out-of-market portfolio and a $36.8 million decline in the residential portfolio. Some expected third-quarter payoffs shifted into early in the fourth quarter, management said.
The ratio of loans held for investment to deposits was 65.4% at quarter-end, down from 66.6% in the second quarter and 70.1% a year earlier. Management expects loan balances to remain under pressure in the fourth quarter as it continues exiting certain non-relationship and out-of-market credits, while deposits are expected to be flat to higher.
Della Camera said commercial loan production has increased materially from a year ago, though certain portfolio runoffs have kept the underlying commercial portfolio near flat and still modestly declining. He said the company believes it has added the relationship-manager capacity needed to support future growth but did not provide a timetable for loan growth to resume.
The company said asset repricing and reinvestment should continue to support earnings asset yields into 2027. Della Camera said new loan yields were in the mid-6% range during the third quarter, while investment portfolio reinvestment spreads were estimated in the 40- to 50-basis-point range for maturities of five years or more.
Management said the balance sheet is broadly neutral to interest-rate changes from a net interest income perspective in both the near term and over the following 12 months.
Credit Metrics Remain Stable
Net charge-offs rose $0.2 million sequentially to $9.9 million, or 28 basis points of average loans. First Interstate recorded a $10.5 million provision for credit losses, driven primarily by charge-offs, a 2-basis-point increase in the funded loan allowance for credit losses to 1.30%, and a higher unfunded allowance tied largely to increased unfunded construction commitments.
Criticized loans increased $2.1 million, or 0.2%, from the second quarter but were down 19% from a year earlier. Nonperforming assets declined 6% during the quarter.
Reuter said the company’s credit teams continue to review criticized loans and stress upcoming maturities for higher rates as part of borrower renewal discussions. He said management expects continued long-term improvement in credit quality, while acknowledging that criticized loan levels may not improve in a straight line each quarter.
Capital Deployment and Branch Strategy
First Interstate repurchased about 2 million shares for approximately $76 million in the third quarter. Since the share repurchase program began in late August 2025, the company has repurchased about 10 million shares totaling $347 million.
The company also declared a quarterly common dividend of $0.47 per share, representing a 5% annualized yield based on the average closing share price during the third quarter. Its Common Equity Tier 1 capital ratio was 14.36% at quarter-end, down 18 basis points from the prior quarter, while its leverage ratio was 9.49%.
Della Camera said the company intends to remain active in capital deployment but does not have a specific quarterly repurchase target. He said balance-sheet growth would become the preferred capital allocation opportunity as low-cost deposit and lending growth accelerate.
Management said it plans to open two Colorado branches in the first half of 2027 while consolidating three locations in the fourth quarter of 2026. Reuter said the current expense base, technology, infrastructure and staffing levels support the company’s intended growth without requiring a significant additional investment step-up beyond normal inflationary costs.
About First Interstate BancSystem (NASDAQ:FIBK)
First Interstate BancSystem, Inc is a financial holding company headquartered in Billings, Montana. Through its principal subsidiary, First Interstate Bank, the company provides community banking services to individuals, businesses, agricultural customers and governmental entities.
First Interstate Bank offers deposit accounts, consumer and commercial loans, mortgage lending, credit cards, cash-management and treasury-management services, online and mobile banking, and wealth-management and investment services.
