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FIRST INTERSTATE BANCSYSTEM INC (FIBK)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered mixed results: diluted EPS $0.49, down vs Q4 2024 ($0.50) and Q1 2024 ($0.57), while net interest margin (NIM) expanded for the fourth consecutive quarter to 3.19% .
  • Against S&P Global consensus, EPS missed ($0.49 vs $0.565*) and revenue missed ($227.0M* vs $254.6M*), driven by weaker noninterest income and seasonal deposit declines that weighed on earning asset mix .
  • Credit quality weakened: non-performing assets (NPAs) rose 36% q/q to $198.4M; criticized loans jumped 33% to $1,026.1M, largely from CRE downgrades; provision increased to $20.0M .
  • Strategic catalyst: divestiture of 12 branches in AZ/Kansas (~$740M deposits, ~$200M loans) expected to close by early Q4, improving CET1 by ~30–40 bps and ~2% TBVPS accretion at close, sharpening focus on core markets and organic growth .

What Went Well and What Went Wrong

  • What Went Well

    • NIM expansion: Net FTE interest margin rose to 3.22%; adjusted FTE NIM up 6 bps q/q to 3.14%, primarily on lower funding costs .
      Quote: “Net interest margin expanded for the fourth consecutive quarter… we continue to prudently manage expenses while investing in the future growth of the Company.” — CEO James Reuter .
    • Borrowings reduced: Other borrowed funds fell 38.8% q/q to $960.0M, aiding margin and capital flexibility .
    • Capital strengthened: CET1 improved to 12.53% (+37 bps q/q); dividend maintained at $0.47 per share .

  • What Went Wrong

    • Credit deterioration: NPAs rose to $198.4M (+36% q/q); criticized loans climbed to $1,026.1M (+33% q/q), driven by CRE downgrades; coverage of NPLs fell to 110.5% .
    • Loan balances contracted: Loans held for investment declined $468M (-2.6% q/q), reflecting lower demand, indirect lending runoff, and selective payoffs .
    • Fee pressure: Noninterest income dropped $5.0M q/q to $42.0M, with prior quarter boosted by a $2.1M gain on sale; payment services and wealth management declined sequentially .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Diluted EPS ($)$0.54 $0.50 $0.49
Net Interest Income ($MM)$205.5 $214.3 $205.0
Noninterest Income ($MM)$46.4 $47.0 $42.0
Net Interest Margin (%)3.01% 3.18% 3.19%
Provision for Credit Losses ($MM)$19.8 $33.7 $20.0
Net Charge-offs ($MM)$27.4 $55.2 $9.0
Net Charge-offs (% avg loans, annualized)0.60% 1.22% 0.21%
Efficiency Ratio (%)61.85% 60.20% 63.64%

Estimate comparison (S&P Global):

MetricConsensus (Q1 2025)Actual (Q1 2025)
EPS ($)0.565*0.49
Revenue ($MM)254.6*227.0*

Values with asterisk (*) retrieved from S&P Global.

Segment/Line item mix (Noninterest income components):

Noninterest Income Component ($MM)Q1 2024Q4 2024Q1 2025
Payment services revenues$18.4 $17.9 $17.1
Mortgage banking revenues$1.7 $1.5 $1.4
Wealth management revenues$9.2 $10.6 $9.8
Service charges on deposits$6.0 $6.7 $6.6
Other svc charges, commissions & fees$2.2 $2.5 $2.3
Other income$4.6 $7.8 $4.8
Total Noninterest Income$42.1 $47.0 $42.0

KPIs and Balance Sheet:

KPIQ3 2024Q4 2024Q1 2025
CET1 Ratio (%)11.83 12.16 12.53
NPAs ($MM)$178.9 $145.6 $198.4
Criticized Loans ($MM)$603.3 $773.3 $1,026.1
Loans Held for Investment ($MM)$18,027.1 $17,844.9 $17,377.3
Deposits ($MM)$22,864.1 $23,015.6 $22,732.8
Loan/Deposit Ratio (%)78.84 77.53 76.44
Dividend per Share ($)$0.47 $0.47 $0.47

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Ending depositsFY 2025Not providedIncrease low-single-digits Initiated
Ending loansFY 2025Not providedDecline 2–4% ex. Indirect; Indirect adds 1–1.5% decline Initiated
Net interest incomeFY 2025Not provided+3.5% to +5.5% y/y Initiated
Noninterest incomeFY 2025Not providedFlat to modestly higher vs 2024, excl. 2024 property gains Initiated
Noninterest expenseFY 2025Not provided+2% to +4% y/y; includes higher advertising in H2 Initiated
Effective tax rateFY 2025Not provided23.5%–24.0% Initiated
Net charge-offsFY 2025Not provided20–30 bps (annualized) Maintained on call per management tone
NIM (ex-PAA) trajectoryQ2–Q4 2025Not provided+10–15 bps in Q2 vs Q1; Q4 in 3.4%–3.5% (ex-PAA) Initiated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Credit reset and criticized loansQ3: Criticized loans decreased via charge-offs; metro office losses recognized . Q4: Criticized loans rose; major C&I charge-off; coverage improved .Proactive credit reset; criticized loans +33% q/q; NPAs +36% q/q; focus on collateral/guarantors .Deterioration near-term; management proactive.
NIM and margin outlookQ3/Q4: Sequential NIM expansion; adjusted FTE NIM above 3% by Q4 .Guided NIM (ex-PAA) +10–15 bps in Q2; Q4 at 3.4%–3.5%; borrowings down .Positive trajectory through 2025.
Branch/market optimizationQ4: New CEO appointed, expense discipline .Divest 12 branches in AZ/Kansas; CET1 +30–40 bps; ~2% TBVPS accretion at close .Portfolio focusing, capital-enhancing.
Capital deployment & dividendQ4: CET1 improved, dividend $0.47 .Dividend prioritized; buyback optionality but no imminent plans .Conservative, income-focused.
Deposits and funding costsQ3: Deposits stable ex temporary item . Q4: Deposit growth; BTFP payoff; borrowings cut .Seasonal deposit decline; deposit costs -12 bps on interest-bearing; further modest decline expected .Neutral-to-positive on costs; seasonality persists.
Tariffs/supply chain macroQ4: Risk factors noted .Monitoring industrial/warehouse exposure; conversations with borrowers; no outsized risk perceived .Watchful, no immediate impact.
Digital/brand investmentQ4: Expense discipline noted .New director of marketing/client experience; increased advertising spend in H2 2025 .Build toward 2026 organic growth.

Management Commentary

  • Strategic focus: “Deemphasizing large-scale M&A and refocusing on full relationship banking… reorienting the bank towards organic growth.” — CEO James Reuter .
  • Credit approach: “Proactive approach to managing credit… top 10 downgrades comprised ~3/4 of increase in criticized assets.” — CEO James Reuter .
  • Margin/earnings: “Fully tax equivalent net interest margin increased 2 bps… adjusted excluding purchase accounting increased 6 bps.” — CFO Marcy Mutch .
  • Capital and branch divestiture: “Anticipate TBVPS accretion of roughly 2% at close… CET1 improvement of ~30–40 bps.” — Deputy CFO David Della Camera .

Q&A Highlights

  • Reserve adequacy and NCO guidance: Management reaffirmed 20–30 bps full-year NCO guidance, citing collateral/guarantor strength and robust CECL overlays; ACL coverage at 1.24% deemed appropriate .
  • Capital deployment: Dividend preservation remains priority; buyback optionality considered post-branch sale; securities repositioning is a tool in capital planning .
  • NIM drivers: Expect notable ex-PAA NIM step-up in Q2 (+10–15 bps) as borrowings declined; trajectory moderates thereafter toward 3.4%–3.5% by Q4 .
  • Deposit mix stability: Average DDA expected around 25%–26%; trends seen as stable .
  • Credit concentration and tariffs: Industrial/warehouse and ag exposures diversified; active borrower engagement on tariff scenarios; no outsized impact expected .

Estimates Context

  • EPS missed: $0.49 vs consensus $0.565* (6 estimates*), reflecting lower noninterest income and seasonal deposit declines .
  • Revenue missed: $227.0M* vs consensus $254.6M* (5 estimates*), highlighting muted fee lines and loan contraction .
  • Target price consensus: $35.5* (8 estimates*); consensus recommendation text unavailable*.

Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term caution: Credit metrics deteriorated (NPAs and criticized loans) as management proactively reset risk classifications; expect continued vigilance and potential volatility in credit costs .
  • Margin tailwinds: Funding cost relief and lower borrowings underpin NIM expansion through 2025; management guides ex-PAA NIM to 3.4%–3.5% by Q4 .
  • Strategic focus sharpened: Branch divestiture improves capital and aligns footprint with market share strengths; organic growth pivot supported by brand and digital investments .
  • Balance sheet flexibility: CET1 at 12.53% and declining short-term borrowings provide optionality; dividend maintained at $0.47, emphasizing income orientation .
  • Watch fee resilience: Noninterest income softness (absence of property gain, payment services, wealth) weighed on revenues; monitor trajectory as mortgage remains subdued .
  • Trading implications: Stock likely sensitive to credit headlines and NIM delivery vs guidance; branch sale closure and capital actions are potential catalysts .
  • Medium-term thesis: As asset repricing flows through and credit normalizes, NII growth (3.5–5.5% in 2025) and margin expansion could support EPS recovery into 2026 .