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FIRST INTERSTATE BANCSYSTEM INC (FIBK)·Q2 2025 Earnings Summary

Executive Summary

  • EPS of $0.69 beat consensus by ~20% while total net revenue was modestly below Street; margin expansion and lower borrowings drove earnings quality [*Primary EPS Consensus Mean: 0.5757; Revenue Consensus Mean: $253.1M. Values retrieved from S&P Global].
  • Net interest margin rose 11 bps q/q to 3.30% (3.32% FTE; 3.26% adjusted FTE), supported by a $710M reduction in other borrowed funds and lower funding costs .
  • Credit trends mixed: NCOs improved to 0.14% annualized and classified loans declined, but criticized loans rose to $1.203B (7.4% of loans), largely multifamily lease-up slippage; provision was a slight reversal .
  • Guidance reset: FY25 NII growth trimmed to 2–3% (from 3.5–5.5%), FY25 noninterest expense lowered to 0–1% growth, Q4’25 NIM ex-PAA targeted at ~3.40%; management added high-single-digit NII growth outlook for FY26 .
  • Near-term stock narrative catalysts: consistent NIM progress, capital accretion (CET1 13.43%), visibility on Arizona/Kansas branch sale (TBVPS ~+2% and CET1 +30–40 bps at close), offset by elevated criticized CRE/multifamily exposures .

What Went Well and What Went Wrong

What Went Well

  • “Our net interest margin continued to improve as expected” with adjusted FTE NIM +12 bps q/q to 3.26%, driven by a $710M reduction in other borrowed funds and improving funding mix .
  • Liquidity/capital strengthened: loan/deposit ratio fell to 72.3%; CET1 climbed 90 bps to 13.43% q/q; no brokered deposits and minimal short-term borrowings .
  • Expense discipline: noninterest expense declined $5.5M q/q to $155.1M (efficiency ratio 61.1%), with lower payroll taxes/incentive accruals and tight staffing controls .

What Went Wrong

  • Criticized loans increased 17.2% q/q to $1.203B (7.4% of loans), largely due to downgrades in CRE tied to slower multifamily lease-up; special mention rose notably .
  • Total loans fell $1.024B q/q (transfer to HFS for AZ/KS sale, credit card outsourcing, indirect runoff, larger payoffs), tempering near-term NII vs prior outlook .
  • Noninterest income (-$0.9M q/q) was pressured by a $7.3M valuation allowance on loans moved to HFS (rate mark) partially offset by a $4.3M gain on credit card portfolio outsourcing .

Financial Results

Core P&L and Margins

MetricQ2 2024Q1 2025Q2 2025
Net Interest Income ($USD Millions)$201.7 $205.0 $207.2
Total Noninterest Income ($USD Millions)$42.6 $42.0 $41.1
Diluted EPS ($USD)$0.58 $0.49 $0.69
Net Interest Margin (GAAP, %)2.97 3.19 3.30
Net FTE Interest Margin (%)3.00 3.22 3.32
Adjusted FTE NIM (%)2.92 3.14 3.26
Efficiency Ratio (%)62.71 63.64 61.10

Q2 2025 Actual vs Wall Street Consensus (S&P Global)

MetricActualConsensus MeanSurprise
EPS ($USD)$0.69 $0.5757*Beat ~+20%
Revenue ($USD Millions)$248.6*$253.1*Miss ~-1.8%

Values with * retrieved from S&P Global.

Noninterest Income Breakdown

Category ($USD Millions)Q2 2024Q1 2025Q2 2025
Payment services$18.6 $17.1 $17.8
Mortgage banking$1.7 $1.4 $1.8
Wealth management$9.4 $9.8 $9.7
Deposit service charges$6.4 $6.6 $6.9
Other service charges/fees$2.1 $2.3 $2.1
Other income$4.4 $4.8 $2.8
Total noninterest income$42.6 $42.0 $41.1

KPIs: Balance Sheet, Capital, Credit

KPIQ2 2024Q1 2025Q2 2025
Loans Held for Investment ($USD Millions)$18,235.0 $17,377.3 $16,353.4
Deposits ($USD Millions)$22,870.7 $22,732.8 $22,630.6
Loan/Deposit Ratio (%)79.73 76.44 72.26
Other Borrowed Funds ($USD Millions)$2,430.0 $960.0 $250.0
CET1 Ratio (%)11.53 12.53 13.43
Total RBC Ratio (%)13.80 14.93 16.49
Leverage Ratio (%)8.44 9.06 9.37
Non-performing Loans ($USD Millions)$168.2 $194.9 $194.1
Non-performing Assets ($USD Millions)$174.9 $198.4 $197.5
ACL / Loans (%)1.28 1.24 1.28
Net Charge-offs (annualized, %)0.30 0.21 0.14
Criticized Loans ($USD Millions; % of Loans)$618.0; 3.4% $1,026.1; 5.9% $1,203.0; 7.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Income growthFY 2025+3.5% to +5.5% +2% to +3% Lowered
NIM ex-PAA (quarter)Q4 2025N/A~3.40% New disclosure
Ending Loans (ex indirect/HFS)FY 2025-2% to -4% (+1–1.5% indirect) -6% to -8% (+1–1.5% indirect) Lowered
Ending DepositsFY 2025Increase low single digits Flat to increase low single digits Lowered
Noninterest IncomeFY 2025Flat to modestly higher ex-2024 gains Flat to -1% ex 2024 gains and 2025 outsourcing/HFS effects Lowered
Noninterest ExpenseFY 2025+2% to +4% +0% to +1% Lowered
Effective Tax RateFY 202523.5%–24.0% 23.5%–24.0% Maintained
Net Charge-offsFY 202520–30 bps 20–30 bps Maintained
NII growthFY 2026N/AHigh single-digit New
Branch divestiture (AZ/Kansas)Close Q4 2025TBVPS ~+2%; CET1 +30–40 bps TBVPS ~+2%; CET1 accretion at high end of range Reaffirmed/Improved CET1
Dividend per shareQuarterly$0.47 $0.47 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 & Q1 2025)Current Period (Q2 2025)Trend
Balance sheet optimization/borrowingsAggressive BTFP/FHLB paydowns; other borrowed funds $1.567B (Q4) to $960M (Q1) Further -$710M to $250M; minimal short-term borrowings Improving liquidity/funding
NIM trajectory/repricingAdjusted FTE NIM up 6 bps q/q in Q1; tailwinds from asset repricing Adjusted FTE NIM up 12 bps; Q4’25 ex-PAA ~3.40% Accelerating margin expansion
Loan balances/pipelineQ1 decline from runoff/payoffs; intent to stabilize and grow medium term Q2 decline larger; expect bottom in earning assets Q3; stabilization into Q4 Near-term trough then stabilize
Credit: criticized/nonperformingQ1 criticized +33%; NPLs +38% driven by CRE/ag Criticized +17% to 7.4%; NPLs flat/slightly down; multifamily lease-up slower Mixed—watch multifamily CRE
Expense disciplineQ1 2025 +0.2% y/y; guidance +2–4% Q2 lower; FY25 guide cut to +0–1% Improving operating leverage
Capital prioritiesCET1 rising; dividend $0.47 CET1 13.43%; consider optionality incl. buybacks/restructure; dividend maintained Accreting capital; options open

Management Commentary

  • CEO: “Our liquidity and capital levels are strong… This quarter, our results reflect a series of actions that position the bank for future success, including the outsourcing of our consumer credit card product” .
  • CFO: “Our net interest margin was 3.32% on a fully tax equivalent basis, and excluding purchase accounting accretion, our net interest margin was 3.26%, an increase of 12 basis points from the prior quarter” .
  • CEO on credit: “Criticized loans did increase, generally reflective of slower lease-up in our multifamily book… we are proactive in credit risk management” .
  • CFO on outlook: “We anticipate fourth quarter net interest margin excluding purchase accounting accretion to approximate 3.4%… we have added commentary noting… high single digit NII increase in 2026” .

Q&A Highlights

  • Loan stabilization timing: Management expects modestly lower loans in Q3, stabilization in Q4, then growth over the medium term; earning assets bottom in Q3 .
  • Capital deployment: CET1 likely +40 bps upon branch sale; evaluating buybacks vs balance sheet restructuring while prioritizing organic growth; FY26 guide excludes capital actions .
  • Criticized loans spike: Driven by multifamily lease-up delays; management comfortable with collateral/guarantors; proactive credit management continues .
  • Expense cadence: 2H25 modestly higher than Q2 due to health insurance, salary timing, tech spend; FY25 expense growth reduced to 0–1% .
  • Divestiture scope: Loans moved to HFS ($338M) were relationship-tied to branches; TBV accretion ~2% remains intact .

Estimates Context

  • Q2 2025 EPS of $0.69 vs consensus $0.5757* → beat (~+$0.11, ~+20%); street likely raises FY25/FY26 EPS on margin trajectory and cost discipline [*Primary EPS Consensus Mean: 0.5757. Values retrieved from S&P Global].
  • Q2 2025 Revenue of $248.6M* vs consensus $253.1M* → slight miss (~-1.8%), consistent with lower average earning assets and valuation allowance in other income [*Revenue Consensus Mean: $253.1M; Actual Revenue: $248.6M. Values retrieved from S&P Global].
  • Coverage breadth: 7 EPS and 6 revenue estimates*; EBITDA consensus not available*, typical for banks [*Primary EPS - # of Estimates: 7; Revenue - # of Estimates: 6. Values retrieved from S&P Global].

Key Takeaways for Investors

  • NIM expansion is intact and accelerating; Q4’25 NIM ex-PAA ~3.40% is a visible near-term catalyst for EPS trajectory .
  • Funding risk sharply reduced (other borrowed funds now $250M); lower cost of interest-bearing liabilities supports further spread gains .
  • Credit watch: multifamily lease-up risk lifted criticized loans to 7.4%; NPLs stable and NCOs low, but CRE monitoring remains crucial for valuation multiples .
  • Expense discipline provides leverage; FY25 opex growth cut to 0–1% enhancing return profile even as loans trough .
  • Capital optionality growing (CET1 13.43%; TBV accretion from branch sale); potential buybacks or balance sheet actions could add to TSR once credit overhang abates .
  • Near-term trading setup: EPS beat with improving NIM vs modest revenue miss; watch Q3 confirmation of earning asset bottom and criticized loan trend for multiple expansion .
  • Medium-term thesis: High-single-digit NII growth in 2026 on repricing and redeployment, stable deposits in growth markets, and focused franchise post-divestitures .