FIBK Q2 Deep Dive: Strategic Restructuring and Deposit Strength Shape Outlook

Regional banking company First Interstate BancSystem (NASDAQ:FIBK) missed Wall Street’s revenue expectations in Q2 CY2025 as sales only rose 1.6% year on year to $248.3 million. Its non-GAAP profit of $0.69 per share was 19.9% above analysts’ consensus estimates.

Is now the time to buy FIBK? Find out in our full research report (it’s free).

StockStory’s Take

First Interstate BancSystem’s second quarter results were met with a negative market reaction as the company missed Wall Street’s revenue expectations. Management attributed the performance to intentional balance sheet reductions, including the outsourcing of its consumer credit card product and the transfer of loans connected to branch sales in Arizona and Kansas. CEO James Reuter described these moves as part of a broader effort to refocus on core markets and optimize the company’s capital position. While classified loans declined, nonperforming assets remained stable, and criticized loans rose due to slower lease-up in certain multifamily projects, which Reuter called a “byproduct of market dynamics, not a reflection of weakened collateral.”

Looking to the remainder of the year and into 2026, First Interstate BancSystem’s outlook hinges on continued margin improvement and disciplined capital deployment. Management expects high single-digit growth in net interest income in 2026, driven by repricing maturing assets and maintaining a strong deposit base. CFO David Della Camera emphasized that future growth will rely on “carefully controlled expenses and organic loan generation,” while also noting that expense guidance remains tight, with any incremental savings expected to be reinvested to support growth initiatives and talent retention. The company is also evaluating how to best utilize its elevated capital levels, with organic expansion remaining the priority.

Key Insights from Management’s Remarks

Management pointed to intentional loan portfolio reductions and ongoing cost discipline as primary drivers of second quarter performance, while recent strategic moves are expected to shape profitability and capital strength going forward.

• Loan portfolio reduction actions: The company deliberately outsourced its consumer credit card product, resulting in the removal of related loans from the balance sheet, and executed additional loan sales tied to the Arizona and Kansas branch divestitures. This led to a meaningful, but planned, decline in loan balances.
• Deposit base remains a core strength: Over 90% of deposits are in markets where First Interstate holds a top 10 market share, and nearly 70% are in areas growing faster than the national average. Management highlighted this as a key enabler for future organic growth.
• Expense management initiatives: Noninterest expenses declined quarter-over-quarter, aided by lower payroll taxes and incentive compensation, with continued focus on controlling staffing and discretionary spending. Management reiterated commitment to balancing cost control with investment in growth-oriented roles.
• Credit quality developments: While nonperforming and classified loans declined modestly, criticized loans increased, primarily due to delayed lease-up in multifamily projects. Management remains confident in collateral values and guarantor strength, noting that the shift reflects repayment timing rather than asset impairment.
• Capital and liquidity position: The loan-to-deposit ratio fell to 72%, with minimal short-term borrowings and no brokered deposits. The common equity Tier 1 capital ratio reached 13.43%, providing flexibility for future capital deployment and potential share buybacks or balance sheet restructuring.

Drivers of Future Performance

First Interstate BancSystem’s guidance for the next year centers on margin expansion, controlled expenses, and leveraging its deposit franchise, while navigating modest loan growth and credit normalization.

• Margin improvement through asset repricing: Management expects continued benefit from maturing and repricing loans, which should support high single-digit net interest income growth in 2026 even if loan balances remain flat. The company is also shifting more assets toward investment securities in the near term to optimize yields.
• Expense discipline and investment balance: Expense guidance for 2025 was tightened, with expectations for minimal growth, as management prioritizes reinvestment of cost savings into production-driven areas. Ensuring the right talent is in place to drive organic growth remains a key focus.
• Proactive credit management amid headwinds: Management is monitoring criticized loans, particularly in the multifamily sector, but remains confident in asset quality due to strong collateral and guarantor backing. Ongoing credit diligence is expected to limit charge-off volatility, though some near-term credit normalization is anticipated.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will focus on (1) stabilization and potential growth in loan balances, especially as intentional runoff subsides; (2) further evidence of margin expansion from repricing assets and portfolio mix shifts; and (3) the pace and effectiveness of expense management, including reinvestment in talent and technology. Developments in criticized asset levels and any capital deployment actions, such as share buybacks or further restructuring, will also be closely watched.

First Interstate BancSystem currently trades at $30.59, up from $29.38 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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