FIBK Q1 Deep Dive: Credit Reset and Branch Sale Shape 2025 Strategy

Regional banking company First Interstate BancSystem (NASDAQ:FIBK) missed Wall Street’s revenue expectations in Q1 CY2025 as sales only rose 2% year on year to $247 million. Its non-GAAP profit of $0.49 per share was 13.2% below analysts’ consensus estimates.

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StockStory’s Take

First Interstate BancSystem’s first quarter results for 2025 came in below Wall Street’s revenue and adjusted profit expectations, with subdued year-on-year growth and a margin shortfall. Management attributed the quarter’s performance to a combination of lower customer demand, deliberate loan portfolio reductions, and seasonally weaker noninterest income. CEO Jim Reuter described recent credit actions as a “reset,” emphasizing that proactive management led to a rise in criticized loans, particularly in commercial real estate and agriculture. The company also began executing its strategy to refocus on key markets by exiting 12 branches in Arizona and Kansas, aligning with its goal to drive growth in areas of stronger market share.

Looking forward, First Interstate BancSystem’s leadership emphasized plans to accelerate organic growth by strengthening its core markets, optimizing its branch network, and enhancing digital banking capabilities. Management expects net interest income to improve sequentially through 2025, supported by asset repricing and a shrinking balance sheet. CFO Marcy Mutch highlighted ongoing efforts to control expenses while investing in marketing and technology, with the aim of positioning the company for “meaningful earnings improvement” in 2026. CEO Jim Reuter noted, “Our focus will be on improving our credit quality, relationship banking and organic growth,” underscoring the bank’s medium-term strategic priorities.

Key Insights from Management’s Remarks

Management attributed first quarter results to intentional balance sheet reductions, credit portfolio repositioning, and continued deposit base stability, while branch optimization and divestitures signal a shift toward higher-return markets.

• Credit portfolio reset: The quarter saw a significant increase in criticized loans, largely from commercial real estate and agriculture, as management undertook a “credit reset” to proactively identify and address risk. CEO Jim Reuter emphasized that most downgrades were linked to a handful of large credits, with collateral and guarantor support described as strong in most cases.
• Branch network optimization: First Interstate BancSystem announced the exit of 12 branches in Arizona and Kansas, consistent with its shift away from large-scale M&A toward organic growth in core markets. Management expects this move to improve capital ratios and align investments with higher-growth regions.
• Loan portfolio contraction: Deliberate exits from indirect lending, certain transactional real estate loans, and large agricultural exposures resulted in a larger-than-anticipated decline in loan balances. This short-term contraction is intended to reposition the balance sheet for future growth.
• Deposit base stability: Despite typical seasonal declines, deposit balances remained roughly flat year-over-year, reflecting underlying stability. The company’s low-cost, granular deposit base is seen as a competitive advantage, particularly as it reduces reliance on wholesale funding.
• Expense discipline amid investment: Noninterest expenses were tightly managed, with severance costs related to business line exits. At the same time, leadership is increasing investment in digital channels and marketing, hiring a new director of marketing and a Chief Risk Officer to support the next phase of growth.

Drivers of Future Performance

First Interstate BancSystem’s outlook is shaped by its focus on loan portfolio quality, targeted growth in key markets, and ongoing investment in technology and branding.

• Credit quality and risk management: Management views proactive credit review and alignment of the loan book as foundational for future performance. While criticized assets increased, the company points to strong collateral and guarantor support and expects reserve levels to be appropriate, though macroeconomic factors could still influence outcomes.
• Branch and market optimization: The bank is executing branch network changes to boost efficiency and capital deployment. The upcoming completion of the Arizona and Kansas branch sale is expected to free up capital, which could be redirected into higher-return opportunities or capital return, depending on ongoing strategic reviews.
• Digital and branding investments: Increased spending on digital delivery and marketing is expected to support organic growth and deepen customer relationships. The hiring of a new marketing director and Chief Risk Officer, along with investments in digital channels, are positioned as key to expanding the franchise’s value proposition and preparing for more robust growth in 2026.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will be monitoring (1) the pace and impact of the branch divestiture and subsequent redeployment of capital, (2) trends in criticized and nonperforming loans as credit reviews continue, and (3) the effectiveness of investments in digital banking and marketing in driving organic growth. Additional signals will include expense control and the evolution of deposit and loan balances as economic conditions shift.

First Interstate BancSystem currently trades at $27.49, in line with $27.59 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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