First Interstate BancSystem NASDAQ: FIBK executives highlighted an organizational redesign, continued net interest margin expansion, and ongoing capital returns during the company’s first-quarter 2026 earnings call, while also noting seasonally lower deposits and loan balances and largely stable credit trends.
Strategic changes focus on relationship banking and footprint optimization
President and CEO Jim Reuter said the company “completed the redesign of our banking organization” during the first quarter, describing it as a shift from a layered structure to a “flatter, more streamlined model” aimed at improving the client experience and accelerating production. Reuter added that the bank expanded teams in key markets, including Colorado, and said early results are translating into increased production heading into the second quarter.
Reuter also provided updates on branch optimization efforts. In the first quarter, First Interstate completed “the previously announced consolidations of four branches in Eastern Nebraska,” closed single branches in Minnesota and North Dakota, and opened an additional branch in Montana. After quarter end, on April 10, the company completed the sale of 11 branches in rural Nebraska and later upgraded a branch location in Sheridan, Wyoming. Reuter said the bank is currently consolidating two locations in Iowa and Oregon that are expected to close early in the third quarter.
In addition to physical network changes, Reuter said the company is investing in digital and data capabilities. He noted improvements to the bank’s online account opening experience and its Zelle person-to-person service, which he said have produced “positive results.” He also said the company has been working toward “one clean data source” to better support technology initiatives, including AI, adding that the data project is expected to wrap up in early summer. Reuter said the bank is piloting AI-related tools, including a business development tool designed to help bankers prepare for client calls.
Quarterly results: lower net interest income and fees, margin expands again
EVP and CFO David Della Camera reported net income of $60.2 million, or $0.61 per diluted share, in the first quarter, compared with $108.8 million, or $1.08 per diluted share, in the fourth quarter of 2025.
Net interest income was $200.7 million, down $5.7 million, or 2.8%, from the prior quarter. Della Camera attributed the decline primarily to fewer accrual days, a reduction in earning assets “due mostly to seasonally lower deposits,” and a reduction in earning asset yields tied to fourth-quarter rate movement, partially offset by lower funding costs.
Despite the quarterly decline in net interest income, the bank’s fully tax-equivalent net interest margin rose to 3.43% from 3.38% in the fourth quarter and 3.22% in the year-ago quarter. Della Camera said the first quarter marked the “eighth consecutive quarter” of margin expansion and reiterated expectations for sequential expansion over the near and medium term.
On yields and costs, Della Camera said the yield on average loans decreased 7 basis points to 5.60%, while total deposit costs declined 10 basis points and total funding costs declined 8 basis points from the prior quarter. In response to a question, Della Camera said there was “nothing material” related to interest reversals impacting loan yields, and attributed most of the quarter-over-quarter decline to the impact of fourth-quarter rate cuts, noting that about 20% of the portfolio is variable.
Non-interest income totaled $41.1 million, down $65.5 million from the prior quarter. Della Camera said the prior quarter included a $62.7 million gain on sale associated with divestitures from Arizona and Kansas and a $1.4 million gain from the sale of certain equity securities, while the remaining decline reflected seasonal patterns in fee businesses, including payment services.
Expenses decline; investments continue in growth initiatives
Non-interest expense was $157.6 million, down $9.1 million from the fourth quarter. Severance expense totaled $1.3 million and was “primarily related to the redesign of the banking organization and branch closures,” compared with $4.2 million in severance expense in the prior quarter. Della Camera also pointed to medical expense favorability and an OREO valuation adjustment that benefited expenses by just over $1 million.
Della Camera said the company remains disciplined on expenses while reinvesting in areas intended to support “accretive organic growth,” including adding relationship managers and increasing advertising, which is included in forward guidance. Reuter also said a new marketing partner is developing a creative campaign across consumer and business platforms, with increased brand presence expected over the summer months.
Balance sheet: loans and deposits decline with seasonality; credit stable overall
Loans decreased $473.2 million in the first quarter, including $58.1 million of continued amortization of the indirect portfolio and a decline in agricultural loans, along with loan paydowns and payoffs. Reuter said approximately $100 million of agricultural loans left during the quarter following annual reviews where the bank determined certain credits were “not the type of credit we wanna make.”
Total deposits declined $205.3 million to $21.9 billion as of March 31, 2026. Della Camera said deposit performance reflected “normal seasonality” and was modestly favorable to expectations. He noted the bank “effectively captured beta” on interest-bearing deposits, with costs declining 12 basis points quarter over quarter. The loans held for investment-to-deposits ratio ended the quarter at 67.3%, down from 68.8% in the fourth quarter and 76.4% a year earlier.
Della Camera also noted that the sale of 11 branches in Western Nebraska, which closed in April, included approximately $244 million in sold deposits. In response to an analyst question, he said the deposits sold carried a cost “slightly lower, but not materially different” from the overall book and represented about 1% of total deposits.
On credit, Reuter said credit quality was “generally stable” with a modest decline in criticized loans, while non-performing loans increased modestly due to “one individual credit.” He said the bank is “appropriately reserved for various outcomes” on that credit but did not provide additional details. Della Camera reported net charge-offs of $2.4 million, or 6 basis points of average loans, down $19.7 million from the prior quarter. Provision for credit losses was $6.7 million, and criticized loans declined $18.6 million, or 1.8%, from the fourth quarter. The total funded provision increased to 1.33% of loans held for investment from 1.26%, reflecting “specific credit activity within non-performing loans,” according to Della Camera.
Capital returns and outlook: buybacks remain a priority; guidance largely unchanged
Management emphasized capital returns, particularly share repurchases. Reuter said the bank has purchased about six million shares since announcing a repurchase program last August. Della Camera said First Interstate repurchased approximately 2.4 million shares in the first quarter for about $84 million, bringing repurchases since program inception to about $202 million. “We continue to view share repurchases as our immediate capital allocation priority,” he said, adding that repurchases are considered over time and depend on market conditions.
The company declared a dividend of $0.47 per common share, which Della Camera said equates to a 5.3% annualized yield based on the average closing price during the first quarter. Capital ratios remained strong, with a Common Equity Tier 1 ratio of 14.30% and a leverage ratio of 9.56% at quarter end.
Looking ahead, Della Camera said guidance incorporates the impact of the Nebraska branch sale while excluding the anticipated gain on sale, which the company expects to total approximately $19 million. He said guidance ranges for net interest income, non-interest income, and non-interest expense saw “little change” from the prior quarter. The company continues to expect loan balances to decline in the second quarter, stabilize mid-year, and show modest growth in the back half of 2026.
On margin and earnings drivers, Della Camera reiterated expectations for sequential net interest margin improvement through 2026 and into 2027, citing an improving spread between loans and deposits, loan repricing, and continued amortization of lower-yielding investment securities. He also outlined expected repricing and cash flows over the next several years, including $2.6 billion of fixed and adjustable-rate loans with a weighted average yield of 4.5% expected to mature or reprice through 2027, and an additional $2 billion of securities cash flows at a weighted average yield of 2.7% over the same period.
In the Q&A, Reuter described the commercial pipeline as the best he has seen in his 18 months at the company, attributing momentum to the organizational redesign and more bankers in production roles. He said the bank is emphasizing full relationship banking, including deposits and treasury management services, while maintaining discipline. “We won't chase growth for the sake of growth,” Reuter said.
About First Interstate BancSystem NASDAQ: FIBK
First Interstate BancSystem, Inc is a bank holding company headquartered in Billings, Montana. Through its principal subsidiary, First Interstate Bank, the company provides a full range of commercial and consumer banking services. Its offerings include business lending, commercial real estate financing, agricultural loans, residential mortgage products, and deposit accounts suitable for individuals, small businesses, and large corporations.
The company traces its roots back to the late 1960s and has grown through a combination of organic expansion and strategic acquisitions across the Western United States.
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