First Interstate BancSystem, Inc. (FIBK) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights a strong financial performance with significant share repurchases, improved credit quality, and increased tangible book value per share. Despite a decline in loan balances due to strategic payoffs, the company shows proactive measures for growth. The Q&A reveals management's confidence in improved NIM and NII, and continued share buybacks, contributing to a positive sentiment. The market cap suggests moderate volatility, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
Key Financial Performance
Net Income $108.8 million in Q4 2025, up from $71.4 million in Q3 2025. This increase was driven by higher net income due to the closing of the branch sale.
Net Interest Income (NII) $206.4 million in Q4 2025, a decrease of $0.4 million (0.2%) compared to Q3 2025 and a decrease of $7.9 million (3.7%) compared to Q4 2024. The decline was primarily due to a reduction in earning assets and the yield on earning assets, partially offset by a decrease in interest expense on other borrowed funds.
Net Interest Margin (NIM) 3.34% in Q4 2025, up 4 basis points from Q3 2025 and up 26 basis points from Q4 2024. This improvement was due to better spreads between loans and deposits and reinvestment of lower-yielding cash flows.
Non-Interest Income $106.6 million in Q4 2025, an increase of $62.9 million from Q3 2025. This was driven by a $62.7 million gain on the sale of branches in Arizona and Kansas.
Non-Interest Expense $166.7 million in Q4 2025, an increase of $8.8 million from Q3 2025. This includes $2.3 million in branch closure costs, $4.2 million in severance expenses, and $5.6 million in increased incentive accruals.
Net Charge-Offs $22.1 million in Q4 2025, an increase of $19.8 million from Q3 2025. This was mainly driven by one credit for which a specific reserve of $11.6 million had been set.
Criticized Loans Decreased by $112.3 million (9.6%) in Q4 2025, reflecting improved credit quality.
Non-Performing Assets Decreased by $47.3 million (26%) in Q4 2025, indicating better asset performance.
Loans Decreased by $632.8 million in Q4 2025, driven by $62.8 million in indirect portfolio amortization, $72.5 million in loans moved to held for sale, and larger loan payoffs.
Deposits Decreased by $516.7 million in Q4 2025 to $22.1 billion, primarily due to the sale of $641.6 million in deposits from the Arizona and Kansas branch transaction. Excluding sold deposits, deposits increased.
Share Repurchases Approximately 2.8 million shares repurchased in Q4 2025, totaling $90 million. Total repurchases since August 2025 amounted to $118 million.
Tangible Book Value Per Share Increased by 2.9% in Q4 2025 to $22.40 per share, reflecting improved financial performance.
Common Equity Tier 1 Capital Ratio 14.38% at the end of Q4 2025, up 48 basis points from Q3 2025, driven by reduced risk-weighted assets, higher net income, and share repurchases.
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Operating Highlights
Branch divestitures and closures: Exited Arizona and Kansas markets, announced sale of 11 branches in Nebraska, and consolidated 4 additional branches in Nebraska. Also closing single branches in North Dakota and Minnesota, reducing footprint from 14 to 10 states.
New market investments: Building a new commercial banking team in Colorado, opening new branches in Montana, and relocating a branch in Sheridan, Wyoming.
Balance sheet optimization: Reduced other borrowed funds from $1.6 billion to $0 in 2025. Improved credit quality metrics with a 9.6% decrease in criticized loans and a 26% decrease in non-performing assets in Q4 2025.
Net interest margin improvement: FTE net interest margin increased to 3.34% at year-end 2025, up 26 basis points from Q4 2024.
Expense management: Anticipates flat to slightly lower expenses in 2026 compared to 2025, with reinvestments in growth initiatives and normalization in medical insurance expenses.
Share repurchase program: Repurchased 3.7 million shares in 2025 for $118 million. Increased authorization to $300 million, with $180 million remaining.
Organizational redesign: Transitioned to a flatter organizational structure with new State Presidents to improve decision-making and support organic growth.
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Risk or Challenges
Branch Divestitures and Closures: The company is exiting certain states and consolidating branches, which could lead to customer attrition and reduced market presence in those areas. This includes the sale of branches in Nebraska, North Dakota, and Minnesota, as well as closures in other states.
Loan Portfolio Decline: Loan balances declined due to intentional runoff of non-relationship loans, branch transactions, and outsourcing of consumer credit card products. This could impact revenue generation and growth.
Net Charge-Offs: Net charge-offs were elevated in the fourth quarter, driven by a large credit issue, which could indicate potential credit quality concerns.
Competition in Lending: Continued competition in the market, both on spread and credit basis, has impacted loan production, which was lower than initially estimated.
Operational Restructuring: The transformation to a flatter organizational structure and redesign of the banking organization involves severance expenses and operational risks during the transition period.
Economic and Market Conditions: The company’s performance is subject to economic uncertainties and market conditions, which could affect deposit growth, loan demand, and net interest margin.
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Guidance & Outlook
Deposit Growth: The company expects low single-digit deposit growth for 2026 with normal seasonality.
Loan Projections: Guidance assumes roughly flat to slightly lower total loans for 2026, excluding the continued run-off of the indirect portfolio, which will contribute an additional 1% to 2% in total loan decline. Loans are expected to decline in the first half of the year and modestly grow in the back half.
Net Interest Income (NII): Sequential improvement in net interest margin is expected due to improving spread between loans and deposits, loan repricing dynamics, and continued amortization of lower-yielding investment securities. However, reported NII is expected to be approximately 3% lower in the first quarter of 2026 compared to the fourth quarter of 2025 due to fewer accrual days and normal deposit seasonality.
Expenses: Expenses for 2026 are anticipated to be flat to slightly lower compared to 2025 levels. This includes reinvestment into the business, such as adding relationship managers, opening new branches, and increasing advertising expenditure. Medical insurance expenses are expected to normalize, contributing to a 1% increase in total expenses.
Capital Allocation: The company has increased its share repurchase authorization by $150 million to $300 million, with approximately $180 million of capacity remaining under the program. Share repurchases remain a capital allocation priority.
Branch Optimization: The company plans to close 6 additional branches in Nebraska, North Dakota, and Minnesota, and complete the sale of 11 branches in Nebraska early in the second quarter of 2026. This is part of an ongoing effort to optimize the branch network and focus on markets with high growth potential.
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Shareholder Return Plan
Dividend Declaration: A dividend of $0.47 per common share was declared, equating to a 5.7% annualized yield based on the average closing price of the company's common stock during the fourth quarter.
Share Repurchase Program: The company repurchased approximately 3.7 million shares in 2025, totaling $118 million. In the fourth quarter alone, 2.8 million shares were repurchased for $90 million. The Board approved an incremental $150 million share repurchase authorization, bringing the total authorization to $300 million, with $180 million of capacity remaining under the program.
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Key Q&A
Q:What is the reason for the decline in loan balances, and what measures are being taken to address it?
A:The decline in loan balances is primarily due to payoffs of criticized loans and some larger loans being financed in the secondary market. Measures to address this include improved loan production in December, a reorganization of the banking organization for faster decisions and better client experience, and adding new team members in Colorado to drive growth.
Q:What is the outlook for the net interest margin (NIM) and net interest income (NII) in 2026?
A:The NIM is expected to be north of 3.5% by the end of 2026, with sequential margin improvement each quarter. NII in the first quarter is expected to be lower due to fewer accrual days and lower average balances, but the underlying NIM is expected to be higher than in the fourth quarter.
Q:What reinvestment rates are being achieved on new loans and securities?
A:Reinvestment rates for securities are in the 5-year plus 60% to 70% range, while new loan production is in the low to mid-6% range on a weighted average basis.
Q:What is the plan for share buybacks in 2026?
A:The company plans to continue active share buybacks, with the pace dependent on market conditions. The goal is to approach peer median capital levels over time.
Q:What is the outlook for criticized loans in 2026?
A:Criticized loans decreased by 10% this quarter, and the company expects to continue making progress in reducing them, though specific predictions are difficult due to various assumptions.
Q:What is the guidance for expenses in 2026?
A:Expenses are expected to be relatively flat year-over-year, with quarterly expenses in the $159 million to $160 million range. The guidance includes the impact of sold or closed branches net of reinvestment.
Q:Does the loan guidance for 2026 account for additional payoffs of criticized loans?
A:Yes, the guidance assumes some larger payoffs of criticized loans, with lower loans expected in the first quarter and modest growth anticipated in the back half of the year.
Q:What is the strategy for growth in Colorado?
A:The company has the necessary branch network in Colorado and has built a strong team. Growth will focus on full relationships, starting with loans and gradually adding deposits. Additional locations may be considered as needed.
Q:What is the competitive landscape for retaining loans that are maturing or resetting?
A:The competitive landscape varies. Some loans were intended for the secondary market from the start, making them harder to retain. For others, the company aims to expand relationships and retain loans, even if full relationships are not achieved immediately.
Q:What is the long-term target for the loan-to-deposit ratio?
A:The long-term loan-to-deposit ratio is expected to be higher than the current level, as the company prefers high-quality loans over investment securities.
Q:What are the key factors influencing fee income guidance for 2026?
A:Fee income is expected to see modest growth, with impacts from reduced branches and opportunities in areas like swap fees and treasury management.
Q:What is the outlook for 2027 in terms of margin, loan growth, and capital?
A:Margins are expected to improve sequentially in 2027, supported by favorable cash flow profiles. Loan growth is anticipated to build on the momentum from 2026, and capital management will continue to focus on enhancing shareholder value.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about the specific amount of improvement expected in criticized loans for 2026, citing the difficulty of making absolute predictions due to various assumptions. Additionally, the response to the question about the long-term loan-to-deposit ratio was vague, with no specific target provided.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Arizona Kansas
Dakota Minnesota
NII
Nebraska North
Nebraska branch
North Dakota
assumption loan
authorization capacity
branch Arizona
branch Nebraska
branch closure
branch opening
branch sale
capital share
closing
closure branch
credit reserve
decline
density potential
deposit seasonality
discipline
end share
leader
loan provision
normalization
offs credit
program
redesign
reinvestment
repurchase authorization
sale Nebraska
sale branch
share repurchase
spread
state
talent
FIBK Transcript
First Interstate BancSystem, Inc. (FIBK) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call highlights a strong financial performance with significant share repurchases, improved credit quality, and increased tangible book value per share. Despite a decline in loan balances due to strategic payoffs, the company shows proactive measures for growth. The Q&A reveals management's confidence in improved NIM and NII, and continued share buybacks, contributing to a positive sentiment. The market cap suggests moderate volatility, leading to a positive stock price movement prediction of 2% to 8% over the next two weeks.
First Interstate BancSystem, Inc. (FIBK) Q3 2025 Earnings Call Transcript
Positive10-30
The earnings call summary and Q&A reveal strong financial performance with improved NIM, high CET1 ratio, and optimistic loan growth outlook for 2026. The company is focused on organic growth, strategic capital deployment, and shareholder returns through buybacks. While there are uncertainties in loan production trends, the management's confidence in long-term growth, capital strength, and strategic initiatives support a positive sentiment. Given the company's market cap, this should result in a stock price increase of 2% to 8% over the next two weeks.
First Interstate BancSystem, Inc. (FIBK) Q2 2025 Earnings Call Transcript
Unknown7-30
The earnings call reveals mixed signals. While there are positives, such as an improvement in the CET1 capital ratio and optimistic guidance for net interest income, there are concerns like declining deposits, increased criticized loans, and unclear management responses on capital deployment. The Q&A section highlights uncertainty regarding loan portfolio stabilization and expense impacts from branch divestitures. Given the market cap, the mixed nature of the news, and the lack of strong catalysts, a neutral stock price reaction is expected over the next two weeks.
First Interstate BancSystem, Inc. (FIBK) Q1 2025 Earnings Call Transcript
Unknown4-30
The earnings call presents a mixed picture. While the company maintains a stable dividend yield and improved capital ratio, it faces challenges with declining loan and deposit balances, increased provision expenses, and competitive pressures. The branch sale and capital deployment could be positive, but uncertainties remain, particularly in credit quality and reserve adequacy. The Q&A session highlights management's cautious stance and lack of clear guidance, which might temper investor enthusiasm. Given the company's mid-cap status, these factors suggest a neutral stock price movement over the next two weeks.
FIBK Slides
FIBK Report
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