First Interstate BancSystem, Inc. (FIBK) Q3 2026 earnings review
First Interstate lending margins widen, but its loan book shrinks
First Interstate BancSystem, a community bank across the Rocky Mountains and Midwest, widened its lending spread while its loan book kept shrinking. Net interest income rose 2% from last quarter to $206 million as older loans repriced higher, and chief executive James A. Reuter noted that checking deposits grew. However, a $11 million charge for potential bad loans pulled net income down 13% from a year ago, and by our math the unchanged full-year loan plan implies fourth-quarter loan declines will speed up to $335 million.
| Underlying loans, stripping sold branches | -9.7% from a year ago (reported: -11.7%) |
|---|---|
| Net interest margin | 3.53% +0.19 percentage points from a year ago |
| Diluted profit per share | $0.65 -5.8% from a year ago |
| Full-year net interest income outlook | Raised $1.5M deposit and fee targets trimmed |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because wider lending margins and share buybacks still battle a shrinking customer base. Repricing lifted the lending margin by 0.08 percentage points from last quarter, allowing the bank to nudge its full-year net interest income target higher. The bad news: every loan category fell again, early loan delinquencies rose 49%, and management cut its year-end deposit target for a second straight quarter.
The question now is whether the falling loan balance is deliberate cleanup that ends soon or a sign that the bank cannot win enough new borrowers. If it is cleanup, loan balances will steady as the $3.3 billion repricing schedule lifts 2027 income; if it is weak demand, the shrinking asset base will cap earnings once repricing fades. The 2027 loan outlook in January will tell.
🐂 Bull Case
Loan Repricing Lifted Lending Margins to 3.53%
"We are pleased to see meaningful improvement in our net interest margin and an increase in non-interest bearing deposits, as we remain focused on strengthening the quality and earnings power of the franchise," chief executive James A. Reuter said. Net interest margin (NIM), the lending spread on bank assets, rose for a tenth straight quarter as older loans repriced higher and checking accounts grew 2.5%.
- Lending margin excluding acquired loan accounting: 3.51%, up 0.09 percentage points from last quarter
- Total deposit funding cost: 1.12%, down 0.04 percentage points from last quarter
- Low-rate loans and bonds maturing or repricing through 2027: $3.3 billion
This wider spread matters because it lifted net interest income by $4.0 million from last quarter to $206.2 million, even though the total loan book shrank. First Interstate attributed the gain to "higher yields on interest earning assets and lower rates on interest bearing time deposits". What to watch: fourth-quarter lending margin, which will show if repricing can push full-year net interest income to the top of the outlook.
Share Buybacks Cut the Share Count by 10%
First Interstate has used excess capital from its shrinking balance sheet to buy back stock and lift per-share results. In the third quarter, the Montana lender repurchased 2.04 million shares for $76.3 million, bringing total buybacks since August 2025 to 10.02 million shares for $346.6 million. That reduced period-end shares by 10.1% from a year ago and average diluted shares by 8.0%.
Because the share count fell so much, net interest income per share rose 8.5% from a year ago to $2.17, even though total net interest income dipped 0.3%. Reported profit per share fell 5.8% to $0.65 against a 12.9% drop in net income. What to watch: fourth-quarter buyback spending out of the remaining $103.4 million authorization, which will show if lower capital ratios slow the pace.
🐻 Bear Case
The Loan Book Kept Shrinking Across Every Category
First Interstate says its full-year loan plan reflects "elevated payoffs and continued weakness in mortgage production, partially offset by improved commercial production". The bank wants core business lending to replace intentionally exited auto and out-of-market loans. In the third quarter, total loans held for investment fell another $296.0 million, or 2.1%, to $13.99 billion.
- Underlying loan change from a year ago, stripping sold branches: down 9.7% by our math
- Commercial business loans: $2.22 billion, down 2.3% from last quarter and 9.1% from a year ago
- Fourth-quarter loan change implied by the full-year outlook: down $335 million at the middle of the range
Every loan category shrank from last quarter, including the core commercial portfolio where management claims new lending is improving. The bank kept its full-year loan target unchanged, but by our math that plan requires fourth-quarter loan runoff to speed up from the third-quarter pace. What to watch: fourth-quarter commercial business loan balances, which will show whether new originations can finally match customer payoffs.
Troubled Loans Grew Beneath Lower Headline Defaults
First Interstate highlighted that non-performing assets—loans in default and foreclosed properties—fell 6.1% from last quarter to $155.0 million, while total criticized loans stayed nearly flat at $939.5 million. Beneath those headline figures, credit stress worsened enough to force a $10.5 million provision for credit losses, which is money set aside for bad loans.
- Provision for credit losses: 4.2% of revenue, up from 0% a year ago by our math
- Substandard loans (loans with clear credit weaknesses): $466.8 million, up 4.8% from last quarter
- Early-stage delinquencies (30–89 days past due): $36.2 million, up 49.0% from last quarter
That $10.5 million provision Swing—against zero a year ago and a $3.2 million release last quarter—explains why pre-tax profit fell 11.6% from a year ago. Net charge-offs, or loans written off as uncollectible, reached 0.28% of average loans, near the top of the bank's 0.20%–0.30% long-term target. What to watch: fourth-quarter substandard loans and early delinquencies, which will show if worsening credit requires another large provision.
Deposit Outflows Prompted Another Target Cut
While non-interest-bearing checking accounts grew by $134.4 million in the third quarter, outflows across every interest-bearing category pulled total deposits down $52.8 million to $21.39 billion. Stripping out the $885.8 million of deposits sold with the Arizona, Kansas and Nebraska branches over the past year, underlying deposits still fell 1.5% from a year ago by our math.
Because interest-bearing balances kept leaving, First Interstate cut its full-year deposit outlook for a second straight quarter, lowering the top of the range by $200 million to $21.4–$21.8 billion. By our math, even the middle of that lower range requires the bank to add $212 million of deposits in the fourth quarter. What to watch: fourth-quarter ending deposits, which will test whether normal year-end inflows appear.
Fee Income and Cost Cuts Stalled
First Interstate's fee businesses—payment cards, mortgages, wealth management and account charges—generated $43.3 million in noninterest income, down 0.9% from a year ago. Wealth management revenue rose 6.7% to $11.1 million, but deposit service charges fell 8.6% and payment services slipped 0.6%, prompting management to trim the top end of its full-year fee outlook by $1 million.
Meanwhile, noninterest expense—staff pay, buildings and overhead—fell only 0.5% from a year ago to $157.1 million, as "higher health insurance costs" lifted employee benefits by 7.1%. Overhead took 63.0% of total revenue by our math, unchanged from a year ago despite branch sales and closures. What to watch: fourth-quarter salaries and benefits, which will show if hiring relationship managers pushes costs higher into 2027.
👓 Other Themes
Rate Path and Branch Closures Shape the Setup
First Interstate closed three branches in Iowa, Oregon and Washington during the third quarter, bringing its network to 270 offices, and plans to close three more in the fourth quarter. Separately, the bank's full-year net interest income outlook still assumes one interest rate increase in the fourth quarter, meaning a flat or lower rate environment would alter its reinvestment yields.
💲 Other KPIs
Tangible book value per share—net worth per share excluding goodwill from past acquisitions—fell 5.7% from last quarter and 2.6% from a year ago. The drop came from a $147.6 million decline in the market value of the bond portfolio and share buybacks executed at an average price of $37.37.
The common equity tier 1 ratio—core bank capital as a share of risk-weighted assets—dipped 0.18 percentage points from last quarter as share buybacks and dividends outpaced retained earnings. The ratio remains 0.46 percentage points higher than a year ago because the shrinking loan book reduced risk-weighted assets.
Loans held for investment fell faster than deposits for a fourth straight quarter, pulling the loan-to-deposit ratio down from 66.6% last quarter and 70.1% a year ago. The lower ratio leaves the bank with ample cash and bond liquidity, but shifting assets from loans into bonds reduces earning yields.
🔮 Guidance
Raised. First Interstate narrowed the range and lifted the middle by $1.5 million, which points to a 1.1% decline from last year by our math. That leaves $207.4 million for the fourth quarter at the middle of the range, up 0.6% from the third quarter and 0.5% from a year ago. After a $20 million cut last quarter, the move sequence across four quarters is $0M, -$20M, +$1.5M.
Unchanged. The plan still has the loan book shrinking 10.2% this year at the middle of the range. By our math, hitting that $13.65 billion middle requires loans to fall another $335 million in the fourth quarter, a faster drop than the $296 million decline in the third quarter. Across four quarters, the middle of the target has moved -$100M, -$1,000M, $0M.
Cut. The bank lowered the middle of its year-end deposit target by $150 million, which puts full-year deposits down 2.2% at the middle of the range. By our math, reaching that $21.6 billion middle still requires deposits to rise $212 million in the fourth quarter after falling $53 million in the third. Across four quarters, the midpoint moves are $0M, -$500M, -$150M.
Cut. Management trimmed $1 million off the top of the range, lowering the middle by $0.5 million to $168.5 million (excluding the $19.5 million second-quarter Nebraska branch gain). By our math, that leaves $41.9 million for the fourth quarter, down from $43.3 million in the third quarter. It is the third small trim in four quarters: -$2.0M, -$1.5M, -$0.5M.
Cut. The regional bank trimmed the top of its cost range by $2 million, bringing the middle down $1 million to $632 million, or 1.3% below last year. By our math, that leaves $158.4 million for the fourth quarter, up slightly from $157.1 million in the third quarter as the bank hires relationship managers. Midpoint moves across four quarters: -$1.0M, -$3.5M, -$1.0M.
Unchanged. First Interstate narrowed its full-year tax rate range while keeping the middle at 22.875%. The third-quarter effective tax rate was 24.1%, up from 22.5% in the second quarter.
Unchanged. The lender kept its long-term target for annualized net loan write-offs at 0.20% to 0.30% of average loans. Third-quarter net write-offs ran at 0.28%, near the top of that band for a second straight quarter.
❓ Key Questions
How much of the out-of-market loan pool remains?
Last quarter management sized an out-of-market loan portfolio being exited at roughly the mid-$600 millions, but the third-quarter release gives no update. Knowing the remaining balance will show how much intentional loan runoff is left for 2027.
What percentage of maturing loans is the bank keeping?
First Interstate has $1.8 billion of loans at a 4.6% average rate maturing or repricing through 2027. If borrowers pay off those loans elsewhere instead of renewing at higher rates, the bank must buy lower-yielding bonds instead.
What drove the 49% jump in early loan delinquencies?
Accruing loans 30 to 89 days past due rose from $24.3 million to $36.2 million, and substandard loans climbed $21.3 million to $466.8 million. Investors need to know whether those increases come from commercial real estate, agriculture or a single borrower.
Why did commercial business loans fall if production improved?
The presentation says improved commercial production partially offset loan payoffs, yet commercial business loans fell $52.1 million, or 2.3%, in the quarter. Management has not disclosed gross new loan originations to show how close the bank is to growing again.