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CALL PARTICIPANTS
Chief Executive Officer — Jim Reuter
Chief Financial Officer — David Della Camera
Investor Relations — Nancy Vermeulen
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TAKEAWAYS
Net Income: $71.7 million, or $0.69 per diluted share, for Q2 2025.
Net Interest Margin: 3.32% on a fully tax-equivalent basis for the second quarter. 3.26% excluding purchase accounting accretion, up 12 basis points sequentially.
Loan-to-Deposit Ratio: 72% loan-to-deposit ratio at quarter end, indicating significant on-balance sheet liquidity.
Other Borrowed Funds: $250 million outstanding as of Q2 2025, down $710 million sequentially and $2.2 billion year-over-year.
Yield on Average Loans: 5.65%, representing a sequential six basis point increase due to continued repricing and payoffs of lower-yielding loans.
Noninterest Income: $41.1 million in noninterest income for Q2 2025, down $900,000 from the prior quarter, includes a $7.3 million valuation allowance on Arizona and Kansas loans moved to held for sale, and a $4.3 million gain from outsourcing the consumer credit card product.
Noninterest Expense: $155.1 million, down $5.5 million sequentially, driven by lower payroll taxes and incentive-based compensation, includes $1.5 million in property valuation adjustments and lease termination fees.
Net Charge-Offs: $5.8 million, equal to 14 basis points of average loans on an annualized basis. provision expense reduced by $300,000.
Classified Loans: Declined $24.4 million, or 5.1% sequentially. criticized loans increased $176.9 million, or 17.2%, mainly due to multifamily projects with slower lease-up.
Common Equity Tier 1 Capital Ratio: 13.43% at the end of the second quarter, up 90 basis points from the prior quarter. expected to increase by an additional 40 basis points upon closing the Arizona and Kansas branch transaction, anticipated in Q4 2025.
Loan Balances: Declined by $1 billion, impacted by $338 million in loans moved to held for sale for the branch transaction, $74 million in credit card loans sold, $73 million indirect loan amortization, and large intentional payoffs.
Deposits: Declined $102.2 million and remain approximately flat versus the prior year, after adjusting for temporary 2024 deposits.
Dividend: Declared $0.47 per share, representing a 7% annualized yield.
Net Interest Income Guidance: Management expects a high single-digit increase in net interest income in 2026 compared to 2025, assuming generally flat total loan balances and ongoing net interest margin expansion from asset repricing.
Expense Guidance: Full-year 2025 noninterest expense growth guidance was revised down to 0%-1% from the previous 2%-4% range, compared to the reported 2024 number, due to continued operating discipline and reduced staffing costs.
Branch and Product Optimization: Consumer credit card portfolio outsourced; Arizona and Kansas branch transaction expected to close in Q4 2025, with anticipated tangible book value accretion of approximately 2%, and increase CET1 by 30-40 basis points.
Deposit Market Share: 93% of deposits are in regions where the bank has a top-ten market share. 70% of deposits are in markets growing faster than the national average.
Earning Asset Levels: Earning asset levels are expected to bottom in Q3 2025, with loan declines moderating and a near-term increase in investment securities allocation.
SUMMARY
First Interstate BancSystem, Inc. (FIBK -0.05%) posted higher net interest margin and an improved capital position, with management attributing margin gains to disciplined asset repricing and proactive liability management. Executives reaffirmed a flat-to-lower loan outlook in the near term, citing large, intentional payoffs and continued strategic repositioning, while projecting a modest step-down in earning assets tied to the Arizona and Kansas branch transaction closure. Classified loans declined sequentially, but criticized loan balances increased, primarily linked to multifamily loans facing slower lease-ups, with management emphasizing comfort in underlying collateral and guarantor strength. Guidance signals confidence in net interest income expansion for 2026 compared to 2025, supported by further asset repricing and margin improvement. The company also reduced its 2025 expense growth expectations to 0% to 1% following operational discipline and timing-related benefits. Management highlighted that capital levels are set to rise further after the branch transaction, providing strategic flexibility for deployment options not yet determined.
Reuter said, “we’re now on offense, have some specific promotions, and we’re seeing some good activity in the pipeline,” suggesting a shift in lending focus following portfolio clean-up.
Della Camera clarified that the valuation allowance on Arizona and Kansas loans was “purely reflective of rate,” not credit risk.
Executives stated that the high single-digit 2026 net interest income growth guidance “does not include the divestiture impact” and that they “don’t believe that materially alters that figure.”
Della Camera indicated incremental securities purchases will have “Lower risk-weighted density, and no credit risk,” with new loan production yields “somewhere in that 7% range.”
There is no material deliberate loan runoff remaining except for multifamily construction expected to be sold into the secondary market after stabilization, as Reuter affirmed, “Most of that has already happened.”
Della Camera confirmed Management expects earning asset levels to trough in Q3 2025, with minimal further step-down linked to the branch deal.
Capital deployment options remain open, as management referenced share buybacks and balance sheet restructuring as potential actions if organic growth opportunities are insufficient.
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