FIRST INTERSTATE BANCSYSTEM INC Q3 FY2026 earnings call

• Strategic Execution: Continued execution of a multi-year strategic plan focused on relationship banking, deepening customer relationships, and growing core deposits while exiting non-strategic markets.
• Margin Expansion: Achieved the 10th consecutive quarter of net interest margin expansion, reaching 3.55% in Q3 2026, driven by fixed asset repricing and the exit of high-cost deposits.
• Credit Quality: Maintained stable credit conditions with criticized loans declining 19% year-over-year and non-performing assets decreasing 6%. Emphasized disciplined credit decision-making and proactive risk management.
• Capital Allocation: Repurchased approximately 2 million shares ($76 million) in Q3, bringing total repurchases to ~$347 million since August 2025. Declared a dividend of 47 cents per share.
• Operational Efficiency: Optimized branch footprint through consolidation and targeted expansion. Improved operational metrics including average deposits per branch (+6%) and net interest income per share (+8% YoY).
• Deposit Franchise: Strengthened low-cost deposit base with growth in non-interest-bearing deposits, reflecting successful relationship banking efforts and client acquisition, particularly in the Rocky Mountain region.

The provided transcript does not break down financial performance by specific product segments (e.g., Commercial, Consumer, Wealth Management). The company reports consolidated figures: Net Interest Income was $206.2 million; Non-Interest Income was $43.3 million; and Non-Interest Expense was $157.1 million.

• Net Interest Income: Expects NII expansion into Q4 2026, supported by meaningful asset repricing, stabilization of earning assets, and strong non-interest-bearing deposit performance.
• Net Interest Margin: Anticipates a smaller sequential margin benefit in Q4 compared to Q3 due to the full reflection of September rate increases on deposits and the one-time benefit from the large high-cost deposit exit in Q3.
• Balance Sheet: Guides for more meaningful payoffs in the commercial loan portfolio in Q4 and continued success in exiting non-relationship/out-of-market credits. Deposits are expected to remain flat to slightly higher year-over-year when adjusted for sold balances.
• Expenses: Maintains expense discipline with investments supporting customer acquisition. Plans to open two branches in Colorado in H1 2027 and consolidate three locations in Q4 2026.
• Long-Term Outlook: Confident in delivering improved earnings over time, with significant trapped earnings from fixed asset repricing continuing through 2027.

• Interest Rate Sensitivity: While the balance sheet is modeled as broadly neutral, changes in interest rates impact earning asset yields and funding costs. The company manages this through shorter-duration reinvestment and floating-rate products.
• Credit Risk: Although criticized loans have declined, they remain elevated compared to historical norms. Higher interest rates may impact existing loans, requiring proactive stress testing and renewal conversations.
• Operational/Strategic Risks: Branch optimization involves consolidation which carries execution risks. Customer acquisition and relationship growth depend on effective go-to-market strategies and banker capacity.
• Liquidity/Funding: Reliance on granular, low-cost deposits provides stability, but loss of key large clients (like the exited collateralized deposit) can significantly impact margins and volume.

Q: Andrew Terrell asked about Q4 deposit guidance, noting seasonal headwinds, and queried if NII dollar growth requires balance sheet expansion or is driven by margin expansion alone.

A: CFO David Della Camera explained that Q4 guidance implies flat YoY deposits (excluding sold branches), with underlying strength in non-interest-bearing deposits. Regarding NII, he noted that adjusting for branch sales, NII is already expanding due to margin improvements and stabilized deposit profiles, suggesting dollar NII growth is achievable without immediate balance sheet growth.

Q: Matthew Clark asked for specifics on asset repricing spreads for both investment portfolios and new loans, and requested the spot cost of deposits for September post-large deposit exit.

A: Mr. Della Camera stated investment portfolio spreads are in the 40-50 bps range for instruments maturing in 5+ years, with new loan yields around mid-6%. He reported interest-bearing deposit costs were 151 bps in September (vs 149 bps avg in Q3) and advised aligning forward expectations with their disclosed NII modeling assumptions.

Q: Jeff Rulis inquired about the sustainability of share buybacks in 2027, asking if the pace would slow as balance sheet growth resumes.

A: Mr. Della Camera affirmed a holistic capital approach, stating the company remains in an excess capital position with active deployment plans. He clarified that while balance sheet growth is the most accretive use of capital, near-term buybacks will continue based on market factors and facts/circumstances, without a rigid quarterly target.

Q: Kelly Moda questioned the credit outlook in a higher rate environment, noting criticized loans remained elevated despite stable charge-offs, and asked if proactive management helped.

A: CEO Jim Reuter highlighted that criticized loans are down 18% YoY, indicating long-term improvement despite quarterly dynamics. He emphasized that higher rates are factored into renewal conversations and stress tests, and confident proactive credit management sets the bank up well for various economic cycles.

Q: Samuel Varga asked why deposit growth remains a priority given the shift toward securities and potential margin pressure, and sought updates on unfunded commitments.

A: Management reiterated deposit growth is the #1 priority for franchise value, achieved via organic relationship building rather than rate promotions. They noted encouraging trends in unfunded construction commitments, driven by well-priced projects and improved customer acquisition, which will support future lending growth.