First Interstate's Tenth Margin Quarter Meets Its Sixth Loan Question
FIBK has repriced its way to a 3.55% margin while the loan book keeps shrinking — management now says the cleanup is done and the capacity is in place
FIBK · Earnings Call · 2026-10-23
The tenth quarter nobody paid for
First Interstate BancSystem reported third-quarter net income of $62.2 million, or $0.65 per diluted share, against $83.9 million and $0.87 in the second quarter — a comparison that flatters Q2, which carried a $19.5 million gain on the Nebraska branch transaction. Strip that out and the operating story is one of steady, grinding improvement: fully taxable equivalent net interest margin of 3.55%, up from 3.48% in Q2 and 3.36% a year ago. CFO David Della Camera did not bury the lede: “this marks our 10th consecutive quarter of net interest margin expansion, and fixed asset repricing should remain a tailwind to earning asset yields and underlying margin improvement into 2027.” — David Della Camera, Chief Financial Officer or Finance Executive · 2026-10-23 Ten quarters is a long time to compound a single mechanism. The mechanism is dead simple: a legacy book of low-coupon loans and securities rolls off and is replaced at market. New loan yields are running "mid 6%," and new investment purchases clear in the 5-year-plus 40–50 basis point range. Terry McEvoy's question about 2027 got the most revealing answer of the call, and it is a phrase worth flagging: “there is significant quantity of trapped earnings in those assets that are curing currently and through 2027 and on.” — David Della Camera, Chief Financial Officer or Finance Executive · 2026-10-23 Trapped earnings is the right framing. Net interest income of $202 million is still 19% below the 2023Q1 peak of $251 million, and only now is the margin finally bigger than the shrinking asset base. So why is the stock 8.6% below its July 16 high of $40.22, up just 3.2% over ninety days? Because the market has heard this story before and has stopped paying for the margin alone. Price to book sits at 1.1x, and 11.4x earnings is a valuation that says: show me the loan book.The deposit that left, and the one that stayed
Total deposits fell $52.8 million to $21.4 billion. Buried in that number is the quarter's real decision: management pushed out a single large, fully collateralized customer where returns did not clear the bar. It cost them balances and bought roughly three basis points of margin, with no material hit to net interest income. That is the sort of high cost relationship a disciplined franchise should be willing to lose. What replaced it matters more. Non-interest-bearing balances grew for a second consecutive quarter, the mix improved, and the loan-to-deposit ratio fell to 65.4% from 70.1% a year ago. Jim Reuter was blunt about how the growth is being bought: “we are not running rate promotions to grow deposits.” — Jim Reuter, Chief Executive Officer or President · 2026-10-23 That is a genuine differentiator against a sector where deposit beta and pricing concessions dominated the quarter's other regional bank calls — AMAL, CIVB, GBCI and a dozen peers all fielded some version of the same beta question. FIBK's core deposit franchise is granular and, per management, still cheap. Except the branch math is awkward. Average deposits per branch stand at about $79 million against a peer median near $150 million, a gap Reuter attributes to a rural and mid-market footprint and a genuinely lower cost structure. He concedes the point implicitly — the average deposits per branch metric has improved roughly 10% over 18 months through consolidation, and two Colorado branches open in the first half of 2027 while three more consolidate in Q4.The question that will not die
Loans fell $296 million in the quarter, driven by a $64.9 million decline in the retained out-of-market portfolio, $47.7 million in indirect lending and $36.8 million in residential. Payoffs that were expected in Q3 slid into early Q4, and management guided to more of the same. This is now the fifth consecutive call where the central analyst question is some version of "when does the loan book turn?" In July the answer was “we're too early to give a guide for loans in '27.” — David Camera, Chief Financial Officer · 2026-07-24 It became a refrain two quarters earlier too, when the company was still explaining the miss: “The inflection point we missed was, as you pointed out, largely due to increased payoffs.” — James Reuter, Chief Executive Officer · 2026-07-24 In October it became “we think we are closer than further away, and we think we have the right capacity in the business.” — David Della Camera, Chief Financial Officer or Finance Executive · 2026-10-23 Commercial commercial production is materially higher year over year, and Reuter argues the expense base already supports the growth: “there's no step-up needed from an investment standpoint to grow the bank beyond where we are today.” — Jim Reuter, Chief Executive Officer or President · 2026-10-23 Beautiful if true. It also means there is no longer an investment excuse if production does not convert. The tell is what management stopped saying. In Q2 and Q3 2026 non relationship lending was near the top of the company's own vocabulary — the deliberate runoff of out-of-market credits. This quarter it registered as one of the sharpest keyword decliners in the trajectory. The cleanup is largely done, which removes the alibi but also the drag.Capital, and the treadmill
The CET1 ratio ended at 14.36%, down 18 basis points on the quarter but still far above where a 1.1x book bank needs to live. Repurchases totaled roughly 2 million shares for $76 million, taking the program to $347 million since August 2025. Quarterly repurchases of $70 million against a $0.47 dividend that yields about 5% is a shareholder-return machine running on excess capital rather than on growth. Analysts have now asked three quarters running whether that pace persists into 2027. The answer has not changed and is studiously non-committal: “We don't have a specific quarterly target. It'll depend on market factors, what we're seeing for balance sheet growth.” — David Della Camera, Chief Financial Officer or Finance Executive · 2026-10-23 Note the ordering — balance sheet growth is explicitly named as the first and most accretive use of capital, ahead of the buyback. That is the correct thing to say and also the thing that has not happened for six quarters.What actually changed
One macro detail deserves emphasis: “The September rate increase benefited asset yields late in the third quarter, while the related deposit repricing will be more fully reflected in the fourth quarter.” — David Della Camera, Chief Financial Officer or Finance Executive · 2026-10-23 That single sentence places FIBK inside the market's Fed rate hike theme — a top-ranked global keyword this quarter, echoed in the recent reports of SMBK, AUB, BWB and SSB. FIBK is not merely surviving the hiking cycle; on its own modeling it is roughly neutral to NII near term, with an asset yield tailwind from repricing that is structural rather than rate-dependent.That is the claim to test. Deposits of $21.4 billion remain 24% below the 2022Q1 peak of $28.1 billion, and the efficiency ratio at 47.8% already reflects most of the easy cost work. If deposits stabilize and the margin keeps climbing, earnings follow. If the loan book keeps shrinking into 2027, ten quarters of margin expansion will have produced a share count 10 million shares smaller and not much else. The January guide is the next real datapoint — and the market's 8.6% skepticism is, for now, the more defensible position.QoQ, given the NII expansion there, and then our view that we think the deposit profile is stabilized, we view it as we're into the NII expansion part of the story.