First Interstate BancSystem, Inc. Q3 2026 Earnings Call - FIRST INTERSTATE BANCSYSTEM INC

Explicit Guidance:

• Net Interest Income (NII): Midpoint of Q4 2026 guidance assumes NII expansion; Q4 2026 NII growth is expected to be smaller sequentially than Q1 2026 due to the timing of deposit repricing following the September rate hike.
• Net Interest Margin (NIM): Q4 2026 sequential margin improvement expected to be smaller than Q1 2026; NIM expansion into 2027 anticipated to be driven by fixed asset repricing.
• Non-Interest Income: Excludes one-time gains from prior branch transactions; future levels to reflect stabilized core operations.
• Non-Interest Expense: Q4 2026 guidance incorporates continued investment in customer acquisition; expects expense base to support current production capacity without significant incremental investment for near-term growth.
• Balance Sheet: Q4 2026 guidance implies loan declines (due to payoffs shifting from Q3) and flat-to-higher deposit levels year-over-year when adjusted for sales.
• Capital Allocation: Continuation of share repurchases through 2026 (approx. 2 million shares/quarter viewed as potential baseline); dividend maintained at $0.47/share (5% annualized yield).
• Full Year 2026: Implied guidance suggests a modest year-over-year deposit flatline (excluding sold balances) and stabilization of earning assets by year-end.

Business-Segment Outlook:

• Geographic Expansion: Two new branches scheduled to open in Colorado in H1 2027; three existing locations scheduled for consolidation in Q4 2026.
• Deposit Mix: Continued focus on relationship-based, non-interest-bearing deposits; expects these balances to remain the primary driver of franchise value.
• Lending Activity: Underlying commercial production is increasing; reported loan balances may remain flat or decline in H2 2026 due to payoff activity, but underlying core portfolio is expected to stabilize or grow.
• Asset Mix: Near-term (Q4 2026) expected to see loan decline relative to securities; intent to stabilize or improve loan-to-asset ratio in long term (2027+).
• Branch Efficiency: Average deposits per branch currently ~$79 million; goal to improve this metric over time; footprint includes rural/mid-market branches with lower break-even points than national peers.

Market and Competitive Outlook:

• Demand Trends: New client acquisition remains strong, particularly in the Rocky Mountain region; growth in client count is viewed as a leading indicator for future deposit and fee income growth.
• Pricing & Yields: Investment portfolio yields expected to increase 40–50 bps on the 5-year+ duration side; new loan yields in mid-6% range; NIM expansion expected to continue into 2027.
• Competitive Positioning: Differentiation based on relationship banking, local decision-making, and treasury/commercial solutions; low-cost deposit base provides long-term competitive advantage.
• Credit Quality: Directional improvement in criticized loans anticipated over the long term (down 18% YoY); proactive credit risk management and stress testing on upcoming maturities to mitigate higher-rate impacts.

Macro / Industry Outlook:

• Interest Rates: Current balance sheet is broadly neutral to NII sensitivity for the next 12 months; continued asset repricing and reinvestment at current market yields support medium-term earnings.
• Economic Cycle: Belief that disciplined credit and high-quality deposits will support performance across all economic cycles.
• Rate Environment: Higher rates are expected to contribute to asset yield expansion in 2027 via increased loan maturities and investment portfolio runoff.

Strategic Initiatives:

• Branch Optimization: Long-term program targeting both targeted expansion (CO, 2027) and consolidation (3 locations, Q4 2026) to improve efficiency and capital allocation.
• Capital Deployment: Disciplined approach balancing growth investments, share repurchases, and dividends; excess capital position maintained for active deployment.
• Balance Sheet Management: Exiting non-strategic markets and non-relationship/out-of-market credits; targeting shorter duration on investment portfolio to reduce interest rate risk.
• Capacity Building: Investment in relationship managers (RMs) and technology infrastructure to support future growth without requiring significant new capital investment for near-term scaling.

Risks and Headwinds to Outlook:

• Loan Payoffs: Anticipated payoffs in the commercial and out-of-market loan portfolios could delay balance sheet growth and impact reported loan balances.
• Deposit Pricing: While core deposits are strengthening, the full impact of deposit repricing on NIM will be more gradual in Q4 2026 compared to earlier quarters.
• Credit Quality: Potential stress on existing loans due to higher rates and refinancing needs; criticized loans remain a dynamic variable.
• Market Conditions: Future capital deployment and share repurchase levels dependent on market factors, balance sheet growth, and cash flow visibility.
• Seasonality: Q4 typically sees weaker deposit seasonality late in the quarter compared to early Q4.

Management Tone on the Future:

• Confidence: High confidence in delivering improved earnings over time; view that NII expansion is underway and will be driven by margin and asset mix stabilization.
• Strategic Focus: Shift in focus from "balance sheet growth" to "earning asset yield expansion" and "relationship growth."
• 2027 Outlook: Strongly positive long-term view driven by trapped earnings in curing assets and yield curve support, though specific 2027 guidance deferred to Q1 2027.
• Capital Discipline: Maintained belief that the current expense base is sufficient to support growth without major new investments, signaling confidence in operational efficiency.

Miscellaneous:

• Unfunded Commitments: Increase noted in Q3 due to well-priced construction commitments; expected to provide funding support for 2027.
• Investor Relations: Updated investor presentation with additional disclosures available on the company website.
• SEC Filings: Full details on forward-looking statements and risk factors referenced in recent 10-K and earnings releases.