First Interstate BancSystem, Inc. (FIBK) Earnings

Management highlights

- Strategic Priorities and Long-Term Value Creation * Management maintains a long-term focus on improving franchise earnings power, efficiency, and shareholder value creation via a disciplined strategy of deepening core customer relationships, growing core deposits, improving credit quality, optimizing the operating model, and disciplined capital deployment. Balance sheet growth may be uneven quarter-to-quarter due to proactive portfolio adjustments, but management remains confident in long-term return improvement. * NIM expanded for the 9th consecutive quarter, driven by fixed asset repricing and declining deposit costs, a trend expected to continue. * The company maintains strict underwriting discipline, rejecting near-term balance sheet growth opportunities that do not align with its relationship-based banking focus. - Operational Updates * Commercial loan production improved in Q2 2026, with particularly strong performance in the Rocky Mountain region; the reorg completed at end-Q1 2026 has supported production growth, with 14 new relationship managers (RMs) added year-to-date, and growing loan pipelines with July 2026 off to a strong start. * After adjusting for sold deposits, noninterest-bearing deposit balances grew year-over-year, and deposit mix improved in the quarter. The company is allowing higher-cost time deposits to run off the balance sheet to improve its long-term deposit profile. * Staffing levels were aligned to the updated operating model, with a focus on expanding revenue-generating roles; operational efficiency gains from reorganization allowed adding new RMs while maintaining a structurally lower overall staffing level than pre-reorganization. * The company secured two new prime locations in Colorado, with additional locations in development in core markets, launched an updated advertising campaign and brand refresh, and increased investment in data management to support new technology adoption. Digital engagement and payment activity have improved, and customer satisfaction metrics remain strong. - Capital Deployment * The company repurchased ~1.9 million shares for $69 million in Q2 2026; cumulatively, 8 million shares have been repurchased for $270 million since the program launched in August 2025. * The board approved an additional $150 million in share repurchase authorization, bringing cumulative total authorization to $450 million. Share repurchases remain a core capital allocation priority to drive shareholder value. * A $0.47 per common share dividend was declared, equal to a 5.3% annualized yield based on Q2 2026 average closing price. Strong capital levels provide flexibility for both shareholder returns and long-term accretive growth.

Guidance

- Balance sheet guidance has been revised downward: accelerated payoffs of non-relationship, out-of-market, and criticized loans pulled forward expected future exits that were originally planned for outer years, resulting in lower expected near-term ending loan and earning asset balances compared to prior guidance. The company expects accelerated payoff activity to continue through the remainder of 2026. Mortgage production has trailed expectations, so guidance now incorporates a larger near-term decline in the mortgage portfolio. * Average earning assets are expected to bottom in Q3 2026, with ending balances expected to be flat to improving after Q2 2026, and average balances rising in the second half of 2026. - The smaller near-term balance sheet, with a higher composition of investment securities, has lowered near-term revenue growth expectations; this is partially offset by improved deposit mix and lower cost trends. Management expects to continue active capital deployment to enhance shareholder returns during this balance sheet transition period. - Expense guidance reflects ongoing reinvestment in branding and RM growth, with net expense expectations aligned to the Q2 2026 run rate, and structural savings from operating model reorganization offsetting new investment costs. - The trend of meaningful fixed asset repricing is expected to continue over the coming years, with near-term tailwinds accelerating into 2027, driving sequential NIM and return profile improvement through the remainder of 2026 and larger gains in 2027. - Management expects $600 million in additional loan decline at the midpoint from current Q2 2026 levels through the end of 2026, with the decline split between high 100s of millions of payoffs from the out-of-market portfolio, ~$100 million decline from indirect loans, and ~$200 million in additional non-relationship commercial loan payoffs.

Segment performance

This earnings call does not break out financial performance for distinct product segments, so no segment-level revenue or contribution data is provided. Aggregate company performance for Q2 2026 is as follows: Net income of $83.9 million, or $0.87 per diluted share, up from $60.2 million ($0.61 per diluted share) in Q1 2026. Net interest income rose 0.7% ($1.5 million) quarter-over-quarter to $202.2 million, driven by net interest margin (NIM) expansion and one extra accrual day, partially offset by a decline in interest-earning assets from the April branch sale. Noninterest income increased $20.6 million quarter-over-quarter to $61.7 million, driven by a $19.5 million gain from the Q2 branch transaction. Noninterest expense rose $1.3 million to $158.9 million, with higher advertising, professional fees, donations, and OREO valuation expenses offset by lower salaries and employee benefits. Total loans decreased $447 million to end the quarter at a lower balance, driven by accelerated payoffs of non-relationship and criticized loans, as well as declines in agricultural, residential, and indirect loan amortization. Total deposits decreased $441.7 million to $21.4 billion, with over half the decline from the sale of $244 million in deposits in the Nebraska branch transaction. Net charge-offs increased $7.3 million to $9.7 million (27 basis points of average loans), while provision for credit losses fell by $3.2 million. Criticized loans decreased 9.3% ($95.8 million) quarter-over-quarter, and are down 22% over the past 12 months. Common equity Tier 1 capital ratio was 14.54% at quarter-end, up 24 basis points from Q1 2026.

Risks & headwinds

- Near-term reported loan and balance sheet growth will remain volatile due to elevated payoff activity that has pulled forward previously expected outer-year exits, even as core relationship production improves. * Mortgage production has trailed internal expectations, leading to larger than forecast portfolio decline. * Accelerated payoffs create near-term balance sheet shrinkage that suppresses near-term net interest income growth even as NIM expands.

Analyst Q&A

• Q: How much of the loan book is non-relationship and slated for runoff, and when will earning assets stabilize and resume growth? /

  A: Management expects average earning assets to bottom in Q3 2026, with ending balances flat to improving after Q2 and average balances growing in the second half of 2026. Currently, the out-of-market non-relationship loan portfolio totals ~$650 million, with $100 million in payoffs from this segment in Q2 2026. Most of the $447 million Q2 loan decline came from non-relationship and out-of-market payoffs, with core relationship loan growth actually strong in the quarter. Additional near-term payoffs will pull forward outer-year exit expectations, creating a near-term asset mix shift rather than a core growth slowdown.

• Q: With loan balances shrinking due to proactive portfolio management, what is the outlook for commercial production and can new production offset continued payoff pressure? /

  A: Q2 saw a significant step-up in commercial production following the completion of reorganization at the end of Q1. Fourteen new RMs have been added year-to-date, funded by operational efficiency savings from the reorganization, and loan pipelines are growing. Production is strongest in the Rocky Mountain region but improving across the entire geographic footprint, and July 2026 production is off to a strong start. The company will not force growth in underperforming markets, and will only pursue opportunity-aligned production.

• Q: NIM has expanded 55 basis points since the 1Q2024 trough, but net interest income has stayed flat. What drives confidence that fixed asset repricing will drive NII growth in 2027 even if the balance sheet remains in flux? /

  A: Prior NII stagnation reflected intentional balance sheet shrinkage from multiple branch sales over that period. Going forward, $2.2 billion (16% of the current loan book) is scheduled to mature/reprice through 2027, and maturing assets will be reinvested at higher current market yields, creating significant implied NII upside. If maturing loans pay off instead of renewing, the structure of the current balance sheet provides strong downside protection for NII. Improved production momentum from new RMs also supports optimism for net NII growth next year.

• Q: Does pulling forward payoffs in 2026 improve the chance of flat or positive loan growth in 2027? /

  A: Management declined to provide formal 2027 guidance, noting it will wait for results from the new RMs and organizational redesign to solidify before issuing outer-year guidance. Pulling forward planned non-relationship payoffs creates greater clarity for long-term portfolio performance, and the company's core strategic goal is to build a growth-oriented portfolio. Strong balance sheet optionality and growing production momentum underpin management's underlying confidence in long-term growth.