First Interstate Q3 2026 Earnings: Wider Margin Offset by Higher Credit Costs

First Interstate BancSystem (NASDAQ: FIBK) reported Q3 2026 net interest income of $206.2 million, down 0.3% year over year, while diluted EPS declined to $0.65 from $0.69 for the quarter ended September 30, 2026. Net income fell to $62.2 million from $71.4 million as a $10.5 million provision for credit losses and higher charge-offs outweighed a wider net interest margin and slightly lower noninterest expense.

Core Earnings Results

The earnings decline was driven primarily by credit costs rather than a sharp deterioration in recurring income or an increase in operating expenses. The provision for credit losses rose from zero a year earlier to $10.5 million, while net charge-offs increased by $7.6 million.

Sequential comparisons also reflect a one-time item: Q2 2026 net income of $83.9 million included a $19.5 million gain from the sale of 11 Nebraska branches.

Wider Margin Could Not Offset Credit Costs and Loan Contraction

First Interstate’s net interest margin rose eight basis points sequentially and 19 basis points year over year to 3.53%. Excluding acquired-loan interest accretion, adjusted net fully taxable equivalent margin was 3.51%, up nine basis points from Q2 and 21 basis points from the prior-year quarter. This indicates that the improvement extended beyond purchase-accounting effects.

Higher yields on earning assets, lower rates on time deposits, and an improved funding mix supported the margin. However, net interest income still declined slightly year over year because the balance of loans and other earning assets contracted. Branch sales contributed to the smaller balance sheet, while loan payoffs, paydowns, and the continued runoff of the indirect consumer portfolio added further pressure.

The wider margin therefore did not translate into higher profit. The $10.5 million credit provision, compared with no provision a year earlier, was a major factor behind the decline in net income.

Loan and Deposit Trends

Loans held for investment declined $296.0 million, or 2.1%, during the quarter and $1.85 billion, or 11.7%, from a year earlier. The contraction affected every major reported loan category, with particularly large percentage declines in construction, consumer, and agricultural lending.

The quarterly decline included $47.7 million of amortization in the indirect portfolio, where the company stopped originating loans during Q1 2025. Payoffs and paydowns also reduced balances. Year-over-year comparisons were affected by the sale of $291.5 million of loans with the Arizona and Kansas branches and $64.1 million with the Nebraska branches.

Deposits decreased 0.2% sequentially to $21.39 billion. Declines across interest-bearing deposit categories were partly offset by an increase in noninterest-bearing deposits. Deposits were down 5.4% year over year, with branch sales accounting for $641.6 million of deposits in Arizona and Kansas and $244.2 million in Nebraska. The loan-to-deposit ratio declined to 65.4% from 70.1% a year earlier.

Credit Quality and Capital

Credit indicators were mixed. Non-performing assets fell 6.1% sequentially and 16.5% year over year to $155.0 million, while criticized loans were down substantially from the prior year but edged 0.2% higher from Q2 to $939.5 million.

At the same time, net charge-offs rose to an annualized 0.28% of average loans from 0.06% a year earlier. The allowance for credit losses remained at 1.30% of period-end loans, while coverage of non-performing loans improved to 120.1% from 113.0%.

First Interstate repurchased approximately 2.04 million shares for $76.3 million during the quarter. The common equity tier 1 capital ratio declined 18 basis points sequentially to 14.36%, primarily because of the repurchases, partly offset by lower risk-weighted assets. The company remained classified as well-capitalized, with $103.4 million still available under its repurchase authorization at quarter-end.

Stockholders’ equity fell 5.0% sequentially to $3.16 billion, reflecting lower accumulated other comprehensive income, dividends, and repurchases. Investment securities also recorded a $147.6 million decline in fair value during the quarter, although the portfolio’s carrying amount increased as purchases exceeded repayments and maturities.

Management View

President and CEO James A. Reuter emphasized the improvement in net interest margin and the increase in noninterest-bearing deposits. Management’s stated priorities remain capital deployment, operating-model optimization, and investment in customer relationships, with the goal of improving the franchise’s efficiency and earnings capacity over time.

Recent Insider Transactions

The supplied insider data shows 56,323 shares purchased and 106,204 shares sold over the latest six-month period, resulting in net sales of 49,881 shares. The five latest reported sales below were all indirect transactions by holders owning more than 10%; this information alone does not establish their view of the company’s outlook.

The latest records also included one stock gift and four stock awards. Gifts and compensation-related awards are distinct from open-market purchases.

Risks Investors Should Monitor

• Continued loan contraction: The wider margin was not enough to produce year-over-year net interest income growth because loans and other earning assets declined. Further runoff could continue to limit interest income.
• Higher credit costs: Net charge-offs increased substantially from the prior year, and the company recorded a $10.5 million provision after recording no provision in Q3 2025. A slight sequential increase in criticized loans also warrants monitoring.
• Deposit and branch-sale effects: Divestitures explain much of the year-over-year deposit decline, but interest-bearing deposits also decreased during Q3. Changes in deposit scale and mix directly affect funding costs and balance-sheet capacity.
• Capital use and valuation changes: Repurchases reduced the common equity tier 1 ratio, while lower accumulated other comprehensive income contributed to the decline in stockholders’ equity. Continued capital returns and securities valuation movements could affect capital buffers even though the company remained well-capitalized.

Summary

First Interstate’s Q3 2026 results showed improving deposit pricing and funding mix, reflected in a wider net interest margin. Those benefits were offset by a smaller loan base and higher credit costs, leaving net income and EPS below their prior-year levels. The central issues ahead are whether loan balances and net interest income can stabilize, whether charge-offs moderate, and how management balances shareholder returns with capital preservation.