First Interstate BancSystem (FIBK 0.87%), a regional community bank with operations across 14 states, reported financial results for Q2 2025 on July 29, 2025. The most notable news from the release was a notable rise in profitability: earnings per share (EPS, GAAP) came in at $0.69 in Q2 2025, surpassing the analyst consensus of $0.58 (GAAP) by 19% in Q2 2025. The period marked a substantial improvement in net interest margin, continued capital strengthening, and lower credit costs. Despite these positives, Asset quality concerns surfaced as criticized loans -- especially within commercial real estate -- rose markedly in Q1 2025. Overall, the bank delivered stronger earnings on effective margin management, even as GAAP revenue contracted more than expected. The bottom line: underlying credit risk and muted loan growth remain areas to watch.

MetricQ2 2025Q2 2025 EstimateQ2 2024Y/Y Change
EPS (GAAP, Diluted)$0.69$0.58$0.5819%
Net Interest Margin (Non-GAAP)3.32 %N/A3.00 %0.32%
Loans Held for Investment$16.35 billionN/A$18.24 billion(10.3 %)
Total Deposits$22.63 billionN/A$22.87 billion-1.1 %

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Strategic Focus

First Interstate BancSystem runs a relationship-driven community banking model, offering products like traditional loans, savings, payment services, and wealth management, focusing on tailoring its service to local markets and building close ties with its customers.

In recent periods, management has concentrated on rebalancing growth drivers. After a wave of acquisitions -- including the Great Western Bank deal -- focus has shifted to organic expansion, optimizing the branch footprint, and reducing risk exposure in legacy portfolios like commercial real estate and indirect consumer lending. Success in this framework depends on stable deposit gathering, prudent loan growth, tight expense control, and maintaining regulatory capital strength.

Quarterly Highlights: Financial and Operational Performance

Profitability stepped up dramatically, as net FTE interest margin -- a gauge of the difference between rates earned on loans and rates paid on deposits -- expanded to 3.32% in Q2 2025, up from 3.00% in Q2 2024. This followed ongoing reductions in higher-cost borrowed funds and a more favorable loan mix. Net interest income, the main driver of revenue, increased 2.7% year over year in Q2 2025.

Noninterest income, which includes non-lending businesses such as payment processing, slipped 3.5% year over year in Q2 2025 (GAAP). The decrease was partly due to a $7.3 million charge related to loans marked for sale and lower fee-based revenues, only partly offset by a one-time $4.3 million gain on the sale of the credit card portfolio. Payment services revenues, like debit and credit card fees, dropped to $17.8 million in Q2 2025 (GAAP).

Operating expenses remained well contained. Noninterest expenses fell 1.1% year over year in Q2 2025, primarily due to lower short-term incentive accruals. The efficiency ratio -- a measure of costs as a percentage of revenue -- improved to 61.1% in Q2 2025, down from 62.7% in Q2 2024. Expense management partly cushioned the effect of the revenue miss versus estimates.

Credit and asset quality trends were a mixed bag. Net charge-offs, or actual loan write-offs, fell to $5.8 million in Q2 2025, less than half the prior-year level. However, Criticized loan balances -- a forward-looking measure of potential stress -- jumped to $1.2 billion, up 94.7% from the year-ago period, due mainly to commercial real estate portfolio downgrades. Classified assets, which are further along the risk spectrum, held relatively steady. Nonperforming assets (loans no longer generating interest plus foreclosed properties) represented 1.21% of total loans and other assets, up from 0.96% as of Q2 2024, signaling modest deterioration but not a sharp spike in problem assets.

The balance sheet shrank. Loans held for investment (GAAP) fell 10.3% year over year in Q2 2025, reflecting both increased paydowns in commercial and consumer portfolios and the deliberate sale of non-core and higher-risk loans. Deposits declined by 1.0%, with The company succeeded in reducing wholesale borrowings sharply, cutting other borrowed funds by 89.7% versus the year before, contributing to higher capital ratios and improved liquidity. Tangible book value per share rose 10.1% in the twelve months ended June 30, 2025, highlighting underlying capital accretion.

Notable strategic initiatives in Q2 2025 included the sale of the consumer credit card portfolio and ongoing divestiture of selected branches in Arizona and Kansas. These moves are intended to streamline the bank's footprint and support capital growth. The company raised $125.0 million in subordinated debt.

The quarterly dividend was held steady at $0.47 per share, equating to a 7.0% annualized yield at the average share price in Q2 2025. Management emphasized the dividend's importance as a central capital return policy for shareholders.

Looking Ahead: Management Guidance and Key Watch Areas

Management is targeting organic loan growth for late 2025 or 2026. Margin guidance points to further, but slower, expansion. Management projects the net interest margin (excluding purchase accounting accretion; non-GAAP) will reach between 3.4% and 3.5% by Q4 2025, as lower-cost deposit and funding trends continue.

Guidance calls for noninterest expense to grow 2% to 4% above 2024 levels during 2025, mainly due to increased investment in digital banking and marketing, with offsetting reductions from ongoing branch network optimization starting to contribute to savings in 2026. but company leaders expect "meaningful organic growth as these restructuring efforts mature." Investors should monitor asset quality -- especially criticized loan migration, margin sustainability, deposit mix, and the impact of expense initiatives -- in future quarters.

The quarterly dividend was maintained at $0.47 per share.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.