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DATE

Friday, Oct. 23, 2026

CALL PARTICIPANTS

• Investor Relations - Nancy Vermeulen
• President and Chief Executive Officer - James A. Reuter
• Executive Vice President and Chief Financial Officer - David P. Della Camera
• Executive Vice President and Chief Operations Officer - Jeff Lee

TAKEAWAYS

• Net Income -- $62.2 million, or $0.65 per diluted share, representing a decline from $83.9 million in the second quarter of 2026.
• Net FTE Interest Margin -- 3.55%, increasing 7 basis points from the previous quarter and marking the 10th consecutive quarter of expansion.
• Net Interest Income -- $206.2 million, increasing 2% from the second quarter of 2026 driven by higher asset yields.
• Loans Held for Investment -- $14.0 billion, decreasing $296 million due to anticipated payoffs and the intentional amortization of the indirect portfolio.
• Total Deposits -- $21.4 billion, including $5.4 billion in noninterest-bearing balances.
• Noninterest-bearing Deposits -- $5.4 billion, increasing $134.4 million from the prior quarter and representing two consecutive quarters of growth.
• Yield on Average Loans -- 5.67%, representing a 5-basis point increase from the second quarter of 2026.
• Net Charge-offs -- $9.9 million, or 0.28% of average loans, compared to 0.27% in the previous quarter.
• Provision for Credit Losses -- $10.5 million, reflecting charge-offs and an increase in unfunded construction commitments.
• Allowance for Credit Losses -- 1.30% of period-end loans, a 2-basis point increase from the 1.28% reported in the second quarter.
• Criticized Loans -- $939.5 million, remaining stable sequentially while declining 19.3% from the prior year.
• Non-performing Assets -- $155.0 million, a 6.1% decrease from $165.0 million as of June 30, 2026.
• Common Equity Tier 1 Ratio -- 14.36%, decreasing 18 basis points from the prior quarter primarily due to share repurchases.
• Share Repurchases -- 2.0 million shares for $76.3 million, bringing the total program repurchases to 10.0 million shares since August 2025.
• Quarterly Dividend -- $0.47 per share, which equates to a 5% annualized yield based on the average closing price during the third quarter.
• Indirect Loan Portfolio -- $321.3 million, declining $47.7 million as the company continues its exit from this originating segment.
• Wealth Management Revenues -- $11.1 million, representing 4.7% growth compared to the second quarter of 2026.
• Payment Services Revenues -- $16.7 million, compared to $16.8 million in the previous quarter.
• Noninterest Expense -- $157.1 million, a decrease of $1.8 million from the second quarter of 2026.
• Total Shareholder Return -- $121.5 million, consisting of $76.3 million in share repurchases and $45.2 million in common stock dividends.

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RISKS

• Jim Reuter noted that "no doubt higher rates can impact existing loans on the books," while explaining that the company stresses upcoming maturities for higher rates as part of its proactive renewal conversations with borrowers.

SUMMARY

First Interstate BancSystem, Inc. (FIBK +0.28%) reported third-quarter results characterized by its 10th consecutive quarter of net interest margin expansion and a second straight quarter of growth in noninterest-bearing deposits. Management reported that the execution of its multiyear strategic plan has resulted in deliberate changes to the balance sheet composition and geographic footprint, including the exit of non-strategic markets and branch optimizations. The company reported stable credit quality with a decline in non-performing assets, although it recorded a higher provision for credit losses primarily due to charge-offs and increased unfunded construction commitments. Capital management remained a central focus, as the bank continued active share repurchases alongside its quarterly dividend payments.

• Management reported that the exit of a large, high-cost, fully collateralized deposit customer contributed approximately 3 basis points to the net interest margin expansion during the quarter.
• CEO Jim Reuter stated, "New production continued to be concentrated among relationship-based clients represented by operating deposits and associated services."
• The company plans to open two branches in Colorado during the first half of 2027 while consolidating three existing locations in the fourth quarter of 2026.
• CFO David Della Camera indicated that the balance sheet is broadly neutral from a net interest income perspective over the next 12 months based on current interest rate risk modeling.
• Management noted that the Rocky Mountain region continues to experience strong new client acquisition, supporting the bank's core relationship banking strategy.
• David Della Camera stated, "Fixed asset repricing should remain a tailwind to earning asset yields and underlying margin improvement into 2027."

INDUSTRY GLOSSARY

• Fully Taxable Equivalent (FTE): A method used to compare the yield on a tax-exempt investment with that of a taxable investment by adjusting the tax-exempt yield to what it would be if it were taxable.
• Net Interest Margin (NIM): A profitability ratio that measures the difference between interest income generated and the amount of interest paid out to lenders, relative to the amount of interest-earning assets.
• Common Equity Tier 1 (CET1) Capital Ratio: A measurement of a bank's core equity capital compared with its total risk-weighted assets, used as an indicator of financial strength.
• Allowance for Credit Losses (ACL): An estimate of the debt that a company is unlikely to collect.
• Other Real Estate Owned (OREO): Real estate property held by a bank that is not part of its business operations, typically acquired through foreclosure.
• Relationship Manager (RM): A bank professional responsible for managing and developing client relationships to drive business growth.
• Criticized Loans: Loans that have been identified by bank management or regulators as having potential weaknesses that deserve closer supervision.
• Non-accrual Loans: Loans on which interest is no longer being accrued because the bank does not expect to collect the full amount of principal and interest.

Full Conference Call Transcript

Operator: I will now hand the conference over to Nancy Vermeulen. Please go ahead.

Nancy Vermeulen: Thank you, Megan. Good morning, and thank you for joining us for our third quarter earnings conference call. As we begin, please note that the information provided during this call will contain forward-looking statements. Actual results or outcomes might differ materially from those expressed by those statements. I'd like to direct all our listeners to read the cautionary note regarding forward-looking statements contained in our most recent quarterly report on Form 10-K filed with the SEC and in our earnings release, as well as the risk factors identified in the quarterly report and our more recent periodic reports filed with the SEC.

Relevant factors that could cause actual results to differ materially from any forward-looking statements are included in the earnings release and in our SEC filings, and the company does not undertake to update any of the forward-looking statements made today. A copy of our earnings release, which contains non-GAAP financial measures, is available on our website at fibk.com. Information regarding our use of the non-GAAP financial measures may be found in the body of the earnings release, and a reconciliation to their most comparable GAAP financial measures is included at the end of the earnings release for your reference.

Again, this quarter, along with our earnings release, we published an updated investor presentation that has additional disclosures that we believe will be helpful. The presentation can be accessed on our investor relations website, and if you have not downloaded a copy yet, we encourage you to do so. Please also note that as we discuss our financials today, unless otherwise noted, all of the prior period comparisons will be with the second quarter of 2026. Joining us from management this morning are Jim Reuter, our Chief Executive Officer, David Della Camera, our Chief Financial Officer, and other members of our management team. Now, I'll turn the call over to Jim Reuter. Jim?

Jim Reuter: Thank you, Nancy, and thank you for joining us on our earnings call today. In the third quarter of 2026, we continued to execute against our multi-year strategic plan, further improving the long-term earnings power of the franchise. Net interest margin expanded for the 10th consecutive quarter and non-interest-bearing deposits continued to increase, reflecting our focus on relationship growth. We maintained our disciplined approach to long-term value creation, investing in the markets where we see the greatest opportunity to deepen customer relationships and grow core deposits while enhancing shareholder returns through additional share repurchases. The execution of our multi-year strategy has required deliberate changes to both the composition of the balance sheet and our geographic footprint.

We have exited certain non-strategic markets, initiated a long-term branch optimization program that includes both targeted expansion and consolidation, and refocused lending activities to customers that align with our relationship banking model. Our primary objective is to protect and strengthen the quality of the deposit franchise and add new customers. As we expected, new client acquisition remained strong in the Rocky Mountain region. New production continued to be concentrated among relationship-based clients represented by operating deposits and associated services. Going forward, our capital, talent, and branch investments will increasingly follow markets where we have an existing franchise advantage or an attractive opportunity for relationship growth.

We believe the current expense base supports a production level that would stabilize earning asset mix when producing at capacity. While we expect our new teams to follow a typical ramp-up period, we believe the banking organization now has the capacity and market coverage required to support growth. This improvement in our operating model strengthens one of our key differentiators, combining the relationship focus, local decision-making, and high-touch service of a profitable community bank with the sophisticated treasury, commercial banking, and wealth management solutions of a larger institution. We have seen meaningful improvement in criticized loan levels over the past 12 months, which reflects our long-term commitment to disciplined credit decision-making.

Credit was stable in the third quarter, with little change in criticized loans and a modest reduction in non-performing assets. Effective risk management continues to be a priority for us as strong credit discipline, combined with a high-quality customer deposit foundation, will support performance in all economic cycles. We believe our low-cost deposit base, which is granular across a large number of customers and geographies, provides a competitive advantage over the long term. In the third quarter, we also continued to optimize our capital structure through prudent execution of our share repurchase program. We repurchased approximately 2 million shares during the quarter, bringing total repurchases to approximately 10 million shares since the program began in late August 2025.

Together with our dividend, repurchases are an important component of our total shareholder return. Through ongoing fixed asset repricing, capital deployment, operating model optimization, and continued focus on relationship banking, we are building a more efficient organization. We remain confident in our ability to continue to deliver improved earnings over time. With that, I will hand the call over to David. David?

David Della Camera: Thanks, Jim. I'll start with our results for the quarter. The company reported net income of $62.2 million or $0.65 per diluted share in the third quarter, compared to $83.9 million or $0.87 per diluted share in the second quarter. Net interest income increased by $4 million compared to the prior quarter, or 2%, to $206.2 million. Yield on average loans increased 5 basis points to 5.67%, and total funding costs decreased 4 basis points compared to the second quarter. Deposit costs benefited from the exit of a large, high-cost, fully collateralized customer where our long-term return objectives were not being met. Excluding this balance, deposits increased during the quarter.

This was a unique customer from both a size and pricing perspective. That exit contributed an approximately 3 basis point improvement to our net interest margin in the quarter and did not have a material impact on net interest income. Our fully taxable equivalent net interest margin was 3.55% for the third quarter, compared to 3.48% during the second quarter and 3.36% during the third quarter of 2025. As Jim mentioned, 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. Over the past few years, we have used cash flows from the investment portfolio to eliminate wholesale borrowings.

Since we began reinvesting in 2025, we have targeted shorter duration, reducing the balance sheet sensitivity to changes in interest rates. Based on our current interest rate risk modeling, the balance sheet is broadly neutral from a net interest income perspective in both the near term and over the next 12 months. While continued asset repricing and reinvestment at current market yields provide sequential support to earning asset yields. Non-interest income was $43.3 million, a decrease of $18.4 million from the prior quarter. This decrease primarily reflected the $19.5 million gain recognized in the second quarter from the Nebraska branch transaction. Non-interest expense was $157.1 million for the third quarter, a decrease of $1.8 million from the prior quarter.

Moving to the balance sheet. Loans decreased by $296 million in the third quarter. A number of payoffs we anticipated in the third quarter shifted into the early fourth quarter. As we look to the loan decline in the quarter, this was influenced by a $47.7 million decline in indirect lending loans, a $64.9 million decline in the retained out-of-market portfolio, and a $36.8 million decline in the residential portfolio. While total deposits decreased $52.8 million to $21.4 billion in the quarter, when adjusted for the exit of the one large collateralized deposit, deposits increased QoQ. Our deposit mix further improved in the quarter as non-interest-bearing balances extended the increase we experienced in the prior quarter.

The ratio of loans held for investment to deposits was 65.4% at the end of the quarter, compared to 66.6% at the end of the prior quarter and 70.1% at the end of the third quarter of last year. Turning to credit. Net charge-offs increased by $0.2 million in the third quarter to $9.9 million, or 28 basis points of average loans. The company recorded a $10.5 million provision for credit losses in the third quarter, driven primarily by the charge-offs, a 2 basis point increase in funded loan ACL to 1.30%, and higher unfunded allowance due mostly to an increase in unfunded construction commitments.

Criticized loans were stable in the quarter, with an increase of $2.1 million or 0.2% from the prior quarter and declined 19% from a year ago. Non-performing assets declined 6% during the quarter. We repurchased approximately 2 million shares in the third quarter, totaling approximately $76 million, and repurchases since the initiation of the program in August 2025 totaled $347 million. Share repurchases remain a key capital allocation tool to drive shareholder value. The investment portfolio unrealized loss position increased with interest rates during the quarter, while expected principal cash flows remained relatively stable with limited extension. Our strategy diversifies risk through shorter maturities, floating rate products, and lower capital intensity instruments.

Together with natural back book runoff, this improves our ability to manage interest rate exposure. While meaningful, the recent move in interest rates has not changed our near-term strategic capital deployment plans at this time, and all else being equal, should support asset repricing and medium-term earnings. Finally, we declared a dividend of $0.47 per common share, which equates to a 5% annualized yield based on the average closing price of the company's common stock during the third quarter. Our Common Equity Tier 1 capital ratio ended the third quarter at 14.36%, a decrease of 18 basis points from the prior quarter.

Our leverage ratio is 9.49% at the end of the third quarter, compared to 9.59% at the end of the prior quarter. Our capital levels provide us with the flexibility to enhance shareholder returns while supporting long-term accretive growth. Moving to our guidance. In line with the prior quarter, our balance sheet expectations continue to include more meaningful payoffs within our commercial loan portfolio in the fourth quarter and further success in exiting some non-relationship and out-of-market credits. On the deposit side, our guidance continues to incorporate the positive trends within customer acquisition.

Our net interest income guidance at the midpoint assumes expansion in NII into the fourth quarter as we continue to benefit from meaningful repricing, a stabilization of earning assets, and relatively strong non-interest-bearing balance performance. 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. As a result of that, as well as the impact from the larger high-cost deposit exiting in the third quarter, we expect a smaller sequential margin benefit in the fourth quarter than we realized in the third quarter.

Our expense forecast includes continued investment in areas that support our customer acquisition efforts, and as we referenced last quarter, we will be opening two branches in Colorado in the first half of 2027 and are consolidating three additional locations in the fourth quarter of this year. We will maintain our expense discipline and have been pairing noted investments with efficiencies. Over the prior 12 months, net interest margin has improved 19 basis points and average deposits per average diluted share has improved approximately 3%. Average deposits per branch improved 6%, and net interest income per share improved 8% compared to the third quarter of 2025. With that, I'll hand the call back to Jim.

Jim Reuter: Thank you, David. Our multi-year strategy continues to gain traction across the franchise and enhance our long-term earnings power. Our capital deployment remains disciplined, balancing investments in high opportunity markets to support future growth with share repurchases. We believe that the continued growth in non-interest-bearing deposits that we saw in the third quarter provides encouraging evidence that our relationship banking efforts are resonating with clients. Our go-to-market strategy has increased scalability, improved market alignment, and expanded banker capacity to fulfill our primary objectives of enhancing our best-in-class deposit franchise. We are well-positioned to execute on our strategy across a range of interest rate environments.

We look forward to future earnings calls as disciplined relationship growth and earning asset yield expansion increasingly contribute to results. Now I would like to open the call for questions.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Andrew Terrell with Stephens. Your line is open. Please go ahead.

Andrew Terrell: Hey, good morning.

Jim Reuter: Good morning, Andrew.

Andrew Terrell: Hey, I wanted to start just on deposits. I appreciate the color around some of the moving pieces here in the third quarter. Looks like the fourth quarter guide or the full year guide kind of implies you step up from here. I think if I recall, there's usually some seasonal headwinds in the fourth quarter. Can you just talk through what you're seeing, kind of boots on the ground from a deposit standpoint or deposit growth standpoint here in the fourth quarter? And what kind of gives you confidence about deposits maybe inching up?

David Della Camera: Yeah, sure, Andrew. I think as you look to kind of the midpoint of that guide in the fourth quarter, that's generally implying about flat YoY when you back out some of those branch sales and that large deposit. As we look kind of to the underlying core, we're seeing that strength in non-interest bearing. Our seasonality tends to be strong early in the fourth quarter, a little bit weaker late. So we think kind of putting those together, it's the right range for us to land in.

Andrew Terrell: Got it. Okay. David, I think you called out towards the end of your remarks, just the NII per share growth over the past 12 months. But when we looked at it just straight NII dollars are down versus 3Q 2025. When you look over the next 12 months, can you get NII growth without balance sheet growth just as a function of what you see in terms of margin expansion? Or do you really need to get back to balance sheet growth in order to drive actual dollar NII growth?

David Della Camera: I think if you look back over the past year, there's a few different things, the two major being the branch transactions, right? We had the branch transaction in Q4 of 2025, and then the second one in Q2 of 2026. Those together took about $1 billion out of deposits. If you kind of adjust the NII for that, I think we're already at a point of expanding NII. 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.

Operator: Your next question comes from the line of Matthew Clark with Piper Sandler. Your line is open. Please go ahead.

Matthew Clark: Hey, good morning. Thanks for the questions. Just on the asset repricing story, the slide that you have in your deck is very helpful. Can you give us a sense for the pickup in spreads we should assume given where rates are today?

David Della Camera: Yeah, sure. Investment portfolio side, I think about five year plus, we'll call it the 40-50 basis point range is right. We have a combination of, again, variable and belly of the curve type of instruments. That's an approximate range on that front. On the lending side, would point to third quarter, excuse me, new loan yields kind of in that mid 6% range. There's of course been a lot of curve volatility, but that kind of can give you a broad understanding of where spreads are.

Matthew Clark: Got it. On deposit costs, if we could get the spot rate at the end of September, given that large balance that left, and then your deposit beta assumption on the way up here. I think you did 27% on the way down.

David Della Camera: Sure. On the cost of deposits, interest-bearing deposit costs for the full month of September was 151 versus 149 in the quarter. As we think about the forward expectation, I would view it as generally aligned with the disclosure we have in our Q and our NII modeling. I think that's the right way to think about it.

Operator: Your next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open. Please go ahead.

Jeff Rulis: Thanks. Good morning. I wanted to check in maybe on the buyback appetite. If we think about 10 million shares roughly in the last year, want to look forward to 2027 and maybe the dynamics change as you maybe kind of turn to growth at some point, a resumption of. Just want to kind of check in with that appetite level and understanding that could alter over the course of the year, but just initial thoughts on roughly half that level or something matching it. Any initial thoughts? Thanks.

David Della Camera: Sure, Jeff. I think a couple things. I think near term, we have what I would view as a holistic approach to capital planning. Given the different factors, including visibility into the investment portfolio, cash flows, improving profitability, et cetera, we continue to be comfortable deploying capital. I think we continue to be in that active part of the capital deployment plan. I think as we go forward, our levels continue to support meaningful deployment. Balance sheet growth is always going to be the first and most accretive option for capital allocation. As we see that low-cost core deposit and lending growth, that would at some point impact capital deployment.

But in the near term, we continue to be in an excess capital position, so we intend to continue deploying capital.

Jeff Rulis: David, just to quantify that, 2 million shares a quarter for the next couple quarters is sort of the view, and then thereafter, maybe lessening as growth comes on. Is that oversimplifying?

David Della Camera: I think each quarter will depend on the facts and circumstances. We don't have a specific quarterly target. It'll depend on market factors, what we're seeing for balance sheet growth, et cetera. But I think I would just point you to we continue to be and intend to be active, but facts and circumstances will develop over time.

Operator: Your next question comes from the line of Andrew Liesch with StoneX Financial. Your line is open. Please go ahead. Andrew, can you check if your mic is muted, please?

Andrew Liesch: Hi, can you hear me now?

Operator: Yes, we can. Thank you.

Andrew Liesch: Oh, sorry about that. My question was really on the. It sounds like there were some payoffs expected in the loan book in the third quarter that were pushed into the fourth. Can you maybe quantify that amount so we know where we're starting off with here in the fourth quarter for loan balances?

David Della Camera: Yeah, Andrew, I think I would just point you to kind of if you look to where our guidance is for year-end, that's informed by some of our view of payoffs. And we've seen some of those early October, and so those have come through as expected. I think if you look at where those are coming from, we've talked about that out-of-market portfolio that continues to be a main driver and something we're actively working through and having success there. And then continue to see that indirect amortization as well as other activity.

Not a specific figure there, but I think the midpoint of the loan guide is a reasonable point, and that's what we think is our best estimate.

Andrew Liesch: Got it. Then the commentary on earning assets stabilizing, is that really a comment on deposit growth and where deposit balances are? I guess how does deposit growth look here going into the fourth quarter and into next year? Should we start to see earning assets rise?

David Della Camera: Yes. So earning assets from here is a function of deposit growth. Mix, of course, being a separate but important conversation. I think from an underlying deposit perspective, we've seen our second consecutive quarter of non-interest-bearing expansion, both periodically and on a YoY basis when adjusted for the sold deposits. We're very pleased with that. It's an important part of our strategy, and if you look to how we're executing out in the market, it's a full relationship approach. That's where we think that's very important. So yes, you're right, it is a function of deposit growth. Then I think too early to provide a 2027 guide, but our focus continues to be on enhancing and growing that deposit franchise.

Our intent is to grow earning assets.

Operator: Your next question comes from the line of Kelly Motta with KBW. Your line is open. Please go ahead.

Kelly Motta: Hey, good morning. Thanks for the question. Maybe sticking on the topic of deposits. The guide was reduced slightly, and I know maintaining deposit balances and relationships is really key for the longer-term outlook for the franchise. Just wondering, looks like it was mostly on the rate side, but if you could speak to that and kind of the drivers of the reduction in the deposit guide for the year. Thanks.

David Della Camera: Yeah, I think just a couple comments. One, I would say just kind of tweaking and zooming in as we get closer to the end of the year. Two, we talked about that large deposit exiting. So our actual expectation and view of what we will call the underlying core deposits hasn't changed. We are continuing to see strength there. And again, a couple quarters in a row of non-interest-bearing growth.

Jim Reuter: And Kelly, one thing I would add too is-

Kelly Motta: Yeah

Jim Reuter: -we have seen an improvement in the growth in number of clients as well, which is I think a direct result of some branding efforts and also frankly our bankers doing a great job of expanding relationships. And as you know, growth in number of clients begets growth in deposits in the long term and generates new fee income opportunities. So we are happy with what we are seeing at the core of the bank.

Kelly Motta: Yeah. Totally understood. I think switching to credit quality, criticized remain elevated, although, overall, we haven't seen much by way of increased credit costs and that charge-offs have been within guide. Just wondering if you are starting how you are thinking about the overall outlook for the health of the portfolio in the higher rate environment, if there is anything at the margins where you are seeing incremental stress? And then also wondering, you guys have been so proactive on the credit front, if that's been overall incrementally probably helpful here as we go into this rate cycle. Thanks.

Jim Reuter: Yeah. Thanks for the question, Kelly. You are right. We saw less improvement in credit quality when compared to the previous quarter. However, I think I mentioned it in my opening comments, we are down in criticized loans 18% YoY. As I have said on previous calls, it is a dynamic part of the bank, so it will not move in a straight linear path quarter-to-quarter, but directionally, over the long term, we anticipate continued improvement in that area. We remain focused on that primary source of repayment. That focuses on whether the property and/or business is performing as expected. As to the higher rates, that is a good question. Just to offer a few thoughts on that front.

There is no doubt higher rates can impact existing loans on the books. As to the criticized loans, these loans are consistently reviewed by our bankers and credit teams discussed. So confident we have a good handle on the impacts of higher rates across all economic risk factors. In addition, we stress upcoming maturities for higher rates. That becomes part of the renewal conversation with borrowers as we approach the maturity date. You said it. I am a big believer in proactive credit risk management, and I think you have seen that over the past two years because that is what sets you up to perform well in all economic cycles.

Kelly Motta: Great. Thank you so much for the color. I will step back.

Operator: Your next question comes from the line of Tim Coffey with Brean Capital. Your line is open. Please go ahead.

Tim Coffey: Great. Thank you. David, can we follow-up on the topic on the mix of earning assets? Because as we see the last several quarters, the percentage of loans earning assets has come down, and now you've built up a securities portfolio that's putting off regular cash. Is it possible we could start to see the mix of earning assets start to turn towards more loans relative to the sources of liquidity?

David Della Camera: Hi, Tim. I think near term, that's not our expectation in the fourth quarter.

Tim Coffey: Right

David Della Camera: Our loans decline, deposits flat to higher in the fourth quarter. I think into 2027, it'll depend on pace of lending versus deposit growth. Of course, we're not going to provide a forecast today or a guide today on 2027. We're seeing good underlying activity in lending. I think, near term, we would expect continued pressure on the mix. Long term, our intent is to stabilize or improve that.

Tim Coffey: Okay. A question about the chart on page six, the average deposits per branch. In the current rate environment, is $79 million the right number per branch, given that the break-even point for a branch is probably higher since interest rates are higher?

Jim Reuter: Yeah. The break-even rate per branch depends on the cost of the branch, and if you look at our footprint, we would have some pretty low-cost branches in the mix. I think the median peer is about $150 million. And we've always said, given our footprint of a higher mix of some rural and mid-markets, our average branch size will not look like that of the peers. But like I said, the underlying expense structure is also different. But the branch optimization efforts you've seen us deploy here, whether it's closing and consolidating, that's helped improve that about 10% over the last 18 months. And our goal would be to improve that number over time.

Tim Coffey: All right. Great. Thanks. Thanks, gentlemen.

Operator: Your next question comes from the line of Samuel Varga with UBS. Your line is open. Please go ahead.

Samuel Varga: Hey, good morning. Just wanted to go back to the comments you just made on the earning asset mix and how it's shifting towards securities in 4Q. I guess in that sort of backdrop, and the implications on margin, what is the true incentive for pushing deposit growth?

David Della Camera: I think deposit growth is always going to be our number one priority. That is what creates near and long-term franchise value. I think across all environments, we will look to drive customer acquisition and deposit growth. Then the mix, again, fourth quarter is just our view that we see some near-term payoffs, especially in that out-of-market and other portfolios. That we think drives reported lending balances lower in the fourth.

Jim Reuter: Yeah, I would just add that we are not running rate promotions to grow deposits. That is why we called out its two consecutive quarters of growth in non-interest-bearing deposits. That is the granular low-cost funding that I think is the power of the franchise, and we are going to keep building on that.

Samuel Varga: Jim, thank you for that. Just a quick one on unfunded commitments. Could you give us an update for how those trended in 3Q and what the pipelines look like?

David Della Camera: Sure. We saw an increase in the third quarter in that construction line, and we noted that as a driver of the increase in unfunded provisions. We were pleased with that. Those were a variety of well-priced, well-structured projects. It is an example of some of that underlying improvement we are seeing in customer acquisition and production. That will of course fund more as a 2027 impact. We are seeing some encouraging signs there. Again, would point to that unfunded provision increase.

Samuel Varga: Thank you for taking my questions.

Operator: Your next question comes from the line of Terry McEvoy with Wells Fargo. Your line is open. Please go ahead.

Terry McEvoy: Great. Thank you. Good morning. First question, underneath the planned loan payoffs and paydowns, what is the underlying growth? I am trying to get a sense for what you refer to on your guidance slide as improved commercial production. Is that growth accelerating, and can that acceleration of growth continue into next year? I would love to have some context behind that.

David Della Camera: Sure. I will start with a couple of comments. I think as we look YoY, we have seen a material increase in commercial production. I think there is one more increase we are looking for to have that underlying portfolio grow. From a reported perspective, and noted it a little bit in the prepared remarks, there are a series of portfolios in the near term impacting reported balances, which points to that underlying commercial book being closer to flat, but still modestly declining at this point. As we look to 2027, I would note the addition of RMs and capacity we think sits in the business.

We are not today giving a specific point we think that turns, but we think we are closer than further away, and we think we have the right capacity in the business.

Terry McEvoy: Great. Thank you. That is what I was looking for. Then maybe as a follow-up, what are the remaining opportunities to improve efficiency and basically, do you think you can generate positive operating leverage next year without meaningful balance sheet growth?

David Della Camera: Sure. I would say again, it is still too early to provide a 2027 guide. I think as we look to our margin, we think through 2027 there is continued fixed asset repricing. I think it actually could become a little bit more meaningful in 2027 as you look to the quantity of loan maturities and then continued significant cash flow in the investment portfolio and a supportive yield curve. Then stability and modest growth in the underlying core low-cost deposit franchise is helpful. The combination of those we think is very powerful to NII. Again, just from a high-level perspective, there is significant quantity of trapped earnings in those assets that are curing currently and through 2027 and on.

So, we think we are well-positioned. Again, we do not want to provide a 2027 guide today, but we think there are some very strong underlying factors supporting 2027 and forward.

Terry McEvoy: Appreciate that. Thanks for taking my questions.

Operator: Your next question comes from the line of Jeff Rulis with D.A. Davidson. Your line is open. Please go ahead.

Jeff Rulis: Thanks. Jim, just wanted to circle back to a comment you made in the prepared remarks about the expense base supporting earning asset growth from here. You've had the branch sales in the rearview, and you kind of been bouncing non-interest expense in that $157 million, $158 million a quarter. Maybe trying to get a sense for what expense growth looks like. Maybe that comment implies that you kind of hold the line and can grow off that. Any other detail to help on what you meant by that would be helpful.

Jim Reuter: Yeah. Thanks, Jeff. First, I just mentioned we'll be providing 2027 guide in January in the first quarter. But what that statement meant is, for the growth we want to go get, we have what we need in terms of RMs, technology, infrastructure. So there's no step-up needed from an investment standpoint to grow the bank beyond where we are today.

Jeff Rulis: Okay. Appreciate the no guidance. Yeah, I'll step back. Thanks.

David Della Camera: Jeff, would just add, I think YoY, and again, we won't provide the 2027 figure, but it is reasonable to expect normal inflationary factors on our expense base. So we wouldn't be holding to a nominal figure YoY when you get normal merit and things like that. But again, we don't view there's a significant missing piece of investment needed outside of normal factors.

Jeff Rulis: Okay. Helpful. Thank you, David.

Jim Reuter: All right. Well, thank you for joining the call today, and thank you for the questions. As always, we welcome calls from investors and analysts, so please reach out if you have any follow-up questions, and thank you for tuning into the call today. Have a good day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.