First Interstate BancSystem Inc (FIBK): Navigating Mixed Results in a Challenging Environment

The first quarter of 2025 brought a mix of progress and challenges for First Interstate BancSystem Inc (NASDAQ: FIBK). While the bank managed to reduce debt and improve capital ratios, its financial results highlighted growing credit risks and declining loan and deposit volumes. Below, we dissect the key takeaways from the Q1 2025 earnings release and assess the implications for investors.

A Closer Look at the Financials

First Interstate reported net income of $50.2 million ($0.49 per diluted share) for Q1 2025, marking a 3.7% decline from Q4 2024 and a 14.0% drop compared to Q1 2024. The weaker performance stemmed from rising credit provisions and lower non-interest income, despite a modest expansion in net interest margins.

The net interest margin (NIM) rose to 3.19%, up 1 basis point from Q4 2024 and 28 basis points from Q1 2024, driven by lower borrowing costs and a favorable asset mix. However, this margin growth was partially offset by a $5.0 million decline in non-interest income, which fell to $42.0 million as the bank grappled with reduced gains on asset sales and weaker wealth management revenues.

Credit Quality: A Growing Concern

The most notable red flag in the report was the surge in non-performing assets (NPAs), which jumped 36.3% quarter-over-quarter to $198.4 million. The increase was concentrated in commercial real estate, agricultural real estate, and agricultural loans—a trend likely tied to broader economic pressures in these sectors.

Moreover, criticized loans (loans requiring heightened scrutiny) rose 32.7% to $1.026 billion, primarily due to downgrades in commercial real estate portfolios. While net charge-offs fell sharply 83.7% quarter-over-quarter (to $9.0 million), this improvement was partly due to a one-time $49.3 million charge-off in Q4 2024. Year-over-year, charge-offs actually increased slightly, signaling lingering credit risks.

Balance Sheet Adjustments

First Interstate’s balance sheet reflected a deliberate shift toward caution. Total assets fell 2.9% to $28.28 billion, driven by a $466 million decline in loans and reduced investment securities. The loan-to-deposit ratio dropped to 76.4%, its lowest level in three years, as deposits fell 1.2% to $22.73 billion—a potential sign of customer attrition.

The bank also reduced borrowed funds by 38.8% to $960 million, reflecting the payoff of short-term debt. This deleveraging contributed to an improved CET1 capital ratio of 12.53%, up 37 basis points from Q4 2024 and well above regulatory “well-capitalized” thresholds.

Strategic Moves and Risks

First Interstate’s decision to halt new indirect auto lending in Q1 2025 underscores its focus on risk management. The move reduced indirect loan balances by 6.2% to $680 million, though it may limit future loan growth in this segment.

Management emphasized balance sheet flexibility, with reduced borrowings and a focus on controlling non-interest expenses. However, rising criticized loans and NPAs suggest that credit risks remain elevated, particularly in agricultural and commercial real estate sectors.

Dividend and Valuation

The bank maintained its dividend at $0.47 per share, yielding 6.1% based on its Q1 average stock price of $30.99. While the payout appears sustainable given the strong capital position, investors should monitor credit metrics closely.

First Interstate’s price-to-book (P/B) ratio of 0.85x reflects investor skepticism about its near-term prospects, especially amid credit headwinds. However, the dividend yield and reduced leverage provide some comfort.

Conclusion: A Cautionary Signal

First Interstate’s Q1 2025 results paint a complex picture. While margin expansion and improved capital ratios are positives, the 36% surge in NPAs and $252 million rise in criticized loans highlight growing credit risks. The halt in indirect lending and declining deposits also suggest a slowdown in growth opportunities.

Investors should weigh these risks against the bank’s prudent balance sheet management and dividend stability. The CET1 ratio of 12.53% and reduced debt provide a buffer, but the agricultural and commercial real estate sectors—key drivers of NPA growth—could face further strain if economic conditions worsen.

Final Takeaway:
First Interstate remains a conservative play in a challenging banking environment. While its dividend and capital strength offer some stability, the credit quality trends warrant caution. Investors seeking exposure to regional banks may want to prioritize institutions with stronger asset diversification or clearer growth pathways. For FIBK, the path forward hinges on whether credit metrics stabilize—and whether management can reignite loan growth without compromising risk discipline.

Data as of Q1 2025. Past performance does not guarantee future results.