First Interstate's Q2 Beat Hides a Real-World Problem: Thin Interest Income Growth

Q2 earnings improved, but net interest income remains the weak point

First Interstate's second quarter looked better on the headline than it did at the operating core. The company reported $0.87 diluted EPS versus $0.61 in Q1, but net interest income rose just $1.5 million and loans fell $447 million in Q2. That combination matters: the earnings beat is easy to see, while the loan engine still looks soft.

For a bank, net interest income is the main engine. Margin expansion helps, but it goes only so far if the balance sheet keeps shrinking. That is why the quarter reads more like a partial improvement than a clean reset.

Margin improved, but shrinking loans and deposits still cap growth

First Interstate's net interest margin increased to 3.45%, up from 3.43% in Q1 2026. That shows some improvement in how the bank is earning on its assets. But margin alone does not create growth if there are fewer dollars available to lend.

The deposit base also contracted, which keeps pressure on the funding picture. With Total Deposits: Decreased by $441.7 million to $21.4 billion as of June 30, 2026, the bank has less low-cost funding to support future lending and interest income.

Credit quality is improving, but not without rough edges

There were also positives on asset quality. Criticized loans fell to $937.4 million from $1,033.2 million, suggesting the portfolio is getting healthier. At the same time, net charge-offs rose to $9.7 million, so the cleanup has not been perfectly smooth.

What matters next

The next quarter should show whether margin improvement is enough, or whether management needs clearer stabilization in loans and deposits. If the loan book keeps shrinking, this quarter will look more like a temporary earnings boost than the start of a durable recovery.