By Maksym Misichenko · Yahoo Finance ·
What AI agents think about this news
FIBK's 'shrink-to-grow' strategy faces significant headwinds due to deposit outflows and weak loan growth, despite improvements in credit quality and operational efficiency. The consensus is bearish, with key risks including margin compression from higher funding costs and weak organic growth.
Risk: Margin compression from higher funding costs due to deposit outflows and weak loan growth
Opportunity: Improved credit quality and operational efficiency from divesting low-ROI branches and flattening the organizational structure
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
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Thursday, Jan. 29, 2026 at 9:30 a.m. ET
- Chief Executive Officer — James Reuter
- Chief Financial Officer — David Della Camera
- Investor Relations — Nancy Vermeulen
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Nancy Vermeulen: Thanks very much. Good morning, and thank you for joining us for our Fourth Quarter Earnings Conference Call. As we begin, please note that the information provided during this call will contain forward-looking statements, and actual results or outcomes might differ materially from those expressed by those statements. I'd like to direct all listeners to read the cautionary note regarding forward-looking statements contained in our most recent annual report on Form 10-K filed with the SEC and in our earnings release as well as the risk factors identified in the annual report and in 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 non-GAAP financial measures may be found in the body of the earnings release, and a reconciliation to their most directly comparable GAAP financial measures is included at the end of the earnings release for your reference.
And again, this quarter, along with our earnings release, we've 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 third quarter of 2025. 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. And now, I'll turn the call over to Jim Reuter. Jim?
James Reuter: Thank you, Nancy. And good morning, everyone, and thank you for joining us on our call today. Over the course of 2025, we made meaningful progress to improve core profitability, refocus capital investment and optimize our balance sheet through reorienting our footprint to geographies where we have brand density, strong market share and high potential for growth. We announced branch divestitures in Arizona, Kansas and Nebraska, outsourced our consumer credit card product and discontinued originations in indirect lending. We have intentionally allowed certain larger transactional loans to run off in favor a disciplined effort to grow full banking relationships. That includes deposits, loans and corresponding fee generating services.
These strategic actions among others we have taken have generated capital for us over the past year. In August of 2025, we announced a share repurchase authorization and began executing under that plan repurchasing approximately 3.7 million shares through year-end for a total of approximately $118 million. Our Board has approved an incremental $150 million share repurchase authorization bringing the total authorization to $300 million to provide further capacity to continue executing under that plan. Additionally, our balance sheet remains strong and flexible. We reduced our other borrowed funds from $1.6 billion at the end of 2024 to 0 at the end of 2025.
Throughout 2025, we maintained a proactive approach to credit, and we are now beginning to see favorable results in our reported credit quality. Following stabilization in the third quarter, credit quality metrics improved in the fourth quarter. Criticized loans decreased by $112.3 million or 9.6% in the fourth quarter and non-performing assets decreased by $47.3 million or 26%. Net charge-offs were elevated in the fourth quarter driven by one larger credit for which we had already set a specific reserve of $11.6 million. For the full year of 2025, net charge-offs were 24 basis points of average loans, which is in line with our long-term expectations.
We also continued to execute on our ongoing branch network optimization, focusing our capital deployment in markets where we have existing density or high growth potential. We closed on the sale of our branches in Arizona and Kansas in the fourth quarter, exiting those states. Subsequent to that transaction, in October, we announced the sale of 11 branches in Nebraska, which we expect to close early in the second quarter of 2026, and we will consolidate four additional branches in Nebraska in February. The company will have 29 branches remaining in Nebraska after the pending sale in closures.
We will also close the single branches we have in North Dakota and Minnesota in the first quarter, which will consolidate our footprint from 14 states to 10 contiguous states. To drive profitable organic growth, we have made a series of investments, including building out a new commercial banking team in Colorado, and we have new branch openings underway in the state of Montana. We have a new fully operational branch in Columbia Falls and another branch opening soon in Billings. We are also relocating one of our branches in Sheridan, Wyoming to a location that will better serve the needs of our customers in that market.
The full optimization of our remaining 10 states is an ongoing effort as we perform state-to-state reviews. In the fourth quarter, we began a transformation of the banking organization. We are changing the organization from a layered, regional and market structure to a flatter model. Our new State Presidents represent high performers, a majority of which are from within bank and select external talent, bringing proven track records of expertise, energy and strong commitment to our institution. We believe the combination of the right internal and external talent will support our growth.
Along with other talented leaders throughout the organization, these leaders will play a critical role in our drive to allocate our resources as efficiently as possible for profitable organic expansion, focusing on areas where we have density or potential for growth. This new, more streamlined chain of responsibility is designed to speed up our local decision-making processes and align the decision framework with our organic growth and return on capital discipline. We expect this redesign to be nearly complete in the first quarter, and we view it as a significant driver of our expectation for improved organic growth.
Loan balances declined during the year due to a variety of factors, including intentional non-relationship loan run-off, branch transactions, indirect lending run-off and the outsourcing of our consumer credit card product. Additionally, as we have discussed in prior quarters, production was lower than initially estimated during the year. This is partially influenced by continued competition in the market, both on a spread and credit basis. With that said, we are optimistic that the recent actions we have taken, most specifically the banking organization redesign will drive increased activity.
Our net interest margin also continued to improve in the fourth quarter as we saw more sequential improvement in the spread between loans and deposits, and we continue to reinvest lower yielding cash flows from our investment portfolio. Our FTE net interest margin, excluding purchase accounting accretion improved 4 basis points in the fourth quarter, increasing from 3.3% at the end of the prior quarter to 3.34% at year-end. That level represents a 26 basis point increase from the fourth quarter of 2024.
Our organic growth focus, elevating best-in-class talent from within, while adding select external talent and serving our customers with what they typically expect from a large bank, but with a personal community-oriented purpose, is designed to create a competitive advantage for us over the long term. And with that, I will hand the call over to David to discuss our financial results in more detail. David?
David Camera: Thanks, Jim. I'll start with our results for the quarter. The company reported net income of $108.8 million or $1.08 per diluted share in the fourth quarter compared to $71.4 million or $0.69 per diluted share in the third quarter. Net interest income decreased by $0.4 million compared to the prior quarter or 0.2% to $206.4 million. Net interest income decreased $7.9 million or 3.7% compared to the fourth quarter of 2024, primarily due to a reduction in earning assets and a reduction in the yield on earning assets. These effects on NII were partially offset by a decrease in interest expense on other borrowed funds.
The closing of the Arizona and Kansas branch sale in early October, drove a decline in interest-earning assets in the fourth quarter of 2025. Yield on average loans decreased 1 basis point to 5.67%. Total deposit costs declined 5 basis points and total funding costs decreased 10 basis points, all compared to the third quarter. Our fully tax equivalent net interest margin was 3.38% for the fourth quarter compared to 3.36% during the third quarter and compared to 3.20% during the fourth quarter of 2024. Excluding purchase accounting accretion, the adjusted FTE net interest margin was 3.34%, an increase of 4 basis points from the prior quarter.
Non-interest income was $106.6 million, an increase of $62.9 million from the prior quarter, driven by a gain on sale of $62.7 million associated with our divestiture from Arizona and Kansas. Non-interest expense was $166.7 million for the fourth quarter of 2025, an increase of $8.8 million from the prior quarter. This includes $2.3 million of costs associated with branch closures in Nebraska, North Dakota and Minnesota. Severance expense totaled $4.2 million during the quarter and was related primarily to the redesign of the banking organization and branch closures. Incentive accruals in the fourth quarter increased by $5.6 million compared to the prior quarter. Turning to credit.
Net charge-offs increased by $19.8 million to $22.1 million, driven mainly by one credit for which we had an $11.6 million specific reserve. As Jim mentioned, for the full year of 2025, net charge-offs were 24 basis points of average loans. Total provision for credit losses was $7.1 million for the fourth quarter. Criticized loans decreased $112.3 million or 9.6%. Our total funded provision decreased to 1.26% of loans held for investment from 1.30% in the third quarter. Moving to the balance sheet.
Loans decreased by $632.8 million in the fourth quarter, which included $62.8 million of continued amortization of the indirect portfolio and $72.5 million in loans moved to held for sale as a result of the Nebraska branch sale as well as larger loan payoffs, which included some criticized loans. Total deposits decreased $516.7 million to $22.1 billion as of December 31, 2025, driven by the sale of $641.6 million of deposits in the Arizona and Kansas transaction. Excluding sold deposits, deposits increased in the quarter.
The ratio of loans held for investment to deposits was 68.8% at the end of the quarter compared to 70.1% at the end of the prior quarter and 77.5% at the end of December the prior year. We repurchased approximately 2.8 million shares in the fourth quarter, totaling approximately $90 million and repurchases since initiation of the program in August totaled approximately $118 million. Our regulatory capital ratios continued to improve in the fourth quarter, driven by a reduction in risk-weighted assets related to the Arizona and Kansas divestiture, the decline in loans and higher net income due mostly to the closing of the branch sale, partially offset by our deployment of capital through share repurchases.
In the fourth quarter, we returned approximately $138 million of capital to shareholders, consisting of $90 million from the repurchase of shares and $48 million in dividends. Tangible common equity was approximately flat in the period, and tangible book value per share increased 2.9% in the fourth quarter to $22.40 per share. We continue to view share repurchases as our immediate capital allocation priority in addition to our ongoing focus on organic growth, which provides us the opportunity to drive EPS growth in excess of net income growth. We have increased our share repurchase authorization by $150 million to $300 million and roughly $180 million of capacity remains under the program.
Finally, we declared a dividend of $0.47 per common share, which equates to a 5.7% annualized yield based on the average closing price of the company's common stock during the fourth quarter. Our common equity Tier 1 capital ratio ended the fourth quarter at 14.38%, an increase of 48 basis points from the prior quarter. Our leverage ratio was 9.61% at the end of the fourth quarter compared to 9.60% at the end of the prior quarter. Moving to our guidance. Our guidance includes the impact of the sale of 11 branches in Nebraska and the closure of 6 additional branches in Nebraska, North Dakota and Minnesota, while excluding the anticipated gain on sale related to the Nebraska branch sale.
For reference, the North Dakota and Minnesota branches totaled roughly $30 million in combined deposits at the end of 2025. Starting with our balance sheet. We are including an assumption of low single-digit deposit growth for 2026 with normal seasonality. Turning to loans. Our guidance assumes an assumption of roughly flat to slightly lower total loans for 2026, excluding the continued run-off of our indirect portfolio, which will contribute an additional 1% to 2% in total loan decline. Our guidance has an underlying assumption that loans declined in the first half of the year while modestly growing in the back half.
As we have outlined in our investor presentation, we anticipate an increased quantity of lower rate loan maturities over the next couple of years. This provides us a powerful reinvestment dynamic, and we believe it protects our net interest income dependent on a supportive rate environment. The pace of our NII expansion will be dependent upon our ability to renew and/or add new customer relationships to the bank. We are optimistic about our ability to see success here, and we'll continue to exercise discipline, ensuring that assets placed on our balance sheet are accretive to our return profile.
We also continue to expect sequential improvement in our net interest margin given the expectation for improving spread between loans and deposits and due to the loan repricing dynamic and continued amortization of lower-yielding investment secu
Four leading AI models discuss this article
"FIBK is shrinking into profitability on a per-share basis, but absolute NII is declining YoY and loan growth guidance remains anemic—buybacks and margin expansion are masking a stalled organic growth engine."
FIBK is executing a classic turnaround playbook—divesting low-ROI branches, flattening org structure, and returning capital via buybacks—but the underlying growth thesis remains unproven. Q4 NII declined 3.7% YoY despite a 26bp margin expansion; that's a red flag. Management attributes loan declines to 'intentional run-off' and 'lower production,' but the guidance of 'flat to slightly lower' loans in 2026 suggests organic growth remains elusive. The $62.7M divestiture gain masks operational weakness. Capital ratios are strong (14.38% CET1), and the 5.7% dividend yield is attractive, but buybacks at ~$22.40 tangible book value feel like financial engineering when loan growth is stalling.
The org redesign and Colorado/Montana expansion could genuinely unlock growth in 2026; management's track record on cost discipline (severance, branch optimization) is credible, and the loan repricing dynamic from maturing portfolio could drive NII even if volumes stay flat.
"FIBK's capital return and margin gains are real but rest on unproven organic growth after intentional asset run-off."
FIBK's Q4 results reflect deliberate shrinkage: loans fell $633M, deposits dropped after Arizona/Kansas sales, and 2026 guidance calls for flat-to-lower loans plus 1-2% further indirect runoff. One-time $62.7M gain drove the EPS jump to $1.08 while core NII was flat. Credit metrics and NIM improved (adjusted 3.34%), buybacks expanded to $300M authorization, and the flatter org structure plus Colorado/Montana hires target density markets. Execution risk remains high as production lagged in 2025 amid competition, and the Nebraska sale closes only in Q2 2026.
The restructuring could accelerate deposit and loan attrition faster than new State Presidents can rebuild relationships, leaving NIM gains offset by continued balance-sheet contraction and lower fee income.
"FIBK's aggressive balance sheet optimization and shift toward a flatter, relationship-focused organizational structure create a clear path for EPS expansion through capital return and margin recovery, despite top-line revenue headwinds."
FIBK is executing a classic 'shrink-to-grow' strategy, aggressively pruning non-core geographies and indirect lending to optimize capital allocation. The 14.38% CET1 ratio and $300M repurchase authorization signal strong management confidence in their ability to pivot toward a more efficient, relationship-based model. While net interest income (NII) remains under pressure from shrinking earning assets, the 4-basis point sequential NIM expansion (3.34% adjusted) suggests the margin compression cycle is bottoming. The transition to a flatter, more localized organizational structure is a high-conviction move to capture organic growth in core markets, though the success of this pivot hinges entirely on the new State Presidents' ability to out-compete larger regional players.
The bank is essentially cannibalizing its own balance sheet; if the 'organic growth' in core markets fails to materialize, they are left with a smaller, less diversified footprint and diminishing economies of scale.
"Near-term upside rests on buybacks and cost optimization rather than organic loan growth, making earnings sensitive to rate spread stability and execution risk from branch consolidation."
FIBK's Q4 shows improved credit quality and a leaner footprint; NIM excluding accretion up 4 bps QoQ to 3.34% with a 3.38% tax-equivalent NIM, helped by falling funding costs and runoff of low-yield assets. The boosts in non-interest income came largely from a $62.7m gain on branch divestitures, and operating leverage from the restructuring underpins EPS growth in 2026 even as loans broadly flat. However, organic growth remains tepid: deposits growth guided to low single digits; loan balances flat to down; 2) much of near-term upside depends on rate spreads and reinvestment, and execution risk from state consolidation. Valuation relief may be fragile if rates stall.
The gains are largely non-recurring (sale gains) and the 2026 guidance assumes a stabilizing rate environment; if rates rise slowly or deposits don't grow as expected, the core earnings may disappoint.
"Deposit guidance obscures ongoing balance-sheet shrinkage; NIM gains are fragile without deposit inflows to offset divestitures."
Nobody's flagged the deposit math. ChatGPT says 'low single digits' guidance, but FIBK just sold Arizona/Kansas books and Nebraska closes Q2. That's ~$1.2B deposits gone. If organic deposits don't materially offset those sales, the 'low single digit' guidance is misleading—it's really mid-single-digit contraction. That crushes the NIM-expansion thesis if funding costs don't fall faster than loan yields reprice downward.
"Divestiture-driven deposit losses plus flat loan guidance threaten to reverse the NIM gains once lower-cost funding disappears."
Claude's deposit math exposes a deeper issue: the 3.34% adjusted NIM already assumes favorable funding-cost declines that may not materialize once $1.2B in lower-cost deposits exit and production stays weak. Flat-to-lower loan guidance plus ongoing indirect runoff means the bank could face simultaneous asset shrinkage and higher funding costs, eroding the margin expansion faster than the flatter org structure can rebuild relationships in Colorado or Montana.
"The strategic divestitures are primarily a credit-risk reduction play that will improve earnings quality and support EPS even if top-line growth remains muted."
Claude and Grok are fixated on balance sheet shrinkage, but they are missing the credit quality tailwind. By shedding indirect loans and non-core geographies, FIBK is structurally lowering its provision expense. If net charge-offs continue to trend toward historical lows, the EPS floor is higher than the current NIM-obsessed narrative suggests. The 'shrink-to-grow' thesis isn't just about NIM; it’s about a lower-risk, higher-quality earnings profile that justifies a valuation re-rating, provided the core loan book stabilizes.
"Deposit exits and fragile funding assumptions threaten NIM and ROA, making the shrink-to-grow plan unlikely to unlock sustainable earnings."
Claude's deposit math exposes a structural risk: ~1.2B of deposits exited from Arizona/Kansas sale and Nebraska timing implies funding that can’t be assumed away by a single-digit loan-growth guide. If cost of funds doesn’t fall as assumed, NIM expansion collapses and ROA stays depressed. The non-recurring branch divestiture gain masks the ongoing earnings fragility from asset shrinkage, fee headwinds, and a potentially higher funding-cost environment.
FIBK's 'shrink-to-grow' strategy faces significant headwinds due to deposit outflows and weak loan growth, despite improvements in credit quality and operational efficiency. The consensus is bearish, with key risks including margin compression from higher funding costs and weak organic growth.
Improved credit quality and operational efficiency from divesting low-ROI branches and flattening the organizational structure
Margin compression from higher funding costs due to deposit outflows and weak loan growth