First Interstate BancSystem’s SWOT analysis: stock faces challenges, opportunities

First Interstate BancSystem, Inc. (NASDAQ:FIBK), a $2.79 billion market cap financial services company primarily focused on banking, has been navigating a complex landscape of challenges and opportunities. Recent analyst reports and company developments paint a picture of a bank in transition, working to overcome credit quality issues while positioning itself for future growth. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value metrics, though five analysts have recently revised their earnings expectations downward for the upcoming period.

Company Overview and Recent Performance

First Interstate BancSystem operates as a financial holding company providing a range of banking services. The company has faced headwinds in recent quarters, particularly in terms of credit quality. In the first quarter of 2025, FIBK experienced more negative credit migration, which has been a concern for analysts and investors alike.

The extended balance sheet cleanup has been impacting the bank’s near-term performance, reflected in a 6.91% revenue decline over the last twelve months. This process, while necessary for long-term health, has put pressure on the company’s financial metrics and stock performance, with the stock trading 20.11% lower over the past six months. Analysts note that these credit issues are largely attributed to legacy credits from Great Western Bank (GWB), which FIBK acquired in a previous transaction. Despite these challenges, InvestingPro data shows the bank maintains a FAIR financial health score of 2.3 out of 5, with particularly strong relative value metrics.

Strategic Changes and Leadership

In a significant move, First Interstate BancSystem appointed Jim Reuter as its new CEO. This leadership change has been viewed positively by some analysts, who expect Reuter to drive profitability improvement, better organic growth, and potential multiple expansion for the stock.

Reuter’s strategy focuses on a relationship-driven business model, which is anticipated to lead to stronger organic growth and more consistent results in the long term. This approach aligns with industry trends that emphasize customer relationships and personalized banking services.

Credit Quality and Balance Sheet

The bank’s credit quality has been a central focus for analysts and management alike. Inflows into criticized loans have been an overhang on the stock, although these are primarily attributed to the legacy GWB credits. In a move to address concerns, FIBK conducted a third-party review which confirmed the reliability of the bank’s risk ratings.

Management has been taking steps to aim for a cleaner balance sheet by 2026, addressing credit culture issues and optimizing the branch footprint. While these efforts are expected to yield positive results in the future, they are currently impacting the bank’s near-term performance.

Net Interest Income and Margin

Looking ahead, analysts see potential for FIBK in asset repricing opportunities through 2026. The bank’s guidance suggests high single-digit growth in Net Interest Income (NII) by 2026, even with flat loan balances. This outlook is based on conservative assumptions and could provide upside potential if economic conditions remain favorable. One bright spot for investors is FIBK’s consistent dividend policy, with InvestingPro data showing a significant 7.07% dividend yield and a 16-year track record of maintaining dividend payments.

Want deeper insights into FIBK’s valuation and growth potential? Access our comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, covering detailed analysis of 1,400+ top US stocks.

The net interest margin (NIM) is expected to remain steady as the year progresses, which could provide a stable foundation for the bank’s earnings. However, slower balance sheet growth may impact NII in the near term, as noted by some analysts.

Future Outlook and Growth Potential

The outlook for First Interstate BancSystem is mixed, with both challenges and opportunities on the horizon. The new CEO’s focus on relationship-driven business is expected to lead to stronger organic growth and more consistent results over time. This strategic shift could potentially result in multiple expansion for the stock if successfully executed.

Analysts have provided varying estimates for the bank’s future earnings. For fiscal year 2025, earnings per share (EPS) estimates range from $2.40 to $2.51, while for fiscal year 2026, estimates are between $2.75 and $2.88. These projections reflect cautious optimism about the bank’s ability to improve its performance in the coming years.

The broader industry view for U.S. Mid-Cap Banks remains positive, suggesting a favorable environment for FIBK to operate in, despite its company-specific challenges.

Bear Case

How might ongoing credit quality issues impact FIBK’s performance?

The persistent credit quality concerns, particularly related to legacy GWB credits, pose a significant risk to FIBK’s near-term performance. Continued negative credit migration could lead to higher loan loss provisions, directly impacting the bank’s profitability. If these issues are not resolved efficiently, they may erode investor confidence and potentially lead to a higher cost of capital for the bank.

Moreover, the extended balance sheet cleanup process diverts resources and management attention from growth initiatives. This could result in FIBK lagging behind peers in terms of loan growth and market share expansion, potentially affecting its competitive position in the long run.

What risks does the extended balance sheet cleanup pose?

The ongoing balance sheet cleanup, while necessary, carries its own set of risks. Firstly, it may lead to recognition of additional problem loans or assets, which could result in unexpected charges or write-downs, negatively impacting earnings in the short term.

Secondly, the cleanup process may constrain the bank’s ability to pursue new lending opportunities or invest in growth initiatives. This could lead to a period of stagnation in terms of balance sheet growth and revenue generation, potentially putting FIBK at a disadvantage compared to more agile competitors.

Lastly, if the cleanup process takes longer than expected or reveals more significant issues than anticipated, it could shake investor confidence and lead to downward pressure on the stock price.

Bull Case

How could asset repricing opportunities benefit FIBK?

The asset repricing opportunities through 2026 present a significant upside potential for FIBK. As loans and securities mature or reprice, the bank has the opportunity to adjust interest rates to reflect current market conditions. In a rising rate environment, this could lead to expanded net interest margins and increased net interest income.

Analysts project high single-digit growth in NII by 2026, even with flat loan balances. This conservative estimate suggests there may be room for outperformance if FIBK can successfully capitalize on these repricing opportunities while maintaining or growing its loan portfolio.

Furthermore, improved NII could enhance the bank’s overall profitability, potentially leading to higher earnings per share and improved return on equity metrics. This, in turn, could drive stock price appreciation and make FIBK more attractive to investors seeking exposure to the banking sector.

What potential does the new CEO’s strategy have for improving growth?

The appointment of Jim Reuter as CEO and his focus on a relationship-driven business model holds significant potential for improving FIBK’s growth trajectory. This strategy aligns well with industry trends that emphasize personalized banking services and long-term customer relationships.

By prioritizing relationship banking, FIBK may be able to:

1. Increase customer retention rates, providing a stable base for recurring revenue.

2. Enhance cross-selling opportunities, potentially boosting non-interest income.

3. Improve the bank’s ability to attract new customers through referrals and reputation.

4. Build a more resilient loan portfolio by focusing on well-understood, relationship-based credits.

If successful, this approach could lead to more consistent and predictable earnings growth over time. Analysts anticipate that Reuter’s leadership could drive better organic growth and profitability improvement, potentially resulting in multiple expansion for FIBK’s stock as the market recognizes the bank’s improved growth prospects and earnings quality.

SWOT Analysis

Strengths:

• Strong market position in banking sector
• New leadership focused on relationship-driven business
• Positive industry outlook for U.S. Mid-Cap Banks

Weaknesses:

• Ongoing credit quality issues, particularly with legacy GWB credits
• Extended balance sheet cleanup impacting near-term performance
• Slower balance sheet growth affecting Net Interest Income

Opportunities:

• Asset repricing potential through 2026 could boost Net Interest Income
• Improved organic growth under new CEO’s relationship-focused strategy
• Potential for multiple expansion if strategic changes prove successful

Threats:

• Competitive pressure in the banking sector
• Potential economic downturn affecting credit quality
• Regulatory changes impacting banking operations or capital requirements

Analysts Targets

• Piper Sandler: Overweight rating with a price target of $38.00 (May 23rd, 2025)
• Barclays (LON:BARC): Underweight rating with a price target of $28.00 (May 1st, 2025)
• Piper Sandler: Overweight rating with a price target of $41.00 (February 3rd, 2025)
• Barclays: Underweight rating with a price target of $31.00 (January 31st, 2025)

First Interstate BancSystem, Inc. faces a challenging near-term environment as it works through credit quality issues and implements strategic changes. Trading at a P/E ratio of 12.64 and price-to-book ratio of 0.83, the stock currently offers value characteristics despite its challenges. The bank’s new leadership and focus on relationship-driven banking, combined with potential asset repricing opportunities, provide a foundation for future growth. Investors and analysts will be closely watching how FIBK navigates these challenges and capitalizes on opportunities in the coming years.

Discover more exclusive insights and detailed metrics with InvestingPro, including additional ProTips and comprehensive financial analysis to help inform your investment decisions. This analysis is based on information available up to May 24, 2025.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on FIBK. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore FIBK’s full potential at InvestingPro.

Should you invest in FIBK right now? Consider this first:

Investing.com’s ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if FIBK is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level.

To evaluate FIBK further, use InvestingPro’s Fair Value tool for a comprehensive valuation based on various factors. You can also see if FIBK appears on our undervalued or overvalued stock lists.

These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.