First Interstate BancSystem's Q4 2024: Unpacking Contradictions in Deposit Costs, Loan Growth, and Expense Management

These are the key contradictions discussed in First Interstate BancSystem's latest 2024Q4 earnings call, specifically including: Deposit Cost Beta Assumptions, Expense Management, Loan Growth Expectations, and Reserve Levels:



Deposit and Loan Trends:
- First Interstate BancSystem reported a deposit growth of $151.5 million in Q4, driven by efforts to increase deposit relationships, particularly in low-cost deposits.
- The bank discontinued indirect lending originations, expecting about 30% to 40% of the portfolio to amortize over the next 12 months.

Margin and Interest Rate Environment:
- The bank's fully tax-equivalent net interest margin increased by 16 basis points in Q4 to 3.2%, with the net interest margin excluding purchase accounting accretion increasing by 11 basis points to 3.08%.
- The expansion was attributed to asset repricing and interest rate declines, with expectations for continued margin expansion in Q1 2025.

Credit Quality and Reserve Levels:
- There was an increase in criticized assets, with four loans totaling about $160 million constituting over 90% of the net increase.
- The rise was due to slower-than-expected lease-up and property-specific challenges in the commercial real estate portfolio, and no specific reserve was established for these loans.

Capital Allocation and Shareholder Returns:
- The bank maintained its common equity Tier 1 capital ratio at 12.16%, indicating strong capitalization and financial health.
- There is ongoing evaluation of capital allocation strategies to maximize shareholder returns, with no significant changes to the dividend policy announced.