Q3 2021 First Western Financial Inc Earnings Call
Right.
I'll come to the first western financial Q D.
Earnings Conference call.
This time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone to take questions.
Right.
Todd.
One zero on your telephone as a reminder, this conference call may be recorded I would now like to turn the conference over to us.
Today, Mr. Tony Rossi of financial profiles go ahead Sir.
Thank you Randy good morning, everyone and thank you for joining us today for first Western Financial's third quarter 2021.
Zankel.
Joining us from first Western's management team are Scott Wylie, Chairman and Chief Executive Officer, and Julie core Kamp Chief Financial Officer.
We will use a slide presentation as part of our discussion. This morning, if you've not done so already please visit the events and presentations page of first Western's Investor Relations website to download a copy of the presentation.
Earnings before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of first western financial that involve risks and uncertainties, including the impact of the COVID-19 pandemic.
Various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
Factors are discussed in the company's SEC filings, which are available on the company's website.
I would also direct you to read the disclaimers in our earnings release and Investor presentation. The company disclaims any obligation to update any forward looking statements made during the call.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most.
These fairly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures and with that I'd like to turn the call over to Scott Scott.
Thanks, Tony Good morning, everybody.
Third quarter results represent.
Represent a continuation of the positive trends, we've seen this year with growth in our private commercial banking operations generating.
Levels of revenue more operating leverage and increased profitability.
In the third quarter, we generated net income of $6 4 million.
Earnings per share of <unk> 78.
Directly to the ROA of one point to 7% all of which are an improvement over our second quarter results.
On an adjusted basis, excluding acquisition related expenses, our earnings per share were up.
81 cents from 77 cents in the prior quarter.
We.
And have good momentum in business development, which is driving higher levels of loans deposits and assets under management.
Excluding PPP loans, excluding PPP loans.
Our total loans held for investment increased at a 19% annualized rate in the third quarter.
We also continue to see strong.
We continued asset flows as total deposits were up six 1% from the end of the prior quarter.
With all the growth coming in our lower cost categories.
We're also seeing steady growth in our assets under management and higher trust and investment management fees.
Our private and commercial banking model is working exceptionally.
That's helpful.
We're seeing high quality, well diversified loan growth funding these loans with low cost deposits and effectively cross selling additional products and services to increase the overall profitability of these client relationships.
As a result, we're seeing improvement across most of our key financial metrics.
Paired.
Well quarter gross revenue was up nearly 7%.
Our net interest margin increased 13 basis points, and our efficiency ratio improved 44 basis points.
More importantly, as we continue to profitably grow the company.
We're prudently managing our growth which is reflected.
To the parent or continued strong asset quality and exceptionally low level of losses in the portfolio.
Moving to slide four our improved financial performance is not only driving earnings growth, but also strong increases in our book value and tangible book value during the third quarter, our book value increased.
<unk> four 1%, while our tangible book value per share increased four 8%.
The profitable growth, we're generating is a reflection of our strong execution across all of our growth strategies.
Our more mature profit centers continue to add new clients.
To generate organic growth the new offices.
Increase we've opened up over the last couple of years continue to scale and are making large contributions.
And we are accelerating our growth through accretive acquisitions like the branch assumption transaction last year and the pending acquisition of few time financial services in Jackson.
Turning to slide five.
Office is look at the performance of our private banking commercial banking and trust investment management businesses.
This is represented by our pre tax earnings of our non mortgage segment.
On a year over year basis, our pre tax earnings more than doubled in this segment.
After the outsized earnings that we generate in the mortgage business last year, we're seeing other businesses.
Well, Phil is that earnings gap gap so to speak.
With a more sustainable source of earnings growth.
Our mortgage business returns to its intended role as a complementary source of fee income.
Turning to slide six we'll look at the trends in our loan portfolio.
Yeah.
We had another good quarter of loan production with total production coming in at $133 4 million.
Relatively similar to the prior quarter.
Loan payoffs were down a bit.
On a period end basis, our total loans held for investment increased $30 4 million from the end of the prior quarter or $70 9 million.
P P loans are excluded.
Most areas of the portfolio increased from the end of the prior quarter with the strongest growth coming from commercial real estate.
At a high level of payoffs resulted in a small decline in C&I portfolio.
It is notable that cash securities and other portfolio was.
When people to contribute to our total loan growth. Despite the continued runoff of PPP loans that are held in that category.
We saw more demand this quarter among our private banking clients for the type of investment management secured lines of credit that comprised the bulk of this portfolio.
Well.
Ive said it will take a closer look at our deposit trends.
Our total deposits increased $103 2 million from the end of the prior quarter.
All of the growth was in lower cost deposit categories.
This continues to drive improvement in our deposit mix over the past year, our noninterest bearing accounts.
But we just leased to 33, 5% of total deposits from 32% while time deposits have declined to seven 7% of total deposits from 11, 3%.
We had one large deposit come in towards the end of the quarter is that client had a liquidity event. They temporarily placed about 60 million.
The increase in their money market accounts, which we expect to be withdrawn during the fourth quarter as proceeds from the liquidity are better distributed to partners of this real estate investment fund.
Moving to slide eight we'll look at our progress in building our commercial banking portfolio.
Personal banking platform, which is providing.
<unk> board loan diversification and improving our deposit base by adding low cost transaction deposits.
Commercial loans increased $51 million for the prior quarter and $196 million from the prior year.
Commercial deposits increased $130 million from the prior quarter and.
$227 million from the prior year in each case this represents a 24% growth over the prior year and is reflective of the strong momentum we have in growing the commercial bank.
Moving to slide nine we've added a new slide to the presentation to show the increasing contribution we're getting from.
From our new offices. This slide shows the aggregate contribution of the offices, we've opened since mid 2019.
Our total loans deposits and assets under management as you can see we're getting a larger contribution is the office has gained more traction and build new business pipelines that produce on a consistent basis, we've done a good job.
Job of identifying areas for the new offices that have a large amount of the type of clients that we target and then attracting proven banking talent with established relationships to build these offices.
These new bankers have been successful in marketing first western the first western value proposition, bringing in new clients.
And then.
Expanding those relationships over time.
Opening new offices has been a key part of our growth strategy throughout our history and we plan to continue opening one or two new offices each year with a primary focus on expanding in Colorado, Arizona, Wyoming and Montana.
Turning to trust investment management.
On slide 10.
Our total assets under management increased by $143 8 million from the end of the quarter.
The increase was due to a combination of contributions to existing accounts and new accounts as well as improving market conditions, resulting in the increase in the value of assets under management.
During the third quarter, new clients accounted for approximately $30 million of our growth in assets under management.
Now I'll turn the call over to Julie for further discussion of our financial results Julie Thank.
Thank you.
On slide 11, we have provided an update on our participation in the PPP program and how it.
Impact of various metrics in the third quarter.
At September 30, we had $61 $9 million in PPP loans remaining on our balance sheet, which is a decline of $41 2 million from the end of the prior quarter.
We recognize approximately 900000 feet during the quarter.
One 2 million.
Emts remaining to be recognized at September 30th.
PBT income had a 90 basis point positive impact on our net interest margin in the third quarter.
As the PPP loans are forgiven, our borrowings from the PPP liquidity facility that were used to fund the loan originations also decline.
At September 30th.
Our borrowings from that facility were down $243 6 million.
Turning to slide five we look at our gross revenue.
Gross revenue increased six 8% from the prior quarter.
The growth was well balanced across the bank with an increase in net interest income as well as all of our non interest income generating areas.
<unk>.
Turning to slide 13, we look at the long look at the trends and the net interest income and margin. Our net interest income increased four 4% from the prior quarter. Despite a 400000 decline in PPP fees recognized in the third quarter.
Ian.
It was due to higher average balances of non P. P P loans and an increase in our net interest margin.
On a reported basis, our net interest margin increased 13 basis points from the prior quarter to $3 one 4%.
When the impact of PPP loans and purchase accounting adjustments our exco.
Our net interest margin increased 18 basis points from the prior quarter.
The increase in our net interest margin was primarily due to a favorable shift in the mix of earning assets as we were able to reinvest more of our cash into the loan portfolio as well as an increase in average loan yields.
We also had a slight drop in our cost of interest bearing deposits, resulting from the full quarter impact of the higher cost non relationship deposits that we ran off during the second quarter.
Looking ahead, we expect our net interest margin to trend slightly down in the fourth quarter due primarily to the increased trend in excess.
Excess liquidity from the temporary deposit that Scott mentioned earlier, which we are keeping in cash balances.
Longer term looking at the potential for higher interest rates, we continue to run the bank to be neutral in terms of interest rate sensitivity.
And the addition of key time won't have a material impact on our sensitivity.
However, due to the improvement we have made in our deposit mix over the past few years, the higher percentage of non interest bearing deposits, we have become more asset sensitive, which should enable us to benefit to a larger degree from higher interest rates than we did in the last rising interest rate cycle.
Turning to slide 14.
Our non interest income increased 10, 5% from the prior quarter as we saw an increase in all income areas.
In investment management fees were up three 2% from the prior quarter and 7% higher than a year ago. Despite the sale of our la fixed income team during the fourth quarter of 2020.
<unk>.
We also had a 14, 5% increase in net gain on mortgage loans due to increases in volume for both purchase and refinancing as well as the reduction in variable costs.
On slide 15.
We've provided some additional detail on our mortgage operations.
Total originations were down.
From the prior quarter, although mortgage locks, which is when revenues recognized or higher than the prior quarter.
Yeah.
Then in the prior quarter the mix of production continues to move towards.
Our higher historical range with with purchase accounting for 61% of production in the third quarter as we.
We indicated on our last call we reduced our fixed expense in the mortgage group to reflect the lower level of volume that we are now seeing relative to 2020.
As a result of lower level of expense combined with the higher volume in the third quarter increase our profit margin in this business to 50% from 31% in the prior quarter.
Turning to slide 16.
Our non interest expense increased by six 1% from the prior quarter.
This included approximately 300000 of acquisition related expense the.
The remainder of the increase was primarily attributed to higher salaries and benefits expense, resulting from bonus accruals relating to our straw.
Loan and deposit production as well as higher insurance benefit costs.
With our revenue growth exceeding expense growth, our efficiency ratio improved to 65% from 65, 4% in the prior quarter.
Looking ahead to the fourth quarter, we expect our noninterest expense, excluding any acquisition related.
<unk> expenses to increase slightly over the third quarter level.
Turning to slide 17, we'll look at our asset quality, we continue to see generally positive trends across the portfolio. We had one commercial loan that was placed on nonaccrual during the quarter, which resulted in an increase in our nonperforming assets of $1 2 million.
This loan is well secured and we do not expect to occur incur any loss at this time, we continue to see minimal losses in the portfolio and had a small amount of net recoveries in the quarter.
We recorded a provision for loan loss of approximately 400000, which was related to the growth in total loans.
This brought our adjusted.
Adjusted a triple L.
<unk>, which excludes P. P. P in acquired loans to 91 basis points of total loans at the end of the prior quarter.
Now I'll turn the call back over to Scott Scott.
Thanks Julien.
Turning to slide 18, I'll wrap up with some comments about our outlook.
We expect.
That's a continuation of the positive trends, we're seeing in the business and continued strong growth in our core commercial and private banking operations.
We expect the growth in these areas of the business to continue replacing the earnings that were generated by our mortgage operations in 2020.
Our loan pipeline is consistently strong.
It should drive continue to drive organic loan growth across most areas of the portfolio.
We continue to win business based on our expertise responsiveness quality of service and overall value proposition.
This has enabled us to generate loan growth without compromising on structure or underwriting criteria.
Many competing banks.
Things have been forced to do.
We expect continued growth in our trust and investment management fees, as we're consistently adding new clients and increasing our assets under management.
In the near term this will help to offset lower mortgage activity as we enter the seasonally slower periods of the year.
As I mentioned earlier where success.
Successfully adding new banking talent and expanding to new markets. Most recently, we've made investments into Montana, and Arizona markets.
And we believe both markets will be nice sources of additional organic growth for us.
We continue to supplement our strong organic growth with accretive acquisitions.
<unk> acquisition of Pizza and financial.
Services is expected to close late this quarter early in 2022.
Since announcing the.
Transaction, we made good progress on our integration planning.
We've made all the personnel decisions are informed everyone in the organization of our players.
Our teams are collaborating well together to determine the best ways to leverage the collective.
Instead of each organization, so that we're not only realizing the expense synergies that we projected but also fully capitalizing on the revenue synergies.
In closing we believe we are executing at a very high level and should continue to deliver a strong finish to the year.
With a combination of our continued strong organic growth and the accretive benefits of the <unk> acquisition. We believe we are well positioned to deliver another strong year profitable growth in 2022.
With that we're happy to take your questions.
Andy Please open up the call.
Thank you Sir.
The spin gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue.
We have first question from the line of Greg <unk>.
Your line is open you may ask your question.
Ladies.
Hey, good morning.
Good morning, Brett.
Maybe Julie can you can you give.
David on Mastec.
The dollar amount of the loan recovery in the quarter, how much was that.
And it was immaterial under 100000 leads.
Some of it of recoveries.
Recoveries, but not anything material that shows up in you know even in a.
The chart on the deck.
Yeah.
Okay.
And then with the prepared commentary you mentioned that you think the margin will be a little bit softer in the fourth quarter.
The improvement in <unk>, I think you've got $1 2 million left of PPP.
Related fees.
As the linked quarter decline a function of expecting.
That $1 2 million to drag out into next year, maybe any color you can provide on how youre thinking about.
And in the fourth quarter.
For in terms of between on the on the yield side.
Okay.
I think generally were expecting a favorable trend in our NIM.
In Q3, we've had a couple of one.
The things that.
Increase the NIM PPP like you mentioned and then there were.
Additional payments on a non accrual loan that was.
The principle of pay for it so the remaining payments from the client can come in as interest so those slightly.
Inflated them in Q2.
Three as well so I think.
The concern.
That we will see that increase in NIM in Q4 is really just.
Moving up the trend that we're seeing I think generally we're seeing better rates on loans better rates on deposits and.
Time will improving NIM going into 2022.
If there's anything there Julien yeah.
I agree at 2022, and we're looking to continue to see improvement in our earning asset mix because we're using up the liquidity. So NIM should follow that trend.
Okay.
That's helpful.
Overall and then.
Was just curious I know mortgage is tough to predict but.
Any thoughts on.
Our fourth quarter and then.
May 22.
Expectations for total revenue to be lower than.
'twenty, one or do you think you can.
Gain share relative to the NBA forecast.
Yeah.
Have the trends in there on slide 15.
It seems like we.
Can produce.
Something like $4 million to $5 million in revenues in <unk>.
Helpful.
Earnings out of.
Mortgages.
Thats going to continue you know we've talked about our desire to hire more mmos and to the extent that we can find.
People that are a good fit for our strategy in that.
Yeah.
I'm doing the business.
Is this the way we want to do it then.
We're attracting then we've added a couple.
This year and continuing to focus on building.
Building on our below base.
I think they're really important trend here is the way that the business has picked up.
The core.
Couple of laser business has picked up from the earnings.
Benefit we had from mortgages last year and I think if we can see 2020 to be in line with where we were in 2021 and that's a nice complement but it's really not driving the story the way it did in 2020.
Okay.
And then Scott just lastly.
Well, thanks, Scott if I heard you correctly it sounds like you're anticipating some additional potential movement of.
Lenders, maybe some lift out of some other folks did I hear that correctly.
Any sense of the magnitude in terms of <unk>.
Number that might you might see in the first.
Lastly from a next couple of quarters.
Well, we do.
We have started building a team in Bozeman, we've talked about that and we're going to build that office out we've got some I think really great opportunities there.
Actually the preliminary work that that team is doing we're seeing a nice build of the pipeline.
I understand.
Hope to have some good news to report here in the next couple of quarters from the.
Janssen into.
But Canada here.
Arizona.
Then looking at adding people there we brought in a new state President there I think there's a ton of opportunity for us in Arizona, you know we've always thought.
Got it that market had as good or better wealth demographics in Colorado and attractive competitive environment and it's just a matter of getting the right team in place.
Seen that business grow and we think we can accelerate the pace of growth there overtime. So I think these are things.
They play out over coming quarters, Youre, not going to see a big jump in expense in Q4 or anything like that we're building. These teams and the way we have in the past in a kind of a.
Our steady.
Process that.
Insurers that are revenue growth matches, the expense growth or exceeds it.
Okay. That's helpful color and congrats on the quarter.
Yeah. Thanks, Brett.
Thank you Sir we have a next question from Brady Gailey of <unk>. Your line is open you may ask your question.
Hey, Thanks, Good morning, guys good morning Brady.
So over the last couple of years.
We have seen some nice operating leverage and we have senior.
ROA expand pretty nicely I mean, it was $1 50 last year, one, 5%, which I know was propped up by a great mortgage here and this year its running around a 125 basis points.
So I was just wondering if given your business model.
And taking into account you're still growing the company what do you expect your.
What would be an appropriate range for your ROA over the next couple of years, you think that it's consistent with the 125, we've seen year to date or do you think you could do.
Actually better than that.
Well I don't want to over inflate expectations, but we do think that we are.
Doing a nice job of improving the operating leverage that we have said all along we think exists in our business model, we continue to see that.
Especially in the organic part of our business right.
But I think that.
What we're doing with the expansion provides future earnings power and then what we're doing with acquisitions has certainly been additive, but just in the organic business.
We know that the next dollar of revenues doesn't take much in cost.
And so I think we've continued to.
Right.
Especially over the last.
Six to eight quarters.
Hey, Dan.
I know you guys like to open one to two new offices.
A year.
Replay Bozeman.
But.
With Teton and the mix do you take a pause.
On the organic.
Growth or does that continue even in the midst of the <unk> acquisition.
You know, we've kind of changed our business model for new offices, we used to.
Opening a new office and basically spend $1 million.
<unk> expense in the first year and then by the end of the first year into the second year, maybe they've got $1 billion in revenues. So maybe a breakeven the second year and then.
Hopefully you get our earn back in the third year.
We have been incubating. These last few offices in existing offices, so we're doing that.
Bozeman injects and right now we did that for Broomfield and.
And the older office and we've got another Denver office that we're incubating.
In the downtown Denver location.
So it really changes the numbers there so you can.
Profitably open these.
These new locations.
I Hope I hope, we get to the point, where we're doing it right out of the gate. So broomfield just actually opened in their physical location. We told them you know they have to get to a certain level of revenues and then we move into their own office and they just moved in we had the grand opening here.
45 days or so ago.
In Q3.
Hi.
In both banking and we've got some very modest.
Temporary space that will be starting in here shortly and then building that leveraging through our Jackson office with the folks that we have there and the connections between Jackson and both of which are many.
And then like I said in Denver that we see really good growth in that new office that we're incubating and so we'll move them into a.
New location I hope in 2022, so yes, we're going to continue to open new offices.
Alright.
And then one question specific to the Teton.
Transaction I know, they're coming over with.
It's a nice wealth management Trust business.
As well.
And the question is you had this chita and add anything on the wealth management side any products or services are offering that.
First western doesn't at.
Or vice versa first western has something that <unk> doesn't where theres an opportunity.
With basically cross sell into each other in the.
The question is basically is there an opportunity on the wealth management side to see some nice revenue synergies.
Yes.
T time wealth management businesses largely outsourced.
And so of the 400 million or so that they have.
There is.
They've outsourced it and so we're looking at what.
Complementary services that provider might add to what we have but we.
We have a much broader and deeper range of services.
You can sell into the.
Into the tea time client base so were.
Certainly working on how we can do that in 2020 to the numbers that we announced for accretion and tangible book value earn back.
Didn't include any revenue synergies that was only.
That we energies.
But what we've seen already is our team and Jackson is working closely with our team.
Peter and team.
Yeah.
Their plans for 2022 for new business and I think we're going to see lots of synergies not only from the products and services, but from the people complementary.
Costs at each other with.
Different skill sets and the ability to cross.
Cross sell into our respective client basis.
Okay got it thanks Scott.
Thank you Sir we have another question from the line of Ross Haberman. Your line is open you may ask your question.
Yes.
Good morning, Scott Scott how are you good morning Ross.
Could you John.
Just wanted to sort of take a step back and ask you more what are you seeing in terms of your markets and the end market migration are you still seeing.
The growth.
Entering.
Maybe not as much as we saw during COVID-19, our pre COVID-19, but understood.
What's sort of the end market migration into your markets.
And then to the Jackson hole I guess space.
So the to drive the mortgage business or maybe.
Maybe keep it at what you and I think you'd said on slide 15, you earned about.
$2 3 million I guess, that's after tax.
I'm, just trying to get sort of the underlying migration trends.
That's going to keep that mortgage business at I don't know.
Millions of dollars.
$2 5 million a quarter ish.
That's as good a guess as any thank you.
Yes, so I think.
There are a couple of questions in there Ross.
I should take apart.
The first part of the question about the immigration network.
Were seeing into our markets.
Has been very strong and continues to be very strong.
We're seeing that not only in the resort markets.
Unveiled Jackson, but we're also seeing that in in our urban markets here in the front range and in Arizona.
Zona.
I mean, it's happening in Montana Big time, I mean, we're.
Continuing to see a big influx of.
Folks.
<unk>.
Especially the coast.
Somewhat from the Midwest, but.
That is definitely a continuing trend.
I think the second part.
What's the impact on mortgages, I mean, I think that thats going to continue to provide fuel for our growth in our mortgage business, but I think it's actually a lot more significant for the other parts of our business you know when people move to town Theyre looking to connect with the community and a great way to do that is with the <unk>.
Leading prime.
Bank and the community and so we position ourselves in that way, we look for those people and I look at their mortgage.
As a important strategic element in that where we can play offense by attracting some of these folks that are moving to town, but we can also play defense with that in protecting our client base from going elsewhere.
Elsewhere. So I think you know the.
Implications for credit the implications of the economy implications for our private bank and our commercial banking business. I mean, those are all really nice side benefits of all these.
Good companies and people that are moving into our markets.
That trend is going to continue.
I think for a long time to come I think that thats.
Something that Covid may have accelerated but it was going on before and it's continuing.
Continuing to be.
A big factor in the economic outlook here.
That is would you be so bold, yes would you be so bold and again Im looking at this chart.
Looking at.
The income net income after tax of the mortgage business would it be I mean, what what.
$888 million average run rate.
Avi as good a guess as any as an ongoing number or again it all depends on how quickly.
They raise rates going forward.
Or or even if they do given your in migration, seven or eight or $8 million a year.
Is it as good a guess as any.
Yeah.
I mean, there are a number of factors that go into this right.
Volume its margins, it's a mix of business.
We have seen already the mix from Refis back to more purchase money.
That happened in Q3, that's going to continue in Q4.
But but I think our expectations, our 2022, probably looks a lot like 2021 in terms of.
Mortgages.
Mortgage revenues and mortgage earnings we cut mortgage expenses on June 30.
So we've seen good profitability in Q2 Q3, as a result of that.
And we will continue to manage those expenses.
And support that business as I mentioned before I mean, we would like to grow that as we grow our footprint.
And so we're looking to bring on good.
And we've got conversations going on and whether it works out or not.
No but.
I think as a baseline thinking at 22 looks a lot like 'twenty, one wouldn't be a bad starting point.
Last last question.
Yes.
Are you.
Are you looking for other banks to buy in the us.
Montana or the Arizona low Cal you have a currency.
If you found the right thing which is.
Highly accretive and not too dilutive in two.
Two or three year breakeven.
Is that is that is that a.
Interesting enough a way to further grow within those markets as opposed to organic.
Branch by branch lift outs.
Yes.
As as the other way of growing.
So again, yes so.
So great question.
Look at our growth as having three elements to our organic growth, which we've talked about being in the mid teens.
New offices that create future.
Growth opportunities.
And then.
Acquisitions, and I think we've had quite a bit of success with our recent acquisitions specifically your question about <unk>.
Are we looking yes, we are and we have an active program.
We have made two offers on small bank deals here.
Over the last three months or so.
And in both cases, we were outbid.
I think there are banks out there being very aggressive in their bidding because they can't grow organically and thats not our situation.
We can remain disciplined in our pricing and our criteria.
We're going to do has to make economic and strategic sense.
And I think there's plenty of opportunities out there for us to continue to maintain our discipline and still have the ability to get things done get deals done with organizations that understand how they're going to benefit from our merger with us.
<unk>.
Okay. Thanks, again gets you a booster shot and have a.
A wonderful weekend. Thank you.
Alright, Thank you Russ.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone.
Another question from the line of Bill. Your line is open you may ask your question.
Thank you I'd like to start with mortgage et cetera.
We're spending time with the last question and then a couple others place or what have you seen with mortgage activity here in October and in your thoughts relative to the fourth quarter versus the normal level of seasonality I'm, just trying to gauge that relative to.
<unk>.
The.
That's supposedly pent up demand that we have in <unk>.
And housing.
Hi, Bill it's good to hear from you.
I would tell you that we're expecting Q4 to be seasonally slower.
And I think that the preliminary.
Results. So far this quarter are bearing that out.
I think.
We didn't really talk about this with Ross's question, but.
Just because there is a lot of demand doesn't mean, there's any more supply we are still seeing tight supply in that.
Thats.
Limiting the amount of mortgage activity.
That we're seeing in our markets but.
That will catch up at some point in.
And I think we will see better volumes.
And as I say, I mean, I think 2022 could probably.
Look a lot like 'twenty one in terms of.
Mortgage.
<unk> revenues and earnings.
So with that pent up demand are you expecting the seasonality to be any.
It could be muted here in the fourth quarter and not as severe as normal or are you are you really seeing a normal level of seasonality.
Hi.
It's hard.
Hard to answer that bill because last year was such an unusual year.
And then in.
In 2019, we were really just ramping up our mortgage business I mean, I think over the last three or four quarters now we've seen.
Pretty steady revenue levels in the kind of four.
Four $5 million to $5 million range.
Hopefully, we can produce something like that in in.
In Q4, I think generally we're expecting it to be a little slower in Q4, and Q1 and we've talked before about our desire to expand our mortgage operation in Arizona. So that we can offset some of that season seasonality.
<unk>.
He'd like to do that we just haven't found the right team and like I was saying with respect to the new acquisitions, we were in a position where we don't need to do things that don't work.
And art priced right.
So.
We continue to work on that hopefully we can.
Find a way to smooth out some of the seasonality.
Time, but.
Thank you.
Q4, it's going to be a little softer than.
Q2, and three and hopefully we will come back strongly in 2022.
It sounds here, let me shift to C&I loans you'd mentioned that.
Q3 saw Paydowns.
And C&I.
What's it going to take to rejuvenate that C&I loan growth.
Yeah.
You know, we're just small and if we talked about this on these calls before you know we're small enough that if you cut things off you know once a quarter and you look at.
You know what happened in the quarter it is noise in the numbers.
I would tell you.
There is no reason to think that our C&I progress that we've made over the last couple of years won't continue.
I think that what you just saw in Q3 is the normal kind of noise of.
Of.
Quarter to quarter variances I actually think.
We're seeing good progress there you look at our pipelines today.
Going into Q4, they were right in line with where we were.
In prior quarters, and we're going to continue to see I think.
Strong loan demand across.
All of our different.
Categories, including CNI.
Thank you and then one additional question please.
Non interest bearing deposits.
We're up I think $42 million or something like that in Q3.
Versus.
Versus Q2.
What led to that to that growth in noninterest bearing I do recall, the 60 million that came in but that went into money market, which I presume that does have a it does have a rate associated with it.
Sure does.
Yeah.
The growth in DDA is is just part of this growth in the commercial.
Focus that we've had.
And I think if you go back.
A couple of years and looked at the trends.
They're very positive right we've shifted from.
Okay shared some numbers in the.
In the prepared remarks, but since the end of 2018.
I think more than tripled our D D. As at the same time that we about doubled our deposits.
We're seeing really nice growth in that area and we expect that to.
To continue I mean, I think that.
<unk> is going to be.
Helpful with that they've got a nice dip.
Deposit mix and I think you know.
No.
The engine Thats produced these results here over the last couple of years.
Is continuing and accelerating so I think we'll be fine there.
60.
$60 million deposit is an interesting.
Story because.
It's such a one off thing where their client liquidity event, but these one off things happen to us all the time because that's the business we're in.
So.
Those deposits in that particular case, those deposits will be largely paid out too.
So the partners, but you know a lot of times, we've had really good success.
Soliciting those partners to become clients win.
Liquidity events. So you know these things are actually just very much integral to our business and.
And again part of that sort of.
Circumstance I was talking about before where you see quarter to quarter things.
Things that are.
Changes, but not really underlying trends just part of the volatility of us still being relatively small.
Great. Thank you.
Good thank you.
Sure.
Thank you Sir there are no additional questions at this time I will now turn.
Back to the management for closing remarks.
Okay. Thank you Ann.
Oh, well I just want to sum up here.
He had really nice continued progress here growing our business improving our margins.
Demonstrating the operating leverage in our business model in.
Creating shareholder value here in Q3, with our continued organic growth and the ongoing expansion and the addition of the <unk> team I think we've got lots of momentum going into 2022.
I really thank everybody for their time and interest today dialing in and for your support for first.
Western we really appreciate it and look forward to speaking again next quarter.
Yeah.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
Okay.
Yes.
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Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the first the Western financial Q3, 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone too.
Okay.
Brent Please press Star then zero on your touched on telephone.
Minder. This conference call maybe recorded I would now like to turn the conference over to your Speaker today, Mr. Tony Rossi of financial profiles go ahead Sir.
Thank you Randy.
Morning, everyone and thank you for joining.
Today for first Western Financial's third quarter 2021 earnings call.
Joining us from first Western's management team are Scott Wylie, Chairman and Chief Executive Officer, and Julie core Camp Chief Financial Officer.
We will use a slide presentation as part of our discussion. This morning, if you've not done so already please visit the events and presentations page of first Western's investor.
Relations website to download a copy of the presentation.
Before we begin I'd like to remind you that this conference call contains forward looking statements with respect to the future performance and financial condition of first western financial that involve risks and uncertainties, including the impact of the COVID-19 pandemic.
Various factors could cause actual results to be materially different from any future.
Joining us expressed or implied by such forward looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website.
I would also direct you to read the disclaimers in our earnings release and Investor presentation.
The company disclaims any obligation to update any forward looking statements made during the call.
Additionally, management may refer to non-GAAP.
<unk> results, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures and with that I'd like to turn the call over to Scott Scott.
Thanks, Tony Good morning.
Measures.
Our third quarter results represent a continuation of the positive trends we've seen this year with growth in our private commercial banking operations generating higher levels of revenue more operating leverage and increased profitability.
In the third quarter, we generated net income of $6 4 million.
Everybody earnings per share of <unk> 78.
And our ROA of 127%.
All of which are an improvement over our second quarter results.
On an adjusted basis, excluding acquisition related expenses, our earnings per share were up.
The 81 cents.
Seven.
Seven cents in the prior quarter.
We continue to have good momentum in business development, which is driving higher levels of loans deposits and assets under management.
Excluding PPP loans, excluding PPP loans.
Our total loans held for investment increased at a 19% annualized rate in the.
70 <unk> quarter.
We also continue to see strong deposit flows as total deposits were up six 1% from the end of the prior quarter.
With all the growth coming in our lower cost categories.
We're also seeing steady growth in our assets under management and higher trust and investment management fees.
Third our private and commercial banking model is working exceptionally well.
We're seeing high quality, well diversified loan growth funding these loans with low cost deposits and effectively cross selling additional products and services increase the overall profitability of these client relationships.
As a result, we're seeing improvement across.
Most of our key financial metrics.
Compared to the prior quarter, our gross revenue was up nearly 7%.
Our net interest margin increased 13 basis points and our efficiency ratio improved 44 basis.
More importantly, as we continue to profitably grow the company.
Cross border prudently managing our growth, which is reflected in our continued strong asset quality and exceptionally low level of losses in the portfolio.
Moving to slide four our improved financial performance is not only driving earnings growth, but also strong increases in our book value and tangible book value.
During the third quarter, our book value increased four 1%, while our tangible book value per share increased four 8%.
The profitable growth, we're generating is a reflection of our strong execution across all of our growth strategies.
Our more mature profit centers continue to add new clients.
In January.
Organic growth the new offices, we've opened up over the last couple of years continue to scale and are making large contributions.
And we are accelerating our growth through accretive acquisitions like the branch assumption transaction last year and the pending acquisition of <unk> financial services and Jackson.
Turning to slide five we'll look at the performance of our private banking commercial banking and trust investment management businesses.
This is represented by our pre tax earnings of our non mortgage segment on.
On a year over year basis, our pretax earnings more than doubled in this segment.
After the outsized earnings that we generate in the mortgage business last year.
Generally we're seeing other businesses fill in that earnings gap gap so to speak.
With a more sustainable source of earnings growth.
While our mortgage business returns to its intended role as a complementary source of fee income.
Turning to slide six we'll look at the trends in our loan portfolio.
We had another good quarter of loan production with total production coming in at $133 4 million relative.
Relatively similar to the prior quarter.
Loan payoffs were down a bit.
On a period end basis, our total loans held for investment increased $30 4 million from the end of the prior quarter or <unk> 79.
When PPP loans are excluded.
Most areas of the portfolio increased from the end of the prior quarter with the strongest growth coming from commercial real estate, while our high level of payoffs resulted in a small decline in C&I portfolio.
It's notable that cash securities and other portfolio was.
We are able to contribute to our total loan growth. Despite the continued runoff of PPP loans that are held in that category.
We saw more demand this quarter among our private banking clients for the type of investment management secured lines of credit that comprised the bulk of this portfolio.
Moving to slide seven we will take a closer look at our deposit trends.
Total deposits increased $103 2 million from the end of the prior quarter.
All of the growth was in lower cost deposit categories.
This continues to drive improvement in our deposit mix over the past year, our noninterest bearing accounts.
Priest to 33, 5% of total deposits from 32%.
Deposits have declined to seven 7% of total deposits from 11, 3%.
We had one large deposit come in towards the end of the quarter is.
At that point had a liquidity event they temporarily placed about 60 million.
<unk> increase in their money market accounts, which we expect to be withdrawn during the fourth quarter as proceeds from the liquidity event or distributed to partners of this real estate investment fund.
Moving to slide eight.
We'll look at our progress in building, our commercial banking portfolio.
Personal banking.
Platform, which is.
Or loan diversification and improving our deposit base by adding low cost transaction deposits.
Commercial loans increased $51 million from the prior quarter and $196 million from the prior year.
Deposits increased $130 million from the prior quarter and.
Provide hundred $27 million from the prior year in each case. This represents a 24% growth over the prior year and is reflective of the strong momentum we have in growing the commercial bank.
Moving to slide nine we've added a new slide to the presentation to show the increasing contribution we're getting.
And two new offices. This slide shows the aggregate contribution of the offices, we've opened since mid 2019.
Two our total loans deposits and assets under management.
As you can see we're getting a larger contribution is the office has gained more traction and build new business pipelines that produce on a consistent basis.
Done a good.
Good job identifying areas for the new offices that have a large amount of the type of clients that we target and then attracting proven banking talent with established relationships to build these offices. These new bankers have been successful in marketing first western.
Western value proposition, bringing in new clients.
And.
For marketing those relationships over time.
Opening new offices has been a key part of our growth strategy throughout our history and we plan to continue opening one or two new offices each year with a primary focus on expanding in Colorado, Arizona, Wyoming and Montana.
Hi.
Turning to trust and investment management.
And then expense slide 10.
Our total assets under management increased by $143 8 million from the end of the quarter.
The increase was due to a combination of contributions to existing accounts and new accounts as well as improving market conditions, resulting in the increase in the value of assets under management.
During the third quarter, new clients accounted for approximately $30 million.
Our growth in assets under management.
Now I will turn the call over to Julie for further discussion of our financial results Julie Thank.
Thank you Pat.
On slide 11, we have provided an update on our participation in the PPP program and how it.
And various metrics in the third quarter.
As of September 30th.
The $1 $9 million in PPP loans remaining on our balance sheet, which is a decline of $41 2 million from the end of the prior quarter.
We recognized approximately 900000 feet during the quarter.
One $2 million.
Nancy remain to be recognized at September 30th.
PBT income had a 90 basis point positive impact on our net interest margin in the third quarter.
As the PPP loans are forgiven, our borrowings from the PPP liquidity facility that were used to fund the loan originations also decline.
At September 30th.
<unk> from that facility were down $243 6 million.
Turning to slide five we look at our gross revenue.
Total gross revenue increased six 8% from the prior quarter.
The growth was well balanced across the bank with an increase in net interest income as well as all of our non interest income generating areas.
Bob.
Turning to slide 13, we look at the long look at the trends and the net interest income and margin. Our net interest income increased four 4% from the prior quarter. Despite a 400000 decline in PPP fees recognized in the third quarter.
Megan.
<unk> <unk> is due to higher average balances of non PPP loans and an increase in our net interest margin.
On a reported basis, our net interest margin increased 13 basis points from the prior quarter to $3 one 4%.
When the impact of PPP loans and purchase accounting adjustments alright excellent.
Our net interest margin increased 18 basis points from the prior quarter.
The increase in our net interest margin was primarily due to a favorable shift in the mix of earning assets as we were able to reinvest more of our cash into the loan portfolio as well as increase in average loan yields.
Please go ahead, a slight drop in our cost of interest bearing deposits, resulting from the full quarter impact of the higher cost non relationship deposits that we ran off during the second quarter.
Looking ahead, we expect our net interest margin to trend slightly down in the fourth quarter due primarily to the.
Increased trend in excess.
We have liquidity from the temporary deposit that Scott mentioned earlier, which we are keeping in cash balances.
Longer term looking at the potential for higher interest rates, we continue to run the bank to be neutral in terms of interest rates from Sidoti.
The addition of key time won't have a material impact on our sensitivity.
<unk> suffered due to the improvement we have made in our deposit mix over the past few years, the higher percentage of non interest bearing deposits, we have become more asset sensitive, which should enable us to benefit to a larger degree from higher interest rates than we did in the last rising interest rate cycle.
Turning to slide 14.
Our non interest income increased 10, 5% from the prior quarter as we saw an increase in all income area.
In investment management fees were up three 2% from the prior quarter and 7% higher than a year ago. Despite the sale of our la fixed income team during the fourth quarter of 2020.
<unk>.
We also had a 14, 5% increase in net gain on mortgage loans due to increases in volume for both purchase and refinancing as well as a reduction in variable costs.
On slide 15.
We have provided some additional detail on our mortgage operations.
Total originations were down.
Our quarter, although mortgage locks, which is when revenue is recognized.
Higher than the prior quarter.
Then in the prior quarter the mix of production continues to move towards.
Our higher historical range with purchase accounting for 61% of production in the third quarter.
As we.
From the <unk> on our last call, we reduced our fixed expense in the mortgage group to reflect a lower level of volume that we are now seeing relative to 2020.
As a result of lower level of expense combined with a higher volume in the third quarter increase our profit margin in this business to 50% from 31% in the prior quarter.
And according to slide 16.
Our non interest expense increased by six 1% from the prior quarter.
This included approximately 300000 of acquisition related expense.
The increase was primarily attributed to higher salaries and benefits expense, resulting from bonus accruals relating to our strong.
And deposit production as well as higher insurance benefit costs.
With our revenue growth exceeding expense growth, our efficiency ratio improved to 65% from 65, 4% in the prior quarter.
Looking ahead to the fourth quarter, we expect our noninterest expense, excluding any acquisition related.
<unk> allowed us to increase slightly over the third quarter level.
Turning to slide 17, we'll look at our asset quality, we continue to see generally positive trends across the portfolio. We had one commercial loan that was placed on nonaccrual during the quarter, which resulted in an increase in our nonperforming assets of $1 2 million.
<unk> expense. This loan is well secured and we do not expect to occur incur any loss at this time, we continue to see minimal losses in the portfolio and had a small amount of net recoveries in the quarter.
We recorded a provision for loan loss of approximately 400000, which was related to the growth in total loans.
This brought our adjusted.
A triple L.
<unk>, which excludes PPP in acquired loans to 91 basis points of total loans at the end of the prior quarter.
Now I will turn the call back over to Scott Scott.
Thanks Julien.
Turning to slide 18, I'll wrap up with some comments about our outlook.
We expect.
Adjusted continuation of the positive trends, we're seeing in the business and continued strong growth in our core commercial and private banking operations.
We expect the growth in these areas of the business to continue replacing the earnings that were generated by our mortgage operations in 2020.
Our loan pipeline is consistently strong.
<unk> continue to drive organic loan growth across most areas of the portfolio.
We continue to win business based on our expertise responsiveness quality of service and overall value proposition.
This has enabled us to generate loan growth without compromising on structure or underwriting criteria as many competing banks.
It should be forced to do.
We expect continued growth in our trust and investment management fees, as we're consistently adding new clients and increasing our assets under management.
In the near term this will help to offset lower mortgage activity as we enter the seasonally slower periods of the year.
As I mentioned earlier where success.
So Billy adding new banking talent and expanding to new markets. Most recently, we've made investments in the Montana and Arizona markets.
And we believe both markets will be nice sources of additional organic growth for us.
We continue to supplement our strong organic growth with accretive acquisitions.
Pending acquisition of <unk> financial.
Successes is expected to close late this quarter early in 2022.
Since announcing the.
Transaction, we made good progress on our integration planning.
We've made all the personnel decisions and informed everyone in the organization of our plans.
Our teams are collaborating well together to determine the best ways to leverage the collective.
Fair, but things that each organization, so that we're not only realizing the expense synergies that we projected but also fully capitalizing on the revenue synergies.
In closing we believe we are executing at a very high level and should continue to deliver a strong finish to the year.
This combination of our continued strong organic growth and the accretive benefits of the <unk> acquisition. We believe we are well positioned to deliver another strong year profitable growth in 2022.
With that we're happy to take your questions.
Annie Please open up the call.
Thank you Sir.
With the current gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue breath.
We have first question from the line of Brett.
Your line is open you may ask your question.
Ladies.
Hey, good morning.
Good morning, Brett.
Maybe Julie can you can you give.
Gave it I missed it but.
The dollar amount of the loan recovery in the quarter, how much was that.
And it was immaterial under 100000.
Quite a bit of that.
Recoveries, but not anything material that shows up in <unk>.
The chart on the deck.
Okay.
And then with the prepared commentary you mentioned that you think the margin will be a little bit softer in the fourth quarter.
The improvement in <unk>, I think you've got $1 2 million left of PPP.
Related fees.
As the linked quarter decline a function of expecting.
Of that $1 2 million to drag out into next year and maybe any color you can provide on how youre thinking about.
In the fourth quarter in terms of.
Between on the on the yield side.
Okay.
I think generally were expecting a favorable trend in our NIM in Q3, we had a couple of onetime things that.
Increase the NIM.
The Martin PPP like you mentioned and then there were.
Additional payments on a.
Non accrual loan that was all.
The principle of pay for it so the remaining payment from the flank and come in as interest so those.
Slightly inflated them in Q.
Three as well so I.
The concern.
That we will see that increase in NIM in Q4 is really just.
Moving out of the trend that we're seeing I think generally we're seeing better rates on loans better rates on deposits and.
Overall, improving NIM going into 2022.
<unk>.
Thank you Julie.
I would agree in 2022, I think we're looking to continue seeing improvement in our earning asset mix as we're using up entities, though NIM should follow that trend.
Okay.
That's helpful and then.
Was just curious I know more mortgages.
They are tough to predict but.
Any thoughts on.
Our fourth quarter and then.
'twenty two.
With expectations for total revenue to be lower than.
'twenty, one or do you think you can gain share relative to the NBA forecast.
We have.
The trends in there on slide 15.
It seems like we.
Ken produce.
Something like $4 million to $5 million in revenues.
A couple of million in earnings out of <unk>.
Mortgages.
I think thats going to continue you know we've talked about our desire to hire more <unk> and the extent that we can find.
People that are a good fit for our strategy in that.
That.
Doing the business the way we want to do it then.
We're attracting and we've added a couple.
This year and continuing to focus on.
Building our envelope base.
I think they're really important trend here is the way that the business has picked up.
The core wealth management business has picked up from the earnings.
We.
For mortgages last year, and I think if we can see 2020 to be in line with where we were in 2021 and that's a nice complement but it's really not driving the story the way it did in 2020.
Okay.
And then Scott just lastly from me Scott if I heard you correctly it sounds like you're anticipating some additional.
The movement of.
Lenders, maybe some lift outs of some other folks did I hear that correctly.
Any sense of the magnitude in terms of <unk>.
That might be you might see in the first or in the next couple of quarters.
Well we.
Potential.
We have started building a team and Bozeman, we've talked about that and we're going to build that office out we've got some I think really great opportunities there.
The preliminary work that that team is doing we're seeing a nice build of the pipeline.
And I hope to have some good news to report here in the next couple of quarters.
From the expansion into <unk>.
Montana here.
Arizona.
<unk> been looking at adding people there we brought in a new state President there I think there's a ton of opportunity for us in Arizona, you know, we've always thought that that market had.
As good or better wealth demographic.
Do mixed in Colorado on attractive competitive environment, and it's just a matter of getting the right team in place.
Seeing that business grow and we think we can accelerate the pace of growth. There over time. So I think these are things that are going to play out over coming quarters, youre not going to see a big jump in expenses.
Mcgrath is in Q4 or anything like that we're building. These teams and the way we have in the past in there kind of a.
Our steady.
<unk>.
Insurers that are revenue growth matches, the expense growth or exceeds it.
Okay. That's helpful color congrats on the quarter.
Yeah. Thanks, Brett.
Thank you Sir we have a next question from Brady Gailey. Your line is open you may ask your question.
Hey, Thanks, Good morning, guys good morning Brady.
So over the last couple of years, we have seen some nice operating leverage.
And we've seen your.
ROA expand pretty nicely I mean, it was 150 last year.
5% of which I know was propped up by a great mortgage here and this year its running around 125 basis points.
I was just wondering if given your business model.
Taking into account you're still growing the company.
Do you expect your.
What would be appropriate range for your ROA over the next couple of years do you think it's consistent with the 125, we've seen year to date or do you think you could do modestly better than that.
And while I don't want to over inflate expectations, but we do think that we are.
Doing a nice job of improving the operating leverage that we have said all along we think exists in our business model, we continue to see that.
Especially in the organic part of our business right I mean, I think that.
What we're doing with the expansion provide.
Future earnings power and then what we're doing with acquisitions has certainly been additive, but just in the organic business.
We know that the next dollar of revenues doesn't take much in cost.
And so I think we've continued to show that.
Especially over the last.
<unk> six or eight quarters.
Yes.
I know you guys like to open one to two new offices.
A year.
A replay bozeman.
Brookfield, but.
With Teton and the mix do you take a pause.
That organic.
Growth or.
That continued even in the midst of the Teton acquisition.
You know, we've kind of changed our business model for new offices, we used to.
<unk> opened a new office and basically spend a $1 million in expense in the first year and then by the end of the first.
Or does that here into the second year, maybe they've got $1 billion in revenues. So maybe a breakeven in the second year and then.
Hopefully you get our earn back in the third year.
We have been incubating. These last few offices in existing offices. So we're doing that for Bozeman in Jackson right now we did that for Broomfield.
<unk>.
And the older office and we've got another Denver office that we're incubating.
In the downtown Denver location.
So it really changes the numbers there so you can.
Profitably open these new locations.
Hum.
I hope, we get to the point where.
<unk> right out of the gate so.
Broomfield, just actually opened in their physical location. We told them you know they have to get to a certain level of revenues and then we move into their own office and they just moved and we had the grand opening here.
45 days or so ago.
In Q3.
In both we've got some very modest.
We're doing base that will be starting in.
Here shortly and then building that.
Leveraging through our Jackson office with the folks that we have there and the connections between Jackson and the Bozeman, which are many.
And then like I said in Denver that we see really good growth in that new office.
Temporaries that we're incubating and so we'll move them into it.
Location I hope in 2022, so yeah, we're going to continue to open new offices.
Alright.
And then one question specific to the few Tom Tran.
Transaction I know, they're coming over with a nice wealth management trust business as well.
Well.
And the question is you just don't have anything on the wealth management side any products or services are offering that first western doesn't it.
Or vice versa first western has something that coupon doesn't where theres an opportunity to basically cross sell into each other.
This question is basically is there an opportunity on the wealth management side to see some nice revenue synergies.
Yes.
Yes.
T time wealth management businesses, largely outsourced and so of the 400 million or so that they have.
There is.
We've outsourced it and so we're looking at what.
Complementary services that provider might add to what we have but.
We have a much broader and deeper range of services that we can sell into the.
Into the <unk> client base.
So we're.
Certainly working on how we can do that in 2020 to the numbers that we announced for accretion and tangible book value earn back.
Didn't include any revenue synergies that was the only cost synergies.
But what we've seen already is our.
Jackson is working closely with our team.
The <unk> team in.
The plans for 2022 for new business and I think we're going to see lots of synergies not only from the products and services, but from the people complimentary to each other with the.
Different skill sets and the ability to.
Our team is all into our respective client bases.
Okay got it thanks Scott.
Thank you Sir we have another question from the line of Ross Haberman. Your line is open you may ask your question.
Good morning, Scott Scott how are you good morning Ross.
Cross.
Could you John.
I just wanted to sort of take a step back and ask you more what are you seeing in terms of your markets and the in market migration are you still seeing.
The growth.
Maybe not as much as we saw during COVID-19 or pre COVID-19, but.
Ross.
And what's sort of the end market migration into your markets and.
And then to the Jackson.
Paul I guess the space.
So that should drive the mortgage business or maybe keep it at what you and I think you'd said on slide 15, you earned about.
What's your point $3 million I guess, that's after tax.
Just trying to get sort of to the underline migration trends that Mike that's going to keep that mortgage business at I don't know.
Million and a half to $2 5 million a quarter ish.
If that's as good a guess as any thank you.
Yeah, So I think.
There are a couple of questions in there Ross, maybe I should take apart.
I think the first part of the question about the migration that we're seeing into our markets.
Has been very strong and continues to be very strong.
Uh huh.
We're seeing that not only in the resort markets.
Aspen <unk> Jackson, but we're also seeing that in.
In our urban markets here in the front range and in Arizona.
I mean, it's happening in Montana Big time, I mean, we're.
Continuing to see a big.
Okay.
Folks from.
Especially the coast.
Somewhat from the Midwest, but.
But that is definitely a continuing trend.
I think the second part of your question is what's the impact on mortgages I mean, I think that thats going to continue to provide fuel for our growth in our mortgage business.
But I think it's actually a lot more significant for the other parts of our business you know when people move to town Theyre looking to connect with the community in a great way to do that is with.
Leading private bank and the community and so we position ourselves in that way, we look for those people and I look at the mortgage.
Inflation.
As a important strategic element in that where we can play offense by attracting some of these folks that are moving to town, but we can also play defense with that in protecting our client base from going elsewhere. So I think <unk>.
<unk> for credit the implications of the economy implications for private.
Mortgage and our commercial banking business I mean, those are all really nice side benefits of all these <unk>.
Good companies and people that are moving into our markets.
That trend is going to continue and I think for a long time to come I think that thats.
Something that Covid may have accelerated but it was going.
Now before and it's <unk>.
Continuing to be.
A big factor in the economic outlook here.
That is would you be so bold yeah would you be so bold and again Im looking at this chart on 15 looking at the.
The income net income after tax of the mortgage business would it.
B.
$888 million average run rate.
Avi as good a guess as any as an ongoing number or again it all depends on how quickly they raise rates going forward.
Or or even if they do given your in migraine.
<unk>, seven or eight or $8 million a year, it's not as good a guess as any.
Yeah.
I've been in a number of factors that go into this right. Its volume its margin, it's a mix of business.
We have seen already the mix from Refis back to more purchase money.
I mean that happened in Q3, that's going to continue in Q4.
But but I think our expectations, our 2022, probably looks a lot like 2021 in terms of.
Mortgage revenues and mortgage earnings.
Mortgage expenses on June 30.
And so we've seen good profitability.
Stability in Q2 Q3, as a result of that.
And we will continue to manage those expenses.
And support that business.
As I mentioned before I mean, we would like to grow that as we grow our footprint.
And so we're looking to bring on good <unk> and we've got conversations going on or whether it works.
You never know, but.
But I think as a baseline thinking that 22 looks a lot like 'twenty, one wouldn't be a bad starting point.
Last last question.
Are you.
Are you looking for other banks to buy in the.
In the Montana, or the Arizona locale you'd have a currency.
If you found the right thing which is.
Highly accretive and not too dilutive in two or three year breakeven.
Is that is that is that a.
Interesting enough a way to further grow within those markets as opposed to organic.
Branch by branch.
<unk>.
Yes.
As the other way growing thanks. Thank.
Okay, Yeah. So.
So great question.
Look at our growth as having three elements towards organic growth, which we've talked about being in the mid teens.
New offices that create future growth opportunities and then.
Acquisitions, and I think we've had quite a bit of success with our recent acquisitions specifically your question about our.
Looking.
Yes, we are and we have an active program.
We actually have made two offers on small bank deals.
Year over the last three months or so and in both cases, we were outbid I think there are banks out there being very aggressive in their bidding because they can't grow organically and that's not our situation.
We can remain disciplined in our pricing and our criteria.
I think we're going to do has to make economic and strategic sense and I think there's plenty of opportunities out there for us to continue to maintain our discipline and still have the ability to get things done get deals done with organizations that understand how they're going to benefit from our merger with us.
S T.
Okay. Thanks, again get you a booster shot and have a wonderful weekend. Thank you.
Alright, thank you.
Thank you Sir again, ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone.
I have another question from the line of Bill does your line is open you may ask your question.
I'd like to start with mortgage et cetera.
We're spending time with the last question in a couple of others place or what are you seeing with mortgage activity here in October and in your thoughts relative to the fourth quarter versus the normal level of seasonality I'm, just trying to gauge that relative to that.
<unk>.
Supposedly pent up demand that we have in in housing.
Uh huh.
Hi, Bill it's good to hear from you.
I would tell you that we're expecting Q4 to be seasonally slower.
I think that the preliminary.
Results. So far this quarter are bearing that out.
I think.
We didn't really talk about this with Ross's question, but just because there's a lot of demand doesn't mean, there's any more supply we are still seeing tight supply and thats.
Limiting the amount of mortgage activity.
That we're seeing in our markets, but yes.
That will catch up at some point in <unk> and.
And I think we will see better volumes.
And as I say I mean I.
I think 2022 could probably.
Look a lot like 'twenty, one in terms of <unk>.
Mortgage revenues and earnings.
So with that pent up demand are you expecting the seasonality to be any it could be muted here in the fourth quarter and not as severe as normal or are you are you really seeing a normal level of seasonality.
Hi.
It's hard to answer that bill because last year was such an unusual year.
And then.
In 2019, we were really just ramping up our mortgage business I mean, I think over the last three or four quarters now we've seen.
Pretty steady revenue levels in the kind of four $5 million to $5 million range.
And hopefully we can produce something like that in.
In Q4, I think generally we're expecting it to be a little slower in Q4, and Q1 and we've talked before about our desire to expand our mortgage operation in Arizona. So that we can offset some of that seasonal seasonality, we'd like to do that we just haven't found the right team.
We are seeing in with respect to the new acquisitions, we were in a position where we don't need to do things that don't work.
Fifth and priced right.
So we continue to work on that hopefully we can.
Find a way to smooth out some of the seasonality over time, but.
And I think Q4 is going to be a little softer than.
Q2, and three and hopefully we will come back strongly in 2022.
It sounds here, let me shift to C&I.
Loans.
Mentioned that.
Sure.
Q3 saw Paydowns and C&I.
What is it going to take to.
Rejuvenate that C&I loan growth.
We're just small and if we've talked about this on these calls before we're small enough that if you cut things off once a quarter and you look at.
What happened in the quarter. It is noise in the numbers and I would tell you.
There is no reason to think that our C&I.
Progress that we've made over the last couple of years won't continue.
I think that what you just saw in Q3 is the normal kind of noise of.
Of.
Quarter to quarter variances I actually think.
We're seeing good progress there you look at our pipelines today.
Going into Q4, they were right in line with where we were.
In prior quarters, and we're going to continue to see I think.
Strong loan demand across all of our different.
Categories, including CNI.
Thank you and then one additional question please.
Non interest bearing deposits.
We're up I think $42 million or something like that.
Q3.
Versus versus Q2.
What led to that to that growth in noninterest bearing I do recall, the 60 million that came in but that went into money market, which I presume it does have.
It does have a rate associated with it.
Sure does.
Yes.
The growth in DDA is is just part of this growth in the commercial.
Focus that we've had I think if you go back.
A couple of years and looked at the trends.
They're very positive rate we've shifted from.
I think I shared some numbers in the.
In the prepared remarks, but since the end of 2018.
I think more than tripled our DDA as at the same time that we about doubled our deposits. So.
Seeing really nice growth in that area and we expect that to.
Should continue I mean, I think that.
<unk> is going to be helpful with that they've got a nice deposit.
Deposit mix and I think.
No.
The engine Thats produced these results here over the last couple of years.
Is continuing and accelerating so I think we'll be fine there.
The $60 million deposit is an interesting.
Story because.
It's such a one off thing with our client liquidity events, but these one off things happen to us all the time, because that's the business we're in and so.
Those deposit in that particular case, those deposits will be largely paid out too.
The partners, but you know a lot of times, we've had really good success.
Soliciting those partners to become clients when.
Liquidity events. So these things are actually just very much integral to our business in.
And again part of that.
Sort of.
Yes.
Circumstance I was talking about before where you see quarter to quarter things that are.
Changes, but not really underlying trends just part of the volatility of us still being relatively small.
Great. Thank you.
Good thank you.
Sure.
Thank you Sir there are no additional questions at this time I will now turn the call back to the management for closing remarks.
Okay. Thank you Amy.
Well I'll just put some up here.
He had really nice continued progress here growing our business improving our margins.
Demonstrating the operating leverage in our business model and creating shareholder value here in Q3, with our continued organic growth and the ongoing expansion and the addition of the <unk> team I think we've got lots of momentum.
Going into 2022.
Thank you everybody for their time and interest today dialing in and for your support for first Western we really appreciate it and look forward to speaking again next quarter.
Yeah.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you.
<unk>.