Q4 2021 First Western Financial Inc Earnings Call

January 28, 2022

Ladies and gentlemen, thank you for standing by your conference call should begin momentarily again. Thank you for standing by the conference call should begin momentarily. Thank you.

[music].

Thank you for standing by and walk up to the first Western Financial Q4, 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

Ask the question at that time. Please press Star then one when you touch tone telephone.

As a reminder, today's conference call is being recorded.

I would now like to turn the conference Mr. Tony Rossi of financial profile, Sir you may begin.

Thank you Valerie good morning, everyone and thank you for joining us today for first western financials fourth quarter 2021 earnings call joining us from first Western's management team are Scott Wylie, Chairman and Chief Executive Officer, Julie core Kamp Chief Financial Officer.

We will use a slide presentation as part of our discussion this morning.

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 financial 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. 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 measures, 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 with that I'd like to turn the call over to Scott Scott.

Thanks, Tony.

Good morning, everybody.

Our fourth quarter performance capped another strong year of delivering on the vision, we communicated at the time of our IPO in 2018.

As we saw in Q3, it's quite a bit of noise in the reported numbers, which we will unpack for you today.

We continue to realize more operating leverage and improve our level of profitability as we scale the company through a combination of organic growth expansion and accretive acquisitions.

By successfully striking a balance between the new business development and risk management, we generated exceptional growth, while maintaining pristine credit quality, despite the impact of the pandemic.

It's a testament to the value proposition that we offer that we've continued to been able to generate strong growth by adding new clients that present us with very high quality lending opportunities that meet our strict pricing and underwriting criteria, while funding those loans with low cost deposits.

The success, we've had in executing on our vision for first western is creating exceptional value for our shareholders.

Since our IPO in mid 2018, our tangible book value per share has increased by 116% with more than 20% increase just in 2021.

We ended 2021 with another quarter of exceptional balance sheet growth driven by the strong commercial banking platform, we built over the last two years.

The growing contribution of new offices and bankers that we've added.

A record quarter of loan production, excluding PPP loans resulted in organic growth of 25% on an annualized basis in Q4, our highest level since coming public.

Well organic deposit growth was also strong at 10% annualized.

Our asset quality remains exceptional with nonperforming assets declining to 17 basis points of total assets and another quarter with an immaterial amount of net charge offs.

Complementing the strong organic growth with the completion of our acquisition of <unk> financial services, just over five months after announcing the transaction at.

At the time of the announcement, we estimated that the transaction would be slightly dilutive to tangible book value with an earn back period of just under half a year.

As a result of a higher stock price and slightly lower deal costs. The transaction is accretive to tangible book value, which further improved the attractive economics of this deal.

The integration is proceeding smoothly and on schedule, including the trusted mortgage systems that have already been integrated.

We've set the core banking system conversion and consolidation of the Jackson hole locations for me.

Moving to slide four our earnings this quarter were impacted by acquisition related expenses. Excluding those expenses earnings were down from the prior quarter, primarily due to a lower level of mortgage activity given the seasonal slowdown we see at the end of the year.

We also saw higher provision due to loan growth in Q4 further impacting Q4 as reported results.

We continue to see strong increases in book value and tangible book value per share driven by our financial performance and the accretive impact of the Teton financial services transaction.

Turning to slide five we'll look at the performance of our private banking commercial banking and trust investment management businesses.

As represented by the pre tax earnings of our wealth management segment.

On a year over year basis, our pre tax earnings increased 90% in this segment.

After the outsized earnings we generated the mortgage business in 2020, we're seeing our other businesses billing and that earnings 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.

The <unk> acquisition contributed $252 million to our period end balances.

This amount includes our preliminary purchase accounting adjustments there could be some small additional adjustments as they are finalized, but nothing particularly material is expected.

As it stands now the loan marks are lower than what we had initially expected when the deal was announced.

On an organic basis, we had $225 million in loan production this quarter, which was a record level and 68% higher than the prior quarter.

Loan payoffs were also higher than the prior quarter at $122 million, but the strong production more than offset the runoff and results in a $98 5 billion in net organic growth low growth, which increases across most of our port.

Portfolio.

The strongest growth came in our commercial real estate portfolio, where theres more demand in the current environment.

Over the longer term, we remain focused on growing our C&I portfolio at a faster rate than our other portfolios.

But we have a broad business development capabilities to enable us to be flexible and pursue whatever asset class provides the most attractive opportunities at any given point in time.

For the second consecutive quarter, our cash securities and other portfolio also grew due to more demand among our private banking clients.

Is that what management secured lines of credit.

Although the level of growth is masked by the continued runoff of PPP loans that are also held in this portfolio.

Moving to slide seven we'll take a closer look at our deposit trends are.

Our total deposits increased $423 million from the end of the prior quarter.

With $379 million coming through the <unk> acquisition and $44 million through organic growth.

The $60 million temporary deposit that we mentioned on our last call did not run off in its entirety in the fourth quarter as expected.

$50 million remained at the end of the year. It is expected to run off early this year as the proceeds from this liquidity event are distributed to the partners of the real estate fund.

Well, we saw some deposit outflows among our existing clients during the fourth quarter. This was more than offset by our successful new business development efforts that resulted in a $110 million and new deposit accounts being opened in the fourth quarter.

Moving to slide eight.

We will look at the progress in building our commercial banking.

Platform, which is providing more loan diversification and improving our deposit base by adding low cost transaction deposits.

Commercial loans increased $95 million from the prior quarter and $213 million from the prior year.

Commercial deposits increased $216 million from the prior quarter and 424 million for the prior year.

This represents 23% commercial loan growth at 43% commercial deposit growth over the prior year and this reflects the strong momentum we have and growing our commercial client base.

Turning to trust and investment management on slide nine.

Our total assets under management increased $1 1 billion or 17, 5% from the end of last year.

This increase was due to a combination of closing on Teton financial acquisition.

<unk>, so the existing accounts and new accounts as well as improving market conditions, resulting in an increase in the value of assets under management.

During the fourth quarter, new clients accounted for approximately $44 million of our growth in assets under management.

With that I'll turn the call over to Julie for further discussion of our financial results.

Really.

Thanks.

On slide 10, we have provided an update on our participation in the PPP program and how it impacted various metrics in the fourth quarter as of December 31, we had $46 $8 million in PPP loans remaining on our balance sheet, which is a decline of $21 8 million from the end of the prior quarter.

That by $6 7 million of acquired PPP loans.

Approximately 500000 feet during the first quarter and had 700.

These remaining to be recognized at December 31st.

TPP had a six basis point positive impact on our net interest margin in the fourth quarter.

The PPP loans are forgiven, our borrowings from the liquidity facility that were used to fund.

Originations also decline at <unk>.

Remember 31, our borrowings from the facility were down to $23 6 million.

Turning to slide 11, well look at our gross revenue.

Our total gross revenue decreased seven 5% from the prior quarter, primarily due to lower net gain on mortgage loans.

With the exception of the net gain we had increases in most of our noninterest income generating areas.

Turning to slide 12, we will look at the trends in net interest income and margin. Our net interest income decreased three 1% from the prior quarter, primarily due to a decline in PDP team recognize.

A decline in interest recovery and a lower level of accretion income on purchase plans.

When these are all excluded from both periods, our net interest margin declined two basis points.

The two 9% from the prior quarter.

Primarily due to new loan production coming on the books at lower rates than the average yield on the existing portfolio.

With the successful close of the Teton acquisition, we should benefit from lower cost of funds of 17 basis points and higher loan yields of four.

Seven 4%.

The acquired balance sheet added to our excess liquidity on a temporary basis, but.

But as we put more of this liquidity to work with higher yielding assets, resulting from our strong loan production, we should see a positive impact in our net interest margin going forward.

Turning to slide 13, our non interest income decreased nine 1% from the prior quarter due to the decline in net gain on mortgage plan.

This was partially offset by increases in most other areas of non interest income as well as an approximate 500000 net gain on equity interest.

We continue to see steady growth in our trust and investment management fees, which were six 8% higher than the fourth quarter of 2020.

On slide 14, we have provided some additional detail on our mortgage operations.

Our volume of mortgage locks declined by 39% from the prior quarter due to both a drop in refinancing volumes in a seasonally slow period for the purchase market.

The mix of production continues to move back towards our historical range with purchase purchases accounting for 59% of production in the fourth quarter.

As we indicated on our last call we reduced our fixed expenses in the mortgage group to reflect the lower level of volumes that we are now seeing relative to 2020.

From Q1, 2021 to Q4 of 2021, our fixed expenses in the mortgage segment were reduced by 29%.

Turning to slide 15, and our expenses.

Our non interest expense increased by 24, 7% from the prior quarter, primarily due to higher acquisition related expenses, which we recorded in our data processing professional services and salaries and employee benefits line.

Excluding acquisition related expenses noninterest expense increased due to higher bonus accrual related to our strong loan and deposit production.

The adjusted basis, excluding acquisition related expenses.

Efficiency ratio increased to 71, 8% from 63, 7% in the prior quarter.

Looking ahead, while our overall expense levels will increase due to the acquisition of <unk>, our efficiency ratio should return to the mid 16.

We continue to look for opportunities to realize additional cost savings from the combined remainder of our operations.

During the first quarter, we will be consolidating our laundry office into one of our nearby Denver offices.

Luxury was in office that was added in that demonstrate branch acquisition and we waited until the lease expire to do the consolidation.

It will result in a small amount of cost savings.

Over the first half of 2022, we expect our operating noninterest expense quarterly run rate to be in the range of $19 million to $21 million.

Turning to slide 16, we'll look at our asset quality.

We continue to see positive trends across our portfolio, our nonperforming assets declined to 17 basis points of total assets from 21 basis points at the end of the prior quarter.

And we continue to see minimal losses in the portfolio.

We recorded a provision for loan losses of approximately 800000, which was related to the growth in total loans.

This brought our adjusted a triple L, which exclude PPP in acquired loans to 88 basis points of total loans at the end of the quarter.

Now I will turn the call back over to Scott Scott.

Thanks Julie.

Turning to slide 17, I'll wrap up with some comments about our outlook and strategies.

Our priorities for 2022.

Before I do though I'd like to mention that we filed a mixed shelf earlier this month.

This is something we always plan to do at some point following our IPO and its just a procedural step to have this in place should the need arise in the future.

Now turning to 2022, we believe we're very well positioned to deliver another year of balance sheet and EPS growth, resulting from both strong organic growth.

And the accretive impact of the <unk> financial services acquisition.

But with adjusted NIM only down two basis points in Q4, NIM should improve in 2022 with rising rates loan growth.

<unk>, our excess liquidity and the addition of lower cost deposits in the higher yielding loans acquired from Teton.

Our loan pipeline remains very healthy as we start 2022 and with the increasing production from the strong commercial banking platform. We built we.

We believe we will generate another year of mid teens loan growth.

Our mature profit centers continue to add new clients and our new offices.

Opened up in the past few years continue to scale to make larger contributions.

And recent investments that we've made in the team to build a team in Bozeman, Montana and to strengthen our existing team in Arizona should help these markets make a larger contribution to our growth this year.

While we continue to generate strong organic growth will also be focused on fully realizing the synergies from the <unk> acquisition.

We've always taken a conservative approach to the integration of our acquisitions, making sure that we provide a seamless transition so that we retain all the key personnel to ensure there's no disruption to the clients.

And so far with respect to the <unk> acquisition, we've been successful in this regard.

As we indicated earlier once the core banking system conversion as the branch consolidations are complete and me.

We will start to see a majority of the cost saves and the accretive impact of the merger.

And though we didn't model any revenue synergies. We believe we have a number of opportunities in this area.

Our formula for driving organic growth will continue to include investment in new banking talent and expansion into attractive markets, where we believe our value proposition will be well received.

We have a target of opening up one or two offices, new offices, a year and we're looking at opportunities both within our existing footprint and in new states that have markets with demographics that are a good match for our private and commercial banking services.

With the increased scale that we have funded the <unk> acquisition, we have the ability to continue investing in new talent and technology, while realizing improving operating leverage.

Part of our technology strategy includes investing in Fintech funds. This year, so that we have better insight into the innovations in the fintech space that will help inform our technology roadmap and determine which new applications of features we want to incorporate into our digital banking platform.

Later this year, we're consolidating our investment management and trust systems into a single more robust platform that will provide additional capabilities along with improved efficiencies from no longer running these two areas of the business on separate systems.

From a balance sheet perspective, we believe we are well positioned to benefit from rising rates, although it's always been our policy not to make bets on the direction of interest rates.

Just for the way the bank has evolved over the past several years with more variable rate commercial loans and a higher mix of noninterest bearing deposits, we have become more asset sensitive.

With the improvement in our deposit base, we expect to have little or no deposit base data on the first couple of rate hikes.

And with a high level of liquidity, we have good opportunities to improve our mix of earning assets as we continue to see strong loan growth.

The low deposit beta and improved earning asset mix should enable us to see some expansion in our net interest margin this year, which will be another catalyst for earnings growth and improved returns.

In 2022, we will also remain active with our M&A program.

Even when we closed and started the integration of Teton merger, we've been evaluating additional M&A opportunities and we are well positioned to execute on any other transactions that we believe can strengthen our franchise and create long term value for our shareholders.

In closing economic conditions in our markets are strong we're executing well in all areas of the organization.

Productivity in our business development team continues to increase.

We will see increasingly positive impact from the <unk> acquisition as we move through the year we.

We have good opportunities to continue expanding our franchise by growing our current offices opening new offices entering new markets and executing on additional strategic transactions.

Increasing share shares outstanding tangible book value and market cap should all support shareholder value growth.

We are well positioned to benefit from rising interest rates.

As a result, we're very confident in our ability to continue generating profitable growth and enhancing the value of our franchise in 2022 and in the years to come.

With that we're happy to take your questions very please open up the call.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your touch tone telephone again to ask a question. Please press Star then one.

One moment please.

Our first question comes from Brett <unk> of holding group your line is open.

Hey, good morning, everyone.

Brett.

Wanted to first ask Amit.

On guidance can you talk about the 19% to 21 million.

I assume thats the level for the first quarter and then what the expense savings.

Transpiring throughout the year that maybe that number flat.

Latins flattens out.

I don't know if theres any.

Comments, you could give on the inflationary pressures many are.

Having but want to make sure I understand the guidance from $19 million to $21 million.

How that how that.

Transpires throughout the year.

Sure I can take that Brett and good morning.

So that would be our operating we've tried to exclude any additional expenses that are coming through that are acquisition related to give you a kind of a baseline number.

However in May we should see with the consolidation of systems.

A little bit more benefit in our expense reduction from the acquisition and we saw some in the first part of the first quarter and then a bit more will happen at the end of May.

And overall, we would expect it to come down slightly or level out. However, we are still investing in the business and our new offices throughout the rest of this year as part of our plan. So I think that youll see a little bit of a dip going into the third quarter, but.

We are still planning to be.

Actively working on building the business of bonds.

Okay.

That's helpful and then just thinking about the margin.

Your disclosure last quarter was like four 4% for 100 up environment.

Can you talk can you can you give us maybe how much of the loan portfolio.

Variable rate how much re prices in the first 90 days of a fed hike and maybe how much might be.

Our portfolio might be below floors.

Julie I think you have those numbers.

And so our portfolio is about 31% variable rate.

Of those variable rate loans about 36% of those are below their floors. So taking all that into account we would expect about a four basis point increase in average loan yields from the first rate hike of 25 basis points.

The impact gets larger as you continue to see additional rate hike. So it's more of the variable rate loans come off their floors, we should be seeing quite a bit of.

Improvement from there and then as Scott mentioned, we're not expecting.

For the first couple of rate hikes significant changes in our deposit cost you.

You can kind of take that into account.

Okay.

And then maybe just one last one on M&A, Scott you talked about still remain active and it sounds like you're engaged in maybe some conversations.

Would would M&A from here for you potentially new markets do you think or would it be more end market side.

Situations.

Well, we look at both.

We have a list of priority.

Combination.

<unk> that we think makes sense and we have active conversations with.

Those folks and some of them are in market. Some of them are adjacent none are.

Out of our market.

Would make sense given what we've done historically.

I think they are all kind of consistent with the way we approach this.

As you know these things get sold not bought so.

But we have a lot of lines in the water and.

Don't know, whether something would happen in 2022 or not but.

Typically you don't know going into the year right I mean, it's a project that we keep working on it it's a priority for us and we think that the combination of solid organic growth and expansion and acquisition all play really nicely. Each other and if you can find an acquisition that fits in as appropriate value great and if you can't we're going to.

See some good organic growth anyway.

Okay, great appreciate the color.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone.

Our next question comes from Bill Zelem Titan Capital Your line is open.

Good morning, let's start with the mortgage side of the business and how are you thinking about mortgage originations in 'twenty two versus <unk> 21.

Yeah.

I think we would start the answer there bill by reminding everybody that this is not a big growth focus for us.

Given the big headwinds in that business.

That we expect to continue into 2022.

Profitable strategic business for us and we have room to continue to improve the profitability there.

As we have seen improving margins actually in 2021.

So we certainly have opportunities in new markets that should be helpful from a production standpoint.

The purchase market is healthy there is a lot of demand not a lot of supply was expecting some of that supply to come back in sooner than what we're seeing but maybe in the spring season here, we're going to see.

More supply.

Certainly we're not anticipating much activity in refis as rates.

Go up.

We are studies originate.

And sell directly to agencies, now, which will get us better execution.

Help us continuing to improve our margins.

Overall, we are probably looking at production volumes similar to 2021.

But we continue to improve the profitability of the business.

But also.

We just pointed out you can see this in the numbers in the deck that due to our strong non mortgage growth mortgage revenues as a percent of our growth revenues are down by something like 50%.

Since 2020, so I think the great year, we had in 2020 and mortgages. We said one of the challenges for 2021 and replace that with core business and we've gone out and done a big time.

Excellent. So if I may summarize just to make sure I'm fully grasping here.

In.

You are you are believing that your total origination volume will be above 21 volume, but you are also anticipating.

Is that your profitability will be it will be higher just because of the expense management that <unk> been doing is that correct.

I think if you assume it's flat year over year.

That's going to be a safe assumption.

That's fair and let me ask this.

Because many of your markets our destination markets.

Are you are you thinking is that the activity levels are going to be stronger in terms of in terms of sale activity.

Residences and advent in other places around the country or is that.

I stretching too far.

Yes.

I think where we are today in the resort markets, if that's what you're referring to which would be kind of Jackson Aspen.

In Vale.

Thats, a very small percentage of our mortgage business.

The great majority of our mortgage originations are.

In the front range in.

I hate to keep saying this but I continue to hope it's true that you'll be able to develop a nice Arizona mortgage business to complement what we have in Colorado.

Would be a big benefit for us both in terms of volumes and getting in front of this ongoing.

Purchase wave down there and also.

In terms of seasonality and the offsetting our natural seasonality that we have here in Colorado.

And did we hear in your opening remarks that you have made hires in the Phoenix market and if so where those mortgage related or other.

Other parts of the business.

We've been focused.

In the past six months or so now building.

Stronger core banking team there.

And so we've actually made some hires there and with more to come in 2022, we think that thats.

Area of significant opportunity for us if we had the.

<unk> market share in the Phoenix MSA that we have here in the front range.

We'd be a much larger bank that what we are today. So we think theres a lot of opportunity there.

And that is an area we have been investing in it.

To see that continue into 2022.

Great. Thank you and then a question from a point of ignorance.

You closed the <unk> acquisition earlier than anticipated and you did mentioned that it's accretive to book value now.

Is there any aspect of the asset implies that the earnings accretion will end up being greater than anticipated in 'twenty two.

Or even longer term.

So when we announced.

The <unk>.

Economics of the deal last summer.

We.

A down some expectations in terms of cost saves and there is accretion and we don't know anything today that would make us think differently than we did then.

Did not include any <unk> revenue synergies.

In that.

And I think we all know that there will be revenue synergies I am pretty confident about that from what we know today, we have a higher.

Legal lending limit so that enables us to do larger loans at first western.

<unk> enables us to do larger loans for our legacy Rocky Mountain Bank clients.

And then of course.

What we have found so far is a really nice cultural fit between the associates that we brought on through this.

Transaction and then also the clients and so there's going to be a lot of cross selling opportunities providing more tools out of the first western toolkit, which is larger than a normal community banks toolkit.

I just also would take the mobile if you don't mind to call out the teams that have worked on this I mean I think the.

The legacy Rocky Mountain Bank folks have been terrific and working through this transition and our team here has worked really hard with 22 transition teams working since last summer to be ready for this December close, which as you say closed ahead of schedule with a favorable numbers an excellent accretive accretive the cap.

Little a really nice set up for 2022.

Great well, thank you and congratulations to all involved.

Thank you. Our next question comes from Brad <unk> of call capital. Your line is open.

Great. Thank you.

A couple of questions here, one regarding your trust and investment management fees. It looks like they were up about 6% for the year.

At a time when the S&P was up.

And on the 29%.

I was thinking you would maybe have greater growth in that area given that strong appreciation in the broader market can you just give me some color.

Sure.

$7 5 billion or so in assets under management today.

Is concentrated on.

The conservative portfolios and so we.

We don't track the S&P typically we will track.

Our goal is to try and capture about the market gains on the upside and if so if they have a 60 40 mix or a 80 20 mix or whatever.

You see.

A lot less than what the S&P or NASDAQ is going to do just on an equity portfolio.

I think we grew 19% or something like that last year.

It was in the announced within them.

Slide deck of the growth through the year.

Looking year over year remember that we had a.

Fixed income manager.

Management team based in L. A.

We called first Western capital management that we sold.

At the end of 2020, and I think there was something like a little less than a $1 billion in revenues that went out the door there and so the actual sort of adjusted year over year you'd have to.

Factored out.

Okay got you and.

I'm looking at your mortgage banking.

Yes.

Numbers and taking it in context with.

And the expectation that volumes may be the same for 22 versus <unk> 21.

Looking at 2021, I mean, you started the quarter with $500 million originations for sale and it steadily went down too.

Less than $200 million in the fourth quarter.

To equal those volumes that basically means a very steep ramp from fourth quarter originations.

Is that am I reading this correctly that you do think those originations are kind of at trough levels in the fourth quarter and do for a substantial increase in the quarters in 2022.

Well, that's certainly the history.

We see a lot of seasonality in our mortgage business.

I actually think that that you raised a number of good points, there and if I could.

Direct you to page 14.

Uh huh.

I think that this slide has a lot of information embedded in it and understand it.

How this stuff sort of inner plays.

As helpful to answer your question more directly so in the lower left hand corner of page 14. It shows originations originations are sort of the activity that comes out of the end of the funnel, but you actually book revenues.

Mortgages off of locks and Thats the chart on the lower right hand corner.

And as you look at that you can see the repeat this year's volumes.

We just need to do.

Similar numbers that we did in <unk>.

Q2, and Q3, which I think are achievable for us from what we know today, I mean, who knows what's going to happen with rising rates.

If the supply is going to be there to meet the demand and all of that but.

Based on our plans to continue to build our MRO team in there.

Margins, we think we can.

We think we can produce luxe at a similar level to last year and in the upper right hand corner I think is instructive because at the end of the day, what we really care about here is not so much volume is profitability.

And if you look at the volumes.

In the lower right hand corner, you look at the revenues on the upper.

Upper right hand corner, you see that we've actually improved our margins and we've cut our fixed expenses, we were doing $3 one.

Million in expense in the first quarter fixed expense and we brought that down to $2 2 million in Q3, and Q4 and I have to tell you. If we're going to see volumes dropping in the $150 million to $200 million block.

Block range and next year, we certainly don't need 2 million $2 2 million in expenses.

We can drive profitability I think we've proven that we can do that.

In spite of shrinking.

Volumes.

Okay got it and lastly here.

I know there was a lot going on in the fourth quarter and it seems like the first quarter and second quarter of 2022 will be.

A little.

A little muddled with some of the merger.

Accounting and charges and it seems like third quarter.

2022 may be a clean quarter all cost saves are most cost saves had been achieved.

Is it safe to assume that you are probably back to that 125 barrel a run rate.

Or maybe even a little bit better.

Around that level.

Yes, that's a great question.

I've said it before here and I think it bears repeating that we are a relatively small company and a little bit of noise goes a long way on our financials and so I think the extent that we can kind of look beyond the quarter at the trends.

There's some very positive trends going into 2022.

Much larger balance sheet, we're seeing a lot of good growth opportunities, we're putting up really strong growth numbers, we're seeing great economies in all of our markets.

So lots of opportunity there, we're seeing first western succeeding competitively, we're outperforming our peers and our balance sheet.

<unk> is very strong going into 2022 with good organic growth and good expansion opportunities and I think.

We've proven that we're good acquirers that we know how to do that successfully.

The numbers that are remained to be expense related to <unk> are not significant I mean, that's going to be.

Relatively small factor into 2022 mortgage profitability, we think is manageable.

The consensus estimates that are out there seem reasonable to us so we think that.

This Q4 downturn is not a trend this is.

Combination of.

Mostly positive things that are showing up in the Q3 and Q4 numbers and I think that looking through that we see are positive.

Outlook for 2002.

Great. Thank you appreciate it.

Thank you. Our next question comes from Matthew Clark with Piper Sandler Your line is open.

Hey, good morning.

Just wanted to.

Hit on the on the margin outlook here in the near term just putting the two banks together.

And the excess liquidity that comes along with Teton I was there any kind of balance sheet changes.

Changes youre, making since the deal closed how should we think about.

Kind of a core NIM here in the upcoming quarter, just given the remix that's likely.

Well.

Your questions right.

NIM was only down two basis points on our adjusted kind of operating basis from $2 92 to $2 90, as Julie mentioned in her comments.

You go to slide 12.

12.

I think it's a little confusing so if I could just kind of walk through that like I did on that other mortgage slide.

That might be helpful. If you look at Q3.

And you exclude PPP.

PPP and the.

Interest recovery and accretion noise.

That number which shows on the charter to $3 14, 306 is actually $2 92, so thats the tuning to Julie referenced and that if you do the same thing.

And in Q4, you get a 290.

I know that the 292 was printed there and this is the same number by coincidence is the adjusted number in Q3, but that's.

That's how you get to that number and then looking forward to your questions.

We're a rising rate environment if rates go up short rates go up.

1%, that's another $4 million in interest income for us.

Then you've got <unk> coming on our books at $4 74 average yield rate, that's like originating $250 million on December 31st.

474 so.

There are some pretty good embedded.

NIM trends just in what we've already done and then we're seeing better rates already new production.

In Q1.

Another interesting thing like the last two years, we've had a really strong loan production of fourth quarter and then we come out really weak in Q1, and then we're kind of behind our trend line that we'd like to see through the year and so this year, we said, let's not do that let's focus on closing and building the pipeline for Q1, and we actually ended the year with a <unk>.

Pipeline.

I think about the same as it was going into Q4.

So we're hopeful that we're going to see a nice.

Organic growth in Q1 in addition, which obviously sets you up for a better year than if you're starting.

Flat to Q1.

Liquidity question, we have if you look at our liquidity ratio.

Argue that we have about $200 million of excess liquidity on the books and cash so that pipeline is really hoping to use that cash in that pipeline that Scott just talked about in the loan growth the improvement in the margin from that as well.

Great point Julien.

Okay, great. Thank you and then.

Yes, that's great. Thank you I missed some of the earlier comments around the margin.

And then just on M&A.

Your updated thoughts there.

In terms of your appetite from a geographic and size perspective now.

You guys have gotten this deal closed.

Integrating.

Well.

We do have an active corporate development program that continues we have lots of lines in the water I would tell you we've raised our sights a little bit.

$2 5 billion and if we experience our kind of normal growth. This year, we're getting near three at the end of the year doing $1 billion acquisition I think it probably makes more sense now than it might have before.

So we have.

Broadband or really just raised the size of deals that were.

Focused on or potential partners that we're focused on.

And we have a number of high priority projects that we're working on.

As I said a minute ago I mean, these things do get sold not bought and so.

We build the relationships.

At the time is right for the.

Sellers to do something when it works for us under terms that work for US I mean, we've also had a number of deals that we've looked at that makes sense from a strategic standpoint, but the pricing doesn't make any sense. So we have a long history I think of doing these things in a way that add value certainly that's true with the mortgage.

We did three years ago, and certainly true with the branch purchase we did last year and our new partnership with tea time folks I think is just going to be another home loan added to the.

Other recent deals we've done.

You wanted to add there Julian it looked like you were getting ready to just to add that.

Yes.

Notwithstanding the.

I hope that we can find another deal we're working on the incubation and a couple of offices as well.

Things, we can control we are working on continuing to grow to.

The office space that we have today.

That's great. Thank you.

Thank you I'm showing no further questions at this time I'd like to turn the call back over to management for any closing remarks.

Well I think we hit on all the main points in the question in the prepared remarks, I mean, I do think that there is a lot of noise this quarter.

You all have asked some really good questions about.

About the nature of that but we don't look at Q4 as a trend.

Into the future I think it's a nice setup for 2022, where we've ended the year means that we're in a really good place starting the new year and we're optimistic about the company's outlook.

Both in terms of organic growth expansion and acquisition into.

2022, so thanks, everybody for taking the time to listen today and participate and we appreciate the support thank you.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.

[music].

Okay.

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Thank you.

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I asked the question at that time. Please press Star then one when you touch tone telephone.

As a reminder, today's conference call is being recorded.

I would now like turn the call so to your host Mr. Tony Rossi of financial profile. So you may begin.

Thank you Valerie good morning, everyone and thank you for joining us today for first Western Financial's fourth quarter 2021 earnings call joining us from first Western's management team are Scott Wylie, Chairman and Chief Executive Officer, and Julie core Kamp Chief Financial Officer.

We use a slide presentation as part of our discussion this morning.

Have 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.

I'd 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 directly comparable GAAP measures.

Thanks, Tony.

Good morning, everybody.

Our fourth quarter performance capped another strong year of delivering on the vision, we communicated at the time of our IPO in 2018.

As we saw in Q3, it's quite a bit of noise in the reported numbers, which we will unpack for you today.

We continue to realize more operating leverage and improve our level of profitability as we scale the company through a combination of organic growth expansion and accretive acquisitions.

The success, we've had in executing on our vision for first western is creating exceptional value for our shareholders.

Since our IPO in mid 2018, our tangible book value per share has increased by 116% with more than 20% increase just in 2021.

We ended 2021 with another quarter of exceptional balance sheet growth driven by strong commercial banking platform, we built over the last two years.

The growing contribution of new offices and bankers that we've added.

A record quarter of loan production, excluding PPP loans resulted in organic growth of 25% on an annualized basis in Q4, our highest level since coming public.

Well organic deposit growth was also strong at 10% annualized.

Our asset quality remains exceptional with nonperforming assets declining to 17 basis points of total assets and another quarter with an immaterial amount of net charge offs.

Complementing the strong organic growth was the completion of our acquisition of <unk> financial services, just over five months after announcing the transaction at.

At the time of the announcement, we estimated that the transaction would be slightly dilutive to tangible book value with an earn back period of just under half a year.

As a result of a higher stock price and slightly lower deal costs. The transaction is accretive to tangible book value, which further improved the attractive economics of this deal.

The integration is proceeding smoothly and on schedule, including the trusted mortgage systems that have already been integrated.

We've set the core banking system conversion and consolidation of the Jackson hole locations for me.

We also saw higher provision due to loan growth in Q4 further impacting Q4 as reported results.

We continue to see strong increases in book value and tangible book value per share driven by our financial performance and the accretive impact of the Teton financial services transaction.

Turning to slide five we'll look at the performance of our private banking commercial banking and trust and investment management businesses.

As represented by the pre tax earnings of our wealth management segment.

On a year over year basis, our pre tax earnings increased 90% in this segment.

After the outsized earnings we generated the mortgage business in 2020, we're seeing our other businesses billing and that earnings gap so to speak.

With a more sustainable source of earnings growth, while our mortgage business returned 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.

The <unk> acquisition contributed $252 million to our period end balances.

This amount includes our preliminary purchase accounting adjustments there could be some small additional adjustments as they are finalized, but nothing particularly material is expected.

As it stands now the loan marks are lower than what we had initially expected when the deal was announced.

On an organic basis, we had $225 million in loan production this quarter, which was a record level and 68% higher than the prior quarter.

Loan payoffs were also higher than the prior quarter at $122 million, but the strong production more than offset the runoff and <unk>.

Results in a $98 5 billion in net organic growth loan growth, which increases across most of our.

Portfolio.

The strongest growth came in our commercial real estate portfolio, where theres more demand in the current environment.

Over the longer term, we remain focused on growing our C&I portfolio at a faster rate than our other portfolios.

But we have the broad business development capabilities to enable us to be flexible and pursue whatever asset class provides the most attractive opportunities at any given point in time.

For the second consecutive quarter, our cash securities and other portfolio also grew due to more demand among our private banking clients.

Is that what management secured lines of credit.

Although the level of growth is masked by the continued run off of PPP loans that are also held in this portfolio.

Moving to slide seven we'll take a closer look at our deposit trends are.

Our total deposits increased $423 million from the end of the prior quarter.

With $379 million coming through the <unk> acquisition and $44 million through organic growth.

The $60 million temporary deposit that we mentioned on our last call did not run off and in its entirety in the fourth quarter as expected.

$50 million remained at the end of the year. It is expected to run off early this year as the proceeds from this liquidity event, our distributed partners of the real estate fund.

While we saw some deposit outflows among our existing clients during the fourth quarter. This was more than offset by our successful new business development efforts that resulted in $110 million and new deposit accounts being opened in the fourth quarter.

Moving to slide eight.

We'll look at the progress in building our commercial banking.

Platform, which is providing more loan diversification and improving our deposit base by adding low cost transaction deposits.

Commercial loans increased $95 million from the prior quarter and $213 million from the prior year.

Commercial deposits increased $216 million from the prior quarter and $424 million from the prior year.

This represents 23% commercial loan growth at 43% commercial deposit growth over the prior year and this reflects the strong momentum we have and growing our commercial client base.

Turning to trust and investment management on slide nine.

Our total assets under management increased $1 1 billion or 17, 5% from the end of last year.

This increase was due to a combination of closing on Teton financial acquisition contributions to the existing accounts and new accounts as well as improving market conditions, resulting in an increase in the value of assets under management.

During the fourth quarter, new clients accounted for approximately $44 million of our growth in assets under management.

With that I'll turn the call over to Julie for further discussion of our financial results.

Elliot.

Thanks, Curt on Slide 10, we have provided an update on our participation in the PPP program and how it impacted various metrics in the fourth quarter.

As of December 31, we had $46 $8 million in PPP loans remaining on our balance sheet.

Decline of $21 8 million from the end of the prior quarter.

That by $6 7 million of acquired PPP loans.

Approximately 500019 during the first quarter and had seven.

These remaining to be recognized at December 31st.

TPP had a six basis point positive impact on our net interest margin in the fourth quarter.

The PPP loans are forgiven, our borrowings from the liquidity facility that were used to fund the loan originations also decline at December 31, our borrowings from the facility were down to $23 6 million.

Turning to slide 11, well look at our gross revenue.

Total gross revenue decreased seven 5% from the prior quarter, primarily due to a lower net gain on mortgage loans with.

With the exception of the net gain we had increases in most of our noninterest income generating areas.

Turning to slide 12, we'll look at the trends in net interest income and margin. Our net interest income decreased three 1% from the prior quarter, primarily due to a decline in PBT is recognized.

A decline in interest recovery and a lower level of accretion income on purchase plan.

When these are all excluded from both periods, our net interest margin declined two basis points to two 9% from the prior quarter.

Primarily due to new loan production coming on the book at lower rates than the average yield on the existing portfolio.

With the successful close of the <unk> acquisition, we should benefit from lower cost of funds of 17 basis points and higher loan yield of 474%.

The acquired balance sheet added to our excess liquidity on a temporary basis.

But as we put more of this liquidity to work with higher yielding assets, resulting from our strong loan production, we should see a positive impact in our net interest margin going forward.

Turning to slide 13, our non interest income decreased nine 1% from the prior quarter due to the decline in net gain on mortgage plan.

This was partially offset by increases in most other areas of non interest income as well as an approximate 500000 net gain on equity interest.

We continue to see steady growth in our trust and investment management fees, which were $6, 8% higher than the fourth quarter of 2020.

On slide 14, we have provided some additional detail on our mortgage operations.

Our volume of mortgage locks declined by 39% from the prior quarter due to both a drop in refinancing volumes in a seasonally slow period for the purchase market.

The mix of production continues to move back towards our historical range with purchase purchases accounting for 59% of production in the fourth quarter.

As we indicated on our last call we reduced our fixed expenses in the mortgage group to reflect the lower level of volumes that we are now seeing relative to 2020.

Q1, 2021 to Q4 of 2021, our fixed expenses in the mortgage segment were reduced by 29%.

Turning to slide 15, and our expenses.

Our noninterest expense increased by 24, 7% from the prior quarter, primarily due to higher acquisition related expenses, which we reported in our data processing professional services and salaries and employee benefit plans.

Excluding acquisition related expenses noninterest expense increased due to higher bonus accrual related to our strong loan and deposit production on an adjusted basis, excluding acquisition related expenses.

The efficiency ratio increased to 71, 8% from 63, 7% in the prior quarter.

Looking ahead, while our overall expense levels will increase due to the acquisition of <unk>, our efficiency ratio should return to the mid <unk>. We continue to look for opportunities to realize additional cost savings from the combined remainder of our operations.

During the first quarter, we will be consolidating our laundry office.

<unk> one of our nearby Denver offices.

<unk> was an office that was added in the chairman Frank Brent Branch acquisition.

And we waited until the lease expired today that consolidation, which will result in a small amount of cost savings.

Over the first half of 2022, we expect our operating noninterest expense quarterly run rate to be in the range of $19 million to $21 million.

Turning to slide 16, we will look at our asset quality.

We continue to see positive trends across the portfolio.

Nonperforming assets declined 17 basis points of total assets from 21 basis points at the end of the prior quarter.

We continue to see minimal losses in the portfolio.

We recorded a provision for loan losses of approximately 800000, which is related to the growth in total loans.

This brought our adjusted a triple L, which exclude PPP in acquired loans to 88 basis points of total loans at the end of the quarter.

Now I will turn the call back over to Scott Scott.

Thanks Julie.

Turning to slide 17, I'll wrap up with some comments about our outlook and strategies.

Our priorities for 2022 before I do though I'd like to mention that we filed a mixed shelf earlier this month.

This is something we always plan to do at some point following our IPO and its just a procedural step to have this in place should the need arise in the future.

Now turning to 2022, we believe we're very well positioned to deliver another year of balance sheet and EPS growth, resulting from both strong organic growth and the accretive impact of the Teton financial services acquisition.

But with adjusted NIM only down two basis points in Q4, NIM should improve in 2022 with rising rates loan growth.

Reducing our excess liquidity and the addition of lower cost deposits in the higher yielding loans acquired from Teton.

Our loan pipeline remains very healthy as we start 2022 and with the increasing production from the strong commercial banking platform we built.

We believe we will generate another year of mid teens loan growth.

Our mature profit centers continue to add new clients and our new offices.

Opened up in the past few years continue to scale and make larger contributions.

And the recent investments that we've made in the team to build a team in Bozeman, Montana and to strengthen our existing team in Arizona should help these markets make a larger contribution to our growth this year.

While we continue to generate strong organic growth will also be focused on fully realizing the synergies from the <unk> acquisition.

We've always taken a conservative approach to the integration of our acquisitions, making sure that we provide a seamless transition so that we retain all the key personnel ensure there's no disruption to the clients.

And so far with respect to the <unk> acquisition, we have been successful in this regard.

As we indicated earlier once the core banking system conversion as the branch consolidations are complete in May we.

We will start to see a majority of the cost saves and the accretive impact of the merger.

And though we didn't model any revenue synergies. We believe we have a number of opportunities in this area.

Our formula for driving organic growth will continue to include investment in new banking talent and expansion into attractive markets, where we believe our value proposition will be well received.

We have a target opening up one or two offices, new offices, a year and we're looking at opportunities both within our existing footprint and in new states that have markets with demographics that are good match for our private and commercial banking services.

With the increased scale that we have funded the <unk> acquisition, we have the ability to continue investing in new talent and technology, while realizing improving operating leverage.

Part of our technology strategy includes investing in Fintech funds. This year, so that we have better insight into the innovation in the Fintech space that will help inform our technology roadmap and determine which new applications are features we want to incorporate into our digital banking platform.

And later this year, we're consolidating our investment management and trust systems into a single more robust platform that will provide additional capabilities along with improved efficiencies from no longer running these two areas of the business on separate systems.

From a balance sheet perspective, we believe we are well positioned to benefit from rising rates, although it's always been our policy not to make bets on the direction of interest rates.

Just from the way the bank has evolved over the past several years with more variable rate commercial loans and a higher mix of noninterest bearing deposits, we have become more asset sensitive.

With the improvement in our deposit base, we expect to have little or no deposit base data on the first couple of rate hikes.

And with a high level of liquidity, we have good opportunities to improve our mix of earning assets as we continue to see strong loan growth.

In 2022, we will also remain active with our M&A program.

Even though we closed and started the integration of Teton merger, we've been evaluating additional M&A opportunities and we are well positioned to execute on any other transactions that we believe can strengthen our franchise and create long term value for our shareholders.

In closing economic conditions in our markets are strong we're executing well in all areas of the organization and productivity in our business development team continues to increase.

We will see increasingly positive impact from the <unk> acquisition as we move through the year.

We have good opportunities to continue expanding our franchise by growing our current offices opening new offices entering new markets and executing on additional strategic transactions.

Increasing share shares outstanding tangible book value and market cap should all support shareholder value growth.

And we're well positioned to benefit from rising interest rates.

As a result, we're very confident in our ability to continue generating profitable growth and enhancing the value of our franchise in 2022 and in the years to come.

With that we're happy to take your questions very please open up the call.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your touch tone telephone again to ask a question. Please press Star then one.

One moment please.

Our first question comes from Brett <unk> of <unk> Group. Your line is open.

Hey, good morning, everyone.

Brett.

I wanted to first ask on the guidance can you talk about the 19% to 21 million.

I assume that's the level for the first quarter and then what the expense savings.

Transpiring throughout the year that maybe that number flattens flattens out and I don't know if theres any.

Comments, you could give on the inflationary pressures many are.

Having but want to make sure I understand the guidance from $19 million to $21 million.

How that how that.

Transpires throughout the year.

Sure I can take that Brett and good morning.

So that would be our operating we've tried to exclude any additional expenses that are coming through that are acquisition related to give you kind of a baseline number.

However in May we should see with the consolidation of systems.

A little bit more benefit in our expense reduction from the acquisition and we saw some and the first part of the first quarter and then a bit more will happen at the end of May.

We are still planning to be actively working on building the business evolved.

Okay.

That's helpful and then just thinking about the margin.

Your disclosure last quarter was like four 4% for 100 op environment.

Can you talk can you can you give us maybe how much of the loan portfolio is variable rate and how much re prices in the first 90 days of a fed hike and maybe how much might be.

Portfolio might be below floors.

Julie I think you have those numbers.

And so our portfolio is about 31% variable rate.

The impact gets larger as you continue to see additional rate hikes. So if more of those variable rate loans come off their floors, we should be seeing quite a bit of.

Improvement from there and then as Scott mentioned, we're not expecting.

For the first couple of rate hikes significant changes on our deposit cost. So you can kind of take that into account.

Okay and then.

Maybe just one last one on M&A, Scott you talked about.

We'll remain active and it sounds like you're engaged in maybe some conversations.

Would would M&A from here for U b potentially new markets do you think or would it be more end markets.

Situations.

Well, we look at both.

We have a list of priority.

Combinations that we think makes sense and we have active conversations with.

Those folks and some of them are in market. Some of them are adjacent none are.

Out of the market.

It would make sense given what we've done historically I think they are all kind of consistent with the way we approach. This.

No these things get sold not bought so.

We have a lot of lines in the water and I don't know, whether something would happen in 2022 or not but.

Typically you don't know going into the year right I mean, it's it's a project that we keep working on it it's a priority for us and we think that the combination of solid organic growth and expansion and acquisition all play really nicely. Each other and if you can find an acquisition that fits in as appropriate value great and if you can't we're going.

To see some good organic growth anyway.

Okay, great appreciate the color.

Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone.

Our next question comes from Bill Zelem Titan Capital Your line is open.

Good morning, let's start with the mortgage side of the business and how are you thinking about mortgage originations in 'twenty two versus <unk> 21.

No.

I think we would start the answer there bill by reminding everybody that.

This is not a big growth focus for us.

Given the big headwinds in that business.

We expect to continue into 2022, it is a profitable strategic business for us.

And we have room to continue to improve the profitability there.

As we have seen improving margins actually in 2021. So we certainly have opportunities in new markets that should be helpful from a production standpoint.

The purchase market is healthy there is a lot of demand not a lot of supply I was expecting some of that supply to come back in sooner than what we're seeing but maybe in the spring season here, we're going to see.

More supply.

Certainly we're not anticipating much activity in refis as rates.

Go up.

We are starting to resonate.

And sell directly to agencies, now, which will get us better execution and help us continue to improve our margins.

Overall, we're probably looking at production volumes similar to 2021.

But we continue to improve the profitability of the business.

I also would just point out you can see this in the numbers in the deck that due to our strong non mortgage growth mortgage revenues as a percent of our growth revenues are down by something like 50%.

Since 2020, so I think the great year, we had in 2020 and mortgages. We said one of the challenges for 2021 and replace that with core business and we've gone out and done a big time.

Excellent. So if I may summarize just to make sure im fully grasping here.

In.

You are you are believing that your total origination volume will be above 21 volume, but you are also anticipating.

Is that your profitability will be will be higher just because of the expense management that <unk> been doing is that correct.

I think if you assume it's flat year over year.

That's going to be a safe assumption.

That's fair and let me ask.

Because many of your markets our destination markets.

Are you are you thinking is that the activity levels are going to be stronger in terms of in terms of sale activity of of residences van in other places around the country or is that.

I stretching too far.

Yes.

I think where we are today in the resort markets, if that's what you're referring to which would be kind of Jackson Aspen and Vale.

That's a very small percentage of our mortgage business.

The great majority of our mortgage originations are.

In the front range in.

I hate to keep saying this but I continue to hope it is true that you'll be able to develop a nice Arizona mortgage business to complement what we have in Colorado.

Would be a big benefit for us both in terms of volumes and getting in front of this ongoing.

Purchase wave down there and also.

In terms of seasonality and offsetting our natural seasonality that we have here in Colorado.

And did we hear in your opening remarks that you have made hires in the Phoenix market and if so where those mortgage related or other.

Other parts of the business.

We've been focused.

In the past six months or so now building.

Stronger core banking team there.

And so we've actually made some hires there and with more to come in 2022, we think that Thats a area of significant opportunity for us if we had to.

Same market share in the Phoenix MSA that we have here in the front range we'd.

We'd be a much larger bank that we are today. So we think there is a lot of opportunity there.

And that is an area, we have been investing and I expect to see that continue into 2022.

Great. Thank you and then a question from a point of ignorance.

You closed the <unk> acquisition earlier than anticipated and you did mentioned that it's accretive to book value now.

Is there any aspect of that that implies that the earnings accretion will end up being greater than anticipated in 'twenty two.

Or even longer term.

So when we announced that.

The economics of the deal last summer.

We.

A down some expectations in terms of cost saves and there is accretion and we don't know anything today that would make us think differently than we did than we.

We did not include any ribbit revenue synergies.

And I think we all know that it will be revenue synergies I am pretty confident about that from what we know today, we have a higher.

Legal lending limit so that enables us to do larger loans at first western.

Enables us to do larger loans for our legacy Rocky Mountain Bank clients.

And then of course.

What we have found so far is a really nice cultural fit between the associates that we brought on through this.

Transaction and then also the clients and so there's going to be a lot of cross selling opportunities providing more tools out of the first western toolkit, which is larger than our normal community banks toolkit.

I just also would take the mobile if you don't mind to call out the teams that have worked on this I mean I think.

Sure.

They set up for 2022.

Great well, thank you and congratulations to all involved.

Thank you.

Thank you. Our next question comes from Brad <unk> of call capital. Your line is open.

Great. Thank you.

Quick questions here, one regarding your trust and investment management fees. It looks like they were up about 6% for the year.

At a time when the S&P was up 29%.

I was thinking you would maybe have greater growth in that area given that strong appreciation in the broader market can you just give me some color.

Sure.

$7 5 billion or so in assets under management today.

Is concentrated on.

The conservative portfolios and so.

We don't track the S&P typically we will track.

Our goal is to try and capture.

<unk> the market.

Gains on the upside and if so if they have a 60 40 mix or a 80 20 mix or whatever.

You see.

A lot less than what the S&P or NASDAQ is going to do just on equity portfolio.

I think we grew 19% or something like that last year.

It was in the announced within the.

Slide deck of the growth through the year now if you're looking year over year remember that we had a.

Fixed income manager.

Management team based in L. A.

We called first Western capital management that we sold.

At the end of 2020.

I think there was something like a little less than $1 million in revenues that went out the door there and so the actual sort of adjusted year over year, you would have to factor that out.

Okay Gotcha.

I'm looking at your mortgage banking.

Numbers and taking it in context with.

And the expectation that volumes may be the same for 22 versus <unk> 21.

Looking at 2021, I mean, you started the quarter with $500 million originations for sale and steadily went down too.

Less than $200 million in the fourth quarter.

To equal those volumes that basically means a very steep ramp from fourth quarter originations.

Is that am I reading this correctly that you do think those originations are kind of at trough levels in the fourth quarter and do for a substantial increase in the quarters in 2022.

Well, that's certainly the history.

See a lot of seasonality in our mortgage business.

I actually think that that you raised a number of good points, there and if I could.

Direct you to page 14.

Uh huh.

I think that this slide has a lot of information embedded in it and understand it.

How this stuff sort of inner plays.

Mortgages off of locks and Thats the chart on the lower right hand corner.

And as you look at that you can see to repeat this year as volumes really just need to do.

Similar numbers that we did in.

Q2, and Q3, which I think are achievable for us from what we know today, I mean, who knows what's going to happen with rising rates.

If the supply is going to be there to meet the demand and all of that but.

Based on our plans to continue to build our MRO team in there.

<unk> margins, we think we can.

If you look at the volumes.

In the lower right hand corner, you look at the revenues on the upper.

Upper right hand corner, you see that we've actually improved our margins and we've cut our fixed expenses, we were doing three one.

Million in expense in the first quarter fixed expense and we brought that down to $2 2 million in Q3, and Q4 and I have to tell you, though if we see volumes dropping in the $150 million to $200 million lock.

Block range in next year, we certainly don't need 2 million $2 2 million in expenses. So we can drive profitability I think we've proven that we can do that.

In spite of shrinking.

Volumes.

Okay got it and lastly here.

I know there was a lot going on in the fourth quarter and it seems like the first quarter and second quarter of 2022 will be.

A little.

A little muddled with some of the merger.

Accounting and charges.

And it seems like third quarter.

2022 may be a clean quarter all cost saves are most cost saves had been achieved.

Is it safe to assume that you are probably back to that 125 borrow a run rate or.

Or maybe even a little bit better.

Around that level.

Yes, that's a great question.

There's some very positive trends going into 2022, I mean works.

Much larger balance sheet, we're seeing lot of good growth opportunities, we're putting up really strong growth numbers, we're seeing great economies in all of our markets.

So lots of opportunity there, we're seeing first western succeeding competitively, we're outperforming our peers and our balance sheet.

<unk> is very strong going into 2022 with good organic growth and good expansion opportunities and I think.

We've proven that we're good acquirers that we know how to do that successfully.

The numbers that are remained to be expense related to <unk> are not significant I mean, that's going to be.

Relatively small factor into 2022 mortgage profitability, we think is manageable.

The consensus estimates that are out there seem reasonable to us so we think that.

This Q4 downturn is not a trend this is.

Combination of.

Mostly positive things that are showing up in the Q3 and Q4 numbers.

I think that looking through that we see are positive.

Outlook for 2002.

Great. Thank you appreciate it.

Thank you. Our next question comes from Matthew Clark with Piper Sandler Your line is open.

Hey, good morning.

Okay.

Yes.

Just wanted to.

On the on the margin outlook here in the near term just putting the two banks together.

And the excess liquidity that comes along with Teton I was there any kind of balance sheet.

Changes youre, making since the deal closed how should we think about.

The core NIM here in the upcoming quarter, just given the remix that's likely.

Well.

Your questions right.

NIM was only down two basis points on our adjusted kind of operating basis from $2 92 to $2 90, as Julie mentioned in her comments if you go to slide.

12.

I think it's a little confusing so if I could just kind of walk through that like I did on that other mortgage slide.

That might be helpful. If you look at Q3.

And you exclude PPP.

PPP and the.

Interest recovery and accretion noise.

That number which shows on the charter to $3 14, 306 is actually 292. So that's the two named to Julie referenced and that if you do the same thing.

And in Q4, you get a 290.

I know that the 292 was printed there and this is the same number by coincidence is the adjusted number in Q3, but that's.

That's how you get to that number and then looking forward to your questions.

We're a rising rate environment if rates go up short rates go up 1%. That's another $4 million in interest income for US and then you've got <unk> coming on our books at $4 74 average yield rate, that's like originating $250 million on December 31 were.

474 so.

There are some pretty good embedded.

NIM trends just in what we've already done and then we're seeing better rates already new production and in.

In Q1 and another another interesting thing like the last two years, we've had a really strong loan production of fourth quarter and then we come out really weak in Q1, and then we're kind of behind our trend line that we'd like to see through the year and so this year. We said, let's don't do that let's focus on closing and building the pipeline for Q1 and we actually.

We ended the year with a pipeline.

I think about the same as it was going into Q4, and so we're hopeful that we're going to see a nice.

Organic growth in Q1 in addition, which obviously sets you up for a better year than if you're starting.

Flat Q1, and your liquidity question, we have if you look at our liquidity ratio.

Argue that we have about $200 million of excess liquidity on the books and cash so that pipeline is.

Really hoping to use that cash in that pipeline that Scott has talked about in the loan growth the improvement in the margin from that as well.

Great point Julien.

Okay, great. Thank you and then.

Yes, that's great. Thank you I missed some of your earlier comments around the margin.

And then just on M&A.

Your updated thoughts there.

In terms of your appetite from a geographic and size perspective now.

You guys have gotten this deal closed.

Integrating.

Well.

We do have an active corporate development program that continues we have lots of lines in the water I would tell you we've raised our sights a little bit.

$2 5 billion and if we experience our kind of normal growth. This year, we're getting near three at the end of the year doing a $1 billion acquisition I think it probably makes more sense now than it might have before and so we have.

Broadened or really just raised the size of deals that were.

Focused on or potential partners that we're focused on.

And we have a number of high priority projects that we're working on.

As I said a minute ago I mean, these things do get sold not bought and so.

We build the relationships.

Hope that the time is right for the.

<unk> purchase we did three years ago, certainly true with the branch purchase we did last year and our new partnership with Teton folks I think is just going to be another homerun added to the.

Other recent deals we've done.

You wanted to add there Julian it looked like you were getting ready to alignment.

Yes.

Notwithstanding.

We hope that we can find another deal we're working on the incubation and a couple of offices as well.

Things, we can control we are working on continuing to grow there.

The office space that we have today.

Great. Thank you.

Yes.

Thank you.

Showing no further questions at this time I'd like to turn the call back over to management for any closing remarks.

Well I think we hit on all the main points in the question.

Paired remarks, I mean, I do think that there is a lot of noise. This quarter and you all have asked some really good questions about.

About the nature of that but we don't look at Q4 as a trend into.

Into the future I think it's a nice setup for 2022, where we've ended the year means that we're in a really good place starting the new year and we're optimistic about the company's outlook.

Both in terms of organic growth expansion and acquisition into two.

<unk> 2022, so thanks, everybody for taking the time to listen today and participate and we sure appreciate the support thank you.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.

Q4 2021 First Western Financial Inc Earnings Call

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