Q2 2023 First Western Financial Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the first Western financial second quarter 2023 earnings Conference call.
At this time all participants are in a listen only.
After the Speakers' presentation there'll be a question answer session to ask a question the one, especially you'll need to press star one on your telephone.
We'll then hear an automated message advancing your hedges raised just draw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to turn the call over to your speaker for today Tony Rossi. Please go ahead.
Thank you Lisa good morning, everyone and thank you for joining us today for first Western Financial's second quarter 2023 earnings call.
Joining us from first Western's management team are Scott Wylie, Chairman and Chief Executive Officer, and truly core campus, Chief financial and Chief operating 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 various factors could cause actual results to be materially different from any future results expressed or implied by such forward looking statements.
Doctors 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.
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 and with that I'd like to turn the call over to Scott Scott.
Thanks, Tony and good morning, everybody.
Our second quarter performance reflects the strength of the franchise, we built as we continue to see good stability in our deposit base and.
And healthy asset quality, despite the challenging operating environment.
As we indicated we would do on our last earnings call, we continue to prioritize.
Prudent risk management.
From a core earnings perspective, we continued to deliver solid financial performance and generated $3 9 million in pretax pre provision income.
However, we had three items that significantly impacted our reported results this quarter.
The first was a 1.2 million pre.
Pretax impairment to the carrying value of contingent consideration assets, which relates to the sale of our Los Angeles fixed income portfolio management team that we completed in 2020.
The second was a $1.1 million pretax loss on loans accounted for under the fair value option.
And third we recorded a 2 million dollar allowance on them individually analysed loan, which we expect to be nonrecurring.
Collectively these items reduced our diluted earnings by about 32 cents.
After tax this quarter.
Our balance sheet trends reflect the strength and stability of our franchise and client base as well as the conservative approach that we've taken in operating the company.
In general we continue to see a trend of declining balances among existing client accounts as the fed tightening continues to poll.
Deposits out of the system and in particular, our clients are using excess liquidity to invest in higher yielding options.
This is also typical of Q2 due to tax client payments.
However, our total deposits were essentially unchanged from the end of the prior quarter and during the month of June we started to see Dda's increase.
This is largely due to new client relationships that we're adding through our business development efforts.
Well economic conditions remain healthy in our markets, we continue to see a lower level or lower.
One demand due to higher rates and are concerned about a potential recession.
We also continue to remain conservative in our underwriting criteria and disciplined in our pricing.
Despite these factors our loan portfolio is still increased at a 4% annualized rate during the second quarter.
Asset quality continues to remain strong.
During the second quarter, our nonperforming assets declined and we once again had immaterial levels of charge offs.
Well asset quality remains strong we increased our allowance coverage given our prudent approach to risk management.
Yeah.
Moving to slide four we generated net income of 5 million, a $1 5 million or 16 cents per diluted share in the second quarter.
On an adjusted basis, excluding the impact of the contingent consideration asset adjustment, we had 25 and diluted earnings per share excluding.
Excluding the impact of all three nonrecurring items, we had 48 in diluted earnings per share.
And over the past year due to our strong financial performance and our prudent balance sheet management, we've seen increases in both book value and tangible book value since the impact capital Richard resulting from our adoption of <unk>. So at the beginning of the year.
Turning to slide five we'll look at the trends in our loan portfolio.
Total loans increased $27 million from the end of the prior quarter.
This increase was driven by our growth in the CRE portfolio and draws on existing <unk>.
Construction lines, which offset slight declines in our other portfolios.
Construction projects being funded are primarily multifamily properties to a very strong developed experienced developers in areas with limited housing supply.
You had $55 million in new loan production in the quarter, which reflects both the lower level of loan demand, we see and our discipline in underwriting criteria and pricing.
Given the lower level of loan demand were seeing some banks and insurance companies being very aggressive on pricing to win deals which has caused us to pass on a number of opportunities where the pricing just doesn't make sense.
With our discipline on loan pricing, we continue to see higher rates on new loan production.
With the average rate of new loan production, increasing by 23 basis points from the prior quarter.
Yeah.
And it's notable that we had $38 million.
Loan production in June .
Which represented the largest amount in any month. So far this year. So we're starting to see some positive trends more recently.
Moving to slide six we'll take a total of a closer look at our deposit trends. Our total deposits were relatively unchanged from the prior quarter. We continue to have success in new business development and added $37 million in new deposit relationships during the second quarter.
The inflows from these new relationship helped us less than the typical seasonal impact that we see in the second quarter from outflows related to tax payments.
The mix of deposits continues to reflect the trend of clients moving money out of noninterest bearing accounts into interest bearing accounts.
In order to get a higher yield on their excess liquidity.
Average deposits.
<unk> are up almost 12% annualized.
From Q2.
Of excuse me fourth quarter of 2022.
Yes.
Turning to trust and investment management on slide seven we had $122 million increase in assets under management, the second quarter, primarily due to market performance with nearly all of our product categories, increasing quarter over quarter. The growth we're seeing in a U M is being partially offset by some outflows as clients continue to take.
Advantage of higher yield.
Our investment opportunities.
Yeah.
With that I'll turn the call over to Julie for further discussion of our financial results Julien.
Thanks Scott.
On to slide eight we'll look at our gross revenue.
Our gross revenue declined 5% from the prior quarter due to lower levels of the net interest income and non interest income.
On slide nine we will look at the trends in net interest income and margin. Our net interest income decreased five 8% from the prior quarter due to an increase in interest expense, resulting from higher average cost of deposits.
Our net interest margin decreased 20 basis points to two 7% or 8% driven by the increase in interest bearing deposit costs offset partially by the increase in yield on average earning assets.
However, we saw average loan yields increased 15 basis points in the month of June while average deposit costs are flat to element.
They continue to maintain a higher level of borrowings.
They continue to represent a lower cost of funds and other sources and the highly competitive deposit environment out there.
Please continue to be short term borrowings that provide us the flexibility to quickly make adjustments on our liability mix based on trends in deposit flows and loan production that we see.
Turning to slide 10.
Our non interest income decreased 32% from the prior quarter due to the non core items that Scott mentioned earlier.
Among our larger recurring sources of non interest income our trust and investment management fees were consistent with the prior quarter, while we had a decline in net gain on mortgage loans.
Net gain on mortgage loans decreased to 800.
And at higher rates continue to impact loan demand.
Approximately 90% of the mortgage originations were purchase bonds in the second quarter.
Turning now to slide 11, and I look at our expenses.
Our noninterest expense decreased 10% from the prior quarter due to the staffing realignment and reduction in headcount that we implemented in the first quarter and again in April .
As a result of these expense reductions and our disciplined expense control.
Non interest expense came in below our targeted range.
Continue to manage expenses to better align with current revenue and have further reduced our expense guidance within a range of 18 to 19 million for the remaining quarters in the year.
Turning to slide 12, we'll take a look at our asset quality.
On a broad basis the loan portfolio continues to perform very well as we had another quarter of minimal losses, and our nonperforming assets declined 18% due to the full repayment of two problems.
We recorded a provision for credit losses of $1 8 million, which was driven by an allowance established for a commercial loan that we put on nonperforming status during the fourth quarter of 2022.
We are working to collect on the sources of repayment on this including a personal guarantee.
However at this point, we felt it was prudent to establish an allowance.
The provision recorded this quarter combined with a modest level of loan growth increased our level of allowance to adjusted total loans by eight basis points to eight 9% at June 30, yet.
Now I'll turn the call back to Scott Scott.
Thanks Julie.
Turning to slide 13, I wanted to take a moment to review our strong track record of value creation for our shareholders.
This slide shows our trend in tangible book value creation since our IPO in 2018.
Our consistent ability to drive growth and tangible book value is attributable to a number of factors.
We've executed well on our plan that we communicated at the time of our IPO and generated strong organic growth as we've deepened our presence in Colorado and expanded our presence in the attractive markets in other states.
It has increased our scale and improved our operating leverage.
We've been disciplined in our acquisition strategy, making sure the pricing made sense from an economic standpoint.
And that we have.
And then we will execute and we've executed well on the integration capturing all of the cost savings that we projected which has made them nicely accretive to earnings and to our tangible book value.
Our conservative underwriting criteria and the strength of our clients has resulted in extremely low levels of credit losses throughout our history, including the challenge.
Economic conditions presented over the past few years by the pandemic and the insuring.
Suing period of <unk>.
High inflation and interest rates.
Okay.
And finally, our prudent asset liability management has served our shareholders well, most notably when we decided not to invest our excess liquidity that we built up during the pandemic and the low yielding bonds, which enabled us to avoid the significant losses in investment portfolio through the resulting hits the capital that many.
We have experienced.
Interest rates have risen.
We're very proud of this track record of value creation and believe that we're well positioned to continue to create additional value for our shareholders in the future.
Turning to slide 14, one of the wrap up with some comments about our near term outlook.
Well, there's a high degree of economic uncertainty, we're going to continue to prioritize prudent risk management.
Can maintain high levels of liquidity capital and reserves, even if that impacts our level of profitability in the short term.
We believe it's likely that loan growth will remain at a low level in the near future. Although we have maintained a high level of unfunded commitments throughout the year.
This provides a potential catalyst for higher level of loan growth as borrowers increase utilization of existing credit lines.
As we've mentioned in our past few earnings call deposit gathering will continue to be a focus.
Throughout the organization.
Given the current economic environment, we continue to see good opportunities to add new clients, who are looking to move to a stronger financial institution.
We will continue to prioritize prudent risk management and we will also remain committed to acting in the best long term interest of our shareholders.
Accordingly as market conditions stabilize we'll continue to evaluate opportunities for capital utilization that can create.
Create additional value for shareholders.
With that.
We're happy to take your questions Lisa Please open up the call.
Thank you if you would like to ask a question. Please press star one on your telephone if you'd like to remove yourself from the queue Press Star one again, one moment, while we compile the Q&A roster.
The first question for today will come from Brady.
Gili.
K B W. Your line is open.
Yeah.
Hey, good morning, guys.
Hey, Brady.
So the margin took another step down here linked quarter, which youre not alone the industry has seen that but from this $2 74 base.
Have we hit the bottom and an inflection point or do you think there could be some more NIM slippage in the back half of this year.
Oh, well, we previously said that we thought our margin would trough in the second quarter and we still think that will be the case.
But as you know, it's a little bit difficult to predict.
The economic and competitive and financial outlook from from where we are today.
I think.
We talked about in our prepared comments are positive trends with our DDA in June and margin also increasing in June so those seem like really positive.
Indicators for the rest of the year. So you know.
Our hope is that there is.
Improvement in the margin I think.
We could say flat to slight improvement in Q3 and then.
We're expecting continued improvement in Q4.
<unk>.
We're also assuming in our numbers.
That we won't see a whole lot of more a whole lot of increased.
Short term rate increases from the fed but.
Assuming that we're in a relatively stable environment for the fact going forward here. We're hopeful that Q2 is going to be our trough.
Okay, Alright, that's helpful.
Heard your comment about.
A low level of loan growth kind of in the near term.
Historically.
First restaurant has been a pretty solid organic grower.
Do you think that a more normalized level of growth will come next year. In 2024 do you think even next year. It will remain at a pretty depressed level.
Yes, I think that that really depends on.
The competitive environment and the economic outlook.
We're seeing loan demand, but we're seeing.
Some of the loans that we would like to do the relationships we'd like to build.
Being taken away from us by hundreds of basis points, you know theyre not theyre not.
Beating us by five or 10 or 20 basis points. These are.
Two or 300 basis points under where we're lending so I mean, that's a difficult factor for us and we're you know we're.
We're just not going to.
Two loans like that in this environment doesn't make any sense to us.
I think also we have a <unk>.
Tuition here, where our clients don't need to do things they don't need to borrow the money to do things. They can wait and I think a lot of them are doing that they are saying you know things that made sense at three or four 5% that they will make better sense of 78, 9% we can wait.
And so I think we're seeing demand.
Because of that.
On the other hand on the positive side.
We're in the economies that are doing well our markets are doing well and they're growing so I think we'll still see some benefit from that and you know I think we will see some benefit from that.
<unk>.
Unused credit lines that we have.
On the books that people are.
Drawing down the construction loans that we have on the books that people are drawing down so I think we're gonna still.
C.
Loan growth probably in the mid single digits as we said before.
For 2023, and then if the economy continues to be strong maybe rates abate, a little bit maybe competition abates, a little bit we could see stronger growth in <unk> and.
In 2020 for certainly the machine that has traditionally produced a nice loan growth year is still in place and.
And I think we're just erring on the side of caution as.
As an organization here.
Alright, and then finally for me.
The loan to deposit ratio took a modest step up it's now a 106%.
Is there a goal that you would like to get that down to and any thoughts on how you could reduce that ratio.
Yeah, our view on that hasn't changed we've said that we've historically operated in kind of the mid nineties.
And that we'd like to get that down to 100 by the end of this year.
And then back in the mid nineties after that.
Again.
Quarter to quarter or month to month changes are hard to predict and we don't really manage to.
Our loan deposit ratio this month of X or y or but it's clear in the organization that we're focused on deposit gathering we talked about some of the successes we've had there.
Some of the positive trends we saw in.
June in particular, we went back and looked at our historic.
Our Q2 deposit.
Growth and we typically lose about 2% of our deposits in Q2 over the past several years and we were down 1% in Q2 of this year. So.
I think that we did well give given the.
Tightening monetary policy and the pressure competitive pressure that we're seeing and all of that so.
I feel like we're doing relatively well obviously it doesn't feel great to go backwards from Q Q1, but I don't think there is some underlying concern there or.
Any reason to.
Change what we said we were going to do and what we've been doing I would expect that to pan out here over the remaining half of the year and and get US back in line with our historic loan to deposit ratio.
Okay. Thanks for the color guys.
Yes, thanks for the questions Brady.
Thank you one woman for the next question.
And our next question will be coming from Matthew Clark of Piper Sandler Your line is open.
Hey, good morning.
Good morning, Good morning, Matt.
Sure.
First question is just a couple of questions around the margin and just trying to drill into the drivers and more specifically the numbers.
But can you give us the average margin in the month of June and what the spot rate was at the end of June on deposits either interest bearing or total.
Sure so the spot rate for deposits at the end of June was 281.
You'll see a little bit of an increase over what our spot rate was in March.
Our actuaries.
On loans.
Indeed, quite a bit higher than March as well at 5.38% so.
You know, that's moving nicely up as well and we're seeing new loans getting booked up.
Under 8% to seven 8%.
I think the trend line there is pretty good.
I'm, giving you some indication of where.
Our NIM might head.
For <unk>.
<unk> spot, Netherlands, right about two point okay.
Two plenty thats the month of June .
The member.
Okay.
Got it thank you.
Yeah.
Sounds good and then.
You mentioned the additional cost saves I think in the earnings release.
In the back half of the year in supporting kind of that lower run rate.
I guess, where those additional savings come from coming from and have you.
Have those have those decisions been made yet.
Yes.
Have you pulled me have you pulled the trigger I guess.
Yeah, we're not planning any further cost cuts here just to be clear.
What we have seen is our cloud.
Cost saves that we put in place in Q1 and in April .
Are panning out.
As we had expected and so that's just.
Producing results for the second half of the year that are in line with the guidance that Julie provider, which is.
We expect to operate in kind of the 18% to $19 million.
Operating expense range.
Some volatility and all this stuff and so.
I don't know exactly where to land but.
To us.
Within a half of half a million dollars of 18, five seems like the rate.
<unk> from the cuts we've already made.
I think there is a broader point here I would just make quickly if I could Matt which is.
Yes.
We've really tried hard not to <unk>.
Impact.
The value creation capability of the business here, we've postpone some things that we wanted to do sooner.
And we've tried to drive efficiency into the things that we are doing and frankly that's in.
Making some investments that we think will provide more efficiency in the future as well so.
We're continuing to spend money on things that.
Our important drivers for that.
The current company and for the future.
And driving driving value for shareholders.
But I think one of the things that we've talked about internally is.
Are there more cuts that can be made that arent.
Cutting into the future of the organization.
We don't want to do that and we haven't done that and we don't intend to do that.
Okay great.
And then just last one for me on.
Nonperformer that required some specific reserves can you just remind us of the situation there the type of credit.
Thank you.
Yes.
The basis for the $2 million.
As well in kind of the timing of the resolution there.
<unk>.
Yeah, well. This is a this is a C&I credit that we did.
18, or 24 months ago that.
That ran into trouble they were.
In a.
Uh huh.
Covid related business that.
Dried up on them.
As usual, we look for three three sources of repayment and personal guarantees.
We had the business we had <unk>.
$19 million in inventory and we have real estate collateral.
The business is struggling the collateral.
We're having valuation issues with it we kind of uncovered once we got a receiver in place and the.
Real estate.
<unk> has turned out fine there.
The personal guarantees were now trying to collect on.
But just looking at the whole picture, we felt like putting a small.
<unk> reserve on that at this point made sense and we did that hopefully.
That will.
Continue through the workout process.
And not have any further loss hopefully you'll have a full recovery on it we'll see how that all plays out. It just takes time to get through these things as you're probably well aware.
Okay, great. Thanks, Thanks again.
<unk>.
Thank you for your question one moment, while we prepare for the next question.
Our next question will be coming from Brett.
Barton.
<unk> Your line is open.
Hey, good afternoon, Scott and Julie good morning.
I just wanted a little late I was having some technical problems with the dial in.
Scott I think in the past you've been.
Interested in doing M&A in and I think it's still a ways off for some folks, but starting to hear maybe some some chatter and some people talking obviously theres just going to be.
A desire.
Bulk up given the regulatory environment as expected are you hearing anything out there in terms of your contacts and what would be your plans if things normalize.
So to speak from the marks perspective, or something can get done or do you think you'll be active.
Okay.
I do my experience and my.
35 years, or so of running my own little banks here is that when.
When we see a big.
Financial crisis of one sort or another that we see kind of the big blow ups first like we saw in March and then we see some smaller problems like we've.
We've seen since then.
And then there is a lot of regulatory pressure thats brought to bear on weaker institutions, and then that creates lots of opportunity for stronger institution and so I think that.
That's going to play out in our favor here over the course of the next 12 or 24 months.
I can't tell you that.
We have people that were interested in knocking on our door today, but they sure are still talking to us and they have interest in.
And I think that.
People understand that.
Having critical mass here is gonna be beneficial I think all of that ties into the.
The need to continue to protect our capital and make sure that we have good strong capital ratios and are generating nice.
Tangible book value creation like we showed on slide 13.
<unk>.
And I expect that at some point that that will really.
Come back into play as a nice area of opportunity for us.
Okay, and then I heard your response on the expenses, but I wasn't quite entirely clear on.
The outlook is.
And just if there are things that you are having to spend money on either inflationary or that you wanted to get accomplished from either a technology perspective are operational that that might change the expense level in <unk> either in the back half of this year and next year any any color there.
Well I'll take a quick stab at it Julien and then if you want to add or.
Feel free.
We had been thinking that we were going to spend about $21 million a quarter. This year, including all of those things you just listed.
And we decided in.
I don't remember exactly December January or something like that.
We wanted to be more cautious on that and then we wanted to be mindful of expenses and if we had a vacancy maybe not fill it too fast if we had a project. We are working on that we could stretch out or if we have contracts that we could review and get some cost saves on we would do that and so we worked hard on that.
And.
Well, we started working on it in Q1 and I think we were down.
22% or 23, Ftes I don't remember the exact number now.
In Q1, and then in April we said, Okay. If we wanted to get our expense run rate down to 19 million.
What what would that take and then we did a kind of a formal process internally.
And by the end of April had completed that project was fully implemented and we came out with $18 $5 million in expenses in Q2, and then the guidance. We've given today for the rest of the year is that same number of $18 $5 million with a half a million dollar swing up or down.
The number we talked about was 18% to $19 million just because of you.
The fact, it's a relatively small number and you just don't know from one quarter to the next but but we don't anticipate.
Some big expense that we have to make and we do not anticipate any other big expense cuts that we wanted to make there.
We look at that as some changes we wanted to make for the outlook that we had for 2023 those are done and they're working.
Frankly, a little better than we had expected.
So the guidance on slide 11 would be inclusive of anything else technology other stuff.
Correct.
Okay.
And then just just lastly.
And then Scott or Joey is there a level of capital that you want to get too or.
Sure.
Have the regulators kind of giving you any.
Input onto Hey.
CET, one and we want this level any any thoughts on the capital levels.
We have not heard anything from regulators on capital I think theyre happy with.
Where we are as far as we know.
Yes.
Our own internal feeling.
Is that we would love to be buying stock back at some of the prices we've seen over the last 30 or 60 days.
But.
It just seems wise for us and prudent for us to protect that capital for now.
No.
Continuing to build our tangible book value, we continue to build our capital ratios.
And be ready to take advantage of the opportunities that we think are down the road. Both in terms of organic growth in terms of expansion in terms of acquisition.
Okay.
Thanks for all the color.
Yes, thanks for the questions Brad.
Thank you.
One moment.
Question.
And our next question will be coming from Bill It's Alan of Titan. Please go ahead.
Thank you you had referenced.
Favorable developments on both the deposit front and the on the loan front in the month of June and I'm, hoping that you will talk.
Maybe to the dynamics that you saw specifically in June and a bit more detail and carry that into July for us and if you want to go beyond loans and deposits. That's fine if you want to isolate your comments to those two items. That's also fine.
Sure I think I think they're similar things about different so maybe we could take it in pieces.
For me, what we saw in deposits in Q2.
Is.
Our usual Q2.
Runoff, where people are paying taxes, and so we see that because we have larger depositors here, we do see larger withdrawals for tax payments in Q2, and as I said.
Had.
About half of the impact in Q2 of this year than what we've seen historically, so we thought that was a nice positive for us.
I have a theory bill and it seems to be playing out I talked about this I think in the last two calls.
Because of our type of client base that we experienced the loan the deposit beta that others are going to experience more quickly than others did.
So we had to go last.
September October and really kind of catch up our deposit rates for our clients to what the fed had done more quickly than a lot of our.
Regional bank peers have had to do that have larger.
Retail deposit bases with a lot smaller depositor average depositors and whatnot. So I think that the expectation for me six months ago was that that was that curve was going to level off for us and accelerate for the other guys and I think that's exactly what we've seen and I think that that play.
It out a little bit in Q2, and I think I played out a lot in June so I'm hopeful that this is just another indication that we're going to be able to.
Manage our.
Our liability cost increases.
At least as well as our peers do if not better because we've had those hits earlier to our.
Cost of funds so that that.
That would be kind of my answer on the deposit side Julie's anything you want to add to that.
I think this has been said that does that.
Put a finer point on that point, our DDA increase in June which was a nice indicator and then our average deposit costs were flat in June compared to the prior month model. So I think that Theres a couple of indicators there that things might.
Might be flattening out and starting to hopefully trend I'm Patrick O'shaughnessy.
Yes.
And then if I may.
Interrupt before we go it alone.
You have you seen those same trends continue here.
Here in the first 28 days of July .
Gary if you know the numbers quantitatively flying or even qualitatively.
So our director of finance in the room here Thats what were looking at have you gone well, yes, a little bit.
When you go to closing costs are flat.
We've been kind of seeing that trend continue through July and I don't think we've seen an increase in DDA, but it's not really declining either so.
I think flat would be a good way to describe what we're seeing in July .
Great. Thank you both for that okay onto the loan side.
Yes.
To that point Bill.
To the extent that our liability costs are more or less flat.
Our loan.
Sure.
Yields.
<unk> by themselves right, because we've got floating rate loans that we got.
Whatever it turns out to be 50, or $100 billion, a quarter that roll off and get repaid prepaid and then we originate new loans that are.
Three or 400 basis points higher and.
And that will pull up our.
Our asset yield on average by.
10, 15, 20 basis points wherever the numbers turn out to be so so having nice control over those liability costs really benefits us in the NIM, because we see improvements just.
By the time passage of time in our.
On the asset side.
In terms of like the loan.
Growth in loan pricing when you talked a little bit about loan volume and trying to guess what that might be for 2024.
I actually think that there is an interesting.
Kind of a psychological thing going on with our type of a client which is.
There was a lot of sticker shock here over the last six months, where they would come in and think that we're going to renew to renew their loan for 4% and then we explained to them that.
The rates have gone up 525 basis points, so far and.
So the new rates going to be 8% or whatever and they are finding they can do that and we haven't really seen any issues with that.
But it wasn't doing new things they are saying well you know I can wait I don't need to do that now.
And so I think that that sticker shock has now passed in.
People are now understanding that thats, where rates are and if they want to do things that that's the rate that they have to build into their models and so I do think that.
We're going to see more loan demand, we actually saw a bigger pipeline on June 30th on the loan side than we had on March 31.
So I think that's promising for the second half of the year I think thats.
Yeah.
Sign that people that are figuring out what this rate environment means.
They can still.
Do things I think that's symptomatic of the fact that I believe we're in good economies with good strong economic growth and entrepreneurs that still want to do things. So.
So I think that all of that bodes well and frankly kind of.
Rewards us for making the conscious decision not to cave on structure or price here over the last you know.
Nine or 12 months win.
A lot of our competitors have been doing things that just didn't make sense to us.
Thank you and so.
Okay.
Do you have a sense.
At your customers that paused activities.
Our opportunities I think may have been considering that kind of using your phrase it really didnt have to do it.
That the sticker shock has now gone away.
Mentally adjusted and adjusted their their financial model.
Still works and and now Theyre moving forward.
Are you sensing some in something different than that.
Well I think some are going to say I'm going to wait until rates come down and some are saying.
I can reprice, the rents aren't going to charge or the.
The costs of the prices I want to sell things at or wherever it is that make the economic model work I just think that.
<unk>.
The economy end.
Consumer and the.
So the whole sort of pricing infrastructure that goes around a decision to do something or not do something.
As the reset.
You have to go back to the fact, we haven't had a 525 basis point increase in short term rates.
I don't know if its forever or if it's just my career, but certainly you know people in our markets that are doing things have never experienced this and I think theyre just not allowed to sticker shock to that and I think what we've seen in our financial results.
Is is reflective of that and I don't think it's going to last forever I think of if rates are going to settle in here where they are today.
You know my feeling from the way Jay Powell was talking this week that wouldn't be a bad way to.
To.
We have a base case.
And then people are going to come back they could be doing things and thats going to create opportunities for us to grow and prosper in the markets that we're in.
Thank you both again.
Yeah.
Thank you for your question at this time I'm not showing any further questions in the queue and I would like to turn the call back over to management for closing remarks. Please go ahead.
Okay well.
Thank you Lisa.
Sure.
As of mid July it's been five years since our IPO and despite the short term noise here. The fundamentals of our company are very sound and we continued to deliver on long term value creation for our shareholders.
Over these five years, our balance sheet has tripled to just over $3 billion in total assets revenues have almost doubled.
Growing from $57 8 million in 2018 to $112 2 million in 2022.
Our core earnings are way up.
Where our free cash flow to common shareholders were actually negative in 2017, and our core earnings have.
<unk> shown nice growth over these years and as noted in our deck. Our tangible book value was up almost two five times since the IPO. So.
Really appreciate the support of our stakeholders that have made this happen our associates here our clients our shareholders and our communities that we operate in that have gotten us to this.
Big five year anniversary of a public company.
So successfully so thanks, everybody for dialing in thank you for your support of first Western we really appreciate it.
I hope you have a great weekend.
This concludes today's conference. Thank you all for joining you may now disconnect everyone enjoy the rest of your day.
Okay.
Okay.
Yes.
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Okay.
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