Q2 2025 First Western Financial Inc Earnings Call
Operator: To ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Operator: To withdraw your question, please press star 1-1 again.
Tony Rossi: I would now like to hand the conference over to your speaker today, Tony Rossi. Thank you, Josh. Good morning, everyone.
Question and answer session to ask a question. Please press star 1, 1 on your telephone and wait for your name, to be announced to it to draw your question. Please, press star 1 1 again, I would now like to hand the conference over to your speaker today. Tony Rossi.
Tony Rossi: And thank you for joining us today for First Western Financial's second quarter 2025 earnings call. Joining us from First Western's management team are Scott Wylie, Chairman and Chief Executive Officer, Julie Courkamp, Chief Operating Officer, and David Weber, Chief Financial Officer. We will use this slide presentation as part of our discussion.
Tony Rossi: Thank you, Josh. Good morning, everyone. And thank you for joining us today for First Western financials second quarter 2025 earnings call.
Joining us from first westerns management team, our Scott Wy, chairman and chief executive officer, Julie Corps, Camp Chief Operating Officer and David Weber Chief Financial Officer.
Tony Rossi: If you 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. 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. These factors are discussed in the company's SEC filings, which are available on the company's website.
Tony Rossi: We will use a slide presentation as part of our discussion this morning if you have not done. So already, please visit the events and presentations page of first westerns investor relations website to download a copy of the presentation.
before we begin, I'd like to remind you that this call conference call contains 4 looking statements with respect to the Future performance and financial condition, of First Western Financial, that involve risks and uncertainties
Tony Rossi: various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.
Tony Rossi: 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.
Tony Rossi: These factors are discussed in the company's SEC filings, which are available on the company's website.
Tony Rossi: 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 With that, I'd like to turn the call over to.
Tony Rossi: I would also direct you to read the disclaimers in our earnings release and investor presentation. The company. Disclaims, any obligation 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.
Scott Wylie: Thanks, Tony.
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 Wylie: Good morning, everybody. We executed well in the second quarter and saw positive trends in many areas, including loan and deposit growth, expansion in our net interest margin, well-managed expenses, and stable to improving asset quality. The market remains very competitive in terms of pricing on loans and deposits, but we continue to successfully generate new loans and deposits by offering a superior level of service, expertise, and responsiveness, rather than winning business by offering the highest rates on deposits or the lowest rates on loans, as other banks are doing. We continue to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria.
Thanks Tony and good morning everybody.
Tony Rossi: We executed well in the second quarter and saw a positive Trends in many areas including loan and deposit growth and expansion in our net interest margin well-managed expenses and stable to improving asset quality.
The market remains very competitive in terms of price on loans and deposits. But we continue to successfully generate new loans and deposits by offering a superior level of service, expertise and responsiveness rather than winning business by offering the highest rates on deposits at the lowest rates on loans as other banks are doing
Scott Wylie: However, as a result of the additions we made to our banking team over the past few quarters, as well as generally healthy economic conditions in our markets, we had a solid level of loan production, which was well diversified across our markets and as industries and loan types. We were also able to successfully lower deposit costs, as well as redeploy the cash we generated from the sale of two OREO properties into new loan production and securities purchases, which contributed to the expansion we're seeing in our net interest margin. We continue to maintain disciplined expense control despite the inflationary environment as we capitalize on the previous investments we made in both banking talent and technology that have enhanced our business development efforts and overall level of efficiency, including a higher level of mortgage banking.
We continue to maintain a conservative approach to new Loan Production with our disciplined underwriting and pricing criteria.
However, as a result of the additions, we made to our banking team over the past few quarters, as well as generally. Healthy economic conditions. In our markets we had a solid level of Loan Production which was well Diversified across our markets and is Industries and Loan types.
We were also able to successfully lower deposit costs as well as redeploy. The cash we generated from the sale of 2 Oreo properties in into new Loan Production and securities purchases, which contributed to the expansion, we're seeing in our net, interest margin.
Scott Wylie: We also had generally stable asset quality during the second quarter. As a result of our financial performance and balance sheet management strategies, we had a further increase in our tangible book value per share. and we used our strong capital position to repurchase some of our shares during the second quarter, which was accretive to our tangible book value per share.
And we continue to maintain discipline expense control despite the inflationary environment as we capitalize on the previous Investments. We made in both banking talent and technology that have enhanced our business development efforts, and overall level of efficiency including a higher level of Mortgage Banking income,
Tony Rossi: We also had generally stable asset quality during the second quarter.
Tony Rossi: As a result of our financial performance and balance sheet management strategies. We had a further increase, in our tangible book, value per share,
Tony Rossi: and we used our strong Capital position to repurchase some of our shares during the second quarter, which was a creative to our tangible book, value per share,
Scott Wylie: Moving to slide four, we generated net income of $2.5 million, or $0.26 diluted share in the quarter. This was lower than the prior quarter due to a number of one-time gains that positively impacted our financial performance in the first quarter, as well as the higher level of provision that we recorded due to the strong loan growth that we had late in the second quarter. On a pre-provision net revenue basis, once the one-time items from last quarter are excluded, we had an increase during the quarter. In addition, it was about $5.1 million in Q2, down slightly from Q1, including those one-time revenue adds in Q1, but up about 36% year over year.
Tony Rossi: Moving to slide 4, we generated net, income of 2.5 million or 26 Cents diluted share in the quarter.
Tony Rossi: This was lower than the prior quarter due to a number of 1 time, gains that positively impacted our financial performance in the first quarter, as well as the higher level per uh, provision that we recorded due to the strong loan growth that we had late in the second quarter.
Tony Rossi: On a pre-provision net revenue basis. Once the 1 time items from last quarter are excluded, we had an increase during the quarter.
Scott Wylie: With our prudent balance sheet management, our tangible book value per share increased by about 1% this quarter.
Tony Rossi: In addition, it was about 5.1 million in Q2 down slightly from q1 including those 1-time Revenue adds in q1, but up about 36% year-over-year.
Julie Courkamp: Now I'll turn the call over to Julie for some additional discussion of our balance sheet and trust in the investment management trends. Julie? Thank you, Scott.
Tony Rossi: With our prudent balance sheet management, our tangible book value per share increased by about 1% this quarter.
Julie Courkamp: Turning to slide five, we'll look at the trends in our loan portfolio. Our loans held for investment increased $114 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with the higher level of productivity we are seeing from the additions to our banking team that we have made over the last several quarters, we are seeing a solid level of new loan production. That new loan production was $167 million in the second quarter. This new loan production was well diversified and resulted in an increase in most of our portfolios, and we are also getting deposit relationships with most of these new clients.
Tony Rossi: Now I'll turn the call over to Julie for some additional discussion of our balance sheet and Trust in the investment management Trends Julie. Thank you Scott.
Speaker Change: Turning to flight 5. We'll look at the trends in our loan portfolio.
Our loans help for investment increased 114 million from the end of the prior quarter.
Speaker Change: But with a higher level of productivity, we are seeing from the additions to our banking team that we have made over the last several quarters, we are seeing a solid level of loan. New Loan Production,
Speaker Change: That new Loan Production was 167 million in the second quarter.
This new loan.
Julie Courkamp: We continue to be disciplined and we are maintaining our pricing criteria. This resulted in the average rate on new loan production being 6.35% in the quarter, or 6.67% excluding loans secured by trust and investment management assets originated in the quarter.
Speaker Change: also getting deposit relationships with most of these new clients
We continue to be disciplined. And we are maintaining our pricing criteria.
Julie Courkamp: Moving to slide six, we'll take a closer look at our deposit trends. Our total deposits were slightly up from the end of the prior quarter. We had a decline in non-interest bearing deposits due to typical seasonal outflows we see in the second quarter related to tax payments. This was offset by an increase in interest bearing deposits as a result of the successful execution in our deposit gathering strategy.
Speaker Change: This resulted in the average rate on new Loan, Production being 6.35% in the quarter or 6.67%. Excluding loans secured by trust and Investment Management assets originated in the quarter.
Speaker Change: Moving to slide 6, we'll take a closer look at our deposit trends.
Our total deposits for a slightly up from the end of the prior quarter. We had a decline in non-interest-bearing, deposits due to typical seasonal outflows we see in the second quarter.
Related to tax payments.
Julie Courkamp: Given the nature of our client base, following the seasonal outflow that really related to tax payments in the second quarter, we typically see that these balances tend to build back up over the second half of the year.
Speaker Change: This was offset by an increase in interest-bearing deposits, as a result of the successful execution in our deposit Gathering strategies.
Julie Courkamp: Turning to trust and investment management on slide seven. We had a $320 million increase in our assets under management in the second quarter, driven largely by favorable market performance. Over the past year, our AUM has increased nearly 7%.
Speaker Change: Given the nature of our client base. Following the seasonal outflow that relate related to tax payments. In the second quarter, we typically see that these balances tend to build back up over the second half of the year.
Speaker Change: Turning to trust and Investment Management on slide 7.
Speaker Change: We had a 320 million in increase in our assets under management in the second quarter driven, largely by favorable market performance.
David Weber: I'll turn the call over to David for further discussion of our financial results. Thanks, Julie. Turning to slide 8, we'll look at our gross revenue. Our gross revenue was slightly down from the prior quarter due to some one-time gains we had in the first quarter that positively impacted our non-interest income, which was partially offset by an increase in net interest income.
Speaker Change: Over the past year, our AUM has increased nearly 7%.
Speaker Change: I'll turn the call over to David for further discussion of our financial results. David
David Weber: Now turning to slide 9, we'll look at the trends in net interest income and margins. Our net interest income increased 2.3% from the prior quarter due to an expansion in our net interest margin. Our NIM increased six basis points from the prior quarter to 2.67%. This was due to a reduction in our cost of deposits, as well as the payoff of high-cost subordinated debt, along with the deployment of the cash we generated from the sale of two OREO properties into new loan production and securities purchases, which increased our average yield on interest-earning assets.
Thanks, Julie, turning the slide 8, we'll look at our gross revenue. Our gross revenue was slightly down from the prior quarter due to some 1-time gains. We had in the first quarter that positively impacted our net interest our non-interest income, which was partially offset by an increase in net interest income.
Speaker Change: Now, turning the slide 9. We'll look at the trends in net, interest, income and margin.
Speaker Change: Our net interest income increased 2.3% from the prior quarter, due to an expansion in our net. Interest margin, our name increased 6 basis points from the prior quarter to 2.67%.
David Weber: Based on recent deposit inflow trends over the past few weeks, we expect NIM to be relatively flat in the short term, but it should expand later in the year, which along with our balance sheet growth, should result in strong NII growth in the third and fourth quarter.
Speaker Change: This was due to a reduction in our cost of deposits as well as the payoff of high cost subordinated debt, along with the deployment of the cash we generated from the sale of 2 Oreo properties into new Loan Production and securities purchases, which increase our average yield on interest earning assets.
Based on recent recent deposit inflow Trends over the past few weeks, we expect Nim to be relatively flat in the short term.
David Weber: Turning to slide 10, our non-interest income decreased by approximately $1 million from the prior quarter. This was due to one-time gains we recorded in the first quarter, which were partially offset by an increase in gain on sale of mortgage loans. PTIM fees have been trending down as our clients have shifted to lower margin services.
But it should expand later in the year, which along, with our balance sheet, growth should result in strong, nii growth in the third and fourth quarters.
Speaker Change: Turning the slide 10, our non-interest income, decreased by approximately 1 million from the prior quarter.
Speaker Change: This was due to 1 time gains, we recorded in the first quarter, which were partially offset by an increase in gain on sale of mortgage loans.
David Weber: Reversing this trend is a management priority.
Speaker Change: PM fees have been trending down as our clients have shifted to lower margin services.
David Weber: Now turning to slide 11 and our expenses. Our non-interest expense decreased approximately $300,000 from the prior quarter, which was primarily due to lower salaries and benefits.
Speaker Change: Reversing this trend is a management priority.
Speaker Change: Now, turning the slide 11 and our expenses.
Speaker Change: Our non-interest expense decreased approximately 300,000 from the prior quarter.
David Weber: All other areas of non-interest expense were relatively consistent with the prior quarter, as we continue to tightly manage expenses while also making investments in the business that we believe will positively impact our long-term performance.
Speaker Change: Which was primarily due to lower salaries and benefits.
David Weber: Now turning to slide 12, we'll look at our asset quality. As Scott indicated earlier, we saw generally stable trends in the loan portfolio in the second quarter, with slight increases in MPLs and MPAs.
All other areas of non-interest expense were relatively consistent with the prior quarter, as we continue to tightly manage expenses. While also making investments in the business that we believe will positively impact, our long-term performance
Now, turning the slide 12 will look at our asset quality.
David Weber: However, we had a meaningful decline of $10 million in our classified loans.
As Scott indicated earlier, we saw generally stable Trends in the loan portfolio. In the second quarter with slight increases in mpls and mpas.
David Weber: We had one loan charge-off in the quarter which had unique issues and is not reflective of broader trends we are seeing in the portfolio. We had a slight increase in our allowance coverage, which was primarily driven by the significant loan growth we had in the quarter.
Speaker Change: However, we had a meaningful decline of 10 million in our classified loans.
Speaker Change: We had 1 loan charged off in the quarter which had unique issues and is not reflective of broader. Trends, we are seeing in the portfolio.
Scott Wylie: Now, I'll turn it back to Scott. Thanks, David.
We had a slight increase in our allowance coverage which was primarily driven by the significant loan growth. We had in the quarter,
Scott Wylie: Turning to slide 13, I'll wrap up with some comments about our outlook. Overall, we continue to see relatively healthy economic conditions in our markets. Our loan and deposit pipelines remain strong and should continue to result in solid balance sheet growth for the second half of the year.
Scott: Now, I'll turn it back to Scott Scott.
Scott: Thanks David.
Scott: Turning to slide 13. I'll wrap up with some comments about our Outlook.
Scott: Overall, we continue to see relatively healthy economic conditions in our markets.
Scott Wylie: In addition to balance sheet growth, we expect to see continued positive trends in our net interest margin, net interest income, fee income, and more operating leverage resulting from our discipline expense control. Based on the trends that we're seeing in the portfolio and the feedback we're getting from clients, we're not seeing anything to indicate that we'll experience any meaningful deterioration in asset quality.
Scott: It should continue to result in solid balance sheet growth for the second half of the year.
In addition, the balance sheet growth, we expect to see continued positive Trends in our net interest margin at interest income fee income and more operating. Leverage resulting from our discipline expense control.
Scott Wylie: The positive trends we're seeing in a number of key areas are expected to continue, which we believe will result in steady improvement in our financial performance and further value being created for our shareholders as we move through the year.
Based on the trends that we're seeing in the portfolio and the feedback we're getting from clients. We're not seeing anything to indicate that we'll experience any meaningful deterioration and asset quality.
Tony Rossi: With that, we're happy to take your questions. Josh, please open up the call. Thank you.
Scott: The positive trans were seeing in a number of key areas are expected to continue, which we believe will result in steady improvement in our financial performance and further value being created for our shareholders as we move through the year.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment for questions.
Speaker Change: With that, we're happy to take your questions Josh, please open up the call.
Speaker Change: Thank you as a reminder, to ask a question. Please press star, 1, 1 1 on your telephone, and wait for your name to be announced. So with dry your question. Please press star 1, 1 1 again, 1 moment for questions.
Matthew Clark: Our first question comes from Matthew Clark with Piper Sandler. You may proceed. Hey, good morning, everyone.
Our first question comes from Matthew Clark with Piper Sandler, you may proceed.
Matthew Clark: Hey, good morning, everyone.
Scott Wylie: First question just on the look like you added some borrowings toward the end of the quarter just want to get a sense for the the rate on those whether or not those are overnight or term borrowings and I guess the plan to maybe pay those off as deposit growth comes comes through in the second half Yeah, Matt. Yes, they were overnight. And yes, the plan is to pay them off. As our deposits come in in the third quarter. It was in the mid force, as far as the rate, but like I said, we do plan to pay those off.
Matthew.
Matthew Clark: Um, first question, just on the looks like you added some borrowings toward the end of the quarter.
Um, just want to get a sense for the the rate on those whether or not those are overnight or term borrowings, and I guess the plan to maybe pay those off. As deposit growth um comes comes through in the second half.
Matthew Clark: Okay, great.
Matthew Clark: Yeah, Matt um yes they were overnight and yes the plan is to pay them off um as our deposits come in in the third quarter uh it was in the mid Force as far as the rate. But like I said we we do plan to pay those off.
Scott Wylie: And then your cost of interest bearing in total deposits, both down to basis points. I'm just curious what the spot rate was at the end of June and kind of what your expectations are for more relief in the back half of the year. Yeah, the spot rate at the end of June was 307. and that's Total Deposit. And, you know, we we do still have opportunity to continue to reprice down on the CD portfolio. As far as NIM expectations, we're thinking relatively flat. third quarter. due to strong deposit pipelines in the third quarter. And then as we deploy that into loan production, now we still are expecting.
Okay, great. And then um your cost of interest bearing.
In total deposits, both Down 2 basis points.
Matthew Clark: um, if you just curious what the spot rate was at the end of June, and
Matthew Clark: Kind of what your expectations are for more relief in the back half.
Matthew Clark: yeah, the the spot rate at the end of June was
Matthew Clark: 307.
Matthew Clark: And that's a total deposit.
Matthew Clark: And you know, we we we do still have opportunity to continue to re price down on the CD portfolio.
Matthew Clark: um,
as far as you know, name, expectations, we're thinking relatively flat in the third quarter, um, due to
Scott Wylie: named to expand in the fourth quarter back to really that exit name that we we talked about last quarter, kind of in the low, low to mid to 70s.
You know, strong deposit pipelines um in the third quarter and then as we deploy that into Loan Production, you know, we still are expecting.
Matthew Clark: Okay, great.
Nim to expand in the fourth quarter. Back to really that exit, uh, name that we we talked about last quarter, kind of in the low, um, low to mid 270s.
Matthew Clark: And then just last one for me on expenses. Good cost control here this quarter better than the guide. I think that was 19.5 to 20 million.
Scott Wylie: What are your updated thoughts on the run rate here in the back half? Yeah, we're still thinking. Same range, $19.5 to $20 million.
Speaker Change: Okay, great. And then just last 1 for me on expenses, good cost control here. This quarter better than the guide. I think that was
Speaker Change: 19 and a half to 20 million. Um, what are your updated? Thoughts on the Run rate here in the back half.
Speaker Change: Yeah, we're still thinking.
Speaker Change: Same range, 19 and a half to 20 million. Um,
Scott Wylie: Okay, thank you. We continue to think that our path to success is not in cost cutting, right, it's in operating leverage from growing revenues with our current expense base and, you know, our focus has really been on just trying to sure we're not seeing. Excessive growth in that expense base.
Speaker Change: okay, thank you. We we continue to think that that our
Path to success is not in cost, cutting, right? It's in operating leverage from growing revenues with our current expense base and you know, our Focus has really been on just trying to
Make sure we're not seeing.
Speaker Change: Excessive growth in that expense base.
Matthew Clark: Thank you.
Thank you.
Woody Lay: Our next question comes from Woody Lay with KVW. You may proceed. Hey, thanks for taking my questions. I had a quick follow up on the NEM Outlook and I believe you said that you still expect to hit a low to mid-270s NIM by year-end and just wanted to get a sense of how sensitive that could be to how rate cuts play out in the back half of the year. Yeah, Woody, um... I think our guidance that we've previously spoken to as far as how rate cuts impact NII in that million-dollar range is still relatively fair.
Speaker Change: Our next question comes from Woody. Le with KBW, you may proceed
Woody Le: Hey, thanks for taking my questions. Had a, um, quick follow-up on, on the Nim Outlook and
Woody Le: Uh, believe you said that, you still expect to hit a a low to mid 270s, Nim by year end, and just wanted to get a sense of how sensitive that could be to how Ray Cuts play out in the back after the year.
Woody Le: Yeah, what he? Um,
Woody Le: I think our our guidance that we previously previously,
Scott Wylie: We took a little bit of sensitivity off the balance sheet in the second quarter, so maybe it's $100,000 or so below that, but I think that's still a fair assumption as far as how a 25-basis point reduction would impact NII.
Woody Le: Spoken to, as far as how rate Cuts impact knee. In that million dollar range, is is still relatively flat relatively Fair. Um,
Um, a 25 basis point reduction would impact knee.
Woody Lay: Got it.
Scott Wylie: And then maybe shifting over to expenses and profitability, and you mentioned that you can continue to invest in the franchise, just longer term focus, but was hoping that y'all could just kind of sort of peel back the curtain and just walk through sort of how you toggle between investing and seeing the profitability ramp actually play out. Well, I think if you look at the history over the past several quarters, we've had pretty stable expenses. So I think you know, our focus has been, how do we take our current spend, make sure we're getting the maximum value out of that?
Speaker Change: Got it and then maybe shifting over to expenses and profitability and you mentioned that you can continue to, um, invest in the franchisees longer term Focus. But it was hoping that that y'all could just kind of um, sort of Peel back the curtain and just walk through sort of how you toggle between investing and and seeing the profit profitability ramp actually play out.
Speaker Change: Well, I think um, if you look at the history over the past several quarters we've had
Scott Wylie: And how do we take advantage of opportunities we see in the marketplace, you know, we brought in significant new hires from other local banks. from. First Republic, from Goldman Sachs, from UMB here, and those folks have been really helpful to the growth numbers that we started seeing in Q2 here, so I mean we do continue to invest, we continue to upgrade when vacancies come up, and hopefully we'll continue to do that in the back half of the year, that's our expectation. I don't think we need to increase our expenses significantly to achieve significantly higher revenues that are going to drive the operating leverage that we've seen since our IPO where The expense is steady, you grow your revenues, that's going to have a really nice impact for our Got it.
Speaker Change: Pretty stable expenses. So I think you know our Focus has been how do we take our current spend make sure we're getting the maximum value out of that.
And uh how do we take advantage of opportunities? We see in the marketplace, you know, we brought in
Speaker Change: significant new hires from
Speaker Change: other local banks.
Speaker Change: From.
Speaker Change: First Republic from Goldman Sachs from MB here. Uh and and and those folks have been really helpful to the growth numbers that we started seeing in Q2 here. Um so I mean we do continue to invest, we continue to upgrade
Speaker Change: Vacancies, come up.
And uh, you know, hopefully, we'll continue to do that in the back, half of the year. That's our expectation. I, I, I don't think we need to increase our expenses significantly to achieve
Speaker Change: Uh, significantly higher revenues that are going to drive.
The operating leverage that we've seen.
Speaker Change: Since our IPO where, you know, we totally expensive steady, you grow, your revenues, that's going to have a really nice.
Speaker Change: Uh, impact for our bottom line.
Woody Lay: And then last for me, I believe in the opening comments, you called out building up trust fees is a top priority at this point. I know they were down a little bit quarter on quarter.
Scott Wylie: Could you just give some additional color on thoughts on that business line and how you could increase fees from here? Yeah, so we have now replaced most of our P-TIM leadership here to put in a more of a growth mentality than what we've had, you know, since the IPO, we've been pretty flat in P-TIM. Well, we've, you know, tripled the size of the balance sheet and dramatically improved our net interest income. So our feeling is that this is an area of opportunity for us. We talk about that area as PTIM, which stands for Planning, Trust, and Investment Management, PTIM.
Speaker Change: Got it. And then last for me I believe in the opening comments you called out on you know, building up trustees as a top priority at this point I know they were down a little bit quarter on quarter. Could you just give them additional color on, on thoughts on that? Um, business line and and how you could increase fees from here?
Speaker Change: Yes. So we have now replaced, uh, most of our uh, Pim leadership here to put in a more of a growth mentality than what we've had you know, since the IPL we've been pretty flat in P10. Well we've you know, tripled the size of the balance sheet and dramatically uh improved our net interest income.
Speaker Change: So, you know, our feeling is that this is an area of opportunity for us. Um,
Scott Wylie: And historically, we've put a lot of emphasis on the investment management and the trust side. And the trust has certainly grown nicely over the years. But we think there's a big opportunity on the planning side as well. And so we have brought in new leadership there. The head of planning joined us right at the beginning of the second quarter. And historically, I would tell you, we find it takes some time for these folks to get traction. And not with him. I mean, there's really good stuff going on in terms of product development and new channel distribution.
Speaker Change: We we talked about that area as Pim which stands for planning trust and Investment Management Pim and uh you know historically we've put a lot of emphasis on the investment management and the trust side and the trust has certain grown nicely over the years.
Speaker Change: Um, but we think this is a big opportunity on the planning side as well. And so we have brought in new leadership there. Um,
Scott Wylie: Historically, we focused here on the B2C channel with our 19 offices.
Scott Wylie: And now we're launching a new B2B initiative that fits really nicely into some of the other capabilities of the organization beyond planning, like our focus on CNI, and our focus on treasury management, and our focus on retirement services business. So you don't see any of that in the numbers in Q2, either on the expense or the revenue side. But as I think David mentioned in his... comments with the deck. That is something we're focused on, and we do expect to see results going forward.
Speaker Change: The head of planning joined us. Uh, right at the beginning of the second quarter and, you know, historically I would tell you, we find it takes some time for these folks to get traction and not with him. I mean there's a really good stuff going on uh in terms of product development and new channel uh distribution. You know. Historically we focused here on the b2c Channel with our, um, 19 offices. And now we're, uh, launching a new B2B initiative. That fits really nicely into some of the other capabilities of the organization Beyond planning, like our focus on cni, and our focus on Treasury management and our focus on uh Retirement Services business. So uh,
Speaker Change: So, you know, you don't see any of that in the numbers in Q2, uh, either on the expense or the, um, Revenue side. But, uh, as, as I think David mentioned in his
Uh, comments with the deck.
Uh, that is something we're focused on and we do expect to see results going forward.
Woody Lay: All right, that's good to hear.
Woody Lay: Thanks for taking my questions. Thank you.
Speaker Change: All right, that's good to hear. Thanks for taking my questions.
Speaker Change: Thank you.
Bill Dezellem: Our next question comes from Bill Dezellem with Titan Capital Management. You may proceed. Thank you. I had a couple of questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Bill design with Titan Capital Management, you may proceed.
Scott Wylie: First of all, what if any structural factors are holding you back from returning to a 3% or greater NIM? I think the passage of time, Bill, you know, we've talked about that now on the past several calls that we thought that we would see a nice steady improvement in them, which is what we've seen. I think, you know, I don't have the exact page in front of me here, but I think in the deck that's pretty evident. And what we've looked at internally is that we believe that our historic number of some number like 315, 320 is what our business model should produce in a normal interest environment, where you don't see inverted yield curve and you don't see rapid run-up in short-term rates like we saw there a couple years ago.
Speaker Change: Hey, thank you. I had had a couple of questions. First of all, um what if any structural factors uh are holding you back from um, returning to a 3% or greater Nim?
Speaker Change: Pretty evident. Um, and and you know what we've looked at internally is that we believe
Scott Wylie: So we do think we're going to trend back there. And that's what we've been saying, and that's what we've been seeing. So as David said, we expect that to continue, I think. With the growth we saw at the end of second quarter and the funding, and the fact that our deposits typically decrease, especially, you know, operating deposits in Q2 because of tax payments with our type of client. We'll see that continue to come back in the second half of the year. We'll see the improvement from that.
Speaker Change: That our historic number of some number like 315 320 is uh is what our business model should produce in a normal interest environment, where you don't see inverted yield curve and you don't see rapid run up in short-term rates, like we saw there a couple years ago.
So you know, we do think we're going to Trend back there and that's what we've been saying. And that's what we've been seeing.
David: So, you know, as David said.
David: Uh, you know, we expect that to continue, I think.
David: with the growth, we saw at the end of second quarter and the funding and the fact that our deposits typically uh, decrease, especially, you know, operating deposits in
Q2 because the tax payments with our type of client.
Scott Wylie: I don't think we're going to get to 315. here in the next couple of quarters. I'm not sure whether it takes to the end of next year or beyond that, but we do think we're going to see continued progress there. And every quarter. every month where we see some nice organic growth, some improvement in fee income, some good cost control, NIM expansion, and organic growth. All of those things compound each other, drive the top line growth that goes straight to the bottom line if we're not increasing.
David: Um you know we'll see that continue to come back in the second half of the year. We'll see the improved name from that, I don't think we're going to get to 315.
Here in the next couple of quarters. I'm not sure whether it takes
David: Um to the end of next year or beyond that. But um you know we we do think we're going to see continued progress there and every quarter
Scott Wylie: That's helpful, Scott. And just to be clear, there aren't any factors that are required to achieve that $315,000, $320,000, other than a continuation of growing assets and essentially seeing that net interest income growing more quickly than expense growth. It's just a matter of moving the business forward.
David: Every month where we see some nice organic growth, some improvement in fee income, some good cost control uh nem expansion and organic growth. All of those things, compound each other Drive, the Top Line growth, that goes straight to the bottom line. If we're not increasing expenses,
David Weber: Is that the correct interpretation? I think that's safe to say. David, do you feel comfortable with that? Yeah, I think that's fair, Bill.
That's helpful, Scott and just to be clear. Uh, there aren't any factors that are required to achieve that 315 320 other than a continuation of growing growing assets. And, and essentially seeing that, uh, uh, net interest income growing more quickly, uh, than expense growth. And it's just a matter of of moving, moving the business forward. Is that, is that the correct interpretation?
I think that's safe to say I, I don't David. Do you feel comfortable with that? Yeah, I think that's fair. Bill.
David Weber: Additionally, you have hired MLOs over the course of the last year, and I think you inferred in the press release that your mortgage volume was down. I realize that the mortgage market is a bit wonky now, but help us understand why you think your volumes are down when your MLOs have increased.
David: Great. Thank you. And then, um, Additionally, you, um, have hired mlos over the course of the last year and, uh, I think you, uh, inferred in the, in the press release, that your mortgage volume was down. And, and I realized that the, the mortgage Market is a bit. Um, maybe this is appropriate time to say wonky, um, if now, but help us understand why you think your volumes are down uh when your mlo
David Weber: Yeah, Bill, I can take this one. You're right, we have been working to increase our MLOs, which helps us with just general production and geographic spread of that production. You know, they're in different locations and we have more in the pipeline to continue to grow those. Industry-wide, I think the general mortgage industry has still not really rebounded. We have not seen the production that we typically see in the summer months, which are typically our higher seasonality months. Um, you know, I think we're seeing impact from The economic uncertainty, but also the interest rate uncertainty. I think people are just not, you know, not in the buying and or selling part of life right now.
David: um, um, have have increased
Bill: Yeah, bill. I can take this 1 um,
You're right, we have been working to increase our MLS which helps us with just general, um, production. And
Geographic spread of that production you know they're in different locations and and we are we have more in the pipeline to continue to grow those. Um
Bill: Industrywide. I think the general mortgage industry has still not really rebounded. Um, we have not seen
The production that we typically see in the summer months, um, which are typically are higher seasonality months.
Bill: Um, I, you know, I think we're seeing impact from
the, uh, economic uncertainty, but also the interest rate and certainly I think people are just not, um, you know, not
David Weber: And it it appears that everybody's kind of staying on the sidelines. We are hearing that buyers believe that the home prices will start to decline at some point, and in the near future, I think that, you know, the interest rate certainty will help with that as well. I think that, you know, we might see a little bit more, but our general belief is that if we can continue to add individuals that aren't fixed cost to us, that bring in more production, that we will see the increase in revenues with that, as well as as economic conditions continue to improve.
In the buying and or selling, um, part of life right now and it it appears that everybody's kind of staying on the sidelines.
David Weber: I would note, however, that we are contribution positive on mortgage for the year, and were last year as well, and so this is a contributing business. You'll see a lot of our production in the second quarter was through mortgages as well, one to four family residential mortgage increase in our mix. So, very much a contributing part of the business and, you know, from an earnings perspective is doing nice, paying nice dividends to us as well.
Bill: We are hearing that buyers believe that the home prices will start to decline at some point um, in the near future. I think that, you know, the interest rate certainty will help with that as well. I think that, you know, we might see a little bit more but our general belief is that if we can continue to add individuals that aren't fixed costs to us, um, that that bring in more production that we will see the the increase in revenues with that as well as as economic conditions continue to improve. I would note however
Bill: Um, that we are contribution positive on mortgage for the year and we're last year as well. And so this is a contributing business. Um you'll see a lot of our production in the second quarter was through mortgages as well, 1 to 4 family um Residential Mortgage increased.
Julie Courkamp: And so, Julie, to be clear, the decline in the mortgage volumes, you all see entirely as market-related as opposed to some internal challenge that you all need to be working on internally. That's correct. That's helpful.
Bill: In our mix. Um, so very much, a contributing part of the business and you know, from an earnings perspective is is doing nice. Uh, pay nice dividends to us as well.
Uh, Market related as opposed to uh, some internal challenge that you all need to be working on internally.
Bill: Uh, that's
Bill Dezellem: One last question. Relative to your customer's mindset, I guess I'll call it the cautious or not spectrum, what are you seeing and hearing from them today? I think you referenced that you had good loan growth late in the second quarter.
Scott Wylie: Has the mindset shifted over the course of the last few months as the macro environment has shifted? Share as much insight on all those factors as you can please. Yeah, that's that's actually a great question. And I think really interesting bill to try and understand what you know, isn't easy, right?
Bill: that's helpful. And then, um, 1 last question, uh, relative to your customers mindset, um, you know, on the I guess I'll call it the cautious or not, uh, Spectrum. Uh, that what are you, what are you seeing and hearing from them? Uh, today, I think you referenced that you had good loan growth in the uh, um, late in in the second quarter and has the mindset shifted over the course of the last few months, as the macro environment has has has has shifted, uh, share as much Insight, uh, on all those factors. As you can, please.
Bill: yeah, that that's actually a a great question and I think really interesting
Scott Wylie: So we do a mid year review where we bring in all of our senior people for a couple of days. And earlier this week, we had all the leadership and the managers here Monday, and then Tuesday, the all the PC presidents from the 19 locations stayed. And we had a PC President's Summit. And then we also had Tuesday, a P10 Summit, working on some of the changes we have going on there. And so at the PC President's Summit, I asked the PC presidents that very question, I said, you know, what do you see in terms of competitive environment?
Um, build to try and understand what, you know, is an easy, right? So we do, uh, a mid-year review where we bring in all of our senior people, for a couple of days. And earlier this week, we had, um, all the leadership and the managers here Monday, and then Tuesday, the all the PC presidents from the 19 locations, stayed.
Scott Wylie: What do you see in terms of client demand? And, and each one of them said, as they always do, that it's a very competitive environment, and they're still seeing cost pressure on the deposit side and cost pressure on the, on the loan side. But you know, the facts are that we're seeing more bigger pipelines, we're seeing more demand. And I think the feeling is, among those guys that are really close men and women that are closest to our markets, that the caution that we saw early in the year has shifted and people are coming back to doing business.
Bill: Yeah. And we had a PC president Summit. And then we also had on Tuesday, a PM Summit working on some of the changes we have going on there. And and so at the at the PC's present Summit, I asked the PC presidents that very question. I said, you know, what, are you seeing in terms of competitive environment? What do you see in terms of client demand? And, uh, and each 1 of them?
Uh said, as they always do that, it's a very competitive environment and they're still seeing cost pressure on the deposit sign cost pressure on the on the loan side. But you know the facts are that we're seeing more bigger pipelines. We're seeing more demand and I think the feeling is among those guys that are really close men men and women that are closest to our Market.
Scott Wylie: So I think your, your question is spot on. I think we're still in a competitive environment. I think we're still seeing some market disruption that's good for us. In fact, I think that's probably accelerating. And I think we're seeing making them move on things that they're Great.
Um, that the the caution that we saw early in the year, uh, has has shifted and people are compact to doing business. So I I I think your your question is spot on. I think we're still in a competitive environment. I think we're still seeing some um,
Bill: Market disruption, that's good for us. In fact, I think that's probably accelerating.
Uh, and I think we're seeing, um,
Bill: With our clients.
Bill: and,
Making a move on things that they're thinking about.
Bill Dezellem: Thank you all for taking the many questions. Thank you.
Tony Rossi: I would now like to turn the call back over to the management team for any closing remarks. Great. Thanks, Josh.
Great. Thank you all for, uh, taking the many questions. Yep, thank you.
Thank you. I would not like to turn the call back over to the management team for any closing remarks.
Great.
Scott Wylie: So I just want to thank everybody for joining us on the call today. We have targeted improvements in asset quality and NIM, net interest margin, and organic growth. We've talked about that now for several quarters, and we feel that with the progress we're making there, we're going to return to our historic strong numbers, and we're seeing that over the past few quarters, and we see continued progress going into the second half of the year. This is driving more operating leverage, which is going to restore our strong earnings growth story, and our internal and external trends that we see across our products and services and across our geographical footprint are all positive.
Uh, thanks Josh.
Speaker Change: So I just want to thank everybody for joining us on the call today. Uh we have targeted improvements in asset quality and Nim that is from margin and organic growth. We've talked about that now for several quarters. And uh we feel that with the progress we're making their we're going to return to our historic strong numbers. And uh we're seeing that over the past few quarters and we see continued progress going into the second half of the Year. This is driving more operating leverage which is going to restore our strong.
Bill: Earnings growth story.
Scott Wylie: We expect to benefit from these trends in the second half of the year and into 2016, all else being equal.
Tony Rossi: We really appreciate the support and thanks for taking the time today to listen to our earnings call. Thanks, everybody. Thank you.
Bill: And our internal and external trends that we see across our products and services, and across our geographical footprint, are all positive. We expect the benefit from these Trends in the second half of the year and into 2016, all else being equal.
Uh, we really appreciate the support and thanks for uh taking the time today, to listen to our earnings call.
Thanks everybody.
Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Bill: Thank you, this concludes the conference. Thank you for your participation. You may now disconnect
Operator: Thank you for watching!