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spk07: Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the first Western Financial Q3 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at the time. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your speaker today, Mr. Tony Rossi of Financial Profiles. Go ahead, sir.
spk01: Thank you, Manny. Good morning, everyone, and thank you for joining us today for First Western Financial's third quarter 2021 earnings call. Joining us from First Western's management team are Scott Wiley, Chairman and Chief Executive Officer, and Julie Korkamp, Chief Financial Officer. We will use this 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 Western's Investor Relations website to download a copy of the presentation. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Western Financial that involve risks and uncertainties, including the impact of the COVID-19 pandemic. Various factors could cause actual results to be materially different from any future 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 gap to non-gap measures. And with that, I'd like to turn the call over to Scott. Scott?
spk05: Thanks, Tony. Good morning, everybody. Our third quarter results represent a continuation of the positive trends we've seen this year, with growth in our private commercial banking operations generating higher levels of revenue, more operating leverage, and increased profitability. In the third quarter, we generated net income of $6.4 million, earnings per share of 78 cents, and a ROA of 1.27%, all of which are an improvement over our second quarter results. On an adjusted basis, excluding acquisition-related expenses, our earnings per share were up to 81 cents from 77 cents in the prior quarter. We continue to have good momentum in business development, which is driving higher levels of loans, deposits, and assets under management. Excluding PPP loans, our total loans held for investment increased at a 19% annualized rate in the third quarter. We also continue to see strong deposit flows as total deposits were up 6.1% from the end of the prior quarter, with all the growth coming in our lower cost categories. We're also seeing steady growth in our assets under management and higher trusted investment management fees. Our private and commercial banking model is working exceptionally well. We're seeing high-quality, well-diversified loan growth, funding these loans with low-cost deposits, and effectively cross-selling additional products and services to increase the overall profitability of these client relationships. As a result, we're seeing improvement across most of our key financial metrics. Compared to the prior quarter, our gross revenue was up nearly 7%, our net interest margin increased 13 basis points, and our efficiency ratio improved 44 basis points. More importantly, as we continue to profitably grow the company, we're prudently managing our growth, which is reflected in our continued strong asset quality and exceptionally low level of losses in the portfolio. Moving to slide four, our improved financial performance is not only driving earnings growth, but also strong increases in our book value and tangible book value. During the third quarter, our book value increased 4.1%, while our tangible book value per share increased 4.8%. The profitable growth we're generating is a reflection of our strong execution across all of our growth strategies. Our more mature profit centers continue to add new clients and generate organic growth, The new offices we've opened up over the last couple of years continue to scale and are making large contributions. And we're accelerating our growth through accretive acquisitions, like the branch assumption transaction last year and the pending acquisition of Teton Financial Services in Jackson. Turning to slide five, we'll look at the performance of our private banking, commercial banking, and trust investment management businesses. This is represented by our pre-tax earnings of our non-mortgage segments On a year-over-year basis, our pre-tax earnings more than doubled in this segment. After the outsized earnings that we generated in the mortgage business last year, we're seeing other businesses fill in 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. We had another good quarter of loan production, with total production coming in at $133.4 million, relatively similar to the prior quarter, while loan payoffs were down a bit. On a period-end basis, our total loans held for investment increased $30.4 million from the end of the prior quarter, or $70.9 million when PPP loans are excluded. Most areas of the portfolio increased from the end of the prior quarter, with the strongest growth coming from commercial real estate while a high level of payoffs resulted in a small decline in CNI portfolio. It's notable that cash securities and other portfolio was able to contribute to our total loan growth despite the continued runoff of PPP loans that are held in that category. We saw more demand this quarter among our private banking clients for the type of investment management secured lines of credit that comprise the bulk of this portfolio. Moving to slide seven, we'll take a closer look at our deposit trends. Our total deposits increased 103.2 million from the end of the prior quarter. All of the growth was in lower-cost deposit categories. This continues to drive improvement in our deposit mix. Over the past year, our non-interest-bearing accounts have increased to 33.5% of total deposits from 30.2%, while time deposits have declined to 7.7% of total deposits from from 11.3%. We had one large deposit come in towards the end of the quarter as that client had a liquidity event. They temporarily placed about $60 million in their money market account, which we expect to be withdrawn during the fourth quarter as proceeds from the liquidity event are distributed to partners of this real estate investment fund. Moving to slide eight, we'll look at our progress in building our commercial banking portfolio, commercial banking platform, which is providing more loan diversification and improving our deposit base by adding low-cost transaction deposits. Commercial loans increased 51 million from the prior quarter and 196 million from the prior year. Commercial deposits increased 130 million from the prior quarter and 227 million from the prior year. In each case, this represents 24% growth over the prior year and is reflective of the strong momentum we have in growing the commercial bank. Moving to slide nine, we've added a new slide to the presentation to show the increasing contribution we're getting from our new offices. This slide shows the aggregate contribution of the offices we've opened since mid-2019 to our total loans, deposits, and assets under management. As you can see, we're getting a larger contribution as the offices gain more traction and build new business pipelines that produce on a consistent basis. We've done a good job of identifying areas for the new offices that have a large amount of the type of clients that we target, and then attracting proven banking talent with established relationships to build these offices. These new bankers have been successful in marketing the First Western value proposition, bringing in new clients, and then expanding those relationships over time. Opening new offices has been a key part of our growth strategy throughout our history, and we plan to continue opening one or two new offices each year with a primary focus on expanding in Colorado, Arizona, Wyoming, and Montana. Turning to trust investment management on slide 10, our total assets under management increased by $143.8 million from the end of the quarter. The increase was due to a combination of contributions to existing accounts and new accounts, as well as improving market conditions, resulting in the increase in the value of assets under management. During the third quarter, new clients accounted for approximately $30 million of our growth in assets under management. Now I'll turn the call over to Julie for further discussion of our financial results. Julie?
spk08: Thank you, Scott. On slide 11, we have provided an update on our participation in the PPP program and how it impacted various metrics in the third quarter. As of September 30th, we had 61.9 million in PPP loans remaining on our balance sheet, which is a decline of 41.2 million from the end of the prior quarter. We recognized approximately 900,000 in fees during the quarter and had 1.2 million in fees remaining to be recognized at September 30th. PPP income had a nine basis point positive impact on our net interest margin in the third quarter. As the PPP loans are forgiven, our borrowings from the PPP liquidity facility that were used to fund the loan originations also decline. At September 30th, our borrowings from that facility were down to $43.6 million. Turning to slide 12, we look at our gross revenue. Our total gross revenue increased 6.8% from the prior quarter. The growth was well balanced across the banks with an increase in net interest income as well as all of our non-interest income generating areas. Turning to slide 13, we look at the trends in the net interest income and the margin. Our net interest income increased 4.4% from the prior quarter despite a 400,000 decline in PPP fees recognized in the third quarter. The increase is due to higher average balances of non-PPP loans and an increase in our net interest margin. On a reported basis, our net interest margin increased 13 basis points from the prior quarter to 3.14%. When the impact of PPP loans and purchase accounting adjustments are excluded, our net interest margin increased 18 basis points from the prior quarter. The increase in our net interest margin was primarily due to a favorable shift in the mix of earning assets, as we were able to reinvest more of our cash into the loan portfolio, as well as increase in average loan yields. We also had a slight drop in our cost of interest-bearing deposits, resulting from the full quarter impact of the higher cost non-relationship deposits that we ran off during the second quarter. Looking ahead, we expect our net interest margin to trend slightly down in the fourth quarter, due primarily to the increased trend in excess liquidity from the temporary deposit that Scott mentioned earlier, which we are keeping in cash balances. Longer term, looking at the potential for higher interest rates, we continue to run the bank to be neutral in terms of interest rate sensitivity, and the addition of Teton won't have a material impact on our sensitivity. However, due to the improvement we have made in our deposit mix over the past few years, the higher percentage of non-interest bearing deposits, we have become more asset sensitive, which should enable us to benefit to a larger degree from higher interest rates than we did in the last rising interest rate cycle. Turning to slide 14, our non-interest income increased 10.5% from the prior quarter as we saw an increase in all income areas. Trust and investment management fees were up 3.2% from the prior quarter and 7% higher than a year ago, despite the sale of our LA fixed income team during the fourth quarter of 2020. We also had a 14.5% increase in net gain on mortgage loans due to increases in volume for both purchase and refinancing, as well as a reduction in variable costs. On slide 15, we have provided some additional detail on our mortgage operations. Total originations were down from the prior quarter, although mortgage locks, which is when revenue is recognized, were higher than in the prior quarter. The mix of production continues to move towards our higher historical range, with purchase accounting for 61% of production in the third quarter. As we indicated on our last call, we reduced our fixed expense in the mortgage group to reflect the lower level of volume that we are now seeing relative to 2020. As a result, the lower level of expense combined with the higher volume in the third quarter increased our profit margin in this business to 50% from 31% in the prior quarter. Turning to slide 16, our non-interest expense increased by 6.1% from the prior quarter. This included approximately $300,000 of acquisition-related expense. The remainder of the increase was primarily attributed to higher salaries and benefits expense, resulting from bonus accruals relating to our strong loan and deposit production, as well as higher insurance benefit costs. With our revenue growth exceeding our expense growth, our efficiency ratio improved to 65% from 65.4% in the prior quarter. Looking ahead to the fourth quarter, we expect our non-interest expense, excluding any acquisition-related expenses, to increase slightly over the third quarter level. Turning to slide 17, we'll look at our asset quality. We continue to see generally positive trends across the portfolio. We had one commercial loan that was placed on non-accrual during the quarter, which resulted in an increase in our non-performing assets of 1.2 million. This loan is well secured and we do not expect to incur any loss at this time. We continue to see minimal losses in the portfolio and had a small amount of net recoveries in the quarter. We recorded a provision for loan loss of approximately 400,000 which was related to the growth in total loans. This brought our adjusted ALLL, which excludes PPP and acquired loans, to 91 basis points of total loans at the end of the prior quarter. Now I'll turn this call back over to Scott. Scott?
spk05: Thanks, Julie. Turning to slide 18, I'll wrap up with some comments about our outlook. We expect a continuation of the positive trends we're seeing in the business, and continued strong growth in our core commercial and private banking operations. We expect the growth in these areas of the business to continue replacing the earnings that were generated by our mortgage operations in 2020. Our loan pipeline is consistently strong and should continue to drive organic loan growth across most areas of the portfolio. We continue to win business based on our expertise, responsiveness, quality of service, and overall value propositions. This has enabled us to generate loan growth without compromising on structure or underwriting criteria, as many competing banks have been forced to do. We expect continued growth in our trust and investment management fees as we're consistently adding new clients and increasing our assets under management. In the near term, this will help to offset lower mortgage activity as we enter the seasonally slower periods of the year. As I mentioned earlier, we're successfully adding new banking talent and expanding to new markets. Most recently, we've made investments in the Montana and Arizona markets, and we believe both markets will be nice sources of additional organic growth for us. We continue to supplement our strong organic growth with accretive acquisitions. Our pending acquisition of Teton Financial Services is expected to close late this quarter or early in 2022. Since announcing the transaction, we've made good progress on our integration planning. We've made all the personnel decisions and informed everyone in the organization of our plans. Our teams are collaborating well together and determining the best ways to leverage the collective strengths of each organization so that we're not only realizing the expense synergies that we projected, but also fully capitalizing on the revenue synergies. In closing, We believe we're executing at a very high level and should continue to deliver a strong finish to the year. With a combination of our continued strong organic growth and the accretive benefits of the Teton acquisition, we believe we're well positioned to deliver another strong year of profitable growth in 2022. With that, we're happy to take your questions. Annie, please open up the call.
spk07: Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, press the power key. We have our first question from the line of Brett and Rebecca. Your line is open. You may ask your question.
spk03: Hey, good morning.
spk05: Good morning, Brett. Good morning.
spk03: Maybe, Julie, can you give, if you gave it, I missed it, but the dollar amount of the loan recovery in the quarter, how much was that?
spk08: It was immaterial, under $100,000. We've seen a little bit of recoveries, but not anything material that shows up even in the chart on the deck.
spk03: Okay. Okay. And then with the prepared commentary, you mentioned that you think the margin will be a little bit softer in the fourth quarter following the improvement in 3Q. I think you've got $1.2 million left of PPP-related fees. Is the link quarter decline a function of expecting that $1.2 million to drag out into 3Q? Next year, maybe any color you could provide on how you're thinking about the margin in the fourth quarter in terms of particularly on the yield side.
spk05: I think generally we're expecting a favorable trend in our NIM. In Q3, we had a couple of one-time things that increased the NIM. PPP, like you mentioned, and then there were... additional payments on a non-accrual loan that all the principals paid for, so the remaining payments from the client come in as interest, so those slightly inflated NIM in Q3 as well. So I think the concern that we won't see that increase in NIM in Q4 is really just smoothing out the trend that we're seeing. I think generally we're seeing better rates on loans, better rates on deposits, and overall improving NIM going into 2022. Is there anything there, Julie?
spk08: Yeah, I would agree. In 2022, I think we're looking to continue seeing improvement in our earning asset mix as we're using up this liquidity, so NIM should follow that trend.
spk03: Okay. That's helpful. And then I was just curious, I know mortgage is tough to predict, but You know, any thoughts on the fourth quarter and then maybe 22, you know, with expectations for total revenue to be lower than 21, or do you think you can gain share relative to the NBA forecast?
spk05: You know, we have the trends in there on slide 15. You know, it seems like we can produce, you know, something like, $4 or $5 million in revenues and, you know, a couple million in earnings out of mortgages, and I think that's going to continue. You know, we've talked about our desire to hire more MLOs, and the extent that we can find people that are a good fit for our strategy and that, you know, doing the business the way we want to do it, then, you know, we're attracting them. We've added a couple this year and continuing to focus on building our MLO base. You know, I think the really important trend here is the way that the business has picked up, you know, the core wealth management business has picked up from the earnings benefit we had from mortgages last year. And I think, you know, if we can see 2022 in line with where we were in 2021 and And that's a nice compliment, but it's really not driving the story the way it did in 2020. Okay.
spk03: And then, Scott, just lastly for me, Scott, if I heard you correctly, it sounds like you're anticipating some additional potential movement of lenders, you know, maybe some lift outs of some other folks. Did I hear that correctly? And, you know, any sense of the magnitude in terms of a number that you might see in the first or in the next couple quarters?
spk05: Well, we have started building a team in Bozeman. We've talked about that, and we're going to build that office out. We've got some, I think, really great opportunities there. Actually, the preliminary work that that team is doing, we're seeing a nice build of the pipeline, and I hope to have some good news to report here in the next couple of quarters from the expansion into Montana here. Arizona, you know, we've been looking at adding people there. We brought in a new state president there. I think there's a ton of opportunity for us in Arizona. You know, we've always thought that that market had as good or better wealth demographics than Colorado, an attractive competitive environment, and, you know, it's just a matter of getting the right team in place. You know, we've seen that business grow, and we think we can accelerate the pace of growth there. So, you know, I think these are things that are going to play out over coming quarters. You're not going to see a big jump in expense in Q4 or anything like that. We're building these teams in the way we have in the past, and they're kind of a steady process that ensures that our revenue growth matches the expense growth or exceeds it.
spk03: Okay, that's helpful, Collar. Congrats on the quarter.
spk05: Yeah, thanks, Brett.
spk07: Thank you, sir. We have an expression from a Brady Kelly. Your line is open. You may ask your question.
spk04: Hey, thanks. Good morning guys. Morning Brady. So, um, you know, over the last couple of years we have seen some nice operating leverage and we've seen your, you know, our way expand pretty nicely. I mean, it was one 50 last year, 1.5%, which I know was propped up by a great mortgage year. This year it's running around 125 basis points. I'm just wondering, given your business model and taking into account you're still growing the company, what do you expect your, you know, what would be an appropriate range for your ROA over the next couple years? Do you think it's consistent with the 125 we've seen year to date, or do you think you could do modestly better than that?
spk05: Well, I don't want to over-inflate expectations, but we do think that we are doing a nice job of proving the operating leverage that we have said all along we think exists in our business model. You know, we continue to see that, especially in the organic part of our business, right? I mean, I think that what we're doing with the expansion provides future earnings power, and then what we're doing with acquisitions has certainly been additive. But just in the organic business, you know, We know that the next dollar of revenues doesn't take much in cost, and so I think we've continued to show that, especially over the last six or eight quarters.
spk04: I know you guys like to open one to two new offices a year, recently Bozeman and Broomfield, but with Teton in the mix, do you take a pause on that organic approach? um, growth or does that continue even in the midst of the Teton acquisition?
spk05: You know, uh, we, we've kind of changed our business model for new offices. We used to, um, open a new office and basically spend a million dollars in expense the first year. And then, you know, by the end of the first year into the second year, maybe they've got a million dollars in revenues. So maybe a break even the second year. And then, um, you know, hopefully you get earned back in the third year. You know, we've been incubating these last few offices in existing offices. So we're doing that for Bozeman in Jackson right now. We did that for Broomfield in the Boulder office. And we've got another Denver office that we're incubating in the downtown Denver location. And so it really changes the numbers there. So you can profitably open these new locations. I hope we get to the point where we're doing it right out of the gate. Broomfield just actually opened in their physical location. We told them they had to get to a certain level of revenues and then we moved into their own office and they just moved in. We had the grand opening here 45 days or so ago in Q3. In Bozeman, we've got some very modest temporary space that will be starting in here shortly and then, you know, building that, leveraging through our Jackson office with the folks that we have there and the connections between Jackson and Bozeman, which are many. And then, like I said, in Denver, you know, we've seen really good growth in that new office that we're incubating. And so we'll move them into a new location, I hope, in 2022. So, yeah, we're going to continue to open new offices.
spk04: All right. Thank you. And then one question specific to the Teton transaction. I know they're coming over with a nice wealth management trust business as well. And the question is, you know, does Teton have anything on the wealth management side, you know, any products or services or offering that First Western doesn't or vice versa? First Western has something that Teton doesn't where, you know, there's an opportunity to basically cross sell into each other and, you know, The question is basically, is there an opportunity on the wealth management side to see some nice revenue synergies?
spk05: Yes. The Teton wealth management business is largely outsourced. And so of the $400 million or so that they have, they've outsourced it. And so we're looking at what complimentary services that provider might add to what we have, but we have a much broader and deeper range of services that we can sell into the Teton client base. So we're certainly working on how we can do that in 2022. The numbers that we announced for accretion and tangible book value earn back are Didn't include any revenue synergies. That was only cost synergies. But what we've seen already is our team in Jackson is working closely with our team, the Teton team, in their plans for 2022 for new business. And I think we're going to see lots of synergies, not only from the products and services, but from the people complementing each other with different skill sets and ability to cross-sell into our respective client bases. Okay, got it.
spk04: Thanks, Scott.
spk07: Thank you, sir. We have another question from the line of Ross Haberman. Your line is open. You may ask your question.
spk06: Good morning, Scott. Scott, how are you? Good. Good morning, Ross. I just want to sort of take a step back and ask you more. What are you seeing in terms of your markets in the in-market migration? Are you still seeing... The growth, maybe not as much as we saw during COVID or pre-COVID, but what sort of the in-market migration into your markets and into the Jackson Hole, I guess, space sort of to drive the mortgage business or maybe keep it at what you're in? I think it said on slide 15 you're in about $2.3 million. I guess that's after tax. I'm just trying to get sort of the underlying migration trends that's going to keep that mortgage business at, I don't know, a million and a half to two and a half million a quarter-ish, if that's as good a guess as any. Thank you.
spk05: Yeah, so I think there are a couple of questions in there, Ross. Maybe I should take a part. I mean, I think the first part of the question about the immigration that we're seeing into our markets has been very strong and continues to be very strong. We're seeing that not only in the resort markets, Aspen, Vail, Jackson, but we're also seeing that in our urban markets here in the Front Range and in Arizona. I mean, it's happening in Montana big time. I mean, we're continuing to see a big influx of immigrants folks from, especially the coast, somewhat from the Midwest, but that is definitely a continuing trend. I think the second part of your question is what's the impact on mortgages? I mean, I think that that's going to continue to provide fuel for growth in our mortgage business, but I think it's actually a lot more significant for the other parts of our business. You know, when people move to town, they're looking to connect with the community and And a great way to do that is with, you know, the leading private bank in the community. And so, you know, we position ourselves in that way. We look for those people. And I look at the mortgage as an important strategic element in that where we can play offense by attracting some of these folks that are moving to town, but we can also play defense with that in protecting our client base from going elsewhere. So, you know, I think, you know, the implications for credit, the implications of the economy, implications for our private bank and our commercial banking business, those are all really nice side benefits of all these good companies and people that are moving into our markets. That trend is going to continue, I think, for a long time to come. I think that that's something that COVID may have accelerated, but it was going on before, and it's continuing to be a big factor in the economic outlook here. Would you be so bold
spk06: Yeah, would you be so bold? Again, I'm looking at this chart on 15, looking at the income, net income after tax of the mortgage business. Would an $8 million average run rate be as good a guess as any as an ongoing number? Or, again, it all depends on how quickly they raise rates going forward. Or even if they do, given you're in migration, you know, $7 or $8 million a year is as good a guess as any.
spk05: Yeah. You know, I mean, a number of factors are going to this, right? You know, it's volume, it's margins, it's a mix of business. We have seen already the mix from refis back to more perks money. I mean, that happened in Q3. That's going to continue in Q4. Yeah. But I think our expectations are 2022 probably looks a lot like 2021 in terms of mortgage revenues and mortgage earnings. We cut mortgage expenses on June 30th, and so we've seen good profitability in Q3 as a result of that. And we'll continue to manage those expenses and support that business. As I mentioned before, we would like to grow that as we grow our footprint. and so we're looking to bring on good MLOs, and we've got conversations going on, and whether it works out or not, you never know, but I think as a baseline, thinking that 22 looks a lot like 21 wouldn't be a bad starting point.
spk06: Last question. Are you looking for other banks to buy in the in the Montana or the Arizona locale, you have a currency. If you found the right thing, which is highly accretive and not too dilutive in a two- or three-year break-even, is that an interesting enough a way to further grow within those markets as opposed to organic branch-by-branch lift-outs? as the other way of growing. Thanks again.
spk05: Great question. We look at our growth as having three elements to it. Organic growth, which we've talked about being in the mid-teens, new offices that create future growth opportunities, and then acquisitions. I think we've had quite a bit of success with our recent acquisitions, specifically your question about are we looking? Yes, we are, and we have an active program. We actually have made two offers on small bank deals here over the last three months or so, and in both cases, we were outbid. I think there are banks out there being very aggressive in their bidding because they can't grow organically, and that's not our situation. We can remain disciplined in our pricing. in our criteria and, you know, anything we're going to do has to make economic and strategic sense. And I think there's plenty of opportunities out there for us to continue to maintain our discipline and still have the ability to get things done, get deals done with organizations that understand, you know, how they're going to benefit from a merger with us as Teton did.
spk06: Okay. Thanks again. Get your booster shot and have a wonderful weekend. Thank you.
spk05: All right. Thank you, Russ.
spk07: Thank you, sir. Again, ladies and gentlemen, if you have a question at this time, please press the star and then the number one key on your touch-tone telephone. We have another question from the line of Bill Desalem. Your line is open. You may ask your question.
spk02: Thank you. I'd like to start with mortgage since that's where we're spending time with the last question and then a couple others, please. What are you seeing with mortgage activity here in October and your thoughts relative to the fourth quarter versus the normal level of seasonality. I'm just trying to gauge that relative to the supposedly pent-up demand that we have in housing.
spk05: Hi, Bill. It's good to hear from you. I would tell you that we're expecting Q4 to be seasonably slower, and I think that the preliminary... results so far this quarter are bearing that out. You know, I think, uh, I mean, we didn't really talk about this with Ross's question, but just because there's a lot of demand doesn't mean there's any more supply. You know, we're still seeing tight supply and that's, um, you know, limiting the amount of mortgage activity, uh, that we're seeing in our markets, but, um, you know, that'll catch up at some point. And, and, uh, and I think we'll see better volumes, uh, And as I say, I think 2022 could probably look a lot like 21 in terms of mortgage revenues and earnings.
spk02: So with that pent-up demand, are you expecting the seasonality to be muted here in the fourth quarter and not as severe as normal, or are you really seeing a normal level of seasonality?
spk05: Yeah. It's hard to answer that, Bill, because, you know, last year was such an unusual year. And then, you know, in 2019, we were really just ramping up our mortgage business. I mean, I think, you know, over the last three or four quarters now, we've seen, you know, pretty steady revenue levels in the kind of $4.5 to $5 million range. And, you know, hopefully we can produce something like that in 2019. in Q4. I think generally we're expecting it to be a little slower in Q4 and Q1. We've talked before about our desire to expand our mortgage operation in Arizona so that we can offset some of that seasonality. We'd like to do that. We just haven't found the right team. And like I was saying, with respect to the new acquisitions, we're in a position where we don't need to do things that don't work and don't fit and aren't priced right. So we continue to work on that. Hopefully, we can find a way to smooth out some of the seasonality over time. But I think Q4 is going to be a little softer than Q2 and 3, and, you know, hopefully we'll come back strongly in 2022.
spk02: Sounds fair. Let me shift to CNI loans. You'd mentioned that the Q3 saw paydowns in CNI. What's it going to take to rejuvenate that CNI loan growth?
spk05: You know, we're just small enough. We talked about this on these calls before. You know, we're small enough that if you cut things off, you know, once a quarter and you look at, you know, what happened in the quarter, there's just noise in the numbers. And I would tell you there's no reason to think that our C&I progress that we've made over the last couple years won't continue. I think that, you know, what you just saw in Q3 is the normal kind of noise of... of quarter-to-quarter variances. I actually think we're seeing good progress there. You look at our pipelines today, going into Q4, they were right in line with where we were in prior quarters, and we're going to continue to see, I think, strong loan demand across all of our different categories, including C&I.
spk02: Thank you. And then one additional question, please. The non-interest-bearing deposits were up, I think, $42 million or something like that in Q3 versus Q2. What led to that growth in non-interest-bearing? I do recall the $60 million that came in, but that went into money market, which I presume does have a rate associated with it.
spk05: It sure does. The You know, the growth in DDAs is just part of this growth in the commercial focus that we've had. And I think if you go back a couple of years and look at the trends, they're very positive, right? We've shifted from, I think I shared some numbers in the prepared remarks, but, you know, since the end of 2018, we've, I think, more than tripled our DDAs. at the same time that we about doubled our deposits. So, you know, we're seeing really nice growth in that area, and we expect that to continue. I mean, I think that, you know, Teton's going to be helpful with that. They've got a nice deposit mix, and I think, you know, the engine that's produced these results here over the last couple years is continuing and accelerating. So I think we'll be fine there. You know, the The $60 million deposit is an interesting story because it's such a one-off thing with a client liquidity event, but these one-off things happen to us all the time because that's the business we're in. And so those deposits, in that particular case, those deposits will be largely paid out to partners. But a lot of times we've had really good success soliciting those partners to become clients when there's a liquidity event. So, you know, these things are actually just very much integral to our business. And, again, part of that, you know, sort of circumstance I was talking about before where you see quarter-to-quarter things that are changes but not really underlying trends. You know, it's just part of the volatility of us still being relatively small. Great. Thank you. Good. Thank you.
spk07: Thank you, sir. There are no additional questions at this time. I will now turn the call back to the management for closing remarks.
spk05: Okay, thank you, Annie. Well, I just would sum up here, you know, we've had really nice continued progress here growing our business, improving our margins, demonstrating the operating leverage in our business model, and creating shareholder value here in Q3 with our continued organic growth and the ongoing expansion and the addition of the Teton team, I think we've got lots of momentum going into 2022. I really thank everybody for their time and interest today dialing in and for your support for First Western. We really appreciate it and look forward to speaking again next quarter.
spk07: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for participating.
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