First Western is extremely pleased to report another great quarter with record earnings, strong loan growth, and strong mortgage production, augmented by the acquisition of Englewood Mortgage Company in September. The Company reported pre-tax earnings of $2.0 million and net income of $1.2 million for the quarter ending September 30, 2017. In the third quarter, net loans grew 8%, total deposits increased 5%, and non-interest income grew 6%. As forecasted, the Company is recognizing the operating leverage in the business model with growth in revenues and operating expenses remaining flat, resulting in a net income increase of 115% when compared to the same three months for the third quarter ended September 30, 2016.
Net interest income (pre-provision) is up 20% as compared to the third quarter of 2016, while non-interest income is down 12% over the same period. The primary drivers of these results are as follows:
- Total net loans (incl. HFS) outstanding ended the quarter at $813.6 million which represents an increase of $112 million or 16% as compared to the third quarter of 2016. Loan yield increased 19 bps to 4.39% when compared to the same period in the prior year.
- Total deposits increased by 9% to $813.0 million, and the cost of interest-bearing deposits increased by 16 bps to 0.70%.
- Net interest margin has increased by 6 bps to 3.30% due to a more favorable rate environment plus strong loan growth in Q3 2017. The Bank’s loan to deposit ratio increased by 7.1% to 98.9% as of September 30, 2017 compared to September 30, 2016.
- Non-interest income for the quarter ending September 30, 2017 was $6.7 million and included $4.8 million from trust and investment management revenues (flat on a linked quarter basis), $1.2 million from net gain on sale of mortgages (up 58% on a linked quarter basis attributed in part to the newly acquired mortgage team and a strong seasonal mortgage market) and $0.7 million from treasury management, insurance, and other non-interest income.
- As the mortgage lending offering expanded and matured in 2015-2016, we decided the loan type and cultural fit of this office was not complementary to our mortgage strategy for the next phase of growth and, effective the end of the third quarter of 2016, we terminated our relationship with the associates in our Arizona loan production office and closed the office which has had a material impact on our mortgage earnings, non-interest income and fees, and net income. Since that time, we have been searching for the right mortgage lenders to add to our team and are excited to have added a strong team of mortgage professionals as of September 15th, 2017 with the acquisition of Englewood Mortgage Company. As recognized in September and as projected for future earnings, we expect to see dramatically improved mortgage lending production and capabilities.
- Non-interest income is largely made up of recurring fee revenues and now represents 48% of total revenues.
- Total expenses declined by 8% compared to prior year primarily due to continued emphasis on maintaining overall expense levels and improving efficiencies.
- Assets under management and advisory (AUM) increased by 3% compared to the third quarter 2016. First Western Trust Bank continues to grow in AUM and see acquisition of new clients and growth of portfolios.
With the earnings power and momentum recognized, along with the strong pipelines in each of our markets, we are optimistic that net income will continue to grow to new records in the fourth quarter, and we are well positioned for future opportunities.
Julie Courkamp
Chief Financial Officer
November 2017
