First Western Financial, Inc. (NASDAQ:MYFW) Q4 2022 Earnings Conference Call January 27, 2023 12:00 PM ET
Corporate Participants
Tony Rossi – Managing Director – Financial Profiles
Scott Wylie – Chairman and Chief Executive Officer
Julie Courkamp – Chief Financial Officer and Chief Operating Officer
Conference Call Participants
Brett Rabatin – Hovde
Brady Gailey – KBW
Matthew Clark – Piper Sandler
Bill Dezellem – Tieton
Operator
Thank you for standing by and welcome to First Western Financial Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder today’s call is being recorded.
I would now like to turn the conference over to the host Mr. Tony Rossi of Financial Profiles. Sir, you may begin.
Tony Rossi
Thank you, Valerie. Good morning, everyone, and thank you for joining us today for First Western Financial’s fourth quarter 2022 earnings call. Joining us from First Western’s management team are Scott Wylie, Chairman and Chief Executive Officer; and Julie Courkamp, Chief Financial and Chief Operating Officer. 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 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.
I would also direct you to read the disclaimers in our earnings release and investor presentation. The company disclaims any obligation to update any forward-looking statements made during the call.
Additionally, management may refer to non-GAAP measures, which are intended to supplement, but not substitute for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today as well as the reconciliation of the GAAP to non-GAAP measures.
And with that, I’d like to turn the call over to Scott. Scott?
Scott Wylie
Thanks, Tony, and good morning, everybody.
We had a number of objectives that we wanted to accomplish in the fourth quarter. We wanted to increase our focus on deposit gathering in order to improve our liquidity and reduce our loan to deposit ratio. We wanted to continue to generate solid loan growth while tightening underwriting and pricing criteria given the potential for weakening and economic conditions. And we wanted to continue to effectively manage our expense levels.
I’m pleased to report that we were able to accomplish all these objectives and continue to generate strong financial performance, although earnings were lower than the prior quarter due to the increase in interest expense that we saw as a result of our strong growth in deposits and the competitive environment, putting pressure on deposit class. Even with a tighter underwriting and pricing criteria, we still generated 21% annualized loan growth in the quarter with increases in each of our major portfolios. The strong loan growth that we continued to generate reflects our success and steadily growing our client base in Colorado, as well as the increase in contributions we’re getting from the teams that we built to increase our presence in Arizona, Wyoming and the Montana markets.
With the strong business development capabilities that we’ve built, we’re able to generate a significant volume of high-quality lending opportunities, enabling us to continue generating strong loan growth while maintaining our prudent approach to risk management. Importantly, the growth rate we saw in total deposits was more than double our loan growth.
We are particularly effective in expanding deposit relationships with a few larger clients, which accounted for a significant portion of the deposit inflows we saw in the fourth quarter. And as with our loan production, our increased presence in some of our newer markets was also contributor to the strong deposit growth in the fourth quarter.
As we mentioned on our last call, our near-term objective was to get our loan deposit ratio down near 100% and we were able to achieve that with our strong growth in deposits during the fourth quarter along with our improving liquidity by reducing our loan to deposit ratio. During the fourth quarter we also increased our total capital ratio by 53 basis points to 12.37%.
Moving to Slide four, we generated net income of 5.5 million, or $0.56 per diluted share in the fourth quarter, or $0.58 a share with acquisition related expenses excluded. Our strong profitability along with effective management investment portfolio has enabled us to continue to drive increases in both book value and tangible book value per share. In the fourth quarter, book value per share increased 2.5% from the prior quarter, while tangible book value increased 3%. During 2022, a year when most banks saw a significant declines, both metrics increased by more than 9% reflecting the strong value we’re creating for shareholders.
Turning to Slide five, we’ll look at the trends in the loan portfolio. We had another strong quarter of loan growth, originating $182 million in loans. While this was down from the prior quarter, the average rate on new loan production increased by more than 100 basis points. So we’re still generating strong production without compromising on pricing. Payoffs are also continuing to moderate. So more of our loan production is translating into net loan growth and our total loans held for investment increased 121 million for the end of the prior quarter.
The growth was primarily driven by increases in our residential mortgage construction C&I portfolios, which offset a decline in our CRE portfolio, which is an area we’re limiting new production as part of our overall approach to risk management ahead of a potential recession. As with the prior quarter, most of what we’re adding the one to four family residential portfolio or jumbo arms that provide attractive risk adjusted yields.
Moving to Slide 6, we’ll take a closer look at our deposit trends. The success we had in deposit gathering resulted in 44% annualized growth in total deposits during the fourth quarter. We had a decline in non-interest-bearing deposits, which was largely attributable to some clients designed to move a portion of their excess liquidity into interest-bearing accounts to capitalize on the higher rates now being offered.
We also made a decision to add some time deposits in order to lock in longer term fixed rate funding that we believe will enable us to more effectively manage our deposit costs going forward.
Turning to Slide 7, Trust and Investment Management, our total assets under management increased by 189 million from the end of the prior quarter, which was primarily due to an increase in market values during the fourth quarter of 2022.
Now I’ll turn the call over to Julie for further discussion of our financial results. Julie?
Julie Courkamp
Thank you, Scott.
Turning to Slide eight, we’ll look at our gross revenue. Our total gross revenue was relatively consistent with the prior quarter as an increase in non-interest income offset most of the decrease we saw in net interest income. On a year-over-year basis, our gross revenue increased 23.8% from the fourth quarter of 2021, largely due to higher net interest income, resulting from both organic and acquisitive growth on our balance sheet.
Turning to Slide nine, we’ll look at the trends and net interest income and margin. Our net interest income decreased 4.6% from the prior quarter, due to the increase in interest expense resulting from our strong growth in total deposits, and an increase in our average cost of deposits. With our strong growth in deposits, we reduced our level of FHLB advances. And we continue to make adjustments to our level of wholesale borrowings going forward based on the trends we’re seeing in loan production and deposit flows.
Excluding the impact of PPP fees, and accretion on acquired loans, our net interest margin decreased 47 basis points to 3.31. The net decline in our net interest margin was due to an increase in our average cost of funds resulting from the higher rate environment and very competitive environment for deposit gathering. Given the competitive environment for deposit pricing, we believe it is likely that we will continue to see some pressure on our net interest margin in the first quarter.
As we exited the year, due to the changes in the composition of the balance sheet, we have moved to a more neutral position in terms of interest rate sensitivity. And we have indicated in the past, we do not make bets in future direction of interest rates. Changes in our interest rate sensitivity are a function of the trends we see in loan production and deposit flows at any given point in time, with our primary focus being on generating growth in net interest income.
Over the past few years as the growth in our commercial banking platform resulted in more commercial deposit relationships and an increase in non-interest-bearing deposits, we became more acid sensitive and saw significant expansion in our net interest margin. Now we are seeing a shift back to a more neutral position, which will serve us well in protecting our net interest margin when the Fed eventually starts to lower interest rates.
Turning to Slide 10, our non-interest income increased 3.4% from the prior quarter, primarily due to higher bank fees and risk management and insurance fees. The higher bank fees was partially attributed to an increase in prepayment penalty fees, while the increase in risk management and insurance fees primarily reflects a seasonal bump that we typically see in the fourth quarter. The growth in these areas offset minor declines in trust and investment management fees, and net gain on mortgage loans, both of which are starting to stabilize relative to the larger declines we experienced earlier in 2022.
The volume of locks on mortgage loans originated for sale declined 32% from the prior quarter, approximately 95% of the originations were purchased loans, and we are seeing very little demand for refinancing given the rise in mortgage rates.
Turning to Slide 11, in our expenses. Our non-interest expense increased 3.3% from the prior quarter, primarily due to an increase in data processing costs resulting from non-recurring implementation charges relating to enhancements we have made to our trust and investment management platform. During 2022, we made significant investments and built new banking talent and technology that will contribute to our future growth and revenue and improvement in efficiencies.
Following these investments, we expect the growth rate of non-interest expense to moderate in 2023, with most of the growth coming from annual salary increases. And for the first quarter of 2023, we expect non-interest expense to be in the range of 20 million to 21 million.
Turning now to Slide 12, we’ll look at our asset quality. On a broad basis, the loan portfolio continues to perform very well with another quarter of minimal losses, although we did see an increase in non-performing loans in the fourth quarter. The increase in non-performing loans is primarily attributed to one commercial loan. As we have indicated in the past, our underwriting criteria requires multiple sources of repayment. In this particular case, we have the assets of the business, a commercial property, and a personal guarantee from a high-net-worth client. As a result, we believe the loan is well secured, and there was no specific reserve required.
We recorded provision for loan losses of 1.2 million, which was driven by the growth and changes in the mix of the loan portfolio. This puts our HFL to adjusted total loans at 78 basis points, which was relatively consistent with the end of the prior quarter, and reflective of our strong credit quality and the low level of losses that we have experienced in the portfolio.
On January 1, we adopted the CECIL standard for allowance for credit losses. Our preliminary estimate is that our ACL to total loans ratio will be in the range of 75 to 90 basis points and a 30 to 45 basis point coverage on off balance sheet commitments.
Now I will turn the call back to Scott.
Scott Wylie
Thanks, Julie.
Turning to Slide 13. I’ll wrap up with some comments about our outlook and priorities for 2023. What appears that the macroeconomic environment will be challenging this year, we believe we’re well positioned to effectively manage through an economic downturn while continuing to generate profitable growth, particularly when economic conditions improve.
With our conservatively underwritten, well diversified loan portfolio and the strength of clients that we serve, we expect to maintain strong asset quality as we have during prior periods of economic stress. In each of the past three years, we further tightened our already conservative underwriting criteria. As a result of the credits we’ve added to the portfolio over that time have a substantial cushion in their debt coverage ratios and loan to values to absorb any deterioration that occurs in cash flows or collateral values.
We also have little or no exposure to the areas that are most likely to be impacted by a recession, such as office CRE, retail CRE, SBA or subprime consumer.
We feel very comfortable with this small amount of office CRE that we have in the portfolio. These properties aren’t in major metropolitan areas where the work-from-home trend has been most pronounced. They largely consist of smaller properties in high-end suburban areas with tenants in more recession-resistant industries like medical practices.
In terms of new business development, we’re going to continue to place an increased focus on core deposit gathering to fund our loan production.
Our relationship anchors are focused on developing full relationships with both loans and deposits from clients, we expect this to result in better alignment between loan and deposit growth going forward. While we continue to be conservative and highly selective in our new loan production until economic conditions improve. We expect to be able to continue generating solid loan growth as new teams that we’ve added in Arizona, Wyoming and Montana continue to gain traction and increase our market share.
One of our priorities for 2023 is increasing our business development in the trust and investment management area. We’ve made some adjustments in how this business operates which will free up our business development officers to spend more time meeting with potential new clients. We’re also going to be adding a few new business development officers in various markets. We believe these efforts will not only help drive a higher level of growth in assets under management and fee income, but also contributed to balance sheet growth given our consistent success and expanding relationships with wealth management clients to include loans and deposits as well.
Our investment area will not have a meaning and full impact on our overall expense level as we’re reallocating resources from other parts of the business. And as Julie mentioned, now that our near-term investment in talent technologies support our long-term growth are largely completed, we expect to keep our expense growth rate well below our revenue growth rate this year resulting in increased operating leverage.
We believe our increasing operating leverage a result of further earnings growth in 2023 with the second half of the year likely being stronger than the first half. It’s now been about 4.5 years since our initial public offering, and I think we have successfully delivered on the strategy we outlined at that time for enhancing the value of our franchise. While navigating through a multiyear pandemic, we’ve generated strong organic growth by taking market share in our existing markets and expanding markets and complemented that with disciplined, well-priced and well-executed acquisitions.
The balance sheet growth we generated has resulted in greater operating leverage and higher level of earnings and improved profitability. With our strong execution since the IPO, we’ve created significant value for the shareholders of tangible book value per share increasing by nearly 140%.
We built a strong, high-performing culture and a very talented team that delivers exceptional client service and effectively communicates our value proposition to consistently bring in new relationships. With a strong team we’ve built, the attractive markets that we operate in and the highly productive business development capabilities we’ve developed, we believe we’re well positioned to deliver another strong year in 2023 and create additional value for our shareholders.
With that, we’re happy to take your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Our first question comes from Brett Rabatin of Hovde. Your line is open.
Brett Rabatin
I wanted to talk about, first, the growth in deposits linked quarter. And I think, Scott, you mentioned some fairly sizable clients adding funds to the deposit mix. Can you talk maybe about the larger deposits this quarter and then the efforts to continue growing that? Would we expect that to continue in terms of the acceleration of the linked-quarter beta.
Scott Wylie
Yes. So we talked a little bit about this. I think in the last two calls. Historically, we’ve seen that we’ve been able to operate the bank in a kind of a 90% to 95% loan-to-deposit ratio. And we’ve always kind of wondered — we know where the next loan is coming from. We always kind of wonder where the next deposit is coming from. And I think what we’ve seen over the years is that our clients have liquidity and they’re willing to bring it here. If we want it, we don’t need to carry a bunch excess liquidity on our balance sheet that we’re not making money with.
So I think that’s exactly what we saw in the fourth quarter. We told our relationship bankers, hey, we’re not going to operate this thing with 108% loan-to-deposit ratio where we were in Q3. And we went out and increased our loans or deposits at a rate that was double our loan growth rate in Q4. So I do think that we really had nice success with that. And as we said in the prepared comments, a lot of that came from existing clients, which is exactly what we’ve seen over the prior 18 years here. And then my prior private banking operations. So yes, I do think that will continue into 2023.
The comment you made towards the end of your question though, I just want to draw some attention to that. If you look at kind of quarter-by-quarter last year at our deposit beta. We did a pretty nice job, I think, as an organization in holding our deposit beta down in the first half of the year. And as we talked about last quarter, it’s really been an unprecedented environment. I mean, in the 30-something years I’ve been doing this, we’ve certainly never seen deposit or Fed fund rates go up as fast as quickly buy as much as quickly as what we saw through the middle and latter parts of this year. And I feel like the relationship-based focus that we have here has really served us well.
Of course, that came back in Q4 in an interesting way where we really saw a big spike in our cost of funds to the point where our net interest margin really came down, which we said we thought was going to happen in the last call and sure enough, it did. I think we guided in our comments that we’re going to see continued pressure in Q1 of 2023.
But you look at where our NIM is. For example, in Q4 at 332 when you compare that to historic NIMs at First Western or compared to other high fee banks like us, and 332 is a very strong number. So just looking forward, I think the interesting question, and I don’t really know that we want to give guidance on this. But I guess my feeling is we should plan for the worst, but we can hope for something better than the worst.
And I do think that if you look further into the year, we had a lot of pressure in Q4 to catch up on some of the deposit beta that we had kept low through the year. I don’t personally think that’s going to continue. I don’t think we’re going to see half a dozen or whatever it’s been 75 basis point increases from the Fed this year. And so I don’t think that these headline numbers are going to be in the media a time and our clients are going to be saying, hey, how come I’m getting 0 when Fed funds are 5, which we’re hearing throughout the industry.
I mean it’s just going to be a different environment this year, I think. And if that’s true, and I don’t know if it is or if we’re in a recession or whatever, we may get dealt, I mean we know from Page — is it 6 that has our loan stuff on it? I think it’s Page 6 of our slide deck.
Julie Courkamp
Five.
Scott Wylie
Page 5. Thank you. We have something like $100 million or $200 million in loans that pay off every quarter, and we produce something like $200 million or $300 million a quarter, at least last year. And so you do look at the impact of loans rolling off of 3% or 4%, and either renewing or new loans coming on at 7% or 8%. And it just feels to me like we’re pretty well positioned from an already competitively high net interest margin compared to high fee bank peers, private banking peers, I think we’re well positioned to see some growth later in the year but we’re going to see that come down in Q1. And I don’t know what’s going to happen the rest of the year but just the dynamics that seem apparent today, leave room for upside later in the year. So that was a little bit of a long-winded answer to your question, Brett. I hope it was helpful.
Brett Rabatin
Yes, Scott. That was very helpful. And I would agree, you obviously did a good job last year managing the deposit cost has just gotten so competitive and essentially your competition is the treasury curve. So sort of is what it is.
My follow-up question, I wanted to ask about the loan portfolio growth from here. 4Q was construction and residential. Obviously, you have slow growth from 21% linked quarter annualized in the fourth quarter. But wanted to get a sense of what the pipeline looked like, what you think you might grow this year and then any magnitude that you’re expecting from pipeline perspective?
Scott Wylie
Yes. We’ve historically said that we think we can grow loans in the mid-teens. I think, again, if you stand back a little further than just a quarterly look, we’ve kind of grown loans pretty consistently organically at least in the mid-teens. So with tighter standards, with higher spreads, could we grow loans in the mid-teens in 2023, well, I think so. We have the infrastructure in place. We’ve got some strong machine, I call it, in our existing offices. And then, we’ve added some more high-quality lenders in some of these new markets that we’re in, Arizona, Western Wyoming and Montana. So yes, I mean, I think we’re well positioned to see growth in deposits and loans in those markets in relationships, but it’s just hard to tell right now.
I think we’re seeing clients that we’re thinking about doing something that makes sense at 4% and maybe doesn’t make sense at 8%. And these are sophisticated people, and they’ve been through cycles, and they don’t need to do something. And maybe they will, maybe they won’t. I would say right now, our pipelines are down, but they’re sure not empty. There’s plenty of activity going on, and people are doing things, and we’re closing on new loans.
Julie Courkamp
Then I would just add, Brett, for the kind of the mix comment that you added into that question. We did see quite a bit of mortgage offering, mortgage production last year. And for us, it continues to be very strategically important to us. Like we’ve always said, it’s a good new acquisition of clients and retaining existing clients tool for us to use. But we continue to be cognizant of generating appropriate risk adjusted returns on our capital. So you’ll probably see us dial back our residential mortgage production from what we did at least in the prior year for the first couple of quarters this year as we look at our competitors what they’re pricing those loans at, they’re not quite as attractive as what we would want to put on our portfolio. So I don’t think you’ll see that same level of growth for us at least in the first part of this year unless things change.
Brett Rabatin
Okay. That’s very helpful. Thanks for all the color.
Operator
[Operator Instructions] And our next question comes from the line of Brady Gailey of KBW. Your line is open.
Brady Gailey
So the $20 million of sub-debt that was raised intra-quarter, is that solely just for growth purposes? Or was there any other thing you were thinking about when you raised that sub-debt? I’m not sure if there’s anything else that’s expiring or maturing. But what’s the — any color behind why the sub-debt raise?
Scott Wylie
Yes. Well, we thought that going into a potential recession, more capital is better than less capital, and we didn’t want to do a common raise. We don’t need to because we’ve been able to generate good earnings here over these last few years to support the growth we’ve had. But we saw a window for an attractive non-rated raise. The one that was done before us, I think, closed at 8% of a regional bank. The one that was done after was 8.5%, we got ours done at 7%, 5-year fixed and gives us $20 million of surplus Tier-2 capital at the holding company that can be pushed down to the bank for additional common. It can be additional cash for the holding company.
I mean we said general corp purposes, which is exactly what we plan to use it for. So it just seemed opportunistic and of course, it’s non-dilutive. The impact on future EPS is minimal. And I think we don’t know what’s in the future. And when the windows like that is there, I think it makes sense to take advantage of it.
Brady Gailey
All right. And the new commercial loan that entered into NPA, it sounds like it’s not a huge risk given the dynamics you talked about. But just a little more color, what type of loan is that and when do you expect to have that loan resolved and back out of the NPA bucket?
Scott Wylie
I think 3 weeks from Thursday. So these things are a process. A couple of points on that. It’s a producer of a consumer product that probably got a little over their skis. That’s a metaphor. I think are an indication of the strength of our credit process and of our borrowers here, as Julie said in her prepared comments that we always underwrite that resource through a payment. We’ve got the business assets. We’ve got the buildings. We’ve got some other commercial buildings, and we have a personal guarantee from a very strong borrower client. So we don’t anticipate a loss there. I do expect that it’s going to take a little time to work out just because it always seems to.
But it didn’t feel to us, or it doesn’t seem to us to be indicative of anything like it’s not some systemic problem that we have 3 other loans just like it that are all going to have problems or something like that. I mean it’s just, I think, a one-off thing that, that we felt better putting on non-accrual in Q4.
Brady Gailey
Okay. And then the commentary about the margin coming down in Q1. Any idea the magnitude of how much it could come down? Or any idea where the margin exited the quarter in December?
Scott Wylie
Julie, you want to talk about?
Julie Courkamp
Yes. In December, our NIM just for the month of was 306. So that’s a little bit helpful to you to see where the [hide] [ph] meet us. And Scott touched on a lot of the NIM comments and the net interest income and market for deposits. So I think that will help you out.
Brady Gailey
Okay. And last one for me. So $20 million to $21 million of expenses in Q1, should we expect a little bit of growth beyond that for the rest of the year? Or do you think they’ll be able to hold that flat for the rest of the year? How should we think about kind of full year expenses?
Scott Wylie
Well, we think this is a good time to be managing expenses. And so we talked about, what we talked before that our path to success is not cost-cutting, but we talked in the prepared comments about the fact that if we can keep our costs in line this year with last year and the only real cost increase that we’ll see would be related to salary increases because we do an annual merit adjustment for people. I think that would be a successful expense control year for us.
I do think we’re in a place in the cycle where we want to be careful about growth. We want to be careful by expense growth in particular. And I think what we’re trying to show you in the numbers here is, if we see continued revenue growth like we have seen over the past few quarters, especially in our core earnings. And then, net interest income by itself is up — is it up 49% year-over-year for the fourth quarter, Julie, some number like that. And then we have these kind of hideous headwinds from — on the fee income side. And I keep thinking at some point, it’s not going to go lower. So if it goes higher, and then you’ve got good expense control. I mean that’s all our formula for nice earnings acceleration. So that’s where we’re thinking on expense discipline.
Brady Gailey
Okay. Great. Thanks guys.
Operator
Thank you. One moment please. Our next question comes from the line of Matthew Clark of Piper Sandler. Your line is open.
Matthew Clark
Just first one for me around the margin, if you had the spot rate on deposits, deposit costs or interest-bearing deposit costs at the end of the year?
Julie Courkamp
Spot rate for the cost of deposits at December was $199, so just about 2%.
Matthew Clark
That’s total. Okay. And then the risk management and insurance fees, you have the seasonal step-up this quarter, a little bit higher than a year ago fourth quarter. Anything, I guess, about this rate environment or just general macro environment that might have lifted that a little more than usual? Or is that kind of a reasonable level of activity for next year’s fourth quarter?
Scott Wylie
We can’t seem to predict that. It seems to produce a pretty consistent amount year in, year out through the first three quarters of this year was below our expectation. And we thought we were going to have a strong fourth quarter, and we did. So I think higher fourth quarters than the prior three quarters is a good expectation whether we’re going to hit the number next year like we did this year, I don’t know. I mean, we’ve got a bigger platform [or perhaps] [ph] a bigger client base, more folks out there helping our clients with wealth planning that smoothly drives the risk in the life insurance business. So hopefully, that trends up over time and it will be cyclical where you’re going to see more in the fourth quarter.
Matthew Clark
Okay. Got it. Great. And then just kind of big picture. I think a number of banks have kind of suffered from generating probably stronger loan growth than they should have and not funding it with deposits or low-cost deposits. You guys obviously had excess deposit growth this quarter. But it was — it came at a price. I guess what are your thoughts around kind of maybe tapping the brakes a little bit on loan growth. unless you can fund it with low — truly low-cost deposits and not price-sensitive type balances?
Scott Wylie
Well, honestly, we’re not really thinking in terms of how to best manage NIM. We’re thinking about how to grow the business with the clients that we want given the economic and competitive environment that we’ve handed. And we’ve talked about tightening credit standards. We talked about raising margins. We talked about the relationship focus. If you look at the actual trend line for loan production, it’s gone from a little under 350, a little under 300, a little under 200 over the last three quarters. I think that is all indicative of how we’re approaching loans.
I think sometimes with banks that turn this big it off all the way. And certainly, in our market, we’re seeing some of that. Then, you’ve got a problem turning it back on when the economy turns around. So I think to the extent we can keep our bankers focused on finding the relationships that we want, growing the relationships with existing clients, making sure that our clients and referral sources and our prospects are, see us as being in business and willing to do things that make sense, albeit under more stringent terms and more expensive. I think that’s where we want to be. And if that slows our growth rate down the balance sheet in the interim here, I think that’s fine.
As I said, we’re going to see a lot of lift. I expect, I don’t, again, want to give guidance of this, but I expect that we’re going to see a nice lift in our NIM going through this year if the Fed does, in fact, slow down rate increases, so we don’t see all this deposit pressure. And as we reprice our loan portfolio. I think the math on that stuff works pretty nicely for us and Julie was talking about. We’re not trying to make a big interest rate bet here. We’re trying to run a balanced portfolio. And I think that, that’s going to play out nicely over the course of 2023 as it was a historical a year.
Matthew Clark
Great. Thank you.
Operator
Thank you. One moment please. Our next question comes from the line of Bill Dezellem of Tieton. Your line is open.
Bill Dezellem
It’s Tieton Capital Management. I have a group of questions. First of all, would you please expand further on the comment that you just made relative to some competitors are shutting off their lending machine and what opportunities that may create for you all with market share?
Scott Wylie
Well, I don’t know really what else to add. I mean I think we’re seeing some banks are approaching this part of the cycle by saying we’re not going to lend. And I think that does create opportunities for us with prospects that aren’t here yet, or clients that have things that are a way that we can bring here.
I would tell you; we are in very desirable markets. And so we continue to see new entrants to the markets, and Julie talked in her comments a little bit about people doing, I won’t say stupid pricing, but pricing, certainly, we wouldn’t do on resis, for example, on residential mortgages. We’re just seeing things that are head scratches to us. But the beauty of our business model is, we don’t have to do those things. We can focus on a different area. When one area looks like a competitive position, we don’t want to be in. And of course, with mortgages, we’re able to use the secondary market capabilities that we have to still support clients without having to put low-priced stuff on our books that we don’t want.
Bill Dezellem
Maybe, Scott, the one thing that would be helpful is how prevalent are you finding — just pulling back dramatically on lending by competitors?
Scott Wylie
I don’t know how to answer that, either Bill. We’re in some very different markets from each other. What we see in Denver is different than what we see in the other front range markets. Obviously, the resort markets are different. Western Wyoming, continues to be a really interesting dynamic market. I would say we’ve had more success early in Montana than we expected.
And then if you look at the Arizona, we’ve been able to take advantage there of attracting new lenders in. And a lot of the reason that the really high-quality people that you want to attract to First Western, the reason they want to join us is, as they see us as a growth-oriented company and not somebody that’s turning it on, turning it off, turning it on. So it does spell opportunity for us.
I just think that — and I want to be clear, I’ve said it 2 or 3 times already, this is not the time to be pedal to the metal on growing loans. I mean this is a great time to be bringing in great relationships, fine, but we have been tightening credit standards. We’ve been tightening our underwriting stance and the terms. We’ve been expanding our NIM, expanding our credit spreads that we’re charging clients, and we’ve been disciplined about that. And I think that’s going to pay off for us in 2023 and beyond.
Bill Dezellem
Okay. Thank you. And two additional questions, if I may. Acquisition pipeline, would you please provide an update in terms of what you’re seeing given all of the macro factors that you’re talking about and whether that’s causing some decide now would be a good time to sell? And then secondarily, the trust and investment management and systems enhancements, I know there was a one-time cost in the quarter, but more importantly, trying to understand what is it that you would anticipate those enhancements to do for that business, please?
Scott Wylie
Yes. Great two small questions. Let me start with the acquisition pipeline. So I think what you hear out there is what we see, which is that it’s a difficult time for acquisitions. I think with challenges with AOCI and with credit uncertainty, whatever, it’s the hard time to get things done. We continue to spend time and effort on our corporate development program. I explained many times before, that we think that, that’s a core competency here in that we have a process for doing that, and we continue our process people that we’re interested in. Now we’re interested in them. We call on them and visit with them and work on opportunities and we continue to do that.
I would say there have been 2 or 3 deals in the latter half of last year that were of interest to us, and we’re just priced in a range of them make any sense to us, and they did ultimately find a buyer at a price much higher than we would have paid. And so I wish them well. I think that’s interesting. But we don’t need to do those things. We don’t need to scratch on those things. I mean I hope as investors, you guys see that we’re disciplined about that stuff.
If you look at our last 3 or 4 or also a team for that matter, acquisitions here, they’ve had very happy stories because we’re disciplined about how we look at it, how we price them and we don’t stretch on these things and do things that can come back and bite the shareholders. So are we going to do something this year? I don’t know. We don’t have anything that we’ll be announcing tomorrow, but we continue to do our corporate development efforts. And if the right thing at the right price makes sense, we would love to include that as part of our growth story going forward.
The second question, think about Teton systems. I don’t know how far Julie we should go with this whole thing. But let me try a specific answer and a general answer and maybe if you want to add some more color to it, you would. But as an industry, private banking has a really difficult problem, which is we need our trust and our investment and our mortgage and our banking systems to talk to each other and they just don’t. There’s no vendor out there that has provided that in the 40 years that I’ve been doing this, even though some of them promise it, they don’t work.
And so what we’ve done historically here at First Western is, we’ve taken those 4 core systems and pulled the data out and then use the data to do the things that we need like client profitability and [issue] [ph] pricing and stuff like that, cross-selling, knowing the different products that individual relationship has with those sorts of things.
Now if we can get comfortable with security, we think that there’s an opportunity to migrate these core systems into cloud-based systems that are much more accessible for fintech solutions that are not just stuck in a core system ecosystem, right? That you can use the core as just the core, and then you can build systems around them that provide a lot better efficiency and effectiveness for internal use for our associates and for the client experience.
And so what we’ve done this year, well, two years ago, we converted our loan processing system to an up-to-date system that kind of next generation that we think can support that sort of loan process efficiency. Two years ago, three years ago, we did that with our platform trading system that we use for investment management, which has all kinds of advantages internally and externally. This year, what we did in the fourth quarter is we took our trust core and our investment core and replace the incumbents with a new vendor that has a cloud-based solution that’s integrated as one solution for both of those cores.
And then for this year, we’re hoping to do that with the banking core so that we’ve got ourselves in a place where all these things, even though they may not be able to talk to you to them, they’ll all to talk to our overlays much more effectively and efficiently, and we can get away from being stuck in a single vendors ecosystem and have a lot more flexibility for our system going forward.
And the nice thing is with this trust investment vendor, we’re ending up, Julie, we finally breakeven is that — I mean, we’re hoping for some cost saves. I think —
Julie Courkamp
[Indiscernible] breakeven, yes.
Scott Wylie
Yes. And we’ll see how — once the dust settles and everything if there’s some cost saves to be had there. But my point is, they’re not costing us more. There are some onetime conversion cost to it and obviously some pain to the conversion as there always is, but that would be kind of a short-term and long-term answer to that, Julie, what I miss in there.
Julie Courkamp
No, I think you got it. I was going to touch on the efficiency for our processes and simplification for our associates, client experience improvement and then more accessible data. So those are kind of the key points for what we are hoping to accomplish out of this one.
Scott Wylie
Yes. Did that answer your question, Bill?
Bill Dezellem
It does. That really sounds fantastic. Good what pulling all that together and thank you both.
Operator
Thank you. One moment please. And it looks like we do have a follow-up question from Brett Rabatin. Your line is open.
Brett Rabatin
Just wanted to follow back up on fee income and make sure I understood the expectations for the year, kind of seasonality, maybe of the risk management and insurance fees. And then, just thinking about mortgage banking, some folks have made some hard decisions on that business line. But my guess is you’re going to continue to try and work that business. So I just wanted to hear any thoughts around the mortgage expectations given, obviously, low levels at current times. Thanks.
Scott Wylie
Yes. So obviously, we’ve had some pretty tough headwinds in our fee businesses as an industry and here at First Western that’s true as well. The two big headwinds for our fee business has been on the mortgage side, and obviously, that was a big disappointment this year. But we know it’s cyclical. We know it’s strategic for us, like you said. So we’re not going to go out of it. What we can do is manage expenses, which we’ve done. We’ve cut expenses now Julie 2x or 3x?
Julie Courkamp
3x.
Scott Wylie
Over the past 18 months?
Julie Courkamp
We’ll continue to assess that as production. We’re typically slower this season. So we’re definitely going to be assessing it as the months come in.
Scott Wylie
And then, we’ve added some MLOs in Arizona, in particular. So I think our production — our market share should improve MLOs are 100% commission. So there’s no expense associated with that, if they’re not producing and they are. So I think that’s kind of the best you can do with that, given what the market gives you. If the consensus assumption, I mean you look at the NPA numbers for this year, and I seem pretty aggressive to me. But if those come true, I mean, we should see a better year, at least or at least flat to last year, in mortgages. And if we have good expense control or when we have good expense control there. I mean they’re not going to get worse. It’s either going to be flat or get better, I think.
And then on the asset management side, the trust and investment management side, we think there’s a ton of opportunity there. It’s a really interesting time right now because when everybody is doing well and you’re not paying much in fees compared to the 20% or 30% gains you’re making whatever. It’s hard to get people to move. It’s hard to get people that meant that they need help because everything they bought into their [indiscernible] account or whatever went up. But in markets like this, they’re not being so confident when [the spell] [ph] says them, hey, how come you lost all this money, it’s nice to have a professional adviser that’s helping them.
And so we think it’s an interesting time. We’re actually very focused as a company right now on how we can strengthen our planning, trust and investment management, which are really kind of three different businesses. They’re all very much integrated and overlapping, but the three different things. And we’re doing some pretty significant things internally to upgrade that because we think it’s a really good time right now to be out telling our story, which is a very powerful, differentiated unique story that fits nicely into the banking story we talk about all the time of delivering this team-based integrated private bank and trust service locally.
It’s hard to imagine they’re going to go down much from where we are, and I think there’s opportunity on the upside. Whether we realize that in 2023 or not, I don’t know. But you go back to where we’ve come from, and we’ve come a long way in those businesses and our revenues have shown nice growth. And I think that this is an interesting time for us to be able to capitalize on the market environment.
Brett Rabatin
Okay. That’s great color, Scott. Appreciate it.
Operator
Thank you. I’m showing no further questions at this time. Let’s turn the call back over to management for any closing remarks.
Scott Wylie
Yes, I did have a couple of closing points I wanted to make, if I could. I mentioned in our prepared comments that if you step back a little look at the broader context, 5 years ago, pre-IPO, First Western was a $970 million bank with about $50 million in tangible book value. Today, we’re approaching $3 billion. We have over $200 million in tangible book value. And we’ve done that without dilutive capital raises. In the meantime, we built out an infrastructure that can produce and support billions more in organic expansion, acquisition growth, and we’re producing strong operating leverage and growth into the future, just as we have in proven in these interim years here since the IPO.
I also want to recognize the hard work of our 365 First Westerners. I feel like in a pretty challenging year. We’ve managed to produce another great year of solid organic growth in revenues and core earnings in spite of some significant headwinds, we’re well positioned for the challenges that 2023 may bring and especially if some of those 2022 headwinds turn to tailwinds, and these challenges that we’ve seen become opportunities for us. I think we have a really terrific future here.
So thank you so much for dialing in and for your interest and support for First Western. We really appreciate it.
Operator
Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.
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