Thank you for standing by and welcome to the First Western Financial Q4 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. As a reminder, today's conference call is being recorded. I would now like to turn the call over to your host, Mr. Tony Rossi of Financial Profile. Sir you may begin.

Thank you, Valerie. Good morning, everyone and thank you for joining us today for First Western Financial's fourth quarter 2021 Earnings Call. Joining us from the First Western management team are Scott Wylie, Chairman and Chief Executive Officer, and Julie Courkamp, Chief Financial 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 would like to remind you that this conference call contains forward-looking statements regarding the financial performance and financial condition of First Western Financial, which involves 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 GAAP to non-GAAP measures. With that, I'd like to turn the call over to Scott.

Thanks, Tony, and good morning everybody. Our fourth-quarter performance capped another strong year of delivering on the vision we communicated at the time of our IPO in 2018. As we saw in Q3, there's quite a bit of noise in the reported numbers, which we will unpack for you today. We continue to realize more operating leverage and improve our level of profitability as we scale the company through a combination of organic growth, expansion, and accretive acquisitions. By successfully striking a balance between new business development and risk management, we've generated exceptional growth while maintaining pristine credit quality despite the impact of the pandemic. It's a testament to the value proposition that we offer, that we've continued to generate strong growth by adding new clients that present us with very high-quality lending opportunities that meet our strict pricing and underwriting criteria while funding those loans with low-cost deposits. The success we've had in executing on our vision for First Western has created exceptional value for our shareholders. Since our IPO in mid-2018, our tangible book value per share has increased by 116% with more than a 20% increase just in 2021. We ended 2021 with another quarter of exceptional balance sheet growth driven by the strong commercial banking platform we've built over the last two years, and the growing contribution of new offices and bankers that we've added. A record quarter of loan production, excluding PPP loans, resulted in organic growth of 25% on an annualized basis in Q4, our highest level since coming public. Well, organic deposit growth was also strong at 10% annualized. Our asset quality remains exceptional with non-performing assets declining to 17 basis points of total assets in another quarter with an immaterial amount of net charge-offs. Complementing the strong organic growth was the completion of our acquisition of Tieton Financial Services, just over five months after announcing the transaction. At the time of the announcement, we estimated that the transaction would be slightly dilutive to tangible book value with an earn-back period just under half a year. As a result of a higher stock price and slightly lower deal costs, that transaction is accretive to tangible book value, which further improves the attractive economics of this deal. The integration is proceeding smoothly as announced on schedule, including the trusted mortgage systems that have already been integrated. We said the core banking system conversion and consolidation of the Jackson Hole locations is set for May. Moving to slide four, pre-tax earnings this quarter were impacted by acquisition-related expenses; excluding those expenses, earnings were down from the prior quarter, primarily due to a lower level of mortgage activity given the seasonal slowdown we see at the end of the year. We also saw a higher provision due to loan growth in Q4 further impacting Q4 reported results. However, we continue to see strong increases in book value and tangible book value per share driven by our financial performance and the accretive impact of the Tieton Financial Services transaction. Turning to Slide 5, we'll look at the performance of our private banking, commercial banking, and trust investment management businesses. This is represented by the pre-tax earnings of our wealth management segment. On a year-over-year basis, our pre-tax earnings increased by 90% in this segment. After the outsized earnings we generated in the mortgage business in 2020, we're seeing our other businesses building 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 6, we look at the trends in our loan portfolio. The Teton acquisition contributed $252 million to our period-end balances. This amount includes our preliminary purchase accounting adjustments. There could be some small additional adjustments as they are finalized, but nothing particularly material is expected. As it stands now, the loan marks are lower than what we had initially expected when the deal was announced. On an organic basis, we had $225 million in loan production this quarter, which was a record level and 68% higher than the prior quarter. Loan payoffs were also higher than the prior quarter at $122 million, but the strong production more than offset the runoff and resulted in $98.5 million in net organic loan growth, which increases across most of our portfolio. The strongest growth came in our commercial real estate portfolio where there's more demand in the current environment. Over the longer term, we remain focused on growing our C&I portfolio at a faster rate than our other portfolios, but we have the broad business development capabilities to enable us to be flexible and pursue whatever asset class provides the most attractive opportunities at any given point in time. For the second consecutive quarter, our cash securities and other portfolios also grew due to more demand among our private banking clients for investment management secured lines of credit, although the level of growth is masked by the continued runoff of PPP loans that are also held in this portfolio. Moving to Slide 7, we'll take a closer look at our deposit trends. Our total deposits increased by $423 million from the end of the prior quarter, with $379 million coming through the Tieton acquisition and $44 million through organic growth. The $60 million temporary deposit that we mentioned on our last call did not run off in its entirety in the fourth quarter as expected. $50 million remained at the end of the year and is expected to run off early this year as the proceeds from this liquidity event distributed to our partners of the real estate fund. However, we saw some deposit outflows among our existing clients during the fourth quarter. This was more than offset by our successful new business development efforts that resulted in $110 million in new deposit accounts being opened in the fourth quarter. Moving to Slide 8, we'll look at our progress in building our commercial banking platform, which is providing more loan diversification and improving our deposit base by adding low-cost transaction deposits. Commercial loans increased by $95 million from the prior quarter and $213 million from the prior year. Commercial deposits increased by $216 million from the prior quarter and $424 million from the prior year. This represents 23% commercial loan growth and 43% commercial deposit growth over the prior year, reflective of the strong momentum we have in growing our commercial client base. Turning to trust and investment management on Slide 9, our total assets under management increased by $1.1 billion or 17.5% from the end of last year. This increase was due to a combination of closing on the Teton Financial acquisition, contributions to the existing accounts and new accounts, as well as improving market conditions resulting in an increase in the value of assets under management. During the fourth quarter, new clients accounted for approximately $44 million of our growth in assets under management. With that, I'll turn the call over to Julie for further discussion of our financial results.

Thanks, Scott. On Slide 10, we have provided an update on our participation in the PPP program and how it impacted various metrics in the fourth quarter. As of December 31st, we had $46.8 million in PPP loans remaining on our balance sheet, which is a decline of $21.8 million from the end of the prior quarter, offset by $6.7 million of acquired PPP loans. We recognized approximately $500,000 in fees during the first quarter and had $700,000 in fees remaining to be recognized at December 31st. PPP had a six basis point positive impact on our net interest margin in the fourth quarter. As the PPP loans are forgiven, our borrowings from the liquidity facility that were used to fund the loan originations also declined. At December 31st, our borrowings from the facility were down to $23.6 million. Turning to Slide 11, we'll look at our gross revenue. Our total gross revenue decreased by 7.5% from the prior quarter, primarily due to a lower net gain on mortgage loans. With the exception of these net gains, we had increases in most of our non-interest income generating areas. Turning to Slide 12, we look at the trends in net interest income and margin. Our net interest income decreased by 3.1% from the prior quarter, primarily due to a decline in PPP recognized, a decline in interest recoveries, and a lower level of accretion income on purchased loans. When these are all excluded from both periods, our net interest margin declined two basis points to 2.9% from the prior quarter, primarily due to new loan production coming on the books at lower rates than the average yield on the existing portfolio. With the successful close of the Tieton acquisition, we should benefit from lower cost of funds of 17 basis points and higher loan yields of 4.74%. The acquired balance sheet added to our excess liquidity on a temporary basis. However, as we put more of this liquidity to work with higher-yielding assets resulting from our strong loan production, we should see a positive impact in our net interest margin going forward. Turning to Slide 13, our non-interest income decreased by 9.1% from the prior quarter due to the decline in net gain on mortgage loans, which was partially offset by increases in most other areas of non-interest income, as well as an approximate $500,000 net gain on equity interest. We continue to see steady growth in our Trust and Investment Management Fees, which are 6.8% higher than the fourth quarter of 2020. On Slide 14, we have provided some additional detail on our mortgage operations. Our volume of mortgage locks declined by 39% from the prior quarter due to both a drop in refinancing volumes and the seasonally slow period for the purchase markets. The mix of production continues to move back towards our historical range, with purchases accounting for 59% of production in the fourth quarter. As we indicated on our last call, we reduced our fixed expenses in the mortgage group to reflect the lower level of volumes that we are now seeing relative to 2020. From Q1, 2021 to Q4 of 2021, our fixed expenses in the mortgage segment were reduced by 29%. Turning to Slide 15 and our expenses, our non-interest expense increased by 24.7% from the prior quarter, primarily due to higher acquisition-related expenses, which were recorded in our data processing professional services and salaries and employee benefits lines. Excluding acquisition-related expenses, non-interest expense increased due to higher bonus accruals related to our strong loan and deposit production. On an adjusted basis, excluding acquisition-related expenses, our efficiency ratio increased to 71.8% from 63.7% in the prior quarter. Looking ahead, while our overall expense levels will increase due to the acquisition of Tieton, our efficiency ratio should return to the mid-60s. We continue to look for opportunities to realize additional cost savings from the combined remainder of our operations. During the first quarter, we will be consolidating our Lone Tree office into one of our nearby Denver offices. Lone Tree was an office that was added in the Simmons Bank acquisition and we waited until the lease expired to do the consolidation, which will result in a small amount of cost savings. Over the first half of 2022, we expect our operating non-interest expense quarterly run rate to be in the range of $19 million to $21 million. Turning to Slide 16, we look at our asset quality. We continue to see positive trends across the portfolio. Our non-performing assets declined to 17 basis points of total assets from 21 basis points at the end of the prior quarter. We continue to see minimal losses in the portfolio. We recorded a provision for loan losses of approximately $800,000, which is related to the growth in total loans. This brought our adjusted ALLL, which excludes PPP and acquired loans, to 88 basis points of total loans at the end of the quarter. Now I will turn the call back over to Scott.

Thank you, Julie. Turning to Slide 17, I'll wrap up with some comments about our outlook and strategies. Before I do though, I would like to mention that we filed a mixed shelf earlier this month. This was something we always planned to do at some point following our IPO and it's just a procedural step to have this in place should the need arise in the future. Now I will turn it to 2022. We believe we're very well-positioned to deliver another year of balance sheet and EPS growth resulting from both strong organic growth and the accretive impact of the Tieton Financial Services acquisition. With adjusted NIM only down two basis points in Q4, NIM should improve in 2022 with rising rates, loan growth, reducing our excess liquidity, and the addition of lower-cost deposits and the higher-yielding loans acquired from Tieton. Our loan pipeline remains very healthy as we start 2022. With the increasing production from the strong commercial banking platform we've built, we believe we'll generate another year of mid-teens loan growth as our mature profit centers continue to add new clients and our new offices opened up in the past few years continue to scale and make larger contributions. The recent investments that we made in the team to build a team in Bozeman, Montana, and the strength of our existing team in Arizona should help these markets make a larger contribution to our growth this year. While we continue to generate strong organic growth, we'll also be focused on fully realizing the synergies from the Tieton acquisition. We've always taken a conservative approach to the integration of our acquisitions, ensuring that we provide a seamless transition so that we retain all the key personnel and ensure there's no disruption to the clients. So far, with respect to the Tieton acquisition, we've been successful in this regard. As we indicated earlier, once the core banking system conversion and the brand's consolidation are complete in May, we'll start to see a majority of the cost savings and the creative impact of the merger. Although we didn't model any revenue synergies, we believe we have a number of opportunities in this area. Our formula for driving organic growth will continue to include investment in new banking talent and expansion in attractive markets where we believe our value proposition will be well-received. We have a target of opening one or two new offices a year and we're looking at opportunities both within our existing footprint and in new states that have markets with demographics that are a good match for our private and commercial banking services. With the increased scale that we have from the Teton acquisition, we have the ability to continue investing in new talent and technology while realizing improving operating leverage. Part of our technology strategy includes investing in fintech firms this year so that we have better insight into the innovations in the FinTech space that will help inform our technology roadmap and determine which new applications or features we want to incorporate into our digital banking platform. Later this year, we're consolidating our investment management and trust systems into a single, more robust platform that will provide additional capabilities along with improved efficiencies from no longer running these two areas of the business on separate systems. From a balance sheet perspective, we believe we're well-positioned to benefit from rising rates. Although it's always been our policy not to make bets on the direction of interest rates, just from the way the bank has evolved over the past several years, with a more variable-rate commercial loan and a higher mix of non-interest-bearing deposits, we have become more asset sensitive. With the improvement in our deposit base, we expect to have little or no deposit beta upon the first couple of rate hikes. With our high level of liquidity, we have good opportunities to improve our mix of earning assets as we continue to see strong loan growth and the low deposit beta and improved earning asset mix should enable us to see some expansion in our net interest margin this year, which will be another catalyst for earnings growth and improved returns. In 2022, we'll also remain active with our M&A program. Even when we closed and started the integration of Tieton merger, we've been evaluating additional M&A opportunities, and we're well-positioned to execute on any transactions that we believe can strengthen our franchise and create long-term value for our shareholders. In closing, economic conditions in our markets are strong. We're executing well in all areas of the organization, and productivity in our business development team continues to increase. We'll see increasingly positive impacts from the Teton acquisition as we move through the year. We have good opportunities to continue expanding our franchise by growing our current offices, opening new offices, entering new markets, and executing additional strategic transactions. Increasing shares outstanding tangible book value and market cap should all support shareholder value growth. We're well-positioned to benefit from rising interest rates. As a result, we're very confident in our ability to continue generating profitable growth and enhancing the value of our franchise in 2022 and in the years to come. With that, we're happy to take your questions, very pleased to open up the call.

Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. One moment please. Our first question comes from Brett Rabatin of Hovde Group. Your line is open.

Hey, good morning everyone.

Morning Brett.

Could you provide clarification on the expense guidance of $19 million to $21 million? I assume that's the target for the first quarter. As we look at potential expense savings throughout the year, do you think that number might stabilize? Additionally, if you could address any comments on the inflationary pressures that many are experiencing, I want to ensure I fully understand the guidance of $19 million to $21 million and how it will unfold over the year.

Sure. I can take that, Brett, and good morning. So that would be our operating. We've tried to exclude any additional expenses that are coming through that are acquisition-related to give you a baseline number. However, in May, we should see, with the consolidation of systems, a little bit more benefit in our expense reduction from the acquisition. We saw some in the first part of the first quarter, and then a bit more will happen at the end of May. Overall, we would expect it to come down slightly or level out. However, we are still investing in the business and in new offices throughout the rest of this year as part of our plan. So I think that you'll see a little bit of a dip going into the third quarter, but we are still planning to be actively working on building the business as well.

Okay. That's helpful. Can you talk about the margin and tell us what percentage of the loan portfolio is variable rate? How much reprices in the first 90 days following a Fed hike? Additionally, could you indicate how much of the portfolio might be below floors?

Julie, I think you have those numbers.

Our portfolio consists of approximately 31% variable rate loans, with about 36% of those below their floors. Considering this, we anticipate an increase of about four basis points in average loan yields following the first-rate hike of 25 basis points. This impact will grow with subsequent rate hikes, as more variable rate loans move off their floors, leading to significant improvement. Additionally, as Scott mentioned, we do not expect major changes in our deposit costs during the initial rate hikes, so that should be factored in.

And then maybe just one last one on M&A. Scott, you talked about still remaining active, and it sounds like you're engaged in maybe some conversations. Would M&A from here for you be potentially new markets, do you think, or would it be more in-market type situations?

While we look at those. We have a list of priorities, combinations that we think make sense and we have active conversations with those folks, and some of them are in-market, some of them are adjacent. None are out of a market that would make sense given what we've done historically. I think they're all consistent with the way we approach this. As you know, these things get sold, not bought. We have a lot of lines in the water and I don't know whether something would happen in 2022 or not, but typically, you don't know going into the year, right? I mean, it's a project that we keep working on, it's a priority for us, and we think that the combination of solid organic growth and expansion and acquisition all play really nicely together. If you can find an acquisition that fits in with appropriate value, great! If you can't, we're still going to see some good organic growth anyways.

Okay, great. Appreciate the color.

Thank you. Again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. One moment please. Our next question comes from Bill Dezellem of Teton Capital. Your line is open.

Good morning. Let's start with the mortgage side of the business. How are you thinking about mortgage originations in '22 versus '21?

I think we would start the answer there, Bill, by reminding everybody that this is not a big growth focus for us. Given the headwinds in that business that we expect to continue into 2022, it's a profitable strategic business for us, and we have room to continue to improve profitability there. As we have seen, improving margins actually in 2021. We certainly have opportunities in new markets that should be helpful from a production standpoint. The purchase market is healthy. There's a lot of demand, not a lot of supply. I was expecting some of that supply to come back sooner than what we're seeing, but maybe in the spring season here we're going to see more supply. Certainly, we're not anticipating much activity in refinancing as rates go up. We are starting to originate and sell directly to agencies now, which will get us better execution and help us continue to improve our margins. Overall, we're probably looking at production volumes similar to 2021, but we continue to improve profitability of the business. I also would just point out, and you can see this in the numbers in the deck, that due to our strong non-mortgage growth, mortgage revenues as a percent of our gross revenues are down by something like 50% since 2020. I think the great year we had in 2020 in mortgages, we said one of the challenges for 2020, we wanted to replace that with non-mortgage business, and we've gone out and done that big time.

Excellent. So if I may summarize just to make sure I'm fully grasping here. You are believing that your total origination volume will be above '21's volume, but you are also anticipating that your profitability will be higher just because of the expense management that you've been doing. Is that correct?

I think if you assume it's flat year-over-year, that's going to be a safe assumption.

That's fair. Let me ask this: since many of your markets are destination markets, do you believe that the level of sales activity for residences will be stronger compared to other areas of the country, or is that stretching it too far?

Yes. I think where we are today in the resort markets, if that's what you're referring to, which would be kind of Jackson, Aspen, and other areas. That's a very small percentage of our mortgage business. The great majority of our mortgage originations are in the front range, and I hate to keep saying this, but I don't want to continue to hope it's true that you will be able to develop a nice Arizona mortgage business to complement what we have in Colorado, which would be a big benefit for us both in terms of volumes and getting in front of this ongoing purchase wave down there, and also in terms of seasonality, offsetting our natural seasonality that we have here in Colorado.

And did we hear in your opening remarks that you have made hires in the Phoenix market? If so, were those mortgages related or other parts of the business?

We've been focused, in the past six months or so, on building a stronger core banking team there. We've actually made some hires there, and with more to come in 2022, we think that's an area of significant opportunity for us. If we had the same market share in the Phoenix MSA that we have here in the Front Range, we'd be a much larger bank than what we are today. So we think there's a lot of opportunity there and that is an area we have been investing in, and I would expect to see that continue into 2022.

Great. Thank you. And then a question from a point of ignorance. You closed the Teton acquisition earlier than anticipated, and you did mention that it's accretive to book value now. Is there any aspect of that that implies that the earnings accretion will end up being greater than anticipated in '22 or even longer-term?

When we announced the economics of the deal that summer, we announced some expectations in terms of cost savings and there is accretion. We don't know anything today that would make us think differently than we did then. We did not include any revenue synergies in that, and I think we all know that there will be revenue synergies. I'm pretty confident about that regarding what we know today: we have a higher legal lending limit. That enables us to do larger loans at First Western, enabling us to do larger loans for our legacy Rocky Mountain Bank clients. What we have found so far is a really nice cultural fit between the associates that we brought on through this transaction, and also the clients. There are going to be a lot of cross-selling opportunities, providing more of our tools out of the First Western toolkit, which is just larger than a normal community bank's toolkit. I just also would take more bills, if you don't mind, to call out the teams that have worked on this. I think the legacy Rocky Mountain Bank folks have been terrific in working through this transition, and our team here has worked really hard with 22 transition teams working since last summer to be ready for this December close, which, as you say, closed ahead of schedule with our favorable numbers and it’s excellent accretive to capital is a really nice setup for 2022.

Great. Well, thank you and congratulations to all involved.

Yeah. Thank you.

Thank you. Our next question comes from Brad of Coral Capital. Your line is open.

Great. Thank you. A couple of questions here. One regarding your Trust and Investment Management Fees. It looks like they were up about 6% for the year at a time when the market was up on a 29%. I was thinking you'd maybe have greater growth in that area given that strong appreciation in the broader market. Can you just give me some color?

Sure. Currently, we have about $7.5 billion in assets under management focused on conservative portfolios. We typically don't track the S&P. Our aim is to capture market gains on the upside, whether that's through a 60-40 or an 80-20 mix. Generally, our equity portfolio tends to perform significantly less than what the S&P or NASDAQ would achieve. Last year, I believe we experienced a growth of around 19%, which was noted in our slide deck regarding annual growth. When comparing year-over-year, it's important to note that we sold our fixed income management team in LA, known as First Western Capital Management, at the end of 2020, which accounted for a little less than $1 million in revenue exit. Therefore, to calculate the actual adjusted year-over-year growth, that should be taken into consideration.

Got you. In examining your mortgage banking figures and considering that volumes may remain consistent for 2022 compared to 2021, it's worth noting that in 2021, you began the quarter with $500 million in originations for sale, which gradually decreased to under $200 million by the fourth quarter. To match those volumes, it would require a significant increase from fourth quarter originations. Am I interpreting this correctly that you believe those fourth quarter originations reflect the lowest levels and are expected to rise notably in the upcoming quarters of 2022?

Well, that's certainly the history. We see a lot of seasonality in our mortgage business. I actually think that you raised a number of good points there, and if I could direct you to page 14, I think this slide has a lot of information embedded in it and understanding how the stuff sort of interplays is helpful to answer your question more directly. If you look at that, you can see the repeat this year as volumes really just need to do similar numbers that we did in Q2 and Q3, which I think are achievable for us from what we know today, I mean, who knows, right? What's going to happen with rising rates and if the supply is going to be there to meet the demand and all that. But based on our plans to continue to build our MLO team and our improved margins, we think we can produce locks at a similar level to last year. In the upper right-hand corner, I think is instructive, because at the end of the day what we really care about is not so much volume, it's profitability. If you look at the volumes in the lower right-hand corner — if you look at the revenues on the upper right-hand corner, you see that we've actually improved our margins and we've cut our fixed expenses. We were doing $3.1 million in expense in the first quarter, fixed expense, and we brought that down to $2.2 million in Q3 and Q4. If we're going to see volumes dropping in the $150 million to $200 million lock range next year, we certainly don't need $2 million, $2.2 million in expenses. So we can drive profitability. I think we've proven that we can do that despite shrinking volumes.

Got it. And lastly here, I know there was a lot going on in the fourth quarter, and it seems like the first quarter and second quarter of 2022 will be a little muddled with some of the merger accounting and charges. It seems like the third quarter of 2022 may be a clean quarter, with all cost savings, or most cost savings have been achieved. Is it safe to assume that you're probably back to that 1.25 ROA run rate or maybe a little bit better around that level?

That's a great question. I said it before here, and I think it bears repeating, that we are a relatively small company and a little bit of noise goes a long way on our potentials. The extent that we can look beyond the quarter at the trends, there are some very positive trends going into 2022. I mean, we're a much larger Balance Sheet. We're seeing a lot of good growth opportunities. We're putting up really strong growth numbers. We're seeing great economies in all of our markets. There are lots of opportunities there. We're seeing First Western succeeding competitively. We are outperforming our peers; our Balance Sheet is very strong going into 2022 with good organic growth and good expansion opportunities. I think we've proven that we're good acquirers, and we know how to do that successfully. The numbers that remain to be expensed related to Teton are not significant. That's going to be a relatively small factor in 2022. Our mortgage profitability we think is manageable. The consensus estimates that are out there seem reasonable to us. We think that this Q4 downturn is not a trend. It's a combination of mostly positive things that are showing up in the Q3 and Q4 numbers, and I think that looking through that, we see a positive outlook for '22.

Great. Thank you. Appreciate it.

Thank you. Our next question comes from Matthew Clark of Piper Sandler. Your line is open.

Hi. Good morning. Just want to hit on the margin outlook here in the near term, putting the two banks together and the excess liquidity that comes along with Teton. Are there any balance sheet changes you're making since the deal closed? And how should we think about the core NIM here in the upcoming quarter just given the remix that's likely?

Your question is accurate. The net interest margin decreased by only two basis points on an adjusted operating basis from 292 to 290, as Julie mentioned. If you refer to Slide 12, it might be a bit confusing, so let me explain it like I did with the other mortgage slide. In Q3, if you exclude the PPP and the noise from interest recovery and accretion, the number stands at 292. In Q4, if you apply the same approach, you arrive at a 290. Although 292 appears there and coincidentally matches the adjusted number from Q3, that's how the calculation works. Regarding your inquiry, we are in a rising rate environment. If rates increase, we could see an additional $4 million in interest income. Teton is joining our portfolio at an average yield of 474. We have strong embedded net interest margin trends from what we’ve already accomplished, and we're observing better rates on new production in Q1. Interestingly, over the last two years, we experienced strong loan production in Q4, followed by weak Q1 results that set us back from our trend line. This year, we made a decision to change that by focusing on closing deals and building the pipeline for Q1. We ended the year with a pipeline that was about the same as it was going into Q4. We are optimistic about seeing solid organic growth in Q1, which would put us in a better position for the year rather than starting off flat.

In response to your liquidity question, if you examine our liquidity ratio, we seem to have around $200 million in excess liquidity available in cash. We are optimistic about utilizing that cash to support the pipeline that Scott mentioned regarding loan growth, which should help enhance our margins as well.

Yeah. Great point, Julie.

Okay. Great. Thank you. I missed some of the earlier comments around the margin. And then just on M&A, your updated thoughts there in terms of your appetite from a geographic and size perspective now that you guys have gotten this deal closed and integrating.

We do have an active corporate development program that continues. We have lots of lines in the water. I would tell you we've raised our sights a little bit. At $2.5 billion and if we experience our kind of normal growth this year, we're getting near three at the end of the year. Doing a $1 billion acquisition, I think probably makes more sense now than it might have before. So we have broadened or really just raised the size of deals that we're focused on and the potential partners that we're focused on. We have a number of high-priority projects that we're working on. As I said a minute ago, these things do get sold, not bought. We build the relationships and hope that timing is right for the sellers to do something when it works for us on terms that work for us. We've also had a number of deals that we've looked at that make sense from a strategic standpoint, but the pricing doesn't make any sense. We have a long history, I think, of doing these things in a way that adds value. That's certainly true with the mortgage purchase we did three years ago. It's certainly true with the brands purchase we did last year. Our new partnership with the Teton folks, I think, is just going to be another home run added to the recent deals we've done. Is there something you wanted to add there, Julie?

Well, I was going to add that, notwithstanding the hope that we can find another deal, we're working on incubation and a couple of offices as well. Things we can control. We are working on continuing to grow the office space that we have today.

That's great. Thank you.

Thank you. I'm showing no further questions at this time. Let me turn the call back over to management for any closing remarks.

Well, I think we hit on all the main points in the questions and the prepared remarks. I do think that there's a lot of noise this quarter, and you all have asked some really good questions about the nature of that. But we don't look at Q4 as a trend into the future. It's a nice setup for 2022, where we've ended the year, means that we're in a really good place starting the new year, and we're optimistic about the company's outlook, both in terms of organic growth, expansion, and acquisition into 2022. So thanks everybody for taking the time to listen today and participate, and we sure appreciate your support. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you all for participating. You may now disconnect. Have a great day.