First Western Financial, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the first special financial Q4 2020 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. To ask a question during that session, you'll need to press star, then number one on your telephone keypad. Please be advised today's call is being recorded, and if you require any further assistance, please press star zero. I would now like to hand our conference over to your speaker today, Mr. Tony Rossi of Financial Profiles.

Thank you Ryan good morning everyone, and thank you for joining us today for first Western financials fourth quarter 2020 earnings call. Joining us from first westerns management team or Scott wiley chairman and chief executive officer and Julie core camp 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 westerns 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 GAAP to non-GAAP measures. And with that, I'd like to turn the call over to Scott. Scott?

Okay, thanks, Tony. Good morning, everyone. Our fourth quarter performance capped an extraordinary year for First Western. We were extremely well positioned and managed through the unprecedented environment created by the COVID-19 pandemic. Our well-diversified, conservatively underwritten loan portfolios experienced very little stress from the pandemic. We capitalized on the PPP program to add new commercial customers. and the refi boom caused by the reduction in interest rates enabled us to generate significant profits in our mortgage business that contributed to tremendous internal capital generation and growth in our tangible bulk value this year. The one drawback is that a huge increase in mortgage activity during the second and third quarters makes for difficult sequential quarter revenue and earnings comparisons. But aside from the volatility in that one business, which still had very strong fourth quarter from a historical perspective, we continue to see very positive trends in the areas we're focusing on to build a sustainable path to higher earnings and returns in the future. When looking over our year-to-year comparison, the progress we made in 2020 is exceptionally clear. During the fourth quarter, our revenue increased 44.2% over the prior year. And with the operating leverage we're realizing as we continue to scale, this revenue growth resulted in 88.6% increase in both net income and earnings per share. Our strong financial performance, combined with the completion of our sale of the LA fixed income team, resulted in a tangible book value per share increasing 25% year over year. The primary contributor to this improved performance is the success we're having in growing our balance sheet as our commercial banking initiative continues to produce new relationships, high-quality loans, and low-cost deposits. Excluding runoff of PPP loans, our health for investment loans increased 6% from the third quarter, while our total deposits increased 3.6%. This balance sheet growth resulted in our net interest income increasing 4.2% from the prior quarter, and 64.3 percent from the fourth quarter of last year, which fully reflects the contribution of both our organic growth and the addition of clients and banking talent we added through the branch acquisition earlier this year. With our expanded commercial banking team, we're seeing more commercial loan production and also improving in loan pricing. Our average yield on new commercial loan production in the fourth quarter was the highest we've seen prior to the onset of the pandemic. We're also seeing how our increased lending capacity and well-differentiated value proposition is allowing us to compete effectively against larger banks. In fact, our largest loan originated this quarter, a $50 million line of credit, was a deal that we would likely not have been able to win in past years. This loan was provided to a longtime client who we've supported for many years while he built his business, and in the fourth quarter he sold the business for a great deal of money. Following the sale, the client now had an investment management account of more than $70 million that needed to be placed with a wealth manager and the need for a large credit line that would be secured by the investment management account. Many of the large investment banks and brokers made offers to him. We were able to win the business and expand this relationship into a much more profitable one for First Westerns. and this client will have additional needs in the future, such as trust services and estate planning, that will provide additional opportunities for us to grow the relationship. As an added bonus, his partners in the business were impressed with our services, and we now have opportunities to bring them in as clients as well. In winning this deal, we're clearly able to punch well above our weight class and fully leverage the robust private banking and wealth management platform we've built, and we believe it's the type of deal that we'll continue to win in the future. Looking at our mortgage activity in the quarter, we had another strong month of production in October. At that point, we built a large backlog of loans that needed to be processed for sale. Given the rapid increase in production volume we saw in the second and third quarter, we ran into some processing constraints, so we slowed down new locks in order to work through this backlog. Combined with the usual seasonality that we see that reduces demand in November and December, This resulted in a lower level of net gain on the sale of mortgage loans relative to the third and second quarters. But on a year-over-year basis, our Q4 gain was still up 67.6%, and I'll talk more about our expectations for this business later in the call. From an asset quality perspective, we continue to see very positive trends. Our non-performing assets declined by 59.3%, from the end of the prior quarter, while our loan modifications declined to less than 1% of total loans. We continue to implement enhanced monitoring and portfolio reviews to ensure we have a good understanding of how our borrowers are being impacted by the pandemic, particularly given the surge in cases late in the year. To date, we haven't seen this surge have any material impact on our borrowers or result in new requests for loan deferrals. Moving now to slide four, we continue to see a significant jump in our level of profitability relative to last year. The balance sheet growth and increasing operating leverage we're realizing as we scale continues to demonstrate that the model we built will produce a high level of profitability and returns in the future. The sale of the LA fixed income team resulted in a valuation allowance being placed against our net operating losses in the state of California. This caused our effective tax rate to be higher in the fourth quarter, which negatively impacted our earnings by five cents a share. Turning to slide five, we'll look at the trends in our loan portfolio. Our total loans held for investment increased 26.7%, or 1.8% growth from the end of the prior quarter. But if PPP loans are excluded, our total loans increased 89.9 million, or 6%, We had total loan production of $201.1 million, up from $142 million last quarter. This was partially offset by $128.1 million of payoffs and paydowns, which is the highest level we saw all year. Most of the growth in the portfolio is due to the traction we're getting in our commercial bank initiative, which included five more deals we did in the fourth quarter as part of the Main Street lending program. And the bankers we added in the Simmons transaction brought some construction lending expertise, so we're seeing more opportunities in that area. Our primary focus will still be on the private bank and commercial loans, but construction represents another driver of loan growth, although we plan to keep the construction, its contribution, the overall mix in the portfolio pretty consistent over the longer term. The year-over-year trend shows the shift in our loan portfolio away from residential loans towards business-related loans as a result of the branch acquisition and the progress we're making with our commercial banking initiative. Compared to a year ago, residential mortgage loans have declined from 40.2% of total loans to 29.7% of total loans held for investment. Moving to slide six, we'll take a closer look at deposit trends. Our total deposits increased 56.2 million, or 3.6%, from the end of the prior quarter. There was some volatility in our period-end deposits due to fluctuations in the deposits of a title company that keeps large balances with us. Excluding the balances of that one client, our deposit growth was around 74 million. The primary driver of our deposit growth continues to be commercial BDA relationships. which accounted for 65.7 percent of all our deposit growth during 2020. With the success we've had in adding commercial transaction accounts, we've seen significant improvement in our deposit mix, with non-interest-bearing deposits increasing 29.7 percent of the total deposits from 22.1 percent a year earlier. Moving to slide seven, we want to provide some additional insight into the level of commercial loan and deposit growth we're generating. A couple of years ago, we announced our intent to strengthen our commercial banking capabilities as a natural complement to our entrepreneur-oriented private banking business. This effort is helping our relationship bankers to better serve existing clients and add new relationships with more products and services. We've made good progress from an organic standpoint, and the branch acquisition during the second quarter accelerated this initiative. Throughout 2020, this effort contributed strong growth in assets, revenues, and earnings, and it's creating a more diversified loan portfolio and a lower-cost deposit base that we believe enhances the value of our franchise. Turning to trust and investment management on slide 8, our total assets under management increased by $124.2 million, or $454.8 million, if you exclude the assets that were included as part of the sale of the LA fixed income team. The increase this quarter was due primarily to a combination of improved market conditions, new client accounts, and additional contributions made to existing client accounts. Now I'll turn the call over to Julie for further discussion of our financial results. Julie?