First Western Financial, Inc.

Good day and thank you for standing by. Welcome to the first Western Financial Q2 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any free assistance, press star 0. I would now like to turn the conference over to the speaker today, Tony Rosi of Financial Profiles. Please go ahead.

Thank you, Chino. Good morning, everyone, and thank you for joining us today for First Western Financial's second quarter 2021 earnings call. Joining us from First Western's management team are Scott Wiley, Chairman and Chief Executive Officer, and Julie Korkamp, Chief Financial Officer. We will use the slide presentation as part of our discussion this morning. If you have not done so already, please visit the Events and Presentations page of First Western's Investor Relations website to download a copy of the presentation. Before we begin, I'd like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Western Financial that involve risks and uncertainties, including the impact of the COVID-19 pandemic. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the company's SEC filings, which are available on the company's website. I would also direct you to read the disclaimers in our earnings release and investor presentation. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The press release, available on the website, contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. And with that, I'd like to turn the call over to Scott. Scott?

All right. Thanks, Tony. Good morning, everybody. As I imagine you've seen, yesterday we announced the signing of a merger agreement with Teton Financial Services. On our call today, we'll start with our usual review of the results for the quarter, and then we'll discuss the acquisition in more detail before opening up the call to questions. In the second quarter, we generated net income of $6.3 million, earnings per share of $0.76, an ROA of 1.22%, and an ROE of 15.17%, all of which are an improvement over our first quarter results. While our mortgage segment has underperformed our expectations, largely due to the housing inventory constraints in our markets, we're still delivering earnings growth and a higher level of returns due to the significant growth we generated in our private bank and commercial banking operations. On a year-over-year comparison, excluding our mortgage business, our gross revenue is up 27%, while our non-interest expense is up just 7%. In our non-mortgage segment, diluted pre-tax earnings per share are up 113%. With revenue growth exceeding expense growth by nearly four times, we've reached an inflection point realizing the operating leverage that we expected as we scaled the business, and we're seeing the positive impact in our profitability. Our successful new business development efforts are driving growth in nearly all parts of the business, including trust, wealth management, where fees are up 9% over the prior year, despite the revenue we lost through the sale of the LA fixed income team in the fourth quarter last year. As we indicated on our last call, we began the year with a relatively small loan pipeline, which impacted loan production loan growth in the first quarter. Over the course of the year, our loan pipeline has steadily built And during the second quarter, we returned to a more normalized level of loan production. Excluding PPP loans, which had a significant level of forgiveness in the second quarter, our total loans held for investment increased at an annualized rate of 34%. Notably, loan production was well-balanced across the portfolio with a higher level of loan production in each area than we had in the first quarter. We continue to have strong inflows of new low-cost deposits and a high-level liquidity, which enabled us to fund our loan growth, but we also intensely ran off some of the higher-cost, non-relationship deposit accounts. While this resulted in a decrease in our total deposits during the second quarter, we believe it was a good use of our excess liquidity that will support our net interest margin and net interest income going forward. And we have a strong deposit pipeline that will enable us to continue to fund the loan growth we expect the second half of the year with low-cost deposits. From an asset quality perspective, we continue to see very good trends. We had a decline in non-performing assets and once again had zero net charge-offs, which continues our long history of exceptionally low credit losses. Moving to slide four, our improved financial performance is not only driving earnings growth, but also strong increases in our book value and our tangible book value. In the second quarter, our book value per share increased 3.6%, while our tangible book value per share increased 4.3%. Turning to slide five, we've added a new slide to our deck that shows our pre-tax earnings per share excluding the mortgage segment. This reflects the performance of our private banking, commercial banking, and trust investment management businesses. Obviously, last year was an extraordinary year for the mortgage business, and we don't want that to overshadow the progress we've made in these other important areas. So this slide provides a better sense for the foundation we built that is producing a sustainable path to higher earnings and profitability. Our non-mortgage earnings are up from 28% of pre-tax EPS in Q2 of last year to 85% in Q2 this year. And we're on pace to meet or exceed 2020 EPS totals. In the second quarter, our pre-tax earnings per share in the non-mortgage segment increased 16% from the prior quarter and was the highest level in our history. Turning to slide six, we'll look at the trends in our loan portfolio. On a period and basis, our total loans held for investment increased 26.2 million from the end of the prior quarter, or 113.6 million when PPP loans are excluded. Loan production increased to 137.5 million which is more in line with normalized levels, while net loan payoffs declined significantly from elevated levels we saw in the prior two quarters. Loan production increased throughout the quarter, with June being our highest production month of the year so far, excluding PPP. We had growth across all of our portfolios, with the exception of cash securities and others, which was down due to the runoff of PPP loans. While we had balanced growth this year, As the economy continues to recover and loan demand increases, we expect commercial loans to resume growing at a faster rate than the rest of the portfolio. Moving to slide seven, we'll take a closer look at our deposit trends. Our total deposits decreased 128.8 million from the end of the prior quarter. As I mentioned earlier, we intensely ran off some higher cost public funds that were not relationship-oriented accounts. This accounted for approximately 75 million of the decrease in deposits. The remainder was largely attributable to seasonal outflows, rated tax payments, and runoff of PPP-related deposits. Moving to slide eight, 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 $104 million from prior quarter and $190 million from the prior year. Commercial deposits are down $158 million, largely due to the intensive runoff, the tax payments, and the PPP runoff. Turning to trust and investment management on slide 9, our total assets under management increased $276.5 million from the end of the prior quarter. The increase was primarily attributable to contributions to existing accounts and new accounts, as well as improving market conditions, resulting in an increase in the value of the assets under management balances. Our investment agency accounts increased by 111.3 million, or 5.8%, from the first quarter of 2021. During the second quarter, new clients accounted for approximately 28.4 million of our growth in assets under management. Now I'll turn the call over to Julie for further discussion of our financial results. Julie?