First Western Financial, Inc.

Good day, and thank you for standing by. Welcome to First Western Financial Q2 2022 Earnings Conference Call. At this time, all participants are on 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'll need to press star 1-1 on your telephone. Please be advised that today's conference is being recorded. We'd now like to hand the conference over to your speaker today, Tony Rossi of Financial Profiles. Please go ahead.

Thank you, Justin. Good morning, everyone, and thank you for joining us today for First Western Financial's second quarter 2022 earnings call. Joining us from First Western's management team are Scott Wiley, chairman and chief executive officer, and Julie Korkamp, 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. With that, I'd like to turn the call over to Scott. Scott?

Thanks, Tony. Good morning, everybody. Over the past few years, we've focused on building a stronger commercial bank platform, and our second quarter results demonstrate the significant progress that we've made. We had $342 million in new loan production in Q2, which was a record level for the company. To put this into perspective, our loan production second quarter was about $90 million more than the amount of loans that we added in the Teton Financial Services acquisitions. This translated an exceptionally strong loan growth with our total loans increasing at an annualized rate of 45%, with the highest rate coming in our C&I portfolio, which was up 76 million, or 32%, from the end of the prior quarter. As I like to say, the machine is working the way it's supposed to work, and we're capitalizing on the strong economic conditions that we continue to see in the attractive growing markets that we operate in. Given the value proposition and the expertise that we offer, our commercial banking teams are finding good lending opportunities without having to compromise on pricing or structure. Our client base consists of a lot of knowledge-based companies, and in general, their businesses aren't impacted by the supply chain constraints and inflation doesn't have much of an impact on end-user demand. So despite the macro headwinds, they continue to perform well, and we have good opportunities to fund their continued growth. Another significant contributor to our loan production growth this quarter was our one to four family residential portfolio. Well, over the longer term, we expect this portfolio to decline as a percentage of total loans as we continue to grow our commercial lending. At any given point in time, we may choose to grow this portfolio when new production opportunities, new production provides the opportunity to add high-quality earning assets with attractive risk-adjusted yields, as it does in the current environment. As we've indicated in the past, our mortgage operations have strategic importance to our business model. From an offensive standpoint, it's one of the tools we use to attract new clients to the bank that we can then deepen our relationships with over time. From a defensive standpoint, it ensures that we're meeting the needs of our clients so they don't have to go to the bank across the street to get their mortgage. And the way we operate, in which we produce both sellable conforming mortgages and jumbo arms that we portfolio, It's a compelling advantage in terms of attracting and retaining high-performing MLOs that may be limited in the type of loans they can offer at other institutions. And this differentiator becomes even more attractive for MLOs when overall demand for mortgages is declining. With the strong loan growth that we were able to generate, we're able to redeploy more of our excess liquidity and see a more favorable mix of earning assets. Along with the higher rates that we're seeing on earning assets and deposit costs that remain well controlled, we saw a significant expansion in our net interest margin in the second quarter. And despite the more challenging economic environment, our asset quality remains exceptional, with non-performing assets remaining at just 17 basis points of total assets, and another quarter with an immaterial amount of net charge-offs. Moving to slide four, We generated net income of $4.5 million, or $0.46 per diluted share in the second quarter, or $0.49 per share when acquisition-related expenses are excluded. While we had strong balance sheet growth and a significant increase in net interest income, our earnings were lower than the prior quarter due to unfavorable market conditions that resulted in a decline in both wealth management revenue and our net gain on mortgages sold. However, our strong profitability continued to drive increases in book value and tangible book value per share as we continue to benefit from our strategic decision last year to retain our excess liquidity in cash rather than putting it into the investment portfolio. So we had plenty of liquidity to invest in loans and securities through the quarter that are now providing much higher yields. Turning to slide five, we'll look at the performance of our private banking, commercial banking, trust, and investment management businesses. This is represented by the pre-tax earnings of our wealth management segment. As you can see, the core business continues to perform very well, while the mortgage segment was a drag on earnings this quarter, although this doesn't present a completely accurate picture. While all the expense in our mortgage operations record in the mortgage segment, the interest income generated by the loans that we add to our portfolio is recognized in the wealth management segment. So even though we're showing a pre-tax loss in the mortgage segment for the second quarter, there is significant value being provided to our overall results that isn't reflected in the segment reporting. Turning to slide six, we'll look at the trends in our loan portfolio. Our total loans increased $219 million from the end of the prior quarter as a record level of loan production offset the high level of payoffs that we continue to see. Our loan production was well diversified, and we had increases across most of our major categories. Most of what we added to the one to four family residential portfolio are jumbo arms that provide attractive risk-adjusted yields. We had quite a bit of loan production come on towards the end of the quarter, and our End of period loans were $140 million higher than our average loans during the quarter. So we have a nice tailwind going into the third quarter in terms of driving higher net interest income. Moving to slide seven, we'll take a closer look at our deposit trends. Our total deposits decreased $102 million from the end of the prior quarter. The decline was due to typical fluctuations that we see in commercial operating accounts, as well as some seasonal outflows for tax payments, and some withdrawals related investment opportunities. We were able to offset some of the outflow with the development of new deposit relationships with new accounts providing $85 million in deposit inflows during the second quarter. Turning to trust and investment management on slide eight, our total assets under management decreased $922 million from the end of the prior quarter due to market declines with the most significant impact coming in the investment agency and managed trust balances. Although I would note that all of our portfolios outperformed their benchmarks as our investment management team did a very good job of moderating the impact of the severe market pullback on client assets. The lower value of assets due to market decline was partially offset by a $50 million increase in inflow of new accounts. With that, I'll turn the call over to Julie for a discussion of our financial results. Julie?