First Western Financial, Inc.

Today, and thank you for standing by, welcome to the first Western Financial Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listening 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to your speaker for today, Tony Rossi. Please go ahead.

Thank you, Lisa. Good morning, everyone, and thank you for joining us today for First Western Financial's second quarter 2023 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'll use the slide presentation as part of our discussion this morning. If you've 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? Thanks, Tony, and good morning, everybody. Our second quarter performance reflects the strength of the franchise we've built as we continue to see good stability in our deposit base and healthy asset quality despite the challenging operating environment. As we indicated we would do on our last earnings call, we continue to prioritize prudent risk management. From a core earnings perspective, we continued to deliver solid financial performance and generated 3.9 million in pre-tax, pre-provision income. However, we had three items that significantly impacted our reported results this quarter. The first was a 1.2 million pre-tax impairment to the carrying value of contingent consideration assets which relates to the sale of our Los Angeles fixed income portfolio management team that we completed in 2020. The second was a $1.1 million pre-tax loss on loans accounted for under the fair value option. And third, we recorded a $2 million allowance on an individually analyzed loan, which we expect to be non-recurring. Collectively, these items reduced our diluted earnings by about 32 cents after tax this quarter. Our balance sheet trends reflect the strength and stability of our franchise and client base, as well as the conservative approach that we've taken in operating the company. In general, we continue to see a trend of declining balances among existing client accounts as the Fed tightening continues to pull deposits out of the system. And in particular, our clients are using excess liquidity to invest in higher yielding options. This is also typical of Q2, due to tax client payments. However, our total deposits were essentially unchanged from the end of the prior quarter, and during the month of June we started to see DDAs increase. This is largely due to new client relationships that we're adding through our business development efforts. While economic conditions remain healthy in our markets, we continue to see a lower level of loan demand due to higher rates and a concern about the potential recession. We also continue to remain conservative in our underwriting criteria and disciplined in our pricing. Despite these factors, our loan portfolio has still increased at a 4% annualized rate during the second quarter. Given the healthy economic conditions that we continue to see in our markets and our conservatively underwritten loan portfolio, our asset quality continues to remain strong. During the second quarter, our non-performing assets declined, and we once again had immaterial levels of charge-offs. While asset quality remains strong, we increased our allowance coverage given our prudent approach to risk management. Moving to slide four, we generated net income of $1.5 million, or $0.16 per diluted share in the second quarter. On an adjusted basis, excluding the impact of the continued consideration asset adjustment, we had $0.25 in diluted earnings per share. excluding the impact of all three non-recurring items, we had 48 cents in diluted earnings per share. And over the past year, due to our strong financial performance and the prudent balance sheet management, we've seen increases in both book value and tangible book value since the impact capital resulting from our adoption of CECL at the beginning of the year. Turning to slide five, we'll look at the trends in our loan portfolio. Our total loans increased $27 million from the end of the prior quarter. This increase was driven by our growth in the CRE portfolio and draws on existing construction lines, which offset slight declines in our other portfolios. The construction projects being funded are primarily multifamily properties to very strong, experienced developers in areas with limited housing supply. We had $55 million in new loan production in the quarter, which reflects both the lower level of loan demand we're seeing and our discipline in underwriting criteria and pricing. Given the lower level of loan demand, we're seeing some banks and insurance companies being very aggressive on pricing to win deals, which has caused us to pass on a number of opportunities where the pricing just doesn't make sense. With our discipline on loan pricing, we continue to see higher rates on new loan production, with the average rate of new loan production increasing by 23 basis points from the prior quarter. And it's notable that we had $38 million in loan production in June, which represents the largest amount in any month so far this year. So we're starting to see some positive trends more recently. Moving to slide six, we'll take a closer look at our deposit trends. Our total deposits were relatively unchanged from the prior quarter. We continue to have success in new business development and added $37 million in new deposit relationships during the second quarter. The inflows on these new relationships helped us lessen the typical seasonal impact that we see in the second quarter from outflows related to tax payments. The mix of deposits continues to reflect the trend of clients moving money out of non-interest-bearing accounts into interest-bearing accounts in order to get a higher yield on their excess liquidity. Our average deposits are up almost 12% annualized from Q2 of, excuse me, fourth quarter of 2022. Turning to trust and investment management on slide seven, we had $122 million increase in assets under management in the second quarter. primarily due to market performance, with nearly all of our product categories increasing quarter over quarter. The growth we're seeing in AUM is being partially offset by some outflows as clients continue to take advantage of higher yield investment opportunities. With that, I'll turn the call over to Julie for further discussion of our financial results. Julie?