First Western(US:MYFW)2023-07-28 23:04Financial Data and Key Metrics Changes - The company generated net income of $1.5 million, or $0.16 per diluted share in Q2 2023, with adjusted diluted earnings per share of $0.25, excluding certain non-recurring items [39][50] - Net interest income decreased by 5.8% from the prior quarter due to increased interest expense from higher average deposit costs, while net interest margin decreased by 20 basis points to 2.73% [54][55] - The allowance for credit losses was increased to 0.89% of total loans as of June 30, reflecting a prudent risk management approach [45][55] Business Line Data and Key Metrics Changes - Total loans increased by $27 million from the end of the prior quarter, driven by growth in the commercial real estate portfolio and draws on existing construction lines [40] - Non-interest income decreased by 32% from the prior quarter, primarily due to non-core items, while trust and investment management fees remained consistent with the prior quarter [43][54] - The average rate of new loan production increased by 23 basis points from the prior quarter, with $38 million in loan production in June, the largest monthly amount so far this year [51] Market Data and Key Metrics Changes - Total deposits were relatively unchanged from the prior quarter, with $37 million added in new deposit relationships during Q2 [41] - Average deposits increased by almost 12% annualized from Q4 2022, reflecting a trend of clients moving funds into interest-bearing accounts for higher yields [41] - The spot rate for deposits at the end of June was 2.81%, with loan rates ending at 5.38% [76] Company Strategy and Development Direction - The company continues to prioritize prudent risk management and maintain high levels of liquidity, capital, and reserves, even if it impacts short-term profitability [63][112] - There is a focus on deposit gathering and adding new clients, with expectations for loan growth to remain low in the near future but potential for higher growth in 2024 [63][84] - The company has been disciplined in its acquisition strategy, ensuring that pricing makes sense economically and that integration captures projected cost savings [114] Management's Comments on Operating Environment and Future Outlook - Management noted that while economic conditions remain healthy, there is a lower level of loan demand due to higher rates and recession concerns [38] - The company expects that the current economic environment will stabilize, allowing for potential capital utilization opportunities in the future [64][112] - Management expressed optimism about loan demand increasing as clients adjust to the current rate environment and begin utilizing existing credit lines [82][83] Other Important Information - The company recorded a $1.2 million pre-tax impairment related to contingent consideration assets and a $1.1 million pretax loss on loans accounted for under the fair value option [35][36] - The non-performing assets declined by 18% due to the full repayment of two private loans, with minimal charge-offs reported [55] Q&A Session Summary Question: What is the outlook for net interest margin and loan growth? - Management believes the margin may have hit its trough in Q2, with expectations for flat to slight improvement in Q3 and continued improvement in Q4 [79][67] - Loan growth is expected to remain low in the near term, but there is potential for stronger growth in 2024 if economic conditions improve [83][84] Question: What are the plans for capital levels and acquisitions? - Management indicated that they are focused on protecting capital and building tangible book value, with interest in future acquisition opportunities as market conditions normalize [112][101] Question: Can you provide details on the specific reserve for a non-performing loan? - The reserve was established for a C&I credit that encountered difficulties, with efforts ongoing to collect on personal guarantees and other sources of repayment [89][98]