Thank you for standing by. Welcome to First Western Financial Q2 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would 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 Financials' Q2 2022 earnings call. Joining us from First Western's management team are Scott Wylie, Chairman and Chief Executive Officer, and Julie Courkamp, 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 Q2 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 Q2 was about $90 million more than the amount of loans that we added in the Teton Financial Services acquisition. This translated into 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. 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. While 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 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. 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. 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 Q2. 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 Q2, 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. 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 completely present a completely accurate picture. While all the expense in our mortgage operations are recorded in the mortgage segment, the interest income generated by the loans that we add to our portfolio is recognized in the wealth management segment. Even though we're showing a pre-tax loss in the mortgage segment for the Q2, 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 our record level 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. We have a nice tailwind going into the Q3 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 to 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 Q2. 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? Thanks, Scott. Turning to Slide nine, we'll look at our gross revenue. Our total gross revenue was essentially flat with the prior quarter as the increase in our net interest income was offset by lower non-interest income. On Slide 10, we'll look at the trends in net interest income and margin. Our net interest income increased 10% from the prior quarter, primarily due to higher average loan balances and an increase in our net interest margins. As we indicated last quarter, given higher interest rates, we have started to grow our investment portfolio, which also contributed to the increase in net interest income. Our net interest margin increased 37 basis points in the Q2 to 3.35%. Excluding the impact of PPP and accretion on acquired loans, our net interest margin increased 43 basis points to 3.30%. Our net interest margin benefited from a more favorable mix of earning assets as we redeployed our excess liquidity into the loan portfolio, as well as 14 basis point increase in our average loan yields and a 48 basis point increase in our cash balances held with other financial institutions. The favorable shift in the mix of earning assets and higher yields more than offset the three basis point increase we had in our cost of deposits. While we expect to see a larger increase in our cost of deposits going forward, given our continued opportunities to grow the loan portfolio and our asset-sensitive balance sheet, we expect to continue seeing expansion in our net interest margin, although not at the same level that we had in the Q2. Turning to Slide 11, our non-interest income decreased 19% from the prior quarter, primarily due to lower trust and investment management fees resulting from lower AUM caused by market performance and a lower net gain on mortgage loans. These declines were partially offset by approximately $300,000 in unrealized gains on equity securities. On Slide 12, we have provided some additional details on our mortgage operations. Our total mortgage operations increased 48% from the prior quarter, although, as Scott mentioned, a significant portion of the originations were jumbo ARMs that we retained in our portfolio. The volume of mortgage locks on loans held for sale, which is when revenue is recognized in the mortgage segment, declined by 18% from the prior quarter as the decline in refinancing volumes more than offset the increase in purchase volumes we saw as we entered into the traditionally strong season for the housing market. While expense levels in our mortgage operations were flat with the prior quarter, the lower level of locks and revenue resulted in a loss for the Q2. Although, as Scott mentioned, this does not account for the interest income that we generate from loans that we retain in our portfolio. Turning to Slide 13 and our expenses, our non-interest expense increased 6% from the prior quarter but remained in our anticipated range of $19.5-$21.5 million. Excluding acquisition-related expenses, non-interest expense increased due to higher salaries and employee expense resulting from higher commission payments on the strong mortgage production and our investment in new banking talent to support our continued growth. The combination of the lower level of non-interest income and the investment in new banking talent resulted in an increase in our efficiency ratio, which we expect to trend in a positive direction as the new bankers have built in their pipeline and begin contributing to our loan production. We completed the system conversion and consolidation of our Jackson Hole branches in mid-May, which will result in more cost savings from the Teton acquisition, a portion of which we are using to invest in new banking talent. Over the remainder of the year, we expect our non-interest expense to range from $20.5 million-$21.5 million. Turning to slide 14, we'll look at our asset quality. We continue to see positive trends across the portfolio. Our non-performing assets remain at 17 basis points of total assets, and we continue to see minimal losses in the portfolio. We are in the process of successfully resolving our largest non-performing loan, and as part of the workout plan, we received a residential property that is now held in OREO. As a result of receiving this property, we released a portion of the specific reserves held against this loan. We recorded a provision for loan losses of approximately $500,000 as a release of the specific reserve offset some of the provision required for our growth in total loans. The release of the specific reserve also had the effect of lowering our ALL to 78 basis points of adjusted total loans, which reflects the strong credit quality and low level of losses we have experienced in the portfolio. Now I'll turn it back to Scott. Thanks, Julie. Turning to slide 15, I'll wrap up with some comments about our outlook. We expect many of the positive trends we experienced in the Q2 to continue in the second half of the year, primarily driven by further organic balance sheet growth. Our loan pipeline remains very strong and is consistent with the size of the pipeline at the end of the Q1. As rates increase, it's likely we'll start to see lower demand for commercial real estate loans, but we've built a well-diversified loan production platform, which provides us with the ability to be flexible and focused on whatever asset classes are experiencing the strongest loan demand and present the most attractive lending opportunities at any given point in time. While the mix of production might change, we still expect to see a high level of new loan originations even as we maintain discipline in our pricing and in the underwriting criteria. The strong loan production we experienced in the Q2 also increased our unfunded commitments by 14% to $802 million. That represents another potential catalyst for loan growth if utilization rates increase. It's also likely that payoffs will start to moderate as rates increase, which would present less of a headwind to loan growth than we experienced in the first half of the year. Given all these trends, we feel confident in our ability to continue generating strong loan growth. Combined with the continued expansion in our net interest margin, this should result in significant further increases in net interest income in the second half of the year. As Julie mentioned, we're going through a bit of an investment phase as we add new talent to expand our presence in newer markets like Montana and Arizona, as well as continuing to grow in Colorado. We're funding these investments with a portion of the cost savings from the Teton acquisition, so we expect our expense levels to slightly increase over the remainder of the year. We're also seeing steady growth in the pipeline in these new areas, which should translate into larger revenue contribution as we move through the rest of the year, an improvement in operating leverage and efficiencies. In addition to new banking talent, we're also making investments in technology and infrastructure to support our future growth. We're upgrading two of our core systems in the trust and investment management business as part of our broader technology modernization initiative. With the upgraded systems, we'll have more features, a better user interface, greater efficiencies, improved performance reporting capabilities, as well as more flexibility to add other fintech tools in the future that will enhance our ability to serve clients and create more fee income opportunities. Finally, while we continue to see relatively strong economic conditions throughout our market, with the broader concerns about a potential recession, I wanna take a few minutes to talk about our historical credit experience during the past economic downturns, most notably during the Great Recession resulting from the financial crisis. Our loan portfolio performed very well during the Great Recession, and that was for a couple reasons. First, the strength of our client base, which consists of companies with strong balance sheets and cash flows and high net worth individuals that have the liquidity and financial strength to manage through periods of economic stress. Second, our very conservative approach to credit, in which our underwriting criteria requires three sources of repayment. This has consistently served us well in terms of keeping credit losses very low, even when a loan goes through into non-performing status. As we've grown our franchise, we have not deviated from this conservative approach to credit. Accordingly, we would expect to continue to maintain strong asset quality and low level of credit losses in a recessionary environment, particularly one that could be relatively shallow and short in duration. If economic conditions and loan demand remain strong, we feel we're very well positioned to continue generating profitable growth, particularly as we start to see larger contributions from some of our newer markets. If economic conditions weaken, we have an exceptionally strong balance sheet and loan portfolio that we believe will help us to effectively manage through any economic stress that occurs and protect shareholder value. With that, we're happy to take your questions. Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. Please stand by. We'll compile the Q&A roster. One moment for questions. Our first question comes from Brett Rabatin from Hovde Group. Your line is now open. Hey, good morning, Scott and Julie. Morning, Brett. Wanted to first ask, just given the mix shift change in the balance sheet end of quarter versus average, would seem like the June margin would have been quite a bit above the margin for the quarter. Would you happen to have the June margin? I do. The average net interest margin in April was 3.09%. In May was 3.35%, and in June was 3.67%. Your guess is right on, Brett. Wanted to make sure I understood the changes to the balance sheet linked quarter. It seems like maybe you took a tack to become less asset sensitive with adding the mortgages, the jumbo mortgages. I would assume that movement might partially just be due to the less ability to sell those in the open market. Can you talk maybe about the decision to put those on the portfolio? Yeah, we talked about some of the reasons, but your question is correct. You know, we've seen the jumbo ARM secondary market dry up, and the people that are doing those now are doing them in for their portfolio. You know, for our MLOs, we wanna be competitive and make sure they don't starve as we go through, you know, a difficult period here in the mortgage world. You know, having the ability to put some of those on the portfolio is helpful to them and frankly helpful to us. They're all five to seven to 10-year ARMs. You know, they're not monthly floating variable rate like most of our commercial C&I lending is. To certainly, you know, attract the risk-adjusted assets that have, you know, well-managed risk on the balance sheet. Certainly adding those is going to make us less asset sensitive going forward. I think with the reduction in cash on the balance sheet and the increase there, that will certainly have that impact. We think as of the end of the quarter, we're still asset sensitive, but less so than we were coming into the quarter. Okay. That's helpful. Just lastly, and I'll hop back in the queue. You know, how much, you look at the $180 million of cash at the end of the quarter. How much liquidity do you think you have left to deploy? What would be the assumption on the deposit betas from here, given you know, only seven basis points of increase in the cost of funds during 2Q? Yeah. I'll take a stab at both of those questions and then Julie, if you wanna add more depth to it. You know, deposit beta, you know, it's a little hard to say. We expected that would be low at first, and it has been. Then as we got further into the year with higher rate increases like we've seen, you'll probably see a little more pressure there. Each of our markets is a little bit different too. You know, it's difficult to predict, but I think from everything we've seen so far, deposit beta is relatively low overall. You know, we'll see a couple areas like our trust cash, where it's gonna be higher as it has been historically. You know, in terms of overall liquidity, I think we're comfortable with where we are, and long term, we would expect to continue to be about where we are in terms of liquidity. You know, obviously, we've seen an increase now in our loan-to-deposit ratio that's back in line with historical numbers for us, which we have tended to be in the kind of high 90s. Interestingly, you know, over the 18 years since we opened, you know, we've been able to consistently find deposits to fund our loan growth. You know, our clients tend to be these large depositors. Our type of client tends to have large deposit balances, and at the margin, when we want them, they'll bring them over. When we don't need them, they'll take them elsewhere. You know, I think we're gonna be able to continue to manage that in the future as we have in the past. I don't see any reason that would change. Anything I missed in there, Julie, on those two questions? Nope, I think you covered it. Okay. Great. Appreciate all the color. Thanks, Brett. Thank you. One moment for questions. Our next question comes from Brady Gailey from KBW. Your line is now open. Hey, thank you. Good morning, guys. Morning, Brady. I know we've talked about for First Western a mid-teens level of loan growth. You guys obviously did a lot better than that in the Q2. How should we think about loan growth for the back half of the year? Do you think you'll still outpace that mid-teens level, or do you think 2Q is just, you know, kind of a one-off really good quarter? Well, we've talked before that, you know, our balance sheet is just small enough that there are gonna be variations quarter to quarter. I talked in my prepared remarks about, you know, all of the reasons that we think we're gonna see continued loan growth. I mean, number one, we went into the quarter, Q3 with actually higher loan pipelines than what we had going into the Q2. You know that that's a favorable trend. I would tell you our numbers for July have continued to be strong both in terms of volume and rate. You know, we're seeing continued nice growth there. Our payoff balances, you know, we were thinking that might slow down as rates went up, and they actually have come down now as a percent of beginning balances from 2.7% in March, 2.8% in April, 2.7% in May, down to 2.5% in June. Through, I think, two days ago in July, we were down to about 1.9% of beginning balances. We're seeing payoffs slow down. We're seeing good, strong loan demand for new originations, NIMs improving. We've added these lenders that Julie spoke about in her comments in Arizona, in Wyoming, in Montana, and here in Colorado. You know, those are all pretty strong tailwinds that would help offset economic slowdown and higher rates, I think. All right, and then on the loan loss reserve percentage, I know, you know, as things have improved that ratio has come down. It's now at 62 basis points. Do you think that, you know, 2Q's level is kind of a floor and it should be, you know, flat from there? Or is there more downside? Or with, you know, the economic uncertainty, do you start to think about building that ratio? I'll take a stab at that, Julie, and if you could just correct me when I go wrong here. We don't look at it as 62 basis points, Brady. We adjust out PPP and purchase loans because the purchase loans have their own mark on them. If you just take the bank-originated loans, we brought that ratio down to pre-pandemic levels this quarter, and our ex-asset quality is quite a bit better than it was pre-pandemic. We thought that that was reasonable. Did that get us to 78 basis points, Julie? 78 basis points where I adjusted, yes. Adjusted, it's 78 basis points, and we don't anticipate that going lower from what we know today. Okay. We've got CECL in the back of our mind too, Brady, and we want to be mindful of that, of course. Yeah. All right, great. Thanks for the color, guys. Yeah, thank you. Thank you. If you have a question, that is star one one. Again, if you have a question, that is star one one. One moment for our next question. Our next question comes from Matthew Clark from Piper Sandler. Your line is now open. Hey, good morning, Scott and Julie. Morning, Matt. Just on the loan-to-deposit ratio, sounds like there's still a fair amount of momentum on the loan growth side with the pipeline being comparable to last quarter and some momentum here in July. You know, how high are you willing to let that loan-to-deposit ratio go? You know, assuming you probably won't be able to match fund that with deposits at that kind of above-trend level. Well, this was certainly a question as we got into the quarter for us, you know, what was causing the deposit declines. You know, we've seen obviously this historical liquidity added by the Fed into the economy over the last couple of years. You know, people have been wondering, you know, when all that comes out, what's that do to, or we've wondered what it does to the deposit balances in a bank like ours, with such a small percent of the overall, you know, deposits in our markets. We did a deep dive in the Q2 into what was causing our deposit declines, and we looked at all the significant declines. As I think Julie mentioned in her comments, and I know it's in the deck. To what slide is the deposit one? Slide seven kind of gives you the fluctuations. Yeah. I think where Scott's headed is what we identified when we did that deep dive is this commercial operating accounts were just having their kind of normal movement. We saw some seasonal tax payments which we typically see about this time. you know, clients are still making investment moves with their cash, and we've seen some of that go out of the bank just for their own investing purposes. From that perspective, I think we feel pretty good about where we're at on the deposit side. Of course, you know, we're monitoring that loan-to-deposit ratio pretty heavily and feel like, you know, we have a lot of liquidity in different places. as Scott mentioned, we feel pretty good about our historical ability to raise those deposits, as we need to. We have a lot of clients with high balances, that we can typically bring in if we need to. We're planning to be pretty flexible on, you know, pricing and ability to bring in those, gathering additional deposits, as we look into the future here with our loan pipelines remaining very strong. We're gonna be mindful of the kind of the cost of those and our business development office as well just continue to work on deposit gathering as well. I feel like we're in a little bit unprecedented financial times between, you know, what the Fed's doing and the inflation pressures we're seeing today. You know, you hate to say the next quarter is going to look a lot like the last 18 years, but again, I mean, we have had consistently at least at times loan-to-deposit ratio in the high 90s. That's been. It's worked well for us and been very manageable for us, and we have been able to grow deposits consistently. That I guess would be my direct answer to your question, Matt. Okay, great. Do you happen to have a spot rate on interest-bearing deposits at the end of June, just to give us a starting point? The spot rate for total deposits for June, I think, was 25 basis points, but at the end of the month was 35 basis points. Okay, great. The weighted average rate on new loans in the quarter, relative to the 1Q? Well, this is actually an interesting number that we spent some time looking at to try and see what was ahead as well. You know, with a mix of production and a higher amount being mortgage loans, that certainly affects the rate that we had in Q2. You also look at, you know, the mortgage loans that actually close in Q2. You know, some of those are getting locked in Q1. You know, if you look at kind of where we are today in June, the average rate was 4.16% for new loan production. In July so far, it's 4.81%. You know, seeing very strong positive trends in loan pricing. Of course, all that comes before the 75 basis point increase yesterday. We've also hit the point where loans are getting booked at higher rates than what we're seeing in the payoff, which, you know, helps kind of stop that treadmill a little bit. Now, no longer so much of a headwind against margin. Right. Great. Last one for me, just on the mortgage segment, is there anything else you can do there to cut expenses, or do you feel like you've done all you can do on that front? As we've talked about, and I won't go through the whole song and dance, just a short version, you know, that's a small but strategically important part of our overall story. You know, we have said that we're not going to lose money in that business. Then of course, we did lose money in that business. In Q2, if you look at just the mortgage segment reporting. You know, a couple points on that. Number one, if you factor in the net interest income that we get from those jumbo loans that we book as portfolio loans, which was a much higher percentage than normal for us in Q2, more than offsets the $1 million reported segment losses. The revenues that go into the segment are just from the and all the attendant, you know, hedging and whatnot that goes with that. That's kind of the first point. More directly, to your question, we have reduced costs already in the Q2. Again, you remember last June, we made a significant cut when we saw the slowdown right away. We've done that again at the end of the Q2. We have some additional, you know, cost control measures in place. We do think that this environment is going to help us attract some new producing MLOs that would help, you know, offset the cost. You know, I just reaffirm we have no intention of losing money in that business. I think if you look at it on a kind of overall basis, today we're not. We can get the segment reporting to look a lot better going forward. Okay, thank you. Thank you. One moment for our next question. Our next question comes from Ross Haberman from RLH Investments. Your line is now open. Morning, Scott. How are you? Good. Good morning. I hear great loan growth. I was wondering if you could sort of break it down by geography or are you seeing better loan growth from Wyoming or Montana or Arizona, sort of where are you seeing the best growth from like that? Yeah. A really good question. You know, if I could take us on a little bit of a detour, it's across the platform. Strongest in Colorado because that's where our biggest base is. Arizona, you know, we've hired a significant new production capability that didn't produce that much in Q2 but is going to. I feel really good about what we're doing there. If I could just address the Wyoming question for a minute. You know, one of the things you worry about in an acquisition is when you bring them on to First Western from being, you know, the Rocky Mountain Bank based there in Jackson, you want to make sure you don't go backwards, right? Q1 was all about retaining clients and making sure that they were comfortable. Then you put them through the conversion. You know, I'd love to tell you we're great at conversions and it went perfectly, but that would be not true because all conversions I think are painful, and we certainly did everything we could to mitigate. The team there did a great job. That you know that was a big challenge in Q2. May 15th, as Julie said, we conducted this weekend conversion and moved everybody over. You get to the end of the quarter, you're thinking, boy, you know, if it's flat for the quarter, that's good. Well, it turns out Jackson was our third highest producing net loan growth PC for the quarter. I actually, when I saw that, I sent them all a big high five because, that's obviously, you know, a really great accomplishment. It tells you know, the opportunity in Wyoming for us. I mean, we thought that if we could take our platform and our toolbox and apply it to, you know, the nice, community banking history that they have at Rocky Mountain Bank, that we could do something really special there. It's nice to see that already showing up in Q2. Just one last question to you. I think you're saying that if we continue to see a rising rate environment, maybe another 75 basis points on them in September, so that will continue to help the margin and help the spread. Is that correct? Well, I think the question that came earlier about, you know, the NIM improvements in the quarter tell you that we're gonna see a lot stronger NIM for the second half of the year, even without increased rates, right? The strong momentum we've seen in asset growth and loan growth in earning assets, and then you put on top of that the NIM improvement that we've seen, I mean, that's gonna continue to have a significant impact on the earnings in the second half of the year. In fact, you know, I was wondering when I saw, you know, like the headline numbers are disappointing to me at least when you look at it, you see EPS not where we want to see it. When you see the efficiency ratio not where we want to see it, I mean, we think that those numbers can and should be significantly better. I was looking at the operating leverage, and if you just take net interest income and you divide it by the operating expense of the whole company, on an operating basis, and that data is actually in the appendices. We had a two-to-one growth in operating leverage in Q1 and 132% growth in operating leverage in Q2. You know, what's being hidden there is the fee income declines from those fees is offsetting, more than offsetting that. But that's not gonna continue to decline at that rate. In fact, hopefully we'll be able to turn that around here in the short term. I think we're still seeing the kind of positive operating leverage that we've seen now in the past, you know, many quarters. It's just hidden in Q2, and I think that's gonna come back really in a nice fashion in Q3 and the rest of the year, Ross. Just one final question. Are you out of the purchase? Are you out of the buying business for the moment, or you're still looking around for either operations or branches to further buy as opposed to organic expansion? Well, you know, we do have, as we've said before, an active corporate development program. We have a number of identified targets that we're interested in, and we continue to work on those. You know, there's a couple of really interesting opportunities for us that we're working on actively. Are they gonna happen? You never know. You know, they would both be great fits for us and something we'd love to do. But you know, it has to be the right team, it has to be the right time for that team, and it has to be on the right terms that it makes sense for us. I think we've shown pretty good discipline on that historically. I do think that with a strong balance sheet, strong story that we have and the credit record that we have, you know, a lot of times these opportunities come more into focus and they get more urgency when the economy slows. It may be an interesting time ahead for First Western to be able to capitalize on those. Can I just ask one detail about your possible acquisitions? How are you taking into account this AOCI adjustment? When you're looking at things to buy, is that gonna turn out to be a major impediment between the bid and ask deal? You know, we've done enough of these that we feel pretty comfortable with our due diligence abilities. You know, I've done 20-something of these in my career, and we've done 13 acquisitions here at First Western. You know, when we look at the value for our shareholders, you know, we look at the risk-adjusted balance sheet. We look at the earnings potential. Obviously, you know, from our track record, you know that we're gonna do things that are gonna be beneficial for our shareholders. You know, our last merger with Rocky Mountain Bank and their parent Teton was actually accretive to tangible book value at closing and certainly gonna have a very nice earnings accretion impact, as I mentioned in my earlier comments. I think you can count on us, Ross, to continue to be disciplined in that and look for opportunities that are going to drive shareholder value in the short term. Okay. Thanks, guys. Have a good week. Have a good weekend. I appreciate the time. Yep. Thank you, Russ. Thank you. One moment for questions. Our next question comes from Bill Dezellem from Tieton Capital Management. Your line is now open. Thank you. I have a couple of questions. First of all, I'd like to start with the teams and bringing new people on. In this environment, are you sensing that people are more likely to move towards First Western today than they were a year ago, or how are you thinking about that at this point? Well, I don't know, Bill. I find this hard to predict. Like, at times when I thought, boy, we're gonna really be able to attract people from this acquisition that just closed, and then you don't get them or they get bid up or whatever. But for whatever reasons right now, we are having a lot of success attracting people. I think that, you know, we're getting to a scale and size that people see us as a really good place to build a career. I think that some of our legacy, long time, and newer competitors are having trouble, you know, finding the right mix for the growth. You know, for whatever reasons, you know, I think our reputation in the market is strong, and I think that that's helping us attract people. We're having quite a bit of success right now attracting really strong relationship bankers into the bank. Frankly, I don't think that's gonna slow. I think that's gonna continue. It's been very encouraging to see this year. Well, thank you. Congratulations. Let me shift, if I may, to the C&I lending. With $76 million of incremental loans in the quarter, that's a really big number. I was hoping you could dive into what's happening behind the scenes to cause C&I specifically to be that strong. Well, I think it's persistence on our part. You know, we've talked, I feel like pretty much every quarter on these calls about, you know, us focusing on that business and wanting to diversify away from just, you know, traditional private banking and mortgage lending and building a C&I capability. I think, you know, we're seeing that. We have some good C&I lenders that we've recruited. We certainly got some with the Simmons Bank acquisition and now with the Rocky Mountain Bank acquisition. You know, I think building those teams and developing a reputation in the community takes time but pays off. I think we're seeing that now. Is it your sense that those teams are now operating at a, we'll call it a fully mature state, or are they still in ramp-up mode? Well, I'll tell you, the leader of our banking group here believes that we're just scratching the surface there. He thinks that there's a lot of opportunity there, and he's very bullish on building that. Excellent. Thank you, and congratulations on bringing on all the people. Yeah, thanks, Bill. Thank you. One moment for our next question. We have a follow-up question from Brett Rabatin from Hovde Group. Your line is now open. Hey, Scott. One follow-up. When we were talking earlier in the year, I think March, you know, you were kind of talking about the loan growth outlook being strong and getting ready for a recession, you know, at the same time. You know, you operate in some pretty good markets in terms of economic growth here the past year that it could slow at some point with consumer and tourism possibly. What I wanted to know is, are there any loan segments or anything that you're seeing out there that you're like, "Hey, we don't wanna be doing any more of this," or you have your eye on any loan categories that you would consider to be riskier going into whatever we're gonna go into in the next year or two? Sure. Well, I'll tell two stories there. One I've told before and then a new one. You know, over the last 12 to 18 months, we have talked to our credit team about, hey, you know, this is a time that we don't wanna be stretching, and so let's make sure we stay or hold firm on terms, our credit quality, and in terms of rate as well and not, you know, chase this. We've talked about that before, and I can tell you we continue to do that. The other thing I really haven't talked about is once a quarter, we have what we call a summit, where we get all our managers together, and I have our leadership team members each do a presentation on some topic of importance and urgency to the company to this assembled group of 60 or so of our top leaders in the company. I asked our Chief Credit Officer, Scott Lawley, to present at this summit, which was last week, about lending into recessions. He's a very experienced credit guy. He did work out at Huntington and then was a number two credit guy at Huntington before he joined us. You know, there's nothing like a good workout guy to scare the lenders. He did a whole presentation on things we don't do late in the cycle. It was a really good reminder, I think, to everybody about, you know, holding firm on our credit standards and not stretching and the kind of credits we're willing to do and the kind of credits we don't wanna do, and the industries we wanna focus on and not focus on. That is actually a very active topic here that we're training our people on to make sure everybody's focused on that. Scott of course enforces that through, you know, the whole credit approval process here, which is very centralized. Okay. Any specific categories or things that you wanna stray away from here going forward? I don't know any that I would call out particularly. You know, we have in a credit policy desired industries and not desired industries, so we do that anyway. As I say, you know, Scott talked about in his presentation how we think about that late in the cycle. I don't think we have the list in front of me, but I know they're focused on it, and that as a company, we're thinking that we're late in the cycle here and we wanna be cautious. Okay, fair enough. Just one last one, if I could. I wanna make sure I understood the conversation around mortgage banking profitability from here. Yep. You know, you weren't gonna lose money, but you did, and you don't wanna lose money. You know, is it fair to assume that the mortgage banking operation continues to be at a net loss for the near term until volumes either pick up or gain on sale margins expand? Well, what I said was the mortgage segment shows a loss, but for the reasons we talked about, the mortgage business here is a profitable business. I also don't wanna report negative earnings in the segment either, which obviously we did in the Q2. You know, we're gonna continue to manage the expense there and continue to look at ways to grow the revenues there so that we are reporting a positive number for the segment. You know, if you look at just the mortgages they produced in Q2, I think that produces another $3.5 million in income annually for the company. I still think it's a business we wanna be in. It's been great for us since we bought that business in, what was it, Julie? The fall of 2017. That's been a giant benefit for us overall. We expect it to be a positive contributor for the long term. Did that address your question, Brett? I'm not trying to be evasive. No, that's you know, that helps. I realize part of the profitability equation is due to the production going on the balance sheet, so I understand that. You know, you talked about expenses being a little higher from here, if I heard correctly. You know, if that production slows, would that be an offset to what you're doing in terms of adding new talent? Yeah. I mean, I talked about, you know, if you just if you take the fee business out altogether and you just look at our net interest income over the total operating expenses, we've seen really strong operating leverage growth in Q1 and again in Q2. So, you know, we're gonna continue to manage the overall expenses in line with our revenue growth and make sure that we're showing the kind of improved profitability that I talked about earlier. Okay. I appreciate the color. Thanks. Thank you. Thank you. I am showing no further questions. I would now like to turn the call back to management for closing remarks. Okay, Justin, thanks. I've talked in the past about three growth engines at First Western. The organic machine, and that is working. I think we saw that in spades here in the Q2. You know, we expect that machine to continue, and we're building the machine. I think that those are very positive trends for the organic portion of our growth engine. Expansion, we've talked about. You know, we can't get to 50 offices if we don't add new offices from time to time. You know, we've got Bozeman now open as an LPO. I tell you the team here is very excited about our opportunities in Bozeman. The team we have put together, the progress they're showing already, the opportunity in that market, very significant. Longmont, we're incubating. We've hired a team for the East Valley in Phoenix, and we've got a team ready to go for the West Valley in Phoenix. So, I mean, the expansion effort here continues and I think is gonna be a big part of our organic growth and earnings growth going forward. Acquisitions we talked about. You know, we see a number of attractive opportunities if the timing and the team and the terms all work out together. You know, our core business, obviously very strong and healthy. We're seeing, you know, this positive operating leverage we've talked about. You know, the fee income challenges, headwinds that we've had are short-term headwinds. I think that we will show progress there over time. We feel really good about the outlook from here in spite of some of these headlines that don't look so positive from Q2. With that, thanks everybody for dialing in today. We really appreciate the work the teams have done to produce these results. The associates here at First Western and everybody's time and attention today on the call. Thanks so much. This concludes today's conference call. Thank you for participating. You may now disconnect.