8-K: First Western Financial Reports Improved Third Quarter Earnings Driven by Deposit Growth and Reduced Loan Losses

First Western Financial, Inc. announced improved financial results for the third quarter of 2024, highlighted by increased net income and strong deposit growth.

Summary

• First Western Financial reported a net income available to common shareholders of $2.1 million, or $0.22 per diluted share, for the third quarter of 2024.
• This is an increase compared to the second quarter of 2024, which saw a net income of $1.1 million, or $0.11 per diluted share.
• However, the net income is lower than the $3.1 million, or $0.32 per diluted share, reported in the third quarter of 2023.
• Total deposits increased by 3.7% from $2.41 billion in the second quarter to $2.50 billion in the third quarter of 2024.
• Non-interest-bearing deposits saw a significant increase of 19%, rising from $397 million to $474 million over the same period.
• The loan-to-deposit ratio decreased from 101.9% in the second quarter to 95.2% in the third quarter of 2024.
• Total loans held for investment decreased by 2.85% to $2.39 billion as of September 30, 2024, from $2.46 billion as of June 30, 2024.
• Assets Under Management (AUM) increased to $7.47 billion as of September 30, 2024, compared to $7.01 billion as of June 30, 2024.
• The company repurchased 5,501 shares of its common stock at an average price of $16.27 during the quarter.

Sentiment

Score: 7

Explanation: The sentiment is positive due to improved profitability, strong deposit growth, and positive trends in asset quality. However, there are some concerns about the decrease in net interest income and the increase in non-interest expenses, which temper the overall positive outlook.

Positives

• The company experienced a higher level of profitability in the third quarter.
• There was a significant increase in non-interest-bearing deposits.
• The company saw positive trends in asset quality, including a reduction in non-performing loans.
• The company's book value per share and tangible book value per share increased.
• The company is well-positioned to generate higher loan growth in 2025.
• The company expects to see expansion in net interest margin and an increase in non-interest income from its mortgage business as interest rates decline.
• The company's markets continue to perform well.
• The company's balance sheet and franchise provide opportunities to capitalize on market disruption.
• The company has a strong liquidity position.

Negatives

• Net interest income decreased by 1.3% from the previous quarter.
• The net interest margin decreased by 3 basis points from the previous quarter.
• Non-interest expense increased compared to the second quarter of 2024.
• Total loans held for investment decreased by 2.85% from the previous quarter.
• Non-performing assets increased during the quarter.
• The company's efficiency ratio increased from 82.1% to 84.9% quarter over quarter.

Risks

• The company faces risks related to the soundness of other financial institutions.
• The company's ability to engage in routine funding could be affected by the actions of other financial institutions.
• There are risks associated with geographic concentration in Colorado, Arizona, Wyoming, California, and Montana.
• Changes in the economy could affect real estate values and liquidity.
• The company faces risks related to originating and selling residential real estate loans.
• There are risks specific to commercial loans and borrowers.
• The company faces competition for investment managers and professionals.
• Fluctuations in the value of debt securities and changes in interest rates pose risks.
• The adequacy of the allowance for credit losses is a risk.
• The company faces the risk of maintaining a strong core deposit base or other low-cost funding sources.

Future Outlook

The company expects to see higher loan growth in 2025, expansion in net interest margin, and an increase in non-interest income from its mortgage business as interest rates decline. They also anticipate continued improvement in financial performance and value creation for shareholders.

Management Comments

• Scott C. Wylie, CEO of First Western, stated that they generated a higher level of profitability in the third quarter while prioritizing prudent risk management and a conservative approach to new loan production.
• Mr. Wylie also mentioned that they continued to effectively control expense levels while making investments in the business to support future profitable growth.
• He noted that the company is executing well on balance sheet management strategies, resulting in a further reduction in the loan-to-deposit ratio.
• Mr. Wylie also stated that they are seeing positive trends in a number of key areas that they expect to continue, which should result in steady improvement in financial performance.

Industry Context

The results reflect a challenging environment for regional banks, with pressure on net interest margins due to higher deposit costs and a focus on managing credit risk. The company's emphasis on deposit growth and balance sheet management aligns with industry trends aimed at strengthening liquidity and capital positions.

Comparison to Industry Standards

• First Western's loan-to-deposit ratio of 95.2% is generally considered healthy, indicating a strong funding base compared to some peers that may be closer to or above 100%.
• The increase in non-interest-bearing deposits by 19% is a positive sign, as these deposits are typically lower cost and more stable than interest-bearing deposits. This is a key metric that many banks are focusing on to improve profitability.
• The company's net interest margin of 2.32% is lower than some of the larger national banks, but is in line with many regional banks facing similar pressures from higher deposit costs.
• The increase in AUM to $7.47 billion is a positive trend, indicating growth in the company's wealth management business, which is a key area of focus for many financial institutions.
• The company's efficiency ratio of 84.9% is higher than some of the more efficient banks, indicating room for improvement in expense management. Many banks are targeting efficiency ratios below 60%.

Stakeholder Impact

• Shareholders should see increased value due to improved financial performance and a focus on future growth.
• Employees may benefit from investments in the business and potential for future growth.
• Customers may benefit from the company's strong financial position and ability to provide a range of financial services.
• Creditors may view the company as a lower risk due to its improved liquidity and capital position.

Next Steps

• The company will host a conference call and webcast on October 25, 2024, to discuss the financial results.
• The company will continue to prioritize deposit gathering.
• The company will focus on prudent risk management and conservative underwriting criteria.
• The company will look to generate higher loan growth in 2025.

Key Dates

Keywords

financial results, net income, deposits, loan-to-deposit ratio, asset quality, non-performing loans, net interest margin, assets under management, mortgage loans, capital, liquidity