First Western Financial Inc Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Profitability: Higher profitability due to loan and deposit growth, disciplined expense control. Loan production was highest in 2024 Q4, deposit inflows offset seasonal outflows, and deposit costs were lowered.
• Asset Quality: Positive trends in the loan portfolio, with NPA decline and immaterial charge-offs. A large nonperforming relationship property was under contract for sale.
• Balance Sheet: Tangible book value per share increased, and the loan-to-deposit ratio remained in the mid-90% range.
• Fee Income: Risk management and insurance fees were a record high, trust fees increased year-over-year, but mortgage demand was seasonally slow.

Segment Performance

• Loan Portfolio: Loans held for investment increased $42 million from the prior quarter. New loan production in Q4 was $94 million, up from $83 million in Q3, driven by commercial and residential mortgages. Average rate on new production was 7.44%.
• Deposit Trends: Total deposits increased $11 million from the prior quarter. Average deposits were 4% higher in Q4 due to expansion of existing client relationships offsetting seasonal runoff.
• Net Income: Net income was $2.7 million or $0.28 per diluted share in Q4, up from the prior quarter. There was a $1.1 million write-down in OREO, and tangible book value per share increased 1.6%.
• Net Interest Income: Increased 8.3% from the prior quarter, with the net interest margin (NIM) at 2.45%, up 13 basis points due to lower deposit costs.
• Noninterest Income: Decreased ~$500,000 from the prior quarter due to seasonal mortgage demand decline, but risk management and insurance fees were a record $1.1 million, and trust fees were up 2.2% year-over-year.
• Expenses: Noninterest expense was up $1 million due to a $1.1 million OREO write-down; other noninterest expenses were consistent.
• Asset Quality: Nonperforming assets to total assets declined, with immaterial charge-offs and a small release of reserves.

Guidance

• 2025 Outlook: Expect continued improvement in financial performance. Focus on loan growth, net interest margin expansion, redeployment of OREO sale proceeds, wealth management business development, and operating leverage. Anticipate higher loan growth with disciplined underwriting, deposit gathering priority, and potential benefit from mortgage demand if the environment improves.

Risks

• Market Uncertainty: Economic and market conditions could impact loan demand, deposit costs, and asset quality.
• Seasonal Fluctuations: Seasonal changes in mortgage demand and deposit flows can affect financial results.
• OREO Resolution: Uncertainties in the sale of remaining OREO properties could impact financials.

Question and Answer

Q: Color on large ORE property sale A: The 3 Metals Ranch is under contract for sale, closing in Q1. Other properties have steady interest but slower winter selling.

Q: Margin outlook A: Expect NIM expansion in 2025, not solely reliant on rate cuts. Loan portfolio turnover and deposit mix improvement contribute.

Q: Fees and insurance A: Strong Q4 risk management insurance fees due to PTIM planning, aiming to grow fee income.

Q: Expenses in 2025 A: Expect ~$20 million quarterly operating expenses, working to control costs.

Q: OREO appraisals and homes A: Ranch marks reflected in Q4, other homes appraised, confident in finding buyers.

Q: Loan pipeline and C&I A: Loan pipeline increased, C&I demand strong, some prior C&I decline due to problem loans, but positive pipeline now.