Q1 2025 First Western Financial Inc Earnings Call
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Good day, and thank you for standing by.
Speaker Change: Welcome to the first Western Financial First Quarter, 2025, Earnings Congress Call. At this time, all of our participants are in a listen-only mode. After the speaker's presentation, there will be a questioning and answer session.
To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 1-1 again.
Please be advised that today's conference is being recorded.
Speaker Change: I would now like to hand a conference over to your speaker today. Tony Rossi, please go ahead.
Tony Rossi: Thank you, Daniel. Good morning, everyone, and thank you for joining us today for First Western Financial's First Quarter 2025 earnings call.
Speaker Change: Joining us from First Western's management team are Scott Wylie, Chairman and Chief Executive Officer, Julie Courkamp, Chief Operating Officer, and David Weber, Chief Financial Officer.
Speaker Change: We'll use a 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 Investor Relations website to download a copy of the presentation.
Speaker Change: 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.
Speaker Change: These factors are discussed in the company's SEC Piling, which are available on the company's website.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the gap to non-GAAP measures . With that, I'd like to turn the call over to Scott. Scott.
Thanks, Tony, and good morning, everybody.
Speaker Change: As expected, during the first quarter, we generated a significant improvement in our level of profitability. This was driven by positive trends in many areas, including expansion in our net interest margin, a higher level of non-interest income, partly due to a higher level of mortgage banking income, resulting from lower rates.
Speaker Change: and the positive impact of the MLOs that we've added in the past few quarters.
An increase in non-interpreting deposits [inaudible]
Solid Loan Production, and Well-Managed Expenses.
Speaker Change: We continued to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria.
Speaker Change: However, as a result of the additions we made to our banking team over the past several quarters, we had a solid level loan production which was well diversified across our markets, industries, and property types.
Speaker Change: We also continue to have success in our deposit gathering efforts, adding new clients and seeing inflows from existing clients that resulted in an increase in our non-interest bearing deposits in the quarter.
Speaker Change: In addition, we were able to successfully lower our deposit costs, which contributed the expansion we saw in our net interest margin.
Speaker Change: We sought generally positive trends in asset quality during the first quarter, resulting in a decline in our MPAs to total assets.
Speaker Change: We also had a successful resolution of our two largest Oreo properties which we sold for
Speaker Change: As a result of our stronger financial performance and balance management strategies, we had a further increase in our tangible book value for share.
Speaker Change: When we decide for, we generate a net income of 4.2 million or 43 cents per diluted share of the quarter.
Speaker Change: Both substantial increases from the prior quarter in continuing the recent positive trend.
Speaker Change: With our prudent balance sheet management, our tangible book value per share increased by 1.6% this quarter.
Speaker Change: Now I'll turn the call over to Julie for some additional discussion of the balance sheet and trust and investment management trends.
Julie.
Thank you, Scott [inaudible]
Speaker Change: Turning to Site 5, we'll look at the trends in our loan portfolio.
Speaker Change: Our loans' health or investment were essentially unchanged from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with the higher level of productivity we are seeing from the addition to our banking team.
Speaker Change: We had made over the last several quarters. We are seeing a solid level of new loan productions.
Speaker Change: New loan production was 71 million in the first quarter. However, this was offset by 72 million and loan payoffs in the first quarter. Resulting in the slight decrease we had in total loans.
Speaker Change: Most of our new loan production is coming in the areas of commercial loans and residential mortgages, where we are also getting deposit relationships, but we continue to see strong CRE loan demands, as borrowers are looking to take advantage of lower property valuations.
Speaker Change: We continue to be disciplined and we are maintaining our pricing criteria. This resulted in the surge rate on new loan production being 6.89% in the quarter.
Speaker Change: which was higher than the average rate on our loan payoffs and resulted in the turnover in our loan portfolio being accretive to our average yield on loans.
Moving to slide six [inaudible]
We'll take a closer look at our deposits trends.
Speaker Change: Total deposits were up slightly from the end of the prior quarter. We saw inflows of non-interest bearing deposits from existing clients, as well as new relationships that were added in the quarter.
Speaker Change: This was offset by a decline in time deposits, as we have reduced rates on maturing CDs, which resulted in some runoff, which we are replacing with lower cost deposits and driving an improvement in our deposit mix.
Speaker Change: Given the nature of our client base, we typically see some outflows of deposits during the second quarter largely related to tax payments. So it's possible that we see flat or lower deposit balances in the second quarter, which then tend to build back up over the second half of the year.
Trying to trust an investment management on slide seven.
Speaker Change: We had a 144 million decrease in our assets under management in the first quarter, which was driven by net withdrawals primarily in 60 accounts.
Over the past year, our AUM has increased nearly 1%
David: Now we'll turn the call over to David for further discussion of our financial results. David?
Thanks Julie
David: Turning to Slide 8, we'll look at our gross revenue. Our gross revenue increased 3.4% from the prior quarter as we had increases in both net interest income and non-interested income.
David: Turning to Slide 9, we'll look at our trends in that interest income and margin.
David: Our net interest income increased 3.6% from the prior quarter due to an expansion in our net interest margin.
David: Our NIM increased 16 basis points from the prior quarter to 2.61%.
David: This was due to a reduction in our cost deposits, along with an increase in our average yield on interest
David: And our cost of deposits at the end of the quarter was lower than the average rate for the quarter, which will provide a benefit to margin in the second quarter.
David: With the continued reduction we expected to see, we expected to see in our cost of funds along with the redeployment of cash we generated from the sale of the
David: We will also benefit from $8 million of sub debt with a cost of 5.125% that we redeemed on March 31st which eliminated a high cost of funds going into the second quarter
David: Now turning the slide 10, our non-interest income increased by approximately 900,000 from the prior quarter in spite of seasonally higher insurance fees in the fourth quarter.
David: This was due to an increase in gain on sale of mortgage loans, along with the net gain we recognized on the sale of our two largest Oreo properties.
Now turning the slide 11 in our expenses.
David: Our non-interest expense decreased $1 million from the prior quarter, which was primarily due to a $1.1 million write-down of an Oreo property that we recorded in the fourth quarter.
David: All other areas of non-interest expense were relatively consistent with the prior quarter as we continue to tightly manage expenses while also making investments in the business that we believe will positively impact our long-term performance.
David: Although we did see the usual seasonal increase in first quarter salaries and benefits expense due to the reset of accruals for payroll taxes.
Now, turning this slide 12.
We'll look at our asset quality.
David: As Scott indicated earlier, we saw generally stable trends in the lone portfolio in the first quarter with a decline in non-performing assets.
David: We had a small amount of charge-offs in the corridor, which were entirely related to one loan we had from the Main Street Lending Program, which had unique issues and is not reflective of broader trends we are seeing in the portfolio.
David: We also saw a positive shift in the mix in our loan portfolio towards loans with lower historical loss rates, which resulted in a small reduction in our allowance coverage.
Now, I'll turn it back to Scott. Scott?
Thanks David.
David: Turning to slide 13, I'll wrap up with some comments about our outlook.
David: While we're generating improved profitability, we're still not satisfied with this level of performance.
David: Over the past couple of years, we focused on improving in a number of areas of the company, and a result with starting to see some solid trends in asset quality, net interest margin, loan to deposit ratio, and overall efficiencies as we improve processes throughout the organization.
David: We expect to see a continuation of the positive trends we're seeing.
David: We also redeployed cash from the sale of our two large historical properties and then interesting assets.
David: Our Low Pipeline continues to be healthy, and we've not yet seen any impact on loan demands from the terrorists.
David: So we anticipate using most of this cast to fund new loan production.
David: However, given the level, and certainly regarding the macroeconomic outlook, it's possible loan men could be impacted later this year, and loan growth for the year could be lower than our initial expectations.
David: We've also made a priority of growing our trust and investment business as part of this effort we've added a new head of wealth planning who joined us from Goldman Sachs.
David: which we expect will help this business make a greater contribution to our future growth and profitability.
David: The positive trends we're seeing in a number of key areas are expected to continue and we believe should result in steady improvement in our financial performance and further value being created for our shareholders as we move throughout the year.
With that said, we're happy to take your questions.
David: As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1-1 again.
Please stand by while we compile the Q&A roster.
Thank you.
Matthew Clark, with Piper Sandler, your line is no open
Hey, good morning.
[inaudible]
Earnings
David: First questions just around your loan yields. They were uplinked quarter. I know new productions are creative to loan yields, but I assume there are some interest recoveries in there. Can you isolate any interest recoveries on a dollar basis?
Bruce
David: Yeah, Matt, we saw a little bit higher amortized loan fees through the quarter, that helped, they can be lumpy, right? So we did see a little bit higher in terms of amortized loan fees through the quarter.
David: That really helped kind of push that up a little bit as you mentioned. I think it was somewhere in the $200,000 range.
Speaker Change: Okay, and how does that compare to maybe more normal quarter just so we can normalize it going forward? Sorry, that was $200,000 higher than we typically see in the quarter is what I meant.
Okay.
Speaker Change: Sounds good. And then just on the margin, if you could give us the spot rate on deposits at the end of March and the average margin in the month of March, normalizing for any kind of unusual.
That maybe that on you, you know, the uptick in the, yeah, Mark, we did have.
March for the little bit.
Speaker Change: I'm usually just giving those dynamics. So from a cost of deposit standpoint, the spot was $298.
Speaker Change: Kostophons was roughly three of five. From a NIM perspective, now we think NIM will be relatively flat for the second quarter.
Speaker Change: due to expected runoff and it's by the portfolio that we typically see in the second quarter driven by tax payments.
Speaker Change: So we're thinking then we'll be flatish in the second quarter, and then we'll have opportunities for further expansion in the second half of the year, getting us back to that exit and then that we talked about last quarter.
[inaudible]
Speaker Change: Okay, that was 273ish, I think. Yeah, getting back into the 270s. Yeah. Okay, okay.
Thank you.
Speaker Change: and then just on the non-performers that are left on the balance sheet, you know, call it.
Speaker Change: Call it 70 basis points of loans in Oreo. Can you give us a sense for what might be resolved here shortly? Just kind of your updated thoughts on...
You know, the resolution process of those non-performers is here.
Speaker Change: Yeah, I think there's one Oreo left and we expect to sell that over the course of this year sometime, you know, I think that that's
Speaker Change: In this, for this typically the seasonal market and asset and notwithstanding the grand sale in Q1, but...
Speaker Change: I think selling that over the course of the summer would be a reasonable expectation at this point. And then of the...
NPL is just really one.
Speaker Change: Substantial one in there that we've talked about before, which is...
Speaker Change: You know, a wealthy guy that's stopped paying us and is well secured and working through the process with the courts and fully expected collect.
on that.
with the sale of the claddle of nothing else, so…
Speaker Change: Hard to predict timing on that. I can tell you we are paying a lot of attention to it in focus but we're a little bit of the mercy of the court on the timing. So...
Speaker Change: Thanks some time in 2025, but I'm proud to predict at this point.
Okay, great. Thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from Will Jones with KBW. Your line is now up.
Speaker Change: Yeah, hey, thanks guys. Good afternoon, seven in here for Wylie.
Speaker Change: I wanted to circle back on the margin discussion. I appreciate all of them. Commentary and color of that feels like direction. We have a pretty good idea of where that's going to run and trend the rest of the year. But maybe just just more of a somatic question. I know, especially following some of these Oreo sales that excess liquidity is in a higher position than has really been in the past.
Speaker Change: But the Scott just to the extent that it may be longer it doesn't quite you know play out how we all would hope for it this year or In a city to the extent that we do see any kind of demand reduction from from terrorists what would you ever That you know into statement maybe leaning a little more into the bond book
Speaker Change: Just just had a way to deploy some of that cash in the near term.
Speaker Change: Yeah, that's certainly an option. I'd say our primary focus remains on growing our banking relationships, you know, existing and new, but yeah, that's certainly an option from deploying liquidity standpoint.
Thank you.
Speaker Change: Yeah, I got it. And then just over to expenses, I mean, that, that, you know, really continues to be a fairly nice story. I guess, hey, if you could just, you know, direction help us.
Speaker Change: A guide to where he may see expenses, you know, kind of carried through the balance of the year or all felt there and then it didn't follow up with that kind of just a minute.
You know, we've previously have said...
Speaker Change: that were targeting keeping our expenses under $20 million a quarter, and we did that effectively in the first quarter in spite of the, um...
The seasonally preset we see from the...
Speaker Change: Extra Payroll Tax, hit that we're taking Q1 that David mentioned in his comments, so I think...
Speaker Change: As far as we know, that's still reasonable guidance. The scenario where it goes above that, I think, is really if we outperform our performance expectations, we have higher incentive comfort rules, but I think that would be a happy scenario for investors. That's just so.
Speaker Change: I think the 19.5 to 20 million dollars got in Sweden before seems reasonable from what we know today.
Okay, that's helpful. Thanks for that.
Speaker Change: And then just kind of lasted for me, Scott, you kind of mentioned in your closing remarks there that, you know, this is still, you know, afraid to stay full of profitability for you guys, especially relative to where he has historically been.
Speaker Change: It does feel like there's a lot of tailwinds that are kind of moving in your paper right now, especially with the margin of expansion that we could see over the rest of the year.
Speaker Change: as well as your ability to kind of maintain costs here. Do you have like a reasonable guide poster for a fence post, where you'd like to see, you know, kind of ROA trend, maybe we'll be over the next year or two, just as you kind of can get back to a more normalized level of operation?
[inaudible]
Speaker Change: Yeah, I think our target for now is to get back to 1% I think, you know, if you go back.
Speaker Change: 3 years ago, we were producing really good returns, which, you know, when we went public, we said we thought there was a lot of operating leverage in our business, and if we could grow the balance sheet with the capo we raised, which we get, we've tripled the balance
Iyer, Parley, and R.O.E. Bob.
Speaker Change: And I don't think it stops at 1%, but that's kind of where we're focused for now to get back there.
Yeah, okay.
Speaker Change: says it's all really helpful and congrats on getting this Oreo bought behind you and congrats on this quarter.
David Weber, David Weber,
Yeah, thanks a lot.
Speaker Change: Thank you. Our next question comes from Bill Dezell, with Titan Cathedral Management. Your line is now up. Thank you. You had referenced the loan pay-offs, essentially matched originations of this quarter. Would you discuss your view of the pay-offs on a go-forward basis, relative to what you are seeing, that seems possible?
Speaker Change: Billing Farmer, please. Yeah, you know, our payoff history has been to me kind of amazingly consistent at about a hundred million dollars a quarter. And in Q1 it was about 70 million as Julie mentioned in her comments and in the presentation. I would expect in a relatively stable world if that's what we're in.
Speaker Change: Downward Press on the balance sheet, we shrank in January and February and then saw a nice recovery in March.
Speaker Change: And so our feeling going into Q2 is that that momentum from March should continue. The pipelines look good. The growth looks good. So even if we have higher payoffs in March, which are in the Q2, I mean, which I would expect.
Speaker Change: I think that we can still produce some of that growth. Thank you, too, but it's just hard to predict today. I think the economic uncertainty out there and the impact of the terror of noises is...
is hard to predict what planets are going to do.
Speaker Change: And so this origination pipeline that you're referencing, is this circle back to the significant increase in bankers that you had last year that I think we talked about on previous calls?
[inaudible]
Um...
Speaker Change: That's certainly a factor. I don't know that I can tell you that it's 50% of the results or whatever. I don't really have a clear picture of
Speaker Change: How much of that's related to new folks becoming productive, but I would tell you...
Speaker Change: We did have some really strong new hires last year that are contributing. We've got some more that we've done this year or that we have in the pipeline for this year. People that have accepted jobs that will be starting the second quarter. So, I think.
Speaker Change: Attracting the kind of camp that we're attracting these days should really be beneficial in terms of supporting the bouncy quote we'd like to see this year.
Speaker Change: and then one additional question following up on your last comment. If you take those new hires
this year in Q1.
Speaker Change: and those who have accepted in Q2, what percentage increase would that create based off your 1231 base?
12.3
Speaker Change: That's sure, well, are you getting at like the percent of people bill that were it?
Speaker Change: So as an example, if you had 20 bankers and you added one in the first quarter, one in the second quarter that I told you to, two on 20 is 10%. Yeah, so.
Speaker Change: We don't really look at it that way, you know, if we have…
Speaker Change: Somebody that's underperforming, that we replace with somebody strong, you know, I'm not sure how you would count that exactly [inaudible]
Also, the new hires are not all created equal, like-
Speaker Change: I think two of the best cars we made last year were market presidents in two of our larger markets.
Speaker Change: and both of those people have really had a positive impact.
Speaker Change: on the overall balance sheet and on that team that they're leading in their respective markets. And so, you know, when I've been up in those markets, visiting with clients and prospects, you know, is clearly a new energy and a new kind of...
Looking forward, we've recruited...
Speaker Change: A very high profile person in one market that's been pretty flat for us, that's starting I think.
Speaker Change: Make First, I believe. And so I think that's going to have a big impact in that market. That'll be a positive thing when we can announce that here.
Speaker Change: shortly. We've got another one that we're very close to and another really kind of flat market for us where we think that that person will have a big impact.
Speaker Change: One of the things we really haven't talked about on the call today, I mentioned it in my post in my comments on that last slide is we've
Speaker Change: We really decided that our PTEM function, planning trust and investment that really hasn't shown any growth.
Since the IPO in terms of fees. [inaudible]
Speaker Change: needed a fresh look. And so we've been working on that.
for the past few months and we...
Speaker Change: We have brought in a couple of new leaders for that, one with a deep background in expertise from Schwab, he actually joined us six to nine months ago, something like that, and then a new one that just joined us.
Speaker Change: on March 31 from Goldman Sachs, and he was a senior VP at Goldman in the well-plaining area.
and a senior executive on.
Speaker Change: because title was well-must, investment management, and financial planning. And he's brought a lot of good ideas, you know, typically we see these guys.
Speaker Change: Latest Tires. Got lots of good ideas. I think he's going to have an impact here in the short term that's very positive. We also hired a new head of retirement services last fall to lead up that business. So all these folks, I think, are going to have a really positive impact. Bill on driving fundamental growth across the platform. We are going to have a positive impact. We are going to have a positive impact. We are going to have a positive impact.
Thank you.
Great, thank you and congratulations on those hires.
Yes, sir.
Ross Haberman: Thank you. Our next question comes from Ross Haberman with RRLH Investments. Your line is now open.
Ross Haberman: that you sort of need to augment, you might say, because you're in good, pretty good.
Ross Haberman: Markets, I know it's all the uncertainty in DC, it's holding everyone back from making
Ross Haberman: Significant moves, but could you just go market by market and is the one market that's really much softer that you're focusing on more today? Thanks.
Yeah, thanks for that question, Ross.
Speaker Change: We are, I think, we have 19 offices now, so if I actually went through to the 19 I think that might be a little much for this call.
Speaker Change: Geography. It's still a really good question, Russ. The front range of Colorado where we have the proponents of a business.
Speaker Change: is still healthy and growing. I think that the…
Economic Uncertainty from the...
Tear of Situation.
Ian in the...
kind of economic turmoil that that's causing.
Speaker Change: Seems to be impacting our clients one of three ways and I've been out talking to clients quite a bit over the last couple weeks to try and assess what they're thinking. So the folks that are directly affected by this like manufacturers or agriculture, obviously very concerned.
But fortunately that's a very small number for us.
We have minimal exposure again.
Speaker Change: Manufacturing and even less than agriculture. So I don't think that that's going to be a big
impact on us.
at the least of the, from a credit standpoint, the current portfolio.
Speaker Change: But the three things that I've been hearing is, you know, number one
Speaker Change: Some folks seem to think that this is noise for now and they're just kind of going on with their, what they were doing anyway. This is a second group which I would say is probably the largest of the three that's just kind of causing and taking a wait and see. You know, we don't really need them.
Speaker Change: Campended this until the dust cell a little bit, and then the third group would be folks that are already working on something or has something underway and they're actually trying to accelerate to get ahead of any cost increases.
Speaker Change: And, you know, I think for the short term, some of that third effect may offset any slowdown from the second effect, but overall, I think, you know, most people are...
are assuming this is noise and business as usual, so...
Speaker Change: So, if you look in the front range, I think that's kind of the dynamic that's driving it. In the resort communities, which would be, you know, Vale Aspen, Jackson, you know, we're seeing, you know, continued interest in those markets, we're seeing good activity.
Speaker Change: I think that those will continue to be nice growth markets for us. We have relatively small offices there in high performing folks, so I think that that should do well.
Speaker Change: Here, Bozeman is a newer market for us. As you know, Bozeman market continues to be very hot and we think that that's going to be a really good market for us.
Speaker Change: And then in Arizona, you know, I think that we've got a nice profitable stable business there that we'd like to see growing much faster and we're working on some initiatives there.
Speaker Change: to drive some growth. So I think this opportunity across our platform we're going to have any concerns today in any of these different regions and I think we've got good people in place and the extent that we can get talent we're doing it.
Speaker Change: In expense the next quarter or two, and how quickly do you think these new people should be accretive to the bottom line in general in two or three quarters out, or how quickly do you expect them to? Thanks. That's my last question.
Speaker Change: Well, one of them was explaining to me earlier this week how he thinks he can have an impact this quarter, and, you know, my experience is it takes a while, so I love the enthusiasm, but, you know, I do think that.
It takes a little while for them to-
Speaker Change: Kind of get settled and figure out what they're going to be able to get down here and how quickly that can close, those sorts of things, but I think over the next...
Speaker Change: Two with recorders, you're going to see continued impact from these folks. You know, we've said that we think expenses are going to be pretty flat this year. And we think that we're going to be able to grow the balance sheet and produce some really nice operating leverage. And if you look at that.
Speaker Change: One page in the deck that shows an income at the kids page 4 or 5.
Speaker Change: Over the last four quarters, you see that happening, and I think that that's going to continue here in optimistic that that's what we'll see going forward in 2025.
Thank you very much for the best of luck.
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Speaker Change: Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.
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Great. Thank you, Daniel.
Speaker Change: Well, for several quarters, we've talked about disappointing headline numbers, but solid underlying trends, and I think this quarter was...
Speaker Change: more evident than prior ones that this is happening and it's going to continue through 2025, as I just said, some of these trends are...
Speaker Change: We're becoming more obvious today, the asset quality, NIM, our loan to deposit ratio, our offering efficiency, but with more to come. And I think with the sales of marketing changes we've talked about, our tech rebuild that we've done.
Speaker Change: The Data Management Initiative, our process work and our PTEM initiatives, these all are going to play out significantly as we head into the back half of 25 and into 26.
Speaker Change: First Western has a strong post-IPL history of good organic growth with really nice operating leverage, right, and strong profitability, and we expect that to continue to recover as the economic and financial conditions normalize here.
Speaker Change: In the meantime, we really appreciate everybody's interest and support. Thank you so much for taking the time to dial in today and for the questions. We really appreciate your interest. Thanks, everybody, and have a great Friday.
This concludes today's conference call.
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