First Western Financial, Inc. (NASDAQ:MYFW) is a financial holding company that provides a fully integrated suite of wealth management services, including banking, trust, and investment management products and services, to its clients primarily in Colorado, Arizona, Wyoming, Montana, and California. The company has demonstrated resilience in the face of economic challenges, showcasing its ability to navigate through uncertain times while positioning itself for future growth.
Founded in 2002 and headquartered in Denver, Colorado, First Western has established a strong presence in its target markets, catering to entrepreneurs, professionals, and high-net-worth individuals. The company's mission is to be the best private bank for the Western wealth management client, offering sophisticated, high-touch wealth management services tailored to meet their specific needs.
Business Overview
First Western operates through a branded network of boutique private trust bank offices, strategically located in affluent and high-growth markets across its five-state footprint. The company's profit centers, which include private bankers, lenders, wealth planners, and portfolio managers, are supported by centralized teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance.As of March 31, 2023, First Western had $2.93 billion in total assets and provided fiduciary and advisory services on $7.1 billion of assets under management (AUM). The company's diverse product offerings and integrated approach to wealth management have been key drivers of its success, allowing it to cater to the unique financial needs of its clientele.
Financials
In the fiscal year ended December 31, 2022, First Western reported net income of $5.225 million and total revenue of $168.303 million. The company's operating cash flow for the year was $17.463 million, while its free cash flow stood at $15.116 million.During the first quarter of 2023, the company generated net income of $2.515 million, or $0.26 per diluted share, and pre-tax pre-provision net income of $3.579 million. This performance was consistent with the prior quarter and the same period in the previous year, reflecting the company's disciplined approach to balance sheet management and expense control.
Loan and Deposit Trends
First Western's loans held for investment decreased by $20 million from the end of the prior quarter, but the company saw an increase in loan production during the second quarter, with total loan production rising to $50 million, up from $31 million in the prior quarter. The company's new loan production has been primarily in the areas of commercial loans and residential mortgages, where it is also gaining deposit relationships.On the deposit front, First Western's total deposits declined during the second quarter, primarily driven by seasonal tax payments, operating account fluctuations, and clients using liquidity for strategic investments. However, on an average basis, the company's deposits increased by $39 million compared to the second quarter of 2022, reflecting its successful deposit-gathering efforts over the past year.
Asset Quality and Expense Management
First Western's asset quality metrics have shown positive trends, with a decline in past due loans and a small amount of net recoveries during the second quarter. The company's non-performing assets increased slightly to $49.3 million, primarily due to the foreclosure on two properties held as collateral, which are now held in other real estate owned (OREO).The company has maintained disciplined expense control, with non-interest expense declining from the prior quarter. First Western's efficiency ratio has also trended in the right direction, and the company expects non-interest expense to be relatively consistent in the coming quarters, with the main variable being the level of incentive compensation, which will depend on its financial performance.
Wealth Management and Mortgage Banking
First Western's wealth management and mortgage banking businesses continue to be strong contributors to its revenue. The company's trust and investment management fees increased by 6.4% in the first quarter of 2023 compared to the same period in 2022, driven by an increase in assets under management and an improvement in its fee structure.In the mortgage banking segment, First Western's net gain on mortgage loans increased by 24.0% in the first quarter of 2023 compared to the same period in 2022, primarily due to a higher level of production and an increase in home buying activity in its markets. The company has also added five new mortgage loan officers (MLOs) in the first half of 2023, which it expects will further boost its mortgage banking performance in the second half of the year.
Outlook
While economic conditions remain uncertain, First Western is committed to maintaining a prudent risk management approach and a conservative stance on new loan production. The company is also making progress on resolving its non-performing assets, with a decline in past due loans over the past two consecutive quarters.First Western is focused on developing new deposit relationships and maintaining disciplined expense control. The company is also in the process of reorganizing its investment management business to improve its performance and business development capabilities.
Based on the positive trends the company is experiencing, including an expansion in its net interest margin, First Western expects to generate a higher level of profitability in the second half of 2023. The company's strong balance sheet and improving asset quality have also enabled it to consider additional options for capital deployment, leading to the authorization of a stock repurchase program in June 2023.