First Western Financial, Inc. (NASDAQ: MYFW) is a diversified financial services holding company headquartered in Denver, Colorado. The company operates through two primary business segments - Wealth Management and Mortgage Banking. With a strong foothold in the Western United States, First Western has built a unique private banking model that caters to the needs of high-net-worth individuals and their businesses.
Business Overview and History
First Western was founded in 2002 by a group of local business leaders, including current Chairman and CEO Scott Wylie, with the vision of creating a premier private bank for the Western wealth management client. The company opened its first office in Denver in 2004 and has since expanded its presence across Colorado, Arizona, Wyoming, Montana, and California through a combination of organic growth and strategic acquisitions.
One of the key differentiators of First Western's business model is its fully integrated suite of wealth management services, including private banking, personal trust, investment management, mortgage lending, and institutional asset management. This holistic approach allows the company to serve as a trusted advisor to its clients, addressing their diverse financial needs under one roof.
Since its inception, First Western has grown to encompass 20 locations across its target markets, including 14 full-service profit centers, 5 loan production offices, and 1 trust office. This expansion has been achieved through both organic growth and strategic acquisitions, allowing the company to establish a strong presence in key Western markets.
In its early years, First Western faced the challenge of establishing its brand and gaining market share in competitive financial services markets. The company also had to navigate the 2008 financial crisis, which presented significant challenges to the banking industry as a whole. Despite these obstacles, First Western remained committed to its mission and continued to grow its client base and expand its service offerings.
A significant milestone in First Western's history came in 2018 when the company completed its initial public offering (IPO) of common stock. The stock was listed on the Nasdaq Global Select Market under the symbol "MYFW," providing the company with additional capital to support its ongoing growth initiatives.
In recent years, First Western has focused on making strategic hires, investing in its technology infrastructure, and expanding its presence in key markets to better serve its clients. These efforts have helped the company strengthen its position as a leading private bank and wealth management firm in the Western United States.
Financials
Financial Performance and Ratios
Over the past several years, First Western has demonstrated steady financial performance, despite the challenges faced by the broader banking industry. As of the fiscal year ended December 31, 2024, the company reported total assets of $2.92 billion, down from $2.98 billion in the prior year. Net income available to common shareholders was $8.5 million, or $0.87 per diluted share, compared to $5.2 million, or $0.54 per diluted share, in 2023.
For the fiscal year 2024, First Western reported annual revenue of $90.07 million, net income of $8.47 million, operating cash flow of -$0.54 million, and free cash flow of -$1.76 million. In the most recent quarter (Q4 2024), the company reported revenue of $23.39 million and net income of $2.70 million. On a year-over-year basis, revenue increased 4.8% and net income increased 29.5%, primarily driven by an 8.3% increase in net interest income due to higher interest-earning assets and margin expansion.
The company's profitability ratios have remained relatively strong, with a return on assets (ROA) of 0.29% and a return on equity (ROE) of 3.41% as of the end of 2024. First Western's capital position is also solid, with a total risk-based capital ratio of 13.12% and a Tier 1 leverage ratio of 7.88%, well above the regulatory requirements for a "well-capitalized" institution.
Liquidity
Liquidity and Cash Flows
First Western's balance sheet remains healthy, with a loan-to-deposit ratio of 95.2% as of the end of the third quarter of 2024. The company's cash and cash equivalents totaled $236.04 million at the end of 2024, providing ample liquidity to support its operations and growth initiatives.
As of December 31, 2024, First Western had a debt-to-equity ratio of 0.43. The company has access to additional borrowing capacity through its FHLB credit facility, though specific available credit line information was not provided. The company's current ratio and quick ratio were both 1.09 as of December 31, 2024.
In terms of cash flows, First Western generated $21.88 million in net cash from operating activities in 2023, compared to $48.28 million in 2022. The company's free cash flow, defined as net cash from operating activities less capital expenditures, was $19.53 million in 2023 and $45.31 million in 2022.
Segmental Performance
First Western's Wealth Management segment, which includes the company's private banking, trust, and investment management services, has been the primary driver of its revenue and profitability. In 2024, the Wealth Management segment generated $84.03 million in income before non-interest expense, up from $79.15 million in the prior year. The segment had $2.89 billion in total assets and generated $61.26 million in net interest income after provision for credit losses, while non-interest income was $22.77 million. Salaries and employee benefits expense for the segment was $41.44 million, and other non-interest expenses were $29.42 million. Overall, the Wealth Management segment reported income before income taxes of $10.63 million for the year ended December 31, 2024.
The Mortgage Banking segment, while smaller in scale, has also contributed to the company's overall performance. In 2024, the Mortgage Banking segment reported income before non-interest expense of $6.04 million, compared to $3.55 million in 2023. The segment's results have been impacted by the volatility in the mortgage market, which has seen significant swings in origination volumes and gain-on-sale margins. For the year ended December 31, 2024, the Mortgage segment had $27.42 million in total assets and generated $4.91 million in net gain on mortgage loans. Salaries and employee benefits expense for the segment was $3.60 million, and other non-interest expenses were $1.47 million. The Mortgage segment reported income before income taxes of $950,000 for the year ended December 31, 2024.
Geographic Performance
First Western operates primarily in Colorado, Arizona, Wyoming, Montana, and California, with approximately 81.2% of its loans coming from borrowers in those states as of December 31, 2024. The company's wealth management services are delivered through a branded network of boutique private trust bank offices, loan production offices, and trust offices across these states. This allows the company to use multi-discipline sales and client service teams to meet each client's comprehensive set of needs. The profit center-based service model is a critical component of the company's growth strategy, as it develops the understanding of clients' evolving needs and allows for the deepening, broadening, and growth of existing relationships.
Risks and Challenges
As with any financial institution, First Western is exposed to various risks, including credit risk, interest rate risk, and operational risk. The company's concentration in the Western United States, particularly in Colorado, Arizona, Wyoming, Montana, and California, exposes it to regional economic conditions and potential real estate market downturns.
Additionally, the highly competitive nature of the banking and wealth management industries, as well as potential regulatory changes, could impact First Western's ability to maintain its market share and profitability. The company's reliance on mortgage banking activities also makes it vulnerable to fluctuations in the housing market and interest rate environment.
First Western has been facing challenges over the past couple of years due to the fast-changing and long-inverted yield curve environment, making it a challenging period for banks in their niche.
Outlook and Guidance
Despite the challenges faced by the banking industry in recent years, First Western has demonstrated its ability to navigate through various economic cycles. The company's focus on wealth management, coupled with its disciplined approach to lending, has allowed it to generate consistent financial results and create value for its shareholders.
Looking ahead, First Western expects to see continued improvement in their financial performance in 2025. The company sees a number of catalysts that should contribute to their improved financial performance, including:
- Higher level of loan growth
- Continued expansion in net interest margin
- Redeployment of cash from sale of OREO properties into interest-earning assets
- More robust business development activities in Wealth Management
- Increased operating leverage from growing revenues while maintaining disciplined expense control
First Western expects that the positive trends they are seeing in various areas of their business should result in steady improvement in their financial performance and further value creation for shareholders in 2025 and the coming years.
First Western's management team has outlined several key priorities, including continued growth in its Wealth Management segment, further enhancement of its deposit franchise, and selective expansion into new markets within its existing geographic footprint. The company's strong capital position and ample liquidity also provide it with the flexibility to pursue strategic acquisitions that complement its business model.
Overall, First Western Financial's unique private banking approach, diversified revenue streams, and prudent risk management make it an intriguing investment opportunity for those seeking exposure to a well-positioned regional bank in the Western United States.