First Western Financial - Earnings Call - Q4 2024

Executive Summary

• Q4 delivered sequential operating improvement: diluted EPS rose to $0.28 from $0.22 in Q3, supported by 8.3% q/q growth in net interest income and 13 bps NIM expansion to 2.45%.
• “Gross revenue” (non‑GAAP) increased 4.6% q/q to $23.8M; efficiency ratio improved ~425 bps q/q to 80.7% on higher NII and expense discipline despite a $1.1M OREO write-down (≈$0.08 EPS drag).
• Credit trends improved: NPAs fell to 1.68% of assets (from 1.79% in Q3), NPLs declined to $13.1M; the largest OREO property is under contract with expected 1Q25 close, a catalyst to redeploy cash into interest‑earning assets.
• Deposits increased modestly q/q and average deposits rose 4% q/q; deposit costs continued to fall (spot cost of deposits exited Q4 at ~3.05%), positioning for further NIM expansion in 2025 even without rate cuts, per management.
• Wall Street consensus (S&P Global) for Q4 2024 was unavailable at query time; beats/misses cannot be assessed and should be monitored post‑print (we will track once available).

What Went Well and What Went Wrong

What Went Well

• NIM expansion and NII growth: NIM rose to 2.45% from 2.32% in Q3 (December spot ~2.47%); NII grew 8.3% q/q as deposit costs fell faster than asset yields.
• Fee momentum in insurance: Record risk management & insurance fees of $1.14M (2x y/y) offset seasonal mortgage softness; management sees this as a lever to restore fee/NII balance over time.
• Credit and balance sheet progress: NPLs fell to $13.1M and NPAs to 1.68% of assets; largest OREO property under contract for an early‑February close, enabling redeployment into earning assets.
  • CEO: “We…had another quarter of immaterial charge-offs…[and] continued to make progress on resolving the large nonperforming relationship…the largest…is now under contract for sale”.

What Went Wrong

• OREO write-down: $1.1M OREO write-down from updated appraisals pressured expenses and EPS by ~8c in Q4.
• Mortgage seasonality and rates: Higher rates and typical Q4 seasonality drove a 35% decline in mortgage lock volume q/q, reducing mortgage gains.
• Expense level still elevated: Non‑interest expense rose 5.5% q/q to $20.4M (incl. OREO charge); while management targets ~$20M quarterly opex in 2025, this is higher than the ~$19.5M indicated previously.

Transcript

Operator (participant)

Welcome to First Western Financial's Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To participate, you will need to press Star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press Star 11 again. Please be advised that today's conference is being recorded. Now, it's my pleasure to turn the call over to Tony Rossi. Please proceed.

Tony Rossi (Head of Investor Relations)

Thank you, Carmen. Good morning, everyone, and thank you for joining us today for First Western Financial's Fourth Quarter 2024 Earnings Call. 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. We will use a slide presentation as part of our discussion this morning. If you have not done so already, please visit the Events and Presentations page of First Western's Investor Relations website to download a copy of the presentation. 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.

These factors are discussed in the company's SEC filings, which are available on the company's website. 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. 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 contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP and non-GAAP measures. And with that, I'd like to turn the call over to Scott.

Scott Wylie (Chairman and CEO)

Thanks, Tony, and good morning, everybody. As expected, during the fourth quarter, we generated a higher level of profitability as a result of the positive trends in many areas of the business, including generating growth in loans and deposits while keeping our loan-to-deposit ratio in the mid-90% range and maintaining disciplined expense control. We continue to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria. However, as a result of the additions we've made to our banking team over the past several quarters, we saw a higher level of loan production in the fourth quarter, which was our highest level of loan production of any quarter in 2024.

We also continue to have success in our deposit-gathering efforts, adding new clients and expanding relationships with existing clients that resulted in deposit inflows that more than offset the seasonal outflows we typically see in the fourth quarter. We were also able to successfully lower our deposit costs, which contributed to the expansion we saw in the net interest margin. We saw generally positive trends in asset quality during the fourth quarter, resulting in a decline in our NPAs to total assets, and we had another quarter of immaterial charge-offs. We've also continued to make progress on resolving the large non-performing relationship where we had several properties as collateral. The largest of those properties is now under contract for sale, and we expect the transaction to close in the first quarter. We're also seeing a good level of interest in other properties that are currently being marketed.

As a result of our stronger financial performance and balance sheet management strategies, we had a further increase in our tangible book value per share in the quarter. Moving to slide four, we generated net income of $2.7 million, or $0.28 per diluted share in the fourth quarter, both increased from the prior quarter. We had a $1.1 million write-down in OREO from new appraisals that negatively impacted EPS by $0.08 in the fourth quarter. With our prudent balance sheet management, our tangible book value per share increased by 1.6% this quarter. Now, I'll turn the call over to Julie for some additional discussion of our balance sheet and trust and investment management trends. Julie?

Julie Courkamp (COO)

Thanks, Scott. Turning to slide five, we'll look at the trends in our loan portfolio. Our loans held for investment increased $42 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production but saw an increase in loan production, which was driven by a higher level of productivity from the additions we made over the last several quarters to our banking team. New loan production was $94 million in the fourth quarter, up from $83 million in the third quarter. 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 also saw an increase in CRE loan demand as borrowers are looking to take advantage of lower property valuations.

Essentially, all of the new CRE loan production was owner-occupied, which is what we typically focus on. We continue to be disciplined, and we are maintaining our pricing criteria. This resulted in the average rate on new production being 7.44% in the quarter, which was higher than the average rate on our payoffs, which resulted in the turnover in our loan portfolio being accretive to our average yield on loans. Moving to slide six, we'll take a closer look at our deposit trends. Our total deposits increased $11 million from the end of the prior quarter. The increase is largely attributed to an expansion of existing client relationships. This more than offsets the typical seasonal runoff that we see in non-interest-bearing deposits during the fourth quarter, which typically starts to build back up again as we move through the year.

On an average basis, our deposits were $96 million, or 4% higher in the fourth quarter than in the prior quarter. Turning to trust and investment management on slide seven, we had a $145 million decrease in our assets under management in the fourth quarter, primarily attributed to net withdrawals and lower market values during the fourth quarter. During 2024, our AUM increased more than 8% due to both new client additions and market performance. Now, I'll turn the call over to David for further discussion of our financial results. David?

Scott Wylie (Chairman and CEO)

Thanks, Julie. Turning to slide eight, we'll look at our gross revenue. Our gross revenue increased 4.8% from the prior quarter, primarily due to an 8.3% increase we achieved in our net interest income. Now, turning to slide nine, we'll look at the trends in net interest income and margin. Our net interest income increased 8.3% from the prior quarter, or 33% annualized, due to an increase in average interest-earning assets and expansion in our net interest margin. Our NIM increased 13 basis points from the prior quarter to 2.45%. This was due to a reduction in our cost of deposits, which was larger than the decline we had in our average yield on interest-earning assets. While we expect to benefit from rate cuts, we are not solely reliant on rate cuts to see expansion in our NIM going forward.

Now, turning to slide ten, our non-interest income decreased by approximately $500,000 from the prior quarter. This was due to a decline in gain-on-sale of mortgage loans resulting from the seasonal decline we see in mortgage demand during the fourth quarter. This was partially offset by a record quarter of risk management and insurance fees of $1.1 million, which was double the level we generated in the fourth quarter of the prior year. In addition, our 2024 trust and investment management fees increased by $400,000, or 2.2% year over year. Now, turning to slide eleven and our expenses. Our non-interest expense was up $1 million from the prior quarter, which was entirely attributable to a $1.1 million write-down of OREO following the receipt of an updated appraisal during the quarter.

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. Now, turning to slide 12, we'll look at our asset quality. As Scott indicated earlier, we saw generally positive trends in the loan portfolio in the fourth quarter, with a decline in non-performing assets and another quarter of immaterial charge-offs. With the positive overall trends we had in asset quality and improved economic forecasts, we had a small release of reserves, which resulted in a negative provision for loan losses in the quarter. Now, I'll turn it back to Scott. Thanks, David. Turning to slide 13, I'll wrap up with some comments about our outlook for 2025.

While we're pleased that we've been able to improve our financial performance over the past few quarters, we're still not at the level of performance that we target, but we expect to make continued improvement in our financial performance in 2025. Overall, economic activity continues to be healthy in our market, and with the strength of our balance sheet and the franchise we've built, we see good opportunities to capitalize on market disruption and challenges being faced by competing banks to add new clients and banking talent. We'll continue to prioritize prudent risk management and conservative underwriting criteria, but we are seeing some increase in our loan pipelines as the new bankers we've had in the past several quarters increase their level of productivity. Deposit gathering will remain a top priority throughout the organization as we work to further reduce our loan-to-deposit ratio.

With the successful repositioning of our balance sheet and the increased liquidity that we have in our lower loan-to-deposit ratio, we believe we're well positioned to generate a higher level of loan growth in 2025 as loan demand increases while maintaining our disciplined pricing and underwriting criteria. We see a number of catalysts that we expect to contribute to our improved financial performance in 2025. These include a higher level of loan growth, continued expansion in our net interest margin, the redeployment of cash generated from the sale of our OREO properties into interest-earning assets, more robust business development activities in our wealth management business as a result of changes we made in this business during 2024, and more operating leverage as we increase revenues while maintaining disciplined expense control.

Should the environment become more favorable for mortgage demand in 2025, then we should benefit from the MLOs we added during 2024 and generate a higher level of gain-on-sale of mortgage loans. The positive trends we're seeing in a number of key areas are expected to continue, which we believe should result in steady improvement in our financial performance and further value being created for our shareholders in 2025 as well as in the coming years. With that, we're happy to take your questions. Carmen, can you please open up the call?

Operator (participant)

Thank you so much. And as a reminder to ask the question, simply press star 11 on your telephone and wait for your name to be announced. To remove yourself, press star 11 again. Please stand by for our first question. And it's from the line of Brett Rabatin with Hovde. Please proceed.

Brett Rabatin (Analyst)

Hey, good morning, everyone.

Scott Wylie (Chairman and CEO)

Morning, Brett.

Brett Rabatin (Analyst)

Morning.

Scott Wylie (Chairman and CEO)

wanted just to start off on the large OREO property. Just to be clear, the ranch is under contract and I was just trying to, you know, I was a little surprised if that's the case, just given that the winter selling season in Colorado is usually a little tough. I was just hoping for some more color around the sale of the large OREO property and if that was the write-down on OREO this quarter or if that was one of the houses. We have three properties left in the resolution of that Aspen problem loan. One of them is the Three Meadows Ranch, which is a very large and unusual property outside of Basalt, which is just down valley from Aspen. Actually, each of these three properties is a pretty unique property.

You know, none of them are, you know, production homes in a neighborhood, right? These are all very, very unique properties. And so, you know, in the Aspen market, it's just not very predictable of, you know, who's going to show up when. And I would say since we've got control of these properties, we've had lots of showings and lots of interest in all three of them. Towards the end of the fourth quarter, we had a couple of strong bidders show up for the ranch, and there was a lot of activity that ended up with us accepting a contract from one of them. We haven't really talked about the price, and I would be reluctant to prior to the closing, which is scheduled for early February, but I would tell you a very strong price that will not involve a write-down on that property.

We're really pleased with the buyer and what that's going to do for that ranch in the future and the community. So it's a really very happy ending to that part of the story, assuming it happens. Like, I don't want to get out in front of that. So that's that one, Brett. The other two, you know, are a lot smaller dollar amounts. You know, the ranch was, you know, in the high twenties on our books and our asking price. The other two are kind of $5 or $6 million. And so, you know, completely different price point. They are both on the river in Basalt, and so they're very desirable, unusual properties. They're very different from each other. We've had, I would say, steady interest since we started marketing those. We've had a number of kind of low-ball offers. We've had a few serious offers.

Nothing really that we felt we should jump on yet, and you know, I think odds are that we're probably not going to sell those during, you know, the winter season, but you never know. I mean, I would have said the ranch won't sell till the summer either, and there it is, so we'll have to see what happens with the other two, but we're really happy with the outcome on the ranch and hope that that closes on schedule, which, as far as we know, it's 100% on track to do.

Brett Rabatin (Analyst)

Okay. That's helpful color on that. And then maybe for Julie or David, just the margin outlook from here with or without rate cuts and how you think the margin progression will trend through the year and how much maybe you might have repricing in the loan portfolio from the fixed side.

David Weber (CFO)

Yeah, Brett. You know, we feel that we do have the opportunity to continue to expand our margin through 2025 without rate cuts. Obviously, rate cuts will certainly benefit that additionally. As far as the rate cut standpoint, I think our previous comments on roughly $1 million of annualized NII increase per a 25 basis point reduction, I think that's still a fair assumption. And then without rate cuts, you know, we have the opportunity, when we look at the loan portfolio, to continue to turn that over as we bring on new loans at a higher level than our average yield on the loan portfolio. And then on the deposit portfolio, it certainly needs stabilized DDAs. You know, we're focused on seeing some growth in 2025 in DDAs.

So if we can achieve that growth in DDAs, obviously that improved mix will help on our average cost of funds as well. So that's how we're thinking about it for 2025.

Brett Rabatin (Analyst)

Okay, and then, David, just to follow up on that, you know, any thoughts on the margin progression throughout the year in terms of basis points, and maybe if you had it for December?

David Weber (CFO)

For the month of December, we are at 247. You know, like I said, we are expecting NIM expansion. I think there's just a number of variables at play there that could certainly impact that, whether it's quicker or slower than our expectations. But yeah, we are thinking that we will continue to see NIM expansion in 2025.

Brett Rabatin (Analyst)

Okay. Fair enough. Appreciate all the color, guys.

Operator (participant)

Thank you. One moment for our next question. And it comes from the line of Woody Lay with KBW. Please proceed.

Woody Lay (Analyst)

Hey, thanks for taking my questions. Wanted to start on fees and especially the risk management insurance fees. It was a really strong quarter there. Any color on what drove the increase in the quarter?

Scott Wylie (Chairman and CEO)

Sure. So one of the efforts we've been making this year, Woody, is to strengthen our what we call PTIM, Planning, Trust, and Investment Management offering, including insurance and retirement services. And so we had expectations this year that we would be able to grow that insurance business. And kind of we were holding our breath by the fourth quarter because we weren't really seeing the progress that we were hoping for during the year. But obviously, that stuff turns out to be very seasonal anyways. It tends to happen in the latter part of the year. And it was a very strong fourth quarter for us this year. Like David talked about, it was a record quarter. I hope that this is an important part of our effort to get our fee income back in line where it's historically been.

You know, we've been able to operate First Western over the years at pretty close to a 50% split between fee income and net interest income. And that number came down as we've grown the bank post-IPO. You know, we've tripled the size of the bank. And so the fee income really has not kept up with that. And I think we were down kind of 24%-25% a couple of quarters ago, I think 27.7% in Q4. So I'm hoping that this is an indicator of things to come in the future. I don't know that we'll continue to have record quarters every quarter in insurance. I would say that's very unlikely. But another strong year next year, another strong quarter, fourth quarter next year, I would say that's where we're working towards and targeting and building towards.

You know, that's a small part of the overall PTIM fee business. And, you know, that grew, the PTIM business without insurance grew 2% year over year. And I'd like to see that really accelerate and grow and become a meaningful part of our fees. And then it would sure be helpful if mortgages would wake up. You know, I think the mortgage industry has just gotten clobbered this year. And we had signs of hope in Q3 that really did not pay out in Q4, you know, which is seasonally slow anyways. But, you know, Q4 was pretty disappointing on the mortgage side.

Woody Lay (Analyst)

Yeah. Yeah. I mean, mortgage activity just continues to be a little slow. Does that impact your thoughts on hiring in 2025 and hiring additional MLOs?

Scott Wylie (Chairman and CEO)

You know, we had some success with that this year, which, again, doesn't show up anywhere, right? I mean, we wanted to bring in a number of new MLOs. We did that successfully. They've been producing at reasonable levels given the market. We actually have opened two new production offices in 2025. So those 2024, I mean, those expenses are in there. And I think some of the results we saw in Q3 were reflecting that. Those were for some of the new folks too. You know, the question is what's going to happen in 2025 with that business. And I think it was slightly positive for us. We made money in mortgages in 2025. We outperformed plan by a little bit. So we're definitely high-fiving the team on, you know, hanging in there and performing well compared to the industry.

But, you know, we'd like to see that normalize and really get back to be a nice contributor for us in our overall financial picture, and I would tell you, you know, we are seeing signs of life in January. We had a really good week last week after a pretty quiet first couple of weeks of the year, so, you know, hopefully we'll see that pick up certainly as we get out of the seasonal slow period, which will be, you know, the first quarter still.

Woody Lay (Analyst)

Got it. And then sorry if I, yeah, I just wanted to check with Julie if she wants to add on mortgages. She looks over that day to day and pays a lot of attention to it. Sorry, Woody, go ahead. Yeah. And then I just wanted to follow up on expenses. Sorry if I missed it, but is there any run rate you're expecting for the first quarter of 2025?

Scott Wylie (Chairman and CEO)

Yeah. So we have worked hard to keep expenses flat over the last, you know, year or so. And we were trying to do that again in 2025. You know, there's just a lot of inflationary pressure kind of everywhere in our business. And so, you know, we've had efficiency initiatives. We've had productivity initiatives. We've driven more accountability. We've really asked people to step up and, you know, drive more productivity. And even with that, I think it's going to be hard to hold the line on $19.5 million is kind of the target we've talked about in 2025. So, you know, we're thinking in terms of guidance, I think $20 million is probably a reasonable guesstimate for 2025 quarterly operating expenses. You know, hopefully we can outperform that. You know, maybe there'll be some bad surprises. I don't know, but that's, I think, a reasonable starting point.

Woody Lay (Analyst)

Perfect. Thanks for taking my questions.

Operator (participant)

Thank you so much. One moment for our next question, and it comes from the line of Matthew Clark with Piper Sandler.

Matthew Clark (Analyst)

Hey, good morning, everyone.

Scott Wylie (Chairman and CEO)

Morning, Matt.

Matthew Clark (Analyst)

Just on the OREO, just want to confirm that the marks on the ranch are now kind of fully reflected in the fourth quarter relative to sale. And then as a follow-up, the two homes that you have out there, just give us a sense for the mark you've incurred on those two and your comfort level, kind of being able to clear those houses at that level.

Scott Wylie (Chairman and CEO)

So, I have our controller in here give me the stink eye because she likes to remind me we have to carry these things at the lower cost or market. And I keep telling her, you know, the market could be better. And she's like, lower cost or market. So where we are on that is we're carrying the ranch below the price that we have an under contract for. So that would be a first quarter impact. And then the other two properties, we have to appraise them annually. David said in his comments that we got new appraisals in the quarter. We actually didn't. We got them on January 1st. And I'm talking to county saying, really, we're going to write these down at Q4 because we get the report, the updated appraisals. But I mean, those are the rules.

So we follow the rules and those are the new appraisals. I believe that these properties are very unusual. And, you know, if we find the right buyer, we're going to get a good bid on those. If we don't, you know, we'll have to, you know, look at the carrying costs and hopefully get those off the books here in 2025. But that's how the accounting works.

Matthew Clark (Analyst)

And so those updated appraisals on January 1 were reflected in 4Q?

Scott Wylie (Chairman and CEO)

Correct.

Matthew Clark (Analyst)

Okay. And then.

Scott Wylie (Chairman and CEO)

That's right.

Matthew Clark (Analyst)

Then back to the margin, do you have the spot rate on deposits at the end of December?

David Weber (CFO)

Yeah, it was 3.05%.

Matthew Clark (Analyst)

Okay. And then I think when we met a couple of months ago, and updated numbers, we were kind of trending toward a 273 margin for the year. But that was before, I think, we knew the ranch might be sold, you know, before mid-year. And knowing you're going to be able to redeploy those proceeds, I mean, do you feel better about that 273 for the year on average, kind of exiting the year obviously higher than that? But any updated thoughts on kind of where you might exit the year based on your kind of baseline assumptions on the margin?

Scott Wylie (Chairman and CEO)

Let me just start by your comment about the benefit to NIM of taking, you know, $20-some million in non-earning assets and turning it into productive earning assets is right on. I mean, that's a material number. And we're really pleased to be able to have that for the bulk of 2025. Now, do you want to make any comment about the 273? I think that is in the ballpark of what we're thinking for Q4 for December.

David Weber (CFO)

Yeah, I think that's still achievable. Like I said, we've got to see improved loan production, and, you know, we need to get the right behaviors on our DDAs as well, but yeah, I think that can still be achievable.

Matthew Clark (Analyst)

And that's for the year up, just to clarify, not exiting the year.

Scott Wylie (Chairman and CEO)

Exiting the year, right, David?

David Weber (CFO)

Exiting, yep. Yeah. Yep. That won't be the year.

Matthew Clark (Analyst)

Exiting. Okay.

Scott Wylie (Chairman and CEO)

I do think, Matt, that historically, First Western has produced a net interest margin of some number like 315, 320, and, you know, I think as we see a normalized economic environment with a positively shaped yield curve and all the dust settles on all this stuff we've been through over the last couple of years, we're going to get back there. I don't see any reason we wouldn't. That's not going to happen in 2025. We'll continue progress in that direction as we saw in the latter half of last year.

Matthew Clark (Analyst)

Yep. Great. And then last one for me, just on the non-interest-bearing deposits. I think on average they were up a little bit, but at the end of the year, they dropped pretty meaningfully. Just any color as to, you know, any lumpiness there or expectation that some of that will come back?

Scott Wylie (Chairman and CEO)

Yeah. So we did a close look at why it came up at the end of Q3 and why it came down in Q4. And, you know, there were some one-time things at the end of Q3 that are normal for us. You know, clients that have liquidity events, they deposit at the bank. And then they use it for something. In Q4, I thought that average balance number was really important for us to see average deposits up 4% in the quarter was really positive. And I personally don't put a lot of weight on, you know, the quarter-end number because it does bounce around. Q4 has a particular, you know, really, there's two months in the year where we see odd effects. In tax season, we'll see some runoff.

And then at year end, we see runoff because the operating accounts for our clients, they'll go and pay bonuses and they pay distributions out. And those are coming out of their operating accounts, which are DDAs typically. And so you do see that in Q4, especially in the latter half of December, very typical for us.

Matthew Clark (Analyst)

Okay. Thank you.

Operator (participant)

Thank you. One moment for our next question. And it comes from the line of Bill Dezellem with Tyson Capital Group. Please go ahead.

Julie Courkamp (COO)

Thank you. I had a couple of questions. First of all, Scott, you had referenced loan activity picking up after the election. Would you please talk a little bit about the loan pipeline and the overall discussions that you've been having since the election? And if you are sensing that there is a mindset shift that's taking place, favorable or unfavorable?

Scott Wylie (Chairman and CEO)

Yeah. I mean, there's a lot of factors in loan demand. And one of them is the mood of our type of client. And when, you know, people are feeling confident and optimistic about the economic or political outlook, that's going to be good for loan demand in our market and with our niche. So definitely we're seeing that. I would say with other banks not really wanting to do investor commercial real estate, we've seen a lot more demand for that. We don't really want to do it either. Our appetite on that is full. And so, as both Julie and David mentioned in their comments, you know, we've really been focused on owner-occupied commercial real estate, which is what we do anyway, but that's really been the focus for us in the latter part of 2024 when we're looking at commercial real estate.

The other really positive trend is we had been focused here last couple of years, I would say, on building more C&I demand, and that has really played out nicely in Q4, and we were looking, we did our annual or our monthly senior management meeting yesterday, and we're talking about the loans that are in the pipeline ready to close here in Q1, and the bulk of those are either C&I or cash or marketable securities secured, so it's really great to see that coming out and not, you know, reliance on CRE or especially non-investor CRE, so I think, given the banks, their competition continues to be very tough. We talked several times in our comments today about, you know, being strict on rate and terms, and I think, you know, the team's doing a good job with the discipline there.

In spite of that, you know, we had a really strong quarter in Q4 and a strong pipeline going into 2025.

Julie Courkamp (COO)

And so just to pick up on that, so the loan pipeline increased, is that what we're hearing you say, Scott?

Scott Wylie (Chairman and CEO)

Significantly. And I think the right kind of loans, good quality relationship loans with a strong commercial or investor bias.

Julie Courkamp (COO)

Okay. That's great. And then I did, you asked a great segue into the C&I. So C&I loans versus on the books versus a year ago were down over $100 million. And so my question was going to be, is that intentional or a function of the borrower's needs? But given the strength that you just highlighted in the C&I pipeline, maybe it'd be more appropriate to ask kind of why was the C&I book down over the last year? And then what's in process of changing and kind of what's the inflection point we're dealing with now?

Scott Wylie (Chairman and CEO)

Yeah, I think some of the problem loan that we identified from our friends in Aspen was a C&I loan. So, I mean, that's a big part of that. And I think some of this is just, you know, the ups and downs of what we see in commercial lending. I actually saw, I think, increased line utilization in Q4. Julie, you were talking about that the other day, I thought, so. But I don't think there's anything big to read into the numbers there, Bill, other than just the ins and outs of our loan clients. I do think what I said before is true, which is when you look at the pipeline of what we're seeing now, the focus that we've had on C&I, we're seeing more demand.

When we talk about pipeline, I'm talking specifically about things coming out of the pipeline and into closed loans now.

Julie Courkamp (COO)

Scott, just to make sure that I'm understanding correctly, that the increase in C&I activity that you are seeing in terms of new loans being put on the books is a function of both the efforts, the concerted efforts that you all have been making over the last few quarters coming to fruition along with a more confident backdrop by your customers. It's a combination of both of those. Is that correct?

Scott Wylie (Chairman and CEO)

I think that's right. Yep.

Julie Courkamp (COO)

Okay. Great. Thank you for taking the questions.

Scott Wylie (Chairman and CEO)

Yep. Thank you, Bill.

Operator (participant)

Thank you so much, and as I see no further questions, thank you. I will turn it back to management for final remarks.

Scott Wylie (Chairman and CEO)

Great. Well, thanks everybody for dialing in today. You know, we believe that this business can and will deliver attractive shareholder returns as it has in the past and is now back trending toward. You know, I started my first bank in 1987, and so I've seen a number of rate cycles over these years, and none was as fast changing or as long of an inverted yield curve as what we've seen here over the last few years in this market. You know, this made for a challenging couple of years for banks in our niche, and First Western has proven to be up to these challenges. As we report in the past couple of quarters now, we've seen really positive underlying trends that are now playing out in our numbers with, I think, much more to come.

With some modest growth in 2025, improved margins, fewer non-earning assets, improved fee income, and limiting expense growth, all those should produce nice additional operating leverage and continued earnings gains. We believe this shift to offense at First Western will make 2025 a really good year for our stakeholders, including our shareholders. So we really appreciate the support we've had and appreciate people taking the time to dial in and speak with us today. Thanks, everybody.

Operator (participant)

And thank you, everyone, for participating in today's conference. And you may now disconnect.