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First Western Financial Inc (MYFW)·Q4 2024 Earnings Summary

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 .

Financial Results

Note: “Gross revenue” is a non‑GAAP measure defined by the company.

MetricQ4 2023Q3 2024Q4 2024
Diluted EPS ($)($0.34) $0.22 $0.28
Gross Revenue (non‑GAAP, $M)$22.505 $22.749 $23.787
Net Interest Income ($M)$16.331 $15.568 $16.908
Non‑interest Income ($M)$6.081 $6.972 $6.459
Net Interest Margin (%)2.37 2.32 2.45
Efficiency Ratio (%)81.21 84.98 80.74
ROAA (%, annualized)(0.45) 0.30 0.38
ROAE (%, annualized)(5.17) 3.43 4.39

Revenue mix and select fees:

ComponentQ4 2023Q3 2024Q4 2024
Trust & Investment Mgmt Fees ($M)$4.705 $4.728 $4.660
Net Gain on Mortgage Loans ($M)$0.379 $1.451 $0.377
Risk Mgmt & Insurance Fees ($M)$0.544 $0.367 $1.139

Key balance sheet and credit KPIs (period end unless noted):

KPIQ4 2023Q3 2024Q4 2024
Loans HFI ($B)$2.540 $2.387 $2.429
Deposits ($B)$2.529 $2.503 $2.514
Non‑interest‑bearing Deposits ($B)$0.483 $0.474 $0.376
AUM ($B)$6.753 $7.466 $7.321
NPAs ($M) / % Assets$51.125 / 1.72% $52.067 / 1.79% $48.981 / 1.68%
NPLs ($M)$51.125 $15.031 $13.052
ACL / Adjusted Loans (%)0.95 0.79 0.76
Book Value / Sh ($)$25.33 $25.75 $26.10
Tangible BV / Sh ($)$22.01 $22.47 $22.83
FHLB+FRB Borrowings ($M)$125.711 $62.373 $57.038

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Interest Margin (NIM)2025 (trajectory)Expected expansion; Q3 spot NIM 2.40% with tailwinds from lower deposit costs .Expect continued NIM expansion in 2025 even without rate cuts; December 2024 NIM ~2.47%; exiting year around 2.73% seen “achievable” (mgmt) .Clarified/raised visibility
Operating Expenses2025 quarterly~$19.5M run‑rate indication from Q3 commentary .~$20.0M per quarter “reasonable guesstimate” for 2025; management aims to outperform if possible .Raised
OREO Disposition1Q25 eventOREO sales expected to take multiple quarters .Largest OREO ranch under contract; expected close early Feb 2025; carrying value below contract price .Improved visibility
Deposit Costs/BetaNear‑termCost mix shifting favorably; expected to benefit from cuts .Money market beta ~85% on way down; spot deposit cost fell to ~3.05% in Dec; supports NIM expansion .Positive update
Mortgage2025Added MLOs; seasonal swings .Added MLOs and opened production offices; will benefit if demand improves; targeting stronger 4Q25 seasonally .Reinforced

Earnings Call Themes & Trends

TopicQ2 2024 (Q-2)Q3 2024 (Q-1)Q4 2024 (Current)Trend
NIM trajectoryStabilized; +1 bp q/q to 2.35%; June spot 2.36%; expecting H2 expansion .Reported NIM 2.32% with 2.40% spot in Sept; cuts and deposit remix to help .NIM 2.45%; Dec ~2.47%; mgmt expects 2025 expansion even without cuts .Improving
Deposit mix (DDAs)Seasonal Q2 outflows; rebuilding expected H2 .Non‑interest DDAs +19% q/q; spot cost fell to ~3.16% by Q3 end .Avg deposits +4% q/q; spot cost ~3.05% in Dec .Improving
Credit/OREOForeclosed 2 properties; NPAs up but with strong collateral .One problem credit moved to OREO; NPAs 1.79%; clear resolution plan .NPAs down to 1.68%; largest OREO under contract; provision release ($1.0M) .Improving
MortgageProduction/lending improved; new MLOs added .Sept mortgage production highest in 2.5 years; Q3 gains flat overall .Seasonal soft Q4; management sees higher 2025 with added MLOs .Mixed (seasonal)
Talent & hiring14 new front‑office producers in H1; building pipelines .Pipelines rising; deposit pipeline up ~12% q/q .New banking talent cited as driver of loan growth .Improving
TechnologyFoundation rebuild to modernize core and cut costs underway .––Positive (longer‑term)
Capital/Buyback10b5‑1 plan in place; opportunistic repurchases .Limited buybacks (5,501 shares YTD) .Capital ratios higher; TBV/share up; flexibility improving .Stable/Improving

Management Commentary

  • CEO: “We…generated further improvement in…profitability…growth in net interest income…highest level of insurance fees we have ever recorded…strong expense control…[and] positive trends in our asset quality” .
  • CEO (outlook): “We believe…well positioned to deliver improved financial performance in 2025…driven by…loan and deposit growth, net interest margin, non-interest income, and more operating leverage…plus redeployment of cash from OREO sales” .
  • CFO: “We feel…opportunity to continue to expand our margin through 2025 without rate cuts…roughly $1M of annualized NII increase per 25 bps reduction” .
  • CFO (exit rates): “For the month of December, [NIM] was at 2.47%…we will continue to see NIM expansion in 2025” .
  • CEO (deposit costs): “Spot rate on deposits at end of December was 3.05%” .
  • CEO (OREO): “We’re carrying the ranch below the price…under contract…that would be a first quarter impact” .
  • CEO (strategy): “The shift to offense at First Western will make 2025 a really good year…with modest growth, improved margins, fewer non‑earning assets, improved fee income and limiting expense growth” .

Q&A Highlights

  • OREO resolution pathway: Largest ranch property under contract with expected early‑Feb close; carried below contract price; remaining two properties are smaller and may sell post‑winter, timing uncertain .
  • NIM/Deposit costs: December NIM ~2.47%; deposit spot cost ~3.05%; money market beta ~85% on the way down as cuts flow through, supporting 2025 NIM expansion .
  • Expense outlook: Q4 non‑interest expense elevated by OREO write‑down; 2025 quarterly opex “reasonable guesstimate” ~$20M (vs. prior ~$19.5M target) .
  • Loan pipelines: Material increase in C&I and owner‑occupied CRE pipelines; conservative underwriting maintained .
  • Fee income: Record insurance fees; mortgage expected to benefit from additional MLOs if demand improves in 2025 .

Estimates Context

  • S&P Global (Capital IQ) consensus estimates for Q4 2024 were unavailable at the time of query due to provider limits; consequently, we cannot assess beats/misses vs. Street this quarter. We will update when SPGI consensus becomes accessible.

Key Takeaways for Investors

  • NIM inflecting with tangible tailwinds: falling deposit costs (spot ~3.05%), deposit mix improvement, and OREO cash redeployment should support continued NIM expansion through 2025 even absent further cuts; every 25 bps cut adds ~+$1M annualized NII .
  • Credit/capital overhang easing: NPAs and NPLs declined; largest OREO under contract with expected 1Q25 close—catalyst to convert non‑earning assets into loans/securities and lift earnings power .
  • Expense trajectory manageable: OREO write‑down obscured underlying cost control; 2025 opex guided around $20M/quarter with potential operating leverage from revenue growth and tech/process initiatives .
  • Fee diversification: Record insurance fees offset mortgage seasonality—scope to move back toward a more balanced fee/NII mix as Wealth Management initiatives and MLO additions contribute .
  • Deposit franchise strengthening: Average deposits rose 4% q/q; management focused on DDA growth and disciplined pricing; deposit betas indicate room for further cost improvement .
  • Medium‑term setup: With NIM expansion, lower NPAs, and balance sheet repositioning, MYFW appears positioned for sequential EPS improvement in 2025; key watch items are OREO monetization timing and expense discipline .
  • Trading implications: Near‑term stock moves may hinge on confirmation of OREO close and NIM trajectory in Q1 updates; continued insurance fee strength and mortgage green shoots would add upside optionality .