Market Overview

First Western Reports Second Quarter 2019 Financial Results

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Second Quarter 2019 Summary

  • Net income available to common shareholders of $1.4 million in Q2 2019, compared to net income available to common shareholders of $0.5 million in Q2 2018
  • Diluted EPS of $0.18 in Q2 2019, compared to $0.21 in Q1 2019, and $0.08 in Q2 2018
  • Adjusted net income available to common shareholders, excluding goodwill impairment charge, of $2.6 million in Q2 2019, an increase from Q2 2018 of 432.1%
  • Adjusted diluted EPS, excluding goodwill impairment charge, of $0.33 for Q2 2019, an increase from Q2 2018 of 312.5% 
  • Q2 2019 financial results include a $1.6 million goodwill impairment charge
  • Gross loans, excluding loans held for sale, of $939.4 million, a 3.5% annualized increase from Q1 2019 and an 11.5% increase from Q2 2018
  • Average total loans increased to $966.5 million in Q2 2019, a 16.0% annualized increase from Q1 2019
  • Total deposits of $1.0 billion, an 11.1% annualized increase from Q1 2019 and a 19.1% increase from Q2 2018
  • Efficiency ratio of 78.2%, compared to 83.2% in Q1 2019 and 88.8% in Q2 2018
  • Authorized stock repurchase program and opened office in Vail Valley

DENVER, July 25, 2019 (GLOBE NEWSWIRE) -- First Western Financial, Inc., ("First Western" or the "Company") (NASDAQ:MYFW), today reported financial results for the second quarter ended June 30, 2019.

Net income available to common shareholders was $1.4 million, or $0.18 per diluted share. This compares to $1.6 million, or $0.21 per diluted share, for the first quarter of 2019, and $0.5 million, or $0.08 per share, for the second quarter of 2018, which included $0.6 million of preferred stock dividends. The preferred stock was redeemed in the third quarter of 2018. Financial results for the second quarter of 2019 include a $1.6 million goodwill impairment charge related to the announced sale of the Company's Los Angeles-based fixed income team (a component of the Company's Capital Management segment), which negatively impacted earnings per diluted share by 15 cents. For the second quarter of 2019, adjusted net income, excluding the goodwill impairment charge, available to common shareholders was $2.6 million, or $0.33 per diluted share.

"From an operating perspective, we delivered our strongest quarter since our initial public offering in 2018," said Scott C. Wylie, CEO of First Western. "We continue to successfully attract new clients, resulting in further increases in loans, deposits and assets under management, while our commitment to the mortgage business has put us in good position to capitalize on the increase in demand we are seeing in our markets. As a result, we delivered on our revenue growth, operating efficiency and earnings ramp story. We continue to deliver on strategies to optimize our business model and investment platform, which led to our decision to sign an agreement to sell our Los Angeles-based fixed income team. Although this sale agreement resulted in a goodwill impairment charge in the second quarter, we expect that it will result in a significant increase in tangible book value in the third quarter of 2019 and free up capital and resources that we believe can be more profitably deployed in core areas of our business. 

"We expect the positive trends we are experiencing in the business to continue and drive further improvement in our level of profitability in the second half of the year. In addition, with the implementation of our stock repurchase program, we believe we have another catalyst for creating shareholder value going forward," said Mr. Wylie.

                     
    For the Three Months Ended  
    June 30,     March 30,      June 30,  
(Dollars in thousands, except per share data)   2019     2019     2018  
Earnings Summary                        
Net interest income   $ 7,960     $ 7,971     $ 7,577  
Less: (recovery of) provision for credit losses     (78 )     194        
Total non-interest income     8,586       6,976       6,892  
Total non-interest expense(1)     14,659       12,602       13,084  
Income before income taxes     1,965       2,151       1,385  
Income tax expense     561       524       337  
Net income     1,404       1,627       1,048  
Preferred stock dividends                 (562 )
Net income available to common shareholders     1,404       1,627       486  
Adjusted net income available to common shareholders(2)     2,586       1,627       486  
Basic and diluted earnings per common share     0.18       0.21       0.08  
Adjusted basic and diluted earnings per common share(2)   $ 0.33     $ 0.21     $ 0.08  
                     
Return on average assets     0.50 %     0.57 %     0.41 %
Adjusted return on average assets(2)     0.91       0.57       0.41  
Return on average shareholders' equity     4.61       5.50       3.99  
Adjusted return on average shareholders' equity(2)     8.50       5.50       3.99  
Return on tangible common equity(2)     5.68       6.88       3.57  
Adjusted return on tangible common equity(2)     10.51       6.88       3.57  
Net interest margin     3.10       3.03       3.29  
Efficiency ratio(2)     78.24 %     83.15 %     88.84 %


(1)   Includes non-operating goodwill impairment charge of $1.6 million for the three months ended June 30, 2019.
(2)   Represents a Non-GAAP financial measure. See "Reconciliation of Non-GAAP Measures" for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.

Operating Results for the Second Quarter 2019

Revenue

Gross revenue (total income before non-interest expense, plus provision for credit losses) was $16.5 million for the second quarter of 2019, compared to $14.9 million for the first quarter of 2019. The increase in revenue was primarily driven by a $1.6 million increase in non-interest income, due to an increase in mortgage activity.

Relative to the second quarter of 2018, gross revenue increased $2.1 million from $14.5 million. The increase was primarily attributable to a $1.7 million increase in non-interest income, due to an increase in mortgage activity.

Net Interest Income

Net interest income for the second quarter of 2019 was $8.0 million, materially unchanged from the first quarter of 2019.

Relative to the second quarter of 2018, net interest income increased 5.1% from $7.6 million. The increase in net interest income from the second quarter of 2018 was primarily driven by higher average loan balances.

Net Interest Margin

Net interest margin for the second quarter of 2019 increased to 3.10% from 3.03% in the first quarter of 2019. The increase was primarily due to a 15 basis point increase in the average yield on interest earning assets, from 4.20% to 4.35%, driven by higher average loan yields and a favorable shift in the mix of earning assets.

Relative to the second quarter of 2018, the net interest margin decreased from 3.29%, primarily due to 46 basis point increase in the average cost of funds, which was partially offset by a 22 basis point increase in the average yield on interest earning assets.

Non-interest Income

Non-interest income for the second quarter of 2019 was $8.6 million, an increase of 23.1% from $7.0 million in the first quarter of 2019 and 24.6% from $6.9 million in the second quarter of 2018. The increase was primarily attributable to higher net gains on mortgage loans sold as a result of a higher volume of mortgages sold in the second quarter of 2019.

Non-interest Expense

Non-interest expense for the second quarter of 2019 was $14.7 million, an increase of 16.3% from $12.6 million for the first quarter of 2019. Non-interest expense for the second quarter of 2019 included a $1.6 million goodwill impairment charge related to the sale of the Company's Los Angeles-based fixed income team. Excluding the goodwill impairment charge, the increase was primarily attributable to an increase in professional services fees related to the announced sale of the Los Angeles-based fixed income team, the 2019 proxy filing, and higher audit related fees associated with internal controls and the preparation for the CECL implementation.

Excluding the goodwill impairment charge, non-interest expense was consistent with the second quarter of 2018.

The Company's efficiency ratio was 78.2% in the second quarter of 2019, compared with 83.2% in the first quarter of 2019 and 88.8% in the second quarter of 2018.

Income Taxes

The Company recorded income tax expense of $0.6 million for the second quarter of 2019, representing an effective tax rate of 28.5%, compared to 24.4% for the first quarter of 2019. The increase is related to the vesting of Restricted Stock Units during the three months ended June 30, 2019.

Loan Portfolio

Gross loans, excluding mortgage loans held for sale, totaled $939.4 million at June 30, 2019, compared to $931.2 million at March 31, 2019 and $842.6 million at June 30, 2018. Average total loans increased in the quarter by an annualized 16.0% from the first quarter of 2019 to $966.5 million. The increase in gross loans from March 31, 2019 was primarily attributable to growth in the residential mortgage loan portfolio and loans secured by cash, securities and other. Higher paydown activity was noted in the second quarter of 2019 compared to the first quarter of 2019 and included the reduction of special mention and substandard credits.

Deposits

Total deposits were $1.0 billion at June 30, 2019, compared to $978.1 million at March 31, 2019, and $843.7 million at June 30, 2018. The increase in total deposits from March 31, 2019 was due primarily to an increase in NOW accounts related to the addition of new clients.

Assets Under Management

Total assets under management increased by $188.0 million during the second quarter to $5.97 billion at June 30, 2019, compared to $5.78 billion at March 31, 2019, and $5.42 billion at June 30, 2018. The increase was primarily attributed to new accounts added in the second quarter of 2019 contributing $161.5 million in new assets.

Credit Quality

Non-performing assets totaled $13.5 million, or 1.13% of total assets, at June 30, 2019, down from $19.4

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