Market Overview

First Western Reports Third Quarter 2019 Financial Results

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Third Quarter 2019 Summary

  • Net income available to common shareholders of $2.4 million in Q3 2019, compared to net income available to common shareholders of $1.4 million in Q2 2019 and $1.4 million in Q3 2018
  • Diluted EPS of $0.30 in Q3 2019, compared to $0.18 in Q2 2019 and $0.19 in Q3 2018
  • Total assets of $1.27 billion at September 30, 2019, representing annualized growth of 27.4%, compared to $1.19 billion at June 30, 2019 and an annualized growth of 16.0%
  • Total assets under management surpassed $6.1 billion at September 30, 2019, an increase of 8.7% from September 30, 2018
  • Average deposits increased $75.1 million from Q2 2019 to Q3 2019
  • Total deposits of $1.1 billion, a 41.3% annualized increase from Q2 2019 and a 26.2% increase from Q3 2018
  • Loan production of $55.4 million in Q3 2019 offset by elevated payoffs of $71.3 million, compared to loan production of $52.6 million and payoffs of $44.7 million in Q2 2019
  • Non-interest income increased 2.4% from Q2 2019 and 32.4% from Q3 2018
  • Sale of Los Angeles-based fixed income team now expected to close during Q4 2019

DENVER, Colo., Oct. 24, 2019 (GLOBE NEWSWIRE) -- First Western Financial, Inc., ("First Western" or the "Company") (NASDAQ:MYFW), today reported financial results for the third quarter ended September 30, 2019.

Net income available to common shareholders was $2.4 million, or $0.30 per diluted share, for the third quarter of 2019. This compares to $1.4 million, or $0.18 per diluted share, for the second quarter of 2019, and $1.4 million, or $0.19 per diluted share, for the third quarter of 2018, which included $0.3 million of preferred stock dividends. The preferred stock was redeemed in the third quarter of 2018.

"We had another good quarter of business development and client acquisitions, resulting in significant growth in total deposits and assets under management, as well as another quarter of strong contribution from our residential mortgage business," said Scott C. Wylie, CEO of First Western. "We continue to generate strong loan production, although we saw a significant increase in payoffs in the third quarter, which negatively impacted our total loan growth and net interest income. Our loan pipeline remains healthy, which should result in continued strong loan production. However, we anticipate that elevated payoffs will continue to be a headwind to our total loan growth in the near-term. Over the longer-term, we are optimistic about our opportunities to drive additional profitable growth as we put our rapid increase in liquid assets to work, continue to attract new clients, gain scale, and realize additional operating leverage."

                   
    For the Three Months Ended
    September 30,   June 30,   September 30,
(Dollars in thousands, except per share data)   2019   2019   2018
Earnings Summary                  
Net interest income   $  7,940   $  7,960     $  7,788  
Less: provision for (recovery of) credit losses      100      (78 )      18  
Total non-interest income      8,788      8,586        6,638  
Total non-interest expense(1)      13,442      14,659        12,176  
Income before income taxes      3,186      1,965        2,232  
Income tax expense      780      561        543  
Net income      2,406      1,404        1,689  
Preferred stock dividends      —      —        (255 )
Net income available to common shareholders      2,406      1,404       1,434  
Adjusted net income available to common shareholders(2)      2,406      2,586       1,434  
Basic and diluted earnings per common share      0.30      0.18       0.19  
Adjusted basic and diluted earnings per common share(2)   $  0.30   $  0.33     $ 0.19  
                   
Return on average assets (annualized)      0.80    0.50      0.65
Adjusted return on average assets (annualized) (2)      0.80      0.91       0.65  
Return on average shareholders' equity (annualized)      7.74      4.61        6.01  
Adjusted return on average shareholders' equity (annualized) (2)      7.74      8.50       6.01  
Return on tangible common equity (annualized) (2)      9.39      5.68        6.46  
Adjusted return on tangible common equity (annualized) (2)      9.39      10.51       6.46  
Net interest margin      2.95      3.10        3.29  
Efficiency ratio(2)      80.62    78.24      82.96

(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 Third Quarter 2019

Revenue

Gross revenue (total income before non-interest expense, less net gains on sale of securities and plus provision for credit losses) was $16.6 million for the third quarter of 2019, compared to $16.5 million for the second quarter of 2019. The increase in revenue was primarily driven by a $0.1 million increase in trust and investment management fees.

Relative to the third quarter of 2018, gross revenue increased $2.2 million from $14.4 million. The increase was due to growth in all major categories of gross revenues including net interest income, trust and investment management fees, and net gain on mortgage loans sold resulting from increased mortgage activity and improvement in operational efficiencies within the Mortgage segment.

Net Interest Income

Net interest income for the third quarter of 2019 was $7.9 million, materially unchanged from the second quarter of 2019, as interest-bearing deposit growth increased on-balance sheet liquidity and outpaced loan growth.  On a quarter-over-quarter basis, net interest income was impacted by an $84.5 million increase in average interest-bearing deposits, partially offset by average loan growth of $2.2 million.  The cost of interest-bearing deposits increased 2 basis points to 1.63%, while average loan yields increased 2 basis points to 4.55%. 

Relative to the third quarter of 2018, net interest income increased 2.0% from $7.8 million. The year-over-year increase in net interest income was due primarily to growth in average loans, partially offset by increases in average interest-bearing liabilities and funding costs.

Net Interest Margin

Net interest margin for the third quarter of 2019 decreased to 2.95% from 3.10% in the second quarter of 2019. The decrease was primarily driven by the on-boarding deposits from new high net worth clients. This drove an increase in MMDA balances and corresponding interest expense, and an unfavorable shift in the mix of earning assets.

Relative to the third quarter of 2018, the net interest margin decreased from 3.29%, primarily due to a 40 basis point increase in the average cost of funds, which was partially offset by a 6 basis point increase in the average yield on interest earning assets.

Non-interest Income

Non-interest income for the third quarter of 2019 was $8.8 million, an increase of 2.4% from $8.6 million in the second quarter of 2019.  The increase was primarily due to higher trust and investment management fees and a gain on the sale of securities.

Relative to the third quarter of 2018, non-interest income increased 32.4% from $6.6 million. The increase was primarily attributable to higher net gains on mortgage loans sold as a result of a higher volume of mortgages sold in 2019.

Non-interest Expense

Non-interest expense for the third quarter of 2019 was $13.4 million, a decrease of 8.3% from $14.7 million for the second quarter of 2019. Non-interest expense for the second quarter of 2019 included a $1.6 million goodwill impairment charge related to the July 2019 agreement to sell the Company's Los Angeles-based fixed income team.  Excluding the goodwill impairment charge, non-interest expense increased 2.7%.  Non-interest expense also increased 10.4% from $12.2 million in the third quarter of 2018.  Relative to both prior periods, the higher non-interest expense in the third quarter of 2019 was primarily attributable to an increase in salaries and employee benefits.

The increase in salary and employee benefits was primarily driven by $0.5 million increase in non-operating equity compensation expenses for performance related earnout payouts as a result of the September 2017 acquisition of EMC Holdings, LLC ("EMC") along with $0.4 million of higher incentive compensation accruals. 

As part of the EMC acquisition agreement, the effective date of the performance related payout is August 31 of each year.  If mortgage volume and income remain flat compared to the September 30, 2019 results and using the August 31, 2019 MYFW stock price, the Company expects to recognize the remaining equity compensation expense allowable under this agreement, approximately $0.4 million of additional expense, by the end of the first quarter 2020.   

Non-interest expense for the third quarter of 2019 also included approximately $0.14 million in non-recurring professional services fees related to the pending sale of the Company's Los Angeles-based fixed income team.

The Company's efficiency ratio was 80.6% in the third quarter of 2019, compared with 78.2% in the second quarter of 2019 and 83.0% in the third quarter of 2018. The efficiency ratio was negatively impacted during the third quarter 2019 by various acquisition and disposition related expenses. The impact of the above noted items on the third quarter 2019 net income available to shareholders and on earnings per share are as follows:

As of and for the Three Months Ended    
    September 30,  
(Dollars in thousands, except share and per share data)   2019  
Impact of Acquisition/Disposition Related Expenses on Net Income Available To Common Shareholders<
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