UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 27, 2023
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
Registrant’s telephone number, including area code: 303 .531.8100
Former name or former address, if changed since last report: Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging growth company | |||||
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | |||||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
Item 2.02 Results of Operations and Financial Condition.
On April 27, 2023, First Western Financial, Inc. (the “Company”) issued a press release announcing its financial results for the first quarter ended March 31, 2023. A copy of the press release is furnished as Exhibit 99.1 and is incorporated by reference herein.
The information in this Item 2.02, including Exhibit 99.1, is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, unless specifically identified therein as being incorporated therein by reference.
Item 7.01 Regulation FD Disclosure.
The Company intends to hold an investor call and webcast to discuss its financial results for the first quarter ended March 31, 2023 on Friday, April 28, 2023, at 10:00 a.m. Mountain Time. The Company’s presentation to analysts and investors contains additional information about the Company’s financial results for the first quarter ended March 31, 2023 and is furnished as Exhibit 99.2 and is incorporated by reference herein.
The information in this Item 7.01, including Exhibit 99.2, is being furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, unless specifically identified therein as being incorporated therein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit Number | Description | |||||||
| 99.1 | ||||||||
| 99.2 | ||||||||
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FIRST WESTERN FINANCIAL, INC. | ||||||||
| Date: April 27, 2023 | By: /s/ Scott C. Wylie | |||||||
| Scott C. Wylie | ||||||||
| Chairman, Chief Executive Officer and President | ||||||||
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Exhibit 99.1
First Western Reports First Quarter 2023 Financial Results
First Quarter 2023 Summary
•Net income available to common shareholders of $3.8 million in Q1 2023, compared to $5.5 million in Q4 2022 and $5.5 million in Q1 2022
•Diluted EPS of $0.39 in Q1 2023, compared to $0.56 in Q4 2022 and $0.57 in Q1 2022
•Book value per common share decreased slightly to $25.22, or 0.6%, from $25.37 as of Q4 2022, which included a $0.56 per share decrease as a result of the adoption of CECL on January 1, 2023. Book value per commons share was up 6.5% from $23.68 as of Q1 2022
•$1.5 billion of readily available liquidity funding sources as of Q1 2023
•Total deposits decreased slightly to $2.39 billion, or 0.6%, from $2.41 billion as of Q4 2022, and were up 5.3% from $2.27 billion as of Q1 2022
Denver, Colo., April 27, 2023 – First Western Financial, Inc. (“First Western” or the “Company”) (NASDAQ: MYFW), today reported financial results for the first quarter ended March 31, 2023.
Net income available to common shareholders was $3.8 million, or $0.39 per diluted share, for the first quarter of 2023. This compares to $5.5 million, or $0.56 per diluted share, for the fourth quarter of 2022, and $5.5 million, or $0.57 per diluted share, for the first quarter of 2022.
Scott C. Wylie, CEO of First Western, commented, “First Western continues to be a source of stability and strength for our clients, as we have throughout our history. As part of our prudent approach to risk management, we have built a highly diversified client base with no meaningful concentrations in any particular industry or asset class. Our diversified and granular deposit base has helped us to avoid the concentration risk that has led to the recent troubles seen at other banks, and during the month of March, we had an increase in total deposits.
“The fundamentals of our franchise remain very strong with high levels of capital and liquidity, a stable deposit base, exceptional asset quality, and an extremely low level of unrealized losses in our securities portfolio. While prudent risk management will remain our top priority during this period of economic uncertainty, we believe the strength of the balance sheet and franchise we have built will provide us with opportunities to add new clients who are looking to move to a stronger financial institution, which will contribute to our continued long-term profitable growth and additional value creation for our shareholders,” said Mr. Wylie.
(1) Represents a Non-GAAP financial measure. See “Reconciliations of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.
For the Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands, except per share data) | 2023 | 2022 | 2022 | ||||||||||||||
| Earnings Summary | |||||||||||||||||
| Net interest income | $ | 19,560 | $ | 21,842 | $ | 18,495 | |||||||||||
(Release) provision for credit losses(1) | (310) | 1,197 | 210 | ||||||||||||||
| Total non-interest income | 5,819 | 6,561 | 8,389 | ||||||||||||||
| Total non-interest expense | 20,528 | 19,905 | 19,358 | ||||||||||||||
| Income before income taxes | 5,161 | 7,301 | 7,316 | ||||||||||||||
| Income tax expense | 1,341 | 1,830 | 1,792 | ||||||||||||||
| Net income available to common shareholders | 3,820 | 5,471 | 5,524 | ||||||||||||||
Adjusted net income available to common shareholders(2) | 3,847 | 5,617 | 5,922 | ||||||||||||||
| Basic earnings per common share | 0.40 | 0.58 | 0.59 | ||||||||||||||
Adjusted basic earnings per common share(2) | 0.40 | 0.59 | 0.63 | ||||||||||||||
| Diluted earnings per common share | 0.39 | 0.56 | 0.57 | ||||||||||||||
Adjusted diluted earnings per common share(2) | 0.39 | 0.58 | 0.61 | ||||||||||||||
| Return on average assets (annualized) | 0.54 | % | 0.79 | % | 0.85 | % | |||||||||||
Adjusted return on average assets (annualized)(2) | 0.55 | 0.82 | 0.92 | ||||||||||||||
| Return on average shareholders' equity (annualized) | 6.40 | 9.17 | 9.98 | ||||||||||||||
Adjusted return on average shareholders' equity (annualized)(2) | 6.45 | 9.41 | 10.70 | ||||||||||||||
Return on tangible common equity (annualized)(2) | 7.35 | 10.48 | 11.57 | ||||||||||||||
Adjusted return on tangible common equity (annualized)(2) | 7.41 | 10.76 | 12.41 | ||||||||||||||
| Net interest margin | 2.93 | 3.30 | 3.03 | ||||||||||||||
Efficiency ratio(2) | 78.29 | % | 67.66 | % | 69.68 | % | |||||||||||
(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.
(2) Represents a Non-GAAP financial measure. See “Reconciliations of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.
Operating Results for the First Quarter 2023
Revenue
Gross revenue (1) was $26.1 million for the first quarter of 2023, a decrease of 10.1% from $29.0 million for the fourth quarter of 2022. Relative to the first quarter of 2022, gross revenue decreased 3.1% from $26.9 million for the first quarter of 2022. The decreases were primarily driven by an increase in the cost of interest-bearing liabilities, partially offset by growth in interest-earning assets.
(1) Represents a Non-GAAP financial measure. See “Reconciliations of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.
Net Interest Income
Net interest income for the first quarter of 2023 was $19.6 million, a decrease of 10.4% from $21.8 million in the fourth quarter of 2022. The decrease was due to higher interest expense driven primarily by higher deposit costs, offset partially by higher interest income.
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Relative to the first quarter of 2022, net interest income increased 5.8% from $18.5 million. The year-over-year increase in net interest income was due to an increase in Interest and fees on loans resulting from year over year loan growth and higher loan yields, offset partially by higher balances and rates on deposits and borrowings. The increase in average interest-earning assets was driven by growth in average loans of $556.9 million compared to March 31, 2022, resulting from organic loan growth.
Net Interest Margin
Net interest margin for the first quarter of 2023 decreased 37 basis points to 2.93% from 3.30% reported in the fourth quarter of 2022, primarily due to an 80 basis point increase in average cost of deposits, driven by a rising rate environment and a highly competitive deposit market.
The yield on interest-earning assets increased 30 basis points to 5.20% in the first quarter of 2023 from 4.90% in the fourth quarter of 2022 and the cost of interest-bearing deposits increased 87 basis points to 2.94% in the first quarter of 2023 from 2.07% in the fourth quarter of 2022.
Relative to the first quarter of 2022, net interest margin decreased from 3.03%, primarily due to a 209 basis point increase in average cost of deposits, offset partially by a 127 basis point increase in loan yields.
Non-interest Income
Non-interest income for the first quarter of 2023 was $5.8 million, a decrease of 11.3%, from $6.6 million in the fourth quarter of 2022. This was primarily due to an $0.8 million decrease in Risk management and insurance fees, which tend to be seasonally higher in the fourth quarter.
Relative to the first quarter of 2022, non-interest income decreased 30.6% from $8.4 million. The decrease was primarily due to lower mortgage segment activity as higher interest rates drove declines in both refinance and purchase volume, losses on loans accounted for under the fair value option and lower Trust and investment management fees derived from reduced assets under management (“AUM”) balances, which were negatively impacted by lower equity and fixed income market valuations.
Non-interest Expense
Non-interest expense for the first quarter of 2023 was $20.5 million, an increase of 3.1%, from $19.9 million in the fourth quarter of 2022. The increase was primarily driven by higher wages and payroll taxes (due to seasonality), partially offset by the impact of reduction in headcount of 22 from Q4-22 to Q1-23. Non-interest expense for the three months ended March 31, 2023 included $0.1 million of severance charges related to staffing alignment.
Relative to the first quarter of 2022, non-interest expense increased 6.0% from $19.4 million. The increase was primarily due to an increase in Salaries and employee benefits, driven by higher wages, higher health insurance costs, and lower deferred compensation due to fewer loan originations. Additionally, FDIC insurance increased due to the FDIC's two basis point uniform increase in assessment rates and the Company's increase in total assets year over year.
The Company’s efficiency ratio(1) was 78.3% in the first quarter of 2023, compared with 67.7% in the fourth quarter of 2022 and 69.7% in the first quarter of 2022.
(1) Represents a Non-GAAP financial measure. See “Reconciliations of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.
Income Taxes
The Company recorded income tax expense of $1.3 million for the first quarter of 2023, representing an effective tax rate of 26.0%, compared to 25.1% for the fourth quarter of 2022.
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Loans
Total loans held for investment remained flat at $2.48 billion as of March 31, 2023, compared to total loans held for investment as of December 31, 2022. Portfolio growth during the quarter was offset by the transfer and sale of $39.0 million of non-relationship loans. Relative to the first quarter of 2022, total loans held for investment increased 28.2% from $1.93 billion as of March 31, 2022. The increase in total loans held for investment from March 31, 2022 was attributable to loan growth primarily in our commercial real estate and residential mortgage portfolios.
Deposits
Total deposits were $2.39 billion as of March 31, 2023, a decrease of 0.6% from $2.41 billion as of December 31, 2022. Total deposits declined $71.1 million in January primarily due to client liquidity events, followed by net deposit inflows of $28.6 million in February and $29.3 million in March. Relative to the first quarter of 2022, total deposits increased 5.3% from $2.27 billion as of March 31, 2022, driven primarily by organic growth through new and expanded client relationships.
Borrowings
Federal Home Loan Bank (“FHLB”) and Federal Reserve borrowings were $261.4 million as of March 31, 2023, an increase of $114.5 million from $146.9 million as of December 31, 2022, and an increase of $233.8 million from $27.6 million as of March 31, 2022. The increase in borrowings from December 31, 2022 was driven by a desire to have increased cash levels on our balance sheet through the end of the quarter as the financial industry was experiencing heightened deposit balance volatility. The Company's deposit balances were stable through the end of the quarter and the increased borrowings were reduced subsequent to quarter-end. Relative to the first quarter of 2022, total borrowings increased to support the strong loan growth throughout 2022.
Subordinated notes remained consistent at $52.2 million as of March 31, 2023, compared to $52.1 million as of December 31, 2022. Subordinated notes increased $19.6 million from $32.5 million as of March 31, 2022.
As of March 31, 2023 the Company had $1.5 billion in available liquidity funding sources primarily comprised of total available cash ($295.1 million) and remaining borrowing capacity on secured lines of credit ($717.0 million).
Assets Under Management
AUM increased by $275.1 million during the first quarter to $6.38 billion as of March 31, 2023, compared to $6.11 billion as of December 31, 2022. This increase was attributable to an increase in market values at the end of the first quarter 2023. Total AUM decreased by $817.3 million compared to March 31, 2022 from $7.20 billion, which was primarily attributable to a decline in market values throughout 2022 resulting in a decrease in the value of AUM balances.
Credit Quality
Non-performing assets totaled $12.5 million, or 0.42% of total assets, as of March 31, 2023, compared to $12.3 million, or 0.43% of total assets, as of December 31, 2022, and $4.3 million, or 0.17% of total assets, as of March 31, 2022. Relative to the first quarter of 2022, the increase in non-performing assets was driven by the addition of $8.9 million in problem loans at the end of the fourth quarter of 2022.
The Company adopted the new current expected credit losses ("CECL") standard effective January 1, 2023, in which the allowance for credit losses ("ACL") reflects expected credit losses over the life of financial assets measured at amortized cost. The ACL incorporates macroeconomic forecasts as well as historical loss rates. The Company's ACL/Total Loans upon adoption was 84 basis points with an additional 47 basis point coverage on
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off-balance sheet commitments. The Company recorded a decrease to retained earnings of $5.3 million, net of tax, for the cumulative effect of adopting ASC 326 on January 1, 2023. The total transition adjustment prior to the tax impact included $3.5 million related to allowance for credit losses on loans, $3.5 million related to off-balance sheet commitments, and $0.1 related to held-to-maturity securities.
During the first quarter of 2023, the Company recorded a $0.3 million release to its provision, compared to a provision expense of $1.2 million in the fourth quarter of 2022 and a $0.2 million provision expense in the first quarter of 2022. The provision released in the first quarter of 2023 was primarily driven by changes in the volume and composition of our loan portfolio which drove a lower provision requirement on total outstanding loans. This was partially offset by an increased provision on off-balance sheet commitments corresponding with their increased balances compared to the fourth quarter of 2022.
Capital
As of March 31, 2023, First Western (“Consolidated”) and First Western Trust Bank (“Bank”) exceeded the minimum capital levels required by their respective regulators. As of March 31, 2023, the Bank was classified as “well capitalized,” as summarized in the following table:
| March 31, | |||||
| 2023 | |||||
| Consolidated Capital | |||||
| Tier 1 capital to risk-weighted assets | 9.28 | % | |||
| Common Equity Tier 1 ("CET1") to risk-weighted assets | 9.28 | ||||
| Total capital to risk-weighted assets | 12.39 | ||||
| Tier 1 capital to average assets | 7.75 | ||||
| Bank Capital | |||||
| Tier 1 capital to risk-weighted assets | 10.29 | ||||
| CET1 to risk-weighted assets | 10.29 | ||||
| Total capital to risk-weighted assets | 11.12 | ||||
| Tier 1 capital to average assets | 8.59 | ||||
Book value per common share decreased 0.6% from $25.37 as of December 31, 2022 to $25.22 as of March 31, 2023, which included a $0.56 decrease as a result of the adoption of CECL on January 1, 2023, offset primarily by Net income which added a $0.40 increase. Book value per common share was up 6.5% from $23.68 as of March 31, 2022.
Tangible book value per common share (1) decreased 0.6% from $21.99 as of December 31, 2022 to $21.85 as of March 31, 2023, which included a $0.56 decrease as a result of the adoption of CECL on January 1, 2023, offset primarily by Net income which added a $0.40 increase. Tangible book value per common share was up 7.9% from $20.25 as of March 31, 2022.
(1) Represents a Non-GAAP financial measure. See “Reconciliations of Non-GAAP Measures” for a reconciliation of our Non-GAAP measures to the most directly comparable GAAP financial measure.
Conference Call, Webcast and Slide Presentation
The Company will host a conference call and webcast at 10:00 a.m. MT/ 12:00 p.m. ET on Friday, April 28, 2023. Telephone access: https://register.vevent.com/register/BId5f13166e1304aaf9e92b70d6762b2ae
A slide presentation relating to the first quarter 2023 results will be accessible prior to the scheduled conference call. The slide presentation and webcast of the conference call can be accessed on the Events and Presentations page of the Company’s investor relations website at https://myfw.gcs-web.com.
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About First Western
First Western is a financial services holding company headquartered in Denver, Colorado, with operations in Colorado, Arizona, Wyoming, California, and Montana. First Western and its subsidiaries provide a fully integrated suite of wealth management services on a private trust bank platform, which includes a comprehensive selection of deposit, loan, trust, wealth planning and investment management products and services. First Western’s common stock is traded on the Nasdaq Global Select Market under the symbol “MYFW.” For more information, please visit www.myfw.com.
Non-GAAP Financial Measures
Some of the financial measures included in this press release are not measures of financial performance recognized in accordance with generally accepted accounting principles in the United States (“GAAP”). These non-GAAP financial measures include “Tangible Common Equity,” “Tangible Common Book Value per Share,” “Return on Tangible Common Equity,” “Efficiency Ratio,” “Gross Revenue,” “Allowance for Credit Losses to Adjusted Loans,” “Adjusted Net Income Available to Common Shareholders,” “Adjusted Basic Earnings Per Share,” “Adjusted Diluted Earnings Per Share,” “Adjusted Return on Average Assets,” “Adjusted Return on Average Shareholders’ Equity,” and “Adjusted Return on Tangible Common Equity”. The Company believes these non-GAAP financial measures provide both management and investors a more complete understanding of the Company’s financial position and performance. These non-GAAP financial measures are supplemental and are not a substitute for any analysis based on GAAP financial measures. Not all companies use the same calculation of these measures; therefore, this presentation may not be comparable to other similarly titled measures as presented by other companies. Reconciliation of non-GAAP financial measures, to GAAP financial measures are provided at the end of this press release.
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Forward-Looking Statements
Statements in this news release regarding our expectations and beliefs about our future financial performance and financial condition, as well as trends in our business and markets are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project,” “position,” “outlook,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “opportunity,” “could,” or “may.” The forward-looking statements in this news release are based on current information and on assumptions that we make about future events and circumstances that are subject to a number of risks and uncertainties that are often difficult to predict and beyond our control. As a result of those risks and uncertainties, our actual financial results in the future could differ, possibly materially, from those expressed in or implied by the forward-looking statements contained in this news release and could cause us to make changes to our future plans. Those risks and uncertainties include, without limitation, the lack of soundness of other financial institutions or financial market utilities may adversely affect the Company; the Company’s ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions; financial institutions are interrelated because of trading, clearing, counterparty or other relationships; defaults by, or even rumors or questions about, one or more financial institutions or financial market utilities, or the financial services industry generally, may lead to market-wide liquidity problems and losses of client, creditor and counterparty confidence and could lead to losses or defaults by other financial institutions, or the Company; the COVID-19 pandemic and its effects; integration risks and projected cost savings in connection with acquisitions; the risk of geographic concentration in Colorado, Arizona, Wyoming, California, and Montana; the risk of changes in the economy affecting real estate values and liquidity; the risk in our ability to continue to originate residential real estate loans and sell such loans; risks specific to commercial loans and borrowers; the risk of claims and litigation pertaining to our fiduciary responsibilities; the risk of competition for investment managers and professionals; the risk of fluctuation in the value of our investment securities; the risk of changes in interest rates; and the risk of the adequacy of our allowance for credit losses and the risk in our ability to maintain a strong core deposit base or other low-cost funding sources. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2023 (“Form 10-K”), and other documents we file with the SEC from time to time. We urge readers of this news release to review the “Risk Factors” section our Form 10-K and any updates to those risk factors set forth in our subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and our other filings with the SEC. Also, our actual financial results in the future may differ from those currently expected due to additional risks and uncertainties of which we are not currently aware or which we do not currently view as, but in the future may become, material to our business or operating results. Due to these and other possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this news release, which speak only as of today’s date, or to make predictions based solely on historical financial performance. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
Contacts:
Financial Profiles, Inc.
Tony Rossi
310-622-8221
MYFW@finprofiles.com
IR@myfw.com
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First Western Financial, Inc.
Consolidated Financial Summary (unaudited)
| Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands, except per share amounts) | 2023 | 2022 | 2022 | ||||||||||||||
| Interest and dividend income: | |||||||||||||||||
| Loans, including fees | $ | 32,080 | $ | 30,203 | $ | 19,287 | |||||||||||
| Loans accounted for under the fair value option | 427 | 488 | — | ||||||||||||||
| Investment securities | 629 | 645 | 337 | ||||||||||||||
| Interest-bearing deposits in other financial institutions | 1,403 | 931 | 232 | ||||||||||||||
| Dividends, restricted stock | 173 | 238 | 20 | ||||||||||||||
| Total interest and dividend income | 34,712 | 32,505 | 19,876 | ||||||||||||||
| Interest expense: | |||||||||||||||||
| Deposits | 13,092 | 8,260 | 943 | ||||||||||||||
| Other borrowed funds | 2,060 | 2,403 | 438 | ||||||||||||||
| Total interest expense | 15,152 | 10,663 | 1,381 | ||||||||||||||
| Net interest income | 19,560 | 21,842 | 18,495 | ||||||||||||||
Less: (release) provision for credit losses(1) | (310) | 1,197 | 210 | ||||||||||||||
Net interest income, after (release) provision for credit losses(1) | 19,870 | 20,645 | 18,285 | ||||||||||||||
| Non-interest income: | |||||||||||||||||
| Trust and investment management fees | 4,635 | 4,358 | 5,166 | ||||||||||||||
| Net gain on mortgage loans | 1,019 | 775 | 2,303 | ||||||||||||||
| Net loss on loans held for sale | (178) | (12) | — | ||||||||||||||
| Bank fees | 592 | 812 | 671 | ||||||||||||||
| Risk management and insurance fees | 127 | 924 | 109 | ||||||||||||||
| Income on company-owned life insurance | 90 | 88 | 86 | ||||||||||||||
| Net (loss)/gain on loans accounted for under the fair value option | (543) | (602) | — | ||||||||||||||
| Unrealized gain/(loss) recognized on equity securities | 10 | — | (32) | ||||||||||||||
| Net gain/(loss) on equity interests | — | — | 1 | ||||||||||||||
| Other | 67 | 218 | 85 | ||||||||||||||
| Total non-interest income | 5,819 | 6,561 | 8,389 | ||||||||||||||
| Total income before non-interest expense | 25,689 | 27,206 | 26,674 | ||||||||||||||
| Non-interest expense: | |||||||||||||||||
| Salaries and employee benefits | 13,098 | 11,679 | 12,058 | ||||||||||||||
| Occupancy and equipment | 1,914 | 1,910 | 1,882 | ||||||||||||||
| Professional services | 1,923 | 2,027 | 1,526 | ||||||||||||||
| Technology and information systems | 832 | 1,168 | 1,046 | ||||||||||||||
| Data processing | 1,139 | 1,223 | 1,187 | ||||||||||||||
| Marketing | 391 | 500 | 557 | ||||||||||||||
| Amortization of other intangible assets | 64 | 77 | 77 | ||||||||||||||
| Net (gain)/loss on assets held for sale | — | — | (1) | ||||||||||||||
| Net (gain)/loss on sale of other real estate owned | — | (3) | — | ||||||||||||||
| Other | 1,167 | 1,324 | 1,026 | ||||||||||||||
| Total non-interest expense | 20,528 | 19,905 | 19,358 | ||||||||||||||
| Income before income taxes | 5,161 | 7,301 | 7,316 | ||||||||||||||
| Income tax expense | 1,341 | 1,830 | 1,792 | ||||||||||||||
| Net income available to common shareholders | $ | 3,820 | $ | 5,471 | $ | 5,524 | |||||||||||
| Earnings per common share: | |||||||||||||||||
| Basic | $ | 0.40 | $ | 0.58 | $ | 0.59 | |||||||||||
| Diluted | 0.39 | 0.56 | 0.57 | ||||||||||||||
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First Western Financial, Inc.
Consolidated Financial Summary (unaudited)
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | 2022 | ||||||||||||||
| Assets | |||||||||||||||||
| Cash and cash equivalents: | |||||||||||||||||
| Cash and due from banks | $ | 6,920 | $ | 4,926 | $ | 5,961 | |||||||||||
| Federal funds sold | — | — | 1,273 | ||||||||||||||
| Interest-bearing deposits in other financial institutions | 288,147 | 191,586 | 446,865 | ||||||||||||||
| Total cash and cash equivalents | 295,067 | 196,512 | 454,099 | ||||||||||||||
| Available-for-sale securities, at fair value | — | — | 58,727 | ||||||||||||||
| Held-to-maturity securities, at amortized cost (fair value of $73,570 and $74,718 as of March 31, 2023 and December 31, 2022, respectively), net of ACL | 79,565 | 81,056 | — | ||||||||||||||
| Correspondent bank stock, at cost | 13,222 | 7,110 | 1,617 | ||||||||||||||
| Mortgage loans held for sale, at fair value | 9,873 | 8,839 | 33,663 | ||||||||||||||
| Loans held for sale, at fair value | — | 1,965 | — | ||||||||||||||
| Loans (includes $20,807, $23,321, and $6,380 measured at fair value, respectively) | 2,469,038 | 2,469,413 | 1,923,825 | ||||||||||||||
Allowance for credit losses(1) | (19,843) | (17,183) | (13,885) | ||||||||||||||
| Loans, net | 2,449,195 | 2,452,230 | 1,909,940 | ||||||||||||||
| Premises and equipment, net | 25,383 | 25,118 | 23,539 | ||||||||||||||
| Accrued interest receivable | 10,976 | 10,445 | 6,969 | ||||||||||||||
| Accounts receivable | 4,713 | 4,873 | 6,445 | ||||||||||||||
| Other receivables | 2,396 | 1,973 | 2,841 | ||||||||||||||
| Goodwill and other intangible assets, net | 32,040 | 32,104 | 32,335 | ||||||||||||||
| Deferred tax assets, net | 6,792 | 6,914 | 7,540 | ||||||||||||||
| Company-owned life insurance | 16,242 | 16,152 | 15,889 | ||||||||||||||
| Other assets | 23,043 | 21,457 | 22,940 | ||||||||||||||
| Assets held for sale | — | — | 117 | ||||||||||||||
| Total assets | $ | 2,968,507 | $ | 2,866,748 | $ | 2,576,661 | |||||||||||
| Liabilities | |||||||||||||||||
| Deposits: | |||||||||||||||||
| Noninterest-bearing | $ | 545,064 | $ | 583,092 | $ | 654,401 | |||||||||||
| Interest-bearing | 1,846,863 | 1,822,137 | 1,617,711 | ||||||||||||||
| Total deposits | 2,391,927 | 2,405,229 | 2,272,112 | ||||||||||||||
| Borrowings: | |||||||||||||||||
| Federal Home Loan Bank and Federal Reserve borrowings | 261,385 | 146,886 | 27,576 | ||||||||||||||
| Subordinated notes | 52,167 | 52,132 | 32,523 | ||||||||||||||
| Accrued interest payable | 1,786 | 1,125 | 312 | ||||||||||||||
| Other liabilities | 21,420 | 20,512 | 20,872 | ||||||||||||||
| Total liabilities | 2,728,685 | 2,625,884 | 2,353,395 | ||||||||||||||
| Shareholders’ Equity | |||||||||||||||||
| Total shareholders’ equity | 239,822 | 240,864 | 223,266 | ||||||||||||||
| Total liabilities and shareholders’ equity | $ | 2,968,507 | $ | 2,866,748 | $ | 2,576,661 | |||||||||||
9
First Western Financial, Inc.
Consolidated Financial Summary (unaudited)
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | 2022 | ||||||||||||||
| Loan Portfolio | |||||||||||||||||
Cash, Securities, and Other(1) | $ | 157,308 | $ | 165,670 | $ | 235,221 | |||||||||||
Consumer and Other(2) | 43,235 | 49,954 | 36,590 | ||||||||||||||
| Construction and Development | 283,999 | 288,497 | 151,651 | ||||||||||||||
| 1-4 Family Residential | 889,782 | 898,154 | 602,412 | ||||||||||||||
| Non-Owner Occupied CRE | 536,679 | 496,776 | 455,715 | ||||||||||||||
| Owner Occupied CRE | 223,449 | 216,056 | 212,401 | ||||||||||||||
| Commercial and Industrial | 340,632 | 361,028 | 237,144 | ||||||||||||||
| Total loans held for investment | 2,475,084 | 2,476,135 | 1,931,134 | ||||||||||||||
Deferred (fees) costs and unamortized premiums/(unaccreted discounts), net(3) | (6,046) | (6,722) | (7,309) | ||||||||||||||
| Gross loans | $ | 2,469,038 | $ | 2,469,413 | $ | 1,923,825 | |||||||||||
| Mortgage loans held for sale | $ | 9,873 | $ | 8,839 | $ | 33,663 | |||||||||||
| Loans held for sale | — | 1,965 | — | ||||||||||||||
| Deposit Portfolio | |||||||||||||||||
| Money market deposit accounts | $ | 1,277,988 | $ | 1,336,092 | $ | 1,108,315 | |||||||||||
| Time deposits | 354,545 | 224,090 | 156,678 | ||||||||||||||
| Negotiable order of withdrawal accounts | 192,011 | 234,778 | 319,648 | ||||||||||||||
| Savings accounts | 22,319 | 27,177 | 33,070 | ||||||||||||||
| Total interest-bearing deposits | 1,846,863 | 1,822,137 | 1,617,711 | ||||||||||||||
| Noninterest-bearing accounts | 545,064 | 583,092 | 654,401 | ||||||||||||||
| Total deposits | $ | 2,391,927 | $ | 2,405,229 | $ | 2,272,112 | |||||||||||
____________________
(1) Includes PPP loans of $6.1 million as of March 31, 2023, $7.1 million as of December 31, 2022, and $16.7 million as of March 31, 2022.
(2) Includes loans held for investment accounted for under fair value option with an unpaid principal balance of $21.1 million, $23.4 million and $6.4 million as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively.
(3) Includes fair value adjustments on loans held for investment accounted for under the fair value option.
10
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | 2022 | ||||||||||||||
| Average Balance Sheets | |||||||||||||||||
| Assets | |||||||||||||||||
| Interest-earning assets: | |||||||||||||||||
| Interest-bearing deposits in other financial institutions | $ | 127,608 | $ | 103,190 | $ | 474,593 | |||||||||||
| Federal funds sold | — | — | 1,349 | ||||||||||||||
| Investment securities | 82,106 | 84,017 | 55,739 | ||||||||||||||
| Correspondent bank stock | 9,592 | 11,880 | 1,663 | ||||||||||||||
| Loans | 2,479,644 | 2,436,273 | 1,922,770 | ||||||||||||||
| Interest-earning assets | 2,698,950 | 2,635,360 | 2,456,114 | ||||||||||||||
| Mortgage loans held for sale | 7,521 | 9,065 | 22,699 | ||||||||||||||
| Total interest-earning assets, plus mortgage loans held for sale | 2,706,471 | 2,644,425 | 2,478,813 | ||||||||||||||
Allowance for credit losses(1) | (20,325) | (16,724) | (13,715) | ||||||||||||||
| Noninterest-earning assets | 125,201 | 125,355 | 119,987 | ||||||||||||||
| Total assets | $ | 2,811,347 | $ | 2,753,056 | $ | 2,585,085 | |||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||
| Interest-bearing deposits | $ | 1,805,994 | $ | 1,582,587 | $ | 1,605,314 | |||||||||||
| FHLB and Federal Reserve borrowings | 142,642 | 212,693 | 33,104 | ||||||||||||||
| Subordinated notes | 52,135 | 38,335 | 32,939 | ||||||||||||||
| Total interest-bearing liabilities | 2,000,771 | 1,833,615 | 1,671,357 | ||||||||||||||
| Noninterest-bearing liabilities: | |||||||||||||||||
| Noninterest-bearing deposits | 545,670 | 659,076 | 668,705 | ||||||||||||||
| Other liabilities | 26,206 | 21,660 | 23,555 | ||||||||||||||
| Total noninterest-bearing liabilities | 571,876 | 680,736 | 692,260 | ||||||||||||||
| Total shareholders’ equity | 238,700 | 238,705 | 221,468 | ||||||||||||||
| Total liabilities and shareholders’ equity | $ | 2,811,347 | $ | 2,753,056 | $ | 2,585,085 | |||||||||||
| Yields/Cost of funds (annualized) | |||||||||||||||||
| Interest-bearing deposits in other financial institutions | 4.46 | % | 3.58 | % | 0.20 | % | |||||||||||
| Investment securities | 3.11 | 3.05 | 2.45 | ||||||||||||||
| Correspondent bank stock | 7.31 | 7.95 | 4.88 | ||||||||||||||
| Loans | 5.30 | 5.00 | 4.03 | ||||||||||||||
| Mortgage loans held for sale | 6.04 | 6.39 | 3.41 | ||||||||||||||
| Total interest-earning assets | 5.20 | 4.90 | 3.25 | ||||||||||||||
| Interest-bearing deposits | 2.94 | 2.07 | 0.24 | ||||||||||||||
| FHLB and Federal Reserve borrowings | 3.89 | 3.58 | 0.48 | ||||||||||||||
| Subordinated notes | 5.38 | 5.03 | 4.91 | ||||||||||||||
| Total interest-bearing liabilities | 3.07 | 2.31 | 0.34 | ||||||||||||||
| Net interest margin | 2.93 | 3.30 | 3.03 | ||||||||||||||
| Net interest rate spread | 2.13 | 2.59 | 2.92 | ||||||||||||||
(1) Allowance for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.
11
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands, except share and per share amounts) | 2023 | 2022 | 2022 | ||||||||||||||
| Asset Quality | |||||||||||||||||
| Non-performing loans | $ | 12,460 | $ | 12,349 | $ | 4,309 | |||||||||||
| Non-performing assets | 12,460 | 12,349 | 4,309 | ||||||||||||||
| Net charge-offs | 5 | 95 | 57 | ||||||||||||||
| Non-performing loans to total loans | 0.50 | % | 0.50 | % | 0.22 | % | |||||||||||
| Non-performing assets to total assets | 0.42 | 0.43 | 0.17 | ||||||||||||||
Allowance for credit losses to non-performing loans(3) | 159.25 | 139.14 | 322.23 | ||||||||||||||
Allowance for credit losses to total loans(3) | 0.80 | 0.70 | 0.72 | ||||||||||||||
Allowance for credit losses to adjusted loans(1)(3) | 0.81 | 0.78 | 0.87 | ||||||||||||||
Net charge-offs to average loans(2) | * | * | * | ||||||||||||||
| Assets Under Management | $ | 6,382,036 | $ | 6,106,973 | $ | 7,199,328 | |||||||||||
| Market Data | |||||||||||||||||
| Book value per share at period end | 25.22 | 25.37 | 23.68 | ||||||||||||||
Tangible book value per common share(1) | 21.85 | 21.99 | 20.25 | ||||||||||||||
| Weighted average outstanding shares, basic | 9,503,715 | 9,493,732 | 9,418,318 | ||||||||||||||
| Weighted average outstanding shares, diluted | 9,732,674 | 9,702,908 | 9,762,602 | ||||||||||||||
| Shares outstanding at period end | 9,507,564 | 9,495,440 | 9,430,007 | ||||||||||||||
| Consolidated Capital | |||||||||||||||||
| Tier 1 capital to risk-weighted assets | 9.28 | % | 9.28 | % | 11.11 | % | |||||||||||
| CET1 to risk-weighted assets | 9.28 | 9.28 | 11.11 | ||||||||||||||
| Total capital to risk-weighted assets | 12.39 | 12.37 | 13.81 | ||||||||||||||
| Tier 1 capital to average assets | 7.75 | 7.81 | 7.67 | ||||||||||||||
| Bank Capital | |||||||||||||||||
| Tier 1 capital to risk-weighted assets | 10.29 | 10.29 | 12.01 | ||||||||||||||
| CET1 to risk-weighted assets | 10.29 | 10.29 | 12.01 | ||||||||||||||
| Total capital to risk-weighted assets | 11.12 | 11.06 | 12.82 | ||||||||||||||
| Tier 1 capital to average assets | 8.59 | 8.65 | 8.27 | ||||||||||||||
____________________
(1) 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.
(2) Value results in an immaterial amount.
(3) Allowance for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.
12
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
Reconciliations of Non-GAAP Financial Measures
| As of or for the Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands, except share and per share amounts) | 2023 | 2022 | 2022 | ||||||||||||||
| Tangible Common | |||||||||||||||||
| Total shareholders' equity | $ | 239,822 | $ | 240,864 | $ | 223,266 | |||||||||||
| Less: goodwill and other intangibles, net | 32,040 | 32,104 | 32,335 | ||||||||||||||
| Tangible common equity | $ | 207,782 | $ | 208,760 | $ | 190,931 | |||||||||||
| Common shares outstanding, end of period | 9,507,564 | 9,495,440 | 9,430,007 | ||||||||||||||
| Tangible common book value per share | $ | 21.85 | $ | 21.99 | $ | 20.25 | |||||||||||
| Net income available to common shareholders | 3,820 | 5,471 | 5,524 | ||||||||||||||
| Return on tangible common equity (annualized) | 7.35 | % | 10.48 | % | 11.57 | % | |||||||||||
| Efficiency | |||||||||||||||||
| Non-interest expense | $ | 20,528 | $ | 19,905 | $ | 19,358 | |||||||||||
| Less: amortization | 64 | 77 | 77 | ||||||||||||||
| Less: acquisition related expenses | 37 | 195 | 527 | ||||||||||||||
| Adjusted non-interest expense | $ | 20,427 | $ | 19,633 | $ | 18,754 | |||||||||||
| Total income before non-interest expense | $ | 25,689 | $ | 27,206 | $ | 26,674 | |||||||||||
| Less: unrealized gain/(loss) recognized on equity securities | 10 | — | (32) | ||||||||||||||
| Less: net (loss)/gain on loans accounted for under the fair value option | (543) | (602) | — | ||||||||||||||
| Less: net gain/(loss) on equity interests | — | — | 1 | ||||||||||||||
Less: net (loss)/gain on loans held for sale at fair value(1) | (178) | (12) | — | ||||||||||||||
Plus: (release) provision for credit losses(2) | (310) | 1,197 | 210 | ||||||||||||||
| Gross revenue | $ | 26,090 | $ | 29,017 | $ | 26,915 | |||||||||||
| Efficiency ratio | 78.29 | % | 67.66 | % | 69.68 | % | |||||||||||
| Allowance for Credit Loss to Adjusted Loans | |||||||||||||||||
| Total loans held for investment | $ | 2,475,084 | $ | 2,476,135 | $ | 1,931,134 | |||||||||||
Less: loans acquired(3) | — | 234,717 | 323,563 | ||||||||||||||
Less: PPP loans(4) | 5,967 | 6,378 | 13,109 | ||||||||||||||
| Less: loans accounted for under fair value | 21,052 | 23,415 | 6,368 | ||||||||||||||
| Adjusted loans | $ | 2,448,065 | $ | 2,211,625 | $ | 1,588,094 | |||||||||||
Allowance for credit losses(2) | $ | 19,843 | $ | 17,183 | $ | 13,885 | |||||||||||
Allowance for credit losses to adjusted loans(2) | 0.81 | % | 0.78 | % | 0.87 | % | |||||||||||
(1) Presented in Other Non-interest income on the Consolidated Financial Summary statements
(2) Provision and allowance for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.
(3)As of March 31, 2023, acquired loans totaling $233.3 million are included in the ACL calculation and are therefore not removed in calculating adjusted total loans.
(4)As of March 31, 2023, the adjustment for PPP loans includes acquired PPP loans as acquired loans are no longer removed in calculating adjusted total loans.
13
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||||||||||
| March 31, | December 31, | March 31, | |||||||||||||||
| (Dollars in thousands, except share and per share data) | 2023 | 2022 | 2022 | ||||||||||||||
| Adjusted Net Income Available to Common Shareholders | |||||||||||||||||
| Net income available to common shareholders | $ | 3,820 | $ | 5,471 | $ | 5,524 | |||||||||||
| Plus: acquisition related expenses | 37 | 195 | 527 | ||||||||||||||
| Less: income tax impact | 10 | 49 | 129 | ||||||||||||||
| Adjusted net income available to shareholders | $ | 3,847 | $ | 5,617 | $ | 5,922 | |||||||||||
| Pre-Tax, Pre-Provision Net Income | |||||||||||||||||
| Income before income taxes | $ | 5,161 | $ | 7,301 | $ | 7,316 | |||||||||||
| Plus: (release) provision for credit losses | (310) | 1,197 | 210 | ||||||||||||||
| Pre-tax, pre-provision net income | $ | 4,851 | $ | 8,498 | $ | 7,526 | |||||||||||
| Adjusted Basic Earnings Per Share | |||||||||||||||||
| Basic earnings per share | $ | 0.40 | $ | 0.58 | $ | 0.59 | |||||||||||
| Plus: acquisition related expenses net of income tax impact | * | 0.01 | 0.04 | ||||||||||||||
| Adjusted basic earnings per share | $ | 0.40 | $ | 0.59 | $ | 0.63 | |||||||||||
| Adjusted Diluted Earnings Per Share | |||||||||||||||||
| Diluted earnings per share | $ | 0.39 | $ | 0.56 | $ | 0.57 | |||||||||||
| Plus: acquisition related expenses net of income tax impact | * | 0.02 | 0.04 | ||||||||||||||
| Adjusted diluted earnings per share | $ | 0.39 | $ | 0.58 | $ | 0.61 | |||||||||||
| Adjusted Return on Average Assets (annualized) | |||||||||||||||||
| Return on average assets | 0.54 | % | 0.79 | % | 0.85 | % | |||||||||||
| Plus: acquisition related expenses net of income tax impact | 0.01 | 0.03 | 0.07 | ||||||||||||||
| Adjusted return on average assets | 0.55 | % | 0.82 | % | 0.92 | % | |||||||||||
| Adjusted Return on Average Shareholders' Equity (annualized) | |||||||||||||||||
| Return on average shareholders' equity | 6.40 | % | 9.17 | % | 9.98 | % | |||||||||||
| Plus: acquisition related expenses net of income tax impact | 0.05 | 0.24 | 0.72 | ||||||||||||||
| Adjusted return on average shareholders' equity | 6.45 | % | 9.41 | % | 10.70 | % | |||||||||||
| Adjusted Return on Tangible Common Equity (annualized) | |||||||||||||||||
| Return on tangible common equity | 7.35 | % | 10.48 | % | 11.57 | % | |||||||||||
| Plus: acquisition related expenses net of income tax impact | 0.06 | 0.28 | 0.84 | ||||||||||||||
| Adjusted return on tangible common equity | 7.41 | % | 10.76 | % | 12.41 | % | |||||||||||
14
First Quarter 2023 Conference Call
Safe Harbor 2 This presentation contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect the current views of First Western Financial, Inc.’s (“First Western”) management with respect to, among other things, future events and First Western’s financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “should,” “could,” “predict,” “potential,” “believe,” “will likely result,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “position,” “project,” “future” “forecast,” “goal,” “target,” “would” and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about First Western’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond First Western’s control. Accordingly, First Western cautions you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although First Western believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. Those following risks and uncertainties, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward- looking statements: the COVID-19 pandemic and its effects; integration risks in connection with acquisitions; the risk of geographic concentration in Colorado, Arizona, Wyoming, California, and Montana; the risk of changes in the economy affecting real estate values and liquidity; the risk in our ability to continue to originate residential real estate loans and sell such loans; risks specific to commercial loans and borrowers; the risk of claims and litigation pertaining to our fiduciary responsibilities; the risk of competition for investment managers and professionals; the risk of fluctuation in the value of our investment securities; the risk of changes in interest rates; and the risk of the adequacy of our allowance for credit losses and the risk in our ability to maintain a strong core deposit base or other low-cost funding sources. Additional information regarding these and other risks and uncertainties to which our business and future financial performance are subject is contained in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2023 and other documents we file with the SEC from time to time. All subsequent written and oral forward-looking statements attributable to First Western or persons acting on First Western’s behalf are expressly qualified in their entirety by this paragraph. Forward-looking statements speak only as of the date of this presentation. First Western undertakes no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events or otherwise (except as required by law). Certain of the information contained herein may be derived from information provided by industry sources. The Company believes that such information is accurate and the sources from which it has been obtained are reliable; however, the Company cannot guaranty the accuracy of such information and has not independently verified such information. This presentation contains certain non-GAAP financial measures intended to supplement, not substitute for, comparable GAAP measures. Reconciliations of non-GAAP financial measures to GAAP financial measures are provided at the end of this presentation. Numbers in the presentation may not sum due to rounding. Our common stock is not a deposit or savings account. Our common stock is not insured by the Federal Deposit Insurance Corporation or any governmental agency or instrumentality. This presentation is not an offer to sell any securities and it is not soliciting an offer to buy any securities in any state or jurisdiction where the offer or sale is not permitted. Neither the SEC nor any state securities commission has approved or disapproved of the securities of the Company or passed upon the accuracy or adequacy of this presentation. Any representation to the contrary is a criminal offense. Except as otherwise indicated, this presentation speaks as of the date hereof. The delivery of this presentation shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company after the date hereof.
3 Overview of 1Q23 1Q23 Earnings Stable Balance Sheet • Strong relationship deposits with below peer level of uninsured deposits $891.5 million(2) or 37.3% in 1Q23 • $1.5 billion of readily available liquidity funding sources as of 1Q23 • Low amount of held-to-maturity securities at 2.7% of total assets, unrecognized losses of less than 3% of total Shareholders' Equity • Continued strong credit quality with immaterial losses • Minimal CRE exposure to non-owner occupied office space • Diverse client base with no single industry concentration Strong Fundamentals • Higher level of cash being held to temporarily increase balance sheet liquidity and flexibility • Total deposits increased during the months of February and March • Average Interest-bearing deposits up 14% from 4Q22 and average total deposit balances up 5% in 1Q23 • Disposition of non-relationship loans impacted loan growth in 1Q23, but improved risk profile of loan portfolio and positively impacted capital and liquidity • Net income available to common shareholders of $3.8 million, or $0.39 per diluted share • Pre-tax, pre-provision net income of $4.9 million(1) 1. See Non-GAAP Reconciliation 2. Calculated based off of uninsured deposits divided by total deposits.
4 Net Income Available to Common Shareholders and Earnings per Share • Net income of $3.8 million, or $0.39 diluted earnings per share, in 1Q23 • Continued profitability and prudent balance sheet management resulted in book value and tangible book value per share(1) increasing by 6.5% and 7.9%, respectively, from 1Q22, including a $0.56 per share reduction in equity as a result of the adoption of CECL in the first quarter Net Income Available to Common Shareholders Diluted Earnings per Share 1. See Non-GAAP reconciliation (1) (1) (1) (1) (1) (1) (1) (1) (1)
5 Loan Portfolio • Total loans held for investment decreased $1.1 million from prior quarter • Total loans impacted by disposition of $40.9 million of non- relationship loans • Average rate on new loan production increased by 125 bps from prior quarter 1Q 2022 4Q 2022 1Q 2023 Cash, Securities and Other $ 235,221 $ 165,670 $ 157,308 Consumer and Other(2) 36,590 49,954 43,235 Construction and Development 151,651 288,497 283,999 1-4 Family Residential 602,412 898,154 889,782 Non-Owner Occupied CRE 455,715 496,776 536,679 Owner Occupied CRE 212,401 216,056 223,449 Commercial and Industrial 237,144 361,028 340,632 Total Loans HFI $ 1,931,134 $ 2,476,135 $ 2,475,084 Loans held-for-sale (HFS) $ 33,663 10,804(3) $ 9,873 Total Loans $ 1,964,797 $ 2,486,939 $ 2,484,957 1. Represents unpaid principal balance. Excludes deferred (fees) costs, and amortized premium/ (unaccreted discount) and fair value adjustments on loans accounted for under the fair value option. 2. Includes loans held for investment accounted for under fair value option of $21.1 million, $23.4 million, and $6.4 million as of March 31, 2023, December 31, 2022 and March 31, 2022, respectively. 3. Includes $2.0 million loans held for sale that are not Mortgage loans held for sale as of December 31, 2022. ($ in thousands, as of quarter end) Loan Portfolio Composition(1) Loan Portfolio Details Loan Production & Loan Payoffs Total Loans(1) Average Period End
CRE Loan Portfolio Characteristics • Conservatively underwritten, well diversified CRE loan portfolio • Multi Family comprise the largest percentage at 16.3% of total CRE loans ($123.7 million) and 5.0% of total loan portfolio • Office CRE loans represent just 11.1% of total CRE loans and 3.4% of total loans ◦ No exposure to major metropolitan areas including downtown Denver ◦ No exposure to buildings over seven stories ◦ Majority of properties are located in suburban areas with tenants in recession resistant industries like medical practices ◦ Average loan size of $2.3 million ◦ No losses on office CRE loans over past 10 years ◦ Minimal amount of office CRE loans maturing through the end of 2024 • Portfolio management includes review of current cash flows, vacancy rates, and rental rates, at least once per year 6
7 Total Deposits • Average Interest-bearing deposits up 14% from 4Q22 and average total deposit balances up 5% in 1Q23 • Total deposits declined $71 million in January primarily due to client liquidity events, followed by net deposit inflows of $29 million in February and $29 million in March • Limited migration of noninterest-bearing deposits into interest-bearing categories as clients seek higher rates • Time deposits added to lock-in fixed rate funding and help improve ability to manage funding costs going forward 1Q 2022 4Q 2022 1Q 2023 Money market deposit accounts $ 1,108,315 $ 1,336,092 $ 1,277,988 Time deposits 156,678 224,090 354,545 NOW 319,678 234,778 192,011 Savings accounts 33,070 27,177 22,319 Noninterest-bearing accounts 654,401 583,092 545,064 Total Deposits $ 2,272,142 $ 2,405,229 $ 2,391,927 Deposit Portfolio Composition Total Deposits Average Period End
8 Trust and Investment Management • Total assets under management increased $275.1 million from December 31, 2022 to $6.38 billion as of March 31, 2023 • Client accounts benefited from improved market conditions in the first quarter • All five product categories increased quarter-over-quarter (in millions, as of quarter end) Total Assets Under Management
1. See Non-GAAP reconciliation Gross Revenue • Gross revenue(1) declined 10.1% from prior quarter, primarily driven by an increase in the cost of interest- bearing liabilities, partially offset by growth in interest-earning assets • Net interest income up $1.1 million or 5.8% from 1Q22 • Non-interest income down $2.6 million or 30.6% from 1Q22 1Q23 Gross Revenue(1) Gross Revenue(1) 9
10 Net Interest Income and Net Interest Margin • Net interest income decreased to $19.6 million, or 10.4%, from $21.8 million in 4Q22, but increased 5.8% from $18.5 million in 1Q22 • Interest income up $14.8 million or 74.6% compared to 1Q22. Interest expense increased $13.8 million or 997% • Net interest income decreased from 4Q22 due to higher interest expense driven primarily by higher deposit costs, offset partially by higher interest income • Net interest margin decreased 37 bps to 2.93%, primarily due to an 80 basis point increase in average cost of deposits, driven by a rising rate environment and a highly competitive deposit market (in thousands) 1. See Non-GAAP reconciliation Net Interest Income Net Interest Margin
11 Non-Interest Income • Non-interest income decreased 11.3% from 4Q22, primarily due to seasonally lower risk management and insurance fees • Trust and Investment Management fees increased 6.4% from 4Q22 • Net gain on mortgage loans decreased from 1Q22 but increased from 4Q22 as the impact of loan production from expanded Arizona team more than offset seasonally slower production in Colorado • Volume of locks on mortgage loans originated for sale increased 41% from the prior quarter, with 96% of the originations being purchase loans (in thousands)(in thousands) Total Non-Interest Income Trust and Investment Management Fees
12 Non-Interest Expense and Efficiency Ratio • Non-interest expense increased 3.1% from 4Q22 • Increase primarily due to an increase in Salary and employee benefits, driven by the seasonality of payroll taxes in addition to lower deferred compensation due to fewer loan originations, partially offset by a decrease in technology and marketing expense • Headcount reduced by 22 FTE from 4Q22 to 1Q23 • Increase in FDIC insurance due to the FDIC's two basis point uniform increase in assessment rates and the Company's increase in total assets • Organizational-wide review of expense levels resulted in additional cost savings that are expected to keep non-interest expenses in the range of $19 million to $20 million for the remainder of 2023 (1) 1. See Non-GAAP reconciliation Total Non-Interest Expense Operating Efficiency Ratio(1) (in thousands) (1) (1) (1) (1)(1) ((1) (1) (1)
13 Asset Quality • CECL accounting standard adopted on January 1, 2023 with ACL/Total Loans of 84 bps and 47 bps coverage on off-balance sheet commitments. Total decrease to retained earnings of $5.3 million, net of tax impact ◦ Provision related to purchased loans upon adoption totaled $2.5 million • ACL/ Total Adjusted Loans(1) is 0.81% as of 1Q23 • $0.3 million release to provision for credit losses related to changes in volume and composition of loan portfolio, partially offset by increased provision on off-balance sheet commitments due to increased unfunded balances • Continue to experience immaterial amounts of credit losses Non-Performing Assets/Total Assets Net Charge-Offs/Average Loans 1. Adjusted Total Loans – Total Loans minus PPP loans and loans accounted for under fair value option; see non-GAAP reconciliation
14 Consistent Value Creation TBV/Share(1) Up 144% Since July 2018 IPO Wealth Management Segment Diluted Pre-Tax Earnings Per Share(1)
15 Near-Term Outlook •Prudent risk management will remain top priority while economic uncertainty remains, which will impact level of profitability in short term •We expect strength of balance sheet will enable First Western to capitalize on current turmoil in banking industry to add new clients and talent looking to move to a stronger financial institution •Reorganization of offices will enable senior leadership to devote more time to business development •Continued focus on disciplined expense control to realize more operating leverage •As during the pandemic, First Western is well positioned to be a source of strength and stability, capitalize on opportunities to add new clients, and generate continued long-term profitable growth that will create value for shareholders •Completed operating expense review in April that will reduce ongoing costs by 6.9% or $1.4 million per quarter vs. 1Q23 expenses
Appendix 16
17 Capital and Liquidity Overview Liquidity Funding Sources (as of 3/31/23) 1. See Non-GAAP reconciliation 2. Based on internal policy guidelines Consolidated Capital Ratios (as of 3/31/23) Tangible Common Equity / TBV per Share(1) (in thousands) Liquidity Reserves: Total Available Cash $293,570 Unpledged Investment Securities 22,019 Borrowed Funds: Secured: FHLB Available 716,956 FRB Available 329 Other: Brokered Remaining Capacity 394,480(2) Unsecured: Credit Lines 29,000 Total Liquidity Funding Sources $1,456,354 Loan to Deposit Ratio 103.2 %
18 Non-GAAP Reconciliation Consolidated Tangible Common Book Value Per Share As of, (Dollars in thousands) Dec. 31, 2018 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2021 Dec. 31, 2022 March 31, 2023 Total shareholders' equity $116,875 $127,678 $154,962 $219,041 $240,864 $239,822 Less: Goodwill and other intangibles, net 25,213 19,714 24,258 31,902 32,104 32,040 Intangibles held for sale(1) - 3,553 - - - - Tangible common equity 91,662 104,411 $130,704 187,139 208,760 207,782 Common shares outstanding, end of period 7,968,420 7,940,168 7,951,773 9,419,271 9,495,440 9,507,564 Tangible common book value per share $11.50 $13.15 $16.44 $19.87 $21.99 $21.85 Net income available to common shareholders $3,820 Return on tangible common equity (annualized) 7.35% 1. Represents the intangible portion of assets held for sale Consolidated Efficiency Ratio For the Three Months Ended, (Dollars in thousands) March 31, 2021 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Non-interest expense $19,358 $20,583 $19,260 $19,905 $20,528 Less: amortization 77 77 77 77 64 Less: acquisition related expenses 527 347 154 195 37 Adjusted non-interest expense $18,754 $20,159 $19,029 $19,633 $20,427 Net interest income $18,495 $20,152 $22,906 $21,842 $19,560 Non-interest income 8,389 6,926 6,345 6,561 5,819 Less: unrealized gains/(losses) recognized on equity securities (32) 299 75 - 10 Less: net gain/(loss) on loans accounted for under the fair value option - (155) (134) (602) (543) Less: Net gain on equity interests 1 - 6 - - Less: Net (loss)/gain on loans held for sale at fair value - - - (12) (178) Adjusted non-interest income 8,420 6,782 6,398 7,175 6,530 Total income $26,915 $26,934 $29,304 $29,017 $26,090 Efficiency ratio 69.68% 74.85% 64.94% 67.66% 78.29%
19 Non-GAAP Reconciliation Wealth Management Gross Revenue For the Three Months Ended, (Dollars in thousands) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Total income before non-interest expense $24,156 $25,282 $26,555 $26,623 $25,092 Less: unrealized gains/(losses) recognized on equity securities (32) 299 75 - 10 Less: net gain/(loss) on loans accounted for under the fair value option - (155) (134) (602) (543) Less: net gain on equity interests 1 - 6 - - Less: net (loss)/gain on loans held for sale at fair value - - - (12) (178) Plus: provision for credit losses 210 519 1,756 1,197 (310) Gross revenue $24,397 $25,657 $28,364 $28,434 $25,493 Mortgage Gross Revenue For the Three Months Ended, (Dollars in thousands) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Total income before non-interest expense $2,518 $1,277 $940 $583 $597 Plus: provision for credit losses - - - - - Gross revenue $2,518 $1,277 $940 $583 $597 Consolidated Gross Revenue For the Three Months Ended, (Dollars in thousands) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Total income before non-interest expense $26,674 $26,559 $27,495 $27,206 $25,689 Less: unrealized gains/(losses) recognized on equity securities (32) 299 75 - 10 Less: net gain/(loss) on loans accounted for under the fair value option - (155) (134) (602) (543) Less: net gain on equity interests 1 - 6 - - Less: net (loss)/gain on loans held for sale at fair value - - - (12) (178) Plus: provision for credit losses 210 519 1,756 1,197 (310) Gross revenue $26,915 $26,934 $29,304 $29,017 $26,090 Gross Revenue excluding net gain on mortgage loans For the Three Months Ended, (Dollars in thousands) March 31, 2022 December 31, 2022 March 31, 2023 Gross revenue $26,915 $29,017 $26,090 Less: net gain on mortgage loans 2,303 775 1,019 Gross revenue excluding net gain on mortgage loans $24,612 $28,242 $25,071
20 Non-GAAP Reconciliation Adjusted net income available to common shareholders For the Three Months Ended, (Dollars in thousands, except per share data) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Net income available to common shareholders $5,524 $4,482 $6,221 $5,471 $3,820 Plus: acquisition related expense including tax impact 398 260 116 146 27 Adjusted net income to common shareholders $5,922 $4,742 $6,337 $5,617 $3,847 Adjusted diluted earnings per share For the Three Months Ended, (Dollars in thousands, except per share data) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Diluted earnings per share $0.57 $0.46 $0.64 $0.56 $0.39 Plus: acquisition related expenses including tax impact 0.04 0.03 0.02 0.02 0.00 Adjusted diluted earnings per share $0.61 $0.49 $0.66 $0.58 $0.39 Allowance for credit losses to adjusted loans As of (Dollars in thousands) March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 March 31, 2023 Total loans held for investment $1,931,134 $2,150,148 $2,354,898 $2,476,135 $2,475,084 Less: Acquired loans 323,563 287,623 248,573 234,717 - (1) Less: PPP loans 13,109 9,053 6,905 6,378 5,967 Less: Purchased loans accounted for under fair value 6.368 21,149 22,648 23,415 21,052 Loans excluding acquired and PPP 1,588,094 1,832,323 2,076,772 2,211,625 2,448,065 Allowance for credit losses 13,885 14,357 16,081 17,183 19,843 Allowance for credit losses to loans excluding PPP 0.87% 0.78% 0.77% 0.78% 0.81 % Pre-tax, pre-provision net income For the Three Months Ended, (Dollars in thousands) March 31, 2022 December 31, 2022 March 31, 2023 Income before income taxes $7,316 $7,301 $5,161 Plus: provision for credit losses 210 1,197 (310) Pre-tax, pre-provision net income $7,526 $8,498 $4,851 1. Subsequent to the adoption of CECL on January 1, 2023, acquired loans are included in the Allowance for Credit Losses and therefore are no longer excluded from the total adjusted loan calculation.
21 Non-GAAP Reconciliation
22 Non-GAAP Reconciliation Adjusted net interest margin For the Three Months Ended March 31, 2022 For the Three Months Ended June 30, 2022 For the Three Months Ended September 30, 2022 For the Three Months Ended December 31, 2022 For the Three Months Ended March 31, 2023 (Dollars in thousands) Average Balance Interest Earned/Pai d Average Yield/Ra te Average Balance Interest Earned/Pai d Average Yield/Rat e Average Balance Interest Earned/Pai d Average Yield/Rat e Average Balance Interest Earned/Pai d Average Yield/Rat e Average Balance Interest Earned/Pai d Average Yield/Rat e Interest-bearing deposits in other financial institutions $475,942 $232 $321,673 $549 $101,824 $533 $103,190 $931 127,608 1,403 PPP adjustment 12,378 6 4,493 9 2,798 16 1,736 16 1,502 17 Investment securities 55,739 337 69,320 418 87,340 653 84,017 645 82,106 629 Correspondent bank stock 1,663 21 1,555 13 4,924 109 11,880 237 9,592 173 Loans 1,922,770 19,096 2,010,024 20,663 2,241,343 25,345 2,436,252 30,691 2,469,129 32,239 Loans HFS 22,699 191 19,389 229 11,531 157 9,065 146 18,020 268 PPP adjustment (30,481) (491) (13,385) (148) (9,026) (73) (7,350) (32) (6,470) (37) Purchase Accretion adjustment - (328) - (288) - 114 - (87) - (64) Adjusted total Interest- earning assets $2,460,710 $19,064 $2,413,069 $21,445 $2,443,734 $26,854 $2,638,790 $32,547 $2,701,487 34,628 Interest-bearing deposits 943 1,103 2,706 8,260 13,092 PPP adjustment - - - - - Federal Home Loan Bank Topeka and Federal Reserve borrowings 39 28 666 1,916 1,386 PPP adjustment (16) (8) (3) (6) (5) Subordinated notes 400 361 362 486 674 Adjusted total interest- bearing liabilities 1,366 1,484 3,731 10,656 15,147 Net interest income 17,698 19,961 23,123 21,891 19,481 Adjusted net interest margin 2.92% 3.32% 3.84% 3.29% 2.92%