First Western Reports Third Quarter 2022 Financial Results

Third Quarter 2022 Summary

• Net income available to common shareholders of $6.2 million in Q3 2022, compared to $4.5 million in Q2 2022 and $6.4 million in Q3 2021
• Diluted EPS of $0.64 in Q3 2022, compared to $0.46 in Q2 2022 and $0.78 in Q3 2021
• Pre-tax, pre-provision net income(1) of $10.0 million in Q3 2022, compared to $6.5 million in Q2 2022 and $8.9 million in Q3 2021
• Total income before non-interest expense of $27.5 million in Q3 2022, compared to $26.6 million in Q2 2022 and $24.9 million in Q3 2021
• Total loans held for investment increased at annualized rate of 38.1% in Q3 2022
• Book value per common share increased to $24.74, or 2.8%, from $24.06 as of Q2 2022, and was up 13.1% from $21.88 as of Q3 2021

DENVER, Oct. 20, 2022 (GLOBE NEWSWIRE) -- First Western Financial, Inc., (“First Western” or the “Company”) (NASDAQ: MYFW), today reported financial results for the third quarter ended September 30, 2022.

Net income available to common shareholders was $6.2 million, or $0.64 per diluted share, for the third quarter of 2022. This compares to $4.5 million, or $0.46 per diluted share, for the second quarter of 2022, and $6.4 million, or $0.78 per diluted share, for the third quarter of 2021.

Scott C. Wylie, CEO of First Western, commented, “We continue to see healthy economic conditions and loan demand throughout our markets, resulting in another quarter of strong, well balanced loan growth. We had increases in most of our major portfolios and total annualized loan growth of 38% in the quarter. With the strong growth we are generating in net interest income through the increase in our loan portfolio and the higher net interest margin we are now producing, we delivered a significant increase in earnings and our level of returns compared to the prior quarter, as well as further growth in book value and tangible book value per share.

“Although we have not yet seen a material slowdown in economic activity in our markets, given our conservative approach, we are making adjustments in our underwriting and loan pricing to reflect the potential for weakening economic conditions. As a result, it is likely that our loan growth moderates from the high level we experienced through the first nine months of the year. Even with this more cautious approach, we believe we are well positioned to still generate significant loan growth and continue delivering strong financial results for our shareholders, while maintaining exceptional asset quality and high levels of capital,” 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.

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(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.

Operating Results for the Third Quarter 2022

Revenue

Gross revenue (1) was $29.3 million for the third quarter of 2022, an increase of 8.8% from $26.9 million for the second quarter of 2022, primarily driven by an increase in average loan balances and an increase in net interest margin. Relative to the third quarter of 2021, gross revenue increased 15.6% from $25.3 million for the third quarter of 2021, primarily driven by growth in interest-earning assets and an increase in net interest margin.

(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 third quarter of 2022 was $22.8 million, an increase of 13.2% from $20.1 million in the second quarter of 2022. The increase was due to higher average loan balances and an increase in net interest margin.

Relative to the third quarter of 2021, net interest income increased 53.6% from $14.8 million. The year-over-year increase in net interest income was due to an increase in net interest margin attributable to the higher rate environment and increased average interest-earning assets. The increase in average interest-earning assets was driven by growth in average loans of $648.5 million compared to September 30, 2021, resulting from organic loan growth and the Teton Financial Services, Inc. (“Teton”) acquisition.

Net Interest Margin

Net interest margin for the third quarter of 2022 increased 40 bps to 3.75% from 3.35% reported in the second quarter of 2022, primarily due to higher yields on interest-earning assets and a more favorable mix of earning assets.

The yield on interest-earning assets increased to 4.37% in the third quarter of 2022 from 3.60% in the second quarter of 2022 and the cost of interest-bearing deposits increased to 0.73% in the third quarter of 2022, from 0.29% in the second quarter of 2022.

Relative to the third quarter of 2021, net interest margin increased from 3.14%, primarily due to increased yields attributable to the rising rate environment and higher average loan balances, as a result of strong organic loan growth and the Teton acquisition.

Non-interest Income

Non-interest income for the third quarter of 2022 was $6.5 million, a decrease of 7.0% from $6.9 million in the second quarter of 2022. This was primarily due to a $0.3 million decrease in net gain on mortgage loans due to a reduction in the amount of mortgage loans originated for sale, a $0.2 million decrease in unrealized gain recognized on equity securities, and a $0.1 million decrease in trust and investment management fees, which were negatively impacted by lower equity and fixed income market valuations.

Relative to the third quarter of 2021, non-interest income decreased 38.5% from $10.5 million. The decrease was primarily due to lower mortgage segment activity as higher interest rates drove declines in both refinance and purchase volume.

Non-interest Expense

Non-interest expense for the third quarter of 2022 was $19.3 million, a decrease of 6.4% from $20.6 million in the second quarter of 2022. The decrease was primarily due to a decline in salaries and employment benefits driven by higher deferred loan costs, lower incentive compensation, and a decline in health insurance and payroll taxes.

Relative to the third quarter of 2021, non-interest expense increased 17.0% from $16.5 million. The increase is primarily due to the addition of Teton’s operations at the end of 2021 which increased salary and benefits as well as occupancy expenses.

The impact of the mergers and acquisition activity is as follows (in thousands):

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(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.
(2) Represents reduced contract termination fees from the system conversion.

The Company’s efficiency ratio(1) was 64.9% in the third quarter of 2022, compared with 74.9% in the second quarter of 2022 and 63.7% in the third quarter of 2021.

(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 $2.0 million for the third quarter of 2022, representing an effective tax rate of 24.5%, compared to 25.0% for the second quarter of 2022.

Loans

Total loans held for investment were $2.35 billion as of September 30, 2022, an increase of 9.5% from $2.15 billion as of June 30, 2022, and an increase of 46.9% from $1.60 billion as of September 30, 2021. The increase in total loans held for investment from June 30, 2022 was attributable to loan growth distributed amongst our residential mortgage, construction and development, commercial and industrial, and commercial real estate portfolios. The increase in total loans held for investment from September 30, 2021 was attributable to loan growth distributed amongst our residential mortgage, construction and development, commercial and industrial, and commercial real estate portfolios and loans added through the Teton acquisition.

Deposits

Total deposits remained flat for the third quarter of 2022, at $2.17 billion, compared to June 30, 2022. Relative to the third quarter of 2021, total deposits increased 21.6% from $1.78 billion as of September 30, 2021, driven primarily by deposits added through the Teton acquisition.

Borrowings

Federal Home Loan Bank (“FHLB”) and Federal Reserve borrowings were $273.2 million as of September 30, 2022, an increase of $186.0 million from $87.2 million as of June 30, 2022, and an increase of $214.7 million from $58.6 million as of September 30, 2021. The increase from both prior periods was primarily driven by additional FHLB borrowings to support the strong loan growth in the third quarter of 2022.

Assets Under Management

Total assets under management (“AUM”) decreased by $359.2 million during the third quarter to $5.92 billion as of September 30, 2022, compared to $6.28 billion as of June 30, 2022. This decrease was primarily attributable to unfavorable market conditions resulting in a decrease in the value of AUM balances. Total AUM decreased by $987.5 million compared to September 30, 2021 from $6.91 billion, which was primarily attributable to unfavorable market conditions throughout 2022 resulting in a decrease in the value of AUM balances.

Credit Quality

Non-performing assets totaled $3.9 million, or 0.14% of total assets, as of September 30, 2022, compared to $4.3 million, or 0.17% of total assets, as of June 30, 2022 and $4.4 million, or 0.21% of total assets, as of September 30, 2021. The reduction in non-performing assets from the end of the prior quarter is due to the sale of an other real estate owned property of $0.2 million and a net reduction in impaired loans of $0.2 million.

The Company recorded a provision of $1.8 million in the third quarter of 2022, compared to a provision of $0.5 million in the second quarter of 2022 and $0.4 million in the third quarter of 2021. The provision recorded in the third quarter of 2022 represented general provisioning consistent with growth of the bank originated loan portfolio, and changes in the portfolio mix.

Capital

As of September 30, 2022, First Western (“Consolidated”) and First Western Trust Bank (“Bank”) exceeded the minimum capital levels required by their respective regulators. As of September 30, 2022, the Bank was classified as “well capitalized,” as summarized in the following table:

Book value per common share increased 2.8% from $24.06 as of June 30, 2022 to $24.74 as of September 30, 2022, and was up 13.1% from $21.88 as of September 30, 2021.

Tangible book value per common share (1) increased 3.4% from $20.65 as of June 30, 2022 to $21.35 as of September 30, 2022, and was up 13.3% from $18.85 as of September 30, 2021.

(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, October 21, 2022. Telephone access: https://register.vevent.com/register/BI8dd29036914947f9a28fcabff9f4af72

A slide presentation relating to the third quarter 2022 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.

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 Loan Losses to Bank Originated Loans Excluding PPP,” “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.

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 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 loan 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, 2022 (“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

First Western Financial, Inc.
Consolidated Financial Summary (unaudited)

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(1) Includes PPP loans of $7.7 million as of September 30, 2022, $10.7 million as of June 30, 2022, and $61.9 million as of September 30, 2021.
(2) Includes loans held for investment accounted for under fair value option of $22.6 million and $21.1 million as of September 30, 2022 and June 30, 2022, respectively.
(3) Includes fair value adjustments on loans held for investment accounted for under the fair value option.

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(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.

Reconciliations of Non-GAAP Financial Measures