8-K
First Western Financial Inc (MYFW)
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): January 26, 2023
FIRST WESTERN FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| Colorado | 001-38595 | 37-1442266 |
|---|---|---|
| (State or other jurisdiction of<br>incorporation or organization) | (Commission<br>File Number) | (I.R.S. Employer<br>Identification No.) |
| 1900 16th Street, Suite 1200<br><br>Denver, Colorado | 80202 | |
| (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:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | 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).
| x | Emerging growth company |
|---|---|
| x | 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 |
|---|---|---|
| Common Stock, no par value | MYFW | NASDAQ Stock Market LLC |
Item 2.02 Results of Operations and Financial Condition.
On January 26, 2023, First Western Financial, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter ended December 31, 2022. 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 fourth quarter ended December 31, 2022 on Friday, January 27, 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 fourth quarter ended December 31, 2022 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<br>Number | Description |
|---|---|
| 99.1 | Press Release issued by First Western Financial, Inc. dated January 26, 2023 |
| 99.2 | First Western Financial, Inc. Earnings Presentation |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document) |
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: January 26, 2023 | By: /s/ Scott C. Wylie |
| Scott C. Wylie | |
| Chairman, Chief Executive Officer and President |
3
Document
Exhibit 99.1
First Western Reports Fourth Quarter 2022 Financial Results
Fourth Quarter 2022 Summary
•Total deposits increased $237.8 million, at an annualized rate of 43.9%, in Q4 2022
•Total loans held for investment increased $121.2 million, at an annualized rate of 20.6%, in Q4 2022
•Net income available to common shareholders of $5.5 million in Q4 2022, compared to $6.2 million in Q3 2022 and $1.9 million in Q4 2021
•Diluted EPS of $0.56 in Q4 2022, compared to $0.64 in Q3 2022 and $0.23 in Q4 2021
•Pre-tax, pre-provision net income(1) of $8.5 million in Q4 2022, compared to $10.0 million in Q3 2022 and $3.4 million in Q4 2021
•Book value per common share increased to $25.37, or 2.5%, from $24.74 as of Q3 2022, and was up 9.1% from $23.25 as of Q4 2021
Denver, Colo., January 26, 2023 – First Western Financial, Inc. (“First Western” or the “Company”) (NASDAQ: MYFW), today reported financial results for the fourth quarter ended December 31, 2022.
Net income available to common shareholders was $5.5 million, or $0.56 per diluted share, for the fourth quarter of 2022. This compares to $6.2 million, or $0.64 per diluted share, for the third quarter of 2022, and $1.9 million, or $0.23 per diluted share, for the fourth quarter of 2021.
Scott C. Wylie, CEO of First Western, commented, “We had another strong quarter of business development resulting in double-digit annualized loan and deposit growth. While tightening our underwriting criteria and loan pricing, given the potential for weakening economic conditions, we still had 21% annualized loan growth, partially driven by increasing contributions from the teams we have added to expand our presence in Arizona, Wyoming and Montana. Importantly, our increased focus on deposit gathering resulted in deposit growth that was more than twice the rate of our loan growth, which significantly reduced our loan-to-deposit ratio. Our balance sheet growth enabled us to continue generating strong earnings and further growth in book value and tangible book value per share.
“With our conservatively underwritten, well diversified loan portfolio and the financial strength of the clients we serve, we have consistently maintained strong asset quality during past economic downturns and we expect it to continue performing well this year. At the same time, given the strong business development capabilities we have built and the increasing traction we are getting in our newer markets, we expect to continue generating solid balance sheet growth, realizing more operating leverage, and delivering a higher level of earnings. While it appears that the macroeconomic environment will be challenging in 2023, we believe we are well positioned to continue profitably growing our franchise and creating shareholder value,” 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 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | |||||||
| (Dollars in thousands, except per share data) | 2022 | 2022 | 2021 | ||||||
| Earnings Summary | |||||||||
| Net interest income | $ | 21,842 | $ | 22,906 | $ | 14,407 | |||
| Provision for loan losses | 1,197 | 1,756 | 812 | ||||||
| Total non-interest income | 6,561 | 6,345 | 9,516 | ||||||
| Total non-interest expense | 19,905 | 19,260 | 20,524 | ||||||
| Income before income taxes | 7,301 | 8,235 | 2,587 | ||||||
| Income tax expense | 1,830 | 2,014 | 670 | ||||||
| Net income available to common shareholders | 5,471 | 6,221 | 1,917 | ||||||
| Adjusted net income available to common shareholders(1) | 5,617 | 6,337 | 4,776 | ||||||
| Basic earnings per common share | 0.58 | 0.66 | 0.24 | ||||||
| Adjusted basic earnings per common share(1) | 0.59 | 0.67 | 0.59 | ||||||
| Diluted earnings per common share | 0.56 | 0.64 | 0.23 | ||||||
| Adjusted diluted earnings per common share(1) | 0.58 | 0.66 | 0.57 | ||||||
| Return on average assets (annualized) | 0.79 | % | 0.97 | % | 0.37 | % | |||
| Adjusted return on average assets (annualized)(1) | 0.82 | 0.99 | 0.91 | ||||||
| Return on average shareholders' equity (annualized) | 9.17 | 10.70 | 4.28 | ||||||
| Adjusted return on average shareholders' equity (annualized)(1) | 9.41 | 10.90 | 10.66 | ||||||
| Return on tangible common equity (annualized)(1) | 10.48 | 12.28 | 4.10 | ||||||
| Adjusted return on tangible common equity (annualized)(1) | 10.76 | 12.51 | 10.21 | ||||||
| Net interest margin | 3.32 | 3.76 | 2.92 | ||||||
| Efficiency ratio(1) | 67.66 | 64.94 | 71.77 |
____________________
(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 Fourth Quarter 2022
Revenue
Gross revenue (1) was $29.0 million for the fourth quarter of 2022, a slight decrease of 1.0% from $29.3 million for the third quarter of 2022. Relative to the fourth quarter of 2021, gross revenue increased 23.8% from $23.4 million for the fourth 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 fourth quarter of 2022 was $21.8 million, a decrease of 4.6% from $22.9 million in the third quarter of 2022. The decrease was due to higher interest expense resulting from the strong growth in total deposits in the fourth quarter, as well as an increase in the average cost of deposits due to the rising rate environment and a highly competitive deposit market.
Relative to the fourth quarter of 2021, net interest income increased 51.6% from $14.4 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 $782.4 million compared to December 31, 2021, resulting from organic loan growth and the Teton acquisition.
Net Interest Margin
Net interest margin for the fourth quarter of 2022 decreased 44 bps to 3.32% from 3.76% reported in the third quarter of 2022, primarily due to a 106 bps increase in average cost of funds, driven by a rising rate environment and a highly competitive deposit market.
The yield on interest-earning assets increased to 4.93% in the fourth quarter of 2022 from 4.38% in the third quarter of 2022 and the cost of interest-bearing deposits increased to 2.09% in the fourth quarter of 2022 from 0.73% in the third quarter of 2022.
Relative to the fourth quarter of 2021, net interest margin increased from 2.92%, 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, more than offsetting the increase in cost of funds.
Non-interest Income
Non-interest income for the fourth quarter of 2022 was $6.6 million, an increase of 3.4%, from $6.3 million in the third quarter of 2022. This was primarily due to an $0.8 million increase in risk management and insurance fees due to seasonal increases, partially offset by losses on loans held for investment under the fair value option of $0.5 million due primarily to the rising rate environment.
Relative to the fourth quarter of 2021, non-interest income decreased 31.1% from $9.5 million. The decrease was primarily due to lower mortgage segment activity as higher interest rates drove declines in both refinance and purchase volume, 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 fourth quarter of 2022 was $19.9 million, an increase of 3.3%, from $19.3 million in the third quarter of 2022. The increase was primarily due to an increase in data processing fees and other operational costs attributable to nonrecurring implementation charges related to the trust and investment management system enhancements.
Relative to the fourth quarter of 2021, non-interest expense decreased 3.0% from $20.5 million. The decrease was primarily due to the addition of Teton’s operations at the end of 2021 which increased data processing costs for one-time system conversion and termination fees.
The impact of the merger and acquisition activity was as follows (in thousands):
| As of or for the Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | ||||
| 2022 | 2022 | 2021 | ||||
| Adjusted Net Income Available to Common Shareholders(1) | ||||||
| Net income available to common shareholders | $ | 5,471 | $ | 6,221 | $ | 1,917 |
| Plus: acquisition related expenses | ||||||
| Salaries and employee benefits | 112 | 98 | 547 | |||
| Professional services | 87 | 90 | 713 | |||
| Data processing(2) | — | (96) | 2,428 | |||
| Technology and information systems | 1 | 1 | — | |||
| Marketing | — | 7 | — | |||
| Other | (5) | 54 | 8 | |||
| Less: income tax impact | 49 | 38 | 837 | |||
| Adjusted net income available to shareholders(1) | $ | 5,617 | $ | 6,337 | $ | 4,776 |
| Adjusted Diluted Earnings Per Share(1) | ||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.64 | $ | 0.23 |
| Plus: acquisition related expenses net of income tax impact | 0.02 | 0.02 | 0.34 | |||
| Adjusted diluted earnings per share(1) | $ | 0.58 | $ | 0.66 | $ | 0.57 |
____________________
(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 67.7% in the fourth quarter of 2022, compared with 64.9% in the third quarter of 2022 and 71.8% in the fourth 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 $1.8 million for the fourth quarter of 2022, representing an effective tax rate of 25.1%, compared to 24.5% for the third quarter of 2022.
Loans
Total loans held for investment were $2.48 billion as of December 31, 2022, an increase of 5.1% from $2.35 billion as of September 30, 2022, and an increase of 26.7% from $1.95 billion as of December 31, 2021. The increase in total loans held for investment from September 30, 2022 was primarily attributable to growth in the residential mortgage, construction and development, and commercial and industrial portfolios. The increase in total loans held for investment from December 31, 2021 was attributable to loan growth distributed amongst our residential mortgage, construction and development, commercial and industrial, and commercial real estate portfolios.
Deposits
Total deposits were $2.41 billion as of December 31, 2022, an increase of 11.0% from $2.17 billion as of September 30, 2022. Relative to the fourth quarter of 2021, total deposits increased 9.0% from $2.21 billion as of December 31, 2021, driven primarily by organic growth through expanded client relationships.
Borrowings
Federal Home Loan Bank (“FHLB”) and Federal Reserve borrowings were $146.9 million as of December 31, 2022, a decrease of $126.3 million from $273.2 million as of September 30, 2022, and an increase of $108.3 million from $38.6 million as of December 31, 2021. The decrease in borrowings from September 30, 2022 was driven by our reduced reliance on FHLB borrowings due to deposit growth throughout the quarter. Relative to the fourth quarter of 2021, total borrowings increased to support the strong loan growth throughout 2022.
Subordinated notes were $52.1 million as of December 31, 2022, an increase of $19.5 million from $32.6 million as of September 30, 2022 and an increase of $13.1 million from $39.0 million as of December 31, 2021. On December 5, 2022, the Company completed the issuance and sale of subordinated notes (the "December 2022 Sub Notes") totaling $20.0 million in aggregate principal amount. The December 2022 Sub Notes mature on December 15, 2032 (the "Maturity Date") and accrue interest at a rate of 7.00% per annum, payable semi-annually in arrears, to, but excluding, December 15, 2027. From and including December 15, 2027 to, but excluding the Maturity Date or early redemption date, the interest rate will reset quarterly to an interest rate per annum equal to Three-Month term SOFR, or an alternative rate determined in accordance with the terms of the Notes if Three-Month Term SOFR cannot be determined or a Benchmark Transition Event (as defined in the Notes) has occurred, plus 328 basis points, payable quarterly in arrears.
Assets Under Management
AUM increased by $188.6 million during the fourth quarter to $6.11 billion as of December 31, 2022, compared to $5.92 billion as of September 30, 2022. This increase was attributable to an increase in market values at the end of the fourth quarter 2022. Total AUM decreased by $1.24 billion compared to December 31, 2021 from $7.35 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 $12.3 million, or 0.43% of total assets, as of December 31, 2022, compared to $3.9 million, or 0.14% of total assets, as of September 30, 2022 and $4.3 million, or 0.17% of total assets, as of December 31, 2021. The increase in non-performing assets is related to the addition of $8.9 million in problem loan credits at the end of the fourth quarter. The Company did not add a specific reserve to these new problem credits due to adequate collateral coverage as of December 31, 2022.
The Company recorded a provision of $1.2 million in the fourth quarter of 2022, compared to a provision of $1.8 million in the third quarter of 2022 and $0.8 million in the fourth quarter of 2021. The provision recorded in the fourth quarter of 2022 represented general provisioning consistent with our net growth of the bank originated loan portfolio and changes in our portfolio mix.
The Company adopted the new current expected credit losses ("CECL") standard effective January 1, 2023. Based on preliminary results, the Company expects its allowance for credit losses ("ACL") coverage ratio to be within a range of approximately 75-90 bps of total loans and 30-45 bps coverage on off-balance sheet commitments.
Capital
As of December 31, 2022, First Western (“Consolidated”) and First Western Trust Bank (“Bank”) exceeded the minimum capital levels required by their respective regulators. As of December 31, 2022, the Bank was classified as “well capitalized,” as summarized in the following table:
| December 31, | ||
|---|---|---|
| 2022 | ||
| 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 | 12.37 | |
| Tier 1 capital to average assets | 7.81 | |
| Bank Capital | ||
| Tier 1 capital to risk-weighted assets | 10.29 | |
| CET1 to risk-weighted assets | 10.29 | |
| Total capital to risk-weighted assets | 11.06 | |
| Tier 1 capital to average assets | 8.65 |
Book value per common share increased 2.5% from $24.74 as of September 30, 2022 to $25.37 as of December 31, 2022, and was up 9.1% from $23.25 as of December 31, 2021.
Tangible book value per common share (1) increased 3.0% from $21.35 as of September 30, 2022 to $21.99 as of December 31, 2022, and was up 10.7% from $19.87 as of December 31, 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, January 27, 2023. Telephone access: https://register.vevent.com/register/BIef5fe496336a49e087313418c55050b5
A slide presentation relating to the fourth 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)
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | ||||
| (Dollars in thousands, except per share amounts) | 2022 | 2022 | 2021 | |||
| Interest and dividend income: | ||||||
| Loans, including fees | $ | 30,203 | $ | 24,831 | $ | 15,398 |
| Loans accounted for under the fair value option | 488 | 513 | — | |||
| Investment securities | 645 | 653 | 225 | |||
| Interest-bearing deposits in other financial institutions | 931 | 533 | 109 | |||
| Dividends, restricted stock | 238 | 109 | 20 | |||
| Total interest and dividend income | 32,505 | 26,639 | 15,752 | |||
| Interest expense: | ||||||
| Deposits | 8,260 | 2,706 | 813 | |||
| Other borrowed funds | 2,403 | 1,027 | 532 | |||
| Total interest expense | 10,663 | 3,733 | 1,345 | |||
| Net interest income | 21,842 | 22,906 | 14,407 | |||
| Less: provision for loan losses | 1,197 | 1,756 | 812 | |||
| Net interest income, after provision for loan losses | 20,645 | 21,150 | 13,595 | |||
| Non-interest income: | ||||||
| Trust and investment management fees | 4,358 | 4,639 | 5,184 | |||
| Net gain on mortgage loans | 775 | 885 | 2,470 | |||
| Bank fees | 812 | 586 | 615 | |||
| Risk management and insurance fees | 924 | 115 | 676 | |||
| Income on company-owned life insurance | 88 | 88 | 88 | |||
| Net (loss)/gain on loans accounted for under the fair value option | (602) | (134) | — | |||
| Unrealized gain/(loss) recognized on equity securities | — | 75 | — | |||
| Net gain/(loss) on equity interests | — | 6 | 483 | |||
| Other | 206 | 85 | — | |||
| Total non-interest income | 6,561 | 6,345 | 9,516 | |||
| Total income before non-interest expense | 27,206 | 27,495 | 23,111 | |||
| Non-interest expense: | ||||||
| Salaries and employee benefits | 11,679 | 11,566 | 11,013 | |||
| Occupancy and equipment | 1,910 | 1,836 | 1,588 | |||
| Professional services | 2,027 | 2,316 | 2,164 | |||
| Technology and information systems | 1,168 | 1,172 | 916 | |||
| Data processing | 1,223 | 888 | 3,307 | |||
| Marketing | 500 | 403 | 497 | |||
| Amortization of other intangible assets | 77 | 77 | 4 | |||
| Net (gain)/loss on assets held for sale | — | (1) | — | |||
| Net (gain)/loss on sale of other real estate owned | (3) | (41) | — | |||
| Other | 1,324 | 1,044 | 1,035 | |||
| Total non-interest expense | 19,905 | 19,260 | 20,524 | |||
| Income before income taxes | 7,301 | 8,235 | 2,587 | |||
| Income tax expense | 1,830 | 2,014 | 670 | |||
| Net income available to common shareholders | $ | 5,471 | $ | 6,221 | $ | 1,917 |
| Earnings per common share: | ||||||
| Basic | $ | 0.58 | $ | 0.66 | $ | 0.24 |
| Diluted | 0.56 | 0.64 | 0.23 |
First Western Financial, Inc.
Consolidated Financial Summary (unaudited)
| December 31, | September 30, | December 31, | ||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2022 | 2022 | 2021 | |||
| Assets | ||||||
| Cash and cash equivalents: | ||||||
| Cash and due from banks | $ | 4,926 | $ | 8,308 | $ | 6,487 |
| Federal funds sold | — | — | 1,491 | |||
| Interest-bearing deposits in other financial institutions | 191,586 | 156,940 | 379,005 | |||
| Total cash and cash equivalents | 196,512 | 165,248 | 386,983 | |||
| Available-for-sale securities, at fair value | — | — | 56,211 | |||
| Held-to-maturity securities, at amortized cost (fair value of $74,718 and $78,624 as of December 31, 2022 and September 30, 2022, respectively) | 81,056 | 84,257 | — | |||
| Correspondent bank stock, at cost | 7,110 | 12,783 | 2,584 | |||
| Mortgage loans held for sale, at fair value | 8,839 | 12,743 | 30,620 | |||
| Loans held for sale, at fair value | 1,965 | — | — | |||
| Loans (includes $23,321, $22,871, and $0 measured at fair value, respectively) | 2,469,413 | 2,351,322 | 1,949,137 | |||
| Allowance for loan losses | (17,183) | (16,081) | (13,732) | |||
| Loans, net | 2,452,230 | 2,335,241 | 1,935,405 | |||
| Premises and equipment, net | 25,118 | 24,668 | 23,976 | |||
| Accrued interest receivable | 10,445 | 8,451 | 7,151 | |||
| Accounts receivable | 4,873 | 5,947 | 5,267 | |||
| Other receivables | 1,973 | 2,868 | 1,949 | |||
| Other real estate owned, net | — | 187 | — | |||
| Goodwill and other intangible assets, net | 32,104 | 32,181 | 31,902 | |||
| Deferred tax assets, net | 6,914 | 6,849 | 6,845 | |||
| Company-owned life insurance | 16,152 | 16,064 | 15,803 | |||
| Other assets | 21,457 | 21,212 | 22,678 | |||
| Assets held for sale | — | — | 115 | |||
| Total assets | $ | 2,866,748 | $ | 2,728,699 | $ | 2,527,489 |
| Liabilities | ||||||
| Deposits: | ||||||
| Noninterest-bearing | $ | 583,092 | $ | 662,055 | $ | 636,304 |
| Interest-bearing | 1,822,137 | 1,505,392 | 1,569,399 | |||
| Total deposits | 2,405,229 | 2,167,447 | 2,205,703 | |||
| Borrowings: | ||||||
| Federal Home Loan Bank and Federal Reserve borrowings | 146,886 | 273,225 | 38,629 | |||
| Subordinated notes | 52,132 | 32,584 | 39,031 | |||
| Accrued interest payable | 1,125 | 664 | 355 | |||
| Other liabilities | 20,512 | 19,917 | 24,730 | |||
| Total liabilities | 2,625,884 | 2,493,837 | 2,308,448 | |||
| Shareholders’ Equity | ||||||
| Total shareholders’ equity | 240,864 | 234,862 | 219,041 | |||
| Total liabilities and shareholders’ equity | $ | 2,866,748 | $ | 2,728,699 | $ | 2,527,489 |
First Western Financial, Inc.
Consolidated Financial Summary (unaudited)
| December 31, | September 30, | December 31, | ||||
|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2022 | 2022 | 2021 | |||
| Loan Portfolio | ||||||
| Cash, Securities, and Other(1) | $ | 165,670 | $ | 154,748 | $ | 261,190 |
| Consumer and Other(2) | 49,954 | 50,429 | 34,758 | |||
| Construction and Development | 288,497 | 228,060 | 178,716 | |||
| 1-4 Family Residential | 898,154 | 822,796 | 580,872 | |||
| Non-Owner Occupied CRE | 496,776 | 527,836 | 482,622 | |||
| Owner Occupied CRE | 216,056 | 220,075 | 212,426 | |||
| Commercial and Industrial | 361,028 | 350,954 | 203,584 | |||
| Total loans held for investment | 2,476,135 | 2,354,898 | 1,954,168 | |||
| Deferred (fees) costs and unamortized premiums/(unaccreted discounts), net(3) | (6,722) | (3,576) | (5,031) | |||
| Gross loans | $ | 2,469,413 | $ | 2,351,322 | $ | 1,949,137 |
| Mortgage loans held for sale | $ | 8,839 | $ | 12,743 | $ | 30,620 |
| Loans held for sale | 1,965 | — | — | |||
| Deposit Portfolio | ||||||
| Money market deposit accounts | $ | 1,336,092 | $ | 1,010,846 | $ | 1,056,669 |
| Time deposits | 224,090 | 186,680 | 170,491 | |||
| Negotiable order of withdrawal accounts | 234,778 | 277,225 | 309,940 | |||
| Savings accounts | 27,177 | 30,641 | 32,299 | |||
| Total interest-bearing deposits | 1,822,137 | 1,505,392 | 1,569,399 | |||
| Noninterest-bearing accounts | 583,092 | 662,055 | 636,304 | |||
| Total deposits | $ | 2,405,229 | $ | 2,167,447 | $ | 2,205,703 |
____________________
(1) Includes PPP loans of $7.1 million as of December 31, 2022, $7.7 million as of September 30, 2022, and $46.8 million as of December 31, 2021.
(2) Includes loans held for investment accounted for under fair value option of $23.4 million and $22.6 million as of December 31, 2022 and September 30, 2022, respectively.
(3) Includes fair value adjustments on loans held for investment accounted for under the fair value option.
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | |||||||
| (Dollars in thousands) | 2022 | 2022 | 2021 | ||||||
| Average Balance Sheets | |||||||||
| Assets | |||||||||
| Interest-earning assets: | |||||||||
| Interest-bearing deposits in other financial institutions | $ | 103,190 | $ | 101,564 | $ | 277,915 | |||
| Federal funds sold | — | 260 | 1,491 | ||||||
| Investment securities | 84,017 | 87,340 | 36,001 | ||||||
| Correspondent bank stock | 11,880 | 4,924 | 1,744 | ||||||
| Loans | 2,436,273 | 2,241,343 | 1,653,919 | ||||||
| Interest-earning assets | 2,635,360 | 2,435,431 | 1,971,070 | ||||||
| Mortgage loans held for sale | 9,065 | 11,535 | 39,112 | ||||||
| Total interest-earning assets, plus mortgage loans held for sale | 2,644,425 | 2,446,966 | 2,010,182 | ||||||
| Allowance for loan losses | (16,724) | (14,981) | (13,224) | ||||||
| Noninterest-earning assets | 125,355 | 126,457 | 94,589 | ||||||
| Total assets | $ | 2,753,056 | $ | 2,558,442 | $ | 2,091,547 | |||
| Liabilities and Shareholders’ Equity | |||||||||
| Interest-bearing liabilities: | |||||||||
| Interest-bearing deposits | $ | 1,582,587 | $ | 1,480,288 | $ | 1,195,986 | |||
| FHLB and Federal Reserve borrowings | 212,693 | 119,025 | 49,115 | ||||||
| Subordinated notes | 38,335 | 32,564 | 39,017 | ||||||
| Total interest-bearing liabilities | 1,833,615 | 1,631,877 | 1,284,118 | ||||||
| Noninterest-bearing liabilities: | |||||||||
| Noninterest-bearing deposits | 659,076 | 673,949 | 608,693 | ||||||
| Other liabilities | 21,660 | 20,103 | 19,566 | ||||||
| Total noninterest-bearing liabilities | 680,736 | 694,052 | 628,259 | ||||||
| Total shareholders’ equity | 238,705 | 232,513 | 179,170 | ||||||
| Total liabilities and shareholders’ equity | $ | 2,753,056 | $ | 2,558,442 | $ | 2,091,547 | |||
| Yields/Cost of funds (annualized) | |||||||||
| Interest-bearing deposits in other financial institutions | 3.61 | % | 2.08 | % | 0.16 | % | |||
| Investment securities | 3.07 | 2.99 | 2.50 | ||||||
| Correspondent bank stock | 8.01 | 8.85 | 4.59 | ||||||
| Loans | 5.04 | 4.52 | 3.72 | ||||||
| Interest-earning assets | 4.93 | 4.38 | 3.20 | ||||||
| Mortgage loans held for sale | 6.44 | 5.44 | 3.14 | ||||||
| Total interest-earning assets, plus mortgage loans held for sale | 4.94 | 4.38 | 3.20 | ||||||
| Interest-bearing deposits | 2.09 | 0.73 | 0.27 | ||||||
| FHLB and Federal Reserve borrowings | 3.61 | 2.23 | 0.45 | ||||||
| Subordinated notes | 5.07 | 4.45 | 4.89 | ||||||
| Total interest-bearing liabilities | 2.33 | 0.92 | 0.42 | ||||||
| Net interest margin | 3.32 | 3.76 | 2.92 | ||||||
| Net interest rate spread | 2.61 | 3.46 | 2.77 |
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | |||||||
| (Dollars in thousands, except share and per share amounts) | 2022 | 2022 | 2021 | ||||||
| Asset Quality | |||||||||
| Non-performing loans | $ | 12,349 | $ | 3,744 | $ | 4,327 | |||
| Non-performing assets | 12,349 | 3,931 | 4,327 | ||||||
| Net charge-offs | 95 | 32 | 44 | ||||||
| Non-performing loans to total loans | 0.50 | % | 0.16 | % | 0.22 | % | |||
| Non-performing assets to total assets | 0.43 | 0.14 | 0.17 | ||||||
| Allowance for loan losses to non-performing loans | 139.14 | 429.51 | 317.36 | ||||||
| Allowance for loan losses to total loans | 0.70 | 0.68 | 0.70 | ||||||
| Allowance for loan losses to bank originated loans excluding PPP(1) | 0.78 | 0.77 | 0.88 | ||||||
| Net charge-offs to average loans(2) | 0.00 | 0.00 | 0.00 | ||||||
| Assets Under Management | $ | 6,106,973 | $ | 5,918,403 | $ | 7,351,840 | |||
| Market Data | |||||||||
| Book value per share at period end | 25.37 | 24.74 | 23.25 | ||||||
| Tangible book value per common share(1) | 21.99 | 21.35 | 19.87 | ||||||
| Weighted average outstanding shares, basic | 9,493,732 | 9,481,311 | 8,043,469 | ||||||
| Weighted average outstanding shares, diluted | 9,702,908 | 9,673,078 | 8,370,998 | ||||||
| Shares outstanding at period end | 9,495,440 | 9,492,006 | 9,419,271 | ||||||
| Consolidated Capital | |||||||||
| Tier 1 capital to risk-weighted assets | 9.28 | % | 9.54 | % | 10.54 | % | |||
| CET1 to risk-weighted assets | 9.28 | 9.54 | 10.54 | ||||||
| Total capital to risk-weighted assets | 12.37 | 11.84 | 13.54 | ||||||
| Tier 1 capital to average assets | 7.81 | 8.18 | 9.31 | ||||||
| Bank Capital | |||||||||
| Tier 1 capital to risk-weighted assets | 10.29 | 10.32 | 11.40 | ||||||
| CET1 to risk-weighted assets | 10.29 | 10.32 | 11.40 | ||||||
| Total capital to risk-weighted assets | 11.06 | 11.09 | 12.19 | ||||||
| Tier 1 capital to average assets | 8.65 | 8.84 | 10.05 |
____________________
(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.
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
Reconciliations of Non-GAAP Financial Measures
| As of or for the Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | |||||||
| (Dollars in thousands, except share and per share amounts) | 2022 | 2022 | 2021 | ||||||
| Tangible Common | |||||||||
| Total shareholders' equity | $ | 240,864 | $ | 234,862 | $ | 219,041 | |||
| Less: goodwill and other intangibles, net | 32,104 | 32,181 | 31,902 | ||||||
| Tangible common equity | $ | 208,760 | $ | 202,681 | $ | 187,139 | |||
| Common shares outstanding, end of period | 9,495,440 | 9,492,006 | 9,419,271 | ||||||
| Tangible common book value per share | $ | 21.99 | $ | 21.35 | $ | 19.87 | |||
| Net income available to common shareholders | 5,471 | 6,221 | 1,917 | ||||||
| Return on tangible common equity (annualized) | 10.48 | % | 12.28 | % | 4.10 | % | |||
| Efficiency | |||||||||
| Non-interest expense | $ | 19,905 | $ | 19,260 | $ | 20,524 | |||
| Less: amortization | 77 | 77 | 4 | ||||||
| Less: acquisition related expenses | 195 | 154 | 3,696 | ||||||
| Adjusted non-interest expense | $ | 19,633 | $ | 19,029 | $ | 16,824 | |||
| Total income before non-interest expense | $ | 27,206 | $ | 27,495 | $ | 23,111 | |||
| Less: unrealized gain/(loss) recognized on equity securities | — | 75 | — | ||||||
| Less: net (loss)/gain on loans accounted for under the fair value option | (602) | (134) | — | ||||||
| Less: net gain/(loss) on equity interests | — | 6 | 483 | ||||||
| Less: net (loss)/gain on loans held for sale at fair value(1) | (12) | — | — | ||||||
| Plus: provision for loan losses | 1,197 | 1,756 | 812 | ||||||
| Gross revenue | $ | 29,017 | $ | 29,304 | $ | 23,440 | |||
| Efficiency ratio | 67.66 | % | 64.94 | % | 71.77 | % | |||
| Allowance to Bank Originated Loans Excluding PPP | |||||||||
| Total loans held for investment | $ | 2,476,135 | $ | 2,354,898 | $ | 1,954,168 | |||
| Less: loans acquired | 234,717 | 248,573 | 360,661 | ||||||
| Less: bank originated PPP loans | 6,378 | 6,905 | 40,062 | ||||||
| Less: loans accounted for under fair value | 23,415 | 22,648 | — | ||||||
| Bank originated loans excluding PPP | $ | 2,211,625 | $ | 2,076,772 | $ | 1,553,445 | |||
| Allowance for loan losses | $ | 17,183 | $ | 16,081 | $ | 13,732 | |||
| Allowance for loan losses to bank originated loans excluding PPP | 0.78 | % | 0.77 | % | 0.88 | % |
___________________
(1) Presented in Other Non-interest income on the Consolidated Financial Summary statements
First Western Financial, Inc.
Consolidated Financial Summary (unaudited) (continued)
| As of or for the Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, | September 30, | December 31, | |||||||
| (Dollars in thousands, except share and per share data) | 2022 | 2022 | 2021 | ||||||
| Adjusted Net Income Available to Common Shareholders | |||||||||
| Net income available to common shareholders | $ | 5,471 | $ | 6,221 | $ | 1,917 | |||
| Plus: acquisition related expenses | 195 | 154 | 3,696 | ||||||
| Less: income tax impact | 49 | 38 | 837 | ||||||
| Adjusted net income available to shareholders | $ | 5,617 | $ | 6,337 | $ | 4,776 | |||
| Pre-Tax, Pre-Provision Net Income | |||||||||
| Income before income taxes | $ | 7,301 | $ | 8,235 | $ | 2,587 | |||
| Plus: provision for loan losses | 1,197 | 1,756 | 812 | ||||||
| Pre-tax, pre-provision net income | $ | 8,498 | $ | 9,991 | $ | 3,399 | |||
| Adjusted Basic Earnings Per Share | |||||||||
| Basic earnings per share | $ | 0.58 | $ | 0.66 | $ | 0.24 | |||
| Plus: acquisition related expenses net of income tax impact | 0.01 | 0.01 | 0.35 | ||||||
| Adjusted basic earnings per share | $ | 0.59 | $ | 0.67 | $ | 0.59 | |||
| Adjusted Diluted Earnings Per Share | |||||||||
| Diluted earnings per share | $ | 0.56 | $ | 0.64 | $ | 0.23 | |||
| Plus: acquisition related expenses net of income tax impact | 0.02 | 0.02 | 0.34 | ||||||
| Adjusted diluted earnings per share | $ | 0.58 | $ | 0.66 | $ | 0.57 | |||
| Adjusted Return on Average Assets (annualized) | |||||||||
| Return on average assets | 0.79 | % | 0.97 | % | 0.37 | % | |||
| Plus: acquisition related expenses net of income tax impact | 0.03 | 0.02 | 0.54 | ||||||
| Adjusted return on average assets | 0.82 | % | 0.99 | % | 0.91 | % | |||
| Adjusted Return on Average Shareholders' Equity (annualized) | |||||||||
| Return on average shareholders' equity | 9.17 | % | 10.70 | % | 4.28 | % | |||
| Plus: acquisition related expenses net of income tax impact | 0.24 | 0.20 | 6.38 | ||||||
| Adjusted return on average shareholders' equity | 9.41 | % | 10.90 | % | 10.66 | % | |||
| Adjusted Return on Tangible Common Equity (annualized) | |||||||||
| Return on tangible common equity | 10.48 | % | 12.28 | % | 4.10 | % | |||
| Plus: acquisition related expenses net of income tax impact | 0.28 | 0.23 | 6.11 | ||||||
| Adjusted return on tangible common equity | 10.76 | % | 12.51 | % | 10.21 | % |
15
earningspresentation1252
Fourth Quarter 2022 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, 2022 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 4Q22 Strong Deposit Growth 4Q22 Earnings Well Balanced Loan Growth ▪ Despite tighter underwriting and pricing criteria, total loans held for investment increased at 21% annualized rate ▪ Increasing contributions from newer markets in Arizona, Wyoming and Montana ▪ Growth in most major loan categories ▪ Strong deposit growth significantly reduced loan-to-deposit ratio ▪ Total Capital Ratio increased 53 bps from end of prior quarter to 12.37% Increase in Liquidity and Capital ▪ Increased focus on deposit gathering resulted in 44% annualized growth in total deposits ▪ Newer markets making larger contributions to deposit growth ▪ Net income available to common shareholders of $5.5 million, or $0.56 per diluted share ▪ Excluding acquisition-related expenses, adjusted net income of $5.6 million, or $0.58 per diluted share(1) (1) See Non-GAAP reconciliation
4 Net Income Available to Common Shareholders and Earnings per Share ▪ Net income of $5.5 million, or $0.56 diluted earnings per share, in 4Q22 ▪ Excluding acquisition-related expenses, adjusted diluted earnings per share(1) of $0.58 in 4Q22 ▪ Strong profitability resulted in 2.5% and 3.0% increase in book value per share and tangible book value per share(1), respectively, from 3Q22 ▪ Consistent value creation resulted in both book value and tangible book value per share(1) increasing by more than 9% during 2022 $1,917 $5,524 $4,482 $6,221 $5,471 $4,776 $5,922 $4,742 $6,337 $5,617 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Net Income Adjustments to Net Income $0.23 $0.57 $0.46 $0.64 $0.56 $0.57 $0.61 $0.49 $0.66 $0.58 $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 $0.80 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Net Income Adjustments to Net Income Net Income Available to Common Shareholders Diluted Earnings per Share (1) See Non-GAAP reconciliation (1) (1) (1) (1)(1) (1) (1) (1) (1) (1)
5 Loan Portfolio ▪ Total loans held for investment increased $121.2 million from prior quarter ▪ Continued strong loan production and a moderation in payoffs results in another quarter of significant loan growth ▪ Average rate on new loan production increased by more than 100 bps from prior quarter ▪ Growth primarily driven by commercial, residential mortgage, and construction lending 4Q 2021 3Q 2022 4Q 2022 Cash, Securities and Other $261,190 $154,748 $165,670 Consumer and Other(2) 34,758 50,429 49,954 Construction and Development 178,716 228,060 288,497 1-4 Family Residential 580,872 822,796 898,154 Non-Owner Occupied CRE 482,622 527,836 496,776 Owner Occupied CRE 212,426 220,075 216,056 Commercial and Industrial 203,584 350,954 361,028 Total Loans HFI $1,954,168 2,354,898 2,476,135 Loans held-for-sale (HFS) (3) 30,620 12,743 10,804 Total Loans $1,984,788 $2,367,641 $2,486,939 $252.3 $224.6 $101.8 $341.9 $292.7 $182.3 $122.3 $154.2 $157.7 $123.4 $115.4 $21.5 $25.6 $5.7 $2.6 $0.1 $0 $50 $100 $150 $200 $250 $300 $350 4Q21 1Q22 2Q22 3Q22 4Q22 Teton Acquired Production Loan Payoffs PPP Forgiveness (in millions) $1,693 $1,945 $2,029 $2,253 $2,445 $2,368 $2,487 $0 $400 $800 $1,200 $1,600 $2,000 $2,400 $2,800 4Q21 1Q22 2Q22 3Q22 4Q22 3Q22 4Q22 (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 $23.4 million and $22.6 million as of December 31, 2022 and September 30, 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
6 Total Deposits ▪ Total deposits increased at 44% annualized rate in 4Q22 ▪ Some migration of noninterest-bearing deposits into interest-bearing categories as clients seek higher rates for their excess liquidity ▪ Time deposits added to lock-in longer-term fixed rate funding and help improve ability to manage funding costs going forward 4Q 2021 3Q 2022 4Q 2022 Money market deposit accounts $1,056,669 $1,010,846 $1,336,092 Time deposits 170,491 186,680 224,090 NOW 309,940 277,225 234,778 Savings accounts 32,299 30,641 27,177 Noninterest-bearing accounts 636,304 662,055 583,092 Total Deposits $2,205,703 $2,167,447 $2,405,229 $1,805 $2,274 $2,227 $2,154 $2,242 $2,167 $2,405 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 4Q21 1Q22 2Q22 3Q22 4Q22 3Q22 4Q22 Average Period End ($ in millions) Deposit Portfolio Composition Total Deposits
7 Trust and Investment Management ▪ Total assets under management increased $188.6 million from September 30, 2022 to $6.11 billion as of December 31, 2022 ▪ All model portfolios continue to outperform their respective benchmark helping moderate the impact of this year’s market pullback $7,352 $7,199 $6,278 $5,918 $6,107 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Investment Agency Managed Trust 401(k)/Retirement Directed Trust Custody (in millions, as of quarter end) Total Assets Under Management
(1) See Non-GAAP reconciliation Gross Revenue ▪ Gross revenue(1) relatively consistent with prior quarter ▪ Higher non-interest income partially offset decline in net interest income ▪ Consistent growth in balance sheet and client base resulted in 4Q22 gross revenue(1) increasing 23.8% from same quarter in 2021, despite mortgage revenues declining Non-interest Income $6,561 Net Interest Income $21,842 23.9% 76.1% $23.4 $26.9 $26.9 $29.3 $29.0 $0.0 $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Wealth Management Mortgage (in millions) 4Q22 Gross Revenue(1) Gross Revenue(1) 8
9 Net Interest Income and Net Interest Margin ▪ Net interest income decreased to $21.8 million, or 4.6%, from $22.9 million in 3Q22, but increased 51.6% from $14.4 million in 4Q21 ▪ Net interest income decreased from 3Q22 due to higher interest expense resulting from strong deposit growth and increase in average cost of deposits ▪ Net interest margin, excluding PPP and purchase accretion (1), decreased 47 bps to 3.31%, due to increase in average cost of funds ▪ Net interest margin expected to decrease in 1Q23 $14,407 $18,305 $20,152 $22,906 $21,842 $0 $5,000 $10,000 $15,000 $20,000 $25,000 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 2.95% 2.98% 3.35% 3.76% 3.32% 2.92% 2.87%(1) 3.30% 3.78% 3.31% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Net Interest Margin Adjusted Net Interest Margin (1) (1) (1) (1) (in thousands) (1) See Non-GAAP reconciliation Net Interest Income Net Interest Margin
10 Non-Interest Income ▪ Non-interest income increased 3.4% from 3Q22, primarily due to increases in bank fees and risk management and insurance fees ▪ Increase in risk management and insurance fees reflect typical seasonal increase in fourth quarter, while increase in bank fees partially driven by higher loan prepayment penalty fees ▪ Trust and Investment Management fees and net gain on mortgage loans beginning to stabilize ▪ Volume of locks on mortgage loans originated for sale declined 32% from the prior quarter, with 95% of the originations being purchase loans $9,516 $8,579 $6,926 $6,345 $6,561 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Trust and Investment Management Fees Net Gain on Mortgage Loans Bank Fees Risk Management and Insurance Fees Income on Company-Owned Life Insurance Other $5,197 $5,168 $4,784 $4,664 $4,358 $4,000 $4,200 $4,400 $4,600 $4,800 $5,000 $5,200 $5,400 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 (in thousands)(in thousands) Total Non-Interest Income Trust and Investment Management Fees
11 Non-Interest Expense and Efficiency Ratio ▪ Non-interest expense increased 3.3% from 3Q22 ▪ Increase primarily attributable to higher data processing fees and other operational costs related to enhancements to Trust and Investment Management platform ▪ Following investments in talent and technology in 2022, growth in non-interest expense expected to moderate in 2023 ▪ Non-interest expense for 1Q23 expected to range from $20-$21 million $3,700 $604 $424 $231 $272 $20,524 $19,358 $20,583 $19,260 $19,905 $0 $5,000 $10,000 $15,000 $20,000 $25,000 Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Non-Interest Expense Adjustments to Non-Interest Expense (1) 71.77% 69.68% 74.85% 64.94% 67.66% 0% 20% 40% 60% 80% 100% Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 (1) See Non-GAAP reconciliation Total Non-Interest Expense Operating Efficiency Ratio(1) (in thousands) (1) (1)(1) (1) (1) (1) (1)
12 Asset Quality ▪ Increase in NPAs primarily attributable to one commercial loan with multiple sources of repayment ▪ $1.2 million provision for loan losses related to growth in total loans and changes in portfolio mix ▪ ALLL/Adjusted Total Loans(1) increased to 0.78% in 4Q22 from 0.77% in 3Q22 ▪ CECL adopted on January 1, 2023 with preliminary estimate of ACL/Total Loans of 75-90 bps and 30-45 bps coverage on off-balance sheet commitments 0.17% 0.17% 0.17% 0.14% 0.43% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% Q4 2021 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Non-Performing Assets/Total Assets Net Charge-Offs/Average Loans (1) Adjusted Total Loans – Total Loans minus PPP loans, acquired loans, and loans accounted for under fair value option; see non-GAAP reconciliation
13 2023 Outlook and Priorities ▪ Well positioned to protect shareholder value during economic downturn and generate profitable growth as economic conditions improve ▪ Increased focus on core deposit gathering to fund loan production ▪ Strong business development capabilities and increasing contributions from newer markets in Arizona, Wyoming and Montana expected to continue resulting in solid loan growth ▪ Additional resources allocated to business development in Trust and Investment Management business ▪ Disciplined expense control should result in revenue growth rate exceeding expense growth rate ▪ Increased operating leverage focus should result in further earnings growth
Appendix 14
15 Capital and Liquidity Overview 9.28% 9.28% 12.37% 7.81% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% Tier 1 Capital to Risk-Weighted Assets CET1 to Risk- Weighted Assets Total Capital to Risk-Weighted Assets Tier 1 Capital to Average Assets Liquidity Funding Sources (as of 12/31/22) Liquidity Reserves: Total Available Cash $ 194,871 Unpledged Investment Securities 58,498 Borrowed Funds: Unsecured: Credit Lines 29,000 Secured: FHLB Available 751,224 Brokered Remaining Capacity 445,175 Total Liquidity Funding Sources $ 1,479,112 Loan to Deposit Ratio 102.7% $91,662 $104,411 $130,704 $187,139 $208,760 $11.50 $13.15 $16.44 $19.87 $21.99 $10.00 $15.00 $20.00 $25.00 $30.00 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 $220,000 $240,000 4Q18 4Q19 4Q20 4Q21 4Q22 TCE TBV/Share (in thousands) (1) See Non-GAAP reconciliation Consolidated Capital Ratios (as of 12/31/22) Tangible Common Equity / TBV per Share(1) (in thousands)
16 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 September 30, 2022 Dec. 31, 2022 Total shareholders' equity $116,875 $127,678 $154,962 $219,041 $234,862 $240,864 Less: Goodwill and other intangibles, net 25,213 19,714 24,258 31,902 32,181 32,104 Intangibles held for sale(1) - 3,553 - - - - Tangible common equity 91,662 104,411 $130,704 187,139 202,681 208,760 Common shares outstanding, end of period 7,968,420 7,940,168 7,951,773 9,419,271 9,492,006 9,495,440 Tangible common book value per share $11.50 $13.15 $16.44 $19.87 $21.35 $21.99 Net income available to common shareholders $5,471 Return on tangible common equity (annualized) 10.48% (1) Represents the intangible portion of assets held for sale Consolidated Efficiency Ratio For the Three Months Ended, (Dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Non-interest expense $20,524 $19,358 $20,583 $19,260 $19,905 Less: amortization 4 77 77 77 77 Less: acquisition related expenses 3,696 527 347 154 195 Adjusted non-interest expense $16,824 $18,754 $20,159 $19,029 $19,633 Net interest income $14,407 $18,305 $20,152 $22,906 $21,842 Non-interest income 9,516 8,579 6,926 6,345 6,561 Less: unrealized gains/(losses) recognized on equity securities (7) (32) 299 75 - Less: net gain/(loss) on loans accounted for under the fair value option - - (155) (134) (602) Less: Net gain on equity interests 489 1 - 6 - Less: Net (loss)/gain on loans held for sale at fair value - - - - (12) Adjusted non-interest income 9,034 8,610 6,782 6,398 7,175 Total income $23,440 $26,915 $26,934 $29,304 $29,017 Efficiency ratio 71.77% 69.68% 74.85% 64.94% 67.66%
17 Non-GAAP Reconciliation Wealth Management Gross Revenue For the Three Months Ended, (Dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Total income before non-interest expense $20,612 $24,156 $25,282 $26,555 $26,623 Less: unrealized gains/(losses) recognized on equity securities (7) (32) 299 75 - Less: net gain/(loss) on loans accounted for under the fair value option - - (155) (134) (602) Less: net gain on equity interests 489 1 - 6 - Less: net (loss)/gain on loans held for sale at fair value - - - - (12) Plus: provision for loan loss 812 210 519 1,756 1,197 Gross revenue $20,942 $24,397 $25,657 $28,364 $28,434 Mortgage Gross Revenue For the Three Months Ended, (Dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Total income before non-interest expense $2,498 $2,518 $1,277 $940 $583 Plus: provision for loan loss - - - - - Gross revenue $2,498 $2,518 $1,277 $940 $583 Consolidated Gross Revenue For the Three Months Ended, (Dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Total income before non-interest expense $23,110 $26,674 $26,559 $27,495 $27,206 Less: unrealized gains/(losses) recognized on equity securities (7) (32) 299 75 - Less: net gain/(loss) on loans accounted for under the fair value option - - (155) (134) (602) Less: net gain on equity interests 489 1 - 6 - Less: net (loss)/gain on loans held for sale at fair value - - - - (12) Plus: provision for loan loss 812 210 519 1,756 1,197 Gross revenue $23,440 $26,915 $26,934 $29,304 $29,017 Gross Revenue excluding net gain on mortgage loans For the Three Months Ended, (Dollars in thousands) December 31, 2021 September 30, 2022 December 31, 2022 Gross revenue $23,440 $29,304 $29,017 Less: net gain on mortgage loans 2,470 885 775 Gross revenue excluding net gain on mortgage loans $20,970 $28,419 $28,242
18 Non-GAAP Reconciliation Adjusted net income available to common shareholders For the Three Months Ended, (Dollars in thousands, except per share data) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Net income available to common shareholders $1,917 $5,524 $4,482 $6,221 $5,471 Plus: acquisition related expense including tax impact 2,859 398 260 116 146 Adjusted net income to common shareholders $4,776 $5,922 $4,742 $6,337 $5,617 Adjusted diluted earnings per share For the Three Months Ended, (Dollars in thousands, except per share data) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Diluted earnings per share $0.23 $0.57 $0.46 $0.64 $0.56 Plus: acquisition related expenses including tax impact 0.34 0.04 0.03 0.02 0.02 Adjusted diluted earnings per share $0.57 $0.61 $0.49 $0.66 $0.58 Allowance for loan losses to Bank originated loans excluding PPP As of (Dollars in thousands) December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Total loans held for investment $1,954,168 $1,931,122 $2,150,148 $2,354,898 $2,476,135 Less: Acquired loans 360,661 323,563 287,623 248,573 234,717 Less: PPP loans 40,062 13,109 9,053 6,905 6,378 Less: Purchased loans accounted for under fair value - 6.368 21,149 22,648 23,415 Loans excluding acquired and PPP 1,553,445 1,588,082 1,832,323 2,076,772 2,211,625 Allowance for loan losses 13,732 13,885 14,357 16,081 17,183 Allowance for loan losses to Bank originated loans excluding PPP 0.88% 0.87% 0.78% 0.77% 0.78% Pre-tax, pre-provision net income For the Three Months Ended, (Dollars in thousands) December 31, 2021 September 30, 2022 December 31, 2022 Income before income taxes $2,587 $8,235 $7,301 Plus: provision for loan losses 812 1,756 1,197 Pre-tax, pre-provision net income $3,399 $9,991 $8,498
19 Non-GAAP Reconciliation Adjusted net interest margin For the Three Months Ended December 31, 2021 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 (Dollars in thousands) Average Balance Interest Earned/Paid Average Yield/Rate Average Balance Interest Earned/Paid Average Yield/Rate Average Balance Interest Earned/Paid Average Yield/Rate Average Balance Interest Earned/Paid Average Yield/Rate Average Balance Interest Earned/Paid Average Yield/Rate Interest-bearing deposits in other financial institutions 279,406 109 475,942 232 321,673 549 101,824 533 103,190 931 PPP adjustment 9,556 3 12,378 6 4,493 9 2,798 16 1,736 16 Investment securities 36,001 226 55,739 337 69,320 418 87,340 653 84,017 645 Correspondent bank stock 1,744 20 1,663 21 1,555 13 4,924 109 11,880 237 PPP adjustment - - - - - - - - - - Loans 1,653,920 15,398 1,922,770 19,096 2,010,024 20,663 2,241,343 25,345 2,436,273 30,691 PPP adjustment (51,825) (622) (30,481) (491) (13,385) (148) (9,026) (73) (7,350) (32) Purchase Accretion adjustment - 398 - (328) - (288) - 114 - (87) Adjusted total Interest- earning assets 1,928,802 15,532 2,438,011 18,873 2,393,680 21,216 2,429,203 26,697 2,629,746 32,401 Interest-bearing deposits 813 943 1,103 2,706 8,260 PPP adjustment - - - - - Federal Home Loan Bank Topeka and Federal Reserve borrowings 55 39 28 666 1,916 PPP adjustment (31) (16) (8) (3) (6) Subordinated notes 477 400 361 362 486 Adjusted total interest- bearing liabilities 1,314 1,366 1,484 3,731 10,656 Net interest income 14,218 17,507 19,732 22,966 21,745 Adjusted net interest margin 2.95% 2.87% 3.30% 3.78% 3.31%