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Operating Results for the Second Quarter 2024

Revenue

Total income before non-interest expense was $20.4 million for the second quarter of 2024, compared to $23.3 million for the first quarter of 2024. Gross revenue⁽¹⁾ was $23.1 million for the second quarter of 2024, compared to $23.5 million for the first quarter of 2024. The decrease in total income before non-interest expense was primarily driven by an increase in Provision for credit losses. Relative to the second quarter of 2023, total income before non-interest expense decreased 0.7% from $20.6 million. Gross revenue decreased 6.9% from $24.8 million for the second quarter of 2023. The decrease was driven by a decrease in Net interest income as a result of higher Interest expense due to higher deposit costs, offset partially by higher Interest income and Net mortgage gains.

⁽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 second quarter of 2024 was $15.8 million, a decrease of 1.9% from $16.1 million in the first quarter of 2024. The decrease quarter over quarter was primarily driven by a decline in interest-bearing deposits in other financial institutions. Relative to the second quarter of 2023, net interest income decreased 14.1% from $18.4 million. The decrease compared to the prior year was due to higher Interest expense driven primarily by higher deposit costs, offset partially by higher Interest income.

Net Interest Margin

Net interest margin for the second quarter of 2024 increased 1 basis point to 2.35% from 2.34% reported in the first quarter of 2024, primarily due to higher loan yields offset partially by continued pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio.

The yield on interest-earning assets increased 9 basis points to 5.67% in the second quarter of 2024 from 5.58% in the first quarter of 2024 and the cost of interest-bearing deposits increased 6 basis points to 4.19% in the second quarter of 2024 from 4.13% in the first quarter of 2024.

Relative to the second quarter of 2023, net interest margin decreased from 2.73%, primarily due to pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio, offset partially by higher loan yields.

Non-interest Income

Non-interest income for the second quarter of 2024 was $7.0 million compared to $7.3 million in the first quarter of 2024. The decrease was primarily driven by higher loan prepayment penalties impacting Bank fees during the first quarter of 2024, partially offset by higher Net gain on mortgage loans due to higher origination volume.

Relative to the second quarter of 2023, non-interest income increased 76.0% from $4.0 million. Increases were driven primarily by an increase in net gain on mortgage loans, a decrease in net loss on loans accounted for under the fair value option and a decrease in other non-interest loss which included an asset impairment write down in second quarter of 2023.

Non-interest Expense

Non-interest expense for the second quarter of 2024 was $19.0 million compared to $19.7 million for the first quarter of 2024. The decrease was driven by a decrease in legal fees and fraud losses.

Relative to the second quarter of 2023, non-interest expense increased 2.6% from $18.5 million, driven primarily by technology enhancements and an increase in occupancy costs.

The Company’s efficiency ratio⁽¹⁾ was 82.1% in the second quarter of 2024, compared with 83.4% in the first quarter of 2024 and 74.5% in the second quarter of 2023.

⁽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 $0.3 million for the second quarter of 2024, compared to Income tax expense of $1.1 million for the first quarter of 2024 and $0.5 million for the second quarter of 2023. The decrease was attributable to the decrease in Income before income taxes.

Loans

Total loans held for investment were $2.46 billion as of June 30, 2024, a decrease of 0.8% from $2.48 billion as of March 31, 2024. The decline was due to a net decrease in the construction, cash, securities and other, and commercial and industrial portfolios offset partially by net growth in the commercial real estate portfolio. Relative to the second quarter of 2023, total loans held for investment decreased 1.6% year over year compared to $2.50 billion as of June 30, 2023.

Deposits

Total deposits were $2.41 billion as of June 30, 2024, compared to $2.53 billion as of March 31, 2024. The decrease was driven primarily by seasonal tax payments, operating account fluctuations and clients using liquidity for strategic investments. Relative to the second quarter of 2023, total deposits increased from $2.38 billion as of June 30, 2023, driven primarily by interest-bearing deposits due to new and expanded deposit relationships.

Borrowings

Federal Home Loan Bank (“FHLB”) and Federal Reserve borrowings were a combined $191.5 million as of June 30, 2024, an increase of $122.0 million from $69.5 million as of March 31, 2024. The change when compared to March 31, 2024 was driven by an increase in FHLB borrowing due to the deposit runoff that occurred in the quarter. Relative to the second quarter of 2023, borrowings decreased $121.1 million from $312.6 million as of June 30, 2023. The change in FHLB borrowings from June 30, 2023 is driven by an increase in deposits, decrease in loans, and a decrease in excess liquidity that had been carried on the balance sheet as a result of the banking crisis in early 2023.

Subordinated notes were $52.5 million as of June 30, 2024, compared to $52.4 million as of March 31, 2024. Subordinated notes increased $0.3 million from $52.2 million as of June 30, 2023.

Assets Under Management

Assets Under Management (“AUM”) decreased during the second quarter to $7.01 billion as of June 30, 2024, compared to $7.14 billion as of March 31, 2024. The decrease in AUM during the quarter was driven by asset withdrawals in custody accounts that have minimal impact on Trust and Investment Management fees. Total AUM increased by $0.51 million compared to June 30, 2023 from $6.50 billion, which was primarily attributable to improving market conditions year-over-year resulting in an increase in the value of AUM.

Credit Quality

Non-performing assets totaled $49.3 million, or 1.68% of total assets, as of June 30, 2024, compared to $46.0 million, or 1.57% of total assets, as of March 31, 2024. The increase was primarily due to the foreclosure on two properties used as collateral for one participated loan balance, which increased OREO by a greater amount than the resulting decrease in non-performing loans. As of June 30, 2023, non-performing assets totaled $10.3 million, or 0.34% of total assets. Relative to the second quarter of 2023, the increase in non-performing assets was due to the net addition of $36.9 million in loans added throughout 2023, due primarily to the addition of one large loan relationship.

During the second quarter of 2024 the Company recorded a provision expense of $2.3 million, compared to a provision expense of $0.1 million in the first quarter of 2024 and $1.8 million in the second quarter of 2023. The increase in provision expense recorded in the second quarter of 2024 compared to first quarter of 2024 was primarily driven by increased provision on individually analyzed loans.

Capital

As of June 30, 2024, First Western (“Consolidated”) and First Western Trust Bank (“Bank”) exceeded the minimum capital levels required by their respective regulators. As of June 30, 2024, the Bank was classified as “well capitalized,” as summarized in the following table:

Book value per common share increased 0.1% from $25.52 as of March 31, 2024 to $25.55 as of June 30, 2024. Book value per common share increased 0.7% from $25.38 as of June 30, 2023.

Tangible book value per common share⁽¹⁾ increased 0.2% from $22.21 as of March 31, 2024, to $22.27 as of June 30, 2024. Tangible book value per common share increased 1.1% from $22.03 as of June 30, 2023.

⁽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 Wednesday, July 24, 2024. Telephone access: https://register.vevent.com/register/BI9009534197b84a16957a4d26aa92a1fe.

A slide presentation relating to the second quarter 2024 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,” and “Allowance for Credit Losses to Adjusted Loans". 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 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; 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, 2024 (“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