First Western Financial Inc [MYFW] Filings

10-Q 1 myfw-20230930.htm 10-Q myfw-20230930

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-38595

_________________________________________

FIRST WESTERN FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

_________________________________________


Colorado			37-1442266
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1900 16th Street, Suite 1200 Denver, CO			80202
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: 303.531.8100

_________________________________________

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

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer	x

Non-accelerated filer o	Smaller reporting company	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. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.


						Shares outstanding as of November 1, 2023
			Common Stock, no par value			9,561,769

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FIRST WESTERN FINANCIAL, INC.

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		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	6

	Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2023 and December 31, 2022	6

	Condensed Consolidated Statements of Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2023 and September 30, 2022	7

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2023 and September 30, 2022	8

	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three Months and Nine Months Ended September 30, 2023 and September 30, 2022	9

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2023 and September 30, 2022	10

	Notes to Condensed Consolidated Financial Statements (Unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	88

Item 4.	Controls and Procedures	89

PART II. OTHER INFORMATION		90

Item 1.	Legal Proceedings	90

Item 1A.	Risk Factors	90

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	90

Item 3.	Defaults upon Senior Securities	90

Item 4.	Mine Safety Disclosures	90

Item 5.	Other Information	91

Item 6.	Exhibits	92

SIGNATURES		93

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Important Notice about Information in this Quarterly Report

Unless we state otherwise or the context otherwise requires, references in this Quarterly Report to "we," "our," "us," "the Company" and "First Western" refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."

The information contained in this Quarterly Report is accurate only as of the date of this Quarterly Report on Form 10-Q and as of the dates specified herein.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our 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," "projection," "would" and "outlook, " or the negative version of those words or other comparable words or phrases 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 our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to soundness of other financial institutions. Accordingly, we caution 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 we believe 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.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•geographic concentration in Colorado, Arizona, Wyoming, Montana, and California;

•the soundness of other financial institutions;

•changes in the economy affecting real estate values and liquidity;

•risks associated with higher inflation;

•changes in interest rates;

•weak economic conditions and global trade;

•our ability to continue to originate residential real estate loans and sell such loans;

•risks specific to commercial loans and borrowers;

•claims and litigation pertaining to our fiduciary responsibilities;

•the soundness of certain securities brokerage firms;

•competition for investment managers and professionals and our ability to retain our associates;

•fluctuation in the value of our investment securities;

•the terminable nature of our investment management contracts;

•changes to the level or type of investment activity by our clients;

•investment performance, in either relative or absolute terms;

•legislative changes or the adoption of tax reform policies;

•external business disruptors in the financial services industry;

•the adequacy of our allowance for credit losses;

•liquidity risks;

•our ability to maintain a strong core deposit base or other low-cost funding sources;

•continued positive interaction with and financial health of our referral sources;

•retaining our largest trust clients;

•our ability to achieve our strategic objectives;

•competition from other banks, financial institutions and wealth and investment management firms;

•our ability to implement our internal growth strategy and manage the risks associated with our anticipated growth;

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•the acquisition of other banks and financial services companies and integration risks and other unknown risks associated with acquisitions;

•the accuracy of estimates and assumptions;

•our ability to protect against and manage fraudulent activity, breaches of our information security, and cybersecurity attacks;

•our reliance on communications, information, operating and financial control systems technology and related services from third-party service providers;

•technological change;

•our ability to attract and retain clients;

•unforeseen or catastrophic events, including pandemics, wars, terrorist attacks, extreme weather events or other natural disasters;

•new lines of business or new products and services;

•regulation of the financial services industry;

•legal and regulatory proceedings, investigations and inquiries, fines and sanctions;

•limited trading volume and liquidity in the market for our common stock;

•fluctuations in the market price of our common stock;

•actual or anticipated issuances or sales of our common stock or preferred stock in the future;

•the initiation and continuation of securities analysts coverage of the Company;

•potential impairment of goodwill recorded on our balance sheet and possible requirements to recognize significant charges to earnings due to impairment of intangible assets;

•future issuances of debt securities;

•our ability to manage our existing and future indebtedness;

•available cash flows from the Bank; and

•other factors that are discussed in "Item 1A - Risk Factors" in our Annual Report on Form 10-K.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the section titled Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on March 15, 2023. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents:
Cash and due from banks	$	6,439	$	4,926

Interest-bearing deposits in other financial institutions	265,045		191,586
Total cash and cash equivalents	271,484		196,512

Held-to-maturity securities, at amortized cost, net of allowance for credit losses of $71 and $0, (fair value of $66,487 and $74,718), respectively	75,539		81,056
Correspondent bank stock, at cost	11,305		7,110
Mortgage loans held for sale, at fair value	12,105		8,839
Loans held for sale, at fair value	—		1,965
Loans (includes $15,464 and $23,321 measured at fair value, respectively)	2,530,459		2,469,413
Allowance for credit losses	(23,175)		(17,183)
Loans, net	2,507,284		2,452,230
Premises and equipment, net	25,410		25,118
Accrued interest receivable	11,633		10,445
Accounts receivable	5,292		4,873
Other receivables	3,052		1,973

Goodwill and other intangible assets, net	31,916		32,104
Deferred tax assets, net	6,624		6,914
Company-owned life insurance	16,429		16,152
Other assets	24,680		21,457

Total assets	$	3,002,753	$	2,866,748

Liabilities
Deposits:
Noninterest-bearing	$	476,308	$	583,092
Interest-bearing	1,943,688		1,822,137
Total deposits	2,419,996		2,405,229
Borrowings:
Federal Home Loan Bank and Federal Reserve borrowings	259,930		146,886
Subordinated notes	52,279		52,132
Accrued interest payable	3,203		1,125
Other liabilities	21,089		20,512
Total liabilities	2,756,497		2,625,884

Shareholders' Equity
Preferred stock - no par value; 10,000,000 shares authorized; 0 issued and outstanding	—		—
Common stock - no par value; 90,000,000 shares authorized; 9,560,209 and 9,495,440 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Additional paid-in capital	192,573		190,494
Retained earnings	54,261		51,887
Accumulated other comprehensive loss	(578)		(1,517)
Total shareholders’ equity	246,256		240,864
Total liabilities and shareholders’ equity	$	3,002,753	$	2,866,748

See accompanying notes to condensed consolidated financial statements (unaudited).

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)



	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Interest and dividend income:
Loans, including fees	$	34,141	$	24,988	$	99,804	$	64,821
Loans accounted for under the fair value option	300		513		1,078		859
Investment securities	607		653		1,863		1,408
Interest-bearing deposits in other financial institutions	1,292		533		4,361		1,314
Dividends, restricted stock	141		108		459		143
Total interest and dividend income	36,481		26,795		107,565		68,545

Interest expense:
Deposits	17,467		2,706		46,423		4,752
Other borrowed funds	2,248		1,027		6,368		1,855
Total interest expense	19,715		3,733		52,791		6,607
Net interest income	16,766		23,062		54,774		61,938
Less: Provision for credit losses(1)	329		1,756		1,862		2,485
Net interest income, after provision for credit losses	16,437		21,306		52,912		59,453

Non-interest income:
Trust and investment management fees	4,846		4,639		14,083		14,586
Net gain on mortgage loans	654		728		2,447		3,955
Net loss on loans held for sale	—		—		(178)		—
Bank fees	427		587		1,610		1,847
Risk management and insurance fees	145		115		375		307
Income on company-owned life insurance	96		88		277		261
Net gain on equity interests	—		6		—		7
Net loss on loans accounted for under the fair value option	(252)		(134)		(1,919)		(289)
Unrealized (loss)/gain recognized on equity securities	(19)		75		(20)		342
Other	202		85		(808)		259
Total non-interest income	6,099		6,189		15,867		21,275
Total income before non-interest expense	22,536		27,495		68,779		80,728

Non-interest expense:
Salaries and employee benefits	10,968		11,566		35,214		36,569
Occupancy and equipment	1,807		1,836		5,660		5,610
Professional services	1,867		2,316		5,648		5,869
Technology and information systems	906		1,172		2,569		3,294
Data processing	1,159		888		3,350		3,062
Marketing	355		403		1,125		1,388
Amortization of other intangible assets	62		77		188		231
Net gain on assets held for sale	—		(1)		—		(4)
Net gain on sale of other real estate owned	—		(41)		—		(41)
Other	1,190		1,044		3,607		3,223
Total non-interest expense	18,314		19,260		57,361		59,201
Income before income taxes	4,222		8,235		11,418		21,527
Income tax expense	1,104		2,014		2,974		5,300
Net income available to common shareholders	$	3,118	$	6,221	$	8,444	$	16,227
Earnings per common share:
Basic	$	0.33	$	0.66	$	0.89	$	1.72
Diluted	0.32		0.64		0.87		1.67

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

See accompanying notes to condensed consolidated financial statements (unaudited).

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income	$	3,118	$	6,221	$	8,444	$	16,227
Other comprehensive income/(loss) items:
Unrealized losses on available-for-sale securities	—		—		—		(2,591)
Income tax effect	—		—		—		638
Amortization of net unrealized loss for the reclassification of available-for-sale securities transferred to held-to-maturity included in interest income	86		97		266		183
Income tax effect	(21)		(24)		(72)		(45)
Unrealized gain on cash flow hedge	299		—		983		—
Income tax effect	(73)		—		(238)		—
Total other comprehensive income/(loss) items	291		73		939		(1,815)
Comprehensive income	$	3,409	$	6,294	$	9,383	$	14,412

See accompanying notes to condensed consolidated financial statements (unaudited).

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)


	Shares Common Stock	Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance as of July 1, 2022	9,478,710	$	189,494	$	40,195	$	(1,665)	$	228,024

Net income	—	—		6,221		—		6,221
Other comprehensive income, net of tax and reclassifications	—	—		—		73		73
Settlement of share awards	11,796	(147)		—		—		(147)
Options exercised	1,500	33		—		—		33
Stock-based compensation	—	658		—		—		658
Balance as of September 30, 2022	9,492,006	$	190,038	$	46,416	$	(1,592)	$	234,862

Balance as of July 1, 2023	9,545,071	$	191,968	$	51,143	$	(869)	$	242,242

Net income	—	—		3,118		—		3,118
Other comprehensive income, net of tax and reclassifications	—	—		—		291		291

Settlement of share awards	8,638	(78)		—		—		(78)
Options exercised	6,500	130		—		—		130
Stock-based compensation	—	553		—		—		553
Balance as of September 30, 2023	9,560,209	$	192,573	$	54,261	$	(578)	$	246,256

Balance as of January 1, 2022	9,419,271	$	188,629	$	30,189	$	223	$	219,041

Net income	—	—		16,227		—		16,227
Other comprehensive loss, net of tax and reclassifications	—	—		—		(1,815)		(1,815)
Settlement of share awards	64,426	(835)		—		—		(835)
Options exercised	8,309	179		—		—		179
Stock-based compensation	—	2,065		—		—		2,065
Balance as of September 30, 2022	9,492,006	$	190,038	$	46,416	$	(1,592)	$	234,862

Balance as of January 1, 2023	9,495,440	$	190,494	$	51,887	$	(1,517)	$	240,864
Cumulative change in accounting principle(1)	—	—		(5,319)		—		(5,319)
Balance at January 1, 2023 (as adjusted for change in accounting principle)	9,495,440	$	190,494	$	46,568	$	(1,517)	$	235,545

Net income	—	—		8,444		—		8,444
Other comprehensive income, net of tax and reclassifications	—	—		—		939		939
Dissolution of RSI entity	—	751		(751)		—		—
Settlement of share awards	52,509	(361)		—		—		(361)
Options exercised	12,260	245		—		—		245
Stock-based compensation	—	1,444		—		—		1,444
Balance as of September 30, 2023	9,560,209	$	192,573	$	54,261	$	(578)	$	246,256

(1) Refer to Note 1 - Organization and Summary of Significant Accounting Policies for further information.

See accompanying notes to condensed consolidated financial statements (unaudited).

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income	$	8,444	$	16,227
Adjustments to reconcile net income to net cash from operating activities:
Net amortization of investment securities	(12)		130
Stock dividends received on correspondent bank stock	(459)		(155)
Provision for credit losses	1,862		2,485
Loss on loans held for sale	178		—
Net gain on mortgage loans	(2,447)		(3,955)
Origination of mortgage loans held for sale	(217,774)		(377,631)
Proceeds from mortgage loans	216,913		398,216
Gain on disposal of fixed assets	—		(21)
Depreciation and amortization	1,748		1,724
Net amortization of purchase accounting adjustments	555		367
Deferred income tax expense	155		451
Increase in cash surrender value of company-owned life insurance	(277)		(261)
Stock-based compensation	1,444		2,065
Gain on assets held for sale	—		(4)
Gain on sale of other real estate owned	—		(41)
Change in fair value of equity securities	20		(342)
Change in fair value of loans accounted for under the fair value option	1,919		289
Change in fair value of loans held for sale	(269)		1,178
Net changes in operating assets and liabilities:
Change in accounts receivable	(227)		399
Change in accrued interest receivable and other assets	50		(2,649)
Change in accrued interest payable and other liabilities	(1,757)		(2,236)
Net cash provided by operating activities	10,066		36,236
Cash flows from investing activities
Activity in available-for-sale securities:
Maturities, prepayments, and calls	—		3,218
Purchases	—		(9,000)
Activity in held-to-maturity securities:
Maturities, prepayments, and calls	5,717		5,990
Purchases	—		(31,440)
Purchases of correspondent bank stock	(23,727)		(12,060)
Redemption of correspondent bank stock	19,991		2,016
Contributions to low-income housing tax credit investments	(1,140)		(214)

First Western Financial Inc [MYFW] Filings
10-Q	[2023-11-03]
10-Q	[2023-08-03]
10-Q	[2023-05-05]
10-K	[2023-03-15]
10-Q	[2022-11-04]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-03-15]
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-06]
10-K	[2021-03-12]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-04-30]
10-K	[2020-03-12]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-10]
10-K	[2019-03-21]
10-Q	[2018-11-08]
10-Q	[2018-08-30]
S-1	[2018-06-19]