First Western Financial : 4Q19 Earnings Report Investor Presentation

First Western Financial, Inc.

The First, Western-Based Private Trust Bank

Fourth Quarter 2019 Financial Results

Safe Harbor

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," "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. 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.

2

Overview of 4Q19

		Net income available to common shareholders of $2.6 million, or $0.32 EPS at
Strong		December 31, 2019
Financial		Net income increased 49.2% and EPS increased 45.5% over 4Q18
Performance		Book value and tangible book value per share(1) increased 2.1% and 2.5%,
		respectively, over 3Q19
	 Total loan production of $146.1 million, with 4Q19 average total gross loan balance
Record Quarter of		over $1.0 billion
Loan Production		Gross loans increased 30.8% annualized
	 Significant contributions from all major lending areas

Positive Trends in

Core Deposits and

AUM

• Average deposits increased $50.2 million from 3Q19 to 4Q19
• Deposit growth coming in lower cost categories
• AUM increased 18.2% over 4Q18

Year-over-Year Achievements

• Book value and tangible book value per common share increased 9.6% and 14.3%, respectively, over 4Q18
• Average total loans increased 14.0% from December 31, 2018
• Average deposits increased 24.2% over 4Q18
• Nonperforming loans decreased $6.8 million, or 35.6%, from December 31, 2018

(1) See Non-GAAP reconciliation	3

Net Income Available to Common Shareholders and Earnings per Share

• Strong execution delivering consistent earnings
• Net income increased 49.2% over 4Q18
• Earnings per share increased 45.5% over 4Q18

Net Income Available to Common Shareholders

(in thousands)

$2,586(1)$2,572

$2,406

$1,724 $1,627 $1,182

Q4 2018	Q1 2019		Q2 2019	Q3 2019	Q4 2019
		Net Income		Adjustments to Net Income

1. See Non-GAAP reconciliation

Earnings per Share

$0.40
$0.35	$0.33(1)	$0.32
$0.30			$0.30

$0.25 $0.22 $0.21 $0.15 $0.20

$0.15

$0.10

$0.05

$-

Q4 2018		Q1 2019	Q2 2019	Q3 2019	Q4 2019
		EPS			Adjustments to EPS	4

Loan Portfolio

• Gross loans held-for-investment (HFI) increased 30.8% annualized
• Total new HFI loan production of $146.1 million in 4Q19 vs $55.4 million in 3Q19 and $102.4 million in 4Q18
• Payoffs/paydowns, net of draws, increased to $82.7 million in 4Q19 vs $71.3 million in 3Q19
• Balanced growth across most major portfolios

Loan Portfolio Composition(1)

(in thousands, as of quarter-end)
	4Q 2018	3Q 2019	4Q 2019
Cash, Securities and Other	$114,165	$146,622	$146,701
Construction and Development	31,897	42,059	28,120
1 - 4 Family Residential	350,852	366,238	400,134
Non-Owner Occupied CRE	173,741	138,753	165,179
Owner Occupied CRE	108,480	119,497	127,968
Commercial and Industrial	113,660	111,187	128,457
Total Loans HFI	$892,795	$924,356	$996,559
Mortgage loans held for sale	14,832	69,231	48,312
Total Loans	$907,627	$993,587	$1,044,871

Loan Production & Net Loan Payoffs/Paydowns

(in millions)

																										$146.1
		$102.4
				$67.4			$63.8													$71.3				$82.7
													$24.5	$52.6	$44.7		$55.4
			4Q18						1Q19				2Q19		3Q19	4Q19
								Production				Net Loan Payoffs/Paydowns
																	Total Loans(1)
		(in millions)												$990	$1,018									$1,045
						$929	$966	$994
		$893

4Q18	1Q19	2Q19	3Q19		4Q19		3Q19	4Q19
		Average							Period End
					HFI		HFS

(1)	Excludes deferred costs, net	5

Total Deposits

• Average deposits increased $50.2 million from 3Q19 and $212.7 million from 4Q18
• Continued growth in noninterest-bearing and NOW accounts
• Total deposits declined due to intentional run-off of higher-cost time deposits
• Strong inflows of core deposits earlier in 2019 allowed for repositioning of deposit portfolio to improve overall mix and reduce funding costs

Deposit Portfolio Composition

(in thousands, as of quarter-end)

	4Q 2018	3Q 2019	4Q 2019
Money market deposit accounts	$489,506	$620,434	$615,575
Time deposits	178,743	170,457	134,913
NOW	64,853	83,022	91,921
Savings accounts	1,800	3,456	4,307
Noninterest-bearing accounts	202,856	231,535	240,068
Total Deposits	$937,758	$1,108,904	$1,086,784

Total Deposits

(in millions)						$1,092	$1,109	$1,087
					$1,042
$981	$967
$880

4Q18	1Q19	2Q19	3Q19	4Q19	3Q19	4Q19
		Average			Period End

6

Trust and Investment Management

• Total assets under management increased $952.5 million, or 18.2%, from December 31, 2018
• Total assets under management increased $71.2 million from September 30, 2019 to $6.19 billion at December 31, 2019
• Increase was primarily attributable to market gains, additionally $79.8 million in new assets and $87.3 million in contributions were added in 4Q19

(in millions, as of quarter-end)	$5,781	$5,968	$6,116	$6,188
$5,235

Q4 2018		Q1 2019		Q2 2019		Q3 2019		Q4 2019
		Investment Agency		Managed Trust			401(k)/Retirement		Directed Trust		Custody

7

Gross Revenue

• Gross revenue increased 13.9% from 4Q18
• Higher net interest income helped to offset by higher provision and seasonal slow down of mortgage loans
• Late quarter loan growth provides tailwind entering 2020

4Q19 Gross Revenue(1)			Gross Revenue(1) ($millions)
			$16.5	$16.6	$16.2
	$14.3	$14.9

50.4%	49.6%
Net Interest	Non-interest
Income	Income
$8,190	$8,045

Q4 2018	Q1 2019	Q2 2019	Q3 2019		Q4 2019
		Wealth Management		Capital Management		Mortgage

(1) See Non-GAAP reconciliation	8

Net Interest Income & Net Interest Margin

• Net interest income increased 3.1% from 3Q19, primarily due to a reduction in interest expense
• Net interest margin decreased to 2.91%, primarily due to a decline in the yield on earning assets
• Earning asset yields declined due to lower yields on securities, repricing in the loan portfolio and a higher mix of residential mortgage loans
• NIM expected to show more stability as repricing in loan portfolio is substantially complete

				Net Interest Income												Net Interest Margin
(in thousands)
									$8,190			3.29%			3.10%
														3.03%
$7,971	$7,960			$7,940								2.95%	2.91%
$7,899

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

9

Non-Interest Income

• Total non-interest income decreased by 6.4%, primarily due to seasonally slower mortgage activity in the fourth quarter
• $200.4 million in mortgage loans funded in 4Q19 compared to $226.5 million in 3Q19

				Total Non-Interest Income								Trust & Investment Management Fees
(in thousands)
$8,586	$8,788					(in thousands)
$8,228	$4,752					$4,824		$4,748
			$4,670	$4,693
$6,976
$6,351

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

	Trust and Investment Management Fees		Net Gain on Mortgage Loans Sold
	Bank Fees		Risk Management and Insurance Fees	10
	Income on Company-Owned Life Insurance		Net Gain on Sale of Securities

Non-Interest Expense and Efficiency Ratio

• Non-interestexpense decreased 2.7% from 3Q19
• Decrease was primarily driven by lower equity compensation earnout related to residential mortgage business

				Total Non-Interest Expense(1)										Operating Efficiency Ratio(1)
(in thousands)
					$14,659
							$13,422	$13,082			80.6%	83.2%			80.6%	80.5%
$12,602		$1,572			78.2%
$11,649

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Non-Interest Expense

Goodwill Impairment

11

(1) See Non-GAAP reconciliation

Asset Quality

• Generally stable trends in the portfolio with decreases in non-performing loans and non- performing assets
• Loss experience continues to be extremely low
• $0.4 million provision expense primarily reflects strong growth in total loans

			Non-Performing Assets/Total Assets						Net Charge-Offs/Average Loans
1.82%												1.00%
1.69%
											0.80%
					1.13%	1.15%		1.03%			0.60%
													0.40%
													0.20%
													0.00%	0.00%	0.00%	0.00%	0.03%
													0.00%
		Q4 2018		Q1 2019		Q2 2019		Q3 2019	Q4 2019	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Q4 2019

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Outlook

• Increased focus on asset generation expected to complement success in growing total deposits and AUM
• Commercial banking initiative focused on building expertise in specific vertical markets
• • 1Q20 launch of first vertical market: medical and dental practices
• Continued growth in newer markets such as Vail Valley and Broomfield
• Mortgage activity expected to be consistent with 2019
• Continued revenue growth is expected to drive further operating leverage
• 2020 expected to be another year of strong earnings growth and improved profitability

13

Appendix

Non-GAAP Reconciliation

Consolidated Efficiency Ratio		For the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019	September 30, 2019	December 31, 2019
Non-interest expense	$11,649	$12,602	$14,659	$13,442	$13,082
Less: Amortization	163	173	142	52	7
Less: Goodwill impairment	-	-	1,572	-	-
Adjusted non-interest expense	$11,486	$12,429	$12,945	$13,390	$13,075
Net interest income	$7,899	$7,971	$7,960	$7,940	$8,190
Non-interest income	6,351	6,976	8,586	8,788	8,228
Less: Net gain on sale of securities	-	-	-	119	-
Less: Net gain on sale of assets	-	-	-	-	183
Total income	$14,250	$14,947	$16,546	$16,609	$16,235
Efficiency ratio	80.6%	83.2%	78.2%	80.6%	80.5%
Consolidated Tangible Common Book Value Per Share		As of the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019	September 30, 2019	December 31, 2019
Total shareholders' equity	$116,875	$119,668	$122,157	$125,732	$127,678
Less:
Goodwill	24,811	24,811	23,239	19,686	$19,686
Assets held for sale	-	-	-	3,553	3,553
Other intangibles, net	402	229	88	36	28
Tangible common equity	91,662	94,628	98,830	102,457	104,411
Common shares outstanding, end of period		7,968,420	7,968,420	7,983,866	7,983,284	7,940,168
Tangible common book value per share	$11.50	$11.88	$12.38	$12.83	$13.15

15

Non-GAAP Reconciliation

Wealth Management Gross Revenue		For the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019 September 30, 2019	December 31, 2019
Total income before non-interest expense	$12,289	$12,509	$12,550	$12,554	$12,534
Less: Net gain on sale of securities	-	-	-	119	-
Less: Net gain on sale of assets	-	-	-	-	183
Plus: Provision for (recovery of) credit loss	349	194	(78)	100	447
Gross revenue	$12,638	$12,703	$12,472	$12,535	$12,798
Capital Management Gross Revenue		For the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019 September 30, 2019	December 31, 2019
Total income before non-interest expense	$794	$765	$798	$776	$815
Less: Net gain on sale of securities	-	-	-	-	-
Less: Net gain on sale of assets	-	-	-	-	-
Plus: Provision for (recovery of) credit loss	-	-	-	-	-
Gross revenue	$794	$765	$798	$776	$815
Mortgage Gross Revenue		For the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019 September 30, 2019	December 31, 2019
Total income before non-interest expense	$818	$1,479	$3,276	$3,298	$2,622
Less: Net gain on sale of securities	-	-	-	-	-
Less: Net gain on sale of assets	-	-	-	-	-
Plus: Provision for (recovery of) credit loss	-	-	-	-	-
Gross revenue	$818	$1,479	$3,276	$3,298	$2,622
Consolidated Gross Revenue		For the Three Months Ended,
(Dollars in thousands)	December 31, 2018	March 31, 2019	June 30, 2019 September 30, 2019	December 31, 2019
Total income before non-interest expense	$13,901	$14,753	$16,624	$16,628	$15,971
Less: Net gain on sale of securities	-	-	-	119	-
Less: Net gain on sale of assets	-	-	-	-	183
Plus: Provision for (recovery of) credit loss	349	194	(78)	100	447
Gross revenue	$14,250	$14,947	$16,546	$16,609	$16,235

16

Non-GAAP Reconciliation

Impact of Goodwill impairment - Net	For the Three Months Ended,
income available to common shareholder
	September 30,	December 31,
(Dollars in thousands, except per share data)	June 30, 2019
2019	2019
Net income available to common
shareholders	$1,404	$2,406	$2,572
Plus: Goodwill impairment including tax			-
Impact	1,182	-
Adjusted net income to common
shareholders	$2,586	$2,406	$2,572
Impact of Goodwill impairment - Earnings	For the Three Months Ended,
Per Share
	September 30,	December 31,
(Dollars in thousands, except per share data)	June 30, 2019
2019	2019
Earnings per share	$0.18	$0.30	0.32
Plus: Goodwill impairment including tax			-
impact	0.15	-
Adjusted earnings per share	$0.33	$0.30	$0.32

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