First Western Financial : 2023 Annual Report

2023 Annual Report

Cover Artwork:

Douglas, Walker, #A-480: Embellished Baroque Initial, Oil on Panel, First Western Art Collection

To Our Shareholders:

The strength of the franchise we have built over our 19-year history was never more evident than in 2023 as we continued to perform well despite the turmoil that impacted the banking industry in the early part of the year. Because of the prudent approach we have always taken to risk management, First Western has been a consistent source of strength and stability for our clients. So in the wake of the bank failures that occurred in March that resulted in significant deposit outflows at many banks, there was essentially no concern expressed by our clients, and due to the deep relationships we have built and the value that our clients place on the service and expertise we provide, the stickiness of the deposit base we have built was never more apparent. In fact, we were a beneficiary of the turmoil, as we added many new clients who wanted to move their banking business to a stronger financial institution.

Our prudent risk management and conservative approach to growing our franchise continued to positively impact shareholder value. Since our IPO in 2018 through the end of 2023, we increased tangible book value per share by approximately 140%, which includes the $0.56 decrease we had due to the adoption of CECL at the beginning of 2023.

We executed well on our strategic priorities in 2023, which included maintaining disciplined expense control while focusing on adding new deposit relationships to increase our liquidity and put us in a better position to fund new loan production once loan demand increases as economic conditions improve. We finished 2023 with quarterly non-interest expense of approximately $18 million, which was well below the expected run rate of $19-$20 million that we provided at the beginning of the year. We also were successful in our deposit gathering efforts, which reduced our loan-to-deposit ratio as we moved through the year. With a focus on better leveraging previous technology investments and implementing process improvements throughout the organization, we were able to reduce expenses without impacting our business development efforts or the level of service that we provide to clients.

There remains a high degree of uncertainty regarding the economic conditions we will see in 2024, but we believe we are well positioned to perform well in any economic scenario that emerges this year. Our strong balance sheet and conservative underwriting criteria should enable us to effectively manage through an economic downturn as we have throughout our history. Should the Fed manage to keep us out of a recession and effect a soft landing for the economy, our business development capabilities and unique value proposition will enable us to take advantage of strengthening economic conditions and an increase in loan demand.

As we look at our markets, we believe the competitive environment has become more favorable for us, as many banks have had to pull back from loan production due to capital constraints, funding challenges and/or credit concerns. Deposit gathering is going to remain a top priority, with an increased focus on targeting deposit-rich industries like nonprofits and homeowner associations. We have a good deal of expertise in both of these areas throughout the company that we are now leveraging to a greater extent to add new clients that are good sources of low-cost deposits.

We expect to deliver strong financial results in 2024, and as always, we will continue to operate the company with a long- term perspective. With the strength of the franchise and the balance sheet we have built, we believe we can continue to capitalize on the attractive markets that we operate in to consistently add new clients, realize more operating leverage as we increase scale, generate profitable growth, and further enhance the value of our franchise.

Sincerely,

Scott C. Wylie

Chairman, President & CEO

[This page intentionally left blank]

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-K

____________________________________________

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

For the fiscal year ended December 31, 2023

OR

• 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	(I.R.S. Employer
incorporation or organization)	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:

				Name of each exchange on which
Title of each class		Trading Symbol		registered
Common Stock, no par value		MYFW		The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x

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. Yes x 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).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	x
		Emerging growth company	¨

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. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. x

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ¨

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).¨

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

As of June 30, 2023, the last day of the registrant's most recently completed second quarter, the aggregate market value of the common stock held by non- affiliates of the Registrant, based on the closing price of the Registrant's common stock on the NASDAQ Global Select Market, was approximately $140.9 million.

The number of shares of the registrant's common stock outstanding as of March 12, 2024 was 9,621,310.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Definitive Proxy Statement relating to its 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2023.

____________________________________________

FIRST WESTERN FINANCIAL, INC.

TABLE OF CONTENTS

Table of Contents

PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 1C.	Cybersecurity
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Mine Safety Disclosures
PART II
Item 5.	Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of
	Equity Securities
Item 6.	[Reserved]
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.	Controls and Procedures
Item 9B.	Other Information
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
	Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accounting Fees and Services
PART IV
Item 15.	Exhibits, Financial Statement Schedules
Item 16.	Form 10-K Summary
	Signatures
	Important Notice about Information in this Annual Report

Page

5

32

53

54

55

55

55

56

57

58

92

94

95

95

95

96

97

97

97

97

97

98

100

101

Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K 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 Annual Report on Form 10-K is accurate only as of the date of this Annual Report on Form 10-K and as of the dates specified herein.

[This page intentionally left blank]

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in "Item 1A - Risk Factors" of this Annual Report on Form 10-K.

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;
• risks related to non-performing assets, borrowers' solvency and ability to repay and the value of loan collateral;
• claims and litigation pertaining to our fiduciary responsibilities;
• 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;

3

• 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;
• 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, including the use of artificial intelligence as a commonly used resource and its effects;
• 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 "Part I - Item 1A - Risk Factors".

The foregoing factors should not be construed as exhaustive. 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.

4