First Western Financial, Inc. Q3 FY2025 earnings call

• Executed well in the third quarter with positive trends in loan deposit growth, net interest income, well-managed expenses, and stable asset quality, leading to increased profitability and positive operating leverage.
• Market is competitive, but success is from superior service, expertise, and responsiveness rather than rates. Conservative underwriting and pricing criteria maintained, with solid loan production due to added banking team and healthy economic conditions.
• Book value and tangible book value per share increased, with shares repurchased during the third quarter.
• Gross revenue increased 8.7% from the prior quarter due to increases in net interest income and noninterest income. Net interest income increased for the fourth consecutive quarter, up 8.9% QoQ. Noninterest income increased by more than $500,000 or 8.5%. Noninterest expense increased by less than $1 million from the prior quarter. Asset quality generally stable with slight increases in NPLs and NPAs, with a specific provision for a C&I loan.

Loan Portfolio:

• Loans held for investment increased $50 million from the end of the prior quarter.
• New loan production was $146 million in the third quarter, well diversified across markets, industries, and loan types, with an average rate on new loan production of 6.38%.

Deposit Portfolio:

• Total deposits increased $320 million from the end of the prior quarter, due to new accounts and existing client balances. Noninterest-bearing deposits increased from title companies, and interest-bearing deposits from successful deposit gathering strategies.

Trust and Investment Management:

• Assets under management decreased $64 million in the third quarter, primarily due to net withdrawals on low fee product categories, but investment agency AUM improved. Trust and investment management fees increased $100,000 from the prior quarter, driven by the increase in investment agency AUM.

• Expect net interest margin (NIM) expansion in the fourth quarter as liquidity is deployed into the loan portfolio.
• Positive trends in key areas expected to continue, leading to steady improvement in financial performance and value creation for shareholders.

• Large deposits coming in and out, though Q3 deposits are expected to stay and provide a higher deposit base for Q4.
• A C&I loan was downgraded in Q3 with a specific provision in place.
• Competitive market conditions affecting deposit and loan pricing.

Q: Wanted to start with the deposits and the strong MMDA growth. Any color on stickiness?

A: We've seen deposits from Q3 that are expected to stay and give a higher deposit base to grow from into Q4.

Q: Color on the NPA added during the quarter and provision?

A: It's a C&I loan, downgraded in Q3, with a specific provision in place, and the provision is more than adequate.

Q: On the margin, any magnitude for Q4?

A: Expect NIM expansion, thinking we can achieve something like 5 basis points of NIM expansion.

Q: Spot rate on deposits at the end of the quarter?

A: It was 3.04%.

Q: Thoughts on beta with Fed rate cuts?

A: Beta has been declining, achieved around 63% beta on money market accounts in Q3, and reasonable for Q4 expectation.

Q: Expense run rate for Q4?

A: Incentive comp can vary with financial performance, but something similar to Q3 as far as expenses is a reasonable estimate.

Q: Update on wealth management business?

A: Replaced the team on the trust and planning side, saw fee income grow in agency accounts, with a new leader and more progress to come.

Q: Circle back to deposit growth and balance sheet growth in Q4?

A: Loan deposit pipelines remain strong, expecting solid balance sheet growth in Q4, with market disruption creating opportunities.

Q: Margin outlook for 2026?

A: Seen improvement from Q3 2024 to Q3 2025, and expect continued operating leverage into 2026 towards normal NIM levels.

Q: Scarcity value and potential as a downstream buyer?

A: First Western is a unique franchise, and there's good scarcity value, and we'd love to be buyers if stock price is reasonable.

Q: Deconsolidation impact and Arizona transaction?

A: Disruption from bank sales, recruited top folks from First Republic for Arizona franchise, optimistic about team there.

Q: Redeploying excess cash?

A: Focus is to deploy liquidity into loan portfolio, added $50 million to bond portfolio in Q3, expecting loan demand trends to continue with moderate growth pace into 2026.