First Western Financial, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Net income was $3.3 million ($0.34 per diluted share) in Q4, higher than the prior quarter, with tangible book value per share increasing 1.6%.
• Loan and Deposit Growth: Conservative new loan production with disciplined underwriting. Successfully generated new loans and deposits by offering superior service. Loan and deposit pipelines are strong for 2026.
• Balance Sheet Management: Experienced loan growth, net interest margin expansion, well-managed operating expenses, and stable asset quality. Added market presence in Arizona.
• Trust and Investment Management: Restructuring underway to improve PTIM results, shifting from investment management to fiduciary and trust planning.
• Mortgage Banking: Added 8 mortgage loan officers (MLOs) in 2025 (a 45% increase YoY), profitable, and expecting stronger production in 2026 Q2-Q3.

Segment Performance

• Loan Portfolio: Loans held for investment increased $59 million from the prior quarter. New loan production was $146 million in the fourth quarter, with the largest increases in commercial real estate portfolios and an average rate on new production of 6.36%.
• Deposit Trends: Total deposits increased $102 million from the prior quarter. Average deposits rose 10% in Q4 2025 compared to Q4 2024, partially offset by seasonal outflows from title company operating accounts.
• Trust and Investment Management: Assets under management decreased $155 million in Q4, primarily due to net withdrawals on low fee and fixed fee products, but investment agency accounts with higher variable fees increased $15 million.
• Net Interest Income: Increased 5.6% QoQ and 21.7% YoY due to net interest margin expansion. NIM rose 17 basis points to 2.71% due to a reduction in the cost of funds.
• Noninterest Income: Decreased ~$800,000 QoQ, primarily due to seasonal declines in gain on sale of mortgage loans and decreases in risk management/insurance fees.
• Expenses: Noninterest expense increased $1.2 million QoQ, but excluding a $1.4 million OREO property write-down, it decreased $100,000.
• Asset Quality: Generally stable with decreases in nonaccrual loans and NPAs, minimal net charge-offs, and allowance coverage unchanged at 81 basis points of total loans.

Guidance

• 2026 Outlook: Expect balance sheet growth similar to 2025 in loan and deposit growth. Net interest margin expected to expand further towards 3.15%. Fee income expected to improve. Disciplined expense control with operating leverage. Opportunities from M&A disruption to add talent and clients. Asset quality not expected to deteriorate meaningfully.
• NIM: Expect further expansion in 2026, though not at the same level as 2025. About $250 million in fixed rate loans maturing over the next year, providing a repricing opportunity.
• Expenses: Aim to keep expenses below $20 million per quarter, with potential to invest in the business if opportunities with strong long-term impact arise.

Risks

• OREO Property: A $1.4 million write-down on an OREO property, with uncertainty around sale timing.
• Interest Rate Fluctuations: While the balance sheet shifted to neutral, NIM improvement is not solely dependent on rate cuts, but rate cuts would be beneficial.
• Market Competition: Competitive pricing on loans and deposits; need to continue offering superior service to generate new business.

Question and Answer

• Q: Margin outlook and fixed rate loans maturing A: David Weber mentioned ~$250 million in fixed rate loans maturing next year with an average yield in the low 5s. Scott Wylie noted the balance sheet shifted to neutral, and NIM improvement is not dependent on rate cuts.
• Q: Asset management and mortgage business trends A: Scott Wylie and Julie Courkamp discussed AUM decline due to low/fixed fee withdrawals but improvement in higher-yielding categories. Mortgage banking added 8 MLOs, expecting stronger production in 2026 Q2-Q3.
• Q: Expense outlook and profitability A: Scott Wylie mentioned aiming to keep expenses below $20 million per quarter, with potential to invest in the business. Targeting a 1% ROA, expecting improvements from NIM, operating growth, and initiatives.
• Q: Deposit beta and mortgage loans for sale A: David Weber said deposit beta can be held in the mid-50s. Mortgage loans for sale are due to the timing of sales relative to the end of the period, a mechanical nature.
• Q: Tax rate and mortgage market expectations A: David Weber discussed tax rate fluctuation due to LIHTC and equity compensation. Scott Wylie and Julie Courkamp talked about mortgage market expectations, focusing on building the MLO team for future productivity.