"First Western Financial" Q2 2026 Earnings Call - Margin Expansion and Disciplined Pricing Drive Profitability Amid Strategic Growth Trade-off

Conference Call Operator: Thank you for standing by, and welcome to First Western Financial’s second quarter 2026 earnings conference call. Currently, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Lisa Fortuna, Investor Relations. Please go ahead.

Lisa Fortuna, Investor Relations, First Western Financial: Thank you. Good morning, everyone. Thanks for joining us today for First Western Financial’s second quarter 2026 earnings call. Joining us from First Western’s management team are Scott Wylie, Chairman and Chief Executive Officer, Julie Courkamp, Chief Operating Officer, and David Weber, Chief Financial Officer. We will use a slide presentation as part of our discussion this morning. If you have not done so already, please visit the Events and Presentations page of First Western’s Investor Relations website to download a copy of the presentation. Before we begin, I’d like to remind you that this conference call contains forward-looking statements with respect to the future performance and financial condition of First Western Financial that involve risks and uncertainties. Various factors could cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.

These factors are discussed in the company’s SEC filings, which are available on the company’s website. I would also direct you to read the disclaimers in our earnings release and investor presentation. The company disclaims any obligation to update any forward-looking statements made during the call. Additionally, management may refer to non-GAAP measures, which are intended to supplement, but not substitute, for the most directly comparable GAAP measures. The press release available on the website contains the financial and other quantitative information to be discussed today, as well as the reconciliation of the GAAP to non-GAAP measures. With that, I’d like to turn the call over to Scott.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Thanks, Lisa. Good morning, everybody. We executed well in the second quarter and saw positive trends in many areas, including deposit growth, net interest margin expansion, well-managed expenses, and stable asset quality. This resulted in another quarter of solid profitability. We continue to maintain prudent risk management and conservative new loan production practices. Supported by the banking talent over the last several years and good economic activity across our markets, we achieved healthy loan production that was diversified across markets, industries, and loan categories. As a result of our financial performance and the balance sheet management strategies, we further strengthened our tangible book value per share this quarter. Moving to slide four, we generated net income of $6.7 million or $0.57 per diluted share in the second quarter, 129% and 119% higher, respectively, than the year-ago period.

With our prudent balance sheet management, our tangible book value per share increased by 2.6% this quarter to $25.53. I’ll turn the call over to Julie for some additional discussion on our balance sheet and trust investment management trends. Julie?

Julie Courkamp, Chief Operating Officer, First Western Financial: Thank you, Scott. Turning to slide five, we’ll look at the trends in our loan portfolio. Our loans held for investment increased $23 million from the end of the prior quarter, marking the fifth consecutive quarterly increase. On a year-over-year basis, total loans increased 7%. We remain conservative and disciplined in our new loan production. The higher productivity of the bankers added over the last several quarters is supporting a stable pace of loan originations. New loan production was $115 million in the second quarter and was diversified across various markets and loan types, with a focus on relationship-based lending. We continue to be disciplined with respect to pricing, which resulted in the average rate on new production of 6.37% in the quarter. Which was six basis points higher on a quarter-over-quarter basis and higher than the average rate of loan payoffs of 5.89% in the quarter.

Moving to slide six, we’ll take a closer look at our deposit trends. Our total deposits increased from the end of the prior quarter, with growth in money market accounts partially offset by a decrease in time deposit accounts. On a year-over-year basis, total deposits increased 12.6%. Average non-interest-bearing deposits increased $18 million or 5.1% in the quarter. Turning to trust and investment management on slide seven, we had a $41 million increase in our assets under management in the second quarter, primarily attributed to improving market conditions. Investment agency AUM increased $91 million in the quarter and $122 million on a year-over-year basis, which is our highest fee category. As David will cover shortly, our trust and investment management fees have increased 5.1% from the second quarter of 2025 as we have restructured that team for growth.

I’ll turn the call over to David for further discussion of our financial results.

David Weber, Chief Financial Officer, First Western Financial: Thanks, Julie. Turning to slide eight, we’ll look at our gross revenue. Our gross revenue increased 1.8% from the prior quarter, primarily due to an increase in net interest income, partially offset by a decrease in non-interest income. Our gross revenue has increased 16% from the second quarter of 2025.

Turning to slide nine, we’ll look at the trends in our net interest income and margin. Our net interest income increased 4.3% from the prior quarter due to an increase in net interest margin and an increase in day count. Our net interest margin increased nine basis points from the prior quarter to 2.9%. This was primarily due to a decrease in cost of funds, combined with an improved mix shift in average interest-earning assets. The yield on interest earning assets increased four basis points, driven by a favorable shift toward higher yielding loans, while the cost of funds declined four basis points due to an improved funding mix and lower rates on time deposits. Our net interest income increased 21.7% from the second quarter of 2025 due to a 23 basis point increase in net interest margin and an increase in average interest-earning assets.

Turning to slide 10, our non-interest income decreased by $0.3 million from the prior quarter. This was primarily due to a decrease in net gain on sale of mortgage loans, given lower origination volume due to higher mortgage rates, a decrease in risk management and insurance fees, partially offset by an increase in bank fees. Turning to slide 11 and our expenses. Our non-interest expense increased by $1 million from the prior quarter. The increase was due to an increase in technology and information systems, data processing, and marketing. The increase was primarily attributable to a $400,000 non-recurring charge related to the write-off of certain previously capitalized technology assets, which negatively impacted diluted EPS by $0.03. Our efficiency ratio was 74.03%, compared to 73.11% last quarter and 78.83% in the second quarter of 2025.

Going forward, we expect quarterly non-interest expense to be between $20 million and $21 million, and we will continue to exercise disciplined expense control. Turning to slide 12, we’ll look at our asset quality. As Scott indicated earlier, we saw stable trends in the loan portfolio in the second quarter, with relatively flat non-accrual loans and NPAs. Additionally, we had no loan charge-offs for the second consecutive quarter. Our allowance coverage was 75 basis points of total loans, as improved trends during the quarter drove a release of provision of half a million. I’ll turn it back to Scott. Scott?

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Thanks, David. Turning to slide 13, I’ll wrap up with some comments about our outlook. Based on our second quarter performance and what we’re seeing in our markets, we are encouraged and expect further improvement in our financial performance during the second half of the year. Overall, we continue to see relatively healthy economic conditions in our markets. We’re seeing good opportunities to add both new clients and banking talent due to the ongoing disruption from M&A activity in our markets. Axos Bank recently added new leadership in Arizona, where we’re beginning to see good traction and opportunities for growth. Our loan deposit pipelines remain strong and should result in improved balance sheet growth second half of the year, a key objective of ours.

In addition to balance sheet growth, we also expect to see positive trends in our net interest margin, our fee income, and more operating leverage resulting from continued revenue growth and ongoing expense discipline. We had a net margin expansion of 26 basis points in 2025 and another 19 basis points so far in 2026. While remaining disciplined in our expense control, we believe there will be opportunities to invest in our business by adding banking, trust, and investment management talent and new clients due to the disruption caused by the continued M&A in our markets. These investments in the business will drive future shareholder value. The ongoing disruption from M&A activity in our markets creates opportunities for us to add revenue growth talent. We will take advantage of these opportunities if and when they materialize, as well as opportunities to add new clients.

Based on trends we’re seeing in the portfolio and the feedback we’re getting from our clients, the credit outlook appears stable and healthy. The positive trends we’re seeing in a number of key areas are expected to continue, which we believe will result in steady improvement in our financial performance and further value being created for our shareholders in 2026. With that, we’re happy to take your questions. Latice, please open up the call.

Conference Call Operator: As a reminder, to ask a question, you will need to press 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Hannah Nguyen of KBW. Your line is open, Hannah.

Hannah Nguyen, Analyst, KBW: Hi, this is Hannah stepping in for Woody Ley. Thanks for taking my question.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Good morning, Hannah.

Hannah Nguyen, Analyst, KBW: I wanted to start off with loans. I saw you guys noted and mentioned earlier that you have a strong loan and deposit pipelines, and was wondering if you could give a little more color on where that growth is coming from and how you’re thinking about overall loan growth for the second half of the year.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Sure. Let me start with a short answer and then give a little bit more detailed one if that’s okay. The short answer is we’ve seen a really nice balance in where our loan production’s coming from. On the loan page of the deck, you can see there that we saw our usual $100 million a quarter in payoffs and pay downs, and the production that we did in the quarter of, whatever it was, 115 million-ish, was better than that, but not enough to drive the growth that we thought that we would see. The longer answer to the question is we’re seeing some impact, as I had predicted in the prior two quarters from all this market disruption, which is a real two-edged sword. One side of the sword is that the clients are disrupted, and the bankers are disrupted, and there’s opportunity there.

We’re definitely taking advantage of that. We’ll see more results from that, and we can talk about that more in the Q&A if you want. The other side of the sword is that we’re seeing real price competition on loans. We have made the decision year to date, right or wrong, but this is what we’ve said, is that we’re going to be disciplined in our pricing and in our terms. For example, we saw a loan at credit committee last week where it was proposed to be priced at 125 over Treasuries for a, I don’t know, what, a 5-year, 7-year fixed rate loan. We’re just not going to do that. That doesn’t make sense to me.

The fact that others that have entered the market here that want to defend their clients or be really aggressive with pricing, I think it’s understandable why they could do that, but that doesn’t mean we’re going to chase that. I think we’ve seen a really nice increase in NIM continue. The fact that we’ve done almost a bunch of an improvement in the first half of the year in NIM as we did all of last year, I think is a really telling story on how this NIM improvement that we predicted 9 months ago to continue. We didn’t think it was going to go this fast, but I think it has because we focused on NIM. David did some really interesting analysis that we can delve into, if you want, about kind of the trade-off of NIM and growth.

The short answer is, if we grew $280 million in net growth by the end of the year and just kept our NIM flat from here, that would actually have the same income effect as growing zero in assets and having 10 basis points a quarter in improvements. Or if you take the midpoint, $130 million in growth a quarter and a 5 basis point improvement per quarter in NIM. I think that certainly got the leadership team here thinking, maybe we back off the pace of improvement of NIM in the second half and see a little more asset growth. We’ve talked to the front office about that.

We had our 2-day annual summit earlier this week. We asked the 19 office heads that were here, "Are we missing the market by a little or a lot?" They said, "In some cases, a lot, in some cases, a little. If we’re a little more competitive, we think we can grow faster." That’s how we’re looking at it. I’m sorry that that turned out to be such a long answer, but I think it’s a great question.

Hannah Nguyen, Analyst, KBW: Yeah, that’s super helpful. Really appreciate all of that color. Wanted to touch back on what you said earlier about taking advantage of the market disruption and was wondering what you guys are seeing on the hiring front, and how you’re expecting this to impact expenses moving forward.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Yeah. Another great question. We’ve added 12 new front office people into the profit centers so far this year, and eight new people into the product group areas. If you look at people that are actually just direct salespeople, we’ve added 10 of those, which will be included in the 20 I just mentioned so far this year. One of the challenges that we have with that kind of hiring is our experience over the years is sometimes it takes some time to get those people up to speed. The first day they get here, they don’t typically produce a lot of new activity. We’ve done a couple of things to try and accelerate that.

The first thing we did is we started a program, actually had this idea in February that to really try and activate this shift back on the offense, that we should get out and call more. I said I would do 100 calls between February and the end of June. Julie got ahold of that and called it Westward 100 because we have these Westward initiatives this year to try and drive more growth. We ended up, I think I ended up doing 168 calls. I luckily beat my 100-call goal because that would have been embarrassing otherwise. I think in the Westward 100 program, we ended up doing, what was the number Julie? 3,963 or some number like that. Almost 4,000 calls company-wide. We actually raised the bar on what a call was defined as.

It had to be planned, it had to be face-to-face, had to have a call plan around it and a follow-up into CRM, stuff like that. We had a 88% increase in calls year-over-year. Yesterday, we had our Board trust committee meeting and our trust department, which trust officers are not the ones most famous for being proactive salespeople. Our head of the trust department put a slide in there for the board that said, from reactive to proactive, trust officer calls were up 180% in the first half of the year. Definitely a culture shift in the organization, including on the P10 side about getting out and making calls. If you would allow me, can you talk, Julie, a little bit about this activation program we have for new hires?

Julie Courkamp, Chief Operating Officer, First Western Financial: Yeah. Several months ago, we implemented a program to help the new hires coming into the organization, most specifically those that are client-facing, to really get launched as quickly as possible, to understand our product set, to understand our culture, and our methodology for client service. That has been implemented two months ago, and every new hire in those front office roles is going through this additional program that we’ve added into it, just to make sure that we are optimizing their ability to get out and tell the First Western story and serve clients well.

Hannah Nguyen, Analyst, KBW: Great. That is all super helpful. Really appreciate that. Thanks for taking my questions, and I’ll step back.

Conference Call Operator: Thank you. Once again, to ask a question, please press star one one on your telephone. Our next question comes from the line of Sorry. Our next question comes from the line of Matthew Clark of Piper Sandler. Your line is open, Matthew.

Matthew Clark, Analyst, Piper Sandler: Hey, good morning, everyone.

Julie Courkamp, Chief Operating Officer, First Western Financial: Morning.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Morning. Morning, Matthew.

Matthew Clark, Analyst, Piper Sandler: I guess I just wanted to touch on the expense guide first. Gave the range. I think three Q, at least the last couple of years, 2Q to 3Q, you’ve seen a bump up in comp. I’m just curious if that’s still expected to be the case this coming quarter or if there are some offsets to that.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Well, just to be clear, for Q2, we had some one-time expenses in there related to technology and data processing, which I think totaled a little under half a million dollars. The baseline for second quarter appears higher than what it actually is. I think, looking forward, we’ve got these new hires that we’ve brought on in production roles that we’re working to activate, like we just talked about. I think we are going to see a higher expense, which is why we’re guiding now to $20 million-$21 million instead of $19 million-$20 million. Our hope is that expenses are higher in Q3 because we have more incentive comp because we’re seeing some nice growth because we do accrue for incentive comp based on a number of performance metrics, but primarily revenue growth and earnings growth. That would be a good problem.

Absent that, I don’t know, David, if you have more to add. I think the shift that we’ve seen, the increase we’ve seen in expenses did show up already in Q2. We don’t really anticipate additional core expenses in Q3.

David Weber, Chief Financial Officer, First Western Financial: Yeah. Matt, there’s no seasonality component that occurs every year in Q3-

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: In Q3

David Weber, Chief Financial Officer, First Western Financial: There’s a lot of dynamics, whether it’s hiring or incentive comp performance or things like that are likely causing some of those spikes.

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Yeah, the other thing, Matthew, is if you look back to 2023 and our expense increase over these three years, we’ve earned $3 in revenue growth, core revenue growth for each dollar in core expense growth. It’s pretty good operating leverage, which we would expect to continue.

Matthew Clark, Analyst, Piper Sandler: Yep. Good. Just on the deposit costs, wondered what the spot rate was at the end of June, if you had it, and then your thoughts on pricing and overall deposit costs going forward, assuming the Fed stays on hold and with this higher for longer environment, what that’s doing to your competition?

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Yeah. If I could start, and then David, if you could fill in the blanks here, because there are going to be some. Back to your seasonality question. Q2 for us is almost always a down quarter. We see about 2% shrinkage in our core deposits in Q2. When we got into April this year, we sure enough saw that. It’s interesting. We’ve had a real focus on core deposit growth that brought the deposit growth back to be positive in May, positive in June, and of course, we ended up 2% positive for the quarter. Notably, our net interest, non-interest-bearing deposits were up 5% quarter-over-quarter in average balances. Some really good improvements in the mix, which, as David said in his comments, has been a focus for us.

David Weber, Chief Financial Officer, First Western Financial: Yeah. Specifically on the spot rate, Matt, 2.8% for the spot rate of deposits at 6/30.

Matthew Clark, Analyst, Piper Sandler: Okay. In your thoughts about deposit costs going forward, can you continue to chip away at those, or do you feel like this environment makes it more difficult?

David Weber, Chief Financial Officer, First Western Financial: I think it makes it more difficult. The cost of deposit acquisition has certainly increased in our markets, given the disruption that we’ve seen and banks trying to hold onto their deposits for obvious reasons. We haven’t necessarily seen pressure from our existing depositors on deposit rates, but that cost of new acquisition has certainly crept up a bit. Then from a time deposit repricing standpoint, we’ve had some benefits there over the past few quarters. Our time deposit portfolio is currently at 3.64% on a spot basis. I don’t know that there’s a ton of opportunities still left in that portfolio.

Julie Courkamp, Chief Operating Officer, First Western Financial: I think our biggest opportunity is going to be on continuing to chip away at improving our mix of deposits through non-interest-bearing deposit growth. From a core basis, I don’t think we’re seeing a lot of opportunity on changing rates, but changing the mix is definitely the focus.

Matthew Clark, Analyst, Piper Sandler: Got it. Thank you.

Conference Call Operator: Our next question comes from the line of Ross Haberman of RLE Investments. Your line is open, Ross.

Ross Haberman, Analyst, RLE Investments: Good morning, Scott and Todd. Nice quarter.

David Weber, Chief Financial Officer, First Western Financial: Morning, Ross.

Ross Haberman, Analyst, RLE Investments: You seem to indicate that, if I’m hearing you right, if rates stay the same, you could see some improving margin. Is that correct from what I’m hearing from you?

David Weber, Chief Financial Officer, First Western Financial: Well, that’s certainly what we’ve seen the last several quarters now, and we do think that that will continue. I’m going to put a caveat on that this quarter and say that the trade-off between growth and NIM improvement is definitely on our mind. Our feeling is probably drives more shareholder value from where we are today, given the disrupted markets, to be a little bit more flexible on NIM improvement to try and drive better growth in Q3 than what we’ve seen year to date, better asset growth.

Ross Haberman, Analyst, RLE Investments: You see a tick up in interest rates. Let’s say they raise the rates a quarter % for argument’s sake. How do you see that affecting your margin expectations?

David Weber, Chief Financial Officer, First Western Financial: So-

Ross Haberman, Analyst, RLE Investments: You know, one-time rate increase.

David Weber, Chief Financial Officer, First Western Financial: Historically, we try and run a balanced balance sheet. Our interest rate risk is neutral. Right now, we’ve shifted to be more neutral, although I think we’re still liability sensitive. David, do you want to speak to that? Yeah. We maintain a relatively neutral balance sheet profile, and that’s certainly been a goal of ours over the past few years. We do lean slightly liability sensitive, which a 25 basis point decrease by the Fed will benefit us a little bit, let’s call it one to two basis points in NIM, but it’s not all that material.

Ross Haberman, Analyst, RLE Investments: Same with an increase.

David Weber, Chief Financial Officer, First Western Financial: Yeah.

Ross Haberman, Analyst, RLE Investments: Yeah.

David Weber, Chief Financial Officer, First Western Financial: So.

Ross Haberman, Analyst, RLE Investments: Okay. Just one follow-up question. Asset quality look really good. You got rid of all of those non-performers which plagued you the last year or so. Are all those completely gone now?

David Weber, Chief Financial Officer, First Western Financial: Yeah. The two problem credits we had from 2023, or whenever that was, are long gone. We have seen a return to kind of zero losses per quarter. I think if you go back two or three quarters, we had 0.01 or 0.02, but it’s basically been zero most quarters recently and most quarters over the last 20 years. Definitely in terms of net losses, we seem to be back at zero. In terms of NPAs, we were flat quarter-over-quarter, slight improvement at about 50 basis points. From what I know today, assuming no surprises this quarter, we’re going to see some improvement in that in Q3. I think our underwriting standards that we’ve always had here of requiring three sources of repayment, personal guarantees, hard collateral, those are definitely protecting us against losses in a normal economic environment like we’re in.

Ross Haberman, Analyst, RLE Investments: Nothing in the criticized or substandard that you’re losing sleep about?

David Weber, Chief Financial Officer, First Western Financial: Nothing causing us to lose sleep, no.

Julie Courkamp, Chief Operating Officer, First Western Financial: In fact, both classified and criticized loans were slightly down in the quarter from last quarter.

Ross Haberman, Analyst, RLE Investments: Thanks, guys. Nice quarter. Have a nice week.

David Weber, Chief Financial Officer, First Western Financial: Yep. Thanks, Ross.

Conference Call Operator: Thank you. I would now like to turn the conference back to Scott Wylie for closing remarks. Sir?

Scott Wylie, Chairman and Chief Executive Officer, First Western Financial: Okay, great. The key themes this quarter I think are largely unchanged. First Western, if you compare us to other $2 billion-$25 billion dollar banks nationwide, we’re in some great markets. We have a top decile mix of affluent markets. We have a great niche. We are in the top three of all of those banks in terms of wealth management fees as a percent of revenues. We have great bankers. Historically, our organic annual asset growth rate is well above peers. We’re about double the median for that group and well into the top quartile, all that with very high asset quality. We’re continuing to see earnings normalize here.

David Weber, Chief Financial Officer, First Western Financial: We typically don’t talk about our internal plan on these calls. I would tell you we’re performing well against plan on an earnings basis. We think that the opportunity to continue to see the kind of gains that we’ve seen so far this year over a year ago, that’s going to continue through year-end, we believe. With that, thanks everybody for dialing in. Have a great day.

Conference Call Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.