Wealth Management AUM Falls, Restructuring Expected to Turn Results Around in 2026

Date of Call: Jan 23, 2026

Financials Results

• Revenue: Gross revenue increased 1.5% from the prior quarter and 12.2% from Q4 2024.
• EPS: Net income of $3.3 million or $0.34 per diluted share, higher than the prior quarter, reduced by $0.10 per share due to an OREO write-down.

Guidance:

• Net interest margin (NIM) expected to continue expanding in 2026, though not at the same level as 2025.
• Loan and deposit growth in 2026 expected to be similar to 2025 levels.
• Positive trends in NIM, fee income, and operating leverage expected.
• PTIM restructuring and new B2B offerings expected to improve wealth management results in 2026.
• Mortgage production expected to be seasonally stronger in Q2 and Q3 of 2026.
• Expense control remains a focus, with investments considered if they drive revenue growth.
• NIM expected to trend toward 3.15% as the economy normalizes.

Business Commentary:

Profitability and Net Interest Margin Expansion:

• First Western Financial reported net income of $3.3 million or $0.34 per diluted share in Q4 2025, an increase from the prior quarter.
• The net interest margin (NIM) increased by 17 basis points from the prior quarter to 2.71%.
• The growth in profitability was driven by disciplined underwriting and pricing criteria, along with a reduction in the cost of funds, particularly lower rates on money market deposit accounts.

Loan and Deposit Growth:

• Loans held for investment increased by $59 million from the prior quarter, with new loan production totaling $146 million in Q4 2025.
• Total deposits increased by $102 million from the prior quarter, with average deposits increasing by 10% year-on-year.
• Growth in loans and deposits was supported by a conservative approach to new loan production, additions to the banking team, and strong core deposit production, despite competitive pricing in the market.

Asset Quality and Risk Management:

• Nonaccrual loans and NPAs (non-performing assets) showed decreases, with minimal net charge-offs in the quarter.
• The allowance coverage remained stable at 81 basis points of total loans.
• The stable asset quality was attributed to disciplined underwriting standards and effective risk management strategies.

Wealth Management and Trust Services Restructuring:

• Assets under management decreased by $155 million in Q4 2025, primarily due to net withdrawals from low and fixed fee product categories.
• The company has shifted its focus in Trust and Investment Management towards more fiduciary and planning-driven services.
• The restructuring aims to improve trends in wealth management fees and is expected to yield positive results in 2026.

Strategic Opportunities from Market Disruption:

• The company is capitalizing on market disruption in the Colorado banking sector to add talent and clients.
• A disruption task force has been established to pursue recruiting and sales initiatives.
• The strategic focus is on leveraging small market share and strong economic conditions to drive balance sheet growth and shareholder value in 2026.

Sentiment Analysis:

Overall Tone: Positive

• Management reported 'positive trends in many areas, including loan growth, net interest margin expansion, well-managed operating expenses and generally stable asset quality' resulting in 'an increase in our level of profitability.' The outlook is 'very positive' with 'headwinds... changed to tailwinds for 2026' and a 'clear path to 1% ROA and plenty of room beyond that.'

Q&A:

• Question from Brett Rabatin (Hovde Group): I wanted to start off on the margin and just the outlook in terms of magnitude of margin expansion opportunities you see in the next few quarters. And then if you add it, the amount of loans that are repricing this year at lower rates from fixed rates?
  Response: NIM expected to continue expanding in 2026 but at a potentially lower rate than 2025; ~$250 million in fixed-rate loans maturing over the next year offer re-pricing opportunities.

• Question from Brett Rabatin (Hovde Group): And then on the asset management, wealth management business and the mortgage banking operation... what do you think those businesses might do?...
  Response: Wealth management AUM decline driven by shifts to higher-yielding categories; PTIM restructuring expected to improve results in 2026. Mortgage production seasonally low in Q1 but adding MLOs for future growth.

• Question from Brett Rabatin (Hovde Group): You're almost a double-digit grower in '25 on loans and deposits. Does the outlook for you guys as you see it in your economies and markets, does that suggest another similar performance in '26?...
  Response: Expect loan and deposit growth in 2026 similar to 2025, supported by market disruption creating opportunities for talent and clients.

• Question from Wood Lay (Keefe, Bruyette, & Woods): I wanted to start on the expense outlook... how should we think about the expense growth rate in 2026?
  Response: Target is to keep expenses below $20 million per quarter, but will invest if opportunities arise to drive revenue growth and operating leverage.

• Question from Wood Lay (Keefe, Bruyette, & Woods): With a strong loan pipeline, how do you think about matching that with core deposits?
  Response: Deposit pipeline is strong; focus on deposit growth is paying dividends, and the team is confident in funding loan opportunities.

• Question from Matthew Clark (Piper Sandler): Just the first question on the deposit beta, 54% this quarter from an interest-bearing perspective. Do you feel like you can hold that kind of mid-50s beta this year?
  Response: Yes, the deposit beta can be held in the mid-50s.

• Question from William Dezellem (Tieton Capital Management): Two questions from the balance sheet. The first one is mortgage loans for sale jumped in the fourth quarter... Would you discuss the dynamics behind that, please?
  Response: Increase due to timing of sales relative to quarter-end; no strategic holding for premiums.

• Question from William Dezellem (Tieton Capital Management): And then the other question was relative to your construction and development loans... whether that was an intentional risk mitigation strategy...
  Response: Intentional strategy to reduce exposure; construction loans moving to CRE portfolios as projects complete.

• Question from Brett Rabatin (Hovde Group): Just one follow-up around the tax rate... Any thoughts on the tax rate from here?
  Response: Effective tax rate expected in the 23% to 24% range going forward.

• Question from Ross Haberman (Rlh Investments): Could you just tell me -- did you touch upon your opinion of the mortgage market and what your expectations are for '26?
  Response: Investing in MLO team (up 45% in 2025) for future growth; expect pent-up demand and market recovery to create opportunities.

• Question from Ross Haberman (Rlh Investments): Have you been looking around for other operations to buy either money management or branches or other little banks?
  Response: Focus is on organic growth due to market disruption; acquisitions not a priority currently.

Contradiction Point 1

Net Interest Margin (NIM) Expansion Outlook

Contradiction on the sustainability and drivers of future NIM improvement.

What is the magnitude of margin expansion opportunities expected in the next few quarters, and what is the amount of loans repricing at lower rates from fixed rates this year? - Brett Rabatin (Hovde Group, LLC)

2025Q4: Further expansion is expected in 2026, though not at the same level as 2025... Continued NIM improvement is not dependent on further rate cuts, but cuts would be beneficial. - [David Weber](CFO), [Scott Wylie](CEO)

Can the 20-25 bps margin expansion this year be sustained in 2026? How do you assess your scarcity value and acquisition potential in the current M&A landscape? - Will Jones (Keefe, Bruyette, & Woods, Inc.)

2025Q3: The 22 bps of NIM improvement seen over the past year is promising... Continued improvement is anticipated as deposit betas respond to rate cuts. - [Scott Wylie](CEO)

Contradiction Point 2

Strategy and Growth Expectations for Wealth/Asset Management

Inconsistency in near-term performance expectations for the wealth management division.

Could you provide clarity on the AUM levels in Q4 relative to Q3 and the expected performance of these businesses in 2026 following the changes? - Brett Rabatin (Hovde Group, LLC)

2025Q4: The shift from investment management to a more fiduciary, planning-driven model is expected to show results in 2026. - [Scott Wylie](CEO)

What's the current status and growth plan for the wealth management business? - Matthew Clark (Piper Sandler & Co.)

2025Q3: The company has replaced its trust and planning team and is seeing progress. While AUM decreased slightly, fee income from trust and investment management grew... The focus is on growing fee income rather than AUM. - [Scott Wylie](CEO), [David Weber](CFO)

Contradiction Point 3

Growth Expectations for Loan and Deposit Pipelines

Contradiction on whether strong deposit growth is a sustainable, company-wide effort or a temporary prefunding event.

How do you plan to align the strong loan pipeline with core deposits given deposit competition and balance sheet optimization efforts? - Wood Lay (Keefe, Bruyette, & Woods, Inc.)

2025Q4: The deposit pipeline is strong. The team's focus on deposits is paying dividends. Historically, the bank can attract deposits when needed... - [Scott Wylie](CEO)

Is the deposit inflow prefunding for 2026 growth, and what opportunities exist for opportunistic securities purchases? - Will Jones (Keefe, Bruyette, & Woods, Inc.)

2025Q3: The deposit growth is part of an ongoing, company-wide effort to build deposit relationships alongside loans, not a one-time prefunding event. - [Scott Wylie](CEO)

Contradiction Point 4

Mortgage Banking Volume Trends

Contradiction on whether mortgage volume decline is market-driven or internally driven.

What were the AUM levels in Q4 compared to Q3 for asset and wealth management and mortgage banking operations, and what do you expect these businesses to achieve in 2026 given the changes? - Brett Rabatin (Hovde Group, LLC)

2025Q4: Mortgage production is seasonally lower in Q4 and Q1 but adding MLOs... Strong momentum in wealth planning and a new B2B offering are expected to drive growth in 2026. - [Julie Courkamp](COO)

Is the decline in mortgage volumes entirely due to market factors rather than internal challenges? - William Joseph Dezellem (Tieton Capital Management, LLC)

2025Q2: The decline in mortgage volume is viewed as entirely market-related, not due to internal issues. - [Julie A. Courkamp](COO)

Contradiction Point 5

Net Interest Margin (NIM) Outlook and Deposit Cost Sensitivity

Contradiction on NIM trajectory and deposit rate responsiveness.

What is the outlook for margin expansion in the next few quarters, and how much of the loans are repricing this year at lower rates from fixed rates? - Brett Rabatin (Hovde Group, LLC)

2025Q4: Balance sheet interest rate risk has shifted to neutral... Continued NIM improvement is not dependent on further rate cuts, but cuts would be beneficial. - [Scott Wylie](CEO)

Do you still expect to reach a low to mid 2.70s NIM by year-end, and how sensitive is this projection to rate cuts in the second half of the year? - Wood Neblett Lay (Keefe, Bruyette, & Woods, Inc.)

2025Q2: The impact of a 25 basis point rate cut on NII is estimated to be in the $1 million range... This sensitivity remains a fair assumption. - [David R. Weber](CFO)