First Western Shifts from Defense to Offense Amid NIM Gains

Date of Call: Jan 23, 2026

Financials Results

• Revenue: Gross revenue increased 1.5% from prior quarter and 12.2% from fourth quarter 2024.
• EPS: $0.34 per diluted share, higher than prior quarter, reduced by $0.10 after-tax OREO write-down.
• Operating Margin: Pre-provision net revenue, adjusted for OREO write-down, up 39% quarter-over-quarter annualized and double from a year ago; operating run rate ~$0.50 per share per quarter (~$2 annualized).

Guidance:

• Loan and deposit growth in 2026 expected at similar levels to 2025.
• Net interest margin expected to continue expanding in 2026, though not at 2025's rate.
• Positive trends in fee income and operating leverage expected from disciplined expense control.
• Near-term objective to achieve 1% ROA (approx. 350 basis points).

Business Commentary:

Profitability and Financial Performance:

• First Western Financial reported net income of $3.3 million, or $0.34 per diluted share in Q4 2025, which was higher than the prior quarter.
• This improvement in profitability was driven by positive trends in loan growth, net interest margin expansion, well-managed operating expenses, and stable asset quality.

Loan and Deposit Growth:

• The company's loans held for investment increased by $59 million from the prior quarter, and new loan production was $146 million in Q4 2025.
• This growth was attributed to conservative yet selective lending practices, additions to the banking team, and healthy economic conditions in their markets.

Net Interest Margin Expansion:

• First Western Financial's net interest margin increased 17 basis points from the prior quarter to 2.71%, and gross revenue increased 1.5% from the previous quarter.
• The margin expansion was primarily due to a reduction in the cost of funds, driven by lower rates on money market deposit accounts and the runoff of high-cost deposits.

Trust and Investment Management Trends:

• Assets under management decreased by $155 million in Q4 2025, primarily due to net withdrawals from low-fee and fixed-fee product categories.
• Despite the overall decrease, there were improvements in higher-yielding categories, and the company expects positive results from recent strategic shifts and leadership changes in the trust and investment management division.

Outlook and Strategic Focus:

• The company expects continued growth in 2026 with loan and deposit growth similar to 2025 levels, alongside positive trends in net interest margin and fee income.
• This outlook is supported by ongoing market disruption from M&A activity, which presents opportunities for adding new clients and banking talent, and the company's strategic focus on organic growth and market expansion.

Sentiment Analysis:

Overall Tone: Positive

• Executives stated they shifted from defense to offense, seeing market disruption as an opportunity. They cited positive trends in Q3-Q4 (e.g., net interest income up 22% QoQ annualized, NIM expansion, OREO write-down one-time). Scott Wylie said: 'The headwinds out in the market have changed to tailwinds for 2026... we see a clear path to 1% ROA.'

Q&A:

• Question from Brett Rabatin (Hovde Group): 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 had it, the amount of loans that are repricing this year at lower rates from fixed rates.
  Response: Expect further NIM expansion in 2026, though not at 2025's level; ~$250M in fixed-rate loans maturing over next year at low rates provides re-pricing opportunity.

• Question from Brett Rabatin (Hovde Group): And then on the asset management, wealth management business, and the mortgage banking operation... any thoughts on those businesses and the growth of fee income?
  Response: Wealth management AUM decline driven by net withdrawals from low-fee categories; restructuring and shift to planning-driven focus expected to improve results in 2026. Mortgage production seasonally low in Q1 but expects Q2-Q3 to be stronger; added 8 MLOs (45% increase) at no direct expense.

• Question from Brett Rabatin (Hovde Group): Then if I could ask one last one, you’re almost a double-digit grower in 2025 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 2026?
  Response: Expect 2026 growth in line with 2025, supported by market disruption creating talent/client opportunities, strong pipeline, and small market share in healthy economies.

• Question from Woody Lay (KBW): Wanted to start on the expense outlook... how should we think about the expense growth rate in 2026?
  Response: Target to keep expenses below $20M per quarter; manage expenses while investing in business for revenue growth and operating leverage if opportunities arise.

• Question from Woody Lay (KBW): And then just any thoughts on [the mortgage operation]?
  Response: MLO team increased by 8 in 2025 (45% increase); positioned to take advantage of future market opportunities as pent-up demand exists.

• 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, can hold mid-50s deposit beta.

• Question from Bill Dezellem (Titan Capital Management): 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 end of period; balance typically trends up then gets sold, not indicative of market dynamics.

• Question from Bill Dezellem (Titan Capital Management): And then the other question was relative to your Construction and Development loans... whether that was an intentional risk mitigation strategy.
  Response: Yes, intentional risk mitigation; portfolio reviewed 18 months ago to reduce exposure, with construction loans moving to CRE investor real estate.

• Question from Brett Rabatin (Hovde Group): Just wanted to follow up around the tax rate... Any thoughts on the tax rate from here?
  Response: Expect effective tax rate in 23%-24% range going forward; added some tax-exempt interest income sources.

• 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 2026?
  Response: Invested in MLO team (8 added in 2025) for future productivity; well-positioned to take advantage of market opportunities when demand increases.

• Question from Ross Haberman (RLH Investments): Have you been looking around for other operations to buy...?
  Response: Focus is on organic growth via market disruption; prefer hiring talent for specific business rather than acquiring banks.

Contradiction Point 1

Net Interest Margin (NIM) Expansion Trajectory

Contradictory guidance on NIM expansion pace and drivers between 2025 and 2026.

What is the outlook for NIM expansion and the impact of lower rates on loans? - Brett Rabatin (Hovde Group)

2025Q4: Expect further NIM expansion in 2026, though not at the same level as 2025. Balance sheet interest rate risk is now neutral, and continued improvement does not depend on rate cuts. - [David Weber](CFO)

What are your expectations for additional relief in the back half? - Matthew Timothy Clark (Piper Sandler & Co.)

2025Q2: NIM is expected to be relatively flat in the third quarter... then expand in the fourth quarter to an exit rate in the low to mid-2.70s. - [David Weber](CFO)

Contradiction Point 2

Strategy and Performance of the MLO Team

Contradictory statements on whether MLO additions are for growth or merely to address volume decline.

What is your outlook for the mortgage market in 2026? - Ross Haberman (RLH Investments)

2025Q4: Investing in MLO team (8 added in 2025) to position for future growth... - [Scott Wylie](CEO)

Why are your volumes down despite increased MLOs? - William Joseph Dezellem (Tieton Capital Management)

2025Q2: The increase in MLOs is aimed at boosting production and geographic spread. The decline in mortgage volume is attributed to industry-wide weakness... - [Julie Courkamp](COO)

Contradiction Point 3

Deposit Rate Beta Guidance

Contradiction in guidance for the deposit interest rate beta.

Can the company maintain a mid-50s deposit beta this year? - Matthew Clark (Piper Sandler)

2025Q4: Can hold the mid-50s deposit beta. - [Scott Wylie](CEO)

Can you provide details on gross revenue growth, drivers of noninterest income growth, and factors behind net interest margin expansion? - William Dezellem (Analyst)

2025Q1: The cost of deposits at quarter-end was lower than the average rate, which is expected to benefit the margin in Q2. - [David Weber](CFO)

Contradiction Point 4

Mortgage Volume and Market Conditions

Inconsistent attribution for mortgage volume performance and market outlook.

Can you discuss the NIM expansion outlook and lower rates' impact on loans, as well as Q4 trends and 2026 expectations for AUM, wealth management, and mortgage banking? - Brett Rabatin (Hovde Group)

2025Q4: Mortgage production is seasonally lower in Q4... Added 8 MLOs in 2025 (45% increase) at no direct expense; expect Q2 and Q3 of 2026 to be seasonally stronger. Early momentum in B2B offerings. - [Julie Courkamp](COO)

Why do you believe volumes have decreased despite increased MLOs? - William Joseph Dezellem (Tieton Capital Management)

2025Q2: The decline in mortgage volume is attributed to industry-wide weakness, economic uncertainty, and interest rate uncertainty... The company expects volumes to rebound if economic conditions improve... - [Julie Courkamp](COO)

Contradiction Point 5

Strategy & Outlook for Wealth Management

The focus and drivers for wealth management growth appear to shift between quarters.

What is the outlook for NIM expansion and the impact of lower rates on loans, along with trends in AUM, wealth management, and mortgage banking in Q4 and expectations for 2026? - Brett Rabatin (Hovde Group)

2025Q4: AUM decreased by $155 million in Q4, primarily due to net withdrawals... Positive trend in higher-yielding categories; restructuring and shift to planning-driven services aim to improve results going forward. - [David Weber](CFO) and [Julie Courkamp](COO)

Was the decrease in Wealth Management AUM deliberate, and what is the updated strategy for driving growth and profitability in that business? - Matthew Clark (Piper Sandler)

2025Q3: The focus is on fee income, not AUM per se. Trust and investment management fees increased in Q3, driven by improved market conditions in agency accounts. The new team is expected to drive future growth. - [Scott Wylie](CEO)