First Western Financial Q4 2025 Earnings Report

First Western Financial EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.47
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

First Western Financial Revenue Results

• Actual Revenue: $26.71 million
• Expected Revenue: $27.50 million
• Beat/Miss: Missed by -$794.00 thousand
• YoY Revenue Growth: N/A

First Western Financial Announcement Details

• Quarter: Q4 2025
• Date: 1/22/2026
• Time: After Market Closes
• Conference Call Date: Friday, January 23, 2026
• Conference Call Time: 12:00PM ET

First Western Financial (NASDAQ:MYFW) is a Denver-based financial services company and the parent organization of First Western Trust Bank. The company focuses on providing integrated private banking, wealth management, and trust services to high-net-worth individuals, families, entrepreneurs, professionals, and privately held businesses.

Its private banking activities include deposit accounts, lending, and other banking solutions tailored to clients’ financial needs. Through its wealth management and trust businesses, First Western provides investment management, financial planning, fiduciary services, estate and tax planning support, and related services designed to help clients manage and preserve wealth across generations.

First Western was founded in 2004 and serves clients through offices in the western United States, with a presence concentrated in Colorado and additional markets in the region. Scott Wylie, who founded the organization, has served as its chairman and chief executive officer.

First Western Financial Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Management reported Q4 2025 net income of $3.3M ($0.34 per share), with loans up $59M QoQ, deposits up $102M QoQ, and net interest margin expanding to 2.71%, driving a 1.6% increase in tangible book value per share.
• Negative Sentiment: Asset quality trends were broadly stable with lower NPAs and minimal net charge-offs, but the quarter included a one‑time $1.4M OREO write-down that reduced EPS by about $0.10; the remaining OREO is under contract to close in Q1.
• Neutral Sentiment: Assets under management fell by $155M in Q4 due mainly to withdrawals from low‑fee/fixed‑fee products, though higher‑fee agency accounts grew and management expects recent leadership and strategy changes to improve trust, investment management, and insurance fee trends in 2026.
• Positive Sentiment: Outlook remains constructive — management expects 2026 loan and deposit growth similar to 2025, continued (but more moderate) NIM expansion, and a path toward a 1% ROA driven by organic growth, targeted recruiting amid regional M&A disruption, and selective investments.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the First Western Financial Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising you to raise. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'll now hand the conference over to your first speaker today, Tony Rossi. Please go ahead.

[Tony Rossi, Head of Investor Relations at First Western Financial]

Thank you, Marvin. Good morning, everyone, and thank you for joining us today for First Western Financial's fourth quarter 2025 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.

[Tony Rossi, Head of Investor Relations at First Western Financial]

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?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Okay. Thanks, Tony. Good morning, everybody. We executed well in the fourth quarter and saw positive trends in many areas, including loan growth, net interest margin expansion, well-managed operating expenses, and generally stable asset quality. This resulted in an increase in our level of profitability. The market remains very competitive in terms of pricing on loans and deposits, but we continue to successfully generate new loans and deposits by offering a superior level of service, expertise, and responsiveness rather than winning business by offering the lowest rates, highest rates on deposits, and the lowest rates on loans, as other banks are doing. We continue to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

As a result of the additions we've made to our banking team over the past few years, as well as generally healthy economic conditions in our market, we've had a solid level of loan production, which was diversified across our markets, industries, and loan types. As a result of our financial performance and the balance sheet management strategies, we had a further increase in both book value and tangible book value per share. Moving to slide 4, we generated net income of $3.3 million, or $0.34 per diluted share in the fourth quarter, which was higher than the prior quarter. We had a write-down of value of an OREO property that reduced our earnings per share by $0.10 after tax in the fourth quarter. With our prudent balance sheet management, our tangible book value per share increased 1.6% this quarter.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

So now I'll turn the call over to Julie for some additional discussion of our balance sheet and our trust investment management trends. Julie?

[Julie A. Courkamp, COO at First Western Financial]

Thanks, Scott. Turning to slide 5, we'll look at the trends in our loan portfolio. Our loans held for investment increased $59 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with the higher level of productivity we are seeing from the additions to our banking team that we made over the last several quarters, we are seeing a solid level of new loan production. While we are also seeing an increase in our CRE loan demand that meets underwriting relationship and pricing criteria. We also saw some construction loans that moved into our CRE portfolio after completion of their projects. New loan production was $146 million in the fourth quarter.

[Julie A. Courkamp, COO at First Western Financial]

The new loan production was diversified, with the largest increases coming in our commercial real estate portfolios, and we are also getting deposit relationships with most of these new clients. We continue to be disciplined, and we are maintaining our pricing criteria. This resulted in the average rate on new production being 6.36% in this quarter. Moving to slide 6, we'll take a closer look at deposit trends. Our total deposits increased $102 million from the end of the prior quarter. While we continued to successfully add new deposit relationships, this was partially offset by seasonal outflows we saw, largely related to title company operating accounts who typically see declines in their deposit balances during the fourth quarter due to lower home purchase activity. In addition, we were able to run off high-cost deposits as a result of the strong core deposit production in the third quarter.

[Julie A. Courkamp, COO at First Western Financial]

Average deposits increased 10% in the fourth quarter of 2025 compared to the fourth quarter of 2024. Turning to Trust and Investment Management on slide 7, we had a $155 million decrease in our assets under management in the fourth quarter, primarily attributed to net withdrawals on low-fee and fixed-fee product categories, which was partially offset by improved market conditions on investment agency accounts that carry a higher variable fee, which increased $15 million, or approximately 1%, during the quarter. Now I'll turn the call over to David for further discussion of our financial results. David?

[David L. Weber, CFO at First Western Financial]

Thanks, Julie. Turning to slide 8, we'll look at our gross revenue. Our gross revenue increased 1.5% from the prior quarter, primarily due to an increase in net interest income. Relative to the fourth quarter of 2024, our gross revenue increased 12.2%. Turning to slide 9, we'll look at the trends in net interest income and margin. Our net interest income increased 5.6% from the prior quarter and 21.7% from the fourth quarter of 2024 due to an increase in our net interest margin. Our NIM increased 17 basis points from the prior quarter to 2.71%. This was due to a reduction in our cost of funds, which was primarily due to lower rates on money market deposit accounts as a result of the company reducing deposit rates commensurate with the short-term rate decreases and runoff of high-cost deposit accounts.

[David L. Weber, CFO at First Western Financial]

Now turning to slide 10, our non-interest income decreased by approximately $800,000 from the prior quarter. This was primarily due to a decrease in gain-on-sale of mortgage loans, which typically see seasonal declines in the fourth quarter, and a decrease in risk management and insurance fees. We have successfully transitioned to previously discussed new leadership and focus in Trust and Investment Management and Insurance that are expected to produce improved results going forward. Now turning to slide 11 and our expenses. Our non-interest expense increased $1.2 million from the prior quarter. Our non-interest expense was impacted in the fourth quarter by a one-time $1.4 million write-down we took on the value of an OREO property. Excluding the write-down of the OREO property, our non-interest expense decreased $100,000 in the quarter.

[David L. Weber, CFO at First Western Financial]

Most areas of non-interest expense were relatively consistent with the prior quarter as we continue to tightly manage expenses while also making investments in the business that we believe will positively impact our long-term performance. Now turning to slide 12, we'll look at our asset quality. As Scott indicated earlier, we saw generally stable trends in the loan portfolio in the fourth quarter with decreases in non-accrual loans and NPAs, and we had a minimal level of net charge-offs in the quarter. Our last piece of OREO is currently under contract for sale and is expected to close during the first quarter. Our allowance coverage remained unchanged at 81 basis points of total loans as the decrease in non-accrual loans and NPAs resulted in a more normal level of provision during the quarter. Now I'll turn it back to Scott. Scott?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Thanks, David. Turning to slide 13, I'll wrap up with some comments about our outlook. Overall, we continue to see relatively healthy economic conditions in our markets. We're seeing good opportunities to add both new clients and talent due to the ongoing disruption from M&A activity in the Colorado banking market. We also recently added a new market presence for Arizona where we're seeing good opportunities for growth. Our loan deposit pipelines remain strong and should continue to result in solid balance sheet growth in 2026, with loan and deposit growth at similar levels to what we had in 2025. In addition to the balance sheet growth, we also expect to see positive trends in our net interest margin, our fee income, and more operating leverage resulting from our disciplined expense control.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We had net interest margin of 26 basis points in 2025, and while we expect further expansion in 2026, it may not be at the same level as we saw last year. And while we remain disciplined in our expense control, we believe that investing in the business will drive future shareholder value. The ongoing disruption from the M&A activity in our markets creates opportunities for us to add banking talent, and we will continue to 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, we're not seeing anything to indicate that we'll experience any meaningful deterioration in asset quality.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

The positive trends we're seeing in a number of key areas are expected to continue, which we believe will result in a 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. Marvin, please open up the call.

[Operator]

Thank you. At this time, we'll conduct a question-and-answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of Brett Rabatin of Hovde. Your line is now open.

[Brett Rabatin, Analyst at Hovde]

Hey, good afternoon, or good morning, everybody.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Morning, Brett.

[Brett Rabatin, Analyst at Hovde]

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.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah, so we had certainly had good NIM performance in the fourth quarter. Pretty pleased with the expansion that occurred there. That was primarily driven by our ability to reduce our primarily deposit costs. We do expect further expansion to continue through 2026. Now, it may not be at the same level that we saw through 2025. If you look at Q4 2024 to Q4 2025, it may not be at that same level, but we do expect to continue through 2026. And then specifically on the loan portfolio, we have about $250 million in fixed rate loans maturing over the next year. And those average yield on those is in the low fives. So that does give us an opportunity, obviously, to continue to reprice our loan book and see some positive trends on the yield on interest-earning assets.

[David L. Weber, CFO at First Western Financial]

Yeah, the only thing I would add to that is we have shifted our balance sheet interest rate risk to be closer to neutral over the last six months, and we feel like continued improvement in NIM is not dependent on continued rate cuts. If we do see rate cuts, that will be beneficial to us, but we're expecting, for the purposes of planning and budgeting, no rate cuts. We could debate that one all day, but the feeling is that we should have the balance sheet more neutral, and that's where we are today.

[Brett Rabatin, Analyst at Hovde]

Okay, that's helpful. And then on the asset management, wealth management business, and the mortgage banking operation, you've obviously made some changes. I was hoping for maybe some clarity on the AUM levels in the fourth quarter relative to 3Q. If you had clients that were just taking money out to do things, or what was the driver behind the trends in that business in the fourth quarter? And then just thinking about 2026, given the changes, what do you think those businesses might do? Obviously, rates will impact mortgage, but just any thoughts on those businesses and the growth of fee income?

[David L. Weber, CFO at First Western Financial]

Yeah, so maybe I'll start out on that one, Julie, and you want to pick it up. So with respect to the wealth management fees, the AUM, we obviously did a deep dive on that because we were a little surprised to see the decline happening in the quarter. And what we have seen is a lot of the lower-yielding categories and the fixed-rate categories have had reductions. We're actually in the higher-yielding categories for us on the AUM side that we're seeing improvements. So I think the trend there is positive. It looks negative on the surface, but in reality, those are actually things that we're trying to do to improve the trend on PTIM over time.

[David L. Weber, CFO at First Western Financial]

We've made a pretty major shift there over the last year, which we've talked about a little bit before, from being so investment management-focused and led in the PTIM world over the last 20 years to being more fiduciary and trust and especially planning-driven now. We've talked about the change in leadership there and a number of very positive changes that have been underway over the last six months. We've seen a lot of progress here in the last few months, and that's going to show up in the numbers in 2026. The other thing that I think you asked about in there was the risk and insurance revenues, and those are typically quite strong in the fourth quarter, and they were not in this quarter.

[David L. Weber, CFO at First Western Financial]

And we've also made a pretty big restructuring of that group, and there were two very high-cost leaders for that group that were comfortable operating as a loss leader. We're not a big believer in loss leaders here, and so we have made some changes there and brought that into the wealth planning team more directly. And you don't see the expense save that went with that, and you do see the cost reduction. So I think that those were actually very positive developments that we wanted to see in Q4 there. What did I miss, Julie?

[Julie A. Courkamp, COO at First Western Financial]

Maybe touching on mortgage. I think that was part of your question as well. But Q4 mortgage production, Q1 mortgage production for us is typically lower just given the seasonality, but we continue to remain very focused. That's a strategic part of our business. We've added, I think, 8 MLOs in the year of 2025. And as you know, it's hard to move MLOs whenever times are strong. So we feel like continuing to make that effort, even though overall the production isn't at the level we want it to be, we're profitable in that area. We're still adding and contributing net positive clients into the bank and the portfolio of the bank. And I would expect that second and third quarters of the coming year, 2026, are going to be seasonally stronger than the first and fourth. So I think we have good outlook there.

[Julie A. Courkamp, COO at First Western Financial]

I think we're doing the right things. And then to add on to the wealth planning conversation, we have a lot of really strong momentum in that business line and feel really good about what we're doing there. We've also added a B2B offering that's really just now getting going, and we're seeing some early green shoots on that. So I think the outlook for us is strong, but the last year's production really hasn't shown that yet. So we're looking to that growth into 2026.

[David L. Weber, CFO at First Western Financial]

Okay, good points there, Julie. And just to give some context to the 8 people, that's a 45% increase from where we were a year ago on MLOs at no direct expense. It's a variable cost that's commission-based.

[Brett Rabatin, Analyst at Hovde]

Okay, that's really helpful. 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? Or any thoughts on how you see the pipelines playing out for the year?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We are expecting growth in 2026 in line with what we saw in 2025. We continue, as you know, Brett, to have really small market share in all of our markets. We're in strong economies. I mean, I think the big change that we've really seen in the past few months is this market disruption. And it continues and, in fact, is accelerating. It's creating all this opportunity for talent and for new clients. We set up this disruption task force. When Julie was that in the third quarter?

[Julie A. Courkamp, COO at First Western Financial]

Yeah, just yeah, late summer.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We're working through that group on a series of very specific recruiting and sales and marketing initiatives. We just had our big annual manager summit the last two days, and the success stories coming out of that were remarkable. I mean, there's just a lot of momentum in the field from prospects that don't want to be with these new organizations, and they want a stable local expert team and an expert stable local institution. I think that's especially true in our niche with the private bank and trust focus. With strong and healthy and diverse economies, I think all that's going to continue on into 2026 and give us good opportunity for balance sheet growth.

[Brett Rabatin, Analyst at Hovde]

Okay, great. Appreciate all the color.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Thank you.

[Operator]

And our next question comes from the line of Woody Lay of KBW. Your line is now open.

[Woody Lay, Analyst at KBW]

Hey, thanks for taking the questions. Wanted to start on the expense outlook. If I adjust for that OREO adjustment, it was good to see sort of the core run rate flat. You talk about continuing to want to invest in the business, especially given the M&A disruption. So how should we think about the expense growth rate in 2026?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

The way we've talked about it internally is we wanted to keep our expense below $20 million a quarter. I think we've done that. Did you go back and look, David? I've been saying it's something like 12 quarters in a row. I don't know exactly, but certainly over the last eight quarters, that's been true. So I think that's kind of our base case is how do we drive more efficiency and more effective teamwork here without driving up expenses? But having said that, and this was very much in your question, Woody, if we see opportunities, we have an internal business case process, and we've told our people, if you can bring in some good people that are going to have a strong short-term and long-term impact, we want to hear about it. We want to look at it and support you with that.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

I think we're doing the best of both worlds here where we can manage expenses, grow revenues, get that operating leverage. If we see opportunities for more revenue growth, go ahead and invest in that. That's the outlook we're taking for 2026.

[Woody Lay, Analyst at KBW]

Got it. So if I pair that with the commentary of growth remaining strong, the NIM should continue to grind higher, how should we think about the profitability improvement potential in 2026? Is there kind of an ROA range that you're hoping to be at by year-end?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah, there is, but I'm sworn to secrecy. I'll keep my answer and let Julie and David do their rebuttal if they want. If you look at our operating run rate in the third quarter and again in the fourth quarter, we're doing something like $0.50 a quarter if you take out things like that OREO write-down, which again, that was a decision we made. We had this last property up in Aspen in Basalt, actually near Aspen. And there were some unpermitted construction done by the former owner that we foreclosed on, and the city has just really taken it out on us and made it very difficult for us to sell that thing given the strong attributes but the unpermitted construction that was done on it. And so we went back and forth and back and forth with them.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We had a buyer that was really interested, and she worked with the city, and she couldn't get them anywhere. And then we have a buyer now that put it under contract and is taking it kind of as is. And he was supposed to close in December, and he hasn't finished his diligence yet. So we gave him a 60-day extension. His request was to close in February. And the update from this week is he's on track. So I think that's going to get sold. It's a $1.4 million write-down from the discounted value that we had already put on it. So frankly, we're looking forward to having that off our books, not having OREO. So that is a one-time thing. We don't have other OREO. We had that marked below our appraised value. We worked hard to realize that value at some point.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

That's not really our highest and best use of our executive's time and effort. So hopefully that'll get sold here in Q1. So if you take that out and you look at kind of the typical monthly expenses, and we always have puts and takes, and I'm not adjusting for that. I'm saying if you take out the big things and you kind of run through the net interest income, you look through the fee income, you look through the operating expenses, we're doing kind of a $2 run rate, and it improved actually a little bit from Q3 to Q4. So that's my starting point going forward is under a normal world, we ought to be starting the year at a 2% operating run rate, $2. That was wishful thinking, a 2% thing, $2 a share operating run rate. And then I do think we can grow from there.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We have said our near-term objective here is to get to a 1% ROA, which would be 350-ish. And so we got people focused on that. Can we get there on a run rate basis this year? I think that's pretty stretchy, but I think we will get there. And I think we can get beyond that, but we have to get there first with the improvements in NIM and the operating growth and the impact of all these initiatives we've been talking about. We seem well on the way. Is there anything, David or Julie, you want to add?

[David L. Weber, CFO at First Western Financial]

No, not for me.

[Woody Lay, Analyst at KBW]

Well, that's really helpful, color. I guess just last for me, with a strong loan pipeline, how do you think about matching that with core deposits? The growth has been a little lumpy as you've optimized the balance sheet, but just curious on your thoughts on maybe the deposit competition in the next year.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah, the team's really focused on that. And one of the questions we asked folks while they were here for the summit was, how do you feel about the loan pipeline and the deposit pipeline? And the feedback is that both are strong. I think the focus that we've put on the deposit side seems to be paying dividends in terms of that new business. Historically, if you look back at the 22-year, whatever history of First Western, we have found that at the margin when we need deposits to fund the loan opportunities that we want to do, we can bring those in. And there was a period there. Actually, after our last call, it was interesting. One of our bigger holders texted or emailed Julie and me and said, "Hey, great quarter, good report on the third quarter.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Must feel good to get out of the slog of the last couple of years." For me, that just really resonated. It was kind of a difficult period there with the bank failures and the darling of the private banking industry going out of business and all that. I think getting out of that slog, getting back on a growth track, getting off of defense, which I feel like we played well to get back on offense, those are all things that I think are panning out in our deposit growth story, which your use of the term lumpy was kind.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

I mean, that was obviously not what we would choose to see all that great growth in Q3, but it did let us run off some of the high-cost deposits in Q4 and in some way kind of proved what we've seen over the years, which is when we want deposits, we can bring them in, and when we don't need them, we can pay them off. And those things help NIM. And I like the NIM slide this quarter. Not sure which page that's on, but if you look at kind of the full-year trend for the last 5 quarters, it shows a nice upward trend that gets us. Is that page 9, Julie? Yeah. It gets us on this trajectory back to 310/315 that I've talked about before that historically we've seen in our banks.

[Woody Lay, Analyst at KBW]

I appreciate all the insight. Thanks for taking my questions.

[Operator]

Thank you. We'll move on to our next question. Our next question comes from the line of Matthew Clark of Piper Sandler. Your line is now open.

[Matthew Clark, Analyst at Piper Sandler]

Hey, good morning, everyone. 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, or do you feel like that might come down a little bit?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

No, I think we can hold that.

[Matthew Clark, Analyst at Piper Sandler]

Okay. And then do you have the spot rate?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

An unhedged response. I like it. Yeah. I mean, we have seen it come down, you know, man. And we do think that, well, David said it.

[Matthew Clark, Analyst at Piper Sandler]

Yep. Okay. And then do you have the spot rate on deposits at the end of the year?

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah, it was 286.

[Matthew Clark, Analyst at Piper Sandler]

Okay. Got it. And then assuming that's the case and just thinking about the near-term margin, kind of implies your beta steps up here, actually, in the first quarter. With the non-interest-bearing deposits down at the end of the year, assuming they'll come back to some degree, but borrowings are up a little bit. You'll likely see some asset yield pressure from the December rate cut on the floating rate portfolio, which I think is 25% of the book. It appears like your NIM might come down a little bit here in the first quarter, but I'd love to hear your thoughts and tell me why I'm wrong.

[David L. Weber, CFO at First Western Financial]

Our NIM in the month of December was 272.

[Matthew Clark, Analyst at Piper Sandler]

Okay. Okay. But in terms of the end-of-period balance sheet, you don't think there's some incremental pressure there?

[David L. Weber, CFO at First Western Financial]

No, I don't.

[Matthew Clark, Analyst at Piper Sandler]

All right. Fair enough. And then the other one I had, actually, I think it was already asked and answered on expenses. That's it for me. Thanks.

[David L. Weber, CFO at First Western Financial]

Thank you, Matthew.

[Matthew Clark, Analyst at Piper Sandler]

Thanks. Bye.

[Operator]

Thank you. We'll move on to our next question. Our next question comes from the line of Bill Dezellem of Titan Capital Management. Your line is now open.

[Bill Dezellem, Analyst at Titan Capital Management]

Thank you. Two questions from the balance sheet. The first one is mortgage loans for sale jumped in the fourth quarter from, I think, $22 million or so in Q3 up to $40 million in Q4. Would you discuss the dynamics behind that, please?

[David L. Weber, CFO at First Western Financial]

You're asking about the mortgage held-for-sale balance?

[Bill Dezellem, Analyst at Titan Capital Management]

Yes. That's right.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah. Yeah. There are timing dynamics there. Timing of when the sales occur relative to the end of period.

[Bill Dezellem, Analyst at Titan Capital Management]

Explain what those are. Which are loans that were originating and selling in the secondary market that are on the balance sheet in the interim.

[David L. Weber, CFO at First Western Financial]

Yeah. Yeah. Those loans are originated for the purpose from the beginning of application and lock and everything. Those are originated for the purpose of selling. So the balance typically will kind of trend up, and then we'll package those, and we'll do a sale and move those off the balance sheet. So it does get impacted simply just by the timing of when those sales occur relative to the end of the period.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Your question's a good one, though, Bill, because generally, when volumes are higher, that balance goes up, but then it's also offset by this timing thing that David was talking about. So I wouldn't read too much into that.

[Bill Dezellem, Analyst at Titan Capital Management]

Part of the, I guess, backdrop of the spirit of the question was wondering if there was some dynamic that you saw in the market, whether it was sale premiums or something else, that led you to conclude you wanted to hold those a little bit longer, or if it truly was simply timing and getting proper volume set up for your sale.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

No, it's mechanical. We don't play that game.

[Bill Dezellem, Analyst at Titan Capital Management]

It's truly just a timing phenomenon.

[David L. Weber, CFO at First Western Financial]

Correct.

[Bill Dezellem, Analyst at Titan Capital Management]

Okay. Thank you. And then the other question was relative to your Construction and Development loans. You had a pretty significant reduction in the amount of those loans. And the question is whether that was an intentional risk mitigation strategy or whether it was all part of the normal ebb and flow of bringing on new loans and loans paying off and moving out of that C&D category?

[David L. Weber, CFO at First Western Financial]

I would say much more the former than the latter. We had a review of that portfolio 18 months ago, something like that, and felt like that was as high as we wanted it to get, and we wanted to work it down. So if you look on page 5, you can see that's gone $315, $230, $189. Actually, a lot of the increase that we've seen in non-owner-occupied CRE is that those construction projects getting finished and then moving on to our investor real estate. And I don't think that those generally sit there very long because they get refinanced into permanent financing. So that's something that I think we'll continue to see there is less of an increase in that investor real estate line item too.

[Bill Dezellem, Analyst at Titan Capital Management]

Great. Thank you.

[Operator]

Thank you. We'll move on to our next question. Our next question comes from the line of Brett Rabatin of Hovde Group. Your line is now open.

[Brett Rabatin, Analyst at Hovde]

Hey, just wanted to follow up around the tax rate. It's been jumping around a lot the last few quarters. Any thoughts on the tax rate from here? And then just any strategies that you guys are implementing on the tax side, whether it be municipals or other things. Thanks.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Yeah. Good question, Brett. The tax rate, I agree. It has been a bit lumpy over the quarters. And some of those dynamics at play just have to do with some of our fintech investments and the K-1 losses that flow through and the timing of when we actually receive that information of the actual losses versus the projected losses that we're kind of using to work that through the year for the effective tax rate, as well as there are components of equity compensation and the differences that come with that that come into play as well. And that had an impact in the fourth quarter. So that was one of the main drivers of why we saw the fluctuation in the effective tax rate in Q4. But going forward, I think we're more in that 23%-24% range from an effective tax rate perspective.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We have added some tax-exempt interest income sources, I think, over the past 12 months, and we're working on another one now or looking at it. So I mean, it's something that we do pay attention to, Brett, but I think for planning purposes and forecasting purposes, that 23%-24% is a reasonable range.

[Brett Rabatin, Analyst at Hovde]

Okay. Great. That's helpful. Thanks.

[Operator]

Thank you. We'll move on for our next question. Our next question comes from the line of Ross Haberman of RLH Investments. Your line is now open.

[Ross Haberman, Analyst at RLH Investment]

Good morning, Scott. I got on a bit late. Could you just tell me, did you touch upon your opinion of the mortgage market and what your expectations are for 2026? Let's say, I don't know, rates stay about the same or maybe come down a little bit. What's your expectation on your mortgage operation? Thanks.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Well, thanks for the question, Ross. We have been trying to build our production capability there, even though the market's slower. And Julie did talk on the call a little bit about our experience has been that when the market's really strong and you want to add more mortgage loan officers, which are commission-based, the producers, they won't move because they have a big pipeline wherever they are. So building that team when times slow is pretty much how we've experienced that you have to do it if you want to get good ones. And so, as we talked about on the call, we've increased. That has been a focus for us, and we've deliberately gone out and increased our MLO team by eight producers in 2025, which is a 45% increase year-over-year. So that's somewhere we're investing.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

We do think, well, investing, they're commission-based, so it's not a cost, but we're investing effort for sure in building that team for future productivity. We do think that there just has to be a lot of pent-up demand out there for people that want to move. We know people are going to leave their 2% or 3% mortgages behind, but at some point, if you got another kid or you're moving or relocating, you need to do that. And we've seen prices, I think, at least in the Denver market, moderate. And so at some point, that's going to create some mortgage opportunities for us, I think. And obviously, the decline we saw this year in this quarter, it's not us. It's the industry. And so I think that we are doing a good job of being playing the hand that we're dealt by this industry.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

But I also think we're well-positioned that when that comes back and we see some growth, we're well-positioned to take advantage of it.

[Ross Haberman, Analyst at RLH Investment]

Are you seeing any pickup in that division, either in Phoenix or Wyoming? I think you opened up a lending office in Bozeman, was it? Would you see a pickup there first, or maybe the Denver area, if you saw any sort of pickup, it would show up there first?

[Julie A. Courkamp, COO at First Western Financial]

We have actually brought in a few MLOs in Arizona, so we've seen some nice production out of that region. And then we've also brought in a few from the Wyoming region, which has really helped us there too. And these are really high-quality producers that have really our type of client. So some of that you'll see adding to the portfolio. Montana is a little bit trickier. We haven't been successful finding a pure-play MLO there, but we have a great lending team, and they're capable of doing all of the lending needs. So definitely a focus of ours is to make sure that all of the markets are seeing the growth that we want. And we've been seeing production in all of the markets.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

To be clear, Bozeman is a full-service First Western Profit Center that is actually contribution positive. They've made really nice progress there.

[Ross Haberman, Analyst at RLH Investment]

Just one other question. Have you been looking around for other operations to buy, either money management or branches or other little banks? Are you actively looking in any of those other three markets or any other now that you have a little bit of a currency this year than you had in the year or two past? Is that on your radar screen, or that's a backseat, and you would rather, if you found some great relationship bankers, you would rather hire one or two and/or a lift out rather than a whole bank? Thanks.

[David L. Weber, CFO at First Western Financial]

Yeah. So as you know, we have a long history of acquisitions, and our currency really has not been in a place where that has made sense here for the last couple of years. Our focus is on organic growth. We talked on the call a little bit about all this market disruption. And the beauty of hiring the people you want is you get the business that you want. You don't have to take the stuff you don't want. And so definitely, there's a strong focus here with this disruption task force and with our internal focus on how do we take advantage in an organic way. And that's Front Range. That's Resort Markets. That's Arizona, Montana, and Wyoming, all of them. So we do think there's a lot of opportunity right now for us to just do our jobs and get after this organic growth.

[Ross Haberman, Analyst at RLH Investment]

Thanks a lot. The best of luck. Thank you.

[David L. Weber, CFO at First Western Financial]

Yep. Thanks, Ross.

[Operator]

Thank you. I'm showing no further questions at this time. I'll now turn it back to Scott Wylie for closing remarks.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Great. Thank you. So we said for several quarters that we had success playing defense through that slog of 2022 and 2023, and now we're shifting back onto offense. The headwinds out in the market have changed to tailwinds for 2026, and that's both in financial and economic and competitive terms. We feel like our 2025 shift to offense really worked, and we've leveraged our investments that we've been making in these five key areas I talked about last time, which is our tech infrastructure, our product teams, our local PC teams, Profit Center teams, our reset of our internal processes for more efficiency and more value-add. And we've also now strengthened our credit and risk support and marketing teams to support the First Western of the future.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

So with the positive trends that we saw from Q3 to Q4, where that interest income was up 22% quarter-over-quarter annualized, or it was also up year-over-year nicely. Our NIM was up 17 basis points quarter-over-quarter, 26 basis points year-over-year, on a continued path back to where that should be. If you adjust for the operating, the OREO write-down, our pre-provision net revenues were up another 39% quarter-over-quarter annualized or double from a year ago. Our efficiency ratio, when adjusted for that OREO, continues to trend down nicely. And our operating run rate in the last quarter was, as I said, $0.50 if you take out, if you normalize it, and that's a little over $2 annualized.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

So looking at our 2026 business plan, assuming a stable environment, we expect these positive trends to continue, as we've talked about. Market disruption continues and increases. The opportunity for talent and clients, I don't think, has ever been better. Our disruption task force is focused on recruiting and sales marketing initiatives. Our prospects are telling us they want a stable local team of experts and a stable local institution, especially in our niche. This small market share that we have in each of our markets provides lots of upside in our strong and healthy and diverse economies that we are operating in. Our PTIM restructuring is working. We'll see some results of that this year, both with the re-emphasis on planning and our B2B initiative that we've launched. Our MLOs are up, and that's taking advantage of the slow market for building for the future.

[Scott C. Wylie, Chairman and CEO at First Western Financial]

Our NIM, I think, is going to continue to trend up towards the 315 number we've talked about as the economy and our financial markets normalize. So those NIM gains and some modest balance sheet growth, they will generate some nice net interest income gains, and they'll generate some nice earnings gains. So our intent to get back to being a financial high performer, we see a clear path to 1% ROA and plenty of room beyond that. So thanks, everybody, for your support. We really appreciate your dialing in today, and we'll look forward to connecting in the future. Thank you.

[Operator]

Thank you for your participation in today's conference. This has concluded the program. You may now disconnect.

Participants

Executives

• David L. Weber, CFO
• Julie A. Courkamp, COO
• Scott C. Wylie, Chairman and CEO
• Tony Rossi, Head of Investor Relations

Analysts

• Bill Dezellem, Analyst at Titan Capital Management
• Brett Rabatin, Analyst at Hovde
• Matthew Clark, Analyst at Piper Sandler
• Ross Haberman, Analyst at RLH Investment
• Woody Lay, Analyst at KBW