First Western Financial, Inc. 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining us today for First Western's third 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 already done so, 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 would 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 involves 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 GAAP to non-GAAP measures. With that, I would like to turn the call over to Scott.

Thanks, Lisa, and good morning, everybody. We executed well in the third quarter and saw positive trends in many areas, including loan growth, improving deposit mix, net interest margin expansion, trust investment management fee growth, well-managed expenses, and improved asset quality. This resulted in another quarter of strong profitability. Pre-tax, pre-provision net income increased 15% in the third quarter, that is not annualized, compared to the prior quarter, and 27% compared to the third quarter of 2025. We continue to maintain a conservative approach to new loan production with our disciplined underwriting and pricing criteria. The new banking talent over the past several years, and increasingly over the past few months, and our healthy economic activity across our markets fueled strong loan production that was diversified across markets, industries, and loan categories.

As a result of our financial performance and balance sheet management strategies, we continued to grow tangible book value per share this quarter. Moving to slide 4, we generated net income of about $6 million or $0.60 per diluted share in the third quarter, both of which were 88% higher, respectively, than the third quarter of 2025. With our prudent balance sheet management, our tangible book value per share increased by 3% this quarter to $26.28. I will turn the call over to Julie for some additional discussion of our balance sheet and trust investment management trends.

Julie? Thank you, Scott. Turning to slide 5, we will look at the trends in our loan portfolio.

Our loans held for investment increased $95 million from the end of the prior quarter, marking the sixth consecutive quarterly increase. On a year-over-year basis, total loans increased 8%. We continue to be conservative and disciplined in our new loan production. However, the higher productivity of the bankers added over the last several quarters is driving an improvement in loan originations. New loan production was $163 million in the third quarter and was diversified across various markets and loan types with a focus on relationship-based lending. Additionally, we are attracting deposit relationships with these clients.

We continue to be disciplined with respect to pricing, which resulted in the average rate on new production of 6.79% in the quarter, which was 42 basis points higher from the prior quarter and 53 basis points higher than the average rate of loan payoffs of 6.26% in the quarter. Quarter end loans outstanding were almost 3% higher than average loan balances for the quarter, which is providing strong momentum going into the fourth quarter. Moving to slide 6, we will take a closer look at our deposit trends. Our total deposits increased 2.5% from the end of the prior quarter, with growth in non-interest bearing and money market accounts. On a year-over-year basis, total deposits increased 2.4%. Average non-interest bearing deposits increased $14 million or 3.9% in the quarter and 10% using quarter end balances.

We remain focused on continuing to improve our deposit mix to drive further NIM expansion going forward. I will turn the call over to David for some additional discussion of our balance sheet.

Thank you, Julie. Turning to slide 8, we'll look at our gross revenue. Our gross revenue increased 2.8% from the prior quarter, primarily due to an increase in net interest income, partially offset by a decrease in non-interest income. Turning to slide 9, we'll look at the trends in net interest income and margin. Our net interest income increased 5.5% from the prior quarter due to an increase in net interest margin and an $81 million increase in average interest-earning assets. Our NIM increased 5 basis points from the prior quarter to 2.95%. This was primarily due to an increase in yield on average interest earning assets, partially offset by an increase in cost of funds. The yield on interest earning assets increased 7 basis points, driven by an increase in loan yields, while the cost of funds increased 2 basis points due to higher rates on money market accounts.

Our net interest income increased 18% from the third quarter of 2025 due to a 41 basis point increase in NIM and higher average interest earning assets. Turning to slide 10, our non-interest income decreased by $600,000 from the prior quarter. This was primarily due to a decrease in net gain on sale of mortgage loans, as origination volumes were negatively impacted by higher mortgage rates and a decrease in bank fees, partially offset by an increase in trust and investment management fees. Trust and investment management fees increased 2.6% from the prior quarter, driven by increases in investment agency trust and retirement fees. Now turning to slide 11 and our expenses. Our non-interest expense decreased $400,000 from the prior quarter. The decrease was primarily driven by a decrease in technology and information systems, as well as salaries and employee benefits.

The decrease in technology and information systems was primarily attributable to a $400,000 non-recurring charge that we recorded in the second quarter of 2026. The decrease in salaries and employee benefits was primarily driven by lower employer payroll taxes. Our efficiency ratio improved to 72%, compared to 74% last quarter and 76% in the third quarter of 2025, 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 improved trends in the loan portfolio in the third quarter with a decrease in non-accrual loans driven by pay downs. Our non-performing asset ratio decreased to 39 basis points in the third quarter. Increased loan volume contributed to a provision of $600,000 during the third quarter of 2026.

Our allowance coverage ratio was 74 basis points in the third quarter, down from 75 basis points in the previous quarter. Now, I will turn it back to Scott.

Scott? Thanks, David. Turning to slide 13, I will wrap up with some comments about our outlook.