First Western Financial Signals Constructive Earnings Momentum

First Western Financial ((MYFW)) has held its Q4 earnings call. Read on for the main highlights of the call.

First Western Financial’s latest earnings call painted a generally upbeat picture, with management emphasizing margin expansion, solid growth in loans and deposits, and stable credit quality. While some headline numbers were dampened by one-time items and seasonal softness in fee-based businesses, executives framed these as temporary, reiterating confidence in the bank’s trajectory toward stronger profitability and a more attractive return profile by 2026.

Net Interest Margin Expansion and Core Revenue Momentum

First Western highlighted a clear strengthening of its core banking engine, with net interest margin (NIM) rising 17 basis points quarter-over-quarter to 2.71%, roughly 26 basis points higher than a year ago. This expansion helped drive a 5.6% quarterly and 21.7% year-over-year jump in net interest income, making it the primary source of revenue improvement. The combination of better loan yields, disciplined deposit pricing, and a more optimized balance sheet underpinned this margin story, signaling the bank is benefiting from its asset sensitivity and repricing opportunities.

Revenue Growth and Improving Profitability Metrics

Management reported that gross revenue climbed 1.5% from the prior quarter and 12.2% versus the same period last year, reflecting both net interest income strength and still-resilient fee income. Net income reached $3.3 million in the quarter, or $0.34 per diluted share, although bottom-line results were held back by a specific real estate write-down. Adjusting for that one-time charge, the company pointed to a normalized operating run rate of roughly $2.00 per share annualized, suggesting underlying profitability is tracking ahead of current reported earnings.

Loan Production and Balanced Loan Growth

Loan growth was another bright spot. New loan production totaled $146 million in the quarter, while loans held for investment increased by $59 million on a sequential basis. Management stressed that growth is diversified by geography and product type and is expected to continue at a pace similar to 2025 levels moving into 2026. A key tailwind is roughly $250 million of fixed-rate loans that are set to reprice over the next year, currently carrying average yields in the low-5% range, which should support both interest income and margin as they roll into higher-rate structures.

Deposit Growth and Cost of Funds Discipline

On the funding side, First Western posted total deposit growth of $102 million quarter-over-quarter, with average deposits up 10% year-over-year. Importantly for investors focused on funding costs, the bank reported a spot deposit rate of about 2.86% at year-end and indicated it has successfully reduced reliance on higher-cost deposits. The quarter’s deposit beta of roughly 54%—a measure of how much deposit rates move relative to market rates—is seen by management as sustainable, supporting further NIM improvement as the balance sheet continues to be optimized.

Stable Asset Quality and Progress on Problem Assets

Credit quality metrics remained reassuringly steady, with decreases in nonaccrual loans and nonperforming assets and minimal net charge-offs reported for the quarter. The allowance for loan losses held steady at about 81 basis points of total loans, reflecting management’s view that current reserves are appropriate given portfolio performance. The bank’s remaining other real estate owned (OREO) is under contract with an expected closing in the first quarter, indicating continued cleanup of legacy problem assets and reducing a source of earnings volatility.

Strategic Investments in Mortgage and Wealth Businesses

First Western is leaning into its fee-based franchises as longer-term growth drivers, particularly in mortgage and wealth management. The bank added eight new mortgage loan originators in 2025, a roughly 45% year-over-year increase in sales capacity, positioning it to capture more volume when industry conditions improve. In wealth and trust, management is restructuring operations toward a more fiduciary- and planning-focused model and building a new B2B offering. These changes are expected to improve fee income mix and growth into 2026, even as the transition temporarily flattens results.

One-Time OREO Write-Down Weighs on Reported Earnings

Earnings in the quarter were notably affected by a one-time $1.4 million write-down on an OREO property, which pushed noninterest expense higher by $1.2 million quarter-over-quarter and reduced earnings per share by about $0.10 after tax. Management was clear that this impact is non-recurring and that the write-down accelerates the cleanup of the balance sheet. For investors, the adjustment matters because it masks the strength of the underlying run rate in the reported quarterly figures.

Mixed Picture in Wealth: AUM Outflows but Better Mix

Assets under management decreased by $155 million in the quarter, driven primarily by net withdrawals from lower-fee and fixed-fee product categories. However, there was a countervailing positive shift in mix: higher-variable-fee investment agency accounts increased by about $15 million, or roughly 1%. While the headline AUM decline is a negative, management emphasized that the growth in variable-fee assets should support better fee revenue economics over time as market performance and flows stabilize.

Seasonal Pressure on Noninterest Income

Noninterest income fell by around $800,000 compared with the prior quarter, with management attributing the decline to seasonal factors. Gain on sale of mortgage loans dropped as mortgage origination volumes cooled, a typical pattern in the fourth quarter and into the first quarter across the industry. Additionally, risk management and insurance-related fees were softer. The bank framed these declines as expected and temporary, rather than indicative of structural weakness in its fee-based businesses.

Mortgage Business: Capacity Up, Near-Term Revenue Soft

The mortgage segment illustrates the tension between strategic investment and current earnings drag. While First Western has significantly expanded its mortgage sales force, overall mortgage volumes in the quarter were seasonally low, in line with broader market softness. Management expects seasonality and higher rates to keep near-term mortgage revenue below peak levels, but believes the increased capacity will pay off when activity rebounds, feeding both loan growth and fee income over the cycle.

Lumpy Deposit Flows and Active Balance Sheet Management

Management described deposit flows as inherently “lumpy,” particularly due to seasonal patterns in certain client segments. Title company accounts experienced typical seasonal outflows in the fourth quarter, and noninterest-bearing deposits were down at year-end. These dynamics require active balance sheet management and, at times, reliance on wholesale borrowings. The bank’s response has been to sharpen its focus on optimizing funding sources and mix, aiming to smooth earnings while maintaining growth.

Managing Through Tax Rate Volatility

The effective tax rate has been volatile from quarter to quarter, impacted by timing effects associated with low-income housing tax credits, K-1 reporting, and equity compensation. This created some noise in the reported earnings this quarter. Management guided investors to expect a more normalized tax rate in the 23%–24% range going forward, suggesting that recent fluctuations should not be extrapolated when evaluating long-term profitability.

Guidance Points to Continued Growth and Margin Upside

Looking ahead to 2026, First Western’s guidance underscored a constructive outlook built on continued balance sheet expansion and further margin improvement. Management expects loan and deposit growth in 2026 to be broadly similar to 2025 levels, supported by ongoing loan production (with recent new production yields around 6.36%) and solid deposit trends. The bank sees room for NIM to move toward a long-run target of about 3.10%–3.15%, aided by roughly $250 million of fixed-rate loans maturing over the next 12 months and careful control of funding costs. Fee income is expected to improve as wealth and mortgage initiatives gain traction, while expense growth is to remain disciplined, with selective investments focused on high-return areas. Based on the current trajectory, management highlighted a normalized operating run rate of about $0.50 per quarter (roughly $2.00 annualized) and reiterated a near-term objective to achieve a 1.0% return on assets.

In summary, First Western Financial’s earnings call conveyed a story of solid underlying momentum masked in places by seasonal and one-off items. Margin expansion, healthy loan and deposit growth, and steady asset quality provide a strong core, while strategic investments in mortgage and wealth are setting up additional fee income leverage. Although short-term noise persists in areas like AUM, noninterest income, and tax rate variability, management’s guidance and stated profitability targets point to a company confident in its ability to deliver stronger returns and more consistent earnings as it moves through 2025 and into 2026.