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DATE
Friday, July 25, 2025 at 4 p.m. ET
CALL PARTICIPANTS
Chairman and Chief Executive Officer — Scott Wylie
Chief Operating Officer — Julie Courkamp
Chief Financial Officer — David Weber
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TAKEAWAYS
Net Income-- $2.5 million, or $0.26 per diluted share for Q2 2025, down from the prior quarter due to one-time gains previously recorded in Q1 2025 and a higher provision expense linked to late-quarter loan growth.
Pre-Provision Net Revenue-- $5.1 million pre-provision net revenue for Q2 2025, up approximately 36% year-over-year
Loan Growth-- Loans held for investment increased by $114 million sequentially in Q2 2025, with new loan production totaling $167 million and well diversified by market and type.
Average Rate on New Loan Production-- 6.35%, or 6.67% excluding loans secured by trust and investment management assets, indicating continued disciplined pricing.
Deposit Trends-- Total deposits increased slightly compared to the prior quarter, with typical seasonal declines in noninterest-bearing deposits due to tax payments offset by rising interest-bearing deposits.
Assets Under Management (AUM)-- Increased by $320 million in Q2 2025, largely from favorable market performance, with AUM up nearly 7% over the past year.
Net Interest Income (NII)-- NII rose 2.3% from the prior quarter, driven by a six basis point net interest margin expansion to 2.67%, supported by lower deposit costs and cash redeployment from OREO sales.
Spot Rate on Total Deposits-- 3.07% at quarter end, cited as having further downside as CDs reprice lower.
Noninterest Income-- Noninterest income decreased by approximately $1 million sequentially due to prior quarter one-time gains, partially offset by higher gains on sale of mortgage loans.
Noninterest Expense-- Fell by around $300,000 quarter-over-quarter on lower salaries and benefits; management reaffirmed a $19.5 million to $20 million quarterly run rate for the back half of 2025.
Asset Quality-- Portfolio remained broadly stable, with a slight rise in nonperforming loans and assets, but a $10 million decline in classified loans; only one loan charge-off, not indicative of systemic issues.
Tangible Book Value per Share-- Increased by about 1% sequentially, aided by share repurchases.
PTIM Fee Trends-- Declined as clients shifted to lower-margin services; reversing this remains a management priority.
Borrowings-- End-of-quarter overnight borrowings carried rates in the mid-4% range and are expected to be repaid as deposit inflows materialize in the following quarter.
2025 Outlook-- Management expects "continued positive trends in our net interest margin, net interest income, fee income, and greater operating leverage," along with stable asset quality for the remainder of 2025.
SUMMARY
First Western Financial(MYFW 0.19%) reported a sequential increase in loan balances in Q2 2025 and disciplined margin expansion amid a competitive pricing environment. Management highlighted repayment of higher-cost borrowings as a priority and outlined strategic plans for further PTIM fee growth through new leadership and expanded distribution channels. Noninterest expenses continued to trend within guided ranges. AUM increased by $320 million in the quarter, largely from favorable market performance.
Chief Financial Officer David Weber stated, "The spot rate at the June was 3.07%. And that's total deposits. And, you know, we do still have opportunity to continue to reprice down on the CD portfolio."
Chairman and Chief Executive Officer Scott Wylie reiterated that improvement in net interest margin is expected to "trend back" toward historical levels in the second half of 2025, though acknowledged that "the passage of time" is a key constraint rather than structural limitations.
The company has largely replaced PTIM leadership and initiated a B2B channel as part of its plan to reverse declines in PTIM fees.
Overnight borrowings at quarter end are targeted for repayment with anticipated deposit build-up in the following quarter.
INDUSTRY GLOSSARY
OREO: Other Real Estate Owned, property acquired by a bank through foreclosure typically held for sale or redevelopment.
PTIM: Planning, Trust, and Investment Management, a business line focused on client advisory, trust services, and investment management.
NPLs: Nonperforming Loans, loans on which the borrower is not making interest payments or repaying principal as scheduled.
NPAs: Nonperforming Assets, sum of nonperforming loans and other assets acquired due to borrower default.
MLO: Mortgage Loan Officer, responsible for soliciting, originating, and processing mortgage loans within the mortgage segment.
Full Conference Call Transcript
Operator: Good day and thank you for standing by. Welcome to the First Western Financial, Inc. Q2 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press. I would now like to hand the conference over to your speaker today, Tony Rossi. Thank you, Josh. Good morning, everyone, and thank you for joining us today for First Western Financial, Inc.'s Second Quarter 2025 Earnings Call.
Joining us from First Western Financial, Inc.'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 Financial, Inc.'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, Inc. 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. 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 a reconciliation of the GAAP to non-GAAP measures.
With that, I'd like to turn the call over to Scott.
Scott Wylie: Thanks, Tony, and good morning, everybody. We executed well in the second quarter and saw positive trends in many areas, including loan and deposit growth, expansion in our net interest margin, well-managed expenses, and stable to improving asset quality. 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 highest rates on deposits or 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.
However, as a result of the additions we made to our banking team over the past few quarters as well as generally healthy economic conditions in our markets, we had a solid level of loan production which was well diversified across our markets, industries, and loan types. We were also able to successfully lower deposit costs as well as redeploy the cash we generated from the sale of two OREO properties into new loan production and securities purchases, which contributed to the expansion we're seeing in our net interest margin.
And we continue to maintain disciplined expense control despite the inflationary environment, as we capitalize on the previous investments we made in both banking talent and technology that have enhanced our business development efforts and overall level of efficiency, including a higher level of mortgage banking income. We also had generally stable asset quality during the second quarter. As a result of our financial performance and balance sheet management strategies, we had a further increase in our tangible book value per share and we used our strong capital position to repurchase some of our shares during the second quarter, which was accretive to our tangible book value per share.
Moving to slide four, we generated net income of $2.5 million, or 26¢ per diluted share in the quarter. This was lower than the prior quarter due to a number of one-time gains that positively impacted our financial performance in the first quarter, as well as the higher level provision that we recorded due to strong loan growth that we had late in the second quarter. On a pre-provision net revenue basis, once the one-time items from last quarter are excluded, we had an increase during the quarter. In addition, it was about $5.1 million in Q2, down slightly from Q1, including those one-time revenue adds in Q1, but up about 36% year over year.
With our prudent balance sheet management, our tangible book value per share increased by about 1% this quarter. Now I'll turn the call over to Julie for some additional discussion of our balance sheet and trust and investment management trends. Julie?
Julie Courkamp: Thank you, Scott. Turning to slide five, we'll look at the trends in our loan portfolio. Loans held for investment increased $114 million from the end of the prior quarter. We continue to be conservative and highly selective in our new loan production, but with a higher level of productivity we are seeing from the additions to our banking team that we have made over the last several quarters, we are seeing a solid level of new loan production. New loan production was $167 million in the second quarter. This new loan production was well diversified and resulted in an increase in most of our portfolios. 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 loan production being 6.35% in the quarter, 6.67% excluding loans secured by trust and investment management assets originated in the quarter. Moving to slide six, take a closer look at our deposit trends. Our total deposits were slightly up from the end of the prior quarter. We had a decline in noninterest-bearing deposits due to typical seasonal outflows we see in the second quarter related to tax payments. This was offset by an increase in interest-bearing deposits as a result of the successful execution in our deposit-gathering strategies.
Given the nature of our client base, following the seasonal outflow that related to tax payments in the second quarter, we typically see that these balances tend to build back up over the second half of the year. Turning to trust and investment management on slide seven, we had a $320 million increase in our assets under management in the second quarter, driven largely by favorable market performance. Over the past year, our AUM has increased nearly 7%. I'll turn the call over to David for further discussion of our financial results. David?
David Weber: Thanks, Julie. Turning to slide eight, we'll look at our gross revenue. Our gross revenue was slightly down from the prior quarter due to some one-time gains we had in the first quarter that positively impacted our net interest noninterest income, which was partially offset by an increase in net interest income. Now turning to slide nine, look at the trends in net interest income and margin. Our net interest income increased 2.3% from the prior quarter due to an expansion in our net interest margin. Our NIM increased six basis points from the prior quarter to 2.67%.
This was due to a reduction in our cost of deposits as well as the payoff of high-cost subordinated debt along with the deployment of the cash we generated from the sale of two OREO properties into new loan production and securities purchases, which increased our average yield on interest-earning assets. Based on recent deposit inflow trends over the past few weeks, we expect NIM to be relatively flat in the short term, but it should expand later in the year, which along with our balance sheet growth, should result in strong NII growth in the third and fourth quarters. Turning to slide 10, our noninterest income decreased by approximately $1 million from the prior quarter.
This was due to one-time gains we recorded in the first quarter, which were partially offset by an increase in gain on sale of mortgage loans. PTIM fees have been trending down as our clients have shifted to lower-margin services. Reversing this trend is a management priority. Now turning to slide 11 and our expenses, our noninterest expense decreased approximately $300,000 from the prior quarter, which was primarily due to lower salaries and benefits. All other areas of noninterest 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 second quarter with slight increases in NPLs and NPAs. However, we had a meaningful decline of $10 million in our classified loans. We had one loan charge-off in the quarter, which had unique issues and is not reflective of broader trends we are seeing in the portfolio. We had a slight increase in our allowance coverage, which was primarily driven by the significant loan growth we had in the quarter. Now I'll turn it back to Scott. Scott?
Scott Wylie: 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. Our loan and deposit pipelines remain strong, which should continue to result in solid balance sheet growth for the second half of the year. In addition to balance sheet growth, we expect to see continued positive trends in our net interest margin, net interest income, fee income, and more operating leverage resulting from our disciplined expense control. Based on the trends that we're seeing in the portfolio and the feedback we're getting from clients, we're not seeing anything to indicate that we'll experience any meaningful deterioration in asset quality.
The positive trends we're seeing in a number of key areas are expected to continue, which we believe will result in steady improvement in our financial performance and further value being created for our shareholders as we move through the year. With that, we're happy to take your questions. Josh, please open up the call.
Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. Our first question comes from Matthew Clark with Piper Sandler. You may proceed.
Matthew Clark: Hey, good morning, everyone.
Scott Wylie: Morning. Morning, Matthew.
Matthew Clark: First question, just on the looks like you had some borrowings toward the end of the quarter. Wanna get a sense for the rate on those, whether those are overnight or term borrowings and I guess, the plan to maybe pay those off as deposit growth comes through in the second half.
David Weber: Yeah, Matt. Yes. They were overnight. And, yes, the plan is to pay them off as our deposits come in the third quarter. It was in the mid-fours as far as the rate, but like I said, we do plan to pay those off.
Matthew Clark: Okay. Great. And then your cost of interest-bearing in total deposits both down two basis points. If you just curious what the spot rate was at the June and kinda what your expectations are for more relief in the back half?
David Weber: Yeah. The spot rate at the June was 3.07%. And that's total deposits. And, you know, we do still have opportunity to continue to reprice down on the CD portfolio. As far as, you know, NIM expectations, we're thinking relatively flat in the third quarter due to strong deposit pipelines in the third quarter. And then as we deploy that into loan production, you know, we still are expecting NIM to expand in the fourth quarter back to really that exit NIM that we talked about last quarter kinda in the low to mid-2.70s.
Matthew Clark: Okay. Great. And then just last one for me on expenses. Good cost control here this quarter, better than the guide. I think that was $19.5 million to $20 million. What are your updated thoughts on the run rate here in the back half?
David Weber: We're still thinking same range, $19.5 million to $20 million. Yeah.
Matthew Clark: Okay. Thank you.
Scott Wylie: We continue to think, Matt, that our path to success is not in cost cutting. Right? It's in operating leverage from growing revenues with our current expense base and, you know, our focus has really been on just trying to make sure we're not seeing excessive growth in that expense base.
Operator: Thank you. Our next question comes from Woody Lay with KBW. You may proceed.
Woody Lay: Hey, thanks for taking my questions. Had a quick follow-up on the NIM outlook and believe you said that you still expect to hit a low to mid-2.70s NIM by year-end. And just wanted to get a sense of how sensitive that could be to how rate cuts play out in the back half of the year.
David Weber: Yeah. Woody, I think our guidance that we previously spoken to as far as how rate cuts impact NII in that million-dollar range is still relatively flat. Relatively fair. We took a little bit of sensitivity off the balance sheet in the second quarter. So maybe it's, you know, $100,000 or so below that, but I think that's still a fair assumption as far as how a 25 basis point reduction would impact NII.
Woody Lay: Got it. And then maybe shifting over to expenses and profitability, and you mentioned that you can continue to invest in the franchise. She has a longer-term focus, but was hoping to that y'all could just kind of sort of peel back the curtain and just walk through sort of how you toggle between investing and seeing the profitability ramp actually play out.
Scott Wylie: Well, I think if you look at the history over the past several quarters, we've had pretty stable expenses. So I think, you know, our focus has been how do we take our current spend, make sure we're getting the maximum value out of that, and how do we take advantage of opportunities we see in the marketplace. You know, we brought in significant new hires from other local banks, from First Republic, from Goldman Sachs, from UMB here, and those folks have been really helpful to the growth numbers that we started seeing in Q2 here. So, I mean, we do continue to invest. We continue to upgrade. When vacancies come up.
You know, hopefully, we'll continue to that in the back half of the year. That's our expectation. I don't think we need to increase our expenses significantly to achieve significantly higher revenues that are gonna drive the operating leverage that we've seen since our IPO where, you know, the expense is steady, you grow your revenues, that's gonna have a really nice impact for our bottom line.
Woody Lay: Got it. And then last for me, I believe in the opening comments you called out, you know, building up trustees as a top priority at this point. I know they were down a little bit quarter on quarter. Could you just give some additional color on thoughts on that business line and how you could increase fees from here?
Scott Wylie: Yeah. So we have now replaced most of our PTIM leadership here to put in a more of a growth mentality than what we've had. You know, since the IPO, we've been pretty flat. In PTIM where we've, you know, tripled the size of the balance sheet and dramatically improved our net interest income. So, you know, our feeling is that this is an area of opportunity for us. We talk about that area as PTIM, which stands for planning, trust, and investment management. PTIM. And, you know, historically, we've put a lot of emphasis on the investment management and the trust side. And the trust has certainly grown nicely over the years.
We think there's a big opportunity on the planning side as well. And so we have brought in new leadership there. The head of planning joined us right at the beginning of the second quarter. And, you know, historically, I would tell you, we find it takes some time for these folks to get traction. And not with him. I mean, there's really good stuff going on in terms of product development and new channel distribution. You know, historically, we focused here on the B2C channel. With our 19 offices.
And now we're launching a new B2B initiative that fits really nice into some of the other capabilities of the organization beyond planning, like our focus on C&I and our focus on treasury management and our focus on retirement services business. So, you know, you don't see any of that in the numbers in Q2. Either on the expense or the revenue side. But as I think David mentioned in his comments with the deck, that is something we're focused on, and we do expect to see results going forward.
Woody Lay: Alright. That's good to hear. Thanks for taking my questions.
Scott Wylie: Thank you.
Operator: Thank you. Our next question comes from Bill Dezellem with Titan Capital Management. You may proceed.
Bill Dezellem: Thank you. I had a couple of questions. First of all, what, if any, structural factors are holding you back from returning to a 3% or greater NIM?
Scott Wylie: I think the passage of time, Bill. You know, we've talked about that now in the past several calls that we thought that we would see a nice steady improvement in NIM, which is what we've seen. I think, you know, don't have the exact page in front of me here, but I think in the deck that's pretty evident. And, you know, what we've looked at internally is that we believe that our historic number of some number, like 3.15, 3.20, is what our business model should produce. In a normal interest environment where you don't see inverted yield curve and you don't see rapid run-up in short-term rates like we saw there a couple years ago?
So, you know, we do think we're gonna trend back there and that's what we've been saying and that's what we've been seeing. So, you know, as David said, you know, we expect that to continue. Think with the growth we saw at the end of the second quarter and the funding and the fact that our deposits typically decrease, especially, you know, operating deposits in Q2 because of tax payments with our type of client. You know, we'll see that continue to come back in the second half of the year. We'll see the improvement in from that. I don't think we're gonna get to $3.15 here in the next couple of quarters.
I'm sure whether it takes to the end of next year or beyond that, but, you know, we do think we're gonna see continued progress there. And every quarter, every month where we see some nice organic growth, some improvement in fee income, some good cost control, NIM expansion, and organic growth, all of those things compound each other, drive the top line growth, that goes straight to the bottom line if we're not increasing expenses.
Bill Dezellem: That's helpful, Scott. And just to be clear, there aren't any factors that are required to achieve that 3.15, 3.20 other than a continuation of growing assets and essentially seeing that net interest income growing more quickly than expense growth. And it's just a matter of moving the business forward. Is that the correct interpretation?
Scott Wylie: I think that's safe to say. I don't, David, do you feel comfortable with that?
David Weber: Yeah. I think that's fair, Bill.
Bill Dezellem: Great. Thank you. And then additionally, you have hired MLOs over the course of the last year and I think you inferred in the press release that your mortgage volume was down. And I realized that the mortgage market is a bit maybe this is appropriate time to say wonky. If now. But help us understand why do you think your volumes are down when your MLOs have increased?
Julie Courkamp: Yeah, Bill. I can take this one. You're right. We have been working to increase our MLOs, which helps us with just general production. And geographic spread of that production. You know, they're in different locations, and I we are we have more in the pipeline to continue to grow those. Industry-wide, I think the general mortgage industry has still not really rebounded. We have not seen seed production that we typically see in the summer months, which are typically our higher seasonality months. I think we're seeing impact from the economic uncertainty, but also the interest rate uncertainty.
I think people are just not, you know, not into buying and or selling part of life right now, and it appears that everybody's kinda staying on the sidelines. We are hearing that buyers believe that the home prices will decline at some point. In the near future, I think that, you know, the interest rate certainty will help with that as well. I think that, you know, we might see a little bit more, but our general belief is that if we can continue to add individuals that aren't fixed cost to us, that bring in more production, that we will see the increase in revenues. With that as well as economic conditions continue to improve.
I would note, however, that we are contribution positive on mortgage. For the year, and we were last year as well. And so this is a contributing business. You'll see a lot of our production in the second quarter. Was through mortgages as well. One to four family residential mortgage increased in our mix. So very much a contributing part of the business and, you know, from an earnings perspective is doing nice paying nice dividends to us as well.
Bill Dezellem: And so, Julie, to be clear, the decline in the mortgage volumes you all see entirely as market-related as opposed to some internal challenge that you all need to be working on internally.
Julie Courkamp: That's correct. Yes.
Bill Dezellem: That's helpful. And then one last question. Relative to your customer's mindset, you know, on the I guess, I'll call it the cautious or not spectrum. What are you seeing and hearing from them today? I think you referenced that you had good loan growth late in the second quarter. Has the mindset shifted over the course of the last few months as the macro environment has shifted, share as much insight on all those factors as you can, please.
Scott Wylie: Yeah. That's actually a great question, and I think really interesting, Bill, to try and understand, which, you know, isn't easy. Right? So we do a midyear review where we bring in all of our senior people for a couple days. And earlier this week, we had all the leadership and the managers here Monday, and then Tuesday, all the PC presidents from the 19 locations stayed and we had a PC president summit. And then we also had, on Tuesday, a PTIM summit working on some of the changes we have going on there. And so at the PC's present summit, I asked the PC presidents that very question.
I said, you know, what are you seeing in terms of competitive environment? What are you seeing in terms of client demand? And each one of them said, as they always do, it's a very competitive environment, and they're still seeing cost pressure on the deposit side and cost pressure on the loan side. But, you know, the facts are that we're seeing more bigger pipelines. We're seeing more demand. And I think the feeling is among those guys that are really close and women that are closest to our market, that the caution that we saw early in the year has shifted and people are coming back to doing. So I think your question is spot on.
I think we're still in a competitive environment. I think we're still seeing some archer disruption that's good for us. In fact, I think that's probably accelerating. And I think we're seeing confidence with our clients. It's the making them move on things that they're thinking about.
Bill Dezellem: Great. Thank you all for taking the many questions.
Scott Wylie: Yep. Thank you.
Operator: Thank you. I would now like to turn the call back over to the management team for any closing remarks.
Scott Wylie: Great. Thanks, Josh. So I just want to thank everybody for joining us on the call today. We have targeted improvements in asset quality and NIM that is margin, and organic growth talked about that now for several quarters. And we feel that with the progress we're making there, we're gonna return to our historic strong numbers. And we're seeing that over the past few quarters. And we see continued progress going into the second half of the year. This is driving more operating leverage is gonna restore our strong earnings growth story. And our internal and external trends that we see across our products and services. And across our geographical footprint, are all positive.
We expect to benefit from these trends in the second half of the year and into 2026, all else being equal. We really appreciate the support, and thanks for taking the time today to listen to our earnings call.
Operator: Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.