First Western Financial, Inc. (MYFW) Earnings

Management highlights

- Core Operational Performance * The firm delivered solid profitability in Q2 2026, with positive trends in deposit growth, net interest margin expansion, expense management, and asset quality * Prudent risk management and conservative new loan underwriting are maintained, with new loan production diversified across markets, industries, and product categories * Tangible book value per share was further strengthened in the quarter, following continued balance sheet management strategies - Balance Sheet Strategy * Net interest margin expansion is a core strategic focus; the firm has expanded margin by 26 basis points in 2025 and an additional 19 basis points year-to-date 2026 * Disciplined pricing discipline is prioritized over aggressive growth that would erode margin; the firm will not pursue loans that do not meet internal return requirements despite market pricing competition * The firm actively improved deposit funding mix in the quarter, with a focus on growing low-cost non-interest bearing deposits to reduce overall cost of funds - Growth Initiatives * The firm is capitalizing on M&A-related market disruption in its operating regions to recruit new banking/wealth talent and win new clients * A company-wide proactive sales initiative (Westward 100) increased total planned face-to-face client calls by 88% year-over-year, with trust department calls up 180% year-over-year, driving a culture shift to proactive growth * A new onboarding acceleration program was launched for all new front-office hires to speed up ramp-up time and revenue generation * New market leadership was added in Arizona, and the firm is already seeing early positive traction for growth in that market

Guidance

- Management expects continued improvement in overall financial performance across the second half of 2026, driven by strong loan and deposit pipelines that will support faster balance sheet growth, which is a key core objective - Quarterly non-interest expense is expected to stay in a range of $20 million to $21 million going forward, with disciplined expense control maintained - Management expects positive continued trends in net interest margin and fee income, with increased operating leverage from continued revenue growth paired with expense discipline - Management is open to moderate flexibility on net interest margin improvement in the second half of 2026 to pursue higher asset growth, which the firm expects will deliver greater long-term shareholder value - Credit quality is expected to remain stable and healthy through the end of 2026 - The firm continues to perform well against internal earnings plans, with steady earnings improvement expected to continue through the end of 2026

Segment performance

The firm reports net income of $6.7 million ($0.57 per diluted share) in Q2 2026, 129% and 119% higher respectively than the year-ago quarter. Tangible book value per share increased 2.6% quarter-over-quarter to $25.53. 1. **Loan Segment**: Loans held for investment rose $23 million quarter-over-quarter (the fifth consecutive quarterly increase), with 7% year-over-year total loan growth. New loan production hit $115 million in the quarter, with an average rate on new production of 6.37% (6 basis points higher quarter-over-quarter, and above the 5.89% average rate on loan payoffs). 2. **Deposit Segment**: Total deposits grew 12.6% year-over-year, with average non-interest bearing deposits increasing $18 million (5.1%) quarter-over-quarter. Money market account growth partially offset a decline in time deposit accounts for the quarter. 3. **Trust and Investment Management Segment**: Assets under custody and management increased $41 million in Q2 2026, driven by improving market conditions. Investment agency AUM rose $91 million quarter-over-quarter and $122 million year-over-year (the firm's highest fee category). Trust and investment management fees increased 5.1% year-over-year following a team restructuring for growth. 4. **Overall Financials**: Gross revenue grew 16% year-over-year and 1.8% quarter-over-quarter. Net interest income increased 21.7% year-over-year and 4.3% quarter-over-quarter, with net interest margin expanding 9 basis points quarter-over-quarter to 2.9% (23 basis points higher year-over-year). Non-interest income decreased $0.3 million quarter-over-quarter, driven by lower net gains on mortgage loan sales and lower risk management/insurance fees, partially offset by higher bank fees. Non-interest expense rose $1 million quarter-over-quarter, including a $400,000 non-recurring charge for write-offs of capitalized technology assets; the efficiency ratio was 74.03%, down from 78.83% in Q2 2025. Asset quality was stable: there were zero loan charge-offs for the second consecutive quarter, non-accrual loans and non-performing assets were flat quarter-over-quarter, and the firm released $0.5 million in loan loss provision.

Risks & headwinds

- M&A-related market disruption creates price competition for loans that pressures returns; the firm will not chase unprofitable pricing, which could slow near-term loan growth if competitors maintain aggressive pricing - The cost of acquiring new deposits has increased in current market conditions, as competing banks work to retain deposits, which could pressure net interest margin going forward - Limited remaining downside opportunity for time deposit costs; after several quarters of cost declines from repricing maturing higher-rate time deposits, most of the portfolio has already repriced, leaving little additional margin benefit from this source - New hires require ramp-up time to generate revenue, which creates near-term expense pressure before the investments produce returns

Analyst Q&A

• Q: Where is loan growth coming from, and what is the firm's outlook for second half 2026 loan growth?

  A: Current loan production is balanced across markets, with ~$100 million in quarterly payoffs offset by $115 million in new production, leading to moderate net growth so far. M&A disruption is a double-edged sword: it creates opportunities to recruit talent and win clients, but also drives aggressive competitor pricing that pressures returns. Management is maintaining pricing discipline, but after analysis of the tradeoff between NIM expansion and asset growth, the firm will become slightly more flexible on NIM gains to drive faster asset growth in the second half.

• Q: What hiring activity is underway to capitalize on market disruption, and what expense impact is expected from this hiring?

  A: The firm has added 20 new front-office and product team members year-to-date 2026, 10 of which are direct sales roles. The firm launched a company-wide proactive sales initiative that grew client calls 88% year-over-year to accelerate new business development, and a structured onboarding program to speed up new hire ramp-up. Near-term higher expenses from new hires are already reflected in the new $20-$21 million quarterly non-interest expense guidance, and the firm has a track record of $3 in revenue growth for every $1 in core expense growth.

• Q: What is the current spot deposit cost, and what is the outlook for future deposit costs in a higher-for-longer rate environment?

  A: The spot average deposit rate at the end of Q2 2026 was 2.8%. While existing depositors have not pressured the firm for higher rates, the cost of acquiring new deposits has increased in current competitive markets. Most upside from repricing maturing higher-rate time deposits has already been realized, as the current spot rate for time deposits is 3.64%. The firm's main path to lower average deposit costs going forward is growing the share of low-cost non-interest bearing deposits, rather than reducing current deposit rates.

• Q: If interest rates change, how would that impact the firm's net interest margin outlook?

  A: The firm maintains a relatively neutral interest rate risk profile, with a slight liability sensitivity. A 25 basis point Fed rate cut would deliver a small 1-2 basis point NIM benefit, while a 25 basis point rate increase would have a similarly small negative impact. Overall, changes in rates are not expected to have a material impact on the firm's margin.