First Western Financial Inc Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the First Western Financial Fourth Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Tony Rossi. Please go ahead.

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've 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. 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 we 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?

Okay. Thanks, Tony, and 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 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. 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 is higher than the prior quarter. We had a write-down of the 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. So, now I'll turn the call over to Julie for some additional discussion of our balance sheet and our trust and investment management trends. Julie?

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 the completion of their projects. New loan production was $146 million in the fourth quarter. 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 continue to successfully add new deposit relationships, this was partially offset by seasonal outflows we saw largely related to title company operating accounts, which 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. 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?

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. Now turning to Slide 10. Our noninterest 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 noninterest expense increased $1.2 million from the prior quarter. Our noninterest 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 noninterest expense decreased $100,000 in the quarter. Most 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 fourth quarter with decreases in nonaccrual loans and NPAs. 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 nonaccrual loans and NPAs resulted in a more normal level of provision during the quarter. Now I will turn it back to Scott. Scott?

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, and 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. We had a 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. 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.

Our first question comes from Brett Rabatin of Hovde.

I 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 add it, the amount of loans that are repricing this year at lower rates from fixed rates?

Yes. We had good net interest margin performance in the fourth quarter and are pleased with the expansion that took place. This was mainly driven by our ability to lower deposit costs. We expect further expansion to continue through 2026. However, it may not be at the same level we observed from Q4 2024 to Q4 2025. Regarding the loan portfolio, we have approximately $250 million in fixed rate loans maturing over the next year, with an average yield in the low 5s. This presents an opportunity to reprice our loan book and observe positive trends in the yield on interest-earning assets.

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. I think 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.

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 Q3, 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 '26, 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?

Yes. So, maybe I'll start on that one, Julie, do 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. 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. And 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 2023 to 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. And we've also made a pretty big restructuring of that group. And there were two very high-cost leaders for that group that we're 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 I missed, Julie?

Maybe something on mortgage. I don't 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 as a strategic part of our business. We've added, I think, eight 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. 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.

Good points there, Julie. And just to give some context to the eight 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.

Okay. That's really helpful. And then if I could ask one last one. You're almost a double-digit grower in '25 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 '26? Or any thoughts on how you see the pipelines playing out for the year?

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 and 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?

Yes, late summer.

And we're working through that group on a series of very specific recruiting and sales and marketing initiatives. And 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. And I think that's especially true in our niche with the private bank and trust focus. And with strong and healthy and diverse economies, I think all that's going to continue on into '26 and give us good opportunity for balance sheet growth.

Our next question comes from the line of Woody Lay of KBW.

I 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 talked 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?

The way we've talked about it internally is we wanted to keep our expense below $20 million a quarter. And 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. And 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 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 and we want to look at it and support you with that. So I think we're doing the best of both worlds here where we can manage expenses, grow revenues, get that operating leverage. And if we see opportunities for more revenue growth, go ahead and invest in that. That's the outlook we're taking for '26.

Got it. So if I pair that with the commentary of growth remaining strong, the NIM should continually 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?

Yes, there is, but I'm sworn to secrecy. I'll give 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've been back and forth and back and forth with them. 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 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 a 60-day extension at his request, supposed 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, that's not really our highest and best use of our executives' time and efforts. So, hopefully, that will 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 of a 2% thing, $2 a share operating run rate. And then I do think we can grow from there. We have said our near-term objective here is to get to a 1% ROA, which would be 3.50-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 anything, David or Julie, you want to add?

No, not for me.

Well, that's really helpful color. And 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.

The team is very focused on this. During the summit, we asked attendees about their feelings on the loan and deposit pipelines, and the feedback indicated that both are robust. Our efforts on the deposit side appear to be yielding positive results in terms of new business. Historically, at First Western, we've discovered that when we need deposits to support our desired loan opportunities, we can acquire them. There was an interesting moment after our last call when one of our larger stakeholders reached out to Julie and me to congratulate us on a solid third quarter performance. It was encouraging to hear that sentiment, especially after the challenges of the past few years with bank failures and the downfall of a leading private banking institution. Transitioning out of that challenging phase, returning to growth, and shifting from a defensive to an offensive strategy have all contributed to our narrative around deposit growth. While the phrase 'lumpy' accurately describes our growth, it wasn't the ideal growth we hoped to achieve in Q3. However, it allowed us to reduce some of the high-cost deposits in Q4, reinforcing what we've observed over the years: when we want deposits, we can secure them, and when we don’t need them, we can pay them off, which positively impacts our net interest margin (NIM). I'm pleased with this quarter's NIM slide, which I believe is on Page 9. Looking at the full-year trends over the last five quarters, we see a steady upward trajectory leading us back to the 3.10%-3.15% range that I have previously mentioned and that we have historically experienced in our banks.

And our next question comes from the line of Matthew Clark of Piper Sandler.

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?

No, I think we can hold that.

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

Yes, it was 2.86%.

Got it. Assuming that's the case and thinking about the near-term margin, it suggests that your beta is likely to increase in the first quarter. With noninterest-bearing deposits down at the end of the year, I expect they will recover to some degree, although borrowings have increased slightly. You may experience some asset yield pressure from the December rate cut on the floating rate portfolio, which constitutes about 25% of the book. It seems that your net interest margin might decrease a bit in the first quarter, but I would love to hear your perspective and clarify any incorrect assumptions I might have.

Our NIM in the month of December was 2.72%.

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

No, I don't.

Our next question comes from the line of Bill Dezellem of Tieton Capital Management.

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?

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

That's right.

Yes. Yes. There are timing dynamics there, timing of when the sales occur relative to the end of period.

Can you explain what those are? Which are loans that we're originating and selling in the secondary markets that are on the balance sheet in the interim.

Yes. Yes. 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.

Your question is 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.

And 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?

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

So, it's truly just a timing phenomenon?

Correct.

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 moving out of that C&D category.

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 to get, and we wanted to work it down. And so if you look on Page 5, you can see that's gone $315,000, $230,000, $189,000, and actually, a lot of the increase that we've seen in nonowner-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.

And our next question comes from the line of Brett Rabatin of Hovde.

Just one 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?

Yes, good question, Brett. The tax rate has indeed varied a bit over the quarters. Some of this is influenced by our LIHTC investments and the K-1 losses, including the timing of when we receive the actual losses compared to the projected losses we use to calculate the effective tax rate. Additionally, equity compensation and its variations also play a role, which affected the fourth quarter. This was one of the main reasons for the fluctuations in the effective tax rate in Q4. Looking ahead, I expect our effective tax rate to stabilize in the 23% to 24% range.

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.

Our next question comes from the line of Ross Haberman of Rlh Investments.

Scott, I joined the call a bit late. Could you share your thoughts on the mortgage market and what you expect for 2026? Assuming rates remain stable or decrease slightly, what are your expectations for your mortgage operations?

Thanks for the question, Ross. We are working on enhancing our production capabilities despite the slower market. As Julie mentioned earlier, when the market is strong, it’s difficult to add more mortgage loan officers since they’re hesitant to leave their current positions due to their existing pipelines. We've found that building our team during slower times is essential for attracting top talent. As we discussed, we've made it a priority to expand our MLO team by eight producers in 2025, marking a 45% year-over-year increase. This is an area where we are investing, and while they are commission-based, it does require significant effort to grow this team for future productivity. We believe there’s substantial pent-up demand among individuals looking to move, even though many are hesitant to give up their low-rate mortgages. However, life changes, such as having another child or needing to relocate, will prompt some to make a move. We’ve noticed that home prices in the Denver market are stabilizing, which could present mortgage opportunities for us. Any decline we've experienced this year is not unique to us but reflects the broader industry. We are effectively navigating the current challenges and are well-positioned to capitalize on growth when the market rebounds.

Are you noticing any improvement in that division, either in Phoenix, Wyoming, or the lending office you opened in Bozeman? Would any increase be visible there first? Or perhaps in the Denver area, if you were to see any kind of improvement, would it appear there first?

We have brought in some business from the Lowes and Arizona regions, and we've seen good production from that area. Additionally, we've also gained some clients from the Wyoming region, which has been beneficial as well. These clients are high-quality producers that align with our business. You will notice some of that contributing to our portfolio. Montana is a bit more challenging; we haven't been able to find a pure-play MLO there, but our excellent lending team is equipped to handle all lending requirements. Our priority is to ensure that all markets are experiencing the growth we desire, and we have observed production in all regions.

And to be clear, Bozeman is a full-service First Western profit center that is actually contribution positive. They've made really nice progress there.

Have you been exploring the possibility of acquiring other operations, such as money management, branches, or smaller banks? Are you currently considering any of those markets, especially now that you have more resources this year compared to the past couple of years? Is that something you are monitoring, or would you prefer to focus on hiring individual relationship bankers or forming teams rather than acquiring an entire bank?

Yes. 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 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.

Thanks a lot, and best of luck.

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

Thank you. We have mentioned for several quarters that we successfully navigated through the challenges of 2022 and 2023, and we are now moving back into an offensive strategy. The market dynamics have shifted from headwinds to tailwinds heading into 2026, both financially and competitively. Our transition to an offensive approach in 2025 has proven effective as we have capitalized on our investments in five key areas discussed previously: tech infrastructure, product teams, local PC teams, profit center teams, and the improvement of our internal processes for greater efficiency and value creation. We've also enhanced our credit and risk teams to support our future growth at First Western. The positive trends from the third to fourth quarter are notable, with a 22% increase in net interest income quarter-over-quarter on an annualized basis and a healthy year-over-year increase as well. Our net interest margin increased by 17 basis points quarter-over-quarter and 26 basis points year-over-year, indicating a steady recovery. When excluding the operating OREO write-down, our pre-provision net revenues surged by 39% quarter-over-quarter on an annualized basis, doubling from last year. Our adjusted efficiency ratio continues to improve, and our operating run rate for the last quarter was approximately $0.50, translating to just over $2 annualized. In our business plan for 2026, assuming a stable environment, we anticipate these favorable trends to persist. The market remains dynamic, presenting excellent opportunities for talent acquisition and client engagement. Our disruption task force is concentrating on recruitment and sales marketing strategies. Clients are expressing a preference for a stable local team of experts and a reliable local institution, particularly in our market niche. The small market share we have in our respective areas presents significant growth potential within our robust and diverse economies. Our PTIM restructuring is yielding results, and we expect to see progress this year, particularly with our renewed focus on planning and the B2B initiative we have launched. Our MLOs are increasing, taking advantage of the current slower market to prepare for future growth. We expect our net interest margin to continue trending upwards toward the 3.15% target we've mentioned as the economy and financial markets stabilize. These improvements in net interest margin, along with moderate balance sheet growth, will contribute positively to net interest income and earnings. Our goal is to return to being a high-performing financial institution, and we see a clear pathway to achieving a 1% return on assets with ample room for further growth. Thank you all for your support. We appreciate your attention today and look forward to connecting again in the future. Thank you.

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