Thank you for standing by, and welcome to First Western Financial's second quarter 2026 earnings conference call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star-11 on your telephone. To remove yourself from the queue, you may press star-11 again. I would now like to hand the call over to Lisa Fortuna, Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thanks for joining us today for First Western Financial's second quarter 2026 earnings call. Joining us from First Western's management team are Scott Wiley, Chairman and Chief Executive Officer, Julie Korkamp, 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'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 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 to be 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.

Thanks, Lisa, and good morning, everybody. We executed well in the second quarter and saw positive trends in many areas, including deposit cost, deposit growth, net interest margin expansion, well-managed expenses, and stable asset quality. This resulted in another quarter of solid profitability. We continue to maintain prudent risk management and conservative new loan production. Supported by the banking talent over the last several years and good economic activity across our markets, we achieved healthy loan production that was diversified across markets, industries, and loan categories. As a result of our financial performance and the balance sheet management strategies, we further strengthened our tangible book value per share. Moving to slide 4, we generated net income of 6.7 million or 57 cents per diluted share in the second quarter, a hundred and twenty nine percent and a hundred and nineteen percent higher respectively than the year-ago period. With our prudent balance sheet management, our tangible hook value per share increased by 2.6% this quarter to $25.53. Now I'll turn the call over to Julie for some additional discussion on our balance sheet and trust investment management trends. Julie?

Thank you Scott. Turning to slide 5, we'll look at the trends in our loan portfolio. Our loans held for investment increased $23 million from the end of the prior quarter, marking the fifth consecutive quarterly increase. On a year-over-year basis, total loans increased 7%. We remain conservative and disciplined in our new loan production and the higher productivity of the bankers added over the last several quarters is supporting a stable pace of loan originations. New loan production was $115 million in the second quarter and was diversified across various markets and loan types with a focus on relationship-based lending. We continue to be disciplined with respect to pricing, which resulted in the average rate on new production of 6.37% in the quarter, which was six basis points higher on a quarter-over-quarter basis and higher than the average rate of loan payoff of 5.89% in the quarter. Now moving to On slide 6, we'll take a closer look at our deposit trends. Our total deposits increased from the end of the prior quarter with growth and money market accounts partially offset by a decrease in time deposit accounts. On a year-over-year basis, total deposits increased 12.6%. Average non-interest-bearing deposits increased 18 million or 5.1% in the quarter. Turning to trust and investment management slot on slide 7, we had a $41 million increase in our asset center management in the second quarter, primarily attributed to improving market conditions. Investment agency AUM increased $91 million in the quarter and $122 million on a year-over-year basis, which is our highest fee category. As David will cover shortly, our trust and investment management fees have increased 5.1 percent from the second quarter of 2025 as we have restructured that team for growth. Now I'll turn the call over to David for further discussion of our financial results.

Thanks, Julie. Turning to slide eight, we'll look at our gross revenue. Our gross revenue increased 1.8 percent from the prior quarter, primarily due to an increase in net interest income partially offset by a decrease in our gross revenue has increased 16% from the second quarter. Turning to slide 9 we'll look at the trends in our net interest income and margin. Our net interest income increased due to an increase in net interest margin and an increase in day count. Our net interest margin increased nine basis points to 2.9%. due to a decrease in cost of funds combined with an improved mid-shift in average interest earning assets. The yield on interest earning assets increased four basis points, driven by a favorable shift toward higher yielding loans and four basis points due to an improved funding mix and lower rates on time deposits. Our net interest income increased 21-3 basis point increase in net interest margin and an increase in average interest earning assets. Turning to slide 10, interest income decreased by 0.3 million from the primarily due to a decrease in net gain on sale of mortgage loans, given lower origination volume due to higher mortgage rates, a decrease in risk management and insurance fees, increase in banks, increase due to an increase in technology and information systemally attributable to a $400,000 non-recurring charge related to the write-off of certain previously capitalized technology assets, which negatively impacted diluted EPS by efficiency ratio was 74.03% compared to 73.11% last quarter and 78.83% in the second non-interest expense to be between. We'll continue to exercise discipline expenses. We'll look at our asset As I indicated earlier, we saw stable trends in the relatively flat non-accrual loan. We had no loan charge-offs for the second consecutive quarter, 75 basis points for release of provision.

Thanks, David. Turning to slide 13, I'll wrap up with some comments about our outlook. Based on our second quarter performance and what we're seeing in our markets, we encourage and expect further improvement in our financial performance during the second half of the year. Overall, we continue to see relatively healthy economic conditions in our markets. We're seeing good opportunities to add both new clients and banking talent due to the ongoing disruption from M&A activity in our markets. We've also recently added new leadership in Arizona where we're beginning to see good traction and opportunities for growth. Deposit pipelines remain strong and should result in improved balance sheet growth the second half of the year, a key objective of ours. In addition to balance sheet growth, we also expect to see positive trends in our net interest margin, or fee income, and more operating leverage resulting from continued revenue growth and ongoing expense expansion of 26 basis points in 2025, and another 19 basis points so far in 2026. While we remain disciplined in our expense control, we believe there will be opportunities to invest in our business by adding banking, trust, and investment management talent and new clients due to the disruption caused by the continued M&A in our markets. These investments in the business will drive future shareholder value, and the ongoing disruption from M&A activity in our markets creates opportunities for us to add revenue growth talent. We'll 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, the credit outlook appears stable and healthy. The positive trends we're seeing in a number of key areas are expected to continue, result of a steady improvement in our financial performance and further value being created for our shareholders in 2026. So with that, we're happy to take your questions. Latisse, please open up the call.

As a reminder, to ask a question, you will need to press star 1-1 on your telephone. To remove yourself from the queue, you may press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Hannah Nguyen of KBW. Your line is open, Hannah.

Hi, this is Hannah stepping in for Woody Lay. Thanks for taking my question.

Good morning, Hannah.

I wanted to start off with loans. I saw you guys noted and mentioned earlier that you have a strong loan and deposit pipelines, and was wondering if you could give a little more color on where that growth is coming from and how you're thinking about overall loan growth for the second half of the year.

Let me start with a short answer and then give a little bit more detailed one, if that's okay. The short answer is we've seen a really nice balance in where our loan production is coming from. And on the loan page of the deck, you can see there that we saw, you know, our usual $100 million a quarter in payoffs and paydowns. And the production that we did in the quarter of whatever, $115 million-ish, was better than that, but not enough to drive the growth that we thought that we would see. You know, the longer answer to the question is we're seeing some impact, as I had predicted in the prior two-course market disruption, which is a real two-edged sword. One side of the sword is that the clients are disrupted and the bankers are disrupted, and there's opportunity there. And so we're definitely taking advantage of that, and we'll see more results from that. And we can talk about that more in the Q&A if you want. But the other side of the sword is that we're seeing real price competition on loans. And so, you know, we have made the decision here to date, right or wrong, but this is what we've said, be disciplined in our pricing and in our terms. And so, for example, we saw a loan at credit committee last week where it was proposed to be priced at 125 over treasuries a year seven year fixed rate loan and and we're just not going to do that that doesn't make sense to me and the fact that you know others that have entered the market here that want to defend their clients or be really aggressive with pricing i think uh it's understandable why they could do that but but that doesn't mean we're going to chase that so i think we've seen a really nice increase in NIMH continue. I mean the fact that we've done almost a bunch of an improvement the first half of the year in NIMH as we did all of last year I think is a really telling story on how this NIMH improvement that we predicted you know nine months ago to continue. I mean we didn't think it was going to go this fast but I think it has because we focused on NIMH. So David did some really interesting analysis that we can delve into if you want about kind of the trade-off of NIM and growth. But the short answer is if we grew $280 million in net growth by the end of the year and just kept our NIM flat from here, that would actually have the same income effect as growing zero in assets and having 10 basis points a quarter in improvements. Or, you know, if you take the midpoint, $130 million in growth a quarter and a five basis point improvement per quarter in NIM. So I think that certainly got the leadership team here thinking, you know, maybe we back off the pace of improvement of NIM in the second half and see a little more asset growth. And we've talked to the front office about that. We had our two-day annual summit earlier this week, and so we asked the 19 office heads that were here, you know, are we missing the market by a little or a lot? And they said, you know, in some cases a lot, in some cases a little, and if we're a little more competitive, we think we can grow faster. So that's how we're looking at it, and I'm sorry that that turned out to be such a long answer, but I think it's a great question. yeah that's uh super helpful really appreciate all of that color and wanted to touch back on what you said earlier about taking advantage of the market disruption and was wondering what you guys are seeing on the hiring front and how you're expecting this to impact expenses moving forward yeah another great question so we've added 12 new front office people into the profit centers so far this year, and eight new people into the product group areas, and if you look at people that are actually just direct salespeople, we've added 10 of those, which will be included in the 20 I just mentioned so far this year. So, you know, one of the challenges that we have with that kind of hiring is, you know, our experience over the years is sometimes it takes some time to get those people up to speed. You know, the first day they get here they don't typically produce a lot of new activity. So we've done a couple of things to accelerate that. The first thing we did is we started a program, actually had this idea in February that, you know, to really try and activate this shift back on the offense that we should get out and call more and so I said I would do a hundred calls between February and the end of June and Julie got a hold of that and called it Westward 100 because we have these Westward initiatives this year to try and drive for growth and so we ended up I think I ended up doing a hundred and sixty-eight calls so I luckily beat my hundred call goal because that would have been embarrassing otherwise but I think in the Westward 100 program we ended up doing what was the number doing nine three thousand nine hundred sixty three or some number like that almost four thousand calls company-wide and and we actually raised the bar on what the call was defined as it had to be planned had to be in face-to-face had to have a call plan around it and a follow-up in the CRM stuff like that and and we had 88% increase in calls year-over-year. Yesterday we had our board trust committee meeting and our trust department, which you know trust officers are not the ones most famous for being proactive salespeople, our head of the trust department put a slide in there for the board that said from reactive to proactive trust officer calls were up 180% in the first half of the year. So So definitely a culture shift in the organization, including on the P10 side, about getting out and making calls. And then, if you would allow me, can you talk, Julie, a little bit about this activation program we have for new hires?

Yeah, so several months ago, we implemented a program to help the new hires coming into the organization, most specifically those that are client-facing, to really get launched as quickly as possible, to understand our product set, to understand our culture, and our kind of methodology for client service. And that has been implemented two months ago, and every new hire in those front office roles is going through this additional program that we've added into it, just to make sure that we are optimizing their ability to, you know, get out and tell the First Western story and serve clients well.

Great. That is all super helpful. Really appreciate that. Thanks for taking my questions and I'll step back.

Thank you. Once again, to ask a question, please press star one, one on your telephone. Our next question comes from the line of, sorry. Our next question comes from the line of Matthew Clark of Piper Sandler. Your line is open, Matthew.

Hey, good morning, everyone. I guess I just wanted to touch on the expense guide first.

Gave the range, and I think 3Q, at least the last couple of years, 2Q to 3Q, you've seen a bump up in comp, and I'm just curious if that's still expected to be the case this coming quarter or and if there are some offsets to that well just to be clear for q2 we had some one-time expenses in there related to technology and data processing which I think totals a little under half a million dollars so the baseline for second quarter appears higher than what it actually is I think And looking forward, we've got these new hires that we've brought on in production roles that we're working to activate like we just talked about. So I think we are going to see a higher expense, which is why we're guiding now to 20 to 21 instead of 19 to 20. Our hope is that expenses are higher in Q3 because we have more incentive comp because we're seeing some nice growth because we do accrue for incentive comp based on a number of performance metrics but primarily you know that would be a that would be a good problem but after that i don't know david if you have more to add but i think you know the the shift that we've seen the increases in expenses did show up already in q2 and we don't we don't really anticipate additional.

Matt, there's no seasonality component that occurs every year in Q3. But there's a lot of dynamics, whether it's likely causing some of this.

If you look back to 2023 and our expense increase over these three years, we've earned $3 in revenue growth, core revenue growth for each dollar in core.

Yep. Yep. Good. And then just on the deposit costs, wondered what the spot rate was at the end of June, if you had it, and then your thoughts on pricing and overall deposit costs going forward, you know, assuming the Fed stays on hold, but this hire-for-longer environment, what that's doing to your competition.

Yeah, so if I could start, and then David, if you could fill in the blanks here, because they're going to be some you know cute back to your seasonality question Q2 for us is almost always a down quarter we see about 2% shrinkage in our core deposits in Q2 and you know when we got into April this year we sure enough saw that but it's but it's interesting you know we've had a real focus on core deposit growth that brought this deposit growth back to be positive in May, positive in June, and of course we ended up two percent positive for the quarter. And notably, our non-interest bearing deposits were up some really good improvements in the mix, what just David said in his comment.

Yeah, and specifically on the spot right, Matt, 2.8 percent.

Okay. And your thoughts about deposit costs going forward, can you continue to chip away at those, or do you feel like this environment makes it more difficult?

It makes it more difficult. The cost of deposit acquisition has certainly increased in our markets given the disruption that we've seen. And we haven't necessarily seen pressure from our existing depositors on deposit rates, but that cost of new acquisition has certainly crept up a bit.

And then from a time deposit repricing standpoint, we've had some benefits the error over the past few quarters spot basis so I don't know that there's I think our our biggest opportunity is going to be on continuing to chip away at improving our mix of deposits through non interest bearing deposit growth so from a core basis I don't think we're seeing a lot of opportunity and changing rates but changing the mix is definitely the focus got it thank you our next

question comes from the line of Ross Haberman of RLE Investment. Your line is open, Ross.

Good morning, Scott. Nice quarter. You seem to indicate that if I'm hearing you're right, if rates stay the same, you could see some improving margins. Is that correct from what I'm hearing from you?

Well, that's certainly what we've seen the last several quarters now, and we do think that that will continue but I'm going to put a caveat on this quarter and say that the trade-off between growth and nim improvement is definitely on our mind and our feeling is probably drives more shareholder value from where we are today given the disrupted markets to be a little bit more flexible on nim improvement to try and drive better growth in Q3 than what we've seen here today better asset growth you see it picked up in interest rates let's say they raise the raise a quarter percent for argument's sake how

do you see that about affecting your your margin expectations you know one time rate so historically we try and run a balanced balance sheet so our interest rate risk is neutral.

Right now, we've shifted to be more neutral, although I think we're still liability sensitive. David, do you want to speak to that?

Yeah, we maintain a relatively neutral balance sheet profile, and that's certainly been a goal of ours over the past few years.

We do lean slight sensitive, which a 25 basis point decreased by the Fed will benefit us a little bit let's call it one to two basis points and then but it's not all that much yeah yeah okay um and just one follow-up question after quality look look really good you got rid of all all those non-performers which plagued you the last year or so are all this completely gone I'll go on now yeah yeah that's the two column credits we had from 2023 or whenever

that was, are long gone. We have seen a return to kind of zero losses per quarter. You know, I think if you go back two or three quarters, we had, you know, 0.01 or 0.02, but it's basically been zero most quarters recently and most quarters over the last 20 years. So definitely in terms of net losses, we seem to be back at zero. In terms of NPAs, we were flat quarter over course slightly improvement at about 50 basis points. But from what I know today, assuming no surprises this quarter, we're going to see some improvement in that in Q3. So, you know, I think our underwriting standards that we've always had here of requiring three sources of repayment, personal guarantees, heart collateral, those are definitely protecting us against. Nothing in the criticized or substandard that you're losing sleep about?

Nothing causing us to lose sleep, no. In fact, both classified and criticized loans were slightly down in the quarter from last quarter.

Thanks guys, nice quarter. Have a nice week.

Thanks, Ross.

Thank you. I would now like to turn the conference back to Scott Wiley for closing remarks. Sir?

Well, you know, the key themes this quarter, I think, are largely unchanged. You know, First Western, if you compare us to other $2 to $25 billion banks nationwide, we're in some great markets. We have a top decile mix of affluent markets. We have a great niche. We are in the top three of all of those banks in terms of wealth management fees is a percent of revenues and we have great bankers historically our organic annual asset growth rate is well above peers we're about double the median for that group and well into the top and all that with very high asset quality you know we're continuing to see earnings normalized here we typically don't talk about our internal plan on these calls but I would tell you we're performing well against plan on an earnings basis and we think that the opportunity to continue to see the kind of gains that we've seen so far this year over a year ago, that's going to continue through year-end, we believe. So with that, thanks to everybody for dialing in and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.