First Western (MYFW) Q3 2026 Earnings Call Transcript

First Western Financial reported Q3 2026 net income of $6.0 million, up 88% year over year, and diluted EPS of $0.60 versus $0.32. Net interest income rose 5.5% quarter over quarter to $23.0 million as NIM expanded 5 basis points to 2.95%; loans held for investment grew 3.5% quarter over quarter to $2.81 billion, while the non-performing asset ratio improved to 0.39% from 0.50%. Management expects roughly 10% loan growth for full-year 2026 and said it expects to operate at a 1% ROAA during 2027, while noting higher rates are weighing on mortgage demand and funding costs.

Analysis

The earnings setup is improving, but the quality of the next leg matters more than the reported EPS growth. MYFW’s asset yields are resetting upward as new loans replace lower-yielding payoffs and floating-rate assets reprice; that can support near-term NIM expansion. The offset is funding: indexed money-market balances have full rate sensitivity, and the quarter-end increase in FHLB borrowings makes the deposit-growth narrative less conclusive until average borrowing levels and deposit mix are verified in the next filing. If incremental lending is funded by higher-cost wholesale money rather than durable operating deposits, loan growth can add less value than headline production suggests.

The talent hires and relationship-banking push could create a durable local-market advantage, but the flywheel is not yet proven: monitor whether new relationships retain deposits and whether credit performance holds as originations accelerate. Lower nonperforming assets partly reflect paydowns and a charge-off, while allowance coverage edged lower; do not treat the ratio improvement alone as evidence that risk has structurally fallen. Likewise, expense leverage is encouraging, but the quarter-over-quarter improvement includes a prior-quarter technology charge, and management cited a one-time tax benefit.

Near term, momentum and management’s outlook may support the shares, but the 2027 profitability objective is conditional, not assured. Over 1–3 months, Q4 funding costs, average borrowings, NIM and loan/deposit conversion are the key tests. Over 6–18 months, the thesis depends on profitable growth without underwriting slippage. Missing valuation and share-price context prevent a justified price target or unconditional entry; management’s projections should be checked against filings and realized results.

Key Decisions for Investors

• Do not chase the initial earnings reaction. Put MYFW on a conditional long watchlist; consider a starter position only if the valuation leaves room for execution and Q4 confirms loan growth is being funded primarily by relationship deposits rather than persistently elevated wholesale borrowings.
• For the next quarter, track average—not just quarter-end—FHLB borrowings, deposit mix and costs, NIM, and the proportion of loan growth accompanied by operating deposits. A rising cost of funds that absorbs asset-yield gains would weaken the core thesis.
• Treat 1% ROAA in 2027 as an upside scenario, not a base-case valuation anchor. Reassess if operating leverage stalls after normalizing one-time items, or if management narrows its profitability outlook.
• Falsification signals: NIM stops expanding despite asset repricing; deposit costs accelerate; loan growth materially outpaces stable deposit growth; or nonperforming assets, charge-offs, and provision needs rise together. These would argue against adding exposure and could justify a short only if valuation and liquidity support the trade.