First Western Financial, Inc.

Second-quarter net income was $6.7 million, or $0.57 per diluted share, versus the year-ago period, up 129% and 119%, respectively. Gross revenue increased 1.8% sequentially and 16% from the second quarter of 2020. Net interest income increased 4.3% quarter over quarter and 21.7% year over year, while net interest margin rose 9 basis points sequentially to 2.9%. Noninterest expense increased $1.0 million quarter over quarter, including a $0.4 million nonrecurring technology asset write-off that reduced diluted EPS by $0.03. The efficiency ratio was 74.03% versus 73.11% last quarter and 78.83% in the second quarter of 2020. Asset quality remained stable with no charge-offs and a $0.5 million provision release; allowance coverage was 75 basis points of total loans. For the third quarter and beyond, management expects quarterly noninterest expense of $20 million to $21 million and said loan and deposit pipelines remain strong, with improved balance sheet growth expected in the second half.

Scott Wylie emphasized that the quarter reflected positive trends in deposit costs, loan growth, net interest margin, expenses, and asset quality. He said the company continues to run with prudent risk management and conservative underwriting, while also benefiting from market disruption that is creating opportunities to add clients and bankers. His tone was constructive but more nuanced on growth, saying management is considering being a bit more flexible on margin improvement to drive better asset growth in the second half.

David Weber highlighted that gross revenue rose 1.8% sequentially and 16% year over year, net interest income rose 4.3% sequentially and 21.7% year over year, and net interest margin improved to 2.9%. He said the margin gain came from lower funding costs and mix shift, with the yield on earning assets up 4 basis points and the cost of funds down 4 basis points. He also noted noninterest expense rose $1.0 million sequentially, including a $0.4 million nonrecurring technology charge, and guided to quarterly noninterest expense of $20 million to $21 million. On credit, he cited no charge-offs for the second straight quarter, a $0.5 million provision release, and allowance coverage of 75 basis points of total loans.

Analysts focused on loan growth, expense outlook, and deposit costs. Management said loan pipelines are strong, but pricing is competitive, and it is weighing whether to accept a slower pace of margin expansion in order to drive faster asset growth in the second half. On expenses, management said Q2 included one-time technology/data-processing items and that higher hiring and incentive compensation could lift expenses, with no expected seasonal Q3 bump beyond those dynamics. On deposits, management said the spot deposit rate at June 30 was 2.8%, the time deposit portfolio was 3.64% on a spot basis, and the main opportunity is improving deposit mix rather than materially changing rates.