First Western Financial IncMYFW
First Western Financial Inc Income Taxes Disclosure
INCOME TAXES
_____________________________
_____________________________
The following presents the components of the Company’s income tax expense:
| December 31, | |||||||||||
(dollars in thousands) | 2025 | 2024 | |||||||||
| Current: | |||||||||||
| Federal | $ | 4,334 | $ | 247 | |||||||
| State and local | 322 | (264) | |||||||||
| Total current tax expense (benefit) | 4,656 | (17) | |||||||||
| Deferred: | |||||||||||
| Federal | (883) | 2,766 | |||||||||
| State and local | 113 | 357 | |||||||||
| Total deferred tax (benefit) expense | (770) | 3,123 | |||||||||
| Income tax expense | $ | 3,886 | $ | 3,106 | |||||||
Income before income taxes is entirely related to domestic activities as the Company does not have any foreign operations.
The following is a reconciliation of income taxes reflected on the Consolidated Statements of Income for the years ended December 31, 2025 and 2024, with income tax expense computed by applying the United States federal income tax rate of 21% to income before income taxes:
| December 31, | |||||||||||||||||||||||
(dollars in thousands) | 2025 | 2024 | |||||||||||||||||||||
| Amount | Percent | Amount | Percent | ||||||||||||||||||||
| Federal statutory income tax | $ | 3,586 | 21.00 | % | $ | 2,432 | 21.00 | % | |||||||||||||||
| Effect of: | |||||||||||||||||||||||
State and local income taxes, net of federal benefit(1) | 452 | 2.65 | 279 | 2.41 | |||||||||||||||||||
| State low-income housing tax credits (LIHTC) | (132) | (0.77) | (167) | (1.44) | |||||||||||||||||||
| Tax credits | |||||||||||||||||||||||
Federal LIHTC(2) | (277) | (1.62) | 176 | 1.52 | |||||||||||||||||||
| Solar investment tax credits | (135) | (0.79) | — | — | |||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||
| Section 162(m) limitation | 228 | 1.34 | 118 | 1.02 | |||||||||||||||||||
| Other | (90) | (0.53) | (96) | (0.83) | |||||||||||||||||||
| Other adjustments | |||||||||||||||||||||||
| Other | (117) | (0.68) | 9 | 0.08 | |||||||||||||||||||
| Income tax receivable true-up | 281 | 1.65 | 99 | 0.85 | |||||||||||||||||||
| Deferred tax asset true-up | 90 | 0.51 | 256 | 2.21 | |||||||||||||||||||
| Income tax expense | $ | 3,886 | 22.76 | % | $ | 3,106 | 26.82 | % | |||||||||||||||
(1)State taxes in Colorado made up the majority (greater than 50 percent) of the tax effect in this category.
(2)For the year ended December 31, 2025, the federal LIHTC amount reflects income tax benefits of $0.7 million from tax credits and $0.2 million from allocated K-1 losses, partially offset by $0.6 million of amortization. For the year ended December 31, 2024, the federal LIHTC amount reflects $0.8 million of amortization, partially offset by income tax benefits of $0.5 million from tax credits and $0.1 million from allocated K-1 losses.
Income tax paid, net of refunds, were as follows:
| December 31, | |||||||||||
(dollars in thousands) | 2025 | 2024 | |||||||||
Federal(1) | $ | 1,165 | $ | 215 | |||||||
| State and local | |||||||||||
Arizona(2) | 30 | (47) | |||||||||
| Total | $ | 1,195 | $ | 168 | |||||||
(1)During the year ended December 31, 2025, the Company paid $1.2 million for the purchase of solar investment tax credits.
(2)During the years ended December 31, 2025 and 2024, the Company paid $30 thousand and $75 thousand for the purchase of Arizona state tax credits.
The following presents the principal components of the Company’s deferred tax items:
| December 31, | |||||||||||
(dollars in thousands) | 2025 | 2024 | |||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 472 | $ | 472 | |||||||
| State deferred tax credits | 66 | — | |||||||||
| Allowance for credit losses | 5,059 | 4,327 | |||||||||
| Acquired loans fair market value adjustments | 851 | 955 | |||||||||
| Loan accounted for under the fair value option | 128 | 174 | |||||||||
| Lease liability | 5,430 | 4,948 | |||||||||
| Stock-based compensation | 610 | 840 | |||||||||
| Provision on other real estate owned | 458 | 261 | |||||||||
| Other intangible assets | 56 | 81 | |||||||||
| Unrealized losses on securities | 404 | 250 | |||||||||
| Interest on non-accrual loans applied to principal | 299 | 293 | |||||||||
| Unfunded commitment liability | 165 | 159 | |||||||||
| Other | 114 | 106 | |||||||||
| Total deferred tax assets | 14,112 | 12,866 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Goodwill | (1,505) | (1,384) | |||||||||
| Depreciation | (2,370) | (2,787) | |||||||||
| Right-of-use asset | (4,832) | (4,523) | |||||||||
| Assets acquired at fair value | (426) | (476) | |||||||||
| Loan costs | (88) | (71) | |||||||||
| Losses from partnerships | (304) | — | |||||||||
| FHLB redemption | (133) | (98) | |||||||||
| Other | (3) | — | |||||||||
| Total deferred tax liabilities | (9,661) | (9,339) | |||||||||
| Valuation allowance | (448) | (448) | |||||||||
| Net deferred tax asset | $ | 4,003 | $ | 3,079 | |||||||
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the total deferred tax assets. The net operating loss (NOL) carryforwards expire in tax years 2028 through 2032. As of December 31, 2025 and December 31, 2024, the Company had $5.5 million of California NOLs available for utilization. As of December 31, 2025, $5.2 million is recorded as a valuation allowance, resulting in a tax effected valuation allowance of $0.4 million. The Company identified no other material uncertain tax positions for which it is reasonably possible the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months.
The Company and its subsidiaries file tax returns for the United States and for multiple states and localities. The United States federal income tax returns of the Company are eligible to be examined for the years 2022 and forward and for the years 2021 and forward for major state taxing jurisdictions. There are no federal or state tax examinations currently in progress.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 15, 2023 | |
| 2021 | Mar 15, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 12, 2020 | |
| 2018 | Mar 21, 2019 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.