First Western Financial Inc
For the period ended Jun 30, 2024. Filed Aug 2, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 2, 2024
MYFW$30.71-0.1%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-03.
0001327607-24-000092
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-02.
0001327607-24-000163
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 214 previous paragraphs and 219 current paragraphs.
128 unchanged; 76 reworded; 15 added; 8 removed; 2 previous and 0 current paragraphs rearranged.
Tables are not compared: 35 previous and 41 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (15)
Current report
The six months ended June 30, 2024 compared with the six months ended June 30, 2023. We reported net income available to common shareholders of $3.6 million for the six months ended June 30, 2024, compared to $5.3 million of net income available to common shareholders for the six months ended June 30, 2023, a $1.7 million, or 32.6% decrease. For the six months ended June 30, 2024, our income before income tax was $5.0 million, a $2.2 million, or 30.6% decrease from the six months ended June 30, 2023. The decrease was primarily driven by a $7.0 million decrease in net interest income, after provision for credit losses partially offset by a $4.5 million increase in non-interest income. The decrease in net interest income, after provision for credit losses, was due to higher rates on deposits and borrowings resulting from increased market rates as well as an increase in provision for credit losses primarily due to an isolated loan relationship, offset partially by an increase in interest and fees on loans resulting from higher loan yields. The increase in non-interest income was driven primarily by an increase in net gain on mortgage loans, a decrease in net loss on loans accounted for under the fair value option, and an increase in other non-interest income which included an asset impairment write down in second quarter of 2023.
Current report
Thesix months ended June 30, 2024 compared with thesix months ended June 30, 2023. For the six months ended June 30, 2024, net interest income, before the provision for credit losses, was $31.8 million, a decrease of $6.2 million, or 16.2%, compared to the six months ended June 30, 2023. The decrease in net interest income was driven by a $178.0 million increase in average interest-bearing deposits with a 96 basis point increase in the average rates on interest-bearing deposits, as part of a $124.8 million increase in average interest-bearing liabilities with a 89 basis point increase in the average rates, partially offset by a $12.8 million increase in average loans outstanding excluding loans held for sale and loans held at fair value and a 33 basis point increase in the average yield on loans. Net interest margin decreased 49 basis points to 2.34% for the six months ended June 30, 2024 from 2.83% reported for the six months ended June 30, 2023.
Current report
Interest expense on deposits increased during the three and six months ended June 30, 2024 compared to the same period in 2023. Average interest-bearing deposit rates were 4.19% and 4.16% for the three and six months ended June 30, 2024, compared to 3.44% and 3.20% for the three and six months ended June 30, 2023. The growth in interest-bearing deposit rates was primarily attributable to the higher interest rate environment and highly competitive deposit market.
Current report
The six months ended June 30, 2024 compared with the six months ended June 30, 2023. For the six months ended June 30, 2024 compared with the six months ended June 30, 2023, non-interest income increased$4.5 million, or 45.9%, to $14.2 million. The increase in non-interest income during the six months ended June 30, 2024 was driven byan increase in net gain on mortgage loans, a decrease in net loss on loans accounted for under the fair value option, and a decrease in other non-interest loss which included an asset impairment write down in the second quarter of 2023.
Current report
*Represents percentages that are insignificant
Current report
The three months ended June 30, 2024 compared with the three months ended June 30, 2023. The increase in non-interest expense of 2.6% to $19.0 million for the three months ended June 30, 2024, was primarily driven by Technology and information system costs related to enhancements of our information technology infrastructure and Occupancy and equipment costs related to additional rent expense relating to the extension of a lease in the first quarter of 2024.
Current report
Occupancy and equipment—The increase in Occupancy and equipment of $0.1 million, or 7.3%, and $0.2 million, or 5.3% for the three and six months ended June 30, 2024, was driven by additional rent expense relating to the extension of a lease in the first quarter of 2024.
Current report
Other—The increase in Other of $0.3 million, or 24.5%, for the three months ended June 30, 2024, was primarily driven bycosts related to non-performing asset workouts and system enhancements. The increase in Other of $1.0 million, or 40.2%, for the six months ended June 30, 2024, was primarily driven by increased costs related to non-performing asset workouts and fraud losses.
Current report
Held-to-maturity debt securities increased by $4.8 million, or 6.5%, to $78.9 million as of June 30, 2024 compared to December 31, 2023. The increase is primarily due to held-to-maturity debt security purchases executed during the second quarter of 2024.
Current report
Deposits decreased $118.1 million, or 4.7%, to $2.41 billion as of June 30, 2024 compared to December 31, 2023. The decrease was driven primarily by seasonal tax payments, operating account fluctuations and clients using liquidity for strategic investments.
Current report
Borrowings increased $65.9 million, or 37.0%, to $244.0 million as of June 30, 2024 compared to December 31, 2023. The increase wasdrivenby an increase in FHLB borrowings primarily due to deposit runoff that occurred in the second quarter.
Current report
AUM decreased $129.0 million, or 1.8%, during the three months ended June 30, 2024 driven by asset withdrawals in custody accounts that have minimal impact on Trust and Investment management fees. For the six months ended June 30, 2024, AUM increased $259.0 million, or 3.8%. The increase was attributable to contributions and improving market conditions year-over-year resulting in an increase in the value of assets under management balances offset partially by withdrawals.
Current report
Debt Securities
Current report
The increase in borrowings as of June 30, 2024 compared to December 31, 2023 is driven by an increase in FHLB borrowing primarily due to the deposit runoff that occurred in the quarter.
Current report
On June 13, 2024, the Company announced that its board of directors authorized the repurchase of up to 200,000 shares of the Company’s common stock, no par value, from time to time, within one year (the “2024 Repurchase Plan”) and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2024 Repurchase Plan. The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the Securities and Exchange Commission, or otherwise in a manner that complies with applicable federal securities laws. The 2024 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice. During the three months ended June 30, 2024, the Company did not repurchase any shares under the authorization of the 2024 Repurchase Plan.
Removed paragraphs (8)
Previous report
Interest expense on deposits increased during the three months ended March 31, 2024 compared to the same period in 2023. Average rates on interest-bearing deposit increased 119 basis points, consistent with the higher interest rate environment, while the growth in interest-bearing deposits was primarily driven by new and expanded deposit relationships and a shift in clients moving out of non-interest bearing products into higher yielding products.
Previous report
Other—The increase in Other of $0.7 million, or 57.1% for the three months ended March 31, 2024, was driven primarily by increased workout legal fees and fraud losses.
Previous report
Investments decreased by $1.8 million, or 2.4%, to $72.3 million as of March 31, 2024 compared to December 31, 2023. The decrease is due to held-to-maturity securities payments received through the first three months of 2024.
Previous report
Borrowings decreased $56.2 million, or 31.5%, to $121.9 million as of March 31, 2024 compared to December 31, 2023. The decrease was adrivenby a $31.0 million repayment of a Bank Term Funding Program loan that matured in March 2024 and less of a reliance on FHLB borrowings as a result of the loan balance decline.
Previous report
AUM increased $759.0 million, or 11.9%, during the three months ended March 31, 2024 compared to the same period in 2023 to an increase in market values throughout the first quarter of 2024.
Previous report
Investment Securities
Previous report
(1)Management reviewed the collectability of corporate CMO and MBS securities taking into consideration such factors as the asset quality of the corporate bond issuers and credit support and delinquencies associated with the corporate CMO and MBS.
Previous report
The decrease in borrowings as of March 31, 2024 compared to December 31, 2023 is driven by a $31.0 million repayment of a BTFP loan that matured in March 2024 and less of a reliance on FHLB borrowings as a result of the loan balance decline.
Reworded paragraphs (76)
Previous wording
The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations for the three months ended March 31, 2024 and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this "Form 10-Q") and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 15, 2024. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to "we," "our," "us," "the Company," and "First Western" refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."
Current wording
The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations for the three and six months ended June 30, 2024 and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this "Form 10-Q") and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 15, 2024. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to "we," "our," "us," "the Company," and "First Western" refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."
Previous wording
From 2004, when we opened our first profit center, until March 31, 2024, we have expanded our footprint into fourteen full service profit centers, three loan production offices, and one trust office located across five states. As of and for the three months ended March 31, 2024, we had $2.93 billion in total assets, $23.3 million in total revenues, and provided fiduciary and advisory services on $7.1 billion of assets under management ("AUM").
Current wording
From 2004, when we opened our first profit center, until June 30, 2024, we have expanded our footprint into fourteen full service profit centers, three loan production offices, and one trust office located across five states. As of and for the six months ended June 30, 2024, we had $2.94 billion in total assets, $20.4 million in total revenues, and provided fiduciary and advisory services on $7.0 billion of assets under management ("AUM").
Previous wording
During 2023, the banking industry experienced significant disruption and volatility with the failure of multiple banks creating industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking industry. Despite the market wide impact to bank stock prices, the Bank remains stable with strong fundamentals including uninsured deposits at $827.8 million, or 32.7% of total deposits as of March 31, 2024. The Company has a low amount of held-to-maturity securities, which represent 2.5% of Total assets, and carries unrecognized losses amounting to 3.0% of Total shareholders’ equity as of March 31, 2024. We have limited exposure to non-owner occupied office space commercial real estate (“CRE”) which has been impacted by the shift to hybrid work environments. Our client base is well diversified with no single industry concentration.
Current wording
During 2023, the banking industry experienced significant disruption and volatility with the failure of multiple banks creating industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking industry. Despite the market wide impact to bank stock prices, the Bank remains stable with strong fundamentals including uninsured deposits at $801.1 million, or 33.2% of total deposits as of June 30, 2024. The Company has a low amount of held-to-maturity securities, which represent 2.7% of Total assets, and carries unrecognized losses amounting to 3.2% of Total shareholders’ equity as of June 30, 2024. We have a conservative credit appetite as evidenced by our limited exposure to non-owner occupied office space commercial real estate (“CRE”) which has been impacted by the shift to hybrid work environments. Our client base is well diversified with no single industry concentration.
Previous wording
The three months ended March 31, 2024 compared with the three months ended March 31, 2023. We reported net income available to common shareholders of $2.5 million for the three months ended March 31, 2024, compared to $3.8 million of net income available to common shareholders for the three months ended March 31, 2023, a $1.3 million, or 34.2% decrease. For the three months ended March 31, 2024, our income before income tax was $3.6 million, a $1.6 million, or 30.7% decrease from the three months ended March 31, 2023. The decrease was primarily driven by a decrease in Net interest income as a result of higher Interest expense due to higher deposit costs, offset partially by higher Interest income, higher Non-interest income and lower Non-interest expense.
Current wording
The three months ended June 30, 2024 compared with the three months ended June 30, 2023. We reported net income available to common shareholders of $1.1 million for the three months ended June 30, 2024, compared to $1.5 million of net income available to common shareholders for the three months ended June 30, 2023, a $0.4 million, or 28.6% decrease. For the three months ended June 30, 2024, our income before income tax was $1.4 million, a $0.6 million, or 30.5% decrease from the three months ended June 30, 2023. The decrease was primarily driven by a decrease in Net interest income as a result of higher Interest expense due to higher deposit costs, offset partially by higher Non-interest income and Interest income.
Previous wording
The three months ended March 31, 2024 compared with the three months ended March 31, 2023. For the three months ended March 31, 2024, net interest income, before the provision for credit losses, was $16.1 million, a decrease of $3.5 million, or 17.9%, compared to the three months ended March 31, 2023. The decrease in net interest income was driven by a $202.3 million increase in average interest-bearing deposit balances and a 119 basis point increase in the average rates on interest-bearing deposits, partially offset by a $33.4 million increase in average loans outstanding with a 38 basis point increase in average yield on loans. Net interest margin decreased 59 basis points to 2.34% in the first quarter of 2024 from 2.93% reported in the first quarter of 2023 primarily dueto pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio offset partially by an increase in average yield on interest earning assets. Net interest spread decreased 72 basis points to 1.41% in the first quarter of 2024 from 2.13% reported in the first quarter of 2023.
Current wording
The three months ended June 30, 2024 compared with the three months ended June 30, 2023. For the three months ended June 30, 2024, net interest income, before the provision for credit losses, was $15.8 million, a decrease of $2.7 million, or 14.4%, compared to the three months ended June 30, 2023. The decrease in net interest income was primarily driven by a $153.9 million increase in average interest-bearing deposit balances and a 75 basis point increase in the average rates on interest-bearing deposits. Net interest margin decreased 38 basis points to 2.35% in the second quarter of 2024 from 2.73% reported in the second quarter of 2023 primarily dueto pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio offset partially by an increase in average yield on interest earning assets. Net interest spread decreased 37 basis points to 1.45% in the second quarter of 2024 from 1.82% reported in the second quarter of 2023.
Previous wording
The increase in average loans outstanding for the three months ended March 31, 2024 compared to the same period in 2023 was due to organic loan growth primarily in our construction and development, non-owner occupied CRE and residential mortgage portfolios. Average loan yields were 5.66% three months ended March 31, 2024, compared to 5.28% for the three months ended March 31, 2023. The increase in loan yields during the three month period was primarily driven by an increase in yields on the variable rate portfolio and an increase in yields on new loan production due to the rising interest rate environment.
Current wording
The decrease in average loans outstanding for the three months ended June 30, 2024 compared to the same period in 2023 was due to a net decline in the construction, cash, securities and other, and commercial and industrial portfolios offset by net growth in the commercial real estate portfolio. Average loan yields excluding loans held for sale and loans held at fair value were 5.75% and 5.70% for the three and six months ended June 30, 2024, compared to 5.46% and 5.37% for the three and six months ended June 30, 2023. The increase in loan yields during the three and six month periods were primarily driven by an increase in yields on the variable rate portfolio and an increase in yields on new loan production due to the rising interest rate environment.
Previous wording
Interest income on our investment securities portfolio decreased as a result of lower average investment balances partially offset by higher average yields for the three months ended March 31, 2024 compared to the same period in 2023. Our average investment securities balance during the three months ended March 31, 2024 was $74.7 million, a decrease of $7.4 million compared to the same period in 2023.
Current wording
Interest income on our investment securities portfolio remained consistent as a result of lower average investment balances offset by higher average yields for the three and six months ended June 30, 2024 compared to the same period in 2023. Our average investment securities balance during the three and six months ended June 30, 2024 was $75.5 million and $75.1 million, a decrease of $4.6 million and $6.0 million compared to the same period in 2023. Our average investment yields during the three and six months ended June 30, 2024 were 3.47% and 3.36%, an increase of 33 basis points and 24 basis points compared to the same periods in 2023.
Previous wording
(8)Net interest margin is equal to net interest income divided by average interest-earning assets.
Current wording
(8)Net interest margin is equal to annualized net interest income divided by average interest-earning assets.
Previous wording
We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk, and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively managed. We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses. For the three months ended March 31, 2024, we recorded a $0.1 million provision for credit losses. For the three months ended March 31, 2023 we recorded a $0.3 million release of provision for credit losses. The provision recorded for the three months ended March 31, 2024 was primarily due to an increase in provision on individually analyzed loans offset partially by a reduction in the allowance due to loan and unfunded commitment balance decline.
Current wording
We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk, and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively managed. We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses. For the three and six months ended June 30, 2024, we recorded a $2.3 million and $2.4 million provision for credit losses, respectively. For the three and six months ended June 30, 2023, we recorded a $1.8 million and $1.5 million provision for credit losses, respectively. The provision recorded for the three and six months ended June 30, 2024 was primarily due to an increase in provision for credit losses on individually analyzed loans due to an isolated loan relationship partially offset by a reduction in the allowance due to loan and unfunded commitment balance decline.
Previous wording
The three months ended March 31, 2024 compared with the three months ended March 31, 2023. For the three months ended March 31, 2024 compared with the three months ended March 31, 2023, non-interest income increased $1.5 million, or 25.3%, to $7.3 million. The increase in non-interest income during the three months ended March 31, 2024 wasdriven by most components of Non-interest income, including Bank fees, Net gain on loans held for sale, Trust and investment management fees, Net gain on mortgage loans, and Net loss on loans accounted for under the fair value option.
Current wording
The three months ended June 30, 2024 compared with the three months ended June 30, 2023. For the three months ended June 30, 2024 compared with the three months ended June 30, 2023, non-interest income increased $3.0 million, or 76.0%, to $7.0 million. The increase in non-interest income during the three months ended June 30, 2024 wasdriven by an increase in net gain on mortgage loans, a decrease in net loss on loans accounted for under the fair value option, and a decrease in other non-interest loss which included an asset impairment write down in the second quarter of 2023.
Previous wording
Trust and investment management fees—For the three months ended March 31, 2024 compared to the same period in 2023, our trust and investment management fees increased $0.3 million, or 6.4%. The increase was primarily attributable to an increase in assets under management due to an increase in market values and an increase in our fee structure.
Current wording
Trust and investment management fees—For the three months ended June 30, 2024 compared to the same period in 2023, our trust and investment management fees increased $0.3 million, or 5.9%. For the six months ended June 30, 2024 compared to the same period in 2023, our trust and investment management fees increased $0.6 million, or 6.1%. The increase for the three and six months ended June 30, 2024, was primarily attributable to an increase in assets under management due to an increase in market values and an increase in our fee structure.
Previous wording
Net gain on mortgage loans—For the three months ended March 31, 2024 compared to the same period in 2023, our net gain on mortgage loans increased by $0.2 million, or 24.0%, to $1.3 million. The increase in net gain on mortgage loans during the three months was primarily driven by higher average gain on sales margins.
Current wording
Net gain on mortgage loans—For the three months ended June 30, 2024 compared to the same period in 2023, our net gain on mortgage loans increased by $1.0 million, to $1.8 million. For the six months ended June 30, 2024 compared to the same period in 2023, our net gain on mortgage loans increased by $1.3 million, or 72.0%, to $3.1 million. The increase in net gain on mortgage loans during the three and six months was primarily driven by higher average gain on sale margins and origination volume.
Previous wording
Net gain (loss) on loans held for sale—During the three month ended March 31, 2024, the Company reclassified $2.7 million of loans held for investment to loans held for sale for a non-performing Construction and Development note. The transfers occurred at the point in time the Company decided to sell the loan. As of March 31, 2024, a total of $2.7 million reclassified loans held for investment had been sold. Upon transfer of the loans, the Company recorded a net gain on loans held for sale of $0.1 million.
Current wording
Net gain (loss) on loans held for sale—During the first quarter of 2024, the Company reclassified $2.7 million of loans held for investment to loans held for sale for a non-performing Construction and Development note. The transfers occurred at the point in time the Company decided to sell the loan. As of March 31, 2024, a total of $2.7 million reclassified loans held for investment had been sold. Upon transfer of the loans, the Company recorded a net gain on loans held for sale of $0.1 million. There was no further activity during the second quarter of 2024. During the six months ended June 30, 2023, the Company transferred $39.2 million of non-relationship loans held for investment to loans held for sale. Upon transfer of the loans, the Company recorded a net loss on loans held for sale of $0.2 million, primarily attributable to the slight decline in fair value as a result of the rising interest rates on comparable loans in the market.
Previous wording
Bank fees—For the three months ended March 31, 2024 compared to the same period in 2023, our bank fees increased by $0.3 million, or 50.5%, to $0.9 million. The increase during the three months was primarily driven by an increase in prepayment penalty fees on loans partially offset by a decrease in other loan fees.
Current wording
Bank fees—For the three months ended June 30, 2024 compared to the same period in 2023, our bank fees decreased by $0.3 million, or 44.7%, to $0.3 million. The decrease during the three month period was primarily driven by decreased loan prepayment fee collections.
Previous wording
Net loss on loans accounted for under the fair value option—The Company elected the fair value option on certain new loans purchased in 2022. For the three months ended March 31, 2024 compared to the same period in 2023, loans accounted for under the fair value option had a decrease in $0.2 million of losses recorded. The change for the three months was primarily attributable to improvement in fair value due to increased interest rates and overall performance of the portfolio.
Current wording
Net loss on loans accounted for under the fair value option—The Company elected the fair value option on certain new loans purchased in 2022. For the three months ended June 30, 2024 compared to the same period in 2023, loans accounted for under the fair value option had a decrease in $0.8 million of losses recorded. For the six months ended June 30, 2024 compared to the same period in 2023, loans accounted for under the fair value option had a decrease in $1.1 million of losses recorded. The change for the three and six month periods was primarily attributable to improvement in fair value due to a decrease in charge-offs and overall improved performance of the portfolio.
Previous wording
Other—For the three months ended March 31, 2024 compared to the same period in 2023, other income increased by $0.2 million. The increase for the three months ended March 31, 2024 compared to the same period in 2023 was attributable to a $0.2 million return on investment from our bank technology fund investment.
Current wording
Other—For the three months ended June 30, 2024 compared to the same period in 2023, other income increased by $1.1 million. For the six months ended June 30, 2024 compared to the same period in 2023, other income increased by $1.3 million. The increase for the three and six months ended June 30, 2024 compared to the same period in 2023 was attributable to a $1.2 million impairment taken in 2023 to the carrying value of a contingent consideration asset related to the sale of First Western Capital Management in 2020. The value was established using asset growth assumptions provided by the buyer, which had not materialized.
Previous wording
The three months ended March 31, 2024 compared with the three months ended March 31, 2023. The decrease in non-interest expense of 4.1% to $19.7 million for the three months ended March 31, 2024, was primarily driven bylower Salaries and employee benefits as a result of staffing reductions in 2023 to better align expenses with lower revenue. The decrease was partially offset by increased Professional services and Other operational costs related to higher legal, audit and other professional fees.
Current wording
The six months ended June 30, 2024 compared with the six months ended June 30, 2023. The decrease in non-interest expense of 0.9% to $38.7 million for the six months ended June 30, 2024, was primarily driven by lower Salaries and employee benefits as a result of staffing reductions in 2023 to better align expenses with lower revenue. The decrease was partially offset by Other operational costs related to higher costs related to non-performing asset workouts and fraud losses.
Previous wording
Salaries and employee benefits—The decrease in Salaries and employee benefits of $1.8 million, or 14.0%, for the three months ended March 31, 2024 was primarily related to staffing reductions to better align expenses with lower revenue.
Current wording
Salaries and employee benefits— The decrease in Salaries and employee benefits of $1.9 million, or 7.8% for the six months ended June 30, 2024 was primarily related to staffing reductions in 2023 to better align expenses with lower revenue.
Previous wording
Professional services—The increase in Professional services of $0.5 million, or 25.4% for the three months ended March 31, 2024, was driven by increased legal and audit fees.
Current wording
Professional services—The increase in Professional services of $0.5 million, or 12.1% for the six months ended June 30, 2024, was driven by increased legal fees, audit fees, and FDIC insurance costs due to an increase in our assessment rate.
Previous wording
Technology and information systems—The increase in Technology and information systems of $0.2 million, or 21.4% for the three months ended March 31, 2024, was driven primarily by increased costs related to enhancements of our information technology infrastructure.
Current wording
Technology and information systems—The increase in Technology and information systems of $0.2 million, or 25.4%, and $0.4 million or 23.4% for the three and six months ended June 30, 2024, was primarily driven by increased costs related to enhancements of our information technology infrastructure.
Previous wording
Data processing—The decrease in Data processing of $0.2 million or 16.8% for the three months ended March 31, 2024, was driven by lower fees related to our trust and investment management system.
Current wording
Data processing—The decrease in Data processing of $0.1 million, or 6.5% for the six months ended June 30, 2024, was driven by lower system costs related to our trust and investment management system.
Previous wording
Marketing—The decrease in Marketing of $0.2 million, or 50.4%, for the three months ended March 31, 2024, was driven by lower advertising costs, events and sponsorships due to timing of marketing campaigns and to better align expenses with lower revenue.
Current wording
Marketing—The decrease in Marketing of $0.1 million, or 35.9%, and $0.3 million, or 43.2% for the three and six months ended June 30, 2024, was driven by lower advertising costs, events and sponsorships due to timing of marketing campaigns and to better align expenses with lower revenue.
Previous wording
The Company recorded an income tax provision of $1.1 million and $1.3 million for the three months ended March 31, 2024 and 2023, respectively, reflecting an effective tax rate of 29.7% and 26.0%, respectively.
Current wording
The Company recorded an income tax provision of $0.3 million and $0.5 million for the three months ended June 30, 2024 and 2023, respectively, reflecting an effective tax rate of 24.0% and 26.0%, respectively. The Company recorded an income tax provision of $1.4 million and $1.9 million for the six months ended June 30, 2024 and 2023, respectively, reflecting an effective tax rate of 28.1% and 26.0%, respectively.
Previous wording
The Wealth Management segment reported income before income tax of $3.4 million for the three months ended March 31, 2024, compared to $5.8 million for the same period in 2023. The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the decrease in income before taxes is primarily driven by an increase in interest expense partially offset by an increase in interest income and non-interest income. The increase in interest expense is due to pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio.
Current wording
The Wealth Management segment reported income before income tax of $0.6 million for the three months ended June 30, 2024, compared to $2.4 million for the same period in 2023. The Wealth Management segment reported income before income tax of $4.0 million for the six months ended June 30, 2024, compared to $8.2 million for the same period in 2023. The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the decrease in income before taxes is primarily driven by an increase in interest expense partially offset by an increase in interest income and non-interest income. The increase in interest expense is due to pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio.
Previous wording
The Mortgage segment reported income before income tax of $0.2 million for the three months ended March 31, 2024, compared to a loss before income tax of $0.6 million for the same periods in 2023. The overall increase was primarily driven by favorable non-interest expense due tolower Salaries and employee benefits as a result of staffing reductions to better align expenses with lower revenue and higher average gain on sales margins.
Current wording
The Mortgage segment reported income before income tax of $0.8 million for the three months ended June 30, 2024, compared to a loss before income tax of $0.4 million for the same period in 2023. The Mortgage segment reported income before income tax of $1.0 million for the six months ended June 30, 2024, compared to a loss before income tax of $1.0 million for the same period in 2023. The overall increase in income before taxes was primarily driven by an increase in non-interest income and a decrease in non-interest expense. The increase in non-interest income was primarily driven by higher average gain on sale margins and origination volume. The decrease in non-interest expense was due tolower Salaries and employee benefits as a result of staffing reductions in 2023 to better align expenses with lower levels of origination activity.
Previous wording
Cash and cash equivalents increased by $3.4 million, or 1.4%, to $257.9 million as of March 31, 2024 compared to December 31, 2023. The increase was a result of increased deposits in the first quarter of 2024.
Current wording
Cash and cash equivalents decreased by $8.6 million, or 3.4%, to $245.8 million as of June 30, 2024 compared to December 31, 2023. The decrease was a result of the deposit decline and increase in investments, offset partially by an increase in borrowings and decrease in loans.
Previous wording
Loans, net of allowance decreased by $56.1 million, or 2.2%, to $2.5 billion as of March 31, 2024 compared to December 31, 2023. The decrease is due to limited new production that was more than offset by payoffs and a lower level of draws on existing credit lines than previous quarters. The largest decline was in our Commercial and Industrial portfolio which was partially attributable to a loan sale in the quarter.
Current wording
Loans, net of allowance decreased by $78.2 million, or 3.1%, to $2.4 billion as of June 30, 2024 compared to December 31, 2023. The decrease is due to limited new production that was more than offset by payoffs and a lower level of draws on existing credit lines than previous quarters.
Previous wording
Mortgage loans held for sale increased $3.2 million, or 44.3%, to $10.5 million as of March 31, 2024 compared to December 31, 2023. The increase was driven by higher funded loan volume and the timing of loan sale settlements.
Current wording
Mortgage loans held for sale increased $19.6 million, or 270.2%, to $26.9 million as of June 30, 2024 compared to December 31, 2023. The increase was driven by higher funded loan volume and the timing of loan sale settlements.
Previous wording
Other assets increased by $7.9 million, or 9.4%, to $92.2 million as of March 31, 2024 compared to December 31, 2023. The increase was primarily driven by an increase in our lease assets due to an extension of a lease recorded during the quarter.
Current wording
Other assets increased by $24.5 million, or 29.0%, to $108.7 million as of June 30, 2024 compared to December 31, 2023. The increase was primarily driven by an increase in our lease assets due to an extension of a lease recorded during the first quarter and an increase of $11.4 million in other real estate owned due to taking physical possession of two foreclosed properties during the second quarter.
Previous wording
Money market deposit accounts increased $117.4 million, or 8.5%, to $1.50 billion as of March 31, 2024 compared to December 31, 2023. Time deposit accounts decreased $53.6 million, or 10.8%, from December 31, 2023 to $442.8 million as of March 31, 2024. Negotiable order of withdrawal, or NOW accounts, decreased $15.1 million, or 10.2%, to $132.4 million from December 31, 2023 to March 31, 2024.
Current wording
Money market deposit accounts decreased $43.4 million, or 3.1%, to $1.34 billion as of June 30, 2024 compared to December 31, 2023. Time deposit accounts increased $23.1 million, or 4.7%, from December 31, 2023 to $519.6 million as of June 30, 2024. Interest checking accounts decreased $11.7 million, or 8.0%, to $135.8 million from December 31, 2023 to June 30, 2024.
Previous wording
Other liabilities increased $7.2 million, or 28.1%, to $32.8 million as of March 31, 2024 compared to December 31, 2023. The increase is primarily attributed to an increase in our lease liability due to an extension of a lease recorded in the quarter, offset by lower salaries payable due to timing of 401K match payouts and incentive compensation payments and a decrease in accrued interest payable on borrowings related to the interest on the $31.0 million repayment of a Bank Term Funding Program loan that matured in March 2024.
Current wording
Other liabilities increased $10.2 million, or 39.8%, to $35.8 million as of June 30, 2024 compared to December 31, 2023. The increase is primarily attributed to an increase in our lease liability due to an extension of a lease recorded in the first quarter, offset by lower salaries payable due to timing of 401K match payouts and incentive compensation payments and a decrease in accrued interest payable on borrowings related to the interest on the $31.0 million repayment of a Bank Term Funding Program loan that matured in March 2024.
Previous wording
Total shareholders’ equity increased $2.8 million, or 1.1%, from December 31, 2023 to $245.5 million as of March 31, 2024. The increase is primarily due to Net income for the quarter and an increase in Unrealized gain on a cash flow hedge of certain FHLB borrowings.
Current wording
Total shareholders’ equity increased $4.1 million, or 1.7%, from December 31, 2023 to $246.9 million as of June 30, 2024. The increase is primarily due to Net income for the year and an increase in Unrealized gain on a cash flow hedge of certain FHLB borrowings.
Previous wording
(1)AUM reported for the current period are one quarter in arrears.
Current wording
(1)AUM reported for the current period is one quarter in arrears.
Previous wording
Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Current wording
Debt securities we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. The carrying values of our debt securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Previous wording
Investments for which we have the intent and ability to hold to their maturity are classified as held-to-maturity securities and are recorded at amortized cost. Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. As of March 31, 2024 and December 31, 2023, all our investments in securities were classified as held-to-maturity.
Current wording
Debt securities for which we have the intent and ability to hold to their maturity are classified as held-to-maturity debt securities and are recorded at amortized cost. Debt securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. As of June 30, 2024 and December 31, 2023, all our investments in debt securities were classified as held-to-maturity.
Previous wording
The following presents the amortized cost and estimated fair value of our investment securities as of the dates noted:
Current wording
The following presents the amortized cost and estimated fair value of our debt securities as of the dates noted:
Previous wording
Allowance for Credit Losses for HTM Securities
Current wording
Allowance for Credit Losses for HTM Debt Securities
Previous wording
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The majority of our held-to-maturity investment portfolio consists of securities issues by U.S. government entities and agencies and we consider the risk of credit loss to be zero and, therefore, we do not record an ACL. The Company's non-government backed securities include private label CMO and MBS as well as bank subordinated debt. Accrued interest receivable on held-to-maturity debt securities totaled $0.5 million and $0.4 million as of March 31, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the periods noted (dollars in thousands):
Current wording
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The majority of our held-to-maturity investment portfolio consists of debt securities issued by U.S. government entities and agencies and we consider the risk of credit loss to be zero and, therefore, we do not record an ACL. The Company's non-government backed debt securities include private label CMO and MBS as well as corporate bonds. Accrued interest receivable on held-to-maturity debt securities totaled $0.4 million and $0.4 million as of June 30, 2024 and December 31, 2023, respectively, and is excluded from the estimate of credit losses. The following table presents the activity in the allowance for credit losses for debt securities held-to-maturity by major security type for the periods noted:
Previous wording
In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell servicing-released, whole loans in the secondary market. Our mortgage banking loan sale activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-upon criteria before loan funding and are delivered to the investor shortly after funding. The level of future loan originations, loan sales, and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of March 31, 2024 and December 31, 2023, we had mortgage loans held for sale of $10.5 million and $7.3 million, respectively, in residential mortgage loans we originated.
Current wording
In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell servicing-released, whole loans in the secondary market. Our mortgage banking loan sale activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-upon criteria before loan funding and are delivered to the investor shortly after funding. The level of future loan originations, loan sales, and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of June 30, 2024 and December 31, 2023, we had mortgage loans held for sale of $26.9 million and $7.3 million, respectively, in residential mortgage loans we originated.
Previous wording
Beginning in the first quarter of 2022, the Company entered into whole loan purchase agreements to acquire third party originated and serviced unsecured consumer loans to hold for investment. As of March 31, 2024, the Company has $11.9 million in loans accounted for under the fair value option with an unpaid principal balance amount of $12.3 million. As of December 31, 2023, the Company has $13.7 million in loans accounted for under the fair value option with an unpaid principal balance amount of $14.1 million. See Note 12 – Fair Value in the Notes to Condensed Consolidated Financial Statements.
Current wording
Beginning in the first quarter of 2022, the Company entered into whole loan purchase agreements to acquire third party originated and serviced unsecured consumer loans to hold for investment. As of June 30, 2024, the Company has $10.2 million in loans accounted for under the fair value option with an unpaid principal balance amount of $10.5 million. As of December 31, 2023, the Company has $13.7 million in loans accounted for under the fair value option with an unpaid principal balance amount of $14.1 million. See Note 12 – Fair Value in the Notes to Condensed Consolidated Financial Statements.
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Previous report — wording carried elsewhere
Deposits increased $2.9 million, or 0.1%, to $2.53 billion as of March 31, 2024 compared to December 31, 2023. The increase was driven primarily by Interest-bearing deposits due to new and expanded deposit relationships, offset partially by a decrease in noninterest-bearing deposits.
Previous report — wording carried elsewhere
*Represents percentages that are not meaningful due to being insignificant or exceeding 100%