First Western Financial Inc

Previous 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."

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 nine months ended September 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 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").

Current wording

From 2004, when we opened our first profit center, until September 30, 2024, we have expanded our footprint into fourteen full service profit centers, five loan production offices, and one trust office located across five states. As of and for the nine months ended September 30, 2024, we had $2.91 billion in total assets, $65.7 million in total revenues, and provided fiduciary and advisory services on $7.5 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 $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.

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 $929.4 million, or 37.1% of total deposits as of September 30, 2024. The Company has a low amount of held-to-maturity securities, which represent 2.6% of total assets, and carries unrecognized losses amounting to 2.5% of Total shareholders’ equity as of September 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 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.

Current wording

The three months ended September 30, 2024 compared with the three months ended September 30, 2023. We reported Net income available to common shareholders of $2.1 million for the three months ended September 30, 2024, compared to $3.1 million of Net income available to common shareholders for the three months ended September 30, 2023, a $1.0 million, or 31.6% decrease. For the three months ended September 30, 2024, our Income before income tax was $2.7 million, a $1.6 million, or 36.7% decrease from the three months ended September 30, 2023. The decrease was primarily driven by an increase in Non-interest expense and decrease in Net interest income as a result of higher Interest expense due to higher deposit costs, offset partially by higher Non-interest income.

Previous wording

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 wording

The nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. We reported Net income available to common shareholders of $5.7 million for the nine months ended September 30, 2024, compared to $8.4 million of Net income available to common shareholders for the nine months ended September 30, 2023, a $2.7 million, or 32.2% decrease. For the nine months ended September 30, 2024, our Income before income tax was $7.7 million, a $3.8 million, or 32.9% decrease from the nine months ended September 30, 2023. The decrease was primarily driven by a $8.4 million decrease in Net interest income, after Provision for credit losses partially offset by a $5.4 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 partially offset by higher interest income.

Previous 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.

Current wording

The three months ended September 30, 2024 compared with the three months ended September 30, 2023. For the three months ended September 30, 2024, Net interest income, before the Provision for credit losses, was $15.6 million, a decrease of $1.2 million, or 7.1%, compared to the three months ended September 30, 2023. The decrease in Net interest income was primarily driven by a $160.9 million increase in average Interest-bearing deposit balances and a 44 basis point increase in the average rates on interest-bearing deposits. Net interest margin decreased 14 basis points to 2.32% in the third quarter of 2024 from 2.46% reported in the third 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.

Previous wording

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 wording

The nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. For the nine months ended September 30, 2024, Net interest income, before the Provision for credit losses, was $47.4 million, a decrease of $7.4 million, or 13.4%, compared to the nine months ended September 30, 2023. The decrease in Net interest income was driven by a $172.2 million increase in average Interest-bearing deposits with a 78 basis point increase in the average rates on Interest-bearing deposits. Net interest income was also negatively impacted by a $10.3 million decrease in average loans outstanding excluding loans held for sale and loans held at fair value offset by a 34 basis point increase in the average yield on loans. Net interest margin decreased 37 basis points to 2.34% for the nine months ended September 30, 2024 from 2.71% reported for the nine months ended September 30, 2023.

Previous 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.

Current wording

The decrease in average loans outstanding for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to a net decline in the Cash, Securities and Other, Construction and Development, and Commercial and Industrial portfolios offset by net growth in the Commercial Real Estate portfolio. Another contributing factor to the decline was the resolution of a problem credit relationship, which decreased non-performing loans by $30.0 million and increased Other real estate owned ("OREO") by $25.6 million. Average loan yields excluding Loans held for sale and Loans held at fair value were 5.74% and 5.72% for the three and nine months ended September 30, 2024, compared to 5.42% and 5.38% for the three and nine months ended September 30, 2023. The increase in loan yields during the three and nine 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 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.

Current wording

Interest income on our investment securities portfolio increased as a result of higher average yields, partially offset by lower average investment balances for the three and nine months ended September 30, 2024 compared to the same period in 2023. Our average investment yields during the three and nine months ended September 30, 2024 were 3.57% and 3.43%, an increase of 48 basis points and 32 basis points compared to the same periods in 2023. Our average investment securities balance during the three and nine months ended September 30, 2024 was $79.0 million and $76.4 million, a decrease of $1.0 million and $3.7 million compared to the same period in 2023.

Previous wording

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 wording

Interest expense on deposits increased during the three and nine months ended September 30, 2024 compared to the same period in 2023. Average interest-bearing deposit rates were 4.19% and 4.17% for the three and nine months ended September 30, 2024, compared to 3.75% and 3.39% for the three and nine months ended September 30, 2023. The increase in Interest-bearing deposit rates was primarily attributable to the higher interest rate environment and highly competitive deposit market.

Previous wording

The following table presents the dollar amount of changes in interest income and interest expense during the periods presented for each component of interest-earning assets and interest-bearing liabilities, and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and volume that cannot be separated have been allocated to volume (dollars in thousands):

Current wording

The following table presents the dollar amount of changes in interest income and interest expense during the periods presented for each component of interest-earning assets and interest-bearing liabilities, and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and volume that cannot be separated have been allocated to volume:

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 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.

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 nine months ended September 30, 2024, we recorded a $0.5 million and $2.9 million Provision for credit losses, respectively. For the three and nine months ended September 30, 2023, we recorded a $0.3 million and $1.9 million Provision for credit losses, respectively. The $0.5 million provision recorded for the three months ended September 30, 2024 was primarily due to two non-performing loans written down to fair value through the provision and transfered to Loans held for sale offset by a recovery on one non-performing loan. The $2.9 million provision recorded for the nine months ended September 30, 2024 was primarily due to an increase in Provision for credit losses on individually analyzed loans due to the charge-off and resolution of one loan relationship partially offset by the release of Provision for credit losses on unfunded loan commitments.

Previous 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.

Current wording

The three months ended September 30, 2024 compared with the three months ended September 30, 2023. For the three months ended September 30, 2024 compared with the three months ended September 30, 2023, Non-interest income increased $0.9 million, or 14.3%, to $7.0 million. The increase in Non-interest income during the three months ended September 30, 2024 wasdriven primarily by anincreases in Net gain on mortgage loans and Risk management and insurance fees.

Previous 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.

Current wording

Trust and investment management fees—Trust and investment management fees decreased $0.1 million, or 2.4% for the three months ended September 30, 2024. The increase in Trust and investment management fees of $0.5 million, or 3.2% for the nine months ended September 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 compared to the prior year.

Previous 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.

Current wording

Net gain on mortgage loans—The increase in Net gain on mortgage loans of $0.8 million, or 121.9% for the three months ended September 30, 2024 was driven by higher origination volumes. The increase in Net gain on mortgage loans of $2.1 million, or 85.3% for the nine months ended September 30, 2024 was driven by higher average gain on sale margins and origination volumes.

Previous 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.

Current wording

Net gain (loss) on loans held for sale—During the nine months ended September 30, 2024, the Company reclassified $3.7 million of loans held for investment to loans held for sale for three non-performing notes. The transfers occurred at the point in time the Company decided to sell the loans. During the nine months ended September 30, 2024, a total of $3.2 million reclassified loans held for investment were sold, resulting in a Net gain on loans held for sale of $0.1 million. During the nine months ended September 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

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.

Current wording

Net loss on loans accounted for under the fair value option—The Company elected the fair value option on certain loans purchased in 2022. The decrease in loss on loans accounted for under the fair value option of $1.1 million, or 55.7% for the nine months ended September 30, 2024 was primarily attributable to improvement in fair value due to an increase in interest rates and overall improved performance of the portfolio.

Previous 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.

Current wording

Other—The increase in other income of $1.2 million, or 151.5% for the nine months ended September 30, 2024 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 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 wording

The three months ended September 30, 2024 compared with the three months ended September 30, 2023. The increase in Non-interest expense of 5.8% to $19.4 million for the three months ended September 30, 2024 was driven by Salaries and employee benefits due to increased front office headcount and higher insurance commissions, Technology and information system costs related to enhancements of our information technology infrastructure, and Occupancy and equipment costs related to additional rent expense on the extension of a lease in the first quarter of 2024.

Previous 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.

Current wording

The nine months ended September 30, 2024 compared with the nine months ended September 30, 2023. The increase in Non-interest expense of 1.2% to $58.1 million for the nine months ended September 30, 2024, was driven by Other operational costs attributed to higher costs on non-performing asset workouts and fraud losses, Technology and information system costs related to enhancements of our information technology infrastructure, and Occupancy and equipment costs related to additional rent expense on the extension of a lease in the first quarter of 2024, offset by lower Salaries and employee benefits as a result of staffing reductions in 2023 to better align expenses with lower revenue.

Previous wording

The following presents the significant categories of our non-interest expense during the periods presented (dollars in thousands):

Current wording

The following presents the significant categories of our Non-interest expense during the periods presented:

Previous 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.

Current wording

Salaries and employee benefits—The increase in Salaries and employee benefits of $0.5 million, or 4.3% for the three months ended September 30, 2024 was primarily due to increased front office headcount. The decrease in Salaries and employee benefits of $1.4 million, or 4.0% for the nine months ended September 30, 2024 was primarily related to staffing reductions in 2023 to better align expenses with lower revenue.

Previous wording

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 wording

Occupancy and equipment—The increase in Occupancy and equipment of $0.3 million, or 17.7%, and $0.5 million, or 9.2% for the three and nine months ended September 30, 2024, was driven by additional rent expense relating to the extension of a lease in the first quarter of 2024.

Previous 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.

Current wording

Professional services—The increase in Professional services of $0.5 million, or 8.5% for the nine months ended September 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 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.

Current wording

Technology and information systems—The increase in Technology and information systems of $0.1 million, or 15.3%, and $0.5 million or 20.6% for the three and nine months ended September 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 $0.1 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.

Current wording

Data processing—The decrease in Data processing of $0.2 million, or 6.0% for the nine months ended September 30, 2024, was driven by lower system costs related to our trust and investment management system.

Previous wording

Marketing—The decrease in Marketing of $0.1 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.

Current wording

Marketing—The decrease in Marketing $0.3 million, or 27.9% for the nine months ended September 30, 2024, was driven by lower advertising costs and decreased events and sponsorships to better align expenses with lower revenue.

Previous wording

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 wording

Other—The increase in Other of $0.1 million, or 12.0%, for the three months ended September 30, 2024, was primarily driven bycosts related to non-performing asset workouts. The increase in Other of $1.1 million, or 30.9%, for the nine months ended September 30, 2024, was primarily driven by increased costs related to non-performing asset workouts and fraud losses.

Previous 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.

Current wording

The Company recorded an income tax provision of $0.5 million and $1.1 million for the three months ended September 30, 2024 and 2023, respectively, reflecting an effective tax rate of 20.1% and 26.1%, respectively. The Company recorded an income tax provision of $1.9 million and $3.0 million for the nine months ended September 30, 2024 and 2023, respectively, reflecting an effective tax rate of 25.3% and 26.0%, respectively.

Previous 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.

Current wording

The Wealth Management segment reported Income before income tax of $2.2 million for the three months ended September 30, 2024, compared to $5.1 million for the same period in 2023. The Wealth Management segment reported Income before income tax of $6.3 million for the nine months ended September 30, 2024, compared to $13.3 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 a decrease in Net interest income and increase in Non-interest expense partially offset by an increase in Non-interest income. The decrease in Net interest income is primarily due to pricing pressure on interest-bearing deposits and an unfavorable mix shift in the deposit portfolio, offset partially by an increase in Interest income.

Previous 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.

Current wording

The Mortgage segment reported Income before income tax of $0.5 million for the three months ended September 30, 2024, compared to a loss before income tax of $0.9 million for the same period in 2023. The Mortgage segment reported Income before income tax of $1.4 million for the nine months ended September 30, 2024, compared to a loss before income tax of $1.9 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 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.

Current wording

Cash and cash equivalents increased by $21.8 million, or 8.6%, to $276.2 million as of September 30, 2024 compared to December 31, 2023. The increase was a result of the decrease in loans, offset partially by a decrease in borrowings and deposits.

Previous wording

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 wording

Held-to-maturity debt securities increased by $2.6 million, or 3.6%, to $76.7 million as of September 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.

Previous 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.

Current wording

Loans, net of allowance decreased by $142.6 million, or 5.7%, to $2.4 billion as of September 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 $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.

Current wording

Mortgage loans held for sale increased $5.1 million, or 69.9%, to $12.3 million as of September 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 $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.

Current wording

Other assets increased by $49.0 million, or 58.1%, to $133.2 million as of September 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 $37.0 million in other real estate owned due to taking physical possession of three foreclosed properties during the second and third quarters.

Previous 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.

Current wording

Deposits decreased $26.0 million, or 1.0%, to $2.50 billion as of September 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. Money market deposit accounts decreased $35.5 million, or 2.6%, to $1.35 billion as of September 30, 2024 compared to December 31, 2023. Time deposit accounts increased $37.0 million, or 7.5%, from December 31, 2023 to $533.5 million as of September 30, 2024. Interest checking accounts decreased $17.2 million, or 11.7%, to $130.3 million from December 31, 2023 to September 30, 2024.

Previous 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.

Current wording

Other liabilities increased $19.5 million, or 76.3%, to $45.2 million as of September 30, 2024 compared to December 31, 2023. The increase is primarily due to an increase in payables related to participated problem credits and 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 $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.

Current wording

Total shareholders’ equity increased $6.1 million, or 2.5%, from December 31, 2023 to $248.8 million as of September 30, 2024. The increase is primarily due to Net income for the year.

Previous wording

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 wording

AUM increased $454.0 million, or 6.5%, during the three months ended September 30, 2024 driven primarily by a net increase in market values, offset slightly by asset withdrawals. For the nine months ended September 30, 2024, AUM increased $713.0 million, or 10.6%. 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.