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 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."

Current 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, 2025 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 7, 2025. 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 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").

Current wording

From 2004, when we opened our first profit center, until March 31, 2025, we have expanded our footprint into fourteen full service profit centers, four loan production offices, and one trust office located across five states. As of and for the three months ended March 31, 2025, we had $2.91 billion in total assets, $24.7 million in total income before non-interest expense, and provided fiduciary and advisory services on $7.18 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 $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.

Current wording

Coming off the headwinds of 2024, the banking sector is poised to have a stronger, albeit tempered, 2025. The banking industry faces a dynamic regulatory landscape shaped by a new administration and evolving supervisory priorities. Despite the uncertain economic and political landscape, the Company continues to position itself to capitalize on the areas in which it excels. The Bank remains stable with strong fundamentals. The Company has a low amount of held-to-maturity securities, which represent 2.5% of total assets, and carries unrecognized losses amounting to 2.5% of Total shareholders’ equity as of March 31, 2025. 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

Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings. To evaluate Net interest income, we measure and monitor: (i) yields on loans, investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, along with the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.

Current wording

Net interest income represents interest income less interest expense. We generate interest income on interest-earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily interest-bearing deposits and borrowings. To evaluate Net interest income, we measure and monitor: (i) yields on loans, investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, and the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities.

Previous wording

•Other—includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned (“OREO”) for sale, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above. Other operational expenses are generally impacted by our business activities and needs.

Current wording

•Other—includes costs related to operational expenses associated with office supplies, postage, travel expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate owned (“OREO”) for sale, changes in OREO valuations subsequent to the initial acquisition when updated fair values are lower than the cost basis, director compensation and travel, and other general corporate expenses that do not fit within one of the specific non-interest expense lines described above. Other operational expenses are generally impacted by our business activities and needs.

Previous wording

We manage the diversification and quality of our assets based upon factors that include the level, distribution, severity, and trend of problem assets such as those determined to be classified, delinquent, non-accrual, non-performing or restructured; the adequacy of our allowance for credit losses; the diversification and quality of loan and investment portfolios; the extent of counterparty risks, credit risk concentrations, and other factors.

Current wording

We manage the diversification and quality of our assets based upon factors that include the level, distribution, severity, and trend of problem assets such as those determined to be classified, delinquent, non-accrual, non-performing or restructured; the adequacy of our allowance for credit losses; the diversification and quality of loan and investment portfolios; and the extent of counterparty risks, credit risk concentrations, and other factors.

Previous 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.

Current wording

The three months ended March 31, 2025 compared with the three months ended March 31, 2024. We reported Net income available to common shareholders of $4.2 million for the three months ended March 31, 2025, compared to $2.5 million of Net income available to common shareholders for the three months ended March 31, 2024, a $1.7 million, or 68.0% increase. For the three months ended March 31, 2025, our Income before income tax was $5.4 million, a $1.8 million, or 50.0% increase from the three months ended March 31, 2024. The increase was primarily driven by a $1.4 million increase in Net interest income, $0.1 million increase in Non-interest income, and $0.3 million decrease in Non-interest expense.

Previous 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.

Current wording

The three months ended March 31, 2025 compared with the three months ended March 31, 2024. For the three months ended March 31, 2025, Net interest income, before the Provision for credit losses, was $17.5 million, an increase of $1.4 million, or 8.7%, compared to the three months ended March 31, 2024. The increase was primarily driven by a 54 basis point decrease in average rates paid on Interest-bearing deposits, partially offset by an $82.8 million decrease in average loans outstanding. Our net interest margin increased 27 basis points to 2.61% for the three months ended March 31, 2025 from 2.34% reported for the three months ended March 31, 2024.

Previous 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.

Current wording

Interest expense on interest-bearing deposits decreased $2.1 million, or 10.2%, during the three months ended March 31, 2025 compared to the same period in 2024. Average interest-bearing deposit rates were 3.59% for the three months ended March 31, 2025, compared to 4.13% for the three months ended March 31, 2024. The decrease in Interest-bearing deposit rates was primarily attributable to the lower interest rate environment.

Previous 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.

Current wording

The decrease in average loans outstanding for the three months ended March 31, 2025 compared to the same period in 2024 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 1 - 4 Family Residential and Commercial Real Estate portfolios. Average loan yield was 5.71% for the three months ended March 31, 2025, compared to 5.66% for the three months ended March 31, 2024.

Previous wording

(3)Non-performing loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis.

Current wording

(3)Non-performing loans are included in the respective average loan balances. Income, if any, is not recognized until all principal has been repaid.

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:

Current wording

The following 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 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.

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 months ended March 31, 2025, we recorded a $0.1 million Provision for credit losses. For the three months ended March 31, 2024, we recorded a $0.1 million Provision for credit losses. The $0.1 million provision recorded for the three months ended March 31, 2025 was primarily due to the charge-off of a loan previously classified as held for sale and modest macroeconomic forecast deterioration, offset partially by mix shifts within our portfolio towards loans with lower loss rates and the release provision on unfunded loan commitments.

Previous wording

The Company has increased loan level reviews and portfolio monitoring to address the changing environment. Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

Current wording

The Company maintains a credit management program which includes internal and external loan review along with recurring portfolio monitoring activities to address the changing environment. Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

Previous wording

*Represents percentages that are not meaningful due to being insignificant or exceeding 100%

Current wording

*Represents percentages that are not meaningful

Previous wording

Risk management and insurance fees—The increase in Risk management and insurance fees of $0.2 million, or 153.1% and $0.2 million, or 40.0% for the three and nine months ended September 30, 2024 was primarily driven by an increase in insurance client agreements.

Current wording

Risk management and insurance fees—The increase in Risk management and insurance fees of $0.2 million for the three months ended March 31, 2025, was primarily driven by an increase in insurance client agreements compared to the first quarter of 2024.

Previous 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.

Current wording

Net gain (loss) on loans accounted for under the fair value option—The Company elected the fair value option on certain loans purchased in 2022. The increase in Net gain (loss) on loans accounted for under the fair value option of $0.3 million, or 102.0%, was primarily attributable to lower amounts of charges off and overall improved performance of the portfolio.

Previous 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.

Current wording

Salaries and employee benefits—The increase in Salaries and employee benefits of $0.2 million, or 1.9%, for the three months ended March 31, 2025, was primarily related to higher wages.

Previous 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.

Current wording

Occupancy and equipment—The increase in Occupancy and equipment of $0.2 million, or 11.8%, for the three months ended March 31, 2025, was primarily driven by additional rent expense related 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 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.

Current wording

Professional services—The decrease in Professional services of $0.7 million, or 29.3%, for the three months ended March 31, 2025, was driven by decreases in legal expenses, audit fees, and FDIC insurance fees.

Previous 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.

Current wording

Data processing—The increase in Data processing of $0.2 million, or 18.4%, for the three months ended March 31, 2025, was primarily driven by increased costs related to our trust and investment management system.

Previous 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.

Current wording

The Company recorded an income tax provision of $1.2 million and $1.1 million for the three months ended March 31, 2025 and 2024, respectively, reflecting an effective tax rate of 21.9% and 29.7%, respectively.

Previous wording

We have two reportable operating segments: Wealth Management and Mortgage. Our Wealth Management segment consists of operations relating to the Company’s fully integrated wealth management products and services. Services provided include deposit, loan, insurance, and trust and investment management advisory products and services for which fee revenue is recognized. Our Mortgage segment consists of operations relating to the Company’s residential mortgage service offerings. Services provided by our Mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market. Mortgage products are financial in nature, for which origination fees are recognized net of origination expenses, upon the funding of the mortgage loans. Mortgage loans held for sale are accounted for under the fair value option with changes in fair value reported through earnings at inception when loans are locked to the borrower and until the loan is sold to third parties, at which time additional gains or losses on the sale are recorded. Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

Current wording

Our Mortgage segment consists of operations relating to the Company’s residential mortgage service offerings. Services provided by our Mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market. Mortgage products are financial in nature, for which origination fees are recognized net of origination expenses, upon the funding of the mortgage loans. Mortgage loans held for sale are accounted for under the fair value option with changes in fair value reported through earnings at inception when loans are locked to the borrower and until the loan is sold to third parties, at which time additional gains or losses on the sale are recorded. Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

Previous wording

The following table presents key metrics related to our segments during the periods presented:

Current wording

The following presents key metrics related to our segments during the periods presented:

Previous 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.

Current wording

The Wealth Management segment reported Income before income tax of $5.4 million for the three months ended March 31, 2025, compared to $3.4 million for the same period in 2024. The majority of our assets and liabilities are on the Wealth Management segment balance sheet. The increase in Income before taxes was driven primarily by an increase in Net interest income, an increase in Non-interest income, and a decrease in Non-interest expense. The increase in Net interest income was primarily driven by a decrease in Total interest expense due to the lower interest rate environment, offset partially by a decrease in Total interest and dividend income due to a decline in average interest-earning assets. The increase in Non-interest income was driven primarily by increases in Net gain on other real estate owned and Net gain on loans accounted for under the fair value option, offset partially by decreases in Trust and investment management fees and Bank fees. The decrease in Non-interest expense was driven primarily by a decrease in Professional services, partially offset by increases in Occupancy and equipment expenses and Salaries and employee benefits.

Previous 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.

Current wording

Cash and cash equivalents increased by $35.5 million, or 15.1%, to $271.6 million as of March 31, 2025 compared to December 31, 2024. The increase was primarily the result of the proceeds from the sale of two OREO properties in the quarter.

Previous 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.

Current wording

Deposits increased $1.2 million, or 0.0%, to $2.52 billion as of March 31, 2025 compared to December 31, 2024. Money market deposit accounts increased $53.1 million, or 3.5%, to $1.57 billion as of March 31, 2025 compared to December 31, 2024. Time deposit accounts decreased $91.9 million, or 19.5%, from December 31, 2024 to $379.5 million as of March 31, 2025. Interest checking accounts increased $5.6 million, or 4.0%, to $145.0 million from December 31, 2024 to March 31, 2025.

Previous 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.

Current wording

Total shareholders’ equity increased $4.2 million, or 1.7%, from December 31, 2024 to $256.6 million as of March 31, 2025. The increase was primarily due to Net income for the year.

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 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 $0.5 million and $0.4 million as of September 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:

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 $0.5 million and $0.3 million as of March 31, 2025 and December 31, 2024, respectively, and is excluded from the estimate of credit losses. The Allowance for credit losses on HTM debt securities was $0.1 million and $0.1 million as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

Our primary source of interest income is derived through interest earned on loans to high net worth individuals and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel and we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient, and effective. The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the loan policy guidelines to ensure strong credit underwriting practices.

Current wording

Our primary source of interest income is derived through interest earned on loans to high net worth individuals and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel and we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient, and effective. The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the credit policy guidelines to ensure strong credit underwriting practices.

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 September 30, 2024 and December 31, 2023, we had Mortgage loans held for sale of $12.3 million and $7.3 million, respectively, of residential mortgage loans we originated. As of September 30, 2024 and December 31, 2023, we had loans held for sale of $0.5 million and $0.0 million, respectively, consisting of one non-performing loan.

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 March 31, 2025 and December 31, 2024, we had Mortgage loans held for sale of $10.6 million and $25.5 million, respectively, of 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 September 30, 2024, the Company has $8.6 million in loans accounted for under the fair value option with an unpaid principal balance amount of $8.9 million. As of December 31, 2023, the Company had $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

As of March 31, 2025 and December 31, 2024, we had loans held for sale of $0.0 million and $0.3 million, respectively. As of March 31, 2025, the Company has $6.1 million in loans accounted for under the fair value option with an unpaid principal balance amount of $6.3 million. As of December 31, 2024, the Company had $7.3 million in loans accounted for under the fair value option with an unpaid principal balance amount of $7.5 million. See Note 12 – Fair Value in the Notes to Condensed Consolidated Financial Statements.

Previous wording

The following presents the amortized cost of our loan portfolio by type of loan as of the dates noted (dollars in thousands):

Current wording

The following presents the amortized cost of our loan portfolio by type of loan as of the dates noted:

Previous wording

(2)Includes $8.9 million and $14.1 million of unpaid principal balance of Loans held for investment accounted for under fair value option as of September 30, 2024 and December 31, 2023, respectively.

Current wording

(1)Includes $6.3 million and $7.5 million of unpaid principal balance of Loans held for investment accounted for under fair value option as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

(3)Includes $12.1 million and $7.1 million of unpaid principal balance of Mortgage loans held for sale as of September 30, 2024 and December 31, 2023, respectively.

Current wording

(2)Includes $10.3 million and $25.2 million of unpaid principal balance of Mortgage loans held for sale as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

•Cash, Securities, and Other—consists of consumer and commercial purpose loans, which are primarily secured by securities managed and under custody with us, cash on deposit with us, or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. PPP loans that are fully guaranteed by the SBA are classified within this line item and had balances of $2.6 million and $4.2 million as of September 30, 2024 and December 31, 2023, respectively.

Current wording

•Cash, Securities, and Other—consists of consumer and commercial purpose loans, which are primarily secured by securities managed and under custody with us, cash on deposit with us, or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment.

Previous wording

•Consumer and Other—consists of unsecured consumer loans. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. Loans held for investment accounted for under the fair value option are primarily consumer and other loans and are presented separately within the above table. They had an unpaid principal balance of $8.9 million and $14.1 million as of September 30, 2024 and December 31, 2023, respectively.

Current wording

•Consumer and Other—consists of unsecured consumer loans. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. Loans held for investment accounted for under the fair value option are primarily consumer and other loans and are presented separately within the above table. They had an unpaid principal balance of $6.3 million and $7.5 million as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

•Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans and lines of credit which are dependent on the strength of the industries of the related borrowers and the success of their businesses. MSLP loans of $2.0 million and $5.1 million as of September 30, 2024 and December 31, 2023, respectively, are included in this category.

Current wording

•Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans and lines of credit which are dependent on the strength of the industries of the related borrowers and the success of their businesses.

Previous wording

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, at amortized cost as of the dates noted, are summarized in the following tables:

Current wording

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, at amortized cost as of the dates noted, are summarized in the following:

Previous wording

OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes, insurance, and legal fees, among others, until the OREO parcel is disposed. While disposition efforts with respect to our OREO are generally ongoing, if these properties are appraised at lower-than-expected values or if we are unable to sell the properties at the prices for which we expect to be able to sell them, we may incur additional losses. In the second quarter of 2024, the Company recorded $11.4 million of OREO as a result of obtaining physical possession of two foreclosed properties as partial consideration for amounts owed on non-performing loans related to an isolated loan relationship. During the third quarter of 2024, the Company recorded an additional $25.6 million of OREO related to a third foreclosed property within the same loan relationship. As of September 30, 2024, these OREO properties had a carrying amount of $37.0 million. As of December 31, 2023, we did not own any OREO properties.

Current wording

OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes, insurance, and legal fees, among others, until the OREO property is disposed. During the three months ended March 31, 2025, the Company sold two OREO properties resulting in a net gain on sale of $0.5 million. As of March 31, 2025 and December 31, 2024, OREO properties had carrying amounts of $4.4 million and $35.9 million, respectively.