What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-15 · 843 added, 638 removed, 1209 unchanged (55% of the section changed)

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Description Page Number

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report s of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 202 3 and 20 22

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Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 202 3 and 202 2

Consolidated Statements of Cash Flows for the Years Ended December 31, 202 2 and 20 21

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 a nd 2022

Notes to Consolidated Financial Statements

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2024 expressed an unqualified opinion.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for allowance for credit losses effective January 1, 2023, due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinion

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses (“ACL”) on Loans – Modeling Techniques and Qualitative Adjustments

As disclosed in Notes 1 and 4 and the explanatory paragraph above, on January 1, 2023, the Company adopted ASC 326 which replaced the probable incurred loss methodology with a current expected credit loss (“CECL”) methodology.

As of January 1, 2023, the Company recorded a reduction in retained earnings, net of tax of $5.3 million as a cumulative-effect adjustment using a modified retrospective approach.

The cumulative effect adjustment for the ACL on loans was $3.5

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As of December 31, 2023, the Company’s ACL on loans was $23.9 million and provision for credit losses on loans was $12.1 million for the year then ended.

The Company primarily uses a discounted cash flow ("DCF") methodology using the amortized cost method (excluding interest) to calculate the ACL on loans, which the Company has applied to identified loan segments with similar risk characteristics.

The methodology incorporates loan-level information with pool-level assumptions to produce individual expected cash flows for each loan within a segment.

The forecasted pool-level assumptions are impacted by a mix of macroeconomic factors not limited to, but including gross domestic product, national unemployment rates, and housing price indices.

The modeling technique selected requires management to use significant judgment and use subjective and complex measurements about matters that are inherently uncertain.

Changes in the assumptions used in the estimate may not occur at the same rate, may not be consistent in across product types, and may have offsetting impacts to other changing variables and inputs, which could have a material effect on the Company’s financial results.

The Company also utilizes qualitative adjustments to account for credit losses that are not inherently considered in the quantitative analyses.

These adjustments are subjectively selected by management and are based on factors that are likely to cause estimated credit losses that differ from historical loss experience.

The audit procedures performed over the modeling techniques used to develop the ACL model and qualitative adjustments have been identified as a critical audit matter due to the high degree of auditor judgment and significant audit effort including the use of internal credit and valuation specialists in evaluating the model due to its complexity.

Our audit procedures to address this critical audit matter primarily included the following:

• Tested the operating effectiveness of controls over the modeling techniques and qualitative adjustments used in the estimate for ACL on loans as of both adoption date of January 1, 2023 and as of December 31, 2023, including:

• The Company's ACL committee's oversight and approval of management's application of accounting policies, selection and implementation of modeling techniques, and evaluation of qualitative adjustments determined by management.

• The Company’s ACL committee’s review and approval of the qualitative adjustments used, and the relevance and reliability of the data used therein.

• Management’s controls over the completeness and accuracy of the data and reasonableness of such data utilized in the determination of ACL on loans.

• Management's controls over third-party model validation and testing of model performance including the conceptual soundness and viability of the modeling techniques selected.

• Substantively tested management’s application of the selected modeling techniques and qualitative adjustments used in the estimate for ACL on loans as of both adoption date of January 1, 2023 and as of December 31, 2023, including:

• Evaluated the appropriateness of the accounting policies, modeling techniques employed, including but not limited to evaluating their conceptual soundness and evaluated the reasonableness of significant assumptions and judgments used the evaluation of ACL on loans.

• Evaluated the reasonableness of management’s assumptions and judgments used in the determination of the qualitative adjustments.

• Evaluated the reliability and relevancy of data used as a basis for the qualitative adjustments.

• Tested the completeness and accuracy of the data utilized in management’s ACL methodology to derive the ACL on loans.

• Utilized internal valuation services as specialists to assist in evaluating the model performance, including conceptual soundness and viability of the modeling techniques deployed in the Company's ACL model.

/s/ Crowe LLP

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March 15, 2024

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors

First Western Financial, Inc.

Denver, Colorado

Opinion on Internal Control over Financial Reporting

We have audited First Western Financial Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements") and our report dated March 15, 2024 expressed an unqualified opinion.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report on Management’s Assessment of Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Crowe LLP

Denver, Colorado

March 15, 2024

Table of Content s

FIRST WESTERN FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

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Cash and due from banks $ 7,284 $ 4,926

Federal funds sold — 1,491

Interest-bearing deposits in other financial institutions 247,158 191,586

Total cash and cash equivalents 254,442 196,512

Available-for-sale securities, at fair value — 55,562

Held-to-maturity securities, at amortized cost (fair value of $ 74,718 as of December 31, 2022)

Held-to-maturity securities, at amortized cost, net of allowance for credit losses of $ 71 and $ 0 (fair value of $ 66,617 and $ 74,718 ), respectively

74,102 81,056

Correspondent bank stock, at cost 7,155 7,110

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2,530,915 2,469,413

Allowance for loan losses ( 17,183 ) ( 13,732 )

Allowance for credit losses (1)

( 23,931 ) ( 17,183 )

Loans, net 2,506,984 2,452,230

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Other assets 24,488 21,457

Assets held for sale — 115

Total assets $ 2,975,462 $ 2,866,748

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Retained earnings 51,042 51,887

Accumulated other comprehensive (loss)/income ( 1,517 ) 223

Accumulated other comprehensive loss ( 1,198 ) ( 1,517 )

Total shareholders’ equity 242,738 240,864

Total liabilities and shareholders’ equity $ 2,975,462 $ 2,866,748

(1) Allowance for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP .

See accompanying notes to consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

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(in thousands, except per share amounts)

Year Ended December 31,

Years Ended December 31,

Interest and dividend income:

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Net interest income 71,105 83,926

Provision for loan losses 3,682 1,230

Net interest income, after provision for loan losses 79,522 55,365

Provision for credit losses (1)

Net interest income, after provision for credit losses 60,750 80,244

Non-interest income:

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Net gain on mortgage loans 2,826 4,584

Net loss on loans held for sale ( 178 ) ( 12 )

Bank fees 2,022 2,660

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Net loss on loans accounted for under the fair value option ( 2,010 ) ( 891 )

Unrealized gain recognized on equity securities 342 469

Unrealized (loss)/gain recognized on equity securities ( 22 ) 342

Other ( 775 ) 477

Total non-interest income 21,948 27,690

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Diluted 0.54 2.23

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

See accompanying notes to consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

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(in thousands)

Year Ended December 31,

Years Ended December 31,

Net income $ 5,225 $ 21,698

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Income tax effect ( 93 ) ( 70 )

Total other comprehensive loss ( 1,740 ) ( 457 )

Unrealized gain on cash flow hedge 77 —

Income tax effect ( 19 ) —

Total other comprehensive income/(loss) 319 ( 1,740 )

Comprehensive income $ 5,544 $ 19,958

See accompanying notes to consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

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Capital Retained

ComprehensiveLoss Total

Balance, December 31, 2020 7,951,773 $ 144,703 $ 9,579 $ 680 $ 154,962

Comprehensive Income/(Loss) Total

Balance, January 1, 2022 9,419,271 $ 188,629 $ 30,189 $ 223 $ 219,041

Net income — — 21,698 — 21,698

Other comprehensive loss, net of tax — — — ( 457 ) ( 457 )

Other comprehensive loss, net of tax and reclassifications — — — ( 1,740 ) ( 1,740 )

Settlement of share awards 67,860 ( 876 ) — — ( 876 )

Issuance of common stock for Teton Acquisition 1,337,791 39,818 — — 39,818

Options exercised 8,309 179 — — 179

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Balance, December 31, 2022 9,495,440 $ 190,494 $ 51,887 $ ( 1,517 ) $ 240,864

Cumulative change in accounting principle (1)

— — ( 5,319 ) — ( 5,319 )

Balance at January 1, 2023 (as adjusted for change in accounting principle) 9,495,440 190,494 46,568 ( 1,517 ) 235,545

Net income — — 5,225 — 5,225

Other comprehensive loss, net of tax — — — ( 1,740 ) ( 1,740 )

Other comprehensive income, net of tax and reclassifications — — — 319 319

Dissolution of RSI entity — 751 ( 751 ) — —

Settlement of share awards 73,483 ( 439 ) — — ( 439 )

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Balance, December 31, 2023 9,581,183 $ 192,894 $ 51,042 $ ( 1,198 ) $ 242,738

(1) Refer to Note 1 – Organization and Summary of Significant Accounting Policies for further information

See accompanying notes to consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

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(in thousands)

Year Ended December 31,

Years Ended December 31,

Cash flows from operating activities

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Stock dividends received on correspondent bank stock ( 620 ) ( 381 )

Provision for loan losses 3,682 1,230

Provision for credit losses (1)

Loss on loans held for sale 178 12

Net gain on mortgage loans ( 2,826 ) ( 4,584 )

Origination of mortgage loans ( 439,682 ) ( 1,425,713 )

Origination of mortgage loans held for sale ( 276,045 ) ( 439,682 )

Proceeds from mortgage loans 280,462 466,988

Gain on disposal of fixed assets and intangibles ( 21 ) —

Loss/(Gain) on disposal of fixed assets 8 ( 21 )

Depreciation and amortization 2,377 2,012

Net amortization of purchase accounting adjustments 457 55

Deferred income tax expense (benefit), net of valuation allowance 557 ( 668 )

Deferred income tax expense 2,057 557

Increase in cash surrender value of company-owned life insurance ( 378 ) ( 349 )

Stock-based compensation 1,843 2,562

Gain on assets held for sale — ( 4 )

Gain on sale of other real estate owned — ( 44 )

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Change in fair value of loans accounted for under the fair value option 2,010 891

Change in fair value of mortgage loans and mortgage banking derivatives 1,903 12,244

(Gain)/loss on assets held for sale ( 4 ) 27

Net changes in operating assets and liabilities:

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Purchases of premises and equipment ( 2,347 ) ( 2,967 )

Proceeds from loans held for sale previously classified as loans held for investment 40,602 —

Purchase of loans ( 1,173 ) ( 36,115 )

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Proceeds from sale of other real estate owned — 422

Net cash received on acquisitions — 120,997

Net cash used in investing activities ( 66,391 ) ( 558,798 )

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Cash and cash equivalents, end of period $ 254,442 $ 196,512

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FIRST WESTERN FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Supplemental cash flow information:

Interest paid on deposits and borrowed funds $ 71,785 $ 16,500

Income tax payment, net of refunds received 5,242 6,336

Income tax payment 2,907 5,242

Cash paid for lease liabilities 3,163 3,354

Supplemental noncash disclosures:

Transfer of loans held for investment to loans held for sale 39,221 1,985

Adoption of ASU 2016-13, net of tax 5,319 —

Dissolution of RSI entity 751 —

Change in unrealized (loss)/gain on available-for-sale securities — ( 2,591 )

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Transfer from loans to other real estate owned — 378

Transfer of loans held for investment to loans held for sale 1,985 —

Common stock issued for Teton acquisition — 39,818

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

See accompanying notes to consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

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FWFI is a bank holding company with financial holding company status registered with the Board of Governors of the Federal Reserve System.

FWFI wholly owns the following subsidiaries:

First Western Trust Bank (the "Bank") and Ryder, Stilwell Inc.

The Bank wholly owns the following subsidiaries, which are therefore indirectly wholly-owned by FWFI:

First Western Merger Corporation ("Merger Corp.") and RRI, LLC ("RRI").

RSI and RRI are not active operating entities.

The Company provides a fully-integrated suite of wealth management services including private banking, personal trust, investment management, mortgage loans, and institutional asset management services to individual and corporate clients principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins and Vail Valley), Arizona (Phoenix and Scottsdale), California (Century City), Montana (Bozeman), and Wyoming (Jackson Hole, Laramie, Pinedale and Rock Springs).

FWFI wholly owns the following subsidiary:

First Western Trust Bank (the "Bank").

The Bank wholly owns First Western Merger Corporation ("Merger Corp."), which is therefore indirectly wholly-owned by FWFI.

RRI, LLC ("RRI"), which was wholly owned by the Bank, was dissolved on February 3, 2023.

Ryder, Stilwell Inc.

("RSI"), which was wholly owned by FWFI, was dissolved on March 21, 2023.

The Company’s revenues are generated from its full range of product offerings as noted above, but principally from net interest income (the interest income earned on the Bank’s assets net of funding costs), fee-based wealth advisory, investment management, asset management and personal trust services, and net gains earned on mortgage loans.

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Business Combinations and Divestitures :

On December 31, 2021, the Company completed its merger pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with Teton Financial Services, Inc.

(“Teton”), parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming.

Management concluded that the merger represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date.

Business combinations are accounted for under the acquisition method of accounting.

Under the acquisition method of accounting, the total consideration transferred in connection with the acquisition is allocated to the tangible and intangible assets acquired, liabilities assumed, and any non-controlling interest in the acquired entity based on fair values.

Goodwill acquired in connection with business combinations represents the excess of consideration transferred over the net tangible and identifiable intangible assets acquired.

Certain assumptions and estimates are used in evaluating the fair value of assets acquired and liabilities assumed.

These estimates may be affected by factors such as changing market conditions or changes in government regulations.

Use of Estimates :

To prepare financial statements in conformity with GAAP, management makes estimates and assumptions based on available information.

To prepare financial statements in conformity with GAAP, manageme nt makes estimates and assumptions based on available information.

These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual results could differ.

Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, including the impact of the COVID-19 pandemic, and changes in the financial condition of borrowers.

Information available which could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy, and changes in the financial condition of borrowers.

Material estimates that are particularly susceptible to significant change include:

the determination of the allowance for loan losses, the evaluation of goodwill impairment, and the fair value of financial instruments.

the determination of the allowance for credit losses, the evaluation of goodwill impairment, and the fair value of financial instruments.

Concentration of Credit Risk :

Most of the Company’s lending activity is to clients located in and around metro Denver, Aspen, Fort Collins, and Vail, Colorado;

Most of the Company’s lending activity is to clients located in and around metro Denver, Aspen, Fort Collins, Boulder, and Vail, Colorado;

Phoenix and Scottsdale, Arizona;

Bozeman, Montana;

and Jackson Hole, Wyoming.

The Company does not believe it has significant concentrations in any one industry or customer.

As of December 31, 2022 and December 31, 2021, 77.9 % and 76.1 %, respectively, of the Company’s loan portfolio was secured by real estate collateral.

and Jackson, Pinedale, and Rock Springs, Wyoming.

The Company does not believe it h as significant concentrations in any one industry or customer.

As of December 31, 2023 and December 31, 2022, 76.1 % a nd 77.9 %, respectively, of the Company’s loan portfolio was secured by real estate collateral.

Declines in real estate values in the primary markets the Company operates in could negatively impact the Company.

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Cash and Cash Equivalents :

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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 December 31, 2022, equity mutual funds have been recorded at fair value within the Other assets line of the Consolidated Balance Sheets with changes recorded in the Unrealized gain/(loss) recognized on equity securities line of the Consolidated Statements of Income.

Equity mutual funds are recorded at fair value within the Other assets line of the Consolidated Balance Sheets with changes recorded in the Unrealized gain/(loss) recognized on equity securities line of the Consolidated Statements of Income.

The Company invests in projects to create affordable housing.

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Net purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities, without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated.

Declines in the fair value of available-for-sale securities and held-to-maturity securities below their cost that are deemed to be other-than-temporary are recorded in earnings as realized losses in Non-interest income.

Management evaluates securities for other-than-temporary impairment ("OTTI") on a quarterly basis, or more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:

1) OTTI related to loss on securities, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income (loss).

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

As of December 31, 2022 and 2021, no securities were determined to be other-than-temporarily impaired.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Prior to the adoption of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"), credit declines in the fair value of available-for-sale securities and held-to-maturity securities below their cost that are deemed to be other-than-temporary are recorded in earnings as realized losses in Non-interest income.

Held-to maturity securities are carried at amortized cost when management has the positive intent and ability to hold them to maturity.

The majority of our held-to-maturity investment portfolio consists of securities issues by U.S.

government entities and agencies.

These securities are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies, and have a long history of no credit losses.

With respect to these securities, we consider the risk of credit loss to be zero and, therefore, we have elected the practical expedient to not record an ACL for these securities.

The Company's non-government backed securities include private label CMO and MBS and bank subordinated debt.

Private label refers to private institutions such as brokerage firms, banks, and home builders, that also securitize mortgages.

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type.

Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Management classifies the held-to-maturity portfolio into the following major security types:

Corporate bonds and Corporate CMO and MBS.

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.

Correspondent Bank Stock :

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Both cash and stock dividends are reported as income when received.

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Mortgage Loans Held for Sale :

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Gains and losses on sales of mortgage loans are based on the difference between the selling price and the carrying value of the related loan sold.

Loans the Company has the intent and ability to hold for the foreseeable future, until maturity, or until payoff are reported at their outstanding unpaid principal balances, adjusted for charge-offs and recoveries, net of deferred costs (fees) and unamortized premiums/(unaccreted discounts), and the allowance for loan losses.

Interest income is accrued on unpaid principal balances.

Fees received at origination, net of certain direct origination costs for providing loan

commitments and letters of credit that result in loans, are deferred and amortized to interest income over the life of the related loan or until payoff, at which time the remaining unamortized fee is recorded as interest income.

Fees received at origination, net of certain direct origination costs for providing loan commitments and letters of credit that result in loans, are deferred and amortized to interest income over the life of the related loan or until payoff, at which time the remaining unamortized fee is recorded as interest income.

Fees, net of certain direct origination costs on commitments and letters of credit, are amortized to interest income over the commitment period.

The Company assigns a Credit Risk Rating ("CRR") to each loan in the portfolio.

The Company's risk grading system is consistent with the grades used by regulatory agencies.

The CRR is assessed whenever new information impacting the loan is received and factors impacting the CRR are not always related to financial metrics, including;

industry, economy, management, competition and business model changes.

The Company's risk ratings are summarized into the following categories;

pass, special mention, substandard, and doubtful.

See Note 4 - Loans and the Allowance for Credit Losses for definitions of these risk ratings.

The following summarizes our loan portfolio by type of loan and the associated risks.

• Cash, Securities and Other— consists of consumer and commercial purpose loans that 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 $ 4.2 million and $ 6.9 million as of December 31, 2023 and 2022, respectively.

• 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 also classified within this line item and had an unpaid principal balance of $ 14.1 million and $ 23.4 million as of December 31, 2023 and December 31, 2022, respectively.

• Construction and Development —consists of loans to finance the construction of residential and non-residential properties.

These loans are dependent on the strength of the industries of the related borrowers and the risks consistent with construction projects.

• 1-4 Family Residential— consists of loans and home equity lines of credit secured by 1-4 family residential properties.

These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner.

In addition, some borrowers secure a commercial purpose loan with owner occupied or non-owner occupied 1-4 family residential properties.

Loans in this segment are dependent on the industries tied to these loans as well as the national and local economies, and local residential and commercial real estate markets.

• Commercial Real Estate, Owner Occupied and Non-Owner Occupied —consists of commercial loans collateralized by real estate.

These loans may be collateralized by owner occupied or non-owner occupied real estate, as well as multi-family residential real estate.

These loans are dependent on the strength of the industries of the related borrowers and the success of their businesses.

• 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 $ 5.1 million and $ 5.9 million as of December 31, 2023 and 2022, respectively, are included in this category.

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Past Due Loans :

6 unchanged sentences

Loans can be returned to accrual status when there is a sustained period of repayment performance (usually six-months or longer) and the collectability of future payments is reasonably assured.

Troubled Debt Restructurings :

A troubled debt restructuring ("TDR") is a loan the Company, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower the Company would not otherwise consider.

The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are not limited to (i) a reduction in the stated interest rate of the loan, (ii) an extension of the maturity date of the loan at an interest rate below market, or (iii) a reduction of the accrued interest.

Loan modifications granted by the Company are reviewed on a case-by-case basis to determine if they should be considered a restructured loan.

COVID-19 Loan Modifications :

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The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the prior two years, primarily for a period of 180 days or less .

COVID-19 and CARES Act :

On March 11, 2020 the World Health Organization declared the outbreak of COVID-19 a global pandemic, which continues to spread throughout the United States and the around the world.

In response to the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") into law on March 27, 2020.

The objective of the CARES Act is to prevent a severe economic downturn using various measures, including economic stimulus to significantly impacted industry sectors.

We continue to monitor the impact of COVID-19 closely, as well as any effects that may result from the CARES Act and other government actions.

See Note 5 - Loans and the Allowance for Loan Losses for further discussion on our loan modification program.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2022 and 2021.

These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20.

Management has increased our loan level reviews and portfolio monitoring to address the changing environment.

Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.

The Company is a participant in the Federal Reserve’s Main Street Lending Program ("MSLP") to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

The Company sold a 95% participation in new MSLP loans to the Main Street Special Purpose Vehicle ("SPV") at par value.

The Company must retain 5% of the MSLP loan until (i) it matures or (ii) neither the Main Street SPV nor a Governmental Assignee holds an interest in MSLP Loan in any capacity, whichever comes first.

See Note 5 - Loans and the Allowance for Loan Losses for further discussion on our participation in the program.

Allowance for Loan Losses :

The Company’s reserve for loan losses is an estimate of the probable incurred loan losses and is comprised of (i) the allowance for loan losses and (ii) the reserve for unfunded commitments.

Allowance for Credit Losses (“ACL”), subsequent to adoption of ASU 2016-13:

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13").

ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The ACL excludes loans held for sale and loans accounted for under the fair value option.

The Company elected to not measure an ACL for accrued interest receivables, as we write off applicable accrued interest receivable balances in a timely manner when a loan is placed on non-accrual status, in which any accrued but uncollected interest is reversed from current income.

Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.

Actual Company and regional peer historical credit loss experience provides the basis for the estimation of expected credit losses.

The Company identified and grouped portfolio segments based on risk characteristics and underlying collateral.

The call code for each financial asset type was assessed and, expanded for certain call codes into separate segments based on risk characteristics.

The ACL for pooled loans are estimated using a discounted cash flow (“DCF”) methodology using the amortized cost basis (excluding interest) for all loans modeled within a performing pool of loans.

The DCF analysis pairs loan-level term information, for example, maturity date, payment amount, interest rate, with top-down pool assumptions such as default rates, prepayment speeds, to produce individual expected cash flows for every instrument in the segment.

The results are then aggregated to produce segment level results and reserve requirements for each segment based on similar risk characteristics.

The quantitative DCF model also incorporates forward-looking macroeconomic information over a reasonable and supportable period of four quarters.

Subsequent to the four quarter period, the Company reverts to its historical loss rate and historical prepayment and curtailment speeds on a straight-line basis over a four quarter reversion period.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

The contractual term excludes expected extensions, renewals, and modifications.

Annually the Company performs a rate study which updates the prepayment and curtailment rates used in the DCF model.

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not included in the pooled loan evaluation.

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Qualitative adjustments to historical loss data are made based on management’s assessment of the risks that may lead to a future credit loss or differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, changes in environmental and economic conditions, or other relevant factors.

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ACL - off-balance sheet credit exposures:

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The ACL on off-balance sheet credit exposures is adjusted through the Provision for credit losses and is recorded in Other liabilities.

The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

The probability of funding is based on historical utilization statistics for unfunded loan commitments.

The loss rates used are calculated using the same assumptions as the associated funded balance.

Allowance for Loan Losses , prior to the adoption of ASU-2016-13:

The Company’s allowance for loan losses is an estimate of the probable incurred credit losses and is comprised of (i) the allowance for loan losses and (ii) the reserve for unfunded commitments.

The reserve for unfunded commitments is included in Other liabilities in the accompanying Consolidated Balance Sheets and the loan balances in the accompanying Consolidated Balance Sheets are reported net of the allowance for loan losses.

The allowance for loan losses is established through a provision for loan losses, which is a noncash charge to earnings.

losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

The allowance for loan losses is established through a provision for credit losses, which is a noncash charge to earnings.

Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.

Subsequent recoveries, if any, are credited to the allowance for loan losses.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and dollar volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

We are closely monitoring the changing dynamics in the economy and related impacts to our clients.

Management will continue to closely monitor the loan portfolio and analyze the economic data to assess the impact on the allowance for loan losses.

A loan is considered impaired when, based on current information and events, it is probable the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

TDR and non-accrual loans are separately evaluated for impairment and included in the separately identified impairment disclosures.

If cash flow dependent, TDR and non-accrual loans will be measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a TDR or non-accrual loan is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

For TDR and non-accrual loans that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting all scheduled principal and interest payments.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The allowance for loan losses is comprised of specific loan loss reserves and general loan loss reserves.

The allowance for loan losses is comprised of specific credit loss reserves and general credit loss reserves.

The impairment of a specific loan is measured based either on (i) the present value of expected future cash flows discounted at the loan’s effective interest rate, or (ii) the fair value of the underlying collateral, less costs to sell, if the repayment is expected to be provided predominantly by the sale of the underlying collateral.

Specific impairments are measured on a loan-by-loan basis if risk characteristics are unique to an individual borrower.

The general loan loss reserve covers non-impaired loans and is established by evaluating the incurred loss on homogenous pools of loans, not specifically reviewed for impairment as noted above, that have common risk characteristics.

The general loan loss reserve is based on historical loss experiences adjusted for nine qualitative factors on all loans in the portfolio not considered impaired.

The general credit loss reserve covers non-impaired loans and is established by evaluating the incurred loss on homogenous pools of loans, not specifically reviewed for impairment as noted above, that have common risk characteristics.

The general credit loss reserve is based on historical loss experiences adjusted for nine qualitative factors on all loans in the portfolio not considered impaired.

Certain factors are applied to each pool and certain factors are applied to all non-individually reviewed loans.

The nine qualitative factors the Company considers are:

• Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

• Levels and trends in net charge-offs.

• The existence and effect of any concentrations of credit and changes in the level of such concentrations.

• Changes in the nature or volume of the loan portfolio and in the terms of loans.

• Changes in the experience, ability, and depth of lending management and other relevant staff.

• Changes in the volume and severity of past due loans.

• Changes in the quality of the loan review system and associated grading changes.

• Change in the level of overdrafts.

• Levels and status of loans modified as a result of COVID-19.

The following portfolio segments have been identified:

• Cash, Securities and Other—consists of consumer and commercial purpose loans that are primarily secured by securities managed and under custody with us, cash on deposit with us, or life insurance policies.

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 as of December 31, 2022 and 2021.

• Consumer and Other—consists of unsecured consumer loans.

Loans held for investment accounted for under the fair value option are also classified within this line item.

• Construction and Development—consists of loans to finance the construction of residential and non-residential properties.

These loans are dependent on the strength of the industries of the related borrowers and the risks consistent with construction projects.

• 1-4 Family Residential—consists of loans and home equity lines of credit secured by 1-4 family residential properties.

These loans typically enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the owner.

In addition, some borrowers secure a commercial purpose loan with owner occupied or non-owner occupied 1-4 family residential properties.

Loans in this segment are dependent on the industries tied to these loans as well as the national and local economies, and local residential and commercial real estate markets.

• Commercial Real Estate ("CRE"), Owner Occupied and Non-Owner Occupied—consists of commercial loans collateralized by real estate.

These loans may be collateralized by owner occupied or non-owner occupied real estate, as well as multi-family residential real estate.

These loans are dependent on the strength of the industries of the related borrowers and the success of their businesses.

• 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.

This category includes MSLP loans as of December 31, 2022 and 2021.

The reserve for unfunded commitments represents the estimate for probable loan losses inherent in unfunded commitments to extend credit.

Unfunded commitments to extend credit include commercial and standby letters of credit, unused lines of credit, and unfunded loan commitments expected to be funded.

The process used to determine the reserve for unfunded commitments is consistent with the process for determining the allowance for loan losses, adjusted for estimated funding probabilities.

Changes to the level of the reserve for unfunded commitments are recognized through the provision for loan losses for off-balance sheet credit exposures, included in the non-interest other expense line of the Consolidated Statements of Income.

The reserve for unfunded commitments represents the estimate for probable credit losses inherent in unfunded commitments to extend credit.

Unfunded commitments to extend credit include commercial and standby letters of credit, unused lines of credit, and unfunded loan commitments expected to be funded, unless the obligation is unconditionally cancellable by the Company.

The process used to determine the reserve for unfunded commitments is consistent with the process for determining the allowance for credit losses, adjusted for estimated funding probabilities.

Changes to the level of the reserve for unfunded commitments are recognized through the provision for credit losses for off-balance sheet credit exposures, included in the non-interest other expense line of the Consolidated Statements of Income.

Transfers of Financial Assets :

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Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Prior to participating in the MSLP, the Company obtained a true sale opinion with regards to the legal isolation condition of the contract.

Legal counsel determined that given the facts and circumstances provided, consistent with the FDIC rule entitled “Treatment of financial assets transferred in connection with a securitization or participation”, 12 C.F.R.

§360.6, that the MSLP documents would be considered a true sale to the buyer.

As such, Management concludes the MSLP loans qualify for sales accounting treatment and are true sales contracts under GAAP.

Premises and Equipment :

Premises and equipment are carried at cost, net of accumulated depreciation, with the exception of artwork and land, which are carried at cost.

The Company acquired land and three buildings associated with the Teton Acquisition.

These assets were initially recorded at their fair values based on recent appraisals and the buildings will be depreciated over their new remaining useful life, ranging from 25 to 50 years.

The Company owns land and three buildings located in Wyoming.

The buildings are depreciated over their useful life, ranging from 25 to 50 years.

Leasehold improvements are depreciated using the straight-line method and recognized over the shorter of the lease term or estimated useful lives of the assets, ranging from 7 to 15 years.

Furniture/equipment and software are depreciated using the straight-line method and recognized over the estimated useful lives of the assets, ranging from 3 to 7 years.

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Goodwill and Other Intangible Assets :

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Other definite-lived intangible assets, including customer relationship intangibles, are amortized on an accelerated basis over periods representing the estimated remaining lives of the assets of one to ten years and are evaluated for impairment when events or changes in circumstances indicate the carrying values of such assets may not be recoverable.

After the company recorded the impact of a loan related subsequent event, Management updated the Goodwill impairment analysis as of December 31, 2023.

As of December 31, 2023, the Company believes the carrying value of its goodwill not to be impaired and other intangible assets to be recoverable.

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Other Receivables :

Other accounts receivable represents compensation paid to employees that is contingent on future employment and recognized in the Consolidated Statements of Income over the estimated service period and sales of investments and assets in which the Company has obtained a firm commitment as of the balance sheet dates.

Other accounts receivables represents miscellaneous receivables that are not presented separately in the Consolidated Balance Sheets.

Leases represent a contract that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration.

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The Company has purchased life insurance policies on certain current and former officers and key employees.

Company-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Mortgage Banking Derivatives :

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Derivatives :

At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness of a hedge.

These three types are as follows:

• Fair Value Hedge:

a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment.

For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as fair values change.

• Cash Flow Hedge:

a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.

For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transactions affect earnings.

• Stand-alone derivative:

an instrument with no hedging designation.

Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged.

Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income.

Cash flows on hedges are classified in the cash flow statement in the same line as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship.

The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.

The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitments is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position.

The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements.

All of the contracts to which the Company is a party settle monthly or quarterly.

In addition, the Company obtains collateral above certain thresholds of the fair value of its derivatives for each dealer counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.

Mort gage Banking Derivatives :

Commitments to fund mortgage loans, interest rate lock commitments ("IRLC") and forward sale commitments ("FSC"), to be sold in the secondary market for the future delivery of these loans are accounted for as free standing derivatives.

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The Company determines the fair value of the restricted and performance stock units as well as restricted stock awards based on the estimated market value of the underlying shares at the date of grant.

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Compensation cost is recognized over the required service period, generally defined as the vesting period.

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Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income includes unrealized gains and losses on securities available-for-sale, net of taxes, which is also recognized as a separate component of equity.

Other comprehensive income includes unrealized gains and losses on securities available-for-sale, net of taxes, which subsequent to being transferred to held-to-maturity securities, are amortized with an offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities.

Other comprehensive income also includes unrealized gains and losses on cash flow hedges, net of taxes, which are also recognized as a separate component of equity.

Earnings per Common Share :

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Our accounts are federally insured by the FDIC up to the legal maximum amount.

Deposit Concentrations :

Total deposits have some concentration through third party networks or sources.

As of December 31, 2023 $ 1.00 billion or 39.6 % of Total deposits were made up of reciprocal deposits and $ 165.4 million or 6.5 % were sourced through deposit brokers.

As of December 31, 2023, 23.9 % of our total deposits consisted of our 10 largest depositors.

Short-term and long-term borrowing sources utilized to supplement deposits and meet liquidity needs.

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Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed "well capitalized" by federal banking agencies.

Bank Term Funding Program :

On March 12, 2023, in response to two large bank failures, the Federal Reserve Board announced it would make additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of depositors.

The additional funding has been made available through the creation of a new

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Bank Term Funding Program (“BTFP”), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S.

Treasuries, agency debt and mortgage-backed securities, and other qualifying assets valued at par as collateral.

The BTFP is meant to be an additional resource of liquidity against high-quality securities, eliminating an institutions need to quickly sell those securities in times of stress.

See Note 9 – Borrowings for details on the Company’s borrowings.

Fair Value of Financial Instruments :

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Changes in assumptions or in market conditions could significantly affect these estimates.

Operating Segments :

Operating segments are components of a Company where the chief operating decision maker regularly reviews separate financial information to evaluate performance and decide how to allocate resources.

Management has determined that the Company's reportable segments consist of Wealth Management and Mortgage.

The Company measures the overall profitability of operating segments based on income before income tax.

See Note 18 – Segment Reporting for further discussion.

Revenue Recognition :

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In July 2017, the United Kingdom's Financial Conduct Authority, which regulates the London Interbank Offered Rate ("LIBOR"), announced that after 2022 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR.

In response, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee to identify a set of alternative reference interest rates for possible use as market benchmarks.

This committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to U.S.

dollar LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in the second quarter of 2018.

In response, the Federal Reserve Board and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee and on February 27, 2023 the Federal Reserve Board adopted a final rule establishing the Secured Overnight Financing Rate ("SOFR") as the replacement rate index for LIBOR.

SOFR is based on a broad segment of the overnight Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities.

In March 2020, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update (“ASU’) No.

2020-04 “Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

Subsequently, in January 2021, the FASB issued ASU No.

2021-01 “Reference Rate Reform (Topic 848):

Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

An entity may elect to apply ASU No.

2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

An entity may elect to apply ASU No.

2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

On December 21, 2022, the FASB issued Accounting Standards Update (ASU) 2022-06, Reference Rate Reform (Topic 848):

On December 21, 2022, the FASB issued Accounting Standards Update (ASU) 2022-06, Reference Rate Reform

Deferral of the Sunset Date of Topic 848.

On June 30, 2023, LIBOR ceased to be a representative index rate.

ASU 2022-06 extends the period of time financial statement preparers can utilize the reference rate reform relief guidance through December 31, 2024.

Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending past December 31, 2022.

The Company is currently evaluating and planning for the eventual replacement of the LIBOR benchmark interest rate, including the possibility of SOFR as the dominant replacement.

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Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2023.

In general, the transition away from LIBOR may result in increased market risk, credit risk, operational risk and business risk for the Company.

The Company has developed a LIBOR transition plan, which addresses governance, risk management, legal, operational, systems and operations, fallback language, and other aspects of planning.

The company no longer originates LIBOR indexed loans and is working on transitioning existing LIBOR loans to SOFR.

The Company developed a LIBOR transition plan, which addressed governance, risk management, legal, operational, systems, fallback language, and other aspects of planning.

The company no longer originates LIBOR indexed loans and has transitioned existing LIBOR loans to SOFR.

As of December 31, 2023, all loans indexed to LIBOR have been converted to the new index.

Consumer indexed loans are being managed in accordance with Interagency Guidance.

Restrictions on Cash :

During the year ended December 31, 2021, the Board of Governors of the Federal Reserve System reduced reserve requirement ratios to zero percent.

This action eliminated reserve requirements for all depository institutions.

Reclassifications :

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The following reflect recent accounting pronouncements that have been adopted by the Company during the Company’s fiscal year ended December 31, 2023.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.

The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit.

ASU 2017-04 was set to be effective for the Company on January 1, 2021.

However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to January 1, 2023 for SRC’s, with earlier adoption permitted.

On January 1, 2022, the Company adopted the new guidance.

The adoption of this ASU has not had a material impact on the consolidated financial statements, and the Company has not recorded goodwill impairment to date as of part of the acquisition activity.

Recently issued accounting pronouncements, not yet adopted :

The following reflects pending pronouncements with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2022.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.

This was issued to clarify the guidance in Topic 820, Fair Value Measurement, when measuring fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820.

The Company is currently assessing the impact of this guidance on our existing equity securities.

This guidance is effective for the Company in fiscal years after December 15, 2023.

In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13").

ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model.

The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor.

For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective.

ASU 2016-13 was set to be effective for most public companies on January 1, 2020.

However, at the October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies ("SRCs") to January 1, 2023.

During the year ended December 31, 2022, the Company’s CECL project team continued to work through its implementation plan.

The Company selected a champion quantitative model to approximate expected losses by call code segment using regional and other appropriate peers.

The Company selected qualitative factors and evaluated those factors for each loan segment for the quarter ended December 31, 2022.

The Company has completed a model validation and worked to finalize policies and procedures, internal control structure, and process flows.

Using this information, the Company successfully ran parallel models for each completed quarter of 2022 in order for management to review and compare results between the initial CECL model and existing ALLL model.

Based on preliminary results, the Company expects its allowance for credit losses ("ACL") coverage ratio to be within a range of approximately 75-90 bps of total loans and 30-45 bps coverage on off-balance sheet commitments.

The Company will implement the new standard beginning January 1, 2023.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326);

Troubled Debt Restructurings (“TDR”) and Vintage Disclosures.

This ASU will be effective for the Company at the same time we adopt CECL, January 1, 2023.

The amendments eliminate the TDR recognition and measurement guidance and instead require an entity to evaluate whether the modification represents a new loan or a continuation of an existing loan (consistent with accounting for other modifications).

This ASU was effective for the Company on January 1, 2023.

The amendments eliminate the TDR recognition and measurement guidance and instead require an entity to evaluate whether the modification represents a new loan or a co ntinuation of an existing loan (consistent with accounting for other modifications).

The amendments also enhance existing disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

NOTE 2 – ACQUISITIONS

On July 22, 2021, the Company entered into the Merger Agreement with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming.

As provided by the Merger Agreement, Teton merged into the Company, as subject to the terms and conditions set forth in the Merger Agreement, with the Company continuing as the surviving corporation.

As provided by the Merger Agreement, Rocky Mountain Bank merged with and into the Bank, with the Bank surviving the bank merger.

The transaction closed on December 31, 2021 with an aggregate purchase price of $ 51.3 million.

As part of its long-term growth strategy, the Teton Acquisition expands First Western’s presence in Wyoming and allows the Bank to deliver its unique approach to private and commercial banking to more clients in the region.

The Teton Acquisition was accounted for under the acquisition method of accounting and therefore all assets and liabilities were measured and recorded at their fair values as of the acquisition close date of December 31, 2021 with final measurement period adjustments made as of March 31, 2022.

All non-equity acquisition related costs were expensed as incurred.

Certain acquisition costs related to the issuance of equity were capitalized as of December 31, 2021.

Market value adjustments for assets acquired and liabilities assumed were amortized or accreted on a level yield basis over the estimated life of the asset or liability.

Loans acquired were recorded at their estimated fair value and therefore no allowance for loan and lease losses was recorded at the date of acquisition.

Goodwill of $ 6.2 million, which is not tax deductible, was recognized in the transaction and represents expected synergies and cost savings resulting from combining the expanded footprint and expertise of the associates.

Additionally, core deposit intangible assets were identified and recorded at their estimated fair values and are amortized over their estimated useful life.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes, which provided partial funding of the transaction.

See Note 10 – Borrowings for more information.

The following presents the final, recorded fair values of the assets acquired and liabilities assumed in the transaction with Teton as of December 31, 2021, including all measurement period adjustments to the provisional estimates.

The measurement period has closed, with no further adjustments expected (dollars in thousands):

Fair value of consideration transferred Provisional Estimates Measurement Period Adjustments December 31,

Cash consideration $ 11,501 $ — $ 11,501

Common stock issued 39,818 — 39,818

Total fair value of consideration transferred 51,319 — 51,319

Assets acquired

Cash and cash equivalents 132,498 — 132,498

Available-for-sale securities, at fair value 18,058 — 18,058

Correspondent bank stock, at cost 928 — 928

Mortgage loans held for sale 840 — 840

Loans, net 252,275 ( 857 ) 251,418

Premises and equipment 17,758 — 17,758

Accrued interest receivable 923 — 923

Accounts receivable 95 — 95

Other receivable 520 — 520

Core deposit intangible (1)

1,264 698 1,962

Other assets 226 242 468

Assets held for sale 115 5 120

Total assets acquired 425,500 88 425,588

Liabilities assumed

Deposits 379,227 ( 29 ) 379,198

Accrued interest payable 26 — 26

Other liabilities 1,283 — 1,283

Deferred tax liabilities, net 42 ( 71 ) ( 29 )

Total liabilities assumed 380,578 ( 100 ) 380,478

Net assets acquired 44,922 188 45,110

Goodwill recognized $ 6,397 $ ( 188 ) $ 6,209

_____________________________

(1) The core deposit intangible was determined to have an estimated life of 10 years.

The fair value adjustments were determined using discounted expected cash flows.

Loans had a fair value of $ 252.3 million and a contractual balance of $ 256.3 million as of December 31, 2021.

The discount on the loans acquired in this transaction due to anticipated credit loss, as well as considerations for market interest rates, totaled $ 4.0 million, representing 1.6 % of their contractual balance.

There were no loans acquired that were considered to be purchased credit impaired ("PCI") loans.

The composition of the contractual balance of acquired loans as of December 31, 2021 is detailed in the table below (dollars in thousands):

Cash, Securities and Other (1)

Construction and Development 33,977

1-4 Family Residential 70,348

Non-Owner Occupied CRE 43,162

Owner Occupied CRE 33,000

Commercial and Industrial 55,690

Total loans 256,257

Acquisition fair value adjustments ( 3,982 )

Loans, net $ 252,275

_____________________________

(1) Includes $ 6.7 million in PPP loans.

The Company incurred $ 1.2 million and $ 4.1 million in expenses related to the acquisition during the years ended December 31, 2022 and December 31, 2021, respectively.

The following presents the acquisition expenses within Non-interest expense of the Consolidated Statements of Income as of the dates noted (dollars in thousands):

December 31, Year Ended

Mergers and acquisitions expense:

Salaries and employee benefits $ 591 $ 547

Professional services 563 1,118

Technology and information systems 7 —

Data processing ( 73 ) 2,428

Marketing 81 —

Total mergers and acquisitions expense $ 1,223 $ 4,101

The following table presents pro forma information for the years ended December 31, 2022 and 2021, as if the Teton Acquisition had occurred on January 1, 2021.

The information for the year ended December 31, 2022 reflects actual results presented in our Consolidated Statements of Income.

Information for the year ended December 31, 2021 has been prepared for comparative purposes only, and is not indicative of the actual results that would have been attained had the acquisitions occurred as of the beginning of the period presented, nor is it indicative of future results (in thousands, except per share data):

Twelve Months Ended December 31,

Net interest income after provision for loan losses $ 79,522 $ 68,019

Noninterest income 28,412 41,206

Net income 21,698 23,234

Pro forma earnings per share:

Basic 2.29 2.49

Diluted 2.23 2.43

The Company adopted ASU 2022-02 on January 1, 2023.

Refer to Note 4 – Loans and the Allowance for Credit Losses for additional information on the required disclosures.

On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326 - Measurement of Credit Losses on Financial Instruments, as amended) ("ASU 2016-13").

ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") methodology.

The CECL methodology is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, available for sale debt securities, and held-to-maturity debt securities.

The Company adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method with no adjustments to prior period comparative financial statements for all financial assets measured at amortized cost and off-balance sheet credit exposure as well as held to maturity securities.

In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were troubled debt restructurings as of the date of adoption.

Upon adoption the Company recorded a decrease to retained earnings of $ 5.3 million, net of tax.

The total transition adjustment prior to the tax impact included $ 3.5 million related to allowance for credit losses on loans, $ 3.5 million related to off-balance sheet commitments, and $ 0.1 million related to held-to-maturity securities.

Results for reporting periods beginning on or after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The following table illustrates the day one adoption impact of ASU 2016-13:

(dollars in thousands) Balance at January 1, 2023 (before adjustment) Cumulative effect adjustment amount Balance January 1, 2023 (after adjustment)

Allowance for credit losses:

loans $ ( 17,183 ) $ ( 3,470 ) $ ( 20,653 )

Allowance for credit losses:

held-to-maturity securities — ( 71 ) ( 71 )

Deferred tax assets, net 6,914 1,703 8,617

Allowance for credit losses on off-balance sheet exposures 419 3,481 3,900

Shareholders’ equity

Retained earnings, net of tax 51,887 ( 5,319 ) 46,568

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Recently issued accounting pronouncements, not yet adopted :

The following reflects recently issued accounting pronouncements and the impact thereof to the Company.

On August 23, 2023 the FASB issued ASU 2023-05 Business Combinations - Joint Venture Formations (Subtopic 805-60) Recognition and Initial Measurement.

This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification Master Glossary.

While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements.

The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation.

As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance).

The Company does not presently have any joint ventures that would be impacted but will evaluate as needed.

On March 29, 2023 the FASB issued ASU 2023-02 Investments in Tax Structures which changes the accounting methodology to allow proportional amortization method to be expanded beyond investments in low income tax housing tax credits (“LIHTC”) structures.

This guidance is effective January 1, 2024 and currently the Company does not have any investments that would be impacted but will evaluate as other investments are considered as early adoption is permitted.

On November 27, 2023, the FASB issued ASU 2023-07 Segment Reporting - Improvements to Reportable Segment Disclosures, which provides additional transparency into a company's' reportable segments’ significant expenses on an interim and annual basis.

This guidance is effective for companies with fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Companies must adopt the changes to the segment reporting guidance on a retrospective basis.

Early adoption is permitted.

The Company expects to adopt this standard beginning with its first quarter ending March 31, 2024.

The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

On December 14, 2023, the FASB issued ASU 2023-09 Income Taxes - Improvements to Income Tax Disclosures, which enhances a company's income tax disclosures to include additional information related to rate reconciliations and income taxes paid.

This guidance is effective for companies with fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company expects to adopt this standard beginning January 1, 2025.

The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.

NOTE 2 – INVESTMENT SECURITIES

The following presents the amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrecognized gains and losses as of the date noted (dollars in thousands):

The following presents the amortized cost, fair value, and allowance for credit losses of securities held-to-maturity and the corresponding amounts of gross unrecognized gains and losses as of the date noted (dollars in thousands):

December 31, 2023 Amortized

Value Allowance for Credit Losses (1)

Investment securities held-to-maturity:

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Corporate CMO and MBS (2)

3,783 — ( 238 ) 3,545 —

Total securities held-to-maturity $ 74,173 $ 9 $ ( 7,565 ) $ 66,617 $ ( 71 )

The following presents the amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss as of the date noted (dollars in thousands):

(1) Refer to Note 1 – Organization and Summary of Significant Accounting Policies for further information on our credit loss methodology.

(2) 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.

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December 31, 2022 Amortized

Investment securities available-for-sale:

Investment securities held-to-maturity:

Treasury debt $ 243 $ — $ ( 9 ) $ 234

Government Agency 3,522 — — 3,522

Corporate bonds 23,819 — ( 2,453 ) 21,366

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Corporate CMO and MBS 4,074 — ( 180 ) 3,894

Total securities available-for-sale $ 55,266 $ 478 $ ( 182 ) $ 55,562

Net amortization of premiums and discounts related to mortgage securities during each of the years ended December 31, 2022 and 2021 was $ 0.1 million and is included in Net interest income in the Consolidated Statements of Income.

Total securities held-to-maturity $ 81,056 $ 13 $ ( 6,351 ) $ 74,718

Net amortization of premiums and discounts related to mortgage securities during each of the years ended December 31, 2023 and 2022 totaled an immaterial amount and $ 0.1 million, respectively, and is included in Net interest income in the Consolidated Statements of Income.

The following presents securities with unrecognized losses aggregated by major security type and length of time in a continuous unrecognized loss position as of the date noted (dollars in thousands, before tax):

Less than 12 Months 12 Months or Longer Total

December 31, 2022 Fair

Value Unrecognized

Investment securities held-to-maturity:

Treasury debt $ — $ — $ 234 $ ( 9 ) $ 234 $ ( 9 )

Corporate bonds 20,911 ( 2,436 ) 455 ( 17 ) 21,366 ( 2,453 )

GNMA mortgage-backed securities – residential 22,371 ( 1,051 ) 14,255 ( 1,749 ) 36,626 ( 2,800 )

FNMA mortgage-backed securities – residential 6,202 ( 506 ) — — 6,202 ( 506 )

Government CMO and MBS - commercial 5,591 ( 403 ) — — 5,591 ( 403 )

Corporate CMO and MBS 3,499 ( 147 ) 395 ( 33 ) 3,894 ( 180 )

Total $ 58,574 $ ( 4,543 ) $ 15,339 $ ( 1,808 ) $ 73,913 $ ( 6,351 )

The Company reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all securities, fair valued at $ 58.7 million, from available-for-sale to held-to-maturity.

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As of December 31, 2023, the amortized cost and estimated fair value of held-to-maturity securities have contractual maturity dates shown in the table below (dollars in thousands).

Expected maturities will differ from contractual

maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Securities not due at a single maturity date are shown separately.

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Total $ 74,173 $ 66,617

For the year ended December 31, 2022, the Company committed $ 6.0 million in total to two bank technology funds.

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During year ended December 31, 2022, the Company committed $ 6.0 million in total to two bank technology funds.

During the year ended December 31, 2023, the Company made $ 0.8 million in contributions to both partnerships and received a $ 0.1 million return on investment.

During the year ended December 31, 2022, the Company made $ 1.3 million in contributions to both partnerships and received a $ 0.1 million return on investment.

As of December 31, 2023, the Company held a balance of $ 2.0 million which is included in Other assets in the accompanying Consolidated Balance Sheets.

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In 2014, the Company began investing in a small business investment company ("SBIC") fund administered by the Small Business Administration.

During the years ended December 31, 2022 and 2021, the Company did not make any contributions to the SBIC fund and received a $ 0.1 million return of capital.

As of December 31, 2022 and 2021, the Company held a balance of $ 2.0 million in the SBIC fund, which is included in Other assets in the accompanying Consolidated Balance Sheets.

The Company made $ 0.2 million in contributions to the SBIC fund during the year ended December 31, 2023.

During the year ended December 31, 2022, the Company did not make any contributions to the SBIC fund and received a $ 0.1 million return of capital.

As of December 31, 2023 and 2022, the Company held a balance of $ 2.2 million and $ 2.0 million, respectively, in the SBIC fund, which is included in Other assets in the accompanying Consolidated Balance Sheets.

The Company may be obligated to invest up to an additional $ 0.8 million in future SBIC investments.

As of December 31, 2022 and December 31, 2021, securities with carrying values totaling $ 22.6 million and $ 17.3 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

As of December 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S.

As of December 31, 2023, securities with market values totaling $ 45.1 million were pledged to secure various public deposits and credit facilities of the Company, including $ 39.3 million pledged under the BTFP program (refer to Note 1 – Organization and Summary of Significant Accounting Policies for more information on the BTFP program).

As of December 31, 2022, securities with carrying values of $ 22.6 million were pledged to secure various public deposits and credit facilities of the Company.

As of December 31, 2023, there were no holdings of securities of any one issuer in an amount greater than 10 % of shareholders’ equity.

As of December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S.

Government sponsored entities and agencies, in an amount greater than 10 % of shareholders’ equity.

As of December 31, 2022, 98 securities were in an unrecognized loss position, with unrecognized losses totaling $ 6.4 million.

As of December 31, 2021, 10 securities were in an unrealized loss position with unrealized losses totaling $ 0.2 million.

Of the securities in an unrecognized loss position as of December 31, 2022, 14 have been in a continuous unrecognized loss position for more than twelve months, and the remaining have been in a continuous unrecognized loss position for less than twelve months.

The unrecognized loss positions were caused primarily by interest rate changes and market assumptions about prepayments of principal and interest on the underlying mortgages.

Because the decline in market value is attributable to market conditions, not credit quality, and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be near or at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of December 31, 2022.

Less than 12 Months 12 Months or Longer Total

December 31, 2022 Fair

Value Unrecognized

Investment securities held-to-maturity:

Treasury debt $ — $ — $ 234 $ ( 9 ) $ 234 $ ( 9 )

Corporate bonds 20,911 ( 2,436 ) 455 ( 17 ) 21,366 ( 2,453 )

GNMA mortgage-backed securities – residential 22,371 ( 1,051 ) 14,255 ( 1,749 ) 36,626 ( 2,800 )

FNMA mortgage-backed securities – residential 6,202 ( 506 ) — — 6,202 ( 506 )

Government CMO and MBS - commercial 5,591 ( 403 ) — — 5,591 ( 403 )

Corporate CMO and MBS 3,499 ( 147 ) 395 ( 33 ) 3,894 ( 180 )

Total $ 58,574 $ ( 4,543 ) $ 15,339 $ ( 1,808 ) $ 73,913 $ ( 6,351 )

The following presents securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position as of the date noted (dollars in thousands, before tax):

Less than 12 Months 12 Months or Longer Total

December 31, 2021 Fair

Value Unrealized

Investment securities available-for-sale:

Treasury Debt $ 247 $ ( 3 ) $ — $ — $ 247 $ ( 3 )

Corporate bonds 485 ( 15 ) — — 485 ( 15 )

GNMA mortgage-backed securities - residential 17,205 ( 146 ) — — 17,205 $ ( 146 )

Corporate CMO and MBS — — 521 ( 18 ) 521 ( 18 )

Total $ 17,937 $ ( 164 ) $ 521 $ ( 18 ) $ 18,458 $ ( 182 )

The Company did not sell any securities during the years ended December 31, 2023 or 2022.

Allowance for Credit Losses for HTM Securities

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 and bank subordinated debt.

The Company's non-government backed securities are paying within the agreed upon terms and there are no securities on non-accrual status.

Accrued interest receivable on held-to-maturity debt securities totaled $ 0.4 million at December 31, 2023 and is excluded from the estimate of credit losses.

Refer to Note 1 – Organization and Summary of Significant Accounting Policies for additional information on the Company’s methodology on estimating 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 year ended December 31, 2023:

December 31, 2023 Corporate Bonds Corporate CMO (1)

Allowance for credit losses:

Beginning balance $ — $ —

Impact of ASU 2016-13 adoption (2)

Provision for credit losses — —

Securities charged-off (recoveries) — —

Total ending allowance balance $ 71 $ —

(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.

(2) Refer to Note 1 – Organization and Summary of Significant Accounting Policies for further information on our credit loss methodology

The Company monitors the credit quality of held-to-maturity securities on a quarterly basis.

As of December 31, 2023, there were no held-to-maturity securities past due or on non-accrual .

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NOTE 3 – CORRESPONDENT BANK STOCK

The following presents the Company’s investments in correspondent bank stock, as of the dates noted (dollars in thousands):

The following table presents the Company’s investments in correspondent bank stock, as of the dates noted:

(Dollars in thousands) 2023 2022

FHLB $ 7,123 $ 7,078

Total $ 7,155 $ 7,110

NOTE 5 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES

The following presents a summary of the Company’s loans as of the dates noted (dollars in thousands):

NOTE 4 – LOANS AND THE ALLOWANCE FOR CREDIT LOSSES

The following table presents a summary of the Company’s loans at amortized cost as of the dates noted:

(Dollars in thousands) December 31,

2023 December 31,

Cash, Securities and Other $ 139,947 $ 165,559

$ 165,670 $ 261,190

Consumer and Other 27,028 26,070

49,954 34,758

Construction and Development 345,516 285,627

3 unchanged sentences

Commercial and Industrial 337,180 361,791

Total 2,517,189 2,446,092

Allowance for credit losses (1)

( 23,931 ) ( 17,183 )

Total loans held for investment 2,476,135 1,954,168

Deferred fees and unamortized premiums/(unaccreted discounts), net (4)

Total, net 2,493,258 2,428,909

Loans accounted for under the fair value option (2)

13,726 23,321

Allowance for loan losses ( 17,183 ) ( 13,732 )

Loans, net $ 2,506,984 $ 2,452,230

_____________________________

(1) Includes Paycheck Protection Program ("PPP") loans of $ 7.1 million and $ 46.8 million as of December 31, 2022 and 2021, respectively.

(2) Includes $ 23.4 million of unpaid principal balance of loans held for investment measured at fair value as of December 31, 2022.

(3) Includes MSLP loans of $ 6.6 million and $ 6.8 million as of December 31, 2022 and 2021, respectively.

(1) Allowance for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

(2) Includes $ 14.1 million and $ 23.4 million of unpaid principal balance of loans held for investment measured at fair value as of December 31, 2023 and December 31, 2022 respectively.

Includes fair value adjustments on loans held for investment accounted for under the fair value option.

See Note 16 – Fair Value.

As of December 31, 2023 and 2022, total loans held for investment included $ 208.2 million and $ 230.4 million, respectively, of performing loans purchased through mergers or acquisitions.

As of December 31, 2022, Consumer and Other included $ 23.4 million of unpaid principal balance of loans held for investment measured at fair value.

See Note 17 – Fair Value Option.

The CARES Act created the paycheck protection program ("PPP"), which is administered by the Small Business Administration ("SBA").

The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage interest and utilities.

The loans may be forgiven conditioned upon the client providing payroll documentation evidencing their compliant use of funds and otherwise complying with the terms of the program.

The Bank is an approved SBA lender and as of December 31, 2022, the Cash, Securities and Other portion of the loan portfolio included $ 7.1 million of PPP loans, or 4.3 % of the total category.

As of December 31, 2023 the Cash, Securities, and Other portion of the loan portfolio included $ 4.2 million of SBA Paycheck Protection Program (“PPP”) loans, or 3.0 % of the total category.

As of December 31, 2022, the Cash, Securities, and Other portion of the loan portfolio included $ 6.9 million of PPP loans, or 4.2 % of the total category.

The Company is a participant in the Federal Reserve’s MSLP to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic.

As of December 31, 2022, the Company’s Commercial and Industrial loans included five MSLP loans with the net carrying amount of $ 6.6 million, or 1.8 % of the total category.

As of December 31, 2023, the Company’s Commercial and Industrial loans included three Main Street Lending Program (“MSLP”) loans with the net carrying amount of $ 5.1 million, or 1.5 % of the total category.

Two of these loans are risk rated Substandard with one of those on non-accrual after a modification was completed during the fourth quarter of 2023.

The remaining MSLP loan is risk rated Pass.

As of December 31, 2022, the Company’s Commercial and Industrial loans included five MSLP loans with the net carrying amount of $ 5.9 million, or 1.6 % of the total category.

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Loan Modifications

On January 1, 2023 the Company adopted ASU 2022-02, which introduces new reporting requirements for modifications of loans to borrowers experiencing financial difficulty.

GAAP requires that certain types of modifications of loans in response to a borrower’s financial difficulty be reported and include the following;

(i) principal forgiveness, (ii) interest rate reduction, (iii) other than insignificant payment delay, (iv) term extension, or (v) any combination of the foregoing.

ASU 2022-02 eliminates the recognition measurement guidance for troubled debt restructured ("TDR") loans, and instead requires an entity to evaluate whether a modification represents a new loan or a continuation of an existing loan in accordance with ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs.

If a modification results in a new loan under the guidance, the Company will recognize any unearned deferred net revenue and measure the ACL on the loan on a collective basis rather than individually analyzed.

As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic.

In 2021, the deferral period ended for all non-acquired loans previously modified and payments have resumed under the original terms.

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As of December 31, 2023, there were 14 of these loans, totaling $ 2.9 million.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR.

The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be met in order to apply the relief.

Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs.

We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of December 31, 2022 and 2021.

In accordance with that guidance, the Company recognized interest income on all loans modified for temporary payment moratoriums, primarily for a period of 180 days or less.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2023.

These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20.

Management has increased our loan level reviews and portfolio monitoring to address the changing environment.

These loans are included in the allowance for credit loss general reserve in accordance with ASU 2016-13.

Management continues to focus on loan level reviews and portfolio monitoring to address the changing environment.

Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.

Interest accrued during the modification term on modified loans is deferred to the end of the loan term.

As of December 31, 2022, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.

The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred fees, and unamortized premiums/(unaccreted discounts) which are not material) in loans past due as of the dates noted (dollars in thousands):

Accrued interest receivable is excluded from the estimate of credit losses.

The following presents, by class, an aging analysis of the amortized cost basis in loans past due as of the date noted (dollars in thousands):

December 31, 2023 30-59

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Past Due Total

Past Due Current Total

Past Due Current Total Amortized Cost Loans Accounted for Under the Fair Value Option (1)

Cash, Securities and Other $ — $ 76 $ 1,704 $ 1,780 $ 138,167 $ 139,947 $ — $ 139,947

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Total $ 21,074 $ 2,672 $ 45,090 $ 68,836 $ 2,448,353 $ 2,517,189 $ 13,726 $ 2,530,915

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December 31, 2022 30-59

2 unchanged sentences

Past Due Total

Past Due Current Total

Past Due Current Total Amortized Cost Loans Accounted for Under the Fair Value Option (1)

Cash, Securities and Other $ 1,735 $ 539 $ 4 $ 2,278 $ 163,281 $ 165,559 $ — $ 165,559

6 unchanged sentences

Total $ 11,238 $ 11,192 $ 1,534 $ 23,964 $ 2,422,128 $ 2,446,092 $ 23,321 $ 2,469,413

As of December 31, 2022 and 2021, the Company had one loan, totaling an immaterial amount, in the Commercial and Industrial portfolio that was more than 90 days delinquent and accruing interest.

Non-Accrual Loans and Troubled Debt Restructurings

The following presents the recorded investment in non-accrual loans by class as of the dates noted (dollars in thousands):

(1) Refer to Note 16 – Fair Value for additional information on the measurement of loans accounted for under the fair value option.

As of December 31, 2023 , the Company had one loan, totaling $ 0.3 million, in the 1-4 Family Residential portfolio that was more than 90 days delinquent and accruing interest.

As of December 31, 2022, the Company had one loan, totaling an immaterial amount, in the Commercial and Industrial portfolio that was more than 90 days delinquent and accruing interest.

The following table presents the amortized cost basis as of December 31, 2023 of the loans modified to borrowers experiencing financial difficulty disaggregated by class of financing receivable and type of concession granted during the year ended December 31, 2023.

The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.

(Dollars in thousands) Principal forgiveness Interest rate reduction Term extension Combination:

term extension and principal forgiveness Combination:

term extension and interest rate reduction Total class of financing receivable

Commercial and Industrial $ — $ — $ 2,123 $ 183 $ — 0.7 %

Total $ — $ — $ 2,123 $ 183 $ —

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The following table presents the financial effect by type of modification made to borrowers experiencing financial difficulty for the period ended December 31, 2023:

Principal forgiveness Interest rate reduction Term extension

Commercial and Industrial Reduced the amortized cost basis of the loan by $ 185 thousand

Added a weighted-average 2.8 years to the life of the loan, which reduced monthly payment amounts for the borrower

Commercial and Industrial — —

Six months of interest payments were deferred to the maturity of the loan.

Principal payment of $ 988 thousand was deferred 0.6 years

Commercial and Industrial — —

Added a weighted-average 0.5 years to the life of the loan

For all loans that have been modified during the period, the borrowers continue to pay as agreed.

Non-Accrual Loans

The accrual of interest on loans is discontinued at the time the loan becomes 90 days or more delinquent unless the loan is well secured and in the process of collection or renewal due to maturity.

Past due status is based on the contractual terms of the loan.

In all cases, loans are placed on non-accrual status or charged off if collection of interest or principal is considered doubtful.

The following presents the amortized cost basis of loans on non-accrual status and loans past due over 89 days still accruing by class as of the date noted (dollars in thousands).

December 31, 2023

(dollars in thousands) Non-accrual loans with no ACL Total non-accrual loans (1)

Loans past due over 89 days still accruing

Cash, Securities, and Other $ 1,704 $ 1,704 $ —

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Total $ 7,360 $ 50,816 $ 285

Non-accrual loans classified as TDR accounted for $ 3.1 million of the recorded investment as of December 31, 2022 and $ 4.3 million as of December 31, 2021.

Non-accrual loans are classified as impaired loans and individually evaluated for impairment.

The following presents a summary of the unpaid principal balance of loans classified as TDRs as of the dates noted (dollars in thousands):

2022 December 31,

Non-Owner Occupied CRE $ — $ 55

(1) As of December 31, 2023, the Company had an allowance of $ 3.8 million on non-performing loans.

The following presents the recorded investment in non-accrual loans by class as of the date noted (dollars in thousands):

Cash, Securities and Other $ 4

1-4 Family Residential — 75

Consumer and Other 146

Construction and Development 201

Owner Occupied CRE 1,165

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Total $ 12,349

Allowance for loan losses associated with TDR — ( 1,751 )

Net recorded investment $ 3,120 $ 2,564

As of December 31, 2022 and December 31, 2021, the Company had no t committed any additional funds to a borrower with a loan classified as a TDR.

The Company did no t modify any loans resulting in TDR status during the year ended December 31, 2022.

The Company modified three loans resulting in TDR status during the year ended December 31, 2021.

The first loan was a small mortgage with a remaining balance of $ 0.1 million where the borrower was unable to make payments or obtain additional financing to pay off the mortgage.

As a result, we modified the loan at the maturity date with a one-year renewal to allow the borrower time to seek a refinance.

As of December 31, 2022, the loan has been paid in full as agreed in the loan modification.

The second and third loans modified are in relation to one borrower who has two loans, one Commercial Real Estate Loan in the amount of $ 1.2 million, which is the space where the related business operates, and a Commercial loan with a balance of $ 0.7 million.

The borrower had experienced a reduction in cash flow through ongoing impact from the pandemic and related shut downs and hiring shortages.

As a result, the Company modified both loans allowing for a six month interest only period to provide cash flow relief.

The Company obtained a reduced term on the business loan as well as additional collateral from the Borrower.

All three of the loans modified during 2021 were sufficiently collateralized and therefore did not require any specific reserve.

TDRs are reviewed individually for impairment and are included in the Company’s specific reserves in the allowance for loan losses.

If charged off, the amount of the charge off is included in the Company’s charge off factors, which impact the Company’s reserves on non-impaired loans.

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The following presents impaired loans by portfolio and related valuation allowance as of the periods presented (in thousands):

December 31, 2022 December 31, 2021

Investment Unpaid

Balance Allowance

December 31, 2022

Investment Unpaid

Balance Allowance

Impaired loans with a valuation allowance:

Consumer and Other $ — $ — $ — $ 2 $ 2 $ 2

Commercial and Industrial — — — 2,190 2,190 1,751

Total $ — $ — $ — $ 2,192 $ 2,192 $ 1,753

Impaired loans with no related valuation allowance:

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Total $ 12,203 $ 12,203 $ —

The recorded investment in loans in the previous tables excludes accrued interest, deferred fees, and unamortized premiums/(unaccreted discounts), which are not material.

Interest income, if any, was recognized on the cash basis on non-accrual loans.

The following presents the average balance of impaired loans and interest income recognized on impaired loans during the periods presented (dollars in thousands):

Investment Interest

Recognized Average

Investment Interest

Impaired loans with a valuation allowance:

The Company recognized $ 0.2 million of interest income on non-accrual loans during the year ended December 31, 2023.

The Company recognized an immaterial amount of interest income on non-accrual loans during the year ended December 31, 2022.

Non-accrual loans, excluding loans held for investment measured at fair value, are classified as collateral dependent loans and are individually evaluated.

The following presents the amortized cost basis of collateral-dependent loans, which are individually evaluated to determine expected credit losses, by class of loans as of the date noted (dollars in thousands):

As of December 31, 2023

Collateral Dependent Loans

(dollars in thousands) Secured by Real Estate Secured by Cash and Securities Secured by Other Total

Cash, Securities, and Other $ — $ 1,704 $ — $ 1,704

Consumer and Other — — 7,500 7,500

Commercial and Industrial — — 2,413 21

Total $ 1 $ — $ 2,415 $ 21

Impaired loans with no related valuation allowance:

Cash, Securities, and Other $ 4 $ — $ 17 $ —

Construction and Development 2,719 — — 2,719

Owner Occupied CRE 1,201 — 248 51

Commercial and Industrial 4,297 * 205 262

1-4 Family Residential 3,016 — — 3,016

Total $ 5,640 $ — $ 485 $ 313

Total impaired loans:

Cash, Securities, and Other $ 4 $ — $ 19 $ —

Consumer and Other 1 — — —

Construction and Development 81 — — —

Owner Occupied CRE 3,980 — — 3,980

Commercial and Industrial — — 31,893 31,893

1-4 Family Residential 57 — 15 —

Total $ 9,715 $ 1,704 $ 39,393 $ 50,812

_____________________________

(•) The Company recognized an immaterial amount of interest income during the period.

Allowance for Loan Losses

Allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability to absorb losses in other categories.

The following presents the activity in the Company’s allowance for loan losses by portfolio class for the periods presented (in thousands):

and Other Consumer and Other Construction

Development 1-4

Residential Non-Owner

CRE Commercial

Industrial Total

Changes in allowance for loan losses for the year ended December 31, 2022

Beginning balance $ 1,598 $ 266 $ 1,092 $ 3,553 $ 2,952 $ 1,292 $ 2,979 $ 13,732

(Recovery of)/provision for loan losses ( 399 ) 84 933 2,756 538 218 ( 448 ) 3,682

The Company recorded $ 8.8 million and $ 0.2 million of charge-offs, net of recoveries, during the year ended December 31, 2023 and December 31, 2022, respectively.

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Allowance for Credit Losses

Beginning January 1, 2023, the allowance for credit losses for loans is measured on the loan’s amortized cost basis, excluding interest receivable.

Interest receivable excluded at December 31, 2023 and December 31, 2022 was $ 10.8 million and $ 9.8 million, respectively, presented in Accrued interest receivable on the Consolidated Balance Sheets.

Refer to Note 1 – Organization and Summary of Significant Accounting Policies for additional information related to the Company’s methodology on estimated credit losses.

The Allowance for credit losses on loans (“ACL”) represents Management’s best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectibility over the loans’ contractual terms, adjusted for expected prepayments when appropriate.

Our quantitative discounted cash flow models use economic forecasts including;

housing price index (“HPI”), gross domestic product (“GDP”), and national unemployment.

The HPI, GDP, and unemployment twelve month forecasts used in our model as of December 31, 2023 is based on a slightly improved macro-economic forecast assuming a soft landing as compared to assumptions previously used as of January 1, 2023 projecting the likelihood of a deeper recession.

As a result, we forecasted decreased probability of default rates and loss given default rates which in turn reduced our model loss rates, partially offset by loan growth and changes in our segment mix, resulting in a $ 0.5 million release of provision on pooled loans for the year ended December 31, 2023.

The allowance on credit losses on non-performing loans was $ 3.8 million as of December 31, 2023.

Allocation of a portion of the allowance for credit losses to one category of loans does not preclude its availability to absorb losses in other categories.

The following table presents the gross loan activity in the allowance for credit losses by portfolio segment during the periods presented (dollars in thousands):

Cash, Securities and Other Consumer and Other Construction and Development 1-4 Family Residential Non-Owner Occupied CRE Owner Occupied CRE Commercial and Industrial Total

Changes in allowance for credit losses for the year ended December 31, 2023:

Beginning balance, prior to the adoption of ASU 2016-13 $ 1,198 $ 191 $ 2,025 $ 6,309 $ 3,490 $ 1,510 $ 2,460 $ 17,183

Impact of adopting ASU 2016-13 193 106 4,681 ( 2,808 ) ( 689 ) ( 104 ) 2,091 3,470

Provision (release) for credit losses ( 430 ) ( 94 ) 1,239 856 ( 476 ) ( 372 ) 11,354 12,077

Charge-offs — ( 101 ) — — — — ( 8,737 ) ( 8,838 )

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Ending balance $ 961 $ 124 $ 7,945 $ 4,370 $ 2,325 $ 1,034 $ 7,172 $ 23,931

Allowance for loan losses as of December 31, 2022 allocated to loans evaluated for impairment:

Individually $ — $ — $ — $ — $ — $ — $ — $ —

Collectively 1,198 191 2,025 6,309 3,490 1,510 2,460 17,183

Ending balance $ 1,198 $ 191 $ 2,025 $ 6,309 $ 3,490 $ 1,510 $ 2,460 $ 17,183

Loans as of December 31, 2022, evaluated for impairment:

Individually $ 4 $ — $ 201 $ — $ — $ 1,165 $ 10,833 $ 12,203

Collectively 165,666 26,539 288,296 898,154 496,776 214,891 350,195 2,440,517

Measured at fair value — 23,415 — — — — — 23,415

Ending balance $ 165,670 $ 49,954 $ 288,497 $ 898,154 $ 496,776 $ 216,056 $ 361,028 $ 2,476,135

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and Other Consumer and Other Construction

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Beginning balance $ 1,598 $ 266 $ 1,092 $ 3,553 $ 2,952 $ 1,292 $ 2,979 $ 13,732

Provision for/(recovery of) loan losses ( 841 ) 163 160 320 948 133 347 1,230

(Recovery of)/provision for loan losses ( 399 ) 84 933 2,756 538 218 ( 448 ) 3,682

Charge-offs ( 1 ) ( 262 ) — — — — ( 71 ) ( 334 )

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Collectively 165,666 26,539 288,296 898,154 496,776 214,891 350,195 2,440,517

Measured at fair value — 23,415 — — — — — 23,415

Ending balance $ 165,670 $ — $ 49,954 $ — $ 288,497 $ — $ 898,154 $ — $ 496,776 $ — $ 216,056 $ — $ 361,028 $ — $ 2,476,135

(1) The allowance for credit losses for periods prior to the ASU 2016-13 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP which presented loan balances gross rather than amortized cost.

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Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as:

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They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

Loans in this category may be placed on non-accrual status and may individually be evaluated for impairment if indicators of impairment exist.

Loans in this category may be placed on non-accrual status and may individually be evaluated.

Doubtful—Loans graded Doubtful are considered "classified" and have all the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

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Loans accounted for under the fair value option are not rated.

Loans not meeting any of the three criteria above are considered to be pass-rated loans.

The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of the dates noted (dollars in thousands):

December 31, 2022 Pass Special

Mention Substandard Not Rated Total

The following table presents the amortized cost basis of loans by credit quality indicator, by class of financing receivable, and year of origination for term loans as of December 31, 2023.

For revolving lines of credit that converted to term loans, if the conversion involved a credit decision, such loans are included in the origination year in which the credit decision was made.

If revolving lines of credit converted to term loans without a credit decision, such lines of credit are included in the “Revolving lines of credit converted to term” column in the following table.

Term Loans Amortized Cost by Origination Year

December 31, 2023 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total

Cash, Securities, and Other

Pass $ 8,091 $ 17,878 $ 17,181 $ 5,966 $ 6,337 $ 13,188 $ 69,602 $ 138,243

Special mention — — — — — — — —

Substandard — — — — — — 1,704 1,704

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total Cash, Securities, and Other $ 8,091 $ 17,878 $ 17,181 $ 5,966 $ 6,337 $ 13,188 $ 71,306 $ 139,947

Current year-to-date gross write-offs $ — $ — $ — $ — $ — $ — $ — $ —

Consumer and Other

Pass $ 614 $ 2,013 $ 647 $ 633 $ 797 $ 24 $ 14,800 $ 19,528

Special mention — — — — — — — —

Substandard — — — — — — 7,500 7,500

Doubtful — — — — — — — —

Not rated(1) — 10,469 2,544 614 99 — — 13,726

Total Consumer and Other $ 614 $ 12,482 $ 3,191 $ 1,247 $ 896 $ 24 $ 22,300 $ 40,754

Current year-to-date gross write-offs $ — $ — $ — $ 8 $ 91 $ 2 $ — $ 101

Construction and Development

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Pass $ 32,509 $ 231,103 $ 42,796 $ 21,615 $ — $ — $ 431 $ 328,454

Special mention — 14,343 — — — — — 14,343

Substandard 2,719 — — — — — — 2,719

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total Construction and Development $ 35,228 $ 245,446 $ 42,796 $ 21,615 $ — $ — $ 431 $ 345,516

Current year-to-date gross write-offs $ — $ — $ — $ — $ — $ — $ — $ —

1-4 Family Residential

Pass $ 97,901 $ 373,525 $ 143,694 $ 108,815 $ 37,756 $ 31,452 $ 131,806 $ 924,949

Special mention — — — — — — — —

Substandard 578 2,438 — — — — — 3,016

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total 1-4 Family Residential $ 98,479 $ 375,963 $ 143,694 $ 108,815 $ 37,756 $ 31,452 $ 131,806 $ 927,965

Current year-to-date gross write-offs $ — $ — $ — $ — $ — $ — $ — $ —

Non-Owner Occupied CRE

Pass $ 42,799 $ 197,122 $ 125,726 $ 75,026 $ 24,411 $ 53,056 $ 20,553 $ 538,693

Special mention — — — 4,999 — — — 4,999

Substandard — — — — — — — —

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total Non-Owner Occupied CRE $ 42,799 $ 197,122 $ 125,726 $ 80,025 $ 24,411 $ 53,056 $ 20,553 $ 543,692

Current year-to-date gross write-offs $ — $ — $ — $ — $ — $ — $ — $ —

Owner Occupied CRE

Pass $ 3,229 $ 46,751 $ 44,805 $ 37,957 $ 5,555 $ 51,259 $ 2,325 $ 191,881

Special mention — — — — — — — —

Substandard — — 3,980 — — — — 3,980

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total Owner Occupied CRE $ 3,229 $ 46,751 $ 48,785 $ 37,957 $ 5,555 $ 51,259 $ 2,325 $ 195,861

Current year-to-date gross write-offs $ — $ — $ — $ — $ — $ — $ — $ —

Commercial and Industrial

Pass $ 38,497 $ 59,612 $ 15,430 $ 13,457 $ 6,430 $ 16,068 $ 152,782 $ 302,276

Special mention — — — — — — 649 649

Substandard 1,618 — 29,355 1,674 — 920 688 34,255

Doubtful — — — — — — — —

Not rated — — — — — — — —

Total Commercial and Industrial $ 40,115 $ 59,612 $ 44,785 $ 15,131 $ 6,430 $ 16,988 $ 154,119 $ 337,180

Current year-to-date gross write-offs $ — $ 8,737 $ — $ — $ — $ — $ — $ 8,737

Total pass $ 223,640 $ 928,004 $ 390,279 $ 263,469 $ 81,286 $ 165,047 $ 392,299 $ 2,444,024

Total special mention — 14,343 — 4,999 — — 649 19,991

Total substandard 4,915 2,438 33,335 1,674 — 920 9,892 53,174

Total doubtful — — — — — — — —

Total not rated — 10,469 2,544 614 99 — — 13,726

Total $ 228,555 $ 955,254 $ 426,158 $ 270,756 $ 81,385 $ 165,967 $ 402,840 $ 2,530,915

(1) Includes loans held for investment measured at fair value as of December 31, 2023.

Includes fair value adjustments on loans held for investment

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accounted for under the fair value option.

The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of the date noted (dollars in thousands):

December 31, 2022 Pass Special

2 unchanged sentences

Consumer and Other (2)

26,065 — 5 23,321 49,391

Construction and Development 285,426 — 201 — 285,627

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Total $ 2,431,770 $ 2,185 $ 12,137 $ 23,321 $ 2,469,413

The Company had no loans graded doubtful as of the years ended December 31, 2022 and 2021.

(1) Includes loans held for investment measured at fair value as of December 31, 2022.

Includes fair value adjustments on loans held for investment accounted for under the fair value option.

In accordance with ASC 855, Subsequent Events, the Company has determined that there was a subsequent event that provided additional evidence about conditions that existed at the date of the balance sheet.

The effects of the subsequent event have been fully recognized in this Form 10-K.

NOTE 5 – PREMISES AND EQUIPMENT, NET

The following presents a summary of the cost and accumulated depreciation of premises and equipment as December 31 (dollars in thousands):

The following presents a summary of the cost and accumulated depreciation of premises and equipment as of the dates noted:

(Dollars in thousands) 2023 2022

Building and building improvements $ 12,190 $ 12,190

5 unchanged sentences

Premises and equipment, net $ 25,256 $ 25,118

During the year ended December 31, 2022, the Company retired an immaterial amount of equipment and software for an immaterial loss.

During the year ended December 31, 2021, the Company acquired buildings and land associated with the Teton Acquisition.

These assets were recorded at their fair value on December 31, 2021 and the buildings will be depreciated over their remaining useful lives.

During the year ended December 31, 2023 and 2022, the Company retired an immaterial amount of equipment and software for an immaterial loss.

Depreciation expense for premises and equipment for the years ended December 31, 2023 and 2022 totaled $ 2.2 million and $ 1.8 million, respectively.

NOTE 6 – GOODWILL AND OTHER INTANGIBLE ASSETS

The following presents changes in the carrying amount of goodwill as of the dates noted (dollars in thousands):

The following presents changes in the carrying amount of goodwill as of the dates noted:

(Dollars in thousands) December 31,

2023 December 31,

2 unchanged sentences

Ending balance $ 30,400 $ 30,400

During the year ended December 31, 2021, the Company recorded $ 6.4 million of goodwill as a result of the Teton Acquisition on December 31, 2021.

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The Company initially recorded $ 6.4 million of goodwill as a result of the Teton Acquisition on December 31, 2021.

In the first quarter of 2022, goodwill was adjusted by $( 0.2 ) million as a result of the measurement period adjustments.

See Note 2 – Acquisitions for more information.

Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.

The goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including the existing goodwill, and estimating the fair value of the reporting unit.

If the fair value is less than its carrying amount, goodwill impairment is recognized equal to the difference between the fair value and its carrying amount, not to exceed its carrying amount.

Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.

A significant amount of judgement is involved in determining if an indicator of goodwill impairment occurred.

Such indicators may include, among others;

a significant decline in expected future cash flows;

a sustained significant decline in the Company's stock price and market capitalization;

a significant adverse change in legal factors or in the business climate;

adverse assessment or action by a regulator;

and unanticipated competition.

The impact to bank stocks triggered by the closure of two well-known regional banks caused a significant decline in bank stock prices in March of 2023, including our stock price.

As a result, the Company performed a quantitative goodwill impairment test as of October 31, 2023 with the assistance of an independent third-party firm specializing in goodwill impairment valuations for financial institutions.

The quantitative impairment testing involves management judgment, using widely accepted valuation techniques, such as the market approach (earnings multiples and/or transaction multiples) and the income approach (discounted cash flow ("DCF") method).

In applying these methodologies, the Company utilizes several factors, including actual operating results, future business plans, economic projections and market data.

The Company provided a five year forecast for the analysis based on the historical growth we have experienced, in addition, we provided a stressed scenario which forecasted growth using assumptions similar to the economic environment in 2023.

Both scenarios produced an estimated fair value that exceeded the carrying value of goodwill.

After the company recorded the impact of a loan related subsequent event, Management updated the Goodwill impairment analysis as of December 31, 2023.

As of December 31, 2023, there has not been any impairment of goodwill identified or recorded.

Goodwill totaled $ 30.4 million and $ 30.6 million as of December 31, 2022 and 2021, respectively.

The following presents the Company’s intangible assets and related accumulated amortization as of the dates noted (dollars in thousands):

Goodwill totaled $ 30.4 million as of December 31, 2023 and 2022.

The following presents the Company’s intangible assets and related accumulated amortization as of the dates noted:

(Dollars in thousands) 2023 2022

Other intangibles $ 5,926 $ 5,926

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Other intangible assets, net $ 1,454 $ 1,704

Amortization expense on definite-lived customer relationship and non-compete intangible assets was $ 0.3 million and an immaterial amount for the years ended December 31, 2022 and 2021, respectively.

Amortization expense on definite-lived customer relationship and non-compete intangible assets was $ 0.3 million for the years ended December 31, 2023 and 2022.

The following presents the expected amortization expense on definite-lived intangible assets existing as of December 31, 2023 (dollars in thousands):

1 unchanged sentence

Total $ 1,454

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NOTE 7 – LEASES

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The Company recognized lease costs in Occupancy and equipment expense in the accompanying Consolidated Statements of Income.

The following represents the Company’s net lease costs during the periods presented (dollars in thousands):

The following table represents the Company’s net lease costs during the periods presented (dollars in thousands):

Year Ended December 31,

2 unchanged sentences

Lease costs, net $ 4,917 $ 5,255

The following presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):

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The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):

Year Ending December 31, Operating Leases

5 unchanged sentences

In accordance with ASC 842, these leases have been accounted for as operating leases.

During the year ended December 31, 2022, the Company recognized $ 0.3 million of lease income .

The following presents a maturity analysis of the Company’s lease payments to be received on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):

During the year ended December 31, 2023 and 2022, the Company recognized $ 0.3 million of lease income.

The following table presents a maturity analysis of the Company’s lease payments to be received on an annual basis for each of the next five years and total amounts thereafter (dollars in thousands):

Year Ending December 31, Undiscounted Operating Lease Income

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NOTE 8 – DEPOSITS

The following presents the Company’s interest-bearing deposits as of the dates noted (dollars in thousands):

The following table presents the Company’s interest-bearing deposits as of the dates noted:

(Dollars in thousands) December 31,

2023 December 31,

5 unchanged sentences

Estimated aggregate time deposits of $250 or greater $ 91,038 $ 77,972

Deposits acquired through the Teton acquisition closed on December 31, 2021 totaled $ 379.2 million.

See Note 2 – Acquisitions for additional information.

Overdraft balances classified as loans totaled $ 0.2 million and an immaterial amount as of December 31, 2022 and 2021, respectively.

The following presents the scheduled maturities of all time deposits for the next five years ending December 31 (dollars in thousands):

Overdraft balances classified as loans totaled $ 0.1 million and $ 0.2 million as of December 31, 2023 and 2022, respectively.

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The following table presents the scheduled maturities of all time deposits for the next five years ending December 31 (dollars in thousands):

Year Ending December 31, Time Deposits

2 unchanged sentences

NOTE 9 – BORROWINGS

The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement.

The collateral pledged as of December 31, 2022 and December 31, 2021 amounted to $ 1.26 billion and $ 771.4 million, respectively.

The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and securities be pledged as collateral for any outstanding b orrowings under the agreement.

The collateral pledged as of December 31, 2023 and December 31, 2022 amounted to $ 1.31 billion and $ 1.26 billion, respectively.

Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $ 656.6 million as of December 31, 2023.

Each advance is payable at its maturity date.

The Company had the following required maturities on FHLB borrowings as of the dates noted (dollars in thousands):

On March 12, 2023, the FRB announced it would make additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of depositors made available through the creation of a new Bank Term Funding Program ("BTFP").

The BTFP is meant to be an additional resource of liquidity against high-quality securities, eliminating an institutions need to quickly sell those securities in times of stress.

As of December 31, 2023, the Company has pledged a par value of $ 44.3 million in securities under the BTFP and borrowed $ 31.0 million w ith a maturity date of March 27, 2024.

The rate for the borrowings is based on the one year overnight swap rate plus 10 b asis points but no lower than the interest rate on reserve balances in effect on the day the loan is made and is fixed over the term of the advance based on the date of the advance.

The Company had the following required maturities on FHLB and FRB borrowings as of the dates noted (dollars in thousands):

Maturity Date Rate % December 31,

2023 December 31,

April 22, 2022 0.37 $ — $ 5,000

May 5, 2023 0.76 % $ — $ 10,000

January 1, 2024 (1)

5.55 41,175 131,498

May 5, 2023 0.76 10,000 10,000

March 27, 2024 4.78 30,997 —

March 29, 2024 5.60 50,000 —

Total $ 122,172 $ 141,498

6 unchanged sentences

As of December 31, 2023 and 2022, there were no amounts outstanding on any of the federal funds lines.

On December 5, 2022, the Company completed the issuance and sale of subordinated notes (the "December 2022 Sub Notes") totaling $ 20.0 million in aggregate principal amount.

The issuance included $ 0.5 million of issuance costs resulting in a net balance of $ 19.5 million as of December 31, 2022 included in the Subordinated notes line of the Consolidated Balance Sheets.

The December 2022 Sub Notes accrue interest at a rate of 7.00 % per annum until December 15, 2027, at which time the rate will reset quarterly to an interest rate per annum equal to three-month term SOFR, or an alternative rate determined in accordance with the terms of the December 2022 Sub Notes, plus 328 basis points, payable quarterly in arrears;

mature on December 15, 2032;

are redeemable at the option of the Company on or after December 15, 2027.

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On January 1, 2022, the Company redeemed the subordinated notes due December 31, 2026 in the amount of $ 6.6 million, which were redeemable on or after January 1, 2022.

The redemption price was equal to 100 % of the principal amount being redeemed, plus accrued and unpaid interest up to, but excluding the date of redemption.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the Notes”) totaling $ 15.0 million in aggregate principal amount and including $ 0.3 million of issuance costs.

As of December 31, 2022, $ 14.8 million was included in the Subordinated notes line of the Consolidated Balance Sheets.

The Notes accrue interest at a rate of 3.25 % per annum until September 1, 2026, at which time the rate will adjust each quarter to the then current three-month SOFR, or an alternative rate determined in accordance with the terms of the Notes, plus 258 basis points;

mature on September 1, 2031;

are redeemable at the option of the Company on or after September 1, 2026;

and pay interest quarterly.

On November 25, 2020, the Company completed the issuance and sale of subordinated notes (the "November 2020 Sub Notes") totaling $ 10.0 million in aggregate principal amount and including $ 0.2 million of issuance costs.

As of December 31, 2022, $ 9.9 million was included in the Subordinated notes line of the Consolidated Balance Sheets.

The November 2020 Sub Notes accrue interest at a rate of 4.25 % per annum until December 1, 2025, at which time the rate will adjust each quarter to the then current three-month term SOFR, or an alternative rate determined in accordance with the terms of the November 2020 Sub Notes, plus 402 basis points;

mature on December 1, 2030;

are redeemable at the option of the Company on or after December 1, 2025;

and pay interest semi-annually prior to December 1, 2025 and quarterly after December 1, 2025.

On March 17, 2020, the Company completed the issuance and sale of subordinated notes (the "March 2020 Sub Notes") totaling $ 8.0 million in aggregate principal amount and including $ 0.1 million of issuance costs.

As of December 31, 2022, $ 7.9 million was included in the Subordinated notes line of the Consolidated Balance Sheets.

The March 2020 Sub Notes accrue interest at a rate of 5.125 % per annum until March 31, 2025, at which time the rate will adjust each quarter to the then current three-month LIBOR, or an alternative rate determined in accordance with the terms of the March 2020 Sub Notes, plus 450 basis points;

mature on March 31, 2030;

are redeemable at the option of the Company on or after March 31, 2025;

and pay interest quarterly.

The following presents the Company's subordinated notes included in the Subordinated notes line of the Consolidated Balance Sheets as of the periods noted (dollars in thousands):

Issuance Date Stated Rate Interest Paid Maturity Carrying Value Initial Debt Issuance Costs Remaining Net Balance (1)

March 2020 5.125 % per annum until 3/31/2025, then alternative rate plus 450 basis points until maturity

Quarterly 3/31/2030 $ 8,000 $ 120 $ 7,970

November 2020 4.25 % per annum until 12/1/2025, then SOFR plus 402 basis points until maturity

Semi-annual (Quarterly beginning 12/01/25) 12/1/2030 10,000 162 9,908

August 2021 3.25 % per annum until 9/1/2026, then SOFR plus 258 basis points until maturity

Semi-annual (Quarterly beginning 09/01/26) 9/1/2031 15,000 242 14,853

December 2022 7.00 % per annum until 12/15/2027, then SOFR plus 328 basis points until maturity

Semi-annual (Quarterly beginning 12/15/27) 12/15/2032 20,000 506 19,609

______________________________________

(1) Remaining net balance includes amortization of debt issuance costs.

For the years ended December 31, 2023 and 2022, the Company recorded $ 2.7 million and $ 1.4 million, respectively, of interest expense related to the collective subordinated notes.

8 unchanged sentences

Commitments may expire without being utilized.

The Company’s exposure to loan loss is represented by the contractual amount of these commitments, although material losses are not anticipated.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments, although material losses are not anticipated.

The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

The following presents the Company’s financial instruments whose contract amounts represent credit risk, as of the dates noted (dollars in thousands):

The following table presents the Company’s financial instruments whose contract amounts represent credit risk, as of the dates noted:

December 31, 2023 December 31, 2022

Fixed Rate Variable Rate Fixed Rate Variable Rate

(Dollars in thousands) Fixed Rate Variable Rate Fixed Rate Variable Rate

Unused lines of credit $ 86,398 $ 540,255 $ 211,285 $ 601,202

2 unchanged sentences

Commitments to make loans 5,275 7,115 20,895 81,663

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Unused lines of credit are agreements to lend to a client as long as there is no violation of any condition established in the contract.

3 unchanged sentences

The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the client.

Unused lines of credit under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extensions of credit to existing clients.

These lines of credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client’s obligation to a third party.

9 unchanged sentences

Since commitments may expire without being extended, total commitment amounts may not necessarily represent cash requirements.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

To estimate the ACL on unfunded loan commitments, the Company determines the probability of funding based on historical utilization statistics for unfunded loan commitments.

Loss rates are calculated using the same assumptions as the associated funded balance.

Refer to Note 4 – Loans and the Allowance for Credit Losses for changes in the factors that influenced the current estimate of ACL and reasons for the changes.

The following table presents the changes in the ACL on unfunded loan commitments:

Beginning balance $ 419

Impact of adopting ASU 2016-13 3,481

(Release) provision for credit losses ( 1,722 )

Ending balance $ 2,178

Litigation, Claims and Settlements

5 unchanged sentences

During the year ended December 31, 2023, the Company sold no shares of common stock.

On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 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 2020 Repurchase Plan.

The Company may have repurchased shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 promulgated by the SEC, or otherwise in a manner that complies with applicable federal securities laws.

The 2020 Repurchase Plan did not obligate the Company to acquire a specific dollar amount or number of shares and it may have extended, modified or discontinued at any time without notice.

The 2020 Repurchase Plan expired in November 2021.

During the year ended December 31, 2021, the Company did not repurchase any shares under the 2020 Repurchase plan.

On December 31, 2021, the Company closed on the Merger Agreement with Teton.

As part of the Merger Agreement, the Company issued 1,337,791 shares of common stock to Teton shareholders.

For additional information, see Note 2 – Acquisitions for additional information.

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Restricted Stock Awards

1 unchanged sentence

Half of the Restricted Stock Awards ($ 1.5 million or 52,632 shares) vested ratably over five years .

These awards fully vested during the year ended Decembere 31, 2022.

The remaining $ 1.5 million, or 52,632 shares, were able to be earned based on performance of the mortgage division of the Company.

The performance based awards fully vested during the year ended December 31, 2020.

As of December 31, 2022 and 2021, the Restricted Stock Awards have a weighted-average grant date fair value of $ 28.50 per share.

During the years ended December 31, 2022 and 2021, the Company recognized compensation expense of $ 0.2 million and $ 0.3 million, respectively, for the Restricted Stock Awards.

During the years ended December 31, 2022 and 2021, 10,527 and 10,526 shares, respectively, of the restricted stock awards vested.

These awards fully vested during the year ended December 31, 2022.

The remaining $ 1.5 million, or 52,632 shares, were eligible to be earned based on performance of the mortgage division of the Company.

As of December 31, 2023, all restricted stock awards were fully vested and no unrecognized compensation expense remained.

During the year ended December 31, 2022, the Company recognized compensation expense of $ 0.2 million for the Restricted Stock Awards.

During the year ended December 31, 2022, 10,527 shares of the restricted stock awards vested.

As of December 31, 2022, all restricted stock awards were fully vested and no unrecognized compensation expense remains.

Stock-Based Compensation Plans

The 2008 Stock Incentive Plan (“the 2008 Plan”) was frozen in connection with the adoption of the 2016 Plan and no new awards may be granted under the 2008 Plan.

As of December 31, 2022, there were a total of 329,035 shares available for issuance under the First Western Financial, Inc.

2016 Omnibus Incentive Plan ("the 2016 Plan").

The 2008 Stock Incentive Plan (“the 2008 Plan”) was frozen in connection with the adoption of First Western Financial, I nc.

2016 Omnibus Incentive Plan ("the 2016 Plan") and no new awards may be granted under the 2008 Plan.

Remaining shares not issued under the 2008 Plan poured into the 2016 Plan.

As of December 31, 2023, there were a total of 350,145 sh ares available for issuance under the 2016 Plan.

If the Awards outstanding under the 2008 Plan or the 2016 Plan are forfeited, cancelled or terminated with no consideration paid to the Company, those amounts will increase the number of shares eligible to be granted under the 2016 Plan.

1 unchanged sentence

The Company did not grant any stock options during the years ended December 31, 2023 and 2022.

During the year ended December 31, 2022, the Company recognized no stock based compensation expense associated with stock options.

During the year ended December 31, 2021, the Company recognized an immaterial amount of stock based compensation expense associated with stock options.

During the years ended December 31, 2023 and 2022, the Company recognized no stock based compensation expense associated with stock options.

As of December 31, 2023, the Company has no unrecognized stock-based compensation expense related to stock options.

The following presents activity for nonqualified stock options for the year ended December 31, 2022:

The following table presents activity for nonqualified stock options for the year ended December 31, 2023:

Options Weighted

10 unchanged sentences

Exercise prices are between $ 20.00 and $ 27.00 per share, and the options are exercisable for a period of ten years from the original grant date and expire on various dates between 2024 and 2026.

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Restricted Stock Units

Pursuant to the 2016 Plan, the Company can grant associates and non-associate directors long-term cash and stock-based compensation.

Historically, the Company has granted certain associates restricted stock units which are earned

over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below:

The following presents the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units during the year ended December 31, 2022:

Historically, the Company has granted certain associates restricted stock units which are earned over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.

The following table presents the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units during the year ended December 31, 2023:

Units Financial

4 unchanged sentences

Outstanding as of December 31, 2023 242,524 291,416 —

During the year ended December 31, 2022, the Company issued 67,860 shares of common stock upon the settlement of Restricted Stock Units.

The remaining 28,158 shares were surrendered with a combined market value at the dates of settlement of $ 0.9 million to cover employee withholding taxes.

During the year ended December 31, 2021, the Company issued 58,884 shares of common stock upon the settlement of Restricted Stock Units.

The remaining 20,693 shares were surrendered with a combined market value at the dates of settlement of $ 0.5 million to cover employee withholding taxes.

During the year ended December 31, 2023, the Company issued 71,895 net shares of common stock upon the settlement of Restricted Stock Units.

The remaining 25,128 shares, with a combined market value at the dates of settlement of $ 0.4 million, were withheld to cover employee withholding taxes and were subsequently added back to the Company’s pool of shares available for issuance.

During the year ended December 31, 2022, the Company issued 67,860 net shares of common stock upon the settlement of Restricted Stock Units.

The remaining 28,158 shares, with a combined market value at the dates of settlement of $ 0.9 million, were withheld to cover employee withholding taxes and were subsequently added back to the Company’s pool of shares available for issuance.

Time Vesting Units

1 unchanged sentence

The Company granted 77,871 Time Vesting Units with a five-year service period during the year ended December 31, 2023, that vest in equal installments of 20 % on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates.

During both the years ended December 31, 2022 and 2021, the Company recognized compensation expense of $ 1.7 million for the Time Vesting Units.

During the years ended December 31, 2023 and 2022, the Company recognized compensation expense of $ 1.6 million and $ 1.7 million, respectively, for the Time Vesting Units.

As of December 31, 2023, there was $ 4.6 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted-average period of 3.3 years.

2 unchanged sentences

If the Company achieves the financial metrics, which include various thresholds from 0 % up to 150 %, then the Financial Performance Units will have a subsequent vesting period.

The following presents the Company’s existing Financial Performance Units as of December 31, 2022 (dollars in thousands, except share amounts):

Table of Content s

The following table presents the Company’s existing Financial Performance Units as of December 31, 2023 (dollars in thousands, except share amounts):

Grant Period Threshold Accrual Maximum

3 unchanged sentences

May 1, 2019 through April 30, 2020 150 % 59,449 $ — 0.0 years December 31, 2021 December 31, 2023

May 1, 2020 through December 31, 2020, excluding November 18, 2020 150 % 74,364 267 2.0 years December 31, 2022 December 31, 2023

May 1, 2020 through December 31, 2020, excluding November 18, 2020 150 % 67,905 183 1.0 year December 31, 2022 December 31, 2023

On November 18, 2020 114 % 23,150 74 1.9 years December 31, 2022 50 % November 18, 2023 and 2025

4 unchanged sentences

33 % 9,090 170 3.0 years December 31, 2024 December 31, 2026

On May 1, 2023 (2)

— % — — 4.0 years December 31, 2025 December 31, 2027

_____________________________

2 unchanged sentences

(3) Performance threshold was not met for the year ended December 31, 2023.

The 100% threshold is expected to be met for the years ended December 31, 2023 and 2024.

The following presents the Company’s Financial Performance Units activity for the years noted December 31 (dollars in thousands):

The 100% threshold is expected to be met for the year ended December 31, 2024.

The following table presents the Company’s Financial Performance Units activity for the years noted December 31 (dollars in thousands):

Units Granted Compensation Expense Recognized

Grant Period 2023 2022 2023 2022

Prior to May 1, 2019 — — $ — $ 110

May 1, 2019 through April 30, 2020 (1)

22,577 — $ 68 $ 122

May 1, 2020 through December 31, 2020, excluding November 18, 2020 (1)

24,230 — 136 168

On November 18, 2020 2,942 — 147 41

May 3, 2021 through August 11, 2021 (2)

— — ( 135 ) 273

May 2, 2022 through November 2, 2022, excluding August 4, 2022 (2)

322 65,425 — —

On August 4, 2022 (3)

— 27,272 33 47

On May 1, 2023 (4)

_____________________________

(1) Performance threshold was not met for the year ended December 31, 2022;

therefore, no compensation expense was recognized as of the year ended December 31, 2022.

(2) Performance threshold was not met for the year ended December 31, 2022.

The 100% threshold is expected to be met for the years ended December 31, 2023 & 2024.

(1) Granted shares represent the final performance period payout percentage above the 100% threshold initially granted.

(2) Performance threshold was not met for the years ended December 31, 2023 and December 31, 2022 and, therefore, no compensation expense was recognized for the years ended December 31, 2023 and December 31, 2022.

(3) Performance threshold was not met for the years ended December 31, 2023 and December 31, 2022.

The 100 % threshold is expected to be met for the year ended December 31, 2024.

(4) Performance threshold was not met for the year ended December 31, 2023, therefore, no compensation expense was recognized for the year ended December 31, 2023.

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Market Performance Units

4 unchanged sentences

The Company's common stock did not trade at or above the required prices over the performance period and as a result, no Market Performance Units were eligible to be earned.

During the year ended December 31, 2022, the Company recognized an immaterial amount of compensation expense for the Market Performance Units.

During the year ended December 31, 2021, the Company recognized an immaterial amount of compensation expense for the Market Performance Units.

As of the end of the subsequent service period, or June 30, 2022, the Company had no remaining unrecognized compensation expense related to the Market Performance Units.

NOTE 12 – EARNINGS PER COMMON SHARE

The following presents the calculation of basic and diluted earnings per common share for the periods indicated (dollars in thousands, except share and per share amounts):

The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

Year Ended December 31,

(Dollars in thousands, except share and per share amounts) 2023 2022

Earnings per common share - Basic

14 unchanged sentences

Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti-dilutive.

The following presents potentially dilutive securities excluded from the diluted earnings per share calculation during the periods presented:

Table of Content s

The following table presents potentially dilutive securities excluded from the diluted earnings per share calculation during the periods presented:

Year Ended December 31,

2 unchanged sentences

Financial Performance Units 6,818 23,553

Restricted Stock Awards — 7,895

Total potentially dilutive securities 260,935 109,698

NOTE 13 – INCOME TAXES

The following presents the components of the Company’s income tax expense as of December 31 (dollars in thousands):

The following table presents the components of the Company’s income tax expense as of December 31 (dollars in thousands):

Federal $ 60 $ 5,637

State and local ( 281 ) 936

Total current tax expense 6,573 7,338

Total current tax (benefit)/expense ( 221 ) 6,573

Federal 1,844 536

1 unchanged sentence

Valuation allowance — 76

Total deferred tax expense (benefit) 557 ( 668 )

Total deferred tax expense 2,057 557

Income tax expense $ 1,836 $ 7,130

9 unchanged sentences

Income tax expense $ 1,836 $ 7,130

The following presents the principal components of the Company’s deferred tax items as of December 31 (dollars in thousands):

Table of Content s

The following table presents the principal components of the Company’s deferred tax items as of December 31 (dollars in thousands):

Deferred tax assets:

Net operating loss carryforwards $ 472 $ 472

Allowance for loan losses 4,165 3,385

Allowance for credit losses (1)

Acquired loans fair market value adjustments 607 826

Assets acquired at fair value — 226

Loans accounted for under the fair value option 216 146

Deferred rent 621 753

Deferred Rent - Liability 2,579 2,706

Stock-based compensation 1,423 1,705

Provision on other real estate owned — 463

Other intangible assets 186 254

8 unchanged sentences

Depreciation ( 2,311 ) ( 1,864 )

Unrealized gain on securities — ( 73 )

Loan fees — ( 155 )

Deferred Rent - Asset ( 2,113 ) ( 2,085 )

Acquired loans fair market value adjustments ( 196 ) ( 215 )

Other ( 189 ) ( 130 )

FHLB Redemption ( 33 ) ( 189 )

Total deferred tax liabilities ( 5,916 ) ( 5,440 )

1 unchanged sentence

Net deferred tax asset $ 6,407 $ 6,914

(1) Provision for credit loss amounts for periods prior to the ASC 326 adoption date of January 1, 2023 are reported in accordance with previously applicable GAAP.

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the total deferred tax assets.

1 unchanged sentence

As of December 31, 2023 and December 31, 2022, the Company had $ 5.5 million of California NOLs available for utilization.

For taxable years 2020, 2021, and 2022, California has suspended the NOL carryover deduction.

On February 9, 2022, Senate Bill 113 was signed to reinstate the NOL deduction for businesses and individuals that have $1 million or more of net income subject to tax in California for tax years beginning January 1, 2022.

Both corporations and individual tax payers may continue to compute and carryover an NOL during the suspension period.

Different rules apply depending on the amount of income per year.

The suspension does not apply to corporate tax payers if their income subject to California taxation is less than $1 million.

During 2020, as a result of this tax legislation and certain divestitures in California, the Company was uncertain as to the probability of realizing the full NOL.

As such, the Company recorded a valuation allowance related to the California NOLs.

As of December 31, 2023, $ 5.2 million is recorded as a valuation allowance, resulting in a tax effected valuation allowance of $ 0.4 million.

1 unchanged sentence

The Company and its subsidiaries file tax returns for the United States and for multiple states and localities.

The United States federal income tax returns of the Company are eligible to be examined for the years 2019 and forward.

The United States federal income tax returns of the Company are eligible to be examined for the years 2020 and forward and for the years 2019 and forward for major state taxing jurisdictions.

There are no federal or state tax examinations currently in progress.

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NOTE 14 – EMPLOYEE BENEFIT PLANS

1 unchanged sentence

The Company may elect to make matching contributions as defined by the plan.

For the years ended December 31, 2022 and 2021, the Company expensed matching contributions to the plan totaling $ 1.0 million.

For the years ended December 31, 2023 and 2022, the Company expensed matching contributions to the plan totaling $ 0.8 million and $ 1.0 million, respectively.

For the years ended December 31, 2023 and 2022, the Company incurred $ 0.1 million of administrative fees attributable to the plan.

3 unchanged sentences

These covered parties, along with principal owners, management, immediate family of management or principal owners, a parent company and its subsidiaries, trusts for the benefit of employees, and other parties, may be considered related parties.

The following presents a summary of related-party loan activity as of the dates noted (dollars in thousands):

The following table presents a summary of related-party loan activity as of the dates noted (dollars in thousands):

December 31, 2023 December 31, 2022

2 unchanged sentences

Payments collected ( 5,212 ) ( 11,053 )

Changes in related parties 284 —

Balance, end of period $ 25,358 $ 16,859

12 unchanged sentences

Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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Recurring Fair Value

Available-for-sale securities :

The fair values for available-for-sale investment securities are determined by quoted market prices, if available (Level 1).

For securities where quoted prices are not available, fair values are calculated based

on market prices of similar securities (Level 2).

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

Equity Securities :

10 unchanged sentences

An increase in prepayment rates or discount rate would generally reduce the estimated fair value of the guarantee asset.

Derivatives include our swap derivatives, which are compromised of cash flow hedges and derivatives not designated as hedges.

The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2).

Our derivatives are traded in an over-the-counter market where quoted market prices are not always available.

Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs.

The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position.

The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Mortgage Related Derivatives :

3 unchanged sentences

The fair value estimate of the forward commitments is based on market prices of similar securities to the underlying MBS (Level 2).

Loans Held for Investment :

Loans Held at Fair Value:

The fair value of loans held for investment are typically determined based on discounted cash flow analysis using market-based interest rate spreads.

5 unchanged sentences

The fair value of loans held for sale is determined using actual quoted commitments from third party investors resulting in a Level 1 classification.

The following presents assets and liabilities measured on a recurring basis as of the dates noted (dollars in thousands):

Table of Content s

The following tables present assets and liabilities measured on a recurring basis as of the dates noted (dollars in thousands):

December 31, 2023 Quoted

4 unchanged sentences

(Level 3) Reported

Financial Assets

Mortgage loans held for sale $ — $ 7,254 $ — $ 7,254

Loans held for sale $ 1,965 $ — $ — $ 1,965

Loans held at fair value $ — $ — $ 13,726 $ 13,726

Forward commitments and FSC $ — $ 46 $ — $ 46

Equity securities $ 636 $ 122 $ — $ 758

2 unchanged sentences

Equity warrants $ — $ — $ 795 $ 795

Swap derivative asset $ — $ 763 $ — $ 763

Financial Liabilities

Forward commitments and FSC $ — $ 351 $ — $ 351

Swap derivative liabilities $ — $ 740 $ — $ 740

December 31, 2022 Quoted

4 unchanged sentences

(Level 3) Reported

Investment securities available-for-sale:

Treasury debt $ 247 $ — $ — $ 247

Government Agency — 3,522 — 3,522

Corporate bonds — 6,212 2,113 8,325

GNMA mortgage-backed securities - residential — 26,650 — 26,650

FNMA mortgage-backed securities - residential — 14,443 — 14,443

Government CMO and MBS — 878 — 878

Corporate CMO and MBS — 1,497 — 1,497

Total securities available-for-sale $ 247 $ 53,202 $ 2,113 $ 55,562

Financial Assets

Mortgage loans held for sale $ — $ 8,839 $ — $ 8,839

Loans held for sale $ 1,965 $ — $ — $ 1,965

Loans held at fair value $ — $ — $ 23,321 $ 23,321

Forward commitments and FSC $ — $ 46 $ — $ 46

6 unchanged sentences

See Note 2 – Investment Securities for more information.

As of December 31, 2021, U.S.

Treasury debt was reported at fair value utilizing Level 1 inputs.

Three Corporate bonds were reported at fair value utilizing Level 3 inputs.

The remaining portfolio of securities were reported at fair value with Level 2 inputs provided by a pricing service.

The majority of the securities had credit support provided by the Federal Home Loan Mortgage Corporation, GNMA, and FNMA.

Factors used to value the securities by the pricing service include:

benchmark yields, reported trades, interest spreads, prepayments, and other market research.

In addition, ratings and collateral quality were considered.

As of December 31, 2022, equity securities, equity warrants, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item in the Consolidated Balance Sheets.

As of December 31, 2023, and December 31, 2022, equity securities, equity warrants, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item in the Consolidated Balance Sheets.

All changes are recorded in Non-interest income in the Consolidated Statements of Income.

Table of Content s

Fair Value Option

6 unchanged sentences

The transfer occurred at the point in time the Company decided to sell the loan and received a commitment from third party investors to purchase the loan.

During the year ended December 31, 2023, the Company reclassified $ 39.2 million of loans held for investment to loans held for sale.

The transfers occurred at the point in time the Company decided to sell the loans and received a commitment from third party investors to purchase the loans.

As of December 31, 2023, a total of $ 40.8 million reclassified loans held for sale have been sold.

As of December 31, 2023, there were no loans reclassified from held for investment to held for sale.

There were no loans accounted for under the fair value option that were 90 days or more past due and still accruing interest as of December 31, 2023 or December 31, 2022.

As of December 31, 2023, there were 98 loans, totaling $ 0.2 million accounted for under the fair value option that were on nonaccrual.

As of December 31, 2021, there were no loans accounted for under the fair value option that were on nonaccrual.

The following provides more information about the fair value carrying amount and unpaid principal outstanding of loans accounted for under the fair value option as of the dates noted (dollars in thousands):

As of December 31, 2022, there were 145 loans, totaling $ 0.1 million accounted for under the fair value option that were on nonaccrual.

During the year ended December 31, 2023, the Company recorded net charge-offs of $ 1.7 million on loans accounted for under the fair value option to Net loss on loans accounted for under the fair value option on the Consolidated Statements of Income.

During the year ended December 31, 2022, the Company recorded an immaterial amount of charge-offs on loans accounted for under the fair value option.

The following tables provide more information about the fair value carrying amount and unpaid principal outstanding of loans accounted for under the fair value option as of the dates noted:

December 31, 2023

Total Loans Non Accruals 90 Days or More Past Due

Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference

(Dollars in thousands) Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference

Mortgage loans held for sale $ 7,254 $ 7,106 $ 148 $ — $ — $ — $ — $ — $ —

Loans held for sale 1,965 1,984 ( 19 ) — — $ — — — —

Loans held for investment 23,321 23,415 ( 94 ) 139 140 ( 1 ) 139 140 ( 1 )

Loans held for investment, fair value option 13,726 14,129 ( 403 ) 210 220 ( 10 ) 210 220 ( 10 )

$ 20,980 $ 21,235 $ ( 255 ) $ 210 $ 220 $ ( 10 ) $ 210 $ 220 $ ( 10 )

1 unchanged sentence

Total Loans Non Accruals 90 Days or More Past Due

Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference Fair Value Carrying Amount Unpaid Principal Balance Difference

Mortgage loans held for sale $ 8,839 $ 8,750 $ 89 $ — $ — $ — $ — $ — $ —

Loans held for investment — — — — — — — — —

Loans held for sale 1,965 1,984 ( 19 ) — — — — — —

Loans held for investment, fair value option 23,321 23,415 ( 94 ) 139 140 ( 1 ) 139 140 ( 1 )

$ 34,125 $ 34,149 $ ( 24 ) $ 139 $ 140 $ ( 1 ) $ 139 $ 140 $ ( 1 )

The following presents the changes in fair value of loans accounted for under the fair value option as of the dates noted (dollars in thousands):

Year Ended December 31,

Table of Content s

The following table presents the changes in fair value of loans accounted for under the fair value option as of the dates noted (dollars in thousands):

Changes in Fair Value 2023 2022

Mortgage loans held for sale $ 59 $ ( 673 )

6 unchanged sentences

Loans originated 276,045 439,682

Loans acquired — 840

Fair value changes 59 ( 673 )

6 unchanged sentences

Fair value changes ( 20 ) ( 20 )

Sales ( 40,761 ) —

Settlements ( 405 ) —

Balance at end of period $ — $ 1,965

Loans held for investment 2022 2021

Loans held for investment, fair value option 2023 2022

Balance at beginning of period $ 23,321 $ —

1 unchanged sentence

Fair value changes ( 309 ) ( 94 )

Net charge-offs ( 1,700 ) —

Settlements ( 8,759 ) ( 12,201 )

Balance at end of period $ 13,726 $ 23,321

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Nonrecurring Fair Value

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OREO is evaluated annually for additional impairment and adjusted accordingly.

Impaired Loans :

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals.

Collateral Dependent Loans :

The fair value of collateral dependent loans individually analyzed and not included in the pooled loan analysis under the ACL is generally based on recent appraisals and the value of any credit enhancements associated with the loan.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

1 unchanged sentence

Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value.

Impaired loans are evaluated monthly for additional impairment and adjusted accordingly.

Collateral dependent loans are evaluated monthly and adjusted accordingly if needed.

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.

Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

The following presents assets measured on a nonrecurring basis as of the dates noted (dollars in thousands):

The following table presents assets measured at fair value on a nonrecurring basis as of the dates noted (dollars in thousands):

December 31, 2023 Quoted

4 unchanged sentences

(Level 3) Reported

Impaired loans (1) :

Collateral dependent loans

Consumer and Other $ — $ — $ 7,500 $ 7,500

1-4 Family Residential — — 2,438 2,438

Commercial and Industrial — — 25,738 25,738

_____________________________

(1) One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.

The sales comparison approach was utilized for estimating the fair value of non-recurring assets.

Owner Occupied CRE — — 3,980 3,980

Total $ — $ — $ 39,656 $ 39,656

The credit enhancement - guarantee asset value approach was utilized for estimating the fair value of non-recurring assets.

There were no assets measured on a nonrecurring basis for the year ended December 31, 2022.

During the year ended December 31, 2022, the Company recorded $ 0.4 million of OREO as a result of obtaining physical possession of foreclosed property as partial consideration for amounts owed on an impaired loan.

During the year ended December 31, 2022, the Company recorded $ 0.4 million of OREO as a result of obtaining physical possession of a foreclosed property as partial consideration for amounts owed on a collateral dependent loan.

The Company sold the property during the year ended December 31, 2022, resulting in an immaterial gain.

As of December 31, 2023 and December 31, 2022, the Company did not own any OREO properties.

As of December 31, 2021, total impaired loans measured for impairment using the fair value of the collateral dependent loans had carrying values of $ 2.2 million with valuation allowances of $ 1.8 million and were classified as Level 3.

Impaired loans accounted for no specific reserves as of December 31, 2022 and $ 1.8 million as of December 31, 2021.

The Company did not have any charge offs during the year ended December 31, 2022 from the specific reserve.

The Company charged off an immaterial amount during the year ended December 31, 2021 from the specific reserve.

Table of Content s

As of December 31, 2023, total collateral dependent loans measured using fair value had amortized cost of $ 43.5 million and were classified as Level 3.

Collateral dependent loans accounted for $ 3.8 million of the allowance on non-performing loans as of December 31, 2023 and no specific reserves as of December 31, 2022.

The Company recorded $ 8.8 million of charge-offs during the year ended December 31, 2023 and no charge-offs during the year ended December 31, 2022.

Level 3 Analysis

5 unchanged sentences

Gains (losses) in net income, net — ( 309 ) — 38 1,391 ( 30 )

Unrealized gains, net 102 — — — — —

Transfer to held-to-maturity — — — — — —

Net charge-offs — ( 1,700 ) — — — —

Settlements — ( 8,759 ) — ( 24 ) — —

5 unchanged sentences

Gains (losses) in net income, net — ( 94 ) — ( 75 ) 591 321

Unrealized gains, net 102 — — — — —

Transfer to held-to-maturity ( 6,215 ) — — — — —

Other settlements — ( 12,201 ) — ( 20 ) — —

Ending balance $ — $ 23,321 $ — $ 143 $ 229 $ 825

The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of the dates noted (dollars in thousands):

Table of Content s

The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of the dates noted:

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2023

Fair Value Valuation

(Dollars in thousands) Fair Value Valuation

Technique Significant

9 unchanged sentences

Remaining life 20.1 % to 23.0 % ( 22.4 %)

4.04 % to 4.14 % ( 4.05 )%

4.62 % ( 4.62 %)

2.00 to 2.03 years

Nonrecurring fair value

Collateral dependent loans:

Consumer and Other $ 7,500 Credit enhancement - guarantee asset value Market rate adjustments 46 % ( 8 %)

1-4 Family Residential 2,438 Credit enhancement - guarantee asset value Market rate adjustments 46 % ( 8 %)

Commercial and Industrial 24,792 Credit enhancement - guarantee asset value Market rate adjustments 46 % ( 8 %)

Commercial and Industrial 148 Sales comparison,

Market approach -

guideline transaction

method Loss given default 14 % to 62 % ( 20 %)

Commercial and Industrial 799 Credit enhancement - guarantee asset value Market rate adjustments 21 % ( 11 %)

Owner Occupied CRE 3,980 Credit enhancement - guarantee asset value Market rate adjustments 46 % ( 8 %)

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2022

Fair Value Valuation

(Dollars in thousands) Fair Value Valuation

Technique Significant

2 unchanged sentences

Recurring fair value

Corporate Bonds $ 2,113 Discounted cash flow Discount rate 7 % ( 7 )%

FSC ( 9 ) Internal pricing model Market Differential ( 14 ) bps to

Loans held for investment at fair value $ 23,321 Discounted cash flow Discount rate 4 % to 18 % ( 8 %)

Guarantee asset 143 Discounted cash flow Discount rate

3 unchanged sentences

Risk-free interest rate

Remaining life 24 % to 37 % ( 32 )%

0.30 % to 1.10 % ( 0.97 )%

Nonrecurring fair value

Impaired loans (1) :

Commercial and Industrial 439 Sales comparison, Market approach - guideline transaction method Management discount for asset/property type 17 % - 45 % ( 39 %)

_____________________________

(1) One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.

Remaining life 32.7 % to 88.9 % ( 34.8 )% 4.04 % to 4.14 % ( 4.05 )% 0 to 4 years

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Estimated Fair Value of Other Financial Instruments

3 unchanged sentences

Cash and cash equivalents $ 254,442 $ 254,442 $ — $ —

Held-to-maturity securities 81,056 234 67,433 7,051

Held-to-maturity securities, net of ACL 74,102 243 58,229 8,144

Loans, net (1)

2,493,258 — — 2,395,468

Accrued interest receivable 11,428 11,428 — —

Deposits 2,405,229 2,181,139 — 228,868

Term deposits (2)

496,452 414,613 — 82,564

Non-term deposits 2,032,587 2,032,587 — —

FHLB borrowings – fixed rate 41,175 — 41,372 —

FHLB borrowings – floating rate 50,000 — 49,986 —

Federal Reserve borrowings – fixed rate 34,536 3,539 30,936 —

4 unchanged sentences

Cash and cash equivalents $ 196,512 $ 196,512 $ — $ —

Held-to-maturity securities 81,056 234 67,433 7,051

Loans, net (1)

2,428,909 — — 2,356,085

Accrued interest receivable 10,445 10,445 — —

Deposits 2,205,703 2,035,212 — 172,240

Term deposits (2)

224,090 181,036 43,586

Non-term deposits 2,181,139 2,181,139 — —

FHLB borrowings – fixed rate 141,498 — 141,867 —

2 unchanged sentences

Accrued interest payable 1,125 1,125 — —

(1) Excludes loans accounted for under the fair value option of $ 13.7 million and $ 23.3 million as of December 31, 2023 and December 31, 2022, respectively, as these are carried at fair value.

(2) Term deposits due within one year totaling $ 414.6 million and $ 181.0 million as of December 31, 2023 and December 31, 2022, respectively, are classified under Level 1 fair value measurement.

The fair value estimates presented and discussed above are based on pertinent information available to management as of the dates specified.

2 unchanged sentences

Therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Table of Content s

The methods and assumptions, not previously presented, used to estimate fair values are described as follows.

17 unchanged sentences

Borrowings with fixed-to-floating rates are valued using inputs such as discounted cash flows and current interest rates for similar instruments and assume the Company will redeem the instrument prior to the first interest rate reset date.

NOTE 17 – DERIVATIVES

During the first quarter of 2023, the Company entered into interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position.

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties.

The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Cash Flow Hedges:

On March 21, 2023, the Company executed an interest rate swap with a notional amount that was designated as a cash flow hedge of certain Federal Home Loan Bank borrowings.

The swap hedges the benchmark index (SOFR) with a receive float/pay fixed swap for the period March 21, 2023 through April 1, 2026.

The notional amount of the interest rate swap as of December 31, 2023 was $ 50.0 million.

As of December 31, 2023, this hedge was determined to be effective, and the Company expects the hedge to remain effective during the remaining terms of the swap.

Derivatives Not Designated as Hedges:

During the year ended December 31, 2023, the Company entered into interest rate swaps to offset interest rate exposure with its commercial and residential variable rate loan clients.

Clients with variable rate loans may choose to enter into an interest rate swap to hedge the interest rate risk on the loan and effectively pay a fixed rate payment.

The Company will simultaneously enter into an interest rate swap on the same underlying loan and notional amount to hedge risk on the fixed rate loan.

The notional amount of interest rate swaps with its loan customers as of December 31, 2023 was $ 30.3 million.

While these derivatives represent economic hedges, they do not qualify as hedges for accounting purposes.

Table of Content s

The Company presents derivative position gross on the balance sheet.

The following table reflects the fair value of derivatives recorded on the Consolidated Balance Sheets as of December 31, 2023:

December 31, 2023

(Dollars in thousands) Notional Amount Fair Value

Included in other assets:

Derivatives designated as hedges:

Interest rate swaps - cash flow hedge $ 50,000 $ 77

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans 30,325 686

Total included in other assets $ 763

Included in other liabilities:

Derivatives designated as hedges:

Interest rate swaps - cash flow hedge $ — $ —

Derivatives not designated as hedging instruments:

Interest rate swaps related to customer loans 30,325 740

Total included in other liabilities $ 740

The effect of cash flow hedge accounting on accumulated other comprehensive income for the year ended December 31, 2023 is as follows (dollars in thousands):

Year Ended December 31, 2023 Unrealized Gain (Loss) Recorded in OCI on Derivative Location of Gain (Loss) Reclassified from OCI into Income Amount of Gain (Loss) Reclassified from OCI into Income

Interest rate contracts $ ( 58 ) $ — $ —

For the year ended December 31, 2023, the Company recorded $ 0.5 million of interest income related to the swap to Other borrowed funds interest expense on the Consolidated Statements of Income.

The effect of derivatives not designated as hedging instruments recorded in Other non-interest income on the Consolidated Statements of Income for the year ended December 31, 2023 was $ 0.1 million .

NOTE 18 – SEGMENT REPORTING

6 unchanged sentences

Mortgage products and services are financial in nature for which premiums are recognized, net of expenses, upon the sale of mortgage loans to third parties.

Table of Content s

The following presents the financial information for each segment that is specifically identifiable or based on allocations using internal methods for the years ended December 31, 2023 and 2022 (dollars in thousands):

4 unchanged sentences

Total interest expense 74,453 — 74,453

Provision for loan losses 3,682 — 3,682

Net interest income, after provision for loan losses 79,522 — 79,522

Provision for credit losses 10,355 — 10,355

Net interest income, after provision for credit losses 60,029 721 60,750

Non-interest income 19,053 2,895 21,948

21 unchanged sentences

On December 19, 2019, the Company invested in a low-income housing tax credit ("LIHTC") investment.

As of December 31, 2022 and 2021, the balance of the investment for LIHTC was $ 2.4 million and $ 2.6 million, respectively.

On June 26, 2023, the Company entered into two additional LIHTC investments for $ 3.0 million per investment.

As of December 31, 2023, total unfunded commitments related to LIHTC investments totaled $ 4.9 million.

As of December 31, 2022, there were no unfunded commitments related to LIHTC investments.

As of December 31, 2023 and December 31, 2022, the total balance of all LIHTC investments was $ 3.1 million and $ 2.4 million, respectively.

These balances are reflected in the Other assets line item of the Consolidated Balance Sheets.

There were no unfunded commitments related to the LIHTC investment as of December 31, 2022.

As of December 31, 2021, total unfunded commitments were $ 0.2 million.

The Company uses the proportional amortization method to account for this investment.

Amortization expense is included within the Income tax expense line item of the Consolidated Statements of Income.

During the year ended December 31, 2022, the Company recognized amortization expense of $ 0.4 million, which was included within the Income tax expense line item of the Consolidated Statements of Income.

The Company recognized amortization expense of $ 0.5 million in the year ended December 31, 2021.

Additionally, during the year ended December 31, 2022, the Company recognized tax credits and other benefits from this investment in the LIHTC of $ 0.4 million.

The Company recognized tax credits and other benefits from this investment in the LIHTC of $ 0.5 million in the year end December 31, 2021.

During the years ended December 31, 2023 and 2022, the Company recognized amortization expense of $ 0.5 million and $ 0.4 million, respectively.

Table of Content s

Additionally, during the years ended December 31, 2023 and 2022, the Company recognized $ 0.4 million of tax credits and other benefits from the LIHTC investment.

During the years ending December 31, 2023 and 2022, the Company did not incur any impairment losses.

15 unchanged sentences

Total liabilities and shareholders’ equity $ 295,479 $ 293,457

_____________________________

(1) As of December 31, 2021, taxes payable was in a receivable position as a result of timing of tax payments.

Year Ended December 31,

1 unchanged sentence

Interest income $ — $ 46

Non-interest income 7 —

Total income 53 60

Non-interest (loss)/income ( 1,280 ) 7

Total (loss)/income ( 1,280 ) 53

Interest expense 2,928 1,609

6 unchanged sentences

Net income $ 5,225 $ 21,698

Table of Content s

Year Ended December 31,

4 unchanged sentences

Deferred income tax expense ( 3,856 ) 941

Stock-based compensation 2,562 2,903

Undistributed equity in subsidiaries ( 8,762 ) ( 23,114 )

3 unchanged sentences

Cash flows from investing activities

Net cash paid on acquisition — ( 11,501 )

Investment in subsidiaries — ( 6,009 )

6 unchanged sentences

Proceeds from the exercise of stock options 245 179

Net cash provided by financing activities 12,237 15,872

Net cash provided by/(used in) financing activities ( 194 ) 12,237

Net change in cash and cash equivalents ( 5,389 ) 8,248

4 unchanged sentences

Supplemental noncash disclosures:

Common stock issued for Teton acquisition — 39,818

Stock-based compensation $ 1,843 $ 2,562

NOTE 21 – OTHER NON-INTEREST EXPENSE

6 unchanged sentences

Total other non-interest expense $ 5,374 $ 4,547

Table of Content s

NOTE 22 – REGULATORY CAPITAL MATTERS

6 unchanged sentences

The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

During the years ended December 31, 2022 and 2021, First Western made capital injections of $ 6.0 million and $ 2.9 million, respectively, into the Bank.

During the years ended December 31, 2023, First Western made no capital injections into the Bank and made $ 6.0 million of capital injections into the Bank during the year ended December 31, 2022.

Management believes as of December 31, 2023, First Western and the Bank meet all capital adequacy requirements to which they are subject to.

6 unchanged sentences

The actual capital ratios of First Western and the Bank, along with the applicable regulatory capital requirements as of December 31, 2023, were calculated in accordance with the requirements of Basel III.

The final rules of Basel III also established a "capital conservation buffer" of 2.5 % above new regulatory minimum capital ratios, which are fully effective following minimum ratios:

The final rules of Basel III also established a "capital conservation buffer" of 2.5 % above new regulatory minimum capital ratios.

The minimum capital ratios inclusive of the capital conservation buffer are as follows:

(i) a CET1 ratio of 7.0 %;

7 unchanged sentences

Management believes First Western and the Bank met all capital adequacy requirements to which they are subject to as of December 31, 2023 and December 31, 2022.

Table of Content s

The following presents the actual and required capital amounts and ratios as of the dates noted (dollars in thousands):

Actual Required for Capital Adequacy Purposes (1)

To be Well Capitalized

Actual Required for Capital Adequacy Purposes(1) To be Well Capitalized

Corrective Action

30 unchanged sentences

(1) Does not include capital conservation buffer .

The Company's principal source of funds for dividend payments is dividends received from the Bank.

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.

As of December 31, 2023, $ 102.2 million of retained earnings is available to pay dividends from the Bank.

As of December 31, 2023 and December 31, 2022 no dividends were declared and paid by the Bank.

Table of Content s

NOTE 23 - SUBSEQUENT EVENTS

Table of Content s

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data