What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-15 compared with 2021-03-12 · 191 added, 238 removed, 640 unchanged (40% of the section changed)

18 unchanged sentences

Our profit centers, which are comprised of private bankers, lenders, wealth planners and portfolio managers, under the leadership of a local chairman and/or president, are also supported centrally by teams providing management services such as operations, risk management, credit administration, marketing, technology support, human capital, and accounting/finance services, which we refer to as support centers.

From 2004, when we opened our first profit center, until December 31, 2020, we have expanded our footprint into eleven full service profit centers, two loan production offices, and two trust offices located across four states.

Following the completion of the branch purchase and assumption agreement ("Branch Acquisition") in the second quarter 2020, we added one full service profit center in Lone Tree, Colorado.

During the third quarter of 2020, we closed two branch locations which were acquired in the Branch Acquisition during the second quarter of 2020.

From 2004, when we opened our first profit center, until December 31, 2021, we have expanded our footprint into fifteen full service profit centers, two loan production offices, and two trust offices located across four states.

Following the completion of the Teton Financial Services, Inc.

(“Teton”) acquisition in the fourth quarter of 2021, we added three full service profit centers in Jackson Hole, Pinedale, and Rock Springs, Wyoming.

As of and for the year ended December 31, 2021, we had $2.53 billion in total assets, $95.4 million in total revenues and provided fiduciary and advisory services on $7.35 billion of assets under management ( "

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The changes have impacted our clients and their industries, as well as the financial services industry.

At this time, we cannot predict the impact or how long the economy or our impacted clients will be disrupted.

The Company activated its Business Continuity Plan in early March in response to the emergence of COVID-19 and has continued to adjust as the crisis continues to impact our markets, clients and business.

Since March, a majority of our associates have been working remotely.

All of our offices are open, functioning, and continue to operate in an appointment only model for client service to limit the risk of potential exposure to COVID-19 for our associates and clients.

The Company activated its Business Continuity Plan in early 2020 in response to the emergence of COVID-19 and has continued to adjust as the crisis continues to impact our markets, clients and business.

A majority of our associates have been working remotely since early 2020.

All of our offices are open, functioning, and continue to operate as usual.

We are taking additional precautions within our profit centers, including enhanced cleaning procedures and physical distancing measures, to ensure the safety of our clients and our associates.

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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 began accepting applications for the program on April 3, 2020.

As of December 31, 2020, we held 423 PPP loans for a total of $142.9 million with an average loan size of $0.3 million.

As of February 28, 2021, the Company had submitted 509 loans with original loan amounts of $142.0 million to the SBA for forgiveness and had received forgiveness on 456 loans totaling $78.5 million all related to the first round of the PPP.

On January 11, 2021 the SBA reopened the PPP, to First Draw PPP Loans and began accepting applications for Second Draw PPP Loans on January 13, 2021.

The Bank began accepting applications for the reopened program on January 19, 2021.

As of February 28, 2021, we had received 660 applications for the newest round of PPP loans from borrowers for $91.4 million with an average loan size of $0.1 million;

of the applications received, 410 applications for $68.7 million have been approved and funded by the SBA under the reopened program.

The Bank is an approved SBA PPP lender and participated in all rounds of the program.

The last round of program funds were depleted in early May 2021.

With the originations closed, the SBA turned their attention to forgiveness, processing applications submitted by the Company.

Loans funded in 2021 became eligible for forgiveness after the covered period of 8 to 24 weeks, which began for some clients in early second quarter of 2021.

As of December 31, 2021, we have received forgiveness payments of $236.3 million from the SBA and have 134 PPP loans for a total of $46.8 million with an average loan size of $0.3 million remaining.

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.

The Company has 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 last two years.

The Company had eighty-nine loans across multiple industries in the amount of $160.8 million of loans that took part in the Company’s COVID loan modification program.

No loans in the loan modification program were delinquent according to Bank policy as of December 31, 2020.

Two loans, in the aggregate amount of $2.1 million, were still in the modification period as of December 31, 2020.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a troubled debt restructuring ("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 the 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 satisfies the applicable requirements.

The Company will continue to closely monitor the performance of COVID-19 impacted clients.

Additionally, the Company will continue to review and revise its provision for loan losses as more information becomes available including the resolution of certain uncertainties some of our impacted clients face related to the government mandated shutdowns and shelter-in-place orders and the resulting financial stress.

The extent to which the COVID-19 pandemic and government actions taken in response to the pandemic will impact our operations and financial results is highly uncertain.

The Company is also lending under 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.

As of December 31, 2020, the Company had six loans with a balance held by the Bank of $6.6 million.

These loans represent 4.5% of the Commercial and Industrial line.

Further details of the MSLP are provided in Note 5 – Loans and the Allowance for Loan Losses of the accompanying Notes to the Consolidated Financial Statements.

The Company had sixty-nine loans across multiple industries in the amount of $130.4 million of loans that took part in the Company’s COVID loan modification program.

As of December 31, 2021, the modification periods have ended for all loans in the loan modification program and all loans were performing according to Bank policy.

The Company also participated 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.

As of December 31, 2021, the Company had five loans with a balance held by the Bank of $6.8 million.

Primary Factors Used to Evaluate the Results of Operations

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AUM is primarily impacted by opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation in market values.

● Net gain on mortgage loans —gain on originating and selling mortgages, origination fees, and borrower credits, less commissions to loan originators, lender credits, document review and other costs specific to originating and selling the loan.

● Net gain on mortgage loans —gain on originating and selling mortgages, origination fees, less commissions to loan originators, document review and other costs specific to originating and selling the loan.

The market adjustments for interest rate lock commitments ("IRLC") and gains and losses incurred on the mandatory trading of loans are also included in this line item.

1 unchanged sentence

● Bank fees —income generated through bank-related service charges such as:

electronic transfer fees, treasury management fees, bill pay fees, servicing fees for Main Street Lending Program, and other banking fees.

electronic transfer fees, treasury management fees, bill pay fees, servicing fees for MSLP, and other banking fees.

Banking fees are primarily impacted by the level of business activities and cash movement activities of our clients.

3 unchanged sentences

The income on the increase in the cash surrender value is non-taxable income.

● Net gain on sale of securities/assets —gain on sale of available-for-sale securities and other assets sold.

● Net gain on equity interests —gain on sale of equity securities and other assets sold.

Net gain on sale of securities/assets are primarily impacted by the amount of securities/assets sold, the type of securities/assets sold and market conditions.

● Other —non-operating income generated through a transition services agreement with the buyer of the Los Angeles (“LA”) fixed income team.

Non-Interest Expense

2 unchanged sentences

Salaries and employee benefit costs are primarily impacted by changes in headcount and fluctuations in benefits costs.

● Occupancy and equipment —costs related to leasing our office space, depreciation charges for the furniture, fixtures and equipment, amortization of leasehold improvements, utilities and other occupancy-related expenses.

● Occupancy and equipment —costs related to building and land maintenance, leasing our office space, depreciation charges for the buildings, building improvements, furniture, fixtures and equipment, amortization of leasehold improvements, utilities and other occupancy-related expenses.

Occupancy and equipment costs are primarily impacted by the number of locations we occupy.

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Marketing costs are primarily impacted by the levels of advertising programs and other marketing activities and events held throughout the year.

● Amortization of other intangible assets —primarily represents the amortization of intangible assets, including client lists and other similar items recognized in connection with acquisitions.

● Goodwill impairment —represents the $1.6 million goodwill impairment charge in 2019 related to the Company’s Los Angeles-based fixed income portfolio management team.

● Net loss on assets held for sale —represents the fair value adjustment on disposal groups held for sale.

● Amortization of other intangible assets —primarily represents the amortization of intangible assets, including client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions.

● Net loss on assets held for sale —represents the fair value adjustment on assets being sold or business lines being divested.

● Provision for other real estate owned —represents the fair value adjustment for other real estate owned ( "

2 unchanged sentences

Operating Segments

The Company’s reportable segments consist of Wealth Management and Mortgage.

We measure the overall profitability of operating segments based on income before income tax.

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A description of each segment is provided in Note 18 - Segment Reporting of the accompanying Notes to the Consolidated Financial Statements.

During the year ended December 31, 2020, we evaluated our reportable segments following the sale of our Los Angeles-based fixed income portfolio management team and certain related advisory and sub-advisory arrangements ("LA fixed income team").

We determined that the income before income tax related to the Capital Management segment was no longer significant and management will no longer be evaluating Capital Management separately for internal reporting.

As such, Capital Management is no longer a reporting unit and the Company has discontinued reporting of the Capital Management segment on a standalone basis.

The residual assets that remained in the Capital Management segment are now included in the Wealth Management segment.

All reported periods are presented under the Wealth Management segment as of December 31, 2020.

P rimary Factors Used to Evaluate our Balance Sheet

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As of December 31, 2021, the Bank’s capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.

Branch Acquisition

On February 10, 2020, the Company entered into a branch purchase and assumption agreement with Simmons Bank, pursuant to which the Company agreed to acquire all of Simmons’ Colorado locations, including three branches and one loan production office located in metro Denver, as well as certain deposits and loans and other assets.

On May 15, 2020, the Branch Acquisition was successfully completed.

See Note 2 - Acquisitions of the accompanying Notes to Consolidated Financial Statements for additional information.

Recent Events

Acquisitions and Divestitures

On July 22, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement” or “Teton Acquisition”) with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming.

The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton would merge into the Company, with the Company continuing as the surviving corporation.

The Merger Agreement also provides that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the Bank surviving the bank merger.

The transaction successfully closed on December 31, 2021.

See Note 2 – Acquisitions of the accompanying Notes to the Consolidated Financial Statements for additional information.

On September 18, 2020, the Company entered into an agreement to sell its LA fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.

1 unchanged sentence

On an ongoing basis, the sale of the LA fixed income team is expected to be earnings neutral to the Company, as the revenue decrease will be approximately in-line with the expected expense reduction.

The sale is not expected to have an impact on Bank clients but reduced the Company’s assets under management by $330.6 million.

The sale is not expected to have an impact on Bank clients but reduced the Company’s assets under management by $330.6 million during 2020.

As a result of the sale, the Company evaluated its reportable segments and determined the remaining assets following the sale in the Capital Management segment no longer meet the thresholds of income before income tax to be a reportable segment.

The residual assets that remained in the Capital Management segment are now included in the Wealth Management segment.

On February 10, 2020, the Company entered into a branch purchase and assumption agreement (“Branch Acquisition”) with Simmons Bank, pursuant to which the Company agreed to acquire all of Simmons’ Colorado locations, including three branches and one loan production office located in metro Denver, as well as certain deposits and loans and other assets.

On May 15, 2020, the Branch Acquisition was successfully completed.

See Note 2 - Acquisitions of the accompanying Notes to Consolidated Financial Statements for additional information.

Results of Operations

The year ended December 31, 2021 compared with the year ended December 31, 2020 .

For the year ended December 31, 2020, we reported net income available to common shareholders of $24.5 million, compared to net income available to common shareholders for December 31, 2019 of $8.0 million, a $16.5 million, or 206.3% increase.

For the year ended December 31, 2020, our income before income tax was $33.1 million, a $22.9 million, or 224.4%, increase from December 31, 2019.

For the year ended December 31, 2020, compared to the year ended December 31, 2019, income before income tax increased primarily as a result of a $14.0 million, or 43.8%, increase in net interest income and an increase of $18.6 million, or 57.1%, in non-interest income.

The increase in non-interest income was primarily the result

of a $691.4 million increase in mortgage loans funded, which resulted in a $18.7 million increase in net gain on mortgage loans during the year ended December 31, 2020 compared to December 31, 2019.

The increase in income before income taxes was partially offset by an increase of $5.8 million, or 10.7%, in non-interest expense, which was primarily due to an increase in expenses related to salaries and employee benefits and professional services.

For the year ended December 31, 2021, we reported net income available to common shareholders of $20.6 million, compared to net income available to common shareholders for December 31, 2020 of $24.5 million, a $3.9 million, or 16.0% decrease.

For the year ended December 31, 2021, our income before income tax was $27.3 million, a $5.8 million, or 17.5%, decrease from December 31, 2020.

The decrease was primarily driven by a $13.2 million decrease in net gain on mortgage loans and an $8.6 million increase in non-interest expense, partially offset by a $13.9 million increase in net interest income, after provision for loan losses.

The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity.

The increase in non-interest expense was primarily driven by acquisition related costs from the Teton Acquisition and an increase in personnel expense to support the growth in the balance sheet.

The increase in net interest income was due to an increase in average loan balances and a reduction in our average cost of funds.

Net Interest Income

1 unchanged sentence

For the year ended December 31, 2021, compared to the year ended December 31, 2020, net interest income, before the provision for loan losses, increased $10.4 million, or 22.6%, to $56.5 million.

This increase was partially attributable to a $381.8 million increase in average outstanding loan balances compared to December 31, 2019, and a 94 bps decrease in the average rate on interest bearing deposits, partially offset by a decrease in our average yield on loans to 3.94% for the year ended December 31, 2020 from 4.49% for the year ended December 31, 2019.

This increase was driven by a $275.4 million increase in average loans outstanding and a 19 bps decrease in the average cost of funds, partially offset by a decrease in our average yield on loans to 3.81% for the year ended December 31, 2021 from 3.94% for the year ended December 31, 2020.

For the year ended December 31, 2021, our net interest margin was 2.99% and our net interest spread was 2.87%.

For the year ended December 31, 2020, our net interest margin was 3.09% and our net interest spread was 2.92%.

The increase in average loans outstanding for the year ended December 31, 2020 compared to the same periods in 2019 was primarily due to diversified growth across all loan categories.

The increase in average loans outstanding for the year ended December 31, 2021 compared to the same periods in 2020 was primarily due to organic growth.

Net interest income is also impacted by changes in the amount and type of interest-earning assets and interest-bearing liabilities.

To evaluate net interest income, we measure and monitor the yields on our loans and other interest-earning assets and the costs of our deposits and other funding sources.

Interest income on our available-for-sale securities portfolio decreased as a result of lower average investment balances and lower average yields on the portfolio for the year ended December 31, 2020 compared to the same period in 2019.

Interest income on our available-for-sale securities portfolio decreased as a result of lower average investment balances for the year ended December 31, 2021 compared to the same period in 2020.

Our average available-for-sale securities balance during the year ended December 31, 2021 was $30.9 million, a decrease of $14.6 million from the year ended December 31, 2020.

For the year ended December 31, 2020, our average yield on the available-for-sale securities portfolio decreased to 1.93%, from 2.40% the prior year.

The impact of the reduction in average balances was partially offset by a higher average yield on the securities portfolio.

Interest expense on deposits decreased during the year ended December 31, 2021 compared to the same period in 2020.

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The reduction in cost of deposits was partially offset by an increase in average interest-bearing deposit accounts of $211.8 million compared to the prior year.

The following tables present an analysis of net interest income and net interest margin for the periods presented, using daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid and the average rate earned or paid on those assets or liabilities.

The following presents an analysis of net interest income and net interest margin for the periods presented, using daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned or paid and the average rate earned or paid on those assets or liabilities.

As of and For the Year Ended December 31,

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Interest-bearing deposits in other financial institutions

Federal funds sold

Available-for-sale securities (2)

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(8) Net interest margin is equal to net interest income divided by average interest-earning assets (excluding mortgage loans held for sale).

The following tables present the dollar amount of changes in interest income and interest expense for the periods presented, for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held for sale) and distinguishes between changes attributable to volume and interest rates.

The following presents the dollar amount of changes in interest income and interest expense for the periods presented, for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held for sale), and distinguishes between changes attributable to volume and interest rates.

Changes attributable to both rate and volume that cannot be separated have been allocated to volume.

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Increase in net interest income

Provision for Loan Losses

We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively managed.

We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses.

For the years ended December 31, 2021 and 2020, we recorded $1.2 million and $4.7 million, respectively, of provision for loan losses.

The Company has increased loan level reviews and portfolio monitoring to address the changing environment.

Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

Non-Interest Income

The year ended December 31, 2021 compared with the year ended December 31, 2020 .

For the year ended December 31, 2020 compared to the year ended December 31, 2019, non-interest income increased $18.6 million, or 57.1%, to $51.2 million.

The increase in non-interest income was attributable to higher net gain on mortgage loans, primarily related to a $691.4 million increase in mortgage loans funded from the prior year.

The table below presents the significant categories of our non-interest income for the year ended December 31, 2020 and 2019.

For the year ended December 31, 2021 compared to the year ended December 31, 2020, non-interest income decreased $11.0 million, or 21.6%, to $40.2 million.

The decrease in non-interest income was primarily a result of a $13.2 million decrease in net gain on mortgage loans, compared to the same period in 2020.

The following presents the significant categories of our non-interest income for the year ended December 31, 2021 and 2020.

(Dollars in thousands)

4 unchanged sentences

Income on company-owned life insurance

Net gain on sale of securities

Net gain on sale of assets

Net gain on equity interests

Total non-interest income

1 unchanged sentence

* Not meaningful

Trust and investment management fees — For the year ended December 31, 2020 compared to the same period in 2019, our trust and investment management fees remained relatively unchanged.

Net gain on mortgage loans — For the year ended December 31, 2020 compared to the year ended December 31, 2019, our net gain on mortgage loans increased by $18.7 million, or 176.6%, to $29.3 million.

For the year ended December 31, 2020 and 2019, our origination volume of mortgage loans was $1.33 billion and $640.6 million, respectively.

The net gain on sale of loans will fluctuate with the amount and type of loans sold and market conditions.

The increase in gain on mortgage loans for the year ended December 31, 2020 compared to 2019 was primarily related to the increase in origination volume in 2020 compared to 2019.

The increase in origination volume in 2020 was primarily

related to lower market rates driving an increase in refinance activity, a strong residential real estate market in our footprint, and management’s commitment and ability to capitalize on the mortgage environment.

Bank fees — For the year ended December 31, 2020 compared to the same period in 2019, our bank fees increased by $0.1 million or 12.5% mostly related to additional fees on MSLP loans.

Risk management and insurance fees — Risk management fees include fees earned by our risk management product group as a result of assisting clients with obtaining life insurance policies and fees from the trailing annuity revenue streams.

For the years ended December 31, 2020 and 2019, the Company recognized $1.2 million of risk management fees.

Net gain on sale of securities/assets — For the year ended December 31, 2020, the Company did not sell securities/assets.

For the year ended December 31, 2019, the Company recognized a net gain on sale of securities of $0.1 million and a net gain on sale of assets of $0.2 million related to the sale of our third party administrator services.

Provision for Loan Losses

We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize losses.

For the year ended December 31, 2020, we recorded $4.7 million of provision for loan losses, primarily resulting from an increase based on the additional variability surrounding the loan modifications made during the second quarter along with increased economic uncertainty related to the impact of the COVID-19 pandemic and overall loan growth.

The Company has increased loan level reviews and portfolio monitoring to address the changing environment.

We identified clients who could be more highly impacted by the recent COVID-19 pandemic and economic disruption and are meeting regularly with them.

The analysis reviewed the borrowers in industries we believe may be more impacted including those the lenders believed would have one or more of the following characteristics:

greater than 50% probability of a downgrade, a covenant violation or 20% reduction in collateral position.

The Company receives and reviews current financial data and cash flow forecasts from borrowers with loan modification agreements.

Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate the credit risk within the portfolio.

Only two loans remained on modified terms at December 31, 2020.

Trust and investment management fees — For the year ended December 31, 2021 compared to the same period in 2020, our trust and investment management fees increased by $1.2 million, or 6.3%, to $20.2 million.

The increase is driven by asset growth, partially offset by a reduction in trust and investment management fees generated by the LA Fixed Income team that was sold in November 2020.

Net gain on mortgage loans — For the year ended December 31, 2021 compared to the year ended December 31, 2020, our net gain on mortgage loans decreased by $13.2 million, or 45.1%, to $16.1 million.

The decrease in net gain on mortgage loans was primarily driven by a slowdown in new interest rate locks with clients associated with the decrease in refinance activity.

Bank fees — For the year ended December 31, 2021 compared to the same period in 2020, our bank fees increased by $0.5 million or 39.9%.

The increase was driven by servicing fees related to participation in the MSLP as well as increased activity consistent with the growth of the loan portfolio.

Net gain on equity interests — For the year ended December 31, 2021, the Company recognized a net gain on equity interests of $0.5 million.

Non-Interest Expense

The year ended December 31, 2021 compared with the year ended December 31, 2020 .

The increase in non-interest expense of 10.7% to $59.5 million for the year ended December 31, 2020, was primarily due to higher salaries and employee benefits expense, higher professional services expense, offset partially by a reduction in goodwill impairment charges.

The table below presents the significant categories of our non-interest expense for the periods noted:

The increase in non-interest expense of 14.5% to $68.1 million for the year ended December 31, 2021, was primarily due to $4.1 million in acquisition related costs incurred as a result of the Teton Acquisition.

The remaining increase is primarily due to increased salaries and employee benefits commensurate with and to support the increased production and revenues in the Wealth Management segment.

The following presents the impact from mergers and acquisitions activity for the periods noted:

Year Ended December 31,

(Dollars in thousands)

Mergers and acquisitions expense:

Salaries and employee benefits

Occupancy and equipment

Professional services

Technology and information systems

Data processing

Total mergers and acquisitions expense

The following presents the significant categories of our non-interest expense for the periods noted:

(Dollars in thousands)

Non-interest expense:

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Amortization of other intangible assets

Goodwill impairment

Net loss on assets held for sale

2 unchanged sentences

* Not meaningful

Salaries and employee benefits— The increase in salaries and employee benefits of $3.0 million, or 9.4%, was primarily related to added personnel from the Branch Acquisition and to support the growth in our Mortgage segment, and an increase in incentive compensation accruals driven by the strong financial performance of the Company.

These increases were partially offset by $2.9 million in deferred compensation in the form of loan origination costs related to PPP loan originations during 2020.

Occupancy and equipment— The increase in occupancy and equipment of $0.4 million, or 8.0%, was primarily driven by the addition of one full service profit center and the closing of two branch locations which were acquired in the Branch Acquisition.

Professional Services— The increase in professional services of $1.5 million, or 43.1%, was primarily driven by additional FDIC insurance expense related to our balance sheet growth, transaction expenses related to the Branch Acquisition, and an FDIC assessment credit offsetting expense in the year ended December 31, 2019.

Data processing— The increase in data processing costs of $0.9 million, or 30.5%, was primarily driven by an increase in core systems cost as a result of an increase in accounts and transactions related to the Branch Acquisition and growth in our Mortgage segment.

Marketing— The increase was driven by higher corporate advertising and agency related expenses, offset partially by lower client meal and entertainment related expenses.

Amortization of other intangible assets— The decrease in amortization of other intangible assets of $0.4 million, or 96.3%, was primarily due to certain intangibles becoming fully amortized during the year ended December 31, 2019.

Goodwill impairment— The decrease was due to a goodwill impairment charge of $1.6 million related to the Capital Management segment during the second quarter of 2019.

No goodwill impairment charges were recorded in 2020.

See Note 7 – Goodwill and Other Intangible Assets.

Net loss on assets held for sale— This amount represents the fair value adjustment on disposal groups held for sale.

In the first quarter of 2020, we recorded an impairment loss on intangibles held for sale of $0.6 million related to the Capital Management segment.

Provision on other real estate owned— This amount represents the fair value adjustment for other real estate owned.

During the year ended December 31, 2020, we incurred $0.2 million in losses as a result of sales contracts in place which were lower than the carrying value.

Other— The increase in other non-interest expense was driven by product related expenses, increased expense due to the growth in our balance sheet, and a $0.2 million SEC penalty in the previously reported Capital Management segment.

Salaries and employee benefits— The increase in salaries and employee benefits of $6.0 million, or 17.1%, was primarily related to an increase in staffing and compensation and employee benefits commensurate with increased production and revenues in the Wealth Management segment.

Professional Services— The increase in professional services of $1.4 million, or 28.6%, was driven by acquisition related expenses of $1.1 million, additional expenses related to the PPP program, and additional FDIC insurance expense related to our balance sheet growth.

Data processing— The increase in data processing costs of $2.3 million, or 58.2%, was primarily driven by $2.4 million in acquisition related expenses as a result of the Teton Acquisition in the fourth quarter of 2021.

Net loss on assets held for sale— The net loss on assets held for sale of $0.6 million in 2020 was attributable to the completion of the sale of assets and related net loss taken on the sale of the LA fixed income team.

During the year ended December 31, 2021, the Company recorded an income tax provision of $6.7 million, reflecting an effective tax rate 24.5%.

During the year ended December 31, 2020, the Company recorded an income tax provision of $8.5 million, reflecting an effective tax rate of 25.8%.

The increase in the effective tax rate was primarily attributable to a $0.4 million valuation allowance recorded following the sale of the LA fixed income team as a result of the Company’s ability to utilize the full California NOL.

Segment Reporting

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Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

The Company completed the sale of its LA fixed income team in the fourth quarter 2020.

The LA fixed income team and the related assets made up a majority of the previously reported Capital Management Segment.

As a result of the sale, the Company evaluated its reportable segments and determined the remaining assets in the Capital Management segment no longer met the thresholds to be a reportable segment.

For all periods presented, the Wealth Management segment includes the key metrics of the previously reported Capital Management segment.

The following table presents key metrics related to our segments:

The following presents key metrics related to our segments:

Year Ended December 31, 2021

(Dollars in thousands)

Management (1)

Income before taxes

2 unchanged sentences

(Dollars in thousands)

Management (1)

Income before taxes

Profit margin

(1) Includes financial information previously reported under the Capital Management segment.

(1) Net interest income after provision plus non-interest income.

The tables below present selected financial metrics of each segment as of and for the periods presented:

The following presents selected financial metrics of each segment as of and for the periods presented:

Wealth Management

9 unchanged sentences

Income before income tax

Assets held for sale

________________________________________

* Not meaningful

(1) Periods include financial information previously reported under the Capital Management segment.

(2) Includes loss on assets held for sale of $0.6 million and $0.2 million SEC penalty in the previously reported Capital Management segment.

(3) Includes goodwill impairment charge of $1.6 million in the previously reported Capital Management segment.

The Wealth Management segment reported income before income tax of $21.4 million for the year ended December 31, 2021, compared to $12.1 million, for the same period in 2020.

The increase is primarily driven by an increase in average outstanding loan balances and a decrease in cost of funds, offset partially by increasing provision for loan losses and non-interest expense.

The increase in net interest income, after provision for loan losses is primarily driven by an increase in average loans outstanding, a decrease in average cost of funds, and a decrease in provision for loan losses.

Non-interest income primarily increased due to increasing assets under management resulting in increased trust and investment management fees.

Non-interest expense increased due to $4.1 million in acquisition related expenses as well as increases in salaries and employee benefits with additional staffing and compensation to support the growth of the organization.

During the year ended December 31, 2021, average loans increased $275.4 million and the cost of funds decreased to 0.29% from 0.48% compared to the year ended December 31, 2020.

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The Mortgage segment reported income before income tax of $5.9 million for the year ended December 31, 2021, compared to $21.0 million for the same period in 2020.

The overall increase in non-interest income was primarily related to lower market rates driving an increase in refinance activity, a strong residential real estate market in our footprint and management’s commitment and ability to capitalize on the mortgage environment.

During the years ended December 31, 2020 and 2019, our origination volume was $1.33 billion and $640.6 million, respectively.

During the year ended December 31, 2020, the Company originated $875.8 million in refinance loans compared to $292.7 million the prior year.

The overall decrease in non-interest income was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity.

Financial Condition

The table below presents our condensed Consolidated Balance Sheets as of the dates presented:

The following presents our condensed Consolidated Balance Sheets as of the dates presented:

(Dollars in thousands)

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Mortgage loans held for sale

Goodwill & other intangible assets, net

Goodwill and other intangible assets, net

Company-owned life insurance

1 unchanged sentence

Other liabilities

Liabilities held for sale

Total liabilities

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Cash and cash equivalents increased by $231.0 million, or 148.1%, to $387.0 million as of December 31, 2021 compared to December 31, 2020.

The increase in liquidity was driven by organic growth in deposits related to new client relationships, increases in existing client accounts, and corporate initiatives to support current and future balance sheet growth.

During the same period, investments decreased by $22.2 million due to accelerated prepayments on mortgage backed securities, or 37.8%, to $36.7 million as of December 31, 2020.

The Company elected not to reinvest cash flows into the investment portfolio and instead increased cash balances to support loan growth due to low yield environment in the securities market.

Loans increased by $534.8 million, or 53.6%, to $1.53 billion as of December 31, 2020 compared to December 31, 2019.

The increase was driven by three primary factors:

organic growth, PPP loan originations and the Branch Acquisition.

We experienced growth in our all major loan categories with the largest growth coming in the Cash, Securities and Other category that includes $142.9 million in PPP loans.

Mortgage loans held for sale increased $113.5 million, or 235.0%, to $161.8 million as of December 31, 2020 compared to December 31, 2019.

This increase corresponds to the increase in mortgage origination volume as noted in the Mortgage segment activity.

Goodwill and other intangible assets, net increased by $4.5 million as of December 31, 2020 compared to December 31, 2019.

The increase was driven by the recording of $4.5 million in goodwill and $0.1 million of core deposit intangibles related to the Branch Acquisition.

The increase in liquidity was driven by organic growth in deposits and a reduction in mortgage loans held for sale, along with cash and cash equivalents acquired through the Teton Acquisition.

Investments increased by $19.5 million, or 53.3%, to $56.2 million as of December 31, 2021 compared to December 31, 2020.

The increase is due to available-for-sale securities acquired through the Teton Acquisition.

Loans, net of allowance increased by $415.1 million, or 27.3%, to $1.94 billion as of December 31, 2021 compared to December 31, 2020.

The increase was driven by organic growth and the Teton Acquisition.

We experienced growth in all categories excluding PPP loans which are included in the Cash, Securities and Other category.

Mortgage loans held for sale decreased $131.2 million, or 81.1%, to $30.6 million as of December 31, 2021 compared to December 31, 2020.

The decrease was driven by a decrease in loan origination volume primarily driven by a slowdown in new mortgage loan origination volume associated with the decrease in refinance activity.

Goodwill and other intangible assets, net increased by $7.6 million, or 31.5%, to $31.9 million as of December 31, 2021 compared to December 31, 2020.

The increase was driven by the recording of $6.4 million in goodwill and $1.2 million of core deposit intangibles related to the Teton Acquisition.

Other assets increased by $11.3 million, or 19.1%, to $70.5 million as of December 31, 2021 compared to December 31, 2020.

This was primarily related to a $8.7 million increase in balances related to unfunded mortgage IRLC, a $3.6 million increase in accrued interest receivable as a result of payment moratoriums related to loan modifications and PPP loans and a $3.1 million contingent consideration asset recorded as a result of the sale of the LA fixed income team.

Total deposits increased $533.1 million, or 49.1%, to $1.62 billion as of December 31, 2020 compared to December 31, 2019.

The increase in total deposits from December 31, 2019 was attributable to organic growth and the Branch Acquisition.

We experienced growth in all our major deposit categories with the largest increases coming from non-interest bearing accounts and money market deposit accounts.

Money market deposit accounts increased $231.9 million, or 37.7%, to $847.4 million as of December 31, 2020 compared to December 31, 2019.

Time deposit accounts increased $37.8 million, or 28.0%, to $172.7 million as of December 31, 2020.

This was primarily related to the acquisition of buildings and land related to the Teton Acquisition of $17.8 million, partially offset by a $8.4 million decrease in unfunded mortgage IRLC.

Deposits increased $585.8 million, or 36.2%, to $2.21 billion as of December 31, 2021 compared to December 31, 2020.

The increase was primarily attributable to the Teton Acquisition and an increase in non-interest bearing and money market deposits resulting from inflows from commercial depositors and higher deposit balances across the Company’s clientele due to the improving economic and business environment.

Money market deposit accounts increased $209.2 million, or 24.7%, to $1.06 billion as of December 31, 2021 compared to December 31, 2020.

Time deposit accounts decreased $2.2 million, or 1.3%, to $170.5 million as of December 31, 2021.

Negotiable order of withdrawal ("NOW") accounts increased $196.9 million, or 174.2%, to $309.9 million compared to December 31, 2020.

This increase in money market deposit and NOW accounts was primarily due to continued organic growth in our market areas.

Total borrowings increased $157.3 million, or 949.8%, to $173.9 million as of December 31, 2020 compared to December 31, 2019.

The increase is primarily attributed to participation in the Paycheck Protection Program Loan Facility from the Federal Reserve in the amount of $134.6 million.

Borrowing from this facility is expected to match fund the balances of PPP loans.

During the year ended December 31, 2020, the Company completed the issuance and sale of subordinated notes in the aggregate principal amount of $18.0 million to support its capital objectives.

Borrowings decreased $96.2 million, or 55.3%, to $77.7 million as of December 31, 2021 compared to December 31, 2020.

The decrease is primarily attributed to a reduction in outstanding advances on the Federal Reserve’s Paycheck Protection Program Loan Facility.

Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.

Total shareholders’ equity increased $64.1 million, or 41.4%, to $219.0 million as of December 31, 2021.

The increase is primarily due to an increase in net income.

The increase is primarily due to the Teton Acquisition and net income of $20.6 million for the year ended December 31, 2021.

Assets Under Management

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Total Assets Under Management

* Trust & investment management fees divided by period-end balance.

* Trust and investment management fees divided by period-end balance.

(1) AUM reported for the current period are one quarter in arrears.

(2) Sale of LA fixed income team resulted in closed accounts of $330.6 million.

Assets under management increased $67.0 million, or 1.1%, to $6.26 billion for the year ended December 31, 2020.

Assets under management increased $953.0 million, or 18.2%, to $6.19 billion for the year December 31, 2019.

The sale of the LA fixed income team resulted in closed accounts of $330.6 million during the year ended December 31, 2020.

Excluding the impact of the sale, the increase in 2020 is primarily attributable to net market gains.

(2) Sale of LA fixed income team resulted in closed accounts of $330.6 million in 2020.

Assets under management increased $1.10 billion, or 17.5%, to $7.35 billion for the year ended December 31, 2021.

The increase was primarily attributable to improving market conditions resulting in an increase in the value of assets under management balances and the Teton Acquisition.

Available-for-sale securities

Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized

gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax.

All our investments in securities were classified as available-for-sale for the periods presented below.

The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

The following table summarizes the amortized cost and estimated fair value of our investment securities as of December 31, 2020:

The following presents the amortized cost and estimated fair value of our investment securities as of December 31, 2021:

December 31, 2021

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Treasury debt

U.S Government Agency

Corporate bonds

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Federal National Mortgage Association ("FNMA") mortgage-backed securities—residential

Government collateralized mortgage obligations ("GMO") and mortgage-backed securities ("MBS") - commercial

Corporate collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS")

Total securities available-for-sale

The following table summarizes the amortized cost and estimated fair value of our investment securities as of December 31, 2019:

The following presents the amortized cost and estimated fair value of our investment securities as of December 31, 2020:

December 31, 2020

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Treasury debt

Corporate bonds

GNMA mortgage -backed securities—residential

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Our investments are taxable securities.

The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security as of December 31, 2021.

Weighted average yields are not presented on a taxable equivalent basis.

Securities not due at a single maturity date are included as after ten years.

Maturity as of December 31, 2021

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Treasury debt

Government agency

Corporate bonds

1 unchanged sentence

FNMA mortgage-backed securities - residential

Government CMO and MBS - commercial

Corporate CMO and MBS

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Treasury debt

Corporate bonds

GNMA mortgage-backed securities - residential

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Total available-for-sale

* Not meaningful

As of December 31, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S.

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The current amortization of this income is being recognized over a two-year period, however if a loan receives full forgiveness from the SBA, the remaining income will be recognized upon receipt of the funds from the SBA.

As of February 28, 2021, the Company had submitted to the SBA 509 loans for forgiveness with original loan amounts of $142.0 million and had received forgiveness and receipt of funds on 456 loans totaling $78.5 million all related to the first round of the PPP.

For PPP balances not forgiven, the remaining net fee is extended and amortized over a 5-year payback period.

The following table summarizes our loan portfolio by type of loan as of the dates indicated, in thousands:

The following presents our loan portfolio by type of loan as of the dates indicated, in thousands:

As of December 31,

(Dollars in thousands)

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Mortgage loans held for sale

(1) Loans held for investment exclude deferred costs (fees) and unamortized premiums/ (unaccreted discounts), net of $(1.4) million, $1.4 million, $1.2 million, $1.0 million and $0.8 million as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

(1) Loans held for investment exclude deferred costs/(fees) and unamortized premiums/(unaccreted discounts), net of ($5.0) million and ($1.4) million as of December 31, 2021 and 2020, respectively.

● 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.

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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, 2020.

PPP loans that are fully guaranteed by the SBA are classified within this line item and had balances of $46.8 million and $142.9 million as of December 31, 2021 and 2020, respectively.

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

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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 are included in this category as of December 31, 2020.

MSLP loans of $6.8 million and $6.6 million as of December 31, 2021 and 2020, respectively, are included in this category.

The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range, excluding deferred costs (fees), and unamortized premiums/(unaccreted discounts), as of the date indicated are summarized in the following tables:

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(Dollars in thousands)

Fifteen Years

Cash, Securities and Other

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(Dollars in thousands)

Fifteen Years

Cash, Securities and Other

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Amounts with floating rates

(1) Includes PPP loans.

Loan Modifications

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The Company was offering 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 last two years.

As of December 31, 2020, the Company’s loans include two modified loans, including acquired loans, across multiple industries in the amount of $2.1 million, representing 0.13% of total loans.

The following presents loans modifications as a result of COVID-19 as of December 31, 2020 (dollars in thousands):

# of Loans Modified

Outstanding Balance of Modified Loans

% of Total Loan Balance Modified

Cash, Securities and Other

Construction and Development

1-4 Family Residential

Non-Owner Occupied CRE

Owner Occupied CRE

Commercial and Industrial

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

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

The Company had eighty-nine loans across multiple industries in the amount of $160.8 million of loans that took part in the Company’s COVID loan modification program.

The Company had sixty-nine loans across multiple industries in the amount of $130.4 million of loans that took part in the Company’s COVID loan modification program.

No loans in the loan modification program were delinquent according to Bank policy as of December 31, 2021.

Two loans, in the aggregate amount of $2.1 million, were still in the modification period as of December 31, 2020.

No loans were still in the modification period as of December 31, 2021.

As of December 31, 2020, the Company’s loans included two modified loans, which were still in the modification period, across multiple industries in the amount of $2.1 million, representing 0.13% of total loans.

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

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During the year ended December 31, 2020, we incurred $0.2 million in losses as a result of sales contracts in place which were lower than the carrying value.

The amount of lost interest for non-accrual loans was $0.2 million and $0.4 million for the year ended December 31, 2020 and 2019, respectively.

We had $4.3 million in non-performing assets as of December 31, 2020 compared to $12.9 million as of December 31, 2019.

The $8.6 million decrease in our non-performing assets was primarily related to the payoff of a $5.1 million Commercial and Industrial loan, a $0.8 million paydown on another Commercial and Industrial loan, and $2.8 million paydown on a Cash, Securities, and Other loan during the year ended December 31, 2020.

The following table presents information regarding non-performing loans as of the dates indicated:

The amount of lost interest for non-accrual loans was $0.2 million for each of the years ended December 31, 2021 and 2020.

We had $4.3 million in non-performing assets as of December 31, 2021 and December 31, 2020.

The following presents information regarding non-performing loans as of the dates indicated:

As of December 31,

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Total non-performing assets

Ratio of non-performing loans to total loans (2)

Ratio of non-performing assets to total assets

Allowance as a percentage of non-performing loans

(1) As of December 31, 2020, two non-accrual loans, totaling $0.5 million, were not also classified as a TDR.

As of December 31, 2019, all non-accrual loans were also classified as TDRs.

Non-accrual loans to total loans (2)

Non-performing loans to total loans (2)

Non-performing assets to total assets

Allowance for loan losses to non-accrual loans

Allowance for loan losses to non-performing loans

(1) As of December 31, 2021, all but one non-accrual loan, totaling an immaterial amount, were also classified as TDRs.

As of December 31, 2020, all but two non-accrual loans, totaling $0.5 million, were also classified as TDRs.

See Note 5 – Loans and the Allowance for Loan Losses to the Consolidated Financial Statements.

(2) Excludes mortgage loans held for sale of $161.8 million, $48.3 million, $14.8 million, $22.9 million and $8.1 million as of December 31, 2020, 2019, 2018, 2017, and 2016, respectively.

(2) Excludes mortgage loans held for sale of $30.6 million and $161.8 million as of December 31, 2021 and 2020, respectively.

Potential Problem Loans

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As of December 31, 2021 and December 31, 2020 non-performing loans of $4.3 million and $4.1 million, respectively, were included in the substandard category in the table below.

The following tables present, by class and by credit quality indicator, the recorded investment in our loans as of the dates indicated:

The following presents, by class and by credit quality indicator, the recorded investment in our loans as of the dates indicated:

As of December 31, 2021

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Our clientele is generally comprised of high net-worth individuals and commercial borrowers with strong credit profiles and multiple sources of repayment.

The portion of our credit exposure to the highest risk industries impacted by COVID-19, such as accommodations, transportation and restaurants, is less than 3.0% of our loan portfolio.

Excluding loans acquired through the Teton Acquisition, the portion of our credit exposure to the highest risk industries impacted by COVID-19, such as accommodations, transportation and restaurants, is less than 4.3% of our loan portfolio.

We are actively reviewing our acquired loans for any exposure to high risk industries.

The Company has increased our loan level reviews and portfolio monitoring to address the changing environment and continues to engage in more frequent communication with these borrowers to better understand the impact on our borrower’s cash flows and respond proactively.

While the length of time some of these businesses are unable to operate or operate at full capacity is unknown, it could have a significant impact on many factors that impact our borrowers and our reserve requirement.

During the year ended December 31, 2020, the Company increased its allowance for loan losses to account for the additional variability surrounding the loan modifications made during the year and increased economic uncertainty related to the COVID-19 pandemic.

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

We believe the allowance for loan losses is adequate as of December 31, 2021.

The following table presents summary information regarding our allowance for loan losses for the periods indicated:

The following presents summary information regarding our allowance for loan losses for the periods indicated:

Year Ended December 31,

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Average loans outstanding (1)(2)

Gross loans outstanding at end of period (3)

Total loans outstanding at end of period (3)

Allowance for loan losses at beginning of period

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Allowance for loan losses at end of period

Ratio of allowance to end of period loans (4)

Ratio of net charge-offs to average loans (5)

Allowance for loan losses to total loans (4)

Net charge-offs to average loans (5)

(1) Average balances are average daily balances.

(2) Excludes average outstanding balances of mortgage loans held for sale of $80.5 million, $39.4 million, $21.8 million, $12.7 million and $19.0 million for the years ended for December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

(3) Excludes mortgage loans held for sale of $161.8 million, $48.3 million, $14.8 million, $22.9 million, and $8.1 million as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.

(4) End of period loans at December 31, 2020 includes $127.2 million in acquired loans and $142.9 million in PPP loans of which $12.9 million are acquired PPP loans.

No reserve is allocated for those loans.

(2) Excludes average outstanding balances of mortgage loans held for sale of $88.7 million and $80.5 million for the years ended December 31, 2021 and 2020, respectively.

(3) Excludes mortgage loans held for sale of $30.6 million and $161.8 million as of December 31, 2021 and 2020, respectively.

(4) End of period loans as of December 31, 2021 includes $252.3 million in acquired loans and $46.8 million in PPP loans, of which $6.7 million are acquired PPP loans.

No reserve is allocated for these loans.

Excluding these loans would result in an increase of the ratio for the year ended December 31, 2021

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The 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 primary driver for the increase in the allowance from December 31, 2020 to December 31, 2021 was the loan portfolio growth.

Additionally, the Company adjusted certain macro-economic factors based on continued signs of growth and recovery in the economy due to the COVID-19 pandemic.

As of December 31,

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Deferred tax assets, net represent the differences in timing of when items are recognized for GAAP purposes and when they are recognized for tax purposes, as well as our net operating losses.

As a result of the Tax Cuts and Jobs Act of 2017, our deferred tax assets, net, are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized.

As a result of book and tax basis differences, our deferred tax assets, net for year ended December 31, 2020 increased $1.0 million from December 31, 2019.

This increase was primarily driven by higher provision for loan losses along with higher incentive accruals.

The increase was partially offset by a $0.4 million valuation allowance related to the California net operating loss carry forward following the completion of the sale of our LA fixed income team.

Our deferred tax assets, net, are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized.

Our deferred tax assets, net, for the year ended December 31, 2021, increased $0.8 million from December 31, 2020.

Our deposit products include money market accounts, demand deposit accounts, time-deposit accounts (typically certificates of deposit), NOW accounts (interest checking accounts), and saving accounts.

1 unchanged sentence

Total deposits increased by $585.8 million, or 36.2%, to $2.21 billion as of December 31, 2021 from December 31, 2020.

The increase was attributable to the Teton Acquisition and continued organic growth with new client accounts, as well as increased deposit balances within the existing deposit accounts, offset partially by intentional runoff of higher rate non-relationship deposits.

Total average deposits for the year ended December 31, 2021 were $1.74 billion, an increase of $379.2 million, or 27.9%, compared to $1.36 billion as of December 31, 2020.

The increase in total deposits from December 31, 2019 was attributable to organic growth and the Branch Acquisition.

Organic growth was due to our general deposit growth initiatives, the cross-selling of products, the skills of our sales and service team, as well as additional deposits added from our trust and investment management relationships for which we also provide deposit products.

The decrease in average rates in 2020 was driven primarily by the lower interest rate environment.

The following table presents the average balances and average rates paid on deposits for the periods below:

The following presents the average balances and average rates paid on deposits for the periods below:

As of and For the Year Ended December 31,

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Money market deposit accounts

Certificates and other time deposits > $250k

Certificates and other time deposits < $250k

Uninsured time deposits

Other time deposits

Total time deposits

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The decrease was driven by a 30 basis point reduction in interest bearing deposit costs consistent with the lower interest rate environment.

Total money market accounts as of December 31, 2020 were $847.4 million, an increase of $231.9 million, or 37.7%, compared to $615.6 million as of December 31, 2019.

Total money market accounts as of December 31, 2021 were $1.06 billion, an increase of $209.2 million, or 24.7%, compared to $847.4 million as of December 31, 2020.

NOW accounts increased $196.9 million, or 174.2%, to $309.9 million compared to December 31, 2020.

Total time deposits as of December 31, 2020 were $172.7 million, an increase of $37.8 million, or 28.0%, compared to December 31, 2019.

The increase in deposits from December 31, 2019 was attributable to organic growth and the Branch Acquisition.

The following table represents the amount of certificates of deposit by time remaining until maturity as of December 31, 2020:

As of December 31, 2020

Maturity Within:

Total time deposits as of December 31, 2021 were $170.5 million, a decrease of $2.2 million, or 1.3%, compared to December 31, 2020.

The following presents the amount of certificates of deposit by time remaining until maturity as of December 31, 2021:

(Dollars in thousands)

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After 12 Months

Time, $250,000 and over

Uninsured Time Deposits

We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs.

As of December 31, 2021 and December 31, 2020, borrowings totaled $77.7 million and $173.9 million, respectively.

During the year ended December 31, 2020, the Company completed the issuance and sale of subordinated notes totaling $18.0 million.

The increase in other borrowings is primarily attributed to participation in the Paycheck Protection Program Loan Facility from the Federal Reserve with a period end balance of $134.6 million.

Borrowing from this facility is expected to match fund the balances of PPP loans.

The table below presents balances of each of the borrowing facilities as of the dates indicated:

On August 31, 2021, the Company completed the issuance and sale of subordinated notes totaling $15.0 million.

On December 22, 2021, the Company issued Notices of Redemption to debt holders totaling $6.6 million to be redeemed on January 2, 2022.

The decrease in other borrowings is primarily attributed to the paydown of loans in the Paycheck Protection Program Loan Facility from the Federal Reserve with a period end balance of $23.6 million.

Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.

The following presents balances of each of the borrowing facilities as of the dates indicated:

(Dollars in thousands)

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As of December 31, 2021 and 2020, there were no amounts outstanding on any of the federal funds lines.

As of December 31, 2019, we had a Restated Revolving Credit Note with a correspondent lending partner and the borrowing capacity associated with this facility was $5.0 million with no balance outstanding.

The Company renewed the Restated Revolving Credit Note under a new Business Loan Agreement and associated Promissory Note on October

28, 2020 to be effective as of June 30, 2020.

As of December 31, 2020, the Promissory Note had a borrowing capacity under this facility of $5.0 million and had no balance outstanding.

On October 28, 2020, the Company entered into a Business Loan Agreement and associated Promissory Note (the “Note”), dated June 30, 2020, with a corresponding lending partner.

The Note is secured by stock of the Bank and bears interest at the one month ICE Benchmark Administration (“IBA”) LIBOR plus 2.5%.

As of December 31, 2020, there were no amounts outstanding and the borrowing capacity associated with this facility was $5.0 million.

The Business Loan Agreement expired on June 30, 2021, in accordance with its terms, and was not renewed.

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"

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Access to purchased funds primarily include the ability to borrow from FHLB, other correspondent banks and the use of brokered deposits.

The following table illustrates, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated.

The following presents, during the periods presented, the composition of our funding sources and the average assets in which those funds are invested as a percentage of average total assets for the period indicated.

Average Percentage for the Year Ended

Sources of Funds:

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Total shareholders’ equity increased $64.1 million, or 41.4%, to $219.0 million as of December 31, 2021 compared to December 31, 2020.

The increase is primarily due to net income of $24.5 million, $2.5 million of stock-based compensation charges, and other comprehensive income, net of tax of $0.8 million.

During the year ended December 31, 2020, the Bank’s capital was also positively impacted by $3.7 million following the closure of the Capital Management segment as a result of the Bank assuming the remaining Goodwill of First Western Capital Management.

These increases were partially offset by stock repurchases of $0.4 million and $0.3 million of share awards settled.

The increase is primarily due to $39.8 million in equity issued as consideration for the Teton Acquisition and net income of $20.6 million.

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 repurchase shares in privately negotiated transactions, in the open

market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the Securities and Exchange Commission, or otherwise in a manner that complies with applicable federal securities laws.

The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the Securities and Exchange Commission, or otherwise in a manner that complies with applicable federal securities laws.

The 2020 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice.

During the year ended December 31, 2020, the Company repurchased 23,105 shares at an average price of $16.59.

See Note 12 – Shareholders’ Equity for a breakout of repurchased shares by repurchase plan.

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.

We are subject to various regulatory capital adequacy requirements at a consolidated level and the bank level.

7 unchanged sentences

As we continue to grow our operations and maintain capital requirements, our regulatory capital levels may decrease depending on our level of earnings.

During the year ended December 31, 2020, the Company made a $10.0 million capital injection into the Bank as a result of the growth due to the acquisition.

During the years ended December 31, 2021 and 2020, First Western made capital injections of $2.9 million and $10.0 million, respectively, into the Bank.

We continue to monitor growth and control our capital activities in order to remain in compliance with all applicable regulatory capital standards.

The following table presents our regulatory capital ratios for the dates noted.

The following presents our regulatory capital ratios for the dates noted.

December 31, 2021

16 unchanged sentences

We follow the same credit policies in making commitments as we do for on-balance sheet instruments.

The following table presents future contractual obligations to make future payments for the periods indicated (amounts in thousands):

The following presents future contractual obligations to make future payments for the periods indicated (amounts in thousands):

As of December 31, 2021

5 unchanged sentences

Minimum lease payments

(1) Reflects contractual maturity dates of December 31, 2026, March 31, 2030, and December 1, 2030.

The following tables present financial instruments whose contract amounts represent credit risk, as of the dates indicated.

(1) Reflects contractual maturity dates of December 31, 2026, March 31, 2030, December 1, 2030, and September 1, 2031.

Notice of early redemption has been provided for the subordinated notes due December 31, 2026.

The following presents financial instruments whose contract amounts represent credit risk, as of the dates indicated.

(Dollars in thousands)

Variable Rate

10 unchanged sentences

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 7. Management’s Discussion and Analysis