What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-15 compared with 2021-03-12 · 461 added, 402 removed, 1187 unchanged (42% of the section changed)

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Audited Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

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(the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years ended December 31, 2021 and 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, 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.

Basis for Opinion

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Cash and due from banks

Federal funds sold

Interest-bearing deposits in other financial institutions

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Total deposits

Federal Home Loan Bank Topeka and Federal Reserve borrowings

Federal Home Loan Bank and Federal Reserve borrowings

Subordinated notes

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Other liabilities

Liabilities held for sale

Total liabilities

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0 issued and outstanding

Convertible preferred stock - no par value;

150,000 shares authorized;

0 shares issued and outstanding

Common stock - no par value;

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Additional paid-in capital

Retained earnings (accumulated deficit)

Accumulated other comprehensive income (loss)

Retained earnings

Accumulated other comprehensive income

Total shareholders’ equity

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Investment securities

Federal funds sold and other

Interest-bearing deposits in other financial institutions

Total interest and dividend income

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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

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Amortization of other intangible assets

Goodwill impairment

Net loss on assets held for sale

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Year Ended December 31,

Other comprehensive income items, net of tax effect:

Net change in unrealized gains on available-for-sale securities

Reclassification adjustment for realized gains included in earnings

Total other comprehensive income

Other comprehensive (loss)/income items, net of tax effect:

Net change in unrealized (losses)/gains on available-for-sale securities

Comprehensive income

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Settlement of share awards

Adoption of ASU 2018-02

Share repurchase

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Balance, December 31, 2020

Other comprehensive income, net of tax

Other comprehensive loss, net of tax

Settlement of share awards

Share repurchase

Issuance of common stock for Teton Acquisition

Options exercised

Stock-based compensation

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Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization

Deferred income tax benefits, net of valuation allowance

Stock-based compensation

Provision for loan losses

Net amortization of investment securities

Stock dividends received on correspondent bank stock

Increase in cash surrender value of company-owned life insurance

Provision for loan losses

Net gain on mortgage loans

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( 1,263,346 )

( 1,331,989 )

Proceeds from mortgage loans

Gain on sale of securities

Gain on sale of assets

Loss on assets held for sale

Loss on impairment of goodwill

Depreciation and amortization

Provision for other real estate owned

Accounts receivable

Accrued interest receivable and other assets

Accrued interest payable and other liabilities

Net cash used in operating activities

Deferred income tax benefits, net of valuation allowance

Increase in cash surrender value of company-owned life insurance

Loss on assets held for sale

Stock-based compensation

Gain on equity interests

Loss/(Gain) on sale of assets

Net changes in operating assets and liabilities:

Change in accounts receivable

Change in accrued interest receivable and other assets

Change in accrued interest payable and other liabilities

Net cash provided by/(used in) operating activities

Cash flows from investing activities

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Redemption of correspondent bank stock

Contributions to low-income housing tax credit investments

Loan and note receivable originations and principal collections, net

Purchases of premises and equipment

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Proceeds from sale of other real estate owned

Net cash paid on acquisitions (Note 2)

Loan and note receivable originations and principal collections, net

Net cash received/(paid) on acquisitions

Net cash used in investing activities

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Net change in deposits

Proceeds from subordinated notes

Repurchase of common stock

Settlement of restricted stock

Recognition of capitalized subordinated notes issuance costs

Payments to Federal Home Loan Bank borrowings

Proceeds from Federal Home Loan Bank borrowings

Payments to Federal Reserve borrowings

Proceeds from Federal Reserve borrowings

Payments to Federal Home Loan Bank Topeka borrowings

Proceeds from Federal Home Loan Bank Topeka borrowings

Proceeds from subordinated notes, net of issuance costs

Proceeds from the exercise of stock options

Repurchase of common stock

Settlement of restricted stock

Net cash provided by financing activities

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Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Cash and cash equivalents, end of period

Supplemental cash flow information:

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Income tax payment, net of refunds received

Cash paid for amounts included in the measurement of lease liabilities

Cash paid for lease liabilities

Supplemental noncash disclosures:

Common stock issued for Teton acquisition

Reclass of held for sale assets, net of liabilities

Contingent asset resulting from sale of held for sale assets

Adoption of ASU 2018-02 - Reclassification of stranded tax effects

Change in unrealized gain on available for sale securities

Change in unrealized (loss)/gain on available-for-sale securities

Lease right-of-use-asset obtained in exchange for lease liabilities

See Note 2 - Acquisitions regarding noncash transactions included in the acquisition.

See accompanying notes to consolidated financial statements.

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FWFI wholly owns the following subsidiaries:

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

("RSI"), and First Western Capital Management Company ("FWCM").

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

("RSI").

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").

FWCM became inactive during the current year.

RSI and RRI are also 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) and Wyoming (Jackson Hole and Laramie).

RSI and RRI are not active operating entities.

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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All material intercompany accounts and transactions have been eliminated in consolidation.

Business Combinations and Divestitures:

On December 31, 2021, the Company completed an Agreement and Plan of Merger (the “Merger Agreement” or “Teton Acquisition”) 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.

On November 13, 2020, the Company completed the sale of its Los Angeles fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.

As a result of this transaction, the Company recorded a contingent consideration asset with an initial fair value estimated at $ 3.1 million to be received in quarterly payments over three years and a portion will be received in perpetuity.

The asset is carried at its net present value in our Other assets line item of the Consolidated Balance Sheets.

On May 15, 2020, the Company completed a branch purchase and assumption transaction ("Branch Acquisition") with Simmons Bank ("Simmons").

Management concluded that the acquisition 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.

For additional information, see Note 2.

Use of Estimates :

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Concentration of Credit Risk :

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

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

Phoenix and Scottsdale, Arizona;

and Jackson Hole and Laramie, Wyoming.

The Company does not

believe it has significant concentrations in any one industry or customer.

and Jackson Hole, Wyoming.

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

As of December 31, 2021 and December 31, 2020, 76.1 % and 66.9 %, respectively, of the Company’s loan portfolio was secured by real estate collateral.

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Correspondent Bank Stock :

Correspondent bank stock includes stock in both the Federal Home Loan Bank of Topeka ("FHLB") and Bankers’ Bank of the West ("BBW"), which are considered restricted securities because the Company may be required to hold the stock in order to maintain the correspondent banking relationship with these institutions.

No ready market exists for the FHLB stock and therefore, no quoted market values exist.

For financial reporting purposes, the FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value.

Correspondent bank stock includes stock in the Federal Home Loan Bank of Topeka ("FHLB"), Federal Reserve Bank ("FRB"), and Bankers’ Bank of the West ("BBW"), which are considered restricted securities because the Company may be required to hold the stock in order to maintain the correspondent banking relationship with these institutions.

No ready market exists for the FHLB and FRB stock and therefore, no quoted market values exist.

For financial reporting purposes, the FHLB and FRB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on ultimate recovery of par value.

The BBW stock is carried at fair value.

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During 2021, the Company’s loan portfolio included 69 loans totaling $ 130.4 million, which participated in the Company’s COVID-19 loan modification program.

As of December 31, 2020, only two loans remain in their payment deferral term, including acquired loans, in the amount of $ 2.1 million, representing 0.13 % of total loans.

As of December 31, 2021, the deferral period has ended for all loans previously modified and payments have resumed under the original terms.

COVID-19 and CARES Act :

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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.

However, the extent to which the COVID-19 pandemic will impact our operations and financial results is highly uncertain.

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

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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 supported the community and clients by originating PPP loans during the year ended December 31, 2020.

A second round of PPP funding was made available by the SBA in January 2021 and the Company is originating loans under the

new round of funding.

The Bank is an approved SBA lender and supported the community and clients by originating PPP loans since the program was created.

PPP loans are classified in the Cash, Securities and Other portion of the loan portfolio.

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Interagency guidance from Federal Reserve and the Federal Deposit Insurance Corporation ("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 a TDR.

We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of December 31, 2020.

We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of December 31, 2021 and 2020.

In accordance with that guidance, the Company is recognizing interest income on all loans modified for temporary payment moratoriums.

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, 2020.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2021 and 2020.

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

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

As of December 31, 2020, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.

As of December 31, 2021 and 2020, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.

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.

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We have intensified our portfolio management, focusing on higher impacted industries and commercial property types.

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 to account for the additional variability surrounding the loan modifications and increased economic uncertainty related to the COVID-19 pandemic.

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In addition, loans in this portfolio are collateralized with other sources of consumer collateral and an immaterial amount of each loan may be unsecured.

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

PPP loans that are fully guaranteed by the SBA are classified within this line item as of December 31, 2020.

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, 2021 and 2020.

● 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.

This category includes MSLP loans as of December 31, 2020.

This category includes MSLP loans as of December 31, 2021 and 2020.

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

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Premises and Equipment :

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

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 .

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 .

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Goodwill represents the excess of purchase price over the fair value of net identifiable tangible and intangible assets acquired in business combinations.

The Company has acquired other identifiable intangible assets, primarily consisting of customer relationships, non-competition agreements and recorded goodwill

through its acquisition of financial services companies.

The Company has acquired other identifiable intangible assets, primarily consisting of customer relationships, non-competition agreements, and recorded goodwill through its acquisition of financial services companies.

Goodwill and other indefinite-lived intangible assets are not amortized, but are tested for impairment at the reporting unit level at least annually by applying a fair value-based test using discounted estimated future net cash flows.

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Goodwill is the only intangible asset with an indefinite life on the Company’s Consolidated Balance Sheets.

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

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.

As of December 31, 2021, the Company believes the carrying value of its goodwill not to be impaired and other intangible assets to be recoverable.

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Leases in which the Company is determined to be the lessee are primarily operating leases.

Effective January 1, 2019, operating leases are included in the Other assets and Other liabilities line items of the Consolidated Balance Sheets and lease expense for lease payments is recognized on a straight-line basis over the lease term.

Leases in which the Company is determined to be the lessor are considered operating leases and consist of the partial lease of Company owned buildings.

Operating leases are included in the Other assets and Other liabilities line items of the Consolidated Balance Sheets and lease expense for lease payments is recognized on a straight-line basis over the lease term.

Right-of-use (“ROU”) assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

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Leases are accounted for on an individual lease level.

Rent holidays and rent escalations are recognized on a straight-line basis to lease expense over the lease term.

The landlord/tenant incentives are recorded as a reduction to the right of use asset and depreciated on a straight line basis over the remaining lease term once the assets are placed in service.

Other Real Estate Owned :

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Mortgage Banking Derivatives :

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

The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded.

In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for future delivery of mortgage loans when interest rate locks are entered into.

Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked.

Changes in the fair values of these derivatives are included in the Net gains on mortgage loans line of the Consolidated Statements of Income.

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.

The fair value of the IRLC is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded.

The Company sells mortgage loans to third party investors at the best execution available which includes best efforts, mandatory, and bulk bids.

Loans committed under mandatory or bulk bid are considered FSC and qualify as financial derivatives.

Fair values of these mortgage derivatives are estimated based on the change in the loan pricing from the date of the commitment to the period end date for any unsettled commitments.

Changes in the fair values of these derivatives are included in the Net gain on mortgage loans line of the Consolidated Statements of Income.

In order to manage the interest rate risk on our uncommitted IRLC and mortgage loans held for sale pipeline, the Company enters into mortgage derivative financial instruments called To Be Announced ("TBA"), which we refer to as forward commitments.

TBA agreements are forward contracts to purchase mortgage backed securities ("MBS") that will be issued by a US Government Sponsored Enterprise.

The Bank purchases or sells these derivatives to offset the changes in value of our mortgage loans held for sale and IRLC adjusted pipeline where we have exposure to interest rate volatility.

Changes in the fair values of these derivatives are included in the Net gain on mortgage loans line of the Consolidated Statements of Income.

Stock-Based Compensation :

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Fees are recognized monthly based on the average monthly value of the assets under management and the corresponding fee rate based on the terms of the contract.

Performance based incentive fees earned with respect to investment management contracts for the year ended December 31, 2019 were immaterial.

No performance based incentive fees were earned for the year ended December 31, 2020.

No performance based incentive fees were earned with respect to investment management contracts for the years ended December 31, 2021 and 2020.

Receivables are recorded on the Consolidated Balance Sheets in the Accounts receivable line item.

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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.

The administrator of LIBOR has proposed to extend publication of the most commonly used U.S.

Dollar LIBOR settings to June 30, 2023, and to cease publishing other LIBOR settings on December 31, 2021.

Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending past December 31, 2021.

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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 has prepared a timeline to transition from LIBOR before the end of 2021.

The company no longer originates LIBOR indexed loans.

Existing LIBOR indexed commercial loans are expected to be transitioned to SOFR by June 30, 2022.

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

Restrictions on Cash :

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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, 2021.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement—Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) ("ASU 2018-13").

ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements.

For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

ASU 2018-13 was effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

In April 2020, the FASB issued ASU 2020-04, "

In January 2021, the FASB issued ASU 2021-01, "

Reference Rate Reform (Topic 848) :

Facilitation of the Effects of Reference Rate Reform on Financial Reporting."

ASU 2020-04"), ASU 2020-04 is intended to provide relief for companies preparing for discontinuation of interest rates based on LIBOR.

The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or other reference rates expected to be discontinued.

ASU 2020-04 also provides for a one-time sale and/or transfer to available-for-sale or trading to be made for held-to-maturity debt securities that both reference an eligible reference rate and were classified as held-to-maturity before January 1, 2020.

ASU 2020-04 was effective for all entities as of March 12, 2020 and through December 31, 2022.

Companies can apply the ASU as of the beginning of the interim period that includes March 12, 2020 or any date thereafter.

The guidance requires companies to apply the guidance prospectively to contract modifications and hedging relationships while the one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made any time after March 12, 2020.

ASU 2020-04 was effective for the Company on March 12, 2020 and did not have a material impact on the Company’s financial statement disclosures.

("ASU 2021-01").

ASU 2021-01 clarifies the scope of Topic 848, originally issued in 2020 (ASU 2020-04).

ASU 2021-01 clarifies that derivatives affected by the related discounting transition are explicitly eligible for certain optional expedients and exceptions.

ASU 2021-01 also clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform.

ASU 2021-01 was effective for the Company on January 7, 2021 and did not have a material impact on the Company’s financial statement disclosures.

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, 2021.

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

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.

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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 loan losses as of the beginning of the first reporting period in which the guidance is effective.

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.

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The Company also continues to evaluate documentation requirements, internal control structure, relevant data sources, and system configurations.

The Company has completed a successful integration of the required fields and historical data for key loan, client and collateral data within the third-party solution and has been able to run parallels of our current allowance for loan losses calculation in the software to compare to our internal calculation and reconcile known differences.

The Company has completed a successful integration of the required fields and historical data for key loan, client and collateral data within the third-party solution and has been able to run parallels of our current allowance for loan and lease losses ("ALLL") calculation in the software to compare to our internal calculation and reconcile known differences.

The Company has started the process of selecting the methodologies to be used for each segment of its loan portfolio and started preliminarily testing to determine the impact of each methodology.

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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.

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.

This update is not expected to have a significant impact on the financial statements and disclosures.

The Company expects to early adopt beginning January 1, 2022.

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.

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

Total acquisition costs incurred through December 31, 2021 for the transaction were approximately $ 4.1 million and are primarily reflected in the Data processing, Professional services, and Salaries and employee benefits lines of the Consolidated Statements of Income, with a remaining immaterial amount in the Other line of the Consolidated Statements of Income.

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 have been measured and recorded at their fair values as of the acquisition close date of December 31, 2021.

All non-equity acquisition related costs were expensed as incurred and are included in noninterest expense in the Consolidated Statements of Income.

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 are amortized or accreted on a level yield basis over the estimated life of the asset or liability.

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

Goodwill of $ 6.4 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 have been 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.

As of December 31, 2021, loans, deposits, core deposit intangible, and equity warrants fair values are considered provisional.

These items contain estimates of the accounting for the acquisition which are subject to revision in future periods when the application of purchase accounting is finalized.

The Company utilized preliminary balance sheet values to estimate the fair values and then applied those values to the acquired balances as of December 31, 2021.

The final valuation will be determined based on the actual December 31, 2021 balances which is in process at the time of this filing.

The following presents the estimated fair values of the assets acquired and liabilities assumed in the December 31, 2021 transaction with Teton, and reflects all adjustments made to the fair value of the opening balance sheet on December 31, 2021 (in thousands):

Fair value of consideration transferred

December 31, 2021

Cash consideration

Common stock issued

Total fair value of consideration transferred

Assets acquired

Cash and cash equivalents

Available-for-sale securities, at fair value

Correspondent bank stock, at cost

Mortgage loans held for sale

Premises and equipment

Accrued interest receivable

Accounts receivable

Other receivable

Core deposit intangible (1)

Assets held for sale

Total assets acquired

Liabilities assumed

Accrued interest payable

Other liabilities

Deferred tax liabilities, net

Total liabilities assumed

Net assets acquired

Goodwill recognized

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(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 (in thousands):

Cash, Securities and Other (1)

Construction and Development

1-4 Family Residential

Non-Owner Occupied CRE

Owner Occupied CRE

Commercial and Industrial

Acquisition fair value adjustments

_____________________________________

(1) Includes $ 6.7 million in PPP loans.

The Company incurred $ 4.1 million in expenses related to the acquisition during the year ended December 31, 2021.

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

Mergers and acquisitions expense:

Salaries and employee benefits

Professional services

Data processing

Total mergers and acquisitions expense

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

The transaction closed on May 15, 2020 with an aggregate purchase price of $ 61.6 million, including a deposit premium of 6.06 %.

During the third quarter 2020, the Company closed two of the branches and the loan production office acquired in the Branch Acquisition.

During the third quarter of 2020, the Company closed two of the branches and the loan production office acquired in the Branch Acquisition.

Goodwill of $ 4.5 million was recognized in the transaction and represents expected synergies and cost savings resulting from combining the expanded footprint and expertise of the associates.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the May 15, 2020 transaction with Simmons, and reflects all adjustments made to the fair value of the opening balance sheet through December 31, 2020 (in thousands):

The following presents the estimated fair values of the assets acquired and liabilities assumed in the May 15, 2020 transaction with Simmons, and reflects all adjustments made to the fair value of the opening balance sheet through December 31, 2020 (in thousands):

Fair value of consideration transferred

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No allowance for loan losses related to acquired loans was recorded as a result of the Branch Acquisition.

Loans acquired included short-term modifications made on a good faith basis by Simmons, in response to

Loans acquired included short-term modifications made on a good faith basis by Simmons, in response to COVID-19.

All of the modification were given additional review prior to the closing of the purchase and management determined that loans were performing prior to modification and were not considered impaired at purchase.

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

There were no loans acquired that were considered to be PCI loans.

The composition of the acquired loan portfolio as of May 15, 2020 is detailed in the table below (in thousands):

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Commercial and Industrial

Total gross loans

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The Company incurred $ 0.7 million in expenses related to the acquisition during the year ended December 31, 2020.

Acquisition expenses, including professional fees, are included in the Total non-interest expense line of the Consolidated Statements of Income.

Acquisition expenses, including Data processing, Professional fees, Salaries and employee benefit, Technology and information systems, and occupancy and equipment lines are included in the Total non-interest expense line of the Consolidated Statements of Income.

The following table presents pro forma information for the years ended December 31, 2021 and 2020, as if the Teton Acquisition and Branch Acquisition had occurred on January 1, 2020.

This table 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 periods 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

Noninterest income

Pro forma earnings per share:

NOTE 3 - INVESTMENT SECURITIES

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Treasury debt

Government Agency

Corporate bonds

Government National Mortgage Association ("GNMA") mortgage-backed securities – residential

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

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

GNMA mortgage-backed securities – residential

FNMA mortgage-backed securities – residential

Government CMO and MBS - commercial

Corporate CMO and MBS

Total securities available-for-sale

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Treasury debt

Corporate bonds

GNMA mortgage-backed securities – residential

FNMA mortgage-backed securities – residential

Corporate CMO and MBS

Total securities available-for-sale

Net amortization of premiums and discounts related to mortgage securities during each of the years ended December 31, 2020 and 2019 was $ 0.4 million and $ 0.2 million, respectively, and is included in net interest income.

Net amortization of premiums and discounts related to mortgage securities during each of the years ended December 31, 2021 and 2020 was $ 0.1 million and $ 0.4 million, respectively, and is included in Net interest income in the Consolidated Statements of Income.

As of December 31, 2021, the amortized cost and estimated fair value of available-for-sale securities have contractual maturity dates shown in the table below (in thousands).

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Due between five years and ten years

Securities (agency, CMO, and MBS)

Due after ten years

Securities (CMO and MBS)

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

During the years ended 2020 and 2019, the Company invested $ 0.5 million and $ 0.4 million, respectively, in SBIC.

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

During the year ended December 31, 2020, the Company invested $ 0.5 million in SBIC.

As of December 31, 2021 and 2020, the Company held a balance of $ 2.0 million and $ 2.1 million, respectively, with SBIC, which is included in Other assets in the accompanying Consolidated Balance Sheets.

The Company may be obligated to invest up to an additional $ 1.0 million in future SBIC investments.

As of December 31, 2020 and December 31, 2019, securities with carrying values totaling $ 3.7 million and $ 5.5 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

As of December 31, 2021, securities with carrying values totaling $ 17.3 million, which includes $ 14.9 million acquired from the Teton Acquisition, were pledged to secure various public deposits and credit facilities of the Company.

As of December 31, 2020, securities with carrying values totaling $ 3.7 million were pledged.

As of December 31, 2021 and December 31, 2020, 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, 2020 and December 31, 2019, seven securities and twenty-six securities were in an unrealized loss position, with unrealized losses totaling $ 0.1 million and $ 0.4 million, respectively.

Two of the securities in an unrealized loss position as of December 31, 2020 have been in a continuous unrealized loss position for more than twelve months, and the remaining have been in a continuous unrealized loss position for less than twelve months.

As of December 31, 2021 and December 31, 2020, ten securities and seven securities were in an unrealized loss position, with unrealized losses totaling $ 0.2 million and $ 0.1 million, respectively.

One of the securities in an unrealized loss position as of December 31, 2021 has been in a continuous unrealized loss position for more than twelve months, and the remaining have been in a continuous unrealized loss position for less than twelve months.

The unrealized 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, 2021.

The following table summarizes securities with unrealized losses as of December 31, 2020 and December 31, 2019, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands, before tax):

The following presents securities with unrealized losses as of December 31, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands, before tax):

Less than 12 Months

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December 31, 2021

Treasury debt

Corporate bonds

GNMA mortgage-backed securities – residential

Corporate CMO and MBS

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December 31, 2020

GNMA mortgage-backed securities - residential

FNMA mortgage-backed securities - residential

Corporate bonds

Corporate CMO and MBS

The Company did not sell any securities during the year ended December 31, 2020.

The Company sold $ 7.5 million of securities, realized $ 0.1 million of gains, and realized no losses, from the sale of securities using the specific identification method for the year ended December 31, 2019.

The Company did not sell any securities during the years ended December 31, 2021 or 2020.

NOTE 4 – CORRESPONDENT BANK STOCK

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Total loans held for investment

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

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

Allowance for loan losses

______________________________________

(1) Includes PPP loans of $ 142.9 million as of December 31, 2020.

(2) Includes MSLP loans of $ 6.6 million as of December 31, 2020.

As of December 31, 2020, total loans held for investment include $ 127.2 million of performing loans purchased as part of the Branch Acquisition.

See Note 2 – Acquisitions for more information.

(1) Includes PPP loans of $ 46.8 million and $ 142.9 million as of December 31, 2021 and 2020, respectively.

(2) Includes MSLP loans of $ 6.8 million and $ 6.6 million as of December 31, 2021 and 2020, respectively.

As of December 31, 2021, total loans held for investment included $ 356.7 million and $ 127.2 million, respectively, of performing loans purchased through mergers or acquisitions.

The CARES Act created the PPP, which is administered by the SBA.

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The Bank is an approved SBA lender and as of December 31, 2021, the Cash, Securities and Other portion of the loan portfolio included $ 46.8 million of PPP loans, or 15.8 % of the total category.

As of December 31, 2020, the Cash, Securities, and Other portion of the loan portfolio included $ 142.9 million of PPP loans, or 40.0 % 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, 2020, the Company’s Commercial and Industrial loans included six MSLP loan with the net carrying amount of $ 6.6 million, or 4.5 % of the total category.

As of December 31, 2021, the Company’s Commercial and Industrial loans included five MSLP loans with the net carrying amount of $ 6.8 million, or 3.3 % of the total category.

As of December 31, 2020, the Company’s Commercial and Industrial loans included six MSLP loans with the net carrying amount of $ 6.6 million, or 4.5 % of the total category.

Loan Modifications

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 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 .

During 2020, the Company’s loan portfolio included 89 loans which were modified during the year, totaling $ 160.8 million.

Two of these loans were still in their deferral period as of December 31, 2020 in the amount of $ 2.1 million.

The following presents loans in their deferral period under the Company’s COVID-19 loan modification program 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 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 last two years .

As of December 31, 2021, the deferral period has ended for all loans previously modified and payments have resumed under the original terms.

As of December 31, 2021, the Company’s loan portfolio included 69 loans which were previously modified under the loan modification program, totaling $ 130.4 million.

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.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2020.

All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2021 and 2020.

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

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These are borrowers in accommodations, transportation and restaurant industries, which we believe may be more impacted by the pandemic, and those loans where there may be a greater than 50 % probability of a downgrade, covenant violation or 20 % reduction in collateral position.

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.

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, 2020, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan modifications.

As of December 31, 2021 and 2020, 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 costs (fees), and unamortized premiums/(unaccreted discounts) which are not material) in loans past due as of December 31, 2021 and December 31, 2020 (in thousands):

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Commercial and Industrial

As of December 31, 2020 and December 31, 2019, the Company did no t have any loans which were more than 90 days delinquent and accruing interest.

As of December 31, 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.

As of December 31, 2020, the Company did not have any loans which were more than 90 days delinquent and accruing interest.

Non-Accrual Loans and Troubled Debt Restructurings

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Cash, Securities and Other

1-4 Family Residential

Owner Occupied CRE

Commercial and Industrial

Non-accrual loans classified as TDR accounted for $ 3.6 million of the recorded investment as of December 31, 2020 and $ 7.2 million as of December 31, 2019, respectively.

Non-accrual loans classified as TDR accounted for $ 4.3 million of the recorded investment as of December 31, 2021 and $ 3.6 million as of December 31, 2020.

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 (in thousands):

Commercial and Industrial

Non-Owner Occupied CRE

Cash, Securities, and Other

1-4 Family Residential

Owner Occupied CRE

Commercial and Industrial

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Net recorded investment

As of December 31, 2019, the Company extended additional principal allowed under the commitment to a Commercial and Industrial borrower for operational needs, subsequent to the loan being classified as a TDR, in the amount of $ 0.2 million.

This loan was fully paid off as of December 31, 2020.

As of December 31, 2021 and December 31, 2020, the Company had no t committed any additional funds to a borrower with a loan classified as a TDR.

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 have 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, 2021, this loan remains current under the terms of the 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 has 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.

The Company modified one loan into a TDR during the year ended December 31, 2020.

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The loan paid off in full as of December 31, 2020.

The Company modified one borrower relationship with two loans into a TDR for the year ended December 31, 2019.

The borrower, who has loans that are classified as Commercial and Industrial, was not making payments in accordance with the original contract terms.

The modification included an extension of the maturity date that the Company would not have otherwise considered as a result of the Borrower’s financial difficulties.

The extension of maturity was for a period of approximately nine months.

These two loans are currently on non-accrual and the borrower was not making payments as agreed for the year ended December 31, 2020.

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.

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

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

December 31, 2021

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Cash, Securities, and Other

1-4 Family Residential

Owner Occupied CRE

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Cash, Securities, and Other

1-4 Family Residential

Owner Occupied CRE

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Commercial and Industrial

1-4 Family Residential

Total impaired loans:

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Commercial and Industrial

1-4 Family Residential

Allowance for Loan Losses

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Beginning balance

Provision for loan losses

(Recovery of)/provision for loan losses

Ending balance

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Special Mention—Loans classified as special mention have a potential weakness or borrowing relationships that require more than the usual amount of management attention.

Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies or other similar weaknesses may be

Adverse industry conditions, deteriorating financial conditions, declining trends, management problems, documentation deficiencies or other similar weaknesses may be evident.

Ability to meet current payment schedules may be questionable, even though interest and principal are still being paid as agreed.

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

Building and building improvements

Leasehold improvements, including artwork

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Premises and equipment, net

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, 2020, the Company retired leasehold improvements, equipment, and software in the amount of $ 1.1 million for an immaterial loss.

During the year ended December 31, 2019, the Company retired leasehold improvements, equipment and software in the amount of $ 2.5 million that were fully depreciated and no longer in service.

Depreciation expense for premises and equipment for the years ended December 31, 2021 and 2020 totaled $ 1.2 million and $ 1.1 million, respectively.

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NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS

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Beginning balance

Impairment (1)

Reclass to held for sale (1)

Acquisition activity

Ending balance

______________________________________

(1) Item related to sale of Capital Management segment assets, previously reported separately as the Capital Management segment.

During the year ended December 31, 2020, the Company recorded $ 4.5 million of goodwill as a result of the Branch Acquisition on May 15, 2020.

For additional information on goodwill and other intangible related to the acquisition, see Note 2 – Acquisitions.

In 2019, an interim goodwill analysis resulted in the recognition of a goodwill impairment loss of $ 1.6 million.

Additionally, the goodwill associated with Capital Management segment assets was allocated based on the relative fair value, and $ 3.6 million was reclassified to assets held for sale in 2019.

The sale of these assets was completed on November 13, 2020.

For changes related to the portion of goodwill reclassified to assets held for sale between segments, see Note 18 – Intangible Assets and Other Liabilities Classified as Held for Sale and Note 19 – Segment Reporting.

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.

During the year ended December 31, 2020, the Company recorded $ 4.5 million of goodwill as a result of the Simmons Branch Acquisition on May 15, 2020.

For additional information on goodwill and other intangible related to the Teton and Simmons Branch Acquisitions, see Note 2 – Acquisitions.

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

The Company identified a triggering event as a result of the economic impact of COVID-19 as of September 30, 2020 and performed a Step 1 quantitative analysis.

Step 1 of the two-step 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.

Step 1 of 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 carrying amount of a reporting unit exceeds its fair value, we are not required to perform the second step to the impairment test.

Our Step 1 goodwill impairment analysis as of September 30, 2020 and October 31, 2020 both indicated that the Step 2 analysis was unnecessary.

As of December 31, 2020, the Company’s reporting units had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value including goodwill.

The qualitative assessment indicated that it was not more likely than not that the carrying value of the reporting unit exceeded its fair value.

As of December 31, 2021, the Company’s reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value including goodwill.

The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value.

Therefore, the Company did not complete the two-step impairment test.

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Other intangible assets, net

During the year ended December 31, 2019, the Company retired intangible assets in the amount of $ 4.8 million that were fully amortized and no longer in service.

Amortization expense on definite-lived customer relationship and non-compete intangible assets was immaterial for the year ended December 31, 2020 and $ 0.4 million for the year ended December 31,2019.

Amortization expense on definite-lived customer relationship and non-compete intangible assets was immaterial for the years ended December 31, 2021 and 2020.

The following presents the expected amortization expense on definite-lived intangible assets existing as of December 31, 2021 (in thousands):

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Leases in which the Company is determined to be the lessee are primarily operating leases comprised of real estate property and office space for our corporate headquarters and profit centers with terms that extend to 2032.

Certain properties contain portions that are subleased with terms that ended in 2020 that were related to the Capital Management segment.

Certain properties contain portions that are subleased with terms that ended in 2020.

In accordance with ASC 842, operating leases are required to be recognized as a right-of-use asset with a corresponding lease liability.

The following table presents the classification of the right-of-use asset and corresponding liability within the Consolidated Balance Sheets.

The following table presents the classification of the right-of-use assets and corresponding liabilities within the Consolidated Balance Sheets.

The Company elected to not include short-term leases with initial terms of twelve months or less, on the Consolidated Balance Sheets (in thousands):

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Lease costs, net

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 as of December 31, 2020.

Year Ended December 31,

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 as of December 31, 2021.

Year Ending December 31,

Operating Leases

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Present value of net future minimum lease payments

Leases in which the Company is determined to be the lessor are considered operating leases and consist of the partial lease of Company owned buildings.

In accordance with ASC 842, these leases have been accounted for as operating leases.

These leases were acquired as part of the Teton Acquisition and as such, no rental income is reflected as of December 31, 2021.

The following presents a maturity analysis of the Company’s operating payments to be received on an annual basis for each of the next five years and total amounts thereafter as of December 31, 2021:

Year Ending December 31,

Undiscounted Operating Lease Income

Total undiscounted operating lease income

NOTE 9 - DEPOSITS

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Aggregate time deposits of $250 or greater

Deposits acquired through acquisitions during the year ended 2020 totaled $ 63.1 million.

See Note 2 – Acquisitions for more information.

Overdraft balances classified as loans totaled $ 0.1 million and an immaterial amount as of December 31, 2020 and 2019, respectively.

Deposits acquired through acquisitions on December 31, 2021 and May 15, 2020 totaled $ 379.2 million and $ 63.1 million, respectively.

See Note 2 – Acquisitions.

Overdraft balances classified as loans totaled an immaterial amount and $ 0.1 million as of December 31, 2021 and 2020, respectively.

The following presents the scheduled maturities of all time deposits for the next five years ending December 31 (in thousands):

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Maturity Date

August 26, 2020

April 22, 2022

To bolster the effectiveness of the SBA’s PPP, the Federal Reserve is supplying liquidity to participating financial institutions through term financing collateralized by PPP loans to small businesses.

The Paycheck Protection Program Liquidity Facility ("PPPLF") extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

As of December 31, 2020 the Company is utilizing $ 134.6 million under the PPPLF program which is included in the FHLB and Federal Reserve borrowings line of the Consolidated Balance Sheets.

The Paycheck Protection Program Liquidity Facility ("PPPLF") extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value and bearing interest at 35 bps.

The terms of the loans are directly tied to the underlying PPP loans, which were originated at 2 or 5 years .

For the years ended December 31, 2021 and 2020, the Company is utilizing $ 23.6 million and $ 134.6 million, respectively, under the PPPLF program which is included in the FHLB and Federal Reserve borrowings line of the Consolidated Balance Sheets.

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $ 10.0 million, $ 19.0 million, and $ 25.0 million.

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

As of December 31, 2020 and 2019, subordinated notes (the "2016 Sub Notes") issued to various investors totaled $ 6.6 million.

The 2016 Sub Notes accrue interest at a rate of 7.25 % per annum until December 31, 2021, at which time the rate will adjust each quarter to the then current 90 day LIBOR plus 587 basis points, mature on December 31, 2026, are redeemable at the option of the Company after January 1, 2022, and pay interest quarterly.

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.

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and pay interest quarterly.

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.

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.

The issuance included $ 0.2 million of issuance

costs resulting in a net balance of $ 9.8 million as of December 31, 2020 included in the Subordinated notes line of the Consolidated Balance Sheets.

The issuance included $ 0.2 million of issuance costs resulting in a net balance of $ 9.8 million as of December 31, 2021 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;

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and pay interest semi-annually prior to December 1, 2025 and quarterly after December 1, 2025.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the Notes”) totaling $ 15.0 million in aggregate principal amount.

The issuance included $ 0.3 million of issuance costs resulting in a net balance of $ 14.7 million as of December 31, 2021 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.

The Company has outstanding subordinated notes due December 31, 2026, totaling $ 6.6 million in aggregate principal amount, which become redeemable on or after January 1, 2022.

On December 22, 2021, the Company elected to redeem the notes and notified debt holders.

The redemption price is equal to 100 % of the principal amount being redeemed, plus accrued and unpaid interest up to, but excluding the date of redemption.

For the years ended December 31, 2021 and 2020, the Company recorded $ 1.5 million and $ 0.8 million, respectively, of interest expense related to the collective subordinated notes.

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The Company’s 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 (see Note 23 – Regulatory Capital Matters).

by federal banking agencies.

See Note 22 – Regulatory Capital Matters for more information.

As of December 31, 2021 and 2020, the Company was in compliance with the covenant requirements.

The Company had a Restated Revolving Credit Note (the "Credit Note") with a correspondent lending partner which matured on June 30, 2020 and was renewed under a new Business Loan Agreement and associated Promissory Note (the "Note") dated June 30, 2020.

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

As of December 31, 2020 and 2019, there were no amounts outstanding and the borrowing capacity associated with both facilities was $ 5.0 million.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

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Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a client’s obligation to a third party.

Those letters of credit are primarily issued to support public and private borrowing

arrangements.

Those letters of credit are primarily issued to support public and private borrowing arrangements.

Substantially all letters of credit issued have expiration dates within one year.

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While the ultimate outcome of any such proceedings cannot be predicted with certainty, it is the opinion of management, based on advice from legal counsel, that no proceedings exist, either individually or in the aggregate, which, if determined adversely to the Company, would have a material effect on the Company’s consolidated financial statements.

Without admitting or denying the SEC’s findings, FWCM agreed on July 16, 2020 to settle claims that FWCM failed reasonably to supervise its investment adviser representatives who purchased securities sold in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), for advisory clients when the clients were not qualified institutional buyers in a Rule 144A transaction, and to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940 and the rules thereunder by the adviser and its supervised persons.

Without admitting or denying the SEC’s findings, First Western Capital Management (“FWCM”), a previously owned subsidiary of First Western, agreed on July 16, 2020 to settle claims that FWCM failed reasonably to supervise its investment adviser representatives who purchased securities sold in reliance on Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), for advisory clients when the clients were not qualified institutional buyers in a Rule 144A transaction, and to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940 and the rules thereunder by the adviser and its supervised persons.

The Company had since replaced the FWCM President and FWCM compliance team which were in place during that time.

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On June 14, 2019, the Company announced that its board of directors had authorized a share repurchase plan (the "2019 Repurchase Plan") under which the Company may repurchase up to 300,000 shares of its common stock and that the Board of Governors of the Federal Reserve System advised the Company that it had no objection to the Company’s 2019 Repurchase Plan.

The 2019 Repurchase Plan authorizes the Company to purchase its common stock from time to time in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 plan promulgated by the Securities and Exchange Commissions, or otherwise in a manner that complies with applicable federal securities laws.

The 2019 Repurchase Plan was in effect for a one-year period, with the timing of purchases and the number of shares repurchased under the program dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions.

The 2019 Repurchase Plan may be suspended or discontinued at any time without notice.

During the years ended December 31, 2020 and 2019, the Company repurchased 22,679 shares at an average price of $ 16.50 and 43,698 shares at an average price of $ 16.51 , respectively, under the authorization of the 2019 Repurchase Plan.

The 2019 Repurchase Plan expired in June 2020.

During the year ended December 31, 2020, the Company repurchased 22,679 shares at an average price of $ 16.50 .

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 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.

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.

During the year ended December 31, 2020, the Company repurchased 426 shares at an average price of $ 17.30 under the authorization of 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.

During the years ended December 31, 2021 and 2020, the Company sold no shares of common stock.

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During the year ended December 31, 2020, the Company recognized compensation expense of $ 0.1 million, representing the remaining 14,114 shares, related to the performance based awards.

During the year ended December 31, 2019, the Company recognized compensation expense of $ 0.6 million, representing 38,518 shares, related to the performance-based awards.

The performance based awards fully vested in the second quarter of 2020.

As of December 31, 2021 and 2020, the Restricted Stock Awards have a weighted-average grant date fair value of $ 28.50 per share.

The Company has recognized compensation expense of $ 0.4 million and $ 0.9 million, respectively, for all the Restricted Stock Awards.

As of December 31, 2020, the Company has $ 0.5 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of 1.2 years.

Restricted Stock Awards represented 40,614 shares that vested during the year ended December 31, 2020.

During the years ended December 31, 2021 and 2020, the Company recognized compensation expense of $ 0.3 million and $ 0.4 million, respectively, for all the Restricted Stock Awards.

As of December 31, 2021, the Company has $ 0.2 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of less than one year .

During the year ended December 31, 2021, 10,526 shares of the Restricted Stock Awards vested.

During the year ended December 31, 2020, 10,527 of the Restricted Stock Awards and 30,088 shares of the performance based Restricted Stock Awards vested.

Stock-Based Compensation Plans

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The Company did not grant any stock options during the years ended December 31, 2021 and 2020.

During the years ended December 31, 2020 and 2019, the Company recognized stock-based compensation expense of $ 0.2 million and $ 0.3 million, respectively.

As of December 31, 2020, the Company has an immaterial amount of unrecognized stock-based compensation expense related to stock options which are unvested.

That cost is expected to be recognized over a weighted-average period of less than one year.

The following summarizes activity for nonqualified stock options for the year ended December 31, 2020:

During the years ended December 31, 2021 and 2020, the Company recognized an immaterial amount and $ 0.2 million, respectively, of stock based compensation expense associated with stock options.

As of December 31, 2021, 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, 2021:

Outstanding as of December 31, 2020

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Options fully vested/exercisable as of December 31, 2021

(a) Nonqualified stock options outstanding at the end of the period and those fully vested / exercisable had immaterial aggregate intrinsic values.

(1) Nonqualified stock options outstanding at the end of the period and those fully vested/exercisable had immaterial aggregate intrinsic values.

As of December 31, 2021 and December 31, 2020, there were 308,574 and 414,727 options, respectively, that were exercisable.

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During the year ended December 31, 2021, the Company 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 summarizes the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units for the year ended December 31, 2020:

The following presents the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units for the year ended December 31, 2021:

Outstanding as of December 31, 2020

Outstanding as of December 31, 2021

During the year ended December 31, 2020, the Company issued 34,710 shares of common stock upon the settlement of Time Vesting Units.

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, 2019, the Company issued 15,446 shares of common stock upon the settlement of Time Vesting Units.

During the year ended December 31, 2020, the Company issued 34,710 shares of common stock upon the settlement of Restricted Stock Units.

The remaining 20,043 shares were surrendered with a combined market value at the dates of settlement of $ 0.3 million to cover employee withholding taxes.

2 unchanged sentences

The Company granted 59,194 Time Vesting Units with a five-year service period during the year ended December 31, 2021, that vest in equal installments of 20 % on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates.

The Time Vesting Units granted in 2020 have a weighted-average grant-date fair value of $ 13.65 per unit.

During the years ended December 31, 2021 and 2020, the Company recognized compensation expense of $ 1.7 million and $ 1.4 million, respectively, for the Time Vesting Units.

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December 31, 2022

50 % November 18, 2023 & 2025

50 % November 18, 2023 and 2025

May 3, 2021 through August 11, 2021

December 31, 2023

December 31, 2025

________________

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On November 18, 2020

________________

*Not meaningful

May 3, 2021 through August 11, 2021

Market Performance Units

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During years ended December 31, 2021 and 2020, the Company recognized an immaterial amount of compensation expense for the Market Performance Units.

As of December 31, 2020, there was $ 0.4 million of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted-average period of 1.5 years.

If the Company’s common stock is trading at or above certain prices, over a performance period which ended on June 30, 2020, the Market Performance Units would have been determined to be earned and vest following the completion

of a subsequent service period ending on June 30, 2022.

As of December 31, 2021, there was an immaterial amount of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted-average period of less than one year .

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 are eligible to be earned.

NOTE 13 - EARNINGS PER COMMON SHARE

The table below presents the calculation of basic and diluted earnings per common share for the periods indicated (amounts in thousands, except share and per share amounts):

The following presents the calculation of basic and diluted earnings per common share for the periods indicated (amounts in thousands, except share and per share amounts):

Year Ended December 31,

7 unchanged sentences

Diluted effect of common stock equivalents:

Stock options

Time Vesting Units

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NOTE 14 - INCOME TAXES

The components of the Company’s income tax expense as of December 31 (in thousands):

The following presents the components of the Company’s income tax expense as of December 31 (in thousands):

State and local

2 unchanged sentences

Valuation allowance

Total deferred (benefit) tax

Total deferred tax benefit

Income tax expense

3 unchanged sentences

State taxes, net of federal expense

Low income housing investment

LIHTC investment tax credit

LIHTC investment proportional amortization

Valuation allowance

Other, net (1)

Income tax expense

(1) Includes the impact of R&D tax credits.

The following were the principal components of the Company’s deferred tax items as of December 31 (in thousands):

The following presents the principal components of the Company’s deferred tax items as of December 31 (in thousands):

Deferred tax assets:

1 unchanged sentence

Allowance for loan losses

Acquired loans fair market value adjustments

Acquisition related basis adjustment

Deferred rent

2 unchanged sentences

Other intangible assets

Unrealized losses on securities, net

Accrued bonuses

Accrued expenses

Total deferred tax assets

Deferred tax liabilities:

Unrealized gains on securities, net

Unrealized gain on securities

Total deferred tax liabilities

1 unchanged sentence

Net deferred tax asset

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.

The net operating loss ("NOL") carryforwards expire in tax years 2028 through 2032.

As of December 31, 2020, the Company has $ 6.5 million of California NOLs available for utilization.

In general, a corporation’s ability to utilize its NOL carryforwards may be substantially limited due to ownership changes that have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), as well as similar state provisions.

These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax.

In general, an "ownership change,"

as defined by Section 382 of the Code, results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the capital (as defined) of a company by certain stockholders or public groups.

During 2020, as a result of divestitures, the Company did not expect to realize the full NOL.

As such, the Company recorded a $ 0.4 million valuation allowance related to the California NOLs.

As of December 31, 2021, the Company has $ 5.5 million of California NOLs available for utilization, compared to $ 6.5 million as of December 31, 2020.

For taxable years 2020, 2021, and 2022, California has suspended the NOL carryover deduction.

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 $ 4.3 million valuation allowance related to the California NOLs, resulting in a tax effected valuation allowance of $ 0.4 million.

The Company identified no other material uncertain tax positions for which it is reasonably possible the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months .

For the tax year ended December 31, 2020, the Company’s apportioned California income was just under $1 million and therefore was able to utilize the same amount in NOLs.

The Company and its subsidiaries file tax returns for the United States and for multiple states and localities.

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For the years ended December 31, 2021 and 2020, the Company expensed matching contributions to the plan totaling $ 1.0 million and $ 0.9 million, respectively.

The Company did not pay any expenses attributable to the plan during the years ended December 31, 2020 and 2019.

For the years ended December 31, 2021 and 2020, the Company incurred $ 0.1 million and an immaterial amount, respectively, of administrative fees attributable to the plan.

NOTE 16 – RELATED-PARTY TRANSACTIONS

The Bank extends credit to certain covered parties including Company directors, executive officers, and their affiliates.

As of December 31, 2020 and December 31, 2019, there were no delinquent or no n-performing loans to any

executive officer or director of the Company.

As of December 31, 2021 and December 31, 2020, there were no delinquent or no n-performing loans to any executive officer or director of the Company.

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.

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Payments collected

Balance, end of year

Balance, end of period

Deposits from related parties held by the Bank as of December 31, 2021 and December 31, 2020 totaled $ 51.0 million and $ 26.2 million, respectively.

The Company leases office spaces from entities controlled by one of the Company’s board members.

During the years ended December 31, 2020 and 2019, the Company incurred $ 0.2 million and $ 0.3 million, respectively, of expense related to these leases.

The Company earned trust and investment management fees of $ 0.2 million from related parties during the years ended December 31, 2020 and 2019.

During each of the years ended December 31, 2021 and 2020, the Company incurred $ 0.2 million of expense related to these leases.

The Company earned trust and investment management fees of $ 0.1 million and $ 0.2 million from related parties during the years ended December 31, 2021 and 2020, respectively.

Assets under management for those related parties totaled $ 103.1 million and $ 92.1 million as of December 31, 2021 and 2020, respectively.

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Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

Recurring Fair Value

Investment Securities :

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The guarantee liability represents a financial guarantee to cover the second layer of any losses on loan sold to FHLB under the MPF 125 loan sales agreement.

Significant inputs in the valuation analysis are Level 3, due to the nature of this asset and the lack of market quotes.

The fair value of the guarantee asset is determined using a discounted cash flow model, for which significant unobservable inputs include assumed future prepayment rates and market discount rate (Level 3).

The guarantee liability value on day one is equivalent to the guarantee asset fair value, which is the consideration for the credit enhancement fee paid over the life of the loans.

The liability is then carried at amortized cost.

Significant inputs in the valuation analysis for the asset are Level 3, due to the nature of this asset and the lack of market quotes.

The fair value of the guarantee asset is determined using a discounted cash flow model, for which significant unobservable inputs include assumed future prepayment rates (“CPR”) and market discount rate (Level 3).

An increase in prepayment rates or discount rate would generally reduce the estimated fair value of the guarantee asset.

The guarantee liability is the fair value of the guarantee assets less amortization (Level 3).

Interest Rate Lock Commitments ( "

) and Forward Sale Commitments ( "

Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the commitment related to the loan is locked.

The fair value estimate is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date and pull through assumptions (Level 3).

The FSC fair value estimate reflects the potential pair off fee associated with mandatory trades by using a market differential and pair off penalty assessed by the investor (Level 3).

IRLC and FSC’s are carried at fair value in the Company’s financial statements.

Changes in the fair value of a IRLC and FSC’s are accounted for within the Consolidated Statements of Income.

Other Real Estate Owned :

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

They are subsequently accounted for at lower of cost or fair value less estimated costs to sell.

Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis.

Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available.

Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value.

Other real estate owned 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.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

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.

Appraisals for both collateral-dependent impaired loans and other real estate owned 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.

Mortgage Related Derivatives :

Mortgage related derivatives include our IRLC, FSC, and the forward commitments on our loans held for sale pipeline.

The fair value estimate of our IRLC is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date and pull through assumptions (Level 3).

The FSC fair value estimate reflects the potential pair off fee associated with mandatory trades and is estimated by using a market differential and pair off penalty assessed by the investor (Level 3).

The fair value estimate of the forward commitments is based on market prices of similar securities to the underlying MBS (Level 2).

Mortgage Loans Held for Sale :

The fair value of mortgage loans held for sale is estimated based upon quotes from third party investors for similar assets resulting in a Level 2 classification.

The following presents assets and liabilities measured on a recurring basis as of December 31, 2021 and December 31, 2020 (in thousands):

4 unchanged sentences

Treasury debt

Government Agency

Corporate bonds

1 unchanged sentence

FNMA mortgage-backed securities - residential

Government CMO and MBS

Corporate CMO and MBS

2 unchanged sentences

Guarantee asset

IRLC and FSC, net

Guarantee liability

Forward commitments and FSC

Mortgage loans held for sale

Active Markets

3 unchanged sentences

Treasury debt

Corporate bonds

GNMA mortgage-backed securities - residential

3 unchanged sentences

Equity securities

IRLC and FSC, net

There were no transfers between levels during 2020 .

All of the Company’s IRLC and FSC’s were transferred from Level 2 to Level 3 as of December 31, 2019 as a result of the review of inputs for these instruments identifying the use of pull through rates as unobservable inputs .

The following presents a reconciliation for Level 3 instruments measured at fair value on a recurring basis (in thousands):

Year Ended December 31, 2020

Guarantee asset

IRLC and FSC, Net

Guarantee Liability

Beginning balance

Gains (losses) in net income, net

Other settlements

Ending balance

Year Ended December 31, 2019

Guarantee Asset

IRLC and FSC, Net

Guarantee Liability

Beginning balance

Losses in net income, net

Ending balance

Mutual funds and U.S.

Treasury debt are reported at fair value utilizing Level 1 inputs.

Forward commitments and FSC

Mortgage loans held for sale

There were no transfers between levels during 2021 or 2020.

Treasury debt is reported at fair value utilizing Level 1 inputs.

One Corporate bond is reported at fair value utilizing Level 3 inputs.

The remaining portfolio of securities are reported at fair value with Level 2 inputs provided by a pricing service.

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In addition, ratings and collateral quality are considered.

As of December 31, 2020, equity securities, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item and the FSC and guarantee liabilities have been recorded at fair value with the Other liabilities line item in the Consolidated Balance Sheets.

All changes are recorded in the Other line item in the Consolidated Statement of Income.

The following presents quantitative information about Level 3 assets measured on a recurring basis as of December 31, 2020 and 2019 (in thousands):

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020

Unobservable Input

(Weighted Average)

Guarantee asset

Discounted cash flow

Discount rate

Prepayment rate

IRLC and FSC, net

Best execution model

55 % - 100 % ( 86 %)

Guarantee liability

Discounted cash flow

Discount rate

Prepayment rate

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2019

Unobservable Input

(Weighted Average)

IRLC and FSC, net

Best execution model

75 % - 100 % ( 88 %)

As of December 31, 2021, equity securities, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item and the FSC have been recorded at fair value within the Other liabilities line item in the Consolidated Balance Sheets.

All changes are recorded in the Other line item in the Consolidated Statements of Income.

Nonrecurring Fair Value

Other Real Estate Owned :

Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

They are subsequently accounted for at lower of cost or fair value less estimated costs to sell.

Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis.

Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available.

Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value.

Other real estate owned 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.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

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.

The following presents assets measured on a nonrecurring basis as of December 31, 2021 and December 31, 2020 (in thousands):

2 unchanged sentences

December 31, 2021

Other real estate owned:

Commercial properties

Total impaired loans (1) :

Impaired loans (1) :

Commercial and Industrial

______________________________________

(1) An immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

Active Markets

3 unchanged sentences

Commercial properties

Total impaired loans:

Impaired loans (1) :

Commercial and Industrial

______________________________________

(1) One immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2021 and December 31, 2020.

The sales comparison approach was utilized for estimating the fair value of non-recurring assets.

As of December 31, 2020, OREO had a carrying amount of $ 0.2 million, which is the cost basis of $ 2.1 million net of a valuation allowance of $ 1.9 million.

As of December 31, 2021, the Company did not own any OREO properties.

As of December 31, 2020, OREO had a carrying amount of $ 0.2 million, which is the cost basis of $ 2.1 million net of a valuation allowance of $ 1.9 million.

As of December 31, 2020, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $ 3.4 million with valuation allowances of $ 1.6 million and were

classified as Level 3.

As of December 31, 2021, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $ 2.2 million with valuation allowances of $ 1.8 million and were classified as Level 3.

As of December 31, 2020, impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $ 3.4 million with valuation allowances of $ 1.6 million and were classified as Level 3.

Impaired loans accounted for specific reserves of $ 1.6 million and $ 0.8 million for the years ended December 31, 2020 and 2019.

The Bank charged off an immaterial amount during the year ended December 31, 2020 from the specific reserve.

The Bank charged off $ 0.2 million during the year ended December 31, 2019 from the specific reserve.

The following presents quantitative information about the significant unobservable inputs used in the fair value measurement of recurring and nonrecurring non-financial instruments categorized within Level 3 of the fair value hierarchy as of December 31, 2020 and 2019 (in thousands):

Impaired loans accounted for specific reserves of $ 1.8 million and $ 1.6 million for the year ended December 31, 2021 and 2020.

The Bank charged off an immaterial amount during the years ended December 31, 2021 and December 31, 2020 from the specific reserve.

Level 3 Analysis

The following presents a reconciliation for Level 3 instruments measured at fair value on a recurring basis (in thousands):

Year Ended December 31, 2021

Corporate Bonds

Guarantee Asset

Beginning balance

Gains (losses) in net income, net

Ending balance

Year Ended December 31, 2020

Corporate Bonds

Guarantee Asset

Beginning balance

Gains (losses) in net income, net

Other settlements

Ending balance

The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring basis as of December 31, 2021 and 2020 (in thousands):

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2021

1 unchanged sentence

(Weighted Average)

Other real estate owned:

Commercial properties

Sales contract

Commission, cost to sell, closing costs

Total impaired loans (1) :

Recurring fair value

Corporate Bonds

Discounted cash flow

Discount rate

Guarantee asset

Discounted cash flow

Discount rate

Prepayment rate

Best execution model

71 % to 100 % ( 88 %)

Internal pricing model

Market Differential

- 14 bps to - 2 bps

Nonrecurring fair value

Impaired loans (1) :

Commercial and Industrial

2 unchanged sentences

17 % - 45 % ( 39 %)

______________________________________

(1) An immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020

1 unchanged sentence

(Weighted Average)

Recurring fair value

Guarantee asset

Discounted cash flow

Discount rate

Prepayment rate

Best execution model

55 % to 100 % ( 86 %)

Internal pricing model

Market Differential

Nonrecurring fair value

Other real estate owned:

Commercial properties

Appraisal value

Discount rate

Commission and cost to sell

1 % - 10 % ( 7 %)

Total impaired loans:

Sales contract

Commission, cost to sell, closing costs

Impaired loans (1) :

Commercial and Industrial

2 unchanged sentences

17 % - 35 % ( 26 %)

______________________________________

(1) One immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2021 and December 31, 2020.

Estimated Fair Value of Other Financial Instruments

The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of December 31, 2021 and December 31, 2020 (in thousands):

2 unchanged sentences

Cash and cash equivalents

Mortgage loans held for sale

Accrued interest receivable

6 unchanged sentences

Cash and cash equivalents

Mortgage loans held for sale

Accrued interest receivable

FHLB borrowings – fixed rate

Federal Reserve borrowings – fixed rate

Subordinated notes – fixed-to-floating rate

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A discount rate was developed based on the relative risk of the cash flows, taking into account the loan type, maturity and a required return on capital.

Mortgage Loans Held for Sale :

The fair value of mortgage loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

Accrued Interest Receivable and Payable :

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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 18 – ASSETS AND OTHER LIABILITIES CLASSIFIED AS HELD FOR SALE

During the year ended December 31, 2019, the Company was actively seeking to sell its Los Angeles-based fixed income portfolio management team ("LA fixed income team") and certain advisory and sub-advisory arrangements.

As such, the related assets and liabilities were classified as a disposal group held for sale and were presented separately in the Consolidated Balance Sheets for the year ended December 31, 2019.

On November 13, 2020, the Company completed the sale of these assets.

The Company has no assets or liabilities classified as a disposal group held for sale as of December 31, 2020.

Intangible assets and other liabilities in disposal groups held for sale are as follows at the dates noted (in thousands):

Assets in disposal groups held for sale

Other liabilities

Liabilities in disposal groups held for sale

NOTE 18 - SEGMENT REPORTING

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The measure of profit or loss used by the CODM to identify and measure the Company’s reportable segments is income before income tax.

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 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.

The Wealth Management segment consists of operations relative to the Company’s fully integrated wealth management products and services.

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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.

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

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods for the years ended December 31, 2020 and 2019 (in thousands):

Year Ended December 31, 2020

Management (1)

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, 2021 and 2020 (in thousands):

As of and for the year ended December 31, 2021

Income Statement

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Non-interest income

Total income before non-interest expense

Depreciation and amortization expense

All other non-interest expense

Income before income tax

______________________________________

(1) Includes 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.

Year Ended December 31, 2019

Management (1)

Income before income taxes

As of and for the year ended December 31, 2020

Income Statement

4 unchanged sentences

Non-interest income

Total income before non-interest expense

Depreciation and amortization expense

All other non-interest expense

Income (loss) before income tax

Assets held for sale

_________________________________________________

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

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

Income before income taxes

NOTE 19 – LOW-INCOME HOUSING TAX CREDIT INVESTMENTS

On December 19, 2019, the Company invested in a low-income housing tax credit ("LIHTC") investment.

As of December 31, 2020 and 2019, the balance of the investment for LIHTC was $ 1.1 million and $ 0.9 million.

As of December 31, 2021 and 2020, the balance of the investment for LIHTC was $ 2.6 million and $ 1.1 million, respectively.

These balances are reflected in the Other assets line item of the Consolidated Balance Sheets.

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During the year ended December 31, 2021, the Company recognized amortization expense of $ 0.5 million, which was included within the Income tax expense line item of the Consolidated Statements of Income.

The Company did not recognize any amortization expense in the year ended December 31, 2019.

The Company recognized amortization expense of $ 0.2 million in the year ended December 31, 2020.

Additionally, during the year ended December 31, 2021, the Company recognized tax credits and other benefits from this investment in the LIHTC of $ 0.5 million.

The Company did not recognize any tax credits or other benefits from this investment in the year end December 31, 2019.

The Company recognized tax credits and other benefits from this investment in the LIHTC of $ 0.1 million in the year end December 31, 2020.

During the years ending December 31, 2021 and 2020, the Company did not incur any impairment losses.

NOTE 20 – CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

The tables below present condensed financial statements pertaining only to FWFI (in thousands).

The following presents condensed financial statements pertaining only to FWFI (in thousands).

Investments in subsidiaries are stated using the equity method of accounting.

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_________________________________________________

(1) As of December 31, 2020, taxes payable was in a receivable position as a result of timing of tax payments.

(1) As of December 31, 2021 and December 31, 2020, taxes payable was in a receivable position as a result of timing of tax payments.

Year Ended December 31,

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Cash flows from operating activities

Current & deferred income tax (benefit)/expense

Depreciation and amortization

Current and deferred income tax expense/(benefit)

Stock-based compensation

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Change in other liabilities

Net cash (used in) provided by operating activities

Net cash provided by/(used in) operating activities

Cash flows from investing activities

Net cash paid on acquisition

Investment in subsidiaries

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Settlement of restricted stock

Recognition of capitalized subordinated notes issuance costs

Net cash provided by (used in) financing activities

Proceeds from the exercise of stock options

Net cash provided by financing activities

Net change in cash and cash equivalents

3 unchanged sentences

Interest paid on borrowed funds

Supplemental noncash disclosures:

Common stock issued for Teton acquisition

Segment collapse impact to investment in subsidiary

3 unchanged sentences

NOTE 21 – OTHER NON-INTEREST EXPENSE

Other non-interest expense as shown in the Consolidated Statements of Income is detailed in the following schedule to the extent the components exceed one percent of the aggregate of total interest income and other non-interest income (in thousands):

Other non-interest expense as shown in the Consolidated Statements of Income is detailed in the following schedule to the extent the components exceed one percent of total interest income and other income (in thousands):

Year Ended December 31,

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Loan and deposit related

Office supplies and deliveries

Total other non-interest expense

2 unchanged sentences

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Under capital adequacy guidelines and, additionally for banks, the regulatory framework

for prompt corrective action, First Western and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

Under capital adequacy guidelines and, additionally for banks, the regulatory framework for prompt corrective action, First Western and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

First Western and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators regarding components, risk weightings and other factors.

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The net unrealized gain or loss on available-for-sale securities is not included in computing regulatory capital.

During the year ended December 31, 2020, FWFI made a $ 10.0 million capital injection into the Bank.

Management believes as of December 31, 2020, First Western and the Bank meet all capital adequacy requirements to which it is subject to.

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.

Management believes as of December 31, 2021, First Western and the Bank meet all capital adequacy requirements to which they are subject to.

Prompt corrective action regulations for First Western and the Bank provide five classifications:

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and (iii) a total capital ratio of 10.5 %.

Banks are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount.

Banks are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital level falls below the buffer amount.

These limitations establish a maximum percentage of eligible retained income that can be utilized for such activities.

As of December 31, 2020, required ratios including the capital conservation buffer were (i) CET 1 of 7.0 %;

(ii) a Tier 1 capital ratio of 8.5 %;

and (iii) a total capital ratio of 10.5 %.

As of December 31, 2021, the most recent filings with the FDIC categorized First Western and the Bank as well capitalized under the regulatory guidelines.

1 unchanged sentence

Management believes there are no conditions or events since December 31, 2021 that have changed the categorization of First Western and the Bank as well capitalized.

Management believes First Western and the Bank met all capital adequacy requirements to which it is subject as of December 31, 2020 and December 31, 2019.

Management believes First Western and the Bank met all capital adequacy requirements to which they are subject to as of December 31, 2021 and December 31, 2020.

The following presents the actual and required capital amounts and ratios as of December 31, 2021 and December 31, 2020 (in thousands):

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NOTE 23 – SUBSEQUENT EVENTS (Unaudited)

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

As of February 28, 2021, we had received 660 applications for 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.

The Company elected to redeem 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 is equal to 100 % of the principal amount being redeemed, plus accrued and unpaid interest up to, but excluding the date of redemption.

As of this filing, the December 31, 2026 subordinated debt has been fully redeemed.

On January 6, 2022, the Company filed a Form S-3 Registration Statement with the SEC providing that the Company may offer and sell from time to time, separately or together, in multiple series or in one or more offerings, any combination of common stock, preferred stock, debt securities, warrants, depository shares and units, up to a maximum aggregate offer price of $ 100 million.

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