2022 Annual Report
Cover Artwork: Wes Hempel, Wrong Turn, 2002, Oil on Canvas, First Western Art Collection
To Our Shareholders:
Despite a challenging operating environment created by inflationary pressures and rising interest rates, our performance in 2022
reflects another year of executing well on the vision that we communicated for the First Western franchise at the time of our IPO in
2018 and creating significant value for our shareholders in the process. The combination of organic growth and accretive acquisitions
helped us to generate a 3.4% increase from the prior year in our Adjusted Pre-Tax, Pre-Provision Income, which we consider to be a
good representation of our core earnings. As a result of our strong financial performance and effective balance sheet management,
we generated an 11% increase in our tangible book value per share during a year when many banks saw declines. This brought the
total increase in our tangible book value per share since our IPO to nearly 140%.
One of our top priorities for 2022 was smoothly integrating our acquisition of Teton Financial Services, which closed at the end of
2021. We completed the integration on time and as planned, while realizing all of the cost savings that we projected for this
transaction. After ensuring that our new clients experienced minimal disruption to service during the integration, we then began to
pursue the revenue enhancement opportunities available to us in Wyoming as a result of being a larger financial institution with the
ability to serve clients with larger financing needs. By the end of the year, we were seeing increasing contributions to both loan
production and deposit gathering from our teams in Wyoming.
At the same time, we continued to execute well on our organic growth strategies as the stronger commercial banking team we have
built continued to effectively communicate our value proposition and attract new clients to the bank, while the investments we made
to build or expand our presence in Arizona, Wyoming and Montana started to make larger contributions to our business development
efforts. With our larger commercial banking team, our expanded presence in attractive markets, and our increasing size and reputation
that has enabled us to move up market and work with clients with larger borrowing needs, we saw a substantial increase in new loan
production during 2022. This helped us to offset an elevated level of loan payoffs and still generate 27% loan growth, all of which was
organic.
During the second half of 2022, our strong loan growth resulted in our loan-to-deposit ratio exceeding our normalized level. In
response, we directed our teams to focus more of their efforts on deposit gathering. With this increased focus, in the fourth quarter,
our deposit growth rate was more than twice as large as our loan growth rate, which reduced our loan-to-deposit ratio. Going forward,
we will continue to focus on developing full banking relationships with both loans and deposits, which we believe will result in better
alignment between our loan and deposit growth in the future.
While the macroeconomic environment has continued to be challenging to start 2023 and we have seen some high profile bank
failures, First Western continues to be a source of stability and strength for our clients, as we have throughout our history. Due to our
prudent approach to risk management, we have built a stable, diversified, and granular deposit base and the increase in interest rates
has not resulted in a meaningful change in our accumulated other comprehensive income, which has helped us to avoid the
concentration and interest rate risk that has led to the recent troubles seen at other banks. While we will be conservative and highly
selective in our new loan production until economic conditions improve, we expect to be able to continue generating solid loan growth
as the new teams that we have added in Arizona, Wyoming and Montana continue to gain traction and increase our market share.
With the strong team that we have built, the attractive markets that we operate in, and the highly productive business development
capabilities that we have developed, we expect to deliver another strong year in 2023 and create additional value for our shareholders.
I’ll conclude with a big thanks to our associates in each of our banking locations, our support teams and our product teams that have
worked hard through a series of recent headwinds to deliver on our vision of becoming “the Best Private Bank for the Western Wealth
Management Client.” In addition, a very special thanks to our clients who have placed their trust now and for future generations in
First Western. We believe we all should “Trust Where You Bank”, and we greatly appreciate our growing base of clients and the trust
they place in First Western.
Sincerely,
Scott C. Wylie
Chairman, President & CEO
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________
FORM 10-K
____________________________________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2022
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM_____ TO _____
Commission File Number 001-38595
____________________________________________
First Western Financial, Inc.
(Exact name of Registrant as specified in its Charter)
____________________________________________
Colorado
(State or other jurisdiction of
incorporation or organization)
1900 16th Street, Suite 1200
Denver, CO
(Address of principal executive offices)
37-1442266
(I.R.S. Employer
Identification No.)
80202
(Zip Code)
Registrant’s telephone number, including area code: 303.531.8100
____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Trading Symbol
MYFW
Securities registered pursuant to Section 12(g) of the Act: None
Name of each exchange on which
registered
The Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ¨ NO x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
¨
¨
Accelerated filer
Smaller reporting company
Emerging growth company
x
x
x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ¨
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
As of June 30, 2022, the last day of the registrant’s most recently completed second quarter, the aggregate market value of the common stock held by non-
affiliates of the Registrant, based on the closing price of the Registrant’s common stock on the NASDAQ Global Select Market, was approximately
$214.4 million.
The number of shares of the registrant’s common stock outstanding as of March 10, 2023 was 9,507,565.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement relating to its 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of
this Form 10-K to the extent stated herein. Such Definitive Proxy Statement will be filed with the Securities and Exchange Commission within 120 days
after the end of the registrant’s fiscal year ended December 31, 2022.
____________________________________________
FIRST WESTERN FINANCIAL, INC.
TABLE OF CONTENTS
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
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Important Notice about Information in this Annual Report
Unless we state otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to
"we," "our," "us," "the Company" and "First Western" refer to First Western Financial, Inc. and its consolidated
subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."
The information contained in this Annual Report on Form 10-K is accurate only as of the date of this Annual
Report on Form 10-K and as of the dates specified herein.
[This page intentionally left blank]
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. These forward-looking statements reflect
our current views with respect to, among other things, future events and our financial performance. These statements are
often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential,"
"believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection,"
"would" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-
looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates
and projections about our industry, management’s beliefs and certain assumptions made by management, many of which,
by their nature, are inherently uncertain and beyond our control, particularly with regard to developments related to
COVID-19. Accordingly, we caution you that any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that
the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove
to be materially different from the results expressed or implied by the forward-looking statements. When considering
forward-looking statements, you should keep in mind the risk factors and other cautionary statements described in "Item
1A – Risk Factors" of this Annual Report on Form 10-K.
There are or will be important factors that could cause our actual results to differ materially from those indicated
in these forward-looking statements, including, but not limited to, the following:
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geographic concentration in Colorado, Arizona, Wyoming, California, and Montana;
changes in the economy affecting real estate values and liquidity;
risks associated with higher inflation;
changes in interest rates;
the adequacy of our allowance for loan losses;
weak economic conditions and global trade;
our ability to continue to originate residential real estate loans and sell such loans;
risks specific to commercial loans and borrowers;
claims and litigation pertaining to our fiduciary responsibilities;
competition for investment managers and professionals and our ability to retain our associates;
fluctuation in the value of our investment securities;
the terminable nature of our investment management contracts;
changes to the level or type of investment activity by our clients;
investment performance, in either relative or absolute terms;
legislative changes or the adoption of tax reform policies;
external business disruptors in the financial services industry;
liquidity risks;
our ability to maintain a strong core deposit base or other low-cost funding sources;
continued positive interaction with and financial health of our referral sources;
retaining our largest trust clients;
our ability to achieve our strategic objectives;
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competition from other banks, financial institutions and wealth and investment management firms;
our ability to implement our internal growth strategy and manage the risks associated with our anticipated
growth;
the acquisition of other banks and financial services companies and integration risks and other unknown risks
associated with acquisitions;
the accuracy of estimates and assumptions;
our ability to protect against and manage fraudulent activity, breaches of our information security, and
cybersecurity attacks;
our reliance on communications, information, operating and financial control systems technology and related
services from third-party service providers;
technological change;
our ability to attract and retain clients;
unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, war, extreme
weather events or other natural disasters;
new lines of business or new products and services;
regulation of the financial services industry;
legal and regulatory proceedings, investigations and inquiries, fines and sanctions;
limited trading volume and liquidity in the market for our common stock;
fluctuations in the market price of our common stock;
actual or anticipated issuances or sales of our common stock or preferred stock in the future;
the initiation and continuation of securities analysts coverage of the Company;
potential impairment of goodwill recorded on our balance sheet and possible requirements to recognize
significant charges to earnings due to impairment of intangible assets;
future issuances of debt securities;
our ability to manage our existing and future indebtedness;
available cash flows from the Bank; and
other factors that are discussed in "Part I – Item 1A - Risk Factors."
The foregoing factors should not be construed as exhaustive. If one or more events related to these or other risks
or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially
from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any
forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to
publicly update or review any forward-looking statement, whether as a result of new information, future developments or
otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements.
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Item 1: Business
Our Company
PART I
First Western Financial, Inc. is a financial holding company headquartered in Denver, Colorado. We provide a
fully integrated suite of wealth management services on our private trust bank platform, which includes a comprehensive
selection of deposit, loan, trust, wealth planning and investment management products and services. We believe our
integrated business model distinguishes us from other banks and non-bank financial services companies in the markets in
which we operate. As of December 31, 2022, we provided fiduciary and advisory services on $6.11 billion of trust and
investment management assets (referred to as "AUM"), and we had total assets of $2.87 billion, total loans of $2.48 billion,
total deposits of $2.41 billion and total shareholders’ equity of $240.9 million.
Our mission is to be the best private bank for the Western wealth management client. We believe that the
"Western wealth management client" shares our entrepreneurial spirit and values our sophisticated, high-touch integrated
financial services that are tailored to meet their specific needs. Our target clients include successful entrepreneurs,
professionals and other high net worth individuals or families, along with their businesses and philanthropic organizations.
We offer our services through a branded network of boutique private trust bank offices, loan production offices, and trust
offices, which we believe are strategically located in affluent and high-growth markets in nineteen locations across
Colorado, Arizona, Wyoming, California, and Montana.
We generate a significant portion of our revenues from non-interest income, which we produce from our trust,
investment management and other advisory services as well as through the origination and sale of mortgage loans. The
balance of our revenue is generated from net interest income, which we derive from our traditional banking products and
services. For the year ended December 31, 2022, non-interest income was $28.4 million, or 26.3% of total income before
non-interest expense and net interest income was $83.2 million, or 77.1% of total income before non-interest expense.
We believe that we have developed a unique approach to private banking to best serve our Western wealth
management clients primarily as a result of the combination of the following factors:
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Offering sophisticated wealth management products and services, including traditional banking as well as
trust, wealth planning, investment management and other related services often provided by larger financial
institutions with the high-touch and personalized experience that is typically associated with community and
trust banks;
Delivering services through our strategically located private trust bank offices, which we refer to internally as
"profit centers"; and
Using our relationship-based team approach to become a "trusted advisor" to our clients by understanding
their investment management, ultimate goals and banking needs and tailoring our products and services to
meet those needs.
Our History
We were founded in 2002 by our Chairman, Chief Executive Officer and President, Scott C. Wylie, and a group of
local business leaders with the vision of building the best private bank for the Western wealth management client. Since
opening our first office in Denver, Colorado in 2004, we have grown organically primarily by establishing boutique private
trust bank offices, attracting new clients and expanding our relationships with existing clients, as well as through a series of
strategic acquisitions of various trust, registered investment advisory, bank branch and full bank institutions, and other
financial services firms. Since we completed an initial public offering of our common stock on July 23, 2018, our common
stock has been listed on the NASDAQ Global Select Market under the symbol "MYFW."
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Our Business Strategy
We believe we have built a premier private trust bank in the Western United States that focuses on providing the
best financial solutions to our clients. We are service-driven, solution-oriented and relationship-based. We accomplish this
by continuing to execute on the following strategies:
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Building Out Existing Markets. Once we have established a presence in a particular geographic market that
contains attractive high net worth household demographics, we then look to establish additional locations that
are closely situated to sub-concentrations of affluent households and/or commercial activity (a "hub and
spoke" market build-out, as we have commenced in Denver, Phoenix, and Jackson Hole). We continue to
seek out talent to hire as part of our strategy of building out existing markets and continue to be successful in
hiring teams that help us accomplish this goal. We also seek to employ highly capable associates with local
market experience and relationships.
Deepening Existing Client Relationships. We deliver our services though our nineteen local boutique private
trust bank offices, loan production offices, and trust offices. This allows us to use multi-discipline sales and
client service teams, in-market, to ensure we are meeting each client’s comprehensive set of needs. These
teams take the time to understand the complexities of our clients’ financial world through wealth planning
solutions and create the financial plan that helps them reach their goals. This profit center-based service
model is a critical component of our future growth as we continue to develop our understanding of our
clients’ evolving needs, allowing us to deepen, broaden and grow our existing relationships.
Generating Referrals for New Client Relationships. We believe we have demonstrated a successful sales and
marketing capability, built around the personal and professional networks and centers of influence of our
local profit center leadership. Our existing client base has historically provided a significant amount of new
clients through referrals. In surveys, our clients generally rate us very favorably overall in areas of
professionalism, reliability, service-orientation, and trust. We have added wealth advisors in many of our
profit centers as commissioned sales associates to enhance our acquisition of new clients.
Developing Client Relationships through our Product Groups. Each profit center is designed to feel like a
boutique private trust bank office and is staffed with business development and client service personnel. The
profit centers work closely with our central product groups to customize our services to each client’s specific
situation, without sacrificing the flexibility, expertise and authority to quickly meet complex client needs. Our
central product groups are designed to support a significantly larger client and AUM base, providing an
opportunity for significant operating leverage as we open additional profit centers. We have sales and service
specialists in our product groups, such as Retirement Services and Mortgage Services, who are able to build
relationships within their area of expertise and provide expertise and high quality service that creates an
opportunity for a broader relationship across our suite of products and services.
Expanding to New Markets. We believe that our profit centers are profitable and stable businesses when
mature. We also believe that our product group and support center teams have a high degree of operating
leverage (i.e., we believe that increasing the number of profit centers would not require a proportionate
increase in our product group or support center expenses). Therefore, a key strategy of ours is to add
incremental profit centers and grow them to maturity. We continue to seek out talent as part of our strategy of
building out existing markets and continue to be successful in hiring teams that help us accomplish this goal.
The trends in the financial services industry that make our business model successful in our existing
geographic markets also exist in other locations in the Western United States. Our analysis indicates that there
are hundreds of markets and submarkets in the Western United States that could support our profit centers and
fit our target demographics. As such, we intend to continue to explore new Western United States markets
with favorable high net worth demographics and competitive landscapes.
Growing our Core Deposit Franchise. The strength of our deposit franchise is derived from the long-standing
relationships we have with our clients and the strong ties we have to the markets we serve. Our deposit
footprint has provided, and we believe will continue to provide, primary support for our loan growth. A key
part of our strategy is to continue to enhance our funding sources by continuing to build our private and
commercial banking capabilities to keep building our base of attractively priced core deposits.
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Attracting Talent. Our team of seasoned associates has been, and will continue to be, an important driver of
our organic growth by further developing relationships with current and potential clients. We have a record of
hiring experienced associates to enhance our organic growth, and sourcing and hiring talent will continue to
be a core focus for us. We have significant insider ownership, and, in 2021, the Board approved stock
ownership guidelines to further align management and shareholder interests. We believe that our client
service model, financial strength, growth strategy and public company status will further enhance our ability
to attract and retain this talent.
Developing New Products. We seek to be the primary source of financial products and services for our
clients. By continuing to expand our product offerings—either by internal product development or
establishing third-party relationships—we work to meet expanding client needs while further diversifying our
revenue streams. This includes our recent efforts to focus on our product management disciplines as well as
upgrading our commercial banking capabilities, adding market expertise in certain business verticals.
Our Service Model and Products
We deliver a broad array of wealth management products and services through our profit centers using our
proprietary ConnectView® approach, which looks holistically across a client’s current and projected financial situation. We
believe providing financial solutions in one area (such as estate, retirement planning or lending) often impacts other areas
of our clients’ wealth planning (such as risk or balance sheet management), which provides us opportunities to evaluate
proposed solutions across multiple business lines and offer additional services to our clients.
We have designed our business around having each profit center staffed with seasoned management. Typically,
each profit center team is led by a president, who is a senior investment advisor or banker with strong client relationships
and sales and leadership skills. The local team includes deposit, loan, trust, wealth planning, and related professionals,
creating a strong interdisciplinary sales and service team. In addition to this service team, we added wealth advisors as a
commissioned sales force to several profit centers to enhance our acquisition of new clients.
We provide a broad array of products and services through our boutique private trust bank offices, largely
comprised of the products and services described below.
Lending
General. Through our relationship-oriented private bank lending approach, our strategy is to offer a broad range of
customized consumer and commercial lending products for the personal investment and business needs of our clients. Our
clients are typically well diversified and the purpose for their loan and liquidity needs often does not correlate to the
collateral used to secure the loan.
Our commercial lending products include commercial loans, business term loans and lines of credit to a
diversified mix of small and midsized businesses. We offer both owner occupied and non-owner occupied commercial real
estate ("CRE") loans, as well as construction loans.
Our consumer lending products include residential first mortgage loans, originated loans for our own portfolio, as
well as those for which we conduct mortgage banking activities whereby we originate and sell, servicing-released, whole
loans in the secondary market. Our mortgage banking loan sales activities are primarily directed at originating single family
mortgages, which generally conform to Fannie Mae and Freddie Mac guidelines and are delivered to the investor shortly
after funding. Additionally, we offer installment loans and lines of credit, typically to facilitate investment opportunities for
consumer clients whose financial characteristics support the request. We also provide clients loans collateralized by cash
and marketable securities.
We employ experienced banking and business development teams who provide superior client service, value-add
lending solutions and competitive pricing to market our lending products and services.
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As of December 31, 2022, our loan portfolio contained a balanced and diverse mix of loans, as shown below:
Gross Loans
Our loan portfolio includes commercial and industrial loans, residential real estate loans, commercial real estate
loans, and other consumer loans. The principal risk associated with each category of loans we make is the creditworthiness
of the borrower. Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower
and the borrower’s market or industry. We underwrite for strong cash flow, multiple sources of repayment, adequate
collateral, borrower experience and backup guarantors. Attributes of the relevant business market or industry include the
competitive environment, client and supplier availability, the threat of substitutes and barriers to entry and exit.
1-4 Family Residential. Our 1-4 family residential loan portfolio consists of loans and home equity lines of credit
secured by 1-4 family residential properties. These loans typically enable borrowers to purchase or refinance existing
homes, most of which serve as the primary residence of the owner. In addition, some borrowers secure a commercial
purpose loan with 1-4 family residential properties. As of December 31, 2022, 1-4 family residential loans were
$898.2 million, or 36.3% of our total loan portfolio, consisting of $180.1 million and $718.1 million of fixed-rate and
adjustable-rate loans, respectively. While we typically originate loans with adjustable rates and maturities up to 30 years, as
of December 31, 2022, the average term on our 1-4 family portfolio was 20.0 years with an average remaining term of 18.6
years. Such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans
in full either upon sale of the property pledged as security or upon refinancing the original loan.
Commercial loans secured by 1-4 family residential real estate are dependent on the strength of the local economy,
and local residential and commercial real estate markets. Borrower demand for adjustable-rate compared to fixed-rate loans
is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference
between the interest rates and loans fees offered for fixed-rate mortgage loans as compared to the interest-rates and loans
fees for adjustable rate loans.
The loan fees, interest rates, and other provisions of mortgage loans are determined by us on the basis of our own
pricing criteria and competitive market conditions. The loans are secured by the real estate, and appraisals are obtained to
support the loan amount at origination. Loans collateralized by 1-4 family residential real estate generally are originated in
amounts of no more than 80% of appraised value. Generally, our loans conform to Fannie Mae and Freddie Mac
underwriting guidelines and conform to internal policies for debt-to-income or free cash flow levels. We retain a valid lien
on real estate, obtain a title insurance policy that insures that the property is free from encumbrances and require hazard
insurance.
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1-4 FamilyResidential36.3%Consumer & Other2.0%Cash, Securities & Other6.6%C&I14.6%Owner Occupied CRE8.7%Non-owner Occupied CRE20.1%C&D11.7% Our focus for mortgage lending is to originate high-quality loans to drive growth in our mortgage loan portfolio.
Our mortgage strategy includes attracting new loan clients with our mortgage loan products and services, which we believe
will provide an opportunity for our profit centers to bring in well-qualified prospects, and to cross-sell other products and
services to clients. We believe that cross-selling enables us to generate additional revenues, increase client retention, and
provide products that benefit our clients. We have developed a scalable platform, including loan processing, underwriting
and closings, for both secondary sales and origination of 1-4 family residential mortgages maintained in our portfolio and
believe we have significant opportunities to grow this business.
Cash, Securities and Other. Our cash, securities and other loan portfolio consists of consumer and commercial
purpose loans, which are primarily secured by securities managed and under custody with us, cash on deposit with us or
life insurance policies. As of December 31, 2022, loans secured with cash, marketable securities and other were
$165.7 million, or 6.6% of our total loan portfolio. 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.
Consumer and Other. Our consumer and other loan portfolio consists of unsecured consumer loans. Loans held
for investment accounted for under the fair value option are also classified within this line item and had an unpaid principal
balance of $23.4 million as of December 31, 2022. Consumer and other loans were $50.0 million, or 2.0% of our total loan
portfolio.
Commercial and Industrial. We originate commercial and industrial loans, including working capital lines of
credit, permanent working capital term loans, business asset loans, acquisition, expansion and development loans, and
other loan products, primarily in our target markets. These loans are underwritten on the basis of the borrower’s ability to
service the debt from income, with maturities tied to the underlying life of the collateral. We generally take a lien on all
business assets, including, among other things, accounts receivable, inventory, equipment, available real estate, and
generally obtain a personal guaranty of the principal(s). Our commercial and industrial loans generally have variable
interest rates and terms that typically range from one to five years. Fixed-rate commercial and industrial loan maturities are
generally short-term, with three to five-year maturities, including periodic interest rate resets. As of December 31, 2022,
commercial and industrial loans were $361.0 million, or 14.6% of our total loan portfolio. The average maturity on our
commercial and industrial portfolio was 3.1 years with an average remaining term of 2.0 years. This portfolio primarily
consists of term loans and lines of credit which are mostly dependent on the strength of the industries of the related
borrowers and the success of their businesses.
Commercial Real Estate, Owner Occupied and Non-Owner Occupied. We originate commercial loans
collateralized by real estate. These loans may be collateralized by owner occupied or non-owner occupied real estate, as
well as multi-family residential real estate. Commercial real estate lending typically involves higher loan principal amounts
and the repayment is dependent, in large part, on sufficient income from the properties securing the loans to cover
operating expenses and debt service. We require our commercial real estate loans to be secured by well-managed property
with adequate margins and generally obtain a guaranty from responsible parties who have outside cash flows, experience
and/or other assets. Our commercial real estate loans are generally secured by properties used for business purposes such as
office buildings, industrial facilities and retail facilities. Loan amounts generally do not exceed 80% or 75% of the
property’s appraised value for owner occupied and non-owner occupied respectively. In addition, aggregate debt service
ratios, including the guarantor’s cash flow and the borrower’s other projects, are required by policy to have a minimum
annual cash flow to debt service ratio of 2.0x. We require independent appraisals or evaluations from a list of approved
appraisers on all loans secured by commercial real estate. As of December 31, 2022, owner occupied commercial real
estate loans were $216.1 million, or 8.7% of our total loan portfolio, and non-owner occupied commercial real estate loans
were $496.8 million, or 20.1% of our total loan portfolio. These loans are primarily dependent on the strength of the
industries of the related borrowers and the success of their businesses.
Construction and Development. We originate loans to finance the construction of residential and non-residential
properties. Construction and development loans are generally collateralized by first liens on real estate as well as financial
guarantees from the borrower and usually have floating interest rates. Our construction and development loans typically
have maturities of up to two years depending on factors such as the type and size of the development and the financial
strength of the borrower/guarantor, and are typically structured with an interest only construction period. These loans are
underwritten to either mature at the completion of construction, or transition to a traditional amortizing commercial real
estate facility with the terms and characteristics in line with other commercial real estate loans we hold in our portfolio. As
of December 31, 2022, construction and development loans were $288.5 million, or 11.7% of our total loan portfolio.
9
Concentrations. Most of our lending activity and credit exposure, including real estate collateral for many of our
loans, are concentrated in Colorado, Arizona, Wyoming, California, and Montana, as approximately 83.6% of the loans in
our loan portfolio as of December 31, 2022 were made to borrowers who live in or conduct business in those states. Our
commercial real estate loans are generally secured by first liens on real property. The remaining commercial and industrial
loans are typically secured by general business assets, accounts receivable, inventory and/or the corporate guaranty of the
borrower and personal guaranty of its principals. The geographic concentration subjects the loan portfolio to the general
economic conditions within Colorado, Arizona, Wyoming, California, and Montana. The risks created by such
concentrations have been considered by management in the determination of the adequacy of the allowance for loan losses.
As of December 31, 2022, management believes the allowance for loan losses is adequate to absorb probable incurred
losses in our loan portfolio.
Sound risk management practices and appropriate levels of capital are essential elements of the commercial real
estate lending program. Concentrations of commercial real estate exposures add a dimension of risk that compounds the
risk inherent in individual loans. Interagency guidance on commercial real estate concentrations describe sound risk
management practices which include board and management oversight, portfolio management, management information
systems, market analysis, portfolio stress testing and sensitivity analysis, credit underwriting standards, and credit risk
review functions. Management believes it has implemented these practices in order to monitor concentrations in
commercial real estate in our loan portfolio.
Credit Policies and Procedures
General. Asset quality and robust underwriting are integral to our strategy and credit culture. We place a
considerable emphasis on effective risk management and preserving sound credit underwriting standards as we grow our
loan portfolio. Underwriting considerations include collateral, defined sources of repayment, strength of guarantor(s) and
opportunities to broaden the relationship with the client. Our credit policy requires key risks be identified and measured,
documented and mitigated, to the extent possible, to seek to ensure the soundness of our loan portfolio.
Loan Underwriting and Approval. Historically, we believe we have made sound, high quality loans while
recognizing that lending money involves a degree of business risk. We have loan policies designed to assist us in managing
this business risk. These policies provide a general framework for our loan origination, monitoring and funding activities,
while recognizing that not all risks can be anticipated. Our board of directors delegates limited lending authority to
individuals and internal loan committees. When the total relationship exceeds an individual’s loan authority, a higher
authority or credit committee approval is required. The objective of our approval process is to provide a disciplined,
collaborative approach to larger credits while maintaining responsiveness to client needs. Loan decisions are documented
as to the borrower’s business, purpose of the loan, evaluation of the repayment source and the associated risks, evaluation
of collateral, covenants and monitoring requirements, and the risk rating rationale.
Managing credit risk is an enterprise-wide process. Our strategy for credit risk management includes well-defined,
central credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes. Our processes
emphasize early stage review of loans, regular credit evaluations and management reviews of loans, which supplement the
ongoing and proactive credit monitoring and loan servicing provided by our bankers. Our Chief Credit Officer, together
with our central underwriting, credit administration and loan operations teams, provides credit oversight. We periodically
review all credit risk portfolios to ensure that the risk identification processes are functioning properly and that our credit
standards are followed. In addition, a third-party loan review is performed to assist in the identification of problem assets
and to confirm our internal risk rating of loans.
Our loan policies include other underwriting guidelines for loans collateralized by real estate. These underwriting
standards are designed to determine the maximum loan amount that a borrower has the capacity to repay based upon the
type of collateral securing the loan and the borrower’s income. Such loan policies include maximum amortization
schedules and loan terms for each category of loans collateralized by liens on real estate. In addition, our loan policies
provide guidelines for personal guarantees; an environmental review; loans to employees, executive officers and directors;
problem loan identification; maintenance of an adequate allowance for loan losses; and other matters relating to lending
practices.
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We believe that an important part of our assessment of client risk is the ongoing completion of periodic risk rating
reviews. As part of these reviews, we seek to review the risk rating of each facility within a client relationship and may
recommend an upgrade or downgrade to the risk rating. We categorize loans into risk categories based on relevant
information about the ability of the borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among other factors. We
analyze loans individually by classifying the loans as to credit risk on a quarterly basis. We attempt to identify potential
problem loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any
necessary charge-offs promptly and maintain adequate allowance levels for probable incurred loan losses in the loan
portfolio. In response to the COVID-19 pandemic, the Company performed increased reviews on clients that could be more
impacted by shutdowns or other pandemic related issues. See our risk factors and Notes to the Consolidated Financial
Statements for more on our response to the pandemic.
Lending Limits. Our lending activities are subject to a variety of lending limits imposed by state and federal
regulation. The Bank is subject to a legal lending limit on loans to related borrowers based on the Bank’s capital level. The
dollar amounts of the Bank’s lending limit increases or decreases as the Bank’s capital increases or decreases. The Bank is
able to sell participations in its larger loans to other financial institutions, which allows it to manage the risk involved in
these loans and to meet the lending needs of its clients requiring extensions of credit in excess of these limits.
Deposits
The strength of our deposit franchise is derived from the long-standing relationships we have with our clients and
the strong ties we have to the markets we serve. Our deposit footprint has provided, and we believe will continue to
provide, the primary support for our loan growth. A key part of our strategy is to continue to enhance our funding sources
by continuing to build our private and commercial banking capabilities to keep building our base of attractively priced core
deposits.
We provide a broad range of deposit products and services, including demand deposits, interest-bearing
transaction accounts, money market accounts, time and savings deposits, ICS®, certificates of deposit and CDARS®
reciprocal products. We also offer a range of treasury management products including cash manager and commercial
analysis accounts, electronic receivables management, remote deposit capture, cash vault services, merchant services and
other cash management services. Deposit flows are significantly influenced by general and local economic conditions,
changes in prevailing interest rates, internal pricing decisions and competition. Our deposits are primarily obtained from
depositors located in our geographic footprint, and we believe that we have attractive opportunities to capture additional
deposits in our markets. In order to attract and retain deposits, we rely on providing quality service, offering a suite of retail
and commercial products and services and introducing new products and services that meet our clients’ needs as they
evolve.
For liquidity purposes, the Bank occasionally uses brokered deposits. As of December 31, 2022 and 2021, we had
brokered deposits of $115.3 million and $22.3 million, respectively.
We have experienced banking and business development teams who we believe provide superior client service,
creative cash management solutions and competitive pricing to market our depository products and services. As of
December 31, 2022, total deposits were $2.41 billion, an increase of $199.5 million, or 9.0%, compared to $2.21 billion as
of December 31, 2021.
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As of December 31, 2022, our deposit portfolio contained a balanced and diverse mix of deposits, as shown
below:
Deposits
Trust and Investment Management, Advisory
We offer sophisticated wealth advisory and planning services including investment management, trusts and estate
services, philanthropic services, insurance planning and retirement consulting. Our client relationships frequently include
in-depth financial plans which are based on our proprietary ConnectView® approach, and sophisticated, institutional
quality investment management that is driven by comprehensive investment policy statements and access to industry-
leading money managers. These customized documents—wealth plans and investment policy statements—form the
roadmap for how we serve each client and monitor our progress in achieving their goals.
We have experienced trust officers in several profit centers, plus expert trust and estate attorneys on our central
product group team, to provide fiduciary services through our profit centers. These include traditional fiduciary, directed
trusts, special needs trusts, and custody services. Most of our investment management business is conducted through the
trust department in agency accounts where we are not serving as trustee.
We also have experienced portfolio managers and business development teams in our profit centers who provide
high-touch, tailored solutions that we believe further exemplifies our superior client service. These local teams have
personal and professional networks and relationships with centers of influence to market our wealth advisory products and
services. As of December 31, 2022, total AUM was $6.11 billion, a decrease of $1.24 billion, or 16.9%, compared to
$7.35 billion as of December 31, 2021.
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MMDA55.6%Time Deposits9.3%NOW9.8%Savings accounts1.1%Noninterest-bearing accounts24.2% As of December 31, 2022, we provided fiduciary and advisory services on $6.11 billion of trust and investment
management assets, as shown below:
Trust and Investment Management Assets
Our investment management platform combines a broad range of asset and sub asset classes meeting the needs of
both taxable and tax-free private client accounts as well as trust investment services. We deliver most of our discretionary
money management by allocating client portfolios across a centrally controlled platform of select third-party managers in
each asset and sub asset class, including separately managed and comingled options, and with active and passive
management strategies. We also have a limited number of proprietary products that we believe further differentiates us
from many of our competitors.
We believe acting as an investment manager, and not just a manager of managers, has a number of critical benefits
for our clients. These include the ability to have our money managers available to meet with clients and prospects, to tailor
products and separately managed accounts for our clients, to better educate and inform our client-facing portfolio
managers, and to develop new solutions as market conditions and client needs change. By combining internal research and
a dedicated team of accredited specialized advisors like Chartered Financial Analysts and Certified Financial Planners with
our pairing of proprietary and third-party investment options, we create unique solutions tailored to the specific needs of
each of our clients.
Other Products
In addition to the traditional loan, deposit and trust and investment management products and services, our profit
centers are supported by a central team of specialized product experts in our "product groups," which include experienced
professionals in commercial banking, investment management, wealth planning, risk management/insurance, personal trust,
retirement planning and tax-advantaged products, and mortgage lending. We believe that the sophistication of our product
groups rivals the offerings and expertise typically provided by larger financial institutions. Our product groups are led and
staffed with highly accredited and well known professionals, each with significant experience in their fields. Beyond
traditional banking, trust and wealth management activities, at each profit center we provide other services including:
• Mortgage Lending. Although our primary objective is to originate loans for our own portfolio, we also
conduct mortgage banking activities in which we originate and sell, servicing-released, whole loans in the
secondary market. Typically, loans with a fixed interest rate of greater than 10 years are available-for-sale and
sold on the secondary market. Our mortgage banking loan sales activities are primarily directed at originating
single family mortgages that are priced and underwritten to conform to previously agreed criteria before loan
funding and are delivered to the investor shortly after funding. The level of future loan originations, loan sales
and loan repayments depends on overall credit availability, the interest rate environment, the strength of the
general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale
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Investment Agency26.5%Managed Trust29.5%Custody8.1%Directed Trust21.0%401(k)/Retirement14.9% •
•
•
market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes
in interest rates, as well as our pricing and asset liability management strategies.
Treasury Management. We offer a broad range of customized treasury management products and services for
commercial accounts, including disbursement and payables management, liquidity management and online
business banking services. Our profit center sales and service teams are supported by a central team of
treasury management specialists and deposit operations professionals.
Risk Management/Insurance. Through the wealth planning process, our profit center teams are supported by a
central team of insurance planning experts, specializing in risk management services, estate tax law, trusts
and tax planning. We offer customized solutions in the form of, among others, charitable giving tax strategies,
deferred-compensation plans, irrevocable life insurance trusts, long-term care insurance, and executive key
person insurance.
Retirement Services, including 401(k) Plan Consulting. We have a team of retirement plan consultants who
partner with businesses to sponsor retirement plans. We offer creative corporate retirement plan design and
analysis solutions and fiduciary liability management, providing tools such as corporate retirement plans, and
ERISA regulation compliance, education and expertise.
Our profit centers and product groups are also supported centrally by teams providing management services such
as operations, risk management, credit administration, technology support, marketing, human capital and accounting/
finance services, which we refer to as "support centers." Our associates in our support centers have significant experience
in wealth management, investment advisory, and commercial banking, including areas such as lending, underwriting, credit
administration, risk management, accounting/finance, operations and information technology. We have structured our
teams, services and product offerings to use technology to efficiently provide our clients with a high-touch, solution-
oriented experience, that we believe is scalable and provides operating leverage for future growth.
To demonstrate how these three groups—profit centers, product groups and support centers—work together to
deliver a highly competitive product offering through a team of local professionals, our investment management offering is
an example:
•
•
•
In each profit center, there are one or more portfolio managers that work as part of that local team’s sales and
service delivery. These portfolio managers are typically Certified Financial Planners, and occasionally
Chartered Financial Analysts, with experience in wealth planning and portfolio construction. They meet with
clients and develop an overall wealth management strategy, specific goals and objectives, an investment
policy statement, and an implementation plan. They use our guided architecture, a diverse array of select
third-party and proprietary investment products covering a broad range of asset classes as their source for
portfolio construction options, asset allocation and products. Sales and marketing support is provided
centrally but delivered locally.
Our investment platform is controlled by our central investment research group, which has a strong research
focus and includes many associates who have Chartered Financial Analyst designations, with oversight by our
Chief Investment Officer and our Investment Policy Committee.
Operational support for these profit center and product group teams is provided by our central trust and
investment management support center team.
Investment Activities
The primary objectives of our Bank portfolio investment policy are to provide a source of liquidity, to provide an
appropriate return on funds invested, to manage interest rate risk, to meet pledging requirements and to meet regulatory
capital requirements. As of December 31, 2022, the carrying value of our investment portfolio totaled $81.1 million, with
an average yield of 2.8%.
Our investment policy outlines investment type limitations, security mix parameters, authorization guidelines and
risk management guidelines. The policy authorizes us to invest in a variety of investment securities, subject to various
limitations. Our current investment portfolio consists of obligations of the U.S. Treasury and other U.S. government
agencies, corporate or sponsored entities, including mortgage-backed securities, collateralized mortgage obligations,
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subordinated debt bonds, and mutual funds. We participate in the Mortgage Partnership Finance Program ("MPF") and are
required to maintain an investment in Federal Home Loan Bank of Topeka ("FHLB") stock, which investment is based on
the level of our FHLB borrowings. Our board of directors has the overall responsibility for the investment portfolio,
including approval of our investment policy. Our Asset and Liability Committee ("ALCO") and management are
responsible for implementation of the investment policy and monitoring of our investment performance. Our ALCO and
management review the status of our investment portfolio at least ten times per year.
Our Markets
Our strategic market area is defined by metropolitan areas in the Western United States having strong long-term
economic growth prospects, a significant wealth demographic measured by growth in high net worth households, a
dynamic commercial business landscape and the ability to sustain one or more of our profit centers. We target households
with more than $1.0 million in liquid net worth and their related businesses and philanthropic interests. We believe that the
complex and diverse financial needs of this market segment presents an opportunity to serve a broad array of client needs
efficiently and cost effectively.
Our current operating markets have a high concentration of our targeted client segment and are expected to
experience high growth, providing opportunity for continued future organic growth through demographic and market share
growth.
We seek to expand our presence in our existing markets as well as other Western markets with similar
demographic profiles. With improved access to capital as a result of our initial public offering in 2018, we expect to
proactively evaluate opportunities to accelerate our organic growth and acquire banks, investment management firms and
related businesses, while also seeking to hire talented personnel. We believe consolidation in the financial services industry
along with the industry’s movement towards automated and impersonal client service further presents the Company with a
unique and significant opportunity. Our business model differentiates us from the industry, which we expect will enable us
to increase our market share in existing markets and, on a strategic and opportunistic basis, expand our geographic
footprint into new markets in the Western United States that share similar characteristics to our current markets.
Enterprise Technology
We continue to make investments in our information technology systems as we adapt to the changing security,
technology, online and mobile, and other platform delivery needs and wants of our clients. We believe that this investment
is essential to our ability to offer new products and optimize overall client experience, provide opportunities for future
growth and acquisitions, and provide a secure infrastructure that supports our operations. We leverage the experience of a
third-party managed service provider for information technology services, to augment security, and to deliver the technical
expertise around network architecture required to operate securely with optimal efficiency. The majority of our systems are
hosted by third-party service providers. The scalability of this infrastructure supports our growth strategy. In addition,
business resiliency testing and planning ensures the capability of critical vendors to fail over to fully-hot replicated systems
that provide complete redundancy in the event of a disaster.
Enterprise Risk Management
We place significant emphasis on our holistic approach to integrated risk management that provides oversight,
control, and discipline to support strategic initiative and business objectives and to promote a risk-aware culture. We utilize
the COSO 2017 ERM Framework to govern the process of anticipating, identifying, assessing, managing, optimizing, and
monitoring risks within the organization. Our Enterprise Risk Management ("ERM") Committee oversees our ERM
program. This group contains key members of management including the Chief Executive Officer and the Chief Operating
Officer/Chief Financial Officer. In order to carry out the ERM program, we have developed the following objectives to:
•
•
•
Integrate ERM practices with our strategy setting process and performance management practices to realize
benefits related to value;
Improve the Company’s ability to identify risks and establish appropriate responses to reduce costs and limit
losses;
Identify operational gaps to reduce performance variability;
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•
•
•
Include business resiliency in strategy setting;
Identify interrelated risks within First Western and establish an integrated response; and
Assess the positive and negative aspects of risk to address challenges and opportunities within our internal
and external environment.
We routinely monitor and measure risk throughout the organization to optimize the allocation of resources,
preserve capital, and to ensure the attainment and/or protection of strategic goals and business objectives.
Competition
The financial services industry is highly competitive and we compete in a number of areas, including commercial
and consumer banking, residential mortgages, wealth advisory, investment management, trust, and insurance among others.
We compete with other bank and nonbank institutions located within our market area, along with competitors situated
regionally, nationally or with only an online presence. These include large banks and other financial intermediaries, such as
consumer finance companies, brokerage firms, mortgage banking companies, business leasing and finance companies and
insurance agencies, as well as major retailers, all actively engaged in providing various types of loans and other financial
services. We also face growing competition from online businesses with few or no physical locations, including online
banks, lenders and consumer and commercial lending platforms as well as automated retirement and investment services
providers. Competition involves efforts to retain current clients, obtain new loan, deposit and advisory services clients,
increase the scope and type of services offered, and offer competitive interest rates paid on deposits, charged on loans, or
charged for advisory services. We believe our integrated and high-touch service offering, along with our sophisticated
relationship-oriented approach sets us apart from our competitors.
Human Capital Overview
As of December 31, 2022, we had 365 associates. We strive to recruit and retain team-oriented, respectful,
problem solvers. We serve our internal team with the same approach we serve our clients, with an adaptive, entrepreneurial
spirit. We take advantage of new opportunities, and encourage our team to explore new processes, products, and services to
improve First Western. Associates are our trusted partners both within their teams and with our clients as we build a
partnership for generations to come.
We strive to be a high performing financial institution producing consistent, strong financial results, coming from
a well-executed strategy. It is our belief that this can only be accomplished by a well-run organization of outstanding,
motivated, engaged and supported associates. Internally, we call this a “People First” mind-set and over the last several
years have focused on building upon the foundational elements of this strategy. Those elements include an internally
developed manager training program designed to train our managers to be great bosses in support of a culture of learning,
collaboration, growth and development. Providing meaningful work for our associates by connecting their role to the
Company’s mission and vision as well as simplifying and streamlining repetitive tasks to make work more interesting and
value added. We are building career paths, development opportunities and accountabilities into each role so that throughout
the associates lifecycle there is opportunity to master skills and pursue professional and personal growth. People First is
also about building connection and community with the Company. We believe the benefits of being part of our Company
means you are appreciated and valued, you can build meaningful relationships, and have a sense of mutual accountability.
None of our associates are represented by any collective bargaining unit or are parties to a collective bargaining
agreement. We believe that our strong relationships with our associates are central to establishing the corporate culture we
need to serve our clients, shareholders, and our communities well.
We are committed to implementing diverse, equitable and, inclusive (DEI) policies and practices across the
Company. Our corporate values speak directly to the spirit of inclusion as well as the importance of embracing diversity
and equitable practices. We believe in a corporate culture where all people are empowered to reach their full potential
through autonomy, mastery, and purpose. The Company’s Board of Directors fosters this belief by ensuring that strategies
are adopted that result in the Company understanding both associate performance and engagement at every level.
We continue to take steps to expand our role as an employer that champions diversity, equity, and inclusion
grounded in and by our core values. In 2020, we established a DEI Task Force, led by our CEO, to develop and support
DEI programs and policies. We established six subcommittees devoted to carrying out our goal of fostering a diverse,
equitable, and inclusive Company and workforce. In late 2022 we began the process of redefining our DEI program to
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include four action-oriented groups. Once implemented, the members of each ARG (Associate Resource Group) will work
towards moving initiatives forward to meet goals established by leadership. In addition, we are members of Colorado
Inclusive Economy, a business-led non-profit focused on promoting effective DEI initiatives.
The Company has invested in developing the necessary formal infrastructure to ensure fair pay across job classes
and our geographic footprint. It has also adopted and enforces codes of conduct that establish principles of integrity,
respect, and excellence at all levels of the Company.
Learning and Development
We provide extensive training to our associates in an effort to ensure that our clients receive superior service and
that our risks are well managed. Learning and development opportunities consist of leadership development programs,
communication courses, and technical development training (to name a few) as part of our goal to provide associates
meaningful work with career advancement and opportunity for growth and development. Our strategic commitment to
learning and development ensures the Company’s leadership and management teams continue to grow at a pace consistent
with our financial growth goals.
Compensation and Benefits
We offer a total rewards program to attract and retain team-oriented, respectful, problem solvers. Our
compensation program includes competitive salary/hourly pay and incentive pay in the form of an annual bonus and stock
awards to officers and certain members of the management team. In addition, the Company offers a 401(k) Plan with an
employer matching contribution. Further, we offer a number of healthcare and insurance options, health savings accounts,
paid time off, and paid family leave time for all associates.
Core Values and Culture
Developing and maintaining a strong, healthy culture is a key strategic focus as we continue to grow both
organically and through acquisition. Our core values reflect our continued focus to maintain a highly-engaged team.
Problem solver – Being a Problem solver at First Western means that when we see a problem, we see opportunity.
We pick it up and we address it, and if appropriate, work to create or improve the “FW Way” for that type of issue.
Team oriented – Team oriented at First Western means using our teammates to deliver the best possible results for
our stakeholders. Our structure, with local teams and central experts, is designed to serve clients that have assets, liabilities,
families, businesses, and long term goals that each require different types of expertise.
Respectful – For First Westerners, Respectful means valuing the unique knowledge and experiences each
stakeholder brings to a discussion. We appreciate the different value that each of us brings to First Western and treasure
that expertise.
Adaptive – First Westerners have an Adaptive, entrepreneurial spirit. When our world changes, we change to take
advantage of new opportunities. We are always looking for ways to improve processes, products, and services.
Client focused – First Western’s fiduciary DNA guides us to act in the client’s interest while protecting the Bank.
Our clients know that as their trusted partner, FW has the strength and sophistication to help them for generations.
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Available Information
The Company files reports, proxy statements and other information with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Electronic copies of our SEC
filings are available to the public at the SEC’s website at https://www.sec.gov. You may also obtain copies of our annual,
quarterly and special reports, proxy statements and certain other information filed by the Company with the SEC, as well as
amendments thereto, free of charge from the Company’s website, https://myfw.gcs-web.com/investor-relations. These
documents are posted to our website after we have filed them with the SEC. Our corporate governance guidelines,
including our code of business conduct and ethics applicable to all of our associates, officers and directors, as well as the
charters of our audit committee, compensation committee and corporate governance and nominating committee are
available at https://myfw.gcs-web.com/investor-relations. The foregoing information is also available in print to any
shareholder who requests it from the Company. Except as explicitly provided, information furnished by the Company and
information on, or accessible through, the SEC’s or the Company’s website is not incorporated into this Annual Report on
Form 10-K or our other securities filings and is not a part of them.
Supervision and Regulation
The U.S. banking industry is highly regulated under federal and state law. Banking laws, regulations, and policies
affect the operations of the Company and its subsidiaries. Investors should understand that the primary objective of the
U.S. bank regulatory regime is the protection of depositors, the Deposit Insurance Fund ("DIF"), and the banking system as
a whole, not the protection of the Company’s shareholders.
As a bank holding company, we are subject to inspection, examination, supervision, and regulation by the Board
of Governors of the Federal Reserve System (the "Federal Reserve"). The Bank, which is our subsidiary, is a Colorado-
chartered commercial bank and is not a member of the Federal Reserve System (a "state nonmember bank"). As such, the
Bank is subject to regulation, supervision, and examination by both the Colorado Division of Banking (the "CDB") and the
Federal Deposit Insurance Corporation ("FDIC"). In addition, we expect that any additional businesses that we may invest
in or acquire will be regulated by various state and/or federal banking regulators.
Banking statutes and regulations are subject to continual review and revision by Congress, state legislatures and
federal and state regulatory agencies. A change in such statutes or regulations, including changes in how they are
interpreted or implemented, could have a material effect on our business. In addition to laws and regulations, state and
federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance pursuant to
such laws and regulations, which are binding on us and our subsidiaries.
Banking statutes, regulations and policies could restrict our ability to diversify into other areas of financial
services, acquire depository institutions, and make distributions or pay dividends on our equity securities. They may also
require us to provide financial support to any bank that we control, maintain capital balances in excess of those desired by
management, and pay higher deposit insurance premiums as a result of a general deterioration in the financial condition of
the Bank or other depository institutions we control.
The description below summarizes certain elements of the applicable bank regulatory framework. This description
is not intended to describe all laws and regulations applicable to us and our subsidiaries. The description is qualified in its
entirety by reference to the full text of the statutes, regulations, policies, interpretive letters and other written guidance that
are described.
Regulatory Capital
The Company and the Bank are each required to comply with applicable capital adequacy standards established by
the Federal Reserve and the FDIC. The current risk-based capital standards applicable to the Company and the Bank are
based on the December 2010 final capital framework for strengthening international capital standards, known as Basel III,
of the Basel Committee on Banking Supervision, or Basel Committee. The final rules implementing the Basel Committee
on Banking Supervision’s capital guidelines for U.S. banks ("Basel III Rules") have been fully phased in. The Basel III
Rules require banks and bank holding companies, including the Company and the Bank, to maintain minimum capital
amounts and ratios. These ratios are common equity Tier 1 capital ("CET1"), Tier 1 capital and total capital (as defined in
the regulations) to risk-weighted assets (as defined in the regulations), and Tier 1 capital (as defined in the regulations) to
average assets (as defined in the regulations).
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The final rules of Basel III also established a "capital conservation buffer" of 2.5% above new regulatory
minimum capital ratios. The minimum capital ratios inclusive of the capital conservation buffer are as follows: (i) a CET1
ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; 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 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.
The Basel III Capital Rules also attempt to improve the quality of capital by implementing changes to the
definition of capital. Among the most important changes are stricter eligibility criteria for regulatory capital instruments
that disallow the inclusion of certain instruments, such as trust preferred securities (other than grandfathered trust preferred
securities such as those issued by the Company), in Tier 1 capital going forward and new constraints on the inclusion of
minority interests, mortgage-servicing assets, deferred tax assets and certain investments in the capital of unconsolidated
financial institutions. In addition, the Basel III Capital Rules require that most regulatory capital deductions be made from
CET1 capital.
The Federal Reserve and the FDIC may also set higher capital requirements for individual institutions whose
circumstances warrant it. For example, institutions experiencing internal growth or making acquisitions are expected to
maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on
intangible assets. At this time, the bank regulatory agencies are more inclined to impose higher capital requirements to
meet well capitalized standards and future regulatory change could impose higher capital standards as a routine matter. The
Company’s regulatory capital ratios and those of the Bank are in excess of the levels established for "well capitalized"
institutions under the rules.
The Basel III Capital Rules also set forth certain changes in the methods of calculating certain risk-weighted
assets, which in turn affects the calculation of risk-based capital ratios. Under the Basel III Capital Rules, higher or more
sensitive risk weights have been assigned to various categories of assets, including certain credit facilities that finance the
acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or on
nonaccrual status, foreign exposures and certain corporate exposures. In addition, these rules include greater recognition of
collateral and guarantees, and revised capital treatment for derivatives and repo-style transactions.
The federal bank regulators have modified certain aspects of the Basel III Capital Rules since the rules were
initially published, and additional modifications may be made in the future. In December 2017, the Basel Committee
published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (commonly referred
to as Basel IV). Among other things, these standards revise the Basel Committee’s standardized approach for credit risk
(including by recalibrating risk weights and introducing new capital requirements for certain "unconditionally cancellable
commitments," such as unused credit card lines of credit) and provides a new standardized approach for operational risk
capital. Under the Basel framework, these standards will generally be effective on January 1, 2023, with an aggregate
output floor phasing in through January 1, 2028. On September 9, 2022, the U.S. federal banking regulators announced
their intent to revise regulatory capital requirements to align them with the regulatory capital standards that were finalized
by the Basel Committee in December 2017, however a proposed rule has not yet been issued. In addition, the U.S. federal
banking regulators stated that Community banking organizations would not be impacted by the proposal. Under the current
U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions,
and not to the Company or the Bank. The impact of Basel IV on us will depend on the manner in which it is implemented
by the federal bank regulators.
In accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act (the "Regulatory
Relief Act"), discussed below, the federal banking agencies published final rules implementing the community bank
leverage ratio in November 2019. Under the final rules, which went into effect on January 1, 2020, depository institutions
and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other
qualifying criteria, including a leverage capital ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total
consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed
"qualifying community banking organizations" and are eligible to opt into the community bank leverage ratio framework.
A qualifying community banking organization that elects to use the community bank leverage ratio framework and that
maintains a leverage capital ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and
leverage capital requirements under the Basel III Capital Rules and, if applicable, is considered to have met the “well
capitalized” ratio requirements for purposes of its primary federal regulators prompt corrective action rules, discussed
below. The Company and the Bank have not made an election to use the community bank leverage ratio framework but
may make such an election in the future if determined to be possible and advantageous.
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Regulation of the Company
The Bank Holding Company Act of 1956, as amended ("BHC Act"), and other federal laws subject bank holding
companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory
requirements and activities, including regulatory enforcement actions for violations of laws and regulations.
Permitted Activities. Generally, bank holding companies are prohibited under the BHC Act from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in any activity other than
(i) banking or managing or controlling banks or (ii) an activity that the Federal Reserve determines to be so closely related
to banking as to be a proper incident to the business of banking. The Federal Reserve has the authority to require a bank
holding company to terminate an activity or terminate control of or liquidate or divest certain subsidiaries or affiliates when
the Federal Reserve believes the activity or the control of the subsidiary or affiliate constitutes a significant risk to the
financial safety, soundness or stability of any of its banking subsidiaries.
Status as a Financial Holding Company. Under the BHC Act, a bank holding company may file an election with
the Federal Reserve to be treated as a financial holding company and engage in an expanded list of financial activities. The
election must be accompanied by a certification that all of the company’s insured depository institution subsidiaries are
"well capitalized" and "well managed." Additionally, the Community Reinvestment Act of 1977 ("CRA") rating of each
subsidiary bank must be satisfactory or better. If, after becoming a financial holding company and undertaking activities
not permissible for a bank holding company, the company fails to continue to meet any of the prerequisites for financial
holding company status, the company must enter into an agreement with the Federal Reserve to comply with all applicable
capital and management requirements. If the company does not return to compliance within 180 days, the Federal Reserve
may order the company to divest its subsidiary banks or the company may discontinue or divest investments in companies
engaged in activities permissible only for a bank holding company that has elected to be treated as a financial holding
company. The Company filed an election and became a financial holding company in 2006.
Sound Banking Practices. Bank holding companies and their non-banking subsidiaries are prohibited from
engaging in activities that represent unsafe or unsound banking practices. For example, under certain circumstances the
Federal Reserve’s Regulation Y requires a holding company to give the Federal Reserve prior notice of any redemption or
repurchase of its own equity securities if the consideration to be paid, together with the consideration paid for any
repurchases in the preceding year, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve
may oppose the transaction if it believes that the transaction would constitute an unsafe or unsound practice or would
violate a regulation. As another example, a holding company is prohibited from impairing its subsidiary bank’s soundness
by causing the bank to make funds available to non-banking subsidiaries or their clients if the Federal Reserve believes it
not prudent to do so. The Federal Reserve has the power to assess civil money penalties for knowing or reckless violations
if the activities leading to a violation caused a substantial loss to a depository institution. Potential penalties are as high as
$1.0 million for each day the activity continues.
Source of Strength. In accordance with the Dodd-Frank Act and long-standing Federal Reserve policy, the
Company must act as a source of financial and managerial strength to the Bank. Under this policy, the Company must
commit resources to support the Bank, including at times when the Company may not be in a financial position to provide
it. As discussed below, the Company could be required to guarantee the capital plan of the Bank if it becomes
undercapitalized for purposes of banking regulations. Any capital loans by a bank holding company to its subsidiary bank
are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. The BHC Act
provides that, in the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a bank subsidiary will be assumed by the bankruptcy trustee and
entitled to priority of payment.
Regulatory agencies have promulgated regulations to increase the capital requirements for bank holding
companies to a level that matches those of banking institutions.
Anti-Tying Restrictions. Bank holding companies and affiliates are prohibited from tying the provision of services,
such as extensions of credit, to other services offered by a holding company or its affiliates.
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Acquisitions. The BHC Act, Section 18(c) of the Federal Deposit Insurance Act, as amended ("FDIA"), the
Colorado Banking Code and other federal and state statutes regulate acquisitions of commercial banks and their holding
companies. The BHC Act generally limits acquisitions by bank holding companies to commercial banks and companies
engaged in activities that the Federal Reserve has determined to be so closely related to banking as to be a proper incident
thereto. The BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: (i)
acquiring more than 5% of the voting stock of any bank or other bank holding company; (ii) acquiring all or substantially
all of the assets of any bank or bank holding company; or (iii) merging or consolidating with any other bank holding
company.
In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities
generally consider, among other things, the competitive effect and public benefits of the transactions, the financial and
managerial resources and future prospects of the combined organization (including the capital position of the combined
organization), the applicant’s performance record under the Community Reinvestment Act, (see the section captioned
"Community Reinvestment Act" included below in this item), fair housing laws and the effectiveness of the subject
organizations in combating money laundering activities.
The Company is also subject to the Change in Bank Control Act of 1978 ("Control Act") and related Federal
Reserve regulations, which provide that any person who proposes to acquire at least 10% (but less than 25%) of any class
of a bank holding company’s voting securities is presumed to control the company (unless the company is not publicly held
or some other shareholder owns a greater percentage of voting stock). Any person who would be presumed to acquire
control or who proposes to acquire control of 25% or more of any class of a bank holding company’s voting securities, or
who proposes to acquire actual control, must provide the Federal Reserve with at least 60 days’ prior written notice of the
acquisition. The Federal Reserve may disapprove a proposed acquisition if: (i) it would result in adverse competitive
effects; (ii) the financial condition of the acquiring person might jeopardize the target institution’s financial stability or
prejudice the interests of depositors; (iii) the competence, experience or integrity of any acquiring person indicates that the
proposed acquisition would not be in the best interests of the depositors or the public; or (iv) the acquiring person fails to
provide all of the information required by the Federal Reserve. Any proposed acquisition of the voting securities of a bank
holding company that is subject to approval under the BHC Act is not subject to the Control Act notice requirements. Any
company that proposes to acquire "control," as those terms are defined in the BHC Act and Federal Reserve regulations, of
a bank holding company or to acquire 25% or more of any class of voting securities of a bank holding company would be
required to seek the Federal Reserve’s prior approval under the BHC Act to become a bank holding company.
Dividends. The Company’s earnings and activities are affected by legislation, by regulations and by local
legislative and administrative bodies and decisions of courts in the jurisdictions in which we conduct business. These
include limitations on the ability of the Bank to pay dividends to the Company and the Company’s ability to pay dividends
to its shareholders. It is the policy of the Federal Reserve that bank holding companies should pay cash dividends on
common stock only out of income available over the past year and only if prospective earnings retention is consistent with
the organization’s expected future needs and financial condition. The policy provides that bank holding companies should
not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength
to its banking subsidiary. Consistent with such policy, a banking organization should have comprehensive policies on
dividend payments that clearly articulate the organization’s objectives and approaches for maintaining a strong capital
position and achieving the objectives of the policy statement.
As a Colorado state-chartered bank, the Bank is subject to limitations under Colorado law on the payment of
dividends. The Colorado Banking Code provides that a bank may declare dividends from retained earnings and other
components of capital specifically approved by the Colorado State Banking Board so long as the declaration is made in
compliance with rules established by the Colorado State Banking Board.
In addition, a state nonmember bank may not declare a dividend if paying the dividend would result in the bank
being undercapitalized under FDIA, discussed above, and must comply with any discretionary distribution restrictions
imposed on it under the federal banking agencies’ capital buffer rules. The FDIC has stated that, in general, state
nonmember banks can pay dividends in reasonable amounts only after the bank’s earnings have first been applied to the
elimination of losses and the establishment of necessary reserves and prudent capital levels. The FDIC may also direct state
nonmember banks that are poorly rated or subject to written supervisory actions not to pay dividends in order to ensure
adequate capital exists to support their risk profile.
In 2009, the Federal Reserve issued a supervisory letter providing greater clarity to its policy statement on the
payment of dividends by bank holding companies. In this letter, the Federal Reserve stated that when a holding company’s
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board of directors is deciding on the level of dividends to declare, it should consider, among other factors: (i) overall asset
quality, potential need to increase reserves and write down assets, and concentrations of credit; (ii) potential for
unanticipated losses and declines in asset values; (iii) implicit and explicit liquidity and credit commitments, including off-
balance sheet and contingent liabilities; (iv) quality and level of current and prospective earnings, including earnings
capacity under a number of plausible economic scenarios; (v) current and prospective cash flow and liquidity; (vi) ability to
serve as an ongoing source of financial and managerial strength to depository institution subsidiaries insured by the FDIC,
including the extent of double leverage and the condition of subsidiary depository institutions; (vii) other risks that affect
the holding company’s financial condition and are not fully captured in regulatory capital calculations; (viii) level,
composition, and quality of capital; and (ix) ability to raise additional equity capital in prevailing market and economic
conditions (the "Dividend Factors"). It is particularly important for a bank holding company’s board of directors to ensure
that the dividend level is prudent relative to the organization’s financial position and is not based on overly optimistic
earnings scenarios. In addition, a bank holding company’s board of directors should strongly consider, after careful
analysis of the Dividend Factors, reducing, deferring or eliminating dividends when the quantity and quality of the holding
company’s earnings have declined or the holding company is experiencing other financial problems, or when the
macroeconomic outlook for the holding company’s primary profit centers has deteriorated. The Federal Reserve further
stated that, as a general matter, a bank holding company should eliminate, defer or significantly reduce its distributions if:
(i) its net income is not sufficient to fully fund the dividends; (ii) its prospective rate of earnings retention is not consistent
with its capital needs and overall current and prospective financial condition; or (iii) it will not meet, or is in danger of not
meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory finding that the bank
holding company is operating in an unsafe and unsound manner.
Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank
subsidiaries with which it can prevent or remedy actions that represent unsafe or unsound practices, or violations of
applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and
bank holding companies.
Stock Redemptions and Repurchases. It is an essential principle of safety and soundness that a banking
organization’s redemption and repurchases of regulatory capital instruments, including common stock, from investors be
consistent with the organization’s current and prospective capital needs. In assessing such needs, the board of directors and
management of a bank holding company should consider the Dividend Factors discussed above under "Dividends." The
risk-based capital rule directs bank holding companies to consult with the Federal Reserve before redeeming any equity or
other capital instrument included in Tier 1 or Tier 2 capital prior to stated maturity, if such redemption could have a
material effect on the level or composition of the organization’s capital base. Bank holding companies that are experiencing
financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with the appropriate
Federal Reserve supervisory staff before redeeming or repurchasing common stock or other regulatory capital instruments
for cash or other valuable consideration. Similarly, any bank holding company considering expansion, whether through
acquisitions or through organic growth and new activities, generally also must consult with the appropriate Federal Reserve
supervisory staff before redeeming or repurchasing common stock or other regulatory capital instruments for cash or other
valuable consideration. In evaluating the appropriateness of a bank holding company’s proposed redemption or repurchase
of capital instruments, the Federal Reserve will consider the potential losses that the holding company may suffer from the
prospective need to increase reserves and write down assets from continued asset deterioration and the holding company’s
ability to raise additional common stock and other Tier 1 capital to replace capital instruments that are redeemed or
repurchased. A bank holding company must inform the Federal Reserve of a redemption or repurchase of common stock or
perpetual preferred stock for cash or other value resulting in a net reduction of the bank holding company’s outstanding
amount of common stock or perpetual preferred stock below the amount of such capital instrument outstanding at the
beginning of the quarter in which the redemption or repurchase occurs. In addition, a bank holding company must advise
the Federal Reserve sufficiently in advance of such redemptions and repurchases to provide reasonable opportunity for
supervisory review and possible objection should the Federal Reserve determine a transaction raises safety and soundness
concerns.
Regulation Y requires that a bank holding company that is not well capitalized or well managed, or that is subject
to any unresolved supervisory issues, provide prior notice to the Federal Reserve for any repurchase or redemption of its
equity securities for cash or other value that would reduce by 10% or more the holding company’s consolidated net worth
aggregated over the preceding 12-month period.
Annual Reporting; Examinations. The Company is required to file an annual report with the Federal Reserve and
to provide such additional information as the Federal Reserve may require. The Federal Reserve may examine a bank
holding company and any of its subsidiaries, and charge the company for the cost of such an examination.
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The Bank is examined from time to time by its primary federal banking regulator, the FDIC, and the CDB and is
charged for the cost of such an examination. Depending on the results of a given examination, the FDIC and the CDB may
revalue the Bank’s assets and require that the Bank establish specific reserves to compensate for the difference between the
value determined by the regulator and the book value of the assets. The Company is required to provide annual audited
financial statements and other information to the FDIC as required under Part 363 of FDIC rules and regulations.
Imposition of Liability for Undercapitalized Subsidiaries. FDIA requires bank regulators to take "prompt
corrective action" to resolve problems associated with insured depository institutions. In the event an institution becomes
"undercapitalized," it must submit a capital restoration plan. The capital restoration plan will not be accepted by the
regulators unless each company "having control of" the undercapitalized institution "guarantees" the subsidiary’s
compliance with the capital restoration plan until it becomes "adequately capitalized." For purposes of this statute, the
Company has control of the Bank. Under FDIA, the aggregate liability of all companies controlling a particular institution
is limited to the lesser of five percent of the depository institution’s total assets at the time it became undercapitalized or the
amount necessary to bring the institution into compliance with applicable capital standards. FDIA grants greater powers to
bank regulators in situations where an institution becomes "significantly" or "critically" undercapitalized or fails to submit
a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain
prior Federal Reserve approval of proposed distributions, or might be required to consent to a merger or to divest the
troubled institution or other affiliates.
State Law Restrictions. As a Colorado corporation, the Company is subject to certain limitations and restrictions
under applicable Colorado corporate law. For example, state law restrictions in Colorado include limitations and
restrictions relating to indemnification of directors; distributions and dividends to shareholders; transactions involving
directors, officers or interested shareholders; maintenance of books, records, and minutes; and observance of certain
corporate formalities.
Regulation of the Bank
Capital Adequacy. Under the Basel III Capital Rules, discussed above, the FDIC monitors the capital adequacy of
the Bank by using a combination of risk-based guidelines and leverage ratios. The FDIC considers the Bank’s capital levels
when acting on various types of applications and when conducting supervisory activities related to the safety and
soundness of the Bank and the banking system. Higher capital levels may be required if warranted by the circumstances or
risk profiles of individual institutions, or if required by the banking regulators due to the economic conditions impacting
our markets. For example, FDIC regulations provide that higher capital may be required to take adequate account of,
among other things, interest rate risk and the risks posed by concentrations of credit, nontraditional activities or securities
trading activities.
As of December 31, 2022, and 2021, the Bank exceeded all regulatory minimum capital requirements.
Prompt Corrective Regulatory Action. Under applicable federal statutes, the federal bank regulatory agencies are
required to take "prompt corrective action" with respect to institutions that do not meet specified minimum capital
requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the FDIC’s prompt corrective action
regulations, an institution is deemed to be "well capitalized" if it has a total risk-based capital ratio of 10.0% or greater, a
Tier 1 risk-based capital ratio of 8.0% or greater, a CET1 risk-based capital ratio of 6.5% or greater and a leverage capital
ratio of 5.0% or greater. An institution is "adequately capitalized" if it has a total risk-based capital ratio of 8.0% or greater,
a Tier 1 risk-based capital ratio of 6.0% or greater, a CET1 risk-based capital ratio of 4.5% or greater and a leverage capital
ratio of 4.0% or greater. An institution is "undercapitalized" if it has a total risk-based capital ratio of less than 8.0%, a Tier
1 risk-based capital ratio of less than 6.0%, a CET1 risk-based capital ratio of less than 4.5% or a leverage capital ratio of
less than 4.0%. An institution is deemed to be "significantly undercapitalized" if it has a total risk-based capital ratio of less
than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a CET1 capital ratio of less than 3.0% or a leverage capital
ratio of less than 3.0%. An institution is considered to be "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%.
Undercapitalized institutions are subject to growth limitations and are required to submit a capital restoration plan
to the FDIC. The federal bank regulatory agencies may not accept such a plan without determining, among other things,
that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution’s capital. In
addition, for a capital restoration plan to be acceptable, the depository institution’s parent holding company must guarantee
that the institution will comply with such capital restoration plan. If a depository institution fails to submit an acceptable
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plan, it is treated as if it is "significantly undercapitalized." "Significantly undercapitalized" depository institutions may be
subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become "adequately
capitalized," requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions are subject to the appointment of a receiver or conservator.
As of December 31, 2022, the Bank qualified as "well capitalized" under the prompt corrective action rules.
Deposit Insurance Assessments. All of a depositor’s accounts at an insured bank, including all noninterest-bearing
transaction accounts, are insured by the FDIC up to $250,000. FDIC-insured banks are required to pay deposit insurance
premiums to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository
institutions pay insurance premiums at rates based on their risk classification. An institution’s risk classification is assigned
based on current financial ratios and supervisory ratings of the institution’s financial condition and operations. Assessments
are based on an institution’s average consolidated total assets less average tangible equity, subject to adjustments for
certain types of institutions, including custodial banks.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial
condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any
applicable rule, regulation, order, or condition enacted or imposed by the institution’s regulatory agency. If deposit
insurance for a banking business that we invest in or acquire were to be terminated, that would have a material adverse
effect on that banking business and potentially on the Company as a whole.
Depositor Preference. FDIA provides that, in the event of the "liquidation or other resolution" of an insured
depository institution, the claims of depositors of the institution, including the claims of the FDIC as subrogee of insured
depositors, and certain claims for administrative expenses of the FDIC as a receiver, will have priority over other general
unsecured claims against the institution. If an insured depository institution fails, insured and uninsured depositors, along
with the FDIC, will have priority in payment ahead of unsecured, non-deposit creditors, including the parent bank holding
company, with respect to any extensions of credit they have made to such insured depository institution.
Consumer Financial Protection. The Bank is subject to a number of federal and state consumer protection laws
that extensively govern its relationship with its clients. These laws include the Equal Credit Opportunity Act, the Fair
Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited
Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures
Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Service Members Civil Relief Act and
these laws’ respective state law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and
practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms of deposit
accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit
report information, provide financial privacy protections, prohibit unfair, deceptive, and abusive practices, restrict the
Bank’s ability to raise interest rates and subject the Company and the Bank to substantial regulatory oversight. Violations
of applicable consumer protection laws can result in significant potential liability from litigation brought by clients,
including actual damages, restitution, and attorneys’ fees. Federal bank regulators, state attorneys general and state and
local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other
remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each
jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection requirements may
also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions the
Company may want to pursue or our prohibition from engaging in such transactions even if approval is not required.
The Consumer Financial Protection Bureau ("CFPB") has broad rulemaking authority for a wide range of
consumer financial laws that apply to all banks. The CFPB is authorized to issue rules for both bank and non-bank
companies that offer consumer financial products and services, subject to consultation with the prudential banking
regulators. In general, however, banks with assets of $10 billion or less, such as the Bank, will continue to be examined for
consumer compliance by their primary federal bank regulator.
Much of the CFPB’s rulemaking has focused on mortgage lending and servicing, including an important rule
requiring lenders to ensure that prospective buyers have the ability to repay their mortgages. Other areas of current CFPB
focus include consumer protections for prepaid cards, payday lending, debt collection, overdraft services and privacy
notices. The CFPB has been particularly active in issuing rules and guidelines concerning residential mortgage lending and
servicing, issuing numerous rules and guidance related to residential mortgages. Perhaps the most significant of these
guidelines is the "Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act" portions of
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Regulation Z. Under the Dodd-Frank Act, creditors must make a reasonable and good faith determination, based on
verified and documented information, that the consumer has a reasonable "ability to repay" a residential mortgage
according to its terms. There is a statutory presumption of compliance with this requirement for mortgages that meet the
requirements to be deemed "qualified mortgages." The CFPB rule defines the key threshold terms "ability to repay" and
"qualified mortgage."
The CFPB has actively issued enforcement actions against both large and small entities and to entities across the
entire financial service industry. The CFPB has relied upon "unfair, deceptive, or abusive acts" prohibitions as its primary
enforcement tool. However, the CFPB and Department of Justice ("DOJ") continue to be focused on fair lending in taking
enforcement actions against banks with renewed emphasis on alleged "redlining" practices. Failure to comply with these
laws and regulations could give rise to regulatory sanctions, client rescission rights, actions by state and local attorneys
general and civil or criminal liability.
Brokered Deposit Restrictions. Well capitalized institutions are not subject to limitations on brokered deposits,
while an adequately capitalized institution is able to accept, renew or roll over brokered deposits only with a waiver from
the FDIC and is subject to certain restrictions on the yield paid on such deposits. Undercapitalized institutions are generally
not permitted to accept, renew, or roll over brokered deposits.
Community Reinvestment Act. The CRA is intended to encourage banks to help meet the credit needs of their
entire communities, including low- and moderate-income neighborhoods, consistent with safe and sound operations. The
regulators examine banks and assign each bank a public CRA rating. The CRA then requires bank regulators to consider
the bank's record in meeting the needs of its community when considering certain applications by a bank, including
applications to establish a banking center or to conduct certain mergers or acquisitions. The Federal Reserve is required to
consider the CRA records of a bank holding company’s controlled banks when considering an application by the bank
holding company to acquire a bank or to merge with another bank holding company.
When we apply for regulatory approval to make certain investments, the regulators will consider the CRA record
of the target institution and our depository institution subsidiary. An unsatisfactory CRA record could substantially delay
approval or result in denial of an application.
Insider Credit Transactions. Banks are subject to certain restrictions imposed by the Federal Reserve Act on
extensions of credit to certain executive officers, directors, principal shareholders, and any related interests of such persons
(Regulation O). Extensions of credit to such persons must (a) be made on substantially the same terms, including interest
rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time
for comparable transactions with persons not covered by such restrictions, and (b) not involve more than the normal risk of
repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on
overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or other person participating in the conduct of the
affairs of that bank, the imposition of a cease and desist order, and other regulatory sanctions.
Safety and Soundness Standards. Under the FDIC Improvement Act ("FDICIA"), each federal banking agency has
prescribed, by regulation, non-capital safety and soundness standards for institutions under its authority. These standards
cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency
determines to be appropriate, and standards for asset quality, earnings, and stock valuation. An institution which fails to
meet these standards must develop a plan acceptable to the agency, specifying the steps that the institution will take to meet
the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions.
Financial Privacy. In accordance with the Gramm-Leach-Bliley Act of 1999 (the "GLB Act"), federal banking
regulators adopted rules that limit the ability of banks and other financial institutions to disclose nonpublic information
about consumers to nonaffiliated third parties. These rules require disclosure of privacy policies to consumers and, in some
circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. The
privacy provisions of the GLB Act affect how consumer information is transmitted through diversified financial companies
and conveyed to outside vendors.
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Anti-Money Laundering. Under federal law, including the Bank Secrecy Act and Title III of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"USA PATRIOT Act"), certain types of financial institutions, including insured depository institutions, must maintain anti-
money laundering programs that include established internal policies, procedures and controls; a designated compliance
officer; an ongoing training program; and testing of the program by an independent audit function. Financial institutions
are restricted from entering into specified financial transactions and account relationships and must meet enhanced
standards for due diligence, client identification and recordkeeping, including in their dealings with non-U.S. financial
institutions and non-U.S. clients. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account
relationships to guard against money laundering and to report any suspicious information maintained by financial
institutions. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an
institution’s anti-money laundering compliance when considering regulatory applications filed by the institution, including
applications for banking mergers and acquisitions. The regulatory authorities have imposed "cease and desist" orders and
civil money penalty sanctions against institutions found to be violating these obligations.
Office of Foreign Assets Control Regulation. The United States has imposed economic sanctions that affect
transactions with designated foreign countries, foreign nationals, and others. These are typically known as the "OFAC"
rules based on their administration by the U.S. Department of the Treasury Office of Foreign Assets Control ("OFAC").
The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or
more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions
against direct or indirect imports from and exports to a sanctioned country and prohibitions on "U.S. persons" engaging in
financial transactions relating to making investments in, or providing investment-related advice or assistance to, a
sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the
sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in
the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn,
set off or transferred in any manner without a license from OFAC. The Bank is responsible for, among other things,
blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial
transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions
could have serious legal and reputational consequences
Transactions with Affiliates
Transactions between depository institutions and their affiliates, including transactions between the Bank and the
Company, are governed by Sections 23A and 23B of the Federal Reserve Act and the Federal Reserve’s Regulation W
promulgated thereunder. Generally, Section 23A limits the extent to which a depository institution and its subsidiaries may
engage in "covered transactions" with any one affiliate to an amount equal to 10% of the depository institution’s capital
stock and surplus and contains an aggregate limit on all such transactions with all affiliates of an amount equal to 20% of
the depository institution’s capital stock and surplus. Section 23A also establishes specific collateral requirements for loans
or extensions of credit to, or guarantees, acceptances or letters of credit issued on behalf of, an affiliate. Section 23B
requires that covered transactions and a broad list of other specified transactions be on terms substantially the same, or at
least as favorable to the depository institution and its subsidiaries, as those for similar transactions with non-affiliates.
The Volcker Rule
Section 619 of the Dodd-Frank Act, commonly known as the "Volcker Rule," generally prohibits certain banking
entities from engaging in short-term proprietary trading of financial instruments and from owning, sponsoring or having
certain relationships with hedge funds or private equity funds (collectively, "covered funds"). The Regulatory Relief Act,
discussed below, includes a provision exempting banking organizations with $10 billion or less in total consolidation
assets, and total trading assets and trading liabilities that are 5% or less of total consolidated assets, from the Volcker Rule.
Thus, the Company and the Bank are not currently subject to the Volcker Rule.
Concentration in Commercial Real Estate Lending
As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management
practices with respect to a financial institution’s CRE lending activities. The guidelines identify certain concentration levels
that, if exceeded, will expose the institution to additional supervisory analysis surrounding the institution’s CRE
concentration risk. The guidelines are designed to promote appropriate levels of capital and sound loan and risk
management practices for institutions with a concentration of CRE loans. The Company’s CRE concentrations are
discussed in the "Risk Factors" section below.
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Interstate Banking and Branching
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1999 (the "Riegle-Neal Act"), a bank
holding company may acquire banks in states other than its home state, subject to any state requirement that the bank has
been organized and operating for a minimum period of time, not to exceed five years, and to certain deposit market-share
limitations. Bank holding companies must be well capitalized and well managed, not merely adequately capitalized and
adequately managed, in order to acquire a bank located outside of the bank holding company’s home state. The Riegle-
Neal Act also authorizes banks to merge across state lines, thereby creating interstate branches.
Colorado state law provides that a Colorado-chartered bank can establish a branch anywhere in Colorado provided
that the branch is approved in advance by the CDB. The branch must also be approved by the FDIC. The approval process
considers a number of factors, including financial history, capital adequacy, earnings prospects, character of management,
needs of the community and consistency with corporate powers. The Dodd-Frank Act permits a national or state bank, with
the approval of its regulator, to open a de novo branch in any state if the law of the state in which the branch is proposed
would permit the establishment of the branch if the bank was charted in such state.
The Federal Reserve, the Office of the Comptroller of the Currency and FDIC jointly issued a final rule in 1997
that adopted uniform regulations implementing Section 109 of the Riegle-Neal Act. Section 109 which prohibits any bank
from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit
production. Congress enacted Section 109 to ensure that interstate branches would not take deposits from a community
without the bank reasonably helping to meet the credit needs of that community.
Limitations on Incentive Compensation
In June 2016, several federal financial agencies (including the Federal Reserve and FDIC) re-proposed restrictions
on incentive-based compensation pursuant to Section 956 of the Dodd-Frank Act for financial institutions with $1 billion or
more in total consolidated assets. For institutions with at least $1 billion but less than $50 billion in total consolidated
assets, the proposal would impose principles-based restrictions that are broadly consistent with existing interagency
guidance on incentive-based compensation. Such institutions would be prohibited from entering into incentive
compensation arrangements that encourage inappropriate risks by the institution (i) by providing an executive officer,
employee, director, principal shareholder, or individuals who are "significant risk takers" with excessive compensation,
fees, or benefits, or (ii) that could lead to material financial loss to the institution. The comment period for these proposed
regulations has closed, but a final rule has not been published. Depending upon the outcome of the rule making process, the
application of this rule to us could require us to revise our compensation strategy, increase our administrative costs and
adversely affect our ability to recruit and retain qualified associates.
Cybersecurity
The Federal Financial Institutions Examination Council ("FFIEC") requires financial institutions to design
multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also
address the risk posed by compromised customer credentials, including security measures to reliably authenticate
customers accessing internet-based services of the financial institution. Further, a financial institution’s management is
expected to maintain sufficient business continuity management planning processes to ensure the rapid recovery,
resumption, and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial
institution is also expected to develop appropriate processes to enable recovery of data and business operations and address
rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of
cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including
financial penalties.
Additionally, the FDIC's Information Technology Risk Examination (InTREx) Program, based on the Uniform
Rating System for Information Technology (URSIT), includes core modules for Audit, Management, Development and
Acquisition, and Support and Delivery component ratings. If we fail to remain compliant with changing components of this
regulation, we could be subject to various regulatory sanctions, including financial penalties.
The FFIEC's examination procedures regarding overall business continuity management ("BCM") focus on
enterprise-wide approaches that address technology, business operations, testing, and communication strategies critical to
the continuity of the business. The BCM procedures describe principles and practices for information technology ("IT")
and operations designed to achieve safety and soundness, consumer financial protection, and compliance with applicable
27
laws, regulations, and rules. Continued testing, training, and program updates ensure appropriate response to cyber and
non-cyber, human and non-human disaster events. While we are compliant with BCM measures, the scope and severity of
cyber and non-cyber, human, and non-human disaster events is unpredictable.
The Company has a robust pandemic plan, which covers disaster events similar to COVID-19 and includes
detailed preparation, training, and testing that have been conducted over multiple years prior to COVID-19. This
preparation includes a comprehensive, annual Business Impact Analysis. As such, the Company remains poised to react to
a pandemic event; however, future pandemic strains may be unpredictable in scope and severity of impact.
The Federal Trade Commission's (FTC) Safeguard's Rule was updated effective January 2022. The safeguard
provision of the FTC's Gramm-Leach Bliley Act (GLBA) requires the Bank to take steps to protect their clients'
information. The law requires the Bank to create a written information security plan that outlines its strategy for protecting
customer/client information. The Bank must have reasonable administrative, technical, and physical safeguards to protect
the security, confidentiality, and integrity of client information. The security measures must be commensurate with its size,
scope of activities, sensitivity of the information in question, and the risk of data loss. While we are compliant with the
FTC Safeguard's Rule, unforeseen risks and threats could challenge the strategy for protecting such information and the
controls in place.
Cloud Adoption
The U.S. Treasury Department Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) released a
report on the current landscape of cloud adoption in December 2022. The report noted that financial institutions of all sizes
are increasingly viewing cloud services as an important component of their technology program. The COVID-19 pandemic
accelerated consumer demand for innovative offerings via digital channels, financial institution demand to accommodate
remote work, and vendors favoring cloud-based offerings are all driving the trend in cloud adoption. Many larger financial
institutions plan to adopt a hybrid model which includes both public and private cloud services and to have their own data
centers.
Significant benefits such as redundancy, scalability, and security are supporting cloud adoption. Six main
challenges were noted by the OCCIP, for greater adoption of cloud by financial institutions: i. transparency in conducting
due diligence on Cloud Service Providers (CSPs); ii. gaps in expertise and tools as the growth of cloud service utilization
outpaces the talent pool of technologists as well as the capability of financial institutions to validate rapid technological
updates; iii. Exposure to potential operational incidents originating from CSPs; iv. Potential impact of market concentration
in cloud service offerings on the financial services sector’s ability to be resilient against a large system failure or data
breach which could impact multiple financial institutions and their customers; v. the dynamics of smaller institutions being
at a disadvantage in securing preferred contract terms given the current market concentration; and vi. The increasingly
complex and diverse global landscape for cloud services providers and users to be compliant and to also be able to weather
operational challenges with inconsistent regulatory frameworks.
Despite the challenges noted by the OCCIP, the Treasury Department intends to be guided by its Strategic Vision
for Supporting the Resilience of the Financial Sector’s Use of Cloud Services and will address issues that could impact
operational resilience of the financial institution sector. The Company is currently exploring adoption of a Zero Trust
Network Architecture and related cloud security infrastructure to support its migration to the cloud. Despite extensive due
diligence with our technology and security advisors and the known benefits of cloud adoption, unforeseen risks and threats
in cyberspace continue to evolve to challenge our cybersecurity controls.
Anti-Money Laundering Act of 2020
On January 1, 2021, Congress enacted the National Defense Authorization Act (NDAA), which included
significant reforms to the U.S. anti-money laundering (AML) regime. The NDAA includes the Anti-Money Laundering
Act of 2020 (AML Act) and, within the AML Act, the Corporate Transparency Act (CTA). The AML Act seeks to
strengthen, modernize, and streamline the existing AML regime by promoting innovation, regulatory reform, and industry
engagement through forums, such as the Bank Secrecy Act Advisory Group (BSAAG) and FinCEN Exchange. The Act
also calls for FinCEN to work closely with regulatory, national security, and law enforcement partners to identify risks and
priorities and provide valuable feedback to the financial industry. The CTA establishes uniform beneficial ownership
reporting requirements for corporations, limited liability companies, and other similar entities formed or registered to do
business in the United States. Many provisions of the AML Act and the CTA require rulemaking or periodic reporting to
Congress on implementation efforts, assessments, and findings. Some of the key requirements of the AML Act requires
FinCEN to: (1) establish standards for the reporting of information on beneficial ownership, build an IT system to collect
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and secure the data, and create access protocols; (2) establish national anti-money laundering and countering the financing
of terrorism priorities; (3) Enhancement of whistleblower provisions to provide for a robust whistleblower program and
new anti-retaliation protections; (4) Review, and revise as appropriate, Currency Transaction Report (CTR) and Suspicious
Activity Report (SAR) reporting requirements, and other existing Bank Secrecy Act (BSA) regulations and guidance; and
(6) require law enforcement reporting to FinCEN on the use of BSA data, and establish procedures for additional feedback
between FinCEN and financial institutions on the usefulness of SARs, and semi-annual publication of review of SAR
activity and other BSA reports, including threat patterns, trends, and typologies.
Banks are not required to incorporate the AML/CFT Priorities into their risk based BSA compliance programs
until the effective date of the final revised regulations. Nevertheless, in preparation for any new requirements when those
final rules are published, the Bank is considering how it will incorporate the AML/CFT Priorities into its risk based BSA
compliance program, by assessing the potential related risks associated with the products and services it offers the
customers it serves, and the geographic areas in which it operates.
Changing Regulatory Structure and Future Legislation and Regulation
Congress may enact further legislation that affects the regulation of the financial services industry, and state
legislatures may enact further legislation affecting the regulation of financial institutions chartered by or operating in these
states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the
manner in which existing regulations are applied. We cannot predict the substance or impact of pending or future
legislation or regulations, or the application thereof, although enactment of the proposed legislation could impact the
regulatory structure under which the Company operates and may significantly increase costs, impede the efficiency of
internal business processes, require an increase in regulatory capital, require modifications to the Company’s business
strategy, and limit the Company’s ability to pursue business opportunities in an efficient manner. A change in statutes,
regulations or regulatory policies applicable to the Company or any of its subsidiaries could have a material effect on our
business.
Monetary Policy and Economic Environment
The policies of regulatory authorities, including the monetary policy of the Federal Reserve, can have a significant
effect on the operating results of bank holding companies and their subsidiaries. Among the means available to the Federal
Reserve to affect the money supply are open market operations in United States government securities, changes in the
discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These
means are used in varying combinations to influence overall financial stability of the economy which in turn stimulates
need for growth and distribution of bank loans, investments, and deposits, and their use may affect interest rates charged on
loans or paid on deposits as well as overall risk for banks and in turn, bank holding companies.
The Federal Reserve’s monetary policies have materially affected the operating results of commercial banks in the
past and are expected to continue to do so in the future. The nature of future monetary policies and the effects of these
policies on the Bank’s business and earnings cannot be predicted.
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ITEM 1A. Risk Factors
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond
our control. The material risks and uncertainties that management believes affect the Company are described below.
Additional risks and uncertainties that management is not aware of, or that management currently deems immaterial, may
also impair the Company’s business operations. This report is qualified in its entirety by these risk factors. If any of the
following risks actually occur, our business, financial condition and results of operations could be materially and
adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or
part of your investment. Some statements in the following risk factors constitute forward-looking statements. Please refer
to "Cautionary Note Regarding Forward-Looking Statements" elsewhere in this Annual Report on Form 10-K.
Summary of Risk Factors
The following is a summary of the principal risks that we believe could adversely affect our business, financial
condition or results of operations:
Risks Related to Our Business
– Geographic concentration in Colorado, Arizona, Wyoming, California, and Montana.
– Negative changes in the economy affecting real estate values and liquidity could impair the value of collateral
securing our real estate loans and result in loan and other losses.
– Changes in interest rates could reduce our net interest margins and net interest income.
–
If we are unable to continue to originate residential real estate loans and sell them into the secondary market
for a profit, our earnings could decrease.
– Our commercial loan portfolio involves risks specific to commercial borrowers.
– We may be subject to claims and litigation pertaining to our fiduciary responsibilities.
– We may be adversely affected by the soundness of certain securities brokerage firms.
–
The investment management contracts we have with our clients are terminable without cause and on
relatively short notice by our clients.
– Changes to the level or type of investment activity by our clients may reduce our fee revenue.
–
The trust wealth management fees we receive may decrease as a result of poor investment performance, in
either relative or absolute terms, which could decrease our revenues and net earnings.
– We may be adversely impacted by the transition from LIBOR as a reference rate and the uncertainty related
to one or more alternative reference rates intended to replace LIBOR.
– Our allowance for loan losses may not be adequate to cover actual losses.
– Our business and operations may be adversely affected in numerous and complex ways by external business
disruptors in the financial services industry
–
Liquidity risk could adversely affect our ability to fund operations and hurt our financial condition.
– We may not be able to maintain a strong core deposit base or other low-cost funding sources.
– We receive substantial deposits and assets under management as a result of referrals by professionals, such as
attorneys, accountants, and doctors, and such referrals are dependent upon the continued positive interaction
with and financial health of those referral sources.
– Our largest trust client accounts for 36.4% of our total assets under management.
–
The success of our business depends on achieving our strategic objectives, including through acquisitions
which may not increase our profitability and may adversely affect our future operating results.
– We face intense competition from other banks and financial institutions and other wealth and investment
management firms that could hurt our business.
– We may not be successful in implementing our internal growth strategy or be able to manage the risks
associated with our anticipated growth through opening new boutique private trust bank offices, which could
have a material adverse effect on our business, financial condition and results of operations.
– Our goodwill or other intangible assets may become impaired.
– We are required to make significant estimates and assumptions in the preparation of our financial statements
and our estimates and assumptions may not be accurate.
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–
Fraud, breaches of our information security, and cybersecurity attacks could adversely affect us.
– We rely on communications, information, operating and financial control systems technology and related
services from third-party service providers and we may suffer an interruption in those systems.
– Our ability to attract and retain clients and key associates could be adversely affected if our reputation is
harmed.
– We may incur significant losses due to ineffective risk management processes and strategies.
– New lines of business or new products and services may subject us to additional risks.
– We rely on customer and counterparty information, which subjects us to risks if that information is not
accurate or is incomplete.
– A future pandemic could adversely impact our business and financial results.
–
Economic and trade sanctions against targeted foreign countries and regimes could adversely affect us.
Risks Related to Our Regulatory Environment
–
–
The financial services industry is highly regulated and our failure to comply with any current or future
regulation may adversely affect us.
Federal and state banking agencies periodically conduct examinations of our business, including compliance
with laws and regulations, and our failure to comply with any supervisory actions which we are, or may
become, subject to as a result of such examinations may adversely affect us.
– We are subject to stringent capital requirements.
–
The level of our commercial real estate loan portfolio may subject us to heightened regulatory scrutiny.
– We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act
and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
– We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money
laundering statutes and regulations.
– Regulations relating to privacy, information security and data protection could increase our costs, affect or
limit how we collect and use personal information and adversely affect our business opportunities.
– We can be subject to legal and regulatory proceedings, investigations and inquiries related to conduct risk.
Risks Related to Ownership of our Common Stock
–
–
–
–
The trading volume in our common stock is less than other larger financial institutions.
The obligations associated with being a public company require significant resources and management
attention, which will increase our costs of operations and may divert focus from our business operations.
If we fail to maintain effective internal control over financial reporting, we may not be able to report our
financial results accurately and timely.
Securities analysts may not initiate or continue coverage on us.
– Our management and board of directors have significant control over our business.
– We may issue new debt securities, which would be senior to our common stock and may cause the market
price of our common stock to decline.
– Our common stock is subordinate to our existing and future indebtedness, and is effectively subordinated to
all the indebtedness and other non-common equity claims against our subsidiaries.
– We may issue shares of preferred stock in the future, which could make it difficult for another company to
acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of
our common stock.
– We are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.
– Our corporate organizational documents and provisions of federal and state law to which we are subject
contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or
prevent an attempted acquisition that you may favor or an attempted replacement of our board of directors or
management.
– An investment in our common stock is not an insured deposit and is subject to risk of loss.
–
The market price of our common stock may be subject to substantial fluctuations and significant declines.
The foregoing factors should not be construed as exhaustive. This summary of risk factors should be read in
conjunction with the more detailed risk factors below.
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Risks Related to Our Business
Our banking, trust and wealth advisory operations are geographically concentrated in Colorado, Arizona, Wyoming
California, and Montana, leading to significant exposure to those markets.
Our business activities and credit exposure, including real estate collateral for many of our loans, are concentrated
in Colorado, Arizona, Wyoming, California, and Montana. As of December 31, 2022, 83.6% of the loans in our loan
portfolio were made to borrowers who live in or conduct business in those states. This geographic concentration imposes
risks from lack of geographic diversification. Difficult economic conditions, including state and local government deficits,
in Colorado, Arizona, Wyoming, California, and Montana may affect our business, financial condition, results of
operations and future prospects, where adverse economic developments, among other things, could affect the volume of
loan originations, increase the level of nonperforming assets, increase the rate of foreclosure losses on loans and reduce the
value of our loans and loan servicing portfolio. Any regional or local economic downturn that affects Colorado, Arizona,
Wyoming, California, and Montana or existing or prospective borrowers or property values in such areas may affect us and
our profitability more significantly and more adversely than our competitors whose operations are less geographically
concentrated. This includes a sustained downturn in the oil and gas market, which is important for the general economic
health of Colorado in particular. A prolonged period of low oil prices could have a material adverse effect on our results of
operations and financial condition.
Because a significant portion of our loan portfolio is comprised of real estate loans, negative changes in the economy
affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in
loan and other losses.
As of December 31, 2022, approximately $1.91 billion, or 77.9%, of our total loans were loans with real estate as
a primary or secondary component of collateral. The repayment of such loans is highly dependent on the ability of the
borrowers to meet their loan repayment obligations to us, which can be adversely affected by economic downturns that can
lead to (i) declines in the rents and, therefore, in the cash flows generated by those real properties on which the borrowers
depend to fund their loan payments to us, (ii) decreases in the values of those real properties, which make it more difficult
for the borrowers to sell those real properties for amounts sufficient to repay their loans in full, and (iii) job losses of
residential home buyers, which makes it more difficult for these borrowers to fund their loan payments. As a result, our
operating results are more vulnerable to adverse changes in the real estate market than other financial institutions with more
diversified loan portfolios, and we could incur losses in the event of changes in economic conditions that
disproportionately affect the real estate markets.
Real estate values in many of our markets have generally experienced periods of fluctuation over the last five
years. The market value of real estate can fluctuate significantly in a short period of time. As a result, adverse
developments affecting real estate values and the liquidity of real estate in our primary markets could increase the credit
risk associated with our loan portfolio, and could result in losses that adversely affect credit quality, financial condition and
results of operations. Negative changes in the economy affecting real estate values and liquidity in our market areas could
significantly impair the value of property pledged as collateral on loans and affect our ability to sell the collateral upon
foreclosure without a loss or additional losses or our ability to sell these loans on the secondary securitization market. Such
declines and losses would have a material adverse effect on our business, financial condition and results of operations. If
real estate values decline, it is also more likely that we would be required to increase our allowance for loan losses, which
would adversely affect our business, financial condition and results of operations. In addition, adverse weather events,
including wildfires, flooding, and mudslides, can cause damages to the property pledged as collateral on loans, which could
result in additional losses upon a foreclosure.
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Changes in interest rates could reduce our net interest margins and net interest income.
Interest rates are key drivers of our net interest margin and subject to many factors beyond our control. Income
and cash flows from our banking operations depend to a great extent on the difference or "spread" between the interest we
earn on interest-earning assets, such as loans and investment securities, and the rates at which we pay interest on interest-
bearing liabilities, such as deposits and borrowings. As interest rates change, net interest income is affected. Rapidly
increasing interest rates in the future could result in interest expense increasing faster than interest income because of a
divergence in financial instrument maturities or competitive pressures. Further, substantially higher interest rates generally
reduce loan demand and may result in slower loan growth. Decreases or increases in interest rates could have a negative
effect on the spreads between the interest rates earned on assets and the rates of interest paid on liabilities, and therefore
decrease net interest income. Also, changes in interest rates might also impact the values of equity and debt securities under
management and administration, which may have a negative impact on fee income.
Interest rates are highly sensitive to many factors that are beyond our control, including (among others) general
and regional and local economic conditions, the monetary policies of the Federal Reserve, bank regulatory requirements,
competition from other banks and financial institutions and a change over time in the mix of our loans and investment
securities, on the one hand, and on our deposits and other liabilities, on the other hand. Changes in monetary policy will, in
particular, influence the origination and market value of and the yields we can realize on loans and investment securities,
and the interest we pay on deposits. Additionally, sustained low or high levels of market interest rates could continue to
impact our net interest margins and, therefore, our earnings.
Our net interest margins and earnings also could be adversely affected if we are unable to adjust our interest rates
on loans and deposits on a timely basis in response to changes in economic conditions or monetary policies. For example,
if the rates of interest we pay on deposits, borrowings and other interest-bearing liabilities increase faster than we are able
to increase the rates of interest we charge on loans or the yields we realize on investments and other interest-earning assets,
our net interest income and, therefore, our earnings will decrease. In particular, the rates of interest we charge on loans may
be subject to longer fixed interest periods compared to the interest we must pay on deposits. On the other hand, increasing
interest rates generally lead to increases in net interest income; however, such increases also may result in a reduction in
loan originations, declines in loan prepayment rates and reductions in the ability of borrowers to repay their current loan
obligations, which could result in increased loan defaults and charge-offs and could require increases to our allowance for
loan losses, thereby offsetting either partially or totally the increases in net interest income resulting from the increase in
interest rates. Additionally, we could be prevented from increasing the interest rates we charge on loans or from reducing
the interest rates we offer on deposits due to "price" competition from other banks and financial institutions with which we
compete. Conversely, in a declining interest rate environment, our earnings could be adversely affected if the interest rates
we are able to charge on loans or other investments decline more quickly than those we pay on deposits and borrowings.
If we are unable to continue to originate residential real estate loans and sell them into the secondary market for a
profit, our earnings could decrease.
We derive a portion of our non-interest income from the origination of residential real estate loans and the
subsequent sale of such loans into the secondary market. If we are unable to continue to originate and sell residential real
estate loans at historical or greater levels, our residential real estate loan volume would decrease, which could decrease our
earnings. A rising interest rate environment, general economic conditions, market volatility, or other factors beyond our
control could adversely affect our ability to originate residential real estate loans. The financial services industry is
experiencing an increase in regulations and compliance requirements related to mortgage loan originations necessitating
technology upgrades and other changes. If new regulations continue to increase and we are unable to make technology
upgrades, our ability to originate mortgage loans will be reduced or eliminated. Additionally, we sell a large portion of our
residential real estate loans to third-party investors, and rising interest rates could negatively affect our ability to generate
suitable profits on the sale of such loans. If interest rates increase after we originate the loans, our ability to market those
loans is impaired as the profitability on the loans decreases. These fluctuations can have an adverse effect on the revenue
we generate from residential real estate loans and in certain instances, could result in a loss on the sale of the loans.
Further, for the mortgage loans we sell in the secondary market, the mortgage loan sales contracts contain
indemnification clauses should the loans default, generally within the first 90 – 120 days, or if documentation is determined
not to be in compliance with regulations. While the Company has had no historic losses as a result of these indemnities, we
could be required to repurchase the mortgage loans or reimburse the purchaser of our loans for losses incurred. Both of
these situations could have an adverse effect on the profitability of our mortgage lending activities and negatively impact
our net income.
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Our loan portfolio includes a significant number of commercial loans, which involve risks specific to commercial
borrowers.
Our loan portfolio includes a significant amount of commercial real estate loans and commercial lines of credit.
Our typical commercial borrower is a small or medium-sized privately owned Colorado business entity. Our commercial
loans typically have greater credit risks than standard residential mortgage or consumer loans because commercial loans
often have larger balances, and repayment usually depends on the borrowers’ successful business operations. Commercial
loans also involve some additional risk because they generally are not fully repaid over the loan period and thus may
require refinancing or a large payoff at maturity. If the general economy turns substantially downward, commercial
borrowers may not be able to repay their loans, and the value of their assets, which are usually pledged as collateral, may
decrease rapidly and significantly. Also, when credit markets tighten due to adverse developments in specific markets or
the general economy, opportunities for refinancing may become more expensive or unavailable, resulting in loan defaults.
We may be subject to claims and litigation pertaining to our fiduciary responsibilities.
Some of the services we provide, such as trust and investment services, require us to act as fiduciaries for our
clients and others. From time to time, third parties make claims and take legal action against us pertaining to the
performance of our fiduciary responsibilities. If these claims and legal actions are not resolved in a manner favorable to us,
we may be exposed to significant financial liability or our reputation could be damaged. Either of these results may
adversely impact demand for our products and services or otherwise have a material adverse effect on our business,
financial condition or results of operations.
We may be adversely affected by the soundness of certain securities brokerage firms.
We do not provide custodial services for our clients. Instead, client investment accounts are maintained under
custodial arrangements with large, well established securities brokerage firms or bank institutions that provide custodial
services (collectively, "brokerage firms"), either directly or through arrangements made by us with those firms. As a result,
the performance of, or even rumors or questions about the integrity or performance of, any of those brokerage firms could
adversely affect the confidence of our clients in the services provided by those firms or otherwise adversely impact their
custodial holdings. Such an occurrence could negatively impact our ability to retain existing or attract new clients and, as a
result, could have a material adverse effect on our business, financial condition, results of operations and prospects.
The investment management contracts we have with our clients are terminable without cause and on relatively short
notice by our clients, which makes us vulnerable to short-term declines in the performance of the securities under our
management.
Like most investment advisory and wealth management businesses, the investment advisory contracts we have
with our clients are typically terminable by the client without cause upon less than 30 days’ notice. As a result, even short-
term declines in the performance of the securities we manage, which can result from factors outside our control, such as
adverse changes in market or economic condition or the poor performance of some of the investments we have
recommended to our clients, could lead some of our clients to move assets under our management to other asset classes
such as broad index funds or treasury securities, or to investment advisors which have investment product offerings or
investment strategies different than ours. Therefore, our operating results are heavily dependent on the financial
performance of our investment portfolios and the investment strategies we employ in our investment advisory businesses
and even short-term declines in the performance of the investment portfolios we manage for our clients, whatever the
cause, could result in a decline in assets under management and a corresponding decline in investment management fees,
which would adversely affect our results of operations.
Fee revenue represents a significant portion of our consolidated revenue and is subject to decline, among other things,
in the event of a reduction in, or changes to, the level or type of investment activity by our clients.
A significant portion of our revenue results from fee-based services related to wealth advisory, private banking,
personal trust, investment management, mortgage lending and institutional asset management services to derive revenue.
This contrasts with many commercial banks that may rely more heavily on interest-based sources of revenue, such as loans.
For the year ended December 31, 2022, non-interest income represented approximately 26.3% of our total income before
non-interest expense. The level of these fees is influenced by several factors, including the mix and volume of our assets
under custody and administration and our assets under management, the value and type of securities positions held (with
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respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by
our clients.
In addition, our clients include institutional investors, such as mutual funds, collective investment funds, hedge
funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments
and investment managers. Economic, market or other factors that reduce the level or rates of savings in or with those
institutions, either through reductions in financial asset valuations or through changes in investor preferences, could
materially reduce our fee revenue or have a material adverse effect on our consolidated results of operations. These clients
also, by their nature, are often able to exert considerable market influence, and this, combined with strong competitive
forces in the markets for our services, has resulted in, and may continue to result in, significant pressure to reduce the fees
we charge for our services in both our asset servicing and asset management business lines.
The trust wealth management fees we receive may decrease as a result of poor investment performance, in either
relative or absolute terms, which could decrease our revenues and net earnings.
We derive a significant amount of our revenues primarily from investment management fees based on assets under
management. Our ability to maintain or increase assets under management is subject to a number of factors, including
investors’ perception of our past performance, in either relative or absolute terms, market and economic conditions,
including changes in oil and gas prices, and competition from investment management companies. Financial markets are
affected by many factors, all of which are beyond our control, including general economic conditions, including changes in
oil and gas prices; securities market conditions; the level and volatility of interest rates and equity prices; competitive
conditions; liquidity of global markets; international and regional political conditions; regulatory and legislative
developments; monetary and fiscal policy; investor sentiment; availability and cost of capital; technological changes and
events; outcome of legal proceedings; changes in currency values; inflation; credit ratings; and the size, volume and timing
of transactions. A decline in the fair value of the assets under management, caused by a decline in general economic
conditions, would decrease our wealth management fee income.
Investment performance is one of the most important factors in retaining existing clients and competing for new
wealth management clients. Poor investment performance could reduce our revenues and impair our growth in the
following ways:
•
•
•
•
Existing clients may withdraw funds from our wealth management business in favor of better performing
products;
Asset-based management fees could decline from a decrease in assets under management;
Our ability to attract funds from existing and new clients might diminish; and
Our portfolio managers may depart, to join a competitor or otherwise.
Even when market conditions are generally favorable, our investment performance may be adversely affected by
the investment style of our asset managers and the particular investments that they make. To the extent our future
investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our
wealth management business will likely be reduced and our ability to attract new clients will likely be impaired. As such,
fluctuations in the equity and debt markets can have a direct impact upon our net earnings.
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We may be adversely impacted by the transition from LIBOR as a reference rate and the uncertainty related to one or
more alternative reference rates intended to replace LIBOR.
In 2017, the United Kingdom’s Financial Conduct Authority announced that the publication of 1-week and 2-
month US dollar London Interbank Offered Rate ("LIBOR") will cease after December 31, 2021, and the publication of all
other US dollar LIBOR settings will cease or be deemed unrepresentative after June 30, 2023. This announcement indicates
that the continuation of LIBOR on the current basis cannot and will not be guaranteed after June 2023. The Secured
Overnight Financing Rate ("SOFR") has been identified by the Alternative Reference Rates Committee ("ARRC" a group
of private-market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York) as the
rate that represents best practice for use in certain new USD derivatives and other financial contracts. To support the
transition to SOFR, the ARRC developed the Paced Transition Plan, with specific steps and timelines designed to
encourage adoption of SOFR. In order to develop sufficient liquidity, the ARRC is focused on supporting the launch and
usage of SOFR-based financial products in the market and creating a forward-looking term rate based on SOFR.
The language in our contracts and financial instruments that define and use LIBOR have developed over time and
have various events that trigger when a successor rate to the designated rate would be selected. If a trigger is satisfied,
contracts and financial instruments often give the calculation agent (which may be us) discretion over the successor rate or
benchmark to be selected. As a result, there is considerable uncertainty as to how the financial services industry will
address the discontinuance of designated rates in contracts and financial instruments or such designated rates ceasing to be
acceptable reference rates. This uncertainty could ultimately result in client disputes and litigation surrounding the proper
interpretation of our LIBOR-based contracts and financial instruments.
We have a significant number of loans and borrowings with attributes that are either directly or indirectly
dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Since proposed
alternative rates are calculated differently, payments under contracts referencing new rates will differ from those
referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models,
valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process
with our clients could adversely impact our reputation. Although we are currently unable to assess what the ultimate impact
of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on
our business, financial condition and results of operations.
Our allowance for loan losses may not be adequate to cover actual losses and the implementation of the Current
Expected Credit Loss accounting standard could require the Company to increase its allowance for credit losses and
may have a material adverse effect on its financial condition and results of operations.
In accordance with regulatory requirements and GAAP, we maintain an allowance for loan losses to provide for
incurred loan and lease losses and a reserve for unfunded loan commitments. Our allowance for loan losses may not be
adequate to absorb actual loan losses, and future provisions for loan losses could materially and adversely affect our
operating results. Our allowance for loan losses is based on prior experience and an evaluation of the risks inherent in our
then-current portfolio. The amount of future losses may also vary depending on changes in economic, operating and other
conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current
estimates. Federal and state regulators, as an integral part of their examination process, review our loans and leases and
allowance for loan losses. While we believe our allowance for loan losses is appropriate for the risk identified in our loan
and lease portfolio, we may need to increase the allowance for loan losses, such increases may not be sufficient to address
losses, and regulators may require us to increase this allowance even further. Any of these occurrences could have a
material adverse effect on our business, financial condition, results of operations and prospects.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments. ASU 2016-13 replaces the incurred loss model with an expected loss model, which
is referred to as the current expected credit loss model, or CECL. On July 17, 2019, the FASB voted to delay CECL
implementation for certain companies including smaller reporting companies ("SRCs") as defined by the SEC. The
Company is designated as a SRC with the SEC. The proposed delay by FASB was subject to a comment period. At the
October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for SRCs to
January 1, 2023. CECL requires a change in the model to recognize a valuation allowance based on estimated expected
credit losses over the life of the portfolio, compared to the probable incurred loss model. The change to the CECL
framework will require the Company to greatly increase the data the Company must collect and review to determine the
appropriate level of the allowance for credit losses. The adoption of CECL may result in greater volatility in the level of the
allowance for credit losses, depending on various factors and assumptions applied in the model, such as the forecasted
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economic conditions in the foreseeable future and loan payment behaviors. Any increase in the allowance for credit losses,
or expenses incurred to determine the appropriate level of the allowance for credit losses, may have an adverse effect on
the Company’s financial condition and results of operations. Based on preliminary results, the Company expects its
allowance for credit losses ("ACL") coverage ratio to be within a range of approximately 75-90 bps of total loans and
30-45 bps coverage on off-balance sheet commitments. The Company will implement the new standard beginning January
1, 2023.
Our business and operations may be adversely affected in numerous and complex ways by external business disruptors
in the financial services industry.
The financial services industry is undergoing rapid change, as technology enables non-traditional new entrants to
compete in certain segments of the banking market, in some cases with reduced regulation. New entrants may use new
technologies, advanced data and analytic tools, lower cost to serve, reduced regulatory burden or faster processes to
challenge traditional banks. For example, new business models have been observed in retail payments, consumer and
commercial lending, foreign exchange and low-cost investment advisory services. While we closely monitor business
disruptors and seek to adapt to changing technologies, matching the pace of innovation exhibited by new and differently
situated competitors may require us and policy-makers to adapt at a greater pace.
Liquidity risk could adversely affect our ability to fund operations and hurt our financial condition.
Liquidity is essential to our banking business, as we use cash to make loans and purchase investment securities
and other interest-earning assets and to fund deposit withdrawals that occur in the ordinary course of our business. Our
principal sources of liquidity include earnings, deposits, repayment by clients of loans we have made to them, and the
proceeds from sales by us of our equity securities or from borrowings that we may obtain. Potential alternative sources of
liquidity include the sale of loans, the acquisition of national market non-core deposits, the issuance of additional
collateralized borrowings such as FHLB advances, access to the Federal Reserve discount window and the issuance of
additional equity securities. If our ability to obtain funds from these sources becomes limited or the costs of those funds
increase, whether due to factors that affect us specifically, including our financial performance, or due to factors that affect
the financial services industry in general, including weakening economic conditions or negative views and expectations
about the prospects, safety, soundness or security of the financial services industry as a whole, then our ability to fund our
operations, maintain our financial condition and grow our banking and investment advisory and trust businesses would be
harmed, which could have a material adverse effect on our business, financial condition, results of operations and
prospects.
We may not be able to maintain a strong core deposit base or other low-cost funding sources.
We depend on checking and savings deposit account balances and other forms of client deposits as our primary
source of funding for our lending activities. Our business depends on our ability to maintain and grow a strong deposit
base, including our ability to retain our largest trust clients, many of whom are also depositors, which we may not be able
to do. A deterioration in economic conditions or the loss of confidence in financial institutions may result in deposit
outflows, increase our cost of funding and limit our access to some of our customary sources of liquidity, including, but not
limited to, inter-bank borrowings and borrowings from the Federal Reserve and FHLB. In addition, account and deposit
balances may decrease when clients perceive alternative investments, such as the stock market or real estate, as providing a
better risk/return tradeoff. Furthermore, the portion of our deposit portfolio that is comprised of large uninsured deposits
may be more likely to be withdrawn rapidly under adverse economic conditions. If our clients, including our trust clients,
move money out of bank deposits, into investments or to other financial institutions, we could lose a relatively low cost
source of funds, increasing our funding costs and reducing our net interest income and net income. We also have increased
risks from losses of bank deposit clients due to the large deposits we hold from certain clients. For example, as of
December 31, 2022, 26.0% of our total deposits consisted of our 10 largest depositors. Loss of any one of these deposit
clients would have an outsized impact on our results of operations. Additionally, any such loss of funds could result in
lower loan originations, which could materially negatively impact our growth strategy.
We receive substantial deposits and assets under management as a result of referrals by professionals, such as
attorneys, accountants, and doctors, and such referrals are dependent upon the continued positive interaction with and
financial health of those referral sources.
Many of our deposit clients and clients of our private trust bank offices are individuals involved in professional
vocations, such as lawyers, accountants, and doctors. These clients are a significant source of referrals for new clients in
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both the deposit and wealth management areas. If we fail to adequately serve these professional clients with our deposit
services, lending, and wealth management products, this source of referrals may diminish, which could have a negative
impact on our results. Further, if the economy in the geographic areas that we serve is negatively impacted, the amount of
deposits and services that these professional individuals will utilize and the amount of referrals that they will make may
decrease, which may have a material and adverse impact on our business, financial condition or results of operations.
Our largest trust client accounts for 36.4% of our total assets under management.
As of December 31, 2022, our largest trust client accounted for, in the aggregate, 36.4% of our total assets under
management and 2.6% of our non-interest income. As a result, a material decrease in the volume of those trust assets by
that client could materially reduce our assets under management, which would adversely affect our non-interest income
and, therefore, our results of operations.
The success of our business depends on achieving our strategic objectives, including through acquisitions which may
not increase our profitability and may adversely affect our future operating results.
Since we commenced our banking business in 2004, we have grown our banking franchise and now have nineteen
locations in Colorado, Arizona, Wyoming, California and Montana including a centralized operations center in downtown
Denver. We plan to continue to grow our banking business both organically and through acquisitions of other banks and
financial service providers, which may include entry into new markets. However, the implementation of our growth
strategy poses a number of risks for us, including that:
•
•
•
•
Any newly established offices may not generate revenues in amounts sufficient to cover the start-up costs of
those offices, which would reduce our earnings;
Acquisitions we might consummate in the future may prove not to be accretive to or may reduce our earnings
if we do not realize anticipated cost savings, or if we incur unanticipated costs in integrating the acquired
businesses into our operations or if a substantial number of the clients of any of the acquired businesses move
their business to our competitors;
Such expansion efforts will divert management time and effort from our existing banking operations, which
could adversely affect our future financial performance; and
Additional capital which we may need to support our growth or the issuance of shares in any acquisitions will
be dilutive of the investments that our existing shareholders have in the shares of our common stock that they
own and in their respective percentage ownership interests they have in the Company.
We face intense competition from other banks and financial institutions and other wealth and investment management
firms that could hurt our business.
We conduct our business operations in markets where the banking business is highly competitive and is dominated
by large multi-state and in-state banks with operations and offices covering wide geographic areas. We also compete with
other financial service businesses, including investment advisory and wealth management firms, mutual fund companies,
financial technology companies, and securities brokerage and investment banking firms that offer competitive banking and
financial products and services as well as products and services that we do not offer. Larger banks and many of those other
financial service organizations have greater financial and marketing resources than we do that enable them to conduct
extensive advertising campaigns and to shift resources to regions or activities of greater potential profitability. They also
have substantially more capital and higher lending limits than we do, which enable them to attract larger clients and offer
financial products and services that we are unable to offer, putting us at a disadvantage in competing with them for loans
and deposits and investment management clients. If we are unable to compete effectively with those banking or other
financial services businesses, we could find it more difficult to attract new and retain existing clients and our net interest
margins, net interest income and investment management fees could decline, which would materially adversely affect our
business, results of operations and prospects, and could cause us to incur losses in the future.
In addition, our ability to successfully attract and retain investment advisory and wealth management clients is
dependent on our ability to compete with competitors’ investment products, level of investment performance, client
services and marketing and distribution capabilities. If we are not successful in retaining existing and attracting new
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investment management clients, our business, financial condition, results of operations and prospects may be materially
and adversely affected.
We may not be successful in implementing our internal growth strategy or be able to manage the risks associated with
our anticipated growth through opening new boutique private trust bank offices, which could have a material adverse
effect on our business, financial condition and results of operations.
Our business strategy includes pursuing organic and internal growth and evaluating strategic opportunities to grow
through opening new boutique private trust bank offices. We believe that banking location expansion has been meaningful
to our growth since inception. We intend to pursue an organic growth strategy in addition to our acquisition strategy, the
success of which is dependent on our ability to generate an increasing level of loans, deposits and assets under management
at acceptable risk levels without incurring corresponding increases in non-interest expense. Opening new offices carries
with it certain potential risks, including significant startup costs and anticipated initial operating losses; an inability to gain
regulatory approval; an inability to secure the services of qualified senior management to operate the new offices and
successfully integrate and promote our corporate culture; poor market reception for our new offices established in markets
where we do not have a preexisting reputation; challenges posed by local economic conditions; challenges associated with
securing attractive locations at a reasonable cost; and the additional strain on management resources and internal systems
and controls. Further, we may not be successful in our organic growth strategies generally due to, among other factors,
delays in introducing and implementing new products and services and other impediments resulting from regulatory
oversight, lack of qualified personnel at existing locations. In addition, the success of our internal growth strategy will
depend on maintaining sufficient regulatory capital levels and on favorable economic conditions in our primary market
areas. Failure to adequately manage the risks associated with our anticipated growth, including growth through creating
new boutique private trust bank offices, could have a material adverse effect on our business and results of operations.
We may be required to recognize a significant charge to earnings if our goodwill or other intangible assets become
impaired, which could have a material adverse effect on our financial condition and results of operations.
Goodwill and purchased intangible assets with indefinite lives are not amortized but are reviewed for impairment
annually and more frequently when events or changes in circumstances indicate that the carrying value of an asset may not
be recoverable. Our annual goodwill impairment assessment date for the Company’s reporting units is October 31.
Goodwill impairment testing includes an assessment of qualitative factors to determine whether certain circumstances or
events exist that lead to a determination that the fair value of goodwill is less than the carrying value. This qualitative
assessment includes various factors that could affect the reporting unit’s fair value as well as mitigating events or
conditions. One such factor that could impact the assessment are the conditions within the markets that trade the
Company’s stock. The assessment of each reporting unit compares the aggregate fair value to its carrying value, along with
several valuation assumptions and methods in order to determine if any impairment was triggered as of the measurement
date. Notwithstanding the foregoing, the results of impairment testing on our intangible assets will have no impact on our
tangible book value or regulatory capital levels. There is no guarantee that we may not be forced to recognize impairment
charges in the future as operating and economic conditions change or as part of strategic divestitures. The recognition of a
significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or
other intangible assets could have a material adverse effect on our financial condition and results of operations.
We are required to make significant estimates and assumptions in the preparation of our financial statements and our
estimates and assumptions may not be accurate.
The preparation of our consolidated financial statements in conformity with GAAP requires our management to
make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of income and
expense during the reporting periods. Critical estimates are made by management in determining, among other things, the
allowance for loan losses, amounts of impairment of assets, fair values, intangibles, and valuation of income taxes. If our
underlying estimates and assumptions prove to be incorrect, our financial condition and results of operations may be
materially adversely affected. Additionally, the adoption of CECL methodology for determining our allowance for credit
losses in 2023 is expected to increase the complexity, and associated risk, of the analysis and processes relying on
management judgment.
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The occurrence of fraudulent activity, breaches of our information security, and cybersecurity attacks could adversely
affect our ability to conduct our business, manage our exposure to risk or expand our businesses, result in the
disclosure or misuse of confidential or proprietary information, increase our costs to maintain and update our
operational and security systems and infrastructure, and adversely impact our results of operations, liquidity and
financial condition, as well as cause legal or reputational harm.
As a financial institution, we are susceptible to fraudulent activity, information security breaches and
cybersecurity-related incidents that may be committed against us, our clients, or third parties with whom we interact and
that may result in financial losses or increased costs to us or our clients, disclosure or misuse of confidential information
belonging to us or personal or confidential information belonging to our clients, misappropriation of assets, litigation, or
damage to our reputation. Our industry has seen increases in electronic fraudulent activity, hacking, security breaches,
sophisticated social engineering and cyber-attacks within the financial services industry, including in the commercial
banking sector, as cyber-criminals have been targeting commercial bank and brokerage accounts on an increasing basis.
Our business is highly dependent on the security and efficacy of our infrastructure, computer and data
management systems, as well as those of third parties with whom we interact or on whom we rely. Our business relies on
the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in our computer
and data management systems and networks, and in the computer and data management systems and networks of third
parties. In addition, to access our network, products and services, our clients and other third parties may use personal
mobile devices or computing devices that are outside of our network environment and are subject to their own
cybersecurity risks. All of these factors increase our risks related to cyber-threats and electronic disruptions.
In addition to well-known risks related to fraudulent activity, which take many forms, such as check "kiting" or
fraud, wire fraud, and other dishonest acts, cybersecurity and privacy considerations could impact the Company's business.
In the current environment there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers,
hacktivists, state-sponsored intrusions, industrial espionage, employee malfeasance, and human or technological error.
Computer hackers and others routinely attempt to breach the security of technology products, services and systems to
fraudulently induce associates, clients, and other third parties to disclose information or unwittingly provide access to
systems or data. The risk of such attacks to the Company includes attempted breaches not only of our own products,
services, and systems, but also those of clients, contractors, business partners, vendors, and other third parties.
The Company's products, services, and systems may be used in critical Company, client, or third-party operations,
or involve the storage, processing, and transmission of sensitive data, including valuable intellectual property, other
proprietary or confidential data, regulated data, and personal information of associates, clients, and others. Successful
breaches, associate malfeasance, or human or technological error could result in, for example, unauthorized access to,
disclosure, modification, misuse, loss, or destruction of Company, client, or other third party data or systems; theft of
sensitive, regulated, or confidential data including personal information and intellectual property; the loss of access to
critical data or systems through ransomware, destructive attacks, or other means; and business delays, service or system
disruptions, or denials of service. In the event of such actions, the Company, its clients, and other third parties could be
exposed to potential liability, litigation, and regulatory or other government action, as well as the loss of existing or
potential customers, damage to brand and reputation, and other financial loss. In addition, the cost and operational
consequences of responding to breaches and implementing remediation measures could be significant. The Company also
experiences and responds to cybersecurity threats.
Although we have not experienced a material cybersecurity event to date, there is no assurance that there will not
be a cybersecurity attack resulting in material adverse effect in the future. As the Company's business and the cybersecurity
landscape evolve, the Company may also find it necessary to make significant further investments to protect data and
infrastructure, such as cloud technology, which may have further risks. In addition, the fast-paced, evolving, pervasive, and
sophisticated nature of certain cyber threats and vulnerabilities, as well as the scale and complexity of the business and
infrastructure, make it possible that certain threats or vulnerabilities will be undetected or unmitigated in time to prevent an
attack on the Company and its clients. Cybersecurity risk to the Company and its clients will also depend on factors such as
actions, practices, and investments of clients, contractors, business partners, vendors, and other third parties. Cyber-attacks
or other catastrophic events resulting in disruptions to or failures in power, information technology, communication
systems, or other critical infrastructure could result in interruptions or delays to Company, client, or other third party
operations or services, financial loss, injury to persons or property, potential liability, and damage to brand and reputation.
Although the Company takes significant steps to mitigate cybersecurity risk across a range of functions, such measures can
never eliminate the risk entirely or provide absolute security.
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We rely on communications, information, operating and financial control systems technology and related services from
third-party service providers and we may suffer an interruption in those systems.
We also face indirect technology, cybersecurity and operational risks relating to the third parties with whom we do
business or upon whom we rely to facilitate or enable our business activities. In addition to clients, the third parties with
whom we interact and upon whom we rely include financial counterparties; financial intermediaries such as clearing
agents, exchanges and clearing houses; vendors; regulators; providers of critical infrastructure such as internet access and
electrical power; and other parties for whom we process transactions. Each of these third parties faces the risk of cyber-
attack, information breach or loss, or technology failure. Any such cyber-attack, information breach or loss, or technology
failure of a third party could, among other things, adversely affect our ability to effect transactions, service our clients,
manage our exposure to risk or expand our businesses. Additionally, interruptions in service and security breaches could
damage our reputation, lead existing clients to terminate their business relationships with us, make it more difficult for us
to attract new clients and subject us to additional regulatory scrutiny and possibly financial liability, any of which could
have a material adverse effect on our business, financial condition, results of operations and prospects.
Our ability to attract and retain clients and key associates could be adversely affected if our reputation is harmed.
Our ability to attract and retain clients and key associates could be adversely affected if our reputation is harmed.
Any actual or perceived failure to address various issues could cause reputational harm, including a failure to address any
of the following types of issues: legal and regulatory requirements; the proper maintenance or protection of the privacy of
client and employee financial or other personal information; record keeping deficiencies or errors; money-laundering; and
potential conflicts of interest or ethical issues. Moreover, any failure to appropriately address any issues of this nature could
give rise to additional regulatory restrictions, and legal risks, which could lead to costly litigation or subject us to
enforcement actions, fines, or penalties and cause us to incur related costs and expenses. In addition, our banking,
investment advisory and wealth management businesses are dependent on the integrity of our banking personnel and our
investment advisory and wealth managers. Lapses in integrity could cause reputational harm to our businesses that could
lead to the loss of existing clients and make it more difficult for us to attract new clients and, therefore, could have a
material adverse effect on our business, financial condition, results of operations and prospects.
We may incur significant losses due to ineffective risk management processes and strategies.
We seek to monitor and control our risk exposures through a comprehensive risk and control framework
encompassing a variety of separate but complementary financial, credit, transactional, operational, cyber, and regulatory
systems, and internal control and management testing and review processes. However, those systems and review processes
and the judgments that accompany their application may not be effective and, as a result, we may not anticipate every
economic and financial outcome in all market environments or the specifics and timing of such outcomes, particularly in
the event of the kinds of dislocations in market conditions experienced in recent years, which highlight the limitations
inherent in using historical data to manage risk. If those systems and review processes prove to be ineffective in identifying
and managing risks, or testing scenarios reveal real-life failures of technology, we could be subjected to increased
regulatory scrutiny and regulatory restrictions could be imposed on our business, including on our potential future business
lines, as a result of which our business and operating results could be adversely affected.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties associated with these efforts. We may invest significant time
and resources in developing and marketing new lines of business or new products and services. Initial timetables for the
introduction and development of new lines of business or new products or services may not be achieved and price and
profitability targets may not prove feasible or may be dependent on identifying and hiring a qualified person to lead the
division. In addition, existing management personnel may not have the experience or capacity to provide effective
oversight of new lines of business or new products and services.
External factors, such as compliance with regulations, competitive alternatives, cybersecurity and cyber trends,
and shifting market preferences, may also impact the successful implementation of a new line of business or a new product
or service and result in consumer harm. Furthermore, any new line of business or new product or service could have a
significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the
development and implementation of new lines of business or new products or services could have a material adverse effect
on our business, results of operations, financial condition and prospects.
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We rely on customer and counterparty information, which subjects us to risks if that information is not accurate or is
incomplete.
When deciding whether to extend credit or enter into other transactions with clients or counterparties, we may
rely on information provided by or on behalf of those clients and counterparties, including audited financial statements and
other financial information. We may also rely on representations made by clients and counterparties that the information
they provide is accurate and complete. We conduct appropriate due diligence on such customer information and, where
practical and economical, we engage valuation and other experts or sources of information to assist with assessing
collateral and other customer risks. Our financial results could be adversely affected if the financial statements, collateral
value or other financial information provided by clients or counterparties are incorrect.
The risk of another pandemic could adversely impact our business and financial results.
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Credit Risk. Our risks of timely loan repayment and the value of collateral supporting the loans are affected
by the strength of our borrower’s financial condition and business. The effects of a pandemic on economic
activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate
the real estate collateral securing our residential and commercial real estate loans, our ability to maintain loan
origination volume and to obtain additional financing, the future demand for or profitability of our lending,
trust, wealth management and depository services, and the financial condition and credit risk of our clients.
Further, in the event of delinquencies, regulatory changes and policies designed to protect borrowers may
slow or prevent us from or, in some cases, our business decisions may result in, a delay in our taking certain
remediation actions, such as foreclosure. In addition, we have unfunded commitments to extend credit to
clients, which are generally not drawn upon. During a challenging economic environment, such as an ongoing
pandemic, our clients are more dependent on our credit commitments and increased borrowings under these
commitments could adversely impact our liquidity.
Strategic Risk. Our success may be affected by a variety of external factors that may affect the price or
marketability of our products and services, including disruptions in the capital markets, changes in interest
rates that may increase our funding costs, reduced demand for our financial products due to economic
conditions and the various response of governmental and nongovernmental authorities. The future effects of a
pandemic on economic activity could negatively affect the future banking products we provide including the
ability to sell mortgage loan that we originate with the intent to sell.
Operational Risk. Current and future restrictions on our workforce’s access to our facilities could limit our
ability to meet customer servicing expectations and have a material adverse effect on our operations. We rely
on business processes and profit center activity that largely depend on people, technology, and the use of
complex systems and models to manage our business, including access to information technology systems
and models as well as information, applications, payment systems and other services provided by third
parties. In response to a pandemic, we may modify our business practices and, from time to time, our
employees may work remotely from their homes to have our operations uninterrupted as much as possible.
Further, technology in employees’ homes may not be as robust as in our offices and could cause the networks,
information systems, applications, and other tools available to employees to be more limited or less reliable
than in our offices, the continuation of these work-from-home measures introduces additional operational
risk, especially including increased cybersecurity risk. These cyber risks include greater phishing, malware,
and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and
telecommunications systems for remote operations, increased risk of unauthorized dissemination of
confidential information, limited ability to restore the systems in the event of a systems failure or interruption,
great risk of a security breach resulting in destruction or misuse of valuable information, and potential
impairment of our ability to perform critical functions, including wiring funds, all of which could expose us to
risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the
operations of any impacted clients.
Moreover, we rely on many third parties in our business operations, including appraisers of real property
collateral, vendors that supply essential services such as loan servicers, providers of financial information,
systems and analytical tools and providers of electronic payment and settlement systems, and local and
federal government agencies, offices, and courthouses. In light of the changing measures responding to the
pandemic, many of these entities have limited the availability and access of their services. For example, loan
origination could be delayed due to the limited availability of real estate appraisers for the collateral. Loan
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closings could be delayed related to reductions in available staff in recording offices or the closing of
courthouses in certain counties, which slows the process for title work, mortgage and UCC filings in those
counties. If the third party service providers continue to have limited capacities for a prolonged period or if
additional limitations or potential disruptions in these services materialize, it may negatively affect our
operations.
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Interest Rate Risk. Our net interest income, lending activities, deposits, hedging activities, and profitability
could be negatively affected by volatility in interest rates caused by inflation, recession and other economic
impacts stemming from a pandemic. Throughout 2022, the Federal Reserve increased the federal funds rate
seven times by a total of 425 bps from the beginning of the year rate of 0.25% to the ending rate of 4.50% at
December 31, 2022. The large and frequent rate increases have increased our funding costs and negatively
affected market risk mitigation strategies. Higher income volatility from changes in interest rates and spreads
to benchmark indices could cause a loss of future net interest income and a decrease in current fair market
values of our assets. Fluctuations in interest rates will impact both the level of income and expense recorded
on most of our assets and liabilities and the market value of all interest-earning assets and interest-bearing
liabilities, other than those which have a short-term to maturity, which in turn could have a material adverse
effect on our net income, operating results, or financial condition.
Trust and Investment Management Risk. Recent market volatility has adversely impacted the value of our
assets under management. We derive a significant amount of our revenues primarily from investment
management fees based on assets under management. As such, fluctuations in the equity and debt markets can
have a direct impact upon our net earnings. A sustained decline in the value of the assets that we manage or
otherwise administer or service for others, could have an adverse effect on related fee income and demand for
our services.
Economic and trade sanctions against targeted foreign countries and regimes could adversely affect us.
The U.S. Treasury Department’s Office of Foreign Assets Control administers economic and trade sanctions
against targeted foreign countries and regimes. These sanctions take many different forms and based on their severity, can
impact the global economy and could have an adverse effect on our business, financial condition, or results of operations.
Risks Related to Our Regulatory Environment
The financial services industry is highly regulated, and legislative or regulatory actions taken now or in the future may
have a significant adverse effect on our operations.
The financial services industry is extensively regulated and supervised under both federal and state laws and
regulations that are intended primarily to protect clients, depositors, the FDIC deposit insurance fund, and the banking
system as a whole, not our shareholders. We are subject to the regulation and supervision of the Federal Reserve, the FDIC
and the CDB. The banking laws, regulations and policies applicable to us govern matters ranging from the maintenance of
adequate capital, safety and soundness, mergers and changes in control to the general business operations conducted by us,
including permissible types, amounts and terms of loans and investments, the amount of reserves held against deposits,
restrictions on dividends, imposition of specific accounting requirements, establishment of new offices and the maximum
interest rate that may be charged on loans.
We are subject to changes in federal and state banking statutes, regulations and governmental policies, or the
interpretation or implementation of them, and are subject to changes and increased complexity in regulatory requirements
as governments and regulators continue reforms intended to strengthen the stability of the financial system and protect key
markets and participants. Any changes in any federal or state banking statute, regulation or governmental policy, including
changes which occurred in 2022 and may occur in 2023 and beyond during the current and future administration, could
affect us in substantial and unpredictable ways, including ways that may adversely affect our business, results of
operations, financial condition or prospects. Compliance with laws and regulations can be difficult and costly, and changes
to laws and regulations often impose additional compliance costs. In addition, federal and state banking regulators have
broad authority to supervise our banking business and that of our subsidiaries, including the authority to prohibit activities
that represent unsafe or unsound banking practices or constitute violations of statute, rule, regulation, or administrative
order. Failure to comply with any such laws, regulations or regulatory policies could result in sanctions by regulatory
agencies, restrictions on our business activities, civil money penalties or damage to our reputation, all of which could
adversely affect our business, results of operations, financial condition or prospects.
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We expect that the Biden Administration will seek to implement a regulatory reform agenda that is significantly
different than that of the Trump Administration. This reform agenda could include a heightened focus on fair lending, the
regulation of loan portfolios and credit concentrations to borrowers impacted by climate change, heightened scrutiny on
Bank Secrecy Act and AML requirements, topics related to social equity, executive compensation, and increased capital
and liquidity, as well as limits on share buybacks and dividends. In addition, mergers and acquisitions could be dampened
by increased antitrust scrutiny. We also expect reform proposals for the short-term wholesale markets. It is too early for us
to assess which, if any of these policies, would be implemented and what their impact on our business would be.
Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws
and regulations, and our failure to comply with any supervisory actions which we are, or may become, subject to as a
result of such examinations may adversely affect us.
The Federal Reserve, the FDIC, SEC, and the CDB may conduct examinations of our business, including for
compliance with applicable laws and regulations. As a result of an examination, regulatory agencies may determine that the
financial condition, capital resources, asset quality, asset concentrations, earnings prospects, management, liquidity,
sensitivity to market risk, or other aspects of any of our operations are unsatisfactory, or that we or our management are in
violation of any law, regulation or guideline in effect from time to time. Regulatory agencies may take a number of
different remedial actions, including the power to enjoin "unsafe or unsound" practices, to require affirmative actions to
correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially
enforced, to direct an increase in our capital, to restrict our growth, to change the composition of our concentrations in
portfolio or balance sheet assets, to assess civil monetary penalties against officers or directors, to remove officers and
directors and, if such conditions cannot be corrected or there is an imminent risk of loss to depositors, the FDIC may
terminate our deposit insurance. A regulatory action against us could have a material adverse effect on our business, results
of operations, financial condition and prospects.
We are subject to stringent capital requirements.
Banking institutions are required to hold more capital as a percentage of assets than most industries. Holding high
amounts of capital compresses our earnings and constrains growth. In addition, the failure to meet applicable regulatory
capital requirements could result in one or more of our regulators placing limitations or conditions on our activities,
including our growth initiatives, or restricting the commencement of new activities, and could affect client and investor
confidence, our costs of funds and FDIC insurance costs and our ability to make acquisitions and result in a material
adverse effect on our business, financial condition, results of operations and growth prospects.
The level of our commercial real estate loan portfolio may subject us to heightened regulatory scrutiny.
The FDIC and the Federal Reserve have promulgated joint guidance on sound risk management practices for
financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that
is actively involved in commercial real estate lending should perform a risk assessment to identify potential concentrations
in commercial real estate lending. A financial institution may have such a concentration if, among other factors: (i) total
outstanding loans for construction, land development, and other land represent 100% or more of total risk-based capital
("CRE 1 Concentration"); or (ii) total outstanding loans for construction, land development and other land and loans
secured by multifamily and non-owner occupied non-farm, non-residential properties (excluding loans secured by owner-
occupied properties) represent 300% or more of total risk-based capital ("CRE 2 Concentration") and the institution’s
commercial real estate loan portfolio has increased by 50% or more during the prior 36-month period. In such an instance,
management should employ heightened risk management practices, including board and management oversight and
strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and
stress testing. As of December 31, 2022, our CRE 1 Concentration level was 114.3% and our CRE 2 Concentration level
was 196.8%. We may, at some point, be considered to have a concentration in the future, or our risk management practices
may be found to be deficient, which could result in increased reserves and capital costs as well as potential regulatory
enforcement action.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair
lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending
laws and regulations impose nondiscriminatory lending requirements on financial institutions. The Department of Justice,
the CFPB and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory
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challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations
could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on
mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties
may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
Any such actions could have a material adverse effect on our business, financial condition, results of operations and
prospects.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
The federal Bank Secrecy Act, Title III of the USA PATRIOT Act and other laws and regulations require
financial institutions, among other duties, to institute and maintain effective anti-money laundering programs and file
suspicious activity and currency transaction reports as appropriate. The federal Financial Crimes Enforcement Network,
established by the Treasury to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties
for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal
banking regulators, as well as the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue
Service. There is also increased scrutiny of compliance with the sanctions rules enforced by the Office of Foreign Assets
Control. If our policies, procedures and systems are deemed deficient or the policies, procedures and systems of any
financial institutions that we may acquire in the future are deemed deficient, we would be subject to liability, including
fines and regulatory actions such as restrictions on our ability to pay dividends and the necessity to obtain regulatory
approvals to proceed with certain aspects of our business plan, which would negatively impact our business, financial
condition and results of operations. Failure to maintain and implement adequate programs to combat money laundering and
terrorist financing could also have serious reputational consequences for us. Any of these results could materially and
adversely affect our business, financial condition, results of operations and prospects.
Regulations relating to privacy, information security and data protection could increase our costs, affect or limit how we
collect and use personal information and adversely affect our business opportunities.
We are subject to various privacy, information security and data protection laws, including requirements
concerning security breach notification, and we could be negatively impacted by these laws. For example, our business is
subject to the GLB Act which, among other things: (i) imposes certain limitations on our ability to share non-public
personal information about our clients with non-affiliated third parties; (ii) requires that we provide certain disclosures to
clients about our information collection, sharing and security practices and afford clients the right to "opt out" of any
information sharing by us with non-affiliated third parties (with certain exceptions); and (iii) requires we develop,
implement and maintain a written comprehensive information security program containing safeguards appropriate based on
our size and complexity, the nature and scope of our activities, and the sensitivity of client information we process, as well
as plans for responding to data security breaches. Various state and federal banking regulators and states and foreign
countries have also enacted data security breach notification requirements with varying levels of individual, consumer,
regulatory or law enforcement notification in certain circumstances in the event of a security breach. Moreover, legislators
and regulators in the United States and other countries are increasingly adopting or revising privacy, information security
and data protection laws that potentially could have a significant impact on our current and planned privacy, data protection
and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or
employee information, and some of our current or planned business activities. This could also increase our costs of
compliance and business operations and could reduce income from certain business initiatives. This includes increased
privacy-related enforcement activity at the federal level, by the Federal Trade Commission, as well as at the state level,
such as with regard to mobile applications.
Compliance with current or future privacy, data protection and information security laws (including those
regarding security breach notification) affecting client or employee data to which we are subject could result in higher
compliance and technology costs and could restrict our ability to provide certain products and services, which could have a
material adverse effect on our business, financial conditions or results of operations. Our failure to comply with privacy,
data protection and information security laws could result in potentially significant regulatory or governmental
investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse
effect on our business, financial condition or results of operations.
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We can be subject to legal and regulatory proceedings, investigations and inquiries related to conduct risk.
Such legal and regulatory activities could result in significant penalties and other negative impacts on our
businesses and results of operations. At any given time, we can be involved in defending legal and regulatory proceedings
and are subject to numerous governmental and regulatory examinations, investigations and other inquiries. The frequency
with which such proceedings, investigations and inquiries are initiated have increased over the last few years, and the
global judicial, regulatory and political environment generally remains hostile to financial institutions. For example, the
U.S. Department of Justice, or the DOJ, conditions the granting of cooperation credit in civil and criminal investigations of
corporate wrongdoing on the company involved having provided to investigators all relevant facts relating to the
individuals responsible for the alleged misconduct. The complexity of the federal and state regulatory and enforcement
regimes in the U.S., means that a single event or issue may give rise to a large number of overlapping investigations and
regulatory proceedings, either by multiple federal and state agencies in the U.S. or by multiple regulators and other
governmental entities in different jurisdictions. Moreover, U.S. authorities have been increasingly focused on "conduct
risk," a term that is used to describe the risks associated with behavior by employees and agents, including third-party
vendors, that could harm clients, consumers, investors or the markets, such as failures to safeguard consumers’ and
investors’ personal information, failures to identify and manage conflicts of interest and improperly creating, selling and
marketing products and services. In addition to increasing compliance risks, this focus on conduct risk could lead to more
regulatory or other enforcement proceedings and litigation, including for practices which historically were acceptable but
are now receiving greater scrutiny. Further, while we take numerous steps to prevent and detect conduct by employees and
agents that could potentially harm clients, investors or the markets, such behavior may not always be deterred or prevented.
Banking regulators have also focused on the overall culture of financial services firms. In addition to regulatory restrictions
or structural changes that could result from perceived deficiencies in our culture, such focus could also lead to additional
regulatory proceedings.
Risks Related to Ownership of our Common Stock
The trading volume in our common stock is less than other larger financial institutions.
Although our common stock is listed for trading on the Nasdaq Global Select Market, the trading volume in our
common stock is less than that of other, larger financial services companies. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers
of our common stock at any given time. This presence depends on the individual decisions of investors and general
economic and market conditions over which we have no control. Given the lower trading volume of our common stock,
significant sales of our common stock, or the expectation of these sales, could cause the price of our common stock to
decline.
The obligations associated with being a public company require significant resources and management attention, which
will increase our costs of operations and may divert focus from our business operations.
As a public company, we face increased legal, accounting, administrative and other costs and expenses that we did
not incur as a private company, particularly after we no longer qualify as an emerging growth company.
We expect to incur substantial costs related to operating as a public company, and these costs may be higher when
we no longer qualify as an emerging growth company. We are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, which requires that we file annual, quarterly and current reports
with respect to our business and financial condition and proxy and other information statements, and the rules and
regulations implemented by the SEC, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Act, the
PCAOB and the Nasdaq Global Select Market, each of which imposes additional reporting and other obligations on public
companies. As a public company, compliance with these reporting requirements and other SEC and the Nasdaq Global
Select Market rules makes certain operating activities more time-consuming, and has caused us to incur significant new
legal, accounting, insurance and other expenses. Furthermore, the need to establish the corporate infrastructure demanded
of a public company may divert management’s attention from implementing our operating strategy, which could prevent us
from successfully implementing our strategic initiatives and improving our results of operations. We have made, and will
continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet
our reporting obligations as a public company. However, we cannot predict or estimate the amount of additional costs we
may incur in order to comply with these requirements. We anticipate that these costs will materially increase our general
and administrative expenses and such increases will reduce our profitability.
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If we fail to maintain effective internal control over financial reporting, we may not be able to report our financial
results accurately and timely.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
and for evaluating and reporting on that system of internal control. Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. As a public company, we are
required to make annual assessments of the effectiveness of our internal control over financial reporting. In addition, when
we cease to be an emerging growth company under the JOBS Act, our independent registered public accounting firm will
be required to report on the effectiveness of our internal control over financial reporting.
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than
a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial
reporting. We have implemented measures designed to address historical internal control significant deficiencies and will
continue to implement measures designed to improve our internal control over financial reporting and disclosure controls
and procedures.
We will continue to periodically test and update, as necessary, our internal control systems, including our financial
reporting controls. In addition, we hired additional accounting personnel as part of our transition from a private company to
a public company. Our actions, however, may not be sufficient to result in an effective internal control environment and
any future failure to maintain effective internal control over financial reporting could impair the reliability of our financial
statements, which in turn could harm our business, impair investor confidence in the accuracy and completeness of our
financial reports, impair our access to the capital markets, cause the price of our common stock to decline and subject us to
increased regulatory scrutiny and/or penalties, and higher risk of shareholder litigation.
Securities analysts may not initiate or continue coverage on us.
The trading market for our common stock depends, in part, on the research and reports that securities analysts
publish about us and our business. We do not have any control over these securities analysts, and they may not cover us. If
one or more of these analysts cease to cover us or fail to publish regular reports on us, we could lose visibility in the
financial markets, which could cause the price or trading volume of our common stock to decline. If we are covered by
securities analysts and are the subject of an unfavorable report, the price of our common stock may decline.
Our management and board of directors have significant control over our business.
As of December 31, 2022, our directors and executive officers beneficially owned an aggregate of 1,671,775
shares, or approximately 17.4% of our shares of common stock. Consequently, our management and board of directors may
be able to significantly affect our affairs and policies, including the outcome of the election of directors and the potential
outcome of other matters submitted to a vote of our shareholders, such as mergers, the sale of substantially all of our assets
and other extraordinary corporate matters. This influence may also have the effect of delaying or preventing changes of
control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may
deem to be in the best interests of our Company. The interests of these insiders could conflict with the interests of our other
shareholders, including you.
We may issue new debt securities, which would be senior to our common stock and may cause the market price of our
common stock to decline.
We have issued $18.0 million aggregate principal amount of subordinated notes due 2030, $15.0 million due 2031
and $20.0 million due 2032. In the future, we may increase our capital resources by making offerings of debt or equity
securities, which may include senior or additional subordinated notes, series of preferred shares or common shares. Holders
of our common stock are not entitled to preemptive rights or other protections against dilution. Preferred shares and debt, if
issued, have a preference on liquidating distributions or a preference on dividend or interest payments that could limit our
ability to make a distribution to the holders of our common stock. Future issuances and sales of parity preferred stock, or
the perception that such issuances and sales could occur, may also cause prevailing market prices for the series of preferred
stock and our common stock to decline and may adversely affect our ability to raise additional capital in the financial
markets at times and prices favorable to us. Further issuances of our common stock could be dilutive to holders of our
common stock.
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Our common stock is subordinate to our existing and future indebtedness, and is effectively subordinated to all the
indebtedness and other non-common equity claims against our subsidiaries.
Shares of our common stock represent equity interests in the Company and do not constitute indebtedness.
Accordingly, the shares of our common stock rank junior to all of our indebtedness and to other non-equity claims on the
Company with respect to assets available to satisfy such claims. Additionally, dividends to holders of the Company’s
common stock are subject to the prior dividend and liquidation rights of any preferred stock we may issue.
The Company’s right to participate in any distribution of assets of any of its subsidiaries upon the subsidiary’s
liquidation or otherwise, and thus the ability of the Company’s common shareholders to benefit indirectly from such
distribution, will be subject to the prior claims of creditors of that subsidiary. As a result, holders of the Company’s
common stock will be effectively subordinated to all existing and future liabilities and obligations of its subsidiaries,
including claims of depositors.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or
could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our articles of incorporation authorize us to issue up to 10 million shares of one or more series of preferred stock.
Our board of directors has the authority to determine the preferences, limitations and relative rights of shares of preferred
stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or
action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior
to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us,
discourage bids for our common stock at a premium over the market price and materially adversely affect the market price
and the voting and other rights of the holders of our common stock.
We are dependent upon the Bank for cash flow, and the Bank’s ability to make cash distributions is restricted.
Our primary tangible asset is the stock of the Bank. As such, we depend upon the Bank for cash distributions
(through dividends on the Bank’s common stock) that we use to pay our operating expenses, satisfy our obligations
(including our preferred dividends, subordinated debentures, notes, and our other debt obligations) and to pay dividends on
our common stock. Federal statutes, regulations and policies restrict the Bank’s ability to make cash distributions to us.
These statutes and regulations require, among other things, that the Bank maintain certain levels of capital in order to pay a
dividend. In addition, there are certain restrictions imposed by federal banking laws, regulations and authorities on the
payment of dividends by us and by the Bank. If the Bank is unable to pay dividends to us, we will not be able to satisfy our
obligations or pay dividends on our common stock. Our dividend policy may change without notice, and our future ability
to pay dividends is subject to restrictions.
We are a separate and distinct legal entity from the Bank. We receive substantially all of our revenue from
dividends paid to us by the Bank, which we use as the principal source of funds to pay our expenses and to pay dividends
to our shareholders, if any. Various federal and state laws and regulations limit the amount of dividends that the Bank may
pay us. If the Bank does not receive regulatory approval or does not maintain a level of capital sufficient to permit it to
make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business,
financial condition or results of operations could be materially and adversely impacted.
As a bank holding company, we are subject to regulation by the Federal Reserve. The Federal Reserve has
indicated that bank holding companies should carefully review their dividend policy in relation to the organization’s overall
asset quality, current and prospective earnings and level, composition and quality of capital. The guidance provides that we
inform and consult with the Federal Reserve prior to declaring and paying a dividend that exceeds earnings for the period
for which the dividend is being paid or that could result in an adverse change to our capital structure, including interest on
the subordinated debentures. If required payments on our subordinated debentures are not made or are deferred, or
dividends on any preferred stock we may issue are not paid, we will be prohibited from paying dividends on our common
stock.
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Our corporate organizational documents and provisions of federal and state law to which we are subject contain certain
provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted
acquisition that you may favor or an attempted replacement of our board of directors or management.
Our articles of incorporation and our bylaws may have an anti-takeover effect and may delay, discourage or
prevent an attempted acquisition or change of control or a replacement of our incumbent board of directors or management.
Our governing documents include provisions that:
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Empower our board of directors, without shareholder approval, to issue our preferred stock, the terms of
which, including voting power, are to be set by our board of directors;
Provide that directors may only be removed from office for cause;
Eliminate cumulative voting in elections of directors;
Permit our board of directors to alter, amend or repeal our amended and restated bylaws or to adopt new
bylaws;
Prohibit shareholder action by less than unanimous written consent, thereby requiring virtually all actions to
be taken at a meeting of the shareholders;
Require shareholders that wish to bring business before annual or special meetings of shareholders, or to
nominate candidates for election as directors at our annual meeting of shareholders, to provide timely notice
of their intent in writing; and
Enable our board of directors to increase, between annual meetings, the number of persons serving as
directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present
at a meeting of directors.
Banking laws also impose notice, approval, and ongoing regulatory requirements on any shareholder or other
party that seeks to acquire direct or indirect "control" of an FDIC-insured depository institution or its holding company.
These laws include the BHC Act and the Change in Bank Control Act, or the CBCA. These laws could delay or prevent an
acquisition.
Furthermore, our bylaws provide that the state or federal courts located in Denver County, Colorado, the county in
which the city of Denver is located, will be the exclusive forum for: (i) any actual or purported derivative action or
proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty by any of our directors or
officers; (iii) any action asserting a claim against us or our directors or officers arising pursuant to the Colorado Business
Corporations Act, our articles of incorporation, or our bylaws; or (iv) any action asserting a claim against us or our officers
or directors that is governed by the internal affairs doctrine. By becoming a shareholder of our Company, you will be
deemed to have notice of and have consented to the provisions of our bylaws related to choice of forum. The choice of
forum provision in our bylaws may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.
Alternatively, if a court were to find the choice of forum provision contained in our bylaws to be inapplicable or
unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,
which could adversely affect our business, operating results and financial condition.
An investment in our common stock is not an insured deposit and is subject to risk of loss.
Our common stock is not a savings accounts, deposits or other obligations of any of our bank or nonbank
subsidiaries and will not be insured or guaranteed by the FDIC or any other government agency. Your investment in our
common stock is subject to investment risk, and you must be capable of affording the loss of your entire investment.
The market price of our common stock may be subject to substantial fluctuations and significant declines, which may
make it difficult for you to sell your shares at the volume, prices and times desired.
Actual or anticipated issuances or sales of substantial amounts of our common stock could cause the market price
of our common stock to decline significantly and make it more difficult for us to sell equity or equity-related securities in
the future at a time and on terms that we deem appropriate. The issuance of any shares of our common stock in the future
49
also would, and equity-related securities could, dilute the percentage ownership interest held by shareholders prior to such
issuance.
In addition, we may issue shares of our common stock or other securities from time to time as consideration for
future acquisitions and investments and pursuant to compensation and incentive plans. If any such acquisition or
investment is significant, the number of shares of our common stock, or the number or aggregate principal amount, as the
case may be, of other securities that we may issue may in turn be substantial. We may also grant registration rights
covering those shares of our common stock or other securities in connection with any such acquisitions and investments.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and
sales of our common stock will have on the market price of our common stock. Sales of substantial amounts of our
common stock (including shares of our common stock issued in connection with an acquisition or under a compensation or
incentive plan), or the perception that such sales could occur, may adversely affect prevailing market prices for our
common stock and could impair our ability to raise capital through future sales of our securities.
The market price of our common stock may be highly volatile, which may make it difficult for you to resell your
shares at the volume, prices and times desired. There are many factors that may affect the market price and trading volume
of our common stock, including, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
Actual or anticipated fluctuations in our operating results, financial condition or asset quality;
Changes in economic or business conditions;
The effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the
Federal Reserve;
Publication of research reports about us, our competitors, or the financial services industry generally, or
changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or
lack of research reports by industry analysts or ceasing of coverage;
Operating and stock price performance of companies that investors deemed comparable to us;
Additional or anticipated sales of our common stock or other securities by us or our existing shareholders;
Additions or departures of key personnel;
Prevailing market conditions, including increased general market volatility associated with recent fears of
pandemics;
Perceptions in the marketplace regarding our competitors or us;
Significant acquisitions or business combinations, strategic partnerships, joint ventures or capital
commitments by or involving our competitors or us;
Other economic, competitive, governmental, regulatory and technological factors affecting our operations,
pricing, products and services; and
Other news, announcements or disclosures (whether by us or others) related to us, our competitors, our
primary markets or the financial services industry.
The stock market and, in particular, the market for financial institution stocks have experienced substantial
fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of
particular companies. In addition, significant fluctuations in the trading volume in our common stock may cause significant
price variations to occur. Increased market volatility may materially and adversely affect the market price of our common
stock, which could make it difficult to sell your shares at the volume, prices and times desired.
50
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
51
ITEM 2: PROPERTIES
Our corporate headquarters is located at 1900 16th Street, Suite 1200, Denver, Colorado 80202. Including our
corporate headquarters, the Bank operates nineteen profit centers, which consists of thirteen boutique private trust bank
offices with two locations in Arizona, eight locations in Colorado and three locations in Wyoming; four loan production
offices with one location in Ft. Collins, Colorado, one location in Greenwood Village, Colorado, one location in Phoenix,
Arizona, and one location in Bozeman, Montana; and two trust offices with one location in Laramie, Wyoming, and one
location in Century City, California. We own our locations in Jackson Hole, Pinedale, and Rock Springs, while all
remaining locations are leased. We believe that our facilities are suitable and adequate to meet our present needs. The chart
below describes our locations, which we believe are strategically located in affluent and high-growth markets in nineteen
locations (listed below) across Colorado, Arizona, Wyoming, California, and Montana:
Arizona
Phoenix
Phoenix(3)
Scottsdale
Wyoming
California
Montana
Jackson Hole
Century City(2)
Bozeman(3)
Laramie(2)
Pinedale
Rock Springs
Colorado
Downtown Denver(1)
Aspen
Boulder
Cherry Creek
Denver Tech Center / Cherry Hills
Ft. Collins(3)
Greenwood Village(3)
Northern Colorado
Vail Valley
Broomfield
_____________________________
(1)
(2)
(3)
Headquarters and co-location of profit center, product groups and support centers
Trust office
Loan production office
ITEM 3. LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings. From time to time, we are subject to claims and
litigation arising in the ordinary course of business. These claims and litigation may include, among other things,
allegations of violation of banking and other applicable regulations, competition law, labor laws and consumer protection
laws, as well as claims or litigation relating to intellectual property, securities, breach of contract, and tort. We intend to
defend ourselves vigorously against any pending or future claims and litigation.
At this time, in the opinion of management, the likelihood is remote that the impact of such proceedings, either
individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial
condition, or cash flows. However, one or more unfavorable outcomes in any claim or litigation against us could have a
material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate
outcomes, such matters are costly, divert management’s attention, and may materially and adversely affect our reputation,
even if resolved in our favor.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
52
PART II
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Shares of our common stock, no par value, are traded on the NASDAQ Global Select Market under the symbol
"MYFW".
Holders of Record
As of March 10, 2023, there were approximately 106 holders of record of our common stock.
Dividend Policy
We have not declared or paid any dividends on our common stock and we do not currently anticipate paying any
cash dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the
foreseeable future will be retained to support our operations and finance the growth and development of our business or be
used for stock buybacks. Any future determination to pay dividends on our common stock will be made by our board of
directors and will depend upon our results of operations, financial condition, capital requirements, general economic
conditions, regulatory and contractual restrictions, our business strategy, our ability to service any equity or debt
obligations senior to our common stock and other factors that our board of directors deems relevant. We are not obligated
to pay dividends on our common stock and are subject to restrictions on paying dividends on our common stock.
As a bank holding company, our ability to pay dividends is affected by the policies and enforcement powers of the
Federal Reserve. See "Supervision and Regulation—Regulation of the Company—Dividends." In addition, because we are
a holding company, we are dependent upon the payment of dividends by the Bank to us as our principal source of funds to
pay dividends in the future, if any, and to make other payments. The Bank is also subject to various legal, regulatory and
other restrictions on its ability to pay dividends and make other distributions and payments to us. See "Supervision and
Regulation—Regulation of the Bank—Dividends." The present and future dividend policy of the Bank is subject to the
discretion of the board of directors. The Bank is not obligated to pay us dividends.
As a Colorado corporation, we are subject to certain restrictions on distributions under the Colorado Business
Corporation Act. Generally, a Colorado corporation may not make a distribution to its shareholders if, after giving the
distribution effect: (i) the corporation would not be able to pay its debts as they become due in the usual course of business;
or (ii) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed,
if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the distribution.
Securities Authorized for Issuance under Equity Compensation Plans
The information concerning the ownership of shares of our common stock by certain beneficial owners and
management required by this item is incorporated herein by reference from our definitive proxy statement for our 2022
Annual Meeting of Shareholders, a copy of which will be filed with the SEC no later than 120 days after the end of our
fiscal year.
53
The following table sets forth information as of December 31, 2022, regarding our equity compensation plans that
provide for the award of equity securities or the grant of options to purchase equity securities of the Company to employees
and directors of First Western and its subsidiaries:
(A)
(B)
(C)
Number of securities to be
issued upon exercise of
outstanding options or
vesting of outstanding
restricted stock grants
Weighted average
exercise
price of
outstanding
options
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column (A)
705,672 $
22.76
—
705,672
—
329,035
—
329,035
Plan Category
Equity compensation plans
approved by shareholders
Equity compensation plans not
approved by shareholders
Total
Issuer Purchases of Equity Securities
October 1, 2022 through October 31, 2022
November 1, 2022 through November 30, 2022
December 1, 2022 through December 31, 2022
Total number
of shares
purchased (1)
Average
price paid
per share
— $
1,413
—
—
28.93
—
Total number of
shares purchased
as part of publically
announced plans
or programs
Maximum number (or
approximate dollar
value) of shares
that may yet be
purchased under the
plans or programs
—
—
—
—
—
—
_____________________________
(1)
These shares relate to the net settlement by employees related to vested, restricted stock awards and do not impact the shares available for
repurchase. Net settlements represent instances where employees elect to satisfy their income tax liability related to the vesting of restricted stock
through the surrender of a proportionate number of the vested shares to the Company.
ITEM 6: [Reserved]
54
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this
Annual Report on Form 10-K. The following discussion contains "forward-looking statements" that reflect our future
plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or
beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Cautionary
Statement Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described
under the heading "Item 1A – Risk Factors" included in Item 1A of this Annual Report on Form 10-K. We do not undertake
any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Company Overview
We are a financial holding company founded in 2002 and headquartered in Denver, Colorado. We provide a fully
integrated suite of wealth management services to our clients including banking, trust, and investment management
products and services. Our mission is to be the best private bank for the Western wealth management client. We target
entrepreneurs, professionals, and high-net worth individuals, typically with $1.0 million-plus in liquid net worth, and their
related philanthropic and business organizations, which we refer to as the "Western wealth management client." We believe
that the Western wealth management client shares our entrepreneurial spirit and values our sophisticated, high-touch wealth
management services that are tailored to meet their specific needs. We partner with our clients to solve their unique
financial needs through our expert integrated services provided in a team approach.
We offer our services through a branded network of boutique private trust bank offices, which we believe are
strategically located in affluent and high-growth markets in locations across Colorado, Arizona, Wyoming, Montana, and
California. Our profit centers, which are comprised of private bankers, lenders, wealth planners and portfolio managers,
under the leadership of a local chairman and/or president, are also supported centrally by teams providing management
services such as operations, risk management, credit administration, marketing, technology support, human capital, and
accounting/finance services, which we refer to as support centers.
From 2004, when we opened our first profit center, until December 31, 2022, we have expanded our footprint into
thirteen full service profit centers, three loan production offices, and two trust offices located across five states. Following
the completion of the Teton Financial Services, Inc. (“Teton”) acquisition in the fourth quarter of 2021, we added three full
service profit centers in Jackson Hole, Pinedale, and Rock Springs, Wyoming. As of and for the year ended December 31,
2022, we had $2.87 billion in total assets, $107.9 million in total revenues and provided fiduciary and advisory services on
$6.11 billion of assets under management ("AUM").
Response to COVID-19
The spread of COVID-19 caused significant disruptions in the U.S. economy since it was declared a pandemic in
March 2020 by the World Health Organization. Disruptions include temporary closures of many businesses that have led to
a loss of revenues and a rapid increase in unemployment, disrupted global supply chains, market downturns and volatility,
changes in consumer behavior related to pandemic fears, and related emergency response legislation. The changes have
impacted our clients and their industries, as well as the financial services industry.
A provision in the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") created the Paycheck
Protection Program ("PPP"), which is administered by the Small Business Administration ("SBA"). The PPP was intended
to provide loans to small businesses to pay their employees, rent, mortgage interest, and utilities. The loans could 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 was an approved SBA PPP lender and participated in all
rounds of the program.
The last round of program funds were depleted in early May 2021. With the originations closed, the SBA turned
their attention to forgiveness, processing applications submitted by the Company. Loans funded in 2021 became eligible
for forgiveness after the covered period of 8 to 24 weeks, which began for some clients in early second quarter of 2021. As
of December 31, 2022, we have received forgiveness payments of $308.4 million from the SBA and have 26 PPP loans for
a total of $7.1 million with an average loan size of $0.3 million remaining.
55
As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our
clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company has
offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer
borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments
in the last two years. In 2021, the deferral period ended for all non-acquired loans previously modified and payments
resumed under the original terms. As of December 31, 2022, the Company's loan portfolio included 49 non-acquired loans
which were previously modified under the loan modification program, totaling $78.4 million. Through the Teton
Acquisition, the Company acquired loans which were previously modified and are still in their deferral period. As of
December 31, 2022, there were 14 of these loans, totaling $3.3 million.
The Company also participated in the Federal Reserve’s Main Street Lending Program ("MSLP") to support
lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition
before the onset of the COVID-19 pandemic. As of December 31, 2022, the Company had five loans with a balance held
by the Bank of $6.6 million.
Primary Factors Used to Evaluate the Results of Operations
As a financial institution, we manage and evaluate various aspects of both our results of operations and our
financial condition. We evaluate the comparative levels and trends of the line items in our Consolidated Balance Sheets and
Statements of Income as well as various financial ratios that are commonly used in our industry. The primary factors we
use to evaluate our results of operations include net interest income, non-interest income and non-interest expense.
Net Interest Income
Net interest income represents interest income less interest expense. We generate interest income on interest-
earning assets, primarily loans and investment securities. We incur interest expense on interest-bearing liabilities, primarily
interest-bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields on loans,
investment securities, and other interest-earning assets; (ii) the costs of deposits and other funding sources; (iii) the rates
incurred on borrowings and other interest-bearing liabilities; and (iv) the regulatory risk weighting associated with the
assets. Interest income is primarily impacted by loan growth and loan repayments, along with changes in interest rates on
the loans. Interest expense is primarily impacted by changes in deposit balances, changes in interest rates on deposits, along
with the volume and type of interest-bearing liabilities. Net interest income is primarily impacted by changes in market
interest rates, the slope of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing
liabilities.
Non-Interest Income
Non-interest income primarily consists of the following:
•
•
•
•
Trust and investment management fees—fees and other sources of income charged to clients for managing
their trust and investment assets, providing financial planning consulting services, 401(k) and retirement
advisory consulting services, and other wealth management services. Trust and investment management fees
are primarily impacted by rates charged and increases and decreases in AUM. AUM is primarily impacted by
opening and closing of client advisory and trust accounts, contributions and withdrawals, and the fluctuation
in market values.
Net gain on mortgage loans—gain on originating and selling mortgages and origination fees, less
commissions to loan originators, document review, and other costs specific to originating and selling the loan.
The market adjustments for interest rate lock commitments ("IRLC"), mortgage derivatives, and gains and
losses incurred on the mandatory trading of loans are also included in this line item. Net gain on mortgage
loans is primarily impacted by the amount of loans sold, the type of loans sold, and market conditions.
Bank fees—income generated through bank-related service charges such as: electronic transfer fees, treasury
management fees, bill pay fees, servicing fees for MSLP, and other banking fees. Banking fees are primarily
impacted by the level of business activities and cash movement activities of our clients.
Risk management and insurance fees—commissions earned on insurance policies we have placed for clients
through our client risk management team who incorporate insurance services, primarily life insurance, to
56
support our clients’ wealth planning needs. Our insurance revenues are primarily impacted by the type and
volume of policies placed for our clients.
•
Income on company-owned life insurance—income earned on the growth of the cash surrender value of life
insurance policies we hold on certain key associates. The income on the increase in the cash surrender value
is non-taxable income.
Non-Interest Expense
Non-interest expense is comprised primarily of the following:
•
•
•
•
•
Salaries and employee benefits—all forms of compensation-related expenses including salary, incentive
compensation, payroll-related taxes, stock-based compensation, benefit plans, health insurance, 401(k) plan
match costs, and other benefit-related expenses. Salaries and employee benefit costs are primarily impacted
by changes in headcount and fluctuations in benefits costs.
Occupancy and equipment—costs related to building and land maintenance, leasing our office space,
depreciation charges for the buildings, building improvements, furniture, fixtures and equipment,
amortization of leasehold improvements, utilities, and other occupancy-related expenses. Occupancy and
equipment costs are primarily impacted by the number of locations we occupy.
Professional services—costs related to legal, accounting, tax, consulting, personnel recruiting, insurance and
other outsourcing arrangements. Professional services costs are primarily impacted by corporate activities
requiring specialized services. FDIC insurance expense is also included in this line and represents the
assessments that we pay to the FDIC for deposit insurance.
Technology and information systems—costs related to software and information technology services to
support office activities and internal networks. Technology and information system costs are primarily
impacted by the number of locations we occupy, the number of associates we have, and the level of service
we require from our third-party technology vendors.
Data processing—costs related to processing fees paid to our third-party data processing system providers
relating to our core private trust banking platform. Data processing costs are primarily impacted by the
number of loan, deposit and trust accounts we have and the level of transactions processed for our clients.
• Marketing—costs related to promoting our business through advertising, promotions, charitable events,
sponsorships, donations, and other marketing-related expenses. Marketing costs are primarily impacted by the
levels of advertising programs and other marketing activities and events held throughout the year.
•
•
Amortization of other intangible assets—primarily represents the amortization of intangible assets including
client lists, core deposit intangibles, and other similar items recognized in connection with acquisitions.
Other—includes costs related to operational expenses associated with office supplies, postage, travel
expenses, meals and entertainment, dues and memberships, costs to maintain or prepare other real estate
owned ("OREO") for sale, director compensation and travel, and other general corporate expenses that do not
fit within one of the specific non-interest expense lines described above. Other operational expenses are
generally impacted by our business activities and needs.
Operating Segments
The Company’s reportable segments consist of Wealth Management and Mortgage. We measure the overall
profitability of operating segments based on income before income tax. We believe this is a more useful measurement as
our wealth management products and services are fully integrated with our private trust bank. We allocate costs to our
segments, which consist primarily of compensation and overhead expense directly attributable to the products and services
within the Wealth Management and Mortgage segments. We measure the profitability of each segment based on a post-
allocation basis, as we believe it better approximates the operating cash flows generated by our reportable operating
segments. A description of each segment is provided in Note 18 - Segment Reporting of the accompanying Notes to the
Consolidated Financial Statements.
57
Primary Factors Used to Evaluate our Balance Sheet
The primary factors we use to evaluate our balance sheet include asset and liability levels, asset quality, capital,
liquidity, and potential profit production from assets.
We manage our asset levels to ensure our lending initiatives are efficiently and profitably supported and to ensure
we have the necessary liquidity and capital to meet the required regulatory capital ratios. Funding needs are evaluated and
forecasted by communicating with clients, reviewing loan maturity and draw expectations, and projecting new loan
opportunities.
We manage the diversification and quality of our assets based upon factors that include the level, distribution,
severity and trend of problem assets such as those determined to be classified, delinquent, non-accrual, non-performing or
restructured; the adequacy of our allowance for loan losses; the diversification and quality of loan and investment
portfolios; the extent of counterparty risks, credit risk concentrations, and other factors.
We manage our liquidity based upon factors that include the level and quality of capital and our overall financial
condition, the trend and volume of problem assets, our balance sheet risk exposure, the level of deposits as a percentage of
total loans, the amount of non-deposit funding used to fund assets, the availability of unused funding sources and off-
balance sheet obligations, the availability of assets to be readily converted into cash without undue loss, the amount of cash
and liquid securities we hold, and other factors.
Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding
companies. The Company has adopted the Basel III regulatory capital framework. As of December 31, 2022, the Bank’s
capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.
Acquisitions
On December 31, 2021, the Company closed on our Agreement and Plan of Merger (the “Merger Agreement” or
“Teton Acquisition”) with Teton, parent company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in
Jackson, Wyoming. The Merger Agreement provided 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 provided that following the merger, Rocky Mountain Bank would merge with and into the Bank, with the
Bank surviving the bank merger. See Note 2 – Acquisitions of the accompanying Notes to the Consolidated Financial
Statements for additional information.
Results of Operations
Overview
The year ended December 31, 2022 compared with the year ended December 31, 2021. For the year ended
December 31, 2022, we reported net income available to common shareholders of $21.7 million, compared to net income
available to common shareholders for December 31, 2021 of $20.6 million, a $1.1 million, or 5.3% increase. For the year
ended December 31, 2022, our income before income tax was $28.8 million, a $1.5 million, or 5.7%, increase from
December 31, 2021. The increase was primarily driven by a $24.2 million increase in net interest income, after provision
for loan losses, partially offset by a $10.8 million decrease in net gain on mortgage loans and an $11.0 million increase in
non-interest expense. The increase in net interest income was due to an increase in average loan balances and an increase in
average loan yields. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume
associated with the decrease in refinance activity. The increase in non-interest expense was primarily driven by an increase
in personnel expense to support the growth in the balance sheet, and an increase in occupancy and equipment expense
driven by building depreciation on the locations acquired with the Teton acquisition and an increase in office lease space
related to new Bank locations.
Net Interest Income
The year ended December 31, 2022 compared with the year ended December 31, 2021. For the year ended
December 31, 2022, compared to the year ended December 31, 2021, net interest income, before the provision for loan
losses, increased $26.6 million, or 47.0%, to $83.2 million. This increase was driven by a $560.2 million increase in
average loans outstanding and a 64 bps increase in the average yield on loans, partially offset by a $365.8 million increase
58
in average interest bearing deposit balances and a 54 bps increase in average rates paid on interest bearing deposits. For the
year ended December 31, 2022, our net interest margin was 3.35% and our net interest spread was 3.02%. For the year
ended December 31, 2021, our net interest margin was 2.99% and our net interest spread was 2.88%.
The increase in average loans outstanding for the year ended December 31, 2022 compared to the same periods in
2021 was primarily due to organic growth and the Teton acquisition at the end of 2021. Average loan yield was 4.45% for
the year ended December 31, 2022, compared to 3.81% for the year ended December 31, 2021. The increase in loan yield
during the period was primarily driven by the addition of higher yielding loans from the Teton acquisition, a beneficial mix
shift in the loan portfolio due to PPP loan forgiveness, and the rising interest rate environment.
Interest income on our investment securities portfolio increased as a result of higher average investment balances
for the year ended December 31, 2022 compared to the same period in 2021. Our average investment securities balance
during the year ended December 31, 2022 was $74.1 million, an increase of $43.2 million from the year ended
December 31, 2021.
Interest expense on deposits increased during the year ended December 31, 2022 compared to the same period in
2021. Average rates on interest bearing deposits increased 54 basis points, consistent with the higher interest rate
environment, while the growth in interest-bearing deposits was primarily attributable to organic growth through expanded
client relationships.
59
The following presents an analysis of net interest income and net interest margin for the periods presented, using
daily average balances for each major category of interest-earning assets and interest-bearing liabilities, the interest earned
or paid, and the average rate earned or paid on those assets or liabilities.
As of and For the Year Ended December 31,
2022
Interest
Earned /
Paid
Average
Balance(1)
Average
Yield /
Rate
Average
Balance(1)
2021
Interest
Earned /
Paid
Average
Yield /
Rate
$ 248,577 $
2,235
0.90 % $ 261,752 $
652
74,104
5,033
10
2,053
381
2,154,253
95,795
2,482,619
100,474
15,639
722
1.53
2.77
7.57
4.45
4.05
4.62
1,491
30,885
2,120
1,594,084
1,890,332
88,651
397
—
770
86
60,758
62,011
2,490
0.15 %
—
2.49
4.06
3.81
3.28
2.81
2,498,258
101,196
4.05
1,978,983
64,501
3.26
(14,678)
122,663
$ 2,606,243
(12,763)
93,688
$ 2,059,908
(Dollars in thousands)
Assets
Interest-earning assets:
Interest-bearing deposits in other financial
institutions
Federal funds sold
Investment securities(2)
Correspondent bank stock
Loans(3)
Interest-earning assets(4)
Mortgage loans held for sale(5)
Total interest-earning assets, plus mortgage
loans held for sale
Allowance for loan losses
Noninterest-earning assets
Total assets
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits
FHLB and Federal Reserve borrowings
Subordinated notes
$ 1,553,758
13,012
96,963
34,104
2,649
1,609
Total interest-bearing liabilities
1,684,825
17,270
Noninterest-bearing liabilities:
Noninterest-bearing deposits
Other liabilities
Total noninterest-bearing liabilities
Total shareholders’ equity
670,299
21,119
691,418
230,000
0.84
2.73
4.72
1.03
$ 1,187,941
103,925
29,232
1,321,098
3,482
385
1,549
5,416
0.29
0.37
5.30
0.41
550,683
18,651
569,334
169,476
Total liabilities and shareholders’ equity
$ 2,606,243
$ 2,059,908
Net interest rate spread(6)
Net interest income(7)
Net interest margin(8)
$
83,204
3.02
3.35
$
56,595
2.88
2.99
_____________________________
(1)
(2)
(3)
Average balance represents daily averages, unless otherwise noted.
Represents monthly averages.
Non-performing loans are included in the respective average loan balances. Income, if any, on such loans is recognized on a cash basis.
Tax-equivalent yield adjustments are immaterial.
(4)
(5) Mortgage loans held for sale are separated from the interest-earning assets above, as these loans are held for a short period of time until sold in the
secondary market and are not held for investment purposes, with interest income recognized in the net gain on mortgage loans line of the income
statement. These balances are excluded from the margin calculations in these tables.
Net interest spread is the average yield on interest-earning assets (excluding mortgage loans held for sale) minus the average rate on interest-bearing
liabilities.
Net interest income is the difference between income earned on interest-earning assets (excluding interest on mortgage loans held for sale), and
expense paid on interest-bearing liabilities.
Net interest margin is equal to net interest income divided by average interest-earning assets (excluding mortgage loans held for sale).
(8)
(7)
(6)
60
The following presents the dollar amount of changes in interest income and interest expense for the periods
presented, for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held for
sale), and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and
volume that cannot be separated have been allocated to volume (dollars in thousands):
Year Ended December 31, 2022
Compared to 2021
Increase
(Decrease) Due
to Change in:
Volume
Rate
Total
Increase
(Decrease)
(118) $
(13)
1,197
221
24,910
1,956 $
23
86
74
10,127
$
26,197 $
12,266 $
3,064
(190)
230
$
$
3,104 $
23,093 $
6,466
2,454
(170)
8,750 $
3,516 $
1,838
10
1,283
295
35,037
38,463
9,530
2,264
60
11,854
26,609
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits in other financial institutions
$
Federal funds sold
Investment securities
Correspondent bank stock
Loans
Total increase in interest income
Interest-bearing liabilities:
Interest-bearing deposits
FHLB and Federal Reserve borrowings
Subordinated notes
Total increase in interest expense
Increase in net interest income
Provision for Loan Losses
We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk,
and accounting teams that meets frequently to ensure that watch list and problem credits are identified early and actively
managed. We work to identify potential losses in a timely manner and proactively manage the problem credits to minimize
losses. For the years ended December 31, 2022 and 2021, we recorded $3.7 million and $1.2 million, respectively, of
provision for loan losses.
The Company has increased loan level reviews and portfolio monitoring to address the changing environment.
Management believes the financial strength of the Bank’s clientele and the diversity of the portfolio continues to mitigate
the credit risk within the portfolio.
Non-Interest Income
The year ended December 31, 2022 compared with the year ended December 31, 2021. For the year ended
December 31, 2022 compared to the year ended December 31, 2021, non-interest income decreased $11.6 million, or
29.0%, to $28.4 million. The decrease in non-interest income was primarily a result of a slowdown in new lock volume on
held for sale loans associated with rising interest rates, reduced housing inventory, and origination volume more heavily
weighted to portfolio loans held for investment.
61
The following presents the significant categories of our non-interest income during the periods presented (dollars
in thousands):
(Dollars in thousands)
Non-interest income:
Year Ended
December 31,
Change
2022
2021
$
%
Trust and investment management fees
$
18,943 $
20,200 $
Net gain on mortgage loans
Bank fees
Risk management and insurance fees
Income on company-owned life insurance
Net gain on equity interests
Net loss on loans accounted for under the fair value
option
Unrealized gain recognized on equity securities
Other
5,306
2,660
1,231
349
7
(891)
342
465
16,060
1,780
1,120
354
—
—
469
60
(1,257)
(10,754)
880
111
(5)
7
(891)
(127)
405
(6.2) %
(67.0)
49.4
9.9
(1.4)
*
*
*
(27.1)
Total non-interest income
$
28,412 $
40,043 $
(11,631)
(29.0)
_____________________________
*
Not meaningful
Trust and investment management fees— For the year ended December 31, 2022 compared to the same period in
2021, our trust and investment management fees decreased by $1.3 million, or 6.2%, to $18.9 million. The decrease is due
to client withdrawals and a decreased value of AUM balances caused by unfavorable market conditions during 2022.
Net gain on mortgage loans— For the year ended December 31, 2022 compared to the same period in 2021, our
net gain on mortgage loans decreased by $10.8 million, or 67.0%, to $5.3 million. The decrease in net gain on mortgage
loans was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates,
reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment.
Bank fees— For the year ended December 31, 2022 compared to the same period in 2021, our bank fees increased
by $0.9 million or 49.4%. The increase was driven by increased debit card, loan prepayment, and treasury management
fees consistent with the Company's larger client base.
Risk management and insurance fees— For the year ended December 31, 2022 compared to the same period in
2021, our risk management and insurance fees increased by $0.1 million, or 9.9%, to $1.2 million.
Net gain/(loss) on loans accounted for under the fair value option— The Company elected the fair value option on
certain new loans purchased in 2022. During the year ended December 31, 2022, the Company recorded a net loss on loans
accounted for under the fair value option of $0.9 million. The losses were attributable to the decline in fair value as a result
of the rising interest rates on comparable loans in the market. There were no loans held for investment accounted for under
the fair value option in the same period in 2021.
Unrealized gain/(loss) on Equity Securities— For the year ended December 31, 2022 compared to the same period
in 2021, our unrealized gains on equity securities decreased by $0.1 million, or 27.1% . The decrease was primarily driven
by fair value adjustments on equity warrants. There were no equity warrants in equity securities during the same period in
2021.
Net gain on equity interests— For the year ended December 31, 2022, the Company recognized an immaterial net
gain on equity interests. No such net gain on equity interest was recognized in the year ended December 31, 2021.
Other— For the year ended December 31, 2022 compared to the same period in 2021, our other income increased
by $0.4 million. The increase was primarily driven by lease income from buildings acquired with the Teton acquisition.
62
Non-Interest Expense
The year ended December 31, 2022 compared with the year ended December 31, 2021. The increase in non-
interest expense of 16.1% to $79.1 million for the year ended December 31, 2022, was primarily driven by the addition of
Teton's operations and additional headcount to support the growth of the Company.
The following presents the significant categories of our non-interest expense for the periods presented (dollars in
thousands):
(Dollars in thousands)
Non-interest expense:
Year Ended
December 31,
Change
2022
2021
$
%
Salaries and employee benefits
$
48,248 $
40,746 $
Occupancy and equipment
Professional services
Technology and information systems
Data processing
Marketing
Amortization of other intangible assets
Net gain on assets held for sale
Net gain on sale of other real estate owned
7,520
7,896
4,462
4,285
1,888
308
(4)
(44)
5,990
6,473
3,707
6,327
1,613
17
—
—
Other
4,547
3,255
Total non-interest expense
$
79,106 $
68,128 $
_____________________________
*
Not meaningful
7,502
1,530
1,423
755
(2,042)
275
291
(4)
(44)
1,292
10,978
18.4 %
25.5
22.0
20.4
(32.3)
17.0
*
*
*
39.7
16.1
Salaries and employee benefits—The increase in salaries and employee benefits of $7.5 million, or 18.4%, was
primarily related to the additional associates added through the Teton acquisition and additional headcount to support the
growth of the Company.
Occupancy and equipment— The increase in occupancy and equipment of $1.5 million, or 25.5%, was primarily
driven by the addition of depreciation expense relating to buildings acquired with the Teton acquisition and an increase in
office lease space related to new Bank locations.
Professional Services—The increase in professional services of $1.4 million, or 22.0%, was driven by additional
expenses related to the addition of Teton's operations, increased audit fees related to the implementation of CECL, and
nonrecurring system conversion costs and internal process improvement costs.
Technology and information systems— The increase in technology and information systems of $0.8 million, or
20.4%, was primarily driven by increased expenses to support the balance sheet growth.
Data processing—The decrease in data processing costs of $2.0 million, or 32.3%, was primarily driven by $2.4
million in non-recurring system conversion and termination fees incurred during the fourth quarter of 2021 as a result of
the Teton acquisition, which closed in the fourth quarter of 2021.
Marketing— The increase in marketing of $0.3 million, or 17.0%, was primarily driven by marketing expenses
associated with the onboarding of clients from the Teton acquisition and event sponsorships to support client acquisition
efforts.
Amortization of other intangible assets— The increase in amortization of other intangible assets of $0.3 million
was driven by amortization of intangibles acquired through the Teton acquisition.
63
Other— The increase in other of $1.3 million, or 39.7%, was driven by increased subscription costs related to
system and process improvements, increased travel for client meetings, and higher costs related to associate training and
development programs in 2022 compared to 2021.
Income Tax
During the year ended December 31, 2022, the Company recorded an income tax provision of $7.1 million,
reflecting an effective tax rate 24.7%. During the year ended December 31, 2021, the Company recorded an income tax
provision of $6.7 million, reflecting an effective tax rate of 24.5%.
Segment Reporting
We have two reportable operating segments: Wealth Management and Mortgage. Our Wealth Management
segment consists of operations relating to the Company’s fully integrated wealth management products and services.
Services provided include deposit, loan, insurance, and trust and investment management advisory products and services
for which fee revenue is recognized. Our Mortgage segment consists of operations relating to the Company’s residential
mortgage service offerings. Services provided by our mortgage segment include soliciting, originating, and selling
mortgage loans into the secondary market. Mortgage products are financial in nature for which origination fees are
recognized net of origination expenses, upon the funding of the mortgage loans. Mortgage loans held for sale are accounted
for under the fair value option with changes in fair value reported through earnings at inception when loans are locked to
the borrower and until the loan is sold to third parties, at which time additional gains or losses on the sale are recorded.
Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this
segment provides ongoing services to our clients.
The following presents key metrics related to our segments during the periods presented (dollars in thousands):
(Dollars in thousands)
Income(1)
Income before taxes
Profit margin
(Dollars in thousands)
Income(1)
Income before taxes
Profit margin
_____________________________
(1)
Net interest income after provision plus non-interest income.
Year Ended December 31, 2022
Wealth
Management
Mortgage
Consolidated
$
102,616
$
5,318
$
107,934
31,139
30.3 %
(2,311)
(43.5) %
28,828
26.7 %
Year Ended December 31, 2021
Wealth
Management
$
79,289
21,378
27.0 %
Mortgage
Consolidated
$
16,119
$
5,902
36.6 %
95,408
27,280
28.6 %
64
The following presents selected financial metrics of each segment as of and for the periods presented:
Wealth Management
(Dollars in thousands)
2022
2021
$ Change
% Change
As of and for the Year Ended
December 31,
Total interest and dividend income
$
100,474 $
62,011 $
Total interest expense
Provision for loan losses
Net interest income, after provision for loan losses
Non-interest income
Total income before non-interest expense
Depreciation and amortization expense
All other non-interest expense
Income before income taxes
Goodwill
Total assets
17,270
3,682
79,522
23,094
102,616
2,111
69,366
5,416
1,230
55,365
23,924
79,289
1,147
56,764
$
$
31,139 $
30,400 $
21,378 $
30,588 $
2,856,653
2,494,207
362,446
38,463
11,854
2,452
24,157
(830)
23,327
964
12,602
9,761
(188)
62.0 %
218.9
199.3
43.6
(3.5)
29.4
84.0
22.2
45.7
(0.6)
14.5
The Wealth Management segment reported income before income tax of $31.1 million for the year ended
December 31, 2022, compared to $21.4 million, for the same period in 2021. The increase in net interest income, after
provision for loan losses is primarily driven by an increase in average loans outstanding and an increase in average loan
yields. Non-interest income primarily decreased due to decreasing assets under management due to client withdrawals,
which were also negatively impacted by lower equity and fixed income market valuations, resulting in decreased trust and
investment management fees. Non-interest expense increased due to the addition of Teton's operations and additional
headcount to support the growth of the Company, and due to increased occupancy and equipment costs primarily driven by
building depreciation on the locations acquired with the Teton acquisition and an increase in office lease space related to
new Bank locations.
Mortgage
(Dollars in thousands)
2022
2021
$ Change
% Change
As of and for the Year Ended
December 31,
Total interest and dividend income
$
— $
— $
Total interest expense
Provision for loan losses
Net interest income, after provision for loan losses
Non-interest income
Total income before non-interest expense
Depreciation and amortization expense
All other non-interest expense
(Loss)/income before income tax
Total assets
$
$
—
—
—
5,318
5,318
42
7,587
—
—
—
16,119
16,119
53
10,164
(2,311) $
5,902 $
—
—
—
—
(10,801)
(10,801)
(11)
(2,577)
(8,213)
10,095 $
33,282 $
(23,187)
— %
—
—
—
(67.0)
(67.0)
(20.8)
(25.4)
(139.2)
(69.7)
The Mortgage segment reported a loss before income tax of $2.3 million for the year ended December 31, 2022,
compared to income before income tax of $5.9 million for the same period in 2021. The overall decrease in non-interest
income was primarily driven by a slowdown in new lock volume on held for sale loans associated with rising interest rates,
reduced housing inventory, and origination volume more heavily weighted to portfolio loans held for investment. The
decrease in non-interest expense was driven by a reduction in headcount to better align the operations functions with the
slowdown in volume.
65
Financial Condition
The following presents our condensed Consolidated Balance Sheets as of the dates noted (dollars in thousands):
(Dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents
Investment securities
Loans (includes $23,321 and $0 measured at fair
value, respectively)
Allowance for loan losses
Loans, net of allowance
Loans held for sale at fair value
Mortgage loans held for sale, at fair value
Goodwill and other intangible assets, net
Company-owned life insurance
Other assets
Assets held for sale
Total assets
Deposits
Borrowings
Other liabilities
Total liabilities
Total shareholders’ equity
December 31,
December 31,
2022
2021
$ Change
% Change
$
196,512 $
386,983 $
(190,471)
81,056
55,562
25,494
2,469,413
1,949,137
(17,183)
(13,732)
2,452,230
1,935,405
1,965
8,839
32,104
16,152
77,890
—
—
30,620
31,902
15,803
71,099
115
520,276
(3,451)
516,825
1,965
(21,781)
202
349
6,791
(115)
(49.2) %
45.9
26.7
25.1
26.7
(71.1)
0.6
2.2
9.6
*
*
$
2,866,748 $
2,527,489 $
339,259
13.4
$
2,405,229 $
2,205,703 $
199,018
21,637
77,660
25,085
2,625,884
2,308,448
240,864
219,041
199,526
121,358
(3,448)
317,436
21,823
9.0
156.3
(13.7)
13.8
10.0
13.4
Total liabilities and shareholders’ equity
$
2,866,748 $
2,527,489 $
339,259
_____________________________
*
Not meaningful
Cash and cash equivalents decreased by $190.5 million, or 49.2%, to $196.5 million as of December 31, 2022
compared to December 31, 2021. The decrease in liquidity was driven by record loan production in the second quarter of
2022 with continued strong production in the third and fourth quarters of 2022.
Investments increased by $25.5 million, or 45.9%, to $81.1 million as of December 31, 2022 compared to
December 31, 2021. The increase is due to held-to-maturity securities purchased throughout 2022.
Loans, net of allowance increased by $516.8 million, or 26.7%, to $2.45 billion as of December 31, 2022
compared to December 31, 2021. The increase was driven by record loan production in the second quarter of 2022 with
continued strong production in the third and fourth quarters of 2022. The Company experienced loan growth in all loan
categories except Cash, Securities, and Other.
Mortgage loans held for sale decreased $21.8 million, or 71.1%, to $8.8 million as of December 31, 2022
compared to December 31, 2021. The decrease was driven by a reduction in loan origination volume primarily driven by a
slowdown in new mortgage loan origination volume associated with the decrease in refinance activity.
Goodwill and other intangible assets, net increased by $0.2 million, or 0.6%, to $32.1 million as of December 31,
2022 compared to December 31, 2021. The increase was driven by measurement period adjustments to the provisional
estimates of fair values of assets acquired and liabilities assumed in the Teton acquisition. During the first quarter of 2022,
goodwill was reduced by $0.2 million as a result of a $0.1 million decrease in fair value adjustment to deferred tax
liabilities, net and a $0.1 million increase in fair value adjustment to net assets acquired.
66
Other assets increased by $6.8 million, or 9.6%, to $77.9 million as of December 31, 2022 compared to
December 31, 2021. This was primarily driven by the purchase of correspondent bank stock during the year, which
increased, net of redemptions, by $4.5 million.
Deposits increased $199.5 million, or 9.0%, to $2.41 billion as of December 31, 2022 compared to December 31,
2021. The increase was attributable to organic growth through expanded client relationships and increased brokered
deposits.
Money market deposit accounts increased $279.4 million, or 26.4%, to $1.34 billion as of December 31, 2022
compared to December 31, 2021. Time deposit accounts increased $53.6 million, or 31.4%, to $224.1 million as of
December 31, 2022. Negotiable order of withdrawal ("NOW") accounts decreased $75.2 million, or 24.3%, to $234.8
million compared to December 31, 2021.
Borrowings increased $121.4 million, or 156.3%, to $199.0 million as of December 31, 2022 compared to
December 31, 2021. The increase is primarily attributed to additional FHLB borrowings to support the strong loan growth
in 2022, partially offset by the redemption of subordinated notes on January 1, 2022 in the amount of $6.6 million and a
reduction in outstanding advances on the Federal Reserve's Paycheck Protection Program Loan Facility. Borrowings from
this facility are expected to trend in the same direction as the PPP loan balances. The increase is also attributed to the
Company's issuance of subordinated notes on December 5, 2022 (the "December 2022 Sub Notes") totaling $20.0 million
in aggregate principal amount.
Total shareholders’ equity increased $21.8 million, or 10.0%, to $240.9 million as of December 31, 2022. The
increase is primarily due to net income.
67
Assets Under Management
(Dollars in millions)
Managed Trust Balance at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Acquisitions
Market change, net
Ending Balance
Yield*
Directed Trust Balance at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Acquisitions
Market change, net
Ending Balance
Yield*
Investment Agency Balance at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Market change, net
Ending Balance
Yield*
Custody Balance at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Market change, net
Ending Balance
Yield*
401(k)/Retirement Balance at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Market change, net
Ending Balance(1)
Yield*
Total Assets Under Management at Beginning of Period
New relationships
Closed relationships
Contributions
Withdrawals
Acquisitions
Market change, net
Total Assets Under Management
Yield*
_____________________________
*
(1)
Trust and investment management fees divided by period-end balance.
AUM reported for the current period are one quarter in arrears.
68
Year Ended
December 31,
2022
2021
2,204
41
(24)
12
(292)
—
(139)
1,802
$
$
1,890
27
(2)
62
(192)
184
235
2,204
0.19 %
0.15 %
1,309
7
(4)
122
(22)
—
(127)
1,285
$
951
131
(7)
52
(26)
133
75
1,309
0.90 %
0.70 %
2,063
61
(61)
120
(294)
(271)
1,618
0.77 %
633
16
(1)
80
(192)
(43)
493
0.04 %
1,143
14
(45)
112
(96)
(219)
909
0.18 %
7,352
139
(135)
446
(896)
—
(799)
6,107
$
$
$
$
$
1,840
75
(77)
269
(216)
172
2,063
0.68 %
518
—
(2)
81
(26)
62
633
0.03 %
1,056
8
(122)
110
(110)
201
1,143
0.14 %
6,255
241
(210)
574
(570)
317
745
7,352
0.31 %
0.27 %
$
$
$
$
$
$
$
$
Assets under management decreased $1.24 billion, or 16.9%, to $6.11 billion for the year ended December 31,
2022. The decrease was primarily attributable to client withdrawals and unfavorable market conditions resulting in a
decrease in the value of assets under management balances.
Investment securities
Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as
available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized
gains and losses excluded from earnings and reported in other comprehensive income, net of tax. The carrying values of
our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is
reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Investments for which we have the intent and ability to hold to their maturity are classified as held-to-maturity
securities and are recorded at amortized cost. Securities held-to-maturity are carried at cost, adjusted for the amortization of
premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.
As of December 31, 2021, all our investments in securities were classified as available-for-sale. The Company
reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all securities, fair valued at
$58.7 million, from available-for-sale to held-to-maturity. The related unrealized loss of $2.3 million included in other
comprehensive income on April 1, 2022 remained in other comprehensive income and is being amortized out with an
offsetting entry to interest income as a yield adjustment through earnings over the remaining term of the securities. No gain
or loss was recorded at the time of transfer. As of December 31, 2022. all of our investment securities were classified as
held-to-maturity.
The following presents the amortized cost and estimated fair value of our investment securities as of the dates
noted (dollars in thousands):
(Dollars in thousands)
Investment securities held-to-maturity:
U.S. Treasury debt
Corporate bonds
Government National Mortgage Association ("GNMA")
mortgage -backed securities—residential
Federal National Mortgage Association ("FNMA")
mortgage-backed securities—residential
Government collateralized mortgage obligations
("GMO") and mortgage-backed securities ("MBS") -
commercial
Corporate collateralized mortgage obligations ("CMO")
and mortgage-backed securities ("MBS")
December 31, 2022
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
243 $
— $
(9) $
234
23,819
39,426
6,708
6,786
4,074
—
—
—
13
—
(2,453)
21,366
(2,800)
36,626
(506)
6,202
(403)
6,396
(180)
3,894
Total securities held-to-maturity
$
81,056 $
13 $
(6,351) $
74,718
69
(Dollars in thousands)
Investment securities available-for-sale:
U.S. Treasury debt
U.S. Government Agency
Corporate bonds
GNMA mortgage-backed securities—residential
FNMA mortgage-backed securities—residential
GMO and MBS—commercial
CMO and MBS
December 31, 2021
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Amortized
Cost
$
250 $
— $
3,522
8,113
26,611
14,400
878
1,492
—
227
185
43
—
23
(3) $
—
(15)
(146)
—
—
(18)
247
3,522
8,325
26,650
14,443
878
1,497
Total securities available-for-sale
$
55,266 $
478 $
(182) $
55,562
The following presents the book value of our contractual maturities and weighted average yield for our investment
securities as of the dates presented. Contractual maturities may differ from expected maturities because issuers can have the
right to call or prepay obligations without penalties. Our investments are taxable securities. The weighted average yield for
each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of
each security as of December 31, 2022. Weighted average yields are not presented on a taxable equivalent basis.
(Dollars in thousands)
Held-to-maturity:
U.S. Treasury debt
U.S. Government agency
Corporate bonds
GNMA mortgage-backed securities
- residential
FNMA mortgage-backed securities
- residential
Government CMO and MBS -
commercial
Corporate CMO and MBS
Maturity as of December 31, 2022
One Year or Less
One to Five Years
Five to Ten Years
After Ten Years
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
$ —
— % $
243
* % $ —
— % $ —
— %
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,991
0.11
21,548
1.20
—
280
—
0.01
103
*
—
—
39,323
1.22
—
47
—
—
1,334
0.02
5,374
0.12
* 1,200
0.04
5,539
—
26
* 4,048
0.14
0.19
Total held-to-maturity
$ —
— % $ 2,384
0.11 % $ 24,108
1.26 % $ 54,564
1.68 %
70
Maturity as of December 31, 2021
One Year or Less
One to Five Years
Five to Ten Years
After Ten Years
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
$ —
— % $
506
—
0.02
—
—
—
—
—
—
—
—
—
250
164
—
—
—
—
* $ —
— % $ —
— %
*
1,190
8,113
0.04
0.71
1,662
0.07
—
—
—
—
26,611
0.92
176
0.01
2,183
0.10
12,041
0.36
202
—
0.01
—
—
33
—
676
*
1,459
0.04
0.07
$
506
0.02 % $
792
0.02 % $ 11,519
0.85 % $ 42,449
1.46 %
(Dollars in thousands)
Available-for-sale:
U.S. Treasury debt
U.S. Government agency
Corporate bonds
GNMA mortgage-backed securities
- residential
FNMA mortgage-backed securities
- residential
Government CMO and MBS -
commercial
Corporate CMO and MBS
Total available-for-sale
_____________________________
*
Not meaningful
As of December 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other
than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.
Loan Portfolio
Our primary source of interest income is derived through interest earned on loans to high net worth individuals
and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel and
we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and
decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent,
efficient, and effective. The management team and credit culture demands prudent, practical, and conservative approaches
to all credit requests in compliance with the loan policy guidelines to ensure strong credit underwriting practices.
In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we
originate and sell, servicing-released, whole loans in the secondary market. Our mortgage banking loan sales activities are
primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-
upon criteria before loan funding and are delivered to the investor shortly after funding. The level of future loan
originations, loan sales and loan repayments depends on overall credit availability, the interest rate environment, the
strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan
sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in
interest rates, as well as our pricing and asset liability management strategies. As of December 31, 2022 and December 31,
2021, we had mortgage loans held for sale of $8.8 million and $30.6 million, respectively, in residential mortgage loans we
originated.
Beginning in the first quarter of 2022, the Company entered into whole loan purchase agreements to acquire third
party originated and serviced unsecured consumer loans to hold for investment and elected the fair value option to account
for these loans. As of December 31, 2022, the Company has $23.3 million in loans accounted for under the fair value
option with an unpaid principal balance of $23.4 million. See Note 17 - Fair Value in the Notes to Condensed Consolidated
Financial Statements.
As of December 31, 2022, the Company has $7.1 million in PPP loans outstanding with $0.2 million in remaining
fees to be recognized. The remaining fees represent the net amount of the fees from the SBA for participation in the PPP
less the loan origination costs on these loans. The current amortization of this income is being recognized over a five-year
period from the time of origination, however, if a loan receives full forgiveness from the SBA or if the borrower repays the
loan, the remaining income will be recognized upon payoff.
71
The following presents our loan portfolio by type of loan as of the dates noted (dollars in thousands):
(Dollars in thousands)
Cash, Securities, and Other(1)
Consumer and Other(2)
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total loans held for investment(3)
Mortgage loans held for sale, at fair value
Loans held for sale, at fair value
As of December 31,
2022
2021
Amount
% of Total
Amount
% of Total
$
$
$
165,670
49,954
288,497
898,154
496,776
216,056
361,028
6.6 % $
2.0
11.7
36.3
20.1
8.7
14.6
261,190
34,758
178,716
580,872
482,622
212,426
203,584
13.4 %
1.8
9.1
29.7
24.7
10.9
10.4
2,476,135
100.0 % $
1,954,168
100.0 %
8,839
1,965
$
30,620
—
_____________________________
(1)
(2)
(3)
Includes PPP loans of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.
Includes loans held for investment accounted for under fair value option of $23.4 million as of December 31, 2022.
Loans held for investment exclude deferred fees, unamortized premiums/(unaccreted discounts), net, and fair value adjustments on loans held for
investment accounted for under fair value option, which collectively totaled ($6.7) million and ($5.0) million as of December 31, 2022 and 2021,
respectively.
•
•
•
•
•
•
Cash, Securities and Other—consists of consumer and commercial purpose loans that are primarily secured
by securities managed and under custody with us, cash on deposit with us or life insurance policies. In
addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our
portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment
prospects, income levels, and overall economic sentiment. PPP loans that are fully guaranteed by the SBA are
classified within this line item and had balances of $7.1 million and $46.8 million as of December 31, 2022
and 2021, respectively.
Consumer and Other—consists of unsecured consumer loans. Loans held for investment accounted for under
the fair value option are also classified within this line item and had a balance of $23.4 million as of
December 31, 2022. There were no loans held for investment accounted for under the fair value option as of
December 31, 2021.
Construction and Development—consists of loans to finance the construction of residential and non-
residential properties. These loans are dependent on the strength of the industries of the related borrowers and
the risks consistent with construction projects.
1-4 Family Residential—consists of loans and home equity lines of credit secured by 1-4 family residential
properties. These loans typically enable borrowers to purchase or refinance existing homes, most of which
serve as the primary residence of the owner. In addition, some borrowers secure a commercial purpose loan
with owner occupied or non-owner occupied 1-4 family residential properties. Loans in this segment are
dependent on the industries tied to these loans as well as the national and local economies, and local
residential and commercial real estate markets.
Commercial Real Estate, Owner Occupied and Non-Owner Occupied—consists of commercial loans
collateralized by real estate. These loans may be collateralized by owner occupied or non-owner occupied real
estate, as well as multi-family residential real estate. These loans are dependent on the strength of the
industries of the related borrowers and the success of their businesses.
Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of
credit, permanent working capital term loans, business asset loans, acquisition, expansion and development
loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans
and lines of credit which are dependent on the strength of the industries of the related borrowers and the
success of their businesses. MSLP loans of $6.6 million and $6.8 million as of December 31, 2022 and 2021,
respectively, are included in this category.
72
The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating
interest rates in each maturity range, excluding deferred fees, and unamortized premiums/(unaccreted discounts), as of the
dates noted, are summarized in the following tables:
(Dollars in thousands)
Cash, Securities, and Other
Consumer and Other(2)
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total loans
Amounts with fixed rates
Amounts with floating rates
One Year
or Less
One Through
Five Years
Five Through
Fifteen Years
After
Fifteen Years
Total
As of December 31, 2022
$
58,439 (1) $
17,552
104,844 (1) $
29,127
1,555 $
832 $
165,670
2,241
15,427
34,116
186,378
115,526
49,686
1,034
250
659,068
16,759
12,512
—
49,954
288,497
898,154
496,776
216,056
361,028
201,651
179,112
259,240
81,575
216,787
$ 1,072,336
$
505,674
$
$
404,929 $
690,455 $ 2,476,135
203,041 $
87,573 $
923,340
566,662
201,888
602,882
1,552,795
71,169
25,858
34,399
6,443
94,555
308,415
127,052
181,363
$
$
Total loans
$
308,415
$ 1,072,336
$
404,929 $
690,455 $ 2,476,135
_____________________________
(1)
(2)
Includes PPP loans.
Includes loans held for investment accounted for under fair value option
As of December 31, 2021
(Dollars in thousands)
Cash, Securities, and Other
$
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total loans
Amounts with fixed rates
Amounts with floating rates
$
$
One Through
Five Years
Five Through
Fifteen Years
After
Fifteen Years
Total
One Year
or Less
113,984 (1) $
22,314
137,675 (1) $
11,214
74,111
24,824
66,036
5,255
46,742
353,266
120,549
232,717
96,817
126,681
275,057
66,656
107,596
821,696
506,040
315,656
$
$
5,434 $
4,097 $
261,190
127
7,788
33,085
125,330
129,890
49,246
1,103
—
396,282
16,199
10,625
—
34,758
178,716
580,872
482,622
212,426
203,584
$
$
350,900 $
428,306 $ 1,954,168
253,223 $
26,682 $
906,494
97,677
401,624
1,047,674
Total loans
$
353,266
$
821,696
$
350,900 $
428,306 $ 1,954,168
_____________________________
(1)
Includes PPP loans.
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 had a pass risk rating and had not been delinquent over 30 days on payments in
the last two years.
The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a
TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be
met in order to apply the relief. Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that
short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any
relief, are not to be considered TDRs. We believe our loan modification program meets that definition. In accordance with
73
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.
In 2021, the deferral period ended for all non-acquired loans previously modified and payments resumed under the
original terms. As of December 31, 2022, the Company's loan portfolio included 49 non-acquired loans which were
previously modified under the loan modification program, totaling $78.4 million. Through the Teton acquisition, the
Company acquired loans which were previously modified and are still in their deferral period. As of December 31, 2022,
there were 14 of these loans, totaling $3.3 million.
All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2022.
Non-acquired COVID modified loans are included in the allowance for loan loss general reserve in accordance with ASC
450-20. Management has increased our loan level reviews and portfolio monitoring to address the changing environment.
Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals
of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of
December 31, 2022, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan
modifications.
Non-Performing Assets
Non-performing assets include non-accrual loans, TDRs, and OREO. The accrual of interest on loans is
discontinued at the time the loan becomes 90 or more days delinquent unless the loan is well secured and in the process of
collection or renewal due to maturity. Past due status is based on the contractual terms of the loan. In all cases, loans are
placed on non-accrual status or charged off if collection of interest or principal is considered doubtful.
OREO represents assets acquired through, or in lieu of, foreclosure. The amounts reported as OREO are supported
by recent appraisals, with the appraised values adjusted, where applicable, for expected transaction fees likely to be
incurred upon sale of the property. We incur recurring expenses relating to OREO in the form of maintenance, taxes,
insurance and legal fees, among others, until the OREO parcel is disposed. While disposition efforts with respect to our
OREO are generally ongoing, if these properties are appraised at lower-than-expected values or if we are unable to sell the
properties at the prices for which we expect to be able to sell them, we may incur additional losses. During the year ended
December 31, 2022, we recognized an immaterial amount of gains on the sale of OREO.
The amount of lost interest for non-accrual loans was $0.2 million for each of the years ended December 31, 2022
and 2021.
We had $12.3 million and $4.3 million in non-performing assets as of December 31, 2022 and December 31,
2021, respectively. The increase in non-performing assets is related to the addition of $8.9 million for two related problem
loan credits at the end of the fourth quarter. The Company did not add a specific reserve to these new problem credits due
to adequate collateral coverage as of December 31, 2022.
74
The following presents information regarding non-performing loans as of the dates indicated:
(Dollars in thousands)
Non-accrual loans by category (1)
Cash, Securities, and Other
Consumer and Other
Construction and Development
1-4 Family Residential
Owner Occupied CRE
Commercial and Industrial
Total non-accrual loans
TDRs still accruing
Total non-performing loans
OREO
Total non-performing assets
Non-accrual loans to total loans(2)
Non-performing loans to total loans(2)
Non-performing assets to total assets
Allowance for loan losses to non-accrual loans
Allowance for loan losses to non-performing loans
Accruing loans 90 or more days past due
As of December 31,
2022
2021
$
4
$
146
201
—
1,165
10,833
12,349
—
12,349
—
6
2
—
75
1,241
2,938
4,262
55
4,317
—
$
12,349
$
4,317
0.50 %
0.50
0.43
139.14
139.14
$
25
$
0.22 %
0.22
0.17
322.20
317.36
10
_____________________________
(1)
As of December 31, 2022, all but three non-accrual loans, totaling $9.1 million, were also classified as TDRs. As of December 31, 2021, all but one
non-accrual loan, totaling an immaterial amount, was also classified as a TDR. See Note 5 – Loans and the Allowance for Loan Losses to the
Consolidated Financial Statements.
Excludes mortgage loans held for sale of $8.8 million and $30.6 million as of December 31, 2022 and 2021, respectively. Excludes loans held for
sale, at fair value of $2.0 million as of December 31, 2022.
(2)
Potential Problem Loans
We categorize loans into risk categories based on relevant information about the ability of the borrowers to service
their debt, such as: current financial information, historical payment experience, credit documentation, public information,
and current economic trends, among other factors. We analyze loans individually by classifying the loans by credit risk on
a quarterly basis, which are segregated into the following definitions for risk ratings:
Special Mention— Loans categorized 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
evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being
paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected.
Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered "classified" and are inadequately protected by the current net
worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined
weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that
the Bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual
status and may individually be evaluated for impairment if indicators of impairment exist.
Doubtful—Loans graded doubtful are considered "classified" and have all the weaknesses inherent in those
classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the
basis of currently known facts, conditions, and values, highly questionable and improbable. However, the amount or
certainty of eventual loss is not known because of specific pending factors.
75
Loans accounted for under the fair value option are not rated.
Loans not meeting any of the three criteria above are considered to be pass-rated loans.
As of December 31, 2022 and December 31, 2021, non-performing loans of $12.2 million and $4.3 million,
respectively, were included in the substandard category in the table below. The following presents, by class and by credit
quality indicator, the recorded investment in our loans as of the dates noted (dollars in thousands):
(Dollars in thousands)
Cash, Securities and Other(1)
Consumer and Other(2)
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Pass
Special
Mention
Substandard
Not Rated
Total
As of December 31, 2022
$
165,666 $
— $
4 $
— $
26,539
288,296
898,154
496,776
214,891
347,803
—
—
—
—
—
2,392
—
201
—
—
1,165
10,833
23,415
—
—
—
—
—
165,670
49,954
288,497
898,154
496,776
216,056
361,028
Total
$
2,438,125 $
2,392 $
12,203 $
23,415 $
2,476,135
(Dollars in thousands)
Cash, Securities and Other(1)
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Pass
Special
Mention
Substandard
Not Rated
Total
As of December 31, 2021
$
261,184 $
— $
6 $
— $
34,756
176,194
580,797
476,670
210,493
198,368
—
2,522
—
5,952
—
401
2
—
75
—
1,933
4,815
—
—
—
—
—
—
261,190
34,758
178,716
580,872
482,622
212,426
203,584
Total
$
1,938,462 $
8,875 $
6,831 $
— $
1,954,168
_____________________________
(1)
(2)
Includes PPP loans of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.
Includes $23.4 million of unpaid principal balance of loans held for investment accounted for under fair value option as of December 31, 2022.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan losses, which is a noncash charge to
earnings. Loan losses are charged against the allowance when management believes that a loan balance is confirmed
uncollectible. Subsequent recoveries, if any, are credited to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectability of the loans in light of historical experience, the nature and dollar volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying
collateral, and prevailing economic conditions. Allocations of the allowance for loan losses may be made for specific loans,
but the entire allowance for loan losses is available for any loan that, in management’s judgment, should be charged off.
We are closely monitoring the changing dynamics in the economy and the related impacts to our clients. Our
clientele is generally comprised of high net-worth individuals and commercial borrowers with strong credit profiles and
multiple sources of repayment. During the year ended December 31, 2022, the Company recorded a provision of $3.7
million. Management will continue to closely monitor the loan portfolio and analyze the economic data to assess the impact
on the allowance for loan loss. We believe the allowance for loan losses is adequate as of December 31, 2022.
76
The following presents summary information regarding our allowance for loan losses for the periods presented
(dollars in thousands):
(Dollars in thousands)
Average loans outstanding(1)(2)
Total loans outstanding at end of period(3)
Allowance for loan losses at beginning of period
Provision for loan losses
Charge-offs:
Cash, Securities, and Other
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total charge-offs
Recoveries:
Cash, Securities, and Other
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total recoveries
Net (charge-offs) recoveries
Year Ended December 31,
$
$
$
2022
2,154,253
2,469,413
13,732
3,682
$
$
$
2021
1,594,084
1,949,137
12,539
1,230
(1)
(262)
—
—
—
—
(71)
(334)
—
103
—
—
—
—
—
103
(231)
—
(44)
—
—
—
—
—
(44)
7
—
—
—
—
—
—
7
(37)
Allowance for loan losses at end of period
Allowance for loan losses to total loans(4)
Net charge-offs to average loans
$
17,183
$
13,732
0.70 %
0.01
0.70 %
*
_____________________________
(1)
(2)
(3)
(4)
(*)
Average balances are average daily balances.
Excludes average outstanding balances of mortgage loans held for sale of $15.6 million and $88.7 million for the years ended December 31, 2022
and 2021, respectively.
Excludes mortgage loans held for sale of $8.8 million and $30.6 million as of December 31, 2022 and 2021, respectively. Excludes loans held for
sale, at fair value of $2.0 million as of December 31, 2022.
End of period loans as of December 31, 2022 includes $234.7 million in acquired loans and $7.1 million in PPP loans, of which $0.7 million are
acquired PPP loans. No reserve is allocated for these loans. Excluding these loans would result in an increase of the ratio for the year ended
December 31, 2022.
Immaterial
The following represents the allocation of the allowance for loan losses among loan categories and other summary
information. The allocation for loan losses by category should neither be interpreted as an indication of future charge-offs,
nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated
77
proportions. The allocation of a portion of the allowance for loan losses to one category of loans does not preclude its
availability to absorb losses in other categories.
(Dollars in thousands)
Cash, Securities and Other
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
As of December 31,
2022
2021
Amount
%(1)
Amount
%(1)
$
1,198
191
2,025
6,309
3,490
1,510
2,460
6.6 % $
2.0
11.7
36.3
20.1
8.7
14.6
1,598
266
1,092
3,553
2,952
1,292
2,979
13.4 %
1.8
9.1
29.7
24.7
10.9
10.4
Total allowance for loan losses
$
17,183
100.0 % $
13,732
100.0 %
_____________________________
(1)
Represents the percentage of loans to total loans in the respective category.
Deferred Tax Assets, Net
Deferred tax assets, net represent the differences in timing of when items are recognized for GAAP purposes and
when they are recognized for tax purposes, as well as our net operating losses. Our deferred tax assets, net, are valued
based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized.
Our deferred tax assets, net, for the year ended December 31, 2022, increased $0.1 million from December 31, 2021.
Deposits
Our deposit products include money market accounts, demand deposit accounts, time-deposit accounts (typically
certificates of deposit), NOW accounts (interest checking accounts), and saving accounts. Our accounts are federally
insured by the FDIC up to the legal maximum amount.
Total deposits increased by $199.5 million, or 9.0%, to $2.41 billion as of December 31, 2022 from December 31,
2021. The increase was driven primarily by organic growth through expanded client relationships. Total average deposits
for the year ended December 31, 2022 were $2.22 billion, an increase of $485.4 million, or 27.9%, compared to $1.74
billion as of December 31, 2021.
The following presents the average balances and average rates paid on deposits during the periods presented
(dollars in thousands):
(Dollars in thousands)
Deposits
As of and For the Year Ended December 31,
2022
2021
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Money market deposit accounts
$
1,060,258
1.00 % $
NOW accounts
Uninsured time deposits
Other time deposits
Total time deposits
Savings accounts
Total interest-bearing deposits
Noninterest-bearing accounts
297,134
52,457
112,967
165,424
30,942
1,553,758
670,299
0.18
1.26
1.12
1.16
0.04
0.84
899,970
134,039
43,199
104,637
147,836
6,096
1,187,941
550,683
0.23 %
0.17
1.28
0.63
0.82
0.03
0.29
Total deposits
$
2,224,057
0.59 % $
1,738,624
0.20 %
78
Average noninterest-bearing deposits to average total deposits was 30.1% and 31.7% for the year ended
December 31, 2022 and 2021, respectively.
Our average cost of funds was 0.73% and 0.29% during the year ended December 31, 2022 and 2021,
respectively. The increase was driven by a 54 basis point increase in interest bearing deposit costs consistent with the
higher interest rate environment.
Total money market accounts as of December 31, 2022 were $1.34 billion, an increase of $279.4 million, or
26.4%, compared to $1.06 billion as of December 31, 2021. NOW accounts decreased $75.2 million, or 24.3%, to $234.8
million compared to December 31, 2021.
Total time deposits as of December 31, 2022 were $224.1 million, an increase of $53.6 million, or 31.4%,
compared to December 31, 2021.
The following presents the amount of certificates of deposit by time remaining until maturity as of December 31,
2022 (dollars in thousands):
(Dollars in thousands)
Uninsured Time Deposits
Other
Total
Borrowings
Three Months or
Less
Three to Six
Months
Six to 12 Months After 12 Months
Total
$
$
4,608 $
41,271
45,879 $
19,900 $
32,006
51,906 $
33,139 $
50,112
83,251 $
29,348 $
13,706
43,054 $
86,995
137,095
224,090
We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity
needs. As of December 31, 2022 and December 31, 2021, borrowings totaled $199.0 million and $77.7 million,
respectively. On January 1, 2022, the Company redeemed subordinated notes due December 31, 2026 in the amount of
$6.6 million, which were redeemable on or after January 1, 2022. On December 5, 2022, the Company completed the
issuance and sale of subordinated notes totaling $20.0 million in aggregate principal amount. The issuance included $0.5
million of issuance costs resulting in a net balance of $19.5 million as of December 31, 2022.
The increase in other borrowings is primarily attributed to additional FHLB borrowings to support the strong loan
growth in 2022, partially offset by the paydown of loans in the Paycheck Protection Program Loan Facility ("PPPLF")
from the Federal Reserve with a period end balance of $5.4 million and the redemption of $6.6 million in subordinated
notes. Borrowing from the PPPLF facility is expected to trend in the same direction as the PPP loan balances. The
following presents balances of each of the borrowing facilities as of the dates noted (dollars in thousands):
(Dollars in thousands)
Borrowings
FHLB borrowings
Federal Reserve borrowings
Subordinated notes
Total
December 31,
December 31,
2022
2021
$
141,498 $
5,388
52,132
$
199,018 $
15,000
23,629
39,031
77,660
79
FHLB
We have a blanket pledge and security agreement with FHLB that requires certain loans and securities to be
pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of December 31, 2022
and December 31, 2021 amounted to $1.26 billion and $771.4 million, respectively. Based on this collateral and the
Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $751.2 million as of December 31,
2022.
(Dollars in thousands)
Short-term borrowings
Maximum outstanding at any month-end during the period
Balance outstanding at end of period
Average outstanding during the period
Average interest rate during the period
Average interest rate at the end of the period
As of and for the
Year Ended
December 31,
2022
$
310,921
141,498
88,102
0.99 %
2.11
The Bank has borrowing capacity associated with two unsecured federal funds lines of credit up to $10 million
and $19 million. As of December 31, 2022 and 2021, there were no amounts outstanding on any of the federal funds lines.
Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement
that the Bank maintains regulatory capital that is deemed "well capitalized" by federal banking agencies. As of
December 31, 2022 and December 31, 2021, the Company was in compliance with the covenant requirements.
Liquidity and Capital Resources
Liquidity resources primarily include interest-bearing and noninterest-bearing deposits which primarily contribute
to our ability to raise funds to support asset growth, acquisitions, and meet deposit withdrawals and other payment
obligations. Access to purchased funds primarily include the ability to borrow from FHLB, other correspondent banks and
the use of brokered deposits.
80
The following presents, during the periods presented, the composition of our funding sources and the average
assets in which those funds are invested as a percentage of average total assets for the periods presented.
Sources of Funds:
Deposits:
Noninterest-bearing
Interest-bearing
FHLB and Federal Reserve borrowings
Subordinated notes
Other liabilities
Shareholders’ equity
Total
Uses of Funds:
Total loans
Investment securities
Correspondent bank stock
Mortgage loans held for sale
Interest-bearing deposits in other financial institutions
Federal funds sold
Noninterest-earning assets
Total
Average noninterest-bearing deposits to total average deposits
Average loans to total average deposits
Average interest-bearing deposits to total average deposits
Average
Percentage for
the Year Ended
December 31,
Average
Percentage for
the Year Ended
December 31,
2022
2021
25.72 %
59.62
26.73 %
57.67
3.72
1.31
0.81
8.82
5.05
1.42
0.90
8.23
100.00 %
100.00 %
82.09 %
76.77 %
2.84
0.19
0.60
9.54
0.03
4.71
100.00 %
30.14 %
96.86
69.86
1.50
0.10
4.30
12.71
0.07
4.55
100.00 %
31.67 %
91.69
68.33
Our primary source of funds is interest-bearing and noninterest-bearing deposits, and our primary use of funds is
loans. We do not expect a change in the primary source or use of our funds in the foreseeable future.
Capital Resources
Total shareholders’ equity increased $21.8 million, or 10.0%, to $240.9 million as of December 31, 2022
compared to December 31, 2021. The increase is primarily due to net income.
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.
We are subject to various regulatory capital adequacy requirements at a consolidated level and the bank level.
These requirements are administered by federal banking agencies. 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 our consolidated financial statements. Under capital adequacy guidelines and, additionally for banks, the
regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative
measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
Capital levels are viewed as important indicators of an institution’s financial soundness by banking regulators.
Generally, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital
relative to the amount and types of assets they hold. As of December 31, 2022 and December 31, 2021, respectively, our
81
holding company and Bank were in compliance with all applicable regulatory capital requirements, and the Bank was
classified as "well capitalized," for purposes of the prompt corrective action regulations. As we continue to grow our
operations and maintain capital requirements, our regulatory capital levels may decrease depending on our level of
earnings. During the years ended December 31, 2022 and 2021, First Western made capital injections of $6.0 million and
$2.9 million, respectively, into the Bank. We continue to monitor growth and control our capital activities in order to
remain in compliance with all applicable regulatory capital standards.
The following presents our regulatory capital ratios for the dates noted.
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
December 31, 2022
December 31, 2021
Tier 1 capital to risk-weighted assets
Bank
Consolidated
CET1 to risk-weighted assets
Bank
Consolidated
Total capital to risk-weighted assets
Bank
Consolidated
Tier 1 capital to average assets
Bank
Consolidated
$
234,738
212,229
0.10 $
203,164
0.09
188,777
234,738
212,229
252,398
282,889
234,738
212,229
0.10
0.09
0.11
0.12
0.09
0.08
203,164
188,777
217,215
242,388
203,164
188,777
0.11
0.11
0.11
0.11
0.12
0.14
0.10
0.09
Contractual Obligations and Off-Balance Sheet Arrangements
We enter into credit-related financial instruments with off-balance sheet risk in the normal course of business to
meet the financing needs of our clients. These financial instruments include commitments to extend credit. Such
commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the
Consolidated Balance Sheets. Commitments may expire without being utilized. Our exposure to loan loss is represented by
the contractual amount of these commitments, although material losses are not anticipated. We follow the same credit
policies in making commitments as we do for on-balance sheet instruments.
The following presents future contractual obligations to make future payments for the periods presented (dollars in
thousands):
FHLB and Federal Reserve
$
141,498 $
Subordinated notes
Time deposits
Minimum lease payments
Total
As of December 31, 2022
1 Year
or Less
More than
1 Year but Less
than 3 Years
More than
3 Years but Less
than 5 Years
5 Years
or More
—
181,036
3,228
— $
—
35,890
5,224
5,388 $
—
$
—
7,164
1,544
52,132
(1)
—
1,752
$
325,762 $
41,114 $
14,096 $
53,884
$
Total
146,886
52,132
224,090
11,748
434,856
_____________________________
(1)
Reflects contractual maturity dates of March 31, 2030, December 1, 2030, September 1, 2031, and December 15, 2032.
82
The following presents financial instruments whose contract amounts represent credit risk, as of the periods
presented (dollars in thousands):
(Dollars in thousands)
Unused lines of credit
Standby letters of credit
Commitments to make loans to sell
Commitments to make loans
December 31,
2022
December 31,
2021
Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
$
211,285 $
601,202 $
136,289 $
442,035
8,571
13,553
20,895
16,737
—
81,663
2,420
60,529
16,256
20,940
—
14,920
We may enter into contracts for services in the conduct of ordinary business operations, which may require
payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts. We
do not believe these off-balance sheet arrangements have or are reasonably likely to have a material effect on our financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there
can be no assurance that such arrangements will not have an effect on future operations.
Critical Accounting Policies
Our accounting policies and procedures are described in Note 1 - Organization and Summary of Significant
Accounting Policies in the accompanying Notes to the Consolidated Financial Statements.
83
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity and Market Risk
Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates,
foreign currency exchange rates, commodity prices and equity prices. Our market risk arises primarily from interest rate
risk inherent in lending, investing and deposit taking activities. To that end, management actively monitors and manages
interest rate risk exposure. We do not have any market risk sensitive instruments entered into for trading purposes.
Management uses various asset/liability strategies to manage the re-pricing characteristics of our assets and
liabilities designed to ensure that exposure to interest rate fluctuations is limited within established guidelines of acceptable
levels of risk-taking.
The board of directors monitors interest rate risk by analyzing the potential impact on the net economic value of
equity and net interest income from potential changes in interest rates, and considers the impact of alternative strategies or
changes in balance sheet structure. We manage our balance sheet in part to maintain the potential impact on economic
value of equity and net interest income within acceptable ranges despite changes in interest rates.
Our exposure to interest rate risk is reviewed at least quarterly by the board of directors. Interest rate risk exposure
is measured using interest rate sensitivity analysis to determine the change in economic value of equity in the event of
hypothetical changes in interest rates. If potential changes to net economic value of equity and net interest income resulting
from hypothetical interest rate changes are not within the limits established by our board of directors, the board of directors
may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits.
The following presents the sensitivity in net interest income and fair value of equity as of the dates indicated,
using a parallel ramp scenario.
Change in Interest Rates (Basis Points)
200
100
Base
-100
-200
As of December 31, 2022
As of December 31, 2021
Percent Change
in Net Interest
Income
Percent Change
in Fair Value of
Equity
Percent Change
in Net Interest
Income
Percent Change
in Fair Value of
Equity
(2.26) %
(1.13)
—
1.08
4.33
(9.99) %
(5.09)
—
2.07
(4.27)
9.31 %
11.43 %
4.88
—
(2.58)
(3.32)
7.78
—
(26.39)
(46.36)
The model simulations as of December 31, 2022 imply that our balance sheet has shifted to a more neutral
position in terms of interest rate sensitivity compared to our balance sheet as of December 31, 2021. Further, our balance
sheet is better positioned to protect net interest margin in a declining interest rate environment as of December 31, 2022
compared to our balance sheet as of December 31, 2021.
Although the simulation model is useful in identifying potential exposure to interest rate changes, actual results
for net interest income and economic value of equity may differ. There are a variety of factors that can impact the outcomes
such as timing and magnitude of interest rate changes, asset and liability mix, pre-payment speeds, deposit beta
assumptions, and decay rates that differ from our projections. Additionally, the results do not account for actions
implemented to manage our interest rate risk exposure.
Impact of Inflation
Our consolidated financial statements and related notes included within this Form 10-K have been prepared in
accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative value of money over time due to inflation or recession.
Our assets and liabilities are substantially monetary in nature. Therefore, changes in interest rates can significantly
impact our performance beyond the general effects of inflation. Interest rates do not necessarily move in the same direction
84
or magnitude as prices of general goods and services, while other operating expenses can be correlated with the impact of
general levels of inflation.
85
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and accompanying notes, including the Report of Independent Registered Public
Accounting Firm, are set forth on pages F-1 to F-57 of this Annual Report on Form 10-K.
Audited Financial Statements
Description
Report of Independent Registered Public Accounting Firm (PCAOB ID: 173)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Income for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
Page Number
F-1
F-2
F-3
F-4
F-5
F-6
F-8
86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors
First Western Financial, Inc.
Denver, Colorado
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of First Western Financial, Inc. (the "Company") as of
December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders’ equity,
and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2022 and 2021, 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
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Crowe LLP
We have served as the Company’s auditor since 2013.
Denver, Colorado
March 15, 2023
F-1
FIRST WESTERN FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Assets
Cash and cash equivalents:
Cash and due from banks
Federal funds sold
Interest-bearing deposits in other financial institutions
Total cash and cash equivalents
Available-for-sale securities, at fair value
Held-to-maturity securities, at amortized cost (fair value of $74,718 as of December 31,
2022)
Correspondent bank stock, at cost
Mortgage loans held for sale, at fair value
Loans held for sale, at fair value
Loans (includes $23,321 and $0 measured at fair value, respectively)
Allowance for loan losses
Loans, net
Premises and equipment, net
Accrued interest receivable
Accounts receivable
Other receivables
Goodwill and other intangible assets, net
Deferred tax assets, net
Company-owned life insurance
Other assets
Assets held for sale
Total assets
Liabilities
Deposits:
Noninterest-bearing
Interest-bearing
Total deposits
Borrowings:
Federal Home Loan Bank and Federal Reserve borrowings
Subordinated notes
Accrued interest payable
Other liabilities
Total liabilities
Shareholders' Equity
Preferred stock - no par value; 10,000,000 shares authorized; 0 issued and outstanding
Common stock - no par value; 90,000,000 shares authorized; 9,495,440 and 9,419,271
shares issued and outstanding as of December 31, 2022 and December 31, 2021,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss)/income
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2022
December 31,
2021
$
4,926 $
—
191,586
196,512
6,487
1,491
379,005
386,983
—
55,562
81,056
7,110
8,839
1,965
2,469,413
(17,183)
2,452,230
25,118
10,445
4,873
1,973
32,104
6,914
16,152
21,457
—
$
2,866,748 $
$
583,092 $
1,822,137
2,405,229
146,886
52,132
1,125
20,512
2,625,884
—
2,584
30,620
—
1,949,137
(13,732)
1,935,405
23,976
7,151
5,267
1,949
31,902
6,845
15,803
23,327
115
2,527,489
636,304
1,569,399
2,205,703
38,629
39,031
355
24,730
2,308,448
—
—
—
190,494
51,887
(1,517)
240,864
2,866,748 $
$
—
188,629
30,189
223
219,041
2,527,489
See accompanying notes to consolidated financial statements.
F-2
FIRST WESTERN FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Year Ended December 31,
2022
2021
Interest and dividend income:
Loans, including fees
Loans accounted for under the fair value option
Investment securities
Interest-bearing deposits in other financial institutions
Dividends, restricted stock
Total interest and dividend income
Interest expense:
Deposits
Other borrowed funds
Total interest expense
Net interest income
Less: Provision for loan losses
Net interest income, after provision for loan losses
Non-interest income:
Trust and investment management fees
Net gain on mortgage loans
Bank fees
Risk management and insurance fees
Income on company-owned life insurance
Net gain on equity interests
Net loss on loans accounted for under the fair value option
Unrealized gain recognized on equity securities
Other
Total non-interest income
Total income before non-interest expense
Non-interest expense:
Salaries and employee benefits
Occupancy and equipment
Professional services
Technology and information systems
Data processing
Marketing
Amortization of other intangible assets
Net gain on assets held for sale
Net gain on sale of other real estate owned
Other
Total non-interest expense
Income before income taxes
Income tax expense
Net income available to common shareholders
Earnings per common share:
Basic
Diluted
$
$
F-3
$
94,448 $
1,347
2,053
2,245
381
100,474
13,012
4,258
17,270
83,204
3,682
79,522
18,943
5,306
2,660
1,231
349
7
(891)
342
465
28,412
107,934
48,248
7,520
7,896
4,462
4,285
1,888
308
(4)
(44)
4,547
79,106
28,828
7,130
21,698 $
2.29 $
2.23
60,758
—
770
397
86
62,011
3,482
1,934
5,416
56,595
1,230
55,365
20,200
16,060
1,780
1,120
354
—
—
469
60
40,043
95,408
40,746
5,990
6,473
3,707
6,327
1,613
17
—
—
3,255
68,128
27,280
6,670
20,610
2.58
2.50
See accompanying notes to consolidated financial statements.
FIRST WESTERN FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive (loss)/income:
Unrealized losses on available-for-sale securities
Income tax effect
Amortization of net unrealized loss for the reclassification of available-for-sale
securities transferred to held-to-maturity included in interest income
Income tax effect
Total other comprehensive loss
Comprehensive income
Year Ended December 31,
2022
2021
$
21,698 $
20,610
(2,591)
638
283
(70)
(620)
163
—
—
(1,740)
(457)
$
19,958 $
20,153
See accompanying notes to consolidated financial statements.
F-4
FIRST WESTERN FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share amounts)
Balance, December 31, 2020
7,951,773 $ 144,703 $
9,579 $
680 $ 154,962
Shares
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Net income
Other comprehensive loss, net of tax
—
—
—
—
Settlement of share awards
58,884
(501)
Issuance of common stock for Teton
Acquisition
Options exercised
Stock-based compensation
Balance, December 31, 2021
Net income
Other comprehensive loss, net of tax
Settlement of share awards
Options exercised
Stock-based compensation
Balance, December 31, 2022
20,610
—
20,610
—
—
—
—
—
(457)
—
—
—
—
(457)
(501)
39,818
1,706
2,903
1,337,791
39,818
70,823
—
1,706
2,903
9,419,271 $ 188,629 $
30,189 $
223 $ 219,041
—
—
67,860
8,309
—
—
—
(876)
179
2,562
21,698
—
21,698
—
—
—
—
(1,740)
(1,740)
—
—
—
(876)
179
2,562
9,495,440 $ 190,494 $
51,887 $
(1,517) $ 240,864
See accompanying notes to consolidated financial statements.
F-5
FIRST WESTERN FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2021
2022
$
21,698 $
20,610
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash used in operating activities:
Net amortization of investment securities
Stock dividends received on correspondent bank stock
Provision for loan losses
Net gain on mortgage loans
Origination of mortgage loans
Proceeds from mortgage loans
Gain on disposal of fixed assets and intangibles
Depreciation and amortization
Net amortization of purchase accounting adjustments
Deferred income tax expense (benefit), net of valuation allowance
Increase in cash surrender value of company-owned life insurance
Stock-based compensation
Gain on sale of other real estate owned
Change in fair value of equity securities
Change in fair value of loans accounted for under the fair value option
Change in fair value of mortgage loans and mortgage banking derivatives
(Gain)/loss on assets held for sale
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 operating activities
Cash flows from investing activities
Activity in available-for-sale securities:
Maturities, prepayments, and calls
Purchases
Activity in held-to-maturity securities:
Maturities, prepayments, and calls
Purchases
Purchases of correspondent bank stock
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
Purchase of loans
Proceeds from sale of assets held for sale
Proceeds from sale of other real estate owned
Net cash received on acquisitions
Net cash used in investing activities
Cash flows from financing activities
Net change in deposits
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 on subordinated notes
Proceeds from subordinated notes, net of issuance costs
Proceeds from the exercise of stock options
Settlement of restricted stock
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of period
130
(381)
3,682
(5,306)
(439,682)
465,819
(21)
2,012
55
557
(349)
2,562
(44)
(342)
891
1,903
(4)
426
(3,647)
(1,681)
48,278
3,218
(9,000)
9,040
(31,189)
(13,999)
9,854
(214)
(487,973)
(2,967)
(36,115)
125
422
—
(558,798)
199,555
(545,920)
677,418
(23,241)
—
(6,575)
19,509
179
(876)
320,049
(190,471)
386,983
670
(86)
1,230
(16,060)
(1,425,713)
1,564,466
—
1,256
187
(668)
(354)
2,903
—
(469)
—
12,244
27
(275)
695
1,852
162,515
16,241
(17,667)
—
—
(1)
983
(2,087)
(159,577)
(2,108)
—
—
194
120,997
(43,025)
206,566
—
—
(194,608)
83,674
—
14,667
1,706
(501)
111,504
230,994
155,989
386,983
$
196,512 $
F-6
Supplemental cash flow information:
Interest paid on deposits and borrowed funds
Income tax payment, net of refunds received
Cash paid for lease liabilities
Supplemental noncash disclosures:
Change in unrealized (loss)/gain on available-for-sale securities
Lease right-of-use-asset obtained in exchange for lease liabilities
Transfer of securities from available-for-sale to held-to-maturity
Transfer from loans to other real estate owned
Transfer of loans held for investment to loans held for sale
Common stock issued for Teton acquisition
$
16,500 $
5,242
3,354
(2,591)
801
58,727
378
1,985
—
5,514
6,336
2,947
(620)
2,262
—
—
—
39,818
See accompanying notes to consolidated financial statements.
F-7
FIRST WESTERN FINANCIAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation: The consolidated financial statements include the accounts of First Western
Financial, Inc. ("FWFI"), incorporated in Colorado on July 18, 2002, and its direct and indirect wholly-owned subsidiaries
listed below (collectively referred to as the "Company," "we," "us," or "our").
FWFI is a bank holding company with financial holding company status registered with the Board of Governors
of the Federal Reserve System. FWFI wholly owns the following subsidiaries: First Western Trust Bank (the "Bank") and
Ryder, Stilwell Inc. ("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"). RSI and RRI are not active
operating entities.
The Company provides a fully-integrated suite of wealth management services including private banking, personal
trust, investment management, mortgage loans, and institutional asset management services to individual and corporate
clients principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins and Vail Valley), Arizona (Phoenix and
Scottsdale), California (Century City), Montana (Bozeman), and Wyoming (Jackson Hole, Laramie, Pinedale and Rock
Springs). 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.
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America ("GAAP") for financial information, pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission ("SEC"), and where applicable, reporting practices prescribed for the banking
and investment advisory industries.
Consolidation: The Company’s policy is to consolidate all majority-owned subsidiaries in which it has a
controlling financial interest and variable-interest entities where the Company is deemed to be the primary beneficiary. All
material intercompany accounts and transactions have been eliminated in consolidation.
Business Combinations and Divestitures: On December 31, 2021, the Company completed its merger pursuant to
an Agreement and Plan of Merger (the “Merger Agreement”) with Teton Financial Services, Inc. (“Teton”), parent
company of Rocky Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. Management
concluded that the merger represented a business combination, which is accounted for using the acquisition method, with
the results of operations included in the Company’s consolidated financial statements as of the acquisition date.
Use of Estimates: To prepare financial statements in conformity with GAAP, management makes estimates and
assumptions based on available information. These estimates and assumptions affect the amounts reported in the
consolidated financial statements and the disclosures provided, and actual results could differ. Information available which
could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the
economy, including the impact of the COVID-19 pandemic, and changes in the financial condition of borrowers. Material
estimates that are particularly susceptible to significant change include: the determination of the allowance for loan losses,
the evaluation of goodwill impairment, and the fair value of financial instruments.
Concentration of Credit Risk: Most of the Company’s lending activity is to clients located in and around metro
Denver, Aspen, Fort Collins, and Vail, Colorado; Phoenix and Scottsdale, Arizona; Bozeman, Montana; and Jackson Hole,
Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. As of
December 31, 2022 and December 31, 2021, 77.9% and 76.1%, respectively, of the Company’s loan portfolio was secured
by real estate collateral. Declines in real estate values in the primary markets the Company operates in could negatively
impact the Company.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, deposits at other financial
institutions with original maturities fewer than 90 days, and federal funds sold. Net cash flows are reported for customer
loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and
repurchase agreements.
F-8
Investment Securities: Investments we intend to hold for an indefinite period of time, but not necessarily to
maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing
service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax.
The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and
any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders' equity.
Investments for which we have the intent and ability to hold to their maturity are classified as held-to-maturity
securities and are recorded at amortized cost. Securities held-to-maturity are carried at cost, adjusted for the amortization
of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.
As of December 31, 2022, equity mutual funds have been recorded at fair value within the Other assets line of the
Consolidated Balance Sheets with changes recorded in the Unrealized gain/(loss) recognized on equity securities line of the
Consolidated Statements of Income.
The Company invests in projects to create affordable housing. These investments are classified as Other assets on
the Consolidated Balance Sheets. Investments in affordable housing projects that qualify for low-income housing tax
credits ("LIHTC") are accounted for using the proportional amortization method. Under the proportional amortization
method, the initial cost of the investment is amortized in proportion to the tax credits and other benefits received and
recognized as a component of applicable income tax expense in the Consolidated Statements of Income.
Net purchase premiums and discounts are recognized in interest income using the interest method over the terms
of the securities, without anticipating prepayments, except for mortgage-backed securities where prepayments are
anticipated. Declines in the fair value of available-for-sale securities and held-to-maturity securities below their cost that
are deemed to be other-than-temporary are recorded in earnings as realized losses in Non-interest income.
Management evaluates securities for other-than-temporary impairment ("OTTI") on a quarterly basis, or more
frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position,
management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of
the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a
security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or
requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through
earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two
components as follows: 1) OTTI related to loss on securities, which must be recognized in the income statement and 2)
OTTI related to other factors, which is recognized in other comprehensive income (loss). The credit loss is defined as the
difference between the present value of the cash flows expected to be collected and the amortized cost basis. As of
December 31, 2022 and 2021, no securities were determined to be other-than-temporarily impaired.
Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific
identification method.
Correspondent Bank Stock: 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.
No impairment was recorded as of December 31, 2022 and 2021. Both cash and stock dividends are reported as income
when received.
Mortgage Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are
carried at fair value. Net unrealized losses, if any, are recorded and charged to earnings. Servicing rights are released when
the associated mortgage loans are sold. Gains and losses on sales of mortgage loans are based on the difference between the
selling price and the carrying value of the related loan sold.
Loans: Loans the Company has the intent and ability to hold for the foreseeable future, until maturity, or until
payoff are reported at their outstanding unpaid principal balances, adjusted for charge-offs and recoveries, net of deferred
costs (fees) and unamortized premiums/(unaccreted discounts), and the allowance for loan losses. Interest income is
accrued on unpaid principal balances. Fees received at origination, net of certain direct origination costs for providing loan
F-9
commitments and letters of credit that result in loans, are deferred and amortized to interest income over the life of the
related loan or until payoff, at which time the remaining unamortized fee is recorded as interest income. Fees, net of certain
direct origination costs on commitments and letters of credit, are amortized to interest income over the commitment period.
Past Due Loans: The accrual of interest on loans is discontinued at the time the loan becomes 90 days delinquent
unless the loan is well secured and in the process of collection. Past due status is based on the contractual terms of the loan.
In all cases, loans are placed on nonaccrual status or charged off if collection of interest or principal is considered doubtful.
Interest accrued but not collected is charged off against interest income at the time a loan is placed on non-accrual
status. The interest collected on non-accrual loans is accounted for using the cost-recovery method, until qualifying for
return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to
zero. Loans can be returned to accrual status when there is a sustained period of repayment performance (usually six-
months or longer) and the collectability of future payments is reasonably assured.
Troubled Debt Restructurings: A troubled debt restructuring ("TDR") is a loan the Company, for reasons related
to a borrower’s financial difficulties, grants a concession to the borrower the Company would not otherwise consider.
The loan terms which have been modified or restructured due to a borrower’s financial difficulty, include but are
not limited to (i) a reduction in the stated interest rate of the loan, (ii) an extension of the maturity date of the loan at an
interest rate below market, or (iii) a reduction of the accrued interest.
Loan modifications granted by the Company are reviewed on a case-by-case basis to determine if they should be
considered a restructured loan.
COVID-19 Loan Modifications: 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 prior two years, primarily for a period of 180 days or less.
COVID-19 and CARES Act: On March 11, 2020 the World Health Organization declared the outbreak of
COVID-19 a global pandemic, which continues to spread throughout the United States and the around the world. In
response to the COVID-19 pandemic, the President signed the Coronavirus Aid, Relief and Economic Security Act
("CARES Act") into law on March 27, 2020. The objective of the CARES Act is to prevent a severe economic downturn
using various measures, including economic stimulus to significantly impacted industry sectors. We continue to monitor
the impact of COVID-19 closely, as well as any effects that may result from the CARES Act and other government actions.
See Note 5 - Loans and the Allowance for Loan Losses for further discussion on our loan modification program.
All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2022
and 2021. These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20.
Management has increased our loan level reviews and portfolio monitoring to address the changing environment.
Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals
of the Bank.
The Company is a participant in the Federal Reserve’s Main Street Lending Program ("MSLP") to support lending
to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before
the onset of the COVID-19 pandemic. The Company sold a 95% participation in new MSLP loans to the Main Street
Special Purpose Vehicle ("SPV") at par value. The Company must retain 5% of the MSLP loan until (i) it matures or (ii)
neither the Main Street SPV nor a Governmental Assignee holds an interest in MSLP Loan in any capacity, whichever
comes first. See Note 5 - Loans and the Allowance for Loan Losses for further discussion on our participation in the
program.
Allowance for Loan Losses: The Company’s reserve for loan losses is an estimate of the probable incurred loan
losses and is comprised of (i) the allowance for loan losses and (ii) the reserve for unfunded commitments. The reserve for
unfunded commitments is included in Other liabilities in the accompanying Consolidated Balance Sheets and the loan
balances in the accompanying Consolidated Balance Sheets are reported net of the allowance for loan losses. The
allowance for loan losses is established through a provision for loan losses, which is a noncash charge to earnings. Loan
F-10
losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance for loan losses.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s
periodic review of the collectability of the loans in light of historical experience, the nature and dollar volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral
and prevailing economic conditions. Allocations of the allowance may be made for specific loans, but the entire allowance
is available for any loan that, in management’s judgment, should be charged off. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant revision as more information becomes available.
We are closely monitoring the changing dynamics in the economy and related impacts to our clients.
Management will continue to closely monitor the loan portfolio and analyze the economic data to assess the impact on the
allowance for loan losses.
A loan is considered impaired when, based on current information and events, it is probable the Company will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
agreement.
TDR and non-accrual loans are separately evaluated for impairment and included in the separately identified
impairment disclosures. If cash flow dependent, TDR and non-accrual loans will be measured at the present value of
estimated future cash flows using the loan’s effective rate at inception. If a TDR or non-accrual loan is considered to be a
collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDR and non-accrual loans that
subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the
allowance for loan losses on loans individually identified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the
probability of collecting all scheduled principal and interest payments. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays
and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
The allowance for loan losses is comprised of specific loan loss reserves and general loan loss reserves. The
impairment of a specific loan is measured based either on (i) the present value of expected future cash flows discounted at
the loan’s effective interest rate, or (ii) the fair value of the underlying collateral, less costs to sell, if the repayment is
expected to be provided predominantly by the sale of the underlying collateral. Specific impairments are measured on a
loan-by-loan basis if risk characteristics are unique to an individual borrower. The general loan loss reserve covers non-
impaired loans and is established by evaluating the incurred loss on homogenous pools of loans, not specifically reviewed
for impairment as noted above, that have common risk characteristics. The general loan loss reserve is based on historical
loss experiences adjusted for nine qualitative factors on all loans in the portfolio not considered impaired. Certain factors
are applied to each pool and certain factors are applied to all non-individually reviewed loans. The nine qualitative factors
the Company considers are:
•
•
•
•
•
•
•
•
•
Changes in relevant economic and business conditions and developments that affect the collectability of the
portfolio, including the condition of various market segments.
Levels and trends in net charge-offs.
The existence and effect of any concentrations of credit and changes in the level of such concentrations.
Changes in the nature or volume of the loan portfolio and in the terms of loans.
Changes in the experience, ability, and depth of lending management and other relevant staff.
Changes in the volume and severity of past due loans.
Changes in the quality of the loan review system and associated grading changes.
Change in the level of overdrafts.
Levels and status of loans modified as a result of COVID-19.
The following portfolio segments have been identified:
•
Cash, Securities and Other—consists of consumer and commercial purpose loans that are primarily secured
by securities managed and under custody with us, cash on deposit with us, or life insurance policies. In
F-11
addition, loans in this portfolio are collateralized with other sources of collateral. This segment of our
portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment
prospects, income levels, and overall economic sentiment. PPP loans that are fully guaranteed by the SBA are
classified within this line item as of December 31, 2022 and 2021.
Consumer and Other—consists of unsecured consumer loans. Loans held for investment accounted for under
the fair value option are also classified within this line item.
Construction and Development—consists of loans to finance the construction of residential and non-
residential properties. These loans are dependent on the strength of the industries of the related borrowers and
the risks consistent with construction projects.
1-4 Family Residential—consists of loans and home equity lines of credit secured by 1-4 family residential
properties. These loans typically enable borrowers to purchase or refinance existing homes, most of which
serve as the primary residence of the owner. In addition, some borrowers secure a commercial purpose loan
with owner occupied or non-owner occupied 1-4 family residential properties. Loans in this segment are
dependent on the industries tied to these loans as well as the national and local economies, and local
residential and commercial real estate markets.
Commercial Real Estate ("CRE"), Owner Occupied and Non-Owner Occupied—consists of commercial loans
collateralized by real estate. These loans may be collateralized by owner occupied or non-owner occupied real
estate, as well as multi-family residential real estate. These loans are dependent on the strength of the
industries of the related borrowers and the success of their businesses.
Commercial and Industrial—consists of commercial and industrial loans, including working capital lines of
credit, permanent working capital term loans, business asset loans, acquisition, expansion and development
loans, and other loan products, primarily in our target markets. This portfolio primarily consists of term loans
and lines of credit which are dependent on the strength of the industries of the related borrowers and the
success of their businesses. This category includes MSLP loans as of December 31, 2022 and 2021.
•
•
•
•
•
The reserve for unfunded commitments represents the estimate for probable loan losses inherent in unfunded
commitments to extend credit. Unfunded commitments to extend credit include commercial and standby letters of credit,
unused lines of credit, and unfunded loan commitments expected to be funded.
The process used to determine the reserve for unfunded commitments is consistent with the process for
determining the allowance for loan losses, adjusted for estimated funding probabilities. Changes to the level of the reserve
for unfunded commitments are recognized through the provision for loan losses for off-balance sheet credit exposures,
included in the non-interest other expense line of the Consolidated Statements of Income.
Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets
has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from
the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to
pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity. Prior to participating in the MSLP, the Company obtained a
true sale opinion with regards to the legal isolation condition of the contract. Legal counsel determined that given the facts
and circumstances provided, consistent with the FDIC rule entitled “Treatment of financial assets transferred in connection
with a securitization or participation”, 12 C.F.R. §360.6, that the MSLP documents would be considered a true sale to the
buyer. As such, Management concludes the MSLP loans qualify for sales accounting treatment and are true sales contracts
under GAAP.
Premises and Equipment: Premises and equipment are carried at cost, net of accumulated depreciation, with the
exception of artwork and land, which are carried at cost. The Company acquired land and three buildings associated with
the Teton Acquisition. These assets were initially recorded at their fair values based on recent appraisals and the buildings
will be depreciated over their new remaining useful life, ranging from 25 to 50 years. Leasehold improvements are
depreciated using the straight-line method and recognized over the shorter of the lease term or estimated useful lives of the
assets, ranging from 7 to 15 years. Furniture/equipment and software are depreciated using the straight-line method and
recognized over the estimated useful lives of the assets, ranging from 3 to 7 years.
F-12
Goodwill and Other Intangible Assets: 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. 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. The Company has selected October 31 as the date to perform its annual
impairment tests. Impairment exists when the carrying amount of the goodwill and other intangible assets exceeds their
estimated fair values. Impairment losses, if any, are recognized as a charge to non-interest expense and an adjustment to the
carrying value of the goodwill or other intangible assets. Subsequent reversals of impairment charges are prohibited.
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 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, 2022, the
Company believes the carrying value of its goodwill not to be impaired and other intangible assets to be recoverable.
Accounts Receivable: Accounts receivable primarily represents the billed but unpaid fees from trust and
investment advisory services owed by clients, which are typically calculated as a percentage of average invested balances.
The majority of the Company’s investment advisory clients are billed quarterly in arrears based on the daily average
balance in the client’s trust or investment accounts for that quarter.
Other Receivables: Other accounts receivable represents compensation paid to employees that is contingent on
future employment and recognized in the Consolidated Statements of Income over the estimated service period and sales of
investments and assets in which the Company has obtained a firm commitment as of the balance sheet dates.
Leases: Leases represent a contract that conveys the right to control the use of identified property, plant, or
equipment (an identified asset) for a period of time in exchange for consideration. The Company leases certain identified
assets from third parties. Leases in which the Company is determined to be the lessee are primarily operating leases. 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. An ROU asset represents the right to use the underlying asset for the lease
term and also includes any direct costs and payments made prior to lease commencement and excludes lease incentives.
When an implicit rate is not available, an incremental borrowing rate based on the information available at commencement
date is used in determining the present value of the lease payments. A lease term may include an option to extend or
terminate the lease when it is reasonably certain the option will be exercised. Short-term leases of 12 months or less are
excluded from accounting guidance; as a result, the lease payments are recognized on a straight-line basis over the lease
term and the leases are not reflected on the Company’s Consolidated Balance Sheets. Renewal and termination options are
considered when determining short-term leases. 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: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially
recorded at fair value, less selling costs, at the date of foreclosure, establishing a new cost basis in the asset. Physical
possession of residential real estate property collateralizing a residential mortgage loan occurs when legal title is obtained
upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through
completion of a deed in lieu of foreclosure or through similar legal agreement. Subsequent to foreclosure, valuations are
periodically performed by management, with any subsequent declines in value recorded as a charge to expense through an
impairment recorded directly against the other real estate owned assets. Changes in the valuation allowance are recorded as
provision for losses on other real estate owned. Revenue and expenses from operations related to other real estate owned
are included in the Provision on other real estate owned line of the Consolidated Statements of Income.
Company-Owned Life Insurance: The Company has purchased life insurance policies on certain current and
former officers and key employees. Company-owned life insurance is recorded at the amount that can be realized under the
insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts
due that are probable at settlement.
F-13
Mortgage Banking Derivatives: Commitments to fund mortgage loans, interest rate lock commitments ("IRLC")
and forward sale commitments ("FSC"), to be sold in the secondary market for the future delivery of these loans are
accounted for as free standing derivatives. 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: The Company has stock-based compensation plans that provide for the granting of
stock options, restricted stock awards, restricted stock units and performance stock units to associates and non-associate
directors who perform services for the Company. The Company estimates the fair value of its stock option awards on the
date of grant using the Black-Scholes option-pricing model. The Company determines the fair value of the restricted and
performance stock units as well as restricted stock awards based on the estimated market value of the underlying shares at
the date of grant.
Compensation cost is recognized over the required service period, generally defined as the vesting period. For
awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for
the entire award. The Company’s policy is to recognize forfeitures as they occur.
Income Taxes: Income tax expense is the total of the current year income tax due and the change in the deferred
tax assets and liabilities. Deferred income tax assets and liabilities are determined using the liability method. Under this
method, the net deferred tax asset or liability is determined based on the tax effects of temporary differences between the
book and tax basis of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates
and laws. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.
The Company recognizes tax benefits from uncertain tax positions when it is more-likely-than-not, based on the
technical merits of the position, the tax position will be sustained upon examination, including the resolution of any appeals
or litigation. Tax benefits recognized in the consolidated financial statements from such a position are measured as the
largest benefit that has a greater than fifty percent likelihood of being realized upon resolution.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although any
such assessments have historically been minimal and immaterial to financial results. The Company classifies interest and
penalties, if any, as a component of income tax expense.
Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on securities available-for-sale, net of taxes, which is also
recognized as a separate component of equity.
Earnings per Common Share: Earnings per common share is computed by dividing net income available to
common shareholders by the weighted average number of shares outstanding during each period. See Note 13 – Earnings
Per Common Share for the common share equivalents that have been included and excluded from the calculation of
earnings per common share.
Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit
instruments, such as unused lines of credit, commitments to make loans and commercial and standby letters of credit. The
face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such
financial instruments are recorded when they are funded.
F-14
Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of
business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there are such matters that will have a material effect on the
consolidated financial statements.
Deposits: Deposit products include money market accounts, demand deposit accounts, time-deposit accounts
(typically certificates of deposit), NOW accounts (interest checking accounts), and savings accounts. Our accounts are
federally insured by the FDIC up to the legal maximum amount.
Borrowings: Short-term and long-term borrowing sources utilized to supplement deposits and meet liquidity
needs. A blanket pledge and security agreement is in place with FHLB that requires certain loans and securities to be
pledged as collateral for any outstanding borrowings under the agreement. Our borrowing facilities include various
financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is
deemed "well capitalized" by federal banking agencies.
Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in Note 17 – Fair Value. Fair value estimates involve
uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could
significantly affect these estimates.
Revenue Recognition: In accordance with the Financial Accounting Standards Board ("FASB"), Revenue
Contracts with Customers ("Topic 606"), trust and investment management fees are earned by providing trust and
investment services to customers. The Company’s performance obligation under these contracts is satisfied over time as the
services are provided. 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. No performance based incentive fees were earned with
respect to investment management contracts for the years ended December 31, 2022 and 2021. Receivables are recorded on
the Consolidated Balance Sheets in the Accounts receivable line item. Income related to trust and investment management
fees, bank fees, and risk management and insurance fees on the Consolidated Statements of Income for the years ended
December 31, 2022 and 2021 are considered in scope of Topic 606.
Transition of LIBOR to an Alternative Reference Rate: In July 2017, the United Kingdom's Financial Conduct
Authority, which regulates the London Interbank Offered Rate ("LIBOR") announced that after 2021 it will no longer
persuade or compel banks to submit rates for the calculation of LIBOR. In response, the Federal Reserve Board and the
Federal Reserve Bank of New York convened the Alternative Reference Rates Committee to identify a set of alternative
reference interest rates for possible use as market benchmarks. This committee has proposed the Secured Overnight
Financing Rate ("SOFR") as its recommended alternative to U.S. dollar LIBOR, and the Federal Reserve Bank of New
York began publishing SOFR rates in the second quarter of 2018. SOFR is based on a broad segment of the overnight
Treasury repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by
Treasury securities.
In March 2020, the Financial Accounting Standards Board (‘FASB”) issued Accounting Standards Update
(“ASU’) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on
Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting
for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted
accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference
the LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global
market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through
December 31, 2022. Subsequently, in January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic
848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications
and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the
expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the
existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No.
2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment
retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to
new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date
that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging
relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging
relationships entered into after the beginning of the interim period that includes March 12, 2020.
F-15
On December 21, 2022, the FASB issued Accounting Standards Update (ASU) 2022-06, Reference Rate Reform
(Topic 848): Deferral of the Sunset Date of Topic 848. ASU 2022-06 extends the period of time financial statement
preparers can utilize the reference rate reform relief guidance through December 31, 2024.
Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending past December 31,
2022. The Company is currently evaluating and planning for the eventual replacement of the LIBOR benchmark interest
rate, including the possibility of SOFR as the dominant replacement. In general, the transition away from LIBOR may
result in increased market risk, credit risk, operational risk and business risk for the Company. The Company has
developed a LIBOR transition plan, which addresses governance, risk management, legal, operational, systems and
operations, fallback language, and other aspects of planning. The company no longer originates LIBOR indexed loans and
is working on transitioning existing LIBOR loans to SOFR. Consumer indexed loans are being managed in accordance
with Interagency Guidance.
Restrictions on Cash: During the year ended December 31, 2021, the Board of Governors of the Federal Reserve
System reduced reserve requirement ratios to zero percent. This action eliminated reserve requirements for all depository
institutions.
Reclassifications: Certain items in prior year financial statements were reclassified to conform to the current
presentation. Such reclassifications had no impact on net income available to common shareholders or total shareholders’
equity.
Recently adopted accounting pronouncements: The following reflect recent accounting pronouncements that have
been adopted by the Company during the Company’s fiscal year ended December 31, 2022.
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment ("ASU 2017-04"), which amended existing guidance to simplify the subsequent
measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to
perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s
fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was set to be effective
for the Company on January 1, 2021. However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to
January 1, 2023 for SRC’s, with earlier adoption permitted. On January 1, 2022, the Company adopted the new guidance.
The adoption of this ASU has not had a material impact on the consolidated financial statements, and the Company has not
recorded goodwill impairment to date as of part of the acquisition activity.
Recently issued accounting pronouncements, not yet adopted: The following reflects pending pronouncements
with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2022.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions. This was issued to clarify the guidance in Topic 820, Fair Value
Measurement, when measuring fair value of an equity security subject to contractual restrictions that prohibit the sale of an
equity security and to introduce new disclosure requirements for equity securities subject to contractual sale restrictions
that are measured at fair value in accordance with Topic 820. The Company is currently assessing the impact of this
guidance on our existing equity securities. This guidance is effective for the Company in fiscal years after December 15,
2023.
In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU
2016-13"). ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current
expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on the financial
assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables.
It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of
credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For all
other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the
allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13
was set to be effective for most public companies on January 1, 2020. However, at the October 16, 2019 FASB meeting,
the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies ("SRCs") to
January 1, 2023.
F-16
During the year ended December 31, 2022, the Company’s CECL project team continued to work through its
implementation plan. The Company selected a champion quantitative model to approximate expected losses by call code
segment using regional and other appropriate peers. The Company selected qualitative factors and evaluated those factors
for each loan segment for the quarter ended December 31, 2022. The Company has completed a model validation and
worked to finalize policies and procedures, internal control structure, and process flows. Using this information, the
Company successfully ran parallel models for each completed quarter of 2022 in order for management to review and
compare results between the initial CECL model and existing ALLL model. Based on preliminary results, the Company
expects its allowance for credit losses ("ACL") coverage ratio to be within a range of approximately 75-90 bps of total
loans and 30-45 bps coverage on off-balance sheet commitments. The Company will implement the new standard
beginning January 1, 2023.
In March, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326); Troubled Debt
Restructurings (“TDR”) and Vintage Disclosures. This ASU will be effective for the Company at the same time we adopt
CECL, January 1, 2023. The amendments eliminate the TDR recognition and measurement guidance and instead require an
entity to evaluate whether the modification represents a new loan or a continuation of an existing loan (consistent with
accounting for other modifications). The amendments also enhance existing disclosure requirements related to certain
modifications of receivables made to borrowers experiencing financial difficulty.
NOTE 2 – ACQUISITIONS
On July 22, 2021, the Company entered into the Merger Agreement with Teton, parent company of Rocky
Mountain Bank, a Wyoming-chartered bank headquartered in Jackson, Wyoming. As provided by the Merger Agreement,
Teton merged into the Company, as subject to the terms and conditions set forth in the Merger Agreement, with the
Company continuing as the surviving corporation. As provided by the Merger Agreement, Rocky Mountain Bank merged
with and into the Bank, with the Bank surviving the bank merger. The transaction closed on December 31, 2021 with an
aggregate purchase price of $51.3 million. As part of its long-term growth strategy, the Teton Acquisition expands First
Western’s presence in Wyoming and allows the Bank to deliver its unique approach to private and commercial banking to
more clients in the region.
The Teton Acquisition was accounted for under the acquisition method of accounting and therefore all assets and
liabilities were measured and recorded at their fair values as of the acquisition close date of December 31, 2021 with final
measurement period adjustments made as of March 31, 2022. All non-equity acquisition related costs were expensed as
incurred. Certain acquisition costs related to the issuance of equity were capitalized as of December 31, 2021. Market value
adjustments for assets acquired and liabilities assumed were amortized or accreted on a level yield basis over the estimated
life of the asset or liability. Loans acquired were recorded at their estimated fair value and therefore no allowance for loan
and lease losses was recorded at the date of acquisition. Goodwill of $6.2 million, which is not tax deductible, was
recognized in the transaction and represents expected synergies and cost savings resulting from combining the expanded
footprint and expertise of the associates. Additionally, core deposit intangible assets were identified and recorded at their
estimated fair values and are amortized over their estimated useful life. On August 31, 2021, the Company completed the
issuance and sale of subordinated notes, which provided partial funding of the transaction. See Note 10 – Borrowings for
more information.
F-17
The following presents the final, recorded fair values of the assets acquired and liabilities assumed in the
transaction with Teton as of December 31, 2021, including all measurement period adjustments to the provisional
estimates. The measurement period has closed, with no further adjustments expected (dollars in thousands):
Fair value of consideration transferred
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
Loans, net
Premises and equipment
Accrued interest receivable
Accounts receivable
Other receivable
Core deposit intangible(1)
Other assets
Assets held for sale
Total assets acquired
Liabilities assumed
Deposits
Accrued interest payable
Other liabilities
Deferred tax liabilities, net
Total liabilities assumed
Net assets acquired
Goodwill recognized
Provisional
Estimates
Measurement
Period Adjustments
December 31,
2021
$
11,501 $
— $
39,818
51,319
132,498
18,058
928
840
252,275
17,758
923
95
520
1,264
226
115
425,500
379,227
26
1,283
42
380,578
44,922
$
6,397 $
—
—
—
—
—
—
(857)
—
—
—
—
698
242
5
88
11,501
39,818
51,319
132,498
18,058
928
840
251,418
17,758
923
95
520
1,962
468
120
425,588
(29)
379,198
—
—
(71)
(100)
188
(188) $
26
1,283
(29)
380,478
45,110
6,209
_____________________________
(1)
The core deposit intangible was determined to have an estimated life of 10 years.
The fair value adjustments were determined using discounted expected cash flows. Loans had a fair value of
$252.3 million and a contractual balance of $256.3 million as of December 31, 2021. The discount on the loans acquired in
this transaction due to anticipated credit loss, as well as considerations for market interest rates, totaled $4.0 million,
representing 1.6% of their contractual balance. There were no loans acquired that were considered to be purchased credit
impaired ("PCI") loans.
F-18
The composition of the contractual balance of acquired loans as of December 31, 2021 is detailed in the table
below (dollars in thousands):
Cash, Securities and Other (1)
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
Total loans
Acquisition fair value adjustments
Loans, net
_____________________________
(1)
Includes $6.7 million in PPP loans.
Year Ended
December 31,
2021
$
20,080
33,977
70,348
43,162
33,000
55,690
256,257
(3,982)
$
252,275
The Company incurred $1.2 million and $4.1 million in expenses related to the acquisition during the years ended
December 31, 2022 and December 31, 2021, respectively. The following presents the acquisition expenses within Non-
interest expense of the Consolidated Statements of Income as of the dates noted (dollars in thousands):
Mergers and acquisitions expense:
Salaries and employee benefits
Professional services
Technology and information systems
Data processing
Marketing
Other
Year Ended
December 31,
Year Ended
December 31,
2022
2021
$
591 $
563
7
(73)
81
54
547
1,118
—
2,428
—
8
Total mergers and acquisitions expense
$
1,223 $
4,101
The following table presents pro forma information for the years ended December 31, 2022 and 2021, as if the
Teton Acquisition had occurred on January 1, 2021. The information for the year ended December 31, 2022 reflects actual
results presented in our Consolidated Statements of Income. Information for the year ended December 31, 2021 has been
prepared for comparative purposes only, and is not indicative of the actual results that would have been attained had the
acquisitions occurred as of the beginning of the period presented, nor is it indicative of future results (in thousands, except
per share data):
Pro Forma
Twelve Months Ended December 31,
2022
2021
Net interest income after provision for loan losses
$
79,522 $
Noninterest income
Net income
Pro forma earnings per share:
Basic
Diluted
28,412
21,698
2.29
2.23
68,019
41,206
23,234
2.49
2.43
F-19
NOTE 3 - INVESTMENT SECURITIES
The following presents the amortized cost and fair value of securities held-to-maturity and the corresponding
amounts of gross unrecognized gains and losses as of the date noted (dollars in thousands):
December 31, 2022
Investment securities held-to-maturity:
U.S. Treasury debt
Corporate bonds
GNMA mortgage-backed securities – residential
FNMA mortgage-backed securities – residential
Government CMO and MBS - commercial
Corporate CMO and MBS
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Fair
Value
$
243 $
— $
(9) $
23,819
39,426
6,708
6,786
4,074
—
—
—
13
—
(2,453)
(2,800)
(506)
(403)
(180)
234
21,366
36,626
6,202
6,396
3,894
Total securities held-to-maturity
$
81,056 $
13 $
(6,351) $
74,718
The following presents the amortized cost and fair value of securities available-for-sale and the corresponding
amounts of gross unrealized gains and losses recognized in accumulated other comprehensive loss as of the date noted
(dollars in thousands):
December 31, 2021
Investment securities available-for-sale:
U.S. Treasury debt
U.S. Government Agency
Corporate bonds
GNMA mortgage-backed securities – residential
FNMA mortgage-backed securities – residential
Government CMO and MBS - commercial
Corporate CMO and MBS
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
250 $
— $
3,522
8,113
26,611
14,400
878
1,492
—
227
185
43
—
23
(3) $
—
(15)
(146)
—
—
(18)
(182) $
247
3,522
8,325
26,650
14,443
878
1,497
55,562
Total securities available-for-sale
$
55,266 $
478 $
Net amortization of premiums and discounts related to mortgage securities during each of the years ended
December 31, 2022 and 2021 was $0.1 million and is included in Net interest income in the Consolidated Statements of
Income.
The Company reassessed classification of investment securities and, effective April 1, 2022, elected to transfer all
securities, fair valued at $58.7 million, from available-for-sale to held-to-maturity. The related unrealized loss of
$2.3 million included in other comprehensive income on April 1, 2022 remained in other comprehensive income and is
being amortized out with an offsetting entry to interest income as a yield adjustment through earnings over the remaining
term of the securities. No gain or loss was recorded at the time of transfer.
As of December 31, 2022, the amortized cost and estimated fair value of held-to-maturity securities have
contractual maturity dates shown in the table below (dollars in thousands). Expected maturities will differ from contractual
F-20
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities not due at a single maturity date are shown separately.
December 31, 2022
Due within one year
Due between one year and five years
Due between five years and ten years
Due after ten years
Securities (CMO and MBS)
Total
Amortized
Cost
Fair
Value
$
— $
2,234
21,548
280
56,994
$
81,056 $
—
2,048
19,290
262
53,118
74,718
For the year ended December 31, 2022, the Company committed $6.0 million in total to two bank technology
funds. During the year ended December 31, 2022, the Company made $1.3 million in contributions to both partnerships
and received a $0.1 million return on investment. As of December 31, 2022, the Company held a balance of $1.3 million,
which is included in Other assets in the accompanying Consolidated Balance Sheets. The Company may be obligated to
invest up to an additional $4.7 million in future contributions.
In 2014, the Company began investing in a small business investment company ("SBIC") fund administered by
the Small Business Administration. During the years ended December 31, 2022 and 2021, the Company did not make any
contributions to the SBIC fund and received a $0.1 million return of capital. As of December 31, 2022 and 2021, the
Company held a balance of $2.0 million in the SBIC fund, which is included in Other assets in the accompanying
Consolidated Balance Sheets. The Company may be obligated to invest up to an additional $1.0 million in future SBIC
investments.
As of December 31, 2022 and December 31, 2021, securities with carrying values totaling $22.6 million and
$17.3 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.
As of December 31, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other
than the U.S. Government sponsored entities and agencies, in an amount greater than 10% of shareholders’ equity.
As of December 31, 2022, 98 securities were in an unrecognized loss position, with unrecognized losses totaling
$6.4 million. As of December 31, 2021, 10 securities were in an unrealized loss position with unrealized losses totaling
$0.2 million. Of the securities in an unrecognized loss position as of December 31, 2022, 14 have been in a continuous
unrecognized loss position for more than twelve months, and the remaining have been in a continuous unrecognized loss
position for less than twelve months. The unrecognized loss positions were caused primarily by interest rate changes and
market assumptions about prepayments of principal and interest on the underlying mortgages. Because the decline in
market value is attributable to market conditions, not credit quality, and because the Company has the ability and intent to
hold these investments until a recovery of fair value, which may be near or at maturity, the Company does not consider
these investments to be other-than-temporarily impaired as of December 31, 2022.
F-21
The following presents securities with unrecognized losses aggregated by major security type and length of time
in a continuous unrecognized loss position as of the date noted (dollars in thousands, before tax):
December 31, 2022
Investment securities held-to-maturity:
Less than 12 Months
12 Months or Longer
Total
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
Fair
Value
Unrecognized
Losses
U.S. Treasury debt
Corporate bonds
$
— $
— $
234 $
(9) $
234 $
(9)
20,911
(2,436)
455
(17)
21,366
(2,453)
GNMA mortgage-backed securities –
residential
FNMA mortgage-backed securities –
residential
Government CMO and MBS - commercial
Corporate CMO and MBS
Total
22,371
(1,051)
14,255
(1,749)
36,626
(2,800)
6,202
5,591
3,499
(506)
(403)
(147)
—
—
395
—
—
(33)
6,202
5,591
3,894
(506)
(403)
(180)
$ 58,574 $
(4,543) $ 15,339 $
(1,808) $ 73,913 $
(6,351)
The following presents securities with unrealized losses aggregated by major security type and length of time in a
continuous unrealized loss position as of the date noted (dollars in thousands, before tax):
December 31, 2021
Investment securities available-for-sale:
Less than 12 Months
12 Months or Longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
U.S. Treasury Debt
Corporate bonds
$
247 $
(3) $
— $
— $
247 $
485
(15)
—
—
485
GNMA mortgage-backed securities -
residential
Corporate CMO and MBS
17,205
—
(146)
—
—
521
—
17,205 $
(18)
521
Total
$ 17,937 $
(164) $
521 $
(18) $ 18,458 $
(3)
(15)
(146)
(18)
(182)
The Company did not sell any securities during the years ended December 31, 2022 or 2021.
NOTE 4 – CORRESPONDENT BANK STOCK
The following presents the Company’s investments in correspondent bank stock, as of the dates noted (dollars in
thousands):
FHLB
BBW
FRB
Total
December 31,
2022
2021
7,078 $
1,625
32
—
31
928
7,110 $
2,584
$
$
F-22
NOTE 5 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES
The following presents a summary of the Company’s loans as of the dates noted (dollars in thousands):
Cash, Securities and Other(1)
Consumer and Other(2)
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial(3)
Total loans held for investment
Deferred fees and unamortized premiums/(unaccreted discounts), net(4)
Allowance for loan losses
Loans, net
December 31,
2022
December 31,
2021
$
165,670 $
261,190
49,954
288,497
898,154
496,776
216,056
361,028
34,758
178,716
580,872
482,622
212,426
203,584
2,476,135
1,954,168
(6,722)
(17,183)
(5,031)
(13,732)
$
2,452,230 $
1,935,405
_____________________________
(1)
(2)
(3)
(4)
Includes Paycheck Protection Program ("PPP") loans of $7.1 million and $46.8 million as of December 31, 2022 and 2021, respectively.
Includes $23.4 million of unpaid principal balance of loans held for investment measured at fair value as of December 31, 2022.
Includes MSLP loans of $6.6 million and $6.8 million as of December 31, 2022 and 2021, respectively.
Includes fair value adjustments on loans held for investment accounted for under the fair value option.
As of December 31, 2022 and 2021, total loans held for investment included $234.7 million and $356.7 million,
respectively, of performing loans purchased through mergers or acquisitions. As of December 31, 2022, Consumer and
Other included $23.4 million of unpaid principal balance of loans held for investment measured at fair value. See Note 17 –
Fair Value Option.
The CARES Act created the paycheck protection program ("PPP"), which is administered by the Small Business
Administration ("SBA"). The PPP is intended to provide loans to small businesses to pay their employees, rent, mortgage
interest and utilities. The loans may be forgiven conditioned upon the client providing payroll documentation evidencing
their compliant use of funds and otherwise complying with the terms of the program. The Bank is an approved SBA lender
and as of December 31, 2022, the Cash, Securities and Other portion of the loan portfolio included $7.1 million of PPP
loans, or 4.3% of the total category. As of December 31, 2021, the Cash, Securities, and Other portion of the loan portfolio
included $46.8 million of PPP loans, or 17.9% of the total category.
The Company is a participant in the Federal Reserve’s MSLP to support lending to small and medium-sized for
profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19
pandemic. As of December 31, 2022, the Company’s Commercial and Industrial loans included five MSLP loans with the
net carrying amount of $6.6 million, or 1.8% of the total category. As of December 31, 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.
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.
In 2021, the deferral period ended for all non-acquired loans previously modified and payments have resumed
under the original terms. As of December 31, 2022, the Company’s loan portfolio included 49 non-acquired loans which
were previously modified under the loan modification program, totaling $78.4 million. Through the Teton Acquisition, the
Company acquired loans which were previously modified and are still in their deferral period. As of December 31, 2022,
there were 14 of these loans, totaling $3.3 million.
F-23
The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a
TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be
met in order to apply the relief. Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that
short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any
relief, are not to be considered TDRs. We believe our loan modification program meets that definition and have not
classified any of these modifications as a TDR as of December 31, 2022 and 2021. In accordance with that guidance, the
Company recognized interest income on all loans modified for temporary payment moratoriums, primarily for a period of
180 days or less.
All loans modified in response to COVID-19 are classified as performing and pass rated as of December 31, 2022.
These loans are included in the allowance for loan loss general reserve in accordance with ASC 450-20. Management has
increased our loan level reviews and portfolio monitoring to address the changing environment. Management believes the
diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.
Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of
December 31, 2022, no allowance for loan loss was deemed necessary on the accrued interest balances related to loan
modifications.
The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest
receivable, deferred fees, and unamortized premiums/(unaccreted discounts) which are not material) in loans past due as of
the dates noted (dollars in thousands):
December 31, 2022
30-59
Days
Past Due
60-89
Days
Past Due
90 or
More Days
Past Due
Total
Loans
Past Due
Total
Recorded
Investment
Current
Cash, Securities and Other
$
1,735 $
539 $
4 $
2,278 $ 163,392 $ 165,670
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
996
—
1,747
1,073
1,165
5,051
167
—
—
—
—
145
201
—
—
—
1,308
201
1,747
1,073
1,165
10,724
1,318
17,093
48,646
288,296
896,407
495,703
214,891
343,935
49,954
288,497
898,154
496,776
216,056
361,028
Total
$
11,767 $
11,430 $
1,668 $
24,865 $ 2,451,270 $ 2,476,135
December 31, 2021
30-59
Days
Past Due
60-89
Days
Past Due
90 or
More Days
Past Due
Total
Loans
Past Due
Total
Recorded
Investment
Current
Cash, Securities and Other
$
745 $
— $
6 $
751 $ 260,439 $ 261,190
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
454
2,758
1,449
—
1,419
748
—
—
—
2,548
—
—
2
—
—
—
—
2,200
456
2,758
1,449
2,548
1,419
2,948
34,302
175,958
579,423
480,074
211,007
200,636
34,758
178,716
580,872
482,622
212,426
203,584
Total
$
7,573 $
2,548 $
2,208 $
12,329 $ 1,941,839 $ 1,954,168
As of December 31, 2022 and 2021, the Company had one loan, totaling an immaterial amount, in the
Commercial and Industrial portfolio that was more than 90 days delinquent and accruing interest.
F-24
Non-Accrual Loans and Troubled Debt Restructurings
The following presents the recorded investment in non-accrual loans by class as of the dates noted (dollars in
thousands):
Cash, Securities and Other
Consumer and Other
Construction and Development
1-4 Family Residential
Owner Occupied CRE
Commercial and Industrial
Total
December 31,
2022
December 31,
2021
$
4 $
146
201
—
1,165
10,833
$
12,349 $
6
2
—
75
1,241
2,938
4,262
Non-accrual loans classified as TDR accounted for $3.1 million of the recorded investment as of December 31,
2022 and $4.3 million as of December 31, 2021. Non-accrual loans are classified as impaired loans and individually
evaluated for impairment.
The following presents a summary of the unpaid principal balance of loans classified as TDRs as of the dates
noted (dollars in thousands):
Accruing
Non-Owner Occupied CRE
Non-accrual
Cash, Securities, and Other
1-4 Family Residential
Owner Occupied CRE
Commercial and Industrial
Total
Allowance for loan losses associated with TDR
Net recorded investment
December 31,
2022
December 31,
2021
$
— $
4
—
1,165
1,951
3,120
—
$
3,120 $
55
6
75
1,241
2,938
4,315
(1,751)
2,564
As of December 31, 2022 and December 31, 2021, the Company had not committed any additional funds to a
borrower with a loan classified as a TDR.
The Company did not modify any loans resulting in TDR status during the year ended December 31, 2022. The
Company modified three loans resulting in TDR status during the year ended December 31, 2021. The first loan was a
small mortgage with a remaining balance of $0.1 million where the borrower was unable to make payments or obtain
additional financing to pay off the mortgage. As a result, we modified the loan at the maturity date with a one-year renewal
to allow the borrower time to seek a refinance. As of December 31, 2022, the loan has been paid in full as agreed in the
loan modification. The second and third loans modified are in relation to one borrower who has two loans, one Commercial
Real Estate Loan in the amount of $1.2 million, which is the space where the related business operates, and a Commercial
loan with a balance of $0.7 million. The borrower had experienced a reduction in cash flow through ongoing impact from
the pandemic and related shut downs and hiring shortages. As a result, the Company modified both loans allowing for a six
month interest only period to provide cash flow relief. The Company obtained a reduced term on the business loan as well
as additional collateral from the Borrower. All three of the loans modified during 2021 were sufficiently collateralized and
therefore did not require any specific reserve.
TDRs are reviewed individually for impairment and are included in the Company’s specific reserves in the
allowance for loan losses. If charged off, the amount of the charge off is included in the Company’s charge off factors,
which impact the Company’s reserves on non-impaired loans.
F-25
Impaired loans with a valuation
allowance:
Consumer and Other
Commercial and Industrial
Total
Impaired loans with no related
valuation allowance:
Cash, Securities, and Other
Construction and Development
1-4 Family Residential
Owner Occupied CRE
Commercial and Industrial
$
$
$
The following presents impaired loans by portfolio and related valuation allowance as of the periods presented (in
thousands):
December 31, 2022
December 31, 2021
Total
Recorded
Investment
Unpaid
Contractual
Principal
Balance
Allowance
for
Loan
Losses
Total
Recorded
Investment
Unpaid
Contractual
Principal
Balance
Allowance
for
Loan
Losses
— $
—
— $
— $
—
— $
— $
—
2 $
2 $
2,190
2,190
— $
2,192 $
2,192 $
2
1,751
1,753
—
—
—
—
—
—
—
2
—
1,751
—
—
4 $
4 $
— $
6 $
6 $
201
—
1,165
10,833
201
—
1,165
10,833
—
—
—
—
—
75
1,241
748
—
75
1,241
748
Total
$
12,203 $
12,203 $
— $
2,070 $
2,070 $
Total impaired loans:
Cash, Securities, and Other
$
4 $
4 $
— $
6 $
6 $
Consumer and Other
Construction and Development
Commercial and Industrial
1-4 Family Residential
Owner Occupied CRE
Total
—
201
10,833
—
1,165
—
201
10,833
—
1,165
—
—
—
—
—
2
—
2,938
75
1,241
2
—
2,938
75
1,241
$
12,203 $
12,203 $
— $
4,262 $
4,262 $
1,753
The recorded investment in loans in the previous tables excludes accrued interest, deferred fees, and unamortized
premiums/(unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-
accrual loans.
F-26
The following presents the average balance of impaired loans and interest income recognized on impaired loans
during the periods presented (dollars in thousands):
Impaired loans with a valuation allowance:
Cash, Securities, and Other
Consumer and Other
Commercial and Industrial
Total
Impaired loans with no related valuation allowance:
Cash, Securities, and Other
Construction and Development
Owner Occupied CRE
Commercial and Industrial
1-4 Family Residential
Total
Total impaired loans:
Cash, Securities, and Other
Consumer and Other
Construction and Development
Owner Occupied CRE
Commercial and Industrial
1-4 Family Residential
Total
December 31,
2022
2021
Average
Recorded
Investment
Interest
Income
Recognized
Average
Recorded
Investment
Interest
Income
Recognized
$
$
$
$
$
— $
— $
2 $
1
—
—
—
—
2,413
1 $
— $
2,415 $
4 $
— $
17 $
81
1,201
4,297
57
5,640 $
—
—
*
—
— $
—
248
205
15
485 $
4 $
— $
19 $
1
81
1,201
4,297
57
$
5,641 $
—
—
—
*
—
— $
—
—
248
2,618
15
2,900 $
—
—
21
21
—
—
51
262
—
313
—
—
—
51
283
—
334
_____________________________
(•)
The Company recognized an immaterial amount of interest income during the period.
F-27
Allowance for Loan Losses
Allocation of a portion of the allowance for loan losses to one category of loans does not preclude its availability
to absorb losses in other categories. The following presents the activity in the Company’s allowance for loan losses by
portfolio class for the periods presented (in thousands):
Cash,
Securities
and Other
Consumer
and Other
Construction
and
Development
1-4
Family
Residential
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Commercial
and
Industrial
Total
Changes in allowance for
loan losses for the year
ended December 31, 2022
Beginning balance
$ 1,598 $
266 $
1,092 $ 3,553 $ 2,952 $ 1,292 $
2,979 $ 13,732
(Recovery of)/
provision for loan
losses
Charge-offs
Recoveries
(399)
84
(1)
(262)
—
103
933
—
—
2,756
—
—
538
—
—
218
—
—
(448)
3,682
(71)
—
(334)
103
Ending balance
$ 1,198 $
191 $
2,025 $ 6,309 $ 3,490 $ 1,510 $
2,460 $ 17,183
Allowance for loan losses as
of December 31, 2022
allocated to loans evaluated
for impairment:
Individually
Collectively
$
— $
— $
— $
— $
— $ — $
— $
—
1,198
191
2,025
6,309
3,490
1,510
2,460
17,183
Ending balance
$ 1,198 $
191 $
2,025 $ 6,309 $ 3,490 $ 1,510 $
2,460 $ 17,183
Loans as of December 31,
2022, evaluated for
impairment:
Individually
Collectively
$
4 $
— $
201 $
— $
— $ 1,165 $ 10,833 $ 12,203
165,666
26,539
288,296
898,154
496,776
214,891
350,195
2,440,517
Measured at fair value
—
23,415
—
—
—
—
—
23,415
Ending balance
$ 165,670 $ 49,954 $ 288,497 $ 898,154 $ 496,776 $ 216,056 $ 361,028 $ 2,476,135
F-28
Cash,
Securities
and Other
Consumer
and Other
Construction
and
Development
1-4
Family
Residential
Non-Owner
Occupied
CRE
Owner
Occupied
CRE
Commercial
and
Industrial
Total
Changes in allowance for
loan losses for the year
ended December 31, 2021
Beginning balance
$ 2,439 $
140 $
932 $
3,233 $
2,004 $ 1,159 $
2,632 $ 12,539
Provision for/
(recovery of) loan
losses
Charge-offs
Recoveries
(841)
163
—
—
(44)
7
160
—
—
320
—
—
948
—
—
133
—
—
347
—
—
1,230
(44)
7
Ending balance
$ 1,598 $
266 $
1,092 $
3,553 $
2,952 $ 1,292 $
2,979 $ 13,732
Allowance for loan losses
as of December 31, 2021
allocated to loans evaluated
for impairment:
Individually
Collectively
$
— $
2 $
— $
— $
— $
— $
1,751 $
1,753
1,598
264
1,092
3,553
2,952
1,292
1,228
11,979
Ending balance
$ 1,598 $
266 $
1,092 $
3,553 $
2,952 $ 1,292 $
2,979 $ 13,732
Loans as of December 31,
2021, evaluated for
impairment:
Individually
Collectively
$
6 $
2 $
— $
75 $
— $ 1,241 $
2,938 $
4,262
261,184
34,756
178,716
580,797
482,622
211,185
200,646
1,949,906
Ending balance
$ 261,190 $ 34,758 $ 178,716 $ 580,872 $ 482,622 $ 212,426 $ 203,584 $ 1,954,168
The Company categorizes loans into risk categories based on relevant information about the ability of the
borrowers to service their debt such as: current financial information, historical payment experience, credit documentation,
public information, and current economic trends, among other factors. The Company analyzes loans individually by
classifying the loans by credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:
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
evident. Ability to meet current payment schedules may be questionable, even though interest and principal are still being
paid as agreed. The asset has potential weaknesses that may result in deteriorating repayment prospects if left uncorrected.
Loans in this risk grade are not considered adversely classified.
Substandard—Substandard loans are considered "classified" and are inadequately protected by the current net
worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified have a well-defined
weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that
the bank will sustain some loss if the deficiencies are not corrected. Loans in this category may be placed on non-accrual
status and may individually be evaluated for impairment if indicators of impairment exist.
Doubtful—Loans graded Doubtful are considered "classified" and have all the weaknesses inherent in those
classified as Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the
basis of currently known facts, conditions and values, highly questionable and improbable. However, the amount of
certainty of eventual loss is not known because of specific pending factors.
Loans accounted for under the fair value option are not rated.
F-29
Loans not meeting any of the three criteria above are considered to be pass-rated loans. The following presents, by
class and by credit quality indicator, the recorded investment in the Company’s loans as of the dates noted (dollars in
thousands):
December 31, 2022
Pass
Special
Mention
Substandard
Not Rated
Total
Cash, Securities and Other
$
165,666 $
— $
4 $
— $
165,670
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
26,539
288,296
898,154
496,776
214,891
347,803
—
—
—
—
—
2,392
—
201
—
—
1,165
10,833
23,415
—
—
—
—
—
49,954
288,497
898,154
496,776
216,056
361,028
Total
$
2,438,125 $
2,392 $
12,203 $
23,415 $
2,476,135
December 31, 2021
Pass
Special
Mention
Substandard
Not Rated
Total
Cash, Securities and Other
$
261,184 $
— $
6 $
— $
261,190
Consumer and Other
Construction and Development
1-4 Family Residential
Non-Owner Occupied CRE
Owner Occupied CRE
Commercial and Industrial
34,756
176,194
580,797
476,670
210,493
198,368
—
2,522
—
5,952
—
401
2
—
75
—
1,933
4,815
—
—
—
—
—
—
34,758
178,716
580,872
482,622
212,426
203,584
Total
$
1,938,462 $
8,875 $
6,831 $
— $
1,954,168
The Company had no loans graded doubtful as of the years ended December 31, 2022 and 2021.
NOTE 6 – PREMISES AND EQUIPMENT, NET
The following presents a summary of the cost and accumulated depreciation of premises and equipment as
December 31 (dollars in thousands):
Building and building improvements
Leasehold improvements, including artwork
Land
Equipment and software
Gross premise and equipment
Less: accumulated depreciation
Premises and equipment, net
2022
2021
$
12,190 $
12,879
4,980
5,815
35,864
(10,746)
12,190
11,464
4,980
6,144
34,778
(10,802)
$
25,118 $
23,976
During the year ended December 31, 2022, the Company retired an immaterial amount of equipment and software
for an immaterial loss.
During the year ended December 31, 2021, the Company acquired buildings and land associated with the Teton
Acquisition. These assets were recorded at their fair value on December 31, 2021 and the buildings will be depreciated
over their remaining useful lives.
F-30
Depreciation expense for premises and equipment for the years ended December 31, 2022 and 2021 totaled $1.8
million and $1.2 million, respectively.
NOTE 7 – GOODWILL AND OTHER INTANGIBLE ASSETS
The following presents changes in the carrying amount of goodwill as of the dates noted (dollars in thousands):
Beginning balance
Acquisition activity
Ending balance
December 31,
2022
December 31,
2021
$
$
30,588 $
(188)
30,400 $
24,191
6,397
30,588
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. In the first quarter of 2022, goodwill was adjusted by ($0.2) million as a result of
the measurement period adjustments. See Note 2 – Acquisitions for more information.
Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.
The goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including
the existing goodwill, and estimating the fair value of the reporting unit. If the fair value is less than its carrying amount,
goodwill impairment is recognized equal to the difference between the fair value and its carrying amount, not to exceed its
carrying amount. As of December 31, 2022, there has not been any impairment of goodwill identified or recorded.
Goodwill totaled $30.4 million and $30.6 million as of December 31, 2022 and 2021, respectively.
The following presents the Company’s intangible assets and related accumulated amortization as of the dates
noted (dollars in thousands):
Other intangibles
Less: accumulated amortization on other intangibles
Other intangible assets, net
2022
2021
$
$
5,926 $
(4,222)
1,704 $
5,857
(4,543)
1,314
Amortization expense on definite-lived customer relationship and non-compete intangible assets was $0.3 million
and an immaterial amount for the years ended December 31, 2022 and 2021, respectively. The following presents the
expected amortization expense on definite-lived intangible assets existing as of December 31, 2022 (dollars in thousands):
Year
2023
2024
2025
2026
2027
Thereafter
Total
NOTE 8 - LEASES
$
Expense
250
226
206
193
183
646
$
1,704
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. In accordance
with ASC 842, operating leases are required to be recognized as a right-of-use asset with a corresponding lease liability.
F-31
The Company elected to not include short-term leases with initial terms of twelve months or less, on the
Consolidated Balance Sheets. The following table presents the classification of the right-of-use assets and corresponding
liabilities within the Consolidated Balance Sheets, as of the dates noted (dollars in thousands):
Lease Right-of-Use Assets
Classification
Operating lease right-of-use assets
Other assets
Lease Liabilities
Operating lease liabilities
Classification
Other liabilities
December 31,
2022
December 31,
2021
$
8,602 $
10,720
$
11,163 $
13,863
The Company’s operating lease agreements typically include an option to renew the lease at the Company’s
discretion. To the extent the Company is reasonably certain it will exercise the renewal option at the inception of the lease,
the Company will include the extended term in the calculation of the right-of-use asset and lease liability. ASC 842
requires the use of the rate implicit in the lease when it is readily determinable. As this rate is typically not readily
determinable, at the inception of the lease, the Company uses its collateralized incremental borrowing rate over a similar
term. The amount of the right-of-use asset and lease liability are impacted by the discount rate used to calculate the present
value of the minimum lease payments over the term of the lease.
Weighted-Average Remaining Lease Term
Operating leases
Weighted-Average Discount Rate
Operating leases
December 31,
2022
December 31,
2021
4.85 years
5.26 years
2.63%
2.67%
The Company’s operating leases contain fixed and variable lease components and it has elected to account for all
classes of underlying assets as a single lease component. Variable lease costs primarily represent common area
maintenance and parking. The Company recognized lease costs in Occupancy and equipment expense in the accompanying
Consolidated Statements of Income. The following represents the Company’s net lease costs during the periods presented
(dollars in thousands):
Lease Costs
Operating lease cost
Variable lease cost
Lease costs, net
Year Ended December 31,
2022
2021
$
$
3,151 $
2,104
5,255 $
3,040
1,756
4,796
F-32
The following presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each
of the next five years and total amounts thereafter (dollars in thousands):
Year Ending December 31,
Operating Leases
2023
2024
2025
2026
2027
Thereafter
Total future minimum lease payments
Less: imputed interest
$
3,228
3,083
2,141
810
734
1,752
11,748
(585)
Present value of net future minimum lease payments
$
11,163
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. During the year ended December 31, 2022, the Company recognized $0.3 million of lease income.
The following presents a maturity analysis of the Company’s lease payments to be received on an annual basis for
each of the next five years and total amounts thereafter (dollars in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total undiscounted operating lease income
NOTE 9 - DEPOSITS
Undiscounted
Operating Lease
Income
$
$
242
199
—
—
—
—
441
The following presents the Company’s interest-bearing deposits as of the dates noted (dollars in thousands):
Money market deposit accounts
Time deposits
Negotiable order of withdrawal accounts
Savings accounts
Total interest-bearing deposits
Estimated aggregate time deposits of $250 or greater
December 31,
2022
December 31,
2021
$
1,336,092 $
1,056,669
224,090
234,778
27,177
170,491
309,940
32,299
$
$
1,822,137 $
1,569,399
77,972 $
75,747
Deposits acquired through the Teton acquisition closed on December 31, 2021 totaled $379.2 million. See Note 2
– Acquisitions for additional information.
Overdraft balances classified as loans totaled $0.2 million and an immaterial amount as of December 31, 2022 and
2021, respectively.
F-33
The following presents the scheduled maturities of all time deposits for the next five years ending December 31
(dollars in thousands):
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total
NOTE 10 - BORROWINGS
Time Deposits
$
181,036
32,892
2,998
2,121
5,043
—
$
224,090
The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and
securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of
December 31, 2022 and December 31, 2021 amounted to $1.26 billion and $771.4 million, respectively. Based on this
collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $751.2 million as
of December 31, 2022. Each advance is payable at its maturity date.
The Company had the following required maturities on FHLB borrowings as of the dates noted (dollars in
thousands):
Maturity Date
April 22, 2022
January 1, 2023 (1)
May 5, 2023
Rate %
December 31,
2022
December 31,
2021
0.37 $
— $
4.48
0.76
131,498
10,000
141,498 $
5,000
—
10,000
15,000
Total
(1) The borrowing has a one day, automatic daily renewal maturity date, subject to FHLB discretion not to renew.
$
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 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, 2022 and 2021, the Company had outstanding
$5.4 million and $23.6 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 two unsecured federal funds lines of credit up to $10.0 million
and $19.0 million. As of December 31, 2022 and 2021, there were no amounts outstanding on any of the federal funds
lines.
On December 5, 2022, the Company completed the issuance and sale of subordinated notes (the "December 2022
Sub Notes") totaling $20.0 million in aggregate principal amount. The issuance included $0.5 million of issuance costs
resulting in a net balance of $19.5 million as of December 31, 2022 included in the Subordinated notes line of the
Consolidated Balance Sheets. The December 2022 Sub Notes accrue interest at a rate of 7.00% per annum until December
15, 2027, at which time the rate will reset quarterly to an interest rate per annum equal to three-month term SOFR, or an
alternative rate determined in accordance with the terms of the December 2022 Sub Notes, plus 328 basis points, payable
quarterly in arrears; mature on December 15, 2032; are redeemable at the option of the Company on or after December 15,
2027.
On January 1, 2022, the Company redeemed the subordinated notes due December 31, 2026 in the amount of
$6.6 million, which were redeemable on or after January 1, 2022. The redemption price was equal to 100% of the principal
amount being redeemed, plus accrued and unpaid interest up to, but excluding the date of redemption.
F-34
On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the Notes”) totaling
$15.0 million in aggregate principal amount and including $0.3 million of issuance costs. As of December 31, 2022, $14.8
million was included in the Subordinated notes line of the Consolidated Balance Sheets. The Notes accrue interest at a rate
of 3.25% per annum until September 1, 2026, at which time the rate will adjust each quarter to the then current three-month
SOFR, or an alternative rate determined in accordance with the terms of the Notes, plus 258 basis points; mature on
September 1, 2031; are redeemable at the option of the Company on or after September 1, 2026; and pay interest quarterly.
On November 25, 2020, the Company completed the issuance and sale of subordinated notes (the "November
2020 Sub Notes") totaling $10.0 million in aggregate principal amount and including $0.2 million of issuance costs. As of
December 31, 2022, $9.9 million was included in the Subordinated notes line of the Consolidated Balance Sheets. The
November 2020 Sub Notes accrue interest at a rate of 4.25% per annum until December 1, 2025, at which time the rate
will adjust each quarter to the then current three-month term SOFR, or an alternative rate determined in accordance with
the terms of the November 2020 Sub Notes, plus 402 basis points; mature on December 1, 2030; are redeemable at the
option of the Company on or after December 1, 2025; and pay interest semi-annually prior to December 1, 2025 and
quarterly after December 1, 2025.
On March 17, 2020, the Company completed the issuance and sale of subordinated notes (the "March 2020 Sub
Notes") totaling $8.0 million in aggregate principal amount and including $0.1 million of issuance costs. As of
December 31, 2022, $7.9 million was included in the Subordinated notes line of the Consolidated Balance Sheets. The
March 2020 Sub Notes accrue interest at a rate of 5.125% per annum until March 31, 2025, at which time the rate will
adjust each quarter to the then current three-month LIBOR, or an alternative rate determined in accordance with the terms
of the March 2020 Sub Notes, plus 450 basis points; mature on March 31, 2030; are redeemable at the option of the
Company on or after March 31, 2025; and pay interest quarterly.
For the years ended December 31, 2022 and 2021, the Company recorded $1.4 million and $1.5 million,
respectively, of interest expense related to the collective subordinated notes. The subordinated notes are included in Tier 2
capital under current regulatory guidelines and interpretations, subject to limitations.
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 22 – Regulatory Capital Matters for additional information. As of December 31, 2022 and 2021, the Company was in
compliance with the covenant requirements.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company is party to credit-related financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its clients. These financial instruments include commitments to extend credit. Such
commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the
Consolidated Balance Sheets. Commitments may expire without being utilized. The Company’s exposure to loan loss is
represented by the contractual amount of these commitments, although material losses are not anticipated. The Company
follows the same credit policies in making commitments as it does for on-balance sheet instruments.
The following presents the Company’s financial instruments whose contract amounts represent credit risk, as of
the dates noted (dollars in thousands):
Unused lines of credit
Standby letters of credit
Commitments to make loans to sell
Commitments to make loans
December 31, 2022
December 31, 2021
Fixed Rate
Variable Rate
Fixed Rate
Variable Rate
$
211,285 $
601,202 $
136,289 $
442,035
8,571
13,553
20,895
16,737
—
81,663
2,420
60,529
16,256
20,940
—
14,920
Unused lines of credit are agreements to lend to a client as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Several of the commitments may expire without being drawn upon. Therefore, the total
commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is
deemed necessary by the Company, is based on management’s credit evaluation of the client.
F-35
Unused lines of credit under commercial lines of credit, revolving credit lines, and overdraft protection
agreements are commitments for possible future extensions of credit to existing clients. These lines of credit are
uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to
which the Company is committed.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a
client’s obligation to a third party. 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. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. The Company holds
collateral supporting those commitments if deemed necessary.
Commitments to make loans to sell are agreements to lend to a client which would then be sold to an investor in
the secondary market for which the interest rate has been locked with the client, provided there is no violation of any
condition within the contract with either party. Commitments to make loans to sell have fixed interest rates. Since
commitments may expire without being extended, total commitment amounts may not necessarily represent cash
requirements.
Commitments to make loans are agreements to lend to a client, provided there is no violation of any condition
within the contract. Commitments to make loans generally have fixed expiration dates or other termination clauses. Since
commitments may expire without being extended, total commitment amounts may not necessarily represent cash
requirements.
Litigation, Claims and Settlements
The Company is, from time to time, involved in various legal actions arising in the normal course of business.
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.
NOTE 12 – SHAREHOLDERS’ EQUITY
Common Stock
The Company’s common stock has no par value and each holder of common stock is entitled to one vote for each
share (though certain voting restrictions may exist on non-vested restricted stock) held.
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 offering, any
combination of common stock, preferred stock, debt securities, warrants, depository shares and units, up to a maximum
aggregate offer price of $100 million. During the year ended December 31, 2022, the Company sold no shares of common
stock.
On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to
400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 Repurchase
Plan") and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the
Company’s 2020 Repurchase Plan. The Company may have repurchased shares in privately negotiated transactions, in the
open market, including pursuant to any trading plan that might be adopted in accordance with Rule 10b5-1 promulgated by
the SEC, or otherwise in a manner that complies with applicable federal securities laws. The 2020 Repurchase Plan did not
obligate the Company to acquire a specific dollar amount or number of shares and it may have extended, modified or
discontinued at any time without notice. The 2020 Repurchase Plan expired in November 2021. During the year ended
December 31, 2021, the Company did not repurchase any shares under the 2020 Repurchase plan.
On December 31, 2021, the Company closed on the Merger Agreement with Teton. As part of the Merger
Agreement, the Company issued 1,337,791 shares of common stock to Teton shareholders. For additional information, see
Note 2 – Acquisitions for additional information.
F-36
Restricted Stock Awards
In 2017, the Company issued 105,264 shares of common stock ("Restricted Stock Awards") with a value of $3.0
million to the sole member of EMC Holdings, LLC ("EMC"), subject to forfeiture based on his continued employment with
the Company. Half of the Restricted Stock Awards ($1.5 million or 52,632 shares) vested ratably over five years. These
awards fully vested during the year ended Decembere 31, 2022. The remaining $1.5 million, or 52,632 shares, were able to
be earned based on performance of the mortgage division of the Company. The performance based awards fully vested
during the year ended December 31, 2020.
As of December 31, 2022 and 2021, the Restricted Stock Awards have a weighted-average grant date fair value of
$28.50 per share. During the years ended December 31, 2022 and 2021, the Company recognized compensation expense of
$0.2 million and $0.3 million, respectively, for the Restricted Stock Awards. During the years ended December 31, 2022
and 2021, 10,527 and 10,526 shares, respectively, of the restricted stock awards vested. As of December 31, 2022, all
restricted stock awards were fully vested and no unrecognized compensation expense remains.
Stock-Based Compensation Plans
The 2008 Stock Incentive Plan (“the 2008 Plan”) was frozen in connection with the adoption of the 2016 Plan and
no new awards may be granted under the 2008 Plan. As of December 31, 2022, there were a total of 329,035 shares
available for issuance under the First Western Financial, Inc. 2016 Omnibus Incentive Plan ("the 2016 Plan"). If the
Awards outstanding under the 2008 Plan or the 2016 Plan are forfeited, cancelled or terminated with no consideration paid
to the Company, those amounts will increase the number of shares eligible to be granted under the 2016 Plan.
Stock Options
The Company did not grant any stock options during the years ended December 31, 2022 and 2021.
During the year ended December 31, 2022, the Company recognized no stock based compensation expense
associated with stock options. During the year ended December 31, 2021, the Company recognized an immaterial amount
of stock based compensation expense associated with stock options. As of December 31, 2022, the Company has no
unrecognized stock-based compensation expense related to stock options.
The following presents activity for nonqualified stock options for the year ended December 31, 2022:
Outstanding as of December 31, 2021
Exercised
Forfeited or expired
Outstanding as of December 31, 2022
Options fully vested/exercisable as of December 31, 2022
Number
of
Options
308,574 $
(8,309)
(116,100)
184,165
184,165
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
29.21
21.50
40.00
22.76
22.76
2.1
2.1
(1)
(1)
_____________________________
(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, 2022 and December 31, 2021, there were 184,165 and 308,574 options, respectively, that
were exercisable. Exercise prices are between $20.00 and $27.00 per share, and the options are exercisable for a period of
ten years from the original grant date and expire on various dates between 2023 and 2026.
Restricted Stock Units
Pursuant to the 2016 Plan, the Company can grant associates and non-associate directors long-term cash and
stock-based compensation. Historically, the Company has granted certain associates restricted stock units which are earned
F-37
over time or based on various performance measures and convert to common stock upon vesting, which are summarized
here and expanded further below:
The following presents the activity for the Time Vesting Units, the Financial Performance Units and the Market
Performance Units during the year ended December 31, 2022:
Outstanding as of December 31, 2021
Granted
Vested
Forfeited
Outstanding as of December 31, 2022
Time
Vesting
Units
Financial
Performance
Units
Market
Performance
Units
249,821
157,682
(83,918)
(37,590)
285,995
183,483
92,697
(12,100)
(28,568)
235,512
13,746
—
—
(13,746)
—
During the year ended December 31, 2022, the Company issued 67,860 shares of common stock upon the
settlement of Restricted Stock Units. The remaining 28,158 shares were surrendered with a combined market value at the
dates of settlement of $0.9 million to cover employee withholding taxes. During the year ended December 31, 2021, the
Company issued 58,884 shares of common stock upon the settlement of Restricted Stock Units. The remaining 20,693
shares were surrendered with a combined market value at the dates of settlement of $0.5 million to cover employee
withholding taxes.
Time Vesting Units
Time Vesting Units are granted to full-time associates and board members at the date approved by the Company’s
board of directors. The Company granted 157,682 Time Vesting Units with a five-year service period during the year
ended December 31, 2022, that vest in equal installments of 20% on the anniversary of the grant date, assuming continuous
employment through the scheduled vesting dates. During both the years ended December 31, 2022 and 2021, the Company
recognized compensation expense of $1.7 million for the Time Vesting Units. As of December 31, 2022, there was $5.8
million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over
a weighted-average period of 1.9 years.
Financial Performance Units
Financial Performance Units are granted to certain key associates and are earned based on the Company achieving
various financial performance metrics. If the Company achieves the financial metrics, which include various thresholds
from 0% up to 150%, then the Financial Performance Units will have a subsequent vesting period.
The following presents the Company’s existing Financial Performance Units as of December 31, 2022 (dollars in
thousands, except share amounts):
Grant Period
May 1, 2019 through April 30,
2020
May 1, 2020 through December
31, 2020, excluding November 18,
2020
On November 18, 2020
May 3, 2021 through August 11,
2021
May 2, 2022 through November 2,
2022, excluding August 4, 2022(2)
On August 4, 2022 (3)
Maximum
Issuable
Shares at
Current
Threshold
Threshold
Accrual
Unrecognized
Compensation
Expense
Weighted-
Average Life (1)
Financial Metric
End Date
Vesting
Requirement End
Date
150 %
69,306
$
145
1.0 years December 31, 2021 December 31, 2023
150 %
74,364
115 %
24,161
150 %
53,882
— %
—
100 %
18,181
267
238
604
—
680
2.0 years December 31, 2022 December 31, 2023
1.9 years December 31, 2022
50% November 18,
2023 and 2025
3.0 years December 31, 2023 December 31, 2025
4.0 years December 31, 2024 December 31, 2026
4.0 years December 31, 2024 December 31, 2026
F-38
_____________________________
(1)
(2)
(3)
Represents the expected unrecognized stock-based compensation expense recognition period.
As the performance threshold is not expected to be met in future performance periods, there is no related unrecognized compensation as of
December 31, 2022.
Performance threshold was not met for the year ended December 31, 2022. The 100% threshold is expected to be met for the years ended December
31, 2023 and 2024.
The following presents the Company’s Financial Performance Units activity for the years noted December 31
(dollars in thousands):
Units Granted
Compensation Expense Recognized
2022
2021
2022
2021
—
—
Grant Period
Prior to May 1, 2019
May 1, 2019 through April 30, 2020
May 1, 2020 through December 31, 2020, excluding
November 18, 2020
On November 18, 2020
May 3, 2021 through August 11, 2021
May 2, 2022 through November 2, 2022, excluding
August 4, 2022(1)
On August 4, 2022(2)
_____________________________
(1) Performance threshold was not met for the year ended December 31, 2022; therefore, no compensation expense was recognized as of the year ended
—
—
41,743
— $
122
208
125
221
168
41
273
— $
—
110
216
65,425
27,272
—
—
—
47
—
—
—
—
December 31, 2022.
(2) Performance threshold was not met for the year ended December 31, 2022. The 100% threshold is expected to be met for the years ended December
31, 2023 & 2024.
Market Performance Units
Market Performance Units were granted to certain key associates and are earned based on growth in the value of
the Company’s common stock, and were dependent on the Company completing an initial public offering of stock during a
defined period of time. On July 23, 2018, the Company completed its initial public offering and the Market Performance
Units performance condition was met. Subsequent to the performance condition there was also a market condition as a
vesting requirement for the Market Performance Units. If the Company's common stock was 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, which ended on June 30, 2022.
The Company's common stock did not trade at or above the required prices over the performance period and as a result, no
Market Performance Units were eligible to be earned.
During the year ended December 31, 2022, the Company recognized an immaterial amount of compensation
expense for the Market Performance Units. During the year ended December 31, 2021, the Company recognized an
immaterial amount of compensation expense for the Market Performance Units. As of the end of the subsequent service
period, or June 30, 2022, the Company had no remaining unrecognized compensation expense related to the Market
Performance Units.
F-39
NOTE 13 - EARNINGS PER COMMON SHARE
The following presents the calculation of basic and diluted earnings per common share for the periods indicated
(dollars in thousands, except share and per share amounts):
Earnings per common share - Basic
Numerator:
Net income available for common shareholders
$
21,698 $
20,610
Year Ended December 31,
2022
2021
Denominator:
Basic weighted average shares
Earnings per common share - basic
Earnings per common share - Diluted
Numerator:
9,461,349
7,980,491
$
2.29 $
2.58
Net income available for common shareholders
$
21,698 $
20,610
Denominator:
Basic weighted average shares
Diluted effect of common stock equivalents:
Stock options
Time Vesting Units
Financial Performance Units
Market Performance Units
Total diluted effect of common stock equivalents
Diluted weighted average shares
Earnings per common share - diluted
9,461,349
7,980,491
42,944
117,774
88,143
3,413
252,274
9,713,623
30,661
139,829
70,437
13,760
254,687
8,235,178
$
2.23 $
2.50
Diluted earnings per share was computed without consideration to potentially dilutive instruments as their
inclusion would have been anti-dilutive.
The following presents potentially dilutive securities excluded from the diluted earnings per share calculation
during the periods presented:
Stock options
Time Vesting Units
Financial Performance Units
Restricted Stock Awards
Total potentially dilutive securities
Year Ended December 31,
2022
2021
—
86,145
23,553
—
168,872
996
32,713
7,895
109,698
210,476
F-40
NOTE 14 - INCOME TAXES
The following presents the components of the Company’s income tax expense as of December 31 (dollars in
thousands):
Current:
Federal
State and local
Total current tax expense
Deferred:
Federal
State and local
Valuation allowance
Total deferred tax expense (benefit)
Income tax expense
2022
2021
$
5,637 $
936
6,573
536
(55)
76
557
$
7,130 $
6,228
1,110
7,338
(734)
66
—
(668)
6,670
The following is a reconciliation of income taxes reflected on the Consolidated Statements of Income for the years
ended December 31, 2022 and 2021, with income tax expense computed by applying the United States federal income tax
rate of 21% to income before income taxes (dollars in thousands):
Income tax expense computed at 21% statutory rate
Differences:
Permanent differences
State taxes, net of federal expense
LIHTC investment tax credit
LIHTC investment proportional amortization
Valuation allowance
Other, net
Income tax expense
2022
2021
$
6,054 $
5,729
101
1,005
(404)
378
76
(80)
$
7,130 $
169
1,018
(386)
539
—
(399)
6,670
F-41
The following presents the principal components of the Company’s deferred tax items as of December 31 (dollars
in thousands):
Deferred tax assets:
Net operating loss carryforwards
Allowance for loan losses
Acquired loans fair market value adjustments
Assets acquired at fair value
Loans accounted for under the fair value option
Deferred rent
Stock-based compensation
Provision on other real estate owned
Other intangible assets
Unrealized losses on securities
Accrued bonuses
Loan fees
Accrued expenses
Other
Total deferred tax assets
Deferred tax liabilities:
Goodwill
Depreciation
Unrealized gain on securities
Loan fees
Acquired loans fair market value adjustments
Other
Total deferred tax liabilities
Net operating loss valuation allowance
Net deferred tax asset
2022
2021
$
472 $
4,165
826
—
146
621
395
3,385
976
226
—
753
1,705
1,800
—
254
495
—
459
—
1,574
10,717
(1,087)
(1,864)
—
—
(215)
(189)
(3,355)
(448)
$
6,914 $
463
279
—
868
—
821
382
10,348
(1,137)
(1,636)
(73)
(155)
—
(130)
(3,131)
(372)
6,845
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, 2022 and December 31, 2021, the Company had $5.5 million of California NOLs
available for utilization. For taxable years 2020, 2021, and 2022, California has suspended the NOL carryover deduction.
On February 9, 2022, Senate Bill 113 was signed to reinstate the NOL deduction for businesses and individuals that have
$1 million or more of net income subject to tax in California for tax years beginning January 1, 2022. Both corporations
and individual tax payers may continue to compute and carryover an NOL during the suspension period. Different rules
apply depending on the amount of income per year. The suspension does not apply to corporate tax payers if their income
subject to California taxation is less than $1 million. During 2020, as a result of this tax legislation and certain divestitures
in California, the Company was uncertain as to the probability of realizing the full NOL. As such, the Company recorded a
valuation allowance related to the California NOLs. As of December 31, 2022, $5.2 million is recorded as a valuation
allowance, 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.
The Company and its subsidiaries file tax returns for the United States and for multiple states and localities. The
United States federal income tax returns of the Company are eligible to be examined for the years 2019 and forward. There
are no federal or state tax examinations currently in progress.
F-42
NOTE 15 – EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan, which is a defined contribution plan, in which substantially all associates
are eligible to participate in and associates may contribute up to 100% of their compensation subject to certain limits based
on federal tax laws. The Company may elect to make matching contributions as defined by the plan. For the years ended
December 31, 2022 and 2021, the Company expensed matching contributions to the plan totaling $1.0 million. For the
years ended December 31, 2022 and 2021, the Company incurred $0.1 million 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, 2022 and December 31, 2021, there were no delinquent or non-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. The following presents a summary of related-party loan activity as of the
dates noted (dollars in thousands):
Balance, beginning of year
Funded loans
Payments collected
Balance, end of period
December 31, 2022
December 31, 2021
$
$
12,833 $
15,079
(11,053)
16,859 $
14,321
11,294
(12,782)
12,833
Deposits from related parties held by the Bank as of December 31, 2022 and December 31, 2021 totaled $36.9
million and $51.0 million, respectively.
The Company leases office spaces from entities controlled by one of the Company’s board members. During each
of the years ended December 31, 2022 and 2021, the Company incurred $0.2 million of expense related to these leases.
The Company earned trust and investment management fees of $0.1 million from related parties during each of
the years ended December 31, 2022 and 2021. Assets under management for those related parties totaled $123.5 million
and $103.1 million as of December 31, 2022 and 2021, respectively.
NOTE 17 - FAIR VALUE
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1:
Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to
access as of the measurement date.
Level 2:
Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data.
Level 3:
Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
Recurring Fair Value
Available-for-sale securities: The fair values for available-for-sale investment securities are determined by quoted
market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based
F-43
on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are
not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Equity Securities: Fair value of equity securities represents the market value of mutual funds based on quoted
market prices (Level 1) and the value of stock held in other companies, which is based on recent market transactions or
quoted rates that are not actively traded (Level 2).
Equity Warrants: Fair value of equity warrants of private companies are priced using a Black-Scholes option
pricing model to estimate the fair value by using strike prices, option expiration dates, risk-free interest rates, and option
volatility assumptions (Level 3).
Guarantee Asset and Liability: The guarantee asset represents the fair value of the consideration received in
exchange for the credit enhancement fee. The guarantee liability represents a financial guarantee to cover the second layer
of any losses on loans sold to FHLB under the MPF 125 loan sales agreement. 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.
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).
Loans Held for Investment: The fair value of loans held for investment are typically determined based on
discounted cash flow analysis using market-based interest rate spreads. Discounted cash flow analysis are adjusted, as
appropriate, to reflect current market conditions and borrower specific credit risk. Due to the nature of the valuation inputs,
loans held for investment are classified within Level 3 of the valuation hierarchy.
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.
Loans Held for Sale: The fair value of loans held for sale is determined using actual quoted commitments from
third party investors resulting in a Level 1 classification.
The following presents assets and liabilities measured on a recurring basis as of the dates noted (dollars in
thousands):
December 31, 2022
Mortgage loans held for sale
Loans held for sale
Loans held at fair value
Forward commitments and FSC
Equity securities
Guarantee asset
IRLC, net
Equity warrants
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Reported
Balance
— $
8,839 $
1,965 $
— $
— $
627 $
— $
— $
— $
— $
— $
46 $
122 $
— $
— $
— $
— $
— $
8,839
1,965
23,321 $
23,321
— $
— $
143 $
229 $
825 $
46
749
143
229
825
$
$
$
$
$
$
$
$
F-44
December 31, 2021
Investment securities available-for-sale:
U.S. Treasury debt
U.S. Government Agency
Corporate bonds
GNMA mortgage-backed securities - residential
FNMA mortgage-backed securities - residential
Government CMO and MBS
Corporate CMO and MBS
Total securities available-for-sale
Mortgage loans held for sale
Forward commitments and FSC
Equity securities
Guarantee asset
IRLC, net
Equity warrants
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Reported
Balance
$
247 $
— $
— $
—
—
—
—
—
—
247 $
— $
— $
709 $
— $
— $
— $
3,522
6,212
26,650
14,443
878
1,497
53,202 $
30,620 $
(65) $
489 $
— $
— $
— $
—
2,113
—
—
—
—
2,113 $
— $
(9) $
— $
237 $
1,473 $
160 $
$
$
$
$
$
$
$
247
3,522
8,325
26,650
14,443
878
1,497
55,562
30,620
(74)
1,198
237
1,473
160
There were no transfers between levels during the year ended December 31, 2022 or 2021. On April 1, 2022, the
Company elected to transfer all securities classified as available-for-sale to held-to-maturity and are now carried at
amortized cost. See Note 3 - Investment Securities for more information.
As of December 31, 2021, U.S. Treasury debt was reported at fair value utilizing Level 1 inputs. Three Corporate
bonds were reported at fair value utilizing Level 3 inputs. The remaining portfolio of securities were reported at fair value
with Level 2 inputs provided by a pricing service. The majority of the securities had credit support provided by the Federal
Home Loan Mortgage Corporation, GNMA, and FNMA. Factors used to value the securities by the pricing service include:
benchmark yields, reported trades, interest spreads, prepayments, and other market research. In addition, ratings and
collateral quality were considered.
As of December 31, 2022, equity securities, equity warrants, IRLC, and guarantee assets have been recorded at
fair value within the Other assets line item in the Consolidated Balance Sheets. All changes are recorded in Non-interest
income in the Consolidated Statements of Income.
Fair Value Option
The Company has elected to account for certain purchased whole loans held for investment under the fair value
option in order to align the accounting presentation with the Company's viewpoint of the economics of the loans. Interest
income on loans held for investment accounted for under the fair value option is recognized within Interest and dividend
income in the accompanying Consolidated Statements of Income. Not electing fair value generally results in a larger
discount being recorded on the date of the loan purchase. The discount is subsequently accreted into interest income over
the underlying loan's remaining term using the effective interest method. Additionally, management has elected the fair
value option for mortgage loans originated and held for sale and loans held for sale.
As of December 31, 2022, the Company reclassified $2.0 million of loans held for investment to loans held for
sale. The transfer occurred at the point in time the Company decided to sell the loan and received a commitment from third
party investors to purchase the loan.
There were no loans accounted for under the fair value option that were 90 days or more past due and still
accruing interest as of December 31, 2022 or December 31, 2021. As of December 31, 2022, there were 145 loans, totaling
$0.1 million, accounted for under the fair value option that were on nonaccrual. As of December 31, 2021, there were no
loans accounted for under the fair value option that were on nonaccrual.
F-45
The following provides more information about the fair value carrying amount and unpaid principal outstanding
of loans accounted for under the fair value option as of the dates noted (dollars in thousands):
Total Loans
December 31, 2022
Non Accruals
Fair Value
Carrying
Amount
Unpaid
Principal
Balance
Difference
Fair Value
Carrying
Amount
Unpaid
Principal
Balance
Difference
90 Days or More Past Due
Fair
Value
Carrying
Amount
Unpaid
Principal
Balance
Difference
Mortgage loans held
for sale
$ 8,839 $ 8,750 $
89 $ — $ — $ — $ — $ — $ —
Loans held for sale
1,965
1,984
(19)
—
— $ —
—
—
—
Loans held for
investment
23,321
23,415
(94)
139
140
(1)
139
140
$ 34,125 $ 34,149 $
(24) $
139 $ 140 $
(1) $
139 $ 140 $
(1)
(1)
Total Loans
December 31, 2021
Non Accruals
90 Days or More Past Due
Fair Value
Carrying
Amount
Unpaid
Principal
Balance Difference
Fair Value
Carrying
Amount
Unpaid
Principal
Balance Difference
Fair Value
Carrying
Amount
Unpaid
Principal
Balance Difference
$ 30,620 $ 29,857 $
763 $ — $ — $ — $ — $ — $ —
—
—
—
—
—
—
—
—
—
$ 30,620 $ 29,857 $
763 $ — $ — $ — $ — $ — $ —
Mortgage loans held
for sale
Loans held for
investment
The following presents the changes in fair value of loans accounted for under the fair value option as of the dates
noted (dollars in thousands):
Year Ended December 31,
2022
2021
Mortgage loans held for sale
$
Loans held for sale
Loans held for investment
$
(673) $
(20)
(94)
(787) $
4,712
—
—
4,712
The following summarizes the activity pertaining to loans accounted for under the fair value option as of the dates
noted (dollars in thousands):
F-46
Mortgage loans held for sale
2022
2021
Balance at beginning of period
$
30,620
$
161,843
Year Ended
December 31,
Loans originated
Loans acquired
Fair value changes
Sales
Settlements
439,682
1,425,713
—
(673)
840
(4,712)
(460,514)
(1,548,405)
(276)
(4,659)
30,620
Balance at end of period
$
8,839
$
Year Ended
December 31,
Loans held for sale
2022
2021
Balance at beginning of period
Loans transferred from held for
investment
Fair value changes
$
—
$
1,985
(20)
Balance at end of period
$
1,965
$
Year Ended
December 31,
Loans held for investment
2022
2021
Balance at beginning of period
—
$
Loans acquired
Fair value changes
Settlements
35,616
(94)
(12,201)
Balance at end of period
$
23,321
$
Nonrecurring Fair Value
—
—
—
—
—
—
—
—
—
Other Real Estate Owned ("OREO"): 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. OREO
is evaluated annually for additional impairment and adjusted accordingly.
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is
generally based on recent appraisals. 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.
F-47
Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers
(for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses
have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches
utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as
recent market data or industry-wide statistics.
The following presents assets measured on a nonrecurring basis as of the dates noted (dollars in thousands):
December 31, 2021
Impaired loans(1):
Quoted
Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Reported
Balance
Commercial and Industrial
$
— $
— $
439 $
439
_____________________________
(1)
One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.
The sales comparison approach was utilized for estimating the fair value of non-recurring assets. There were no
assets measured on a nonrecurring basis for the year ended December 31, 2022.
During the year ended December 31, 2022, the Company recorded $0.4 million of OREO as a result of obtaining
physical possession of foreclosed property as partial consideration for amounts owed on an impaired loan. The Company
sold the property during the year ended December 31, 2022, resulting in an immaterial gain. As of December 31, 2022 and
December 31, 2021, the Company did not own any OREO properties.
As of December 31, 2021, total impaired loans measured for impairment using the fair value of the collateral
dependent loans had carrying values of $2.2 million with valuation allowances of $1.8 million and were classified as Level
3.
Impaired loans accounted for no specific reserves as of December 31, 2022 and $1.8 million as of December 31,
2021. The Company did not have any charge offs during the year ended December 31, 2022 from the specific reserve. The
Company charged off an immaterial amount during the year ended December 31, 2021 from the specific reserve.
Level 3 Analysis
The following presents a reconciliation for Level 3 instruments measured at fair value on a recurring basis as of
the dates noted (dollars in thousands):
Year Ended December 31, 2022
Corporate
Bonds
Loans Held at
Fair Value
FSC
Guarantee
Asset
IRLC
Equity
Warrants
Beginning balance
$
2,113 $
— $
(9) $
237 $
1,473 $
—
1
(75)
—
—
(20)
143 $
3,213
(5,048)
591
—
—
—
229 $
825
160
344
—
321
—
—
—
Acquisitions
Originations
Gains (losses) in net income, net
Unrealized gains, net
Settlements
Ending balance
Transfer to held-to-maturity
(6,215)
4,000
35,616
—
—
102
—
(94)
—
—
9
—
—
—
—
—
—
(12,201)
$
— $
23,321 $
— $
F-48
Year Ended December 31, 2021
Corporate
Bonds
Loans Held at
Fair Value
FSC
Guarantee
Asset
IRLC
Equity
Warrants
Beginning balance
$
— $
— $
(89) $
232 $
9,841 $
Acquisitions
Originations
Gains (losses) in net income, net
Other settlements
Ending balance
2,113
—
—
—
—
—
—
—
(182)
—
262
—
—
2
32
19,526
(25,804)
(2,090)
(29)
—
$
2,113 $
— $
(9) $
237 $
1,473 $
160
—
160
—
—
—
The following presents quantitative information about Level 3 assets measured on a recurring and nonrecurring
basis as of the dates noted (dollars in thousands):
Recurring fair value
Loans held for investment at fair
value
Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2022
Fair Value
Valuation
Technique
Significant
Unobservable Input
Range
(Weighted Average)
$
23,321 Discounted cash flow
Discount rate
4% to 18% (8)%
Guarantee asset
143 Discounted cash flow
Discount rate
Prepayment rate
5% (5%)
4% (4)%
IRLC, net
229 Best execution model
Pull through
Equity Warrants
825
Black-Scholes option
pricing model
Volatility
Risk-free interest rate
Remaining life
73% to 100%
(91)%
31.2% to 44.7%
(34.8)%
4.04% to 4.14%
(4.05)%
0 to 4 years
F-49
Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2021
Fair Value
Valuation
Technique
Significant
Unobservable Input
Range
(Weighted Average)
Recurring fair value
Corporate Bonds
$
2,113 Discounted cash flow
Discount rate
7% (7)%
FSC
(9)
Internal pricing model Market Differential
(14) bps to
(2) bps
((6) bps)
Guarantee asset
237 Discounted cash flow
Discount rate
Prepayment rate
3% (3%)
18% (18%)
IRLC, net
1,473 Best execution model
Pull through
160
Black-Scholes option
pricing model
Volatility
Risk-free interest
rate
Remaining life
Equity warrants
Nonrecurring fair value
Impaired loans(1):
71% to 100%
(88)%
24% to 37%
(32)%
0.30% to 1.10%
(0.97)%
0 to 4 years
Commercial and Industrial
439
Sales comparison,
Market approach -
guideline transaction
method
Management
discount for asset/
property type
17% - 45%
(39%)
_____________________________
(1)
One immaterial Consumer and Other loan was fully reserved for using a specific allowance as of December 31, 2021.
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 the dates noted (dollars in thousands):
December 31, 2022
Assets:
Cash and cash equivalents
Held-to-maturity securities
Loans, net
Accrued interest receivable
Liabilities:
Deposits
Borrowings:
Carrying
Amount
Fair Value Measurements Using:
Level 1
Level 2
Level 3
$
196,512 $
196,512 $
— $
81,056
2,452,230
10,445
234
—
5
67,433
—
362
—
7,051
2,379,406
10,078
2,405,229
2,181,139
—
228,868
FHLB borrowings – fixed rate
Federal Reserve borrowings – fixed rate
Subordinated notes – fixed-to-floating rate
Accrued interest payable
141,498
5,388
52,132
1,125
—
—
—
—
141,867
5,388
—
587
—
—
60,384
538
F-50
December 31, 2021
Assets:
Carrying
Amount
Fair Value Measurements Using:
Level 1
Level 2
Level 3
Cash and cash equivalents
$
386,983 $
386,983 $
— $
—
Loans, net
Accrued interest receivable
1,935,405
7,151
—
2
—
203
1,919,625
6,946
Liabilities:
Deposits
Borrowings:
2,205,703
2,035,212
—
172,240
FHLB borrowings – fixed rate
Federal Reserve borrowings – fixed rate
Subordinated notes – fixed-to-floating rate
Accrued interest payable
15,000
23,629
39,031
355
—
—
—
9
14,990
23,629
—
77
—
—
40,325
269
The fair value estimates presented and discussed above are based on pertinent information available to
management as of the dates specified. The estimated fair value amounts are based on the exit price notion set forth by ASU
2016-01. Although management is not aware of any factors that would significantly affect the estimated fair values, such
amounts have not been comprehensively revalued for purposes of these consolidated financial statements since the balance
sheet dates. Therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The methods and assumptions, not previously presented, used to estimate fair values are described as follows.
Cash and Cash Equivalents and Restricted Cash: The carrying amounts of cash and cash equivalents and
restricted cash approximate fair values as maturities are less than 90 days and balances are generally in accounts bearing
current market interest rates.
Held-to-maturity securities: The fair values for held-to-maturity investment securities are determined by quoted
market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based
on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities is
not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Loans, net: The fair values for all fixed-rate and variable-rate performing loans were estimated using the income
approach and by discounting the projected cash flows of such loans. Principal and interest cash flows were projected based
on the contractual terms of the loans, including maturity, contractual amortization and adjustments for prepayments and
expected losses, where appropriate. A discount rate was developed based on the relative risk of the cash flows, considering
the loan type, maturity and a required return on capital.
Accrued Interest Receivable and Payable: The carrying amounts of accrued interest approximate fair value due to
their short-term nature.
Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook
savings, and certain types of money market accounts) are, by definition, equal to the amounts payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and
certificates of deposit approximate their fair values at the reporting dates. Fair values for fixed-rate certificates of deposit
are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Fixed Rate Borrowings: Borrowings with fixed rates are valued using inputs such as discounted cash flows and
current interest rates for similar instruments and borrowers with similar credit ratings.
Fixed-to-Floating Rate Borrowings: 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.
F-51
NOTE 18 - SEGMENT REPORTING
The Company’s reportable segments consist of Wealth Management and Mortgage. The chief operating decision
maker ("CODM") is the Chief Executive Officer. 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 Wealth Management segment consists of operations relative to the Company’s fully integrated wealth
management products and services. Services provided include deposit, loan, insurance, and trust and investment
management advisory products and services.
The Mortgage segment consists of operations relative to the Company’s residential mortgage service offerings.
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.
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, 2022 and 2021 (dollars in thousands):
As of and for the year ended December 31, 2022
Income Statement
Total interest and dividend income
Total interest expense
Provision for loan losses
Net interest income, after provision for loan losses
Non-interest income
Total income before non-interest expense
Depreciation and amortization expense
All other non-interest expense
Income before income taxes
Goodwill
Total assets
As of and for the year ended December 31, 2021
Income Statement
Total interest and dividend income
Total interest expense
Provision for loan losses
Net interest income, after provision for loan losses
Non-interest income
Total income before non-interest expense
Depreciation and amortization expense
All other non-interest expense
Income before income taxes
Goodwill
Total assets
F-52
Wealth
Management
Mortgage
Consolidated
$
100,474 $
— $
100,474
17,270
3,682
79,522
23,094
102,616
2,111
69,366
—
—
—
5,318
5,318
42
7,587
31,139 $
(2,311) $
17,270
3,682
79,522
28,412
107,934
2,153
76,953
28,828
30,400 $
— $
30,400
2,856,653
10,095
2,866,748
$
$
Wealth
Management
Mortgage
Consolidated
$
62,011 $
— $
62,011
5,416
1,230
55,365
23,924
79,289
1,147
56,764
—
—
—
16,119
16,119
53
10,164
21,378 $
5,902 $
5,416
1,230
55,365
40,043
95,408
1,200
66,928
27,280
30,588 $
— $
30,588
2,494,207
33,282
2,527,489
$
$
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, 2022 and 2021, the balance of the investment for LIHTC was $2.4 million and $2.6 million, respectively.
These balances are reflected in the Other assets line item of the Consolidated Balance Sheets. There were no unfunded
commitments related to the LIHTC investment as of December 31, 2022. As of December 31, 2021, total unfunded
commitments were $0.2 million.
The Company uses the proportional amortization method to account for this investment. Amortization expense is
included within the Income tax expense line item of the Consolidated Statements of Income. During the year ended
December 31, 2022, the Company recognized amortization expense of $0.4 million, which was included within the Income
tax expense line item of the Consolidated Statements of Income. The Company recognized amortization expense of $0.5
million in the year ended December 31, 2021.
Additionally, during the year ended December 31, 2022, the Company recognized tax credits and other benefits
from this investment in the LIHTC of $0.4 million. The Company recognized tax credits and other benefits from this
investment in the LIHTC of $0.5 million in the year end December 31, 2021. During the years ending December 31, 2022
and 2021, the Company did not incur any impairment losses.
NOTE 20 – CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The following presents condensed financial statements pertaining only to FWFI (dollars in thousands).
Investments in subsidiaries are stated using the equity method of accounting.
Condensed Balance Sheets
Assets
Cash and cash equivalents
Investment in subsidiaries
Loans, net
Other assets
Total assets
Liabilities
Subordinated notes
Other liabilities(1)
Total liabilities
Shareholders' Equity
Total shareholders’ equity
Total liabilities and shareholders’ equity
_____________________________
(1)
As of December 31, 2021, taxes payable was in a receivable position as a result of timing of tax payments.
December 31,
December 31,
2022
2021
$
26,372 $
263,362
—
3,723
18,124
233,417
1,978
3,611
$
$
293,457 $
257,130
52,132 $
39,031
461
52,593
(942)
38,089
240,864
$
293,457 $
219,041
257,130
F-53
Condensed Statements of Income
Income
Interest income
Non-interest income
Total income
Expense
Interest expense
Non-interest expense
Total expense
Loss before income tax and equity in undistributed income of subsidiaries
Income tax benefit
Loss before equity in undistributed income of subsidiaries
Equity in undistributed income to subsidiaries
Net income
Year Ended December 31,
2022
2021
$
46 $
7
53
1,609
272
1,881
(1,828)
412
(1,416)
23,114
$
21,698 $
60
—
60
1,549
285
1,834
(1,774)
119
(1,655)
22,265
20,610
F-54
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income
Adjustments:
Depreciation and amortization
Deferred income tax expense
Stock-based compensation
Undistributed equity in subsidiaries
Change in other assets
Change in other liabilities
Net cash provided by/(used in) operating activities
Cash flows from investing activities
Net cash paid on acquisition
Investment in subsidiaries
Loan and note receivable originations and principal collections
Net cash used in investing activities
Cash flows from financing activities
Proceeds from subordinated notes, net of issuance costs
Payment on subordinated notes
Settlement of restricted stock
Proceeds from the exercise of stock options
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental cash flow information:
Interest paid on borrowed funds
Supplemental noncash disclosures:
Common stock issued for Teton acquisition
NOTE 21 – OTHER NON-INTEREST EXPENSE
Year Ended December 31,
2022
2021
$
21,698 $
20,610
167
941
2,562
(23,114)
235
115
2,604
—
(8,571)
1,978
(6,593)
19,509
(6,575)
(876)
179
12,237
8,248
18,124
$
26,372 $
73
301
2,903
(22,265)
678
53
2,353
(11,501)
(2,913)
43
(14,371)
14,667
—
(501)
1,706
15,872
3,854
14,270
18,124
$
1,609 $
1,549
—
39,818
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 (dollars in thousands):
Other non-interest expense
Corporate development and related
Loan and deposit related
Other
Total other non-interest expense
Year Ended December 31,
2022
2021
$
$
2,440 $
1,420
687
4,547 $
1,769
1,016
470
3,255
F-55
NOTE 22 - REGULATORY CAPITAL MATTERS
First Western and the Bank are subject to various regulatory capital adequacy requirements administered by
federal banking agencies. 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.
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. The final rules implementing Basel Committee on
Banking Supervision’s capital guidelines for U.S. banks ("Basel III rules") has been fully phased in. The net unrealized
gain or loss on available-for-sale securities is not included in computing regulatory capital. During the years ended
December 31, 2022 and 2021, First Western made capital injections of $6.0 million and $2.9 million, respectively, into the
Bank. Management believes as of December 31, 2022, 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: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to
accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital
restoration plans are required.
The standard ratios established by First Western and the Bank’s primary regulators to measure capital require First
Western and the Bank to maintain minimum amounts and ratios, set forth in the following table. These ratios are common
equity Tier 1 capital ("CET1"), Tier 1 capital and total capital (as defined in the regulations) to risk-weighted assets (as
defined), and Tier 1 capital (as defined) to average assets (as defined).
The actual capital ratios of First Western and the Bank, along with the applicable regulatory capital requirements
as of December 31, 2022, were calculated in accordance with the requirements of Basel III. The final rules of Basel III also
established a "capital conservation buffer" of 2.5% above new regulatory minimum capital ratios, which are fully effective
following minimum ratios: (i) a CET1 ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; 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 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, 2022, the most recent filings with the FDIC categorized First Western and the Bank as well
capitalized under the regulatory guidelines. To be categorized as well capitalized, an institution must maintain minimum
CET1 risk-based, Tier 1 risk-based, total risk-based, and Tier 1 leverage ratios as set forth in the following table.
Management believes there are no conditions or events since December 31, 2022 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 they are subject to as of December 31, 2022 and December 31, 2021.
F-56
The following presents the actual and required capital amounts and ratios as of the dates noted (dollars in
thousands):
December 31, 2022
Amount
Ratio
Amount
Ratio
Amount
Ratio
Actual
Required for Capital
Adequacy Purposes(1)
To be Well Capitalized
Under Prompt
Corrective Action
Regulations
Tier 1 capital to risk-weighted
assets
Bank
Consolidated
CET1 to risk-weighted assets
Bank
Consolidated
Total capital to risk-weighted
assets
Bank
Consolidated
Tier 1 capital to average assets
Bank
Consolidated
$ 234,738
10.29 % $ 136,928
6.0 % $ 182,571
212,229
9.28
N/A
N/A
N/A
234,738
212,229
10.29
9.28
102,696
N/A
4.5
N/A
148,339
N/A
8.0 %
N/A
6.5
N/A
252,398
282,889
11.06
12.37
234,738
212,229
8.65
7.81
182,571
N/A
108,506
N/A
8.0
N/A
4.0
N/A
228,213
10.0
N/A
N/A
135,633
N/A
5.0
N/A
Actual
Required for Capital
Adequacy Purposes(1)
To be Well Capitalized
Under Prompt
Corrective Action
Regulations
December 31, 2021
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 capital to risk-weighted
assets
Bank
Consolidated
$ 203,164
11.40 % $ 106,945
6.0 % $ 142,594
188,777
10.54
N/A
N/A
N/A
CET1 to risk-weighted assets
Bank
Consolidated
Total capital to risk-weighted
assets
Bank
Consolidated
Tier 1 capital to average assets
Bank
Consolidated
_____________________________
(1)
Does not include capital conservation buffer.
8.0 %
N/A
6.5
N/A
203,164
188,777
11.40
10.54
80,209
N/A
4.5
N/A
115,858
N/A
217,215
242,388
203,164
188,777
12.19
13.54
10.05
9.31
142,594
N/A
80,887
N/A
8.0
N/A
4.0
N/A
178,242
10.0
N/A
N/A
101,108
N/A
5.0
N/A
*****
F-57
Item 9: Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A: Controls and Procedures
Evaluation of Internal Control over Financial Reporting
Report on Management’s Assessment of Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined under Rules 13a-15(f) and 15d-15(f) of the Exchange Act). The Company’s internal control
system is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance GAAP. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2022, management assessed the effectiveness of the Company’s internal control over
financial reporting based on the criteria for effective internal control over financial reporting established in "Internal
Control-Integrated Framework," issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway
Commission in 2013. Based on the assessment, management determined that the Company maintained effective internal
control over financial reporting as of December 31, 2022.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered
public accounting firm due to the rules of the Securities and Exchange Commission for an Emerging Growth Company.
Disclosure Controls and Procedures
The Company’s management, including our Chairman, Chief Executive Officer and President and our Chief
Operating Officer, Chief Financial Officer and Treasurer, have evaluated the effectiveness of our "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as of the end of the period
covered by this report. Based on such evaluation, our Chairman, Chief Executive Officer and President and our Chief
Operating Officer, Chief Financial Officer and Treasurer have concluded that, as of the end of the period covered by the
Annual Report on Form 10-K, the Company’s disclosure controls and procedures were effective to provide reasonable
assurance that the information required to be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the SEC and is accumulated and communicated to the Company’s management, including our Chairman, Chief Executive
Officer and President and our Chief Operating Officer, Chief Financial Officer and Treasurer, as appropriate, to allow
timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) during the quarter ended December 31, 2022, that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting. The design of any system of controls and
procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
88
Item 10: Directors, Executive Officers and Corporate Governance
PART III
The information required by this item is hereby incorporated by reference from our Definitive Proxy Statement
relating to the 2022 Annual Meeting of Shareholders, or the 2023 Proxy Statement, to be filed with the SEC within 120
days of the end of the fiscal year ended December 31, 2022.
Our board of directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees,
officers and directors, including our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer and
other executive officers. The full text of our Code of Business Conduct and Ethics is posted on the investor relations page
of our website which is located https://myfw.gcs-web.com/investor-relations. We will post any amendments to our Code of
Business Conduct and Ethics, or waivers of its requirements, on our website.
Item 11: Executive Compensation
The information required by this item is hereby incorporated by reference from the 2023 Proxy Statement, to be
filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2022.
Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this item is hereby incorporated by reference from the 2023 Proxy Statement, to be
filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2022.
Information relating to securities authorized for issuance under our equity compensation plans is included in Part
II of this Annual Report on Form 10-K under "Item 5 – Market for Registrant’s Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities."
Item 13: Certain Relationships and Related Transactions, and Director Independence
The information required by this item is hereby incorporated by reference from the 2023 Proxy Statement, to be
filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2022.
Item 14: Principal Accounting Fees and Services
The information required by this item is hereby incorporated by reference from the 2023 Proxy Statement, to be
filed with the SEC within 120 days of the end of the fiscal year ended December 31, 2022.
89
Item 15.Exhibits, Financial Statement Schedules
PART IV
(a)
(1) Financial Statements
See Index to Consolidated Financial Statements on page 91
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are either not applicable or not required, or
because the required information is included in the Consolidated Financial Statements or the Notes
thereto included in Part II, Item 8.
(b)
(3) Exhibits
The exhibits are filed as part of this report and exhibits incorporated by reference to other documents
are as follows:
Exhibit No.
Description
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
Agreement and Plan of Merger, dated July 22, 2021, by and between First Western Financial, Inc. and
Teton Financial Services, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K
filed with the SEC on July 22, 2021, File No. 001-38595)
Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Form S-1 filed with the SEC on July 3, 2018, File No. 333-225719)
Amended and Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Form S-1 filed with
the SEC on July 3, 2018, File No. 333-225719)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Form
S-1 filed with the SEC on June 19, 2018, File No. 333-225719)
Certain instruments defining the rights of holders of long-term debt securities of the registrant and its
subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The registrant hereby
undertakes to furnish to the SEC, upon request, copies of any such instruments.
Form of 5.125% Fixed-to-Floating Rate Subordinated Note (incorporated by reference as Exhibit A to
Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on March 17, 2020, File No. 001-38595)
Form of 4.25% Fixed-to-Floating Rate Subordinated Note (incorporated by reference as Exhibit A to
Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on November 25, 2020, File No.
001-38595)
Form of 3.25% Fixed-to-Floating Rate Subordinated Note due 2031 (incorporated by reference to
Exhibit A to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on August 31, 2021, File No.
001-38595)
Form of 7.00% Fixed-to-Floating rate Subordinated Note due 2032 (incorporated by reference to
Exhibit A to Exhibit 10.1 to the Company's Form 8-K filed with the SEC on December 6, 2022, File
No. 001-38595)
90
4.7
10.1†
10.2†
10.3†
10.4†
10.5†
10.6†
10.7†
10.8†
10.9
10.10†
10.11
10.12
Description of Registrant’s Securities
First Western Financial, Inc. 2008 Stock Incentive Plan, as amended (incorporated by reference to
Exhibit 10.1 to the Company’s Form S-1 filed with the SEC on June 19, 2018, File No. 333-225719)
First Western Financial, Inc. 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2
to the Company’s Form S-1 filed with the SEC on June 19, 2018, File No. 333-225719)
Employment Agreement, dated January 1, 2017, between Scott Wylie and First Western Financial, Inc.
(incorporated by reference to Exhibit 10.3 to the Company’s Form S-1 filed with the SEC on June 19,
2018, File No. 333-225719)
Amendment to Employment Agreement dated January 30, 2020 by and between First Western
Financial, Inc. and Scott Wylie (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed with the SEC on January 30, 2020, File No. 001-38595)
Amended and Restated Employment Agreement, dated March 5, 2018, between Julie Courkamp and
First Western Financial, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Form S-1
filed with the SEC on June 19, 2018, File No. 333-225719)
Amended Employment Agreement dated May 2, 2019, by and between First Western Financial, Inc.
and Julie Courkamp (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with
the SEC on May 8, 2019, File No. 001-38595)
Second Amendment to Employment Agreement dated January 30, 2020 by and between First Western
Financial, Inc. and Julie Courkamp (incorporated by reference to Exhibit 10.2 to the Company’s Form
8-K filed with the SEC on January 30, 2020, File No. 001-38595)
Employment Agreement, dated April 8, 2020, by and between First Western Financial, Inc. and John
Sawyer (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on
April 10, 2020, File No. 001-38595)
Asset Purchase Agreement, dated August 18, 2017, among EMC Holdings, LLC, WHMC, LLC, Alan
Schrum and First Western Trust Bank (incorporated by reference to Exhibit 10.6 to the Company’s
Form S-1 filed with the SEC on June 19, 2018, File No. 333-225719)
Form of Indemnification Agreement between First Western Financial, Inc. and its directors and certain
officers (incorporated by reference to Exhibit 10.7 to the Company’s Form S-1 filed with the SEC on
June 19, 2018, File No. 333-225719)
Form of Subordinated Note Purchase Agreement, dated March 17, 2020, by and among First Western
Financial, Inc. and several purchasers named therein (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed with the SEC on March 17, 2020, File No. 001-38595)
Form of Subordinated Note Purchase Agreement, dated November 25, 2020, by and among First
Western Financial, Inc. and the several purchasers named therein (incorporated by reference to Exhibit
10.1 to the Company’s Form 8-K filed with the SEC on November 25, 2020, File No. 001-38595)
91
10.13
10.14
21.1*
23.1*
24.1*
31.1*
31.2*
32.1**
32.2**
Form of Subordinated Note Purchase Agreement, dated August 31, 2021, by and among First Western
Financial, Inc. and the Purchaser named therein (incorporated by reference to Exhibit 10.1 to the
Company’s Form 8-K filed with the SEC on August 31, 2021, File No. 001-38595)
Form of Subordinated Note Purchase Agreement, dated December 5, 2022, by and among First
Western Financial, Inc. and the Purchasers named therein (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K filed with the SEC on December 6, 2022, File No. 001-38595)
Subsidiaries of First Western Financial, Inc.
Consent of Crowe LLP
Powers of attorney (included on signature page to the Annual Report on Form 10-K)
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
_____________________________
*
Filed herewith.
**
These exhibits are furnished herewith and shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the
liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act.
†
Indicates a management contract or compensatory plan.
Item 16.Form 10-K Summary
None.
92
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 15, 2023
Date
First Western Financial, Inc.
By:
/s/ Scott C. Wylie
Scott C. Wylie
Chairman, Chief Executive Officer and President
93
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
constitutes and appoints Scott C. Wylie and Julie A. Courkamp, with full power to act without the other, his or her true and
lawful attorney-in-fact and agent, with full and several powers of substitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as fully as to all intents and purposes as each of
the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following
persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Scott C. Wylie
Scott C. Wylie
/s/ Julie A. Courkamp
Julie A. Courkamp
/s/ Julie A. Caponi
Julie A. Caponi
/s/ David R. Duncan
David R. Duncan
/s/ Thomas A. Gart
Thomas A. Gart
/s/ Patrick H. Hamill
Patrick H. Hamill
/s/ Scott C. Mitchell
Scott C. Mitchell
/s/ Luke A. Latimer
Luke A. Latimer
/s/ Eric D. Sipf
Eric D. Sipf
/s/ Mark L. Smith
Mark L. Smith
/s/ Joseph C. Zimlich
Joseph C. Zimlich
Chairman, Chief Executive Officer, and President (principal
executive officer)
March 15, 2023
Director, Chief Operating Officer, Chief Financial Officer,
and Treasurer (principal financial and accounting officer)
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
March 15, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
94
1900 16th Street, Suite 1200
Denver, Colorado 80202
myfw.com