10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

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	37-1442266
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1900 16th Street, Suite 1200 Denver, CO	80202
(Address of principal executive offices)	(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	Trading Symbol	Name of each exchange on which registered
Common Stock, no par value	MYFW	The Nasdaq Stock Market LLC

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 ◻ 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 ◻ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ◻	Accelerated filer ⌧
Non-accelerated filer ◻	Smaller reporting company ☒
	Emerging growth company ☒

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. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ⌧ No

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

	Shares outstanding as of November 1, 2021
Common Stock, no par value	8,032,457

FIRST WESTERN FINANCIAL, INC.

TABLE OF CONTENTS

September 30, 2021
		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	6
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2021 and September 30, 2020	7
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Nine Months Ended September 30, 2021 and September 30, 2020	8
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the Three Months and Nine Months Ended September 30, 2021 and September 30, 2020	9
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2021 and September 30, 2020	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	70
Item 4.	Controls and Procedures	71
PART II. OTHER INFORMATION		71
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71
Item 3.	Defaults upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
SIGNATURES		74

2

Important Notice about Information in this Quarterly Report

Unless we state otherwise or the context otherwise requires, references in this Quarterly Report 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 Quarterly Report is accurate only as of the date of this Quarterly Report on Form 10-Q and as of the dates specified herein.

3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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.

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:

● The impact of the COVID-19 pandemic and actions taken by governmental authorities in response to the pandemic;

● geographic concentration in Colorado, Arizona, Wyoming and California;

● changes in the economy affecting real estate values and liquidity;

● 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;

● changes in interest rates;

● the adequacy of our allowance for loan losses;

● weak economic conditions and global trade;

● 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;

● 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;

4

● 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 pandemics, terrorist attacks, 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;

● potential impairment of goodwill recorded on our balance sheet and possible requirements to recognize significant charges to earnings due to impairment of intangible assets;

● 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;

● 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 "Item 1A - Risk Factors" in our Annual Report on Form 10-K.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in the section titled Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on March 12, 2021. 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.

5

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)

	September 30,		December 31,
	2021		2020
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	2,829	$	2,405
Interest-bearing deposits in other financial institutions		307,406		153,584
Total cash and cash equivalents		310,235		155,989
Available-for-sale securities, at fair value		32,233		36,666
Correspondent bank stock, at cost		1,772		2,552
Mortgage loans held for sale		51,309		161,843
Loans, net of allowance of $12,964 and $12,539		1,590,086		1,520,294
Premises and equipment, net		6,344		5,320
Accrued interest receivable		6,306		6,618
Accounts receivable		5,500		4,865
Other receivables		1,553		1,422
Other real estate owned, net		—		194
Goodwill and other intangible assets, net		24,246		24,258
Deferred tax assets, net		5,926		6,056
Company-owned life insurance		15,715		15,449
Other assets		25,047		32,129
Total assets	$	2,076,272	$	1,973,655
LIABILITIES
Deposits:
Noninterest-bearing	$	596,635	$	481,457
Interest-bearing		1,185,664		1,138,453
Total deposits		1,782,299		1,619,910
Borrowings:
Federal Home Loan Bank and Federal Reserve borrowings		58,564		149,563
Subordinated notes		39,010		24,291
Accrued interest payable		357		453
Other liabilities		20,913		24,476
Total liabilities		1,901,143		1,818,693
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; 8,002,874 and 7,951,773 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Additional paid-in capital		146,380		144,703
Retained earnings		28,272		9,579
Accumulated other comprehensive income		477		680
Total shareholders’ equity		175,129		154,962
Total liabilities and shareholders’ equity	$	2,076,272	$	1,973,655

See accompanying notes to condensed consolidated financial statements (unaudited).

6

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest and dividend income:
Loans, including fees	$	15,861	$	14,138	$	45,360	$	37,342
Investment securities		180		173		545		692
Interest-bearing deposits in other financial institutions		105		99		288		358
Total interest and dividend income		16,146		14,410		46,193		38,392
Interest expense:
Deposits		829		1,067		2,669		4,779
Other borrowed funds		471		425		1,402		968
Total interest expense		1,300		1,492		4,071		5,747
Net interest income		14,846		12,918		42,122		32,645
Less: Provision for loan losses		406		1,496		418		3,987
Net interest income, after provision for loan losses		14,440		11,422		41,704		28,658
Non-interest income:
Trust and investment management fees		5,167		4,814		15,023		14,154
Net gain on mortgage loans		4,480		12,304		13,590		24,958
Bank fees		458		340		1,225		929
Risk management and insurance fees		301		483		444		912
Income on company-owned life insurance		89		91		266		273
Other		—		—		60		—
Total non-interest income		10,495		18,032		30,608		41,226
Total income before non-interest expense		24,935		29,454		72,312		69,884
Non-interest expense:
Salaries and employee benefits		10,229		10,212		29,733		25,384
Occupancy and equipment		1,550		1,619		4,402		4,574
Professional services		1,660		1,288		4,309		3,542
Technology and information systems		945		1,032		2,791		2,994
Data processing		912		1,038		3,020		2,922
Marketing		397		395		1,116		1,063
Amortization of other intangible assets		5		4		13		44
Net loss on assets held for sale		—		—		—		553
Provision for other real estate owned		—		100		—		100
Other		771		944		2,235		2,747
Total non-interest expense		16,469		16,632		47,619		43,923
Income before income taxes		8,466		12,822		24,693		25,961
Income tax expense		2,049		3,192		6,000		6,301
Net income available to common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Earnings per common share:
Basic	$	0.80	$	1.22	$	2.35	$	2.49
Diluted	$	0.78	$	1.20	$	2.28	$	2.47

See accompanying notes to condensed consolidated financial statements (unaudited).

7

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	6,417	$	9,630	$	18,693	$	19,660
Other comprehensive income items, net of tax effect:
Net change in unrealized (losses)/gains on available-for-sale securities		(32)		(21)		(203)		987
Comprehensive income	$	6,385	$	9,609	$	18,490	$	20,647

See accompanying notes to condensed consolidated financial statements (unaudited).

8

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)

				Retained		Accumulated
	Shares	Additional		Earnings		Other
	Common	Paid-In		(Accumulated		Comprehensive
	Stock	Capital		Deficit)		Income (Loss)		Total
Balance at July 1, 2020	7,939,024	$	143,498	$	(4,925)	$	844	$	139,417
Net income	—		—		9,630		—		9,630
Other comprehensive loss, net of tax	—		—		—		(21)		(21)
Settlement of share awards	12,725		(88)		—		—		(88)
Stock-based compensation	—		638		—		—		638
Balance at September 30, 2020	7,951,749	$	144,048	$	4,705	$	823	$	149,576
Balance at July 1, 2021	7,994,832	$	145,622	$	21,855	$	509	$	167,986
Net income	—		—		6,417		—		6,417
Other comprehensive loss, net of tax	—		—		—		(32)		(32)
Settlement of share awards	4,292		(46)		—		—		(46)
Options exercised	3,750		79		—		—		79
Stock-based compensation	—		725		—		—		725
Balance at September 30, 2021	8,002,874	$	146,380	$	28,272	$	477	$	175,129
Balance at January 1, 2020	7,940,168	$	142,797	$	(14,955)	$	(164)	$	127,678
Net income	—		—		19,660		—		19,660
Other comprehensive income, net of tax	—		—		—		987		987
Settlement of share awards	34,260		(258)		—		—		(258)
Share repurchase	(22,679)		(370)		—		—		(370)
Stock-based compensation	—		1,879		—		—		1,879
Balance at September 30, 2020	7,951,749	$	144,048	$	4,705	$	823	$	149,576
Balance at January 1, 2021	7,951,773	$	144,703	$	9,579	$	680	$	154,962
Net income	—		—		18,693		—		18,693
Other comprehensive loss, net of tax	—		—		—		(203)		(203)
Settlement of share awards	47,351		(452)		—		—		(452)
Options exercised	3,750		79		—		—		79
Stock-based compensation	—		2,050		—		—		2,050
Balance at September 30, 2021	8,002,874	$	146,380	$	28,272	$	477	$	175,129

See accompanying notes to condensed consolidated financial statements (unaudited).

9

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income	$	18,693	$	19,660
Adjustments to reconcile net income to net cash used in operating activities:
Net amortization of investment securities		411		346
Stock dividends received on correspondent bank stock		(60)		(12)
Provision for loan losses		418		3,987
Net gain on mortgage loans		(13,590)		(24,958)
Origination of mortgage loans held for sale		(1,066,612)		(917,524)
Proceeds from mortgage loans		1,195,896		889,208
Depreciation and amortization		877		832
Provision for other real estate owned		—		100
Deferred income tax expense/(benefits), net of valuation allowance		210		(1,699)
Increase in cash surrender value of company-owned life insurance		(266)		(273)
Loss on assets held for sale		—		553
Stock-based compensation		2,050		1,879
Net changes in operating assets and liabilities:
Change in accounts receivable		(21)		492
Change in accrued interest receivable and other assets		(248)		(5,531)
Change in accrued interest payable and other liabilities		(1,311)		3,394
Net cash provided by/(used in) operating activities		136,447		(29,546)
Cash flows from investing activities
Activity in available-for-sale securities:
Maturities, prepayments, and calls		6,370		20,890
Purchases		(2,250)		(2,000)
Purchases of correspondent bank stock		(1)		(698)
Redemption of correspondent bank stock		841		—
Contributions to low-income housing tax credit investments		(2,087)		—
Loan and note receivable originations and principal collections, net		(69,115)		(388,048)
Purchases of premises and equipment		(1,844)		(708)
Proceeds from sale of premises and equipment		—		10
Proceeds from sale of other real estate owned		194		—
Net cash paid on acquisitions		—		(61,316)
Net cash used in investing activities		(67,892)		(431,870)
Cash flows from financing activities
Net change in deposits		162,389		413,808
Payments to Federal Home Loan Bank borrowings		—		(27,000)
Proceeds from Federal Home Loan Bank borrowings		—		35,000
Payments to Federal Reserve borrowings		(174,673)		(238)
Proceeds from Federal Reserve borrowings		83,674		204,313
Proceeds from subordinated notes, net of issuance costs		14,674		7,881
Proceeds from the exercise of stock options		79		—
Repurchase of common stock		—		(370)
Settlement of restricted stock		(452)		(258)
Net cash provided by financing activities		85,691		633,136
Net change in cash and cash equivalents		154,246		171,720
Cash and cash equivalents, beginning of year		155,989		78,638
Cash and cash equivalents, end of period	$	310,235	$	250,358
Supplemental cash flow information:
Interest paid on deposits and borrowed funds	$	4,167	$	5,699
Income tax payment, net of refunds received		3,852		6,417
Cash paid for amounts included in the measurement of lease liabilities		3,874		4,267
Supplemental noncash disclosures:
Reclass of held for sale assets, net of liabilities		—		10
Change in unrealized (loss)/gain on available-for-sale securities		(283)		1,305
Lease right-of-use-asset obtained in exchange for lease liabilities		2,262		649

See accompanying notes to condensed consolidated financial statements (unaudited).

10

FIRST WESTERN FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation:  The condensed 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) and Wyoming (Jackson Hole and Laramie). 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 condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2020 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2020.

In the opinion of management, all adjustments that were recurring in nature and considered necessary have been included for fair presentation of the Company’s financial position and results of operations. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the full year ending December 31, 2021. In preparing the condensed consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be significantly different from those estimates.

The condensed consolidated financial statements and notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

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 May 15, 2020, the Company completed a branch purchase and assumption transaction ("Branch Acquisition") with Simmons Bank ("Simmons"). Management concluded that the acquisition represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date.

On November 13, 2020, the Company completed the sale of its LA fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.  As a result of this transaction, the Company recorded a contingent consideration asset with an initial fair value estimated at $3.1 million to be received in quarterly payments over three years and a portion will be received in perpetuity. The asset is carried at its net present value in our Other assets line item of the Condensed Consolidated Balance Sheets.

On July 22, 2021, the Company entered into 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. As of June 30, 2021, Teton had assets of $420.7 million, total deposits of $374.6 million, and total loans of $267.9 million. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton will be merged with into the Company (the “Merger”), with the Company continuing as the surviving corporation. The Merger Agreement also provides that following the Merger, Rocky Mountain Bank will be merged with and into the Bank, with the Bank surviving the bank merger. During the nine months ended September

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30, 2021, the Company has incurred $0.4 million in merger related expenses, which are included in the Professional services line of the Condensed Consolidated Statements of Income.

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.

The Company could experience a material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread.

Concentration of Credit Risk:  Most of the Company’s lending activity is to clients located in and around metro Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole and Laramie, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. As of September 30, 2021 and December 31, 2020, 72.4% and 66.9%, respectively, of the Company’s loan portfolio was secured by real estate collateral. Declines in real estate values in the primary markets the Company operates in could negatively impact the Company.

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 Condensed 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 Condensed Consolidated Statements of Income.

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. There were no performance based incentive fees earned with respect to investment management contracts for the three and nine months ended September 30, 2021. Performance based incentive fees earned with respect to investment management contracts for the year ended December 31, 2020 were immaterial. Receivables are recorded on the Condensed 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 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 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.

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The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings to June 30, 2023, and to cease publishing other LIBOR settings on December 31, 2021.

Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2021. 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, fallback language, and other aspects of planning. The Company has prepared a timeline to transition from LIBOR before the end of 2021.

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.

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 supported the community and clients by originating PPP loans since the program was created. PPP loans are classified in the Cash, Securities and Other portion of the loan portfolio. See Note 3 for further discussion on our PPP loans.

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 and had a risk rating of “pass” and had not been delinquent in making interest or principal payment by more than 30 days during the last two years.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings ("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 Federal Deposit Insurance Corporation ("FDIC") confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered a TDR. We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of September 30, 2021.  See Note 3 for further discussion on our loan modification program.

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 may sell a 95% participation in a new MSLP loan 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 3 for further discussion on our participation in the program.

Reclassifications:  Certain items in prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no impact on net income or total shareholders’ equity.

Recently adopted accounting pronouncements:  The following reflects recent accounting pronouncements that were adopted by the Company since the end of the Company’s fiscal year ended December 31, 2020.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"). ASU 2021-01 clarifies the scope of Topic 848, originally issued in 2020 (ASU 2020-04). ASU 2021-01 clarifies that derivatives affected by the related discounting transition are explicitly eligible for certain optional expedients and exceptions. ASU 2021-01 also clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. ASU 2021-01 was effective for the Company on January 7, 2021 and did not have a material impact on the Company’s financial statement disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects pending pronouncements with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2020.

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In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 was set to be effective for most public companies on January 1, 2020. However, at the October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies ("SRCs") to January 1, 2023.

During the nine months ended September 30, 2021, the CECL committee of the Company continued to work through its implementation plan. The Company has integrated historical and current loan level data as required by CECL and is working with its third-party vendor solution to begin evaluating the methodologies available under the CECL model on its loan portfolios. The Company also continues to evaluate documentation requirements, internal control structure, relevant data sources, and system configurations. The Company has completed a successful integration of the required fields and historical data for key loan, client and collateral data within the third-party solution and has been able to run parallels of our current allowance for loan and lease losses ("ALLL") calculation in the software to compare to our internal calculation and reconcile known differences. The Company has started the process of selecting the methodologies to be used for each segment of its loan portfolio and started preliminarily testing to determine the impact of each methodology. Currently, we are unable to estimate the impact the adoption of this update will have on the consolidated financial statements and disclosures. However, the Company expects the impact of the adoption will be significantly influenced by the composition and characteristics of its loan portfolios along with economic conditions prevalent as of the date of adoption. The Company expects to implement the new standard beginning January 1, 2023.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was set to be effective for the Company on January 1, 2021. However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to January 1, 2023 for SRC’s, with earlier adoption permitted. The Company expects to early adopt beginning January 1, 2022.

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NOTE 2 - INVESTMENT SECURITIES

The following presents the amortized cost and fair value of securities available-for-sale, with unrealized gains and losses recognized in accumulated other comprehensive income as of September 30, 2021 and December 31, 2020 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	(1)	$	249
Corporate bonds		8,117		249		(10)		8,356
GNMA mortgage-backed securities – residential		20,488		351		(28)		20,811
FNMA mortgage-backed securities – residential		1,102		53		—		1,155
Corporate CMO and MBS		1,645		35		(18)		1,662
Total securities available-for-sale	$	31,602	$	688	$	(57)	$	32,233

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			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	4	$	—	$	254
Corporate bonds		6,000		55		(11)		6,044
GNMA mortgage-backed securities – residential		23,806		798		—		24,604
FNMA mortgage-backed securities – residential		1,616		61		—		1,677
Corporate CMO and MBS		4,078		62		(53)		4,087
Total securities available-for-sale	$	35,750	$	980	$	(64)	$	36,666

As of September 30, 2021, the amortized cost and estimated fair value of available-for-sale securities have contractual maturity dates shown in the table below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	Amortized		Fair
September 30, 2021	Cost		Value
Due within one year	$	—	$	—
Due between one year and five years		250		249
Due between five years and ten years		8,117		8,356
Securities (agency, Corporate CMO, and MBS)		23,235		23,628
Total	$	31,602	$	32,233

In 2014, the Company began investing in a small business investment company ("SBIC") fund administered by the Small Business Administration. During the nine months ended September 30, 2021, the Company did not make any contributions to the SBIC fund.  During the year ended December 31, 2020, the Company invested $0.5 million in SBIC. As of September 30, 2021 and  December 31, 2020, the Company held a balance of $2.1 million with SBIC, which is included in Other assets in the accompanying Condensed Consolidated Balance Sheets. The Company may be obligated to invest up to an additional $0.9 million in future SBIC investments.

As of September 30, 2021 and December 31, 2020, securities with carrying values totaling $2.3 million and $3.7 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

As of September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities and agencies, in an amount greater than 10%of shareholders’ equity.

As of both September 30, 2021 and December 31, 2020, there were seven securities in an unrealized loss position, with unrealized losses totaling $0.1 million. Of the securities in an unrealized loss position as of September 30, 2021, one has been in a continuous unrealized loss position for more than twelve months and the remaining have been in a continuous unrealized loss position for less than twelve months. The unrealized loss positions were caused primarily by interest rate changes and market assumptions about prepayments of principal and interest on the underlying mortgages. Because the decline in market value is attributable to market conditions, not credit quality, and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be near or at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of September 30, 2021.

The following table summarizes securities with unrealized losses as of September 30, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands, before tax):

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2021	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	249	$	(1)	$	—	$	—	$	249	$	(1)
GNMA mortgage-backed securities – residential		7,555		(28)		—		—		7,555		(28)
Corporate bonds		490		(10)		—		—		490		(10)
Corporate CMO and MBS		—		—		556		(18)		556		(18)
Total	$	8,294	$	(39)	$	556	$	(18)	$	8,850	$	(57)

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	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
Corporate bonds	$	3,489	$	(11)	$	—	$	—	$	3,489	$	(11)
Corporate CMO and MBS		880		(40)		566		(13)		1,446		(53)
Total	$	4,369	$	(51)	$	566	$	(13)	$	4,935	$	(64)

The Company did not sell any securities during the three and nine months ended September 30, 2021 or during the year ended December 31, 2020.

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other(1)	$	293,837	$	357,020
Construction and Development		132,141		131,111
1-4 Family Residential		502,439		455,038
Non-Owner Occupied CRE		358,369		281,943
Owner Occupied CRE		167,638		163,042
Commercial and Industrial(2)		148,959		146,031
Total loans held for investment		1,603,383		1,534,185
Deferred fees and unamortized premiums/(unaccreted discounts), net		(333)		(1,352)
Allowance for loan losses		(12,964)		(12,539)
Loans, net	$	1,590,086	$	1,520,294

______________________________________

⁽¹⁾ Includes PPP loans of $61.9 million and $142.9 million as of September 30, 2021 and December 31, 2020, respectively.

⁽²⁾ Includes MSLP loans of $6.8 million and $6.6 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, total loans held for investment included $117.4 million and $127.2 million, respectively, of performing loans purchased as part of the Branch Acquisition.

The CARES Act created the PPP, which is administered by the 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 September 30, 2021, the Cash, Securities, and Other portion of the loan portfolio included $61.9 million of PPP loans, or 21.1% of the total category. As of December 31, 2020, the Cash, Securities, and Other portion of the loan portfolio included $142.9 million of PPP loans, or 40.0% of the total category.

The Company is a participant in the Federal Reserve’s MSLP to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. As of September 30, 2021, the Company’s Commercial and Industrial loans included six MSLP loans with the net carrying amount of $6.8 million, or 4.6% of the total category. As of December 31, 2020, the Company’s Commercial and Industrial loans included six MSLP loans with the net carrying amount of $6.6 million, or 4.5% of the total category.

Loan Modifications

As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.

As of September 30, 2021, the deferral period has ended for all loans previously modified and payments have resumed under the original terms. As of September 30, 2021, the Company’s loan portfolio included 72 loans which were previously modified under the loan modification program, totaling $135.0 million.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be

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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 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 as of September 30, 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. The Company continues to meet regularly with clients who could be more highly impacted by the recent COVID-19 pandemic. These are borrowers in accommodations, transportation and restaurant industries, which we believe may be more impacted by the pandemic, and those loans where there may be a greater than 50% probability of a downgrade, covenant violation or 20% reduction in collateral position. The portion of our credit exposure to the highest risk industries impacted by COVID-19, such as accommodations, transportation and restaurants, is less than 4.1% of our loan portfolio. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.

Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of September 30, 2021, 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) costs, and unamortized premiums/ (unaccreted discounts) which are not material) in loans past due as of September 30, 2021 and December 31, 2020 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
September 30, 2021	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	727	$	14	$	40	$	781	$	293,056	$	293,837
Construction and Development		—		2,522		—		2,522		129,619		132,141
1-4 Family Residential		483		—		83		566		501,873		502,439
Non-Owner Occupied CRE		—		—		—		—		358,369		358,369
Owner Occupied CRE		—		—		—		—		167,638		167,638
Commercial and Industrial		—		—		2,230		2,230		146,729		148,959
Total	$	1,210	$	2,536	$	2,353	$	6,099	$	1,597,284	$	1,603,383

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2020	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	752	$	—	$	48	$	800	$	356,220	$	357,020
Construction and Development		—		—		—		—		131,111		131,111
1-4 Family Residential		1,283		—		—		1,283		453,755		455,038
Non-Owner Occupied CRE		—		—		—		—		281,943		281,943
Owner Occupied CRE		479		—		—		479		162,563		163,042
Commercial and Industrial		271		—		3,529		3,800		142,231		146,031
Total	$	2,785	$	—	$	3,577	$	6,362	$	1,527,823	$	1,534,185

As of September 30, 2021 and December 31, 2020, the Company did not have any loans which were more than 90 days delinquent and accruing interest.

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Non-Accrual Loans and Troubled Debt Restructurings

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other	$	41	$	50
1-4 Family Residential		83		—
Owner Occupied CRE		1,250		479
Commercial and Industrial		2,984		3,529
Total	$	4,358	$	4,058

Non-accrual loans classified as TDRs accounted for $2.2 million of the recorded investment as of September 30, 2021 and $3.6 million as of December 31, 2020. Non-accrual loans are classified as impaired loans and individually evaluated for impairment.

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

	September 30,		December 31,
	2021		2020
Non-accrual
Cash, Securities, and Other	$	9	$	48
Commercial and Industrial		2,230		3,529
Total		2,239		3,577
Allowance for loan losses associated with TDR		(1,751)		(1,619)
Net recorded investment	$	488	$	1,958

As of September 30, 2021 and December 31, 2020, 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 nine months ended  September 30, 2021. The Company modified one loan resulting in TDR status during the year ended December 31, 2020. The Borrower was having difficulty making payments in accordance with the original contract terms. The Company restructured the loan including receiving a large paydown and extended the maturity and lowered the interest rate as a result of the Borrower’s financial difficulties. The loan was paid off in full as of December 31, 2020.

TDRs are reviewed individually for impairment and are included in the Company’s specific reserves in the allowance for loan losses. If charged off, the amount of the charge-off is included in the Company’s charge-off factors, which impact the Company’s reserves on non-impaired loans.

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

	September 30, 2021						December 31, 2020
			Unpaid		Allowance				Unpaid		Allowance
	Total		Contractual		for		Total		Contractual		for
	Recorded		Principal		Loan		Recorded		Principal		Loan
	Investment		Balance		Losses		Investment		Balance		Losses
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	32	$	32	$	32	$	2	$	2	$	2
Commercial and Industrial		2,230		2,230		1,751		3,419		3,419		1,619
Total	$	2,262	$	2,262	$	1,783	$	3,421	$	3,421	$	1,621
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	9	$	9	$	—	$	48	$	48	$	—
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		754		754		—		110		110		—
Total	$	2,096	$	2,096	$	—	$	637	$	637	$	—
Total impaired loans:
Cash, Securities, and Other	$	41	$	41	$	32	$	50	$	50	$	2
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		2,984		2,984		1,751		3,529		3,529		1,619
Total	$	4,358	$	4,358	$	1,783	$	4,058	$	4,058	$	1,621

The recorded investment in loans in the previous tables excludes accrued interest, deferred (fees) costs, and unamortized premiums/ (unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-accrual loans.

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The average balance of impaired loans and interest income recognized on impaired loans during the three months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Three Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	18	$	—	$	1	$	—
Commercial and Industrial		2,635		—		3,427		—
Total	$	2,653	$	—	$	3,428	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	779	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		410		220		6,462		85
1-4 Family Residential		41		—		—		—
Total	$	1,086	$	220	$	7,241	$	85
Total impaired loans:
Cash, Securities, and Other	$	28	$	—	$	780	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		3,045		220		9,889		85
1-4 Family Residential		41		—		—		—
Total	$	3,739	$	220	$	10,669	$	85

The average balance of impaired loans and interest income recognized on impaired loans during the nine months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Nine Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	1	$	—
Commercial and Industrial		3,027		21		3,462		—
Total	$	3,037	$	21	$	3,463	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	22	$	—	$	1,463	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		257		220		6,088		250
1-4 Family Residential		21		—		—		—
Total	$	613	$	271	$	7,551	$	250
Total impaired loans:
Cash, Securities, and Other	$	32	$	—	$	1,464	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		3,284		241		9,550		250
1-4 Family Residential		21		—		—		—
Total	$	3,650	$	292	$	11,014	$	250

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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,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2021
Beginning balance	$	2,039	$	871	$	3,399	$	2,223	$	1,225	$	2,795	$	12,552
(Recovery of)/provision for loan losses		85		48		97		271		(67)		(28)		406
Charge-offs		—		—		—		—		—		—		—
Recoveries		6		—		—		—		—		—		6
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Changes in allowance for loan losses for the nine months ended September 30, 2021
Beginning balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
(Recovery of)/provision for loan losses		(456)		(13)		263		490		(1)		135		418
Charge-offs		—		—		—		—		—		—		—
Recoveries		7		—		—		—		—		—		7
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Allowance for loan losses as of September 30, 2021 allocated to loans evaluated for impairment:
Individually	$	32	$	—	$	—	$	—	$	—	$	1,751	$	1,783
Collectively		2,098		919		3,496		2,494		1,158		1,016		11,181
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Loans as of September 30, 2021, evaluated for impairment:
Individually	$	41	$	—	$	83	$	—	$	1,250	$	2,984	$	4,358
Collectively		293,796		132,141		502,356		358,369		166,388		145,975		1,599,025
Ending balance	$	293,837	$	132,141	$	502,439	$	358,369	$	167,638	$	148,959	$	1,603,383

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	Cash,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2020
Beginning balance	$	2,425	$	484	$	2,708	$	1,483	$	760	$	2,494	$	10,354
Provision for/(recovery of) loan losses		192		249		392		207		309		147		1,496
Charge-offs		(6)		—		—		—		—		—		(6)
Recoveries		1		—		—		—		—		—		1
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Changes in allowance for loan losses for the nine months ended September 30, 2020
Beginning balance	$	1,058	$	200	$	2,850	$	1,176	$	911	$	1,680	$	7,875
Provision for/(recovery of) loan losses		1,571		533		250		514		158		961		3,987
Charge-offs		(30)		—		—		—		—		—		(30)
Recoveries		13		—		—		—		—		—		13
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Allowance for loan losses as of December 31, 2020 allocated to loans evaluated for impairment:
Individually	$	2	$	—	$	—	$	—	$	—	$	1,619	$	1,621
Collectively		2,577		932		3,233		2,004		1,159		1,013		10,918
Ending balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
Loans as of December 31, 2020, evaluated for impairment:
Individually	$	50	$	—	$	—	$	—	$	479	$	3,529	$	4,058
Collectively		356,970		131,111		455,038		281,943		162,563		142,502		1,530,127
Ending balance	$	357,020	$	131,111	$	455,038	$	281,943	$	163,042	$	146,031	$	1,534,185

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 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 September 30, 2021 and December 31, 2020 (in thousands):

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			Special
September 30, 2021	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	293,796	$	—	$	41	$	293,837
Construction and Development		129,618		2,523		—		132,141
1-4 Family Residential		502,356		—		83		502,439
Non-Owner Occupied CRE		352,429		5,940		—		358,369
Owner Occupied CRE		165,690		—		1,948		167,638
Commercial and Industrial		144,093		—		4,866		148,959
Total	$	1,587,982	$	8,463	$	6,938	$	1,603,383

			Special
December 31, 2020	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	356,970	$	—	$	50	$	357,020
Construction and Development		131,111		—		—		131,111
1-4 Family Residential		451,918		—		3,120		455,038
Non-Owner Occupied CRE		275,627		6,316		—		281,943
Owner Occupied CRE		161,850		—		1,192		163,042
Commercial and Industrial		140,432		—		5,599		146,031
Total	$	1,517,908	$	6,316	$	9,961	$	1,534,185

The Company had no loans graded doubtful as of September 30, 2021 and December 31, 2020.

NOTE 4 - GOODWILL

Changes in the carrying amount of goodwill were as follows (in thousands):

	September 30,		December 31,
	2021		2020
Beginning balance	$	24,191	$	19,686
Acquisition activity		—		4,505
Ending balance	$	24,191	$	24,191

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

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

Step 1 of the goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including the existing goodwill, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform the second step to the impairment test.

As of September 30, 2021 and December 31, 2020, the Company's reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded the carrying value.

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NOTE 5 - LEASES

Leases in which the Company is determined to be the lessee are primarily operating leases comprised of real estate property and office space for our corporate headquarters and profit centers with terms that extend to 2032. Certain properties contain portions that are subleased with terms that ended in 2020. In accordance with ASC 842, operating leases are required to be recognized as a right-of-use asset with a corresponding lease liability.

The following table presents the classification of the right-of-use asset and corresponding liability within the Condensed Consolidated Balance Sheets. The Company elected to not include short-term leases with initial terms of twelve months or less, on the Condensed Consolidated Balance Sheets, (in thousands).

		September 30,		December 31,
		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,450	$	11,341
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	14,608	$	13,970

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.

	September 30,		December 31,
	2021		2020
Weighted-Average Remaining Lease Term
Operating leases	5.42	years	4.79	years
Weighted-Average Discount Rate
Operating leases	2.69	%	3.04	%

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 Condensed Consolidated Statements of Income. The following table represents the Company’s net lease costs, (in thousands):

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Lease Costs
Operating lease cost	$	781	$	786	$	2,264	$	2,401
Variable lease cost		488		557		1,316		1,516
Sublease income		—		(33)		—		(232)
Lease costs, net	$	1,269	$	1,310	$	3,580	$	3,685

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter as of September 30, 2021(in thousands):

Year Ending December 31,	Operating Leases
2021(1)	$	850
2022		3,450
2023		3,210
2024		3,064
2025		2,073
Thereafter		2,871
Total future minimum lease payments		15,518
Less: imputed interest		(910)
Present value of net future minimum lease payments	$	14,608

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

NOTE 6 - DEPOSITS

The following presents the Company’s interest-bearing deposits as of the dates noted (in thousands):

	September 30,		December 31,
	2021		2020
Money market deposit accounts	$	905,196	$	847,430
Time deposits		137,015		172,682
Negotiable order of withdrawal accounts		137,833		113,052
Savings accounts		5,620		5,289
Total interest-bearing deposits	$	1,185,664	$	1,138,453
Aggregate time deposits of $250,000 or greater	$	64,902	$	73,401

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

Overdraft balances classified as loans totaled $0.1 million as of September 30, 2021 and December 31, 2020.

The following presents the scheduled maturities of all time deposits for the next five years ending September 30 (in thousands):

Year Ending December 31,		Time Deposits
2021(1)	$	39,977
2022		63,709
2023		24,819
2024		2,635
2025		1,541
Thereafter		4,334
Total	$	137,015

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

NOTE 7 - BORROWINGS

The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of

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September 30, 2021 and December 31, 2020 amounted to $767.8 million and $668.6 million, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $504.7 million as of September 30, 2021. Each advance is payable at its maturity date.

The Company had the following required maturities on FHLB borrowings as of the dates noted (in thousands):

		September 30,		December 31,
Maturity Date	Rate %	2021		2020
April 22, 2022	0.37	$	5,000	$	5,000
May 5, 2023	0.76		10,000		10,000
Total		$	15,000	$	15,000

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. As of September 30, 2021 and December 31, 2020, the Company utilized $43.6 million and $134.6 million, respectively, under the PPPLF program which is included in the FHLB and Federal Reserve borrowings line of the Condensed Consolidated Balance Sheets.

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $19.0 million, and $25.0 million. As of September 30, 2021 and December 31, 2020, there were no amounts outstanding on any of the federal funds lines.

On October 28, 2020, the Company entered into a Business Loan Agreement and associated Promissory Note (the "Note"), dated June 30, 2020, with a correspondent lending partner. The Note is secured by stock of the Bank and bears interest at the one month ICE Benchmark Administration ("IBA") LIBOR plus 2.5%. As of December 31, 2020, there were no amounts outstanding and the borrowing capacity associated with this facility was $5.0 million. The Business Loan Agreement expired on June 30, 2021, in accordance with its terms, and was not renewed.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the "Notes") totaling $15.0 million in aggregate principal amount. The issuance included $0.3 million of issuance costs resulting in a net balance of $14.7 million as of September 30, 2021 included in the Subordinated notes line of the Condensed Consolidated Balance Sheets. The Notes accrue interest at a rate of 3.25% per annum until September 1, 2026, at which time the rate will adjust each quarter to the then current three-month SOFR, or an alternative rate determined in accordance with the terms of the Notes, plus 258 basis points; mature on September 1, 2031; are redeemable at the option of the Company on or after September 1, 2026; and pay interest quarterly.

The Company’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 16 – Regulatory Capital Matters). As of September 30, 2021 and December 31, 2020, the Company was in compliance with the covenant requirements.

NOTE 8 - 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 Condensed 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.

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The following presents the Company’s financial instruments whose contract amounts represent credit risk, as of the dates noted (in thousands):

	September 30, 2021				December 31, 2020
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	73,975	$	418,045	$	78,506	$	360,883
Standby letters of credit		3,540		20,940		1,933		17,524
Commitments to make loans to sell		113,746		—		370,512		—
Commitments to make loans		40,804		15,236		24,225		25,316

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.

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 condensed consolidated financial statements.

NOTE 9 - 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 June 14, 2019, the Company announced that its board of directors had authorized a share repurchase plan (the "2019 Repurchase Plan") under which the Company may repurchase up to 300,000 shares of its common stock and that the Board of Governors of the Federal Reserve System advised the Company that it had no objection to the Company’s 2019 Repurchase Plan. The 2019 Repurchase Plan was in effect for a one-year period, with the timing of purchases and the number of shares repurchased under the program dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions. The 2019 Repurchase Plan expired in June of 2020. During the nine months ended September 30, 2020, the Company repurchased 22,679 shares at an average price of $16.50.

On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 Repurchase

27

Plan") and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2020 Repurchase Plan. The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the SEC, or otherwise in a manner that complies with applicable federal securities laws. The 2020 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice. During the three and nine months ended September 30, 2021, the Company did not repurchase any shares under the 2020 Repurchase Plan.

During the the nine months ended September 30, 2021 and 2020, the Company sold no shares of common stock.

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) vests ratably over five-years. The remaining $1.5 million, or 52,632 shares, may be earned based on performance of the mortgage division of the Company. During the the nine months ended September 30, 2020, the Company recognized compensation expense of $0.1 million, representing 14,114 shares, related to the performance-based awards. The performance based awards fully vested in the second quarter of 2020.

As of September 30, 2021, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. The Company recognized compensation expense of $0.1 million for the three months ended September 30, 2021 and 2020, for the Restricted Stock Awards. During the the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $0.2 million and $0.3 million, respectively, for the Restricted Stock Awards. As of September 30, 2021, the Company has $0.3 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of one year. During the nine months ended September 30, 2021, 10,526 shares of the Restricted Stock Awards vested. During the nine months ended September 30, 2020, 10,527 of the Restricted Stock Awards and 30,088 shares of the Performance based Restricted Stock Awards vested.

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 September 30, 2021, there were a total of 398,934 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 nine months ended September 30, 2021 and 2020.

During the three months ended September 30, 2021 and 2020, the Company recognized an immaterial amount and $0.1 million, respectively, of stock based compensation expense associated with stock options. During the nine months ended September 30, 2021 and 2020, the Company recognized an immaterial amount and $0.2 million, respectively, of stock based compensation expense associated with stock options. As of September 30, 2021, the Company has an immaterial amount of unrecognized stock-based compensation expense related to stock options which are unvested. That cost is expected to be recognized over a weighted-average period of less than one year.

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The following summarizes activity for nonqualified stock options for the nine months ended September 30, 2021:

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding as of December 31, 2020	419,197	$	29.02
Granted	—		—
Exercised	(3,750)		21.00
Forfeited or expired	(36,050)		35.91
Outstanding as of September 30, 2021	379,397		28.44	1.9	(1)
Options fully vested / exercisable as of September 30, 2021	375,827		28.46	1.8	(1)

______________________________________

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

As of September 30, 2021, there were 375,827 options that were exercisable. Exercise prices are between $20.00 and $40.00 per share, and the options are exercisable for a period of ten-years from the original grant date and expire on various dates between 2022 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 over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.

The following summarizes the activity for the Time Vesting Units, the Financial Performance Units, and the Market Performance Units for the nine months ended September 30, 2021:

	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding as of December 31, 2020	285,052	152,430	14,862
Granted	59,194	41,743	—
Vested	(66,453)	—	—
Forfeited	(14,307)	(10,149)	(1,116)
Outstanding as of September 30, 2021	263,486	184,024	13,746

During the three months ended September 30, 2021, the Company issued 4,292 shares of common stock upon the settlement of Restricted Stock Units. The remaining 1,733 shares were surrendered with a combined market value at the dates of settlement of an immaterial amount to cover employee withholding taxes. During the nine months ended September 30, 2021, the Company issued 47,351 shares of common stock upon the settlement of Restricted Stock Units. The remaining 19,102 shares were surrendered with a combined market value at the dates of settlement of $0.5 million to cover employee withholding taxes. During the nine months ended September 30, 2020, the Company issued 34,260 shares of common stock upon the settlement of Restricted Stock Units. The remaining 19,852 shares were surrendered with a combined market value at the dates of settlement of $0.3 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 59,194 Time Vesting Units with a five-year service period during the the nine months ended September 30, 2021, that vest in equal installments of 20% on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates. During the three months ended September 30, 2021 and 2020, the Company recognized compensation expense of $0.4 million and $0.4 million, respectively, for the Time Vesting Units. During the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $1.2 million and $1.0 million, respectively, for the Time Vesting Units. As of September 30, 2021, there was $3.9 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted-average period of 1.8 years.

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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 September 30, 2021 (dollars in thousands, except share amounts):

Grant Period	Threshold Accrual	Maximum Issuable Shares at Current Threshold	Unrecognized Compensation Expense		Weighted-Average (1)	Financial Metric End Date	Vesting Requirement End Date
Prior to May 1, 2019	50% on half; 100% on other half	9,198	$	18	0.3 years	December 31, 2019	December 31, 2021
May 1, 2019 through April 30, 2020	150%	80,255		372	2.3 years	December 31, 2021	December 31, 2023
May 1, 2020 through December 31, 2020, excluding November 18, 2020	150%	81,516		474	3.3 years	December 31, 2022	December 31, 2023
On November 18, 2020	150%	34,752		346	3.1 years	December 31, 2022	50% November 18, 2023 & 2025
May 3, 2021 through August 11, 2021	150%	61,118		970	4.3 years	December 31, 2023	December 31, 2025

______________________________________

⁽¹⁾ Represents the expected unrecognized stock-based compensation expense recognition period.

The following presents the Company’s Financial Performance Units activity for the nine months ended September 30 of the years noted (dollars in thousands, except share amounts):

	Units Granted		Compensation Expense Recognized
Grant Period	2021	2020	2021		2020
Prior to May 1, 2019	—	—	$	23	$	49
May 1, 2019 through April 30, 2020	—	1,866		154		246
May 1, 2020 through December 31, 2020, excluding November 18, 2020	—	58,993		153		97
On November 18, 2020		—		94		—
May 3, 2021 through August 11, 2021	41,743	—		140		—

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 is also a market condition as a vesting requirement for the Market Performance Units which affects the determination of the grant date fair value. The Company estimated the grant date fair value using various valuation assumptions. During the three and nine months ended September 30, 2021 and 2020, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of September 30, 2021, there was $0.4 million of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted-average period of less than one year.

If the Company’s common stock is trading at or above certain prices, over a performance period which ended on June 30, 2020, the Market Performance Units would have been determined to be earned and vest following the completion of a subsequent service period ending on June 30, 2022. The Company’s common stock did not trade at or above the required prices over the performance period and as a result, no Market Performance Units are eligible to be earned.

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NOTE 10 - EARNINGS PER COMMON SHARE

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Earnings per common share - Basic
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Earnings per common share - basic	$	0.80	$	1.22	$	2.35	$	2.49
Earnings per common share - Diluted
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Diluted effect of common stock equivalents:
Stock options		35,428		—		25,400		—
Time Vesting Units		144,479		85,897		126,231		44,310
Financial Performance Units		73,135		7,786		64,542		16,176
Market Performance Units		13,442		13,453		13,825		13,347
Total diluted effect of common stock equivalents		266,484		107,136		229,998		73,833
Diluted weighted average shares		8,246,353		8,019,007		8,189,266		7,962,508
Earnings per common share - diluted	$	0.78	$	1.20	$	2.28	$	2.47

Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti-dilutive.

The table below presents potentially dilutive securities excluded from the diluted earnings per share calculation for the periods indicated:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Stock options	139,639	419,197	186,462	419,197
Time Vesting Units	—	82,600	1,327	87,304
Financial Performance Units	40,745	116,051	30,216	70,769
Restricted Stock Awards	10,527	21,054	10,527	41,517
Total potentially dilutive securities	190,911	638,902	228,532	618,787

NOTE 11 - INCOME TAXES

During the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $2.0 million and $6.0 million, respectively, reflecting an effective tax rate of 24.2% and 24.3%, respectively. During the three and nine months ended September 30, 2020, the Company recorded an income tax provision of $3.2 million and $6.3 million, respectively, reflecting an effective tax rate of 24.9% and 24.3%, respectively.

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NOTE 12 - RELATED-PARTY TRANSACTIONS

The Bank extends credit to certain covered parties including Company directors, executive officers and their affiliates. As of September 30, 2021 and December 31, 2020, 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 (in thousands):

	September 30, 2021		December 31, 2020
Balance, beginning of year	$	14,321	$	5,675
Funded loans		6,172		17,348
Payments collected		(7,381)		(8,702)
Balance, end of period	$	13,112	$	14,321

Deposits from related parties held by the Bank as of September 30, 2021 and December 31, 2020 totaled $39.9 million and $26.2 million, respectively.

The Company leases office spaces from entities controlled by one of the Company’s board members. During the nine months ended September 30, 2021 and 2020, the Company incurred $0.2 million and $0.1 million, respectively, of expenses related to these leases.

NOTE 13 - 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.

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

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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).

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

Our mortgage derivatives are carried at fair value in the Company’s financial statements with changes in the fair value accounted for within the Condensed Consolidated Statements of Income.

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.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Other real estate owned is evaluated annually for additional impairment and adjusted accordingly.

Impaired Loans:  The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Impaired loans are evaluated monthly for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

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The following presents assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	249	$	—	$	—	$	249
Corporate bonds		—		8,356		—		8,356
GNMA mortgage-backed securities - residential		—		20,811		—		20,811
FNMA mortgage-backed securities - residential		—		1,155		—		1,155
Corporate CMO and MBS		—		1,662		—		1,662
Total securities available-for-sale	$	249	$	31,984	$	—	$	32,233
Equity securities	$	716	$	—	$	—	$	716
Guarantee asset	$	—	$	—	$	231	$	231
IRLC, net	$	—	$	—	$	2,185	$	2,185
Forward commitments and FSC	$	—	$	498	$	(17)	$	481
Mortgage loans held for sale	$	—	$	51,309	$	—	$	51,309

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	254	$	—	$	—	$	254
Corporate bonds		—		6,044		—		6,044
GNMA mortgage-backed securities - residential		—		24,604		—		24,604
FNMA mortgage-backed securities - residential		—		1,677		—		1,677
Corporate CMO and MBS		—		4,087		—		4,087
Total securities available-for-sale	$	254	$	36,412	$	—	$	36,666
Equity securities	$	730	$	—	$	—	$	730
Guarantee asset	$	—	$	—	$	232	$	232
IRLC, net	$	—	$	—	$	9,841	$	9,841
Forward commitments and FSC	$	—	$	(2,534)	$	(89)	$	(2,623)
Mortgage loans held for sale	$	—	$	161,843	$	—	$	161,843

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

Three Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	196	$	2,809	$	—
Acquisitions		—		6,617		(17)
Originations		—		(7,705)		—
Gains (losses) in net income, net		35		464		—
Ending balance	$	231	$	2,185	$	(17)

Three Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	222	$	7,566	$	(84)
Acquisitions		—		9,546		(89)
Originations		—		(6,466)		—
Gains (losses) in net income, net		23		1,065		84
Ending balance	$	245	$	11,711	$	(89)

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Nine Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	232	$	9,841	$	(89)
Acquisitions		—		15,123		(190)
Originations		2		(20,702)		—
Gains (losses) in net income, net		(3)		(2,077)		262
Ending balance	$	231	$	2,185	$	(17)

Nine Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	—	$	1,184	$	—
Acquisitions		—		26,264		(189)
Originations		—		(17,449)		—
Sales		245		—		—
Gains (losses) in net income, net		—		1,712		100
Ending balance	$	245	$	11,711	$	(89)

U.S. Treasury debt is reported at fair value utilizing Level 1 inputs. The remaining portfolio of securities are reported at fair value with Level 2 inputs provided by a pricing service. As of September 30, 2021 and December 31, 2020, 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 are considered.

As of September 30, 2021, equity securities, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item and the FSC have been recorded at fair value within the Other liabilities line item in the Condensed Consolidated Balance Sheets. All changes are recorded in the Other line item in the Condensed Consolidated Statements of Income.

The following presents quantitative information about Level 3 assets measured on a recurring basis as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	231		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 19% (19%)
IRLC, net		2,185		Best execution model		Pull through		72% to 100% (90%)
FSC		(17)		Internal pricing model		Market Differential		-84bps to -50bps (-75bps)

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	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	232		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 25% (25%)
IRLC, net		9,841		Best execution model		Pull through		55% to 100% (86%)
FSC		(89)		Internal pricing model		Market Differential		-59bps to -17bps (-31bps)

The following presents assets measured on a nonrecurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	479	$	479

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	194	$	194
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	1,800	$	1,800

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

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

As of September 30, 2021, the Company did not own any OREO properties. As of December 31, 2020, OREO had a carrying amount of $0.2 million, which is the cost basis of $2.1 million net of a valuation allowance of $1.9 million.

As of September 30, 2021, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $2.3 million with valuation allowances of $1.8 million and were classified as Level 3. As of December 31, 2020, impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $3.4 million with valuation allowances of $1.6 million and were classified as Level 3.

Impaired loans accounted for specific reserves of $1.8 million and $1.6 million as of September 30, 2021 and December 31, 2020. The Company did not have any charge offs during the nine months ended September 30, 2021 from the specific reserve. The Company charged off an immaterial amount during the year ended December 31, 2020 from the specific reserve.

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The following presents quantitative information about the significant unobservable inputs used in the fair value measurement of nonrecurring assets categorized within Level 3 of the fair value hierarchy as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Impaired loans(1):
Commercial and Industrial	$	479		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 45% (39%)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Other real estate owned:
Commercial properties	$	194		Sales contract		Commission, cost to sell, closing costs		5% (5%)
Impaired loans(1):
Commercial and Industrial		1,800		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 35% (26%)

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of September 30, 2021 and December 31, 2020 (in thousands):

	Carrying		Fair Value Measurements Using:
September 30, 2021	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	310,235	$	310,235	$	—	$	—
Loans, net		1,590,086		—		—		1,577,103
Accrued interest receivable		6,306		—		20		6,286
Liabilities:
Deposits		1,782,299		—		1,783,610		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,056		—
Federal Reserve borrowings – fixed rate		43,564		—		43,564		—
Subordinated notes – fixed-to-floating rate		39,010		—		—		40,313
Accrued interest payable		357		—		173		184

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	Carrying		Fair Value Measurements Using:
December 31, 2020	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	155,989	$	155,989	$	—	$	—
Loans, net		1,520,294		—		—		1,512,699
Accrued interest receivable		6,618		—		90		6,528
Liabilities:
Deposits		1,619,910		—		1,621,648		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,099		—
Federal Reserve borrowings – fixed rate		134,563		—		134,563		—
Subordinated notes – fixed-to-floating rate		24,291		—		—		25,750
Accrued interest payable		453		—		124		329

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.

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, taking into account 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.

NOTE 14 - 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 Company completed the sale of its LA fixed income team in the fourth quarter 2020. The LA fixed income team and the related assets made up a majority of the previously reported Capital Management Segment. As a result of the sale the Company evaluated its reportable segments and determined the remaining assets following the sale in the Capital

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Management segment no longer meet the thresholds of income before income tax to be a reportable segment. The residual assets that remained in the Capital Management segment are now included in the Wealth Management segment.

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

For 2020 periods presented, the Wealth Management segment includes the previously reported key metrics of the previously reported Capital Management segment.

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods as of or for the three and nine months ended September 30, 2021 and 2020 (in thousands):

As of and for the three months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	16,146	$	—	$	16,146
Total interest expense		1,300		—		1,300
Provision for loan losses		406		—		406
Net interest income, after provision for loan losses		14,440		—		14,440
Non-interest income		5,998		4,497		10,495
Total income before non-interest expense		20,438		4,497		24,935
Depreciation and amortization expense		272		13		285
All other non-interest expense		13,967		2,217		16,184
Income before income taxes	$	6,199	$	2,267	$	8,466
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the three months ended September 30, 2020	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	14,410	$	—	$	14,410
Total interest expense		1,492		—		1,492
Provision for loan losses		1,496		—		1,496
Net interest income, after provision for loan losses		11,422		—		11,422
Non-interest income		5,709		12,323		18,032
Total income before non-interest expense		17,131		12,323		29,454
Depreciation and amortization expense		260		14		274
All other non-interest expense		14,291		2,067		16,358
Income before income taxes	$	2,580	$	10,242	$	12,822
Goodwill	$	24,191	$	—	$	24,191
Assets held for sale		3,000		—		3,000
Total assets		1,867,748		105,149		1,972,897

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As of and for the nine months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	46,193	$	—	$	46,193
Total interest expense		4,071		—		4,071
Provision for loan losses		418		—		418
Net interest income, after provision for loan losses		41,704		—		41,704
Non-interest income		16,987		13,621		30,608
Total income before non-interest expense		58,691		13,621		72,312
Depreciation and amortization expense		792		40		832
All other non-interest expense		38,800		7,987		46,787
Income before income taxes	$	19,099	$	5,594	$	24,693
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the nine months ended September 30, 2020	Wealth Management			Mortgage		Consolidated
Income Statement
Total interest income	$	38,392		$	—	$	38,392
Total interest expense		5,747			—		5,747
Provision for loan losses		3,987			—		3,987
Net interest income, after provision for loan losses		28,658			—		28,658
Non-interest income		16,202			25,024		41,226
Total income before non-interest expense		44,860			25,024		69,884
Depreciation and amortization expense		770			56		826
All other non-interest expense		37,391	(1)		5,706		43,097
Income before income taxes	$	6,699		$	19,262	$	25,961
Goodwill	$	24,191		$	—	$	24,191
Assets held for sale		3,000			—		3,000
Total assets		1,867,748			105,149		1,972,897

______________________________________

⁽¹⁾ Includes loss on assets held for sale of $0.6 million and $0.2 million SEC penalty.

NOTE 15 – LOW-INCOME HOUSING TAX CREDIT INVESTMENTS

On December 19, 2019, the Company invested in a low-income housing tax credit ("LIHTC") investment. As of September 30, 2021 and December 31, 2020, the balance of the investment for LIHTC was $2.8 million and $1.1 million, respectively. These balances are reflected in the Other assets line item of the Condensed Consolidated Balance Sheets. Total unfunded commitments related to the investment in the LIHTC total $0.2 million and $2.2 million as of September 30, 2021 and December 31, 2020, respectively. The Company expects to fulfill these commitments during the year ending 2021.

The Company uses the proportional amortization method to account for this investment. During the three and nine months ended September 30, 2021, the Company recognized amortization expense of $0.1 million and $0.3 million, respectively, which was included within the Income tax expense line item of the Condensed Consolidated Statements of Income. The Company did not recognize any related amortization expense during the three and nine months ended September 30, 2020.

Additionally, during the three and nine months ended September 30, 2021, the Company recognized $0.1 million and $0.3 million of tax credits and other benefits from this investment in the LIHTC. The Company did not recognize any related tax credits or other benefits during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2021 and 2020, the Company did not incur any impairment losses.

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NOTE 16 - 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. Management believes as of September 30, 2021, First Western and the Bank meet all capital adequacy requirements to which they are subject to.

Prompt corrective action regulations for First Western and the Bank provide five classifications: 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 September 30, 2021, 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 its 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 September 30, 2021 and December 31, 2020, 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 September 30, 2021, that have changed the categorization of First Western and the Bank as well capitalized. Management believes First Western and the Bank met all capital adequacy requirements to which it was subject as of September 30, 2021 and December 31, 2020.

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The following presents the actual and required capital amounts and ratios as of September 30, 2021 and December 31, 2020 (dollars in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
September 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	156,136	11.02	%	$	85,019	6.0	%	$	113,359	8.0	%
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		156,136	11.02			63,764	4.5			92,104	6.5
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		169,435	11.96			113,359	8.0			141,699	10.0
Consolidated		204,809	14.37			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		156,136	8.11			77,047	4.0			96,308	5.0
Consolidated		151,950	7.86			N/A	N/A			N/A	N/A

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	133,963	10.22	%	$	78,660	6.0	%	$	104,880	8.0	%
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		133,963	10.22			58,995	4.5			85,215	6.5
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		146,853	11.20			104,880	8.0			131,100	10.0
Consolidated		168,957	12.80			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		133,963	7.62			70,301	4.0			87,877	5.0
Consolidated		131,507	7.45			N/A	N/A			N/A	N/A

______________________________________

⁽¹⁾ Does not include capital conservation buffer.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended to assist readers in understanding our financial condition and results of operations for the three and nine months ended September 30, 2021 and should be read in conjunction with our consolidated financial statements and the accompanying notes thereto included in this Quarterly Report on Form 10-Q (this "Form 10-Q") and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 12, 2021. Unless we state otherwise or the context otherwise requires, references in this Form 10-Q to "we," "our," "us," "the Company," and "First Western" refer to First Western Financial, Inc. and its consolidated subsidiaries, including First Western Trust Bank, which we sometimes refer to as "the Bank" or "our Bank."

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 Note Regarding Forward-Looking Statements." Also, see the risk factors and other cautionary statements described under the heading "Item 1A - Risk Factors" included in our Annual Report Form 10-K filed with the SEC on March 12, 2021 and in Part II–Item 1A of this Form 10-Q. 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, 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 September 30, 2021, we have expanded our footprint into twelve full service profit centers, two loan production offices, and two trust offices located across four states. As of and for the nine months ended September 30, 2021, we had $2.08 billion in total assets, $72.3 million in total revenues, and provided fiduciary and advisory services on $6.91 billion of assets under management ("AUM").

Response to COVID-19

The spread of COVID-19 has caused significant disruptions in the U.S. economy since it was declared a pandemic in March of 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, related emergency response legislation, and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future. The changes have impacted our clients and their industries, as well as the financial services industry. At this time, we cannot predict the impact or how long the economy or our impacted clients will be disrupted.

The Company activated its Business Continuity Management Plan in early 2020 in response to the emergence of COVID-19 and has continued to adjust as the crisis continues to impact our markets, clients and business. A majority of our associates have been working remotely since early 2020. All of our offices are open, functioning, and continue to operate as usual. We are taking additional precautions within our profit centers, including enhanced cleaning procedures and physical distancing measures, to ensure the safety of our clients and our associates.

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 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 participated in all rounds of the

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program. As of September 30, 2021, we held 240 PPP loans for a total of $61.9 million with an average loan size of $0.3 million. As of September 30, 2021, the Company had submitted loans with original loan amounts of $241.5 million to the SBA for forgiveness and had received forgiveness on 988 loans totaling $214.8 million.

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 a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company has offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years. The Company had seventy-two loans across multiple industries in the amount of $135.0 million of loans that participated in the Company’s COVID loan modification program. All loans in the loan modification program were performing according to Bank policy as of September 30, 2021.

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 September 30, 2021, the Company had six loans with a balance held by the Bank of $6.8 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 Condensed 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 available-for-sale 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, available-for-sale 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

44

management fees, bill pay fees, servicing fees for Main Street Lending Program, 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 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.

● Other—non-operating income generated through a transition services agreement with the buyer of the LA fixed income team.

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 leasing our office space, depreciation charges for the furniture, fixtures and equipment, amortization of leasehold improvements, utilities, and other occupancy-related expenses. Occupancy and equipment costs 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 and other similar items recognized in connection with acquisitions.

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

● 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 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.

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Operating Segments

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 14 - Segment Reporting of the accompanying Notes to the Condensed Consolidated Financial Statements.

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 September 30, 2021, the Bank’s capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.

Results of Operations

Overview

The three months ended September 30, 2021 compared with the three months ended September 30, 2020. We reported net income available to common shareholders of $6.4 million for the three months ended September 30, 2021, compared to $9.6 million of net income available to common shareholders for the three months ended September 30, 2020, a $3.2 million, or 33.4%, decrease. For the three months ended September 30, 2021, our income before income tax was $8.5 million, a $4.4 million, or 34.0%, decrease from the three months ended September 30, 2020. The decrease was primarily driven by a $7.8 million decrease in net gain on mortgage loans, partially offset by a $3.0 million increase in net interest income, after provision for loan losses. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity. The increase in net interest income, after provision for loan losses was primarily driven by a $1.7 million increase in interest income from loans and a $1.1 million decrease in provision for loan losses.  Interest income increased as a result of a $97.0 million increase in total gross loans.  Provison for loan losses decreased year over year due to additional provision recorded in the three months ended September 30, 2020 due to additional variability surrounding the COVID-19 loan modifications and increased economic uncertainty.

The nine months ended September 30, 2021 compared with the nine months ended September 30, 2020. We reported net income available to common shareholders of $18.7 million for the nine months ended September 30, 2021, compared to $19.7 million of net income available to common shareholders for the nine months ended September 30, 2020, a $1.0 million, or 4.9%, decrease. For the nine months ended September 30, 2021, our income before income tax was $24.7 million, a $1.3 million, or 4.9%, decrease from the nine months ended September 30, 2020. The decrease was primarily driven by an $11.4 million decrease in net gain on mortgage loans and a $3.7 million increase in non-interest expense, partially offset by a $13.0 million increase in net interest income, after provision for loan losses. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity. The increase in non-interest expense was primarily driven by a $2.1 million decrease in deferred

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compensation, and a $2.4 million increase in personnel expense to support the growth in the balance sheet, and added personnel from the Branch Acquisition. The increase in net interest income was due to an increase in average loan balances and a reduction in our average cost of funds.

Net Interest Income

The three months ended September 30, 2021 compared with the three months ended September 30, 2020. For the three months ended September 30, 2021, net interest income, before the provision for loan losses, was $14.8 million, an increase of $1.9 million, or 14.9%, compared to the three months ended September 30, 2020. The increase in net interest income was driven by a $129.9 million increase in average loans outstanding, a 11 basis point increase in the average yield on loans, and a 7 basis point decrease in the average cost of funds, partially offset by a $115.1 million increase in average interest bearing deposit balances. Net interest margin increased 7 basis points to 3.14% in the third quarter of 2021 from 3.07% reported in the third quarter of 2020. The increase in net interest margin was primarily a result of a 11 basis point increase in average yield on loans and a 7 basis point decrease in the average cost of funds.

The nine months ended September 30, 2021 compared with the nine months ended September 30, 2020.  For the nine months ended September 30, 2021, net interest income, before the provision for loan losses, was $42.1 million, an increase of $9.5 million, or 29.0%, compared to the nine months ended September 30, 2020.  The increase in net interest income was driven by a $323.9 million increase in average loans outstanding and a 26 basis point decrease in the average cost of funds, partially offset by a $227.4 million increase in average interest bearing deposit balances.  Net interest margin decreased 8 basis points to 3.02%, in the nine months ended September 30, 2021, from the 3.10% reported in the nine months ended September 30, 2020. The decrease in net interest margin was primarily a result of a 14 basis point decrease in average loan yield and a more liquid balance sheet mix.

The increase in average loans outstanding for the three months ended September 30, 2021 compared to the same period in 2020 was due to organic growth, offset partially by forgiveness activity on PPP loans. The increase in average loans outstanding for the nine months ended September 30, 2021 compared to the same period in 2020 was due to organic growth and the Branch Acquisition. The net interest income related to PPP loans increased $0.4 million and $2.1 million for the three and nine months ended September 30, 2021. Average loan yields were 3.98% and 3.84% for the three and nine months ended September 30, 2021, compared to 3.87% and 3.98% for the three and nine months ended September 30, 2020. The increase in loan yields during the three-month period was primarily driven by an increase in PPP net origination fees.  The decrease in loan yields during the nine-month period was primarily driven by a lower interest rate environment, offset partially by an increase in PPP net origination fees.

Interest income on our available-for-sale securities portfolio increased as a result of a 76 basis point increase in average yield for the three months ended September 30, 2021 compared to the same period in 2020. For the nine months ended September 30, 2021, compared to the same period  in 2020, interest income decreased as a result of lower average balances.  Our average yield on available-for-sale securities during the three and nine months ended September 30, 2021 was 2.47% and 2.49%, a 76 and 57 basis point increase, compared to the same period in 2020. The impact of the reduction in average balances was partially offset by a higher average yield on the securities portfolio.

Interest expense on deposits decreased during the three and nine months ended September 30, 2021 compared to the same period in 2020. The decrease was driven primarily by a 10 and 29 basis point decline in cost of deposits for the three and nine months ended September 30, 2021 compared to the same period in 2020. The decrease in cost of deposits was driven by a reduction in deposit rates consistent with the lower interest rate environment as well as the intentional reduction in higher rate non-relationship deposit balances. The reduction in cost of deposits was partially offset by an increase in average interest-bearing deposit accounts of $115.1 million and $227.4 million, for the three and nine months ended September 30, 2021, compared to the same period in 2020.

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

	As of and for the Three Months Ended September 30,
	2021						2020
			Interest		Average				Interest		Average
	Average		Earned /		Yield /		Average		Earned /		Yield /
(Dollars in thousands)	Balance(1)		Paid		Rate		Balance(1)		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other financial institutions	$	266,614	$	105	0.16	%	$	178,756	$	99	0.22	%
Available-for-sale securities(2)		29,130		180	2.47			40,528		173	1.71
Loans(3)		1,592,800		15,861	3.98			1,462,872		14,138	3.87
Interest-earning assets(4)		1,888,544		16,146	3.42			1,682,156		14,410	3.43
Mortgage loans held for sale(5)		54,717		406	2.97			94,714		643	2.72
Total interest-earning assets, plus mortgage loans held for sale		1,943,261		16,552	3.41			1,776,870		15,053	3.39
Allowance for loan losses		(12,740)						(10,965)
Noninterest-earning assets		92,901						101,874
Total assets	$	2,023,422					$	1,867,779
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,160,433		829	0.29		$	1,045,321		1,067	0.41
FHLB and Federal Reserve borrowings		81,307		82	0.40			222,225		204	0.37
Subordinated notes		29,236		389	5.32			14,445		221	6.12
Total interest-bearing liabilities		1,270,976		1,300	0.41			1,281,991		1,492	0.47
Noninterest-bearing liabilities:
Noninterest-bearing deposits		562,569						417,502
Other liabilities		17,359						22,564
Total noninterest-bearing liabilities		579,928						440,066
Total shareholders’ equity		172,518						145,722
Total liabilities and shareholders’ equity	$	2,023,422					$	1,867,779
Net interest rate spread(6)					3.01						2.96
Net interest income(7)			$	14,846					$	12,918
Net interest margin(8)					3.14	%					3.07	%

48

	As of and For the Nine Months Ended September 30,
	2021						2020
			Interest		Average				Interest		Average
	Average		Earned /		Yield /		Average		Earned /		Yield /
(Dollars in thousands)	Balance(1)		Paid		Rate		Balance (1)		Paid		Rate
Assets
Interest-earning assets:
Interest-bearing deposits in other financial institutions	$	257,796	$	288	0.15	%	$	108,010	$	358	0.44	%
Available-for-sale securities(2)		29,180		545	2.49			48,117		692	1.92
Loans(3)		1,573,919		45,360	3.84			1,250,052		37,342	3.98
Interest-earning assets(4)		1,860,895		46,193	3.31			1,406,179		38,392	3.64
Mortgage loans held for sale(5)		105,345		2,183	2.76			67,010		1,519	3.02
Total interest-earning assets, plus mortgage loans held for sale		1,966,240		48,376	3.28			1,473,189		39,911	3.61
Allowance for loan losses		(12,608)						(9,230)
Noninterest-earning assets		95,612						91,924
Total assets	$	2,049,244					$	1,555,883
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	1,163,050		2,669	0.31		$	935,689		4,779	0.68
FHLB and Federal Reserve borrowings		122,395		331	0.36			99,379		384	0.52
Subordinated notes		25,934		1,071	5.51			12,256		584	6.35
Total interest-bearing liabilities		1,311,379		4,071	0.41			1,047,324		5,747	0.73
Noninterest-bearing liabilities:
Noninterest-bearing deposits		553,314						350,475
Other liabilities		18,342						20,426
Total noninterest-bearing liabilities		571,656						370,901
Shareholders’ equity		166,209						137,658
Total liabilities and shareholders’ equity	$	2,049,244					$	1,555,883
Net interest rate spread(6)					2.90						2.91
Net interest income(7)			$	42,122					$	32,645
Net interest margin(8)					3.02	%					3.10	%

_____________________________________________________________

⁽¹⁾ Average balance represents daily averages, unless otherwise noted.

⁽²⁾ Represents monthly averages.

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

⁽⁴⁾ Tax-equivalent yield adjustments are immaterial.

⁽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 in the Condensed Consolidated Statements of Income. These balances are excluded from the margin calculations in these tables.

⁽⁶⁾ 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.

⁽⁷⁾ Net interest income is the difference between income earned on interest-earning assets, which does not include interest earned on mortgage loans held for sale, and expense paid on interest-bearing liabilities.

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

49

The following table 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.

	Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021
	Compared to 2020						Compared to 2020
	Increase						Increase
	(Decrease) Due				Total		(Decrease) Due				Total
	to Change in:				Increase		to Change in:				Increase
(Dollars in thousands)	Volume		Rate		(Decrease)		Volume		Rate		(Decrease)
Interest-earning assets:
Interest-bearing deposits in other financial institutions	$	35	$	(29)	$	6	$	167	$	(237)	$	(70)
Available-for-sale securities		(70)		77		7		(354)		207		(147)
Loans		1,294		429		1,723		9,334		(1,316)		8,018
Total increase (decrease) in interest income	$	1,259	$	477	$	1,736	$	9,147	$	(1,346)	$	7,801
Interest-bearing liabilities:
Interest-bearing deposits		82		(320)		(238)		522		(2,632)		(2,110)
FHLB and Federal Reserve borrowings		(142)		20		(122)		62		(115)		(53)
Subordinated notes		197		(29)		168		565		(78)		487
Total increase (decrease) in interest expense	$	137	$	(329)	$	(192)	$	1,149	$	(2,825)	$	(1,676)
Increase in net interest income	$	1,122	$	806	$	1,928	$	7,998	$	1,479	$	9,477

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 nine months ended September 30, 2021, we recorded a $0.4 million provision for credit losses.

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

Non-Interest Income

The three months ended September 30, 2021 compared with the three months ended September 30, 2020. For the three months ended September 30, 2021 compared with the three months ended September 30, 2020, non-interest income decreased $7.5 million, or 41.8%, to $10.5 million. The decrease in non-interest income during the three months ended September 30, 2021 was primarily a result of a $7.8 million decrease in net gain on mortgage loans, compared to the same period in 2020.

The nine months ended September 30, 2021 compared with the nine months ended September 30, 2020. For the nine months ended September 30, 2021 compared with the nine months ended September 30, 2020, non-interest income decreased $10.6 million, or 25.8%, to $30.6 million. The decrease in non-interest income during the nine months ended September 30, 2021 was primarily a result of a $11.4 million decrease in net gain on mortgage loans, compared to the same period in 2020.

50

The tables below present the significant categories of our non-interest income for the three and nine months ended September 30, 2021 and 2020:

	Three Months Ended
	September 30,				Change
(Dollars in thousands)	2021		2020		$		%
Non-interest income:
Trust and investment management fees	$	5,167	$	4,814	$	353		7.3	%
Net gain on mortgage loans		4,480		12,304		(7,824)		(63.6)
Bank fees		458		340		118		34.7
Risk management and insurance fees		301		483		(182)		(37.7)
Income on company-owned life insurance		89		91		(2)		(2.2)
Total non-interest income	$	10,495	$	18,032	$	(7,537)	(41.8)		%
	Nine Months Ended
	September 30,				Change
(Dollars in thousands)	2021		2020		$		%
Non-interest income:
Trust and investment management fees	$	15,023	$	14,154	$	869		6.1	%
Net gain on mortgage loans		13,590		24,958		(11,368)		(45.5)
Bank fees		1,225		929		296		31.9
Risk management and insurance fees		444		912		(468)		(51.3)
Income on company-owned life insurance		266		273		(7)		(2.6)
Other		60		—		60		*
Total non-interest income	$	30,608	$	41,226	$	(10,618)	(25.8)		%

________________________________________

* Not meaningful

Trust and investment management fees—For the three months ended September 30, 2021 compared to the same period in 2020, our trust and investment management fees increased $0.4 million, or 7.3%. For the nine months ended September 30, 2021 compared to the same period in 2020, our trust and investment management fees increased $0.9 million, or 6.1%. The increase is driven by asset growth, partially offset by a reduction in trust and investment management fees generated by the LA Fixed Income team that was sold in November 2020.

Net gain on mortgage loans—For the three months ended September 30, 2021 compared to the same period in 2020, our net gain on mortgage loans decreased by $7.8 million, or 63.6%, to $4.5 million. For the nine months ended September 30, 2021 compared to the same period in 2020, our net gain on mortgage loans decreased by $11.4 million, or 45.5%, to $13.6 million. The decrease in net gain on mortgage loans was primarily driven by a slowdown in new interest rate locks with customers associated with the decrease in refinance activity.  

Bank fees— For the three months ended September 30, 2021 compared to the same period in 2020, our bank fees increased by $0.1 million or 34.7%. For the nine months ended September 30, 2021 compared to the same period in 2020, our bank fees increased $0.3 million, or 31.9%. The increase during the three month period was primarily driven by an increase in loan pre-payment penalty fees. The increase during the nine month period was primarily driven by servicing fees related to participation in the Main Street Lending Program.

Non-Interest Expense

The three months ended September 30, 2021 compared with the three months ended September 30, 2020. The decrease in non-interest expense of 1.0% to $16.5 million for the three months ended September 30, 2021, was primarily due to lower data processing, provision for other real estate owned, and other expenses, partially offset by an increase in professional services expense.

The nine months ended September 30, 2021 compared with the nine months ended September 30, 2020. The increase in non-interest expense of 8.4% to $47.6 million for the nine months ended September 30, 2021, was primarily due to higher salaries and employee benefits, and professional services expenses, offset partially by a reduction in net loss on assets held for sale and other non-interest expense.

51

The tables below present the significant categories of our non-interest expense for the periods noted:

	Three Months Ended
	September 30,				Change
(Dollars in thousands)	2021		2020		$		%
Non-interest expense:
Salaries and employee benefits	$	10,229	$	10,212	$	17	0.2	%
Occupancy and equipment		1,550		1,619		(69)	(4.3)
Professional services		1,660		1,288		372	28.9
Technology and information systems		945		1,032		(87)	(8.4)
Data processing		912		1,038		(126)	(12.1)
Marketing		397		395		2	0.5
Amortization of other intangible assets		5		4		1	25.0
Provision on other real estate owned		—		100		(100)	*
Other		771		944		(173)	(18.3)
Total non-interest expense	$	16,469	$	16,632	$	(163)	(1.0)	%
	Nine Months Ended
	September 30,				Change
(Dollars in thousands)	2021		2020		$		%
Non-interest expense:
Salaries and employee benefits	$	29,733	$	25,384	$	4,349	17.1	%
Occupancy and equipment		4,402		4,574		(172)	(3.8)
Professional services		4,309		3,542		767	21.7
Technology and information systems		2,791		2,994		(203)	(6.8)
Data processing		3,020		2,922		98	3.4
Marketing		1,116		1,063		53	5.0
Amortization of other intangible assets		13		44		(31)	(70.5)
Net loss on assets held for sale		—		553		(553)	*
Provision on other real estate owned		—		100		(100)	*
Other		2,235		2,747		(512)	(18.6)
Total non-interest expense	$	47,619	$	43,923	$	3,696	8.4	%

________________________________________

* Not meaningful

Salaries and employee benefits—Salaries and employee benefits increased an immaterial amount, or 0.2%, and $4.3 million, or 17.1%, for the three and nine months ended September 30, 2021, respectively. The increase during the nine-month period was primarily driven by a $2.1 million decrease related to deferred compensation and an increase in personnel expense to support the growth in the balance sheet, and added personnel from the Branch Acquisition.  

Professional services—Professional services increased by $0.4 million, or 28.9%, and $0.8 million, or 21.7%, for the three and nine months ended September 30, 2021, respectively. The increase during the three month period was primarily driven by additional expenses related to M&A due diligence and the PPP program. The increase during the nine month period was primarily driven by additional expenses related to M&A due diligence, additional expenses related to the PPP program and additional FDIC insurance expense related to our balance sheet growth.

Technology and information systems—Technology and information systems decreased $0.1 million, or 8.4%, and $0.2 million, or 6.8% for the three and nine months ended September 30, 2021. The decrease during the three and nine-month periods was driven by the sale of the LA fixed income team.

Data processing—Data processing decreased by $0.1 million, or 12.1%, and increased by $0.1 million, or 3.4%, for the three and nine months ended September 30, 2021, respectively.  The decrease during the three-month period was primarily driven by a decrease in core systems cost as a result of renegotiated contracts. The increase during the nine-month period was primarily driven by an increase in our Mortgage segment.

Net loss on assets held for sale—The decrease in net loss on assets held for sale of $0.6 million for the nine months ended September 30, 2021 was driven by the completion of the sale of held for sale assets in 2020.

52

Other—The decrease in other of $0.2 million, or 18.3%, and $0.5 million, or 18.6% for the three and nine months ended September 30, 2021, respectively, was primarily driven by an SEC penalty of $0.2 million, and other fraud losses in 2020.

Income Tax

The Company recorded an income tax provision of $2.0 million and $3.2 million, respectively, for the three months ended September 30, 2021 and 2020, reflecting an effective tax rate of 24.2% and 24.9%, respectively. The Company recorded an income tax provision of $6.0 million and $6.3 million, respectively, for the nine months ended September 30, 2021 and 2020, reflecting an effective tax rate of 24.3% for both periods.

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. Our Mortgage segment consists of operations relating 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. Services provided by our Mortgage segment include soliciting, originating, and selling mortgage loans into the secondary market. Mortgage loans originated and held for investment purposes are recorded in the Wealth Management segment, as this segment provides ongoing services to our clients.

The Company completed the sale of its LA fixed income team in the fourth quarter 2020. The LA fixed income team and the related assets made up a majority of the previously reported Capital Management Segment. As a result of the sale, the Company evaluated its reportable segments and determined the remaining assets in the Capital Management segment no longer met the thresholds to be a reportable segment.

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

The following tables present key metrics related to our segments:

	Three Months Ended September 30, 2021									Nine Months Ended September 30, 2021
	Wealth									Wealth
(Dollars in thousands)	Management			Mortgage			Consolidated			Management			Mortgage			Consolidated
Income(1)	$	20,438		$	4,497		$	24,935		$	58,691		$	13,621		$	72,312
Income before taxes	$	6,199		$	2,267		$	8,466		$	19,099		$	5,594		$	24,693
Profit margin		30.3	%		50.4	%		34.0	%		32.5	%		41.1	%		34.1	%

	Three Months Ended September 30, 2020									Nine Months Ended September 30, 2020
	Wealth									Wealth
(Dollars in thousands)	Management			Mortgage			Consolidated			Management			Mortgage			Consolidated
Income(1)	$	17,131		$	12,323		$	29,454		$	44,860		$	25,024		$	69,884
Income before taxes	$	2,580		$	10,242		$	12,822		$	6,699		$	19,262		$	25,961
Profit margin		15.1	%		83.1	%		43.5	%		14.9	%		77.0	%		37.1	%

________________________________________

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

53

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

Wealth Management

	As of and for the Three Months Ended September 30,
(Dollars in thousands)	2021		2020(1)			$ Change		% Change
Total interest income	$	16,146	$	14,410		$	1,736	12.0	%
Total interest expense		1,300		1,492			(192)	(12.9)
Provision for loan losses		406		1,496			(1,090)	(72.9)
Net interest income, after provision for loan losses		14,440		11,422			3,018	26.4
Non-interest income		5,998		5,709			289	5.1
Total income		20,438		17,131			3,307	19.3
Depreciation and amortization expense		272		260			12	4.6
All other non-interest expense		13,967		14,291			(324)	(2.3)
Income before income tax	$	6,199	$	2,580		$	3,619	140.3	%
Goodwill	$	24,191	$	24,191		$	—	—
Assets held for sale		—		3,000			(3,000)	*
Total assets	$	2,020,896	$	1,867,748		$	153,148	8.2	%
	As of and for the Nine Months Ended September 30,
(Dollars in thousands)	2021		2020(1)			$ Change		% Change
Total interest income	$	46,193	$	38,392		$	7,801	20.3	%
Total interest expense		4,071		5,747			(1,676)	(29.2)
Provision for loan losses		418		3,987			(3,569)	(89.5)
Net interest income, after provision for loan losses		41,704		28,658			13,046	45.5
Non-interest income		16,987		16,202			785	4.8
Total income		58,691		44,860			13,831	30.8
Depreciation and amortization expense		792		770			22	2.9
All other non-interest expense		38,800		37,391	(2)​		1,409	3.8
Income before income tax	$	19,099	$	6,699		$	12,400	185.1	%
Goodwill	$	24,191	$	24,191		$	—	—	%
Assets held for sale		—		3,000			(3,000)	*
Total assets	$	2,020,896	$	1,867,748		$	153,148	8.2	%

________________________________________

* Not meaningful

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

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

The Wealth Management segment reported income before income tax of $6.2 million and $19.1 million for the three and nine months ended September 30, 2021, respectively, compared to $2.6 million and $6.7 million for the same periods in 2020. The majority of our assets and liabilities are on the Wealth Management segment balance sheet and the increase in income before taxes is primarily driven by an increase in net interest income, after provision for loan losses, offset partially by an increase in non-interest expense.  The increase in net interest income was primarily driven by an increase in average loans outstanding and a decrease in the average cost of funds. Provision for loan losses decreased as a result of additional provision recorded in 2020 due to additional variability surrounding the COVID-19 loan modifications and increased economic uncertainty. The growth in revenues have outpaced the growth in non-interest expense in the Wealth Management segment.

54

Mortgage

	As of and for the Three Months Ended September 30,
(Dollars in thousands)	2021		2020		$ Change		% Change
Total interest income	$	—	$	—	$	—	—	%
Total interest expense		—		—		—	—
Provision for loan losses		—		—		—	—
Net interest income, after provision for loan losses		—		—		—	—
Non-interest income		4,497		12,323		(7,826)	(63.5)
Total income		4,497		12,323		(7,826)	(63.5)
Depreciation and amortization expense		13		14		(1)	(7.1)
All other non-interest expense		2,217		2,067		150	7.3
Income before income tax	$	2,267	$	10,242	$	(7,975)	(77.9)
Total assets	$	55,376	$	105,149	$	(49,773)	(47.3)	%
	As of and for the Nine Months Ended September 30,
(Dollars in thousands)	2021		2020		$ Change		% Change
Total interest income	$	—	$	—	$	—	—	%
Total interest expense		—		—		—	—
Provision for loan losses		—		—		—	—
Net interest income, after provision for loan losses		—		—		—	—
Non-interest income		13,621		25,024		(11,403)	(45.6)
Total income		13,621		25,024		(11,403)	(45.6)
Depreciation and amortization expense		40		56		(16)	(28.6)
All other non-interest expense		7,987		5,706		2,281	40.0
Income before income tax	$	5,594	$	19,262	$	(13,668)	(71.0)	%
Total assets	$	55,376	$	105,149	$	(49,773)	(47.3)	%

The Mortgage segment reported income before income tax of $2.3 million and $5.6 million for the three and nine months ended September 30, 2021, respectively, compared to $10.2 million and $19.3 million for the same periods in 2020. The overall decrease in non-interest income was primarily driven by a slowdown in new lock volume associated with the decrease in refinance activity. The overall increase in non-interest expense was primarily driven by variable costs associated with the increase in mortgage originations during the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020.

Financial Condition

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

55

	September 30,		December 31,
(Dollars in thousands)	2021		2020		$ Change		% Change
Balance Sheet Data:
Cash and cash equivalents	$	310,235	$	155,989	$	154,246	98.9	%
Investments		32,233		36,666		(4,433)	(12.1)
Gross loans		1,603,050		1,532,833		70,217	4.6
Allowance for loan losses		(12,964)		(12,539)		(425)	3.4
Loans, net of allowance		1,590,086		1,520,294		69,792	4.6
Mortgage loans held for sale		51,309		161,843		(110,534)	(68.3)
Goodwill & other intangible assets, net		24,246		24,258		(12)	(0.0)
Company-owned life insurance		15,715		15,449		266	1.7
Other assets		52,448		59,156		(6,708)	(11.3)
Total assets	$	2,076,272	$	1,973,655	$	102,617	5.2
Deposits	$	1,782,299	$	1,619,910	$	162,389	10.0
Borrowings		97,574		173,854		(76,280)	(43.9)
Other liabilities		21,270		24,929		(3,659)	(14.7)
Total liabilities		1,901,143		1,818,693		82,450	4.5
Total shareholders’ equity		175,129		154,962		20,167	13.0
Total liabilities and shareholders’ equity	$	2,076,272	$	1,973,655	$	102,617	5.2	%

________________________________________

* Not meaningful

Cash and cash equivalents increased by $154.2 million, or 98.9%, to $310.2 million as of September 30, 2021 compared to December 31, 2020. The increase in liquidity was driven by organic growth in deposits and a reduction in mortgage loans held for sale. Deposit growth was driven by new client relationships, in addition to increases in existing client accounts, and corporate initiatives to support current and future balance sheet growth.  The decrease in mortgage loans held for sale balances was due to the increase in loan sale volume.  During the same period, investments decreased by $4.4 million, or 12.1%, to $32.2 million as of September 30, 2021.

Loans, net of allowance increased by $69.8 million, or 4.6%, to $1.59 billion as of September 30, 2021 compared to December 31, 2020. The increase was driven by organic growth net of PPP loan forgiveness. We experienced growth in all categories excluding PPP loans that are included in the Cash, Securities and Other category.

Mortgage loans held for sale decreased $110.5 million, or 68.3%, to $51.3 million as of September 30, 2021 compared to December 31, 2020. The decrease was driven by an increase in loan sale volume.

Other assets decreased by $6.7 million, or 11.3%, to $52.4 million as of September 30, 2021 compared to December 31, 2020. This was primarily related to a $7.7 million decrease in balances related to unfunded mortgage IRLC.

Deposits increased $162.4 million, or 10.0%, to $1.78 billion as of September 30, 2021 compared to December 31, 2020. The increase was primarily attributable to an increase in non-interest bearing and money market deposits resulting from inflows from commercial depositors and higher deposit balances across the Company’s clientele due to the improving economic and business environment.

Money market deposit accounts increased $57.8 million, or 6.8%, to $905.2 million as of September 30, 2021 compared to December 31, 2020. Time deposit accounts decreased $35.7 million, or 20.7%, from December 31, 2020 to $137.0 million as of September 30, 2021. Negotiable order of withdrawal, or NOW accounts, increased $24.8 million, or 21.9%, to $137.8 million from December 31, 2020 to September 30, 2021.

Borrowings decreased $76.3 million, or 43.9%, to $97.6 million as of September 30, 2021 compared to December 31, 2020. The decrease is attributed to a reduction in outstanding advances on the Federal Reserve’s Paycheck Protection Program Loan Facility. Borrowing from this facility is expected to trend in the same direction as the PPP loan balances.

Other liabilities decreased $3.7 million, or 14.7%, to $21.3 million as of September 30, 2021 compared to December 31, 2020. The decrease is primarily attributed to decreases in salaries payable and payables related to the mortgage hedge position.

Total shareholders’ equity increased $20.2 million, or 13.0%, from December 31, 2020 to $175.1 million as of September 30, 2021. The increase is primarily due to an increase in net income.

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Assets Under Management

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in millions)	2021			2020			2021			2020
Managed Trust Balance at Beginning of Period	$	1,892		$	1,520		$	1,890		$	1,750
New relationships		9			-			25			13
Closed relationships		(1)			(1)			(2)			(12)
Contributions		13			11			41			75
Withdrawals		(25)			(10)			(179)			(110)
Market change, net		74			140			187			(56)
Ending Balance	$	1,962		$	1,660		$	1,962		$	1,660
Yield*		0.17	%		0.19	%		0.17	%		0.19	%
Directed Trust Balance at Beginning of Period	$	1,069		$	883		$	951		$	989
New relationships		9			9			91			14
Closed relationships		—			—			(7)			(5)
Contributions		7			9			25			33
Withdrawals		(3)			(21)			(17)			(91)
Market change, net		17			28			56			(32)
Ending Balance	$	1,099		$	908		$	1,099		$	908
Yield*		0.09	%		0.08	%		0.08	%		0.08	%
Investment Agency Balance at Beginning of Period	$	2,044		$	1,956		$	1,840		$	2,009
New relationships		12			18			73			97
Closed relationships		(35)			(2)			(58)			(11)
Contributions		73			71			241			178
Withdrawals		(45)			(45)			(173)			(174)
Market change, net		(30)			41			96			(60)
Ending Balance	$	2,019		$	2,039		$	2,019		$	2,039
Yield*		0.72	%		0.67	%		0.69	%		0.65	%
Custody Balance at Beginning of Period	$	614		$	474		$	518		$	452
New relationships		-			7			—			7
Closed relationships		-			—			(1)			(2)
Contributions		3			2			74			78
Withdrawals		(11)			(57)			(21)			(72)
Market change, net		7			36			43			(1)
Ending Balance	$	613		$	462		$	613		$	462
Yield*		0.03	%		0.03	%		0.03	%		0.03	%
401(k)/Retirement Balance at Beginning of Period	$	1,143		$	919		$	1,056		$	988
New relationships		-			8			8			12
Closed relationships		(4)			(2)			(56)			(46)
Contributions		30			41			85			101
Withdrawals		(23)			(20)			(81)			(61)
Market change, net		67			116			201			68
Ending Balance(1)	$	1,213		$	1,062		$	1,213		$	1,062
Yield*		0.14	%		0.14	%		0.14	%		0.15	%
Total Assets Under Management at Beginning of Period	$	6,762		$	5,752		$	6,255		$	6,188
New relationships		30			42			197			143
Closed relationships		(40)			(5)			(124)			(76)
Contributions		126			134			466			465
Withdrawals		(107)			(153)			(471)			(508)
Market change, net		135			361			583			(81)
Total Assets Under Management	$	6,906		$	6,131		$	6,906		$	6,131
Yield*		0.30	%		0.31	%		0.29	%		0.31	%

________________________________________

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

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

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Assets under management increased $143.8 million, or 2.1%, for the three months ended September 30, 2021 and increased $650.6 million, or 10.4%, for the nine months ended September 30, 2021. The increase was primarily attributable to improving market conditions resulting in an increase in the value of assets under management balances.

Available-for-sale securities

Investments we intend to hold for an indefinite period of time, but not necessarily to maturity, are classified as available-for-sale and are recorded at fair value using current market information from a pricing service, with unrealized gains and losses excluded from earnings and reported in other comprehensive income, net of tax. All our investments in securities were classified as available-for-sale for the periods presented below. The carrying values of our investment securities classified as available-for-sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.

The following tables summarize the amortized cost and estimated fair value of our investment securities as of September 30, 2021 and December 31, 2020:

	September 30, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	(1)	$	249
Corporate bonds		8,117		249		(10)		8,356
Government National Mortgage Association ("GNMA") mortgage -backed securities—residential		20,488		351		(28)		20,811
Federal National Mortgage Association ("FNMA") mortgage-backed securities—residential		1,102		53		—		1,155
Corporate collateralized mortgage obligations ("CMO") and mortgage-backed securities ("MBS")		1,645		35		(18)		1,662
Total securities available-for-sale	$	31,602	$	688	$	(57)	$	32,233

	December 31, 2020
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	4	$	—	$	254
Corporate bonds		6,000		55		(11)		6,044
GNMA mortgage -backed securities—residential		23,806		798		—		24,604
FNMA mortgage-backed securities—residential		1,616		61		—		1,677
Corporate CMO and MBS		4,078		62		(53)		4,087
Total securities available-for-sale	$	35,750	$	980	$	(64)	$	36,666

The following tables represent 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. Weighted average

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yields are not presented on a taxable equivalent basis. Securities not due at a single maturity date are included as after ten years.

	Maturity as of September 30, 2021
	One Year or Less				One to Five Years				Five to Ten Years				After Ten Years
			Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
(Dollars in thousands)	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield
Available-for-sale:
U.S. Treasury debt	$	—	—	%	$	250	*	%	$	—	—	%	$	—	—	%
Corporate bonds		—	—			—	—			8,117	1.24			—	—
GNMA mortgage-backed securities - residential		—	—			—	—			—	—			20,488	1.30
FNMA mortgage-backed securities - residential		—	—			—	—			—	—			1,102	0.08
Corporate CMO and MBS		—	—			—	—			34	*			1,611	0.15
Total available-for-sale	$	—	—	%	$	250	*	%	$	8,151	1.24	%	$	23,201	1.53	%

	Maturity as of December 31, 2020
	One Year or Less				One to Five Years				Five to Ten Years				After Ten Years
			Weighted				Weighted				Weighted				Weighted
	Amortized		Average		Amortized		Average		Amortized		Average		Amortized		Average
(Dollars in thousands)	Cost		Yield		Cost		Yield		Cost		Yield		Cost		Yield
Available-for-sale:
U.S. Treasury debt	$	250	0.02	%	$	—	—	%	$	—	—	%	$	—	—	%
Corporate bonds		—	—			1,250	0.17			—	—			4,750	0.60
GNMA mortgage-backed securities - residential		—	—			—	—			—	—			23,806	1.59
FNMA mortgage-backed securities - residential		—	—			—	—			—	—			1,616	0.10
Corporate CMO and MBS		—	—			—	—			43	*			4,035	0.31
Total available-for-sale	$	250	0.02	%	$	1,250	0.17	%	$	43	*	%	$	34,207	2.60	%

________________________________________

* Not meaningful

As of September 30, 2021 and December 31, 2020, 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 sale activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed-upon criteria before loan funding and are delivered to the investor shortly after funding. The level of future loan originations, loan sales, and loan repayments depends on overall credit availability, the interest rate environment, the strength of the general economy, local real estate markets and the housing industry, and conditions in the secondary loan sale market. The amount of gain or loss on the sale of loans is primarily driven by market conditions and changes in interest rates, as well as our pricing and asset liability management strategies. As of September 30, 2021 and December 31, 2020, we had mortgage loans held for sale of $51.3 million and $161.8 million, respectively, in residential mortgage loans we originated.

As of September 30, 2021, the Company has $61.9 million in PPP loans outstanding with $1.2 million in

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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 two or five-year period, based on the PPP loan terms. If a loan receives partial forgiveness, the income related to the unforgiven balance is amortized over the remaining life of the loan based on the term in the note, which is five years for most PPP loans. If a loan receives full forgiveness from the SBA, the remaining income will be recognized upon receipt of the funds from the SBA. As of September 30, 2021, the Company had submitted loans with original loan amounts of $241.5 million to the SBA for forgiveness and had received forgiveness totaling $214.8 million.

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

	September 30,				December 31,
	2021				2020
(Dollars in thousands)	Amount		% of Total		Amount		% of Total
Cash, Securities and Other	$	293,837	18.3	%	$	357,020	23.3	%
Construction and Development		132,141	8.2			131,111	8.5
1-4 Family Residential		502,439	31.3			455,038	29.7
Non-Owner Occupied CRE		358,369	22.4			281,943	18.4
Owner Occupied CRE		167,638	10.5			163,042	10.6
Commercial and Industrial		148,959	9.3			146,031	9.5
Total loans held for investment(1)	$	1,603,383	100.0	%	$	1,534,185	100.0	%
Mortgage loans held for sale	$	51,309			$	161,843

________________________________________

⁽¹⁾ Loans held for investment exclude deferred (fees) costs and unamortized premiums/(unaccreted discounts), net of $(0.3) million and $(1.4) million as of September 30, 2021 and December 31, 2020, respectively.

● Cash, Securities and Other—consists of consumer and commercial purpose loans, which are primarily secured by securities managed and under custody with us, cash on deposit with us, or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of consumer collateral and an immaterial amount of each loan may be unsecured. This segment of our portfolio is affected by a variety of local and national economic factors affecting borrowers’ employment prospects, income levels, and overall economic sentiment. PPP loans that are fully guaranteed by the SBA are 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, 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 are classified within this line item.

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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) costs, and unamortized premiums/(unaccreted discounts), as of the date indicated are summarized in the following tables:

	As of September 30, 2021
	One Year			One Through			After
(Dollars in thousands)	or Less			Five Years			Five Years		Total
Cash, Securities and Other	$	92,277	(1)​	$	195,500	(1)​	$	6,060	$	293,837
Construction and Development		54,187			72,132			5,822		132,141
1-4 Family Residential		35,447			87,384			379,608		502,439
Non-Owner Occupied CRE		46,750			213,542			98,077		358,369
Owner Occupied CRE		5,404			50,447			111,787		167,638
Commercial and Industrial		67,861			43,410			37,688		148,959
Total loans	$	301,926		$	662,415		$	639,042	$	1,603,383
Amounts with fixed rates	$	78,586		$	423,108		$	236,481	$	738,175
Amounts with floating rates		223,340			239,307			402,561		865,208
Total loans	$	301,926		$	662,415		$	639,042	$	1,603,383

	As of December 31, 2020
	One Year		One Through			After
(Dollars in thousands)	or Less		Five Years			Five Years		Total
Cash, Securities and Other	$	90,053	$	259,611	(1)​	$	7,356	$	357,020
Construction and Development		78,900		50,703			1,508		131,111
1-4 Family Residential		41,212		78,359			335,467		455,038
Non-Owner Occupied CRE		25,801		175,476			80,666		281,943
Owner Occupied CRE		8,355		54,403			100,284		163,042
Commercial and Industrial		47,397		68,607			30,027		146,031
Total loans	$	291,718	$	687,159		$	555,308	$	1,534,185
Amounts with fixed rates	$	76,131	$	469,155		$	205,548	$	750,834
Amounts with floating rates		215,587		218,004			349,760		783,351
Total loans	$	291,718	$	687,159		$	555,308	$	1,534,185

________________________________________

⁽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 was offering loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.

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 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.

As of September 30, 2021, the Company’s loans include seventy-two modified loans, including acquired loans, across multiple industries in the amount of $135.0 million, representing 8.4% of total loans. No loans which participated in the loan modification program were delinquent according to Bank policy as of September 30, 2021. No loans which participated in the loan modification program were still in their deferral period as of September 30, 2021.

All loans modified in response to COVID-19 are classified as performing as of September 30, 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. The Company continues to meet regularly with clients who could be more highly impacted by the recent COVID-19 pandemic. These are borrowers in

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industries we believe may be more impacted by the pandemic, for instance those loans where there may be a greater than 50% probability of a downgrade, covenant violation or 20% reduction in collateral position. 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 September 30, 2021, 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, loans past due 90 days or more and still accruing interest, 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. 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.

The amount of lost interest for non-accrual loans was an an immaterial amount for the three months ended September 30, 2021 and 2020. For each of the nine months ended September 30, 2021 and 2020, the amount of lost interest was $0.2 million.

We had $4.4 million in non-performing assets as of September 30, 2021 compared to $4.3 million as of December 31, 2020. The increase in our non-performing assets was primarily due to one relationship being downgraded into non-accrual status, offset by continued pay downs on outstanding balances and the disposal of one remaining OREO property.

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

	September 30,			December 31,
(Dollars in thousands)	2021			2020
Non-accrual loans by category (1)
Cash, Securities and Other	$	41		$	50
Construction and Development		—			—
1-4 Family Residential		83			—
Non-Owner Occupied CRE		—			—
Owner Occupied CRE		1,250			479
Commercial and Industrial		2,984			3,529
Total non-accrual loans		4,358			4,058
TDRs still accruing		—			—
Accruing loans 90 or more days past due		—			—
Total non-performing loans		4,358			4,058
OREO		—			194
Total non-performing assets	$	4,358		$	4,252
Non-performing loans to total loans(2)		0.27	%		0.26	%
Non-performing assets to total assets		0.21			0.22
Allowance for loan losses to non-performing loans		297.48	%		308.99	%

________________________________________

⁽¹⁾ As of September 30, 2021, seven non-accrual loans, totaling $2.1 million, were not classified as TDRs. As of December 31, 2020, two non-accrual loans were not classified as TDRs. See Note 3 – Loans and the Allowance for Loan Losses to the condensed consolidated financial statements.

⁽²⁾ Excludes mortgage loans held for sale of $51.3 million and $161.8 million as of September 30, 2021 and December 31, 2020, respectively.

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,

62

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.

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

As of September 30, 2021 and December 31, 2020 non-performing loans of $4.4 million and $4.1 million, respectively, were included in the substandard category in the table below. The following tables present, by class and by credit quality indicator, the recorded investment in our loans as of the dates indicated:

	As of September 30, 2021								As of December 31, 2020
			Special								Special
(Dollars in thousands)	Pass		Mention		Substandard		Total		Pass		Mention		Substandard		Total
Cash, Securities and Other	$	293,796	$	—	$	41	$	293,837	$	356,970	$	—	$	50	$	357,020
Construction and Development		129,618		2,523		—		132,141		131,111		—		—		131,111
1-4 Family Residential		502,356		—		83		502,439		451,918		—		3,120		455,038
Non-Owner Occupied CRE		352,429		5,940		—		358,369		275,627		6,316		—		281,943
Owner Occupied CRE		165,690		—		1,948		167,638		161,850		—		1,192		163,042
Commercial and Industrial		144,093		—		4,866		148,959		140,432		—		5,599		146,031
Total	$	1,587,982	$	8,463	$	6,938	$	1,603,383	$	1,517,908	$	6,316	$	9,961	$	1,534,185

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 uncollectable. 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 client impact driven by the COVID-19 pandemic. We have intensified our portfolio management, focusing on higher impacted industries and commercial property types. Our clientele is generally comprised of high net-worth individuals and commercial borrowers with strong credit profiles and multiple sources of repayment. There was a $0.4 million provision expense taken during the third quarter of 2021. 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 September 30, 2021.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2021			2020			2021			2020
Average loans outstanding(1)(2)	$	1,592,800		$	1,462,872		$	1,573,919		$	1,250,052
Gross loans outstanding at end of period(3)	$	1,603,050		$	1,506,076		$	1,603,050		$	1,506,076
Allowance for loan losses at beginning of period	$	12,552		$	10,354		$	12,539		$	7,875
Provision for loan losses		406			1,496			418			3,987
Charge-offs:
Cash, Securities and Other		—			6			—			30
Construction and Development		—			—			—			—
1-4 Family Residential		—			—			—			—
Non-Owner Occupied CRE		—			—			—			—
Owner Occupied CRE		—			—			—			—
Commercial and Industrial		—			—			—			—
Total charge-offs		—			6			—			30
Recoveries:
Cash, Securities and Other		6			1			7			13
Construction and Development		—			—			—			—
1-4 Family Residential		—			—			—			—
Non-Owner Occupied CRE		—			—			—			—
Owner Occupied CRE		—			—			—			—
Commercial and Industrial		—			—			—			—
Total recoveries		6			1			7			13
Net charge-offs (recoveries)		(6)			5			(7)			17
Allowance for loan losses at end of period	$	12,964		$	11,845		$	12,964		$	11,845
Allowance for loan losses to total loans(4)		0.81	%		0.79	%		0.81	%		0.79	%
Net charge-offs to average loans(5)		—	%		—	%		—	%		—	%

________________________________________

⁽¹⁾ Average balances are average daily balances.

⁽²⁾ Excludes average outstanding balances of mortgage loans held for sale of $54.7 million and $94.7 million for the three months ended September 30, 2021 and 2020, respectively and $105.3 million and $67.0 million for the nine months ended September 30, 2021 and 2020, respectively.

⁽³⁾ Excludes mortgage loans held for sale of $51.3 million and $89.9 million as of September 30, 2021 and 2020, respectively.

⁽⁴⁾ End of period loans as of September 30, 2021 include $117.4 million in acquired loans, $61.8 million in bank originated PPP loans, and $0.1 million of acquired PPP loans. No reserve is allocated for those loans. Excluding these loans would result in an increase of the ratio for the three months ended September 30, 2021.

⁽⁵⁾ For percentages shown as a dash, the ratio of net charge-offs to average loans is negligible or immaterial.

The following table 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 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.

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	As of September 30,				As of December 31,
	2021				2020
(Dollars in thousands)	Amount		%(1)		Amount		%(1)
Cash, Securities and Other	$	2,130	18.3	%	$	2,579	23.3	%
Construction and Development		919	8.2			932	8.5
1-4 Family Residential		3,496	31.3			3,233	29.7
Non-Owner Occupied CRE		2,494	22.4			2,004	18.4
Owner Occupied CRE		1,158	10.5			1,159	10.6
Commercial and Industrial		2,767	9.3			2,632	9.5
Total allowance for loan losses	$	12,964	100.0	%	$	12,539	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 as of September 30, 2021, decreased $0.1 million, or 2.1%, from December 31, 2020.

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 $162.4 million, or 10.0%, to $1.78 billion as of September 30, 2021 from December 31, 2020. Total average deposits for the three months ended September 30, 2021 were $1.72 billion, an increase of $260.2 million, or 17.8%, compared to $1.46 billion as of September 30, 2020. The increase in total deposits from December 31, 2020 was attributable to continued organic growth with new client accounts as well as increased deposit balances within the existing deposit accounts, offset partially by intentional runoff of higher rate non-relationship deposits.

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

	For the Three Month Period Ending September 30,
	2021				2020
	Average		Average		Average		Average
(Dollars in thousands)	Balance		Rate		Balance		Rate
Deposits
Money market deposit accounts	$	881,853	0.22	%	$	774,615	0.28	%
Demand deposit accounts		133,681	0.16			95,000	0.23
Certificates and other time deposits > $250k		64,971	1.19			69,821	1.66
Certificates and other time deposits < $250k		74,298	0.49			99,481	0.73
Total time deposits		139,269	0.82			169,302	1.11
Savings accounts		5,630	0.03			6,404	0.04
Total interest-bearing deposits		1,160,433	0.29			1,045,321	0.41
Noninterest-bearing accounts		562,569				417,502
Total deposits	$	1,723,002	0.19	%	$	1,462,823	0.29	%

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	For the Nine Month Period Ending September 30,
	2021				2020
	Average		Average		Average		Average
(Dollars in thousands)	Balance		Rate		Balance		Rate
Deposits
Money market deposit accounts	$	879,413	0.23	%	$	689,911	0.53	%
NOW accounts		126,544	0.17			88,852	0.27
Certificates and other time deposits > $250k		61,356	1.28			58,839	1.92
Certificates and other time deposits < $250k		89,539	0.58			92,661	1.43
Total time deposits		150,895	0.87			151,500	1.62
Savings accounts		6,198	0.03			5,426	0.09
Total interest-bearing deposits		1,163,050	0.31			935,689	0.68
Noninterest-bearing accounts		553,314				350,475
Total deposits	$	1,716,364	0.21	%	$	1,286,164	0.50	%

Average noninterest-bearing deposits to average total deposits was 32.7% and 28.5% for the three months ended September 30, 2021 and 2020, respectively, and 32.2% and 27.3% for the nine months ended September 30, 2021 and 2020, respectively.

Our average cost of funds was 0.28% and 0.35% for the three months ended September 30, 2021 and 2020, respectively, and 0.29% and 0.55% for the nine months ended September 30, 2021 and 2020, respectively.  The decrease in cost of funds was driven by a reduction in deposit rates consistent with the lower interest rate environment, and increase in noninterest-bearing deposits and the intentional reduction in higher rate non-relationship deposit balances.

Total money market accounts as of September 30, 2021 were $905.2 million, an increase of $57.8 million, or 6.8%, compared to $847.4 million as of December 31, 2020. NOW accounts increased $24.8 million, or 21.9%, to $137.8 million compared to December 31, 2020.

Total time deposits as of September 30, 2021 were $137.0 million, a decrease of $35.7 million, or 20.7%, from December 31, 2020.

The following table represents the amount of certificates of deposit by time remaining until maturity as of September 30, 2021:

	As of September 30, 2021
	Maturity Within:
(Dollars in thousands)	Three Months or Less		Three to Six Months		Six to 12 Months		After 12 Months		Total
Time, $250,000 and over	$	18,001	$	6,514	$	19,404	$	20,983	$	64,902
Other		21,976		18,751		12,675		18,711		72,113
Total	$	39,977	$	25,265	$	32,079	$	39,694	$	137,015

Borrowings

We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs. As of September 30, 2021 and December 31, 2020, borrowings totaled $97.6 million and $173.9 million, respectively. On August 31, 2021, the Company completed the issuance and sale of subordinated notes totaling $15.0 million.

The decrease in other borrowings is primarily attributed to the paydown of loans in the Paycheck Protection Program Loan Facility from the Federal Reserve with a period end balance of $43.6 million. Borrowing from this facility is expected to trend in the same direction as the PPP loan balances. The table below presents balances of each of the borrowing facilities as of the dates indicated:

	September 30,		December 31,
(Dollars in thousands)	2021		2020
Borrowings
FHLB borrowings	$	15,000	$	15,000
Federal Reserve borrowings		43,564		134,563
Subordinated notes		39,010		24,291
Total	$	97,574	$	173,854

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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 September 30, 2021 and December 31, 2020 amounted to $767.8 million and $668.6 million, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $504.7 million as of September 30, 2021.

	As of and for the
	Nine Months Ended
	September 30,
(Dollars in thousands)	2021
Short-term borrowings:
Maximum outstanding at any month-end during the period	$	15,000
Balance outstanding at end of period		15,000
Average outstanding during the period	$	15,000
Average interest rate during the period		0.32	%
Average interest rate at the end of the period		0.32	%

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $19.0 million, and $25.0 million. As of September 30, 2021 and December 31, 2020, there were no amounts outstanding on any of the federal funds lines.

As of December 31, 2020, we had a Promissory Note with a correspondent lending partner and the borrowing capacity associated with this facility was $5.0 million with no balance outstanding. The Promissory Note expired on June 30, 2021 and was not renewed.

Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed "well capitalized" by federal banking agencies. As of September 30, 2021 and December 31, 2020, 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.

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

	Average Percentage for the Three Months Ended		Average Percentage for the Nine Months Ended
	September 30,		September 30,
	2021		2021
Sources of Funds:
Deposits:
Noninterest-bearing	27.80	%	27.00	%
Interest-bearing	57.35		56.76
FHLB and Federal Reserve borrowings	4.02		5.97
Subordinated notes	1.44		1.27
Other liabilities	0.86		0.89
Shareholders’ equity	8.53		8.11
Total	100.00	%	100.00	%
Uses of Funds:
Total loans	78.09	%	76.19	%
Available-for-sale securities	1.44		1.42
Mortgage loans held for sale	2.70		5.14
Interest-bearing deposits in other financial institutions	13.18		12.58
Noninterest-earning assets	4.59		4.67
Total	100.00	%	100.00	%
Average noninterest-bearing deposits to total average deposits	32.65	%	32.24	%
Average loans to total average deposits	92.44		91.70
Average interest-bearing deposits to total average deposits	67.35	%	67.76	%

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 $20.2 million, or 13.0%, from December 31, 2020 to $175.1 million as of September 30, 2021. The increase is primarily due to an increase in net income.

On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 Repurchase Plan") and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2020 Repurchase Plan. The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the SEC, or otherwise in a manner that complies with applicable federal securities laws. The 2020 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice. During the three and nine months ended September 30, 2021, the Company did not repurchase any shares under the authorization of the 2020 Repurchase Plan.

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 September 30, 2021 and December 31, 2020, our 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

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maintain capital requirements, our regulatory capital levels may decrease depending on our level of earnings. We continue to monitor growth and control our capital activities in order to remain in compliance with all applicable regulatory capital standards.

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

	September 30, 2021				December 31, 2020
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	156,136	11.02	%	$	133,963	10.22	%
Consolidated Company		151,950	10.66			131,507	9.96
Common Equity Tier 1(CET1) to risk-weighted assets
Bank		156,136	11.02			133,963	10.22
Consolidated Company		151,950	10.66			131,507	9.96
Total capital to risk-weighted assets
Bank		169,435	11.96			146,853	11.20
Consolidated Company		204,809	14.37			168,957	12.80
Tier 1 capital to average assets
Bank		156,136	8.11			133,963	7.62
Consolidated Company	$	151,950	7.86	%	$	131,507	7.45	%

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 Condensed 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 table presents future contractual obligations to make future payments for the periods indicated:

	As of September 30, 2021
			More than		More than
	1 Year		1 Year but Less		3 Years but Less		5 Years
(Dollars in thousands)	or Less		than 3 Years		than 5 Years		or More			Total
FHLB and Federal Reserve	$	10,437	$	10,000	$	38,127	$	—		$	58,564
Subordinated notes		—		—		—		39,010	(1) ​		39,010
Time deposits		39,977		88,528		4,176		4,334			137,015
Minimum lease payments		3,422		6,419		3,356		2,321			15,518
Total	$	53,836	$	104,947	$	45,659	$	45,665		$	250,107

________________________________________

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

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

	September 30,				December 31,
	2021				2020
(Dollars in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	73,975	$	418,045	$	78,506	$	360,883
Standby letters of credit		3,540		20,940		1,933		17,524
Commitments to make loans to sell		113,746		—		370,512		—
Commitments to make loans	$	40,804	$	15,236	$	24,225	$	25,316

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.

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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 Condensed Consolidated Financial Statements as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC.

Item 3.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 net interest income and 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 table summarizes the sensitivity in net interest income and fair value of equity over the periods indicated, using a parallel ramp scenario.

	As of September 30, 2021				As of December 31, 2020
	Percent Change		Percent Change		Percent Change		Percent Change
	in Net Interest		in Fair Value of		in Net Interest		in Fair Value of
Change in Interest Rates (Basis Points)	Income		Equity		Income		Equity
300	12.55	%	14.21	%	9.04	%	19.52	%
200	8.68		12.66		5.77		16.02
100	4.39		7.89		2.73		9.58
Base	—		—		—		—
−100	(2.88)	%	(29.54)	%	(2.83)	%	(27.89)	%

The model simulations as of September 30, 2021 imply that our balance sheet is slightly more asset sensitive compared to our balance sheet as of December 31, 2020.

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 Condensed Consolidated Financial Statements and related notes included within this Form 10-Q 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 on our performance beyond the general effects of inflation. Interest rates do not necessarily move in the same

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direction or magnitude as prices of general goods and services, while other operating expenses can be correlated with the impact of general levels of inflation.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) were effective as of the end of the period covered by this report.

Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

The Company, from time to time, is 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, after consulting with our 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. See Note 8 - Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements.

Item 1A. Risk Factors

There has been no material change in the risk factors previously disclosed under Item 1A of the Company in its 2020 Annual Report on Form 10-K filed with the SEC, on March 12, 2021.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

					Maximum number (or
				Total number of	approximate dollar
				shares purchased	value) of shares
	Total number		Average	as part of publically	that may yet be
	of shares		price paid	announced plans	purchased under the
	purchased (1)		per share	or programs	plans or programs
July 1, 2021 through July 31, 2021	644	$	26.15	—	399,574
August 1, 2021 through August 31, 2021	1,089		26.43	—	399,574
September 1, 2021 through September 30, 2021	—	$	—	—	399,574

________________________________________

⁽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 under the 2020 Repurchase Plan. 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.

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Item 3.Defaults upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

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Item 6.Exhibits

Exhibit No.	Description
2.1	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)
4.1	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)
10.1	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)
31.1*	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
31.2*	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
32.1**	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
32.2**	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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	First Western Financial, Inc.
November 5, 2021	By:	/s/ Scott C. Wylie
Date		Scott C. Wylie
		Chairman, Chief Executive Officer and President
November 5, 2021	By:	/s/ Julie A. Courkamp
Date		Julie A. Courkamp
		Director, Chief Financial Officer and Treasurer

74

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002

I, Scott C. Wylie, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Western Financial, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

ct
Date: November 5, 2021	/s/ Scott C. Wylie
	Scott C. Wylie
	Chairman, Chief Executive Officer and President
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer

Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934
and Section 302 of the Sarbanes-Oxley Act of 2002

I, Julie A. Courkamp, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Western Financial, Inc.:

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

o
Date: November 5, 2021	/s/ Julie A. Courkamp
	Julie A. Courkamp
	Director, Chief Financial Officer and Treasurer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this report of First Western Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott C. Wylie, Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

ovember
	FIRST WESTERN FINANCIAL, INC.
Date: November 5, 2021	/s/ Scott C. Wylie
	Scott C. Wylie
	Chairman, Chief Executive Officer and President

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this report of First Western Financial, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Julie A. Courkamp, Director, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	FIRST WESTERN FINANCIAL, INC.
Date: November 5, 2021	/s/ Julie A. Courkamp
	Julie A. Courkamp
	Director, Chief Financial Officer and Treasurer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 01, 2021
Document And Entity Information Abstract
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2021
Document Transition Report	false
Entity File Number	001-38595
Entity Registrant Name	First Western Financial Inc
Entity Incorporation, State or Country Code	CO
Entity Tax Identification Number	37-1442266
Entity Address, Address Line One	1900 16th Street
Entity Address, Address Line Two	Suite 1200
Entity Address, City or Town	Denver
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80202
City Area Code	303
Local Phone Number	531.8100
Title of 12(b) Security	Common Stock, no par value
Trading Symbol	MYFW
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		8,032,457
Entity Central Index Key	0001327607
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Cash and cash equivalents:
Cash and due from banks	$ 2,829	$ 2,405
Interest-bearing deposits in other financial institutions	307,406	153,584
Total cash and cash equivalents	310,235	155,989
Available-for-sale securities, at fair value	32,233	36,666
Correspondent bank stock, at cost	1,772	2,552
Mortgage loans held for sale	51,309	161,843
Loans, net of allowance of $12,964 and $12,539	1,590,086	1,520,294
Premises and equipment, net	6,344	5,320
Accrued interest receivable	6,306	6,618
Accounts receivable	5,500	4,865
Other receivables	1,553	1,422
Other real estate owned, net		194
Goodwill and other intangible assets, net	24,246	24,258
Deferred tax assets, net	5,926	6,056
Company-owned life insurance	15,715	15,449
Other assets	25,047	32,129
Total assets	2,076,272	1,973,655
Deposits:
Noninterest-bearing	596,635	481,457
Interest-bearing	1,185,664	1,138,453
Total deposits	1,782,299	1,619,910
Borrowings:
Federal Home Loan Bank and Federal Reserve borrowings	58,564	149,563
Subordinated notes	39,010	24,291
Accrued interest payable	357	453
Other liabilities	20,913	24,476
Total liabilities	1,901,143	1,818,693
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; 8,002,874 and 7,951,773 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively
Additional paid-in capital	146,380	144,703
Retained earnings	28,272	9,579
Accumulated other comprehensive income	477	680
Total shareholders' equity	175,129	154,962
Total liabilities and shareholders' equity	$ 2,076,272	$ 1,973,655

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for loans	$ 12,964	$ 12,539
Preferred Stock, par value (in dollars per share)	$ 0	$ 0
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value (in dollars per share)	$ 0	$ 0
Common Stock, shares authorized	90,000,000	90,000,000
Common Stock, shares issued	8,002,874	7,951,773
Common Stock, shares outstanding	8,002,874	7,951,773

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Interest and dividend income:
Loans, including fees	$ 15,861	$ 14,138	$ 45,360	$ 37,342
Investment securities	180	173	545	692
Interest-bearing deposits in other financial institutions	105	99	288	358
Total interest and dividend income	16,146	14,410	46,193	38,392
Interest expense:
Deposits	829	1,067	2,669	4,779
Other borrowed funds	471	425	1,402	968
Total interest expense	1,300	1,492	4,071	5,747
Net interest income	14,846	12,918	42,122	32,645
Less: Provision for loan losses	406	1,496	418	3,987
Net interest income, after provision for loan losses	14,440	11,422	41,704	28,658
Non-interest income:
Trust and investment management fees	5,167	4,814	15,023	14,154
Net gain on mortgage loans	4,480	12,304	13,590	24,958
Bank fees	458	340	1,225	929
Risk management and insurance fees	301	483	444	912
Income on company-owned life insurance	89	91	266	273
Other			60
Total non-interest income	10,495	18,032	30,608	41,226
Total income before non-interest expense	24,935	29,454	72,312	69,884
Non-interest expense:
Salaries and employee benefits	10,229	10,212	29,733	25,384
Occupancy and equipment	1,550	1,619	4,402	4,574
Professional services	1,660	1,288	4,309	3,542
Technology and information systems	945	1,032	2,791	2,994
Data processing	912	1,038	3,020	2,922
Marketing	397	395	1,116	1,063
Amortization of other intangible assets	5	4	13	44
Net loss on assets held for sale				553
Provision for other real estate owned		100		100
Other	771	944	2,235	2,747
Total non-interest expense	16,469	16,632	47,619	43,923
Income before income taxes	8,466	12,822	24,693	25,961
Income tax expense	2,049	3,192	6,000	6,301
Net income available to common shareholders	$ 6,417	$ 9,630	$ 18,693	$ 19,660
Earnings per common share:
Basic	$ 0.80	$ 1.22	$ 2.35	$ 2.49
Diluted	$ 0.78	$ 1.20	$ 2.28	$ 2.47

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 6,417	$ 9,630	$ 18,693	$ 19,660
Other comprehensive income items, net of tax effect:
Net change in unrealized (losses)/gains on available-for-sale securities	(32)	(21)	(203)	987
Comprehensive income	$ 6,385	$ 9,609	$ 18,490	$ 20,647

XML

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit) [Member]	Accumulated Other Comprehensive Income (loss)	Total
Balance at Beginning at Dec. 31, 2019		$ 142,797	$ (14,955)	$ (164)	$ 127,678
Balance at Beginning (in shares) at Dec. 31, 2019	7,940,168
Increase (Decrease) in Stockholders' Equity
Net income			19,660		19,660
Other comprehensive loss, net of tax				987	987
Settlement of share awards		(258)			(258)
Settlement of share awards (in shares)	34,260
Share repurchase		(370)			(370)
Share repurchase (in shares)	(22,679)
Stock-based compensation		1,879			1,879
Balance at Ending at Sep. 30, 2020		144,048	4,705	823	149,576
Balance at Ending (in shares) at Sep. 30, 2020	7,951,749
Balance at Beginning at Jun. 30, 2020		143,498	(4,925)	844	139,417
Balance at Beginning (in shares) at Jun. 30, 2020	7,939,024
Increase (Decrease) in Stockholders' Equity
Net income			9,630		9,630
Other comprehensive loss, net of tax				(21)	(21)
Settlement of share awards		(88)			(88)
Settlement of share awards (in shares)	12,725
Stock-based compensation		638			638
Balance at Ending at Sep. 30, 2020		144,048	4,705	823	149,576
Balance at Ending (in shares) at Sep. 30, 2020	7,951,749
Balance at Beginning at Dec. 31, 2020		144,703	9,579	680	154,962
Balance at Beginning (in shares) at Dec. 31, 2020	7,951,773
Increase (Decrease) in Stockholders' Equity
Net income			18,693		18,693
Other comprehensive loss, net of tax				(203)	(203)
Settlement of share awards		(452)			(452)
Settlement of share awards (in shares)	47,351
Options exercised		79			79
Options exercised (in shares)	3,750
Stock-based compensation		2,050			2,050
Balance at Ending at Sep. 30, 2021		146,380	28,272	477	175,129
Balance at Ending (in shares) at Sep. 30, 2021	8,002,874
Balance at Beginning at Jun. 30, 2021		145,622	21,855	509	167,986
Balance at Beginning (in shares) at Jun. 30, 2021	7,994,832
Increase (Decrease) in Stockholders' Equity
Net income			6,417		6,417
Other comprehensive loss, net of tax				(32)	(32)
Settlement of share awards		(46)			(46)
Settlement of share awards (in shares)	4,292
Options exercised		79			79
Options exercised (in shares)	3,750
Stock-based compensation		725			725
Balance at Ending at Sep. 30, 2021		$ 146,380	$ 28,272	$ 477	$ 175,129
Balance at Ending (in shares) at Sep. 30, 2021	8,002,874

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities
Net income	$ 18,693	$ 19,660
Adjustments to reconcile net income to net cash used in operating activities:
Net amortization of investment securities	411	346
Stock dividends received on correspondent bank stock	(60)	(12)
Provision for loan losses	418	3,987
Net gain on mortgage loans	(13,590)	(24,958)
Origination of mortgage loans held for sale	(1,066,612)	(917,524)
Proceeds from mortgage loans	1,195,896	889,208
Depreciation and amortization	877	832
Provision for other real estate owned		100
Deferred income tax expense/(benefits), net of valuation allowance	210	(1,699)
Increase in cash surrender value of company-owned life insurance	(266)	(273)
Loss on assets held for sale		553
Stock-based compensation	2,050	1,879
Net changes in operating assets and liabilities:
Change in accounts receivable	(21)	492
Change in accrued interest receivable and other assets	(248)	(5,531)
Change in accrued interest payable and other liabilities	(1,311)	3,394
Net cash provided by/(used in) operating activities	136,447	(29,546)
Activity in available-for-sale securities:
Maturities, prepayments, and calls	6,370	20,890
Purchases	(2,250)	(2,000)
Purchases of correspondent bank stock	(1)	(698)
Redemption of correspondent bank stock	841
Contributions to low-income housing tax credit investments	(2,087)
Loan and note receivable originations and principal collections, net	(69,115)	(388,048)
Purchases of premises and equipment	(1,844)	(708)
Proceeds from sale of premises and equipment		10
Proceeds from sale of other real estate owned	194
Net cash paid on acquisitions		(61,316)
Net cash used in investing activities	(67,892)	(431,870)
Cash flows from financing activities
Net change in deposits	162,389	413,808
Payments to Federal Home Loan Bank borrowings		(27,000)
Proceeds from Federal Home Loan Bank borrowings		35,000
Payments to Federal Reserve borrowings	(174,673)	(238)
Proceeds from Federal Reserve borrowings	83,674	204,313
Proceeds from subordinated notes, net of issuance costs	14,674	7,881
Proceeds from the exercise of stock options	79
Repurchase of common stock		(370)
Settlement of restricted stock	(452)	(258)
Net cash provided by financing activities	85,691	633,136
Net change in cash and cash equivalents	154,246	171,720
Cash and cash equivalents, beginning of year	155,989	78,638
Cash and cash equivalents, end of period	310,235	250,358
Supplemental cash flow information:
Interest paid on deposits and borrowed funds	4,167	5,699
Income tax payment, net of refunds received	3,852	6,417
Cash paid for amounts included in the measurement of lease liabilities	3,874	4,267
Supplemental noncash disclosures:
Reclass of held for sale assets, net of liabilities		10
Change in unrealized (loss)/gain on available-for-sale securities	(283)	1,305
Lease right-of-use-asset obtained in exchange for lease liabilities	$ 2,262	$ 649

XML

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation:  The condensed 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) and Wyoming (Jackson Hole and Laramie). 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 condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2020 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2020.

In the opinion of management, all adjustments that were recurring in nature and considered necessary have been included for fair presentation of the Company’s financial position and results of operations. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the full year ending December 31, 2021. In preparing the condensed consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be significantly different from those estimates.

The condensed consolidated financial statements and notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

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 May 15, 2020, the Company completed a branch purchase and assumption transaction ("Branch Acquisition") with Simmons Bank ("Simmons"). Management concluded that the acquisition represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date.

On November 13, 2020, the Company completed the sale of its LA fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.  As a result of this transaction, the Company recorded a contingent consideration asset with an initial fair value estimated at $3.1 million to be received in quarterly payments over three years and a portion will be received in perpetuity. The asset is carried at its net present value in our Other assets line item of the Condensed Consolidated Balance Sheets.

On July 22, 2021, the Company entered into 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. As of June 30, 2021, Teton had assets of $420.7 million, total deposits of $374.6 million, and total loans of $267.9 million. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton will be merged with into the Company (the “Merger”), with the Company continuing as the surviving corporation. The Merger Agreement also provides that following the Merger, Rocky Mountain Bank will be merged with and into the Bank, with the Bank surviving the bank merger. During the nine months ended September

30, 2021, the Company has incurred $0.4 million in merger related expenses, which are included in the Professional services line of the Condensed Consolidated Statements of Income.

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.

The Company could experience a material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread.

Concentration of Credit Risk:  Most of the Company’s lending activity is to clients located in and around metro Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole and Laramie, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. As of September 30, 2021 and December 31, 2020, 72.4% and 66.9%, respectively, of the Company’s loan portfolio was secured by real estate collateral. Declines in real estate values in the primary markets the Company operates in could negatively impact the Company.

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 Condensed 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 Condensed Consolidated Statements of Income.

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. There were no performance based incentive fees earned with respect to investment management contracts for the three and nine months ended September 30, 2021. Performance based incentive fees earned with respect to investment management contracts for the year ended December 31, 2020 were immaterial. Receivables are recorded on the Condensed 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 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 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.

The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings to June 30, 2023, and to cease publishing other LIBOR settings on December 31, 2021.

Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2021. 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, fallback language, and other aspects of planning. The Company has prepared a timeline to transition from LIBOR before the end of 2021.

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.

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 supported the community and clients by originating PPP loans since the program was created. PPP loans are classified in the Cash, Securities and Other portion of the loan portfolio. See Note 3 for further discussion on our PPP loans.

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 and had a risk rating of “pass” and had not been delinquent in making interest or principal payment by more than 30 days during the last two years.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings ("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 Federal Deposit Insurance Corporation ("FDIC") confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered a TDR. We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of September 30, 2021.  See Note 3 for further discussion on our loan modification program.

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 may sell a 95% participation in a new MSLP loan 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 3 for further discussion on our participation in the program.

Reclassifications:  Certain items in prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no impact on net income or total shareholders’ equity.

Recently adopted accounting pronouncements:  The following reflects recent accounting pronouncements that were adopted by the Company since the end of the Company’s fiscal year ended December 31, 2020.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"). ASU 2021-01 clarifies the scope of Topic 848, originally issued in 2020 (ASU 2020-04). ASU 2021-01 clarifies that derivatives affected by the related discounting transition are explicitly eligible for certain optional expedients and exceptions. ASU 2021-01 also clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. ASU 2021-01 was effective for the Company on January 7, 2021 and did not have a material impact on the Company’s financial statement disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects pending pronouncements with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2020.

In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 was set to be effective for most public companies on January 1, 2020. However, at the October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies ("SRCs") to January 1, 2023.

During the nine months ended September 30, 2021, the CECL committee of the Company continued to work through its implementation plan. The Company has integrated historical and current loan level data as required by CECL and is working with its third-party vendor solution to begin evaluating the methodologies available under the CECL model on its loan portfolios. The Company also continues to evaluate documentation requirements, internal control structure, relevant data sources, and system configurations. The Company has completed a successful integration of the required fields and historical data for key loan, client and collateral data within the third-party solution and has been able to run parallels of our current allowance for loan and lease losses ("ALLL") calculation in the software to compare to our internal calculation and reconcile known differences. The Company has started the process of selecting the methodologies to be used for each segment of its loan portfolio and started preliminarily testing to determine the impact of each methodology. Currently, we are unable to estimate the impact the adoption of this update will have on the consolidated financial statements and disclosures. However, the Company expects the impact of the adoption will be significantly influenced by the composition and characteristics of its loan portfolios along with economic conditions prevalent as of the date of adoption. The Company expects to implement the new standard beginning January 1, 2023.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was set to be effective for the Company on January 1, 2021. However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to January 1, 2023 for SRC’s, with earlier adoption permitted. The Company expects to early adopt beginning January 1, 2022.

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2021

INVESTMENT SECURITIES

INVESTMENT SECURITIES

NOTE 2 - INVESTMENT SECURITIES

The following presents the amortized cost and fair value of securities available-for-sale, with unrealized gains and losses recognized in accumulated other comprehensive income as of September 30, 2021 and December 31, 2020 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	(1)	$	249
Corporate bonds		8,117		249		(10)		8,356
GNMA mortgage-backed securities – residential		20,488		351		(28)		20,811
FNMA mortgage-backed securities – residential		1,102		53		—		1,155
Corporate CMO and MBS		1,645		35		(18)		1,662
Total securities available-for-sale	$	31,602	$	688	$	(57)	$	32,233

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	4	$	—	$	254
Corporate bonds		6,000		55		(11)		6,044
GNMA mortgage-backed securities – residential		23,806		798		—		24,604
FNMA mortgage-backed securities – residential		1,616		61		—		1,677
Corporate CMO and MBS		4,078		62		(53)		4,087
Total securities available-for-sale	$	35,750	$	980	$	(64)	$	36,666

As of September 30, 2021, the amortized cost and estimated fair value of available-for-sale securities have contractual maturity dates shown in the table below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.

	Amortized		Fair
September 30, 2021	Cost		Value
Due within one year	$	—	$	—
Due between one year and five years		250		249
Due between five years and ten years		8,117		8,356
Securities (agency, Corporate CMO, and MBS)		23,235		23,628
Total	$	31,602	$	32,233

In 2014, the Company began investing in a small business investment company ("SBIC") fund administered by the Small Business Administration. During the nine months ended September 30, 2021, the Company did not make any contributions to the SBIC fund.  During the year ended December 31, 2020, the Company invested $0.5 million in SBIC. As of September 30, 2021 and  December 31, 2020, the Company held a balance of $2.1 million with SBIC, which is included in Other assets in the accompanying Condensed Consolidated Balance Sheets. The Company may be obligated to invest up to an additional $0.9 million in future SBIC investments.

As of September 30, 2021 and December 31, 2020, securities with carrying values totaling $2.3 million and $3.7 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

As of September 30, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. Government sponsored entities and agencies, in an amount greater than 10%of shareholders’ equity.

As of both September 30, 2021 and December 31, 2020, there were seven securities in an unrealized loss position, with unrealized losses totaling $0.1 million. Of the securities in an unrealized loss position as of September 30, 2021, one has been in a continuous unrealized loss position for more than twelve months and the remaining have been in a continuous unrealized loss position for less than twelve months. The unrealized loss positions were caused primarily by interest rate changes and market assumptions about prepayments of principal and interest on the underlying mortgages. Because the decline in market value is attributable to market conditions, not credit quality, and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be near or at maturity, the Company does not consider these investments to be other-than-temporarily impaired as of September 30, 2021.

The following table summarizes securities with unrealized losses as of September 30, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands, before tax):

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2021	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	249	$	(1)	$	—	$	—	$	249	$	(1)
GNMA mortgage-backed securities – residential		7,555		(28)		—		—		7,555		(28)
Corporate bonds		490		(10)		—		—		490		(10)
Corporate CMO and MBS		—		—		556		(18)		556		(18)
Total	$	8,294	$	(39)	$	556	$	(18)	$	8,850	$	(57)

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
Corporate bonds	$	3,489	$	(11)	$	—	$	—	$	3,489	$	(11)
Corporate CMO and MBS		880		(40)		566		(13)		1,446		(53)
Total	$	4,369	$	(51)	$	566	$	(13)	$	4,935	$	(64)

The Company did not sell any securities during the three and nine months ended September 30, 2021 or during the year ended December 31, 2020.

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2021

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

NOTE 3 - LOANS AND THE ALLOWANCE FOR LOAN LOSSES

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other(1)	$	293,837	$	357,020
Construction and Development		132,141		131,111
1-4 Family Residential		502,439		455,038
Non-Owner Occupied CRE		358,369		281,943
Owner Occupied CRE		167,638		163,042
Commercial and Industrial(2)		148,959		146,031
Total loans held for investment		1,603,383		1,534,185
Deferred fees and unamortized premiums/(unaccreted discounts), net		(333)		(1,352)
Allowance for loan losses		(12,964)		(12,539)
Loans, net	$	1,590,086	$	1,520,294

______________________________________

⁽¹⁾ Includes PPP loans of $61.9 million and $142.9 million as of September 30, 2021 and December 31, 2020, respectively.

⁽²⁾ Includes MSLP loans of $6.8 million and $6.6 million as of September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, total loans held for investment included $117.4 million and $127.2 million, respectively, of performing loans purchased as part of the Branch Acquisition.

The CARES Act created the PPP, which is administered by the 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 September 30, 2021, the Cash, Securities, and Other portion of the loan portfolio included $61.9 million of PPP loans, or 21.1% of the total category. As of December 31, 2020, the Cash, Securities, and Other portion of the loan portfolio included $142.9 million of PPP loans, or 40.0% of the total category.

The Company is a participant in the Federal Reserve’s MSLP to support lending to small and medium-sized for profit businesses and nonprofit organizations that were in sound financial condition before the onset of the COVID-19 pandemic. As of September 30, 2021, the Company’s Commercial and Industrial loans included six MSLP loans with the net carrying amount of $6.8 million, or 4.6% of the total category. As of December 31, 2020, the Company’s Commercial and Industrial loans included six MSLP loans with the net carrying amount of $6.6 million, or 4.5% of the total category.

Loan Modifications

As a result of the COVID-19 pandemic, a loan modification program was designed and implemented to assist our clients experiencing financial stress resulting from the economic impacts caused by the global pandemic. The Company offered loan extensions, temporary payment moratoriums, and financial covenant waivers for commercial and consumer borrowers impacted by the pandemic who have a pass risk rating and have not been delinquent over 30 days on payments in the last two years.

As of September 30, 2021, the deferral period has ended for all loans previously modified and payments have resumed under the original terms. As of September 30, 2021, the Company’s loan portfolio included 72 loans which were previously modified under the loan modification program, totaling $135.0 million.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as a TDR. The modifications must be related to the adverse effects of COVID-19, and certain other criteria are required to be

met in order to apply the relief. Interagency guidance from Federal Reserve and the FDIC confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. We believe our loan modification program meets that definition. 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 as of September 30, 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. The Company continues to meet regularly with clients who could be more highly impacted by the recent COVID-19 pandemic. These are borrowers in accommodations, transportation and restaurant industries, which we believe may be more impacted by the pandemic, and those loans where there may be a greater than 50% probability of a downgrade, covenant violation or 20% reduction in collateral position. The portion of our credit exposure to the highest risk industries impacted by COVID-19, such as accommodations, transportation and restaurants, is less than 4.1% of our loan portfolio. Management believes the diversity of the loan portfolio is prudent and remains consistent with the credit culture and goals of the Bank.

Interest accrued during the modification term on modified loans is deferred to the end of the loan term. As of September 30, 2021, 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) costs, and unamortized premiums/ (unaccreted discounts) which are not material) in loans past due as of September 30, 2021 and December 31, 2020 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
September 30, 2021	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	727	$	14	$	40	$	781	$	293,056	$	293,837
Construction and Development		—		2,522		—		2,522		129,619		132,141
1-4 Family Residential		483		—		83		566		501,873		502,439
Non-Owner Occupied CRE		—		—		—		—		358,369		358,369
Owner Occupied CRE		—		—		—		—		167,638		167,638
Commercial and Industrial		—		—		2,230		2,230		146,729		148,959
Total	$	1,210	$	2,536	$	2,353	$	6,099	$	1,597,284	$	1,603,383

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2020	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	752	$	—	$	48	$	800	$	356,220	$	357,020
Construction and Development		—		—		—		—		131,111		131,111
1-4 Family Residential		1,283		—		—		1,283		453,755		455,038
Non-Owner Occupied CRE		—		—		—		—		281,943		281,943
Owner Occupied CRE		479		—		—		479		162,563		163,042
Commercial and Industrial		271		—		3,529		3,800		142,231		146,031
Total	$	2,785	$	—	$	3,577	$	6,362	$	1,527,823	$	1,534,185

As of September 30, 2021 and December 31, 2020, the Company did not have any loans which were more than 90 days delinquent and accruing interest.

Non-Accrual Loans and Troubled Debt Restructurings

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other	$	41	$	50
1-4 Family Residential		83		—
Owner Occupied CRE		1,250		479
Commercial and Industrial		2,984		3,529
Total	$	4,358	$	4,058

Non-accrual loans classified as TDRs accounted for $2.2 million of the recorded investment as of September 30, 2021 and $3.6 million as of December 31, 2020. Non-accrual loans are classified as impaired loans and individually evaluated for impairment.

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

	September 30,		December 31,
	2021		2020
Non-accrual
Cash, Securities, and Other	$	9	$	48
Commercial and Industrial		2,230		3,529
Total		2,239		3,577
Allowance for loan losses associated with TDR		(1,751)		(1,619)
Net recorded investment	$	488	$	1,958

As of September 30, 2021 and December 31, 2020, 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 nine months ended  September 30, 2021. The Company modified one loan resulting in TDR status during the year ended December 31, 2020. The Borrower was having difficulty making payments in accordance with the original contract terms. The Company restructured the loan including receiving a large paydown and extended the maturity and lowered the interest rate as a result of the Borrower’s financial difficulties. The loan was paid off in full as of December 31, 2020.

TDRs are reviewed individually for impairment and are included in the Company’s specific reserves in the allowance for loan losses. If charged off, the amount of the charge-off is included in the Company’s charge-off factors, which impact the Company’s reserves on non-impaired loans.

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

	September 30, 2021						December 31, 2020
			Unpaid		Allowance				Unpaid		Allowance
	Total		Contractual		for		Total		Contractual		for
	Recorded		Principal		Loan		Recorded		Principal		Loan
	Investment		Balance		Losses		Investment		Balance		Losses
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	32	$	32	$	32	$	2	$	2	$	2
Commercial and Industrial		2,230		2,230		1,751		3,419		3,419		1,619
Total	$	2,262	$	2,262	$	1,783	$	3,421	$	3,421	$	1,621
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	9	$	9	$	—	$	48	$	48	$	—
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		754		754		—		110		110		—
Total	$	2,096	$	2,096	$	—	$	637	$	637	$	—
Total impaired loans:
Cash, Securities, and Other	$	41	$	41	$	32	$	50	$	50	$	2
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		2,984		2,984		1,751		3,529		3,529		1,619
Total	$	4,358	$	4,358	$	1,783	$	4,058	$	4,058	$	1,621

The recorded investment in loans in the previous tables excludes accrued interest, deferred (fees) costs, and unamortized premiums/ (unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-accrual loans.

The average balance of impaired loans and interest income recognized on impaired loans during the three months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Three Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	18	$	—	$	1	$	—
Commercial and Industrial		2,635		—		3,427		—
Total	$	2,653	$	—	$	3,428	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	779	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		410		220		6,462		85
1-4 Family Residential		41		—		—		—
Total	$	1,086	$	220	$	7,241	$	85
Total impaired loans:
Cash, Securities, and Other	$	28	$	—	$	780	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		3,045		220		9,889		85
1-4 Family Residential		41		—		—		—
Total	$	3,739	$	220	$	10,669	$	85

The average balance of impaired loans and interest income recognized on impaired loans during the nine months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Nine Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	1	$	—
Commercial and Industrial		3,027		21		3,462		—
Total	$	3,037	$	21	$	3,463	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	22	$	—	$	1,463	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		257		220		6,088		250
1-4 Family Residential		21		—		—		—
Total	$	613	$	271	$	7,551	$	250
Total impaired loans:
Cash, Securities, and Other	$	32	$	—	$	1,464	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		3,284		241		9,550		250
1-4 Family Residential		21		—		—		—
Total	$	3,650	$	292	$	11,014	$	250

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,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2021
Beginning balance	$	2,039	$	871	$	3,399	$	2,223	$	1,225	$	2,795	$	12,552
(Recovery of)/provision for loan losses		85		48		97		271		(67)		(28)		406
Charge-offs		—		—		—		—		—		—		—
Recoveries		6		—		—		—		—		—		6
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Changes in allowance for loan losses for the nine months ended September 30, 2021
Beginning balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
(Recovery of)/provision for loan losses		(456)		(13)		263		490		(1)		135		418
Charge-offs		—		—		—		—		—		—		—
Recoveries		7		—		—		—		—		—		7
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Allowance for loan losses as of September 30, 2021 allocated to loans evaluated for impairment:
Individually	$	32	$	—	$	—	$	—	$	—	$	1,751	$	1,783
Collectively		2,098		919		3,496		2,494		1,158		1,016		11,181
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Loans as of September 30, 2021, evaluated for impairment:
Individually	$	41	$	—	$	83	$	—	$	1,250	$	2,984	$	4,358
Collectively		293,796		132,141		502,356		358,369		166,388		145,975		1,599,025
Ending balance	$	293,837	$	132,141	$	502,439	$	358,369	$	167,638	$	148,959	$	1,603,383

	Cash,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2020
Beginning balance	$	2,425	$	484	$	2,708	$	1,483	$	760	$	2,494	$	10,354
Provision for/(recovery of) loan losses		192		249		392		207		309		147		1,496
Charge-offs		(6)		—		—		—		—		—		(6)
Recoveries		1		—		—		—		—		—		1
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Changes in allowance for loan losses for the nine months ended September 30, 2020
Beginning balance	$	1,058	$	200	$	2,850	$	1,176	$	911	$	1,680	$	7,875
Provision for/(recovery of) loan losses		1,571		533		250		514		158		961		3,987
Charge-offs		(30)		—		—		—		—		—		(30)
Recoveries		13		—		—		—		—		—		13
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Allowance for loan losses as of December 31, 2020 allocated to loans evaluated for impairment:
Individually	$	2	$	—	$	—	$	—	$	—	$	1,619	$	1,621
Collectively		2,577		932		3,233		2,004		1,159		1,013		10,918
Ending balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
Loans as of December 31, 2020, evaluated for impairment:
Individually	$	50	$	—	$	—	$	—	$	479	$	3,529	$	4,058
Collectively		356,970		131,111		455,038		281,943		162,563		142,502		1,530,127
Ending balance	$	357,020	$	131,111	$	455,038	$	281,943	$	163,042	$	146,031	$	1,534,185

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 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 September 30, 2021 and December 31, 2020 (in thousands):

			Special
September 30, 2021	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	293,796	$	—	$	41	$	293,837
Construction and Development		129,618		2,523		—		132,141
1-4 Family Residential		502,356		—		83		502,439
Non-Owner Occupied CRE		352,429		5,940		—		358,369
Owner Occupied CRE		165,690		—		1,948		167,638
Commercial and Industrial		144,093		—		4,866		148,959
Total	$	1,587,982	$	8,463	$	6,938	$	1,603,383

			Special
December 31, 2020	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	356,970	$	—	$	50	$	357,020
Construction and Development		131,111		—		—		131,111
1-4 Family Residential		451,918		—		3,120		455,038
Non-Owner Occupied CRE		275,627		6,316		—		281,943
Owner Occupied CRE		161,850		—		1,192		163,042
Commercial and Industrial		140,432		—		5,599		146,031
Total	$	1,517,908	$	6,316	$	9,961	$	1,534,185

The Company had no loans graded doubtful as of September 30, 2021 and December 31, 2020.

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GOODWILL

9 Months Ended

Sep. 30, 2021

Goodwill.

Goodwill

NOTE 4 - GOODWILL

Changes in the carrying amount of goodwill were as follows (in thousands):

	September 30,		December 31,
	2021		2020
Beginning balance	$	24,191	$	19,686
Acquisition activity		—		4,505
Ending balance	$	24,191	$	24,191

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

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

Step 1 of the goodwill impairment analysis includes the determination of the carrying value of the reporting unit, including the existing goodwill, and estimating the fair value of the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, we are required to perform the second step to the impairment test.

As of September 30, 2021 and December 31, 2020, the Company's reporting unit had positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded the carrying value.

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LEASES

9 Months Ended

Sep. 30, 2021

LEASES

LEASES

NOTE 5 - LEASES

Leases in which the Company is determined to be the lessee are primarily operating leases comprised of real estate property and office space for our corporate headquarters and profit centers with terms that extend to 2032. Certain properties contain portions that are subleased with terms that ended in 2020. In accordance with ASC 842, operating leases are required to be recognized as a right-of-use asset with a corresponding lease liability.

The following table presents the classification of the right-of-use asset and corresponding liability within the Condensed Consolidated Balance Sheets. The Company elected to not include short-term leases with initial terms of twelve months or less, on the Condensed Consolidated Balance Sheets, (in thousands).

		September 30,		December 31,
		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,450	$	11,341
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	14,608	$	13,970

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.

	September 30,		December 31,
	2021		2020
Weighted-Average Remaining Lease Term
Operating leases	5.42	years	4.79	years
Weighted-Average Discount Rate
Operating leases	2.69	%	3.04	%

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 Condensed Consolidated Statements of Income. The following table represents the Company’s net lease costs, (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Lease Costs
Operating lease cost	$	781	$	786	$	2,264	$	2,401
Variable lease cost		488		557		1,316		1,516
Sublease income		—		(33)		—		(232)
Lease costs, net	$	1,269	$	1,310	$	3,580	$	3,685

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter as of September 30, 2021(in thousands):

Year Ending December 31,	Operating Leases
2021(1)	$	850
2022		3,450
2023		3,210
2024		3,064
2025		2,073
Thereafter		2,871
Total future minimum lease payments		15,518
Less: imputed interest		(910)
Present value of net future minimum lease payments	$	14,608

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

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DEPOSITS

9 Months Ended

Sep. 30, 2021

Deposits [Abstract]

DEPOSITS

NOTE 6 - DEPOSITS

The following presents the Company’s interest-bearing deposits as of the dates noted (in thousands):

	September 30,		December 31,
	2021		2020
Money market deposit accounts	$	905,196	$	847,430
Time deposits		137,015		172,682
Negotiable order of withdrawal accounts		137,833		113,052
Savings accounts		5,620		5,289
Total interest-bearing deposits	$	1,185,664	$	1,138,453
Aggregate time deposits of $250,000 or greater	$	64,902	$	73,401

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

Overdraft balances classified as loans totaled $0.1 million as of September 30, 2021 and December 31, 2020.

The following presents the scheduled maturities of all time deposits for the next five years ending September 30 (in thousands):

Year Ending December 31,		Time Deposits
2021(1)	$	39,977
2022		63,709
2023		24,819
2024		2,635
2025		1,541
Thereafter		4,334
Total	$	137,015

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

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BORROWINGS

9 Months Ended

Sep. 30, 2021

BORROWINGS

BORROWINGS

NOTE 7 - BORROWINGS

The Bank has executed a blanket pledge and security agreement with the FHLB that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of

September 30, 2021 and December 31, 2020 amounted to $767.8 million and $668.6 million, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to borrow an additional $504.7 million as of September 30, 2021. Each advance is payable at its maturity date.

The Company had the following required maturities on FHLB borrowings as of the dates noted (in thousands):

		September 30,		December 31,
Maturity Date	Rate %	2021		2020
April 22, 2022	0.37	$	5,000	$	5,000
May 5, 2023	0.76		10,000		10,000
Total		$	15,000	$	15,000

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. As of September 30, 2021 and December 31, 2020, the Company utilized $43.6 million and $134.6 million, respectively, under the PPPLF program which is included in the FHLB and Federal Reserve borrowings line of the Condensed Consolidated Balance Sheets.

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $19.0 million, and $25.0 million. As of September 30, 2021 and December 31, 2020, there were no amounts outstanding on any of the federal funds lines.

On October 28, 2020, the Company entered into a Business Loan Agreement and associated Promissory Note (the "Note"), dated June 30, 2020, with a correspondent lending partner. The Note is secured by stock of the Bank and bears interest at the one month ICE Benchmark Administration ("IBA") LIBOR plus 2.5%. As of December 31, 2020, there were no amounts outstanding and the borrowing capacity associated with this facility was $5.0 million. The Business Loan Agreement expired on June 30, 2021, in accordance with its terms, and was not renewed.

On August 31, 2021, the Company completed the issuance and sale of subordinated notes (the "Notes") totaling $15.0 million in aggregate principal amount. The issuance included $0.3 million of issuance costs resulting in a net balance of $14.7 million as of September 30, 2021 included in the Subordinated notes line of the Condensed Consolidated Balance Sheets. The Notes accrue interest at a rate of 3.25% per annum until September 1, 2026, at which time the rate will adjust each quarter to the then current three-month SOFR, or an alternative rate determined in accordance with the terms of the Notes, plus 258 basis points; mature on September 1, 2031; are redeemable at the option of the Company on or after September 1, 2026; and pay interest quarterly.

The Company’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 16 – Regulatory Capital Matters). As of September 30, 2021 and December 31, 2020, the Company was in compliance with the covenant requirements.

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 8 - 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 Condensed 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 (in thousands):

	September 30, 2021				December 31, 2020
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	73,975	$	418,045	$	78,506	$	360,883
Standby letters of credit		3,540		20,940		1,933		17,524
Commitments to make loans to sell		113,746		—		370,512		—
Commitments to make loans		40,804		15,236		24,225		25,316

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.

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 condensed consolidated financial statements.

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SHAREHOLDERS EQUITY

9 Months Ended

Sep. 30, 2021

SHAREHOLDERS EQUITY

SHAREHOLDERS EQUITY

NOTE 9 - 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 June 14, 2019, the Company announced that its board of directors had authorized a share repurchase plan (the "2019 Repurchase Plan") under which the Company may repurchase up to 300,000 shares of its common stock and that the Board of Governors of the Federal Reserve System advised the Company that it had no objection to the Company’s 2019 Repurchase Plan. The 2019 Repurchase Plan was in effect for a one-year period, with the timing of purchases and the number of shares repurchased under the program dependent upon a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions. The 2019 Repurchase Plan expired in June of 2020. During the nine months ended September 30, 2020, the Company repurchased 22,679 shares at an average price of $16.50.

On November 3, 2020, the Company announced that its board of directors authorized the repurchase of up to 400,000 shares of the Company’s common stock, no par value, from time to time, within one year (the "2020 Repurchase

Plan") and that the Board of Governors of the Federal Reserve System advised the Company that it has no objection to the Company’s 2020 Repurchase Plan. The Company may repurchase shares in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 promulgated by the SEC, or otherwise in a manner that complies with applicable federal securities laws. The 2020 Repurchase Plan does not obligate the Company to acquire a specific dollar amount or number of shares and it may be extended, modified or discontinued at any time without notice. During the three and nine months ended September 30, 2021, the Company did not repurchase any shares under the 2020 Repurchase Plan.

During the the nine months ended September 30, 2021 and 2020, the Company sold no shares of common stock.

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) vests ratably over five-years. The remaining $1.5 million, or 52,632 shares, may be earned based on performance of the mortgage division of the Company. During the the nine months ended September 30, 2020, the Company recognized compensation expense of $0.1 million, representing 14,114 shares, related to the performance-based awards. The performance based awards fully vested in the second quarter of 2020.

As of September 30, 2021, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. The Company recognized compensation expense of $0.1 million for the three months ended September 30, 2021 and 2020, for the Restricted Stock Awards. During the the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $0.2 million and $0.3 million, respectively, for the Restricted Stock Awards. As of September 30, 2021, the Company has $0.3 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of one year. During the nine months ended September 30, 2021, 10,526 shares of the Restricted Stock Awards vested. During the nine months ended September 30, 2020, 10,527 of the Restricted Stock Awards and 30,088 shares of the Performance based Restricted Stock Awards vested.

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 September 30, 2021, there were a total of 398,934 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 nine months ended September 30, 2021 and 2020.

During the three months ended September 30, 2021 and 2020, the Company recognized an immaterial amount and $0.1 million, respectively, of stock based compensation expense associated with stock options. During the nine months ended September 30, 2021 and 2020, the Company recognized an immaterial amount and $0.2 million, respectively, of stock based compensation expense associated with stock options. As of September 30, 2021, the Company has an immaterial amount of unrecognized stock-based compensation expense related to stock options which are unvested. That cost is expected to be recognized over a weighted-average period of less than one year.

The following summarizes activity for nonqualified stock options for the nine months ended September 30, 2021:

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding as of December 31, 2020	419,197	$	29.02
Granted	—		—
Exercised	(3,750)		21.00
Forfeited or expired	(36,050)		35.91
Outstanding as of September 30, 2021	379,397		28.44	1.9	(1)
Options fully vested / exercisable as of September 30, 2021	375,827		28.46	1.8	(1)

______________________________________

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

As of September 30, 2021, there were 375,827 options that were exercisable. Exercise prices are between $20.00 and $40.00 per share, and the options are exercisable for a period of ten-years from the original grant date and expire on various dates between 2022 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 over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.

The following summarizes the activity for the Time Vesting Units, the Financial Performance Units, and the Market Performance Units for the nine months ended September 30, 2021:

	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding as of December 31, 2020	285,052	152,430	14,862
Granted	59,194	41,743	—
Vested	(66,453)	—	—
Forfeited	(14,307)	(10,149)	(1,116)
Outstanding as of September 30, 2021	263,486	184,024	13,746

During the three months ended September 30, 2021, the Company issued 4,292 shares of common stock upon the settlement of Restricted Stock Units. The remaining 1,733 shares were surrendered with a combined market value at the dates of settlement of an immaterial amount to cover employee withholding taxes. During the nine months ended September 30, 2021, the Company issued 47,351 shares of common stock upon the settlement of Restricted Stock Units. The remaining 19,102 shares were surrendered with a combined market value at the dates of settlement of $0.5 million to cover employee withholding taxes. During the nine months ended September 30, 2020, the Company issued 34,260 shares of common stock upon the settlement of Restricted Stock Units. The remaining 19,852 shares were surrendered with a combined market value at the dates of settlement of $0.3 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 59,194 Time Vesting Units with a five-year service period during the the nine months ended September 30, 2021, that vest in equal installments of 20% on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates. During the three months ended September 30, 2021 and 2020, the Company recognized compensation expense of $0.4 million and $0.4 million, respectively, for the Time Vesting Units. During the nine months ended September 30, 2021 and 2020, the Company recognized compensation expense of $1.2 million and $1.0 million, respectively, for the Time Vesting Units. As of September 30, 2021, there was $3.9 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted-average period of 1.8 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 September 30, 2021 (dollars in thousands, except share amounts):

Grant Period	Threshold Accrual	Maximum Issuable Shares at Current Threshold	Unrecognized Compensation Expense		Weighted-Average (1)	Financial Metric End Date	Vesting Requirement End Date
Prior to May 1, 2019	50% on half; 100% on other half	9,198	$	18	0.3 years	December 31, 2019	December 31, 2021
May 1, 2019 through April 30, 2020	150%	80,255		372	2.3 years	December 31, 2021	December 31, 2023
May 1, 2020 through December 31, 2020, excluding November 18, 2020	150%	81,516		474	3.3 years	December 31, 2022	December 31, 2023
On November 18, 2020	150%	34,752		346	3.1 years	December 31, 2022	50% November 18, 2023 & 2025
May 3, 2021 through August 11, 2021	150%	61,118		970	4.3 years	December 31, 2023	December 31, 2025

______________________________________

⁽¹⁾ Represents the expected unrecognized stock-based compensation expense recognition period.

The following presents the Company’s Financial Performance Units activity for the nine months ended September 30 of the years noted (dollars in thousands, except share amounts):

	Units Granted		Compensation Expense Recognized
Grant Period	2021	2020	2021		2020
Prior to May 1, 2019	—	—	$	23	$	49
May 1, 2019 through April 30, 2020	—	1,866		154		246
May 1, 2020 through December 31, 2020, excluding November 18, 2020	—	58,993		153		97
On November 18, 2020		—		94		—
May 3, 2021 through August 11, 2021	41,743	—		140		—

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 is also a market condition as a vesting requirement for the Market Performance Units which affects the determination of the grant date fair value. The Company estimated the grant date fair value using various valuation assumptions. During the three and nine months ended September 30, 2021 and 2020, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of September 30, 2021, there was $0.4 million of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted-average period of less than one year.

If the Company’s common stock is trading at or above certain prices, over a performance period which ended on June 30, 2020, the Market Performance Units would have been determined to be earned and vest following the completion of a subsequent service period ending on June 30, 2022. The Company’s common stock did not trade at or above the required prices over the performance period and as a result, no Market Performance Units are eligible to be earned.

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EARNINGS PER COMMON SHARE

9 Months Ended

Sep. 30, 2021

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

NOTE 10 - EARNINGS PER COMMON SHARE

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Earnings per common share - Basic
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Earnings per common share - basic	$	0.80	$	1.22	$	2.35	$	2.49
Earnings per common share - Diluted
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Diluted effect of common stock equivalents:
Stock options		35,428		—		25,400		—
Time Vesting Units		144,479		85,897		126,231		44,310
Financial Performance Units		73,135		7,786		64,542		16,176
Market Performance Units		13,442		13,453		13,825		13,347
Total diluted effect of common stock equivalents		266,484		107,136		229,998		73,833
Diluted weighted average shares		8,246,353		8,019,007		8,189,266		7,962,508
Earnings per common share - diluted	$	0.78	$	1.20	$	2.28	$	2.47

Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti-dilutive.

The table below presents potentially dilutive securities excluded from the diluted earnings per share calculation for the periods indicated:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Stock options	139,639	419,197	186,462	419,197
Time Vesting Units	—	82,600	1,327	87,304
Financial Performance Units	40,745	116,051	30,216	70,769
Restricted Stock Awards	10,527	21,054	10,527	41,517
Total potentially dilutive securities	190,911	638,902	228,532	618,787

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INCOME TAXES

9 Months Ended

Sep. 30, 2021

INCOME TAXES

INCOME TAXES

NOTE 11 - INCOME TAXES

During the three and nine months ended September 30, 2021, the Company recorded an income tax provision of $2.0 million and $6.0 million, respectively, reflecting an effective tax rate of 24.2% and 24.3%, respectively. During the three and nine months ended September 30, 2020, the Company recorded an income tax provision of $3.2 million and $6.3 million, respectively, reflecting an effective tax rate of 24.9% and 24.3%, respectively.

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RELATED-PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2021

RELATED-PARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

NOTE 12 - RELATED-PARTY TRANSACTIONS

The Bank extends credit to certain covered parties including Company directors, executive officers and their affiliates. As of September 30, 2021 and December 31, 2020, 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 (in thousands):

	September 30, 2021		December 31, 2020
Balance, beginning of year	$	14,321	$	5,675
Funded loans		6,172		17,348
Payments collected		(7,381)		(8,702)
Balance, end of period	$	13,112	$	14,321

Deposits from related parties held by the Bank as of September 30, 2021 and December 31, 2020 totaled $39.9 million and $26.2 million, respectively.

The Company leases office spaces from entities controlled by one of the Company’s board members. During the nine months ended September 30, 2021 and 2020, the Company incurred $0.2 million and $0.1 million, respectively, of expenses related to these leases.

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FAIR VALUE

9 Months Ended

Sep. 30, 2021

FAIR VALUE

FAIR VALUE

NOTE 13 - 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.

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

Investment Securities:  The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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).

Our mortgage derivatives are carried at fair value in the Company’s financial statements with changes in the fair value accounted for within the Condensed Consolidated Statements of Income.

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.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Other real estate owned is evaluated annually for additional impairment and adjusted accordingly.

Impaired Loans:  The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Impaired loans are evaluated monthly for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Company reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.

The following presents assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	249	$	—	$	—	$	249
Corporate bonds		—		8,356		—		8,356
GNMA mortgage-backed securities - residential		—		20,811		—		20,811
FNMA mortgage-backed securities - residential		—		1,155		—		1,155
Corporate CMO and MBS		—		1,662		—		1,662
Total securities available-for-sale	$	249	$	31,984	$	—	$	32,233
Equity securities	$	716	$	—	$	—	$	716
Guarantee asset	$	—	$	—	$	231	$	231
IRLC, net	$	—	$	—	$	2,185	$	2,185
Forward commitments and FSC	$	—	$	498	$	(17)	$	481
Mortgage loans held for sale	$	—	$	51,309	$	—	$	51,309

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	254	$	—	$	—	$	254
Corporate bonds		—		6,044		—		6,044
GNMA mortgage-backed securities - residential		—		24,604		—		24,604
FNMA mortgage-backed securities - residential		—		1,677		—		1,677
Corporate CMO and MBS		—		4,087		—		4,087
Total securities available-for-sale	$	254	$	36,412	$	—	$	36,666
Equity securities	$	730	$	—	$	—	$	730
Guarantee asset	$	—	$	—	$	232	$	232
IRLC, net	$	—	$	—	$	9,841	$	9,841
Forward commitments and FSC	$	—	$	(2,534)	$	(89)	$	(2,623)
Mortgage loans held for sale	$	—	$	161,843	$	—	$	161,843

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

Three Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	196	$	2,809	$	—
Acquisitions		—		6,617		(17)
Originations		—		(7,705)		—
Gains (losses) in net income, net		35		464		—
Ending balance	$	231	$	2,185	$	(17)

Three Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	222	$	7,566	$	(84)
Acquisitions		—		9,546		(89)
Originations		—		(6,466)		—
Gains (losses) in net income, net		23		1,065		84
Ending balance	$	245	$	11,711	$	(89)

Nine Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	232	$	9,841	$	(89)
Acquisitions		—		15,123		(190)
Originations		2		(20,702)		—
Gains (losses) in net income, net		(3)		(2,077)		262
Ending balance	$	231	$	2,185	$	(17)

Nine Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	—	$	1,184	$	—
Acquisitions		—		26,264		(189)
Originations		—		(17,449)		—
Sales		245		—		—
Gains (losses) in net income, net		—		1,712		100
Ending balance	$	245	$	11,711	$	(89)

U.S. Treasury debt is reported at fair value utilizing Level 1 inputs. The remaining portfolio of securities are reported at fair value with Level 2 inputs provided by a pricing service. As of September 30, 2021 and December 31, 2020, 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 are considered.

As of September 30, 2021, equity securities, IRLC, and guarantee assets have been recorded at fair value within the Other assets line item and the FSC have been recorded at fair value within the Other liabilities line item in the Condensed Consolidated Balance Sheets. All changes are recorded in the Other line item in the Condensed Consolidated Statements of Income.

The following presents quantitative information about Level 3 assets measured on a recurring basis as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	231		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 19% (19%)
IRLC, net		2,185		Best execution model		Pull through		72% to 100% (90%)
FSC		(17)		Internal pricing model		Market Differential		-84bps to -50bps (-75bps)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	232		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 25% (25%)
IRLC, net		9,841		Best execution model		Pull through		55% to 100% (86%)
FSC		(89)		Internal pricing model		Market Differential		-59bps to -17bps (-31bps)

The following presents assets measured on a nonrecurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	479	$	479

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	194	$	194
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	1,800	$	1,800

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

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

As of September 30, 2021, the Company did not own any OREO properties. As of December 31, 2020, OREO had a carrying amount of $0.2 million, which is the cost basis of $2.1 million net of a valuation allowance of $1.9 million.

As of September 30, 2021, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $2.3 million with valuation allowances of $1.8 million and were classified as Level 3. As of December 31, 2020, impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $3.4 million with valuation allowances of $1.6 million and were classified as Level 3.

Impaired loans accounted for specific reserves of $1.8 million and $1.6 million as of September 30, 2021 and December 31, 2020. The Company did not have any charge offs during the nine months ended September 30, 2021 from the specific reserve. The Company charged off an immaterial amount during the year ended December 31, 2020 from the specific reserve.

The following presents quantitative information about the significant unobservable inputs used in the fair value measurement of nonrecurring assets categorized within Level 3 of the fair value hierarchy as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Impaired loans(1):
Commercial and Industrial	$	479		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 45% (39%)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Other real estate owned:
Commercial properties	$	194		Sales contract		Commission, cost to sell, closing costs		5% (5%)
Impaired loans(1):
Commercial and Industrial		1,800		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 35% (26%)

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of September 30, 2021 and December 31, 2020 (in thousands):

	Carrying		Fair Value Measurements Using:
September 30, 2021	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	310,235	$	310,235	$	—	$	—
Loans, net		1,590,086		—		—		1,577,103
Accrued interest receivable		6,306		—		20		6,286
Liabilities:
Deposits		1,782,299		—		1,783,610		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,056		—
Federal Reserve borrowings – fixed rate		43,564		—		43,564		—
Subordinated notes – fixed-to-floating rate		39,010		—		—		40,313
Accrued interest payable		357		—		173		184

	Carrying		Fair Value Measurements Using:
December 31, 2020	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	155,989	$	155,989	$	—	$	—
Loans, net		1,520,294		—		—		1,512,699
Accrued interest receivable		6,618		—		90		6,528
Liabilities:
Deposits		1,619,910		—		1,621,648		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,099		—
Federal Reserve borrowings – fixed rate		134,563		—		134,563		—
Subordinated notes – fixed-to-floating rate		24,291		—		—		25,750
Accrued interest payable		453		—		124		329

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.

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, taking into account 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.

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SEGMENT REPORTING

9 Months Ended

Sep. 30, 2021

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 14 - 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 Company completed the sale of its LA fixed income team in the fourth quarter 2020. The LA fixed income team and the related assets made up a majority of the previously reported Capital Management Segment. As a result of the sale the Company evaluated its reportable segments and determined the remaining assets following the sale in the Capital

Management segment no longer meet the thresholds of income before income tax to be a reportable segment. The residual assets that remained in the Capital Management segment are now included in the Wealth Management segment.

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

For 2020 periods presented, the Wealth Management segment includes the previously reported key metrics of the previously reported Capital Management segment.

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods as of or for the three and nine months ended September 30, 2021 and 2020 (in thousands):

As of and for the three months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	16,146	$	—	$	16,146
Total interest expense		1,300		—		1,300
Provision for loan losses		406		—		406
Net interest income, after provision for loan losses		14,440		—		14,440
Non-interest income		5,998		4,497		10,495
Total income before non-interest expense		20,438		4,497		24,935
Depreciation and amortization expense		272		13		285
All other non-interest expense		13,967		2,217		16,184
Income before income taxes	$	6,199	$	2,267	$	8,466
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the three months ended September 30, 2020	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	14,410	$	—	$	14,410
Total interest expense		1,492		—		1,492
Provision for loan losses		1,496		—		1,496
Net interest income, after provision for loan losses		11,422		—		11,422
Non-interest income		5,709		12,323		18,032
Total income before non-interest expense		17,131		12,323		29,454
Depreciation and amortization expense		260		14		274
All other non-interest expense		14,291		2,067		16,358
Income before income taxes	$	2,580	$	10,242	$	12,822
Goodwill	$	24,191	$	—	$	24,191
Assets held for sale		3,000		—		3,000
Total assets		1,867,748		105,149		1,972,897

As of and for the nine months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	46,193	$	—	$	46,193
Total interest expense		4,071		—		4,071
Provision for loan losses		418		—		418
Net interest income, after provision for loan losses		41,704		—		41,704
Non-interest income		16,987		13,621		30,608
Total income before non-interest expense		58,691		13,621		72,312
Depreciation and amortization expense		792		40		832
All other non-interest expense		38,800		7,987		46,787
Income before income taxes	$	19,099	$	5,594	$	24,693
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the nine months ended September 30, 2020	Wealth Management			Mortgage		Consolidated
Income Statement
Total interest income	$	38,392		$	—	$	38,392
Total interest expense		5,747			—		5,747
Provision for loan losses		3,987			—		3,987
Net interest income, after provision for loan losses		28,658			—		28,658
Non-interest income		16,202			25,024		41,226
Total income before non-interest expense		44,860			25,024		69,884
Depreciation and amortization expense		770			56		826
All other non-interest expense		37,391	(1)		5,706		43,097
Income before income taxes	$	6,699		$	19,262	$	25,961
Goodwill	$	24,191		$	—	$	24,191
Assets held for sale		3,000			—		3,000
Total assets		1,867,748			105,149		1,972,897

______________________________________

⁽¹⁾ Includes loss on assets held for sale of $0.6 million and $0.2 million SEC penalty.

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LOW-INCOME HOUSING TAX CREDIT INVESTMENT

9 Months Ended

Sep. 30, 2021

LOW-INCOME HOUSING TAX CREDIT INVESTMENTS

LOW-INCOME HOUSING TAX CREDIT INVESTMENTS

NOTE 15 – LOW-INCOME HOUSING TAX CREDIT INVESTMENTS

On December 19, 2019, the Company invested in a low-income housing tax credit ("LIHTC") investment. As of September 30, 2021 and December 31, 2020, the balance of the investment for LIHTC was $2.8 million and $1.1 million, respectively. These balances are reflected in the Other assets line item of the Condensed Consolidated Balance Sheets. Total unfunded commitments related to the investment in the LIHTC total $0.2 million and $2.2 million as of September 30, 2021 and December 31, 2020, respectively. The Company expects to fulfill these commitments during the year ending 2021.

The Company uses the proportional amortization method to account for this investment. During the three and nine months ended September 30, 2021, the Company recognized amortization expense of $0.1 million and $0.3 million, respectively, which was included within the Income tax expense line item of the Condensed Consolidated Statements of Income. The Company did not recognize any related amortization expense during the three and nine months ended September 30, 2020.

Additionally, during the three and nine months ended September 30, 2021, the Company recognized $0.1 million and $0.3 million of tax credits and other benefits from this investment in the LIHTC. The Company did not recognize any related tax credits or other benefits during the three and nine months ended September 30, 2020. During the three and nine months ended September 30, 2021 and 2020, the Company did not incur any impairment losses.

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REGULATORY CAPITAL MATTERS

9 Months Ended

Sep. 30, 2021

REGULATORY CAPITAL MATTERS

REGULATORY CAPITAL MATTERS

NOTE 16 - 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. Management believes as of September 30, 2021, First Western and the Bank meet all capital adequacy requirements to which they are subject to.

Prompt corrective action regulations for First Western and the Bank provide five classifications: 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 September 30, 2021, 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 its 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 September 30, 2021 and December 31, 2020, 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 September 30, 2021, that have changed the categorization of First Western and the Bank as well capitalized. Management believes First Western and the Bank met all capital adequacy requirements to which it was subject as of September 30, 2021 and December 31, 2020.

The following presents the actual and required capital amounts and ratios as of September 30, 2021 and December 31, 2020 (dollars in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
September 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	156,136	11.02	%	$	85,019	6.0	%	$	113,359	8.0	%
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		156,136	11.02			63,764	4.5			92,104	6.5
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		169,435	11.96			113,359	8.0			141,699	10.0
Consolidated		204,809	14.37			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		156,136	8.11			77,047	4.0			96,308	5.0
Consolidated		151,950	7.86			N/A	N/A			N/A	N/A

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	133,963	10.22	%	$	78,660	6.0	%	$	104,880	8.0	%
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		133,963	10.22			58,995	4.5			85,215	6.5
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		146,853	11.20			104,880	8.0			131,100	10.0
Consolidated		168,957	12.80			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		133,963	7.62			70,301	4.0			87,877	5.0
Consolidated		131,507	7.45			N/A	N/A			N/A	N/A

______________________________________

⁽¹⁾ Does not include capital conservation buffer.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2021

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business and Basis of Presentation

Business and Basis of Presentation:  The condensed 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) and Wyoming (Jackson Hole and Laramie). 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 condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. The December 31, 2020 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2020.

In the opinion of management, all adjustments that were recurring in nature and considered necessary have been included for fair presentation of the Company’s financial position and results of operations. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the full year ending December 31, 2021. In preparing the condensed consolidated financial statements, the Company is required to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could be significantly different from those estimates.

The condensed consolidated financial statements and notes should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC.

Consolidation

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.

Acquisitions

Business Combinations and Divestitures:  On May 15, 2020, the Company completed a branch purchase and assumption transaction ("Branch Acquisition") with Simmons Bank ("Simmons"). Management concluded that the acquisition represented a business combination, which is accounted for using the acquisition method, with the results of operations included in the Company’s consolidated financial statements as of the acquisition date.

On November 13, 2020, the Company completed the sale of its LA fixed income team and certain related advisory and sub-advisory arrangements to Lido Advisors, LLC and Oakhurst Advisors, LLC.  As a result of this transaction, the Company recorded a contingent consideration asset with an initial fair value estimated at $3.1 million to be received in quarterly payments over three years and a portion will be received in perpetuity. The asset is carried at its net present value in our Other assets line item of the Condensed Consolidated Balance Sheets.

On July 22, 2021, the Company entered into 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. As of June 30, 2021, Teton had assets of $420.7 million, total deposits of $374.6 million, and total loans of $267.9 million. The Merger Agreement provides that, subject to the terms and conditions set forth in the Merger Agreement, Teton will be merged with into the Company (the “Merger”), with the Company continuing as the surviving corporation. The Merger Agreement also provides that following the Merger, Rocky Mountain Bank will be merged with and into the Bank, with the Bank surviving the bank merger. During the nine months ended September

30, 2021, the Company has incurred $0.4 million in merger related expenses, which are included in the Professional services line of the Condensed Consolidated Statements of Income.

Use of Estimates

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.

The Company could experience a material adverse effect on its business as a result of the impact of the COVID-19 pandemic, and the resulting governmental actions to curtail its spread.

Concentration of Credit Risk

Concentration of Credit Risk:  Most of the Company’s lending activity is to clients located in and around metro Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole and Laramie, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. As of September 30, 2021 and December 31, 2020, 72.4% and 66.9%, respectively, of the Company’s loan portfolio was secured by real estate collateral. Declines in real estate values in the primary markets the Company operates in could negatively impact the Company.

Mortgage Banking Derivatives

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 Condensed 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 Condensed Consolidated Statements of Income.

Revenue Recognition

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. There were no performance based incentive fees earned with respect to investment management contracts for the three and nine months ended September 30, 2021. Performance based incentive fees earned with respect to investment management contracts for the year ended December 31, 2020 were immaterial. Receivables are recorded on the Condensed 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 Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020 are considered in scope of Topic 606.

Transition of LIBOR to an Alternative Reference Rate

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.

The administrator of LIBOR has proposed to extend publication of the most commonly used U.S. Dollar LIBOR settings to June 30, 2023, and to cease publishing other LIBOR settings on December 31, 2021.

Certain of the Company’s assets and liabilities are indexed to LIBOR, with exposure extending beyond December 31, 2021. 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, fallback language, and other aspects of planning. The Company has prepared a timeline to transition from LIBOR before the end of 2021.

COVID-19 and CARES Act

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.

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 supported the community and clients by originating PPP loans since the program was created. PPP loans are classified in the Cash, Securities and Other portion of the loan portfolio. See Note 3 for further discussion on our PPP loans.

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 and had a risk rating of “pass” and had not been delinquent in making interest or principal payment by more than 30 days during the last two years.

The CARES Act provides banks optional, temporary relief from accounting for certain loan modifications as troubled debt restructurings ("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 Federal Deposit Insurance Corporation ("FDIC") confirmed with the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered a TDR. We believe our loan modification program meets that definition and have not classified any of these modifications as a TDR as of September 30, 2021.  See Note 3 for further discussion on our loan modification program.

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 may sell a 95% participation in a new MSLP loan 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 3 for further discussion on our participation in the program.

Reclassifications

Reclassifications:  Certain items in prior year financial statements were reclassified to conform to the current presentation. Such reclassifications had no impact on net income or total shareholders’ equity.

Recently adopted accounting pronouncements and Recently issued accounting pronouncements, not yet adopted

Recently adopted accounting pronouncements:  The following reflects recent accounting pronouncements that were adopted by the Company since the end of the Company’s fiscal year ended December 31, 2020.

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope" ("ASU 2021-01"). ASU 2021-01 clarifies the scope of Topic 848, originally issued in 2020 (ASU 2020-04). ASU 2021-01 clarifies that derivatives affected by the related discounting transition are explicitly eligible for certain optional expedients and exceptions. ASU 2021-01 also clarifies that a receive-variable-rate, pay-variable-rate cross-currency interest rate swap may be considered an eligible hedging instrument in a net investment hedge if both legs of the swap do not have the same repricing intervals and dates as a result of reference rate reform. ASU 2021-01 was effective for the Company on January 7, 2021 and did not have a material impact on the Company’s financial statement disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects pending pronouncements with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2020.

In February 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"). ASU 2016-13 replaces the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on the financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For all other assets within the scope of CECL, a cumulative-effect adjustment will be recognized in retained earnings and the allowance for credit losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 was set to be effective for most public companies on January 1, 2020. However, at the October 16, 2019 FASB meeting, the FASB voted unanimously to delay the effective date of CECL adoption for smaller reporting companies ("SRCs") to January 1, 2023.

During the nine months ended September 30, 2021, the CECL committee of the Company continued to work through its implementation plan. The Company has integrated historical and current loan level data as required by CECL and is working with its third-party vendor solution to begin evaluating the methodologies available under the CECL model on its loan portfolios. The Company also continues to evaluate documentation requirements, internal control structure, relevant data sources, and system configurations. The Company has completed a successful integration of the required fields and historical data for key loan, client and collateral data within the third-party solution and has been able to run parallels of our current allowance for loan and lease losses ("ALLL") calculation in the software to compare to our internal calculation and reconcile known differences. The Company has started the process of selecting the methodologies to be used for each segment of its loan portfolio and started preliminarily testing to determine the impact of each methodology. Currently, we are unable to estimate the impact the adoption of this update will have on the consolidated financial statements and disclosures. However, the Company expects the impact of the adoption will be significantly influenced by the composition and characteristics of its loan portfolios along with economic conditions prevalent as of the date of adoption. The Company expects to implement the new standard beginning January 1, 2023.

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge of the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 was set to be effective for the Company on January 1, 2021. However, ASU 2019-10 amended the mandatory effective date for ASU 2014-07 to January 1, 2023 for SRC’s, with earlier adoption permitted. The Company expects to early adopt beginning January 1, 2022.

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2021

INVESTMENT SECURITIES

Schedule of the amortized cost and fair value of securities available for sale, with gross unrealized gains and losses recognized

The following presents the amortized cost and fair value of securities available-for-sale, with unrealized gains and losses recognized in accumulated other comprehensive income as of September 30, 2021 and December 31, 2020 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
September 30, 2021	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	(1)	$	249
Corporate bonds		8,117		249		(10)		8,356
GNMA mortgage-backed securities – residential		20,488		351		(28)		20,811
FNMA mortgage-backed securities – residential		1,102		53		—		1,155
Corporate CMO and MBS		1,645		35		(18)		1,662
Total securities available-for-sale	$	31,602	$	688	$	(57)	$	32,233

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2020	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	4	$	—	$	254
Corporate bonds		6,000		55		(11)		6,044
GNMA mortgage-backed securities – residential		23,806		798		—		24,604
FNMA mortgage-backed securities – residential		1,616		61		—		1,677
Corporate CMO and MBS		4,078		62		(53)		4,087
Total securities available-for-sale	$	35,750	$	980	$	(64)	$	36,666

Summary of the amortized cost and estimated fair value of available for sale securities, excluding SBIC with contractual maturity dates

As of September 30, 2021, the amortized cost and estimated fair value of available-for-sale securities have contractual maturity dates shown in the table below (in thousands).

	Amortized		Fair
September 30, 2021	Cost		Value
Due within one year	$	—	$	—
Due between one year and five years		250		249
Due between five years and ten years		8,117		8,356
Securities (agency, Corporate CMO, and MBS)		23,235		23,628
Total	$	31,602	$	32,233

Summary of securities with unrealized losses aggregated by major security type and length of time in a continuous unrealized loss position

The following table summarizes securities with unrealized losses as of September 30, 2021 and December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands, before tax):

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
September 30, 2021	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	249	$	(1)	$	—	$	—	$	249	$	(1)
GNMA mortgage-backed securities – residential		7,555		(28)		—		—		7,555		(28)
Corporate bonds		490		(10)		—		—		490		(10)
Corporate CMO and MBS		—		—		556		(18)		556		(18)
Total	$	8,294	$	(39)	$	556	$	(18)	$	8,850	$	(57)

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2020	Value		Losses		Value		Losses		Value		Losses
Corporate bonds	$	3,489	$	(11)	$	—	$	—	$	3,489	$	(11)
Corporate CMO and MBS		880		(40)		566		(13)		1,446		(53)
Total	$	4,369	$	(51)	$	566	$	(13)	$	4,935	$	(64)

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2021

LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Summary of the Company's loans

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other(1)	$	293,837	$	357,020
Construction and Development		132,141		131,111
1-4 Family Residential		502,439		455,038
Non-Owner Occupied CRE		358,369		281,943
Owner Occupied CRE		167,638		163,042
Commercial and Industrial(2)		148,959		146,031
Total loans held for investment		1,603,383		1,534,185
Deferred fees and unamortized premiums/(unaccreted discounts), net		(333)		(1,352)
Allowance for loan losses		(12,964)		(12,539)
Loans, net	$	1,590,086	$	1,520,294

______________________________________

⁽¹⁾ Includes PPP loans of $61.9 million and $142.9 million as of September 30, 2021 and December 31, 2020, respectively.

⁽²⁾ Includes MSLP loans of $6.8 million and $6.6 million as of September 30, 2021 and December 31, 2020, respectively.

Summary of aging analysis of the recorded investments in loans past due

The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred (fees) costs, and unamortized premiums/ (unaccreted discounts) which are not material) in loans past due as of September 30, 2021 and December 31, 2020 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
September 30, 2021	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	727	$	14	$	40	$	781	$	293,056	$	293,837
Construction and Development		—		2,522		—		2,522		129,619		132,141
1-4 Family Residential		483		—		83		566		501,873		502,439
Non-Owner Occupied CRE		—		—		—		—		358,369		358,369
Owner Occupied CRE		—		—		—		—		167,638		167,638
Commercial and Industrial		—		—		2,230		2,230		146,729		148,959
Total	$	1,210	$	2,536	$	2,353	$	6,099	$	1,597,284	$	1,603,383

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2020	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	752	$	—	$	48	$	800	$	356,220	$	357,020
Construction and Development		—		—		—		—		131,111		131,111
1-4 Family Residential		1,283		—		—		1,283		453,755		455,038
Non-Owner Occupied CRE		—		—		—		—		281,943		281,943
Owner Occupied CRE		479		—		—		479		162,563		163,042
Commercial and Industrial		271		—		3,529		3,800		142,231		146,031
Total	$	2,785	$	—	$	3,577	$	6,362	$	1,527,823	$	1,534,185

Schedule of recorded investment in non accrual loans by class

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

	September 30,		December 31,
	2021		2020
Cash, Securities and Other	$	41	$	50
1-4 Family Residential		83		—
Owner Occupied CRE		1,250		479
Commercial and Industrial		2,984		3,529
Total	$	4,358	$	4,058

Summary of the unpaid principal balance of loans classified as TDRs

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

	September 30,		December 31,
	2021		2020
Non-accrual
Cash, Securities, and Other	$	9	$	48
Commercial and Industrial		2,230		3,529
Total		2,239		3,577
Allowance for loan losses associated with TDR		(1,751)		(1,619)
Net recorded investment	$	488	$	1,958

Summary of impaired loans by portfolio and related valuation allowance

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

	September 30, 2021						December 31, 2020
			Unpaid		Allowance				Unpaid		Allowance
	Total		Contractual		for		Total		Contractual		for
	Recorded		Principal		Loan		Recorded		Principal		Loan
	Investment		Balance		Losses		Investment		Balance		Losses
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	32	$	32	$	32	$	2	$	2	$	2
Commercial and Industrial		2,230		2,230		1,751		3,419		3,419		1,619
Total	$	2,262	$	2,262	$	1,783	$	3,421	$	3,421	$	1,621
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	9	$	9	$	—	$	48	$	48	$	—
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		754		754		—		110		110		—
Total	$	2,096	$	2,096	$	—	$	637	$	637	$	—
Total impaired loans:
Cash, Securities, and Other	$	41	$	41	$	32	$	50	$	50	$	2
1-4 Family Residential		83		83		—		—		—		—
Owner Occupied CRE		1,250		1,250		—		479		479		—
Commercial and Industrial		2,984		2,984		1,751		3,529		3,529		1,619
Total	$	4,358	$	4,358	$	1,783	$	4,058	$	4,058	$	1,621

The recorded investment in loans in the previous tables excludes accrued interest, deferred (fees) costs, and unamortized premiums/ (unaccreted discounts), which are not material. Interest income, if any, was recognized on the cash basis on non-accrual loans.

The average balance of impaired loans and interest income recognized on impaired loans during the three months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Three Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	18	$	—	$	1	$	—
Commercial and Industrial		2,635		—		3,427		—
Total	$	2,653	$	—	$	3,428	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	779	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		410		220		6,462		85
1-4 Family Residential		41		—		—		—
Total	$	1,086	$	220	$	7,241	$	85
Total impaired loans:
Cash, Securities, and Other	$	28	$	—	$	780	$	—
Owner Occupied CRE		625		—		—		—
Commercial and Industrial		3,045		220		9,889		85
1-4 Family Residential		41		—		—		—
Total	$	3,739	$	220	$	10,669	$	85

The average balance of impaired loans and interest income recognized on impaired loans during the nine months ended September 30, 2021 and 2020 are included in the table below (in thousands):

	Nine Months Ended September 30,
	2021				2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Cash, Securities, and Other	$	10	$	—	$	1	$	—
Commercial and Industrial		3,027		21		3,462		—
Total	$	3,037	$	21	$	3,463	$	—
Impaired loans with no related valuation allowance:
Cash, Securities, and Other	$	22	$	—	$	1,463	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		257		220		6,088		250
1-4 Family Residential		21		—		—		—
Total	$	613	$	271	$	7,551	$	250
Total impaired loans:
Cash, Securities, and Other	$	32	$	—	$	1,464	$	—
Owner Occupied CRE		313		51		—		—
Commercial and Industrial		3,284		241		9,550		250
1-4 Family Residential		21		—		—		—
Total	$	3,650	$	292	$	11,014	$	250

Schedule of activity in the Company's allowance for loan losses by portfolio class

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

	Cash,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2021
Beginning balance	$	2,039	$	871	$	3,399	$	2,223	$	1,225	$	2,795	$	12,552
(Recovery of)/provision for loan losses		85		48		97		271		(67)		(28)		406
Charge-offs		—		—		—		—		—		—		—
Recoveries		6		—		—		—		—		—		6
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Changes in allowance for loan losses for the nine months ended September 30, 2021
Beginning balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
(Recovery of)/provision for loan losses		(456)		(13)		263		490		(1)		135		418
Charge-offs		—		—		—		—		—		—		—
Recoveries		7		—		—		—		—		—		7
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Allowance for loan losses as of September 30, 2021 allocated to loans evaluated for impairment:
Individually	$	32	$	—	$	—	$	—	$	—	$	1,751	$	1,783
Collectively		2,098		919		3,496		2,494		1,158		1,016		11,181
Ending balance	$	2,130	$	919	$	3,496	$	2,494	$	1,158	$	2,767	$	12,964
Loans as of September 30, 2021, evaluated for impairment:
Individually	$	41	$	—	$	83	$	—	$	1,250	$	2,984	$	4,358
Collectively		293,796		132,141		502,356		358,369		166,388		145,975		1,599,025
Ending balance	$	293,837	$	132,141	$	502,439	$	358,369	$	167,638	$	148,959	$	1,603,383

	Cash,		Construction		1-4		Non-Owner		Owner		Commercial
	Securities		and		Family		Occupied		Occupied		and
	and Other		Development		Residential		CRE		CRE		Industrial		Total
Changes in allowance for loan losses for the three months ended September 30, 2020
Beginning balance	$	2,425	$	484	$	2,708	$	1,483	$	760	$	2,494	$	10,354
Provision for/(recovery of) loan losses		192		249		392		207		309		147		1,496
Charge-offs		(6)		—		—		—		—		—		(6)
Recoveries		1		—		—		—		—		—		1
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Changes in allowance for loan losses for the nine months ended September 30, 2020
Beginning balance	$	1,058	$	200	$	2,850	$	1,176	$	911	$	1,680	$	7,875
Provision for/(recovery of) loan losses		1,571		533		250		514		158		961		3,987
Charge-offs		(30)		—		—		—		—		—		(30)
Recoveries		13		—		—		—		—		—		13
Ending balance	$	2,612	$	733	$	3,100	$	1,690	$	1,069	$	2,641	$	11,845
Allowance for loan losses as of December 31, 2020 allocated to loans evaluated for impairment:
Individually	$	2	$	—	$	—	$	—	$	—	$	1,619	$	1,621
Collectively		2,577		932		3,233		2,004		1,159		1,013		10,918
Ending balance	$	2,579	$	932	$	3,233	$	2,004	$	1,159	$	2,632	$	12,539
Loans as of December 31, 2020, evaluated for impairment:
Individually	$	50	$	—	$	—	$	—	$	479	$	3,529	$	4,058
Collectively		356,970		131,111		455,038		281,943		162,563		142,502		1,530,127
Ending balance	$	357,020	$	131,111	$	455,038	$	281,943	$	163,042	$	146,031	$	1,534,185

Summary of recorded investment in the Company's loans by class and by credit quality indicator

The following presents, by class and by credit quality indicator, the recorded investment in the Company’s loans as of September 30, 2021 and December 31, 2020 (in thousands):

			Special
September 30, 2021	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	293,796	$	—	$	41	$	293,837
Construction and Development		129,618		2,523		—		132,141
1-4 Family Residential		502,356		—		83		502,439
Non-Owner Occupied CRE		352,429		5,940		—		358,369
Owner Occupied CRE		165,690		—		1,948		167,638
Commercial and Industrial		144,093		—		4,866		148,959
Total	$	1,587,982	$	8,463	$	6,938	$	1,603,383

			Special
December 31, 2020	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	356,970	$	—	$	50	$	357,020
Construction and Development		131,111		—		—		131,111
1-4 Family Residential		451,918		—		3,120		455,038
Non-Owner Occupied CRE		275,627		6,316		—		281,943
Owner Occupied CRE		161,850		—		1,192		163,042
Commercial and Industrial		140,432		—		5,599		146,031
Total	$	1,517,908	$	6,316	$	9,961	$	1,534,185

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GOODWILL (Tables)

9 Months Ended

Sep. 30, 2021

Goodwill.

Schedule of changes in carrying amount of goodwill

Changes in the carrying amount of goodwill were as follows (in thousands):

	September 30,		December 31,
	2021		2020
Beginning balance	$	24,191	$	19,686
Acquisition activity		—		4,505
Ending balance	$	24,191	$	24,191

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LEASES (Tables)

9 Months Ended

Sep. 30, 2021

LEASES

Lease Balance Sheet Location

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

		September 30,		December 31,
		2021		2020
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,450	$	11,341
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	14,608	$	13,970

Schedule Of Weighted Average Lease Term And Discount Rate

	September 30,		December 31,
	2021		2020
Weighted-Average Remaining Lease Term
Operating leases	5.42	years	4.79	years
Weighted-Average Discount Rate
Operating leases	2.69	%	3.04	%

Lease Costs

The following table represents the Company’s net lease costs, (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Lease Costs
Operating lease cost	$	781	$	786	$	2,264	$	2,401
Variable lease cost		488		557		1,316		1,516
Sublease income		—		(33)		—		(232)
Lease costs, net	$	1,269	$	1,310	$	3,580	$	3,685

Schedule of Minimum Lease Payments Due

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the next five years and total amounts thereafter as of September 30, 2021(in thousands):

Year Ending December 31,	Operating Leases
2021(1)	$	850
2022		3,450
2023		3,210
2024		3,064
2025		2,073
Thereafter		2,871
Total future minimum lease payments		15,518
Less: imputed interest		(910)
Present value of net future minimum lease payments	$	14,608

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

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DEPOSITS (Tables)

9 Months Ended

Sep. 30, 2021

Deposits [Abstract]

Schedule of interest bearing deposits

The following presents the Company’s interest-bearing deposits as of the dates noted (in thousands):

	September 30,		December 31,
	2021		2020
Money market deposit accounts	$	905,196	$	847,430
Time deposits		137,015		172,682
Negotiable order of withdrawal accounts		137,833		113,052
Savings accounts		5,620		5,289
Total interest-bearing deposits	$	1,185,664	$	1,138,453
Aggregate time deposits of $250,000 or greater	$	64,902	$	73,401

Schedule Of Time Deposit Maturities

The following presents the scheduled maturities of all time deposits for the next five years ending September 30 (in thousands):

Year Ending December 31,		Time Deposits
2021(1)	$	39,977
2022		63,709
2023		24,819
2024		2,635
2025		1,541
Thereafter		4,334
Total	$	137,015

________________________________________

⁽¹⁾ Amount represents the remaining three months of year.

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BORROWINGS (Tables)

9 Months Ended

Sep. 30, 2021

BORROWINGS

Schedule of borrowings from FHLB Topeka

The Company had the following required maturities on FHLB borrowings as of the dates noted (in thousands):

		September 30,		December 31,
Maturity Date	Rate %	2021		2020
April 22, 2022	0.37	$	5,000	$	5,000
May 5, 2023	0.76		10,000		10,000
Total		$	15,000	$	15,000

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2021

COMMITMENTS AND CONTINGENCIES

Schedule of contract amounts represent credit risk

The following presents the Company’s financial instruments whose contract amounts represent credit risk, as of the dates noted (in thousands):

	September 30, 2021				December 31, 2020
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	73,975	$	418,045	$	78,506	$	360,883
Standby letters of credit		3,540		20,940		1,933		17,524
Commitments to make loans to sell		113,746		—		370,512		—
Commitments to make loans		40,804		15,236		24,225		25,316

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SHAREHOLDERS EQUITY (Tables)

9 Months Ended

Sep. 30, 2021

SHAREHOLDERS EQUITY

Schedule of summarizes activity for nonqualified stock options

The following summarizes activity for nonqualified stock options for the nine months ended September 30, 2021:

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding as of December 31, 2020	419,197	$	29.02
Granted	—		—
Exercised	(3,750)		21.00
Forfeited or expired	(36,050)		35.91
Outstanding as of September 30, 2021	379,397		28.44	1.9	(1)
Options fully vested / exercisable as of September 30, 2021	375,827		28.46	1.8	(1)

______________________________________

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

Schedule of summarizes the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units

	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding as of December 31, 2020	285,052	152,430	14,862
Granted	59,194	41,743	—
Vested	(66,453)	—	—
Forfeited	(14,307)	(10,149)	(1,116)
Outstanding as of September 30, 2021	263,486	184,024	13,746

Schedule of financial performance units activity

The following presents the Company’s existing Financial Performance Units as of September 30, 2021 (dollars in thousands, except share amounts):

Grant Period	Threshold Accrual	Maximum Issuable Shares at Current Threshold	Unrecognized Compensation Expense		Weighted-Average (1)	Financial Metric End Date	Vesting Requirement End Date
Prior to May 1, 2019	50% on half; 100% on other half	9,198	$	18	0.3 years	December 31, 2019	December 31, 2021
May 1, 2019 through April 30, 2020	150%	80,255		372	2.3 years	December 31, 2021	December 31, 2023
May 1, 2020 through December 31, 2020, excluding November 18, 2020	150%	81,516		474	3.3 years	December 31, 2022	December 31, 2023
On November 18, 2020	150%	34,752		346	3.1 years	December 31, 2022	50% November 18, 2023 & 2025
May 3, 2021 through August 11, 2021	150%	61,118		970	4.3 years	December 31, 2023	December 31, 2025

______________________________________

⁽¹⁾ Represents the expected unrecognized stock-based compensation expense recognition period.

The following presents the Company’s Financial Performance Units activity for the nine months ended September 30 of the years noted (dollars in thousands, except share amounts):

	Units Granted		Compensation Expense Recognized
Grant Period	2021	2020	2021		2020
Prior to May 1, 2019	—	—	$	23	$	49
May 1, 2019 through April 30, 2020	—	1,866		154		246
May 1, 2020 through December 31, 2020, excluding November 18, 2020	—	58,993		153		97
On November 18, 2020		—		94		—
May 3, 2021 through August 11, 2021	41,743	—		140		—

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EARNINGS PER COMMON SHARE (Tables)

9 Months Ended

Sep. 30, 2021

EARNINGS PER COMMON SHARE

Schedule of basic and diluted earnings per share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Earnings per common share - Basic
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Earnings per common share - basic	$	0.80	$	1.22	$	2.35	$	2.49
Earnings per common share - Diluted
Numerator:
Net income available for common shareholders	$	6,417	$	9,630	$	18,693	$	19,660
Denominator:
Basic weighted average shares		7,979,869		7,911,871		7,959,268		7,888,675
Diluted effect of common stock equivalents:
Stock options		35,428		—		25,400		—
Time Vesting Units		144,479		85,897		126,231		44,310
Financial Performance Units		73,135		7,786		64,542		16,176
Market Performance Units		13,442		13,453		13,825		13,347
Total diluted effect of common stock equivalents		266,484		107,136		229,998		73,833
Diluted weighted average shares		8,246,353		8,019,007		8,189,266		7,962,508
Earnings per common share - diluted	$	0.78	$	1.20	$	2.28	$	2.47

Schedule of Antidilutive securities

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Stock options	139,639	419,197	186,462	419,197
Time Vesting Units	—	82,600	1,327	87,304
Financial Performance Units	40,745	116,051	30,216	70,769
Restricted Stock Awards	10,527	21,054	10,527	41,517
Total potentially dilutive securities	190,911	638,902	228,532	618,787

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RELATED-PARTY TRANSACTIONS (Tables)

9 Months Ended

Sep. 30, 2021

RELATED-PARTY TRANSACTIONS

Summary of related-party loan activity

The following presents a summary of related-party loan activity as of the dates noted (in thousands):

	September 30, 2021		December 31, 2020
Balance, beginning of year	$	14,321	$	5,675
Funded loans		6,172		17,348
Payments collected		(7,381)		(8,702)
Balance, end of period	$	13,112	$	14,321

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2021

Schedule of fair value assets and liabilities measured on recurring basis

The following presents assets and liabilities measured on a recurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	249	$	—	$	—	$	249
Corporate bonds		—		8,356		—		8,356
GNMA mortgage-backed securities - residential		—		20,811		—		20,811
FNMA mortgage-backed securities - residential		—		1,155		—		1,155
Corporate CMO and MBS		—		1,662		—		1,662
Total securities available-for-sale	$	249	$	31,984	$	—	$	32,233
Equity securities	$	716	$	—	$	—	$	716
Guarantee asset	$	—	$	—	$	231	$	231
IRLC, net	$	—	$	—	$	2,185	$	2,185
Forward commitments and FSC	$	—	$	498	$	(17)	$	481
Mortgage loans held for sale	$	—	$	51,309	$	—	$	51,309

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	254	$	—	$	—	$	254
Corporate bonds		—		6,044		—		6,044
GNMA mortgage-backed securities - residential		—		24,604		—		24,604
FNMA mortgage-backed securities - residential		—		1,677		—		1,677
Corporate CMO and MBS		—		4,087		—		4,087
Total securities available-for-sale	$	254	$	36,412	$	—	$	36,666
Equity securities	$	730	$	—	$	—	$	730
Guarantee asset	$	—	$	—	$	232	$	232
IRLC, net	$	—	$	—	$	9,841	$	9,841
Forward commitments and FSC	$	—	$	(2,534)	$	(89)	$	(2,623)
Mortgage loans held for sale	$	—	$	161,843	$	—	$	161,843

Summary of assets and liability for level 3 instruments measured at fair value on recurring basis

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

Three Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	196	$	2,809	$	—
Acquisitions		—		6,617		(17)
Originations		—		(7,705)		—
Gains (losses) in net income, net		35		464		—
Ending balance	$	231	$	2,185	$	(17)

Three Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	222	$	7,566	$	(84)
Acquisitions		—		9,546		(89)
Originations		—		(6,466)		—
Gains (losses) in net income, net		23		1,065		84
Ending balance	$	245	$	11,711	$	(89)

Nine Months Ended September 30, 2021	Guarantee Asset		IRLC		FSC
Beginning balance	$	232	$	9,841	$	(89)
Acquisitions		—		15,123		(190)
Originations		2		(20,702)		—
Gains (losses) in net income, net		(3)		(2,077)		262
Ending balance	$	231	$	2,185	$	(17)

Nine Months Ended September 30, 2020	Guarantee Asset		IRLC		FSC
Beginning balance	$	—	$	1,184	$	—
Acquisitions		—		26,264		(189)
Originations		—		(17,449)		—
Sales		245		—		—
Gains (losses) in net income, net		—		1,712		100
Ending balance	$	245	$	11,711	$	(89)

Summary of assets measured at fair value on nonrecurring basis

The following presents assets measured on a nonrecurring basis as of September 30, 2021 and December 31, 2020 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
September 30, 2021	(Level 1)		(Level 2)		(Level 3)		Balance
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	479	$	479

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2020	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	194	$	194
Impaired loans(1):
Commercial and Industrial	$	—	$	—	$	1,800	$	1,800

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

Summary of assets and liabilities measured at fair value on a recurring or nonrecurring, the significant unobservable inputs

The following presents quantitative information about the significant unobservable inputs used in the fair value measurement of nonrecurring assets categorized within Level 3 of the fair value hierarchy as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Impaired loans(1):
Commercial and Industrial	$	479		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 45% (39%)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Other real estate owned:
Commercial properties	$	194		Sales contract		Commission, cost to sell, closing costs		5% (5%)
Impaired loans(1):
Commercial and Industrial		1,800		Sales comparison, Market approach - guideline transaction method		Management discount for asset/property type		17% - 35% (26%)

______________________________________

⁽¹⁾ Four immaterial Cash, Securities and Other loans were fully reserved for using a specific allowance as of September 30, 2021 and one immaterial Cash, Securities and Other loan was fully reserved for using a specific allowance as of December 31, 2020.

Summary of carrying amounts and estimated fair values of financial instruments

The following presents carrying amounts and estimated fair values for financial instruments not carried at fair value as of September 30, 2021 and December 31, 2020 (in thousands):

	Carrying		Fair Value Measurements Using:
September 30, 2021	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	310,235	$	310,235	$	—	$	—
Loans, net		1,590,086		—		—		1,577,103
Accrued interest receivable		6,306		—		20		6,286
Liabilities:
Deposits		1,782,299		—		1,783,610		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,056		—
Federal Reserve borrowings – fixed rate		43,564		—		43,564		—
Subordinated notes – fixed-to-floating rate		39,010		—		—		40,313
Accrued interest payable		357		—		173		184

	Carrying		Fair Value Measurements Using:
December 31, 2020	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	155,989	$	155,989	$	—	$	—
Loans, net		1,520,294		—		—		1,512,699
Accrued interest receivable		6,618		—		90		6,528
Liabilities:
Deposits		1,619,910		—		1,621,648		—
Borrowings:
FHLB borrowings – fixed rate		15,000		—		15,099		—
Federal Reserve borrowings – fixed rate		134,563		—		134,563		—
Subordinated notes – fixed-to-floating rate		24,291		—		—		25,750
Accrued interest payable		453		—		124		329

Recurring

Summary of assets and liabilities measured at fair value on a recurring or nonrecurring, the significant unobservable inputs

The following presents quantitative information about Level 3 assets measured on a recurring basis as of September 30, 2021 and December 31, 2020 (dollars in thousands):

	Quantitative Information about Level 3 Fair Value Measurements as of September 30, 2021
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	231		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 19% (19%)
IRLC, net		2,185		Best execution model		Pull through		72% to 100% (90%)
FSC		(17)		Internal pricing model		Market Differential		-84bps to -50bps (-75bps)

	Quantitative Information about Level 3 Fair Value Measurements as of December 31, 2020
			Valuation		Significant		Range
	Fair Value		Technique		Unobservable Input		(Weighted Average)
Guarantee asset	$	232		Discounted cash flow		Discount rate Prepayment rate		3% (3%) 25% (25%)
IRLC, net		9,841		Best execution model		Pull through		55% to 100% (86%)
FSC		(89)		Internal pricing model		Market Differential		-59bps to -17bps (-31bps)

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SEGMENT REPORTING (Tables)

9 Months Ended

Sep. 30, 2021

SEGMENT REPORTING

Schedule of segment data

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods as of or for the three and nine months ended September 30, 2021 and 2020 (in thousands):

As of and for the three months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	16,146	$	—	$	16,146
Total interest expense		1,300		—		1,300
Provision for loan losses		406		—		406
Net interest income, after provision for loan losses		14,440		—		14,440
Non-interest income		5,998		4,497		10,495
Total income before non-interest expense		20,438		4,497		24,935
Depreciation and amortization expense		272		13		285
All other non-interest expense		13,967		2,217		16,184
Income before income taxes	$	6,199	$	2,267	$	8,466
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the three months ended September 30, 2020	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	14,410	$	—	$	14,410
Total interest expense		1,492		—		1,492
Provision for loan losses		1,496		—		1,496
Net interest income, after provision for loan losses		11,422		—		11,422
Non-interest income		5,709		12,323		18,032
Total income before non-interest expense		17,131		12,323		29,454
Depreciation and amortization expense		260		14		274
All other non-interest expense		14,291		2,067		16,358
Income before income taxes	$	2,580	$	10,242	$	12,822
Goodwill	$	24,191	$	—	$	24,191
Assets held for sale		3,000		—		3,000
Total assets		1,867,748		105,149		1,972,897

As of and for the nine months ended September 30, 2021	Wealth Management		Mortgage		Consolidated
Income Statement
Total interest income	$	46,193	$	—	$	46,193
Total interest expense		4,071		—		4,071
Provision for loan losses		418		—		418
Net interest income, after provision for loan losses		41,704		—		41,704
Non-interest income		16,987		13,621		30,608
Total income before non-interest expense		58,691		13,621		72,312
Depreciation and amortization expense		792		40		832
All other non-interest expense		38,800		7,987		46,787
Income before income taxes	$	19,099	$	5,594	$	24,693
Goodwill	$	24,191	$	—	$	24,191
Total assets		2,020,896		55,376		2,076,272

As of and for the nine months ended September 30, 2020	Wealth Management			Mortgage		Consolidated
Income Statement
Total interest income	$	38,392		$	—	$	38,392
Total interest expense		5,747			—		5,747
Provision for loan losses		3,987			—		3,987
Net interest income, after provision for loan losses		28,658			—		28,658
Non-interest income		16,202			25,024		41,226
Total income before non-interest expense		44,860			25,024		69,884
Depreciation and amortization expense		770			56		826
All other non-interest expense		37,391	(1)		5,706		43,097
Income before income taxes	$	6,699		$	19,262	$	25,961
Goodwill	$	24,191		$	—	$	24,191
Assets held for sale		3,000			—		3,000
Total assets		1,867,748			105,149		1,972,897

______________________________________

⁽¹⁾ Includes loss on assets held for sale of $0.6 million and $0.2 million SEC penalty.

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REGULATORY CAPITAL MATTERS (Tables)

9 Months Ended

Sep. 30, 2021

REGULATORY CAPITAL MATTERS

Schedule of actual and required capital ratios

The following presents the actual and required capital amounts and ratios as of September 30, 2021 and December 31, 2020 (dollars in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
September 30, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	156,136	11.02	%	$	85,019	6.0	%	$	113,359	8.0	%
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		156,136	11.02			63,764	4.5			92,104	6.5
Consolidated		151,950	10.66			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		169,435	11.96			113,359	8.0			141,699	10.0
Consolidated		204,809	14.37			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		156,136	8.11			77,047	4.0			96,308	5.0
Consolidated		151,950	7.86			N/A	N/A			N/A	N/A

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes(1)				Regulations
December 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio
Tier 1 capital to risk-weighted assets
Bank	$	133,963	10.22	%	$	78,660	6.0	%	$	104,880	8.0	%
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
CET1 to risk-weighted assets
Bank		133,963	10.22			58,995	4.5			85,215	6.5
Consolidated		131,507	9.96			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		146,853	11.20			104,880	8.0			131,100	10.0
Consolidated		168,957	12.80			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		133,963	7.62			70,301	4.0			87,877	5.0
Consolidated		131,507	7.45			N/A	N/A			N/A	N/A

______________________________________

⁽¹⁾ Does not include capital conservation buffer.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Jun. 30, 2021	Nov. 13, 2020
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Contingent consideration asset with an initial fair value							$ 3,100
Business Combination Period Of Quarterly Payments			3 years
Merger related expenses	$ 1,660	$ 1,288	$ 4,309	$ 3,542
Performance based incentive fees	$ 0		$ 0
Collateral concentration risk | Loan portfolio | Real estate
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration risk (as a percent)			72.40%		66.90%
Teton Financial Services
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Total assets						$ 420,700
Total Deposit						374,600
Total loans						$ 267,900
Merger related expenses			$ 400

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INVESTMENT SECURITIES - Amortized cost and fair value of securities available-for-sale (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Sep. 30, 2021
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 35,750	$ 31,602
Gross Unrealized Gains	980	688
Gross Unrealized Losses	(64)	(57)
Fair Value	36,666	32,233
U.S. Treasury debt
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	250	250
Gross Unrealized Gains	4
Gross Unrealized Losses		(1)
Fair Value	254	249
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	6,000	8,117
Gross Unrealized Gains	55	249
Gross Unrealized Losses	(11)	(10)
Fair Value	6,044	8,356
Government National Mortgage Association ("GNMA") mortgage-backed securities - residential
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	23,806	20,488
Gross Unrealized Gains	798	351
Gross Unrealized Losses		(28)
Fair Value	24,604	20,811
Federal National Mortgage Association ("FNMA") mortgage-backed securities - residential
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	1,616	1,102
Gross Unrealized Gains	61	53
Fair Value	1,677	1,155
Corporate collateralized mortgage obligations ("CMO") and MBS
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,078	1,645
Gross Unrealized Gains	62	35
Gross Unrealized Losses	(53)	(18)
Fair Value	4,087	1,662
Small Business Investment Company ("SBIC")
Debt Securities, Available-for-sale [Line Items]
Payments to Acquire Investments	500
Contractual Obligation		900
Other Assets [Member] | Small Business Investment Company ("SBIC")
Debt Securities, Available-for-sale [Line Items]
Balance with SBIC included in other assets	$ 2,100	$ 2,100

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INVESTMENT SECURITIES - Amortized cost and estimated fair value of available-for-sale securities excluding SBIC (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021 USD ($) security	Dec. 31, 2020 USD ($) security
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 31,602	$ 35,750
Fair Value	32,233	36,666
Debt available for sale securities pledged as collateral	$ 2,300	$ 3,700
Threshold Percentage Of Shareholders Equity Amount Held As Securities By One Issuer	10.00%	10.00%
Unrealized loss	$ 57	$ 64
Number of securities in continuous unrealized loss position for more than twelve months | security	1
Available for sale securities, excluding SBIC
Debt Securities, Available-for-sale [Line Items]
Due between one year and five years amortized cost	$ 250
Due between five years and ten years amortized cost	8,117
Due between one year and five years fair value	249
Due between five years and ten years fair value	8,356
Securities, amortized cost	23,235
Securities, fair value	23,628
Amortized Cost	31,602
Fair Value	32,233
Unrealized loss	$ 100	$ 100
Number of securities in unrealized loss position | security	7	7

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INVESTMENT SECURITIES - Securities with unrealized losses (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	$ 8,294	$ 4,369
Less than 12 months, Unrealized Losses	(39)	(51)
12 months or Longer, Fair Value	556	566
12 months or Longer, Unrealized Losses	(18)	(13)
Total Fair Value	8,850	4,935
Total Unrealized Losses	(57)	(64)
U.S. Treasury debt
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	249
Less than 12 months, Unrealized Losses	(1)
Total Fair Value	249
Total Unrealized Losses	(1)
Government National Mortgage Association ("GNMA") mortgage-backed securities - residential
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	7,555
Less than 12 months, Unrealized Losses	(28)
Total Fair Value	7,555
Total Unrealized Losses	(28)
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	490	3,489
Less than 12 months, Unrealized Losses	(10)	(11)
Total Fair Value	490	3,489
Total Unrealized Losses	(10)	(11)
Corporate collateralized mortgage obligations ("CMO") and MBS
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value		880
Less than 12 months, Unrealized Losses		(40)
12 months or Longer, Fair Value	556	566
12 months or Longer, Unrealized Losses	(18)	(13)
Total Fair Value	556	1,446
Total Unrealized Losses	$ (18)	$ (53)

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Summary of loans (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021 USD ($) loan	Dec. 31, 2020 USD ($) loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	$ 1,603,383	$ 1,534,185
Deferred fees and unamortized premiums/(unaccreted discounts), net	(333)	(1,352)
Allowance for loan losses	(12,964)	(12,539)
Loans, net	1,590,086	1,520,294
Simmons Bank
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	117,400	127,200
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	293,837	357,020
Construction and Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	132,141	131,111
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	502,439	455,038
Non-Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	358,369	281,943
Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	167,638	163,042
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	148,959	146,031
PPP Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	61,900	142,900
PPP Loans | Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	$ 61,900	$ 142,900
Percent of Loans on Total Loan Segment	21.10%	40.00%
MSLP loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans held for investment	$ 6,800	$ 6,600
COVID-19 | MSLP loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans, net	$ 6,800	$ 6,600
Percent of Loans on Total Loan Segment	4.60%	4.50%
Number of loans | loan	6	6

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES -Loan Modifications (Details) $ in Millions	9 Months Ended
	Sep. 30, 2021 USD ($) loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage of probability	50.00%
Percentage of reduction in collateral position	20.00%
Portion of loan portfolio exposed to high risk industries impacted by Covid-19	4.10%
COVID-19
Accounts, Notes, Loans and Financing Receivable [Line Items]
Delinquent over period	30 days
Payments Period	2 years
# of Loans Modified | loan	72
Outstanding Balance of Modified Loans | $	$ 135.0
Loans modified for temporary payment	180 days

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Aging analysis of recorded investments by class (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	$ 6,099	$ 6,362
Total current	1,597,284	1,527,823
Total Recorded Investment	1,603,383	1,534,185
90 days past due and accruing interest	0	0
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	1,210	2,785
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,536
90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,353	3,577
Cash, Securities and Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	781	800
Total current	293,056	356,220
Total Recorded Investment	293,837	357,020
Cash, Securities and Other | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	727	752
Cash, Securities and Other | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	14
Cash, Securities and Other | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	40	48
Construction and Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,522
Total current	129,619	131,111
Total Recorded Investment	132,141	131,111
Construction and Development | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,522
1-4 Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	566	1,283
Total current	501,873	453,755
Total Recorded Investment	502,439	455,038
1-4 Family Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	483	1,283
1-4 Family Residential | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	83
Non-Owner Occupied CRE
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total current	358,369	281,943
Total Recorded Investment	358,369	281,943
Owner Occupied CRE
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		479
Total current	167,638	162,563
Total Recorded Investment	167,638	163,042
Owner Occupied CRE | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		479
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,230	3,800
Total current	146,729	142,231
Total Recorded Investment	148,959	146,031
Commercial and Industrial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		271
Commercial and Industrial | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	$ 2,230	$ 3,529

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in non-accrual loans by class (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 4,358	$ 4,058
Recorded investments	2,200	3,600
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	41	50
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	83
Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,250	479
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 2,984	$ 3,529

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Summary of unpaid principal balance of loans classified as TDRs (Details)	12 Months Ended
	Dec. 31, 2020 USD ($) loan	Sep. 30, 2021 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment	$ 4,058,000	$ 4,358,000
Allowance for loan associated with TDR	(1,621,000)	(1,783,000)
Net recorded investment	1,958,000	488,000
Additional funds to loans classified as TDRs	$ 0	0
Number of contracts modified | loan	1
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment	$ 50,000	41,000
Allowance for loan associated with TDR	(2,000)	(32,000)
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment		83,000
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment	3,529,000	2,984,000
Allowance for loan associated with TDR	(1,619,000)	(1,751,000)
Loans on nonaccrual status
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans classified as TDRs		2,239,000
Total Recorded Investment	3,577,000
Loans on nonaccrual status | Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment	48,000	9,000
Loans on nonaccrual status | Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment	$ 3,529,000	$ 2,230,000

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in impaired loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment With Allowance	$ 2,262		$ 2,262		$ 3,421
Total Recorded Investment With No Allowance	2,096		2,096		637
Total Recorded Investment	4,358		4,358		4,058
Unpaid Contractual Principal Balance with a valuation Allowance	2,262		2,262		3,421
Unpaid Contractual Principal Balance with no related valuation Allowance	2,096		2,096		637
Unpaid Contractual Principal Balance	4,358		4,358		4,058
Allowance for Loan Losses	1,783		1,783		1,621
Average Recorded Investment with Allowance	2,653	$ 3,428	3,037	$ 3,463
Average Recorded Investment with No Allowance	1,086	7,241	613	7,551
Average Recorded Investment	3,739	10,669	3,650	11,014
Interest Income Recognized with Allowance			21
Interest Income Recognized with No Allowance	220	85	271	250
Interest Income Recognized	220	85	292	250
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment With Allowance	32		32		2
Total Recorded Investment With No Allowance	9		9		48
Total Recorded Investment	41		41		50
Unpaid Contractual Principal Balance with a valuation Allowance	32		32		2
Unpaid Contractual Principal Balance with no related valuation Allowance	9		9		48
Unpaid Contractual Principal Balance	41		41		50
Allowance for Loan Losses	32		32		2
Average Recorded Investment with Allowance	18	1	10	1
Average Recorded Investment with No Allowance	10	779	22	1,463
Average Recorded Investment	28	780	32	1,464
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment With No Allowance	83		83
Total Recorded Investment	83		83
Unpaid Contractual Principal Balance with no related valuation Allowance	83		83
Unpaid Contractual Principal Balance	83		83
Average Recorded Investment with No Allowance	41		21
Average Recorded Investment	41		21
Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment With No Allowance	1,250		1,250		479
Total Recorded Investment	1,250		1,250		479
Unpaid Contractual Principal Balance with no related valuation Allowance	1,250		1,250		479
Unpaid Contractual Principal Balance	1,250		1,250		479
Average Recorded Investment with No Allowance	625		313
Average Recorded Investment	625		313
Interest Income Recognized with No Allowance			51
Interest Income Recognized			51
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment With Allowance	2,230		2,230		3,419
Total Recorded Investment With No Allowance	754		754		110
Total Recorded Investment	2,984		2,984		3,529
Unpaid Contractual Principal Balance with a valuation Allowance	2,230		2,230		3,419
Unpaid Contractual Principal Balance with no related valuation Allowance	754		754		110
Unpaid Contractual Principal Balance	2,984		2,984		3,529
Allowance for Loan Losses	1,751		1,751		$ 1,619
Average Recorded Investment with Allowance	2,635	3,427	3,027	3,462
Average Recorded Investment with No Allowance	410	6,462	257	6,088
Average Recorded Investment	3,045	9,889	3,284	9,550
Interest Income Recognized with Allowance			21
Interest Income Recognized with No Allowance	220	85	220	250
Interest Income Recognized	$ 220	$ 85	$ 241	$ 250

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Allowance for loan losses by portfolio (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	$ 12,552	$ 10,354	$ 12,539	$ 7,875
(Recovery of) provision for loan losses	406	1,496	418	3,987
Charge-offs		(6)		(30)
Recoveries	6	1	7	13
Ending balance	12,964	11,845	12,964	11,845
Individually evaluated	1,783		1,783		$ 1,621
Collectively evaluated	11,181		11,181		10,918
Loans individually evaluated	4,358		4,358		4,058
Loans collectively evaluated	1,599,025		1,599,025		1,530,127
Total Recorded Investment	1,603,383		1,603,383		1,534,185
Cash, Securities and Other
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,039	2,425	2,579	1,058
(Recovery of) provision for loan losses	85	192	(456)	1,571
Charge-offs		(6)		(30)
Recoveries	6	1	7	13
Ending balance	2,130	2,612	2,130	2,612
Individually evaluated	32		32		2
Collectively evaluated	2,098		2,098		2,577
Loans individually evaluated	41		41		50
Loans collectively evaluated	293,796		293,796		356,970
Total Recorded Investment	293,837		293,837		357,020
Construction and Development
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	871	484	932	200
(Recovery of) provision for loan losses	48	249	(13)	533
Ending balance	919	733	919	733
Collectively evaluated	919		919		932
Loans collectively evaluated	132,141		132,141		131,111
Total Recorded Investment	132,141		132,141		131,111
1-4 Family Residential
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	3,399	2,708	3,233	2,850
(Recovery of) provision for loan losses	97	392	263	250
Ending balance	3,496	3,100	3,496	3,100
Collectively evaluated	3,496		3,496		3,233
Loans individually evaluated	83		83
Loans collectively evaluated	502,356		502,356		455,038
Total Recorded Investment	502,439		502,439		455,038
Non-Owner Occupied CRE
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,223	1,483	2,004	1,176
(Recovery of) provision for loan losses	271	207	490	514
Ending balance	2,494	1,690	2,494	1,690
Collectively evaluated	2,494		2,494		2,004
Loans collectively evaluated	358,369		358,369		281,943
Total Recorded Investment	358,369		358,369		281,943
Owner Occupied CRE
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,225	760	1,159	911
(Recovery of) provision for loan losses	(67)	309	(1)	158
Ending balance	1,158	1,069	1,158	1,069
Collectively evaluated	1,158		1,158		1,159
Loans individually evaluated	1,250		1,250		479
Loans collectively evaluated	166,388		166,388		162,563
Total Recorded Investment	167,638		167,638		163,042
Commercial and Industrial
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,795	2,494	2,632	1,680
(Recovery of) provision for loan losses	(28)	147	135	961
Ending balance	2,767	$ 2,641	2,767	$ 2,641
Individually evaluated	1,751		1,751		1,619
Collectively evaluated	1,016		1,016		1,013
Loans individually evaluated	2,984		2,984		3,529
Loans collectively evaluated	145,975		145,975		142,502
Total Recorded Investment	$ 148,959		$ 148,959		$ 146,031

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in company's loans (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	$ 1,603,383,000	$ 1,534,185,000
Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	1,587,982,000	1,517,908,000
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	8,463,000	6,316,000
Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	6,938,000	9,961,000
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	0	0
Cash, Securities and Other
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	293,837,000	357,020,000
Cash, Securities and Other | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	293,796,000	356,970,000
Cash, Securities and Other | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	41,000	50,000
Construction and Development
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	132,141,000	131,111,000
Construction and Development | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	129,618,000	131,111,000
Construction and Development | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	2,523,000
1-4 Family Residential
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	502,439,000	455,038,000
1-4 Family Residential | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	502,356,000	451,918,000
1-4 Family Residential | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	83,000	3,120,000
Non-Owner Occupied CRE
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	358,369,000	281,943,000
Non-Owner Occupied CRE | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	352,429,000	275,627,000
Non-Owner Occupied CRE | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	5,940,000	6,316,000
Owner Occupied CRE
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	167,638,000	163,042,000
Owner Occupied CRE | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	165,690,000	161,850,000
Owner Occupied CRE | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	1,948,000	1,192,000
Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	148,959,000	146,031,000
Commercial and Industrial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	144,093,000	140,432,000
Commercial and Industrial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans held for investment	$ 4,866,000	$ 5,599,000

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GOODWILL (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($)
Goodwill [Roll Forward]
Beginning balance	$ 19,686
Acquisition activity	4,505
Ending balance	24,191
Change in goodwill	$ 4,500

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LEASES - Leases Balance Sheets Location (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
LEASES
Operating lease right-of-use asset	$ 11,450	$ 11,341
Operating lease liability	$ 14,608	$ 13,970
Weighted-Average Remaining Lease Term - Operating leases	5 years 5 months 1 day	4 years 9 months 14 days
Weighted-Average Discount Rate - Operating leases	2.69%	3.04%

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LEASES - Leases Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
LEASES
Operating lease cost	$ 781	$ 786	$ 2,264	$ 2,401
Variable lease cost	488	557	1,316	1,516
Sublease income		(33)		(232)
Lease costs, net	$ 1,269	$ 1,310	$ 3,580	$ 3,685

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LEASES - Lease Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
LEASES
2021	$ 850
2022	3,450
2023	3,210
2024	3,064
2025	2,073
Thereafter	2,871
Total future minimum lease payments	15,518
Less: Imputed interest	(910)
Present value of net future minimum lease payments	$ 14,608	$ 13,970

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DEPOSITS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Sep. 30, 2021
Money market deposit accounts	$ 847,430	$ 905,196
Time deposits	172,682	137,015
Negotiable order of withdrawal accounts	113,052	137,833
Savings accounts	5,289	5,620
Total interest bearing deposits	1,138,453	1,185,664
Aggregate time deposits of $250,000 or greater	73,401	64,902
Overdrafts balances classified As loans	100	$ 100
Simmons Bank
Deposits acquired via acquisitions	$ 63,100

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DEPOSITS - Time Deposits (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Scheduled maturities of time deposits
2021	$ 39,977
2022	63,709
2023	24,819
2024	2,635
2025	1,541
Thereafter	4,334
Total	$ 137,015	$ 172,682

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BORROWINGS (Details)		9 Months Ended	12 Months Ended
	Aug. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
BORROWINGS
Borrowings from FHLB		$ 15,000,000	$ 15,000,000
Number of unsecured federal funds lines of credit		3	3
Total loans held for investment		$ 1,603,383,000	$ 1,534,185,000
Federal Funds Lines of Credit One
BORROWINGS
Maximum borrowing capacity		10,000,000.0	10,000,000.0
Amount outstanding		0	0
Federal Funds Lines of Credit Two
BORROWINGS
Maximum borrowing capacity		19,000,000.0	19,000,000.0
Federal Funds Line of Credit Three
BORROWINGS
Maximum borrowing capacity		25,000,000.0	25,000,000.0
Subordinated Notes
BORROWINGS
Face amount	$ 15,000,000.0
interest rate (as a percent)	3.25%
Basis spread (as a percent)	2.58%
Issuance costs	$ 300,000
Net balance		14,700,000
Credit Note
BORROWINGS
Amount outstanding		0	0
Face amount		$ 5,000,000.0	5,000,000.0
interest rate (as a percent)		2.50%
PPP Loans
BORROWINGS
Total loans held for investment		$ 43,600,000	134,600,000
PPPLF
BORROWINGS
Interest bearing rate		0.35%
PPPLF | Minimum
BORROWINGS
Debt term		2 years
PPPLF | Maximum
BORROWINGS
Debt term		5 years
FHLB Topeka
BORROWINGS
Amount of collateral pledged		$ 767,800,000	668,600,000
Available balance		$ 504,700,000
April 22, 2022
BORROWINGS
Interest rate		0.37%
Borrowings from FHLB		$ 5,000,000	5,000,000
May 5, 2023
BORROWINGS
Interest rate		0.76%
Borrowings from FHLB		$ 10,000,000	$ 10,000,000

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Unused lines of credit-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	$ 73,975	$ 78,506
Standby letters of credit-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	3,540	1,933
Commitments to make loans to sell-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	113,746	370,512
Commitments to make loans-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	40,804	24,225
Unused lines of credit-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	418,045	360,883
Standby letters of credit-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	20,940	17,524
Commitments to make loans-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	$ 15,236	$ 25,316

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SHAREHOLDERS EQUITY - Common Stock (Details) - $ / shares	3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Sep. 30, 2020	Jun. 14, 2020	Dec. 31, 2020	Nov. 03, 2020	Jun. 14, 2019
Class of Stock [Line Items]
Common stock par value	$ 0	$ 0			$ 0
Common Stock
Class of Stock [Line Items]
Common stock par value	$ 0	$ 0
Number of votes per each share		one
Effective term of program				1 year
Issuance of common stock (in shares)		0	0
Common Stock | 2019 Repurchase Plan
Class of Stock [Line Items]
Authorized share repurchase							300,000
Number of shares repurchased			22,679
Shares repurchased average price per share			$ 16.50
Common Stock | 2020 Repurchase Plan
Class of Stock [Line Items]
Common stock par value						$ 0
Authorized share repurchase						400,000
Number of shares repurchased	0	0

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SHAREHOLDERS EQUITY - Stock based compensation - Restricted Stock Awards (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended			9 Months Ended		12 Months Ended
	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2017
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares issued						105,264
Value of shares issued						$ 3.0
Weighted-average grant date fair value (in dollars per share)				$ 28.50
Recognized compensation expense	$ 0.1		$ 0.1	$ 0.2	$ 0.3
Number of stock awards vested				10,526	10,527
Unrecognized compensation expense				$ 0.3
Unrecognized compensation expense recognition period (in years)				1 year
Employee service period
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares issued						52,632
Value of shares issued						$ 1.5
Vesting period (in years)						5 years
Performance of mortgage division
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares issued						52,632
Value of shares issued						$ 1.5
Recognized compensation expense					$ 0.1
Shares non-vested		14,114			14,114
Performance based Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of stock awards vested					30,088
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Recognized compensation expense		$ 0.1			$ 0.2
Unrecognized compensation expense recognition period (in years)				1 year

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SHAREHOLDERS EQUITY - Stock based compensation - Stock Options (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)		0	0
Stock-based compensation expense	$ 0.1		$ 0.2
Unrecognized compensation expense recognition period (in years)		1 year
2016 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available for issuance		398,934

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SHAREHOLDERS EQUITY - Stock based compensation - Stock Options Activity (Details) - Stock options	9 Months Ended
	Sep. 30, 2021 $ / shares shares	Sep. 30, 2020 shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding at beginning of year (in shares) | shares	419,197
Granted (in shares) | shares	0	0
Exercised (in shares) | shares	(3,750)
Forfeited or expired (in shares) | shares	(36,050)
Outstanding at end of period (in shares) | shares	379,397
Options fully vested / exercisable at end of period (in shares) | shares	375,827
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 29.02
Exercised (in dollars per share)	21.00
Forfeited or expired (in dollars per share)	35.91
Options, Outstanding, Weighted Average Exercise Price, Ending Balance	28.44
Options fully vested / exercisable	$ 28.46
Weighted Average Remaining Contractual Term
Outstanding at end of year	1 year 10 months 24 days
Options fully vested / exercisable	1 year 9 months 18 days
Aggregate Intrinsic Value
Exercise price low range	$ 20.00
Exercise price high range	$ 40.00
Expiry period	10 years

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SHAREHOLDERS EQUITY - Stock based compensation - Share Awards (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Stock issued (in shares)	4,292		47,351	34,260
Stock surrendered (in shares)	1,733		19,102	19,852
Stock surrendered to cover employee withholding taxes			$ 0.5	$ 0.3
Time Vesting Units
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of year			285,052
Granted (in shares)			59,194
Vested (in shares)			(66,453)
Forfeited (in shares)			(14,307)
Outstanding at end of year	263,486		263,486
Stock-based compensation expense	$ 0.4	$ 0.4	$ 1.2	$ 1.0
Unrecognized compensation expense	$ 3.9		$ 3.9
Unrecognized compensation expense recognition period (in years)			1 year 9 months 18 days
Time Vesting Units | Third and fifth anniversaries
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Service period (in years)			5 years
Time Vesting Units | Anniversary of grant date
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Vesting Percentage			20.00%
Financial Performance Units
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of year			152,430
Granted (in shares)			41,743
Forfeited (in shares)			(10,149)
Outstanding at end of year	184,024		184,024
Market Performance Units
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of year			14,862
Forfeited (in shares)			(1,116)
Outstanding at end of year	13,746		13,746
Unrecognized compensation expense	$ 0.4		$ 0.4
Unrecognized compensation expense recognition period (in years)			1 year

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SHAREHOLDERS EQUITY - Stock based compensation - Financial Performance Units (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Financial Performance Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)	41,743
Financial Performance Units | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage	150.00%
Financial Performance Units | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage	0.00%
Financial Performance Units Granted Prior to May 1, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares can be issued	9,198
Unrecognized compensation expense	$ 18
Unrecognized compensation expense recognition period (in years)	3 months 18 days
Stock-based compensation expense	$ 23	$ 49
Financial Performance Units Granted Prior to May 1, 2019 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Target threshold of awards	100.00%
Financial Performance Units Granted Prior to May 1, 2019 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Target threshold of awards	50.00%
Financial Performance Units Granted From May 1, 2019 Through April 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of awards accruing at maximum threshold	150.00%
Maximum number of shares can be issued	80,255
Unrecognized compensation expense	$ 372
Unrecognized compensation expense recognition period (in years)	2 years 3 months 18 days
Granted (in shares)		1,866
Stock-based compensation expense	$ 154	$ 246
Financial Performance Units Granted From May 01, 2020 Through December 31 2020, Excluding November 18, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of awards accruing at maximum threshold	150.00%
Remainder threshold awards	50.00%
Maximum number of shares can be issued	81,516
Unrecognized compensation expense	$ 474
Unrecognized compensation expense recognition period (in years)	3 years 3 months 18 days
Granted (in shares)		58,993
Stock-based compensation expense	$ 153	$ 97
Financial Performance Units Granted on November 18, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of awards accruing at maximum threshold	150.00%
Maximum number of shares can be issued	34,752
Unrecognized compensation expense	$ 346
Unrecognized compensation expense recognition period (in years)	3 years 1 month 6 days
Stock-based compensation expense	$ 94
Financial Performance Units Granted From May 3 2021 Through August 11,2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percent of awards accruing at maximum threshold	150.00%
Maximum number of shares can be issued	61,118
Unrecognized compensation expense	$ 970
Unrecognized compensation expense recognition period (in years)	4 years 3 months 18 days
Granted (in shares)	41,743
Stock-based compensation expense	$ 140

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SHAREHOLDERS EQUITY - Stock based compensation - Market Performance Units (Details) - Market Performance Units $ in Millions	9 Months Ended
	Sep. 30, 2021 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 0.4
Unrecognized compensation expense recognition period (in years)	1 year

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EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Numerator:
Net income available for common shareholders	$ 6,417	$ 9,630	$ 18,693	$ 19,660
Denominator:
Basic weighted average shares	7,979,869	7,911,871	7,959,268	7,888,675
Earnings per common share - basic	$ 0.80	$ 1.22	$ 2.35	$ 2.49
Numerator:
Net income	$ 6,417	$ 9,630	$ 18,693	$ 19,660
Denominator:
Basic weighted average shares	7,979,869	7,911,871	7,959,268	7,888,675
Diluted effect of common stock equivalents:
Total diluted effect of common stock equivalents	266,484	107,136	229,998	73,833
Diluted weighted average shares	8,246,353	8,019,007	8,189,266	7,962,508
Earnings per common share - diluted	$ 0.78	$ 1.20	$ 2.28	$ 2.47
Stock options
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	35,428		25,400
Time Vesting Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	144,479	85,897	126,231	44,310
Financial Performance Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	73,135	7,786	64,542	16,176
Market Performance Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	13,442	13,453	13,825	13,347

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EARNINGS PER COMMON SHARE - Anti-dilutive Securities (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
EARNINGS PER COMMON SHARE
Total potentially dilutive securities	190,911	638,902	228,532	618,787
Stock options
EARNINGS PER COMMON SHARE
Total potentially dilutive securities	139,639	419,197	186,462	419,197
Time Vesting Units
EARNINGS PER COMMON SHARE
Total potentially dilutive securities		82,600	1,327	87,304
Financial Performance Units
EARNINGS PER COMMON SHARE
Total potentially dilutive securities	40,745	116,051	30,216	70,769
Restricted Stock Awards
EARNINGS PER COMMON SHARE
Total potentially dilutive securities	10,527	21,054	10,527	41,517

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
INCOME TAXES
Income tax provision	$ 2,049	$ 3,192	$ 6,000	$ 6,301
Effective income tax rate	24.20%	24.90%	24.30%	24.30%

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RELATED-PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Summary of related party loan activity
Balance, beginning of year	$ 14,321	$ 5,675	$ 5,675
Funded loans	6,172		17,348
Payments collected	(7,381)		(8,702)
Balance, end of year	13,112		14,321
Deposits from related parties	39,900		$ 26,200
Board Member
Summary of related party loan activity
Rent expense	$ 200	$ 100

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FAIR VALUE - Summary of assets measured at fair value on recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	$ 32,233	$ 36,666
Mortgage loans held for sale	51,309	161,843
U.S. Treasury debt
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	249	254
Corporate bonds
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	8,356	6,044
Recurring
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	32,233	36,666
Equity securities	716	730
Guarantee asset	231	232
Mortgage loans held for sale	51,309	161,843
Recurring | U.S. Treasury debt
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	249	254
Recurring | Corporate bonds
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	8,356	6,044
Recurring | Corporate collateralized mortgage obligations and mortgage-backed securities
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	1,662	4,087
Recurring | IRLC,net
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	2,185	9,841
Recurring | Forward Commitment
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	481	(2,623)
Recurring | GNMA | mortgage-backed securities - residential
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	20,811	24,604
Recurring | FNMA | mortgage-backed securities - residential
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	1,155	1,677
Level 1 | Recurring
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	249	254
Equity securities	716	730
Level 1 | Recurring | U.S. Treasury debt
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	249	254
Level 2 | Recurring
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	31,984	36,412
Mortgage loans held for sale	51,309	161,843
Level 2 | Recurring | Corporate bonds
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	8,356	6,044
Level 2 | Recurring | Corporate collateralized mortgage obligations and mortgage-backed securities
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	1,662	4,087
Level 2 | Recurring | Forward Commitment
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	498	(2,534)
Level 2 | Recurring | GNMA | mortgage-backed securities - residential
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	20,811	24,604
Level 2 | Recurring | FNMA | mortgage-backed securities - residential
Summary of assets measured on a recurring and nonrecurring basis
Available-for-sale securities, at fair value	1,155	1,677
Level 3 | Recurring
Summary of assets measured on a recurring and nonrecurring basis
Guarantee asset	231	232
Level 3 | Recurring | IRLC,net
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	2,185	9,841
Level 3 | Recurring | Forward Commitment
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	$ (17)	$ (89)

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FAIR VALUE - Summary of assets measured at fair value on recurring basis (Details) - Level 3 - Recurring - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Guarantee Asset
Guarantee asset
Guarantee asset, Beginning balance	$ 196	$ 222	$ 232
Guarantee asset, Originations			2
Guarantee asset, Sales				$ 245
Guarantee asset, Gains (losses) in net income, net	35	23	(3)
Guarantee asset, Ending balance	231	245	231	245
IRLC,net
Fair value on a recurring basis
Beginning balance	2,809	7,566	9,841	1,184
Acquisitions	6,617	9,546	15,123	26,264
Originations	(7,705)	(6,466)	(20,702)	(17,449)
Gains (losses) in net income, net	464	1,065	(2,077)	1,712
Ending balance	2,185	11,711	2,185	11,711
Forward Commitment
Forward Commitments
Forward Commitments, Beginning balance		(84)	(89)
Forward Commitments, Acquisitions	(17)	(89)	(190)	(189)
Forward Commitments, Gains (losses) in net income, net		84	262	100
Forward Commitments, Ending balance	$ (17)	$ (89)	$ (17)	$ (89)

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FAIR VALUE - Summary of assets and liabilities measured at fair value on a recurring or nonrecurring, the significant unobservable inputs (Details) $ in Thousands	Sep. 30, 2021 USD ($)	Dec. 31, 2020 USD ($)
Commercial properties
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Estimate		$ 194
Commercial and Industrial
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Estimate	$ 479	$ 1,800
Discount | Commercial properties
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Range and weighted average of discount		5.00%
Minimum | Discount rate | Commercial and Industrial
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Range and weighted average of discount rate	17.00%	17.00%
Maximum | Discount rate | Commercial and Industrial
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Range and weighted average of discount rate	45.00%	35.00%
Weighted Average | Discount | Commercial properties
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Range and weighted average of discount		5.00%
Weighted Average | Discount rate | Commercial and Industrial
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Range and weighted average of discount rate	39.00%	26.00%
Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset, Fair Value	$ 231	$ 232
Recurring | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset, Fair Value	231	232
Recurring | Level 3 | Discounted cash flow
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset, Fair Value	$ 231	$ 232
Recurring | Discount rate | Level 3 | Discounted cash flow
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset	3	3
Recurring | Prepayment rate | Level 3 | Discounted cash flow
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset	19	25
Recurring | Weighted Average | Discount rate | Level 3 | Discounted cash flow
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset	3	3
Recurring | Weighted Average | Prepayment rate | Level 3 | Discounted cash flow
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Guarantee asset	19	25
Recurring | IRLC,net | Pull through | Level 3 | Best execution model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets, Fair Value	$ 2,185	$ 9,841
Recurring | IRLC,net | Minimum | Pull through | Level 3 | Best execution model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	72	55
Recurring | IRLC,net | Maximum | Pull through | Level 3 | Best execution model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	100	100
Recurring | IRLC,net | Weighted Average | Pull through | Level 3 | Best execution model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	90	86
Recurring | Forward Commitment
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets, Fair Value	$ 481	$ (2,623)
Recurring | Forward Commitment | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets, Fair Value	(17)	(89)
Recurring | Forward Commitment | Market Differential | Level 3 | Internal Pricing Model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets, Fair Value	$ (17)	$ (89)
Recurring | Forward Commitment | Minimum | Market Differential | Level 3 | Internal Pricing Model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	0.84	0.59
Recurring | Forward Commitment | Maximum | Market Differential | Level 3 | Internal Pricing Model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	0.50	0.17
Recurring | Forward Commitment | Weighted Average | Market Differential | Level 3 | Internal Pricing Model
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative assets	0.75	0.31

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FAIR VALUE - Summary of assets measured at level 3 fair value on recurring basis (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned valuation allowance		$ 1,900
Impaired Financing Receivable, with Related Allowance, Recorded Investment	$ 2,262	3,421
Loans and Leases Receivable, Allowance	12,964	12,539
Other real estate owned, gross		2,100
Other real estate owned		194
Net recorded investment	488	1,958
Level 3
Summary of assets measured on a recurring and nonrecurring basis
Impaired Financing Receivable, with Related Allowance, Recorded Investment	2,300	3,400
Loans and Leases Receivable, Allowance	1,800	1,600
Provision for loan losses	1,800	1,600
Commercial properties | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned		194
Commercial properties | Level 3 | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned		194
Commercial and Industrial | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Net recorded investment	479	1,800
Commercial and Industrial | Level 3 | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Net recorded investment	$ 479	$ 1,800

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FAIR VALUE - Summary of carrying amounts and estimated fair values for financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020	Dec. 31, 2019
Assets
Cash and cash equivalents	$ 310,235	$ 155,989	$ 250,358	$ 78,638
Loans, net	1,590,086	1,520,294
Accrued interest receivable	6,306	6,618
Liabilities
Deposits	1,782,299	1,619,910
FHLB Topeka Borrowings - fixed rate	58,564	149,563
Subordinated notes	39,010	24,291
Accrued interest payable	357	453
Carrying Amount
Assets
Cash and cash equivalents	310,235	155,989
Loans, net	1,590,086	1,520,294
Accrued interest receivable	6,306	6,618
Liabilities
Deposits	1,782,299	1,619,910
FHLB Topeka Borrowings - fixed rate	15,000	15,000
Federal Reserve Borrowings - fixed rate	43,564	134,563
Accrued interest payable	357	453
Subordinated notes - fixed-to-floating rate | Carrying Amount
Liabilities
Subordinated notes	39,010	24,291
Level 1 | Estimated Fair Value
Assets
Cash and cash equivalents	310,235	155,989
Level 2 | Estimated Fair Value
Assets
Accrued interest receivable	20	90
Liabilities
Deposits	1,783,610	1,621,648
FHLB Topeka Borrowings - fixed rate	15,056	15,099
Federal Reserve Borrowings - fixed rate	43,564	134,563
Accrued interest payable	173	124
Level 3 | Estimated Fair Value
Assets
Loans, net	1,577,103	1,512,699
Accrued interest receivable	6,286	6,528
Liabilities
Accrued interest payable	184	329
Level 3 | Subordinated notes - fixed-to-floating rate | Estimated Fair Value
Liabilities
Subordinated notes	$ 40,313	$ 25,750

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SEGMENT REPORTING (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Dec. 31, 2019
Income Statement
Total interest income	$ 16,146	$ 14,410	$ 46,193	$ 38,392
Total interest expense	1,300	1,492	4,071	5,747
Provision for loan losses	406	1,496	418	3,987
Net interest income, after provision for loan losses	14,440	11,422	41,704	28,658
Non-interest income	10,495	18,032	30,608	41,226
Total income	24,935	29,454	72,312	69,884
Depreciation and amortization expense	285	274	832	826
All other non-interest expense	16,184	16,358	46,787	43,097
Income before income taxes	8,466	12,822	24,693	25,961
Segment reporting
Goodwill	24,191	24,191	24,191	24,191	$ 24,191	$ 19,686
Assets held for sale		3,000		3,000
Total assets	2,076,272	1,972,897	2,076,272	1,972,897	$ 1,973,655
Loss on intangibles held for sale				(553)
SEC Penalty				200
Wealth Management
Income Statement
Total interest income	16,146	14,410	46,193	38,392
Total interest expense	1,300	1,492	4,071	5,747
Provision for loan losses	406	1,496	418	3,987
Net interest income, after provision for loan losses	14,440	11,422	41,704	28,658
Non-interest income	5,998	5,709	16,987	16,202
Total income	20,438	17,131	58,691	44,860
Depreciation and amortization expense	272	260	792	770
All other non-interest expense	13,967	14,291	38,800	37,391
Income before income taxes	6,199	2,580	19,099	6,699
Segment reporting
Goodwill	24,191	24,191	24,191	24,191
Assets held for sale		3,000		3,000
Total assets	2,020,896	1,867,748	2,020,896	1,867,748
Loss on intangibles held for sale				600
Mortgage
Income Statement
Non-interest income	4,497	12,323	13,621	25,024
Total income	4,497	12,323	13,621	25,024
Depreciation and amortization expense	13	14	40	56
All other non-interest expense	2,217	2,067	7,987	5,706
Income before income taxes	2,267	10,242	5,594	19,262
Segment reporting
Total assets	$ 55,376	$ 105,149	$ 55,376	$ 105,149

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LOW-INCOME HOUSING TAX CREDIT INVESTMENT (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Schedule of Investments [Line Items]
Unfunded commitments	$ 0.2		$ 0.2		$ 2.2
Tax credits and other benefits	0.1	$ 0.0	0.3	$ 0.0
Impairment losses	0.0	0.0	0.0	0.0
Other Assets [Member]
Schedule of Investments [Line Items]
Investment balance	2.8		2.8		$ 1.1
Income Tax Expense (Benefit)
Schedule of Investments [Line Items]
Amortization expense	$ 0.1	$ 0.0	$ 0.3	$ 0.0

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REGULATORY CAPITAL MATTERS (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2021 USD ($) item	Dec. 31, 2020 USD ($)
REGULATORY CAPITAL MATTERS
Capital conservation buffer	2.50%
Common Equity Tier 1 capital ratio including capital conservation buffer (as a percent)	7.00%
Number of conditions or events to be performed | item	0
Common Equity Tier 1 (CET 1) to risk-weighted assets
Actual Amount	$ 151,950	$ 131,507
Actual Ratio (as a percent)	10.66%	9.96%
Tier 1 capital to risk-weighted assets
Actual Amount	$ 151,950	$ 131,507
Actual Ratio (as a percent)	10.66	9.96
Required for Capital Adequacy Purposes Amount (as a percent)	8.5
Total capital to risk-weighted assets
Actual Amount	$ 204,809	$ 168,957
Actual Ratio (as a percent)	14.37	12.80
Required for Capital Adequacy Purposes Ratio (as a percent)	10.5
Tier 1 capital to average assets
Actual Amount	$ 151,950	$ 131,507
Actual Ratio (as a percent)	7.86	7.45
Bank
Common Equity Tier 1 (CET 1) to risk-weighted assets
Actual Amount	$ 156,136	$ 133,963
Actual Ratio (as a percent)	11.02%	10.22%
Required for Capital Adequacy Purposes Amount	$ 63,764	$ 58,995
Required for Capital Adequacy Purposes Ratio (as a percent)	4.50%	4.50%
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 92,104	$ 85,215
To be Well Capitalized Under Prompt Corrective Action Regulations Ratio (as a percent)	6.50%	6.50%
Tier 1 capital to risk-weighted assets
Actual Amount	$ 156,136	$ 133,963
Actual Ratio (as a percent)	11.02	10.22
Required for Capital Adequacy Purposes Amount	$ 85,019	$ 78,660
Required for Capital Adequacy Purposes Amount (as a percent)	6.0	6.0
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 113,359	$ 104,880
To be Well Capitalized Under Prompt Corrective Action Regulations Ratio (as a percent)	8.0	8.0
Total capital to risk-weighted assets
Actual Amount	$ 169,435	$ 146,853
Actual Ratio (as a percent)	11.96	11.20
Required for Capital Adequacy Purposes Amount	$ 113,359	$ 104,880
Required for Capital Adequacy Purposes Ratio (as a percent)	8.0	8.0
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 141,699	$ 131,100
To be Well Capitalized Under Prompt Corrective Action Regulations Ratio (as a percent)	10.0	10.0
Tier 1 capital to average assets
Actual Amount	$ 156,136	$ 133,963
Actual Ratio (as a percent)	8.11	7.62
Required for Capital Adequacy Purposes Amount	$ 77,047	$ 70,301
Required for Capital Adequacy Purposes Ratio (as a percent)	4.0	4.0
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 96,308	$ 87,877
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.0	5.0