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 June 30, 2019

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 August 6, 2019
Common Stock, no par value	7,983,866

FIRST WESTERN FINANCIAL, INC.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	6
	Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018	6
	Condensed Consolidated Statements of Income (Unaudited) for the Three Months and Six Months Ended June 30, 2019 and June 30, 2018	7
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months and Six Months Ended June 30, 2019 and June 30, 2018	8
	Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the Three Months and Six Months Ended June 30, 2019 and June 30, 2018	9
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2019 and June 30, 2018	10
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	63
PART II. OTHER INFORMATION		64
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64
Item 3.	Defaults upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65
SIGNATURES		66

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.

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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. 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:

· 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 credit 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;

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· 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;

· 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;

· 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 our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 21, 2019. 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

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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 statement.

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PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)

	June 30,		December 31,
	2019		2018
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	1,974	$	1,574
Interest-bearing deposits in other financial institutions		90,795		71,783
Total cash and cash equivalents		92,769		73,357
Available-for-sale securities		51,698		43,695
Correspondent bank stock, at cost		1,649		2,488
Mortgage loans held for sale		36,269		14,832
Loans, net of allowance of $7,575 and $7,451		931,820		886,515
Premises and equipment, net		5,683		6,100
Accrued interest receivable		3,184		2,844
Accounts receivable		4,718		4,492
Other receivables		872		1,391
Other real estate owned, net		658		658
Goodwill		23,239		24,811
Other intangible assets, net		88		402
Deferred tax assets, net		4,607		4,306
Company-owned life insurance		14,898		14,709
Other assets		18,313		3,724
Total assets	$	1,190,465	$	1,084,324
LIABILITIES
Deposits:
Noninterest-bearing	$	229,266	$	202,856
Interest-bearing		775,911		734,902
Total deposits		1,005,177		937,758
Borrowings:
Federal Home Loan Bank Topeka borrowings		36,060		15,000
Subordinated Notes		6,560		6,560
Accrued interest payable		274		231
Other liabilities		20,237		7,900
Total liabilities		1,068,308		967,449
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock - no par value; 1,000,000 shares authorized; 0 issued and outstanding		—		—
Convertible preferred stock - no par value; 150,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock - no par value; 10,000,000 shares authorized; 7,983,866 and 7,968,420 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively		—		—
Additional paid-in capital		142,095		141,359
Accumulated deficit		(19,933)		(23,199)
Accumulated other comprehensive loss		(5)		(1,285)
Total shareholders’ equity		122,157		116,875
Total liabilities and shareholders’ equity	$	1,190,465	$	1,084,324

See accompanying notes to condensed consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Interest and dividend income:
Loans, including fees	$	10,600	$	9,074	$	20,818	$	17,676
Investment securities		331		281		641		558
Federal funds sold and other		243		150		765		277
Total interest and dividend income		11,174		9,505		22,224		18,511
Interest expense:
Deposits		2,995		1,411		5,904		2,571
Other borrowed funds		219		517		389		1,003
Total interest expense		3,214		1,928		6,293		3,574
Net interest income		7,960		7,577		15,931		14,937
Less: (recovery of) provision  for  credit losses		(78)		—		116		(187)
Net interest income, after (recovery of) provision for credit losses		8,038		7,577		15,815		15,124
Non-interest income:
Trust and investment management fees		4,693		4,689		9,363		9,643
Net gain on mortgage loans sold		3,262		1,359		4,718		2,610
Bank fees		341		455		630		1,065
Risk management and insurance fees		194		284		662		667
Income on company-owned life insurance		96		105		189		199
Total non-interest income		8,586		6,892		15,562		14,184
Total income before non-interest expense		16,624		14,469		31,377		29,308
Non-interest expense:
Salaries and employee benefits		7,699		7,660		15,317		15,840
Occupancy and equipment		1,398		1,527		2,805		3,012
Professional services		1,036		1,008		1,813		1,832
Technology and information systems		1,016		1,000		2,085		2,063
Data processing		742		687		1,429		1,327
Marketing		441		316		719		601
Amortization of other intangible assets		142		230		315		460
Goodwill impairment		1,572		—		1,572		—
Other		613		656		1,206		1,235
Total non-interest expense		14,659		13,084		27,261		26,370
Income before income taxes		1,965		1,385		4,116		2,938
Income tax expense		561		337		1,085		704
Net income		1,404		1,048		3,031		2,234
Preferred stock dividends		—		(562)		—		(1,123)
Net income available to common shareholders	$	1,404	$	486	$	3,031	$	1,111
Earnings per common share:
Basic	$	0.18	$	0.08	$	0.39	$	0.19
Diluted	$	0.18	$	0.08	$	0.39	$	0.19

See accompanying notes to condensed consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Other comprehensive income (loss) items:
Net change in unrealized gains (losses) on available-for-sale securities		981		(140)		2,043		(846)
Income tax effects		(253)		192		(528)		173
Total other comprehensive income (loss)		728		52		1,515		(673)
Comprehensive income	$	2,132	$	1,100	$	4,546	$	1,561

See accompanying notes to condensed consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share amounts)

	Shares							Accumulated
		Convertible		Additional				Other
	Preferred	Preferred	Common	Paid-In		Accumulated		Comprehensive
	Stock	Stock	Stock	Capital		Deficit		Income (Loss)		Total
Balance at April 1, 2018	20,868	41,000	5,900,698	$	132,520	$	(26,712)	$	(1,653)	$	104,155
Net income	—	—	—		—		1,048		—		1,048
Issuance of common stock, net of issuance costs	—	—	16,969		(181)		—		—		(181)
Reclassification on unrealized loss on equity securities	—	—	—		—		—		—		—
Other comprehensive loss, net of tax	—	—	—		—		—		52		52
Stock-based compensation	—	—	—		446		—		—		446
Preferred stock dividends	—	—	—		—		(562)		—		(562)
Balance at June 30, 2018	20,868	41,000	5,917,667	$	132,785	$	(26,226)	$	(1,601)	$	104,958
Balance at April 1, 2019	—	—	7,968,420	$	141,738	$	(21,337)	$	(733)	$	119,668
Net income	—	—	—		—		1,404		—		1,404
Settlement of share awards	—	—	15,446		(110)		—		—		(110)
Other comprehensive income, net of tax	—	—	—		—		—		728		728
Stock-based compensation	—	—	—		467		—		—		467
Balance at June 30, 2019	—	—	7,983,866	$	142,095	$	(19,933)	$	(5)	$	122,157
Balance at January 1, 2018	20,868	41,000	5,833,456	$	130,070	$	(27,296)	$	(928)	$	101,846
Net income	—	—	—		—		2,234		—		2,234
Issuance of common stock, net of issuance costs of $7	—	—	67,242		1,909		—		—		1,909
Reclassification on unrealized loss on equity securities	—	—	—		—		(41)		41		—
Other comprehensive loss, net of tax	—	—	—		—		—		(714)		(714)
Settlement of share awards	—	—	16,969		(181)		—		—		(181)
Stock-based compensation	—	—	—		987		—		—		987
Preferred stock dividends	—	—	—		—		(1,123)		—		(1,123)
Balance at June 30, 2018	20,868	41,000	5,917,667	$	132,785	$	(26,226)	$	(1,601)	$	104,958
Balance at January 1, 2019	—	—	7,968,420	$	141,359	$	(23,199)	$	(1,285)	$	116,875
Net income	—	—	—		—		3,031		—		3,031
Settlement of share awards	—	—	15,446		(110)		—		—		(110)
Adoption of ASU 2018-02 - Reclassification of stranded tax effect	—	—	—		—		235		(235)		—
Other comprehensive income, net of tax	—	—	—		—		—		1,515		1,515
Stock-based compensation	—	—	—		846		—		—		846
Balance at June 30, 2019	—	—	7,983,866	$	142,095	$	(19,933)	$	(5)	$	122,157

See accompanying notes to condensed consolidated financial statements.

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FIRST WESTERN FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Six Months Ended June 30,
	2019		2018
Cash flows from operating activities
Net income	$	3,031	$	2,234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,011		1,150
Deferred income tax expense		288		1,016
Stock-based compensation		846		987
Provision for (recovery of) credit losses		116		(187)
Net amortization of investment securities		71		107
Stock dividends received on correspondent bank stock		(19)		(76)
Increase in cash surrender value of company-owned life insurance		(189)		(199)
Net gain on mortgage loans sold		(4,718)		(2,610)
Origination of mortgage loans held for sale		(175,236)		(244,645)
Proceeds from mortgage loans sold		158,479		235,061
Loss on impairment of goodwill		1,572		—
Net changes in operating assets and liabilities:
Accounts receivable		(226)		88
Accrued interest receivable and other assets		(2,584)		(729)
Accrued interest payable and other liabilities		(35)		(858)
Net cash used in operating activities		(17,593)		(8,661)
Cash flows from investing activities
Activity in available-for-sale securities:
Maturities, prepayments, and calls		3,831		9,556
Purchases		(10,390)		—
Purchases of correspondent bank stock		(1,237)		(3,646)
Redemption of correspondent bank stock		2,095		1,800
Purchases of premises and equipment		(280)		(168)
Payments received on promissory notes from related parties		—		3,701
Loan and note receivable originations and principal collections, net		(45,383)		(28,885)
Net cash used in investing activities		(51,364)		(17,642)
Cash flows from financing activities
Net change in deposits		67,419		27,625
Proceeds from issuance of common stock, net		—		1,909
Settlement of restricted stock		(110)		(181)
Dividends paid on preferred stock		—		(1,123)
Payments to Federal Home Loan Bank Topeka borrowings		(46,286)		(126,200)
Proceeds from Federal Home Loan Bank Topeka borrowings		67,346		173,235
Net cash provided by financing activities		88,369		75,265
Net change in cash and cash equivalents		19,412		48,962
Cash and cash equivalents, beginning of year		73,357		9,502
Cash and cash equivalents, end of period	$	92,769	$	58,464
Supplemental cash flow information:
Interest paid on deposits and borrowed funds	$	6,250	$	3,540
Income tax payment, net of refunds received		630		517
Cash paid for amounts included in the measurement of lease liabilities		2,738		—
Supplemental noncash disclosures:
Available-for-sale-reclass of equity securities		—		703
Adoption of ASU 2018-02 - Reclassification of stranded tax effects		235		—
Reclass of unrealized loss on equity securities		—		52
Lease right-of-use-asset obtained in exchange for lease liabilities		16,580		—

See accompanying notes to condensed consolidated financial statements.

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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”).

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”), First Western Capital Management Company (“FWCM”), 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 customers principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins and Vail Valley), Arizona (Phoenix and Scottsdale), California (Century City, Los Angeles) 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 selling 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, 2018 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2018.

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 six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the full year ending December 31, 2019. 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, 2018 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.

Concentration of Credit Risk:  Most of the Company’s lending activity is to customers located in and around Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. At June 30, 2019 and December 31, 2018, 72.0% and 73.6%, 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.

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. Performance based incentive fees are earned with respect to investment management contracts for the three and six month periods ended June 30, 2019 and the year ended December 31, 2018 were immaterial. Receivables are recorded on the condensed consolidated balance sheet in the accounts

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receivable line item. Income related to trust and investment management fees, bank fees, and risk management and insurance fees on the condensed consolidated statement of operations for the three and six months ended June 30, 2019 are considered in scope of Topic 606.

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.

Adoption of new accounting standards: The following reflect recent accounting pronouncements that have been adopted by the Company since the end of the Company’s fiscal year ended December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 requires both types of leases to be recognized on the balance sheet. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Upon adoption of ASU 2016-02 with its March 31, 2019 Quarterly Report on Form 10-Q for the three months ended March 31, 2019, the Company recorded a right-of-use asset and related lease liability. We elected the modified retrospective transition approach. We also elected and applied the package of practical expedients whereby we will not reassess prior to the effective date (i) whether any expired contracts contain leases, (ii) the lease classification for any existing or expired lease, and (iii) initial direct costs of any existing leases. See Note 5 – Leases, for further information.   

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) (“ASU 2017-08”). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. ASU 2017-08 became effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 was effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects a pending pronouncement with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2018.

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 loan losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 will be effective for most public companies on January 1, 2020. On July 17, 2019, the FASB voted to delay CECL

12

implementation for certain companies including smaller reporting companies as defined by the SEC. The Company is designated as a smaller reporting company with the SEC. The proposed delay by FASB is subject to a 30-day comment period so the Company will determine if CECL is delayed during the third quarter of 2019.  During the second quarter of 2019, 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 on beginning to evaluate 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. 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.

NOTE 2 - INVESTMENT SECURITIES

The following presents the amortized cost and fair value of securities available‑for‑sale, with gross unrealized gains and losses recognized in accumulated other comprehensive income as of June 30, 2019 and December 31, 2018 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2019	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	5	$	—	$	255
Government National Mortgage Association mortgage-backed securities—residential (“GNMA”)		38,529		273		(265)		38,537
Federal National Mortgage Association mortgage-backed securities—residential (“FNMA”)		3,546		8		(61)		3,493
Securities issued by U.S. government sponsored entities and agencies		4,300		1		(8)		4,293
Corporate collateralized mortgage obligations (“CMO”) and mortgage-backed securities (“MBS”)		5,058		74		(12)		5,120
Total securities available-for-sale	$	51,683	$	361	$	(346)	$	51,698

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		35,591		8		(1,597)		34,002
FNMA		4,076		2		(208)		3,870
Securities issued by U.S. government sponsored entities and agencies		4,525		—		(223)		4,302
Corporate CMO and MBS		1,281		1		(11)		1,271
Total securities available-for-sale	$	45,723	$	11	$	(2,039)	$	43,695

At June 30, 2019, 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
June 30, 2019	Cost		Value
Due within one year through five years	$	555	$	560
Securities (agency and CMO)		51,128		51,138
Total	$	51,683	$	51,698

At June 30, 2019 and December 31, 2018, securities with carrying values totaling $5.1 million and $5.4 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

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At June 30, 2019 and December 31, 2018, 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.

At June 30, 2019 and December 31, 2018, twelve securities and thirty-three securities, respectively were in an unrealized loss position, with unrealized losses totaling $0.3 million and $2.0 million, respectively. Twelve of the securities in an unrealized loss position at June 30, 2019 have been in a continuous unrealized loss position for more than twelve months, and the remaining securities in a loss position 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 at June 30, 2019.

The following table summarizes securities with unrealized losses at June 30, 2019 and December 31, 2018, 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
June 30, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		—		—		16,139		(265)		16,139		(265)
FNMA		—		—		2,918		(61)		2,918		(61)
Securities issued by U.S. government sponsored entities and agencies		—		—		3,988		(8)		3,988		(8)
Corporate CMO and MBS		1,179		(12)		60		—		1,239		(12)
Total	$	1,179	$	(12)	$	23,105	$	(334)	$	24,284	$	(346)

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		201		—		32,696		(1,597)		32,897		(1,597)
FNMA		436		(3)		3,215		(205)		3,651		(208)
Securities issued by U.S. government sponsored entities and agencies		—		—		4,302		(223)		4,302		(223)
Corporate CMO and MBS		1,145		(9)		63		(2)		1,208		(11)
Total	$	1,782	$	(12)	$	40,276	$	(2,027)	$	42,058	$	(2,039)

The Company did not sell any securities during the three and six months ended June 30, 2019.

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):

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	149,503	$	114,165
Construction and Development		40,826		31,897
1-4 Family Residential		373,836		350,852
Non-Owner Occupied CRE		152,664		173,741
Owner Occupied CRE		112,660		108,480
Commercial and Industrial		108,516		113,660
Total loans		938,005		892,795
Deferred costs, net		1,390		1,171
Allowance for loan losses		(7,575)		(7,451)
Loans, net	$	931,820	$	886,515

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The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred loan fees and deferred costs which are not material) in loans past due as of June 30, 2019 and December 31, 2018 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
June 30, 2019	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	—	$	—	$	—	$	—	$	149,503	$	149,503
Construction and Development		—		—		—		—		40,826		40,826
1-4 Family Residential		—		497		1,213		1,710		372,126		373,836
Non-Owner Occupied CRE		—		460		—		460		152,204		152,664
Owner Occupied CRE		—		—		—		—		112,660		112,660
Commercial and Industrial		—		2,300		—		2,300		106,216		108,516
Total	$	—	$	3,257	$	1,213	$	4,470	$	933,535	$	938,005

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2018	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	331	$	—	$	11,252	$	11,583	$	102,582	$	114,165
Construction and Development		—		—		—		—		31,897		31,897
1-4 Family Residential		—		—		1,217		1,217		349,635		350,852
Non-Owner Occupied CRE		567		—		—		567		173,174		173,741
Owner Occupied CRE		—		—		—		—		108,480		108,480
Commercial and Industrial		—		—		1,735		1,735		111,925		113,660
Total	$	898	$	—	$	14,204	$	15,102	$	877,693	$	892,795

At June 30, 2019 and December 31, 2018, the Company had a 1‑4 Family Residential loan totaling $1.2 million, which was more then 90 days delinquent and accruing interest.

Non‑Accrual Loans and Troubled Debt Restructurings (“TDR”)

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

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	5,107	$	11,252
Construction and Development		—		—
1-4 Family Residential		—		—
Non-Owner Occupied CRE		—		—
Owner Occupied CRE		—		—
Commercial and Industrial		1,035		1,735
Total	$	6,142	$	12,987

At June 30, 2019 and December 31, 2018, the non‑accrual loans listed above were classified as TDR with a recorded investment totaling $6.1 million and $13.0 million, respectively. Non‑accrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

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

	June 30,		December 31,
	2019		2018
Cash, Securities, and Other	$	5,107	$	11,252
Commercial and Industrial		6,483		6,583
Total	$	11,590	$	17,835
Allowance for loan associated with TDR		(940)		(940)
Net recorded investment	$	10,650	$	16,895

At June 30, 2019, the Company extended an additional $0.4 million to a Commercial and Industrial borrower with a loan classified as a TDR for operational needs. The majority owner for this borrower provided $1.5 million of pledged cash as collateral in exchange for this additional funding. At December 31, 2018, 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 into a TDR for the three and six months ended June 30, 2019 and June 30, 2018. The Company modified two loans into a TDR for the year ended December 31, 2018.

For the six months ended June 30, 2019, a $5.1 million Cash, Securities and Other loan, which was classified as a TDR and not accruing interest, was making payments in accordance with its modified terms including additional paydowns. For the year ended December 31, 2018, this loan was not making payments in accordance with the original contract terms. The loan was placed on non-accrual status and classified as a TDR during the year ended December 31, 2018. The loan was making payments as agreed for the three and six months ended June 30, 2018.

One loan classified as Commercial and Industrial of $5.4 million, which was accruing interest and classified as a TDR at June 30, 2019 and December 31, 2018, was making payments in accordance with its modified terms for the three and six months ended June 30, 2019 and the year ended December 31, 2018. The loan was also making payments as agreed for the three and six months ended June 30, 2018.

The other Commercial and Industrial loan of $1.0 million that was classified as a TDR and not accruing interest at June 30, 2019 and December 31, 2018 was making payments in accordance with its modified terms for the three and six months ended June 30, 2019 and the year ended December 31, 2018. For the three and six months ended June 30, 2018, this loan was classified as a TDR and was not making payments in accordance with the modified terms.

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):

	June 30, 2019						December 31, 2018
			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:
Commercial and Industrial	$	1,035	$	1,035	$	940	$	1,735	$	1,735	$	940
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,448	$	5,448	$	—	$	4,848	$	4,848	$	—
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	11,768	$	11,768	$	—	$	16,100	$	16,100	$	—
Total impaired loans:
Commercial and Industrial	$	6,483	$	6,483	$	940	$	6,583	$	6,583	$	940
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	12,803	$	12,803	$	940	$	17,835	$	17,835	$	940

The recorded investment in loans in the previous tables excludes accrued interest and deferred loan fees and costs 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 June 30, 2019 and 2018 are included in the table below (in thousands):

	Three Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,235	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,268	$	68	$	—	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	13,722	$	94	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,503	$	68	$	1,835	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	14,957	$	94	$	1,835	$	—

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The average balance of impaired loans and interest income recognized on impaired loans during the six months ended June 30, 2019 and 2018 are included in the table below (in thousands):

	Six Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,398	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,131	$	188	$	—	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	14,615	$	239	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,529	$	188	$	1,835	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	16,013	$	239	$	1,835	$	—

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 June 30, 2019
Beginning balance	$	877	$	266	$	2,588	$	1,235	$	780	$	1,899	$	7,645
Provision for (recovery of) credit losses		164		24		62		(149)		20		(199)		(78)
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Changes in allowance for loan losses for the six months ended June 30, 2019
Beginning balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Provision for (recovery of) credit losses		277		58		98		(178)		11		(150)		116
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Allowance for loan losses at June 30, 2019 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		1,049		290		2,650		1,086		800		760		6,635
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Loans at June 30, 2019, evaluated for impairment:
Individually	$	5,107	$	—	$	1,213	$	—	$	—	$	6,483	$	12,803
Collectively		144,396		40,826		372,623		152,664		112,660		102,033		925,202
Ending balance	$	149,503	$	40,826	$	373,836	$	152,664	$	112,660	$	108,516	$	938,005

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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 June 30, 2018
Beginning balance	$	969	$	228	$	2,334	$	1,313	$	724	$	1,532	$	7,100
Provision for (recovery of) credit losses		(35)		(1)		(377)		(114)		(98)		625		—
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Changes in allowance for loan losses for the six months ended June 30, 2018
Beginning balance	$	1,066	$	202	$	2,283	$	1,433	$	751	$	1,552	$	7,287
Provision for (recovery of) credit losses		(132)		25		(326)		(234)		(125)		605		(187)
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Allowance for loan losses at December 31, 2018 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		764		232		2,552		1,264		789		910		6,511
Ending balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Loans at December 31, 2018, evaluated for impairment:
Individually	$	11,252	$	—	$	—	$	—	$	—	$	6,583	$	17,835
Collectively		102,913		31,897		350,852		173,741		108,480		107,077		874,960
Ending balance	$	114,165	$	31,897	$	350,852	$	173,741	$	108,480	$	113,660	$	892,795

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 as to 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 Company 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 June 30, 2019 and December 31, 2018 (in thousands):

19

			Special
June 30, 2019	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	144,396	$	—	$	5,107	$	149,503
Construction and Development		40,826		—		—		40,826
1-4 Family Residential		366,577		6,046		1,213		373,836
Non-Owner Occupied CRE		151,020		1,184		460		152,664
Owner Occupied CRE		112,660		—		—		112,660
Commercial and Industrial		96,114		—		12,402		108,516
Total	$	911,593	$	7,230	$	19,182	$	938,005

			Special
December 31, 2018	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	102,913	$	—	$	11,252	$	114,165
Construction and Development		31,897		—		—		31,897
1-4 Family Residential		349,635		—		1,217		350,852
Non-Owner Occupied CRE		165,164		8,117		460		173,741
Owner Occupied CRE		108,480		—		—		108,480
Commercial and Industrial		100,929		—		12,731		113,660
Total	$	859,018	$	8,117	$	25,660	$	892,795

The Company had no loans graded doubtful as of June 30, 2019 and December 31, 2018.

NOTE 4 – GOODWILL

Changes in the carrying amount of goodwill were as follows:

	Wealth		Capital
	Management		Management		Consolidated
Balance at December 31, 2018	$	15,994	$	8,817	$	24,811
Impairment		-		(1,572)		(1,572)
Balance at June 30, 2019	$	15,994	$	7,245	$	23,239

Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.  During the second quarter of 2019, the Company received an unsolicited offer to purchase its Los Angeles-based fixed income team, a portion of the Capital Management reporting unit. The Company determined the sale of a portion of this reporting unit would benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units.  At June 30, 2019, the Company determined that it was more likely than not that it would sign this agreement to dispose of a portion of this reporting unit.

Although the agreement to sell a portion of the Capital Management reporting unit did not meet the held for sale criteria at June 30, 2019, it did represent an event affecting a specific reporting unit and the Company proceeded to perform an interim impairment test for Capital Management reporting unit.  As part of the qualitative assessment, it did indicate that it was more likely than not that the carrying value of the Capital Management reporting unit exceeded its fair value. Therefore, the Company proceeded to Step 1 of the interim goodwill impairment test.

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 Step 2 of the impairment test. As such, the Company elected to perform a valuation of the Capital Management reporting unit at June 30, 2019.

To estimate the fair value of our reporting units, an independent valuation specialist assisted us and we used an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for forecasted revenues, growth rates, discount rates, and market multiples, which all require significant judgment and estimates by management and are inherently uncertain.  The fair value did not exceed the

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carrying value of the Capital Management reporting unit as of June 30, 2019.  During the first half of 2019, the growth in revenue has not been realized at previously forecasted levels for the Capital Management reporting unit.  The Company has focused on revenue growth in the more core areas in Wealth Management and Mortgage.  Our outlook for the Capital Management reporting unit has declined driven by the lower market penetration and slower growth in assets under management which has negatively impacted our near-term earnings outlook for this reporting unit.  The sale would put the team into a group with distribution capabilities and a structure to support them.  As such, this has caused a downward revision for our forecast on current and projected cash flows for the Capital Management reporting unit which resulted in a lower fair value for the six months ended June 30, 2019.

Therefore, we conducted Step 2 of the goodwill impairment test for the Capital Management reporting unit. Step 2 requires that we allocate the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense. As a result of our two step evaluation, we recorded a goodwill impairment loss of $1.6 million for the three months ended June 30, 2019 in the Capital Management reporting unit. After the impairment charge, there was $7.2 million of goodwill remaining in the Capital Management reporting unit. 

NOTE 5 – LEASES

A lease is defined as a contract that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company adopted ASC 842 on January 1, 2019 and recorded an initial right-of-use asset and related lease liability of $12.9 million and $16.6 million, respectively. There was no cumulative effect upon adoption.

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 2025. Certain properties contain portions that are subleased with terms that extend through 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 sheet. The Company elected to not include short-term leases with initial terms of twelve months or less, on the condensed consolidated balance sheet.

		June 30,
		2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,591
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	15,063

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.

	June 30,
	2019
Weighted-Average Remaining Lease Term
Operating leases	5.26	years
Weighted-Average Discount Rate
Operating leases	3.70	%

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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 following table represents the Company’s net lease costs.

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Lease Costs
Operating lease cost	$	789	$	1,572
Variable lease cost		385		773
Sublease income		(100)		(199)
Lease costs, net	$	1,074	$	2,146

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the first five years and total amounts thereafter as of June 30, 2019.

	Operating Leases
Twelve Months Ended
June 30, 2020	$	3,707
June 30, 2021		3,061
June 30, 2022		2,709
June 30, 2023		2,567
June 30, 2024		2,248
Thereafter		2,319
Total Future Minimum Lease Payments	$	16,611
Less: Imputed interest		(1,548)
Present Value of Net Future Minimum Lease Payments	$	15,063

The following presents minimum lease payments due pursuant to the leases as of December 31, 2018 for the years indicated.

Year	Operating Leases
2019	$	3,570
2020		3,374
2021		2,815
2022		2,675
2023		2,358
Thereafter		3,446
	$	18,238

NOTE 6 - DEPOSITS

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

	June 30,		December 31,
	2019		2018
Money market deposit accounts	$	508,263	$	489,506
Time deposits		176,128		178,743
Negotiable order of withdrawal accounts		88,687		64,853
Savings accounts		2,833		1,800
Total interest bearing deposits	$	775,911	$	734,902
Aggregate time deposits of $250,000 or greater	$	74,084	$	83,550

Overdraft balances classified as loans totaled $0.1 million and $0.3 million at June 30, 2019 and December 31, 2018, respectively.

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NOTE 7 - BORROWINGS

FHLB Topeka Borrowings

The Bank has executed a blanket pledge and security agreement with the Federal Home Loan Bank (“FHLB”) Topeka that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of June 30, 2019 and December 31, 2018 amounted to $532.8 million and $475.4 million, respectively. Based on this collateral and the Company’s holdings of FHLB Topeka stock, the Company was eligible to borrow an additional $332.7 million at June 30, 2019. Each advance is payable at its maturity date.

The Company had the following borrowings from FHLB Topeka at the dates noted (in thousands):

		June 30,		December 31,
Maturity Date	Rate %	2019		2018
August 2, 2019	2.55	$	26,060	$	5,000
August 26, 2020	1.94		10,000		10,000
Total		$	36,060	$	15,000

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $13.0 million, and $25.0 million. As of June 30, 2019 and December 31, 2018, there were no amounts outstanding on any of the federal funds lines.

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 15 – Regulatory Capital Matters). As of June 30, 2019 and December 31, 2018, the Company was in compliance with the covenant requirements.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Bank 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 customers. 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 Bank’s exposure to credit loss is represented by the contractual amount of these commitments, although material losses are not anticipated. The Bank 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):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	21,424	$	252,755	$	33,571	$	271,580
Standby letters of credit		25		23,833		40		23,508
Commitments to make loans to sell		83,309		—		17,207		—
Commitments to make loans		16,154		46,306		2,750		19,762

Unused lines of credit are agreements to lend to a customer 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 Bank, is based on management’s credit evaluation of the customer.

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 customers. 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 Bank is committed.

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Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer 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 customers. The Bank holds collateral supporting those commitments if deemed necessary.

Commitments to make loans to sell are agreements to sell a loan to an investor in the secondary market for which the interest rate has been locked with the customer, 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 customer, 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, 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, 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 program 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 stock repurchase program. The repurchase program authorizes the Company to purchase its common stock from time to time in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 plan promulgated by the Securities and Exchange Commissions, or otherwise in a manner that complies with applicable federal securities laws. The program will be 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 repurchase program may be suspended or discontinued at any time without notice. We have not repurchased any stock as of June 30, 2019.

During the six months ended June 30, 2019 the Company sold no shares of common stock. During the three months ended June 30, 2018, the Company sold 67,242 shares of its common stock through a Private Placement Memorandum resulting in proceeds to the Company of $1.9 million (net of issuance costs of $0.1 million). During the three and six months ended June 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units.

Restricted Stock Awards

As of June 30, 2019, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. During the three months ended June 30, 2019 and 2018, the Company has recognized compensation expense of $0.1 million for the Restricted Stock Awards, respectively. During the six months ended June 30, 2019 and 2018, the Company has recognized compensation expense of $0.2 million for the Restricted Stock Awards, respectively. As of June 30, 2019, the Company has $2.5 million of unrecognized stock-based compensation expense related to the shares issued. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 3.25 years.  No Restricted Stock Awards vested during the three and six months ended June 30, 2019.

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Stock‑Based Compensation Plans

As of June 30, 2019, there were a total of 626,907 shares available for issuance under the First Western Financial, Inc. 2016 Omnibus Inventive Plan (“the 2016 Plan”). If the Awards outstanding under the First Western 2008 Stock Incentive Plan (“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 six months ended June 30, 2019 and 2018.

During the three months ended June 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.1 million and $0.1 million, respectively, associated with stock options. During the six months ended June 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.2 million and $0.3 million, respectively, associated with stock options. As of June 30, 2019, the Company has $0.4million of unrecognized stock‑based compensation expense related to stock options which are unvested. As of  June 30, 2019, the unrecognized cost is expected to be recognized over a weighted‑average period of approximately one year.

The following summarizes activity for nonqualified stock options for the six months ended June 30, 2019:

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding at beginning of year	465,947	$	28.84
Granted	—		—
Exercised	—		—
Forfeited or expired	(23,850)		26.25
Outstanding at end of period	442,097	$	28.98	4.0	(a)
Options fully vested / exercisable at June 30, 2019	388,216	$	29.59	3.7	(a)

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

As of June 30, 2019 and December 31, 2018, there were 388,216 and 402,872 options, respectively, 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. During the six months ended June 30, 2019, the Company granted certain associates restricted stock units which are earned over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.

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The following summarizes the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units for the six months ended June 30, 2019:

	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding at beginning of year	184,369	15,932	17,258
Granted	71,127	59,536	-
Vested	(23,281)	-	-
Forfeited	(16,318)	(4,603)	(1,512)
Outstanding at end of period	215,897	70,865	15,746

During the three and six month period ended June 30, 2019, the Company issued 15,446 shares of common stock upon the settlement of Time Vesting Units. The remaining 7,835 shares were surrendered with a combined market value at the dates of settlement of $0.1 million to cover employee withholding taxes. During the three and six month period ended June 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units. The remaining 6,313 shares were surrendered with a combined market value at the dates of settlement of $0.2 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 3,779 Time Vesting Units with a five‑year service period in the six months ended June 30, 2019 that vest in equal installments of 50% on the third and fifth anniversaries of the grant date, assuming continuous employment through the scheduled vesting dates. The Company granted 67,348 Time Vesting Units with a five year service period in the six months ended June 30, 2019 that vest in equal installments of 20% on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates. Time Vesting Units granted in 2019 have a weighted‑average grant‑date fair value of $13.80 per unit. During the three months ended June 30, 2019 and 2018, the Company recognized compensation expense of $0.2 million and $0.2 million, respectively, for Time Vesting Units. As During the six months ended June 30, 2019 and 2018, the Company recognized compensation expense of $0.4 million and $0.5 million, respectively, for Time Vesting Units. As of June 30, 2019, there was $4.1 million of unrecognized compensation expense related to Time Vesting Units. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of approximately 2.4 years.

Financial Performance Units Granted Prior to 2019

Financial Performance Units were granted to certain key associates and are earned based on the Company achieving various financial performance metrics beginning on the grant date and ending on December 31, 2019. 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 two‑year service period vesting requirement ending on December 31, 2021. As of June 30, 2019, the Company is accruing at the maximum threshold for 50% of the awards and at 50% for the remainder. The maximum shares that can be issued at 150% as of June 30, 2019 was approximately 22,000 shares. During the three and six months ended June 30, 2019and 2018, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of June 30, 2019, there was $0.2 million of unrecognized compensation expense related to the Financial Performance Units. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 2.5 years.

Financial Performance Units Granted in 2019

On May 1, 2019, the Company granted an additional 59,536 Financial Performance Units to officers and other key employees. All Financial Performance Units granted on May 1, 2019, have a ten-year term and are earned based on the Company achieving various financial metrics beginning on the grant date and ending on December 31, 2021, which include various thresholds from 0% to 150%, then the Financial Performance Units will have a subsequent two-year service period vesting requirement ending on December 31, 2023. As of June 30, 2019, the Company is accruing at the maximum threshold for 50% of the awards and at 50% for the remainder. The maximum shares that can be issued at 150% as of June 30, 2019 was approximately 84,300 shares.During the three months ended June 30, 2019, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of June 30, 2019,

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there was $0.7 million of unrecognized compensation expense related to the Financial Performance Units.  As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 4.5 years.

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. If the Company’s common stock is trading at or above certain prices, over a performance period ending on June 30, 2020, the Market Performance Units will be determined to be earned and vest following the completion of a subsequent service period ending on June 30, 2022.

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 six months ended June 30, 2019, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of June 30, 2019, 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 3.0 years.

NOTE 10 - EARNINGS PER COMMON SHARE

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Earnings per common share - Basic
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Earnings per common share - basic	$	0.18	$	0.08	$	0.39	$	0.19
Earnings per common share - Diluted
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Diluted effect of common stock equivalents:
Stock options		—		32,643		—		31,291
Time Vesting Units		2,044		13,958		2,062		22,261
Financial Performance Units		—		16,355		—		9,758
Market Performance Units		13,049		—		13,448		—
Restricted Stock Awards		—		6,579		—		5,264
Total diluted effect of common stock equivalents		15,093		69,535		15,510		68,574
Diluted weighted average shares		7,897,092		5,981,421		7,893,374		5,960,037
Earnings per common share - diluted	$	0.18	$	0.08	$	0.39	$	0.19

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Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti‑dilutive. As of June 30, 2019 and 2018, potentially dilutive securities excluded from the diluted earnings per share calculation are as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Stock options	442,097	207,700	445,947	211,450
Convertible Preferred D shares	—	151,700	—	151,700
Time Vesting Units	198,611	—	179,301	—
Financial Performance Units	70,865	—	42,998	—
Market Performance Units	—	—	—	—
Restricted Stock Awards	94,736	—	94,736	—
Total potentially dilutive securities	806,309	359,400	762,982	363,150

NOTE 11 - INCOME TAXES

During the three and six months ended June 30, 2019, the Company recorded an income tax provision of $0.5 million and $1.1 million, respectively, reflecting an effective tax rate of 28.5% and 26.4%, respectively. The increase is primarily related to the vesting of Restricted Stock Units during the three months ended June 30, 2019.    During the three and six months ended June 30, 2018, the Company recorded an income tax provision of $0.3 million and $0.7 million, respectively, reflecting an effective tax rate of 24.3% and 24.0%, respectively.  

NOTE 12 – RELATED‑PARTY TRANSACTIONS

The Bank granted loans to principal officers and directors and their affiliates, all of whom are deemed related parties. At June 30, 2019 and December 31, 2018, there were no delinquent or non‑performing loans to any officer or director of the Company. The following presents a summary of related‑party loan activity as of the dates noted (in thousands):

	June 30, 2019		December 31, 2018
Balance, beginning of year	$	2,659	$	14,077
Funded loans		5,623		1,466
Payments collected		(2,588)		(9,386)
Changes in related parties		—		(3,498)
Balance, end of year	$	5,694	$	2,659

Deposits from related parties held by the Bank at June 30, 2019 and December 31, 2018 totaled $47.7 million and $36.7 million, respectively.

The Company leases office space from an entity controlled by one of the Company’s board members. During the six months ended June 30, 2019 and 2018, the Company incurred an immaterial amount of expense related to this lease.

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.

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There were no transfers between levels during the six months ended June 30, 2019 and 2018. 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).

Interest Rate Locks and Forward Delivery Commitments:  Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the commitment related to the loan is locked. The fair value estimate is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date (Level 2).

Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument are accounted for within the condensed consolidated statements of income.

The following presents assets measured on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	255	$	—	$	—	$	255
GNMA		—		38,537		—		38,537
FNMA		—		3,493		—		3,493
Securities issued by US. Government sponsored entities and agencies		—		4,293		—		4,293
Corporate CMO and MBS		—		5,120		—		5,120
Total securities available-for-sale	$	255	$	51,443	$	—	$	51,698
Equity securities	$	712	$	—	$	—	$	712
Interest rate lock and forward delivery commitments	$	—	$	739	$	—	$	739

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		—		34,002		—		34,002
FNMA		—		3,870		—		3,870
Securities issued by US. Government sponsored entities and agencies		—		4,302				4,302
Corporate CMO and MBS		—		1,271		—		1,271
Total securities available-for-sale	$	250	$	43,445	$	—	$	43,695
Equity securities	$	693	$	—	$	—	$	693
Interest rate lock and forward delivery commitments	$	—	$	890	$	—	$	890

Equity securities and U.S. Treasury debt are 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 June 30, 2019 and December 31, 2018, the majority of the securities have 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,

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reported trades, interest spreads, prepayments, and other market research. In addition, ratings and collateral quality are considered.

As of June 30, 2019, equity securities have been recorded at fair value within the other assets line item in the condensed consolidated balance sheet with changes recorded in the other line item in the condensed consolidated statement of income.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Other real estate owned is evaluated monthly 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 quarterly 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 measured on a nonrecurring basis as of June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	95	$	95

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	795	$	795

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

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At June 30, 2019, other real estate owned remained unchanged from December 31, 2018 and had a carrying amount of $0.7 million, which is the cost basis of $2.4 million net of a valuation allowance of $1.7 million.

At June 30, 2019, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $1.0 million with valuation allowances of $0.9 million and were classified as Level 3. As of December 31, 2018, impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $1.7 million with valuation allowances of $0.9 million and were classified as Level 3. Impaired loans valued using a discounted cash flow analyses were not deemed to be at fair value at June 30, 2019 and December 31, 2018.

Impaired loans accounted for provisions for loan losses of $0 for each of the three and six months ended June 30, 2019.

The following presents carrying amounts and estimated fair values for financial instruments as of June 30, 2019 and December 31, 2018 (in thousands):

	Carrying		Fair Value Measurements Using:
June 30, 2019	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	92,769	$	92,769	$	—	$	—
Securities available-for-sale		51,698		255		51,443		—
Loans, net		931,820		—		—		912,965
Mortgage loans held for sale		36,269		—		36,269		—
Accrued interest receivable		3,184		—		3,184		—
Other assets		712		712		—		—
Liabilities:
Deposits	$	1,005,177	$	—	$	1,008,032	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		36,060		—		36,022		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,217
Accrued interest payable		274		—		274		—

	Carrying		Fair Value Measurements Using:
December 31, 2018	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	73,357	$	73,357	$	—	$	—
Securities available-for-sale		43,695		250		43,445		—
Loans, net		886,515		—		—		868,828
Mortgage loans held for sale		14,832		—		14,832		—
Accrued interest receivable		2,844		—		2,844		—
Other assets		693		693		—		—
Liabilities:
Deposits	$	937,758	$	—	$	940,039	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		15,000		—		14,833		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,434
Accrued interest payable		231		—		231		—

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 effective January 1, 2018 on a prospective basis.

NOTE 14 - SEGMENT REPORTING

The Company’s reportable segments consist of Wealth Management, Capital 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.

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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 Capital Management segment consists of operations relative to the Company’s institutional investment management services over proprietary fixed income, high yield, and equity strategies, including the advisor of three listed mutual funds. Capital Management products and services are financial in nature for which revenues are based on a percentage of assets under management or paid premiums.

The Mortgage segment consists of operations relative to the Company’s residential mortgage service offerings. Mortgage products and services are financial in nature for which premiums are recognized net of expenses, upon the sale of mortgage loans to third parties.

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods for the three and six months ended June 30, 2019 and 2018 (in thousands):

Three Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	11,174	$	—		$	—	$	11,174
Total interest expense		3,214		—			—		3,214
Provision for loan losses		(78)		—			—		(78)
Net interest income		8,038		—			—		8,038
Non-interest income		4,512		798			3,276		8,586
Total income		12,550		798			3,276		16,624
Depreciation and amortization expense		301		95			73		469
All other non-interest expense		10,432		2,313	(1)		1,445		14,190
Income (loss) before income tax	$	1,817	$	(1,610)		$	1,758	$	1,965
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Three Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	9,505	$	—	$	—	$	9,505
Total interest expense		1,928		—		—		1,928
Provision for loan losses		-		—		—		-
Net interest income		7,577		—		—		7,577
Non-interest income		4,680		845		1,367		6,892
Total income		12,257		845		1,367		14,469
Depreciation and amortization expense		321		132		124		577
All other non-interest expense		10,025		1,080		1,402		12,507
Income (loss) before income tax	$	1,911	$	(367)	$	(159)	$	1,385
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

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Six Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	22,224	$	-		$	-	$	22,224
Total interest expense		6,293		-			-		6,293
Provision for loan losses		116		-			-		116
Net-interest income		15,815		-			-		15,815
Non-interest income		9,244		1,563			4,755		15,562
Total income		25,059		1,563			4,755		31,377
Depreciation and amortization expense		632		226			138		996
All other non-interest expense		20,499		3,008	(1)		2,758		26,265
Income before income tax	$	3,928	$	(1,671)		$	1,859	$	4,116
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

_______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Six Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	18,511	$	—	$	—	$	18,511
Total interest expense		3,574		—		—		3,574
Provision for loan losses		(187)		—		—		(187)
Net-interest income		15,124		—		—		15,124
Non-interest income		9,844		1,706		2,634		14,184
Total income		24,968		1,706		2,634		29,308
Depreciation and amortization expense		641		262		247		1,150
All other non-interest expense		20,165		2,276		2,779		25,220
Income before income tax	$	4,162	$	(832)	$	(392)	$	2,938
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

NOTE 15 - REGULATORY CAPITAL MATTERS

The Bank is 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, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off‑balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification is 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”) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi‑year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available‑for‑sale securities is not included in computing regulatory capital. Management believes as of June 30, 2019, the Bank meets all capital adequacy requirements to which it is subject to.

Prompt corrective action regulations for 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.

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The standard ratios established by the Bank’s primary regulators to measure capital require the Bank to maintain minimum amounts and ratios. These ratios are common equity Tier 1 capital (“CET 1”), 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).

Actual capital ratios of the Bank, along with the applicable regulatory capital requirements as of June 30, 2019, which were calculated in accordance with the requirements of Basel III, became effective January 1, 2015. The final rules of Basel III also established a “capital conservation buffer” of 2.5% above new regulatory minimum capital ratios, that are fully effective in 2019, and resulted in the following minimum ratios: (i) a CET 1 ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement began phasing in, in January 2016 at 0.625% of risk‑weighted assets and increased each year until fully implemented in January 2019. An institution is 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 will establish a maximum percentage of eligible retained income that can be utilized for such activities. At June 30, 2019, required ratios including the capital conservation buffer were (i) CET 1 of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%.

As of June 30, 2019 and December 31, 2018, the most recent filings with the Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as well capitalized under the regulatory guidelines. To be categorized as well capitalized, an institution must maintain minimum CET 1 risk‑based, Tier 1 risk‑based, total risk‑based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since June 30, 2019,  that the Company believes have changed the categorization of the Bank as well capitalized. Management believes the Bank met all capital adequacy requirements to which it was subject to as of June 30, 2019 and December 31, 2018.

The following presents the actual and required capital amounts and ratios as of June 30, 2019 and December 31, 2018 (in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
June 30, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	92,973	10.65	%	$	39,293	4.5	%	$	56,756	6.5	%
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		92,973	10.65			52,391	6.0			69,854	8.0
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		100,697	11.53			69,854	8.0			87,318	10.0
Consolidated		114,309	13.04			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		92,973	8.42			44,186	4.0			55,232	5.0
Consolidated		100,024	9.01			N/A	N/A			N/A	N/A

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									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	87,291	10.55	%	$	37,240	4.5	%	$	53,791	6.5	%
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		87,291	10.55			49,653	6.0			66,204	8.0
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		94,906	11.47			66,204	8.0			82,755	10.0
Consolidated		108,510	13.06			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		87,291	8.63			40,459	4.0			50,574	5.0
Consolidated		94,335	9.28			N/A	N/A			N/A	N/A

NOTE 16 – SUBSEQUENT EVENTS

On July 19, 2019, the Company entered into an agreement to sell the Company’s Los Angeles-based fixed income portfolio management team, a portion of the Capital Management reporting unit, to Lido Advisors, LLC and Oakhurst Advisors, LLC in exchange for cash consideration of $0.5 million and contingent consideration. The contingent consideration is based on certain percentages of asset-based revenues generated over three to five years subsequent to the closing date, subject to quarterly minimum and maximum amounts.

The Company expects the sale to benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units.  The transaction is expected to close in the third quarter of 2019.

*****

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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 as of and results of operations for the three and six months ended June 30, 2019 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 21, 2019. 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 “Risk Factors” included in in our Annual report Form 10-K filed with the SEC on March 21, 2019 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 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 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. 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, 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 June 30, 2019, we have expanded our footprint into nine full service profit centers, two mortgage loan production offices, two trust offices, and one registered investment advisor located across four states. As of and for the six months ended June 30, 2019, we had $1.2 billion in total assets, $31.4 million in total income before non-interest expense and provided fiduciary and advisory services on $6.0 billion of assets under management (“AUM”).

Primary Factors Used to Evaluate the Results of Operations

As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition. We evaluate the comparative levels and trends of the line items in our consolidated balance sheet and income statement 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

36

rates on the loans. Interest expense is primarily impacted by changes in deposit balances 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 mortgage gains—gain on originating and selling mortgages, origination fees, and borrower credits, less commissions to loan originators, lender credits, document review and other costs specific to originating and selling the loan. The market adjustments for interest rate lock commitments that have funded and gains and losses incurred on the mandatory trading of loans are also included in this line item. Net mortgage gains are primarily impacted by the amount of loans sold, the type of loans sold and market conditions.

· Banking fees—income generated through bank-related service charges such as: electronic transfer fees, treasury management fees, bill pay fees, 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.

Non‑Interest Expense

Non‑interest expense is comprised primarily of the following:

· Salaries and employee benefits—include 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.

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

· Goodwill impairment—represents the $1.6 million goodwill impairment charge related to the announced sale of the Company’s Los Angeles-based fixed income team (a component of the Company’s Capital Management segment).

· Other operational expenses—includes costs related to 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.

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 Wealth Management, Capital 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 of 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 problems; classified, delinquent, non‑accrual, non‑performing and restructured assets; 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. During the first quarter of 2015, the Bank adopted the new Basel III regulatory capital framework as approved by federal banking agencies, which are subject to a multi-year phase-in period. The adoption of this new framework modified the calculation of the various capital ratios, added a new ratio, CET 1, and revised the adequately and well capitalized thresholds. In addition, Basel III establishes a capital conservation buffer of 2.5% of risk-weighted assets,

38

which is phased in over a four-year period beginning January 1, 2016. At June 30, 2019, our Bank capital ratios exceeded the current well capitalized regulatory requirements established under Basel III.

Recent Events

On July 19, 2019, the Company entered into an agreement to sell the Company’s Los Angeles-based fixed income portfolio management team, a portion of the Capital Management reporting unit, to Lido Advisors, LLC and Oakhurst Advisors, LLC in exchange for cash consideration of $0.5 million and contingent consideration. The contingent consideration is based on certain percentages of asset-based revenues generated over three to five years subsequent to the closing date, subject to quarterly minimum and maximum amounts.

The Company expects the sale to benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units.  The transaction is expected to close in the third quarter of 2019.

Results of Operations

Overview

The three months ended June 30, 2019 compared with the three months ended June 30, 2018. We reported net income available to common shareholders of $1.4 million for the three months ended June 30, 2019, compared to $0.5 million of net income available to common shareholders, after paying dividends to preferred shareholders for June 30, 2018, a $0.9 million, or 188.9%  increase.  For the three months ended June 30, 2019, our income before income tax was $2.0 million, a $0.6 million, or 41.9%, increase from June 30, 2018. For the three months ended June 30, 2019, income before income tax increased primarily as a result of a $0.4 million, or 5.1%, increase in net interest income compared to the three months ended June 30, 2018. For the three months ended June 30, 2019, net income was $1.4 million, a $0.4 million, or 34.0%  increase compared to the three months ended June 30, 2018.  

The six months ended June 30, 2019 compared with the six months ended June 30, 2018. We reported net income available to common shareholders of $3.0 million for the six months ended June 30, 2019, compared to $1.1 million of net income available to common shareholders, after paying dividends to preferred shareholders for June 30, 2018, a $1.9 million, or 172.8% increase. For the six months ended June 30, 2019, our income before income tax was $4.1 million, a $1.2 million, or 40.1%, increase from June 30, 2018. For the six months ended June 30, 2019, income before income tax increased primarily as a result of a $1.0 million, or 6.7%, increase in net interest income compared to the six months ended June 30, 2018. For the six months ended June 30, 2019, net income was $3.0 million, a $0.8 million, or 35.7% increase compared to the six months ended June 30, 2018. 

Financial results for the three and six months ended June 30, 2019 include a $1.6 million goodwill impairment charge related to the announced sale of the Company’s Los Angeles-based fixed income team (a component of the Company’s Capital Management segment), which negatively impacted earnings per diluted share by 15 cents.

Net Interest Income

The three months ended June 30, 2019 compared with the three months ended June 30, 2018. For the three months ended June 30, 2019, net interest income, before the provision for loan losses was $8.0 million, an increase of $0.4 million, or 5.1%, compared to the three months ended June 30, 2018. This increase was partially attributable to a $105.1 million increase in average outstanding loan balances compared to June 30, 2018, along with an increase in our average yield on loans to 4.53% from 4.34% for the three months ended June 30, 2019 and 2018, respectively.  The increase in interest income was partially offset by an increase in interest expense.  This was attributable to an $86.0 million increase in average funding balances compared to June 30, 2018, along with an increase in our average cost of funds to 1.30% from 0.85% for the three months ended June 30, 2019 and 2018, respectively.    For the three months ended June 30, 2019, our net interest margin was 3.10% and our net interest spread was 2.67%. For the three months ended June 30, 2018, our net interest margin was 3.29% and our net interest spread was 2.96%.

The six months ended June 30, 2019 compared with the six months ended June 30, 2018. For the six months ended June 30, 2019, net interest income, before the provision for loan losses was $15.9 million, an increase of $1.0 million, or 6.7%, compared to the six months ended June 30, 2018. This increase was partially attributable to a $104.3

39

million increase in average outstanding loan balances compared to June 30, 2018, along with an increase in our average yield on loans to 4.50% from 4.27% for the six months ended June 30, 2019 and 2018, respectively. This was attributable to an $86.0 million increase in average funding balances compared to June 30, 2018, along with an increase in our average cost of funds to 0.63% from 0.40% for the six months ended June 30, 2019 and 2018, respectively. For the six months ended June 30, 2019, our net interest margin was 3.06% and our net interest spread was 2.64%. For the six months ended June 30, 2018, our net interest margin was 3.27% and our net interest spread was 2.97%.

The increase in average loans outstanding for the three and six months ended June 30, 2019 compared to the same periods in 2018 was primarily due to growth in all of our major loan categories except for commercial real estate. Net interest income is also impacted by changes in the amount and type of interest earning assets and interest bearing liabilities. To evaluate net interest income, we measure and monitor the yields on our loans and other interest earning assets and the costs of our deposits and other funding sources.

Interest income on our available-for-sale securities portfolio increased as a result of higher average yield for three and six months ended June 30, 2019 compared to the same periods in 2018. Our average yield on available-for-sale securities during the three and six months ended June 30, 2019 was 2.51% and 2.48%, a 25 and 28 basis point increase, respectively, compared to the same periods in 2018. Our average available-for-sale securities balance during the three months ended June 30, 2019 were $52.9 million and $51.7 million, an increase of $3.0 million and $0.9 million, respectively, compared to the same periods the three months ended June 30, 2018. 

Interest expense on deposits increased during the three and six months ended June 30, 2019 compared to the same period in 2018. The increase was driven primarily by a rising rate environment and mix of deposit types, which resulted in increases in rates on depository accounts as cost of funds increased to 1.30% from 0.84% and to 0.63% from 0.40% during the three and six months ended June 30, 2019 compared to the same period in 2018. In addition, average interest‑bearing deposit accounts increased $153.1 million and $159.2 million, for the three and six months ended June 30, 2019, compared to the same period in 2018. 

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.

40

	As of and For the Three Months Ended June 30,
	2019						2018
			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	$	40,755	$	243	2.38	%	$	35,550	$	150	1.69	%
Available-for-sale securities(2)		52,852		331	2.51			49,821		281	2.26
Loans(3)		935,025		10,600	4.53			829,944		9,011	4.34
Promissory notes from related parties(4)		—		—	—			5,305		63	4.75
Interest-earning assets(5)		1,028,632		11,174	4.35			920,620		9,505	4.13
Mortgage loans held-for-sale(6)		31,454		293	3.73			31,570		301	3.81
Total interest-earning assets, plus loans held-for-sale		1,060,086		11,467	4.33			952,190		9,806	4.12
Allowance for loan losses		(7,648)						(7,100)
Noninterest-earning assets		79,735						73,245
Total assets	$	1,132,173					$	1,018,335
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	742,002	$	2,995	1.61	%	$	588,916	$	1,411	0.96	%
Federal Home Loan Bank Topeka borrowings		17,922		100	2.23			54,185		260	1.92
Subordinated notes		6,560		119	7.26			13,435		257	7.65
Total interest-bearing liabilities		766,484		3,214	1.68			656,536		1,928	1.17
Noninterest-bearing liabilities:
Noninterest-bearing deposits		225,153						249,085
Other liabilities		18,830						7,875
Total noninterest-bearing liabilities		243,983						256,960
Shareholders’ equity		121,706						104,839
Total liabilities and shareholders’ equity	$	1,132,173					$	1,018,335
Net interest rate spread(7)					2.67	%					2.96	%
Net interest income(8)			$	7,960					$	7,577
Net interest margin(9)					3.10	%					3.29	%

	As of and For the Six Months Ended June 30,
	2019						2018
			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	$	63,166	$	765	2.42	%	$	35,960	$	277	1.54	%
Available-for-sale securities(2)		51,663		641	2.48			50,777		558	2.20
Loans(3)		925,582		20,818	4.50			821,292		17,548	4.27
Promissory notes from related parties(4)		—		—	—			5,529		128	4.63
Interest-earning assets(5)		1,040,411		22,224	4.27			913,558		18,511	4.05
Mortgage loans held-for-sale(6)		22,416		418	3.73			25,029		501	4.00
Total interest-earning assets, plus loans held-for-sale		1,062,827		22,642	4.26			938,587		19,012	4.05
Allowance for loan losses		(7,608)						(7,135)
Noninterest-earning  assets		78,712						72,537
Total assets	$	1,133,931					$	1,003,989
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits	$	751,203	$	5,904	1.57	%	$	592,015	$	2,571	0.87	%
Federal Home Loan Bank Topeka borrowings		14,182		151	2.13			54,847		490	1.79
Subordinated notes		6,560		238	7.26			13,435		513	7.64
Total interest-bearing liabilities		771,945		6,293	1.63			660,297		3,574	1.08
Noninterest-bearing liabilities:
Noninterest-bearing deposits		222,793						232,127
Other liabilities		19,120						7,464
Total noninterest-bearing liabilities		241,913						239,591
Shareholders’ equity		120,073						104,101
Total liabilities and shareholders’ equity	$	1,133,931					$	1,003,989
Net interest rate spread(7)					2.64	%					2.97	%
Net interest income(8)			$	15,931					$	14,937
Net interest margin(9)					3.06	%					3.27	%

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

(2) Available‑for‑sale securities 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. 

41

(4) Promissory notes from related parties were reclassified to loans in 2018.

(5) Tax-equivalent yield adjustments are immaterial.

(6) 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 sold line in the condensed consolidated income statement. These balances are excluded from the margin calculations in these tables.

(7) Net interest spread is the average yield on interest‑earning assets (excludes mortgage loans held‑for‑sale) minus the average rate on interest‑bearing liabilities.

(8) Net interest income is income earned on interest-earning assets, which does not include interest earned on mortgage loans held‑for‑sale.

(9) Net interest margin is equal to net interest income divided by average interest‑earning assets (excludes mortgage loans held‑for‑sale).

The following tables present the dollar amount of changes in interest income and interest expense for the periods presented, for each component of interest-earning assets and interest-bearing liabilities (excluding mortgage loans held- for-sale) and distinguishes between changes attributable to volume and interest rates. Changes attributable to both rate and volume that cannot be separated have been allocated to volume.

	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
	Compared to 2018						Compared to 2018
	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	$	31	$	62	$	93	$	329	$	159	$	488
Available-for-sale securities		19		31		50		11		72		83
Loans		1,191		398		1,589		2,346		924		3,270
Promissory notes from related parties		—		(63)		(63)		—		(128)		(128)
Total increase in interest income	$	1,241	$	428	$	1,669	$	2,686	$	1,027	$	3,713
Interest-bearing liabilities:
Interest-bearing deposits	$	618	$	966	$	1,584	$	1,251	$	2,082	$	3,333
Federal Home Loan Bank Topeka borrowings		(202)		42		(160)		(433)		94		(339)
Subordinated notes		(125)		(13)		(138)		(250)		(25)		(275)
Total increase in interest expense	$	291	$	995	$	1,286	$	568	$	2,151	$	2,719
Increase (decrease) in net interest income	$	950	$	(567)	$	383	$	2,118	$	(1,124)	$	994

Non‑Interest Income

The three months ended June 30, 2019 compared with the three months ended June 30, 2018. For the three months ended June 30, 2019 compared to the three months ended June 30, 2018, non-interest income increased  $1.7 million, or 24.6%, to $8.6 million. The increase in non-interest income during the three months ended June 30, 2019 was primarily a result of a $1.9 million increase in net gain on mortgage loans sold, partially offset by, decreases in risk management fees of $0.1 million and bank fees of $0.1 million,  compared to the same period in 2018.

The six months ended June 30, 2019 compared with the six months ended June 30, 2018. For the six months ended June 30, 2019 compared to the six months ended June 30, 2018, non-interest income increased $1.4 million, or 9.7%, to $15.6 million. The increase in non-interest income during the six months ended June 30, 2019 was primarily a result of an increase in net gain on mortgage loans sold of $2.1 million, partially offset by an decrease in bank fees of $0.4 million and a $0.3 million decrease in trust and investment management fees, compared to the same period in 2018.

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The table below presents the significant categories of our non-interest income for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended
	June 30,				Change
(Dollars in thousands)	2019		2018		$		%
Non-interest income:
Trust and investment management fees	$	4,693	$	4,689	$	4	0.1	%
Net gain on mortgage loans sold		3,262		1,359		1,903	140.0
Banking fees		341		455		(114)	(25.1)
Risk management and insurance fees		194		284		(90)	(31.7)
Income on company-owned life insurance		96		105		(9)	(8.6)
Total non-interest income	$	8,586	$	6,892	$	1,694	24.6	%
	Six Months Ended
	June 30,				Change
(Dollars in thousands)	2019		2018		$		%
Non-interest income:
Trust and investment management fees	$	9,363	$	9,643	$	(280)	(2.9)	%
Net gain on mortgage loans sold		4,718		2,610		2,108	80.8
Bank fees		630		1,065		(435)	(40.8)
Risk management and insurance fees		662		667		(5)	(0.7)
Income on company-owned life insurance		189		199		(10)	(5.0)
Total non-interest income	$	15,562	$	14,184	$	1,378	9.7	%

Trust and investment management fees— For the three months ended June 30, 2019 compared to the same period in 2018, our trust and investment management fees in the Wealth Management segment and in the Capial Management segment remained consistent. For the six months ended June 30, 2019 compared to the same period in 2018, our trust and investment management fees decreased within the Wealth Management segment by $0.1 million or 1.7% and decreased within our Capital Management segment by $0.1 million, or 8.4%. The decrease for the six month period was primarily attributable to closed accounts within one profit center due to attrition with the relationship of a prior president.

Net gain on mortgage loans sold— For the three months ended June 30, 2019 compared to the same period in 2018, our net gain on mortgage loans sold increased by $1.9 million, or 140.0%, to $3.3 million. For the three months ended June 30, 2019 and 2018, our origination volume was $155.5 million and $122.4 million, respectively. For the six months ended June 30, 2019 compared to the same period in 2018, our net gain on mortgage loans sold increased by $2.1 million, or 80.8%, to $4.7 million. For the six months ended June 30, 2019 and 2018, our origination volume was $228.3 million and $209.6 million, respectively. The net gain on sales of loans will fluctuate with the amount and type of loans sold and market conditions. The increase in origination volume for the three and six month period was primarily related to a strong residential real estate market in our footprint, lower market rates and management’s commitment to the mortgage segment.

Risk management and insurance fees— Risk management fees include fees earned by our risk management product group as a result of assisting clients with obtaining life insurance policies and fees from the trailing annuity revenue streams. During the three and six months ended June 30, 2019, we recognized $0.2 million and $0.7 million of risk management fees as compared to $0.3 million and $0.7 million for the same period in 2018, respectively. The decrease for the three month period was attributed primarily to a decrease in the average size of client policies placed.

Provision for Credit Losses

For the three months ended June 30, 2019, we released $0.1 million of our provision for credit loss as result of our continued efforts to reduce our problem loans, which resulted in lower specific provisions and a reduction in our loan loss factors applied to our non-individually evaluated loan pools as a result of lower charge-offs over the corresponding look-back period utilized in our provision calculation. We have a dedicated problem loan resolution team comprised of associates from our credit, senior leadership, risk and accounting teams that meets frequently to minimize losses by ensuring that watch list and problem credits are identified early and actively worked in order to identify potential losses in a timely manner and proactively manage the corresponding accounts. For the six months ended June 30, 2019, we recorded $0.1 million of provision for credit loss primarily driven by growth in our loan portfolio.

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Non‑Interest Expense

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

	Three Months Ended
	June 30,				Change
(Dollars in thousands)	2019		2018		$		%
Non-interest expense:
Salaries and employee benefits	$	7,699	$	7,660	$	39	0.5	%
Occupancy and equipment		1,398		1,527		(129)	(8.4)
Professional services		1,036		1,008		28	2.8
Technology and information systems		1,016		1,000		16	1.6
Data processing		742		687		55	8.0
Marketing		441		316		125	39.6
Amortization of other intangible assets		142		230		(88)	(38.3)
Goodwill impairment		1,572		—		1,572	*
Other operational		613		656		(43)	(6.6)
Total non-interest expense	$	14,659	$	13,084	$	1,575	12.0	%
	Six Months Ended
	June 30,				Change
(Dollars in thousands)	2019		2018		$		%
Non-interest expense:
Salaries and employee benefits	$	15,317	$	15,840	$	(523)	(3.3)	%
Occupancy and equipment		2,805		3,012		(207)	(6.9)
Professional services		1,813		1,832		(19)	(1.0)
Technology and information systems		2,085		2,063		22	1.1
Data processing		1,429		1,327		102	7.7
Marketing		719		601		118	19.6
Amortization of other intangible assets		315		460		(145)	(31.5)
Goodwill impairment		1,572		—		1,572	*
Other		1,206		1,235		(29)	(2.3)
Total non-interest expense	$	27,261	$	26,370	$	891	3.4	%

_____________________________

* Not meaningful

The increase in non-interest expense of 12.0% to $14.7 million for the three months ended June 30, 2019 was primarily due to a goodwill impairment charge recorded in the amount of $1.6 million. The increase in non-interest expense of 3.4% to $27.3 million for the six months ended June 30, 2019 was primarily due to a goodwill impairment charge recorded in the amount of $1.6 million, partially offset by decreases in salaries and employee benefits of $0.5 million and occupancy and equipment of $0.2 million.

Income Tax

During the three and six months ended June 30, 2019, the Company recorded an income tax provision of $0.6 million and $1.1 million, respectively, reflecting an effective tax rate of 28.5% and 26.4%, respectively. The increase is related to the vesting of Restricted Stock Units during the three months ended June 30, 2019.

Segment Reporting

We have three reportable operating segments: Wealth Management, Capital Management and Mortgage. Our Wealth Management segment consists of operations relating to our fully integrated wealth management business. Services provided by our Wealth Management segment include deposit, loan, insurance, and trust and investment management advisory products and services. Our Capital Management segment consists of operations relating to our institutional investment management services over proprietary fixed income, high yield and equity strategies, including acting as the advisor of three owned, managed and rated proprietary mutual funds. Capital management products and services are financial in nature, with revenues generally based on a percentage of assets under management or paid premiums. Our Mortgage segment consists of operations relating to the origination and sale of residential mortgage loans. Mortgage

44

products and services are financial in nature, with gains and fees 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 on-going services to our clients.

The following table presents key metrics related to our segments:

	Three Months Ended June 30, 2019												Six Months Ended June 30, 2019
	Wealth			Capital									Wealth			Capital
(Dollars in thousands)	Management			Management			Mortgage			Consolidated			Management			Management			Mortgage			Consolidated
Income(1)	$	12,550		$	798		$	3,276		$	16,624		$	25,059		$	1,563		$	4,755		$	31,377
Income before taxes	$	1,817		$	(1,610)		$	1,758		$	1,965		$	3,928		$	(1,671)		$	1,859		$	4,116
Profit margin		14.5	%		(201.8)	%		53.7	%		11.8	%		15.7	%		(106.9)	%		39.1	%		13.1	%

	Three Months Ended June 30, 2018												Six Months Ended June 30, 2018
	Wealth			Capital									Wealth			Capital
(Dollars in thousands)	Management			Management			Mortgage			Consolidated			Management			Management			Mortgage			Consolidated
Income(1)	$	12,257		$	845		$	1,367		$	14,469		$	24,968		$	1,706		$	2,634		$	29,308
Income before taxes	$	1,911		$	(367)		$	(159)		$	1,385		$	4,162		$	(832)		$	(392)		$	2,938
Profit margin		15.6	%		(43.4)	%		(11.6)	%		9.6	%		16.7	%		(48.8)	%		(14.9)	%		10.0	%

(1) Net interest income plus non‑interest income.

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 June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change
Total interest income	$	11,174	$	9,505	$	1,669	17.6	%
Total interest expense		3,214		1,928		1,286	66.7
Provision for loan losses		(78)		—		(78)	*
Net interest income		8,038		7,577		461	6.1
Non-interest income		4,512		4,680		(168)	(3.6)
Total income		12,550		12,257		293	2.4
Depreciation and amortization expense		301		321		(20)	(6.2)
All other non-interest expense		10,432		10,025		407	4.1
Income before income tax	$	1,817	$	1,911	$	(94)	(4.9)	%
Goodwill	$	15,994	$	15,994	$	—	—	%
Identifiable assets	$	1,145,910	$	1,001,191	$	144,719	14.5	%
	As of and For the Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change
Total interest income	$	22,224	$	18,511	$	3,713	20.1	%
Total interest expense		6,293		3,574		2,719	76.1
Provision for loan losses		116		(187)		303	(162.0)
Net interest income		15,815		15,124		691	4.6
Non-interest income		9,244		9,844		(600)	(6.1)
Total income		25,059		24,968		91	0.4
Depreciation and amortization expense		632		641		(9)	(1.3)
All other non-interest expense		20,499		20,165		334	1.7
Income before income tax	$	3,928	$	4,162	$	(234)	(5.6)	%
Goodwill	$	15,994	$	15,994	$	—	—	%
Identifiable assets	$	1,145,910	$	1,001,191	$	144,719	14.5	%

_______________________

*Not meaningful

45

The Wealth Management segment reported income before income tax of $1.8 million and $3.9 million for the three and six months ended June 30, 2019, respectively, compared to $1.9 million and $4.2 million, respectively, for the same periods in 2018. The decrease for the three month period is primarily related to a decrease in bank fees and risk management fees and an increase in operating expenses, partially offset by an increase in net interest income driven by an increase in the average balance and yield on interest-earning assets, offset partially by an increase in average funding balances and cost of funds.  The decrease for the six month period is primarily related to a decrease in bank fees and trust and investment management fees and an increase in operating expenses, partially offset by an increase in net interest income driven by an increase in the average balance and yield on interest-earning assets, offset partially by an increase in average funding balance sand cost of funds. During the three and six months ended June 30, 2019 average loans increased $105.1 million and $104.3 million and the yield on total interest-earning assets increased to 4.35% from 4.13% and to 4.27% from 4.05%, compared to the same periods in 2018.

Capital Management

	As of and For the Three Months Ended June 30,
(Dollars in thousands)	2019			2018		$ Change		% Change
Total interest income	$	—		$	—	$	—	—	%
Total interest expense		—			—		—	—
Provision for loan losses		—			—		—	—
Net interest income		—			—		—	—
Non-interest income		798			845		(47)	(5.6)
Total income		798			845		(47)	(5.6)
Depreciation and amortization expense		95			132		(37)	(28.0)
All other non-interest expense		2,313	(1)		1,080		1,233	114.2
Loss before income tax	$	(1,610)		$	(367)	$	(1,243)	338.7	%
Goodwill	$	7,245		$	8,817	$	(1,572)	(17.8)	%
Identifiable assets	$	9,025		$	10,318	$	(1,293)	(12.5)	%
	As of and For the Six Months Ended June 30,
(Dollars in thousands)	2,019			2,018		$ Change		% Change
Total interest income	$	—		$	—	$	—	—	%
Total interest expense		—			—		—	—
Provision for loan losses		—			—		—	—
Net interest income		—			—		—	—
Non-interest income		1,563			1,706		(143)	(8.4)
Total income		1,563			1,706		(143)	(8.4)
Depreciation and amortization expense		226			262		(36)	(13.7)
All other non-interest expense		3,008	(1)		2,276		732	32.2
Loss before income tax	$	(1,671)		$	(832)	$	(839)	100.8	%
Goodwill	$	7,245		$	8,817	$	(1,572)	(17.8)	%
Identifiable assets	$	9,025		$	10,318	$	(1,293)	(12.5)	%

______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

The Capital Management segment reported a loss before income tax of $1.6 million and $1.7 million for the three and six months ended June 30, 2019, compared to a loss of $0.4 million and $0.8 million for the same periods in 2018. This was primarily driven by a goodwill impairment charge of $1.6 million and a decrease in trust and investment management fees, offset partially by a decrease in operating expenses related to an effort to align the cost structure of the segment with its revenues.

46

Mortgage

	As of and For the Three Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change
Total interest income	$	—	$	—	$	—	—	%
Total interest expense		—		—		—	—
Provision for loan losses		—		—		—	—
Net interest income		—		—		—	—
Non-interest income		3,276		1,367		1,909	139.6
Total income		3,276		1,367		1,909	139.6
Depreciation and amortization expense		73		124		(51)	(41.5)
All other non-interest expense		1,445		1,402		43	3.1
Income (loss) before income tax	$	1,758	$	(159)	$	1,917	*	%
Goodwill	$	—	$	—	$	—	—	%
Identifiable assets	$	35,530	$	35,064	$	466	1.3	%
	As of and For the Six Months Ended June 30,
(Dollars in thousands)	2019		2018		$ Change		% Change
Total interest income	$	—	$	—	$	—	—	%
Total interest expense		—		—		—	—
Provision for loan losses		—		—		—	—
Net interest income		—		—		—	—
Non-interest income		4,755		2,634		2,121	80.5
Total income		4,755		2,634		2,121	80.5
Depreciation and amortization expense		138		247		(109)	100.0
All other non-interest expense		2,758		2,779		(21)	(0.8)
Loss before income tax	$	1,859	$	(392)	$	2,251	(574.2)	%
Goodwill	$	—	$	—	$	—	—	%
Identifiable assets	$	35,530	$	35,064	$	466	1.3	%

_______________________

*Not meaningful

The Mortgage segment reported income before income tax of $1.8 million and $1.9 million for the three and six months ended June 30, 2019, compared to a loss of $0.2 million and $0.4 million, for the same periods in 2018. The overall increase in non-interest income was primarily related to an increase in origination volume due to a strong residential real estate market in our footprint, lower market rates and management’s commitment to the mortgage segment as evidenced in the addition of mortgage loan originators.

47

Financial Condition

The table below presents our condensed consolidated balance sheets as of the dates presented: 

	June 30,		December 31,
(Dollars in thousands)	2019		2018		$ Change		% Change
Balance Sheet Data:
Cash and cash equivalents	$	92,769	$	73,357	$	19,412	26.5	%
Investments		51,698		43,695		8,003	18.3
Loans		939,395		893,966		45,429	5.1
Allowance for loan losses		(7,575)		(7,451)		(124)	1.7
Loans, net of allowance		931,820		886,515		45,305	5.1
Mortgage loans held for sale		36,269		14,832		21,437	144.5
Goodwill & other intangible assets, net		23,327		25,213		(1,886)	(7.5)
Company-owned life insurance		14,898		14,709		189	1.3
Other assets		39,684		26,003		13,681	52.6
Total assets	$	1,190,465	$	1,084,324	$	106,141	9.8	%
Deposits	$	1,005,177	$	937,758	$	67,419	7.2	%
Borrowings		42,620		21,560		21,060	97.7
Other liabilities		20,511		8,131		12,380	152.3
Total liabilities		1,068,308		967,449		100,859	10.4
Total shareholders’ equity		122,157		116,875		5,282	4.5
Total liabilities and shareholders’ equity	$	1,190,465	$	1,084,324	$	106,141	9.8	%

Cash and cash equivalents increased by $19.4 million, or 26.5%, to $92.8 million at June 30, 2019 compared to December 31, 2018. During the same period, investments increased by $8.0 million, or 18.3%, to $51.7 million at June 30, 2019. We continue to manage our balance sheet to ensure the amount of cash not being readily utilized is actively invested for optimal earnings.

Total loans increased by $45.4 million, or 5.1%  to $939.4 million at June 30, 2019 compared to December 31, 2018. The increase was primarily due to growth in our all major loan categories with the exception of commercial real estate.

Mortgage loans held for sale increased  $21.4 million, or 144.5%, to $36.3 million at June 30, 2019 compared to December 31, 2018.  This increase corresponds to the increase in mortgage origination volume as noted in the Mortgage segment activity.

Goodwill and other intangible assets, net decreased by $1.9 million at December 31, 2018 due to a goodwill impairment charge in the amount of $1.6 million in the Capital Management reporting unit and $0.3 million of intangible amortization. 

Our annual goodwill impairment assessment date for the Company’s reporting units is October 31. Goodwill impairment testing may begin with an assessment of qualitative factors to determine whether certain circumstances or events exist that lead to a determination that the fair value of goodwill is less than the carrying value. This qualitative assessment includes various factors that could affect the reporting unit’s fair value as well as mitigating events or conditions. The assessment of each reporting unit will compare the aggregate fair value to its carrying value, along with several valuation assumptions and methods in order to determine if any impairment was triggered as of the measurement date. 

During the three months ended June 30, 2019, we received an offer to sell a portion of our Capital Management reporting unit. We determined that we did not meet the held-for-sale criteria at June 30, 2019, however, due to many circumstances, it was more likely than not that we would analyze and dispose of a portion of the reporting unit.  Based on this analysis, the Company proceeded to perform an interim impairment test for Capital Management reporting unit.  As part of the qualitative assessment, it did indicate that it was more likely than not that the carrying value of the Capital Management reporting unit exceeded its fair value. Therefore, the Company proceeded to Step 1 of the interim goodwill impairment test.

48

To estimate the fair value of our reporting units, an independent valuation specialist assisted us and we used an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for forecasted revenues, growth rates, discount rates, and market multiples, which all require significant judgment and estimates by management and are inherently uncertain.  The fair value did not exceed the carrying value of the Capital Management reporting unit as of June 30, 2019.  During the first half of 2019, the growth in revenue has not been realized at previously forecasted levels for the Capital Management reporting unit.  The Company has focused on revenue growth in the more core areas in Wealth Management and Mortgage.  Our outlook for the Capital Management reporting unit has declined driven by the lower market penetration and slower growth in assets under management which is has negatively impacted our near-term earnings outlook for this reporting unit.  The sale would put the team into a group with distribution capabilities and a structure to support them.  As such, this has caused a downward revision for our forecast on current and projected cash flows for the Capital Management reporting unit which resulted in a lower fair value for the six months ended June 30, 2019. 

This test resulted in an implied fair value of goodwill substantially below the carrying value of goodwill.  Therefore, we conducted Step 2 of the goodwill impairment test for the Capital Management reporting unit.   As a result of our two step evaluation, we recorded a non-cash goodwill impairment loss of $1.6 million for the three months ended June 30, 2019 in the Capital Management reporting unit.  After the impairment charge, there was $7.2 million of goodwill remaining in the Capital Management reporting unit.

See Note 4 - Goodwill of the accompanying Notes to Condensed Consolidated Financial Statements for additional information.

Other assets increased by $13.7 million, or 52.6%  to $39.7 million at June 30, 2019 compared to December 31, 2018.  This was primarily related to the addition of a right of use asset upon the adoption of ASU 2016-02 on January 1, 2019 that is classified in other assets on the condensed consolidated balance sheet.

Total deposits increased  $67.4 million, or 7.2%, to $1.01 billion at June 30, 2019 compared to December 31, 2018. Total interest-bearing deposits increased  $41.0 million, or 5.6%, to $775.9 million and noninterest-bearing deposits increased  $26.4 million, or 13.0%, to $229.3 million, during this period.

Money market deposit accounts increased  $18.8 million, or 3.8%, to $508.3 million at June 30, 2019 compared to December 31, 2018. Time deposit accounts decreased  $2.6 million, or 1.5%, from December 31, 2018 to $176.1 million at June 30, 2019.  Negotiable order of withdrawal, or NOW accounts, increased  $23.8 million, or 36.8%, to $88.7 million from December 31, 2018 to June 30, 2019.  The increase in money market deposits was primarily attributed to an increase in organic growth related to our deposit initiatives as well as additional deposits added from our trust and investment management relationships for which we also provide deposit products. The decrease in time deposit accounts was primarily due to maturities and the increase in NOW accounts was attributed to to an increase in organic growth related to our deposit initiatives. 

Total borrowings increased  $21.1 million, or 97.7%, to $42.6 million at June 30, 2019 compared to December 31, 2018. The increase was attributable to an increase in our Federal Home Loan Bank (“FHLB”) line of credit at June 30, 2019 compared to December 31, 2018.

Total shareholders’ equity increased $5.3 million, or 4.5%, from December 31, 2018 to $122.2 million at June 30, 2019. The increase is primarily due to net income of $3.0 million and a $1.7 million decrease in the unrealized loss on our available-for-sale investments primarily due to changes in market rates. 

49

Assets Under Management

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in millions)	2019			2018			2019			2018
Managed Trust Balance at Beginning of Period	$	1,606		$	1,408		$	1,380		$	1,438
New relationships		11			1			41			3
Closed relationships		—			(2)			(1)			(4)
Contributions		7			16			10			31
Withdrawals		(10)			(30)			(88)			(114)
Market change, net		56			49			328			88
Ending Balance	$	1,670		$	1,442		$	1,670		$	1,442
Yield*		0.17	%		0.19	%		0.17	%		0.18	%
Directed Trust Balance at Beginning of Period	$	808		$	756		$	789		$	714
New relationships		119			—			128			37
Closed relationships		—			—			—			—
Contributions		27			16			29			19
Withdrawals		(38)			(16)			(41)			(19)
Market change, net		15			53			26			58
Ending Balance	$	931		$	809		$	931		$	809
Yield*		0.06	%		0.07	%		0.06	%		0.07	%
Investment Agency Balance at Beginning of Period	$	1,935		$	1,974		$	1,846		$	2,100
New relationships		25			27			31			48
Closed relationships		(33)			(73)			(56)			(180)
Contributions		29			46			73			97
Withdrawals		(80)			(67)			(146)			(147)
Market change, net		35			16			163			5
Ending Balance	$	1,911		$	1,923		$	1,911		$	1,923
Yield*		0.68	%		0.71	%		0.68	%		0.75	%
Custody Balance at Beginning of Period	$	472		$	421		$	356		$	374
New relationships		8			-			10			1
Closed relationships		(1)			(7)			(2)			(7)
Contributions		2			15			77			98
Withdrawals		(26)			(18)			(46)			(66)
Market change, net		5			6			65			17
Ending Balance	$	460		$	417		$	460		$	417
Yield*		0.03	%		0.03	%		0.03	%		0.03	%
401(k)/Retirement Balance at Beginning of Period	$	960		$	799		$	864		$	748
New relationships		—			—			6			52
Closed relationships		2			(9)			(20)			(30)
Contributions		31			27			60			51
Withdrawals		(25)			(17)			(46)			(32)
Market change, net		29			25			133			36
Ending Balance	$	997		$	825		$	997		$	825
Yield*		0.23	%		0.20	%		0.22	%		0.19	%
Total Assets Under Management at Beginning of Period		5,781			5,358			5,235			5,374
New relationships		163			28			216			141
Closed relationships		(32)			(91)			(79)			(221)
Contributions		96			120			249			296
Withdrawals		(179)			(148)			(367)			(378)
Market change, net		140			149			715			204
Total Assets Under Management	$	5,969		$	5,416		$	5,969		$	5,416
Yield*		0.31	%		0.35	%		0.31	%		0.36	%

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

50

Three months ended June 30, 2019 compared with the three months ended June 30, 2018. Assets under management increased  $188.0 million and increased $58.0 million, or 3.3% and 1.1% for the three months ended June 30, 2019 and 2018, respectively. The increase during the three months ended June 30, 2019 was primarily related to new accounts added in the second quarter of 2019 contributing approximately $163 million in new assets.  The increase during the three months ended June 30, 2018 was primarily related to market gains and large contributions, partially offset by closed accounts within one profit center due to attrition associated with the relationship of a prior president.  The decrease in yield for the three months ended June 30, 2019 compared to June 30, 2018 is primarily related to a decline in yield on investment agency balances and a mix shift in overall asset balances.

The six months ended June 30, 2019 compared with the six months ended June 30, 2018. Assets under management increased $734.0 million and $42.0 million, or 14.0% and 0.8% for the six months ended June 30, 2019 and 2018, respectively. The increase during the six months ended June 30, 2019 was primarily related to market gains and new accounts added.  The increase during the six months ended June 30, 2018 was primarily related to large contributions and market gains, partially offset by closed accounts within one profit center due to attrition associated with the relationship of a prior president.  The decrease in yield for the six months ended June 30, 2019 compared to June 30, 2018 is primarily related to a decline in yield on investment agency balances and a mix shift in overall asset 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 table summarizes the amortized cost and estimated fair value of our investment securities as of June 30, 2019:

	June 30, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	5	$	—	$	255
Government National Mortgage Association mortgage-backed securities—residential (“GNMA”)		38,529		273		(265)		38,537
Federal National Mortgage Association mortgage-backed securities—residential (“FNMA”)		3,546		8		(61)		3,493
Securities issued by U.S. government sponsored entities and agencies		4,300		1		(8)		4,293
Corporate collateralized mortgage obligations (“CMO”) and mortgage-backed securities (“MBS”)		5,058		74		(12)		5,120
Total securities available-for-sale	$	51,683	$	361	$	(346)	$	51,698

The following table summarizes the amortized cost and estimated fair value of our investment securities as of December 31, 2018:

	December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		35,591		8		(1,597)		34,002
FNMA		4,076		2		(208)		3,870
Securities issued by U.S. government sponsored entities and agencies		4,525		—		(223)		4,302
Corporate CMO and MBS		1,281		1		(11)		1,271
Total securities available-for-sale	$	45,723	$	11	$	(2,039)	$	43,695

51

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 yields are not presented on a taxable equivalent basis.

	Maturity as of June 30, 2019
	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	0.01	%	$	—	—	%	$	—	—	%
GNMA		—	—			—	—			—	—			38,529	1.88
FNMA		—	—			—	—			—	—			3,546	0.17
Securities issued by U.S. government sponsored entities and agencies		305	0.02			—	—			—	—			3,995	0.19
Corporate CMO and MBS		—	—			—	—			—	—			5,058	0.37
Total available-for-sale	$	305	0.02	%	$	250	0.01	%	$	—	—	%	$	51,128	2.61	%

	Maturity as of December 31, 2018
	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	0.01	%	$	—	—	%	$	—	—	%
GNMA		—	—			—	—			—	—			35,591	1.90
FNMA		—	—			—	—			—	—			4,076	0.25
Securities issued by U.S. government sponsored entities and agencies		—	—			306	0.02			—	—			4,219	0.21
Corporate CMO and MBS		—	—			—	—			—	—			1,281	0.08
Total available-for-sale	$	—	—	%	$	556	0.03	%	$	—	—	%	$	45,167	2.44	%

At June 30, 2019 and December 31, 2018, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Loan Portfolio

Our primary source of interest income is derived through interest earned on loans to high net worth individuals, and their related commercial interests. Our senior lending and credit team consists of seasoned, experienced personnel and we believe that our officers are well versed in the types of lending in which we are engaged. Underwriting policies and decisions are managed centrally and the approval process is tiered based on loan size, making the process consistent, efficient and effective. The management team and credit culture demands prudent, practical, and conservative approaches to all credit requests in compliance with the loan policy guidelines to ensure strong credit underwriting practices. 

In addition to originating loans for our own portfolio, we conduct mortgage banking activities in which we originate and sell, servicing-released, whole loans in the secondary market. Our mortgage banking loan sales activities are primarily directed at originating single family mortgages that are priced and underwritten to conform to previously agreed 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 June 30, 2019 and December 31, 2018, we had mortgage loans held for sale of $36.3 million and $14.8 million, respectively, in residential mortgage loans we originated. 

52

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

	June 30, 2019				December 31, 2018
(Dollars in thousands)	Amount		% of Total		Amount		% of Total
Cash, Securities and Other	$	149,503	15.9	%	$	114,165	12.8	%
Construction and Development		40,826	4.4			31,897	3.5
1 - 4 Family Residential		373,836	39.8			350,852	39.3
Non-Owner Occupied CRE		152,664	16.3			173,741	19.5
Owner Occupied CRE		112,660	12.0			108,480	12.2
Commercial and Industrial		108,516	11.6			113,660	12.7
Total loans held for investment(1)	$	938,005	100.0	%	$	892,795	100.0	%
Mortgage loans held for sale	$	36,269			$	14,832

(1) Loans held for investment exclude deferred costs, net of $1.4 million and $1.2 million as of June 30, 2019 and December 31, 2018, respectively.

· Cash, Securities and Other—consists of consumer and commercial purpose loans that are primarily secured by securities managed and under custody with us, cash on deposit with us or life insurance policies. In addition, loans in this portfolio are collateralized with other sources of 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.

· 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.

53

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 loan fees, as of the date indicated are summarized in the following tables:

	As of June 30, 2019
	One Year		One Through		After
(Dollars in thousands)	or Less		Five Years		Five Years		Total
Cash, Securities and Other	$	252	$	136,199	$	13,052	$	149,503
Construction and Development		—		31,391		9,435		40,826
1 - 4 Family Residential		4,765		135,396		233,675		373,836
Non-Owner Occupied CRE		460		101,566		50,638		152,664
Owner Occupied CRE		—		41,416		71,244		112,660
Commercial and Industrial		10,958		75,381		22,177		108,516
Total loans	$	16,435	$	521,349	$	400,221	$	938,005
Amounts with fixed rates	$	3,878	$	269,149	$	145,314	$	418,341
Amounts with floating rates		12,557		252,200		254,907		519,664
Total loans	$	16,435	$	521,349	$	400,221	$	938,005

	As of December 31, 2018
	One Year		One Through		After
(Dollars in thousands)	or Less		Five Years		Five Years		Total
Cash, Securities and Other	$	13,349	$	88,544	$	12,272	$	114,165
Construction and Development		—		31,162		735		31,897
1 - 4 Family Residential		1,217		142,853		206,782		350,852
Non-Owner Occupied CRE		1,398		100,486		71,857		173,741
Owner Occupied CRE		276		40,584		67,620		108,480
Commercial and Industrial		6,583		83,570		23,507		113,660
Total loans	$	22,823	$	487,199	$	382,773	$	892,795
Amounts with fixed rates	$	1,493	$	277,418	$	162,574	$	441,485
Amounts with floating rates		21,330		209,781		220,199		451,310
Total loans	$	22,823	$	487,199	$	382,773	$	892,795

Non-Performing Assets

Non-performing assets include non-accrual loans, loans past due 90 days or more and still accruing interest, troubled debt restructurings (“TDRs”) still accruing interest, and other real estate owned (“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.

For the three months ended June 30, 2019 and 2018, the amount of lost interest for non-accrual loans was $0.1 million and an immaterial amount, respectively. For the six months ended June 30, 2019 and 2018, the amount of lost interest for non-accrual loans was $0.3 million and $0.1 million, respectively. 

We had $13.5 million in non-performing assets as of June 30, 2019 compared to $19.7 million as of December 31, 2018. The $6.2 million decrease in our non-performing assets was primarily related to a principle curtailment on a Commercial and Industrial loan for $0.4 million and principle paydowns received on a Cash, Securities, and Other loan for $5.9 million, partially offset by an increase in another Commercial and Industrial loan due to an extension of credit for $0.4 million to a borrower for operational needs. As of June 30, 2019, these loans were classified as TDRs.

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

	June 30,			December 31,
(Dollars in thousands)	2019			2018
Non-accrual loans by category
Cash, Securities and Other	$	5,107		$	11,252
Construction and Development		—			—
1 - 4 Family Residential		—			—
Non-Owner Occupied CRE		—			—
Owner Occupied CRE		—			—
Commercial and Industrial		1,035			1,735
Total non-accrual loans		6,142			12,987
TDRs still accruing		5,448			4,848
Accruing loans 90 or more days past due		1,213			1,217
Total non-performing loans		12,803			19,052
OREO		658			658
Total non-performing assets	$	13,461		$	19,710
Ratio of non-performing loans to total loans(1)		1.36	%		2.13	%
Ratio of non-performing assets to total assets		1.13	%		1.82	%
Allowance as a percentage of non-performing loans		59.17	%		39.11	%

(1) Excludes mortgage loans held for sale of $36.3 million and $14.8 million as of June 30, 2019 and December 31, 2018, 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, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk on a quarterly basis, which are segregated into 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 Company 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.

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As of June 30, 2019 and December 31, 2018 non-performing loans of $12.8 million and $19.1 million 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 June 30, 2019								As of December 31, 2018
			Special								Special
(Dollars in thousands)	Pass		Mention		Substandard		Total		Pass		Mention		Substandard		Total
Cash, Securities and Other	$	144,396	$	—	$	5,107	$	149,503	$	102,913	$	—	$	11,252	$	114,165
Construction and Development		40,826		—		—		40,826		31,897		—		—		31,897
1 - 4 Family Residential		366,577		6,046		1,213		373,836		349,635		—		1,217		350,852
Non-Owner Occupied CRE		151,020		1,184		460		152,664		165,164		8,117		460		173,741
Owner Occupied CRE		112,660		—		—		112,660		108,480		—		—		108,480
Commercial and Industrial		96,114		—		12,402		108,516		100,929		—		12,731		113,660
Total	$	911,593	$	7,230	$	19,182	$	938,005	$	859,018	$	8,117	$	25,660	$	892,795

Allowance for Loan Losses

The allowance for loan losses is established through a provision for credit losses, which is a noncash charge to earnings. Loan losses are charged against the allowance when management believes the un-collectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance for loan losses.

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

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

	As of and for the						As of and for the
	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2019			2018			2019			2018
Average loans outstanding(1)(2)	$	935,025		$	829,944		$	925,582		$	821,292
Gross loans outstanding at end of period(3)	$	939,395		$	842,644		$	939,395		$	842,644
Allowance for loan losses at beginning of period	$	7,645		$	7,100		$	7,451		$	7,287
Provision for (recovery of) loan losses		(78)			—			116			(187)
Charge-offs:
Cash, Securities and Other		—			—			—			—
Construction and Development		—			—			—			—
1 - 4 Family Residential		—			—			—			—
Non-Owner Occupied CRE		—			—			—			—
Owner Occupied CRE		—			—			—			—
Commercial and Industrial		—			—			—			—
Total charge-offs		—			—			—			—
Recoveries:
Cash, Securities and Other		8			—			8			—
Construction and Development		—			—			—			—
1 - 4 Family Residential		—			—			—			—
Non-Owner Occupied CRE		—			—			—			—
Owner Occupied CRE		—			—			—			—
Commercial and Industrial		—			—			—			—
Total recoveries		8			—			8			—
Net charge-offs (recoveries)		(8)			—			(8)			—
Allowance for loan losses at end of period	$	7,575		$	7,100		$	7,575		$	7,100
Ratio of allowance to end of period loan		0.81	%		0.84	%		0.81	%		0.84	%
Ratio of net charge-offs to average loans(1)(4)		—	%		—	%		—	%		—	%

(1) Average balances are average daily balances.

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(2) Excludes average outstanding balances of mortgage loans held for sale of $31.5 million and $31.6 million for the three months ended June 30, 2019 and 2018 and $22.4 million and $25.0 million for the six months ended June 30, 2019 and 2018, respectively.

(3) Excludes mortgage loans held for sale of $36.3 million and $35.1 million as of June 30, 2019 and June 30, 2018, respectively.

(4) 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.

	June 30, 2019				December 31, 2018
(Dollars in thousands)	Amount		% of Total(1)		Amount		% of Total(1)
Cash, Securities and Other	$	1,049	15.9	%	$	764	12.8	%
Construction and development		290	4.4			232	3.5
1 - 4 Family Residential		2,650	39.8			2,552	39.3
Non-Owner Occupied CRE		1,086	16.3			1,264	19.5
Owner Occupied CRE		800	12.0			789	12.2
Commercial and Industrial		1,700	11.6			1,850	12.7
Total allowance for loan losses	$	7,575	100.0	%	$	7,451	100.0	%

(1) Represents the percentage of loans to total loans in the respective category.

Deferred Tax Assets

Deferred tax assets represent the differences in timing of when items are recognized for GAAP purposes as opposed to tax purposes, as well as our net operating losses. As a result of the Tax Cuts and Jobs Act of 2017, our deferred tax assets are valued based on the amounts that are expected to be recovered in the future utilizing the tax rates in effect at the time recognized. As a result of book and tax basis differences, our deferred tax assets as of June 30, 2019 increased $0.3 million from December 31, 2018.

Deposits

Our deposit products include money market accounts, time-deposit accounts (typically certificates of deposit), NOW accounts (checking accounts), and saving accounts. Our accounts are federally insured by the FDIC up to the legal maximum.

Total deposits increased by $67.4 million, or 7.2%, to $1.01 billion at June 30, 2019 from December 31, 2018. Total average deposits for the three months ended June 30, 2019 were $967.2 million, an increase of $129.2 million, or 15.4%, compared to $838.0 million as of June 30, 2018.  The increase in these periods is primarily due to our general deposit growth initiatives, the cross-selling of products, the skills of our sales and service team, as well as additional deposits added from our trust and investment management relationships for which we also provide deposit products.  The increase in average rates in 2019 was driven primarily by an increase in market rates and competition.

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

	As of and For the Three Month Period Ending June 30,
	2019				2018
	Average		Average		Average		Average
(Dollars in thousands)	Balance		Rate		Balance		Rate
Deposits
Money market deposit accounts	$	496,431	1.70	%	$	335,405	1.05	%
Demand deposit accounts		69,923	0.32			77,289	0.21
Certificates and other time deposits > $250k		76,529	2.08			154,357	1.36
Certificates and other time deposits < $250k		96,131	1.80			20,066	1.00
Total time deposits		172,660	1.92			174,423	1.12
Savings accounts		2,988	0.13			1,799	—
Total interest-bearing deposits		742,002	1.61			588,916	0.96
Noninterest-bearing accounts		225,153				249,085
Total deposits	$	967,155	1.24	%	$	838,001	0.67	%
	As of and For the Six Month Period Ending June 30,
	2019				2018
	Average		Average		Average		Average
(Dollars in thousands)	Balance		Rate		Balance		Rate
Deposits
Money market deposit accounts	$	507,778	1.66	%	$	329,339	0.93	%
Demand deposit accounts		65,262	0.26			76,350	0.18
Certificates and other time deposits > $250k		77,317	1.90			157,100	1.36
Certificates and other time deposits < $250k		98,272	1.78			27,427	1.00
Total time deposits		175,589	1.83			184,527	1.05
Savings accounts		2,574	0.08			1,799	0.11
Total interest-bearing deposits		751,203	1.57			592,015	0.87
Noninterest-bearing accounts		222,793				232,127
Total deposits	$	973,996	1.21	%	$	824,142	0.62	%

Average noninterest-bearing deposits to average total deposits was 23.3% and 29.7% for the three months ended June 30, 2019 and 2018, respectively, and 22.9% and 28.2% for the six months ended June 30, 2019 and 2018, respectively.

Our average cost of funds was 1.30% and 0.84% during the three months ended June 30, 2019 and 2018, respectively, and 0.63% and 0.40% during the six months ended June 30, 2019 and 2018, respectively. The increase in our cost of funds for 2019 from 2018 was primarily due to an increase in our average rates on interest-bearing deposits to 1.61% during the three months ended June 30, 2019 compared to 0.96% for the three months ended June 30, 2018 and to 1.57% during the six months ended June 30, 2019 compared to 0.87% for the six months ended June 30, 2018. This increase is primarily due to an increase in market rates, deposit competition and a shift in deposit mix.

Total money market accounts as of June 30, 2019 were $508.3 million, an increase of $18.8 million, or 3.8%, compared to $489.5 million as of December 31, 2018. Total time deposits as of June 30, 2019 were $176.1 million, a decrease of $2.6 million, or 1.5%, from December 31, 2018. The increase in money market deposits was primarily attributed to an increase in organic growth related to our deposit initiatives, partially offset by a reduction in brokered money market accounts. The decrease in time deposit accounts was primarily due to maturities for the three months ended June 30, 2019.

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The following table represents the amount of certificates of deposit by time remaining until maturity as of June 30, 2019:

	As of June 30, 2019
	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	$	19,029	$	13,701	$	16,592	$	24,762	$	74,084
Other		9,855		30,263		53,527		8,399		102,044
Total	$	28,884	$	43,964	$	70,119	$	33,161	$	176,128

Borrowings

We have short-term and long-term borrowing sources available to supplement deposits and meet our liquidity needs. As of June 30, 2019 and December 31, 2018,  borrowings totaled $42.6 million and $21.6 million, respectively. The table below presents balances of each of the borrowing facilities as of the dates indicated:

(Dollars in thousands)	June 30, 2019		December 31, 2018
Borrowings
FHLB Topeka borrowings	$	36,060	$	15,000
Subordinated notes		6,560		6,560
	$	42,620	$	21,560

FHLB Topeka. We have a blanket pledge and security agreement with the FHLB Topeka that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of June 30, 2019 and December 31, 2018 amounted to $532.8 million and $475.4 million, respectively. Based on this collateral and the Company’s holdings of FHLB Topeka stock, the Company was eligible to borrow an additional $332.7 million at June 30, 2019. As of June 30, 2019, the Company also had a note with FHLB Topeka of $10.0 million, which is not included in the table below.

	As of and for the
	Six Months Ended
(Dollars in thousands)	June 30, 2019
Short-term borrowings:
Maximum outstanding at any month-end during the period	$	30,925
Balance outstanding at end of period		26,060
Average outstanding during the period	$	4,182
Average interest rate during the period		2.64	%
Average interest rate at the end of the period		2.60	%

As of June 30, 2019 and December 31, 2018, we had three unsecured federal funds lines of credit with up to $10.0 million, $13.0 million, and $25.0 million, respectively, available to us under such federal funds lines.

Our borrowing facilities include various financial and other covenants, including, but not limited to, a requirement that the Bank maintains regulatory capital that is deemed “well capitalized” by federal banking agencies. As of June 30, 2019 and December 31, 2018, 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 borrowing from FHLB Topeka and from correspondent banks.

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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		Average
	Percentage for the		Percentage for the
	Three Month		Six Month
	Period Ended		Period Ended
	June 30, 2019		June 30, 2019
Sources of Funds:
Deposits:
Noninterest-bearing	19.89	%	19.65	%
Interest-bearing	65.54		66.24
FHLB	1.58		1.25
Convertible subordinated debentures	—		—
Subordinated notes	0.58		0.58
Credit note	—		—
Other liabilities	1.66		1.69
Shareholders’ equity	10.75		10.59
Total	100.00	%	100.00	%
Uses of Funds:
Total loans	81.91	%	80.95	%
Available-for-sale securities	4.67		4.56
Mortgage loans held for sale	2.78		1.98
Promissory notes from related parties	—		—
Interest-bearing deposits in other financial institutions	3.60		5.57
Noninterest-earning assets	7.04		6.94
Total	100.00	%	100.00	%
Average noninterest-bearing deposits to average deposits	23.28	%	22.87	%
Average loans to average deposits	96.68	%	95.03	%
Total interest-bearing deposits to total deposits	76.72	%	77.13	%

Our primary source of funds is interest‑bearing and noninterest‑bearing deposits, and our primary use of funds is loans and available‑for‑sale securities. 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  $5.3 million, or 4.5%, from December 31, 2018 to $122.2 million at June 30, 2019. The increase is primarily due to net income of $3.0 million and a $1.7 million decrease in the unrealized loss on our available-for-sale investments primarily due to changes in market rates. 

On June 14, 2019, the Company announced that its Board of Directors had authorized a share repurchase program under which the Company may repurchase up to 300,000 shares of its common stock. The Board of Governors of the Federal Reserve System advised the Company that it had no objection to the Company’s stock repurchase program. The repurchase program authorizes the Company to purchase its common stock from time to time in the open market (including pursuant to a “Rule 10b5-1 plan”), in block transactions, in privately negotiated transactions, through accelerated stock repurchase programs, through option or other forward transactions or otherwise, all in compliance with applicable laws and other restrictions. The program will be 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 repurchase program may be suspended or discontinued at any time without notice. We have not repurchased any stock as of June 30, 2019.

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

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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 June 30, 2019 and December 31, 2018, our holding company and Bank exceeded the minimum capital levels required by their respective regulators. At June 30, 2019 and December 31, 2018, the Bank was classified as “well capitalized”. As we continue to grow our operations and 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.

	June 30, 2019				December 31, 2018
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	92,973	10.65	%	$	87,291	10.55	%
Consolidated Company		100,024	11.41			94,335	11.35
Tier 1 capital to risk-weighted assets
Bank		92,973	10.65			87,291	10.55
Consolidated Company		100,024	11.41			94,335	11.35
Total capital to risk-weighted assets
Bank		100,697	11.53			94,906	11.47
Consolidated Company		114,309	13.04			108,510	13.06
Tier 1 capital to average assets
Bank		92,973	8.42			87,291	8.63
Consolidated Company	$	100,024	9.01	%	$	94,335	9.28	%

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 customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Commitments may expire without being utilized. Our exposure to credit 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 with respect to borrowings for the periods indicated (amounts in thousands):

	As of June 30, 2019
			More than		More than
	1 Year		1 Year but Less		3 Years but Less		5 Years
	or Less		than 3 Years		than 5 Years		or More			Total
FHLB Topeka	$	26,060	$	10,000	$	—	$	—		$	36,060
Subordinated notes		—		—		—		6,560	(1)		6,560
Total	$	26,060	$	10,000	$	—	$	6,560		$	42,620

________________________________________

(1)Reflects a contractual maturity date of December 31, 2026.

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

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	21,424	$	252,755	$	33,571	$	271,580
Standby letters of credit		25		23,833		40		23,508
Commitments to make loans to sell		83,309		—		17,207		—
Commitments to make loans		16,154		46,306		2,750		19,762

We may enter into contracts for services in the conduct of ordinary business operations, which may require payment for services to be provided in the future and may contain penalty clauses for early termination of the contracts. We do not believe these off-balance sheet arrangements have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. However, there can be no assurance that such arrangements will not have an effect on future operations.

Critical Accounting Policies

Our accounting policies and procedures are described in Note 1 - Organization and Summary of Significant Accounting Policies in the accompanying Notes to the Condensed Consolidated Financial Statements as well as the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 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 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.

62

The following tables summarize the sensitivity in net interest income and fair value of equity over the periods indicated, using a parallel ramp scenario.

	As of June 30, 2019				As of December 31, 2018
	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
200	(2.30)	%	(3.83)	%	(3.48)	%	(8.18)	%
100	(0.45)		0.04		(1.12)		(2.69)
Base	—		—		—		—
−100	2.42		(3.80)		2.74		(0.02)
−200	4.82		(14.69)		0.76		(10.68)

The model simulations as of June 30, 2019 imply that our balance sheet remained liability sensitive compared to our balance sheet as of December 31, 2018.  

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 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 June 30, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

63

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, based upon advice of 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 2018 Annual Report on Form 10-K filed with the SEC, on March 21, 2019.

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

Not applicable.

Item 3.Defaults upon Senior Securities

Not applicable.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

Not applicable.

64

Item 6.Exhibits

Exhibit No.	Description
10.1	Amended Employment Agreement dated May 2, 2019, by and between First Western Financial, Inc. and Julie Courkamp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 8, 2019).
10.2	Tenth Amendment to Business Loan Agreement, dated June 30, 2019, by and between First Western Financial, Inc. and BMO Harris Bank N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on July 30, 2019).
10.3	Third Amended and Restated Promissory Note, dated June 30, 2019, by and between First Western Financial, Inc., and BMO Harris Bank N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on July 30, 2019).
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*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

*     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.

65

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.
August 8, 2019	By:	/s/ Scott C. Wylie
Date		Scott C. Wylie
		Chairman, Chief Executive Officer and President
August 8, 2019	By:	/s/ Julie A. Courkamp
Date		Julie A. Courkamp
		Chief Financial Officer and Treasurer

66

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 act 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)) 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) [Paragraph omitted in accordance with Exchange Act Rule 13a‑14(a)];

(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:   August 8, 2019	/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 act 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)) 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) [Paragraph omitted in accordance with Exchange Act Rule 13a‑14(a)];

(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.

ovembero
Date:   August 8, 2019	/s/ Julie A. Courkamp
	Julie A. Courkamp
	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 June 30, 2019, 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:   August 8, 2019	/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 June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Julie A. Courkamp, 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:   August 8, 2019	/s/ Julie A. Courkamp
	Julie A. Courkamp
	Chief Financial Officer and Treasurer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 06, 2019
Document And Entity Information Abstract
Entity Registrant Name	First Western Financial Inc
Entity Central Index Key	0001327607
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-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		7,983,866
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Cash and cash equivalents:
Cash and due from banks	$ 1,974	$ 1,574
Interest-bearing deposits in other financial institutions	90,795	71,783
Total cash and cash equivalents	92,769	73,357
Available-for-sale securities	51,698	43,695
Correspondent bank stock, at cost	1,649	2,488
Mortgage loans held for sale	36,269	14,832
Loans, net of allowance of $7,575 and $7,451	931,820	886,515
Premises and equipment, net	5,683	6,100
Accrued interest receivable	3,184	2,844
Accounts receivable	4,718	4,492
Other receivables	872	1,391
Other real estate owned, net	658	658
Goodwill	23,239	24,811
Other intangible assets, net	88	402
Deferred tax assets, net	4,607	4,306
Company-owned life insurance	14,898	14,709
Other assets	18,313	3,724
Total assets	1,190,465	1,084,324
Deposits:
Noninterest-bearing	229,266	202,856
Interest-bearing	775,911	734,902
Total deposits	1,005,177	937,758
Borrowings:
Federal Home Loan Bank Topeka borrowings	36,060	15,000
Subordinated Notes	6,560	6,560
Accrued interest payable	274	231
Other liabilities	20,237	7,900
Total liabilities	1,068,308	967,449
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock - no par value; 1,000,000 shares authorized; 0 issued and outstanding
Convertible preferred stock - no par value; 150,000 shares authorized; 0 shares issued and outstanding
Common stock - no par value; 10,000,000 shares authorized; 7,983,866 and 7,968,420 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
Additional paid-in capital	142,095	141,359
Accumulated deficit	(19,933)	(23,199)
Accumulated other comprehensive loss	(5)	(1,285)
Total shareholders’ equity	122,157	116,875
Total liabilities and shareholders’ equity	$ 1,190,465	$ 1,084,324

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Allowance for loans	$ 7,575	$ 7,451
Preferred Stock, par value (in dollars per share)	$ 0	$ 0
Preferred Stock, shares authorized	1,000,000	1,000,000
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	10,000,000	10,000,000
Common Stock, shares issued	7,983,866	7,968,420
Common Stock, shares outstanding	7,983,866	7,968,420
Series D
Preferred Stock, par value (in dollars per share)	$ 0	$ 0
Preferred Stock, shares authorized	150,000	150,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Interest and dividend income:
Loans, including fees	$ 10,600	$ 9,074	$ 20,818	$ 17,676
Investment securities	331	281	641	558
Federal funds sold and other	243	150	765	277
Total interest and dividend income	11,174	9,505	22,224	18,511
Interest expense:
Deposits	2,995	1,411	5,904	2,571
Other borrowed funds	219	517	389	1,003
Total interest expense	3,214	1,928	6,293	3,574
Net interest income	7,960	7,577	15,931	14,937
Less: (recovery of) provision for credit losses	(78)		116	(187)
Net interest income, after (recovery of) provision for credit losses	8,038	7,577	15,815	15,124
Non-interest income:
Trust and investment management fees	4,693	4,689	9,363	9,643
Net gain on mortgage loans sold	3,262	1,359	4,718	2,610
Bank fees	341	455	630	1,065
Risk management and insurance fees	194	284	662	667
Income on company-owned life insurance	96	105	189	199
Total non-interest income	8,586	6,892	15,562	14,184
Total income before non-interest expense	16,624	14,469	31,377	29,308
Non-interest expense:
Salaries and employee benefits	7,699	7,660	15,317	15,840
Occupancy and equipment	1,398	1,527	2,805	3,012
Professional services	1,036	1,008	1,813	1,832
Technology and information systems	1,016	1,000	2,085	2,063
Data processing	742	687	1,429	1,327
Marketing	441	316	719	601
Amortization of other intangible assets	142	230	315	460
Goodwill impairment	1,572		1,572
Other	613	656	1,206	1,235
Total non-interest expense	14,659	13,084	27,261	26,370
Income before income taxes	1,965	1,385	4,116	2,938
Income tax expense	561	337	1,085	704
Net income	1,404	1,048	3,031	2,234
Preferred stock dividends		(562)		(1,123)
Net income available to common shareholders	$ 1,404	$ 486	$ 3,031	$ 1,111
Earnings per common share:
Basic	$ 0.18	$ 0.08	$ 0.39	$ 0.19
Diluted	$ 0.18	$ 0.08	$ 0.39	$ 0.19

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 1,404	$ 1,048	$ 3,031	$ 2,234
Other comprehensive income (loss) items:
Net change in unrealized gains (losses) on available-for-sale securities	981	(140)	2,043	(846)
Income tax effects	(253)	192	(528)	173
Total other comprehensive income (loss)	728	52	1,515	(673)
Comprehensive income	$ 2,132	$ 1,100	$ 4,546	$ 1,561

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands	Preferred Stock	Convertible Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Accumulated Other Comprehensive Income (loss)	Total
Balance at Beginning at Dec. 31, 2017				$ 130,070	$ (27,296)	$ (928)	$ 101,846
Balance at Beginning (in shares) at Dec. 31, 2017	20,868	41,000	5,833,456
Increase (Decrease) in Stockholders' Equity
Net income					2,234		2,234
Issuance of common stock, net of issuance costs				1,909			1,909
Issuance of common stock (in shares)			67,242
Reclassification of unrealized loss on equity securities					(41)	41
Other comprehensive loss, net of tax						(714)	(714)
Settlement of share awards				(181)			(181)
Settlement of share awards (in shares)			16,969
Stock-based compensation				987			987
Preferred stock dividends					(1,123)		(1,123)
Balance at Ending at Jun. 30, 2018				132,785	(26,226)	(1,601)	104,958
Balance at Ending (in shares) at Jun. 30, 2018	20,868	41,000	5,917,667
Balance at Beginning at Mar. 31, 2018				132,520	(26,712)	(1,653)	104,155
Balance at Beginning (in shares) at Mar. 31, 2018	20,868	41,000	5,900,698
Increase (Decrease) in Stockholders' Equity
Net income					1,048		1,048
Issuance of common stock, net of issuance costs				(181)			(181)
Issuance of common stock (in shares)			16,969
Other comprehensive loss, net of tax						52	52
Stock-based compensation				446			446
Preferred stock dividends					(562)		(562)
Balance at Ending at Jun. 30, 2018				132,785	(26,226)	(1,601)	104,958
Balance at Ending (in shares) at Jun. 30, 2018	20,868	41,000	5,917,667
Balance at Beginning at Dec. 31, 2018				141,359	(23,199)	(1,285)	116,875
Balance at Beginning (in shares) at Dec. 31, 2018			7,968,420
Increase (Decrease) in Stockholders' Equity
Net income					3,031		3,031
Adoption of ASU 2018-02 - Reclassification of stranded tax effect					235	(235)	235
Other comprehensive loss, net of tax						1,515	1,515
Settlement of share awards				(110)			(110)
Settlement of share awards (in shares)			15,446
Stock-based compensation				846			846
Balance at Ending at Jun. 30, 2019				142,095	(19,933)	(5)	122,157
Balance at Ending (in shares) at Jun. 30, 2019			7,983,866
Balance at Beginning at Mar. 31, 2019				141,738	(21,337)	(733)	119,668
Balance at Beginning (in shares) at Mar. 31, 2019			7,968,420
Increase (Decrease) in Stockholders' Equity
Net income					1,404		1,404
Other comprehensive loss, net of tax						728	728
Settlement of share awards				(110)			(110)
Settlement of share awards (in shares)			15,446
Stock-based compensation				467			467
Balance at Ending at Jun. 30, 2019				$ 142,095	$ (19,933)	$ (5)	$ 122,157
Balance at Ending (in shares) at Jun. 30, 2019			7,983,866

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Parenthetical) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Consolidated Statements of Shareholders’ Equity
Common stock issuance costs	$ 7

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities
Net income	$ 3,031	$ 2,234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,011	1,150
Deferred income tax expense	288	1,016
Stock-based compensation	846	987
Provision for (recovery of) credit losses	116	(187)
Net amortization of investment securities	71	107
Stock dividends received on correspondent bank stock	(19)	(76)
Increase in cash surrender value of company-owned life insurance	(189)	(199)
Net gain on mortgage loans sold	(4,718)	(2,610)
Origination of mortgage loans held for sale	(175,236)	(244,645)
Proceeds from mortgage loans sold	158,479	235,061
Loss on impairment of goodwill	1,572
Net changes in operating assets and liabilities:
Accounts receivable	(226)	88
Accrued interest receivable and other assets	(2,584)	(729)
Accrued interest payable and other liabilities	(35)	(858)
Net cash used in operating activities	(17,593)	(8,661)
Activity in available-for-sale securities:
Maturities, prepayments, and calls	3,831	9,556
Purchases	(10,390)
Purchases of correspondent bank stock	(1,237)	(3,646)
Redemption of correspondent bank stock	2,095	1,800
Purchases of premises and equipment	(280)	(168)
Payments received on promissory notes from related parties		3,701
Loan and note receivable originations and principal collections, net	(45,383)	(28,885)
Net cash used in investing activities	(51,364)	(17,642)
Cash flows from financing activities
Net change in deposits	67,419	27,625
Proceeds from issuance of common stock, net		1,909
Settlement of restricted stock	(110)	(181)
Dividends paid on preferred stock		(1,123)
Payments to Federal Home Loan Bank Topeka borrowings	(46,286)	(126,200)
Proceeds from Federal Home Loan Bank Topeka borrowings	67,346	173,235
Net cash provided by financing activities	88,369	75,265
Net change in cash and cash equivalents	19,412	48,962
Cash and cash equivalents, beginning of year	73,357	9,502
Cash and cash equivalents, end of period	92,769	58,464
Supplemental cash flow information:
Interest paid on deposits and borrowed funds	6,250	3,540
Income tax payment, net of refunds received	630	517
Cash paid for amounts included in the measurement of lease liabilities	2,738
Supplemental noncash disclosures:
Available-for-sale-reclass of equity securities		703
Adoption of ASU 2018-02 - Reclassification of stranded tax effects	235
Reclass of unrealized loss on equity securities		$ 52
Lease right-of-use-asset obtained in exchange for lease liabilities	$ 16,580

XML

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2019

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”).

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”), First Western Capital Management Company (“FWCM”), 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 customers principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins and Vail Valley), Arizona (Phoenix and Scottsdale), California (Century City, Los Angeles) 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 selling 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, 2018 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2018.

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 six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the full year ending December 31, 2019. 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, 2018 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.

Concentration of Credit Risk:  Most of the Company’s lending activity is to customers located in and around Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. At June 30, 2019 and December 31, 2018,  72.0% and 73.6%, 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.

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. Performance based incentive fees are earned with respect to investment management contracts for the three and six month periods ended June 30, 2019 and the year ended December 31, 2018 were immaterial. Receivables are recorded on the condensed consolidated balance sheet 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 statement of operations for the three and six months ended June 30, 2019 are considered in scope of Topic 606.

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.

Adoption of new accounting standards: The following reflect recent accounting pronouncements that have been adopted by the Company since the end of the Company’s fiscal year ended December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 requires both types of leases to be recognized on the balance sheet. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Upon adoption of ASU 2016-02 with its March 31, 2019 Quarterly Report on Form 10-Q for the three months ended March 31, 2019, the Company recorded a right-of-use asset and related lease liability. We elected the modified retrospective transition approach. We also elected and applied the package of practical expedients whereby we will not reassess prior to the effective date (i) whether any expired contracts contain leases, (ii) the lease classification for any existing or expired lease, and (iii) initial direct costs of any existing leases. See Note 5 – Leases, for further information.   

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) (“ASU 2017-08”). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. ASU 2017-08 became effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 was effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects a pending pronouncement with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2018.

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 loan losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 will be effective for most public companies on January 1, 2020. On July 17, 2019, the FASB voted to delay CECL implementation for certain companies including smaller reporting companies as defined by the SEC. The Company is designated as a smaller reporting company with the SEC. The proposed delay by FASB is subject to a 30-day comment period so the Company will determine if CECL is delayed during the third quarter of 2019.  During the second quarter of 2019, 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 on beginning to evaluate 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. 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.

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2019

INVESTMENT SECURITIES

INVESTMENT SECURITIES

NOTE 2 - INVESTMENT SECURITIES

The following presents the amortized cost and fair value of securities available‑for‑sale, with gross unrealized gains and losses recognized in accumulated other comprehensive income as of June 30, 2019 and December 31, 2018 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2019	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	5	$	—	$	255
Government National Mortgage Association mortgage-backed securities—residential (“GNMA”)		38,529		273		(265)		38,537
Federal National Mortgage Association mortgage-backed securities—residential (“FNMA”)		3,546		8		(61)		3,493
Securities issued by U.S. government sponsored entities and agencies		4,300		1		(8)		4,293
Corporate collateralized mortgage obligations (“CMO”) and mortgage-backed securities (“MBS”)		5,058		74		(12)		5,120
Total securities available-for-sale	$	51,683	$	361	$	(346)	$	51,698

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		35,591		8		(1,597)		34,002
FNMA		4,076		2		(208)		3,870
Securities issued by U.S. government sponsored entities and agencies		4,525		—		(223)		4,302
Corporate CMO and MBS		1,281		1		(11)		1,271
Total securities available-for-sale	$	45,723	$	11	$	(2,039)	$	43,695

At June 30, 2019, 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
June 30, 2019	Cost		Value
Due within one year through five years	$	555	$	560
Securities (agency and CMO)		51,128		51,138
Total	$	51,683	$	51,698

At June 30, 2019 and December 31, 2018, securities with carrying values totaling $5.1 million and $5.4 million, respectively, were pledged to secure various public deposits and credit facilities of the Company.

At June 30, 2019 and December 31, 2018, 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.

At June 30, 2019 and December 31, 2018,  twelve securities and thirty-three securities, respectively were in an unrealized loss position, with unrealized losses totaling $0.3 million and $2.0 million, respectively. Twelve of the securities in an unrealized loss position at June 30, 2019 have been in a continuous unrealized loss position for more than twelve months, and the remaining securities in a loss position 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 at June 30, 2019.

The following table summarizes securities with unrealized losses at June 30, 2019 and December 31, 2018, 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
June 30, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		—		—		16,139		(265)		16,139		(265)
FNMA		—		—		2,918		(61)		2,918		(61)
Securities issued by U.S. government sponsored entities and agencies		—		—		3,988		(8)		3,988		(8)
Corporate CMO and MBS		1,179		(12)		60		—		1,239		(12)
Total	$	1,179	$	(12)	$	23,105	$	(334)	$	24,284	$	(346)

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		201		—		32,696		(1,597)		32,897		(1,597)
FNMA		436		(3)		3,215		(205)		3,651		(208)
Securities issued by U.S. government sponsored entities and agencies		—		—		4,302		(223)		4,302		(223)
Corporate CMO and MBS		1,145		(9)		63		(2)		1,208		(11)
Total	$	1,782	$	(12)	$	40,276	$	(2,027)	$	42,058	$	(2,039)

The Company did not sell any securities during the three and six months ended June 30, 2019.  

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2019

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):

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	149,503	$	114,165
Construction and Development		40,826		31,897
1-4 Family Residential		373,836		350,852
Non-Owner Occupied CRE		152,664		173,741
Owner Occupied CRE		112,660		108,480
Commercial and Industrial		108,516		113,660
Total loans		938,005		892,795
Deferred costs, net		1,390		1,171
Allowance for loan losses		(7,575)		(7,451)
Loans, net	$	931,820	$	886,515

The following presents, by class, an aging analysis of the recorded investments (excluding accrued interest receivable, deferred loan fees and deferred costs which are not material) in loans past due as of June 30, 2019 and December 31, 2018 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
June 30, 2019	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	—	$	—	$	—	$	—	$	149,503	$	149,503
Construction and Development		—		—		—		—		40,826		40,826
1-4 Family Residential		—		497		1,213		1,710		372,126		373,836
Non-Owner Occupied CRE		—		460		—		460		152,204		152,664
Owner Occupied CRE		—		—		—		—		112,660		112,660
Commercial and Industrial		—		2,300		—		2,300		106,216		108,516
Total	$	—	$	3,257	$	1,213	$	4,470	$	933,535	$	938,005

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2018	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	331	$	—	$	11,252	$	11,583	$	102,582	$	114,165
Construction and Development		—		—		—		—		31,897		31,897
1-4 Family Residential		—		—		1,217		1,217		349,635		350,852
Non-Owner Occupied CRE		567		—		—		567		173,174		173,741
Owner Occupied CRE		—		—		—		—		108,480		108,480
Commercial and Industrial		—		—		1,735		1,735		111,925		113,660
Total	$	898	$	—	$	14,204	$	15,102	$	877,693	$	892,795

At June 30, 2019 and December 31, 2018, the Company had a 1‑4 Family Residential loan totaling $1.2 million, which was more then 90 days delinquent and accruing interest.

Non‑Accrual Loans and Troubled Debt Restructurings (“TDR”)

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

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	5,107	$	11,252
Construction and Development		—		—
1-4 Family Residential		—		—
Non-Owner Occupied CRE		—		—
Owner Occupied CRE		—		—
Commercial and Industrial		1,035		1,735
Total	$	6,142	$	12,987

At June 30, 2019 and December 31, 2018, the non‑accrual loans listed above were classified as TDR with a recorded investment totaling $6.1 million and $13.0 million, respectively. Non‑accrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

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

	June 30,		December 31,
	2019		2018
Cash, Securities, and Other	$	5,107	$	11,252
Commercial and Industrial		6,483		6,583
Total	$	11,590	$	17,835
Allowance for loan associated with TDR		(940)		(940)
Net recorded investment	$	10,650	$	16,895

At June 30, 2019, the Company extended an additional $0.4 million to a Commercial and Industrial borrower with a loan classified as a TDR for operational needs. The majority owner for this borrower provided $1.5 million of pledged cash as collateral in exchange for this additional funding. At December 31, 2018, 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 into a TDR for the three and six months ended June 30, 2019 and June 30, 2018. The Company modified two loans into a TDR for the year ended December 31, 2018.

For the six months ended June 30, 2019, a $5.1 million Cash, Securities and Other loan, which was classified as a TDR and not accruing interest, was making payments in accordance with its modified terms including additional paydowns. For the year ended December 31, 2018, this loan was not making payments in accordance with the original contract terms. The loan was placed on non-accrual status and classified as a TDR during the year ended December 31, 2018. The loan was making payments as agreed for the three and six months ended June 30, 2018.

One loan classified as Commercial and Industrial of $5.4 million, which was accruing interest and classified as a TDR at June 30, 2019 and December 31, 2018, was making payments in accordance with its modified terms for the three and six months ended June 30, 2019 and the year ended December 31, 2018. The loan was also making payments as agreed for the three and six months ended June 30, 2018.

The other Commercial and Industrial loan of $1.0 million that was classified as a TDR and not accruing interest at June 30, 2019 and December 31, 2018 was making payments in accordance with its modified terms for the three and six months ended June 30, 2019 and the year ended December 31, 2018. For the three and six months ended June 30, 2018, this loan was classified as a TDR and was not making payments in accordance with the modified terms.

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):

	June 30, 2019						December 31, 2018
			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:
Commercial and Industrial	$	1,035	$	1,035	$	940	$	1,735	$	1,735	$	940
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,448	$	5,448	$	—	$	4,848	$	4,848	$	—
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	11,768	$	11,768	$	—	$	16,100	$	16,100	$	—
Total impaired loans:
Commercial and Industrial	$	6,483	$	6,483	$	940	$	6,583	$	6,583	$	940
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	12,803	$	12,803	$	940	$	17,835	$	17,835	$	940

The recorded investment in loans in the previous tables excludes accrued interest and deferred loan fees and costs 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 June 30, 2019 and 2018 are included in the table below (in thousands):

	Three Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,235	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,268	$	68	$	—	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	13,722	$	94	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,503	$	68	$	1,835	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	14,957	$	94	$	1,835	$	—

The average balance of impaired loans and interest income recognized on impaired loans during the six months ended June 30, 2019 and 2018 are included in the table below (in thousands):

	Six Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,398	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,131	$	188	$	—	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	14,615	$	239	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,529	$	188	$	1,835	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	16,013	$	239	$	1,835	$	—

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 June 30, 2019
Beginning balance	$	877	$	266	$	2,588	$	1,235	$	780	$	1,899	$	7,645
Provision for (recovery of) credit losses		164		24		62		(149)		20		(199)		(78)
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Changes in allowance for loan losses for the six months ended June 30, 2019
Beginning balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Provision for (recovery of) credit losses		277		58		98		(178)		11		(150)		116
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Allowance for loan losses at June 30, 2019 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		1,049		290		2,650		1,086		800		760		6,635
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Loans at June 30, 2019, evaluated for impairment:
Individually	$	5,107	$	—	$	1,213	$	—	$	—	$	6,483	$	12,803
Collectively		144,396		40,826		372,623		152,664		112,660		102,033		925,202
Ending balance	$	149,503	$	40,826	$	373,836	$	152,664	$	112,660	$	108,516	$	938,005

	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 June 30, 2018
Beginning balance	$	969	$	228	$	2,334	$	1,313	$	724	$	1,532	$	7,100
Provision for (recovery of) credit losses		(35)		(1)		(377)		(114)		(98)		625		—
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Changes in allowance for loan losses for the six months ended June 30, 2018
Beginning balance	$	1,066	$	202	$	2,283	$	1,433	$	751	$	1,552	$	7,287
Provision for (recovery of) credit losses		(132)		25		(326)		(234)		(125)		605		(187)
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Allowance for loan losses at December 31, 2018 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		764		232		2,552		1,264		789		910		6,511
Ending balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Loans at December 31, 2018, evaluated for impairment:
Individually	$	11,252	$	—	$	—	$	—	$	—	$	6,583	$	17,835
Collectively		102,913		31,897		350,852		173,741		108,480		107,077		874,960
Ending balance	$	114,165	$	31,897	$	350,852	$	173,741	$	108,480	$	113,660	$	892,795

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 as to 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 Company 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 June 30, 2019 and December 31, 2018 (in thousands):

			Special
June 30, 2019	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	144,396	$	—	$	5,107	$	149,503
Construction and Development		40,826		—		—		40,826
1-4 Family Residential		366,577		6,046		1,213		373,836
Non-Owner Occupied CRE		151,020		1,184		460		152,664
Owner Occupied CRE		112,660		—		—		112,660
Commercial and Industrial		96,114		—		12,402		108,516
Total	$	911,593	$	7,230	$	19,182	$	938,005

			Special
December 31, 2018	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	102,913	$	—	$	11,252	$	114,165
Construction and Development		31,897		—		—		31,897
1-4 Family Residential		349,635		—		1,217		350,852
Non-Owner Occupied CRE		165,164		8,117		460		173,741
Owner Occupied CRE		108,480		—		—		108,480
Commercial and Industrial		100,929		—		12,731		113,660
Total	$	859,018	$	8,117	$	25,660	$	892,795

The Company had no loans graded doubtful as of June 30, 2019 and December 31, 2018.

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GOODWILL

6 Months Ended

Jun. 30, 2019

Goodwill.

Goodwill

NOTE 4 – GOODWILL

Changes in the carrying amount of goodwill were as follows:

	Wealth		Capital
	Management		Management		Consolidated
Balance at December 31, 2018	$	15,994	$	8,817	$	24,811
Impairment		-		(1,572)		(1,572)
Balance at June 30, 2019	$	15,994	$	7,245	$	23,239

Goodwill is tested annually for impairment on October 31 or earlier upon the occurrence of certain events.  During the second quarter of 2019, the Company received an unsolicited offer to purchase its Los Angeles-based fixed income team, a portion of the Capital Management reporting unit. The Company determined the sale of a portion of this reporting unit would benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units.  At June 30, 2019, the Company determined that it was more likely than not that it would sign this agreement to dispose of a portion of this reporting unit.

Although the agreement to sell a portion of the Capital Management reporting unit did not meet the held for sale criteria at June 30, 2019, it did represent an event affecting a specific reporting unit and the Company proceeded to perform an interim impairment test for Capital Management reporting unit.  As part of the qualitative assessment, it did indicate that it was more likely than not that the carrying value of the Capital Management reporting unit exceeded its fair value. Therefore, the Company proceeded to Step 1 of the interim goodwill impairment test.

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 Step 2 of the impairment test. As such, the Company elected to perform a valuation of the Capital Management reporting unit at June 30, 2019.

To estimate the fair value of our reporting units, an independent valuation specialist assisted us and we used an income approach, specifically a discounted cash flow methodology, and a market approach. The discounted cash flow methodology includes assumptions for forecasted revenues, growth rates, discount rates, and market multiples, which all require significant judgment and estimates by management and are inherently uncertain.  The fair value did not exceed the carrying value of the Capital Management reporting unit as of June 30, 2019.  During the first half of 2019, the growth in revenue has not been realized at previously forecasted levels for the Capital Management reporting unit.  The Company has focused on revenue growth in the more core areas in Wealth Management and Mortgage.  Our outlook for the Capital Management reporting unit has declined driven by the lower market penetration and slower growth in assets under management which has negatively impacted our near-term earnings outlook for this reporting unit.  The sale would put the team into a group with distribution capabilities and a structure to support them.  As such, this has caused a downward revision for our forecast on current and projected cash flows for the Capital Management reporting unit which resulted in a lower fair value for the six months ended June 30, 2019.

Therefore, we conducted Step 2 of the goodwill impairment test for the Capital Management reporting unit. Step 2 requires that we allocate the fair value of the reporting unit to identifiable assets and liabilities of the reporting unit. Any residual fair value after this allocation is compared to the goodwill balance and any excess goodwill is charged to expense. As a result of our two step evaluation, we recorded a goodwill impairment loss of $1.6 million for the three months ended June 30, 2019 in the Capital Management reporting unit. After the impairment charge, there was $7.2 million of goodwill remaining in the Capital Management reporting unit. 

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LEASES

6 Months Ended

Jun. 30, 2019

LEASES

LEASES

NOTE 5 – LEASES

A lease is defined as a contract that conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company adopted ASC 842 on January 1, 2019 and recorded an initial right-of-use asset and related lease liability of $12.9 million and $16.6 million, respectively. There was no cumulative effect upon adoption.

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 2025. Certain properties contain portions that are subleased with terms that extend through 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 sheet. The Company elected to not include short-term leases with initial terms of twelve months or less, on the condensed consolidated balance sheet.

		June 30,
		2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,591
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	15,063

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.

	June 30,
	2019
Weighted-Average Remaining Lease Term
Operating leases	5.26	years
Weighted-Average Discount Rate
Operating leases	3.70	%

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 following table represents the Company’s net lease costs.

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Lease Costs
Operating lease cost	$	789	$	1,572
Variable lease cost		385		773
Sublease income		(100)		(199)
Lease costs, net	$	1,074	$	2,146

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the first five years and total amounts thereafter as of June 30, 2019.

	Operating Leases
Twelve Months Ended
June 30, 2020	$	3,707
June 30, 2021		3,061
June 30, 2022		2,709
June 30, 2023		2,567
June 30, 2024		2,248
Thereafter		2,319
Total Future Minimum Lease Payments	$	16,611
Less: Imputed interest		(1,548)
Present Value of Net Future Minimum Lease Payments	$	15,063

The following presents minimum lease payments due pursuant to the leases as of December 31, 2018 for the years indicated.

Year	Operating Leases
2019	$	3,570
2020		3,374
2021		2,815
2022		2,675
2023		2,358
Thereafter		3,446
	$	18,238

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DEPOSITS

6 Months Ended

Jun. 30, 2019

DEPOSITS

DEPOSITS

NOTE 6 - DEPOSITS

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

	June 30,		December 31,
	2019		2018
Money market deposit accounts	$	508,263	$	489,506
Time deposits		176,128		178,743
Negotiable order of withdrawal accounts		88,687		64,853
Savings accounts		2,833		1,800
Total interest bearing deposits	$	775,911	$	734,902
Aggregate time deposits of $250,000 or greater	$	74,084	$	83,550

Overdraft balances classified as loans totaled $0.1 million and $0.3 million at June 30, 2019 and December 31, 2018, respectively.

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BORROWINGS

6 Months Ended

Jun. 30, 2019

BORROWINGS

BORROWINGS

NOTE 7 - BORROWINGS

FHLB Topeka Borrowings

The Bank has executed a blanket pledge and security agreement with the Federal Home Loan Bank (“FHLB”) Topeka that requires certain loans and securities be pledged as collateral for any outstanding borrowings under the agreement. The collateral pledged as of June 30, 2019 and December 31, 2018 amounted to $532.8 million and $475.4 million, respectively. Based on this collateral and the Company’s holdings of FHLB Topeka stock, the Company was eligible to borrow an additional $332.7 million at June 30, 2019. Each advance is payable at its maturity date.

The Company had the following borrowings from FHLB Topeka at the dates noted (in thousands):

		June 30,		December 31,
Maturity Date	Rate %	2019		2018
August 2, 2019	2.55	$	26,060	$	5,000
August 26, 2020	1.94		10,000		10,000
Total		$	36,060	$	15,000

The Bank has borrowing capacity associated with three unsecured federal funds lines of credit up to $10.0 million, $13.0 million, and $25.0 million. As of June 30, 2019 and December 31, 2018, there were no amounts outstanding on any of the federal funds lines.

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 15 – Regulatory Capital Matters). As of June 30, 2019 and December 31, 2018, the Company was in compliance with the covenant requirements.

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COMMITMENTS AND COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2019

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 8 – COMMITMENTS AND CONTINGENCIES

The Bank 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 customers. 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 Bank’s exposure to credit loss is represented by the contractual amount of these commitments, although material losses are not anticipated. The Bank 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):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	21,424	$	252,755	$	33,571	$	271,580
Standby letters of credit		25		23,833		40		23,508
Commitments to make loans to sell		83,309		—		17,207		—
Commitments to make loans		16,154		46,306		2,750		19,762

Unused lines of credit are agreements to lend to a customer 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 Bank, is based on management’s credit evaluation of the customer.

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 customers. 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 Bank is committed.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer 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 customers. The Bank holds collateral supporting those commitments if deemed necessary.

Commitments to make loans to sell are agreements to sell a loan to an investor in the secondary market for which the interest rate has been locked with the customer, 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 customer, 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, 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, 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

6 Months Ended

Jun. 30, 2019

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 program 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 stock repurchase program. The repurchase program authorizes the Company to purchase its common stock from time to time in privately negotiated transactions, in the open market, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 plan promulgated by the Securities and Exchange Commissions, or otherwise in a manner that complies with applicable federal securities laws. The program will be 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 repurchase program may be suspended or discontinued at any time without notice. We have not repurchased any stock as of June 30, 2019.

During the six months ended June 30, 2019 the Company sold no shares of common stock. During the three months ended June 30, 2018, the Company sold 67,242 shares of its common stock through a Private Placement Memorandum resulting in proceeds to the Company of $1.9 million (net of issuance costs of $0.1 million). During the three and six months ended June 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units.

Restricted Stock Awards

As of June 30, 2019, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. During the three months ended June 30, 2019 and 2018, the Company has recognized compensation expense of $0.1 million for the Restricted Stock Awards, respectively. During the six months ended June 30, 2019 and 2018, the Company has recognized compensation expense of $0.2 million for the Restricted Stock Awards, respectively. As of June 30, 2019, the Company has $2.5 million of unrecognized stock-based compensation expense related to the shares issued. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 3.25 years.  No Restricted Stock Awards vested during the three and six months ended June 30, 2019.

Stock‑Based Compensation Plans

As of June 30, 2019, there were a total of 626,907 shares available for issuance under the First Western Financial, Inc. 2016 Omnibus Inventive Plan (“the 2016 Plan”). If the Awards outstanding under the First Western 2008 Stock Incentive Plan (“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 six months ended June 30, 2019 and 2018.

During the three months ended June 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.1 million and $0.1 million, respectively, associated with stock options. During the six months ended June 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.2 million and $0.3 million, respectively, associated with stock options. As of June 30, 2019, the Company has $0.4million of unrecognized stock‑based compensation expense related to stock options which are unvested. As of  June 30, 2019, the unrecognized cost is expected to be recognized over a weighted‑average period of approximately one year.

The following summarizes activity for nonqualified stock options for the six months ended June 30, 2019:

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding at beginning of year	465,947	$	28.84
Granted	—		—
Exercised	—		—
Forfeited or expired	(23,850)		26.25
Outstanding at end of period	442,097	$	28.98	4.0	(a)
Options fully vested / exercisable at June 30, 2019	388,216	$	29.59	3.7	(a)

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

As of June 30, 2019 and December 31, 2018, there were 388,216 and 402,872 options, respectively, 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. During the six months ended June 30, 2019, the Company granted certain associates restricted stock units which are earned over time or based on various performance measures and convert to common stock upon vesting, which are summarized here and expanded further below.

The following summarizes the activity for the Time Vesting Units, the Financial Performance Units and the Market Performance Units for the six months ended June 30, 2019:

	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding at beginning of year	184,369	15,932	17,258
Granted	71,127	59,536	-
Vested	(23,281)	-	-
Forfeited	(16,318)	(4,603)	(1,512)
Outstanding at end of period	215,897	70,865	15,746

During the three and six month period ended June 30, 2019, the Company issued 15,446 shares of common stock upon the settlement of Time Vesting Units. The remaining 7,835 shares were surrendered with a combined market value at the dates of settlement of $0.1 million to cover employee withholding taxes. During the three and six month period ended June 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units. The remaining 6,313 shares were surrendered with a combined market value at the dates of settlement of $0.2 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 3,779 Time Vesting Units with a five‑year service period in the six months ended June 30, 2019 that vest in equal installments of 50% on the third and fifth anniversaries of the grant date, assuming continuous employment through the scheduled vesting dates. The Company granted 67,348 Time Vesting Units with a five year service period in the six months ended June 30, 2019 that vest in equal installments of 20% on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates. Time Vesting Units granted in 2019 have a weighted‑average grant‑date fair value of $13.80 per unit. During the three months ended June 30, 2019 and 2018, the Company recognized compensation expense of $0.2 million and $0.2 million, respectively, for Time Vesting Units. As During the six months ended June 30, 2019 and 2018, the Company recognized compensation expense of $0.4 million and $0.5 million, respectively, for Time Vesting Units. As of June 30, 2019, there was $4.1 million of unrecognized compensation expense related to Time Vesting Units. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of approximately 2.4 years.

Financial Performance Units Granted Prior to 2019

Financial Performance Units were granted to certain key associates and are earned based on the Company achieving various financial performance metrics beginning on the grant date and ending on December 31, 2019. 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 two‑year service period vesting requirement ending on December 31, 2021. As of June 30, 2019, the Company is accruing at the maximum threshold for 50% of the awards and at 50% for the remainder. The maximum shares that can be issued at 150% as of June 30, 2019 was approximately 22,000 shares. During the three and six months ended June 30, 2019and 2018, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of June 30, 2019, there was $0.2 million of unrecognized compensation expense related to the Financial Performance Units. As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 2.5 years.

Financial Performance Units Granted in 2019

On May 1, 2019, the Company granted an additional 59,536 Financial Performance Units to officers and other key employees. All Financial Performance Units granted on May 1, 2019, have a ten-year term and are earned based on the Company achieving various financial metrics beginning on the grant date and ending on December 31, 2021, which include various thresholds from 0% to 150%, then the Financial Performance Units will have a subsequent two-year service period vesting requirement ending on December 31, 2023. As of June 30, 2019, the Company is accruing at the maximum threshold for 50% of the awards and at 50% for the remainder. The maximum shares that can be issued at 150% as of June 30, 2019 was approximately 84,300 shares.During the three months ended June 30, 2019, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of June 30, 2019, there was $0.7 million of unrecognized compensation expense related to the Financial Performance Units.  As of June 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 4.5 years.

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. If the Company’s common stock is trading at or above certain prices, over a performance period ending on June 30, 2020, the Market Performance Units will be determined to be earned and vest following the completion of a subsequent service period ending on June 30, 2022.

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 six months ended June 30, 2019, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of June 30, 2019, 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 3.0 years.

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EARNINGS PER COMMON SHARE

6 Months Ended

Jun. 30, 2019

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 (amounts in thousands, except share and per share amounts):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Earnings per common share - Basic
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Earnings per common share - basic	$	0.18	$	0.08	$	0.39	$	0.19
Earnings per common share - Diluted
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Diluted effect of common stock equivalents:
Stock options		—		32,643		—		31,291
Time Vesting Units		2,044		13,958		2,062		22,261
Financial Performance Units		—		16,355		—		9,758
Market Performance Units		13,049		—		13,448		—
Restricted Stock Awards		—		6,579		—		5,264
Total diluted effect of common stock equivalents		15,093		69,535		15,510		68,574
Diluted weighted average shares		7,897,092		5,981,421		7,893,374		5,960,037
Earnings per common share - diluted	$	0.18	$	0.08	$	0.39	$	0.19

Diluted earnings per share was computed without consideration to potentially dilutive instruments as their inclusion would have been anti‑dilutive. As of June 30, 2019 and 2018, potentially dilutive securities excluded from the diluted earnings per share calculation are as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Stock options	442,097	207,700	445,947	211,450
Convertible Preferred D shares	—	151,700	—	151,700
Time Vesting Units	198,611	—	179,301	—
Financial Performance Units	70,865	—	42,998	—
Market Performance Units	—	—	—	—
Restricted Stock Awards	94,736	—	94,736	—
Total potentially dilutive securities	806,309	359,400	762,982	363,150

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INCOME TAXES

6 Months Ended

Jun. 30, 2019

INCOME TAXES

INCOME TAXES

NOTE 11 - INCOME TAXES

During the three and six months ended June 30, 2019, the Company recorded an income tax provision of $0.5 million and $1.1 million, respectively, reflecting an effective tax rate of 28.5% and 26.4%, respectively. The increase is primarily related to the vesting of Restricted Stock Units during the three months ended June 30, 2019.    During the three and six months ended June 30, 2018, the Company recorded an income tax provision of $0.3 million and $0.7 million, respectively, reflecting an effective tax rate of 24.3% and 24.0%, respectively.  

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RELATED-PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2019

RELATED-PARTY TRANSACTIONS

RELATED-PARTY TRANSACTIONS

NOTE 12 – RELATED‑PARTY TRANSACTIONS

The Bank granted loans to principal officers and directors and their affiliates, all of whom are deemed related parties. At June 30, 2019 and December 31, 2018, there were no delinquent or non‑performing loans to any officer or director of the Company. The following presents a summary of related‑party loan activity as of the dates noted (in thousands):

	June 30, 2019		December 31, 2018
Balance, beginning of year	$	2,659	$	14,077
Funded loans		5,623		1,466
Payments collected		(2,588)		(9,386)
Changes in related parties		—		(3,498)
Balance, end of year	$	5,694	$	2,659

Deposits from related parties held by the Bank at June 30, 2019 and December 31, 2018 totaled $47.7 million and $36.7 million, respectively.

The Company leases office space from an entity controlled by one of the Company’s board members. During the six months ended June 30, 2019 and 2018, the Company incurred an immaterial amount of expense related to this lease.

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FAIR VALUE

6 Months Ended

Jun. 30, 2019

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.

There were no transfers between levels during the six months ended June 30, 2019 and 2018. 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).

Interest Rate Locks and Forward Delivery Commitments:  Fair values of these mortgage derivatives are estimated based on changes in mortgage interest rates from the date the commitment related to the loan is locked. The fair value estimate is based on valuation models using market data from secondary market loan sales and direct contacts with third party investors as of the measurement date (Level 2).

Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument are accounted for within the condensed consolidated statements of income.

The following presents assets measured on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	255	$	—	$	—	$	255
GNMA		—		38,537		—		38,537
FNMA		—		3,493		—		3,493
Securities issued by US. Government sponsored entities and agencies		—		4,293		—		4,293
Corporate CMO and MBS		—		5,120		—		5,120
Total securities available-for-sale	$	255	$	51,443	$	—	$	51,698
Equity securities	$	712	$	—	$	—	$	712
Interest rate lock and forward delivery commitments	$	—	$	739	$	—	$	739

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		—		34,002		—		34,002
FNMA		—		3,870		—		3,870
Securities issued by US. Government sponsored entities and agencies		—		4,302				4,302
Corporate CMO and MBS		—		1,271		—		1,271
Total securities available-for-sale	$	250	$	43,445	$	—	$	43,695
Equity securities	$	693	$	—	$	—	$	693
Interest rate lock and forward delivery commitments	$	—	$	890	$	—	$	890

Equity securities and U.S. Treasury debt are 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 June 30, 2019 and December 31, 2018, the majority of the securities have 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 June 30, 2019, equity securities have been recorded at fair value within the other assets line item in the condensed consolidated balance sheet with changes recorded in the other line item in the condensed consolidated statement of income.

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. They are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than on an annual basis. Appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between comparable sales and income data available. Such adjustments can be significant and typically result in Level 3 classifications of the inputs for determining fair value. Other real estate owned is evaluated monthly 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 quarterly 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 measured on a nonrecurring basis as of June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	95	$	95

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	795	$	795

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

At June 30, 2019, other real estate owned remained unchanged from December 31, 2018 and had a carrying amount of $0.7 million, which is the cost basis of $2.4 million net of a valuation allowance of $1.7 million.

At June 30, 2019, total impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $1.0 million with valuation allowances of $0.9 million and were classified as Level 3. As of December 31, 2018, impaired loans measured for impairment using the fair value of the collateral for collateral dependent loans had carrying values of $1.7 million with valuation allowances of $0.9 million and were classified as Level 3. Impaired loans valued using a discounted cash flow analyses were not deemed to be at fair value at June 30, 2019 and December 31, 2018.

Impaired loans accounted for provisions for loan losses of $0 for each of the three and six months ended June 30, 2019.

The following presents carrying amounts and estimated fair values for financial instruments as of June 30, 2019 and December 31, 2018 (in thousands):

	Carrying		Fair Value Measurements Using:
June 30, 2019	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	92,769	$	92,769	$	—	$	—
Securities available-for-sale		51,698		255		51,443		—
Loans, net		931,820		—		—		912,965
Mortgage loans held for sale		36,269		—		36,269		—
Accrued interest receivable		3,184		—		3,184		—
Other assets		712		712		—		—
Liabilities:
Deposits	$	1,005,177	$	—	$	1,008,032	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		36,060		—		36,022		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,217
Accrued interest payable		274		—		274		—

	Carrying		Fair Value Measurements Using:
December 31, 2018	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	73,357	$	73,357	$	—	$	—
Securities available-for-sale		43,695		250		43,445		—
Loans, net		886,515		—		—		868,828
Mortgage loans held for sale		14,832		—		14,832		—
Accrued interest receivable		2,844		—		2,844		—
Other assets		693		693		—		—
Liabilities:
Deposits	$	937,758	$	—	$	940,039	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		15,000		—		14,833		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,434
Accrued interest payable		231		—		231		—

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 effective January 1, 2018 on a prospective basis.

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SEGMENT REPORTING

6 Months Ended

Jun. 30, 2019

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 14 - SEGMENT REPORTING

The Company’s reportable segments consist of Wealth Management, Capital Management, and Mortgage. The chief operating decision maker (“CODM”) is the Chief Executive Officer. The measure of profit or loss used by the CODM to identify and measure the Company’s reportable segments is income before income tax.

The Wealth Management segment consists of operations relative to the Company’s fully integrated wealth management products and services. Services provided include deposit, loan, insurance, and trust and investment management advisory products and services.

The Capital Management segment consists of operations relative to the Company’s institutional investment management services over proprietary fixed income, high yield, and equity strategies, including the advisor of three listed mutual funds. Capital Management products and services are financial in nature for which revenues are based on a percentage of assets under management or paid premiums.

The Mortgage segment consists of operations relative to the Company’s residential mortgage service offerings. Mortgage products and services are financial in nature for which premiums are recognized net of expenses, upon the sale of mortgage loans to third parties.

The tables below present the financial information for each segment that is specifically identifiable or based on allocations using internal methods for the three and six months ended June 30, 2019 and 2018 (in thousands):

Three Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	11,174	$	—		$	—	$	11,174
Total interest expense		3,214		—			—		3,214
Provision for loan losses		(78)		—			—		(78)
Net interest income		8,038		—			—		8,038
Non-interest income		4,512		798			3,276		8,586
Total income		12,550		798			3,276		16,624
Depreciation and amortization expense		301		95			73		469
All other non-interest expense		10,432		2,313	(1)		1,445		14,190
Income (loss) before income tax	$	1,817	$	(1,610)		$	1,758	$	1,965
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Three Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	9,505	$	—	$	—	$	9,505
Total interest expense		1,928		—		—		1,928
Provision for loan losses		-		—		—		-
Net interest income		7,577		—		—		7,577
Non-interest income		4,680		845		1,367		6,892
Total income		12,257		845		1,367		14,469
Depreciation and amortization expense		321		132		124		577
All other non-interest expense		10,025		1,080		1,402		12,507
Income (loss) before income tax	$	1,911	$	(367)	$	(159)	$	1,385
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

Six Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	22,224	$	-		$	-	$	22,224
Total interest expense		6,293		-			-		6,293
Provision for loan losses		116		-			-		116
Net-interest income		15,815		-			-		15,815
Non-interest income		9,244		1,563			4,755		15,562
Total income		25,059		1,563			4,755		31,377
Depreciation and amortization expense		632		226			138		996
All other non-interest expense		20,499		3,008	(1)		2,758		26,265
Income before income tax	$	3,928	$	(1,671)		$	1,859	$	4,116
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

_______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Six Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	18,511	$	—	$	—	$	18,511
Total interest expense		3,574		—		—		3,574
Provision for loan losses		(187)		—		—		(187)
Net-interest income		15,124		—		—		15,124
Non-interest income		9,844		1,706		2,634		14,184
Total income		24,968		1,706		2,634		29,308
Depreciation and amortization expense		641		262		247		1,150
All other non-interest expense		20,165		2,276		2,779		25,220
Income before income tax	$	4,162	$	(832)	$	(392)	$	2,938
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

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REGULATORY CAPITAL MATTERS

6 Months Ended

Jun. 30, 2019

REGULATORY CAPITAL MATTERS

REGULATORY CAPITAL MATTERS

NOTE 15 - REGULATORY CAPITAL MATTERS

The Bank is 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, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off‑balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification is 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”) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi‑year schedule, and fully phased in by January 1, 2019. The net unrealized gain or loss on available‑for‑sale securities is not included in computing regulatory capital. Management believes as of June 30, 2019, the Bank meets all capital adequacy requirements to which it is subject to.

Prompt corrective action regulations for 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 the Bank’s primary regulators to measure capital require the Bank to maintain minimum amounts and ratios. These ratios are common equity Tier 1 capital (“CET 1”), 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).

Actual capital ratios of the Bank, along with the applicable regulatory capital requirements as of June 30, 2019, which were calculated in accordance with the requirements of Basel III, became effective January 1, 2015. The final rules of Basel III also established a “capital conservation buffer” of 2.5% above new regulatory minimum capital ratios, that are fully effective in 2019, and resulted in the following minimum ratios: (i) a CET 1 ratio of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement began phasing in, in January 2016 at 0.625% of risk‑weighted assets and increased each year until fully implemented in January 2019. An institution is 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 will establish a maximum percentage of eligible retained income that can be utilized for such activities. At June 30, 2019, required ratios including the capital conservation buffer were (i) CET 1 of 7.0%; (ii) a Tier 1 capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%.

As of June 30, 2019 and December 31, 2018, the most recent filings with the Federal Deposit Insurance Corporation (“FDIC”) categorized the Bank as well capitalized under the regulatory guidelines. To be categorized as well capitalized, an institution must maintain minimum CET 1 risk‑based, Tier 1 risk‑based, total risk‑based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since June 30, 2019,  that the Company believes have changed the categorization of the Bank as well capitalized. Management believes the Bank met all capital adequacy requirements to which it was subject to as of June 30, 2019 and December 31, 2018.

The following presents the actual and required capital amounts and ratios as of June 30, 2019 and December 31, 2018 (in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
June 30, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	92,973	10.65	%	$	39,293	4.5	%	$	56,756	6.5	%
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		92,973	10.65			52,391	6.0			69,854	8.0
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		100,697	11.53			69,854	8.0			87,318	10.0
Consolidated		114,309	13.04			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		92,973	8.42			44,186	4.0			55,232	5.0
Consolidated		100,024	9.01			N/A	N/A			N/A	N/A

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	87,291	10.55	%	$	37,240	4.5	%	$	53,791	6.5	%
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		87,291	10.55			49,653	6.0			66,204	8.0
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		94,906	11.47			66,204	8.0			82,755	10.0
Consolidated		108,510	13.06			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		87,291	8.63			40,459	4.0			50,574	5.0
Consolidated		94,335	9.28			N/A	N/A			N/A	N/A

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 16 – SUBSEQUENT EVENTS

On July 19, 2019, the Company entered into an agreement to sell the Company’s Los Angeles-based fixed income portfolio management team, a portion of the Capital Management reporting unit, to Lido Advisors, LLC and Oakhurst Advisors, LLC in exchange for cash consideration of $0.5 million and contingent consideration. The contingent consideration is based on certain percentages of asset-based revenues generated over three to five years subsequent to the closing date, subject to quarterly minimum and maximum amounts.

The Company expects the sale to benefit the Company by optimizing the cost structure and freeing up capital and resources to strengthen the Wealth Management and Mortgage reporting units.  The transaction is expected to close in the third quarter of 2019.

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2019

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”).

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”), First Western Capital Management Company (“FWCM”), 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 customers principally in Colorado (metro Denver, Aspen, Boulder, Fort Collins and Vail Valley), Arizona (Phoenix and Scottsdale), California (Century City, Los Angeles) 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 selling 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, 2018 condensed consolidated balance sheet has been derived from the audited financial statements for the year ended December 31, 2018.

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 six months ended June 30, 2019 are not necessarily indicative of results that may be expected for the full year ending December 31, 2019. 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, 2018 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.

Concentration of Credit Risk

Concentration of Credit Risk:  Most of the Company’s lending activity is to customers located in and around Denver, Colorado; Phoenix and Scottsdale, Arizona; and Jackson Hole, Wyoming. The Company does not believe it has significant concentrations in any one industry or customer. At June 30, 2019 and December 31, 2018,  72.0% and 73.6%, 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.

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. Performance based incentive fees are earned with respect to investment management contracts for the three and six month periods ended June 30, 2019 and the year ended December 31, 2018 were immaterial. Receivables are recorded on the condensed consolidated balance sheet 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 statement of operations for the three and six months ended June 30, 2019 are considered in scope of Topic 606.

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.

Adoption of new accounting standards: The following reflect recent accounting pronouncements that have been adopted by the Company since the end of the Company’s fiscal year ended December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 requires both types of leases to be recognized on the balance sheet. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Upon adoption of ASU 2016-02 with its March 31, 2019 Quarterly Report on Form 10-Q for the three months ended March 31, 2019, the Company recorded a right-of-use asset and related lease liability. We elected the modified retrospective transition approach. We also elected and applied the package of practical expedients whereby we will not reassess prior to the effective date (i) whether any expired contracts contain leases, (ii) the lease classification for any existing or expired lease, and (iii) initial direct costs of any existing leases. See Note 5 – Leases, for further information.   

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) (“ASU 2017-08”). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. ASU 2017-08 became effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 was effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.

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. Performance based incentive fees are earned with respect to investment management contracts for the three and six month periods ended June 30, 2019 and the year ended December 31, 2018 were immaterial. Receivables are recorded on the condensed consolidated balance sheet 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 statement of operations for the three and six months ended June 30, 2019 are considered in scope of Topic 606.

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.

Adoption of new accounting standards and Recently issued accounting pronouncements, not yet adopted

Adoption of new accounting standards: The following reflect recent accounting pronouncements that have been adopted by the Company since the end of the Company’s fiscal year ended December 31, 2018.

In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP, which requires only capital leases to be recognized on the balance sheet, ASU 2016-02 requires both types of leases to be recognized on the balance sheet. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. Upon adoption of ASU 2016-02 with its March 31, 2019 Quarterly Report on Form 10-Q for the three months ended March 31, 2019, the Company recorded a right-of-use asset and related lease liability. We elected the modified retrospective transition approach. We also elected and applied the package of practical expedients whereby we will not reassess prior to the effective date (i) whether any expired contracts contain leases, (ii) the lease classification for any existing or expired lease, and (iii) initial direct costs of any existing leases. See Note 5 – Leases, for further information.   

In March 2017, the FASB issued ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20) (“ASU 2017-08”). ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium. Prior to the issuance of this guidance, premiums were amortized as an adjustment of yield over the contractual life of the instrument. ASU 2017-08 requires premiums on purchased callable debt securities that have explicit, non-contingent call features that are callable at fixed prices to be amortized to the earliest call date. There are no accounting changes for securities held at a discount. ASU 2017-08 became effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. ASU 2017-12 was effective for the Company on January 1, 2019 and did not have a significant impact on the financial statements and disclosures.  

In February 2018, the FASB issued ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) (“ASU 2018-02”). ASU 2018-02 allows an entity to elect to reclassify the stranded tax effects related to the Tax Cuts and Jobs Act of 2017 from accumulated other comprehensive income into retained earnings. ASU 2018-02 was effective for the Company beginning January 1, 2019 and did not have a significant impact on the financial statements and disclosures.

Recently issued accounting pronouncements, not yet adopted:  The following reflects a pending pronouncement with an update to the expected impact since the end of the Company’s fiscal year ended December 31, 2018.

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 loan losses as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 will be effective for most public companies on January 1, 2020. On July 17, 2019, the FASB voted to delay CECL implementation for certain companies including smaller reporting companies as defined by the SEC. The Company is designated as a smaller reporting company with the SEC. The proposed delay by FASB is subject to a 30-day comment period so the Company will determine if CECL is delayed during the third quarter of 2019.  During the second quarter of 2019, 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 on beginning to evaluate 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. 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.

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INVESTMENT SECURITIES (Tables)

6 Months Ended

Jun. 30, 2019

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 gross unrealized gains and losses recognized in accumulated other comprehensive income as of June 30, 2019 and December 31, 2018 (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
June 30, 2019	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	5	$	—	$	255
Government National Mortgage Association mortgage-backed securities—residential (“GNMA”)		38,529		273		(265)		38,537
Federal National Mortgage Association mortgage-backed securities—residential (“FNMA”)		3,546		8		(61)		3,493
Securities issued by U.S. government sponsored entities and agencies		4,300		1		(8)		4,293
Corporate collateralized mortgage obligations (“CMO”) and mortgage-backed securities (“MBS”)		5,058		74		(12)		5,120
Total securities available-for-sale	$	51,683	$	361	$	(346)	$	51,698

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		35,591		8		(1,597)		34,002
FNMA		4,076		2		(208)		3,870
Securities issued by U.S. government sponsored entities and agencies		4,525		—		(223)		4,302
Corporate CMO and MBS		1,281		1		(11)		1,271
Total securities available-for-sale	$	45,723	$	11	$	(2,039)	$	43,695

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

	Amortized		Fair
June 30, 2019	Cost		Value
Due within one year through five years	$	555	$	560
Securities (agency and CMO)		51,128		51,138
Total	$	51,683	$	51,698

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 at June 30, 2019 and December 31, 2018, 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
June 30, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		—		—		16,139		(265)		16,139		(265)
FNMA		—		—		2,918		(61)		2,918		(61)
Securities issued by U.S. government sponsored entities and agencies		—		—		3,988		(8)		3,988		(8)
Corporate CMO and MBS		1,179		(12)		60		—		1,239		(12)
Total	$	1,179	$	(12)	$	23,105	$	(334)	$	24,284	$	(346)

	Less than 12 Months				12 Months or Longer				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury debt	$	—	$	—	$	—	$	—	$	—	$	—
GNMA		201		—		32,696		(1,597)		32,897		(1,597)
FNMA		436		(3)		3,215		(205)		3,651		(208)
Securities issued by U.S. government sponsored entities and agencies		—		—		4,302		(223)		4,302		(223)
Corporate CMO and MBS		1,145		(9)		63		(2)		1,208		(11)
Total	$	1,782	$	(12)	$	40,276	$	(2,027)	$	42,058	$	(2,039)

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2019

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):

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	149,503	$	114,165
Construction and Development		40,826		31,897
1-4 Family Residential		373,836		350,852
Non-Owner Occupied CRE		152,664		173,741
Owner Occupied CRE		112,660		108,480
Commercial and Industrial		108,516		113,660
Total loans		938,005		892,795
Deferred costs, net		1,390		1,171
Allowance for loan losses		(7,575)		(7,451)
Loans, net	$	931,820	$	886,515

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 loan fees and deferred costs which are not material) in loans past due as of June 30, 2019 and December 31, 2018 (in thousands):

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
June 30, 2019	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	—	$	—	$	—	$	—	$	149,503	$	149,503
Construction and Development		—		—		—		—		40,826		40,826
1-4 Family Residential		—		497		1,213		1,710		372,126		373,836
Non-Owner Occupied CRE		—		460		—		460		152,204		152,664
Owner Occupied CRE		—		—		—		—		112,660		112,660
Commercial and Industrial		—		2,300		—		2,300		106,216		108,516
Total	$	—	$	3,257	$	1,213	$	4,470	$	933,535	$	938,005

	30-59		60-89		90 or		Total				Total
	Days		Days		More Days		Loans				Recorded
December 31, 2018	Past Due		Past Due		Past Due		Past Due		Current		Investment
Cash, Securities and Other	$	331	$	—	$	11,252	$	11,583	$	102,582	$	114,165
Construction and Development		—		—		—		—		31,897		31,897
1-4 Family Residential		—		—		1,217		1,217		349,635		350,852
Non-Owner Occupied CRE		567		—		—		567		173,174		173,741
Owner Occupied CRE		—		—		—		—		108,480		108,480
Commercial and Industrial		—		—		1,735		1,735		111,925		113,660
Total	$	898	$	—	$	14,204	$	15,102	$	877,693	$	892,795

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):

	June 30,		December 31,
	2019		2018
Cash, Securities and Other	$	5,107	$	11,252
Construction and Development		—		—
1-4 Family Residential		—		—
Non-Owner Occupied CRE		—		—
Owner Occupied CRE		—		—
Commercial and Industrial		1,035		1,735
Total	$	6,142	$	12,987

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):

	June 30,		December 31,
	2019		2018
Cash, Securities, and Other	$	5,107	$	11,252
Commercial and Industrial		6,483		6,583
Total	$	11,590	$	17,835
Allowance for loan associated with TDR		(940)		(940)
Net recorded investment	$	10,650	$	16,895

Summary of recorded investment in impaired loans

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

	June 30, 2019						December 31, 2018
			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:
Commercial and Industrial	$	1,035	$	1,035	$	940	$	1,735	$	1,735	$	940
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,448	$	5,448	$	—	$	4,848	$	4,848	$	—
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	11,768	$	11,768	$	—	$	16,100	$	16,100	$	—
Total impaired loans:
Commercial and Industrial	$	6,483	$	6,483	$	940	$	6,583	$	6,583	$	940
Cash, Securities, and Other		5,107		5,107		—		11,252		11,252		—
1-4 Family Residential		1,213		1,213		—		—		—		—
Total	$	12,803	$	12,803	$	940	$	17,835	$	17,835	$	940

The recorded investment in loans in the previous tables excludes accrued interest and deferred loan fees and costs 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 June 30, 2019 and 2018 are included in the table below (in thousands):

	Three Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,235	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,268	$	68	$	—	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	13,722	$	94	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,503	$	68	$	1,835	$	—
Cash, Securities, and Other		8,042		—		—		—
1-4 Family Residential		412		26		—		—
Total	$	14,957	$	94	$	1,835	$	—

The average balance of impaired loans and interest income recognized on impaired loans during the six months ended June 30, 2019 and 2018 are included in the table below (in thousands):

	Six Months Ended June 30,
	2019				2018
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans with a valuation allowance:
Commercial and Industrial	$	1,398	$	—	$	1,835	$	—
Impaired loans with no related valuation allowance:
Commercial and Industrial	$	5,131	$	188	$	—	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	14,615	$	239	$	—	$	—
Total impaired loans:
Commercial and Industrial	$	6,529	$	188	$	1,835	$	—
Cash, Securities, and Other		9,072		—		—		—
1-4 Family Residential		412		51		—		—
Total	$	16,013	$	239	$	1,835	$	—

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

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 June 30, 2019
Beginning balance	$	877	$	266	$	2,588	$	1,235	$	780	$	1,899	$	7,645
Provision for (recovery of) credit losses		164		24		62		(149)		20		(199)		(78)
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Changes in allowance for loan losses for the six months ended June 30, 2019
Beginning balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Provision for (recovery of) credit losses		277		58		98		(178)		11		(150)		116
Charge-offs		—		—		—		—		—		—		—
Recoveries		8		—		—		—		—		—		8
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Allowance for loan losses at June 30, 2019 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		1,049		290		2,650		1,086		800		760		6,635
Ending balance	$	1,049	$	290	$	2,650	$	1,086	$	800	$	1,700	$	7,575
Loans at June 30, 2019, evaluated for impairment:
Individually	$	5,107	$	—	$	1,213	$	—	$	—	$	6,483	$	12,803
Collectively		144,396		40,826		372,623		152,664		112,660		102,033		925,202
Ending balance	$	149,503	$	40,826	$	373,836	$	152,664	$	112,660	$	108,516	$	938,005

	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 June 30, 2018
Beginning balance	$	969	$	228	$	2,334	$	1,313	$	724	$	1,532	$	7,100
Provision for (recovery of) credit losses		(35)		(1)		(377)		(114)		(98)		625		—
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Changes in allowance for loan losses for the six months ended June 30, 2018
Beginning balance	$	1,066	$	202	$	2,283	$	1,433	$	751	$	1,552	$	7,287
Provision for (recovery of) credit losses		(132)		25		(326)		(234)		(125)		605		(187)
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		—		—		—		—		—		—
Ending balance	$	934	$	227	$	1,957	$	1,199	$	626	$	2,157	$	7,100
Allowance for loan losses at December 31, 2018 allocated to loans evaluated for impairment:
Individually	$	—	$	—	$	—	$	—	$	—	$	940	$	940
Collectively		764		232		2,552		1,264		789		910		6,511
Ending balance	$	764	$	232	$	2,552	$	1,264	$	789	$	1,850	$	7,451
Loans at December 31, 2018, evaluated for impairment:
Individually	$	11,252	$	—	$	—	$	—	$	—	$	6,583	$	17,835
Collectively		102,913		31,897		350,852		173,741		108,480		107,077		874,960
Ending balance	$	114,165	$	31,897	$	350,852	$	173,741	$	108,480	$	113,660	$	892,795

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

			Special
June 30, 2019	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	144,396	$	—	$	5,107	$	149,503
Construction and Development		40,826		—		—		40,826
1-4 Family Residential		366,577		6,046		1,213		373,836
Non-Owner Occupied CRE		151,020		1,184		460		152,664
Owner Occupied CRE		112,660		—		—		112,660
Commercial and Industrial		96,114		—		12,402		108,516
Total	$	911,593	$	7,230	$	19,182	$	938,005

			Special
December 31, 2018	Pass		Mention		Substandard			Total
Cash, Securities and Other	$	102,913	$	—	$	11,252	$	114,165
Construction and Development		31,897		—		—		31,897
1-4 Family Residential		349,635		—		1,217		350,852
Non-Owner Occupied CRE		165,164		8,117		460		173,741
Owner Occupied CRE		108,480		—		—		108,480
Commercial and Industrial		100,929		—		12,731		113,660
Total	$	859,018	$	8,117	$	25,660	$	892,795

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GOODWILL (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill.

Schedule of changes in carrying amount of goodwill

	Wealth		Capital
	Management		Management		Consolidated
Balance at December 31, 2018	$	15,994	$	8,817	$	24,811
Impairment		-		(1,572)		(1,572)
Balance at June 30, 2019	$	15,994	$	7,245	$	23,239

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LEASES (Tables)

6 Months Ended

Jun. 30, 2019

LEASES

Lease Balance Sheet Location

The following table presents the classification of the right-of-use asset and corresponding liability within the condensed consolidated balance sheet. The Company elected to not include short-term leases with initial terms of twelve months or less, on the condensed consolidated balance sheet.

		June 30,
		2019
Lease Right-of-Use Assets	Classification
Operating lease right-of-use assets	Other assets	$	11,591
Lease Liabilities	Classification
Operating lease liabilities	Other liabilities	$	15,063

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.

	June 30,
	2019
Weighted-Average Remaining Lease Term
Operating leases	5.26	years
Weighted-Average Discount Rate
Operating leases	3.70	%

Lease Costs

The following table represents the Company’s net lease costs.

	Three Months Ended		Six Months Ended
	June 30, 2019		June 30, 2019
Lease Costs
Operating lease cost	$	789	$	1,572
Variable lease cost		385		773
Sublease income		(100)		(199)
Lease costs, net	$	1,074	$	2,146

Summary of Minimum Lease Payments

The following table presents a maturity analysis of the Company’s operating lease liabilities on an annual basis for each of the first five years and total amounts thereafter as of June 30, 2019.

	Operating Leases
Twelve Months Ended
June 30, 2020	$	3,707
June 30, 2021		3,061
June 30, 2022		2,709
June 30, 2023		2,567
June 30, 2024		2,248
Thereafter		2,319
Total Future Minimum Lease Payments	$	16,611
Less: Imputed interest		(1,548)
Present Value of Net Future Minimum Lease Payments	$	15,063

Schedule of Minimum Lease Payments Due

The following presents minimum lease payments due pursuant to the leases as of December 31, 2018 for the years indicated.

Year	Operating Leases
2019	$	3,570
2020		3,374
2021		2,815
2022		2,675
2023		2,358
Thereafter		3,446
	$	18,238

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DEPOSITS (Tables)

6 Months Ended

Jun. 30, 2019

DEPOSITS

Schedule of interest bearing deposits

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

	June 30,		December 31,
	2019		2018
Money market deposit accounts	$	508,263	$	489,506
Time deposits		176,128		178,743
Negotiable order of withdrawal accounts		88,687		64,853
Savings accounts		2,833		1,800
Total interest bearing deposits	$	775,911	$	734,902
Aggregate time deposits of $250,000 or greater	$	74,084	$	83,550

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BORROWINGS (Tables)

6 Months Ended

Jun. 30, 2019

BORROWINGS

Schedule of borrowings from FHLB Topeka

The Company had the following borrowings from FHLB Topeka at the dates noted (in thousands):

		June 30,		December 31,
Maturity Date	Rate %	2019		2018
August 2, 2019	2.55	$	26,060	$	5,000
August 26, 2020	1.94		10,000		10,000
Total		$	36,060	$	15,000

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2019

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):

	June 30, 2019				December 31, 2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Unused lines of credit	$	21,424	$	252,755	$	33,571	$	271,580
Standby letters of credit		25		23,833		40		23,508
Commitments to make loans to sell		83,309		—		17,207		—
Commitments to make loans		16,154		46,306		2,750		19,762

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SHAREHOLDERS EQUITY (Tables)

6 Months Ended

Jun. 30, 2019

SHAREHOLDERS EQUITY

Schedule of summarizes activity for nonqualified stock options

				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding at beginning of year	465,947	$	28.84
Granted	—		—
Exercised	—		—
Forfeited or expired	(23,850)		26.25
Outstanding at end of period	442,097	$	28.98	4.0	(a)
Options fully vested / exercisable at June 30, 2019	388,216	$	29.59	3.7	(a)

(a) 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 at beginning of year	184,369	15,932	17,258
Granted	71,127	59,536	-
Vested	(23,281)	-	-
Forfeited	(16,318)	(4,603)	(1,512)
Outstanding at end of period	215,897	70,865	15,746

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EARNINGS PER COMMON SHARE (Tables)

6 Months Ended

Jun. 30, 2019

EARNINGS PER COMMON SHARE

Schedule of basic and diluted earning (loss) per share

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Earnings per common share - Basic
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Earnings per common share - basic	$	0.18	$	0.08	$	0.39	$	0.19
Earnings per common share - Diluted
Numerator:
Net income	$	1,404	$	1,048	$	3,031	$	2,234
Dividends on preferred stock		—		(562)		—		(1,123)
Net income available for common shareholders	$	1,404	$	486	$	3,031	$	1,111
Denominator:
Basic weighted average shares		7,881,999		5,911,886		7,877,864		5,891,463
Diluted effect of common stock equivalents:
Stock options		—		32,643		—		31,291
Time Vesting Units		2,044		13,958		2,062		22,261
Financial Performance Units		—		16,355		—		9,758
Market Performance Units		13,049		—		13,448		—
Restricted Stock Awards		—		6,579		—		5,264
Total diluted effect of common stock equivalents		15,093		69,535		15,510		68,574
Diluted weighted average shares		7,897,092		5,981,421		7,893,374		5,960,037
Earnings per common share - diluted	$	0.18	$	0.08	$	0.39	$	0.19

Schedule of Antidilutive securities

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Stock options	442,097	207,700	445,947	211,450
Convertible Preferred D shares	—	151,700	—	151,700
Time Vesting Units	198,611	—	179,301	—
Financial Performance Units	70,865	—	42,998	—
Market Performance Units	—	—	—	—
Restricted Stock Awards	94,736	—	94,736	—
Total potentially dilutive securities	806,309	359,400	762,982	363,150

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RELATED-PARTY TRANSACTIONS (Tables)

6 Months Ended

Jun. 30, 2019

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):

	June 30, 2019		December 31, 2018
Balance, beginning of year	$	2,659	$	14,077
Funded loans		5,623		1,466
Payments collected		(2,588)		(9,386)
Changes in related parties		—		(3,498)
Balance, end of year	$	5,694	$	2,659

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FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2019

FAIR VALUE

Summary of assets measured at fair value on recurring basis

The following presents assets measured on a recurring basis at June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	255	$	—	$	—	$	255
GNMA		—		38,537		—		38,537
FNMA		—		3,493		—		3,493
Securities issued by US. Government sponsored entities and agencies		—		4,293		—		4,293
Corporate CMO and MBS		—		5,120		—		5,120
Total securities available-for-sale	$	255	$	51,443	$	—	$	51,698
Equity securities	$	712	$	—	$	—	$	712
Interest rate lock and forward delivery commitments	$	—	$	739	$	—	$	739

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Investment securities available-for-sale:
U.S. Treasury debt	$	250	$	—	$	—	$	250
GNMA		—		34,002		—		34,002
FNMA		—		3,870		—		3,870
Securities issued by US. Government sponsored entities and agencies		—		4,302				4,302
Corporate CMO and MBS		—		1,271		—		1,271
Total securities available-for-sale	$	250	$	43,445	$	—	$	43,695
Equity securities	$	693	$	—	$	—	$	693
Interest rate lock and forward delivery commitments	$	—	$	890	$	—	$	890

Summary of assets measured at fair value on nonrecurring basis

The following presents assets measured on a nonrecurring basis as of June 30, 2019 and December 31, 2018 (in thousands):

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
June 30, 2019	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	95	$	95

	Quoted
	Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs		Reported
December 31, 2018	(Level 1)		(Level 2)		(Level 3)		Balance
Other real estate owned:
Commercial properties	$	—	$	—	$	658	$	658
Total impaired loans:
Commercial and industrial	$	—	$	—	$	795	$	795

Summary of carrying amounts and estimated fair values of financial instruments

The following presents carrying amounts and estimated fair values for financial instruments as of June 30, 2019 and December 31, 2018 (in thousands):

	Carrying		Fair Value Measurements Using:
June 30, 2019	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	92,769	$	92,769	$	—	$	—
Securities available-for-sale		51,698		255		51,443		—
Loans, net		931,820		—		—		912,965
Mortgage loans held for sale		36,269		—		36,269		—
Accrued interest receivable		3,184		—		3,184		—
Other assets		712		712		—		—
Liabilities:
Deposits	$	1,005,177	$	—	$	1,008,032	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		36,060		—		36,022		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,217
Accrued interest payable		274		—		274		—

	Carrying		Fair Value Measurements Using:
December 31, 2018	Amount		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	73,357	$	73,357	$	—	$	—
Securities available-for-sale		43,695		250		43,445		—
Loans, net		886,515		—		—		868,828
Mortgage loans held for sale		14,832		—		14,832		—
Accrued interest receivable		2,844		—		2,844		—
Other assets		693		693		—		—
Liabilities:
Deposits	$	937,758	$	—	$	940,039	$	—
Borrowings:
FHLB Topeka Borrowings – fixed rate		15,000		—		14,833		—
2016 Subordinated notes –  fixed-to-floating rate		6,560		—		—		6,434
Accrued interest payable		231		—		231		—

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SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2019

SEGMENT REPORTING

Schedule of segment data

Three Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	11,174	$	—		$	—	$	11,174
Total interest expense		3,214		—			—		3,214
Provision for loan losses		(78)		—			—		(78)
Net interest income		8,038		—			—		8,038
Non-interest income		4,512		798			3,276		8,586
Total income		12,550		798			3,276		16,624
Depreciation and amortization expense		301		95			73		469
All other non-interest expense		10,432		2,313	(1)		1,445		14,190
Income (loss) before income tax	$	1,817	$	(1,610)		$	1,758	$	1,965
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Three Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	9,505	$	—	$	—	$	9,505
Total interest expense		1,928		—		—		1,928
Provision for loan losses		-		—		—		-
Net interest income		7,577		—		—		7,577
Non-interest income		4,680		845		1,367		6,892
Total income		12,257		845		1,367		14,469
Depreciation and amortization expense		321		132		124		577
All other non-interest expense		10,025		1,080		1,402		12,507
Income (loss) before income tax	$	1,911	$	(367)	$	(159)	$	1,385
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

Six Months Ended June 30, 2019	Wealth Management		Capital Management			Mortgage		Consolidated
Income Statement
Total interest income	$	22,224	$	-		$	-	$	22,224
Total interest expense		6,293		-			-		6,293
Provision for loan losses		116		-			-		116
Net-interest income		15,815		-			-		15,815
Non-interest income		9,244		1,563			4,755		15,562
Total income		25,059		1,563			4,755		31,377
Depreciation and amortization expense		632		226			138		996
All other non-interest expense		20,499		3,008	(1)		2,758		26,265
Income before income tax	$	3,928	$	(1,671)		$	1,859	$	4,116
Goodwill	$	15,994	$	7,245		$	—	$	23,239
Total assets	$	1,145,910	$	9,025		$	35,530	$	1,190,465

_______________________________________________

(1) Includes goodwill impairment charge of $1.6 million.

Six Months Ended June 30, 2018	Wealth Management		Capital Management		Mortgage		Consolidated
Income Statement
Total interest income	$	18,511	$	—	$	—	$	18,511
Total interest expense		3,574		—		—		3,574
Provision for loan losses		(187)		—		—		(187)
Net-interest income		15,124		—		—		15,124
Non-interest income		9,844		1,706		2,634		14,184
Total income		24,968		1,706		2,634		29,308
Depreciation and amortization expense		641		262		247		1,150
All other non-interest expense		20,165		2,276		2,779		25,220
Income before income tax	$	4,162	$	(832)	$	(392)	$	2,938
Goodwill	$	15,994	$	8,817	$	—	$	24,811
Total assets	$	1,001,191	$	10,318	$	35,064	$	1,046,573

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REGULATORY CAPITAL MATTERS (Tables)

6 Months Ended

Jun. 30, 2019

REGULATORY CAPITAL MATTERS

Schedule of actual and required capital ratios

The following presents the actual and required capital amounts and ratios as of June 30, 2019 and December 31, 2018 (in thousands):

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
June 30, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	92,973	10.65	%	$	39,293	4.5	%	$	56,756	6.5	%
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		92,973	10.65			52,391	6.0			69,854	8.0
Consolidated		100,024	11.41			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		100,697	11.53			69,854	8.0			87,318	10.0
Consolidated		114,309	13.04			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		92,973	8.42			44,186	4.0			55,232	5.0
Consolidated		100,024	9.01			N/A	N/A			N/A	N/A

									To be Well Capitalized
									Under Prompt
					Required for Capital				Corrective Action
	Actual				Adequacy Purposes				Regulations
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Common Equity Tier 1(CET1) to risk-weighted assets
Bank	$	87,291	10.55	%	$	37,240	4.5	%	$	53,791	6.5	%
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Tier 1 capital to risk-weighted assets
Bank		87,291	10.55			49,653	6.0			66,204	8.0
Consolidated		94,335	11.35			N/A	N/A			N/A	N/A
Total capital to risk-weighted assets
Bank		94,906	11.47			66,204	8.0			82,755	10.0
Consolidated		108,510	13.06			N/A	N/A			N/A	N/A
Tier 1 capital to average assets
Bank		87,291	8.63			40,459	4.0			50,574	5.0
Consolidated		94,335	9.28			N/A	N/A			N/A	N/A

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Customer concentration | Loan portfolio
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration risk (as a percent)	72.00%	73.60%

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INVESTMENT SECURITIES - Amortized cost and fair value of securities available-for-sale (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 51,683	$ 45,723
Gross Unrealized Gains	361	11
Gross Unrealized Losses	(346)	(2,039)
Fair Value	51,698	43,695
U.S. treasury and federal agency
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	250	250
Gross Unrealized Gains	5
Fair Value	255	250
Association (“GNMA”) mortgage-backed securities – residential
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	38,529	35,591
Gross Unrealized Gains	273	8
Gross Unrealized Losses	(265)	(1,597)
Fair Value	38,537	34,002
Federal National Mortgage Association (“FNMA”) mortgage-backed securities – residential
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	3,546	4,076
Gross Unrealized Gains	8	2
Gross Unrealized Losses	(61)	(208)
Fair Value	3,493	3,870
Securities issued by U.S. government sponsored entities and agencies
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	4,300	4,525
Gross Unrealized Gains	1
Gross Unrealized Losses	(8)	(223)
Fair Value	4,293	4,302
Corporate collateralized mortgage obligations and mortgage-backed securities
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	5,058	1,281
Gross Unrealized Gains	74	1
Gross Unrealized Losses	(12)	(11)
Fair Value	$ 5,120	$ 1,271

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INVESTMENT SECURITIES - Amortized cost and estimated fair value of available-for-sale securities excluding SBIC (Details) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) security	Dec. 31, 2018 USD ($) security
Debt Securities, Available-for-sale [Line Items]
Amortized Cost	$ 51,683	$ 45,723
Fair Value	51,698	43,695
Debt available for sale securities pledged as collateral	$ 5,100	$ 5,400
Threshold Percentage Of Shareholders Equity Amount Held As Securities By One Issuer	10.00%	10.00%
Unrealized loss	$ 346	$ 2,039
Number of securities in continuous unrealized loss position for more than twelve months | security	12
Available for sale securities, excluding SBIC
Debt Securities, Available-for-sale [Line Items]
Due within one year through five years amortized cost	$ 555
Due within one year through five years fair value	560
Mortgage-related securities, amortized cost	51,128
Mortgage-related securities, fair value	51,138
Amortized Cost	51,683
Fair Value	$ 51,698
Number of securities in unrealized loss position | security	12	33

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INVESTMENT SECURITIES - Securities with unrealized losses (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	$ 1,179	$ 1,179	$ 1,782
Less than 12 months, Unrealized Losses	(12)	(12)	(12)
More than 12 months, Fair Value	23,105	23,105	40,276
More than 12 months, Unrealized Losses	(334)	(334)	(2,027)
Total Fair Value	24,284	24,284	42,058
Total Unrealized Losses	(346)	(346)	(2,039)
Sales	0	0
Association (“GNMA”) mortgage-backed securities – residential
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value			201
More than 12 months, Fair Value	16,139	16,139	32,696
More than 12 months, Unrealized Losses	(265)	(265)	(1,597)
Total Fair Value	16,139	16,139	32,897
Total Unrealized Losses	(265)	(265)	(1,597)
Federal National Mortgage Association (“FNMA”) mortgage-backed securities – residential
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value			436
Less than 12 months, Unrealized Losses			(3)
More than 12 months, Fair Value	2,918	2,918	3,215
More than 12 months, Unrealized Losses	(61)	(61)	(205)
Total Fair Value	2,918	2,918	3,651
Total Unrealized Losses	(61)	(61)	(208)
Securities issued by U.S. government sponsored entities and agencies
Debt Securities, Available-for-sale [Line Items]
More than 12 months, Fair Value	3,988	3,988	4,302
More than 12 months, Unrealized Losses	(8)	(8)	(223)
Total Fair Value	3,988	3,988	4,302
Total Unrealized Losses	(8)	(8)	(223)
Corporate collateralized mortgage obligations and mortgage-backed securities
Debt Securities, Available-for-sale [Line Items]
Less than 12 months, Fair Value	1,179	1,179	1,145
Less than 12 months, Unrealized Losses	(12)	(12)	(9)
More than 12 months, Fair Value	60	60	63
More than 12 months, Unrealized Losses			(2)
Total Fair Value	1,239	1,239	1,208
Total Unrealized Losses	$ (12)	$ (12)	$ (11)

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Summary of loans (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 938,005	$ 892,795
Deferred costs, net	1,390	1,171
Allowance for loan losses	(7,575)	(7,451)
Net loans	931,820	886,515
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	149,503	114,165
Construction and Development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	40,826	31,897
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	373,836	350,852
Non-Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	152,664	173,741
Owner Occupied CRE
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	112,660	108,480
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 108,516	$ 113,660

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Aging analysis of recorded investments by class (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	$ 4,470	$ 15,102
Total current	933,535	877,693
Total Recorded Investment	938,005	892,795
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		898
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	3,257
90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	1,213	14,204
Cash, Securities and Other
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		11,583
Total current	149,503	102,582
Total Recorded Investment	149,503	114,165
Cash, Securities and Other | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		331
Cash, Securities and Other | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		11,252
Construction and Development
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total current	40,826	31,897
Total Recorded Investment	40,826	31,897
1-4 Family Residential, Non-Owner Occupied CRE and Owner Occupied CRE
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	1,200	1,200
1-4 Family Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	1,710	1,217
Total current	372,126	349,635
Total Recorded Investment	373,836	350,852
1-4 Family Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	497
1-4 Family Residential | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	1,213	1,217
Non-Owner Occupied CRE
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	460	567
Total current	152,204	173,174
Total Recorded Investment	152,664	173,741
Non-Owner Occupied CRE | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		567
Non-Owner Occupied CRE | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	460
Owner Occupied CRE
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total current	112,660	108,480
Total Recorded Investment	112,660	108,480
Commercial and Industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	2,300	1,735
Total current	106,216	111,925
Total Recorded Investment	108,516	113,660
Commercial and Industrial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due	$ 2,300
Commercial and Industrial | 90 or More Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total past due		$ 1,735

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in non-accrual loans by class (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 6,142	$ 12,987
Recorded investments	6,100	13,000
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	5,107	11,252
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 1,035	$ 1,735

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Summary of unpaid principal balance of loans classified as TDRs (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($) loan	Jun. 30, 2019 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans classified as TDRs		$ 11,590
Total Recorded Investment	$ 17,835	12,803
Allowance for loan associated with TDR	(940)	(940)
Net recorded investment	$ 16,895	10,650
Additional funds to loans classified as TDRs		400
Cash collateral received		1,500
Number of contracts modified | loan	2
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans classified as TDRs		5,107
Total Recorded Investment	$ 11,252	5,107
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Recorded Investment		1,213
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans classified as TDRs		6,483
Total Recorded Investment	6,583	6,483
Allowance for loan associated with TDR	(940)	(940)
Investment accruing interest	5,400	5,400
Investment non-accruing interest	$ 1,000	$ 1,000

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in impaired loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded Investment With No Allowance	$ 11,768		$ 11,768		$ 16,100
Impaired Financing Receivable, Recorded Investment, Total	12,803		12,803		17,835
Unpaid Contractual Principal Balance with No Allowance	11,768		11,768		16,100
Impaired Financing Receivable, Unpaid Principal Balance, Total	12,803		12,803		17,835
Allowance for Loan Losses	940		940		940
Average Recorded Investment with No Allowance	13,722		14,615
Average Recorded Investment	14,957	$ 1,835	16,013	$ 1,835
Interest Income Recognized with No Allowance	94		239
Interest Income Recognized	94		239
Commercial and Industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded Investment With Allowance	1,035		1,035		1,735
Recorded Investment With No Allowance	5,448		5,448		4,848
Impaired Financing Receivable, Recorded Investment, Total	6,483		6,483		6,583
Unpaid Contractual Principal Balance with Allowance	1,035		1,035		1,735
Unpaid Contractual Principal Balance with No Allowance	5,448		5,448		4,848
Impaired Financing Receivable, Unpaid Principal Balance, Total	6,483		6,483		6,583
Allowance for Loan Losses	940		940		940
Average Recorded Investment with Allowance	1,235	1,835	1,398	1,835
Average Recorded Investment with No Allowance	5,268		5,131
Average Recorded Investment	6,503	$ 1,835	6,529	$ 1,835
Interest Income Recognized with No Allowance	68		188
Interest Income Recognized	68		188
Cash, Securities and Other
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded Investment With No Allowance	5,107		5,107		11,252
Impaired Financing Receivable, Recorded Investment, Total	5,107		5,107		11,252
Unpaid Contractual Principal Balance with No Allowance	5,107		5,107		11,252
Impaired Financing Receivable, Unpaid Principal Balance, Total	5,107		5,107		$ 11,252
Average Recorded Investment with No Allowance	8,042		9,072
Average Recorded Investment	8,042		9,072
1-4 Family Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Recorded Investment With No Allowance	1,213		1,213
Impaired Financing Receivable, Recorded Investment, Total	1,213		1,213
Unpaid Contractual Principal Balance with No Allowance	1,213		1,213
Impaired Financing Receivable, Unpaid Principal Balance, Total	1,213		1,213
Average Recorded Investment with No Allowance	412		412
Average Recorded Investment	412		412
Interest Income Recognized with No Allowance	26		51
Interest Income Recognized	$ 26		$ 51

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Allowance for loan losses by portfolio (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	$ 7,645	$ 7,100	$ 7,451	$ 7,287
Provision for (recovery of) credit losses	(78)		116	(187)
Recoveries			8
Ending balance	7,575	7,100	7,575	7,100
Individually evaluated	940		940		$ 6,511
Collectively evaluated	6,635		6,635		940
Loans individually evaluated	12,803		12,803		17,835
Loans collectively evaluated	925,202		925,202		874,960
Total Recorded Investment	938,005		938,005		892,795
Cash, Securities and Other
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	877	969	764	1,066
Provision for (recovery of) credit losses	164	(35)	277	(132)
Recoveries			8
Ending balance	1,049	934	1,049	934
Individually evaluated					764
Collectively evaluated	1,049		1,049
Loans individually evaluated	5,107		5,107		11,252
Loans collectively evaluated	144,396		144,396		102,913
Total Recorded Investment	149,503		149,503		114,165
Construction and Development
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	266	228	232	202
Provision for (recovery of) credit losses	24	(1)	58	25
Ending balance	290	227	290	227
Individually evaluated					232
Collectively evaluated	290		290
Loans collectively evaluated	40,826		40,826		31,897
Total Recorded Investment	40,826		40,826		31,897
1-4 Family Residential
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	2,588	2,334	2,552	2,283
Provision for (recovery of) credit losses	62	(377)	98	(326)
Ending balance	2,650	1,957	2,650	1,957
Individually evaluated					2,552
Collectively evaluated	2,650		2,650
Loans individually evaluated	1,213		1,213
Loans collectively evaluated	372,623		372,623		350,852
Total Recorded Investment	373,836		373,836		350,852
Non-Owner Occupied CRE
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,235	1,313	1,264	1,433
Provision for (recovery of) credit losses	(149)	(114)	(178)	(234)
Ending balance	1,086	1,199	1,086	1,199
Individually evaluated					1,264
Collectively evaluated	1,086		1,086
Loans collectively evaluated	152,664		152,664		173,741
Total Recorded Investment	152,664		152,664		173,741
Owner Occupied CRE
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	780	724	789	751
Provision for (recovery of) credit losses	20	(98)	11	(125)
Ending balance	800	626	800	626
Individually evaluated					789
Collectively evaluated	800		800
Loans collectively evaluated	112,660		112,660		108,480
Total Recorded Investment	112,660		112,660		108,480
Commercial and Industrial
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Beginning balance	1,899	1,532	1,850	1,552
Provision for (recovery of) credit losses	(199)	625	(150)	605
Ending balance	1,700	$ 2,157	1,700	$ 2,157
Individually evaluated	940		940		910
Collectively evaluated	760		760		940
Loans individually evaluated	6,483		6,483		6,583
Loans collectively evaluated	102,033		102,033		107,077
Total Recorded Investment	$ 108,516		$ 108,516		$ 113,660

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LOANS AND THE ALLOWANCE FOR LOAN LOSSES - Recorded investment in company's loans (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 938,005	$ 892,795
Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	911,593	859,018
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans	7,230	8,117
Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	19,182	25,660
Cash, Securities and Other
Financing Receivable, Recorded Investment [Line Items]
Total loans	149,503	114,165
Cash, Securities and Other | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	144,396	102,913
Cash, Securities and Other | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	5,107	11,252
Construction and Development
Financing Receivable, Recorded Investment [Line Items]
Total loans	40,826	31,897
Construction and Development | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	40,826	31,897
1-4 Family Residential
Financing Receivable, Recorded Investment [Line Items]
Total loans	373,836	350,852
1-4 Family Residential | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	366,577	349,635
1-4 Family Residential | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans	6,046
1-4 Family Residential | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	1,213	1,217
Non-Owner Occupied CRE
Financing Receivable, Recorded Investment [Line Items]
Total loans	152,664	173,741
Non-Owner Occupied CRE | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	151,020	165,164
Non-Owner Occupied CRE | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Total loans	1,184	8,117
Non-Owner Occupied CRE | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	460	460
Owner Occupied CRE
Financing Receivable, Recorded Investment [Line Items]
Total loans	112,660	108,480
Owner Occupied CRE | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	112,660	108,480
Commercial and Industrial
Financing Receivable, Recorded Investment [Line Items]
Total loans	108,516	113,660
Commercial and Industrial | Pass
Financing Receivable, Recorded Investment [Line Items]
Total loans	96,114	100,929
Commercial and Industrial | Substandard
Financing Receivable, Recorded Investment [Line Items]
Total loans	$ 12,402	$ 12,731

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GOODWILL - Changes in the carrying amount of goodwill (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Goodwill [Roll Forward]
Balance at beginning of period		$ 24,811
Impairment	$ (1,572)	(1,572)
Balance at end of period	23,239	23,239
Wealth Management
Goodwill [Roll Forward]
Balance at beginning of period		15,994
Balance at end of period	15,994	15,994
Capital Management
Goodwill [Roll Forward]
Balance at beginning of period		8,817
Impairment		(1,572)
Balance at end of period	$ 7,245	$ 7,245

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LEASES - Leases Balance Sheets Location (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
LEASES
Operating lease right-of-use asset	$ 11,591	$ 12,900
Financial position	us-gaap:OtherAssets
Operating lease liability	$ 15,063	$ 16,600
Financial position	us-gaap:OtherLiabilities
Weighted-average remaining lease terms - Operating leases	5 years 3 months 4 days
Weighted-average discount rate - Operating leases	3.70%

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LEASES - Leases Costs (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
LEASES
Operating lease cost	$ 789	$ 1,572
Variable lease cost	385	773
Sublease income	(100)	(199)
Lease costs, net	$ 1,074	$ 2,146

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LEASES - Lease Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 01, 2019
LEASES
June 30, 2020	$ 3,707
June 30, 2021	3,061
June 30, 2022	2,709
June 30, 2023	2,567
June 30, 2024	2,248
Thereafter	2,319
Total Future Minimum Lease Payments	16,611
Less: Imputed interest	(1,548)
Present Value of Net Future Minimum Lease Payments	$ 15,063	$ 16,600

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LEASES - Payments Due Maturities (Details) $ in Thousands	Dec. 31, 2018 USD ($)
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
2019	$ 3,570
2020	3,374
2021	2,815
2022	2,675
2023	2,358
Thereafter	3,446
Operating Leases, Future Minimum Payments Due, Total	$ 18,238

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DEPOSITS (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
DEPOSITS
Money market deposit accounts	$ 508,263	$ 489,506
Time deposits	176,128	178,743
Negotiable order of withdrawal accounts	88,687	64,853
Savings accounts	2,833	1,800
Total interest bearing deposits	775,911	734,902
Aggregate time deposits of $250,000 or greater	74,084	83,550
Overdrafts balances classified As loans	$ 100	$ 300

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BORROWINGS (Details)	6 Months Ended
	Jun. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
BORROWINGS
Number of unsecured federal funds lines of credit	3
Federal Funds Lines of Credit One
BORROWINGS
Maximum borrowing capacity	$ 10,000,000
Amount outstanding	0	$ 0
Federal Funds Lines of Credit Two
BORROWINGS
Maximum borrowing capacity	13,000,000
Amount outstanding	0	0
Federal Funds Line of Credit Three
BORROWINGS
Maximum borrowing capacity	25,000,000
Amount outstanding	0	0
FHLB Topeka
BORROWINGS
Amount of collateral pledged	532,800,000	475,400,000
Available balance	332,700,000
Borrowings from FHLB	$ 36,060,000	15,000,000
August 2, 2019
BORROWINGS
Interest rate	2.55%
Borrowings from FHLB	$ 26,060,000	5,000,000
August 26, 2020
BORROWINGS
Interest rate	1.94%
Borrowings from FHLB	$ 10,000,000	$ 10,000,000

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Unused lines of credit-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	$ 21,424	$ 33,571
Standby letters of credit-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	25	40
Commitments to make loans to sell-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	83,309	17,207
Commitments to make loans-Fixed
COMMITMENTS AND CONTINGENCIES
Other commitment	16,154	2,750
Unused lines of credit-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	252,755	271,580
Standby letters of credit-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	23,833	23,508
Commitments to make loans-Variable
COMMITMENTS AND CONTINGENCIES
Other commitment	$ 46,306	$ 19,762

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SHAREHOLDERS EQUITY - Common Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 14, 2019	Dec. 31, 2018
Class of Stock [Line Items]
Common stock par value		$ 0			$ 0
Issuance of common stock, net of issuance costs	$ (181)		$ 1,909
Common stock issuance costs			$ 7
Preferred Stock, shares outstanding		0			0
Series D
Class of Stock [Line Items]
Preferred Stock, shares outstanding		0			0
Common Stock
Class of Stock [Line Items]
Common stock par value		$ 0.00
Number of votes per each share		one
Issuance of common stock (in shares)		0
Authorized share repurchase				300,000
Common Stock | Time Vesting Units
Class of Stock [Line Items]
Issuance of common stock (in shares)	16,969		16,969
Common Stock | Private Placement
Class of Stock [Line Items]
Issuance of common stock (in shares)	67,242
Issuance of common stock, net of issuance costs	$ 1,900
Common stock issuance costs	$ 100		$ 100

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SHAREHOLDERS EQUITY - Stock based compensation - Restricted Stock Awards (Details) - Restricted Stock Awards - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted-average grant date fair value (in dollars per share)	$ 28.50		$ 28.50
Recognized compensation expense	$ 0.1	$ 0.2	$ 0.1	$ 0.2
Unrecognized compensation expense	$ 2.5		$ 2.5
Unrecognized compensation expense recognition period (in years)			3 years 3 months
Number of shares vested	0		0

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SHAREHOLDERS EQUITY - Stock based compensation - Stock Options (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options forfeited, cancelled or terminated			23,850
Stock-based compensation expense	$ 0.1	$ 0.1	$ 0.2	$ 0.3
Unrecognized stock-based compensation expense	$ 0.4		$ 0.4
Cost is expected to be recognized over a weighted-average period			1 year
Plan 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for issuance	626,907		626,907
2008 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Amount of consideration paid to the company upon plan modification			$ 0.0

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SHAREHOLDERS EQUITY - Stock based compensation - Stock Options Activity (Details) - Stock Options - $ / shares	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding at beginning of year (in shares)	465,947
Forfeited or expired (in shares)	(23,850)
Outstanding at end of period (in shares)	442,097
Options fully vested / exercisable at end of period (in shares)	388,216	402,872
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Beginning Balance	$ 28.84
Forfeited or expired (in dollars per share)	26.25
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance	28.98
Options fully vested / exercisable at June 30, 2018	$ 29.59
Weighted Average Remaining Contractual Term
Outstanding at end of year	4 years
Options fully vested / exercisable at June 30, 2018	3 years 8 months 12 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		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Stock surrendered (in shares)	7,835	6,313	7,835	6,313
Stock surrendered to cover employee withholding taxes	$ 0.1	$ 0.2	$ 0.1	$ 0.2
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			184,369
Granted (in shares)			71,127
Vested (in shares)			(23,281)
Forfeited (in shares)			(16,318)
Outstanding at end of year	215,897		215,897
Stock issued (in shares)	15,446	16,969	15,446	16,969
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			15,932
Granted (in shares)			59,536
Forfeited (in shares)			(4,603)
Outstanding at end of year	70,865		70,865
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			17,258
Forfeited (in shares)			(1,512)
Outstanding at end of year	15,746		15,746

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SHAREHOLDERS EQUITY - Stock based compensation - Time Vesting Units (Details) - Time Vesting Units - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average grant date fair value			$ 13.80
Granted (in shares)			71,127
Stock-based compensation expense	$ 0.2	$ 0.2	$ 0.4	$ 0.5
Unrecognized compensation expense	$ 4.1		$ 4.1
Unrecognized compensation expense recognition period (in years)			2 years 4 months 24 days
Third and fifth anniversaries
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Service period (in years)			5 years
Vesting Percentage			50.00%
Granted (in shares)			3,779
Anniversary of grant date
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting Percentage			20.00%
Granted (in shares)			67,348

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SHAREHOLDERS EQUITY - Stock based compensation - Financial Performance Units (Details) - USD ($) $ in Millions		6 Months Ended
	May 01, 2019	Jun. 30, 2019
Financial Performance Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Granted (in shares)		59,536
Financial Performance Units Granted Prior to 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Service period (in years)		2 years
Maximum accruing threshold awards		50.00%
Remainder threshold awards		50.00%
Maximum percentage of shares can be issued		150.00%
Maximum number of shares can be issued		22,000
Unrecognized compensation expense		$ 0.2
Unrecognized compensation expense recognition period (in years)		3 years 9 months
Financial Performance Units Granted Prior to 2019 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage		150.00%
Financial Performance Units Granted Prior to 2019 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage		0.00%
Financial Performance Units Granted in 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Service period (in years)	2 years
Granted (in shares)	59,536
Maximum accruing threshold awards		50.00%
Remainder threshold awards		50.00%
Maximum percentage of shares can be issued		150.00%
Maximum number of shares can be issued		84,300
Unrecognized compensation expense		$ 0.7
Unrecognized compensation expense recognition period (in years)		4 years 6 months
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Financial Performance Units Granted in 2019 | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage	150.00%
Financial Performance Units Granted in 2019 | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Financial performance threshold percentage	0.00%

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SHAREHOLDERS EQUITY - Stock based compensation - Market Performance Units (Details) - Market Performance Units $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense	$ 0.4
Unrecognized compensation expense recognition period (in years)	3 years 6 months

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EARNINGS PER COMMON SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Numerator:
Net income	$ 1,404	$ 1,048	$ 3,031	$ 2,234
Dividends on preferred stock		(562)		(1,123)
Net income available for common shareholders	$ 1,404	$ 486	$ 3,031	$ 1,111
Denominator:
Basic weighted average shares	7,881,999	5,911,886	7,877,864	5,891,463
Earnings per common share - basic	$ 0.18	$ 0.08	$ 0.39	$ 0.19
Numerator:
Net income	$ 1,404	$ 1,048	$ 3,031	$ 2,234
Dividends on preferred stock		(562)		(1,123)
Net income available for common shareholders	$ 1,404	$ 486	$ 3,031	$ 1,111
Denominator:
Basic weighted average shares	7,881,999	5,911,886	7,877,864	5,891,463
Diluted effect of common stock equivalents:
Total diluted effect of common stock equivalents	15,093	69,535	15,510	68,574
Diluted weighted average shares	7,897,092	5,981,421	7,893,374	5,960,037
Earnings per common share - diluted	$ 0.18	$ 0.08	$ 0.39	$ 0.19
Stock Options
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents		32,643		31,291
Time Vesting Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	2,044	13,958	2,062	22,261
Financial Performance Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents		16,355		9,758
Market Performance Units
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents	13,049		13,448
Restricted Stock Awards
Diluted effect of common stock equivalents:
Diluted effect of common stock equivalents		6,579		5,264

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EARNINGS PER COMMON SHARE - Anti-dilutive Securities (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities	806,309	359,400	762,982	363,150
Stock Options
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities	442,097	207,700	445,947	211,450
Convertible Preferred D Shares
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities		151,700		151,700
Time Vesting Units
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities	198,611		179,301
Financial Performance Units
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities	70,865		42,998
Restricted Stock Awards
EARNINGS (LOSS) PER COMMON SHARE
Total potentially dilutive securities	94,736		94,736

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INCOME TAXES (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
INCOME TAXES
Income tax provision	$ 561	$ 337	$ 1,085	$ 704
Effective income tax rate	28.50%	24.30%	26.40%	24.00%

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RELATED-PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Summary of related party loan activity
Balance, beginning of year	$ 2,659	$ 14,077
Funded loans	5,623	1,466
Payments collected	(2,588)	(9,386)
Changes in related parties		(3,498)
Balance, end of year	5,694	2,659
Deposits from related parties	$ 47,700	$ 36,700

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FAIR VALUE - General (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
FAIR VALUE
Fair value, assets, level 1 to level 2 transfers, amount	$ 0	$ 0
Fair value, assets, level 2 to level 1 transfers, amount	0	0
Fair value, liabilities, level 1 to level 2 transfers, amount	0	0
Fair value, liabilities, level 2 to level 1 transfers, amount	0	0
Transfer to level 3, assets, amount	0	0
Transfer from level 3, assets, amount	0	0
Transfer to level 3, liabilities, amount		0
Transfer from level 3, liabilities, amount	0	0
Fair value, equity, level 1 to level 2 transfers, amount	0	0
Fair value, equity, level 2 to level 1 transfers, amount	$ 0	$ 0

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FAIR VALUE - Summary of assets measured at fair value on recurring basis (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	$ 51,698	$ 43,695
U.S. treasury and federal agency
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	255	250
Securities issued by U.S. government sponsored entities and agencies
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	4,293	4,302
Recurring
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	51,698	43,695
Equity securities not available-for-sale	712	693
Recurring | U.S. treasury and federal agency
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	255	250
Recurring | Securities issued by U.S. government sponsored entities and agencies
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	4,293	4,302
Recurring | Corporate collateralized mortgage obligations and mortgage-backed securities
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	5,120	1,271
Recurring | Interest rate lock and forward delivery commitments
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	739	890
Recurring | GNMA
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	38,537	34,002
Recurring | FNMA
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	3,493	3,870
Level 1 | Recurring
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	255	250
Equity securities not available-for-sale	712	693
Level 1 | Recurring | U.S. treasury and federal agency
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	255	250
Level 2 | Recurring
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	51,443	43,445
Level 2 | Recurring | Securities issued by U.S. government sponsored entities and agencies
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	4,293	4,302
Level 2 | Recurring | Corporate collateralized mortgage obligations and mortgage-backed securities
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	5,120	1,271
Level 2 | Recurring | Interest rate lock and forward delivery commitments
Summary of assets measured on a recurring and nonrecurring basis
Derivative asset, Fair value	739	890
Level 2 | Recurring | GNMA
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	38,537	34,002
Level 2 | Recurring | FNMA
Summary of assets measured on a recurring and nonrecurring basis
Total securities available-for-sale	$ 3,493	$ 3,870

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FAIR VALUE - Summary of assets measured at fair value on Non recurring basis (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned	$ 658	$ 658	$ 658
Impaired loans	10,650	10,650	16,895
Other real estate owned, gross			2,400
Other real estate owned valuation allowance			1,700
Allowance for loans	7,575	7,575	7,451
Level 3
Summary of assets measured on a recurring and nonrecurring basis
Impaired loans carrying value	1,000	1,000	1,700
Allowance for loans	900	900	900
Provision for loan losses	0	0
Commercial properties | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned	658	658	658
Commercial properties | Level 3 | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Other real estate owned	658	658	658
Commercial and Industrial | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Impaired loans	95	95	795
Commercial and Industrial | Level 3 | Nonrecurring
Summary of assets measured on a recurring and nonrecurring basis
Impaired loans	$ 95	$ 95	$ 795

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FAIR VALUE - Summary of carrying amounts and estimated fair values for financial instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Summary of carrying amounts and estimated fair values for financial instruments
Cash and cash equivalents	$ 92,769	$ 73,357	$ 58,464	$ 9,502
Securities available-for-sale	51,698	43,695
Loans, net	931,820	886,515
Mortgage loans held for sale	36,269	14,832
Accrued interest receivable	3,184	2,844
Other assets	18,313	3,724
Deposits	1,005,177	937,758
FHLB Topeka Borrowings – fixed rate	36,060	15,000
Subordinated Notes	6,560	6,560
Accrued interest payable	274	231
Carrying Amount
Summary of carrying amounts and estimated fair values for financial instruments
Cash and cash equivalents	92,769	73,357
Securities available-for-sale	51,698	43,695
Loans, net	931,820	886,515
Mortgage loans held for sale	36,269	14,832
Accrued interest receivable	3,184	2,844
Other assets	712	693
Deposits	1,005,177	937,758
FHLB Topeka Borrowings – fixed rate	36,060	15,000
Accrued interest payable	274	231
2016 Subordinated notes – fixed-to-floating rate | Carrying Amount
Summary of carrying amounts and estimated fair values for financial instruments
Subordinated Notes	6,560	6,560
Level 1 | Estimated Fair Value
Summary of carrying amounts and estimated fair values for financial instruments
Cash and cash equivalents	92,769	73,357
Securities available-for-sale	255	250
Other assets	712	693
Level 2 | Estimated Fair Value
Summary of carrying amounts and estimated fair values for financial instruments
Securities available-for-sale	51,443	43,445
Mortgage loans held for sale	36,269	14,832
Accrued interest receivable	3,184	2,844
Deposits	1,008,032	940,039
FHLB Topeka Borrowings – fixed rate	36,022	14,833
Accrued interest payable	274	231
Level 3 | Estimated Fair Value
Summary of carrying amounts and estimated fair values for financial instruments
Loans, net	912,965	868,828
Level 3 | 2016 Subordinated notes – fixed-to-floating rate | Estimated Fair Value
Summary of carrying amounts and estimated fair values for financial instruments
Subordinated Notes	$ 6,217	$ 6,434

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SEGMENT REPORTING (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Income Statement
Total interest income	$ 11,174	$ 9,505	$ 22,224	$ 18,511
Total interest expense	3,214	1,928	6,293	3,574
Provision for (recovery of) credit losses	(78)		116	(187)
Net-interest income	8,038	7,577	15,815	15,124
Non-interest income	8,586	6,892	15,562	14,184
Total income	16,624	14,469	31,377	29,308
Depreciation and amortization expense	469	577	996	1,150
All other non-interest expense	14,190	12,507	26,265	25,220
Income before income taxes	1,965	1,385	4,116	2,938
Segment reporting
Goodwill	23,239	24,811	23,239	24,811	$ 24,811
Total assets	1,190,465	1,046,573	1,190,465	1,046,573	1,084,324
Goodwill impairment	1,572		1,572
Wealth Management
Income Statement
Total interest income	11,174	9,505	22,224	18,511
Total interest expense	3,214	1,928	6,293	3,574
Provision for (recovery of) credit losses	(78)		116	(187)
Net-interest income	8,038	7,577	15,815	15,124
Non-interest income	4,512	4,680	9,244	9,844
Total income	12,550	12,257	25,059	24,968
Depreciation and amortization expense	301	321	632	641
All other non-interest expense	10,432	10,025	20,499	20,165
Income before income taxes	1,817	1,911	3,928	4,162
Segment reporting
Goodwill	15,994	15,994	15,994	15,994	15,994
Total assets	1,145,910	1,001,191	1,145,910	1,001,191
Capital Management
Income Statement
Non-interest income	798	845	1,563	1,706
Total income	798	845	1,563	1,706
Depreciation and amortization expense	95	132	226	262
All other non-interest expense	2,313	1,080	3,008	2,276
Income before income taxes	(1,610)	(367)	(1,671)	(832)
Segment reporting
Goodwill	7,245	8,817	7,245	8,817	$ 8,817
Total assets	9,025	10,318	9,025	10,318
Goodwill impairment			1,572
Mortgage
Income Statement
Non-interest income	3,276	1,367	4,755	2,634
Total income	3,276	1,367	4,755	2,634
Depreciation and amortization expense	73	124	138	247
All other non-interest expense	1,445	1,402	2,758	2,779
Income before income taxes	1,758	(159)	1,859	(392)
Segment reporting
Total assets	$ 35,530	$ 35,064	$ 35,530	$ 35,064

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REGULATORY CAPITAL MATTERS (Details) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2019 USD ($) item	Dec. 31, 2019	Dec. 31, 2018 USD ($)
REGULATORY CAPITAL MATTERS
Capital conservation buffer	0.625%
Common Equity Tier 1 capital ratio including capital conservation buffer (as a percent)	7.00%
Tier 1 capital ratio including capital conservation buffer (as a percent)	8.50%
Total capital ratio including capital conservation buffer (as a percent0	10.50%
Number of conditions or events to be performed | item	0
Common Equity Tier 1 (CET 1) to risk-weighted assets
Actual Amount	$ 100,024		$ 94,335
Actual Ratio (as a percent)	11.41%		11.35%
Tier 1 capital to risk-weighted assets
Actual Amount	$ 100,024		$ 94,335
Actual Ratio (as a percent)	11.41%		11.35%
Total capital to risk-weighted assets
Actual Amount	$ 114,309		$ 108,510
Actual Ratio (as a percent)	13.04%		13.06%
Tier 1 capital to average assets
Actual Amount	$ 100,024		$ 94,335
Actual Ratio (as a percent)	9.01%		9.28%
Bank
Common Equity Tier 1 (CET 1) to risk-weighted assets
Actual Amount	$ 92,973		$ 87,291
Actual Ratio (as a percent)	10.65%		10.55%
Required for Capital Adequacy Purposes Amount	$ 39,293		$ 37,240
Required for Capital Adequacy Purposes Ratio (as a percent)	4.50%		4.50%
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 56,756		$ 53,791
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	$ 92,973		$ 87,291
Actual Ratio (as a percent)	10.65%		10.55%
Required for Capital Adequacy Purposes Amount	$ 52,391		$ 49,653
Required for Capital Adequacy Purposes Amount (as a percent)	6.00%		6.00%
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 69,854		$ 66,204
To be Well Capitalized Under Prompt Corrective Action Regulations Ratio (as a percent)	8.00%		8.00%
Total capital to risk-weighted assets
Actual Amount	$ 100,697		$ 94,906
Actual Ratio (as a percent)	11.53%		11.47%
Required for Capital Adequacy Purposes Amount	$ 69,854		$ 66,204
Required for Capital Adequacy Purposes Ratio (as a percent)	8.00%		8.00%
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 87,318		$ 82,755
To be Well Capitalized Under Prompt Corrective Action Regulations Ratio (as a percent)	10.00%		10.00%
Tier 1 capital to average assets
Actual Amount	$ 92,973		$ 87,291
Actual Ratio (as a percent)	8.42%		8.63%
Required for Capital Adequacy Purposes Amount	$ 44,186		$ 40,459
Required for Capital Adequacy Purposes Ratio (as a percent)	4.00%		4.00%
To be Well Capitalized Under Prompt Corrective Action Regulations Amount	$ 55,232		$ 50,574
Tier One Leverage Capital Required to be Well Capitalized to Average Assets	5.00%		5.00%
Forecast
REGULATORY CAPITAL MATTERS
Capital conservation buffer		2.50%
Common Equity Tier 1 (CET 1) to risk-weighted assets
Required for Capital Adequacy Purposes Ratio (as a percent)		7.00%
Tier 1 capital to risk-weighted assets
Required for Capital Adequacy Purposes Amount (as a percent)		8.50%
Total capital to risk-weighted assets
Required for Capital Adequacy Purposes Ratio (as a percent)		10.50%

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SUBSEQUENT EVENTS (Details) - Subsequent events - Capital Management - Fixed Income Portfolio Management Team $ in Millions	Jul. 19, 2019 USD ($)
Subsequent Event [Line Items]
Cash Consideration	$ 0.5
Minimum
Subsequent Event [Line Items]
Asset-based revenues period for contingent consideration	3 years
Maximum
Subsequent Event [Line Items]
Asset-based revenues period for contingent consideration	5 years