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. During the three months ended September 30, 2019, the Company repurchased 582 shares at an average price of $14.00 and as of September 30, 2019, 299,418 shares may yet be purchased under the program.

During the nine months ended September 30, 2019 the Company sold no shares of common stock. During the nine months ended September 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 three and nine months ended September 30, 2018, the Company issued 16,969 shares of common stock upon the settlement of Time Vesting Units.

Restricted Stock Awards

As of September 30, 2019, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. During the three months ended September 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.5 million and $0.1 million, respectively, associated with Restricted Stock Awards. During the nine months ended September 30, 2019 and 2018, the Company has recognized compensation expense of $0.7 and $0.2 million for the Restricted Stock Awards, respectively. As of September 30, 2019, the Company has $1.9 million of unrecognized stock-based compensation expense related to the shares issued. As of September 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 3.0 years. Restricted Stock Awards representing 33,070 shares vested during the three and nine months ended September 30, 2019.

Stock‑Based Compensation Plans

As of September 30, 2019, there were a total of 648,414 shares available for issuance under the First Western Financial, Inc. 2016 Omnibus Incentive 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 nine months ended September 30, 2019 and 2018.

During the three months ended September 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 nine months ended September 30, 2019 and 2018, the Company recognized stock based compensation expense of $0.2 million and $0.4 million, respectively, associated with stock options. As of September 30, 2019, the Company has $0.3 million of unrecognized stock‑based compensation expense related to stock options which are unvested. As of September 30, 2019, the unrecognized cost is expected to be recognized over a weighted‑average period of approximately 0.8 of a year.

The following summarizes activity for nonqualified stock options for the nine months ended September 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	(42,750)		27.72
Outstanding at end of period	423,197	$	28.95	3.8	(a)
Options fully vested / exercisable at September 30, 2019	380,216	$	29.34	3.5	(a)

________________________________________

(a)

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

As of September 30, 2019 and December 31, 2018, there were 380,216 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 nine months ended September 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 nine months ended September 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	(22,824)	(6,597)	(1,933)
Outstanding at end of period	209,391	68,871	15,325

During the nine months ended September 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 nine months ended September 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 during the nine months ended September 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 nine months ended September 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 September 30, 2019 and 2018, the Company recognized compensation expense of $0.3 million and $0.1 million, respectively, for Time Vesting Units. During the nine months ended September 30, 2019 and 2018, the Company recognized compensation expense of $0.7 million and $0.7 million, respectively, for Time Vesting Units. As of September 30, 2019, there was $3.7 million of unrecognized compensation expense related to Time Vesting Units. As of September 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of approximately 2.1 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 September 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 September 30, 2019 was approximately 20,800 shares. During the nine months ended September 30, 2019 and 2018, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of September 30, 2019, there was $0.2 million of unrecognized compensation expense related to the Financial Performance Units. As of September 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 2.3 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 five-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 September 30, 2019, the Company is accruing at the maximum threshold for the awards. The maximum shares that can be issued at 150% as of September 30, 2019 was approximately 82,500 shares. During the three months ended September 30, 2019, the Company recognized compensation expense of $0.1 million for the Financial Performance Units. As of September 30, 2019, there was $0.7 million of unrecognized compensation expense related to the Financial Performance Units. As of September 30, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted‑average period of 4.3 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 nine months ended September 30, 2019 and 2018 the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of September 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 2.75 years.