NOTE 12 – SHAREHOLDERS’ EQUITY

Common Stock

The Company’s common stock has no par value and each holder of common stock is entitled to one vote for each share (though certain voting restrictions may exist on non‑vested restricted stock) held.

On 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 year ended December 31, 2019, the Company repurchased 43,698 shares at an average price of $16.51 and as of December 31, 2019, 256,302 shares may yet be purchased under the program.

During the year ended December 31, 2019 the Company sold no shares of common stock. During the year ended December 31, 2018, the Company sold 67,242 shares of its common stock through Private Placement Memorandums resulting in proceeds to the Company of $1.9 million (net of issuance costs of $0.1 million).

On July 23, 2018, the Company completed its initial public offering of 1,921,775 shares of its common stock at a price of $19.00 per share, which included 296,250 shares pursuant to the full exercise by the underwriters of their option to purchase additional shares of common stock from the Company, resulting in net proceeds of $32.5 million (net of issuance costs of $4.4 million).

Effective July 26, 2018, the Company redeemed at par value all of its outstanding shares of preferred stock, which consisted of 8,559 shares of Series A preferred stock, 428 shares of Series B preferred stock, 11,881 shares of Series C preferred stock, and 41,000 shares of Series D preferred stock. The aggregate redemption amount for the preferred stock was $25.0 million. The preferred stock was redeemed using the proceeds from the Company’s completed initial public offering, which closed on July 23, 2018.

Certain of our common stock holders received Make Whole Rights pursuant to an Investor Agreement in connection with the conversion of Series D preferred stock into common stock and our private placement conducted from August 2017 to February 2018, which entitled the holder of such Make Whole Rights to, among other things, receive additional shares of our common stock ("Make Whole Shares"), subject to the satisfaction of the conditions of the Investor Agreements. As a result, the Company issued 128,978 Make Whole Shares on September 10, 2018. The Company’s issuance of the Make Whole Shares was exempt from the registration statement of the Securities Act pursuant to Section 4(a)(2) thereof.

Restricted Stock Awards

In 2017, the Company issued 105,264 shares of common stock ("Restricted Stock Awards") with a value of $3.0 million to the sole member of EMC Holdings, LLC ("EMC"), subject to forfeiture based on his continued employment with the Company. Half of the Restricted Stock Awards ($1.5 million or 52,632 shares) vests ratably over five-years. The remaining $1.5 million, or 52,632 shares, may be earned based on performance of the mortgage division of the Company. During the year ended December 31, 2019, the Company recognized compensation expense of $0.6 million, representing 38,518 shares with 14,114 shares remaining to vest, related to the performance based awards.

As of December 31, 2019 and 2018, the Restricted Stock Awards have a weighted-average grant date fair value of $28.50 per share. During the years ended December 31, 2019 and 2018, the Company has recognized compensation expense of $0.9 million and $0.3 million, respectively, for the Restricted Stock Awards. As of December 31, 2019, the Company has $1.4 million of unrecognized stock-based compensation expense related to the shares issued, which is expected to be recognized over a weighted average period of 1.2 years. Restricted Stock Awards of 33,070 vested during the year ended December 31, 2019.

Stock‑Based Compensation Plans

As of December 31, 2019, there were a total of 652,269 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 or the 2016 Plan are forfeited, cancelled or terminated with no consideration paid to the Company, those amounts will increase the number of shares eligible to be granted under the 2016 Plan.

Stock Options

The Company did not grant any stock options during the years ended December 31, 2019 and 2018.

During the years ended December 31, 2019 and 2018, the Company recognized stock‑based compensation expense of $0.3 million and $0.5 million, respectively. As of December 31, 2019, the Company has $0.3 million of unrecognized stock‑based compensation expense related to stock options which are unvested. That cost is expected to be recognized over a weighted‑average period of approximately 0.6 years.

The following summarizes activity for nonqualified stock options for the year ended December 31, 2019:


				Weighted
		Weighted		Average
	Number	Average		Remaining	Aggregate
	of	Exercise		Contractual	Intrinsic
	Options	Price		Term	Value
Outstanding at December 31, 2018	465,947	$	28.84
Granted	—		—
Exercised	—		—
Forfeited or expired	(46,750)	$	27.22
Outstanding at December 31, 2019	419,197	$	29.02	3.6	(a)
Options fully vested / exercisable at December 31, 2019	394,020	$	29.24	3.4	(a)

(a)

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

As of December 31, 2019 and December 31, 2018, there were 394,020 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 year ended December 31, 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 year ended December 31, 2019:


	Time	Financial	Market
	Vesting	Performance	Performance
	Units	Units	Units
Outstanding at December 31, 2018	184,369	15,932	17,258
Granted	74,343	62,569	—
Vested	(23,281)	—	—
Forfeited	(25,987)	(9,075)	(2,396)
Outstanding at December 31, 2019	209,444	69,426	14,862

During the year ended December 31, 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 year ended December 31, 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

The 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 Time Vesting Units of 3,779 with a five‑year service period in 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 70,564 Time Vesting Units with a five year service period in 2019, which vest in equal installments of 20% on the anniversary of the grant date, assuming continuous employment through the scheduled vesting dates. The Time Vesting Units granted in 2019 have a weighted‑average grant‑date fair value of $13.93 per unit. During both years ended December 31, 2019 and 2018, the Company recognized compensation expense of $1.0 million for the Time Vesting Units. As of December 31, 2019, there was $3.4 million of unrecognized compensation expense related to the Time Vesting Units, which is expected to be recognized over a weighted‑average period of 1.9 years.

Financial Performance Units 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 December 31, 2019, the Company is accruing at the target threshold of 100% for 50% of the awards and at 50% for the remainder. The amount of shares that could have been issued as of December 31, 2019 was approximately 10,000 shares. During the years ended December 31, 2019 and 2018, the Company recognized an immaterial amount of compensation expense for the Financial Performance Units. As of December 31, 2019, there was $0.2 million of unrecognized compensation expense related to the Financial Performance Units. As of December 31, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 2.0 years.

Financial Performance Units Granted in 2019

In 2019, the Company granted an additional 62,569 Financial Performance Units to officers and other key employees. All Financial Performance Units granted in 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 December 31, 2019, the Company is accruing at the target threshold of 100% for the awards. The amount of shares that could have been issued as of December 31, 2019 was approximately 56,000 shares. During the year ended December 31, 2019, the Company recognized compensation expense of $0.1 million for the Financial Performance Units. As of December 31, 2019, there was $0.7 million of unrecognized compensation expense related to the Financial Performance Units. As of December 31, 2019, the unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 4.0 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 years ended December 31, 2019 and 2018, the Company recognized an immaterial amount of compensation expense for the Market Performance Units. As of December 31, 2019, there was $0.4 of unrecognized compensation expense related to the Market Performance Units which is expected to be recognized over a weighted‑average period of 2.5 years.