<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1996
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 No. 0-13882
FIRST WESTERN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1461570
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 East Washington Street, New Castle, Pennsylvania 16101
(Address of principal executive offices) (Zip Code)
(412) 652-8550
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO_________
The number of shares outstanding of the Registrant's common stock as of August
9, 1996 was:
Common Stock, $5.00 par value - 7,668,688 shares outstanding <PAGE>
<PAGE> 2
FIRST WESTERN BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Independent Accountants' Report......................... 3
Consolidated Balance Sheets:
June 30, 1996, December 31, 1995 and
June 30, 1995.......................................... 4
Consolidated Statements of Income:
Three months ended June 30, 1996
and three months ended June 30, 1995................... 5
Consolidated Statements of Income:
Six months ended June 30, 1996
and six months ended June 30, 1995..................... 6
Consolidated Statements of Changes
in Shareholders' Equity:
Six months ended June 30, 1996
and six months ended June 30, 1995..................... 7
Consolidated Statements of Cash Flows:
Six months ended June 30, 1996
and six months ended June 30, 1995..................... 8
Notes to Consolidated Financial Statements.............. 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 11
Part II. Other Information:
Item 1. - Item 6. ........................................... 27
Signature.................................................... 28
</TABLE>
<PAGE>
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders
of First Western Bancorp, Inc.
We have reviewed the accompanying consolidated balance sheets of First Western
Bancorp, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the three-month and six-month periods then ended. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First Western Bancorp, Inc. and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, changes in shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated January 26, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1995 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
July 16, 1996
3 <PAGE>
<PAGE> 4
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
- -------
Cash and due from banks $ 40,262 $ 39,464 $ 44,177
------------- ------------ -------------
Interest-bearing deposits with other banks 1,304 2,124 756
------------- ------------ -------------
Securities available for sale
(amortized cost of $260,880, $243,145 and $155,425) 259,474 246,980 156,903
------------- ------------ -------------
Investment securities (market value of $107,327, $115,024 and $131,784) 107,955 114,015 132,289
------------- ------------ -------------
Mortgage-backed securities (market value of $176,637, $144,362
and $196,136) 180,772 145,550 200,376
------------- ------------ -------------
Loans available for sale (market value of $1,329 and $3,518) 1,329 3,510 -
------------- ------------ -------------
Loans (net of unearned income of $33,438, $34,636 and $41,239) 1,079,539 1,024,106 1,067,307
Less: Allowance for possible loan losses 15,938 14,148 13,591
------------- ------------ -------------
Net loans 1,063,601 1,009,958 1,053,716
------------- ------------ -------------
Premises and equipment 18,772 18,411 18,769
------------- ------------ -------------
Other assets 27,312 23,252 51,564
------------- ------------ -------------
Total Assets $ 1,700,781 $ 1,603,264 $ 1,658,550
============= ============ =============
LIABILITIES:
- ------------
Deposits:
Noninterest-bearing demand $ 101,904 $ 102,864 $ 99,860
Interest-bearing demand 120,719 110,703 105,823
Savings 275,874 271,442 280,188
Time 675,452 692,674 694,129
------------- ------------ -------------
Total deposits 1,173,949 1,177,683 1,180,000
------------- ------------ -------------
Borrowed funds:
Federal funds purchased and other short-term borrowings 63,476 3,598 54,373
Repurchase agreements and secured lines of credit 212,392 121,658 146,724
Advances from the Federal Home Loan Bank 105,670 111,670 133,121
------------- ------------ -------------
Total borrowed funds 381,538 236,926 334,218
------------- ------------ -------------
Long-term debt 6,897 8,133 9,237
------------- ------------ -------------
Other liabilities 18,194 58,834 20,379
------------- ------------ -------------
Total Liabilities 1,580,578 1,481,576 1,543,834
------------- ------------ -------------
SHAREHOLDERS' EQUITY:
- ---------------------
Preferred stock, no stated value, 4,000,000
shares authorized, none issued - - -
Common stock, $5.00 par value, 20,000,000
shares authorized, 7,823,088, 7,816,651 and 5,184,905 shares
issued 39,115 39,083 25,924
Additional paid-in capital 21,873 21,811 34,429
Retained earnings 64,881 59,313 53,425
Unrealized appreciation (depreciation) in securities available for sale (914) 2,492 961
Treasury stock, 154,400 and 52,500 shares at cost (3,702) (1,011) -
Unallocated common stock held by ESOP (at cost) (1,050) - (23)
------------- ------------ -------------
Total Shareholders' Equity 120,203 121,688 114,716
------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 1,700,781 $ 1,603,264 $ 1,658,550
============= ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
4<PAGE>
<PAGE> 5
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 22,551 $ 22,705
Interest and fees on loans available for sale 26 -
Interest on deposits with other banks 16 10
Interest on securities available for sale 4,577 3,112
Interest and dividends on investment securities:
Taxable interest 377 813
Tax-exempt interest 1,035 1,001
Interest on mortgage-backed securities 2,792 2,941
Interest on federal funds sold 2 40
------------- -------------
Total Interest Income 31,376 30,622
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 384 508
Savings 1,755 2,082
Time 9,393 9,962
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 741 231
Repurchase agreements and secured lines of credit 2,945 1,994
Advances from the Federal Home Loan Bank 1,544 1,896
Interest on long-term debt 109 190
------------- -------------
Total Interest Expense 16,871 16,863
------------- -------------
NET INTEREST INCOME 14,505 13,759
Provision for possible loan losses 3,290 940
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 11,215 12,819
------------- -------------
OTHER INCOME:
- -------------
Trust fees 499 437
Service charges on deposit accounts 903 868
Credit card program fees 391 347
Net securities gains 807 302
Other operating income 696 832
------------- -------------
Total Other Income 3,296 2,786
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 3,428 3,325
Employee benefits 916 1,027
Net occupancy expense 730 670
Equipment rentals, depreciation and maintenance 585 571
Federal deposit insurance 323 630
Outside examination, legal fees and consulting 380 262
Advertising and promotion 202 439
Supplies 378 454
Outside data processing services 431 335
Other operating expense 1,961 1,856
------------- -------------
Total Other Expenses 9,334 9,569
------------- -------------
INCOME BEFORE INCOME TAXES 5,177 6,036
Income Taxes 991 1,844
------------- -------------
NET INCOME $ 4,186 $ 4,192
============= =============
EARNINGS PER SHARE $ 0.54 $ 0.53
============= =============
DIVIDENDS PER SHARE $ 0.18 $ 0.17
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 7,793 7,858
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
5<PAGE>
<PAGE> 6
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 44,592 $ 43,930
Interest and fees on loans available for sale 72 -
Interest on deposits with other banks 30 21
Interest on securities available for sale 8,705 4,771
Interest and dividends on investment securities:
Taxable interest 799 1,626
Tax-exempt interest 2,066 2,011
Interest on mortgage-backed securities 5,158 5,957
Interest on federal funds sold 11 114
------------- -------------
Total Interest Income 61,433 58,430
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 741 1,009
Savings 3,471 4,053
Time 19,083 18,026
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 1,225 472
Repurchase agreements and secured lines of credit 5,029 3,637
Advances from the Federal Home Loan Bank 3,166 3,753
Interest on long-term debt 252 389
------------- -------------
Total Interest Expense 32,967 31,339
------------- -------------
NET INTEREST INCOME 28,466 27,091
Provision for possible loan losses 4,580 1,670
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 23,886 25,421
------------- -------------
OTHER INCOME:
- -------------
Trust fees 1,046 1,010
Service charges on deposit accounts 1,718 1,554
Credit card program fees 721 643
Net securities gains 1,190 236
Other operating income 1,488 1,562
------------- -------------
Total Other Income 6,163 5,005
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 6,892 6,596
Employee benefits 2,087 2,057
Net occupancy expense 1,482 1,366
Equipment rentals, depreciation and maintenance 1,160 1,143
Federal deposit insurance 645 1,228
Outside examination, legal fees and consulting 647 578
Advertising and promotion 576 816
Supplies 736 785
Outside data processing services 858 655
Other operating expense 3,889 3,530
------------- -------------
Total Other Expenses 18,972 18,754
------------- -------------
INCOME BEFORE INCOME TAXES 11,077 11,672
Income Taxes 2,722 3,513
------------- -------------
NET INCOME $ 8,355 $ 8,159
============= =============
EARNINGS PER SHARE $ 1.07 $ 1.04
============= =============
DIVIDENDS PER SHARE $ 0.36 $ 0.35
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 7,826 7,857
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
6<PAGE>
<PAGE> 7
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
-------------------------------------------------------------------------------
Unrealized
Appreciation Common Stock
(Depreciation) Held by ESOP
Common Stock in Securities (at Cost)
--------------- Retained Available Treasury ---------------
Shares Amount Surplus Earnings for Sale Stock Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 7,817 $39,083 $21,811 $59,313 $2,492 $(1,011) _ $-
Net income - - - 8,355 - - - -
Cash dividends paid ($0.36 per share) - - - (2,787) - - - -
Exercise of options, net of shares redeemed 5 27 43 - - - - -
Common stock issued for dividend reinvestment 1 5 19 - - - - -
Common stock purchased for ESOP - - - - - - (40) (1,050)
Treasury stock purchased - - - - - (2,691) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - (3,406) - - -
------------------------------------------------------------------------------
Balance - June 30, 1996 7,823 $39,115 $21,873 $64,881 $(914) $(3,702) (40) $(1,050)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1995
-------------------------------------------------------------------------------
Unrealized
Appreciation Common Stock
(Depreciation) Held by ESOP
Common Stock in Securities (at Cost)
--------------- Retained Available Treasury ---------------
Shares Amount Surplus Earnings for Sale Stock Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 5,180 $25,901 $34,431 $47,961 $(2,191) $- (1) $(23)
Net income - - - 8,159 - - - -
Cash dividends paid ($0.35 per share) - - - (2,695) - - - -
Exercise of options, net of shares redeemed 5 23 (2) - - - - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - 3,152 - - -
------------------------------------------------------------------------------
Balance - June 30, 1995 5,185 $25,924 $34,429 $53,425 $961 $- (1) $(23)
==============================================================================
</TABLE>
See Notes To Consolidated Financial Statements.
7<PAGE>
<PAGE> 8
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE> For the Six Months Ended
-----------------------------
June 30, June 30,
1996 1995
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 8,355 $ 8,159
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,170 1,111
Amortization and accretion 1,126 (198)
Provision for possible loan losses 4,580 1,670
Gain on sale of securities (1,190) (236)
Loss (gain) on sale of real estate owned 14 (333)
(Gain) loss on sale of premises and equipment (1) 39
Gain on sale of loans (8) (364)
Provision for deferred tax benefit (1,127) (63)
Increase in interest receivable (1,168) (886)
(Decrease) increase in interest payable (982) 2,845
Other - net (2,404) (1,639)
------------- -------------
Total adjustments 10 1,946
------------- -------------
Net cash provided by operating activities 8,365 10,105
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sales of securities available for sale 65,405 10,110
Proceeds from maturity or paydown of securities available for sale 40,926 5,404
Purchase of securities available for sale (160,536) (120,567)
Proceeds from maturity or paydown of investment securities 31,348 16,442
Purchase of investment securities (60,912) (12,784)
Purchase of loans (6,155) (29,217)
Proceeds from sale of loans 17,418 24,047
Net increase in loans (67,722) (83,574)
Decrease in deposits with other banks 820 116
Purchase of premises and equipment (1,561) (813)
Proceeds from sale of premises and equipment 29 59
Proceeds from sale of other real estate owned 125 947
Cash received in branch purchases - 88,021
------------- -------------
Net cash used in investing activities (140,815) (101,809)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net (decrease) increase in deposits (3,694) 53,944
Net increase in federal funds purchased and other
short-term borrowings 59,878 19,526
Net increase in repurchase agreements and secured lines of credit 90,734 18,263
Net (decrease) increase in advances from the Federal Home Loan Bank (6,000) 5,000
Proceeds from issuance of long-term debt 1,050 -
Payments on long-term debt (2,286) (1,081)
Proceeds from exercise of stock options 70 21
Proceeds from common stock issued for dividend reinvestment plan 24 -
Treasury stock purchased (2,691) -
Common stock purchased for ESOP (1,050) -
Dividends paid on common stock (2,787) (2,695)
------------- -------------
Net cash provided by financing activities 133,248 92,978
------------- -------------
NET INCREASE IN CASH AND DUE FROM BANKS 798 1,274
CASH AND DUE FROM BANKS - Beginning of year 39,464 42,903
------------- -------------
CASH AND DUE FROM BANKS - End of period $ 40,262 $ 44,177
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
8<PAGE>
<PAGE> 9
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
1996 1995
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 31,985 $ 28,494
============= =============
Income taxes $ 4,291 $ 3,901
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities purchased settling after June 30 $ 544 $ 975
============= =============
Securities sold settling after June 30 $ 743 $ 27,177
============= =============
Transfers to other real estate owned $ 574 $ 182
============= =============
Net change in unrealized (depreciation) appreciation in securities
available for sale, net of income tax effects $ (3,406) $ 3,152
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Deposits assumed in branch acquisitions $ - $ 96,681
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
9<PAGE>
<PAGE> 10
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1. Principles of Consolidation:
The consolidated financial statements include the accounts of First
Western Bancorp, Inc. (First Western) and its wholly-owned subsidiaries, First
Western Bank, National Association (First Western Bank, N.A.), First Western
Bank, Federal Savings Bank (First Western Bank, F.S.B.), and First Western
Trust Services Company (Trust Services). All significant intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheets as of June 30, 1996 and June 30, 1995, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for the three and six month periods ended June 30, 1996 and 1995
are unaudited. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of normal recurring items. Interim results are not
necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-
Q. The interim statements are unaudited and should be read in conjunction with
the financial statements and notes thereto contained in First Western's 1995
Annual Report on Form 10-K.
2. Earnings Per Share:
Earnings per common share are based on the weighted average number of
common shares outstanding and common share equivalents in each period.
Weighted average shares outstanding include common share equivalents under
First Western's Incentive Stock Option Plan for Key Officers.
10<PAGE>
<PAGE> 11
Part 1. Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of operations for the three and six months ended June 30, 1996 compared
with the three and six months ended June 30, 1995:
For the six months ended June 30, 1996, First Western's net income was
$8.4 million or $1.07 per share compared with $8.2 million or $1.04 per share
for the six months ended June 30, 1995. First Western's net income increased
$196,000 or 2.4% from the first six months of 1995 to the first six months of
1996 primarily due to a reduction in federal income tax expense during the
second quarter of 1996 resulting from a favorable settlement reached with the
Internal Revenue Service ("IRS") concerning an audit of prior tax years. First
Western's income before income taxes decreased $595,000 or 5.1% for the first
six months of 1996 compared with the prior year due to First Western increasing
the provision for possible loan losses by $2.9 million in response to increased
consumer loan charge-offs and delinquencies. The impact of the $2.9 million
increase in the provision for possible loan losses was partially offset by a
$1.4 million or 5.1% increase in net interest income and a $1.2 million or
23.1% increase in other income due to a $954,000 increase in gains on sales of
securities available for sale. First Western's return on average assets and
return on average equity for the first six months of 1996 were 1.01% and
13.97%, respectively, compared with 1.06% and 14.92% for the first six months
of 1995, with the decline in these ratios attributable to the increased
provision for possible loan losses.
For the three months ended June 30, 1996, First Western's net income was
$4.2 million, approximately the same as the second quarter of 1995 and the
first quarter of 1996. First Western's earnings per share were $0.54 for the
three months ended June 30, 1996, increasing slightly from $0.53 for the three
months ended June 30, 1995 due to a reduction in the number of shares
outstanding resulting from a stock repurchase program. Earnings for the
second quarter of 1996 were impacted by a $2.4 million increase in the
provision for possible loan losses which was partially offset by a $746,000
increase in net interest income, a $510,000 increase in other income and a
$235,000 decrease in other expenses. As a result of the increase in the
provision for possible loan losses, income before income taxes decreased
$859,000 or 14.2% for the second quarter of 1996 compared with the prior year.
This decrease in income before income taxes was partially offset by lower
income tax expense from operations along with a $500,000 reduction in income
tax expense as a result of First Western reaching a favorable settlement with
the IRS. First Western's return on average assets and return on average equity
were 1.00% and 13.95%, respectively, for the three months ended June 30, 1996,
compared with 1.04% and 14.97% for the second quarter of 1995.
11<PAGE>
<PAGE> 12
Net Interest Income:
First Western's net interest income was $28.5 million for the six months
ended June 30, 1996, increasing $1.4 million or 5.1% from $27.1 million for the
first six months of 1995. The increase in net interest income was generated
by a $101.7 million or 6.8% increase in average earning assets which was
partially offset by a decline in First Western's net interest margin from 3.83%
for the first six months of 1995 to 3.76% for the first six months of 1996.
The increase in average earning assets was due to a $67.8 million or 14.3%
increase in average securities along with a $37.2 million or 3.7% increase in
average loans outstanding. The growth in average earning assets was funded by
a $64.2 million or 23.2% increase in average borrowed funds and a $31.6 million
or 2.8% increase in average deposits.
First Western's net interest income for the second quarter of 1996 was
$14.5 million, increasing $746,000 or 5.4% from $13.8 million for the second
quarter of 1995. This increase in net interest income was due to a $78.7
million or 5.1% increase in average earning assets along with a slight increase
in the net interest margin. The increase in average earning assets for the
second quarter of 1996 compared with the prior year is due to a $52.8 million
or 10.4% increase in average securities and a $28.2 million or 2.7% increase
in average loans with this increase in average earning assets funded by a $97.7
million or 34.6% increase in average borrowed funds. First Western's net
interest margin for the second quarter of 1996 was 3.75%, up slightly from
3.73% for the second quarter of 1995 due to a decrease in First Western's
cost of funds.
First Western's net interest margin or net interest income expressed as
a percentage of average earning assets was 3.76% for the first six months of
1996 compared with 3.83% for the first six months of 1995. First Western's
yield on earning assets declined from the first six months of 1995 to the first
six months of 1996 due primarily to a decline in loan yields. Loan yields
declined in part due to securitization of $113.7 million of fixed rate
residential mortgage loans during the fourth quarter of 1995 and also due to
a decline in the yields of commercial loans with interest rates based on the
prime rate, which was reduced by 50 basis points since December 1995. First
Western's cost of funds decreased for the first six months of 1996 compared
with the prior year due to decreases in the rates paid for deposits and
borrowed funds.
12<PAGE>
<PAGE> 13
Provision for Possible Loan Losses:
First Western's provision for possible loan losses was $4.6 million for
the first six months of 1996, increasing $2.9 million from $1.7 million for the
first six months of 1995. During the second quarter of 1996, First Western's
provision for possible loan losses was $3.3 million, increasing $2.4 million
from $940,000 for the second quarter of 1995 and increasing $2.0 million from
a provision of $1.3 million for the first quarter of 1996. First Western
increased its provision for possible loan losses during the second quarter of
1996 in response to increased consumer loan charge-offs and delinquencies.
First Western's net charge-offs for the first six months of 1996 were $2.8
million or 0.54% of average loans, compared with $1.0 million or 0.20% of
average loans for the first six months of 1995. Substantially all of First
Western's charge-offs for the first six months of 1995 and 1996 were consumer
loans, primarily indirect automobile loans. First Western's net charge-offs
for the second quarter of 1996 were $1.8 million, compared with $572,000 for
the second quarter of 1995 and $1.0 million for the first quarter of 1996.
As a result of the increase in installment loan delinquencies and charge-
offs, First Western conducted an intensive review of all indirect automobile
and direct installment loans that were past due sixty days or more as of May
31, 1996. This review led to a decision by management to charge-off or
repossess a substantial amount of such past due loans at June 30, 1996 as well
as to establish a special reserve of approximately $1.0 million for a pool of
delinquent loans of approximately $3.0 million that may be charged-off or
repossessed over the course of the next ninety days, or that represent past due
credits written down to current wholesale value as bankruptcies or workouts are
in process.
First Western's net charge-offs by loan type are as follows (in
thousands):
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural loans.......................... $ (35) $ (8)
Real estate construction loans........................................ - -
Real estate mortgage loans............................................ 107 (12)
Installment loans..................................................... 2,717 1,042
---------- ----------
Total net charge-offs.............................................. $ 2,789 $ 1,022
========== ==========
Net charge-offs as a percentage of
average loans...................................................... 0.54% 0.20%
========== ==========
</TABLE>
13<PAGE>
<PAGE> 14
Other Income and Other Expenses:
Other income increased $1.2 million or 23.1% from $5.0 million for the
first six months of 1995 to $6.2 million for the first six months of 1996 due
primarily to gains on sales of securities available for sale, increased
commissions on sales of mutual funds and annuities and increased fees for
loan servicing. These increases in other income were partially offset by
decreases in gains realized on sales of loans and other real estate owned. For
the second quarter of 1996, other income was $3.3 million, increasing $510,000
or 18.3% from $2.8 million for the second quarter of 1995 with most of this
increase due to a $505,000 increase in gains on sales of securities.
Trust fees increased $36,000 or 3.6% from $1,010,000 for the first six
months of 1995 to $1,046,000 for the first six months of 1996 due to increases
in regular trust and custodian fees offset partially by decreases in
nonrecurring fees such as estate fees and termination fees. Trust fees
increased $62,000 or 14.2% for the second quarter of 1996 compared with the
prior year due to increases in estate fees along with increases in regular
trust and custodian fees.
Service charges on deposit accounts increased $164,000 or 10.6% for the
first six months of 1996 compared with the prior year. The increase in service
charges on deposit accounts reflected the addition of approximately $97 million
of deposits acquired with the five branch offices purchased by First Western
during the first quarter of 1995 along with an increase in the returned check
charge which was implemented in mid-1995. Service charges on deposit accounts
increased $35,000 or 4.0% for the second quarter of 1996 compared with the
prior year due primarily to the increase in fees charged for returned checks.
First Western's credit card program fees increased $78,000 or 12.2% from
$643,000 for the first six months of 1995 to $721,000 for the first six months
of 1996 reflecting the growth of First Western's credit card program along with
an increase in fees earned for processing merchant transactions. First
Western's credit card program fees increased $44,000 or 12.7% from $347,000 for
the second quarter of 1995 to $391,000 for the second quarter of 1996
reflecting the increase in volume and merchant fees.
During the first six months of 1996, First Western sold certain securities
available for sale realizing gains of $1.2 million, which was an increase of
$954,000 from $236,000 for the first six months of 1995. First Western sold
certain bank equity securities during the first six months of 1996 which
resulted in approximately $465,000 of the total gains realized with the
remaining gains resulting from First Western restructuring a portion of its
securities portfolio. During the second quarter of 1996, First Western
realized gains of $807,000 compared with $302,000 for the second quarter of
1995.
14<PAGE>
<PAGE> 15
Other operating income decreased $74,000 or 4.7% from $1.6 million for the
first six months of 1995 to $1.5 million for the first six months of 1996 due
to decreases in gains realized on sales of loans and other real estate owned.
During the first six months of 1995, First Western realized gains on sales of
loans of $364,000 primarily as a result of First Western selling its portfolio
of student loans, while sales of loans during the first six months of 1996
resulted in gains of $8,000. Sales of other real estate owned generated gains
of $333,000 during the first six months of 1995 compared with losses of $14,000
during the first six months of 1996. These decreases in income from sales of
loans and other real estate owned was partially offset by increases in other
types of income during the first six months of 1996. As a result of the loan
securitization and sales that took place during the fourth quarter of 1995,
First Western's income from loan servicing increased $272,000 for the first six
months of 1996 compared with the prior year. First Western increased its
mutual fund and annuity commissions by $250,000 by utilizing a third-party
provider beginning in the second quarter of 1995. During the first six months
of 1996, First Western realized an $80,000 gain on the sale of the solicitation
rights to one of First Western's credit card affinity group programs. For the
second quarter of 1996, other operating income decreased $136,000 or 16.3% due
to a $400,000 decrease in income from loan sales with this decrease partially
offset by a $136,000 increase in commissions on sale of mutual funds and
annuities and a $126,000 increase in loan servicing income.
Total other expenses increased $218,000 or 1.2% from $18.8 million for the
first six months of 1995 to $19.0 million for the first six months of 1996.
The increase in other expenses was lessened by a $583,000 decrease in Federal
Deposit Insurance Corporation ("FDIC") insurance expense for the first six
months of 1996 compared with the first six months of 1995. The decrease in
FDIC insurance expense along with a decrease in advertising expense resulted
in a $235,000 or 2.5% decrease in other expenses for the second quarter of 1996
compared with the prior year.
First Western's salary and employee benefits expense increased a combined
$326,000 or 3.8% for the first six months of 1996 compared with the first six
months of 1995. Salaries and employee benefits expense increased due to normal
salary and wage increases with these increases partially offset by a decrease
in First Western's medical insurance expense. First Western's salaries and
employee benefits expense decreased slightly from the second quarter of 1995
due to decreased medical insurance expense offsetting increased salaries and
wages.
Occupancy and equipment expense increased a combined $133,000 or 5.3% from
the first six months of 1995 to the first six months of 1996. The five branch
offices acquired during the first quarter of 1995 contributed to the increase
in occupancy and equipment expense. Also contributing to the increase in
occupancy and equipment expense
15<PAGE>
<PAGE> 16
was the opening of an in-store branch in late 1995 and the expansion of an
existing branch in early 1996. Occupancy and equipment expense increased
$74,000 or 6.0% from $1.2 million for the second quarter of 1995 to $1.3
million for the second quarter of 1996.
Federal deposit insurance expense decreased $583,000 or 47.5% from $1.2
million for the first six months of 1995 to $645,000 for the first six months
of 1996. This decrease was attributable to a reduction in the insurance rates
paid to the FDIC's Bank Insurance Fund ("BIF"). The impact of this insurance
rate decrease was partially offset by an increase in First Western's deposits
that are insured by the Savings Association Insurance Fund ("SAIF"). The BIF
insurance rates decreased from $0.23 per $100 of deposits for the first six
months of 1995 to a zero premium for the first six months of 1996.
Approximately 55% of First Western's deposits are insured by the BIF. The
insurance rate schedule for deposits insured by the SAIF remains unchanged from
the prior year. Recently there have been several proposals in various bills
in Congress to change the insurance rates paid for deposits insured by the
SAIF. One prominent proposal calls for a special assessment on institutions
with funds insured by the SAIF. If this proposal for a special assessment on
institutions with funds insured by the SAIF would be adopted it could result
in a one-time, pre-tax charge to First Western of approximately $3.3 million
at the current estimated special assessment rate of approximately $0.65 to
$0.70 per $100 of deposits insured by the SAIF, with a subsequent rate cut in
the regular semi-annual SAIF assessment. First Western's federal deposit
insurance expense decreased $307,000 or 48.7% for the second quarter of 1996
compared with the prior year due to the reduction in the BIF insurance rates.
First Western's outside examination, legal and consulting expense
increased $69,000 or 11.9% from the first six months of 1995 to the first six
months of 1996 due to First Western utilizing outside consultants during the
second quarter of 1996 to assist management in performing a product
profitability study for all loan and deposit products. First Western's outside
examination, legal and consulting expense increased $118,000 or 45.0% for the
second quarter of 1996 compared with the prior year.
First Western's advertising and promotion expense decreased $240,000 or
29.4% from $816,000 for the first six months of 1995 to $576,000 for the first
six months of 1996. The most significant component of the decrease in
advertising expense was a $118,000 reduction in credit card affinity group
solicitation costs due to First Western de-emphasizing the origination of new
affinity group programs. Additionally, First Western ran several special
promotions during the first six months of 1995 such as the grand opening of the
newly acquired branches and also the promotion of the loan by telephone
program. Through the first six months of 1996, First Western did not run any
special advertising campaigns similar in size to the prior year. First
Western's advertising and promotion expense decreased $237,000 or 54.0% for the
second quarter of 1996 compared
16<PAGE>
<PAGE> 17
with the prior year as a result of First Western reducing its credit card
solicitation expenditures along with a reduced amount of special promotions.
First Western's supplies expense decreased $49,000 or 6.2% from $785,000
for the first six months of 1995 to $736,000 for the first six months of 1996.
Supplies expense for the second quarter of 1996 was $378,000, decreasing
$76,000 or 16.7% from $454,000 for the second quarter of 1995.
Outside data processing services expense increased $203,000 or 31.0% from
$655,000 for the first six months of 1995 to $858,000 for the first six months
of 1996. First Western's expense for outside data processing services
increased due to increased Automated Teller Machine ("ATM") data processing
charges and increased credit card data processing charges. For the second
quarter of 1996, First Western's outside data processing expense increased
$96,000 or 28.7% from $335,000 for the second quarter of 1995 to $431,000 for
the second quarter of 1996 with this increase due primarily to increased ATM
interchange expense.
Other operating expenses increased $359,000 or 10.2% from $3.5 million for
the first six months of 1995 to $3.9 million for the first six months of 1996.
The amortization of the intangible assets resulting from the first quarter 1995
branch acquisitions added $122,000 to the increase in other expenses for the
six month period ended June 30, 1996 compared with the prior year. Other
operating expenses also increased due to increased telephone expense which was
the result of the additional locations added during the first quarter of 1995
and also due to increased customer use of bank-by-phone services. During the
first six months of 1996, First Western began purchasing various deposit
account enhancements from a third-party provider which contributed to the
increase in other expenses. Other operating expenses were $2.0 million for the
second quarter of 1996, increasing $105,000 or 5.7% from $1.9 million for the
second quarter of 1995. Other operating expenses increased from the second
quarter of 1995 to the second quarter of 1996 due to increased expenses for
software maintenance, telephone and the fees paid for the deposit product
enhancements. In addition, other expenses for the three and six month periods
ended June 30, 1995 were reduced by a $65,000 recovery of a fraud loss that was
discovered and expensed during 1994.
Income Taxes:
First Western's income tax expense was $2.7 million for the first six
months of 1996 compared with $3.5 million for the first six months of 1995.
First Western reduced its income tax expense for the three and six month
periods ended June 30, 1996 by $500,000 as a result of First Western reaching
a settlement with the IRS on various findings of an audit of First Western's
tax returns from 1989 through 1992. The $500,000 reduction in income tax
expense during the three
17<PAGE>
<PAGE> 18
and six month periods ended June 30, 1996 represents the difference between the
amount that First Western had accrued in prior years for potential IRS audit
findings and the actual settlement amount. Excluding the adjustment to income
tax expense for the IRS settlement, First Western's effective tax rate for the
six months ended June 30, 1996 would have been 29.1%, comparable to 30.1% for
the first six months of 1995.
Congress has recently passed legislation eliminating the taxation of bad
debt reserves created by thrifts prior to 1988. These bad debt reserves for
tax purposes would have created a potential tax liability if a thrift changed
its charter. If this legislation is signed by the President and becomes law,
which is currently anticipated, this potential liability related to thrift
charter conversions would be removed, eliminating this as an obstacle to
changing the thrift charter or merging the thrift subsidiary with the bank
subsidiary.
18<PAGE>
<PAGE> 19
Financial Condition as of June 30, 1996 as compared with December 31, 1995 and
June 30, 1995.
As of June 30, 1996, First Western's total assets were $1.701 billion
compared with $1.603 billion at December 31, 1995 and $1.659 billion at June
30, 1995. Most of the increase from June 30, 1995 and December 31, 1995 was
due to the growth of the loan and securities portfolios funded by an increase
in borrowed funds. Total average assets for the first six months of 1996 were
$1.655 billion compared with $1.549 billion for the first six months of 1995,
an increase of 6.8%.
Loan Portfolio:
Net loans increased $55.4 million or 5.4% during the first six months of
1996 with the growth rate of loans increasing during the second quarter of 1996
compared with the first quarter of 1996. First Western's loans outstanding
increased $35.7 million during the second quarter of 1996 compared with $19.7
million for the first quarter of 1996. Real estate-mortgage loans increased
$64.3 million during the first six months of 1996 with most of this increase
in residential mortgage loans. Mortgage loans have increased as a result of
First Western hiring additional mortgage loan originators during late 1995 and
early 1996. The following table shows the composition of First Western's loan
portfolio at June 30, 1996, December 31, 1995 and June 30, 1995:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
------------------------ ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------ -------- ----------- -------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural:
Automobile floorplan loans....... $ 24,263 2.2% $ 26,775 2.6% $ 24,047 2.3%
Loans to municipalities.......... 13,118 1.2 13,893 1.4 7,054 0.7
Other commercial loans........... 83,832 7.8 79,491 7.8 79,698 7.5
------------ -------- ----------- -------- ----------- --------
Subtotal....................... 121,213 11.2 120,159 11.8 110,799 10.5
------------ -------- ----------- -------- ----------- --------
Real estate-construction............. 18,325 1.7 24,501 2.4 19,967 1.9
------------ -------- ----------- -------- ----------- --------
Real estate-mortgage:
1-4 Family residential............. 414,174 38.4 353,494 34.6 411,419 38.5
Multi-family residential........... 32,605 3.0 35,088 3.4 29,223 2.7
Home equity........................ 44,271 4.1 41,417 4.0 37,823 3.5
Commercial and other............... 144,940 13.4 141,667 13.8 131,201 12.3
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 635,990 58.9 571,666 55.8 609,666 57.0
------------ -------- ----------- -------- ----------- --------
Installment:
Credit cards....................... 41,049 3.8 45,226 4.4 37,808 3.5
Installment and other.............. 262,962 24.4 262,554 25.6 289,067 27.1
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 304,011 28.2 307,780 30.0 326,875 30.6
------------ -------- ----------- -------- ----------- --------
Total............................ $ 1,079,539 100.0% $ 1,024,106 100.0% $ 1,067,307 100.0%
============ ======== =========== ======== =========== ========
</TABLE>
19<PAGE>
<PAGE> 20
First Western has several procedures in place to assist in maintaining the
overall quality of its loan portfolio. First Western has established
underwriting guidelines to be followed by its subsidiaries. In addition, a
formal, ongoing loan review program, which concentrates principally on
commercial credits, has been established to help monitor the loan portfolios
of the subsidiaries. First Western also regularly monitors its delinquency
levels for any negative or adverse trends and particularly monitors credits
which have total exposures of $1.5 million or more.
First Western's delinquent loans, nonaccrual loans and nonperforming
assets consisted of the following at June 30, 1996, December 31, 1995 and June
30, 1995:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ........................... $ 8,766 $ 10,420 $ 6,761
Loans past due 90 days or more ......................... 1,721 2,648 1,697
------------- ------------ -------------
Total loan delinquencies ............................. $ 10,487 $ 13,068 $ 8,458
============= ============ =============
Nonaccrual loans ......................................... $ 4,966 $ 4,959 $ 4,444
Other real estate owned .................................. 600 165 388
------------- ------------ -------------
Total nonperforming assets ............................... $ 5,566 $ 5,124 $ 4,832
============= ============ =============
Total nonperforming assets and loans
past due 90 days or more ............................... $ 7,287 $ 7,772 $ 6,529
============= ============ =============
Nonaccrual loans to total loans .......................... 0.46 % 0.48 % 0.42 %
Nonperforming assets to total loans
and other real estate owned ............................ 0.51 % 0.50 % 0.45 %
Nonperforming assets to total assets ..................... 0.33 % 0.32 % 0.29 %
Nonperforming assets and loans past due
90 days or more to total assets ........................ 0.43 % 0.48 % 0.39 %
Nonaccrual loans and loans past due
90 days or more to total loans ......................... 0.62 % 0.74 % 0.58 %
Allowance for possible loan losses
to nonaccrual loans .................................... 320.92 % 285.31 % 305.83 %
Allowance for possible loan losses
to loans past due 90 days or more
and nonaccrual loans ................................... 238.32 % 185.98 % 221.32 %
Allowance for possible loan losses to
total loans ............................................ 1.47 % 1.38 % 1.27 %
</TABLE>
First Western's total delinquencies decreased $2.6 million from $13.1
million at December 31, 1995 to $10.5 million at June 30, 1996 with $1.7
million of this decrease occurring in loans past due 30-89 days and $927,000
of this decrease occurring in loans past due 90 days
20<PAGE>
<PAGE> 21
or more. During the second quarter of 1996, First Western's total delinquent
loans increased $369,000 or 3.6% due primarily to an increase in delinquencies
of mortgage loans serviced by others. Consumer loan delinquencies decreased
$347,000 and $2.6 million for the three and six months ended June 30, 1996,
respectively, however some of these decreases were due to increases in consumer
loans charged-off during these periods. See "Provision for Possible Loan
Losses" for a further discussion of loan charge-offs. Most of the increase in
delinquencies from June 30, 1995 to June 30, 1996 has been due to increased
consumer loan delinquencies. First Western's delinquent loans by type are as
follows at June 30, 1996, December 31, 1995 and June 30, 1995.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial, financial
and agricultural................... $ 37 $ 466 $ -
------------ ------------ ------------
Real estate-mortgage:
1-4 Family residential............. 1,378 912 993
Home equity........................ 99 83 88
Commercial and other............... - 70 -
------------ ------------ ------------
Subtotal......................... 1,477 1,065 1,081
------------ ------------ ------------
Installment:
Credit cards....................... 1,018 1,174 839
Installment and other.............. 7,955 10,363 6,538
------------ ------------ ------------
Subtotal......................... 8,973 11,537 7,377
------------ ------------ ------------
Total............................ $ 10,487 $ 13,068 $ 8,458
============ ============ ============
</TABLE>
In order to determine the adequacy of the allowance for possible loan
losses, management considers the risk classification of loans, delinquency
trends, charge-off experience, credit concentrations, economic conditions and
other factors. Specific reserves are established for each classified credit
taking into consideration the credit's delinquency status, current operating
status, pledged collateral and plan of action for resolving any deficiencies.
For nonclassified loans and smaller loans not individually reviewed, management
considers historical charge-off experience in determining the amount to be
allocated to the allowance. An unallocated or general reserve is also
established which takes into consideration, among other things, unfunded
commitments, concentrations of credit, economic conditions, delinquency and
nonaccrual trends, management experience and trends in volume and terms of
loans. The allowance is maintained at a level determined according to this
methodology by charging a provision to operations.
First Western believes that the allowance for possible loan losses of
$15.9 million at June 30, 1996 is adequate to cover losses
21<PAGE>
<PAGE> 22
inherent in the portfolio as of such date. However, there can be no assurance
that First Western will not sustain losses in future periods, which could be
substantial in relation to the size of the allowance at June 30, 1996.
Investment Securities, Mortgage-Backed Securities, and Securities Available for
Sale:
Investment securities and mortgage-backed securities increased a combined
$29.2 million for the first six months of 1996 with this increase due to the
purchase of securities funded by increased borrowings. The market value of
First Western's investment securities and mortgage-backed securities held to
maturity was a combined $284.0 million, $4.7 million or 1.6% below the
amortized cost of $288.7 million. First Western's portfolio of investment
securities and mortgage-backed securities had a market value below amortized
cost of $179,000 or 0.1% at December 31, 1995. The decrease in market value
of First Western's portfolio of investment securities and mortgage-backed
securities was due to an increase in intermediate and long-term interest rates
during the first six months of 1996.
Securities available for sale increased $12.5 million during the first six
months of 1996. Securities available for sale increased $102.6 million from
$156.9 million at June 30, 1995 to $259.5 million at June 30, 1996 with this
increase due to the purchase of securities using the funds provided by the
acquisition of the branch offices during the first quarter of 1995 and also
using the funds provided by the fourth quarter 1995 loan securitizations and
sales. At June 30, 1996, First Western had net unrealized depreciation on
securities available for sale of $1.4 million compared with unrealized
appreciation of $3.8 million at December 31, 1995 and unrealized appreciation
of $1.5 million at June 30, 1995.
Deposits:
Total deposits decreased $3.7 million or 0.3% from $1.178 billion at
December 31, 1995 to $1.174 billion at June 30, 1996. Deposits decreased
during the first six months of 1996 primarily due to the maturity of a short-
term deposit from a commercial customer that was originated during the fourth
quarter of 1995. First Western's deposits have not been growing due in part
to First Western holding down interest rates paid for deposits below
competitors in an effort to improve the net interest margin and to prevent
further disintermediation from lower-costing to higher-costing deposits. First
Western's deposits decreased $6.0 million from June 30, 1995 to June 30, 1996
with most of this decrease attributable to some run-off of certain higher rate
deposits acquired in the first quarter of 1995.
22<PAGE>
<PAGE> 23
Borrowed Funds:
First Western's borrowed funds increased $144.6 million during the first
six months of 1996 from $236.9 million at December 31, 1995 to $381.5 million
at June 30, 1996. First Western increased its borrowings during the first six
months of 1996 in order to fund the purchases of securities and also to fund
the loan growth. Total borrowed funds increased $47.3 million from June 30,
1995 to June 30, 1996 as these additional borrowings were necessary to fund the
growth of the securities and loan portfolios.
23<PAGE>
<PAGE> 24
Shareholders' Equity:
Shareholders' equity decreased slightly during the first six months of
1996 due to a $3.4 million decline in the market value of securities available
for sale, net of income tax effects, and also due to treasury stock purchases
and stock purchased for the Company's ESOP. During the first six months of
1996, First Western repurchased 101,900 shares of common stock as treasury
stock at a cost of $2.7 million in accordance with a common stock repurchase
program. During the second quarter of 1996, First Western purchased 40,000
shares of common stock at a cost of $1.0 million to be used for the Company's
ESOP. This purchase was funded by a loan from an unrelated financial
institution. The following table presents First Western's capital ratios at
June 30, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Tier I:
Common shareholders' equity .............................. $ 120,203 $ 121,688
Non-exempt intangible assets ............................. (6,969) (7,391)
Unrealized (appreciation) depreciation in securities
available for sale ..................................... 914 (2,492)
------------- ------------
Total Tier I ......................................... 114,148 111,805
------------- ------------
Tier II:
Qualifying allowance for possible loan losses ............ 12,939 12,445
------------- ------------
Total Tier II ........................................ 12,939 12,445
------------- ------------
Total capital .............................................. $ 127,087 $ 124,250
============= ============
Risk weighted assets ....................................... $ 1,032,147 $ 993,929
============= ============
Tier I capital ratio ....................................... 11.06% 11.25%
============= ============
Required Tier I capital ratio .............................. 4.00% 4.00%
============= ============
Total capital ratio ........................................ 12.31% 12.51%
============= ============
Required total capital ratio ............................... 8.00% 8.00%
============= ============
Tier I leverage ratio ...................................... 6.78% 6.99%
============= ============
Required Tier I leverage ratio * ........................... 3.00% 3.00%
============= ============
<FN>
* For all but the most highly rated, low risk profile organizations, the
minimum Tier I leverage ratio is to be 3% plus a cushion of 100 to 200 basis
points.
</TABLE>
24<PAGE>
<PAGE> 25
Liquidity and Cash Flows:
Liquidity is the ability to provide the cash necessary to meet customer
credit needs, satisfy depositor withdrawal requirements and to pay-off short-
term borrowings. One source of liquidity is cash and due from banks and short-
term assets such as interest-bearing deposits in other banks and federal funds
sold, which totaled $41.6 million at June 30, 1996 as compared with $41.6
million at December 31, 1995 and $44.9 million at June 30, 1995. Another
source of liquidity is borrowing capability. First Western's banking
subsidiaries have a variety of sources of short-term liquidity available to
them, including federal funds purchased from correspondent banks, sales of
securities available for sale, sales of securities under agreements to
repurchase, the Federal Reserve discount window, interbank deposits, FHLB
advances and loan participations or sales. First Western also generates
liquidity from the regular principal payments and prepayments made on its
portfolio of loans and mortgage-backed securities. First Western's banking
subsidiaries had $21.0 million of unused overnight credit lines available at
June 30, 1996.
First Western's operating activities provided cash flows of $8.4 million
during the first six months of 1996 compared with $10.1 million during the
first six months of 1995. The primary source of operating cash flows was net
income combined with noncash expenses such as the provision for possible loan
losses and depreciation.
Investing activities used cash flows of $140.8 million during the first
six months of 1996 compared with using cash flows of $101.8 million for the
first six months of 1995. The growth of the securities portfolios used net
cash flows of $83.8 million during the first six months of 1996 while the
growth of the loan portfolio used net cash flows of $56.5 million. The five
branch offices acquired during the first six months of 1995 provided First
Western with net cash flows of $88.0 million which represents the deposit
liabilities assumed by First Western net of the premium paid for the deposits
and the assets that were purchased. Most of the funds provided by the
acquisition of the branches were initially used to purchase securities
available for sale. The growth of the loan portfolio during the first six
months of 1995 used net cash flows of $88.7 million.
Financing activities provided cash flows of $133.2 million in the first
six months of 1996 with increased borrowings providing cash flows of $144.6
million and a decrease in deposits using cash flows of $3.7 million. During
the first six months of 1995, financing activities provided cash flows of $93.0
million primarily as a result of an increase in deposits of $53.9 million and
increased borrowings providing cash flows of $42.8 million.
25<PAGE>
<PAGE> 26
Other:
Certain of the statements and information in this Form 10-Q may be forward
looking statements. For a discussion of the factors that may affect these
statements refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operations in First Western's Annual Report on Form
10-K for the year ended December 31, 1995.
26 <PAGE>
<PAGE> 27
Part II. Other Information
Items 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
15.1 Letter re: Unaudited Interim Financial Information.
27.1 Financial Data Schedule
b. Reports on Form 8-K: None.
27<PAGE>
<PAGE> 28
Signature
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 BANCORP, INC.
(Registrant)
August 9, 1996 /s/ Robert H. Young
Robert H. Young
Senior Vice President-Finance,
Secretary and Treasurer
(Principal Financial Officer)
28<PAGE>
<PAGE> 29
FIRST WESTERN BANCORP, INC.
EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------ ----------- ------
<C> <C> <C>
15.1 Letter re: Unaudited Interim Financial Filed
Information herewith
27.1 Financial Data Schedule Filed
herewith
</TABLE>
<PAGE> 1
DELOITTE & Exhibit 15.1
TOUCHE LLP
- ----------
- -----------------------------------------------------------------
2500 One PPG Place Telephone: (412) 338-7200
Pittsburgh, Pennsylvania 15222-5401 Facsimile: (412) 338-7380
August 9, 1996
To the Board of Directors and Shareholders of
First Western Bancorp, Inc.
New Castle, Pennsylvania 16103
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of First Western Bancorp, Inc. and subsidiaries for the
periods ended June 30, 1996 and 1995, as indicated in our report dated
July 16, 1996; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated by reference in the Registration Statements of First Western
Bancorp, Inc. on Form S-8 (No. 33-46923) for the First Western Bancorp, Inc.
401(k) Profit-Sharing and Stock Bonus Plan, on Form S-8 (No. 33-00528) for
the First Western Bancorp, Inc. Incentive Stock Option Plan for Key Employees
and on Form S-3 (No. 33-40596) for the First Western Bancorp, Inc. Dividend
Reinvestment and Additional Stock Purchase Plan.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statements prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
/s/ DELOITTE & TOUCHE LLP
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
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<NAME> First Western Bancorp Inc.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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0
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