<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 September 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
November 8, 1996 was:
Common Stock, $5.00 par value - 7,669,638 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:
September 30, 1996, December 31, 1995 and
September 30, 1995..................................... 4
Consolidated Statements of Income:
Three months ended September 30, 1996
and three months ended September 30, 1995.............. 5
Consolidated Statements of Income:
Nine months ended September 30, 1996
and nine months ended September 30, 1995............... 6
Consolidated Statements of Changes
in Shareholders' Equity:
Nine months ended September 30, 1996
and nine months ended September 30, 1995............... 7
Consolidated Statements of Cash Flows:
Nine months ended September 30, 1996
and nine months ended September 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. ........................................... 28
Signature.................................................... 29
</TABLE>
<PAGE>
<PAGE> 3
DELOITTE &
TOUCHE LLP
- ----------
- -----------------------------------------------------------------
2500 One PPG Place Telephone: (412) 338-7200
Pittsburgh, Pennsylvania 15222-5401 Facsimile: (412) 338-7380
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 September 30, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the three-month and nine-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
October 15, 1996
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
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>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
- -------
Cash and due from banks $ 46,944 $ 39,464 $ 34,564
------------- ------------ -------------
Interest-bearing deposits with other banks 1,287 2,124 661
------------- ------------ -------------
Securities available for sale
(amortized cost of $240,109, $243,145 and $145,351) 238,922 246,980 146,978
------------- ------------ -------------
Investment securities (market value of $105,434, $115,024, and $126,056) 105,638 114,015 125,846
------------- ------------ -------------
Mortgage-backed securities (market value of $170,979, $144,362
and $190,323) 174,583 145,550 192,754
------------- ------------ -------------
Loans available for sale (market value of $3,209, $3,518 and $116,092) 3,209 3,510 115,421
------------- ------------ -------------
Loans (net of unearned income of $33,946, $34,636 and $40,576) 1,113,264 1,024,106 1,012,159
Less: Allowance for possible loan losses 16,073 14,148 13,855
------------- ------------ -------------
Net loans 1,097,191 1,009,958 998,304
------------- ------------ -------------
Premises and equipment 19,147 18,411 18,394
------------- ------------ -------------
Other assets 25,845 23,252 23,246
------------- ------------ -------------
Total Assets $ 1,712,766 $ 1,603,264 $ 1,656,168
============= ============ =============
LIABILITIES:
- ------------
Deposits:
Noninterest-bearing demand $ 101,075 $ 102,864 $ 99,827
Interest-bearing demand 127,501 110,703 98,344
Savings 256,859 271,442 273,476
Time 665,874 692,674 706,063
------------- ------------ -------------
Total deposits 1,151,309 1,177,683 1,177,710
------------- ------------ -------------
Borrowed funds:
Federal funds purchased and other short-term borrowings 92,821 3,598 77,632
Repurchase agreements and secured lines of credit 199,615 121,658 129,486
Advances from the Federal Home Loan Bank 119,000 111,670 119,191
------------- ------------ -------------
Total borrowed funds 411,436 236,926 326,309
------------- ------------ -------------
Long-term debt 6,507 8,133 8,674
------------- ------------ -------------
Other liabilities 21,715 58,834 26,412
------------- ------------ -------------
Total Liabilities 1,590,967 1,481,576 1,539,105
------------- ------------ -------------
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 7,803,278 shares
issued 39,115 39,083 39,016
Additional paid-in capital 21,873 21,811 21,547
Retained earnings 66,334 59,313 56,454
Unrealized (depreciation) appreciation in securities available for sale (771) 2,492 1,057
Treasury stock, 154,400, 52,500 and 52,500 shares at cost (3,702) (1,011) (1,011)
Unallocated common stock held by ESOP (at cost) (1,050) - -
------------- ------------ -------------
Total Shareholders' Equity 121,799 121,688 117,063
------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 1,712,766 $ 1,603,264 $ 1,656,168
============= ============ =============
</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
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 23,270 $ 23,746
Interest and fees on loans available for sale 78 -
Interest on deposits with other banks 15 11
Interest on securities available for sale 4,280 2,543
Interest and dividends on investment securities:
Taxable interest 368 750
Tax-exempt interest 1,041 1,004
Interest on mortgage-backed securities 2,719 2,996
Interest on federal funds sold - 3
------------- -------------
Total Interest Income 31,771 31,053
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 404 464
Savings 1,702 1,745
Time 9,255 10,265
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 940 576
Repurchase agreements and secured lines of credit 2,943 2,034
Advances from the Federal Home Loan Bank 1,610 1,830
Interest on long-term debt 123 183
------------- -------------
Total Interest Expense 16,977 17,097
------------- -------------
NET INTEREST INCOME 14,794 13,956
Provision for possible loan losses 1,190 956
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 13,604 13,000
------------- -------------
OTHER INCOME:
- -------------
Trust fees 448 479
Service charges on deposit accounts 972 856
Credit card program fees 459 386
Net securities gains 541 479
Other operating income 679 807
------------- -------------
Total Other Income 3,099 3,007
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 3,579 3,459
Employee benefits 957 1,022
Net occupancy expense 685 805
Equipment rentals, depreciation and maintenance 519 561
Federal deposit insurance 3,581 259
Outside examination, legal fees and consulting 325 485
Advertising and promotion 366 384
Supplies 396 384
Outside data processing services 443 374
Other operating expense 2,097 1,946
------------- -------------
Total Other Expenses 12,948 9,679
------------- -------------
INCOME BEFORE INCOME TAXES 3,755 6,328
Income Taxes 921 1,948
------------- -------------
NET INCOME $ 2,834 $ 4,380
============= =============
EARNINGS PER SHARE $ 0.37 $ 0.56
============= =============
DIVIDENDS PER SHARE $ 0.18 $ 0.17
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 7,722 7,838
============= =============
</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 Nine Months Ended
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 67,862 $ 67,676
Interest and fees on loans available for sale 150 -
Interest on deposits with other banks 45 32
Interest on securities available for sale 12,985 7,314
Interest and dividends on investment securities:
Taxable interest 1,167 2,376
Tax-exempt interest 3,107 3,015
Interest on mortgage-backed securities 7,877 8,953
Interest on federal funds sold 11 117
------------- -------------
Total Interest Income 93,204 89,483
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 1,145 1,473
Savings 5,173 5,798
Time 28,338 28,291
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 2,165 1,048
Repurchase agreements and secured lines of credit 7,972 5,671
Advances from the Federal Home Loan Bank 4,776 5,583
Interest on long-term debt 375 572
------------- -------------
Total Interest Expense 49,944 48,436
------------- -------------
NET INTEREST INCOME 43,260 41,047
Provision for possible loan losses 5,770 2,626
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 37,490 38,421
------------- -------------
OTHER INCOME:
- -------------
Trust fees 1,494 1,489
Service charges on deposit accounts 2,690 2,410
Credit card program fees 1,180 1,029
Net securities gains 1,731 715
Other operating income 2,167 2,369
------------- -------------
Total Other Income 9,262 8,012
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 10,471 10,055
Employee benefits 3,044 3,079
Net occupancy expense 2,167 2,171
Equipment rentals, depreciation and maintenance 1,679 1,704
Federal deposit insurance 4,226 1,487
Outside examination, legal fees and consulting 972 1,063
Advertising and promotion 942 1,200
Supplies 1,132 1,169
Outside data processing services 1,301 1,029
Other operating expense 5,986 5,476
------------- -------------
Total Other Expenses 31,920 28,433
------------- -------------
INCOME BEFORE INCOME TAXES 14,832 18,000
Income Taxes 3,643 5,461
------------- -------------
NET INCOME $ 11,189 $ 12,539
============= =============
EARNINGS PER SHARE $ 1.44 $ 1.60
============= =============
DIVIDENDS PER SHARE $ 0.54 $ 0.52
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 7,791 7,849
============= =============
</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 Nine Months Ended September 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 - - - 11,189 - - - -
Cash dividends paid ($0.54 per share) - - - (4,168) - - - -
Exercise of options, net of shares redeemed 5 27 43 - - - - -
Common stock issued for dividend reinvestment 1 5 19 - - - - -
Common stock purchased by ESOP - - - - - - (40) (1,050)
Treasury stock purchased - - - - - (2,691) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - (3,263) - - -
------------------------------------------------------------------------------
Balance - September 30, 1996 7,823 $39,115 $21,873 $66,334 $(771) $(3,702) (40) $(1,050)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 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 - - - 12,539 - - - -
Cash dividends paid ($0.52 per share) - - - (4,046) - - - -
Purchased stock allocated to
ESOP participants - - - - - - 1 23
Exercise of options, net of shares redeemed 15 75 (54) - - - - -
Common stock issued for dividend
reinvestment 7 35 175 - - - - -
Treasury stock purchased - - - - - (1,011) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - 3,248 - - -
Fifty percent stock dividend
declared October 17, 1995 2,601 13,005 (13,005) - - - - -
------------------------------------------------------------------------------
Balance - September 30, 1995 7,803 $39,016 $21,547 $56,454 $1,057 $(1,011) - $-
==============================================================================
</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 Nine Months Ended
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 11,189 $ 12,539
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,688 1,674
Amortization and accretion 1,528 (15)
Provision for possible loan losses 5,770 2,626
Gain on sale of securities (1,731) (715)
Loss (gain) on sale of real estate owned 44 (578)
(Gain) loss on sale of premises and equipment 27 40
Gain on sale of loans (54) (423)
Provision for deferred tax benefit (23) (48)
(Decrease) increase in current taxes payable (1,746) 31
Increase in interest receivable (1,566) (1,295)
(Decrease) increase in interest payable (38) 4,258
Federal deposit insurance special assessment 3,291 -
Other - net (1,493) (998)
------------- -------------
Total adjustments 5,697 4,557
------------- -------------
Net cash provided by operating activities 16,886 17,096
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sales of securities available for sale 84,083 56,695
Proceeds from maturity or paydown of securities available for sale 46,052 10,696
Purchase of securities available for sale (162,967) (129,760)
Proceeds from maturity or paydown of investment securities 40,534 32,715
Purchase of investment securities (61,796) (15,085)
Purchase of loans (6,155) (30,761)
Proceeds from sale of loans 29,130 28,056
Net increase in loans (116,279) (146,937)
Decrease in deposits with other banks 838 211
Purchase of premises and equipment (2,488) (1,043)
Proceeds from sale of premises and equipment 35 99
Proceeds from sale of other real estate owned 852 1,555
Cash received in branch purchases - 88,021
------------- -------------
Net cash used in investing activities (148,161) (105,538)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net (decrease) increase in deposits (26,314) 51,671
Net increase in federal funds purchased and other
short-term borrowings 89,223 42,785
Net increase in repurchase agreements and secured lines of credit 77,957 1,025
Net increase (decrease) in advances from the Federal Home Loan Bank 7,330 (8,930)
Proceeds from issuance of long-term debt 1,050 -
Payments on long-term debt (2,676) (1,645)
Proceeds from exercise of stock options 70 21
Proceeds from common stock issued for dividend reinvestment plan 24 210
Treasury stock purchased (2,691) (1,011)
Common stock purchased for ESOP (1,050) -
Stock allocated to ESOP participants - 23
Dividends paid on common stock (4,168) (4,046)
------------- -------------
Net cash provided by financing activities 138,755 80,103
------------- -------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 7,480 (8,339)
CASH AND DUE FROM BANKS - Beginning of year 39,464 42,903
------------- -------------
CASH AND DUE FROM BANKS - End of period $ 46,944 $ 34,564
============= =============
</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 Nine Months Ended
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 49,982 $ 44,187
============= =============
Income taxes $ 5,562 $ 5,510
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities purchased settling after September 30 $ - $ 5,861
============= =============
Transfers to other real estate owned $ 983 $ 254
============= =============
Net change in unrealized (depreciation) appreciation in securities
available for sale, net of income tax effects $ (3,263) $ 3,248
============= =============
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 NINE MONTHS ENDED SEPTEMBER 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 September 30, 1996 and September 30,
1995, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the three and nine month periods ended
September 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 nine months ended September 30, 1996
compared with the three and nine months ended September 30, 1995:
For the nine months ended September 30, 1996, First Western's net income
was $11.2 million or $1.44 per share compared with $12.5 million or $1.60 per
share for the nine months ended September 30, 1995. First Western's net income
decreased $1.3 million or 10.8% from the first nine months of 1995 to the first
nine months of 1996 primarily due to a $3.1 million increase in the provision
for possible loan losses and a $2.7 million increase in federal deposit
insurance expense. During the first nine months of 1996, First Western
increased its provision for possible loan losses in response to increased
consumer loan charge-offs and delinquencies. First Western's federal deposit
insurance expense increased from the prior year as a result of the President
signing the Omnibus Consolidated Appropriations Act on September 30, 1996
which, among other items, called for a recapitalization of the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation ("FDIC"). As a result of this legislation, First Western will pay
a one-time special assessment of $3.3 million during the fourth quarter of
1996. This one-time FDIC assessment, net of income taxes, reduced earnings for
the three and nine month periods ended September 30, 1996 by approximately $2.0
million or $0.26 per share. Excluding the FDIC assessment, earnings for the
nine months ended September 30, 1996 would have been $13.2 million or $1.70 per
share, increasing 5.4% and 6.3%, respectively, over earnings of $12.5 million
or $1.60 per share for the nine months ended September 30, 1995. The impact
of the increase in the provision for possible loan losses and FDIC special
assessment was partially offset by a $2.3 million or 5.4% increase in net
interest income and a $1.3 million or 15.6% increase in other income primarily
due to a $1.0 million 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 nine months of 1996 were 0.90% and 12.36%, respectively, compared
with 1.06% and 14.98% for the first nine months of 1995, with the decline in
these ratios attributable to the increased provision for possible loan losses
and the FDIC special assessment. Excluding the impact of the FDIC special
assessment, First Western's return on average assets and return on average
equity for the nine months ended September 30, 1996 would have been
approximately 1.06% and 14.60%, respectively.
For the three months ended September 30, 1996, First Western's net income
was $2.8 million, decreasing $1.6 million or 35.3% from $4.4 million for the
third quarter of 1995 due to the FDIC special assessment. First Western's
earnings per share were $0.37 for the three months ended September 30, 1996,
decreasing from $0.56 for the three months ended September 30, 1995 due to the
FDIC special
11<PAGE>
<PAGE> 12
assessment. Excluding the FDIC special assessment, earnings for the three
months ended September 30, 1996 would have been $4.9 million or $0.63 per
share. First Western's return on average assets and return on average equity
were 0.67% and 9.23%, respectively, for the three months ended September 30,
1996, compared with 1.07% and 15.19% for the third quarter of 1995. Excluding
the impact of the FDIC special assessment, First Western's return on average
assets and return on average equity for the three months ended September 30,
1996 would have been approximately 1.15% and 15.83%, respectively.
Net Interest Income:
First Western's net interest income was $43.3 million for the nine months
ended September 30, 1996, increasing $2.3 million or 5.4% from $41.0 million
for the first nine months of 1995. The increase in net interest income was
generated by an $88.7 million or 5.9% increase in average earning assets which
was partially offset by a decline in First Western's net interest margin from
3.79% for the first nine months of 1995 to 3.77% for the first nine months of
1996. The increase in average earning assets was due to a $67.0 million or
14.2% increase in average securities along with a $24.0 million or 2.3%
increase in average loans outstanding. The growth in average earning assets
was funded by a $71.6 million or 25.1% increase in average borrowed funds and
an $11.0 million or 1.0% increase in average deposits.
First Western's net interest income for the third quarter of 1996 was
$14.8 million, increasing $838,000 or 6.0% from $14.0 million for the third
quarter of 1995. This increase in net interest income was due to a $63.4
million or 4.1% increase in average earning assets along with an increase in
the net interest margin. The increase in average earning assets for the third
quarter of 1996 compared with the prior year was due to a $65.3 million or
14.0% increase in average securities funded by an increase in average borrowed
funds. First Western's net interest margin for the third quarter of 1996 was
3.79%, increasing from 3.71% for the third 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 3.77% for the first nine months of
1996 compared with 3.79% for the first nine months of 1995. First Western's
yield on earning assets declined from the first nine months of 1995 to the
first nine 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 nine 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 $5.8 million for
the first nine months of 1996, increasing $3.2 million from $2.6 million for
the first nine months of 1995. During the third quarter of 1996, First
Western's provision for possible loan losses was $1.2 million, increasing
$200,000 from $1.0 million for the third quarter of 1995 and decreasing $2.1
million from a provision of $3.3 million for the second 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. First
Western's net charge-offs for the first nine months of 1996 were $3.8 million
or 0.48% of average loans, compared with $1.7 million or 0.22% of average loans
for the first nine months of 1995. Substantially all of First Western's
charge-offs for the first nine months of 1995 and 1996 were consumer loans,
primarily indirect automobile loans and credit card loans. First Western's net
charge-offs for the third quarter of 1996 were $1.0 million, compared with
$572,000 for the third quarter of 1995 and $1.0 million and $1.8 million for
the first and second quarters of 1996, respectively.
First Western's net charge-offs by loan type are as follows (in
thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural loans.......................... $ (87) $ (30)
Real estate construction loans........................................ - -
Real estate mortgage loans............................................ 130 (7)
Installment loans..................................................... 3,801 1,751
---------- ----------
Total net charge-offs.............................................. $ 3,844 $ 1,714
========== ==========
Net charge-offs as a percentage of
average loans...................................................... 0.48% 0.22%
========== ==========
</TABLE>
13<PAGE>
<PAGE> 14
Other Income and Other Expenses:
Other income increased $1.3 million or 15.6% from $8.0 million for the
first nine months of 1995 to $9.3 million for the first nine months of 1996
primarily due to gains on sales of securities available for sale, and increases
in fees for servicing loans, service charges on deposit accounts and
commissions on sales of mutual funds and annuities. These increases in other
income were partially offset by decreases in gains realized on sales of other
real estate owned and gains on sales of loans. For the third quarter of 1996,
other income was $3.1 million, increasing $92,000 or 3.1% from $3.0 million for
the third quarter of 1995 with most of this increase due to increases in fees
for servicing loans and service charges on deposit accounts. Partially
offsetting these increases in other income for the third quarter of 1996
compared with the prior year was a $275,000 decrease in gains on sales of other
real estate owned.
Service charges on deposit accounts increased $280,000 or 11.6% for the
first nine months of 1996 compared with the same period in 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 implemented in mid-1995. Service charges
on deposit accounts increased $116,000 or 13.6% for the third 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 $152,000 or 14.7% from
$1.0 million for the first nine months of 1995 to $1.2 million for the first
nine 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 $73,000 or
18.9% from $386,000 for the third quarter of 1995 to $459,000 for the third
quarter of 1996 reflecting the increases in volume and merchant fees.
During the first nine months of 1996, First Western sold certain
securities available for sale realizing gains of $1.7 million, which was an
increase of $1.0 million from gains of $715,000 for the first nine months of
1995. First Western sold certain bank equity securities during the first nine
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 third quarter of 1996, First
Western realized gains of $541,000 compared with $479,000 for the third quarter
of 1995.
Other operating income decreased $202,000 or 8.5% from $2.7 million for
the first nine months of 1995 to $2.2 million for the first nine months of 1996
due to decreases in gains realized on sales of loans and other real estate
owned. During the first nine months of
14<PAGE>
<PAGE> 15
1995, First Western realized gains on sales of loans of $423,000 primarily as
a result of First Western selling its portfolio of student loans, while sales
of loans during the first nine months of 1996 resulted in gains of $54,000.
Sales of other real estate owned resulted in gains of $578,000 during the first
nine months of 1995 compared with losses of $44,000 during the first nine
months of 1996. These decreases in income from sales of loans and other real
estate owned were partially offset by increases in other types of income during
the first nine months of 1996. As a result of the loan securitizations and
sales that took place during the fourth quarter of 1995, First Western's income
from loan servicing increased $388,000 for the first nine months of 1996
compared with the same period in the prior year. First Western increased its
mutual fund and annuity commissions by $249,000 by utilizing a third-party
provider beginning in the second quarter of 1995. During the first nine 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
third quarter of 1996, other operating income decreased $128,000 or 15.9% due
to a $275,000 decrease in gains realized on sales of other real estate owned
with this decrease partially offset by a $115,000 increase in loan servicing
income.
Total other expenses increased $3.5 million or 12.3% from $28.4 million
for the first nine months of 1995 to $31.9 million for the first nine months
of 1996 due to a $3.3 million one-time assessment to recapitalize the FDIC's
Savings Association Insurance Fund. This assessment also resulted in an
increase in other expenses of $3.3 million or 33.8% from $9.7 million for the
third quarter of 1995 to $12.9 million for the third quarter of 1996.
First Western's salary and employee benefits expense increased a combined
$381,000 or 2.9% for the first nine months of 1996 compared with the first nine
months of 1995. Salaries and employee benefits expense increased due to normal
salary and wage increases in addition to First Western increasing the number
of its branch locations with these increases partially offset by a decrease in
First Western's medical insurance expense. First Western's salaries and
employee benefits expense increased $55,000 or 1.2% for the third quarter of
1996 compared with the prior year due to increased salaries and wages resulting
from new branch locations with this increase partially offset by lower benefit
costs.
Occupancy and equipment expense decreased a combined $29,000 or 0.7% from
the first nine months of 1995 to the first nine months of 1996 due to First
Western recording a $100,000 charge to occupancy expense during the third
quarter of 1995 to accrue for the costs of abandoning two leased branch
offices. Also contributing to the decrease in occupancy and equipment expense
was an increase in rental income and a reduction in property tax expense with
these decreases partially offset by the opening of an in-store branch in late
1995 and the expansion of an existing branch in early 1996. Occupancy and
equipment expense decreased $162,000 or 11.9% from $1.4 million for
15<PAGE>
<PAGE> 16
the third quarter of 1995 to $1.2 million for the third quarter of 1996 due to
the costs to abandon the two leased offices recorded during the third quarter
of 1995 along with a decrease in depreciation expense.
Federal deposit insurance expense increased $2.7 million from $1.5 million
for the first nine months of 1995 to $4.2 million for the first nine months of
1996 with this increase due to a one-time assessment of thrift deposits in
order to recapitalize the SAIF. On September 30, 1996, the President signed
legislation which included provisions to recapitalize the SAIF by means of a
one-time assessment on SAIF insured deposits. The one-time assessment was set
at $0.657 per $100 of insured deposits. This legislation also eliminated the
insurance rate differential between the Bank Insurance Fund ("BIF") and the
SAIF and provided for some sharing of the SAIF's debt service requirements with
the BIF; however, the SAIF will still absorb a larger portion of the debt
service requirement going forward. This legislation should result in a
reduction in First Western's Federal deposit insurance expense in future
periods. This special assessment was the reason for the $3.3 million increase
in FDIC insurance from $259,000 for the third quarter of 1995 to $3.6 million
for the third quarter of 1996. Excluding the impact of the special assessment,
First Western's FDIC insurance expense would have decreased $552,000 for the
nine months ended September 30, 1996 compared with the prior year due to a
reduction in the BIF insurance premiums in late 1995.
First Western's outside examination, legal and consulting expense
decreased $91,000 or 8.6% from the first nine months of 1995 to the first nine
months of 1996 due to First Western settling a lawsuit during the third quarter
of 1995 which increased First Western's legal expense. The decrease in legal
expense for the first nine months of 1996 compared with the prior year was
partially offset by increased consulting expense as First Western utilized
outside consultants during 1996 to assist management in performing a product
profitability study for all major loan and deposit products. First Western's
outside examination, legal and consulting expense decreased $160,000 or 33.0%
for the third quarter of 1996 compared with the prior year primarily due to a
decrease in legal expense.
First Western's advertising and promotion expense decreased $258,000 or
21.5% from $1.2 million for the first nine months of 1995 to $942,000 for the
first nine months of 1996. The most significant component of the decrease in
advertising expense was a $163,000 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 nine months of 1995 such as the grand opening of
the newly acquired branches and the promotion of the loan by telephone program.
Through the first nine 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 $18,000 or 4.7% for the third
quarter of 1996 compared with the prior
16<PAGE>
<PAGE> 17
year as a result of First Western reducing its credit card solicitation
expenditures.
Outside data processing services expense increased $272,000 or 26.4% from
$1.0 million for the first nine months of 1995 to $1.3 million for the first
nine 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. First
Western's outside data processing expense increased $69,000 or 18.4% from
$374,000 for the third quarter of 1995 to $443,000 for the third quarter of
1996 with this increase due primarily to increased credit card data processing
expenses.
Other operating expenses increased $510,000 or 9.3% from $5.5 million for
the first nine months of 1995 to $6.0 million for the first nine months of
1996. Other expenses increased from the first nine months of 1995 to the first
nine months of 1996 due in part to a $161,000 increase in bad check and fraud
losses. Approximately $85,000 of the increase in bad check and fraud losses
was due to a recovery on a 1994 fraud loss which reduced other expenses during
1995. During the first nine months of 1996, First Western began purchasing
various deposit account enhancements from a third-party provider which
contributed approximately $135,000 to the increase in other expenses. 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
nine month period ended September 30, 1996 compared with the prior year.
Other operating expenses were $2.1 million for the third quarter of 1996,
increasing $151,000 or 7.8% from $1.9 million for the third quarter of 1995.
Other operating expenses increased from the third quarter of 1995 to the third
quarter of 1996 due to increased expenses for bad check and fraud losses and
the fees paid for the deposit account enhancements.
Income Taxes:
First Western's income tax expense was $3.6 million for the first nine
months of 1996 compared with $5.5 million for the first nine months of 1995.
First Western reduced its income tax expense for the nine month period ended
September 30, 1996 by $500,000 as a result of First Western reaching a
settlement with the IRS during the second quarter of 1996 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 nine month period ended
September 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 nine months ended September 30, 1996
would have been 27.9%. First Western's
17<PAGE>
<PAGE> 18
effective tax rate for the first nine months of 1995 was 30.3%. The decrease
in First Western's effective tax rate from 1995 to 1996, excluding the $500,000
adjustment related to the audit settlement, was due to First Western having an
increased level of tax-exempt interest income as compared with pretax earnings
and also due to First Western having a $264,000 decrease in state income taxes
at its savings association subsidiary primarily as a result of the special SAIF
assessment.
Congress passed legislation during the third quarter of 1996 which
eliminated 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. This legislation removes the
potential liability related to thrift charter conversions 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 September 30, 1996 as compared with December 31, 1995
and September 30, 1995.
As of September 30, 1996, First Western's total assets were $1.713 billion
compared with $1.603 billion at December 31, 1995 and $1.656 billion at
September 30, 1995. Most of the increase from September 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 nine months
of 1996 were $1.666 billion compared with $1.575 billion for the first nine
months of 1995, an increase of 5.8%.
19<PAGE>
<PAGE> 20
Loan Portfolio:
Net loans increased $89.2 million or 8.7% during the first nine months of
1996 with the growth rate of loans increasing during the second and third
quarters of 1996 compared with the first quarter of 1996. First Western's
loans outstanding increased $33.8 million during the third quarter of 1996
compared with $19.7 million and $35.7 million for the first and second quarters
of 1996, respectively. Real estate mortgage loans, excluding mortgage loans
available for sale, increased $89.4 million during the first nine 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 September 30, 1996, December
31, 1995 and September 30, 1995:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995 September 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....... $ 25,052 2.3% $ 26,775 2.6% $ 24,529 2.4%
Loans to municipalities.......... 11,665 1.0 13,893 1.4 12,203 1.2
Other commercial loans........... 83,229 7.5 79,491 7.8 78,006 7.7
------------ -------- ----------- -------- ----------- --------
Subtotal....................... 119,946 10.8 120,159 11.8 114,738 11.3
------------ -------- ----------- -------- ----------- --------
Real estate-construction............. 19,062 1.7 24,501 2.4 23,171 2.3
------------ -------- ----------- -------- ----------- --------
Real estate-mortgage:
1-4 Family residential............. 422,930 38.0 353,494 34.6 348,484 34.4
Multi-family residential........... 34,355 3.1 35,088 3.4 36,034 3.6
Home equity........................ 47,474 4.3 41,417 4.0 39,544 3.9
Commercial and other............... 156,300 14.0 141,667 13.8 136,833 13.5
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 661,059 59.4 571,666 55.8 560,895 55.4
------------ -------- ----------- -------- ----------- --------
Installment:
Credit cards....................... 42,254 3.8 45,226 4.4 39,167 3.9
Installment and other.............. 270,943 24.3 262,554 25.6 274,188 27.1
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 313,197 28.1 307,780 30.0 313,355 31.0
------------ -------- ----------- -------- ----------- --------
Total............................ $ 1,113,264 100.0% $ 1,024,106 100.0% $ 1,012,159 100.0%
============ ======== =========== ======== =========== ========
</TABLE>
First Western's loans available for sale were $3.2 million at September
30, 1996 compared with $3.5 million at December 31, 1995 and $115.4 million at
September 30, 1995. The loans classified as available for sale at September
30, 1996 and December 31, 1995 consisted of current production that was
designated for sale while the $115.4 million of loans designated as available
for sale at September 30, 1995 were loans from First Western's residential
mortgage loan portfolio that were securitized during the fourth quarter of
1995.
20<PAGE>
<PAGE> 21
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 September 30, 1996, December 31, 1995 and
September 30, 1995:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ........................... $ 8,759 $ 10,420 $ 8,323
Loans past due 90 days or more ......................... 1,868 2,648 1,973
------------- ------------ -------------
Total loan delinquencies ............................. $ 10,627 $ 13,068 $ 10,296
============= ============ =============
Nonaccrual loans ......................................... $ 5,360 $ 4,959 $ 5,108
Other real estate owned .................................. 252 165 97
------------- ------------ -------------
Total nonperforming assets ............................... $ 5,612 $ 5,124 $ 5,205
============= ============ =============
Total nonperforming assets and loans
past due 90 days or more ............................... $ 7,480 $ 7,772 $ 7,178
============= ============ =============
Nonaccrual loans to total loans .......................... 0.48 % 0.48 % 0.45 %
Nonperforming assets to total loans
and other real estate owned ............................ 0.50 % 0.50 % 0.46 %
Nonperforming assets to total assets ..................... 0.33 % 0.32 % 0.31 %
Nonperforming assets and loans past due
90 days or more to total assets ........................ 0.44 % 0.48 % 0.43 %
Nonaccrual loans and loans past due
90 days or more to total loans ......................... 0.65 % 0.74 % 0.63 %
Allowance for possible loan losses
to nonaccrual loans .................................... 299.90 % 285.31 % 271.23 %
Allowance for possible loan losses
to loans past due 90 days or more
and nonaccrual loans ................................... 222.38 % 185.98 % 195.66 %
Allowance for possible loan losses to
total loans ............................................ 1.44 % 1.38 % 1.23 %
</TABLE>
21<PAGE>
<PAGE> 22
First Western's total delinquencies decreased $2.5 million from $13.1
million at December 31, 1995 to $10.6 million at September 30, 1996 with $1.7
million of this decrease occurring in loans past due 30-89 days and $780,000
of this decrease occurring in loans past due 90 days or more. During the third
quarter of 1996, First Western's total delinquent loans increased $140,000 or
1.3% due primarily to an increase in delinquencies of mortgage loans serviced
by others. Consumer loan delinquencies decreased $222,000 and $2.8 million for
the three and nine months ended September 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
September 30, 1995 to September 30, 1996 has been due to increased
delinquencies of mortgage loans serviced by others. First Western's delinquent
loans by type are as follows at September 30, 1996, December 31, 1995 and
September 30, 1995.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial, financial
and agricultural................... $ - $ 466 $ -
------------ ------------ ------------
Real estate-mortgage:
1-4 Family residential............. 1,498 912 776
Home equity........................ 96 83 159
Commercial and other............... 282 70 65
------------ ------------ ------------
Subtotal......................... 1,876 1,065 1,000
------------ ------------ ------------
Installment:
Credit cards....................... 611 1,174 967
Installment and other.............. 8,140 10,363 8,329
------------ ------------ ------------
Subtotal......................... 8,751 11,537 9,296
------------ ------------ ------------
Total............................ $ 10,627 $ 13,068 $ 10,296
============ ============ ============
</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,
22<PAGE>
<PAGE> 23
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
$16.1 million at September 30, 1996 is adequate to cover losses 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 September 30, 1996.
Investment Securities, Mortgage-Backed Securities, and Securities Available for
Sale:
Investment securities and mortgage-backed securities increased a combined
$20.7 million for the first nine 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 $276.4 million, $3.8 million or 1.4% below the
amortized cost of $280.2 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 nine months of 1996.
Securities available for sale decreased $8.1 million during the first nine
months of 1996 with this decrease the result of First Western selling
securities available for sale along with a decrease in the market value of
First Western's portfolio of securities available for sale. Securities
available for sale increased $91.9 million from $147.0 million at September 30,
1995 to $238.9 million at September 30, 1996 with this increase due to the
purchase of securities using the funds provided by the fourth quarter 1995 loan
securitizations and sales. At September 30, 1996, First Western had net
unrealized depreciation on securities available for sale of $1.2 million
compared with unrealized appreciation of $3.8 million at December 31, 1995 and
unrealized appreciation of $1.6 million at September 30, 1995.
Deposits:
Total deposits decreased $26.4 million or 2.2% from $1.178 billion at
December 31, 1995 to $1.151 billion at September 30, 1996. Deposits decreased
during the first nine months of 1996 due to the maturity of a large, short-term
deposit from a commercial customer that was originated during the fourth
quarter of 1995 along with a decrease in retail certificates of deposits.
First Western's deposits
23<PAGE>
<PAGE> 24
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 and due to alternative funds being cheaper considering thrift
SAIF expenses and also because of money moving into other nondeposit products
such as mutual funds. First Western's deposits decreased $26.4 million from
September 30, 1995 to September 30, 1996 with most of this decrease
attributable to some run-off of certain higher rate deposits acquired in the
first quarter of 1995.
Borrowed Funds:
First Western's borrowed funds increased $174.5 million during the first
nine months of 1996 from $236.9 million at December 31, 1995 to $411.4 million
at September 30, 1996. First Western increased its borrowings during the first
nine months of 1996 in order to fund loan growth and the purchases of
securities. First Western has been utilizing borrowed funds to fund asset
growth since wholesale borrowings have been priced lower than comparable
deposits. Total borrowed funds increased $85.1 million from September 30, 1995
to September 30, 1996 as these additional borrowings were necessary to fund the
growth of the loan and securities portfolios.
24<PAGE>
<PAGE> 25
Shareholders' Equity:
Shareholders' equity increased slightly during the first nine months of
1996 as an increase in shareholders' equity from the retention of earnings was
offset by a $3.3 million decline in the market value of securities available
for sale, net of income tax effects, and also by treasury stock purchases and
stock purchased for the Company's ESOP. During the first nine 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 September 30, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Tier I:
Common shareholders' equity .............................. $ 121,799 $ 121,688
Non-exempt intangible assets ............................. (6,768) (7,391)
Unrealized (appreciation) depreciation in securities
available for sale ..................................... 772 (2,492)
------------- ------------
Total Tier I ......................................... 115,803 111,805
------------- ------------
Tier II:
Qualifying allowance for possible loan losses ............ 13,263 12,445
------------- ------------
Total Tier II ........................................ 13,263 12,445
------------- ------------
Total capital .............................................. $ 129,066 $ 124,250
============= ============
Risk weighted assets ....................................... $ 1,058,254 $ 993,929
============= ============
Tier I capital ratio ....................................... 10.94% 11.25%
============= ============
Required Tier I capital ratio .............................. 4.00% 4.00%
============= ============
Total capital ratio ........................................ 12.20% 12.51%
============= ============
Required total capital ratio ............................... 8.00% 8.00%
============= ============
Tier I leverage ratio ...................................... 6.89% 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>
25<PAGE>
<PAGE> 26
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 $48.2 million at September 30, 1996 as compared with $41.6
million at December 31, 1995 and $44.9 million at September 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 $42.0 million of unused overnight credit lines available at
September 30, 1996.
First Western's operating activities provided cash flows of $16.9 million
during the first nine months of 1996 compared with $17.1 million during the
first nine 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 $148.2 million during the first
nine months of 1996 compared with using cash flows of $105.5 million for the
first nine months of 1995. The growth of the loan portfolio used net cash
flows of $93.3 million during the first nine months of 1996 while the growth
of the securities portfolios used net cash flows of $54.1 million. The five
branch offices acquired during the first nine 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 nine
months of 1995 used net cash flows of $149.6 million.
Financing activities provided cash flows of $138.8 million during the
first nine months of 1996 with increased borrowings providing cash flows of
$174.5 million and a decrease in deposits using cash flows of $26.3 million.
During the first nine months of 1995, financing activities provided cash flows
of $80.1 million primarily as a result of an increase in deposits of $51.7
million and increased borrowings providing cash flows of $34.9 million.
26 <PAGE>
<PAGE> 27
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.
27<PAGE>
<PAGE> 28
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.
28<PAGE>
<PAGE> 29
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)
November 8, 1996 /s/ Robert H. Young
Robert H. Young
Executive Vice President-
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
29<PAGE>
<PAGE> 30
FIRST WESTERN BANCORP, INC.
EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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
November 8, 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 September 30, 1996 and 1995, as indicated in our report dated
October 15, 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 September 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 LLP
- ---------------
DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000740876
<NAME> First Western Bancorp Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 46,944
<INT-BEARING-DEPOSITS> 1,287
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 280,221
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0
0
<OTHER-SE> 82,684
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<INTEREST-INVEST> 25,136
<INTEREST-OTHER> 56
<INTEREST-TOTAL> 93,204
<INTEREST-DEPOSIT> 34,656
<INTEREST-EXPENSE> 49,944
<INTEREST-INCOME-NET> 43,260
<LOAN-LOSSES> 5,770
<SECURITIES-GAINS> 1,731
<EXPENSE-OTHER> 31,920
<INCOME-PRETAX> 14,832
<INCOME-PRE-EXTRAORDINARY> 11,189
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,189
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 7.93
<LOANS-NON> 5,360
<LOANS-PAST> 1,868
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<ALLOWANCE-UNALLOCATED> 5,775
</TABLE>
