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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13882
FIRST WESTERN BANCORP, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 25-1461570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 EAST WASHINGTON STREET, NEW CASTLE, PENNSYLVANIA 16101
(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (412) 652-8550
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $5 PER SHARE
------------------
Title of each class
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of Common Stock, par value $5 per share, held by
non-affiliates (based upon the closing sale price on the NASDAQ National Market
System on March 25, 1996), was approximately $206,676,000.
As of March 25, 1996, there were 7,726,188 shares of Common Stock, par
value $5 per share, outstanding.
Documents Incorporated by Reference:
Portions of the First Western Bancorp, Inc. 1995 Annual Report to
Shareholders are incorporated by reference in Part I and Part II hereof.
Portions of the First Western Bancorp, Inc. 1996 Annual Proxy Statement to
Shareholders are incorporated by reference in Part III hereof.
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FIRST WESTERN BANCORP, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1995
INDEX
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PAGE
NUMBER
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PART I
Item 1. Business.................................................................. 1
Executive Officers........................................................ 6
Item 2. Properties................................................................ 10
Item 3. Legal Proceedings......................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders....................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Matters............. 13
Item 6. Selected Financial Data................................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 13
Item 8. Financial Statements and Supplementary Data............................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.............................................................. 13
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 13
Item 11. Executive Compensation.................................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 13
Item 13. Certain Relationships and Related Transactions............................ 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 14
Signatures.......................................................................... 15
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PART I
ITEM 1. BUSINESS
GENERAL
First Western Bancorp, Inc. ("First Western"), headquartered in New Castle,
Pennsylvania, is a multi-institutional holding company which provides retail and
commercial banking and trust services through 42 community banking offices in
western Pennsylvania and northeastern Ohio. First Western was incorporated under
the laws of the Commonwealth of Pennsylvania in 1982. First Western has two
wholly-owned banking subsidiaries: First Western Bank, National Association
("First Western Bank, N.A."), and First Western Bank, Federal Savings Bank
("First Western Bank, F.S.B.") (These two subsidiaries are collectively referred
to as the "Banking Subsidiaries"). First Western also has a wholly-owned nonbank
subsidiary, First Western Trust Services Company ("Trust Services") (The Banking
Subsidiaries and Trust Services are collectively referred to as the
"Subsidiaries.") Effective December 31, 1995, First Western's mortgage banking
subsidiary, Residential Mortgage Company of America, was merged into the parent
company. At December 31, 1995, First Western had total assets of $1.6 billion,
net loans of $1.0 billion, deposits of $1.2 billion and shareholders' equity of
$122 million.
First Western offers a variety of financial services through its
Subsidiaries. The Banking Subsidiaries provide a full range of retail and
commercial banking products including personal and commercial checking accounts,
savings and time deposit accounts, money market demand accounts, safe deposit
facilities, credit cards, installment and other consumer loans, short and
long-term credit facilities, and consumer and commercial mortgages to
individuals and small to medium sized businesses. First Western also offers a
number of products through Trust Services, including corporate trust, personal
trust, custody and account administration services and financial services such
as investment planning, managed assets, mutual fund sales and annuity sales.
THE SUBSIDIARIES
First Western Bank, N.A.
First Western Bank, N.A., traces its history in New Castle, Pennsylvania to
1855. First Western Bank, N.A. is a member of the Federal Reserve System, and
most of its deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC"), with certain deposits acquired
from the Resolution Trust Corporation insured by the Savings Association
Insurance Fund ("SAIF") of the FDIC. As of December 31, 1995, First Western
Bank, N.A. had 23 community banking offices in Lawrence, Beaver, Butler and
Allegheny Counties, Pennsylvania. At December 31, 1995, First Western Bank, N.A.
had total assets of $1.0 billion.
First Western Bank, F.S.B.
First Western Bank, F.S.B. traces its history in Sharon, Pennsylvania to
1872. The deposits of First Western Bank, F.S.B. are insured by the SAIF. First
Western Bank, F.S.B. has 19 community banking offices in Mercer, Erie, Butler
and Venango Counties, Pennsylvania and Ashtabula and Lake Counties, Ohio. At
December 31, 1995, First Western Bank, F.S.B. had total assets of approximately
$576 million.
During the first quarter of 1995, First Western Bank, F.S.B. purchased the
Andover, Ohio banking office of Peoples Bank, N.A. of Ashtabula, Ohio. This
branch had approximately $13 million of deposits at the time of acquisition.
Also during the first quarter of 1995, First Western Bank, F.S.B. purchased four
banking offices located in northeastern Ohio in Lake and Ashtabula Counties from
Union Federal Savings Bank of Indianapolis, Indiana. These branches had
approximately $84 million of deposits at the time of acquisition. All of the
acquired deposits are insured by the SAIF.
Trust Services
Trust Services, a Pennsylvania trust company, commenced operations in
January 1991. At December 31, 1995, Trust Services held, as agent or fiduciary,
trust assets of approximately $434 million in market value.
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Trust Services maintains offices in New Castle, Beaver, Hermitage and Erie,
Pennsylvania, at the offices of the Banking Subsidiaries. Trust Services
provides personal and corporate trust services to customers in the market areas
served by the Banking Subsidiaries, as well as financial services such as mutual
fund and annuity sales, managed asset allocation, and other investment services.
COMPETITION
First Western's Subsidiaries are subject to intense competition in all
aspects and areas of their business from banks and other financial institutions,
including savings and loan associations, savings banks, finance companies,
credit unions and other providers of financial services, such as mutual funds,
brokerage firms, credit companies and insurance companies. The Subsidiaries also
compete with nonfinancial institutions, including retail stores that maintain
their own credit programs and governmental agencies that make available low cost
or guaranteed loans to certain borrowers. First Western competes in its market
areas with a number of much larger financial institutions with substantially
greater resources, larger lending limits and a wider array of commercial banking
services.
First Western's Subsidiaries have been able to compete effectively with
other financial institutions in their respective market areas. The Subsidiaries
emphasize customer service in an effort to establish long-term customer
relationships and to build customer loyalty. First Western provides personnel,
capital, a larger combined lending limit and consolidated services such as data
processing, accounting, loan review and compliance, internal audit and trust
services to the Banking Subsidiaries to enhance their ability to compete
effectively in, and provide a wide variety of financial services to, their
respective markets. First Western provides overall direction to the Banking
Subsidiaries in the areas of credit policy and administration, strategic
planning, investment portfolio management, asset/liability management, human
resource and benefit plan administration and other financial and administrative
services. With the centralization of these back-office and administrative
services, First Western refers to itself as a supercommunity bank, providing
superior, decentralized banking services and loan decision making through
community offices.
EMPLOYEES
First Western and its Subsidiaries had the following full-time equivalent
employees at December 31, 1995:
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First Western................................................. 215
First Western Bank, N.A....................................... 254
First Western Bank, F.S.B..................................... 107
Trust Services................................................ 26
---
Total....................................................... 602
===
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SUPERVISION AND REGULATION
First Western
Bank Holding Company Status. First Western is registered as a "bank
holding company" under the Bank Holding Company Act of 1956 (the "Bank Holding
Company Act"). As such, First Western is subject to the provisions of that
legislation and to supervision by the Federal Reserve Board. First Western is
required to obtain the prior approval of the Federal Reserve Board before it may
acquire all or substantially all of the assets of any bank, or acquire ownership
or control of any voting securities of any bank, if, after giving effect to such
acquisition, First Western would own or control more than 5% of the voting
shares of such bank. A registered bank holding company is also prohibited, with
limited exceptions, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank and from
engaging directly or indirectly in any business not closely related to the
business of banking or of managing or controlling banks. One of the exceptions
to these prohibitions permits ownership of the shares of any company the
activities of which the Federal Reserve Board, after due notice and opportunity
for hearing, by regulation or order has determined to be so closely related to
the business of banking and of managing or controlling banks as to be proper
incident thereto. These activities include operating a mortgage brokerage
company,
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finance company, credit card company, factoring company or securities brokerage
company; performing certain data processing and other back office operations;
providing investment and financial advice to financial and nonfinancial
institutions and to certain high net worth individuals; acting as an insurance
agent for certain types of credit-related insurance; leasing personal property
on a full payout, nonoperating basis; limited powers to underwrite the issuance
of certain debt instruments and certain equity offerings; and, as a result of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"), the ability to acquire and operate savings and loan associations.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board regulations
or both. This doctrine has become known as the "source of strength" doctrine.
Although the United States Court of Appeals for the Fifth Circuit struck down
the Federal Reserve Board's source of strength doctrine in 1990, saying the
Federal Reserve Board had no authority to assert the doctrine under the Bank
Holding Company Act, the decision was reversed by the United States Supreme
Court on procedural grounds. The validity of the source of strength doctrine is
likely to continue to be the subject of litigation until definitively resolved
by the courts or by Congress.
In August 1989, FIRREA was signed into law. Although FIRREA's primary
thrust is directed at savings and loan associations, certain provisions also
have a significant impact on bank holding companies and banks insured by the
FDIC. One such provision imposes upon each depository institution potential
liability for any loss incurred by the FDIC in connection with (i) the default
of its "sister" institutions (controlled either by the institution or by the
same holding company) or (ii) any FDIC assistance provided to a sister
institution in danger of default. Thus, each Banking Subsidiary of First Western
could be liable for any loss to the FDIC caused by the other Banking Subsidiary
upon receipt of written notice from the FDIC within two years of such loss.
Effective in October 1989, the Federal Reserve Board amended Regulation Y
to permit bank holding companies to acquire savings associations (healthy or
otherwise) in accordance with the provisions of FIRREA. The acquisition of a
savings association by a bank holding company is not considered to be an
acquisition of a bank under the Bank Holding Company Act. Acquired savings
associations must, however, limit their activities to those permissible for bank
holding companies and their subsidiaries.
Effective March 1990, the Pennsylvania Banking Code removed all
restrictions concerning the number of banks that a Pennsylvania bank holding
company may own or control in Pennsylvania.
The Pennsylvania Banking Code also provides for "reciprocal interstate
banking," which, under certain circumstances, allows a bank holding company
located in another state to acquire control of a bank or bank holding company in
Pennsylvania. The other jurisdiction must authorize Pennsylvania bank holding
companies to acquire banks or bank holding companies within its boundaries on
terms and conditions substantially no more restrictive than those imposed on its
own domestic bank holding companies. At present, a number of states have adopted
legislation permitting the acquisition by an out-of-state bank holding company
of the shares of an in-state bank.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was passed. This legislation significantly changes the
laws governing interstate banking. Beginning on September 29, 1995, bank holding
companies may acquire banks located in any state, despite former prohibitive
state statutes, subject to certain conditions. Beginning on June 1, 1997, banks
may merge or consolidate on an interstate basis. States may elect to "opt-out"
of this provision by enacting legislation before June 1, 1997 that expressly
prohibits interstate bank mergers. This act also permits banks to branch into
other states on a de novo basis provided that the state has enacted a law that
permits de novo interstate branch banking.
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Savings and Loan Holding Company Regulation. By virtue of its acquisition
of First Federal of Western Pennsylvania, now First Western Bank, F.S.B., in
November 1990, First Western became subject to regulation by the Office of
Thrift Supervision (the "OTS") as a savings and loan holding company. As such,
First Western is subject to OTS examination and reporting requirements relating
to savings and loan holding companies. In addition, the OTS has enforcement
authority over First Western. Among other things, this authority permits the OTS
to restrict or prohibit activities that are determined to be a serious risk to
First Western Bank, F.S.B.
First Western is a nondiversified unitary savings and loan holding company.
First Western generally is not subject to activity restrictions as a unitary
savings and loan holding company, provided that First Western Bank, F.S.B.
remains a qualified thrift lender ("QTL"). If First Western Bank, F.S.B. failed
the QTL test, or if First Western acquired an additional savings association
(other than in a transaction designated by the Federal banking regulators as
necessary for supervisory reasons), First Western could not engage in, or
continue after such failure, directly or through its other subsidiaries, any
business activities not permitted to multiple savings and loan holding companies
or their subsidiaries. Because First Western is subject to limitations on its
activities by virtue of its status as a bank holding company, its activities
would generally not be further limited if it became subject to the limitations
applicable to multiple savings and loan holding companies, although some such
activities could require prior OTS approval.
First Western must obtain approval from the OTS before acquiring control of
another savings association or savings and loan holding company. Such
acquisitions are generally prohibited if they result in a multiple savings and
loan holding company controlling savings associations in more than one state.
However, such interstate acquisitions are permitted based on specific state
authorization or in a supervisory acquisition of a failing savings association.
Securities Regulation. First Western Common Stock is registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, as such,
First Western is subject to various reporting and other requirements under the
Exchange Act and to regulation by the Securities and Exchange Commission (the
"Commission").
The Banking Subsidiaries
Federal and state laws and regulations govern many aspects of the business
of First Western's Banking Subsidiaries, including permissible types, amounts,
and terms of loans, investments, and acceptances, amounts of reserves against
deposits and restrictions on dividends and other intercompany transactions. The
abilities of the banking subsidiaries to pay dividends to First Western are
described in Note 16 of the Notes to Consolidated Financial Statements included
in First Western's 1995 Annual Report to Shareholders (the "1995 Annual
Report"). The operations of such subsidiaries are subject to examination and
regulation by one or more of the following: The Federal Reserve Board, the
Office of the Comptroller of the Currency ("OCC"), the FDIC and the OTS.
First Western Bank, N.A. is a national bank and is subject to the
supervision of, and regulation by, the OCC. First Western Bank, F.S.B. is a
federally chartered savings bank and is subject to the supervision of, and
regulation by, the OTS and the FDIC.
First Western Bank, N.A. and First Western Bank, F.S.B. are individually
subject to regulatory capital requirements that are generally comparable to
those imposed on First Western. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Shareholders' Equity" in the 1995
Annual Report. In computing compliance with the requirements applicable to First
Western Bank, F.S.B., however, certain of its investments in subsidiaries,
goodwill and other assets are required to be deducted from total assets and,
subject to certain phase-in provisions, from capital, and certain assets are
weighted differently for purposes of calculating the risk weighted capital
requirement. In addition, FIRREA imposed on all savings associations, including
First Western Bank, F.S.B., a tangible capital requirement, mandating tangible
capital of at least 1.5% of adjusted total assets. Tangible capital is generally
defined in the same manner as Tier I capital and adjusted total assets are
calculated on the same basis as for the leverage limit. Although OTS regulations
currently prescribe a leverage requirement of 3% of Tier I capital to total
assets for all savings associations, it is expected that the OTS, like the
Federal Reserve Board, the OCC and the FDIC, will require
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an additional cushion of 100 to 200 basis points for all but the most highly
rated institutions. At December 31, 1995, First Western Bank, N.A. and First
Western Bank, F.S.B. met all applicable leverage requirements.
The deposits of First Western Bank, N.A. and First Western Bank, F.S.B. are
insured up to $100,000 per insured depositor (as defined by law and regulation)
by the FDIC through the BIF and SAIF. The FDIC has adopted regulations effective
in 1993 that impose risk based insurance premiums on all insured depository
institutions.
First Western Bank, N.A. and First Western Bank, F.S.B. are subject to
provisions of federal law restricting various aspects of their operations,
including their ability to extend credit to, to engage in various other
transactions with, or to invest in the stock or securities of, First Western.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), enacted on December 19, 1991, recapitalized the BIF and imposed
certain supervisory and regulatory reforms on the banking industry. The
following is a summary of certain key provisions of the FDICIA.
The FDICIA increased the FDIC's authorization to borrow from the United
States Treasury from $5 billion to $30 billion for bank losses and authorized an
additional $40 billion in borrowings from the United States Treasury for working
capital purposes. Borrowings would be repaid from deposit insurance assessments,
including special assessments, on banks such as First Western Bank, N.A., and
the issuance of FDIC obligations to BIF member banks.
The FDICIA required the federal bank regulators to establish specific
capital standards for five categories of insured depository institutions: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". Any institution classified
as "undercapitalized," is required to submit a capital restoration plan to its
federal bank regulator and is subject to operational restrictions. Greater
restrictions, and ultimately, receivership, may be imposed with respect to
institutions that are "significantly undercapitalized" or "critically
undercapitalized". First Western Bank, N.A. is currently classified as "well
capitalized" and First Western Bank, F.S.B. is currently classified as
"adequately capitalized".
The BIF insurance rates decreased from $0.23 per $100 of deposits to $0.04,
retroactive to June 1995. This decrease plus a further decrease to a zero
premium as of January 1, 1996 will also result in a reduction of First Western's
FDIC insurance expense for deposits insured by the BIF going forward.
Approximately 55% of First Western's deposits are insured by the BIF. The 1996
decrease in insurance expense for the deposits insured by the BIF could be
offset by possible rate increases or special assessments by the SAIF which
insures the remaining 45% of First Western's deposits. There are currently
several proposals in Congress to change the insurance rates paid for deposits
insured by 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 SAIF insured deposits is adopted it could result in a one-time,
pre-tax charge to First Western of approximately $4.2 million at the current
proposed special assessment rates of $0.85 per $100 of deposits insured by the
SAIF, with a subsequent rate cut in the semi-annual SAIF assessment.
The federal bank regulatory agencies are required to adopt uniform capital
and accounting rules. The accounting rules require supplemental disclosure in
reports to the banking agencies of mark to market valuation of assets and
liabilities and of contingent assets and liabilities.
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EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of January 31, 1996),
present positions and business experience of all executive officers of First
Western. Immediately following the Annual Meeting of Shareholders to be held on
April 16, 1996, the directors of First Western will elect executive officers to
serve for the next year.
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NAME AGE POSITION HELD
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FIRST WESTERN
John R. McKinley 44 Chairman of the Board, First Western; Chairman of the
Board, First Western Bank, N.A.
Thomas J. O'Shane 48 President and Chief Executive Officer, First Western;
Chairman of the Board, First Western Bank, F.S.B.
Robert H. Young 39 Senior Vice President-Finance, Secretary and Treasurer
Thomas S. Mansell 56 Senior Vice President, Legal Counsel, and Assistant
Secretary
Robert E. Cimini 49 Senior Vice President-Consumer Lending and Marketing
Donald D. Wehn 41 Senior Vice President-Residential Mortgage Lending
John A. Zercher 43 Senior Vice President-Management Information Systems
Dean M. Gouin 32 Senior Vice President-Commercial Lending
Richard L. Rausch 46 Vice President-Human Resources
FIRST WESTERN BANK, N.A.
Stephen R. Sant (1) 49 President and Chief Executive Officer, First Western
Bank, N.A. and Senior Vice President-Retail Banking,
First Western
FIRST WESTERN BANK, F.S.B.
Kathleen L. Lewis 44 President and Chief Executive Officer, First Western,
F.S.B. and Senior Vice President--Community Office
Management, First Western
TRUST SERVICES
Fred J. Liskowski 49 President and Chief Executive Officer
Samuel I. Haines, Jr. 41 Executive Vice President and Trust Officer
</TABLE>
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(1) Stephen R. Sant, President and Chief Executive Officer of First Western
Bank, N.A. is the nephew of John W. Sant, Director and former Chairman of
First Western.
FIRST WESTERN
John R. McKinley
President, Remington's Restaurant Group (restaurant company) since 1987;
Chairman, First Western since April 1995; Vice Chairman, First Western from
April 1992 until April 1995; Chairman, First Western Bank, N.A.; Director First
Western Bank, N.A., First Western Bank, F.S.B. and Trust Services; Chairman of
Executive and Compensation Committees of First Western; Director of First
Western since 1986.
Thomas J. O'Shane
Chief Executive Officer, First Western since January 1991; President, First
Western since February 1990; Chairman, First Western Bank, F.S.B. since June
1991; President and Chief Executive Officer, First National Bank of Western
Pennsylvania ("First National"), a predecessor of First Western Bank, N.A.,
from 1988 until June 1991; Chief Operating Officer, First Western from February
1990 until December 1990; Director, First Western Bank, N.A., First Western
Bank, F.S.B. and Trust Services; Member of the Executive Committee of First
Western; Director of First Western since 1988.
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Robert H. Young
Senior Vice President-Finance, First Western since January 1991; Secretary and
Treasurer, First Western since June 1988; Vice President-Finance from June 1988
until December 1990.
Thomas S. Mansell
Senior Vice President, First Western since January 1991; Assistant Secretary and
Legal Counsel, First Western; Senior Vice President-Officer in Charge of Trusts
and Legal Counsel to First National, prior to 1991; Director,
Trust Services; Director, First Western since 1990.
Robert E. Cimini
Senior Vice President-Consumer Lending and Marketing, First Western since
January 1993; President and Chief Executive Officer, First National from June
1991 until September 1993; Executive Vice President, First National from January
1991 until June 1991; Senior Vice President-Consumer Services from January 1989
until December 1990; Director, First Western Bank, N.A.
Donald D. Wehn
Senior Vice President-Residential Mortgage Lending, First Western since January
1994; President and Chief Executive Officer-Residential Mortgage Company of
America from May 1994 until December 1995; Vice President-Mortgage Lending,
Strategic Planning and Special Projects, First Western from October 1992 until
December 1993; Senior Vice President, Beaver Trust Company ("Beaver Trust") a
predecessor of First Western Bank, N.A., from January 1991 until September 1992.
John A. Zercher
Senior Vice President-Management Information Services, First Western since
January 1994; Vice President- Management Information Services, First Western
from April 1989 until December 1993.
Dean M. Gouin
Senior Vice President-Commercial Lending, First Western since April 1995; Vice
President-Commercial Lending, First Western from June 1994 until April 1995;
Senior Vice President-Commercial Lending, First Western Bank, N.A. since June
1994; Vice President-Commercial Lending, First Western Bank, N.A. from June 1993
until May 1994; Manager-Consulting Group, Deloitte & Touche LLP from September
1990 until May 1993.
Richard L. Rausch
Vice President-Human Resources, First Western since April 1992; Senior Staff
Assistant to Industrial Relations, General Motors prior to April 1992.
FIRST WESTERN BANK, N.A.
Stephen R. Sant
President and Chief Executive Officer, First Western Bank, N.A. since September
1993; Senior Vice President-Retail Banking, First Western since January 1993;
President and Chief Executive Officer, Beaver Trust from April 1992 until
September 1993; President and Chief Executive Officer, First Federal of Western
Pennsylvania ("First Federal"), a predecessor of First Western Bank, F.S.B.,
from December 1990 until April 1992; Vice President, First Western from June
1990 until November 1990, President and Chief Executive Officer, First National
Bank of Chillicothe, Chillicothe, Illinois, from October 1985 until June 1990.
FIRST WESTERN BANK, F.S.B.
Kathleen L. Lewis
President and Chief Executive Officer, First Western Bank, F.S.B. since April
1992; Senior Vice President-Community Office Management, First Western since
April 1995; Vice President-Director of Human
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Resources, First Western from September 1991 until April 1992; Vice
President-Director of Internal Audit; First Western from January 1987 until
September 1991.
TRUST SERVICES
Fred J. Liskowski
President and Chief Executive Officer, Trust Services since April 1994;
Investment Executive, Paine Webber from August 1992 until April 1994; Executive
Vice President and Chief Financial Officer, Ellwood City Hospital, prior to
August 1992.
Samuel I. Haines, Jr.
Executive Vice President and Trust Officer, Trust Services since April 1994;
President and Chief Executive Officer, Trust Services from January 1991 until
April 1994; Vice President and Trust Officer, First National from January 1988
until December 1990.
STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The required information is incorporated by reference to pages 47 through
48 of the 1995 Annual Report.
II. INVESTMENT PORTFOLIO
A. Book Value of Investment Portfolio:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
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(IN THOUSANDS)
<S> <C> <C> <C>
Held to Maturity:
U.S. Government agencies and corporations...... $ 29,591 $ 43,760 $ 17,956
Mortgage-backed securities..................... 145,550 202,041 191,916
Obligations of states and political
subdivisions................................ 83,223 80,189 73,360
Other securities............................... 1,201 10,407 9,890
-------- -------- --------
Total.................................. $259,565 $336,397 $293,122
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Available for sale:
U.S. Treasury securities....................... $ 2,064 $ 6,933 $ 13,286
U.S. Government agencies and corporations...... 29,852 -- --
Mortgage-backed securities..................... 190,529 56,425 206,668
Other securities............................... 24,535 4,312 3,538
-------- -------- --------
Total.................................. $246,980 $ 67,670 $223,492
======== ======== ========
</TABLE>
B. Maturity and Yield Information
The required information is incorporated by reference to pages 56 through
57 in the 1995 Annual Report.
C. There are no issues included in obligations of states and political
subdivisions or other securities which exceed ten percent of shareholders'
equity.
III. LOAN PORTFOLIO
A. Types of Loans
The required information is incorporated by reference to page 53 in the
1995 Annual Report.
8
<PAGE> 11
B. Maturities and sensitivities of loans to interest rates at December 31,
1995:
<TABLE>
<CAPTION>
DUE AFTER
DUE IN 1 BUT DUE
1 YEAR WITHIN AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- --------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $48,716 $33,425 $38,018 $120,159
Real estate--construction....................... 11,860 3,558 9,083 24,501
------- --------- ------- --------
Total.................................... $60,576 $36,983 $47,101 $144,660
======= ======= ======= ========
Sensitivity of loans to interest rates:
Predetermined interest rates.................. $ 4,351 $11,310 $10,612 $ 26,273
Floating interest rates....................... 56,225 25,673 36,489 118,387
------- --------- ------- --------
Total.................................... $60,576 $36,983 $47,101 $144,660
======= ======= ======= ========
</TABLE>
C. Risk Elements
The following table presents information concerning nonaccrual loans,
restructured loans and loans past due 90 days or more. Commercial and mortgage
loans are placed on nonaccrual status when in the opinion of management
collection of principal or interest is doubtful and the loan is not both well
secured and in the process of collection. Installment and credit card loans are
generally charged off between 90 and 180 days past due or when deemed
uncollectible in the opinion of management. Cash payments received while a loan
is classified as nonaccrual are recorded as a reduction to principal as long as
doubt exists as to collection. A loan is characterized as restructured if for
reasons related to the borrower's financial difficulties a concession is granted
that would not otherwise be considered.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual............................ $4,959 $2,875 $5,186 $8,715 $3,459
Restructured.......................... -- -- 76 81 86
Past due 90 days or more.............. 2,648 1,870 1,960 1,029 1,048
------ ------ ------ ------ ------
Total............................ $7,607 $4,745 $7,222 $9,825 $4,593
====== ====== ====== ====== ======
</TABLE>
The gross interest income that would have been recorded for 1995 for
nonaccrual and restructured loans outstanding as of December 31, 1995 as though
the loans had been current in accordance with their original terms was
approximately $392,000. First Western recognized interest income of $93,000
during 1995 for nonaccrual and restructured loans.
There were no potential problem loans outstanding at the end of any period
presented for which there was serious doubt as to the ability of the borrower to
comply with present loan repayment terms except as discussed above.
At December 31, 1995, First Western did not have any concentrations of
loans to borrowers engaged in similar activities exceeding 10% of total loans,
net of unearned income.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. Analysis of Loan Loss Experience
The required information is incorporated by reference to page 49 of the
1995 Annual Report.
9
<PAGE> 12
B. Allocation of the Allowance for Possible Loan Losses:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------------ ------------------ ------------------ ------------------ -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- --------- ------- --------- ------- --------- ------- --------- ------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural... $ 2,847 11.7% $ 2,855 10.2% $ 3,737 10.1% $ 4,478 10.9% $3,036 10.6%
Real
estate--construction... -- 2.4 -- 1.9 -- 1.7 -- 1.8 -- 2.9
Real
estate--mortgage... 1,610 57.5 1,045 57.8 957 60.5 2,041 58.2 1,873 61.3
Installment.......... 5,197 28.4 4,020 30.1 3,067 27.7 1,726 29.1 1,616 25.2
Unallocated.......... 4,494 N/A 5,023 N/A 3,341 N/A 2,601 N/A 2,351 N/A
------- ------ ------- ------ ------- ------ ------- ------- ------ ------
Total.............. $14,148 100.0% $12,943 100.0% $11,102 100.0% $10,846 100.0% $8,876 100.0%
======= ====== ======= ====== ======= ====== ======= ====== ====== ======
</TABLE>
For additional information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 52 through 56 of the
1995 Annual Report.
V. DEPOSITS
A. Average deposits and rates paid by type:
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ---------------- ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits.......................... $ 95,771 -- $ 91,465 -- $ 84,371 --
Interest-bearing deposits:
Demand and money market
deposits..................... 208,124 2.60% 214,704 2.30% 228,501 2.57%
Savings deposits............... 179,101 2.30 175,711 2.35 168,448 2.74
Time deposits.................. 673,140 5.70 512,598 4.79 486,616 4.91
---------- ---- -------- ---- -------- ----
Total..................... $1,156,136 4.14% $994,478 3.38% $967,936 3.55%
========= ==== ======== ==== ======== ====
</TABLE>
B. Maturities of time deposits of $100,000 or more at December 31, 1995:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less.................................... $ 42,736
Over 3 through 6 months............................. 8,183
Over 6 through 12 months............................ 13,896
Over 12 months...................................... 1,994
--------------
Total.......................................... $ 66,809
==============
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
The required information is incorporated by reference to page 43 of the
1995 Annual Report.
VII. SHORT-TERM BORROWINGS
The required information is incorporated by reference to page 58 of the
1995 Annual Report.
ITEM 2. PROPERTIES
The principal executive offices of First Western and the administrative
offices of First Western Bank, N.A. are located at 101 East Washington Street,
New Castle, Pennsylvania. In 1992, First Western purchased a building in
downtown New Castle, which houses centralized data processing and certain other
operations. First Western also owns property in Lawrence County, Pennsylvania,
for possible future use as First Western's headquarters. It is not anticipated
that this site will be developed in the immediate future.
10
<PAGE> 13
First Western Bank, N.A., together with First Western, occupies
approximately 75% of its six-story headquarters building. In addition to its
main office, First Western Bank, N.A. owns an attached office building which
houses First Western Bank, N.A.'s dealer center, credit card, marketing and
other administrative departments. First Western Bank, N.A. also owns an office
building at Third and Insurance Streets, Beaver, Pennsylvania, which formerly
served as the headquarters of Beaver Trust. First Western Bank, N. A. occupies
approximately one-fourth of this building with the remaining office space leased
to unrelated parties. First Western Bank, N.A. also owns the office building
adjacent to the former main office of Beaver Trust and First Western Bank, N.A.
occupies approximately one-fourth of this building with the remaining space
leased to unrelated parties. First Western Bank, N.A. owns 11 branch offices
located in New Castle (Butler Avenue), New Wilmington, Pulaski, Ellwood City,
Neshannock, Midland, Rochester (Adams Street), Beaver (Tuscarawas Office),
Center Township, Monaca and Aliquippa. First Western Bank, N.A. leases eleven
other properties, which have expirations, costs and renewal options as follows:
<TABLE>
<CAPTION>
EXPIRATION ANNUAL LEASE RENEWAL
DATE COST OPTIONS
---------- ------------ -------------------
<S> <C> <C> <C>
Hillsville.......................... 1998 $ 6,840 two 5-year terms
North City.......................... 1997 5,460 two 5-year terms
Shenango Twp........................ 2000 38,244 one 5-year term
Zelienople.......................... 1996 11,280 two 10-year terms
Coraopolis (Moon Twp.).............. 2004 37,000 three 10-year terms
Coraopolis (West Hills Plaza)....... 1996 27,750 none
Aliquippa (Hopewell) (ground
lease)............................ 1997 31,106 two 5-year terms
Butler--South Main Street........... 2004 25,920 none
Butler Township--Point Plaza........ 2000 19,400 none
Butler Township--Stirling Village... 1996 37,812 three 5-year terms
Union Township...................... 1999 24,300 two 5-year terms
</TABLE>
During the fourth quarter of 1995, First Western Bank, N.A. closed its
Hillsville office and transferred the deposit accounts to the recently opened
Union Township office. First Western is currently attempting to sublet this
office.
First Western Bank, F.S.B. conducts its business from its main office in
Sharon, Pennsylvania and eighteen additional offices located in Mercer, Erie,
Butler and Venango Counties, Pennsylvania and Ashtabula and Lake Counties, Ohio.
First Western Bank, F.S.B. occupies approximately one-fourth of its main office
in Sharon, Pennsylvania with the remaining office space leased to unrelated
parties. First Western Bank, F.S.B. owns its offices located in Sharon,
Hermitage, Mercer, Grove City, Greenville, Slippery Rock and Erie (Peach Street,
Pittsburgh Avenue and Girard), Pennsylvania and Ashtabula, Jefferson, Orwell,
Painesville and Conneaut, Ohio. First Western Bank, F.S.B. leases five other
properties. First Western Bank, F.S.B.'s Erie--Peach Street and Erie--Pittsburgh
Avenue offices are located on leased ground. The leases have expirations, costs
and renewal options as follows:
<TABLE>
<CAPTION>
EXPIRATION ANNUAL LEASE RENEWAL
DATE COST OPTIONS
---------- ------------ -------------------
<S> <C> <C> <C>
Oil City................................ 1996 $ 10,800 none
Erie--State Street...................... 1997 33,660 eight 5-year terms
Erie--Peach Street (ground lease)....... 2008 39,487 one 5-year term
Erie--Pittsburgh Avenue (ground
lease)................................ 2004 32,076 two 10-year terms
Andover, Ohio........................... 2000 10,620 one 5-year term
Madison, Ohio........................... 2003 21,616 one 15-year term
Mentor, Ohio............................ 2004 29,629 one 15-year term
</TABLE>
Trust Services has entered into formal lease agreements with, and leases
space for its trust offices from, First Western Bank, N.A. in New Castle and
Beaver, and First Western Bank, F.S.B. in Hermitage and Erie. Each lease is for
a five year term.
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending against First Western or
its Subsidiaries as of December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The required information is incorporated by reference to page 62 of the
1995 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The required information is incorporated by reference to page 43 of the
1995 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The required information is incorporated by reference to pages 44 through
62 of the 1995 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated by reference to pages 19 through
43 of the 1995 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information with respect to the Directors is incorporated by
reference to pages 5 through 9 of the 1996 Annual Proxy Statement to
Shareholders (the "1996 Proxy Statement").
Information required to be furnished pursuant to this item with respect to
Executive Officers is set forth in Part I, Item I of this report and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The required information is incorporated by reference to pages 10 through
18 of the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is incorporated by reference to pages 5 through 10
of the 1996 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is incorporated by reference to page 19 of the
1996 Proxy Statement.
13
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The Consolidated Financial Statements of First Western Bancorp, Inc. and
its Subsidiaries together with the Independent Auditors' Report dated January
26, 1996 are referenced in Part II, Item 8--Financial Statements and
Supplementary Data and are incorporated by reference to pages 19 through 43 of
the 1995 Annual Report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is given in the Consolidated Financial Statements or notes thereto.
(3) Exhibits:
The exhibit index appears on page 17.
(b) Reports on Form 8-K:
None.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ THOMAS J. O'SHANE
---------------------------------
Thomas J. O'Shane
President and Chief
Executive Officer
Date: March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ THOMAS J. O'SHANE President and Chief Executive March 25, 1996
- ------------------------------- Officer; Director; Principal
Thomas J. O'Shane Executive Officer
/s/ ROBERT H. YOUNG Senior Vice President-- March 25, 1996
- ------------------------------- Finance, Secretary and Treasurer;
Robert H. Young Principal Financial Officer
/s/ KENNETH J. ROMIG Vice President, Controller; March 25, 1996
- ------------------------------- Principal Accounting Officer
Kenneth J. Romig
/s/ JOHN R. MCKINLEY Chairman of the Board; Director March 25, 1996
- -------------------------------
John R. McKinley
/s/ WENDELL H. BOYD Director March 25, 1996
- -------------------------------
Wendell H. Boyd
/s/ JAMES M. CAMPBELL Director March 25, 1996
- -------------------------------
James M. Campbell
/s/ ROBERT N. CHAMBERS Director March 25, 1996
- -------------------------------
Robert N. Chambers
/s/ ROBERT C. DUVALL Director March 25, 1996
- -------------------------------
Robert C. Duvall
/s/ LOUIS J. KASING, JR. Director March 25, 1996
- -------------------------------
Louis J. Kasing, Jr.
/s/ JOHN W. LEHMAN, M.D. Director March 25, 1996
- -------------------------------
John W. Lehman, M.D.
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ THOMAS S. MANSELL Senior Vice President, Legal March 25, 1996
- ------------------------------- Counsel and Assistant Secretary;
Thomas S. Mansell Director
/s/ FLOYD H. MCELWAIN Director March 25, 1996
- -------------------------------
Floyd H. McElwain
/s/ RICHARD C. MCGILL Director March 25, 1996
- -------------------------------
Richard C. McGill
/s/ JOHN P. O'LEARY, JR. Director March 25, 1996
- -------------------------------
John P. O'Leary, Jr.
/s/ HAROLD F. REED, JR. Director March 25, 1996
- -------------------------------
Harold F. Reed, Jr.
/s/ JOHN W. SANT Director March 25, 1996
- -------------------------------
John W. Sant
</TABLE>
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------ ----------- -----------
<C> <S> <C>
3.1 Articles of Incorporation Incorporated herein by reference to
Exhibit 3.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
March 31, 1993
3.2 Bylaws Incorporated herein by reference to
Exhibit 3.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
June 30, 1995
4.1 Ten-Year, 11% Capital Note Incorporated herein by reference to
Appendix B to Annex A to Registration
Statement of First Western on Form S-4
(No. 33-1571)
10.1 Loan Agreement between First Western Incorporated herein by reference to
Bancorp, Inc. and Pittsburgh National Bank Exhibit 10.8 to First Western's 1990 Form
dated November 29, 1990 10-K
10.2 Amendment to Loan Agreement between First Incorporated herein by reference to
Western Bancorp, Inc. and Pittsburgh Exhibit 10.12 to First Western's 1993
National Bank dated September 30, 1992 Form 10-K
10.3 Second Amendment to Loan Agreement between Incorporated herein by reference to
First Western Bancorp, Inc. and PNC Bank, Exhibit 10.1 to First Western's Quarterly
National Association dated June 24, 1994. Report on Form 10-Q for the Quarter
ended June 30, 1994.
10.4 Term Loan Agreement dated as of March 10, Incorporated herein by reference to
1986 by and between First Western Bancorp, Exhibit 10.8 to Registration Statement of
Inc. and Mellon Bank, N.A., including First Western on Form S-2 (No. 33-46016)
First Amendment thereto dated as of
September 1, 1990
10.5 Incentive Stock Option Plan for Key Incorporated herein by reference to
Officers* as amended effective February Exhibit 10.5 to First Western's 1994 Form
21, 1995 10-K
10.6 First Western Bancorp, Inc. Annual Incorporated herein by reference to
Incentive Plan* Exhibit 10.11 to First Western's 1992
Form 10-K
10.7 First Western Bancorp, Inc. Deferred Incorporated herein by reference to
Compensation Plan for Directors* Exhibit 10.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
March 31, 1995
10.8 First Western Bancorp, Inc. 1993 Incorporated herein by reference to
Supplemental Benefit Program* Exhibit 10.11 to First Western's 1993
Form 10-K
10.9 Supplemental Executive Retirement Plan*
10.10 Change in Control Agreement between Thomas
J. O'Shane and First Western Bancorp,
Inc.*
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- -------- ------------------------------------------ -----------------------------------------
<C> <S> <C>
10.11 Change in Control Agreement between Robert
H. Young and First Western Bancorp, Inc.*
10.12 Change in Control Agreement between
Stephen R. Sant and First Western Bancorp,
Inc.*
10.13 Employment Agreement between Dean M. Gouin Incorporated herein by reference to
and First Western Bancorp, Inc.* Exhibit 10.13 to First Western's 1994
Form 10-K
13.1 First Western Bancorp, Inc. 1995 Annual
Report to Shareholders
20.1 First Western Bancorp, Inc. 1996 Annual
Proxy Statement to Shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
- ---------
* Indicates exhibit is a management contract or compensation plan or
arrangement.
18
<PAGE> 1
Exhibit 10.9
FIRST WESTERN BANCORP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I Purpose and Effective Date . . . . . . . . . . . . . . . . 1
ARTICLE II Definitions
2.01 Account . . . . . . . . . . . . . . . . . . . . . . 1
2.02 Account Value . . . . . . . . . . . . . . . . . . . 1
2.03 Beneficiary . . . . . . . . . . . . . . . . . . . . 1
2.04 Board . . . . . . . . . . . . . . . . . . . . . . . 1
2.05 Code . . . . . . . . . . . . . . . . . . . . . . . 1
2.06 Company . . . . . . . . . . . . . . . . . . . . . . 1
2.07 Compensation Committee . . . . . . . . . . . . . . 1
2.08 Member . . . . . . . . . . . . . . . . . . . . . . 1
2.09 Plan . . . . . . . . . . . . . . . . . . . . . . . 1
2.10 Plan Year . . . . . . . . . . . . . . . . . . . . . 2
2.11 Trust . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III Designation of Members
3.01 Initial Members . . . . . . . . . . . . . . . . . . 2
3.02 Compensation Committee Action . . . . . . . . . . . 2
ARTICLE IV Administration . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE V Contributions and Benefits
5.01 Annual Contributions . . . . . . . . . . . . . . . 3
5.02 Amount and Payment of Benefits . . . . . . . . . . 3
ARTICLE VI Amendment and Termination . . . . . . . . . . . . . . . . 3
ARTICLE VII Miscellaneous
7.01 Unsecured General Creditor . . . . . . . . . . . . 4
7.02 Nonassignability . . . . . . . . . . . . . . . . . 4
7.03 Not a Contract of Employment . . . . . . . . . . . 4
7.04 Not a Bar to Corporate Act . . . . . . . . . . . . 4
7.05 Terms . . . . . . . . . . . . . . . . . . . . . . . 4
7.06 Captions . . . . . . . . . . . . . . . . . . . . . 5
7.07 Governing Laws . . . . . . . . . . . . . . . . . . 5
7.08 Severability . . . . . . . . . . . . . . . . . . . 5
7.09 Notice . . . . . . . . . . . . . . . . . . . . . . 5
7.10 Successor . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE VIII Execution . . . . . . . . . . . . . . . . . . . . . . .
<PAGE> 3
TABLE OF CONTENTS
Page
EXHIBIT A List of Employees Eligible to Participate Under
the First Western Bancorp, Inc. Supplemental
Executive Retirement Plan as of its
Effective Date
EXHIBIT B First Western Bancorp, Inc. Supplemental
Executive Retirement Plan Trust Agreement
<PAGE> 4
ARTICLE I
PURPOSE AND EFFECTIVE DATE
The purposes of the First Western Bancorp, Inc. Supplemental Executive
Retirement Plan ("Plan"), are to promote the growth and profitability of First
Western Bancorp, Inc., to attract and retain key executives of outstanding
competence and to provide key executives with certain benefits under the terms
and conditions hereof. The Plan is intended to be an unfunded plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees as described in Section 401(a)(1)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The provisions of the Plan shall be effective January 1, 1996.
ARTICLE II
DEFINITIONS
As used herein, the following terms shall have the meaning set forth:
2.01 "Account" shall mean a bookkeeping account maintained for each
Member to record the contributions to and investment earnings of the Trust
credited to such Member.
2.02 "Account Value" shall mean the value, as determined by the
Compensation Committee, of a Member's Account as of a particular date.
2.03 "Beneficiary" shall mean the person, persons, trust, trusts or
other entity designated by a Member in writing to receive benefits payable under
the Plan in respect of such Member.
2.04 "Board" shall mean the Board of Directors of the Company.
2.05 "Code" shall mean the Internal Revenue Code of 1986, as the same
may be amended from time to time.
2.06 "Company" shall mean First Western Bancorp, Inc. and its
successors and assigns.
2.07 "Compensation Committee" shall mean the Compensation Committee
of the Board.
2.08 "Member" shall mean an employee of the Company who is eligible
to participate in the Plan as set forth in Article III.
2.09 "Plan" shall mean the First Western Bancorp, Inc. Supplemental
Executive Retirement Plan, as the same may be amended from time to time.
<PAGE> 5
2.10 "Plan Year" shall mean the calendar year.
2.11 "Trust" shall mean the grantor trust established pursuant to
Section 7.01.
ARTICLE III
DESIGNATION OF MEMBERS
3.01 INITIAL MEMBERS. By adopting the Plan, the Board confirmed the
selection by the Compensation Committee as a Member eligible to participate in
the Plan the employee listed in Exhibit A hereto.
3.02 COMPENSATION COMMITTEE ACTION. From time to time, the
Compensation Committee may determine that certain employees of the Company be
designated as Members eligible to participate in the Plan. Such determination
shall take the form of a resolution adopted by the Compensation Committee
identifying such employees by name or by title of position and an amendment to
Exhibit A hereto to add such employees' names thereto. In making such
determination, the Compensation Committee shall give consideration to the
function and responsibilities of the employee, his or her past performance, his
or her contributions to the profitability and sound growth of the Company and
such other factors as the Compensation Committee may deem appropriate. Such
determination need not be uniform and may be made selectively by the
Compensation Committee among the employees of the Company. Notwithstanding the
foregoing, no employee may be appointed as a Member if, in the sole and absolute
judgment of the Compensation Committee, the admission of such employee as a
Member would cause the Plan to fail to be a plan described in Section 401(a)(1)
of ERISA.
ARTICLE IV
ADMINISTRATION
The Plan shall be administered by the Compensation Committee in a manner
not inconsistent with the provisions of the Plan and in so doing the
Compensation Committee shall have the sole and absolute authority and
discretion, from time to time, to:
(a) determine whether an employee is eligible to become a Member
pursuant to Section 3.02;
(b) determine whether a Member has experienced an event giving rise
to the payment of benefits hereunder;
(c) determine whether a Member or a Member's Beneficiary is entitled
to receive benefits under the Plan;
(d) determine the amount of any benefit payable hereunder;
- 2 -
<PAGE> 6
(e) interpret the Plan and make all other determinations and to take
all other actions necessary or advisable for the implementation and
administration of the Plan, except in respect to the designation of Members
under Section 3.02 or modification, amendment, or termination of the Plan
under Article VI, which actions are reserved to the Board;
(f) appoint or employ agents and to delegate thereto such
responsibilities and duties necessary or appropriate to the effective
administration of the Plan; and
(g) direct the payment of any benefits payable hereunder.
All actions, determinations and decisions of the Compensation Committee
shall be final, conclusive and binding upon the Company, Members and their
Beneficiaries. Members of the Compensation Committee shall not be liable for
any action taken or decision made in good faith relating to the Plan.
ARTICLE V
CONTRIBUTIONS AND BENEFITS
5.01 ANNUAL CONTRIBUTIONS. Within thirty (30) days after the end of
each Plan Year, the Company shall make a cash contribution to the Trust for each
Member in an amount determined by the Board in its sole discretion.
5.02 AMOUNT AND PAYMENT OF BENEFITS. Except as provided below,
within thirty (30) days following the occurrence of a Member's retirement, death
or other separation from service, the Member, or in the event of the Member's
death, the Member's Beneficiary, shall be entitled to receive a lump sum payment
in cash equal to the Member's Account Value determined as of the date of the
event giving rise to such distribution. Notwithstanding the foregoing, payment
of a Member's benefit shall be deferred to the extent, but only to the extent,
reasonably required, in the opinion of tax counsel to the Company, to ensure the
deductibility under Section 162(m) of the Code of all compensation payments by
the Company and its affiliates to such Member.
ARTICLE VI
AMENDMENT AND TERMINATION
The Company, by action of the Board, may modify, alter, amend or
terminate the Plan in whole or in part, except to the extent that such action
would result in the reduction of benefits accrued by or currently being paid to
any Member or his or her Beneficiary.
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ARTICLE VII
MISCELLANEOUS
7.01 UNSECURED GENERAL CREDITOR. The rights of a Member or his or
her Beneficiary to receive payment of any benefits under the Plan shall be and
remain no greater than the rights of an unsecured general creditor of the
Company. The Company shall establish a Trust, known as a "rabbi trust", for use
in funding the benefits under the Plan with a trustee to be selected by the
Company in accordance with a trust agreement meeting the requirements of Rev.
Proc. 92-64, as it may be amended or supplemented in the future, in the format
attached to the Plan as Exhibit B. The Trust shall be a grantor trust and all
money or property held in the Trust shall remain subject to the claims of
creditors of the Company.
7.02 NONASSIGNABILITY. Neither a Member nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage
or otherwise encumber, transfer, hypothecate or convey in advance of actual
receipt those amounts, if any payable hereunder, or any part thereof, which are,
and all rights to which are, expressly declared to be unassignable and
nontransferable. No part of the amounts payable shall, prior to actual payment,
be subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by a Member or any other person, nor be
transferable by operation of law in the event of a Member's or any other
person's bankruptcy or insolvency.
7.03 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of the
Plan shall not be deemed to constitute a contract of employment between the
Company and the Member, and the Member (or his or her Beneficiary) shall have no
rights against the Company except as may be specifically provided herein.
Moreover, nothing in the Plan shall be deemed to give a Member the right to be
retained in the service of the Company or to interfere with the right of the
Company to discharge him or change his employment status at any time.
7.04 NOT A BAR TO CORPORATE ACT. Nothing contained in the Plan shall
prevent the Company from engaging in any reorganization, recapitalization,
merger, liquidation, sale of assets or other corporate transaction.
7.05 TERMS. Whenever any words are used herein in the masculine,
they shall be construed as though they were used in the feminine in all cases
where they would so apply; and wherever any words are used herein in the
singular or in the plural, they shall be construed as though they were used in
the plural or the singular, as the case may be, in all cases where they would so
apply.
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7.06 CAPTIONS. The captions of the articles, sections and paragraphs
of the Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
7.07 GOVERNING LAWS. The provisions of the Plan shall be construed
and interpreted according to the internal laws of the Commonwealth of
Pennsylvania.
7.08 SEVERABILITY. In case any provision of the Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but the Plan shall be construed and enforced
as if such illegal and invalid provision had never been inserted herein.
7.09 NOTICE. Any notice or filing required or permitted to be given
to the Company under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to the principal office of
the Company. Such notice shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification. Contact should be made with:
Compensation Committee
c/o First Western Bancorp, Inc.
101 East Washington Street
New Castle, PA 16103
7.10 SUCCESSOR. The provisions of the Plan shall be binding on the
Company and its successors and assigns. The term successors as used herein
shall include any corporate or other business entity which shall, whether by
merger, consolidation, purchase or otherwise acquire all or substantially all of
the business and assets of the Company, and successors of any such corporation
or other business entity.
ARTICLE VIII
EXECUTION
In order to record the due adoption of the Plan, the Company has caused the
execution hereof by its authorized officers, as of the 1st day of January, 1996.
FIRST WESTERN BANCORP, INC.
ATTEST:
By: /s/ ROBERT H. YOUNG By: /S/ JOHN R. McKINLEY
---------------------------- ----------------------------
Title Senior Vice President Title Chairman
Finance, Secretary
and Treasurer
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EXHIBIT A
LIST OF EMPLOYEES ELIGIBLE TO
PARTICIPATE UNDER THE
FIRST WESTERN BANCORP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
AS OF ITS EFFECTIVE DATE
Thomas J. O'Shane
Stephen R. Sant
Robert H. Young
Robert E. Cimini
<PAGE> 1
EXHIBIT 10.10
AGREEMENT
THIS AGREEMENT made this 18th day of July, 1995, by and between:
FIRST WESTERN BANCORP, INC., a Pennsylvania corporation which is hereinafter
referred to as the "Company",
AND
THOMAS J. O'SHANE, an employee of the Company, and hereinafter referred to
as the "Executive";
W I T N E S S E T H:
WHEREAS, the Executive serves in the capacity of, and performs the duties
of, an Executive Officer for the Company; and
WHEREAS, the Board of Directors of the Company considers it to be in the
best interest of the Company and the stockholders of the Company that the
Executive continue to serve in an executive capacity of the Company; and
WHEREAS, the Company desires to assure the continuing services of the
Executive on behalf of the Company on an objective and impartial basis and
without distraction or conflict of interest due to the uncertainties of his
position in the event of an actual, attempted or threatened Change in Control
(as such Change in Control is hereinafter defined in Paragraph 1); and
WHEREAS, in view of the foregoing, the Company desires to provide the
Executive with a degree of employment security in the event of a Change in
Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. a. "Change in Control" shall be deemed to have occurred as of the
first day that any one or more of the following conditions shall
have been satisfied:
(i) Final regulatory approval is obtained for any Person (other than
those Persons in control of the Company and/or the Bank, as
applicable, as of the effective date of this Agreement, or other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and/or the Bank, as
applicable, or a corporation owned directly or indirectly by the
stockholders of the Company and/or the Bank, as applicable, in
substantially the same proportions as their ownership of stock of
the Company and/or the Bank), to become the Beneficial Owner,
directly or indirectly, of securities of the Company and/or the
Bank, as applicable, representing twenty (20) percent or more of
the combined voting power of the Company's (or the Bank's as
applicable) then outstanding securities; or
(ii) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of the
Company and/or the Board of the Bank (and any new
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Director, whose election by the Company's stockholders or the
Bank's stockholders, as applicable, was approved by a vote of at
least two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease for
any reason to constitute a majority thereof; or
(iii) Final regulatory approval is obtained with respect to: (A) a
plan of complete liquidation of the Company or the Bank; or
(B) an agreement for the sale or disposition of all or
substantially all the Company's or the Bank's assets; or (C)
a merger, consolidation, or reorganization of the Company
and/or the Bank with or involving any other corporation, other
than a merger, consolidation, or reorganization that would
result in the voting securities of the Company or the Bank (as
applicable) outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at
least fifty (50) percent of the combined voting power of the
voting securities of the Company of the Bank (as applicable)
(or such surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.
Notwithstanding the foregoing, in no event shall a Change in
Control be deemed to have occurred, with respect to the Executive,
if the Executive is part of a purchasing group which consummates
the Change in Control transaction. The Executive shall be deemed
"part of a purchasing company or group (except for: (A) passive
ownership of less than three (3) percent of the stock of the
purchasing company or group which is otherwise not significant,
as determined prior to the Change in Control by a majority of the
nonemployed continuing Directors of the Company or the Bank, as
applicable).
(b) "Bank" means First Western Bank, National Association, First
Western Bank, Federal Savings Bank, First Western Trust Services
Company, or any successor thereto.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company and/or the
Board of Directors of the Bank, as indicated by the context in
which the term is used.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Section 13(d) and Section
14(d) thereof, including a "group" as defined in Section 13(d).
The term Person shall not include the Company or the Bank, any
executive officer or Director of the Company, the Bank, or a
subsidiary of the Company or Bank, or a group controlled by such
Directors or executive officers, or any employee benefit plan of
the Company, the Bank, or a subsidiary of the Company or Bank;
provided, however, that the term Person shall include any
individual who is a Director on the effective date of this
Agreement beneficially owned five (5) percent or more of the
voting shares of common stock of the Company, or a group
controlled by such a Director.
2. If at the time of a Change in Control the Executive is still serving in the
capacity of, and performing the duties of, an Executive Officer for the
Company or the Bank, the Company shall continue to employ the Executive in
an executive position during his "Term of Employment" which, for purposes
of this Agreement is defined as the earliest of (i) the date upon which the
Executive would attain age 65 ("Normal Retirement Age"), (ii) the date upon
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which the Executive's elected early retirement is scheduled to begin and
(iii) the date that is thirty-six (36) months after the date of the Change
in Control, such employment to be all upon the terms and conditions
hereinafter set forth.
3. During the Term of Employment the Company shall:
(a) pay the Executive, during the first year of the Term of Employment (or
such portion thereof if the Term of Employment is less than a year), a
monthly salary at least equal to the Executive's highest salary for
any month during the twelve (12) months immediately preceding the
Change in Control and, during each subsequent year of the Term of
Employment, an annual salary (payable on at least a monthly basis) at
least equal to the Executive's salary for the immediately preceding
year plus an amount calculated in a manner at least as favorable to
the Executive as the manner in which the pay increases for other
Company executives or of new Company executives are calculated, or in
the case of an implemented salary freeze or decrease across the board,
an increase calculated in accordance with the prior twelve (12)
months' increase in the U.S. Government Consumer Price Index;
(b) pay the Executive an annual bonus calculated in a manner at least as
favorable to the Executive as the manner in which (i) the last annual
bonus paid to the Executive prior to the Change in Control was
calculated, or (ii) the annual bonus paid to the Executive by the
Company in the immediately preceding year was calculated (whichever
would result in a greater payment to the Executive); this annual bonus
may be pro-rated for that portion of the year covered by the Term of
Employment if the Term of Employment expires prior to year end;
(c) provide and maintain in full force and effect through existing plans
or through equivalent plans at least the types and amounts of group
insurance coverages (including conversion features) and benefits,
including life, health, disability and hospitalization insurance, and
other health care benefits, including medical, hospital and surgical
benefits and health care benefits for the Executive's family
(collectively "Insurance and Health Care Benefits"), to which the
Executive was entitled immediately prior to the Change in Control or
the Insurance and Health Care Benefits provided by the Company or its
successor to its other executives after a Change in Control (whichever
would result in greater Insurance and Health Care Benefits to the
Executive);
(d) continue to provide benefits to the Executive under the Company's
pension plan, profit sharing plan (including Section 401(k) election
and matching contribution provisions), ESOP plans and other fringe
benefits programs and arrangements, including employee benefit plans,
as in effect immediately prior to the Change in Control or, if such
plans, programs or arrangements are discontinued or superseded,
provide benefits to the Executive on the same basis as such benefits
are provided to the other executives of the Company or its successor
after a Change in Control; and
(e) provide and maintain in full force and effect at least those
additional executive benefits and perquisites which the Executive was
entitled to from the Company immediately prior to the Change in
Control, including any social and/or club memberships and any Company
provided automobiles (which automobiles may be purchased at
termination at the lower of fair market value per NADA blue book
wholesale value or at book value on the Company's books and records).
4. "Termination of Employment", for the purposes of this Agreement, shall
occur if the Executive's employment in an executive position is terminated
during the Term of Employment:
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(i) by the Company for any reason, including disability or incapacity, but
excepting a termination for "cause," as shall be determined by the
Board of the Company and the Board of the Bank, in exercise of good
faith and reasonable judgment, upon the occurrences of any one or more
of the following:
(a) the Executive's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(b) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company and/or the
Bank; however, no act or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief
that his action or omission was in the best interest of the
Company and/or the Bank; or
(c) the conviction of the Executive of any criminal offense or act
involving dishonesty or a breach of trust which requires the
Company or the Bank to terminate the employment of the Executive,
and/or precludes the payment of severance compensation under
Federal law; or
(d) any conduct, act, or omission by the Executive which would
constitute grounds for the imposition upon the Executive, the
Company or the Bank of a civil penalty under Section 8(i)(2)(B)
or (C) of the Federal Deposit Insurance Act; or
(ii) by the Executive for "good reason," which shall mean, without the
Executive's express written consent, the occurrence after a Change in
Control of the Company or the Bank of any one or more of the following:
(a) the assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company and/or the Bank, or a reduction or
alteration in the nature or status of the Executive's authorities,
duties, or responsibilities form those in effect as of ninety (90)
days prior to the Change in Control, other than an insubstantial
and inadvertent act that this remedied by the Company and/or the
Bank promptly after receipt of notice thereof given by the
Executive, and other than any such alteration which is consented
to by the Executive in writing;
(b) the Company's requiring the Executive to be based at a location in
excess of thirty-five (35) miles from the location of the
Executive's principal job location or office immediately prior to
the Change in Control; except for required travel on the Company's
and/or the Bank's business to an extent substantially consistent
with the Executive's present business obligations; and further
except as may be waived by the Executive provided the Company pays
all expenses related to a move, including purchasing any existing
house used by the Executive as his principal residence which the
Executive is not able to sell within One-Hundred Twenty (120)
days of listing at fair market value as fair market value is
determined by two (2) independent appraisals;
(c) a material reduction by the Company or the Bank of the Executive's
compensation or benefits; and
(d) the failure of the Company or the Bank to obtain a satisfactory
agreement from any successor to the Company or the Bank to assume
and agree to perform the Company's and the Bank's obligations
under this Agreement.
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<PAGE> 5
The Executive's right to terminate employment for good reason
shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting good reason herein.
5. In the event of a Termination of Employment, the Company shall pay or cause
to be paid to the Executive or after the Executive's death to his
designated beneficiary, or if there be none, to his personal
representative, executor or administrator (for the purposes of this
Paragraph 5 the term "Executive" shall include the Executive's designated
beneficiary, personal representative, executor or administrator) a single
lump sum payment in an amount equal to the present value of the total
amount calculated below, such present value to be determined by discount
based upon an interest rate two (2) percentage points less than the
Pittsburgh prime rate in effect at the date of Termination of Employment.
The Company shall pay the Executive such lump sum amount within thirty (30)
days following the date of Termination of Employment. The total amount
upon which the present value is to be determined, shall be calculated as
follows:
The sum of:
(a) the equivalent of all monthly salaries during the "Payment Period"
with each monthly salary being equal to the greater of the Executive's
highest salary from the Company for any month during the twelve (12)
months immediately preceding (A) the change of control and (B) the
termination of employment ("Annual Base Compensation"), plus
(b) the greater of the average of the annual bonuses received by the
Executive from the Company during the three (3) calendar years
immediately preceding (A) the change in control and (B) the
Termination of Employment ("Annual Bonus"), plus
(c) the cost of any social and/or club memberships and the cost of any
Company provided automobiles.
The "Payment Period", for purposes of this Agreement, is defined to be the
period beginning on the date of Termination of Employment and ending on the
earlier of (i) the date upon which the Executive would attain Normal
Retirement Age and (ii) the date that is thirty-six (36) months from the
date of the Change of Control.
The Executive's right to receive compensation from the Company pursuant to
this Paragraph 5 shall not be affected by the Executive's receipt of
compensation in connection with any subsequent employment by any other
corporation or entity.
6. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive and/or his
spouse shall continue to receive from the Company, until the date the
Executive attains or would have attained Normal Retirement Age, insurance
and health care benefits equivalent to the greater of the insurance and
health care benefits to which the Executive was entitled (i) immediately
preceding the date the Executive ceased to be employed by the Company and
(ii) immediately preceding the Change in Control (provided that the Company
may reduce such insurance and health care benefits to the extent of any
duplication of the types and amounts of coverages and benefits provided to
the Executive in connection with any subsequent employment by any other
corporation or other entity prior to the Executive attaining Normal
Retirement Age), and from and after the date the Executive attains or would
have attained Normal Retirement Age, the Executive and/or his spouse shall
receive
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the insurance and health care benefits, if any, to which he would
be entitled as a retired executive employee under the Company's benefit
plans and programs in effect immediately prior to the Change in Control or
immediately prior to the date the Executive ceased to be employed by the
Company (whichever would result in greater benefits to the Executive).
7. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive shall
receive retirement benefits in accordance with the Company's retirement
plans, including any supplemental executive retirement plan (the
"Retirement Plan") as in effect immediately prior to the Change in Control
or immediately prior to the Termination of Employment (whichever would
result in greater benefits for the Executive ). In the event of a
Termination of Employment prior to the date the Executive attains Normal
Retirement Age, in addition to benefits payable to the Executive pursuant
to the Retirement Plan, the Executive shall be entitled to receive
supplemental retirement benefits from the Company equal in value to the
difference between:
(i) the benefits to which the Executive would have been entitled under the
Retirement Plan assuming years of Service under the Retirement Plan
equal to the Executive's years of Service under the Retirement Plan to
the Termination of Employment plus the number of years of Service that
the Executive would have earned by continuing employment with the
Company until the termination of the Payment Period (at an assumed
annual salary during each year of assumed Service following the date
of the Termination of Employment equal to the Executive's compensation
including bonus club memberships and the like as set forth in 3
above), and
(ii) the benefits which the Executive is entitled to receive under the
Retirement Plan.
Any supplemental retirement benefits payable by the Company shall be
payable to the same extent and in the same form as, and commencing on
the date on which, benefit payments commence under the Retirement Plan
(including payment pursuant to any option thereunder, including early
retirement or any early retirement program where years may be added or
included for early retirement benefit calculations, payment elections
and beneficiary designations).
8. In the event of the death of the Executive during the Term of Employment,
in addition to the amounts, if any, payable pursuant to Paragraphs 5, 6 or
7 hereof, the estate of the Executive shall receive benefits at least equal
to the greater of:
(i) such other benefits which would have been payable to the estate of the
Executive by the Company if such event had occurred immediately prior
to the date of the Change in Control and
(ii) such other benefits payable to the estate of the Executive under
benefit plans and programs of the Company existing as of the date
of the Executive's death.
9. In the event any excise tax under Section 4999 (or any successor section)
of the Internal Revenue Code (the "Excise Tax") is levied at any time on
any amount paid pursuant to Paragraphs 3, 5, 6 or 7 of this Agreement, in
addition to the amounts payable to the Executive pursuant to Paragraphs 3,
5, 6 or 7 of this Agreement, the Company shall promptly pay the Executive
an amount designated as the "Gross-Up Amount" such that the Gross-Up Amount
minus the Excise Tax on the Gross-Up Amount
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equals the Excise Tax on the amounts payable to the Executive pursuant
to such Paragraphs.
10. Notwithstanding any provision of this Agreement to the contrary, this
Agreement and any payments, benefits or rights of the Executive as
provided herein are subject to Section 18(k) of the Federal Deposit
Insurance Act, as amended, and any applicable regulations thereunder.
11. Unless specifically provided otherwise herein, the Company's and the
Bank's obligation to make the payments and the arrangements provided
for herein shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without limitation, any
offset, counterclaim, recoupment, defense or other right which the
Company or the bank may have against the Executive or any other party.
All amounts payable by the Company and the Bank hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the
Company and the Bank shall be final, and neither the Company nor the Bank
shall seek to recover all or any part of such payment from the Executive
or from whomsoever may be entitled thereto, for any reasons whatsoever.
12. This Agreement establishes and vests in the Executive a contractual right
to the benefits to which he is entitled hereunder. However, nothing herein
contained shall require or be deemed to require, or prohibit or be deemed
to prohibit, the Company or the Bank to segregate, earmark, or otherwise
set aside any funds or other assets, in trust or otherwise, to provide for
any payments to be made or required hereunder.
13. In the event that it shall be necessary or desirable for the Executive
to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the executive substantially prevails in
the enforcement of such rights, the Company or the Bank, as
applicable, shall pay (or the Executive shall be entitled to recover
from the Company or the Bank, as the case may be) the Executive's
reasonable attorneys' fees, costs and expenses in connection with the
enforcement of his rights including the enforcement of any arbitration
award.
14. The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other
employment shall in no event effect any reduction of the Company's or
the Bank's obligations to make the payments and arrangements required
to be made under this Agreement, except to the extent otherwise
specifically provided herein.
15. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof (including the arbitrability of any controversy
or claim), shall be settled by arbitration in the City of Pittsburgh
in accordance with the laws of the Commonwealth of Pennsylvania by
three (3) arbitrators, one of whom shall be appointed by the
Company or the Bank, as applicable, one by the Executive, and the
third of whom shall be appointed by the first two (2) arbitrators.
If the first two (2) arbitrators cannot agree on the appointment of
a third arbitrator, then the third arbitrator shall be appointed by
the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which
shall be as provided in this Section 7.1. The cost of any arbitration
proceeding hereunder shall be borne equally by the Company or the
Bank, as applicable, and the Executive. The award of the arbitrators
shall be binding upon the parties.
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Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
16. The Executive, the Company, and the Bank acknowledge that, except as
may be provided under any other agreement between the Executive and
the Company or the Bank, the employment of the Executive by the
Company and the Bank is "at will," and, prior to the effective date of
a Change in Control, may be terminated by either the Executive, the
Company, or the Bank, at any time. Upon a termination of the
Executive's employment prior to the effective date of a Change in
Control, there shall be no further rights under this Agreement;
provided, however, that if such an employment termination shall arise
in connection with, or in anticipation of, a Change in Control, then
the Executive's rights shall be the same as if the termination had
occurred during the Term of Employment hereunder.
17. All notices, requests, demands, and other communications hereunder
must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by
first-class certified mail, return receipt requested, postage prepaid,
to the other party, addressed as follows:
(a) as to the Company:
101 East Washington Street
New Castle, PA 16103-1488
(b) if to the Executive:
73 Hermitage Hills Blvd.
Hermitage, PA 16148
18. The compensation and benefits provided pursuant to Paragraph 5 hereof,
to the extent received by the Executive, are granted to the Executive
in lieu of any compensation, benefits or amounts the Executive might
otherwise be entitled to under the Company's severance policy or
otherwise from the Company by reason of a Termination of Employment.
Except as otherwise set forth herein, this Agreement shall not in any
way alter the rights and obligations of the Company and the Executive
under any of the Company's benefit plans.
19. The rights of the Executive under this Agreement shall not be
transferable by assignment or otherwise, shall not be subject to
commutation or encumbrance and shall not be subject to the claims of
the creditors of the Executive.
20. This Agreement shall be binding upon and inure to the benefit of the
Executive, his designated beneficiary, personal representative,
executor or administrator, the Company and any successor, including
any organization which shall succeed to substantially all of the
business and property of the Company, whether by means of merger,
consolidation, acquisition or substantially all of the assets of the
Company or otherwise, including by operation of law (a "Successor
Organization"). The Company shall not merge, reorganize, consolidate,
sell all or substantially all of its assets, combine by operation of
law or otherwise combine, to or with any Successor Organization,
unless, as a condition to such transaction, the Successor Organization
assumes the obligations of the Company under this Agreement. For
purposes of this Agreement the term Company shall include any
Successor Organization.
21. This Agreement has been made in and shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
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22. The invalidity of any term of this Agreement shall not invalidate or
otherwise affect any other term of this Agreement.
23. All costs and expenses, including attorneys' fees and court costs,
reasonably incurred by the Executive to enforce this Agreement or
defend the validity of this Agreement shall be paid by the Company.
24. Notwithstanding anything to the contrary contained above, this
Agreement shall remain in effect through July 31, 1998 at which time,
if there has not been a Change in Control, this Agreement shall lapse
and become null and void unless extended by the Company. The Company
agrees to review this contract approximately six (6) months prior to
its expiration to determine whether the Company wishes to extend the
same for an additional three (3) year term. The Company will promptly
notify employee of its decision.
Each extension of this contract shall be for a three (3) year period
and the Company agrees to review the contract again approximately six
(6) months prior to the expiration of any renewal period and to
promptly notify employee of the Company's decision on renewal.
25. This Agreement supersedes and makes void any prior agreement between
the parties and sets forth the entire agreement and understanding of
the parties hereto with respect to the matters covered hereby and may
not be amended or modified except by further written agreement of the
parties. Any beneficiary designation, or any termination or amendment
to any existing designation under this Agreement shall be by written
instrument executed by the Executive and delivered to the Company.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused this Agreement to be signed by a duly authorized officer, on the date
first set out above.
ATTEST: FIRST WESTERN BANCORP, INC.
/s/ JAMIE L. KOPP BY: /s/ JOHN R. MCKINLEY
- ------------------------------------ ------------------------------------
JOHN R. MCKINLEY, CHAIRMAN
WITNESS: EXECUTIVE:
/s/ RICHARD L. RAUSCH /s/ THOMAS J. O'SHANE
- ------------------------------------ ---------------------------------------
THOMAS J. O'SHANE
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<PAGE> 1
EXHIBIT 10.11
AGREEMENT
THIS AGREEMENT made this 18th day of July, 1995, by and between:
FIRST WESTERN BANCORP, INC., a Pennsylvania corporation which is hereinafter
referred to as the "Company",
AND
ROBERT H. YOUNG, an employee of the Company, and hereinafter referred to as
the "Executive";
W I T N E S S E T H:
WHEREAS, the Executive serves in the capacity of, and performs the duties
of, an Executive Officer for the Company; and
WHEREAS, the Board of Directors of the Company considers it to be in the
best interest of the Company and the stockholders of the Company that the
Executive continue to serve in an executive capacity of the Company; and
WHEREAS, the Company desires to assure the continuing services of the
Executive on behalf of the Company on an objective and impartial basis and
without distraction or conflict of interest due to the uncertainties of his
position in the event of an actual, attempted or threatened Change in Control
(as such Change in Control is hereinafter defined in Paragraph 1); and
WHEREAS, in view of the foregoing, the Company desires to provide the
Executive with a degree of employment security in the event of a Change in
Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. a. "Change in Control" shall be deemed to have occurred as of the
first day that any one or more of the following conditions shall
have been satisfied:
(i) Final regulatory approval is obtained for any Person (other than
those Persons in control of the Company and/or the Bank, as
applicable, as of the effective date of this Agreement, or other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and/or the Bank, as
applicable, or a corporation owned directly or indirectly by the
stockholders of the Company and/or the Bank, as applicable, in
substantially the same proportions as their ownership of stock of
the Company and/or the Bank), to become the Beneficial Owner,
directly or indirectly, of securities of the Company and/or the
Bank, as applicable, representing twenty (20) percent or more of
the combined voting power of the Company's (or the Bank's as
applicable) then outstanding securities; or
(ii) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of the
Company and/or the Board of the Bank (and any new
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<PAGE> 2
Director, whose election by the Company's stockholders or the
Bank's stockholders, as applicable, was approved by a vote of
at least two-thirds (2/3) of the Directors then still in
office who either were Directors at the beginning of the
period or whose election or nomination for election was so
approved), cease for any reason to constitute a majority
thereof; or
(iii) Final regulatory approval is obtained with respect to: (A) a
plan of complete liquidation of the Company or the Bank; or
(B) an agreement for the sale or disposition of all or
substantially all the Company's or the Bank's assets; or (C)
a merger, consolidation, or reorganization of the Company
and/or the Bank with or involving any other corporation, other
than a merger, consolidation, or reorganization that would
result in the voting securities of the Company or the Bank (as
applicable) outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at
least fifty (50) percent of the combined voting power of the
voting securities of the Company of the Bank (as applicable)
(or such surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.
Notwithstanding the foregoing, in no event shall a Change in
Control be deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing group
which consummates the Change in Control transaction. The
Executive shall be deemed "part of a purchasing company or
group (except for: (A) passive ownership of less than three
(3) percent of the stock of the purchasing company or group
which is otherwise not significant, as determined prior to
the Change in Control by a majority of the nonemployed
continuing Directors of the Company or the Bank, as applicable).
(b) "Bank" means First Western Bank, National Association, First
Western Bank, Federal Savings Bank, First Western Trust Services
Company, or any successor thereto.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company and/or the
Board of Directors of the Bank, as indicated by the context in
which the term is used.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Section 13(d) and Section
14(d) thereof, including a "group" as defined in Section 13(d).
The term Person shall not include the Company or the Bank, any
executive officer or Director of the Company, the Bank, or a
subsidiary of the Company or Bank, or a group controlled by such
Directors or executive officers, or any employee benefit plan of
the Company, the Bank, or a subsidiary of the Company or Bank;
provided, however, that the term Person shall include any
individual who is a Director on the effective date of this
Agreement beneficially owned five (5) percent or more of the
voting shares of common stock of the Company, or a group
controlled by such a Director.
2. If at the time of a Change in Control the Executive is still serving in the
capacity of, and performing the duties of, an Executive Officer for the
Company or the Bank, the Company shall continue to employ the Executive in
an executive position during his "Term of Employment" which, for purposes
of this Agreement is defined as the earliest of (i) the date upon which the
Executive would attain age 65 ("Normal Retirement Age"), (ii) the date upon
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<PAGE> 3
which the Executive's elected early retirement is scheduled to begin and
(iii) the date that is thirty-six (36) months after the date of the Change
in Control, such employment to be all upon the terms and conditions
hereinafter set forth.
3. During the Term of Employment the Company shall:
(a) pay the Executive, during the first year of the Term of Employment (or
such portion thereof if the Term of Employment is less than a year), a
monthly salary at least equal to the Executive's highest salary for
any month during the twelve (12) months immediately preceding the
Change in Control and, during each subsequent year of the Term of
Employment, an annual salary (payable on at least a monthly basis) at
least equal to the Executive's salary for the immediately preceding
year plus an amount calculated in a manner at least as favorable to
the Executive as the manner in which the pay increases for other
Company executives or of new Company executives are calculated, or in
the case of an implemented salary freeze or decrease across the board,
an increase calculated in accordance with the prior twelve (12)
months' increase in the U.S. Government Consumer Price Index;
(b) pay the Executive an annual bonus calculated in a manner at least as
favorable to the Executive as the manner in which (i) the last annual
bonus paid to the Executive prior to the Change in Control was
calculated, or (ii) the annual bonus paid to the Executive by the
Company in the immediately preceding year was calculated (whichever
would result in a greater payment to the Executive); this annual bonus
may be pro-rated for that portion of the year covered by the Term of
Employment if the Term of Employment expires prior to year end;
(c) provide and maintain in full force and effect through existing plans
or through equivalent plans at least the types and amounts of group
insurance coverages (including conversion features) and benefits,
including life, health, disability and hospitalization insurance, and
other health care benefits, including medical, hospital and surgical
benefits and health care benefits for the Executive's family
(collectively "Insurance and Health Care Benefits"), to which the
Executive was entitled immediately prior to the Change in Control or
the Insurance and Health Care Benefits provided by the Company or its
successor to its other executives after a Change in Control (whichever
would result in greater Insurance and Health Care Benefits to the
Executive);
(d) continue to provide benefits to the Executive under the Company's
pension plan, profit sharing plan (including Section 401(k) election
and matching contribution provisions), ESOP plans and other fringe
benefits programs and arrangements, including employee benefit plans,
as in effect immediately prior to the Change in Control or, if such
plans, programs or arrangements are discontinued or superseded,
provide benefits to the Executive on the same basis as such benefits
are provided to the other executives of the Company or its successor
after a Change in Control; and
(e) provide and maintain in full force and effect at least those
additional executive benefits and perquisites which the Executive was
entitled to from the Company immediately prior to the Change in
Control, including any social and/or club memberships and any Company
provided automobiles (which automobiles may be purchased at
termination at the lower of fair market value per NADA blue book
wholesale value or at book value on the Company's books and records).
4. "Termination of Employment", for the purposes of this Agreement, shall
occur if the Executive's employment in an executive position is terminated
during the Term of Employment:
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<PAGE> 4
(i) by the Company for any reason, including disability or incapacity, but
excepting a termination for "cause," as shall be determined by the
Board of the Company and the Board of the Bank, in exercise of good
faith and reasonable judgment, upon the occurrences of any one or more
of the following:
(a) the Executive's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(b) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company and/or the
Bank; however, no act or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief
that his action or omission was in the best interest of the
Company and/or the Bank; or
(c) the conviction of the Executive of any criminal offense or act
involving dishonesty or a breach of trust which requires the
Company or the Bank to terminate the employment of the Executive,
and/or precludes the payment of severance compensation under
Federal law; or
(d) any conduct, act, or omission by the Executive which would
constitute grounds for the imposition upon the Executive, the
Company or the Bank of a civil penalty under Section 8(i)(2)(B)
or (C) of the Federal Deposit Insurance Act; or
(ii) by the Executive for "good reason," which shall mean, without the
Executive's express written consent, the occurrence after a Change
in Control of the Company or the Bank of any one or more of the
following:
(a) the assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company and/or the Bank, or a reduction or
alteration in the nature or status of the Executive's authorities,
duties, or responsibilities form those in effect as of ninety (90)
days prior to the Change in Control, other than an insubstantial
and inadvertent act that this remedied by the Company and/or the
Bank promptly after receipt of notice thereof given by the
Executive, and other than any such alteration which is consented
to by the Executive in writing;
(b) the Company's requiring the Executive to be based at a location in
excess of thirty-five (35) miles from the location of the
Executive's principal job location or office immediately prior to
the Change in Control; except for required travel on the Company's
and/or the Bank's business to an extent substantially consistent
with the Executive's present business obligations; and further
except as may be waived by the Executive provided the Company pays
all expenses related to a move, including purchasing any existing
house used by the Executive as his principal residence which the
Executive is not able to sell within One-Hundred Twenty (120) days
of listing at fair market value as fair market value is determined
by two (2) independent appraisals;
(c) a material reduction by the Company or the Bank of the Executive's
compensation or benefits; and
(d) the failure of the Company or the Bank to obtain a satisfactory
agreement from any successor to the Company or the Bank to assume
and agree to perform the Company's and the Bank's obligations
under this Agreement.
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<PAGE> 5
The Executive's right to terminate employment for good reason
shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting good reason herein.
5. In the event of a Termination of Employment, the Company shall pay or cause
to be paid to the Executive or after the Executive's death to his
designated beneficiary, or if there be none, to his personal
representative, executor or administrator (for the purposes of this
Paragraph 5 the term "Executive" shall include the Executive's designated
beneficiary, personal representative, executor or administrator) a single
lump sum payment in an amount equal to the present value of the total
amount calculated below, such present value to be determined by discount
based upon an interest rate two (2) percentage points less than the
Pittsburgh prime rate in effect at the date of Termination of Employment.
The Company shall pay the Executive such lump sum amount within thirty (30)
days following the date of Termination of Employment. The total amount
upon which the present value is to be determined, shall be calculated as
follows:
The sum of:
(a) the equivalent of all monthly salaries during the "Payment Period"
with each monthly salary being equal to the greater of the Executive's
highest salary from the Company for any month during the twelve (12)
months immediately preceding (A) the change of control and (B) the
termination of employment ("Annual Base Compensation"), plus
(b) the greater of the average of the annual bonuses received by the
Executive from the Company during the three (3) calendar years
immediately preceding (A) the change in control and (B) the
Termination of Employment ("Annual Bonus"), plus
(c) the cost of any social and/or club memberships and the cost of any
Company provided automobiles.
The "Payment Period", for purposes of this Agreement, is defined to be the
period beginning on the date of Termination of Employment and ending on the
earlier of (i) the date upon which the Executive would attain Normal
Retirement Age and (ii) the date that is thirty-six (36) months from the
date of the Change of Control.
The Executive's right to receive compensation from the Company pursuant to
this Paragraph 5 shall not be affected by the Executive's receipt of
compensation in connection with any subsequent employment by any other
corporation or entity.
6. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive and/or his
spouse shall continue to receive from the Company, until the date the
Executive attains or would have attained Normal Retirement Age, insurance
and health care benefits equivalent to the greater of the insurance and
health care benefits to which the Executive was entitled (i) immediately
preceding the date the Executive ceased to be employed by the Company and
(ii) immediately preceding the Change in Control (provided that the Company
may reduce such insurance and health care benefits to the extent of any
duplication of the types and amounts of coverages and benefits provided to
the Executive in connection with any subsequent employment by any other
corporation or other entity prior to the Executive attaining Normal
Retirement Age), and from and after the date the Executive attains or would
have attained Normal Retirement Age, the Executive and/or his spouse shall
receive
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<PAGE> 6
the insurance and health care benefits, if any, to which he would
be entitled as a retired executive employee under the Company's benefit
plans and programs in effect immediately prior to the Change in Control or
immediately prior to the date the Executive ceased to be employed by the
Company (whichever would result in greater benefits to the Executive).
7. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive shall
receive retirement benefits in accordance with the Company's retirement
plans, including any supplemental executive retirement plan (the
"Retirement Plan") as in effect immediately prior to the Change in Control
or immediately prior to the Termination of Employment (whichever would
result in greater benefits for the Executive ). In the event of a
Termination of Employment prior to the date the Executive attains Normal
Retirement Age, in addition to benefits payable to the Executive pursuant
to the Retirement Plan, the Executive shall be entitled to receive
supplemental retirement benefits from the Company equal in value to the
difference between:
(i) the benefits to which the Executive would have been entitled under the
Retirement Plan assuming years of Service under the Retirement Plan
equal to the Executive's years of Service under the Retirement Plan to
the Termination of Employment plus the number of years of Service that
the Executive would have earned by continuing employment with the
Company until the termination of the Payment Period (at an assumed
annual salary during each year of assumed Service following the date
of the Termination of Employment equal to the Executive's compensation
including bonus club memberships and the like as set forth in 3
above), and
(ii) the benefits which the Executive is entitled to receive under the
Retirement Plan.
Any supplemental retirement benefits payable by the Company shall be
payable to the same extent and in the same form as, and commencing on
the date on which, benefit payments commence under the Retirement Plan
(including payment pursuant to any option thereunder, including early
retirement or any early retirement program where years may be added or
included for early retirement benefit calculations, payment elections
and beneficiary designations).
8. In the event of the death of the Executive during the Term of Employment,
in addition to the amounts, if any, payable pursuant to Paragraphs 5, 6 or
7 hereof, the estate of the Executive shall receive benefits at least equal
to the greater of:
(i) such other benefits which would have been payable to the estate of the
Executive by the Company if such event had occurred immediately prior
to the date of the Change in Control and
(ii) such other benefits payable to the estate of the Executive under
benefit plans and programs of the Company existing as of the date
of the Executive's death.
9. In the event any excise tax under Section 4999 (or any successor section)
of the Internal Revenue Code (the "Excise Tax") is levied at any time on
any amount paid pursuant to Paragraphs 3, 5, 6 or 7 of this Agreement, in
addition to the amounts payable to the Executive pursuant to Paragraphs 3,
5, 6 or 7 of this Agreement, the Company shall promptly pay the Executive
an amount designated as the "Gross-Up Amount" such that the Gross-Up Amount
minus the Excise Tax on the Gross-Up Amount
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equals the Excise Tax on the amounts payable to the Executive pursuant
to such Paragraphs.
10. Notwithstanding any provision of this Agreement to the contrary, this
Agreement and any payments, benefits or rights of the Executive as
provided herein are subject to Section 18(k) of the Federal Deposit
Insurance Act, as amended, and any applicable regulations thereunder.
11. Unless specifically provided otherwise herein, the Company's and the
Bank's obligation to make the payments and the arrangements provided
for herein shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without limitation, any
offset, counterclaim, recoupment, defense or other right which the
Company or the bank may have against the Executive or any other party.
All amounts payable by the Company and the Bank hereunder shall be
paid without notice or demand. Each and every payment made hereunder
by the Company and the Bank shall be final, and neither the Company
nor the Bank shall seek to recover all or any part of such payment
from the Executive or from whomsoever may be entitled thereto, for any
reasons whatsoever.
12. This Agreement establishes and vests in the Executive a contractual
right to the benefits to which he is entitled hereunder. However,
nothing herein contained shall require or be deemed to require, or
prohibit or be deemed to prohibit, the Company or the Bank to
segregate, earmark, or otherwise set aside any funds or other assets,
in trust or otherwise, to provide for any payments to be made or
required hereunder.
13. In the event that it shall be necessary or desirable for the Executive
to retain legal counsel and/or incur other costs and expenses in
connection with the enforcement of any or all of his rights under this
Agreement, and provided that the executive substantially prevails in
the enforcement of such rights, the Company or the Bank, as
applicable, shall pay (or the Executive shall be entitled to recover
from the Company or the Bank, as the case may be) the Executive's
reasonable attorneys' fees, costs and expenses in connection with the
enforcement of his rights including the enforcement of any arbitration
award.
14. The Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and the obtaining of any such other
employment shall in no event effect any reduction of the Company's or
the Bank's obligations to make the payments and arrangements required
to be made under this Agreement, except to the extent otherwise
specifically provided herein.
15. Any controversy or claim arising out of or relating to this Agreement
or the breach thereof (including the arbitrability of any controversy
or claim), shall be settled by arbitration in the City of Pittsburgh
in accordance with the laws of the Commonwealth of Pennsylvania by
three (3) arbitrators, one of whom shall be appointed by the
Company or the Bank, as applicable, one by the Executive, and the
third of whom shall be appointed by the first two (2) arbitrators.
If the first two (2) arbitrators cannot agree on the appointment of
a third arbitrator, then the third arbitrator shall be appointed by
the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration
Association, except with respect to the selection of arbitrators which
shall be as provided in this Section 7.1. The cost of any arbitration
proceeding hereunder shall be borne equally by the Company or the Bank,
as applicable, and the Executive. The award of the arbitrators shall
be binding upon the parties.
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Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
16. The Executive, the Company, and the Bank acknowledge that, except as
may be provided under any other agreement between the Executive and
the Company or the Bank, the employment of the Executive by the
Company and the Bank is "at will," and, prior to the effective date of
a Change in Control, may be terminated by either the Executive, the
Company, or the Bank, at any time. Upon a termination of the
Executive's employment prior to the effective date of a Change in
Control, there shall be no further rights under this Agreement;
provided, however, that if such an employment termination shall arise
in connection with, or in anticipation of, a Change in Control, then
the Executive's rights shall be the same as if the termination had
occurred during the Term of Employment hereunder.
17. All notices, requests, demands, and other communications hereunder
must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by
first-class certified mail, return receipt requested, postage prepaid,
to the other party, addressed as follows:
(a) as to the Company:
101 East Washington Street
New Castle, PA 16103-1488
(b) if to the Executive:
102 Dogwood Court
Butler, PA 16001
18. The compensation and benefits provided pursuant to Paragraph 5 hereof,
to the extent received by the Executive, are granted to the Executive
in lieu of any compensation, benefits or amounts the Executive might
otherwise be entitled to under the Company's severance policy or
otherwise from the Company by reason of a Termination of Employment.
Except as otherwise set forth herein, this Agreement shall not in any
way alter the rights and obligations of the Company and the Executive
under any of the Company's benefit plans.
19. The rights of the Executive under this Agreement shall not be
transferable by assignment or otherwise, shall not be subject to
commutation or encumbrance and shall not be subject to the claims of
the creditors of the Executive.
20. This Agreement shall be binding upon and inure to the benefit of the
Executive, his designated beneficiary, personal representative,
executor or administrator, the Company and any successor, including
any organization which shall succeed to substantially all of the
business and property of the Company, whether by means of merger,
consolidation, acquisition or substantially all of the assets of the
Company or otherwise, including by operation of law (a "Successor
Organization"). The Company shall not merge, reorganize, consolidate,
sell all or substantially all of its assets, combine by operation of
law or otherwise combine, to or with any Successor Organization,
unless, as a condition to such transaction, the Successor Organization
assumes the obligations of the Company under this Agreement. For
purposes of this Agreement the term Company shall include any
Successor Organization.
21. This Agreement has been made in and shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
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22. The invalidity of any term of this Agreement shall not invalidate or
otherwise affect any other term of this Agreement.
23. All costs and expenses, including attorneys' fees and court costs,
reasonably incurred by the Executive to enforce this Agreement or
defend the validity of this Agreement shall be paid by the Company.
24. Notwithstanding anything to the contrary contained above, this
Agreement shall remain in effect through July 31, 1998 at which time,
if there has not been a Change in Control, this Agreement shall lapse
and become null and void unless extended by the Company. The Company
agrees to review this contract approximately six (6) months prior to
its expiration to determine whether the Company wishes to extend the
same for an additional three (3) year term. The Company will promptly
notify employee of its decision.
Each extension of this contract shall be for a three (3) year period
and the Company agrees to review the contract again approximately six
(6) months prior to the expiration of any renewal period and to
promptly notify employee of the Company's decision on renewal.
25. This Agreement supersedes and makes void any prior agreement between
the parties and sets forth the entire agreement and understanding of
the parties hereto with respect to the matters covered hereby and may
not be amended or modified except by further written agreement of the
parties. Any beneficiary designation, or any termination or amendment
to any existing designation under this Agreement shall be by written
instrument executed by the Executive and delivered to the Company.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused this Agreement to be signed by a duly authorized officer, on the date
first set out above.
ATTEST: FIRST WESTERN BANCORP, INC.
/s/ JAMIE L. KOPP BY: /s/ JOHN R. MCKINLEY
- ----------------------------------- -----------------------------------
JOHN R. MCKINLEY, CHAIRMAN
WITNESS: EXECUTIVE:
/s/ SUSAN E. WIDELKO /s/ ROBERT H. YOUNG
- ----------------------------------- -------------------------------------
ROBERT H. YOUNG
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EXHIBIT 10.12
AGREEMENT
THIS AGREEMENT made this 16th day of January, 1996, by and between:
FIRST WESTERN BANCORP, INC., a Pennsylvania corporation which is hereinafter
referred to as the "Company",
AND
STEPHEN R. SANT, an employee of the Company, and hereinafter referred to as
the "Executive";
W I T N E S S E T H:
WHEREAS, the Executive serves in the capacity of, and performs the duties
of, an Executive Officer for the Company; and
WHEREAS, the Board of Directors of the Company considers it to be in the
best interest of the Company and the stockholders of the Company that the
Executive continue to serve in an executive capacity of the Company; and
WHEREAS, the Company desires to assure the continuing services of the
Executive on behalf of the Company on an objective and impartial basis and
without distraction or conflict of interest due to the uncertainties of his
position in the event of an actual, attempted or threatened Change in Control
(as such Change in Control is hereinafter defined in Paragraph 1); and
WHEREAS, in view of the foregoing, the Company desires to provide the
Executive with a degree of employment security in the event of a Change in
Control;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, the Company and the Executive hereby
agree as follows:
1. a. "Change in Control" shall be deemed to have occurred as of the
first day that any one or more of the following conditions shall
have been satisfied:
(i) Final regulatory approval is obtained for any Person (other than
those Persons in control of the Company and/or the Bank, as
applicable, as of the effective date of this Agreement, or other
than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company and/or the Bank, as
applicable, or a corporation owned directly or indirectly by the
stockholders of the Company and/or the Bank, as applicable, in
substantially the same proportions as their ownership of stock of
the Company and/or the Bank), to become the Beneficial Owner,
directly or indirectly, of securities of the Company and/or the
Bank, as applicable, representing twenty (20) percent or more of
the combined voting power of the Company's (or the Bank's as
applicable) then outstanding securities; or
(ii) During any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of the
Company and/or the Board of the Bank (and any new
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Director, whose election by the Company's stockholders or the
Bank's stockholders, as applicable, was approved by a vote of at
least two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease for
any reason to constitute a majority thereof; or
(iii) Final regulatory approval is obtained with respect to: (A) a
plan of complete liquidation of the Company or the Bank; or
(B) an agreement for the sale or disposition of all or
substantially all the Company's or the Bank's assets; or (C)
a merger, consolidation, or reorganization of the Company
and/or the Bank with or involving any other corporation, other
than a merger, consolidation, or reorganization that would
result in the voting securities of the Company or the Bank (as
applicable) outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), at
least fifty (50) percent of the combined voting power of the
voting securities of the Company of the Bank (as applicable)
(or such surviving entity) outstanding immediately after such
merger, consolidation, or reorganization.
Notwithstanding the foregoing, in no event shall a Change
in Control be deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing group
which consummates the Change in Control transaction. The
Executive shall be deemed "part of a purchasing company or
group (except for: (A) passive ownership of less than three
(3) percent of the stock of the purchasing company or group
which is otherwise not significant, as determined prior to
the Change in Control by a majority of the nonemployed
continuing Directors of the Company or the Bank, as applicable).
(b) "Bank" means First Western Bank, National Association, First
Western Bank, Federal Savings Bank, First Western Trust Services
Company, or any successor thereto.
(c) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(d) "Board" means the Board of Directors of the Company and/or the
Board of Directors of the Bank, as indicated by the context in
which the term is used.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Section 13(d) and Section
14(d) thereof, including a "group" as defined in Section 13(d).
The term Person shall not include the Company or the Bank, any
executive officer or Director of the Company, the Bank, or a
subsidiary of the Company or Bank, or a group controlled by such
Directors or executive officers, or any employee benefit plan of
the Company, the Bank, or a subsidiary of the Company or Bank;
provided, however, that the term Person shall include any
individual who is a Director on the effective date of this
Agreement beneficially owned five (5) percent or more of the
voting shares of common stock of the Company, or a group
controlled by such a Director.
2. If at the time of a Change in Control the Executive is still serving in the
capacity of, and performing the duties of, an Executive Officer for the
Company or the Bank, the Company shall continue to employ the Executive in
an executive position during his "Term of Employment" which, for purposes
of this Agreement is defined as the earliest of (i) the date upon which the
Executive would attain age 65 ("Normal Retirement Age"), (ii) the date upon
PAGE 2
<PAGE> 3
which the Executive's elected early retirement is scheduled to begin and
(iii) the date that is thirty-six (36) months after the date of the Change
in Control, such employment to be all upon the terms and conditions
hereinafter set forth.
3. During the Term of Employment the Company shall:
(a) pay the Executive, during the first year of the Term of Employment (or
such portion thereof if the Term of Employment is less than a year), a
monthly salary at least equal to the Executive's highest salary for
any month during the twelve (12) months immediately preceding the
Change in Control and, during each subsequent year of the Term of
Employment, an annual salary (payable on at least a monthly basis) at
least equal to the Executive's salary for the immediately preceding
year plus an amount calculated in a manner at least as favorable to
the Executive as the manner in which the pay increases for other
Company executives or of new Company executives are calculated, or in
the case of an implemented salary freeze or decrease across the board,
an increase calculated in accordance with the prior twelve (12)
months' increase in the U.S. Government Consumer Price Index;
(b) pay the Executive an annual bonus calculated in a manner at least as
favorable to the Executive as the manner in which (i) the last annual
bonus paid to the Executive prior to the Change in Control was
calculated, or (ii) the annual bonus paid to the Executive by the
Company in the immediately preceding year was calculated (whichever
would result in a greater payment to the Executive); this annual bonus
may be pro-rated for that portion of the year covered by the Term of
Employment if the Term of Employment expires prior to year end;
(c) provide and maintain in full force and effect through existing plans
or through equivalent plans at least the types and amounts of group
insurance coverages (including conversion features) and benefits,
including life, health, disability and hospitalization insurance, and
other health care benefits, including medical, hospital and surgical
benefits and health care benefits for the Executive's family
(collectively "Insurance and Health Care Benefits"), to which the
Executive was entitled immediately prior to the Change in Control or
the Insurance and Health Care Benefits provided by the Company or its
successor to its other executives after a Change in Control (whichever
would result in greater Insurance and Health Care Benefits to the
Executive);
(d) continue to provide benefits to the Executive under the Company's
pension plan, profit sharing plan (including Section 401(k) election
and matching contribution provisions), ESOP plans and other fringe
benefits programs and arrangements, including employee benefit plans,
as in effect immediately prior to the Change in Control or, if such
plans, programs or arrangements are discontinued or superseded,
provide benefits to the Executive on the same basis as such benefits
are provided to the other executives of the Company or its successor
after a Change in Control; and
(e) provide and maintain in full force and effect at least those
additional executive benefits and perquisites which the Executive was
entitled to from the Company immediately prior to the Change in
Control, including any social and/or club memberships and any Company
provided automobiles (which automobiles may be purchased at
termination at the lower of fair market value per NADA blue book
wholesale value or at book value on the Company's books and records).
4. "Termination of Employment", for the purposes of this Agreement, shall
occur if the Executive's employment in an executive position is terminated
during the Term of Employment:
PAGE 3
<PAGE> 4
(i) by the Company for any reason, including disability or incapacity, but
excepting a termination for "cause," as shall be determined by the
Board of the Company and the Board of the Bank, in exercise of good
faith and reasonable judgment, upon the occurrences of any one or more
of the following:
(a) the Executive's conviction for committing an act of fraud,
embezzlement, theft, or other act constituting a felony; or
(b) the willful engaging by the Executive in gross misconduct
materially and demonstrably injurious to the Company and/or the
Bank; however, no act or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief
that his action or omission was in the best interest of the
Company and/or the Bank; or
(c) the conviction of the Executive of any criminal offense or act
involving dishonesty or a breach of trust which requires the
Company or the Bank to terminate the employment of the Executive,
and/or precludes the payment of severance compensation under
Federal law; or
(d) any conduct, act, or omission by the Executive which would
constitute grounds for the imposition upon the Executive, the
Company or the Bank of a civil penalty under Section 8(i)(2)(B)
or (C) of the Federal Deposit Insurance Act; or
(ii) by the Executive for "good reason," which shall mean, without the
Executive's express written consent, the occurrence after a Change in
Control of the Company or the Bank of any one or more of the following:
(a) the assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities, and
status (including offices, titles, and reporting requirements) as
an officer of the Company and/or the Bank, or a reduction or
alteration in the nature or status of the Executive's authorities,
duties, or responsibilities form those in effect as of ninety (90)
days prior to the Change in Control, other than an insubstantial
and inadvertent act that this remedied by the Company and/or the
Bank promptly after receipt of notice thereof given by the
Executive, and other than any such alteration which is consented
to by the Executive in writing;
(b) the Company's requiring the Executive to be based at a location in
excess of thirty-five (35) miles from the location of the
Executive's principal job location or office immediately prior to
the Change in Control; except for required travel on the Company's
and/or the Bank's business to an extent substantially consistent
with the Executive's present business obligations; and further
except as may be waived by the Executive provided the Company pays
all expenses related to a move, including purchasing any existing
house used by the Executive as his principal residence which the
Executive is not able to sell within One-Hundred Twenty (120) days
of listing at fair market value as fair market value is
determined by two (2) independent appraisals;
(c) a material reduction by the Company or the Bank of the Executive's
compensation or benefits; and
(d) the failure of the Company or the Bank to obtain a satisfactory
agreement from any successor to the Company or the Bank to assume
and agree to perform the Company's and the Bank's obligations
under this Agreement.
PAGE 4
<PAGE> 5
The Executive's right to terminate employment for good reason
shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment
shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting good reason herein.
5. In the event of a Termination of Employment, the Company shall pay or cause
to be paid to the Executive or after the Executive's death to his
designated beneficiary, or if there be none, to his personal
representative, executor or administrator (for the purposes of this
Paragraph 5 the term "Executive" shall include the Executive's designated
beneficiary, personal representative, executor or administrator) a single
lump sum payment in an amount equal to the present value of the total
amount calculated below, such present value to be determined by discount
based upon an interest rate two (2) percentage points less than the
Pittsburgh prime rate in effect at the date of Termination of Employment.
The Company shall pay the Executive such lump sum amount within thirty (30)
days following the date of Termination of Employment. The total amount
upon which the present value is to be determined, shall be calculated as
follows:
The sum of:
(a) the equivalent of all monthly salaries during the "Payment Period"
with each monthly salary being equal to the greater of the Executive's
highest salary from the Company for any month during the twelve (12)
months immediately preceding (A) the change of control and (B) the
termination of employment ("Annual Base Compensation"), plus
(b) the greater of the average of the annual bonuses received by the
Executive from the Company during the three (3) calendar years
immediately preceding (A) the change in control and (B) the
Termination of Employment ("Annual Bonus"), plus
(c) the cost of any social and/or club memberships and the cost of any
Company provided automobiles.
The "Payment Period", for purposes of this Agreement, is defined to be the
period beginning on the date of Termination of Employment and ending on the
earlier of (i) the date upon which the Executive would attain Normal
Retirement Age and (ii) the date that is thirty-six (36) months from the
date of the Change of Control.
The Executive's right to receive compensation from the Company pursuant to
this Paragraph 5 shall not be affected by the Executive's receipt of
compensation in connection with any subsequent employment by any other
corporation or entity.
6. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive and/or his
spouse shall continue to receive from the Company, until the date the
Executive attains or would have attained Normal Retirement Age, insurance
and health care benefits equivalent to the greater of the insurance and
health care benefits to which the Executive was entitled (i) immediately
preceding the date the Executive ceased to be employed by the Company and
(ii) immediately preceding the Change in Control (provided that the Company
may reduce such insurance and health care benefits to the extent of any
duplication of the types and amounts of coverages and benefits provided to
the Executive in connection with any subsequent employment by any other
corporation or other entity prior to the Executive attaining Normal
Retirement Age), and from and after the date the Executive attains or would
have attained Normal Retirement Age, the Executive and/or his spouse shall
receive
PAGE 5
<PAGE> 6
the insurance and health care benefits, if any, to which he would
be entitled as a retired executive employee under the Company's benefit
plans and programs in effect immediately prior to the Change in Control or
immediately prior to the date the Executive ceased to be employed by the
Company (whichever would result in greater benefits to the Executive).
7. In the event that during the Term of Employment following a Change in
Control the Executive ceases to be employed by the Company for any reason,
including retirement at or at any time before Normal Retirement Age,
Termination of Employment or dismissal by the Company for reasons other
than for cause (pursuant to Paragraph 4 hereof), the Executive shall
receive retirement benefits in accordance with the Company's retirement
plans, including any supplemental executive retirement plan (the
"Retirement Plan") as in effect immediately prior to the Change in Control
or immediately prior to the Termination of Employment (whichever would
result in greater benefits for the Executive ). In the event of a
Termination of Employment prior to the date the Executive attains Normal
Retirement Age, in addition to benefits payable to the Executive pursuant
to the Retirement Plan, the Executive shall be entitled to receive
supplemental retirement benefits from the Company equal in value to the
difference between:
(i) the benefits to which the Executive would have been entitled under the
Retirement Plan assuming years of Service under the Retirement Plan
equal to the Executive's years of Service under the Retirement Plan to
the Termination of Employment plus the number of years of Service that
the Executive would have earned by continuing employment with the
Company until the termination of the Payment Period (at an assumed
annual salary during each year of assumed Service following the date
of the Termination of Employment equal to the Executive's compensation
including bonus club memberships and the like as set forth in 3
above), and
(ii) the benefits which the Executive is entitled to receive under the
Retirement Plan.
Any supplemental retirement benefits payable by the Company shall be
payable to the same extent and in the same form as, and commencing on
the date on which, benefit payments commence under the Retirement Plan
(including payment pursuant to any option thereunder, including early
retirement or any early retirement program where years may be added or
included for early retirement benefit calculations, payment elections
and beneficiary designations).
8. In the event of the death of the Executive during the Term of Employment,
in addition to the amounts, if any, payable pursuant to Paragraphs 5, 6 or
7 hereof, the estate of the Executive shall receive benefits at least equal
to the greater of:
(i) such other benefits which would have been payable to the estate of the
Executive by the Company if such event had occurred immediately prior
to the date of the Change in Control and
(ii) such other benefits payable to the estate of the Executive under
benefit plans and programs of the Company existing as of the date
of the Executive's death.
9. In the event any excise tax under Section 4999 (or any successor section)
of the Internal Revenue Code (the "Excise Tax") is levied at any time on
any amount paid pursuant to Paragraphs 3, 5, 6 or 7 of this Agreement, in
addition to the amounts payable to the Executive pursuant to Paragraphs 3,
5, 6 or 7 of this Agreement, the Company shall promptly pay the Executive
an amount designated as the "Gross-Up Amount" such that the Gross-Up Amount
minus the Excise Tax on the Gross-Up Amount
PAGE 6
<PAGE> 7
equals the Excise Tax on the amounts payable to the Executive pursuant
to such Paragraphs.
10. Notwithstanding any provision of this Agreement to the contrary, this
Agreement and any payments, benefits or rights of the Executive as
provided herein are subject to Section 18(k) of the Federal Deposit
Insurance Act, as amended, and any applicable regulations thereunder.
11. Unless specifically provided otherwise herein, the Company's and the
Bank's obligation to make the payments and the arrangements provided
for herein shall be absolute and unconditional, and shall not be
affected by any circumstances, including, without limitation, any
offset, counterclaim, recoupment, defense or other right which the
Company or the bank may have against the Executive or any other party.
All amounts payable by the Company and the Bank hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the
Company and the Bank shall be final, and neither the Company nor the Bank
shall seek to recover all or any part of such payment from the Executive
or from whomsoever may be entitled thereto, for any reasons whatsoever.
12. This Agreement establishes and vests in the Executive a contractual right
to the benefits to which he is entitled hereunder. However, nothing herein
contained shall require or be deemed to require, or prohibit or be deemed
to prohibit, the Company or the Bank to segregate, earmark, or otherwise
set aside any funds or other assets, in trust or otherwise, to provide for
any payments to be made or required hereunder.
13. In the event that it shall be necessary or desirable for the Executive to
retain legal counsel and/or incur other costs and expenses in connection
with the enforcement of any or all of his rights under this Agreement, and
provided that the executive substantially prevails in the enforcement of
such rights, the Company or the Bank, as applicable, shall pay (or the
Executive shall be entitled to recover from the Company or the Bank, as
the case may be) the Executive's reasonable attorneys' fees, costs and
expenses in connection with the enforcement of his rights including the
enforcement of any arbitration award.
14. The Executive shall not be obligated to seek other employment in mitigation
of the amounts payable or arrangements made under any provision of this
Agreement, and the obtaining of any such other employment shall in no event
effect any reduction of the Company's or the Bank's obligations to make
the payments and arrangements required to be made under this Agreement,
except to the extent otherwise specifically provided herein.
15. Any controversy or claim arising out of or relating to this Agreement or
the breach thereof (including the arbitrability of any controversy or
claim), shall be settled by arbitration in the City of Pittsburgh in
accordance with the laws of the Commonwealth of Pennsylvania by three (3)
arbitrators, one of whom shall be appointed by the Company or the Bank, as
applicable, one by the Executive, and the third of whom shall be appointed
by the first two (2) arbitrators. If the first two (2) arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator
shall be appointed by the American Arbitration Association. The
arbitration shall be conducted in accordance with the rules of the
American Arbitration Association, except with respect to the selection
of arbitrators which shall be as provided in this Section 7.1. The cost
of any arbitration proceeding hereunder shall be borne equally by the
Company or the Bank, as applicable, and the Executive. The award of the
arbitrators shall be binding upon the parties.
PAGE 7
<PAGE> 8
Judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
16. The Executive, the Company, and the Bank acknowledge that, except as
may be provided under any other agreement between the Executive and
the Company or the Bank, the employment of the Executive by the
Company and the Bank is "at will," and, prior to the effective date of
a Change in Control, may be terminated by either the Executive, the
Company, or the Bank, at any time. Upon a termination of the
Executive's employment prior to the effective date of a Change in
Control, there shall be no further rights under this Agreement;
provided, however, that if such an employment termination shall arise
in connection with, or in anticipation of, a Change in Control, then
the Executive's rights shall be the same as if the termination had
occurred during the Term of Employment hereunder.
17. All notices, requests, demands, and other communications hereunder
must be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by
first-class certified mail, return receipt requested, postage prepaid,
to the other party, addressed as follows:
(a) as to the Company:
101 East Washington Street
New Castle, PA 16103-1488
(b) if to the Executive:
1200 Monticello Avenue
Hermitage, PA 16150
18. The compensation and benefits provided pursuant to Paragraph 5 hereof,
to the extent received by the Executive, are granted to the Executive
in lieu of any compensation, benefits or amounts the Executive might
otherwise be entitled to under the Company's severance policy or
otherwise from the Company by reason of a Termination of Employment.
Except as otherwise set forth herein, this Agreement shall not in any
way alter the rights and obligations of the Company and the Executive
under any of the Company's benefit plans.
19. The rights of the Executive under this Agreement shall not be transferable
by assignment or otherwise, shall not be subject to commutation or
encumbrance and shall not be subject to the claims of the creditors of
the Executive.
20. This Agreement shall be binding upon and inure to the benefit of the
Executive, his designated beneficiary, personal representative,
executor or administrator, the Company and any successor, including
any organization which shall succeed to substantially all of the
business and property of the Company, whether by means of merger,
consolidation, acquisition or substantially all of the assets of the
Company or otherwise, including by operation of law (a "Successor
Organization"). The Company shall not merge, reorganize, consolidate,
sell all or substantially all of its assets, combine by operation of law
or otherwise combine, to or with any Successor Organization, unless, as
a condition to such transaction, the Successor Organization assumes the
obligations of the Company under this Agreement. For purposes of this
Agreement the term Company shall include any Successor Organization.
21. This Agreement has been made in and shall be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
PAGE 8
<PAGE> 9
22. The invalidity of any term of this Agreement shall not invalidate or
otherwise affect any other term of this Agreement.
23. All costs and expenses, including attorneys' fees and court costs,
reasonably incurred by the Executive to enforce this Agreement or
defend the validity of this Agreement shall be paid by the Company.
24. Notwithstanding anything to the contrary contained above, this
Agreement shall remain in effect through July 31, 1998 at which time,
if there has not been a Change in Control, this Agreement shall lapse
and become null and void unless extended by the Company. The Company
agrees to review this contract approximately six (6) months prior to
its expiration to determine whether the Company wishes to extend the
same for an additional three (3) year term. The Company will promptly
notify employee of its decision.
Each extension of this contract shall be for a three (3) year period
and the Company agrees to review the contract again approximately six
(6) months prior to the expiration of any renewal period and to
promptly notify employee of the Company's decision on renewal.
25. This Agreement supersedes and makes void any prior agreement between
the parties and sets forth the entire agreement and understanding of
the parties hereto with respect to the matters covered hereby and may
not be amended or modified except by further written agreement of the
parties. Any beneficiary designation, or any termination or amendment
to any existing designation under this Agreement shall be by written
instrument executed by the Executive and delivered to the Company.
IN WITNESS WHEREOF, the undersigned have set their hands and seals or
caused this Agreement to be signed by a duly authorized officer, on the date
first set out above.
ATTEST: FIRST WESTERN BANCORP, INC.
/s/ JAMIE L. KOPP BY: /s/ JOHN R. MCKINLEY
- ----------------------------------- -----------------------------------
JOHN R. MCKINLEY, CHAIRMAN
WITNESS: EXECUTIVE:
/s/ JOANN A. LOMBARDO /s/ STEPHEN R. SANT
- ----------------------------------- -------------------------------------
STEPHEN R. SANT
PAGE 9
<PAGE> 1
EXHIBIT 13.1
FINANCIAL SECTION
MANAGEMENT'S REPORT ON THE
INTERNAL CONTROL STRUCTURE AND COMPLIANCE
WITH LAWS AND REGULATIONS
January 26, 1996
To the Shareholders:
FINANCIAL STATEMENTS
The management of First Western Bancorp, Inc. and subsidiaries ("First
Western") is responsible for the preparation, integrity, and fair presentation
of its published financial statements and all other information presented in
this annual report. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, as such, include
amounts based on informed judgements and estimates made by management.
INTERNAL CONTROL
Management is responsible for establishing and maintaining an effective
internal control structure over financial reporting presented in conformity with
both generally accepted accounting principles and the Federal Reserve Board's
Instructions for Forms FRY-9C and FRY-9LP ("FRY-9 Instructions"). The structure
contains monitoring mechanisms, and actions are taken to correct deficiencies
identified.
There are inherent limitations in the effectiveness of any structure of
internal control, including the possibility of human error and the circumvention
or overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed First Western's internal control structure over
financial reporting presented in conformity with both generally accepted
accounting principles and FRY-9 Instructions as of December 31, 1995. This
assessment was based on criteria for effective internal control over financial
reporting described in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that First Western maintained an effective
internal control structure over financial reporting presented in conformity with
both generally accepted accounting principles and FRY-9 Instructions, as of
December 31, 1995.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for ensuring compliance with the federal
laws and regulations concerning loans to insiders and the federal and state laws
and regulations concerning dividend restrictions, both of which are designated
by the Federal Deposit Insurance Corporation ("FDIC") as safety and soundness
laws and regulations.
Management assessed its compliance with the designated safety and soundness
laws and regulations and has maintained records of its determinations and
assessment as required by the FDIC. Based on this assessment, management
believes that First Western has complied, in all material respects, with the
designated safety and soundness laws and regulations for the year ended December
31, 1995.
/s/ THOMAS J. O'SHANE /s/ ROBERT H. YOUNG
Thomas J. O'Shane Robert H. Young
President and Chief Executive Officer Senior Vice President - Finance,
Secretary and Treasurer
18
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Cash and due from banks ............................................................................ $ 39,464 $ 42,903
---------- ----------
Interest-bearing deposits in other banks ........................................................... 2,124 872
---------- ----------
Securities available for sale
(amortized cost of $243,145 and $71,041) ......................................................... 246,980 67,670
---------- ----------
Investment securities
(market value of $115,024 and $128,712) .......................................................... 114,015 134,356
---------- ----------
Mortgage-backed securities
(market value of $144,362 and $188,258) .......................................................... 145,550 202,041
---------- ----------
Loans available for sale (market value of $3,518) .................................................. 3,510 --
---------- ----------
Loans
(net of unearned income of $34,636 and $34,920) .................................................. 1,024,106 978,562
Less allowance for possible loan losses ............................................................ 14,148 12,943
---------- ----------
NET LOANS ...................................................................................... 1,009,958 965,619
---------- ----------
Premises and equipment ............................................................................. 18,411 17,900
---------- ----------
Other assets ....................................................................................... 23,252 23,212
---------- ----------
TOTAL ASSETS ................................................................................... $1,603,264 $1,454,573
========== ==========
LIABILITIES:
Deposits:
Noninterest-bearing demand ....................................................................... $ 102,864 $ 97,242
Interest-bearing demand .......................................................................... 110,703 101,659
Savings .......................................................................................... 271,442 281,953
Time ............................................................................................. 692,674 548,555
---------- ----------
TOTAL DEPOSITS ................................................................................. 1,177,683 1,029,409
---------- ----------
Borrowed funds:
Federal funds purchased and other short-term borrowings .......................................... 3,598 34,847
Repurchase agreements and secured lines of credit ................................................ 121,658 128,461
Advances from the Federal Home Loan Bank ......................................................... 111,670 128,121
---------- ----------
TOTAL BORROWED FUNDS............................................................................ 236,926 291,429
---------- ----------
Long-term debt...................................................................................... 8,133 10,318
---------- ----------
Other liabilities .................................................................................. 58,834 17,338
---------- ----------
TOTAL LIABILITIES............................................................................... 1,481,576 1,348,494
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value,
4,000,000 shares authorized, none issued .......................................................... -- --
Common stock, $5 par value, 20,000,000
shares authorized, 7,816,651 and
5,180,172 shares issued ........................................................................... 39,083 25,901
Additional paid-in capital.......................................................................... 21,811 34,431
Retained earnings .................................................................................. 59,313 47,961
Unrealized appreciation (depreciation) in securities available for sale ............................ 2,492 (2,191)
Treasury stock, 52,500 shares at cost .............................................................. (1,011) --
Unallocated common stock held by ESOP (at cost) .................................................... -- (23)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY ..................................................................... 121,688 106,079
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................................................... $1,603,264 $1,454,573
========== ==========
</TABLE>
See notes to consolidated financial statements. 19
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ................................................................ $ 90,651 $74,092 $65,194
Interest on balances with other banks ..................................................... 73 18 38
Interest on securities available for sale ................................................. 10,043 6,941 23,866
Interest and dividends on investment securities:
Taxable ................................................................................. 3,047 2,910 3,288
Tax-exempt .............................................................................. 4,034 4,084 3,296
Interest on mortgage-backed securities .................................................... 11,838 11,106 --
Interest on federal funds sold ............................................................ 146 16 24
-------- ------- -------
TOTAL INTEREST INCOME ................................................................. 119,832 99,167 95,706
-------- ------- -------
INTEREST EXPENSE:
Interest on deposits:
Demand .................................................................................. 1,892 2,003 2,329
Savings ................................................................................. 7,640 7,068 8,164
Time .................................................................................... 38,374 24,568 23,879
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings ................................. 1,473 926 562
Repurchase agreements and secured lines of credit ....................................... 7,557 5,240 3,363
Advances from the Federal Home Loan Bank ................................................ 7,196 6,086 5,334
Interest on long-term debt ................................................................ 740 722 741
-------- ------- -------
TOTAL INTEREST EXPENSE ................................................................ 64,872 46,613 44,372
-------- ------- -------
NET INTEREST INCOME ......................................................................... 54,960 52,554 51,334
PROVISION FOR POSSIBLE LOAN LOSSES .......................................................... 3,982 3,650 3,435
-------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES .................................................................. 50,978 48,904 47,899
-------- ------- -------
OTHER INCOME:
Trust fees ................................................................................ 1,976 1,996 1,864
Service charges on deposit accounts ....................................................... 3,245 2,667 2,751
Credit card program fees .................................................................. 1,444 1,280 1,469
Net securities gains ...................................................................... 1,555 1,321 615
Other operating income .................................................................... 2,801 1,385 1,019
-------- ------- -------
TOTAL OTHER INCOME .................................................................... 11,021 8,649 7,718
-------- ------- -------
OTHER EXPENSES:
Salaries and wages ........................................................................ 13,671 12,818 12,746
Employee benefits ......................................................................... 4,127 3,734 4,205
Net occupancy expense ..................................................................... 2,828 2,682 2,471
Equipment rentals, depreciation and maintenance ........................................... 2,297 2,186 2,386
Federal deposit insurance ................................................................. 1,852 2,224 2,055
Supplies .................................................................................. 1,556 1,298 1,355
Advertising and promotion ................................................................. 1,456 1,347 1,068
Outside examination, legal fees and consulting ............................................ 1,416 1,354 1,479
Outside data processing services .......................................................... 1,401 1,227 1,174
Other operating expense ................................................................... 7,423 6,405 6,004
-------- ------- -------
TOTAL OTHER EXPENSES .................................................................. 38,027 35,275 34,943
-------- ------- -------
INCOME BEFORE INCOME TAXES .................................................................. 23,972 22,278 20,674
INCOME TAXES ................................................................................ 7,226 6,718 6,343
-------- ------- -------
NET INCOME .................................................................................. $ 16,746 $15,560 $14,331
======== ======= =======
EARNINGS PER SHARE .......................................................................... $2.13 $1.98 $1.83
===== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING ......................................................... 7,849 7,855 7,814
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 4
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1995, 1994 and 1993 UNREALIZED UNALLOCATED
(In thousands, except per share amounts) APPRECIATION COMMON STOCK
(DEPRECIATION) HELD BY ESOP
COMMON STOCK ADDITIONAL IN SECURITIES (AT COST)
-------------- PAID-IN RETAINED AVAILABLE TREASURY ----------------
SHARES AMOUNT CAPITAL EARNINGS FOR SALE STOCK SHARES AMOUNT
------ ------ ------- -------- -------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE--
January 1, 1993 .................. 4,857 $24,286 $ 27,090 $34,423 $ -- $ -- (12) $(194)
Five percent stock
dividend (including
fractional share
cash paid) ...................... 245 1,223 6,112 (7,336) -- -- (1) --
Purchased stock allocated
to ESOP participants ............ -- -- -- -- -- -- 6 85
Net income ....................... -- -- -- 14,331 -- -- -- --
Cash dividends paid
($0.54 per share) ............... -- -- -- (4,155) -- -- -- --
Exercise of stock options ........ 16 79 89 -- -- -- -- --
Common stock issued for
dividend reinvestment ........... 35 175 867 -- -- -- -- --
Unrealized appreciation
in securities
available for sale .............. -- -- -- -- 2,925 -- -- --
----- ------- -------- ------- ------- ------- --- -----
BALANCE--
December 31, 1993................. 5,153 25,763 34,158 37,263 2,925 -- (7) (109)
Purchased stock allocated
to ESOP participants ............ -- -- -- -- -- -- 6 86
Net income ....................... -- -- -- 15,560 -- -- -- --
Cash dividends paid
($0.63 per share) ............... -- -- -- (4,862) -- -- -- --
Exercise of stock options,
net of shares redeemed .......... 16 83 3 -- -- -- -- --
Common stock issued for
dividend reinvestment ........... 11 55 270 -- -- -- -- --
Net change in
unrealized appreciation
(depreciation)
in securities
available for sale .............. -- -- -- -- (5,116) -- -- --
----- ------- -------- ------- ------- ------- --- -----
BALANCE--
December 31, 1994 ................ 5,180 25,901 34,431 47,961 (2,191) -- (1) (23)
Fifty percent stock
dividend (including
fractional share
cash paid) ...................... 2,601 13,004 (13,004) (5) -- -- (1) --
Purchased stock allocated
to ESOP participants ............ -- -- -- -- 2 23
Net income ....................... -- -- -- 16,746 -- -- -- --
Cash dividends paid
($0.69 per share) ............... -- -- -- (5,389) -- -- -- --
Exercise of options, net
of shares redeemed .............. 15 75 (54) -- -- -- -- --
Common stock issued for
dividend reinvestment ........... 21 103 438 -- -- -- -- --
Treasury stock purchased ......... -- -- -- -- -- (1,011) -- --
Net change in
unrealized appreciation
(depreciation)
in securities
available for sale .............. -- -- -- -- 4,683 -- -- --
----- ------- -------- ------- ------- ------- --- -----
BALANCE--
December 31, 1995 ................ 7,817 $39,083 $ 21,811 $59,313 $ 2,492 $(1,011) -- $ --
===== ======= ======== ======= ======= ======= === =====
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................... S 16,746 $ 15,560 $ 14,331
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ........................................................................... 2,244 2,183 2,166
Amortization and accretion - net ....................................................... 253 308 1,962
Provision for possible loan losses ..................................................... 3,982 3,650 3,435
Gain on sale of securities ............................................................. (1,555) (1,321) (615)
(Gain) loss on sale of loans ........................................................... (229) 32 (22)
(Gain) loss on sale of real estate owned ............................................... (594) 12 99
Loss on sale of premises and equipment ................................................. 48 35 187
Provision for deferred tax (benefit) liability ......................................... (293) (527) 468
Increase in interest receivable ........................................................ (1,162) (427) (205)
Increase in interest payable ........................................................... 3,823 2,002 218
Other - net ............................................................................ (169) (345) (454)
--------- --------- ---------
Total adjustments .................................................................... 6,348 5,602 7,239
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................................ 23,094 21,162 21,570
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ..................................... 162,924 118,045 93,400
Proceeds from maturity or paydown
of securities available for sale ........................................................ 22,831 37,662 122,054
Purchase of securities available for sale ................................................ (151,111) (12,576) (286,787)
Proceeds from maturity or paydown of investment securities ............................... 49,789 41,545 25,939
Purchase of investment securities ........................................................ (22,386) (85,334) (42,371)
Net increase in loans .................................................................... (208,559) (148,711) (63,030)
Proceeds from loan sales ................................................................. 74,769 17,192 6,533
Purchase of loans ........................................................................ (30,789) (33,997) (45,527)
(Increase) decrease in deposits in other banks ........................................... (1,252) (60) 2,694
Purchase of premises and equipment ....................................................... (2,908) (1,720) (2,070)
Proceeds from sale of premises and equipment ............................................. 102 38 105
Proceeds from sale of real estate owned .................................................. 1,614 1,635 987
Cash received in branch purchases ........................................................ 89,288 13,968 --
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES .................................................. (15,688) (52,313) (188,073)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits ................................................................. 51,663 54,051 194
Net (decrease) increase in federal funds purchased
and other short-term borrowings ......................................................... (31,249) (453) 7,030
Net (decrease) increase in repurchase agreements
and secured lines of credit.............................................................. (6,803) (18,227) 124,524
Net (decrease) increase in advances
from the Federal Home Loan Bank ......................................................... (16,451) 7,171 36,450
Payments on long-term debt ............................................................... (2,185) (1,079) (2,136)
Treasury stock purchased ................................................................. (1,011) -- --
Proceeds from exercise of stock options .................................................. 21 86 168
Proceeds from common stock issued
for dividend reinvestment plan .......................................................... 541 325 1,042
Stock allocated to ESOP participants, at cost ............................................ 23 86 85
Dividends paid on common stock,
including fractional share cash paid in lieu of stock ................................... (5,394) (4,862) (4,156)
--------- --------- ---------
NET CASH (USED IN)
PROVIDED BY FINANCING ACTIVITIES ...................................................... (10,845) 37,098 163,201
--------- --------- ---------
NET (DECREASE) INCREASE
IN CASH AND DUE FROM BANKS ................................................................ (3,439) 5,947 (3,302)
CASH AND DUE FROM BANKS, BEGINNING OF YEAR ................................................. 42,903 36,956 40,258
--------- --------- ---------
CASH AND DUE FROM BANKS, END OF YEAR ....................................................... S 39,464 $ 42,903 $ 36,956
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ............................................................................... S 61,049 $ 44,611 $ 44,154
========= ========= =========
Income taxes ........................................................................... S 7,562 $ 7,256 $ 7,166
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 6
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
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"). Effective December 31, 1995, First
Western's mortgage banking subsidiary, Residential Mortgage Company of America,
was merged into the parent company. All significant intercompany transactions
have been eliminated in consolidation. Investments in subsidiaries on the parent
company financial statements (see Note 20) are carried at the parent company's
equity in the underlying net assets.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles and with general practice in the
banking industry. In preparing such financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the balance sheet and revenues and expenses for the reporting period. Actual
results could differ from those estimates.
The accompanying consolidated financial statements have been prepared on
the accrual basis, except for trust fees, which are recorded when received.
Reporting of trust fees on an accrual basis would not materially affect net
income. Assets held in an agency or fiduciary capacity by Trust Services for
their customers are not assets of First Western and are not included in the
accompanying consolidated balance sheets.
SECURITIES AVAILABLE FOR SALE:
Securities to be held for indefinite periods of time, including securities
that management intends to use as part of its asset/liability strategy, and that
may be sold in response to changes in interest rates, changes in prepayment
risk, or other similar factors are classified as available for sale and are
recorded at market value. Unrealized appreciation or depreciation in market
value above or below amortized cost is included in shareholders' equity, net of
income taxes. Premiums and discounts are amortized to expense and accreted to
income over the life of the securities using a method which approximates the
level yield method. Gains or losses on the sale of securities, if any, are based
on the specific identification method.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES:
Investments in debt securities which management has the ability and intent
to hold to maturity or on a long-term basis are carried at cost. Premiums and
discounts are amortized to expense and accreted to income over the life of the
securities using a method which approximates the level yield method. Gains or
losses on the sale of investment securities, if any, are based on the specific
identification method.
LOANS AVAILABLE FOR SALE:
Loans available for sale consist of mortgage loans and are carried at the
lower of aggregate cost or market value.
LOANS:
Interest income is accrued using various methods that result in a level
yield on principal amounts outstanding. Loan origination fees, net of certain
related origination costs, are amortized over the average lives of the related
loans. For commercial and mortgage loans on which interest is more than 90 days
past due, or earlier, when in the opinion of management collection of principal
or interest is doubtful and the loan is not well secured and in the process of
collection, accrual of income is discontinued and any previously accrued and
unpaid interest for the current year is charged against current income, and any
interest accrued and unpaid for prior periods is charged against the allowance
for possible loan losses. Installment and credit card loans are generally
charged off between 90 and 180 days past due or when deemed uncollectible in the
opinion of management. Cash payments received while a loan is classified as
nonaccrual are recorded as a reduction to principal or reported as interest
income according to management's judgment as to the collectibility of principal.
Beginning in 1995, First Western adopted Financial Accounting Standards
Board ("FASB") Statement No. 114, "Accounting by Creditors for Impairment of a
Loan." Under Statement No. 114, the 1995 allowance for possible loan losses
related to loans that are identified for evaluation in accordance with Statement
No. 114 is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for credit losses related to these
loans was based on undiscounted cash flows or the fair value of the collateral
for collateral dependent loans. The impact of adopting Statement No. 114 was not
material to First Western.
23
<PAGE> 7
The mortgage loan securitization that took place during 1995 was accounted
for according to Statement No. 65 "Accounting for Certain Mortgage Banking
Activities" and, accordingly, First Western did not establish an intangible
asset for the servicing rights for these loans since the loans that were
securitized were originated by First Western.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is available to absorb future loan
charge-offs. The allowance is increased by provisions charged to operations and
reduced by losses, net of recoveries. The amount charged to operations is based
on several factors including: (1) analytical reviews of significant commercial
and commercial mortgage loans and loan loss experience in relationship to
outstanding loans to determine an adequate allowance for possible loan losses
required for outstanding loans; (2) a continuing review of loans evaluated by
the loan review process as less than satisfactory, all nonperforming loans and
overall portfolio quality; (3) regular examinations and appraisals of the loan
portfolio conducted by federal and state supervisory authorities; and (4)
management's judgment with respect to current and expected economic conditions,
the level of delinquencies and nonaccrual loans, trends in the volume and term
of loans, anticipated impact from changes in lending policies and procedures,
changes in lending management, and any concentrations of credit in certain
industries or geographic areas. This evaluation is inherently subjective as it
requires material estimates including the amounts and timing of future cash
flows expected to be received on impaired loans that may be susceptible to
significant change.
PREMISES AND EQUIPMENT:
Premises and equipment, which are stated at cost, less accumulated
depreciation and amortization, are depreciated using the straight-line method
over their estimated useful lives. Leasehold interests and improvements are
amortized using the straight-line method over the lease periods or the estimated
useful lives, whichever is shorter. When units of property are disposed of, the
premises and equipment accounts are relieved of the cost and accumulated
depreciation or amortization related to such units, and any resulting gains or
losses are credited to or charged against income. Cost of repairs and
maintenance is charged to expense as incurred. Major renewals and betterments
are capitalized at cost.
REAL ESTATE OWNED:
Real estate owned, which is included in other assets, consists of
properties acquired by foreclosure. These assets are carried at the lower of
cost or estimated fair value. Holding costs are charged to expense when
incurred. Any subsequent writedowns, and gains or losses on property
disposition, are charged to other income and expense.
INCOME TAXES:
First Western previously accounted for income taxes in accordance with
Accounting Principles Board Opinion No. 11. On January 1, 1993, First Western
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Statement No. 109 required a change from the deferred method to
the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
to differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. Under Statement No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The impact of this change in accounting method
and the change in enacted tax rates during the third quarter of 1993 were not
material to First Western.
GOODWILL AND OTHER INTANGIBLES:
The excess of cost over net tangible assets and identified intangible
assets of acquired branches or subsidiaries is amortized by the straight-line
method over a period not to exceed fifteen years. Core deposit intangibles are
amortized on a declining-balance or straight-line basis over the shorter of the
average remaining lives of the acquired deposits or ten years. Other identified
intangibles are amortized over the benefited periods, not to exceed ten years.
ADVANCES FROM THE FEDERAL HOME LOAN BANK:
Advances from the Federal Home Loan Bank ("FHLB") include advances with an
original maturity greater than one year. Any borrowings from the FHLB with an
original maturity of one year or less are included with federal funds purchased
and other short-term borrowings.
24
<PAGE> 8
EARNINGS AND DIVIDENDS PER SHARE:
Earnings and dividends per share are calculated using the weighted average
number of shares outstanding and common shares equivalents.
CASH FLOWS STATEMENTS:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks.
RECENT ACCOUNTING PRONOUNCEMENTS:
During the second quarter of 1995, FASB issued Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" and SFAS No. 122
"Accounting for Mortgage Servicing Rights" . These statements are effective for
fiscal years beginning after December 31, 1995 with earlier adoption encouraged.
First Western will adopt these statements on January 1, 1996 and is currently
reviewing the effects of adopting these statements. The effects of adopting
these statements on First Western's financial statements is not expected to be
material.
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than fiscal years beginning
after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Pursuant to the new
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25, but would be required to disclose in a note to
the financial statements pro forma net income and, if presented, earnings per
share as if the company had applied the new method of accounting. First Western
has elected to continue to account for stock-based transactions under Accounting
Principles Board Opinion No. 25 and as such, First Western will disclose in a
footnote, pro forma net income and earnings per share prepared under the fair
value method.
RECLASSIFICATIONS:
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1994 and 1993 to conform with the
1995 presentation.
NOTE 2.
SECURITIES AVAILABLE FOR SALE:
At December 31, 1995, and 1994 the cost and market values of securities
classified as available for sale were as follows (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------------------
GROSS
-------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 2,052 $ 12 $ -- $ 2,064
U.S. Government agencies and corporations .. 29,789 65 (2) 29,852
Mortgage-backed securities ................. 187,863 2,791 (125) 190,529
Other securities ........................... 23,441 1,440 (346) 24,535
--------- ------ ---- --------
$243,145 $4,308 $(473) $246,980
========= ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------
GROSS
-------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- -----
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 7,042 $ -- $ (109) $ 6,933
Mortgage-backed securities ................. 59,902 24 (3,501) 56,425
Other securities ........................... 4,097 392 (177) 4,312
------- ---- ------- -------
$71,041 $416 $(3,787) $67,670
======= ==== ======= =======
</TABLE>
Securities available for sale with market values of $83,378,000 and
$44,692,000 at December 31, 1995 and 1994, respectively, were pledged to secure
public and trust deposits, securities sold under agreements to repurchase and
other short-term borrowings and for other purposes.
25
<PAGE> 9
The cost and market value of securities available for sale at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
MARKET
COST VALUE
---- -----
<S> <C> <C>
Due in one year or less ..................................... $ 31,792 $ 31,866
Due after one year through five years........................ 545 547
Due after ten years.......................................... 22,945 24,038
-------- -------
55,282 56,451
Mortgage-backed securities.................................. 187,863 190,529
-------- --------
$243,145 $246,980
======== ========
</TABLE>
Proceeds from sales of securities available for sale during 1995, 1994 and
1993 were $157,793,000, $123,176,000 and $93,710,000, respectively. Gross gains
of $2,290,000, $1,693,000 and $818,000 and gross losses of $735,000, $372,000
and $203,000 were realized on those sales during 1995, 1994 and 1993,
respectively.
As of December 31, 1995, First Western transferred investment securities
and mortgage-backed securities classified as held to maturity with an amortized
cost of $49.2 million to securities available for sale. This transfer was made
in accordance with the "Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities" issued by FASB
during 1995. The securities transferred increased the unrealized appreciation in
securities available for sale by $651,000.
NOTE 3.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES:
At December 31, 1995 and 1994, the carrying and market values of investment
securities and mortgage-backed securities were as follows (in thousands):
<TABLE>
<CAPTION>
1995
------------------------------------------------------
GROSS
--------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations.......... $ 29,591 $ 4 $ (81) $ 29,514
States and political subdivisions ................. 83,223 1,359 (286) 84,296
Other securities .................................. 1,201 13 -- 1,214
-------- ------ ------- --------
$114,015 $1,376 $ (367) $115,024
======== ====== ======= ========
Mortgage-backed securities......................... $145,550 $ 108 $(1,296) $144,362
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------------
GROSS
--------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations........ $ 43,760 $ 2 $ (2,678) $ 41,084
States and political subdivisions ............... 80,189 491 (3,452) 77,228
Other securities ................................ 10,407 -- (7) 10,400
-------- ---- -------- --------
$134,356 $493 $ (6,137) $128,712
======== ==== ======== ========
Mortgage-backed securities....................... $202,041 $ 28 $(13,811) $188,258
======== ==== ======== ========
</TABLE>
Investment securities and mortgage-backed securities with an amortized cost
of $139,669,000 and $203,731,000 at December 31, 1995 and 1994, respectively,
were pledged to secure public and trust deposits, securities sold under
agreements to repurchase and other short-term borrowings, and for other
purposes.
26
<PAGE> 10
The carrying value and market value of investment securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties (in
thousands):
<TABLE>
<CAPTION>
CARRYING MARKET
VALUE VALUE
-------- ------
<S> <C> <C>
Due in one year or less ...................................... $ 16,092 $ 16,190
Due after one year through five years......................... 86,800 87,610
Due after five years through ten years ....................... 10,898 10,973
Due after ten years........................................... 225 251
-------- --------
114,015 115,024
Mortgage-backed securities.................................... 145,550 144,362
-------- --------
$259,565 $259,386
======== ========
</TABLE>
There were no sales of investment securities during 1995, 1994 or 1993.
NOTE 4.
LOANS:
Loans at December 31, 1995 and 1994 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial, financial and agricultural .......................... $ 120,183 $ 99,198
Real estate:
Construction ................................................... 24,501 18,721
Mortgage ....................................................... 591,320 565,810
Installment loans to individuals ................................ 322,738 329,753
---------- ----------
1,058,742 1,013,482
Less unearned income ............................................ 34,636 34,920
---------- ----------
$1,024,106 $ 978,562
========== ==========
</TABLE>
First Western's subsidiaries grant commercial, residential and installment
loans to their customers, primarily within the western Pennsylvania and
northeastern Ohio region, with no significant concentrations of credit risk
within any specific industry. The subsidiaries' loan portfolios are diversified;
however, a substantial portion of their debtors' ability to honor their
obligations is dependent upon the economy within the western Pennsylvania and
northeastern Ohio regions. The total loans serviced for others was $187.5
million and $6.2 million at December 31, 1995 and 1994, respectively.
In the normal course of business, loans are extended to directors and
executive officers and their associates. All of these loans are on
substantially the same terms as loans to other individuals and businesses of
comparable creditworthiness. A summary of loan activity for those directors and
executive officers and their associates with loan balances in excess of $60,000
for the year ended December 31, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AMOUNTS BALANCE
AT COLLECTED AT
JANUARY 1, AND OTHER DECEMBER 31,
1995 ADDITIONS CHANGES 1995
---------- --------- --------- ------------
<S> <C> <C> <C>
$8,959 $9,529 $5,401 $13,087
====== ====== ====== =======
</TABLE>
27
<PAGE> 11
NOTE 5.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
Transactions in the allowance for possible loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year .................... $12,943 $11,102 $10,846
Provision for possible loan losses ............. 3,982 3,650 3,435
Recoveries on loans previously charged-off ..... 290 669 264
------- ------- -------
17,215 15,421 14,545
Less loans charged-off ......................... 3,067 2,478 3,443
------- ------- -------
Balance at end of year........................... $14,148 $12,943 $11,102
======= ======= =======
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered
to be impaired under Statement No. 114 was $5.9 million (of which $1.7 million
were on a nonaccrual basis). The allowance for possible loan losses related to
these impaired loans was $984,000 at December 31, 1995. The average recorded
investment in impaired loans during the year ended December 31, 1995 was
approximately $6.2 million. For the year ended December 31, 1995, First Western
recognized interest income on those impaired loans of $412,000, which included
$32,000 of interest income recognized using the cash basis of income
recognition.
NOTE 6.
PREMISES AND EQUIPMENT:
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Land ............................................................ $ 1,902 $ 1,636
Buildings ....................................................... 20,647 19,611
Leasehold interests and improvements............................. 1,277 1,091
Furniture and fixtures .......................................... 14,229 13,711
------- -------
38,055 36,049
Less accumulated depreciation and amortization................... 19,644 18,149
------- -------
$18,411 $17,900
======= =======
</TABLE>
Provisions for depreciation and amortization charged to other expenses were
$2,244,000, $2,183,000 and $2,166,000 for 1995, 1994 and 1993, respectively.
NOTE 7.
OTHER ASSETS:
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
---- ----
<S> <C> <C>
Accrued interest receivable ..................................... $ 9,434 $ 8,270
Intangible assets, primarily core deposit intangibles ........... 7,879 1,163
Net deferred tax benefit ........................................ 2,322 5,038
Other real estate owned ......................................... 165 1,185
Receivable from paying agent..................................... 10 5,131
Other............................................................ 3,442 2,425
------ -------
$23,252 $23,212
======= =======
</TABLE>
28
<PAGE> 12
NOTE 8.
DEPOSITS:
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $66,809,000 and $49,989,000 at December 31,
1995 and 1994, respectively. Interest expense on these certificates was
$3,426,000, $1,733,000 and $1,201,000 for 1995, 1994 and 1993, respectively.
NOTE 9.
REPURCHASE AGREEMENTS AND SECURED LINES OF CREDIT:
First Western's subsidiaries have repurchase agreements with certain retail
customers and various wholesale funding sources. First Western's liability for
repurchase agreements and secured lines of credit are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING MATURITY AMOUNT RATE AMOUNT RATE
- ------------------ ------ ---- ------ ----
<S> <C> <C> <C> <C>
Next business day ........ $ 6,242 5.00% $ 1,742 5.63%
Two to 30 days ........... 22,032 5.85 74,199 6.14
91 days to one year ...... 93,384 5.95 52,520 4.86
-------- ---- -------- ----
$121,658 5.89% $128,461 5.61%
======== ==== ======== ====
</TABLE>
First Western's repurchase agreements and secured lines of credit are
secured by U.S. Treasury securities, securities issued by U.S. government
agencies and corporations, mortgage-backed securities and securities issued by
states and political subdivisions.
NOTE 10.
ADVANCES FROM THE FEDERAL HOME LOAN BANK:
First Western Bank, N.A. and First Western Bank, F.S.B. are members of the
Federal Home Loan Bank ("FHLB") of Pittsburgh. Advances from the FHLB with
original maturities greater than one year mature as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
<S> <C> <C> <C> <C>
1995 .................... $ -- --% $ 75,621 5.60%
1996 .................... 66,670 5.37 52,500 4.97
1997 .................... 45,000 5.91 -- --
-------- ---- -------- ----
$111,670 5.59% $128,121 5.34%
======== ==== ======== ====
</TABLE>
Advances from the FHLB are secured by stock in the FHLB of Pittsburgh,
qualifying residential first mortgage loans, mortgage-backed securities, certain
investment securities and securities available for sale. Certain of these
advances are subject to restrictions or penalties in the event of prepayment.
29
<PAGE> 13
NOTE 11.
LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
---- ----
<S> <C> <C>
Term loan payable to bank, due in quarterly installments of $390,000, bearing
interest at either the bank's variable prime rate or the bank's fully absorbed
cost of funds rate plus 1.50% or the bank's Eurodollar rate plus 1.50% as
selected by First Western at various intervals. At December 31,1995, the interest
rate was 7.375% .................................................................... $6,626 $ 8,185
Term loan payable to bank, due in quarterly installments of $151,000 commencing
April 30,1991, bearing interest at the lower of the bank's variable prime interest
rate less .2% or the bank's certificate of deposit rate plus 1.10%, as selected
by First Western at various intervals. At December 31,1995, the interest rate
was 7.02% .......................................................................... 151 754
Subordinated capital notes, bearing interest at 11%, due March 1, 1996, with
interest payable semi-annually on January 15 and July 15 ........................... 1,356 1,356
Term loan payable to bank by First Western's Employee Stock Ownership Trust
used to purchase 7,000 shares (before stock dividends) of First Western stock,
guaranteed by First Western, bearing interest at 85% of the bank's variable prime
interest rate, payable quarterly by the Employee Stock Ownership Trust with
principal due in annual installments of $23,000 .................................... -- 23
------ -------
$8,133 $10,318
====== =======
</TABLE>
Principal repayments are scheduled as follows: $3,066,000 for
1996, $1,559,000 for 1997, $1,559,000 for 1998, $1,559,000 for 1999 and $390,000
for 2000. Certain long-term debt instruments contain financial covenants which,
among other things, include limitations on certain types of indebtedness,
dividends to First Western shareholders (limited to $17,817,000 at December
31,1995), and maintenance of certain levels or ratios of net worth, investments
in subsidiaries, non-performing assets and interest expense coverage. First
Western was in compliance with all such covenants at December 31, 1995.
NOTE 12.
INCOME TAXES:
Income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income exclusive of securities gains ......... $6,682 $6,256 $6,128
Net securities gains ......................... 544 462 215
------ ------ ------
$7,226 $6,718 $6,343
====== ====== ======
</TABLE>
The income tax provision consists of:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Taxes currently payable ...................... $7,519 $7,245 $5,875
Deferred tax liability (benefit) ............. (293) (527) 468
------ ------ ------
$7,226 $6,718 $6,343
====== ====== ======
</TABLE>
30
<PAGE> 14
The deferred tax liability (benefit) results from temporary differences in
the recognition of revenue and expense for tax and financial statement purposes.
The source of these differences and the tax effect of each are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Provision for possible loan losses ................ $(381) $(653) $ (2)
Deferred loan origination fees .................... 220 150 (46)
Employee benefit plans ............................ 170 47 319
Accretion of purchase accounting adjustments ...... (121) (31) 39
Depreciation ...................................... (116) (16) (3)
Amoritization of intangible assets ................ (102) (26) --
Provision for restructuring costs ................. -- -- 282
Other ............................................. 37 2 (121)
----- ----- -----
$(293) $(527) $ 468
===== ===== =====
</TABLE>
First Western Bank, F.S.B. qualifies to be taxed under special income tax
rules applicable to savings institutions and is entitled to a special bad debt
deduction. First Western Bank, F.S.B.'s allowance for tax purposes was
$8,224,000, $7,694,000 and $7,709,000 at December 31, 1995, 1994 and 1993,
respectively.
The reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate ............................................ 35.0% 35.0% 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest on investment securities and loans ......... (5.9) (6.4) (5.8)
State income taxes, net of federal benefit ..................... 1.1 1.2 1.1
Other, net...................................................... (0.1) 0.4 0.4
---- ---- ----
Effective tax rate ............................................... 30.1% 30.2% 30.7%
==== ==== ====
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The tax effects of
significant items comprising First Western's net deferred tax asset as of
December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses ........................ $4,181 $3,945
Intangible assets.......................................... 608 505
Employee benefit plans .................................... 435 613
Deferred directors' fees .................................. 404 482
Unrealized depreciation in securities available for sale .. -- 1,180
Loan origination fees...................................... -- 133
Other ..................................................... 246 176
------ ------
Total deferred tax assets ............................... 5,874 7,034
------ ------
Deferred tax liabilities:
Purchase accounting adjustments ........................... 1,397 1,455
Unrealized appreciation in securities available for sale .. 1,342 --
Difference between book and tax basis of property ......... 425 541
Loan origination fees...................................... 388 --
------ ------
Total deferred tax liabilities........................... 3,552 1,996
------ ------
Net deferred tax asset .................................. $2,322 $5,038
====== ======
</TABLE>
First Western has not recognized a $2.2 million deferred tax liability for
differences resulting from the bad debt reserve for tax purposes prior to
December 31, 1987 of its savings bank subsidiary, First Western Bank, F.S.B.
Should amounts previously claimed as bad debt deductions for First Western Bank,
F.S.B. be used for any purpose other than to absorb bad debts or if the separate
savings bank subsidiary is eliminated (which is not currently anticipated), a
tax liability of approximately $2.2 million will be incurred assuming the tax
rate upon conversion approximates the tax rates in effect as of December 31,
1995.
31
<PAGE> 15
NOTE 13.
EMPLOYEE BENEFIT PLANS:
PENSION BENEFITS:
First Western has a noncontributory qualified defined benefit pension plan
(the "Plan") that covers substantially all full-time employees. Pension benefits
are based on a formula taking into consideration an employee's vesting status,
compensation and years of service. First Western's funding policy is to make
annual contributions to the Plan based upon the funding formula developed by the
Plan's actuary. The formula used by the Plan is the Frozen Initial Liability
Method. The minimum funding commitments for 1995, 1994 and 1993 were $599,000,
$450,000 and $879,000, respectively.
A summary of the components of net periodic pension expense for the Plan
for 1995, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost ..................................................... $ 370 $ 379 $ 335
Interest cost .................................................... 867 841 839
Actual (return) loss on plan assets .............................. (2,240) 167 (649)
Net amortization of transition assets and
prior service cost and deferral of net asset loss or gain ....... 1,256 (1,199) (319)
------ ------- -----
Net periodic pension expense ..................................... $ 253 $ 188 $ 206
====== ======= =====
</TABLE>
The assumptions used in calculating the year-end liability for the Plan are
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Weighted average discount rate ........................... 7.25% 8.50%
Weighted average rate of return .......................... 8.50% 8.50%
Expected increase in compensation levels ................. 5.25% 5.25%
</TABLE>
The actuarial present value of accumulated benefit obligations at December
31, 1995 and 1994 were $10,745,000, and $8,674,000, respectively, including
vested benefit obligations of $10,318,000 and $8,449,000. The following table
sets forth the funded status and amounts recognized in the consolidated balance
sheets at December 31, 1995 and 1994 for the Plan (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Plan assets at fair value, consisting primarily of U.S. treasury,
government agency and corporation, and equity securities ....................... $ 13,252 $ 10,927
Projected benefit obligation .................................................... (13,331) (10,535)
-------- --------
Plan assets (below) in excess of projected benefit obligation ................... (79) 392
Items not yet recognized:
Net asset existing at transition and for prior service costs .................. (725) (801)
Unrecognized net loss ......................................................... 1,268 364
-------- --------
Prepaid (accrued) expense for plan recognized in consolidated balance sheets .... $ 464 $ (45)
======== ========
</TABLE>
As part of a restructuring program, First Western amended the pension plan
in 1992 to provide special retirement benefits under an early retirement window
program and a supplemental plan (the "Unfunded Plan"). First Western makes
contributions to the Unfunded Plan to the extent necessary to fund the benefit
payments to the participants.
A summary of the components of net periodic pension expense for the
Unfunded Plan for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost ........................................... $ 1 $ 3 $ 3
Interest cost .......................................... 62 59 59
Amortization of loss ................................... -- 1 --
--- --- ---
Net periodic pension expense ........................... $63 $63 $62
=== === ===
</TABLE>
The pension liability for the Unfunded Plan was calculated using a discount
rate of 7.25% and 8.50% for December 31, 1995 and 1994, respectively.
32
<PAGE> 16
The actuarial present value of accumulated benefit obligations of the
Unfunded Plan at December 31, 1995 and 1994 was $809,000 and $781,000,
respectively, all of which was vested. The following table sets forth the funded
status and amounts recognized in the consolidated balance sheets at December 31,
1995 and 1994 for the Unfunded Plan (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Plan assets at fair value ......................................... $ -- $ --
Projected benefit obligation....................................... (809) (781)
----- -----
Projected benefit obligation in excess of plan assets ............. (809) (781)
Unrecognized net loss.............................................. -- --
----- -----
Accrued pension expense for the
Unfunded Plan recognized in consolidated balance sheet ........... $(809) $(781)
===== =====
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Effective January 1, 1993, First Western adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Statement No. 106 requires First Western to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. First Western previously expensed the costs of these benefits
as claims were incurred. Statement No. 106 allows recognition of the cumulative
effect of the liability in the year of adoption or the amortization of the
obligation over a period of up to twenty years. First Western has elected to
recognize this obligation of $774,000 over a period of ten years which is the
life expectancy of the retiree group with health care benefits provided by First
Western. First Western's cash flows are not affected by implementation of this
statement and the effect of implementation of this statement upon First
Western's net income is not material. First Western provides health care
benefits for a certain group of retirees and life insurance for substantially
all of its retired employees. The following table sets forth the health care and
life insurance plans' funded status at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees ................................................ $(1,165) $(1,437)
Fully eligible plan participants ........................ (31) (17)
Other active plan participants .......................... (126) (72)
------ -------
Accumulated postretirement benefit obligation ............ (1,322) (1,526)
Unrecognized transition obligation ....................... 541 619
Unrecognized prior service cost........................... (259) (277)
Unrecognized net loss .................................... 22 191
------ -------
Accrued postretirement benefit cost ..................... $(1,018) $ (993)
====== =======
</TABLE>
Net postretirement benefit cost for 1995, 1994 and 1993 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during year ............... $ 13 $ 14 $ 31
Interest cost on
accumulated postretirement benefit obligation ......... 98 119 137
Amortization of transition obligation................... 77 77 77
Amortization of prior service costs .................... (17) (17) --
Amortization of net loss ............................... -- 9 --
---- ---- ----
Net postretirement benefit cost......................... $171 $202 $245
==== ==== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 11% for 1995 and is expected to decrease
linearly each successive year until it reaches 6% in 2002. As of December 31,
1995, a one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
by approximately 4% and the net periodic postretirement health care cost for the
year ended December 31, 1995 by approximately 3%. The December 31, 1995 and 1994
postretirement benefit liabilities were calculated using discount rates of 7.25%
and 8.50%, respectively.
33
<PAGE> 17
OTHER BENEFIT PLANS:
First Western also has a 401(k) Profit-Sharing and Stock Bonus Plan.
Contributions to the plan are made annually at the discretion of First Western's
Board of Directors and amounted to $960,000, $1,003,000 and $1,045,000 for 1995,
1994 and 1993, respectively.
In prior years, the ESOP (formerly a separate plan) acquired 21,242 shares
(before stock dividends) of First Western stock with loans from an unrelated
bank. The loans were paid-off in full on September 30, 1995. A total of 2,739
and 5,534 shares were allocated to plan participants in 1995 and 1994,
respectively, in accordance with the terms of the plan. Distributions are made
upon an employee's retirement, death or termination, subject to a plan-provided
vesting schedule. For financial reporting purposes, the ESOP loans and the
related shares have been reflected on First Western's consolidated balance
sheets to the extent of the unpaid loan balances.
NOTE 14.
STOCK OPTION PLAN:
On January 21, 1991, First Western's Board of Directors adopted an
Incentive Stock Option Plan for Key Officers (the "ISO Plan"). Under the ISO
Plan and an amendment approved by the shareholders at the April 18, 1995 annual
meeting, 566,335 shares of common stock have been reserved for issuance. The
Board's Compensation Committee initially authorized options for 204,654 shares
to be granted to certain key employees, at an option price equal to the fair
market value of First Western's common stock on the date of grant, January 21,
1991. The options granted generally become exercisable between two and seven
years from the date of grant, and are intended to qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended. On
January 16, 1995, First Western's Board of Director's Compensation Committee
authorized options for 150,000 shares to be granted to certain key employees at
an option price of $20.00 per share which was greater than the fair market value
of First Western's common stock on the date of the grant, January 16, 1995. The
options must be exercised within ten years, and generally become exercisable
between six months and three years. Options for 105,000 shares are intended to
qualify as incentive stock options, and options for 45,000 shares are considered
non-qualified and are not meant to qualify as incentive stock options. The total
shares reserved for issuance, options granted and the option price per share
have been adjusted for subsequent stock dividends in accordance with terms of
the ISO Plan. The ISO Plan has a life of ten years during which time the options
must be granted. Options previously granted must be exercised within ten years.
The changes in options outstanding during 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- -------------------- --------------------
OPTION OPTION OPTION
PRICE PRICE PRICE
PER PER PER
SHARES SHARE SHARES SHARE SHARES SHARE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 ........... 135,414 $6.75 167,445 $6.75 204,654 $6.75
Granted .......................... 150,000 20.00 -- -- -- --
Exercised......................... (33,088) 6.75 (32,031) 6.75 (24,806) 6.75
Cancelled......................... -- -- -- -- (12,403) 6.75
------- ------------ ------- ----- ------- -----
Outstanding, December 31 ......... 252,326 $6.75-$20.00 135,414 $6.75 167,445 $6.75
======= ============ ======= ===== ======= =====
Exercisable, December 31 ......... 135,237 $6.75-$20.00 51,695 $6.75 31,008 $6.75
======= ============ ======= ===== ======= =====
Available for Grant,
December 31 ..................... 254,846 179,846 179,846
======= ======= =======
</TABLE>
34
<PAGE> 18
NOTE 15.
COMMITMENTS AND CONTINGENT LIABILITIES:
In the normal course of business, there are various outstanding commitments
to extend credit and standby letters of credit which are not reflected in the
accompanying consolidated financial statements. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Standby letters of credit are conditional
commitments issued by First Western to guarantee the performance of a customer
to a third party. First Western uses the same credit policies in making
commitments as it does for on-balance-sheet instruments. Firm commitments to
extend credit at December 31, 1995 of $312,704,000 consist of commercial,
mortgage and other commitments of $121,840,000, home equity lines of credit of
$42,791,000 and credit card lines of credit of $148,073,000. Standby letters of
credit at December 31, 1995 totalled $11,412,000. Credit-related financial
instruments have off-balance sheet credit risk, because only origination fees
(if any) are recognized in the consolidated balance sheet for these instruments
until the commitments are fulfilled or expire. The credit risk involved in
issuing guarantees and letters of credit is essentially the same as that
involved in extending loans to customers. The credit risk amounts are equal to
the notional amounts of the contracts, assuming, in accordance with the
requirements of FASB Statement No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk", that counterparties fail completely to meet
their obligations and the collateral or other security is of no value.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total contract amounts do not
necessarily represent future cash requirements. First Western's credit loss risk
in the event of a borrower's inability to repay loans funded under commitments
is represented by the contractual amount. These commitments represent the
possibility of additional credit risk; however, management believes that no
material losses, beyond its current evaluation of such in determining the
adequacy of the allowance for possible loan losses, will occur as a result of
these transactions.
First Western's obligation for future minimum lease payments on operating
leases at December 31, 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
1996.................................. $392
1997.................................. 294
1998.................................. 229
1999.................................. 229
2000 ................................. 229
</TABLE>
In the normal course of business, First Western is involved in several
legal proceedings. Management believes that the liability, if any, from such
proceedings will not have a material adverse effect on the consolidated
financial statements of First Western.
NOTE 16.
REGULATORY RESTRICTIONS:
First Western is a legal entity separate and distinct from its subsidiaries
and there are various legal and regulatory limitations concerning the extent to
which these subsidiaries can finance or otherwise provide funds to First
Western.
Certain restrictions exist regarding the ability of the subsidiaries to pay
dividends to First Western, which are the primary source of First Western's
revenues, in addition to management and service fees. Under national banking
regulations, as promulgated by the Office of the Comptroller of the Currency
("OCC"), First Western Bank, N.A., an OCC-supervised bank, may make payments of
dividends without obtaining prior regulatory approval, if the total of all
dividends declared by the bank's Board of Directors in a calendar year do not
exceed the total of such bank's net profit for that year combined with its
retained net profits for the two preceding calendar years less any required
transfer to surplus.
35
<PAGE> 19
First Western Bank, F.S.B.'s ability to pay dividends to First Western is
governed by the Office of Thrift Supervison ("OTS"). The current OTS dividend
regulations, as amended, utilize a tiered approach which permits various levels
of capital distributions, based primarily upon a savings institution's capital
level and its ability to meet its ongoing fully phased-in capital requirements,
with notification of dividends provided to the OTS prior to payment.
Under OCC regulations, the total capital available for payment of dividends
from First Western Bank, N.A. was approximately $9,879,000 at December 31, 1995.
Under OTS regulations the total amount available for payment of dividends by
First Western Bank, F.S.B. was approximately $10,764,000 at December 31, 1995.
The above regulatory bodies have the power to prohibit any act, including
the payment of dividends, if, in their opinion, such act would constitute an
unsafe or unsound banking practice.
First Western is required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At December 31,
1995, First Western is required to have minimum Tier I and Total capital ratios
of 4.00% and 8.00%, respectively. First Western's actual ratios at December 31,
1995 were 11.25% and 12.51%, respectively. First Western's leverage ratio at
December 31, 1995 was 6.99%. Most institutions are expected to maintain Tier I
leverage capital ratios of at least 100 to 200 basis points above the 3.00%
guideline minimum depending on risk profiles and other facts. Although a
specific minimum has not been established for First Western, management believes
it is in compliance with the Tier I leverage ratio requirement at December 31,
1995.
First Western's banking and savings subsidiaries are also subject to
certain restrictions imposed by federal law on extensions of credit and certain
other transactions with First Western, including borrowing from these
subsidiaries unless the loans are both well-secured and limited in amount to no
more than 10% of the lending subsidiary's capital and surplus.
The banking and savings subsidiaries are also required to maintain average
reserve balances with the district Federal Reserve Bank. The average amount of
these balances was approximately $7,569,000 and $6,373,000 for the years ended
December 31, 1995 and 1994, respectively.
NOTE 17.
SUPPLEMENTAL SCHEDULES OF NONCASH ACTIVITIES:
Noncash activities for the years ended December 31, 1995, 1994 and 1993
were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Securities purchased settling after year end ....................... $ 37,062 $ 201 $ 1,392
======== ======= ========
Securities sold settling after year end ............................ $ -- $ 5,131 $ 310
======== ======= ========
Transfer of investment securities and
mortgage-backed securities to securities available for sale ....... $ 49,160 $ -- $ 16,195
======== ======= ========
Transfer of securities available for sale
to mortgage-backed securities ..................................... $ -- $ -- $191,916
======== ======= ========
Transfer of loans to other real estate owned ....................... $ 364 $ 1,135 $ 2,313
======== ======= ========
Transfer from other real estate owned to loans ..................... $ -- $ -- $ 682
======== ======= ========
Securitization of loans ............................................ $113,732 $ -- $ --
======== ======= ========
Net change in unrealized appreciation (depreciation)
in securities available for sale .................................. $ 7,206 $(7,871) $ --
======== ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Deposits assumed in branch acquisition ............................. $ 96,681 $14,426 $ --
======== ======= ========
Issuance of common stock for a 5% stock dividend ................... $ -- $ -- $ 7,335
======== ======= ========
Issuance of common stock, at par, for a 50% stock dividend ......... $ 13,004 $ -- $ --
======== ======= ========
</TABLE>
36
<PAGE> 20
NOTE 18.
FAIR VALUES OF FINANCIAL INSTRUMENTS:
The fair values of First Western's financial instruments as of December 31,
1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks ........................ $ 39,464 $ 39,464 $ 42,903 $ 42,903
Interest-bearing deposits in other banks ....... 2,124 2,124 872 872
Securities available for sale .................. 246,980 246,980 67,670 67,670
Investment securities .......................... 114,015 115,024 134,356 128,712
Mortgage-backed securities ..................... 145,550 144,362 202,041 188,258
Loans available for sale ....................... 3,510 3,518 -- --
Loans .......................................... 1,016,499 1,007,976 973,817 942,859
Liabilities:
Demand and savings deposits .................... 485,009 485,009 480,854 480,854
Time deposits .................................. 692,674 703,062 548,555 548,920
Federal funds purchased and
other short-term borrowings ................... 3,598 3,598 34,847 34,847
Repurchase agreements and
secured lines of credit ....................... 121,658 122,148 128,461 128,063
Advances from the Federal Home Loan Bank ....... 111,670 111,812 128,121 126,023
Long-term debt ................................. 8,133 8,142 10,318 10,371
</TABLE>
The estimated fair value amounts have been determined by First Western
using available market information and appropriate valuation methodologies.
However, considerable judgement is required to interpret market data to develop
the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts First Western could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND DUE FROM BANKS:
For cash and due from banks, the carrying amount is the estimated fair
value.
INTEREST-BEARING DEPOSITS IN OTHER BANKS:
For interest-bearing deposits in other banks, the carrying amount is the
estimated fair value.
SECURITIES AVAILABLE FOR SALE, INVESTMENT SECURITIES AND MORTGAGE-BACKED
SECURITIES:
Fair values for investment securities, mortgage-backed securities and
securities available for sale are based on quoted market prices or dealer
quotes. If a quoted market price is not available, fair value is estimated using
quoted market prices for similar securities.
LOANS AVAILABLE FOR SALE:
Fair values for loans available for sale are based on quoted market prices.
LOANS:
For certain homogeneous categories of loans, such as some residential
mortgages and other consumer loans, fair value is estimated using the quoted
market prices for securities backed by similar loans, adjusted for differences
in loan characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. It was not practicable to estimate fair value of
nonperforming loans of approximately $7.6 million and $4.7 million in First
Western's portfolio at December 31, 1995 and 1994, respectively, because it is
not practicable to reasonably assess the credit adjustment that would be applied
in the market place for such loans. Interest rates on such loans approximate
current lending rates.
37
<PAGE> 21
DEMAND AND SAVINGS DEPOSITS:
The fair value of demand deposits, savings accounts, and money market
deposits is the amount payable on demand at the reporting date. No disclosure of
the relationship value of First Western's deposits is required. Management
believes the relationship value of these deposits is significant based upon the
historical stable core deposit base and limited secondary market transactions,
but has made no attempt to estimate this value.
TIME DEPOSITS:
The fair value of fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities.
REPURCHASE AGREEMENTS, SECURED LINES OF CREDIT,
ADVANCES FROM THE FEDERAL HOME LOAN BANK AND LONG-TERM DEBT:
Rates currently available to First Western for borrowings with similar
terms and remaining maturities are used to estimate the fair values of existing
borrowings.
OFF-BALANCE SHEET COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT:
The fair value of off-balance sheet commitments to extend credit and
standby letters of credit is estimated to equal the outstanding commitment
amount. Management does not believe it is meaningful to provide an estimate of
fair value that differs from the outstanding commitment amount as a result of
the uncertainties involved in attempting to assess the likelihood and timing of
the commitment being drawn upon, coupled with the lack of an established market
and a wide diversity of fee structures.
NOTE 19.
BRANCH ACQUISITIONS:
During the first quarter of 1995, First Western purchased the Andover, Ohio
banking office of Peoples Bank, N.A. of Ashtabula, Ohio and four banking offices
located in northeastern Ohio in Lake and Ashtabula Counties from Union Federal
Savings Bank of Indianapolis, Indiana. These branches had approximately $97
million of deposits as of the date of acquisition, and $86 million at year-end.
First Western paid a premium of approximately $7.4 million in order to acquire
these branches and the premium paid increased First Western's intangible assets
during 1995.
38
<PAGE> 22
NOTE 20.
PARENT COMPANY:
The 1994 and 1993 condensed financial statements of the parent company have
been restated to reflect the merger of Residential Mortgage Company of America
into the parent company. Following are condensed Qnancial statements for First
Western (in thousands):
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31,
-----------------------
ASSETS: 1995 1994
---- ----
<S> <C> <C>
Cash and short-term investments .............................................................. $ 3,690 $ 6,970
Securities available for sale (amortized cost of $4,084 and $3,570) .......................... 5,512 3,792
Investment securities (market value of $2,657 and $4,724)..................................... 2,616 4,808
Investment in:
Bank subsidiary............................................................................. 73,307 67,366
Savings association subsidiary ............................................................. 41,369 28,575
Nonbank subsidiaries ....................................................................... 1,772 1,583
Premises and equipment ....................................................................... 2,788 2,991
Other assets ................................................................................. 1,496 2,156
-------- --------
TOTAL ASSETS ............................................................................. $132,550 $118,241
======== ========
LIABILITIES:
Interest payable ............................................................................. $ 110 $ 122
Other liabilities ............................................................................ 2,234 1,278
Long-term debt ............................................................................... 8,518 10,762
-------- --------
TOTAL LIABILITIES......................................................................... 10,862 12,162
======== ========
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value, 4,000,000 shares authorized, none issued ................... -- --
Common stock, $5 par value, 20,000,000 shares authorized, 7,816,651 and
5,180,172 shares issued at December 31, 1995 and 1994, respectively ......................... 39,083 25,901
Additional paid-in capital ................................................................... 21,811 34,431
Retained earnings ........... .............................................................. 60,877 45,625
Unrealized appreciation in securities available for sale ..................................... 928 145
Treasury stock, 52,500 shares at cost......................................................... (1,011) --
Unallocated common stock held by ESOP (at cost) .............................................. -- (23)
-------- --------
TOTAL SHAREHOLDERS' EQUITY ............................................................... 121,688 106,079
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................................... $132,550 $118,241
======== ========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash dividends from:
Bank subsidiary ............................................................................. $ 10,400 $ 5,900 $ 4,900
Savings association subsidiary .............................................................. -- 2,400 1,800
Interest income from:
Bank subsidiary ............................................................................. 127 208 67
Savings association subsidiary .............................................................. -- -- 3
Interest income on investment securities ...................................................... 292 428 289
Interest income on securities available for sale .............................................. 164 129 509
Interest expense .............................................................................. (778) (754) (767)
Management and service fees from:
Bank subsidiary ............................................................................. 6,337 6,543 5,763
Savings association subsidiary .............................................................. 3,222 2,695 2,441
Nonbank subsidiaries ........................................................................ 136 114 110
Net securities (losses) gains ................................................................. (4) 116 --
Other operating income ........................................................................ 311 50 --
Other operating expense ....................................................................... (12,478) (11,410) (10,550)
-------- ------- -------
Income before tax benefit and equity in undistributed earnings of subsidiaries ................ 7,729 6,419 4,565
Income tax benefit ............................................................................ (993) (644) (744)
-------- ------- -------
Income before equity in undistributed earnings of subsidiaries ................................ 8,722 7,063 5,309
Equity in undistributed earnings of:
Bank subsidiary.............................................................................. 3,406 6,474 6,476
Savings association subsidiary .............................................................. 4,429 1,935 2,502
Nonbank subsidiaries ........................................................................ 189 88 44
-------- ------- -------
NET INCOME .............................................................................. $16,746 $15,560 $14,331
======= ======= =======
</TABLE>
39
<PAGE> 23
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................... $16,746 $15,560 $14,331
------- ------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation ................................................................................ 772 765 729
Loss (gain) on sale of securities available for sale ........................................ 4 (116) --
Amortization and accretion - net ............................................................ 11 25 32
Other - net ................................................................................. 1,181 (1,543) 25
Equity in undistributed earnings of subsidiaries ............................................ (8,024) (8,497) (9,022)
------- ------- -------
TOTAL ADJUSTMENTS ............................................................................. (6,056) (9,366) (8,236)
------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................................................... 10,690 6,194 6,095
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in savings association subsidiary .................................................. (7,000) -- --
Proceeds from maturities and paydowns of investment securities ................................ 2,182 3,251 500
Purchase of investment securities ............................................................. -- -- (1,300)
Proceeds from paydown of securities available for sale ........................................ -- -- 3,407
Proceeds from sales of securities available for sale .......................................... 165 281 --
Purchase of securities available for sale ..................................................... (683) (1,628) (109)
Purchase of premises and equipment - net of retirements ....................................... (570) (326) (831)
------- ------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ........................................... (5,906) 1,578 1,667
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt .................................................................... (2,244) (1,138) (2,197)
Stock allocated to ESOP participants, at cost ................................................. 23 86 85
Proceeds from exercise of stock options ....................................................... 21 86 168
Proceeds from common stock issued for dividend reinvestment ................................... 541 325 1,042
Purchase of treasury stock .................................................................... (1,011) -- --
Dividends paid on common stock,
including fractional share cash paid in lieu of stock ........................................ (5,394) (4,862) (4,156)
------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES.......................................................... (8,064) (5,503) (5,058)
------- ------- -------
NET (DECREASE) INCREASE IN CASH AND SHORT-TERM INVESTMENTS ...................................... (3,280) 2,269 2,704
CASH AND SHORT-TERM INVESTMENTS - BEGINNING OF YEAR ............................................. 6,970 4,701 1,997
------- ------- -------
CASH AND SHORT-TERM INVESTMENTS - END OF YEAR ................................................... $ 3,690 $ 6,970 $ 4,701
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................................................... $ 790 $ 700 $ 831
======= ======= =======
Income taxes ................................................................................ $ 7,212 $ 6,740 $ 6,896
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Transfer of investment securities to securities available for sale ............................ $ -- $ -- $ 1,998
======= ======= =======
Transfer of securities available for sale to investment securities ............................ $ -- $ -- $ 4,515
======= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Issuance of common stock as a result of a 5% stock dividend ................................... $ -- $ -- $ 7,335
======= ======= =======
Issuance of common stock, at par, for 50% stock dividend ...................................... $13,004 $ -- $ --
======= ======= =======
</TABLE>
40
<PAGE> 24
NOTE 21.
QUARTERLY EARNINGS SUMMARY (UNAUDITED):
Quarterly earnings for the years ended December 31, 1995 and 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
1995
-------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME ............................................................. $27,808 $30,622 $31,053 $30,349
INTEREST EXPENSE ............................................................ 14,476 16,863 17,097 16,436
------- ------- ------- -------
NET INTEREST INCOME ......................................................... 13,332 13,759 13,956 13,913
PROVISION FOR POSSIBLE LOAN LOSSES .......................................... 730 940 956 1,356
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ................................................... 12,602 12,819 13,000 12,557
OTHER INCOME ................................................................ 2,219 2,786 3,007 3,009
OTHER EXPENSES .............................................................. 9,185 9,569 9,679 9,594
------- ------- ------- -------
INCOME BEFORE INCOME TAXES .................................................. 5,636 6,036 6,328 5,972
INCOME TAXES ................................................................ 1,669 1,844 1,948 1,765
------- ------- ------- -------
NET INCOME .................................................................. $ 3,967 $ 4,192 $ 4,380 $ 4,207
======= ======= ======= =======
PER SHARE:
Net income ................................................................ $ 0.50 $ 0.53 $ 0.56 $ 0.54
======= ======= ======= =======
Dividends ................................................................. $ 0.17 $ 0.17 $ 0.17 $ 0.17
======= ======= ======= =======
WEICHTED AVERAGE SHARES OUTSTANDING ......................................... 7,856 7,858 7,838 7,857
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME ............................................................. $23,993 $24,038 $25,159 $25,977
INTEREST EXPENSE ............................................................ 10,872 10,885 11,895 12,961
------- ------- ------- -------
NET INTEREST INCOME ......................................................... 13,121 13,153 13,264 13,016
PROVISION FOR POSSIBLE LOAN LOSSES .......................................... 862 875 1,000 913
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ................................................... 12,259 12,278 12,264 12,103
OTHER INCOME ................................................................ 2,365 2,521 1,930 1,833
OTHER EXPENSES .............................................................. 8,893 9,125 8,517 8,740
------- ------- ------- -------
INCOME BEFORE INCOME TAXES .................................................. 5,731 5,674 5,677 5,196
------- ------- ------- -------
INCOME TAXES ................................................................ 1,797 1,754 1,707 1,460
------- ------- ------- -------
NET INCOME .................................................................. $ 3,934 $ 3,920 $ 3,970 $ 3,736
======= ======= ======= =======
PER SHARE:
Net income ................................................................ $ 0.50 $ 0.50 $ 0.51 $ 0.48
======= ======= ======= =======
Dividends ................................................................. $ 0.15 $ 0.15 $ 0.16 $ 0.17
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING ......................................... 7,849 7,855 7,858 7,858
======= ======= ======= =======
</TABLE>
41
<PAGE> 25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
First Western Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of First
Western Bancorp, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31,1995.
These financial statements are the responsibility of First Western's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of First Western Bancorp, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 26, 1996
42
<PAGE> 26
SELECTED FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS:
Interest income ........................ $ 119,832 $ 99,167 $ 95,706 $ 96,224 $ 87,146
Interest expense ....................... 64,872 46,613 44,372 47,838 50,989
---------- ---------- ---------- ---------- ----------
Net interest income .................... 54,960 52,554 51,334 48,386 36,157
Provision for possible loan losses ..... 3,982 3,650 3,435 3,755 2,710
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for possible loan losses .............. 50,978 48,904 47,899 44,631 33,447
Other income ........................... 11,021 8,649 7,718 8,445 5,660
Other expenses ......................... 38,027 35,275 34,943 37,026 27,425
---------- ---------- ---------- ---------- ----------
Income before income taxes ............. 23,972 22,278 20,674 16,050 11,682
Income taxes ........................... 7,226 6,718 6,343 4,839 3,160
---------- ---------- ---------- ---------- ----------
Net income ............................. $ 16,746 $ 15,560 $ 14,331 $ 11,211 $ 8,522
========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per share ..................... $ 2.13 $ 1.98 $ 1.83 $ 1.52 $ 1.35
Cash dividends per share................ 0.69 0.63 0.54 0.49 0.45
Book value per share at year-end ....... 15.67 13.65 12.94 11.19 9.89
Tangible book value per share at
year-end .............................. 14.66 13.50 12.82 11.04 9.67
Weighted average shares outstanding .... 7,849 7,855 7,814 7,398 6,292
BALANCE SHEET DATA:
(At year-end)
Assets ................................. $1,603,264 $1,454,573 $1,390,349 $1,235,255 $1,087,752
Investment securities .................. 114,015 134,356 101,206 100,962 75,560
Mortgage-backed securities ............. 145,550 202,041 191,916 -- 274,580
Securities available for sale .......... 246,980 67,670 223,492 316,202 --
Loans, net of unearned income........... 1,024,106 978,562 815,642 718,074 684,369
Allowance for possible loan losses ..... 14,148 12,943 11,102 10,846 8,876
Deposits................................ 1,177,683 1,029,409 961,140 961,223 933,554
Advances from
the Federal Home Loan Bank............. 111,670 128,121 120,950 84,500 34,000
Federal funds purchased and
other short-term borrowings ........... 3,598 34,847 35,300 28,270 11,228
Repurchase agreements and
secured lines of credit ............... 121,658 128,461 146,688 22,164 19,446
Long-term debt ......................... 8,133 10,318 11,397 13,533 14,221
Shareholders' equity ................... 121,688 106,079 100,000 85,605 62,243
SIGNIFICANT RATIOS:
Return on average assets ............... 1.06% 1.12% 1.08% 0.97% 0.89%
Return on average equity ............... 14.79 15.19 15.74 14.74 14.43
Average loans as a percent
of average deposits.................... 90.32 89.64 77.57 75.13 73.88
Shareholders' equity as a
percent of year-end assets ............ 7.59 7.29 7.19 6.93 5.72
Average shareholders' equity
to average total assets ............... 7.16 7.37 6.88 6.57 6.20
Tier I capital to risk-weighted assets.. 11.25 11.69 12.39 11.42 9.30
Total capital to risk-weighted assets .. 12.51 12.97 13.72 12.84 10.81
Tier I leverage ratio................... 6.99 7.60 6.98 6.84 5.60
Allowance for possible loan
losses as a percent of net loans ...... 1.38 1.32 1.36 1.51 1.30
Net charge-offs as a
percent of average loans .............. 0.27 0.20 0.42 0.25 0.20
Dividends as a percent of net income ... 32.18 31.25 28.99 31.88 33.15
Net interest margin .................... 3.78 4.12 4.22 4.54 4.15
Effective tax rate ...................... 30.14 30.15 30.68 30.15 27.05
</TABLE>
43
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of First Western for the years ended
December 31, 1995, 1994 and 1993. The discussion should be read in conjunction
with the consolidated financial statements and notes thereto and the summary
financial information included elsewhere in this annual report.
OVERVIEW
The strategic focus of First Western during 1995 was the continued
expansion of its retail branch system along with a repositioning of its loan
portfolio. The expansion of the retail branch system during 1995 was
accomplished through the acquisition of five branches in northeastern Ohio
during the first quarter of 1995 which added approximately $96.7 million of
deposits to First Western's retail base. First Western also offered a new retail
delivery alternative in December 1995 by opening its first in-store branch
facility in the recently opened Wal-Mart SuperCenter located in Lawrence County,
Pennsylvania. First Western plans to open more in-store branches in the future.
First Western made significant changes in its loan portfolio during 1995,
most notably, by securitizing $113.7 million of fixed rate, residential mortgage
loans. Approximately $99.4 million of the resulting securities were sold by
First Western at a gain. First Western also completed its first private
automobile loan sale during 1995 totaling $25.3 million. This may lead to
increased auto loan sales depending on volumes and yields in the future. Also
during 1995, First Western sold all of its student loans and decided not to
retain student loans in the future. These loan securitizations and sales
strategies are the result of First Western's desire to develop loan servicing
revenues as a result of First Western's strong loan production efforts.
The interest rate environment during 1995 was not favorable to First
Western and the banking industry as the spread between short and long-term
interest rates narrowed resulting in a flatter yield curve. This flatter yield
curve resulted in a decrease in First Western's net interest margin as the cost
of funds increased more than the yield on earning assets. First Western offset
the compression of the net interest margin with increased noninterest income.
Certain information in "Management's Discussion and Analysis" and other
statements contained in this report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. Such
statements are subject to important factors that could cause actual results to
differ materially from those contemplated by such statements, including without
limitation, the effect of changing regional and national economic conditions;
changes in interest rates; credit risks of commercial, real estate, consumer and
other lending activities; changes in federal and state regulations; the presence
in the Company's market area of competitors with greater financial resources
than the Company; or other unanticipated external developments materially
impacting the Company's operational and financial performance.
<TABLE>
<CAPTION>
ASSET
(BILLIONS)
<S> <C>
1985 0.25
1986 0.45
1987 0.47
1988 0.54
1989 0.57
1990 0.89
1991 1.09
1992 1.24
1993 1.39
1994 1.45
1995 1.60
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
(MILLIONS)
<S> <C>
1985 2.9
1986 4.3
1987 4.1
1988 4.8
1989 5.3
1990 6.0
1991 8.5
1992 11.2
1993 14.3
1994 15.6
1995 16.7
</TABLE>
RESULTS OF OPERATIONS
Performance Summary
First Western's 1995 net income was a record $16.7 million, increasing
$1.1 million or 7.6%, from 1994's net income of $15.6 million. Earnings per
share in 1995 were $2.13, increasing 7.6% from $1.98 in 1994, based on average
shares outstanding of 7,849,000 in 1995 and 7,855,000 in 1994. During the fourth
quarter of 1995, First Western's Board of Directors declared a three-for-two
stock split effected in the form of a 50% stock dividend. All per share amounts
have been restated to reflect this stock split. Net income was $14.3 million or
$1.83 per share in 1993 based on 7,814,000 average shares outstanding.
44
<PAGE> 28
The increase in net income from 1994 to 1995 was primarily due to a $2.4
million increase in net interest income along with a $2.4 million increase in
other income, partially offset by a $2.8 million increase in other expenses. The
$2.4 million increase in net interest income was the result of a 13.8% increase
in average earning assets, however, this increase was partially offset by a
decline in First Western's net interest margin. The largest components of the
$2.4 million increase in other income were an increase of $606,000 in gains on
sales of other real estate owned and a $578,000 increase in service charges on
deposit accounts. Other expenses increased $2.8 million or 7.8% from 1994 to
1995 with approximately $1.8 million of this increase due to the branch
acquisitions. Excluding the impact of these branches, other expenses would have
increased $900,000 or 2.8% from 1994 to 1995.
The increase in net income from 1993 to 1994 was primarily due to a $1.2
million increase in net interest income along with a $931,000 increase in other
income, partially offset by modest increases in other expenses and the provision
for possible loan losses. Most of the increase in other income from 1993 to 1994
was due to a $706,000 increase in gains on sales of securities.
The following table presents First Western's net income, earnings per
share, return on average assets and return on average equity for the last three
years:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Income
(in thousands) .................. $16,746 $15,560 $14,331
======= ======= =======
Earnings per share ............... $ 2.13 $ 1.98 $ 1.83
======= ======= =======
Return on average assets ......... 1.06% 1.12% 1.08%
======= ======= =======
Return on average equity ......... 14.79% 15.19% 15.74%
======= ======= =======
</TABLE>
First Western's earnings per share increased 7.6% from $1.98 in 1994 to
$2.13 in 1995 due to the 7.6% increase in net income. First Western's weighted
average shares outstanding remained fairly constant from 1994 to 1995 due to its
share repurchase program which offset the shares issued for dividend
reinvestment and option exercises. First Western's return on average assets
decreased six basis points from 1.12% in 1994 to 1.06% in 1995 due primarily to
a decrease in First Western's net interest margin and the effect of the
acquisition of five northeastern Ohio branch offices and related deposits. First
Western's return on average assets increased from 1.08% in 1993 to 1.12% in 1994
due to a decrease in the ratio of other expenses to average assets, offset
partially by a decline in the net interest margin.
First Western's return on average equity decreased from 15.19% in 1994 to
14.79% in 1995 due to First Western's average equity growing at a higher rate,
10.6%, than First Western's net income, 7.6%. The more rapid growth in equity
compared with net income was also the reason for the decline in return on equity
from 15.74% in 1993 to 15.19% in 1994.
<TABLE>
<CAPTION>
RETURN ON AVERAGE ASSETS
First Peer
Western Group
<S> <C> <C>
1991 0.89 0.51
1992 0.97 0.71
1993 1.08 0.98
1994 1.12 1.04
1995 1.06 1.13
</TABLE>
<TABLE>
<CAPTION>
RETURN ON AVERAGE EQUITY
First Peer
Western Group
<S> <C> <C>
1991 14.34 6.64
1992 14.74 9.33
1993 15.74 12.39
1994 15.19 12.25
1995 14.79 12.97
</TABLE>
The peer group statistics were compiled by the Federal Reserve Bank. The
1995 peer group data is as of September 30, 1995 which was the most current
information available.
NET INTEREST INCOME
Net interest income represents the amount by which interest income on
earning assets, including securities and loans, exceeds interest paid on
interest-bearing liabilities, including deposits and other borrowed funds. Net
interest income is the principal source of a financial institution's earnings.
Interest rate fluctuations, as well as changes in the amounts and types of
earning assets and interest bearing liabilities combine to effect net interest
income.
45
<PAGE> 29
Tax-exempt securities and loans carry pretax yields lower than comparable
taxable assets. Therefore, it is more meaningful to analyze net interest income
on a tax-equivalent basis. The tax-equivalent adjustment is based on the federal
corporate income tax rate of 35%. The following table shows the increases over
the last three years in actual and tax-equivalent net interest income:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net interest income, actual ...................... $54,960 $52,554 $51,334
Tax-equivalent adjustment ........................ 2,538 2,492 2,089
------- ------- -------
Net tax-equivalent interest income ............... $57,498 $55,046 $53,423
======= ======= =======
Increase in actual net interest income ........... $ 2,406 $ 1,220 $ 2,948
======= ======= =======
Percentage increase............................... 4.6% 2.4% 6.1%
======= ======= =======
Increase in tax-equivalent interest income ....... $ 2,452 $ 1,623 $ 3,286
======= ======= =======
Percentage increase............................... 4.5% 3.0% 6.6%
======= ======= =======
</TABLE>
First Western's tax-equivalent net interest income increased $2.5 million
or 4.5% from 1994 to 1995 with most of this increase due to a $184.0 million or
13.8% increase in average earning assets, which was partially offset by a
decline in First Western's net interest margin. The growth in average earning
assets was generated by the increase in the loan portfolio as average loans
increased $152.8 million or 17.1% from 1994 to 1995. The largest components of
the increase in average loans were consumer loans and residential mortgage loans
which increased $54.9 million and $44.7 million, respectively, from 1994 to
1995. This growth in average loans was funded by a $161.7 million or 16.3%
increase in average deposits which was the result of the branches acquired along
with several deposit promotions during the first quarter of 1995. The 3.0%
increase in First Western's tax-equivalent net interest income from $53.4
million in 1993 to $55.0 million in 1994 was due to a $70.3 million or 5.5%
increase in average earning assets, partially offset by a decline in First
Western's net interest margin from 4.22% in 1993 to 4.12% in 1994.
The net interest margin or net interest income expressed as a percentage of
average earning assets was 3.78% in 1995 compared with 4.12% in 1994 and 4.22%
in 1993. The decline in the margin during 1995 was due to the cost of funds
increasing 84 basis points while the yield on earning assets only increased 44
basis points. The increase in First Western's cost of funds from 1994 to 1995
was due primarily to the increase in short-term interest rates. This increase in
short-term interest rates had a significant impact on the cost of First
Western's borrowings as the cost of First Western's wholesale borrowed funds
increased 111 basis points from 4.67% in 1994 to 5.78% in 1995. First Western's
certificates of deposit are also sensitive to changes in interest rates and the
average cost of time deposits increased 91 basis points from 4.79% in 1994 to
5.70% in 1995. Time deposits and borrowed funds provided 70.6% of First
Western's interest-bearing funding in 1995, therefore the increase in the rates
paid for these funds had a detrimental impact on First Western's net interest
margin. First Western's yield on earning assets improved during 1995 primarily
due to an increase in the yield on loans from 8.34% in 1994 to 8.72% in 1995 due
to the origination of higher yielding loans and continued repayments of lower
yielding loans originated in prior years. A greater emphasis on adjustable rate
mortgage products, particularly in early 1995, and higher usage of third party
mortgage originators caused a reduction in yields on the mortgage loan portfolio
which also impacted overall loan yields. Competition for loans, particularly
consumer installment and commercial loan products also limited loan yield
increases. The overall impact of the increases in short-term rates during 1995
was more fully realized in the cost of borrowed funds than earning assets due to
the difference in the frequencies of opportunities to reprice. See "Interest
Rate Sensitivity" for a further discussion of the impact of interest rate
changes on First Western's financial performance.
First Western's net interest margin decreased from 4.22% in 1993 to 4.12%
in 1994 due to the yield on earning assets declining twelve basis points while
the cost of funds declined three basis points. The decline in the yield on
earning assets from 1993 to 1994 was primarily due to a decrease in loan yields
which was the result of the lower interest rate environment experienced during
prior years. The impact of a low interest rate environment was not as pronounced
for the cost of funds as an increase in short-term interest rates during 1994
increased the cost of First Western's borrowed funds, offsetting most of the
decreases in the cost of deposits.
To provide a more in-depth analysis of net interest income, the following
average balance sheets and net interest income analysis detail the contribution
of earning assets to overall net interest income and the impact of cost of
funds. The rate/volume analysis shows the portions of the net change in interest
income due to changes in volume or rate. Average yields are calculated using
tax-equivalent interest income. The changes in interest due to both rate and
volume in the rate/volume analysis table have been allocated in proportion to
the absolute amounts of changes in each. Since changes in interest income and
expenses are independently calculated, the totals for the volume and rate
columns are not the sum of the individual lines.
46
<PAGE> 30
AVERAGE BALANCE SHEETS/NET INTEREST INCOME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
----------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- -------- ------- ---------- -------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
with other banks ............... $ 1,624 $ 73 4.51% $ 782 $ 18 2.36% $ 1,234 $ 38 3.12%
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Federal funds sold .............. 2,448 146 5.98 393 16 4.10 744 24 3.25
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Securities available for sale ... 148,295 10,043 6.77 113,769 6,941 6.10 403,107 23,866 5.92
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Investment securities:
U.S. Treasury securities ....... -- -- -- -- -- -- 14,522 829 5.71
U.S. Government agencies
and corporations .............. 39,515 2,320 5.87 38,786 2,209 5.69 21,560 1,322 6.13
States and
political subdivisions ........ 79,215 6,205 7.83 78,957 6,283 7.96 60,284 5,069 8.41
Other securities ............... 10,216 727 7.12 10,425 701 6.73 15,041 1,137 7.56
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total investment
securities ................... 128,946 9,252 7.18 128,168 9,193 7.17 111,407 8,357 7.50
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Mortgage-backed securities ...... 196,121 11,838 6.04 203,113 11,106 5.47 -- -- --
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Loans (net)(2) .................. 1,044,191 91,018 8.72 891,411 74,385 8.34 750,849 65,510 8.72
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total interest-earning assets ... 1,521,625 122,370 8.04 1,337,636 101,659 7.60 1,267,341 97,795 7.72
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Noninterest-earning assets:
Cash and due from banks ........ 31,739 28,961 27,851
Premises and equipment ......... 18,615 18,456 18,930
Other assets ................... 24,270 16,569 20,432
Allowance for
possible loan losses .......... (13,555) (12,114) (11,658)
---------- ---------- ----------
Total assets...................... $1,582,694 $1,389,508 $1,322,896
========== ========== ==========
Interest-bearing sources:
Deposits:
Interest-bearing
demand deposits .............. $ 103,816 1,892 1.82 $ 103,953 2,003 1.93 $ 102,281 2,329 2.28
Savings deposits .............. 179,101 4,119 2.30 175,711 4,136 2.35 168,448 4,615 2.74
Money market deposits ......... 104,308 3,521 3.38 110,751 2,932 2.65 126,220 3,549 2.81
Time deposits ................. 673,140 38,374 5.70 512,598 24,568 4.79 486,616 23,879 4.91
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total deposits ............... 1,060,365 47,906 4.52 903,013 33,639 3.73 883,565 34,372 3.89
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Federal funds purchased
and other short-term
borrowings .................... 24,872 1,473 5.92 21,069 926 4.39 17,194 562 3.27
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Repurchase agreements and
secured lines of credit ....... 128,287 7,557 5.89 119,755 5,240 4.38 94,172 3,363 3.57
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Advances from
the Federal Home
Loan Bank ..................... 127,541 7,196 5.64 121,742 6,086 5.OO 104,237 5,334 5.12
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Long-term debt ................. 9,318 740 7.94 11,009 722 6.56 12,942 741 5.72
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Total interest bearing
sources ....................... 1,350,383 64,872 4.80 1,176,588 46,613 3.96 1,112,110 44,372 3.99
---------- -------- ---- ---------- -------- ---- ---------- ------- ----
Noninterest-bearing sources:
Demand deposits ................ 95,771 91,465 84,371
Other liabilities .............. 23,285 19,023 35,349
Shareholders' equity ........... 113,255 102,432 91,066
---------- ---------- ----------
Total liabilities and
shareholders' equity ............ $1,582,694 $1,389,508 $1,322,896
========== ========== ==========
Net interest rate spread(3) ..... 3.24% 3.64% 3.73%
==== ==== ====
Net interest income ............. $ 57,498 $ 55,046 $53,423
======== ======== =======
Net yield on earning assets
(Net interest margin)(4) ....... 3.78% 4.12% 4.22%
==== ==== ====
<FN>
(1) In order to make pretax income and resultant yields comparable to
taxable-equivalent loans and investments, a tax-equivalent adjustment is
made equally to interest income and income tax expense with no effect on
after tax income. The tax-equivalent adjustment has been computed using a
federal income tax rate of 35% and has increased interest income by $2.5
million, $2.5 million and $2.1 million for the years ended December 31,
1995, 1994 and 1993, respectively.
(2) Loan origination fees net of related origination costs are accreted over the
average lives of the related loans and are considered adjustments to
interest income. These net fees aggregated $295,000, $562,000 and
$757,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
For the purpose of calculating loan yields, average loan balances include
nonaccrual loans with no related interest income.
(3) Represents the difference between the yield on earning assets and the cost
of funds.
(4) Represents tax-equivalent net interest income divided by average
interest-earning assets.
</TABLE>
47
<PAGE> 31
RATE/VOLUME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------------------------------- ---------------------------------
CHANGE FROM 1994 IN INTEREST CHANGE FROM 1993 IN INTEREST
INCOME OR EXPENSE DUE TO INCOME OR EXPENSE DUE TO
-------------------------------- ---------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with other banks ......... $ 30 $ 25 $ 55 $ (12) $ (8) $ (20)
------- ------- ------- -------- ------- --------
Federal funds sold ................................. 120 10 130 (13) 5 (8)
------- ------- ------- -------- ------- --------
Securities available for sale ...................... 2,277 825 3,102 (17,631) 706 (16,925)
------- ------- ------- -------- ------- --------
Investment securities:
U.S. Treasury securities ......................... -- -- -- (829) -- (829)
U.S. Government agencies and corporations ......... 42 69 111 987 (100) 887
States and political subdivisions ................. 20 (98) (78) 1,498 (284) 1,214
Other securities .................................. (14) 40 26 (321) (115) (436)
------- ------- ------- -------- ------- --------
Total investment securities ..................... 55 4 59 1,215 (379) 836
------- ------- ------- -------- ------- --------
Mortgage-backed securities ......................... (392) 1,124 732 11,106 -- 11,106
------- ------- ------- -------- ------- --------
Loans (net)(2) ..................................... 13,200 3,433 16,633 11,830 (2,955) 8,875
------- ------- ------- -------- ------- --------
Total interest income .............................. 14,554 6,157 20,711 5,360 (1,496) 3,864
------- ------- ------- -------- ------- --------
Interest-bearing sources:
Deposits:
Interest-bearing demand deposits .................. (3) (108) (111) 38 (364) (326)
Savings deposits .................................. 79 (96) (17) 192 (671) (479)
Money market deposits ............................. (179) 768 589 (417) (200) (617)
Time deposits ..................................... 8,603 5,203 13,806 1,254 (565) 689
------- ------- ------- -------- ------- --------
Total deposits .................................. 6,423 7,844 14,267 745 (1,478) (733)
------- ------- ------- -------- ------- --------
Federal funds purchased and
other short-term borrowings ....................... 187 360 547 144 220 364
------- ------- ------- -------- ------- --------
Repurchase agreements and secured lines of credit ... 395 1,922 2,317 1,026 851 1,877
------- ------- ------- -------- ------- --------
Advances from the Federal Home Loan Bank ........... 300 810 1,110 878 (126) 752
------- ------- ------- -------- ------- --------
Long-term debt ..................................... (120) 138 18 (119) 100 (19)
------- ------- ------- -------- ------- --------
Total interest expense ............................. 7,485 10,774 18,259 2,556 (315) 2,241
------- ------- ------- -------- ------- --------
Net interest income ............................. $ 7,183 $(4,731) $ 2,452 $ 2,914 $(1,291) $ 1,623
======= ======= ======= ======== ======= ========
<FN>
(1) In order to make pretax income and resultant yields comparable to
taxable-equivalent loans and investments, a tax-equivalent adjustment is
made equally to interest income and to income tax expense with no effect on
after tax income. The tax-equivalent adjustment has been computed using a
federal income tax rate of 35% and has increased interest income by $2.5
million, $2.5 million and $2.1 million for the years ended December 31,
1995, 1994 and 1993, respectively.
(2) Loan origination fees net of related origination costs are accredited over
the average lives of the related loans and are considered adjustments to
interest income. These net fees aggregated $295,000, $562,000 and $757,000
for the years ended December 31, 1995, 1994 and 1993, respectively. For the
purpose of calculating loan yields, average loan balances include nonaccrual
loans with no related interest income.
</TABLE>
Provision for Possible Loan Losses
The provision for possible loan losses was $4.0 million in 1995 compared
with $3.6 million in 1994 and $3.4 million in 1993. Net charge-offs in 1995 were
$2.8 million or 0.27% of average loans compared with $1.8 million or 0.20% in
1994 and $3.2 million or 0.42% in 1993. The increase in net charge-offs from
1994 to 1995 was primarily due to an $838,000 increase in net consumer loan
charge-offs with this increase due in part to an increase in the consumer loan
portfolio from 1994 to 1995. The decrease in net charge-offs in 1994 compared
with 1993 was due to a $1.4 million decrease in commercial loan charge-offs.
During 1993, First Western charged-off two commercial credits. The subsequent
disposition of these two commercial credits during 1994 led to recoveries
totaling $390,000 in 1994.
48
<PAGE> 32
First Western's net charge-offs by loan type and changes in the allowance
for possible loan losses for each of the past five years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses
at beginning of period .............................. $12,943 $11,102 $10,846 $ 8,876 $6,870
------- ------- ------- ------- ------
Charge-offs:
Commercial, financial and agricultural loans ........ 44 123 1,520 471 340
Real estate construction loans ...................... -- -- 133 -- --
Real estate mortgage loans .......................... 18 206 275 118 101
Installment loans.................................... 3,005 2,149 1,515 1,404 995
------- ------- ------- ------- ------
Total charge-offs................................ 3,067 2,478 3,443 1,993 1,436
------- ------- ------- ------- ------
Recoveries:
Commercial, financial and agricultural loans ........ 88 390 101 27 9
Real estate construction loans ...................... -- -- -- -- --
Real estate mortgage loans .......................... 30 125 59 31 132
Installment loans.................................... 172 154 104 150 91
------- ------- ------- ------- ------
Total recoveries ................................ 290 669 264 208 232
------- ------- ------- ------- ------
Net charge-offs ...................................... 2,777 1,809 3,179 1,785 1,204
------- ------- ------- ------- ------
Provision for possible loan losses ................... 3,982 3,650 3,435 3,755 2,710
------- ------- ------- ------- ------
Allowance for possible loan losses at date
of acquisition ...................................... -- -- -- -- 500
------- ------- ------- ------- ------
Allowance for possible loan losses at end of period .. $14,148 $12,943 $11,102 $10,846 $8,876
======= ======= ======= ======= ======
Ratio of net charge-offs to average loans ............ 0.27% 0.20% 0.42% 0.25% 0.20%
==== ==== ==== ==== ====
</TABLE>
The provision for loan losses less net charge-offs added $1.2 million to
the allowance for possible loan losses, which increased to $14.1 million at
year-end 1995. See "Financial Condition - Loan Quality" for further discussion.
<TABLE>
<CAPTION>
NET CHARGE-OFFS
AS A PERCENT OF AVERAGE LOANS
First Peer
Western Group
<S> <C> <C>
1991 0.20 0.89
1992 0.25 0.80
1993 0.42 0.54
1994 0.20 0.25
1995 0.27 0.23
</TABLE>
<TABLE>
<CAPTION>
PROVISION FOR POSSIBLE LOAN LOSSES
AS A PERCENT OF NET CHARGE-OFFS
First Peer
Western Group
<S> <C> <C>
1991 225 143
1992 210 138
1993 108 179
1994 211 132
1995 143 171
</TABLE>
Other Income
Other income increased $2.4 million or 27.4% from $8.6 million in 1994 to
$11.0 million in 1995 with most of this increase due to increases in service
charges on deposit accounts along with increases in gains on sales of other real
estate owned and gains on loan sales. Total other income increased $931,000 from
$7.7 million in 1993 to $8.6 million in 1994 due primarily to an increase in net
securities gains.
Trust fees decreased $20,000 or 1.0% from 1994 to 1995 due to a decrease in
trust termination fees. The $132,000 or 7.1% increase in trust fees from 1993
to 1994 was due primarily to increased estate and termination fees.
Service charges on deposit accounts increased $578,000 or 21.7% from $2.7
million in 1994 to $3.2 million in 1995. The increase in service charges on
deposit accounts reflects an increase in the service charge fee schedule
implemented by First Western during the first quarter of 1995 and the addition
of approximately $96.7 million of deposits acquired with the five branch
offices. Service charges on deposit accounts decreased $84,000 or 3.1% from 1993
to 1994 due to a change in the method used by First Western in assessing service
charges related to minimum balances.
49
<PAGE> 33
Credit card program fees increased $164,000 or 12.8% reflecting the growth
of First Western's credit card programs. First Western's average balance of
credit card loans increased 20.6% from 1994 to 1995. Fees earned on credit card
programs decreased $189,000 or 12.9% from 1993 to 1994 with this decrease in
fees due to First Western eliminating the annual fees for maintaining a credit
card during the first quarter of 1994.
Net securities gains were $1.6 million in 1995, increasing $234,000 or
17.7%, from $1.3 million for 1994. The sale of most of the securities created
by the mortgage loan securitization generated gains of $830,000 in 1995. Net
securities gains were $1.3 million in 1994 compared with $615,000 in 1993 as
First Western sold securities available for sale during the first half of 1994
in response to anticipated interest rate increases and also to provide funds for
loan growth. As of December 31, 1995, investment securities and mortgage-backed
securities had gross unrealized gains of $1.5 million and gross unrealized
losses of $1.7 million and securities available for sale had gross unrealized
gains of $4.3 million and gross unrealized losses of $473,000. Unrealized losses
as of December 31, 1995 generally were due to interest rate fluctuations and not
to credit deficiencies. See "Financial Condition - Securities Available for
Sale and Investment Securities" for further discussion.
Other operating income increased $1.4 million or 102.2% from $1.4 million
in 1994 to $2.8 million in 1995 with most of this increase due to gains on sales
of other real estate owned and gains on loan sales. Sales of other real estate
owned generated gains of $594,000 during 1995 compared with a loss of $12,000
during 1994. Most of the gains on other real estate owned were realized on the
sale of certain commercial loan properties that had been foreclosed on in prior
years. First Western realized net gains on loan sales of $229,000 during 1995
compared with losses of $32,000 during 1994 with most of the 1995 gain resulting
from First Western selling its portfolio of student loans. Other operating
income also increased from 1994 to 1995 due to increased commissions on sales of
mutual funds and annuities, increased Automated Teller Machine ("ATM") card fees
and increased penalties on the early withdrawal of certificates of deposit.
Other operating income increased $366,000 or 35.9% from $1.0 million in 1993 to
$1.4 million in 1994 with this increase provided by ATM card fees instituted
during the first half of 1994 and also due to an increase in customer check
commissions and increased credit life commissions.
Other Expenses
Other expenses were $38.0 million in 1995, increasing $2.7 million or 7.8%
from $35.3 million in 1994, with the branches acquired during the first quarter
of 1995 accounting for approximately $1.8 million of the increase. Excluding the
expenses of the acquired branches which includes $640,000 of core deposit
intangible amortization, other expenses would have increased approximately
$900,000 or 2.8% from 1994 to 1995 with most of this increase resulting from
increased personnel related costs. Other expenses increased $332,000 or 1.0%
from $34.9 million in 1993 to $35.3 million in 1994 with this relatively modest
increase in other expenses due to the impact of a restructuring program
completed by First Western during 1993.
The efficiency ratio or other expenses divided by the sum of tax-equivalent
interest income and other income measures the relationship of expenses to
income. First Western's efficiency ratio was 56.8% in 1995 compared with 56.6%
in 1994 and 57.7% in 1993. First Western's net overhead ratio or other expenses
less other income divided by total average assets was 1.86% in 1995, improving
from 2.01% in 1994 and 2.10% in 1993. The improvement in First Western's net
overhead ratio in 1995 reflects a increase in average assets, primarily
through loan growth and the branch acquisitions, with a lesser increase in net
overhead.
<TABLE>
<CAPTION>
EFFICIENCY RATIO
First Peer
Western Group
<S> <C> <C>
1991 63.2 69.0
1992 58.9 68.0
1993 57.7 66.3
1994 56.6 63.4
1995 56.8 61.2
</TABLE>
<TABLE>
<CAPTION>
NET OVERHEAD TO AVERAGE ASSETS
First Peer
Western Group
<S> <C> <C>
1991 2.27 2.37
1992 2.31 2.52
1993 2.10 2.48
1994 2.01 2.39
1995 1.86 2.20
</TABLE>
50
<PAGE> 34
First Western's salaries and employee benefits expense increased a combined
$1.2 million or 7.5% from 1994 to 1995. Approximately 40% of the increase in
salaries and employee benefits expense was attributable to the additional
employees resulting from the five branch offices acquired by First Western.
Salaries and employee benefits expense also increased due to normal salary and
wage increases and additional employees that were added to enhance the retail
functions and to originate and service loans. Salaries and employee benefits
expense decreased a combined $399,000 or 2.4% from $17.0 million in 1993 to
$16.6 million in 1994 due to decreases in certain employee benefit costs such as
medical insurance and reductions in First Western's workforce as a result of
the restructuring program completed in 1993. First Western had 602 full-time
equivalent employees at December 31, 1995, compared with 551 and 521 at December
31, 1994 and 1993, respectively.
Expenses related to operating the branches and other facilities, including
all equipment, occupancy and depreciation charges, were $5.1 million in 1995,
increasing $200,000 or 5.3% from $4.9 million in 1994. The acquired branches
resulted in most of the increase in occupancy and equipment expenses. Occupancy
and equipment expense was approximately the same for both 1994 and 1993.
Federal deposit insurance expense decreased $372,000 or 16.7% from $2.2
million for 1994 to $1.9 million for 1995. This decrease was attributable to a
reduction in the insurance rates paid for deposits insured by the Federal
Deposit Insurance Corporation's ("FDIC") Bank Insurance Fund ("BIF"). The impact
of this insurance rate decrease was partially offset by an increase in First
Western's insured deposits. The BIF insurance rates decreased from $0.23 per
$100 of deposits to $0.04, retroactive to June 1995. This decrease plus a
further decrease to a zero premium as of January 1, 1996 will also result in a
reduction in First Western's FDIC insurance expense for deposits insured by the
BIF going forward. Approximately 55% of First Western's deposits are insured by
the BIF. The 1996 decrease in insurance expense for the deposits insured by the
BIF could be offset by possible rate increases or special assessments by the
Savings Association Insurance Fund ("SAIF") which insures the remaining 45% of
First Western's deposits. There are currently several proposals 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 SAIF insured deposits is
adopted it could result in a one-time, pre-tax charge to First Western of
approximately $4.2 million at the current proposed special assessment rates of
$0.85 per $100 of deposits insured by the SAIF, with a subsequent rate cut in
the semi-annual SAIF assessment. First Western's deposit insurance expense
increased $169,000 or 8.2% from 1993 to 1994 as a result of First Western's
savings association subsidiary receiving refunds from the Federal Savings and
Loan Insurance Corporation during 1993 which reduced the savings association's
deposit insurance expense in 1993.
Supplies expense increased $258,000 or 19.9% with approximately $92,000 of
this increase attributable to the new branch offices and the remainder of the
increase primarily the result of increased costs for paper products. Supplies
expense decreased $57,000 or 4.2% from 1993 to 1994 as supplies expense was high
in 1993 as a result of the name changes of the subsidiaries that took place
during 1993.
Advertising and promotion expense increased $109,000 or 8.1% primarily as
a result of promotions related to the branch offices acquired during the first
quarter of 1995. During 1995, First Western shifted its advertising focus from
credit card solicitation and television advertising for loan products to more
advertising of retail products through newspaper and billboard advertising.
Advertising and promotion expense increased $279,000 or 26.1% from 1993 to 1994
as a result of increased credit card solicitation, advertising for special
residential mortgage loan programs and a loan by telephone program.
Outside examination, legal fees and consulting expense increased $62,000 or
4.6% from 1994 to 1995 primarily as a result of increased legal fees to defend
First Western in various legal actions. The pending lawsuits and settlements
reached during 1995 were not material to the consolidated financial statements.
First Western's expense for outside examination, legal fees and consulting
expense decreased $125,000 or 8.5% from 1993 to 1994 primarily due to a large
consulting project related to First Western's early retirement and restructuring
program completed in 1993.
Outside data processing services expense increased $174,000 or 14.2% from
$1.2 million in 1994 to $1.4 million in 1995 with $161,000 of this increase
due to increased expenses for credit card processing. First Western's data
processing expense increased $53,000 or 4.5% from 1993 to 1994 primarily due to
First Western using a third-party servicer for ATM data processing beginning in
the first quarter of 1994.
Other operating expenses increased $1.0 million from $6.4 million in 1994
to $7.4 million in 1995. Approximately $735,000 of this increase was due to the
acquired branches. First Western paid a premium of $7.4 million for the acquired
branches and the amortization of the resulting intangible assets accounts for
most of the other operating expense associated with the acquired branches for
1995. Other operating expense sals on increased from 1994 to 1995 due to a
$128,000 or 14.1% increase in postage and a $106,000 or 11.7% increase in
telephone expense. Other operating expenses increased $401,000 or 6.7% from 1993
to 1994 with $153,000 of this increase due to an increase in Pennsylvania
capital stock tax expense resulting from a tax credit reducing First Western's
1993 capital stock tax expense. Other operating expenses also increased from
1993 to 1994 as a result of First Western implementing an automated voice
response system in mid-1993.
51
<PAGE> 35
Income Taxes
First Western's income tax expense was $7.2 million in 1995, a 7.6%
increase over $6.7 million in 1994. First Western's income tax expense in 1995
consisted of federal income taxes of $6.8 million and, with respect to First
Western Bank, F.S.B., state income taxes of $413,000. The increase in income
taxes from 1994 to 1995 was due to a 7.6% increase in pretax income. First
Western's income tax expense increased $375,000 or 5.9% from 1993 to 1994 as a
result of a 7.8% increase in pretax earnings offset partially by an increase in
tax-exempt income. First Western's effective tax rate in 1995 was 30.1%,
compared with 30.2% in 1994 and 30.7% in 1993.
First Western Bank, F.S.B. qualifies under special income tax rules
applicable to savings and loan associations under which it is entitled to a
special bad debt deduction. First Western Bank, F.S.B. is not required to
recapture its loan loss reserve for tax purposes ($8.2 million at December 31,
1995 compared with a book reserve of $4.2 million) as long as it remains a
domestic building and loan association under the Internal Revenue Code.
There is currently a proposal in Congress, connected with deposit insurance
reform, that would require savings associations to change their method of
accounting for bad debts for income tax purposes. This proposal would also
eliminate the recapture of tax deductions in excess of actual losses that
savings associations benefited from in prior years. If enacted, this proposed
legislation could eliminate a potential charge of approximately $2.2 million in
income taxes that would have been paid if First Western Bank, F.S.B. was
converted into a bank.
First Western adopted Statement of Accounting Standards No. 109,
"Accounting for Income Taxes" effective January 1, 1993. The cumulative effect
of adopting Statement No. 109 on First Western's financial statements was not
material.
Impact of Inflation
The effects of inflation on the local economy and on First Western's
operating results have been relatively modest for the past several years. Since
substantially all of First Western's assets and liabilities are monetary in
nature, such as cash, investments, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. First Western tries
to control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "Interest Rate
Sensitivity" for further discussion.
FINANCIAL CONDITION
First Western's total assets increased $148.7 million or 10.2% from $1.455
billion at December 31, 1994 to $1.603 billion at December 31, 1995. The growth
in assets as measured from year-end 1994 to year-end 1995 occurred primarily in
the portfolio of securities available for sale which increased $179.3 million.
Loans and loans available for sale increased a combined $49.1 million during
1995, however, this is after the securitization of $113.7 million of residential
mortgage loans and the sale of $74.8 million of residential mortgage loans,
automobile loans and student loans. The proceeds from the loan securitizations
and sales were primarily reinvested in securities available for sale. The asset
growth during 1995 was funded by deposits which increased $148.3 million during
1995 with $96.7 million of the increase resulting from the branch acquisitions
and the remainder primarily the result of increased time deposits generated by
special promotions run during the first quarter of 1995. Average total assets
increased $193.2 million or 13.9% from $1.390 billion for 1994 to $1.583 billion
for 1995 with most of this increase occurring in loans.
Loan Portfolio
Net loans increased $45.5 million or 4.7% from $978.6 million at December
31, 1994 to $1.024 billion at December 31, 1995. During 1995, First Western
experienced strong growth in all loan categories, however, First Western took
several steps during 1995 to reposition its loan portfolio which resulted in
several loan sales and securitizations.
First Western's commercial, financial and agricultural loans increased
$21.0 million or 21.1% during 1995 and commercial mortgage loans increased $14.5
million or 11.4%. The increase in commercial loans and commercial mortgage loans
during 1995 was due to First Western increasing the territories served by
commercial lenders beginning in 1994 and more aggressive loan officer calling
efforts.
52
<PAGE> 36
First Western's portfolio of residential mortgage loans decreased slightly
from December 31, 1994 to December 31, 1995, primarily due to a $113.7 million
mortgage loan securitization that took place during the fourth quarter of 1995.
Excluding the impact of the fourth quarter loan securitization and other
mortgage loan sales and purchases, First Western's portfolio of residential
mortgage loans would have increased approximately $138.5 million in 1995. During
1995, First Western increased the use of third-party originators as an
additional source for new loans in western Pennsylvania markets where First
Western does not have retail offices and also increased the number of First
Western's in-house loan originators dedicated to mortgage lending. Included in
the $370.3 million of one-to-four family residential mortgage loans at December
31, 1995 are approximately $92.4 million of purchased mortgage loans serviced by
others. These purchased loans are secured by real estate outside of First
Western's primary market areas with no significant concentrations in any state
or region.
First Western's installment loans decreased $3.8 million or 1.3% during
1995 due to First Western selling approximately $12.7 million of student loans
during the first half of 1995 and also due to the sale of approximately $25.3
million of automobile loans during the fourth quarter of 1995. First Western
decided to sell its portfolio of student loans and First Western does not intend
to hold student loans in the future due to the difficulties involved in
administering government requirements for the student loan program. The
automobile loan sale was completed during the fourth quarter of 1995 in order to
lower the amount of consumer loans held at the savings association subsidiary
and provide First Western with a new source of liquidity for potential future
installment loan securitizations or sales.
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AMOUNTS OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floor plan loans ........... $ 26,775 $ 25,229 $ 19,300 $ 18,300 $ 19,165
Loans to municipalities ............... 13,893 10,307 8,423 10,577 11,765
Other commercial loans................. 79,491 63,662 54,483 49,370 41,482
---------- -------- -------- -------- --------
Subtotal ........................... 120,159 99,198 82,206 78,247 72,412
---------- -------- -------- -------- --------
Real estate-construction ................ 24,501 18,721 13,528 13,022 20,095
---------- -------- -------- -------- --------
Real estate-mortgage:
1-4 family residential ................ 370,276 370,582 331,104 275,952 301,846
Multi-family residential .............. 35,088 30,923 25,693 23,736 10,186
Home equity............................ 41,417 37,129 36,520 35,180 28,855
Commercial and other .................. 141,667 127,176 99,913 83,427 78,947
---------- -------- -------- -------- --------
Subtotal ........................... 588,448 565,810 493,230 418,295 419,834
---------- -------- -------- -------- --------
Installment:
Credit cards .......................... 45,226 39,412 32,144 30,242 23,257
Installment and other.................. 245,772 255,421 194,534 178,268 148,771
---------- -------- -------- -------- --------
Subtotal............................ 290,998 294,833 226,678 208,510 172,028
---------- -------- -------- -------- --------
Total .............................. $1,024,106 $978,562 $815,642 $718,074 $684,369
========== ======== ======== ======== ========
PERCENT OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floorplan loans ............ 2.6% 2.6% 2.4% 2.5% 2.8%
Loans to municipalities ............... 1.4 1.1 1.0 1.5 1.7
Other commercial loans................. 7.7 6.5 6.7 6.9 6.1
---------- -------- -------- -------- --------
Subtotal ........................... 11.7 10.2 10.1 10.9 10.6
---------- -------- -------- -------- --------
Real estate-construction ................ 2.4 1.9 1.7 1.8 2.9
---------- -------- -------- -------- --------
Real estate-mortgage:
1-4 family residential ................ 36.2 37.8 40.6 38.4 44.1
Multi-family residential .............. 3.4 3.2 3.2 3.3 1.5
Home equity............................ 4.0 3.8 4.5 4.9 4.2
Commercial and other .................. 13.9 13.0 12.2 11.6 11.5
---------- -------- -------- -------- --------
Subtotal ........................... 57.5 57.8 60.5 58.2 61.3
---------- -------- -------- -------- --------
Installment:
Credit cards .......................... 4.4 4.0 3.9 4.2 3.4
Installment and other.................. 24.0 26.1 23.8 24.9 21.8
---------- -------- -------- -------- --------
Subtotal ........................... 28.4 30.1 27.7 29.1 25.2
---------- -------- -------- -------- --------
Total .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
========== ======== ======== ======== ========
</TABLE>
53
<PAGE> 37
Loan Quality
First Western has several policies and procedures in place to assist in
maintaining and monitoring the overall quality of its loan portfolio. First
Western has established underwriting guidelines to be followed by its banking
subsidiaries. In addition, a formal, ongoing loan review program (discussed
below), which concentrates principally on commercial credits, has been
established to help monitor the loan portfolios of the banking subsidiaries.
First Western also regularly monitors its delinquency and nonperforming levels
for any negative or adverse trends and particularly monitors credits which have
total exposure of $1.5 million or more. However, there can be no assurance that
First Western's loan portfolio will not become subject to increasing pressures
from deteriorating borrower credit due to general economic conditions.
First Western's delinquent loans, nonaccrual loans and nonperforming assets
consisted of the following amounts for the last five years:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ...................... $10,420 $7,370 $7,621 $ 9,534 $10,552
Loans past due 90 days or more .................... 2,648 1,870 1,960 1,029 1,048
------- ------ ------ ------- -------
Total loan delinquencies ...................... $13,068 $9,240 $9,581 $10,563 $11,600
======= ====== ====== ======= =======
Nonaccrual loans ................................... $ 4,959 $2,875 $5,186 $ 8,715 $ 3,459
Other real estate owned ............................ 165 1,185 1,715 1,158 1,299
------- ------ ------ ------- -------
Total nonperforming assets ......................... $ 5,124 $4,060 $6,901 $ 9,873 $ 4,758
======= ====== ====== ======= =======
Total nonperforming assets and loans
past due 90 days or more .......................... $ 7,772 $5,930 $8,861 $10,902 $ 5,806
======= ====== ====== ======= =======
Nonaccrual loans to total loans .................... 0.48% 0.29% 0.64% 1.21% 0.51%
Nonperforming assets to total loans and other
real estate owned ................................. 0.50% 0.41% 0.84% 1.37% 0.69%
Nonperforming assets to total assets ............... 0.32% 0.28% 0.50% 0.80% 0.44%
Nonperforming assets and loans past due
90 days or more to total assets ................... 0.48% 0.41% 0.64% 0.88% 0.53%
Nonaccrual loans and loans past due
90 days or more to total loans .................... 0.74% 0.48% 0.88% 1.36% 0.66%
Allowance for possible loan losses to
nonaccrual loans .................................. 285.31% 450.16% 214.07% 124.45% 256.61%
Allowance for possible loan losses to loans
past due 90 days or more and nonaccrual loans ..... 185.98% 272.78% 155.36% 111.31% 196.94%
Allowance for possible loan losses
to total loans .................................... 1.38% 1.32% 1.36% 1.51% 1.30%
</TABLE>
First Western's total delinquencies increased $3.8 million or 41.4% from
December 31, 1994 to December 31, 1995 with 65% of this increase due to an
increase in installment loans past due 30-89 days. This increase in installment
loan delinquencies was due in part to First Western expanding its indirect
lending business over the past year and also due to general economic factors.
First Western's nonaccrual loans increased $2.1 million from $2.9 million at
December 31, 1994 to $5.0 million at December 31, 1995 due to First Western
placing several commercial loans on nonaccrual status during 1995 and also due
to an increase in mortgage loans serviced by others that have been placed on
nonaccrual status. The decrease in other real estate owned during 1995 was due
to the liquidation of several commercial properties that had been foreclosed on
in prior years. As a result of the increase in nonaccrual loans during 1995,
First Western's ratio of nonperforming assets to total assets increased to 0.32%
at December 31, 1995 compared with 0.28% at December 31, 1994. The coverage
ratio for the allowance for possible loan losses to nonaccrual loans decreased
from 450.16% at December 31, 1994 to 285.31% at December 31, 1995 due to the
increase in nonaccrual loans during 1995.
54
<PAGE> 38
Commercial and mortgage loans are placed on nonaccrual status when, in the
opinion of management, collection of principal or interest is doubtful and the
loan is not both well secured and in the process of collection. Installment and
credit card loans are generally charged off between 90 and 180 days past due or
when deemed uncollectible in the opinion of management. Cash payments received
while a loan is classified as nonaccrual are recorded as a reduction to
principal as long as doubt exists as to collection.
First Western maintains a loan review program to evaluate the credit risk
in its commercial loan portfolio for substantially all commercial loans and
commercial mortgage loans greater than $100,000. Through the loan review
process, First Western maintains a classified account list which, along with the
nonperforming and delinquency lists of loans, helps management assess the
overall quality of the loan portfolio and the adequacy of the allowance for
possible loan losses. Loans classified as "substandard" are those loans with
clear and defined weaknesses such as highly leveraged positions, unfavorable
financial ratios, uncertain repayment sources or poor financial condition, which
may jeopardize recoverability of the debt. Loans classified as "doubtful" are
those loans which have characteristics similar to the substandard accounts but
with an increased risk that a loss may occur, or at least a portion of the loan
may require a charge-off if liquidated at present. Both substandard and doubtful
loans include some loans that are delinquent or on nonaccrual status. As of
December 31, 1995 substandard and doubtful loans totaled $9.3 million, of which
$3.0 million were loans not designated as delinquent or nonaccrual compared with
$9.4 million and $7.4 million at December 31, 1994, respectively.
<TABLE>
<CAPTION>
NONPERFORMING LOANS
AS A PERCENT OF LOANS
First Peer
Western Group
<S> <C> <C>
1991 0.66 2.49
1992 1.36 2.19
1993 0.88 1.39
1994 0.48 0.98
1995 0.74 1.03
</TABLE>
<TABLE>
<CAPTION>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
AS A PERCENT OF NONPERFORMING LOANS
First Peer
Western Group
<S> <C> <C>
1991 197 125
1992 111 161
1993 155 214
1994 273 235
1995 186 224
</TABLE>
In addition to its classified account list and delinquency list of loans,
First Western maintains a separate list of "Other Loans Especially Mentioned"
("OLEM") which further aids First Western in monitoring its loan portfolio.
These OLEM loans do not have all the characteristics of a classified loan
(substandard or doubtful) but do show potentially weak elements as compared with
those of a satisfactory credit. First Western reviews these loans in assessing
the adequacy of the allowance for possible loan losses. Substantially all of the
loans on the OLEM list as of December 31, 1995 are current and paying in
accordance with loan terms. As of December 31, 1995, OLEM list loans totaled
$7.1 million compared with $8.1 million at December 31, 1994.
In order to determine the adequacy of the allowance for possible loan
losses, management considers the risk classifications 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 non classified loans and smaller loans not individually reviewed, management
considers historical charge-off experience in determining the amounts 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 for possible loan losses is maintained at the level
determined according to this methodology by charging a provision to operations.
55
<PAGE> 39
First Western believes that the allowance for possible loan losses of $14.1
million at December 31, 1995 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 December 31, 1995.
Investment Securities and Securities Available for Sale
First Western's portfolio of securities available for sale increased $179.3
million during 1995 due to the purchase of securities with funds provided by the
branch acquisitions and also from the loan securitization and sales. Securities
available for sale also increased during 1995 due to the transfer, as of
December 31, 1995, of securities with an amortized cost of $49.2 million from
held to maturity to available for sale. This transfer was made in accordance
with the "Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities" issued by FASB during 1995.
Securities available for sale also increased during 1995 due to a $7.2 million
appreciation in market value, with the securities transferred as of December 31,
1995 accounting for $651,000 of that increase in market value.
The portfolio of investment securities and mortgage-backed securities
decreased $76.8 million or 22.8% during 1995 with most of this decrease due to
the transfer of securities to available for sale as of December 31, 1995. First
Western's portfolio of investment securities and mortgage-backed securities
classified as held to maturity also decreased due to maturities and paydowns,
net of purchases.
The decline in long-term interest rates during 1995 resulted in an increase
in the market values of First Western's securities. At December 31, 1995, the
market value of First Western's portfolio of investment securities and
mortgage-backed securities held to maturity was $259.4 million, or $179,000 or
0.1% below the amortized cost of these securities of $259.6 million, compared
with an unrealized loss of $19.4 million at December 31, 1994. The portfolio of
securities available for sale had an unrealized gain of $3.8 million or 1.6% at
December 31, 1995 compared with an unrealized loss of $3.4 million or 4.7% at
December 31, 1994. The increase in the market value of the portfolio of
securities available for sale resulted in a $4.7 million increase in
shareholders' equity during 1995, net of related income tax effects.
The following tables present the contractual maturities of investment
securities and securities available for sale and their weighted average yields
as of December 31, 1995, on a tax-equivalent basis using a 35% federal income
tax rate. The maturity distribution of mortgage-backed securities is based on
the weighted average lives of these securities.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES:
<TABLE>
<CAPTION>
AFTER AFTER
1 BUT 5 BUT WEIGHTED
WITHIN WITHIN WITHIN AFTER AVERAGE
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL YIELD
------ ------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities......... $ -- $ 84,939 $43,646 $16,965 $145,550 5.77%
U.S. Government agencies
and corporations.................. 7,359 22,232 -- -- 29,591 5.63%
Obligations of states and
political subdivisions ........... 8,232 64,293 10,473 225 83,223 7.74%
Other securities .................. 501 275 425 -- 1,201 8.27%
------- -------- ------- ------- -------- ----
Total ............................. $16,092 $171,739 $54,544 $17,190 $259,565 6.40%
======= ======== ======= ======= ======== ====
Weighted average yield ............ 7.27% 6.55% 6.05% 5.07% 6.40%
==== ==== ==== ==== ====
</TABLE>
56
<PAGE> 40
SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
AFTER AFTER
1 BUT 5 BUT WEIGHTED
WITHIN WITHIN WITHIN AFTER AVERAGE
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL YIELD
------ ------- -------- -------- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities ....... $ 2,014 $ 50 $ -- $ -- $ 2,064 6.94%
U.S. Government agencies
and corporations .............. 29,852 -- -- -- 29,852 7.75%
Mortgage-backed securities ..... 612 137,070 44,678 8,169 190,529 7.20%
Other securities, including
corporate bonds and notes ..... -- 497 -- 24,038 24,535 5.09%
------- -------- ------- ------- -------- ----
Total .......................... $32,478 $137,617 $44,678 $32,207 $246,980 7.06%
======= ======== ======= ======= ======== ====
Weighted average yield ......... 7.69% 7.44% 6.80% 5.17% 7.06%
==== ==== ==== ==== ====
</TABLE>
Deposits
First Western's total deposits increased $148.3 million or 14.4% during
1995. Approximately $96.7 million of this increase was attributable to the
branches acquired in 1995. First Western also experienced growth in time
deposits as several certificate of deposit promotions were run during the first
quarter of 1995 to promote the recently acquired branches. The increase in
short-term interest rates during 1995 increased the rates that First Western
paid for certificates of deposit. This increase in interest rates resulted in a
widening in the difference between rates paid for time deposits and rates paid
for savings and money market deposits. As a result of these interest rate
changes, First Western experienced a shift in deposit balances from savings and
money market accounts to time deposits. First Western's time deposits increased
$144.1 million during 1995 with the acquired branches contributing
approximately $53.7 million of this increase. Time deposits of $100,000 or more
increased $16.8 million during 1995 with most of this increase due to
short-term deposits from a commercial customer. Time deposits constituted 58.8%
of total deposits at December 31, 1995, compared with 53.3% at December 31,
1994.
First Western's banking subsidiaries primarily rely on their retail deposit
bases to fund their credit needs. Deposits provided 73.0% of First Western's
funding during 1995 based on average balances of deposits and total assets.
First Western's total average deposits during 1995 were $1.156 billion,
increasing $161.6 million or 16.2% from $994.5 million in 1994.
<TABLE>
<CAPTION>
DEPOSIT SUMMARY
DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ----------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-
bearing
demand
deposits ........... $ 102,864 8.7% $ 97,242 9.4% $ 94,464 9.8% $ 89,831 9.3% $ 77,168 8.3%
Interest-
bearing
demand
deposits ........... 110,703 9.4 101,659 9.9 102,011 10.6 99,885 10.4 79,992 8.6
Money market
deposits ........... 98,605 8.4 113,914 11.1 104,483 10.9 144,985 15.1 115,735 12.4
Savings deposits .... 172,837 14.7 168,039 16.3 174,174 18.1 140,469 14.6 122,415 13.1
Time deposits less
than $100,000 ....... 625,865 53.1 498,566 48.4 456,392 47.5 442,590 46.1 474,362 50.8
Time deposits of
$100,000 or more ... 66,809 5.7 49,989 4.9 29,616 3.1 43,463 4.5 63,882 6.8
---------- ----- ---------- ----- -------- ----- -------- ----- -------- -----
Total deposits ...... $1,177,683 100.0% $1,029,409 100.0% $961,140 100.0% $961,223 100.0% $933,554 100.0%
========== ===== ========== ===== ======== ===== ======== ===== ======== =====
</TABLE>
57
<PAGE> 41
Borrowed Funds
First Western's subsidiaries use various funding sources other than
deposits to provide the funds necessary for the loan and securities portfolios.
First Western's total borrowed funds decreased $54.5 million or 18.7% during
1995 from $291.4 million at December 31, 1994 to $236.9 million at December
31, 1995 due to the funds provided by the increase in deposits.
First Western's borrowings with original maturities of one year or less
include overnight advances from the Federal Home Loan Bank, repurchase
agreements, customer repurchase agreements, and federal funds purchased. First
Western's borrowings with an original maturity of one year or less and rates
paid are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------- --------------------- -----------------
(DOLLARS IN THOUSANDS)
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ----- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
At year-end ............................. $ 86,536 5.96% $125,788 6.23% $129,468 3.32%
Average during year ..................... 150,433 6.11 103,305 4.41 80,902 3.28
Maximum month-end balance ............... 206,430 6.17 127,329 3.50 131,462 3.23
</TABLE>
First Western Bank, N.A. and First Western Bank, F.S.B. are members of the
Federal Home Loan Bank of Pittsburgh, and as such they have the ability to
obtain advances from the FHLB. At December 31, 1995, First Western had advances
from the FHLB (original maturity in excess of one year) of $111.7 million with
a weighted average rate of 5.59% compared with advances of $128.1 million at
December 31, 1994. The advances from the FHLB are secured by certain qualifying
residential mortgage loans, stock in the FHLB, investment securities and
securities available for sale.
First Western had long-term debt (excluding borrowings from subsidiaries)
at the holding company totaling $8.1 million at December 31, 1995 compared with
$10.3 million at December 31, 1994, with the decrease resulting from normal
principal repayments.
Interest Rate Sensitivity
First Western has an asset/liability management committee which manages the
risks associated with changing interest rates and the resulting impact on net
interest income. The management of interest rate risk at First Western is
performed (i) by analyzing the maturity and repricing relationships between
interest earning assets and interest bearing liabilities at specific points in
time ("GAP") and (ii) by using a simulation model which analyzes the effects of
interest rate changes on net interest income over specific periods of time by
projecting the performance of the mix of assets and liabilities in varied
interest rate environments.
The tables below present First Western's GAP at December 31, 1995 and 1994.
In preparing these tables, management has anticipated prepayments for
mortgage-backed securities and mortgage loans according to standard industry
prepayment assumptions in effect at year-end. Money market deposits and interest
bearing demand accounts have been included in the under three months category.
Assets with daily floating rates are included in the under three months
category. Assets and liabilities are included in the table based on their
maturities or period of first repricing, subject to the foregoing assumptions.
58
<PAGE> 42
<TABLE>
<CAPTION>
INSTRUMENTS MATURING OR REPRICING
---------------------------------------------------------------------------------
UNDER THREE SIX TO ONE TO OVER
THREE TO SIX TWELVE FIVE FIVE
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
--------- --------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Interest-bearing deposits in
other banks ................. $ 2,124 $ -- $ -- $ -- $ -- $ 2,124
Securities available for sale... 35,728 89,395 28,154 47,320 46,383 246,980
Taxable
investment securities ......... 12,000 2,010 3,553 3,105 10,124 30,792
Tax-exempt
investment securities ......... 1,290 545 2,539 39,155 39,694 83,223
Mortgage-backed securities ..... 45,567 2,436 25,517 67,703 4,327 145,550
Loans........................... 314,523 75,511 126,258 415,966 95,358 1,027,616
--------- --------- --------- -------- -------- ----------
Total.......................... $ 411,232 $ 169,897 $ 186,021 $573,249 $195,886 $1,536,285
========= ========= ========= ======== ======== ==========
Rate-sensitive liabilities:
Interest-bearing deposits ...... $ 110,703 $ -- $ -- $ -- $ -- $ 110,703
Savings deposits ............... 271,442 -- -- -- -- 271,442
Time deposits .................. 139,120 182,938 136,871 229,437 4,308 692,674
Federal funds purchased
and other short-term
borrowings..................... 3,598 -- -- -- -- 3,598
Repurchase agreements and
secured lines of credit ....... 28,274 50,494 -- 42,890 -- 121,658
Advances from the
Federal Home Loan Bank ........ 50,000 37,542 24,128 -- -- 111,670
Long-term debt ................. 8,133 -- -- -- -- 8,133
--------- --------- --------- -------- -------- ----------
Total.......................... $ 611,270 $ 270,974 $ 160,999 $272,327 $ 4,308 $1,319,878
========= ========= ========= ======== ======== ==========
Period GAP ...................... $(200,038) $(101,077) $ 25,022 $300,922 $191,578 $ 216,407
========= ========= ========= ======== ======== ==========
Ratio of period GAP to
total rate-sensitive assets..... (13.0)% (6.6)% 1.6% 19.6% 12.5%
========= ========= ========= ======== ========
Cumulative GAP .................. $(200,038) $(301,115) $(276,093) $ 24,829 $216,407
========= ========= ========= ======== ========
Ratio of cumulative GAP to
total rate-sensitive assets .... (13.0)% (19.6)% (18.0)% 1.6% 14.1%
========= ========= ========= ======== ========
DECEMBER 31, 1994:
Rate-sensitive assets:
Interest-bearing deposits in
other banks ................. $ 872 $ -- $ -- $ -- $ -- $ 872
Securities available for sale.. 10,840 17,717 23,665 9,281 6,167 67,670
Taxable
investment securities ....... 12,730 10,767 4,258 16,978 9,434 54,167
Tax-exempt
investment securities ....... 2,336 470 2,377 61,627 13,379 80,189
Mortgage-backed securities..... 35,657 23,419 40,873 91,110 10,982 202,041
Loans ......................... 279,066 66,424 113,786 406,998 112,288 978,562
--------- --------- --------- -------- -------- ----------
Total........................ $ 341,501 $ 118,797 $ 184,959 $585,994 $152,250 $1,383,501
========= ========= ========= ======== ======== ==========
Rate-sensitive liabilities:
Interest-bearing deposits ....... $ 101,659 $ -- $ -- $ -- $ -- $ 101,659
Savings deposits ................ 281,953 -- -- -- -- 281,953
Time deposits ................... 112,844 72,762 118,806 240,038 4,105 548,555
Federal funds purchased
and other short-term
borrowings...................... 34,847 -- -- -- -- 34,847
Repurchase agreements and
secured lines of credit ........ 75,941 37,520 15,000 -- -- 128,461
Advances from the
Federal Home Loan Bank ......... 52,171 15,000 8,450 52,500 -- 128,121
Long-term debt .................. 8,962 -- -- 1,356 -- 10,318
--------- --------- --------- -------- -------- ----------
Total........................ $ 668,377 $ 125,282 $ 142,256 $293,894 $ 4,105 $1,233,914
========= ========= ========= ======== ======== ==========
Period GAP ....................... $(326,876) $ (6,485) $ 42,703 $292,100 $148,145 $ 149,587
========= ========= ========= ======== ======== ==========
Ratio of period GAP to
total rate-sensitive assets ..... (23.6)% (0.5)% 3.1% 21.1% 10.7%
========= ========= ========= ======== ========
Cumulative GAP ................... $(326,876) $(333,361) $(290,658) $ 1,442 $149,587
========= ========= ========= ======== ========
Ratio of cumulative GAP to
total rate-sensitive assets ..... (23.6)% (24.1)% (21.0)% 0.1% 10.8%
========== ========= ========= ======== =======
</TABLE>
59
<PAGE> 43
In analyzing its GAP position, although all time periods are considered,
First Western emphasizes the next twelve month period. An institution is
considered to be liability sensitive, or as having a negative GAP, when the
amount of its interest-bearing liabilities maturing or repricing within a given
time period exceeds the amount of its interest-earning assets also repricing
within that time period. Conversely, an institution is considered to be asset
sensitive, or as having a positive GAP, when the amount of its interest-bearing
liabilities maturing or repricing is less than the amount of its
interest-earning assets also maturing or repricing during the same period.
Generally, in a falling interest rate environment, a negative GAP should result
in an increase in net interest income, and in a rising interest rate environment
this negative GAP should adversely affect net interest income. The converse
would be true for a positive GAP.
However, shortcomings are inherent in a simplified GAP analysis that may
result in changes in interest rates affecting net interest income more or less
than the GAP analysis would indicate. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Furthermore, repricing
characteristics of certain assets and liabilities may vary substantially within
a given time period. In the event of a change in interest rates, prepayment and
early withdrawal levels could also deviate significantly from those assumed in
calculating GAP. Also, GAP does not permit analysis of how changes in the mix of
various assets and liabilities on growth rate assumptions impact net interest
income.
Due in part to the shortcomings of GAP analysis, the asset/liability
committee of First Western believes that simulation modeling more accurately
estimates the effects of and exposure to interest rate changes. At December 31,
1995, First Western's simulation modeling indicated that First Western's balance
sheet will be adversely affected in a falling interest rate environment, and as
such, in a 200 basis point falling rate environment with no changes in the
balance sheet and limited reinvestment changes, net interest income is projected
to decrease approximately four percent over a 24 month period, within First
Western's asset/liability strategy and board approved limits.
LIQUIDITY AND CASH FLOWS
Liquidity is the ability to provide the cash necessary to meet customer
credit needs and satisfy depositor withdrawal requirements. One source of
liquidity is cash and short-term assets, such as interest-bearing deposits in
other banks and the Federal Home Loan Bank and federal funds sold, which totaled
$41.6 million at December 31, 1995 compared with $43.8 million at December 31,
1994. 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. At December 31, 1995, First Western
had $26.9 million of unused credit lines available. First Western's portfolio of
securities available for sale is another source of liquidity. This portfolio of
securities of $163.6 million at December 31, 1995, excluding pledged securities
of $83.4 million, is recorded at current market value with a corresponding
adjustment to equity, net of income tax effects. These securities may be sold to
meet liquidity needs if necessary without impacting First Western's equity.
First Western also generates liquidity from the regular principal payments and
prepayments made on its portfolio of loans and mortgage-backed securities.
First Western has certain liquidity requirements at the holding company
level to meet its debt service obligations and current operating costs. First
Western's projected total debt service at the holding company level (including
debt to subsidiaries) including both principal repayments and interest is
approximately $3.6 million in 1996. The holding company's primary sources of
funds are dividends and management and service fees from its subsidiaries. At
December 31, 1995, the maximum amount of dividends that could be paid to First
Western by the subsidiaries without obtaining prior regulatory approval or
reducing capital ratios below minimum levels was $20.6 million, however, the
regulators of the banking subsidiaries could administratively impose stricter
limits on the ability of the banking subsidiaries to distribute net profits to
First Western and could reduce or eliminate certain management fee payments for
general and administration expenses. In addition, subject to Federal Reserve
restrictions and limitations, First Western may obtain loans from its
subsidiaries.
First Western's operating activities generated cash flows of $23.1 million
in 1995, compared with $21.2 million in 1994 and $21.6 million in 1993. The
primary source of operating cash flows for 1995, 1994 and 1993 was net income
combined with noncash expenses such as the provision for possible loan losses
and depreciation.
60
<PAGE> 44
Investing activities used cash flows of $15.7 million in 1995 compared with
$52.3 million in 1994 and $188.1 million in 1993. During 1995, lending
activities used net cash flows of $164.6 million compared with $165.5 million in
1994 and $102.0 million in 1993. First Western generated some cash flows from
its loan portfolio by securitizing $113.7 million of residential mortgage loans
and selling $99.4 million of the resulting securities which were classified as
available for sale with the cash flows from this transaction included in the
proceeds from sales of securities available for sale. The funding of the loan
growth in 1995 was provided by the cash received in the branch purchase and also
by increased deposits. During 1995, the portfolio of securities available for
sale combined with the portfolio of investment securities and mortgage-backed
securities held to maturity provided net cash flows of $62.0 million primarily
from sales of securities available for sale and maturities and paydowns. The
loan growth in 1994 was funded by the sales of securities available for sale and
also by increased deposits. The growth of the securities portfolios during 1993
used cash flows of $87.8 million. The securities portfolio changed from a use of
cash flows during 1993 to a source of funds during 1994 and 1995 as the result
of the increase in loan demand experienced during 1994 and 1995.
Financing activities used cash flows of $10.8 million in 1995 compared with
providing cash flows of $37.1 million and $163.2 million in 1994 and 1993,
respectively. Growth of deposits provided cash flows of $51.7 million in 1995
compared with $54.1 million in 1994 and $194,000 in 1993. The funds provided by
deposit growth in 1995 were used primarily to reduce borrowed funds which
decreased $54.5 million. During 1994, First Western decreased its borrowed
funds $11.5 million with the funds provided by increased deposits and during
1993, First Western increased borrowed funds $168.0 million with these proceeds
used for the growth of the securities portfolio and loan growth.
SHAREHOLDERS' EQUITY
Shareholders' equity at December 31, 1995 was $121.7 million, increasing
$15.6 million or 14.7% from $106.1 million at December 31, 1994 due to the
retention of $11.4 million of earnings during 1995, along with a $4.7 million
increase in the market value of the portfolio of securities available for sale
net of income tax effects. During 1995, First Western's Board of Directors
authorized a common stock repurchase program that permits the repurchase of up
to three percent, or approximately 235,000 shares, of the Company's outstanding
shares of common stock from time to time at current market prices from available
corporate funds. First Western's ratio of shareholders' equity to total assets
was 7.59% at December 31, 1995 compared with 7.29% and 7.19% at December 31,
1994 and 1993, respectively. The book value per share was $15.67 at December
31, 1995 compared with $13.65 and $12.94 at December 31, 1994 and 1993,
respectively.
First Western, as a bank holding company, is required to meet certain risk
based capital and leverage requirements. The risk based capital requirements
redefine the components of capital, categorize assets into different risk
classes, and include certain off-balance sheet items in the calculation of the
adequacy of capital. A financial institution's capital is divided into two
classes, Tier I and Tier II.
First Western's Tier I and Tier II capital consisted of the following at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier I:
Common shareholders' equity ............................. $121,688 $106,079
Less: Non-exempt intangible assets ...................... (7,391) (504)
Unrealized (appreciation) depreciation in
securities available for sale .................... (2,492) 2,191
-------- --------
Total Tier I ......................................... 111,805 107,766
-------- --------
Tier II:
Qualifying long-term debt ............................... -- 301
Qualifying allowance for possible loan losses ........... 12,445 11,528
-------- --------
Total Tier II ........................................ 12,445 11,829
-------- --------
Total capital ............................................. $124,250 $119,595
======== ========
Risk-weighted assets ...................................... $993,929 $922,235
======== ========
Tier I capital ratio ...................................... 11.25% 11.69%
======== ========
Required Tier I capital ratio.............................. 4.00% 4.00%
======== ========
Total capital ratio ....................................... 12.51% 12.97%
======== ========
Required total capital ratio............................... 8.00% 8.00%
======== ========
</TABLE>
61
<PAGE> 45
First Western is also subject to a minimum Tier I leverage ratio based on
Tier I capital to total average assets. The required ratio for each financial
institution will be determined based on the financial institution's relative
soundness. A minimum ratio of Tier I capital to total assets of three percent
has been established for top rated financial institutions, with less highly
rated institutions or those with higher levels of risk required to maintain
ratios of 100 to 200 basis points above the minimum level. First Western's Tier
I leverage ratio was 6.99% at December 31, 1995 compared with 7.60% at December
31, 1994.
First Western's capital ratios declined from December 31, 1994 to December
31, 1995 primarily as a result of the branches that were acquired in the first
quarter of 1995. The branch acquisitions decreased First Western's capital
ratios due to the intangible assets which were created due to the premium paid
for the branches and their deposits which decreased First Western's Tier I
capital. The branch acquisitions also increased First Western's total assets
with no additional shareholders' equity.
The common stock of First Western is traded on the Nasdaq Stock Market
under the symbol "FWBI". As of March 1, 1996 there were 7,751,588 shares of
common stock outstanding held by approximately 3,000 holders of record. The
following table sets forth the high and low sales prices for the common stock,
as reported by the Nasdaq Stock Market, and the cash dividends declared per
share on the common stock, for the periods indicated. The prices and dividends
set forth below have been adjusted to reflect the three-for-two stock split
effected in the form of a fifty percent stock dividend paid on November 17,
1995.
<TABLE>
<CAPTION>
SALES PRICE PERIOD
------------ END CASH DIVIDENDS
HIGH LOW CLOSE DECLARED PER SHARE
--- --- ----- ------------------
<S> <C> <C> <C> <C>
1995 :
First Quarter ............ $18.83 $17.83 $18.17 $0.17
Second Quarter ........... 19.17 18.33 18.92 0.17
Third Quarter ............ 23.17 18.83 22.50 0.17
Fourth Quarter ........... 28.25 21.83 27.50 0.17
1994 :
First Quarter ............ $20.50 $17.67 $17.67 $0.15
Second Quarter ........... 20.00 17.17 19.37 0.15
Third Quarter ............ 19.83 18.17 18.33 0.16
Fourth Quarter ........... 19.00 17.50 18.67 0.17
</TABLE>
62
<PAGE> 1
Exhibit 20.1
101 EAST WASHINGTON STREET
P.O. BOX 1488
NEW CASTLE, PA 16103-1488
TELEPHONE: (412) 652-8550
FAX: (412) 652-0246
LOGO
March 15, 1996
To Our Shareholders:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders of
First Western Bancorp, Inc., to be held on Tuesday, April 16, 1996, beginning at
10:30 a.m., local time, at the New Englander, 3009 Wilmington Road, New Castle,
Pennsylvania. In the back of this Proxy are directions to the New Englander; if
you need additional assistance, please contact the corporate office at (800)
696-2572.
In addition to our regular business, we will present summary performance
information for 1995, and discuss our recently developed strategy for retail
banking and our vision of the future of branch offices as well as new banking
technologies such as the Internet, PC-based banking, telephone banking and other
enhancements to customer service. We will also highlight the new shared
leadership culture being implemented throughout our organization with all of our
associates. Following the meeting, a light lunch will be served to all attending
shareholders to provide an opportunity to meet informally with the directors and
management of First Western and its subsidiaries. Please accept this invitation
to attend the meeting and join us for the luncheon afterwards.
The formal Notice of Annual Meeting and Proxy Statement, which follow, include a
listing and discussion of the matters upon which you will act.
Whether or not you plan to attend the meeting, we urge you to mark, sign, date
and return the enclosed Proxy Card in the accompanying postage-paid envelope so
that as many shares as possible may be represented at the meeting. Your vote is
important and your cooperation in executing and returning the Proxy Card
promptly will be appreciated.
Sincerely,
/s/ JOHN R. MCKINLEY
John R. McKinley
Chairman of the Board
/s/ THOMAS J. O'SHANE
Thomas J. O'Shane
President and Chief Executive Officer
SUBSIDIARIES: FIRST WESTERN BANK, N.A. - FIRST WESTERN BANK, F.S.B. - FIRST
WESTERN TRUST SERVICES COMPANY
<PAGE> 2
101 EAST WASHINGTON STREET
P.O. BOX 1488
NEW CASTLE, PA 16103-1488
TELEPHONE: (412) 652-8550
FAX: (412) 652-0246
LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of First Western
Bancorp, Inc. ("First Western") will be held at the New Englander, 3009
Wilmington Road, New Castle, Pennsylvania 16101, on Tuesday, April 16, 1996 at
10:30 a.m., local time, for the purpose of considering and voting upon the
following:
1. The election of four directors whose terms will expire in 1999 and one
director whose term will expire in 1997; and
2. Such other business as may properly be brought before the meeting and any
adjournment or adjournments thereof.
Only shareholders of record of First Western at the close of business on March
8, 1996 are entitled to notice of and to vote at the Annual Meeting.
Enclosed herewith are a Proxy Statement and form of Proxy. We urge you to mark,
date, sign and return the Proxy as promptly as possible whether or not you plan
to attend the meeting in person. If you do attend the meeting, you may, if you
wish, withdraw your Proxy and vote in person. In any event, you may revoke your
Proxy prior to its exercise.
By Order of the Board of Directors,
/s/ ROBERT H. YOUNG
Robert H. Young
Senior Vice President - Finance,
Secretary and Treasurer
New Castle, Pennsylvania
March 15, 1996
-1-
SUBSIDIARIES: FIRST WESTERN BANK, N.A. - FIRST WESTERN BANK, F.S.B. - FIRST
WESTERN TRUST SERVICES COMPANY
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE> 4
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
FIRST WESTERN BANCORP, INC.
GENERAL INFORMATION
The accompanying Proxy is being solicited by the Board of Directors of First
Western Bancorp, Inc. ("First Western") for use at the Annual Meeting of
Shareholders of First Western to be held April 16, 1996, 10:30 a.m., local time,
at the New Englander, 3009 Wilmington Road, New Castle, Pennsylvania and for use
at any adjournment or adjournments thereof.
The Proxy may be revoked at any time prior to its exercise by written notice of
revocation or by a later dated Proxy sent to the Secretary of First Western at
its principal executive offices, provided such notice is received prior to
exercise. Shareholders who attend the meeting may, if they wish, withdraw their
Proxy and vote in person.
The Board of Directors has fixed the close of business on March 8, 1996, as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting. As of that date First Western had outstanding
7,727,588 shares of its common stock, par value $5.00 per share ("Common
Stock"). First Western's authorized capital consists of 20,000,000 shares of
Common Stock and 4,000,000 shares of preferred stock, without par value
("Preferred Stock"). No shares of preferred stock have been issued. Holders of
Common Stock are entitled to one vote for each share of Common Stock held on all
matters, except with respect to the election of directors, for which
shareholders have the right to cumulate their votes.
First Western is a Pennsylvania business corporation and is registered with the
Federal Reserve Board as a bank holding company and with the Office of Thrift
Supervision as a savings association holding company. Its wholly-owned banking
subsidiaries are First Western Bank, National Association ("FW Bank") and First
Western Bank, Federal Savings Bank ("FW Savings") (FW Bank and FW Savings are
sometimes referred to herein as the "Banks"). First Western's wholly-owned
non-banking subsidiary, First Western Trust Services Company ("Trust Services"),
provides trust, estate management and financial services to customers in the
market areas of the Banks. Residential Mortgage Company of America ("RMC"), a
mortgage banking subsidiary of First Western, was merged into First Western on
December 31, 1995.
The principal executive offices of First Western are located at 101 East
Washington Street, New Castle, Pennsylvania 16101 (mailing address: P. O. Box
1488, New Castle, Pennsylvania, 16103-1488). This Proxy Statement and the
accompanying Notice of Meeting and Proxy Card are first being mailed to
shareholders on or about March 15, 1996. A copy of First Western's Annual Report
for the fiscal year ended December 31, 1995, which includes First Western's
consolidated financial statements, accompanies this mailing.
All expenses of this solicitation, including the cost of mailing, will be borne
by First Western. First Western will not pay any compensation for the
solicitation of proxies, but upon request will reimburse banks, brokers, and
other nominees, fiduciaries and custodians for their reasonable expenses
incurred in sending these proxy materials to beneficial owners and obtaining
their instructions. In addition, proxies may be solicited by directors, officers
and management personnel of First Western and its subsidiaries. Solicitations
may be made by mail, telephone, facsimile or in person.
-3-
<PAGE> 5
ELECTION OF DIRECTORS
The Bylaws of First Western provide that the Board of Directors shall consist of
not fewer than five persons, the exact number to be fixed and determined from
time to time by a resolution of the Board or of the shareholders. The Board's
size is set at fourteen members. Pursuant to First Western's Bylaws, as amended,
nominations for directors other than those made by the Board must be in writing
and delivered or mailed to the Chairman of First Western no later than January
31 for an election to be held at the annual meeting of shareholders that year
and no later than 45 days prior to any other meeting of shareholders called for
the election of directors; provided, however, that if less than 21 days notice
of such other meeting is given to shareholders, then nominations for directors
shall be mailed or delivered to the Chairman of First Western no later than the
close of business on the seventh day following the day on which such notice of
meeting was mailed. Nominations by shareholders shall contain the following
information to the extent known by the nominating shareholder: (i) the name and
address of the proposed nominee; (ii) the principal occupation of the proposed
nominee; (iii) the total number of shares of Common Stock to be voted for the
proposed nominee; (iv) the name and resident address of the nominating
shareholder; and (v) the number of shares of Common Stock held by the nominating
shareholder.
The Board, prior to the 1996 Annual Meeting, is currently divided into two
classes of five members each (1996 and 1998) and one class of four members
(1997). The term of office of one class expires each year. Nominees to the class
of directors whose term expires at each Annual Meeting are generally elected for
a three-year term. However, in the event the number of directors is changed, any
increase or decrease is to be so apportioned among the classes so as to maintain
the classes as nearly equal in number as possible. Any additional director of a
class shall hold office for a term which shall coincide with the term of such
class.
In February 1995, the Board adopted an amendment to the Bylaws which permits a
former President or Chairman to be nominated to the Board for a one-year term
without regard to any age limitation in the Bylaws. Section 2.3 of the Bylaws
generally requires retirement from the Board at the expiration of a director's
term after reaching age 70. In adopting the amendment, the Board recognizes that
a former President or Chairman of First Western would provide the experience,
expertise and historical continuity to First Western and would provide
significant and substantial value in continuing to be represented on the Board,
subject to election at each Annual Meeting of Shareholders that such person
continues to be nominated. John W. Sant, age 75, former Chairman, President and
Chief Executive Officer, is being nominated by the Board for an additional
one-year term to expire in 1997. At last year's Annual Meeting, Mr. Sant was
nominated for and reelected to the Board for a one-year term expiring in 1996.
The class whose term will expire as of the date of the 1996 Annual Meeting of
Shareholders consists of five directors, all of whom are nominees for
reelection. The Board has nominated four persons for election as directors for a
three-year term expiring in 1999--John W. Lehman, M.D., Thomas S. Mansell,
Richard C. McGill and Harold F. Reed, Jr. as continuing directors, and John W.
Sant as a continuing director for a one-year term expiring in 1997. Assuming the
election of these four nominees to the 1999 class, and Mr. Sant to the 1997
class, the 1997 and 1998 classes of directors will each consist of five members
and the 1999 class of directors will consist of four members.
Each nominee has advised First Western of his willingness and ability to serve
if elected. If however, prior to the election of directors at the 1996 Annual
Meeting, any of the nominees becomes unavailable or proves unable to serve for
any reason, proxies will be voted for the election of such other person or
persons as the Board of Directors may select to replace such nominee. MANAGEMENT
AND THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTORS.
The Articles of Incorporation of First Western provide that in all elections of
directors, each shareholder has the right to vote the number of shares owned by
him for as many persons as there are directors to be elected, or to cumulate
such votes and give one candidate as many votes as equals the number of
directors multiplied by the number of shares, or to distribute his total votes
among as many candidates as desired. Unless otherwise specified, execution of
the Proxy Card will confer discretionary authority to the persons named therein
as proxies to cumulate votes.
-4-
<PAGE> 6
First Western is organized under the laws of the Commonwealth of Pennsylvania.
Pursuant to the provisions of the Pennsylvania Business Corporation Law of 1988,
as amended, the affirmative vote of a plurality of the votes cast by the
shareholders at an annual meeting of a corporation is required to elect the
directors of that corporation. Accordingly, abstentions and broker non-votes
have no effect on the outcome of the election of directors. Proxies solicited by
the Board of Directors will be voted in favor of the nominees for directors
unless otherwise indicated thereon.
The following tables set forth certain information about the nominees for
election as directors and about the continuing directors of First Western. The
information includes the number of shares of Common Stock which each of them
owned beneficially as of January 31, 1996, and the percentage which those shares
represented of the total outstanding Common Stock in any instance where the
percentage equaled or exceeded one percent. Each nominee or director has been
engaged in the principal occupation listed for five years or more, except as
otherwise indicated in the table. Except as noted below, there are no family
relationships among current directors, nominees for directors, executive
officers or nominees for executive officers of either First Western or its
subsidiaries.
NOMINEES FOR DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1%
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) OR MORE)
- -------------------------------------------------- ---------- ------------ --------
<S> <C> <C> <C>
John W. Lehman, M.D. 63 44,680 --
Physician, Beaver Valley Orthopedics
Association; Director, FW Bank; Member of the
Audit Committee of First Western; Director of
First Western since 1986(3)
Thomas S. Mansell 56 62,872(4)(5) --
Senior Vice President, Assistant Secretary and
Legal Counsel of First Western; Director, Trust
Services; Director of First Western since 1990
Richard C. McGill 59 37,567 --
Managing Partner, McGill, Power, Bell and Co.,
Certified Public Accountants; Director, FW
Savings; Member of the Audit and Loan Review
Committees of First Western; Director of First
Western since 1990(3)
Harold F. Reed, Jr. 68 31,308 --
Partner, Reed, Luce, Tosh, McGregor and Wolford
(law firm); Director, Tuscarora Incorporated
(manufacturer of custom molded products);
Chairman, Trust Services and Director, FW Bank;
Member of the Executive, Compensation and
Asset/Liability Committees of First Western;
Director of First Western since 1986(3)
</TABLE>
-5-
<PAGE> 7
NOMINEE FOR DIRECTOR WHOSE TERM WILL EXPIRE IN 1997
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1%
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) OR MORE)
- ------------------------------------------------- ---------- ------------ --------
<S> <C> <C> <C>
John W. Sant 75 63,949 --
Retired; Chairman, First Western through April
1995; President and Chief Executive Officer,
First Western through 1990; Director, FW Bank,
FW Savings and Trust Services; Member of the
Executive, Compensation and Asset/Liability
Committees of First Western; Director of First
Western since 1966(3),(6)
</TABLE>
CONTINUING DIRECTORS WHOSE TERMS WILL EXPIRE IN 1997
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1%
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) OR MORE)
- ------------------------------------------------- ---------- ------------ --------
<S> <C> <C> <C>
James M. Campbell 52 33,276(7) --
President, Shenango Steel Buildings, Inc.
(steel fabrication company); Director, FW
Savings; Member of the Executive and
Compensation Committees of First Western;
Director of First Western since 1990(3)
Floyd H. McElwain 49 5,582 --
President, McElwain Oldsmobile-Cadillac, Inc.;
Chairman of the Audit Committee of First
Western; Director of First Western since 1990
John R. McKinley 44 67,086 --
President, Remington's Restaurant Group
(restaurant company); Chairman, First Western
since April 1995; Vice Chairman, 1992 through
1995; Chairman, FW Bank, and Director, FW
Savings and Trust Services; Chairman of the
Executive, Compensation and Loan Review
Committees and Member of the Asset/Liability
Committee of First Western; Director of First
Western since 1986
Thomas J. O'Shane 48 121,858(8) 1.53%
President and Chief Executive Officer, First
Western; Director, Nobel Insurance Limited;
Director, Federal Reserve Bank of
Cleveland-Pittsburgh Branch; Chairman, FW
Savings and Director, FW Bank and Trust
Services; Chairman, Asset/Liability Committee
and Member of the Executive Committee of First
Western; Director of First Western since 1988
</TABLE>
-6-
<PAGE> 8
CONTINUING DIRECTORS WHOSE TERMS WILL EXPIRE IN 1998
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1%
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) OR MORE)
- ------------------------------------------------- ---------- ------------ --------
<S> <C> <C> <C>
Wendell H. Boyd 56 6,838 --
Partner, D.M. Boyd Co. (manufacturer of
modified soils for golf course industry);
Member of the Audit Committee of First Western;
Director of First Western since 1995
Robert N. Chambers 69 38,328 --
Retired; Director, FW Bank; Member of the
Executive, Compensation and Asset/Liability
Committees of First Western; Director of First
Western since 1962(3)
Robert C. Duvall 53 15,984(9) --
Vice President of Finance, Wampum Hardware Co.
(explosives distributor for the blasting
industry); Director, Nobel Insurance Limited;
Officer and Director of IRECO Midwest, Inc.
(affiliated with Wampum Hardware Co.); Member
of the Asset/Liability Committee of First
Western; Director of First Western since 1995
Louis J. Kasing, Jr. 67 5,748 --
President, Kasing Auto Sales, Inc.; Member of
the Asset/Liability Committee of First Western;
Director of First Western since 1990
John P. O'Leary, Jr. 49 3,991 --
President and Chief Executive Officer,
Tuscarora Incorporated (manufacturer of custom
molded products); Director, Matthews
International; Member of the Executive and
Compensation Committees of First Western;
Director of First Western since 1992
</TABLE>
- ---------
<TABLE>
<C> <S>
(1) As of January 31, 1996.
(2) Includes shares owned by immediate families (spouses, minor children and relatives sharing
the same home) of the respective persons and shares held in the First Western Bancorp, Inc.
401(k) Profit-Sharing and Stock Bonus Plan or the First Western Bancorp, Inc. Deferred
Compensation Plan for Directors.
(3) Years served as a director of First Western include years served as director of FW Bank or
its predecessor. Years served as a director of banks acquired by First Western are included
from the dates such institutions were acquired by First Western.
(4) Thomas S. Mansell disclaims beneficial ownership of 2,114 shares owned by his spouse and
his children which are included in the total shares indicated.
(5) Includes options to purchase 19,903 shares of Common Stock which are exercisable within 60
days of January 31, 1996.
(6) John W. Sant is the uncle of Stephen R. Sant, President and Chief Executive Officer of FW
Bank and Senior Vice President-Retail Banking of First Western.
(7) Includes 658 shares held beneficially in the name of Shenango Steel Buildings, Inc., with
authority to vote such shares.
</TABLE>
-7-
<PAGE> 9
<TABLE>
<C> <S>
(8) Includes options to purchase 69,806 shares of Common Stock which are exercisable within 60
days of January 31, 1996.
(9) Includes 13,620 shares held beneficially in the name of Wampum Hardware Co., with authority
to vote such shares.
</TABLE>
All directors and officers of First Western as a group (25 persons) owned
beneficially 740,949 shares of Common Stock of First Western (including options
to acquire 213,437 shares which are exercisable within 60 days of January 31,
1996), or 9.30% of the 7,964,704 shares outstanding and options which are
exercisable within 60 days of January 31, 1996.
MEETINGS AND COMMITTEES
The Board of Directors of First Western met 7 times in 1995. All incumbent
directors named above attended 75% or more of the aggregate number of Board of
Directors meetings and, if applicable to their service, committee meetings held
in 1995, except for Harold F. Reed, Jr., John P. O'Leary, Jr., and John W.
Lehman, M.D. The Board of Directors has an Executive Committee, a Compensation
Committee and an Audit Committee. The Board has no Nominating Committee, but
either the Executive Committee or the full Board serves in such capacity. The
Executive and Compensation Committees met three times in 1995. The Compensation
Committee is comprised of John R. McKinley (Chairman), James M. Campbell, Robert
N. Chambers, John P. O'Leary, Jr., Harold F. Reed, Jr., and John W. Sant. The
members of the Compensation Committee plus Mr. O'Shane constitute the Executive
Committee, with Mr. McKinley serving as Chairman.
The Audit Committee is comprised solely of independent directors, and for 1995,
included Floyd H. McElwain (Chairman), Wendell H. Boyd, John W. Lehman, and
Richard C. McGill. The Audit Committee's duties include, but are not limited to,
engaging and terminating independent auditors and approving fees charged,
reviewing the audit plan, the results of the auditing engagement, any
disagreements with management, their letter of recommendations and the adequacy
of internal accounting controls for First Western, and supervising the internal
audit function. First Western's internal audit department reports to the Audit
Committee. The Audit Committee met five times in 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. John R. McKinley, Chairman of First Western is also Chairman of the
Executive and Compensation Committees. Mr. John W. Sant was formerly Chairman,
President and Chief Executive Officer of First Western and is a member of the
Executive and Compensation Committees. Messrs. Sant and McKinley previously
entered into consulting arrangements with First Western, which were discontinued
in September 1995. Mr. Harold F. Reed, Jr., a member of the Executive and
Compensation Committees, is Chairman of Trust Services. Mr. Reed is also a
director of Tuscarora Incorporated and is a member of the Compensation Committee
of Tuscarora Incorporated. Mr. Reed was previously party to an agreement with
Trust Services which is described below under "--Directors Compensation." Mr.
John P. O'Leary, Jr. is a director of First Western and a member of the
Compensation Committee and is President and Chief Executive Officer and a
director of Tuscarora Incorporated. Mr. Thomas J. O'Shane, President and Chief
Executive Officer of First Western, is a director and a member of the
Compensation Committee of Nobel Insurance Limited. Mr. Robert C. Duvall, a
director of Nobel Insurance Limited, is also a director of First Western.
DIRECTORS' COMPENSATION
Directors of First Western who are not employees of First Western or its
subsidiaries receive $750 for each meeting of the Board of Directors attended
and $350 for each committee meeting attended, with the chairperson of each
committee receiving $700 for each committee meeting attended. An annual retainer
of $3,000 is currently paid to all Board members.
Directors of FW Bank and FW Savings who are not employees of First Western or
its subsidiaries receive $400 for each Board meeting attended and $350 for each
committee meeting attended, with the chairperson of each committee receiving
$700 for each committee meeting attended. An annual retainer of $2,400 per
member is also paid. The law firm of Reed, Luce, Tosh, McGregor and Wolford, of
which Harold F. Reed, Jr., a director, is
-8-
<PAGE> 10
a partner, served as an outside legal counsel for FW Bank, for which such firm
received a retainer of $20,000 plus fees for special legal work on an as-billed
basis in 1995.
Directors of Trust Services who are not employees of First Western or its
subsidiaries receive $300 for each Board meeting attended and $250 for each
committee meeting attended, with the chairperson of each committee receiving
$500 for each committee meeting attended. An annual retainer of $2,400 per
member is also paid. Harold F. Reed, Jr. received fees totalling $20,000 in
1995, under a renewable annual agreement as Chairman of Trust Services, in lieu
of any other Trust Services director fees. As of January 1, 1996, this
arrangement was discontinued and Mr. Reed will receive normal director fees,
including a fee as Chairman of the Trust Services Executive Committee of $500
per meeting and the annual board retainer of $2,400.
All Directors of First Western and/or its subsidiaries may defer the receipt of
their fees, according to the terms of the First Western Bancorp, Inc. Deferred
Compensation Plan for Directors, until the earlier of their retirement from
First Western and/or a subsidiary board or their death. The director may choose
to have deferred fees accrued with interest credited at market rates, or to have
such fees, plus prior plan balances, funded through a grantor trust agreement,
with Trust Services serving as trustee, and invested in First Western Common
Stock.
-9-
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation for services rendered during the
years ended December 31, 1995, 1994 and 1993 paid by First Western or its
subsidiaries to the Chief Executive Officer and the four other most highly
compensated executive officers of First Western whose annual salary and bonus
exceeded $100,000 for the year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- OTHER
YEAR ENDED ANNUAL ALL OTHER COMMON STOCK
DECEMBER SALARY BONUS COMPENSATION COMPENSATION OWNERSHIP
NAME, AGE AND PRINCIPAL POSITION (1) 31 (2) (3) (4) (5) (1), (6), (7)
- -------------------------------------- ---------- -------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. O'Shane (48)
President and Chief Executive 1995 $266,500 $119,925 $ -- $12,724 121,858
Officer, First Western 1994 260,000 122,850 -- 14,952
1993 225,000 89,424 35,862 21,006
Robert H. Young (39)
Senior Vice President-Finance, 1995 130,800 41,312 -- 12,724 21,080
Secretary and Treasurer, 1994 128,000 39,375 -- 14,952
First Western 1993 101,380 30,229 -- 14,002
Stephen R. Sant (49)
President and Chief 1995 128,100 40,659 -- 12,724 41,608
Executive Officer, 1994 125,000 37,500 -- 14,952
FW Bank and Senior Vice 1993 116,532 33,911 -- 15,920
President-Retail Banking, First
Western
Robert E. Cimini (49)
Senior Vice President-Consumer 1995 122,000 37,515 -- 12,724 40,431
Lending and Marketing, First Western 1994 119,000 37,485 -- 14,952
1993 109,650 31,908 -- 14,997
John A. Zercher (43)
Senior Vice President-Operations and 1995 99,600 32,868 -- 11,192 36,135
Information Systems, First Western 1994 97,200 30,618 -- 12,679
1993 90,000 27,540 -- 12,190
</TABLE>
- ---------
(1) As of January 31, 1996.
(2) Includes salary only. Officers who are also Directors received no
compensation for acting as Directors or for attendance at Committee
meetings in 1995.
(3) Includes payments under the Incentive Compensation Plan, which are made in
cash as soon as practicable after the close of the fiscal year. Payments to
executive officers listed in the table above for 1995 included the amount
of bonus accrued for 1995 as determined in January 1996, and excluded the
bonus paid in January 1995 for 1994.
(4) Noncash compensation, which in the case of each individual for each of the
three years in the table, other than Mr. O'Shane for the year ended
December 31, 1993, did not exceed the lesser of $50,000 or 10% of total
compensation. For the year ended December 31, 1993, Mr. O'Shane received
reimbursement of country club membership fees in the amount of $33,679 and
was provided with an automobile at a value of $2,183.
(5) Includes 401(k) Profit-Sharing and Stock Bonus Plan contributions only,
which includes a total of 148 shares (including forfeitures) of Common
Stock with a market value of $4,070 as of December 31, 1995. Each
individual noted above received 37 shares, except Mr. Zercher, who received
33 shares.
(6) Includes shares owned by immediate families (spouses, minor children and
relatives sharing the same home) of the respective persons and shares held
in the 401(k) Profit-Sharing and Stock Bonus Plan.
(7) Includes options to purchase shares of Common Stock which are presently
exercisable or exercisable within 60 days of January 31, 1996 as follows:
69,806 shares, Mr. O'Shane; 14,856 shares, Mr. Young; 31,166 shares, Mr.
Sant; 21,058 shares, Mr. Cimini; and 12,896 shares, Mr. Zercher.
-10-
<PAGE> 12
INCENTIVE COMPENSATION PLAN
The Incentive Compensation Plan (the "Incentive Plan") is administered by the
Compensation Committee of the Board of Directors and provides for annual cash
bonus payments to all First Western and subsidiary officers generally at the
assistant vice president or branch officer level and above. Cash bonus payments
are based on the achievement of predetermined corporate, departmental, and
individual performance goals. For a description of the Incentive Plan, see
"Compensation Committee Report on Executive Compensation."
401(K) PROFIT-SHARING AND STOCK BONUS PLAN
The First Western Bancorp, Inc. 401(k) Profit-Sharing and Stock Bonus Plan has
the following features: (1) First Western or its subsidiaries makes
profit-sharing type (discretionary) contributions for the benefit of its
employees, (2) there is a cash or deferred (401(k)) arrangement which permits
contributions to be made by employees on an elective, pre-tax basis, (3) First
Western or its subsidiaries matches the 401(k) contributions for its employees
at the rate of $.50 for each $1.00 contributed by an employee, up to a maximum
of 4% of an employee's salary, and (4) there are employee stock ownership plan
("ESOP") provisions which enable the plan to borrow money in order to acquire
stock of First Western.
Any full-time employee of First Western or its subsidiaries who is at least 19
years old and who completes at least 1,000 hours of service within his first
twelve months of employment is eligible to participate. Profit-sharing type and
ESOP contributions are subject to a vesting schedule. Employees are 100% vested
after attaining five years of service. Employee 401(k) and matching
contributions are 100% vested immediately.
Profit-sharing type contributions are made by First Western and each subsidiary
and are allocated to all participating employees based upon the ratio of each
employee's compensation to the total compensation of all participants eligible
to share in the allocation. Contributions, including the cost of ESOP
contributions and 401(k) matching contributions, were determined for all
employees based on a percentage of First Western's pre-tax net income for 1995.
A total of 2,739 shares (excluding forfeitures) were allocated under the ESOP to
participating employees for 1995 based upon the ratio of each employee's
earnings to the total earnings of all participating employees of First Western.
There are no remaining unallocated shares held by the ESOP as of December 31,
1995.
PENSION PLAN
The First Western Bancorp, Inc. Pension Plan (the "Pension Plan") covers all
full-time employees of First Western and its subsidiaries who have completed
1,000 hours of service within one calendar year and who have attained the age of
21. The Pension Plan provides for normal retirement at age 65, and early
retirement at age 55. Retirement benefits for normal retirement are 1% of the
employee's average monthly earnings (5 highest years divided by 60) times the
years of credited service. Monthly earnings are defined as current earnings
including any elective employee deferrals. Employees who terminate their
employment with 5 or more years of credited service have a vested right to
receive a pension upon normal retirement at age 65. Employees who terminate
their employment with 10 or more years of credited service may also elect to
receive their pension upon early retirement at age 55. The Pension Plan provides
for one-time early retirement benefits for certain eligible employees. These
one-time benefits included adding years of service, eliminating the normal early
retirement penalty and providing an additional supplemental benefit for a
limited period of time. Certain highly compensated employees have similar
one-time early retirement benefits provided to them under a special
non-qualified plan. None of the officers named in the summary compensation table
are participants in this early retirement program. Benefits which accrued to
qualified employees of companies previously acquired by First Western have been
grandfathered through the dates at which such pension plans were merged with the
Pension Plan and may result in higher benefits than those reported in the
following table for certain individuals who have years of service with such
companies. Directors who are not also employees do not receive retirement
benefits. Retirement benefits under the Pension Plan are payable to participants
in the form of a joint and survivor annuity for married participants who do not
elect otherwise and in the form of a single annuity for all other participants.
The following table shows annual pension benefits payable upon retirement at age
65, in various remuneration and years-of-service classifications, assuming the
election of a retirement allowance payable as a straight life
-11-
<PAGE> 13
annuity with retirement on January 1, 1996. Remuneration for these purposes is
the same as the total of salary and bonus as disclosed in the Summary
Compensation Table. Annual benefits payable are not subject to any deduction for
Social Security or other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------
REMUNERATION(1)(2) 15 20 25 30 35
- ------------------------------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000............................. $18,750 $25,000 $ 31,250 $ 37,500 $ 43,750
150,000............................. 22,500 30,000 37,500 45,000 52,500
175,000............................. 26,250 35,000 43,750 52,500 61,250
200,000............................. 30,000 40,000 50,000 60,000 70,000
225,000............................. 33,750 45,000 56,250 67,500 78,750
250,000............................. 37,500 50,000 62,500 75,000 87,500
300,000............................. 45,000 60,000 75,000 90,000 105,000
350,000............................. 52,500 70,000 87,500 105,000 122,500
400,000............................. 60,000 80,000 100,000 120,000 140,000
450,000............................. 67,500 90,000 112,500 135,000 157,500
500,000............................. 75,000 100,000 125,000 150,000 175,000
</TABLE>
- ---------
(1) Section 401(a)(17) of the Internal Revenue Code contains an annual limit on
the amount of compensation covered for purposes of accruing benefits under
the Pension Plan. For 1995, this limit was $150,000. Since such limit is
subject to future adjustments, the benefit amounts shown in the table have
been calculated without regard to this limit.
(2) Thomas J. O'Shane, Robert H. Young, Stephen R. Sant, Robert E. Cimini and
John A. Zercher have 23, 9, 5, 21 and 23 whole years of service under the
plan, respectively, as of January 31, 1996. All such persons are fully
vested in their accrued benefits as of January 31, 1996.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1996, First Western adopted a Supplemental Executive
Retirement Plan (the "SERP"), which is a nonqualified defined contribution plan.
The SERP is intended to provide deferred compensation for certain highly
compensated employees as described in Section 401(a)(1) of the Employment
Retirement Income Security Act of 1974, as amended.
The Compensation Committee administers the SERP, determines eligible
participants, the amount of any contribution to be made on an annual basis to a
grantor trust established for the benefit of the participant, the occurrence of
an event giving rise to the payment of benefits and such other matters as are
necessary to interpret the SERP and related trust.
As of January 1996, the Committee determined that First Western would make a
contribution on behalf of Thomas J. O'Shane in the amount of $36,600 in
accordance with a formula intended to reflect pension benefits in excess of
current legislative limits which Mr. O'Shane could have accrued except for such
limits under First Western's qualified retirement plan. Such amount is not
included in the Summary Compensation Table for 1995. The Committee has not yet
established contributions for other eligible participants under the SERP. There
is no guaranteed benefit provided by the SERP, and the ultimate benefit provided
by the SERP will depend on the Committee's annual determination of First
Western's discretionary contribution and actual earnings of the participant's
individual account as determined under the relative trust agreement.
OPTION PLAN
The Option Plan authorizes the granting of stock options to purchase up to
566,335 (including an additional 225,000 shares authorized under the Plan
amendment approved April 18, 1995) shares of Common Stock (as adjusted for stock
dividends and splits) to eligible officers or key employees at an exercise price
of not less
-12-
<PAGE> 14
than the fair market value on the date the options are granted (or 110% of fair
market value for a ten percent or greater shareholder).
Unless otherwise designated by the Board of Directors, the Option Plan is
administered by the Compensation Committee of the Board of Directors (the
"Committee"). The Committee has the sole discretion to grant options, to set the
price to be paid for the Common Stock subject to the option, to prescribe the
terms of and conditions upon any such award of options, to determine the
exercise period, to adopt, amend and rescind the rules and regulations of the
Option Plan, to interpret the Option Plan and option agreements with
participants, and to make all other determinations and take all other actions
necessary or advisable for the implementation and administration of the Option
Plan. In determining the amount, form, limitations and other terms and
conditions of an award, the Committee will consider the functions and
responsibility of the awardee, his or her potential contributions to
profitability, sound growth and shareholder value, and such other facts as the
Committee may deem relevant. No more than 75,000 shares can be subject to
options granted to any one employee during any calendar year. The Committee may
grant options under the Option Plan to any officer or key employee of First
Western or any subsidiary of First Western.
In the discretion of the Committee, options granted under the Option Plan may be
intended to qualify as incentive stock options within the meaning of Section 422
of the Internal Revenue Code or may be intended to be options which do not so
qualify (i.e., nonqualified stock options). Unless the Committee determines
otherwise, no option may be exercised prior to six months following the date on
which such option was granted. The option price may be paid either in cash,
whole shares of Common Stock already owned by the optionee (valued at fair
market value on the day immediately preceding the exercise date), a combination
of cash and Common Stock or other consideration deemed acceptable by the
Committee.
If an optionee ceases to be employed by First Western for any reason other than
retirement, disability or death, unless such termination is with permission of
First Western or follows a "change in control" event described below, such
optionee's options automatically terminate on such date unless the Committee
determines otherwise. Options will become immediately exercisable upon the
occurrence of a change in control, and options will remain exercisable for at
least three months following termination of employment if such termination
occurs after a change in control. The Committee may include in a stock option
agreement such terms as it deems advisable with respect to retirement,
termination or disability; provided, however, that the exercise period after (i)
retirement or termination with consent of First Western may not exceed three
months from the date of such event and (ii) disability may not exceed twelve
months. In no event, however, may an option be exercised after the expiration
date of such option fixed in the applicable option agreement. If an optionee
engages in competition with First Western, the Committee may terminate all of
such optionee's outstanding options.
The Board of Directors may, without further shareholder approval, terminate or
amend the Option Plan in any way; however, any amendment that would materially
increase the rights of a grantee of an option must be approved by the
shareholders. Termination or amendment of the Option Plan may not adversely
affect an optionee's rights under an award previously granted.
In 1991, options to purchase an aggregate of 99,224 shares of Common Stock (as
adjusted for stock dividends and splits) were granted to eligible officers which
remain outstanding as of January 31, 1996. On January 16, 1995, options to
purchase an aggregate of 150,000 shares of Common Stock were granted to current
eligible officers which also remain outstanding as of January 31, 1996. Options
to purchase 105,430 shares of Common Stock (as adjusted for stock dividends and
splits) have been exercised or cancelled as of January 31, 1996. All of the 1991
option grants and 105,000 of the 1995 option grants are incentive stock options.
The option period may not exceed five years from the date of grant for a ten
percent or greater shareholder and ten years from the date of grant for all
other shareholders.
OPTION GRANTS
The following table sets forth as to persons named in the Summary Compensation
Table additional information with respect to stock options granted during 1995,
including the potential realizable value from the stock options assuming the
options are exercised at the end of the option term and assuming 5% and 10%
annual rates of stock price appreciation during the option term:
-13-
<PAGE> 15
<TABLE>
<CAPTION>
OPTION GRANTS IN 1995 POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE OF ASSUMED
------------------------------------------------------- ANNUAL
NUMBER OF % OF TOTAL EXERCISE RATES OF STOCK PRICE
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PER OPTION TERM
OPTIONS GRANTED EMPLOYEES SHARE EXPIRATION ----------------------
NAME (1), (2) IN 1995 ($/SHARE) DATE 5%(3) 10%(3)
- ----------------------- --------------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. O'Shane 45,000 30.0% $20.00 1/16/05 $566,100 $1,434,150
Robert H. Young 15,000 10.0% 20.00 1/16/05 188,700 478,050
Stephen R. Sant 15,000 10.0% 20.00 1/16/05 188,700 478,050
Robert E. Cimini 15,000 10.0% 20.00 1/16/05 188,700 478,050
John A. Zercher 11,250 7.5% 20.00 1/16/05 141,525 358,538
</TABLE>
- ---------
(1) As adjusted for November 17, 1995 three-for-two stock split, effected in the
form of a 50% stock dividend.
(2) The stock options for Mr. O'Shane were granted on January 16, 1995 and
became exercisable on July 16, 1995, and are intended to be nonqualified
stock options. For the other named officers, options began vesting on July
16, 1995 and will be fully vested within three years. These options are
intended to be incentive stock options. The exercise price per share, as
adjusted for the November 17, 1995 stock split, is $20.00 per share, which
was greater than the fair market value of the Common Stock at the date of
grant of $18.25 per share. Fair market value was the average of the high and
low sales prices of the Common Stock on the date of grant on the Nasdaq
Stock Market, as adjusted for the recent stock split. The exercise price may
be paid in cash, in shares of Common Stock, or a combination of cash and
such shares.
(3) The 5% and 10% assumed annual rates of stock price appreciation do not
reflect actual changes in the fair market value of the Common Stock since
the date of grant. The information in the table is provided in accordance
with the rules of the Securities and Exchange Commission regarding the
disclosure of compensation of executive officers, and is not intended to
forecast possible future stock price appreciation, if any.
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
The following table sets forth the aggregated option exercises during the year
ended December 31, 1995, and the year-end value of options held by each of the
named executive officers of First Western in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END AT YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED (1) UNEXERCISABLE (#) UNEXERCISABLE ($)(2)
- ----------------------------------------- ------------ ------------------- ----------------------
<S> <C> <C> <C> <C>
Thomas J. O'Shane 15,857 $295,799 69,806/12,402 $ 852,225/$257,342
Robert H. Young -- -- 14,856/ 6,345 193,584/ 47,588
Stephen R. Sant -- -- 31,166/ 8,640 562,425/ 64,800
Robert E. Cimini -- -- 21,058/ 6,345 322,275/ 47,588
John A. Zercher -- -- 12,896/ 1,455 137,809/ 10,913
</TABLE>
- ---------
(1) Value realized for options exercised but not sold was determined based on
the average of the high and low price of the Common Stock on the day prior
to exercise minus the exercise price, multiplied by the number of shares
acquired. If shares were sold simultaneously upon exercise, value realized
was determined based upon the sales price.
(2) The value of unexercised in-the-money options is calculated by determining
the difference between the fair market value of the securities underlying
the options at year-end ($27.50 per share based on the closing price of the
Common Stock at year-end) and the exercise price of the options ($6.75 per
share
-14-
<PAGE> 16
for 1991-granted options and $20.00 per share for 1995-granted options),
multiplied by the number of underlying securities.
CONSULTING ARRANGEMENTS
Consulting agreements previously entered into by First Western with John R.
McKinley and John W. Sant were terminated in September 1995. Under these
agreements, prior to their termination, Mr. McKinley received an annual
consulting fee of $41,000 plus director fees, and Mr. Sant received an annual
consulting fee of $20,000 plus director fees. During 1995 Mr. McKinley received
$20,500 and Mr. Sant received $22,900 under these arrangements (not including
normal director fees).
CHANGE IN CONTROL AGREEMENTS
Certain executive officers of the Company, including those named in the Summary
Compensation Table (Messrs. O'Shane, Young and Sant), have entered into change
in control agreements with the Company (the "Agreements"). The Agreements
operate only upon the occurrence of a "change in control" as described below.
Absent a "change in control," the Agreements do not require the Company to
retain the executives in its employ or to pay them any specified level of
compensation or benefits.
Each Agreement provides that if a change in control of the Company or any of its
bank subsidiaries (collectively, the "Subsidiary") occurs, the Company and the
Subsidiary will be obligated to continue to employ the executive during the time
period starting upon the occurrence of a change in control and ending three
years thereafter (or, if earlier, at the executive's early retirement date or
attainment of age 65) (the "Term of Employment"). The Agreement specifies the
compensation and benefits required to be provided to the executive during the
Term of Employment.
If, during the Term of Employment, the executive is discharged by the Company or
the Subsidiary without cause or resigns for good reason, then the executive
shall receive within 30 days of the date of termination a lump sum payment equal
to the present value of monthly payments, calculated using an appropriate
discount rate, from the date of termination until the earlier of (a) the date
that is 36 months after the change in control and (b) the executive's attainment
of age 65 (the "Calculation Period"), of (i) salary at a rate equal to the
highest salary in effect during the 12 months immediately preceding the change
in control or the date of termination and (ii) bonus at a rate equal to the
greater of the annual bonuses received during the three calendar years
immediately preceding the change in control or the date of termination.
If the executive is terminated during the Term of Employment for any reason
other than cause, then until the executive reaches or would have reached normal
retirement age, (a) the executive and/or his spouse will continue to receive
insurance and health care benefits equivalent to those in effect immediately
prior to the date of termination or the date of the change in control (whichever
is more favorable), subject to reduction to avoid duplication with benefits of a
subsequent employer, (b) at and after normal retirement age, health and life
insurance benefits equivalent to those afforded retired executives under
programs in effect immediately prior to the date of termination or the date of
the change in control (whichever is more favorable) and (c) the executive will
also receive supplemental retirement benefits equal to the extra pension
benefits he would have earned had employment been continued for the entire
Calculation Period.
Generally, and subject to certain exceptions, a "change in control" shall be
deemed to have occurred if (a) final regulatory approval is obtained for any
party to acquire securities of the Company and/or the Subsidiary representing
20% or more of the combined voting power of the Company's or the Subsidiary's
then outstanding securities; (b) there is a significant change in the Company's
or the Subsidiary's board of directors not approved by the incumbent board; or
(c) final regulatory approval is obtained for a plan of complete liquidation or
dissolution or sale of all or substantially all of the Company's or the
Subsidiary's assets or certain significant reorganizations, mergers and similar
transactions involving the Company or the Subsidiary.
-15-
<PAGE> 17
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of First Western (the
"Committee") determines the specific forms and levels of compensation for the
executive and other officers of First Western and administers the compensation
plans of First Western, subject to the approval of the Board of Directors. The
Committee is comprised of six members, all of whom are non-employee directors.
COMPENSATION POLICIES
The compensation policies established and administered by the Committee are
intended to provide compensation to First Western's executive officers at
competitive levels in order to attract and retain qualified executive officers,
to award executive officers based on First Western's annual and long-term
performance, and to enhance shareholder value. Executive compensation is
generally set at levels that the Committee believes to be within the mid-range
for executive compensation for bank holding companies which are comparable in
size, geographic location and performance to First Western. The Committee views
stock options and stock ownership by executive officers as important components
of performance-based compensation as the value of stock options directly relates
to the price of the Common Stock of First Western and provides executive
officers with an additional incentive to enhance shareholder value. In January
1995 the Committee adopted a policy with respect to executive compensation under
Section 162(m) of the Internal Revenue Code. The policy states that, in general,
First Western will not adopt plans or pay compensation to its key executives in
excess of the deductible limits to First Western specified under Section 162(m);
however, it is recognized there may be circumstances in which it is necessary or
appropriate to pay compensation in excess of such limits and First Western
expressly reserves the right to compensate executives in a manner it deems
appropriate.
ELEMENTS OF EXECUTIVE COMPENSATION
Compensation of the executive officers of First Western and its subsidiaries
consists of the following three elements: base salary, cash payments under the
Incentive Plan and stock option awards under the Option Plan.
Base Salary. The Committee establishes base salaries for executive and other
officers of First Western by utilizing salary data obtained from a variety of
sources, including outside consultants and publicly available information. The
Committee undertakes an annual review of the base salary level of each executive
officer of First Western, including the Chief Executive Officer. It is the
intention of the Committee that the executive officers of First Western be paid
base salaries that are approximately in the mid-range of base salaries for
executive officers at bank holding companies comparable in size, geographic
location and performance to First Western. The Committee considers a variety of
factors in determining base salaries for individual executive officers,
including among others, the level of duties and responsibilities inherent in
each individual's position with First Western and the individual's performance
of these duties, First Western's financial performance, general economic
conditions and compensation trends in bank holding companies.
Incentive Plan. The Incentive Plan is intended to provide executive and other
officers of First Western and its subsidiaries with compensation tied to the
achievement of certain corporate, departmental and individual performance goals,
as approved by the Committee at the beginning of the year. If the goals
established by the Committee are achieved, the incentive award added to the base
salary paid is intended to provide to each executive officer total cash
compensation that year in approximately the mid-range of the upper half of total
cash compensation paid to executive officers at bank holding companies
comparable to First Western. If the goals established by the Committee are not
achieved, the incentive award may be reduced.
Corporate earnings goals, as measured by earnings per share, constitute a
significant component of each incentive award so that incentive awards are
directly dependent upon the achievement of corporate goals. The corporate
earnings component of an incentive award will be increased or reduced at a rate
equal to two and one-half times the percentage increase or shortfall, as the
case may be, in such goal. In addition to the corporate earnings goals,
individual goals for a particular year vary for each officer participating in
the Incentive Plan and are mainly based on the achievement of certain
predetermined departmental and individual goals for the particular fiscal year,
including among others, goals related to the following: the department's
operating budget; goals of the business unit in which the individual participant
is performing the majority of his duties;
-16-
<PAGE> 18
specific job-related goals; and individual performance. Past performance, peer
group performance and perceived future opportunities are considered when
establishing departmental and individual goals.
Incentive awards for each individual executive or other officer are determined
as a percentage of that individual's base salary. Such percentages vary with the
officer's position and responsibilities and range in amount from 10% to 45% of
base salary. The actual amount of each individual incentive award may be
modified by the Committee to recognize outstanding performance or additional
effort when certain goals may not have been achieved due to changing business
priorities or conditions, and also may be modified to reflect an unsatisfactory
performance by an individual despite the achievement of certain goals. No
payouts will be made to any participant if one or more of the following
conditions exist: (a) earnings of the Corporation are less than 60% of budgeted
earnings, (b) cash dividends are not at least equal to non-special cash
dividends paid in the prior year, or (c) the ratio of the allowance for possible
loan losses to nonaccrual loans is less than 85%. To further protect shareholder
interests, the aggregate amount of awards to all Plan Participants for a Plan
Year may not exceed 8% of First Western's pre-tax earnings. Incentive awards
earned, if any, are paid annually in cash as soon as practicable after the end
of each fiscal year.
Options. The grant of stock options is intended to provide long-term
performance-based compensation to the executive officers of First Western.
Options also are intended to provide executive officers with an incentive to
increase and promote shareholder value. Options have previously been granted to
individual executive officers of First Western based on the performance of each
individual and their contributions to First Western's long-term growth and
profitability. Options to purchase an aggregate of 155,042 shares of Common
Stock of First Western (as adjusted for stock dividends and splits) were granted
in 1991 to certain current executive officers of First Western. Options to
purchase 99,224 shares remain outstanding as of January 31, 1996. Additional
options to purchase 150,000 shares of Common Stock (as adjusted for stock
dividends and splits) have been granted under the Option Plan as of January 16,
1995 to certain key executives who are primarily responsible for earnings
performance and shareholder value. These options were granted with an option
price of $20.00 per share (as adjusted), which was higher than the fair market
value per share as of such date of $18.25 (as adjusted), with vesting terms of
six months to three years and a term of ten years. Options for 105,000 shares
are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code and options for 45,000 shares are considered nonqualified
and are not meant to qualify as incentive stock options. The Committee will
continue to review compensation through stock options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation of Thomas J. O'Shane, Chief Executive Officer of First Western,
is determined by the Committee based on the same criteria and elements of
compensation as the other executive officers of First Western. The Committee
believes that Mr. O'Shane's base salary of $266,500 for 1995 is consistent with
First Western's general compensation policies. The Committee believes that Mr.
O'Shane's current base salary is approximately at the mid-range of base salaries
for bank holding companies comparable to First Western, based on independent
compensation studies made available throughout the year to the Committee.
Incentive compensation is provided to Mr. O'Shane through his participation in
the Incentive Plan and is based on the achievement of specific performance goals
for a particular fiscal year as described above under "Incentive Plan." The
Committee may also modify an award under the Incentive Plan for Mr. O'Shane (or
any other executive officer) by considering additional factors believed to be
relevant in determining the incentive compensation of the Chief Executive
Officer for a particular fiscal year, such as the performance of other duties
that enhanced First Western's overall financial performance for a given year. A
significant portion of Mr. O'Shane's total compensation is dependent upon the
achievement of the various corporate and individual performance goals set under
the Incentive Plan, and thus, a significant portion of his total compensation is
at risk. Corporate and individual performance goals under the Incentive Plan for
fiscal 1995 were determined in February 1995. In January 1996, based on the
achievement of the goals under the Incentive Plan, the Committee determined that
Mr. O'Shane should receive an incentive award of $119,925 for fiscal 1995.
Mr. O'Shane participates in the Option Plan described above and was granted
options to purchase an aggregate of 74,418 shares of Common Stock of First
Western (as adjusted for stock dividends and splits) in 1991, of which 37,208
remain outstanding. On January 16, 1995, he was granted options to purchase an
-17-
<PAGE> 19
additional 45,000 shares of Common Stock, all of which are nonqualified and
which are exercisable after six months for any time up to ten years from the
date of grant at an exercise price of $20.00 per share. These options are
included in the total grant of 150,000 options to all executives noted above.
The grant of these options, along with the options granted to other executive
officers of First Western, is intended to provide Mr. O'Shane with a long-term
incentive to enhance and improve shareholder value.
The foregoing report has been furnished by the members of the Compensation
Committee of the Board of Directors.
John R. McKinley, Chairman
James M. Campbell
Robert N. Chambers
John P. O'Leary, Jr.
Harold F. Reed, Jr.
John W. Sant
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock against the cumulative total return
of the NASDAQ Composite Market (U.S. Companies) and NASDAQ Bank Stocks for the
period of five years from December 31, 1990 through December 29, 1995.
LOGO
<TABLE>
<CAPTION>
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Western Bancorp, Inc........... 100.0 158.5 313.1 321.7 312.9 477.6
NASDAQ Stock Market (US Companies)... 100.0 160.6 186.9 214.5 209.7 296.3
NASDAQ Bank Stocks................... 100.0 164.1 238.9 272.4 271.4 404.4
</TABLE>
The information in the graph was provided by The University of Chicago Graduate
School of Business--Center for Research in Security Prices. It assumes an
initial investment of $100 and reinvestment of dividends during the period
presented in the graph.
-18-
<PAGE> 20
TRANSACTIONS WITH DIRECTORS,
NOMINEES, OFFICERS AND ASSOCIATES
The following table lists the only known entity to the knowledge of the
management of First Western which owns of record or beneficially 5% or more of
the outstanding Common Stock (7,751,267 shares) as of January 31, 1996:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------- ------------------------------------ ---------- -------
<C> <S> <C> <C>
Common First Western Trust Services Company 722,688(1) 9.32%
101 East Washington Street
New Castle, Pennsylvania 16101
</TABLE>
- ---------
(1) Trust Services has sole voting power with respect to 155,115 shares and
shared voting power with respect to 2,835 shares and no voting power with
respect to 564,738 shares. Trust Services has sole investment power with
respect to 269,699 shares, shared investment power with respect to 40,408
shares, and no investment power with respect to 412,581 shares.
Certain directors, nominees and officers of First Western and its subsidiaries
and their associates were customers of the Banks during 1995. Transactions which
involved loans or commitments by the Banks were made in the ordinary course of
business and with substantially similar terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than normal risk of collectibility or
present other unfavorable features. Wilder Agriculture Products Co., Inc. has a
$350,000 line of credit and a $60,000 term loan with FW Bank, which were past
due as of March 8, 1996. Mr. Thomas S. Mansell, an officer and director of First
Western, is a minority shareholder of that company and has guaranteed its
indebtedness to FW Bank in an amount up to $85,000.
Under the federal securities laws, First Western's directors, its executive
officers, and any persons holding more than ten percent of the Common Stock are
required to report their initial ownership of the Common Stock and any
subsequent changes in that ownership to the Securities and Exchange Commission
and NASDAQ. Specific due dates for these reports have been established and First
Western is required to disclose in this proxy statement any failure to file by
those dates during or for 1995. All of these filing requirements were satisfied
during 1995, except that one report on Form 4 for each of Thomas J. O'Shane
(director and executive officer), Kathleen L. Lewis, Dean M. Gouin, Richard L.
Rausch, Kenneth J. Romig and Stephen R. Sant, all of whom are executive
officers, was filed one day late. In making the foregoing disclosure, First
Western has relied solely on representations of its directors and executive
officers and copies of the reports that they have filed with the Commission.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP served as independent public accountants for First Western
and its subsidiaries for the year ended December 31, 1995. The Board of
Directors, at its February 20, 1996 meeting, based upon an Audit Committee
recommendation, appointed Deloitte & Touche LLP, independent public accountants
to audit the consolidated financial statements of First Western and its
subsidiaries for the year ending December 31, 1996. Representatives of Deloitte
& Touche LLP will be present at the Annual Meeting and will be available to
respond to appropriate shareholder questions, and to make a statement if they
desire to do so.
ANNUAL REPORT ON FORM 10-K
UPON WRITTEN REQUEST TO ROBERT H. YOUNG, SECRETARY OF FIRST WESTERN (AT THE
ADDRESS SPECIFIED BELOW), BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED HEREBY,
FIRST WESTERN WILL FURNISH TO SUCH SHAREHOLDER WITHOUT CHARGE A COPY OF ITS 1995
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
TOGETHER WITH CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES THERETO.
-19-
<PAGE> 21
SHAREHOLDER PROPOSALS
If any shareholder wishes to present a proposal at the 1997 Annual Meeting of
Shareholders, the proposal will be considered for inclusion in the Proxy
material only if received no later than November 16, 1996. Any such proposal
should be addressed to Robert H. Young, Secretary, P. O. Box 1488, New Castle,
PA 16103-1488.
ADDITIONAL INFORMATION
First Western knows of no other business to be presented at this time. If any
matters come before the meeting, the persons named in the Proxy will vote in
accordance with the recommendations of the Board. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS SOON AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. If you do attend the meeting, you may then withdraw your
Proxy. In any event, you may revoke your Proxy prior to its exercise. The
revocation of a proxy will not be effective, however, until written notice of
the revocation has been given to the Secretary of First Western.
/s/ ROBERT H. YOUNG
Robert H. Young
Senior Vice President -
Finance,
Secretary and Treasurer
-20-
<PAGE> 22
DIRECTIONS TO THE NEW ENGLANDER
3009 WILMINGTON ROAD, NEW CASTLE, PA
South of New Castle
North on Route 60. Take the Mitchell Road exit. Proceed to stop light at Route
18. Turn right heading south on Route 18. Proceed approximately one mile and the
New Englander is on the right.
North of New Castle
South on Route 60. Take the Mitchell Road exit. Proceed to stop light at Route
18. Turn right heading south on Route 18. Proceed approximately one mile and the
New Englander is on the right.
East of New Castle
West on Route 422. Take the Route 422 bypass around New Castle. Proceed on Route
422 west bypass as it becomes Route 60 north. Take the Mitchell Road exit.
Proceed to stop light at Route 18. Turn right heading south on Route 18. Proceed
approximately one mile and the New Englander is on the right.
West of New Castle
Route 80 east to Route 60 south. Take the Mitchell Road exit. Proceed to stop
light at Route 18. Turn right heading south on Route 18. Proceed approximately
one mile and the New Englander is on the right.
or
East on Route 422 to Route 60 north. Take the Mitchell Road exit. Proceed to
stop light at Route 18. Turn right heading south on Route 18. Proceed
approximately one mile and the New Englander is on the right.
-21-
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
First Western Bank, National Association
First Western Bank, Federal Savings Bank
First Western Trust Services Company
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation 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 of our report
dated January 26, 1996, incorporated by reference in this Annual Report on
Form 10-K of First Western Bancorp, Inc. for the year ended December 31, 1995.
/s/ DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 25, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000740876
<NAME> FIRST WESTERN BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 39,464
<INT-BEARING-DEPOSITS> 2,124
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 246,980
<INVESTMENTS-CARRYING> 259,565
<INVESTMENTS-MARKET> 259,386
<LOANS> 1,027,616
<ALLOWANCE> 14,148
<TOTAL-ASSETS> 1,603,264
<DEPOSITS> 1,177,683
<SHORT-TERM> 236,926
<LIABILITIES-OTHER> 58,834
<LONG-TERM> 8,133
<COMMON> 39,083
0
0
<OTHER-SE> 82,605
<TOTAL-LIABILITIES-AND-EQUITY> 1,603,264
<INTEREST-LOAN> 90,651
<INTEREST-INVEST> 28,962
<INTEREST-OTHER> 219
<INTEREST-TOTAL> 119,832
<INTEREST-DEPOSIT> 47,906
<INTEREST-EXPENSE> 64,872
<INTEREST-INCOME-NET> 54,960
<LOAN-LOSSES> 3,982
<SECURITIES-GAINS> 1,555
<EXPENSE-OTHER> 38,027
<INCOME-PRETAX> 23,972
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,746
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
<YIELD-ACTUAL> 8.04
<LOANS-NON> 4,959
<LOANS-PAST> 2,648
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,943
<CHARGE-OFFS> 3,067
<RECOVERIES> 290
<ALLOWANCE-CLOSE> 14,148
<ALLOWANCE-DOMESTIC> 9,654
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,494
</TABLE>
