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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, 1996
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, 1997), was approximately $235,700,000.
As of March 25, 1997, there were 7,603,216 shares of Common Stock, par
value $5 per share, outstanding.
Documents Incorporated by Reference:
Portions of the First Western Bancorp, Inc. 1996 Annual Report to
Shareholders are incorporated by reference in Part I and Part II hereof.
Portions of the First Western Bancorp, Inc. 1997 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, 1996
INDEX
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PAGE
NUMBER
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PART I
Item 1. Business.................................................................. 1
Executive Officers........................................................ 6
Item 2. Properties................................................................ 11
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 Stockholder
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 41 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 three wholly-owned
nonbank subsidiaries: First Western Trust Services Company ("Trust Services");
First Western Investment Services Company ("Investment Services"); and First
Western Capital Trust I, a Delaware business trust (The Banking Subsidiaries and
the nonbanking subsidiaries are collectively referred to as the "Subsidiaries.")
At December 31, 1996, First Western had total assets of $1.7 billion, net loans
(including loans held for sale) of $1.1 billion, deposits of $1.1 billion and
shareholders' equity of $128 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, 1996, First Western
Bank, N.A. had 22 community banking offices in Lawrence, Beaver, Butler and
Allegheny Counties, Pennsylvania. At December 31, 1996, First Western Bank, N.A.
had total assets of $1.1 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, 1996, First Western Bank, F.S.B. had total assets of approximately
$599 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, 1996, Trust Services held, as agent or fiduciary,
trust assets of approximately $491 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.
Investment Services
Investment Services was formed on December 26, 1996 as a Delaware
investment company for the purpose of holding investment securities for First
Western.
First Western Capital Trust I
First Western Capital Trust I was formed in February 1997 in connection
with the private placement of $25 million of 9.875% Capital Securities due
February 1, 2027 of the trust.
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
efficient 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, 1996:
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First Western................................................. 220
First Western Bank, N.A....................................... 272
First Western Bank, F.S.B..................................... 109
Trust Services................................................ 25
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Total....................................................... 626
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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
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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, 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 in 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
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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.
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 was subject to OTS examination and reporting requirements relating
to savings and loan holding companies. On September 30, 1996, President Clinton
signed into law the Economic Growth and Regulatory Paperwork Reduction Act,
which exempts bank holding companies, such as First Western, from OTS
examination and reporting requirements as savings and loan holding companies.
Thus, First Western is no longer subject to supervision as a savings and loan
holding company and is only subject to supervision as a bank holding company.
First Western's bank holding company status is discussed above in the Bank
Holding Company Status section.
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 1996 Annual Report to Shareholders (the "1996 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 and Capital
Resources" in the 1996 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 an additional cushion of 100 to 200 basis points
for all but the most highly rated institutions. At December 31, 1996, First
Western Bank, N.A. and First Western Bank, F.S.B. met all applicable leverage
requirements.
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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 Bank Insurance Fund ("BIF") and Savings Association
Insurance Fund ("SAIF"), respectively. The FDIC has adopted regulations
effective in 1993 that impose risk based insurance premiums on all insured
depository institutions.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 ("Funds Act") that, among other things, imposed a special
one-time assessment on SAIF member institutions to recapitalize the SAIF. As
required by the Funds Act, the FDIC imposed a special assessment of 65.7 basis
points on SAIF assessable deposits held as of March 31, 1995, payable November
27, 1996 ("SAIF Special Assessments"). The SAIF Special Assessment was
recognized by First Western Bank, F.S.B. and First Western Bank, N.A., as a
expense in the quarter ended September 30, 1996 and was tax deductible. The SAIF
Special Assessment recorded by First Western amounted to approximately $3.3
million on a pre-tax basis and approximately $2.0 million on an after-tax basis.
The Funds Act also spreads the obligations for payment of Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits are assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. BIF deposits will be assessed an annual FICO
payment of approximately 1.3 basis points, while SAIF deposits will be assessed
a payment of approximately 6.5 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000, or the date the BIF and SAIF are merged. As a result of the Funds Act,
SAIF assessments have been lowered to a range between 0 and 27 basis points
effective January 1, 1997, a range comparable to that paid by BIF members.
However, SAIF members will continue to make the higher FICO payments described
above.
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. and First Western Bank, F.S.B. are
currently classified as "well capitalized".
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, 1997),
present positions and business experience of all executive officers of First
Western. Immediately following the Annual Meeting of Shareholders to be held on
April 15, 1997, 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
Thomas J. O'Shane 49 Chairman of the Board, President and Chief Executive
Officer, First Western; Chairman of the Board, First
Western Bank, N.A. and First Western Bank, F.S.B.; Vice
Chairman of the Board, Trust Services
Richard L. Stover 54 Executive Vice President, Chief Lending Officer
Robert H. Young 40 Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
Thomas S. Mansell 57 Senior Vice President, Legal Counsel and Assistant
Secretary
Robert E. Cimini 50 Senior Vice President-Marketing
Donald D. Wehn 42 Senior Vice President-Mortgage and Consumer Lending
John A. Zercher 44 Senior Vice President-Management Information Systems
Richard L. Rausch 47 Vice President-Human Resources
Kenneth J. Romig 33 Vice President and Controller
FIRST WESTERN BANK, N.A.
Stephen R. Sant (1) 50 President and Chief Executive Officer, First Western
Bank, N.A. and Executive Vice President, Chief Operating
Officer, First Western
FIRST WESTERN BANK, F.S.B.
Kathleen L. Lewis 45 President and Chief Executive Officer, First Western,
F.S.B. and Senior Vice President--Community Office
Management, First Western
TRUST SERVICES
Fred J. Liskowski 50 President and Chief Executive Officer
Samuel I. Haines, Jr. 42 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
Thomas J. O'Shane
Chairman of the Board, First Western and First Western Bank, N.A. since April
1996; Vice Chairman, Trust Services since April 1996; Chief Executive Officer,
First Western since January 1991; President, First Western since February 1990;
Chairman, First Western Bank, F.S.B. since June 1991; 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.
Richard L. Stover
Executive Vice President, Chief Lending Officer, First Western since November
1996; Principal, Stover & Associates from March 1994 until November 1996;
Managing Director--Portfolio & Credit, Corporate
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Finance Group, General Electric Capital Corporation from March 1993 until March
1994; Executive Vice President and Chief Credit Officer, Equimark Corporation
from January 1991 until March 1993.
Robert H. Young
Executive Vice President, Chief Financial Officer, First Western since April
1996; Senior Vice President-Finance, First Western from January 1991 until April
1996; Secretary and Treasurer, First Western since June 1988.
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-Marketing, First Western since January 1993; President and
Chief Executive Officer, First National from June 1991 until September 1993;
Director, First Western Bank, N.A.
Donald D. Wehn
Senior Vice President-Mortgage and Consumer 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.
Richard L. Rausch
Vice President-Human Resources, First Western since April 1992; Senior Staff
Assistant to Industrial Relations, General Motors prior to April 1992.
Kenneth J. Romig
Vice President, First Western since January 1992; Controller, First Western
since June 1989; Treasurer, Trust Services since January 1991.
FIRST WESTERN BANK, N.A.
Stephen R. Sant
President and Chief Executive Officer, First Western Bank, N.A. since September
1993; Executive Vice President, Chief Operating Officer, First Western since
April 1996; Senior Vice President-Retail Banking, First Western from January
1993 until April 1996; 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.
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 Resources, First Western from
September 1991 until April 1992.
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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.
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 1996 Annual Report.
II. INVESTMENT PORTFOLIO
A. Book Value of Investment Portfolio:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
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(IN THOUSANDS)
<S> <C> <C> <C>
Held to Maturity:
U.S. Government agencies and corporations...... $ 21,051 $ 29,591 $ 43,760
Mortgage-backed securities..................... 169,467 145,550 202,041
Obligations of states and political
subdivisions................................ 85,341 83,223 80,189
Other securities............................... 700 1,201 10,407
-------- -------- --------
Total.................................. $276,559 $259,565 $336,397
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Available for sale:
U.S. Treasury securities....................... $ 2,068 $ 2,064 $ 6,933
U.S. Government agencies and corporations...... 79,251 29,852 --
Mortgage-backed securities..................... 102,416 190,529 56,425
Other securities............................... 17,547 24,535 4,312
-------- -------- --------
Total.................................. $201,282 $246,980 $ 67,670
======== ======== ========
</TABLE>
B. Maturity and Yield Information
The required information is incorporated by reference to pages 56 through
57 in the 1996 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
1996 Annual Report.
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B. Maturities and sensitivities of loans to interest rates at December 31,
1996:
<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.......... $51,104 $36,607 $34,048 $121,759
Real estate--construction....................... 9,928 1,103 5,258 16,289
------- ------- ------- --------
Total.................................... $61,032 $37,710 $39,306 $138,048
======= ======= ======= ========
Sensitivity of loans to interest rates:
Predetermined interest rates.................. $ 4,280 $17,833 $ 7,246 $ 29,359
Floating interest rates....................... 56,752 19,877 32,060 108,689
------- ------- ------- --------
Total.................................... $61,032 $37,710 $39,306 $138,048
======= ======= ======= ========
</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,
--------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual............................ $5,147 $4,959 $2,875 $5,186 $8,715
Restructured.......................... -- -- -- 76 81
Past due 90 days or more.............. 1,427 2,648 1,870 1,960 1,029
------ ------ ------ ------ ------
Total............................ $6,574 $7,607 $4,745 $7,222 $9,825
====== ====== ====== ====== ======
</TABLE>
The gross interest income that would have been recorded for 1996 for
nonaccrual and restructured loans outstanding as of December 31, 1996 as though
the loans had been current in accordance with their original terms was
approximately $306,000. First Western recognized interest income of $28,000
during 1996 for nonaccrual and restructured loans.
The following table presents First Western's investment in loans considered
to be impaired (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Commercial, financial and agricultural............................ $1,003 $2,804
Real estate--mortgage............................................. 2,856 3,136
------ ------
Total investment in loans considered to be impaired............... $3,859 $5,940
====== ======
</TABLE>
First Western has not presented impaired loan information for periods prior
to the effective date of FAS 114 "Accounting by Creditors for the Impairment of
a Loan", as amended, which was effective in 1995. All of the loans deemed to be
impaired were evaluated using the fair value of the collateral as the
measurement standard.
9
<PAGE> 12
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, 1996, 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
1996 Annual Report.
B. Allocation of the Allowance for Possible Loan Losses:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------ ------------------ ------------------ ------------------ ------------------
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...... $ 1,907 10.9% $ 2,847 11.7% $ 2,855 10.2% $ 3,737 10.1% $ 4,478 10.9%
Real estate--
construction...... -- 1.5 -- 2.4 -- 1.9 -- 1.7 -- 1.8
Real
estate--mortgage... 1,747 61.0 1,610 56.0 1,045 57.8 957 60.5 2,041 58.2
Installment......... 7,248 26.6 5,197 29.9 4,020 30.1 3,067 27.7 1,726 29.1
Unallocated......... 5,152 N/A 4,494 N/A 5,023 N/A 3,341 N/A 2,601 N/A
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total............. $16,054 100.0% $14,148 100.0% $12,943 100.0% $11,102 100.0% $10,846 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
For additional information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 52 through 55 of the
1996 Annual Report.
V. DEPOSITS
A. Average deposits and rates paid by type:
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits......................... $ 97,891 -- $ 95,771 -- $ 91,465 --
Interest-bearing deposits:
Demand and money market
deposits.................... 211,587 2.18% 208,124 2.60% 214,704 2.30%
Savings deposits.............. 170,480 2.23 179,101 2.30 175,711 2.35
Time deposits................. 674,522 5.59 673,140 5.70 512,598 4.79
---------- ---- ---------- ---- -------- ----
Total.................... $1,154,480 3.99% $1,156,136 4.14% $994,478 3.38%
========== ==== ========== ==== ======== ====
</TABLE>
B. Maturities of time deposits of $100,000 or more at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less.................................... $ 32,413
Over 3 through 6 months............................. 13,943
Over 6 through 12 months............................ 16,601
Over 12 months...................................... 23,840
--------
Total.......................................... $ 86,797
========
</TABLE>
10
<PAGE> 13
VI. RETURN ON EQUITY AND ASSETS
The required information is incorporated by reference to pages 42 through
43 of the 1996 Annual Report.
VII. SHORT-TERM BORROWINGS
The required information is incorporated by reference to page 58 of the
1996 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. During 1996, First Western purchased an office building in New
Castle with the intention of renovating it to house certain of First Western's
loan processing departments. 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.
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 9,735 four 5-year terms
Shenango Twp........................ 2000 40,140 one 5-year term
Zelienople.......................... 2006 11,280 one 10-year term
Coraopolis (Moon Twp.).............. 2004 36,700 three 10-year terms
Aliquippa (Hopewell) (ground
lease)............................ 2002 31,106 one 5-year term
Butler--South Main Street........... 2004 25,920 none
Butler Township--Stirling Village... 2006 37,812 three 5-year terms
Union Township...................... 1999 24,300 two 5-year terms
Chippewa............................ 2001 24,300 one 5-year term
</TABLE>
First Western closed its Coraopolis (West Hills Plaza) (closed during the
first quarter of 1997) and Butler Township (Point Plaza) (closed during the
fourth quarter of 1996) offices and transferred the deposit accounts to the
Coraopolis (Moon Township) and Butler Township (Stirling Village) offices,
respectively. 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
11
<PAGE> 14
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................................ 1997 $ 11,100 annual
Erie--State Street...................... 2002 36,450 seven 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.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending against First Western or
its Subsidiaries as of December 31, 1996.
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 1996.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The required information is incorporated by reference to page 61 of the
1996 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The required information is incorporated by reference to pages 42 through
43 of the 1996 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
61 of the 1996 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated by reference to pages 15 through
43 of the 1996 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 Directors of First Western is
incorporated by reference to pages 5 through 9 of the 1997 Annual Proxy
Statement to Shareholders (the "1997 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 9 through 17
of the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is incorporated by reference to pages 5 through 9
of the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is incorporated by reference to page 18 of the
1997 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
24, 1997 (February 13, 1997 as to Note 21) are referenced in Part II, Item
8--Financial Statements and Supplementary Data and are incorporated by reference
to pages 15 through 43 of the 1996 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 of this Form-10K.
(b) Reports on Form 8-K:
A report on Form 8-K under Item 5 dated November 26, 1996 was filed to
report the sale of First Western's credit card portfolio.
A report on Form 8-K under Item 5 dated December 16, 1996 was filed to
report the resignation of two directors and the extension of First Western's
Common Stock Repurchase Plan.
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
Chairman of the Board,
President and Chief Executive Officer
Date: March 25, 1997
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 Chairman of the Board, President March 25, 1997
- ------------------------------- and Chief Executive Officer;
Thomas J. O'Shane Director; Principal Executive
Officer
/s/ ROBERT H. YOUNG Executive Vice President, March 25, 1997
- ------------------------------- Chief Financial Officer,
Robert H. Young Secretary and Treasurer;
Principal Financial Officer
/s/ KENNETH J. ROMIG Vice President, Controller; March 25, 1997
- ------------------------------- Principal Accounting Officer
Kenneth J. Romig
/s/ WENDELL H. BOYD Director March 25, 1997
- -------------------------------
Wendell H. Boyd
/s/ JAMES M. CAMPBELL Director March 25, 1997
- -------------------------------
James M. Campbell
/s/ ROBERT C. DUVALL Director March 25, 1997
- -------------------------------
Robert C. Duvall
Director March 25, 1997
- -------------------------------
Louis J. Kasing, Jr.
/s/ JOHN W. LEHMAN, M.D. Director March 25, 1997
- -------------------------------
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 Counsel March 25, 1997
- ------------------------------- and Assistant Secretary; Director
Thomas S. Mansell
/s/ FLOYD H. MCELWAIN Director March 25, 1997
- -------------------------------
Floyd H. McElwain
/s/ RICHARD C. MCGILL Director March 25, 1997
- -------------------------------
Richard C. McGill
/s/ JOHN P. O'LEARY, JR. Director March 25, 1997
- -------------------------------
John P. O'Leary, Jr.
/s/ HAROLD F. REED, JR. Director March 25, 1997
- -------------------------------
Harold F. Reed, Jr.
/s/ JOHN W. SANT Director March 25, 1997
- -------------------------------
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
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 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
10.5 First Western Bancorp, Inc. Annual Incorporated herein by reference to
Incentive Plan* Exhibit 10.11 to First Western's 1992
Form 10-K
10.6 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
10.7 First Western Bancorp, Inc. 1993 Incorporated herein by reference to
Supplemental Benefit Program* Exhibit 10.11 to First Western's 1993
Form 10-K
10.8 Supplemental Executive Retirement Plan* Incorporated herein by reference to
Exhibit 10.9 to First Western's 1995 Form
10-K
10.9 Change in Control Agreement between Thomas Incorporated herein by reference to
J. O'Shane and First Western Bancorp, Exhibit 10.10 to First Western's 1995
Inc.* Form 10-K
10.10 Change in Control Agreement between Robert Incorporated herein by reference to
H. Young and First Western Bancorp, Inc.* Exhibit 10.11 to First Western's 1995
Form 10-K
10.11 Change in Control Agreement between Incorporated herein by reference to
Stephen R. Sant and First Western Bancorp, Exhibit 10.12 to First Western's 1995
Inc.* Form 10-K
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- -------- ------------------------------------------ -----------------------------------------
<C> <S> <C>
10.12 Change in Control Agreement between
Richard L. Stover and First Western
Bancorp, Inc.*
13.1 First Western Bancorp, Inc. 1996 Annual
Report to Shareholders
20.1 First Western Bancorp, Inc. 1997 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 10.12
AGREEMENT
THIS AGREEMENT made this 4th day of November, 1996, by and between:
FIRST WESTERN BANCORP, INC., a Pennsylvania corporation which is hereinafter
referred to as the "Company",
AND
RICHARD L. STOVER, 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. as used herein, the following definitions apply:
(a) "Bank" means First Western Bank, National Association, First
Western Bank, Federal Savings Bank, First Western Trust Services
Company, or any successor thereto.
(b) "Beneficial Owner" shall have the meaning ascribed to such term in
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act.
(c) "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.
(d) "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
Page 1
<PAGE> 2
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 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).
(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.
PAGE 2
<PAGE> 3
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
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
PAGE 3
<PAGE> 4
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:
(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
PAGE 4
<PAGE> 5
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.
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
PAGE 5
<PAGE> 6
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 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
paragraph 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
PAGE 6
<PAGE> 7
(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 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
PAGE 7
<PAGE> 8
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. 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:
411 Fern Hollow Lane
Wexford, PA 15090
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
PAGE 8
<PAGE> 9
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.
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/ THOMAS J. O'SHANE
- --------------------------- --------------------------------
Thomas J. O'Shane, Chairman,
President & C.E.O.
WITNESS: EXECUTIVE:
/s/ STEPHEN R. SANT /s/ RICHARD L. STOVER
- --------------------------- --------------------------------
RICHARD L. STOVER
PAGE 9
<PAGE> 1
EXHIBIT 13.1
FINANCIAL SECTION
MANAGEMENT'S REPORT ON THE
INTERNAL CONTROL STRUCTURE AND COMPLIANCE WITH
LAWS AND REGULATIONS
January 24, 1997
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 judgments 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, 1996. 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, 1996.
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, 1996.
/s/ THOMAS J. O'SHANE /s/ ROBERT H. YOUNG
THOMAS J. O'SHANE ROBERT H. YOUNG
Chairman of the Board, Executive Vice President,
President and Chief Executive Officer Chief Financial Officer,
Secretary and Treasurer
14
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 36,021 $ 39,464
---------- ----------
Interest-bearing deposits in other banks 1,770 2,124
---------- ----------
Federal funds sold 37,400 --
---------- ----------
Securities available for sale
(amortized cost of $199,922 and $243,145) 201,282 246,980
---------- ----------
Investment securities, held to maturity
(market value of $107,455 and $115,024) 107,092 114,015
---------- ----------
Mortgage-backed securities, held to maturity
(market value of $167,185 and $144,362) 169,467 145,550
---------- ----------
Loans held for sale 124,515 3,510
---------- ----------
Loans (net of unearned income of $34,864 and $34,636) 989,910 1,024,106
Less allowance for possible loan losses 16,054 14,148
---------- ----------
NET LOANS 973,856 1,009,958
---------- ----------
Premises and equipment 19,499 18,411
---------- ----------
Other assets 24,876 23,252
---------- ----------
TOTAL ASSETS $1,695,778 $1,603,264
========== ==========
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 93,163 $ 102,864
Interest-bearing demand 53,946 110,703
Savings 329,532 271,442
Time 672,262 692,674
---------- ----------
TOTAL DEPOSITS 1,148,903 1,177,683
---------- ----------
Borrowed funds:
Federal funds purchased and other short-term borrowings 33,202 3,598
Repurchase agreements and secured lines of credit 212,070 121,658
Advances from the Federal Home Loan Bank 144,000 111,670
---------- ----------
TOTAL BORROWED FUNDS 389,272 236,926
---------- ----------
Long-term debt 5,967 8,133
---------- ----------
Other liabilities 23,915 58,834
---------- ----------
TOTAL LIABILITIES 1,568,057 1,481,576
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value,
4,000,000 shares authorized, none issued -- --
Common stock, $5 par value, 20,000,000 shares authorized,
7,835,706 and 7,816,651 shares issued and
7,628,020 and 7,764,151 shares outstanding 39,179 39,083
Additional paid-in capital 22,064 21,811
Retained earnings 70,736 59,313
Unrealized appreciation in securities available
for sale, net of tax 884 2,492
Treasury stock, 173,400 and 52,500 shares at cost (4,242) (1,011)
Unallocated common stock held by ESOP (at cost) (900) --
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 127,721 121,688
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,695,778 $1,603,264
========== ==========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 92,321 $ 90,651 $ 74,092
Interest-bearing deposits in other banks 61 73 18
Interest on securities available for sale 16,868 10,043 6,941
Interest and dividends on investment
securities, held to maturity:
Taxable 1,516 3,047 2,910
Tax-exempt 4,151 4,034 4,084
Interest on mortgage-backed securities,
held to maturity 10,532 11,838 11,106
Interest on federal funds sold 34 146 16
-------- -------- --------
TOTAL INTEREST INCOME 125,483 119,832 99,167
-------- -------- --------
INTEREST EXPENSE:
Interest on deposits:
Demand 1,362 1,892 2,003
Savings 7,056 7,640 7,068
Time 37,693 38,374 24,568
Interest on borrowed funds:
Federal funds purchased and other
short-term borrowings 3,096 1,473 926
Repurchase agreements and secured lines
of credit 10,898 7,557 5,240
Advances from the Federal Home Loan Bank 6,620 7,196 6,086
Interest on long-term debt 489 740 722
-------- -------- --------
TOTAL INTEREST EXPENSE 67,214 64,872 46,613
-------- -------- --------
NET INTEREST INCOME 58,269 54,960 52,554
PROVISION FOR POSSIBLE LOAN LOSSES 8,288 3,982 3,650
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 49,981 50,978 48,904
-------- -------- --------
OTHER INCOME:
Trust fees 2,010 1,976 1,996
Service charges on deposit accounts 3,700 3,245 2,667
Credit card program fees 1,676 1,444 1,280
Net securities gains 984 1,555 1,321
Net gains (losses) on loan sales 4,563 229 (32)
Other operating income 2,781 2,572 1,417
-------- -------- --------
TOTAL OTHER INCOME 15,714 11,021 8,649
-------- -------- --------
OTHER EXPENSES:
Salaries and wages 14,515 13,671 12,818
Employee benefits 3,941 4,127 3,734
Net occupancy expense 2,913 2,828 2,682
Equipment rentals, depreciation and maintenance 2,190 2,297 2,186
Federal deposit insurance 4,403 1,852 2,224
Supplies 1,587 1,556 1,298
Advertising and promotion 1,207 1,456 1,347
Outside examination, legal fees and consulting 1,426 1,416 1,354
Outside data processing services 1,830 1,401 1,227
Other operating expense 8,252 7,423 6,405
-------- -------- --------
TOTAL OTHER EXPENSES 42,264 38,027 35,275
-------- -------- --------
INCOME BEFORE INCOME TAXES 23,431 23,972 22,278
INCOME TAXES 6,304 7,226 6,718
-------- -------- --------
NET INCOME $ 17,127 $ 16,746 $ 15,560
======== ======== ========
EARNINGS PER SHARE $ 2.20 $ 2.13 $ 1.98
======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 7,779 7,849 7,855
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
16
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION COMMON STOCK
(DEPRECIATION) HELD BY ESOP
COMMON STOCK IN SECURITIES (AT COST)
----------------- RETAINED AVAILABLE TREASURY ------------------
SHARES AMOUNT SURPLUS EARNINGS FOR SALE STOCK SHARES AMOUNT
------- -------- --------- ---------- ------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE:
January 1, 1994 5,153 $ 25,763 $ 34,158 $ 37,263 $ 2,925 $ -- (7) $ (109)
Net income -- -- -- 15,560 -- -- -- --
Cash dividends paid
($0.63 per share) -- -- -- (4,862) -- -- -- --
Purchased stock allocated
to ESOP participants -- -- -- -- -- -- 6 86
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, net of tax -- -- -- -- (5,116) -- -- --
----- -------- -------- -------- ------- ------ --- ------
BALANCE:
December 31, 1994 5,180 25,901 34,431 47,961 (2,191) -- (1) (23)
Net income -- -- -- 16,746 -- -- -- --
Cash dividends paid
($0.69 per share) -- -- -- (5,389) -- -- -- --
Fifty percent stock dividend
(including fractional
shares paid in cash) 2,601 13,004 (13,004) (5) -- -- (1) --
Purchased stock allocated
to ESOP participants -- -- -- -- -- -- 2 23
Exercise of stock 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, net of tax -- -- -- -- 4,683 -- -- --
----- -------- -------- -------- ------- ------- --- ------
BALANCE:
December 31, 1995 7,817 39,083 21,811 59,313 2,492 (1,011) -- --
Net income -- -- -- 17,127 -- -- -- --
Cash dividends paid
($0.74 per share) -- -- -- (5,704) -- -- -- --
Exercise of stock options,
net of shares redeemed 18 90 200 -- -- -- -- --
Common stock issued for
dividend reinvestment 1 6 29 -- -- -- -- --
Common stock purchased
by ESOP -- -- -- -- -- -- (40) (1,050)
Purchased stock allocated
to ESOP participants -- -- -- -- -- -- 6 150
Treasury stock purchased -- -- -- -- -- (3,471) -- --
Treasury stock issued -- -- 24 -- -- 240 -- --
Net change in unrealized
appreciation (depreciation)
in securities available
for sale, net of tax -- -- -- -- (1,608) -- -- --
----- -------- -------- -------- ------- ------- --- ------
BALANCE:
December 31, 1996 7,836 $ 39,179 $ 22,064 $ 70,736 $ 884 $(4,242) (34) $ (900)
===== ======== ======== ======== ======= ======= === ======
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,127 $ 16,746 $ 15,560
--------- --------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,205 2,244 2,183
Amortization and accretion - net 1,861 253 308
Provision for possible loan losses 8,288 3,982 3,650
Gain on sale of securities (984) (1,555) (1,321)
Proceeds from loan sales 39,144 61,866 17,192
(Gain) loss on sale of loans (4,563) (229) 32
Purchase of loans (7,894) (30,789) (33,997)
Loss (gain) on sale of real estate owned 44 (594) 12
Loss on sale of premises and equipment 85 48 35
Provision for deferred tax benefit (2,093) (293) (527)
Increase in interest receivable (193) (1,162) (427)
Increase in interest payable 320 3,823 2,002
Other - net 2,630 (169) (345)
--------- --------- ---------
Total adjustments 38,850 37,425 (11,203)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 55,977 54,171 4,357
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 116,036 162,924 118,045
Proceeds from maturity or paydown of securities available for sale 73,228 22,831 37,662
Purchase of securities available for sale (182,745) (151,111) (12,576)
Proceeds from maturity or paydown of investment
securities, held to maturity 47,961 49,789 41,545
Purchase of investment securities, held to maturity (65,746) (22,386) (85,334)
Net increase in loans (157,790) (208,559) (148,711)
Proceeds from sales of credit card and student loan portfolios 37,188 12,903 --
Decrease (increase) in deposits in other banks 354 (1,252) (60)
Increase in federal funds sold (37,400) -- --
Purchase of premises and equipment (3,450) (2,908) (1,720)
Proceeds from sales of premises and equipment 68 102 38
Proceeds from sales of real estate owned 883 1,614 1,635
Cash received in branch purchases -- 89,288 13,968
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (171,413) (46,765) (35,508)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits (28,701) 51,663 54,051
Net increase (decrease) in federal funds purchased
and other short-term borrowings 29,604 (31,249) (453)
Net increase (decrease) in repurchase agreements
and secured lines of credit 90,412 (6,803) (18,227)
Net increase (decrease) in advances from the Federal Home Loan Bank 32,330 (16,451) 7,171
Proceeds from issuance of long-term debt 1,050 -- --
Payments on long-term debt (3,216) (2,185) (1,079)
Treasury stock purchased (3,471) (1,011) --
Treasury stock issued 264 -- --
Proceeds from exercise of stock options 290 21 86
Proceeds from common stock issued for dividend reinvestment plan 35 541 325
Common stock purchased for ESOP (1,050) -- --
Stock allocated to ESOP participants 150 23 86
Dividends paid on common stock (5,704) (5,394) (4,862)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 111,993 (10,845) 37,098
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (3,443) (3,439) 5,947
CASH AND DUE FROM BANKS - Beginning of year 39,464 42,903 36,956
--------- --------- ---------
CASH AND DUE FROM BANKS - End of year $ 36,021 $ 39,464 $ 42,903
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 66,894 $ 61,049 $ 44,611
========= ========= =========
Income taxes $ 6,405 $ 7,562 $ 7,256
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
18
<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."); First Western Trust
Services Company ("Trust Services") and effective December 26, 1996, First
Western Investment Services Company ("Investment Services"). Investment
Services Company was organized as a Delaware investment company for the purpose
of holding investment securities for First Western. On December 31, 1995, First
Western's mortgage banking subsidiary, Residential Mortgage Company of America,
was merged into First Western. All significant intercompany transactions have
been eliminated in consolidation. Investments in subsidiaries on the parent
company financial statements (see Note 22) 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. In preparing such financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities, a 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, HELD TO MATURITY
Investments in debt securities and mortgage-backed securities which
management has the ability and intent to hold to maturity 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 HELD FOR SALE
Loans held for sale consist of those loans which management intends to sell
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," as amended by Statement No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures". Under Statement No. 114, as
amended, the 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
19
<PAGE> 7
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, as amended, was not material to
First Western.
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 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 concentration 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 or 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.
Long-lived assets to be held and those to be disposed of and certain
intangibles are evaluated for impairment using the guidance provided by
Statement No. 121, "Accounting for the the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" which was adopted on January 1, 1996.
The provisions of this statement establish when an impairment should be
recognized and how it should be measured. The adoption of this statement did
not have a material impact on First Western's financial position or results of
operations.
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 less estimated cost of disposal. 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 recognizes deferred income taxes 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.
GOODWILL AND OTHER INTANGIBLES
The excess of cost over net tangible assets and identified intangible assets
of acquired branches or subsidiaries is amortized 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.
20
<PAGE> 8
MORTGAGE SERVICING RIGHTS
Beginning January 1, 1996, First Western changed its accounting for mortgage
servicing rights to include the capitalization of both originated and purchased
servicing rights under the provisions of Statement No. 122, "Accounting for
Mortgage Servicing Rights." The total cost of loans originated or purchased is
allocated between loans and servicing rights based on the relative fair values
of each. The servicing rights capitalized are amortized in proportion to and
over the period of estimated servicing income. Management stratifies servicing
rights based on origination period and interest rate and evaluates the
recoverability in relation to the impact of actual and anticipated loan
portfolio prepayments, foreclosure, and delinquency experience. First Western
did not have a valuation allowance associated with the mortgage servicing
rights as of December 31, 1996. The adoption of Statement No. 122 did not have
a material impact on First Western's financial position or results of
operations.
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.
OFF-BALANCE SHEET INSTRUMENTS
First Western utilizes interest rate swaps to synthetically alter the cash
flow characteristics of certain on-balance sheet liabilities. Interest rate
swaps are designated with the principal balances and terms of specific debt
obligations. These agreements involve the exchange of amounts based on fixed or
variable interest rates for amounts based on variable or fixed interest rates
over the life of the agreement without an exchange of the notional amount upon
which the payments are based. The differential to be paid or received as
interest rates change is accrued and recognized as an adjustment to interest
expense. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. The fair values of the swap agreements
are not recognized in the financial statements. Gains or losses on termination
of interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding liabilities and are amortized as an adjustment to
interest expense over the remaining term of the original contract life of the
terminated swap agreement. In the event of an early extinguishment of a
designated debt obligation, any realized or unrealized gain or loss from the
swap would be recognized in income coincident with the extinguishment.
STOCK OPTIONS
First Western has adopted the disclosure-only provisions of Statement No.
123, "Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
stock options.
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
In June 1996, the Financial Accounting Standards Board issued Statement No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings based on a control-oriented "financial-components"
approach. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it
has incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. The provisions of Statement No.
125 are effective for transactions occurring after December 31, 1996, except
those provisions relating to repurchase agreements, securities lending, and
other similar transactions and pledged collateral, which have been delayed
until after December 31, 1997 by Statement No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125, an amendment of Statement
No. 125." The adoption of these statements is not expected to have a material
impact on First Western's financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1995 and 1994 to conform with the
1996 presentation.
21
<PAGE> 9
NOTE 2 - SECURITIES AVAILABLE FOR SALE
At December 31, 1996, and 1995 the cost and market values of securities
classified as available for sale were as follows (in thousands):
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
GROSS
----------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,049 $ 19 $ -- $ 2,068
U.S. Government agencies and corporations 79,645 5 (399) 79,251
Mortgage-backed securities 102,436 550 (570) 102,416
Other securities 15,792 1,766 (11) 17,547
-------- ----------- --------- --------
$199,922 $ 2,340 $ (980) $201,282
======== ========== ========= ========
</TABLE>
<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>
Securities available for sale with market values of $174,712,000 and
$83,378,000 at December 31, 1996 and 1995, respectively, were pledged to secure
public and trust deposits, securities sold under agreements to repurchase and
other short-term borrowings and for other purposes.
The cost and market value of securities available for sale at December 31,
1996, 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 $ 37,550 $ 37,464
Due after one year through five years 36,644 36,630
Due after five year through ten years 5,000 4,850
Due after ten years 18,292 19,922
-------- --------
97,486 98,866
Mortgage-backed securities 102,436 102,416
-------- --------
$199,922 $201,282
======== ========
</TABLE>
Proceeds from sales of securities available for sale during 1996, 1995 and
1994 were $116,040,000, $157,793,000, and $123,176,000, respectively. Gross
gains of $1,744,000, $2,290,000 and $1,693,000 and gross losses of $760,000,
$735,000 and $372,000 were realized on those sales during 1996, 1995 and 1994,
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 $49,200,000 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.
22
<PAGE> 10
NOTE 3 - INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES,
HELD TO MATURITY
At December 31, 1996 and 1995, the carrying and market values of investment
securities and mortgage-backed securities held to maturity were as follows (in
thousands):
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
GROSS
----------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Government agencies and corporations $ 21,051 $ -- $ (269) $ 20,782
States and political subdivisions 85,341 884 (252) 85,973
Other securities 700 -- -- 700
-------- ---------- ---------- --------
$107,092 $ 884 $ (521) $107,455
======== ========== ========== ========
Mortgage-backed securities $169,467 $ 125 $ (2,407) $167,185
======== ========== ========== ========
Total $276,559 $ 1,009 $ (2,928) $274,640
======== ========== ========== ========
</TABLE>
<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
======== ========== ========== ========
Total $259,565 $ 1,484 $ (1,663) $259,386
======== ========== ========== ========
</TABLE>
Investment securities and mortgage-backed securities with an amortized cost
of $158,614,000 and $139,669,000 at December 31, 1996 and 1995, respectively,
were pledged to secure public and trust deposits, securities sold under
agreements to repurchase and other short-term borrowings, and for other
purposes.
The carrying value and market value of investment securities at December 31,
1996, 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 $ 25,068 $ 25,148
Due after one year through five years 75,622 75,830
Due after five years through ten years 6,177 6,228
Due after ten years 225 249
---------- ----------
107,092 107,455
Mortgage-backed securities 169,467 167,185
---------- ----------
$ 276,559 $ 274,640
========== ==========
</TABLE>
There were no sales of investment securities or mortgage-backed securities
held to maturity during 1996, 1995 or 1994.
23
<PAGE> 11
NOTE 4 - LOANS
Loans at December 31, 1996 and 1995 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Commercial, financial and agricultural $ 121,410 $ 120,183
Real estate:
Construction 16,289 24,501
Mortgage 575,158 591,320
Installment loans to individuals 311,917 322,738
---------- ----------
1,024,774 1,058,742
Less unearned income 34,864 34,636
---------- ----------
$ 989,910 $1,024,106
========== ==========
</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 $144.7
million and $187.5 million at December 31, 1996 and 1995, 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, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AMOUNTS BALANCE
AT COLLECTED AT
JANUARY 1 AND OTHER DECEMBER 31,
1996 ADDITIONS CHANGES 1996
--------- --------- --------- ------------
<S> <C> <C> <C>
$13,087 $9,885 $6,089 $16,883
======= ====== ====== =======
</TABLE>
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,
---------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $14,148 $12,943 $11,102
Provision for possible loan losses 8,288 3,982 3,650
Recoveries on loans previously charged-off 674 290 669
------- ------- -------
23,110 17,215 15,421
Less loans charged-off 7,056 3,067 2,478
------- ------- -------
Balance at end of year $16,054 $14,148 $12,943
======= ======= =======
</TABLE>
Statement No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended, requires an allowance to be established as a component of the
allowance for possible loan losses for certain loans when it is probable that
all amounts due pursuant to contractual terms of the loan will not be collected
and the recorded investment in the loan exceeds the fair value. Management
reviews the impairment status of all loans designated as nonaccrual or have
been classified as "substandard" or "doubtful" by First Western's loan review
process. Management does not individually evaluate certain smaller balance,
homogeneous loans, such as consumer installment loans and residential mortgage
loans, for impairment. These loans are evaluated on an aggregate basis using a
formula-based approach in accordance with First Western's policy. All of the
loans deemed to be impaired were evaluated using the fair value of the
collateral as the measurement standard.
24
<PAGE> 12
The following table presents First Western's investment in loans considered
to be impaired and related information on those impaired loans (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Recorded investment in loans considered to be impaired $ 3,859 $ 5,940
Loans considered to be impaired that were on a nonaccrual basis 1,820 1,682
Allowance for possible loan losses related to loans considered to be impaired 1,090 984
Average recorded investment in impaired loans 4,025 6,213
Total interest income recognized on impaired loans 239 412
Interest income on impaired loans recognized on a cash basis 32 32
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Land $ 1,946 $ 1,902
Buildings 19,871 20,647
Leasehold interests and improvements 1,824 1,277
Furniture and fixtures 13,816 14,229
------- -------
37,457 38,055
Less accumulated depreciation and amortization 17,958 19,644
------- -------
$19,499 $18,411
======= =======
</TABLE>
Provisions for depreciation and amortization charged to other expenses were
$2,205,000, $2,244,000 and $2,183,000 for 1996, 1995 and 1994, respectively.
NOTE 7 - OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued interest receivable $ 9,626 $ 9,434
Intangible assets, primarily core deposit intangibles 6,855 7,879
Net deferred tax benefit 4,264 2,322
Other real estate owned 471 165
Other 3,660 3,452
------- -------
$24,876 $23,252
======= =======
</TABLE>
NOTE 8 - DEPOSITS
Time deposits include certificates of deposit issued in denominations of
$100,000 or more which amounted to $86,797,000 and $66,809,000 at December 31,
1996 and 1995, respectively. Interest expense on these certificates was
$3,898,000, $3,426,000 and $1,733,000 for 1996, 1995 and 1994, respectively.
At December 31, 1996, the scheduled maturities of certificates of deposit
are as follows (in thousands):
<TABLE>
<S> <C>
1997 $418,530
1998 188,879
1999 44,028
2000 12,440
2001 and thereafter 8,385
--------
$672,262
========
</TABLE>
25
<PAGE> 13
NOTE 9 - REPURCHASE AGREEMENTS AND SECURED LINES OF CREDIT
First Western's subsidiaries have repurchase agreements with various
wholesale funding sources and certain retail customers. First Western's
liability for repurchase agreements and secured lines of credit is as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING MATURITY AMOUNT RATE AMOUNT RATE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Next business day $ 5,180 4.62% $ 6,242 5.00%
Two to 30 days 9,400 5.01 22,032 5.85
31 days to 90 days 39,475 5.96 -- --
91 days to one year 94,215 5.71 93,384 5.95
Over one year 63,800 5.70 -- --
-------- ---- -------- ----
$212,070 5.70% $121,658 5.89%
======== ==== ======== ====
</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
Advances from the FHLB with original maturities greater than one year mature
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
1996 $ -- -- % $ 66,670 5.37%
1997 55,000 5.64 45,000 5.91
1998 74,000 5.89 -- --
1999 15,000 5.15 -- --
-------- ---- -------- ----
$144,000 5.72% $111,670 5.59%
======== ==== ======== ====
</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.
26
<PAGE> 14
NOTE 11 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
------- --------
<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, 1996, the interest rate was 6.85% $ 5,067 $ 6,626
Term loan payable to bank by First Western Employee Stock Ownership Trust used
to purchase 40,000 shares of First Western stock, guaranteed by First
Western, bearing interest at the bank's variable prime interest rate, payable
quarterly by the Employee Stock Ownership Trust with principal due in annual
installments of $150,000. At December 31, 1996, the interest rate was 8.25% 900 --
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. -- 151
Subordinated capital notes, bearing interest at 11%, due March 1, 1996, with
interest payable semi-annually on January 15 and July 15 -- 1,356
------- --------
$ 5,967 $ 8,133
======= ========
</TABLE>
Principal repayments are scheduled as follows: $1,709,000 for 1997,
$1,709,000 for 1998, $1,709,000 for 1999, $540,000 for 2000 and $150,000 for
2001 and 2002. 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 $14,581,000
at December 31, 1996), 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, 1996.
NOTE 12 - INCOME TAXES
Income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income exclusive of securities gains $ 5,960 $ 6,682 $ 6,256
Net securities gains 344 544 462
-------- -------- --------
$ 6,304 $ 7,226 $ 6,718
======== ======== ========
</TABLE>
The income tax provision consists of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Taxes currently payable $ 8,397 $ 7,519 $ 7,245
Deferred tax benefit (2,093) (293) (527)
-------- ------- -------
$ 6,304 $ 7,226 $ 6,718
======== ======= =======
</TABLE>
27
<PAGE> 15
The deferred tax 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,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Unrealized loss on sale of mortgage loans $(1,017) $ -- $ --
Provision for possible loan losses (667) (381) (653)
Deferred loan origination fees 624 220 150
Settlement of tax audit (500) -- --
Termination costs relating to credit card sale (276) -- --
Employee benefit plans (79) 170 47
Accretion of purchase accounting adjustments 9 (121) (31)
Depreciation (41) (116) (16)
Amortization of intangible assets (129) (102) (26)
Other (17) 37 2
------- ------ ------
$(2,093) $ (293) $ (527)
======= ====== ======
</TABLE>
The reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------ ------ ------
<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 (6.3) (5.9) (6.4)
State income taxes, net of federal benefit 0.2 1.1 1.2
Settlement of tax audit (2.1) -- --
Other, net 0.1 (0.1) 0.4
----- ----- -----
Effective tax rate 26.9% 30.1% 30.2%
===== ===== =====
</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, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses $ 4,893 $ 4,181
Unrealized loss on sale of mortgage loans 1,017 -
Intangible assets 763 608
Employee benefit plans 521 435
Deferred directors' fees 401 404
Other 134 246
------- -------
Total deferred tax assets 7,729 5,874
------- -------
Deferred tax liabilities:
Purchase accounting adjustments 1,395 1,397
Unrealized appreciation in securities available for sale 476 1,342
Difference between book and tax basis of property 379 425
Loan origination fees 1,215 388
------- -------
Total deferred tax liabilities 3,465 3,552
------- -------
Net deferred tax asset $ 4,264 $ 2,322
======= =======
</TABLE>
28
<PAGE> 16
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 1996, 1995 and 1994 were
$0, $599,000, and $450,000, respectively.
A summary of the components of net periodic pension expense for the Plan for
1996, 1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost $ 535 $ 370 $ 379
Interest cost 916 867 841
Actual (return) loss on plan assets (1,186) (2,240) 167
Net amortization of transition assets and prior
service cost and deferral of net asset loss or gain 14 1,256 (1,199)
------- ------- -------
Net periodic pension expense $ 279 $ 253 $ 188
======= ======= =======
</TABLE>
The assumptions used in calculating the year-end liability for the Plan are
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate 7.50% 7.25%
Weighted average rate of return 8.50% 8.50%
Expected increase in compensation levels 5.25% 5.25%
</TABLE>
The actuarial present values of accumulated benefit obligations at December
31, 1996 and 1995 were $10,699,000 and $10,745,000, respectively, including
vested benefit obligations of $10,280,000 and $10,318,000. The following table
sets forth the funded status and amounts recognized in the consolidated balance
sheets at December 31, 1996 and 1995 for the Plan (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Plan assets at fair value, consisting primarily of U.S. treasury,
government agency and corporation debt securities, and equity securities $ 13,780 $ 13,252
Projected benefit obligation (13,257) (13,331)
-------- --------
Plan assets in excess of (below) projected benefit obligation 523 (79)
Items not yet recognized:
Net asset existing at transition and for prior service costs (651) (725)
Unrecognized net loss 313 1,268
-------- --------
Prepaid expense for Plan recognized in consolidated balance sheets $ 185 $ 464
======== ========
</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 make the benefit
payments to the participants.
A summary of the components of net periodic pension expense for the Unfunded
Plan for 1996, 1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost $ -- $ 1 $ 3
Interest cost 55 62 59
Amortization of loss 5 -- 1
---- ---- ----
Net periodic pension expense $ 60 $ 63 $ 63
==== ==== ====
</TABLE>
The pension liability for the Unfunded Plan was calculated using a discount
rate of 7.50% and 7.25% for December 31, 1996 and 1995, respectively.
29
<PAGE> 17
The actuarial present values of accumulated benefit obligations of the
Unfunded Plan at December 31, 1996 and 1995 were $754,000 and $809,000
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, 1996 and 1995 for the Unfunded Plan (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Plan assets at fair value $ -- $ --
Projected benefit obligation (754) (809)
------ ------
Projected benefit obligation in excess of plan assets (754) (809)
Unrecognized net loss -- --
------ ------
Accrued pension expense for the Unfunded Plan
recognized in consolidated balance sheet $ (754) $ (809)
====== ======
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
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, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ (790) $(1,165)
Fully eligible plan participants (36) (31)
Other active plan participants (146) (126)
------- -------
Accumulated postretirement benefit obligation (972) (1,322)
Unrecognized transition obligation 464 541
Unrecognized prior service cost (242) (259)
Unrecognized net (gain) loss (383) 22
------- -------
Accrued postretirement benefit cost $(1,133) $(1,018)
======= =======
</TABLE>
Net postretirement benefit cost for 1996, 1995 and 1994 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during year $ 20 $ 13 $ 14
Interest cost on accumulated
postretirement benefit obligation 74 98 119
Amortization of transition obligation 77 77 77
Amortization of prior service costs (17) (17) (17)
Amortization of net (gain) loss (5) -- 9
---- ---- ----
Net postretirement benefit cost $149 $171 $202
==== ==== ====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 7% for 1997 and is expected to decrease
linearly each successive year until it reaches 5% in 2002. As of December 31,
1996, 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 3% and the net periodic postretirement health care
cost for the year ended December 31, 1996 by approximately 3%. The December 31,
1996 and 1995 postretirement benefit liabilities were calculated using discount
rates of 7.50% and 7.25%, respectively.
30
<PAGE> 18
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 $937,000, $960,000 and $1,003,000
for 1996, 1995 and 1994, respectively.
During 1996, the Employee Stock Ownership Plan (the "ESOP") acquired 40,000
shares of First Western common stock with a loan of $1,050,000 from an
unrelated bank. This loan is to be repaid in seven annual installments of
$150,000 beginning in December 1996. A total of 5,714 shares were allocated to
plan participants in 1996 in accordance with the terms of the plan. 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 in full on September 30, 1995. A total of 2,739 shares were allocated
to plan participants in 1995 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 balance.
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. 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. On November 4, 1996, options to
purchase 15,000 shares of common stock were issued at an option price equal to
the fair market value of First Western's common stock on the date of the grant.
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 of date of grant. The changes in options outstanding during
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------ -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 252,326 $14.63 135,414 $ 6.75 167,445 $ 6.75
Granted 15,000 26.63 150,000 20.00 -- --
Exercised (18,202) 16.54 (33,088) 6.75 (32,031) 6.75
Cancelled (300) 20.00 -- -- -- --
------- ------ ------- ------ ------- ------
Outstanding, December 31 248,824 $15.20 252,326 $14.63 135,414 $ 6.75
======= ====== ======= ====== ======= ======
Exercisable, December 31 198,337 $14.31 135,237 $16.35 51,695 $ 6.75
======= ====== ======= ====== ======= ======
Available for Grant, December 31 240,146 254,846 179,846
======= ======= =======
Weighted average fair value of
options granted during the year $ 5.80 $ 3.78 $ --
====== ====== ======
</TABLE>
31
<PAGE> 19
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ----------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 6.75 97,574 4.1 years $ 6.75 85,172 $ 6.75
20.00 136,250 8.1 20.00 113,165 20.00
26.63 15,000 9.9 26.63 -- 26.63
-------------- ------- --------- ---------------- ------- ----------------
$6.75 to 26.63 248,824 6.6 $ 15.20 198,337 $ 14.31
============== ======= ========= ================ ======= ================
</TABLE>
First Western has adopted the disclosure-only provisions of Statement No.
123, "Accounting for Stock-Based Compensation," but applies Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
the ISO Plan. If First Western had elected to recognize compensation cost for
the ISO Plan based on the fair value at the grant dates for awards under the
ISO Plan, consistent with the method prescribed by Statement No. 123, net
income and earnings per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
------- --------
<S> <C> <C>
Net income (in thousands):
As reported $17,127 $16,746
Pro forma 17,019 16,376
Earnings per share:
As reported $ 2.20 $ 2.13
Pro forma 2.19 2.09
</TABLE>
The fair value of First Western's stock options used to compute pro forma
net income and earnings per share disclosures is the estimated present value at
the grant date using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Dividend yield 3.0% 3.0%
Expected volatility 21.0 21.0
Discount rate 6.2 7.6
Expected holding period in years 5 5
</TABLE>
The fair value of stock options, calculated using the Black-Scholes
option-pricing model, granted during 1996 and 1995 were $87,000 and $567,000,
respectively.
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, 1996 of $293,931,000 consist of
commercial, mortgage and other commitments of $172,407,000, home equity lines
of credit of $49,283,000 and credit card lines of credit of $72,241,000.
Standby letters of credit at December 31, 1996 totaled $10,242,000.
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.
32
<PAGE> 20
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, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM
LEASE PAYMENTS
--------------
<S> <C>
1997 $392
1998 370
1999 370
2000 370
2001 351
</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 certain of these subsidiaries can finance or otherwise provide funds to
First Western.
Certain restrictions exist regarding the ability of certain 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.
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 $12,288,000 at December 31,
1996. Under OTS regulations the total amount available for payment of dividends
by First Western Bank, F.S.B. was approximately $5,248,000 at December 31,
1996.
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 and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on First Western's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
First Western and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off- balance-sheet items as calculated under regulatory accounting
practices. First Western's capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require First Western and its banking subsidiaries to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 1996 that First Western and its banking subsidiaries meet all
capital adequacy requirements to which they are subject.
33
<PAGE> 21
As of December 31, 1996, First Western and its subsidiaries were considered
to be well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes have changed First Western's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk-Weighted Assets:
Consolidated 133,452 12.68% 84,186 8.00% N/A N/A
First Western Bank, N.A. 89,313 13.07% 54,647 8.00% 68,309 10.00%
First Western Bank, F.S.B. 39,460 10.90% 28,964 8.00% 36,205 10.00%
Tier I Capital to Risk-Weighted Assets:
Consolidated 120,262 11.43% 42,093 4.00% N/A N/A
First Western Bank, N.A. 80,760 11.82% 27,323 4.00% 40,985 6.00%
First Western Bank, F.S.B. 34,934 9.65% N/A N/A 21,723 6.00%
Tier I Capital to Average Assets:
Consolidated 120,262 7.10% 50,793 3.00% N/A N/A
First Western Bank, N.A. 80,760 7.43% 32,621 3.00% 54,369 5.00%
First Western Bank, F.S.B. 34,934 5.87% N/A N/A 29,742 5.00%
Tier I Core Capital to Tangible Assets:
First Western Bank, F.S.B. 34,934 5.89% 17,801 3.00% N/A N/A
Tangible Capital to Tangible Assets:
First Western Bank, F.S.B. 34,934 5.89% 8,900 1.50% N/A N/A
</TABLE>
First Western's banking 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 subsidiaries are also required to maintain average reserve
balances with the district Federal Reserve Bank. The average amount of these
balances was approximately $7,552,000 and $7,569,000 for the years ended
December 31, 1996 and 1995, respectively.
NOTE 17 - SUPPLEMENTAL SCHEDULES OF NONCASH ACTIVITIES
Noncash activities for the years ended December 31, 1996, 1995 and 1994 were
as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Securities purchased settling after year end $ 7 $ 37,062 $ 201
======== ======== =======
Securities sold settling after year end $ 4 $ -- $ 5,131
======== ======== =======
Transfer of investment securities and
mortgage-backed securities to securities available for sale $ -- $ 49,160 $ --
======== ======== =======
Transfer of loans to other real estate owned $ 1,233 $ 364 $ 1,135
======== ======== =======
Transfer of loans to loans held for sale $154,935 $ -- $ --
======== ======== =======
Securitization of loans $ -- $113,732 $ --
======== ======== =======
Net change in unrealized appreciation (depreciation)
in securities available for sale $ (2,474) $ 7,206 $(7,871)
======== ======== =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Deposits assumed in branch acquisition $ -- $ 96,681 $14,426
======== ======== =======
Issuance of common stock, at par, for a 50% stock dividend $ -- $ 13,004 $ --
======== ======== =======
</TABLE>
<PAGE> 22
NOTE 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of First Western's financial instruments as of December 31,
1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 36,021 $ 36,021 $ 39,464 $ 39,464
Interest-bearing deposits in other banks 1,770 1,770 2,124 2,124
Federal funds sold 37,400 37,400 -- --
Securities available for sale 201,282 201,282 246,980 246,980
Investment securities, held to maturity 107,092 107,455 114,015 115,024
Mortgage-backed securities, held to maturity 169,467 167,185 145,550 144,362
Loans held for sale 124,515 129,713 3,510 3,518
Loans 983,336 965,692 1,016,499 1,007,976
Liabilities:
Demand and savings deposits 476,641 476,641 485,009 485,009
Time deposits 672,262 679,348 692,674 703,062
Federal funds purchased and
other short-term borrowings 33,202 33,202 3,598 3,598
Repurchase agreements and secured lines of credit 212,070 212,014 121,658 122,148
Advances from the Federal Home Loan Bank 144,000 143,863 111,670 111,812
Long-term debt 5,967 5,967 8,133 8,142
Off-Balance Sheet Instruments:
Interest rate swaps -- (93) -- --
</TABLE>
The estimated fair value amounts have been determined by First Western using
available market information and appropriate valuation methodologies. However,
considerable judgment 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 AND FEDERAL FUNDS SOLD
For interest-bearing deposits in other banks and federal funds sold, the
carrying amount is the estimated fair value.
SECURITIES AVAILABLE FOR SALE, INVESTMENT SECURITIES AND MORTGAGE-BACKED
SECURITIES, HELD TO MATURITY
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 HELD FOR SALE
Fair values for loans held 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 $6.6 million and $7.6 million in First
Western's portfolio at December 31, 1996 and 1995, respectively, because it is
not practicable to reasonably assess the credit adjustment that would be
applied in the marketplace for such loans. Interest rates on such loans
approximate current lending rates.
35
<PAGE> 23
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.
OFF-BALANCE SHEET INSTRUMENTS
The fair values of interest rate swaps are based on pricing models using
current interest rate and maturity assumptions.
NOTE 19 - OFF-BALANCE SHEET INSTRUMENTS
During 1996, First Western entered into interest rate swaps to help manage
its exposure to changes in interest rates. The interest rate swaps are used by
First Western to synthetically convert certain adjustable rate borrowings to
fixed rates. The summary information with respect to First Western's interest
rate swaps at December 31, 1996 is as follows (dollars in thousands):
<TABLE>
<S> <C>
Notional amount $30,000
Unrealized gains 27
Unrealized losses (120)
Weighted average receive fixed rate 5.68%
Weighted average pay variable rate 6.14%
Life (years) 1.7
</TABLE>
NOTE 20 - 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. 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.
36
<PAGE> 24
NOTE 21 - SUBSEQUENT EVENTS
TRUST PREFERRED OFFERING
On February 11, 1997, First Western completed the private placement of $25
million of 9.875% capital securities due February 1, 2027 issued by First
Western's newly formed Delaware trust subsidiary, First Western Capital Trust
I. The securities were sold in an offering under Rule 144A of the Securities
Act of 1933. Securities of this type received approval in October 1996 from the
Federal Reserve Board to qualify as Tier I capital and the interest payable
thereon is currently considered to be tax-deductible. Proceeds of the issue
were invested by First Western Capital Trust I in junior subordinated
debentures issued by First Western. Net proceeds from the sale of the
debentures will be used for general corporate purposes, including, but not
limited to, repurchase of shares of First Western's common stock, investments
in and advances to First Western's subsidiaries, financing future acquisitions
of financial institutions as well as banking and other assets.
CREDIT CARD LOAN SALE
First Western sold the remaining $17 million of its credit card portfolio in
February 1997, realizing a pre-tax gain of approximately $5 million.
NOTE 22 - PARENT COMPANY
Following are condensed financial statements for First Western (in
thousands).
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS:
Cash and short-term investments $ 636 $ 3,690
Securities available for sale (amortized cost of $4,084) -- 5,512
Investment securities, held to maturity (market value of $2,657) -- 2,616
Investment in:
Bank subsidiary 81,162 73,307
Savings association subsidiary 41,484 41,369
Nonbank subsidiaries 9,106 1,772
Premises and equipment 4,254 2,788
Other assets 644 1,496
-------- --------
TOTAL ASSETS $137,286 $132,550
======== ========
LIABILITIES:
Interest payable $ 30 $ 110
Other liabilities 1,835 2,234
Long-term debt 7,700 8,518
-------- --------
TOTAL LIABILITIES 9,565 10,862
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value, 4,000,000 shares authorized, none issued -- --
Common stock, $5 par value, 20,000,000 shares authorized, 7,835,706 and
7,816,651 shares issued and 7,628,020 and 7,764,151 shares outstanding 39,179 39,083
Additional paid-in capital 22,064 21,811
Retained earnings 71,620 60,877
Unrealized appreciation in securities available for sale, net of tax -- 928
Treasury stock, 173,400 and 52,500 shares at cost (4,242) (1,011)
Unallocated common stock held by ESOP (at cost) (900) --
-------- --------
TOTAL SHAREHOLDERS' EQUITY 127,721 121,688
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $137,286 $132,550
======== ========
</TABLE>
37
<PAGE> 25
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash dividends from:
Bank subsidiary $ 8,000 $ 10,400 $ 5,900
Savings association subsidiary -- -- 2,400
Nonbank subsidiaries 250 -- --
Interest Income from:
Bank subsidiary 66 127 208
Interest income on investment securities 145 292 428
Interest income on securities available for sale 211 164 129
Interest expense (555) (778) (754)
Management and service fees from:
Bank subsidiary 7,204 6,337 6,543
Savings association subsidiary 3,941 3,222 2,695
Nonbank subsidiaries 163 136 114
Net securities gains (losses) 465 (4) 116
Other operating income 3 311 50
Other operating expenses (13,302) (12,478) (11,410)
-------- -------- --------
Income before tax benefit and equity in
undistributed earnings of subsidiaries 6,591 7,729 6,419
Income tax benefit (576) (993) (644)
-------- -------- --------
Income before equity in undistributed
earnings of subsidiaries 7,167 8,722 7,063
Equity in undistributed earnings of:
Bank subsidiary 8,883 3,406 6,474
Savings association subsidiary 894 4,429 1,935
Nonbank subsidiaries 183 189 88
-------- -------- --------
NET INCOME $ 17,127 $ 16,746 $ 15,560
======== ======== ========
</TABLE>
38
<PAGE> 26
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,127 $16,746 $15,560
-------- ------- -------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 765 772 765
(Gain) loss on sale of securities available for sale (465) 4 (116)
Amortization and accretion - net 6 11 25
Other - net 878 1,181 (1,543)
Equity in undistributed earnings of subsidiaries (9,960) (8,024) (8,497)
-------- ------- -------
TOTAL ADJUSTMENTS (8,776) (6,056) (9,366)
-------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,351 10,690 6,194
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in savings association subsidiary -- (7,000) --
Investment in nonbank subsidiary (10) -- --
Proceeds from maturities and paydown of investment securities 981 2,182 3,251
Proceeds from sales of securities available for sale 1,474 165 281
Purchase of securities available for sale (1,298) (683) (1,628)
Purchase of premises and equipment - net of retirements (2,248) (570) (326)
-------- ------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,101) (5,906) 1,578
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 2,625 -- --
Payments on long-term debt (3,443) (2,244) (1,138)
Common stock purchased for ESOP (1,050) -- --
Stock allocated to ESOP participants, at cost 150 23 86
Proceeds from exercise of stock options 290 21 86
Proceeds from common stock issued for dividend reinvestment 35 541 325
Treasury stock purchased (3,471) (1,011) --
Treasury stock issued 264 -- --
Dividends paid on common stock (5,704) (5,394) (4,862)
-------- ------- -------
NET CASH USED IN FINANCING ACTIVITIES (10,304) (8,064) (5,503)
-------- ------- -------
NET (DECREASE) INCREASE IN CASH
AND SHORT-TERM INVESTMENTS (3,054) (3,280) 2,269
CASH AND SHORT-TERM INVESTMENTS - BEGINNING OF YEAR 3,690 6,970 4,701
-------- ------- -------
CASH AND SHORT-TERM INVESTMENTS - END OF YEAR $ 636 $ 3,690 $ 6,970
======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 635 $ 790 $ 700
======== ======= =======
Income taxes $ 6,055 $ 7,212 $ 6,740
======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Transfer of investment securities held to maturity and
securities available for sale to nonbank subsidiary $ 7,740 $ -- $ --
======== ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Issuance of common stock, at par, for 50% stock dividend $ -- $13,004 $ --
======== ======= =======
</TABLE>
39
<PAGE> 27
NOTE 23 - QUARTERLY EARNINGS SUMMARY (UNAUDITED)
Quarterly earnings for the years ended December 31, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996
--------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Interest income $30,057 $31,376 $31,771 $32,279
Interest expense 16,096 16,871 16,977 17,270
------- ------- -------- -------
Net interest income 13,961 14,505 14,794 15,009
Provision for possible loan losses 1,290 3,290 1,190 2,518
------- ------- -------- -------
Net interest income after provision
for possible loan losses 12,671 11,215 13,604 12,491
Other income 2,867 3,296 3,099 6,452(1)
Other expenses 9,638 9,334 12,948(2) 10,344
------- ------- -------- -------
Income before income taxes 5,900 5,177 3,755 8,599
Income taxes 1,731 991 921 2,661
------- ------- -------- -------
Net income $ 4,169 $ 4,186 $ 2,834 $ 5,938
======= ======= ======= =======
Per share:
Net income $ 0.53 $ 0.54 $ 0.37 $ 0.77
======= ======= ======= =======
Dividends $ 0.18 $ 0.18 $ 0.18 $ 0.20
======= ======= ======= =======
Weighted average shares outstanding 7,859 7,793 7,722 7,743
======= ======= ======= =======
</TABLE>
<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
======= ======= ======= =======
Weighted average shares outstanding 7,856 7,858 7,838 7,857
======= ======= ======= =======
</TABLE>
(1) Includes net gains on sales of loans of $4.5 million.
(2) Includes SAIF assessment of $3.3 million.
40
<PAGE> 28
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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 24, 1997
(February 13, 1997 as to Note 21)
41
<PAGE> 29
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
SUMMARY OF EARNINGS:
Net income $ 125,483 $ 119,832 $ 99,167
Interest expense 67,214 64,872 46,613
---------- ---------- ----------
Net interest income 58,269 54,960 52,554
Provision for possible loan losses 8,288 3,982 3,650
---------- ---------- ----------
Net interest income after provision for possible
loan losses 49,981 50,978 48,904
Other income 15,714 11,021 8,649
Other expenses 42,264 38,027 35,275
---------- ---------- ----------
Income before income taxes 23,431 23,972 22,278
Income taxes 6,304 7,226 6,718
---------- ---------- ----------
Net income $ 17,127 $ 16,746 $ 15,560
========== ========== ==========
PER SHARE DATA:
Earnings per share $ 2.20 $ 2.13 $ 1.98
Cash dividends per share 0.74 0.69 0.63
Book value per share at year-end 16.74 15.67 13.65
Tangible book value per share at year-end 15.84 14.66 13.50
Weighted average shares outstanding 7,779 7,849 7,855
BALANCE SHEET DATA:
(At year-end)
Assets $1,695,778 $1,603,264 $1,454,573
Investment securities 107,092 114,015 134,356
Mortgage-backed securities 169,467 145,550 202,041
Securities available for sale 201,282 246,980 67,670
Loans and loans held for sale, net of unearned income 1,114,425 1,027,616 978,562
Allowance for possible loan losses 16,054 14,148 12,943
Deposits 1,148,903 1,177,683 1,029,409
Advances from the Federal Home Loan Bank 144,000 111,670 128,121
Federal funds purchased and other short-term borrowings 33,202 3,598 34,847
Repurchase agreements and secured lines of credit 212,070 121,658 128,461
Long-term debt 5,967 8,133 10,318
Shareholders' equity 127,721 121,688 106,079
SIGNIFICANT RATIOS:
Return on average assets 1.02% 1.06% 1.12%
Return on average equity 14.06 14.79 15.19
Average loans as a percent of average deposits 93.54 90.32 89.64
Shareholders' equity as a percent of year-end assets 7.53 7.59 7.29
Average shareholders' equity to average total assets 7.27 7.16 7.37
Tier I capital to risk-weighted assets 11.43 11.25 11.69
Total capital to risk-weighted assets 12.68 12.51 12.97
Tier I leverage ratio 7.10 6.99 7.60
Allowance for possible loan losses as a percent of net loans 1.44 1.38 1.32
Net charge-offs as a percent of average loans 0.59 0.27 0.20
Dividends as a percent of net income 33.30 32.18 31.25
Net interest margin 3.78 3.78 4.12
Effective tax rate 26.90 30.14 30.15
</TABLE>
42
<PAGE> 30
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988 1987
- ---------- ---------- ---------- -------- -------- -------- --------
[C] [C] [C] [C] [C] [C] [C]
$ 95,706 $ 96,224 $ 87,146 $ 56,868 $ 51,807 $ 42,973 $ 37,882
44,372 47,838 50,989 32,293 29,739 23,996 20,369
- ---------- ---------- ---------- -------- -------- -------- --------
51,334 48,386 36,157 24,575 22,068 18,977 17,513
3,435 3,755 2,710 2,000 1,050 915 726
- ---------- ---------- ---------- -------- -------- -------- --------
47,899 44,631 33,447 22,575 21,018 18,062 16,787
7,718 8,445 5,660 4,115 3,311 2,631 1,446
34,943 37,026 27,425 18,600 17,457 14,771 13,559
- ---------- ---------- ---------- -------- -------- -------- --------
20,674 16,050 11,682 8,090 6,872 5,922 4,674
6,343 4,839 3,160 2,086 1,556 1,104 569
- ---------- ---------- ---------- -------- -------- -------- --------
$ 14,331 $ 11,211 $ 8,522 $ 6,004 $ 5,316 $ 4,818 $ 4,105
========== ========== ========== ======== ======== ======== ========
$ 1.83 $ 1.52 $ 1.35 $ 1.21 $ 1.10 $ 1.00 $ 0.85
0.54 0.49 0.45 0.41 0.39 0.37 0.32
12.94 11.19 9.89 8.98 8.48 7.75 7.14
12.82 11.04 9.67 8.70 8.03 7.18 7.14
7,814 7,398 6,292 4,949 4,824 4,824 4,824
$1,390,349 $1,235,255 $1,087,752 $890,468 $568,984 $539,357 $466,397
101,206 100,962 75,560 88,611 118,853 161,031 148,124
191,916 -- 274,580 173,036 25,981 -- --
223,492 316,202 -- -- -- -- --
815,642 718,074 684,369 556,408 351,543 312,744 256,036
11,102 10,846 8,876 6,870 3,912 3,213 2,525
961,140 961,223 933,554 751,201 505,294 481,188 406,242
120,950 84,500 34,000 46,500 -- -- --
35,300 28,270 11,228 10,573 11,699 11,827 17,329
146,688 22,164 19,446 -- -- -- --
11,397 13,533 14,221 14,759 4,845 4,930 4,854
100,000 85,605 62,243 56,473 40,885 37,373 34,452
1.08% 0.97% 0.89% 1.00% .97% .99% .93%
15.74 14.74 14.43 13.72 13.70 13.51 12.20
77.57 75.13 73.88 74.25 69.22 66.08 62.77
7.19 6.93 5.72 6.34 7.19 6.93 7.39
6.88 6.57 6.20 7.31 7.10 7.37 7.64
12.39 11.42 9.30 9.22 9.42 9.01 10.75
13.72 12.84 10.81 10.83 11.18 10.82 12.82
6.98 6.84 5.60 6.15 6.81 6.42 7.39
1.36 1.51 1.30 1.23 1.11 1.03 .99
0.42 0.25 0.20 .15 .10 .08 .15
28.99 31.88 33.15 34.01 35.28 37.09 37.77
4.22 4.54 4.15 4.60 4.59 4.53 4.87
30.68 30.15 27.05 25.79 22.64 18.64 12.17
43
<PAGE> 31
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, 1996, 1995 and 1994. 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.
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 First Western's market area of competitors with greater financial
resources than First Western; or other unanticipated external developments
materially impacting First Western's operational and financial performance.
OVERVIEW
The year ended December 31, 1996 contained many significant events for First
Western including: the sale of First Western's credit card portfolio; the
classification of $110 million of residential mortgage loans as held for sale;
the passage of federal legislation which had a significant impact on First
Western; a sharp rise in First Western's consumer loan charge-offs; and a
continued refinement of the retail delivery system.
During 1996, First Western decided to sell its portfolio of credit card
loans due to management's judgment that continued growth of First Western's
credit card portfolio would be difficult to achieve considering the intense
competition from large, national credit card issuers. In the fourth quarter of
1996, First Western sold approximately two-thirds of its portfolio to an
unrelated bank at a pre-tax gain of $7.2 million. The remaining $17 million of
credit card loans included in loans held for sale at December 31, 1996 were
sold in February 1997 at a pre-tax gain of approximately $5 million. First
Western will continue to offer credit cards to its retail customers as part of
a joint program with the bank that purchased First Western's portfolio. Also,
during the fourth quarter of 1996, First Western decided to sell $110 million
of residential mortgage loans at a pre-tax loss of approximately $2.9 million
as part of a strategy to reduce interest rate risk in a potentially rising rate
environment.
The legislation passed by Congress during 1996 that significantly impacted
First Western included the recapitalization of the Federal Deposit Insurance
Corporation's ("FDIC") Savings Association Insurance Fund ("SAIF") along with
tax legislation which eliminated the requirement for savings associations to
recapture their bad debt reserves if they were to convert to a bank. The
recapitalization of the SAIF cost First Western $3.3 million during 1996 as a
one-time assessment; however, the effect of this legislation was to lower the
insurance rates paid by savings associations to be more comparable to rates
paid by banks. The elimination of the bad debt recapture for savings
associations converting to bank charters removes a potential $2.2 million
liability which would have been incurred if First Western would have merged its
savings association subsidiary into its bank subsidiary. With this bad debt
recapture eliminated and the final phase of interstate banking effective in
1997, it will be possible for First Western to have all of its financial stores
operating under one subsidiary.
Earnings in 1996 were also significantly impacted by an increase in consumer
loan charge-offs which necessitated a significant increase in First Western's
provision for possible loan losses. First Western responded to the increase in
<TABLE>
<CAPTION>
ASSETS
(billions)
<S> <C>
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
1996 1.70
</TABLE>
<TABLE>
<CAPTION>
NET INCOME
(millions)
<S> <C>
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
1996 17.1
</TABLE>
44
<PAGE> 32
consumer loan charge-offs by making technological improvements in both the
underwriting and collection operations and also by utilizing credit scoring for
applications, tiered pricing based on loan risk and collateral value and
increasing the staffing in the collections and recoveries departments.
First Western continued its review of its retail delivery system during 1996
which resulted in the opening of First Western's second in-store branch
facility along with two separate branch consolidation opportunities. The branch
consolidation opportunities involved closing two small offices and transferring
the customers to other nearby offices in an effort to reduce overhead costs
while retaining the customer base. During 1996, First Western completed the
implementation of its platform automation system in most of its branch offices
which should provide for more efficient processing of certain customer
transactions along with providing customer service representatives with a
greatly enhanced customer database.
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
First Western's 1996 net income was a record $17.1 million, increasing
$381,000 or 2.3% from net income of $16.7 million in 1995. Earnings per share
in 1996 were $2.20, increasing 3.3% from $2.13 in 1995, based on average shares
outstanding of 7,779,000 and 7,849,000 in 1996 and 1995, respectively. The
decrease in weighted average shares outstanding from 1995 to 1996 was due to
the purchase of treasury shares under a board authorization for the repurchase
of common stock. Net income was $15.6 million or $1.98 per share in 1994 based
on 7,855,000 average shares outstanding.
First Western's income before income taxes decreased $541,000 or 2.3% from
1995 to 1996 due to a $4.3 million increase in the provision for possible loan
losses and a $4.2 million increase in other expenses including a $2.6 million
increase in FDIC insurance expense, with these expense increases offsetting a
$4.3 million increase in net gains realized on sales of credit card and
residential mortgage loans and a $3.3 million increase in net interest income.
The increase in net income from 1995 to 1996 was due to a $500,000 reduction in
income tax expense as a result of a settlement reached with the Internal
Revenue Service concerning an audit of prior years' tax returns.
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 during the first quarter of 1995.
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>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income (in thousands) $17,127 $16,746 $15,560
======= ======= =======
Earnings per share $ 2.20 $ 2.13 $ 1.98
======= ======= =======
Return on average assets 1.02% 1.06% 1.12%
======= ======= =======
Return on average equity 14.06% 14.79% 15.19%
======= ======= =======
</TABLE>
First Western's earnings per share increased 3.3% from $2.13 in 1995 to
$2.20 in 1996 due to the 2.3% increase in net income along with a reduction in
weighted average shares outstanding due to the purchase of treasury shares
during 1996. First Western's return on average assets decreased from 1.06% in
1995 to 1.02% in 1996 primarily due to the increase in the provision for
possible loan losses and the FDIC special assessment. The 7.6%
RETURN ON AVERAGE ASSETS
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
------- -----
<S> <C> <C>
1992 0.97% 0.71%
1993 1.08 0.98
1994 1.12 1.04
1995 1.06 1.11
1996 1.02 1.18
</TABLE>
RETURN ON AVERAGE EQUITY
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
------- -----
<S> <C> <C>
1992 14.74% 9.33%
1993 15.74 12.39
1994 15.19 12.25
1995 14.79 12.58
1996 14.06 13.55
</TABLE>
THE PEER GROUP STATISTICS WERE COMPILED BY THE FEDERAL RESERVE BANK. THE 1996
PEER GROUP DATA IS AS OF SEPTEMBER 30, 1996 WHICH WAS THE MOST CURRENT
INFORMATION AVAILABLE.
45
<PAGE> 33
increase in earnings per share from 1994 to 1995 reflects the 7.6% increase in
net income as First Western's weighted average shares outstanding remained
fairly constant from 1994 to 1995 due to the repurchase of shares of treasury
stock offsetting the shares issued for dividend reinvestment and option
exercises. The decrease in return on average assets from 1.12% in 1994 to 1.06%
in 1995 was primarily due to a decrease in First Western's net interest margin.
First Western's return on average equity decreased from 14.79% in 1995 to
14.06% in 1996 due to First Western's average equity growing at a higher rate,
7.5%, than First Western's net income. The more rapid growth in equity compared
with net income was also the reason for the decline in return on equity from
15.19% in 1994 to 14.79% in 1995.
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.
Tax-exempt securities and loans carry pre-tax 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>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net interest income, actual $58,269 $54,960 $52,554
Tax-equivalent adjustment 2,668 2,538 2,492
------- ------- -------
Net tax-equivalent interest income $60,937 $57,498 $55,046
======= ======= =======
Increase in actual net interest income $ 3,309 $ 2,406 $ 1,220
======= ======= =======
Percentage increase 6.0% 4.6% 2.4%
======= ======= =======
Increase in tax-equivalent interest income $ 3,439 $ 2,452 $ 1,623
======= ======= =======
Percentage increase 6.0% 4.5% 3.0%
======= ======= =======
</TABLE>
First Western's tax-equivalent net interest income increased $3.4 million or
6.0% from 1995 to 1996 due to a $90.5 million or 5.9% increase in average
earning assets with the net interest margin remaining constant at 3.78% for
both 1995 and 1996. The growth in average earning assets from 1995 to 1996 was
due to a $35.7 million or 3.4% increase in average loans, along with a $98.8
million or 66.6% increase in securities available for sale, partially offset by
a $41.9 million or 12.9% decrease in average investment securities and
mortgage-backed securities. Average loans increased from 1995 to 1996 due to a
$23.4 million increase in average commercial mortgage loans and an $11.3
million increase in average residential mortgage loans with these increases
partially offset by a $14.4 million decrease in average consumer installment
loans. The increase in average loans from 1995 to 1996 of $35.7 million was not
as great as the increase in average loans from 1994 to 1995 of $152.8 million
primarily due to the securitization of $113.7 million of residential mortgage
loans and the sale of $25.3 million of automobile loans during the fourth
quarter of 1995. This growth in average earning assets was funded primarily by
an $84.3 million or 29.0% increase in average borrowed funds and an $8.5
million increase in average shareholders' equity. The 4.5% increase in First
Western's tax-equivalent net interest income from $55.0 million in 1994 to
$57.5 million in 1995 was due to a $184.0 million or 13.8% increase in average
earning assets, partially offset by a decline in First Western's net interest
margin from 4.12% in 1994 to 3.78% in 1995. First Western's average earning
assets increased from 1994 to 1995 primarily due to a $152.8 million or 17.1%
increase in average loans with an increase in average deposits providing $161.7
million of funding, which was the result of the branches acquired along with
several deposit promotions run during the first quarter of 1995.
The net interest margin or net interest income expressed as a percentage of
average earning assets was 3.78% in both 1996 and 1995 compared with 4.12% in
1994. During 1996, First Western's yield on earning assets decreased nine basis
points with this decrease due to a thirteen basis point decline in loan yields,
offset partially by an increase in the yield on securities available for sale.
Loan yields decreased from 1995 to 1996 due in part to the $113.7 million
mortgage loan securitization that took place in late 1995 and also due to a
decrease in the prime rate in early 1996. First Western's cost of funds
decreased from 1995 to 1996 due to a sixteen basis point decrease in the cost
of deposits, however, this reduction in First Western's cost of funds was
partially offset by First Western increasing the proportion of funding from
borrowings which have a higher cost than First Western's total deposits.
First Western's net interest margin decreased from 4.12% in 1994 to 3.78% in
1995 due to the yield on earning assets increasing 44 basis points while the
cost of funds increased 84 basis points. The decrease in First Western's net
interest margin from 1994 to 1995 was primarily due to an increase in
short-term interest rates increasing the cost of First Western's wholesale
borrowings. 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.
46
<PAGE> 34
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 to changes due
to rate and volume in proportion to the absolute amounts of changes in each.
Since changes in interest income and expense are independently calculated, the
totals for the volume and rate columns are not the sum of the individual lines.
AVERAGE BALANCE SHEETS/NET INTEREST INCOME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ---------------------------- ----------------------------
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 $ 1,348 $ 61 4.53% $ 1,624 $ 73 4.51% $ 782 $ 18 2.36%
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Federal funds sold 595 34 5.71 2,448 146 5.98 393 16 4.10
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Securities available for sale 247,116 16,868 6.83 148,295 10,043 6.77 113,769 6,941 6.10
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Investment securities,
held to maturity:
U.S. Government agencies
and corporations 23,481 1,425 6.07 39,515 2,320 5.87 38,786 2,209 5.69
States and
political subdivisions 83,918 6,387 7.61 79,215 6,205 7.83 78,957 6,283 7.96
Other securities 1,136 91 8.01 10,216 727 7.12 10,425 701 6.73
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total investment securities 108,535 7,903 7.28 128,946 9,252 7.18 128,168 9,193 7.17
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Mortgage-backed securities 174,606 10,532 6.03 196,121 11,838 6.04 203,113 11,106 5.47
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Loans (net)(2) 1,079,881 92,753 8.59 1,044,191 91,018 8.72 891,411 74,385 8.34
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-earning assets 1,612,081 128,151 7.95 1,521,625 122,370 8.04 1,337,636 101,659 7.60
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Noninterest-earning assets:
Cash and due from banks 33,616 31,739 28,961
Premises and equipment 18,865 18,615 18,456
Other assets 25,318 24,270 16,569
Allowance for
possible loan losses (15,148) (13,555) (12,114)
---------- ---------- ----------
Total assets $1,674,732 $1,582,694 $1,389,508
========== ========== ==========
Interest-bearing sources:
Deposits:
Interest-bearing
demand deposits $ 97,088 1,362 1.40 $ 103,816 1,892 1.82 $ 103,953 2,003 1.93
Savings deposits 170,480 3,801 2.23 179,101 4,119 2.30 175,711 4,136 2.35
Money market deposits 114,499 3,255 2.84 104,308 3,521 3.38 110,751 2,932 2.65
Time deposits 674,522 37,693 5.59 673,140 38,374 5.70 512,598 24,568 4.79
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total deposits 1,056,589 46,111 4.36 1,060,365 47,906 4.52 903,013 33,639 3.73
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Federal funds purchased
and other short-term
borrowings 55,731 3,096 5.56 24,872 1,473 5.92 21,069 926 4.39
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Repurchase agreements
and secured lines of credit 194,006 10,898 5.62 128,287 7,557 5.89 119,755 5,240 4.38
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Advances from the
Federal Home Loan Bank 117,721 6,620 5.62 127,541 7,196 5.64 121,742 6,086 5.00
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Long-term debt 6,904 489 7.08 9,318 740 7.94 11,009 722 6.56
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Total interest-bearing sources 1,430,951 67,214 4.70 1,350,383 64,872 4.80 1,176,588 46,613 3.96
---------- -------- ---- ---------- -------- ---- ---------- -------- ----
Noninterest-bearing sources:
Demand deposits 97,891 95,771 91,465
Other liabilities 24,089 23,285 19,023
Shareholders' equity 121,801 113,255 102,432
---------- ---------- ----------
Total liabilities and
shareholders' equity $1,674,732 $1,582,694 $1,389,508
========== ========== ==========
Net interest rate spread(3) 3.25% 3.24% 3.64%
==== ==== ====
Net interest income $ 60,937 $ 57,498 $ 55,046
======== ======== ========
Net yield on earning assets
(Net interest margin)(4) 3.78% 3.78% 4.12%
==== ==== ====
</TABLE>
(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 $2.7 million, $2.5 million and $2.5
million for the years ended December 31, 1996, 1995 and 1994,
respectively.
(2) Loan 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 $421,000, $295,000 and
$562,000 for the years ended December 31, 1996, 1995 and 1994,
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.
47
<PAGE> 35
RATE/VOLUME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
CHANGE FROM 1995 IN INTEREST CHANGE FROM 1994 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 $ (12) $ -- $ (12) $ 30 $ 25 $ 55
------- ------- ------- ------- ------- -------
Federal funds sold (106) (6) (112) 120 10 130
------- ------- ------- ------- ------- -------
Securities available for sale 6,744 81 6,825 2,277 825 3,102
------- ------- ------- ------- ------- -------
Investment securities, held to maturity:
U.S. Government agencies and corporations (971) 76 (895) 42 69 111
States and political subdivision 361 (179) 182 20 (98) (78)
Other securities (717) 81 (636) (14) 40 26
------- ------- ------- ------- ------- -------
Total investment securities (1,484) 135 (1,349) 55 4 59
------- ------- ------- ------- ------- -------
Mortgage-backed securities, held to maturity (1,298) (8) (1,306) (392) 1,124 732
------- ------- ------- ------- ------- -------
Loans (net)(2) 3,079 (1,344) 1,735 13,200 3,433 16,633
------- ------- ------- ------- ------- -------
Total interest income 7,205 (1,424) 5,781 14,554 6,157 20,711
------- ------- ------- ------- ------- -------
Interest-bearing sources:
Deposits:
Interest-bearing demand deposits (117) (413) (530) (3) (108) (111)
Savings deposits (194) (124) (318) 79 (96) (17)
Money market deposits 323 (589) (266) (179) 768 589
Time deposits 79 (760) (681) 8,603 5,203 13,806
------- ------- ------- ------- ------- -------
Total deposits (170) (1,625) (1,795) 6,423 7,844 14,267
------- ------- ------- ------- ------- -------
Federal funds purchased and
other short-term borrowings 1,719 (96) 1,623 187 360 547
------- ------- ------- ------- ------- -------
Repurchase agreements and secured lines of credit 3,707 (366) 3,341 395 1,922 2,317
------- ------- ------- ------- ------- -------
Advances from the Federal Home Loan Bank (552) (24) (576) 300 810 1,110
------- ------- ------- ------- ------- -------
Long-term debt (177) (74) (251) (120) 138 18
------- ------- ------- ------- ------- -------
Total interest expense 3,807 (1,465) 2,342 7,485 10,774 18,259
------- ------- ------- ------- ------- -------
Net interest income $ 3,419 $ 20 $ 3,439 $ 7,183 $(4,731) $ 2,452
======= ======= ======= ======= ======= =======
</TABLE>
(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 $2.7
million, $2.5 million and $2.5 million for the years ended December 31,
1996, 1995 and 1994, respectively.
(2) Loan 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 $421,000, $295,000 and $562,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. For the purpose
of calculating loan yields, average loan balances include nonaccrual loans
with no related interest income.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $8.3 million in 1996 compared
with $4.0 million in 1995 and $3.7 million in 1994. The $4.3 million or 108.1%
increase in the provision for possible loan losses from 1995 to 1996 was
primarily in response to the $3.6 million or 126.8% increase in installment
loan net charge-offs. Net charge-offs in 1996 were $6.4 million or 0.59% of
average loans compared with $2.8 million or 0.27% in 1995 and $1.8 million or
0.20% in 1994. Most of the loans charged-off in 1996 were loans that were
originated through automobile dealers. Management attributes the increase in
indirect automobile loan charge-offs to an aggressive expansion of First
Western's automobile loan program into new market areas. First Western
responded to the increase in consumer loan charge-offs by investing in
technology to improve both the underwriting and collection operations.
Additionally, First Western also introduced credit scoring for loan
applications, tiered pricing based on risk and collateral, and increased the
staff working on collections and recoveries. Installment loan net charge-offs
also increased due to an $880,000 or 115.7% increase in credit card loan
charge-offs. Most of the increase in credit card charge-offs was due to First
Western charging-off any past due credit card accounts that were not sold in
the December 1996 transaction. These accounts are no longer active; however,
First Western is still attempting to collect the unpaid balances. The increase
in net charge-offs from 1994 to 1995 was primarily due to an $838,000 increase
in net consumer loan charge-offs.
48
<PAGE> 36
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,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses
at beginning of period $14,148 $12,943 $11,102 $10,846 $ 8,876
------- ------- ------- ------- -------
Charge-offs:
Commercial, financial and agricultural loans 72 44 123 1,520 471
Real estate construction loans -- -- -- 133 --
Real estate mortgage loans 26 18 206 275 118
Installment loans 6,958 3,005 2,149 1,515 1,404
------- ------- ------- ------- -------
Total charge-offs 7,056 3,067 2,478 3,443 1,993
------- ------- ------- ------- -------
Recoveries:
Commercial, financial and agricultural loans 73 88 390 101 27
Real estate construction loans -- -- -- -- --
Real estate mortgage loans 69 30 125 59 31
Installment loans 532 172 154 104 150
------- ------- ------- ------- -------
Total recoveries 674 290 669 264 208
------- ------- ------- ------- -------
Net charge-offs 6,382 2,777 1,809 3,179 1,785
------- ------- ------- ------- -------
Provision for possible loan losses 8,288 3,982 3,650 3,435 3,755
------- ------- ------- ------- -------
Allowance for possible loan losses at end of period $16,054 $14,148 $12,943 $11,102 $10,846
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans 0.59% 0.27% 0.20% 0.42% 0.25%
======= ======= ======= ======= =======
</TABLE>
The provision for loan losses less net charge-offs added $1.9 million to the
allowance for possible loan losses which increased to $16.1 million at year-end
1996. See "Financial Condition - Loan Quality" for further discussion.
NET CHARGE-OFFS
as a Percentage of Average Loans
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 0.25% 0.80%
1993 0.42 0.54
1994 0.20 0.25
1995 0.27 0.28
1996 0.59 0.24
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
as a Percent of Net Charge-offs
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 210% 138%
1993 108 179
1994 202 132
1995 143 128
1996 130 162
</TABLE>
OTHER INCOME
Other income increased $4.7 million or 42.6% from $11.0 million in 1995 to
$15.7 million in 1996 with most of this increase due to an increase in net
gains from sales of credit card and mortgage loans. 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 sales
of loans.
49
<PAGE> 37
Service charges on deposit accounts increased $455,000 or 14.0% from $3.2
million in 1995 to $3.7 million in 1996 due to an increase in service charges
on interest-bearing demand accounts as a result of First Western introducing a
new type of consumer account, "Active Lifestyles", during 1995. Service charges
on deposit accounts also increased due to an increase in insufficient funds and
returned check charges. Service charges on deposit accounts increased $578,000
or 21.7% from $2.7 million in 1994 to $3.2 million in 1995 due to 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 during the first quarter of
1995.
Credit card program fees increased $232,000 or 16.1% from 1995 to 1996 due
to First Western instituting a cash advance fee which generated $84,000 of fees
in 1996 along with a $76,000 increase in the fees for processing merchant
transactions and a $79,000 or 7.0% increase in interchange income resulting
from the growth of First Western's programs during 1996. Credit card program
fees increased $164,000 or 12.8% from $1.3 million in 1994 to $1.4 million in
1995. First Western's credit card program fees will be greatly reduced in 1997
due to the sale of approximately two-thirds of First Western's credit card
portfolio during the fourth quarter of 1996 and the sale of the remaining
portion during the first quarter of 1997. First Western is also considering the
sale of its credit card merchant transaction processing program.
Net securities gains were $984,000 in 1996, decreasing $571,000 or 36.7%
from $1.6 million for 1995. During 1996, sales of bank equity securities held
by the parent company resulted in gains of $465,000. Approximately one-half of
the gains on security sales realized during 1995 resulted from the sale of most
of the securities created by the mortgage loan securitization during the fourth
quarter of 1995. Net securities gains were $1.3 million in 1994 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 funding for
loan growth. As of December 31, 1996, investment securities and
mortgage-backed securities had gross unrealized gains of $1.0 million and gross
unrealized losses of $2.9 million and securities available for sale had gross
unrealized gains of $2.3 million and gross unrealized losses of $980,000.
Unrealized losses as of December 31, 1996 generally were due to interest rate
fluctuations and not due to credit deficiencies. See "Financial Condition
Securities Available for Sale and Investment Securities" for further
discussion.
First Western's net gains on loan sales increased $4.3 million from $229,000
in 1995 to $4.6 million in 1996 primarily due to the gain realized on the sale
of the credit card portfolio. During the fourth quarter of 1996, First Western
sold approximately two-thirds of its credit card portfolio with a principal
balance of $30.4 million realizing a gain of approximately $7.2 million, net of
certain costs to be incurred by First Western in connection with the credit
card sale. The remaining portion of First Western's credit card portfolio was
sold during the first quarter 1997 at a gain of approximately $5 million.
During the fourth quarter of 1996, First Western decided to sell approximately
$110.1 million of residential mortgage loans with a market value approximately
$2.9 million below the carrying value.
Other income increased from 1995 to 1996 due to a $456,000 increase in
income from loan servicing, a $247,000 increase in fees earned from the sales
of mutual funds and annuities and a $130,000 increase in fees for check card
transactions with these increases partially offset by a $638,000 decrease in
net gains realized on sales of other real estate owned. Other operating income
increased $1.2 million or 81.5% from $1.4 million in 1994 to $2.6 million in
1995 with most of this increase due to a $606,000 increase in net gains
realized on sales of other real estate owned.
OTHER EXPENSES
Other expenses were $42.3 million in 1996, increasing $4.3 million or 11.1%
from $38.0 million in 1995 with an increase in FDIC insurance expense primarily
due to the SAIF recapitalization accounting for $2.6 million of the increase.
Other expenses increased $2.7 million or 7.8% from $35.3 million in 1994 to
$38.0 million in 1995 with the branches acquired during the first quarter of
1995 accounting for approximately $1.8 million of the increase, which includes
$640,000 of core deposit intangible amortization expense.
The efficiency ratio or recurring other expenses divided by the sum of
tax-equivalent interest income and recurring other income measures the
relationship of expenses to income. First Western has excluded certain
nonrecurring income or expenses such as net gains on sales of securities, net
gains on loan sales, net gains on sales of other real
EFFICIENCY RATIO
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 58.9% 68.0%
1993 57.7 66.3
1994 56.5 63.4
1995 57.5 61.8
1996 54.8 60.9
</TABLE>
50
<PAGE> 38
estate owned and the FDIC assessment for the recapitalization of the SAIF that
was incurred in 1996 for the purpose of calculating the efficiency ratio and net
overhead to average assets. First Western's efficiency ratio was 54.8% in 1996
compared with 57.5% in 1995 and 56.5% in 1994. First Western's net overhead
ratio or recurring other expenses less recurring other income divided by total
average assets was 1.72% in 1996, improving from 1.86% in 1995 and 2.01% in
1994. The improvement in First Western's net overhead ratio in 1996 reflects an
increase in average assets with a lesser increase in net overhead.
NET OVERHEAD TO AVERAGE ASSETS
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 2.31% 2.52%
1993 2.10 2.48
1994 2.01 2.39
1995 1.86 2.29
1996 1.72 2.19
</TABLE>
First Western's salaries and employee benefits expense increased a combined
$658,000 or 3.7% from 1995 to 1996. The increase in salaries and employee
benefits expense from 1995 to 1996 was due to an $844,000 or 6.2% increase in
salaries expense due to increased personnel and normal salary and wage
increases with this increase in salaries expense partially offset by a $186,000
or 4.5% decrease in employee benefits expense due to a reduction in medical
insurance expense. First Western's salaries and employee benefits expense
increased a combined $1.2 million or 7.5% from 1994 to 1995 with approximately
40% of the increase in salaries and employee benefits expense attributable to
the additional employees resulting from the five branch offices acquired by
First Western in early 1995. First Western had 625 full-time equivalent
employees at December 31, 1996, compared with 602 and 551 at December 31, 1995
and 1994, respectively.
Expenses related to operating the branches and other facilities, including
all equipment, occupancy and depreciation charges, were $5.1 million in both
1996 and 1995 with increases in maintenance and utilities expenses offset by
lower depreciation expense and real estate tax expense. Occupancy and equipment
expense increased $257,000 or 5.3% from $4.9 million in 1994 to $5.1 million in
1995 primarily due to the branches acquired in early 1995.
Federal deposit insurance expense increased $2.6 million or 137.7% from $1.9
million in 1995 to $4.4 million in 1996 with this increase due to a one-time
assessment of thrift deposits in order to recapitalize the SAIF. On September
30, 1996, the President signed legislation which included provisions to
recapitalize the SAIF by means of a one-time assessment on SAIF insured
deposits. The one-time assessment was set at $0.657 per $100 of insured
deposits. This legislation also eliminated the insurance rate differential
between the Bank Insurance Fund ("BIF") and the SAIF and provided for some
sharing of the SAIF's debt service requirements with the BIF; however, the SAIF
will still absorb a larger portion of the debt service requirement going
forward. This legislation should result in a reduction in First Western's
federal deposit insurance expense in future periods. Excluding the impact of
the special assessment, First Western's FDIC insurance expense would have
decreased $740,000 in 1996 compared with 1995 due to a reduction in the BIF
insurance premiums in late 1995. Federal deposit insurance expense decreased
$372,000 or 16.7% from $2.2 million in 1994 to $1.9 million in 1995 due to a
reduction in the BIF insurance rates.
Supplies expense was approximately $1.6 million in both 1995 and 1996,
compared with $1.3 million in 1994. The $258,000 or 19.9% increase in supplies
expense from 1994 to 1995 was attributable to the new branch offices and an
increase in the costs for paper products.
Advertising and promotion expense decreased $249,000 or 17.1% from $1.5
million in 1995 to $1.2 million in 1996. This decrease was due to First Western
reducing its credit card solicitation efforts during 1996 in anticipation of
selling the credit card portfolio. Advertising and promotion expense also
decreased due to First Western not utilizing any television advertising in
1996. Advertising and promotion expense increased $109,000 or 8.1% from 1994
to 1995 primarily as a result of promotions related to the branch offices
acquired during the first quarter of 1995.
Outside data processing services expense increased $429,000 or 30.6% from
$1.4 million in 1995 to $1.8 million in 1996 with approximately $239,000 of
this increase due to increased expenses for credit card processing and $152,000
of the increase due to increased processing costs for automated teller machine
transactions. First Western's outside data processing expense should decrease
in 1997 compared with 1996 due to the sale of the credit card portfolio since
First Western uses a third-party servicer for processing credit card
transactions. Outside data processing services expense increased $174,000 or
14.2% from 1994 to 1995 with $161,000 of this increase due to increased
expenses for credit card processing.
51
<PAGE> 39
Other operating expenses increased $829,000 or 11.2% from $7.4 million in
1995 to $8.3 million in 1996. This increase consisted of a $235,000 increase in
fees paid to a third-party provider of services in connection with First
Western's "Active Lifestyles" account which was introduced during 1995, an
increase in customer check and other losses of $172,000 which was partially due
to First Western realizing a $85,000 recovery of a fraud loss in 1995, a
$123,000 increase in intangible amortization expense due to the full year
impact of the 1995 branch acquisition and a $113,000 increase in telephone
expense. Other operating expenses increased $1.0 million from $6.4 million in
1994 to $7.4 million in 1995 with approximately $735,000 of this increase due
to the acquired branches, primarily due to a $640,000 increase in core deposit
intangible amortization expense.
INCOME TAXES
First Western's income tax expense was $6.3 million in 1996, decreasing
$922,000 or 12.8% from $7.2 million in 1995 due to a decrease in pre-tax
earnings and also due to a $500,000 reduction in income tax expense and accrued
income taxes resulting from a settlement reached with the Internal Revenue
Service during 1996 concerning an audit of prior years' tax returns. First
Western's income tax expense increased 7.6% from $6.7 million in 1994 to $7.2
million in 1995 due to a similar percentage increase in pre-tax earnings.
Excluding the impact of the settlement reached with the Internal Revenue
Service, First Western's effective tax rate would have been 29.0% in 1996
compared with 30.1% in 1995 and 30.2% in 1994.
During 1996, Congress passed legislation that requires savings associations
to change their method of accounting for bad debts for income tax purposes.
This legislation also eliminated the recapture of deductions in excess of
actual losses that savings associations benefitted from in prior years. The
impact of this legislation on First Western is the elimination of a potential
charge of $2.2 million in income taxes that First Western would have been
required to pay if First Western Bank, F.S.B. was converted into a bank.
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 $92.5 million or 5.8% from $1.603
billion at December 31, 1995 to $1.696 billion at December 31, 1996 with most
of this increase due to an increase in loans and loans held for sale funded by
increased borrowings. Average total assets increased $92.0 million or 5.8% from
$1.583 billion for 1995 to $1.675 billion for 1996 with most of this increase
occurring in loans.
LOAN PORTFOLIO
Loans and loans held for sale increased $86.8 million or 8.4% from $1.028
billion at December 31, 1995 to $1.114 billion at December 31, 1996 with most
of this growth occurring in residential and commercial mortgage loans. First
Western's total loans secured by real estate increased $104.9 million or 18.2%
during 1996 with one-to-four family residential mortgage loans increasing $76.8
million and commercial mortgage loans increasing $17.8 million. The increase in
residential mortgage loans outstanding during 1996 was due to First Western
making a successful transition from third-party mortgage loan originators to
in-house loan originators dedicated to mortgage lending. Included in the $433.8
million of one-to-four family residential mortgage loans at December 31, 1996
are approximately $76.9 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.
52
<PAGE> 40
First Western's credit card loans decreased during 1996 due to the sale of
approximately two-thirds of the credit card portfolio during the fourth quarter
of 1996 with the remaining portion of the portfolio sold during the first
quarter of 1997. The portfolio of loans held for sale at December 31, 1996
consisted of residential mortgage loans with a cost of $110 million and an
estimated market value of $107 million and credit card loans with a cost of $17
million and an estimated market value of $22 million. The following table shows
the composition of First Western's portfolio of loans and loans held for sale
for the last five years:
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
AMOUNTS OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floorplan loans $ 26,668 $ 26,775 $ 25,229 $ 19,300 $ 18,300
Loans to municipalities 11,446 13,893 10,307 8,423 10,577
Other commercial loans 83,645 79,491 63,662 54,483 49,370
---------- ---------- -------- -------- --------
Subtotal 121,759 120,159 99,198 82,206 78,247
---------- ---------- -------- -------- --------
Real estate-construction 16,289 24,501 18,721 13,528 13,022
---------- ---------- -------- -------- --------
Real estate-mortgage:
1-4 family residential 433,813 357,004 370,582 331,104 275,952
Multi-family residential 37,173 35,088 30,923 25,693 23,736
Home equity 49,653 41,417 37,129 36,520 35,180
Commercial and other 159,470 141,667 127,176 99,913 83,427
---------- ---------- -------- -------- --------
Subtotal 680,109 575,176 565,810 493,230 418,295
---------- ---------- -------- -------- --------
Installment:
Credit cards 17,328 45,226 39,412 32,144 30,242
Installment and other 278,940 262,554 255,421 194,534 178,268
---------- ---------- -------- -------- --------
Subtotal 296,268 307,780 294,833 226,678 208,510
---------- ---------- -------- -------- --------
Total $1,114,425 $1,027,616 $978,562 $815,642 $718,074
========== ========== ======== ======== ========
PERCENT OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floorplan loans 2.4% 2.6% 2.6% 2.4% 2.5%
Loans to municipalities 1.0 1.4 1.1 1.0 1.5
Other commercial loans 7.5 7.7 6.5 6.7 6.9
---------- ---------- -------- -------- --------
Subtotal 10.9 11.7 10.2 10.1 10.9
---------- ---------- -------- -------- --------
Real estate-construction 1.5 2.4 1.9 1.7 1.8
---------- ---------- -------- -------- --------
Real estate-mortgage:
1-4 family residential 38.9 34.8 37.8 40.6 38.4
Multi-family residential 3.3 3.4 3.2 3.2 3.3
Home equity 4.5 4.0 3.8 4.5 4.9
Commercial and other 14.3 13.8 13.0 12.2 11.6
---------- ---------- -------- -------- --------
Subtotal 61.0 56.0 57.8 60.5 58.2
---------- ---------- -------- -------- --------
Installment:
Credit cards 1.6 4.4 4.0 3.9 4.2
Installment and other 25.0 25.5 26.1 23.8 24.9
---------- ---------- -------- -------- --------
Subtotal 26.6 29.9 30.1 27.7 29.1
---------- ---------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ======== ======== ========
</TABLE>
53
<PAGE> 41
LOAN QUALITY
First Western has 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 for the last five years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days $ 8,080 $10,420 $ 7,370 $ 7,621 $ 9,534
Loans past due 90 days or more 1,427 2,648 1,870 1,960 1,029
------- ------- ------- ------- -------
Total loan delinquencies $ 9,507 $13,068 $ 9,240 $ 9,581 $10,563
======= ======= ======= ======= =======
Nonaccrual loans $ 5,147 $ 4,959 $ 2,875 $ 5,186 $ 8,715
Other real estate owned 471 165 1,185 1,715 1,158
------- ------- ------- ------- -------
Total nonperforming assets $ 5,618 $ 5,124 $ 4,060 $ 6,901 $ 9,873
======= ======= ======= ======= =======
Total nonperforming assets and loans
past due 90 days or more $ 7,045 $ 7,772 $ 5,930 $ 8,861 $10,902
======= ======= ======= ======= =======
Nonaccrual loans to total loans 0.46% 0.48% 0.29% 0.64% 1.21%
Nonperforming assets to total loans
and other real estate owned 0.50% 0.50% 0.41% 0.84% 1.37%
Nonperforming assets to total assets 0.33% 0.32% 0.28% 0.50% 0.80%
Nonperforming assets and loans
past due 90 days or more to total assets 0.42% 0.48% 0.41% 0.64% 0.88%
Nonaccrual loans and loans past due
90 days or more to total loans 0.59% 0.74% 0.48% 0.88% 1.36%
Allowance for possible loan losses
to nonaccrual loans 311.91% 285.31% 450.16% 214.07% 124.45%
Allowance for possible loan losses to
loans past due 90 days or more
and nonaccrual loans 244.20% 185.98% 272.78% 155.36% 111.31%
Allowance for possible loan losses
to total loans 1.44% 1.38% 1.32% 1.36% 1.51%
</TABLE>
First Western's total delinquencies decreased $3.6 million or 27.2% from
$13.1 million at December 31, 1995 to $9.5 million at December 31, 1996 with
this decrease primarily due to a $2.5 million decrease in delinquent consumer
installment loans and a $1.1 million decrease in delinquent credit card loans.
Consumer installment loan delinquencies decreased during 1996 due to First
Western improving its loan collection and recovery efforts in 1996 along with
First Western taking a more aggressive posture in charging-off delinquent
consumer loans. Credit card delinquencies decreased due to the sale of
approximately two-thirds of the portfolio during the fourth quarter of 1996 and
the charge-off of any unsaleable delinquent credit card loans. First Western's
nonaccrual loans increased $188,000 during 1996 due to an increase in
residential mortgage loans on nonaccrual status with this increase partially
offset by reductions in commercial loans and commercial mortgage loans on
nonaccrual status. First Western's coverage ratio of the allowance for possible
loan losses to nonaccrual loans increased from 285.31% at December 31, 1995 to
311.91% at December 31, 1996 due to the increase in allowance for possible loan
losses during 1996.
54
<PAGE> 42
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, 1996 substandard and doubtful loans totaled $6.5 million, of
which $3.8 million were loans not designated as delinquent or nonaccrual
compared with $9.3 million and $3.0 million at December 31, 1995, respectively.
NONPERFORMING LOANS
as a Percent of Loans
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 1.36% 2.19%
1993 0.88 1.39
1994 0.48 0.98
1995 0.74 1.01
1996 0.59 1.05
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
as a Percent of Nonperforming Loans
<TABLE>
<CAPTION>
FIRST PEER
WESTERN GROUP
<S> <C> <C>
1992 111% 161%
1993 155 214
1994 273 235
1995 186 222
1996 244 203
</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, 1996 are current and
paying in accordance with loan terms. As of December 31, 1996, OLEM list loans
totaled $9.3 million compared with $7.1 million at December 31, 1995.
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 nonclassified 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.
First Western believes that the allowance for possible loan losses of $16.1
million at December 31, 1996 is adequate to cover losses inherent in the
portfolio as of such date. However, there can be no assurance that First
Western will not sustain losses in future periods, which could be substantial
in relation to the size of the allowance at December 31, 1996.
55
<PAGE> 43
INVESTMENT SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
First Western's portfolio of securities available for sale decreased $45.7
million during 1996 with this decrease due to First Western using these
securities to provide some of the funding for the growth of the loan portfolio
during 1996. During 1995, First Western increased its portfolio of securities
available for sale with the funds provided by the branch purchases and loan
sales and securitizations with the intention of using these securities to fund
future loan growth as needed. First Western's portfolio of investment
securities and mortgage-backed securities classified as held to maturity
increased $17.0 million during 1996 primarily due to a $23.9 million increase
in mortgage-backed securities.
The increase in long-term interest rates during 1996 resulted in a decrease
in the market values of First Western's securities. At December 31, 1996, the
market value of First Western's portfolio of investment securities and
mortgage-backed securities held to maturity was $274.6 million, or $2.0 million
or 0.7% below the amortized cost of these securities of $276.6 million,
compared with an unrealized loss of $179,000 at December 31, 1995. The
portfolio of securities available for sale had an unrealized gain of $1.4
million or 0.7% at December 31, 1996 compared with an unrealized gain of $3.8
million or 1.6% at December 31, 1995.
The following tables present the contractual maturities of investment
securities and securities available for sale at amortized cost and their
weighted average yields as of December 31, 1996, 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, HELD TO MATURITY:
<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 $13,811 $ 56,525 $ 99,131 $ -- $169,467 6.43%
U.S. Government agencies
and corporations 11,999 9,052 -- -- 21,051 6.37%
Obligations of states and
political subdivisions 13,069 66,295 5,752 225 85,341 7.58%
Other securities -- 275 425 -- 700 7.61%
------- -------- -------- ------ -------- ----
Total $38,879 $132,147 $105,308 $ 225 $276,559 6.79%
======= ======== ======== ====== ======== ====
Weighted average yield 6.89% 6.76% 6.77% 10.38% 6.79%
======= ======== ======== ====== ========
</TABLE>
56
<PAGE> 44
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 $ 50 $ 2,018 $ -- $ -- $ 2,068 6.37%
U.S. Government agencies
and corporations 37,414 34,612 4,850 2,375 79,251 7.25%
Mortgage-backed securities 291 58,715 43,410 -- 102,416 7.54%
Other securities, including
corporate bonds and notes -- -- -- 17,547 17,547 4.49%
------- ------- ------- ------- -------- ----
Total $37,755 $95,345 $48,260 $19,922 $201,282 7.15%
======= ======= ======= ======= ======== ====
Weighted average yield 7.13% 7.59% 7.27% 4.79% 7.15%
======= ======= ======= ======= ========
</TABLE>
DEPOSITS
First Western's total deposits decreased $28.8 million or 2.4% during 1996
primarily due to First Western not being aggressive in the rates paid for time
deposits with alternative sources of funds available at competitive rates.
During 1996, First Western created a new account combining an interest-bearing
demand account and a money market account. This new deposit product resulted in
a movement of funds from interest-bearing demand accounts to money market
accounts and is the primary reason for the $56.8 million decrease in
interest-bearing demand accounts and the $65.0 million increase in money market
accounts.
First Western's banking subsidiaries primarily rely on their retail deposit
bases to fund their credit needs. Deposits provided 68.9% of First Western's
funding during 1996 based on average balances of deposits and total assets.
First Western's total average deposits during 1996 were $1.154 billion,
decreasing slightly from $1.156 billion in 1995.
<TABLE>
<CAPTION>
DEPOSIT SUMMARY
DECEMBER 31,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ----------------- ----------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 93,163 8.1% $ 102,864 8.7% $ 97,242 9.4% $ 94,464 9.8% $ 89,831 9.3%
Interest-bearing
demand deposits 53,946 4.7 110,703 9.4 101,659 9.9 102,011 10.6 99,885 10.4
Money market
deposits 163,602 14.2 98,605 8.4 113,914 11.1 104,483 10.9 144,985 15.1
Savings deposits 165,930 14.4 172,837 14.7 168,039 16.3 174,174 18.1 140,469 14.6
Time deposits less
than $100,000 585,465 51.0 625,865 53.1 498,566 48.4 456,392 47.5 442,590 46.1
Time deposits of
$100,000 or more 86,797 7.6 66,809 5.7 49,989 4.9 29,616 3.1 43,463 4.5
---------- ----- ---------- ----- ---------- ----- -------- ----- -------- -----
Total deposits $1,148,903 100.0% $1,177,683 100.0% $1,029,409 100.0% $961,140 100.0% $961,223 100.0%
========== ===== ========== ===== ========== ===== ======== ===== ======== =====
</TABLE>
57
<PAGE> 45
BORROWED FUNDS
First Western's subsidiaries use various funding sources other than deposits
to provide the funds necessary for its loan and securities portfolios. First
Western's total borrowed funds increased $152.4 million or 64.3% during 1996
from $236.9 million at December 31, 1995 to $389.3 million at December 31, 1996
in order to fund loan growth.
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>
1996 1995 1994
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
At year-end $138,582 5.65% $ 86,536 5.96% $125,788 6.23%
Average during year 163,117 5.59 150,433 6.11 103,305 4.41
Maximum month-end balance 219,189 5.44 206,430 6.17 127,329 3.50
</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, 1996, First Western had advances
from the FHLB (original maturity in excess of one year) of $144.0 million with
a weighted average rate of 5.72% compared with advances of $111.7 million at
December 31, 1995 with a weighted average rate of 5.59%. The advances from the
FHLB are secured by certain qualifying residential mortgage loans, stock in the
FHLB, investment securities and securities available for sale.
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 specified 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, 1996 and 1995.
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> 46
<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
--------- --------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996:
Rate-sensitive assets:
Money market assets $ 39,170 $ -- $ -- $ -- $ -- $ 39,170
Securities 66,757 55,377 35,579 187,076 133,052 477,841
Loans 289,196 79,116 128,714 430,452 186,947 1,114,425
--------- --------- --------- --------- -------- ----------
Total $ 395,123 $ 134,493 $ 164,293 $ 617,528 $319,999 $1,631,436
========= ========= ========= ========= ======== ==========
Rate-sensitive liabilities:
Deposits $ 547,472 $ 93,118 $ 163,719 $ 246,800 $ 4,631 $1,055,740
Borrowed funds 168,749 52,290 35,400 138,800 -- 395,239
--------- --------- --------- --------- -------- ----------
Total $ 716,221 $ 145,408 $ 199,119 $ 385,600 $ 4,631 $1,450,979
========= ========= ========= ========= ======== ==========
Period GAP $(321,098) $ (10,915) $ (34,826) $ 231,928 $315,368 $ 180,457
========= ========= ========= ========= ======== ==========
Ratio of period GAP to
total rate-sensitive assets (19.7)% (0.7)% (2.1)% 14.2% 19.4%
========= ========= ========= ========= ========
Cumulative GAP $(321,098) $(332,013) $(366,839) $(134,911) $180,457
========= ========= ========= ========= ========
Ratio of cumulative GAP to
total rate-sensitive assets (19.7)% (20.4)% (22.5)% (8.3)% 11.1%
========= ========= ========= ========= ========
DECEMBER 31, 1995:
Rate-sensitive assets:
Money market assets $ 2,124 $ -- $ -- $ -- $ -- $ 2,124
Securities 94,585 94,386 59,763 157,283 100,528 506,545
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:
Deposits $ 521,265 $ 182,938 $ 136,871 $ 229,437 $ 4,308 $1,074,819
Borrowed funds 90,005 88,036 24,128 42,890 -- 245,059
--------- --------- --------- --------- -------- ----------
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%
========= ========= ========= ========= ========
</TABLE>
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 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.
59
<PAGE> 47
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,
1996, First Western's simulation modeling indicated that in a 200 basis point
rising or falling interest 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 $75.2 million at December 31, 1996 compared with $41.6 million at
December 31, 1995. Another source of liquidity is borrowing capability. First
Western's banking subsidiaries have a variety of sources of short-term
liquidity available to them, including federal funds purchased from
correspondent banks, sales of securities available for sale, sales of
securities under agreements to repurchase, the Federal Reserve discount window,
interbank deposits, FHLB advances and loan participations or sales. At December
31, 1996, First Western's banking subsidiaries had $60.5 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 $26.6
million at December 31, 1996, excluding pledged securities of $174.7 million,
is recorded at current market value with a corresponding adjustment to equity,
net of income tax effects; therefore, 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's operating activities generated cash flows of $56.0 million
in 1996, compared with $54.2 million in 1995 and $4.4 million in 1994. The
primary source of operating cash flows for 1996, 1995 and 1994 was sale of
mortgage loans and net income combined with noncash expenses such as the
provision for possible loan losses and depreciation.
Investing activities used cash flows of $171.4 million in 1996 compared with
$46.8 million in 1995 and $35.5 million in 1994. During 1996, the growth of the
loan portfolio used net cash flows of $157.8 million compared with $208.6
million in 1995 and $148.7 million in 1994. The funding for the loan growth in
1996 was provided primarily by increased borrowings. The funding for the loan
growth in 1995 was provided primarily by the cash received in the branch
purchases and also by increased deposits. The loan growth in 1994 was funded
primarily by sales and maturities of securities. During 1996, the portfolio of
securities available for sale combined with the portfolio of investment
securities and mortgage-backed securities held to maturity used net cash flows
of $11.3 million compared with providing cash flows of $62.0 million and $99.3
million in 1995 and 1994, respectively.
Financing activities provided cash flows of $112.0 million in 1996 compared
with using cash flows of $10.8 million in 1995 and providing cash flows of $37.1
million in 1994. An increase in borrowings provided cash flows of $152.3 million
in 1996 compared with using cash flows of $54.5 million in 1995 and $11.5
million in 1994. First Western reduced borrowings during 1995 with the funds
provided by the branch acquisitions and the deposit growth.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' equity at December 31, 1996 was $127.7 million, increasing
$6.0 million or 5.0% from $121.7 million at December 31, 1995 due to the
retention of $11.4 million of earnings during 1996, which was partially offset
by the repurchase of common stock for treasury stock and for the ESOP along
with a $1.6 million decrease in the market value of the portfolio of securities
available for sale, net of income tax effects. In December 1996, First
Western's Board of Directors reauthorized a common stock repurchase program
that permits the repurchase of up to 285,000 shares, or approximately 3.75%, 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 7.53% at December 31, 1996 compared
with 7.59% and 7.29% at December 31, 1995 and 1994, respectively. The book
value per share was $16.74 at December 31, 1996 compared with $15.67 and $13.65
at December 31, 1995 and 1994, respectively.
On February 11, 1997, First Western completed the private placement of $25
million of 9.875% capital securities due February 1, 2027 issued by First
Western's newly formed Delaware trust subsidiary, First Western Capital Trust
I.
60
<PAGE> 48
The securities were sold in an offering under Rule 144A of the Securities
Act of 1933. Securities of this type received approval in October 1996 from the
Federal Reserve Board to qualify as Tier I capital and the interest payable
thereon is currently considered to be tax-deductible. Proceeds of the issue
were invested by First Western Capital Trust I in junior subordinated
debentures issued by First Western. Net proceeds from the sale of the
debentures will be used for general corporate purposes, including, but not
limited to, repurchase of shares of First Western's common stock, investments
in and advances to First Western's subsidiaries, financing future acquisitions
of financial institutions as well as banking and other assets.
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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tier I:
Common shareholders' equity $ 127,721 $121,688
Less: Non-exempt intangible assets (6,575) (7,391)
Unrealized appreciation in securities available for sale (884) (2,492)
---------- --------
Total Tier I 120,262 111,805
---------- --------
Tier II:
Qualifying allowance for possible loan losses 13,190 12,445
---------- --------
Total capital $ 133,452 $124,250
========== ========
Risk-weighted assets $1,052,329 $993,929
========== ========
Tier I capital ratio 11.43% 11.25%
========== ========
Required Tier I capital ratio 4.00% 4.00%
========== ========
Total capital ratio 12.68% 12.51%
========== ========
Required total capital ratio 8.00% 8.00%
========== ========
</TABLE>
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 7.10% at December 31, 1996 compared with 6.99% at December
31, 1995.
The common stock of First Western is traded on the Nasdaq Stock Market under
the symbol "FWBI". As of March 3, 1997 there were 7,627,616 shares of common
stock outstanding held by approximately 5,000 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>
1996:
First Quarter $27.50 $25.50 $26.75 $0.18
Second Quarter 27.00 23.75 24.75 0.18
Third Quarter 26.75 20.75 25.75 0.18
Fourth Quarter 28.25 25.50 26.25 0.20
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
</TABLE>
61
<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
FIRST WESTERN LOGO
March 17, 1997
To Our Shareholders:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders of
First Western Bancorp, Inc., to be held on Tuesday, April 15, 1997, 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 1996 and discuss how we are positioning First Western for the
future. New lending initiatives and a restructuring of our balance sheet as a
result of our successful sale of credit card loans in 1996 will also be
reviewed. 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/ THOMAS J. O'SHANE
Thomas J. O'Shane
Chairman, 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
FIRST WESTERN 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 15, 1997 at
10:30 a.m., local time, for the purpose of considering and voting upon the
following:
1. The election of three directors whose terms will expire in 2000 and one
director whose term will expire in 1998; 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
10, 1997 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
Executive Vice President-Chief
Financial Officer,
Secretary and Treasurer
New Castle, Pennsylvania
March 17, 1997
-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 15, 1997, 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 10, 1997, 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 issued and
outstanding 7,651,902 shares of its common stock, par value $5.00 per share
("Common Stock"), eligible to vote at the Annual Meeting. 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 has three
non-banking subsidiaries: First Western Trust Services Company ("Trust
Services"), which provides trust, estate management and financial services to
customers in the market areas of the Banks, First Western Investment Services
Company, a Delaware investment company which holds investment securities for
First Western, and First Western Capital Trust I, a Delaware business trust.
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 17, 1997. A copy of First Western's Annual Report
for the fiscal year ended December 31, 1996, 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
current size is set at twelve members. In December, 1996, two directors resigned
from the Board for personal reasons, resulting in a reduction in the total size
of the Board from fourteen to twelve 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 1997 Annual Meeting, is currently divided into three
classes of four members each. 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 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 76, former Chairman, President and
Chief Executive Officer, is being nominated by the Board for an additional
one-year term to expire in 1998. At the Annual Meetings in 1995 and 1996, Mr.
Sant was nominated for and reelected to the Board for successive one-year terms.
The class whose term will expire as of the date of the 1997 Annual Meeting of
Shareholders consists of four directors, all of whom are nominees for
reelection. The Board has nominated three persons for election as directors for
a three-year term expiring in 2000--James M. Campbell, Floyd H. McElwain and
Thomas J. O'Shane as continuing directors, and John W. Sant as a continuing
director for a one-year term expiring in 1998. Assuming the election of these
three nominees to the 2000 class and Mr. Sant to the 1998 class, the 2000 class
of directors will consist of three members, the 1999 class of directors will
consist of four members, and the 1998 class of directors will consist of five
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 1997 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 a
Proxy 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, 1997, 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 2000
<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 53 33,292(4) --
President, Shenango Steel Buildings, Inc. (steel
fabrication company); Director, FW Savings;
Member, Compensation and Asset/Liability
Committees of First Western; Director of First
Western since 1990(3)
Floyd H. McElwain 50 6,512 --
President, McElwain Oldsmobile-Cadillac, Inc.;
Chairman, Audit Committee and Member, Policy and
Oversight Committee of First Western; Director
of First Western since 1990
Thomas J. O'Shane 49 141,375(5) 1.85%
Chairman, First Western since April, 1996 and
President and Chief Executive Officer; Director,
Nobel Insurance Limited; Director, Federal
Reserve Bank of Cleveland-Pittsburgh Branch;
Chairman, FW Bank and FW Savings and Vice
Chairman, Trust Services; Chairman,
Asset/Liability Committee and Member, Loan
Review Committee of First Western; Director of
First Western since 1988
</TABLE>
-5-
<PAGE> 7
NOMINEE FOR DIRECTOR WHOSE TERM 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>
John W. Sant 76 64,313 --
Retired; Chairman, First Western through April
1995; President and Chief Executive Officer,
First Western through 1990; Director, Trust
Services; Member, Compensation and
Asset/Liability Committees of First Western;
Director of First Western since 1966(3),(6)
</TABLE>
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 57 6,838 --
Partner, D.M. Boyd Co. (manufacturer of
modified soils for golf course industry);
Member, Audit and Loan Review Committees of
First Western; Director of First Western since
1995
Robert C. Duvall 54 17,923(7) --
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.);
Chairman, Compensation Committee and Member,
Policy and Oversight Committee of First
Western; Director of First Western since 1995
Louis J. Kasing, Jr. 68 5,748 --
President, Kasing Auto Sales, Inc.; Member,
Asset/Liability and Loan Review Committees of
First Western; Director of First Western since
1990
John P. O'Leary, Jr. 50 4,840 --
President and Chief Executive Officer,
Tuscarora Incorporated (manufacturer of custom
molded products); Director, Matthews
International; Member, Compensation and Policy
and Oversight Committees of First Western;
Director of First Western since 1992
</TABLE>
-6-
<PAGE> 8
CONTINUING 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. 64 44,756 --
Physician, Beaver Valley Orthopedics
Association; Director, FW Bank; Member, Audit
and Asset/Liability Committees of First
Western; Director of First Western since
1986(3)
Thomas S. Mansell 57 62,082(8), (9) --
Senior Vice President, Assistant Secretary and
Legal Counsel of First Western; Director, Trust
Services; Director of First Western since 1990
Richard C. McGill 60 37,567 --
Managing Partner, McGill, Power, Bell and Co.,
Certified Public Accountants; Director, FW
Savings; Chairman, Loan Review Committee and
Member, Audit Committee of First Western;
Director of First Western since 1990(3)
Harold F. Reed, Jr. 69 29,290 --
Partner, Reed, Luce, Tosh, Wolford and Douglass
(law firm); Director, Tuscarora Incorporated
(manufacturer of custom molded products);
Chairman, Trust Services; Member, Policy and
Oversight and Compensation Committees of First
Western; Director of First Western since
1986(3)
</TABLE>
- ---------
<TABLE>
<C> <S>
(1) As of January 31, 1997.
(2) Includes shares of Common Stock owned by immediate families (spouses, minor children and
relatives sharing the same home) of the respective persons and, if applicable, shares of
Common Stock held in the First Western Bancorp, Inc. 401(k) Profit-Sharing and Stock Bonus
Plan, an individual grantor trust related to the First Western Bancorp, Inc. Supplemental
Executive Retirement 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, or FW Savings.
(4) Includes 661 shares of Common Stock held beneficially in the name of Shenango Steel
Buildings, Inc., with authority to vote such shares.
(5) Includes options to purchase 82,208 shares of Common Stock which are exercisable within 60
days of January 31, 1997.
(6) John W. Sant is the uncle of Stephen R. Sant, President and Chief Executive Officer of FW
Bank and Executive Vice President-Chief Operating Officer of First Western.
(7) Includes 14,620 shares of Common Stock held beneficially in the name of Wampum Hardware
Co., with authority to vote such shares.
(8) Thomas S. Mansell disclaims beneficial ownership of 1,869 shares of Common Stock owned by
his spouse and his children which are included in the total shares indicated.
(9) Includes options to purchase 16,403 shares of Common Stock which are exercisable within 60
days of January 31, 1997.
</TABLE>
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<PAGE> 9
All directors and officers of First Western as a group (23 persons) owned
beneficially 671,458 shares of Common Stock of First Western (including options
to acquire 224,069 shares which are exercisable within 60 days of January 31,
1997), or 8.51% of the 7,890,752 shares of Common Stock outstanding and options
which are exercisable within 60 days of January 31, 1997.
MEETINGS AND COMMITTEES
The Board of Directors of First Western met 9 times in 1996. 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 1996. The Board of Directors currently has a Policy and Oversight Committee,
a Compensation Committee and an Audit Committee. The Board currently has no
Executive or Nominating Committee, with either the full Board or the Policy and
Oversight Committee serving in such capacities. The Compensation Committee met
four times in 1996 and is comprised solely of non-employee directors, including
Robert C. Duvall (Chairman), James M. Campbell, John P. O'Leary, Jr., Harold F.
Reed, Jr. and John W. Sant. The Policy and Oversight Committee met four times in
1996 and is comprised of Robert C. Duvall, Floyd H. McElwain, John P. O'Leary,
Jr. and Harold F. Reed, Jr.
The Audit Committee is comprised solely of independent directors, and for 1996,
included Floyd H. McElwain (Chairman), Wendell H. Boyd, John W. Lehman, M.D. 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 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Thomas J. O'Shane, Chairman, 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, and is Chairman of First Western's
Compensation Committee. Mr. John W. Sant, formerly Chairman, President and Chief
Executive Officer of First Western, is a member of the Compensation Committee.
Mr. Harold F. Reed, Jr., a member of the Compensation Committee, 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. 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.
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. Occasionally, individual
directors are asked to meet with the Chairman of First Western on matters of
interest or importance or requiring the consultative services of such director.
In such situations, the per meeting rates applicable to a board member or
committee chairperson, as the case may be, are paid to the individual.
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, Wolford and Douglass, of
which Harold F. Reed, Jr., a director, is 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 1996.
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
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<PAGE> 10
committee receiving $500 for each committee meeting attended. An annual retainer
of $2,400 per member is also paid.
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.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation for services rendered during the
years ended December 31, 1996, 1995 and 1994 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, 1996.
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), (8)
- ------------------------------------------- ---------- -------- -------- ------------ ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. O'Shane (49)
Chairman, President and Chief 1996 $281,000 $ 94,837 $ -- $ 47,597 141,375
Executive Officer, First Western 1995 266,500 119,925 -- 12,724
1994 260,000 122,850 -- 14,952
Robert H. Young (40)
Executive Vice President-Chief 1996 135,800 38,610 -- 11,397 27,616
Financial Officer, Secretary 1995 130,800 41,312 -- 12,724
and Treasurer, First Western 1994 128,000 39,375 -- 14,952
Stephen R. Sant (50)
President and Chief 1996 135,800 33,555 -- 11,497 51,433
Executive Officer, FW Bank 1995 128,100 40,659 -- 12,724
and Executive Vice President- 1994 125,000 37,500 -- 14,952
Chief Operating Officer, First Western
Robert E. Cimini (50)
Senior Vice President- 1996 117,275 17,349 -- 11,214 47,503
Marketing, First Western 1995 122,000 37,515 -- 12,724
1994 119,000 37,485 -- 14,952
Donald D. Wehn (42)
Senior Vice President-Mortgage and 1996 103,200 29,533 -- 9,821 7,356
Consumer Lending, First Western 1995 97,400 29,571 -- 10,778
1994 95,000 29,925 -- 12,200
</TABLE>
- ---------
(1) As of January 31, 1997.
(2) Includes salary only. Officers who are also Directors received no
compensation for acting as Directors or for attendance at Committee
meetings in 1996.
(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 1996 included the amount
of bonus accrued for 1996 as determined in January 1997, and excluded the
bonus paid in January 1996 for 1995.
(4) Noncash compensation, in the case of each individual for each of the three
years in the table, did not exceed the lesser of $50,000 or 10% of total
compensation.
(5) Includes 401(k) Profit-Sharing and Stock Bonus Plan contributions only,
which includes a total of 148 shares (excluding forfeitures) of Common
Stock with a cost (and market value) of $8,531 as of December 31, 1996.
Messrs. O'Shane, Young and Sant each received 68 shares, Mr. Cimini
received 61 shares, and Mr. Wehn received 60 shares. Also includes company
contributions to a Supplemental
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<PAGE> 11
Executive Retirement Plan (described below) determined and made in 1996 on
behalf of Messrs. O'Shane, Young, Sant and Cimini totaling $38,100 for 1995
and prior years (no contributions were made in prior years).
(6) Includes shares of Common Stock owned by immediate families (spouses, minor
children and relatives sharing the same home) of the respective persons,
shares of Common Stock held in the 401(k) Profit-Sharing and Stock Bonus
Plan, and shares of Common Stock held by individual grantor trusts related
to the Supplemental Executive Retirement Plan.
(7) Includes options to purchase shares of Common Stock which are presently
exercisable or exercisable within 60 days of January 31, 1997 as follows:
82,208 shares, Mr. O'Shane; 20,331 shares, Mr. Young; 36,641 shares, Mr.
Sant; 26,533 shares, Mr. Cimini; and 2,000 shares, Mr. Wehn.
(8) Except for Mr. O'Shane, whose Common Stock beneficial ownership represents
1.85% of the total shares of Common Stock outstanding and options which are
exercisable within 60 days of January 31, 1997, no other executive officer
named in the table beneficially owns 1% or more of such total shares of
Common Stock.
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
employee contribution of 4% of 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 1996.
During 1996, 40,000 shares of First Western Common Stock were purchased on the
open market by the ESOP at a cost of $26.25 per share. The plan borrowed
$1,050,000 from an unrelated bank and will make principal payments over seven
years, beginning December 31, 1996. The shares will be allocated over the same
seven year period. A total of 5,714 shares (excluding forfeitures) were
allocated under the ESOP to participating employees for 1996 based upon the
ratio of each employee's earnings to the total earnings of all participating
employees of First Western. There are 34,286 unallocated shares held by the ESOP
as of December 31, 1996.
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
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<PAGE> 12
(5 highest consecutive years divided by 60) times the years of credited service.
Monthly earnings are defined as current earnings including any bonuses and
elective employee salary deferrals under First Western's 401(k) Profit-Sharing
and Stock Bonus Plan. 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 annuity with
retirement on January 1, 1997. 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 1996, 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
Donald D. Wehn have 24, 10, 6, 22 and 17 whole years of service under the
plan, respectively, as of January 31, 1997. All such persons are fully
vested in their accrued benefits as of January 31, 1997.
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
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<PAGE> 13
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 $36,500 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. Messrs. Young, Sant and
Cimini are also eligible participants under the SERP, and contributions during
1996 were $300, $400 and $900, respectively. Such amounts are included in the
Summary Compensation Table for 1996. As of January, 1997, the Committee
determined that First Western would make a contribution for each of Messrs.
O'Shane, Young, Sant and Cimini under the SERP in the amount of $24,800, $800,
$1,100 and $100, respectively, with respect to 1996. Adjustments were also made
to the prior year's contribution due to a change in certain assumptions,
resulting in an additional contribution of $48,300, $600, $600 and $1,000,
respectively, for Messrs. O'Shane, Young, Sant and Cimini. Amounts contributed
in January, 1997 for 1996 and prior years are not included in the Summary
Compensation Table. Contributions to the individual grantor trusts are currently
invested in shares of Common Stock. 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 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
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<PAGE> 14
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 95,724 shares of Common Stock (as
adjusted for stock dividends and splits) were granted to eligible officers which
remain outstanding as of January 31, 1997. On January 16, 1995, options to
purchase an aggregate of 133,250 shares of Common Stock were granted to current
eligible officers which remain outstanding as of January 31, 1997. Options to
purchase 125,680 shares of Common Stock (as adjusted for stock dividends and
splits) have been exercised or cancelled as of January 31, 1997. On November 4,
1996, options to purchase 15,000 shares of Common Stock were granted to a newly
hired executive officer, Richard L. Stover, Executive Vice President-Chief
Lending Officer, which remain outstanding as of January 31, 1997. All of the
1991 and 1996 option grants and 105,000 of the 1995 option grants are incentive
stock options and the remaining 45,000 of the 1995 stock options are
nonqualified 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.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES
The following table sets forth the aggregated option exercises during the year
ended December 31, 1996, 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 -- -- 69,806/12,402 $ 764,967/$241,839
Robert H. Young -- -- 14,856/ 6,345 175,013/ 39,656
Stephen R. Sant -- -- 31,166/ 8,640 523,467/ 54,000
Robert E. Cimini -- -- 21,058/ 6,345 295,952/ 39,656
Donald D. Wehn 5,602 $73,163 5,000/ 0 31,250/ 0
</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 ($26.25 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 for 1991-granted options and $20.00 per share for 1995-granted
options), multiplied by the number of underlying securities.
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<PAGE> 15
CHANGE IN CONTROL AGREEMENTS
Certain executive officers of the Company, including three 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.
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<PAGE> 16
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 currently comprised of five 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;
-15-
<PAGE> 17
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 155,039 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 95,724 shares remain outstanding as of January 31, 1997. Additional
options to purchase 150,000 shares of Common Stock (as adjusted for stock
dividends and splits) were granted under the Option Plan as of January 16, 1995
to certain key executives who are primarily responsible for earnings performance
and shareholder value. Options to purchase 133,250 shares remain outstanding as
of January 31, 1997. 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 stock options.
Options for 15,000 shares, intended to qualify as incentive stock options, were
granted at fair market value ($26.63) on November 4, 1996 to a new executive and
remain outstanding. 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 $281,000 for 1996 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 corporate earnings goal as measured by earnings per share,
and thus, a significant portion of his total compensation is at risk. The
corporate earnings per share goal under the Incentive Plan for fiscal 1996 was
determined in January 1996. In January 1997, based on the measurement of
achieving the earnings per share goal under the Incentive Plan, the Committee
determined that Mr. O'Shane should receive an incentive award of $94,837 for
fiscal 1996. This award was reduced from the prior year's $119,925 as First
Western did not fully achieve the earnings per share goal in 1996, primarily due
to increased consumer loan losses.
-16-
<PAGE> 18
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
shares remain outstanding. On January 16, 1995, he was granted options to
purchase an 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, as 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.
Robert C. Duvall, Chairman
James M. Campbell
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, 1991 through December 31, 1996.
<TABLE>
<CAPTION>
NASDAQ Stock
Measurement Period First Western Market (U.S. NASDAQ Bank
(Fiscal Year Covered) Bancorp, Inc. Companies) Stocks
--------------------- ------------- ------------ -----------
<S> <C> <C> <C>
12/31/91 100.0 100.0 100.0
12/31/92 197.6 116.4 145.6
12/31/93 203.0 133.6 166.0
12/30/94 197.5 130.6 165.4
12/29/95 301.4 184.7 246.3
12/31/96 296.3 227.2 325.6
</TABLE>
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Western Bancorp, Inc........... 100.0 197.6 203.0 197.5 301.4 296.3
NASDAQ Stock Market (U.S.
Companies)......................... 100.0 116.4 133.6 130.6 184.7 227.2
NASDAQ Bank Stocks................... 100.0 145.6 166.0 165.4 246.3 325.6
</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.
-17-
<PAGE> 19
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 (7,666,683 shares) as of January 31, 1997:
<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 787,430(1) 10.27%
101 East Washington Street
New Castle, Pennsylvania 16101
</TABLE>
- ---------
(1) Trust Services has sole voting power with respect to 159,617 shares and
shared voting power with respect to 45,093 shares and no voting power with
respect to 582,720 shares. Trust Services has sole investment power with
respect to 242,430 shares, shared investment power with respect to 63,274
shares, and no investment power with respect to 481,726 shares.
Certain directors, nominees and officers of First Western and its subsidiaries
and their associates were customers of the Banks during 1996. 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.
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 1996. All of these filing requirements were satisfied
during 1996, except that one transaction during the month of October, 1996 for
John W. Lehman, M.D. was not timely reported on Form 4 or Form 5, which was
corrected by filing a Form 4 in February, 1997. 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, 1996. The Board of
Directors, at its February 25, 1997 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, 1997. 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 1996
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
TOGETHER WITH CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES THERETO.
SHAREHOLDER PROPOSALS
If any shareholder wishes to present a proposal at the 1998 Annual Meeting of
Shareholders, the proposal will be considered for inclusion in the Proxy
material only if received no later than November 17, 1997. Any such proposal
should be addressed to Robert H. Young, Secretary, P. O. Box 1488, New Castle,
PA 16103-1488.
-18-
<PAGE> 20
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
Executive Vice President - Chief
Financial
Officer, Secretary and Treasurer
-19-
<PAGE> 21
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.
-20-
<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
First Western Investment Services Company
First Western Capital Trust I
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S 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 Forms S-8 (Nos.
33-00528 and 33-50372) for the First Western Bancorp, Inc. Incentive Stock
Option Plan for Key Employees and on Form S-3 (No. 33-40596), as amended, for
the First Western Bancorp, Inc. Dividend Reinvestment and Additional Stock
Purchase Plan of our report dated January 24, 1997 (February 13, 1997 as to
Note 21), appearing in and incorporated by reference in this Annual Report on
Form 10-K of First Western Bancorp, Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000740876
<NAME> FIRST WESTERN BANCORP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 36,021
<INT-BEARING-DEPOSITS> 1,770
<FED-FUNDS-SOLD> 37,400
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,282
<INVESTMENTS-CARRYING> 276,559
<INVESTMENTS-MARKET> 276,640
<LOANS> 1,114,425
<ALLOWANCE> 16,054
<TOTAL-ASSETS> 1,695,778
<DEPOSITS> 1,148,903
<SHORT-TERM> 389,272
<LIABILITIES-OTHER> 23,915
<LONG-TERM> 5,967
0
0
<COMMON> 39,179
<OTHER-SE> 88,542
<TOTAL-LIABILITIES-AND-EQUITY> 1,695,778
<INTEREST-LOAN> 92,321
<INTEREST-INVEST> 33,067
<INTEREST-OTHER> 95
<INTEREST-TOTAL> 125,483
<INTEREST-DEPOSIT> 46,111
<INTEREST-EXPENSE> 67,214
<INTEREST-INCOME-NET> 58,269
<LOAN-LOSSES> 8,288
<SECURITIES-GAINS> 984
<EXPENSE-OTHER> 42,264
<INCOME-PRETAX> 23,431
<INCOME-PRE-EXTRAORDINARY> 17,127
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,127
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 7.95
<LOANS-NON> 5,147
<LOANS-PAST> 1,427
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 14,148
<CHARGE-OFFS> 7,056
<RECOVERIES> 674
<ALLOWANCE-CLOSE> 16,054
<ALLOWANCE-DOMESTIC> 10,902
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,152
</TABLE>
