<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1997
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______to______
Commission File No. 0-13882
FIRST WESTERN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-1461570
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
101 East Washington Street, New Castle, Pennsylvania 16101
(Address of principal executive offices) (Zip Code)
(412) 652-8550
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO_________
The number of shares outstanding of the Registrant's common stock as of
November 10, 1997 was:
Common Stock, $5.00 par value - 11,162,406 shares outstanding
<PAGE>
<PAGE> 2
FIRST WESTERN BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Independent Accountants' Report...........................3
Consolidated Balance Sheets:
September 30, 1997, December 31, 1996 and
September 30, 1996.......................................4
Consolidated Statements of Income:
Three months ended September 30, 1997
and three months ended September 30, 1996................5
Consolidated Statements of Income:
Nine months ended September 30, 1997
and nine months ended September 30, 1996.................6
Consolidated Statements of Changes
in Shareholders' Equity:
Nine months ended September 30, 1997
and nine months ended September 30, 1996.................7
Consolidated Statements of Cash Flows:
Nine months ended September 30, 1997
and nine months ended September 30, 1996.................8
Notes to Consolidated Financial Statements...............10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........12
Part II. Other Information:
Item 1. - Item 6.................................................26
Signature........................................................27
/TABLE
<PAGE>
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders
of First Western Bancorp, Inc.
We have reviewed the accompanying consolidated balance sheets of First
Western Bancorp, Inc. and subsidiaries as of September 30, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the three-month and nine-month
periods then ended. These financial statements are the responsibility
of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of First Western
Bancorp, Inc. and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, changes in shareholders' equity, and
cash flows for the year then ended (not presented herein); and in our
report dated January 24, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated balance sheet as of December 31,
1996 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 21, 1997
3
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<PAGE> 4
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
- -------
Cash and due from banks $ 35,365 $ 36,021 $ 46,944
------------- ------------ -------------
Interest-bearing deposits with other banks 1,489 1,770 1,287
------------- ------------ -------------
Federal funds sold - 37,400 -
------------- ------------ -------------
Securities available for sale
(amortized cost of $336,248, $199,922 and $240,109) 343,007 201,282 238,922
------------- ------------ -------------
Investment securities, held to maturity
(market value of $108,336, $107,455 and $105,434) 107,488 107,092 105,638
------------- ------------ -------------
Mortgage-backed securities, held to maturity
(market value of $143,856, $167,185 and $170,979) 144,837 169,467 174,583
------------- ------------ -------------
Loans held for sale (market value of $3,647, $129,713 and $3,209) 3,622 124,515 3,209
------------- ------------ -------------
Loans (net of unearned income of $37,616, $34,864 and $33,946) 1,031,268 989,910 1,113,264
Less: Allowance for possible loan losses 17,672 16,054 16,073
------------- ------------ -------------
Net loans 1,013,596 973,856 1,097,191
------------- ------------ -------------
Premises and equipment 20,668 19,499 19,147
------------- ------------ -------------
Other assets 25,724 24,876 25,845
------------- ------------ -------------
Total Assets $ 1,695,796 $ 1,695,778 $ 1,712,766
============= ============ =============
LIABILITIES:
- ------------
Deposits:
Noninterest-bearing demand $ 99,458 $ 93,163 $ 101,075
Interest-bearing demand 40,922 53,946 127,501
Savings 349,952 329,532 256,859
Time 690,332 672,262 665,874
------------- ------------ -------------
Total deposits 1,180,664 1,148,903 1,151,309
------------- ------------ -------------
Borrowed funds:
Federal funds purchased and other short-term borrowings 58,071 33,202 92,821
Repurchase agreements and secured lines of credit 113,215 212,070 199,615
Advances from the Federal Home Loan Bank 144,000 144,000 119,000
------------- ------------ -------------
Total borrowed funds 315,286 389,272 411,436
------------- ------------ -------------
Long-term debt 4,798 5,967 6,507
------------- ------------ -------------
Other liabilities 35,658 23,915 21,715
------------- ------------ -------------
Total Liabilities 1,536,406 1,568,057 1,590,967
------------- ------------ -------------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 23,827 - -
------------- ------------ -------------
SHAREHOLDERS' EQUITY:
- ---------------------
Preferred stock, no stated value, 4,000,000
shares authorized, none issued - - -
Common stock, $5.00 par value, 20,000,000 shares authorized,
11,781,535, 7,835,706 and 7,823,088 shares issued and
11,158,406, 7,628,020 and 7,628,688 shares outstanding 58,908 39,179 39,115
Additional paid-in capital 2,613 22,064 21,873
Retained earnings 81,469 70,736 66,334
Unrealized appreciation (depreciation) in securities available for sale, net
of tax 4,393 884 (771)
Treasury stock, 571,700, 173,400 and 154,400 shares at cost (10,920) (4,242) (3,702)
Unallocated common stock held by ESOP (at cost) (900) (900) (1,050)
------------- ------------ -------------
Total Shareholders' Equity 135,563 127,721 121,799
------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 1,695,796 $ 1,695,778 $ 1,712,766
============= ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
4<PAGE>
<PAGE> 5
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 22,515 $ 23,348
Interest on deposits with other banks 29 15
Interest on securities available for sale 5,863 4,280
Interest and dividends on investment securities:
Taxable interest 333 368
Tax-exempt interest 1,035 1,041
Interest on mortgage-backed securities 2,310 2,719
Interest on federal funds sold 6 -
------------- -------------
Total Interest Income 32,091 31,771
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 227 404
Savings 1,995 1,702
Time 9,759 9,255
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 875 940
Repurchase agreements and secured lines of credit 1,740 2,943
Advances from the Federal Home Loan Bank 2,146 1,610
Interest on long-term debt 94 123
------------- -------------
Total Interest Expense 16,836 16,977
------------- -------------
NET INTEREST INCOME 15,255 14,794
Provision for possible loan losses 954 1,190
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 14,301 13,604
------------- -------------
OTHER INCOME:
- -------------
Trust fees 486 448
Service charges on deposit accounts 1,055 972
Credit card program fees - 459
Net securities gains 17 541
Net gains on loan sales 169 46
Other operating income 1,039 633
------------- -------------
Total Other Income 2,766 3,099
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 3,953 3,579
Employee benefits 1,019 957
Net occupancy expense 800 685
Equipment rentals, depreciation and maintenance 568 519
Federal deposit insurance 95 3,581
Outside examination, legal fees and consulting 405 325
Advertising and promotion 444 366
Supplies 413 396
Outside data processing services 352 443
Minority interest expense 640 -
Other operating expense 1,861 2,097
------------- -------------
Total Other Expenses 10,550 12,948
------------- -------------
INCOME BEFORE INCOME TAXES 6,517 3,755
Income Taxes 1,846 921
------------- -------------
NET INCOME $ 4,671 $ 2,834
============= =============
EARNINGS PER SHARE $ 0.41 $ 0.24
============= =============
DIVIDENDS PER SHARE $ 0.15 $ 0.12
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 11,383 11,583
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
5<PAGE>
<PAGE> 6
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 66,762 $ 68,012
Interest on deposits with other banks 215 45
Interest on securities available for sale 16,242 12,985
Interest and dividends on investment securities:
Taxable interest 880 1,167
Tax-exempt interest 3,110 3,107
Interest on mortgage-backed securities 7,313 7,877
Interest on federal funds sold 554 11
------------- -------------
Total Interest Income 95,076 93,204
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 642 1,145
Savings 5,727 5,173
Time 29,266 28,338
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 2,023 2,165
Repurchase agreements and secured lines of credit 6,462 7,972
Advances from the Federal Home Loan Bank 6,321 4,776
Interest on long-term debt 295 375
------------- -------------
Total Interest Expense 50,736 49,944
------------- -------------
NET INTEREST INCOME 44,340 43,260
Provision for possible loan losses 3,882 5,770
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 40,458 37,490
------------- -------------
OTHER INCOME:
- -------------
Trust fees 1,709 1,494
Service charges on deposit accounts 3,084 2,690
Credit card program fees 199 1,180
Net securities gains 37 1,731
Net gains on loan sales 5,659 54
Other operating income 3,215 2,113
------------- -------------
Total Other Income 13,903 9,262
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 11,578 10,471
Employee benefits 3,355 3,044
Net occupancy expense 2,327 2,167
Equipment rentals, depreciation and maintenance 1,731 1,679
Federal deposit insurance 283 4,226
Outside examination, legal fees and consulting 1,350 972
Advertising and promotion 1,295 942
Supplies 1,209 1,132
Outside data processing services 1,179 1,301
Minority interest expense 1,611 -
Other operating expense 5,961 5,986
------------- -------------
Total Other Expenses 31,879 31,920
------------- -------------
INCOME BEFORE INCOME TAXES 22,482 14,832
Income Taxes 7,059 3,643
------------- -------------
NET INCOME $ 15,423 $ 11,189
============= =============
EARNINGS PER SHARE $ 1.34 $ 0.96
============= =============
DIVIDENDS PER SHARE $ 0.41 $ 0.36
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 11,468 11,687
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
6<PAGE>
<PAGE> 7
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1997
------------------------------------------------------------------------------
Unrealized Common Stock
Appreciation 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, 1997 7,836 $39,179 $22,064 $70,736 $ 884 ($4,242) (34) ($900)
Net income - - - 15,423 - - - -
Cash dividends paid ($0.41 per share) - - - (4,690) - - - -
Exercise of options, net of shares redeemed 14 71 53 - - - - -
Common stock issued for dividend reinvestment 5 23 131 - - - - -
Treasury stock purchased - - - - - (6,678) - -
Fifty percent stock dividend declared
on July 15, 1997 3,927 19,635 (19,635) - - - (17) -
Net change in unrealized appreciation
in securities available
for sale - - - - 3,509 - - -
------------------------------------------------------------------------------
Balance - September 30, 1997 11,782 $58,908 $2,613 $81,469 $4,393 ($10,920) (51) ($900)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1996
------------------------------------------------------------------------------
Unrealized
Appreciation Common Stock
(Depreciation) Held by ESOP
Common Stock in Securities (at cost)
--------------- Retained Available Treasury ---------------
Shares Amount Surplus Earnings for Sale Stock Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 7,817 $39,083 $21,811 $59,313 $2,492 ($1,011) - $-
Net income - - - 11,189 - - - -
Cash dividends paid ($0.36 per share) - - - (4,168) - - - -
Exercise of options, net of shares redeemed 5 27 43 - - - - -
Common stock issued for dividend reinvestment 1 5 19 - - - - -
Common stock purchased for ESOP - - - - - - (40) (1,050)
Treasury stock purchased - - - - - (2,691) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - (3,263) - - -
------------------------------------------------------------------------------
Balance - September 30, 1996 7,823 $39,115 $21,873 $66,334 ($771) ($3,702) (40) ($1,050)
==============================================================================
</TABLE>
See Notes To Consolidated Financial Statements.
7<PAGE>
<PAGE> 8
Part I. Item 1. Financial Information
<TABLE>
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 15,423 $ 11,189
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,728 1,688
Amortization and accretion 1,512 1,528
Provision for possible loan losses 3,882 5,770
Gain on sale of securities (37) (1,731)
Gain on sale of loans (5,659) (54)
Gain on sale of branch office (325) -
Proceeds from loan sales 124,564 29,130
Purchase of loans (2,869) (6,155)
Provision for deferred taxes (benefit) (378) (23)
Increase in interest receivable (1,045) (1,566)
Increase (decrease) in interest payable 451 (38)
Federal deposit insurance special assessment - 3,291
Other - net 1,470 (3,168)
------------- -------------
Total adjustments 123,294 28,672
------------- -------------
Net cash provided by operating activities 138,717 39,861
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sales of securities available for sale 5,344 84,083
Proceeds from maturity or paydown of securities available for sale 96,500 46,052
Purchase of securities available for sale (227,596) (162,967)
Proceeds from maturity or paydown of investment securities 35,768 40,534
Purchase of investment securities (12,014) (61,796)
Proceeds from sale of credit card loan portfolio 21,801 -
Net increase in loans (61,408) (116,279)
Decrease in deposits with other banks 281 838
Decrease in federal funds sold 37,400 -
Purchase of premises and equipment (3,191) (2,488)
Proceeds from sale of premises and equipment 298 35
Proceeds from sale of other real estate owned 1,182 852
Cash paid for branch office sale (3,302) -
Cash received for branch office purchase 33,760 -
------------- -------------
Net cash used in investing activities (75,177) (171,136)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net decrease in deposits (1,751) (26,314)
Net increase in federal funds purchased and other short-term borrowings 24,869 89,223
Net (decrease) increase in repurchase agreements and secured lines of credit (98,855) 77,957
Net increase in advances from the Federal Home Loan Bank - 7,330
Proceeds from issuance of capital securities, net of issuance costs 23,800 -
Proceeds from issuance of long-term debt - 1,050
Payments on long-term debt (1,169) (2,676)
Proceeds from exercise of stock options 124 70
Proceeds from common stock issued for dividend reinvestment plan 154 24
Treasury stock purchased (6,678) (2,691)
Common stock purchased for ESOP - (1,050)
Dividends paid on common stock (4,690) (4,168)
------------- -------------
Net cash (used in) provided by financing activities (64,196) 138,755
------------- -------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (656) 7,480
CASH AND DUE FROM BANKS - Beginning of year 36,021 39,464
------------- -------------
CASH AND DUE FROM BANKS - End of period $ 35,365 $ 46,944
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
8<PAGE>
<PAGE> 9
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 50,285 $ 49,982
============= =============
Income taxes $ 6,367 $ 5,562
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deposits assumed in branch acquisition $ 37,296 $ -
============= =============
Deposits sold in branch disposition $ 3,731 $ -
============= =============
Securities purchased settling after September 30 $ 11,017 $ -
============= =============
Transfers to other real estate owned $ 878 $ 983
============= =============
Net change in unrealized appreciation (depreciation) in securities
available for sale, net of income tax effects $ 3,509 $ (3,263)
============= =============
See Notes To Consolidated Financial Statements.
</TABLE>
9<PAGE>
<PAGE> 10
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
1. Principles of Consolidation:
The consolidated financial statements include the accounts of First
Western Bancorp, Inc. ("First Western") and its wholly-owned subsidiaries:
First Western Bank, National Association ("First Western Bank, N.A.");
First Western Trust Services Company ("Trust Services"); First Western
Investment Services Company ("Investment Services") and effective February
11, 1997, First Western Capital Trust I ("Capital Trust"). Capital Trust
exists for the sole purpose of issuing capital securities and investing the
proceeds thereof in junior subordinated debentures issued by First Western.
Effective September 5, 1997, First Western Bank, Federal Savings Bank
("First Western Bank, F.S.B.") was merged into First Western Bank, N.A.
All significant intercompany transactions have been eliminated in
consolidation.
The consolidated balance sheets as of September 30, 1997 and September
30, 1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the nine month periods ended
September 30, 1997 and 1996 are unaudited. In the opinion of management,
all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results
for a full year.
The financial statements and notes are presented as permitted by Form
10-Q. The interim statements are unaudited and should be read in
conjunction with the financial statements and notes thereto contained in
First Western's 1996 Annual Report on Form 10-K.
2. Earnings Per Share:
Earnings per common share are based on the weighted average number of
common shares outstanding and common share equivalents in each period.
Weighted average shares outstanding include common share equivalents under
First Western's Incentive Stock Option Plan for Key Officers. All share
information and per share amounts have been restated for the effect of a
three-for-two stock split effected in the form of a 50% stock dividend
declared on July 15, 1997 and distributed on August 15, 1997.
3. Recent Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings Per Share". This statement establishes
standards for computing and presenting earnings per share. This statement
is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods; earlier application is not
permitted. The impact of this statement on First Western's financial
statements is not expected to
10 <PAGE>
<PAGE> 11
be material.
In June 1997, the FASB issued Statement No. 130, "Reporting
Comprehensive Income", which requires businesses to disclose comprehensive
income and its component in their general-purpose financial statements.
This statement requires the reporting of all items of comprehensive income
in a financial statement that is displayed with the same prominence as
other financial statements. This statement is effective for fiscal years
beginning after December 15, 1997, with reclassification of comparative
financial statements and is applicable to interim periods. Management is
in the process of evaluating the impact of this statement on First
Western's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which is effective for
financial statements for periods beginning after December 15, 1997.
Statement No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about
a company's operating segments. First Western has not completed its
analysis of which operating segments it will report on.
4. Trust Preferred Capital Securities:
On February 11, 1997, First Western completed the private placement of
$25 million of 9.875% capital securities due February 1, 2027 issued by
Capital Trust. These 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 interest payable thereon is currently considered to be tax-deductible.
Proceeds of the issue were invested by Capital Trust in junior subordinated
debentures issued by First Western. Net proceeds from the sale of the
debentures have been used for general corporate purposes, including but not
limited to, repurchase of shares of First Western's common stock and
investments in and advances to First Western's subsidiaries.
5. Branch Office Purchases and Sales:
On September 19, 1997, First Western completed its purchase of the
Chicora, Pennsylvania branch office of Mellon Bank. This branch had
approximately $37 million of deposits as of the date of acquisition and
First Western paid a premium of approximately $3.5 million to acquire this
branch. The premium paid increased First Western's intangible assets
during 1997. During the third quarter of 1997, First Western completed the
sale of its Slippery Rock, Pennsylvania branch office. This branch had
approximately $4 million of deposits and First Western realized a gain of
$325,000 from this sale. During October 1997, First Western completed the
sale of its Oil City branch office. This branch has approximately $12
million of deposits and First Western will realize a gain of $283,000
during the fourth quarter of 1997 from this sale. On October 9, 1997,
First Western agreed to sell its three Lake County, Ohio offices to
FirstMerit Bank. These offices have approximately $49 million in deposits.
The sale is expected to be completed in January 1998 and is subject to
regulatory approval.
11 <PAGE>
<PAGE> 12
Part 1. Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of operations for the three and nine months ended September 30,
1997 compared with the three and nine months ended September 30, 1996:
All of the following per share amounts and outstanding share amounts
have been restated to reflect the effect of a three-for-two stock split,
effected in the form of a 50% stock dividend, declared on July 15, 1997 and
distributed on August 15, 1997.
For the nine months ended September 30, 1997, First Western's net
income was $15.4 million or $1.34 per share compared with $11.2 million or
$0.96 per share for the nine months ended September 30, 1996. First
Western's net income increased $4.2 million or 37.8% from the first nine
months of 1996 to the first nine months of 1997 primarily due to a $5.6
million increase in net gains realized on loan sales and a $3.9 million
decrease in FDIC insurance expense with these increases in income partially
offset by an increase in other expenses and lower gains realized on sales
of securities available for sale. First Western's return on average assets
and return on average equity for the first nine months of 1997 were 1.21%
and 15.86%, respectively, compared with 0.90% and 12.36% for the first nine
months of 1996, with the increase in these ratios primarily attributable to
the net gains on loan sales and the reduction in FDIC insurance expense.
For the three months ended September 30, 1997, First Western's net
income was $4.7 million or $0.41 per share compared with $2.8 million or
$0.24 per share for the three months ended September 30, 1996. First
Western's net income increased $1.8 million or 64.8% from the third quarter
of 1996 to the third quarter of 1997 primarily due to a $3.5 million
decrease in FDIC insurance expense. First Western's return on average
assets and return on average equity for the third quarter of 1997 were
1.10% and 13.95%, respectively, compared with 0.67% and 9.23% for the third
quarter of 1996, with the increases in these ratios primarily attributable
to the decrease in FDIC insurance expense.
Net Interest Income:
First Western's net interest income was $44.3 million for the nine
months ended September 30, 1997, increasing $1.0 million or 2.5% from $43.3
million for the first nine months of 1996. The increase in net interest
income was generated by a $36.9 million or 2.3% increase in average earning
assets along with a $460,000 recovery of interest on a loan that paid-off
that had been classified as nonaccrual. The increase in average earning
assets was primarily due to a $59.1 million or 23.2% increase in average
securities available for sale. The growth in average earning assets was
primarily funded by a $20.3 million increase in average funds provided by
the trust preferred capital securities offering that was completed during
the first quarter of 1997 and a $9.1 million increase in average
shareholders' equity.
12<PAGE>
<PAGE> 13
First Western's net interest income was $15.3 million for the third
quarter of 1997, increasing $461,000 or 3.1% from $14.8 million for the
third quarter of 1996. The increase in net interest income was primarily
due to the interest recovery on a nonaccrual loan. Due to the loan sales
during the fourth quarter of 1996 and the first quarter of 1997, the
composition of First Western's average earning assets changed for the third
quarter of 1997 compared with the prior year as average loans decreased
$55.7 million or 5.1% and the average balance of securities available for
sale increased $87.1 million or 35.2%.
First Western's net interest margin or net interest income expressed
as a percentage of average earning assets was 3.77% for both the first nine
months of 1997 and the first nine months of 1996. First Western's yield on
earning assets declined from the first nine months of 1996 to the first
nine months of 1997 due primarily to a decline in loan yields. Loan yields
declined in part due to the sale of the credit card portfolio which was
completed during the first quarter of 1997. First Western's cost of funds
increased for the first nine months of 1997 compared with the prior year
due to increases in the rates paid for deposits and borrowed funds as a
result of increased short-term interest rates during the first quarter of
1997. Partially offsetting the compression of First Western's net interest
margin was an increase in First Western's noninterest-bearing funds such as
the trust preferred capital securities and shareholders' equity. First
Western accounts for the payments made to the holders of the trust
preferred capital securities as minority interest expense which is included
in other expenses. First Western's net interest margin for the third
quarter of 1997 was 3.88% compared with 3.79% for the third quarter of 1996
with this increase due to the interest recovery on the nonaccrual loan pay-
off.
Provision for Possible Loan Losses:
First Western's provision for possible loan losses was $3.9 million
for the first nine months of 1997, decreasing $1.9 million from $5.8
million for the first nine months of 1996. This decrease in First
Western's provision for possible loan losses was the result of First
Western having lower charge-off and delinquency levels for the first nine
months of 1997 compared with the prior year. For the third quarter of
1997, First Western's provision for possible loan losses was $1.0 million,
decreasing $236,000 from $1.2 million for the third quarter of 1996. First
Western increased its provision for possible loan losses substantially
during the second quarter of 1996 in response to increased consumer loan
charge-offs and delinquencies. First Western's net charge-offs for the
first nine months of 1997 were $2.3 million or 0.29% of average loans,
compared with $3.8 million or 0.48% of average loans for the first nine
months of 1996. Substantially all of First Western's charge-offs for the
first nine months of 1996 and 1997 were consumer loans, primarily indirect
automobile loans and credit card loans. First Western's net charge-offs
for the third quarter of 1997 were $754,000, compared with $1.1 million for
the third quarter of 1996.
13<PAGE>
<PAGE> 14
First Western's net charge-offs (recoveries) by loan type are as
follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural loans.......................... $ (40) $ (87)
Real estate construction loans........................................ - -
Real estate mortgage loans............................................ 84 130
Installment loans..................................................... 2,220 3,801
---------- ----------
Total net charge-offs.............................................. $ 2,264 $ 3,844
========== ==========
Net charge-offs as a percentage of
average loans...................................................... 0.29% 0.48%
========== ==========
</TABLE>
Other Income and Other Expenses:
Other income increased $4.6 million or 50.1% from $9.3 million for the
first nine months of 1996 to $13.9 million for the first nine months of
1997 primarily due to net gains on sales of loans. Partially offsetting the
increase in other income for the first nine months of 1997 compared with
the prior year was a $1.7 million decrease in gains on sales of securities
available for sale and a $1.0 million decrease in credit card program fees.
For the third quarter of 1997, other income was $2.8 million, decreasing
$333,000 or 10.7% from $3.1 million for the third quarter of 1996 with most
of this decrease due to a $524,000 decrease in net securities gains and a
$459,000 decrease in credit card program fees with these decreases
partially offset by a $325,000 gain on the sale of First Western's branch
office located in Slippery Rock, Pennsylvania.
Trust fees increased $215,000 or 14.4% from $1.5 million for the first
nine months of 1996 to $1.7 million for the first nine months of 1997
primarily due to increased estate trust fees. Trust fees for the third
quarter of 1997 were comparable to the prior year.
Service charges on deposit accounts increased $394,000 or 14.6% for
the first nine months of 1997 compared with the same period in the prior
year. The increase in service charges on deposit accounts reflects an
increase in the returned check charge along with an increase in fees earned
on a consumer interest-bearing demand product. Service charges on deposit
accounts were $1,055,000 for the third quarter of 1997, increasing $83,000
or 8.5% from $972,000 for the third quarter of 1996 for the same reasons as
the year-to-date increases.
First Western's credit card program fees decreased $981,000 or 83.1%
from $1.2 million for the first nine months of 1996 to $199,000 for the
first nine months of 1997 reflecting the sale of approximately two-thirds
of First Western's credit card portfolio in late 1996 with the remaining
third of the portfolio sold during the first quarter of 1997 along with the
sale of the credit card merchant processing business during the second
quarter of 1997. Approximately $147,000 of First Western's credit card
program fees earned during the first nine months of 1997 were for
14<PAGE>
<PAGE> 15
processing merchant transactions.
During the first nine months of 1996, First Western sold certain
securities available for sale realizing gains of $541,000 and $1.7 million
for the three and nine months ended September 30, 1996, respectively.
First Western realized net gains on security sales of $17,000 and $37,000
during the three and nine month periods ended September 30, 1997,
respectively.
During the first nine months of 1997, First Western realized net gains
on loan sales of $5.7 million compared with a gain of $54,000 for the first
nine months of 1996. Most of the gains during the first nine months of
1997 were the result of First Western completing the sale of its credit
card portfolio. First Western also completed the sale of approximately
$100 million of mortgage loans during the first quarter of 1997 with the
loss on the sale of these mortgage loans recorded during the fourth quarter
of 1996.
Other operating income increased $1.1 million from $2.1 million for
the first nine months of 1996 to $3.2 million for the first nine months of
1997 due to a $398,000 increase in loan servicing income primarily as a
result of the sale of the credit card portfolio, until servicing was
transferred in May 1997, along with a $325,000 gain on the sale of the
branch office located in Slippery Rock, Pennsylvania and a $267,000 gain
realized on the sale of First Western's credit card merchant transaction
processing business. The servicing of the credit card portfolio
transferred to the purchaser during the second quarter of 1997. Other
operating income increased $406,000 from $633,000 for the third quarter of
1996 to $1.0 million for the third quarter of 1997 primarily due to the
gain realized on the sale of the branch office located in Slippery Rock,
Pennsylvania.
Total other expenses for the first nine months of 1997 of $31.9
million were approximately even with the prior year as increases in
salaries and employee benefits expense and minority interest expense offset
the decrease in FDIC insurance expense. Total other expenses decreased
$2.4 million or 18.5% from $12.9 million for the third quarter of 1996 to
$10.6 million for the third quarter of 1997 primarily due to a $3.3 million
special assessment for FDIC insurance that was incurred during the third
quarter of 1996.
First Western's salary and employee benefits expense increased a
combined $1.4 million or 10.5% for the first nine months of 1997 compared
with the first nine months of 1996. Salaries and employee benefits expense
increased due to normal salary and wage increases in addition to First
Western increasing its full-time equivalent employees in mid-1996. First
Western's salaries and employee benefits expense increased $436,000 or 9.6%
from $4.5 million for the third quarter of 1996 to $5.0 million for the
third quarter of 1997 for the same reasons as the year-to-date increases.
Federal deposit insurance expense decreased $3.9 million or 93.3% from
$4.2 million for the first nine months of 1996 to $283,000 for the first
nine months of 1997 with this decrease due to a $3.3 million special
assessment on thrift deposits that was incurred during the third quarter of
1996 along with a reduction in the insurance rates for thrift deposits as a
result of the recapitalization of the Savings Association Insurance Fund
("SAIF") during the fourth quarter of 1996. First Western's federal
deposit insurance expense decreased $3.5 million or 97.3% for the third
quarter of 1997 compared with the prior year due to the special assessment
paid in
15<PAGE>
<PAGE> 16
September 1996.
First Western's outside examination, legal and consulting expense
increased $378,000 or 38.9% from the first nine months of 1996 to the first
nine months of 1997 due to increased consulting expense as First Western
utilized outside consultants during 1997 to evaluate several of First
Western's operations and as a result of merger of First Western Bank F.S.B.
into First Western Bank, N.A.
For the three and nine month periods ended September 30, 1997, First
Western's advertising and promotion expense increased $78,000 and $353,000
respectively, compared with the prior year due to First Western increasing
its utilization of an external marketing firm to create advertising
campaigns.
In February 1997, First Western completed the private placement of $25
million of trust preferred capital securities issued by First Western's
newly formed Delaware trust subsidiary, First Western Capital Trust I. The
distributions payable on the securities, which totaled $640,000 and $1.6
million for the three and nine months ended September 30, 1997,
respectively, have been recorded as minority interest expense.
Other operating expenses were approximately $6.0 million for the first
nine months of 1996 and 1997. During the first nine months of 1997, First
Western experienced increases in other expenses primarily due to the cost
of purchasing various deposit account enhancements from a third-party
provider along with increased loan collection expense and also due to First
Western incurring expenses to start an in-house training program. These
increases in other expenses were offset by a $425,000 decrease in credit
card program expenses. For the third quarter of 1997, other operating
expenses decreased $236,000 or 11.3% from the prior year primarily due to a
$162,000 decrease in credit card processing expense.
Income Taxes:
First Western's income tax expense was $7.1 million for the first nine
months of 1997 compared with $3.6 million for the first nine months of
1996. First Western reduced its income tax expense for the three and nine
month periods ending September 30, 1996 by $500,000 as a result of First
Western reaching a settlement with the Internal Revenue Service on various
findings of an audit of First Western's tax returns from 1989 through 1992.
Excluding the adjustment to income tax expense for the IRS settlement,
First Western's effective tax rate for the nine months ended September 30,
1997 was 31.4% compared with 27.9% for the first nine months of 1996. The
increase in First Western's effective tax rate from 1996 to 1997 was due to
First Western having an increased level of fully-taxable income as compared
with pretax earnings as a result of the gains on loan sales during the
first quarter of 1997 and the SAIF special assessment during the third
quarter of 1996.
16<PAGE>
<PAGE> 17
Financial Condition as of September 30, 1997 as compared with December 31,
1996 and September 30, 1996.
As of September 30, 1997, First Western's total assets were $1.696
billion compared with $1.696 billion at December 31, 1996 and $1.713
billion at September 30, 1996. During the first nine months of 1997, First
Western increased its portfolio of securities available for sale with most
of the funds provided by the sale of loans. Total average assets for the
first nine months of 1997 were $1.699 billion compared with $1.666 billion
for the first nine months of 1996, an increase of 1.9%.
17<PAGE>
<PAGE> 18
Loan Portfolio:
Net loans, including loans held for sale, decreased $79.5 million or
7.1% during the first nine months of 1997 with this decrease in loans
primarily due to the sale of approximately $100 million of mortgage loans
and $17 million of credit card loans. The credit card loans that were sold
during the first nine months of 1997 represent the remaining portion of
First Western's portfolio that was not sold during the fourth quarter of
1996. Most of the mortgage loans sold by First Western during the first
nine months of 1997 were designated as held for sale during the fourth
quarter of 1996 and an estimated loss of approximately $3 million was
recorded during the fourth quarter of 1996. The sale of the remaining
credit card loans and the mortgage loans designated as held for sale were
the primary reasons for the $120.9 million decrease in loans held for sale
from $124.5 million at December 31, 1996 to $3.6 million at September 30,
1997. The following table shows the composition of First Western's loan
portfolio, including loans held for sale, at September 30, 1997, December
31, 1996 and September 30, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 September 30, 1996
------------------------ ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------ -------- ----------- -------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural:
Automobile floorplan loans....... $ 17,905 1.7% $ 26,668 2.4% $ 25,052 2.3%
Loans to municipalities.......... 5,661 0.5 11,446 1.0 11,665 1.0
Other commercial loans........... 96,063 9.3 83,645 7.5 83,229 7.5
------------ -------- ----------- -------- ----------- --------
Subtotal....................... 119,629 11.5 121,759 10.9 119,946 10.8
------------ -------- ----------- -------- ----------- --------
Real estate-construction............. 14,183 1.4 16,289 1.5 19,062 1.7
------------ -------- ----------- -------- ----------- --------
Real estate-mortgage:
1-4 Family residential............. 379,431 36.7 433,813 38.9 422,930 38.0
Multi-family residential........... 27,620 2.7 37,173 3.3 34,355 3.1
Home equity........................ 55,078 5.3 49,653 4.5 47,474 4.3
Commercial and other............... 163,954 15.8 159,470 14.3 156,300 14.0
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 626,083 60.5 680,109 61.0 661,059 59.4
------------ -------- ----------- -------- ----------- --------
Installment:
Credit cards....................... - - 17,328 1.6 42,254 3.8
Installment and other.............. 274,995 26.6 278,940 25.0 270,943 24.3
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 274,995 26.6 296,268 26.6 313,197 28.1
------------ -------- ----------- -------- ----------- --------
Total............................ $ 1,034,890 100.0% $ 1,114,425 100.0% $ 1,113,264 100.0%
============ ======== =========== ======== =========== ========
</TABLE>
18<PAGE>
<PAGE> 19
First Western has several procedures in place to assist in maintaining
the overall quality of its loan portfolio. First Western has established
underwriting guidelines to be followed by its bank subsidiary. In
addition, a formal, ongoing loan review program, which concentrates
principally on commercial credits, has been established to help monitor the
loan portfolios of the subsidiaries. First Western also regularly monitors
its delinquency levels for any negative or adverse trends and particularly
monitors credits which have total exposures of $1.5 million or more.
First Western's delinquent loans, nonaccrual loans and nonperforming
assets consisted of the following at September 30, 1997, December 31, 1996
and September 30, 1996:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ........................... $ 5,922 $ 8,080 $ 8,759
Loans past due 90 days or more ......................... 1,844 1,427 1,868
------------- ------------ -------------
Total loan delinquencies ............................. $ 7,766 $ 9,507 $ 10,627
============= ============ =============
Nonaccrual loans ......................................... $ 2,942 $ 5,147 $ 5,360
Other real estate owned .................................. 218 471 252
------------- ------------ -------------
Total nonperforming assets ............................... $ 3,160 $ 5,618 $ 5,612
============= ============ =============
Total nonperforming assets and loans
past due 90 days or more ............................... $ 5,004 $ 7,045 $ 7,480
============= ============ =============
Nonaccrual loans to total loans .......................... 0.28 % 0.46 % 0.48 %
Nonperforming assets to total loans
and other real estate owned ............................ 0.31 % 0.50 % 0.50 %
Nonperforming assets to total assets ..................... 0.19 % 0.33 % 0.33 %
Nonperforming assets and loans past due
90 days or more to total assets ........................ 0.30 % 0.42 % 0.44 %
Nonaccrual loans and loans past due
90 days or more to total loans ......................... 0.46 % 0.59 % 0.65 %
Allowance for possible loan losses
to nonaccrual loans .................................... 600.68 % 311.91 % 299.90 %
Allowance for possible loan losses
to loans past due 90 days or more
and nonaccrual loans ................................... 369.24 % 244.20 % 222.38 %
Allowance for possible loan losses to
total loans ............................................ 1.71 % 1.44 % 1.44 %
</TABLE>
19<PAGE>
<PAGE> 20
First Western's total delinquencies decreased $1.7 million from $9.5
million at December 31, 1996 to $7.8 million at September 30, 1997
primarily due to a $2.2 million decrease in loans past due 30-89 days,
offset by a $417,000 increase in loans past due 90 days or more. Consumer
loan delinquencies decreased $1.8 million for the nine months ended
September 30, 1997. During the first nine months of 1997, First Western's
nonaccrual loans decreased $2.2 million primarily due to a nonaccrual
commercial mortgage loan being paid-off. Most of the decrease in
delinquencies from September 30, 1996 to September 30, 1997 has been due to
decreased delinquencies of consumer loans. First Western's delinquent
loans by type are as follows at September 30, 1997, December 31, 1996 and
September 30, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996 September 30, 1996
------------------ ----------------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial, financial and
agricultural....................... $ 572 $ 190 $ -
------------------ ----------------- ------------------
Real estate-mortgage:
1-4 Family residential............. 1,044 721 1,498
Home equity........................ 65 225 96
Commercial and other............... - 319 282
------------------ ----------------- ------------------
Subtotal......................... 1,109 1,265 1,876
------------------ ----------------- ------------------
Installment:
Credit cards....................... - 122 611
Installment and other.............. 6,085 7,930 8,140
------------------ ----------------- ------------------
Subtotal......................... 6,085 8,052 8,751
------------------ ----------------- ------------------
Total............................ $ 7,766 $ 9,507 $ 10,627
================== ================= ==================
</TABLE>
In order to determine the adequacy of the allowance for possible loan
losses, management considers the risk classification of loans, delinquency
trends, charge-off experience, credit concentrations, economic conditions
and other factors. Specific reserves are established for each classified
credit taking into consideration the credit's delinquency status, current
operating status, pledged collateral and plan of action for resolving any
deficiencies. For nonclassified loans and smaller loans not individually
reviewed, management considers historical charge-off experience in
determining the amount to be allocated to the allowance. An unallocated or
general reserve is also established which takes into consideration, among
other things, unfunded commitments, concentrations of credit, economic
conditions, delinquency and nonaccrual trends, management experience and
trends in volume and terms of loans. The allowance is maintained at a
level determined according to this methodology by charging a provision to
operations.
First Western believes that the allowance for possible loan losses of
$17.7 million at September 30, 1997 is adequate to cover losses inherent in
the portfolio as of such date. However, there can be no assurance that
First Western will not sustain losses in future periods, which could be
substantial in relation to the size of the allowance at September 30, 1997.
20<PAGE>
<PAGE> 21
Investment Securities, Mortgage-Backed Securities, and Securities Available
for Sale:
Investment securities and mortgage-backed securities decreased a
combined $24.2 million for the first nine months of 1997 with this decrease
due to regular maturities and paydowns. The market value of First
Western's investment securities and mortgage-backed securities held to
maturity was a combined $252.2 million, $133,000 or 0.1% below the
amortized cost of $252.3 million. First Western's portfolio of investment
securities and mortgage-backed securities had a market value below
amortized cost of $1.9 million or 0.7% at December 31, 1996.
Securities available for sale increased $141.7 million during the
first nine months of 1997 with this increase the result of First Western
purchasing securities available for sale with the funds provided by the
fourth quarter 1996 and first quarter 1997 loan sales and the trust
preferred offering. Securities available for sale increased $104.1 million
from $238.9 million at September 30, 1996 to $343.0 million at September
30, 1997 with this increase due to the purchase of securities using the
funds provided by the loan sales. At September 30, 1997, First Western had
net unrealized appreciation on securities available for sale of $6.8
million compared with unrealized appreciation of $1.4 million at December
31, 1996 and unrealized depreciation of $1.2 million at September 30, 1996.
Deposits:
Total deposits increased $31.8 million or 2.8% from $1.149 billion at
December 31, 1996 to $1.181 billion at September 30, 1997. Deposits
increased during the first nine months of 1997 due to the acquisition of a
branch office in Chicora, Pennsylvania with this increase partially offset
by the sale of First Western's branch office in Slippery Rock,
Pennsylvania. The branch office in Chicora had approximately $37 million
of deposits at its acquisition in September 1997 and the Slippery Rock
branch office that was sold had approximately $4 million of deposits.
First Western's deposits increased $29.4 million from September 30, 1996 to
September 30, 1997 with most of this increase attributable to the
acquisition of the Chicora branch office. During the fourth quarter of
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 $86.6 million
decrease in interest-bearing demand accounts and the $93.1 million increase
in money market accounts from September 30, 1996 to September 30, 1997.
21<PAGE>
<PAGE> 22
Borrowed Funds:
First Western's borrowed funds decreased $74.0 million during the
first nine months of 1997 from $389.3 million at December 31, 1996 to
$315.3 million at September 30, 1997. First Western decreased its
borrowings during the first nine months of 1997 as a result of the loan
sales and the increase in deposits. Total borrowed funds decreased $96.2
million from September 30, 1996 to September 30, 1997 as these borrowings
were decreased primarily as a result of the loan sales.
Trust Preferred Capital Securities:
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, Capital Trust.
These 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 interest
payable thereon is currently considered to be tax-deductible. Proceeds of
the issue were invested by Capital Trust in junior subordinated debentures
issued by First Western. Net proceeds from the sale of the debentures have
been used for general corporate purposes, including but not limited to,
repurchase of shares of First Western's common stock and investments in and
advances to First Western's subsidiaries.
22<PAGE>
<PAGE> 23
Shareholders' Equity:
Shareholders' equity increased $7.8 million during the first nine
months of 1997 primarily due to the retention of earnings and a $3.5
million increase in the market value of securities available for sale, net
of income tax effects, with these increases in shareholders' equity
partially offset by the purchase of treasury stock. During the first nine
months of 1997, First Western repurchased 311,600 shares of common stock as
treasury stock, restated for the three-for-two stock split, at a cost of
$6.7 million in accordance with a common stock repurchase program. First
Western's capital ratios improved from December 31, 1996 to September 30,
1997 as a result of the issuance of the trust preferred capital securities
in February 1997. The following table presents First Western's capital
ratios at September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Tier I:
Common shareholders' equity .............................. $ 135,563 $ 127,721
Non-exempt intangible assets ............................. (9,583) (6,575)
Trust preferred capital securities........................ 23,827 -
Unrealized appreciation in securities
available for sale ..................................... (4,393) (884)
------------- ------------
Total Tier I ......................................... 145,414 120,262
------------- ------------
Tier II:
Qualifying allowance for possible loan losses ............ 12,835 13,190
------------- ------------
Total Tier II ........................................ 12,835 13,190
------------- ------------
Total capital .............................................. $ 158,249 $ 133,452
============= ============
Risk weighted assets ....................................... $ 1,021,973 $ 1,052,329
============= ============
Tier I capital ratio ....................................... 14.23% 11.43%
============= ============
Required Tier I capital ratio .............................. 4.00% 4.00%
============= ============
Total capital ratio ........................................ 15.48% 12.68%
============= ============
Required total capital ratio ............................... 8.00% 8.00%
============= ============
Tier I leverage ratio ...................................... 8.66% 7.10%
============= ============
Required Tier I leverage ratio * ........................... 3.00% 3.00%
============= ============
<FN>
* For all but the most highly rated, low risk profile organizations, the
minimum Tier I leverage ratio is to be 3% plus a cushion of 100 to 200 basis
points.
</TABLE>
23<PAGE>
<PAGE> 24
Liquidity and Cash Flows:
Liquidity is the ability to provide the cash necessary to meet
customer credit needs, satisfy depositor withdrawal requirements and to
pay-off short-term borrowings. One source of liquidity is cash and due
from banks and short-term assets such as interest-bearing deposits in other
banks and federal funds sold, which totaled $36.9 million at September 30,
1997 as compared with $75.2 million at December 31, 1996 and $48.2 million
at September 30, 1996. The decrease in First Western's liquid funds from
December 31, 1997 to September 30, 1997 was primarily due to First Western
reducing its balance of federal funds sold. Another source of liquidity is
borrowing capability. First Western's banking subsidiaries have a variety
of sources of short-term liquidity available to them, including federal
funds purchased from correspondent banks, sales of securities available for
sale, sales of securities under agreements to repurchase, the Federal
Reserve discount window, interbank deposits, FHLB advances and loan
participations or sales. First Western also generates liquidity from the
regular principal payments and prepayments made on its portfolio of loans
and mortgage-backed securities. First Western's banking subsidiaries had
$30.9 million of unused overnight credit lines available at September 30,
1997.
First Western's operating activities provided cash flows of $138.7
million during the first nine months of 1997 compared with $39.9 million
during the first nine months of 1996. Loan sales provided $124.6 million
and $29.1 million of the cash flows from operating activities for the nine
months ended September 30, 1997 and 1996, respectively.
Investing activities used cash flows of $75.2 million during the first
nine months of 1997 compared with using cash flows of $171.1 million for
the first nine months of 1996. The growth of the portfolio of securities
available for sale during the first nine months of 1997 used net cash flows
of $125.8 million compared with $32.8 million for the first nine months of
1996. The cash flows to fund the increase in securities available for sale
during the first nine months of 1997 came from the sale of loans. The
growth of the portfolio of loans not designated as held for sale used net
cash flows of $61.4 million during the first nine months of 1997 compared
with $116.3 million for the first nine months of 1996. During the third
quarter of 1997, First Western sold a branch office which used cash flows
of $3.3 million and purchased a branch office which provided cash flows of
$33.8 million.
Financing activities used cash flows of $64.2 million during the first
nine months of 1997 primarily due to a reduction in borrowings using net
cash flows of $74.0 million. The issuance of the trust preferred capital
securities during the first quarter of 1997 provided $23.8 million of cash
flows. During the first nine months of 1996, financing activities provided
cash flows of $138.8 million primarily as a result of an increase in
borrowed funds of $174.5 million.
24<PAGE>
<PAGE> 25
Other:
Certain of the statements and information in this Form 10-Q may be
forward looking statements. For a discussion of the factors that may
affect these statements refer to the Management's Discussion and Analysis
of Financial Condition and Results of Operations in First Western's Annual
Report on Form 10-K for the year ended December 31, 1996.
25<PAGE>
<PAGE> 26
Part II. Other Information
Item 1-5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
15.1 Letter re: Unaudited Interim Financial Information
27.1 Financial Data Schedule
b. Reports on Form 8-K: None.
26<PAGE>
<PAGE> 27
c. Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FIRST WESTERN BANCORP, INC.
(Registrant)
November 10, 1997 /s/ Robert H. Young
-----------------------
Robert H. Young
Executive Vice President-
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
27<PAGE>
<PAGE> 28
FIRST WESTERN BANCORP, INC.
EXHIBITS TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------- -------------------------------------- ---------
<S> <C> <C>
15.1 Letter re: Unaudited Interim Financial Filed
Information herewith
27.1 Financial Data Schedule Filed
herewith
</TABLE>
<PAGE>
<PAGE> 1
Exhibit 15.1
November 10, 1997
To the Board of Directors and Shareholders of
First Western Bancorp, Inc.
New Castle, Pennsylvania 16103
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of First Western Bancorp, Inc. and
subsidiaries for the periods ended September 30, 1997 and 1996, as
indicated in our report dated October 21, 1997, because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended September 30,
1997,is incorporated by reference in the Registration Statements of First
Western Bancorp, Inc. on Form S-8 (No. 33-46923) for the First Western
Bancorp, Inc. 401(k) Profit-Sharing and Stock Bonus Plan, on Forms S-8
(Nos. 33-00528 and 33-50372) for the First Western Bancorp, Inc. Incentive
Stock Option Plan for Key Employees, Form S-3 (No. 33-40596) for the First
Western Bancorp, Inc. Dividend Reinvestment and Additional Stock Purchase
Plan.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration Statements prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
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<NAME> First Western Bancorp Inc.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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