<PAGE>
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 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
August 5, 1997 was:
Common Stock, $5.00 par value - 7,442,855 shares outstanding
<PAGE>
<PAGE> 2
FIRST WESTERN BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements:
Independent Accountants' Report......................... 3
Consolidated Balance Sheets:
June 30, 1997, December 31, 1996 and
June 30, 1996.......................................... 4
Consolidated Statements of Income:
Three months ended June 30, 1997
and three months ended June 30, 1996................... 5
Consolidated Statements of Income:
Six months ended June 30, 1997
and six months ended June 30, 1996..................... 6
Consolidated Statements of Changes
in Shareholders' Equity:
Six months ended June 30, 1997
and six months ended June 30, 1996..................... 7
Consolidated Statements of Cash Flows:
Six months ended June 30, 1997
and six months ended June 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 June 30, 1997 and
1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the three-month and six-month
periods then ended. These financial statements are the responsibility
of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope than
an audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of First Western Bancorp,
Inc. and subsidiaries as of December 31, 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
July 15, 1997
3 <PAGE>
<PAGE> 4
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
- -------
Cash and due from banks $ 46,218 $ 36,021 $ 40,262
------------- ------------ -------------
Interest-bearing deposits with other banks 1,855 1,770 1,304
------------- ------------ -------------
Federal funds sold - 37,400 -
------------- ------------ -------------
Securities available for sale
(amortized cost of $333,146, $199,922 and $260,880) 336,238 201,282 259,474
------------- ------------ -------------
Investment securities, held to maturity
(market value of $102,214, $107,455 and $107,327) 102,054 107,092 107,955
------------- ------------ -------------
Mortgage-backed securities, held to maturity
(market value of $153,696, $167,185 and $176,637) 155,467 169,467 180,772
------------- ------------ -------------
Loans held for sale (market value of $3,193, $129,713 and $1,329) 3,193 124,515 1,329
------------- ------------ -------------
Loans (net of unearned income of $35,133, $34,864 and $33,438) 1,030,903 989,910 1,079,539
Less: Allowance for possible loan losses 17,472 16,054 15,938
------------- ------------ -------------
Net loans 1,013,431 973,856 1,063,601
------------- ------------ -------------
Premises and equipment 19,740 19,499 18,772
------------- ------------ -------------
Other assets 24,574 24,876 27,312
------------- ------------ -------------
Total Assets $ 1,702,770 $ 1,695,778 $ 1,700,781
============= ============ =============
LIABILITIES:
- ------------
Deposits:
Noninterest-bearing demand $ 96,032 $ 93,163 $ 101,904
Interest-bearing demand 37,448 53,946 120,719
Savings 358,149 329,532 275,874
Time 692,908 672,262 675,452
------------- ------------ -------------
Total deposits 1,184,537 1,148,903 1,173,949
------------- ------------ -------------
Borrowed funds:
Federal funds purchased and other short-term borrowings 52,349 33,202 63,476
Repurchase agreements and secured lines of credit 128,589 212,070 212,392
Advances from the Federal Home Loan Bank 149,000 144,000 105,670
------------- ------------ -------------
Total borrowed funds 329,938 389,272 381,538
------------- ------------ -------------
Long-term debt 5,187 5,967 6,897
------------- ------------ -------------
Other liabilities 28,874 23,915 18,194
------------- ------------ -------------
Total Liabilities 1,548,536 1,568,057 1,580,578
------------- ------------ -------------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 23,817 - -
------------- ------------ -------------
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,
11,774,912, 7,835,806 and 7,823,088 shares issued and
11,164,283, 7,628,020 and 7,628,688 shares outstanding 58,875 39,179 39,115
Additional paid-in capital 2,595 22,064 21,873
Retained earnings 78,450 70,736 64,881
Unrealized appreciation (depreciation) in securities available for sale, net
of tax 2,010 884 (914)
Treasury stock, 559,200, 173,400 and 154,500 shares at cost (10,613) (4,242) (3,702)
Unallocated common stock held by ESOP (at cost) (900) (900) (1,050)
------------- ------------ -------------
Total Shareholders' Equity 130,417 127,721 120,203
------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 1,702,770 $ 1,695,778 $ 1,700,781
============= ============ =============
</TABLE>
See Notes to Consolidated Financial Statements.
4<PAGE>
<PAGE> 5
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
June 30, June 30,
1997 1996
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 21,733 $ 22,577
Interest on deposits with other banks 40 16
Interest on securities available for sale 6,028 4,577
Interest and dividends on investment securities:
Taxable interest 271 377
Tax-exempt interest 1,043 1,035
Interest on mortgage-backed securities 2,463 2,792
Interest on federal funds sold 88 2
------------- -------------
Total Interest Income 31,666 31,376
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 198 384
Savings 1,935 1,755
Time 9,719 9,393
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 618 741
Repurchase agreements and secured lines of credit 2,102 2,945
Advances from the Federal Home Loan Bank 2,133 1,544
Interest on long-term debt 99 109
------------- -------------
Total Interest Expense 16,804 16,871
------------- -------------
NET INTEREST INCOME 14,862 14,505
Provision for possible loan losses 954 3,290
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 13,908 11,215
------------- -------------
OTHER INCOME:
- -------------
Trust fees 532 499
Service charges on deposit accounts 1,049 903
Credit card program fees 38 391
Net securities gains 20 807
Net gains (losses) on loan sales 697 (41)
Other operating income 1,245 737
------------- -------------
Total Other Income 3,581 3,296
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 3,743 3,428
Employee benefits 1,027 916
Net occupancy expense 737 730
Equipment rentals, depreciation and maintenance 593 585
Federal deposit insurance 94 323
Outside examination, legal fees and consulting 458 380
Advertising and promotion 427 202
Supplies 410 378
Outside data processing services 407 431
Minority interest expense 630 -
Other operating expense 1,829 1,961
------------- -------------
Total Other Expenses 10,355 9,334
------------- -------------
INCOME BEFORE INCOME TAXES 7,134 5,177
Income Taxes 2,254 991
------------- -------------
NET INCOME $ 4,880 $ 4,186
============= =============
EARNINGS PER SHARE $ 0.43 $ 0.36
============= =============
DIVIDENDS PER SHARE $ 0.13 $ 0.12
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 11,425 11,689
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
5<PAGE>
<PAGE> 6
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
1997 1996
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 44,247 $ 44,664
Interest on deposits with other banks 186 30
Interest on securities available for sale 10,379 8,705
Interest and dividends on investment securities:
Taxable interest 547 799
Tax-exempt interest 2,075 2,066
Interest on mortgage-backed securities 5,003 5,158
Interest on federal funds sold 548 11
------------- -------------
Total Interest Income 62,985 61,433
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 415 741
Savings 3,732 3,471
Time 19,507 19,083
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 1,148 1,225
Repurchase agreements and secured lines of credit 4,722 5,029
Advances from the Federal Home Loan Bank 4,175 3,166
Interest on long-term debt 201 252
------------- -------------
Total Interest Expense 33,900 32,967
------------- -------------
NET INTEREST INCOME 29,085 28,466
Provision for possible loan losses 2,928 4,580
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 26,157 23,886
------------- -------------
OTHER INCOME:
- -------------
Trust fees 1,223 1,046
Service charges on deposit accounts 2,029 1,718
Credit card program fees 199 721
Net securities gains 20 1,190
Net gains on loan sales 5,490 8
Other operating income 2,176 1,480
------------- -------------
Total Other Income 11,137 6,163
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 7,625 6,892
Employee benefits 2,336 2,087
Net occupancy expense 1,527 1,482
Equipment rentals, depreciation and maintenance 1,163 1,160
Federal deposit insurance 188 645
Outside examination, legal fees and consulting 945 647
Advertising and promotion 851 576
Supplies 796 736
Outside data processing services 827 858
Minority interest expense 971 -
Other operating expense 4,100 3,889
------------- -------------
Total Other Expenses 21,329 18,972
------------- -------------
INCOME BEFORE INCOME TAXES 15,965 11,077
Income Taxes 5,213 2,722
------------- -------------
NET INCOME $ 10,752 $ 8,355
============= =============
EARNINGS PER SHARE $ 0.93 $ 0.71
============= =============
DIVIDENDS PER SHARE $ 0.27 $ 0.24
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING AND COMMON SHARE EQUIVALENTS 11,511 11,739
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
6<PAGE>
<PAGE> 7
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
------------------------------------------------------------------------------
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, 1997 7,836 $39,179 $22,064 $70,736 $ 884 ($4,242) (34) ($900)
Net income - - - 10,752 - - - -
Cash dividends paid ($0.27 per share) - - - (3,038) - - - -
Exercise of options, net of shares redeemed 9 48 25 - - - - -
Common stock issued for dividend reinvestment 5 23 131 - - - - -
Treasury stock purchased - - - - - (6,371) - -
Fifty percent stock dividend declared
on July 15, 1997 3,925 19,625 (19,625) - - - (17) -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - 1,126 - - -
------------------------------------------------------------------------------
Balance - June 30, 1997 11,775 $58,875 $2,595 $78,450 $2,010 ($10,613) (51) ($900)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996
------------------------------------------------------------------------------
Unrealized
Appreciation Common Stock
(Depreciation) Held by ESOP
Common Stock in Securities (at cost)
--------------- Retained Available Treasury ---------------
Shares Amount Surplus Earnings for Sale Stock Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1996 7,817 $39,083 $21,811 $59,313 $2,492 ($1,011) - $(109)
Net income - - - 8,355 - - - -
Cash dividends paid ($0.24 per share) - - - (2,787) - - - -
Exercise of options, net of shares redeemed 5 27 43 - - - - -
Common stock issued for dividend reinvestment 1 5 19 - - - - -
Common stock purchased for ESOP - - - - - - (40) (1,050)
Treasury stock purchased - - - - - (2,691) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - (3,406) - - -
------------------------------------------------------------------------------
Balance - June 30, 1996 7,823 $39,115 $21,873 $64,881 ($914) ($3,702) (40) ($1,050)
==============================================================================
</TABLE>
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 Six Months Ended
-----------------------------
June 30, June 30,
1997 1996
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 10,752 $ 8,355
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,158 1,170
Amortization and accretion 979 1,126
Provision for possible loan losses 2,928 4,580
Gain on sale of securities (20) (1,190)
(Gain) loss on sale of real estate owned (62) 14
Gain on sale of premises and equipment (4) (1)
Gain on sale of loans (5,490) (8)
Proceeds from loan sales 116,146 17,418
Purchase of loans (1,969) (6,155)
Provision for deferred taxes (benefit) 1,017 (1,127)
Increase in interest receivable (1,903) (1,168)
Increase (decrease) in interest payable 610 (982)
Other - net 356 (2,404)
------------- -------------
Total adjustments 113,746 11,273
------------- -------------
Net cash provided by operating activities 124,498 19,628
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sales of securities available for sale 4,293 65,405
Proceeds from maturity or paydown of securities available for sale 70,008 40,926
Purchase of securities available for sale (203,984) (160,536)
Proceeds from maturity or paydown of investment securities 21,965 31,348
Purchase of investment securities (3,291) (60,912)
Proceeds from sale of credit card loan portfolio 21,801 -
Net increase in loans (51,893) (67,722)
(Increase) decrease in deposits with other banks (85) 820
Decrease in federal funds sold 37,400 -
Purchase of premises and equipment (1,613) (1,561)
Proceeds from sale of premises and equipment 215 29
Proceeds from sale of other real estate owned 710 125
------------- -------------
Net cash used in investing activities (104,474) (152,078)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net increase (decrease) in deposits 35,669 (3,694)
Net increase in federal funds purchased and other short-term borrowings 19,147 59,878
Net (decrease) increase in repurchase agreements and secured lines of credit (83,481) 90,734
Net increase (decrease) in advances from the Federal Home Loan Bank 5,000 (6,000)
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 (780) (2,286)
Proceeds from exercise of stock options 73 70
Proceeds from common stock issued for dividend reinvestment plan 154 24
Treasury stock purchased (6,371) (2,691)
Common stock purchased for ESOP - (1,050)
Dividends paid on common stock (3,038) (2,787)
------------- -------------
Net cash (used in) provided by financing activities (9,827) 133,248
------------- -------------
NET INCREASE IN CASH AND DUE FROM BANKS 10,197 798
CASH AND DUE FROM BANKS - Beginning of year 36,021 39,464
------------- -------------
CASH AND DUE FROM BANKS - End of period $ 46,218 $ 40,262
============= =============
</TABLE>
See Notes To Consolidated Financial Statements.
8<PAGE>
<PAGE> 9
Part I. Item 1. Financial Information
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------
June 30, June 30,
1997 1996
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 33,290 $ 33,949
============= =============
Income taxes $ 4,215 $ 4,291
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Securities purchased settling after June 30 $ 3,841 $ 544
============= =============
Securities sold settling after June 30 $ 51 $ 743
============= =============
Transfers to other real estate owned $ 370 $ 574
============= =============
Net change in unrealized appreciation (depreciation) in securities
available for sale, net of income tax effects $ 1,126 $ (3,406)
============= =============
See Notes To Consolidated Financial Statements.
</TABLE>
9<PAGE>
<PAGE> 10
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 Bank, Federal Savings Bank ("First Western
Bank, F.S.B."); 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. All significant intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheets as of June 30, 1997 and June 30,
1996, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for the six month periods ended
June 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 to be
distributed on August 15, 1997.
3. Recent Accounting Pronouncements:
In February 1997, the Financial Accounting Standards Board 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 will not be material.
10 <PAGE>
<PAGE> 11
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, and 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.
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 six months ended June 30, 1997
compared with the three and six months ended June 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 to be distributed on August 15, 1997.
For the six months ended June 30, 1997, First Western's net income
was $10.8 million or $0.93 per share compared with $8.4 million or $0.71
per share for the six months ended June 30, 1996. First Western's net
income increased $2.4 million or 28.7% from the first six months of 1996
to the first six months of 1997 primarily due to a $5.5 million increase
in net gains realized on loan sales and a $1.7 million decrease in the
provision for possible loan losses with these increases in income offset
partially by a $2.4 million increase in other expenses. First Western's
return on average assets and return on average equity for the first six
months of 1997 were 1.27% and 16.86%, respectively, compared with 1.01%
and 13.97% for the first six months of 1996, with the increase in these
ratios primarily attributable to the net gains on loan sales.
For the three months ended June 30, 1997, First Western's net
income was $4.9 million or $0.43 per share compared with $4.2 million or
$0.36 per share for the three months ended June 30, 1996. First
Western's net income increased $694,000 or 16.6% from the second quarter
of 1996 to the second quarter of 1997 primarily due to a $2.3 million
decrease in the provision for possible loan losses with this increase in
income offset partially by a $1.0 million increase in other expenses.
First Western's return on average assets and return on average equity
for the second quarter of 1997 were 1.16% and 15.23%, respectively,
compared with 1.00% and 13.95% for the second quarter of 1996, with the
increases in these ratios primarily attributable to the decrease in the
provision for possible loan losses.
Net Interest Income:
First Western's net interest income was $29.1 million for the six
months ended June 30, 1997, increasing $619,000 or 2.2% from $28.5
million for the first six months of 1996. The increase in net interest
income was generated by a $54.4 million or 3.4% increase in average
earning assets which was partially offset by a decline in First
Western's net interest margin from 3.76% for the first six months of
1996 to 3.72% for the first six months of 1997. The increase in average
earning assets was primarily due to a $44.9 million or 17.4% increase in
average securities available for sale along with a $20.3 million
increase in average federal funds sold due to the funds provided by the
loan sales during the fourth quarter of 1996 and the first quarter of
1997. The growth in average earning assets was funded by an $18.5
million increase in average funds provided by the trust preferred
capital securities offering that was completed during the first quarter
of 1997, a $9.1 million increase in average borrowed funds and an $8.3
million increase in average shareholders' equity.
12<PAGE>
<PAGE> 13
First Western's net interest income was $14.9 million for the
second quarter of 1997, increasing $357,000 or 2.5% from $14.5 million
for the second quarter of 1996. The increase in net interest income was
generated by an increase in First Western's net interest margin from
3.75% for the second quarter of 1996 to 3.80% for the second quarter of
1997 along with a $10.7 million or 0.7% increase in average earning
assets. 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 second quarter of 1997 compared with the
prior year as average loans decreased $39.6 million or 3.7% and the
average balance of securities available for sale increased $72.4 million
or 27.1%.
First Western's net interest margin or net interest income
expressed as a percentage of average earning assets was 3.72% for the
first six months of 1997 compared with 3.76% for the first six months of
1996. First Western's yield on earning assets declined from the first
six months of 1996 to the first six 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 six
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.
Provision for Possible Loan Losses:
First Western's provision for possible loan losses was $2.9 million
for the first six months of 1997, decreasing $1.7 million from $4.6
million for the first six 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 six
months of 1997 compared with the prior year. For the second quarter of
1997, First Western's provision for possible loan losses was $1.0
million, decreasing $2.3 million from $3.3 million for the second
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 six months of 1997 were $1.5
million or 0.29% of average loans, compared with $2.8 million or 0.54%
of average loans for the first six months of 1996. Substantially all of
First Western's charge-offs for the first six months of 1996 and 1997
were consumer loans, primarily indirect automobile loans and credit card
loans. First Western's net charge-offs for the second quarter of 1997
were $797,000, compared with $1.8 million for the second quarter of 1996
and $713,000 for the first quarter of 1997.
13<PAGE>
<PAGE> 14
First Western's net charge-offs (recoveries) by loan type are as
follows (in thousands):
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural loans.......................... $ (37) $ (35)
Real estate construction loans........................................ - -
Real estate mortgage loans............................................ 30 107
Installment loans..................................................... 1,517 2,717
---------- ----------
Total net charge-offs.............................................. $ 1,510 $ 2,789
========== ==========
Net charge-offs as a percentage of
average loans...................................................... 0.29% 0.54%
========== ==========
</TABLE>
Other Income and Other Expenses:
Other income increased $4.9 million or 80.7% from $6.2 million for
the first six months of 1996 to $11.1 million for the first six months
of 1997 primarily due to net gains on sales of loans. Partially
offsetting the increase in other income for the first six months of 1997
compared with the prior year was a $1.2 million decrease in gains on
sales of securities available for sale. For the second quarter of 1997,
other income was $3.6 million, increasing $285,000 or 8.6% from $3.3
million for the second quarter of 1996 with most of this increase due to
a $738,000 increase in net gains on loan sales, a $267,000 net gain
realized on the sale of First Western's credit card merchant processing
business and increased income for loan servicing and service charges on
deposit accounts with these increases partially offset by a $787,000
decrease in net securities gains and a $353,000 decrease in credit card
program fees.
Trust fees increased $177,000 or 16.9% from $1.0 million for the
first six months of 1996 to $1.2 million for the first six months of
1997 primarily due to increased estate trust fees. Trust fees for the
second quarter of 1997 were comparable to the prior year.
Service charges on deposit accounts increased $311,000 or 18.1% for
the first six 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 along with an increase in fees earned on
a consumer interest-bearing demand product. Service charges on deposit
accounts were $1,049,000 for the second quarter of 1997, increasing
$146,000 or 16.2% from $903,000 for the second quarter of 1996 for the
same reasons as the year-to-date increases.
First Western's credit card program fees decreased $522,000 or
72.4% from $721,000 for the first six months of 1996 to $199,000 for the
first six 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
14<PAGE>
<PAGE> 15
Western's credit card program fees earned during the first six months of
1997 were for processing merchant transactions. First Western's credit
card program fees decreased $353,000 or 90.3% from $391,000 for the
second quarter of 1996 to $38,000 for the second quarter of 1997 as a
result of the sale of the credit card portfolio.
During the first six months of 1996, First Western sold certain
securities available for sale realizing gains of $807,000 and $1.2
million for the three and six months ended June 30, 1996, respectively.
First Western realized net gains on security sales of $20,000 during the
first six months of 1997.
During the first six months of 1997, First Western realized net
gains on loan sales of $5.5 million compared with a gain of $8,000 for
the first six months of 1996. Most of the gains during the first six
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. First Western realized net gains on loan
sales of $697,000 during the second quarter of 1997 with most of these
gains resulting from the completion of the sale of the credit card
portfolio.
Other operating income increased $696,000 from $1.5 million for the
first six months of 1996 to $2.2 million for the first six months of
1997 due to a $456,000 increase in loan servicing income primarily as
a result of the sale of the credit card portfolio along with a $267,000
gain realized on the sale of First Western's credit card merchant
transaction processing. The servicing of the credit card portfolio
transferred to the purchaser during the second quarter of 1997. Other
operating income increased $508,000 from $737,000 for the second quarter
of 1996 to $1.2 million for the second quarter of 1997 due to the gain
realized on the sale of the merchant transaction processing program
along with an increase in loan servicing income.
Total other expenses increased $2.4 million or 12.4% from $19.0
million for the first six months of 1996 to $21.3 million for the first
six months of 1997 primarily due to a $982,000 increase in salaries and
employee benefits expense and a $971,000 minority interest expense which
represents the debt service cost of the trust preferred capital
securities issued by First Western in February 1997. Total other
expenses increased $1.0 million or 10.9% from $9.3 million for the
second quarter of 1996 to $10.4 million for the second quarter of 1997
due to the same reasons as noted for the year-to-date period.
First Western's salary and employee benefits expense increased a
combined $982,000 or 10.9% for the first six months of 1997 compared
with the first six 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
$426,000 or 9.8% from $4.3 million for the second quarter of 1996 to
$4.8 million for the second quarter of 1997.
Federal deposit insurance expense decreased $457,000 or 70.9% from
$645,000 for the first six months of 1996 to $188,000 for the first six
months of 1997 with this decrease due to a reduction in the insurance
rates for thrift deposits as a result of the recapitalization of the
Savings
15<PAGE>
<PAGE> 16
Association Insurance Fund ("SAIF") in September 1996. First Western's
federal deposit insurance expense decreased $229,000 or 70.9% for the
second quarter of 1997 compared with the prior year due to the reduction
in premiums for deposits insured by the SAIF.
First Western's outside examination, legal and consulting expense
increased $298,000 or 46.1% from the first six months of 1996 to the
first six months of 1997 due to increased consulting expense as First
Western utilized outside consultants during 1997 to evaluate several of
First Western's operations. First Western's outside examination, legal
and consulting expense increased $78,000 for the second quarter of 1997
compared with the prior year.
For the three and six month periods ended June 30, 1997, First
Western's advertising and promotion expense increased $225,000 and
$275,000 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
$630,000 and $971,000 for the three and six months ended June 30, 1997,
respectively, have been recorded as minority interest expense.
Other operating expenses increased $211,000 or 5.4% from $3.9
million for the first six months of 1996 to $4.1 million for the first
six months of 1997. Other expenses increased from the first six months
of 1996 to the first six months of 1997 primarily due to a $108,000
increase in bad check and fraud losses and a $103,000 increase in the
cost of purchasing various deposit account enhancements from a third-
party provider. Other expenses also increased due to increased expenses
for loan origination and collection and also due to First Western
incurring expenses to start an in-house training program. The increase
in other expenses for the first six months of 1997 compared with the
prior year were offset somewhat by a $262,000 decrease in the costs to
process credit card transactions as a result of First Western selling
its credit card portfolio. For the second quarter of 1997, other
operating expenses decreased $132,000 or 6.7% from the prior year
primarily due to a $161,000 decrease in credit card processing expense.
Income Taxes:
First Western's income tax expense was $5.2 million for the first
six months of 1997 compared with $2.7 million for the first six months
of 1996. First Western reduced its income tax expense for the three and
six month periods ending June 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 six months
ended June 30, 1997 was 32.7% compared with 29.1% for the first six
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.
16<PAGE>
<PAGE> 17
Financial Condition as of June 30, 1997 as compared with December 31,
1996 and June 30, 1996.
As of June 30, 1997, First Western's total assets were $1.703
billion compared with $1.696 billion at December 31, 1996 and $1.701
billion at June 30, 1996. During the first six 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 six months of 1997 were $1.703 billion compared with
$1.655 billion for the first six months of 1996, an increase of 2.9%.
17<PAGE>
<PAGE> 18
Loan Portfolio:
Net loans, including loans held for sale, decreased $80.3 million
or 7.2% during the first six months of 1997 with this decrease in loans
due primarily 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 six 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 six 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 $121.3 million decrease
in loans held for sale from $124.5 million at December 31, 1996 to $3.2
million at June 30, 1997. The following table shows the composition of
First Western's loan portfolio, including loans held for sale, at June
30, 1997, December 31, 1996 and June 30, 1996:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 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....... $ 25,180 2.4% $ 26,668 2.4% $ 24,263 2.2%
Loans to municipalities.......... 9,571 0.9 11,446 1.0 13,118 1.2
Other commercial loans........... 98,309 9.5 83,645 7.5 83,832 7.8
------------ -------- ----------- -------- ----------- --------
Subtotal....................... 133,060 12.9 121,759 10.9 121,213 11.2
------------ -------- ----------- -------- ----------- --------
Real estate-construction............. 12,520 1.2 16,289 1.5 18,325 1.7
------------ -------- ----------- -------- ----------- --------
Real estate-mortgage:
1-4 Family residential............. 356,705 34.5 433,813 38.9 415,503 38.4
Multi-family residential........... 37,635 3.6 37,173 3.3 32,605 3.0
Home equity........................ 52,268 5.1 49,653 4.5 44,271 4.1
Commercial and other............... 160,011 15.5 159,470 14.3 144,940 13.4
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 606,619 58.7 680,109 61.0 637,319 59.0
------------ -------- ----------- -------- ----------- --------
Installment:
Credit cards....................... - - 17,328 1.6 41,049 3.8
Installment and other.............. 281,897 27.3 278,940 25.0 262,962 24.3
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 281,897 27.3 296,268 26.6 304,011 28.1
------------ -------- ----------- -------- ----------- --------
Total............................ $ 1,034,096 100.0% $ 1,114,425 100.0% $ 1,080,868 100.0%
============ ======== =========== ======== =========== ========
</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
subsidiaries. In addition, a formal, ongoing loan review program, which
concentrates principally on commercial credits, has been established to
help monitor the loan portfolios of the subsidiaries. First Western
also regularly monitors its delinquency levels for any negative or
adverse trends and particularly monitors credits which have total
exposures of $1.5 million or more.
First Western's delinquent loans, nonaccrual loans and
nonperforming assets consisted of the following at June 30, 1997,
December 31, 1996 and June 30, 1996:
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ........................... $ 6,931 $ 8,080 $ 8,766
Loans past due 90 days or more ......................... 1,011 1,427 1,721
------------- ------------ -------------
Total loan delinquencies ............................. $ 7,942 $ 9,507 $ 10,487
============= ============ =============
Nonaccrual loans ......................................... $ 4,290 $ 5,147 $ 4,966
Other real estate owned .................................. 193 471 600
------------- ------------ -------------
Total nonperforming assets ............................... $ 4,483 $ 5,618 $ 5,566
============= ============ =============
Total nonperforming assets and loans
past due 90 days or more ............................... $ 5,494 $ 7,045 $ 7,287
============= ============ =============
Nonaccrual loans to total loans .......................... 0.41 % 0.46 % 0.46 %
Nonperforming assets to total loans
and other real estate owned ............................ 0.43 % 0.50 % 0.51 %
Nonperforming assets to total assets ..................... 0.26 % 0.33 % 0.33 %
Nonperforming assets and loans past due
90 days or more to total assets ........................ 0.32 % 0.42 % 0.43 %
Nonaccrual loans and loans past due
90 days or more to total loans ......................... 0.51 % 0.59 % 0.62 %
Allowance for possible loan losses
to nonaccrual loans .................................... 407.27 % 311.91 % 320.92 %
Allowance for possible loan losses
to loans past due 90 days or more
and nonaccrual loans ................................... 329.60 % 244.20 % 238.32 %
Allowance for possible loan losses to
total loans ............................................ 1.69 % 1.44 % 1.47 %
</TABLE>
19<PAGE>
<PAGE> 20
First Western's total delinquencies decreased $1.6 million from
$9.5 million at December 31, 1996 to $7.9 million at June 30, 1997 with
$1.1 million of this decrease occurring in loans past due 30-89 days and
$416,000 of this decrease occurring in loans past due 90 days or more.
Consumer loan delinquencies decreased $1.8 million for the six months
ended June 30, 1997. Most of the decrease in delinquencies from June
30, 1996 to June 30, 1997 has been due to decreased delinquencies of
consumer loans. First Western's delinquent loans by type are as follows
at June 30, 1997, December 31, 1996 and June 30, 1996:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996 June 30, 1996
----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial, financial and
agricultural....................... $ 831 $ 190 $ 37
----------------- ----------------- -----------------
Real estate-mortgage:
1-4 Family residential............. 717 721 1,378
Home equity........................ 125 225 99
Commercial and other............... - 319 -
----------------- ----------------- -----------------
Subtotal......................... 842 1,265 1,477
----------------- ----------------- -----------------
Installment:
Credit cards....................... - 122 1,018
Installment and other.............. 6,269 7,930 7,955
----------------- ----------------- -----------------
Subtotal......................... 6,269 8,052 8,973
----------------- ----------------- -----------------
Total............................ $ 7,942 $ 9,507 $ 10,487
================= ================= =================
</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 $17.5 million at June 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 June
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 $19.0 million for the first six 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 $255.9 million, $1.6 million or 0.6%
below the amortized cost of $257.5 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 $135.0 million during the
first six 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. Securities
available for sale increased $76.7 million from $259.5 million at June
30, 1996 to $336.2 million at June 30, 1997 with this increase due to
the purchase of securities using the funds provided by the loan sales.
At June 30, 1997, First Western had net unrealized appreciation on
securities available for sale of $3.1 million compared with unrealized
appreciation of $1.4 million at December 31, 1996 and unrealized
depreciation of $1.4 million at June 30, 1996.
Deposits:
Total deposits increased $35.6 million or 3.1% from $1.149 billion
at December 31, 1996 to $1.185 billion at June 30, 1997. Deposits
increased during the first six months of 1997 primarily due to a $20.6
million increase in time deposits. First Western's deposits increased
$10.6 million from June 30, 1996 to June 30, 1997 with most of this
increase attributable to an increase in time deposits. 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 $83.3 million decrease in interest-bearing demand accounts and the
$82.3 million increase in money market accounts from June 30, 1996 to
June 30, 1997.
21<PAGE>
<PAGE> 22
Borrowed Funds:
First Western's borrowed funds decreased $59.4 million during the
first six months of 1997 from $389.3 million at December 31, 1996 to
$329.9 million at June 30, 1997. First Western decreased its borrowings
during the first six months of 1997 as a result of the loan sales and
the increase in deposits. Total borrowed funds decreased $51.6 million
from June 30, 1996 to June 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, and 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.
22<PAGE>
<PAGE> 23
Shareholders' Equity:
Shareholders' equity increased $2.7 million during the first six
months of 1997 primarily due to the retention of earnings and a $1.1
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
six months of 1997, First Western repurchased 199,400 shares of common
stock as treasury stock at a cost of $6.4 million in accordance with a
common stock repurchase program. First Western's capital ratios
improved from December 31, 1996 to June 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 June 30,
1997 and December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Tier I:
Common shareholders' equity .............................. $ 130,417 $ 127,721
Non-exempt intangible assets ............................. (6,292) (6,575)
Trust preferred capital securities........................ 23,817 -
Unrealized appreciation in securities
available for sale ..................................... (2,010) (884)
------------- ------------
Total Tier I ......................................... 145,932 120,262
------------- ------------
Tier II:
Qualifying allowance for possible loan losses ............ 12,945 13,190
------------- ------------
Total Tier II ........................................ 12,945 13,190
------------- ------------
Total capital .............................................. $ 158,877 $ 133,452
============= ============
Risk weighted assets ....................................... $ 1,031,039 $ 1,052,329
============= ============
Tier I capital ratio ....................................... 14.15% 11.43%
============= ============
Required Tier I capital ratio .............................. 4.00% 4.00%
============= ============
Total capital ratio ........................................ 15.41% 12.68%
============= ============
Required total capital ratio ............................... 8.00% 8.00%
============= ============
Tier I leverage ratio ...................................... 8.65% 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 $48.1 million at June
30, 1997 as compared with $75.2 million at December 31, 1996 and $41.6
million at June 30, 1996. The decrease in First Western's liquid funds
from December 31, 1997 to June 30, 1997 was primarily due to First
Western reducing it 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 $48.0 million of unused overnight
credit lines available at June 30, 1997.
First Western's operating activities provided cash flows of $124.5
million during the first six months of 1997 compared with $19.6 million
during the first six months of 1996. Loan sales provided $116.1 million
and $17.4 million of the cash flows from operating activities for the
six months ended June 30, 1997 and 1996, respectively.
Investing activities used cash flows of $104.5 million during the
first six months of 1997 compared with using cash flows of $152.1
million for the first six months of 1996. The growth of the portfolio
of securities available for sale during the first six months of 1997
used net cash flows of $129.7 million compared with $54.2 million for
the first six months of 1996. The cash flows to fund the increase in
securities available for sale during the first six 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 $51.9 million during
the first six months of 1997 compared with $67.7 million for the first
six months of 1996.
Financing activities used cash flows of $9.8 million during the
first six months of 1997. Increased deposits provided $35.7 million of
cash flows and the net proceeds from the issuance of the trust preferred
capital securities provided $23.8 million of cash flows with these
increases in cash flows offset by the use of $59.3 million of cash flows
to reduce First Western's borrowed funds. During the first six months of
1996, financing activities provided cash flows of $133.2 million
primarily as a result of an increase in borrowed funds of $144.6
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:
A report under Item 5 of Form 8-K dated May 30, 1997 was
filed to report the resignation of John P. O'Leary Jr. from
First Western's Board of Directors.
26<PAGE>
<PAGE> 27
Signature
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST WESTERN BANCORP, INC.
(Registrant)
August 5, 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 JUNE 30, 1997
EXHIBIT INDEX
Exhibit Method of
Number Description Filing
- ------- -------------------------------------- ---------
15.1 Letter re: Unaudited Interim Financial Filed
Information herewith
27.1 Financial Data Schedule Filed
herewith
<PAGE>
<PAGE> 1
Exhibit 15.1
August 5, 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 June 30, 1997 and 1996, as
indicated in our report dated July 15, 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 June 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, and on
Form S-4 (No. 33-29387) for the First Western Capital Trust I.
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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