<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 March 31, 1998
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)
(724) 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
May 12, 1998 was:
Common Stock, $5.00 par value - 11,172,387 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:
March 31, 1998, December 31, 1997 and
March 31, 1997...........................................4
Consolidated Statements of Income:
Three months ended March 31, 1998
and three months ended March 31, 1997....................5
Consolidated Statements of Comprehensive Income:
Three months ended March 31, 1998
and three months ended March 31, 1997....................6
Consolidated Statements of Changes
in Shareholders' Equity:
Three months ended March 31, 1998
and three months ended March 31, 1997....................7
Consolidated Statements of Cash Flows:
Three months ended March 31, 1998
and three months ended March 31, 1997....................8
Notes to Consolidated Financial Statements...............10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............13
Item 3. Quantitative and Qualitative disclosures about
Market Risk..............................................26
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 March 31, 1998 and
1997, and the related consolidated statements of income, comprehensive
income, changes in shareholders' equity, and cash flows for the three-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, 1997, 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 23, 1998 (February 23, 1998 as to Note 23), 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, 1997 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
April 21, 1998
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>
March 31, December 31, March 31,
1998 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
ASSETS:
- -------
Cash and due from banks $ 38,149 $ 40,973 $ 37,441
------------- ------------ -------------
Interest-bearing deposits with other banks 1,727 6,836 9,143
------------- ------------ -------------
Federal funds sold - _ 14,300
------------- ------------ -------------
Securities available for sale
(amortized cost of $366,926, $316,146 and $328,934) 376,245 324,521 327,355
------------- ------------ -------------
Investment securities, held to maturity
(market value of $99,611, $101,289 and $101,404) 98,614 100,151 102,220
------------- ------------ -------------
Mortgage-backed securities, held to maturity
(market value of $117,597, $131,942 and $160,305) 118,136 132,673 163,835
------------- ------------ -------------
Loans held for sale 20,601 39,840 13,474
------------- ------------ -------------
Loans (net of unearned income of $39,658, $38,946 and $34,175) 1,001,977 1,046,363 1,008,244
Less: Allowance for possible loan losses 18,133 18,077 17,315
------------- ------------ -------------
Net loans 983,844 1,028,286 990,929
------------- ------------ -------------
Premises and equipment 20,290 20,996 19,290
------------- ------------ -------------
Bank-owned life insurance 25,351 25,000 -
------------- ------------ -------------
Other assets 21,700 24,801 25,663
------------- ------------ -------------
Total Assets $ 1,704,657 $ 1,744,077 $ 1,703,650
============= ============ =============
LIABILITIES:
- ------------
Deposits:
Noninterest-bearing demand $ 100,118 $ 100,653 $ 94,807
Interest-bearing demand 43,434 38,539 33,179
Savings 360,020 385,363 345,492
Time 634,460 667,784 703,537
------------- ------------ -------------
Total deposits 1,138,032 1,192,339 1,177,015
------------- ------------ -------------
Borrowed funds:
Federal funds purchased and other short-term borrowings 80,874 81,773 35,614
Repurchase agreements and secured lines of credit 111,964 121,756 162,400
Advances from the Federal Home Loan Bank 177,400 156,000 144,000
------------- ------------ -------------
Total borrowed funds 370,238 359,529 342,014
------------- ------------ -------------
Long-term debt 3,868 4,258 5,577
------------- ------------ -------------
Other liabilities 24,482 25,272 27,815
------------- ------------ -------------
Total Liabilities 1,536,620 1,581,398 1,552,421
------------- ------------ -------------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures of the Corporation 23,847 23,837 23,807
------------- ------------ -------------
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,
11,815,398, 11,786,811 and 7,845,302 shares issued and
11,162,267, 11,132,253 and 7,545,716 shares outstanding 59,077 58,934 39,227
Additional paid-in capital 3,225 2,611 22,089
Retained earnings 88,596 84,647 75,075
Accumulated other comprehensive income 6,057 5,443 (1,026)
Treasury stock, 610,273, 611,700 and 265,300 shares at cost (12,015) (12,043) (7,043)
Unallocated common stock held by ESOP (at cost) (750) (750) (900)
------------- ------------ -------------
Total Shareholders' Equity 144,190 138,842 127,422
------------- ------------ -------------
Total Liabilities and Shareholders' Equity $ 1,704,657 $ 1,744,077 $ 1,703,650
============= ============ =============
</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
-----------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
INTEREST INCOME:
- ----------------
Interest and fees on loans $ 22,619 $ 22,514
Interest on deposits with other banks 29 146
Interest on securities available for sale 5,587 4,351
Interest and dividends on investment securities:
Taxable interest 291 276
Tax-exempt interest 996 1,032
Interest on mortgage-backed securities 1,871 2,540
Interest on federal funds sold 1 460
------------- -------------
Total Interest Income 31,394 31,319
------------- -------------
INTEREST EXPENSE:
- -----------------
Interest on deposits:
Demand 313 217
Savings 1,940 1,797
Time 8,946 9,788
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings 1,265 530
Repurchase agreements and secured lines of credit 1,819 2,620
Advances from the Federal Home Loan Bank 2,396 2,042
Interest on long-term debt 77 102
------------- -------------
Total Interest Expense 16,756 17,096
------------- -------------
NET INTEREST INCOME 14,638 14,223
Provision for possible loan losses 1,000 1,974
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES 13,638 12,249
------------- -------------
OTHER INCOME:
- -------------
Trust fees 804 691
Service charges on deposit accounts 1,016 980
Net securities gains 49 -
Net gains on loan sales 1,419 4,793
Other operating income 2,340 1,092
------------- -------------
Total Other Income 5,628 7,556
------------- -------------
OTHER EXPENSES:
- ---------------
Salaries and wages 4,144 3,882
Employee benefits 1,335 1,309
Net occupancy expense 820 790
Equipment rentals, depreciation and maintenance 668 570
Professional fees 451 487
Marketing 623 424
Minority interest expense 584 341
Other operating expense 2,803 3,171
------------- -------------
Total Other Expenses 11,428 10,974
------------- -------------
INCOME BEFORE INCOME TAXES 7,838 8,831
Income Taxes 2,219 2,959
------------- -------------
NET INCOME $ 5,619 $ 5,872
============= =============
BASIC EARNINGS PER SHARE $ 0.50 $ 0.51
============= =============
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 11,149 11,427
============= =============
DILUTED EARNINGS PER SHARE $ 0.49 $ 0.51
============= =============
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 11,376 11,596
============= =============
DIVIDENDS PER SHARE $ 0.15 $ 0.13
============= =============
/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 COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
Net income $ 5,619 $ 5,872
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during period 646 (1,910)
Less: reclassification adjustment for (gains) losses
included in net income (32) -
------------- -------------
Other comprehensive income 614 (1,910)
------------- -------------
Comprehensive income $ 6,233 $ 3,962
============= =============
</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 Three Months Ended March 31, 1998
------------------------------------------------------------------------------
Common Stock
Accumulated Held by ESOP
Common Stock Other (at cost)
--------------- Retained Comprehensive Treasury ---------------
Shares Amount Surplus Earnings Income Stock Shares Amount
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1998 11,787 $58,934 $ 2,611 $84,647 $ 5,443 ($12,043) (43) ($750)
Net income - - - 5,619 - - - -
Cash dividends paid ($0.15 per share) - - - (1,670) - - - -
Exercise of options, net of shares redeemed 3 17 (17) - - - - -
Common stock issued for dividend reinvestment 25 126 594 - - - - -
Value of ESOP share to be allocated in excess
of cost - - 23 - - - - -
Treasury stock issued - - 14 - - 28 - -
Net change in unrealized appreciation
in securities available
for sale - - - - 614 - - -
------------------------------------------------------------------------------
Balance - March 31, 1998 11,815 $59,077 $3,225 $88,596 $6,057 ($12,015) (43) ($750)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Ended March 31, 1997
------------------------------------------------------------------------------
Common Stock
Accumulated Held by ESOP
Common Stock Other (at cost)
--------------- Retained Comprehensive Treasury ---------------
Shares Amount Surplus Earnings Income 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 - - - 5,872 - - - -
Cash dividends paid ($0.13 per share) - - - (1,533) - - - -
Exercise of options, net of shares redeemed 9 48 25 - - - - -
Treasury stock purchased - - - - - (2,801) - -
Net change in unrealized appreciation
(depreciation) in securities available
for sale - - - - (1,910) - - -
------------------------------------------------------------------------------
Balance - March 31, 1997 7,845 $39,227 $22,089 $75,075 ($1,026) ($7,043) (34) ($900)
==============================================================================
</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 Three Months Ended
-----------------------------
March 31, March 31,
1998 1997
------------- -------------
<CAPTION>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net income $ 5,619 $ 5,872
------------- -------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 629 583
Amortization and accretion 555 495
Provision for possible loan losses 1,000 1,974
Gain on sale of securities (49) -
Gain on sale of loans (1,419) (4,793)
Gain on sale of branch offices (1,071) -
Proceeds from loan sales 94,784 105,646
Provision for deferred taxes 33 576
Increase in interest receivable (227) (1,368)
(Decrease) increase in interest payable (521) 25
Other - net (813) 1,452
------------- -------------
Total adjustments 92,901 104,590
------------- -------------
Net cash provided by operating activities 98,520 110,462
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Proceeds from sales of securities available for sale 3,869 53
Proceeds from maturity or paydown of securities available for sale 44,171 32,041
Purchase of securities available for sale (99,552) (158,202)
Proceeds from maturity or paydown of investment securities 25,827 12,500
Purchase of investment securities (9,783) (2,181)
Proceeds from sale of credit card loan portfolio - 21,801
Net increase in loans (31,172) (30,810)
Decrease (increase) in deposits with other banks 5,109 (7,373)
Decrease in federal funds sold - 23,100
Purchase of premises and equipment (901) (395)
Proceeds from sale of premises and equipment 94 11
Proceeds from sale of other real estate owned 69 393
Cash paid for branch office sale (40,884) -
------------- -------------
Net cash used in investing activities (103,153) (109,062)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Net (decrease) increase in deposits (7,602) 28,129
Net (decrease) increase in federal funds purchased and other
short-term borrowings (899) 2,412
Net decrease in repurchase agreements and secured lines of credit (9,792) (49,670)
Net increase in advances from the Federal Home Loan Bank 21,400 -
Proceeds from issuance of capital securities, net of issuance costs - 23,800
Payments on long-term debt (390) (390)
Proceeds from exercise of stock options - 73
Proceeds from common stock issued for dividend reinvestment plan 720 -
Treasury stock purchased - (2,801)
Treasury stock issued 42 -
Dividends paid on common stock (1,670) (1,533)
------------- -------------
Net cash provided by financing activities 1,809 20
------------- -------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (2,824) 1,420
CASH AND DUE FROM BANKS - Beginning of year 40,973 36,021
------------- -------------
CASH AND DUE FROM BANKS - End of period $ 38,149 $ 37,441
============= =============
</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 Three Months Ended
-----------------------------
March 31, March 31,
1998 1997
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 17,277 $ 17,071
============= =============
Income taxes $ 268 $ 1,673
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deposits sold in branch disposition $ 46,702 $ -
============= =============
Securities purchased settling after March 31 $ 1,133 $ 3,042
============= =============
Securities sold settling after March 31 $ 263 $ -
============= =============
Transfers to other real estate owned $ 452 $ 222
============= =============
Net change in unrealized appreciation (depreciation) in securities
available for sale, net of income tax effects $ 614 $ (1,910)
============= =============
See Notes To Consolidated Financial Statements.
</TABLE>
9<PAGE>
<PAGE> 10
FIRST WESTERN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(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 First Western
Capital Trust I ("Capital Trust"). All significant intercompany
transactions have been eliminated in consolidation.
The consolidated balance sheets as of March 31, 1998 and March 31,
1997, and the related consolidated statements of income, comprehensive
income, changes in shareholders' equity, and cash flows for the three month
periods ended March 31, 1998 and 1997 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 1997 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 June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, "Reporting Comprehensive Income", which requires
businesses to disclose comprehensive income and its components 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.
First Western has chosen to disclose comprehensive income in a
separate income
10 <PAGE>
<PAGE> 11
statement, in which the components of comprehensive income are displayed
net of income taxes. The following tables set forth the related tax
effects allocated to each element of comprehensive income for the three
months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
---------------------------------------------
Pre-tax Tax (Expense) Net-of-tax
Amount or Benefit Amount
------------- ------------- -------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period $ 993 $ (347) $ 646
Less: reclassification adjustment for (gains) losses realized in net income (49) 17 (32)
------------- ------------- -------------
Net unrealized gains (losses) 944 (330) 614
------------- ------------- -------------
Other comprehensive income $ 944 $ (330) $ 614
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
---------------------------------------------
Pre-tax Tax (Expense) Net-of-tax
Amount or Benefit Amount
------------- ------------- -------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period $ (2,939) $ 1,029 $ (1,910)
Less: reclassification adjustment for (gains) losses realized in net income - - -
------------- ------------- -------------
Net unrealized gains (losses) (2,939) 1,029 (1,910)
------------- ------------- -------------
Other comprehensive income $ (2,939) $ 1,029 $ (1,910)
============= ============= =============
</TABLE>
The following table sets forth the components of accumulated other
comprehensive income for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------------- ------------
<S> <C> <C>
Beginning balance $ 5,443 $ 884
Unrealized gains (losses) on securities, net of taxes 614 (1,910)
------------- ------------
Ending balance $ 6,057 $ (1,026)
============= ============
</TABLE>
11 <PAGE>
<PAGE> 12
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 is not required to disclose
segment information in accordance with Statement No. 131 until its 1998
annual report, at which time it will restate prior years' segment
disclosures to conform to the Statement No. 131 segment presentation, if
applicable. In First Western's first quarter 1999 report, and in
subsequent quarters, First Western will present the interim disclosures
required by Statement No. 131 for both 1999 and 1998. First Western has not
completed its analysis of which operating segments it will report on, if
any.
In February 1998, the FASB issued Statement No. 132, "Employers'
Disclosure About Pension and Other Post-Retirement Benefits". This
statement will require certain footnote disclosures related to pension and
other retiree benefits. Implementation of this standard is required for
fiscal year 1998.
4. Branch Purchases and Sales:
In January 1998, First Western completed the sale of its three Lake
County, Ohio branches to FirstMerit Bank. These branches had approximately
$47 million in deposits. First Western realized a net gain of $1.1 million
on this transaction.
On February 23, 1998, First Western Bank, N.A. agreed to purchase 16
branches in western Pennsylvania from PNC Bank. The agreement includes the
acquisition of the 16 PNC Bank branches, related deposits, consumer loans,
small business banking relationships and certain brokerage relationships of
the following branches: Farrell, Grove City, Hermitage, Sharon, Transfer
and West Middlesex (Mercer County); Beaver, Chippewa, Midland and New
Brighton (Beaver County); Ebensburg and Barnesboro (Cambria County); Evans
City (Butler County); McDonald (Washington County); Punxsutawney (Jefferson
County); and Kiski Valley (Westmoreland County). First Western will
acquire approximately $415 million in deposits, $71 million in consumer and
small business loans, and $23 million in brokerage assets, along with
related fixed assets, leases, safe deposit business and other agreements.
First Western will pay consideration of approximately $58 million for the
deposit and brokerage relationships and the right to acquire, at book
value, the loan portfolio and the real estate and related assets of the 16
branches. The transaction is subject to regulatory approval and is
expected to be completed by mid-year 1998.
<PAGE>
<PAGE> 13
Part 1. Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of operations for the three months ended March 31, 1998 compared
with the three months ended March 31, 1997:
For the three months ended March 31, 1998, First Western's net income
was $5.6 million compared with $5.9 million for the three months ended
March 31, 1997. First Western's net income decreased $253,000 or 4.3% from
the first three months of 1997 to the first three months of 1998 primarily
due to a $3.4 million decrease in net gains realized on loan sales with
this decrease in income partially offset by a $1.1 million gain realized on
the sale of certain branches and a $1.0 million decrease in the provision
for possible loan losses. First Western's basic and diluted earnings per
share for the first quarter of 1998 were $0.50 and $0.49, respectively,
compared with $0.51 and $0.51 for the first quarter of 1997. First
Western's return on average assets and return on average equity for the
first three months of 1998 were 1.32% and 16.15%, respectively, compared
with 1.39% and 18.50% for the first three months of 1997, with the decrease
in these ratios primarily attributable to the lower net gains on loan sales
realized during the first quarter of 1998.
Net Interest Income:
First Western's net interest income was $14.6 million for the three
months ended March 31, 1998, increasing $415,000 or 2.9% from $14.2 million
for the first three months of 1997. The increase in net interest income
was generated by an increase in First Western's net interest margin along
with a $223,000 recovery of interest on a loan that paid-off that had been
classified as nonaccrual. First Western's average earning assets decreased
$25.7 million or 1.6% for the first quarter of 1998 compared with the first
quarter of 1997. The decrease in average earning assets was primarily due
to a $12.7 million decrease in average loans due to sales of residential
mortgage loans during the first quarter of 1998. Average earning assets
also decreased due to the purchase of bank-owned life insurance during the
fourth quarter of 1997 and as a result of the sale of the three Lake
County, Ohio branches which decreased deposits by $47 million.
First Western's net interest margin or net interest income expressed
as a percentage of average earning assets was 3.80% for the first three
months of 1998 compared with 3.64% for the first three months of 1997. The
increase in First Western's net interest margin was due to a 14 basis point
increase in the First Western's yield on earning assets due primarily to an
increase in loan yields. First Western's loan yields increased due in part
to the interest recovery on a nonaccrual loan that paid off during the
first quarter of 1998. First Western's yield on earning assets also
improved for the first quarter of 1998 compared with the prior year due to
First Western maintaining a lower level of federal funds sold which have a
lower yield than loans or securities. First Western's cost of funds
decreased for the first three months of 1998 compared with the prior year
due to decreases in the rates paid for deposits. The decrease in the cost
of funds, due to a decrease in deposit costs, was partially offset by First
Western increasing its borrowed funds, which generally have a higher cost
than retail deposits, due to the sale of the
13<PAGE>
<PAGE> 14
Lake County branches.
Provision for Possible Loan Losses:
First Western's provision for possible loan losses was $1.0 million
for the first three months of 1998, decreasing $1.0 million from $2.0
million for the first three months of 1997. The provision for possible
loan losses of $1.0 million recorded in the first quarter of 1998
represents the fourth consecutive quarter of First Western recording a
provision for possible loan losses of $1.0 million. During 1996, First
Western experienced charge-offs in the consumer loan portfolio that were in
excess of First Western's historical charge-off rates. The decrease in the
provision for possible loan losses for the first quarter of 1998 compared
with the first quarter of 1997 reflects the consumer loan charge-offs
returning closer to First Western's historical levels during 1997 along
with an increase in the allowance for possible loan losses as a percentage
of loans and a decrease in nonaccrual loans. First Western's net charge-
offs for the first three months of 1998 were $944,000 or 0.36% of average
loans, compared with $713,000 or 0.27% of average loans for the first three
months of 1997. Substantially all of First Western's charge-offs for the
first three months of 1998 and 1997 were consumer loans, primarily indirect
automobile loans. First Western's net charge-offs (recoveries) by loan type
are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Commercial, financial and agricultural loans.......................... $ (5) $ (12)
Real estate construction loans........................................ - -
Real estate mortgage loans............................................ (64) 9
Installment loans..................................................... 1,013 716
---------- ----------
Total net charge-offs.............................................. $ 944 $ 713
========== ==========
Net charge-offs as a percentage of
average loans...................................................... 0.36% 0.27%
========== ==========
</TABLE>
Other Income and Other Expenses:
Other income decreased $1.9 million or 25.5% from $7.6 million for the
first three months of 1997 to $5.6 million for the first three months of
1998 primarily due to a $3.4 million decrease in net gains on loan sales.
Partially offsetting the decrease in net gains on loan sales for the first
three months of 1998 compared with the prior year was a $1.1 million gain
realized on the sale of the three Lake County, Ohio branches.
Trust fees increased $113,000 or 16.4% from $691,000 for the first
three months of 1997 to $804,000 for the first three months of 1998
primarily due to an increase in trust assets managed by First Western. The
market value of the trust assets managed by First Western increased $255
million or 51.5% from $495 million at March 31, 1997 to $750 million at
March 31, 1998.
14<PAGE>
<PAGE> 15
During the first three months of 1998, First Western realized net
gains on loan sales of $1.4 million compared with a gain of $4.8 million
for the first three months of 1997. The gains on loan sales realized by
First Western during the first quarter of 1998 were the result of First
Western selling $92.3 million of residential mortgage loans. Most of the
gains during the first three 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 $1.2 million from $1.1 million for
the first three months of 1997 to $2.3 million for the first three months
of 1998 due to a $1.1 million gain realized on the sale of First Western's
Lake County branches. First Western's Lake County branches had deposits of
$47 million when they were sold and First Western received a total premium
of approximately $5.3 million on this sale with $4.2 million of this
premium used to eliminate the remaining intangible assets related to those
branches. Other operating income also increased due to $351,000 of income
from bank-owned life insurance ("BOLI") recognized by First Western during
the first quarter of 1998. First Western purchased $25 million of BOLI
during the fourth quarter of 1997. These increases in other operating
income were partially offset by decreases in income from loan servicing and
credit card program fees due to the completion of the sale of First
Western's credit card program during the first half of 1997.
Total other expenses for the first three months of 1998 were $11.4
million, increasing $454,000 or 4.1%, from $11.0 million due to increases
in salaries and employee benefits expense and minority interest expense.
First Western's salary and employee benefits expense increased a
combined $288,000 or 5.5% for the first three months of 1998 compared with
the first three months of 1997. Salaries and employee benefits expense
increased due to normal salary and wage increases with the increase in
salaries and wage expense partially offset by an increase in the deferral
of salaries and wages related to loan originations due to an increase in
loans originated, particularly residential mortgage loans due to the low,
long-term interest rates experienced during the first quarter of 1998.
For the three month period ended March 31, 1998, First Western's
marketing expense increased $199,000 or 46.9% compared with the prior year
due to First Western undertaking a $1.5 million corporate image campaign.
This image campaign is intended to heighten the visibility of First Western
in its market areas with particular attention being given to markets where
First Western's surveys have indicated a low level of name recognition of
First Western by potential customers.
Minority interest expense increased $243,000 from $341,000 for the
first quarter of 1997 to $584,000 for the first quarter of 1998 due to the
trust preferred securities being issued approximately halfway through the
first quarter of 1997. In February 1997, First Western completed the
private placement of $25 million of trust preferred capital securities
issued by First Western's Delaware trust subsidiary, First Western Capital
Trust I. The distributions payable on the securities have been recorded as
minority interest expense.
15<PAGE>
<PAGE> 16
Other operating expenses decreased $368,000 from $3.2 million for the
first quarter of 1997 to $2.8 million for the first quarter of 1998. This
decrease was due to a $208,000 decrease in bad check and fraud losses and
decreased credit card program expenses and credit card data processing due
to the completion of the sale of First Western's credit card programs
during the first quarter of 1997. Partially offsetting these decreases was
a $101,000 increase in Pennsylvania bank shares tax expense which is a
result of the merger of First Western's former thrift subsidiary, First
Western Bank, F.S.B., into First Western Bank, N.A. As a thrift, First
Western Bank, F.S.B. formerly paid state income tax instead of shares tax.
As a result of the merger of First Western Bank, F.S.B. into First Western
Bank, N.A. in September 1997, First Western will have increased
Pennsylvania shares tax expense and decreased state income tax expense.
Income Taxes:
First Western's income tax expense was $2.2 million for the first
three months of 1998 compared with $3.0 million for the first three months
of 1997. The decrease in First Western's income tax expense was due to a
decrease in pre-tax earnings along with the elimination of the state income
taxes paid by First Western's former thrift subsidiary. First Western's
effective tax rate for the three months ended March 31, 1998 was 28.3%
compared with 33.5% for the first three months of 1997. The decrease in
First Western's effective tax rate from 1997 to 1998 was due to First
Western having a decreased level of fully-taxable income as compared with
pretax earnings as a result of the decrease in gains on loan sales and also
due to the elimination of the state income tax on the thrift subsidiary.
16<PAGE>
<PAGE> 17
Financial Condition as of March 31, 1998 as compared with December 31, 1997
and March 31, 1997.
As of March 31, 1998, First Western's total assets were $1.705 billion
compared with $1.744 billion at December 31, 1997 and $1.704 billion at
March 31, 1997. During the first three months of 1998, First Western's
total assets decreased $39.4 million due to sales of residential mortgage
loans. Total average assets for the first three months of 1998 were $1.722
billion compared with $1.713 billion for the first three months of 1997, an
increase of 0.6%.
Purchase of PNC Branches
On February 23, 1998, First Western Bank, N.A. agreed to purchase 16
branches in western Pennsylvania from PNC Bank. The agreement includes the
acquisition of the 16 PNC Bank branches, related deposits, consumer loans,
small business banking relationships and certain brokerage relationships of
the following branches: Farrell, Grove City, Hermitage, Sharon, Transfer
and West Middlesex (Mercer County); Beaver, Chippewa, Midland and New
Brighton (Beaver County); Ebensburg and Barnesboro (Cambria County); Evans
City (Butler County); McDonald (Washington County); Punxsutawney (Jefferson
County); and Kiski Valley (Westmoreland County). First Western will
acquire approximately $415 million in deposits, $71 million in consumer and
small business loans, and $23 million in brokerage assets, along with
related fixed assets, leases, safe deposit business and other agreements.
First Western will pay consideration of approximately $58 million for the
deposit and brokerage relationships and the right to acquire, at book
value, the loan portfolio and the real estate and related assets of the 16
branches. The transaction is subject to regulatory approval and is
expected to be completed by mid-year 1998.
17<PAGE>
<PAGE> 18
Loan Portfolio:
Net loans, including loans held for sale, decreased $63.6 million or
5.9% during the first three months of 1998 with this decrease in loans
primarily due to the sale of approximately $92 million of residential
mortgage loans. During the first quarter of 1998, First Western sold
residential mortgage loans in anticipation of an increase in prepayments
due to the low, long-term interest rate environment. First Western
realized net gains of $1.4 million on these loan sales during the first
quarter of 1998. Partially offsetting the decrease in loans due to the
residential mortgage loan sales were residential mortgage loan originations
of $28.1 million. The following table shows the composition of First
Western's loan portfolio, including loans held for sale, at March 31, 1998,
December 31, 1997 and March 31, 1997:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
------------------------ ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------------ -------- ----------- -------- ----------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural:
Automobile floorplan loans....... $ 30,827 3.0% $ 31,013 2.8% $ 28,883 2.8%
Loans to municipalities.......... 6,202 0.6 6,140 0.6 10,149 1.0
Other commercial loans........... 106,560 10.4 105,323 9.7 93,479 9.1
------------ -------- ----------- -------- ----------- --------
Subtotal....................... 143,589 14.0 142,476 13.1 132,511 12.9
------------ -------- ----------- -------- ----------- --------
Real estate-construction............. 13,121 1.3 14,450 1.4 15,967 1.6
------------ -------- ----------- -------- ----------- --------
Real estate-mortgage:
1-4 Family residential............. 321,574 31.4 385,702 35.5 345,108 33.8
Multi-family residential........... 29,322 2.9 29,331 2.7 38,012 3.7
Home equity........................ 58,200 5.7 56,811 5.2 50,961 5.0
Commercial and other............... 172,015 16.8 172,559 15.9 163,027 16.0
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 581,111 56.8 644,403 59.3 597,108 58.5
------------ -------- ----------- -------- ----------- --------
Installment:
Credit cards....................... - - - - 298 -
Installment and other.............. 284,757 27.9 284,874 26.2 275,834 27.0
------------ -------- ----------- -------- ----------- --------
Subtotal......................... 284,757 27.9 284,874 26.2 276,132 27.0
------------ -------- ----------- -------- ----------- --------
Total............................ $ 1,022,578 100.0% $ 1,086,203 100.0% $ 1,021,718 100.0%
============ ======== =========== ======== =========== ========
</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 March 31, 1998, December 31, 1997 and
March 31, 1997:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1998 1997 1997
------------- ------------ -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ........................... $ 5,777 $ 8,703 $ 5,636
Loans past due 90 days or more ......................... 2,150 2,466 1,105
------------- ------------ -------------
Total loan delinquencies ............................. $ 7,927 $ 11,169 $ 6,741
============= ============ =============
Nonaccrual loans ......................................... $ 2,913 $ 2,634 $ 4,770
Other real estate owned .................................. 777 382 330
------------- ------------ -------------
Total nonperforming assets ............................... $ 3,690 $ 3,016 $ 5,100
============= ============ =============
Total nonperforming assets and loans
past due 90 days or more ............................... $ 5,840 $ 5,482 $ 6,205
============= ============ =============
Nonaccrual loans to total loans .......................... 0.28 % 0.24 % 0.47 %
Nonperforming assets to total loans
and other real estate owned ............................ 0.36 % 0.28 % 0.50 %
Nonperforming assets to total assets ..................... 0.22 % 0.17 % 0.30 %
Nonperforming assets and loans past due
90 days or more to total assets ........................ 0.34 % 0.31 % 0.36 %
Nonaccrual loans and loans past due
90 days or more to total loans ......................... 0.50 % 0.47 % 0.58 %
Allowance for possible loan losses
to nonaccrual loans .................................... 622.39 % 686.33 % 362.98 %
Allowance for possible loan losses
to loans past due 90 days or more
and nonaccrual loans ................................... 358.10 % 354.43 % 294.72 %
Allowance for possible loan losses to
total loans ............................................ 1.77 % 1.66 % 1.69 %
</TABLE>
19<PAGE>
<PAGE> 20
First Western's total delinquencies, excluding nonaccrual loans,
decreased $3.2 million from $11.2 million at December 31, 1997 to $7.9
million at March 31, 1998 due to a $2.9 million decrease in loans past due
30-89 days along with a $316,000 decrease in loans past due 90 days or
more. Consumer loan delinquencies decreased $1.6 million for the three
months ended March 31, 1998. Most of the increase in delinquencies from
March 31, 1997 to March 31, 1998 has been due to increased delinquencies of
consumer loans and residential mortgage loans. First Western's delinquent
loans by type are as follows at March 31, 1998, December 31, 1997 and March
31, 1997:
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
------------------ ----------------- ------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial, financial and
agricultural....................... $ - $ 592 $ 41
------------------ ----------------- ------------------
Real estate-mortgage:
1-4 Family residential............. 1,454 974 793
Home equity........................ 4 54 305
Commercial and other............... - 1,517 -
------------------ ----------------- ------------------
Subtotal......................... 1,458 2,545 1,098
------------------ ----------------- ------------------
Installment and other................ 6,469 8,032 5,602
------------------ ----------------- ------------------
Total................................ $ 7,927 $ 11,169 $ 6,741
================== ================= ==================
</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
$18.1 million at March 31, 1998 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 March 31, 1998.
20<PAGE>
<PAGE> 21
Investment Securities, Mortgage-Backed Securities, and Securities Available
for Sale:
Investment securities and mortgage-backed securities decreased a
combined $16.1 million during the first three months of 1998 with this
decrease due to maturities and paydowns. The market value of First
Western's investment securities and mortgage-backed securities held to
maturity was a combined $217.2 million, $458,000 or 0.2% above the
amortized cost of $216.8 million. First Western's portfolio of investment
securities and mortgage-backed securities had a market value above
amortized cost of $407,000 or 0.2% at December 31, 1997.
Securities available for sale increased $51.7 million during the first
three months of 1998 with this increase the result of First Western
purchasing securities available for sale with the funds provided by the
first quarter 1998 loan sales. Securities available for sale increased
$48.9 million from $327.4 million at March 31, 1997 to $376.2 million at
March 31, 1998 with this increase due to the purchase of securities using
the funds provided by loan sales. At March 31, 1998, First Western had net
unrealized appreciation on securities available for sale of $9.3 million
compared with unrealized appreciation of $8.4 million and unrealized
depreciation of $1.6 million at December 31, 1997 and March 31, 1997,
respectively.
Deposits:
Total deposits decreased $54.3 million or 4.6% from $1.192 billion at
December 31, 1997 to $1.138 billion at March 31, 1998. Deposits decreased
during the first three months of 1998 primarily due to the sale of First
Western's three branches in Lake County Ohio. Deposits also decreased
during the first quarter of 1997 due to a $22.7 million decrease in money
market deposits from First Western's trust subsidiary. The Lake County
branches had approximately $47 million of deposits. First Western's
deposits decreased $39.0 million from March 31, 1997 to March 31, 1998 with
most of this decrease attributable to the sale of the Lake County branches
in 1998 along with the sale of the Oil City and Slippery Rock, Pennsylvania
branches in 1997, with the decrease in deposits resulting from these sales
partially offset by the purchase of a branch in Chicora, Pennsylvania in
1997.
Borrowed Funds:
First Western's borrowed funds increased $10.7 million during the
first three months of 1998 from $359.5 million at December 31, 1997 to
$370.2 million at March 31, 1998. First Western increased its borrowings
during the first three months of 1998 as a result of the branch sales and
the decrease in trust deposits. Total borrowed funds increased $28.2
million from March 31, 1997 to March 31, 1998 as these borrowings were
increased primarily as a result of the branch sales.
21<PAGE>
<PAGE> 22
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.
Shareholders' Equity:
Shareholders' equity increased $5.3 million during the first three
months of 1998 primarily due to the retention of earnings, the issuance of
shares under First Western's dividend reinvestment plan and a $614,000
increase in the market value of securities available for sale, net of
income tax effects. First Western's capital ratios improved from December
31, 1997 to March 31, 1998 as a result of the retention of earnings along
with a reduction in total assets as a result of the residential mortgage
loan sales and a reduction in intangible assets resulting from the sale of
the Lake County branches.
The pending acquisition of 16 branches from PNC Bank will result in a
reduction in the capital ratios of First Western Bank, N.A. and First
Western as a result of the increase in assets and also due to the
intangible assets resulting from the consideration paid. As a result of
this transaction, it is anticipated that the capital ratios of First
Western Bank, N.A. and First Western should continue to exceed the minimum
ratios for capital adequacy purposes; however, First Western Bank, N.A.'s
capital ratios may, for a period of time, be below the ratios required to
be considered "well capitalized" under prompt corrective action provisions
without further contributions of capital from the parent company or other
balance sheet strategies. On a proforma basis, First Western's Tier I
leverage ratio on or about the date of the purchase of the PNC branches
will be approximately 5 percent.
22<PAGE>
<PAGE> 23
The following table presents First Western's capital ratios at March
31, 1998 and December 31, 1997:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Tier I:
Common shareholders' equity .............................. $ 144,190 $ 138,842
Non-exempt intangible assets ............................. (4,855) (9,262)
Trust preferred capital securities........................ 23,847 23,837
Unrealized appreciation in securities
available for sale ..................................... (6,057) (5,443)
------------- ------------
Total Tier I ......................................... 157,125 147,974
------------- ------------
Tier II:
Qualifying allowance for possible loan losses ............ 13,458 13,658
------------- ------------
Total Tier II ........................................ 13,458 13,658
------------- ------------
Total capital .............................................. $ 170,583 $ 161,632
============= ============
Risk weighted assets ....................................... $ 1,071,931 $ 1,088,249
============= ============
Tier I capital ratio ....................................... 14.66% 13.60%
============= ============
Required Tier I capital ratio .............................. 4.00% 4.00%
============= ============
Total capital ratio ........................................ 15.91% 14.85%
============= ============
Required total capital ratio ............................... 8.00% 8.00%
============= ============
Tier I leverage ratio ...................................... 9.15% 8.73%
============= ============
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 $39.9 million at March 31, 1998
as compared with $47.8 million at December 31, 1997 and $60.9 million at
March 31, 1997. 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 $28.0 million of
unused overnight credit lines available at March 31, 1998.
First Western's operating activities provided cash flows of $98.5
million during the first three months of 1998 compared with $110.5 million
during the first three months of 1997. Loan sales provided $94.8 million
and $105.6 million of the cash flows from operating activities for the
three months ended March 31, 1998 and 1997, respectively.
Investing activities used cash flows of $103.2 million during the
first three months of 1998 compared with using cash flows of $109.1 million
for the first three months of 1997. The growth of the portfolio of
securities available for sale during the first three months of 1998 used
net cash flows of $51.5 million compared with $126.1 million for the first
three months of 1997. The cash flows to fund the increase in securities
available for sale during the first three months of 1998 and 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 $31.2 million during the first three
months of 1998 compared with $30.8 million for the first three months of
1997. During the first quarter of 1998, First Western sold three branches
which used cash flows of $40.9 million.
Financing activities provided cash flows of $1.8 million during the
first three months of 1998 primarily due to an increase in borrowings
providing net cash flows of $10.7 million and a net decrease in deposits,
exclusive of the deposits that were sold, using cash flows of $7.6 million.
During the first quarter of 1997, financing activities provided $20,000 of
cash flows with deposit growth providing $28.1 million and the trust
preferred offering providing $23.8 million with these increases offset by a
$47.3 million decrease in borrowed funds.
Year 2000 Data Processing Considerations:
First Western's management has completed an assessment of the
vulnerability of First Western's computer systems to potential year 2000
processing problems. First Western is currently in the process of updating
its software to ensure its ability to operate properly into the next
century. Management has also required all of First Western's software
vendors to assess their year 2000 readiness. Management does not
anticipate any significant costs to ensure First Western's readiness for
the year 2000 beyond the regularly scheduled software and hardware
24<PAGE>
<PAGE> 25
upgrades; however, further testing could uncover potential problems that
may result in significant costs for First Western.
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, 1997.
25<PAGE>
<PAGE> 26
Part I. Item 3. Quantitative and Qualitative Disclosures about Market Risk
Since December 31, 1997, there have been no significant changes in
First Western's exposure to interest rate risk. The interest rate
environment has remained relatively flat since year-end 1997 and there have
been no significant changes in market risk. A complete discussion of
market risk is included in First Western's 1997 report on Form 10-K.
Part II. Other Information
Item 1-3. Not applicable.
Item 4. Submission of Matters to a vote of Security Holders:
First Western's Annual Meeting of Shareholders was held on April 21,
1998. The following directors were elected for three year terms expiring
in 2001: Wendell H. Boyd, Robert C. Duvall and Louis J. Kasing, Jr. John
W. Sant was elected for a one year term expiring in 1999.
The shareholders also approved the Equity Compensation Plan for Non-
Employee Directors of First Western Bancorp, Inc. and First Western Bank,
N.A. with 7,177,678 shares voted in the affirmative, 707,688 shares voted
in the negative and 236,375 shares abstaining.
Item 5. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K:
a. Exhibits:
10.1 Equity Compensation Plan for Non-Employee Directors of First
Western Bancorp, Inc. and First Western Bank, N.A.*
15.1 Letter re: Unaudited Interim Financial Information
27.1 Financial Data Schedule
b. Reports on Form 8-K:
A report on Form 8-K under item 5 dated February 23, 1998 was
filed to report that First Western Bank, N.A. had agreed
to purchase 16 branches from PNC Bank.
_______
*Indicates exhibit is a management contract or compensation plan or
arrangement.
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)
May 12, 1998 /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 MARCH 31, 1998
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of
Number Description Filing
- ------- -------------------------------------- ---------
<S> <C> <C>
10.1 Equity Compensation Plan for Non- Filed
Employee Directors of First Western Herewith
Bancorp, Inc. and First Western
Bank, N.A.
15.1 Letter re: Unaudited Interim Financial Filed
Information herewith
27.1 Financial Data Schedule Filed
herewith
- -----
* Indicates exhibit is a management contract or compensation arrangement.
</TABLE>
<PAGE>
<PAGE> 1
Exhibit 10.1
Appendix A
EQUITY COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS OF
FIRST WESTERN BANCORP, INC.
AND FIRST WESTERN BANK, N.A.
ARTICLE I. General
1.01. PURPOSE. It is the purpose of the Plan to promote the interests of the
Company and its shareholders by attracting, retaining and providing an
incentive to Non-Employee Directors through the acquisition of a proprietary
interest in the Company and an increased personal interest in its continued
successful performance and progress. This purpose will be served by providing
for the issuance of shares of Common Stock and Options to Non-Employee
Directors in lieu of cash payments.
1.02 ADOPTION AND TERM. The Plan has been approved by the Boards effective
as of February 17, 1998 (the "Effective Date"). The Plan shall terminate
without further action upon the earlier of (a) the tenth anniversary of the
Effective Date and (b) the first date upon which no shares of Common Stock
remain available for issuance under the Plan.
1.03 DEFINITIONS. As used herein the following terms have the following
meanings:
(a) ANNUAL RETAINER AMOUNT shall mean the amount payable to Non-Employee
Directors as the annual retainer. Fees for service as chair of a Board
committee shall be considered part of the annual retainer for purposes of
this Plan.
(b) AUTOMATIC OPTIONS shall have the meaning given to such term in Section
4.03.
(c) BANK means First Western Bank, N.A., and any successor thereto.
(d) BANK BOARD means the Board of Directors of the Bank.
(e) BOARD means either or both of the Company Board and the Bank Board.
(f) CHANGE IN CONTROL means any one of the following events:
(i) Upon the Company Board learning that an outside party, or group of
persons acting together in concert, has acquired 25% or more of the Common
Stock.
(ii) Upon the commencement of a tender offer to acquire 50% or more of
the Common Stock of the Company.
(iii) Upon the approval of the Company Board of a reorganization plan
under which the Company is to be merged, consolidated, or otherwise
combined (or its assets purchased) so that shareholders of the Company
following such reorganization shall own less than a majority of the shares
carrying voting rights in such surviving or acquiring corporation.
(iv) The Company Board approves any liquidation of substantially all
assets or any distribution of assets of the Company or of a subsidiary of
the Company when such assets being distributed have a value equaling or
exceeding 30% of the value of the assets of the Company prior to such
distribution.
(v) One-third or more of the membership of the Company Board consists of
members not recommended for membership by the Company or the Company Board.
(g) CODE means the Internal Revenue Code of 1986, as amended. References to
a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
said section.
(h) COMMON STOCK means the common stock, par value $5.00 per share, of the
Company.
(i) COMPANY means First Western Bancorp, Inc., a Pennsylvania corporation,
and any successor thereto.
(j) COMPANY BOARD means the Board of Directors of the Company.
(k) COMPENSATION YEAR means each annual period during the term of this Plan
beginning on a Meeting Date and ending on the day immediately preceding the
next Meeting Date.
(l) CURRENT DIRECTOR shall have the meaning given to such term in Section
4.01(b).
A-1<PAGE>
<PAGE> 2
(m) DEFERRED COMPENSATION PLAN means the First Western Bancorp, Inc. Deferred
Compensation Plan for Directors, as the same may be amended from time to
time.
(n) DIRECTOR means a member of the Company Board or the Bank Board.
(o) EFFECTIVE DATE shall have the meaning given to such term in Section 1.02.
(p) EMPLOYEE means any employee of the Company or an affiliate.
(q) EXERCISE PRICE means the exercise price of an Option.
(r) FAIR MARKET VALUE means, as of any given date, the fair market value of
one share of Common Stock, as determined by the Company Board in good faith
based on (a) the average between the high and the low prices of actual sales
of Common Stock on such date as reported on any stock exchange on which the
Common Stock is then listed or any quotation system approved by the National
Association of Securities Dealers then reporting sales of Common Stock, or if
no actual sales of Common Stock are reported on such date then (b) the
average of the bid and asked prices for Common Stock as reported as of such
date on any stock exchange on which the Common Stock is then listed or any
quotation system approved by the National Association of Securities Dealers
then reporting such bid and asked prices or, of there be no recent bid or
asked prices then (c) as determined by the Company Board in good faith
pursuant to the principles of Section 422 of the Code and Regulations issued
thereunder based on trading information, appraisals, or other financial data
as the Company Board deems to be relevant.
(s) MEETING DATE means each date on and after the Effective Date on which the
Annual Meeting of the Company's shareholders occurs.
(t) MEETING FEES means the fees payable by the Company to Non-Employee
Directors for attendance at meetings of the Board or any committee thereof.
(u) MEETING FEE SHARES shall have the meaning given to such term in Section
4.02(a).
(v) NEW DIRECTOR shall have the meaning given to such term in Section
4.01(a).
(w) NON-EMPLOYEE DIRECTOR means a Director who is not an Employee.
(x) OPTION means an option to purchase Common Stock granted under this Plan.
The Options granted under the Plan shall not be incentive stock options
within the meaning of Section 422 of the Code.
(y) OPTION VALUE means the value of an Option as of a given date determined
in accordance with the Black-Scholes option valuation model or such other
recognized option valuation model used by the Company for financial
accounting purposes, but using such assumptions as the Company Board may
determine to be appropriate for the Plan, which assumptions need not be the
same as those used for purposes of the Company's financial statements.
(z) PLAN means this Equity Compensation Plan for Non-Employee Directors of
First Western Bancorp, Inc., as it may hereafter be amended from time to
time.
(aa) RETAINER FEE OPTION shall have the meaning given to such term in Section
4.01(a).
1.04 NUMBER OF SHARES. Subject to adjustment in accordance with Section
5.01, up to an aggregate of 200,000 shares of Common Stock may be issued
under the Plan. Such shares may be authorized and unissued shares or shares
which shall have been issued and subsequently reacquired by the Company.
ARTICLE II. Administration
2.01 THE COMPANY BOARD. The Plan shall be administered by the Company Board.
Subject to the provisions of the Plan, the Company Board shall have the
authority and sole discretion to interpret and construe the Plan, promulgate,
amend and rescind rules and regulations relating to the Plan and make all
other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Company
Board shall be final and conclusive.
ARTICLE III. Participation
3.01 PARTICIPATION. Each Non-Employee Director shall participate in the Plan
on the terms and conditions set forth herein.
A-2<PAGE>
<PAGE> 3
ARTICLE IV. Retainer and Meeting Fees and Automatic Option Grants
4.01 RETAINER FEES.
(a) NEW DIRECTORS. Each Non-Employee Director who first becomes a Non-
Employee Director on or after the Effective Date (a "New Director") shall
receive no cash retainer fee but instead will receive an annual retainer fee
in the form of Options ("Retainer Fee Options"). These annual grants of
Retainer Fee Options shall be made as of each Meeting Date. The Retainer Fee
Options granted to each such Non-Employee Director will have an Option Value
as of the date of grant equal to the Annual Retainer Amount for the
applicable Compensation Year.
(b) CURRENT DIRECTORS. Each person who was a Non-Employee Director
immediately prior to the Effective Date (a "Current Director") will receive
Retainer Fee Options as of each Meeting Date in the same manner as a New
Director, except that each Current Director may make a one-time election, at
any time prior to the 1998 Meeting Date, to receive as of each applicable
Meeting Date all (but not less than all) of his or her Annual Retainer Amount
in the form of cash rather than Retainer Fee Options; PROVIDED, HOWEVER, that
a Current Director, after making such an election to receive cash, may revoke
such election prospectively and irrevocably and receive all (but not less
than all) of his or her future Annual Retainer Amounts in the form of
Retainer Fee Options. Any cash payable to a Non-Employee Director shall be
subject to elective deferral by such Director under the Deferred Compensation
Plan.
(c) RETAINER FEE OPTION TERMS. The Exercise Price of each Retainer Fee Option
will equal the Fair Market Value of the underlying shares of Common Stock on
the date of grant of such Option. Retainer Fee Options will vest and become
exercisable in three substantially equal installments on the last day of
June, September and December immediately following the date of grant. Vesting
shall accelerate upon (i) the Non-Employee Director's retirement from the
Board on or after attaining age 65 or death or total and permanent disability
while serving as a Director or (ii) upon the occurrence of a Change in
Control. Except as provided in the immediately preceding sentence unvested
Retainer Fee Options shall expire upon termination of Board service for any
reason, and vested Options shall expire upon the earlier to occur of (A) ten
years from the date of grant of the Option; and (B) the later of (i) one year
following the Non-Employee Director's cessation of Board service for any
reason and (ii) in the case of a Non-Employee Director's retirement from the
Board on or after attaining age 65, three years from the date such Option
first became exercisable.
4.02 MEETING FEES.
(a) NEW DIRECTORS. Each New Director shall automatically receive all Meeting
Fees in the form of restricted shares of Common Stock ("Meeting Fee Shares").
The Meeting Fee Shares will be issued as of the end of each calendar quarter,
but shares will not be transferable by the Non-Employee Director for two
years from the date of issuance, except that gifts and other transfers to
immediate family members, or to trusts, partnerships or other estate planning
vehicles for the benefit of immediate family members, shall be permitted,
provided that any such transferee shall agree to be subject to the foregoing
transfer restrictions. The transfer restrictions shall automatically lapse
(i) if the New Director retires from Board service on or after attainment of
age 65 or dies or becomes totally and permanently disabled while serving as
a Director or (ii) upon the occurrence of a Change in Control. Meeting Fee
Shares shall not be subject to forfeiture. The number of Meeting Fee Shares
issuable to a Non-Employee Director as of each quarter-end shall be
determined by dividing the amount of Meeting Fees payable to such Director as
of such date by a per share Common Stock price equal to fifty percent (50%),
or such greater percentage as the Board may determine, of the Fair Market
Value of the Common Stock on such quarter-end issue date.
(b) CURRENT DIRECTORS. Current Directors shall receive Meeting Fee Shares in
the same manner as a New Director, except that each Current Director may make
a one-time election, at any time prior to the 1998 Meeting Date, to receive
all (but not less than all) of his or her Meeting Fees in the form of cash
rather than Meeting Fee Shares; PROVIDED, HOWEVER, that a Current Director,
after making such an election to receive cash, may revoke such election
prospectively and irrevocably and receive all (but not less than all) of his
or her future Meeting Fees in the form of Meeting Fee Shares. Any cash
payable to a Non-Employee Director shall be subject to elective deferral by
such Director under the Deferred Compensation Plan.
(c) ANNUAL ELECTION. Notwithstanding and in lieu of the provisions of
Section 4.02(a) and (b), each Non-Employee Director who would otherwise be
receiving Meeting Fees in the form of Meeting Fee Shares with
A-3<PAGE>
<PAGE> 4
respect to a calendar year (i.e all New Directors and each Current Director
who did not elect to receive his or her Meeting Fees in cash) may irrevocably
elect prior to the commencement of such calendar year, or in the case of
calendar year 1998, prior to the 1998 Meeting Date, to have all (but not less
than all) of his or her Meeting Fees for such calendar year deferred under
the Deferred Compensation Plan. If a Director makes such an election, the
Company shall credit to such Director under the Deferred Compensation Plan as
of the last day of each calendar quarter during such year a number of shares
of Common Stock equal to the number of Meeting Fee Shares that would have
been issued to such Director but for such deferral election.
4.03 AUTOMATIC OPTION GRANTS. Each New Director will receive an automatic
Option grant for 1,000 shares of Common Stock, effective as of his or her
first date of Board service ("Automatic Options"). The Exercise Price of each
Automatic Option will equal the Fair Market Value of the underlying shares of
Common Stock on the date of grant of the Option. Automatic Stock Options will
vest in three substantially equal installments on the first, second and third
anniversaries of the date of grant. Vesting will accelerate upon (a) the
Participant's retirement from the Board on or after attainment of age 65 or
death or total and permanent disability while serving as a director or (b)
the occurrence of a Change in Control. A Current Director shall receive a
grant of Automatic Options, as of the 1998 Meeting Date, only if such Current
Director does not elect to receive any portion of his or her Retainer Fees or
Meeting Fees in cash pursuant to Sections 4.01(b) and 4.02(b). Unvested
Automatic Stock Options shall expire upon termination of Board service for
any reason and vested options shall expire upon the earlier to occur of (A)
ten years from the date of grant of the option; or (B) the later of (i) one
year following the Non-Employee Director's cessation of Board service for any
reason and (ii) in the case of a Non-Employee Director's retirement from the
Board on or after attaining age 65, three years from the date such Option
first became exercisable.
4.04 EXERCISE OF OPTIONS. The Exercise Price for each Option shall be paid
in full upon exercise and shall be payable in cash in United States dollars
(including check, bank draft or money order); provided, however, that in lieu
of such cash the person exercising the Option may pay the Exercise Price in
whole or in part by delivering to the Company shares of Common Stock having
a Fair Market Value on the date of exercise of the Option equal to the
Exercise Price for the shares being purchased; except that (i) any portion of
the Exercise Price representing a fraction of a share shall in any event be
paid in cash and (ii) no shares of the Common Stock which have been held for
less than six months may be delivered in payment of the Exercise Price of an
Option. The date of exercise of an Option shall be determined under
procedures established by the Company Board, and as of the date of exercise
the person exercising the Option shall be considered for all purposes to be
the owner of the shares with respect to which the Option has been exercised.
4.05 OPTIONS NON-TRANSFERABLE. No Option shall be transferable by a Non-
Employee Director otherwise than by will, or if the holder dies intestate, by
the laws of descent and distribution of the state of domicile of the Non-
Employee Director at the time of death. All Options shall be exercisable
during the lifetime of the Non-Employee Director only by the Non-Employee
Director or the his or her guardian or legal representative.
ARTICLE V. MISCELLANEOUS
5.01 ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
(a) If the outstanding shares of the Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there shall be
substituted for each share of the Common Stock set forth in Section 1.04, for
each share of the Common Stock subject to any then outstanding Option, and
for each share of the Common Stock which may be issued under the Plan but
which is not then subject to any outstanding Option, the number and kind of
shares of stock or other securities into which each outstanding share of the
Common Stock shall be so changed or for which each such share shall be
exchangeable.
(b) In case of any adjustment or substitution as provided for in this Section
5.01, the aggregate Exercise Price for all shares subject to each then
outstanding Option prior to such adjustment or substitution shall be the
aggregate option price for all shares of stock or other securities (including
any fraction) to which such shares shall have been adjusted or which shall
have been substituted for such shares. Any new Exercise Price per share shall
be carried to at least three decimal places with the last decimal place
rounded upwards to the nearest whole number.
A-4
<PAGE>
<PAGE> 5
(c) No adjustment or substitution provided for in this Section 5.01 shall
require the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward
to any subsequent adjustment or substitution.
5.02 AWARD AGREEMENTS. Each grant of Options and issuance of Meeting Fee
Shares under the Plan shall be evidenced by a written agreement between the
Non-Employee Director and the Company in such form as the Company Board shall
approve from time to time.
5.03 AMENDMENT AND TERMINATION. The Company Board shall have complete power
and authority to amend and/or terminate the Plan at any time; PROVIDED,
HOWEVER, that any such amendment or termination shall not, without the
consent of a Director reduce the Director's rights with respect to amounts
previously earned hereunder.
5.04 REQUIREMENTS OF LAW. The issuance of Common Stock under the Plan shall
be subject to all applicable laws, rules and regulations and to such approval
by governmental agencies as may be required. Stock certificates issued
hereunder shall bear such restrictive legends as the Company Board may deem
necessary or appropriate.
5.05 NO FRACTIONAL SHARES. Notwithstanding any other provision of this Plan
to the contrary, no fractional Meeting Fee Shares or fractional Options shall
be awarded; all fractional shares shall be rounded up to the next highest
whole share.
5.06 NO GUARANTEE OF MEMBERSHIP. Nothing in the Plan shall confer upon a
Non-Employee Director any right to continue to serve as a Director.
5.07 RIGHTS AS SHAREHOLDERS. Persons receiving awards under this Plan shall
have no rights as Shareholders of the Company unless and until certificates
for shares of Common Stock are issued to such persons.
5.08 CONSTRUCTION. Words of any gender used in the Plan shall be construed
to include any other gender, unless the context requires otherwise.
A-5
/TEXT
<PAGE>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15.1
<SEQUENCE>3
<DESCRIPTION>FIRST WESTERN BANCORP, INC.
<PAGE>
<PAGE> 1
Exhibit 15.1
May 12, 1998
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 March 31, 1998 and 1997, as
indicated in our report dated April 21, 1998; 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 March 31, 1998,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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