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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 NUMBER 0-13882
FIRST WESTERN BANCORP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
PENNSYLVANIA 25-1461570
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 EAST WASHINGTON STREET, NEW CASTLE, PENNSYLVANIA 16101
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (724) 652-8550
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $5 PER SHARE
------------------
Title of each class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ---
The aggregate market value of Common Stock, par value $5 per share, held by
non-affiliates (based upon the closing sale price on the Nasdaq Stock Market on
March 24, 1998), was approximately $330,682,000.
As of March 24, 1998, there were 11,162,267 shares of Common Stock, par
value $5 per share, outstanding.
Documents Incorporated by Reference:
Portions of the First Western Bancorp, Inc. 1997 Annual Report to
Shareholders are incorporated by reference in Part I and Part II hereof.
Portions of the First Western Bancorp, Inc. 1998 Annual Proxy Statement to
Shareholders are incorporated by reference in Part III hereof.
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FIRST WESTERN BANCORP, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1997
INDEX
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PAGE
NUMBER
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PART I
Item 1. Business.................................................... 1
Executive Officers.......................................... 6
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters....................................... 13
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 13
Item 8. Financial Statements and Supplementary Data................. 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 13
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 13
Item 11. Executive Compensation...................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 13
Item 13. Certain Relationships and Related Transactions.............. 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 14
Signatures............................................................ 15
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PART I
ITEM 1. BUSINESS
GENERAL
First Western Bancorp, Inc. ("First Western"), headquartered in New Castle,
Pennsylvania, is a multi-institutional holding company which provides retail and
commercial banking and trust services through 39 community banking offices in
western Pennsylvania and northeastern Ohio. First Western was incorporated under
the laws of the Commonwealth of Pennsylvania in 1982. First Western has one
wholly-owned banking subsidiary: First Western Bank, National Association
("First Western Bank, N.A."), (This subsidiary is referred to as the "Banking
Subsidiary"). Effective September 5, 1997, First Western Bank, Federal Savings
Bank ("First Western Bank, F.S. B.") was merged into First Western Bank, N.A.
First Western also has three wholly-owned nonbank subsidiaries: First Western
Trust Services Company ("Trust Services"); First Western Investment Services
Company ("Investment Services"); and First Western Capital Trust I, a Delaware
business trust (The Banking Subsidiary and the nonbanking subsidiaries are
collectively referred to as the "Subsidiaries.") At December 31, 1997, First
Western had total assets of $1.7 billion, net loans (including loans held for
sale) of $1.1 billion, deposits of $1.2 billion and shareholders' equity of $139
million.
First Western offers a variety of financial services through its
Subsidiaries. The Banking Subsidiary provides a full range of retail and
commercial banking products including personal and commercial checking accounts,
savings and time deposit accounts, money market demand accounts, safe deposit
facilities, insurance, credit cards, installment and other consumer loans, short
and long-term credit facilities, and consumer and commercial mortgages to
individuals and small to medium sized businesses. First Western also offers a
number of products through Trust Services, including corporate trust, personal
trust, custody and account administration services and financial services such
as investment planning, managed assets, mutual fund sales and annuity sales.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that involve substantial risks and uncertainties. When used in this
report, or in the documents incorporated by reference herein, the words
"anticipate," "believe," "estimate," "may," "intend," "expect" and similar
expressions identify certain of such forward-looking statements. Actual results,
performance or achievements could differ materially from those contemplated,
expressed or implied by the forward-looking statements contained herein. Factors
that could cause future results to vary from current expectations include, but
are not limited to, the following: changes in economic conditions (both
generally and more specifically in the markets in which First Western operates);
changes in interest rates, deposit flows, loan demand, real estate values and
competition; changes in accounting principles, policies or guidelines and in
government legislation and regulation (which change from time to time and over
which First Western has no control); other factors affecting First Western's
operations, markets, products and services, including but not limited to, year
2000 compliance issues; and other risks detailed in this Form 10-K and in First
Western's other Securities and Exchange Commission filings. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
events or circumstances that arise after the date hereof.
THE SUBSIDIARIES
First Western Bank, N.A.
First Western Bank, N.A., traces its history in New Castle, Pennsylvania to
1855. First Western Bank, N.A. is a member of the Federal Reserve System, and
its deposits are insured by the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation ("FDIC"), with certain deposits acquired from
First Western Bank, F.S.B and the Resolution Trust Corporation insured by the
Savings Association Insurance
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Fund ("SAIF") of the FDIC. As of March 25, 1998, First Western Bank, N.A. had 39
community banking offices in Lawrence, Beaver, Butler and Allegheny Counties,
Pennsylvania and Ashtabula County, Ohio. At December 31, 1997, First Western
Bank, N.A. had total assets of $1.7 billion.
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 branch offices, related deposits, consumer loans,
small business banking relationships and certain brokerage relationships. 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.
See Note 23 of the Notes to Consolidated Financial Statements included in First
Western's 1997 Annual Report to Shareholders (the "1997 Annual Report"). The
transaction is subject to regulatory approval and is expected to be completed by
mid-year 1998.
On September 19, 1997, First Western completed the purchase of the Chicora,
Pennsylvania branch office of Mellon Bank. This branch had approximately $37
million of deposits.
In January 1998, First Western completed the sale of its three Lake County,
Ohio offices. These offices had approximately $47 million in deposits. During
1997, First Western completed the sale of its Slippery Rock and Oil City branch
offices. These branch offices had approximately $4 million and $12 million of
deposits, respectively.
During 1997, First Western Bank, N.A. formed a wholly-owned subsidiary,
First Western Insurance Services, Inc., to provide various insurance products
for First Western's customers.
During the first quarter of 1995, First Western Bank, N.A. purchased the
Andover, Ohio banking office of Peoples Bank, N.A. of Ashtabula, Ohio. This
branch had approximately $13 million of deposits at the time of acquisition.
Also during the first quarter of 1995, First Western Bank, N.A. purchased four
banking offices located in northeastern Ohio in Lake and Ashtabula Counties from
Union Federal Savings Bank of Indianapolis, Indiana. These branches had
approximately $84 million of deposits at the time of acquisition. All of the
acquired deposits are insured by the SAIF.
Trust Services
Trust Services, a Pennsylvania trust company, commenced operations in
January 1991. At December 31, 1997, Trust Services held, as agent or fiduciary,
trust assets of approximately $704 million in market value. Trust Services
maintains offices in New Castle, Beaver, Hermitage and Erie, Pennsylvania, at
the offices of the Banking Subsidiary. Trust Services provides personal and
corporate trust services to customers in the market areas served by the Banking
Subsidiary, as well as financial services such as mutual fund and annuity sales,
managed asset allocation, and other investment services.
Investment Services
Investment Services was formed on December 26, 1996 as a Delaware
investment company for the purpose of holding investment securities for First
Western.
First Western Capital Trust I
First Western Capital Trust I was formed in February 1997 in connection
with the private placement of $25 million of 9.875% Capital Securities due
February 1, 2027 of the trust.
COMPETITION
First Western's Subsidiaries are subject to intense competition in all
aspects and areas of their business from banks and other financial institutions,
including savings and loan associations, savings banks, finance companies,
credit unions and other providers of financial services, such as mutual funds,
brokerage firms, credit companies and insurance companies. The Subsidiaries also
compete with nonfinancial institutions, including retail stores that maintain
their own credit programs and governmental agencies that make available low cost
or guaranteed loans to certain borrowers. First Western competes in its market
areas with a number of
2
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much larger financial institutions with substantially greater resources, larger
lending limits and a wider array of commercial banking services.
First Western's Subsidiaries have been able to compete effectively with
other financial institutions in their respective market areas. The Subsidiaries
emphasize customer service in an effort to establish long-term customer
relationships and to build customer loyalty. First Western provides personnel,
capital, and consolidated services such as data processing, accounting, loan
review and compliance, internal audit and trust services to the Banking
Subsidiary to enhance its ability to compete effectively in, and provide a wide
variety of financial services to, its respective markets. First Western provides
overall direction to the Banking Subsidiary in the areas of credit policy and
administration, strategic planning, investment portfolio management,
asset/liability management, human resource and benefit plan administration and
other financial and administrative services. With the centralization of these
back-office and administrative services, First Western refers to itself as a
supercommunity bank, providing efficient decentralized banking services and loan
decision making through community offices.
EMPLOYEES
First Western and its Subsidiaries had the following full-time equivalent
employees at December 31, 1997:
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First Western............................................... 225
First Western Bank, N.A..................................... 384
Trust Services.............................................. 26
---
Total..................................................... 635
===
</TABLE>
SUPERVISION AND REGULATION
First Western
Bank Holding Company Status. First Western is registered as a bank holding
company under the Bank Holding Company Act of 1956 (the "Bank Holding Company
Act"). As such, First Western is subject to the provisions of that legislation
and to supervision by the Federal Reserve Board. First Western is required to
obtain the prior approval of the Federal Reserve Board before it may acquire all
or substantially all of the assets of any bank, or acquire ownership or control
of any voting securities of any bank, if, after giving effect to such
acquisition, First Western would own or control more than 5% of the voting
shares of such bank. A registered bank holding company is also prohibited, with
limited exceptions, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company which is not a bank and from
engaging directly or indirectly in any business not closely related to the
business of banking or of managing or controlling banks. One of the exceptions
to these prohibitions permits ownership of the shares of any company the
activities of which the Federal Reserve Board, after due notice and opportunity
for hearing, by regulation or order has determined to be so closely related to
the business of banking and of managing or controlling banks as to be proper
incident thereto. These activities include operating a mortgage brokerage
company, finance company, credit card company, factoring company or securities
brokerage company; performing certain data processing and other back office
operations; providing investment and financial advice to financial and
nonfinancial institutions and to certain high net worth individuals; acting as
an insurance agent for certain types of credit-related insurance; leasing
personal property on a full payout, nonoperating basis; limited powers to
underwrite the issuance of certain debt instruments and certain equity
offerings; and, as a result of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), the ability to acquire and operate savings
and loan associations.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital raising capacity to obtain additional
resources for assisting its
3
<PAGE> 6
subsidiary banks. A bank holding company's failure to meet its obligations to
serve as a source of strength to its subsidiary banks will generally be
considered by the Federal Reserve Board to be an unsafe and unsound banking
practice or a violation of the Federal Reserve Board regulations or both. This
doctrine has become known as the "source of strength" doctrine. Although the
United States Court of Appeals for the Fifth Circuit struck down the Federal
Reserve Board's source of strength doctrine in 1990, saying the Federal Reserve
Board had no authority to assert the doctrine under the Bank Holding Company
Act, the decision was reversed by the United States Supreme Court on procedural
grounds. The validity of the source of strength doctrine is likely to continue
to be the subject of litigation until definitively resolved by the courts or by
Congress.
Effective in March 1990, the Pennsylvania Banking Code removed all
restrictions concerning the number of banks that a Pennsylvania bank holding
company may own or control in Pennsylvania.
The Pennsylvania Banking Code also provides for "reciprocal interstate
banking," which, under certain circumstances, allows a bank holding company
located in another state to acquire control of a bank or bank holding company in
Pennsylvania. The other jurisdiction must authorize Pennsylvania bank holding
companies to acquire banks or bank holding companies within its boundaries on
terms and conditions substantially no more restrictive than those imposed on its
own domestic bank holding companies. At present, a number of states have adopted
legislation permitting the acquisition by an out-of-state bank holding company
of the shares of an in-state bank.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was passed. This legislation significantly changes the
laws governing interstate banking. Beginning on September 29, 1995, bank holding
companies may acquire banks located in any state, despite former prohibitive
state statutes, subject to certain conditions. Beginning on June 1, 1997, banks
may merge or consolidate on an interstate basis. States may elect to "opt-out"
of this provision by enacting legislation before June 1, 1997 that expressly
prohibits interstate bank mergers. This act also permits banks to branch into
other states on a de novo basis provided that the state has enacted a law that
permits de novo interstate branch banking.
Securities Regulation. First Western Common Stock is registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, as such,
First Western is subject to various reporting and other requirements under the
Exchange Act and to regulation by the Securities and Exchange Commission (the
"Commission").
The Banking Subsidiary
Federal and state laws and regulations govern many aspects of the business
of First Western's Banking Subsidiary, including permissible types, amounts, and
terms of loans, investments, and acceptances, amounts of reserves against
deposits and restrictions on dividends and other intercompany transactions. The
ability of the banking subsidiary to pay dividends to First Western is described
in Note 16 of the Notes to Consolidated Financial Statements included in First
Western's 1997 Annual Report to Shareholders (the "1997 Annual Report"). The
operations of such subsidiary are subject to examination and regulation by one
or more of the following: the Federal Reserve Board, the Office of the
Comptroller of the Currency ("OCC") and the FDIC. First Western Bank, N.A. is a
national bank and is subject to the supervision of, and regulation by, the OCC.
First Western Bank, N.A. is subject to regulatory capital requirements that
are generally comparable to those imposed on First Western. See "Note 16" in the
1997 Annual Report. At December 31, 1997, First Western Bank, N.A. met all
applicable capital requirements.
The deposits of First Western Bank, N.A. are insured up to $100,000 per
insured depositor (as defined by law and regulation) by the FDIC through the
Bank Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF"),
respectively. The FDIC adopted regulations effective in 1993 that impose risk
based insurance premiums on all insured depository institutions.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 ("Funds Act") that, among other things, imposed a special
one-time assessment on SAIF member institutions to recapitalize the SAIF. As
required by the Funds Act, the FDIC imposed a special assessment of 65.7 basis
points on SAIF assessable deposits held as of March 31, 1995, payable November
27, 1996 ("SAIF Special
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Assessments"). The SAIF Special Assessment was recognized by First Western Bank,
N.A., as a expense in the quarter ended September 30, 1996 and was tax
deductible. The SAIF Special Assessment recorded by First Western amounted to
approximately $3.3 million on a pre-tax basis and approximately $2.0 million on
an after-tax basis.
The Funds Act also spreads the obligations for payment of Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on January
1, 1997, BIF deposits are assessed for FICO payments at a rate of 20% of the
rate assessed on SAIF deposits. BIF deposits will be assessed an annual FICO
payment of approximately 1.3 basis points, while SAIF deposits will be assessed
a payment of approximately 6.5 basis points. Full pro rata sharing of the FICO
payments by institutions with BIF and SAIF deposits will occur on the earlier of
January 1, 2000, or the date the BIF and SAIF are merged. As a result of the
Funds Act, SAIF assessments have been lowered to a range between 0 and 27 basis
points effective January 1, 1997, a range comparable to that paid with respect
to BIF deposits. However, SAIF deposits are currently subject to the higher FICO
payments described above.
First Western Bank, N.A. is subject to provisions of federal law
restricting various aspects of its operations, including its ability to extend
credit to, to engage in various other transactions with, or to invest in the
stock or securities of, First Western.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), enacted on December 19, 1991, recapitalized the BIF and imposed
certain supervisory and regulatory reforms on the banking industry. The
following is a summary of certain key provisions of the FDICIA.
The FDICIA increased the FDIC's authorization to borrow from the United
States Treasury from $5 billion to $30 billion for bank losses and authorized an
additional $40 billion in borrowings from the United States Treasury for working
capital purposes. Borrowings would be repaid from deposit insurance assessments,
including special assessments, on banks such as First Western Bank, N.A., and
the issuance of FDIC obligations to BIF member banks.
The FDICIA required the federal bank regulators to establish specific
capital standards for five categories of insured depository institutions: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized". Any institution classified
as "undercapitalized," is required to submit a capital restoration plan to its
federal bank regulator and is subject to operational restrictions. Greater
restrictions, and ultimately, receivership, may be imposed with respect to
institutions that are "significantly undercapitalized" or "critically
undercapitalized". First Western Bank, N.A. is currently classified as "well
capitalized". See Note 16 in the 1997 Annual Report.
The federal bank regulatory agencies are required to adopt uniform capital
and accounting rules. The accounting rules require supplemental disclosure in
reports to the banking agencies of mark to market valuation of assets and
liabilities and of contingent assets and liabilities.
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EXECUTIVE OFFICERS
The following table sets forth the names, ages (as of January 31, 1998),
present positions and business experience of all executive officers of First
Western. Immediately following the Annual Meeting of Shareholders to be held on
April 21, 1998, the directors of First Western will elect executive officers to
serve for the next year.
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NAME AGE POSITION HELD
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FIRST WESTERN
Thomas J. O'Shane 50 Chairman of the Board, President and Chief Executive
Officer, First Western; Chairman of the Board, First
Western Bank, N.A.; Vice Chairman of the Board, Trust
Services
Richard L. Stover 55 Executive Vice President, Chief Lending Officer
Robert H. Young 41 Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
Kathleen L. Lewis 46 Senior Vice President-Retail and Marketing Divisions
Thomas S. Mansell 58 Senior Vice President, Legal Counsel and Assistant
Secretary
Donald D. Wehn 43 Senior Vice President-Mortgage and Consumer Lending
John A. Zercher 45 Senior Vice President-Management Information Systems
Richard L. Rausch 48 Vice President-Human Resources
Kenneth J. Romig 34 Vice President and Controller
FIRST WESTERN BANK, N.A.
Stephen R. Sant (1) 51 President and Chief Executive Officer, First Western
Bank, N.A. and Executive Vice President, Chief Operating
Officer, First Western
TRUST SERVICES
Fred J. Liskowski 51 President and Chief Executive Officer
</TABLE>
- ---------
(1) Stephen R. Sant, President and Chief Executive Officer of First Western
Bank, N.A. is the nephew of John W. Sant, Director and former Chairman of
First Western.
FIRST WESTERN
Thomas J. O'Shane
Chairman of the Board, First Western and First Western Bank, N.A. since April
1996; Vice Chairman, Trust Services since April 1996; Chief Executive Officer,
First Western since January 1991; President, First Western since February 1990;
Director, First Western Bank, N.A. and Trust Services; Chairman, Asset/Liability
Committee of First Western and Member of the Nominating/Corporate Governance and
Loan Review Committees of First Western; Director of First Western since 1988.
Richard L. Stover
Executive Vice President, Chief Lending Officer, First Western since November
1996; Principal, Stover & Associates from March 1994 until November 1996;
Managing Director--Portfolio & Credit, Corporate Finance Group, General Electric
Capital Corporation from March 1993 until March 1994; Executive Vice President
and Chief Credit Officer, Equimark Corporation from January 1991 until March
1993.
Robert H. Young
Executive Vice President, Chief Financial Officer, First Western since April
1996; Senior Vice President-Finance, First Western from January 1991 until April
1996; Secretary and Treasurer, First Western since June 1988.
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Kathleen L. Lewis
Senior Vice President--Retail and Marketing Divisions, First Western since
September 1997, President and Chief Executive Officer, First Western Bank,
F.S.B. from April 1992 until September 1997; Senior Vice President-Community
Office Management, First Western from April 1995 until September 1997.
Thomas S. Mansell
Senior Vice President, First Western since January 1991; Assistant Secretary and
Legal Counsel, First Western; Senior Vice President-Officer in Charge of Trusts
and Legal Counsel to First National, prior to 1991; Director, Trust Services;
Director, First Western since 1990.
Donald D. Wehn
Senior Vice President-Mortgage and Consumer Lending, First Western since January
1994; President and Chief Executive Officer, Residential Mortgage Company of
America from May 1994 until December 1995; Vice President-Mortgage Lending,
Strategic Planning and Special Projects, First Western from October 1992 until
December 1993; Senior Vice President, Beaver Trust Company ("Beaver Trust") a
predecessor of First Western Bank, N.A., from January 1991 until September 1992.
John A. Zercher
Senior Vice President-Management Information Services, First Western since
January 1994; Vice President-Management Information Services, First Western
from April 1989 until December 1993.
Richard L. Rausch
Vice President-Human Resources, First Western since April 1992.
Kenneth J. Romig
Vice President, First Western since January 1992; Controller, First Western
since June 1989; Treasurer, Trust Services since January 1991.
FIRST WESTERN BANK, N.A.
Stephen R. Sant
President and Chief Executive Officer, First Western Bank, N.A. since September
1993; Executive Vice President, Chief Operating Officer, First Western since
April 1996; Senior Vice President-Retail Banking, First Western from January
1993 until April 1996; President and Chief Executive Officer, Beaver Trust from
April 1992 until September 1993; President and Chief Executive Officer, First
Federal of Western Pennsylvania ("First Federal"), a predecessor of First
Western Bank, F.S.B., from December 1990 until April 1992.
TRUST SERVICES
Fred J. Liskowski
President and Chief Executive Officer, Trust Services since April 1994;
Investment Executive, Paine Webber from August 1992 until April 1994; Executive
Vice President and Chief Financial Officer, Ellwood City Hospital, prior to
August 1992.
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STATISTICAL DISCLOSURES BY BANK HOLDING COMPANIES
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES
AND INTEREST DIFFERENTIAL
The required information is incorporated by reference to pages 47 through
48 of the 1997 Annual Report.
II. INVESTMENT PORTFOLIO
A. Book Value of Investment Portfolio:
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DECEMBER 31,
--------------------------------
1997 1996 1995
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(IN THOUSANDS)
<S> <C> <C> <C>
Held to Maturity:
U.S. Government agencies and corporations...... $ 14,154 $ 21,051 $ 29,591
Mortgage-backed securities..................... 132,673 169,467 145,550
Obligations of states and political
subdivisions................................ 85,247 85,341 83,223
Other securities............................... 750 700 1,201
-------- -------- --------
Total.................................. $232,824 $276,559 $259,565
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Available for sale:
U.S. Treasury securities....................... $ 7,786 $ 2,068 $ 2,064
U.S. Government agencies and corporations...... 92,590 79,251 29,852
Mortgage-backed securities..................... 163,326 102,416 190,529
Other securities............................... 60,819 17,547 24,535
-------- -------- --------
Total.................................. $324,521 $201,282 $246,980
======== ======== ========
</TABLE>
B. Maturity and Yield Information
The required information is incorporated by reference to page 57 in the
1997 Annual Report.
C. There are no issues included in obligations of states and political
subdivisions or other securities which exceed ten percent of shareholders'
equity.
III. LOAN PORTFOLIO
A. Types of Loans
The required information is incorporated by reference to page 54 in the
1997 Annual Report.
B. Maturities and sensitivities of loans to interest rates at December 31,
1997:
<TABLE>
<CAPTION>
DUE AFTER
DUE IN 1 BUT DUE
1 YEAR WITHIN AFTER
OR LESS 5 YEARS 5 YEARS TOTAL
------- ------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $56,299 $37,673 $48,504 $142,476
Real estate--construction....................... 3,145 3,505 7,800 14,450
------- ------- ------- --------
Total.................................... $59,444 $41,178 $56,304 $156,926
======= ======= ======= ========
Sensitivity of loans to interest rates:
Predetermined interest rates.................. $ 2,137 $26,034 $ 6,578 $ 34,749
Floating interest rates....................... 57,307 15,144 49,726 122,177
------- ------- ------- --------
Total.................................... $59,444 $41,178 $56,304 $156,926
======= ======= ======= ========
</TABLE>
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C. Risk Elements
The following table presents information concerning nonaccrual loans,
restructured loans and loans past due 90 days or more. Commercial and mortgage
loans are placed on nonaccrual status when in the opinion of management
collection of principal or interest is doubtful and the loan is not both well
secured and in the process of collection. Installment loans are generally
charged off between 90 and 120 days past due or when deemed uncollectible in the
opinion of management. Cash payments received while a loan is classified as
nonaccrual are recorded as a reduction to principal as long as doubt exists as
to collection. A loan is characterized as restructured if for reasons related to
the borrower's financial difficulties a concession is granted that would not
otherwise be considered.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual............................ $2,634 $5,147 $4,959 $2,875 $5,186
Restructured.......................... -- -- -- -- 76
Past due 90 days or more.............. 2,466 1,427 2,648 1,870 1,960
------ ------ ------ ------ ------
Total............................ $5,100 $6,574 $7,607 $4,745 $7,222
====== ====== ====== ====== ======
</TABLE>
The gross interest income that would have been recorded for 1997 for
nonaccrual and restructured loans outstanding as of December 31, 1997 as though
the loans had been current in accordance with their original terms was
approximately $168,000. First Western recognized interest income of $46,000
during 1997 for nonaccrual and restructured loans.
The following table presents First Western's investment in loans considered
to be impaired (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Commercial, financial and agricultural................... $ 193 $1,003 $2,804
Real estate--mortgage.................................... 3,083 2,856 3,136
------ ------ ------
Total investment in loans considered to be impaired...... $3,276 $3,859 $5,940
====== ====== ======
</TABLE>
First Western has not presented impaired loan information for periods prior
to the effective date of FAS 114 "Accounting by Creditors for the Impairment of
a Loan", as amended, which was effective in 1995. All of the loans deemed to be
impaired were evaluated using the fair value of the collateral as the
measurement standard.
There were no potential problem loans outstanding at the end of any period
presented for which there was serious doubt as to the ability of the borrower to
comply with present loan repayment terms except as discussed above.
At December 31, 1997, First Western did not have any concentrations of
loans to borrowers engaged in similar activities exceeding 10% of total loans,
net of unearned income.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. Analysis of Loan Loss Experience
The required information is incorporated by reference to page 49 of the
1997 Annual Report.
9
<PAGE> 12
B. Allocation of the Allowance for Possible Loan Losses:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994
------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- --------- ------- --------- ------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural........... $ 1,227 13.1% $ 1,907 10.9% $ 2,847 11.7% $ 2,855 10.2%
Real estate--
construction........... -- 1.4 -- 1.5 -- 2.4 -- 1.9
Real estate--mortgage.... 1,869 59.3 1,747 61.0 1,610 56.0 1,045 57.8
Installment.............. 5,117 26.2 7,248 26.6 5,197 29.9 4,020 30.1
Unallocated.............. 9,864 N/A 5,152 N/A 4,494 N/A 5,023 N/A
------- ----- ------- ----- ------- ----- ------- -----
Total.................. $18,077 100.0% $16,054 100.0% $14,148 100.0% $12,943 100.0%
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
1993
-------------------
PERCENT
OF LOANS
IN EACH
CATEGORY
TO TOTAL
AMOUNT LOANS
------ -----
<S> <C> <C>
Commercial, financial and
agricultural........... $3,737 10.1%
Real estate--
construction........... -- 1.7
Real estate--mortgage.... 957 60.5
Installment.............. 3,067 27.7
Unallocated.............. 3,341 N/A
------- -----
Total.................. $11,102 100.0%
======= =====
</TABLE>
For additional information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 53 through 56 of the
1997 Annual Report.
V. DEPOSITS
A. Average deposits and rates paid by type:
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
---------- ---- ---------- ---- ---------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits....................... $ 94,514 -- $ 97,891 -- $ 95,771 --
Interest-bearing deposits:
Demand and money market
deposits.................. 223,356 2.29% 211,587 2.18% 208,124 2.60%
Savings deposits............ 160,147 2.21 170,480 2.23 179,101 2.30
Time deposits............... 685,979 5.66 674,522 5.59 673,140 5.70
---------- ---- ---------- ---- ---------- ----
Total.................. $1,163,996 4.08% $1,154,480 3.99% $1,156,136 4.14%
========== ==== ========== ==== ========== ====
</TABLE>
B. Maturities of time deposits of $100,000 or more at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less.................................... $30,508
Over 3 through 6 months............................. 22,335
Over 6 through 12 months............................ 17,160
Over 12 months...................................... 22,105
-------
Total.......................................... $92,108
=======
</TABLE>
VI. RETURN ON EQUITY AND ASSETS
The required information is incorporated by reference to pages 42 through
43 of the 1997 Annual Report.
VII. SHORT-TERM BORROWINGS
The required information is incorporated by reference to page 58 of the
1997 Annual Report.
ITEM 2. PROPERTIES
The principal executive offices of First Western and the administrative
offices of First Western Bank, N.A. are located at 101 East Washington Street,
New Castle, Pennsylvania. First Western also owns two other buildings in
downtown New Castle which house data processing, loan processing and certain
other operations.
10
<PAGE> 13
First Western also owns property in Lawrence County, Pennsylvania for possible
future use. It is not anticipated that this site will be developed in the
immediate future.
First Western Bank, N.A., together with First Western, occupies
approximately 75% of its six story headquarters building. In addition to its
main office, First Western Bank, N.A. owns an attached office building which
houses First Western Bank, N.A.'s, dealer center, marketing and other
administrative departments. First Western also owns office buildings in Beaver,
Pennsylvania and Sharon, Pennsylvania which used to serve as the headquarters of
First Western's formerly separate subsidiaries. First Western Bank, N.A. has
branch offices located in these buildings and leases the remaining space,
approximately three-fourths of the total space available, to unrelated parties.
First Western also owns the office building adjacent to the office building in
Beaver and First Western Bank, N.A. occupies approximately one-fourth of this
office building with the remaining space leased to unrelated parties. In
addition to these buildings, First Western owns the following branch offices (as
of December 31, 1997):
<TABLE>
<CAPTION>
NUMBER
COUNTY STATE OF OFFICES
--------- ------------ ----------
<S> <C> <C>
Beaver Pennsylvania 7
Butler Pennsylvania 1
Erie Pennsylvania 3
Lawrence Pennsylvania 5
Mercer Pennsylvania 4
Ashtabula Ohio 4
Lake Ohio 1
--
25
==
</TABLE>
First Western Bank, N.A. leases the following offices (as of December 31,
1997):
<TABLE>
<CAPTION>
EXPIRATION ANNUAL LEASE RENEWAL
DATE COST OPTIONS
---- ---- -------
<S> <C> <C> <C>
LAWRENCE COUNTY, PENNSYLVANIA:
North City 2002 $ 9,541 three 5-year terms
Shenango Twp. 2000 40,140 one 5-year term
Union Twp. 1999 24,300 two 5-year terms
ALLEGHENY COUNTY, PENNSYLVANIA:
Coraopolis 2004 36,700 three 10-year terms
BUTLER COUNTY, PENNSYLVANIA:
Butler--South Main St. 2004 25,920 none
Butler Twp.--Stirling 2006 37,812 three 5-year terms
Clearview Mall 2002 27,898 two 5-year terms
Cranberry Twp. 2002 17,125 two 5-year terms
Zelienople 2006 11,280 one 10-year term
BEAVER COUNTY, PENNSYLVANIA:
Chippewa 2001 25,515 one 5-year term
ERIE COUNTY, PENNSYLVANIA:
Erie--State St. 2002 41,537 seven 5-year terms
ASHTABULA COUNTY, OHIO:
Andover 2000 10,620 one 5-year term
LAKE COUNTY, OHIO:
Madison 2003 21,616 one 15-year term
Mentor 2004 29,629 one 15-year term
</TABLE>
11
<PAGE> 14
The following branches are located on leased ground and these leases have
the following expirations, costs and renewal options:
<TABLE>
<CAPTION>
EXPIRATION ANNUAL LEASE RENEWAL
DATE COST OPTIONS
---- ---- -------
<S> <C> <C> <C>
BEAVER COUNTY, PENNSYLVANIA:
Aliquippa (Hopewell) 2002 $33,516 one 5-year term
ERIE COUNTY, PENNSYLVANIA:
Peach St. 2008 39,487 one 5-year term
Pittsburgh Ave. 2004 33,420 two 10-year terms
</TABLE>
In January 1998, First Western sold its three branch offices located in
Lake County, Ohio.
During the fourth quarter of 1996, First Western closed its Butler Township
(Point Plaza) office and transferred the deposits to the Butler Township
(Stirling Village) office. The lease on the former Point Plaza office expires in
2000 and has an annual cost of $21,153. First Western closed its Hillsville,
Pennsylvania office in 1995 and transferred the deposit accounts to the Union
Township, Pennsylvania office. The lease on the former office in Hillsville
expires in 1998 and has an annual cost of $6,840.
First Western leases office space in Hermitage, Pennsylvania to house
certain of the retail administration functions. This office space has an annual
lease cost of $40,578 and the lease expires in 2001.
Trust Services has entered into formal lease agreements with, and leases
space for its trust offices from, First Western Bank, N.A. in New Castle,
Beaver, Hermitage and Erie. Each lease is for a five year term.
ITEM 3. LEGAL PROCEEDINGS
There were no material legal proceedings pending against First Western or
its Subsidiaries as of December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
12
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The required information is incorporated by reference to page 62 of the
1997 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
The required information is incorporated by reference to pages 42 through
43 of the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The required information is incorporated by reference to pages 44 through
62 of the 1997 Annual Report.
ITEM 7.A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required information is incorporated by reference to pages 59 through
60 of the 1997 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated by reference to pages 15 through
43 of the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information with respect to Directors of First Western is
incorporated by reference to pages 5 through 10 of the 1998 Annual Proxy
Statement to Shareholders (the "1998 Proxy Statement").
Information required to be furnished pursuant to this item with respect to
Executive Officers is set forth in Part I, Item I of this report and is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The required information is incorporated by reference to pages 11 through
17 of the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The required information is incorporated by reference to pages 5 through 11
of the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information is incorporated by reference to page 18 of the
1998 Proxy Statement.
13
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
The Consolidated Financial Statements of First Western Bancorp, Inc. and
its Subsidiaries together with the Independent Auditors' Report dated January
23, 1998 (February 23, 1998 as to Note 23) are referenced in Part II, Item
8--Financial Statements and Supplementary Data and are incorporated by reference
to pages 15 through 43 of the 1997 Annual Report.
(2) Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required
information is given in the Consolidated Financial Statements or notes thereto.
(3) Exhibits:
The exhibit index appears on page 17 of this Form-10K.
(b) Reports on Form 8-K:
A report on Form 8-K under Item 5 dated February 23, 1998 was filed to
report that First Western Bank, N.A. had agreed to purchase 16 branches from PNC
Bank.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST WESTERN BANCORP, INC.
/s/ THOMAS J. O'SHANE
By........................................
Thomas J. O'Shane
Chairman of the Board,
President and Chief Executive Officer
Date: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ THOMAS J. O'SHANE Chairman of the Board, President March 25, 1998
............................... and Chief Executive Officer;
Thomas J. O'Shane Director; Principal Executive
Officer
/s/ ROBERT H. YOUNG Executive Vice President, March 25, 1998
............................... Chief Financial Officer,
Robert H. Young Secretary and Treasurer;
Principal Financial Officer
/s/ KENNETH J. ROMIG Vice President, Controller; March 25, 1998
............................... Principal Accounting Officer
Kenneth J. Romig
/s/ WENDELL H. BOYD Director March 25, 1998
...............................
Wendell H. Boyd
/s/ JAMES M. CAMPBELL Director March 25, 1998
...............................
James M. Campbell
/s/ ROBERT C. DUVALL Director March 25, 1998
...............................
Robert C. Duvall
/s/ LOUIS J. KASING, JR. Director March 25, 1998
...............................
Louis J. Kasing, Jr.
/s/ JOHN W. LEHMAN, M.D. Director March 25, 1998
...............................
John W. Lehman, M.D.
/s/ THOMAS S. MANSELL Senior Vice President, Legal March 25, 1998
............................... Counsel and Assistant Secretary;
Thomas S. Mansell Director
</TABLE>
15
<PAGE> 18
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ FLOYD H. MCELWAIN Director March 25, 1998
...............................
Floyd H. McElwain
/s/ RICHARD C. MCGILL Director March 25, 1998
...............................
Richard C. McGill
/s/ HAROLD F. REED, JR. Director March 25, 1998
...............................
Harold F. Reed, Jr.
/s/ JOHN W. SANT Director March 25, 1998
...............................
John W. Sant
</TABLE>
16
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<C> <S> <C>
3.1 Articles of Incorporation Incorporated herein by reference to
Exhibit 3.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
March 31, 1993
3.2 Bylaws Incorporated herein by reference to
Exhibit 3.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
June 30, 1995
10.1 Loan Agreement between First Western Bancorp, Inc. Incorporated herein by reference to
and Pittsburgh National Bank dated November 29, Exhibit 10.8 to First Western's 1990 Form
1990 10-K
10.2 Amendment to Loan Agreement between First Western Incorporated herein by reference to
Bancorp, Inc. and Pittsburgh National Bank dated Exhibit 10.12 to First Western's 1993
September 30, 1992 Form 10-K
10.3 Second Amendment to Loan Agreement between First Incorporated herein by reference to
Western Bancorp, Inc. and PNC Bank, National Exhibit 10.1 to First Western's Quarterly
Association dated June 24, 1994 Report on Form 10-Q for the Quarter
ended June 30, 1994
10.4 Third Amendment to Loan Agreement between First
Western Bancorp, Inc. and PNC Bank, National
Association dated February 27, 1997
10.5 Incentive Stock Option Plan for Key Officers as Incorporated herein by reference to
amended effective February 21, 1995* Exhibit 10.5 to First Western's 1994 Form
10-K
10.6 First Western Bancorp, Inc. Annual Incentive Plan* Incorporated herein by reference to
Exhibit 10.11 to First Western's 1992
Form 10-K
10.7 First Western Bancorp, Inc. Deferred Incorporated herein by reference to
Compensation Plan for Directors* Exhibit 10.1 to First Western's Quarterly
Report on Form 10-Q for the Quarter ended
March 31, 1995
10.8 First Western Bancorp, Inc. 1993 Supplemental Incorporated herein by reference to
Benefit Program* Exhibit 10.11 to First Western's 1993
Form 10-K
10.9 Supplemental Executive Retirement Plan* Incorporated herein by reference to
Exhibit 10.9 to First Western's 1995 Form
10-K
10.10 Change in Control Agreement between Thomas J. Incorporated herein by reference to
O'Shane and First Western Bancorp, Inc.* Exhibit 10.10 to First Western's 1995
Form 10-K
10.11 Change in Control Agreement between Robert H. Young Incorporated herein by reference to
and First Western Bancorp, Inc.* Exhibit 10.11 to First Western's 1995
Form 10-K
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT PRIOR FILING OR SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
- ------ ----------- -----------
<C> <S> <C>
10.12 Change in Control Agreement between Stephen R. Sant Incorporated herein by reference to
and First Western Bancorp, Inc.* Exhibit 10.12 to First Western's 1995
Form 10-K
10.13 Change in Control Agreement between Richard L. Incorporated herein by reference to
Stover and First Western Bancorp, Inc.* Exhibit 10.12 to First Western's 1996
Form 10-K
10.14 Employment Agreement between Richard L. Stover and
First Western Bancorp, Inc.*
10.15 Purchase and Assumption Agreement by and between
First Western Bank, National Association as Buyer
and PNC Bank, National Association Pittsburgh,
Pennsylvania as Seller dated February 23, 1998
13.1 Portions of the First Western Bancorp, Inc. 1997
Annual Report to Shareholders
20.1 First Western Bancorp, Inc. 1998 Annual
Proxy Statement to Shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
</TABLE>
- ---------
* Indicates exhibit is a management contract or compensation plan or
arrangement.
18
<PAGE> 1
EXHIBIT 10.4
THIRD ADMENDMENT TO LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made as of
February 27, 1997, by and between FIRST WESTERN BANCORP, INC.(the "BORROWER" and
PNC BANK,NATIONAL ASSOCIATION (the "BANK").
WITNESSETH:
WHEREAS, the Borrower has executed and delivered to the Bank (or a
predecessor which is now known by the Bank's name as set forth above), a note
dated November 29, 1990, in the original principal amount of Ten Million and
no/100 Dollars ($10,000,000.00)(the "NOTE"), pursuant to a loan agreement dated
November 29, 1990 (the "AGREEMENT"), to evidence the Borrower's indebtedness to
the Bank for a certain loan (the "LOAN");
WHEREAS, the Borrower and the Bank amended the Agreement on two prior
occasions by executing a certain Amendment to Loan Agreement dated September 30,
1992 and a certain Second Amendment to Loan Agreement and Amendment to Note
dated June 24, 1994;
WHEREAS, the Borrower and the Bank desire to amend the Agreement as
provided for below;
NOW, THEREFORE, in consideration of the mutual convenants herein contained
and intending to be legally bound hereby, the parties hereto agree as follows:
1. The Agreement is amended as set forth in Exhibit A attached hereto and
made a part hereof. Any and all references to the Agreement in any document,
instrument or certificate evidencing, securing or otherwise delivered in
connection with the Loan shall be deemed to refer to the Agreement as amended
hereby. Any initially capitalized terms used in this Amendment without
definition shall have the meanings assigned to those terms in the Agreement.
2. This Amendment is deemed incorporated into the Agreement. To the extent
that any term or provision of this Amendment is or may be deemed expressly
inconsistent with any term or provision in the Agreement, the terms and
provisions hereof shall control.
3. The Borrower hereby represents and warrants that (a) all of its
representations and warranties in the Agreement are true and correct, (b) no
default or Event of Default exists under the Agreement, and (c) this Amendment
has been duly authorized, executed and delivered and constitutes the legal,
valid and binding obligation of the Borrower, enforceable in accordance with its
terms.
4. This Amendment may be signed in any number of counterpart copies and by
the parties hereto on separate counterparts, but all such copies shall
constitute one and the same instrument.
5. This Amendment will be binding upon and inure to the benefit of the
Borrower and the Bank and their respective heirs, executors, administrators,
successors, and assigns.
<PAGE> 2
6. Except as amended hereby, the terms and provisions of the Note and the
Agreement remain unchanged and in full force and effect. Except as expressly
provided herein, this Amendment shall not constitute an amendment, waiver,
consent or release with respect to any provision of the Note or the Agreement, a
waiver of any default or Event of Default thereunder, or a waiver or release of
any of the Bank's rights and remedies (all of which are hereby reserved). THE
BORROWER EXPRESSLY RATIFIES AND CONFIRMS THE WAIVER OF JURY TRIAL PROVISION.
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
ATTEST: FIRST WESTERN BANCORP,INC.
/s/ SAM B. BIASUCCI By: /s/ ROBERT H. YOUNG
- ------------------------------ -------------------------------------
(SEAL)
Print Name: SAM B. BIASUCCI Print Name: ROBERT H. YOUNG
------------------ -------------------------
Vice President &
Ass't Secretary Title: Executive V/P-Chief Financial
Officer, Secretary & Treasurer
-------------------------------
PNC BANK,NATIONAL ASSOCIATION
BY: /s/ CHARLES SHOEMAKE
-------------------------------------
(SEAL)
Print Name: CHARLES SHOEMAKE
-------------------------------------
Title: Vice President
-------------------------------------
-2-
<PAGE> 3
EXHIBIT "A" TO
THIRD AMENDMENT TO LOAN AGREEMENT
1. The term "Applicable Margin" in subsection 1.1 of the Agreement is
hereby amended in its entirety to read as follows:
"Applicable Margin" means:
(a) as to the Prime Rate Loan, 0%;
(b) as to the Negotiated Rate Loan, 1 1/4%;
(c) as to the Eurodollar Rate Loan, 1 1/4%.
2. Subsection b of section 4.14 of the Agreement entitled Ratio Convenants
is hereby amended in its entirety to read as follows:
"(b) borrower will maintain at all times (i) a ratio of Borrower Term
Debt to Total Capitalization of not more than .3 to 1, and (ii) a ratio
of its equity investment in and advances to its subsidiaries, less good
will, to tangible net worth, of not more than 1.25 to 1; provided;
however, if borrower cannot maintain such ratio, Borrower will not
create, incur or assume any additional indebtedness without the prior
written consent of the Bank; provided, further, that for the purpose of
subsection 4.14(b)(ii) to the extent that funds movement between
Borrower and non-bank subsidiaries is unrestricted, equity investments
and advances to non-bank subsidiaries shall be excluded from the
determination of such ratio."
-3-
<PAGE> 1
EXHIBIT 10.14
101 East Washington Street
P.O.Box 1488
New Castle, PA 16103-1488
Telephone: (412) 652-8550
Fax: (412)652-0246
[LOGO] First Western
Bancorp, Inc.
Thomas J. O'Shane
President and
Chief Executive Officer
October 25, 1996
Mr. Richard L. Stover
411 Fern Hollow Lane
Wexford, PA 15090
Dear Mr. Stover,
We are pleased to welcome you to First Western Bancorp, Inc. ("The
Bank"). This letter and its attachments describes the compensation for the terms
and conditions of your employment with The Bank, commencing Monday, November 4,
1996.
Your duties as Executive Vice President - Chief Lending Officer as we
previously discussed, will essentially be to oversee the overall soundness of
The Bank's loan portfolio and develop competitive lending policies and
procedures. As Chief Lending Officer, you will be responsible for the following
loan functions: commercial, mortgage, consumer, indirect, and charge card. You
will also be responsible for the loan review function. Management of the above
mentioned loan areas will report to you directly as Chief Lending Officer, and
the loan review manager will report to you indirectly.
You will receive a base salary at the annual rate of $135,800. Such
amount is payable in equal installments at intervals under The Bank's payroll
practices for officers as then in effect. The rate of base salary will be
reviewed effective January 1, 1997, and thereafter in accordance with the salary
review policies of The Bank then in effect. You will be entitled to participate
in The Bank's "Bonus Annual Incentive Plan" at the 30% level (to be prorated for
any 1996 potential payout). In addition, you will be afforded and/or eligible to
participate in the following employment enhancements (particular to your hiring
arrangement alone):
* Stock Option Agreement (see attached)
* Change in Control Agreement (see attached)
* Supplemental Executive Retirement Plan (SERP)
* Company Vehicle, and
* Clubs:
- Sewickly Heights Country Club
- Duquesne Club
Subsidiaries: First Western Bank, N.A. - First Western Bank, F.S.B. - First
Western Trust Services Company
<PAGE> 2
Mr. Richard L. Stover
October 25, 1996
Page -2-
[LOGO] First Western
Bancorp, Inc.
You will also be entitled to participate in qualified benefit plans,
welfare plans, fringe benefit plans and payroll practices to the same extent and
subject to the same terms and conditions such as are offered by The Bank to its
regular full-time associates generally except as otherwise provided below. You
will be eligible to participate in The Bank's "Pension Plan" (qualified benefit
plan) at a years of service multiple of 2.0 years credited service for each
actual year worked (1000 hours) for purposes of this Bank benefit plan only,
provided your employment relationship with The Bank equals or exceeds five (5)
consecutive years worked. Anything less than five (5) consecutive years worked
would nullify any such special qualified benefit arrangement as cited herein.
Paid vacation time off will be four (4) weeks per calendar year. You will be
subject to all employment and compensation policies and procedures of The Bank
throughout the period of your employment.
This letter shall not be construed as a guarantee of employment for any
period, and does not alter your status as an associate at will of The Bank.
I Hope the foregoing captures discussions with Rich Rausch and myself
regarding your employment with The Bank. Should you have any questions, please
call me. If the foregoing letter satisfactorily includes those discussions and
evidences our arrangements, please sign one copy of this letter and return it to
me.
Sincerely,
/s/ THOMAS J. O'SHANE
--------------------------
THOMAS J. O'SHANE
Consented and Agreed:
/S/ RICHARD L. STOVER November 4, 1996
- ---------------------------------- ---------------------------
Richard L. Stover (Date)
<PAGE> 1
Exhibit 10.15
PURCHASE AND ASSUMPTION AGREEMENT
BY AND BETWEEN
FIRST WESTERN BANK,
NATIONAL ASSOCIATION
AS BUYER
AND
PNC BANK, NATIONAL ASSOCIATION
PITTSBURGH, PENNSYLVANIA
AS SELLER
FEBRUARY 23, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS...................................................... 1
1.1. Definitions................................................... 1
ARTICLE II. SALE AND PURCHASE OF ASSETS AND ASSUMPTION OF
LIABILITIES AND OBLIGATIONS....................... 3
2.1. Sale and Purchase of the Assets............................ 3
2.2. Closing and Closing Date................................... 4
2.3. Purchase Price............................................. 4
2.4. Casualty................................................... 4
2.5. Actions at Closing......................................... 5
2.6. Data Processing Services................................... 5
2.7. Certain Transitional Matters............................... 6
2.8. Settlement Date Adjustments................................ 7
2.9. IRA and Brokerage Accounts 8
2.10. Stop Payment Items......................................... 8
2.11. Trust Business............................................. 8
2.12. Record Retention........................................... 8
2.13. Right to Intervene......................................... 9
2.14. Bank Premises.............................................. 9
2.15. Real Estate Taxes and Recording Fees....................... 9
2.16. Employee Matters........................................... 9
2.17. Interest Reporting......................................... 10
2.18. Withholding................................................ 10
2.19. Further Assurances......................................... 11
ARTICLE III. REPRESENTATIONS AND WARRANTIES................................. 11
3.1. Seller's Representations and Warranties....................... 11
3.2. Buyer's Representations and Warranties........................ 14
ARTICLE IV. COVENANTS....................................................... 15
4.1. Seller's Covenants............................................ 15
4.2. Buyer's Covenants............................................. 17
ARTICLE V. CONDITIONS....................................................... 18
5.1. Conditions Precedent to Obligations of Buyer.................. 18
5.2. Conditions Precedent to Obligations of Seller................. 19
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PAGE
ARTICLE VI. TERMINATION OF AGREEMENT........................................ 19
6.1. Termination by the Parties.................................... 19
6.2. Effect of Termination......................................... 20
ARTICLE VII. INDEMNIFICATION................................................ 20
7.1. Indemnification............................................... 20
7.2. Procedure..................................................... 21
ARTICLE VIII. MISCELLANEOUS PROVISIONS...................................... 22
8.1. Entire Agreement.............................................. 22
8.2. Amendments.................................................... 22
8.3. Waiver or Extension........................................... 22
8.4. Assignment.................................................... 23
8.5. Public Announcements; Nondisclosure........................... 23
8.6. Brokers....................................................... 23
8.7. Payment of Expenses........................................... 23
8.8 Third Party Beneficiaries..................................... 23
8.9. Addresses for Notice, etc..................................... 23
8.10. Counterparts................................................. 24
8.11. Headings..................................................... 24
8.12. Governing Law................................................ 24
8.13. Severability................................................. 24
8.14. Waiver, Delay, etc........................................... 24
<PAGE> 4
PURCHASE AND ASSUMPTION AGREEMENT
THIS AGREEMENT made this 23rd day of February, 1998, by and between
First Western Bank, National Association, a national banking association having
its executive offices in New Castle, Pennsylvania ("Buyer"), and PNC Bank,
National Association, a national banking association having its executive
offices in Pittsburgh, Pennsylvania ("Seller").
WITNESSETH:
WHEREAS, Seller desires to sell certain assets and transfer certain
deposits and other liabilities associated with certain of its branch offices
identified on Schedule A attached hereto (each location a "Branch";
collectively, the "Branches"); and
WHEREAS, Buyer desires to purchase such assets and assume such deposits
and certain other liabilities associated with the Branches on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual agreements
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Seller and Buyer covenant and agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definitions. The terms defined in this Section 1.1 shall have the
meanings herein specified, unless the context clearly requires otherwise.
"Affected Employee" is defined in Section 2.16.
"Agreement" means this Agreement.
"Assets" means all right, title and interest of Seller in and to each
of the following:
(a) the parcels of real estate described in Schedule B,
together with the buildings and other improvements thereon
(collectively, the "Real Estate");
(b) all rights of Seller under the leases relating to personal
property and Branch premises leased by Seller, as described in Schedule
B;
<PAGE> 5
(c) the furniture, fixtures, equipment and improvements owned
or leased by Seller which are used at the Branches, as described in
Schedule B, together with any manufacturer's warranties that are
assignable and are in effect;
(d) the contracts described in Schedule B relating to the
operation and maintenance of the Branches;
(e) the safe deposit business conducted by Seller at the
Branches and the agreements related thereto;
(f) the Loans (as defined herein) together with all collateral
and security interests securing same;
(g) the brokerage and other agreements governing customer
brokerage accounts assigned to the respective brokers of PNC Brokerage
Corp. representing the Beaver and Mercer County Branches;
(h) cash on hand at the Branches at the Effective Time; and
(i) the Customer Deposit Base Intangible (as defined herein).
"Closing" and "Closing Date" are defined in Section 2.2.
"Confidentiality Agreement" means the Confidentiality Agreement dated
December 17, 1997, between Seller and Buyer relating to, among other things, the
confidentiality of certain information provided by or on behalf of Seller to
Buyer with respect to the Branches.
"Core Deposits" means all Deposits, excluding certificates of deposit
of $100,000 or more.
"Customer Deposit Base Intangible" means the value of the Deposits,
related records and customer base transferred to Buyer hereunder.
"Damages" means any and all losses, costs, claims, liabilities, fines,
penalties and expenses, including without limitation, (i) interest which may be
imposed in connection therewith, (ii) court costs and reasonable fees and
disbursements of counsel and consultants, and (iii) reasonable costs and
expenses incurred in enforcing any right of indemnification against either
party.
"Depositors" means account holders having Deposits at the Branches.
"Deposits" means any and all deposit liabilities (including amounts not
yet collected) associated with the deposit accounts (i) contained in the due
diligence information previously made available to Buyer as allocated to the
Branches, and (ii) opened at the Branches between the date
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hereof and the Closing Date; in all cases, together with accrued interest
thereon, including demand deposits, savings deposits, certificates of deposit
and individual retirement account ("IRA") deposits (subject to Section 2.9), but
excluding repurchase agreements, if any.
"Effective Time" means the close of business on the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Federal Funds Effective Rate" means the weighted average of the rates
on overnight federal funds transactions arranged on such day by Federal Funds
Brokers as computed and released by the Federal Reserve Bank of New York as the
"Federal Funds Effective Rate."
"Loans" means the loan accounts, including the unfunded portion of all
outstanding lines of credit and loan commitments, (i) contained in the due
diligence information previously made available to the Buyer as allocated to the
Branches, and (ii) originated at the Branches between the date hereof and the
Closing Date; in all cases, including accrued interest thereon less prepaid
interest thereon.
"Preliminary Settlement Amount" is defined in Section 2.5.
"Purchase Price" is defined in Section 2.3.
"Seller's Knowledge" means the actual knowledge of (i) a branch manager
of one of the Branches or (ii) any officer of Seller holding the title of Vice
President or higher.
"Settlement Date" is defined in Section 2.8(a).
ARTICLE II.
SALE AND PURCHASE OF ASSETS AND ASSUMPTION OF
LIABILITIES AND OBLIGATIONS
2.1. Sale and Purchase of the Assets. (a) At the Effective Time, Seller
shall sell, assign, transfer and deliver the Assets and Deposits to Buyer, and
Buyer shall purchase such Assets and assume Seller's liabilities and other
obligations with respect to (i) the Deposits; (ii) all leases of real and/or
personal property included in the Assets as reflected in Schedule B; (iii) the
contracts described in Schedule B relating to the maintenance and operation of
the Branches; (iv) the safe deposit business conducted at the Branches and the
agreements related thereto; and (v) the Loans.
(b) Except for the obligations or liabilities specifically assumed by
Buyer under this Agreement or the Schedules hereto, it is expressly understood
and agreed that Buyer shall not assume or be liable for any of the debts,
obligations or liabilities of Seller of any kind whatsoever incurred prior to
Closing including, but not limited to, any tax or debt (except to the extent the
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same has been credited to Buyer by proration at Closing), any liability for
unfair labor practices, any liability or obligation of Seller arising out of any
threatened or pending litigation, any liability with respect to personal injury
or property damage claims, any liability arising out of claims of employees
employed at the Branches for bonuses, salaries, wages or other payments or
benefits in respect of services performed at the Branches prior to the Closing,
any liability under or in connection with any "employee benefit plan" as defined
in Section 3(3) of ERISA which is maintained by Seller and covers any employee
at the Branches, any liability Seller may have incurred or will incur in
connection with the transactions contemplated by this Agreement, or any other
liability Seller may have incurred prior to the Closing in connection with the
operation of the Branches and which has not been credited to Buyer through
proration or specifically assumed by Buyer hereunder.
2.2. Closing and Closing Date. The closing hereunder ("Closing") shall
take place at the offices of Seller, 249 Fifth Avenue, One PNC Plaza,
Pittsburgh, PA 15222, or such other place as Seller and Buyer otherwise agree.
The Closing shall take place following the receipt of all required federal and
state regulatory approvals for the transactions contemplated by this Agreement
and expiration of all applicable waiting periods, including the U.S. Department
of Justice ("DOJ") waiting period following federal regulatory approval. The
parties shall mutually agree as to a time and date for the Closing, but such
date shall be within 30 days of the earliest date on which the Closing could
occur. Further, both parties shall use their respective commercially reasonable
efforts to ensure that the Closing shall occur, in any event, on or before June
30, 1998. The date for Closing as determined under this Section is herein called
the "Closing Date."
2.3. Purchase Price. The Purchase Price shall be the sum of (a) the net
book value of the Assets as reflected on the books and records of Seller as of
the Closing Date, and (b) Fifty Eight Million, Five Hundred Eighty Nine Thousand
dollars ($58,589,000) for the Deposits, subject to the following adjustment: if
the 15-day average amount of Core Deposits for the period ending on the fifth
business day prior to the Closing Date (the "Base Amount") is less than Three
Hundred Eighty Million Dollars ($380,000,000), then the Purchase Price shall be
reduced by an amount equal to the product of .1411 times the difference between
Three Hundred Eighty Million Dollars ($380,000,000) and the Base Amount; or, if
the Base Amount is greater than Three Hundred Ninety Million Dollars
($390,000,000), then the Purchase Price shall be increased by an amount equal to
the product of .1411 times the difference between Three Hundred Ninety Million
Dollars ($390,000,000) and the Base Amount. The Purchase Price shall be
allocated by mutual agreement of the parties.
2.4. Casualty. Between the date hereof and the Closing Date, if there
shall have been any damage to or destruction of (whether or not insured) the
Real Estate or the furniture, fixtures, equipment or improvements included in
the Assets that materially reduces the value of such property, at the option of
Buyer, Seller shall either (i) retain the property and reduce the Purchase Price
by the amount Buyer was to have paid for such property pursuant to the terms of
this Agreement; or (ii) convey the property so damaged, but with the Purchase
Price reduced by the agreed upon amount of the damage thereto.
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<PAGE> 8
2.5. Actions at Closing. At the Closing,
(a) Seller shall:
(i) assign, transfer and deliver the Real Estate to Buyer via
general warranty deeds, and assign, transfer and deliver the other Assets to
Buyer by such deeds, conveyances, assignments, bills of sale and other
instruments as may be necessary or advisable in the reasonable opinion of Buyer
to vest in Buyer title to the Assets;
(ii) Transfer and convey all Loans to Buyer together with (in
the form maintained by Seller) all notes, guarantees, agreements and other
evidence thereof and all collateral and security interests securing the Loans by
all assignments, endorsements and other instruments of conveyance as may
reasonably be necessary. All such assignments, endorsements and other
instruments of conveyance shall be without recourse to the Seller and without
any representations and warranties of any kind except as otherwise provided by
the terms of this Agreement;
(iii) Deliver to Buyer its files and other records relating to
the Assets, Deposits and any other liabilities assumed by Buyer in whatever form
maintained by Seller; and
(iv) transfer to Buyer cash in immediately available funds in
an amount (the "Preliminary Settlement Amount") equal to the amount of the
Deposits being assumed hereunder, reduced by the Purchase Price. For the purpose
of determining the Preliminary Settlement Amount, balances as of the close of
business on the fifth business day prior to the Closing Date will be utilized.
The Preliminary Settlement Amount shall be adjusted after the Closing Date in
accordance with Section 2.8 hereof.
(b) Buyer shall assume the Deposit liabilities and other obligations to
be assumed by Buyer hereunder by executing and delivering to Seller the
Assignment and Assumption Agreement in the form of Schedule D hereto.
2.6. Data Processing Services.
(a) From the date of this Agreement through the Closing Date, Seller
shall provide such assistance to Buyer as shall be reasonably necessary to
assist Buyer in converting and transferring all information concerning the
Loans, Deposits and other assets and liabilities of the Branches into Buyer's
own data processing system. Such conversion shall be implemented in full prior
to the first business day after the Closing Date.
(b) After execution of this Agreement, Seller shall provide Buyer with
computer file instructions with respect to the information in its data
processing system regarding the assets and liabilities of the Branches, together
with operational procedures designed to implement the transfer of such
information to Buyer. Each party shall designate an individual to serve as
liaison concerning the transfer of data processing information and other similar
operational matters. For a reasonable period following the Closing Date, but in
no event later than 30 days thereafter,
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Seller's liaison shall continue to be available for consultation with the Buyer
to the extent reasonably necessary to assist Buyer in operating its data
processing systems with respect to the Branches.
2.7. Certain Transitional Matters.
(a) Buyer shall, at its cost and expense, notify the Depositors on or
before the Closing Date of Buyer's pending assumption of the Deposits and
furnish each appropriate Depositor with checks on the forms of Buyer and with
instructions to utilize Buyer's checks and to destroy unused checks of Seller
after the Closing Date.
(b) For sixty (60) days following the Closing Date, Buyer shall pay in
accordance with law and customary banking practices all properly drawn and
presented checks, drafts and withdrawal orders presented to Buyer drawn on the
Deposits by means of checks, drafts or withdrawal order forms provided by
Seller, and in all other respects discharge, in the usual course of the banking
business, the duties and obligations of Seller with respect to the Deposits.
(c) Prior to the Closing Date, Seller and Buyer will develop
appropriate procedures and arrangements to provide for settlement by Buyer of
checks, drafts, withdrawal orders, returns and other items that are drawn on or
chargeable against Deposits after the Closing Date. Seller will cooperate with
Buyer and take all reasonable steps requested by Buyer to ensure that, on and
after the Closing Date, each item drawn against a Deposit and encoded for
presentment to Seller or to any bank for the account of Seller is delivered to
Buyer in a timely manner and in accordance with applicable law and clearing
house rule or agreement.
(d) Buyer shall pay promptly to Seller an amount equal to the amount of
any checks, drafts, withdrawal orders and/or other items in the process of
collection as of the Effective Time credited to the Deposits on or before the
Closing Date which are returned to Seller or to Buyer after the Closing Date.
Upon receipt of payment from Buyer, Seller shall promptly assign to Buyer any
item so received by Seller.
(e) Seller shall remit promptly to Buyer all payments on Loans, all
amounts intended as Deposits and any other amounts properly payable to Buyer
rather than Seller as a result of the transactions contemplated hereby which may
be received by Seller after the Effective Time. If the balance due on any Loan
was reduced by Seller as a result of a payment made by check or other instrument
received prior to the Effective Time, and such instrument is returned after the
Effective Time as uncollectible, Buyer shall promptly remit to Seller an amount
equal to the amount of such payment. Upon receipt of payment from Buyer, Seller
shall promptly assign to Buyer all right, title and interest in such uncollected
instrument.
(f) Seller shall provide automated clearinghouse ("ACH") transactions
received, promptly upon receipt by Seller, to Buyer for period of ninety (90)
days following the Closing Date. Seller shall remain liable for any ACH deposits
received prior to the Closing Date that may subsequently become subject to a
reclamation request.
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(g) Upon request after the Closing Date either to Seller or Buyer from
any state or the federal government to reclaim funds relating to forged or
improperly credited or issued social security, unemployment, welfare or similar
checks credited by Seller prior to the Effective Time to a Deposit, Buyer hereby
agrees to honor such request, but only to the extent of the balance in the
relevant account at the date of such request. Buyer shall assign to Seller all
right, title and interest in any such check returned to it by any such
governmental entity and Seller shall remain liable for any deficiency still
owing.
2.8. Settlement Date Adjustments.
(a) On a date to be agreed upon by Seller and Buyer at the Closing
which shall not be more than thirty (30) days after the Closing Date
("Settlement Date"), Buyer will transfer to Seller or Seller will transfer to
Buyer as appropriate an amount equal to the difference between the Preliminary
Settlement Amount and the amount determined in accordance with Section
2.5(a)(iv) utilizing balances as of the close of business on the Closing Date.
(b) All rents, real estate taxes, utility payments and similar expenses
relating to the Branches or the operation thereof, the most recent FDIC
assessment on the Deposits paid by the Seller and all accrued and prepaid income
attributable to the Assets (excluding safe deposit box rentals past due 90 days
or more) shall be prorated between the parties as of the Closing Date. To the
extent any such item has been prepaid by Seller for a period extending beyond
the Closing Date, there shall be a proportionate monetary adjustment in favor of
Seller, and to the extent that any such item has been deferred by Seller to a
time extending beyond the Closing Date, there shall be a proportionate monetary
adjustment in favor of Buyer. On the Settlement Date, Buyer shall pay to Seller
or Seller shall pay to Buyer, as appropriate, in immediately available funds,
the net amount calculated under this Section as being due to one party by the
other. All real estate taxes and assessments shall be prorated on the Closing
Date (on a calendar year basis) on the basis of the most recently certified real
estate taxes and assessments, and all utility payments shall be prorated on the
basis of the best information available as of the Closing Date. With respect to
premiums paid to the FDIC for deposit insurance on the Deposits, it shall be
assumed that all Deposits are insured under the Bank Insurance Fund; the
proration of FDIC insurance premiums will be based on the standard formula
promulgated by the FDIC based upon the amount of the Deposits as of the
Effective Time and the number of days during any period for which Seller has
prepaid premiums to the FDIC but during which Buyer has held or will hold the
Deposits.
(c) As soon as practicable (but in no event more than ten (10) days)
after the Closing, Seller shall deliver to Buyer a statement setting forth the
amount of all adjustments as determined in accordance with the provisions of
Sections 2.8(a) and 2.8(b) and shall make available to Buyer such work papers,
schedules and other supporting data as may be reasonably requested by Buyer to
enable it to verify such determination. Such determination shall be final and
binding for all purposes unless, within 10 days after receipt by Buyer of the
statement, Buyer shall notify the Seller in writing of its disagreement with any
amount included therein or omitted therefrom, in which case, the parties agree
to take all reasonable efforts to attempt to resolve the disputed items within
ten (10) business days after the receipt by Seller of notice of such
disagreement. If the
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parties are unable to resolve the disputed items within such period, such items
shall be determined by an independent accounting firm selected by the mutual
agreement of Buyer and Seller. The determination of such accounting firm shall
be final and binding for all purposes. The fees and expense of such accounting
firm shall be borne equally by Buyer and Seller.
(d) All adjusted amounts due from one party to the other under this
Section shall bear interest equal to the Federal Funds Effective Rate, and such
interest shall be paid along with payments of such adjusted amounts. All
payments to be made under this Section shall be made by immediately available
funds.
(e) If any refund of real property taxes or assessments relating to the
Branches shall be made after the Closing, the same shall be held in trust by
Seller or Buyer, as the case may be, and shall first be applied to the
unreimbursed costs in obtaining the same, and the balance, if any, shall be paid
to Seller (for the period prior to the Closing Date) and to Buyer (for the
period commencing with the Closing Date).
2.9. IRA and Brokerage Accounts. If the transfer of any IRA or
brokerage account requires the consent of any customer, Seller shall, at its own
expense, use its best efforts to obtain such consent prior to the Closing Date.
Upon the Closing Date, Seller shall assign, transfer and deliver IRA and
brokerage accounts as to which consents have been obtained together with all
assets held in such accounts, and Buyer thereafter shall assume all liabilities
relating thereto and deliver to Seller appropriate documents evidencing such
assumption.
2.10. Stop Payment Items. Buyer shall honor all stop payment orders
related to any Deposits initiated prior to the Effective Time and reflected in
stop payment documents delivered to Buyer on the Closing Date or thereafter,
including any surety bonds issued with respect thereto which Seller shall assign
to Buyer. If following receipt of appropriate stop order documentation, Buyer
makes any payment in violation of any such order, Buyer shall be solely liable
for any such payment and shall indemnify, hold harmless and defend Seller from
and against all Damages arising out of any such payment. In the event that Buyer
shall make any payment in violation of a stop payment order initiated prior to
the Effective Time but not reflected in stop payment documents delivered to
Buyer prior to such payment, Seller shall indemnify, hold harmless and defend
Buyer from and against all Damages arising out of any such payment.
2.11. Trust Business. No trust department assets or business (if any)
conducted by Seller at the Branches shall be transferred to Buyer pursuant to
this Agreement other than IRA business transferred pursuant to Section 2.9.
2.12. Record Retention. From and after the Closing Date, Buyer shall
preserve and safely keep, for so long as may be required under applicable law,
all of the files, books of account and records transferred to Buyer under this
Agreement. Upon not less than two (2) business days prior notice, Buyer will
permit Seller or its representatives at any reasonable time and at Seller's
expense, to inspect, make extracts from or copies of, any such files, books of
account or records
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as Seller shall deem reasonably necessary, provided that such activities shall
not unreasonably interfere with Buyer's business operations.
2.13. Right to Intervene. In the event that, prior to Closing, any
claim, protest, suit or other proceeding is instituted against Buyer in
connection with this Agreement, Seller shall have the right, at its discretion
and expense, to intervene in such litigation, and Buyer hereby consents to such
intervention.
2.14. Bank Premises. Buyer shall be entitled to possession and control
of the Branches upon and after the Effective Time. Seller shall coordinate with
Buyer to have its signs, logos and related equipment removed from the Branches
as of the Effective Time at Seller's expense. As soon as reasonably possible
following the Effective Time, Seller will remove all of its personal property
not being transferred hereunder, including, but not limited to, equipment,
stationery, forms, labels, shipping material, brochures and advertising
material.
2.15. Real Estate Taxes and Recording Fees. The cost of real estate
transfer taxes and recordation fees incurred in connection with the transfer of
the Real Estate contemplated herein shall be borne equally by Buyer and Seller.
2.16. Employee Matters.
(a) Buyer shall offer employment to all persons who are employed at the
Branches at the Effective Time (each, an "Affected Employee"), other than any
such person who, at the Effective Time, is receiving benefits under Seller's
Long-Term Disability Plan, and each Affected Employee's employment with Seller
shall thereupon cease. Each Affected Employee shall be employed by Buyer as of
the Effective Time upon terms and conditions, including, without limitation,
salary and eligibility for benefits, including welfare, pension, severance and
vacation benefits, as are other similarly situated employees of Buyer.
(b) Buyer shall recognize the length of service with Seller of Affected
Employees accepting employment for purposes of determining their participation
eligibility and vesting rights, but not for purposes of benefit accrual (except
for vacation), in any and all retirement plans, medical, life insurance,
disability and other employee benefit plans, programs and/or policies currently
maintained by Buyer. In addition, Buyer shall (i) give effect, in determining
any annual deductible and maximum out-of-pocket limitations, to claims incurred
and amounts paid by, and amounts reimbursed to, such Affected Employees under
similar plans maintained by Seller for their benefit prior to the Closing Date;
and (ii) provide coverage for pre-existing medical conditions to the extent that
such condition is currently covered under Seller's plan, provided that such
conditions would be covered under Buyer's plan if it were not pre-existing. In
such event of differing coverages such person shall be covered by Seller's COBRA
plan. Vacation responsibilities of Seller covering Affected Employees employed
by Buyer shall be prorated on a calendar year basis as between Seller and Buyer
as of the Closing Date based upon the number of vacation days taken prior to the
Closing Date and the number of vacation days remaining after the Closing Date.
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(c) Seller shall retain responsibility for and continue to pay all
medical, life insurance, disability and other welfare plan expenses and benefits
for Affected Employees with respect to claims incurred by such employees or
their covered dependents prior to the Closing Date. Expenses and benefits with
respect to claims incurred by Affected Employees or their covered dependents on
or after the Closing Date shall be the responsibility of Buyer. For purposes of
this paragraph, a claim is deemed to be incurred when the services that are the
subject of the claim are performed; in the case of life insurance, when the
death occurs; in the case of long-term disability benefits, when the disability
occurs; and in the case of a hospital stay, when the employee or covered
dependent first enters the hospital.
2.17. Interest Reporting. Seller shall report from January 1, 1998
through the Closing Date, and Buyer shall report from the Closing Date through
December 31, 1998, all interest credited to, interest premiums paid on, interest
withheld from and early withdrawal penalties charged to the Deposits. Such
reports shall be made to the holders of accounts relating to Deposits and to the
applicable federal and state regulatory agencies.
2.18. Withholding. On or before the Closing Date Seller shall deliver
to Buyer a list of all customers who have received "B" notices (TINs do not
match) and "C" notices (under reporting/IRS imposed withholder) issued by the
Internal Revenue Service ("IRS") relating to such Deposits. Following the
Closing Date, Seller shall immediately deliver to Buyer (i) any and all similar
notices regarding such Deposits received from the IRS and (ii) all notices
received from the IRS releasing any governmental agency restriction on such
Deposits. Any amounts required by any governmental agency to be withheld from
any such Deposits (the "Withholding Obligations") or any penalties imposed by
any governmental agency will be handled as follows:
(a) Any Withholding Obligation required to be remitted to the
appropriate governmental agency on or prior to the Closing Date will be
withheld and remitted by Seller, and any other sums withheld by Seller
pursuant to Withholding Obligations prior to the Closing Date shall
also be remitted by Seller to the appropriate governmental agency on or
prior to the time they are due;
(b) Any Withholding Obligation required to be remitted to the
appropriate governmental agency after the Closing Date with respect to
Withholding Obligations after the Closing Date and not withheld as set
forth in Section 2.18(a) shall be withheld and remitted by Buyer.
Within two (2) business days of receipt of any such notice by Seller,
Seller shall notify Buyer, and Buyer shall comply with the notification
requirements;
(c) Any penalties described on "B" notices from the IRS or any similar
penalties which relate to the Deposits will be paid by Seller promptly
upon receipt of the notice, providing such penalty assessment resulted
from Seller's acts, policies or omissions, and any efforts to reduce
such penalties shall be the responsibility of Seller; and
(d) Any penalties assessed due to information missing from information
filings regarding the Deposits, including, without limitation, 1099
forms, shall be paid by Seller
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promptly upon receipt of the notice providing such penalty assessment
resulting from Seller's acts, policies or omissions, and any efforts to
reduce such penalties shall be the responsibility of Seller.
2.19. Further Assurances. After the Closing, Buyer and Seller shall
execute and deliver such instruments and take such other actions as the other
party may reasonably request in order to evidence the transactions contemplated
hereby and to comply with reporting requirements under the Internal Revenue
Code.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1. Seller's Representations and Warranties. Seller represents and
warrants to Buyer as follows:
(a) Corporate Status. Seller is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States.
(b) Corporate Authority. Seller has full corporate power and authority
to carry on the business of the Branches as presently conducted and to own the
properties used in connection with the business of the Branches and is duly
qualified to do business in the jurisdictions where its ownership of such
properties or the conduct of its business with respect to the Branches requires
such qualification.
(c) Absence of Conflict or Breach. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) result in a breach of or conflict with the Articles of Association, or
By-laws of Seller, (ii) constitute or result in a breach of any term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of
Seller, pursuant to any material note, bond, mortgage, indenture, license, any
agreement or other instrument or obligation relating to or affecting the Assets,
Deposits or the Branches or the transactions contemplated by this Agreement, or
(iii) subject to the receipt of regulatory approvals referred to in Section
5.2(d), violate any statute, law, writ, injunction, decree, regulation or order
of any governmental or regulatory authority applicable to Seller.
(d) Binding Obligation. This Agreement has been duly executed and
delivered by Seller and constitutes, and the other instruments to be executed
and delivered pursuant hereto when duly executed and delivered by Seller will
constitute, legal, valid and binding obligations of Seller enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally and the
possible unavailability of certain equitable remedies such as the remedy of
specific performance.
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(e) Title to Assets. On the Closing Date, Seller will own the Assets,
free and clear of any mortgage, pledge, lien, security interest, conditional
sales agreement, lease, encumbrance or charge of any nature whatsoever, except
(i) as otherwise noted on any of the Schedules hereto, (ii) liens for current
taxes or assessments which are not yet due and payable or are being contested by
Seller in good faith, (iii) builders', mechanics', warehousemen's,
materialmen's, contractors', workmen's, repairmen's, carriers', or other similar
liens arising and continuing in the ordinary course of business for obligations
which are not yet due and payable, and (iv) statutory and other similar liens
which are not yet due and payable and which do not materially affect the value
of the Assets subject thereto or the usefulness of such Assets to the business
of the Branches. At the Effective Time, Buyer will obtain valid title, free and
clear of any lien, claim or encumbrance (except as described in items (i)
through (iv) above) to all of the Assets.
(f) Condition of Assets. The Real Estate, banking equipment, furniture,
fixtures and improvements to be transferred pursuant to this Agreement are, to
Seller's Knowledge and belief, in good operating condition and repair, giving
consideration to age and use and subject to ordinary wear and tear.
(g) Deposit Insurance. The Deposits to be transferred pursuant to this
Agreement are insured by the FDIC up to the maximum extent permitted by law.
Seller has filed all reports and paid all premiums required under the Federal
Deposit Insurance Act with respect to the Deposits.
(h) Books and Records. The books and records relating to the Branches
have been maintained in accordance with applicable legal and accounting
requirements and fairly reflect in all material respects the substance of events
and transactions that should be included therein.
(i) Material Adverse Change. Seller has not suffered any material
adverse change in the business or assets of the Branches since December 31, 1997
and, to Seller's Knowledge, there are no facts or circumstances that could
reasonably result in such a material adverse change. Any change in the business
or assets of the Branches related to the deposit accounts of the County of
Beaver or its related accounts will not be considered in determining any
material adverse change.
(j) Status of Loans. With respect to each Loan being purchased by the
Buyer pursuant to this Agreement, the Loan is a valid loan in conformity with
applicable laws and regulations; it includes all documentation normally required
under federal banking regulations; its principal balance as shown on Seller's
books and records is true and correct as of the last date shown thereon; all
purported signatures on and executions of any document by Seller in connection
with such Loan are genuine; and Seller has custody of all material documents or
microfilm records thereof related to such Loan. No such Loan is subject to any
asserted defense, offset or counterclaim known to Seller and is not past due 90
days or more and, to Seller's Knowledge, the borrower has not initiated
bankruptcy or similar proceedings.
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(k) No Adverse Litigation. To Seller's Knowledge, there is no
investigation, action, arbitration, suit, proceeding or claim pending or
threatened against Seller with respect to, or adversely affecting, the Branches
or Assets being purchased hereunder or the Deposits and other liabilities being
assumed hereunder before or by any federal, state, municipal or other
governmental department, commission, board, agency, or instrumentality, domestic
or foreign, except as previously disclosed in writing to Buyer.
(l) Compliance with Laws. Seller is in compliance in all material
respects with all statutes and regulations applicable to the conduct of its
business at the Branches and has not received, with respect to the conduct of
such business, notification from any agency or department of federal, state or
local government (i) asserting a violation of any statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting its operations.
(m) No Defaults. Seller is not in default in any material way under any
agreement, commitment, arrangement, lease, insurance policy or other instrument
relating to the Branches or to the business conducted at the Branches, whether
entered into in the ordinary course of business or otherwise, whether written or
oral, and there has not occurred any event that, with the lapse of time or
giving of notice or both, would constitute such a default.
(n) Certain Labor Matters. Seller is not a party to any employment
agreement, severance or similar agreement with any employee of the Branches
(other than Seller's company-wide plans provided generally to employees of
Seller). There are no labor controversies pending, or to Seller's Knowledge,
threatened against Seller with respect to the operation of the Branches and, to
Seller's Knowledge, no group, organization or union has attempted to organize
any of its employees.
(o) Environmental Matters. (i) All the activities at the Branches
undertaken by Seller have been undertaken in full compliance in all material
respects with all federal, state and local environmental statutes, regulations
and ordinances ("Environmental Laws"). There is not pending or, to Seller's
Knowledge, threatened litigation or administrative action against Seller or any
third party arising under any Environmental Law that seeks to impose, or could
result in the imposition, on any Branch, of any material liability thereunder.
To Seller's Knowledge, none of the Branch facilities or properties has
previously been used as a gas station; there is no condition existing at the
Branches which would give rise to the liability of Buyer under any Environmental
Laws and there is no reasonable basis for any such litigation or administrative
action; and Seller is not subject to any agreement, order, judgment, decree or
memorandum by or with any federal, state or local agency or department imposing
any such liability.
(ii) Buyer (at its expense) shall have the right to conduct an
environmental review (a "Review") of the Branches that are owned by Seller to
determine if there are any environmental issues relating thereto. Any such
Review shall be completed, and all reports and findings related thereto shall be
disclosed to Seller, within 60 days of the date hereof. If any material
environmental defects are discovered with respect to any Branches, (x) Seller
shall have the right
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to correct such defects, in which case the affected Branches shall transfer to
Buyer with the other Branches on the Closing Date, or (y) the physical
facilities of the affected Branches will be excluded from this transaction and
the Purchase Price shall be reduced by the amount Buyer was to have paid for the
subject property; provided, however, that the parties shall enter into a
mutually satisfactory lease at a fair market value rental rate to permit Buyer
to operate such affected Branch for a reasonable period beyond Closing until
Buyer can make alternative arrangements for a facility in lieu of Seller's
affected Branch. In the event that the correction of defects at any affected
Branch could not be completed prior to the Closing Date, Seller shall transfer
to Buyer funds equal in amount to the remaining cost of correction, and such
affected Branch shall transfer to Buyer with the other Branches on the Closing
Date.
(p) Taxes. Any payroll, withholding, property, excise, sales, use and
transfer taxes imposed by the United States, the Commonwealth of Pennsylvania or
by any other state, municipality, subdivision or instrumentality of the United
States or by any other taxing authority which relate to the Branches and are due
and payable by Seller prior to the Closing Date, shall have been paid in full as
of such date, and all tax returns with respect to such taxes for taxable periods
ending on or prior to the Closing Date have been or will be timely filed.
(q) Leases. Seller has made available to Buyer true and correct copies
of the leases identified in Schedule B, and has provided Buyer with the
opportunity to determine the condition of the premises, furniture, fixtures,
improvements and equipment subject to such leases. All such leases are valid and
subsisting, and there does not exist any default, or any event or condition
which, after notice or lapse of time or both, would constitute an event of
default, and to Seller's Knowledge, there is no condemnation or similar
proceeding pending or threatened which would preclude or impair the use of the
Branches as presently being used in the conduct of the business of the Seller.
Subject to receipt of any required consent of the respective landlords, Seller
is permitted to assign the leases to Buyer for the Branches covered by lease and
not owned by Seller.
3.2. Buyer's Representations and Warranties. Buyer represents
and warrants to Seller as follows:
(a) Corporate Status. Buyer is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States.
(b) Corporate Authority. Buyer has full corporate power and authority
to acquire the Assets and to assume the Deposits and other liabilities and
obligations of Seller as provided in this Agreement. The execution and delivery
of this Agreement, and the consummation of the transaction contemplated hereby,
have been duly authorized by the Board of Directors of Buyer. No further
corporate authorization on the part of Buyer is necessary to consummate this
transaction.
(c) Absence of Conflict or Breach. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) result in a breach of or conflict with the Articles of Incorporation or
By-Laws of Buyer, (ii) constitute or result in a
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breach of any term, condition or provision of, or constitute a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of Buyer, pursuant to any note, bond, mortgage, indenture,
license, any agreement or other instrument or obligation, or (iii) subject to
the receipt of regulatory approvals referred to in Section 5.1(d), violate any
statute, law, writ, injunction, decree, regulation or order of any governmental
or regulatory authority.
(d) Binding Obligation. This Agreement has been duly executed and
delivered by Buyer and constitutes, and the other instruments to be executed and
delivered pursuant hereto when duly executed and delivered by Buyer will
constitute, legal, valid and binding obligations of Buyer enforceable in
accordance with their respective terms, except as the enforceability thereof may
be limited by applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting the enforcement of creditors rights generally and the
possible unavailability of certain equitable remedies such as the remedy of
specific performance.
(e) Available Funds. Buyer has, or at the Closing Date will have,
available to it all funds necessary to satisfy all of its obligations hereunder
and in connection with the transactions contemplated hereby, including the
obligation to pay the Purchase Price pursuant to this Agreement and to pay all
other amounts required to be paid hereunder on the terms and conditions set
forth herein, and its ability to consummate such transactions is not dependent
or conditional upon the receipt of financing (whether debt or equity) from any
unrelated third party.
ARTICLE IV.
COVENANTS
4.1. Seller's Covenants. Seller covenants and agrees with Buyer as
follows:
(a) Activity in the Ordinary Course. Pending the Closing Date, Seller
shall (i) conduct the business of the Branches substantially in the same manner
as heretofore conducted, (ii) maintain all of the property at the Branches in
customary repair, order and condition, reasonable wear and tear and damage by
fire or other unavoidable casualty excepted, and (iii) maintain its books,
accounts and records concerning the Branches in the ordinary and usual manner on
a basis consistent with prior years. Between the date hereof and the Closing
Date, Seller shall not, without the prior consent of the Buyer:
(i) cause or permit the transfer from or to the Branches of
any Deposits in the aggregate in excess of $250,000, except upon the
unsolicited request of a Depositor in the ordinary course of business
(it being understood that any trust or other fiduciary or
brokerage-related accounts are not included in the prohibition against
transfer from the Branches, provided that any such accounts are
transferred at least 30 days prior to the Closing Date);
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(ii) acquire or dispose of any furniture, fixtures or
equipment for the Branches, other than pursuant to commitments made on
or before the date of this Agreement or for the replacement of
furniture, furnishings and equipment and normal maintenance and
refurbishing in the ordinary course of business of the Branches;
(iii) increase or agree to increase the salary, remuneration
or compensation of persons employed at the Branches other than in
accordance with Seller's customary policies or pay or agree to pay any
uncommitted bonus to any such employees other than regular bonuses
granted based on historical practice; or
(iv) enter into any employment contracts with any officers or
employees of the Seller employed in the Branches.
(b) Access to Information and Employees. Seller will give Buyer and its
representatives, including its accountants and attorneys, reasonable access
during normal business hours to the employees and the properties, documents
(including but not limited to, all loan-related documents), contracts and
records relating to the Branches and such other information with respect to the
business affairs and properties of the Branches as the Buyer from time to time
may reasonably request to enable Buyer to train the employees, to investigate
the business and properties of the Branches and to prepare applications for any
regulatory approvals to be obtained by Buyer in connection with this Agreement
provided, however, that under no circumstances shall any such access interfere
with the conduct of the business of the Branches. Seller shall use its best
efforts in good faith to furnish such information to Buyer as may be required in
connection with the preparation of any applications for regulatory approval.
Nothing in this Section 4.1(b) shall be deemed to require Seller to breach any
obligation of confidentiality or violate any law, regulation or order regarding
disclosure of information, to reveal any proprietary information, trade secrets
or marketing or strategic plans or, with respect to employee records, any
information other than employees' respective names, date of hire, current salary
and current title.
(c) Insurance. Until the Effective Time, Seller shall maintain its
current insurance on the Real Estate and the furniture, fixtures, equipment and
improvements included in the Assets.
(d) Satisfaction of Liens. Seller shall pay all obligations secured by
liens referred to in Section 3.1(e)(ii), (iii) and (iv) as and when the same
shall become due and payable.
(e) Solicitation of Customers. For a period of three years after the
Closing Date, Seller shall not conduct any marketing, media or customer
solicitation campaign which specifically targets customers whose accounts are
being acquired by Buyer pursuant to this Agreement, except as may occur (i) in
connection with advertising or solicitations directed to the public generally;
(ii) in connection with mailings or phone solicitations that occur
systematically as a result of any other relationship any such customer may have
with Seller; or (iii) with respect to any products or services that are marketed
on a national basis. Nothing herein shall prevent Seller from providing any
notice required by any governmental agency or by any law, rule or regulation in
connection with the transaction contemplated herein.
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(f) Establishment of Offices. For a period of three years after the
Closing Date, Seller shall not, within Beaver or Mercer County or within a ten
(10) mile radius of those branches included in this transaction that are located
outside such counties (except for the Evans City, Kiski Valley and McDonald
Branches, in which case the radius shall be five (5) miles), establish any
retail branch office that accepts customer deposits or any retail brokerage
office. This prohibition shall not preclude (i) Seller's maintenance or
retention of any office within the proscribed area which it obtains as a result
of its acquisition of another financial institution having offices within such
area, or (ii) Seller's maintenance, retention or establishment of any
stand-alone ATM facility.
4.2. Buyer's Covenants. Buyer covenants and agrees with Seller as
follows:
(a) Buyer's Applications for Approval. As soon as practicable following
the execution of this Agreement, but in any event no later than 30 days
thereafter (or for such longer period as completion thereof is delayed by
Seller's failure to provide required information), Buyer shall prepare and file
such applications as may be required by law with the proper federal and state
regulatory authorities for approval to purchase the Assets and assume the
Deposit liabilities as provided by this Agreement, to establish branch offices
at the location of the Branches, and to effect in all other respects the
transaction contemplated hereby. Buyer shall provide Seller with copies of draft
and final application(s) in the form as filed (except for any confidential
portions thereof) and all material notices, orders, opinions, correspondence and
other documents with respect to such applications. Buyer shall use its best
efforts to obtain expeditiously all governmental and regulatory approvals
necessary to consummate the transactions contemplated hereby. Buyer represents
and warrants that it has no reason to believe that it cannot receive any such
approvals in a timely manner or that any such approvals will be subject to any
conditions that cannot be satisfied in a timely manner.
(b) Confidentiality. Neither Buyer nor any of its officers, directors,
employees, representatives or agents shall use any information obtained pursuant
to this Agreement or in connection with the transactions contemplated hereby for
any purpose unrelated to this Agreement. Buyer and its officers, directors,
employees, representatives and agents shall hold in confidence all information
and documents obtained pursuant to this Agreement or otherwise obtained or
prepared in connection herewith, and shall request confidential treatment before
any information or documents are submitted in connection with any application
for regulatory approval, unless such information or documents otherwise become
publicly available or as Seller is advised by counsel that any such information
or document is required by law to be disclosed.
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(c) Use of Seller's Name. Buyer agrees that it does not have any rights
to the use of Seller's name and that, at Seller's expense, it will take any and
all actions reasonably requested by Seller with respect to the appearance of
Seller's name or derivatives thereof or references thereto in the Assets in
order to avoid any confusion regarding Seller's continued ownership or operation
of the Branches, to protect Seller's name and any derivations thereof and to
accomplish Seller's divestiture of the Branches and the purchase of the Assets
and assumption of liabilities and obligations by Buyer pursuant to this
Agreement.
ARTICLE V.
CONDITIONS
5.1. Conditions Precedent to Obligations of Buyer. The obligation of
Buyer to consummate the Buyer transactions contemplated by this Agreement shall
be subject to the satisfaction, on or before the Closing Date, of each and every
one of the following conditions all or any of which may be waived, in whole or
in part, by Buyer:
(a) Performance of Covenants. Each of the acts and undertakings of
Seller to be performed on or before the Closing Date shall have been duly
performed in all material respects.
(b) Representations True at Closing. The representations and warranties
made by Seller herein shall be true and correct in all material respects on the
Closing Date hereunder with the same force and effect as though such
representations and warranties had been made on and as of such time (except to
the extent that such representations and warranties may become untrue or
incorrect as a result of actions or transactions of Seller made with the consent
of Buyer or as contemplated by the Agreement).
(c) Certified Resolutions. Seller shall have furnished Buyer with a
certified copy of resolutions duly adopted by the Board of Directors of Seller
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
(d) Regulatory Approvals and Other Consents. Buyer and Seller shall
have received all necessary federal and state regulatory approvals for the
transactions contemplated hereby and all waiting periods contained in such
approvals shall have elapsed.
(e) No Injunction. No action, proceeding, regulation or legislation
shall have been instituted or threatened before any court, governmental agency
or legislative body to enjoin or prohibit the consummation of the transactions
contemplated hereby.
(f) Certificate of Compliance. An authorized senior officer of Seller
shall have executed and delivered to Buyer a certificate dated as of the Closing
Date certifying that, to the best knowledge of such officer after due
investigation, such officer has no knowledge of the non-fulfillment of the
foregoing conditions insofar as they relate to Seller.
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5.2. Conditions Precedent to Obligations of Seller. The obligation of
Seller to consummate the Seller transactions contemplated by this Agreement
shall be subject to the satisfaction, on or before the Closing Date, of each and
every one of the following conditions, all or any of which may be waived, in
whole or in part, by Seller:
(a) Performance of Covenants. Each of the acts and undertakings of
Buyer to be performed on or before the Closing Date shall have been duly
performed in all material respects.
(b) Representations True at Closing. The representations and warranties
made by Buyer herein shall be true and correct in all material respects on the
Closing Date hereunder with the same force and effect as though such
representations and warranties had been made on and as of such time (except to
the extent that such representations and warranties may become untrue or
incorrect as a result of actions or transactions of Buyer made with the consent
of Seller).
(c) Certified Resolutions. Buyer shall have furnished Seller with a
certified copy of resolutions duly adopted by the Board of Directors of Buyer
authorizing the execution, delivery and performance of this Agreement and
transactions contemplated hereby.
(d) Regulatory Approvals and Other Consents. Buyer and Seller shall
have received all necessary federal and state regulatory approvals for the
transactions contemplated hereby and all applicable waiting periods shall have
elapsed.
(e) No Injunction. No action, proceeding, regulation or legislation
shall have been instituted or threatened before any court, governmental agency
or legislative body to enjoin or prohibit the consummation of the transactions
contemplated hereby.
(f) Certificate of Compliance. An authorized senior officer of Buyer
shall have executed and delivered to Seller a certificate dated as of the
Closing Date certifying that, to the best knowledge of such officer after due
investigation, such officer has no knowledge of the non-fulfillment of the
foregoing conditions insofar as they relate to Buyer.
ARTICLE VI.
TERMINATION OF AGREEMENT
6.1. Termination by the Parties. This Agreement may be terminated by
the parties with the effects stated in Section 6.2 in any of the following ways:
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(a) at any time on or prior to the Closing Date by the mutual consent
in writing of Buyer and Seller;
(b) on the Closing Date, by Buyer in writing if the conditions set
forth in Section 5.1 of this Agreement shall not have been satisfied or waived
in writing by Buyer;
(c) on the Closing Date, by Seller in writing, if the conditions set
forth in Section 5.2 of this Agreement shall not have been satisfied or waived
in writing by Seller;
(d) by Seller or Buyer in writing at any time after any regulatory
authority has denied any application for approval of the transaction
contemplated hereby and the time period for appeal(s) has run; or
(e) by Seller or Buyer in writing if the purchase, sale and assumption
contemplated hereby has not been consummated on or before September 30, 1998.
6.2. Effect of Termination. If this Agreement is terminated for any
reason as provided in Section 6.1, this Agreement shall forthwith become void
and neither party shall have any further liability or obligation with respect to
this Agreement, except and to the extent such termination results from the
breach by a party of any of its representations, warranties or covenants
hereunder and except that neither party shall be relieved of its obligations
under Section 4.2(b), Article VII, and Sections 8.5, 8.6 and 8.7 of this
Agreement.
ARTICLE VII.
INDEMNIFICATION
7.1. Indemnification. (a) Seller shall indemnify Buyer and its
employees, officers, directors, agents and affiliates against, and Buyer shall
indemnify Seller and its employees, officers, directors, agents and affiliates
against, and each of them agrees to protect, to defend and to hold harmless the
other from all Damages arising out of or in connection with any inaccuracy in,
failure to satisfy or comply with, or breach of, any of the warranties,
representations or covenants of each of them contained herein or in any
certificate or instrument delivered in connection herewith, which inaccuracy,
failure or breach is asserted and a claim for indemnification with respect
thereto is made within two years after the earlier of the Closing Date or
termination of this Agreement pursuant to Section 6.1 hereof. The
indemnification set forth herein shall be the sole and exclusive remedy for any
such inaccuracy, failure or breach hereunder; further, all representations,
warranties and covenants contained in this Agreement shall terminate, expire and
be extinguished from and after two years after the earlier of the Closing Date
or termination of this Agreement pursuant to Section 6.1 hereof, other than any
covenant which, by its terms, is to remain in effect for a specified period
after the Closing Date, which such covenant shall terminate and expire at the
end of such period. Additionally, Seller agrees to indemnify Buyer against and
to protect, to defend and to hold harmless the Buyer from all Damages arising
out of or in connection with any liability or obligation of Seller that is not
assumed by Buyer pursuant to this Agreement, and Buyer further agrees to
indemnify Seller
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against and to protect, to defend and to hold harmless the Seller from all
Damages arising out of or in connection with any liability or obligation of
Seller that is assumed by Buyer pursuant to this Agreement. The aforementioned
limitation on indemnification shall not apply to any title warranty in any deed
related to the Branches sold to Buyer, provided that Buyer has purchased and
maintained in full force and effect a title insurance policy covering such
Branches.
(b) No Damages incurred by either party shall be payable under this
Section 7.1 by the indemnifying party unless such Damages (i) in the case of
claims made under the first sentence of Section 7.1(a), relate to claims for
indemnification made prior to the date two years after the earlier of the
Closing Date or termination of this Agreement pursuant to Section 6.1 hereof,
and (ii) aggregate more than $50,000, in which case indemnification shall be
made for the aggregate Damages, provided that neither party shall be entitled to
indemnification for aggregate Damages in excess of $10,000,000. For the purpose
of applying the aggregate Damage provision in the preceding sentence, any
requirement in a representation or warranty contained in this Agreement that an
event or fact be material, or have a material adverse effect on the Branches or
on the business or Assets of the Branches that is a condition to such event or
fact constituting a misrepresentation or a breach of such warranty (a
"materiality condition"), shall be ignored in determining (x) whether the
aggregate Damages resulting from all such breaches and misrepresentations
(determined by ignoring all materiality conditions) have a material adverse
effect on the business or Assets of the Branches and (y) whether, and to the
extent that, all Damages incurred exceeds the limits set forth in the preceding
sentence.
7.2. Indemnification Procedures. In any case where one party shall seek
indemnification under this Agreement (the "Indemnified Party"), for a third
party claim, suit or proceeding ("Third Party Claim"), such indemnification
shall be conditioned on such Indemnified Party's compliance with the following
procedures:
(a) The Indemnified Party will give prompt written notice to the party
from whom such indemnification is sought (the "Indemnifying Party") of each
claim for indemnification under this Agreement, specifying the amount and nature
of the claim (a "Notice"). Provided that such Notice is given (unless the
failure to provide such Notice does not prejudice the interests of the
Indemnifying Party), and the Indemnifying Party has not contested in writing the
Indemnified Party's right to indemnification as set forth below, the
Indemnifying Party, at its own expense and using counsel of its own choosing,
shall promptly defend, contest and otherwise protect against any such claim,
suit or proceeding. If within a reasonable time period following the receipt of
a Notice, the Indemnifying Party contests in writing the Indemnified Party's
right to indemnification with respect to the Third Party Claim described in the
Notice, the Indemnified Party shall defend against and contest such Third Party
Claim.
(b) If the Indemnifying Party is defending against the Third Party
Claim, the Indemnified Party may, but will not be obligated to, participate in
the defense of any such third party claim, suit or proceeding, at its own
expense and using counsel of its own choosing, but the Indemnifying Party shall
be entitled to control the defense thereof unless the Indemnified Party has
relieved the
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Indemnifying Party from liability with respect to the particular matter. The
Indemnified Party shall cooperate and provide such assistance as the
Indemnifying Party reasonably may request in connection with the Indemnifying
Party's defense and shall be entitled to recover from the Indemnifying Party the
reasonable costs of providing such assistance. The Indemnifying Party shall
inform the Indemnified Party on a regular basis of the status of such claim,
suit or proceeding and the Indemnifying Party's defense thereof.
(c) In any Third Party Claim the defense of which is controlled by the
Indemnifying Party, the Indemnifying Party shall not, without the Indemnified
Party's prior written consent, compromise or settle such claim, suit or
proceeding if: (a) such compromise or settlement would impose an injunction or
other equitable relief upon the Indemnified Party; or (b) such compromise or
settlement does not include the third party's release of the Indemnified Party
from all liability relating to such claim, suit or proceeding for which the
Indemnified Party is entitled to be indemnified.
(d) If the Indemnifying Party fails to timely defend, contest or
otherwise protect against any such claim, suit or proceeding, and fails to
contest in writing the Indemnified Party's right to indemnification, the
Indemnified Party may, but will not be obligated to, defend, contest or
otherwise protect against the same, and make any compromise or settlement
thereof and recover the entire costs thereof from the Indemnifying Party,
including reasonable fees and disbursements of counsel and all amounts paid as a
result of such claim, suit or proceeding and the compromise or settlement
thereof.
(e) The obligation to indemnify an Indemnified Party's officers,
directors, employees and agents in accordance with this Section 7.2 may be
enforced exclusively by such Indemnified Party and nothing herein shall be
construed to grant such officers, directors, employees and agents any individual
rights, remedies, obligations or liabilities with respect to the parties to this
Agreement. The parties to this Agreement may amend or modify this Agreement in
any respect without the consent of such officers, directors, employees and
agents.
ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1. Entire Agreement. This Agreement together with the Schedules
attached hereto and the Confidentiality Agreement constitute the entire
agreement between the parties hereto pertaining to the subject matters hereof
and supersedes all negotiations, preliminary agreements and all prior or
contemporaneous discussions and understandings of the parties hereto in
connection with the subject matters hereof.
8.2. Amendments. No amendment, change or modification of any of the
terms, provisions or conditions of this Agreement shall be effective unless made
in writing and signed or initialed on behalf of the parties hereto by their duly
authorized representatives.
8.3. Waiver or Extension. Except with respect to required approvals of
applicable governmental or regulatory authorities, either party, by written
instrument signed by one of its
22
<PAGE> 26
executive officers, may extend the time for the performance of any of the
obligations or other acts of the other party and may waive (a) any inaccuracies
in the representations or warranties in any document delivered pursuant hereto
or (b) compliance with any of the undertakings, obligations, covenants or other
acts contained herein.
8.4. Assignment. This Agreement and all of the provisions hereof shall
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned, prior to
the Effective Time, by either of the parties hereto without the prior written
consent of the other.
8.5. Public Announcements; Nondisclosure. Seller and Buyer will consult
with each other before issuing any press release or otherwise making any public
statements or customer notification with respect to this Agreement and the
transactions contemplated hereby and neither Seller nor Buyer shall issue any
such press release or make any such public statement prior to such consultation,
except as may be required by law or by any listing agreement with any national
securities exchange.
8.6. Brokers. Buyer and Seller each represent and warrant to one
another than neither has contracted for or otherwise utilized the services of a
broker in connection with this Agreement and the transactions contemplated
hereby, except that Buyer has retained Sandler O'Neill & Partners, L.P. as its
financial advisor. Each party agrees to indemnify the other party against and in
respect of any claim against the other for brokers' fees or other commissions
relative to this Agreement and the transactions contemplated hereby incurred by
the indemnifying party's employees, agents or consultants.
8.7. Payment of Expenses. Except as otherwise expressly provided herein
and in any Schedules hereto, each party hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including without limitation any expenses, fees, and
costs necessary for any approvals of the appropriate Federal and/or State
regulatory authorities, or for any notice to Depositors of the assumption of
deposit liabilities provided for in this Agreement which shall be paid by the
party seeking such approval or giving such notice.
8.8 No Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any person other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.9. Addresses for Notice, etc. All notices, requests, demands,
consents and other communications provided for hereunder and under the related
documents shall be in writing and mailed (by registered or certified mail) or
delivered via facsimile transmission to the applicable party at the addresses
indicated below:
23
<PAGE> 27
IF TO SELLER: PNC Bank Corp.
One PNC Plaza - 28th Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: George P. Smith, Senior Vice President
Phone Number: (412) 762-7993
Facsimile Number: (412) 762-6238
IF TO BUYER: First Western Bancorp, Inc.
101 East Washington Street
New Castle, Pennsylvania 16101
Attention: Robert H.Young, Executive Vice President
And Chief Financial Officer, Secretary and Treasurer
Phone Number: (724) 652-8550
Facsimile Number: (724) 654-8413
AND: Attention: Thomas S. Mansell, Senior Vice President, Legal
Counsel and Assistant Secretary
Phone Number: (724) 652-5520
Facsimile Number: (724) 652-0246
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section.
8.10. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
8.11. Headings. The headings of the Sections and Articles of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.
8.12. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Pennsylvania applicable to
agreements made and entirely to be performed in such state.
8.13. Severability. If any provision of this Agreement or any
application thereof shall be invalid or unenforceable, the remainder of this
Agreement and any other application of such provision shall not be affected
thereby.
8.14. Waiver, Delay, etc. No failure or delay by any party in
exercising any rights, powers or privileges under this Agreement shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
24
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their duly authorized officers and their corporate seals to be
affixed as of the date first written above.
PNC BANK, N.A.
By: /s/ CRAIG T. CAMPBELL
----------------------------------
ATTEST: Title: Executive Vice President
-------------------------------
/s/ THOMAS R. MOORE
- -----------------------------
Title: Secretary
-----------------------
FIRST WESTERN BANK, N.A.
By: /s/ ROBERT H. YOUNG
------------------------------------
ATTEST: Title: Executive Vice President -
---------------------------------
Chief Financial Officer, Secretary and
/s/ THOMAS S. MANSELL Treasurer of First Western Bancorp, Inc.,
---------------------- on behalf of and authorized by First
Title: Assistant Secretary Western Bank, N.A.
------------------------
25
<PAGE> 29
INDEX OF SCHEDULES
Schedule A Schedule of Branch Offices
Schedule B Facility Profiles (Including Lease Abstracts)
Schedule C Schedule of Miscellaneous Operational Items
Schedule D Assignment and Assumption Agreement
<PAGE> 1
Exhibit 13
Management's Report on the Internal Control Structure and
Compliance with Laws and Regulations JANUARY 23,1998
To Our Shareholders
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS
The management of First Western Bancorp, Inc. and subsidiaries ("First Western")
is responsible for the preparation, integrity, and fair presentation of its
published financial statements and all other information presented in this
annual report. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and, as such, include
amounts based on informed judgments and estimates made by management.
INTERNAL CONTROL
Management is responsible for establishing and maintaining an effective internal
control over financial reporting presented in conformity with both generally
accepted accounting principles and the Federal Reserve Board's Y-Report
Instructions. Internal control contains monitoring mechanisms, and actions are
taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control can
provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control may vary over time.
Management assessed First Western's internal control over financial
reporting presented in conformity with both generally accepted accounting
principles and Y-Report Instructions as of December 31, 1997. This assessment
was based on criteria for effective internal control over financial reporting
described in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that First Western maintained an effective internal control
over financial reporting presented in conformity with both generally accepted
accounting principles and Y-Report Instructions, as of December 31, 1997.
COMPLIANCE WITH LAWS AND REGULATIONS
Management is also responsible for ensuring compliance with the federal laws and
regulations concerning loans to insiders and the federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the Federal Deposit Insurance Corporation ("FDIC") as safety and soundness laws
and regulations.
Management assessed its compliance with the designated safety and soundness
laws and regulations and has maintained records of its determinations and
assessment as required by the FDIC. Based on this assessment, management
believes that First Western has complied, in all material respects, with the
designated safety and soundness laws and regulations for the year ended
December 31, 1997.
/s/ THOMAS J. O'SHANE
THOMAS J. O'SHANE
Chairman of the Board,
President and Chief Executive Officer
/s/ ROBERT H. YOUNG
ROBERT H. YOUNG
Executive Vice President,
Chief Financial Officer, Secretary and Treasurer
No. 0014
<PAGE> 2
Consolidated Balance Sheets DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
December 31,
----------- -----------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash and due from banks ................................................................... $ 40,973 $ 36,021
----------- -----------
Interest-bearing deposits in other banks .................................................. 6,836 1,770
----------- -----------
Federal funds sold ........................................................................ - 37,400
----------- -----------
Securities available for sale
(amortized cost of $316,146 and $199,922) .............................................. 324,521 201,282
----------- -----------
Investment securities, held to maturity
(market value of $101,289 and $107,455) ................................................ 100,151 107,092
----------- -----------
Mortgage-backed securities, held to maturity
(market value of $131,942 and $167,185) ................................................ 132,673 169,467
----------- -----------
Loans held for sale ....................................................................... 39,840 124,515
----------- -----------
Loans (net of unearned income of $38,946 and $34,864) ..................................... 1,046,363 989,910
Less allowance for possible loan losses ................................................... 18,077 16,054
----------- -----------
NET LOANS ........................................................................... 1,028,286 973,856
----------- -----------
Premises and equipment .................................................................... 20,996 19,499
----------- -----------
Bank-owned life insurance ................................................................. 25,000 -
----------- -----------
Other assets .............................................................................. 24,801 24,876
----------- -----------
TOTAL ASSETS ........................................................................ $ 1,744,077 $ 1,695,778
=========== ===========
LIABILITIES:
Deposits:
Noninterest-bearing demand ............................................................. $ 100,653 $ 93,163
Interest-bearing demand ................................................................ 38,539 53,946
Savings ................................................................................ 385,363 329,532
Time ................................................................................... 667,784 672,262
----------- -----------
TOTAL DEPOSITS ...................................................................... 1,192,339 1,148,903
----------- -----------
Borrowed funds:
Federal funds purchased and other short-term borrowings ................................ 81,773 33,202
Repurchase agreements and secured lines of credit ...................................... 121,756 212,070
Advances from the Federal Home Loan Bank ............................................... 156,000 144,000
----------- -----------
TOTAL BORROWED FUNDS ................................................................ 359,529 389,272
----------- -----------
Long-term debt ............................................................................ 4,258 5,967
----------- -----------
Other liabilities ......................................................................... 25,272 23,915
----------- -----------
TOTAL LIABILITIES ................................................................... 1,581,398 1,568,057
----------- -----------
Corporation-obligated mandatorily redeemable capital securities of subsidiary
trust holding solely junior subordinated debentures
of the Corporation ..................................................................... 23,837 -
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value,
4,000,000 shares authorized, none issued ............................................... - -
Common stock, $5 par value, 20,000,000 shares authorized,
11,786,811 and 7,835,706 shares issued and
11,132,253 and 7,628,020 shares outstanding ............................................ 58,934 39,179
Additional paid-in capital ................................................................ 2,611 22,064
Retained earnings ......................................................................... 84,647 70,736
Unrealized appreciation in securities available for sale, net of tax ...................... 5,443 884
Treasury stock, 611,700 and 173,400 shares at cost ........................................ (12,043) (4,242)
Unallocated common stock held by ESOP (at cost) ........................................... (750) (900)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY .......................................................... 138,842 127,721
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......................................... $ 1,744,077 $ 1,695,778
=========== ===========
</TABLE>
See notes to consolidated financial statements.
No.0015
<PAGE> 3
Consolidated Statements Of Income
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans ................................................ $ 89,831 $ 92,321 $ 90,651
Interest on deposits in other banks ....................................... 260 61 73
Interest on securities available for sale ................................. 21,946 16,868 10,043
Interest and dividends on investment securities, held to maturity:
Taxable ................................................................ 1,159 1,516 3,047
Tax-exempt ............................................................. 4,155 4,151 4,034
Interest on mortgage-backed securities, held to maturity .................. 9,418 10,532 11,838
Interest on federal funds sold ............................................ 554 34 146
----------------------------------
TOTAL INTEREST INCOME ............................................... 127,323 125,483 119,832
----------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand ................................................................. 890 1,362 1,892
Savings ................................................................ 7,762 7,056 7,640
Time ................................................................... 38,812 37,693 38,374
Interest on borrowed funds:
Federal funds purchased and other short-term borrowings ................ 3,136 3,096 1,473
Repurchase agreements and secured lines of credit ...................... 8,110 10,898 7,557
Advances from the Federal Home Loan Bank ............................... 8,526 6,620 7,196
Interest on long-term debt ................................................ 383 489 740
----------------------------------
TOTAL INTEREST EXPENSE .............................................. 67,619 67,214 64,872
----------------------------------
NET INTEREST INCOME .......................................................... 59,704 58,269 54,960
PROVISION FOR POSSIBLE LOAN LOSSES ........................................... 4,836 8,288 3,982
----------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ................................................... 54,868 49,981 50,978
----------------------------------
OTHER INCOME:
Trust fees ................................................................ 2,301 2,010 1,976
Service charges on deposit accounts ....................................... 4,184 3,700 3,245
Credit card program fees .................................................. 199 1,676 1,444
Net securities gains ...................................................... 276 984 1,555
Net gains on loan sales ................................................... 5,859 4,563 229
Other operating income .................................................... 4,412 2,781 2,572
----------------------------------
TOTAL OTHER INCOME .................................................. 17,231 15,714 11,021
----------------------------------
OTHER EXPENSES:
Salaries and wages ........................................................ 15,395 14,515 13,671
Employee benefits ......................................................... 4,311 3,941 4,127
Net occupancy expense ..................................................... 3,156 2,913 2,828
Equipment rentals, depreciation and maintenance ........................... 2,338 2,190 2,297
Federal deposit insurance ................................................. 376 4,403 1,852
Supplies .................................................................. 1,605 1,587 1,556
Marketing ................................................................. 2,027 1,207 1,456
Professional fees ......................................................... 1,955 1,426 1,416
Data processing services .................................................. 1,542 1,830 1,401
Minority interest expense ................................................. 2,252 - -
Other operating expense ................................................... 8,038 8,252 7,423
----------------------------------
TOTAL OTHER EXPENSES ................................................ 42,995 42,264 38,027
----------------------------------
INCOME BEFORE INCOME TAXES ................................................... 29,104 23,431 23,972
INCOME TAXES ................................................................. 8,822 6,304 7,226
----------------------------------
NET INCOME ................................................................... $ 20,282 $ 17,127 $ 16,746
==================================
BASIC EARNINGS PER SHARE ..................................................... $ 1.80 $ 1.49 $ 1.44
==================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING .................................... 11,242 11,510 11,649
==================================
DILUTED EARNINGS PER SHARE ................................................... $ 1.77 $ 1.47 $ 1.42
==================================
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING .................................. 11,446 11,669 11,773
==================================
</TABLE>
See notes to consolidated financial statements.
NO.0016
<PAGE> 4
Consolidated Statements of Changes in Shareholders' Equity
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION COMMON STOCK
(DEPRECIATION) HELD BY ESOP
COMMON STOCK ADDITIONAL IN SECURITIES (AT COST)
------------------- PAID-IN RETAINED AVAILABLE TREASURY ------------------
SHARES AMOUNT CAPITAL EARNINGS FOR SALE STOCK SHARES AMOUNT
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE:
January 1, 1995 .............. 5,180 $25,901 $ 34,431 $47,961 $(2,191) $ -- (1) $ (23)
Net income ................... -- -- -- 16,746 -- -- -- --
Cash dividends paid
($0.46 per share) ......... -- -- -- (5,389) -- -- -- --
Fifty percent stock dividend
(including fractional
shares paid in cash) ..... 2,601 13,004 (13,004) (5) -- -- (1) --
Purchased stock allocated
to ESOP participants ...... -- -- -- -- -- -- 2 23
Exercise of stock options,
net of shares redeemed .... 15 75 (54) -- -- -- -- --
Common stock issued for
dividend reinvestment ..... 21 103 438 -- -- -- -- --
Treasury stock purchased ..... -- -- -- -- -- (1,011) -- --
Net change in unrealized
appreciation (depreciation)
in securities available
for sale, net of tax ...... -- -- -- -- 4,683 -- -- --
------------------------------------------------------------------------------------------
BALANCE:
December 31, 1995 ............ 7,817 39,083 21,811 59,313 2,492 (1,011) -- --
Net income ................... -- -- -- 17,127 -- -- -- --
Cash dividends paid
($0.49 per share) ......... -- -- -- (5,704) -- -- -- --
Exercise of stock options,
net of shares redeemed .... 18 90 200 -- -- -- -- --
Common stock issued for
dividend reinvestment ..... 1 6 29 -- -- -- -- --
Common stock purchased
by ESOP ................... -- -- -- -- -- -- (40) (1,050)
Purchased stock allocated
to ESOP participants ...... -- -- -- -- -- -- 6 150
Treasury stock purchased ..... -- -- -- -- -- (3,471) -- --
Treasury stock issued ........ -- -- 24 -- -- 240 -- --
Net change in unrealized
appreciation (depreciation)
in securities available
for sale, net of tax ...... -- -- -- -- (1,608) -- -- --
------------------------------------------------------------------------------------------
BALANCE:
December 31, 1996 ............ 7,836 39,179 22,064 70,736 884 (4,242) (34) (900)
Net income ................... -- -- -- 20,282 -- -- -- --
Cash dividends paid
($0.56 per share) ......... -- -- -- (6,364) -- -- -- --
Exercise of stock options,
net of shares redeemed .... 19 97 51 -- -- -- -- --
Common stock issued for
dividend reinvestment ..... 5 23 131 -- -- -- -- --
Purchased stock allocated
to ESOP participants ...... -- -- -- -- -- -- 8 150
Treasury stock purchased ..... -- -- -- -- -- (7,801) -- --
Fifty percent stock dividend
(including fractional shares
paid in cash) ............ 3,927 19,635 (19,635) (7) -- -- (17) --
Net change in unrealized
appreciation (depreciation)
in securities available
for sale, net of tax ...... -- -- -- -- 4,559 -- -- --
BALANCE:
------------------------------------------------------------------------------------------
December 31, 1997 ............ 11,787 $58,934 $ 2,611 $84,647 $ 5,443 $(12,043) (43) $ (750)
==========================================================================================
</TABLE>
See notes to consolidated financial statements.
No.0017
<PAGE> 5
Consolidated Statements Of Cash Flows
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 20,282 $ 17,127 $ 16,746
-----------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................... 2,312 2,205 2,244
Amortization and accretion - net ............................... 2,189 1,861 253
Provision for possible loan losses ............................. 4,836 8,288 3,982
Gain on sale of securities ..................................... (276) (984) (1,555)
Proceeds from loan sales ....................................... 137,241 39,144 61,866
Gain on sale of loans .......................................... (5,859) (4,563) (229)
Purchase of loans .............................................. (2,869) (7,894) (30,789)
(Gain) loss on sale of real estate owned ....................... (87) 44 (594)
(Gain) loss on sale of premises and equipment .................. (11) 85 48
Provision for deferred tax liability (benefit) ................. 434 (2,093) (293)
Increase in interest receivable ................................ (273) (193) (1,162)
Increase in interest payable ................................... 909 320 3,823
Other - net .................................................... (1,446) 2,630 (169)
-----------------------------------
Total adjustments ........................................... 137,100 38,850 37,425
-----------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................... 157,382 55,977 54,171
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale .............. 18,511 116,036 162,924
Proceeds from maturity or paydown of securities available
for sale ....................................................... 121,330 73,228 22,831
Purchase of securities available for sale ......................... (255,291) (182,745) (151,111)
Proceeds from maturity or paydown of investment securities,
held to maturity ............................................... 57,123 47,961 49,789
Purchase of investment securities, held to maturity ............... (13,948) (65,746) (22,386)
Net increase in loans ............................................. (126,035) (157,790) (208,559)
Proceeds from sales of credit card and student loan portfolios .... 21,801 37,188 12,903
(Increase) decrease in deposits in other banks .................... (5,066) 354 (1,252)
Decrease (increase) in federal funds sold ......................... 37,400 (37,400) --
Purchase of premises and equipment ................................ (4,111) (3,450) (2,908)
Proceeds from sales of premises and equipment ..................... 290 68 102
Proceeds from sales of real estate owned .......................... 1,306 883 1,614
Purchase of bank-owned life insurance ............................. (25,000) -- --
Cash paid for branch sales ........................................ (14,692) -- --
Cash received in branch purchases ................................. 33,760 -- 89,288
-----------------------------------
NET CASH USED IN INVESTING ACTIVITIES .......................... (152,622) (171,413) (46,765)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits ............................... 21,564 (28,701) 51,663
Net increase (decrease) in federal funds purchased
and other short-term borrowings ................................ 48,571 29,604 (31,249)
Net (decrease) increase in repurchase agreements and
secured lines of credit ........................................ (90,314) 90,412 (6,803)
Net increase (decrease) in advances from the Federal Home
Loan Bank ...................................................... 12,000 32,330 (16,451)
Proceeds from issuance of long-term debt .......................... -- 1,050 --
Proceeds from issuance of capital securities, net of
issuance costs ................................................. 23,800 -- --
Payments on long-term debt ........................................ (1,709) (3,216) (2,185)
Treasury stock purchased .......................................... (7,801) (3,471) (1,011)
Treasury stock issued ............................................. -- 264 --
Proceeds from exercise of stock options ........................... 148 290 21
Proceeds from common stock issued for dividend reinvestment plan .. 154 35 541
Common stock purchased for ESOP ................................... -- (1,050) --
Stock allocated to ESOP participants .............................. 150 150 23
Dividends paid on common stock .................................... (6,371) (5,704) (5,394)
-----------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............ 192 111,993 (10,845)
-----------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS ................... 4,952 (3,443) (3,439)
CASH AND DUE FROM BANKS - beginning of year .......................... 36,021 39,464 42,903
-----------------------------------
CASH AND DUE FROM BANKS - end of year ................................ $ 40,973 $ 36,021 $ 39,464
===================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ....................................................... $ 66,710 $ 66,894 $ 61,049
===================================
Income taxes ................................................... $ 10,299 $ 6,405 $ 7,562
===================================
</TABLE>
See notes to consolidated financial statements.
No.0018
<PAGE> 6
Notes To Consolidated
Financial Statements
Note 1. Summary Of Significant Accounting Policies
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of First Western
Bancorp, Inc. ("First Western") and its wholly owned subsidiaries:
First Western Bank, National Association ("First Western Bank, N.A."); First
Western Trust Services Company ("Trust Services"); First Western Investment
Services Company ("Investment Services") and effective February 11, 1997, First
Western Capital Trust I ("Capital Trust"). Capital Trust exists for the sole
purpose of issuing capital securities and investing the proceeds thereof in
junior subordinated debentures issued by First Western. Effective September 5,
1997, First Western Bank, Federal Savings Bank ("First Western Bank, F.S.B.")
was merged into First Western Bank, N.A. All significant intercompany
transactions have been eliminated in consolidation. Investments in subsidiaries
on the parent company financial statements (see Note 24) are carried at the
parent company's equity in the underlying net assets.
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles. In preparing such financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, a disclosure of contingent
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the reporting period. Actual results could differ from those
estimates.
The accompanying consolidated financial statements have been prepared
on the accrual basis, except for trust fees, which are recorded when received.
Reporting of trust fees on an accrual basis would not materially affect net
income. Assets held in an agency or fiduciary capacity by Trust Services for
their customers are not assets of First Western and are not included in the
accompanying consolidated balance sheets.
SECURITIES AVAILABLE FOR SALE
Securities to be held for indefinite periods of time, including securities that
management intends to use as part of its asset/liability strategy, and that may
be sold in response to changes in interest rates, changes in prepayment risk, or
other similar factors are classified as available for sale and are recorded at
market value. Unrealized appreciation or depreciation in market value above or
below amortized cost is included in shareholders' equity, net of income taxes.
Premiums and discounts are amortized to expense and accreted to income over the
life of the securities using a method which approximates the level yield method.
Gains or losses on the sale of securities, if any, are based on the specific
identification method.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES,
HELD TO MATURITY
Investments in debt securities and mortgage-backed securities which management
has the ability and intent to hold to maturity are carried at cost. Premiums and
discounts are amortized to expense and accreted to income over the life of the
securities using a method which approximates the level yield method. Gains or
losses on the sale of investment securities, if any, are based on the specific
identification method.
LOANS HELD FOR SALE
Loans held for sale consist of those loans which management intends to sell
and are carried at the lower of aggregate cost or market value.
LOANS
Interest income is accrued using various methods that result in a level yield on
principal amounts outstanding. Loan origination fees, net of certain related
origination costs, are amortized over the average lives of the related loans.
For commercial and mortgage loans on which interest is more than 90 days past
due, or earlier, when in the opinion of management collection of principal or
interest is doubtful and the loan is not well secured and in the process of
collection, accrual of income is discontinued and any previously accrued and
unpaid interest for the current year is charged against current income, and any
interest accrued and unpaid for prior periods is charged against the allowance
for possible
NO.0019
<PAGE> 7
loan losses. Installment loans are generally charged off between 90 and 120 days
past due or when deemed uncollectible in the opinion of management. Cash
payments received while a loan is classified as nonaccrual are recorded as a
reduction to principal or reported as interest income according to management's
judgment as to the collectibility of principal.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is available to absorb future loan
charge-offs. The allowance is increased by provisions charged to operations and
reduced by losses, net of recoveries. The amount charged to operations is based
on several factors including: (1) analytical reviews of significant commercial
and commercial mortgage loans and loan loss experience in relationship to
outstanding loans to determine an adequate allowance for possible loan losses
required for outstanding loans; (2) a continuing review of loans evaluated by
the loan review process as less than satisfactory, all nonperforming loans and
overall portfolio quality; (3) regular examinations and appraisals of the loan
portfolio conducted by federal supervisory authorities; and (4) management's
judgment with respect to current and expected economic conditions, the level of
delinquencies and nonaccrual loans, trends in the volume and term of loans,
anticipated impact from changes in lending policies and procedures, changes in
lending management, and any concentration of credit in certain industries or
geographic areas. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change. The allowance for possible loan losses related to loans that are
considered to be impaired is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of collateral for certain
collateral-dependent loans.
PREMISES AND EQUIPMENT
Premises and equipment, which are stated at cost less accumulated depreciation
and amortization, are depreciated using the straight-line method over their
estimated useful lives. Leasehold interests and improvements are amortized using
the straight-line method over the lease periods or the estimated useful lives,
whichever is shorter. When units or property are disposed of, the premises and
equipment accounts are relieved of the cost and accumulated depreciation or
amortization related to such units, and any resulting gains or losses are
credited to or charged against income. Cost of repairs and maintenance is
charged to expense as incurred. Major renewals and betterments are capitalized
at cost.
Long-lived assets to be held and those to be disposed of and certain
intangibles are evaluated for impairment using the guidance provided by
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" which was adopted on January 1, 1996. The
provisions of this statement establish when an impairment should be recognized
and how it should be measured. The adoption of this statement did not have a
material impact on First Western's financial position or results of operations.
REAL ESTATE OWNED
Real estate owned, which is included in other assets, consists of properties
acquired by foreclosure. These assets are carried at the lower of cost or
estimated fair value less estimated cost of disposal. Holding costs are charged
to expense when incurred. Any subsequent writedowns, and gains or losses on
property disposition, are charged to other income and expense.
INCOME TAXES
First Western recognizes deferred income taxes for the tax consequences of
temporary differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.
GOODWILL AND OTHER INTANGIBLES
The excess of cost over net tangible assets and identified intangible assets of
acquired branches or subsidiaries is amortized over a period not to exceed 15
years. Core deposit intangibles are amortized on a straight-line basis over the
shorter of the average remaining lives of the acquired deposits or 12 years.
Other identified intangibles are amortized over the benefited periods, not to
exceed 12 years.
MORTGAGE SERVICING RIGHTS
Beginning January 1, 1996, First Western changed its accounting for mortgage
servicing rights to include the capitalization of both originated and purchased
servicing rights under the provisions of Statement No. 122, "Accounting for
Mortgage Servicing Rights" as amended by Statement No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
The total cost of loans originated or purchased is allocated between loans and
servicing rights based on the relative fair values of each. The servicing rights
capitalized are amortized in proportion to and over the period of estimated
servicing income. Management stratifies servicing rights based on origination
period and interest rate and evaluates the recoverability in relation to the
impact of actual and anticipated loan portfolio prepayments, foreclosure, and
delinquency experience. First Western did not have a valuation allowance
associated with the mortgage servicing rights as of December 31, 1997. The
adoption of Statements No. 122 and No. 125 did not have a material impact on
First Western's financial position or results of operations.
No.0020
<PAGE> 8
ADVANCES FROM THE
FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank ("FHLB") include advances with an
original maturity greater than one year. Any borrowings from the FHLB with an
original maturity of one year or less are included with federal funds purchased
and other short-term borrowings.
OFF-BALANCE SHEET INSTRUMENTS
First Western utilizes interest rate swaps to synthetically alter the cash flow
characteristics of certain on-balance sheet liabilities. Interest rate swaps are
designated with the principal balances and terms of specific debt obligations.
These agreements involve the exchange of amounts based on fixed or variable
interest rates for amounts based on variable or fixed interest rates over the
life of the agreement without an exchange of the notional amount upon which the
payments are based. The differential to be paid or received as interest rates
change is accrued and recognized as an adjustment to interest expense. The
related amount payable to or receivable from counterparties is included in other
liabilities or assets. The fair values of the swap agreements are not recognized
in the financial statements. Gains or losses on termination of interest rate
swap agreements are deferred as an adjustment to the carrying amount of the
outstanding liabilities and are amortized as an adjustment to interest expense
over the remaining term of the original contract life of the terminated swap
agreement. In the event of an early extinguishment of a designated debt
obligation, any realized or unrealized gain or loss from the swap would be
recognized in income coincident with the extinguishment.
STOCK OPTIONS
First Western has adopted the disclosure-only provisions of Statement No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for stock
options.
EARNINGS AND DIVIDENDS PER SHARE
Earnings and dividends per share are calculated using the weighted average
number of shares outstanding and common share equivalents. 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 percent stock dividend declared on July 15,
1997 and distributed on August 15, 1997.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings Per Share." Statement No. 128 requires the
presentation of basic and diluted earnings per share. First Western adopted
Statement No. 128 effective December 31, 1997, and all prior period amounts have
been restated to comply with Statement No. 128.
CASH FLOWS STATEMENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which requires businesses to disclose comprehensive income and its
component in their general-purpose financial statements. This statement requires
the reporting of all items of comprehensive income in a financial statement that
is displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15, 1997, with
reclassification of comparative financial statements and is applicable to
interim periods. Management is in the process of evaluating the impact of this
statement on First Western's financial statements.
In June 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which is effective for
financial statements for periods beginning after December 15, 1997. Statement
No. 131 redefines how operating segments are determined and requires disclosure
of certain financial and descriptive information about a company's operating
segments. Management is in the process of evaluating the impact of this
statement on First Western's financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the years ended December 31, 1996 and 1995 to conform with the
1997 presentation.
No.0021
<PAGE> 9
Note 2. Securities Available for Sale
- --------------------------------------------------------------------------------
At December 31, 1997 and 1996, the cost and market values of securities
classified as available for sale were as follows (in thousands):
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
GROSS
-----------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 7,745 $ 41 $ -- $ 7,786
U.S. government agencies and corporations... 92,100 555 (65) 92,590
Mortgage-backed securities ................. 161,509 1,879 (62) 163,326
Other securities ........................... 54,792 6,048 (21) 60,819
----------------------------------------------------------
$316,146 $ 8,523 $ (148) $324,521
==========================================================
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
GROSS
-----------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities ................... $ 2,049 $ 19 $ -- $ 2,068
U.S. government agencies and corporations... 79,645 5 (399) 79,251
Mortgage-backed securities ................. 102,436 550 (570) 102,416
Other securities ........................... 15,792 1,766 (11) 17,547
--------------------------------------------------------
$199,922 $ 2,340 $ (980) $201,282
========================================================
</TABLE>
Securities available for sale with market values of $147,216,000 and
$174,712,000 at December 31, 1997 and 1996, respectively, were pledged to secure
public and trust deposits, securities sold under agreements to repurchase and
other short-term borrowings and for other purposes.
The cost and market value of securities available for sale at December 31,
1997, by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties (in thousands):
Sales of securities available for sale during 1997, 1996 and 1995 were
$18,522,000, $116,040,000 and $157,793,000, respectively. Gross gains of
$284,000, $1,744,000 and $2,290,000 and gross losses of $8,000, $760,000 and
$735,000 were realized on those sales during 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------------------
<S> <C> <C>
Due in one year or less ................. $ 62,922 $ 62,981
Due after one year through five years.... 47,635 48,179
Due after five years through ten years... 6,407 6,403
Due after ten years ..................... 37,673 43,632
------------------------
154,637 161,195
Mortgage-backed securities .............. 161,509 163,326
------------------------
$316,146 $324,521
========================
</TABLE>
No.0022
<PAGE> 10
Note 3. Investment Securities and Mortgage-Backed Securities,
Held to Maturity
- --------------------------------------------------------------------------------
At December 31, 1997 and 1996, the carrying and market values of investment
securities and mortgage-backed securities held to maturity were as follows (in
thousands):
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
GROSS
---------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations... $ 14,154 $ -- $ (60) $ 14,094
States and political subdivisions .......... 85,247 1,208 (10) 86,445
Other securities ........................... 750 -- -- 750
----------------------------------------------------------
$100,151 $ 1,208 $ (70) $101,289
==========================================================
Mortgage-backed securities ................. $132,673 $ 569 $ (1,300) $131,942
==========================================================
Total ...................................... $232,824 $ 1,777 $ (1,370) $233,231
==========================================================
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
GROSS
---------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations... $ 21,051 $ -- $ (269) $ 20,782
States and political subdivisions .......... 85,341 884 (252) 85,973
Other securities ........................... 700 -- -- 700
----------------------------------------------------------
$107,092 $ 884 $ (521) $107,455
==========================================================
Mortgage-backed securities ................. $169,467 $ 125 $ (2,407) $167,185
==========================================================
Total ...................................... $276,559 $ 1,009 $ (2,928) $274,640
==========================================================
</TABLE>
Investment securities and mortgage-backed securities with an amortized cost of
$92,277,000 and $158,614,000 at December 31, 1997 and 1996, respectively, were
pledged to secure public and trust deposits, securities sold under agreements to
repurchase and other short-term borrowings and for other purposes.
The carrying value and market value of investment securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties (in
thousands):
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------------------------
<S> <C> <C>
Due in one year or less ................. $ 33,597 $ 33,716
Due after one year through five years.... 59,907 60,697
Due after five years through ten years... 6,189 6,332
Due after ten years ..................... 458 544
------------------------
100,151 101,289
Mortgage-backed securities .............. 132,673 131,942
------------------------
$232,824 $233,231
========================
</TABLE>
There were no sales of investment securities or mortgage-backed securities held
to maturity during 1997, 1996 or 1995.
No.0023
<PAGE> 11
Note 4. Loans
- --------------------------------------------------------------------------------
Loans at December 31, 1997 and 1996 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Commercial, financial and agricultural.... $ 141,989 $ 121,410
Real estate:
Construction ........................... 14,450 16,289
Mortgage ............................... 606,042 575,158
Installment loans to individuals ......... 322,828 311,917
----------------------------
1,085,309 1,024,774
Less unearned income ..................... 38,946 34,864
----------------------------
$1,046,363 $ 989,910
============================
</TABLE>
First Western's bank subsidiary grants commercial, residential and installment
loans to its customers, primarily within the western Pennsylvania and
northeastern Ohio regions, with no significant concentrations of credit risk
within any specific industry. The bank subsidiary's loan portfolio is
diversified; however, a substantial portion of its debtors' ability to honor
their obligations is dependent upon the economy within the western Pennsylvania
and northeastern Ohio regions. The total loans serviced for others was $176.1
million and $144.7 million at December 31, 1997 and 1996, respectively.
In the normal course of business, loans are extended to directors and
executive officers and their associates. All of these loans are on substantially
the same terms as loans to other individuals and businesses of comparable
creditworthiness. A summary of loan activity for those directors and executive
officers and their associates with loan balances in excess of $60,000 for the
year ended December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AMOUNTS BALANCE
AT COLLECTED AT
JAN. 1 AND OTHER DEC. 31,
1997 ADDITIONS CHANGES 1997
-----------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------------------
$ 16,883 $ 1,550 $ 3,712 $ 14,721
===========================================================
</TABLE>
Note 5. Allowance for Possible Loan Losses
- --------------------------------------------------------------------------------
Transactions in the allowance for possible loan losses are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Balance at beginning of year ............... $ 16,054 $ 14,148 $12,943
Provision for possible loan losses ....... 4,836 8,288 3,982
Recoveries on loans previously charged-off 1,108 674 290
--------------------------------------
21,998 23,110 17,215
Less loans charged-off ................... 3,921 7,056 3,067
--------------------------------------
Balance at end of year ..................... $ 18,077 $16,054 $14,148
======================================
</TABLE>
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended, requires an allowance to be established as a component of the allowance
for possible loan losses for certain loans when it is probable that all amounts
due pursuant to contractual terms of the loan will not be collected and the
recorded investment in the loan exceeds the fair value. Management reviews the
impairment status of all loans designated as nonaccrual or which have been
classified as "substandard" or "doubtful" by First Western's loan review
process. Management does not individually evaluate certain smaller balance,
homogeneous loans, such as consumer installment loans and residential mortgage
loans, for impairment. These loans are evaluated on an aggregate basis using a
formula-based approach in accordance with First Western's policy. All of the
loans deemed to be impaired were evaluated using the fair value of the
collateral as the measurement standard.
The following table presents First Western's investment in loans considered
to be impaired and related information on those impaired loans (in thousands):
No.0024
<PAGE> 12
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-----------------
<S> <C> <C>
Recorded investment in loans considered to be impaired ......................... $3,276 $3,859
Loans considered to be impaired that were on a nonaccrual basis ................ 162 1,820
Allowance for possible loan losses related to loans considered to be impaired... 757 1,090
Average recorded investment in impaired loans .................................. 3,328 4,025
Total interest income recognized on impaired loans ............................. 298 239
Interest income on impaired loans recognized on a cash basis ................... 9 32
</TABLE>
Note 6. Premises and Equipment
- --------------------------------------------------------------------------------
Premises and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------------------
<S> <C> <C>
Land ........................................... $ 1,954 $ 1,946
Buildings ...................................... 20,573 19,871
Leasehold interests and improvements ........... 2,249 1,824
Furniture and fixtures ......................... 15,996 13,816
-------------------
40,772 37,457
Less accumulated depreciation and amortization.. 19,776 17,958
-------------------
$20,996 $19,499
===================
</TABLE>
Provisions for depreciation and amortization charged to other expenses were
$2,312,000, $2,205,000 and $2,244,000 for 1997, 1996 and 1995, respectively.
Note 7. Other Assets
- --------------------------------------------------------------------------------
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
-------------------
<S> <C> <C>
Accrued interest receivable ........................... $ 9,890 $ 9,626
Intangible assets, primarily core deposit intangibles.. 9,280 6,855
Net deferred tax benefit .............................. 2,172 4,264
Other real estate owned ............................... 382 471
Other ................................................. 3,077 3,660
-------------------
$24,801 $24,876
===================
</TABLE>
Note 8. Deposits
- --------------------------------------------------------------------------------
Time deposits include certificates of deposit issued in denominations of
$100,000 or more, which amounted to $92,108,000 and $86,797,000 at December 31,
1997 and 1996, respectively. Interest expense on these certificates was
$5,375,000, $3,898,000 and $3,426,000 for 1997, 1996 and 1995, respectively.
At December 31, 1997, the scheduled maturities of certificates of deposit
are as follows (in thousands):
<TABLE>
<C> <C>
1998................................. $469,302
1999................................. 156,989
2000................................. 28,270
2001................................. 4,708
2002 and thereafter.................. 8,515
--------
$667,784
========
</TABLE>
No.0025
<PAGE> 13
Note 9. Repurchase Agreements and Secured Lines of Credit
- --------------------------------------------------------------------------------
First Western's subsidiaries have repurchase agreements with various wholesale
funding sources and certain retail customers. First Western's liability for
repurchase agreements and secured lines of credit is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
REMAINING MATURITY AMOUNT RATE AMOUNT RATE
----------------------------------------------------
<S> <C> <C> <C> <C>
Next business day .............. $ 7,356 5.88% $ 5,180 4.62%
Two to 30 days ................. -- -- 9,400 5.01
31 days to 90 days ............. 32,050 5.21 39,475 5.96
91 days to one year ............ 18,650 5.93 94,215 5.71
Over one year .................. 63,700 6.02 63,800 5.70
----------------------------------------------------
$121,756 5.79% $212,070 5.70%
====================================================
</TABLE>
First Western's repurchase agreements and secured lines of credit are secured by
U.S. Treasury securities, securities issued by U.S. government agencies and
corporations, mortgage-backed securities and securities issued by states and
political subdivisions.
Note 10. Advances from the Federal Home Loan Bank
- --------------------------------------------------------------------------------
Advances from the FHLB with original maturities greater than one year mature as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
----------------------------------------------------
<C> <C> <C> <C> <C>
1997............................ $ -- -- $ 55,000 5.64%
1998............................ 74,000 5.96% 74,000 5.89
1999............................ 15,000 5.15 15,000 5.15
2000............................ 30,000 5.78 -- --
2002............................ 37,000 5.56 -- --
----------------------------------------------------
$156,000 5.75% $144,000 5.72%
====================================================
</TABLE>
Advances from the FHLB are secured by stock in the FHLB of Pittsburgh,
qualifying residential first mortgage loans, mortgage-backed securities, certain
investment securities and securities available for sale. Certain of these
advances are subject to restrictions or penalties in the event of prepayment.
No.0026
<PAGE> 14
Note 11. Long-Term Debt
- --------------------------------------------------------------------------------
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------------------
<S> <C> <C>
Term loan payable to bank, due in quarterly installments of $390,000 bearing
interest at either the bank's variable prime rate or the bank's fully absorbed
cost of funds rate plus 1.25% or the bank's Eurodollar rate plus 1.25% as
selected by First Western at various intervals. At December 31, 1997, the
interest rate was 7.32%......................................................... $ 3,508 $ 5,067
Term loan payable to bank by First Western Employee Stock Ownership Trust used
to purchase 40,000 shares of First Western stock (before stock dividends),
guaranteed by First Western, bearing interest at the bank's variable prime
interest rate, payable quarterly by the Employee Stock Ownership Trust with
principal due in annual installments of $150,000. At December 31, 1997, the
interest rate was 8.50%......................................................... 750 900
---------------------
$ 4,258 $ 5,967
=====================
</TABLE>
Principal repayments are scheduled as follows: $1,709,000 for 1998, $1,709,000
for 1999, $540,000 for 2000, $150,000 for 2001 and $150,000 for 2002. Certain
long-term debt instruments contain financial covenants which, among other
things, include limitations on certain types of indebtedness, dividends to First
Western shareholders (limited to $11,041,000 at December 31, 1997), and
maintenance of certain levels or ratios of net worth, investments in
subsidiaries, non-performing assets and interest expense coverage. First Western
was in compliance with all such covenants at December 31, 1997.
Note 12. Income Taxes
- --------------------------------------------------------------------------------
Income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Income exclusive of securities gains .............................. $8,725 $5,960 $6,682
Net securities gains .............................................. 97 344 544
-----------------------------------
$8,822 $6,304 $7,226
===================================
</TABLE>
The income tax provision consists of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Taxes currently payable ......................................... $8,388 $8,397 $7,519
Deferred tax liability (benefit) ................................ 434 (2,093) (293)
-------------------------------------
$8,822 $6,304 $7,226
=====================================
</TABLE>
The deferred tax liability (benefit) results from temporary differences in the
recognition of revenue and expense for tax and financial statement purposes. The
source of these differences and the tax effect of each are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
-----------------------------------
<S> <C> <C> <C>
Unrealized loss on sale of mortgage loans ....................... $ 1,017 $(1,017) $ --
Provision for possible loan losses .............................. (708) (667) (381)
Deferred loan origination fees .................................. 186 624 220
Settlement of tax audit ......................................... -- (500) --
Termination costs relating to credit card sale .................. 225 (276) --
Other ........................................................... (286) (257) (132)
-----------------------------------
$ 434 $(2,093) $(293)
===================================
</TABLE>
No.0027
<PAGE> 15
The reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
----------------------------
<S> <C> <C> <C>
Tax at statutory rate .................................................. 35.0% 35.0% 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest on investment securities and loans .............. (4.9) (6.3) (5.9)
State income taxes, net of federal benefit .......................... 0.6 0.2 1.1
Settlement of tax audit ............................................. -- (2.1) --
Other, net .......................................................... (0.4) 0.1 (0.1)
----------------------------
Effective tax rate ..................................................... 30.3% 26.9% 30.1%
============================
</TABLE>
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The tax effects of significant
items comprising First Western's net deferred tax asset as of December 31, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses .................................. $5,601 $4,893
Unrealized loss on sale of mortgage loans ........................... -- 1,017
Intangible assets ................................................... 919 763
Employee benefit plans .............................................. 578 521
Deferred directors' fees ............................................ 406 401
Other ............................................................... 507 134
--------------------
Total deferred tax assets ..................................... 8,011 7,729
--------------------
Deferred tax liabilities:
Purchase accounting adjustments ..................................... 1,108 1,395
Unrealized appreciation in securities available for sale ............ 2,931 476
Difference between book and tax basis of property ................... 464 379
Loan origination fees ............................................... 1,336 1,215
--------------------
Total deferred tax liabilities ................................ 5,839 3,465
--------------------
Net deferred tax assets ....................................... $2,172 $4,264
====================
</TABLE>
Note 13. Employee Benefit Plans
- --------------------------------------------------------------------------------
Pension benefits
First Western has a noncontributory qualified defined benefit pension plan (the
"Plan") that covers substantially all full-time employees. Pension benefits are
based on a formula taking into consideration an employee's vesting status,
compensation and years of service. First Western's funding policy is to make
annual contributions to the Plan based upon the funding formula developed by the
Plan's actuary. The formula used by the Plan is the Frozen Initial Liability
Method. The minimum funding commitments for 1997, 1996 and 1995 were $326,000,
$0 and $599,000, respectively.
A summary of the components of net periodic pension expense for the Plan
for 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
<S> <C> <C> <C>
Service cost ........................................................ $ 544 $ 535 $ 370
Interest cost ....................................................... 988 916 867
Actual return on plan assets ........................................ (2,463) (1,186) (2,240)
Net amortization of transition assets and prior
service cost and deferral of net asset loss or gain .............. 1,246 14 1,256
--------------------------------------
Net periodic pension expense ........................................ $ 315 $ 279 $ 253
======================================
</TABLE>
The assumptions used in calculating the year-end liability for the Plan are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------------------
<S> <C> <C>
Weighted average discount rate ............................................... 7.00% 7.50%
Weighted average rate of return .............................................. 8.50% 8.50%
Expected increase in compensation levels ..................................... 5.25% 5.25%
</TABLE>
No.0028
<PAGE> 16
The actuarial present values of accumulated benefit obligations at December 31,
1997 and 1996 were $12,208,000 and $10,699,000, respectively, including vested
benefit obligations of $11,764,000 and $10,280,000. The following table sets
forth the funded status and amounts recognized in the consolidated balance
sheets at December 31, 1997 and 1996 for the Plan (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------
<S> <C> <C>
Plan assets at fair value, consisting primarily of
U.S. Treasury, government agency and corporation
debt securities, and equity securities ................................ $ 15,944 $ 13,780
Projected benefit obligation ............................................. (15,596) (13,257)
----------------------
Plan assets in excess of projected
benefit obligation .................................................... 348 523
Items not yet recognized:
Net asset existing at transition and for prior
service costs ....................................................... (576) (651)
Unrecognized net loss .................................................. 424 313
----------------------
Prepaid expense for plan recognized in consolidated
balance sheets ........................................................ $ 196 $ 185
======================
</TABLE>
As part of a restructuring program, First Western amended the pension plan in
1992 to provide special retirement benefits under an early retirement window
program and a supplemental plan (the "Unfunded Plan"). The Unfunded Plan also
includes a special defined benefit plan arrangement that was made for an
executive officer during 1997. First Western makes contributions to the Unfunded
Plan to the extent necessary to make the benefit payments to the participants.
A summary of the components of net periodic pension expense for the
Unfunded Plan for 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------
<S> <C> <C> <C>
Service cost ............................................ $-- $-- $ 1
Interest cost ........................................... 53 55 62
Amortization of loss .................................... 2 5 --
------------------------
Net periodic pension expense ............................ $55 $60 $63
========================
</TABLE>
The pension liability for the Unfunded Plan was calculated using a discount rate
of 7.00% and 7.50% for December 31, 1997 and 1996, respectively.
The actuarial present values of accumulated benefit obligations of the
Unfunded Plan at December 31, 1997 and 1996 were $750,000 and $754,000,
respectively, including vested benefit obligations of $741,000 and $754,000. The
following table sets forth the funded status and amounts recognized in the
consolidated balance sheets at December 31, 1997 and 1996 for the Unfunded Plan
(in thousands):
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
Plan assets at fair value ................................... $ -- $ --
Projected benefit obligation ................................ (753) (754)
--------------------
Projected benefit obligation in excess of plan assets ....... (753) (754)
Unrecognized prior service cost ............................. 12 --
Unrecognized net loss ....................................... 147 --
Adjustment to recognize minimum liability ................... (156) --
--------------------
Accrued pension expense for the Unfunded Plan
recognized in consolidated balance sheets ............... $(750) $(754)
====================
</TABLE>
No.0029
<PAGE> 17
Postretirement benefits
other than pensions
First Western provides health care benefits for a certain group of retirees and
life insurance for substantially all of its retired employees. The following
table sets forth the health care and life insurance plans' funded status at
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees ............................................ $ (759) $ (790)
Fully eligible plan participants .................... (63) (36)
Other active plan participants ...................... (189) (146)
-----------------------
Accumulated postretirement benefit obligation .......... (1,011) (972)
Unrecognized transition obligation ..................... 387 464
Unrecognized prior service cost ........................ (225) (242)
Unrecognized net gain .................................. (280) (383)
-----------------------
Accrued postretirement benefit cost .................... $(1,129) $(1,133)
=======================
</TABLE>
Net postretirement benefit cost for 1997, 1996 and 1995 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------
<S> <C> <C> <C>
Service cost-benefits earned during year ................. $ 21 $ 20 $ 13
Interest cost on accumulated postretirement
benefit obligation ..................................... 70 74 98
Amortization of transition obligation .................... 77 77 77
Amortization of prior service cost ....................... (17) (17) (17)
Amortization of net gain ................................. (22) (5) --
-----------------------------
Net postretirement benefit cost .......................... $ 129 $ 149 $ 171
=============================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 6.6% for 1998 and is expected to decrease
linearly each successive year until it reaches 5% in 2002. As of December 31,
1997, a one percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
by approximately 2.8% and the net periodic postretirement health care cost for
the year ended December 31, 1997 by approximately 2.1%. The December 31, 1997
and 1996 postretirement benefit liabilities were calculated using discount rates
of 7.00% and 7.50%, respectively.
Other benefit plans
First Western also has a 401(k) Profit-Sharing and Stock Bonus Plan.
Contributions to the plan are made annually at the discretion of First Western's
Board of Directors and amounted to $1,164,000, $937,000 and $960,000 for 1997,
1996 and 1995, respectively.
During 1996, the Employee Stock Ownership Plan (the "ESOP") acquired
60,000 shares (adjusted for stock dividends) of First Western common stock with
a loan of $1,050,000 from an unrelated bank. This loan is to be repaid in seven
annual installments of $150,000 beginning in December 1996. A total of 8,571
shares were allocated to plan participants in both 1997 and 1996 in accordance
with the terms of the plan. First Western allocated 4,109 shares, restated for
stock splits, to plan participants in 1995 as a result of the final payment on a
prior ESOP loan. Distributions are made upon an employee's retirement, death or
termination, subject to a plan-provided vesting schedule. For financial
reporting purposes, the ESOP loans and the related shares have been reflected on
First Western's consolidated balance sheets to the extent of the unpaid loan
balance.
No.0030
<PAGE> 18
Note 14. Stock Option Plan
- --------------------------------------------------------------------------------
On January 21, 1991, First Western's Board of Directors adopted an Incentive
Stock Option Plan for Key Officers (the "ISO Plan"). Under the ISO Plan and an
amendment approved by the shareholders at the April 18, 1995 annual meeting,
802,994 shares of common stock have been reserved for issuance. The Board's
Compensation Committee initially authorized options for 306,981 shares to be
granted to certain key employees, at an option price equal to the fair market
value of First Western's common stock on the date of grant, January 21, 1991.
The options granted generally become exercisable between two and seven years
from the date of grant, and are intended to qualify as incentive stock options
under Section 422 of the Internal Revenue Code of 1986, as amended. On January
16, 1995, First Western's Board of Director's Compensation Committee authorized
options for 225,000 shares to be granted to certain key employees at an option
price of $13.33 per share which was greater than the fair market value of First
Western's common stock on the date of the grant. The options must be exercised
within ten years, and generally become exercisable between six months and three
years. Options for 157,500 shares are intended to qualify as incentive stock
options, and options for 67,500 shares are considered non-qualified and are not
meant to qualify as incentive stock options. On November 4, 1996, options to
purchase 22,500 shares of common stock were issued at an option price equal to
the fair market value of First Western's common stock on the date of the grant.
On April 15, 1997, options to purchase 46,950 shares of common stock were issued
at an option price equal to the fair market value of First Western's common
stock on the date of the grant. The total shares reserved for issuance, options
granted and the option price per share have been adjusted for subsequent stock
dividends in accordance with terms of the ISO Plan. The ISO Plan has a life of
ten years during which time the options must be granted. Options previously
granted must be exercised within ten years of date of grant. The changes in
options outstanding during 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1 .............. 373,237 $10.14 378,490 $ 9.75 203,122 $ 4.50
Granted ............................. 46,950 21.33 22,500 17.75 225,000 13.33
Exercised ........................... (28,736) 6.58 (27,303) 11.03 (49,632) 4.50
Cancelled ........................... -- -- (450) 13.33 -- --
--------------------------------------------------------------
Outstanding, December 31 ............ 391,451 $11.74 373,237 $ 10.14 378,490 $ 9.75
==============================================================
Exercisable, December 31 ............ 320,551 $ 9.99 297,506 $ 9.54 202,856 $10.90
==============================================================
Available for Grant, December 31..... 313,269 360,219 382,269
==============================================================
Weighted average fair value of
options granted during the year... $ 5.05 $ 3.87 $ 2.52
==============================================================
</TABLE>
No.0031
<PAGE> 19
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE
--------------------------------------- -------------------
WEIGHTED
RANGE AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.50 124,376 3.1 years $ 4.50 124,376 $ 4.50
13.33 197,625 7.1 13.33 190,268 13.33
17.75 22,500 8.9 17.75 5,400 17.75
21.33 46,950 9.3 21.33 507 21.33
- --------------------------------------------------------------------------------
$4.50 to $21.33 391,451 6.2 $11.74 320,551 $ 9.99
================================================================================
</TABLE>
First Western has adopted the disclosure-only provisions of Statement No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for the ISO Plan.
If First Western had elected to recognize compensation cost for the ISO Plan
based on the fair value at the grant dates for awards under the ISO Plan,
consistent with the method prescribed by Statement No. 123, net income and
earnings per share would have been changed to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Net income (in thousands):
As reported ................. $ 20,282 $ 17,127 $ 16,746
Pro forma ................... 20,135 17,019 16,376
Basic earnings per share:
As reported ................. $ 1.80 $ 1.49 $ 1.44
Pro forma ................... 1.79 1.48 1.41
Diluted earnings per share:
As reported ................. $ 1.77 $ 1.47 $ 1.42
Pro forma ................... 1.76 1.46 1.39
</TABLE>
The fair value of First Western's stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at the
grant date using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
------------------------------------
<S> <C> <C> <C>
Dividend yield .................... 2.5% 3.0% 3.0%
Expected volatility ............... 19.6 21.0 21.0
Discount rate ..................... 6.8 6.2 7.6
Expected holding period in years... 5 5 5
</TABLE>
The fair value of stock options, calculated using the Black-Scholes option
pricing model, granted during 1997, 1996 and 1995 were $237,000, $87,000 and
$567,000, respectively.
No.0032
<PAGE> 20
Note 15. Commitments and Contingent Liabilities
- --------------------------------------------------------------------------------
In the normal course of business, there are various outstanding commitments to
extend credit and standby letters of credit which are not reflected in the
accompanying consolidated financial statements. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Standby letters of credit are conditional
commitments issued by First Western to guarantee the performance of a customer
to a third party. First Western uses the same credit policies in making
commitments as it does for on-balance sheet instruments. Firm commitments to
extend credit at December 31, 1997 of $225,921,000 consist of commercial,
mortgage and other commitments of $169,154,000 and home equity lines of credit
of $56,767,000. Standby letters of credit at December 31, 1997 totaled
$5,546,000. Credit-related financial instruments have off-balance sheet credit
risk, because only origination fees (if any) are recognized in the consolidated
balance sheet for these instruments until the commitments are fulfilled or
expire. The credit risk involved in issuing guarantees and letters of credit is
essentially the same as that involved in extending loans to customers. The
credit risk amounts are equal to the notional amounts of the contracts,
assuming, in accordance with the requirements of FASB Statement No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentrations of Credit Risk," that
counterparties fail completely to meet their obligations and the collateral or
other security is of no value. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total contract
amounts do not necessarily represent future cash requirements. First Western's
credit loss risk in the event of a borrower's inability to repay loans funded
under commitments is represented by the contractual amount. These commitments
represent the possibility of additional credit risk; however, management
believes that no material losses, beyond its current evaluation of such in
determining the adequacy of the allowance for possible loan losses, will occur
as a result of these transactions.
First Western's obligation for future minimum lease payments on operating
leases at December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
FUTURE MINIMUM LEASE PAYMENTS
- --------------------------------------------------
<S> <C>
1998........................................ $486
1999........................................ 464
2000........................................ 424
2001........................................ 382
2002........................................ 313
</TABLE>
In the normal course of business, First Western is involved in several legal
proceedings. Management believes that the liability, if any, from such
proceedings will not have a material adverse effect on the consolidated
financial statements of First Western.
Note 16. Regulatory Restrictions
- --------------------------------------------------------------------------------
First Western is a legal entity separate and distinct from its subsidiaries and
there are various legal and regulatory limitations concerning the extent to
which certain of these subsidiaries can finance or otherwise provide funds to
First Western.
Certain restrictions exist regarding the ability of certain of the
subsidiaries to pay dividends to First Western, which are the primary source of
First Western's revenues, in addition to management and service fees. Under
national banking regulations, as promulgated by the Office of the Comptroller of
the Currency ("OCC"), First Western Bank, N.A., an OCC-supervised bank, may make
payments of dividends without obtaining prior regulatory approval, if the total
of all dividends declared by the bank's Board of Directors in a calendar year
does not exceed the total of such bank's net profit for that year combined with
its retained net profits for the two preceding calendar years less any required
transfer to surplus. Under OCC regulations, the total capital available for
payment of dividends from First Western Bank, N.A. was approximately $9,879,000
at December 31, 1997.
The OCC has the power to prohibit any act, including the payment of
dividends, if, in their opinion, such act would constitute an unsafe or unsound
banking practice.
No.0033
<PAGE> 21
First Western and its banking subsidiary are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on First Western's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, First Western and its banking subsidiary must meet specific
capital guidelines that involve quantitative measures of assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. First Western's capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require First Western and its banking subsidiary to maintain minimum
amounts and ratios (set forth in the table below) of total and Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1997, that First Western and its banking subsidiary meet all
capital adequacy requirements to which they are subject.
As of December 31, 1997 and 1996, First Western and its subsidiaries
were considered to be well-capitalized under the regulatory framework for prompt
corrective action. The pending acquisition of 16 branches from PNC Bank (see
Note 23 - Subsequent Event) 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 total
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. Except for the pending branch acquisition, there are
no conditions or events since that notification that management believes have
changed First Western's category.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
-----------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital to Risk-Weighted Assets:
Consolidated ...................... 161,632 14.85% 87,060 8.00% N/A N/A
First Western Bank, N.A ........... 126,863 12.00% 84,593 8.00% 105,742 10.00%
Tier I Capital to Risk-Weighted Assets:
Consolidated ...................... 147,974 13.60% 43,530 4.00% N/A N/A
First Western Bank, N.A ........... 113,586 10.74% 42,297 4.00% 63,445 6.00%
Tier I Capital to Average Assets:
Consolidated ...................... 147,974 8.73% 50,859 3.00% N/A N/A
First Western Bank, N.A ........... 113,586 6.84% 49,806 3.00% 83,011 5.00%
AS OF DECEMBER 31, 1996
Total Capital to Risk-Weighted Assets:
Consolidated ...................... 133,452 12.68% 84,186 8.00% N/A N/A
First Western Bank, N.A ........... 128,773 12.32% 83,611 8.00% 104,513 10.00%
Tier I Capital to Risk-Weighted Assets:
Consolidated ...................... 120,262 11.43% 42,093 4.00% N/A N/A
First Western Bank, N.A ........... 115,694 11.07% 41,805 4.00% 62,708 6.00%
Tier I Capital to Average Assets:
Consolidated ...................... 120,262 7.10% 50,793 3.00% N/A N/A
First Western Bank, N.A ........... 115,694 6.88% 50,467 3.00% 84,112 5.00%
</TABLE>
First Western's banking subsidiary is also subject to certain restrictions
imposed by federal law on extensions of credit and certain other transactions
with First Western, including borrowing from this subsidiary unless the loans
are both well-secured and limited in amount to no more than 10% of the lending
subsidiary's capital and surplus. The banking subsidiary is also required to
maintain average reserve balances with the district Federal Reserve Bank. The
average amount of these balances was approximately $3,500,000 and $7,552,000 for
the years ended December 31, 1997 and 1996, respectively.
No.0034
<PAGE> 22
Note 17. Supplemental Schedules of Noncash Activities
- --------------------------------------------------------------------------------
Noncash activities for the years ended December 31, 1997, 1996 and 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Supplemental schedule of noncash investing activity:
Securities purchased settling after year end .......... $ 1,299 $ 7 $ 37,062
=================================
Transfer of investment securities and mortgage-
backed securities to securities available for sale.. $ -- $ -- $ 49,160
=================================
Transfer of loans to other real estate owned .......... $ 1,130 $ 1,233 $ 364
=================================
Transfer of loans to loans held for sale .............. $34,036 $154,935 $ --
=================================
Securitization of loans ............................... $ -- $ -- $113,732
=================================
Net change in unrealized appreciation
(depreciation) in securities available for sale .... $ 7,015 $ (2,474) $ 7,206
=================================
Supplemental schedule of noncash financing activity:
Deposits assumed in branch acquisition ................ $37,296 $ -- $ 96,681
=================================
Deposits sold in branch dispositions .................. $15,363 $ -- $ --
=================================
Issuance of common stock, at par, for a
50% stock dividend ................................. $19,635 $ -- $ 13,004
=================================
</TABLE>
Note 18. Fair Values of Financial Instruments
- --------------------------------------------------------------------------------
The fair values of First Western's financial instruments as of December 31, 1997
and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks ......................... $ 40,973 $ 40,973 $ 36,021 $ 36,021
Interest-bearing deposits in other banks ........ 6,836 6,836 1,770 1,770
Federal funds sold .............................. -- -- 37,400 37,400
Securities available for sale ................... 324,521 324,521 201,282 201,282
Investment securities, held to maturity ......... 100,151 101,289 107,092 107,455
Mortgage-backed securities, held to maturity .... 132,673 131,942 169,467 167,185
Loans held for sale ............................. 39,840 40,332 124,515 129,713
Loans ........................................... 1,041,263 1,033,991 983,336 965,692
Bank-owned life insurance ....................... 25,000 25,000 -- --
Liabilities:
Demand and savings deposits ..................... 524,555 524,555 476,641 476,641
Time deposits ................................... 667,784 670,562 672,262 679,348
Federal funds purchased and
other short-term borrowings ................... 81,773 81,773 33,202 33,202
Repurchase agreements and secured lines
of credit ..................................... 121,756 122,330 212,070 212,014
Advances from the Federal Home Loan Bank ........ 156,000 154,702 144,000 143,863
Long-term debt .................................. 4,258 4,258 5,967 5,967
Corporation-obligated mandatorily redeemable
capital securities of subsidiary trust holding
solely junior subordinated debentures of the
Corporation .................................. $ 23,837 $27,375 -- --
Off-balance sheet instruments:
Interest rate swaps ............................. -- (33) -- (93)
</TABLE>
The estimated fair value amounts have been determined by First Western using
available market information and appropriate valuation methodologies. However,
judgment is required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts First Western could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
No.0035
<PAGE> 23
CASH AND DUE FROM BANKS
For cash and due from banks, the carrying amount is the
estimated fair value.
INTEREST-BEARING DEPOSITS IN
OTHER BANKS AND FEDERAL FUNDS SOLD
For interest-bearing deposits in other banks and federal funds sold, the
carrying amount is the estimated fair value.
SECURITIES AVAILABLE FOR SALE,
INVESTMENT SECURITIES AND
MORTGAGE-BACKED SECURITIES,
HELD TO MATURITY
Fair values for investment securities, mortgage-backed securities and securities
available for sale are based on quoted market prices or dealer quotes. If a
quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
LOANS HELD FOR SALE
Fair values for loans held for sale are based on quoted market prices.
LOANS
For certain homogeneous categories of loans, such as some residential mortgages
and other consumer loans, fair value is estimated using the quoted market prices
for securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. It was not practicable to estimate fair value of
nonperforming loans of approximately $5.1 million and $6.6 million in First
Western's portfolio at December 31, 1997 and 1996, respectively, because it is
not practicable to reasonably assess the credit adjustment that would be applied
in the marketplace for such loans. Interest rates on such loans approximate
current lending rates.
BANK-OWNED LIFE INSURANCE
For bank-owned life insurance, the carrying amount is the cash surrender value
of the policies and the carrying value is also the estimated fair value.
DEMAND AND SAVINGS DEPOSITS
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. No disclosure of the
relationship value of First Western's deposits is required. Management believes
the relationship value of these deposits is significant based upon the
historical stable core deposit base and limited secondary market transactions,
but has made no attempt to estimate this value.
TIME DEPOSITS
The fair value of fixed-maturity certificates of deposit is estimated using the
rates currently offered for deposits of similar remaining maturities.
REPURCHASE AGREEMENTS, SECURED
LINES OF CREDIT, ADVANCES FROM
THE FEDERAL HOME LOAN BANK,
LONG-TERM DEBT AND CORPORATION-
OBLIGATED MANDATORILY REDEEMABLE
CAPITAL SECURITIES OF SUBSIDIARY
TRUST HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE CORPORATION
Rates currently available to First Western for borrowings with similar terms and
remaining maturities are used to estimate the fair values of existing
borrowings.
OFF-BALANCE SHEET COMMITMENTS
TO EXTEND CREDIT AND STANDBY
LETTERS OF CREDIT
The fair value of off-balance sheet commitments to extend credit and standby
letters of credit is estimated to equal the outstanding commitment amount.
Management does not believe it is meaningful to provide an estimate of fair
value that differs from the outstanding commitment amount as a result of the
uncertainties involved in attempting to assess the likelihood and timing of the
commitment being drawn upon, coupled with the lack of an established market and
a wide diversity of fee structures.
OFF-BALANCE SHEET INSTRUMENTS
The fair values of interest rate swaps are based on pricing models using current
interest rate and maturity assumptions.
Note 19. Off-Balance Sheet Instruments
- --------------------------------------------------------------------------------
First Western uses interest rate swaps to help manage its exposure to changes in
interest rates. The interest rate swaps were purchased by First Western to
synthetically convert certain adjustable rate borrowings to fixed rates. The
summary information with respect to First Western's interest rate swaps at
December 31, 1997 and 1996 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Notional amount ......................... $ 30,000 $ 30,000
Unrealized gains ........................ 9 27
Unrealized losses ....................... (42) (120)
Weighted average receive variable rate... 5.86% 5.68%
Weighted average pay fixed rate ......... 6.14% 6.14%
Life (years) ............................ 0.7 1.7
</TABLE>
No.0036
<PAGE> 24
Note 20. Branch Office Purchases and Sales
- --------------------------------------------------------------------------------
On September 19, 1997, First Western completed its purchase of the Chicora,
Pennsylvania branch office of Mellon Bank. This branch had approximately $37
million of deposits as of the date of acquisition, and First Western paid a
premium of approximately $3.5 million to acquire this branch. The premium paid
increased First Western's intangible assets during 1997. During the third
quarter of 1997, First Western completed the sale of its Slippery Rock,
Pennsylvania branch office. This branch had approximately $4 million of
deposits, and First Western realized a gain of $325,000 from the sale. During
October 1997, First Western completed the sale of its Oil City branch office.
This branch had approximately $12 million of deposits, and First Western
realized a gain of $283,000 from this sale. On October 9, 1997, First Western
agreed to sell its three Lake County, Ohio offices to FirstMerit Bank. These
offices had approximately $47 million in deposits, and First Western realized a
gain of $1.1 million in January 1998 from this sale.
Note 21. 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. Securities of this type received approval in October 1996 from the
Federal Reserve Board to qualify as Tier I capital, and the interest payable
thereon is currently considered to be tax-deductible. Proceeds of the issue were
invested by 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. Distributions to the holders of the trust preferred securities are
recorded as minority interest expense.
Note 22. Earnings Per Share
- --------------------------------------------------------------------------------
Income and shares in thousands:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------------------------------------------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic earnings
per share:
Income available to
shareholders ... $20,282 11,242 $1.80 $17,127 11,510 $1.49 $ 16,746 11,649 $1.44
Effect of dilutive
securities:
Stock options ..... -- 204 -- 159 -- 124
------------------------------------------------------------------------------------------------------------
Diluted earnings
per share:
Income available to
shareholders ... $20,282 11,446 $1.77 $17,127 11,669 $1.47 $ 16,746 11,773 $1.42
============================================================================================================
</TABLE>
Note 23. Subsequent Event
- --------------------------------------------------------------------------------
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 branch offices, 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.
No.0037
<PAGE> 25
Note 24. Parent Company
- --------------------------------------------------------------------------------
Following are condensed financial statements for First Western (in thousands).
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
-------------------------
<S> <C> <C>
ASSETS:
Cash and short-term investments .......................................... $ 1,299 $ 636
Investment in:
Bank subsidiary ........................................................ 124,514 122,646
Nonbank subsidiaries ................................................... 39,914 9,106
Premises and equipment ................................................... 5,079 4,254
Other assets ............................................................. 882 644
-------------------------
TOTAL ASSETS ....................................................... $ 171,688 $ 137,286
=========================
LIABILITIES:
Interest payable ......................................................... $ 1,103 $ 30
Other liabilities ........................................................ 2,608 1,835
Long-term debt ........................................................... 29,135 7,700
-------------------------
TOTAL LIABILITIES .................................................. 32,846 9,565
-------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, no stated value, 4,000,000 shares authorized, none issued -- --
Common stock, $5 par value, 20,000,000 shares authorized, 11,786,811 and
7,835,706 shares issued and 11,132,253 and
7,628,020 shares outstanding ........................................... 58,934 39,179
Additional paid-in capital ............................................... 2,611 22,064
Retained earnings ........................................................ 90,090 71,620
Treasury stock, 611,700 and 173,400 shares at cost ...................... (12,043) (4,242)
Unallocated common stock held by ESOP (at cost) .......................... (750) (900)
-------------------------
TOTAL SHAREHOLDERS' EQUITY ......................................... 138,842 127,721
-------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 171,688 $ 137,286
=========================
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Cash dividends from:
Bank subsidiary ........................................... $ 22,500 $ 8,000 $10,400
Nonbank subsidiaries ...................................... 16,310 250 --
Interest income from:
Bank subsidiary ........................................... 59 66 127
Interest income on investment securities ..................... -- 145 292
Interest income on securities available for sale ............. -- 211 164
Interest expense ............................................. (2,883) (555) (778)
Management and service fees from:
Bank subsidiary ........................................... 11,860 11,145 9,559
Nonbank subsidiaries ...................................... 166 163 136
Net securities gains (losses) ................................ -- 465 (4)
Other operating income ....................................... 3 3 311
Other operating expenses ..................................... (15,566) (13,302) (12,478)
-------------------------------------
Income before tax benefit and equity in undistributed earnings
of subsidiaries ........................................... 32,449 6,591 7,729
Income tax benefit ........................................... (2,250) (576) (993)
-------------------------------------
Income before equity in undistributed earnings of subsidiaries 34,699 7,167 8,722
Equity in undistributed earnings of:
Bank subsidiary ........................................... 102 9,777 7,835
Nonbank subsidiaries ...................................... (14,519) 183 189
-------------------------------------
NET INCOME .......................................... $ 20,282 $ 17,127 $ 16,746
=====================================
</TABLE>
No.0038
<PAGE> 26
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 20,282 $ 17,127 $ 16,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .......................................... 878 765 772
(Gain) loss on sale of securities available for sale .. -- (465) 4
Amortization and accretion - net ...................... -- 6 11
Other - net ........................................... 1,645 878 1,181
Equity in undistributed earnings of subsidiaries ...... 14,417 (9,960) (8,024)
-----------------------------------------------
TOTAL ADJUSTMENTS ............................ 16,940 (8,776) (6,056)
-----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .... 37,222 8,351 10,690
-----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in bank subsidiary ............................... -- -- (7,000)
Investment in nonbank subsidiaries .......................... (42,534) (10)
Proceeds from maturities and paydown of investment securities -- 981 2,182
Proceeds from sales of securities available for sale ........ -- 1,474 165
Purchase of securities available for sale ................... -- (1,298) (683)
Purchase of premises and equipment - net of retirements ..... (1,703) (2,248) (570)
-----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES ........ (44,237) (1,101) (5,906)
-----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt .................... 27,643 2,625 --
Payments on long-term debt .................................. (6,245) (3,443) (2,244)
Common stock purchased for ESOP ............................. -- (1,050) --
Stock allocated to ESOP participants ........................ 150 150 23
Proceeds from exercise of stock options ..................... 148 290 21
Proceeds from common stock issued for dividend reinvestment . 154 35 541
Treasury stock purchased .................................... (7,801) (3,471) (1,011)
Treasury stock issued ....................................... -- 264 --
Dividends paid on common stock .............................. (6,371) (5,704) (5,394)
-----------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES ...................... 7,678 (10,304) (8,064)
-----------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS ................................... 663 (3,054) (3,280)
CASH AND SHORT-TERM INVESTMENTS -
BEGINNING OF YEAR ............................................ 636 3,690 6,970
-----------------------------------------------
CASH AND SHORT-TERM INVESTMENTS - END OF YEAR .................. $ 1,299 $ 636 $ 3,690
===============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .............................................. $ 1,810 $ 635 $ 790
===============================================
Income taxes .......................................... $ 8,426 $ 6,055 $ 7,212
===============================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITY:
Transfer of investment securities held to maturity and
securities available for sale to nonbank subsidiary ..... $ -- $ 7,740 $ --
===============================================
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITY:
Issuance of common stock, at par, for 50% stock dividend .... $ 19,635 $ -- $ 13,004
===============================================
</TABLE>
No.0039
<PAGE> 27
Note 25. Quarterly Earnings Summary (unaudited)
- --------------------------------------------------------------------------------
Quarterly earnings for the years ended December 31, 1997 and 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income ......................... $31,319 $31,666 $32,091 $32,247
Interest expense ........................ 17,096 16,804 16,836 16,883
-------------------------------------------------------
Net interest income ..................... 14,223 14,862 15,255 15,364
Provision for possible loan losses ...... 1,974 954 954 954
-------------------------------------------------------
Net interest income after provision
for possible loan losses .............. 12,249 13,908 14,301 14,410
Other income ............................ 7,556(1) 3,581 2,766 3,328
Other expenses .......................... 10,974 10,355 10,550 11,116
-------------------------------------------------------
Income before income taxes .............. 8,831 7,134 6,517 6,622
Income taxes ............................ 2,959 2,254 1,846 1,763
-------------------------------------------------------
Net income .............................. $ 5,872 $ 4,880 $ 4,671 $ 4,859
=======================================================
Dividends per share ..................... $ 0.13 $ 0.13 $ 0.15 $ 0.15
=======================================================
Basic earnings per share ................ $ 0.51 $ 0.43 $ 0.42 $ 0.44
=======================================================
Basic weighted average shares outstanding 11,427 11,230 11,165 11,150
=======================================================
Diluted earnings per share .............. $ 0.51 $ 0.43 $ 0.41 $ 0.43
=======================================================
Diluted average shares outstanding ...... 11,596 11,425 11,383 11,377
=======================================================
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income ......................... $30,057 $31,376 $31,771 $32,279
Interest expense ........................ 16,096 16,871 16,977 17,270
-------------------------------------------------------
Net interest income ..................... 13,961 14,505 14,794 15,009
Provision for possible loan losses ...... 1,290 3,290 1,190 2,518
-------------------------------------------------------
Net interest income after provision
for possible loan losses .............. 12,671 11,215 13,604 12,491
Other income ............................ 2,867 3,296 3,099 6,452(3)
Other expenses .......................... 9,638 9,334 12,948(2) 10,344
-------------------------------------------------------
Income before income taxes .............. 5,900 5,177 3,755 8,599
Income taxes ............................ 1,731 991 921 2,661
-------------------------------------------------------
Net income .............................. $ 4,169 $ 4,186 $ 2,834 $ 5,938
=======================================================
Dividends per share ..................... $ 0.12 $ 0.12 $ 0.12 $ 0.13
=======================================================
Basic earnings per share ................ $ 0.36 $ 0.36 $ 0.25 $ 0.52
=======================================================
Basic weighted average shares outstanding 11,619 11,529 11,443 11,451
=======================================================
Diluted earnings per share .............. $ 0.35 $ 0.36 $ 0.24 $ 0.51
=======================================================
Diluted average shares outstanding ...... 11,788 11,689 11,583 11,614
=======================================================
</TABLE>
(1) Includes net gains on sales of loans of $4.8 million.
(2) Includes SAIF assessment of $3.3 million.
(3) Includes net gains on sales of loans of $4.5 million.
No.0040
<PAGE> 28
To the Board of Directors and Shareholders
of First Western Bancorp, Inc.
Independent Auditors' Report
- --------------------------------------------------------------------------------
We have audited the accompanying consolidated balance sheets of First Western
Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of First Western's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of First Western Bancorp, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 23, 1998
(February 23, 1998 as to Note 23)
No.0041
<PAGE> 29
SELECTED FINANCIAL DATA DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
-------------------------------------------
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
SUMMARY OF EARNINGS:
Interest income ............................................ $ 127,323 $ 125,483 $ 119,832
Interest expense ........................................... 67,619 67,214 64,872
-------------------------------------------
Net interest income ........................................ 59,704 58,269 54,960
Provision for possible loan losses ......................... 4,836 8,288 3,982
-------------------------------------------
Net interest income after provision for possible
loan losses............................................... 54,868 49,981 50,978
Other income ............................................... 17,231 15,714 11,021
Other expenses ............................................. 42,995 42,264 38,027
-------------------------------------------
Income before income taxes ................................. 29,104 23,431 23,972
Income taxes ............................................... 8,822 6,304 7,226
-------------------------------------------
Net income ................................................. $ 20,282 $ 17,127 $ 16,746
===========================================
PER SHARE DATA:
Basic earnings per share ................................... $ 1.80 $ 1.49 $ 1.44
Basic weighted average shares outstanding .................. 11,242 11,510 11,649
Diluted earnings per share ................................. $ 1.77 $ 1.47 $ 1.42
Diluted average shares outstanding ......................... 11,446 11,669 11,773
Cash dividends per share ................................... $ 0.56 $ 0.49 $ 0.46
Book value per share at year-end ........................... $ 12.47 $ 11.16 $ 10.45
Tangible book value per share at year-end .................. $ 11.64 $ 10.56 $ 9.77
BALANCE SHEET DATA:
(At year-end)
Assets ..................................................... $1,744,077 $1,695,778 $1,603,264
Investment securities ...................................... 100,151 107,092 114,015
Mortgage-backed securities ................................. 132,673 169,467 145,550
Securities available for sale .............................. 324,521 201,282 246,980
Loans and loans held for sale, net of unearned income ...... 1,086,203 1,114,425 1,027,616
Allowance for possible loan losses ......................... 18,077 16,054 14,148
Deposits ................................................... 1,192,339 1,148,903 1,177,683
Advances from the Federal Home Loan Bank ................... 156,000 144,000 111,670
Federal funds purchased and other short-term borrowings .... 81,773 33,202 3,598
Repurchase agreements and secured lines of credit .......... 121,756 212,070 121,658
Long-term debt ............................................. 4,258 5,967 8,133
Shareholders' equity ....................................... 138,842 127,721 121,688
SIGNIFICANT RATIOS:
Return on average assets ................................... 1.19% 1.02% 1.06%
Return on average equity ................................... 15.40 14.06 14.79
Average loans as a percent of average deposits ............. 90.24 93.54 90.32
Shareholders' equity as a percent of year-end assets ....... 7.96 7.53 7.59
Average shareholders' equity to average total assets ....... 7.75 7.27 7.16
Tier I capital to risk-weighted assets ..................... 13.60 11.43 11.25
Total capital to risk-weighted assets ...................... 14.85 12.68 12.51
Tier I leverage ratio ...................................... 8.73 7.10 6.99
Allowance for possible loan losses as a percent of
net loans................................................. 1.66 1.44 1.38
Net charge-offs as a percent of average loans .............. 0.27 0.59 0.27
Dividends as a percent of net income ....................... 31.38 33.30 32.18
Net interest margin ........................................ 3.80 3.78 3.78
Effective tax rate ......................................... 30.31 26.90 30.14
</TABLE>
No.0042
<PAGE> 30
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of earnings:
Interest income .................................... $ 99,167 $ 95,706 $ 96,224 $ 87,146 $ 56,868 $51,807 $ 42,973
Interest expense ................................... 46,613 44,372 47,838 50,989 32,293 29,739 23,996
--------------------------------------------------------------------------
Net interest income ................................ 52,554 51,334 48,386 36,157 24,575 22,068 18,977
Provision for possible loan losses ................. 3,650 3,435 3,755 2,710 2,000 1,050 915
--------------------------------------------------------------------------
Net interest income after provision for possible
loan losses ...................................... 48,904 47,899 44,631 33,447 22,575 21,018 18,062
Other income ....................................... 8,649 7,718 8,445 5,660 4,115 3,311 2,631
Other expenses ..................................... 35,275 34,943 37,026 27,425 18,600 17,457 14,771
--------------------------------------------------------------------------
Income before income taxes ......................... 22,278 20,674 16,050 11,682 8,090 6,872 5,922
Income taxes ....................................... 6,718 6,343 4,839 3,160 2,086 1,556 1,104
--------------------------------------------------------------------------
Net income ......................................... $ 15,560 $ 14,331 $ 11,211 $ 8,522 $ 6,004 $ 5,316 $ 4,818
==========================================================================
Per share data:
Basic earnings per share ........................... $ 1.34 $ 1.24 $ 1.03 $ 0.90 $ 0.81 $ 0.73 $ 0.67
Basic weighted average shares outstanding .......... 11,636 11,543 10,918 9,437 7,423 7,236 7,236
Diluted earnings per share ......................... $ 1.32 $ 1.22 $ 1.01 $ 0.90 $ 0.81 $ 0.73 $ 0.67
Diluted average shares outstanding ................. 11,783 11,721 11,097 9,437 7,423 7,236 7,236
Cash dividends per share ........................... $ 0.41 $ 0.36 $ 0.32 $ 0.30 $ 0.27 $ 0.26 $ 0.25
Book value per share at year-end ................... $ 9.10 $ 8.63 $ 7.46 $ 6.60 $ 5.99 $ 5.65 $ 5.16
Tangible book value per share at year-end .......... $ 9.00 $ 8.55 $ 7.36 $ 6.45 $ 5.80 $ 5.35 $ 4.79
Balance sheet data:
(At year-end)
Assets ............................................. $1,454,573 $1,390,349 $1,235,255 $1,087,752 $890,468 $568,984 $539,357
Investment securities .............................. 134,356 101,206 100,962 75,560 88,611 118,853 161,031
Mortgage-backed securities ......................... 202,041 191,916 -- 274,580 173,036 25,981 --
Securities available for sale ...................... 67,670 223,492 316,202 -- -- -- --
Loans and loans held for sale, net of
unearned income .................................. 978,562 815,642 718,074 684,369 556,408 351,543 312,744
Allowance for possible loan losses ................. 12,943 11,102 10,846 8,876 6,870 3,912 3,213
Deposits ........................................... 1,029,409 961,140 961,223 933,554 751,201 505,294 481,188
Advances from the Federal Home Loan Bank ........... 128,121 120,950 84,500 34,000 46,500 -- --
Federal funds purchased and other short-term
borrowings ....................................... 34,847 35,300 28,270 11,228 10,573 11,699 11,827
Repurchase agreements and secured lines of credit .. 128,461 146,688 22,164 19,446 -- -- --
Long-term debt ..................................... 10,318 11,397 13,533 14,221 14,759 4,845 4,930
Shareholders' equity ............................... 106,079 100,000 85,605 62,243 56,473 40,885 37,373
Significant ratios:
Return on average assets ........................... 1.12% 1.08% 0.97% 0.89% 1.00% 0.97% 0.99%
Return on average equity ........................... 15.19 15.74 14.74 14.43 13.72 13.70 13.51
Average loans as a percent of average deposits ..... 89.64 77.57 75.13 73.88 74.25 69.22 66.08
Shareholders' equity as a percent of
year-end assets .................................. 7.29 7.19 6.93 5.72 6.34 7.19 6.93
Average shareholders' equity to average
total assets ..................................... 7.37 6.88 6.57 6.20 7.31 7.10 7.37
Tier I capital to risk-weighted assets ............. 11.69 12.39 11.42 9.30 9.22 9.42 9.01
Total capital to risk-weighted assets .............. 12.97 13.72 12.84 10.81 10.83 11.18 10.82
Tier I leverage ratio .............................. 7.60 6.98 6.84 5.60 6.15 6.81 6.42
Allowance for possible loan losses as a percent
of net loans...................................... 1.32 1.36 1.51 1.30 1.23 1.11 1.03
Net charge-offs as a percent of average loans ...... 0.20 0.42 0.25 0.20 0.15 0.10 0.08
Dividends as a percent of net income ............... 31.25 28.99 31.88 33.15 34.01 35.28 37.09
Net interest margin ................................ 4.12 4.22 4.54 4.15 4.60 4.59 4.53
Effective tax rate ................................. 30.15 30.68 30.15 27.05 25.79 22.64 18.64
</TABLE>
No.0043
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of the financial condition
and results of operations of First Western for the years ended December 31,
1997, 1996 and 1995. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto and the summary financial
information included elsewhere in this annual report. All 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.
Certain information in "Management's Discussion and Analysis" and other
statements contained in this report which are not historical facts may be
forward-looking statements that involve risks and uncertainties. Such statements
are subject to important factors that could cause actual results to differ
materially from those contemplated by such statements, including without
limitation, the effect of changing regional and national economic conditions;
changes in interest rates; credit risks of commercial, real estate, consumer and
other lending activities; changes in federal and state regulations; the presence
in First Western's market area of competitors with greater financial resources
than First Western; or other unanticipated external developments materially
impacting First Western's operational and financial performance.
OVERVIEW
First Western's net income for 1997 was $20.3 million, increasing 18.4% from
$17.1 million for 1996. Diluted earnings per share increased 20.4% from $1.47
for 1996 to $1.77 for 1997. The key performance highlights for 1997 were:
* First Western completed the sale of its credit card portfolio during the first
quarter of 1997. Net gains on loan sales were $5.9 million in 1997 compared with
$4.6 million in 1996.
* The provision for possible loan losses was $4.8 million for 1997, decreasing
$3.5 million from $8.3 million for 1996 due to a $3.6 million decrease in net
charge-offs and a decline in nonperforming loans during 1997.
* First Western continued to evaluate its retail delivery system during 1997,
resulting in the sale of two small branch offices, the purchase of a branch
office, and the start-up of two supermarket branches. Additionally, First
Western sold its three branch offices located in Lake County, Ohio in January
1998. In February 1998, First Western agreed to purchase 16 branch offices
located in western Pennsylvania from PNC Bank.
* Federal deposit insurance expense decreased $4.0 million due to the $3.3
million special assessment paid in 1996, along with a reduction in deposit
insurance rates in late 1996.
* First Western's return on average assets and return on average equity
increased to 1.19% and 15.40%, respectively, from 1.02% and 14.06% for 1996,
primarily due to the decrease in deposit insurance expense and the decrease in
the provision for possible loan losses.
* First Western completed a $25 million trust preferred securities offering
during the first quarter of 1997. These securities qualify as Tier I capital and
are primarily responsible for the increase in First Western's Tier I leverage
ratio from 7.10% at December 31, 1996 to 8.73% at December 31, 1997.
* In September 1997, First Western Bank, F.S.B. was merged into First Western
Bank, N.A., eliminating the separate thrift charter.
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
(in Billions of Dollars) 0.47 0.54 0.57 0.89 1.09 1.24 1.39 1.45 1.60 1.70 1.74
Net Income
(in Millions of Dollars) 4.1 4.8 5.3 6.0 8.5 11.2 14.3 15.6 16.7 17.1 20.3
</TABLE>
No.0044
<PAGE> 32
RESULTS OF OPERATIONS
Performance Summary
First Western's net income was $20.3 million for 1997, increasing $3.2 million,
or 18.4%, from $17.1 million for 1996, with this increase primarily due to a
$4.0 million decrease in Federal Deposit Insurance Corporation ("FDIC")
insurance expense and a $3.5 million decrease in the provision for possible loan
losses. First Western also realized net gains of $608,000 during 1997 from the
sale of two small branch offices and a gain of $267,000 from the sale of First
Western's credit card merchant processing business. Partially offsetting these
increases in income was the $2.3 million minority interest expense on the trust
preferred securities. Diluted earnings per share were $1.77 for 1997, increasing
20.4% from $1.47 for 1996, based on diluted weighted average shares outstanding
of 11,446,000 and 11,669,000 in 1997 and 1996, respectively. The decrease in
weighted average shares outstanding from 1996 to 1997 was due to the purchase of
treasury shares.
The $381,000, or 2.3%, increase in net income from 1995 to 1996 was
primarily due to a $500,000 reduction in income tax expense as a result of a
settlement reached with the Internal Revenue Service concerning an audit of
prior years' tax returns. First Western's income before income taxes decreased
$541,000, or 2.3%, from 1995 to 1996 due to a $4.3 million increase in the
provision for possible loan losses and a $4.2 million increase in other
expenses, including a $2.6 million increase in FDIC insurance expense, with
these expense increases offsetting a $4.3 million increase in net gains realized
on loan sales and a $3.3 million increase in net interest income. Diluted
earnings per share for 1996 were $1.47, increasing 3.5% from $1.42 in 1995,
based on average shares outstanding of 11,669,000 and 11,773,000 in 1996 and
1995, respectively.
The following table presents First Western's net income, earnings per
share, return on average assets and return on average equity for the last three
years:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------
<S> <C> <C> <C>
Net income (in thousands)......... $ 20,282 $ 17,127 $ 16,746
============================================
Diluted earnings per share........ $ 1.77 $ 1.47 $ 1.42
============================================
Return on average assets.......... 1.19% 1.02% 1.06%
============================================
Return on average equity.......... 15.40% 14.06% 14.79%
============================================
</TABLE>
First Western's diluted earnings per share increased 20.4% from $1.47 per
share in 1996 to $1.77 per share in 1997 due to the 18.4% increase in net
income, along with a reduction in weighted average shares outstanding due to the
purchase of treasury shares during 1997. First Western's return on average
assets increased from 1.02% in 1996 to 1.19% in 1997, primarily due to the
decrease in the provision for possible loan losses and a decrease in FDIC
insurance expense. The 3.5% increase in earnings per share from 1995 to 1996
reflects the 2.3% increase in net income along with a decrease in First
Western's weighted average shares outstanding. The decrease in return on average
assets from 1.06% in 1995 to 1.02% in 1996 was primarily due to an increase in
the provision for possible loan losses and the FDIC special assessment.
First Western's return on average equity increased from 14.06% in 1996 to
15.40% in 1997 due to the 18.4% increase in net income. First Western's return
on average equity decreased from 14.79% in 1995 to 14.06% in 1996 due to First
Western's average equity growing at a higher rate, 7.5%, than First Western's
net income.
RETURN ON AVERAGE ASSETS
(in percentages)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
First Western 1.08 1.12 1.06 1.02 1.19
Peer Group 0.98 1.04 1.11 1.21 1.31
Return on Average Equity
(in percentages)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
First Western 15.74 15.19 14.79 14.06 15.40
Peer Group 12.39 12.25 12.58 13.57 14.78
The peer group statistics were compiled by the Federal Reserve Bank. The 1997
peer group data is as of September 30, 1997, which was the most current
information available.
No.0045
<PAGE> 33
NET INTEREST INCOME
Net interest income represents the amount by which interest income on earning
assets, including securities and loans, exceeds interest paid on
interest-bearing liabilities, including deposits and other borrowed funds. Net
interest income is the principal source of a financial institution's earnings.
Interest rate fluctuations as well as changes in the amounts and types of
earning assets and interest-bearing liabilities combine to affect net interest
income.
Tax-exempt securities and loans carry pre-tax yields lower than comparable
taxable assets. Therefore, it is more meaningful to analyze net interest income
on a tax-equivalent basis. The tax-equivalent adjustment is based on the federal
corporate income tax rate of 35%. The following table shows the increases over
the last three years in actual and tax-equivalent net interest income:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Net interest income, actual ................. $59,704 $58,269 $54,960
Tax-equivalent adjustment ................... 2,616 2,668 2,538
----------------------------------
Net tax-equivalent interest income .......... $62,320 $60,937 $57,498
==================================
Increase in actual net interest income ...... $ 1,435 $ 3,309 $ 2,406
==================================
Percentage increase ......................... 2.5% 6.0% 4.6%
==================================
Increase in tax-equivalent interest income... $ 1,383 $ 3,439 $ 2,452
==================================
Percentage increase ......................... 2.3% 6.0% 4.5%
==================================
</TABLE>
First Western's tax-equivalent net interest income increased $1.4
million, or 2.3%, from 1996 to 1997 due to a $27.8 million, or 1.7%, increase in
average earning assets, with the net interest margin increasing from 3.78% in
1996 to 3.80% in 1997. The growth in average earning assets from 1996 to 1997
was due to a $69.8 million, or 28.3%, increase in average securities available
for sale, partially offset by a $29.5 million, or 2.7%,decrease in average loans
and a $20.8 million, or 11.9%, decrease in average mortgage-backed securities.
Average loans decreased from 1996 to 1997 due to First Western selling its $48
million credit card loan portfolio during the fourth quarter of 1996 and the
first quarter of 1997, and also due to the first-quarter 1997 sale of
approximately $100 million of residential mortgage loans. The increase in
average earning assets was funded by a $25 million trust preferred securities
offering in February 1997, along with a $9.9 million increase in average equity
and a $9.5 million increase in average deposits. First Western's average
borrowed funds decreased $26.6 million, or 7.1%, during 1997 compared with 1996
due to the funds provided by the loan sales and the increase in average deposits
and other funding sources.
First Western's tax-equivalent net interest income increased $3.4
million, or 6.0%, from 1995 to 1996 due to a $90.5 million, or 5.9%, increase in
average earning assets, with the net interest margin remaining constant at 3.78%
for both 1995 and 1996. The growth in average earning assets from 1995 to 1996
was due to a $35.7 million, or 3.4%, increase in average loans, along with a
$98.8 million, or 66.6%, increase in securities available for sale, partially
offset by a $41.9 million, or 12.9%, decrease in average investment securities
and mortgage-backed securities. Average loans increased from 1995 to 1996 due to
a $23.4 million increase in average commercial mortgage loans and an $11.3
million increase in average residential mortgage loans, with these increases
partially offset by a $14.4 million decrease in average consumer installment
loans. This growth in average earning assets was funded primarily by an $84.3
million, or 29.1%, increase in average borrowed funds and an $8.5 million
increase in average shareholders' equity.
The net interest margin or net interest income expressed as a percentage of
average earning assets was 3.80% in 1997, compared with 3.78% in 1996. The
improvement in First Western's net interest margin was due to an increase in net
funds provided by noninterest-bearing sources, primarily as a result of the
issuance of the trust preferred securities. The payments made to the holders of
the trust preferred securities are included in other expense as minority
interest expense. First Western's yield on earning assets decreased three basis
points primarily due to the sale of the credit card portfolio, which had a
higher yield than other loan types. First Western's cost of funds increased
seven basis points primarily due to an eight basis point increase in the cost of
interest-bearing deposits, with this increase partially offset by a decrease in
the portion of funding provided by wholesale borrowed funds, which have a higher
cost than deposits.
The net interest margin was 3.78% in both 1996 and 1995. During 1996,
First Western's yield on earning assets decreased nine basis points, with this
decrease due to a 13 basis point decline in loan yields, offset partially by an
increase in the yield on securities available for sale. Loan yields decreased
from 1995 to 1996, due in part to the $113.7 million mortgage loan
securitization that took place in late 1995, and also due to a decrease in the
prime rate in early 1996. First Western's cost of funds decreased from 1995 to
1996 due to a 16 basis point decrease in the cost of deposits; however, this
reduction in First Western's cost of funds was partially offset by First Western
No.0046
<PAGE> 34
increasing the proportion of funding from borrowings which have a higher cost
than First Western's total deposits. See "Market Risk" for a further discussion
of the impact of interest rate changes on First Western's financial performance.
To provide a more in-depth analysis of net interest income, the following
average balance sheets and net interest income analysis detail the contribution
of earning assets to overall net interest income and the impact of cost of
funds. The rate/volume analysis shows the portions of the net change in interest
income due to changes in volume or rate. Average yields are calculated using
tax-equivalent interest income. The changes in interest due to both rate and
volume in the rate/volume analysis table have been allocated to changes due to
rate and volume in proportion to the absolute amounts of changes in each. Since
changes in interest income and expense are independently calculated, the totals
for the volume and rate columns are not the sum of the individual lines.
AVERAGE BALANCE SHEETS/NET INTEREST INCOME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits
with other banks ...................... $ 5,535 $ 260 4.70% $ 1,348 $ 61 4.53% $1,624 $ 73 4.51%
-----------------------------------------------------------------------------------------
Federal funds sold ..................... 10,362 554 5.35 595 34 5.71 2,448 146 5.98
-----------------------------------------------------------------------------------------
Securities available for sale .......... 316,955 21,946 6.92 247,116 16,868 6.83 148,295 10,043 6.77
-----------------------------------------------------------------------------------------
Investment securities, held to maturity:
U.S. Government agencies
and corporations .................... 16,785 1,104 6.58 23,481 1,425 6.07 39,515 2,320 5.87
States and political subdivisions ..... 85,345 6,392 7.49 83,918 6,387 7.61 79,215 6,205 7.83
Other securities ...................... 726 55 7.58 1,136 91 8.01 10,216 727 7.12
-----------------------------------------------------------------------------------------
Total investment securities ......... 102,856 7,551 7.34 108,535 7,903 7.28 128,946 9,252 7.18
-----------------------------------------------------------------------------------------
Mortgage-backed securities ............. 153,832 9,418 6.12 174,606 10,532 6.03 196,121 11,838 6.04
-----------------------------------------------------------------------------------------
Loans(net)(2) .......................... 1,050,382 90,210 8.59 1,079,881 92,753 8.59 1,044,191 91,018 8.72
-----------------------------------------------------------------------------------------
Total interest-earning assets .......... 1,639,922 129,939 7.92 1,612,081 128,151 7.95 1,521,625 122,370 8.04
-----------------------------------------------------------------------------------------
Noninterest-earning assets:
Cash and due from banks ................ 30,139 33,616 31,739
Premises and equipment ................. 20,034 18,865 18,615
Other assets ........................... 27,288 25,318 24,270
Allowance for possible loan losses ..... (17,257) (15,148) (13,555)
----------------------------------------------------------------------------------------
Total assets ............................. $1,700,126 $1,674,732 $1,582,694
========================================================================================
Interest-bearing sources:
Deposits:
Interest-bearing demand deposits ...... $ 39,954 890 2.23 $ 97,088 1,362 1.40 $ 103,816 1,892 1.82
Savings deposits ...................... 160,147 3,538 2.21 170,480 3,801 2.23 179,101 4,119 2.30
Money market deposits ................. 183,402 4,224 2.30 114,499 3,255 2.84 104,308 3,521 3.38
Time deposits ......................... 685,979 38,812 5.66 674,522 37,693 5.59 673,140 38,374 5.70
-----------------------------------------------------------------------------------------
Total deposits ...................... 1,069,482 47,464 4.44 1,056,589 46,111 4.36 1,060,365 47,906 4.52
-----------------------------------------------------------------------------------------
Federal funds purchased and other
short-term borrowings ................. 53,226 3,136 5.89 55,731 3,096 5.56 24,872 1,473 5.92
-----------------------------------------------------------------------------------------
Repurchase agreements
and secured lines of credit ........... 141,569 8,110 5.73 194,006 10,898 5.62 128,287 7,557 5.89
-----------------------------------------------------------------------------------------
Advances from the
Federal Home Loan Bank ................ 147,729 8,526 5.77 117,721 6,620 5.62 127,541 7,196 5.64
-----------------------------------------------------------------------------------------
Long-term debt ......................... 5,230 383 7.32 6,904 489 7.08 9,318 740 7.94
-----------------------------------------------------------------------------------------
Total interest-bearing sources ......... 1,417,236 67,619 4.77 1,430,951 67,214 4.70 1,350,383 64,872 4.80
-----------------------------------------------------------------------------------------
Noninterest-bearing sources:
Demand deposits ........................ 94,514 97,891 95,771
Other liabilities ...................... 35,445 24,089 23,285
Trust preferred securities ............. 21,187 -- --
Shareholders' equity ................... 131,744 121,801 113,255
----------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity ................... $1,700,126 $1,674,732 $1,582,694
========================================================================================
Net interest rate spread(3) ............ 3.15% 3.25% 3.24%
Net interest income ................... $ 62,320 $ 60,937 $ 57,498
========================================================================================
Net yield on earning assets
(Net interest margin)(4) .............. 3.80% 3.78% 3.78%
========================================================================================
</TABLE>
(1) In order to make pre-tax income and resultant yields comparable to
taxable-equivalent loans and investments, a tax-equivalent adjustment is
made equally to interest income and income tax expense with no effect on
after-tax income. The tax-equivalent adjustment has been computed using a
federal income tax rate of 35% and has increased interest income by $2.6
million, $2.7 million and $2.5 million for the years ended December 31,
1997, 1996 and 1995, respectively.
(2) Loan fees net of related origination costs are accreted over the average
lives of the related loans and are considered adjustments to interest
income. These net fees aggregated $48,000, $421,000 and $295,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. For the purpose
of calculating loan yields, average loan balances include nonaccrual loans
with no related interest income.
(3) Represents the difference between the yield on earning assets and the cost
of funds.
(4) Represents tax-equivalent net interest income divided by average
interest-earning assets.
No.0047
<PAGE> 35
RATE/VOLUME ANALYSIS (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------------------------------
CHANGE FROM 1996 IN CHANGE FROM 1995 IN
INTEREST INCOME INTEREST INCOME
OR EXPENSE DUE TO OR EXPENSE DUE TO
------------------------------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with other banks $ 197 $ 2 $ 199 $ (12) $ -- $ (12)
------------------------------------------------------------------------
Federal funds sold ......................... 522 (2) 520 (106) (6) (112)
------------------------------------------------------------------------
Securities available for sale .............. 4,833 245 5,078 6,744 81 6,825
------------------------------------------------------------------------
Investment securities, held to maturity:
U.S. Government agencies and corporations . (432) 111 (321) (971) 76
(895)
States and political subdivisions ......... 108 (103) 5 361 (179) 182
Other securities .......................... (31) (5) (36) (717) 81 (636)
------------------------------------------------------------------------
Total investment securities ............. (417) 65 (352) (1,484) 135 (1,349)
------------------------------------------------------------------------
Mortgage-backed securities, held to
maturity ................................ (1,270) 156 (1,114) (1,298) (8) (1,306)
------------------------------------------------------------------------
Loans (net) (2) ............................ (2,533) (10) (2,543) 3,079 (1,344) 1,735
------------------------------------------------------------------------
Total interest income ...................... 2,207 (419) 1,788 7,205 (1,424) 5,781
------------------------------------------------------------------------
Interest-bearing sources:
Deposits:
Interest-bearing demand deposits .......... (1,038) 566 (472) (117) (413) (530)
Savings deposits .......................... (228) (35) (263) (194) (124) (318)
Money market deposits ..................... 1,676 (707) 969 323 (589) (266)
Time deposits ............................. 645 474 1,119 79 (760) (681)
------------------------------------------------------------------------
Total deposits .......................... 567 786 1,353 (170) (1,625) (1,795)
------------------------------------------------------------------------
Federal funds purchased and
other short-term borrowings ................ (143) 183 40 1,719 (96) 1,623
------------------------------------------------------------------------
Repurchase agreements and
secured lines of credit .................... (3,000) 212 (2,788) 3,707 (366) 3,341
------------------------------------------------------------------------
Advances from the Federal Home Loan Bank ..... 1,728 178 1,906 (552) (24) (576)
------------------------------------------------------------------------
Long-term debt ............................... (123) 17 (106) (177) (74) (251)
------------------------------------------------------------------------
Total interest expense ....................... (648) 1,053 405 3,807 (1,465) 2,342
------------------------------------------------------------------------
Net interest income ....................... $ 1,057 $ 326 $ 1,383 $ 3,419 $ 20 $ 3,439
========================================================================
</TABLE>
(1) In order to make pre-tax income and resultant yields comparable to
tax-equivalent loans and investments, a tax-equivalent adjustment is made
equally to interest income and to income tax expense with no effect on
after-tax income. The tax-equivalent adjustment has been computed using a
federal income tax rate of 35% and has increased interest income by $2.6
million, $2.7 million and $2.5 million for the years ended December 31,
1997, 1996 and 1995, respectively.
(2) Loan fees net of related origination costs are accreted over the average
lives of the related loans and are considered adjustments to interest
income. These net fees aggregated $48,000, $421,000 and $295,000 for the
years ended December 31, 1997, 1996 and 1995, respectively. For the purpose
of calculating loan yields, average loan balances include nonaccrual loans
with no related interest income.
No.0048
<PAGE> 36
Provision for Possible Loan Losses
The provision for possible loan losses was $4.8 million in 1997, compared with
$8.3 million in 1996 and $4.0 million in 1995. The $3.5 million decrease in the
provision for possible loan losses from 1996 to 1997 reflects a $3.6 million
decrease in net charge-offs and an improvement in First Western's nonperforming
loans during 1997. Net charge-offs in 1997 were $2.8 million, or 0.27%, of
average loans, compared with $6.4 million, or 0.59%, in 1996 and $2.8 million,
or 0.27%, in 1995. The $4.3 million, or 108.1%, increase in the provision for
possible loan losses from 1995 to 1996 was primarily in response to the $3.6
million, or 126.8%, increase in installment loan net charge-offs. Most of the
loans charged off in 1996 were loans that were originated through automobile
dealers. Management attributes the increase in indirect automobile loan
charge-offs to an aggressive expansion of First Western's automobile loan
program into new market areas. First Western responded to the increase in
consumer loan charge-offs by investing in technology to improve both the
underwriting and collection operations. Additionally, First Western also
introduced credit scoring for loan applications, tiered pricing based on risk
and collateral, and increased the number of employees handling collections and
recoveries. Installment loan net charge-offs also increased during 1996 due to
an $880,000, or 115.7%, increase in credit card loan charge-offs. Most of the
increase in credit card charge-offs was due to First Western charging-off any
past-due credit card accounts that were not sold in the December 1996
transaction.
First Western's net charge-offs by loan type and changes in the allowance for
possible loan losses for each of the past five years were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997 1996 1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for possible loan losses
at beginning of period ......................... $16,054 $ 14,148 $12,943 $ 11,102 $ 10,846
Charge-offs:
Commercial, financial and agricultural loans ... 4 72 44 123 1,520
Real estate construction loans ................. -- -- -- -- 133
Real estate mortgage loans ..................... 141 26 18 206 275
Installment loans .............................. 3,776 6,958 3,005 2,149 1,515
---------------------------------------------------------
Total charge-offs ........................ 3,921 7,056 3,067 2,478 3,443
---------------------------------------------------------
Recoveries:
Commercial, financial and agricultural loans ... 38 73 88 390 101
Real estate construction loans ................. -- -- -- -- --
Real estate mortgage loans ..................... 172 69 30 125 59
Installment loans .............................. 898 532 172 154 104
---------------------------------------------------------
Total recoveries ......................... 1,108 674 290 669 264
---------------------------------------------------------
Net charge-offs ................................... 2,813 6,382 2,777 1,809 3,179
---------------------------------------------------------
Provision for possible loan losses ................ 4,836 8,288 3,982 3,650 3,435
---------------------------------------------------------
Allowance for possible loan losses at end
of period .................................... $18,077 $16,054 $ 14,148 $12,943 $11,102
=========================================================
Ratio of net charge-offs to average loans ......... 0.27% 0.59% 0.27% 0.20% 0.42%
=========================================================
</TABLE>
No.0049
<PAGE> 37
The provision for loan losses less net charge-offs added $2.0 million to the
allowance for possible loan losses, which increased to $18.1 million at year-end
1997. See "Financial Condition - Loan Quality" for further discussion.
Net
Charge-offs
AS A PERCENT OF AVERAGE LOANS
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
FIRST WESTERN 0.42 0.20 0.27 0.59 0.27
PEER GROUP 0.54 0.25 0.28 0.28 0.28
Provision for
Possible Loan Losses
AS A PERCENT OF NET CHARGE-OFFS
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
FIRST WESTERN 108 202 143 130 172
PEER GROUP 179 132 128 119 177
Other Income
Other income increased $1.5 million, or 9.7%, due to increased gains on loan
sales and gains from the sales of branches and the sale of First Western's
credit card merchant transaction processing program, with these increases
partially offset by a $1.5 million decrease in credit card program fees and a
$708,000 decrease in net securities gains. Other income increased $4.7 million,
or 42.6%, from $11.0 million in 1995 to $15.7 million in 1996, with most of this
increase due to an increase in net gains from sales of credit card loans.
Trust fees increased $291,000, or 14.5%, from $2.0 million in 1996 to
$2.3 million in 1997 due to a $131,000 increase in estate fees, with the
remaining increase resulting from an increase in trust assets managed by
First Western.
Service charges on deposit accounts increased $484,000, or 13.1%, in 1997
compared with 1996 due to a $427,000 increase in service charges on
interest-bearing demand accounts and an increase in insufficient funds and
returned check service charges. First Western has been promoting its "Active
Lifestyles" account, which resulted in this increase in service charges on
interest-bearing demand accounts. Service charges on deposit accounts increased
$455,000, or 14.0%, from $3.2 million in 1995 to $3.7 million in 1996 primarily
as a result of First Western introducing its "Active Lifestyles" account during
1995.
Credit card program fees decreased $1.5 million from $1.7 million in 1996
to $199,000 in 1997 due to the sale of the credit card loan portfolio and the
sale of the credit card merchant transaction processing program in early 1997.
Credit card program fees increased $232,000, or 16.1%, from 1995 to 1996 due to
First Western instituting a cash advance fee which generated $84,000 of fees in
1996, along with a $76,000 increase in the fees for processing merchant
transactions and a $79,000, or 7.0%, increase in interchange income resulting
from the growth of First Western's programs during 1996.
Net securities gains were $276,000 in 1997, decreasing $708,000 from
$984,000 in 1996, with this decrease due to a low level of sales of securities
available for sale during 1997. Net securities gains were $984,000 in 1996,
decreasing $571,000, or 36.7%, from $1.6 million for 1995. During 1996, sales of
bank equity securities held by the parent company resulted in gains of $465,000.
Approximately one-half of the gains on security sales realized during 1995
resulted from the sale of most of the securities created by the mortgage loan
securitization during the fourth quarter of 1995. As of December 31, 1997,
investment securities and mortgage-backed securities had gross unrealized gains
of $1.8 million and gross unrealized losses of $1.4 million, and securities
available for sale had gross unrealized gains of $8.5 million and gross
unrealized losses of $148,000. Unrealized losses as of December 31, 1997
generally were due to interest rate fluctuations and not due to credit
deficiencies. See "Financial Condition - Securities Available for Sale and
Investment Securities" for further discussion.
No.0050
<PAGE> 38
First Western realized net gains on loan sales of $5.9 million during 1997
primarily as a result of the sale of the remaining portion of the credit card
portfolio during the first quarter of 1997. First Western's net gains on loan
sales were $4.6 million in 1996, primarily due to the gain realized on the sale
of the credit card portfolio, partially offset by a $2.9 million loss on the
sale of $100 million of residential mortgage loans, with this mortgage loan sale
settling during the first quarter of 1997. During the fourth quarter of 1996,
First Western sold approximately two-thirds of its credit card portfolio with a
principal balance of $30.4 million, realizing a gain of approximately $7.2
million, net of certain costs incurred by First Western in connection with the
credit card sale.
Other income increased $1.6 million from 1996 to 1997, primarily due to
gains of $608,000 realized on the sale of two branch offices, a $408,000
increase in loan servicing income as a result of First Western servicing the
credit card loans and mortgage loans that were sold until the servicing could be
transferred to the purchasers, and a $267,000 gain realized on the sale of the
credit card merchant transaction processing program. Other income increased from
1995 to 1996 due to a $456,000 increase in income from loan servicing, a
$247,000 increase in fees earned from the sales of mutual funds and annuities,
and a $130,000 increase in fees for check card transactions, with these
increases partially offset by a $638,000 decrease in net gains realized on sales
of other real estate owned.
Other Expenses
Other expenses increased $731,000, or 1.7%, from $42.3 million in 1996 to $43.0
million in 1997 due to a $2.3 million increase in minority interest expense,
along with increases in salaries and employee benefits expense, higher marketing
expense and increased professional fees, with these increases partially offset
by a $4.0 million decrease in FDIC insurance expense. Other expenses increased
$4.2 million, or 11.1%, from 1995 to 1996, with an increase in FDIC insurance
expense primarily due to the Savings Association Insurance Fund ("SAIF")
recapitalization accounting for $2.6 million of the increase.
EFFICIENCY RATIOS
(in percentages)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
First Western 57.7 56.5 57.5 54.8 59.3
Peer Group 66.3 63.4 61.8 60.7 57.3
NET OVERHEAD TO AVERAGE ASSETS
(in percentages)
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
First Western 2.10 2.01 1.86 1.72 1.93
Peer Group 2.48 2.39 2.29 2.12 1.90
The efficiency ratio, or recurring other expenses divided by the sum of
tax-equivalent interest income and recurring other income, measures the
relationship of expenses to income. First Western has excluded certain
nonrecurring income or expenses such as net gains on sales of securities, net
gains on loan sales, net gains on sales of other real estate owned and the FDIC
assessment for the recapitalization of the SAIF that was incurred in 1996 for
the purpose of calculating the efficiency ratio and net overhead to average
assets. First Western's efficiency ratio was 59.3% in 1997, compared with 54.8%
in 1996 and 57.5% in 1995. First Western's net overhead ratio or recurring other
expenses less recurring other income divided by total average assets was 1.93%
in 1997, compared with 1.72% in 1996 and 1.86% in 1995. First Western's
efficiency ratio and net overhead ratio increased from 1996 to 1997 primarily
due to the $2.3 million minority interest expense incurred in 1997 which
represents the payments made to the holders of the trust preferred securities.
First Western's salaries and employee benefits expense increased a
combined $1.2 million, or 6.8%, from $18.5 million in 1996 to $19.7 million in
1997 primarily due to normal salary and wage increases along with increased
personnel. First Western's salaries and employee benefits expense increased a
combined $658,000, or 3.7%, from 1995 to 1996 due to an $844,000, or 6.2%,
increase in salaries expense due to increased personnel and normal salary and
wage increases, with this increase in salaries expense partially offset by a
$186,000, or 4.5%, decrease in employee benefits expense due to a reduction in
medical insurance expense. First Western had 635 full-time equivalent employees
at December 31, 1997, compared with 625 and 602 at December 31, 1996 and 1995,
respectively.
Expenses related to operating First Western's branches and other
facilities, including all equipment, occupancy and depreciation charges,
increased $391,000 from $5.1 million in 1996 to $5.5 million in 1997, primarily
as a result of First Western opening two additional supermarket branches and a
new loan processing center during 1997.
No.0051
<PAGE> 39
First Western's federal deposit insurance expense decreased $4.0 million,
or 91.5%, from $4.4 million in 1996 to $376,000 in 1997 due to a $3.3 million
special assessment that was paid during 1996 and also due to a reduction in
insurance rates in late 1996. Federal deposit insurance expense increased $2.6
million, or 137.7%, from 1995 to 1996, with this increase due to a one-time
assessment of thrift deposits in order to recapitalize the SAIF. On September
30, 1996, the President signed legislation which included provisions to
recapitalize the SAIF by means of a one-time assessment on SAIF-insured
deposits. The one-time assessment was set at $0.657 per $100 of insured
deposits. This legislation also reduced the insurance rate differential between
the Bank Insurance Fund ("BIF") and the SAIF. Excluding the impact of the
special assessment, First Western's FDIC insurance expense would have decreased
$740,000 in 1996 compared with 1995 due to a reduction in the BIF insurance
premiums in late 1995.
Marketing expense increased $820,000, or 67.9%, from $1.2 million in 1996
to $2.0 million in 1997, primarily due to First Western beginning a corporate
image campaign. Beginning in the fourth quarter of 1997, First Western used a
marketing firm to develop a brand image marketing campaign which will continue
throughout 1998. Marketing expense decreased $249,000, or 17.1%, from $1.5
million in 1995 to $1.2 million in 1996 due to First Western reducing its credit
card solicitation efforts during 1996 in anticipation of selling the credit card
portfolio.
First Western's professional fees increased $529,000 from 1996 to 1997 due
to increased legal and consulting expense related to the merger of First Western
Bank, F.S.B. into First Western Bank, N.A., along with the start-up of First
Western's insurance business.
First Western's outside data processing expense decreased $288,000, or
15.7%, from $1.8 million in 1996 to $1.5 million in 1997 primarily due to the
sale of the credit card portfolio in late 1996 and early 1997. First Western
used a third-party servicer for processing credit card transactions. Outside
data processing services expense increased $429,000, or 30.6%, from $1.4 million
in 1995 to $1.8 million in 1996, with approximately $239,000 of this increase
due to increased expenses for credit card processing and $152,000 of the
increase due to increased processing costs for automated teller machine
transactions.
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 $2.3 million for 1997,
have been recorded as minority interest expense.
Other operating expenses decreased $214,000, or 2.6%, from $8.3 million in
1996 to $8.0 million in 1997 due to a $651,000 decrease in credit card program
expenses, with this decrease partially offset by a $139,000 increase in fees
paid to a third-party provider of services in connection with First Western's
"Active Lifestyles" account, a $111,000 increase in software maintenance expense
and an $88,000 increase in intangible amortization expense resulting from the
branch that was purchased during 1997. Other operating expenses increased
$829,000, or 11.2%, from $7.4 million in 1995 to $8.3 million in 1996. This
increase consisted of a $235,000 increase in fees paid the provider of services
in connection with First Western's "Active Lifestyles" account which was
introduced during 1995, an increase in customer check and other losses of
$172,000 which was partially due to First Western realizing a $85,000 recovery
of a fraud loss in 1995, a $123,000 increase in intangible amortization expense
due to the full-year impact of the 1995 branch acquisition and a $113,000
increase in telephone expense.
Income Taxes
First Western's income tax expense was $8.8 million in 1997, increasing $2.5
million, or 39.9%, from $6.3 million in 1996 due to a 24.2% increase in pre-tax
earnings and also due to a reduction in First Western's income tax expense
during 1996 as a result of a settlement reached with the Internal Revenue
Service. First Western's income tax expense was $6.3 million in 1996, decreasing
$922,000, or 12.8%, from $7.2 million in 1995 due to a decrease in pre-tax
earnings and also due to a $500,000 reduction in income tax expense and accrued
income taxes resulting from a settlement reached with the Internal Revenue
Service during 1996 concerning an audit of prior years' tax returns. Excluding
the impact of the settlement reached with the Internal Revenue Service during
1996, First Western's effective tax rate was 30.3% in 1997, compared with 29.0%
in 1996 and 30.1% in 1995.
During 1996, Congress passed legislation that required savings associations
to change their method of accounting for bad debts for income tax purposes. This
legislation also eliminated the recapture of deductions in excess of actual
losses that savings associations benefited from in prior years. The impact of
this legislation on First Western was the elimination of a potential charge of
$2.2 million in income taxes that would have been paid when First Western Bank,
F.S.B. was merged into First Western Bank, N.A. during 1997.
No.0052
<PAGE> 40
Review of Fourth-Quarter Results
First Western's net income for the fourth quarter of 1997 was $4.9 million,
decreasing $1.0 million, or 18.2%, from $5.9 million for the fourth quarter of
1996 due to a $4.3 million decrease in net gains on loan sales, partially offset
by a $1.6 million decrease in the provision for possible loan losses and a $1.0
million increase in net gains realized on sales of securities available for
sale. Diluted earnings per share for the fourth quarter of 1997 were $0.43 per
share, decreasing 15.7% from $0.51 per share for the fourth quarter of 1996.
During the fourth quarter of 1996, First Western sold approximately two-thirds
of its credit card portfolio, realizing a gain of approximately $7.2 million.
First Western also decided to sell approximately $100 million of residential
mortgage loans at a loss of $2.9 million. First Western increased its provision
for possible loan losses during the fourth quarter of 1996 in response to the
increase in loans charged-off resulting from First Western charging-off any
delinquent credit card loans that were not sold in the December 1996
transaction.
Year 2000 Data Processing Considerations
As a financial institution, First Western is highly dependent on computers and
computer programs, and the accuracy of these computer programs is critical to
First Western's operations. The coming of the year 2000 presents the possibility
that First Western or its customers, suppliers or correspondent banks may be
subject to errors caused by computer programs not correctly recognizing the year
2000 and making inaccurate calculations. The impact of the potential problems
could be severe. First Western's management has completed an assessment of the
vulnerability of First Western's computer system 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 suppliers to assess
their year 2000 readiness.
Management does not anticipate any significant additional costs to ensure
First Western's readiness for the year 2000 beyond the regularly scheduled
software and hardware upgrades; however, further testing could uncover potential
problems that may result in significant costs for First Western.
The ability of First Western's loan customers to repay their obligations
could be affected by business interruptions caused by year 2000 data processing
problems. The potential impact of year 2000 data processing problems on First
Western's customers has not been determined; however, it could be significant
and could result in these customers being unable to repay their obligations to
First Western.
Impact of Inflation
The effects of inflation on the local economy and on First Western's operating
results have been relatively modest for the past several years. Since
substantially all of First Western's assets and liabilities are monetary in
nature, such as cash, investments, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which do
not necessarily change in accordance with inflation rates. First Western tries
to control the impact of interest rate fluctuations by managing the relationship
between its interest rate sensitive assets and liabilities. See "Market Risk"
for further discussion.
FINANCIAL CONDITION
First Western's total assets increased $48.3 million, or 2.8%, from $1.696
billion at December 31, 1996 to $1.744 billion at December 31, 1997, with most
of this increase due to an increase in securities available for sale and
bank-owned life insurance funded by increased deposits and the proceeds of the
trust preferred securities offering. Average total assets increased $25.4
million, or 1.5%, from $1.675 billion for 1996 to $1.700 billion for 1997, with
most of this increase occurring in the portfolio of securities available for
sale.
Loan Portfolio
Loans and loans held for sale decreased $28.2 million, or 2.5%, from $1.114
billion at December 31, 1996 to $1.086 billion at December 31, 1997, with this
decrease due to the first-quarter 1997 sale of approximately $100 million of
residential mortgage loans and the remaining $17.3 million of credit card loans.
The impact of these loan sales was partially offset by loan growth, with
residential mortgage loans decreasing only $48.1 million after total residential
mortgage loan sales of $137.2 million during 1997, along with a $20.7 million
increase in commercial loans during 1997. Included in the $385.7 million of
one-to-four family residential mortgage loans at December 31, 1997 are
approximately $64.1 million of purchased mortgage loans serviced by others.
These purchased loans are secured by real estate outside of First Western's
primary market areas with no significant concentrations in any state or region.
No.0053
<PAGE> 41
First Western's credit card loans decreased during 1997 due to the sale of
the remaining portion of the credit card portfolio during the first quarter of
1997. The portfolio of loans held for sale at December 31, 1997 consisted of
residential mortgage loans with a carrying value of $39.8 million and an
estimated market value of $40.3 million. The following table shows the
composition of First Western's portfolio of loans and loans held for sale for
the last five years (in thousands):
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMOUNTS OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floorplan loans ......... $ 31,013 $ 26,668 $ 26,775 $ 25,229 $ 19,300
Loans to municipalities ............ 6,140 11,446 13,893 10,307 8,423
Other commercial loans ............. 105,323 83,645 79,491 63,662 54,483
----------------------------------------------------------------------
Subtotal ........................ 142,476 121,759 120,159 99,198 82,206
----------------------------------------------------------------------
Real estate construction .............. 14,450 16,289 24,501 18,721 13,528
----------------------------------------------------------------------
Real estate mortgage:
1-4 family residential ............. 385,702 433,813 357,004 370,582 331,104
Multi-family residential ........... 29,331 37,173 35,088 30,923 25,693
Home equity ........................ 56,811 49,653 41,417 37,129 36,520
Commercial and other ............... 172,559 159,470 141,667 127,176 99,913
----------------------------------------------------------------------
Subtotal ........................ 644,403 680,109 575,176 565,810 493,230
----------------------------------------------------------------------
Installment:
Credit cards ....................... -- 17,328 45,226 39,412 32,144
Installment and other .............. 284,874 278,940 262,554 255,421 194,534
----------------------------------------------------------------------
Subtotal ........................ 284,874 296,268 307,780 294,833 226,678
----------------------------------------------------------------------
Total ........................... $1,086,203 $1,114,425 $1,027,616 $978,562 $815,642
======================================================================
PERCENT OF LOANS BY TYPE:
Commercial, financial and agricultural:
Automobile floorplan loans ......... 2.8% 2.4% 2.6% 2.6% 2.4%
Loans to municipalities ............ 0.6 1.0 1.4 1.1 1.0
Other commercial loans ............. 9.7 7.5 7.7 6.5 6.7
----------------------------------------------------------------------
Subtotal ........................ 13.1 10.9 11.7 10.2 10.1
----------------------------------------------------------------------
Real estate construction .............. 1.4 1.5 2.4 1.9 1.7
----------------------------------------------------------------------
Real estate mortgage:
1-4 family residential ............. 35.5 38.9 34.8 37.8 40.6
Multi-family residential ........... 2.7 3.3 3.4 3.2 3.2
Home equity ........................ 5.2 4.5 4.0 3.8 4.5
Commercial and other ............... 15.9 14.3 13.8 13.0 12.2
----------------------------------------------------------------------
Subtotal ........................ 59.3 61.0 56.0 57.8 60.5
----------------------------------------------------------------------
Installment:
Credit cards ....................... -- 1.6 4.4 4.0 3.9
Installment and other .............. 26.2 25.0 25.5 26.1 23.8
----------------------------------------------------------------------
Subtotal ........................ 26.2 26.6 29.9 30.1 27.7
----------------------------------------------------------------------
Total ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
======================================================================
</TABLE>
No.0054
<PAGE> 42
Loan Quality
First Western has several policies and procedures in place to assist in
maintaining and monitoring the overall quality of its loan portfolio. First
Western has established underwriting guidelines to be followed by its banking
subsidiary. In addition, a formal, ongoing loan review program (discussed
below), which concentrates principally on commercial credits, has been
established to help monitor the loan portfolio of the banking subsidiary. First
Western also regularly monitors its delinquency and nonperforming levels for any
negative or adverse trends and particularly monitors credits which have total
exposure of $1.5 million or more. However, there can be no assurance that First
Western's loan portfolio will not become subject to increasing pressures from
deteriorating borrower credit due to general economic conditions.
First Western's delinquent loans, nonaccrual loans and nonperforming assets
consisted of the following for the last five years (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans delinquent and still accruing interest:
Loans past due 30 to 89 days ................. $ 8,703 $8,080 $10,420 $7,370 $7,621
Loans past due 90 days or more ............... 2,466 1,427 2,648 1,870 1,960
--------------------------------------------------------
Total loan delinquencies .................. $11,169 $9,507 $13,068 $9,240 $9,581
========================================================
Nonaccrual loans ................................ $ 2,634 $5,147 $ 4,959 $2,875 $5,186
Other real estate owned ......................... 382 471 165 1,185 1,715
--------------------------------------------------------
Total nonperforming assets ...................... $ 3,016 $5,618 $ 5,124 $4,060 $6,901
========================================================
Total nonperforming assets and loans
past due 90 days or more ..................... $ 5,482 $7,045 $ 7,772 $5,930 $8,861
========================================================
Nonaccrual loans to total loans ................. 0.24% 0.46% 0.48% 0.29% 0.64%
Nonperforming assets to total loans
and other real estate owned .................. 0.28% 0.50% 0.50% 0.41% 0.84%
Nonperforming assets to total assets ............ 0.17% 0.33% 0.32% 0.28% 0.50%
Nonperforming assets and loans
past due 90 days or more to total assets ..... 0.31% 0.42% 0.48% 0.41% 0.64%
Nonaccrual loans and loans past due
90 days or more to total loans ............... 0.47% 0.59% 0.74% 0.48% 0.88%
Allowance for possible loan losses
to nonaccrual loans .......................... 686.33% 311.91% 285.31% 450.16% 214.07%
Allowance for possible loan losses to
loans past due 90 days or more
and nonaccrual loans .......................... 354.43% 244.20% 185.98% 272.78% 155.36%
Allowance for possible loan losses to
total loans ................................... 1.66% 1.44% 1.38% 1.32% 1.36%
</TABLE>
First Western's total delinquencies increased $1.7 million, or 17.5%, from
$9.5 million at December 31, 1996 to $11.2 million at December 31, 1997, with
this increase primarily due to a $1.2 million increase in delinquent commercial
mortgage loans and a $403,000 increase in delinquent commercial loans. First
Western's nonaccrual loans decreased $2.5 million during 1997 due to the pay-off
of several commercial loans that were on nonaccrual status. First Western's
coverage ratio of the allowance for possible loan losses to nonaccrual loans
increased from 311.91% at December 31, 1996 to 686.33% at December 31, 1997, due
to the 48.8% decrease in nonaccrual loans during 1997 along with the 12.6%
increase in the allowance for possible loan losses.
Commercial and mortgage loans are placed on nonaccrual status when, in the
opinion of management, collection of principal or interest is doubtful and the
loan is not both well secured and in the process of collection. Installment
loans are generally charged off between 90 and 120 days past due or when deemed
uncollectible in the opinion of management. Cash payments received while a loan
is classified as nonaccrual are recorded as a reduction to principal as long as
doubt exists as to collection.
First Western maintains a loan review program to evaluate the credit risk
in its commercial loan portfolio for substantially all commercial loans and
commercial mortgage loans greater than $200,000. Through the loan review
process, First Western maintains a classified account list which, along with the
nonperforming and delinquency lists of loans, helps management assess the
overall quality of the loan portfolio and the adequacy of the allowance for
possible loan losses. Loans classified as "substandard" are those loans with
clear and defined weaknesses,
No.0055
<PAGE> 43
NONPERFORMING LOANS
AS A PERCENT OF LOANS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------------------------------------------
<S> <C> <C> <C> <C> <C>
First Western 0.88 0.48 0.74 0.59 0.47
Peer Group 1.39 0.98 1.01 0.98 0.94
</TABLE>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
AS A PERCENT OF NONPERFORMING LOANS
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
--------------------------------------------
<S> <C> <C> <C> <C> <C>
First Western 155 273 186 244 354
Peer Group 214 235 222 208 237
</TABLE>
such as highly leveraged positions, unfavorable financial ratios, uncertain
repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. Loans classified as "doubtful" are those loans which
have characteristics similar to the sub-standard accounts but with an increased
risk that a loss may occur, or at least a portion of the loan may require a
charge-off if liquidated at present. Both substandard and doubtful loans include
some loans that are delinquent or on nonaccrual status. As of December 31, 1997,
substandard and doubtful loans totaled $8.2 million, of which $7.7 million were
loans not designated as delinquent or nonaccrual.
In addition to its classified account list and delinquency list of loans,
First Western maintains a separate list of "Other Loans Especially Mentioned"
("OLEM"), which further aids First Western in monitoring its loan portfolio.
These OLEM loans do not have all the characteristics of a classified loan
(substandard or doubtful), but do show potentially weak elements as compared
with those of a satisfactory credit. First Western reviews these loans in
assessing the adequacy of the allowance for possible loan losses. Substantially
all of the loans on the OLEM list as of December 31, 1997 are current and paying
in accordance with loan terms. As of December 31, 1997, OLEM list loans totaled
$1.3 million.
In order to determine the adequacy of the allowance for possible loan
losses, management considers the risk classifications of loans, delinquency
trends, charge-off experience, credit concentrations, economic conditions and
other factors. Specific reserves are established for each classified credit,
taking into consideration the credit's delinquency status, current operating
status, pledged collateral and plan of action for resolving any deficiencies.
For nonclassified loans and smaller loans not individually reviewed, management
considers historical charge-off experience in determining the amounts to be
allocated to the allowance. An unallocated or general reserve is also
established which takes into consideration, among other things, unfunded
commitments, concentrations of credit, economic conditions, delinquency and
nonaccrual trends, management experience and trends in volume and terms of
loans. The allowance for possible loan losses is maintained at the level
determined according to this methodology by charging a provision to operations.
First Western believes that the allowance for possible loan losses of $18.1
million at December 31, 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 December 31, 1997.
Investment Securities and
Securities Available for Sale
First Western's portfolio of securities available for sale increased $123.2
million during 1997, with this increase due to First Western purchasing
securities available for sale with the funds provided by the loan sales and also
with the funds provided by the trust preferred securities offering. First
Western's portfolio of investment securities and mortgage-backed securities
classified as held-to-maturity decreased $43.7 million during 1997 due to
paydowns and maturities of these securities, with the proceeds being reinvested
in the available for sale portfolio.
The decrease in long-term interest rates during 1997 resulted in an
increase in the market values of First Western's securities. At December 31,
1997, the market value of First Western's portfolio of investment securities and
mortgage-backed securities held to maturity was $233.2 million, or $407,000, or
0.2%, greater than the amortized cost of these securities of $232.8 million,
compared with an unrealized loss of $1.9 million at December 31, 1996. The
portfolio of securities available for sale had an unrealized gain of $8.4
million, or 2.6%, at December 31, 1997, compared with an unrealized gain of $1.4
million, or 0.7%, at December 31, 1996.
No.0056
<PAGE> 44
The following tables present the contractual maturities of investment
securities and securities available for sale and their weighted average yields
as of December 31, 1997, on a tax-equivalent basis using a 35% federal income
tax rate. The maturity distribution of mortgage-backed securities is based on
the weighted average lives of these securities.
Investment securities and mortgage-backed securities:
<TABLE>
<CAPTION>
AFTER AFTER
1 BUT 5 BUT WEIGHTED
WITHIN WITHIN WITHIN AFTER AVERAGE
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL YIELD
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed
securities ............ $12,328 $ 86,360 $33,985 $ -- $132,673 6.80%
U.S. Government agencies
and corporations ...... 7,006 7,148 -- -- 14,154 6.94%
Obligations of states and
political
subdivisions .......... 26,591 52,309 5,889 458 85,247 7.44%
Other securities ......... -- 450 300 -- 750 7.73%
------------------------------------------------------------------------
Total .................... $45,925 $146,267 $40,174 $ 458 $232,824 7.05%
========================================================================
Weighted average yield ... 6.92% 7.34% 6.07% 10.66% 7.05%
========================================================================
</TABLE>
Securities available for sale:
<TABLE>
<CAPTION>
AFTER AFTER
1 BUT 5 BUT WEIGHTED
WITHIN WITHIN WITHIN AFTER AVERAGE
1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL YIELD
-----------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities .. $ 352 $ 7,434 $ -- $ -- $ 7,786 6.04%
U.S. Government agencies
and corporations ....... 46,618 38,524 4,981 2,467 92,590 7.12%
Mortgage-backed
securities .............. 9,043 116,665 37,618 -- 163,326 7.85%
Other securities, including
corporate bonds and
notes ................... 16,011 2,221 1,422 41,165 60,819 6.13%
-----------------------------------------------------------------------
Total ..................... $72,024 $164,844 $44,021 $43,632 $324,521 7.28%
=======================================================================
Weighted average yield .... 6.89% 7.73% 7.76% 5.72% 7.28%
=======================================================================
</TABLE>
Bank-Owned Life Insurance
In December 1997, First Western purchased $25 million of life insurance on the
officers of First Western with First Western as the beneficiary. First Western
will record as other income the amount of annual increase in the cash surrender
value of the insurance policies. The increase in the cash surrender value and
death benefits paid to First Western are currently not included in taxable
income. However, Congress is considering changing the tax status of
corporate-owned life insurance plans.
No.0057
<PAGE> 45
Deposits
First Western's total deposits increased $43.4 million, or 3.8%, during 1997,
primarily due to net branch purchases and sales adding $21.9 million of deposits
and a $25.4 million increase in money market deposits from Trust Services.
During 1996, First Western created a new account combining an interest-bearing
demand account and a money market account. This new deposit product resulted in
a movement of funds from interest-bearing demand accounts to money market
accounts and is the primary reason for the decrease in interest-bearing demand
accounts and the increase in money market accounts during 1996 and 1997.
In January 1998, First Western completed the sale of its three Lake County,
Ohio offices to another financial institution. These offices had total deposits
of $47 million, and First Western realized a gain of $1.1 million in January
1998 as a result of this sale.
First Western primarily relies on its retail deposit base to fund its
credit needs. Deposits provided 68.5% of First Western's funding during 1997,
based on average balances of deposits and total assets. First Western's total
average deposits during 1997 were $1.164 billion, increasing 0.8% from $1.154
billion in 1996.
<TABLE>
<CAPTION>
DEPOSIT SUMMARY
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits ..... $100,653 8.5% $ 93,163 8.1% $ 102,864 8.7% $97,242 9.4% $ 94,464 9.8%
Interest-bearing
demand deposits ..... 38,539 3.2 53,946 4.7 110,703 9.4 101,659 9.9 102,011 10.6
Money market
deposits ............ 229,046 19.2 163,602 14.2 98,605 8.4 113,914 11.1 104,483 10.9
Savings deposits ...... 156,317 13.1 165,930 14.4 172,837 14.7 168,039 16.3 174,174 18.1
Time deposits less
than $100,000 ....... 575,676 48.3 585,465 51.0 625,865 53.1 498,566 48.4 456,392 47.5
Time deposits of
$100,000 or more .... 92,108 7.7 86,797 7.6 66,809 5.7 49,989 4.9 29,616 3.1
--------------------------------------------------------------------------------------------------------
Total deposits ........ $1,192,339 100.0% $1,148,903 100.0% $1,177,683 100.0% $1,029,409 100.0% $961,140 100.0%
========================================================================================================
</TABLE>
Borrowed Funds
First Western's subsidiaries use various funding sources other than deposits to
provide the funds necessary for the loan and securities portfolios. First
Western's total borrowed funds decreased $29.8 million, or 7.6%, during 1997
from $389.3 million at December 31, 1996 to $359.5 million at December 31, 1997,
primarily as a result of the loan sales.
First Western's borrowings with original maturities of one year or less
include overnight advances from the Federal Home Loan Bank, repurchase
agreements, customer repurchase agreements, and federal funds purchased. First
Western's borrowings with an original maturity of one year or less and rates
paid are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
At year-end ........................... $ 97,229 6.05% $138,582 5.65 $ 86,536 5.96%
Average during year ................... 101,678 5.70% 163,117 5.59 150,433 6.11
Maximum month-end balance ............. 150,488 5.48% 219,189 5.44 206,430 6.17
</TABLE>
First Western Bank, N.A. is a member of the Federal Home Loan Bank of
Pittsburgh and, as such, it has the ability to obtain advances from the FHLB. At
December 31, 1997, First Western had advances from the FHLB (original maturity
in excess of one year) of $156.0 million, with a weighted average rate of 5.75%,
compared with advances of $144.0 million at December 31, 1996. The advances from
the FHLB are secured by certain qualifying residential mortgage loans, stock in
the FHLB, investment securities and securities available for sale.
No.0058
<PAGE> 46
Market Risk
As a financial institution, First Western is subject to market risk, primarily
interest rate risk. First Western does not have significant exposure to foreign
currency risk or commodity price risk. First Western has an asset/liability
management committee which manages the risks associated with changing interest
rates and the resulting impact on net interest income. The management of
interest rate risk at First Western is performed (i) by analyzing the maturity
and repricing relationships between interest-earning assets and interest-bearing
liabilities at a specific point in time ("GAP"); and (ii) by using a simulation
model which analyzes the effects of interest rate changes on net interest income
over specified periods of time by projecting the performance of the mix of
assets and liabilities in varied interest rate environments.
The tables below present First Western's GAP at December 31, 1997 and 1996.
In preparing these tables, management has anticipated prepayments for
mortgage-backed securities and mortgage loans according to standard industry
prepayment assumptions in effect at year-end. Money market deposits and
interest-bearing demand accounts have been included in the under-three-months
category. Assets with daily floating rates are included in the
under-three-months category. Assets and liabilities are included in the table
based on their maturities or period of first repricing, subject to the foregoing
assumptions.
INSTRUMENTS MATURING OR REPRICING
<TABLE>
<CAPTION>
UNDER THREE SIX TO ONE TO OVER
THREE TO SIX TWELVE FIVE FIVE
MONTHS MONTHS MONTHS YEARS YEARS TOTAL
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997:
Rate-sensitive assets:
Money market assets ......... $ 6,836 $ -- $ -- $ -- $ -- $ 6,836
Securities .................. 90,953 43,652 42,518 206,178 174,044 557,345
Loans ....................... 327,929 74,272 121,885 417,613 144,504 1,086,203
----------------------------------------------------------------------------------------
Total ..................... $ 425,718 $ 117,924 $ 164,403 $ 623,791 $318,548 $1,650,384
========================================================================================
Rate-sensitive liabilities:
Deposits .................... $ 556,784 $ 126,769 $ 211,443 $ 192,172 $ 4,518 $1,091,686
Borrowed funds .............. 154,437 1,000 92,650 115,700 -- 363,787
----------------------------------------------------------------------------------------
Total ..................... $ 711,221 $ 127,769 $ 304,093 $ 307,872 $ 4,518 $1,455,473
========================================================================================
Period GAP .................... $(285,503) $ (9,845) $(139,690) $ 315,919 $314,030 $ 194,911
========================================================================================
Ratio of period GAP to
total rate-sensitive assets ... (17.3)% (0.6)% (8.5)% 19.2% 19.0% 11.8%
========================================================================================
Cumulative GAP ................ $(285,503) $(295,348) $(435,038) $(119,119) $194,911
========================================================================================
Ratio of cumulative GAP to
total rate-sensitive assets ... (17.3)% (17.9)% (26.4)% (7.2)% 11.8%
========================================================================================
DECEMBER 31, 1996:
Rate-sensitive assets:
Money market assets ......... $ 39,170 $ -- $ -- $ -- $ -- $ 39,170
Securities .................. 66,757 55,377 35,579 187,076 133,052 477,841
Loans ....................... 289,196 79,116 128,714 430,452 186,947 1,114,425
----------------------------------------------------------------------------------------
Total ..................... $ 395,123 $ 134,493 $ 164,293 $ 617,528 $319,999 $1,631,436
========================================================================================
Rate-sensitive liabilities:
Deposits .................... $ 547,472 $ 93,118 $ 163,719 $ 246,800 $ 4,631 $1,055,740
Borrowed funds .............. 168,749 52,290 35,400 138,800 -- 395,239
----------------------------------------------------------------------------------------
Total ..................... $ 716,221 $ 145,408 $ 199,119 $ 385,600 $ 4,631 $1,450,979
========================================================================================
Period GAP .................... $(321,098) $ (10,915) $ (34,826) $ 231,928 $315,368 $ 180,457
Ratio of period GAP to
total rate-sensitive assets ... (19.7)% (0.7)% (2.1)% 14.2% 19.4%
========================================================================================
Cumulative GAP ................ $(321,098) $(332,013) $(366,839) $(134,911) $180,457
========================================================================================
Ratio of cumulative GAP to total
rate-sensitive assets ... (19.7)% (20.4)% (22.5)% (8.3)% 11.1%
========================================================================================
</TABLE>
No.0059
<PAGE> 47
In analyzing its GAP position, although all time periods are considered,
First Western emphasizes the next 12-month period. An institution is considered
to be liability-sensitive, or as having a negative GAP, when the amount of its
interest-bearing liabilities maturing or repricing within a given time period
exceeds the amount of its earning assets also repricing within that time period.
Conversely, an institution is considered to be asset-sensitive, or as having a
positive GAP, when the amount of its interest-bearing liabilities maturing or
repricing is less than the amount of its interest-earning assets also maturing
or repricing during the same period. Generally, in a falling interest rate
environment, a negative GAP should result in an increase in net interest income,
and in a rising interest rate environment, this negative GAP should adversely
affect net interest income. The converse would be true for a positive GAP.
However, shortcomings are inherent in a simplified GAP analysis that may
result in changes in interest rates affecting net interest income more or less
than the GAP analysis would indicate. For example, although certain assets and
liabilities may have the similar maturities or periods to repricing, they may
react in different degrees to changes in market interest rates. Furthermore,
repricing characteristics of certain assets and liabilities may vary
substantially within a given time period. In the event of a change in interest
rates, prepayment and early withdrawal levels could also deviate significantly
from those assumed in calculating GAP. Also, GAP does not permit analysis of how
changes in the mix of various assets and liabilities on growth rate assumptions
impact net interest income.
Due in part to the shortcomings of GAP analysis, the asset/liability
committee of First Western believes that simulation modeling more accurately
estimates the effects of and exposure to interest rate changes.
The simulation modeling performed by First Western measures the change in
net interest income over the next 12- and 24-month periods resulting from
hypothetical market interest rate changes. The simulation model includes all
financial instruments including derivative financial instruments. First
Western's simulation model includes assumptions on balance sheet changes and
growth. Prepayments on loans and mortgage-backed securities have been estimated
in the model based on industry prepayment trends.
As of December 31, 1997, First Western's simulation modeling indicates that
with a 200 basis point increase in interest rates, First Western's net interest
income would be 0.1% and 1.6% less than if rates had not changed for the next
12- and 24-month periods, respectively; and with a 200 basis point decrease in
interest rates, net interest income would be 2.6% and 4.8% less. As of December
31, 1996, First Western's simulation modeling indicated that with a 200 basis
point increase in interest rates, First Western's net interest income would have
been 0.5% and 2.1% less than if rates had not changed for the next 12- and
24-month periods, respectively; and with a 200 basis point decrease in interest
rates, net interest income would have been 2.1% and 3.9% less. The December 31,
1997 and 1996 simulation models were prepared with the assumption that the
change in interest rates would occur over the first 12 months and remain flat
thereafter.
Liquidity and Cash Flows
Liquidity is the ability to provide the cash necessary to meet customer credit
needs and satisfy depositor withdrawal requirements. One source of liquidity is
cash and short-term assets, such as interest-bearing deposits in other banks and
the Federal Home Loan Bank and federal funds sold, which totaled $47.8 million
at December 31, 1997, compared with $75.2 million at December 31, 1996. Another
source of liquidity is borrowing capability. First Western's banking subsidiary
has a variety of sources of short-term liquidity available to it, including
federal funds purchased from correspondent banks, sales of securities available
for sale, sales of securities under agreements to repurchase, the Federal
Reserve discount window, interbank deposits, FHLB advances and loan
participations or sales. At December 31, 1997, First Western had $14.2 million
of unused overnight credit lines available. First Western's port-folio of
securities available for sale is another source of liquidity. This portfolio of
securities of $177.3 million at December 31, 1997, excluding pledged securities
of $147.2 million, is recorded at current market value with a corresponding
adjustment to equity, net of income tax effects. Therefore, these securities may
be sold to meet liquidity needs if necessary without impacting First Western's
equity. First Western also generates liquidity from the regular principal
payments and prepayments made on its portfolio of loans and mortgage-backed
securities.
First Western's operating activities generated cash flows of $157.4 million
in 1997, compared with $56.0 million in 1996 and $54.2 million in 1995. The
primary source of operating cash flows for 1997, 1996 and 1995 was the sale of
mortgage loans and net income combined with noncash expenses, such as the
provision for possible loan losses and depreciation.
Investing activities used cash flows of $152.6 million in 1997, compared
with $171.4 million in 1996 and $46.8 million in 1995. During 1997, the growth
of the loan portfolio used net cash flows of $126.0 million, compared with
$157.8 million in 1996 and $208.6 million in 1995. The funding of the loan
growth in 1997 was provided by the first-quarter loan sales.
No.0060
<PAGE> 48
The funding of the loan growth in 1996 was primarily provided by increased
borrowings, while the loan growth in 1995 was funded by the proceeds of branch
purchases and increased deposits. During 1997, the portfolio of securities
available for sale, combined with the portfolio of investment securities and
mortgage-backed securities held to maturity, used net cash flows of $72.3
million compared with using cash flows of $11.3 million in 1996 and providing
cash flows of $62.0 million in 1995.
Financing activities provided cash flows of $192,000 in 1997, compared with
providing cash flows of $112.0 million in 1996 and using cash flows of $10.8
million in 1995. During 1997, the cash flows provided by increased deposits and
the trust preferred securities offering were offset by net decreases in
borrowings and other financing uses such as the purchase of treasury stock. An
increase in borrowings provided cash flows of $152.3 million in 1996, compared
with using cash flows of $54.5 million in 1995. First Western reduced borrowings
during 1995 with the funds provided by the branch acquisitions and the deposit
growth.
Shareholders' Equity and Capital Resources
Shareholders' equity at December 31, 1997 was $138.8 million, increasing $11.1
million, or 8.7%, from $127.7 million at December 31, 1996, due to the retention
of $13.9 million of earnings during 1997 and a $4.6 million increase in the
market value of the portfolio of securities available for sale, net of income
tax effects, with these increases partially offset by the repurchase of $7.8
million of common stock for treasury stock. During the fourth quarter of 1997,
First Western's Board of Directors reauthorized a common stock repurchase
program that permits the repurchase of up to 335,000 shares, or approximately
3%, of the Company's outstanding shares of common stock from time to time at
current market prices from available corporate funds. First Western's ratio of
shareholders' equity to total assets was 7.96% at December 31, 1997, compared
with 7.53% and 7.59% at December 31, 1996 and 1995, respectively. The book value
per share was $12.47 at December 31, 1997, compared with $11.16 and $10.45 at
December 31, 1996 and 1995, respectively.
On February 11, 1997, First Western completed the private placement of $25
million of 9.875% capital securities due February 1, 2027. Securities of this
type received approval in October 1996 from the Federal Reserve Bank to qualify
as Tier I capital, and the interest payable thereon is currently considered
to be tax-deductible.
First Western, as a bank holding company, is required to meet certain
risk-based capital and leverage requirements. The risk-based capital
requirements redefine the components of capital, categorize assets into
different risk classes, and include certain off-balance sheet items in the
calculation of the adequacy of capital. A financial institution's capital is
divided into two classes, Tier I and Tier II.
First Western's Tier I and Tier II capital consisted of the following at
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
TIER I:
Common shareholders' equity ................. $ 138,842 $ 127,721
Non-exempt intangible assets ................ (9,262) (6,575)
Trust preferred capital securities .......... 23,837 --
Unrealized appreciation in securities
available for sale ...................... (5,443) (884)
---------------------------
Total Tier I ......................... 147,974 120,262
---------------------------
TIER II:
Qualifying allowance for possible loan losses 13,658 13,190
---------------------------
Total Tier II ........................ 13,658 13,190
---------------------------
Total capital .................................. $ 161,632 $ 133,452
===========================
Risk-weighted assets ........................... $1,088,249 $1,052,329
===========================
Tier I capital ratio ........................... 13.60% 11.43%
===========================
Required Tier I capital ratio .................. 4.00% 4.00%
===========================
Total capital ratio ............................ 14.85% 12.68%
===========================
Required total capital ratio ................... 8.00% 8.00%
===========================
</TABLE>
No.0061
<PAGE> 49
First Western's regulatory capital ratios improved from December 31, 1996
to December 31, 1997, primarily as a result of the issuance of trust preferred
securities which are included in Tier I capital. First Western is also subject
to a minimum Tier I leverage ratio based on Tier I capital to total average
assets. The required ratio for each financial institution is determined based on
the financial institution's relative soundness. A minimum ratio of Tier I
capital to total assets of 3% has been established for top-rated financial
institutions, with less highly rated institutions or those with higher levels of
risk required to maintain ratios of 100 to 200 basis points above the minimum
level. First Western's Tier I leverage ratio was 8.73% at December 31, 1997,
compared with 7.10% at December 31, 1996.
The common stock of First Western is traded on the Nasdaq Stock Market
under the symbol "FWBI." As of March 2, 1998, there were 11,192,000 shares of
common stock outstanding held by approximately 5,000 holders of record. The
following table sets forth the high and low sales prices for the common stock,
as reported by the Nasdaq Stock Market, and the cash dividends declared per
share on the common stock, for the periods indicated. The prices and dividends
set forth below have been adjusted to reflect the three-for-two stock split
effected in the form of a 50% stock dividend paid on August 15, 1997.
<TABLE>
<CAPTION>
CASH
SALES PRICE PERIOD DIVIDENDS
------------------- END DECLARED
HIGH LOW CLOSE PER SHARE
------------------------------------------
<S> <C> <C> <C> <C>
1997:
First Quarter ........................... $21.00 $17.33 $21.00 $0.13
Second Quarter .......................... 25.17 20.00 25.17 0.13
Third Quarter ........................... 28.50 23.75 27.00 0.15
Fourth Quarter .......................... 29.13 25.38 28.50 0.15
1996:
First Quarter ........................... $18.33 $17.00 $17.83 $0.12
Second Quarter .......................... 18.00 15.83 16.50 0.12
Third Quarter ........................... 17.83 13.83 17.17 0.12
Fourth Quarter .......................... 18.83 17.00 17.50 0.13
</TABLE>
No.0062
<PAGE> 1
101 East Washington Street
P.O. Box 1488
New Castle, PA 16103-1488
Telephone: (724) 652-8550
Fax: (724) 652-0246
LOGO
March 20, 1998
To Our Shareholders:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
First Western Bancorp, Inc., to be held on Tuesday, April 21, 1998, beginning at
10:30 a.m., local time, at the New Englander, 3009 Wilmington Road, New Castle,
Pennsylvania. In the back of this Proxy are directions to the New Englander; if
you need additional assistance, please contact the corporate office at (800)
696-2572.
In addition to our regular business, we will present summary performance
information for 1997 and discuss our progress with some of our profit
initiatives. Several associates will discuss their experiences and current
initiatives as we continue our drive to be a superior bank. Following the
meeting, a light lunch will be served to all attending shareholders to provide
an opportunity to meet informally with the directors and management of First
Western and its subsidiaries. Please accept this invitation to attend the
meeting and join us for the luncheon afterwards.
The formal Notice of Annual Meeting and Proxy Statement, which follow, include a
listing and discussion of the matters upon which you will act.
Whether or not you plan to attend the meeting, we urge you to mark, sign, date
and return the enclosed Proxy Card in the accompanying postage-paid envelope so
that as many shares as possible may be represented at the meeting. Your vote is
important and your cooperation in executing and returning the Proxy Card
promptly will be appreciated.
Sincerely,
/s/ THOMAS J. O'SHANE
-----------------------
Thomas J. O'Shane
Chairman, President and
Chief Executive Officer
Subsidiaries: First Western Bank, N.A. - First Western Trust Services Company
<PAGE> 2
101 East Washington Street
P.O. Box 1488
New Castle, PA 16103-1488
Telephone: (724) 652-8550
Fax: (724) 652-0246
LOGO
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of First Western
Bancorp, Inc. ("First Western") will be held at the New Englander, 3009
Wilmington Road, New Castle, Pennsylvania 16105, on Tuesday, April 21, 1998 at
10:30 a.m., local time, for the purpose of considering and voting upon the
following:
1. The election of three directors whose terms will expire in 2001 and one
director whose term will expire in 1999; and
2. The approval of a new Equity Compensation Plan for Non-Employee Directors,
with an aggregate of 200,000 shares of Common Stock reserved for issuance
under the plan.
3. Such other business as may properly be brought before the meeting and any
adjournment or adjournments thereof.
Only shareholders of record of First Western at the close of business on March
9, 1998 are entitled to notice of and to vote at the Annual Meeting.
Enclosed herewith are a Proxy Statement and form of Proxy. We urge you to mark,
date, sign and return the Proxy as promptly as possible whether or not you plan
to attend the meeting in person. If you do attend the meeting, you may, if you
wish, withdraw your Proxy and vote in person. In any event, you may revoke your
Proxy prior to its exercise.
By Order of the Board of Directors,
/s/ ROBERT H. YOUNG
------------------------
Robert H. Young
Executive Vice President-Chief
Financial Officer,
Secretary and Treasurer
New Castle, Pennsylvania
March 20, 1998
-1-
Subsidiaries: First Western Bank, N.A. - First Western Trust Services Company
<PAGE> 3
[THIS PAGE INTENTIONALLY LEFT BLANK]
-2-
<PAGE> 4
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
FIRST WESTERN BANCORP, INC.
GENERAL INFORMATION
The accompanying Proxy is being solicited by the Board of Directors of First
Western Bancorp, Inc. ("First Western" or the "Company") for use at the Annual
Meeting of Shareholders of First Western to be held April 21, 1998, 10:30 a.m.,
local time, at the New Englander, 3009 Wilmington Road, New Castle, Pennsylvania
and for use at any adjournment or adjournments thereof.
The Proxy may be revoked at any time prior to its exercise by written notice of
revocation or by a later dated Proxy sent to the Secretary of First Western at
its principal executive offices, provided such notice is received prior to
exercise. Shareholders who attend the meeting may, if they wish, withdraw their
Proxy and vote in person.
The Board of Directors has fixed the close of business on March 9, 1998, as the
record date for the determination of shareholders entitled to notice of and to
vote at the Annual Meeting. As of that date First Western had issued and
outstanding 11,203,298 shares of its common stock, par value $5.00 per share
("Common Stock"), eligible to vote at the Annual Meeting. First Western's
authorized capital consists of 20,000,000 shares of Common Stock and 4,000,000
shares of preferred stock, without par value ("Preferred Stock"). No shares of
preferred stock have been issued. Holders of Common Stock are entitled to one
vote for each share of Common Stock held on all matters, except with respect to
the election of directors, for which shareholders have the right to cumulate
their votes.
First Western is a Pennsylvania business corporation and is registered with the
Federal Reserve Board as a bank holding company, with one wholly-owned banking
subsidiary, First Western Bank, National Association ("FW Bank" or "Bank"). A
former banking subsidiary, First Western Bank, Federal Savings Bank ("FW
Savings"), was merged into FW Bank in September 1997. First Western has three
non-banking subsidiaries: First Western Trust Services Company ("Trust
Services"), which provides trust, estate management and financial services to
customers in the market areas of FW Bank, First Western Investment Services
Company, a Delaware investment company which holds investment securities for
First Western, and First Western Capital Trust I, a Delaware business trust.
The principal executive offices of First Western are located at 101 East
Washington Street, New Castle, Pennsylvania 16101 (mailing address: P. O. Box
1488, New Castle, Pennsylvania, 16103-1488). This Proxy Statement and the
accompanying Notice of Meeting and Proxy Card are first being mailed to
shareholders on or about March 20, 1998. A copy of First Western's Annual Report
for the fiscal year ended December 31, 1997, which includes First Western's
consolidated financial statements, accompanies this mailing.
All expenses of this solicitation, including the cost of mailing, will be borne
by First Western. First Western will not pay any compensation for the
solicitation of proxies, but upon request will reimburse banks, brokers, and
other nominees, fiduciaries and custodians for their reasonable expenses
incurred in sending these proxy materials to beneficial owners and obtaining
their instructions. In addition, proxies may be solicited by directors, officers
and management personnel of First Western and its subsidiaries. Solicitations
may be made by mail, telephone, facsimile or in person.
-3-
<PAGE> 5
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of First Western provide that the Board of Directors shall consist of
not fewer than five persons, the exact number to be fixed and determined from
time to time by a resolution of the Board or of the shareholders. The Board's
current size is set at eleven members. On May 30, 1997, John P. O'Leary, Jr.
resigned from the Board for personal reasons, resulting in a reduction in the
total size of the Board from twelve to eleven members. Pursuant to First
Western's Bylaws, as amended, nominations for directors other than those made by
the Board must be in writing and delivered or mailed to the Chairman of First
Western no later than January 31 for an election to be held at the annual
meeting of shareholders that year and no later than 45 days prior to any other
meeting of shareholders called for the election of directors; provided, however,
that if less than 21 days notice of such other meeting is given to shareholders,
then nominations for directors shall be mailed or delivered to the Chairman of
First Western no later than the close of business on the seventh day following
the day on which such notice of meeting was mailed. Nominations by shareholders
shall contain the following information to the extent known by the nominating
shareholder: (i) the name and address of the proposed nominee; (ii) the
principal occupation of the proposed nominee; (iii) the total number of shares
of Common Stock to be voted for the proposed nominee; (iv) the name and resident
address of the nominating shareholder; and (v) the number of shares of Common
Stock held by the nominating shareholder.
The Board, prior to the 1998 Annual Meeting, is currently divided into two
classes of four members each (1998 and 1999) and one class of three members
(2000). The term of office of one class expires each year. Nominees to the class
of directors whose term expires at each Annual Meeting are generally elected for
a three-year term. However, in the event the number of directors is changed, any
increase or decrease is to be so apportioned among the classes so as to maintain
the classes as nearly equal in number as possible. Any additional director of a
class shall hold office for a term which shall coincide with the term of such
class.
In February 1995, the Board adopted an amendment to the Bylaws which permits a
former President or Chairman to be nominated to the Board for a one-year term
without regard to any age limitation in the Bylaws. Section 2.3 of the Bylaws
requires retirement from the Board at the expiration of a director's term after
reaching age 70. In adopting the amendment, the Board recognizes that a former
President or Chairman of First Western would provide experience, expertise and
historical continuity to First Western and would provide significant and
substantial value in continuing to be represented on the Board, subject to
election at each Annual Meeting of Shareholders that such person continues to be
nominated. John W. Sant, age 77, former Chairman, President and Chief Executive
Officer, is being nominated by the Board for an additional one-year term to
expire in 1999. At Annual Meetings in 1995, 1996 and 1997, Mr. Sant was
nominated for and reelected to the Board for successive one-year terms.
The class whose term will expire as of the date of the 1998 Annual Meeting of
Shareholders consists of four directors, all of whom are nominees for
reelection. The Board has nominated three persons for election as directors for
a three-year term expiring in 2001--Wendell H. Boyd, Robert C. Duvall and Louis
J. Kasing, Jr. as continuing directors, and John W. Sant as a continuing
director for a one-year term expiring in 1999. Assuming the election of these
three nominees to the 2001 class and Mr. Sant to the 1999 class, the 1999 class
of directors will consist of five members, and the 2000 and 2001 class of
directors will consist of three members each.
Each nominee has advised First Western of his willingness and ability to serve
if elected. If however, prior to the election of directors at the 1998 Annual
Meeting, any of the nominees becomes unavailable or proves unable to serve for
any reason, proxies will be voted for the election of such other person or
persons as the Board of Directors may select to replace such nominee. MANAGEMENT
AND THE BOARD RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTORS.
The Articles of Incorporation of First Western provide that in all elections of
directors, each shareholder has the right to vote the number of shares owned by
him for as many persons as there are directors to be elected, or to cumulate
such votes and give one candidate as many votes as equals the number of
directors multiplied by the number of shares, or to distribute his total votes
among as many candidates as desired. Unless otherwise specified, execution of a
Proxy will confer discretionary authority to the persons named therein as
proxies to cumulate votes.
-4-
<PAGE> 6
First Western is organized under the laws of the Commonwealth of Pennsylvania.
Pursuant to the provisions of the Pennsylvania Business Corporation Law of 1988,
as amended, the affirmative vote of a plurality of the votes cast by the
shareholders at an annual meeting of a corporation is required to elect the
directors of that corporation. Accordingly, abstentions and broker non-votes
have no effect on the outcome of the election of directors. Proxies solicited by
the Board of Directors will be voted in favor of the nominees for directors
unless otherwise indicated thereon.
The following tables set forth certain information about the nominees for
election as directors and about the continuing directors of First Western. The
information includes the number of shares of Common Stock which each of them
owned beneficially as of January 31, 1998, and the percentage which those shares
represented of the total outstanding Common Stock in any instance where the
percentage equaled or exceeded one percent. Each nominee or director has been
engaged in the principal occupation listed for five years or more, except as
otherwise indicated in the table. Except as noted below, there are no family
relationships among current directors, nominees for directors, executive
officers or nominees for executive officers of either First Western or its
subsidiaries.
NOMINEES FOR DIRECTORS WHOSE TERMS WILL EXPIRE IN 2001
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1% OR
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) MORE)
- ------------------------------------------------- --------- ------------ ---------
<S> <C> <C> <C>
Wendell H. Boyd 58 13,956 --
Partner, D.M. Boyd Co. (manufacturer of
modified soils for golf course industry);
Member, Audit and Loan Review Committees of
First Western; Director of First Western since
1995
Robert C. Duvall 55 32,591 --
Vice President of Finance, Wampum Hardware Co.
(explosives distributor for the blasting
industry); Director, Nobel Insurance Limited;
Officer and Director of IRECO Midwest, Inc.
(affiliated with Wampum Hardware Co.);
Chairman, Compensation Committee and Member,
Nominating/Corporate Governance and
Asset/Liability Committees of First Western;
Director of First Western since 1995(3)
Louis J. Kasing, Jr. 69 8,622 --
President, Kasing Auto Sales, Inc.; Member,
Asset/Liability, Loan Review and Dealer Center
Committees of First Western; Director of First
Western since 1990
NOMINEE FOR DIRECTOR WHOSE TERM WILL EXPIRE IN 1999
John W. Sant 77 92,557 --
Retired; Chairman, First Western through April
1995; President and Chief Executive Officer,
First Western through 1990; Director, Trust
Services; Chairman, Nominating/Corporate
Governance Committee and Member, Compensation
and Asset/Liability Committees of First
Western; Director of First Western since
1966(4),(5)
</TABLE>
-5-
<PAGE> 7
CONTINUING DIRECTORS WHOSE TERMS WILL EXPIRE IN 1999
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1% OR
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) MORE)
- ------------------------------------------------- --------- ------------ ---------
<S> <C> <C> <C>
John W. Lehman, M.D. 65 37,445 --
Physician, Beaver Valley Orthopedics
Association; Member, Audit,
Nominating/Corporate Governance and
Asset/Liability Committees of First Western;
Director of First Western since 1986(4)
Thomas S. Mansell 58 91,387 --
Senior Vice President, Assistant Secretary and
Legal Counsel of First Western; Director, Trust
Services; Director of First Western since
1990(6),(7)
Richard C. McGill 61 55,900 --
Retired; Former Managing Partner, McGill,
Power, Bell and Co., Certified Public
Accountants; Chairman, Loan Review Committee
and Member, Audit Committee of First Western;
Director of First Western since 1990(4)
Harold F. Reed, Jr. 70 43,369 --
Partner, Reed, Luce, Tosh, Wolford and Douglass
(law firm); Director, Tuscarora Incorporated
(manufacturer of custom molded products);
Chairman, Trust Services; Member, Compensation
Committee of First Western; Director of First
Western since 1986(4)
</TABLE>
CONTINUING DIRECTORS WHOSE TERMS WILL EXPIRE IN 2000
<TABLE>
<CAPTION>
SHARES OF PERCENT
COMMON STOCK OWNED
NAME, PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE BENEFICIALLY (IF 1% OR
DURING PAST FIVE YEARS AND DIRECTORSHIPS (1) AGE (1) OWNED(2) MORE)
- -------------------------------------------------- --------- ------------ ---------
<S> <C> <C> <C>
James M. Campbell 54 49,972 --
President, Shenango Steel Buildings, Inc. (steel
fabrication company); Member, Compensation and
Asset/Liability Committees of First Western;
Director of First Western since 1990(4),(8)
Floyd H. McElwain 51 10,695 --
President, McElwain Oldsmobile-Cadillac, Inc.;
Chairman, Audit Committee and Member, Dealer
Center Committee of First Western; Director of
First Western since 1990
Thomas J. O'Shane 50 214,294 1.86%
Chairman, First Western since April, 1996 and
President and Chief Executive Officer; Director,
Nobel Insurance Limited; Director, Federal
Reserve Bank of Cleveland-Pittsburgh Branch;
Chairman, FW Bank and Vice Chairman, Trust
Services; Chairman, Asset/Liability Committee
and Member, Nominating/Corporate Governance and
Loan Review Committees of First Western;
Director of First Western since 1988(9)
</TABLE>
-6-
<PAGE> 8
- ---------
<TABLE>
<C> <S>
(1) As of January 31, 1998.
(2) Includes shares of Common Stock owned by immediate families
(spouses, minor children and relatives sharing the same
home) of the respective persons and, if applicable, shares
of Common Stock held in the First Western Bancorp, Inc.
401(k) Profit-Sharing and Stock Bonus Plan, an individual
grantor trust related to the First Western Bancorp, Inc.
Supplemental Executive Retirement Plan, or the First Western
Bancorp, Inc. Deferred Compensation Plan for Directors.
(3) Includes 26,930 shares of Common Stock held beneficially in
the name of Wampum Hardware Co., with authority to vote such
shares.
(4) Years served as a director of First Western include years
served as director of FW Bank or its predecessors.
(5) John W. Sant is the uncle of Stephen R. Sant, President and
Chief Executive Officer of FW Bank and Executive Vice
President-Chief Operating Officer of First Western.
(6) Thomas S. Mansell disclaims beneficial ownership of 3,499
shares of Common Stock owned by his spouse and his children
which are included in the total shares indicated.
(7) Includes options to purchase 20,605 shares of Common Stock
which are exercisable within 60 days of January 31, 1998.
(8) Includes 1,009 shares of Common Stock held beneficially in
the name of Shenango Steel Buildings, Inc., with authority
to vote such shares.
(9) Includes options to purchase 127,197 shares of Common Stock
which are exercisable within 60 days of January 31, 1998.
</TABLE>
All directors and officers of First Western as a group (22 persons) owned
beneficially 998,306 shares of Common Stock of First Western (including options
to acquire 332,687 shares which are exercisable within 60 days of January 31,
1998), or 8.67% of the 11,511,161 shares of Common Stock outstanding and options
which are exercisable within 60 days of January 31, 1998.
MEETINGS AND COMMITTEES
The Board of Directors of First Western met 10 times in 1997. All incumbent
directors named above attended 75% or more of the aggregate number of Board of
Directors meetings and, if applicable to their service, committee meetings held
in 1997, except Louis J. Kasing, Jr. (68%) and John W. Lehman, M.D. (70%). The
Board of Directors currently has a Nominating/Corporate Governance Committee, a
Compensation Committee and an Audit Committee. The Board currently has no
Executive Committee, with the full Board serving in such capacity. The
Compensation Committee met eight times in 1997 and is comprised solely of
non-employee directors, including Robert C. Duvall (Chairman), James M.
Campbell, Harold F. Reed, Jr. and John W. Sant. The Nominating/Corporate
Governance Committee met four times in 1997 and is comprised of John W. Sant
(Chairman), Robert C. Duvall, John W. Lehman, M.D. and Thomas J. O'Shane.
The Audit Committee is comprised solely of independent directors, and for 1997,
included Floyd H. McElwain (Chairman), Wendell H. Boyd, John W. Lehman, M.D. and
Richard C. McGill. The Audit Committee's duties include, but are not limited to,
engaging and terminating independent auditors and approving fees charged,
reviewing the audit plan, the results of the auditing engagement, any
disagreements with management, their letter of recommendations and the adequacy
of internal accounting controls for First Western, and supervising the internal
audit function. First Western's internal audit department reports to the Audit
Committee. The Audit Committee met five times in 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Mr. Thomas J. O'Shane, Chairman, President and Chief Executive Officer of First
Western, is a director and a member of the Compensation Committee of Nobel
Insurance Limited. Mr. Robert C. Duvall, a director of Nobel Insurance Limited,
is also a director of First Western, and is Chairman of First Western's
Compensation Committee.
-7-
<PAGE> 9
Mr. John W. Sant, formerly Chairman, President and Chief Executive Officer of
First Western, is a member of the Compensation Committee. Mr. Harold F. Reed,
Jr., a member of the Compensation Committee, is Chairman of Trust Services.
DIRECTORS' COMPENSATION
Directors of First Western who are not employees of First Western or its
subsidiaries receive $750 for each meeting of the Board of Directors attended
and $350 for each committee meeting attended, with the chairperson of each
committee receiving $700 for each committee meeting attended. An annual retainer
of $4,000 is currently paid to all Board members. Occasionally, individual
directors are asked to meet with the Chairman of First Western on matters of
interest or importance or requiring the consultative services of such director.
In such situations, the per meeting rates applicable to a committee member or
committee chairperson, as the case may be, are paid to the individual.
Directors of FW Bank and Trust Services who are not employees of First Western
or its subsidiaries receive $400 for each Board meeting attended and $350 for
each committee meeting attended, with the chairperson of each committee
receiving $700 for each committee meeting attended. An annual retainer of $3,000
per member is also paid. The law firm of Reed, Luce, Tosh, Wolford and Douglass,
of which Harold F. Reed, Jr., a director, is a partner, served as an outside
legal counsel for FW Bank, for which such firm received a retainer of $20,000
plus fees for special legal work on an as-billed basis in 1997.
All Directors of First Western and/or its subsidiaries may defer the receipt of
their fees, according to the terms of the First Western Bancorp, Inc. Deferred
Compensation Plan for Directors, until the earlier of their retirement from
First Western and/or a subsidiary board or their death. The director may choose
to have deferred fees accrued with interest credited at market rates, or to have
such fees, plus prior plan balances, funded through a grantor trust agreement,
with Trust Services serving as trustee, and invested in First Western Common
Stock.
PROPOSAL NO. 2
APPROVAL OF EQUITY COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
The Board of Directors has adopted the Equity Compensation Plan for Non-Employee
Directors of First Western Bancorp, Inc. and First Western Bank, N.A. (the
"Directors' Plan"). A copy of the Directors' Plan is attached to this Proxy
Statement as Appendix A. The following summary does not purport to be fully
descriptive and reference is made to the full text of the Directors' Plan for
more detailed information.
Purpose and Effective Date. The purpose of the Directors' Plan is to increase
the ownership of Common Stock by outside directors of the Company and FW Bank by
providing for the payment of all or a substantial portion of outside directors'
retainer and meeting fees in the form of shares of Common Stock or options to
purchase such shares. The Directors' Plan became effective as of February 17,
1998, the date it was approved by the Boards of Directors of the Company and the
Bank. Approximately 24 persons will initially be eligible to participate in the
Directors' Plan. The closing price of the Common Stock on the Nasdaq Stock
Market on March 10, 1998 was $28.25 per share.
Shares Reserved and Administration. Up to an aggregate of 200,000 shares of
Common Stock may be issued under the Directors' Plan. The number of shares
available for award under the Directors Plan, and the terms and conditions of
outstanding option grants, are subject to adjustment in connection with certain
significant corporate events.
The Directors' Plan will be administered by the Board of Directors of the
Company. The Board of Directors shall have complete power and authority to amend
or terminate the Directors' Plan at any time.
Retainer Fees. Each person who first becomes a non-employee director of the
Company or FW Bank on or after the effective date of the Directors' Plan ("new
director") shall receive no cash retainer fee but instead will receive an annual
retainer fee in the form of non-qualified options to purchase Common Stock
("Retainer Fee Options"). These annual grants of Retainer Fee Options will be
made as of the date of each annual meeting of the stockholders of the Company
and will have a value as of the date of grant, determined using the
Black-Scholes option valuation model and such assumptions as the Board deems
appropriate, equal to the annual retainer amount for the applicable year.
-8-
<PAGE> 10
Each person who was a non-employee director immediately prior to the effective
date of the Directors' Plan ("current director") will receive Retainer Fee
Options as of each annual meeting date in the same manner as a new director,
except that each current director may make a one-time election to receive all
(but not less than all) of his or her annual retainer amount in the form of cash
rather than Retainer Fee Options. A current director who elects a cash portion
can subsequently revoke this election and take all Retainer Fee Options for the
future (but cannot then go back to cash).
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. 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 will accelerate upon (i) the 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) the occurrence of a
change in control (as defined in the Directors' Plan). Unvested Retainer Fee
Options will expire upon termination of Board service for any reason, and vested
options will 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 director's
cessation of Board service for any reason and (ii) in the case of a director's
retirement from the Board on or after attaining age 65, three years from the
date such option first became exercisable.
Meeting Fees. Each new director will automatically receive all meeting fees in
the form of restricted shares of Common Stock ("Meeting Fee Shares"). The
Meeting Fee Shares will be issued quarterly, but the shares will not be
transferable by the director for two years from the date of issuance, except
that gifts and other transfers to or for the benefit of immediate family members
will be permitted. The transfer restrictions will automatically lapse (i) if the
director retires from Board service on or after attaining 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 will not be
subject to forfeiture. The number of Meeting Fee Shares issuable to a new
director as of a particular quarterly issue date will equal the quotient
obtained by dividing the amount of meeting fees payable to the director as of
such date by a per share price of the Common Stock equal to 50% or more (as
determined by the Board) of the fair market value per share of the Common Stock
as of such quarter-end.
Each current director will 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 Annual Meeting, to receive all (but not less than
all) of his or her meeting fees in the form of cash rather than Meeting Fee
Shares. A director who elects a cash portion can subsequently revoke this
election and take all Meeting Fee Shares for the future (but cannot then go back
to cash).
Each non-employee director who would otherwise be receiving Meeting Fees in the
form of Meeting Fee Shares with 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 the
calendar year, or in the case of calendar year 1998, prior to the 1998 Annual
Meeting, to have all (but not less than all) of his or her Meeting Fees for such
calendar year deferred under the Company's Deferred Compensation Plan for
Directors. If a director makes such an election, the Company will 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.
Automatic Option Grants. Each new director will receive an automatic
non-qualified stock 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
Options will vest in three substantially equal installments on the first, second
and third anniversaries of the date of grant. Vesting will accelerate upon (i)
the 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 (as defined in the Directors' Plan). A current
director shall receive a grant of Automatic Options, as of the 1998 Annual
Meeting date of the Directors' Plan, only if such current director does not
elect to receive any portion of his or her retainer fees or meeting fees in
cash. Unvested Automatic Options will expire upon termination of Board service
for any reason and vested Automatic Options will 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 director's cessation of Board
-9-
<PAGE> 11
service for any reason and (ii) in the case of a director's retirement from the
Board on or after attaining age 65, three years from the date such Automatic
Option first became exercisable.
Tax Consequences. The following is a summary of the principal federal income
tax consequences of grants of Common Stock and stock options under the
Directors' Plan under present law. The summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign tax
consequences.
Under the Internal Revenue Code, the issuance of Meeting Fee Shares in lieu of
cash meeting fees will result in ordinary income to the director equal to the
fair market value of the shares of the date of issuance, determined without
regard to the transfer restrictions applicable to such Meeting Fee Shares.
Generally, the Company will be allowed, at the date of issuance, to take a
deduction for federal income tax purposes in an amount equal to the amount of
ordinary income recognized by the director.
In addition, under the Internal Revenue Code, the grant of a nonqualified stock
option to a director has no tax effect on the Company or the director to whom it
is granted. Generally, the exercise of the stock option will result in ordinary
income to the option holder equal to the excess of fair market value of the
shares at the time of exercise over the option exercise price. If the option
holder pays cash to exercise the option, the holder's tax basis in the shares
received will be the aggregate exercise price paid by the holder plus the amount
of taxable income recognized upon exercise. Upon any subsequent disposition of
such shares, gain or loss will be capital gain or loss, and will be long-term if
such shares are held more than twelve or eighteen months after exercise.
Generally, the Company will be allowed, at the time of recognition of ordinary
income by the option holder, to take a deduction for federal income tax purposes
in an amount equal to such recognized ordinary income.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
EQUITY COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS OF
FIRST WESTERN BANCORP, INC. AND
FIRST WESTERN BANK, N.A.
-----------------------------------
NAME AND POSITION DOLLAR VALUE NUMBER OF UNITS
- ----------------- ------------ ---------------
<S> <C> <C>
Non-Employee Directors as a Group (9 persons)(1) $ 36,000(2) 9,000 options(3)
</TABLE>
- ---------
(1) In addition to these nine persons, there are 15 directors of FW Bank who
will be eligible to participate in the Directors' Plan.
(2) Reflects the dollar value of retainer fees to be received in the form of
cash or Retainer Fee Options as of the date of the 1998 Annual Meeting. The
amount of meeting fees payable under the Directors' Plan will depend on the
number of meetings attended and is not, therefore, determinable at this
time. Bank director retainer fees represent an additional $45,000.
(3) Reflects the number of Automatic Options to be received as of the date of
the 1998 Annual Meeting assuming that no eligible director elects to receive
any portion of his retainer or meeting fees in cash. Bank directors have
options to purchase an additional 15,000 shares.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
APPROVAL OF THE ADOPTION OF THE DIRECTORS' PLAN.
-10-
<PAGE> 12
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation for services rendered during the
years ended December 31, 1997, 1996 and 1995 paid by First Western or its
subsidiaries to the Chief Executive Officer and the four other most highly
compensated executive officers of First Western whose annual salary and bonus
exceeded $100,000 for the year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMMON
-------------------------------- OTHER COMPENSATION STOCK
YEAR ENDED ANNUAL SECURITIES ALL OTHER OWNERSHIP
DECEMBER SALARY BONUS COMPENSATION UNDERLYING COMPENSATION (1), (6),
NAME, AGE AND PRINCIPAL POSITION (1) 31 (2) (3) (4) OPTIONS (5) (7), (8)
- ------------------------------------ ---------- ------ ----- ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. O'Shane (50)
Chairman, President and 1997 $298,000 $160,920 $ -- 10,500 $88,457 214,294
Chief Executive Officer, 1996 281,000 94,837 -- -- 47,597
First Western 1995 266,500 119,925 -- 67,500 12,724
Robert H. Young (41)
Executive Vice President-Chief 1997 143,900 51,531 -- 3,750 16,705 41,637
Financial Officer, Secretary 1996 135,800 38,610 -- -- 11,397
and Treasurer, First Western 1995 130,800 41,312 -- 22,500 12,724
Richard L. Stover (55)
Executive Vice President- 1997 143,300 51,531 -- 3,750 -- 14,300
Chief Lending Officer 1996 22,897(9) 5,093 5,596 22,500 --
First Western 1995 -- -- -- -- --
Stephen R. Sant (51)
President and Chief 1997 137,000 49,697 -- 3,750 17,022 83,895
Executive Officer, FW Bank 1996 135,800 33,555 -- -- 11,497
and Executive Vice President- 1995 128,100 40,659 -- 22,500 12,724
Chief Operating Officer,
First Western
John A. Zercher (45)
Senior Vice President-Operations 1997 114,050 40,716 -- 1,800 14,511 58,628
and Information Systems, 1996 105,600 25,344 -- -- 9,838
First Western 1995 99,600 32,868 -- 16,875 11,192
</TABLE>
- ---------
(1) As of January 31, 1998.
(2) Includes salary only. Officers who are also Directors received no
compensation for acting as Directors or for attendance at Committee meetings
in 1997, except for Mr. Young, who as a director of First Western Investment
Services Co. received $600 in fees for attendance as director.
(3) Includes payments under the Incentive Compensation Plan, which are made in
cash as soon as practicable after the close of the fiscal year. Amounts
shown for 1997 include the amount of bonus accrued for 1997 as determined in
January 1998, and excludes the bonus paid in January 1997 for 1996.
(4) Noncash compensation, in the case of each individual for each of the three
years in the table, did not exceed the lesser of $50,000 or 10% of total
compensation, except for Mr. Stover, who in 1996 received a taxable personal
benefit of $786 for a company vehicle, and a country club membership for
$4,810.
(5) Includes 401(k) Profit-Sharing and Stock Bonus Plan contributions by First
Western, which includes a total of 416 shares (excluding forfeitures) of
Common Stock with a market value of $11,856 as of December 31, 1997. Messrs.
O'Shane, Young and Sant each received 105 shares, and Mr. Zercher received
101 shares. Also includes company contributions to the Supplemental
Executive Retirement Plan determined and made in 1997 on behalf of Messrs.
O'Shane, Young and Sant totaling $76,224 for 1996 and prior years.
(6) Includes shares of Common Stock owned by immediate families (spouses, minor
children and relatives sharing the same home) of the respective persons,
shares of Common Stock held in the 401(k) Profit-Sharing and Stock Bonus
Plan, and shares of Common Stock held by individual grantor trusts related
to the Supplemental Executive Retirement Plan.
-11-
<PAGE> 13
(7) Includes options to purchase shares of Common Stock which are presently
exercisable or exercisable within 60 days of January 31, 1998 as follows:
127,197 shares, Mr. O'Shane; 22,500 shares, Mr. Young; 10,800 shares, Mr.
Stover; 59,709 shares, Mr. Sant; and 14,625 shares, Mr. Zercher.
(8) Except for Mr. O'Shane, whose Common Stock beneficial ownership represents
1.86% of the total shares of Common Stock outstanding and options which are
exercisable within 60 days of January 31, 1998, no other executive officer
named in the table beneficially owns 1% or more of such total shares of
Common Stock.
(9) Mr. Stover became an executive officer on November 4, 1996.
PENSION PLAN
The following table shows annual pension benefits payable under the First
Western Bancorp, Inc. Pension Plan (the "Pension Plan") upon retirement at age
65, in various remuneration and years-of-service classifications, assuming the
election of a retirement allowance payable as a straight life annuity with
retirement on January 1, 1998. Remuneration for these purposes is the same as
the total of salary and bonus as disclosed in the Summary Compensation Table.
Annual benefits payable are not subject to any deduction for Social Security or
other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------------
REMUNERATION(1)(2) 15 20 25 30 35
- ------------------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$150,000............................. 22,500 30,000 37,500 45,000 52,500
175,000............................. 26,250 35,000 43,750 52,500 61,250
200,000............................. 30,000 40,000 50,000 60,000 70,000
225,000............................. 33,750 45,000 56,250 67,500 78,750
250,000............................. 37,500 50,000 62,500 75,000 87,500
300,000............................. 45,000 60,000 75,000 90,000 105,000
350,000............................. 52,500 70,000 87,500 105,000 122,500
400,000............................. 60,000 80,000 100,000 120,000 140,000
450,000............................. 67,500 90,000 112,500 135,000 157,500
500,000............................. 75,000 100,000 125,000 150,000 175,000
550,000............................. 82,500 110,000 137,500 165,000 192,500
</TABLE>
- ---------
(1) Section 401(a)(17) of the Internal Revenue Code contains an annual limit on
the amount of compensation covered for purposes of accruing benefits under
the Pension Plan. For 1997, this limit was $160,000. Since such limit is
subject to future adjustments, the benefit amounts shown in the table have
been calculated without regard to this limit.
(2) Thomas J. O'Shane, Robert H. Young, Richard L. Stover, Stephen R. Sant and
John A. Zercher have 25, 11, 1, 7 and 25 whole years of service under the
plan, respectively, as of January 31, 1998. All such persons are fully
vested in their accrued benefits as of January 31, 1998, with the exception
of Mr. Stover.
Mr. Stover, as part of his employment agreement, will be eligible to receive a
retirement benefit based upon a two times years of service multiple for each
actual year worked and credited under terms of the Pension Plan, provided his
employment equals or exceeds five consecutive years worked. The additional
multiple can not be funded through the Pension Plan, and is instead recorded as
an unfunded, nonqualified accrued liability by First Western.
-12-
<PAGE> 14
OPTION GRANTS
The following table sets forth as to persons named in the Summary Compensation
Table additional information with respect to stock options granted during 1997,
including the potential realizable value from the stock options assuming the
options are exercised at the end of the option term and assuming 5% and 10%
annual rates of stock price appreciation during the option term:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------- OF ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
NUMBER OF OPTIONS EXERCISE APPRECIATION FOR
SECURITIES GRANTED TO PRICE PER OPTION TERM
UNDERLYING OPTIONS EMPLOYEES SHARE EXPIRATION ---------------------------
NAME GRANTED(1),(2) IN 1997 ($/SHARE) DATE 5%(3) 10%(3)
- ---- ------------------ ---------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. O'Shane 10,500 22.4% $ 21.33 4/15/07 $140,805 $356,895
Robert H. Young 3,750 8.0 21.33 4/15/07 50,288 127,463
Richard L. Stover 3,750 8.0 21.33 4/15/07 50,288 127,463
Stephen R. Sant 3,750 8.0 21.33 4/15/07 50,288 127,463
John A. Zercher 1,800 3.8 21.33 4/15/07 24,138 61,182
</TABLE>
- ---------
(1) As adjusted for the August 15, 1997 three-for-two stock split, effected in
the form of a 50% stock dividend.
(2) The stock options for Mr. O'Shane were granted on April 15, 1997 and are
exercisable between December, 1997 and April 1, 2000. For the other named
officers, options will vest on April 1, 2000. These options are intended to
be incentive stock options. The exercise price per share, as adjusted for
the stock split, is $21.33 per share, which was equal to the fair market
value of the Common Stock at the date of grant. Fair market value was the
average of the high and low sales prices of the Common Stock on the date of
grant on the Nasdaq Stock Market, as adjusted for the recent stock split.
The exercise price may be paid in cash, in shares of Common Stock, or a
combination of cash and such shares. The options have a term of ten years.
(3) The 5% and 10% assumed annual rates of stock price appreciation do not
reflect actual changes in the fair market value of the Common Stock since
the date of grant. The information in the table is provided in accordance
with the rules of the Securities and Exchange Commission regarding the
disclosure of compensation of executive officers, and is not intended to
forecast possible future stock price appreciation, if any.
AGGREGATED OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES
The following table sets forth the aggregated option exercises (as adjusted for
the August 1997 stock split) during the year ended December 31, 1997, and the
year-end value of options held by each of the named executive officers of First
Western in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED (1) UNEXERCISABLE (#) UNEXERCISABLE ($)(2)
- ---- ----------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Thomas J. O'Shane -- $ -- 123,819/9,993 $ 2,367,098/$71,650
Robert H. Young 9,302 148,525 21,195/5,055 321,528/46,684
Richard L. Stover -- -- 5,400/20,850 58,050/210,713
Stephen R. Sant -- -- 54,962/8,497 1,162,329/98,900
John A. Zercher 6,901 126,158 14,625/1,800 221,861,/12,906
</TABLE>
- ---------
(1) Value realized for options exercised but not sold was determined based on
the average of the high and low price of the Common Stock on the day prior
to exercise minus the exercise price, multiplied by the number of shares
acquired (as adjusted for the August 1997 stock split). If shares were sold
simultaneously upon exercise, value realized was determined based upon the
sales price.
-13-
<PAGE> 15
(2) The value of unexercised in-the-money options is calculated by determining
the difference between the fair market value of the securities underlying
the options at year-end ($28.50 per share based on the closing price of the
Common Stock at year-end) and the exercise price of the options ($4.50 per
share for 1991-granted options, $13.33 per share for 1995-granted options,
$17.75 per share for 1996-granted options and $21.33 per share for
1997-granted options), multiplied by the number of underlying securities.
CHANGE IN CONTROL AGREEMENTS
Certain executive officers of the Company, including four named in the Summary
Compensation Table (Messrs. O'Shane, Young, Stover and Sant), have entered into
change in control agreements with the Company (the "Agreements"). The Agreements
operate only upon the occurrence of a "change in control" as described below.
Absent a "change in control," the Agreements do not require the Company to
retain the executives in its employ or to pay them any specified level of
compensation or benefits.
Each Agreement provides that if a change in control of the Company or any of its
bank subsidiaries (collectively, the "Subsidiary") occurs, the Company and the
Subsidiary will be obligated to continue to employ the executive during the time
period starting upon the occurrence of a change in control and ending three
years thereafter (or, if earlier, at the executive's early retirement date or
attainment of age 65) (the "Term of Employment"). The Agreement specifies the
compensation and benefits required to be provided to the executive during the
Term of Employment.
If, during the Term of Employment, the executive is discharged by the Company or
the Subsidiary without cause or resigns for good reason, then the executive
shall receive within 30 days of the date of termination a lump sum payment equal
to the present value of monthly payments, calculated using an appropriate
discount rate, from the date of termination until the earlier of (a) the date
that is 36 months after the change in control and (b) the executive's attainment
of age 65 (the "Calculation Period"), of (i) salary at a rate equal to the
highest salary in effect during the 12 months immediately preceding the change
in control or the date of termination and (ii) bonus at a rate equal to the
greater of the annual bonuses received during the three calendar years
immediately preceding the change in control or the date of termination.
If the executive is terminated during the Term of Employment for any reason
other than cause, then until the executive reaches or would have reached normal
retirement age, (a) the executive and/or his spouse will continue to receive
insurance and health care benefits equivalent to those in effect immediately
prior to the date of termination or the date of the change in control (whichever
is more favorable), subject to reduction to avoid duplication with benefits of a
subsequent employer, (b) at and after normal retirement age, health and life
insurance benefits equivalent to those afforded retired executives under
programs in effect immediately prior to the date of termination or the date of
the change in control (whichever is more favorable) and (c) the executive will
also receive supplemental retirement benefits equal to the extra pension
benefits he would have earned had employment been continued for the entire
Calculation Period.
Generally, and subject to certain exceptions, a "change in control" shall be
deemed to have occurred if (a) final regulatory approval is obtained for any
party to acquire securities of the Company and/or the Subsidiary representing
20% or more of the combined voting power of the Company's or the Subsidiary's
then outstanding securities; (b) there is a significant change in the Company's
or the Subsidiary's board of directors not approved by the incumbent board; or
(c) final regulatory approval is obtained for a plan of complete liquidation or
dissolution or sale of all or substantially all of the Company's or the
Subsidiary's assets or certain significant reorganizations, mergers and similar
transactions involving the Company or the Subsidiary.
EMPLOYMENT AGREEMENT
First Western entered into an at-will employment agreement with Richard L.
Stover on October 25, 1996. The agreement provides that Mr. Stover will receive
a base annual salary of $135,800 and normal employee benefits, that he will
participate in First Western's Incentive Compensation Plan, Stock Option Plan
and Supplemental Executive Retirement Plan and will receive a company automobile
and reimbursement for certain clubs' dues. The agreement provides for certain
benefits under the Pension Plan as described above.
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<PAGE> 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of First Western (the
"Committee") determines the specific forms and levels of compensation for the
executive officers of First Western and administers the compensation plans of
First Western, subject to the approval of the Board of Directors. The Committee
is currently comprised of four members, all of whom are non-employee directors.
The discussion of compensation policies and practices set forth in this report
relates to compensation reported for fiscal year 1997.
COMPENSATION POLICIES
The compensation policies established and administered by the Committee are
intended to provide compensation to First Western's executive officers at
competitive levels in order to attract and retain qualified executive officers
and to award executive officers based on First Western's annual and long-term
performance. Executive compensation is generally set at levels that the
Committee believes to be within the mid-range for executive compensation for
bank holding companies which are comparable in size and performance to First
Western. The Committee views stock options and stock ownership by executive
officers as important components of performance-based compensation as the value
of stock options directly relates to the price of the Common Stock of First
Western and provides executive officers with an additional incentive to enhance
shareholder value. In January 1995 the Committee adopted a policy with respect
to executive compensation under Section 162(m) of the Internal Revenue Code. The
policy states that, in general, First Western will not adopt plans or pay
compensation to its key executives in excess of the deductible limits to First
Western specified under Section 162(m); however, it is recognized there may be
circumstances in which it is necessary or appropriate to pay compensation in
excess of such limits and First Western expressly reserves the right to
compensate executives in a manner it deems appropriate.
ELEMENTS OF EXECUTIVE COMPENSATION
Compensation of the executive officers of First Western and its subsidiaries
consists of the following three elements: base salary, cash payments under the
Incentive Plan and stock option awards under the Option Plan.
Base Salary. The Committee establishes base salaries for executive officers of
First Western by utilizing salary data obtained from a variety of sources,
including outside consultants and publicly available information. The companies
included in the survey information used by First Western are not necessarily the
same as those included in the peer group index referenced in the performance
graph included in this Proxy Statement under "Shareholder Return Performance
Graph." The Committee undertakes an annual review of the base salary level of
each executive officer of First Western, including the Chief Executive Officer.
It is the intention of the Committee that the executive officers of First
Western be paid base salaries that are approximately in the mid-range of base
salaries for executive officers at bank holding companies comparable in size and
performance to First Western. The Committee considers a variety of factors in
determining base salaries for individual executive officers, including among
others, the level of duties and responsibilities inherent in each individual's
position with First Western and the individual's performance of these duties,
First Western's financial performance, general economic conditions and
compensation trends in bank holding companies.
Incentive Plan. The Incentive Plan is intended to provide executive and other
officers of First Western and its subsidiaries with compensation tied to the
achievement of certain corporate, departmental and individual performance goals,
as approved by the Committee at the beginning of the year. If the goals approved
by the Committee are achieved, the incentive award added to the base salary paid
is intended to provide to each executive officer total cash compensation that
year in approximately the mid-range of the upper half of total cash compensation
paid to executive officers at bank holding companies comparable to First
Western. If the goals approved by the Committee are not achieved, the incentive
award would be reduced.
Corporate earnings goals, as measured by earnings per share, constitute a
significant component of each incentive award so that incentive awards are
directly dependent upon the achievement of corporate goals. The corporate
earnings component of an incentive award will be increased or reduced at a rate
equal to two and one-half times the percentage increase or shortfall, as the
case may be, in such goal. In addition to the corporate earnings goals,
individual goals for a particular year vary for each officer participating in
the Incentive Plan and are mainly based on the achievement of certain
predetermined departmental and individual goals for
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<PAGE> 17
the particular fiscal year, including among others, goals related to the
following: the department's operating budget; goals of the business unit in
which the individual participant is performing the majority of his duties;
specific job-related goals; and individual performance. Past performance, peer
group performance and perceived future opportunities are considered when
establishing departmental and individual goals.
Incentive awards for each individual executive officer are determined as a
percentage of that individual's base salary. Such percentages vary with the
officer's position and responsibilities and range in amount from 25% to 45% of
base salary. The actual amount of each individual incentive award may be
modified by the Committee to recognize outstanding performance or additional
effort when certain goals may not have been achieved due to changing business
priorities or conditions, and also may be modified to reflect an unsatisfactory
performance by an individual despite the achievement of certain goals. No
payouts will be made to any participant if one or more of the following
conditions exist: (a) earnings of the Corporation are less than 60% of budgeted
earnings, (b) cash dividends are not at least equal to non-special cash
dividends paid in the prior year, or (c) the ratio of the allowance for possible
loan losses to nonaccrual loans is less than 85%. To further protect shareholder
interests, the aggregate amount of awards to all Plan Participants for a Plan
Year may not exceed 8% of First Western's pre-tax earnings. Incentive awards
earned, if any, are paid annually in cash as soon as practicable after the end
of each fiscal year.
Options. The grant of stock options is intended to provide long-term
performance-based compensation to the executive officers of First Western.
Options also are intended to provide executive officers with an incentive to
increase and promote shareholder value. Options have previously been granted to
individual executive officers of First Western based on the performance of each
individual and their contributions to First Western's long-term growth and
profitability. Options to purchase an aggregate of 232,560 shares of Common
Stock of First Western (as adjusted for stock dividends and splits) were granted
in 1991 to certain current executive officers of First Western. Options to
purchase 120,377 shares remain outstanding as of January 31, 1998. Additional
options to purchase 199,875 shares of Common Stock (as adjusted for stock
dividends and splits) were granted under the Option Plan as of January 16, 1995
to certain current key executives who are primarily responsible for earnings
performance and shareholder value. Options to purchase 199,875 shares remain
outstanding as of January 31, 1998. These options were granted with an option
price of $13.33 per share (as adjusted), which was higher than the fair market
value per share as of such date of $12.19 (as adjusted), with vesting terms of
six months to three years and a term of ten years. Options for 132,375 shares
are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code and options for 67,500 shares are considered nonqualified
stock options. Options for 22,500 shares, intended to qualify as incentive stock
options, were granted at fair market value ($17.75) on November 4, 1996 to a new
executive officer which remain outstanding. Options to purchase 36,150 shares of
Common Stock were granted under the Option Plan as of April 15, 1997 to the same
group of officers, with an option price of $21.33 per share (as adjusted), all
of which remain outstanding, with vesting terms of six months to three years and
all of which are intended to qualify as incentive stock options. The Committee
will continue to review compensation through stock options.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The compensation of Thomas J. O'Shane, Chief Executive Officer of First Western,
is determined by the Committee based on the same criteria and elements of
compensation as the other executive officers of First Western. The Committee
believes that Mr. O'Shane's base salary of $298,000 for 1997 is consistent with
First Western's general compensation policies. The Committee believes that Mr.
O'Shane's current base salary is approximately at the mid-range of base salaries
for bank holding companies comparable to First Western, based on independent
compensation studies made available throughout the year to the Committee.
Incentive compensation is provided to Mr. O'Shane through his participation in
the Incentive Plan and is based on the achievement of specific performance goals
for a particular fiscal year as described above under "Incentive Plan." The
Committee may also modify an award under the Incentive Plan for Mr. O'Shane (or
any other executive officer) by considering additional factors believed to be
relevant in determining the incentive compensation of the Chief Executive
Officer for a particular fiscal year, such as the performance of other duties
that enhanced First Western's overall financial performance for a given year. A
significant portion of Mr. O'Shane's total compensation is dependent upon the
achievement of the corporate earnings goal as measured by earnings per share,
and thus, a significant portion of his total compensation is at risk. The
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<PAGE> 18
corporate earnings per share goal under the Incentive Plan for fiscal 1997 was
determined in January 1997. In January 1998, based on the measurement of
achieving the earnings per share goal under the Incentive Plan, the Committee
determined that Mr. O'Shane should receive an incentive award of $160,920 for
fiscal 1997. This award was increased from the prior year's $94,837 as First
Western more than fully achieved the earnings per share goal in 1997, primarily
due to reduced consumer loan losses and gains on sales of loans.
Mr. O'Shane participates in the Option Plan described above and was granted
options intended to qualify as incentive stock options to purchase an aggregate
of 111,627 shares of Common Stock of First Western (as adjusted for stock
dividends and splits) in 1991, of which 55,812 shares remain outstanding at an
exercise price of $4.50 per share. These options are fully vested and will
expire ten years after date of grant. On January 16, 1995, he was granted
options to purchase an additional 67,500 shares of Common Stock, all of which
are nonqualified and which are exercisable after six months for any time up to
ten years from the date of grant at an exercise price of $13.33 per share. These
options are included in the total grant of 199,875 options to all executives
noted above. On April 15, 1997, he was granted options to purchase an additional
10,500 shares of Common Stock, which are incentive stock options with an
exercise price of $21.33 that vest from six months through three years from the
date of grant. The grant of these options, as with the options granted to other
executive officers of First Western, is intended to provide Mr. O'Shane with a
long-term incentive to enhance and improve shareholder value.
The foregoing report has been furnished by the members of the Compensation
Committee of the Board of Directors.
Robert C. Duvall, Chairman
James M. Campbell
Harold F. Reed, Jr.
John W. Sant
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<PAGE> 19
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the cumulative
total shareholder return on the Common Stock against the cumulative total return
of the Nasdaq Composite Market (U.S. Companies) and Nasdaq Bank Stocks for the
period of five years from December 31, 1992 through December 31, 1997.
<TABLE>
<CAPTION>
NASDAQ
Stock Market
Measurement Period First Western (U.S. NASDAQ
(Fiscal Year Covered) Bancorp, Inc. Companies) Bank Stocks
<S> <C> <C> <C>
12/31/92 100.000 100.000 100.000
12/31/93 102.7 114.8 114.0
12/30/94 99.9 112.2 113.6
12/29/95 152.5 158.7 169.2
12/31/96 150.0 195.2 223.4
12/31/97 250.3 239.5 377.4
</TABLE>
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
First Western Bancorp, Inc........... 100.0 102.7 99.9 152.5 150.0 250.3
Nasdaq Stock Market (U.S.
Companies)......................... 100.0 114.8 112.2 158.7 195.2 239.5
Nasdaq Bank Stocks................... 100.0 114.0 113.6 169.2 223.4 377.4
</TABLE>
The information in the graph was provided by The University of Chicago Graduate
School of Business--Center for Research in Security Prices. It assumes an
initial investment of $100 and reinvestment of dividends during the period
presented in the graph.
TRANSACTIONS WITH DIRECTORS,
NOMINEES, OFFICERS AND ASSOCIATES
To the knowledge of the management of First Western, no entity owns of record or
beneficially 5% or more of the outstanding Common Stock (11,178,474 shares) as
of January 31, 1998.
Certain directors, nominees and officers of First Western and its subsidiaries
and their associates were customers of the Banks during 1997. Transactions which
involved loans or commitments by the Banks were made in the ordinary course of
business and with substantially similar terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and did not involve more than normal risk of collectibility or
present other unfavorable features.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, First Western's directors, its executive
officers, and any persons holding more than ten percent of the Common Stock are
required to report their initial ownership of the Common Stock and any
subsequent changes in that ownership to the Securities and Exchange Commission
and NASDAQ. Specific due dates for these reports have been established and First
Western is required to disclose in this proxy statement any failure to file by
those dates during or for 1997. All of these filing requirements were satisfied
during 1997, except that one transaction during the month of May, 1997 for
Stephen R. Sant was not timely reported on Form 4, which was corrected by filing
a Form 4 in June, 1997. In making the foregoing disclosure, First Western has
relied solely on representations of its directors and executive officers and
copies of the reports that they have filed with the Commission.
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<PAGE> 20
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP served as independent public accountants for First Western
and its subsidiaries for the year ended December 31, 1997. The Audit Committee
of the Board of Directors, at its February 24, 1998 meeting, recommended the
appointment of Deloitte & Touche LLP, independent public accountants to audit
the consolidated financial statements of First Western and its subsidiaries for
the year ending December 31, 1998. It is anticipated that this recommendation
will be acted upon and approved at the next regularly scheduled meeting of the
Board of Directors on April 21, 1998. Representatives of Deloitte & Touche LLP
will be present at the Annual Meeting and will be available to respond to
appropriate shareholder questions, and to make a statement if they desire to do
so.
ANNUAL REPORT ON FORM 10-K
UPON WRITTEN REQUEST TO ROBERT H. YOUNG, SECRETARY OF FIRST WESTERN (AT THE
ADDRESS SPECIFIED BELOW), BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED HEREBY,
FIRST WESTERN WILL FURNISH TO SUCH SHAREHOLDER WITHOUT CHARGE A COPY OF ITS 1997
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
TOGETHER WITH CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES THERETO.
SHAREHOLDER PROPOSALS
If any shareholder wishes to present a proposal at the 1999 Annual Meeting of
Shareholders, the proposal will be considered for inclusion in the Proxy
material only if received no later than November 20, 1998. Any such proposal
should be addressed to Robert H. Young, Secretary, P. O. Box 1488, New Castle,
PA 16103-1488.
ADDITIONAL INFORMATION
First Western knows of no other business to be presented at this time. If any
matters come before the meeting, the persons named in the Proxy will vote in
accordance with the recommendations of the Board. WE URGE YOU TO SIGN AND RETURN
THE ENCLOSED PROXY AS SOON AS POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. If you do attend the meeting, you may then withdraw your
Proxy. In any event, you may revoke your Proxy prior to its exercise. The
revocation of a proxy will not be effective, however, until written notice of
the revocation has been given to the Secretary of First Western.
/s/ ROBERT H. YOUNG
--------------------------
Robert H. Young
Executive Vice President - Chief
Financial Officer, Secretary
and Treasurer
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<PAGE> 21
DIRECTIONS TO THE NEW ENGLANDER
3009 WILMINGTON ROAD, NEW CASTLE, PA
South of New Castle
North on Route 60. Take the Mitchell Road exit. Proceed to stop light at Route
18. Turn right heading south on Route 18. Proceed approximately one mile and the
New Englander is on the right.
North of New Castle
South on Route 60. Take the Mitchell Road exit. Proceed to stop light at Route
18. Turn right heading south on Route 18. Proceed approximately one mile and the
New Englander is on the right.
East of New Castle
West on Route 422. Take the Route 422 bypass around New Castle. Proceed on Route
422 west bypass as it becomes Route 60 north. Take the Mitchell Road exit.
Proceed to stop light at Route 18. Turn right heading south on Route 18. Proceed
approximately one mile and the New Englander is on the right.
West of New Castle
Route 80 east to Route 60 south. Take the Mitchell Road exit. Proceed to stop
light at Route 18. Turn right heading south on Route 18. Proceed approximately
one mile and the New Englander is on the right.
or
East on Route 422 to Route 60 north. Take the Mitchell Road exit. Proceed to
stop light at Route 18. Turn right heading south on Route 18. Proceed
approximately one mile and the New Englander is on the right.
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<PAGE> 22
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).
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<PAGE> 23
(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.
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<PAGE> 24
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> 25
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.
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<PAGE> 26
(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.
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<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
FIRST WESTERN BANK, NATIONAL ASSOCIATION
FIRST WESTERN TRUST SERVICES COMPANY
FIRST WESTERN INVESTMENT SERVICES COMPANY
FIRST WESTERN CAPITAL TRUST I
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statements of
First Western Bancorp, Inc. on Form S-8 (No. 33-46923)for the First Western
Bancorp, Inc. 401(k) Profit-Sharing and Stock Bonus Plan, on Forms S-8 (Nos.
33-00528 and 33-50372) for the First Western Bancorp, Inc. Incentive Stock
Option Plan for Key Employees and on Form S-3 (No. 33-40596), as amended, for
the First Western Bancorp, Inc. Dividend Reinvestment and Additional Stock
Purchase Plan of our report dated January 23, 1998 (February 23, 1998 as to
Note 23), appearing in and incorporated by reference in this Annual Report on
Form 10-K of First Western Bancorp, Inc. for the year ended December 31, 1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 25, 1998
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<NAME> FIRST WESTERN BANCORP, INC.
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