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FILED PURSUANT TO RULE 424(a)
REGISTRATION NOS. 333-67197
333-67197-01
SUBJECT TO COMPLETION, DATED JANUARY 26, 1999
2,000,000 PREFERRED SECURITIES
FW CAPITAL I
% CUMULATIVE PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10 PER PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED
ON A SUBORDINATED BASIS AS DESCRIBED IN THIS PROSPECTUS BY
FIRST WESTERN CORP.
(FIRSTATE BANK OF COLORADO LOGO)
The preferred securities of FW Capital I offered by this prospectus
generally consist of an indirect interest in % junior subordinated
debentures of First Western. The junior subordinated debentures have the same
payment terms as the preferred securities and will be purchased and held by FW
Capital I using proceeds of this offering. A brief description of the preferred
securities can be found under "Prospectus Summary -- The Offering" in this
prospectus.
The preferred securities are approved for trading on the American Stock
Exchange under the trading symbol FWT.Pr.A. We expect that the preferred
securities will begin trading on the American Stock Exchange when they are
issued.
YOU SHOULD CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 6 BEFORE INVESTING
IN THE PREFERRED SECURITIES.
The preferred securities are not savings accounts or deposits and are not
insured by the Federal Deposit Insurance Corporation or any other governmental
agency.
<TABLE>
<CAPTION>
PER PREFERRED
SECURITY TOTAL
------------- -----------
<S> <C> <C>
Per preferred security..................... $10 $20,000,000
Proceeds to FW Capital I................... $10 $20,000,000
</TABLE>
Underwriting commissions of $ per preferred security, or a total of
$ , will be paid by First Western for arranging the investment in the
junior subordinated debentures. The underwriters may purchase up to an
additional 300,000 preferred securities to cover over-allotments.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HOWE BARNES INVESTMENTS, INC.
, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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(MAP OF LOCATIONS)
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PROSPECTUS SUMMARY
This summary provides an overview of selected information contained
elsewhere in this prospectus and does not contain all the information you should
consider. Therefore, you should also read the more detailed information set
forth in this prospectus, the financial statements of First Western and the
other information that is incorporated by reference in this prospectus. Unless
otherwise indicated, all information in this prospectus assumes that the
underwriters' over-allotment option is not exercised.
FIRST WESTERN AND FW CAPITAL I
First Western, a multibank holding company, offers full service community
banking through 10 banking locations in metropolitan Denver and northern
Colorado, and two banking locations in western and central Nebraska. First
Western plans to open two new branches in Colorado in 1999.
First Western's growth strategy is to establish startup branches at
reasonable costs and staff them with experienced bankers. Consolidation within
the Colorado banking community has resulted in the availability of highly
capable bankers with existing customer relationships who prefer to work in a
community banking environment. Consequently, since 1995, First Western has
opened seven branches with highly qualified personnel who have strong customer
contacts and who initiate immediate banking business. First Western has
implemented its branch expansion through a central operating system, and
believes that its existing management, systems and facilities are capable of
supporting additional growth without proportionate increases in operating costs.
First Western has experienced significant growth since 1995 due to its
expansion strategy. Total assets have increased to $335.5 million as of
September 30, 1998 from $227.6 million as of December 31, 1997 and $125.0
million as of December 31, 1996. First Western has maintained above average
profitability while achieving strong asset growth. During the same time period,
net income increased to $3.0 million for the nine months ended September 30,
1998, from $2.5 million for the year ended December 31, 1997 and $1.6 million
for the year ended December 31, 1996. On an annualized basis, as of September
30, 1998, return on average assets of First Western equaled 1.49%, while return
on average equity was 21.47%.
First Western's principal executive office is located at 11210 Huron
Street, Northglenn, Colorado, and its telephone number is (303) 451-1010.
FW Capital I is a business trust created in 1998 for the purpose of
offering the preferred securities and purchasing the junior subordinated
debentures of First Western. FW Capital I will have a term of 30 years, but may
dissolve earlier as provided in its trust agreement.
THE OFFERING
Preferred Securities
Issuer..................... FW Capital I
Securities Offered......... FW Capital I is offering 2,000,000 of its preferred
securities, which generally represent an indirect
interest in junior subordinated debentures issued
by First Western and held by FW Capital I. First
Western believes that the preferred securities
provide access to 30-year financing on more
favorable terms to First Western than other
financing alternatives.
FW Capital I will sell its preferred securities to
the public and its common securities to First
Western. Together, the preferred securities and the
common securities are referred to as the trust
securities. FW Capital I will use the proceeds from
the sale of the trust securities to buy a series of
% junior subordinated debentures due
, 2029 from First Western with
the same payment terms as the preferred securities.
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Quarterly Distributions Are
Payable to You on the
Preferred Securities..... The distributions payable on each preferred
security will:
- be fixed and accumulate at a rate per year of
%;
- accrue from the date of issuance of the preferred
securities; and
- be payable after each calendar quarter on the
15th day of January, April, July and October of
each year that the preferred securities are
outstanding, beginning on April 15, 1999.
First Western and FW
Capital I Have Rights to
Defer Distributions to
You on the Preferred
Securities............... FW Capital I will defer distributions on the
preferred securities if First Western defers
interest payments on the junior subordinated
debentures. First Western generally has the right
to defer interest payments on the junior
subordinated debentures for up to 20 consecutive
quarters. During any deferral period, you will
still accumulate distributions at the annual rate
of %, plus you will earn interest at the
annual rate of %, compounded quarterly, on any
unpaid distributions.
You Will Still be Taxed
Even If Distributions on
the Preferred Securities
are Deferred............. If distributions on the preferred securities are
deferred, you will also be required to accrue
interest income and include it in your gross income
for United States federal income tax purposes for
as long as the junior subordinated debentures
remain outstanding, even if you are a cash basis
taxpayer. For further information on deferrals and
their tax consequences, see "Risk
Factors -- Distributions on the preferred
securities may be deferred; you may have to include
interest in your taxable income before you receive
cash," "Description of Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period" and "Material Federal Income Tax
Consequences -- Interest Income and Original Issue
Discount."
You Will Be Required to
Sell Your Preferred
Securities to FW Capital
I When the Junior
Subordinated Debentures
Mature or If They Are
Prepaid.................. The junior subordinated debentures will mature on
, 2029. You will be required to sell
your preferred securities to FW Capital I upon the
stated maturity date of the junior subordinated
debentures or earlier if they are prepaid. In the
case of prepayment of the junior subordinated
debentures, FW Capital I will redeem your preferred
securities on the date of payment of the junior
subordinated debentures.
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If the Junior Subordinated
Debenture Are Prepaid
Your Preferred Securities
Will Be Redeemed......... Upon First Western having received prior approval
of the Federal Reserve, if required, First Western
may prepay the junior subordinated debentures prior
to maturity:
- on or after , 2004; or
- at any time upon events occurring which may have
a significant adverse effect on First Western's
benefits of having the preferred securities
outstanding.
Upon any prepayment of the junior subordinated
debentures, your preferred securities will be
redeemed at the liquidation amount of $10 per
preferred security plus any accrued and unpaid
distributions to the date of redemption. For
further information on redemptions, see
"Description of the Preferred
Securities -- Redemption -- Mandatory and Optional
Rights of First Western" and "Description of Junior
Subordinated Debentures -- Redemption."
At its Option, First
Western May Require You to
Exchange Your Preferred
Securities For its Junior
Subordinated
Debentures............... First Western has the right at any time to dissolve
or liquidate FW Capital I and distribute the junior
subordinated debentures to you in exchange for your
preferred securities. However, First Western must
receive prior approval of the Federal Reserve and
pay the creditors of FW Capital I. Upon a
dissolution or liquidation of FW Capital I, you
will receive junior subordinated debentures in
exchange for the same principal amount of your
holdings in preferred securities. For further
information concerning distribution of the junior
subordinated debentures, see "Description of the
Preferred Securities -- Distribution of Junior
Subordinated Debentures." If the junior
subordinated debentures are distributed, First
Western will use its best efforts to list them on
the American Stock Exchange or the Nasdaq National
Market in place of the preferred securities.
Your Preferred Securities
Are Fully and
Unconditionally
Guaranteed by First
Western On a Subordinated
Basis.................... First Western will fully, irrevocably and
unconditionally guarantee the preferred securities
on a subordinated basis.
If First Western does not make a payment on the
junior subordinated debentures, FW Capital I will
not have sufficient funds to make payments on the
preferred securities. The preferred securities
guarantee does not cover payments when FW Capital I
does not have sufficient funds.
For further information concerning the preferred
securities guarantee of First Western, see
"Description of Preferred Securities Guarantee."
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Your Preferred Securities
Rank Lower in Payment
Compared to Other
Obligations of First
Western.................. First Western's obligations under its preferred
securities guarantee, the junior subordinated
debentures and other governing documents described
in this prospectus are unsecured and rank junior in
right of payment to all current and future senior
and subordinated debt of First Western. In
addition, because First Western is a multibank
holding company, all existing and future
liabilities of First Western's subsidiaries will
rank prior to all obligations of First Western
relating to the preferred securities and the junior
subordinated debentures. There is no limit on the
amount of other preferred securities or other
junior subordinated debentures of First Western
that may be issued in the future. Future issuances
of this type will rank equally with First Western's
obligations under the junior subordinated
debentures and its preferred securities guarantee
described in this prospectus. The preferred
securities will generally rank equally and payments
on them will be made proportionately, with the
common securities of FW Capital I, which will be
held by First Western.
You Will Have Limited
Voting Rights.............. As a holder of preferred securities, you have
limited voting rights. These rights relate only to
the dissolution or termination of FW Capital I and
removal of the property trustee and the indenture
trustee of FW Capital I upon selected events
described in this prospectus. See "Description of
the Preferred Securities -- Voting Rights;
Amendment of the Trust Agreement."
The Preferred Securities
Will Be In Book Entry Form
Only..................... You will not receive a certificate for your
preferred securities. Instead, the preferred
securities will be represented by a global security
that will be deposited with and registered in the
name of The Depository Trust Company or its
nominee.
American Stock Exchange
Listing.................. The preferred securities are approved for trading
on the American Stock Exchange under the trading
symbol FWT.Pr.A
Use of Proceeds of Sale of
the Preferred Securities... The proceeds of the sale of the preferred
securities will be invested by FW Capital I in the
junior subordinated debentures. The proceeds from
the issuance of the junior subordinated debentures
will be used by First Western:
- to pay a note payable of $8.8 million;
- to contribute $4.2 million of capital to Firstate
Bank of Colorado; and
- for general corporate purposes. These purposes
may include additional capital contributions to
First Western's banks, purchasing and
establishing future startup bank branches and
possible future acquisitions of financial
institutions.
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First Western expects approximately $6.6 million of
the preferred securities to qualify as its primary
regulatory capital, also known as its core capital,
under the capital guidelines of the Federal
Reserve. The remaining $13.4 million not qualifying
as this type of capital will be included in total
capital of First Western. See "Use of Proceeds" and
"Capitalization." See also "Supervision and
Regulation -- First Western -- Capital Adequacy"
for a definition of core capital.
RECENT OPERATING RESULTS
The following summary financial results for fiscal 1998 are unaudited.
During the quarter ended December 31, 1998, First Western's assets and
loans continued to reflect the significant growth experienced since 1995. Net
new loans for the quarter were $46.7 million, and First Western's total assets
at December 31, 1998 were $370.4 million compared to total assets of $227.6
million at December 31, 1997. During the fourth quarter of 1998 management
increased the allowance for loan losses by $590,000 due primarily to the
increase in net new loans during the quarter, and in accordance with First
Western's methodology designed to identify losses inherent in existing loans and
commitments to extend credit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Analysis for Allowance for Loan
Losses." The total allowance for loan losses at December 31, 1998 was $2.2
million or .75% of total loans compared to $1.3 million or .80% of total loans
at December 31, 1997.
First Western had net income of $3.4 million for 1998 compared to $2.5
million for 1997. Return on average common equity for the year was 17.89%
compared to 16.31% for 1997, while return on average assets was 1.16% compared
to 1.35% for 1997. Net interest income for 1998 was $13.9 million compared to
$8.8 million for 1997. Net interest margin for 1998 was slightly lower than
1997, at 5.20% compared to 5.27% for 1997. Other income for 1998 was $2.1
million compared to $1.7 million for 1997. Shareholders' equity increased to
$20.4 million at December 31, 1998 from $16.9 million at December 31, 1997.
Total loans at year end were $295.1 million compared to $165.6 million at
December 31, 1997. Nonperforming assets at December 31, 1998 decreased to $1.2
million from $1.4 million at December 31, 1997.
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RISK FACTORS
You should carefully read the following risk factors and other sections of
this prospectus before purchasing any preferred securities.
RISK FACTORS RELATING TO THE PREFERRED SECURITIES
IF FIRST WESTERN DOES NOT MAKE PAYMENTS UNDER THE JUNIOR SUBORDINATED
DEBENTURES, FW CAPITAL I WILL BE UNABLE TO PAY DISTRIBUTIONS AND LIQUIDATION
AMOUNTS AND THE PREFERRED SECURITIES GUARANTEE WILL NOT APPLY. The ability of FW
Capital I to pay distributions and the liquidation amount of $10 per preferred
security is solely dependent upon the ability of First Western to make the
related payments on the junior subordinated debentures when due. If First
Western defaults on its obligation to pay principal of or interest on the junior
subordinated debentures, FW Capital I will not have sufficient funds to pay
distributions or the liquidation amount. In that case, you will not be able to
rely upon the preferred securities guarantee for payment of these amounts
because the preferred securities guarantee only applies if First Western makes a
payment of principal or interest on the junior subordinated debentures. For more
information on First Western's obligations under the preferred securities
guarantee and the junior subordinated debentures, see "Description of Preferred
Securities Guarantee -- Status of Preferred Securities Guarantee" and
"Description of Junior Subordinated Debentures -- Subordination of Junior
Subordinated Debentures to Senior and Subordinated Debt of First Western."
INTEREST PAYMENTS BY FIRST WESTERN ON THE JUNIOR SUBORDINATED DEBENTURES
ARE DEPENDENT ON THE RECEIPT OF DIVIDENDS FROM ITS SUBSIDIARY BANKS. A
substantial majority of First Western's assets consist of its investments in its
subsidiary banks. Thus, First Western's ability to pay interest and principal on
the junior subordinated debentures to FW Capital I depends primarily upon the
cash dividends First Western receives from its banks. Dividend payments from the
banks to First Western are subject to, among other things:
- regulatory limitations, generally based on current and retained earnings
and capital maintenance requirements, imposed by various bank regulatory
agencies;
- profitability, financial condition and capital expenditures and other
cash flow requirements of the banks; and
- prior claims of creditors of the banks.
If the banks are unable to pay sufficient dividends to First Western, then First
Western will likely be unable to make payments on the junior subordinated
debentures thereby leaving insufficient funds for FW Capital I to make payments
to you on the preferred securities.
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED; YOU MAY HAVE TO
INCLUDE INTEREST IN YOUR TAXABLE INCOME BEFORE YOU RECEIVE CASH. It is possible
that you will not receive cash distributions on your preferred securities for
one or more periods of up to five years. If this occurs, you will still be
required to include accrued interest in your income for United States federal
income tax purposes before you actually receive the cash distributions.
First Western has the right, at one or more times, to defer interest
payments on the junior subordinated debentures for up to 20 consecutive
quarters, but not beyond the maturity date of the junior subordinated
debentures. This right exists only if no event of default under the junior
subordinated debentures has occurred and is continuing. If First Western
exercises this right, FW Capital I would defer distributions on the preferred
securities during any deferral period. However, you would still accumulate
distributions at the annual rate of % of the liquidation amount of $10 per
preferred security, plus you will earn interest at the annual rate of %,
compounded quarterly, on any unpaid distributions. During a deferral period, the
preferred securities may trade at a price that does not fully reflect the value
of accrued but unpaid distributions.
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During a deferral period and for as long thereafter as the junior
subordinated debentures remain outstanding, you will be required to accrue
interest income, as original issue discount, for United States federal income
tax purposes in respect of your pro rata share of the junior subordinated
debentures held by FW Capital I. As a result, you must include the accrued
interest in your gross income for United States federal income tax purposes
prior to your receiving cash. You will also not receive the cash distributions
related to any accrued and unpaid interest from FW Capital I if you sell the
preferred securities before the end of any deferral period. While First Western
will take the position that original issue discount will not arise before any
first deferral period, it is possible that all interest on the junior
subordinated debentures would be required to be accounted for as original issue
discount. In these circumstances, stated interest would not separately be
reported as taxable income.
First Western has no current intention of exercising its right to defer
interest payments on the junior subordinated debentures. However, if First
Western exercises its right in the future, the market price of the preferred
securities is likely to be adversely affected. If you sell the preferred
securities during an interest deferral period, you may not receive the same
return on your investment as someone else who continues to hold the preferred
securities.
See "Material Federal Income Tax Consequences" for more information
regarding the tax consequences of the preferred securities.
YOU ARE SUBJECT TO PREPAYMENT RISK OF YOUR PREFERRED SECURITIES DUE TO TAX
OR REGULATORY EVENTS THAT MAY TRIGGER THE REDEMPTION OF THE JUNIOR SUBORDINATED
DEBENTURES BY FIRST WESTERN AND PREPAYMENT OF THE PREFERRED SECURITIES PRIOR TO
THE STATED MATURITY DATE. You are subject to prepayment risk of your preferred
securities. Although the junior subordinated debentures have a stated maturity
date of , 2029, they may be redeemed by First Western prior to
maturity which would cause an early redemption of the preferred securities, upon
the following:
- In whole or in part, beginning on , 2004 at the option of
First Western.
- In whole upon a change in the federal tax laws or a change in the
interpretation of the tax laws by the courts or the IRS, which would
result in a risk that (1) FW Capital I may be subject to federal income
tax, (2) interest paid by First Western on the junior subordinated
debentures will not be deductible by First Western for federal income tax
purposes, or (3) FW Capital I is or will be subject to more than a
minimal amount of other taxes or governmental charges.
- In whole upon a change in the laws or regulations to the effect that FW
Capital I is or will be considered to be an investment company that is
required to be registered under the Investment Company Act of 1940.
- In whole upon a change in the laws or regulations if there is a risk that
First Western will not be able to treat all or a substantial portion of
the preferred securities as core capital for purposes of capital adequacy
guidelines of the Federal Reserve.
The exercise of these redemption rights is subject to First Western having
received prior approval of the Federal Reserve, if required. For further
information concerning tax or regulatory events that may trigger redemption of
the junior subordinated debentures and prepayment of the preferred securities,
see "Description of the Preferred Securities -- Redemption -- Mandatory and
Optional Rights of First Western."
YOU ARE SUBJECT TO PREPAYMENT RISK BECAUSE POSSIBLE TAX LAW CHANGES COULD
RESULT IN A REDEMPTION OF THE PREFERRED SECURITIES. Future legislation may be
proposed or enacted that may prohibit First Western from deducting its interest
payments on the junior subordinated debentures for federal income tax purposes,
making redemption of the junior subordinated debentures likely and resulting in
a redemption of the preferred securities.
From time to time, the Clinton Administration has proposed tax law changes
that would, among other things, generally deny interest deductions to a
corporate issuer if the debt instrument has a term exceeding
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15 years and if the debt instrument is not reflected as indebtedness on the
issuer's consolidated balance sheet. Other proposed tax law changes would have
denied interest deductions if the debt instrument had a term exceeding 20 years.
Although it is impossible to predict future proposals, if a future proposal of
this sort were to become effective in a form applicable to already issued and
outstanding securities, First Western could be precluded from deducting interest
on the junior subordinated debentures. Enactment of any such proposal might in
turn give rise to a tax event as described under "Description of the Preferred
Securities -- Redemption -- Mandatory and Optional Rights of First Western."
Prospective investors should also be aware that a petition was recently
filed in the United States Tax Court as a result of a challenge by the IRS of a
taxpayer's treatment as indebtedness of a security issued with characteristics
similar to the junior subordinated indentures. If this matter is litigated to a
conclusion and the IRS's position on this matter is sustained, such a judicial
determination could constitute a tax event which could result in an early
redemption of the preferred securities. For further information, see
"Description of the Preferred Securities -- Redemption -- Mandatory and Optional
Rights of First Western," "Description of Junior Subordinated
Indentures -- Redemption" and "Material Federal Income Tax Consequences."
FIRST WESTERN'S OBLIGATIONS UNDER THE PREFERRED SECURITIES GUARANTEE AND
THE JUNIOR SUBORDINATED DEBENTURES RANK LOWER TO OTHER FIRST WESTERN
OBLIGATIONS. First Western's obligations under the junior subordinated
debentures are unsecured and will rank junior in priority of payment to First
Western's senior and subordinated debt, which generally includes indebtedness,
liabilities or obligations of First Western, contingent or otherwise. At
December 31, 1998, the aggregate amount of First Western's senior and
subordinated debt was approximately $8.8 million. First Western's obligations
under the junior subordinated debentures will also be effectively subordinated
to all existing and future liabilities and obligations of its subsidiaries,
including its banks.
The preferred securities, the junior subordinated debentures and the
preferred securities guarantee do not limit the ability of First Western or any
of its subsidiaries to incur unlimited future indebtedness, liabilities and
obligations, which may rank senior to the junior subordinated debentures and the
preferred securities guarantee.
For more information on First Western's obligations under the preferred
securities guarantee and the junior subordinated debentures, see "Description of
Preferred Securities Guarantee -- Status of Preferred Securities Guarantee" and
"Description of Junior Subordinated Debentures -- Subordination of Junior
Subordinated Debentures to Senior and Subordinated Debt of First Western."
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES MAY HAVE AN ADVERSE EFFECT ON THE MARKET PRICE OF THE PREFERRED
SECURITIES. Your investment in the preferred securities may decrease in value if
the junior subordinated debentures are distributed to you. First Western cannot
predict the liquidity or market prices for the junior subordinated debentures
that may be distributed. Accordingly, the junior subordinated debentures that
you receive upon a distribution, or the preferred securities you hold pending
such a distribution, may trade at a discount to the price that you paid to
purchase the preferred securities.
Because you may receive junior subordinated debentures, you must also make
an investment decision with regard to the junior subordinated debentures. You
should carefully review all the information regarding the junior subordinated
debentures contained in this prospectus. If the junior subordinated debentures
are distributed, First Western will use its best efforts to list them on the
American Stock Exchange or the Nasdaq National Market in place of the preferred
securities.
Under "Material Federal Income Tax Consequences -- Distribution of Junior
Subordinated Debentures to Holders of Preferred Securities" we discuss
applicable United States federal income tax consequences of a distribution of
the junior subordinated debentures.
YOU MUST RELY ON THE PROPERTY TRUSTEE OF FW CAPITAL I TO ENFORCE YOUR
RIGHTS UNDER JUNIOR SUBORDINATED DEBENTURES EVENTS OF DEFAULT. You may not be
able to directly enforce rights against First Western if an event of default
occurs. If an event of default under the junior subordinated debentures
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occurs and is continuing, this event will also be an event of default under the
preferred securities. In that case, the holders of the preferred securities
would rely on the enforcement by the property trustee of its rights as holder of
the junior subordinated debentures against First Western. The holders of a
majority in liquidation amount of the preferred securities will have the right
to direct the property trustee to enforce its rights. If the property trustee
does not enforce its rights any record holder may take action directly against
First Western to enforce the property trustee's rights. If a default under the
preferred securities occurs that is attributable to First Western's failure to
pay interest or principal on the junior subordinated debentures, a record holder
of the preferred securities may proceed directly against First Western. The
holders of preferred securities will not be able to exercise directly any other
remedies available to the holders of the junior subordinated debentures unless
the property trustee fails to do so. See "Description of the Preferred
Securities -- Events of Default; Notice" and "Description of Junior Subordinated
Debentures -- Indenture Events of Default" for more information on your rights
if an event of default occurs.
LIMITED COVENANTS RELATING TO THE PREFERRED SECURITIES AND THE JUNIOR
SUBORDINATED DEBENTURES DO NOT PROTECT YOU. The covenants in the governing
documents relating to the preferred securities and the junior subordinated
debentures are limited. As a result, the governing documents do not protect you
in the event of an adverse change in First Western's financial condition or
results of operations. Nor do the governing instruments limit the ability of
First Western or any of its subsidiaries to incur additional debt. You should
not consider the terms of the governing documents to be a significant factor in
evaluating whether First Western will be able to comply with its obligations
under the junior subordinated debentures or the preferred securities guarantee.
AS A HOLDER OF PREFERRED SECURITIES YOU WILL HAVE LIMITED VOTING RIGHTS. As
a holder of preferred securities, you have limited voting rights. These rights
relate only to the modification of the preferred securities and removal of the
property and indenture trustees of FW Capital I upon a limited number of events.
You will not have any voting rights regarding First Western or the
administrative trustees. See "Description of the Preferred Securities -- Voting
Rights; Amendment of the Trust Agreement" for more information on your limited
voting rights.
TRADING CHARACTERISTICS OF THE PREFERRED SECURITIES MAY CREATE ADVERSE TAX
CONSEQUENCES FOR YOU. The preferred securities may trade at a price that does
not reflect the value of accrued but unpaid interest on the underlying junior
subordinated debentures. If you dispose of your preferred securities between
record dates for payments on the preferred securities, you may have adverse tax
consequences. Under these circumstances, you will be required to include accrued
but unpaid interest on the junior subordinated debentures allocable to the
preferred securities through the date of disposition in your income as ordinary
income. If interest on the junior subordinated debentures is included in income
under the original issue discount provisions, you would add this amount to your
adjusted tax basis in your share of the underlying junior subordinated
debentures deemed disposed. If your selling price is less than your adjusted tax
basis, which will include all accrued but unpaid original issue discount
interest included in your income, you could recognize a capital loss which
cannot be applied to offset ordinary income for federal income tax purposes,
subject to exceptions. See "Material Federal Income Tax Consequences -- Interest
Income and Original Issue Discount" and "-- Sales or Redemption of Preferred
Securities" for more information on possible adverse tax consequences to you.
THE PRICE OF YOUR PREFERRED SECURITIES COULD BE ADVERSELY AFFECTED BY A
POSSIBLE LIMITED PUBLIC MARKET. While First Western's application for listing of
the preferred securities has been approved by American Stock Exchange, there can
be no assurance that an active and liquid trading market for the preferred
securities will develop or be sustained due to a possible limited number of
owners of the preferred securities or lack of interest by persons who may want
to trade the preferred securities. An inactive or illiquid trading market could
adversely affect the price of your preferred securities.
9
<PAGE> 12
RISK FACTORS RELATING TO FIRST WESTERN
IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT ADEQUATE TO COVER ACTUAL LOSSES,
OUR EARNINGS COULD BE ADVERSELY AFFECTED. The inability of borrowers to repay
loans can erode earnings and capital of banks. Like all financial institutions,
First Western maintains an allowance for loan losses to provide for loan
defaults and nonperformance. First Western's allowance for loan losses may not
be adequate to cover actual losses, and future provisions for loan losses could
materially and adversely affect results of operations of First Western. The loan
losses allowance is based on prior experience with loan losses, as well as an
evaluation of the risks in the current portfolio, and is maintained at a level
considered adequate by management to absorb anticipated losses. The amount of
future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond management's
control, and these losses may exceed current estimates.
State and federal regulatory agencies, as an integral part of their
examination process, review First Western's loans and its allowance for loan
losses. Although management believes that First Western's allowance for loan
losses is adequate to cover anticipated losses, the loan loss allowance at
September 30, 1998 and December 31, 1998, are lower as a percentage of total
loans than historical levels. There can be no assurance, however, that
management will not determine a need to further increase the allowance for loan
losses or that regulators, when reviewing First Western's loan portfolios in the
future, will not require First Western to increase this allowance, either of
which could adversely affect First Western's earnings. Further, there can be no
assurance that First Western's actual loan losses will not exceed its allowance
for loan losses. For further information on loan allowances, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
IF ECONOMIC CONDITIONS IN GENERAL AND IN OUR PRIMARY MARKET AREA
DETERIORATE, OUR REVENUES COULD DECREASE. First Western's financial results may
be adversely affected by changes in prevailing economic conditions, including
declines in real estate values, rapid changes in interest rates, adverse
employment conditions and the monetary and fiscal policies of the federal
government. Because First Western has a significant amount of loans secured by
real estate, declines in real estate values could adversely affect borrowers'
abilities to repay loans. Although economic conditions in First Western's
primary market area are strong and have aided its recent growth, there can be no
assurance that these conditions will continue to prevail. In addition,
substantially all of the loans of First Western are to individuals and
businesses in the Denver metropolitan area, northern Colorado and western
Nebraska, and any decline in the economy of these market areas could have an
adverse impact on First Western. There can be no assurance that positive trends
or developments discussed in this prospectus will continue or that negative
trends or developments will not have a significant adverse effect on First
Western.
A DECREASE IN INTEREST RATE SPREADS MAY DECREASE OUR PROFITS. First
Western's profitability is in part a function of the spread between the interest
rates earned on assets and the interest rates paid on deposits and other
interest-bearing liabilities. A decrease in interest rate spreads would have a
negative effect on the net interest income and profitability of First Western,
and there can be no assurance that a decrease will not occur. Although
management believes that the maturities of First Western's assets are moderately
balanced in relation to maturities of liabilities, this balance involves
estimates as to how changes in the general level of interest rates will impact
the yields earned on assets and the rates paid on liabilities. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Net Interest Income" and
"-- Liquidity -- Asset/Liability Management" for further discussion of the
impact of interest rates in First Western.
DELAYS IN ESTABLISHING NEW BANK BRANCHES AS WELL AS COMPETITION COULD
ADVERSELY AFFECT OUR GROWTH AND EXPANSION PLANS. First Western has pursued and
intends to continue to pursue an internal growth strategy, the success of which
will depend primarily on generating an increasing level of loans and deposits at
acceptable risk levels without corresponding increases in non-interest expenses.
First Western's expansion strategy is primarily the establishment of new
branches. There can be no assurance that First Western will be successful in
continuing its growth strategies due to delays and other impediments resulting
from regulatory oversight, lack of qualified personnel, unavailability of branch
sites or poor site
10
<PAGE> 13
selection of bank branches. In addition, the success of First Western's growth
strategy will depend on maintaining sufficient regulatory capital levels and on
continued favorable economic conditions in First Western's primary market area.
The banking business in First Western's areas of operations is highly
competitive. First Western competes for loans and deposits with other local,
regional and national commercial banks, savings banks, savings and loan
associations, finance companies, money market funds, brokerage houses, credit
unions and nonfinancial institutions, many of which have substantially greater
financial resources than First Western. In addition, interstate banking is
permitted in Colorado and to a lesser extent in Nebraska. As a result,
management believes that First Western may experience greater competition in its
market areas.
IF THE COMPUTER SYSTEMS OF FIRST WESTERN OR ITS SUPPLIERS AND CUSTOMERS DO
NOT TIMELY BECOME YEAR 2000 COMPLIANT, WE MAY BE ADVERSELY AFFECTED. First
Western faces a significant business issue regarding how existing application
software programs and operating systems can accommodate the date value for the
year 2000. Many existing software application products, including software
application products used by First Western and its suppliers and customers, were
designed to accommodate only a two-digit date value, which represents the year.
The interruption to First Western's business could be substantial if its current
computer service provider fails in efforts to assist First Western in becoming
year 2000 compliant. In addition, failure by suppliers and customers of First
Western to modify and convert their own computer systems could have a
significant adverse effect on the suppliers' or customers' operations and
profitability, thus inhibiting their ability to provide services or repay loans
to First Western. As a practical matter, First Western will unlikely be able to
accumulate information on its suppliers' and customers' year 2000 programs to
assess the impact on First Western. For further information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Considerations."
ANY ACQUISITION OF CONTROL OF FIRST WESTERN IS AT THE SOLE DISCRETION OF
FIRST WESTERN'S PRINCIPAL SHAREHOLDERS. Approximately 99.1% of the outstanding
shares of First Western's common stock is owned directly or indirectly by Joel
H. Wiens, First Western's Chairman, and Timothy D. Wiens, First Western's Vice
Chairman. As a result, the Wiens are able to elect all members of First
Western's Board of Directors and direct the policies and decisions of First
Western. This control would make the acquisition of control of First Western by
a third party impossible without the Wiens' approval.
MANAGEMENT WILL HAVE BROAD DISCRETION IN FIRST WESTERN'S USE OF THE
PROCEEDS IT RECEIVES. First Western will receive approximately $18.9 million in
net proceeds from the sale of its junior subordinated indentures, after
deducting underwriting commissions and estimated expenses payable by First
Western. First Western's management will have broad discretion to allocate these
net proceeds to uses it believes are appropriate. See "Use of Proceeds" for the
application of the proceeds. The amount and timing of the allocations will
depend on a number of factors, including First Western's and its subsidiary
banks' capital requirements and may affect First Western's earnings.
GOVERNMENT REGULATION MAY RESULT IN HIGHER OPERATING COSTS FOR FIRST
WESTERN. First Western and its banks are subject to extensive federal and state
legislation, regulation and supervision which is intended primarily to protect
depositors and the Federal Deposit Insurance Corporation's Bank Insurance Fund,
rather than investors. Although some of the legislative and regulatory changes
may benefit First Western and its banks, others may increase their costs of
doing business or otherwise adversely affect them and create competitive
advantages for non-bank competitors. For further information concerning
regulation of First Western, see "Supervision and Regulation."
11
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data for the years ended December 31,
1997 and 1996 and the consolidated balance sheet data as of December 31, 1997
are derived from First Western's consolidated financial statements and notes
thereto which have been audited by Clifton Gunderson L.L.C., independent public
accountants, and are included elsewhere in this prospectus. The consolidated
statements of income data for the year ended December 31, 1995 and the balance
sheet data as of December 31, 1996 and 1995 are derived from First Western's
unaudited consolidated financial statements not included in this prospectus. The
consolidated statement of income data for the nine months ended September 30,
1998 and 1997, and the consolidated balance sheet data as of September 30, 1998
and 1997, have been derived from unaudited consolidated financial statements,
which, in the opinion of First Western, reflect all adjustments, consisting only
of normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations of First Western for those periods. The
consolidated statements of income data for interim periods are not necessarily
indicative of results for subsequent periods or the full year. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with First
Western's consolidated financial statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AT OR FOR THE NINE
MONTHS ENDED AT OR FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME:
Interest income............................................. $ 18,715 $ 11,308 $ 16,263 $ 7,908 $ 6,544
Interest expense............................................ 8,755 5,109 7,481 3,120 2,655
Net interest income......................................... 9,960 6,199 8,782 4,788 3,889
Provision for loan losses................................... 180 110 140 15 104
Other income................................................ 1,981 1,205 1,708 1,251 907
Other expenses.............................................. 7,043 4,414 6,544 3,749 2,775
Income tax expense.......................................... 1,765 919 1,309 705 475
Net income.................................................. 2,953 1,961 2,497 1,570 1,442
CONSOLIDATED BALANCE SHEET:
Total Assets................................................ $335,493 $218,813 $227,600 $125,013 $95,975
Loans....................................................... 248,347 147,266 165,627 68,751 45,580
Allowance for loan losses................................... 1,592 1,290 1,321 851 767
Investment securities available-for-sale.................... 35,110 15,920 15,470 15,653 21,579
Investment securities held-to-maturity...................... 9,241 13,578 13,042 16,135 13,204
Nonperforming assets(1)..................................... 1,471 874 1,369 125 138
Deposits.................................................... 294,044 187,979 200,294 101,387 78,041
Stockholders' Equity........................................ 19,868 16,369 16,911 13,749 12,244
PER COMMON SHARE:
Basic earnings per share(2)................................. $ 21.09 $ 14.89 $ 18.67 $ 12.56 $ 11.54
Book value per share........................................ 141.92 116.92 120.79 109.99 97.96
Tangible book value per share............................... 135.79 109.91 114.33 109.99 97.96
KEY RATIOS(3):
Net interest margin(4)...................................... 5.49% 5.34% 5.27% 5.36% 5.11%
Net interest spread(4)...................................... 4.73 4.45 4.39 4.24 4.15
Return on average assets.................................... 1.49 1.51 1.35 1.52 1.63
Return on average common equity............................. 21.47 17.43 16.31 11.42 11.78
Stockholders' equity to total assets........................ 5.92 7.48 7.43 11.00 12.76
Core risk-based capital..................................... 7.22 9.59 9.02 17.79 21.01
Total risk-based capital.................................... 7.80 10.36 9.74 18.80 22.21
Nonperforming assets to total assets........................ 0.44 0.40 0.60 0.10 0.14
Nonperforming loans to total loans.......................... 0.28 0.29 0.74 0.17 0.30
Allowance for loan losses to total loans(5)................. 0.64 0.88 0.80 1.24 1.68
Allowance for loan losses to nonperforming loans(5)......... 229.73% 179.87% 107.61% 739.65% 555.93%
RATIO OF EARNINGS TO FIXED CHARGES(6):
Including interest on deposits.............................. 1.54x 1.56x 1.51x 1.73x 1.72x
Excluding interest on deposits.............................. 9.27x 9.01x 8.69x 15.06x 15.44x
</TABLE>
- ---------------
(1) Other real estate, and nonaccrual, impaired and all other loans 90 days or
more delinquent.
(2) No difference exists between basic and diluted earnings per share.
(3) The ratios for the nine months ended September 30, 1998 and 1997 have been
annualized and are not necessarily indicative of the results for the entire
year.
(4) On a tax equivalent basis.
(5) At December 31, 1998 the allowance for loan losses to total loans was .75%
and to nonperforming loans was 213.39% based on an allowance for loan losses
of $2.2 million.
(6) For purposes of computing the ratio of earnings to fixed charges, earnings
represent income before income taxes, extraordinary items and fixed charges.
Fixed charges represent interest expense.
12
<PAGE> 15
CAUTIONARY STATEMENTS
Statements which are not historical facts contained or incorporated by
reference in this prospectus are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ from projected
results. Factors that could cause actual results to differ materially include
the factors discussed in "Risk Factors" as well as continued success of First
Western's branching strategy, general economic conditions, economic conditions
in the Denver metropolitan-northern Colorado and western Nebraska areas, the
monetary policy of the Federal Reserve, changes in interest rates, inflation,
and changes in the state and federal regulatory regime applicable to First
Western's and its banks' operations.
Information included and incorporated by reference in this prospectus
includes forward looking statements, which can be identified by the use of
forward-looking terminology such as may, will, expect, anticipate, believe,
estimate, or continue, or the negative thereof or other variations thereon or
comparable terminology. The statements in "Risk Factors" and other statements
and disclaimers in this prospectus constitute cautionary statements identifying
important factors, including risks and uncertainties, relating to the
forward-looking statements that could cause actual results to differ materially
from those reflected in the forward-looking statements.
USE OF PROCEEDS
All of the proceeds from the sale of preferred securities will be invested
by FW Capital I in the junior subordinated debentures of First Western. The net
proceeds to First Western from the sale of the junior subordinated debentures,
after deducting estimated underwriting commissions and offering expenses, are
estimated to be approximately $18.9 million or $21.7 million if the
underwriters' over-allotment option is exercised in full. First Western intends
to use the net proceeds to repay all $8.8 million of its outstanding note
payable as of December 31, 1998, and contribute approximately $4.2 million of
capital to Firstate Bank of Colorado, with the remainder to be used for general
corporate purposes. These corporate purposes may include additional capital
contributions to First Western's banks, purchase and construction of future bank
branch locations, and possible future acquisitions. The $4.2 million additional
capital contribution to Firstate Bank of Colorado will result in an increased
legal lending limit which is designed to further its internal growth objectives.
Pending their application, the net proceeds may be invested in short-term,
marketable, investment grade interest-bearing securities.
First Western is required by the Federal Reserve to maintain defined levels
of capital for bank regulatory purposes. In 1996, the Federal Reserve announced
that qualifying amounts of securities having the characteristics of the
preferred securities could be included as core capital for bank holding
companies subject to limited exceptions. See "Capitalization." This capital
treatment, together with First Western's ability to deduct, for federal income
tax purposes, interest payable on the junior subordinated debentures, will
provide First Western with a cost-effective means of obtaining capital for bank
regulatory purposes.
13
<PAGE> 16
ACCOUNTING TREATMENT
For financial reporting purposes, FW Capital I will be treated as a
subsidiary of First Western and, accordingly, the accounts of FW Capital I will
be included in the Consolidated Financial Statements of First Western. The
preferred securities will be presented as a separate line item in the
consolidated balance sheets of First Western under the caption "Company
Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust
Holding Solely Junior Subordinated Debentures," and appropriate disclosures
about the preferred securities, the preferred securities guarantee of First
Western and the junior subordinated debentures will be included in the Notes to
Consolidated Financial Statements. For financial reporting purposes, First
Western will record distributions payable on the preferred securities as
interest expense in the consolidated statements of income.
Future reports of First Western filed under the Securities Exchange Act of
1934, as amended will include a footnote to the consolidated financial
statements stating that:
- FW Capital I is wholly-owned;
- the sole assets of FW Capital I are the junior subordinated debentures
and specifying the principal amount, interest rate and maturity date of
the junior subordinated debentures; and
- the obligations of First Western described in this prospectus, in the
aggregate, constitute a full, irrevocable and unconditional guarantee on
a subordinated basis by First Western of the obligations of FW Capital I
under the preferred securities. FW Capital I will not provide separate
reports under the Securities Exchange Act of 1934.
No separate financial statements of FW Capital I have been included in this
prospectus. First Western and FW Capital I do not consider that financial
statements of FW Capital I would be material to holders of the preferred
securities because FW Capital I is a newly formed special purpose entity, has no
operating history or independent operations and is not engaged in and does not
propose to engage in any activity other than holding as assets the junior
subordinated debentures of First Western and issuing the preferred securities.
For more information, see "Description of the Preferred Securities,"
"Description of Junior Subordinated Debentures" and "Description of Preferred
Securities Guarantee."
14
<PAGE> 17
CAPITALIZATION
The following table presents the consolidated borrowings and capitalization
of First Western at September 30, 1998 and as adjusted to give effect to the
issuance of the preferred securities by FW Capital I in this offering and the
use of net proceeds as described in "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Borrowings:
Securities sold under agreements to repurchase............ $ 2,588 $ 2,588
Federal Home Loan Bank borrowings......................... 8,500 8,500
Note payable(1)........................................... 5,800 --
------- -------
Total borrowings.................................. $16,888 $11,088
======= =======
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures(2)................................ $ -- $20,000
======= =======
Stockholders' equity:
Common Stock, $1.00 par value; 500,000 shares authorized;
140,000 shares issued and outstanding.................. $ 140 $ 140
Additional paid-in capital................................ 697 697
Retained earnings......................................... 19,038 19,038
Unrealized loss on securities available for sale, net of
income tax effect...................................... (7) (7)
------- -------
Total stockholders' equity........................ $19,868 $19,868
======= =======
Consolidated regulatory capital ratios:
Total capital to risk-weighted assets..................... 7.80% 15.13%
Core capital to risk-weighted assets(3)................... 7.22 9.62
Core capital to average assets(3)......................... 6.20 8.27
</TABLE>
- ---------------
(1) The note payable increased to $8.8 million as of December 31, 1998. The
entire note will be paid with proceeds of this offering. See "Use of
Proceeds."
(2) The subsidiary trust is FW Capital I, a wholly-owned subsidiary of First
Western that will hold, as its sole asset, $20.6 million principal amount of
junior subordinated debentures, of which $20.0 million will be purchased
with the proceeds of the preferred securities issued by FW Capital I. The
remaining $600,000 of junior subordinated debentures will be purchased with
the proceeds of the common securities issued by FW Capital I. First Western
will own all of the common securities. See "Description of Junior
Subordinated Debentures" and "Description of the Preferred Securities." The
junior subordinated debentures will mature on , 2029, which date
may be shortened to a date not earlier than , 2004 upon meeting
conditions in the indenture relating to the junior subordinated debentures.
The preferred securities are subject to mandatory redemption upon repayment
of the junior subordinated debentures at maturity or their earlier
redemption in an amount equal to the amount of junior subordinated
debentures maturing or being redeemed at a redemption price equal to the
aggregate liquidation amount of the preferred securities, plus accumulated
and unpaid distributions thereon to the date of redemption. See "Description
of the Preferred Securities -- Redemption -- Mandatory and Optional Rights
of First Western" and "Description of Junior Subordinated
Debentures -- Redemption."
(3) The preferred securities have been structured to qualify as core capital.
However, they cannot be used to constitute more than 25% of First Western's
total core capital according to regulatory requirements. As adjusted for
this offering, First Western's core capital as of September 30, 1998 would
have been $26.4 million of which $6.6 million would have been attributable
to the preferred securities. Any future increases in other elements of First
Western's core capital, including retained earnings, should permit First
Western to include greater portions of the preferred securities proceeds in
core capital. The remaining $13.4 million not qualifying as core capital
will be included in total capital.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS ENVIRONMENT AND RISK FACTORS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes included elsewhere in this
prospectus. First Western's future operating results may be affected by various
trends and factors which are beyond First Western's control. These include the
factors set forth in "Risk Factors" and "Cautionary Statements." Accordingly,
past results and trends may not be reliable indicators of future results or
trends. With the exception of historical information, the matters discussed
below include forward-looking statements that involve risks and uncertainties.
First Western cautions readers that a number of important factors discussed
below could affect First Western's actual results and cause actual results to
differ materially from those in the forward-looking statements.
OVERVIEW
First Western has experienced significant growth since 1995 due to its
branch expansion strategy. Total assets have increased to $335.5 million as of
September 30, 1998 from $227.6 million as of December 31, 1997 and $125.0
million as of December 31, 1996. First Western has maintained above average
profitability while achieving strong asset growth. During the same time period,
net income increased to $3.0 million for the nine months ended September 30,
1998, from $2.5 million for the year ended December 31, 1997 and $1.6 million
for the year ended December 31, 1996. On an annualized basis, as of September
30, 1998, return on average assets of First Western equaled 1.49%, while return
on average equity was 21.47%.
RESULTS OF OPERATIONS
NET INTEREST INCOME. First Western's net income is derived primarily from
net interest income. Net interest income is the difference between interest
income, principally from loans, investment securities and funds sold, and
interest expense, principally on customer deposits. Changes in net interest
income result from changes in volume, net interest spread and net interest
margin. Volume refers to the average dollar levels of earning assets and
interest-bearing liabilities. Net interest spread refers to the difference
between the average yield on earning assets and the average cost of
interest-bearing liabilities. Net interest margin refers to net interest income
divided by average earning assets and is influenced by the level and relative
mix of earning assets and interest-bearing liabilities.
The following tables present the average balances, net interest income and
expense and average yields and rates for First Western's earning assets and
interest-bearing liabilities for the indicated periods on a tax equivalent basis
assuming a 34% tax rate.
16
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST(1) BALANCE OR PAID OR COST(1)
-------- -------- ---------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities:
Taxable............................. $ 20,073 $ 831 5.53% $ 22,708 $ 940 5.54%
Tax exempt (tax equivalent)......... 8,849 560 8.46 8,376 499 7.95
Funds sold and interest-bearing
deposits............................ 17,252 707 5.48 10,293 446 5.79
Loans held for sale................... 3,048 135 5.92 1,653 84 6.79
Loans(2).............................. 199,450 16,672 11.18 117,522 9,509 10.82
Allowance for loan losses............. (1,452) -- (1,128) --
-------- ------- -------- -------
Total earning assets........... $247,220 $18,905 10.22 $159,424 $11,478 9.62
======== ------- ======== -------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Demand, interest-bearing............ $ 28,900 $ 658 3.04 $ 22,668 $ 458 2.70
Savings............................. 22,677 745 4.39 18,632 583 4.18
Certificates of deposit:
Under $100,000.................... 116,821 5,376 6.15 64,710 2,935 6.06
$100,000 and over................. 31,567 1,406 5.95 17,608 773 5.87
-------- ------- -------- -------
Total interest-bearing
deposits..................... 199,965 8,185 5.47 123,618 4,749 5.14
Federal Home Loan Bank borrowings,
federal funds purchased and
securities sold under agreements to
repurchase.......................... 9,916 388 5.23 7,532 311 5.52
Note payable.......................... 3,156 182 7.71 870 49 7.44
-------- ------- -------- -------
Total interest-bearing
liabilities.................. $213,037 8,755 5.49 $132,020 5,109 5.17
======== ------- ======== -------
Net interest income (tax
equivalent)......................... $10,150 $ 6,368
======= =======
Net interest margin(3)................ 5.49% 5.34%
Net interest spread................... 4.73% 4.45%
Ratio of average interest-bearing
liabilities to average
interest-earning assets............... 86.17% 82.81%
</TABLE>
- ---------------
(1) Yields are annualized.
(2) Loans are net of unearned income. Nonaccrual loans are included in average
loans outstanding. Loan fees are included in interest income as follows for
the nine months ended September 30, 1998 -- $1,632,962; 1997 -- $837,713.
(3) Net interest margin is net interest income divided by average total earning
assets (on an annualized basis).
Net interest income, on a tax-equivalent basis, was $10.2 million for the
nine months ended September 30, 1998, an increase of $3.8 million from $6.4
million for the same period in 1997. Interest income for the nine months ended
September 30, 1998 was $18.9 million and September 30, 1997 was $11.5 million.
The interest income increase of $7.4 million is primarily due to higher balances
of earning assets. First Western achieved an increase of $87.8 million or 55.08%
in average earning assets to $247.2 million for the nine months ended September
30, 1998 from $159.4 million for the same period in 1997. The majority of the
increase in earning assets was attributable to $81.9 million increase in average
loans outstanding. The majority of the loans in First Western's lending
portfolio are floating rate loans tied to the prime rate. The $7.0 million
increase in funds sold represents temporary liquidity to fund loans committed
but unfunded. The average yield on earning assets increased to 10.22% for the
nine months ended September 30, 1998 from 9.62% for the comparable period in
1997.
17
<PAGE> 20
Interest expense increased $3.7 million to $8.8 million for the nine months
ended September 30, 1998 compared to $5.1 million for the same period in 1997.
The significant increase in average balances
of certificates of deposit under $100,000 to $116.8 million for the nine months
ended September 30, 1998 from $64.7 million for the comparable period in 1997
was due to core growth at First Western's banks as well as promotional campaigns
related to the opening of new branches. The increase in certificates of deposit
of $100,000 and over was due to the branch openings and promotional campaigns.
The increase in the average note payable to $3.2 million for the nine months
ended September 30, 1998 was due to First Western's advances on a note with a
commercial lender. The proceeds of these advances were used as capital
injections at Firstate Bank of Colorado. First Western expects to pay off the
note with net proceeds from the sale of the junior subordinated debentures. The
cost of interest-bearing liabilities for the nine months ended September 30,
1998 was 5.49% and September 30, 1997 was 5.17%, and, when combined with
noninterest-bearing deposits, the cost of funds for the nine months ended
September 30, 1998 was 4.78% and September 30, 1997 was 4.37%. See
"-- Deposits." As a result of these factors, net interest margin, on a
tax-equivalent basis, increased to 5.49% for the nine months ended September 30,
1998 from 5.34% for the comparable period in 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996
----------------------------- ----------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD AVERAGE EARNED YIELD
BALANCE OR PAID OR COST BALANCE OR PAID OR COST
-------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Investment securities:
Taxable.......................... $ 22,190 $ 1,220 5.50% $23,189 $1,292 5.57%
Tax exempt (tax equivalent)...... 8,393 678 8.07 8,573 767 8.95
Funds sold and interest-bearing
deposits......................... 12,823 735 5.73 8,307 423 5.09
Loans held for sale................. 1,839 121 6.58 508 30 5.91
Loans(1)............................ 126,914 13,739 10.83 54,515 5,656 10.38
Allowance for loan losses........... (1,176) -- (832) --
-------- ------- ------- ------
Total earning assets........ $170,983 $16,493 9.65 $94,260 $8,168 8.67
======== ------- ======= ------
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Demand, interest-bearing......... $ 23,097 $ 630 2.73 $18,143 $ 467 2.57
Savings.......................... 18,897 795 4.21 14,894 594 3.99
Certificates of deposit:
Under $100,000................. 72,229 4,412 6.11 26,367 1,484 5.63
$100,000 and over.............. 19,500 1,149 5.89 7,416 414 5.58
-------- ------- ------- ------
Total interest-bearing
deposits.................. 133,723 6,986 5.22 66,820 2,959 4.43
Federal Home Loan Bank borrowings,
federal funds purchased and
securities sold under agreements
to repurchase.................... 7,031 382 5.43 3,591 161 4.50
Note payable........................ 1,500 113 7.53 -- -- --
-------- ------- ------- ------
Total interest-bearing
liabilities............... $142,254 $ 7,481 5.26 $70,411 $3,120 4.43
======== ------- ======= ------
Net interest income (tax
equivalent)...................... $ 9,012 $5,048
======= ======
Net interest margin(2).............. 5.27% 5.36%
Net interest spread................. 4.39% 4.24%
Ratio of average interest-bearing
liabilities to average
interest-earning assets............. 83.20% 74.70%
</TABLE>
- ---------------
(1) Loans are net of unearned loan fees. Nonaccrual loans are included in
average loans outstanding. Loan fees are included in interest income as
follows: 1997 -- $1,218,289; 1996 -- $383,628.
(2) Net interest margin is net interest income divided by average total earning
assets.
18
<PAGE> 21
Net interest income, on a tax-equivalent basis, was $9.0 million for the
year ended December 31, 1997, an increase of $4.0 million from $5.0 million in
1996. Interest income increased $8.3 million to $16.5 million in 1997 from $8.2
million in 1996. This increase resulted primarily from an increase of $76.7
million in average earning assets to $171.0 million in 1997 from $94.3 million
in 1996. The majority of the asset growth was due to growth in the loan
portfolio. Average loans increased $72.4 million or 132.81% to $126.9 million in
1997 from $54.5 million in 1996 due primarily to the establishment of a new
branch and to First Western's acquisition of a two-branch savings bank which was
assimilated into Firstate Bank of Colorado. The average yield on earning assets
increased to 9.65% in 1997 from 8.67% in 1996.
Interest expense increased $4.4 million to $7.5 million in 1997 from $3.1
million in 1996. A $57.9 million increase in certificates of deposit accounted
for $3.7 million of the increase. The certificates of deposits increased due to
the addition of a new branch and the acquisition of the savings bank. Changes in
the relative mix of average interest-bearing liabilities included a $3.4 million
average increase in advances from the Federal Home Loan Bank. The cost of
interest-bearing liabilities for the years ended December 31, 1997 was 5.26% and
December 31, 1996 was 4.43%, and, when combined with noninterest-bearing
deposits, the cost of funds was 4.48% in 1997 compared to 3.56% in 1996. Net
interest margin, on a tax-equivalent basis, decreased to 5.27% in 1997 from
5.36% in 1996, primarily as a result of higher costs for certificates of
deposit.
The following table illustrates, for the periods indicated, the changes in
First Western's net interest income on a tax-equivalent basis due to changes in
volume and changes in interest rates. Changes in net interest income due to both
volume and rate have been allocated to volume and rate in proportion to the
relationship of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
---------------------- ---------------------- -----------------------
1998 COMPARED TO 1997: 1997 COMPARED TO 1996: 1996 COMPARED TO 1995:
---------------------- ---------------------- -----------------------
INCREASE (DECREASE) IN INCREASE (DECREASE) IN INCREASE (DECREASE) IN
NET INTEREST INCOME NET INTEREST INCOME NET INTEREST INCOME
DUE TO CHANGE IN DUE TO CHANGE IN DUE TO CHANGE IN
---------------------- ---------------------- -----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ------ ------ ---- ------ ------ ----- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Investment securities
Taxable............................ $(109) $ -- $ (109) $ (55) $(17) $ (72) $(191) $(187) $ (378)
Tax exempt (tax equivalent)........ 29 33 62 (16) (73) (89) 35 40 75
Fund sold and interest-bearing
deposits........................... 286 (25) 261 253 59 312 167 (5) 162
Loans held for sale.................. 63 (12) 51 87 4 91
Loans................................ 6,839 324 7,163 7,827 256 8,083 1,294 208 1,502
------ ---- ------ ------ ---- ------ ------ ----- ------
Total earning assets........... 7,108 320 7,428 8,096 229 8,325 1,305 56 1,361
------ ---- ------ ------ ---- ------ ------ ----- ------
Interest-bearing liabilities:
Demand, interest bearing............. 137 63 200 134 29 163 12 (19) (7)
Savings.............................. 132 30 162 167 34 201 (10) (13) (23)
Certificates of deposit:
Under $100,000..................... 2,396 45 2,441 2,791 137 2,928 304 34 338
$100,000 and over.................. 623 10 633 711 24 735 130 (1) 129
Federal Home Loan Bank borrowings,
federal funds purchased and
securities sold under agreements to
repurchase......................... 94 (17) 77 181 40 221 29 29
Note payable......................... 133 -- 133 113 -- 113 -- -- --
------ ---- ------ ------ ---- ------ ------ ----- ------
Total interest-bearing
liabilities.................. 3,515 131 3,646 4,097 264 4,361 436 30 466
------ ---- ------ ------ ---- ------ ------ ----- ------
Net increase (decrease) in net
interest income (tax equivalent)... $3,593 $189 $3,782 $3,999 $(35) $3,964 $ 869 $ 26 $ 895
====== ==== ====== ====== ==== ====== ====== ===== ======
</TABLE>
19
<PAGE> 22
OTHER INCOME. The following table presents First Western's other income for
the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- ---------------
1998 1997 1997 1996
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fees for other customer services........................... $ 726 $ 555 $ 761 $ 627
Net gains from sale of loans............................... 716 475 625 232
Commissions and fees from brokerage activities............. 133 13 29 15
Investment securities transactions, net.................... (3) -- -- 196
Other operating income..................................... 409 162 293 181
------ ------ ------ ------
Total other income............................... $1,981 $1,205 $1,708 $1,251
====== ====== ====== ======
</TABLE>
During the nine months ended September 30, 1998, total other income
increased to $2.0 million from $1.2 million for the comparable period in 1997
due primarily to increases in mortgage loan originations and sales, increased
ATM fee income and First Western's creation of an investment services division.
Other income for the year ended December 31, 1997 compared to 1996 increased by
approximately $457,000 due primarily to increased income from mortgage loan
originations and sales and increased ATM fee income.
OTHER EXPENSES. The following table presents First Western's operating
expenses for the indicated periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- ---------------
1998 1997 1997 1996
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Salaries and employee benefits............................. $3,545 $2,172 $3,296 $1,950
Net occupancy expense of premises.......................... 1,107 652 989 464
Purchased services......................................... 906 627 842 327
Office supplies............................................ 233 126 182 137
Minority interest in income of consolidated subsidiaries... 93 86 101 184
Other operating expenses................................... 1,159 751 1,134 687
------ ------ ------ ------
Total other expenses............................. $7,043 $4,414 $6,544 $3,749
====== ====== ====== ======
</TABLE>
During the nine months ended September 30, 1998, total other expenses
increased by $2.6 million over the comparable 1997 period to $7.0 million,
primarily as a result of opening and operating four additional branches.
Salaries and employee benefits increased by $1.4 million due to staffing of new
branch locations, additions of corporate overhead and increases in the volume of
commission-based mortgage lending. The increase in net occupancy expenses for
each period is a direct result of the increased number of branches. Purchased
services reflect outside services, primarily data processing, purchased by First
Western to conduct operations. During the year ended December 31, 1997, total
operating expenses increased $2.8 million from 1996, with increases occurring
among the various components due primarily to First Western's purchase of the
savings bank, establishment of an additional branch and other internally
generated growth.
FEDERAL INCOME TAX. First Western's consolidated income-tax rate varies
from statutory rates principally due to interest income from tax-exempt
securities. The provision for income taxes increased by $846,000 to $1.8 million
for the nine months ended September 30, 1998 from $919,000 for the comparable
period in 1997, reflecting the increase of income before income taxes for the
period. First Western recorded income tax expenses totaling $1.3 million in 1997
and $705,000 in 1996.
20
<PAGE> 23
FINANCIAL CONDITION
LOAN PORTFOLIO COMPOSITION. The following table presents the composition of
First Western's loan portfolio by type of loan at the dates indicated.
Management believes that the balance sheet information as of the dates indicated
should be read in conjunction with the average balance information in the tables
above under "-- Net Interest Income."
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
SEPTEMBER 30, 1998 1997 1996
------------------ ---------------- ---------------
AMOUNT % AMOUNT % AMOUNT %
--------- ------ -------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural(1)................... $ 50,070 20.3% $ 41,500 25.3% $27,343 40.3%
Real estate construction............ 68,624 27.8 37,235 22.7 10,062 14.8
Real estate mortgage................ 120,850 49.0 79,499 48.4 25,946 38.2
Installment loans to individuals.... 9,393 3.8 7,693 4.7 5,226 7.7
Other............................... 167 0.0 132 0.0 332 0.5
-------- ----- -------- ----- ------- -----
Total face amount of
loans................... 249,104 100.9 166,059 101.1 68,909 101.5
Unearned loan fees.................. (757) (0.3) (432) (0.3) (158) (0.2)
-------- ----- -------- ----- ------- -----
Loans............................... 248,347 100.6 165,627 100.8 68,751 101.3
Less allowance for loan losses...... (1,592) (0.6) (1,321) (0.8) (851) (1.3)
-------- ----- -------- ----- ------- -----
Net loans........................... $246,755 100.0% $164,306 100.0% $67,900 100.0%
======== ===== ======== ===== ======= =====
</TABLE>
- ---------------
(1) Agricultural loan balances were $15.2 million at September 30, 1998, $13.9
million at December 31, 1997 and $11.7 million at December 31, 1996.
As of September 30, 1998, loans were $248.3 million, or $82.7 million
greater than loans of $165.6 million as of December 31, 1997. First Western's
two primary categories of loans, real estate mortgage loans and construction
loans, constituting 76.8% of loans as of September 30, 1998, trended upward as
indicated as of the stated dates. These loans as a group were $189.5 million as
of September 30, 1998, $72.8 million over the $116.7 million combined balance as
of December 31, 1997, which in turn was $80.7 million greater than this type of
loans as of December 31, 1996. Installment loans increased modestly, with a
balance of $9.4 million as of September 30, 1998 compared to $7.7 million as of
December 31, 1997 and $5.2 million at December 31, 1996. The significant loan
portfolio growth over the indicated periods is due primarily to First Western's
success in attracting and retaining experienced bank personnel who possessed
existing customer relationships. Loans as of December 31, 1997 were up $96.9
million compared to December 31, 1996, due to greater amounts of commercial and
residential construction and commercial real estate loans, which reflect First
Western's growth.
Although the risk of non-payment exists for a variety of reasons relating
to all loans, other more specific risks are associated with each type of loan.
Risks associated with real estate mortgage loans include the borrower's
inability to pay and deterioration in value of real estate held as collateral.
Several risks are present in construction loans, including economic conditions
in the building industry, fluctuating land values, failure of the contractor to
complete work and the borrower's inability to repay. Risks associated with
commercial, financial and agricultural loans are the quality of the borrower's
management and the impact of local economic factors as well as prices received
for products. Installment loans additionally face the risk of a borrower's
unemployment as a result of deteriorating economic conditions as well as the
personal circumstances of the borrower. Management believes that risk levels
associated with the various types of loans are dependent upon the existence of
the risks at any particular time, for example, economic conditions in the
building industry.
First Western believes that its philosophy in extending credit is
relatively conservative in nature, with a presumption that most credit should
have both a primary and a secondary source of repayment, and that the primary
source should generally be operating cash flows, while the secondary source
should generally
21
<PAGE> 24
be disposition of collateral. First Western engages in very little unsecured
lending, and generally requires personal guarantees of principals for business
obligations. First Western practices a system of concurrence in the approval of
commercial credit whereby the documented concurrence of a senior credit officer
and/or a loan committee at lending thresholds established by First Western is
obtained in addition to that of the recommending loan officer.
At September 30, 1998, net loans totaled approximately 83.92% of total
deposits and approximately 73.55% of total assets.
LOAN MATURITIES. The following tables present, at September 30, 1998 and
December 31, 1997, loans by maturity in each major category of First Western's
portfolio based on contractual repricing schedules. Unearned loan fee income has
been matched with its respective loan categories and assigned to maturity
categories consistent with the underlying loans. Actual maturities may differ
from the contractual repricing maturities shown below as a result of renewals
and prepayments. Loan renewals are evaluated in the same manner as new credit
applications. Further information regarding First Western's real estate mortgage
loan portfolio is provided in "Business -- Loans." First Western has a
significant portion of its real estate mortgage loan portfolio with maturities
of one year or less. If not repaid upon maturity, these loans are subject to the
same credit evaluation and other underwriting criteria of First Western as a new
loan application, and subject to new terms and conditions as deemed appropriate
by First Western lending personnel.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-------------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
--------------------- ---------------------
ONE YEAR FLOATING FLOATING
OR LESS FIXED RATE RATE FIXED RATE RATE TOTAL
-------- ---------- -------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.................. $ 45,762 $ 3,469 $ 66 $ 516 $-- $ 49,813
Real estate construction........ 68,624 -- -- -- -- 68,624
Real estate mortgage............ 87,674 16,120 13,147 3,409 -- 120,350
Installment loans to individuals
and other..................... 5,368 4,060 5 127 -- 9,560
-------- ------- ------- ------ --- --------
Total loans........... $207,428 $23,649 $13,218 $4,052 $-- $248,347
======== ======= ======= ====== === ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------
OVER ONE YEAR
THROUGH FIVE YEARS OVER FIVE YEARS
--------------------- ---------------------
ONE YEAR FLOATING FLOATING
OR LESS FIXED RATE RATE FIXED RATE RATE TOTAL
-------- ---------- -------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural.................. $ 38,129 $ 2,950 $ 101 $ 173 $-- $ 41,353
Real estate construction........ 37,235 -- -- -- -- 37,235
Real estate mortgage............ 48,728 14,227 12,609 3,650 -- 79,214
Installment loans to individuals
and other..................... 4,431 3,271 21 102 -- 7,825
-------- ------- ------- ------ --- --------
Total loans........... $128,523 $20,448 $12,731 $3,925 $-- $165,627
======== ======= ======= ====== === ========
</TABLE>
NONPERFORMING LOANS. Nonperforming loans consist of loans 90 days or more
delinquent and still accruing interest, nonaccrual loans and restructured loans.
When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest, regardless of the delinquency status of a loan, the
accrual of interest income is discontinued and accrued but unpaid interest is
reversed through a charge to current year's earnings. While the loan is on
nonaccrual status, interest income is recognized only upon receipt and then only
if, in the judgment of management, there is no reasonable doubt as to the
22
<PAGE> 25
collectibility of the principal balance. Loans 90 days or more delinquent
generally are changed to nonaccrual status unless the loan is in the process of
collection and management determines that full collection of principal and
accrued interest is probable.
Restructured loans are those for which concessions, including the reduction
of interest rates below a rate otherwise available to the borrower or the
deferral of interest or principal, have been granted due to the borrower's
weakened financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur. First Western did not have any restructured loans as of September
30, 1998, or December 31, 1997, 1996 and 1995.
The following table presents information concerning the nonperforming
assets of First Western at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------
1998 1997 1996 1995
------------- ------ ------------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans:................................... $ 414 $ 484 $ 93 $110
Other loans 90 days past due........................ 279 744 22 28
------ ------ ---- ----
Total nonperforming loans........................... 693 1,228 115 138
Other real estate................................... 778 141 10 --
------ ------ ---- ----
Total nonperforming assets.......................... $1,471 $1,369 $125 $138
====== ====== ==== ====
Ratio of total nonperforming loans to total loans... 0.28% 0.74% 0.17% 0.30%
Ratio of total nonperforming assets to total loans
plus other real estate............................ 0.59 0.83 0.18 0.30
Ratio of nonperforming assets to total assets....... 0.44 0.60 0.10 0.14
</TABLE>
Other real estate as of September 30, 1998 consists of three properties.
Approximately $600,000 represents two properties under contract for sale, two of
which closed before December 31, 1998, and the other closed in January 1999.
Management is not aware of any adverse trend relating to First Western's loan
portfolio.
As of September 30, 1998 and December 31, 1998, there was no significant
amount of loans excluded from nonperforming loans set forth above, where known
information about possible credit problems of borrowers caused management to
have serious doubts as to the ability of the borrowers to comply with the
present loan repayment terms and which may result in the loans becoming
nonperforming.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses
represents management's recognition of the risks of extending credit and its
evaluation of the quality of the loan portfolio. The allowance is reviewed and
then maintained at a level considered adequate to provide for anticipated loan
losses based on management's assessment of various factors affecting the loan
portfolio, including a review of problem loans, business conditions, historical
loss experience, evaluation of the quality of the underlying collateral and
holding and disposal costs. The allowance is increased by additional charges to
operating income and reduced by loans charged off, net of recoveries.
23
<PAGE> 26
The following table presents information regarding changes in the allowance
for loan losses of First Western for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NINE MONTHS ENDED ------------------
SEPTEMBER 30, 1998 1997 1996
------------------ -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Average total loans..................................... $199,450 $126,914 $54,515
======== ======== =======
Total loans at end of period.................. $248,347 $165,627 $68,751
======== ======== =======
Allowance at beginning of period........................ $ 1,321 $ 851 $ 767
Charge-offs:
Real estate construction.............................. -- -- --
Commercial, financial and agricultural................ 14 -- 9
Installment loans to individuals...................... 54 58 3
Real estate mortgage.................................. -- -- 10
Other................................................. -- -- --
-------- -------- -------
Total charge-offs............................. 68 58 22
Recoveries:
Real estate construction.............................. -- -- --
Commercial, financial and agricultural................ 139 94 86
Installment loans to individuals...................... 20 7 5
Real estate mortgage.................................. -- 10 --
Other................................................. -- -- --
-------- -------- -------
Total recoveries.............................. 159 111 91
-------- -------- -------
Net recoveries.......................................... 91 53 69
Provisions for loan losses.............................. 180 140 15
Allowance balance of purchased financial institution.... -- 277 --
-------- -------- -------
Allowance at end of period.............................. $ 1,592 $ 1,321 $ 851
======== ======== =======
Ratio of net recoveries (charge-offs) to average total
loans................................................. 0.05% 0.04% 0.13%
Allowance to total loans at end of period............... 0.64% 0.80% 1.24%
Allowance to nonperforming loans........................ 229.73% 107.61% 739.65%
</TABLE>
Net recoveries during the nine months ended September 30, 1998 totaled
approximately $91,000 or .05% of average loans compared to approximately $53,000
or .04% of average loans for the year ended December 31, 1997 and approximately
$69,000 or .13% of average loans in 1996. These recoveries resulted from loans
charged off several years ago.
In February 1997, First Western acquired 100% of First Northern Savings
Bank, including approximately $30 million in loans. There were no purchase
accounting adjustments recorded regarding the allowance for loan losses in
connection with this transaction.
First Western's lending personnel are responsible for continuous monitoring
of the quality of loan portfolios. The loan portfolios are also monitored and
examined by First Western loan review personnel. In 1998 First Western
implemented an annual outside loan review program. These reviews assist in the
identification of potential and probable losses, and also in the determination
of the level of the allowance for loan losses. The allowance for loan losses is
based primarily on management's estimates of possible loan losses from the
foregoing processes and historical experience. These estimates involve ongoing
judgments and may be adjusted over time depending on economic conditions and
changing historical experience.
State and federal regulatory agencies, as an integral part of their
examination process, review First Western's loans and its allowance for loan
losses. Although management believes that First Western's allowance for loan
losses is adequate to cover anticipated losses, the loan loss allowance at
September 30,
24
<PAGE> 27
1998 is lower as a percentage of total loans than historical levels. In
determining the adequacy of the allowance for loan loss balance and the amount
of period provisions for loan losses, management utilizes an ongoing systematic
methodology designed to identify losses inherent in existing loans and
commitments to extend credit. This analysis takes into consideration such
factors as (1) evaluations of collectibility and prior loss experience of loans
and commitments to extend credit, (2) changes in the nature and volume of the
loan portfolio, (3) overall portfolio quality, (4) loan concentrations, (5)
specific problem loans and commitments, and (6) current economic conditions that
may affect the borrowers' ability to pay. Based upon this analysis, adjustments
are made to the loan loss reserve as appropriate. In the fourth quarter of 1998,
First Western's allowance for loan losses was increased by $590,000 primarily as
a result of an increase in net loans of $46.7 million at December 31, 1998.
There can be no assurance, however, that management will not determine a need to
further increase the allowance for loan losses. Further, bank regulators, when
reviewing First Western's loan portfolios in the future, may require First
Western to increase their loan loss allowance. Either of these situations could
adversely affect First Western's earnings. Further, there can be no assurance
that First Western's actual loan losses will not exceed its allowance for loan
losses.
The following tables present an allocation of the allowance for loan losses
by loan category as of the dates indicated. Portions of the allowance have been
allocated to categories based on an analysis of the status of particular loans;
however, the majority of the allowance is utilized as a single unallocated
allowance available for all loans. The allocation table should not be
interpreted as an indication of the specific amounts, by loan classification, to
be charged to the allowance. Management believes that the table may be a useful
device for assessing the adequacy of the allowance as a whole. The table has
been derived in part by applying historical loan loss ratios to both internally
classified loans and the portfolio as a whole in determining the allocation of
the loan losses attributable to each category of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
SEPTEMBER 30, 1998 1997 1996
---------------------- ---------------------- ----------------------
LOANS IN LOANS IN LOANS IN
CATEGORY CATEGORY CATEGORY
AS A AS A AS A
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
OF GROSS OF GROSS OF GROSS
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $ 122 20.1% $ 16 25.0% $ 2 39.9%
Real estate construction....... 12 27.6 68 22.4 -- 14.7
Real estate mortgage........... 60 48.5 47 47.9 19 37.8
Installment loans to
Individuals.................. 6 3.8 33 4.7 8 7.6
Unallocated.................... 1,392 -- 1,157 -- 822 --
------ ----- ------ ----- ---- -----
Total allowance...... $1,592 100.0% $1,321 100.0% $851 100.0%
====== ===== ====== ===== ==== =====
</TABLE>
The total allowance for loan loss balance at September 30, 1998 was $1.6
million or 229.73% of nonperforming loans, and the portion of the loan loss
allowance directly allocated to specific loan categories was 28.86% of
nonperforming loans. The total allowance for loan losses balance at December 31,
1998 was $2.2 million or 213.39% of nonperforming loans, and the portion of the
loan loss allowance directly allocated to specific loan categories was 19.40% of
nonperforming loans.
The provision for loan losses takes into account many factors such as First
Western's prior experience with loan losses and an evaluation of the risks in
the loan portfolio at any given time, including changes in economic, operating
and other conditions of borrowers, the Denver-northern Colorado and western and
central Nebraska economies and to a lesser extent, the national economy. As
indicated in the preceding table, a majority of the loan loss allowance was not
allocated to a single category. First Western's loan portfolio contains a
significant amount of loans that are real estate mortgage and real estate
construction
25
<PAGE> 28
loans, and management assesses general risks to the portfolio that are common to
both categories. These risks include the financial conditions of borrowers,
economic conditions in the building industry that could effect a slowdown in the
market resulting in fewer building permits and lower absorption of newly
developed sites, fluctuating land values, building moratoriums by
municipalities, and the overall general economy of First Western's primary area
of operations. The amount of charge-offs by category for 1998 was $36,000 for
consumer loans and $189,000 for commercial loans, for an overall total net
charge-off ratio of approximately .40% of total loans.
INVESTMENTS. First Western's investment policy is designed to ensure
liquidity for cash-flow requirements; to help manage interest rate risk; to
ensure collateral is available for public deposits, Federal Home Loan Bank
advances and repurchase agreements; and to manage asset quality diversification.
The asset/liability committees of each of First Western's banks are responsible
for implementing investment strategy, including ongoing review of the
performance of the investment portfolio, market values, market conditions,
current economic conditions, profitability, capital ratios, liquidity needs and
collateral position with the Federal Home Loan Bank.
First Western's investment portfolio at September 30, 1998 is comprised of
U.S. Treasury and U.S. Agency bonds and bills and general obligation and revenue
municipal bonds. The portfolio contains no derivatives, structured notes or
similar instruments that are classified as high-risk securities as defined by
the Federal Financial Institutions Examinations Council.
The following table presents the estimated fair value of the
available-for-sale securities and the amortized cost basis of held-to-maturity
securities in First Western's investment portfolio by type as of the dates
indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1998 1997 1996
------------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Held-to-maturity:
U.S. Treasury & agency securities....................... $ 2,000 $ 5,807 $ 8,495
State and political securities.......................... 7,241 7,235 7,136
Other bonds............................................. -- -- 504
------- ------- -------
Total held-to-maturity.......................... $ 9,241 $13,042 $16,135
------- ------- -------
Available-for-sale:
U.S. Treasury & agency securities....................... $32,221 $11,986 $13,191
State and political securities.......................... 1,681 1,611 1,445
Other bonds............................................. -- 201 556
Equity securities....................................... 1,208 1,672 461
------- ------- -------
Total available-for-sale........................ $35,110 $15,470 $15,653
------- ------- -------
Total investments............................... $44,351 $28,512 $31,788
======= ======= =======
</TABLE>
26
<PAGE> 29
INVESTMENT MATURITIES AND YIELD. The following table presents the estimated
fair value of the available for sale securities and the amortized cost basis of
held-to-maturity securities with the approximate yield of the securities in the
investment portfolio by type and maturity at September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------
TYPE AND MATURITY AMOUNT YIELD
- ----------------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury & agency securities:
One year or less.......................................... $24,769 5.42%
Over one through five years............................... 4,387 5.78
Over five through 10 years................................ 3,888 5.70
Over 10 years............................................. 1,177 6.83
-------
Total............................................. $34,221 5.55
=======
Municipal securities:
One year or less.......................................... $ 319 5.00
Over one through five years............................... 3,242 5.21
Over five through 10 years................................ 1,630 5.48
Over 10 years............................................. 3,731 6.18
-------
Total............................................. $ 8,922 5.66
=======
Total investment in debt securities:
One year or less.......................................... $25,088 5.41
Over one through five years............................... 7,629 5.54
Over five through 10 years................................ 5,518 5.64
Over 10 years............................................. 4,908 6.34
-------
Total............................................. $43,143 5.57%
=======
</TABLE>
DEPOSITS. First Western's primary source of funds has historically been
customer deposits. Deposits have grown significantly in recent years, with
average deposits increasing to $231.7 million for the nine months ended
September 30, 1998 from $158.4 million for the year ended December 31, 1997 and
$83.9 million for the year ended December 31, 1996. These increases are
primarily a result of the opening of one branch in 1996, two branches in 1997
and four branches in 1998. At September 30, 1998, average total certificates of
deposit comprised $148.4 million or 64.0% of average total deposits. Management
believes this ratio may increase as it uses this product in its asset/liability
management to minimize interest rate risk.
27
<PAGE> 30
The following table presents the average balances for each major category
of deposits and the weighted average interest rates paid for interest-bearing
deposits for the period indicated.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
NINE MONTHS ENDED ----------------------------------------
SEPTEMBER 30, 1998 1997 1996
------------------- ------------------- ------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE COST BALANCE COST BALANCE COST
-------- -------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand, interest-bearing.............. $ 13,008 2.08% $ 12,184 2.09% $10,743 2.10%
Money market accounts................. 15,892 3.83 10,913 3.43 7,400 3.25
Savings............................... 12,635 3.12 11,413 3.15 9,285 3.12
IRA deposits.......................... 10,042 5.99 7,484 5.82 5,609 5.43
Certificates of deposit under
$100,000............................ 116,821 6.15 72,229 6.11 26,367 5.63
Certificates of deposit $100,000 and
over................................ 31,567 5.95 19,500 5.89 7,416 5.58
-------- -------- -------
Total interest-bearing
deposits.................. 199,965 5.47 133,723 5.22 66,820 4.43
Noninterest-bearing demand deposits... 31,765 24,654 17,124
-------- -------- -------
Total deposits.............. $231,730 $158,377 $83,944
======== ======== =======
</TABLE>
The following table presents the amount and maturity of IRA certificates of
deposit and time certificates of deposit that had balances of more than $100,000
at September 30, 1998.
<TABLE>
<CAPTION>
REMAINING MATURITY (IN THOUSANDS)
- ------------------ --------------
<S> <C>
Less than three months...................................... $ 7,644
Three months up to six months............................... 7,919
Six months up to one year................................... 15,839
One year and over........................................... 11,742
-------
Total............................................. $43,144
=======
</TABLE>
FEDERAL HOME LOAN BANK BORROWINGS. First Western's banks are members of the
Federal Home Loan Bank of Topeka, which is one of 12 regional Federal Home Loan
Banks. The Federal Home Loan Bank system functions as a central bank providing
credit for members. As members of the Federal Home Loan Bank, First Western's
banks are entitled to borrow funds from the Federal Home Loan Bank and are
required to own Federal Home Loan Bank stock in an amount determined by a
formula based upon total assets and Federal Home Loan Bank borrowings. First
Western's banks may use Federal Home Loan Bank borrowings to supplement deposits
as a source of funds. See "Liquidity -- Asset/Liability Management." Average
Federal Home Loan Bank borrowings for the nine months ended September 30, 1998
were $7.6 million compared to $4.2 million for the years ended December 31, 1997
and $0 for December 31, 1996. At September 30, 1998, based on its Federal Home
Loan Bank stockholdings, the aggregate available and unused borrowing capacity
of First Western's banks was approximately $9.7 million, which was available
through a line of credit and term advances. Federal Home Loan Bank borrowings
are collateralized by Federal Home Loan Bank stock, other investment securities
and a small amount of loans of First Western's subsidiary banks.
A variety of borrowing terms and maturities can be chosen from the Federal
Home Loan Bank. Maturities available range generally from one day to 10 years.
Interest rates can be either fixed or variable and prepayment options are
available if desired. The Federal Home Loan Bank offers both amortizing and
non-amortizing advances. To date Federal Home Loan Bank stock has been
redeemable at the preset price of $100 per share, but there can be no assurance
that this policy will continue.
28
<PAGE> 31
CAPITAL RESOURCES
First Western monitors compliance with bank and bank holding company
regulatory capital requirements, focusing primarily on risk-based capital
guidelines. By mid-1998 First Western determined that it would be below the
total capital minimum for a bank holding company in the near term as a result of
its significant growth. As indicated in the table immediately below, at
September 30, 1998, First Western was .20% below the total capital minimum
requirements. Upon completion of this offering, First Western will be in
compliance with these requirements. See "Capitalization." Under the risk-based
capital method of capital measurement, the ratio computed is dependent upon the
amount and composition of assets recorded on the balance sheet, and the amount
and composition of off-balance sheet items, in addition to the level of capital.
Included in the risk-based capital method are two measures of capital adequacy,
core capital and total capital, which consists of core and secondary capital.
See "Supervision and Regulation -- First Western -- Capital Adequacy."
The following tables present First Western's capital ratios as of the
indicated dates.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Core capital............................................. $ 19,680 7.22% $ 16,676 9.02%
Core capital minimum requirement(1)...................... 10,909 4.00 7,394 4.00
-------- ---- -------- ----
Excess................................................... $ 8,771 3.22% $ 9,282 5.02%
======== ==== ======== ====
Total capital.................................. $ 21,272 7.80% $ 17,997 9.74%
Total capital minimum requirement(1)........... 21,819 8.00 14,788 8.00
-------- ---- -------- ----
Excess (deficit)......................................... $ (547) (.20)% $ 3,209 1.74%
======== ==== ======== ====
Total risk adjusted assets..................... $272,740 $184,847
======== ========
</TABLE>
- ---------------
(1) Based on risk-based capital guidelines of the Federal Reserve, a bank
holding company is required to maintain a core capital to risk-adjusted
assets ratio of 4% and a total capital to risk-adjusted assets ratio of 8%.
See "Supervision and Regulation -- First Western -- Capital Adequacy" for
definitions of core and secondary capital.
<TABLE>
<CAPTION>
LEVERAGE RATIOS
------------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- ----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Core capital............................................. $ 19,680 6.20% $ 16,676 7.53%
Minimum requirement(1)................................... 12,692 4.00 8,861 4.00
-------- ---- -------- ----
Excess................................................... $ 6,988 2.20% $ 7,815 3.53%
======== ==== ======== ====
Average total assets..................................... $317,303 $221,523
======== ========
</TABLE>
- ---------------
(1) The leverage ratio is defined as the ratio of core capital to average total
assets. Based on Federal Reserve guidelines, a bank holding company
generally is required to maintain a leverage ratio of 4%. See "Supervision
and Regulation -- First Western -- Capital Adequacy" for definitions of core
and secondary capital.
29
<PAGE> 32
LIQUIDITY
SOURCES OF LIQUIDITY. First Western continuously forecasts and manages its
liquidity in order to satisfy cash flow requirements of depositors and borrowers
and allow First Western to meet its own cash flow needs. First Western has
developed internal and external sources of liquidity to meet its continued
growth needs. These include, but are not limited to: the ability to raise
deposits through branch promotional campaigns, maturity of overnight funds, $12
million available as of September 30, 1998, maturity of short term investment
securities, $15 million available as of September 30, 1998, sale of available
for sale securities, $19 million available as of September 30, 1998, draws on
available borrowing lines, $25 million available as of September 30, 1998, draws
on increased borrowing lines available at the Federal Home Loan Bank with the
purchase of additional Federal Home Loan Bank stock, $9.7 million available as
of September 30, 1998, participation or sale of portions of the loan portfolio,
and possible sale of fixed assets of First Western. First Western intends to pay
its $8.8 million note payable with proceeds from this offering, thus providing
it with additional liquidity if needed.
ASSET/LIABILITY MANAGEMENT. A principal function of asset/liability
management is to coordinate the levels of interest-sensitive assets and
liabilities to minimize net interest income fluctuations in times of fluctuating
market interest rates. Interest-sensitive assets and liabilities are those that
are subject to repricing in the near term, including both variable rate
instruments and those fixed-rate instruments which are approaching maturity.
Changes in net yield on interest-sensitive assets arise when interest rates on
those assets, meaning loans and investment securities, change in a different
time period from that of interest rates on liabilities, meaning time deposits.
Changes in net yield on interest-sensitive assets also arise from changes in the
mix and volumes of earning assets and interest-bearing liabilities.
The following table presents the interest rate sensitivity of First
Western's assets and liabilities as of September 30, 1998, and discusses the
repricing dates of First Western's earning assets and interest-bearing
liabilities as of that date, as well as First Western's interest rate
sensitivity gap percentages for the periods presented. The table is based upon
assumptions as to when assets and liabilities will reprice in a changing
interest rate environment, and since these assumptions can be no more than
estimates, some assets and liabilities indicated as maturing or otherwise
repricing within a stated period may, in fact, mature or reprice at different
times and at different volumes than those estimated. Also, the renewal or
repricing of assets and liabilities can be discretionary and subject to
competitive and other pressures.
30
<PAGE> 33
Therefore, the following table does not and cannot necessarily indicate the
actual future impact of general interest rate movements on First Western's net
interest income.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT SEPTEMBER 30, 1998
----------------------------------------------------------------
THREE MONTHS
LESS THAN TO LESS THAN ONE TO OVER
THREE MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ------------ ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Earning assets:
Funds sold and interest-bearing
deposits............................ $ 12,486 $ -- $ -- $ -- $ 12,486
Investment in securities
available-for-sale.................. 17,887 6,901 4,345 5,977 35,110
Investment in securities
held-to-maturity.................... 1,009 500 3,284 4,448 9,241
Loans.................................. 70,275 137,152 36,868 4,052 248,347
-------- -------- -------- ------- --------
Total earning assets........... 101,657 144,553 44,497 14,477 305,184
Interest-bearing liabilities:
Deposits:
Demand, interest-bearing............ 32,222 -- -- -- 32,222
Savings............................. 17,315 -- -- -- 17,315
Certificates of deposit under
$100,000.......................... 20,905 82,107 58,218 -- 161,230
$100,000 and over................. 7,644 23,758 11,742 -- 43,144
Other liabilities:
Securities sold under agreements to
repurchase........................ 2,588 -- -- -- 2,588
Federal Home Loan Bank borrowings...... -- -- 8,500 -- 8,500
Note payable........................... -- -- 5,800 -- 5,800
-------- -------- -------- ------- --------
Total interest-bearing
liabilities.................. $ 80,674 $105,865 $ 84,260 $ -- $270,799
-------- -------- -------- ------- --------
Interest rate gap........................ $ 20,983 $ 38,688 $(39,763) $14,477 $ 34,385
======== ======== ======== ======= ========
Cumulative interest rate gap at September
30, 1998............................... $ 20,983 $ 59,671 $ 19,908 $34,385
======== ======== ======== =======
Cumulative interest rate gap to total
assets................................. 6.26% 17.79% 5.94% 10.25%
======== ======== ======== =======
</TABLE>
Due to the volume of loans that reprice with changes in the prime lending
rate and the volume of noninterest-bearing deposits, First Western has
experienced a positive gap in assets and deposits that reprice or mature in less
than three months. Of the total earning assets at September 30, 1998, 33.31%
reprice or mature in less than three months while 29.79% of all interest-bearing
liabilities reprice or mature in that same time frame. The positive interest
rate gaps indicate that net income would increase in the event of rising
interest rates and would decrease in the event of decreasing interest rates. In
the unlikely event of an immediate, parallel and sustained shift of market
interest rates of 200 basis points, management estimates that net income during
the 12 months ending September 30, 1999 would likely increase approximately 6%
compared to the prior like 12-month period if interest rates rose by 200 basis
points and likely fall by approximately 6% compared to the prior like 12-month
period if rates fell by the same amount. These are good faith estimates assuming
all other factors do not change materially, and, in management's belief, are not
necessarily indicative of what actually could occur in the event of immediate
interest rate increases or deceases of this magnitude. Management believes that
it is highly unlikely that these changes would occur in a short time period. As
interest-bearing assets and liabilities reprice at different time frames and
proportions to market interest rate movements, various assumptions must be made
based on historical relationships of these variables in reaching any conclusion.
Since these correlations are based on competitive and market conditions, future
results would, in management's belief, be materially different from the
foregoing estimates.
31
<PAGE> 34
EFFECTS OF INFLATION AND CHANGING PRICES
Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates. Over short periods of time interest rates may not move in the
same direction or magnitude as inflation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 130, Reporting
Comprehensive Income, which is effective for the fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components, revenue, expenses, gains and
losses, in a full set of general purpose financial statements. This statement
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. First Western adopted SFAS No. 130 on January 1, 1998, and all
annual required disclosures will be included beginning with the year end 1998
consolidated financial statements.
The Financial Accounting Standards Board recently adopted Statement No. 131
Disclosures about Segments of an Enterprise and Related Information. Statement
No. 131, which became effective for periods beginning after December 15, 1997,
requires that business enterprises report information about operating segments
in annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Management believes that Statement No. 131 will have no significant impact on
First Western's consolidated financial statements.
YEAR 2000 CONSIDERATIONS
As the year 2000 approaches, a significant business issue has emerged
regarding how existing software programs and operating systems can accommodate
the date value for the year 2000. Many existing software products, including
products used by First Western and its suppliers and customers, were designed to
accommodate only a two-digit date value, which represents the year. For example,
information relating to the year 1996 is stored in the system as 96. As a
result, the year 1999 could be the maximum date value that these systems will be
able to process accurately. In response to concerns about this issue, regulatory
agencies have begun to monitor bank holding companies' and banks' readiness for
the year 2000 as part of the regular examination process.
First Western presently believes that with modifications to existing
software and conversion to new software, the year 2000 issue will not pose
significant operational problems for First Western's business operations.
Substantially all data processing services for First Western are provided by
First Commerce Technologies, a subsidiary of National Bank of Commerce, Lincoln
Nebraska. First Commerce Technologies has been engaged by First Western to
ensure First Western's systems are fully 2000 compliant by the second quarter of
1999. An agreement has been entered into, and it is augmented by First Commerce
Technologies with written status reports on a monthly basis. Reports to date
indicate that First Commerce Technologies has met all target dates and is
prepared to meet all future target dates for completion of the project.
Management believes that, to date, the Nebraska Bank and its nonactive Nebraska
subsidiary, First Mortgage Bancorp, are completely converted, tested and
compliant. The Colorado Bank is in the conversion and testing phase with
completion expected in the second quarter of 1999. Based on the results of the
Nebraska Bank implementation, management believes that the project is on time
and the commitment of First Commerce Technologies appears adequate. Management
is not aware of limitations on any legal remedies of First Western as a result
of year 2000 damages it may suffer should damages be incurred.
Additionally, implementation of First Western's plan to test in-house and
out-sourced software has been underway since the first quarter of 1998. Testing
of applications considered to be mission critical are
32
<PAGE> 35
scheduled for completion by the first quarter of 1999. Total compliance for all
systems, including First Western's outsourced computer systems, is expected by
management to be completed by the third quarter of 1999. Compliance audits
performed to date on First Western's subsidiaries have been positive and no
specific items of improvement were noted.
Management currently estimates that year 2000 compliance for First Western
will cost $150,000. The plan implementation team is responsible for progress and
will continue to provide a status report to the board of directors on a monthly
basis through December 31, 2000. However, if the modifications and conversions
are not made, or are not completed timely, the year 2000 issue could have a
material adverse impact on the operations of First Western. Because of the
factors discussed below, management cannot estimate with any reasonable degree
of certainty the magnitude of lost revenues should management's reasonable worst
case scenario develop in which First Western would need to use an alternate
vendor to become year 2000 compliant and noncompliant customers were unable to
repay their loans.
First Western has in place a contingency plan in the event its outsourced
computer systems are not year 2000 compliant on a timely basis. Management
believes that the alternate vendor has the ability to provide the service to
meet First Western's needs because this vendor has software that is year 2000
compliant which is installed with other parties and would provide a warranty to
First Western as to year 2000 compliance. In the event First Western were to use
the alternate vendor, management believes that the monthly processing costs of
First Western could increase marginally, and a one-time conversion cost in the
range of $50,000 to $100,000 would probably be incurred.
First Western's bank subsidiaries have sent direct mail to their customers
regarding the year 2000 issue and the need for readiness, pursuant to guidelines
of the banking industry regulators. However, response to these inquiries has
been low. Management intends to continue to solicit customer response on this
matter. Failure of First Western's customers to prepare for year 2000
compatibility could have a significant adverse effect on customers' operations
and profitability, thus inhibiting their ability to repay loans and adversely
affecting First Western's operations. First Western does not have sufficient
information accumulated from customers to enable First Western to assess the
degree to which customers' operations are susceptible to potential problems
relating to the year 2000 issue or, further, to quantify the potential lost
revenue to First Western in this case.
33
<PAGE> 36
BUSINESS
OVERVIEW
First Western, a multibank holding company, offers full service community
banking through 10 banking locations in metropolitan Denver and northern
Colorado and two banking locations in western and central Nebraska. First
Western was organized in 1963 by its founder and Chairman, Joel H. Wiens, to
purchase First Western's first community bank, Firstate Bank, in Kimball,
Nebraska. In 1993 First Western began its banking operations in Colorado through
the purchase of a bank in Northglenn, Colorado, which was renamed Firstate Bank
of Colorado. In 1995 First Western began its Colorado expansion through
establishing startup branches in areas of metropolitan Denver-northern Colorado
that management believed were well situated for deposit and loan growth. To
date, First Western has added seven branches and purchased a two-branch savings
bank that has been assimilated into Firstate Bank of Colorado.
First Western has three subsidiaries, the Nebraska Bank, the Colorado Bank,
and First Mortgage Bancorp. The Nebraska Bank is a Nebraska state chartered bank
with assets of $72 million, net loans of $49 million and net deposits of $60
million as of September 30, 1998. The Colorado Bank is a Colorado state
chartered bank with assets of $266 million, net loans of $207 million and
deposits of $234 million as of September 30, 1998. See "Supervision and
Regulation." First Mortgage Bancorp is a Nebraska licensed sales finance
company, with assets of $500,000. It does not conduct significant operations,
although from time to time it purchases loan participations from First Western's
banks. The Nebraska Bank is 91.4% owned by First Western; the other two
subsidiaries are wholly owned by First Western.
STRATEGIES
GROWTH. First Western's goal in continuing its expansion is to maintain a
profitable, customer-focused financial institution. Management believes that
First Western's existing structure, management, data and operational systems are
sufficient to achieve further growth in asset size, revenues and capital without
proportionate increases in operating costs. This growth should also allow First
Western to increase the lending limits of its banks, thereby enabling First
Western to continue to serve the needs of existing and new customers. First
Western's operating strategy is to continue to provide high quality community
banking services to its customers and increase market share through active
solicitation of new business, repeat business and referrals from customers, and
continuation of selected promotional strategies.
First Western's growth strategy is primarily focused on branch expansions
and existing branch growth. Although First Western may consider acquisitions of
smaller financial institutions from time to time, external growth is a secondary
priority due to the significant premiums currently being paid to acquire
financial institutions in First Western's market area.
BRANCH EXPANSION. First Western has been able to grow through establishing
startup branches at reasonable costs, while attracting experienced, highly
capable bankers who prefer the autonomy and decision making opportunities in a
community banking environment. Since January 1, 1996, First Western has hired
over 16 experienced bankers to staff seven new branches in Colorado as well as
experienced corporate financial officers in the Colorado Bank. Banking
experience of these individuals ranges from 10 to 30 years.
Because of the significant economic growth in Colorado over the past
several years, management has determined to focus First Western's branch
expansion in the Front Range area, Colorado Springs to Fort Collins. The
Colorado Bank has two additional branches that are expected to begin operations
in the first quarter of 1999. First Western reviews branch opportunities on an
ongoing basis. Management believes that First Western's branching strategy will
capitalize on the significant economic growth experienced in its primary market
area, as well as take advantage of the needs of businesses and consumers for a
full service community bank.
34
<PAGE> 37
First Western's market areas are the metropolitan Denver-northern Colorado
area and western and central Nebraska. The Denver-northern Colorado area is the
most densely populated area in the Rocky Mountain region. Total population is
approximately 2.5 million, and the area has received a net migration of over
260,000 persons since 1990. Employment in the area is diversified across the
manufacturing, construction, financial services, tourism, transportation,
technology, cable television, retail trade, services and government sectors. In
1997, Colorado achieved the eleventh straight year of employment growth, with
nonagricultural employment increasing 4% during 1997 to approximately 2.0
million. First Western's Nebraska market area includes the Nebraska Panhandle as
well as the fringes of southeastern Wyoming and the northeastern corner of
Colorado, with service providers and agriculture being the primary businesses.
EXISTING BRANCH GROWTH. Management believes that First Western's largest
source of internal growth is through First Western's intensive solicitation
program conducted by branch presidents and lending officers, followed by
referrals from customers. The primary reason for referrals is positive customer
feedback regarding First Western's customer service and response time.
First Western's Colorado banking market is dominated by large national and
regional financial institutions. This dominance was achieved through the
purchase of Colorado-based financial institutions over the past several years,
which resulted in a significant consolidation of the Colorado banking industry.
Management believes that small and medium sized businesses often are not
adequately served by large banks nor are these businesses of sufficient size to
be of interest to these large banks, and that individuals frequently have
difficulty in finding personalized banking services. Many of these customers
seek a banking relationship with a smaller and significantly more
service-oriented community banking organization such as First Western. First
Western's operational systems have been designed to complement superior customer
service. Management believes First Western's banking locations are small enough
to facilitate personalized services and decision-making, yet of sufficient size
to meet most customers' needs. Management also believes that the economic
expansion in Colorado contributes significantly to internal growth. Through
First Western's primary emphasis on customer service and management's
experience, First Western will continue to focus on attracting these customers
in achieving internal growth primarily by focusing on the following:
- Operational Efficiencies -- First Western seeks to maximize operational
and support efficiencies consistent with maintaining high quality
customer service. First Western utilizes recently developed technology to
provide customer support. Various management and administrative functions
are consolidated, including credit administration and servicing,
investment management and accounting, enabling branch personnel to better
focus on customer service and business development.
- Marketing Activities -- First Western focuses on its active solicitation
program for new business, as well as identifying and developing products
and services that satisfy customer needs, particularly customer service.
First Western's marketing programs also utilize local print, promotional
materials in each location, as well as sponsorship of community events
within branch areas.
- Products Offered -- First Western offers a wide range of deposit products
including regular checking, checking with interest, money market
accounts, regular savings, certificates of deposit, and IRAs. First
Western also offers additional access to its customers with a ATM/Visa
debit card program as well as telephone banking, PC banking, and on-line
Internet banking. First Western also offers installment loans, including
auto, recreational vehicle, and other secured and unsecured loans sourced
directly by its branches. See "Loans" below for a discussion of products
that First Western provides to commercial accounts.
LOANS
First Western has the ability to provide a broad range of commercial and
retail lending services. First Western follows a uniform credit policy which
contains underwriting and loan administration criteria, including levels of loan
commitment, loan types, credit criteria, concentration limits, loan
administration, loan review and grading and related matters. In addition, First
Western provides ongoing loan officer
35
<PAGE> 38
training and review, obtains outside independent loan reviews, operates a
centralized processing, underwriting and servicing center for loans and manages
problem assets centrally. At September 30, 1998, substantially all loans
outstanding were to customers within First Western's market area.
REAL ESTATE MORTGAGE LOANS. These loans include various types of loans for
which First Western holds real property as collateral. Most of the loans as of
September 30, 1998 were to businesses. Of the $120.9 million of real estate
mortgage loans at September 30, 1998, approximately $57.8 million were loans
made to commercial customers where the collateral for the loan is, among other
things, the real estate occupied by the business of the customer. It is First
Western's practice whenever practicable in making commercial loans to receive
real estate as collateral in addition to other appropriate collateral.
Therefore, many loans categorized as real estate mortgage loans can be
characterized as commercial loans which are secured by real estate. Commercial
loans secured by real estate often mature annually and typically have adjustable
interest rates. The primary risks of real estate mortgage loans include the
borrower's inability to pay and deterioration in value of real estate that is
held as collateral.
REAL ESTATE CONSTRUCTION LOANS. Construction loans include commercial and
residential real estate construction loans. Real estate construction loans are
principally made to builders to construct business buildings or single and
multi-family residences. These loans typically have maturities of six to 12
months and adjustable interest rates, and are subject to origination fees. Terms
may vary depending upon many factors, including location, type of project and
financial condition of the builder.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. These loans consist primarily
of loans to businesses for various purposes, including revolving lines of credit
and equipment financing. The loans secured by collateral other than real estate
generally mature within one year, have adjustable interest rates and are secured
by inventory, accounts receivable, livestock, crops, machinery or other
commercial assets. Revolving lines of credit generally are for business
purposes, generally mature annually and have adjustable interest rates.
INSTALLMENT LOANS TO INDIVIDUALS. Installment loans to individuals, which
are not secured by real estate, generally have terms of two to five years and
bear interest at fixed rates. These loans usually are secured by motor vehicles,
investment securities or other personal assets, and in some instances are
unsecured.
First Western maintains a loan committee approach to commercial lending,
which it believes yields positive results in both responsiveness to customer
needs and asset quality. First Western has three regional loan committees, each
of whom meet once per week to review and discuss loans.
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, money market rates, availability of funds and government regulations.
Most of the loans in First Western's portfolio at September 30, 1998, had
interest rates that float at a margin above the prime rate.
In the ordinary course of business, First Western issues letters of credit.
See Note 10 of Notes to Consolidated Financial Statements. First Western applies
the same credit standards to these commitments as it uses in all its lending
activities and has included these commitments in its lending risk evaluations.
First Western's exposure to credit loss under letters of credit is represented
by the amount of these commitments. Under applicable federal and state law,
permissible loans to one borrower at September 30, 1998 were limited to an
aggregate of $2.7 million for the Colorado Bank and $1.0 million for the
Nebraska Bank. With the infusion of approximately $4.2 million in capital to the
Colorado Bank, First Western expects that the lending limit of the Colorado Bank
will increase by approximately $700,000 to a total of $3.4 million. See "Use of
Proceeds."
COMPETITION
First Western faces a high degree of competition. In its market areas,
there are numerous small banks and several larger national and regional
financial banking groups. First Western also competes with
36
<PAGE> 39
insurance companies, savings and loan associations, credit unions, leasing
companies, mortgage companies, and other financial service providers. Many of
the banks and other financial institutions with which First Western competes
have capital resources and legal lending limits substantially in excess of the
capital resources and legal lending limits of First Western.
First Western competes for loans and deposits principally based on the
availability and quality of services provided, responsiveness to customers,
interest rates, loan fees and office locations. First Western actively solicits
deposit customers and competes by offering them superior customer service and a
complete product line. First Western believes its customer service, broad
product line and banking franchise enable it to compete in its market area.
First Western faces competition for its personnel. First Western competes
through its management style and internal culture, along with employee focused
participation in decision making. Management believes that First Western is able
to compete for personnel effectively in First Western's market areas.
First Western will also face significant competition from other financial
institutions in any potential acquisitions. Many of these competitors have
substantially greater resources than First Western as well as the ability to
issue marketable equity securities that can be used as part of the purchase
price.
37
<PAGE> 40
PROPERTIES
The principal offices of both First Western and the Colorado Bank are
located in a two story building at 11210 Huron Street, Northglenn, Colorado
80234.
The table below presents property information concerning the branches of
the Colorado Bank and the branches of the Nebraska Bank.
<TABLE>
<CAPTION>
SQUARE FOOTAGE
NAME AND ADDRESS OF BRANCH YEAR OPENED TYPE OF INTEREST OF FACILITY
- -------------------------- ----------- ---------------- --------------
<S> <C> <C> <C>
Main Office -- Colorado Bank....... 1993 Land and building owned by 14,000
11210 Huron the Colorado Bank
Northglenn, Colorado 80234
Thornton Branch.................... 1995 Land and building owned by 1,500
2616 East 120th Avenue the Colorado Bank
Thornton, Colorado 80233
Cherry Creek Branch................ 1995 Land and building owned by 5,500
101 Garfield Street the Colorado Bank
Denver, Colorado 80206
Westminster Branch................. 1996 Leased 4,560
9191 Sheridan Boulevard
Westminster, Colorado 80030
Boulder/Gunbarrel Branch........... 1997 Leased 4,000
6685 Gunpark Drive
Boulder, Colorado 80301
Greeley Branch..................... 1997 Leased 3,316
3501 West 12th Street
Greeley, Colorado 80634
Lafayette Branch................... 1998 Leased 2,300
1200 West South Boulder Road
Lafayette, Colorado 80026
Loveland Branch.................... 1998 Land and building owned by 4,000
205 East Eisenhower the Colorado Bank
Loveland, Colorado 80537
Fort Collins Branch................ 1998 Land and building owned by 5,000
3131 South College the Colorado Bank
Fort Collins, Colorado 80525
Denver Technological Center 1998 Leased 8,500
Branch...........................
5299 DTC Boulevard
Englewood, Colorado 80111
Main Office -- Nebraska Bank....... 1963 Land and building owned by 7,200
115 South Walnut the Nebraska Bank
Kimball, Nebraska 69145
Elm Creek Branch................... 1992 Land and building owned by 3,080
222 North Tyler the Nebraska Bank
Elm Creek, Nebraska 68836
</TABLE>
All of the leased properties are leased from unaffiliated third parties and are
subject to long term leases.
38
<PAGE> 41
LEGAL PROCEEDINGS
First Western and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes that
there is no proceeding threatened or pending against First Western or any of its
subsidiaries which, if determined adversely, would have a material adverse
effect on the financial condition or results of operations of First Western.
EMPLOYEES
As of September 30, 1998, First Western had approximately 150 full-time
equivalent employees. Management considers its relationship with its employees
to be very good.
39
<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of First Western, their respective
ages and positions as of January 2, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ---- --- ---------
<S> <C> <C>
Joel H. Wiens........ 69 Chairman of the Board and President of First Western and
Chairman of the Board of the Colorado and Nebraska Banks
Timothy D. Wiens..... 43 Vice Chairman and Director of First Western; President,
Chief Executive Officer and Director of the Colorado Bank;
and Director of the Nebraska Bank
Ronald B. James...... 44 Chief Financial Officer, Treasurer and Assistant Secretary
of First Western and the Colorado Bank
Michael J. Nelson.... 56 Secretary and Director of First Western; President and
Director of the Nebraska Bank; and Director of the Colorado
Bank
Max W. Revell........ 46 Director of First Western; Executive Vice President and
Director of the Nebraska Bank
Lynn M. Anthony...... 34 Director of First Western
Alan D. Linton....... 51 Senior Vice President/Senior Credit Officer of the Colorado
Bank
</TABLE>
Joel H. Wiens is the father of Timothy D. Wiens. There are no other family
relationships among any of the directors and executive officers of First Western
or its subsidiaries. All directors of First Western hold office until the next
meeting of shareholders or until their successors are elected and qualified.
JOEL H. WIENS has been Chairman of the Board of First Western and the
Nebraska Bank since 1963 and the Colorado Bank since 1993. For more than the
past five years, he has been the President and owner of Western Management
Company, a management company that provides management consulting services to
First Western and its subsidiaries. See "Related Party Transactions."
TIMOTHY D. WIENS has been an officer and Director of First Western and a
Director of the Nebraska Bank for over the past five years. He has been an
officer and Director of the Colorado Bank since 1993. From August 1993 to
January 1995, Mr. Wiens was President of Firstate Mortgage Corporation. From
April 1989 to August 1993, Mr. Wiens served as an Executive Vice President for
Recycling Industries, a scrap metal industry consolidator. From 1986 to 1989,
Mr. Wiens was a co-founder and Chairman of First City Financial Corporation, a
Denver based residential and commercial mortgage company.
RONALD B. JAMES has been Chief Financial Officer and Treasurer of First
Western and the Colorado Bank since June 1998. From March 1997 to June 1998, Mr.
James was a Senior Vice President with First National Bank of Greeley, and from
March 1982 to February 1997, he was employed with First Interstate Bancorp in
various positions, including as a finance officer. Prior to 1982, Mr. James held
a controller with First Interstate Bank of Englewood and an accounting position
with Jefferson Bank and Trust.
MICHAEL J. NELSON has been an officer and Director of First Western since
1987, and he also has been an officer and Director of the Nebraska Bank since
1978 and a Director of the Colorado Bank since 1993. Mr. Nelson is also a
director of George Risk Industries, Inc., an electronics manufacturing company
in Kimball, Nebraska which is publicly traded on the Nasdaq Bulletin Board
System.
MAX W. REVELL has been a Director of First Western since 1994 and an
officer and Director of the Nebraska Bank since 1982. Prior to 1982, Mr. Revell
worked for Centennial State Bank and Centennial Insurance Agency in Lyons,
Colorado and for Tri-State Insurance Agency in Kimball, Nebraska.
LYNN M. ANTHONY has been a Director of First Western since January 1997.
Since May 1993, Mr. Anthony has been employed by Western Management Company, the
management company owned by
40
<PAGE> 43
Joel H. Wiens which provides management services to First Western and its banks.
See "Related Party Transactions." From January 1987 to May 1993, Mr. Anthony was
employed as an accountant by Fred A. Lockwood & Co., a regional public
accounting firm located in Nebraska. Mr. Anthony is a certified public
accountant in Nebraska.
ALAN D. LINTON has been Senior Vice President/Senior Credit officer of the
Colorado Bank since January 1997. From 1987 through 1996 he was employed as
Director of Operations and Chief Financial Officer of Pratt Management Company,
a real estate property management, development and construction company. From
1974 through 1986 he worked for United Banks of Colorado, ending his tenure as
President of United Bank of Longmont.
Directors of First Western are paid an annual fee of $1,000. Directors of
the Colorado Bank receive a fee of $100 per meeting, plus directors living
outside of the Denver metropolitan area receive a $100 per meeting travel
allowance. Directors of the Nebraska Bank are paid $200 per meeting attended,
with up to an additional $100 per meeting of travel expense reimbursement. The
board of directors of First Western meets quarterly and the board of directors
of First Western's banks meet monthly.
EXECUTIVE COMPENSATION
The following table presents the cash compensation paid by First Western to
its Chief Executive Officer and to its Vice Chairman, the named executive
officers, for the years 1995 through 1997. No other executive officer of First
Western received compensation from First Western exceeding $100,000 for these
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS PAYOUTS
---------- SECURITIES -------
OTHER UNDER-
ANNUAL RESTRICTED LYING ALL OTHER
COMPEN STOCK OPTIONS/ LTIP COMPEN-
NAME SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
---------------------- ---- ------ ------ ------ ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joel H. Wiens......................... 1997 -- -- -- -- -- -- (1)
Chairman of the Board 1996 -- -- -- -- -- -- (1)
1995 -- -- -- -- -- -- (1)
Timothy D. Wiens...................... 1997 73,178 30,000 8,400(2) -- -- -- --
Vice Chairman 1996 60,062 15,700 5,520(2) -- -- -- --
1995 55,000 17,000 -- -- -- -- --
</TABLE>
- ---------------
(1) Joel H. Wiens does not receive a salary from First Western or its banks;
however, Western Management Company, 100% owned by him, received $167,000 in
1997, $145,500 in 1996 and $119,000 in 1995, from First Western and its
subsidiaries for management services. See "Related Party Transactions."
(2) Represents an automobile allowance and club dues paid on behalf of Timothy
D. Wiens.
First Western does not currently have any compensatory option or incentive
plans, although it does intend to adopt a stock option plan in the near future.
None of the directors or officers of First Western have any options, warrants or
other similar rights to purchase securities of First Western. However, First
Western has the right to adopt or issue, as the case may be, the options,
warrants or rights in the future.
INDEMNIFICATION
The articles of incorporation of First Western provide that the board of
directors is authorized, without the need for shareholder approval, to indemnify
directors and officers to the fullest extent allowed by Nebraska law; provided,
however, that the exercise of indemnification powers by the board of directors
is consistent with Nebraska law. Generally under Nebraska law, any director or
officer who is made or
41
<PAGE> 44
threatened to be made a party to any suit or proceeding may be indemnified if
the director or officer acted in good faith and had no reasonable basis to
believe that (1) in the case of conduct in an official capacity with a
corporation, his or her conduct was in that corporation's best interests; and
(2) in all other cases, his or her conduct was at least not opposed to the best
interests of that corporation; and, regarding any criminal proceeding, he or she
had no reasonable cause to believe his or her conduct was unlawful. Nebraska law
further provides that a Nebraska corporation may maintain insurance on behalf of
an officer or director against liability asserted or incurred by him or her in
such capacity, and that a corporation may indemnify, advance expenses to, or
provide or maintain insurance on behalf of an employee or agent without
limitation from Nebraska law. Nebraska law also extends indemnification to
officers and directors of a corporation who serve at the request of a
corporation as a director, officer, partner, trustee, employee, or agent of
another domestic or foreign entity.
Nebraska law provides that a director is not liable for any action taken as
long as the director discharged his or her duties (1) in good faith, (2) with
the care of an ordinarily prudent person in a like position under the same
circumstances, and (3) in a manner he or she reasonably believes to be in the
best interest of the corporation.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of First Western as to which indemnification is being
sought. First Western is not aware of any other threatened litigation that may
result in claims for indemnification by any director, officer, employee or other
agent.
42
<PAGE> 45
PRINCIPAL SHAREHOLDERS
The following table presents information regarding beneficial ownership of
common stock of First Western, as of January 2, 1999, by (1) each shareholder
known by First Western to be the beneficial owner of more than 5% of its
outstanding common stock and (2) each director of First Western and each named
executive officer and (3) all directors and executive officers as a group.
Unless otherwise indicated, based on information furnished by the owners,
management believes that the shareholders listed below have sole investment and
voting power regarding their shares.
<TABLE>
<CAPTION>
NAME AND SHARES
ADDRESS OF BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED OF CLASS
- ---------------- ------------ ----------
<S> <C> <C>
Joel H. Wiens............................................... 126,437(1) 90.3%
11210 Huron Street
Northglenn, Colorado 80234
Timothy D. Wiens............................................ 17,159(2) 12.3%
11210 Huron Street
Northglenn, Colorado 80234
Michael J. Nelson........................................... 878 (3)
115 South Walnut
Kimball, Nebraska 69145
Max W. Revell............................................... 438 (3)
115 South Walnut
Kimball, Nebraska 69145
Lynn M. Anthony............................................. -- --
115 South Walnut
Kimball, Nebraska 69145
Ronald B. James............................................. -- --
11210 Huron Street
Northglenn, Colorado 80234
Alan D. Linton.............................................. -- --
11210 Huron Street
Northglenn, Colorado 80234
All executive officers and directors as a group (seven
persons).................................................. 140,000 100.0%
</TABLE>
- ---------------
(1) Of this amount, 116,613 shares are owned directly, and 9,824 shares are
owned indirectly as trustee of a family trust of which Timothy D. Wiens is a
50% beneficiary. One-half of these shares is included in the stock ownership
of Timothy D. Wiens.
(2) Of this amount, 9,545 shares are owned directly, 2,702 shares are owned
indirectly through his minor children and 4,912 shares are owned indirectly
as a 50% beneficiary of a family trust.
(3) Less than 1%.
43
<PAGE> 46
RELATED PARTY TRANSACTIONS
First Western and each of its three subsidiaries have entered into
management agreements with Western Management Corporation, a corporation owned
by Joel H. Wiens, First Western's Chairman of the Board. Each management
agreement is effective for one year, subject to renewal at the annual meeting of
the board of directors of each entity. Management services performed under each
agreement include strategic planning, tax planning and budgeting, business
development, marketing, community and industry relations, and assistance with
the preparation and filing of Federal Reserve reports. The management agreements
currently require monthly fees to Western Management Corporation as follows:
First Western -- $750; the Colorado Bank -- $750 plus $250 per branch, or
currently $2,750 in total; the Nebraska Bank -- $3,000; First Mortgage Bancorp
-- $2,000. In addition to these monthly fees, Western Management Corporation
bills in December of each year for any additional amount of time spent over 100
hours annually at $85 per hour for Joel H. Wiens and $65 per hour for Lynn M.
Anthony. First Western believes that these arrangements are on terms similar to
those that would be obtained with an unaffiliated party. The following table
summarizes payments made by First Western and its subsidiaries to Western
Management Corporation for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED ------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
First Western............................... $ 6,750 $ 19,000 $ 19,000 $ 10,000
Colorado Bank............................... 22,750 28,000 9,000 9,000
Nebraska Bank............................... 27,000 86,000 86,000 86,000
First Mortgage Bancorp...................... 18,000 34,000 31,500 14,000
------- -------- -------- --------
Total............................. $74,500 $167,000 $145,500 $119,000
======= ======== ======== ========
</TABLE>
In 1995 Timothy D. Wiens sold assets of a mortgage company he owned to
First Western for $100,000 to be paid out of profits generated by mortgage
operations relating to those assets. Through September 30, 1998, payments to
Timothy D. Wiens under this agreement totaled $82,000. First Western believes
that this transaction was made on terms similar to those that would have been
obtained with an unaffiliated party.
In May 1997, First Western issued 15,000 shares of its common stock to Joel
H. Wiens, Michael J. Nelson, Max W. Revell, Timothy D. Wiens and as custodian
for two of his minor children in exchange for 8,550 shares they owned in the
Colorado Bank, representing an 18.2% minority interest in the Colorado Bank. The
parties reviewed comparable valuations of similar entities but, due to
non-material differences, determined to use a valuation based on book value of
the two entities in determining the exchange ratio for the transaction. The book
value of the minority interest was approximately $632,000. After the exchange,
the Colorado Bank became wholly-owned by First Western.
From time to time, Joel H. Wiens, First Western's Chairman, purchases loan
participations from First Western's subsidiaries. The participations are made on
terms identical to those of unaffiliated parties. Approximate loan principal
balances outstanding under these participations are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------
1998 1997 1996
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Loan participations purchased by Joel H. Wiens.............. $1,041 $1,420 $1,071
</TABLE>
Timothy D. Wiens, Michael J. Nelson, and Max W. Revell, along with one
officer from the Nebraska Bank and two unaffiliated persons, equally own
Insurance Professionals, Inc., a Nebraska insurance agency. Insurance
Professionals, Inc. rents office space at both the Kimball and Elm Creek
branches of the Nebraska Bank for $100 per month per location.
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<PAGE> 47
SUPERVISION AND REGULATION
GOVERNMENT REGULATION
First Western and its banks are extensively regulated under federal,
Colorado and Nebraska law. These laws and regulations are primarily intended to
protect depositors and the deposit insurance fund of the Federal Deposit
Insurance Corporation, not shareholders of First Western The following
information is qualified in its entirety by reference to the particular
statutory and regulatory provisions. Any change in applicable laws, regulations
or regulatory policies may have a material effect on the business, operations
and prospects of First Western and its banks. First Western is unable to predict
the nature or extent of the effects that fiscal or monetary policies, economic
controls or new federal or state legislation may have on its business and
earnings in the future.
FIRST WESTERN
GENERAL. First Western is a bank holding company registered under the Bank
Holding Company Act of 1956 and is subject to regulation, supervision and
examination by the Federal Reserve. First Western is required to file an annual
report and the other reports as the Federal Reserve now requires or may require.
ACQUISITIONS. As a bank holding company, First Western is required to
obtain the prior approval of the Federal Reserve before acquiring direct or
indirect ownership or control of more than 5% of the voting shares of a bank or
bank holding company. The Federal Reserve will not approve any acquisition,
merger or consolidation that would have a substantial anti-competitive result,
unless the anti-competitive effects of the proposed transaction are outweighed
by a greater public interest in meeting the needs and convenience of the public.
The Federal Reserve also considers managerial, capital and other financial
factors in acting on acquisition or merger applications.
PERMISSIBLE ACTIVITIES. Subject to limited exceptions, a bank holding
company may not engage in, or acquire direct or indirect control of more than 5%
of the voting shares of any company engaged in a non-banking activity, unless
this activity has been determined by the Federal Reserve to be closely related
to banking or managing banks. The Federal Reserve has identified specific
non-banking activities in which a bank holding company may engage with notice
to, or prior approval by, the Federal Reserve.
CAPITAL ADEQUACY. The Federal Reserve monitors the regulatory capital
adequacy of bank holding companies. As discussed below, First Western's banks
are also subject to the regulatory capital adequacy requirements of the Federal
Deposit Insurance Corporation and, Colorado and Nebraska regulations, as
applicable. The Federal Reserve uses a combination of risk-based guidelines and
leverage ratios to evaluate the regulatory capital adequacy of First Western.
The Federal Reserve has adopted a system using risk-based capital adequacy
guidelines to evaluate the regulatory capital adequacy of bank holding companies
on a consolidated basis. Under the risk-based capital guidelines, different
categories of assets are assigned different risk weights, based generally on the
perceived credit risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a risk-weighted asset base. Some off
balance sheet items, such as loan commitments in excess of one year, mortgage
loans sold with recourse and letters of credit, are added to the risk-weighted
asset base by converting them to a balance sheet equivalent and assigning to
them the appropriate risk weight. For purposes of the regulatory risk-based
capital guidelines, total capital is defined as the sum of core and secondary
capital elements, with secondary capital being limited to 100% of core capital.
For bank holding companies, core capital, also known as Tier 1 capital,
generally includes common shareholders' equity, perpetual preferred stock and
minority interests in consolidated subsidiaries less the unamortized balance of
intangible assets. No more than 25% of core capital may be comprised of
cumulative preferred stock. Secondary capital, also known as Tier 2 capital,
generally includes certain form of perpetual preferred stock, as well as
maturing capital instruments and the allowance for loan losses, limited to 1.25%
of risk-weighted assets. The regulatory guidelines require a minimum ratio of
total capital to risk-weighted assets of 8% to be adequately capitalized, of
which at least 4% should be in the form of core capital.
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<PAGE> 48
At September 30, 1998, First Western's core capital was $19.7 million.
In addition to the risk-based capital guidelines, the Federal Reserve and
the Federal Deposit Insurance Corporation use a leverage ratio as an additional
tool to evaluate the capital adequacy of banks and bank holding companies. The
leverage ratio is defined to be a company's core capital divided by its average
tangible assets. Based upon the current capital status of First Western, the
applicable minimum required leverage ratio is 4%.
The table below presents ratios of (1) total capital to risk-weighted
assets, (2) core capital to risk-weighted assets and (3) core capital to
tangible assets, at September 30, 1998.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------
MINIMUM
RATIO ACTUAL REQUIRED
- ----- -------- ---------
<S> <C> <C>
Total Capital to Risk-Weighted Assets....................... 7.80% 8.00%
Core Capital to Risk-Weighted Assets........................ 7.22% 4.00%
Core Capital to Average Assets.............................. 6.20% 4.00%
</TABLE>
Failure to meet the regulatory capital guidelines may result in the
initiation by the Federal Reserve of appropriate supervisory or enforcement
actions. First Western's total regulatory capital to risk-weighted assets was
below the minimum required as of September 30, 1998. First Western has
anticipated that capital would be needed in its expansion efforts, and has
informed its banking regulators that the offering of preferred securities will
improve the ratio substantially. See "Capitalization."
THE BANKS
GENERAL. First Western owns two banks, Firstate Bank of Colorado, a
Colorado banking corporation with 10 banking locations, and Firstate Bank, a
Nebraska banking corporation with two banking locations. The deposits of First
Western's banks are insured by the Federal Deposit Insurance Corporation, and
both banks are subject to supervision and regulation by the Federal Deposit
Insurance Corporation. In addition, the Colorado Bank is regulated by the
Colorado Division of Banking and the Nebraska Bank is regulated by the Nebraska
Department of Banking and Finance.
PERMISSIBLE ACTIVITIES. No Colorado or Nebraska Bank may engage in any
activity not permitted for national banks, unless the institution complies with
applicable capital requirements and the Federal Deposit Insurance Corporation
determines that the activity poses no significant risk to the Bank Insurance
Fund. Neither the Colorado Bank nor the Nebraska Bank are presently involved in
the types of transactions covered by this limitation.
COMMUNITY REINVESTMENT ACT. Enacted in 1977, the federal Community
Reinvestment Act has become important to financial institutions, including their
holding companies. The Community Reinvestment Act currently allows regulators to
turn down an applicant seeking to make an acquisition or establish a branch
unless it has performed satisfactorily under the Community Reinvestment Act.
Satisfactory performance means meeting adequately the credit needs of the
communities the applicant serves. The applicable federal regulators regularly
conduct Community Reinvestment Act examinations to assess the performance of
financial institutions. During the last examination, ratings of satisfactory
were received by both the Colorado Bank and Nebraska Bank. As a result,
management believes that the banks' performance under Community Reinvestment Act
will not impede regulatory approvals of any proposed acquisitions or branching
opportunities.
DIVIDEND RESTRICTIONS. Dividends paid by First Western's banks provide
substantially all of the operating and investing cash flow of First Western.
Under Colorado and Nebraska law, the approval of the principal regulator is
required prior to the declaration of any dividend by a bank if the total of all
dividends declared in any calendar year exceeds the total of its net profits of
that year combined with its retained net profits for the preceding two years. In
addition, a bank cannot pay a dividend if it will cause its bank to be
46
<PAGE> 49
undercapitalized. See "Risk Factors -- Interest Payment by First Western in the
Junior Subordinated Debentures -- Dependent on Dividends From Its Subsidiary
Banks."
EXAMINATIONS. First Western's banks are examined from time to time by the
Federal Deposit Insurance Corporation. Based upon an evaluation, the examining
regulator may revalue the assets of an insured institution and require that it
establish specific reserves to compensate for the difference between the value
determined by the regulator and the book value of First Western's assets. The
Colorado Division of Banking and the Nebraska Department of Banking and Finance
also conduct examinations of state-chartered banks. Both of these regulators may
accept the results of a federal examination in lieu of conducting an independent
examination. Both the Colorado and Nebraska regulators have the authority to
revalue the assets of a state-chartered institution and require it to establish
reserves.
CAPITAL ADEQUACY. The Federal Deposit Insurance Corporation has adopted
regulations establishing minimum requirements for the capital adequacy of
insured institutions. The requirements address both risk-based capital and
leverage capital, with risk-based assets and core and secondary capital being
determined in basically the same manner as described above for bank holding
companies. The Federal Deposit Insurance Corporation may establish higher
minimum requirements if, for example, a bank has previously received special
attention or has a high susceptibility to interest rate risk.
The Federal Deposit Insurance Corporation risk-based capital guidelines
require state non-member banks to have a ratio of core or core capital to total
risk-weighted assets of 4% and a ratio of total capital to total risk-weighted
assets of 8%.
The Federal Deposit Insurance Corporation leverage guidelines require that
state banks maintain core capital of no less than 3% and up to 5% of total
tangible assets. The applicable guideline for First Western's banks are
estimated to be 4%. Banks with regulatory capital ratios below the required
minimum are subject to administrative actions, including the termination of
deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing in the event the institution has no tangible
capital.
The table below presents the regulatory capital ratios of the Colorado Bank
and the Nebraska Bank at September 30, 1998.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
-------------------------------------
COLORADO BANK NEBRASKA BANK
----------------- -----------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
----- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Total capital to risk-weighted assets..................... 8.37% 8.00% 16.24% 8.00%
Core capital to risk-weighted assets...................... 8.03 4.00 14.99 4.00
Core capital to average assets............................ 7.16 4.00 11.26 4.00
</TABLE>
Banking regulators have adopted regulations that define five capital
levels: well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is equal
to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio of 10% or greater, core risk-based capital ratio of 6%
or greater, and a core capital leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement, capital directive, or
prompt corrective action directive to meet and maintain a specific capital level
for any capital measure. An institution is adequately capitalized if it has a
total risk-based capital ratio of not less than 8%, a core risk-based capital
ratio not less than 4% and a leverage ratio of not less than 4%. Under these
regulations, as of September 30, 1998, the Colorado Bank was adequately
capitalized and the Nebraska Bank was well capitalized.
The Federal Deposit Insurance Corporation Improvement Act requires the
federal banking regulators to take prompt corrective action to resolve the
problems of depository institutions, including capital-deficient institutions.
In addition to requiring the submission of a capital restoration plan, Federal
Deposit Insurance Corporation Improvement Act contains broad restrictions on
activities of undercapitalized
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institutions involving asset growth, acquisitions, branch establishment, and
expansion into new lines of business. With limited exceptions, an insured
depository institution is prohibited from making capital distributions,
including dividends, and is prohibited from paying management fees to control
persons if the institution would be undercapitalized after any distribution or
payment.
As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
regulators have limited discretion in dealing with a critically undercapitalized
institution and are virtually required to appoint a receiver or conservator if
the capital deficiency is not corrected promptly.
REAL ESTATE LENDING EVALUATIONS. The federal regulators have adopted
uniform standards for evaluations of loans secured by real estate or made to
finance improvements to real estate. Banks are required to establish and
maintain written internal real estate lending policies consistent with safe and
sound banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan to value
ratio limitations on real estate loans, which generally are equal to or less
than the loan to value limitations established by First Western's banks.
DEPOSIT INSURANCE PREMIUMS. The assessment schedule for banks ranges from 0
to 27 cents per $100 of deposits subject to Bank Insurance Fund assessments,
based on each institution's risk classification. The banks' insured deposits are
subject to assessment payable to Bank Insurance Fund. An institution's risk
classification is based on an assignment of the institution by the Federal
Deposit Insurance Corporation to one of three capital groups and to one of three
supervisory subgroups. The capital groups are well capitalized, adequately
capitalized and undercapitalized. The three supervisory subgroups are Group A,
for financially solid institutions with only a few minor weaknesses, Group B,
for those institutions with weaknesses which, if uncorrected could cause
substantial deterioration of the institution and increase the risk to the
deposit insurance fund, and Group C, for those institutions with a substantial
probability of loss to the fund absent effective corrective action. Currently,
the ratings for the Colorado Bank were two and a Group A supervisory subgroup,
and the ratings for the Nebraska Bank were one and a Group A supervisory
subgroup.
INTERSTATE BANKING LEGISLATION. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, which became effective September 1995, has
eliminated many of the historical barriers to the acquisition of banks by
out-of-state bank holding companies. This law facilitates the interstate
expansion and consolidation of banking organizations by permitting: (1) bank
holding companies that are adequately capitalized and managed to acquire banks
located in states outside their home states regardless of whether acquisitions
are authorized under the laws of the host state; (2) the interstate merger of
banks after June 1, 1997, subject to the right of individual states either to
pass legislation providing for earlier effectiveness of mergers or to opt out of
this authority prior to that date; (3) banks to establish new branches on an
interstate basis provided that this action is specifically authorized by the law
of the host state; (4) foreign banks to establish, with approval of the
appropriate regulators in the United States, branches outside their home states
to the same extent that national or state banks located in that state would be
authorized to do so; and (5) banks to receive deposits, renew time deposits,
close loans, service loans and receive payments on loans and other obligations
as agent for any bank or thrift affiliate, whether the affiliate is located in
the same or different state. First Western's banks do not currently have any
plans to take any actions permitted by this law.
CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in
a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is not possible to predict the outcome
of these changes.
One of the major additional burdens imposed on the banking industry is the
increased authority of federal agencies to regulate the activities of federal
and state banks and their holding companies. The
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Federal Reserve, the Comptroller of the Currency and the Federal Deposit
Insurance Corporation have extensive authority to police unsafe or unsound
practices and violations of applicable laws and regulations by depository
institutions and their holding companies. These agencies can assess civil money
penalties and other laws have expanded the agencies' authority in recent years,
and the agencies have not yet fully tested the limits of their powers. In
addition, the Colorado Division of Banking and the Nebraska Department of
Banking and Finance possess broad enforcement powers to address violations of
their banking laws by banks chartered in each respective state.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of
the Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
The Federal Reserve's monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
these policies on the business and earnings of First Western and its
subsidiaries cannot be predicted.
DESCRIPTION OF THE PREFERRED SECURITIES
The preferred securities and the common securities will be issued under the
terms of the trust agreement of FW Capital I. The trust agreement will be
qualified as an indenture under the Trust Indenture Act. Initially, Wilmington
Trust Company will be the property trustee and will act as trustee for the
purpose of complying with the Trust Indenture Act. The terms of the preferred
securities will include those stated in the trust agreement of FW Capital I and
those made part of the trust agreement by the Trust Indenture Act. The following
is a summary of the material terms and provisions of the preferred securities
and the trust agreement. Prospective investors of preferred securities are urged
to read all the provisions of the trust agreement, including the definitions in
the trust agreement, and the Trust Indenture Act. The form of the trust
agreement has been filed as an exhibit to the Registration Statement of which
this prospectus forms a part.
GENERAL OVERVIEW
Under the terms of the trust agreement of FW Capital I, the administrative
trustees will issue the preferred securities and the common securities,
collectively, the trust securities. The preferred securities will represent
preferred undivided beneficial interests in the assets of FW Capital I and the
holders of the preferred securities will be entitled to a preference in most
circumstances regarding distributions and amounts payable on redemption or
liquidation over the common securities of FW Capital I, as well as other
benefits as described in the trust agreement.
The preferred securities will rank pari passu, and payments will be made
thereon pro rata, with the common securities of FW Capital I except as described
under "Subordination of Common Securities of FW Capital I Held by First Western"
below.
Legal title to the junior subordinated debentures will be held by the
property trustee in trust for the benefit of the holders of the trust
securities. The preferred securities guarantee executed by First Western for the
benefit of the holders of the preferred securities will be a guarantee on a
subordinated basis and will not guarantee payment of distributions or amounts
payable on redemption of the preferred securities or on liquidation of the
preferred securities if FW Capital I does not have funds on hand available to
make the payments. See "Description of Preferred Securities Guarantee." If an
event of default under the
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indenture has occurred and is continuing and the default is attributable to
First Western's failure to pay interest or principal on the junior subordinated
debentures on the due date, a holder of preferred securities may institute a
legal proceeding directly against First Western for payment of principal and
interest on the junior subordinated debentures having a principal amount equal
to the aggregate liquidation amount of the preferred securities of the holder.
This action is referred to in this discussion as a direct action. See
"Description of Junior Subordinated Debentures -- Enforcement of Rights by
Holders of Preferred Securities" and "Relationship Among the Preferred
Securities, the Junior Subordinated Debentures and the Preferred Securities
Guarantee."
QUARTERLY DISTRIBUTION PAYMENTS AND EXTENSIONS ON DISTRIBUTION PAYMENTS
PAYMENT OF DISTRIBUTIONS. Distributions on the preferred securities will be
payable at the annual rate of % of the stated liquidation amount of $10,
payable quarterly after each calendar quarter on the 15th day of January, April,
July and October in each year, beginning April 15, 1999. The amount of each
distribution due will include amounts accrued through the date the distribution
is due. Distributions on the preferred securities will be payable to the holders
as they appear on the register of FW Capital I on the relevant record date.
Until the preferred securities do not remain in book-entry form, the relevant
record date will be one business day prior to the relevant distribution date
and, in the event the preferred securities are not in book-entry form, the
relevant record date will be the first day of the month in which the relevant
distribution date occurs. Distributions will accumulate from the date of
original issuance of the preferred securities.
The amount of distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any payment
date is not a business day, the distribution will be made on the next business
day, and without any interest or other payment regarding any delay, except that,
if the business day is in the next succeeding calendar year, payment of the
distribution will be made on the immediately preceding business day. As used in
this prospectus, a business day means any day other than a Saturday or a Sunday,
or a day on which banking institutions in Colorado are authorized or required by
law or executive order to remain closed or a day on which the corporate trust
office of the property trustee or the indenture trustee is closed for business.
The funds of FW Capital I available for distribution to its preferred
securities holders will be limited to payments by First Western under the junior
subordinated debentures. See "Description of Junior Subordinated Debentures." If
First Western does not make interest payments on the junior subordinated
debentures, the property trustee will not have funds available to pay
distributions on the preferred securities. The payment of distributions, if and
to the extent FW Capital I has legally available funds and cash sufficient to
make payments, is guaranteed by First Western. For further information, see
"Description of Preferred Securities Guarantee."
EXTENSION PERIOD. Until a debenture event of default has occurred and is
continuing, First Western has the right under the indenture to defer interest
payments on the junior subordinated debentures at any time for a period not
exceeding 20 consecutive quarters regarding each extension period. However, no
extension period may extend beyond the stated maturity of the junior
subordinated debentures. As a consequence of any extension election by First
Western, quarterly distributions on the preferred securities will be deferred by
FW Capital I during any extension period. Distributions to which holders of
preferred securities are entitled will accumulate additional amounts at the rate
per year of % thereof, compounded quarterly from the relevant distribution
date. The term distributions as used in this prospectus includes any additional
accumulated amounts.
During any extension period, First Western may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation, payment regarding, any of its capital stock which includes common
and preferred stock, or (2) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt securities of First Western
that rank pari passu with or junior in interest to the junior subordinated
debentures or make any preferred securities guarantee payments regarding any
preferred securities guarantee by First Western of the debt securities of any
subsidiary of
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First Western if the preferred securities guarantee ranks pari passu with or
junior in interest to the junior subordinated debentures. These restrictions do
not apply to: (a) dividends or distributions in common stock of First Western,
(b) any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any plan of this type
in the future, or the redemption or repurchase of any rights pursuant to this
type of plan, (c) payments under the preferred securities guarantee of First
Western, and (d) purchases of common stock for issuance under any future benefit
plans for its directors, officers or employees. Prior to the termination of any
extension period, First Western may further extend the extension period,
provided that the extension does not cause the extension period to exceed 20
consecutive quarters or extend beyond the stated maturity of the junior
subordinated debentures. Upon the termination of any extension period and the
payment of all amounts then due, and subject to the above limitations, First
Western may elect to begin a new extension period. There is no limitation on the
number of times that First Western may elect to begin an extension period.
First Western has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the junior
subordinated debentures.
REDEMPTION -- MANDATORY AND OPTIONAL RIGHTS OF FIRST WESTERN
MANDATORY REDEMPTION OF PREFERRED SECURITIES. Upon the repayment or
redemption at any time, in whole or in part, of any junior subordinated
debentures, the proceeds from the repayment or redemption will be applied by the
property trustee to redeem a like amount of the trust securities at the
redemption price, as defined below. For more information, see "Description of
Junior Subordinated Debentures -- Redemption." If less than all of the junior
subordinated debentures are to be repaid or redeemed on a redemption date, then
the proceeds will be allocated to the redemption of the trust securities pro
rata.
OPTIONAL REDEMPTION OF JUNIOR SUBORDINATED DEBENTURES. First Western will
have the right to redeem the junior subordinated debentures (1) beginning on
, 2004, in whole at any time or in part from time to time at a
redemption price equal to the accrued and unpaid interest on the junior
subordinated debentures redeemed to the date fixed for redemption, plus 100% of
the principal amount of the junior subordinated debentures, or (2) at any time,
in whole, but not in part, upon a tax event, an investment company event or a
capital treatment event as defined in the following paragraph. The redemption
price will be equal to the accrued and unpaid interest on the redeemed junior
subordinated debentures, plus 100% of the principal amount. These payments will
be subject to receipt of prior approval by the Federal Reserve if then required
under applicable capital guidelines or policies of the Federal Reserve. See
"Description of Junior Subordinated Debentures -- Redemption."
TAX EVENT REDEMPTION, INVESTMENT COMPANY EVENT REDEMPTION, CAPITAL
TREATMENT EVENT REDEMPTION OR DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES. If
a tax event, an investment company event or a capital treatment event occurs
after original issuance of the preferred securities and is continuing, First
Western has the right to redeem the junior subordinated debentures in whole. If
a redemption of the junior subordinated debentures occurs, First Western would
also cause a mandatory redemption of the trust securities in whole at the
redemption price, as defined below, within 90 days following the occurrence of
these events. In each case the redemption would be subject to receipt of prior
approval by the Federal Reserve if then required under its applicable capital
guidelines or policies. If any of these events has occurred and is continuing,
and First Western does not elect to redeem the junior subordinated debentures
and cause a mandatory redemption of the trust securities or to liquidate FW
Capital I and cause the junior subordinated debentures to be distributed to
holders of the trust securities in liquidation of FW Capital I, the trust
securities will remain outstanding. Also, additional sums, as defined below, may
be payable on the junior subordinated debentures.
A tax event requires the receipt by First Western and FW Capital I of a
legal opinion. The legal opinion must state that, as a result of any amendment
to, including any announced prospective change, in the laws, or any regulations,
of the United States or any political subdivision or taxing authority of the
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United States, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying the tax laws or regulations, there is
more than an insubstantial risk that:
- FW Capital I is, or will be within 90 days of the date of the opinion,
subject to United States federal income tax regarding income received or
accrued on the junior subordinated debentures;
- interest payable by First Western on the junior subordinated debentures
is not, or within 90 days of the opinion, will not be, deductible by
First Western, in whole or in part, for United States federal income tax
purposes; or
- FW Capital I is, or will be within 90 days of the date of the opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
An investment company event requires the receipt by First Western and FW
Capital I of a legal opinion. The legal opinion must state that, as a result of
any change in law or regulation or a change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority, FW Capital I is or will be considered an investment
company required to be registered under the Investment Company Act.
A capital treatment event means the reasonable determination by First
Western that, as a result of any amendment to, including any proposed change in,
the laws or regulations of the United States or any of its political
subdivisions, or as a result of any official action or judicial decision
interpreting the laws or regulations, there is more than an insubstantial risk
that First Western's ability to treat the preferred securities as core capital
or its equivalent for purposes of the Federal Reserve capital adequacy
guidelines, is impaired.
Additional sums means the additional amounts as may be necessary to be paid
by First Western on the junior subordinated debentures in order that the amount
of distributions payable by FW Capital I on the outstanding trust securities
will not be reduced as a result of any additional taxes, duties and other
governmental charges to which FW Capital I has become subject.
Like amount means (1) regarding a redemption of trust securities, trust
securities having a liquidation amount, as defined below, equal to that portion
of the principal amount of junior subordinated debentures to be
contemporaneously redeemed in accordance with the indenture, allocated to the
common securities and to the preferred securities based upon the relative
liquidation amounts of these classes and the proceeds of which will be used to
pay the redemption price of the trust securities, and (2) regarding a
distribution of junior subordinated debentures to holders of trust securities in
connection with a dissolution or liquidation of FW Capital I, junior
subordinated debentures having a principal amount equal to the liquidation
amount of the trust securities of the holder to whom the junior subordinated
debentures are distributed.
Liquidation amount means the stated amount of $10 per trust security.
Redemption price means, regarding any trust security, the liquidation
amount of the trust security, plus accumulated and unpaid distributions to the
redemption date, allocated on a pro rata basis, based on liquidation amounts,
among the trust securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to First Western having received prior approval of the Federal
Reserve, First Western will have the right at any time to liquidate FW Capital I
and, after satisfaction of the liabilities of creditors of FW Capital I as
provided by applicable law, cause the junior subordinated debentures to be
distributed to
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the holders of trust securities in liquidation of FW Capital I. After the
liquidation date fixed for any distribution of junior subordinated debentures
for preferred securities:
- the preferred securities will no longer be deemed to be outstanding;
- the depositary or its nominee, as the record holder of the preferred
securities, will receive a registered global certificate or certificates
representing the junior subordinated debentures to be delivered upon the
distribution; and
- any certificates representing preferred securities not held by the
depositary or its nominee will be deemed to represent the junior
subordinated debentures having a principal amount equal to the
liquidation amount of the preferred securities, and bearing interest
equal to the accrued and unpaid distributions on the preferred
securities, until the certificates are presented to the administrative
trustees or their agent for reissuance.
There can be no assurance as to the market prices for the preferred
securities or the junior subordinated debentures that may be distributed in
exchange for the preferred securities if a dissolution and liquidation of FW
Capital I were to occur. Accordingly, the preferred securities that an investor
may purchase, or the junior subordinated debentures that the investor may
receive on dissolution and liquidation of FW Capital I, may trade at a discount
to the price that the investor paid to purchase the preferred securities. If the
junior subordinated debentures are distributed, First Western will use its best
efforts to list them on the American Stock Exchange or the Nasdaq National
Market in place of the preferred securities.
REDEMPTION PROCEDURES
Preferred securities redeemed on each redemption date will be redeemed at
the redemption price with the proceeds from the contemporaneous redemption of
the junior subordinated debentures. Redemptions of the preferred securities will
be made and the redemption price will be payable on each redemption date only to
the extent that FW Capital I has funds on hand available for the payment of the
redemption price. See "-- Subordination of Common Securities of FW Capital I
Held by First Western" and "Description of Preferred Securities Guarantee."
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of trust securities at the
holder's registered address. Unless FW Capital I defaults in payment of the
applicable redemption price, on and after the redemption date, distributions
will cease to accrue on the preferred securities called for redemption.
If FW Capital I gives a notice of redemption regarding the preferred
securities, then, by 12:00 noon, Denver time, on the redemption date, the
property trustee will pay the redemption price to the depositary, as the record
holder of the preferred securities. The depositary thereafter will credit the
redemption price to the participants for whom it holds the preferred securities.
See "Book-Entry Issuance." If the preferred securities are no longer in
book-entry form, the property trustee, to the extent funds are available, will
deposit with the paying agent for the preferred securities funds sufficient to
pay the aggregate redemption price. The property trustee will give the paying
agent irrevocable instructions and authority to pay the redemption price upon
surrender of certificates evidencing the preferred securities. Notwithstanding
the foregoing, distributions payable on or prior to the redemption date will be
payable to the holders of the preferred securities on the relevant record dates
for the related distribution dates. If notice of redemption has been given and
funds deposited as required, then upon the date of the deposit, all rights of
the holders of the preferred securities will cease, except the right of the
holders of the preferred securities to receive the redemption price, but without
interest on the redemption price, and the preferred securities will cease to be
outstanding. In the event that any date fixed for redemption of the preferred
securities is not a business day, then payment of the redemption price payable
on the date will be made on the next business day and without any interest or
other payment for any the delay. If, however, the business day falls in the next
calendar year, the payment will be made on the immediately preceding business
day. In the event that payment of the redemption price in respect of preferred
securities called for redemption is improperly
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withheld or refused and not paid either by FW Capital I or by First Western
under the preferred securities guarantee, distributions on the preferred
securities will continue to accrue at the then applicable rate, from the
redemption date originally established by FW Capital I for the preferred
securities to the date the redemption price is actually paid. In this case the
actual payment date will be the date fixed for redemption for purposes of
calculating the redemption price. See "Description of Preferred Securities
Guarantee."
Subject to applicable law, including, without limitation, federal
securities laws, First Western may at any time and from time to time purchase
outstanding preferred securities by tender, in the open market or by private
agreement.
Payment of the redemption price on the preferred securities and any
distribution of junior subordinated debentures to holders of preferred
securities will be made to the applicable record holders as they appear on the
register of the preferred securities on the relevant record date, which date
will be one business day prior to the relevant redemption date; provided,
however, that in the event that any preferred securities are not in book-entry
form, the relevant record date for them will be a date at least 15 days prior to
the redemption date. In the case of a liquidation, the record date will be
established by the property trustee and be no more than 45 days before the
liquidation date.
If less than all of the trust securities are to be redeemed on a redemption
date, then the aggregate redemption price for the trust securities to be
redeemed will be allocated pro rata to the preferred securities and common
securities based upon the relative liquidation amounts of these classes. The
particular outstanding preferred securities to be redeemed will be selected by
any method as the property trustee deems fair and appropriate. This method may
provide for the selection for redemption of portions equal to $10 or an integral
multiple of $10 of the liquidation amount of preferred securities. The property
trustee will promptly notify the trust securities registrar in writing of the
preferred securities selected for redemption and, in the case of any preferred
securities selected for partial redemption, the liquidation amount thereof to be
redeemed. For all purposes of the trust agreement, unless the context otherwise
requires, all provisions relating to the redemption of preferred securities will
relate to the portion of the aggregate liquidation amount of preferred
securities which has been or is to be redeemed.
SUBORDINATION OF COMMON SECURITIES OF FW CAPITAL I HELD BY FIRST WESTERN
Payment of distributions on, and the redemption price of, the preferred
securities and common securities will be made pro rata based on the liquidation
amounts of these securities. However, if on any distribution date or redemption
date a debenture event of default has occurred and is continuing, no
distributions on or redemption of the common securities will be made. Further,
no other payment on account of the redemption, liquidation or other acquisition
of the common securities, will be made unless payment in full in cash of all
distributions payable on all of the outstanding preferred securities are made,
or in the case of redemption the full redemption price on all of the outstanding
preferred securities then called for redemption, has been made or provided for.
All funds available to the property trustee will first be applied to the payment
in full in cash of all distributions on, or redemption price of, the preferred
securities then due and payable.
In the case of any event of default under the trust agreement resulting
from a debenture event of default, First Western as holder of the common
securities will be deemed to have waived any right to act regarding any event of
default until the effects of all events of default have been cured, waived or
otherwise eliminated. Until any events of default have been so cured, waived or
otherwise eliminated, the property trustee will act solely on behalf of the
holders of the preferred securities and not on behalf of First Western as holder
of the common securities, and only the holders of the preferred securities will
have the right to direct the property trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
First Western will have the right at any time to terminate FW Capital I and
cause the junior subordinated debentures to be distributed to the holders of the
preferred securities. This right is subject to
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First Western having received prior approval of the Federal Reserve if then
required under applicable capital guidelines or policies of the Federal Reserve.
See "Distribution of Junior Subordinated Debentures" above.
In addition, under the trust agreement, FW Capital I will automatically
terminate upon expiration of its term and will earlier terminate on the first to
occur of: (1) events of bankruptcy, dissolution or liquidation of First Western;
(2) delivery by First Western of written direction to the property trustee to
terminate FW Capital I, which direction is optional and wholly within the
discretion of First Western; (3) redemption of all of the preferred securities
as described under "-- Redemption -- Mandatory and Optional Rights of First
Western;" and (4) the entry of an order for the dissolution of FW Capital I by a
court of competent jurisdiction.
If an early termination occurs as described in clause (1), (2) or (4) above
or upon the expiration of the term of FW Capital I, it will be liquidated by the
trustees as expeditiously as the trustees determine to be possible. The
liquidation will be made after satisfaction of liabilities to creditors of FW
Capital I as provided by applicable law. In the liquidation, holders of the
trust securities will receive a like amount of the junior subordinated
debentures, unless this distribution is determined by the property trustee not
to be practical. If the property trustee determines that a distribution of the
junior subordinated debentures is not practical, then the holders of preferred
securities will be entitled to receive an amount equal to the liquidation amount
of $10 per trust security plus accrued and unpaid distributions thereon to the
date of payment. This amount, payable out of the assets of FW Capital I
available for distribution, is referred to as the liquidation distribution. If
the liquidation distribution can be paid only in part because FW Capital I has
insufficient assets available to pay the full aggregate liquidation
distribution, then the amounts payable directly by FW Capital I on the preferred
securities will be paid on a pro rata basis. The holders of the common
securities will be entitled to receive distributions upon a liquidation pro rata
with the holders of the preferred securities, except that if a debenture event
of default has occurred and is continuing, the preferred securities will have a
priority over the common securities.
Under current United States federal income tax law and interpretations and
assuming, as expected, FW Capital I is treated as a grantor trust, a
distribution of the junior subordinated debentures should not be a taxable event
to holders of the preferred securities. Should there be a change in law, a
change in legal interpretation, a tax event or other circumstances, however, the
distribution could be a taxable event to holders of the preferred securities.
See "Material Federal Income Tax Consequences." If First Western elects neither
to redeem the junior subordinated debentures prior to maturity nor to liquidate
FW Capital I and distribute the junior subordinated debentures to holders of the
preferred securities, the preferred securities will remain outstanding until the
repayment of the junior subordinated debentures.
If First Western elects to liquidate FW Capital I and cause the junior
subordinated debentures to be distributed to holders of the preferred securities
in liquidation of FW Capital I, First Western will continue to have the right to
shorten the maturity of the junior subordinated debentures under most
circumstances. See "Description of Junior Subordinated Debentures -- General
Overview."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an event of default under the trust agreement:
- the occurrence of a debenture event of default under the indenture, see
"Description of Junior Subordinated Debentures -- Indenture Events of
Default"; or
- default by FW Capital I in the payment of any distribution when it
becomes due and payable, and continuation of the default for a period of
30 days; or
- default by FW Capital I in the payment of any redemption price of any
trust security when it becomes due and payable; or
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- default in the performance, or breach, in any material respect, of any
covenant or warranty of the property trustee in the trust agreement,
other than a default or breach in the performance of a covenant or
warranty which is addressed in the previous two points above, and
continuation of the default or breach, for a period of 60 days after
there has been given, by registered or certified mail, to the property
trustee by the holders of at least 25% in aggregate liquidation amount of
the outstanding preferred securities, a written notice specifying the
default or breach and requiring it to be remedied and stating that the
notice is a "Notice of Default" under the trust agreement; or
- the occurrence of events of bankruptcy or insolvency regarding the
property trustee and the failure by First Western to appoint a successor
property trustee within 60 days thereof.
Within five business days after the occurrence of any event of default
actually known to the property trustee, the property trustee is required to
transmit notice of the event of default to the holders of the preferred
securities, the administrative trustees and First Western, unless the event of
default has been cured or waived. First Western and the administrative trustees
are required to file annually with the property trustee a certificate as to
whether they are in compliance with all the conditions and covenants applicable
to them under the trust agreement.
If a debenture event of default has occurred and is continuing, the
preferred securities will have a preference over the common securities upon
termination of FW Capital I as described above. See "-- Liquidation Distribution
Upon Termination." Upon a debenture event of default, unless the principal of
all the junior subordinated debentures has already become due and payable,
either the property trustee or the holders of not less than 25% in aggregate
principal amount of outstanding junior subordinated debentures may declare all
of the junior subordinated debentures to be due and payable immediately. Written
notice must be given to First Western, and to the property trustee, if given by
holders of the junior subordinated debentures. If the property trustee or the
holders of the junior subordinated debentures fail to declare the principal of
all of the junior subordinated debentures due and payable upon a debenture event
of default, the holders of at least 25% in liquidation amount of the preferred
securities then outstanding will have the right to declare the junior
subordinated debentures immediately due and payable. In either event, payment of
principal and interest on the junior subordinated debentures will remain
subordinated to the extent provided in the indenture. In addition, holders of
the preferred securities have to bring a direct action as discussed below. See
"Description of Junior Subordinated Debentures -- Enforcement of Rights by
Holders of Preferred Securities."
REMOVAL OF TRUSTEES
Unless a debenture event of default has occurred and is continuing, any
trustee may be removed at any time by the holder of the common securities of FW
Capital I. If a debenture event of default has occurred and is continuing, the
property trustee may be removed by the holders of a majority in liquidation
amount of the outstanding preferred securities. In no event will the holders of
the preferred securities have the right to vote to appoint, remove or replace
the administrative trustees, which voting rights are vested exclusively in First
Western as the holder of the common securities. No resignation or removal of a
trustee and no appointment of a successor trustee will be effective until the
acceptance of appointment by the successor trustee in accordance with the
provisions of the trust agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an event of default has occurred and is continuing, at any time, for
the purpose of meeting the legal requirements of the Trust Indenture Act or of
any jurisdiction in which any part of trust property may at the time be located,
the holders of the common securities and the administrative trustees have power
to appoint one or more persons either to act as (1) a co-trustee, jointly with
the property trustee, of all or any part of the trust property, or (2) to act as
separate trustee of any such property. In either case these trustees will have
the powers which may be provided in the instrument of appointment, and will have
vested in them any property, title, right or power deemed necessary or
desirable, subject to the provisions
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of the trust agreement. In case a debenture event of default has occurred and is
continuing, the property trustee alone will have power to make the appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Generally, any person or successor to any of the trustees of FW Capital I
may be a successor trustee to any of the trustees, including a successor
resulting from a merger or consolidation. However, any successor trustee must
meet all of the qualifications and eligibility standards to act as a trustee to
FW Capital I.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF FW CAPITAL I
FW Capital I may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. FW Capital I may, at the request of First Western, with the
consent of the administrative trustees and without the consent of the holders of
the preferred securities or the property trustee, undertake the transactions
described above; provided, that:
- the successor entity either (a) expressly assumes all of the obligations
of FW Capital I regarding the preferred securities or (b) substitutes for
the preferred securities other securities having substantially the same
terms as the preferred securities, or the successor securities, if the
successor securities rank the same as the preferred securities rank in
priority regarding distributions and payments upon liquidation,
redemption and otherwise;
- First Western expressly appoints a trustee of the successor entity
possessing the same powers and duties as the property trustee as the
holder of the junior subordinated debentures;
- any transaction of this kind does not adversely affect the rights,
preferences and privileges of the holders of the preferred securities,
including any successor securities, in any material respect;
- the successor entity has a purpose identical to that of FW Capital I;
- the successor securities will be listed or traded on any national
securities exchange or other organization on which the preferred
securities may then be listed;
- prior to the transaction, First Western has received an opinion from
independent counsel to FW Capital I stating that (a) the transaction does
not adversely affect the rights, preferences and privileges of the
holders of the preferred securities, including any successor securities,
in any material respect, and (b) following any transaction of this kind,
neither FW Capital I nor the successor entity will be required to
register as an investment company under the Investment Company Act; and
- First Western or any permitted successor or designee owns all of the
common securities of the successor entity and guarantees the obligations
of the successor entity under the successor securities at least to the
extent provided by the preferred securities guarantee. Notwithstanding
the foregoing, FW Capital I will not, except with the consent of holders
of 100% in liquidation amount of the preferred securities, enter into any
transaction of this kind, or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it, if the transaction would
cause FW Capital I or the successor entity to be classified as other than
a grantor trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Preferred Securities
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
trust agreement, the holders of the preferred securities will have no voting
rights.
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The trust agreement may be amended from time to time by First Western and
the trustees, without the consent of the holders of the trust securities:
- to cure any ambiguity, correct or supplement any provisions in the trust
agreement that may be inconsistent with any other provision, or to make
any other provisions regarding matters or questions arising under the
trust agreement, which are not inconsistent with the other provisions of
the trust agreement; or
- to modify, eliminate or add to any provisions of the trust agreement to
the extent that is necessary to ensure that FW Capital I will be
classified for United States federal income tax purposes as a grantor
trust at all times that any trust securities are outstanding or to ensure
that FW Capital I will not be required to register as an investment
company under the Investment Company Act.
Provided, however, that in the case of the first point above, this action
will not adversely affect in any material respect the interests of any holder of
trust securities, and any amendments of the trust agreement will become
effective when notice is given to the holders of the trust securities.
The trust agreement may be amended by the trustees and First Western (1)
with the consent of holders representing not less than a majority of the
aggregate liquidation amount of the outstanding trust securities, and (2) upon
receipt by the trustees of an opinion of counsel to the effect that the
amendment or the exercise of any power granted to the trustees in accordance
with the amendment will not affect FW Capital I's status as a grantor trust for
United States federal income tax purposes or FW Capital I's exemption from
status as an investment company under the Investment Company Act. However,
without the consent of each holder of trust securities, the trust agreement may
not be amended to (1) change the amount or timing of any distribution on the
trust securities or otherwise adversely affect the amount of any distribution
required to be made in respect of the trust securities as of a specified date or
(2) restrict the right of a holder of trust securities to institute suit for the
enforcement of any payment of distributions afterwards.
For the time that any junior subordinated debentures are held by the
property trustee, the trustees will not:
- direct the time, method and place of conducting any proceeding for any
remedy available to the indenture trustee, or executing any trust or
power conferred on the indenture trustee regarding the junior
subordinated debentures;
- waive any past default that is waivable under the indenture;
- exercise any right to rescind or annul a declaration that the principal
of all the junior subordinated debentures will be due and payable; or
- consent to any amendment, modification or termination of the indenture or
the junior subordinated debentures, where this consent is required,
without, in each case, obtaining the prior approval of the holders of a
majority in aggregate liquidation amount of all outstanding preferred
securities. However, where a consent under the indenture would require
the consent of each affected holder of junior subordinated debentures,
this consent may be given by the property trustee without the prior
consent of each holder of the preferred securities. The trustees will not
revoke any action previously authorized or approved by a vote of the
holders of the preferred securities except by subsequent vote of the
holders of the preferred securities. The property trustee will notify
each holder of the preferred securities of any notice of default
regarding the junior subordinated debentures. In addition to obtaining
these approvals of the holders of the preferred securities, prior to
taking any of the above actions, the trustees will obtain an opinion of
counsel stating that FW Capital I will not be classified as an
association taxable as a corporation for United States federal income tax
purposes on account of the action.
Any required approval of holders of the preferred securities may be given
at a meeting of holders of preferred securities convened for this purpose or
under written consent. The property trustee will cause a
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notice of any meeting at which holders of the preferred securities are entitled
to vote, or of any matter upon which action by written consent of the holders is
to be taken, to be given to each holder of record of the preferred securities in
the manner set forth in the trust agreement.
No vote or consent of the holders of the preferred securities will be
required for FW Capital I to redeem and cancel the preferred securities in
accordance with the trust agreement.
Any of the preferred securities that are owned by First Western, the
trustees or any affiliate of First Western or any trustees, will, for purposes
of the vote or consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The preferred securities will be represented by one or more global
certificates registered in the name of the depositary or its nominee. Beneficial
interests in the preferred securities will be shown on, and transfers will be
effected only through, records maintained by participants in the depositary.
Except as described below, preferred securities in certificated form will not be
issued in exchange for the global certificates. See "Book-Entry Issuance."
A global security will be exchangeable for preferred securities registered
in the names of persons other than the depositary or its nominee only if:
- the depositary notifies First Western that it is unwilling or unable to
continue as a depositary for the global security and no successor
depositary has been appointed, or if at any time the depositary ceases to
be a clearing agency registered under the Securities Exchange Act of
1934, at a time when the depositary is required to be so registered to
act as a depositary;
- First Western in its sole discretion determines that the global security
will be so exchangeable; or
- there has occurred and is continuing an event of default under the
indenture. Any global security that is exchangeable under the preceding
sentence will be exchangeable for definitive certificates registered in
the names which the depositary directs. It is expected that the
instructions will be based upon directions received by the depositary
regarding ownership of beneficial interests in the global security. In
the event that preferred securities are issued in definitive form, they
will be in denominations of $10 or integral multiples of $10 and may be
transferred or exchanged at the offices described below.
Unless and until it is exchanged in whole or in part for the individual
preferred securities, the global preferred security may not be transferred
except (1) as a whole by the depositary to a nominee of the depositary or by a
nominee of the depositary to the depositary or (2) another nominee of the
depositary or (3) by the depositary or any nominee to a successor depositary or
any nominee of the successor.
Payments on preferred securities represented by a global security will be
made to the depositary, as the depositary for the preferred securities. In the
event the preferred securities are issued in definitive form, distributions will
be payable, the transfer of the preferred securities will be registrable, and
preferred securities will be exchangeable for preferred securities of other
denominations of a like aggregate liquidation amount, at the corporate office of
the property trustee, or at the offices of any paying agent or transfer agent
appointed by the administrative trustees. However, payment of any distribution
may be made at the option of the administrative trustees by check mailed to the
address of the persons entitled to payments or by wire transfer. In addition, if
the preferred securities are issued in certificated form, the record dates for
payment of distributions will be the first day of the month in which the
relevant distribution date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a global preferred security, and the deposit of the
global preferred security with or on behalf of the depositary, the depositary
will credit, on its book-entry registration and transfer system,
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the respective aggregate liquidation amounts of the individual preferred
securities represented by the global preferred security to persons that have
accounts with the depositary. The accounts will be designated by the dealers,
underwriters or agents regarding the preferred securities. Ownership of
beneficial interests in a global preferred security will be limited to
participants or persons that may hold interests through participants. Ownership
of beneficial interests in the global preferred security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the depositary or its nominee and the records of participants regarding
interests of persons who hold through participants. The laws of some states
require that some purchasers of securities in those states take physical
delivery of the securities in definitive form. The limits, under these laws, may
impair the ability to transfer beneficial interests in a global preferred
security.
For the time that the depositary for a global preferred security, or its
nominee, is the registered owner of the global preferred security, this
registered owner will be considered the sole owner or holder of the preferred
securities represented by the global preferred security for all purposes under
the trust agreement of FW Capital I. Except as provided below, owners of
beneficial interests in a global preferred security will not be entitled to have
any of the individual preferred securities represented by the global preferred
security registered in their names, will not receive or be entitled to receive
physical delivery of any the preferred securities in definitive form and will
not be considered the owners or holders thereof.
None of First Western, the property trustee, any paying agent, or the
securities registrar for the preferred securities will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the global preferred security or
for maintaining, supervising or reviewing any records relating to the beneficial
ownership interests.
First Western expects that the depositary, upon receipt of any payment of
the liquidation amount or distributions in respect of a permanent global
preferred security, immediately will credit participants' accounts with payments
in amounts proportionate to their respective beneficial interest in the
aggregate liquidation amount of the global preferred security as shown on the
records of the depositary or its nominee. First Western also expects that
payments by participants to owners of beneficial interests in the global
preferred security held through the participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in street name. The
payments will be the responsibility of the participants.
If the depositary for the preferred securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by First Western within 90 days, FW Capital I will issue individual
preferred securities in exchange for the global preferred security. In addition,
FW Capital I may at any time in its sole discretion, subject to any limitations
described in this prospectus relating to the preferred securities, determine not
to have any preferred securities represented by one or more global preferred
securities. In this event, First Western will issue individual preferred
securities in exchange for the global preferred security or securities
representing the preferred securities. Further, if FW Capital I specifies, an
owner of a beneficial interest in a global preferred security representing
preferred securities may receive individual preferred securities in exchange for
the beneficial interests, subject to any limitations described in this
prospectus. In any such instance, a beneficial interest owner in a global
preferred security will be entitled to physical delivery of individual preferred
securities represented by the global preferred security equal in liquidation
amount to the beneficial interest, and to have the preferred securities
registered in its name. Individual preferred securities issued will be issued in
denominations, unless otherwise specified by FW Capital I, of $10 and integral
multiples of $10.
PAYMENT AND PAYING AGENCY
Payments in respect of the preferred securities will be made to the
depositary, which will credit the relevant accounts at the depositary on the
applicable distribution dates. However, if any of the preferred securities are
not held by the depositary, the payments will be made by check mailed to the
address of the holder as the address appears on the register. The paying agent
will initially be the property trustee and any co-paying agent chosen by the
property trustee and acceptable to the administrative trustees and
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First Western. The paying agent will be permitted to resign as paying agent upon
30 days' written notice to the property trustee and First Western. In the event
that the property trustee is no longer the paying agent, the administrative
trustees will appoint a successor paying agent, which will be a bank or trust
company acceptable to the administrative trustees and First Western.
REGISTRAR AND TRANSFER AGENT
The property trustee will act as registrar and transfer agent for the
preferred securities. Registration of transfers of the preferred securities will
be effected without charge by or on behalf of FW Capital I, but upon payment of
any tax or other governmental charges that may be imposed in connection with any
transfer or exchange. FW Capital I will not be required to register or cause to
be registered the transfer of the preferred securities after the preferred
securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The property trustee, other than upon the occurrence and during the
continuance of an event of default, undertakes to perform only the duties which
are specifically set forth in the trust agreement. After an event of default,
the property trustee must exercise the same degree of care and skill as a
prudent person would exercise or use in the conduct of his or her own affairs.
Subject to this provision, the property trustee is under no obligation to
exercise any of the powers vested in it by the trust agreement at the request of
any holder of preferred securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred. If no event
of default has occurred and is continuing and the property trustee is required
to decide between alternative causes of action, construe ambiguous provisions in
the trust agreement or is unsure of the application of any provision of the
trust agreement, and the matter is not one on which holders of the preferred
securities are entitled under the trust agreement to vote, then the property
trustee will take action as directed by First Western. If the property trustee
is not so directed, it will take action as it deems advisable and in the best
interests of the holders of the trust securities and will have no liability
under the trust agreement except for its own bad faith, negligence or willful
misconduct.
MISCELLANEOUS
The administrative trustees are authorized and directed to conduct the
affairs of and to operate FW Capital I in such a way that FW Capital I will not
be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States federal income tax purposes and so that the junior
subordinated debentures will be treated as indebtedness of First Western for
United States federal income tax purposes. In this regard, First Western and the
administrative trustees are authorized to take any lawful action not
inconsistent with the certificate of trust of FW Capital I or the trust
agreement, that they determine in their discretion to be necessary or desirable
for these purposes, as long as the action does not materially adversely affect
the interests of the holders of the related preferred securities. Holders of the
preferred securities have no preemptive or similar rights.
FW Capital I may not borrow money or issue debt or mortgage or pledge any
of its assets.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The junior subordinated debentures will be issued under a subordinated
indenture, dated as of , 1999, between First Western and Wilmington
Trust Company, as the indenture trustee. The following is a summary of the
material terms and provisions of the junior subordinated debentures and the
indenture. Prospective investors are urged to read the indenture, which has been
filed as an exhibit to the Registration Statement of which this prospectus forms
a part. The indenture is qualified under the Trust Indenture Act.
Concurrently with the issuance of the preferred securities, FW Capital I
will invest the proceeds from the sale of the preferred securities, together
with the consideration paid by First Western for the common securities, in
junior subordinated debentures issued by First Western. The junior subordinated
debentures will be issued as unsecured debt under the indenture.
GENERAL OVERVIEW
The junior subordinated debentures will bear interest at the rate of %
per year of their principal amount, payable quarterly after each calendar
quarter on the 15th day of January, April, July and October of each year,
beginning April 15, 1999, to the person in whose name each junior subordinated
debenture is registered, subject to minor exceptions, at the close of business
on the business day next preceding the interest payment date. Notwithstanding
the above, in the event that either (1) the junior subordinated debentures are
held by the property trustee and the preferred securities are no longer in
book-entry only form or (2) the junior subordinated debentures are not
represented by a global subordinated debenture, the record date for the interest
payment will be the first day of the month in which the payment is made. The
amount of each interest payment due regarding the junior subordinated debentures
will include amounts accrued through the interest payment date. It is
anticipated that, until the liquidation, if any, of FW Capital I, each junior
subordinated debenture will be held in the name of the property trustee in trust
for the benefit of the holders of the preferred securities. The amount of
interest payable for any period will be computed on the basis of a 360-day year
of twelve 30-day months. In the event that any date on which interest is payable
on the junior subordinated debentures is not a business day, then payment of the
interest payable on that date will be made on the next business day, except
that, if the business day is in the next succeeding calendar year, the payment
will be made on the immediately preceding business day. Accrued interest that is
not paid on the applicable interest payment date will bear additional interest
at the rate per year of % compounded quarterly. The term interest as used
in this prospectus includes quarterly interest payments, interest on quarterly
interest payments not paid on the applicable interest payment date and
additional sums, as defined below, as applicable.
The junior subordinated debentures will mature on , 2029. This
date, as it may be shortened as described below, is the stated maturity. This
date may be shortened once at any time by First Western to any date not earlier
than , 2004, subject to First Western having received prior approval
of the Federal Reserve if then required under applicable capital guidelines or
policies of the Federal Reserve. In the event that First Western elects to
shorten the stated maturity of the junior subordinated debentures, it will give
at least 90 days prior notice to the registered holders of the junior
subordinated debentures, the property trustee and the indenture trustee. The
property trustee must give notice to the holders of the trust securities of the
shortening of the stated maturity.
The junior subordinated debentures will be unsecured and will rank junior
and be subordinate in right of payment to all senior and subordinated debt of
First Western. Because First Western is a holding company, the right of First
Western to participate in any distribution of assets of any subsidiaries,
including its banks, upon any of its subsidiaries' liquidation or reorganization
or otherwise, and thus the ability of holders of the preferred securities to
benefit indirectly from the distribution, is subject to the prior claims of
creditors of that subsidiary, except to the extent that First Western may itself
be recognized as a creditor of that subsidiary. Accordingly, the junior
subordinated debentures will be effectively subordinated to all existing and
future liabilities of First Western's subsidiaries, and holders of junior
subordinated debentures should look only to the assets of First Western for
payments on the junior
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subordinated debentures. The indenture does not limit the incurrence or issuance
of other secured or unsecured debt of First Western, including senior and
subordinated debt, whether under the indenture or any existing or other
indenture that First Western may enter into in the future or otherwise. See
"Subordination" below.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
If no debenture event of default has occurred and is continuing, First
Western has the right under the indenture at any time during the term of the
junior subordinated debentures to defer interest payments at any time for a
period not exceeding 20 consecutive quarters. However, no extension period may
extend beyond the stated maturity of the junior subordinated debentures. At the
end of an extension period, First Western must pay all interest then accrued and
unpaid, together with interest at the rate of % per year, compounded
quarterly. During an extension period, interest will continue to accrue and
holders of junior subordinated debentures will be required to accrue interest
income for United States federal income tax purposes. See "Material Federal
Income Tax Consequences -- Potential Extension of Interest Payment Period and
Original Issue Discount."
During any extension period, First Western may not (1) declare or pay any
dividends or distributions on, or redeem, purchase, or make a liquidation
payment regarding, any of First Western's capital stock or (2) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of First Western, including other junior subordinated
debentures, that rank pari passu with or junior in interest to the junior
subordinated debentures or make any preferred securities guarantee payments
regarding any preferred securities guarantee by First Western of the debt
securities of any subsidiary of First Western if the preferred securities
guarantee ranks pari passu with or junior in interest to the junior subordinated
debentures. These restrictions do not apply to:
- dividends or distributions in common stock of First Western;
- any declaration of a dividend in connection with the implementation of a
stockholders' rights plan, or the issuance of stock under any plan in the
future, or the redemption or repurchase of any rights pursuant to this
type of plan;
- payments under the preferred securities guarantee; or
- purchases of common stock related to rights under any of First Western's
benefit plans for its directors, officers or employees.
Prior to the termination of any extension period, First Western may further
extend the extension period, provided that the extension does not cause the
extension period to exceed 20 consecutive quarters or extend beyond the stated
maturity of the junior subordinated debentures. Upon the termination of any
extension period and the payment of all amounts then due on any interest payment
date, First Western may elect to begin a new extension period subject to the
above requirements. No interest will be due and payable during an extension
period, except at the end of the extension period.
If the property trustee is the only registered holder of the junior
subordinated debentures, First Western must give the property trustee, the
administrative trustees and the indenture trustee notice of its election of any
extension period at least one business day prior to the earlier of (1) the date
the distributions on the preferred securities would have been payable except for
the election to begin or extend the extension period or (2) the date the
administrative trustees are required to give notice to the holders of the
preferred securities of the record date or the date the distributions are
payable, but in any event not less than one business day prior to the record
date. The indenture trustee will give notice of First Western's election to
begin or extend a new extension period to the administrative trustees who, in
turn, will give notice to the holders of the preferred securities. There is no
limitation on the number of times that First Western may elect to begin an
extension period.
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ADDITIONAL SUMS TO BE PAID AS A RESULT OF ADDITIONAL TAXES
If FW Capital I is required to pay any additional taxes, duties or other
governmental charges as a result of a tax event, First Western will pay as
additional amounts on the junior subordinated debentures any amounts which will
be required so that the distributions payable by FW Capital I will not be
reduced as a result of any additional taxes, duties or other governmental
charges. See "Description of the Preferred Securities -- Redemption -- Mandatory
and Optional Rights of First Western" for a definition of tax event.
REDEMPTION
Subject to First Western having received prior approval of the Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve, the junior subordinated debentures are redeemable prior to
maturity at the option of First Western (1) beginning , 2004, in
whole at any time or in part from time to time, or (2) at any time in whole, but
not in part, upon the occurrence and during the continuance of a tax event, an
investment company event or a capital treatment event, in each case at a
redemption price equal to the accrued and unpaid interest on the junior
subordinated debentures redeemed to the date fixed for redemption, plus 100% of
the principal amount of the junior subordinated debentures. See "Description of
the Preferred Securities -- Redemption -- Mandatory and Optional Rights of First
Western" for a definitions of tax event, investment company event and capital
treatment event.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of junior subordinated
debentures to be redeemed at the holder's registered address. Unless First
Western defaults in payment of the redemption price, on and after the redemption
date interest will cease to accrue on the junior subordinated debentures or
portions of the junior subordinated debentures called for redemption.
The junior subordinated debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Preferred Securities -- Liquidation
Distribution Upon Termination," under circumstances involving the termination of
FW Capital I, the junior subordinated debentures may be distributed to the
holders of the preferred securities and common securities in liquidation of FW
Capital I after satisfaction of liabilities to creditors of FW Capital I. If
distributed to holders of the preferred securities in liquidation, the junior
subordinated debentures will initially be issued in the form of one or more
global securities and the depositary, or any successor depositary for the
preferred securities, will act as depositary for the junior subordinated
debentures. It is anticipated that the depositary arrangements for the junior
subordinated debentures would be substantially identical to those in effect for
the preferred securities. If the junior subordinated debentures are distributed
to the holders of preferred securities upon the liquidation of FW Capital I,
there can be no assurance as to the market price of any junior subordinated
debentures that may be distributed to the holders of preferred securities. If
the junior subordinated debentures are distributed, First Western will use its
best efforts to list them on the American Stock Exchange or the Nasdaq National
Market in place of the preferred securities.
RESTRICTIONS ON PAYMENTS
First Western has restrictions on paying dividends or making payments
regarding pari passu or junior debt if:
- there has occurred any event of which First Western has actual knowledge
that (a) with the giving of notice or the lapse of time, or both, would
constitute a debenture event of default and (b) in respect of which First
Western has taken reasonable steps to cure;
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- First Western has given notice of its election of an extension period as
provided in the indenture regarding the junior subordinated debentures
and has not rescinded the notice, or the extension period, or any
extension thereof, is continuing; or
- while the junior subordinated debentures are held by FW Capital I, First
Western is in default regarding its payment of any obligation under the
preferred securities guarantee.
If any of the events above have occurred, First Western will not:
- declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment regarding, any of First Western's
capital stock; or
- make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of First Western, including
other junior subordinated debt, that rank pari passu with or junior in
interest to the junior subordinated debentures or make any preferred
securities guarantee payments regarding any preferred securities
guarantee by First Western of the debt securities of any subsidiary of
First Western if the preferred securities guarantee ranks pari passu or
junior in interest to the junior subordinated debentures.
Provided, however, First Western may (a) declare and pay dividends or
distributions in common stock, (b) make any declaration of a dividend in
connection with the implementation of a stockholders' rights plan, or the
issuance of stock under this type of plan in the future or the redemption or
repurchase of any rights under such plan, (c) make payments under the preferred
securities guarantee and (d) make purchases of common stock related to rights
under any of First Western's benefit plans for its directors, officers or
employees.
SUBORDINATION OF JUNIOR SUBORDINATED DEBENTURES TO SENIOR AND SUBORDINATED DEBT
OF FIRST WESTERN
In the indenture, First Western has agreed that any junior subordinated
debentures will be subordinate and junior in right of payment to all senior and
subordinated debt to the extent provided in the indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution, winding
up, or any bankruptcy, or similar proceedings in connection with any insolvency
or bankruptcy proceeding of First Western, the holders of senior and
subordinated debt will first be entitled to receive payment in full of
principal, interest and premium, if any, on the senior and subordinated debt
before the holders of junior subordinated debentures will be entitled to receive
principal or interest payments on the junior subordinated debentures.
In the event of the acceleration of the maturity of any junior subordinated
debentures, the holders of all senior and subordinated debt outstanding upon
acceleration will first be entitled to receive payment in full of all amounts
due to them, including any amounts due upon acceleration, before the holders of
junior subordinated debentures will be entitled to receive any principal or
interest payments on the junior subordinated debentures. However, holders of
subordinated debt will not be entitled to receive payment of any of these
amounts to the extent that the subordinated debt is by its terms subordinated to
trade creditors.
No principal or interest payments on the junior subordinated debentures may
be made if there has occurred and is continuing a default in any payment
regarding senior and subordinated debt or an event of default regarding any
senior and subordinated debt resulting in the acceleration of the maturity of
senior and subordinated debt, or if any judicial proceeding is pending regarding
any of this type of default.
Debt as used in this discussion means regarding any person, whether
recourse is to all or a portion of the assets of the person and whether or not
contingent:
- every obligation of the person for money borrowed;
- every obligation of the person evidenced by bonds, debentures, notes or
other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses;
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- every reimbursement obligation of the person regarding letters of credit,
bankers' acceptances or similar facilities issued for the account of the
person;
- every obligation of the person issued or assumed as the deferred purchase
price of property or services, but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business;
- every capital lease obligation of the person; and
- every obligation of the type referred to in all of the points immediately
above of another person and all dividends of another person the payment
of which, in either case, the person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise.
Senior and subordinated debt means the principal of and premium, if any,
and interest, if any on debt, including interest accruing at the time of the
filing of any petition in bankruptcy or for reorganization relating to First
Western, whether incurred on or prior to the date of the indenture or thereafter
incurred, unless, in the instrument creating or evidencing the debt or under
which the debt is outstanding, it is provided that the obligations are not
superior in right of payment to the junior subordinated debentures or to other
debt which is pari passu with, or subordinated to, the junior subordinated
debentures.
However, senior and subordinated debt will not be deemed to include:
- any debt of First Western which when incurred and without respect to any
election under section 1111(b) of the United States Bankruptcy Code was
without recourse to First Western;
- any debt of First Western to any of its subsidiaries;
- any debt to any employee of First Western;
- any debt which by its terms is subordinated to trade accounts payable or
accrued liabilities arising in the ordinary course of business to the
extent that payments made to the holders of the debt by the holders of
the junior subordinated debentures as a result of the subordination
provisions of the indenture would be greater than they otherwise would
have been as a result of any obligation of the holders to pay amounts
over to the obligees on the trade accounts payable or accrued liabilities
arising in the ordinary course of business as a result of subordination
provisions to which the debt is subject;
- the preferred securities guarantee; and
- any other debt securities issued under the indenture.
The indenture places no limitation on the amount of additional senior and
subordinated debt that may be incurred by First Western. First Western expects
from time to time to incur additional indebtedness constituting senior and
subordinated debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The junior subordinated debentures will be represented by global
certificates registered in the name of the depositary or its nominee. Beneficial
interests in the junior subordinated debentures will be shown on, and transfers
thereof will be effected only through, records maintained by the depositary.
Except as described below, junior subordinated debentures in certificated form
will not be issued in exchange for the global certificates. See "Book-Entry
Issuance."
Unless and until a global subordinated debenture is exchanged in whole or
in part for the individual junior subordinated debentures, it may not be
transferred except (1) as a whole by the depositary for the global subordinated
debenture to a nominee of the depositary or (2) by a nominee of the depositary
to the depositary or another nominee of the depositary or (3) by the depositary
or any nominee to a successor depositary or any nominee of the successor.
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A global security will be exchangeable for junior subordinated debentures
registered in the names of persons other than the depositary or its nominee only
if (1) the depositary notifies First Western that it is unwilling or unable to
continue as a depositary for the global security and no successor depositary has
been appointed, or if at any time the depositary ceases to be a clearing agency
registered under the Securities Exchange Act of 1934 at a time when the
depositary is required to be so registered to act as a depositary or (2) First
Western in its sole discretion determines that the global security will be so
exchangeable. Any global security that is exchangeable under the preceding
sentence will be exchangeable for definitive certificates registered in the
names which the depositary directs. It is expected that the instructions will be
based upon directions received by the depositary from its participants regarding
ownership of beneficial interests in the global security. In the event that
junior subordinated debentures are issued in definitive form, the junior
subordinated debentures will be in denominations of $10 and integral multiples
of $10 and may be transferred or exchanged at the offices described below.
Payments on junior subordinated debentures represented by a global security
will be made to the depositary, as the depositary for the junior subordinated
debentures. In the event junior subordinated debentures are issued in definitive
form, principal and interest will be payable, the transfer of the junior
subordinated debentures will be registrable, and junior subordinated debentures
will be exchangeable for junior subordinated debentures of other denominations
of a like aggregate principal amount, at the corporate office of the indenture
trustee, or at the offices of any paying agent or transfer agent appointed by
First Western. However, interest payments may be made at the option of First
Western by check mailed to the address of the persons entitled to payments or by
wire transfer. In addition, if the junior subordinated debentures are issued in
certificated form, the record dates for interest payments will be the first day
of the month in which the payment is to be made. For a description of the
depositary and the terms of the depositary arrangements relating to payments,
transfers, voting rights, redemptions and other notices and other matters, see
"Book-Entry Issuance."
First Western will appoint the indenture trustee as securities registrar
under the indenture. Junior subordinated debentures may be presented for
exchange as provided above, and may be presented for registration of transfer
with the form of transfer endorsed, or a satisfactory written instrument of
transfer, duly executed, at the office of the securities registrar. First
Western may at any time rescind the designation of any registrar or approve a
change in the location through which any registrar acts, provided that First
Western maintains a registrar in the place of payment. First Western may at any
time designate additional registrars regarding the junior subordinated
debentures.
In the event of any redemption of the junior subordinated debentures,
neither First Western nor the indenture trustee will be required to issue or
register the transfer of junior subordinated debentures during a period
beginning at the opening of business 15 days before the day of selection for
redemption of junior subordinated debentures and ending at the close of business
on the day of mailing of the relevant notice of redemption.
GLOBAL SUBORDINATED DEBENTURE
Upon the issuance of the global subordinated debenture, and the deposit of
the global subordinated debenture with or on behalf of the depositary, the
depositary or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the individual junior
subordinated debentures represented by the global subordinated debenture to
participants. Ownership of beneficial interests in a global subordinated
debenture will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in the global
subordinated debenture will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the applicable depositary or its
nominee, regarding interests of participants, and the records of participants,
regarding interests of persons who hold through participants. The laws of some
states require that some purchasers of securities in those states take physical
delivery of the securities in definitive form. The limits and the laws may
impair the ability to transfer beneficial interests in a global subordinated
debenture.
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During the time that the depositary for a global subordinated debenture, or
its nominee, is the registered owner of the global subordinated debenture, this
registered owner will be considered the sole owner or holder of the junior
subordinated debentures represented by the global subordinated debenture for all
purposes under the indenture. Except as provided below, owners of beneficial
interests in a global subordinated debenture will not be entitled to have any of
the individual junior subordinated debentures represented by the global
subordinated debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such junior subordinated debentures
in definitive form and will not be considered the owners or holders thereof.
Payments of principal of and interest on individual junior subordinated
debentures represented by a global subordinated debenture registered in the name
of the depositary or its nominee will be made to the depositary or its nominee,
as the case may be, as the registered owner of the global subordinated debenture
representing the junior subordinated debentures. None of First Western, the
indenture trustee, any paying agent, or the securities registrar will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the global
subordinated debenture or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
First Western expects that the depositary, upon receipt of any payment of
principal or interest in respect of the global subordinated debenture,
immediately will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the principal amount of
the global subordinated debenture as shown on the records of the depositary or
its nominee. First Western also expects that payments by participants to owners
of beneficial interests in the global subordinated debenture held through the
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." These payments will be the responsibility
of the participants.
If the depositary is at any time unwilling, unable or ineligible to
continue as depositary and a successor depositary is not appointed by First
Western within 90 days, First Western will issue individual junior subordinated
debentures in exchange for the global subordinated debenture. In addition, First
Western may at any time in its sole discretion, determine not to have the junior
subordinated debentures represented by one or more global subordinated
debentures. In this event, First Western will issue individual junior
subordinated debentures in exchange for the global subordinated debenture.
Further, if First Western specifies, an owner of a beneficial interest in a
global subordinated debenture may receive individual junior subordinated
debentures in exchange for the beneficial interests. In this instance, an owner
of a beneficial interest in a global subordinated debenture will be entitled to
physical delivery of individual junior subordinated debentures equal in
principal amount to the beneficial interest and to have the junior subordinated
debentures registered in its name. Individual junior subordinated debentures so
issued will be issued in denominations, unless otherwise specified by First
Western, of $10 and integral multiples of $10.
PAYMENT AND PAYING AGENTS
Payment of principal of and any interest on the junior subordinated
debentures will be made at the office of the indenture trustee, except that at
the option of First Western payment of any interest may be made, except in the
case of a global subordinated debenture, by check mailed to the address of the
person entitled to payment as the person's address appears in the securities
register. Payment of any interest on junior subordinated debentures will be made
to the person in whose name the junior subordinated debenture is registered at
the close of business on the regular record date for the interest. First Western
may at any time designate additional paying agents or rescind the designation of
any paying agent; however, First Western will at all times be required to
maintain a paying agent in each place of payment for the junior subordinated
debentures.
Any moneys deposited with the indenture trustee or any paying agent, or
then held by First Western in trust, for the payment of the principal of or
interest on the junior subordinated debentures and
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remaining unclaimed for two years after the principal or interest has become due
and payable will, at the request of First Western, be repaid to First Western.
Thereafter, the holder of the junior subordinated debenture will look, as a
general unsecured creditor, only to First Western for payment.
MODIFICATION OF INDENTURE
From time to time First Western and the indenture trustee may, without the
consent of the holders of the junior subordinated debentures, amend, waive or
supplement the indenture for specified purposes. These purposes may include,
among other things, curing ambiguities, defects or inconsistencies, provided
that this action does not materially adversely affect the interests of the
holders of the junior subordinated debentures or the preferred securities while
they remain outstanding, and qualifying, or maintaining the qualification of,
the indenture under the Trust Indenture Act. The indenture contains provisions
permitting First Western and the indenture trustee, with the consent of the
holders of not less than a majority in principal amount of the outstanding
junior subordinated debentures, to modify the indenture in a manner affecting
the rights of the holders of the junior subordinated debentures; provided, that,
the modification may not, without the consent of the holder of each outstanding
junior subordinated debenture:
- change the stated maturity of the junior subordinated debentures or
extend the time of payment of interest on them, except as described under
"Description of Junior Subordinated Debentures -- General Overview" and
" -- Option to Extend Interest Payment Period," or reduce the principal
amount thereof or the rate of interest thereon; or
- reduce the percentage of principal amount of junior subordinated
debentures, the holders of which are required to consent to any such
modification of the indenture. However, while any of the preferred
securities remain outstanding, (1) no modification may be made that
adversely affects the holders of the preferred securities in any material
respect, (2) no termination of the indenture may occur, and (3) no waiver
of any debenture event of default or compliance with any covenant under
the indenture may be effective, without the prior consent of the holders
of at least a majority of the aggregate liquidation amount of the
preferred securities, until the principal and interest of the junior
subordinated debentures have been paid in full and other conditions are
satisfied.
INDENTURE EVENTS OF DEFAULT
The indenture provides that any one or more of the following described
events regarding the junior subordinated debentures that has occurred and is
continuing constitutes a debenture event of default:
- failure for 30 days to pay any interest on the junior subordinated
debentures, when due, subject to the deferral of any due date in the case
of an extension period;
- failure to pay any principal on the junior subordinated debentures when
due whether at maturity, upon redemption by declaration or otherwise;
- failure by First Western to observe or perform in any material respect a
number of other covenants contained in the indenture for 90 days after
written notice to First Western from the indenture trustee or to First
Western and the indenture trustee by the holders of at least 25% in
aggregate outstanding principal amount of the junior subordinated
debentures; or
- events in bankruptcy, insolvency or reorganization of First Western,
including the voluntary commencement of bankruptcy proceedings, entry of
an order for relief against First Western in a bankruptcy proceeding,
appointment of a custodian over substantially all of First Western's
property, a general assignment for the benefit of creditors, or a court
order for liquidation of First Western.
The holders of a majority in aggregate outstanding principal amount of the
junior subordinated debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the indenture
trustee. The indenture trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the junior subordinated debentures may declare
the principal
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due and payable immediately upon a debenture event of default. The holders of a
majority in aggregate outstanding principal amount of the junior subordinated
debentures may annul the declaration and waive the default if the default, other
than the non-payment of the principal of the junior subordinated debentures
which has become due solely by the acceleration, has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the indenture trustee.
Should the holders of the junior subordinated debentures fail to annul the
declaration and waive the default, the holders of a majority in aggregate
liquidation amount of the preferred securities will have the right to do so. In
case a debenture event of default occurs and is continuing, the property trustee
will have the right to declare the principal of and the interest on the junior
subordinated debentures, and any other amounts payable under the indenture, to
be due and payable and to enforce its other rights as a creditor.
First Western is required to file annually with the indenture trustee a
certificate as to whether First Western is in compliance with all the conditions
and covenants applicable to it under the indenture.
ENFORCEMENT OF RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an event of default under the indenture has occurred and is continuing
and the default is attributable to First Western's failure to pay interest or
principal on the junior subordinated debentures on the due date, a holder of
preferred securities may institute a legal proceeding directly against First
Western for payment of principal and interest on the junior subordinated
debentures having a principal amount equal to the aggregate liquidation amount
of the preferred securities of the holder. This action is referred to in this
discussion as a direct action. If the right to bring a direct action is removed,
FW Capital I may become subject to the reporting obligations under the
Securities Exchange Act of 1934. First Western will have the right under the
indenture to set-off any payment made to the holder of preferred securities by
First Western in connection with a direct action.
The holders of the preferred securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the junior subordinated debentures unless there has
been an event of default under the trust agreement. See "Description of the
Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The indenture provides that First Western will not consolidate with or
merge into any other person or convey, transfer or lease its properties and
assets substantially as an entirety to any person, and no person will
consolidate with or merge into First Western or convey, transfer or lease its
properties and assets substantially as an entirety to First Western, unless:
- in case First Western consolidates with or merges into another person or
conveys or transfers its properties and assets substantially as an
entirety to any person, the successor person is organized under the laws
of the United States or any state or the District of Columbia, and the
successor person expressly assumes First Western's obligations on the
junior subordinated debentures issued under the indenture;
- immediately after giving effect to this type of transaction, no debenture
event of default, and no event which, after notice or lapse of time or
both, would become a debenture event of default, has occurred and is
continuing; and
- other conditions as prescribed in the indenture are met.
The provisions of the indenture do not afford holders of the junior
subordinated debentures protection in the event of a highly leveraged or other
transaction involving First Western that may adversely affect holders of the
junior subordinated debentures.
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SATISFACTION AND DISCHARGE
Under the indenture, First Western will have satisfied and discharged the
indenture when all junior subordinated debentures not previously delivered to
the indenture trustee for cancellation (1) have become due and payable or (2)
will become due and payable at their stated maturity within one year, and First
Western deposits in trust with the indenture trustee sufficient funds to pay and
discharge the entire indebtedness on the junior subordinated debentures to the
deposit date or to the stated maturity, as the case may be. This satisfaction
and discharge will not apply to First Western's obligations to pay all other
sums due under the indenture and to provide the officers' certificates and
opinions of counsel described in the indenture.
GOVERNING LAW
The indenture and the junior subordinated debentures will be governed by
and construed in accordance with the laws of the State of Colorado.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The indenture trustee will have and be subject to all the duties and
responsibilities specified for an indenture trustee under the Trust Indenture
Act. Subject to these provisions, the indenture trustee is under no obligation
to exercise any of the powers vested in it by the indenture at the request of
any holder of junior subordinated debentures, unless offered reasonable
indemnity by the holder against the costs, expenses and liabilities which might
be incurred. The indenture trustee is not required to expend or risk its own
funds or otherwise incur personal financial liability in the performance of its
duties if the indenture trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
COVENANTS OF FIRST WESTERN
First Western will covenant in the indenture, as to the junior subordinated
debentures, that during the time that (1) FW Capital I is the holder of all
junior subordinated debentures, (2) a tax event in respect of FW Capital I has
occurred and is continuing and (3) First Western has elected, and has not
revoked the election, to pay additional sums, as defined under "Description of
the Preferred Securities -- Redemption -- Mandatory and Optional Rights of First
Western," in respect of the preferred securities, First Western will pay to FW
Capital I these additional sums. First Western will also covenant, as to the
junior subordinated debentures:
- to maintain directly or indirectly 100% ownership of the common
securities of FW Capital I to which junior subordinated debentures have
been issued, provided that successors which are permitted under the
indenture may succeed to First Western's ownership of the common
securities;
- to use its reasonable efforts to cause FW Capital I (a) to remain a
business trust, except in connection with a distribution of junior
subordinated debentures to the holders of the preferred securities in
liquidation of FW Capital I, (b) the redemption of all of the trust
securities or (c) in connection with mergers, consolidations, or
amalgamations permitted by the trust agreement; and
- to use its reasonable efforts to cause each Holder of trust securities to
be treated as owning an individual beneficial interest in the junior
subordinated debentures.
BOOK-ENTRY ISSUANCE
The depositary will act as securities depositary for all of the preferred
securities and the junior subordinated debentures. The preferred securities and
the junior subordinated debentures will be issued only as fully-registered
securities registered in the name of Cede & Co., the depositary's nominee. One
or more fully-registered global certificates will be issued for the preferred
securities and the junior subordinated debentures and will be deposited with the
depositary.
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The depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered under the provisions of Section 17A of the Securities
Exchange Act of 1934. The depositary holds securities that its participants
deposit with the depositary. The depositary also facilitates the settlement
among participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
The depositary is owned by a number of its direct participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the depositary system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships with direct
participants, either directly or indirectly. The rules applicable to the
depositary and its participants are on file with the Securities and Exchange
Commission.
Purchases of preferred securities or junior subordinated debentures within
the depositary system must be made by or through direct participants, which will
receive a credit for the preferred securities or junior subordinated debentures
on the depositary's records. The ownership interest of each actual purchaser of
each preferred security and each junior subordinated debenture is in turn to be
recorded on the direct and indirect participants' records. Beneficial owners
will not receive written confirmation from the depositary of their purchases,
but beneficial owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the direct or indirect participants through which the beneficial owners
purchased preferred securities or junior subordinated debentures. Transfers of
ownership interests in the preferred securities or junior subordinated
debentures are to be accomplished by entries made on the books of participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in preferred securities or
junior subordinated debentures, except in the event that use of the book-entry
system for the or junior subordinated debentures is discontinued.
The depositary has no knowledge of the actual beneficial owners of the
preferred securities or the junior subordinated debentures. The depositary's
records reflect only the identity of the direct participants to whose accounts
the preferred securities or junior subordinated debentures are credited, which
may or may not be the beneficial owners. The participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the depositary to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners and the voting
rights of direct participants, indirect participants and beneficial owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the preferred securities or junior subordinated debentures. If less than all of
the preferred securities or the junior subordinated debentures are being
redeemed, the depositary will determine by lot or pro rata the amount of the
preferred securities of each direct participant to be redeemed.
Although voting regarding the preferred securities and the junior
subordinated debentures is limited to the holders of record of the preferred
securities and the junior subordinated debentures, in those instances in which a
vote is required, neither the depositary nor Cede & Co. will itself consent or
vote regarding preferred securities or the junior subordinated debentures. Under
its usual procedures, the depositary would mail an omnibus proxy to the relevant
trustee as soon as possible after the record date. The omnibus proxy assigns
Cede & Co.'s consenting or voting rights to those direct participants to whose
accounts the preferred securities or junior subordinated debentures are credited
on the record date and which are used and identified in a listing attached to
the omnibus proxy.
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Distribution payments on the preferred securities or the junior
subordinated debentures will be made by the relevant trustee to the depositary.
The depositary's practice is to credit direct participants' accounts on the
relevant payment date in accordance with their respective holdings shown on the
depositary's records unless the depositary has reason to believe that it will
not receive payments on the payment date. Payments by participants to beneficial
owners will be governed by standing instructions and customary practices.
Payments will be the responsibility of the participant and not of the
depositary, the relevant trustee, FW Capital I or First Western, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to the depositary is the responsibility of the relevant
trustee, disbursement of the payments to direct participants is the
responsibility of the depositary, and disbursements of the payments to the
beneficial owners is the responsibility of direct and indirect participants.
The depositary may discontinue providing its services as securities
depositary regarding any of the preferred securities or the junior subordinated
debentures at any time by giving reasonable notice to the relevant trustee and
First Western. In the event that a successor securities depositary is not
obtained, definitive preferred securities or subordinated debenture certificates
representing the preferred securities or junior subordinated debentures are
required to be printed and delivered. First Western, at its option, may decide
to discontinue use of the system of book-entry transfers through the depositary,
or a successor depositary. After a debenture event of default, the holders of a
majority in liquidation preference of preferred securities or aggregate
principal amount of junior subordinated debentures may determine to discontinue
the system of book-entry transfers through the depositary. In this event,
definitive certificates for the preferred securities or junior subordinated
debentures will be printed and delivered.
The information in this section concerning the depositary and the
depositary's book-entry system has been obtained from sources that FW Capital I
and First Western believe to be accurate, but FW Capital I and First Western
assume no responsibility for the accuracy thereof. Neither FW Capital I nor
First Western has any responsibility for the performance by the depositary or
its participants of their respective obligations as described in this prospectus
or under the rules and procedures governing their respective operations.
DESCRIPTION OF PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee agreement will be executed and delivered
by First Western concurrently with the issuance of the preferred securities. The
preferred securities guarantee will be for the benefit of the holders of the
preferred securities. Wilmington Trust Company will act as trustee under the
preferred securities guarantee for the purposes of compliance with the Trust
Indenture Act, and the preferred securities guarantee will be qualified under
the Trust Indenture Act. The following is a summary of the material provisions
of the preferred securities guarantee. Prospective investors are urged to read
the form of the preferred securities guarantee which has been filed as an
exhibit to the registration statement of which this prospectus forms a part. The
guarantee trustee will hold the preferred securities guarantee for the benefit
of the holders of the preferred securities.
GENERAL OVERVIEW
The preferred securities guarantee is an irrevocable guarantee on a
subordinated basis of all of FW Capital I's obligations to make payments under
the preferred securities, but will apply only to the extent that FW Capital I
has funds sufficient to make the payments, and is not a guarantee of collection.
First Western will irrevocably agree to pay in full on a subordinated
basis, to the extent set forth in this prospectus, the preferred securities
guarantee payments, as defined below, to the holders of the preferred
securities, as and when due, regardless of any defense, right of set-off or
counterclaim that FW Capital I may have or assert other than the defense of
payment. The following payments regarding the
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preferred securities, to the extent not paid by or on behalf of FW Capital I,
will be subject to the preferred securities guarantee of First Western:
- any accumulated and unpaid distributions required to be paid on the
preferred securities, to the extent that FW Capital I has available funds
on hand at the time;
- the redemption price regarding any preferred securities called for
redemption to the extent that FW Capital I has available funds on hand at
the time; and
- upon a voluntary or involuntary dissolution, winding up or liquidation of
FW Capital I, unless the junior subordinated debentures are distributed
to holders of the preferred securities.
The amount of the preferred securities guarantee will be the lesser of (a)
the liquidation distribution and (b) the amount of assets of FW Capital I
remaining available for distribution to holders of preferred securities. First
Western's obligation to make a preferred securities guarantee payment may be
satisfied by direct payment of the required amounts by First Western to the
holders of the preferred securities or by causing FW Capital I to pay these
amounts to the holders.
If First Western does not make interest payments on the junior subordinated
debentures held by FW Capital I, FW Capital I will not be able to pay
distributions on the preferred securities and will not have funds legally
available to pay distributions. The preferred securities guarantee will rank
subordinate and junior in right of payment to all senior and subordinated debt
of First Western. See "Status of the Preferred Securities Guarantee" below.
Because First Western is a holding company, the right of First Western to
participate in any distribution of assets of any subsidiary upon the
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of that subsidiary, except to the extent First Western may
itself be recognized as a creditor of that subsidiary. Accordingly, First
Western's obligations under the preferred securities guarantee will be
effectively subordinated to all existing and future liabilities of First
Western's subsidiaries, and claimants should look only to the assets of First
Western for payments thereunder. Except as otherwise described in this
prospectus, the preferred securities guarantee does not limit the incurrence or
issuance of other secured or unsecured debt of First Western, including senior
and subordinated debt whether under the indenture, any other indenture that
First Western may enter into in the future, or otherwise.
First Western has, through the preferred securities guarantee, the trust
agreement, the junior subordinated debentures, the indenture and the expense
agreement relating to FW Capital I, taken together, fully, irrevocably and
unconditionally guaranteed on a subordinated basis all of FW Capital I's
obligations under the preferred securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents constitutes
this preferred securities guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee on a subordinated basis of all of FW Capital I's obligations under the
preferred securities. See "Relationship Among the Preferred Securities, the
Junior Subordinated Debentures and the Preferred Securities Guarantee."
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee will constitute an unsecured obligation
of First Western and will rank subordinate and junior in right of payment to all
senior and subordinated debt in the same manner as the junior subordinated
debentures.
The preferred securities guarantee will constitute a guarantee of payment
and not of collection. The guaranteed party may institute a legal proceeding
directly against First Western to enforce its rights under the preferred
securities guarantee without first instituting a legal proceeding against any
other person or entity. The preferred securities guarantee will be held for the
benefit of the holders of the preferred securities. The preferred securities
guarantee does not place a limitation on the amount of additional senior and
subordinated debt that may be incurred by First Western. First Western expects
from time to time to incur additional indebtedness constituting senior and
subordinated debt.
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AMENDMENTS AND ASSIGNMENT
Except regarding any changes which do not adversely affect the rights of
holders of the preferred securities in a material manner, in which case no vote
will be required, the preferred securities guarantee may not be amended without
the prior approval of the holders of not less than a majority of the aggregate
liquidation amount of the outstanding preferred securities. See "Description of
the Preferred Securities -- Voting Rights; Amendment of the Trust Agreement."
All guarantees and agreements contained in the preferred securities guarantee
will bind the successors, assigns, receivers, trustees and representatives of
First Western and will inure to the benefit of the holders of the preferred
securities then outstanding.
EVENTS OF DEFAULT
An event of default under the preferred securities guarantee will occur
upon the failure of First Western to perform any of its payment or other
obligations under the preferred securities guarantee. The holders of not less
than a majority in aggregate liquidation amount of the preferred securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the guarantee trustee regarding the preferred securities
guarantee or to direct the exercise of any trust or power conferred upon the
guarantee trustee under the preferred securities guarantee.
Any holder of preferred securities may institute a legal proceeding
directly against First Western to enforce the holder's rights under the
preferred securities guarantee without first instituting a legal proceeding
against FW Capital I, the guarantee trustee or any other person or entity.
First Western, as guarantor, is required to file annually with the
guarantee trustee a certificate as to whether First Western is in compliance
with all the conditions and covenants applicable to it under the preferred
securities guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The guarantee trustee, other than during the occurrence and continuance of
a default by First Western in performance of the preferred securities guarantee,
undertakes to perform only the duties which are specifically set forth in the
preferred securities guarantee. After default regarding the preferred securities
guarantee, the guarantee trustee must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the guarantee trustee is under no obligation
to exercise any of the powers vested in it by the preferred securities guarantee
at the request of any holder of the preferred securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The preferred securities guarantee will terminate and be of no further
force and effect upon full payment of the redemption price of the preferred
securities, upon full payment of the amounts payable upon liquidation of FW
Capital I or upon distribution of junior subordinated debentures to the holders
of the preferred securities. The preferred securities guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the preferred securities must restore payment of any sums paid under
the preferred securities or the preferred securities guarantee.
GOVERNING LAW
The preferred securities guarantee will be governed by and construed in
accordance with the laws of the State of Colorado.
THE EXPENSE AGREEMENT
Under the agreement as to expenses and liabilities entered into by First
Western under the trust agreement, First Western will irrevocably and
unconditionally guarantee to each person or entity to whom FW Capital I becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
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FW Capital I, other than obligations of FW Capital I to pay to the holders of
the preferred securities or other similar interests in FW Capital I of the
amounts due the holders under the terms of the preferred securities or the other
similar interests, as the case may be.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE
FULL AND UNCONDITIONAL PREFERRED SECURITIES GUARANTEE ON A SUBORDINATED BASIS
Payments of distributions and other amounts due on the preferred
securities, to the extent FW Capital I has funds available for the payment of
the distributions, are irrevocably guaranteed by First Western as and to the
extent set forth under "Description of Preferred Securities Guarantee." Taken
together, First Western's obligations under the junior subordinated debentures,
the indenture, the trust agreement, the expense agreement and the preferred
securities guarantee provide, in the aggregate, a full, irrevocable and
unconditional guarantee on a subordinated basis of payments of distributions and
other amounts due on the preferred securities. No single document standing alone
or operating in conjunction with fewer than all of the other documents
constitutes the preferred securities guarantee. It is only the combined
operation of those documents that has the effect of providing a full,
irrevocable and unconditional guarantee on a subordinated basis of FW Capital
I's obligations under the preferred securities. If and to the extent that First
Western does not make payments on the junior subordinated debentures, FW Capital
I will not pay distributions or other amounts due on the preferred securities.
The preferred securities guarantee does not cover payment of distributions when
FW Capital I does not have sufficient funds to pay the distributions. In this
event, the remedy of a holder of the preferred securities is to institute a
legal proceeding directly against First Western for enforcement of payment of
the distributions to the holder. The obligations of First Western under the
preferred securities guarantee are subordinate and junior in right of payment to
all senior and subordinated debt.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
junior subordinated debentures, the payments will be sufficient to cover
distributions and other payments due on the preferred securities, primarily
because: (1) the aggregate principal amount of the junior subordinated
debentures will be equal to the sum of the aggregate liquidation amount of the
preferred securities and common securities; (2) the interest rate and interest
and other payment dates on the junior subordinated debentures will match the
distribution rate and distribution and other payment dates for the preferred
securities; (3) First Western will pay for all and any costs, expenses and
liabilities of FW Capital I except FW Capital I's obligations to holders of
preferred securities; and (4) the trust agreement further provides that FW
Capital I will not engage in any activity that is not consistent with the
limited purposes of FW Capital I.
Notwithstanding anything to the contrary in the indenture, First Western
has the right to set-off any payment it is otherwise required to make under the
indenture to the extent First Western has made payments, or is concurrently on
the date of the payment making, a payment under the preferred securities
guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE PREFERRED SECURITIES UNDER THE PREFERRED
SECURITIES GUARANTEE
A holder of any the preferred securities may institute a legal proceeding
directly against First Western to enforce its rights under the preferred
securities guarantee without first instituting a legal proceeding against the
guarantee trustee, FW Capital I or any other person or entity,
A default or event of default under any senior and subordinated debt would
not constitute an event of default. However, in the event of payment defaults
under, or acceleration of, senior and subordinated debt, the subordination
provisions of the indenture provide that no payments may be made in respect of
the junior subordinated debentures until the senior and subordinated debt has
been paid in full or any payment
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default thereunder has been cured or waived. Failure to make required payments
on junior subordinated debentures would constitute an event of default.
LIMITED PURPOSE OF FW CAPITAL I
The preferred securities evidence a beneficial interest in FW Capital I,
and FW Capital I exists for the sole purpose of issuing the trust securities and
investing the proceeds from the sale of the trust securities in the junior
subordinated debentures. A principal difference between the rights of a holder
of the preferred securities and a holder of a junior subordinated debenture is
that a holder of a junior subordinated debenture is entitled to receive from
First Western the principal amount of and interest accrued on junior
subordinated debentures held, while a holder of the preferred securities is
entitled to receive distributions from FW Capital I, or from First Western under
the preferred securities guarantee, if and to the extent FW Capital I has funds
available for the payment of the distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
FW Capital I involving the liquidation of the junior subordinated debentures,
the holders of preferred securities will be entitled to receive, out of assets
held by FW Capital I, the liquidation distribution in cash. See "Description of
the Preferred Securities -- Liquidation Distribution Upon Termination." Upon any
voluntary or involuntary liquidation or bankruptcy of First Western, the
property trustee, as holder of the junior subordinated debentures, would be a
subordinated creditor of First Western, subordinated in right of payment to all
senior and subordinated debt as set forth in the indenture, but entitled to
receive payment in full of principal and interest, before any shareholders of
First Western receive payments or distributions. Since First Western is the
guarantor under the preferred securities guarantee and has agreed to pay for all
costs, expenses and liabilities of FW Capital I, other than FW Capital I's
obligations to the holders of its preferred securities, the positions of a
holder of the preferred securities and a holder of junior subordinated
debentures relative to other creditors and to shareholders of First Western in
the event of liquidation or bankruptcy of First Western are expected to be
substantially the same.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Jones & Keller, P.C., counsel to First Western, the
following are the material United States federal income tax consequences to the
purchase, ownership and disposition of preferred securities. Unless otherwise
stated, this discussion deals only with preferred securities held as capital
assets by United States persons, defined below, who purchase the preferred
securities upon original issuance at the first price at which a substantial
amount of preferred securities were sold. As used in this prospectus, a United
States person means a person that is (1) a citizen or resident of the United
States, (2) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof, (3)
an estate the income of which is subject to United States federal income
taxation regardless of its source, or (4) any trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. The tax treatment of holders may vary
depending on their particular situation. This discussion does not address all
the tax consequences that may be relevant to a particular holder or to holders
who may be subject to special tax treatment, such as banks, real estate
investment trusts, regulated investment companies, insurance companies, dealers
in securities or currencies, tax-exempt investors, foreign investors, persons
that will hold the preferred securities as part of a position in a "straddle" or
as part of a "hedging" or other integrated transaction, or persons whose
functional currency is not the United States dollar. In addition, this
discussion does not include any description of any alternative minimum tax
consequences or other collateral tax consequences under United States federal
income tax laws, or the tax laws of any state, local or foreign government that
may be applicable to a holder of preferred securities. This discussion is based
on the Internal Revenue Code of 1986, as amended, the Treasury regulations
promulgated thereunder and administrative and judicial interpretations thereof,
as of the date hereof, all of which are subject to change, possibly on a
retroactive
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basis. Any change of this nature could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting an owner of preferred securities.
The following discussion does not discuss the tax consequences that might
be relevant to persons that are not United States persons. Non-United States
persons should consult their own tax advisors as to the specific United States
federal income tax consequences of the purchase, ownership and disposition of
preferred securities.
The authorities on which this discussion is based are subject to various
interpretations and the opinions of counsel are not binding on the IRS or the
courts, either of which could take a contrary position. Moreover, no rulings
have been or will be sought from the IRS regarding the transactions described in
this prospectus. Accordingly, there can be no assurance that the IRS will not
challenge the opinions expressed in this discussion or that a court would not
sustain this type of challenge. It is therefore possible that the federal income
tax treatment of the purchase, ownership and disposition of preferred securities
may differ from the treatment described below.
SECURITYHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
PARTICULAR PERSONAL TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN
UNITED STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE
REDEMPTION OF THE PREFERRED SECURITIES IF A TAX EVENT OCCURS, SEE "DESCRIPTION
OF THE PREFERRED SECURITIES -- REDEMPTION -- MANDATORY AND OPTIONAL RIGHTS OF
FIRST WESTERN."
CLASSIFICATION OF FW CAPITAL I
In connection with the issuance of the preferred securities, counsel is of
the opinion that, under current law and assuming full compliance with the terms
of the trust agreement, and based on the facts and assumptions contained in the
opinion, FW Capital I will be classified as a grantor trust and not as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the preferred securities, a
securityholder, will be treated as owning an undivided beneficial interest in
the junior subordinated debentures. Accordingly, each securityholder will be
required to include in its gross income its pro rata share of the interest
income or original issue discount that is paid or accrued on the junior
subordinated debentures. See "-- Interest Income and Original Issue Discount."
No amount included in income regarding the preferred securities will be eligible
for the dividends received deduction.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
Counsel is of the opinion that the junior subordinated debentures will be
classified for United States federal income tax purposes as indebtedness of
First Western under current law, and, by acceptance of a preferred security,
each holder covenants to treat the junior subordinated debentures as
indebtedness and the preferred securities as evidence of an indirect beneficial
ownership interest in the junior subordinated debentures. No assurance can be
given, however, that this classification will not be challenged by the IRS or,
if challenged, that such a challenge will not be successful. The remainder of
this discussion assumes that the junior subordinated debentures will be
classified for United States federal income tax purposes as indebtedness of
First Western. See "Risk Factors -- You are subject to prepayment risk because
possible tax law changes could result in a redemption of the preferred
securities."
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the junior subordinated
debentures generally will be included in income by a securityholder at the time
the interest income is paid or accrued in accordance with the securityholder's
regular method of tax accounting.
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If First Western exercises its right to defer payments of interest on the
junior subordinated debentures, the junior subordinated debentures will become
original issue discount instruments, and the amount of original issue discount
would be equal to the aggregate of all future payments of interest on the junior
subordinated debentures. In this event, all securityholders would be required to
include the original issue discount on the junior subordinated debentures in
income on a daily economic accrual basis during the extension period, even
though First Western would not pay the interest until the end of the extension
period, and even though some securityholders may use the cash method of tax
accounting. Moreover, thereafter the junior subordinated debentures would be
taxed as original issue discount instruments for as long as they remained
outstanding. Thus, even after the end of the extension period, all
securityholders would be required to continue to include the original issue
discount on the junior subordinated debentures in income on a daily economic
accrual basis, regardless of their method of tax accounting and in advance of
receipt of the cash attributable to this interest income. In this event, actual
cash payments of interest on the junior subordinated debentures would not be
reported separately as taxable income.
In addition, First Western's option to defer the payment of interest on the
junior subordinated debentures during an extension period might cause the junior
subordinated debentures to be considered initially issued with original issue
discount. First Western believes, and will take the position, that this result
will not arise because of an exception in the treasury regulations that applies
when there is only a remote likelihood that a contingency, such as election to
defer, will occur. Assuming that the likelihood of an extension period is, in
fact, deemed remote, counsel believes that this position is correct. However,
the Treasury regulations described above have not yet been addressed in any
rulings or other definitive interpretations by the IRS. Therefore, there is not
a sufficient basis for counsel to express an opinion regarding whether or not an
election to defer will be deemed a remote contingency. It is possible that the
IRS could take a contrary position. If the IRS were to assert successfully that
the junior subordinated debentures were issued with original issue discount
regardless of whether First Western exercises its right to defer payments of
interest on the debentures, all securityholders would be required to include the
stated interest thereon in income on a daily economic accrual basis as described
above.
First Western does not anticipate that additional sums, as defined in the
indenture, will be paid. However, if additional sums are paid, they will be
taxable to the securityholder as ordinary income, generally as interest income.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by FW Capital I of the junior
subordinated debentures as described under the caption "Description of the
Preferred Securities -- Liquidation and Distribution Upon Termination" will be
non-taxable and will result in the securityholder receiving directly its pro
rata share of the junior subordinated debentures previously held indirectly
through FW Capital I, with a holding period and aggregate tax basis equal to the
holding period and aggregate tax basis the securityholder had in its preferred
securities before the distribution. If, however, the liquidation of FW Capital I
were to occur because FW Capital I is subject to United States federal income
tax regarding income accrued or received on the junior subordinated debentures
as a result of a tax event or otherwise, the distribution of junior subordinated
debentures to securityholders by FW Capital I would be a taxable event to FW
Capital I and each securityholder, and a securityholder would recognize gain or
loss as if the securityholder had sold or exchanged its preferred securities for
the junior subordinated debentures it received upon the liquidation of FW
Capital I. See "-- Sales or Redemption of Preferred Securities." A
securityholder would recognize interest income in respect of junior subordinated
debentures received from FW Capital I in the manner described above under
"-- Interest Income and Original Issue Discount."
SALES OR REDEMPTION OF PREFERRED SECURITIES
Gain or loss will be recognized by a securityholder on a sale of preferred
securities, including a redemption for cash, in an amount equal to the
difference between the amount realized, which for this purpose will exclude
amounts attributable to accrued interest or original issue discount not
previously included in income, and the securityholder's adjusted tax basis in
the preferred securities sold or so
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redeemed. A securityholder's adjusted tax basis will be its initial purchase
price, increased by any accrued original issue discount previously included in
the securityholder's gross income to the date of disposition, and decreased by
payments, other than stated interest on the junior subordinated debentures that
does not constitute original issue discount, received on the preferred
securities. Any gain or loss on the sale, exchange or retirement of the
preferred securities generally will be treated as capital gain or loss. In
general, amounts attributable to accrued interest regarding a securityholder's
pro rata share of the junior subordinated debentures not previously included in
income and which are excluded from the amount realized on a sale of preferred
securities and therefore not part of the calculation of gain or loss, will be
taxable as ordinary income. However, because there is conflicting authority
regarding whether or not a cash basis taxpayer is required to include in income
accrued interest in the event the preferred securities are sold for less than
their principal amount, counsel expresses no opinion regarding the need for
inclusion in income of accrued interest for a cash basis taxpayer in such an
event. The Internal Revenue Service Restructuring and Reform Act of 1998
provides that for taxpayers other than corporations, net capital gain, which is
defined as net long-term capital gain over net short-term capital loss for the
taxable year, realized from property, with limited exceptions, is subject to a
maximum marginal stated tax rate of 20%, or 10% in the case of taxpayers in the
lowest tax bracket. Capital gain or loss is long-term if the holding period for
the asset is more than one year, and is short-term if the holding period for the
asset is one year or less. Capital gains realized from assets held for one year
or less are taxed at the same rates as ordinary income. Subject to limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
Should First Western exercise its option to defer any payment of interest
on the junior subordinated debentures, the preferred securities may trade at a
price that does not fully reflect the value of accrued but unpaid interest on
the underlying junior subordinated debentures. In the event of a deferral under
the option, a securityholder that disposes of its preferred securities between
record dates for payments of distributions, and consequently does not receive a
distribution from FW Capital I for the period prior to the disposition, will
nevertheless be required to include in income accrued original issue discount on
the junior subordinated debentures through the date of disposition and will add
this amount to its adjusted tax basis in its preferred securities. The
securityholder will recognize a capital loss on the disposition of its preferred
securities to the extent the selling price, which may not fully reflect the
value of accrued but unpaid original issue discount, is less than the
securityholder's adjusted tax basis in the preferred securities, which will
include accrued but unpaid original issue discount that has been included in
income. As stated previously, subject to limited exceptions, capital losses
cannot be applied to offset ordinary income for United States federal income tax
purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest paid or original issue discount accrued, if any, on
the junior subordinated debentures, beneficial ownership of which is reflected
in the preferred securities held of record by United States persons, other than
corporations and other exempt securityholders, will be reported to the Service.
Generally, income on the preferred securities will be reported to
securityholders on Form 1099, which form should be mailed to securityholders by
January 31 following each calendar year. Proposed regulations, if adopted, could
alter the information reporting requirements which must be made to both the IRS
and the securityholders. Backup withholding at a rate of 31% will apply to
payments of interest to non-exempt United States persons unless the
securityholder furnishes its taxpayer identification number in the manner
prescribed in applicable Treasury regulations, certifies that the number is
correct, certifies as to no loss of exemption from backup withholding and meets
other conditions. Any amounts withheld from a securityholder under the backup
withholding rules will be allowed as a refund or a credit against the
securityholder's United States federal income tax liability, provided the
required information is furnished to the Service. Payment of the proceeds from
the disposition of preferred securities to or through the United States office
of a broker is subject to information reporting and backup withholding unless
the securityholder or beneficial owner establishes an exemption from information
reporting and backup withholding.
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POSSIBLE TAX LAW CHANGES AFFECTING PREFERRED SECURITIES
Legislative proposals were made in 1996 and 1997, which if enacted, could
have adversely affected the ability of First Western to deduct interest paid on
the junior subordinated debentures. Although these proposals were not enacted,
there can be no assurance that future legislative proposals or final legislation
will not affect the ability of First Western to deduct interest on the junior
subordinated debentures or otherwise adversely affect the tax treatment of the
transactions described in this prospectus. A change of this nature could give
rise to a tax event, which may permit First Western to cause a redemption of the
Trust preferred securities. Prospective investors should also be aware that a
petition was recently filed in the United States Tax Court as a result of a
challenge by the IRS of a taxpayer's treatment as indebtedness of a security
issued with characteristics similar to the junior subordinated debentures. If
this matter is litigated to a conclusion and the IRS's position on this matter
is sustained, such a judicial determination could constitute a tax event which
could result in an early redemption of the preferred securities. See "Risk
Factors -- You are subject to prepayment risk because possible tax law changes
could result in a redemption of the preferred securities," "Description of the
Preferred Securities -- Redemption -- Mandatory and Optional Rights of First
Western" and "Description of Junior Subordinated Debentures -- Redemption."
ERISA CONSIDERATIONS
Employee benefit plans that are subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), or Section 4975 of the Code, generally
may purchase preferred securities subject to the investing fiduciary's
determination that the investment in preferred securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by the
Plan.
However, First Western and any of its affiliates may be considered a party
in interest, within the meaning of Section 3(14) of ERISA, or a disqualified
person, within the meaning of Section 4975 of the Code, regarding plans
maintained or sponsored by, or contributed to by, First Western or an affiliate,
or regarding which First Western or an affiliate is a fiduciary, or plans for
which First Western or an affiliate provide services. The acquisition and
ownership of preferred securities by an individual retirement arrangement or
other Plan described in Section 4975(e)(1) of the Code, regarding which First
Western or any of its affiliates is considered a party in interest or a
disqualified person, may constitute or result in a prohibited transaction under
ERISA or Section 4975 of the Code, which could give rise to the imposition of
substantial taxes unless the preferred securities are acquired under and in
accordance with an applicable exemption.
As a result, plans regarding which First Western and/or any of its
affiliates is a party in interest or a disqualified person should not acquire
preferred securities unless the preferred securities are acquired under and in
accordance with an applicable exemption. Any plans or entities whose assets
include Plan assets subject to ERISA or Section 4975 of the Code proposing to
acquire preferred securities should consult with their own counsel.
81
<PAGE> 84
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
First Western, FW Capital I and the underwriters listed on the table below for
whom Howe Barnes Investments, Inc. is acting as representative, the underwriters
have severally agreed to purchase from FW Capital I an aggregate of 2,000,000
preferred securities in the amounts set forth below opposite their respective
names.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF PREFERRED SECURITIES
------------ ------------------------------
<S> <C>
Howe Barnes Investments, Inc. ..............................
---------
Total............................................. 2,000,000
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
underwriters are committed to accept and pay for all of the preferred
securities, if any are taken.
FW Capital I has granted to the underwriters an option, exercisable within
30 days after the date of this prospectus to purchase up to an additional
300,000 preferred securities at the same price per preferred security to be paid
by the underwriters for the other preferred securities offered hereby. If the
underwriters purchase any of the additional preferred securities under this
option, each Underwriter will be committed to purchase the additional shares in
approximately the same proportion as set forth in the table above. The
underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the
preferred securities offered hereby.
The table below shows the price and proceeds on a per security and
aggregate basis. The proceeds to be received by FW Capital I as shown in the
table below do not reflect estimated expenses of $350,000 payable by First
Western
<TABLE>
<CAPTION>
PER PREFERRED SECURITY TOTAL
---------------------- -----------
<S> <C> <C>
Price to Investors............................ $10 $20,000,000
Proceeds to FW Capital I...................... $10 $20,000,000
</TABLE>
All of the proceeds to FW Capital I will be used to purchase the junior
subordinated debentures from First Western. First Western has agreed to pay the
underwriters $ per preferred security, or a total of $ , as
compensation for arranging the investment in the junior subordinated debentures.
Should the underwriters exercise the over-allotment option, an aggregate of
$ will be paid to the underwriters for arranging the investment in the
junior subordinated debentures.
The underwriters propose to offer the preferred securities in part directly
to the public at the initial public offering price set forth on the cover page
of this prospectus, and in part to securities dealers at this price less a
concession not in excess of $ per preferred security. The underwriters may
allow, and the dealers may reallow, a concession not in excess of $ per
preferred security to brokers and dealers. After the preferred securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the underwriters.
First Western and FW Capital I have agreed to indemnify the several
underwriters against several liabilities, including liabilities under the
Securities Act of 1933.
In connection with the offering, the underwriters may purchase and sell the
preferred securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the offering. Stabilizing
transactions consist of bids or purchases for the purpose of preventing or
retarding a decline in the market price of the preferred securities; and
syndicate short positions involve the sale by the underwriters of a greater
number of securities than they are required to purchase from First Western in
the offering. The underwriters also may
82
<PAGE> 85
impose a penalty bid, whereby selling concessions allowed to syndicate members
or other broker-dealers in respect of the securities sold in the offering for
their account may be reclaimed by the syndicate if the preferred securities are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Securities, which may be higher than the price that might otherwise prevail in
the open market. These activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
The underwriters have advised FW Capital I that they do not intend to
confirm any sales of preferred securities to any discretionary accounts. In
connection with the offer and sale of the preferred securities, the underwriters
will comply with Rule 2810 under the NASD Conduct Rules.
REPORTS OF FIRST WESTERN
First Western intends to furnish you with annual reports containing its
audited consolidated financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
Prior to this offering, First Western has not been a reporting company with the
Securities and Exchange Commission.
AVAILABLE INFORMATION
First Western and FW Capital I have filed electronically with the
Commission through EDGAR a registration statement on Form SB-2 in accordance
with the requirements of the Securities Act of 1933 registering the preferred
securities. This prospectus does not contain all of the information set forth in
the registration statement and in the exhibits attached. Some items were omitted
in accordance with the rules and regulations of the Commission. Anyone may
inspect the registration statement without charge at the public reference
facilities of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 and
may obtain copies of all or any part of it from the Commission upon payment of
the required fees. Statements contained in this prospectus which refer to a
document filed as an exhibit to the registration statement are qualified in
their entirety by reference to the copy of that document. The registration
statement may also be reviewed on the Commission's Web Site at
HTTP://WWW.SEC.GOV.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the preferred
securities, the enforceability of the trust agreement and the formation of FW
Capital I will be passed upon by Richards, Layton & Finger, P.A., Wilmington,
Delaware, special Delaware counsel to First Western and FW Capital I. The
validity of the preferred securities guarantee and the junior subordinated
debentures will be passed upon for First Western by Jones & Keller, P.C.,
Denver, Colorado, counsel to First Western. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Chapman and
Cutler, Chicago, Illinois. Jones & Keller, P.C. and Chapman and Cutler will rely
on the opinions of Richards, Layton & Finger, P.A., as to matters of Delaware
law. Certain matters relating to United States federal income tax consequences
will be passed upon for First Western by Jones & Keller, P.C.
EXPERTS
The consolidated financial statements of First Western in this prospectus
as of December 31, 1997 and for each of the years in the two-year period ended
December 31, 1997 have been included in this prospectus in reliance upon the
report of Clifton Gunderson L.L.C., independent certified public accountants,
appearing elsewhere in this prospectus, and upon the authority of this firm as
experts in accounting and auditing.
83
<PAGE> 86
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Income........................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 87
INDEPENDENT AUDITOR'S REPORT
Board of Directors
First Western Corp.
Northglenn, Colorado
We have audited the consolidated balance sheet of First Western Corp. and
Subsidiaries as of December 31, 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Western Corp. and Subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
CLIFTON GUNDERSON L.L.C.
Denver, Colorado
October 23, 1998
F-2
<PAGE> 88
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 14,449 $ 10,427
Interest bearing deposits in other banks.................... 6 149
Federal funds sold.......................................... 12,480 11,310
Investment securities:
Available-for-sale, at fair value......................... 35,110 15,470
Held-to-maturity, at amortized cost, fair value of $9,344,
in 1998 and $13,125, in 1997........................... 9,241 13,042
-------- --------
Total investment securities....................... 44,351 28,512
Loans held for sale......................................... 5,312 4,182
Gross loans receivable:..................................... 249,104 166,059
Less: unearned loan fees.................................. (757) (432)
allowance for loan losses........................... (1,592) (1,321)
-------- --------
Net loans receivable.............................. 246,755 164,306
Premises and equipment, net................................. 7,408 5,117
Other assets................................................ 4,732 3,597
-------- --------
TOTAL ASSETS...................................... $335,493 $227,600
======== ========
LIABILITIES
Deposits:
Demand non-interest bearing............................... $ 40,132 $ 32,238
Demand interest bearing................................... 12,887 12,558
Time...................................................... 241,025 155,498
-------- --------
Total deposits.................................... 294,044 200,294
Securities sold under agreements to repurchase.............. 2,588 2,072
Note payable................................................ 5,800 3,380
Federal Home Loan Bank borrowings........................... 8,500 1,000
Other liabilities........................................... 4,031 3,283
-------- --------
Total liabilities................................. 314,963 210,029
Minority interest in consolidated subsidiaries.............. 662 660
STOCKHOLDERS' EQUITY
Common stock $1.00 par value; 500,000 shares authorized;.... 140 140
140,000 shares issued and outstanding
Surplus..................................................... 697 697
Retained earnings........................................... 19,038 16,085
Unrealized loss on securities available-for-sale, net of
taxes..................................................... (7) (11)
-------- --------
Total stockholders' equity........................ 19,868 16,911
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $335,493 $227,600
======== ========
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying notes to consolidated financial statements.
F-3
<PAGE> 89
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------
1998 1997 1997 1996
------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees.............................. $16,808 $ 9,593 $13,860 $ 5,686
Taxable investment securities...................... 775 908 1,173 1,273
Nontaxable investment securities................... 369 328 447 506
Dividends on investment securities................. 56 33 47 19
Federal funds sold................................. 693 412 690 417
Other interest..................................... 14 34 46 7
------- -------- ------- --------
Total interest income...................... 18,715 11,308 16,263 7,908
------- -------- ------- --------
Interest expense:
Deposits........................................... 8,185 4,749 6,986 2,959
Federal funds purchased............................ 8 42 45 11
Securities sold under agreements to repurchase..... 75 87 113 150
Note payable....................................... 182 49 113 --
Federal Home Loan Bank borrowings.................. 305 182 224 --
------- -------- ------- --------
Total interest expense..................... 8,755 5,109 7,481 3,120
------- -------- ------- --------
Net interest income........................ 9,960 6,199 8,782 4,788
Provision for loan losses............................ 180 110 140 15
------- -------- ------- --------
Net interest income after provision for loan
losses............................................. 9,780 6,089 8,642 4,773
------- -------- ------- --------
Other income:
Fees for other customer services................... 726 555 761 627
Net gains from sale of loans....................... 716 475 625 232
Commissions and fees from brokerage activities..... 133 13 29 15
Investment securities transactions, net............ (3) -- -- 196
Other operating income............................. 409 162 293 181
------- -------- ------- --------
Total other income......................... 1,981 1,205 1,708 1,251
------- -------- ------- --------
Other expenses:
Salaries and employee benefits..................... 3,545 2,172 3,296 1,950
Net occupancy expense of premises.................. 1,107 652 989 464
Purchased services................................. 906 627 842 327
Office supplies.................................... 233 126 182 137
Minority interest in income of consolidated
subsidiaries.................................... 93 86 101 184
Other operating expenses........................... 1,159 751 1,134 687
------- -------- ------- --------
Total other expenses....................... 7,043 4,414 6,544 3,749
------- -------- ------- --------
Income before income taxes................. 4,718 2,880 3,806 2,275
Income tax expense................................... 1,765 919 1,309 705
------- -------- ------- --------
NET INCOME........................................... $ 2,953 $ 1,961 $ 2,497 $ 1,570
======= ======== ======= ========
Income per share:
Basic and diluted earnings per share................. $ 21.09 $ 14.89 $ 18.67 $ 12.56
======= ======== ======= ========
Weighted average shares outstanding................ 140,000 131,667 133,750 125,000
======= ======== ======= ========
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying notes to consolidated financial statements.
F-4
<PAGE> 90
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
SECURITIES
AVAILABLE-FOR-
COMMON RETAINED SALE, NET OF
STOCK SURPLUS EARNINGS TAXES TOTAL
------ ------- -------- -------------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996................. $125 $ 80 $12,018 $ 59 $12,282
Net income for the year.................... -- -- 1,570 -- 1,570
Net change in unrealized gain (loss)....... -- -- -- (103) (103)
---- ---- ------- ----- -------
Balance at December 31, 1996............... 125 80 13,588 (44) 13,749
Net income for the year.................... -- -- 2,497 -- 2,497
Issuance of 15,000 shares in exchange for
minority shares of Firstate Bank of
Colorado................................. 15 617 -- -- 632
Net change in unrealized gain (loss)....... -- -- -- 33 33
---- ---- ------- ----- -------
Balance at December 31, 1997............... 140 697 16,085 (11) 16,911
Net income for the period (unaudited)...... -- -- 2,953 -- 2,953
Net change in unrealized gain (loss)
(unaudited).............................. -- -- -- 4 4
---- ---- ------- ----- -------
Balance at September 30, 1998
(unaudited).............................. $140 $697 $19,038 $ (7) $19,868
==== ==== ======= ===== =======
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-5
<PAGE> 91
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------- -------------------
1998 1997 1997 1996
--------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,953 $ 1,961 $ 2,497 $ 1,570
Adjustments to reconcile net income to cash provided by
operating activities:
Provision for loan losses............................. 180 110 140 15
Provision for losses on other real estate owned....... -- 76 76 --
Depreciation and amortization......................... 493 256 426 189
Net gains from sale of loans.......................... (716) (475) (625) (232)
Proceeds from sale of loans held for sale............. 40,660 18,649 27,225 7,471
Origination of loans held for sale.................... (41,074) (19,442) (29,800) (8,221)
Investment securities transactions, net............... 3 -- -- (196)
Increase in minority interest in consolidated
subsidiaries........................................ 2 8 23 89
Changes in deferrals and accruals:
Other assets.......................................... (545) (435) (449) 107
Other liabilities..................................... 740 3,631 3,375 247
--------- -------- -------- --------
Net cash provided by operating activities........... 2,696 4,339 2,888 1,039
--------- -------- -------- --------
Cash flows from investing activities:
Net (increase) decrease in federal funds sold............. (1,170) (9,395) 1,710 (6,805)
Net (increase) decrease in interest bearing deposits in
other banks............................................. 143 -- (50) 5
Purchase of investment securities available-for-sale...... (90,942) (315) (1,643) (2,224)
Purchase of investment securities held-to-maturity........ -- (1,543) (765) (2,892)
Proceeds from sale of investment securities
available-for-sale...................................... 30,154 250 250 3,065
Proceeds from maturities/paydowns of investment
securities.............................................. 44,956 5,136 6,681 5,065
Net increase in loans..................................... (83,267) (48,932) (67,275) (23,112)
Expenditures for bank premises and equipment.............. (2,734) (2,388) (2,466) (252)
Proceeds from sale of real estate owned................... -- 256 256 --
Purchase of savings bank, net of $3,897 of cash and due
from banks acquired..................................... -- 154 154 --
--------- -------- -------- --------
Net cash used in investing activities............... (102,860) (56,777) (63,148) (27,150)
--------- -------- -------- --------
Cash flows from financing activities:
Net increase in deposits.................................. 93,750 59,621 71,936 23,347
Net increase (decrease) in securities sold under
agreements to repurchase................................ 516 (5,144) (5,941) 3,963
Advances from Federal Home Loan Bank...................... 7,500 -- 1,000 --
Payments on Federal Home Loan Bank advances............... -- (1,800) (6,800) --
Proceeds from note payable................................ 3,850 2,400 3,380 --
Payments on note payable.................................. (1,430) -- -- --
--------- -------- -------- --------
Net cash provided by financing activities........... 104,186 55,077 63,575 27,310
--------- -------- -------- --------
Net increase in cash and due from banks..................... 4,022 2,639 3,315 1,199
Cash and due from banks at beginning of period.............. 10,427 7,112 7,112 5,913
--------- -------- -------- --------
Cash and due from banks at end of period.................... $ 14,449 $ 9,751 $ 10,427 $ 7,112
========= ======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................ $ 8,631 $ 3,593 $ 5,028 $ 2,978
Income taxes............................................ 1,444 752 1,137 671
Noncash transactions:
Conversion of loans to other real estate owned.......... 761 197 197 10
Issuance of shares for minority interest of Firstate
Bank of Colorado...................................... -- 632 632 --
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-6
<PAGE> 92
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
First Western Corp. (the Company) was incorporated for the purposes of
owning shares of and acting as the parent holding company for Firstate Bank (the
Nebraska Bank) and Firstate Bank of Colorado (the Colorado Bank) (collectively
referred to as the "Banks"). The Banks provide a full range of banking services
to individual and corporate customers principally in the west and central
Nebraska and the Denver-northern Colorado areas. A majority of the Company's
loans are related to real estate and commercial activities. The Company is
subject to competition from other financial institutions for loans and deposit
accounts. The Company and the Banks are also subject to regulation by certain
governmental agencies and undergo periodic examinations by those regulatory
agencies.
Basis of Financial Statement Presentation and Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses.
In connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties and
assesses estimated future cash flows from borrowers' operations and the
liquidation of loan collateral.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, changes in
economic conditions may necessitate revisions in future years. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowance for loan losses. Such agencies may
require the Banks to recognize additional losses based on their judgments about
information available to them at the time of their examination.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its respective subsidiaries. The Company currently owns 100% of Firstate
Bank of Colorado (having acquired the minority interest in a May, 1997 exchange
of stock,) and First Mortgage Bancorp. The Company also owns 91.4% of Firstate
Bank (Kimball, Nebraska). All material intercompany transactions and balances
have been eliminated in consolidation.
Interim Financial Information (Unaudited)
The unaudited interim financial statements have been prepared in conformity
with generally accepted accounting principles and include all adjustments which
are, in the opinion of management, normal and recurring in nature and necessary
to a fair presentation of the interim periods presented. Results of operations
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year.
Cash Equivalents
For purposes of the Statements of Cash Flows, the Company has defined cash
equivalents as those amounts included in the balance sheet caption "Cash and Due
from Banks".
F-7
<PAGE> 93
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investment Securities
Management determines the classification of debt securities at the time of
purchase. Debt securities are classified as held-to-maturity when the Banks have
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a component of
stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity or, in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization and accretion is included as
an adjustment to interest income from investments. Realized gains and losses and
declines in value judged to be other-than-temporary are included in investment
securities transactions, net in the Statements of Income. The cost of securities
sold is based on the specific identification method.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
Loans Receivable
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan fees which represent adjustments to interest yield are deferred and
amortized over the estimated life of the loan. Most of the loans originated by
the Company are short-term.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely or, with respect to consumer installment loans, according to an
established delinquency schedule. The allowance is an amount that management
believes will be adequate to absorb losses inherent in existing loans and
commitments to extend credit, based on evaluations of the collectibility and
prior loss experience of loans and commitments to extend credit. The evaluations
take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans and commitments, and current and anticipated economic conditions that may
affect the borrowers' ability to pay.
F-8
<PAGE> 94
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's original effective interest rate. As a
practical expedient, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
Premises and Equipment
Premises, including leasehold improvements, and equipment are stated at
cost. Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives, principally
on the straight-line method.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, management periodically
performs valuations and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expense from operations and
changes in the valuation allowance are included in other operating expenses.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for
the current year (after exclusion of non-taxable income such as interest on
state and municipal securities) and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements. Deferred tax assets and liabilities are
included in the consolidated financial statements at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Per Share Computations
Basic earnings per share is based on the weighted average number of common
shares outstanding during each period presented. The Company had no
dilutive-potential common shares and therefore basic earnings per share equals
diluted earnings per share.
Operating Segments
The Company adopted Financial Accounting Standards Board Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information, (SFAS No.
131) effective January 1, 1998. This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting called "management
approach". The management approach is based on the way the chief operating
decision-maker organizes segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure and any other in
which management disaggregates a company. Based on the "management approach"
model, the Company has determined that its business is comprised of a single
operating segment and that SFAS No. 131 therefore has no impact on its
consolidated financial statements.
F-9
<PAGE> 95
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- ACQUISITIONS
In February 1997, the Company acquired 100% of First Northern Holdings,
L.T.D. and the remaining 18.5% minority interest not owned by it in First
Northern Savings Bank, Greeley, Colorado. The purchase price, approximately $3.8
million, was paid in cash. The excess purchase price over the fair value of the
net assets acquired (goodwill) of $966,000 is being amortized over a
fifteen-year period from the date of purchase. Both locations of First Northern
Savings Bank immediately became branches of Firstate Bank of Colorado and added
approximately $33 million in assets to the Company.
In May 1997, the Company exchanged 15,000 shares of its common stock for
the 18.2% of Firstate Bank of Colorado that it did not own. Such minority shares
were owned by individuals already affiliated with the Company. As the Company
and its two shareholders at the time of the exchange owned 98.4% of the Colorado
Bank and the remaining 1.6% was owned by Board members of Company, it was
determined by the Boards of both entities that a book value exchange ratio
represented a fair value for all parties. The fair value determined for this
transaction was $632,000. No goodwill was recognized in connection with this
transaction.
Following their respective acquisition dates, the Company included the
results of operations of both of the above indicated acquisitions in its
Consolidated Statements of Income.
NOTE 3 -- INVESTMENT SECURITIES
At December 31, 1997, the Company had securities with the following
amortized cost and estimated fair values (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SECURITIES HELD-TO-MATURITY COST GAINS LOSSES FAIR VALUE
- --------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury & agency securities.................. $ 5,807 $ -- $21 $ 5,786
State and political securities..................... 7,235 104 -- 7,339
------- ---- --- -------
$13,042 $104 $21 $13,125
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
SECURITIES HELD-TO-MATURITY COST GAINS LOSSES FAIR VALUE
- --------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury & agency securities.................. $12,028 $ -- $42 $11,986
State and political securities..................... 1,587 24 -- 1,611
Other bonds........................................ 200 1 -- 201
Equity securities.................................. 1,672 -- -- 1,672
------- ---- --- -------
$15,487 $ 25 $42 $15,470
======= ==== === =======
</TABLE>
F-10
<PAGE> 96
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and estimated fair value of debt securities at December
31, 1997, by contractual maturity, are shown below (in thousands). Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less........................... $ 4,316 $ 4,303 $ 8,800 $ 8,779
Due after one year through five years............. 3,668 3,679 3,570 3,562
Due after five years through ten years............ 2,520 2,543 645 640
Due after ten years............................... 2,538 2,600 800 817
------- ------- ------- -------
$13,042 $13,125 $13,815 $13,798
======= ======= ======= =======
</TABLE>
Securities included in the accompanying Consolidated Balance Sheet at
December 31, 1997 with an amortized cost of $14,071,044 are pledged as
collateral for public deposits and for other purposes as required or permitted
by law.
Gross realized losses of $37 on sales of securities available-for-sale were
recognized in 1997. Gross realized gains and gross realized losses on sales of
securities available-for-sale respectively were $212,107 and $15,747 in 1996.
NOTE 4 -- LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The components of the loan portfolio are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Commercial, financial and agricultural...................... $ 50,070 $ 41,500
Real estate construction.................................... 68,624 37,235
Real estate mortgage........................................ 120,850 79,499
Installment loans to individuals............................ 9,393 7,693
Other....................................................... 167 132
-------- --------
249,104 166,059
Less unearned loan fees..................................... (757) (432)
Less allowance for loan losses.............................. (1,592) (1,321)
-------- --------
$246,755 $164,306
======== ========
</TABLE>
The Company had no foreign loans outstanding at December 31, 1997 or
September 30, 1998 (unaudited.)
F-11
<PAGE> 97
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions in the allowance for loan losses are as follows (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS YEARS ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, -------------
1998 1997 1996
------------- ------ ----
(UNAUDITED)
<S> <C> <C> <C>
Balance at beginning of period.......................... $1,321 $ 851 $767
Provision for loan losses............................... 180 140 15
Acquisition of savings bank allowance................... -- 277 --
Recoveries.............................................. 159 111 91
Loans charged off....................................... (68) (58) (22)
------ ------ ----
Balance at end of period................................ $1,592 $1,321 $851
====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------
1998 1997 1996
------------- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
Outstanding principal balance of accruing loans having
payments delinquent more than ninety days................ $279 $744 $22
Loans on which the accrual of interest has been
discontinued or reduced.................................. $414 $484 $93
</TABLE>
The average investments in impaired loans were $ 329,000 and $ 89,000
during the years ended December 31, 1997 and 1996, respectively. Interest income
on impaired loans recognized for cash payments received during these years was
not significant. The portion of the allowance for loan losses related to
impaired loans was $36,000 and $3,000 at December 31, 1997 and 1996,
respectively.
The Company is not committed to lend funds to debtors whose loans have been
modified.
NOTE 5 -- PREMISES AND EQUIPMENT
At December 31, 1997, premises and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
ACCUMULATED
DEPRECIATION
AND NET
COST AMORTIZATION AMOUNT
------ ------------ ------
<S> <C> <C> <C>
Buildings & improvements................................ $3,593 $ 422 $3,171
Leasehold improvements.................................. 446 89 357
Equipment............................................... 2,378 1,633 745
Land.................................................... 844 -- 844
------ ------ ------
$7,261 $2,144 $5,117
====== ====== ======
</TABLE>
F-12
<PAGE> 98
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DEPOSITS
At September 30, 1998 (unaudited), the scheduled remaining maturities of
time deposits with stated maturities are as follows (in thousands):
<TABLE>
<CAPTION>
DEPOSIT CATEGORY
----------------------------------
UNDER $100,000 $100,000 OR MORE TOTAL
-------------- ---------------- --------
<S> <C> <C> <C>
Three months or less....................... $ 22,526 $ 8,885 $ 31,411
Over three months through 12 months........ 81,081 22,125 103,206
Over one year through three years.......... 57,973 11,539 69,512
Over three years........................... 119 -- 119
No stated maturity......................... -- -- 36,777
-------- ------- --------
$161,699 $42,549 $241,025
======== ======= ========
</TABLE>
At December 31, 1997, the scheduled remaining maturities of time deposits
with stated maturities were as follows (in thousands):
<TABLE>
<CAPTION>
DEPOSIT CATEGORY
----------------------------------
UNDER $100,000 $100,000 OR MORE TOTAL
-------------- ---------------- --------
<S> <C> <C> <C>
Three months or less....................... $ 23,311 $ 9,356 $ 32,667
Over three months through 12 months........ 48,190 12,388 60,578
Over one year through three years.......... 30,225 3,615 33,840
Over three years........................... 239 -- 239
No stated maturity......................... -- -- 28,174
-------- ------- --------
$101,965 $25,359 $155,498
======== ======= ========
</TABLE>
NOTE 7 -- SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The securities underlying the repurchase agreements are held by an agent of
the Banks and are under the control of the Banks.
Information concerning the repurchase agreements is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Average daily balance............................... $2,274 $2,387
Period end balance.................................. 2,588 2,072
Average interest rate............................... 4.44% 4.72%
</TABLE>
NOTE 8 -- NOTE PAYABLE
The Company maintained a revolving line of credit with the National Bank of
Commerce in the amount of $5,000,000 at December 31, 1997. The outstanding
balance at December 31, 1997 was $3,380,000. The repayment schedule requires
semi-annual interest payments with the principal due at maturity (June 30,
2002). Interest is calculated at 250 basis points over the like "CMT" treasury
(7.91 percent at December 31, 1997). The note is secured by 91 percent of the
outstanding common stock of
F-13
<PAGE> 99
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Firstate Bank (Kimball, Nebraska) and is guaranteed by a principal stockholder
of the Company. The loan agreement also calls for the Company to maintain the
following minimum financial ratios:
Maintain or cause each of its bank subsidiaries to maintain:
(i) for Company, not less than a 6.5% tangible equity capital-to-asset
ratio and
(ii) for each of its subsidiary banks, not less than a 6.0% tangible
equity capital-to-asset ratio
On February 25, 1998 the revolving line of credit was modified to increase
the maximum principal balance from $5,000,000 to $10,000,000 and to add as
collateral 100% of the outstanding common stock of Firstate Bank of Colorado. At
September 30, 1998, the Company has $5,800,000 (unaudited) borrowed against this
line of credit.
NOTE 9 -- FEDERAL HOME LOAN BANK BORROWINGS
As of December 31, 1997, the Banks had available lines of credit totaling
$9,731,000 with the Federal Home Loan Bank (FHLB) secured by FHLB capital stock
and qualifying first mortgage residential loans. The advances outstanding at
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT MATURITY DATE INTEREST RATE
- ------ ------------- -------------
<C> <S> <C>
$1,000 November 23, 1998........................................ 5.90%
</TABLE>
The advances outstanding at September 30, 1998 (unaudited) are as follows
(in thousands):
<TABLE>
<CAPTION>
AMOUNT MATURITY DATE INTEREST RATE
- ------ ------------- -------------
<S> <C> <C>
$1,000 November 23, 1998........................................ 5.52%
2,500 February 2, 2001......................................... 5.74%
5,000 January 31, 2003......................................... 5.81%
- ------
$8,500
- ------
- ------
</TABLE>
NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONTINGENT LIABILITIES
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit.
Those instruments involve, to a varying degree, elements of credit risk in
excess of the amount recognized in the consolidated balance sheet. The contract
amounts of those instruments reflect the extent of involvement the Banks have in
particular classes of financial instruments.
The Banks' exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
stand-by letters of credit is represented by the contractual notional amount of
those instruments. The Banks use the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are as
follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
Commitments to extend credit........................ $86,346 $56,010
Stand-by letters of credit.......................... $ 3,161 $ 2,139
</TABLE>
F-14
<PAGE> 100
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments may expire
without being drawn upon or be participated to other financial institutions, the
total commitment amounts do not necessarily represent future cash requirements.
The Banks evaluate each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Banks upon
extension of credit is based on management's credit evaluation. Collateral held
varies, but may include accounts receivable, inventory, property, plant and
equipment and income-producing commercial properties.
Stand-by letters of credit are conditional commitments issued by the Banks
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In the normal course of business there are outstanding various contingent
liabilities, such as claims and legal actions, which are not reflected in the
accompanying consolidated financial statements. Management believes, based on
consultation with counsel, that liabilities arising from these proceedings, if
any, will not be material to the Company's consolidated financial position.
NOTE 11 -- LEASE COMMITMENTS
Firstate Bank of Colorado leases various office and ATM space under
noncancelable operating leases. Future minimum lease payments under these
leases, expiring at various dates through 2008, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998................................................... $ 384
1999................................................... 495
2000................................................... 435
2001................................................... 419
2002................................................... 432
Thereafter............................................. 2,017
------
$4,182
======
</TABLE>
Total lease expense for all operating leases was $241,866 and $169,359 for
the years ended December 31, 1997 and 1996, respectively.
NOTE 12 -- INCOME TAXES
Deferred tax assets and liabilities are recorded based on the differences
between financial statement and tax basis of assets and liabilities and the tax
rates in effect when these differences are expected to reverse.
F-15
<PAGE> 101
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences in the recognition of revenue and expense for tax and
financial reporting purposes resulted in net deferred tax assets as of December
31, 1997 as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets
Provision for loan losses................................. $ 13
Depreciation.............................................. 133
Unrealized loss on securities available-for-sale.......... 6
----
Total deferred tax assets......................... $152
Deferred tax liabilities.................................... --
----
Net deferred tax assets........................... $152
====
</TABLE>
The effective income tax rate varies from the statutory federal rate
because of several factors, the most significant being nontaxable interest
income earned on obligations of state and political subdivisions. The following
table reconciles the Company's effective tax rate to the statutory federal rate
(dollars in thousands).
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Tax expense at statutory rate.............................. $1,294 34.0% $ 773 34.0%
Increase (decrease) in taxes due to:
Tax exempt municipal interest......................... (142) (3.7)% (167) (7.3)%
State tax............................................. 81 2.1% 17 0.7%
Other................................................. 76 2.0% 82 3.6%
------ ---- ----- ----
Total income tax expense......................... $1,309 34.4% $ 705 31.0%
====== ==== ===== ====
</TABLE>
The consolidated provision for income taxes consisted of the following for
the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ----
<S> <C> <C>
Current tax provision:
Federal................................................... $1,191 $679
State..................................................... 123 26
------ ----
1,314 705
Deferred federal............................................ (5) --
------ ----
$1,309 $705
====== ====
</TABLE>
NOTE 13 -- RELATED PARTIES
The Company has sold loan participations to related parties (stockholders,
directors, family members, businesses related through common ownership). At
December 31, 1997 and 1996, the participations sold to related parties were
approximately $1.4 million and $1.1 million, respectively. As of September 30,
1998, participations sold to related parties were approximately $1.0 million
(unaudited).
In accordance with the terms of management agreements, the Company and each
of its three subsidiaries purchase services from Western Management Corporation,
a corporation owned by a principal stockholder. Such agreements are annually
renewable and are on terms that the Company believes would be similar to those
obtained from an unaffiliated party. The purchased services include strategic
planning, tax planning and budgeting, business development, marketing, etc.
F-16
<PAGE> 102
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts expensed by the Company and its subsidiaries are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
NINE MONTHS ENDED ---------------
SEPTEMBER 30, 1998 1997 1996
- ------------------ ------ ------
(UNAUDITED)
<S> <C> <C>
$74.5 $167.0 $145.5
</TABLE>
In 1995, the Vice Chairman of the Company sold assets of a mortgage company
to the Company for a purchase price of $100,000 to be paid out of future profits
generated by mortgage operations relating to those assets. Through September 30,
1998, payments under the terms of this agreement totaled $82,000 (unaudited).
The Company believes that this transaction was made on terms similar to those
that would have been obtained with an unaffiliated party.
The Company had no loans outstanding to related parties at December 31,
1997 or September 30, 1998 (unaudited).
NOTE 14 -- EMPLOYEE BENEFITS
The Company participates in a multiple-employer 401(k) profit sharing plan
involving other companies of its primary shareholder. The plan is available for
all Company personnel who have been employed for one year. Employees may
contribute up to 10% of their compensation with the Company's discretionary
matching within the limits defined for a 401(k) Plan.
Contributions in 1997 and 1996 were $19,341 and $15,817, respectively.
NOTE 15 -- COMPREHENSIVE INCOME
The Financial Accounting Standards Board (FASB) has issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for the fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting and display of comprehensive income and its components (revenue,
expenses, gains and losses) in a full set of general purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company adopted SFAS No. 130 on January 1, 1998,
and all annual required disclosures will be included beginning with the year end
1998 consolidated financial statements.
The Company's comprehensive income is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
NINE MONTHS ENDED ---------------
SEPTEMBER 30, 1998 1997 1996
------------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Net income......................................... $2,953 $2,497 $1,570
Other comprehensive income, net of tax-unrealized
gain (loss) on available-for-sale securities
Unrealized gain (loss) arising during the
period........................................ 4 33 (103)
Reclassification adjustment for net (gain) loss
realized in net income........................ 1 -- (129)
------ ------ ------
Subtotal........................................... 5 33 (232)
------ ------ ------
Comprehensive income............................... $2,958 $2,530 $1,338
====== ====== ======
</TABLE>
F-17
<PAGE> 103
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments. The Company
operates as a going concern and, except for its investment portfolio, no active
market exists for its financial instruments. Much of the information used to
determine fair value is highly subjective and judgmental in nature and,
therefore, the results may not be precise. The subjective factors include, among
other things, estimates of cash flows, risk characteristics, credit quality and
interest rates, all of which are subject to change. Since the fair value is
estimated as of the balance sheet date, the amounts which will actually be
realized or paid upon settlement or maturity of the various financial
instruments could be significantly different.
Cash and Due From Banks, Interest Bearing Deposits in Banks and Federal Funds
Sold
For these short-term instruments, the carrying amount approximates fair
value.
Investments
For investment securities, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities. The carrying amount of
accrued interest receivable approximates its fair value.
Loans
The fair value of fixed rate 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. For
variable rate loans, the carrying amount is a reasonable estimate of fair value.
For loans where collection of principal is in doubt, an allowance for losses has
been estimated. Loans with similar characteristics were aggregated for purposes
of the calculations. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits
The fair value of demand deposits, savings accounts, NOW accounts, and
certain money market deposits is the amount payable on demand at the reporting
date (i.e. their carrying amount). The fair value of fixed maturity time
deposits is estimated using a discounted cash flow calculation that applies the
rates currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.
Securities Sold Under Agreements to Repurchase
For securities sold under agreements to repurchase, the carrying amount is
a reasonable estimate of fair value.
Long-Term Borrowings
The fair value of long-term borrowings is estimated by discounting the
future cash flows using the current rate at which a similar loan could be
financed.
Commitments to Extend Credit and Stand-By Letters of Credit
The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparts. For fixed-rate
loan commitments, fair value also considers the difference between
F-18
<PAGE> 104
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparts at the reporting date.
The following table presents estimated fair values of the Company's
financial instruments as of December 31, 1997:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL ASSETS
Cash and due from banks..................................... $ 10,427 $ 10,427
Interest bearing deposits in other banks.................... 149 149
Federal funds sold.......................................... 11,310 11,310
Investment securities:
Securities held-to-maturity............................... 13,042 13,125
Securities available-for-sale............................. 15,470 15,470
Loans held for sale......................................... 4,182 4,182
Net loans................................................... 164,306 164,051
Accrued interest receivable................................. 2,272 2,272
FINANCIAL LIABILITIES
Deposits:
Non-interest bearing...................................... 32,238 32,238
Interest bearing.......................................... 168,056 168,186
Securities sold under agreements to repurchase.............. 2,072 2,072
Note payable................................................ 3,380 3,380
Federal Home Loan Bank borrowing............................ 1,000 1,000
Accrued interest payable.................................... 2,770 2,770
UNRECOGNIZED FINANCIAL INSTRUMENTS
Commitments to extend credit................................ 56,010 56,010
Stand-by letters of credit.................................. 2,139 2,139
</TABLE>
NOTE 17 -- STOCKHOLDERS' EQUITY AND REGULATORY RESTRICTIONS
The payment of dividends to the Company by the subsidiaries is subject to
various state and federal regulatory limitations.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal and state 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 the Company's consolidated financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that involve
quantitative measures of the bank's assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company and
the Banks' capital amounts and classification 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 the Banks 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 and as of
September 30, 1998 (unaudited), that the Banks meet all minimum capital adequacy
requirements to which they are subject.
F-19
<PAGE> 105
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1997, the most recent notification, the Federal Deposit
Insurance Corporation categorized the Nebraska Bank as well capitalized, and the
Colorado Bank as adequately capitalized, under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, a bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed either Bank's category.
AS OF DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
PURPOSES ACTION PROVISIONS
ACTUAL --------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ------ ------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
Total capital to risk weighted assets... $17,997 9.74% $14,788 8% $18,485 10%
Tier 1 capital to risk weighted
assets............................... 16,676 9.02% 7,394 4% 11,091 6%
Tier 1 capital to average assets........ 16,676 7.53% 8,861 4% 11,076 5%
COLORADO BANK
Total capital to risk weighted assets... $12,472 9.10% $10,959 8% $13,698 10%
Tier 1 capital to risk weighted
assets............................... 11,855 8.65% 5,479 4% 8,219 6%
Tier 1 capital to average assets........ 11,855 7.66% 6,191 4% 7,739 5%
NEBRASKA BANK
Total capital to risk weighted assets... $ 8,278 17.55% $ 3,773 8% $ 4,716 10%
Tier 1 capital to risk weighted
assets............................... 7,687 16.30% 1,887 4% 2,830 6%
Tier 1 capital to average assets........ 7,687 11.65% 2,640 4% 3,300 5%
</TABLE>
Unaudited actual consolidated capital ratios for the Company as of
September 30, 1998 are as follows:
<TABLE>
<S> <C>
Total capital to risk weighted assets....................... 7.80%
Tier 1 capital to risk weighted assets...................... 7.22%
Tier 1 capital to average assets............................ 6.20%
</TABLE>
The Federal Reserve Board requires banks to maintain reserve balances
composed of cash on hand and balances maintained at the Federal Reserve Bank.
These reserve balances are based primarily on deposit levels and totaled
approximately $708,000 at December 31, 1997.
F-20
<PAGE> 106
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- CONDENSED FINANCIAL STATEMENTS -- PARENT COMPANY ONLY
The following presents condensed parent company only financial statements
for First Western Corp. (in thousands).
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 10 $ 16
Investment in subsidiaries.................................. 26,309 20,523
Other assets................................................ 1,385 1,173
------- -------
TOTAL ASSETS...................................... $27,704 $21,712
======= =======
LIABILITIES
Note payable................................................ $ 5,800 $ 3,380
Income taxes payable........................................ 1,583 1,309
Accounts payable and accrued liabilities.................... 453 112
------- -------
Total liabilities................................. 7,836 4,801
------- -------
STOCKHOLDERS' EQUITY
Common stock................................................ 140 140
Surplus..................................................... 697 697
Retained earnings........................................... 19,038 16,085
Unrealized loss on securities available-for-sale, net of
taxes..................................................... (7) (11)
------- -------
Total stockholders' equity........................ 19,868 16,911
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $27,704 $21,712
======= =======
</TABLE>
F-21
<PAGE> 107
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------
1998 1997 1997 1996
------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income:
Dividends received from subsidiaries..................... $ 996 $ 891 $ 937 $ 890
Interest................................................. -- 5 5 26
------ ------ ------ ------
Total income..................................... 996 896 942 916
------ ------ ------ ------
Expense:
Purchased services....................................... 219 219 294 2
Interest................................................. 182 48 113 --
Other.................................................... 9 9 27 26
------ ------ ------ ------
Total expenses................................... 410 276 434 28
------ ------ ------ ------
Income before income tax expense (benefit) and equity in
undistributed income of subsidiaries.................. 586 620 508 888
Income tax expense (benefit)............................... (170) 2 2 (10)
------ ------ ------ ------
Income before equity in undistributed income of
subsidiaries.......................................... 756 618 506 898
Equity in undistributed income of subsidiaries............. 2,197 1,343 1,991 672
------ ------ ------ ------
Net income................................................. $2,953 $1,961 $2,497 $1,570
====== ====== ====== ======
</TABLE>
F-22
<PAGE> 108
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------
1998 1997 1997 1996
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 2,953 $ 1,961 $ 2,497 $ 1,570
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of
subsidiaries................................. (2,197) (1,343) (1,991) (672)
Changes in deferrals and accruals:
Other assets................................... (212) (117) (501) (208)
Income taxes payable........................... 274 209 639 205
Accounts payable and accrued liabilities....... 341 1,247 112 --
------- ------- ------- -------
Net cash provided by operating
activities.............................. 1,159 1,957 756 895
------- ------- ------- -------
Cash flows from investing activities:
Capital injection into subsidiary bank............ (3,750) (3,738) (3,737) --
Purchase of savings bank.......................... -- (3,743) (3,743) --
Net cash transfers with First Mortgage Bancorp.... 165 2,660 2,799 (1,146)
------- ------- ------- -------
Net cash used in investing activities..... (3,585) (4,821) (4,681) (1,146)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from note payable........................ 3,850 2,400 3,380 --
Payments on note payable.......................... (1,430) -- -- --
------- ------- ------- -------
Net cash provided by financing
activities.............................. 2,420 2,400 3,380 --
------- ------- ------- -------
Net (decrease) increase in cash..................... (6) (464) (545) (251)
Cash at beginning of period......................... 16 561 561 812
------- ------- ------- -------
Cash at end of period............................... $ 10 $ 97 $ 16 $ 561
======= ======= ======= =======
</TABLE>
This information is an integral part of the accompanying consolidated financial
statements.
F-23
<PAGE> 109
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR ANY OTHER PERSON TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AUTHORIZED BY US AND REFERRED TO IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, YOU MUST NOT RELY UPON SUCH INFORMATION AND REPRESENTATIONS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES IN ANY STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN
OFFER. WE DO NOT INTEND THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE TO
CREATE THE IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE
DATE OF THE INFORMATION PROVIDED IN THIS PROSPECTUS. HOWEVER, IF THERE IS ANY
MATERIAL CHANGE IN OUR AFFAIRS DURING THE TIME WHEN A COPY OF THIS PROSPECTUS IS
REQUIRED TO BE DELIVERED, WE WILL AMEND OR SUPPLEMENT THIS PROSPECTUS TO REFLECT
THE CHANGE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 1
Risk Factors.............................. 6
Selected Consolidated Financial Data...... 12
Cautionary Statements..................... 13
Use of Proceeds........................... 13
Accounting Treatment...................... 14
Capitalization............................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 16
Business.................................. 34
Management................................ 40
Principal Shareholders.................... 43
Related Party Transactions................ 44
Supervision and Regulation................ 45
Description of the Preferred Securities... 49
Description of Junior Subordinated
Debentures.............................. 62
Book-Entry Issuance....................... 71
Description of Preferred Securities
Guarantee............................... 73
Relationship Among the Preferred
Securities, the Junior Subordinated
Debentures and the Preferred Securities
Guarantee............................... 76
Material Federal Income Tax
Consequences............................ 77
ERISA Considerations...................... 81
Underwriting.............................. 82
Reports of First Western.................. 83
Available Information..................... 83
Legal Matters............................. 83
Experts................................... 83
Index to Financial Statements............. F-1
</TABLE>
DEALER PROSPECTUS DELIVERY OBLIGATIONS. UNTIL , 1999, ALL DEALERS
THAT EFFECT TRANSACTIONS IN THE PREFERRED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND REGARDING THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,000,000 PREFERRED SECURITIES
FW CAPITAL I
% CUMULATIVE
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $10
PER PREFERRED SECURITY)
FULLY, IRREVOCABLY AND UNCONDITIONALLY GUARANTEED ON A SUBORDINATED BASIS,
AS DESCRIBED IN THIS PROSPECTUS, BY
FIRST WESTERN CORP.
(FIRSTATE BANK OF COLORADO LOGO)
---------------------------
PROSPECTUS
---------------------------
HOWE BARNES INVESTMENTS, INC.
, 1999
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