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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1999 REGISTRATION NO. 333-67197
REGISTRATION NO. 333-67197-01
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FIRST WESTERN CORP. FW CAPITAL I
(Name of small business issuer in its charter) (Name of small business co-issuer in its charter)
NEBRASKA DELAWARE
(State or jurisdiction of incorporation or organization) (State or jurisdiction of incorporation or organization)
6712 6719
(Primary Standard Industrial Classification Code Number) (Primary Standard Industrial Classification Code Number)
47-0484682 84-6333677
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
11210 HURON STREET 11210 HURON STREET
NORTHGLENN, COLORADO 80234 NORTHGLENN, COLORADO 80234
(303) 451-1010 (303) 451-1010
(Address and telephone number of principal executive offices) (Address and telephone number of principal executive offices)
TIMOTHY D. WIENS, VICE CHAIRMAN
FIRST WESTERN CORP.
11210 HURON STREET
NORTHGLENN, COLORADO 80234
(303) 451-1010
(Name, address and telephone number of agent for service)
COPIES TO:
Reid A. Godbolt, Esq. Matthew C. Boba, Esq.
Jones & Keller, P.C. Chapman and Cutler
1625 Broadway, Suite 1600 111 West Monroe Street
Denver, Colorado 80202 Chicago, Illinois 60603
(303) 573-1600 (312) 845-3000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering under
Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed under Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made under Rule 434, please
check the following box. [X]
The Registrants hereby amend this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrants shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting under said Section 8(a), may
determine.
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SUBJECT TO COMPLETION, DATED JANUARY 25, 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.
[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 "Summary -- Securities Offered" 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.
Per Preferred
Security Total
------------- -----------
Per preferred security........................................ $10 $20,000,000
Proceeds to FW Capital I...................................... $10 $20,000,000
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.
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.
HOWE BARNES INVESTMENTS, INC.
_____________, 1999
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[INSERT FW LOGO AND MAP]
Banking Locations
Map of the Colorado and Nebraska area indicating First Western's banking
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-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 million as of September
30, 1998 from $228 million as of December 31, 1997 and $125 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.
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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.
Quarterly Distributions Are Payable to You
on Preferred Securities.............................. The distributions payable on each preferred security
will:
o be fixed and accumulate at a rate per year of
___%;
o accrue from the date of issuance of the
preferred securities; and
o 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
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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
"Description of Junior Subordinated Debentures -- Option
to Extend Interest Payment Period," "Material Federal Income Tax
Consequences -- Interest Income and Original Issue Discount" and
"Risk Factors -- Distributions on the Preferred Securities May Be
Deferred; You May Have to Include Interest in Your Taxable Income
Before You Receive Cash."
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.
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:
o on or after ______, 2004; or
o 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" 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
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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."
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.
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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 FW Capital I 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:
o to pay a note payable of $8.8 million;
o to contribute $4.2 million of capital to Firstate
Bank of Colorado; and
o 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.
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.
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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" in this
prospectus.
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:
o regulatory limitations, generally based on current and
retained earnings and capital maintenance requirements,
imposed by various bank regulatory agencies;
o profitability, financial condition and capital expenditures
and other cash flow requirements of the banks; and
o 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
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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.
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:
o In whole or in part, beginning on ____________, 2004 at the
option of First Western.
o 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.
o 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.
o 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, Tax Event
Redemption, Investment Company Act Redemption, Capital Treatment Event
Redemption or Distribution of Junior Subordinated Debentures."
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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 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."
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," "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" in this
prospectus.
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
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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 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" 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
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- -- Interest Income and Original Issue Discount" and "-- Sales or Redemption of
Preferred Securities" for more information on possible adverse tax consequences
to you.
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.
RISK FACTORS RELATING TO FIRST WESTERN
FIRST WESTERN'S ALLOWANCE FOR LOAN LOSSES MAY NOT BE ADEQUATE TO COVER
ACTUAL LOSSES. 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."
ECONOMIC CONDITIONS IN GENERAL AND IN FIRST WESTERN'S PRIMARY MARKET
AREA INCLUDING THE INTEREST RATE ENVIRONMENT CAN IMPACT FIRST WESTERN
SIGNIFICANTLY. 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. 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.
In addition, 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" for further discussion of the impact of
interest rates in First Western.
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GROWTH AND EXPANSION MAY BE LIMITED BY MANY FACTORS. 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 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.
FAILURE BY FIRST WESTERN OR ITS SUPPLIERS AND CUSTOMERS TO ENSURE THAT
THEIR COMPUTER SYSTEMS ARE YEAR 2000 COMPLIANT COULD HAVE AN ADVERSE EFFECT ON
FIRST WESTERN. 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."
CONTROL BY 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
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adversely affect them and create competitive advantages for non-bank
competitors. For further information concerning regulation of First Western, see
"Supervision and Regulation."
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 $1.4 million at December 31, 1997.
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SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data for the years ended December
31, 1997 and 1996 and the consolidated balance sheet data as of December 31,
1997 are derived from First Western's consolidated financial statements and
notes thereto which have been audited by Clifton Gunderson L.L.C., independent
public accountants, and are included elsewhere in this prospectus. The
consolidated statements of income data for the year ended December 31, 1995 and
the balance sheet data as of December 31, 1996 and 1995 are derived from First
Western's unaudited consolidated financial statements not included in this
prospectus. The consolidated statement of income data for the nine months ended
September 30, 1998 and 1997, and the consolidated balance sheet data as of
September 30, 1998 and 1997, have been derived from unaudited consolidated
financial statements, which, in the opinion of First Western, reflect all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations of First
Western for those periods. The consolidated statements of income data for
interim periods are not necessarily indicative of results for subsequent periods
or the full year. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and with First Western's consolidated financial statements appearing
elsewhere in this prospectus.
AT OR FOR THE NINE MONTHS ENDED SEPTEMBER AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------- -------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF INCOME:
INTEREST INCOME.............................$ 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
- ----------
(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.
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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.
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.
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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:
o FW Capital I is wholly-owned;
o 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
o 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."
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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."
SEPTEMBER 30, 1998
-------------------------------------
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
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
- ----------
(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" and
"Description of Junior Subordinated Debentures -- Redemption."
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(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.
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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 million as of
September 30, 1998 from $228 million as of December 31, 1997 and $125 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.
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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)
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%
- ---------
(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.
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
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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.
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)
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%
- ---------
(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.
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
20
24
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.
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25
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.
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)
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
======= ===== ======= ======= ===== ======= ======= ===== =======
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OTHER INCOME. The following table presents First Western's other
income for the indicated periods.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------
1998 1997 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
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
====== ====== ====== ======
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.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------- ----------------------
1998 1997 1997 1996
---- ---- ---- ----
(IN THOUSANDS)
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
====== ====== ====== ======
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.
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27
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.
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."
SEPTEMBER 30, DECEMBER 31,
------------------------ -------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
AMOUNT % AMOUNT % AMOUNT %
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
COMMERICAL, 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%
========= ========= ========= ========= ========= =========
- ----------
(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.
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28
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 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.
SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------------------
OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR --------------------------------- ---------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
----------- ---------- ------------- ---------- ------------- -----
(IN THOUSANDS)
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 $ -- $248,347
======== ======== ========= ======= ====== ========
DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------
OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS
ONE YEAR --------------------------------- ---------------
OR LESS FIXED RATE FLOATING RATE FIXED RATE FLOATING RATE TOTAL
----------- ---------- ------------- ---------- ------------- -----
(IN THOUSANDS)
Commercial, financial and
agricultural......................$ 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
======== ======== ======== ======= ======= =========
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
collectibility
25
29
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:
SEPTEMBER 30, DECEMBER 31,
------------- ------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(DOLLARS IN THOUSANDS)
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
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.
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30
The following table presents information regarding changes in the
allowance for loan losses of First Western for the periods indicated.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1998 1997 1996
---- ---- ----
(DOLLARS IN THOUSANDS)
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%
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
27
31
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, 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.
SEPTEMBER 30, DECEMBER 31,
-------------------------------- ---------------------------------------------------------------
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)
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%
====== ===== ====== ===== ==== =====
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.
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32
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 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.
SEPTEMBER 30, DECEMBER 31,
------------- ----------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
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
======= ======= =======
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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.
SEPTEMBER 30, 1998
------------------
TYPE AND MATURITY AMOUNT YIELD
----------------- ------ -----
(DOLLARS IN THOUSANDS)
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%
=======
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.
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.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------ ------------------------------------------
1998 1997 1996
---- ---- ----
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE COST BALANCE COST BALANCE COST
------- ---- ------- ---- ------- ----
(DOLLARS IN THOUSANDS)
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
======== ======== =======
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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.
REMAINING MATURITY (IN THOUSANDS)
------------------ --------------
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
=======
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.
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."
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The following tables present First Western's capital ratios as of the
indicated dates.
RISK-BASED CAPITAL RATIOS
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO
--------- ----- --------- -----
(DOLLARS IN THOUSANDS)
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
========= =========
- ----------
(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.
LEVERAGE RATIOS
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------------------- --------------------------
AMOUNT RATIO AMOUNT RATIO
---------- ----- --------- -----
(DOLLARS IN THOUSANDS)
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
========== =========
- ----------
(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.
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
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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. 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.
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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)
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%
======= ========= ======== =========
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.
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
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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 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
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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.
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BUSINESS
OVERVIEW
First Western, a multibank holding company, offers full service
community banking through 10 banking locations in metropolitan Denver-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.
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41
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:
o 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.
o 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.
o 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.
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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 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
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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 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.
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.
Square
Name and Address of Branch Year Opened Type of Interest footage of facility
- -------------------------- ----------- ---------------- -------------------
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
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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
All of the leased properties are leased from unaffiliated third parties and are
subject to long term leases.
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.
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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:
NAME AGE POSITIONS
- ---- --- ---------
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
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.
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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 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.
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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 $100,000 for
these years.
SUMMARY COMPENSATION TABLE
Awards Payouts
--------------------------------------
Securities
Other Under-
Annual Restricted lying All Other
Compen Stock Options/ LTIP Compen-
Name Salary Bonus sation Award(s) SARs Payouts sation
and Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ---------------------------- ---------- ---------------------------- ------------------------------------- -----------
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 -- -- -- -- --
============================ ========== ============================ ===================================== ===========
- ----------
(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 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.
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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.
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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.
NAME AND SHARES
ADDRESS OF BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED OF CLASS
---------------- ------------ ----------
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
All executive officers and
directors as a group (seven persons)............. 140,000 100.0%
- ------------
(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%.
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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:
YEAR ENDED
DECEMBER 31,
NINE MONTHS ENDED ----------------------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ ---- ---- ----
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
======= ======== ======== ========
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.
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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:
September 30, December 31,
------------- --------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Loan participations purchased by Joel H. Wiens................... $1,041 $1,420 $1,071
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.
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
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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.
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.
AT SEPTEMBER 30, 1998
--------------------------
RATIO ACTUAL MINIMUM REQUIRED
----- ------ ----------------
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS ...... 7.80% 8.00%
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS...... 7.22% 4.00%
TIER 1 CAPITAL TO AVERAGE ASSETS............ 6.20% 4.00%
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.
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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
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 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.
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The table below presents the regulatory capital ratios of the Colorado
Bank and the Nebraska Bank at September 30, 1998.
AT SEPTEMBER 30, 1998
-----------------------------------------------------
COLORADO BANK NEBRASKA BANK
-------------------------- -------------------------
RATIO ACTUAL MINIMUM REQUIRED ACTUAL MINIMUM REQUIRED
------ ---------------- ------ ----------------
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
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 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
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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 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.
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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 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.
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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 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
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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
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:
o 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;
o 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
o 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.
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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 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:
o the preferred securities will no longer be deemed to be
outstanding;
o 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
o 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
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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 "-- 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 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.
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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 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 "Description of the Preferred Securities -- Redemption --
Mandatory Redemption;" 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
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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:
o the occurrence of a debenture event of default under the
indenture, see "Description of Junior Subordinated
Debentures -- Debenture Events of Default"; or
o 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
o default by FW Capital I in the payment of any redemption
price of any trust security when it becomes due and payable;
or
o 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
o 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.
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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 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.
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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:
o 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;
o 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;
o 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;
o the successor entity has a purpose identical to that of FW
Capital I;
o 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;
o 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
o 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.
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:
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o 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
o 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:
o 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;
o waive any past default that is waivable under the indenture;
o exercise any right to rescind or annul a declaration that the
principal of all the junior subordinated debentures will be
due and payable; or
o 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.
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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 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:
o 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;
o First Western in its sole discretion determines that the
global security will be so exchangeable; or
o 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
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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, 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
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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 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.
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FW Capital I may not borrow money or issue debt or mortgage or pledge
any of its assets.
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
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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 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:
o dividends or distributions in common stock of First Western;
o 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;
o payments under the preferred securities guarantee; or
o 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
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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.
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" 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" 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.
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RESTRICTIONS ON PAYMENTS
First Western has restrictions on paying dividends or making payments
regarding pari passu or junior debt if:
o 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;
o 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
o 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:
o 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
o 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
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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:
o every obligation of the person for money borrowed;
o 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;
o every reimbursement obligation of the person regarding
letters of credit, bankers' acceptances or similar facilities
issued for the account of the person;
o 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;
o every capital lease obligation of the person; and
o 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:
o 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;
o any debt of First Western to any of its subsidiaries;
o any debt to any employee of First Western;
o 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
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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;
o the preferred securities guarantee; and
o 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.
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
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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.
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.
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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 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:
o 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
o 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
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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:
o 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;
o failure to pay any principal on the junior subordinated
debentures when due whether at maturity, upon redemption by
declaration or otherwise;
o 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
o 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 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
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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:
o 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;
o 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
o 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.
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.
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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," 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:
o 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;
o 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
o 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.
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
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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.
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
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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 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:
o 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;
o 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
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o 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.
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
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liquidation amount of the outstanding preferred securities. See "Description of
the Preferred Securities -- Voting Rights; Amendment of 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 FW
Capital I, other than obligations of FW Capital I to pay to the holders of the
preferred securities or other
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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
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the junior subordinated debentures until the senior and subordinated debt has
been paid in full or any payment 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
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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 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."
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 -- Possible Tax Law Changes Could Result in a
Redemption of the Preferred Securities."
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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.
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
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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 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
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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.
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 -- Possible Tax Law Changes Could Result in a Redemption of
the Preferred Securities," "Description of the Preferred Securities --
Redemption" 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.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among
First Western 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.
Underwriters Number of preferred securities
- ------------ ------------------------------
Howe Barnes Investments, Inc.......
---------
Total..................... 2,000,000
=========
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
Per preferred security Total
---------------------- ------------
Price to Investors $ 10 $ 20,000,000
Proceeds to company $ 10 $ 20,000,000
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
87
91
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 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.
88
92
INDEX TO FINANCIAL STATEMENTS
Page
----
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
F-1
93
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
94
FIRST WESTERN CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 (Unaudited) and December 31, 1997
(In thousands, except share data)
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
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
========= =========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-3
95
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)
Nine months ended September 30, Years ended December 31,
1998 1997 1997 1996
------------------------------- ------------------------
(Unaudited)
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
========= ========= ========= =========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-4
96
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)
Unrealized
gain (loss) on
securities
available-for-
Retained sale, net of
Common Stock Surplus Earnings taxes Total
------------ -------- -------- --------------- --------
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
======== ======== ======== ======== ========
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-5
97
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)
Nine months ended
September 30, Years ended December 31,
1998 1997 1997 1996
------------------------ -------------------------
(Unaudited)
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 --
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-6
98
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
99
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
100
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
101
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):
Gross Gross
Amortized Unrealized Unrealized Estimated
Securities held-to-maturity Cost Gains Losses Fair Value
- --------------------------- --------- ---------- ---------- ----------
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
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized Estimated
Securities held-to-maturity Cost Gains Losses Fair Value
- --------------------------- --------- ---------- ---------- ----------
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
======= ======= ======= =======
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.
F-10
102
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Held-to-maturity Available-for-sale
---------------------- -----------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
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
======= ======= ======= =======
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):
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
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
========= =========
The Company had no foreign loans outstanding at December 31, 1997 or
September 30, 1998 (unaudited.)
F-11
103
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Transactions in the allowance for loan losses are as follows (in
thousands):
Nine months
ended
September 30, Years Ended December 31,
1998 1997 1996
------------- ------- -------
(Unaudited)
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
======= ======= =======
September 30, December 31,
1998 1997 1996
------------- ------- -------
(Unaudited)
(In thousands)
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
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):
Accumulated
depreciation
and Net
Cost amortization amount
------ ------------ -------
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
====== ====== ======
F-12
104
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):
Deposit Category
Under $100,000 $100,000 or more Total
---------------- ---------------- --------
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
======== ======== ========
At December 31, 1997, the scheduled remaining maturities of time
deposits with stated maturities were as follows (in thousands):
Deposit Category
Under $100,000 $100,000 or more Total
---------------- ---------------- --------
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
======== ======== ========
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:
Nine months ended Year ended
September 30, 1998 December 31, 1997
------------------ -----------------
(Unaudited)
(in thousands)
Average daily balance $ 2,274 $ 2,387
Period end balance 2,588 2,072
Average interest rate 4.44% 4.72%
F-13
105
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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):
Amount Maturity date Interest Rate
- ------ ----------------- -------------
$1,000 November 23, 1998 5.90%
The advances outstanding at September 30, 1998 (unaudited) are as
follows (in thousands):
Amount Maturity date Interest Rate
- ------ ----------------- -------------
$1,000 November 23, 1998 5.52%
2,500 February 2, 2001 5.74%
5,000 January 31, 2003 5.81%
- ------
$8,500
======
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.
F-14
106
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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):
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
Commitments to extend credit $ 86,346 $ 56,010
Stand-by letters of credit $ 3,161 $ 2,139
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.
F-15
107
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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):
Year Ending December 31,
1998 $ 384
1999 495
2000 435
2001 419
2002 432
Thereafter 2,017
-------
$ 4,182
=======
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.
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):
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
=====
F-16
108
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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).
1997 1996
Amount Percent Amount Percent
------- ------- ------ -------
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%
======= ==== ====== ====
The consolidated provision for income taxes consisted of the following
for the years ended December 31 (in thousands):
1997 1996
------ ------
Current tax provision:
Federal $1,191 $ 679
State 123 26
------ ------
1,314 705
Deferred federal (5) --
------ ------
$1,309 $ 705
====== ======
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-17
109
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Amounts expensed by the Company and its subsidiaries are as follows (in
thousands):
Nine months ended Years ended December 31,
September 30, 1998 1997 1996
- ------------------ ---------- ---------
(Unaudited)
$ 74.5 $ 167.0 $ 145.5
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.
F-18
110
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company's comprehensive income is as follows (in thousands):
Nine months ended Years Ended December 31,
September 30, 1998 1997 1996
(Unaudited)
------------------ ---------- ---------
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)
Less: reclassification adjustment for net gain (loss)
realized in net income -- -- --
------- ------- -------
Subtotal 4 33 (103)
------- ------- -------
Comprehensive income $ 2,957 $ 2,530 $ 1,467
======= ======= =======
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.
F-19
111
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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 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:
Carrying Estimated
Amount Fair Value
-------- ----------
(In thousands)
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
F-20
112
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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.
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)
To be well
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
>or = >or =
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%
F-21
113
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Unaudited actual consolidated capital ratios for the Company as of
September 30, 1998 are as follows:
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%
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.
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
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
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
======== ========
F-22
114
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statements of Income
Nine months ended Years ended
September 30, December 31,
1998 1997 1997 1996
-------------------- -------------------
(Unaudited)
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 expense 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
======= ======= ======= =======
F-23
115
FIRST WESTERN CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Condensed Statements of Cash Flows
Nine months ended Years ended
September 30, December 31,
1998 1997 1997 1996
-------------------- -------------------
(Unaudited)
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
======= ======= ======= =======
This information is an integral part of the accompanying consolidated financial
statements.
F-24
116
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.
117
TABLE OF CONTENTS Page
----
PROSPECTUS SUMMARY................................................................................................................1
RISK FACTORS......................................................................................................................6
RECENT OPERATING RESULTS.........................................................................................................12
SELECTED CONSOLIDATED FINANCIAL DATA.............................................................................................13
CAUTIONARY STATEMENTS............................................................................................................14
USE OF PROCEEDS..................................................................................................................14
ACCOUNTING TREATMENT.............................................................................................................14
CAPITALIZATION...................................................................................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................................................................18
BUSINESS ........................................................................................................................37
MANAGEMENT.......................................................................................................................42
PRINCIPAL SHAREHOLDERS...........................................................................................................46
RELATED PARTY TRANSACTIONS.......................................................................................................47
SUPERVISION AND REGULATION.......................................................................................................48
DESCRIPTION OF THE PREFERRED SECURITIES..........................................................................................53
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES....................................................................................66
BOOK-ENTRY ISSUANCE..............................................................................................................76
DESCRIPTION OF PREFERRED SECURITIES GUARANTEE....................................................................................78
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE JUNIOR
SUBORDINATED DEBENTURES AND THE PREFERRED SECURITIES GUARANTEE..........................................................81
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.........................................................................................82
ERISA CONSIDERATIONS.............................................................................................................86
UNDERWRITING.....................................................................................................................87
REPORTS OF FIRST WESTERN.........................................................................................................88
AVAILABLE INFORMATION............................................................................................................88
LEGAL MATTERS....................................................................................................................88
EXPERTS ........................................................................................................................88
INDEX TO FINANCIAL STATEMENTS...................................................................................................F-1
118
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.
119
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.
LOGO
----------------------
P R O S P E C T U S
---------------------
HOWE BARNES INVESTMENTS, INC.
, 1999
120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors, officers, employees, trustees and agents of First Western
and FW Capital I may be entitled to benefit from the indemnification provisions
contained in the Nebraska Business Corporation Act and First Western's Articles
of Incorporation. In addition, certain provisions in the Articles of
Incorporation limit the liability of directors of First Western. The general
effect of these provisions is summarized below:
The Nebraska Act permits a corporation organized in its state to
indemnify any person who was or is a party or is threatened to be made a party
to any suit, action or other proceeding by reason of the fact that the person is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, trust or other enterprise. The
indemnification may be against expenses, including attorneys' fees, judgments,
fines and other amounts in connection with the proceeding. Indemnification is
available if the person acted in good faith and in a manner reasonably believed
to be in or not opposed to the best interests of the corporation, or, regarding
any criminal action or proceeding, the person had no reasonable cause to believe
that the conduct was unlawful. Unless a court of competent jurisdiction
otherwise orders, indemnification is not available in connection with a
proceeding by or in the right of the corporation if the person is adjudged
liable to the corporation or derived an improper personal or financial benefit.
A corporation is required to indemnify a director or officer who is wholly
successful in the defense of any such proceeding. Expenses, including attorneys'
fees, incurred by a director, officer, employee or agent of the corporation in
defending any such proceeding may be advanced by the corporation before the
final disposition if the person furnishes an undertaking to repay the advances
if it is ultimately determined that the person is not entitled to be
indemnified. Before a corporation may indemnify or advance expenses to a person
under these provisions, the board of directors, excluding any directors who are
parties to such a proceeding, independent legal counsel appointed by the board
of directors, or the shareholders must provide authorization. A corporation may
purchase insurance against any liability of individuals for whom the corporation
may provide the indemnification. Any provisions in a corporation's articles of
incorporation, bylaws, resolutions or in a contract, except an insurance policy,
for the indemnification are valid only to the extent not inconsistent with the
Nebraska Act.
Article XII of First Western's Articles of Incorporation states that
First Western will have all powers to indemnify and make advances in connection
with the indemnification to its directors, officers and others to the fullest
extent of the law. This Article also states that the board of directors is
authorized, without shareholder action, to exercise First Western's powers of
indemnification, whether by provision in the bylaws or otherwise.
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 First Western
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121
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee $ 6,394
NASD fee 2,500
American Stock Exchange fees 15,000
Trustees' fees and expenses 25,000
Legal fees and expenses 125,000
Accounting fees and expenses 80,000
Printing expenses 85,000
Miscellaneous expenses 11,046
------------
Total $ 350,000
============
All of the above items except the registration fee are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1997, the Registrant 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 an 18.2% equity interest
in Firstate Bank of Colorado, which is now a wholly-owned subsidiary of the
Registrant. All of the purchasers were directors and/or officers of First
Western Corp. No underwriters were involved in the transaction and the issuance
was made in a transaction exempt from the requirements of Section 5 of the
Securities Act of 1933 under Section 4(2) thereof. Reliance on the exemption was
based on the fact that the transaction was limited to the Registrant and its
executive officers and directors.
ITEM 27. EXHIBITS
(a) Exhibits
Exhibit No. Description
- ---------- -----------
1.1 Form of Underwriting Agreement (1).
3.1 Articles of Incorporation of First Western Corp., as amended
and restated (1).
3.2 Amended Bylaws of First Western Corp. (1).
4.1 Form of Subordinated Indenture dated _______, 1999 to be
entered into between the Registrant and Wilmington Trust
Company, as Indenture Trustee (1).
4.2 Form of Junior Subordinated Debenture (included as an exhibit
to Exhibit 4.1).
4.3 Certificate of Trust of FW Capital I (1).
4.4 Trust Agreement of FW Capital I dated as of November 6, 1998
(1).
4.5 Form of Amended and Restated Trust Agreement of FW Capital I,
dated ______, 1999 (1).
4.6 Form of Preferred Security Certificate of FW Capital I
(included as an exhibit to Exhibit 4.5).
4.7 Form of Preferred Securities Guarantee Agreement (1).
4.8 Form of Agreement as to Expenses and Liabilities (included as
an exhibit to Exhibit 4.5).
II-2
122
5.1 Opinion of Jones & Keller, P.C. (2).
5.2 Opinion and Consent of Richards, Layton & Finger, P.A. (2).
8.1 Opinion of Jones & Keller, P.C., as to material federal income tax matters (2).
10.1 Revolving Line of Credit dated February 19, 1998 between First Western Corp. as borrower
and National Bank of Commerce Trust and Savings Association (1).
10.2 Advance, Pledge and Security Agreement dated October 21, 1997 between Federal Home
Loan Bank of Topeka and First State Bank (1).
10.3 Advance, Pledge and Security Agreement dated March 31, 1997 between Federal Home
Loan Bank of Topeka and Firstate Bank of Colorado (1).
10.4 Line of Credit agreement signed February 24, 1998 between Firstate Bank of Colorado and
Federal Home Loan Bank of Topeka (1).
10.5 Federal Funds Purchased Line agreement between Firstate Bank and Wells Fargo Bank (1).
10.6 Federal Funds Purchased Line agreement dated August 25, 1998 between Firstate Bank
of Colorado and Bankers Bank of the West (1).
10.7 Federal Funds Purchased Line agreement dated October 20, 1997 between Firstate Bank
and Bankers Bank of the West (1).
10.8 Management Agreement between First Western Corp. and Western Management
Corporation dated January 21, 1997 (1).
10.9 Management Agreement between Firstate Bank of Colorado and Western Management
Corporation dated January 4, 1993 (1).
10.10 Management Agreement between Firstate Bank of Nebraska and Western Management
Corporation dated January 21, 1998 (1).
10.11 Management Agreement between First Mortgage Bancorp and Western Management
Corporation dated January 21, 1997 (1).
10.12 Electronic Data Processing Agreement between First Commerce Technologies and Firstate
Bank dated May 8, 1998 (1).
10.13 Electronic Data Processing Agreement between First Commerce Technologies and Firstate
Bank of Colorado dated April 14, 1998 (1).
11.1 Statement re Computation of per share earnings - see Consolidated Financial Statements.
21 Subsidiaries of Registrant (1).
23.1 Consent of Clifton Gunderson L.L.C. (2).
23.2 Form of Consent of Jones & Keller, P.C. (included in Exhibit 5.1 above).
23.3 Form of Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2 above).
24.1 Power of Attorney (1).
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123
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the
Subordinated Indenture (1).
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the
Amended and Restated Trust Agreement (1).
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act as trustee under the
Preferred Securities Guarantee Agreement (1).
27 Financial Data Schedule (1)
- ----------
(1) Filed with this Registration Statement on November 13, 1998.
(2) Filed with Amendment No. 1 to this Registration Statement on
January 20, 1999.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant under the foregoing provisions, or otherwise, each Registrant has
been advised that in the opinion of the Securities and Exchange Commission the
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
the liabilities (other than the payment by each Registrant of expenses incurred
or paid by a director, officer or controlling person of each Registrant in the
successful defense of any action, suit or proceeding) is asserted by the
director, officer or controlling person in connection with the securities being
registered, each Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether the indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the issue.
Each Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant under Rule 424(b)(1) or (4) or 497(h) under
the Securities Act will be deemed to be part of the registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
will be deemed to be a new registration statement relating to the securities
offered therein, and the offering of the securities at that time will be deemed
to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Northglenn, State of
Colorado, on this 25th day of January, 1999.
FW Capital I First Western Corp.
By: /s/ Timothy D. Wiens By: /s/ Joel H. Wiens
----------------------------- --------------------------
Timothy D. Wiens, Joel H. Wiens,
Administrative Trustee Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, Amendment No. 2, has been signed by the following
persons in the capacities indicated and on the date indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Timothy D. Wiens Director, Chairman of the Board January 25, 1999
- ---------------------------------- (Principal Executive Officer)
Joel H. Wiens,
by Timothy D. Wiens, Attorney
/s/ Timothy D. Wiens Director and Vice Chairman January 25, 1999
- ----------------------------------
Timothy D. Wiens
/s/ Timothy D. Wiens Director January 25, 1999
- ----------------------------------
Michael J. Nelson,
by Timothy D. Wiens, Attorney
/s/ Timothy D. Wiens Director January 25, 1999
- ----------------------------------
Max W. Revell,
by Timothy D. Wiens, Attorney
/s/ Timothy D. Wiens Director January 25, 1999
- ----------------------------------
Lynn M. Anthony,
by Timothy D. Wiens, Attorney
/s/ Ronald B. James Treasurer and Chief Financial January 25, 1999
- ----------------------------------- (Principal Executive Officer)
Ronald B. James