Five years after becoming one of the first commercial banking companies to buy a healthy thrift, a western Pennsylvania company has seen its experiment in shifting a thrift's product mix bear fruit.

Since 1990, when First Western Bancorp purchased First Federal Savings and Loan of Western Pennsylvania and changed its name to First Western Bank, the profits of the thrift subsidiary have nearly tripled, while its return on assets has more than doubled.

In 1994, the subsidiary earned $4.3 million, up 186% from 1990. Return on assets was 1.03%, up 151% from 1990.

"That shows you the impact of changing the balance sheet mix from thrift products to traditional banking products," said Thomas J. O'Shane, president and chief executive of First Western Bancorp.

The thrift's numbers also contributed to the parent company's own strong performance. New Castle-based First Western, which also has a separate bank subsidiary, earned $15.2 million for 1994.

"It proves the point that you can convert a thrift into a commercial bank and achieve the commercial bank profitability levels," said David L. Martin, principal at Finexc Group in Pittsburgh.

But while Mr. Martin said he believes that acquiring a thrift "can be a very good value if you have the management capability to transition them," he noted that many other institutions that tried to mimic First Western haven't matched its performance.

The $25 million purchase of the $350 million-asset thrift by First Western was one of the first cases of a bank or bank holding company buying a healthy thrift, as allowed under the 1989 thrift bailout law. At the time, it was also the largest such acquisition in the eastern United States.

Prior to its purchase by First Western, the thrift's product mix consisted mostly of certificates of deposit and home mortgages, with slightly more than half of its assets in its investment portfolio. Its highest earnings were $1.7 million, in 1989.

Immediately after the acquisition, the parent company introduced banking products through the thrift's offices, including expanded checking accounts, commercial loans, and consumer loans, such as indirect auto lending and credit cards.

"We saw that as an opportunity to bring banking products to the balance sheet," Mr. O'Shane said. "We saw it as an earnings opportunity for First Western."

The acquisition also provided the company with an inexpensive entry into the eastern Ohio market, which officials wanted because they believed that interstate banking would eventually become reality, Mr. O'Shane said.

Although the transaction proved beneficial in the long run, Mr. O'Shane said, the transition wasn't easy. The company had some difficulty switching some thrift customers over to First Western products because they typically already had a relationship with another bank.

And because the thrift's product offerings had been primarily limited to deposits and some home mortgages, First Western had to retrain the thrift's employees to offer the new products, especially commercial and consumer lending.

Since the 1990 purchase, First Western hasn't shied away from additional thrift acquisitions, and has bought an additional $285 million in deposits. By contrast, the bank has only bought one bank branch in the last five years, in western Pennsylvania.

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