AmericanWest Bancorporation Announces Third Quarter 2009 Financial Results

• Press Release
• Source: AmericanWest Bancorporation
• On 8:15 am EDT, Thursday October 29, 2009

SPOKANE, Wash.--(BUSINESS WIRE)--AmericanWest Bancorporation (NASDAQ: AWBC - News) today announced third quarter financial results which included the following:

• Total balance sheet liquidity increased significantly to $252 million of liquid assets at September 30, 2009, comprised of cash, cash equivalents and securities, as compared to $167 million at June 30, 2009 and $132 million at year end 2008.
• Loans ended the quarter at $1.37 billion, a reduction of $103 million, or 7%, from June 30, 2009 and a reduction of $253 million, or 16%, over the past year.
• Total deposits remained stable at $1.55 billion at September 30, 2009 as compared to $1.52 billion at June 30, 2009.
• Net interest margin was 3.54% for the third quarter of 2009 as compared to 3.35% for the second quarter of 2009 and 3.89% in the third quarter of 2008.
• Provision for loan losses was $9.0 million for the third quarter of 2009 as compared to $11.8 million for the second quarter of 2009 and $27.7 million for the third quarter of 2008.
• Net charge-offs for the third quarter of $8.7 million (2.40% of total loans) as compared to $19.8 million (5.15%) for the second quarter of 2009 and $22.8 million (5.15%) for the third quarter of 2008.
• Non-performing assets remained stable at $156.4 million at September 30, 2009 as compared to $157.5 million at June 30, 2009.
• Mortgage banking revenue decreased $2.2 million, or 71%, as compared to the second quarter of 2009 and $142 thousand, or 13%, as compared to the third quarter of 2008.
• Goodwill impairment charge of $18.9 million was recorded in the third quarter 2009, based on annual impairment testing results, as compared to $82.0 million recorded in the same period of the prior year.
• Total non-interest expense was $19.6 million, excluding a goodwill impairment charge of $18.9 million, which is unchanged from the second quarter.

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For the quarter ended September 30, 2009, AmericanWest Bancorporation (Company) reported a net loss of $28.4 million, or $1.65 per share, as compared to a net loss of $10.5 million, or $0.61 per share, for the second quarter of 2009 and a net loss of $96.9 million, or $5.63 per share, for the third quarter of 2008. Excluding goodwill impairment charges, the net loss was $9.5 million or $0.55 per share for the third quarter 2009 as compared to $14.9 million or $0.87 per share for the third quarter 2008.

For the nine months ended September 30, 2009, the Company reported a net loss of $53.5 million, or $3.11 per share, as compared with a net loss of $134.7 million, or $7.82 per share, for the same period in 2008. Excluding $18.9 million and $109.0 million goodwill impairment charges during the first nine months of 2009 and 2008, respectively, the net losses were $34.6 million ($2.01 per share) and $25.7 million ($1.49 per share).

“Our third quarter results reflect continuing progress on a number of fronts, including a 19 basis point expansion in the net interest margin driven by lower deposit costs, the lowest loan loss provision in two years and an enhanced liquidity position,” remarked Patrick Rusnak, Chief Executive Officer. “Our sights remain firmly fixed on the objective of restoring AmericanWest to sustained profitability and removal of all regulatory restrictions just as quickly as possible.”

Net Interest Margin:

The tax-equivalent net interest margin for the third quarter of 2009 was 3.54%, as compared to 3.35% in the second quarter, and 3.89% for the third quarter of 2008. The 19 basis point increase from the prior quarter is due to the decrease in the cost of funds of 28 basis points, while the yield on earning assets remained unchanged.

The average yield on loans for the third quarter was 5.80%, an increase of 18 basis points from the prior quarter, and a decrease of 54 basis points from the same period in 2008. The loan yield for the third quarter of 2009 was reduced by 61 basis points due to the total impact of non-accrual loans, including both reversed and forgone interest. The average prime rate (the base index for approximately 31% of the Company’s loan portfolio) for the third and second quarters of 2009 was 3.25% as compared to 5.00% for the third quarter of 2008.

The average cost of interest bearing deposits for the third quarter was 1.91%, a decrease of 27 basis points from the second quarter of 2009 and a decrease of 79 basis points from the third quarter of 2008. The cost of borrowed funds, including FHLB advances and junior subordinated debt, was 3.59% for the third quarter of 2009, a decrease of 23 basis points from the second quarter of 2009, and a decrease of 46 basis points from the third quarter of 2008, both due to the mix of borrowings and a decline in variable rates. The average cost of interest bearing liabilities for the third quarter of 2009 was 2.10%, as compared to 2.38% for the second quarter of 2009, and 2.92% for the third quarter of 2008. The Company’s cost of funds inclusive of non-interest bearing deposits was 1.74% for the third quarter of 2009 as compared to 1.98% for the second quarter of 2009, and 2.41% for the same period of 2008.

The tax-equivalent net interest margin for the nine months ended September 30, 2009 was 3.40%, as compared to 4.23% for the similar period of the prior year. The decrease is principally due to a 130 basis point decrease in the yield on interest earning assets, partially offset by a decline in the cost of funds of 71 basis points. The average yield on loans was 5.69% for the first nine months of 2009, a decrease of 112 basis points from the same period of the prior year. The total impact of non-accrual loans, including both reversed and forgone interest, was 73 basis points on the loan yield for the nine months ended September 30, 2009. The cost of interest bearing deposits was 2.20% for the nine months ended September 30, 2009, a decrease of 61 basis points from the similar period of the prior year.

Loans:

Total outstanding loans as of September 30, 2009 were $1.37 billion, as compared to $1.47 billion at June 30, 2009, and $1.62 billion at December 31, 2008. The linked-quarter reduction was principally driven by declines of $46 million in construction and development loans (including $21 million transferred to foreclosed real estate and $2 million in charge-offs), $23 million in commercial and industrial loans (including $1 million in charge-offs), and $21 million in commercial real estate loans (including $5 million transferred to foreclosed real estate and $2 million in charge-offs). Total average loans outstanding for the third quarter of 2009 were $1.44 billion, a decrease of $99 million from the prior quarter end and $324 million from September 30, 2008.

Asset Quality:

Total non-performing assets, net of government guarantees on loans, were 8.87% of total assets at September 30, 2009 as compared to 8.86% of total assets at June 30, 2009, and 5.74% of total assets at December 31, 2008. Non-performing loans, net of government guaranteed amounts, represented 7.30% of total loans at September 30, 2009 as compared to 8.29% of total loans at June 30, 2009 and 5.65% of total loans at December 31, 2008. Non-performing loans reported as of September 30, 2009 reflected cumulative charge-offs of $30.1 million, of which $6.8 million and $26.3 million were recognized during the three and nine months ended September 30, 2009.

“Over the past eight quarters, we have been aggressively addressing the deterioration in our loan portfolio caused by the economy in general, and the residential real estate market in particular, through the timely identification of problem loans, recognition of related losses and commencement of liquidation efforts,” remarked Rusnak. “This disciplined approach is a principal reason why our asset quality metrics, including non-performing and adversely classified assets, are exhibiting clear evidence of stabilization. Our current outlook is for continued asset quality improvement during the fourth quarter of 2009 and into 2010, driven mostly by the liquidation of foreclosed real estate.”

Foreclosed assets at September 30, 2009 totaled $56.3 million and consisted of 41 properties as compared to $35.2 million (30 properties) at June 30, 2009, and $15.8 million (22 properties) as of December 31, 2008. The value of the largest properties being carried at September 30, 2009 were $9.7 million for a residential development project and $8.3 million related to a completed commercial office condominium complex. During the third quarter of 2009, 10 foreclosed properties with an aggregate carrying value of $2.9 million were sold resulting in a pre-tax loss of $85 thousand. In addition, during the third quarter of 2009, $2.0 million of impairment charges were recognized on foreclosed real estate. Foreclosure action has been initiated on substantially all real estate secured non-performing loans, and the Company expects to obtain ownership of approximately $34 million of additional real estate collateral during the fourth quarter of 2009. Further, management expects to complete the sale of approximately $16 million of foreclosed property during the fourth quarter of 2009, without incurring any additional material losses.

At September 30, 2009, the Company had approximately $73 million of loans which were not classified as non-performing but were internally identified as potential problem loans due to management’s concerns about the borrower’s financial condition. This represented approximately 5.3% of total outstanding loans, as compared to 4.7% at June 30, 2009.

The Company recognized a provision for loan losses of $9.0 million or 2.48% of average loans on an annualized basis, for the quarter ended September 30, 2009, as compared to $11.8 million, or 3.07% of average loans on an annualized basis, for the quarter ended June 30, 2009. For the quarter ended September 30, 2008, the Company recognized a provision for loan losses of $27.7 million, or 6.23% of average loans on an annualized basis. For the quarter ended September 30, 2009, net charge-offs were $8.7 million, or 2.40% of average loans annualized, as compared to $19.8 million, or 5.15% of average loans annualized for the quarter ended June 30, 2009 and $22.8 million, or 5.15% of average loans annualized, for the third quarter of 2008.

For the nine months ended September 30, 2009, the Company recognized a provision for loan losses of $34.5 million, or 3.01% of average loans annualized, as compared to $56.9 million and 4.27% for the prior year period.

It is the Company’s general policy to recognize as charge-offs any specific loan impairments for known losses in lieu of carrying such amounts as a loan specific component of the allowance for credit losses. The allowance for credit losses, which is comprised of the allowance for loan losses and reserve for unfunded commitments, was $33.4 million, or 2.44% of total loans at September 30, 2009, an increase of 19 basis points from June 30, 2009 and an increase of 26 basis points from September 30, 2008.

Deposits and Liquidity:

Total average interest bearing deposits for the third quarter of 2009 were $1.24 billion as compared to $1.25 billion in the second quarter of 2009 and $1.26 billion in the third quarter of 2008. Total average non-interest bearing demand deposits for the third quarter of 2009 were $287 million, substantially unchanged from the second quarter, and a decline of $30.1 million, or 9%, from the similar quarter of the prior year. Total average interest bearing demand deposit balances increased $28 million, or 18%, during the quarter and increased $47 million, or 35%, over the last 12 months. The average balance of certificates of deposit decreased $20 million, or 3%, during the third quarter of 2009 and was up $21 million, or 3%, as compared to the third quarter of 2008.

Total deposits as of September 30, 2009 were $1.6 billion, an increase of 2% from June 30, 2009 and a decrease of 1% from December 31, 2008. Total brokered certificates of deposit at September 30, 2009 were $2.5 million, a reduction of $50.0 million from December 31, 2008.

The reduction in loans and the continued stability of the core deposit base has lowered the Company’s reliance on borrowings to fund its liquidity needs over the past year. Total FHLB and other borrowings at September 30, 2009 were $109.2 million, a decrease of $15.9 million from June 30, 2009 and a decrease of $33.8 million from December 31, 2008.

As of September 30, 2009, the Bank had total available secured borrowing capacity of approximately $164.2 million through facilities at the FHLB and the Federal Reserve Bank of San Francisco (Fed) Discount Window program. As of September 30, 2009, the Bank had no borrowings from the Fed Discount Window.

Non-interest Income:

Non-interest income was $4.7 million for the quarter ended September 30, 2009 as compared to $7.0 million for the quarter ended June 30, 2009, and $5.3 million for the same period of the prior year. Fees on mortgage loan sales decreased $2.2 million, or 71%, from the preceding quarter and $142 thousand, or 13%, as compared to the third quarter of 2008. The significant decline in mortgage activity was driven by an increase in mortgage rates and the resulting decline in the volume of production. Fees and service charges on deposits as compared to the prior quarter increased $141 thousand, or 6%, due to increased debit card fees. Fees and service charges on deposits as compared to the same period of the prior year decreased $431 thousand, or 15% due mainly to overdraft fees, which declined $406 thousand. Included in other non-interest income for the third quarter of 2009 was $435 thousand related to a trailing incentive on the sale of a merchant bankcard portfolio in a prior period. Included in other non-interest income for the second quarter of 2009 was a state excise tax refund of $335 thousand related to prior years.

Non-interest income for the nine months ended September 30, 2009 was $17.5 million, as compared to $14.6 million for the similar period of the prior year. Mortgage loan sale income increased $2.8 million due to higher volumes of activity and the market for residential loans during the first half of 2009. Other non-interest income increased $1.4 million due mainly to refunds received related to prior year state excise taxes of $1.3 million, the gain discussed above of $435 thousand on the merchant bankcard portfolio and an increase in net gains recorded on sales of securities of $169 thousand. These were partially offset by income related to the credit card portfolio sold in the prior year, which declined $321 thousand. Fees and service charges on deposits declined $1.3 million as compared to the same period of the prior year due mainly to a decrease in overdraft fees.

Non-interest Expense:

Non-interest expense for the third quarter of 2009 was $38.5 million as compared to $19.6 million for the second quarter of 2009 and $101.3 million for the third quarter of 2008. The third quarter of 2009 and 2008 included goodwill impairment charges of $18.9 million and $82.0 million, respectively, which were based on annual impairment testing results. The goodwill impairment charge during the third quarter of 2009 eliminates the carrying balance of goodwill. Excluding the goodwill impairment charges, non-interest expense for the three months ended September 30, 2009 and 2008 was $19.6 million and $19.3 million, respectively. FDIC assessment expense for the third quarter of 2009 was $1.8 million, an increase of $906 thousand over the second quarter 2009. This increase was mainly due to a reversal of $1.0 million during the second quarter due to an over-accrual in the first quarter. The foreclosed assets expense increased $659 thousand as compared to the second quarter due to charge-downs of carrying values based on updated appraisals. These increases were partially offset by a decline in other non-interest expense of $517 thousand due mainly to lower legal and professional fees.

Non-interest expense, excluding the previously noted goodwill impairment charges, for the nine months ended September 30, 2009 was $59.8 million, an increase of $2.5 million from the prior year. The increase is related to the FDIC assessment expense, which increased $5.4 million due to the special assessment and increased quarterly assessments, and foreclosed assets expense which increased $4.1 million, due mainly to $3.6 million of charge-downs taken during the year. These increases were partially offset by a reduction in salaries and employee benefits of $5.0 million, which is a result of the Company’s ongoing cost savings initiatives.

The efficiency ratio for the quarter ended September 30, 2009 was 86%, as compared to 82% in the prior quarter and 79% for the similar quarter of the prior year.

Income Taxes:

As a result of the Company’s current going concern status since December 31, 2008, all tax benefits from operating losses in 2009 have been deferred and all deferred taxes have been fully reserved, and therefore, the Company has not shown any tax benefit for operating losses in the first nine months of 2009. If the Company is successful in raising additional capital and future operating profitability becomes probable, it is likely the going concern status will be removed and the valuation reserve for deferred tax asset reversed, significantly enhancing the regulatory capital ratios of both the Bank and the Company.

Capital and Regulatory Matters:

At September 30, 2009, total stockholders’ equity was $37.5 million and total tangible shareholders’ equity was $26.2 million, or $1.52 per share. The Company’s tangible equity ratio (tangible equity divided by tangible assets) was 1.50% as of September 30, 2009.

On May 11, 2009, AmericanWest Bank, the wholly-owned operating subsidiary of the Company (Bank), stipulated to entry of an Order to Cease and Desist (Order) by the Federal Deposit Insurance Corporation and the Washington Department of Financial Institutions, Division of Banks. Management believes the Bank is in compliance with all but two provisions contained in the Order. First, the Bank did not attain the required Tier 1 leverage capital ratio of 10% within the required 120 day period, which expired on September 8, 2009. The amount of additional capital required to attain the prescribed Tier 1 leverage ratio as of September 30, 2009 was approximately $109 million (please refer to the Consolidated Financial Highlights section of this release for additional information on regulatory capital ratios).

The Company is continuing to explore all available options with respect to restoration of the Bank’s regulatory capital. “We are actively engaging in discussions with prospective investors and are encouraged by recent improvements in the capital markets environment,” Rusnak remarked. “The stabilization of our asset quality, solid core deposit base and fact that we have already completed substantial organizational changes distinguish our bank from many others seeking new capital.”

Second, the ratio of assets classified as substandard or doubtful noted in the most recent report of examination was not reduced to the required level of 75% of capital by September 8, 2009. The respective ratio was 125% as of September 30, 2009. Although the amount of assets so classified has been reduced by $93.9 million since December 31, 2008, the decrease in the Bank’s regulatory capital resulting from operating losses has impeded the Bank’s ability to achieve the requirements of this provision within the specified timeframe.

On September 15, 2009, the Company entered into a Written Agreement with the Federal Reserve Bank of San Francisco. Substantially all of the requirements of the Written Agreement are similar to requirements imposed on the Company and the Bank pursuant to other regulatory orders and agreements, and the Company and the Bank have been operating in a manner consistent with those requirements.

About AmericanWest Bancorporation:

AmericanWest Bancorporation is a bank holding company whose principal subsidiary is AmericanWest Bank which includes Far West Bank in Utah operating as an integrated division of AmericanWest Bank. AmericanWest Bank is a community bank with 58 financial centers located in Washington, Northern Idaho and Utah. For further information on the Company, please visit our web site at www.awbank.net/IR.

The press release contains certain non-GAAP measures which management believes provide investors with information useful in understanding the financial performance. Readers of this release are urged to review the non-GAAP financial measures in conjunction with the GAAP results as reported. Management believes tangible stockholders’ equity and the tangible equity ratio are meaningful measures of capital adequacy. Tangible stockholders’ equity is calculated as total stockholders’ equity less goodwill and other intangible assets. In addition, tangible assets are total assets less goodwill and other intangible assets. The tangible equity ratio is calculated as tangible stockholders’ equity divided by tangible assets. The press release also contains non-GAAP measures related to eliminating the effects of goodwill impairment and intangible balances on certain amounts and ratios presented herein. Management believes these measures are meaningful to investors in understanding the financial performance during the periods presented.

This press release includes forward-looking statements, and AmericanWest Bancorporation intends for such statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements describe AmericanWest Bancorporation’s expectations regarding future events, including the Company’s ability to improve its regulatory capital ratios and the Company’s projections regarding asset quality trends and foreclosed assets activity. Future events are difficult to predict and are subject to risk and uncertainty which could cause actual results to differ materially and adversely. Additional information regarding risks and uncertainties is included in AmericanWest Bancorporation’s periodic filings on Forms 10-K and 10-Q with the Securities and Exchange Commission. AmericanWest Bancorporation undertakes no obligation to revise or amend any forward-looking statements to reflect subsequent events or circumstances.

The amounts and corresponding ratios set forth in the table above for both “adequately capitalized” and “well capitalized” information are based upon Federal banking regulations. As a result of the Bank being subject to the Order discussed above, it will not be immediately considered “well capitalized” by the FDIC upon attaining the corresponding ratios shown in the table.

AmericanWest Bancorporation
Patrick J. Rusnak
President and CEO
509-232-1963
prusnak@awbank.net
or
Kelly McPhee
Communications Manager
509-232-1968
kmcphee@awbank.net