AmericanWest Bancorporation Announces Fourth Quarter and Year End 2009 Financial Results and Engagement of New Financial Advisor

AmericanWest Bancorporation (NASDAQ: AWBC) today announced fourth quarter and year-end 2009 financial results, which included the following:

• Total balance sheet liquidity at December 31, 2009 remained steady compared to the prior quarter end, with $251 million of liquid assets (comprised of cash, cash equivalents and securities), and increased by $118 million from year end 2008.
• Loans ended the quarter at $1.27 billion, a reduction of $99 million, or 7%, from September 30, 2009 and a reduction of $353 million, or 22%, over the past year.
• Total deposits declined by 3% to $1.51 billion at December 31, 2009 as compared to $1.55 billion at September 30, 2009, as was expected based on reduced funding requirements resulting from loan repayments and foreclosed property liquidations during the quarter.
• Fourth quarter 2009 net interest margin was 3.54%, flat to the previous quarter and up 15 basis points over the fourth quarter of 2008.
• Provision for loan losses was $15.9 million for the fourth quarter of 2009 as compared to $9.0 million for the third quarter of 2009 and $40.3 million for the fourth quarter of 2008.
• Net charge-offs for the fourth quarter of 2009 were $9.8 million as compared to $8.7 million for the third quarter of 2009 and $32.2 million for the fourth quarter of 2008.
• Non-performing assets at December 31, 2009 increased by $4.0 million, or 3%, as compared to the prior quarter.
• Total non-interest expense for the fourth quarter of 2009 included $15.2 million of foreclosed property expense, including $13.0 million of valuation adjustments.

For the quarter ended December 31, 2009, AmericanWest Bancorporation (Company) reported a net loss of $17.7 million, or $1.03 per share, as compared to a net loss of $28.4 million, or $1.65 per share, for the third quarter of 2009 and a net loss of $57.7 million, or $3.35 per share, for the fourth quarter of 2008. Excluding a goodwill impairment charge, the net loss for the third quarter of 2009 would have been $9.5 million, or $0.55 per share.

For the year ended December 31, 2009, the Company reported a net loss of $71.1 million, or $4.13 per share, as compared with a net loss of $192.4 million, or $11.18 per share, for 2008. Excluding $18.9 million and $109.0 million goodwill impairment charges during the years ended December 31, 2009 and 2008, respectively, the net losses would have been $52.3 million ($3.04 per share) and $83.4 million ($4.84 per share).

Net Interest Margin:

The tax-equivalent net interest margin for the fourth quarter of 2009 of 3.54% was flat to the previous quarter and up 15 basis points from the same period in 2008, principally driven by a reduction in the average cost of deposits.

The average yield on loans for the fourth quarter was 5.81%, an increase of 1 basis point from the prior quarter, and a decrease of 18 basis points from the same period in 2008. The loan yield for the fourth quarter of 2009 was reduced by 50 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 29% of the Company’s loan portfolio) for the fourth quarter of 2009 was 3.25% as compared to 4.06% for the fourth quarter of 2008.

The average cost of interest bearing deposits for the fourth quarter was 1.66%, a decrease of 25 basis points from the third quarter of 2009 and a decrease of 115 basis points from the fourth quarter of 2008. The cost of borrowed funds, including FHLB advances and junior subordinated debt, was 4.34% for the fourth quarter of 2009, an increase of 75 basis points from the third quarter of 2009, and a decrease of 2 basis points from the fourth quarter of 2008, due mainly to the mix of borrowings. The average cost of interest bearing liabilities for the fourth quarter of 2009 was 1.88%, as compared to 2.10% for the third quarter of 2009, and 3.01% for the fourth quarter of 2008. The Company’s cost of funds inclusive of non-interest bearing deposits was 1.53% for the fourth quarter of 2009 as compared to 1.74% for the third quarter of 2009, and 2.49% for the same period of 2008.

The tax-equivalent net interest margin for the year ended December 31, 2009 was 3.43%, as compared to 4.03% for the similar period of the prior year. The decrease is principally due to a 116 basis point decrease in the yield on interest earning assets, partially offset by a decline in the cost of funds of 82 basis points. The average yield on loans was 5.71% for 2009, a decrease of 90 basis points from the same period of the prior year. The total impact of non-accrual loans, including both reversed and forgone interest, was 58 basis points on the loan yield for the year ended December 31, 2009. The cost of interest bearing deposits was 2.06% for the year ended December 31, 2009, a decrease of 75 basis points from the prior year.

Loans:

Total outstanding loans as of December 31, 2009 were $1.27 billion, as compared to $1.37 billion at September 30, 2009, and $1.62 billion at December 31, 2008. The linked-quarter reduction was principally driven by declines of $61 million in construction and development loans (including $16.3 million transferred to foreclosed real estate and $8.6 million in charge-offs) and $21 million in agricultural loans. Total average loans outstanding for the fourth quarter of 2009 were $1.34 billion, a decrease of $102 million from the prior quarter end and $343 million the same period in 2008.

Asset Quality:

Total non-performing assets, net of government guarantees on loans, were 9.58% of total assets at December 31, 2009 as compared to 8.87% of total assets at September 30, 2009, and 5.74% of total assets at December 31, 2008. Non-performing loans, net of government guaranteed amounts, represented 8.28% of total loans at December 31, 2009 as compared to 7.30% of total loans at September 30, 2009 and 5.65% of total loans at December 31, 2008. Non-performing loans reported as of December 31, 2009 reflected cumulative charge-offs of $24.3 million, of which $20.7 million were recognized during the year ended December 31, 2009. The increase in non-performing loans during the fourth quarter of 2009 was principally attributable to deterioration in borrower financial capacity identified subsequent to year end on two commercial real estate loans with an aggregate combined balance of approximately $20 million. One loan is related to a lodging and entertainment complex located adjacent to a National Park in Utah and the other is related to a ski facility and golf course property in New Hampshire, which is owned and operated by a Utah-based company. "Otherwise promising progress on the asset quality front for the fourth quarter was largely offset by two large real estate loans being moved to non-accrual status,” remarked Patrick J. Rusnak, President and Chief Executive Officer. "We are continuing to witness the impact of a recessionary economic climate and declining real estate values in both the residential and commercial sectors that, regrettably, have pushed some borrowers and financed projects to or past the edge of financial viability. In instances where it makes sense for our Bank, we consider alternatives to restructure debt in a manner that complies with regulatory guidance for prudent workouts. This approach does, however, require that a borrower be cooperative and a project generate sustained cash flow, which can be a tall order in many cases.”

Foreclosed property at December 31, 2009 totaled $53.4 million and consisted of 45 properties, as compared to $56.3 million (34 properties) at September 30, 2009, and $15.8 million (22 properties) as of December 31, 2008. The value of the largest property being carried at December 31, 2009 was $9.7 million for a residential development project in Spokane County, Washington. During the fourth quarter of 2009, 11 foreclosed properties with an aggregate carrying value of $11.3 million were sold, resulting in a pre-tax loss of $567 thousand. In addition, during the fourth quarter of 2009, $13.0 million of impairment charges were recognized on foreclosed real estate based upon updated appraisals or adjustments in listing prices based upon observed market conditions. The $53.4 million carrying value of foreclosed property as of December 31, 2009 was net of $60.3 million of loan charge-offs recognized prior to foreclosure and $15.4 of valuation adjustments recognized subsequent to ownership transfer. Foreclosure action has been initiated on substantially all real estate secured non-performing loans, and the Company expects to obtain ownership of approximately $16.9 million of additional real estate collateral during the first quarter of 2010. Further, management expects to complete the sale of approximately $7.8 million of foreclosed property during the first quarter of 2010, without incurring any additional material losses.

At December 31, 2009, the Company had approximately $80.6 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 6.3% of total outstanding loans, as compared to 5.3% at September 30, 2009.

The Company recognized a fourth quarter 2009 provision for loan losses of $15.9 million or 4.70% of average loans on an annualized basis, as compared to $9.0 million, or 2.48% of average loans on an annualized basis, for the quarter ended September 30, 2009. For the quarter ended December 31, 2008, the Company recognized a provision for loan losses of $40.3 million, or 9.54% of average loans on an annualized basis. For the quarter ended December 31, 2009, net charge-offs were $9.8 million, or 2.92% of average loans annualized, as compared to $8.7 million, or 2.40% of average loans annualized, for the quarter ended September 30, 2009 and $32.2 million, or 7.61% of average loans annualized, for the fourth quarter of 2008.

For the year ended December 31, 2009, the Company recognized a provision for loan losses of $50.3 million, or 3.39% of average loans annualized, as compared to $97.2 million and 5.54% 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 $39.5 million, or 3.10% of total loans at December 31, 2009, an increase of 66 basis points from September 30, 2009 and an increase of 31 basis points from December 31, 2008. Included in the allowance for loan losses at December 31, 2009 was $4.5 million of specific reserves associated with 6 individual loans.

Deposits and Liquidity:

Total average interest bearing deposits for the fourth quarter of 2009 were $1.25 billion as compared to $1.24 billion in the third quarter of 2009 and $1.27 billion in the fourth quarter of 2008. Total average non-interest bearing demand deposits for the fourth quarter of 2009 were $303.0 million, an increase of $16.0 million over the third quarter, and a decline of $6.1 million from the fourth quarter of the prior year. Total average interest bearing demand deposit balances increased $41.1 million during the quarter and increased $93.2 million, or 72%, over the last 12 months. The average balance of certificates of deposit decreased $18.6 million, or 3%, during the fourth quarter of 2009 and decreased $52.0 million, or 7%, as compared to the fourth quarter of 2008. The decrease in certificates of deposit from the prior year was principally the result of a reduction in brokered certificates which matured during fourth quarter of 2008 and first half of 2009.

Total deposits as of December 31, 2009 were $1.51 billion, a decrease of 3% from September 30, 2009 and a decrease of 4% from December 31, 2008. Total brokered certificates of deposit at December 31, 2009 were $2.5 million, a reduction of $50.0 million from December 31, 2008.

The reduction in loans, both through principal repayments and collateral liquidation, and the continued stability of the core deposit base have reduced the Company’s reliance on borrowings to fund its liquidity needs over the past year. Total FHLB and other borrowings at December 31, 2009 were $63.7 million, a decrease of $45.5 million from September 30, 2009 and a decrease of $79.3 million from December 31, 2008.

"Our improved liquidity position was built on the foundation of core deposits, loyal customers and employees dedicated to delivering great service,” remarked Rusnak. "In the case of non-interest bearing deposits, which increased by 6% on an average-balance basis during the fourth quarter, we have nearly 50,000 accounts with an average life of 90 months.”

As of December 31, 2009, the Bank had total available secured borrowing capacity of approximately $184.3 million through facilities at the FHLB and the Federal Reserve Bank of San Francisco (Fed) Discount Window program. As of December 31, 2009, the Bank had no borrowings from the Fed Discount Window.

Non-interest Income:

Non-interest income was $3.5 million for the quarter ended December 31, 2009 as compared to $4.7 million for the quarter ended September 30, 2009, and $4.1 million for the same period of the prior year. Fees on mortgage loan sales increased $85 thousand from the preceding quarter and $346 thousand, or 52%, as compared to the fourth quarter of 2008. Fees and service charges on deposits as compared to the prior quarter decreased $192 thousand, or 8%, due to lower overdraft and debit card fees. Fees and service charges on deposits as compared to the same period of the prior year decreased $295 thousand, or 11%, due mainly to lower overdraft fees, which declined $235 thousand. Included in other non-interest income for the third quarter of 2009 was $435 thousand related to the sale of a merchant bankcard portfolio.

Non-interest income for the year ended December 31, 2009 was $20.9 million, as compared to $18.7 million for 2008. Fees and service charges on deposits declined $1.6 million as compared to the same period of the prior year due mainly to a decrease in overdraft fees. Fees on mortgage loan sales increased $3.2 million due to higher volumes of activity and the market for residential loans, mostly realized during the first half of 2009. Other non-interest income increased $690 thousand as compared to the prior year.

Non-interest Expense:

Non-interest expense for the fourth quarter of 2009 was $32.3 million, as compared to $38.5 million for the third quarter of 2009 and $27.3 million for the fourth quarter of 2008. The third quarter of 2009 included a goodwill impairment charge of $18.9 million, which was based on annual impairment testing results and eliminated the remaining carrying balance of goodwill. Excluding the goodwill impairment charge, non-interest expense for the three months ended September 30, 2009 would have been $19.6 million. Salaries and employee benefits expense for the fourth quarter of 2009 was $7.6 million, down $488 thousand (6%) from the third quarter of 2009 and $2.9 million (28%) from the same period in 2008. The reduction in this expense category is principally due to workforce reduction efforts that were initiated during the fourth quarter of 2008, and the number of full-time equivalent employees has been reduced by 20% as a result of those efforts. Additional cost savings were achieved in the occupancy and equipment expense area, with fourth quarter 2009 expense declining by $400 thousand (10%) as compared to the same period in 2008. Foreclosed assets expense for the fourth quarter of 2009 was $15.2 million, as compared to $2.9 million and $3.5 million for the third quarter of 2009 and fourth quarter of 2008, respectively. Included in the fourth quarter 2009 amount was $13.0 million of valuation adjustments based upon updated appraisals, $588 thousand of legal fees and $1.6 million of expense related to property taxes, insurance and maintenance. Other non-interest expense for the fourth quarter of 2009 was $3.5 million, as compared to $2.5 million for the prior quarter and $5.0 million for the same period in 2008. Factors contributing to the growth in the other expense category over the prior quarter included increases in professional fees associated with regulatory compliance and capital raising efforts ($268 thousand), other operational losses ($264 thousand), provision for unfunded commitments ($122 thousand), and insurance ($97 thousand).

For the year ended December 31, 2009, total non-interest expense excluding goodwill impairment would have been $92.2 million, an increase of $7.5 million from the prior year, with goodwill impairment charges also excluded from the prior year expense. The increase is related to the foreclosed assets expense which increased $16.6 million, due mainly to $16.7 million of valuation adjustments taken during the year, and the FDIC assessment expense, which increased $5.1 million due to a special assessment and increased quarterly assessments. These increases were partially offset by a reduction in salaries and employee benefits of $7.9 million, which is a result of the Company’s ongoing cost savings initiatives.

The efficiency ratio for the quarter ended December 31, 2009 was 95%, as compared to 84% in the prior quarter and 120% 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. The ability of the Company to recognize any tax benefit from its deferred tax assets in the future, even if it is successful in raising additional capital and attaining future operating profitability, will be limited by the current Internal Revenue Code and is not expected to provide a material positive impact on the regulatory capital ratios of the Company or Bank. During the year and quarter ended December 31, 2009, the Company has recorded a tax benefit of $13.2 million based upon a recently enacted tax law change that extended the net operating loss carry-back period to five years, subject to certain limitations.

Capital and Regulatory Matters:

At December 31, 2009, total stockholders’ equity was $19.6 million and total tangible shareholders’ equity was $9.0 million, or $0.52 per share. The Company’s tangible equity ratio (tangible equity divided by tangible assets) was 0.5% as of December 31, 2009. At December 31, 2009, the Bank was classified as "significantly undercapitalized” for regulatory capital purposes. The Company and Bank’s regulatory capital ratios as of December 31, 2009 are included in this release.

On February 18, 2010, the Company and Bank engaged Cappello Capital Corp. of Santa Monica, California, to serve as its financial advisor in connection with a recapitalization. Sandler O’Neill & Partners, LP, which was originally engaged to serve as the Company’s financial advisor for capital raising efforts during 2008, has agreed to continue its efforts to secure commitments from prospective investors in cooperation with Cappello. "We are excited about the prospect of working with Cappello Capital to present AmericanWest’s opportunities to potential investors,” commented Rusnak. "Cappello Capital is an internationally recognized investment bank with an impressive track record in the arena of private equity investments in public companies, decades of successful transaction experience and a client base spanning the globe. I am looking forward to working with the experienced professionals at Cappello to present AmericanWest’s investment thesis to a new investor audience that does not have a government assistance prerequisite. While there can be no assurance of a successful transaction, we are convinced that the combination of the advice and assistance from Cappello Capital with the progress we have made to date with Sandler O’Neill will provide AmericanWest with the best platform for pursuing a successful recapitalization.”

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 December 31, 2009 was approximately $120.7 million (please refer to the Consolidated Financial Highlights section of this release for additional information on regulatory capital ratios). 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 113% as of December 31, 2009. Although the amount of assets so classified has been reduced by $123.2 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.