AmericanWest Bancorporation Announces Second Quarter and Year to Date 2010 Financial Results

AmericanWest Bancorporation (OTCBB:AWBC) today announced second quarter and year to date 2010 financial results, which included the following:

• Second quarter 2010 net interest margin was 3.71%, up 9 basis points from the previous quarter and up 36 basis points over the second quarter of 2009.
• Non-performing assets at June 30, 2010 decreased by $12.0 million, or 8%, as compared to the prior quarter, with a reduction in foreclosed property of $9.4 million, or 16%.
• Net charge-offs for the second quarter of 2010 were $4.0 million as compared to $5.5 million for the first quarter of 2010 and $19.8 million for the second quarter of 2009.
• Provision for loan losses was $4.0 million for the second quarter of 2010 as compared to $5.0 million for the first quarter of 2010 and $11.8 million for the second quarter of 2009. This is the lowest provision for loan losses recorded since the third quarter of 2007.
• Total balance sheet liquidity (comprised of cash, cash equivalents and securities) at June 30, 2010 increased to $233.1 million as compared to $229.6 million at March 31, 2010, and decreased from $250.6 million at December 31, 2009.
• Loans ended the quarter at $1.13 billion, a reduction of $59 million, or 5%, from March 31, 2010 and a reduction of $339 million, or 23%, from June 30, 2009.
• Total deposits declined by 1% to $1.39 billion at June 30, 2010 as compared to $1.41 billion at March 31, 2010 and declined by 8% as compared to $1.51 billion at December 31, 2009.
• Total non-interest expense for the second quarter of 2010 included $3.9 million of foreclosed assets expense, including $2.8 million of valuation adjustments, as compared to an expense of $2.7 million for the first quarter of 2010, including $1.2 million of valuation adjustments.

For the quarter ended June 30, 2010, AmericanWest Bancorporation (Company) reported a net loss of $7.9 million, or $0.46 per share, as compared to a net loss of $8.5 million, or $0.50 per share, for the first quarter of 2010 and a net loss of $10.5 million, or $0.61 per share, for the second quarter of 2009. For the six months ended June 30, 2010, the Company reported a net loss of $16.4 million, or $0.95 per share, as compared to a net loss of $25.1 million, or $1.46 per share, for the first six months of the prior year.

Net Interest Margin:

The tax-equivalent net interest margin for the second quarter of 2010 was 3.71%, up 9 basis points from the first quarter of 2010 and up 36 basis points from the second quarter of 2009, principally driven by a reduction in the average cost of deposits and a reduction of average non-accrual loans.

The average yield on loans for the second quarter was 5.84%, unchanged from the prior quarter, and an increase of 22 basis points from the same period in 2009. The loan yield for the second quarter of 2010 was reduced by 51 basis points due to the impact of non-accrual loans, including both reversed and forgone interest, as compared to 64 basis points in the first quarter of 2010.

The average cost of interest bearing deposits for the second quarter was 1.38%, a decrease of 11 basis points from the first quarter of 2010 and a decrease of 80 basis points from the second quarter of 2009. The cost of borrowed funds, including FHLB advances and junior subordinated debt, was 4.24% for the second quarter of 2010, a decrease of 30 basis points from the first quarter of 2010, and an increase of 42 basis points from the second quarter of 2009, due mainly to the mix of borrowings. The average cost of interest bearing liabilities for the second quarter of 2010 was 1.64%, as compared to 1.75% for the first quarter of 2010 and 2.38% for the second quarter of 2009. The Company’s cost of funds inclusive of non-interest bearing deposits was 1.33% for the second quarter of 2010 as compared to 1.42% for the first quarter of 2010 and 1.98% for the second quarter of 2009.

The tax equivalent net interest margin for the first six months of 2010 was 3.67%, up 34 basis points from the same period of the prior year due mainly to the decrease in the cost of interest bearing deposits of 90 basis points and the decrease in the cost of borrowings of 92 basis points. The average yield on loans has increased 21 basis points as compared to the same period of the prior year to 5.84%.

Loans:

Total outstanding loans as of June 30, 2010 were $1.13 billion, as compared to $1.19 billion at March 31, 2010 and $1.27 billion at December 31, 2009. The linked-quarter reduction was principally driven by a decline of $24.5 million in commercial real estate loans (including $2.6 million transferred to foreclosed real estate and $1.2 million in charge-offs) offset by seasonal increases in agriculture loans of $9.6 million. Total average loans outstanding for the second quarter of 2010 were $1.18 billion, a decrease of $53.3 million from the prior quarter and $363.1 million from the same period in 2009.

Asset Quality:

Total non-performing assets, net of government guarantees on loans, were 9.11% of total assets at June 30, 2010 as compared to 9.45% of total assets at March 31, 2010 and 9.58% of total assets at December 31, 2009. Non-performing loans, net of government guaranteed amounts, represented 7.60% of total loans at June 30, 2010 as compared to 7.44% of total loans at March 31, 2010 and 8.28% of total loans at December 31, 2009. Non-performing loans reported as of June 30, 2010 reflected cumulative charge-offs of $20.2 million, of which $5.3 million were recognized during the first six months of 2010. The decrease in non-performing loans during the second quarter is due to principal repayments of $10.8 million, charge-offs of $5.4 million and transfers to foreclosed assets of $3.9 million, offset by additions to non-performing loans of $17.4 million. Foreclosed property at June 30, 2010 totaled $49.0 million and consisted of 44 properties, as compared to $58.3 million (47 properties) at March 31, 2010, and $53.4 million (45 properties) at December 31, 2009. During the second quarter of 2010, 12 foreclosed properties with an aggregate carrying value of $10.4 million were sold, resulting in a net pre-tax loss of $37 thousand. In addition, during the second quarter of 2010, $2.8 million of impairment charges were recognized on foreclosed real estate based upon updated appraisals or adjustments in listing prices resulting from observed market conditions. The $49.0 million carrying value of foreclosed property as of June 30, 2010 was net of $58.1 million of previously recorded loan charge-offs and valuation adjustments. During the month of July 2010, $3.8 million of foreclosed assets were sold with $224 thousand of gains recorded. Foreclosure action has been initiated on certain real estate secured non-performing loans, and the Company expects to obtain ownership of approximately $9 million of additional real estate collateral during the third quarter of 2010.

At June 30, 2010, the Company had approximately $102.1 million of loans, net of government guarantees, 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 9.0% of total outstanding loans, as compared to 7.8% at March 31, 2010.

The Company recognized a second quarter 2010 provision for loan losses of $4.0 million or 1.36% of average loans on an annualized basis, as compared to $5.0 million, or 1.65% of average loans on an annualized basis, for the quarter ended March 31, 2010. For the quarter ended June 30, 2009, the Company recognized a provision for loan losses of $11.8 million, or 3.07% of average loans on an annualized basis. For the quarter ended June 30, 2010, net charge-offs were $4.0 million, or 1.35% of average loans annualized, as compared to $5.5 million, or 1.81% of average loans annualized, for the quarter ended March 31, 2010 and $19.8 million, or 5.15% of average loans annualized, for the second quarter of 2009.

The Company recognized a provision for loan losses for the first six months of 2010 of $9.0 million or 1.51% of average loans on an annualized basis, as compared to $25.5 million, or 3.26% of average loans on an annualized basis, for the same period of 2009. For the six months ended June 30, 2010, net charge-offs were $9.5 million, or 1.59% of average loans annualized, as compared to $37.5 million, or 4.80% of average loans annualized, for the same period of 2009.

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 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 $38.9 million, or 3.43% of total loans at June 30, 2010, an increase of 33 basis points from December 31, 2009 and an increase of 118 basis points from June 30, 2009. Included in the allowance for loan losses at June 30, 2010 was $1.7 million of specific reserves associated with one loan.

Deposits and Liquidity:

Total average interest bearing deposits for the second quarter of 2010 were $1.11 billion as compared to $1.16 billion in the first quarter of 2010 and $1.25 billion in the second quarter of 2009. Total average non-interest bearing demand deposits for the second quarter of 2010 were $282.8 million, a decrease of $12.3 million, or 4% as compared to the first quarter of 2010, and substantially unchanged from the same period of the prior year. Total average interest bearing demand deposit balances remained consistent with March 31, 2010 and increased $35.6 million, or 23% since June 30, 2009 due mainly to promotional campaigns. The average savings and MMDA deposits in the second quarter of 2010 decreased $28.1 million, or 8% as compared to the first quarter of 2010, and decreased $79.9 million, or 20% as compared to the second quarter of 2009. The average balance of certificates of deposits for the second quarter of 2010 decreased $22.8 million, or 4%, as compared to the first quarter of 2010, and decreased $100.2 million, or 15%, as compared to the second quarter of 2009. Total average deposits for the six months ended June 30, 2010 declined $107.5 million, or 7%, as compared to the same period of 2009.

Total deposits as of June 30, 2010 were $1.39 billion, a decrease of 1% from March 31, 2010 and a decrease of 8% from December 31, 2009. Total brokered certificates of deposit at June 30, 2010 were $2.5 million, unchanged from December 31, 2009.

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 June 30, 2010 were $23.6 million as compared to $68.7 million at March 31, 2010, and $63.7 million at December 31, 2009.

As of June 30, 2010, AmericanWest Bank, the wholly-owned operating subsidiary of the Company (Bank) had total available secured borrowing capacity of approximately $198 million through facilities at the FHLB and the Federal Reserve Bank of San Francisco (Fed) Discount Window program. As of June 30, 2010, the Bank had no borrowings from the Fed Discount Window.

Non-interest Income:

Non-interest income for the second quarter of 2010 was $4.3 million, as compared to $2.8 million for the first quarter of 2010, and $7.0 million for the second quarter of 2009. Fees and service charges on deposits were $2.2 million, an increase of $138 thousand, or 7%, as compared to the first quarter of 2010 and a decrease of $86 thousand, or 4%, as compared to the second quarter of 2009. Fees on mortgage loan sales were $628 thousand, an increase of $90 thousand, or 17%, as compared to the first quarter of 2010 and a decrease of $2.5 million, or 80%, from the second quarter of 2009, due to lower volumes of mortgages originated and sold. Other non-interest income was $1.4 million for the second quarter of 2010 as compared to $197 thousand for the first quarter of 2010, and $1.5 million for the second quarter of 2009. Included in other non-interest income for the second quarter of 2010 were gross gains on sales of foreclosed assets of $1.1 million which was offset by gross losses, resulting in net losses of $37 thousand for the quarter. Additionally, $808 thousand of gains were recorded related to the termination and reversal of certain contractual liabilities during the quarter. The first quarter of 2010 included net foreclosed asset losses of $169 thousand. Included in other non-interest income for the second quarter of 2009 were net foreclosed asset gains on sales of $428 thousand and $335 thousand of income related to a state excise tax refund.

Non-interest income for the six months ended June 30, 2010 was $7.1 million as compared to $12.8 million for the same period of the prior year. Fees and service charges on deposits for the first six months of 2010 totaled $4.3 million, as compared to $4.5 million for 2009. Fees on mortgage loan sales for the first six months of 2010 were $1.2 million, a decline of $3.9 million, or 77%, as compared to 2009, principally due to lower volumes of mortgages originated and sold. For the six months ended June 30, 2010, other non-interest income was $1.6 million, a decrease of $1.6 million, or 49%, as compared to prior year period. Included in the 2010 results was a one-time excise tax refund of $1.3 million.

Non-interest Expense:

Non-interest expense for the second quarter of 2010 was $21.0 million, as compared to $19.3 million in the first quarter of 2010, and $19.6 million in the second quarter of 2009. Foreclosed assets expense for the second quarter of 2010 was $3.9 million, an increase of $1.2 million, or 42%, as compared to the first quarter of 2010 and an increase of $1.7 million, or 75%, as compared to the second quarter of the prior year. The second quarter of 2010 included valuation adjustments recorded based on updated appraisals and other market valuation considerations of $2.8 million, as compared to $1.2 million in the first quarter of 2010 and $1.5 million for the similar period of the prior year. Other non-interest expenses for the second quarter of 2010 were $3.3 million, an increase of $857 thousand, or 34%, as compared to the first quarter of 2010 and increased $323 thousand, or 11%, as compared to the similar period of the prior year. The increase from the first quarter of 2010 and the prior year period was due mainly to increased legal fees associated with capital restoration efforts of $533 thousand and $493 thousand, respectively. Salaries and employee benefits expense for the second quarter of 2010 was $7.8 million, a decrease of $223 thousand, or 3%, as compared to the first quarter of 2010 and a decrease of $1.0 million, or 11%, from the same quarter of the prior year. The decrease from the first quarter of 2010 is related mainly to reduced employee benefit costs and the decrease from the same quarter of the prior year is related mainly to a reduction in full-time equivalent employees of 8% resulting from ongoing cost saving initiatives.

Non-interest expense for the six months ended June 30, 2010 was $40.2 million which is substantially unchanged from the same period of the prior year. This includes a reduction in salaries and employee benefits of $1.8 million, or 10% as compared to the same period of the prior year related mainly to the reduction in full-time equivalent employees as part of the Company’s cost savings initiatives. The foreclosed assets expense for the first six months of 2010 was $6.6 million, an increase of $3.8 million, or 133%, as compared to the prior year. This increase is related to $2.3 million of valuation adjustments and increased foreclosure expenses and carrying costs related to properties. Additional reductions of expenses were in the FDIC assessment expense ($900 thousand, or 21%) related mainly to a special assessment in the prior year, and occupancy and equipment expense ($605 thousand, or 8%) due to cost saving initiatives. Other non-interest expense was $5.8 million for the first six months of 2010, a decrease of $116 thousand, or 2%.

The efficiency ratio for the quarter ended June 30, 2010 was 96%, as compared to 101% in the prior quarter and 80% for the similar quarter of the prior year. The efficiency ratio for the six months ended June 30, 2010 was 99% as compared to 88% for the same period of the prior year.

Income Taxes:

As a result of the Company’s going concern status, since December 31, 2008 and 2009, all tax benefits from operating losses 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.

Capital and Regulatory Matters:

At June 30, 2010, total stockholders’ equity was $3.5 million. At June 30, 2010, the Bank continued to be classified as "significantly undercapitalized” for regulatory capital purposes, which is unchanged from March 31, 2010. The Company and Bank’s regulatory capital ratios as of June 30, 2010 are included in the financial tables accompanying this release. Although Management is continuing to actively pursue various alternatives for a recapitalization of the Company and the Bank with its financial advisors, there is no assurance that such efforts will ultimately be successful.

On February 24, 2010, the FDIC issued a Supervisory Prompt Corrective Action Directive directing the Bank to recapitalize within 30 days of receipt, and reiterating various requirements already imposed on the Bank by the Order described below.

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 agreements, and the Company and the Bank have been operating in a manner consistent with those requirements.

On May 11, 2009, the Bank stipulated to entry of an Order to Cease and Desist (Order) by the FDIC 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 June 30, 2010 was approximately $114.7 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 103% as of June 30, 2010. Although the amount of assets so classified has been reduced by $144.6 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.

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.

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.