Americanwest Bancorporation (AWBC) 10-Q 2002 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2002 or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       

Commission file number 000-18561

AMERICANWEST BANCORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Washington	91-1259511
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

9506 North Newport Highway, Spokane, WA 99218-1200

(Address of Principal Executive Offices)

(509) 467-6949

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

The issuer has one class of capital stock, that being common stock. On April 18, 2002, there were 7,843,309 shares of such stock outstanding.

AMERICANWEST BANCORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2002

Table of Contents

			Page
Part I	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Statements of Condition—March 31, 2002 and December 31, 2001	3
		Condensed Consolidated Statements of Income—Three Months Ended March 31, 2002 and 2001	4
		Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2002 and 2001	5
		Notes to Consolidated Financial Statements	6-8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8-10
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	10
Part II	Other Information
	Item 6.	Exhibits and Reports on Form 8-K	10
Signatures			10

2

AMERICANWEST BANCORPORATION

AmericanWest Bancorporation and AmericanWest Bank

Condensed Consolidated Statements of Condition

	March 31, 2002		December 31, 2001
	($ In thousands)
ASSETS
Cash and due from banks	$	21,076	$	24,421
Overnight interest bearing deposits with other banks		19,814		535
Cash and cash equivalents		40,890		24,956
Securities		14,085		15,550
Loans, net of allowance for loan losses of $6,380 in 2002 and $6,624 in 2001		602,337		580,899
Accrued interest receivable		5,388		5,368
Premises and equipment, net		13,879		13,488
Foreclosed real estate and other foreclosed assets		1,427		1,616
Life insurance and salary continuation assets		10,594		10,519
Goodwill		3,872		3,872
Intangible assets		1,070		1,098
Other assets		1,922		1,975
TOTAL ASSETS	$	695,464	$	659,341
LIABILITIES
Noninterest bearing—demand deposits	$	96,439	$	98,280
Interest bearing:
NOW and savings accounts		223,123		207,397
Time, $100,000 and over		117,735		81,508
Other time		142,120		145,052
TOTAL DEPOSITS		579,417		532,237
Short-term borrowings		40,228		52,974
Capital lease obligations		617		627
Accrued interest payable		1,386		1,439
Other liabilities		4,038		3,858
TOTAL LIABILITIES		625,686		591,135
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized 15,000,000; issued and outstanding 7,849,809 in 2002 and 7,905,366 in 2001		61,108		61,540
Retained earnings		8,627		6,584
Accumulated other comprehensive income, net of tax		43		82
TOTAL STOCKHOLDERS' EQUITY		69,778		68,206
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY	$	695,464	$	659,341

The accompanying notes are an integral part of these statements.

3

AMERICANWEST BANCORPORATION

AmericanWest Bancorporation and AmericanWest Bank

Condensed Consolidated Statements of Income

	Three Months Ended March 31,
	2002		2001
	($ In thousands, except per share)
INTEREST INCOME
Interest and fees on loans and leases	$	12,730	$	12,501
Interest on securities		216		777
Other interest income		40		41
TOTAL INTEREST INCOME		12,986		13,319
INTEREST EXPENSE
Interest on deposits		3,185		5,099
Interest on borrowings		312		462
TOTAL INTEREST EXPENSE		3,497		5,561
NET INTEREST INCOME		9,489		7,758
Provision for loan losses		810		421
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		8,679		7,337
NONINTEREST INCOME
Fees and service charges		808		580
Insurance commissions		11		310
Securities gains				4
Other		243		357
TOTAL NONINTEREST INCOME		1,062		1,251
NONINTEREST EXPENSE
Salaries and employee benefits		3,678		3,503
Occupancy expense, net		490		520
Equipment expense		473		404
Intangible assets amortization		28		84
Other operating expense		1,363		1,350
TOTAL NONINTEREST EXPENSE		6,032		5,861
INCOME BEFORE INCOME TAX EXPENSE		3,709		2,727
INCOME TAX EXPENSE		1,194		907
NET INCOME	$	2,515	$	1,820
Basic earnings per common share		$0.32		$0.22
Diluted earnings per common share		$0.31		$0.21
Basic weighted average shares outstanding		7,904,009		8,429,012
Diluted weighted average shares outstanding		8,003,117		8,502,078

The accompanying notes are an integral part of these statements.

4

AMERICANWEST BANCORPORATION

AmericanWest Bancorporation and AmericanWest Bank

Condensed Consolidated Statements of Cash Flows

Year-To-Date March 31, 2002 and 2001

($ in thousands)

	2002			2001
Cash flows from operating activities:
Net income	$	2,515		$	1,820
Provision for loan losses		810			421
Depreciation and amortization		345			266
(Increase)/decrease in assets and liabilities:
Accrued interest receivable		(20	)		(502	)
Life insurance and salary continuation assets		(75	)		(3	)
Other assets		82			1,213
Accrued interest payable		(53	)		321
Other liabilities		180			(891	)
Net cash provided by operating activities		3,784			2,645
Cash flows from investing activities:
Securities:
Maturities		1,488			6,656
Sales					645
Purchases		(62	)		(14,199	)
Net increase in loans		(22,248	)		(19,386	)
Purchases of premises and equipment		(736	)		(517	)
Foreclosed real estate activity		189			(32	)
Net cash change in investing activities		(21,369	)		(26,833	)
Cash flows from financing activities:
Net change in deposits		47,180			16,437
Short-term borrowings activity		(12,746	)		7,967
Principal payments on capital lease obligations		(10	)		(9	)
Cash payments for stock repurchases		(1,351	)		(1,191	)
Cash received from stock sales		446			251
Net cash provided by financing activities		33,519			23,455
Net change in cash and cash equivalents		15,934			(733	)
Cash and cash equivalents, beginning of year		24,956			29,827
Cash and cash equivalents, end of quarter	$	40,890		$	29,094

The accompanying notes are an integral part of these statements.

5

AMERICANWEST BANCORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.     Management Statement

The consolidated financial statements include AmericanWest Bancorporation and it’s wholly owned subsidiary (AWBC), AmericanWest Bank, after eliminating all significant intercompany balances and transactions.            

The interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments consisting only of normal recurring accruals necessary for a fair presentation of the financial condition, the results of operations, and cash flows for the interim periods included herein have been made. The consolidated statement of condition of AWBC as of December 31, 2001 has been derived from the audited consolidated statement of condition of AWBC as of that date. The results of operations for the three months ended March 31, 2002, are not necessarily indicative of results to be anticipated for the year ending December 31, 2002. For additional information, refer to the consolidated financial statements and footnotes thereto included in AWBC’s annual report on Form 10-K for the year ended December 31, 2001.            

NOTE 2.    Securities

The securities are classified as available-for-sale and are stated at fair value, and unrealized holding gains and losses, net of related deferred taxes, are reported as a separate component of stockholders’ equity. Gains or losses on available-for-sale securities sales are reported as part of noninterest income based on the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method. Carrying amount and fair values at March 31, 2002 and December 31, 2001 were as follows:

	March 31, 2002				December 31, 2001
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	($ in thousands)
U.S. Treasury securities	$	501	$	532	$	1,001	$	1,043
Obligations of federal government agencies		3,299		3,314		4,531		4,564
Mortgage backed securities		1,979		2,009		2,688		2,730
Obligations of states, municipalities and
political subdivisions		1,246		1,282		1,255		1,297
Other securities		6,993		6,948		5,951		5,916
Total	$	14,018	$	14,085	$	15,426	$	15,550

6

AMERICANWEST BANCORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 3.    Loans

Loan detail by category as of March 31, 2002 and December 31, 2001 were as follows:

	March 31, 2002			December 31, 2001
	($ in thousands)
Commercial and industrial	$	441,109		$	411,197
Agricultural		80,709			88,121
Real estate mortgage		42,855			40,084
Real estate construction		16,830			17,201
Installment		22,181			26,311
Bank cards and other		5,400			5,062
Total loans		609,084			587,976
Allowance for loan losses		(6,380	)		(6,624	)
Deferred loan fees, net of deferred costs		(367	)		(453	)
Net loans	$	602,337		$	580,899

NOTE 4.    Allowance for loan losses

The allowance for loan loss is maintained at levels considered adequate by management to provide for possible loan losses. The allowance is based on management’s assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses during the three months ended March 31, 2002 and 2001 were as follows:

	Three Months Ended March 31,
	2002			2001
	($ in thousands)
Balance, beginning of period	$	6,624		$	4,948
Provision for loan losses		810			421
Loan charge-offs		(1,104	)		(109	)
Loan recoveries		50			16
Balance, end of period	$	6,380		$	5,276

NOTE 5.    Goodwill

In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in January 2002 AWBC performed an impairment test of goodwill resulting in no impairment. As a result, goodwill of $3,872,000 ceased to be amortized. AWBC will continue to periodically evaluate goodwill for impairment.

NOTE 6.    Subsequent event

On April 1, 2002 AWBC announced a definitive agreement to merge with Latah Bancorporation of Latah, Washington and its commercial bank subsidiary Bank of Latah. Bank of Latah operates eight offices, located in Eastern Washington and Northern Idaho. As of December 31, 2001 it had approximately $128 million in assets, $85 million in loans, $109 million in deposits, and $6.6 million in stockholders’ equity. The transaction value is approximately $17.6 million with 80% paid in cash and 20% in

7

AMERICANWEST BANCORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

AWBC stock to Latah shareholders. The purchase method of accounting will be used for recording this transaction.            

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains a review of the results of operations and financial condition for first quarter 2002 and 2001. This information should be read in conjunction with the financial statements and related notes appearing in this report. The reader is assumed to have access to AWBC’s Form 10-K for the year ended December 31, 2001, which contains additional information.

This discussion may contain certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

A performance summary and detailed discussion regarding the first quarter for 2002 and 2001 follows.

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

PERFORMANCE SUMMARY

	Three Months Ended March 31,
	2002		2001		% Change
	($ in thousands, except per share)
Interest income	$	12,986	$	13,319	-2.5	%
Interest expense		3,497		5,561	-37.1	%
Net interest income		9,489		7,758	22.3	%
Provision for loan losses		810		421	92.4	%
Net interest income after provision for loan losses		8,679		7,337	18.3	%
Noninterest income		1,062		1,251	-15.1	%
Noninterest expense		6,032		5,861	2.9	%
Income before income taxes		3,709		2,727	36.0	%
Income taxes		1,194		907	31.6	%
Net income	$	2,515	$	1,820	38.2	%
Basic earnings per common share	$	0.32	$	0.22	45.5	%
Diluted earnings per common share	$	0.31	$	0.21	47.6	%

Net Income            

AWBC reported net income of $2,515,000 for the first quarter of 2002 compared to $1,820,000 for the same period in 2001. Diluted earnings per share were $.31 in 2002 and $.21 in 2001.

8

AMERICANWEST BANCORPORATION

Net Interest Income

Year 2002 net interest income grew 22% to $9,489,000 compared to $7,758,000 in 2001. The growth in net interest income was partly due to loan volume growth, which on an average basis grew 20% to $598 million in 2002 from $500 million in 2001. In addition the net interest margin to average earning assets grew from 5.66% in 2001 to 6.18% in 2002.            

Provision for Loan Losses

The allowance for possible loan losses is based on AWBC’s Credit Management’s evaluation of the loan portfolio. The allowance for loan losses is 1.05% of loans as of March 31, 2002 and 1.03% as of March 31, 2001. Net loan charge-offs were $1.1 million in first quarter 2002 based on an evaluation of the loan portfolio by Management. The provision for loan losses charged to expense for 2002 was 92% higher at $810,000 compared to $421,000 in 2001.            

Noninterest Income

Noninterest income decreased by 15% in 2002 due to the nonrecurring 2001 sales of TransAlliance and the Insurance Agency. Insurance commissions have declined in 2002 due to the sale of the Insurance Agency. Fees and service charges on deposit accounts increased by $228,000 or 39% over 2001 as AWBC improved its collection of overdraft and NSF fees.            

Noninterest Expense

Noninterest expense increased only 3% to $6,032,000 in 2002 from $5,861,000 in 2001. The increase was primarily due to loan officer incentive expense.

Nonperforming Assets

Total nonperforming assets increased to $16.4 million or 2.36% of total assets in the first quarter of 2002 compared to $10.2 million or 1.63% the year before. The majority of the nonperforming assets involve six borrowers totaling $12.3 million. Management believes it is secured on a $4 million retail/office complex and $5 million on two ice skating complexes, all in Spokane. Two apple orchards, each with $1 million owing in the Yakima area, should have no further loss. The sixth loan is also in Yakima for $1.3 million on a nursery and commercial real estate. The allowance for loan losses was $6.4 million, equal to 1.05% of total loans and 42.62% of nonperforming loans at March 31, 2002.

9

AMERICANWEST BANCORPORATION

Subsequent Event

On April 1, 2002 AWBC announced a definitive agreement to merge with Latah Bancorporation of Latah, Washington and its commercial bank subsidiary Bank of Latah. Bank of Latah operates eight offices, located in Eastern Washington and Northern Idaho. As of December 31, 2001 it had approximately $128 million in assets, $85 million in loans, $109 million in deposits, and $6.6 million in stockholders’ equity. The transaction value is approximately $17.6 million with 80% paid in cash and 20% in AWBC stock to Latah shareholders. The purchase method of accounting will be used for recording this transaction.            

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

Management considers interest rate risk to be a market risk that could have a significant effect on the financial condition of AWBC. There have been no material changes in reported market risks faced by AWBC since the end of the most recent fiscal year.

Part II

Other Information

Item 6.    Exhibits and Reports on Form 8-K

(a)  Exhibits

None in first quarter 2002.            

(b)  Reports on Form 8-K

None in first quarter 2002.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on April 18, 2002.            

AMERICANWEST BANCORPORATION

/s/    WES COLLEY

Wes Colley,

President and Chief Executive Officer

/s/    DAN MURRAY

Dan Murray,

Senior Vice President and Credit Administrator

/s/    CHAD GALLOWAY

Chad Galloway,

Vice President and Chief Financial Officer

10