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
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Act of 1934
For the quarterly period ended September 30, 2001 or
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(_____) 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
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AMERICANWEST BANCORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Washington 91-1259511
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
9506 North Newport Highway, Spokane, WA 99218-1200
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(Address of Principal Executive Offices)
(509) 467-6949
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(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 ___
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The issuer has one class of capital stock, that being common stock. On October
18, 2001, there were 7,234,849 shares of such stock outstanding.
1
AMERICANWEST BANCORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 30, 2001
Table of Contents
Page
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Condition-September 30,
2001 and December 31, 2000 ............................................... 3
Condensed Consolidated Statements of Income - Three and Nine
Months Ended September 30, 2001 and 2000 ................................. 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 ............................ 5
Notes to Consolidated Financial Statements ............................... 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................ 9 - 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 11
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K ......................................... 11
Signatures ............................................................................... 11
2
AmericanWest Bancorporation and Subsidiaries
Condensed Consolidated Statements of Condition
($ In thousands) September 30, December 31,
ASSETS 2001 2000
Cash and due from banks $ 25,719 $ 28,580
Overnight interest bearing deposits with other banks 7,610 1,247
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Cash and cash equivalents 33,329 29,827
Securities 19,104 47,885
Loans, net of allowance for loan losses of $6,415 in 2001
and $4,948 in 2000 555,975 488,459
Accrued interest receivable 6,731 5,379
Premises and equipment, net 13,670 13,215
Foreclosed real estate and other foreclosed assets 1,914 1,510
Life insurance and salary continuation assets 4,384 4,304
Intangible assets 5,056 5,302
Other assets 1,383 2,632
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TOTAL ASSETS $ 641,546 $ 598,513
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LIABILITIES
Noninterest bearing - demand deposits $ 99,500 $ 96,087
Interest bearing:
NOW and savings accounts 207,398 195,241
Time, $100,000 and over 60,005 71,735
Other time 157,629 138,363
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TOTAL DEPOSITS 524,532 501,426
Short-term borrowings 44,001 26,701
Capital lease obligations 637 666
Accrued interest payable 1,946 1,980
Other liabilities 3,410 3,210
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TOTAL LIABILITIES 574,526 533,983
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized 15,000,000; issued
and outstanding 7,315,810 in 2001 and 6,974,012 in 2000 54,073 48,904
Retained earnings 12,782 15,710
Accumulated other comprehensive income/(loss), net of tax 165 (84)
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TOTAL STOCKHOLDERS' EQUITY 67,020 64,530
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TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 641,546 $ 598,513
============= ============
The accompanying notes are an integral part of these statements.
3
AMERICANWEST BANCORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Three Months Ended Year-To-Date
($ In thousands, except per share) September 30, September 30,
2001 2000 2001 2000
INTEREST INCOME
Interest and fees on loans and leases $ 13,215 $ 12,128 $ 38,356 $ 33,467
Interest on securities 368 874 1,826 2,517
Other interest income 33 53 93 331
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 13,616 13,055 40,275 36,315
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INTEREST EXPENSE
Interest on deposits 4,026 5,050 13,720 13,852
Interest on borrowings 529 221 1,558 449
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TOTAL INTEREST EXPENSE 4,555 5,271 15,278 14,301
----------- ----------- ----------- -----------
NET INTEREST INCOME 9,061 7,784 24,997 22,014
Provision for loan losses 1,109 352 2,237 996
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 7,952 7,432 22,760 21,018
----------- ----------- ----------- -----------
NONINTEREST INCOME
Fees and service charges 729 617 1,970 1,857
Insurance commissions 17 268 334 735
Securities gains/(losses) 66 (340) 180 (352)
Other 258 380 1,163 771
----------- ----------- ----------- -----------
TOTAL NONINTEREST INCOME 1,070 925 3,647 3,011
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 3,134 3,194 9,686 9,427
Occupancy expense, net 436 446 1,399 1,333
Equipment expense 419 362 1,211 1,105
Intangible amortization 81 93 249 284
Other operating expense 1,475 1,028 4,183 3,342
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TOTAL NONINTEREST EXPENSE 5,545 5,123 16,728 15,491
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 3,477 3,234 9,679 8,538
INCOME TAX EXPENSE 1,180 1,058 3,248 2,554
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NET INCOME $ 2,297 $ 2,176 $ 6,431 $ 5,984
=========== =========== =========== ===========
Basic earnings per common share $ 0.31 $ 0.27 $ 0.85 $ 0.74
Diluted earnings per common share $ 0.31 $ 0.27 $ 0.85 $ 0.73
Basic weighted average shares outstanding 7,394,407 7,984,136 7,524,709 8,109,992
Diluted weighted average shares outstanding 7,459,925 8,028,994 7,585,197 8,163,009
The accompanying notes are an integral part of these statements.
4
AmericanWest Bancorporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Year-To-Date September 30, 2001 and 2000
($ in thousands)
2001 2000
Cash flows from operating activities:
Net income $ 6,431 $ 5,984
Provision for loan losses 2,237 996
Depreciation and amortization 880 828
(Increase)/decrease in assets and liabilities:
Accrued interest receivable (1,352) (1,765)
Life insurance and salary continuation assets (80) (219)
Other assets 1,495 (2)
Accrued interest payable (34) 603
Other liabilities 200 971
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Net cash provided by operating activities 9,777 7,396
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Cash flows from investing activities:
Securities:
Maturities 17,864 10,483
Sales 25,902 5,128
Purchases (14,735) (13,468)
Net increase in loans (69,753) (50,100)
Sales of premises and equipment 10 509
Purchases of premises and equipment (1,345) (1,288)
Foreclosed real estate activity (404) (345)
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Net cash change in investing activities (42,461) (49,081)
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Cash flows from financing activities:
Net change in deposits 23,106 53,227
Short-term borrowings activity 17,300 (5,226)
Principal payments on capital lease obligations (29) (18)
Cash payments for stock repurchases (4,605) (5,916)
Cash received from stock sales 414 422
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Net cash provided by financing activities 36,186 42,489
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Net change in cash and cash equivalents 3,502 804
Cash and cash equivalents, beginning of year 29,827 26,019
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Cash and cash equivalents, end of quarter $ 33,329 $ 26,823
======== ========
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 subsidiaries (AWBC), AmericanWest Bank, and AmericanWest Bank,
NA after eliminating all significant intercompany balances and transactions.
Effective January 16, 2001, United Security Bank, Home Security Bank, Bank of
Pullman, and AmericanWest Bank were merged to form AmericanWest Bank
headquartered in Spokane, Washington. The merged bank is a state-chartered
commercial bank under the laws of the State of Washington. Effective March 1,
2001 United Security Bancorporation changed its name to AmericanWest
Bancorporation and its Nasdaq stock symbol to AWBC. Effective April 13, 2001
Grant National Bank changed its name to AmericanWest Bank, NA. Effective April
1, 2001 AWBC sold its insurance subsidiary, USB Insurance Agencies, Inc.
AmericanWest Bank has filed an application with the Federal Deposit Insurance
Corporation to merge AmericanWest Bank, NA into AmericanWest Bank. It is
anticipated that this will happen in December 2001.
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, 2000 has been derived from the audited consolidated statement
of condition of AWBC as of that date. The results of operations for the nine
months ended September 30, 2001, are not necessarily indicative of results to be
anticipated for the year ending December 31, 2001. 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, 2000.
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.
6
AMERICANWEST BANCORPORATION
Carrying amount and fair values at September 30, 2001 and December 31, 2000 were
as follows:
September 30, 2001 December 31, 2000
Amortized Fair Financial Amortized Fair Financial
($ in thousands) Cost Value Statements Cost Value Statements
U.S. Treasury securities $ 2,000 $ 2,057 $ 2,057 $ 2,500 $ 2,538 $ 2,538
Obligations of federal government agencies 4,153 4,222 4,222 18,054 17,975 17,975
Mortgage backed securities 3,402 3,462 3,462 9,246 9,093 9,093
Obligations of states, municipalities and
political subdivisions 2,130 2,198 2,198 7,458 7,592 7,592
Other securities 7,170 7,165 7,165 10,755 10,687 10,687
------------------------------------ ------------------------------------
Total $18,855 $19,104 $19,104 $48,013 $47,885 $47,885
==================================== ====================================
NOTE 3. Loans
Loan detail by category as of September 30, 2001 and December 31, 2000 were as
follows:
($ in thousands) September 30, 2001 December 31, 2000
Commercial and industrial $389,990 $317,108
Agricultural 86,372 76,093
Real estate mortgage 41,906 62,173
Real estate construction 16,179 12,252
Installment 23,173 22,489
Bank cards and other 5,302 3,972
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Total loans 562,922 494,087
Allowance for loan losses (6,415) (4,948)
Deferred loan fees, net of deferred costs (532) (680)
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Net loans $555,975 $488,459
================== =================
NOTE 4. Allowance for loan losses
The allowance for loan loss is maintained at levels considered adequate by
management to provide for possible loan losses. The allowance is based on
management's assessment of various factors affecting the loan portfolio,
including problem loans, business conditions and loss experience, and an overall
evaluation of the quality of the underlying collateral. Changes in the allowance
for loan losses during the three and nine months ended September 30, 2001 and
2000 were as follows:
Three Months Ended Year-To-Date
September 30, September 30,
($ in thousands) 2001 2000 2001 2000
Balance, beginning of period $5,511 $4,300 $4,948 $4,349
Provision for loan losses 1,109 352 2,237 996
Loan charge-offs (221) (75) (828) (822)
Loan recoveries 16 22 58 76
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Balance, end of period $6,415 $4,599 $6,415 $4,599
====== ====== ====== ======
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AMERICANWEST BANCORPORATION
NOTE 5. Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
AWBC will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to results in an
increase in net income of $226,000 ($.03 per share) per year. During 2002, AWBC
will perform the first of the required impairment tests of goodwill as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of AWBC.
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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 third quarter and the year-to-date results in 2001 and
2000. 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, 2000, 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 third quarter and
year-to-date results for 2001 and 2000 follows.
AMERICANWEST BANCORPORATION AND SUBSIDIARIES
PERFORMANCE SUMMARY
Three Months Ended September 30, Year-To-Date September 30,
% %
($ in thousands, except per share) 2001 2000 Change 2001 2000 Change
Interest income $13,616 $13,055 4.3% $40,275 $36,315 10.9%
Interest expense 4,555 5,271 -13.6% 15,278 14,301 6.8%
------- ------- ------ ------- ------- -------
Net interest income 9,061 7,784 16.4% 24,997 22,014 13.6%
Provision for loan losses 1,109 352 215.1% 2,237 996 124.6%
------- ------- ------ ------- ------- -------
Net interest income after provision for loan losses 7,952 7,432 7.0% 22,760 21,018 8.3%
Noninterest income 1,070 925 15.7% 3,647 3,011 21.1%
Noninterest expense 5,545 5,123 8.2% 16,728 15,491 8.0%
------- ------- ------ ------- ------- -------
Income before income taxes 3,477 3,234 7.5% 9,679 8,538 13.4%
Income taxes 1,180 1,058 11.5% 3,248 2,554 27.2%
------- ------- ------ ------- ------- -------
Net income $ 2,297 $ 2,176 5.6% $ 6,431 $ 5,984 7.5%
======= ======= ====== ======= ======= =======
Basic earnings per common share $ 0.31 $ 0.27 14.8% $ 0.85 $ 0.74 14.9%
Diluted earnings per common share $ 0.31 $ 0.27 14.8% $ 0.85 $ 0.73 16.4%
Net Income
AWBC reported net income of $2,297,000 for the third quarter of 2001 compared to
$2,176,000 for the same period in 2000. Diluted earnings per share were $.31 in
2001 and $.27 in 2000. Net income for the first nine months of 2001 was
$6,431,000 and $.85 per share compared to $5,984,000 and $.73 per share in 2000.
For the first nine months of 2001 AWBC had gains of $391,000 from the sale of
its insurance subsidiary, a $156,000 gain from the sale of its investment in
TransAlliance, and an $119,000 gain from the sale of loans. Nonrecurring
expenses included $270,000 of bank merger expenses and $407,000 of nonperforming
loan legal expenses. The net of these items
9
reduced 2001 earnings by $8,000 and a rounded $.01 per share. 2000 results
included a loss of $358,000 from the sale of securities and a $168,000 gain from
the sale of a former branch site. 2000 net income was reduced $125,000 and $.01
due to these two items.
Net Interest Income
Year 2001 net interest income grew 14% to $24,997,000 compared to $22,014,000 in
2000. The growth in net interest income was due to loan volume growth, which on
an average basis grew 14% to $573 million in 2001 from $501 million in 2000. The
net interest margin to average earning assets declined slightly from 5.87% in
2000 to 5.83% in 2001.
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 1.14% of
loans as of September 30, 2001 and .97% as of September 30, 2000. Based on
Management's review of its loan portfolio the provision for possible loan losses
is 125% higher in 2001 compared to 2000 year-to-date.
Noninterest Income
Noninterest income increased 21% to $3,647,000 comparing 2001 to 2000. The gains
on the sale of the Insurance Agency, TransAlliance, and the loan sale described
above are the primary reasons for the significant increase. Insurance
commissions have declined in 2001 due to the sale of the Insurance Agency. AWBC
had gains on the sale of securities of $180,000 during 2001 for liquidity
purposes.
Noninterest Expense
Noninterest expense increased 8% to $16,728,000 in 2001 from $15,491,000 in
2000. The increase was primarily due to loan officer incentive expense,
nonperforming loan legal expense and bank subsidiary merger expense, which were
described above.
Nonperforming Assets
Total nonperforming assets increased to $18.1 million or 2.83% of total assets
in the third quarter of 2001 compared to $8.1 million or 1.41% the year before.
The majority of the nonperforming assets involve five borrowers, which
management believes are secured on a $3.8 million retail/office complex near
downtown Spokane and two ice skating complexes in Spokane for another $5.2
million. The fourth borrower of $1.2 million is to a restaurant/softball
complex, which is well secured and the fifth borrower of $1.0 million is to an
orchard operation in the Yakima Valley region. The allowance for loan losses was
$6.4 million, equal to 1.14% of total loans and 39.5% of nonperforming loans as
of September 30, 2001.
10
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.
AWBC will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statement is expected to results in an
increase in net income of $226,000 ($.03 per share) per year. During 2002, AWBC
will perform the first of the required impairment tests of goodwill as of
January 1, 2002 and has not yet determined what the effect of these tests will
be on the earnings and financial position of AWBC.
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 third quarter 2001.
(b) Reports on Form 8-K
None in third quarter 2001.
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 October 18, 2001.
AMERICANWEST BANCORPORATION
/s/ Wes Colley
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Wes Colley, President and
Chief Executive Officer
/s/ Dan Murray
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Dan Murray, Senior Vice President and
Credit Administrator
/s/ Chad Galloway
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Chad Galloway, Vice President and
Chief Financial Officer
11