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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 0-18561
AMERICANWEST BANCORPORATION
(Exact name of registrant as specified in its charter)
Washington 91-1259511
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
9506 North Newport Highway
Spokane, Washington 99218-1200
(Address of principal executive offices)
Registrant's telephone number, including area code (509) 467-6949
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
Title of each class
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period as 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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the stock closing prices on stock at
February 28, 2001, was approximately $77,404,000. The number of shares of common
stock outstanding at such date was 7,661,969.
Documents incorporated by reference. Portions of the AmericanWest Bancorporation
definitive Proxy Statement for the annual meeting of shareholders to be held on
May 29, 2001, are incorporated by reference into Part III of the Form 10-K.
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AMERICANWEST BANCORPORATION
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I Page
Item 1. Business.............................................................................. 3
Item 2. Properties............................................................................ 19
Item 3. Legal Proceedings..................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders................................... 19
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.............................................................................. 19
Item 6. Selected Financial Data............................................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................ 26
Item 8. Financial Statements and Supplementary Data........................................... 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................................. 27
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 28
Item 11. Executive Compensation................................................................ 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management........................................................................... 28
Item 13. Certain Relationships and Related Transactions........................................ 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................... 28
SIGNATURES............................................................................................... 29
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AMERICANWEST BANCORPORATION
PART I
Item 1. Business.
AmericanWest Bancorporation
AmericanWest Bancorporation (AWBC) is a multi-bank holding company headquartered
in Spokane, Washington. As of December 31, 2000 AWBC owned five banks, United
Security Bank (Washington) (USB), Home Security Bank (Washington) (HSB), Bank of
Pullman (Idaho) (BOP), Grant National Bank (Washington) (GNB), and AmericanWest
Bank (Washington) (AWB) (collectively, Banks), and also owns USB Insurance
(Washington) (an insurance agency). AWBC conducts its banking business through
thirty-five branches located in communities throughout eastern Washington,
including Spokane and two branches in Moscow, Idaho. AWBC focuses its banking
and other services on individuals, professionals, and small to medium sized
businesses in diversified industries throughout its service area. At December
31, 2000, AWBC had total consolidated assets of $598.5 million, loans of $493.4
million and deposits of $501.4 million. AWBC was founded in 1983 and has been
profitable in every year since its inception. Effective January 16, 2001 AWBC
merged USB, HSB, BOP and AWB to form AmericanWest Bank headquartered in Spokane,
Washington. The branches of USB, HSB, BOP, and AWB have become branches of the
new AmericanWest Bank. Effective March 2, 2001 United Security Bancorporation
changed the name of its bank holding company to AmericanWest Bancorporation with
a new NASDAQ symbol of AWBC.
The Banks
USB was formed in 1974 and serves customers in Spokane and northeastern
Washington from fifteen branches. HSB was formed in 1989 and serves customers in
southeastern Washington from seven branches. BOP was acquired in 1997 and serves
customers in eastern Washington with seven branches including two branches in
Moscow, Idaho. GNB was merged in 1998 and serves customers in central eastern
Washington with two branches. AWB was merged in 1999 and serves customers in
southeastern Washington with four branches. The Banks offer a full range of
financial services to commercial and individual customers, including short-term
and medium-term loans, revolving credit facilities, inventory and accounts
receivable financing, equipment financing, residential and small commercial
construction lending, agricultural lending, mortgage lending, equipment leasing,
various savings programs, checking accounts, installment and personal loans, and
bank credit cards. The Banks also provide a broad range of depository and
lending services to commercial, industrial and agricultural enterprises,
governmental entities and individuals. The Banks' deposit taking and lending
activities are primarily directed to the communities in which their branches are
located. The Banks' primary marketing focus is on small to medium-sized
businesses and professionals in these communities.
The loan portfolios of the Banks consist primarily of commercial, agricultural,
real estate (both mortgage and construction loans) and installment loans. At
December 31, 2000, virtually all of the loans originated by the Banks were
within the Banks' principal service areas.
AWBC is committed to the needs of the local communities it serves, and strives
to provide a high level of personal and professional service to its customers.
Management believes AWBC's involvement, its understanding of its service area
and its local decision-making abilities give it a distinct advantage over larger
banking institutions. AWBC is well positioned to provide loans to small and
medium sized businesses because of AWBC's direct knowledge of its customers'
businesses and the communities it serves. USB, HSB, BOP, GNB and AWB provide
personalized, quality financial service to its customers, which has enabled them
to maintain a stable and relatively low-cost retail deposit base.
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AMERICANWEST BANCORPORATION
USB Insurance
USB Insurance began operations in April 1987 and is engaged in selling a full
line of insurance and financial products such as annuities and mutual funds on
an agency basis to individuals, commercial, industrial and agricultural
enterprises from locations in Colville, Chewelah and Kettle Falls, Washington.
Total revenues of USB Insurance for the year ended December 31, 2000 were
$952,000 as compared to revenues of $997,000 in 1999.
Business Strategy
AWBC's business strategy is to continue to build a growing, profitable community
banking and financial services network by emphasizing high quality customer
service and by focusing on the financial needs of consumers and small to medium-
sized businesses. AWBC intends to pursue an aggressive growth strategy, the key
components of which include:
. Increasing market share in existing markets
. Expanding the markets served through new branch openings and
acquisitions
. Providing superior customer service
AWBC completed a Strategic Plan. It is the vision of AWBC to be, and to be
recognized as, the premier financial services company in the markets we serve.
It is the mission of AWBC to provide all employees with a positive environment
in which to maximize their contribution to our success and attain their career
goals; in order to be responsive to customer needs, and partner in helping
individuals and businesses in our markets achieve their financial goals; in
order to optimize long-term shareholder value and to provide a superior rate of
return on shareholder investment.
Increase Market Share in Existing Markets. Since its formation in 1983, AWBC has
focused on commercial banking to small and medium-sized businesses,
professionals and other individuals. Management believes that AWBC can continue
to gain market share by targeting products and services to these businesses.
AWBC emphasizes the development of long-term relationships with its customers,
which enables the Banks to develop and offer new products that meet its
customers' needs. AWBC is oriented toward the communities it serves and is
actively involved. AWBC believes this community orientation gives a competitive
advantage in attracting and retaining targeted customers.
The consolidation of the banking industry in recent years has resulted in
centralized loan approval in the larger financial institutions with which AWBC
competes. This has resulted in inconvenience and reduced service to small
business and individual customers of these institutions, and has created
opportunities for smaller, locally-focused institutions, such as community
banks, which can approve credit and offer other customized banking services
within each branch. AWBC maintains local loan officers having the authority to
approve large loans.
Expand Markets Served through New Branch Openings and Acquisitions. AWBC intends
to expand its presence in eastern and central Washington by opening new branches
and possibly acquiring other financial institutions in markets not currently
served by the Banks.
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AMERICANWEST BANCORPORATION
Management considers a variety of criteria in evaluating potential branch
expansion, including the demographics and short and long-term growth prospects
for the location, the management and other resources needed to integrate the
branch into its existing operations, the degree to which the branch would
enhance the geographic diversity of AWBC or would enhance the presence in an
existing market, and the estimated cost of opening and operating the branch as
compared to the cost of acquiring an existing office and deposit base.
In addition to internal growth, there may be attractive opportunities to grow
AWBC through carefully selected acquisitions of other financial institutions or
their branches in central and eastern Washington, eastern Oregon and northern
Idaho.
During 2000 USB opened a branch in North Spokane. During 1999 USB opened
branches in four supermarket locations in Spokane. HSB opened a branch in
Richland, Washington. BOP built a new branch in Moscow, Idaho replacing its old
branch and also opened a supermarket branch in Moscow, Idaho. During 1999 USB
and GNB consolidated two branches in Moses Lake, Washington and HSB and AWB
consolidated two branches in Walla Walla, Washington. During 2001 USB and BOP
closed two supermarket locations, which were near full service branches.
AmericanWest Bank. On February 1, 1999 AWBC completed its merger with
AmericanWest Bank (AWB), Walla Walla, Washington. AWB was previously known as
Bank of the West, but sold the use of its name in 1999 for $1,250,000. AWB has
four branches located in Southeastern Washington. As of February 1, 1999 AWB had
approximately $103 million in assets, $68 million in loans, $90 million in
deposits and $12 million in equity. 1,749,300 AWBC shares were issued to AWB
shareholders for the merger. The pooling-of-interests accounting method was used
for the transaction.
Grant National Bank. On July 20, 1998 AWBC issued 468,270 common shares in
exchange for all of the outstanding shares of GNB. As of July 20, 1998 GNB had
approximately $32 million in assets, $29 million in deposits, $22 million in
loans, and $3.4 million in total equity. The-pooling of-interests accounting
method was used for the transaction.
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AMERICANWEST BANCORPORATION
Provide Superior Customer Service. AWBC attributes it success to its efforts to
offer superior, personal service through professional bankers at all of its
branches. AWBC distinguishes itself in its markets by emphasizing a culture in
which customers are the highest priority in all aspects. Ongoing employee
training is focused on customer needs, responsiveness and courtesy to customers.
AWBC's marketing efforts and operating practices emphasize ties to the local
communities it serves, and its commitment to providing the highest level of
personalized service.
Lending Activities
AWBC's loan portfolio consists primarily of commercial loans, agricultural
loans, real estate mortgage loans, residential real estate and other
construction loans, consumer installment loans and bankcard loans. At December
31, 2000, AWBC had total loans outstanding of $493 million, which equals 98.4%
of AWBC's deposits and 82.4% of its assets. Approximately $212 million of the
loans were originated by USB, $97 million by HSB, $53 million by BOP, $33
million by GNB, and $98 million by AWB. Virtually all of the loans held by AWBC
were to borrowers within the Banks' principal market areas. See loan category
amounts for five years in Item 6, selected financial data.
Commercial Loans. Commercial loans primarily consist of loans to businesses for
various purposes, including revolving lines of credit, equipment financing loans
and letters of credit. These loans generally mature within five years, have
adjustable rates and are secured by inventory, accounts receivable, equipment or
real estate. AWBC also classifies commercial construction loans as commercial
loans.
Agricultural Loans. Agricultural loans primarily consist of farm loans to
finance operating expenses. These loans generally mature within one year, have
adjustable rates and are secured by farm real estate, equipment, crops or
livestock. Since agricultural loans present certain risks not associated with
other types of lending, the policy of the Banks has been to make such loans
generally only to agricultural producers with diverse crops, thereby mitigating
the risk of loss attributable to a crop failure or the deterioration of
commodity prices.
Mortgage Loans. Mortgage loans include various types of loans for which AWBC
holds real property as collateral. These loans include adjustable and fixed rate
first mortgage loans secured by one to four family residential properties,
second mortgage loans secured by one to four family residential properties, and
loans secured by multifamily (five or more) residential properties. Mortgage
loans typically mature in one to five years and require payments on amortization
schedules ranging from one year to twenty years.
Construction Loans. Construction loans are made to individuals and contractors
to construct primarily single-family principal residences. These loans have
maturities of three months to six months. Interest rates are typically
adjustable, although some fixed-rate loans are made. AWBC's policy is to require
that a permanent financing commitment be in place before a construction loan is
made to an individual borrower.
Installment and Other Loans. Installment loans are primarily automobile and home
equity loans. Consumer loans generally have maturities of five years or less,
and fixed interest rates. Other loans consist of personal lines of credit and
bankcard advances. Personal lines of credit generally have maturities of one
year or less, and fixed interest rates. Bankcard advances are generally due
within 30 days and bear interest at rates that vary from time-to-time.
6
AMERICANWEST BANCORPORATION
Interest Rates. The interest rates earned on loans vary with the degree of risk
and amount of the loan, and are further subject to competitive pressures, money
market rates, the availability of funds and government regulations.
Approximately 38% of the loans in AWBC's portfolio have interest rates that
float with the lending Bank's reference rate, which is in turn based on various
indices such as the rates of interest charged by money center banks.
Lending and Credit Management. USB, HSB, BOP, GNB, and AWB follow loan policies,
which are overseen by AWBC. The policies establish levels of loan commitment by
loan type, and credit review and grading criteria, and other matters such as
loan administration, loans to affiliates, costs, problem loans and loan loss
reserves, and related items. Loans are typically reviewed and graded on a
monthly basis.
All loan applications are processed at the Banks' branch lending offices.
Designated officers in accordance with the respective guidelines and
underwriting policies of the Banks approve all loan applications. Credit limits
generally vary according to the type of loan and the individual loan officer's
experience. The maximum current loan limits available to any one individual vary
from $25,000 to $6,000,000 per loan. In addition, five individuals currently can
combine their credit authority, to a maximum of $4,000,000 for USB, $2,000,000
for HSB, $900,000 for BOP, $200,000 for GNB, and $2,500,000 for AWB with respect
to certain loans. Loans in excess of the above amounts require the approval of
the board of directors of the lending Bank.
Under applicable federal and state law, permissible loans to one borrower by
either of the Banks are also limited. The Banks, as a matter of policy, do not
extend credit to any single borrower in excess of $4,000,000, $2,000,000,
$900,000, $590,000, and $2,500,000 for USB, HSB, BOP, GNB, and AWB,
respectively. At December 31, 2000, 1999 and 1998, the outstanding balance of
loan participations sold outside AWBC was $51.2 million, $17.1 million, and
$18.3 million, respectively.
Secondary Mortgage Sales. AWBC sells mortgage loans in the secondary market as a
correspondent and a broker. AWBC offers a variety of products for refinance and
purchases; and is approved to originate FHA and VA loans. The majority of loans
originated in 2000 were fixed rate single-family loans. Such loans were sold on
a servicing released basis. USB does not retain mortgage-servicing
responsibilities. AWB retains servicing for the mortgage loans it sells, which
was $10.0 million sold in 2000. In 2000, USB sold $15.2 million in mortgage
loans, consisting of $14.6 million of fixed rate residential loans and $.6
million of adjustable rate residential loans.
7
AMERICANWEST BANCORPORATION
Nonperforming Assets. The following table provides information for AWBC's
nonperforming assets.
Year ended December 31,
($ in thousands) 2000 1999 1998 1997 1996
Nonperforming loans:
Nonaccrual loans $5,458 $5,875 $1,481 $2,220 $472
Accrual loans 90 days or more past due 1,339 489 664 982 496
------------ ----------- ----------- ----------- -----------
Total nonperforming loans 6,797 6,364 2,145 3,202 968
Other real estate owned and other repossessed assets 1,510 1,179 1,245 1,167 205
------------ ----------- ----------- ----------- -----------
Total nonperforming assets $8,307 $7,543 $3,390 $4,369 $1,173
============ =========== =========== =========== ===========
Allowance for loan losses $4,948 $4,349 $3,819 $3,869 $2,906
Ratio of total nonperforming assets to total assets 1.39% 1.43% 0.66% 0.90% 0.33%
Ratio of total nonperforming loans to total loans 1.38% 1.51% 0.59% 1.01% 0.38%
Ratio of allowance for loan losses to total nonperforming loans 72.8% 68.3% 178.0% 120.8% 300.2%
AWBC's nonperforming loans consist of nonaccruing loans and accruing loans 90
days or more past due. Accruing loans 90 days or more past due remain on an
accrual basis because they are adequately collateralized and in the process of
collection. For nonaccrual loans no interest is taken into income unless
received in cash or until such time as the borrower demonstrates an ability to
resume payments of principal and interest. Interest previously accrued, but not
collected is reversed and charged against income at the time a loan is placed in
nonaccrual status. The increase in nonperforming and nonaccrual loans in 1999
and 2000 is primarily due to loans to one borrower for a combined use project
(condo/retail/office) currently under redevelopment near downtown Spokane.
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, management periodically
performs valuations and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Real estate properties and other
repossessed assets of AWBC had a book value of $1,510,000 as of December 31,
2000, consisting primarily of commercial and chattel property.
Analysis of Allowance for Loan Losses
The allowance for loan losses represents management's recognition of the risks
of extending credit and its evaluation of the quality of the loan portfolios of
the Banks. The allowance is maintained at levels considered adequate by
management to provide for anticipated loan losses, and is based on management's
assessment of factors affecting the loan portfolios, including problem loans,
business conditions and loss experience, an overall evaluation of the quality of
the underlying collateral, and collateral selling costs. The allowance is
increased by provisions charged to operations and is reduced by loans charged
off, net of any recoveries.
In originating loans the Banks recognize that losses will be experienced and
that the risk of loss will vary depending on the type of loan, the
creditworthiness of the borrower over the term of the loan, general economic
conditions, and the quality of the security for the loan. As a result, the Banks
maintain an allowance for loan losses by following generally accepted accounting
principles outlined in SFAS No. 5, Accounting for Contingencies. AWBC has
established systematic methodologies for determination of the adequacy of the
allowance for loan losses. The methodologies are set forth in a formal policy
and take into consideration the need for an overall general valuation allowance
and specific allowances for individual nonperforming loans. AWBC adopted SFAS
No. 114 and No. 118, Accounting by Creditors for Impairment of a Loan. These
accounting pronouncements require specific identification of an allowance for
loan loss for an impaired or nonperforming loan.
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AMERICANWEST BANCORPORATION
AWBC believes it has established its existing allowance for loan losses in
accordance with generally accepted accounting principles. In addition banking
regulators may request an additional allowance for loan losses based on their
review of the loan portfolio. Also future events affecting borrowers and
collateral cannot be predicted with certainty, which may result in an increase
to the future allowance for loan losses as additional information becomes
available. AWBC management believes that the allowance for loan losses is
adequate.
The following table sets forth information regarding changes in AWBC's allowance
for loan losses as follows:
Years ended December 31,
($ in thousands) 2000 1999 1998 1997 1996
Balance of allowance for loan losses at beginning of period $ 4,349 $ 3,819 $ 3,869 $ 2,906 $ 2,154
Charge-offs
Commercial 833 755 348 526 360
Agricultural 213 112
Real estate 97 210 157 272
Installment 164 199 220 191 87
Other 46 84 126 35 61
------------- ------------- ------------ ------------ ------------
Total charge-offs 1,140 1,248 1,064 1,136 508
Recoveries
Commercial 51 119 167 293 59
Agricultural 173
Real estate 2 40 22 37
Installment 42 30 31 14 6
Other 1 12 10 1
------------- ------------- ------------ ------------ ------------
Total recoveries 96 201 230 344 239
Net charge-offs 1,044 1,047 834 792 269
Provision for loan losses 1,643 1,577 784 1,055 1,021
Allowance acquired through acquisition 700
------------- ------------- ------------ ------------ ------------
Balance of allowance for loan losses at end of period $ 4,948 $ 4,349 $ 3,819 $ 3,869 $ 2,906
============= ============= ============ ============ ============
Ratio of net charge-offs to average loans 0.23% 0.27% 0.24% 0.29% 0.11%
Average loans outstanding during the period $ 450,901 $ 394,132 $ 344,470 $ 276,180 $ 237,112
The following table sets forth the allowance for loan losses by loan category,
based on management's assessment of the risk associated with such categories as
of the dates indicated, and summarizes the percentage of gross loans in each
category to total gross loans.
December 31,
2000 1999 1998 1997 1996
Amount of Amount of Amount of Amount of Amount of
($ in thousands) Allowance % Allowance % Allowance % Allowance % Allowance %
Commercial $3,167 64% $2,535 58% $2,040 53% $1,863 48% $1,401 48%
Agricultural 742 15% 688 16% 658 17% 691 18% 535 18%
Real estate-mortgage 643 13% 685 16% 662 17% 813 21% 572 20%
Real estate-construction 99 2% 152 3% 149 4% 104 3% 113 4%
Installment 247 5% 218 5% 214 6% 265 7% 200 7%
Other 50 1% 71 2% 96 3% 133 3% 85 3%
------------------- -------------------- -------------------- -------------------- --------------------
Total $4,948 100% $4,349 100% $3,819 100% $3,869 100% $2,906 100%
=================== ==================== ==================== ==================== ====================
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AMERICANWEST BANCORPORATION
Investments
Management of the investment portfolio is by the Vice President and Chief
Financial Officer and reviewed with the AWBC Asset/Liability Committee, which
consists of AWBC's President and Chief Executive Officer, Vice President and
Chief Financial Officer, Senior Vice President and Loan Administrator, and the
Vice President and Senior Operations Officer. The AWBC investments are managed
consistent with the Liquidity, Asset/Liability, and Investment Management
Policy, which were approved by the Board of Directors.
The following table sets forth the carrying value, by type, of the securities in
AWBC's portfolio at December 31, 2000, 1999 and 1998.
December 31,
($ in thousands) 2000 1999 1998
U.S. Treasury and other U.S. Government agencies $26,507 $27,611 $58,588
States of the U.S. and political subdivisions 7,592 8,870 10,879
Other securities 13,786 16,660 17,883
------------ ------------ -------------
Total securities $47,885 $53,141 $87,350
============ ============ =============
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AMERICANWEST BANCORPORATION
The following table sets forth the carrying values, maturities and approximate
average aggregate yields of securities in AWBC's investment portfolio by type at
December 31, 2000.
Type and Maturity
($ in thousands) Yield Amount
U.S. Treasury and other U.S. government agencies and corporations:
1 year or less 6.29% $ 4,826
Over 1 through 5 years 6.29% 14,774
Over 5 through 10 years 6.37% 6,906
Over 10 years 6.25% 1
---------------
Total 6.31% 26,507
---------------
States and political subdivisions
1 year or less 7.58% 941
Over 1 through 5 years 7.48% 3,258
Over 5 through 10 years 7.88% 3,393
Over 10 Years
---------------
Total 7.68% 7,592
---------------
Other securities:
1 year or less 6.45% 7,686
Over 1 through 5 years 6.21% 5,601
Over 5 through 10 years 6.20% 499
Over 10 years
---------------
Total 6.39% 13,786
---------------
Total investment securities:
1 year or less 6.60% 13,453
Over 1 through 5 years 6.19% 23,633
Over 5 through 10 years 6.58% 10,798
Over 10 years 8.38% 1
---------------
Total 6.47% $47,885
===============
The yields for tax-exempt securities have been computed on a tax equivalent
basis using an assumed tax rate of 34%. Maturities are estimated using payment
speeds as of December 31, 2000.
11
AMERICANWEST BANCORPORATION
Deposits
AWBC's primary source of funds has historically been customer deposits. The
Banks strive to maintain a high percentage of noninterest-bearing deposits,
which are low cost funds and result in higher interest margins. At December 31,
2000, 1999, and 1998, AWBC's ratios of noninterest-bearing deposits to total
deposits were 19.2%, 18.2%, and 18.9%, respectively.
AWBC offers a variety of accounts designed to attract both short-term and long-
term deposits from its customers. These accounts include negotiable order of
withdrawal ("NOW") accounts, money market investment accounts, savings accounts,
and certificates of deposit and other time deposits. Interest-bearing accounts
earn interest at rates established by management of the Banks, based on
competitive market factors and management's desire to increase or decrease
certain types or maturities of deposits consistent with the Banks policies.
The following table sets forth the average balances for each major category of
deposit and the weighted-average interest rate paid for deposits in 2000, 1999
and 1998.
Year Ended December 31,
2000 1999 1998
Average Interest Average Interest Average Interest
($ in thousands) Balance Rate Balance Rate Balance Rate
Interest-bearing demand deposits $153,327 3.92% $146,190 3.62% $131,555 4.29%
Savings deposits 45,541 2.86% 47,227 2.84% 46,477 3.04%
Time deposits 195,875 5.95% 168,168 4.96% 173,405 5.30%
Noninterest-bearing demand deposits 83,920 79,050 78,853
------------ ------------ -----------
Total $478,663 $440,635 $430,290
============ ============ ===========
The following table shows the amounts and maturities of certificates of deposit
that had balances of more than $100,000 at December 31, 2000, 1999 and 1998.
December 31,
($ in thousands) 2000 1999 1998
Certificates of Deposit over $100,000 with remaining maturity:
Less than three months $39,595 $31,705 $24,058
Three months to one year 30,348 20,668 26,511
Over one year 1,792 4,057 2,626
------------ ------------ -------------
Total $71,735 $56,430 $53,195
============ ============ =============
Competition
While AWBC encounters a great deal of competition in its lending activities,
management believes there is less competition in AWBC's specialty middle market
and neighborhood bank niche than there was a few years ago. AWBC believes that
its competitive position has been strengthened by the consolidation in the
banking industry, which has resulted in a focus on the larger accounts with less
contact between the bank officers and their customers. AWBC's strategy by
contrast, is to remain a middle market lender, which maintains close long-term
relationships with its customers.
12
AMERICANWEST BANCORPORATION
USB competes for deposits and banking business in northeastern Washington from
fifteen locations in Chewelah, Colville, Davenport, Kettle Falls, Ione, and
Spokane. The Bank's market area encompasses Stevens, Ferry, Lincoln, Pend
Oreille, and Spokane Counties. USB competes against two commercial banks and one
mutual savings bank in Stevens County, one commercial bank and one credit union
in Ferry County, four commercial banks, and five commercial banks and two credit
unions in Lincoln County and two commercial banks and one credit union in Pend
Oreille County. In Spokane County, USB competes against approximately seven
commercial banks, two mutual savings banks, several credit unions and savings
and loans.
HSB serves customers in southeastern and south-central Washington from locations
in Mabton, Naches, Sunnyside, Prosser, Richland and Yakima. The Bank's market
area encompasses Franklin, Yakima and the western portion of Benton County. HSB
competes against commercial banks, savings and loans, and credit unions in its
market area.
BOP serves customers in the southeastern corner of the State of Washington and
Latah County, Idaho. BOP is located in Whitman County with branches in Pullman,
Colton, Palouse, and Uniontown. Competition within Pullman includes two
commercial banks, one mutual savings bank, and a credit union. BOP transferred
its charter to the State of Idaho in order to open a branch in Moscow, Idaho in
1997. Competition in Moscow, Idaho comes from four commercial banks, one savings
bank and two credit unions.
GNB serves customers in the Central Eastern Washington in Grant County. GNB has
branches located in Ephrata and Moses Lake, Washington. Its competition comes
from four commercial banks, two savings banks and two credit unions.
AWB serves customers in Southeastern Washington in Walla Walla and Columbia
Counties. AWB has four branches located in Walla Walla, Dayton, Eastgate and
Waitsburg, Washington. AWB competes principally with commercial banks, savings
and loan associations, credit unions, mortgage companies, and other financial
institutions. The major commercial bank competitors are the regional banks that
have a branch or branches within AWB's primary trade areas.
Management believes that the principal competitive factors affecting AWBC's
markets include interest rates paid on deposits and charged on loans, the range
of banking products available, and customer service and support. Although
management believes that AWBC's products currently compete favorably with
respect to these factors, there can be no assurance that AWBC can maintain its
competitive position against current and potential competitors, especially those
with significantly greater financial resources.
Employees
As of December 31, 2000, AWBC had 280 employees, of which 102 were employed by
USB, 42 by HSB, 34 by BOP, 19 by GNB, 45 by AWB, 14 by USB Insurance, and 24 by
the Parent Company, AmericanWest Bancorporation. None of AWBC's employees are
covered by a collective bargaining agreement. Management believes relations with
AWBC's employees are good. AmericanWest Bancorporation is located at 9506 N.
Newport Hwy. Spokane, WA 99218 and the telephone number is 509-467-6949.
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AMERICANWEST BANCORPORATION
Supervision and Regulation
The following generally refers to certain significant statutes and regulations
affecting its subsidiary banking industry. These references are only intended to
provide brief summaries and, therefore, are not complete and are qualified by
the statutes and regulations referenced. Changes in applicable laws or
regulations may have a material effect on the business and prospects of AWBC.
The operations of AWBC may also be affected by changes in the policies of
banking and other government regulators. AWBC cannot accurately predict the
nature or extent of the effects on its business and earnings that fiscal or
monetary policies, or new federal or state laws, may have in the future.
Changes in Banking Laws and Regulations
The laws and regulations that affect banks and bank holding companies have
undergone changes. On November 12, 1999, the president signed into law the
Financial Services Modernization Act of 1999. Generally, the act (i) repeals the
historical restrictions on preventing banks from affiliating with securities
firms, (ii) provides a uniform framework for the activities of banks, savings
institutions and their holding companies, (iii) broadens the activities that may
be conducted by national banks and banking subsidiaries of bank holding
companies, (iv) provides an enhanced framework for protecting the privacy of
consumers' information and (v) addresses a variety of other legal and regulatory
issues affecting both day-to-day operations and long-term activities of
financial institutions.
Bank holding companies are permitted to engage in a wider variety of financial
activities than permitted under previous law, particularly with respect to
insurance and securities activities. In addition, in a change from previous law,
bank holding companies will be in a position to be owned, controlled or acquired
by any company engaged in financially related activities, so long as such
company meets certain regulatory requirements. The act also permits national
banks (and, in states with wildcard statutes, certain state banks), either
directly or through operating subsidiaries, to engage in certain non-banking
financial activities.
AWBC does not believe that the act will negatively affect the operations of it
or its subsidiaries. However, to the extent the legislation permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This consolidation could result
in a growing number of larger financial institutions that offer a wider variety
of financial services than AWBC currently offers and that can aggressively
compete in the markets currently served by AWBC and its subsidiary banks.
General. As a bank holding company, AWBC is subject to the Bank Holding Company
Act of 1956 ("BHCA"), as amended, which places AWBC under the supervision of the
Board of Governors of the Federal Reserve (FRB). AWBC must file annual reports
with the Federal Reserve and must provide it with such additional information as
it may require. In addition, the Federal Reserve periodically examines AWBC and
its subsidiary banks.
In general, the BHCA limits bank holding company business to owning or
controlling banks and engaging in other banking-related activities. Bank holding
companies must obtain the FRB's approval before they: (1) acquire direct or
indirect ownership or control of any voting shares of any bank that results in
total ownership or control, directly or indirectly, of more than 5% of the
voting shares of such bank; (2) merge or consolidate with another bank holding
company; or (3) acquire substantially all of the assets of any additional banks.
Subject to certain state laws, such as age and contingency laws, a bank holding
company that is adequately capitalized and adequately managed may acquire the
assets of both in-state and out-of-state banks. Under the Financial
Modernization Act of 1999, a bank holding company may apply to the FRB to become
a financial holding company, and thereby engage (directly or through a
subsidiary) in certain activities deemed financial in nature, such as securities
brokerage and insurance underwriting.
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AMERICANWEST BANCORPORATION
Control of Nonbanks. With certain exceptions, the BHCA prohibits bank holding
companies from acquiring direct or indirect ownership or control of voting
shares in any company that is not a bank or a bank holding company unless the
FRB determines that the activities of such company are incidental or closely
related to the business of banking. If a bank holding company is well
capitalized and meets certain criteria specified by the FRB, it may engage de
novo in certain permissible nonbanking activities without prior FRB approval.
Control Transactions. The Change in Bank Control Act of 1978, as amended,
requires a person (or group of persons acting in concert) acquiring "control" of
a bank holding company to provide the FRB with 60 days' prior written notice of
the proposed acquisition. Following receipt of this notice, the FRB has 60 days
within which to issue a notice disapproving the proposed acquisition, but the
FRB may extend this time period for up to another 30 days. An acquisition may be
completed before expiration of the disapproval period if the FRB issues written
notice of its intent not to disapprove the transaction. In addition, any
"company" must obtain the FRB's approval before acquiring 25% (5% if the
"company" is a bank holding company) or more of the outstanding shares or
otherwise obtaining control over AWBC.
Transactions with Affiliates. AWBC and its subsidiary banks are deemed
affiliates within the meaning of the Federal Reserve Act, and transactions
between affiliates are subject to certain restrictions. Accordingly, AWBC and
its subsidiary banks must comply with Sections 23A and 23B of the Federal
Reserve Act. Generally, Sections 23A and 23B (1) limit the extent to which a
financial institution or its subsidiaries may engage in "covered transactions"
with an affiliate, as defined, to an amount equal to 10% of such institution's
capital and surplus and an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital and surplus, and (2)
require all transactions with an affiliate, whether or not "covered
transactions," to be on terms substantially the same, or at least as favorable
to the institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, purchase of assets, issuance
of a guarantee and other similar types of transactions.
Regulation of Management. Federal law (1) sets forth the circumstances under
which officers or directors of a financial institution may be removed by the
institution's federal supervisory agency; (2) places restraints on lending by an
institution to its executive officers, directors, principal stockholders, and
their related interests; and (3) prohibits management personnel from serving as
a director or in other management positions with another financial institution
which has assets exceeding a specified amount or which has an office within a
specified geographic area.
Tie-In Arrangements. AWBC and its subsidiary banks cannot engage in certain tie-
in arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither AWBC nor its subsidiary banks may condition an extension of credit on
either (1) a requirement that the customer obtain additional services provided
by it or (2) an agreement by the customer to refrain from obtaining other
services from a competitor.
The FRB has adopted significant amendments to its anti-tying rules that: (1)
removed FRB-imposed anti-tying restrictions on bank holding companies and their
non-bank subsidiaries; (2) allow banks greater flexibility to package products
with their affiliates; and (3) establish a safe harbor from the tying
restrictions for certain foreign transactions. These amendments were designed to
enhance competition in banking and nonbanking products and to allow banks and
their affiliates to provide more efficient, lower cost service to their
customers. However, the impact of the amendments on AWBC and its subsidiary
banks is unclear at this time.
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AMERICANWEST BANCORPORATION
State Law Restrictions. As a Washington business corporation, AWBC may be
subject to certain limitations and restrictions as provided under applicable
Washington corporate law. In addition, Washington banking law may restrict
certain activities of its subsidiary banks.
General. With the exception of GNB and BOP, AWBC's subsidiary banks are subject
to regulation by the State of Washington and the Federal Deposit Insurance
Corporation (FDIC). As an Idaho banking corporation, Bank of Pullman is subject
to regulation by the State of Idaho and the FDIC. As a national banking
association, Grant National Bank is subject to regulation by the Office of the
Comptroller of the Currency. The federal and state laws that apply to AWBC's
subsidiary banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the timing of the
availability of deposited funds and the nature and amount of and collateral for
loans. The laws and regulations governing its subsidiary banks generally have
been promulgated to protect depositors and not to protect stockholders of the
subsidiary banks or its holding company.
CRA. The Community Reinvestment Act (the "CRA") requires that, in connection
with examinations of financial institutions within their jurisdiction,
regulators must evaluate the record of the financial institutions in meeting the
credit needs of their local communities, including low and moderate-income
neighborhoods, consistent with the safe and sound operation of those banks.
These factors are also considered in evaluating mergers, acquisitions, and
applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to executive
officers, directors, principal shareholders, or any related interests of such
persons. Extensions of credit (i) must be made on substantially the same terms,
including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees; and (ii) must not involve more than the normal risk of repayment or
present other unfavorable features. Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on the affected bank or any officer, director, employee, agent, or
other person participating in the conduct of the affairs of that bank, the
imposition of a cease and desist order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "FDICIA"), each federal banking agency has prescribed, by regulation,
noncapital safety and soundness standards for institutions under its authority.
These standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution, which fails to meet these
standards, must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management of AWBC believes that its subsidiary banks meets all such standards,
and therefore, does not believe that these regulatory standards materially
affect AWBC's business operations.
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AMERICANWEST BANCORPORATION
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Interstate Act") permits nationwide
interstate banking and branching under certain circumstances. This legislation
generally authorizes interstate branching and relaxes federal law restrictions
on interstate banking. Currently, bank holding companies may purchase banks in
any state, and states may not prohibit such purchases. Additionally, banks are
permitted to merge with banks in other states as long as the home state of
neither merging bank has "opted out." The Interstate Act requires regulators to
consult with community organizations before permitting an interstate institution
to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their interstate
branches primarily for deposit production. The FDIC has accordingly implemented
a loan-to-deposit ratio screen to ensure compliance with this prohibition.
With regard to interstate bank mergers, Washington has "opted in" to the
Interstate Act and allows in-state banks to merge with out-of-state banks
subject to certain aging requirements. Washington law generally authorizes the
acquisition of an in-state bank by an out-of-state bank through merger with a
Washington financial institution that has been in existence for at least 5 years
prior to the acquisition. With regard to interstate bank branching, out-of-state
banks that do not already operate a branch in Washington may not establish de
novo branches in Washington or establish and operate a branch by acquiring a
branch in Washington.
Deposit Insurance. The deposits of its subsidiary banks are currently insured to
a maximum of $100,000 per depositor through its subsidiary banks Insurance Fund
("BIF") administered by the FDIC. All insured banks are required to pay semi-
annual deposit insurance premium assessments to the FDIC.
The FDICIA included provisions to reform the Federal Deposit Insurance System,
including the implementation of risk-based deposit insurance premiums. The
FDICIA also permits the FDIC to make special assessments on insured depository
institutions in amounts determined by the FDIC to be necessary to give it
adequate assessment income to repay amounts borrowed from the U.S. Treasury and
other sources, or for any other purpose the FDIC deems necessary. The FDIC has
implemented a risk-based insurance premium system under which banks are assessed
insurance premiums based on how much risk they present to the BIF. Banks with
higher levels of capital and a low degree of supervisory concern are assessed
lower premiums than banks with lower levels of capital or a higher degree of
supervisory concern.
Dividends. The principal source of AWBC's cash revenues is dividends received
from its subsidiary banks. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends, which would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Other than the laws and regulations
noted above, which apply to all banks and bank holding companies, neither AWBC
nor its subsidiary banks are currently subject to any regulatory restrictions on
its dividends.
Capital Adequacy. Federal bank regulatory agencies use capital adequacy
guidelines in the examination and regulation of bank holding companies and
banks. If capital falls below minimum guideline levels, the holding company or
bank may be denied approval to acquire or establish additional banks or nonbank
businesses or to open new facilities.
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AMERICANWEST BANCORPORATION
The FDIC and Federal Reserve use risk-based capital guidelines for banks and
bank holding companies. These are designed to make such capital requirements
more sensitive to differences in risk profiles among banks and bank holding
companies, to account for off-balance sheet exposure and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier I capital. Tier I capital for bank holding companies includes common
shareholders' equity, certain qualifying perpetual preferred stock and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
except as described above.
The Federal Reserve also employs a leverage ratio, which is Tier I capital as a
percentage of total assets less intangibles, to be used as a supplement to risk-
based guidelines. The principal objective of the leverage ratio is to constrain
the maximum degree to which a bank holding company may leverage its equity
capital base. The Federal Reserve requires a minimum leverage ratio of 3%.
However, for all but the most highly rated bank holding companies and for bank
holding companies seeking to expand, the Federal Reserve expects an additional
cushion of at least 1% to 2%.
FDICIA created a statutory framework of supervisory actions indexed to the
capital level of the individual institution. Under regulations adopted by the
FDIC, an institution is assigned to one of five capital categories depending on
its total risk-based capital ratio, Tier I risk-based capital ratio, and
leverage ratio, together with certain subjective factors. Institutions which are
deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions. AWBC
does not believe that these regulations have any material effect on its
operations.
Effects of Government Monetary Policy. The earnings and growth of AWBC are
affected not only by general economic conditions, but also by the fiscal and
monetary policies of the federal government, particularly the Federal Reserve.
The Federal Reserve can and does implement national monetary policy for such
purposes as curbing inflation and combating recession, but its open market
operations in U.S. government securities, control of the discount rate
applicable to borrowings from the Federal Reserve, and establishment of reserve
requirements against certain deposits, influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans or
paid on deposits. The nature and impact of future changes in monetary policies
and their impact on AWBC and its subsidiary banks cannot be predicted with
certainty.
Securities Registration and Reporting. The common stock of AWBC is registered as
a class with the SEC under the 1934 Act and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. In addition, the securities issued by AWBC are subject
to the registration requirements of the 1933 Act and applicable state securities
laws unless exemptions are available. The periodic reports, proxy statements,
and other information filed by AWBC with the SEC are available at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. AWBC is an electronic filer with the SEC and
the AWBC filings may be obtained at the SEC website (http://www.sec.gov).
18
AMERICANWEST BANCORPORATION
Item 2. Properties.
At December 31, 2000, AWBC owned or leased facilities in thirty-six locations
including thirty-four in eastern Washington and two in Moscow, Idaho and the
Computer/Processing Center. AWBC's main office is located in North Spokane,
which is owned by USB. About 1,400 square feet is used for the Administrative
Offices. In addition AWBC leases approximately 9,000 square feet for its
Computer/Processing Center located near the Spokane Airport. AWBC is separated
into five separate Regions or Banks. As of December 31, 2000 these were United
Security Bank (Inland Empire Region) headquartered in Spokane, Washington with
fifteen branches, Home Security Bank (Yakima Valley Region) headquartered in
Sunnyside, Washington with seven branches, Bank of Pullman (Palouse Region)
headquartered in Pullman, Washington with seven branches, Grant National Bank
headquartered in Ephrata, Washington with two branches, and AmericanWest Bank
(Blue Mountain Region) headquartered in Walla Walla, Washington with four
branches.
The thirty-five branch locations are in the State of Washington in Chewelah,
Colton, Colville, Davenport, Dayton, Ephrata, Kettle Falls, Mabton, Moses Lake,
Naches, Prosser, Pullman (3), Richland, Spokane (11), Sunnyside, Uniontown,
Waitsburg, Walla Walla (2), and Yakima (2), and Moscow, Idaho (2).
Item 3. Legal Proceedings.
Periodically and in the ordinary course of business, various claims and lawsuits
are brought against AWBC or the Banks, such as claims to enforce liens,
condemnation proceedings on properties in which the Banks hold security
interests, claims involving the making and servicing of real property loans and
other issues incident to the business of AWBC and the Banks. In the opinion of
management, the ultimate liability, if any, resulting from such claims or
lawsuits will not have a material adverse effect on the financial position or
results of operations of AWBC.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of AWBC's shareholders during the fourth
quarter of 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information. The Common Stock is quoted on the Nasdaq National Market
System (NASDAQ) under the symbol "AWBC". The following table sets out the high
and low bid prices per share for the Common Stock for 2000 and 1999 as reported
by NASDAQ.
2000 1999
High Low High Low
First Quarter $ 12.27 $ 8.30 $ 12.81 $ 9.09
Second Quarter $ 9.43 $ 8.47 $ 11.57 $ 9.71
Third Quarter $ 9.06 $ 8.75 $ 13.64 $10.75
Fourth Quarter $ 10.34 $ 8.92 $ 12.81 $ 8.88
Per share amounts have been adjusted giving retroactive effect to stock
dividends.
Holders. The number of holders of common stock of record on February 28, 2001
was approximately 3,000.
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AMERICANWEST BANCORPORATION
Dividends. AWBC has declared and paid the following dividends subsequent to
January 1, 1999: On February 26, 1999, February 24, 2000, and February 15, 2001
AWBC paid 10% stock dividends. No cash dividends were paid.
Item 6. Selected Financial Data.
The following table sets forth certain selected consolidated financial data of
AWBC at and for the years ended December 31:
($ in thousands, except per share amounts) 2000 1999 1998 1997 1996
Net interest income $ 30,356 $ 28,474 $ 26,475 $ 21,696 $ 18,947
Provision for loan losses 1,643 1,577 784 1,055 1,021
Noninterest income 4,029 5,912 4,977 4,833 3,986
Noninterest expense 21,328 19,209 19,764 14,905 13,956
Income before income tax expense 11,414 13,600 10,904 10,569 7,956
Income tax expense 3,379 3,888 3,521 3,346 2,539
Net income 8,035 9,712 7,383 7,223 5,417
Basic earnings per common share $ 1.00 $ 1.16 $ 0.89 $ 0.87 $ 0.66
Diluted earnings per common share $ 1.00 $ 1.14 $ 0.87 $ 0.85 $ 0.65
Return on average assets 1.44% 1.90% 1.49% 1.78% 1.65%
Return on average equity 12.73% 16.58% 14.66% 16.30% 14.65%
Assets $ 598,513 $ 527,726 $ 513,144 $ 486,778 $ 353,256
Securities 47,885 53,141 87,350 102,964 47,519
Loans:
Commercial and industrial 317,108 246,796 199,798 153,344 123,814
Agricultural 76,093 67,025 57,511 56,899 47,331
Real estate mortgage 62,173 66,690 63,127 66,959 50,602
Real estate construction 12,252 14,781 14,170 8,588 9,954
Installment 22,489 21,190 20,364 21,843 17,698
Other loans 3,972 6,939 9,149 10,962 7,465
Total loans 494,087 423,421 364,119 318,595 256,864
Allowance for loan loss to loans percentage 1.00% 1.03% 1.05% 1.22% 1.13%
Deposits 501,426 452,899 452,913 425,094 305,368
Borrowings 27,367 8,198 1,348 11,284 3,242
Stockholders' equity 64,530 62,922 54,211 46,174 38,485
Equity to assets ratio 10.78% 11.92% 10.56% 9.49% 10.89%
Basic weighted average shares 8,017,906 8,394,011 8,327,777 8,292,241 8,266,262
See Results of Operations for a description of the nonrecurring items in 2000,
1999 and 1998. In 1997, AWBC recovered from its insurance provider $796,000 for
a theft by a former employee of its bank subsidiary, Home Security Bank. After
income taxes the recovery improved 1997 net income by $525,000 or $.06 per
share. In 1996 net earnings were reduced by an operational loss of $568,000 or
$.07 per share. This expense was recovered in 1997 except for a $50,000
insurance policy deductible.
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AMERICANWEST BANCORPORATION
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
AWBC's net income is derived primarily from net interest income of the Banks,
which is the difference between interest earned on their loan and investment
portfolios and their cost of funds, primarily interest paid on deposits and
borrowings. For the years ended December 31, 2000, 1999, and 1998, AWBC's
average net interest margins were 6.0%, 6.1%, and 5.9%, respectively. Prior
reported amounts have been restated to reflect the merger with AWB using the
pooling-of-interests accounting method.
Net income is also affected by levels of provisions for loan losses, noninterest
income (primarily service charges on deposits, insurance commissions, and other
operating income) and noninterest expenses (primarily salaries and benefits,
occupancy expense, data processing cost, legal and professional services
expense, business and occupation tax, and other operating expenses). For the
three years ended December 31, 2000, 1999, and 1998, the provision for loan
losses was $1,643,000, $1,577,000, and $784,000, respectively. Net charge-offs
during the year ended December 31, 2000 was $1,044,000 as compared to $1,047,000
and $834,000 during 1999 and 1998, respectively.
Net Interest Income
The following table sets forth information with regard to average balances of
assets and liabilities, and interest income from interest-earning assets and
interest expense on interest-bearing liabilities, resultant yields or costs, net
interest income, net interest spread (the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities), and the net interest margin.
Year Ended December 31,
2000 1999 1998
Average Average Average
($ in thousands) Balance Interest % Balance Interest % Balance Interest %
Assets
Loans $450,901 $46,319 10.27% $394,132 $39,728 10.08% $344,470 $37,393 10.86%
Taxable securities 41,237 2,790 6.77% 52,505 3,237 6.17% 75,270 4,689 6.23%
Nontaxable securities 9,553 711 7.44% 10,421 725 6.96% 12,714 973 7.65%
Federal funds sold and overnight time deposits 7,250 464 6.40% 7,775 420 5.40% 18,470 958 5.19%
--------------------------------------------------------------------------------------
Total interest earning assets 508,941 $50,284 9.88% 464,833 $44,110 9.49% 450,924 $44,013 9.76%
================== =================== =================
Noninterest earning assets 48,384 46,007 44,839
----------- ---------- -----------
Total assets $557,325 $510,840 $495,763
=========== ========== ===========
Liabilities
Interest-bearing demand deposits $153,327 $ 6,018 3.92% $146,190 $ 5,286 3.62% $131,555 $ 5,639 4.29%
Savings deposits 45,541 1,301 2.86% 47,227 1,342 2.84% 46,477 1,412 3.04%
Time deposits 195,875 11,660 5.95% 168,168 8,335 4.96% 173,405 9,198 5.30%
--------------------------------------------------------------------------------------
Total interest-bearing deposits 394,743 18,979 4.81% 361,585 14,963 4.14% 351,437 16,249 4.62%
Short-term borrowings 10,050 639 6.36% 6,503 401 6.17% 4,823 282 5.85%
Long-term borrowings 678 68 10.03% 701 70 9.99% 5,361 676 12.61%
--------------------------------------------------------------------------------------
Total interest-bearing liabilities 405,471 $19,686 4.86% 368,789 $15,434 4.19% 361,621 $17,207 4.76%
================== =================== =================
Noninterest bearing demand deposits 83,920 79,050 78,853
Other noninterest bearing liabilities 4,842 4,407 4,919
----------- ---------- -----------
Total liabilities 494,233 452,246 445,393
Stockholders' Equity 63,092 58,594 50,370
----------- ---------- -----------
Total liabilities and stockholders' equity $557,325 $510,840 $495,763
=========== ========== ===========
Net interest income $30,598 5.03% $28,676 5.30% $26,806 5.00%
================== =================== =================
Net interest margin to average
earning assets 6.01% 6.17% 5.94%
======== ======== =======
Nonaccrual loans are included with loan balances. In the above table tax-exempt
securities income has been presented using a tax equivalent basis and an assumed
tax rate of 34%.
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AMERICANWEST BANCORPORATION
The following table illustrates the changes in AWBC's net interest income due to
changes in volumes and interest rates.
2000 vs 1999 1999 vs 1998
Increase (decrease) in net interest income due to changes in
($ in thousands) Volume Rate Total Volume Rate Total
INTEREST EARNING ASSETS
Loans $5,722 $ 869 $6,591 $ 5,391 ($3,056) $ 2,335
Securities (764) 303 (461) (1,613) (87) (1,700)
Federal funds sold and overnight time deposits (28) 72 44 (555) 17 (538)
---------------------------------- ----------------------------------
Total interest earning assets 4,930 1,244 6,174 3,223 (3,126) 97
---------------------------------- ----------------------------------
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits 258 474 732 627 (980) (353)
Savings deposits (48) 7 (41) 23 (93) (70)
Time deposits 1,373 1,952 3,325 (278) (585) (863)
---------------------------------- ----------------------------------
Total interest bearing deposits 1,583 2,433 4,016 372 (1,658) (1,286)
Short-term borrowings 219 19 238 98 21 119
Long-term borrowings (2) (2) (588) (18) (606)
---------------------------------- ----------------------------------
Total interest bearing liabilities 1,800 2,452 4,252 (118) (1,655) (1,773)
---------------------------------- ----------------------------------
Total increase (decrease) in net interest income $3,130 ($1,208) $1,922 $ 3,341 ($1,471) $ 1,870
================================== ==================================
The change in interest income and interest expense due to changes in both volume
and rate, which cannot be segregated, has been allocated proportionately to the
change due to volume and the change due to rate.
The following table presents the aggregate maturities of loans in each major
category of the AWBC's' loan portfolio at December 31, 2000. Actual maturities
may differ from the contractual maturities shown below as a result of renewals
and prepayments.
Less than One to Over five
($ in thousands) one year five years years Total
Commercial, financial and agricultural $ 92,343 $171,549 $129,309 $393,201
Real estate-mortgage 13,309 25,773 23,091 62,173
Real estate-construction 12,252 12,252
Installment 3,427 13,813 5,249 22,489
Other 3,313 659 3,972
----------------------------------------------------------
Total $124,644 $211,794 $157,649 $494,087
==========================================================
22
AMERICANWEST BANCORPORATION
Results of Operations
Years Ended December 31, 2000, 1999, and 1998
- ---------------------------------------------
United Security Bancorporation and Subsidiaries
Performance Summary
% Change
($ in thousands, except per share) 2000 1999 1998 2000 1999
Interest income $ 50,042 $ 43,908 $ 43,682 13.97% 0.52%
Interest expense 19,686 15,434 17,207 27.55% -10.30%
----------------------------------- ---------------------
Net interest income 30,356 28,474 26,475 6.61% 7.55%
Provision for loan losses 1,643 1,577 784 4.19% 101.15%
----------------------------------- ---------------------
Net interest income after provision for loan losses 28,713 26,897 25,691 6.75% 4.69%
Noninterest income 4,029 5,912 4,977 -31.85% 18.79%
Noninterest expense 21,328 19,209 19,764 11.03% -2.81%
----------------------------------- ---------------------
Income before income taxes 11,414 13,600 10,904 -16.07% 24.72%
Income taxes 3,379 3,888 3,521 -13.09% 10.42%
----------------------------------- ---------------------
Net income $ 8,035 $ 9,712 $ 7,383 -17.27% 31.55%
=================================== =====================
Basic earnings per common share $ 1.00 $ 1.16 $ 0.89 -13.79% 30.34%
Diluted earnings per common share $ 1.00 $ 1.14 $ 0.87 -12.28% 31.03%
AWBC's net income was $8,035,000 in 2000, $9,712,000 in 1999, and $7,383,000 in
1998. Basic earnings per share were $1.00, $1.16, and $.89 for 2000, 1999, and
1998, respectively. Diluted earnings per share were $1.00, $1.14, and $.87 in
2000, 1999, and 1998, respectively.
AWBC had net nonrecurring losses of $556,000 in 2000 or $.07 per share, which
were from the sale of mutual fund securities, sale of real estate, write-off of
an impaired intangible asset, and write-off of unused computer equipment. This
was offset by gains on the sale of real estate and from the sale of a branch.
AWBC completed its merger with AmericanWest Bank (AWB) effective February 1,
1999. At the time of the merger AWB was known as Bank of the West, but in June
1999 it received $1,250,000 for the sale of its name. The income from the sale
of the name added $825,000 to net income or $.10 per share. As of February 1,
1999 AWB had approximately $103 million in total assets, $90 million in
deposits, $68 million in loans, and $12 million in total equity. 1,749,300 AWBC
shares were issued to AWB shareholders for the merger. The pooling-of-interests
accounting method was used for the transaction.
AWBC completed its merger with Grant National Bank (GNB) effective July 20,
1998, and issued 468,270 common shares in exchange for all of the outstanding
shares of GNB. As of July 20, 1998 GNB had approximately $32 million in assets,
$29 million in deposits, $22 million in loans, and $3.4 million in total equity.
The pooling-of-interests accounting method was used for the transaction.
Return on average assets was 1.44%, 1.90%, and 1.49% for 2000, 1999, and 1998,
respectively. Return on average equity was 12.73%, 16.58%, and 14.66% for 2000,
1999, and 1998, respectively. Without the nonrecurring items described above,
return on assets would have been 1.54%, 1.74%, and 1.49% for 2000, 1999, and
1998, respectively. Return on equity would have been 13.61%, 15.17%, and 14.66%
for 2000, 1999, and 1998, respectively.
23
AMERICANWEST BANCORPORATION
Net Interest Income. Net interest income increased 7% to $30,356,000 in 2000
compared to 1999. The increase in 1999 was 8% to $28,474,000 over 1998 results.
The net interest income improvements were primarily the result of loan volume
increases in 2000 and 1999. AWBC's net interest margin to average earning assets
was 6.01%, 6.17%, and 5.94% in 2000, 1999, and 1998, respectively. As market
interest rates increased in 2000 after declining in 1999 the yield on earning
assets increased to 9.88% in 2000 after declining from 9.76% in 1998 to 9.49% in
1999. Interest bearing liabilities also moved with market interest rates by
starting at 4.76% in 1998, declining to 4.19% in 1999 and increasing to 4.86% in
2000. The overall result was a net interest margin improvement from 5.94% to
6.17% in 1999 and a decline to 6.01% in 2000 when liability rates increased
faster than interest earning assets. The improvement in the net interest margin
to average earning assets is primarily due to the increase in average earning
assets, which improved from $451 million in 1998 to $465 million in 1999 and to
$509 million in 2000.
Noninterest Income. Noninterest income, which consists of fees and service
charges, insurance commissions, securities gains and losses, and other income,
declined 32% in 2000 to $4.0 million. The decline was primarily due to the
nonrecurring gain on the sale of the Bank of the West name in 1999 and the
nonrecurring gains and losses in 2000 described above. Noninterest income was
$5.0 million in 1998. Fees and service charges for banking services remained
unchanged in 2000 at $2.5 million the same as 1999 after an increase from $2.3
million in 1998. AWBC sold mutual fund securities in 2000 causing a loss on the
sale of securities. The funds received have been reinvested in higher earning
assets. Other income was lower in 2000 because of the nonrecurring items
described above.
Noninterest Expense. Noninterest expense increased by 11% in 2000 primarily due
to the expense of new locations, higher incentive expense for employees and the
write-off of the impaired intangible asset. The 1999 expense decline was
significant because AWBC opened 6 new branches in 1999, while consolidating and
closing 2 branches.
Income Tax Expense. Income tax expense was reduced in 2000 by $285,000 and
$400,000 in 1999 due to tax credits for the renovation of historical properties.
Forward Looking Statements. Statements contained in this Annual Report, which
are not historical facts are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934 as amended. A forward-looking
statement may contain words as "plan," "hopes", "believes", "estimates", "will
continue to be", "will be", "continued to", "expect to", "anticipate that", "to
be", or "can impact". These forward-looking statements include statements
relating to AWBC's expectations as to (i) the adequacy of provisions for loan
losses, (ii) the sufficiency of existing cash balances and investments, together
with cash flow from operating activities and available lines of credit to meet
AWBC's liquidity and capital spending requirements in future years, (iii) the
effects of inflation and changing prices on AWBC's operations, (iv) management's
assessment of interest rate risks, and (v) AWBC's ability to continue to compete
effectively with larger enterprises. Management cautions that forward-looking
statements are subject to risk and uncertainties that could cause AWBC's actual
results to differ materially from those projected in such forward-looking
statements. AWBC's future business, financial condition and results of
operations could differ materially from those anticipated by such forward-
looking statements and are subject to risks and uncertainties including the
risks set forth below. Moreover, neither AWBC nor any other person assumes
responsibility for the accuracy and completeness of the forward-looking
statements. AWBC is under no duty to update any of the forward-looking
statements after the date of this Annual Report to conform such statements to
actual results or to changes in our expectations.
24
AMERICANWEST BANCORPORATION
Liquidity and Capital Resources
Management believes that AWBC's cash flow will be sufficient to support its
existing operations for the foreseeable future. If AWBC needs additional
liquidity, it would be required to borrow or issue additional capital stock.
AWBC's ability to incur indebtedness is limited by government regulations and
its ability to service borrowings is dependent upon the availability of
dividends from the Banks and nonbank subsidiaries. The payment of dividends by
the Banks is subject to limitations imposed by law and governmental regulations.
The Banks may borrow on a short-term basis to compensate for reductions in other
sources of funds. Bank borrowings may also be used on a longer-term basis to
support expanded lending activities and to match the maturity of repricing
intervals of assets. At December 31, 2000 AWBC had approximately $96 million of
unused lines of credit available for liquidity purposes. Cash flows from
operations also contribute significantly to liquidity as indicated in AWBC's
Consolidated Statement of Cash Flows, as well as proceeds from maturities of
securities and increasing customer deposits.
AWBC's total stockholders' equity increased to $64,530,000 at December 31, 2000,
from $62,922,000 at December 31, 1999 and $54,211,000 at December 31, 1998. At
December 31, 2000, stockholders' equity was 10.78% of total assets, compared to
11.92% at December 31, 1999. At December 31, 2000, AWBC held cash and cash-
equivalent assets of $29.8 million.
The capital levels of AWBC and each of the Banks exceed applicable regulatory
well-capitalized guidelines at December 31, 2000.
Effects of Inflation and Changing Prices. The primary impact of inflation on
AWBC's operations is increased asset yields, deposit costs and operating
overhead. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. The effects of inflation
can magnify the growth of assets, and if significant, would require that equity
capital increase at a faster rate than would otherwise be necessary.
New Accounting Pronouncements.
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. AWBC has implemented this statement, which did not result in
a material impact on its financial position or results of operations.
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in September 2000 and establishes the
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The statement is effective for
transfers of financial assets occurring after March 31, 2001, applied
prospectively and effective for disclosures about securitizations and for
reclassification and disclosure about collateral in financial statements for
fiscal years ending after December 15, 2000. AWBC does not expect the statement
will result in a material impact on its financial position or results of
operations.
25
AMERICANWEST BANCORPORATION
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Management considers interest rate risk to be a market risk that could have a
significant effect on the financial condition and results of operations of AWBC.
AWBC does not use derivatives including forward and futures contracts, options,
and swaps to manage its market and interest rate risks. All of AWBC's
transactions are denominated in U.S. dollars. Approximately 34% of AWBC's loan
portfolio has interest rates, which float with the lending Bank's reference
interest rate. Fixed rate loans are generally made with a term of five years or
less. General economic conditions, regulatory policy and competition in the
marketplace affect interest income and cost of funds. The Banks' operating
strategies focus on asset/liability management. The purpose of asset/liability
management ("ALM") is to provide stable net interest income growth by protecting
the Banks and AWBC's earnings from undue interest rate risk. Each of the Banks
follows an ALM policy for controlling exposure to interest rate risk. The ALM
policy is designed to maintain an appropriate balance between rate-sensitive
assets and liabilities in order to maximize interest rate spreads. The Banks
monitor the sensitivity of their assets and liabilities with respect to changes
in interest rates and maturities, and direct the allocation of their funds
accordingly. The strategy of each Bank has been to maintain, to the extent
possible, a balanced position between assets and liabilities, and to place
emphasis on the sensitivity of its assets.
The following table presents estimated maturity or pricing information
indicating AWBC's exposure to interest rate changes as of December 31, 2000. The
expected maturities take into consideration historical and estimated principal
prepayments for loans and securities. Principal prepayments are the amounts of
principal reduction in addition to contractual amortization. Fixed-rate and
variable-rate loans are expected to have payment rates of 35%, 25%, 15%, 15%,
and 10% for the following five years, respectively. Securities principal
payments are based on payment speeds as of December 31, 2000. The expected
maturities for financial liabilities with no stated maturity reflect historical
and estimated future roll-off rates. The anticipated annual roll-off rates for
noninterest bearing deposits, interest-bearing demand deposits and savings
deposits are 15%. The interest rates disclosed are based on rates from 2000
results. Fair values are based on the calculations used in accordance with
generally accepted accounting principles as disclosed in the financial
statements.
26
AMERICANWEST BANCORPORATION
Year ended December 31, 2000 Expected maturity Fair
($ in thousands) 2001 2002 2003 2004 2005 Thereafter Total Value
Financial Assets
Cash and due from banks $ 28,580 $28,580 $28,580
Overnight interest bearing
deposits with other banks 1,247 1,247 1,247
Weighted average interest rate 6.40%
Securities 13,453 13,156 5,887 2,542 2,048 10,799 47,885 47,885
Weighted average interest rate 6.89%
Fixed rate loans 107,822 77,016 46,209 46,209 30,806 308,062 307,719
Weighted average interest rate 10.40%
Variable rate loans 64,871 46,336 27,802 27,802 18,535 185,346 185,345
Weighted average interest rate 9.94%
Financial Liabilities
Noninterest bearing deposits 14,413 14,413 14,413 14,413 14,413 24,022 96,087 96,087
Interest-bearing demand deposits 22,612 22,612 22,612 22,612 22,612 37,685 150,745 150,745
Weighted average interest rate 3.92%
Savings deposits 6,674 6,674 6,674 6,674 6,674 11,126 44,496 44,496
Weighted average interest rate 2.86%
Time deposits 194,319 12,742 2,257 530 247 3 210,098 210,532
Weighted average interest rate 5.95%
Short-term borrowings 26,701 26,701 26,701
6.36%
Net of financial assets and liabilities (48,746) 80,067 33,942 32,324 7,443 (62,037)
Cumulative net amount (48,746) 31,321 65,263 97,587 105,030 42,993
Percentage of total assets -8.14% 5.23% 10.90% 16.30% 17.55% 7.18%
The above table presents information about AWBC's interest sensitivity; it does
not predict future earnings. AWBC uses budgeting and earnings projections to
forecast earnings. It requires assumptions about the projection of loan and
securities prepayments, loan originations and liability funding sources, which
may be inaccurate. Weighted average interest rates by expected maturity are not
available.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data of AWBC and its
subsidiaries for the years ended December 31, 2000, 1999, and 1998, which have
been audited except as indicated by Moss Adams LLP, are included as part of Item
14 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
27
AMERICANWEST BANCORPORATION
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information requested by this item is contained in the registrant's
2001 proxy statement under the headings "Election of Directors" and
"Executive Officers who are not Directors", and is incorporated by
reference.
Item 11. Executive Compensation.
The information requested by this item is contained in the registrant's
2001 proxy statement under the headings "Executive Compensation" and
"Report of the Compensation Committee", and is incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information requested by this item is contained in the registrant's
2001 proxy statement under the heading "Security Ownership of Certain
Beneficial Owners and Management", and is incorporated by reference.
Item 13. Certain Relationships and Related Transactions.
The information requested by this item is contained in the registrant's
2001 proxy statement under the heading "Related Party Transactions and
Business Relations", and is incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
Independent Auditor's Report on Consolidated Financial
Statements
Consolidated Statements of Condition
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a) (2) There are no financial statement schedules filed herewith.
(a) (3) Exhibits
21 Subsidiaries of Registrant. Reference is made to "Item 1.
Business. AmericanWest Bancorporation, The Banks and USB
Insurance for the required information.
(b) Reports on Form 8-K.
There were no Form 8-K Reports during fourth quarter 2000.
(c) All schedules are omitted as the required information is not
applicable or the information is presented in the Consolidated
Financial Statements or related notes.
28
AMERICANWEST BANCORPORATION
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized on the 9th of March 2001.
Principal Executive Officer:
By: /s/ Wes Colley President, Chief Executive Officer and Director
--------------------------
Wes Colley
Principal Accounting Officer
By: /s/ Chad Galloway Vice President and Chief Financial Officer
-------------------------
Chad Galloway
Remaining Directors
By: /s/ Rand Elliott By: /s/ Buddy R. Sampson
------------------------- --------------------------
Rand Elliott, Directors Buddy R. Sampson, Director
By: /s/ Dave Frame By: /s/ Keith Satter
-------------------------- --------------------------
Dave Frame, Director Keith Sattler, Chairman and Director
By: /s/ Robert J. Gardner By: /s/ Dann Simpson
-------------------------- --------------------------
Robert J. Gardner, Director Dann Simpson, Director
By: /s/ Robert L. Golob By: /s/ Don Swartz
-------------------------- --------------------------
Robert L. Golob, Director Don Swartz, Director
By: /s/ Norm McKibben By: /s/ Ron Wachter
-------------------------- --------------------------
Norm McKibben, Director Ron Wachter
29
AMERICANWEST BANCORPORATION
Independent Auditor's Report
Board of Directors and Shareholders
AmericanWest Bancorporation
Spokane, Washington
We have audited the accompanying consolidated statement of financial condition
of AmericanWest Bancorporation and subsidiaries as of December 31, 2000 and
1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provided a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmericanWest
Bancorporation and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
ended December 31, 2000, in conformity with generally accepted accounting
principles.
Everett, Washington /s/ Moss Adams LLP
January 25, 2001
30
AMERICANWEST BANCORPORATION
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 2000 AND 1999
($ In thousands)
2000 1999
ASSETS
Cash and due from banks $ 28,580 $ 21,387
Overnight interest bearing deposits with other banks 1,247 4,632
-------------- ------------
Cash and cash equivalents 29,827 26,019
Securities 47,885 53,141
Loans, net of allowance for loan losses of $4,948 in 2000 and
$4,349 in 1999 488,459 418,210
Accrued interest receivable 5,379 4,494
Premises and equipment, net 13,215 13,133
Foreclosed real estate and other foreclosed assets 1,510 1,179
Life insurance and salary continuation assets 4,304 4,049
Intangible assets 5,302 6,189
Other assets 2,632 1,312
-------------- ------------
TOTAL ASSETS $598,513 $527,726
============== ============
LIABILITIES
Noninterest bearing - demand deposits $ 96,087 $ 82,299
Interest bearing deposits:
NOW and savings accounts 195,241 196,513
Time, $100,000 and over 71,735 56,430
Other time 138,363 117,657
-------------- ------------
TOTAL DEPOSITS 501,426 452,899
Short-term borrowings 26,701 7,508
Capital lease obligations 666 690
Accrued interest payable 1,980 1,367
Other liabilities 3,210 2,340
-------------- ------------
TOTAL LIABILITIES 533,983 464,804
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized 15 million; issued and outstanding
6,974,012 in 2000 and 6,942,439 in 1999 48,904 44,471
Retained earnings 15,710 19,460
Accumulated other comprehensive income, net of tax (84) (1,009)
-------------- ------------
TOTAL STOCKHOLDERS' EQUITY 64,530 62,922
-------------- ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $598,513 $527,726
============== ============
The accompanying notes are an integral part of these financial statements.
31
AMERICANWEST BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
($ In thousands, except per share amounts)
2000 1999 1998
INTEREST INCOME
Interest and fees on loans $ 46,319 $ 39,728 $ 37,393
Interest on securities 3,259 3,760 5,331
Other interest income 464 420 958
----------- ---------- -----------
TOTAL INTEREST INCOME 50,042 43,908 43,682
----------- ---------- -----------
INTEREST EXPENSE
Interest on deposits 18,979 14,963 16,249
Interest on borrowings 707 471 958
----------- ---------- -----------
TOTAL INTEREST EXPENSE 19,686 15,434 17,207
----------- ---------- -----------
NET INTEREST INCOME 30,356 28,474 26,475
Provision for loan losses 1,643 1,577 784
----------- ---------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,713 26,897 25,691
----------- ---------- -----------
NONINTEREST INCOME
Fees and service charges 2,467 2,482 2,342
Insurance commissions 964 985 1,031
Securities gains/(losses) (327) 66 141
Gain on sale of Bank of the West name 1,250
Other 925 1,129 1,463
----------- ---------- -----------
TOTAL NONINTEREST INCOME 4,029 5,912 4,977
----------- ---------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits 12,685 11,450 11,439
Occupancy expense, net 1,804 1,562 1,426
Equipment expense 1,503 1,380 1,466
Legal expense 229 190 515
State business and occupation tax 608 579 559
Director fees 351 501 417
Intangible assets amortization 884 381 405
Other 3,264 3,166 3,537
----------- ---------- -----------
TOTAL NONINTEREST EXPENSE 21,328 19,209 19,764
----------- ---------- -----------
INCOME BEFORE INCOME TAX EXPENSE 11,414 13,600 10,904
INCOME TAX EXPENSE 3,379 3,888 3,521
----------- ---------- -----------
NET INCOME $ 8,035 $ 9,712 $ 7,383
=========== ========== ===========
Basic earnings per common share $ 1.00 $ 1.16 $ 0.89
Diluted earnings per common share $ 1.00 $ 1.14 $ 0.87
Basic weighted average shares outstanding 8,017,906 8,394,011 8,327,777
Diluted weighted average shares outstanding 8,073,988 8,508,135 8,513,413
The accompanying notes are an integral part of these financial statements.
32
AMERICANWEST BANCORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2000, 1999, and 1998
($ in thousands)
Common Stock Retained Comprehensive Comprehensive
Shares Amount Earnings Income (Loss) Total Income (Loss)
Balances, January 1, 1998 6,206,026 $34,294 $11,832 $48 $46,174
Common stock issued for options exercised 75,772 581 581
Net income 7,383 7,383 $ 7,383
Redemption of fractional shares (737) (18) (18)
Net change in unrealized loss on available-for-sale
securities, net of taxes 148 148 148
Grant National Bank cash dividend (57) (57)
10% stock dividend 454,938 6,995 (6,995)
----------------------------------------------------------- ---------
Balances, December 31, 1998 6,735,999 41,852 12,163 196 54,211 $ 7,531
=========
Common stock issued for options exercised 32,628 221 221
Net income 9,712 9,712 $ 9,712
AmericanWest Bank portion of 10% stock dividend 174,930 2,415 (2,415)
Redemption of fractional shares (1,118) (17) (17)
Net change in unrealized gain on available-for-sale
securities, net of taxes (1,205) (1,205) (1,205)
----------------------------------------------------------- ---------
Balances, December 31, 1999 6,942,439 44,471 19,460 (1,009) 62,922 $ 8,507
=========
Common stock issued for options exercised 86,789 585 585
10% stock dividend 693,891 8,934 (8,934)
Net income 8,035 8,035 $ 8,035
Stock repurchase program (749,107) (5,086) (2,851) (7,937)
Net change in unrealized gain on available-for-sale
securities, net of taxes 925 925 925
----------------------------------------------------------- ---------
Balances, December 31, 2000 6,974,012 $48,904 $15,710 ($84) $64,530 $ 8,960
=========================================================== =========
The accompanying notes are an integral part of these financial statements.
33
AMERICANWEST BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
($ in thousands)
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,035 $ 9,712 $ 7,383
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 1,643 1,577 784
Depreciation and amortization 1,129 930 908
Deferred income taxes (199) (465) 172
(Gain)/loss on sale of premises and equipment 84 (50) (189)
(Increase) decrease in assets:
Accrued interest receivable (885) 71 (163)
Life insurance and salary continuation assets (481) (611) (843)
Other assets (8) 743 (152)
Increase/(decrease) in liabilities:
Accrued interest payable 613 (279) 342
Other liabilities 870 (686) (9)
------- ------- -------
NET CASH FROM OPERATING ACTIVITIES 10,801 10,942 8,233
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Maturities 7,774 37,642 46,839
Sales 8,002 10,150 22,226
Purchases (9,595) (14,832) (53,399)
Securities held-to-maturity:
Maturities 44 1,126
Purchases (1,030)
Net increase in loans and leases (71,892) (60,255) (46,388)
Purchases of premises and equipment (2,055) (2,388) (2,472)
Proceeds from sale of premises and equipment 760 521 1,717
Foreclosed assets activity (331) 66 (78)
------- ------- -------
NET CASH FROM INVESTING ACTIVITIES (67,337) (29,052) (31,459)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposits 48,527 (14) 27,819
Short-term borrowings activity 19,193 6,872 (3,659)
Principal payments on notes payable (6,257)
Principal payments on capital lease obligations (24) (22) (20)
Proceeds from issuance of capital stock 585 221 581
Stock repurchase program (7,937)
Cash dividends and fractional shares (17) (75)
------- ------- -------
NET CASH FROM FINANCING ACTIVITIES 60,344 7,040 18,389
------- ------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,808 (11,070) (4,837)
Cash and cash equivalents at January 1 26,019 37,089 41,926
------- ------- -------
Cash and cash equivalents at December 31 $29,827 $26,019 $37,089
======= ======= =======
Interest paid $19,073 $15,713 $16,918
Income taxes paid $ 3,726 $ 3,981 $ 3,461
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosed real estate acquired in settlement of loans $ 1,498 $ 1,570 $ 1,412
Transfers from securities at cost to securities at fair value $ 707 $ 8,025
The accompanying notes are an integral part of these financial statements.
34
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies
Basis of consolidation:
The consolidated financial statements include the accounts of AmericanWest
Bancorporation (Corporation) and its wholly-owned subsidiaries collectively
(AWBC), United Security Bank (USB), Home Security Bank (HSB), Bank of Pullman
(BOP), Grant National Bank (GNB), AmericanWest Bank (AWB), and USB Insurance
Agencies, Inc. after eliminating all significant intercompany balances and
transactions.
Nature of business:
USB, HSB, and AWB are state-chartered commercial banks under the laws of the
State of Washington, and provide banking services primarily throughout eastern
and central Washington. BOP is a banking corporation organized under the laws of
the State of Idaho. GNB is a national chartered commercial bank. AWBC is subject
to competition from other financial institutions, as well as nonfinancial
intermediaries and to the regulations of certain federal and state agencies and
it undergoes periodic examinations by those regulatory agencies.
Basis of financial statement presentation:
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities as of the date of the
statement of financial condition and certain revenues and expenses for the
period and the accompanying notes. Actual results could differ, either
positively or negatively, from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in the
satisfaction of loans. In connection with the determination of the allowance for
loan losses and other real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowances for loan losses and other real estate
owned are adequate. While management uses currently available information to
recognize losses on loans and other real estate owned, future additions to the
allowances may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the AWBC allowance for loan losses and other real
estate owned. Such agencies may require AWBC to recognize additions to the
allowances based on their judgments of information available to them at the time
of their examination.
Securities:
All of the securities are classified available-for-sale at December 31, 2000.
Securities consist primarily of obligations of the U.S. government, state
governments and domestic corporations.
35
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies (Continued)
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are excluded from earnings and reported as a net amount in a separate
component of stockholders' equity until realized. Gains and losses on the sale
of available-for-sale securities are determined using the specific-
identification method. Premiums and discounts are recognized in interest income
using the effective interest method over the period to maturity.
Loans and allowances for loan losses:
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans. Net deferred fees or costs
are amortized using the interest method over the life of the loan.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid interest is reversed. Interest
income is subsequently recognized only to the extent cash payments are received.
An allowance for probable losses on loans is maintained at a level deemed by
management to be adequate to provide for potential loan losses through charges
to operating expense. The allowance is based upon a continuing review of loans,
which includes consideration of actual net loan loss experience, changes in the
size and character of the loan portfolio, identification of individual problem
situations which may affect the borrower's ability to repay, the estimated value
of any underlying collateral, and evaluation of current economic conditions.
Loan losses are recognized through charges to the allowance.
Foreclosed real estate:
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, management periodically
performs valuations and the real estate is carried at the lower of carrying
amount or fair value less cost to sell.
36
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies (Continued)
Premises and equipment:
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation over estimated useful lives, which range from 3 to 30
years. Depreciation expense is computed using primarily the straight-line method
for financial statement purposes. Accelerated depreciation methods are used for
federal income tax purposes. Normal costs of maintenance and repairs are charged
to expense as incurred.
Intangibles:
Intangible assets acquired in the form of goodwill, customer lists and covenants
to not compete, and core deposits purchased are being amortized using the
straight-line method over five to twenty-five years. AWBC periodically evaluates
these intangible assets for impairment.
Income taxes:
AWBC files a consolidated federal income tax return. The income tax related to
the individual entities is generally computed as if each one had filed a
separate tax return and is based on amounts reported in the statements of income
(after exclusion of non-taxable permanent differences such as interest on state
and municipal securities) and include deferred taxes on temporary differences in
the recognition of income and expense for tax and financial statement purposes.
Deferred taxes are computed using the asset and liability approach.
Per share amounts:
All per share amounts have been calculated on the basis of weighted average
number of shares outstanding during each year. All share and per share amounts
have been adjusted giving retroactive effect to stock dividends.
Cash and cash equivalents:
For the purposes of presentation in the consolidated financial statements of
cash flows, cash and cash equivalents include cash on hand, amounts due from
banks, and overnight deposits with other banks. The Banks place their cash with
high credit quality institutions. The amount on deposit fluctuates and at times
exceeds the insured limit by the Federal Deposit Insurance Corporation, which
potentially subjects the Banks to credit risk.
Stock options:
Employee stock options are accounted for under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Stock options
are granted at exercise prices not less than the fair market value of common
stock on the date of grant. Under APB No. 25, no compensation expense is
recognized pursuant to AWBC's stock option plans. AWBC has disclosed the
proforma amounts of net income and earnings per share that would have been
reported had it elected to follow the fair value recognition provisions of SFAS
No. 123 (Note 15).
37
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies (Continued)
Other off-statement of condition instruments:
In the ordinary course of business AWBC has entered into off-statement of
condition financial instruments consisting of commitments to extend credit,
commitments under credit-card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are held for purposes
other than trading and are recorded in the financial statements when they are
funded or related fees are incurred or received.
Note 2. Merger
American West Bank (AWB):
On February 1, 1999 AWBC completed its merger with AWB. AWB had been previously
known as Bank of the West, but received $1,250,000 for the sale of its name in
1999. As of February 1, 1999 AWB had approximately $103 million in total assets,
$90 million in deposits, $68 million in loans, and $12 million in total equity.
1,749,300 AWBC shares were issued to AWB shareholders for the merger. The
pooling-of-interests accounting method was used for this transaction, which
includes restating prior reported amounts. The effects of the restatement on
revenue and net income are shown below:
($ in thousands) 1998
Net interest income and noninterest income:
Original AWBC amounts reported $ 25,003
AWB 6,449
--------
As restated $ 31,452
========
Net income:
Original AWBC amounts reported $ 5,364
AWB 2,019
--------
As restated $ 7,383
========
38
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS No. 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. AWBC has implemented this statement, which did not result in
a material impact on its financial position or results of operations.
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in September 2000 and establishes the
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The statement is effective for
transfers of financial assets occurring after March 31, 2001, applied
prospectively and effective for disclosures about securitizations and for
reclassification and disclosure about collateral in financial statements for
fiscal years ending after December 15, 2000. AWBC does not expect the statement
will result in a material impact on its financial position or results of
operations.
Note 4. Cash and Cash Equivalents
The Banks are required to maintain cash reserves with the Federal Reserve Bank.
Cash reserve requirements are computed by applying prescribed percentages to
various types of deposits. When the Bank's cash reserves are in excess of that
required, it may lend the excess to other banks on a daily basis. Conversely,
when cash reserves are less than required, the Banks borrow funds on a daily
basis. Such reserve requirements at December 31, 2000 and 1999 were
approximately $2,708,000 and $2,762,000, respectively. The average amounts of
federal funds sold and overnight interest bearing deposits with other banks for
the years ended December 31, 2000 and 1999, were $6,172,000 and $7,683,000,
respectively. Similarly, averages of short-term borrowings were $10,050,000 and
$6,524,000 for 2000 and 1999, respectively. The balance of short-term borrowings
at December 31, 2000 and 1999 was $26,701,000 and $7,508,000, respectively.
39
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Securities
Debt and equity securities have been classified according to management's
intent. The amortized cost of securities and their fair values at December 31
were as follows:
December 31, 2000 Gross Gross
($ in thousands) Amortized Unrealized Unrealized Fair Financial
Cost Gains Losses Value Statements
Securities available-for-sale:
U.S. Treasury securities $ 2,500 $ 39 $ 1 $ 2,538 $ 2,538
Obligations of federal government
agencies 18,054 16 95 17,975 17,975
Obligations of states, municipalities
and political subdivisions 7,458 134 7,592 7,592
Mortgage backed securities 9,246 16 169 9,093 9,093
Other securities 10,755 1 69 10,687 10,687
--------- --------- --------- --------- ---------
Total $48,013 $ 206 $ 334 $47,885 $47,885
========= ========= ========= ========= =========
December 31, 1999 Gross Gross
($ in thousands) Amortized Unrealized Unrealized Fair Financial
Cost Gains Losses Value Statements
Securities available-for-sale:
U.S. Treasury securities $ 2,503 $ 4 $ 4 $ 2,503 $ 2,503
Obligations of federal government
agencies 16,888 571 16,317 16,317
Obligations of states, municipalities
and political subdivisions 8,201 6 44 8,163 8,163
Mortgage backed securities 10,014 202 9,812 9,812
Other securities 16,356 717 15,639 15,639
--------- --------- --------- --------- ---------
53,962 10 1,538 52,434 52,434
Securities held-to-maturity:
Obligations of states, municipalities
and political subdivisions 707 4 12 699 707
--------- --------- --------- --------- ---------
Total $54,669 $ 14 $ 1,550 $53,133 $53,141
========= ========= ========= ========= =========
In accordance with Statement of Financial Accounting Standards No. 115 and 138
regarding Accounting for Certain Investments in Debt and Equity Securities and
Accounting for Certain Derivative Instruments and Certain Hedging Activities an
amendment of SFAS Statement No. 133, USB, HSB, and BOP reclassified
approximately $707,000 in securities from held-to-maturity to available-for-sale
in 2000.
40
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Securities (Continued)
Securities taxable interest income was $2,573,000, $3,009,000, and $4,471,000
for 2000, 1999 and 1998, respectively. Securities nontaxable interest income was
$469,000, $522,000 and $642,000 for 2000, 1999, and 1998, respectively. Dividend
income was $217,000, $229,000, and $218,000 for 2000, 1999, and 1998,
respectively. Securities with an amortized cost of $12,635,000 and $16,848,000
at December 31, 2000 and 1999, respectively, were pledged to secure public
deposits for purposes required or permitted by law. Market value of these
securities was $12,872,000 and $16,517,000 at December 31, 2000 and 1999,
respectively. At December 31, 1999 other securities include marketable equity
securities with an amortized cost of $2,663,000 and market value of $2,277,000.
The securities were sold in 2000. Also included in other securities are
$3,540,000 in 2000 and $3,265,000 in 1999 of Federal Home Loan Bank (FHLB)
Stock, which is carried at cost and can be sold back to the Federal Home Loan
Bank at cost, but is restricted as to purchase and sale based on the level of
AWBC business activity with the FHLB.
Gross realized gains on sales of securities available for sale were $44,000,
$69,000, and $141,000 for 2000, 1999, and 1998, respectively. Gross realized
losses were $370,000, $3,000, and $0 for 2000, 1999, and 1998, respectively.
The contractual scheduled maturity of securities at December 31, 2000 were as
follows:
Amortized Fair
($ in thousands) Cost Value
Due in one year or less $10,574 $10,577
Due from one year to five years 14,071 14,089
Due from five to ten years 10,024 10,020
Due after ten years 4,098 4,106
Mortgage backed securities 9,246 9,093
--------- ---------
$48,013 $47,885
========= =========
Expected maturities will differ from contractual maturities because the issues
of certain debt securities have the right to call or prepay their obligations
without any penalties.
41
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Loans and Allowance for Loan Losses
Loan categories as of December 31, 2000 and 1999 were as follows:
($ in thousands) 2000 1999
Commercial and industrial $ 317,108 $ 246,796
Agricultural 76,093 67,025
Real estate mortgage 62,173 66,690
Real estate construction 12,252 14,781
Installment 22,489 21,190
Bank cards and other 3,972 6,939
-------------- -------------
Total loans 494,087 423,421
Allowance for loan losses (4,948) (4,349)
Deferred loan fees, net of deferred costs (680) (862)
-------------- -------------
Net loans $ 488,459 $ 418,210
============== =============
Variable rate loans were $185,345,000 and $144,511,000 as of December 31, 2000
and 1999, respectively. Remaining loans were fixed rate loans. A summary of
loans by contractual maturity as of December 31, 2000 and 1999 is as follows:
($ in thousands) 2000 1999
Maturity within one year $ 124,644 $ 141,131
One to five years 211,794 164,026
Over five years 157,649 118,264
------------ -----------
$ 494,087 $ 423,421
============ ===========
Changes in the allowance for loan losses are as follows:
($ in thousands) 2000 1999 1998
Balance, beginning of year $ 4,349 $ 3,819 $ 53,869
Provision charged to operations 1,643 1,577 784
Loans charge-off (1,140) (1,246) (1,064)
Recoveries 96 201 230
--------- --------- ---------
Balance, end of year $ 4,948 $ 4,349 $ 83,819
========= ========= =========
42
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Loans and Allowance for Loan Losses (Continued)
Impaired loan information as of December 31, 2000, 1999 and 1998 is as follows:
($ in thousands) 2000 1999 1998
Impaired loans with specific allowance for loan losses $ 177 $ 1,157 $ 541
Impaired loans without a specific allowance for loan losses 6,586 5,169 1,574
--------- ------------- --------
Total impaired loans $ 6,763 $ 6,326 $ 2,115
========= ============= ========
Impaired loans allowance for loan losses $ 50 $ 539 $ 508
Average impaired loans 6,414 3,544 2,641
Interest income recognized for impaired loans 41 306 213
Note 7. Premises and Equipment
Major classifications of premises and equipment are summarized as of December
31, 2000 and 1999 as follows:
($ in thousands) 2000 1999
Premises, including premises under capital lease,
2000 and 1999 $802 $ 11,653 $ 11,315
Furniture, fixtures, and equipment 5,408 5,720
Leasehold improvements 889 649
---------- ----------
17,950 17,684
Less accumulated depreciation, including accumulated
amortization on assets under capital lease,
2000 $404; 1999 $364 (6,873) (7,025)
---------- ----------
11,077 10,659
Land 2,138 2,474
---------- ----------
Premises and equipment, net $ 13,215 $ 13,133
========== ==========
43
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Life Insurance and Salary Continuation Plan
The Banks maintain salary continuation plans for the benefit of certain of their
directors, executive officers and other key employees. The plan provides for
monthly payments to such persons, or their designated beneficiaries, for a
period of ten years following retirement at age 65, or death prior to
retirement. Amounts payable to eligible participants are determined by reference
to such person's salary or directors' fee as of the date of each such person's
agreement under the plan.
The plan is generally available to most directors, executive officers and other
key employees of the Banks, and vests according to years of service. Persons
employed by the Banks for at least six continuous years following the effective
date of the plan are deemed vested with respect to 20% of the salary
continuation benefits available to them, and become vested in an additional 20%
of such benefits for each succeeding year of employment thereafter until the
employee becomes fully vested. Eligible persons employed by the Banks for at
least ten continuous years prior to the effective date of the plans are deemed
fully vested. The Banks' obligations under the salary continuation plan are
funded by prepaid policies of universal life insurance covering the lives of the
plan participants. The Banks are the beneficiaries of the life insurance
policies.
Cash surrender values; salary continuance benefit obligations at age 65, and the
recorded liability were as follows as of December 31, 2000 and 1999:
($ in thousands) 2000 1999
Cash surrender value $4,304 $4,049
Present value at age 65 of all participants after full vesting is obtained 5,040 5,040
Present value at age 65 of the current fully vested participants 3,959 2,825
Recorded liability for future benefit obligation 1,123 739
Vested participants are eligible to receive benefits at age 65. In its merger
with AWB a salary continuation plan was included, which is fully vested and the
key employee is eligible to receive benefits at age 71. It is an employee funded
deferred compensation plan.
44
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Income Taxes
The components of income tax expense for the years presented are as follows:
($ in thousands) 2000 1999 1998
Current expense $ 3,578 $ 4,353 $ 3,349
Deferred tax expense/(benefit) (199) (465) 172
--------- --------- ---------
Income tax expense $ 3,379 $ 3,888 $ 3,521
========= ========= =========
The effective tax rate differs from the statutory tax rate as follows:
($ in thousands) 2000 1999 1998
Income tax at statutory rates $ 3,892 $ 4,647 $ 3,707
Effect of tax-exempt interest income (186) (204) (267)
Effect of tax credit (283) (400)
Effect of nondeductible expenses and other (44) (155) 81
--------- --------- ---------
Income tax expense $ 3,379 $ 3,888 $ 3,521
========= ========= =========
The following are the significant components of deferred tax assets and
liabilities. The net amount is classified with other assets in the consolidated
financial statements:
($ in thousands) 2000 1999
Deferred tax assets:
Allowance for loan losses $1,400 $1,074
Unrealized losses on available-for-sale securities 43 520
Deferred compensation expense 405 284
Other 148 155
-------- --------
Total deferred tax assets 1,996 2,033
-------- --------
Deferred tax liabilities:
Deferred loan costs 500 408
Lease financing 100 131
FHLB stock dividend income 486 413
Other 507 400
-------- --------
Total deferred tax liabilities 1,593 1,352
-------- --------
Net deferred tax assets/(liabilities) $ 403 $ 681
======== ========
The applicable tax (benefit)/expense, net for securities gains and losses was
($112,000), $22,000, and $48,000 for 2000, 1999, and 1998, respectively.
45
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Time Deposit Maturities
At December 31, 2000, the scheduled maturities of time deposits were as follows:
($ in thousands)
2001 $194,319
2002 12,742
2003 2,257
2004 530
2005 247
Later years 3
----------
Total $210,098
==========
Note 11. Commitments and Contingent Liabilities
In the ordinary course of business, AWBC has various outstanding commitments and
contingent liabilities that are not reflected in the accompanying consolidated
financial statements. In addition, AWBC is a defendant in certain claims and
legal actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial condition of AWBC.
The minimum annual rental commitments on capital and operating leases at
December 31, 2000, exclusive of taxes and other charges, are summarized as
follows:
($ in thousands)
2001 $ 611
2002 600
2003 609
2004 558
2005 495
Later years 4,392
----------
Total minimum payments due 7,265
Less: Amount representing interest (405)
----------
Present value of net minimum lease payments $ 6,860
==========
AWBC rental expense for 2000, 1999, and 1998 was $663,000, $494,000, and
$359,000, respectively.
46
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Commitments and Contingent Liabilities (Continued)
Other commitments and contingent liabilities:
AWBC is a party to financial instruments with off-statement of condition risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit, standby
letters of credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of condition. The contract or notional
amounts of those instruments reflect the extent of involvement AWBC has in
particular classes of financial instruments.
AWBC's exposure to credit loss in the event of nonperformance by the other party
to the financial instrument for commitments to extend credit and standby letters
of credit and financial guarantees written is represented by the contractual
notional amount of those instruments. AWBC uses the same credit policies in
making commitments and conditional obligations as it does for statement of
condition instruments. Generally, AWBC does not require collateral or other
security to support financial instruments with credit risk
Contract or
Notional Amount
($ in thousands) 2000 1999
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 93,051 $68,703
Standby letters of credit and financial guarantees written 1,891 1,412
Unused commitments on bankcards 13,477 13,317
---------- ----------
TOTAL $108,419 $83,432
========== ==========
AWBC does not anticipate any material losses as a result of the commitments or
guarantees.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. AWBC evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by AWBC upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and income
producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by AWBC to guarantee the performance of a customer of a third
party. Those guarantees are primarily issued to support public and private
borrowing arrangements,
47
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Commitments and Contingent Liabilities (Continued)
Including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
All the Banks' loans, commitments, and commercial and standby letters of credit
have been granted to customers in the Banks' market area. As such, significant
changes in economic conditions in the State of Washington or within its primary
industries could adversely affect the Bank's ability to collect loans.
Substantially all such customers are depositors of the Banks. The concentrations
of credit by type of loan are set forth in Note 6. AWBC's related party loans
and deposits are disclosed in Note 17. The Banks, as a matter of policy, do not
extend credit to any single borrower in excess of $4,000,000, $2,000,000,
$900,000, $495,000, and $2,500,000 for USB, HSB, BOP, GNB, and AWB,
respectively.
As of December 31, 2000 and 1999, AWBC had unused lines of credit of $95,865,000
and $66,180,000, respectively. The lines were available for short-term and long-
term borrowings.
Note 12. Common Stock
In 2000 the Board of Directors approved a stock repurchase program. During 2000
749,093 shares were repurchased for $7.9 million. In January 2001, 2000 and 1999
the Board of Directors declared 10% common stock dividends. AWBC recorded a
transfer from retained earnings to common stock for the market value of the
additional shares issued. Per share amounts and weighted average shares
outstanding have been retroactively adjusted to reflect the stock dividends.
Note 13. Restrictions on Dividends and Loans
The Banks are subject to banking regulations relating to the payment of
dividends and the amount of loans that it may extend. The Banks are allowed to
pay dividends out of retained earnings. At December 31, 2000, the amount of
retained earnings of USB, HSB, BOP, GNB, and AWB available for dividends were
$17,171,000, $4,699,000, $1,796,000, $1,672,000 and $9,080,000, respectively. At
December 31, 1999, the amount of retained earnings of USB, HSB, BOP, GNB, and
AWB available for dividends were $15,333,000, $4,322,000, $1,247,000, $1,578,000
and $9,465,000, respectively. AWBC has the full amount of retained earnings
available for dividends.
48
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13. Restrictions on Dividends and Loans (Continued)
Certain loans to any person, including liabilities of a firm or association,
cannot exceed twenty percent of the capital and surplus of the Bank. Loans that
are secured or covered by guarantees, or by commitments or agreements to take
over or to purchase the same, made by any federal reserve bank or by the United
States, including any corporation wholly owned directly or indirectly by the
United States, are not subject to these restrictions. No loans can be made
unless the Bank has more than the minimum available funds required by law.
Note 14. Employee Stock Ownership Plan (ESOP) and Profit Sharing 401(k) Plan
AWBC sponsors an ESOP. An ESOP is a form of retirement plan whereby AWBC
receives a deduction for contributions to the Plan and the Plan invests all or a
portion of the employer Trust contributions and Trust earnings in stock of AWBC.
The Plan is qualified under Section 401(a) of the Internal Revenue Code as a
stock bonus plan. Employees 21 years or older become eligible for participation
after 1,000 hours or more of service in a plan year, and benefits fully vest
after five years of service. Contributions to the ESOP plan totaled $400,000,
$322,000 and $278,000 for 2000, 1999 and 1998, respectively and are based on a
percentage of AWBC earnings. Contributions are allocated pro rata based on
eligible annual compensation on December 31. AWBC has a Profit Sharing 401(k)
Plan. There were no employer contributions in 2000, 1999 and 1998 to the plan.
Note 15. Stock Option Plans
AWBC's Board of Directors adopted a stock option plan, known as the Incentive
Stock Option Plan. The plan provides for the issuance of incentive stock options
to key individuals of AWBC, including directors and executive officers. The
total shares available for option are the lesser of 8% of the common stock then
outstanding or 483,153 shares. A Board of Directors Compensation Committee and
an Executive Remuneration Committee were formed to direct the granting of the
options. When the Plan was established in 1995, common stock options were
granted to identified directors and executive officers. The options were granted
for a five-year term from the date of option and may be exercised anytime prior
to that date, subject to conditions prescribed in the Plan. Additional common
stock options were granted for a five-year term with a vesting schedule
increasing 20% per year until the options are fully vested at the end of five
years. Options were granted at the average price between the high and low on the
NASDAQ Exchange on the last day of the preceding month, before the date of
option. When AWBC merged with AWB there were 119,766 options outstanding from
the AWB stock plan, which have been adjusted using the exchange ratio applicable
to the merger. These options are administered separately from the original AWBC
plan. The AWB options terminate from 2001 through 2003 with exercise prices
ranging from $5.07 to $7.68. As of December 31, 2000 there are 86,653 options
remaining in the AWB stock plan. All of the AWB options are fully vested and are
included in the status, outstanding and earnings results information, which
follows.
49
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Stock Option Plans (Continued)
The status of the Plans as of December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Number Price Number Price Number Price
Outstanding at beginning of year 408,881 8.88 410,468 8.25 362,683 6.45
Granted 136,015 8.96 40,026 11.60 139,029 11.24
Exercised (95,468) 6.14 (41,613) 5.25 (84,239) 5.82
Forfeited (44,701) 13.45 (7,005) 5.61
-------- -------- --------
Outstanding at year-end 404,727 9.23 408,881 8.88 410,468 8.25
======== ======== ========
Exercisable at year-end 306,963 8.33 255,647 7.49 297,252 7.18
Weighted average fair value of options granted
during the year 8.96 11.34 14.34
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding
Weighted Options Exercisable
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$ 3.97 18,887 .3 years $ 3.97 18,887 $ 3.97
$5.07 - $5.58 17,123 .1 years $ 5.14 17,123 $ 5.14
$6.03 - $7.32 34,220 1.1 years $ 6.46 34,220 $ 6.46
$6.98 - $7.68 35,310 2.1 years $ 7.07 35,310 $ 7.07
$7.92 - $8.65 49,291 .6 years $ 8.30 49,291 $ 8.30
$ 8.64 110,000 4.2 years $ 8.64 110,000 $ 8.64
$10.33 26,013 4.1 years $10.33 7,260 $10.33
$11.55 35,186 3.2 years $11.55
$11.65 2,662 2.8 years $11.65 2,662 $11.65
$11.98 4,840 3.2 years $11.98
$12.31 5,457 2.9 years $12.31
$12.51 13,763 1.7 years $12.51
$14.17 51,975 2.0 years $14.17 32,210 $14.17
50
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Stock Option Plans (Continued)
If the fair value based method of accounting under SFAS No. 123 had been used
for 2000, 1999 and 1998 the results and related assumptions would have been as
follows:
($ in thousands, except per share) 2000 1999 1998
Results using fair value based method of accounting:
Net income $ 7,739 $ 9,608 $ 6,841
Basic earnings per common share $ 0.97 $ 1.14 $ 0.82
Diluted earnings per common share $ 0.96 $ 1.13 $ 0.80
Assumptions used to make the fair value calculation:
Risk free interest rate 5.00% 5.50% 5.00%
Expected volatility 28.25% 28.25% 28.25%
Expected cash dividends 0% 0% 0%
Expected stock option life 5.0 years 5.0 years 5.0 years
Note 16. Parent Company Only Statements
The following are the condensed statements of condition, income, and cash flows
for the parent company only, United Security Bancorporation. These statements
are presented using the equity method of accounting; therefore, accounts of the
subsidiaries have not been included. Intercompany transactions and balances have
not been eliminated. The following information should be read in conjunction
with the other notes to the consolidated financial statements.
Condensed Statements of Condition
($ in thousands)
December 31,
2000 1999
Cash $ 348 $ 2,405
Investment in:
Bank subsidiaries 62,211 55,462
Nonbank subsidiary 299 209
Premises and equipment 1,115 4,802
Other assets 1,165 105
-------- --------
TOTAL ASSETS $65,138 $62,983
======== ========
Accrued expenses and other liabilities $ 608 $ 61
Stockholders' equity 64,530 62,922
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $65,138 $62,983
======== ========
51
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Parent Company Only Statements (Continued)
Condensed Statements of Income
($ in thousands)
Years Ended December 31,
2000 1999 1998
Income:
Bank subsidiaries dividends $ 6,318 $ 3,099 $ 1,237
Rent income 489 476 470
Other income 6 155 670
-------------- -------------- --------------
6,813 3,730 2,377
-------------- -------------- --------------
Expenses:
Salaries and benefits 1,151 1,029 1,457
Interest expense 6 414
Depreciation 171 169 192
Other operating expenses 479 712 982
-------------- -------------- --------------
1,807 1,910 3,045
-------------- -------------- --------------
Income/(loss) before tax benefit and equity in
undistributed net income of subsidiaries 5,006 1,820 (668)
Income tax benefit 591 498 744
Income/(loss) before equity in undistributed net income of
subsidiaries -------------- -------------- --------------
5,597 2,318 76
Equity in undistributed net income of:
Bank subsidiaries 2,348 7,333 7,230
Nonbank subsidiaries 90 61 77
-------------- -------------- --------------
Net income $ 8,035 $ 9,712 $ 7,383
============== ============== ==============
52
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Parent Company Only Statements (Continued)
Condensed Statements of Cash Flows
($ in thousands)
Years Ended December 31,
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 8,035 $ 9,712 $ 7,383
Adjustments to reconcile net income to cash provided
by operating activities:
Equity in undistributed net income of subsidiaries (2,438) (7,394) (7,307)
Depreciation 171 169 192
(Increase) decrease in other assets (1,060) 65 (1)
Increase (decrease) in other liabilities 547 (82) (26)
------------- -------------- --------------
NET CASH FROM OPERATING ACTIVITIES 5,255 2,470 241
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries (2,913)
Return of investment in subsidiaries 52 4,571
Purchase of premises and equipment (632) (612) (125)
Sale of premises and equipment 3,585 759
------------- -------------- --------------
NET CASH FROM INVESTING ACTIVITIES 40 (560) 5,205
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock 585 124 284
Stock repurchase program (7,937)
Principal payments on notes payable (5,388)
Cash paid for redemption of fractional shares (17) (18)
------------- -------------- --------------
NET CASH FROM FINANCING ACTIVITIES (7,352) 107 (5,122)
------------- -------------- --------------
NET CHANGE IN CASH (2,057) 2,017 324
CASH, beginning of year 2,405 388 64
------------- -------------- --------------
CASH, end of year $ 348 $ 2,405 $ 388
============= ============== ==============
53
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Related Party Transactions
Loans to related parties:
Loans to AWBC's officers and directors are on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. Such loans had the following balances and
activity during 2000 and 1999:
($ in thousands) 2000 1999
Balance at beginning of year $ 20,515 $ 13,429
New loans or advances 5,230 21,489
Repayments and adjustments (10,641) (14,403)
------------- ------------
Balance at end of year $ 15,104 $ 20,515
============= ============
Deposits from related parties:
Deposits from related parties totaled $12,647,000 and $5,958,000 at December 31,
2000 and 1999, respectively.
Payments to related parties:
Grant National Bank paid $84,000, $84,000, and $64,000 in 2000, 1999, and 1998
respectively to an Association of 6 of its Directors for the rent of its
headquarters and branch.
54
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments requires
disclosure of fair value information about financial instruments for which it is
practicable to estimate fair value. As defined by SFAS No. 107, financial
instruments include the categories listed below. It does not include the value
of property, plant and equipment and intangible assets such as customer
relationships and core deposit intangibles. Fair values of off-statement of
condition lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standing. The fair value of the fees at December
31, 2000 and 1999, were insignificant. See Note 11 for the notional amount of
the commitments to extend credit. The following table summarizes carrying
amounts, estimated fair values, and assumptions used by AWBC to estimate fair
value as of December 31, 2000 and 1999:
Estimated
As of December 31, 2000: Assumptions Used in Carrying Fair
($ in thousands) Estimating Fair Value Amount Value
Financial Assets:
Cash and due from banks Equal to carrying value $ 28,580 $ 28,580
Overnight interest bearing deposits
with other banks Equal to carrying value 1,247 1,247
Securities Quoted market prices 47,885 47,885
Loans Fixed-rate loans: Discounted expected future cash flows,
variable-rate loans: equal to carrying value, net of
allowance for loan losses 488,459 488,116
Financial Liabilities:
Deposits Fixed-rate certificates of deposit:
Discounted expected future cash flows
All other deposits: Equal to carrying value 501,426 501,860
Short-term borrowings Equal to carrying value 26,701 26,701
Estimated
As of December 31, 1999: Assumptions Used in Carrying Fair
($ in thousands) Estimating Fair Value Amount Value
Financial Assets:
Cash and due from banks Equal to carrying value $ 21,387 $ 21,387
Overnight interest bearing deposits
with other banks Equal to carrying value 4,632 4,632
Securities Quoted market prices 53,141 53,133
Loans Fixed-rate loans: Discounted expected future cash flows,
variable-rate loans: equal to carrying value, net of
allowance for loan losses 418,210 409,681
Financial Liabilities:
Deposits Fixed-rate certificates of deposit:
Discounted expected future cash flows
All other deposits: Equal to carrying value 452,899 451,623
Short-term borrowings Equal to carrying value 7,508 7,508
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19. Regulatory Matters
The Banks are subject to various regulatory capital requirements administered by
the banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Banks
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-statement of condition items.
The Banks capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors. Quantitative measures established by regulation to ensure capital
adequacy require the Banks to maintain minimum amounts and ratios set forth in
the following table of total and Tier I capital to risk-weighted and average
assets. As of December 31, 2000 AWBC, USB, HSB, BOP, GNB and AWB were considered
well capitalized based on regulatory capital standards.
56
As of December 31, 2000 and 1999 the regulatory ratios for AWBC, USB, HSB, BOP,
GNB, and AWB were as follows:
Actual Adequately Capitalized Well Capitalized
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2000:
Total capital to risk weighted assets:
AWBC $64,260 12.18% > $42,192 8.00% > $52,740 10.00%
USB 24,723 11.04% > 17,911 8.00% > 23,389 10.00%
HSB 12,399 12.30% > 8,064 8.00% > 10,080 10.00%
BOP 6,678 10.77% > 4,960 8.00% > 6,199 10.00%
GNB 3,992 11.67% > 2,736 8.00% > 3,420 10.00%
AWB 14,178 11.46% > 9,901 8.00% > 12,376 10.00%
Tier I capital to risk weighted assets:
AWBC 59,312 11.25% > 21,096 4.00% > 31,644 6.00%
USB 22,596 10.09% > 8,956 4.00% > 13,433 6.00%
HSB 11,424 11.33% > 4,032 4.00% > 6,048 6.00%
BOP 6,154 9.93% > 2,480 4.00% > 3,720 6.00%
GNB 3,668 10.72% > 1,368 4.00% > 2,052 6.00%
AWB 13,148 10.62% > 4,950 4.00% > 7,246 6.00%
Leverage capital, Tier I capital to average assets:
AWBC 59,312 10.24% > 23,176 4.00% > 28,970 5.00%
USB 22,596 10.04% > 8,998 4.00% > 11,248 5.00%
HSB 11,424 10.19% > 4,483 4.00% > 5,604 5.00%
BOP 6,154 9.16% > 2,686 4.00% > 3,358 5.00%
GNB 3,668 8.02% > 1,830 4.00% > 2,288 5.00%
AWB 13,148 10.84% > 4,850 4.00% > 6,062 5.00%
As of December 31, 1999:
Total capital to risk weighted assets:
AWBC $61,836 13.42% > $36,876 8.00% > $46,094 10.00%
USB 20,739 10.50% > 15,801 8.00% > 19,751 10.00%
HSB 10,454 11.61% > 7,205 8.00% > 9,007 10.00%
BOP 5,772 11.34% > 4,073 8.00% > 5,091 10.00%
GNB 3,286 11.75% > 2,237 8.00% > 2,797 10.00%
AWB 14,431 13.53% > 8,532 8.00% > 10,665 10.00%
Tier I capital to risk weighted assets:
AWBC 57,487 12.47% > 18,438 4.00% > 27,657 6.00%
USB 18,813 9.53% > 7,900 4.00% > 11,851 6.00%
HSB 9,606 10.67% > 3,603 4.00% > 5,404 6.00%
BOP 5,379 10.56% > 2,037 4.00% > 3,055 6.00%
GNB 3,024 10.81% > 1,119 4.00% > 1,678 6.00%
AWB 13,511 12.67% > 4,473 4.00% > 6,399 6.00%
Leverage capital, Tier I capital to average assets:
AWBC 57,487 10.98% > 20,936 4.00% > 26,170 5.00%
USB 18,813 9.44% > 7,973 4.00% > 9,966 5.00%
HSB 9,606 9.13% > 4,207 4.00% > 5,259 5.00%
BOP 5,379 8.35% > 2,577 4.00% > 3,222 5.00%
GNB 3,024 7.05% > 1,716 4.00% > 2,145 5.00%
AWB 13,511 12.08% > 4,473 4.00% > 5,591 5.00%
57
AMERICANWEST BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Earnings Per Share
The following is a reconciliation of the numerators and denominators for basic
and diluted per-share computations for net income for 2000, 1999 and 1998:
($ in thousands, except per share) 2000 1999 1998
Numerator:
Net income $ 8,035 $ 9,712 $ 7,383
Denominator:
Weighted-average number of common shares outstanding 8,017,906 8,394,011 8,327,777
Incremental shares assumed for stock options 56,082 114,124 185,636
-------------------------------------------
Total 8,073,988 8,508,135 8,513,413
===========================================
Basic earnings per common share $ 1.00 $ 1.16 $ 0.89
Diluted earnings per common share $ 1.00 $ 1.14 $ 0.87
Note 21. Subsequent Event
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. Also the parent
company United Security Bancorporation has changed its name to AmericanWest
Bancorporation using the new Nasdaq stock symbol AWBC.
QUARTERLY FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY
($ in thousands, except per share)
UNAUDITED
2000, Quarter Ended 1999, Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Interest income $ 13,727 $ 13,055 $ 12,022 11,238 $ 11,369 $ 11,174 $ 10,753 $ 10,612
Interest expense 5,385 5,271 4,719 4,311 4,070 3,838 3,812 3,714
---------------------------------------------- ----------------------------------------------
Net Interest Income 8,342 7,784 7,303 6,927 7,299 7,336 6,941 6,898
Provision for loan losses 647 352 307 337 511 549 250 267
---------------------------------------------- ----------------------------------------------
Net interest income after
provision for loan losses 7,695 7,432 6,996 6,590 6,788 6,787 6,691 6,631
Sale of name income 1,250
Other noninterest income 1,018 925 1,043 1,043 1,006 1,136 1,255 1,265
Noninterest expense 5,838 5,123 5,148 5,220 4,851 4,718 4,822 4,818
---------------------------------------------- ----------------------------------------------
Income before income taxes 2,875 3,234 2,891 2,413 2,943 3,205 4,374 3,078
Income tax 825 1,058 873 623 876 564 1,449 999
---------------------------------------------- ----------------------------------------------
Net income $ 2,050 $ 2,176 $ 2,018 $ 1,790 $ 2,067 $ 2,641 $ 2,925 $ 2,079
============================================== ==============================================
Basic earnings per common share $ 0.26 $ 0.27 $ 0.25 $ 0.22 $ 0.25 $ 0.31 $ 0.35 $ 0.25
Diluted earnings per common share $ 0.26 $ 0.27 $ 0.25 $ 0.21 $ 0.24 $ 0.31 $ 0.34 $ 0.24
Basic average shares 7,744,646 7,984,136 8,048,252 8,301,072 8,397,925 8,396,808 8,396,808 8,384,321
Diluted average shares 7,810,426 8,028,994 8,089,761 8,367,666 8,510,180 8,514,474 8,501,328 8,504,653
58