Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

or

For the transition period from              to             

Commission File Number 000-18561

AMERICANWEST BANCORPORATION

(Exact name of registrant as specified in its charter)

(509) 467-6993

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Table of Contents

AMERICANWEST BANCORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2004

Table of Contents

2

Table of Contents

AMERICANWEST BANCORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CONDITION

(unaudited)

($ in thousands)

The accompanying notes are an integral part of these statements.

3

Table of Contents

AMERICANWEST BANCORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(unaudited)

($ in thousands, except per share amounts)

The accompanying notes are an integral part of these statements.

4

Table of Contents

AMERICANWEST BANCORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

(unaudited)

($ in thousands)

The accompanying notes are an integral part of these statements.

5

Table of Contents

AMERICANWEST BANCORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

The foregoing unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2003. In the opinion of management, the unaudited interim consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of AmericanWest Bancorporation’s (AWBC) consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of AWBC’s consolidated financial position and results of operations.

Employee stock options are accounted for under the intrinsic value method as allowed under Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees. Stock options are generally 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 for stock options that are granted at exercise prices not less than the fair market value of common stock on the date of grant. The following table sets out the pro forma amounts of net income and earnings per share that would have been reported had it elected to follow the fair value recognition provisions of Statement of Financial Accounting Standards Board No. 123, Accounting for Stock-Based Compensation, as amended.

6

Table of Contents

AMERICANWEST BANCORPORATION

NOTE 2. Consolidation of Subsidiaries

On March 19, 2003, AWBC consolidated its two commercial banking subsidiaries, AmericanWest Bank and Bank of Latah into a single commercial bank, AmericanWest Bank. The AmericanWest Bank charter is the surviving charter.

NOTE 3. Securities

All of the securities are classified as available-for-sale and are carried at market value. Unrealized gains and losses, net of tax, are excluded from earnings and reported as a net amount as a separate component of stockholders’ equity. Gains or 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. Carrying amounts and fair values at September 30, 2004 and December 31, 2003 were as follows:

NOTE 4. Loans and Allowance for Loan Losses

Loan detail by category as of September 30, 2004 and December 31, 2003 were as follows:

7

Table of Contents

AMERICANWEST BANCORPORATION

The allowance for loan loss is maintained at levels considered adequate by management to provide for possible loan losses. The allowance is based on management’s assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses during the three and nine months ended September 30, 2004 and 2003 were as follows:

NOTE 5. Comprehensive Income

Total comprehensive income, which includes net income and unrealized gains and losses on the Corporation’s available-for-sale securities, amounted to approximately $9.0 million and approximately $3.3 million for the nine months ended September 30, 2004 and 2003, respectively.

NOTE 6. Common Stock

In January of 2004 and 2003, 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 on the date issued. Per share amounts and weighted average shares outstanding have been retroactively adjusted to reflect the stock dividends.

NOTE 7. Earnings Per Share

The following is a reconciliation of the numerators and denominators for basic and diluted per share computations for net income for the three and six months ended September 30:

NOTE 8. Sale of Branch

On June 4, 2004, AWBC sold a branch to another bank. The branch was located in Ione, Washington and consisted of approximately $15.1 million deposits. AWBC recorded a gain of approximately $618,000 related to this sale which is included in noninterest income for the nine months ended September 30, 2004. Operating results reflect activity in this branch up to the date of sale.

NOTE 9. Accounting Pronouncements

In December 2003, the FASB issued revised Interpretation No. 46, Consolidation of Variable Interest Entities (VIE), as amended and interpreted. It defined a VIE as a corporation, partnership, trust, or any other legal structure used for the business purpose that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. This interpretation requires a VIE to be consolidated or deconsolidated by a corporation generally based on the risk of loss or return. AWBC has a VIE in the form of a Trust set up to issue subordinated debentures and accordingly, the implementation of the Interpretation required the deconsolidation of the Trust. AWBC adopted the Interpretation retroactively. AWBC’s investment in the Trust is not consolidated and is accounted for under the equity method and included in other assets on the Condensed Consolidated Statement of Condition. The subordinated debentures issued and guaranteed by the Corporation and held by the trust are reflected on the Corporation’s Condensed Consolidated Statement of Condition.

8

Table of Contents

AMERICANWEST BANCORPORATION

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

Forward-Looking Statements

Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q including, but not limited to, matters described in Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA), including statements about the business strategy, financial condition, results of operations, future financial targets and earnings outlook of the Corporation. The forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Those factors include, but are not limited to, impact of the current national and regional economy on small business loan demand in the Corporation’s market, loan delinquency rates, changes in portfolio composition, the bank’s ability to attract quality commercial business, interest rate movements and the impact on margins such movement may cause, changes in the demographic make-up of the Corporation’s market, fluctuation in demand for the Corporation’s products and services, the Corporation’s ability to attract and retain qualified people, regulatory changes, competition with other banks and financial institutions, and other factors. For a discussion of factors that could cause actual results to differ, please see the Corporation’s reports on Forms 10-K and 10-Q as filed with the Securities and Exchange Commission. Words such as “targets,” “expects,” “anticipates,” “believes,” other similar expressions or future or conditional verbs such as “will,” “may,” “should,” “would,” and “could” are intended to identify such forward-looking statements. Readers should not place undue reliance on the forward-looking statements, which reflect management’s view only as of the date hereto. The Corporation undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. This statement is included for the express purpose of protecting the Corporation under PSLRA’s safe harbor provisions.

The following discussion contains a review of the results of operations and financial condition for the three and nine months ended September 30, 2004 and 2003. This information should be read in conjunction with the financial statements and related notes appearing in this report. The reader is assumed to have access to AWBC’s Form 10-K for the year ended December 31, 2003, which contains additional information.

AmericanWest Bancorporation

AmericanWest Bancorporation (AWBC or Corporation) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Corporation conducts business through its wholly-owned subsidiary, AmericanWest Bank (AWB) a state-chartered, FDIC-insured commercial bank organized under the laws of the State of Washington. The Corporation’s main office is located in Spokane, Washington.

AmericanWest Capital Trust I (Trust), a subsidiary of AWBC, was formed in September 2002 for the exclusive purpose of issuing trust preferred securities and common securities and using the $10.0 million in proceeds from the issuance to acquire junior subordinated debentures issued by AWBC. Upon the adoption of amended FIN 46, the investment in the Trust is no longer consolidated on the Condensed Consolidated Financial Statements.

AmericanWest Bank

AWB provides a full range of banking services to small and medium-sized businesses, agricultural businesses, professionals, and consumers through 44 offices located in Eastern Washington and Northern Idaho.

The principal sources of the AWB’s revenue are 1) interest and fees on loans, 2) fees for deposit accounts and related services, 3) interest on investments and 4) interest bearing deposits with other banks. AWB’s lending activities consist of term and operating loans to businesses and agricultural businesses, real estate construction and development loans, vehicle and equipment loans for both businesses and consumers, and real estate mortgage loans. AWB also offers a full line of deposit account products and related services.

9

Table of Contents

AMERICANWEST BANCORPORATION

Performance Overview

The table below summarizes the Corporation’s financial performance for the three and nine months ending September 30, 2004 and 2003:

Net Income

The Corporation reported net income of approximately $4.0 million or $0.38 per fully diluted share for the three months ended September 30, 2004 compared to approximately $3.7 million and $0.35 for the same period in 2003. The Corporation reported net income of approximately $8.8 million or $0.84 per fully diluted share for the nine months ended September 30, 2004 compared to approximately $10.5 million and $1.00 for the same period in 2003. Return on average assets for the nine months ending September 30, 2004 and 2003 was 1.10% and 1.51%, respectively. The return on average equity for the nine months ended September 30, 2004 and 2003 was 11.70% and 16.29%, respectively.

During the nine months ended September 30, 2004 the Corporation recorded a $4.0 million, pre-tax, additional loan loss provision which AWBC originally announced on May 20, 2004 and a gain on the divestiture of a single branch in the amount of $618 thousand, pre-tax, which was included in results reported for the six months ended June 30, 2004. On a pro forma basis without these two events, the net income for the nine months ended September 30, 2004 was $11.0 million. Diluted earnings per share, on a pro forma basis, were $1.05 for the nine months ended September 30, 2004. The following is a table to reconcile the pro forma net income and GAAP income:

10

Table of Contents

AMERICANWEST BANCORPORATION

Net Interest Income

Net interest income was approximately $16.1 million for the three months ended September 30, 2004, an increase from approximately $14.6 million for the like period in 2003. Net interest income was approximately $45.4 million for the first nine months of 2004 compared to $41.5 million during the first nine months of 2003. The increase in net interest income for both time periods was largely due to increases in the level of average earning assets, and a decrease in the cost of deposits. These were partially offset by decreases in interest and fees earned on loans and securities. There was a decrease in net interest margin to 6.22% for the period ended September 30, 2004 compared to 6.43% for the like period last year. This decrease was due to a decrease on loan yields, changes in the mix of earning assets and mix of interest costing liabilities which were offset partially by an increase in investment yields and decreases in deposit and borrowing costs.

The following table sets forth the Corporation’s net interest margin for the year to date ending September 30, 2004 and 2003: