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Yanked back from the brink of the bank boneyard, AmericanWest Bank now is eyeing renewed expansion that its new top executives believe could elevate it to a $10 billion to $15 billion institution, possibly before the end of the decade.
Currently at about $1.6 billion in assets, the Spokane-based institution expects to achieve much of that growth through acquisitions of other community banks that would be converted to the AmericanWest brand, says Scott A. Kisting, its new chairman, president, and CEO. Kisting also is chairman and CEO of SKBHC Holdings LLC, which owns the now privately held bank through a wholly owned subsidiary and has a half-billion-dollar pot of money at its disposal.
He and James R. Claffee, COO for the bank and SKBHC, already have met with AmericanWest's senior managers and asked for their input to help formulate an operational strategic plan for the bank, and they say they expect to begin implementing that plan this spring.
"It's about redirecting energy from just surviving to growing and prospering," Kisting says.
For the envisioned expansion, Claffee says, "The intent is to end up with one bank and one charter and one name," and to use AmericanWest's structure and culture, which he and Kisting consider to be strong, as a template that can be replicated elsewhere.
Kisting estimates he currently is spending about a third of his time evaluating potential acquisition targets, and says his focus is on banks mainly in the Northwest and Rocky Mountain regions and preferably contiguous to AmericanWest's current service area. He says he'd like to see the bank develop a presence in Western Washington and Oregon, and considers Colorado and even northern California to be potential expansion areas.
AmericanWest currently operates 40 financial centers in Eastern Washington and North Idaho and 18 in Utah, the latter group under the name Far West Bank, although they, too, are to be converted to the AmericanWest name at some point, Kisting says. The 37-year-old bank, which has its headquarters at 41 W. Riverside, employs about 500 people.
This isn't the first time AmericanWest has embarked on an ambitious expansion strategy. Robert M. Daugherty, former president and CEO there, led the charge in an earlier such effort and said in 2005, a year after joining the bank: "We would like to become the acquirer of choice." Daugherty was gone three years later, though, after the bank began reporting sizable losses amid the sharp downturn in the nation's real estate market.
What's different this time is that the investors who now own AmericanWest have much deeper pockets. The bank was acquired Dec. 20 by a wholly-owned subsidiary of SKBHC, a California company set up specifically to buy troubled community banks.
AmericanWest, which had struggled for the last couple of years under heavy loan losses and a mandate by federal regulators to boost its capital, received a $185 million capital injection from SKBHC as part of the acquisition, restoring it to "well-capitalized" status. As reported earlier, along with the big capital infusion, the transaction involved SKBHC buying all outstanding shares of the bank from the former holding company, American West Bancorp., for $6.5 million.
Far more significant, though, is the more than $500 million that SKBHC still has the ability to deploy. Kisting led the formation of the company in December 2009, and it has funding commitments of $750 million from major private equity investors, as well as public and private pension funds. Its backers include Oaktree Capital Management LP, a Los Angeles-based global investment management group with nearly $80 billion in assets; Goldman Sachs Capital Partners, the private-equity arm of the big New York-based Goldman Sachs investment banking and securities firm; and Friedman Fleischer & Lowe, a private equity group based in San Francisco.
"The good news is they have long-term thresholds," Kisting says. "We really have developed a five to seven-year plan of trying to develop out the bank."
Before acquiring AmericanWest, SKBHC bought First National Bank, a small, single-location institution in Starbuck, Minn., "because we needed the charter," Kisting says. He estimates that SKBHC looked at "probably 75" institutionsClaffee suggests the number was "at least 100"before deciding that AmericanWest had all of the fundamental qualities it was looking for on which to build a larger, high-performing community bank based heavily on "relationship banking."
He and Claffee say they liked the Spokane bank's brand, branch locations, deposit mix, strong relationship focus, and dedication of its employees even while the bank was operating for an extended period under extreme financial stress and regulatory pressure. Kisting particularly lauded the efforts of former President and CEO Pat Rusnak, and the way in which he and his management team had taken decisive steps to correct the real estate and development loan problems that caused the bank to come under a regulatory mandate to increase its capital or possibly be shut down.
New bank-rescue tool
Even so, it took a first-of-its-kind transactioncoming out of a Chapter 11 reorganization proceeding in U.S. Bankruptcy Courtto make the amount of risk quantifiable enough for SKBHC to agree to buy the bank.
The sale offer was presented to SKBHC basically in package form, making use of Section 363 of the U.S. Bankruptcy Code, which enables a prospective buyer to obtain court approval of a company asset purchase faster and less expensively than through other means.
The buyer is able to acquire the bank free and clear of liens, including amounts owed to the holders of what are called trust-preferred secured securities, commonly called TruPS, which on the AmericanWest balance sheet are listed under junior subordinated debt.
Kisting had looked at AmericanWest earlier and liked what he saw, but says that without the type of purchase out of Chapter 11 that Rusnak and company eventually devised, "You almost couldn't do any deal because you didn't know how deep the holes were."
As the Wall Street Journal noted in a Jan. 6. story about the unique nature of the AmericanWest transaction, bank holding companies issued trust-preferred securities routinely some years ago as a way to boost capital inexpensively and without impacting shareholders' equity.
Those securities became a burden in many cases, though, during the national financial crisis, by hindering private investors' ability to rescue ailing banks, since a much needed capital infusion technically couldn't occur until the holders of the securities had been paid.
The problem, the Wall Street Journal noted, is that trustees representing the debt holders often were unwilling or unable to negotiate a settlement that could allow a bank to be recapitalized without government intervention. That was partly because the complicated investment structure made it difficult to trace individual holders of the bank holding companies' debt.
AmericanWest Bancorp.'s voluntary Chapter 11 filing enabled the bank's board and management team to resolve that conundrum and save the institution from possible failure, thought it meant that some investors suffered losses.
The Wall Street Journal story, citing the opinions of banking experts, said the transaction "created a new tool that potentially could rescue hundreds of similarly troubled institutions and save the Federal Deposit Insurance Corp. billions of dollars."
The story noted that bankruptcy sales are common in other industries, but not in banking, with bank holding companies typically filing for bankruptcy after their bank is seized.
Kisting says that his and Rusnak's efforts to stay in close communication with regulators prior to and during the negotiations, which included Kisting making a number of trips to Washington, D.C., for meetings with them, were crucial to pulling off the deal.
Also, he says, "We had a very bright judge in Spokane who spent the time to understand it."
Along with garnering national attention, the transaction and Rusnak's integral role in it led consultant Charles Thayer to write and recently release a book about it, titled, "It Is What It Is."
"It's not the transaction that saved the bank. It's the operations of the bank that made it worth saving," says Thayer, chairman and managing director of Fort Lauderdale, Fla.-based Chartwell Capital Ltd., which served as an adviser to the bank for the past two and a half years.
"There were two thingsmaintaining the integrity of the bank and then isolating and focusing on solving the troubled credit," Thayer says. "We were able to save the bank because of the quality of the core banking operation."
Of Rusnak, who now is working in a consulting role to assist Kisting and Claffee through the transition and is not accepting interview requests, Thayer says, "He's not your typical CEO; he's better than most. He really understands the business. He's a problem solver. His attitude toward things is 'It is what it is.'"
Kisting, who has served in executive positions with Bank of America and Norwest Corp. during his 35-year banking career, notes that the sale of the bank was completed Dec. 20 and says it was "like a tremendous Christmas present" for the bank's employees.
Claffee, a 30-year banking veteran who most recently was president of the western region for Mutual of Omaha Bank and will oversee AmericanWest's day-to-day operations, says the bank "has great strengths in its customers, employees, and communities. We are very excited about the opportunities ahead."