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Q4 2007 AmericanWest Bancorp. Earnings Conference Call - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Hello and welcome to the AmericanWest Bancorporation Fourth Quarter 2007 Earnings Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS). Please note this conference is being recorded.

Now I would like to turn the conference over to Mr. Patrick Rusnak, Chief Operating Officer. Mr. Rusnak?

PATRICK RUSNAK, COO, AMERICANWEST BANCORPORATION: Good morning and welcome to the AmericanWest Bancorporation Fourth Quarter Earnings Release Conference Call. With me this morning are Bob Daugherty, President and CEO, and Rick Shamberger, Chief Credit Officer.

This call is being recorded and will be available for replay approximately 1 hour after its conclusion and will be available for 30 days. The recording may be accessed through our website at www.awbank.net/IR or by calling 877-344-7529 and entering the pass code 414984 pound.

During this call we may make statements regarding future events, performance targets or results that are forward-looking in nature which AmericanWest intends to be covered under the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Factors which may cause actual results to differ from expectations are included in AmericanWest's 2006 Form 10-K filed with the SEC on March 15, 2007. AmericanWest cautions investors not to place undue alliance on forward-looking statements and undertakes no obligation to publicly revise any forward-looking statements made during this conference call to reflect subsequent events or circumstances.

I will begin this morning with a review of our operating results for the fourth quarter which in a word were disappointing. AmericanWest reported a loss for the quarter of $3.3 million or $0.19 per diluted share, a decrease of $0.39 from the same period in 2006 and $0.50 on a linked quarter basis. The fourth quarter 2007 financial results reflect a provision for loan losses of $14.6 million or $0.85 per share before tax, principally related to deterioration in our residential construction and development portfolio.

As a result of this charge and its impact on net income, standard performance metrics of ROA ROE return intangible equity are not meaningful for Q4 results.

The tactical (inaudible) net interest margin for the third quarter -- excuse me, fourth quarter of 2007 was 4.97, down 25 basis points on the linked quarter basis and down 5 basis points from the fourth quarter of 2006. This margin compression experienced during Q4 exceeded the expected range noted on last quarter's call due to the impact of two subsequent 25 basis points reductions in the Fed fund target rate and the impact of foregone and reversed interest on loans moved to the nonaccrual status during the quarter.

With respect to the latter factor the impact was approximately 550,000 or 13 basis points. The average yield on loans for the fourth quarter of 2007 was 8.03%, down 42 basis points on a linked quarter basis and down 9 basis points from a year ago. The fourth quarter average loan yield was negatively impacted by approximately 13 basis points as a result of the $19 million increase in nonaccrual loans during the quarter. The balance of the reduction in the average yield was due to the repricing of approximately $813 million of variable rate loans, most of which are indexed to prime which decreased by 66 basis points on an average basis during Q4 2007 as compared to Q3.

As of December 31st, 2007, approximately 46% of the portfolio was indexed to prime with a reset of less than three months with the balance of the portfolio split about evenly between high rate adjustable and fixed rate loans. The fixed rate loans have a remaining contractional maturity of approximately eight years.

Approximately $153 million or 19% of the variable rate loans tied to prime had contractual interest rate floors. The current average floor rate as of December 31st, 2007, was 7.68%.

Loan fees comprised 37 basis points of the total average yield on loans for the fourth quarter of 2007, down 1 basis point from the third quarter and down 10 basis points from the same period in 2006.

Net deferred loan fees represented about 21 basis points of total loans at December 31st, 2007, which is the same as the level of September 30, 2007 and 11 basis points above the year end 2006 level. The reduction in the contribution of loan fees to the average yield, an increase in deferred fees as a percentage of total loans, were both attributable to adjustments made to our accounting for deferred fees implemented during the first quarter of 2007.

The average rate exclusive of fees for new loans booked during the fourth quarter of 2007 was 7.77%, as compared to 8.18% during the third quarter of 2007. Fixed rate loans represented about 20% of the production for the fourth quarter with an average rate of 7.63%. The average rate for Q4 new variable and adjustable rate loan production was about 7.8%. The average cost of interest-bearing deposits for the fourth quarter of 2007 decreased by 21 basis points from the third quarter, reflecting our actions taken to reduce the cost of interest-bearing transaction and CD deposit rates with the Fed (inaudible) which began last September.

We've moved deposit rates down with each Fed reduction, up to and including the 75 basis point move on January 22nd, and we are currently reviewing our rates for further reduction based on the 50 basis point easing announced yesterday.

Generally speaking, the deposit rate reductions that we have taken in the fourth quarter and in the first quarter 2008, have been greater than those assumed in our ALCO model.

Average deposits increased $9 million during the fourth quarter, while the ending deposit balance declined by $68 million from the September 30th balance. The average savings in money market balances grew by $28 million during the quarter with the cost of these funds declining 28 basis points. Non interest-bearing DDA declined about $2 million on an average basis for the fourth quarter and comprised approximately 22% total deposits for the fourth quarter of 2007, down slightly from the previous quarter and slightly above the similar quarter in 2006.

Our projection for the [net] interest margin for the first quarter of 2008 including the impact of yesterday's 50 basis point easing is in the range of 4.65 to 4.75% at this time. The impact of the 25 basis point reduction in the Fed funds target rate on our net interest margin based on our current [and] model assumptions continues to be approximately 7 basis points.

We recognized the provision for loan losses of $14.6 million for the fourth quarter of 2007, or 331 basis points of average loan annualized compared with 29 basis points for the third quarter of 2007, 15 basis points for the fourth quarter of 2006.

The provision for the full year 2007 was $17.3 million or 109 basis points of average loans annualized compared to 47 basis points per 2006. Rick Shamberger will cover this area in a little more detail in a few minutes with his asset quality update.

Non-interest income was a relative bright spot for us in the fourth quarter of 2007, totaling $4.6 million, an increase of 9% annualized on a linked quarter basis. Excluding the impact of $85,000 of gains realized in the connection with the foreclosed property during the third quarter of 2007, non-interest income grew to an annualized rate of 17% for the fourth quarter.

Deposit fee revenue increased by $135,000 or 21% analyzed over Q3, driven principally by growth in overdraft fees of $69,000 and debit card fees of $94,000. As mentioned on prior calls, debit cards have been a principal area of focus for us over the past year; and strong fourth quarter growth is relative of sales successes in our Utah markets and seasonally increased transaction volumes.

Mortgage banking revenue for the fourth quarter of 2007 was $889,000. down about $50,000 from Q3 and up 54% over the same...

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