Pacific West Bank Announces Formal Regulatory Agreement

Pacific West Bank (OTCBB:PWBO) announces that it has signed a formal agreement with the Federal Deposit Insurance Corporation and the Oregon Division of Finance and Corporate Securities, its primary banking regulators. The Consent Order, issued March 31, 2010, is a result of a regulatory examination based on financial information as of June 30, 2009. The agreement requires, among other things, that the Bank strengthen capital, address deterioration of asset quality, and formalize written plans related to credit concentrations, liquidity, and brokered deposit levels.

Steve Gray, the Bank’s President and CEO, added, “It’s important to note that the agreement is based on an examination of our financial position as of June 30, 2009. As detailed below, we’ve made considerable progress since June 30, 2009, particularly with regard to growing our customer deposits, reducing our usage of brokered deposits, increasing our liquidity, reducing credit concentration risk and strengthening our management team.”

During 2009, customer deposit balances nearly doubled, growing 97% for the year, while the number of customer deposit accounts increased 73%. Gray commented, “We are very pleased with the progress we have made in building these strong customer deposit relationships. We view this as a validation of our full-service, relationship-based banking model, as well as our continued support of school programs and civic organizations in the communities we serve and the dedication of our outstanding staff and management group.”
Customer deposit growth has allowed the Bank to significantly reduce its usage of brokered deposits which is an area identified in the agreement as needing improvement. Brokered deposits, which totaled $13.7 million as of the June 30, 2009 examination date, have been reduced to $3.3 million as of March 31, 2010. Gray commented, “With significant asset liquidity and strong customer deposit momentum, we are paying off all brokered deposits as they mature.”
The Bank has strengthened its liquidity position substantially, with asset-based liquidity ending 2009 at 19.6% of assets, up from 3.8% as of December 31, 2008. In addition, the Bank maintains lines of credit with the Federal Home Loan Bank of Seattle, the Federal Reserve Bank of San Francisco, and correspondent banks which as of December 31, 2009 had approximately $12.8 million in available credit, subject to collateralization.
As was true of many Northwest banks, Pacific West Bank entered the current economic downturn with an unhealthy balance of construction loans in its portfolio. A primary goal of the Bank since late 2008 has been to reduce this concentration risk. Gray commented, “In late 2008 we made the strategic decision to reduce our concentration in acquisition, development and construction loans by allowing the existing loans to pay off over time while focusing new loan development in other areas. By the examination date of June 2009, improvement was evident but not yet satisfactory either to us or to the regulators. We’ve continued our efforts, and have successfully reduced this concentration from 302% of Tier 1 and Tier 2 Capital as of December 2008 to 134% as of December 2009. No bank in Oregon decreased this concentration more over the year.” New loan originations totaled $12.5 million in 2009 and were predominantly in the residential real estate, commercial and industrial, and multi-family loan segments. These new loan originations, combined with significant reductions in the acquisition, development and construction loan segment, rebalanced the Bank’s loan portfolio. Said Gray, “We’ve done a great job diversifying the portfolio to neutralize the risk associated with excess credit concentrations, while continuing to meet the needs in our community.”
To address asset quality deterioration, the Bank strengthened the management team in January 2010, adding Greg Froman as Executive Vice President & Chief Credit Officer. Froman now manages all facets of the Bank’s credit administration and loan production functions, including credit approval, underwriting, loan servicing, special assets and loan portfolio management. Froman has over 35 years of lending experience in the banking industry. “I am pleased to be part of such a vibrant community bank as Pacific West. The commitment to excellence found in the management and staff here brings me great confidence that we’ll be able to successfully navigate these tough economic times,” Froman said. Gray commented “Greg has provided an immediate impact, showing us how very fortunate we are to have his experience on our team. We feel confident that with his expertise we will be able to make significant strides in helping distressed borrowers and reducing our nonperforming assets.”

The agreement does contain a requirement that the Bank increase and maintain heightened capital ratios. As of December 30, 2009, the Bank’s leverage, Tier 1 risk-based capital and total risk-based capital ratios were 8.13%, 10.22% and 11.48%, respectively, well above the minimum regulatory benchmarks for “well-capitalized” institutions of 5%, 6% and 10% for leverage, Tier 1 risk-based capital and total risk-based capital ratios, respectively. However, the agreement requires the Bank to maintain heightened capital ratios to cushion against potential losses in the portfolio. A capital raise has been planned since prior to the agreement and will be initiated soon. “The additional capital will not only meet the terms of the agreement, it will position the Bank for profitable growth after the problem loan issues are resolved,” said Gray.

Ed Kawasaki, Chairman of the Board of Directors of Pacific West Bank, commented, “As the agreement essentially provides a roadmap and formalization of steps that we were already taking to improve the condition of the Bank, we don’t consider compliance with the agreement to be particularly onerous. While we would of course prefer not to operate under a Consent Order, we are aware of the current regulatory and political environment, and approach the agreement with the understanding that in complying with its terms we are bringing the Bank to a healthier condition.”

Kawasaki added, “The agreement will have no real impact on daily operations or our customers. We continue to be dedicated to providing outstanding service and contributing to the enrichment of the communities in which we serve. Our customer deposits remain fully FDIC insured, we continue to make loans in the community, and we remain a viable local banking option to businesses, families and individuals in West Linn, Lake Oswego and surrounding communities.”

About Pacific West Bank:

Pacific West Bank, a community bank, commenced operations in November 2004. The Bank, headquartered in West Linn, Oregon, opened its second branch in Lake Oswego, Oregon in 2008. Pacific West Bank provides not only highly personalized deposit and loan services to individuals and small-to-medium sized businesses but also financial and volunteer support to a variety of community, civic and charitable organizations. For more information about Pacific West Bank, please call 503-905-2222 or visit www.bankpacificwest.com. Information about the Bank's stock may be obtained through the Over the Counter Bulletin Board at www.otcbb.com. Pacific West Bank's stock symbol is PWBO.

Forward-looking Statements:

This press release, as well as other written communications made from time to time by the Bank and oral communications made from time to time by authorized officers of the Bank, may contain statements relating to the future results of the Bank (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “intend” and “potential.” For these statements, the Bank claims the protection of the safe harbor for forward-looking statements contained in the PSLRA.

The Bank cautions that a number of important factors could cause actual results to differ materially from those currently anticipated in any forward-looking statement. Such factors include, but are not limited to: prevailing economic and geopolitical conditions; changes in interest rates, loan demand and real estate values; changes in accounting principles, policies and guidelines; changes in any applicable law, rule, regulation or practice with respect to tax or legal issues; the results of regulatory examinations and directives; and other economic, competitive, governmental, regulatory and technological factors affecting the Bank’s operations, pricing, products and services. The forward-looking statements are made as of the date of this release, and, except as may be required by applicable law or regulation, the Bank assumes no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

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