From the brink of failure to budding consolidator. That's the path AmericanWest Bank has tread in just a matter of months.

Investors have recapitalized several banks, most notably those in the western U.S., in recent months with the intention of salvaging their franchises and creating vehicles that can be used to buy other banks.

Many of the new owners are polishing the tarnished institutions, using the capital to deal with bad assets and to put in place controls to prepare for future growth.

Industry observers said that such banks are still in the reconditioning phase but could jump into the acquisition game in coming quarters.

AmericanWest, of Spokane, Wash., is early to the table with its agreement last week to buy the $146 million-asset Bank of the Northwest in Bellevue, Wash.

With the exception of AmericanWest "it seems to me that it is a little early for a lot of those banks to be looking to aggressively acquire," said Aaron James Deer, an analyst at Sandler O'Neill & Partners LP. "Certainly they are all talking about it and getting ready for it."

It is unclear how much longer the recapitalized banks will tinker, but if they do manage to go a few more quarters with stable or falling credit problems, many are likely to begin making acquisitions, Deer said.

In total, 10% of the institutions under the watch of the Federal Reserve Bank of San Francisco raised significant amounts of capital in 2010, a report published earlier this month shows.

In the Pacific Northwest that list includes the $2 billion-asset Cascade Bancorp in Bend, Ore., and the $9.5 billion-asset Sterling Financial Corp. in Spokane. The capital, along with shrinking loan portfolios, has helped boost average bank capital ratios to their highest levels in more than two decades, the San Francisco Fed report said.

The $1.6 billion-asset AmericanWest narrowly escaped failure late last year. AmericanWest Bancorp filed for bankruptcy and SKBHC Holdings LLC bought its banking unit for $6.5 million through an auction by the U.S. Bankruptcy Court for the Eastern District of Washington.

SKBHC immediately injected $185 million of fresh capital into AmericanWest Bank, which had been significantly undercapitalized at the end of last September. SKBHC has raised a total of $500 million.

Its evolution from a business in bankruptcy to acquirer in a mere five months was helped along by prior management's work in tackling problem assets, according to Jim Claffee, SKBHC's chief operating officer.

"One reason we were attracted to this franchise was its recognition of problem loans," he said. At AmericanWest, problem loans are down 30%, Claffee added.

In late March, the Washington Department of Financial Institutions and the Federal Deposit Insurance Corp. terminated the bank's consent order — a prerequisite to any dealmaking, said Stephen Klein, an attorney who specializes in financial institutions at Graham & Dunn PC in Seattle.

"Even with the capital, the FDIC is not going to allow any of these banks to make deals until they feel they [the banks] have gotten their arms around the problems," Klein said.

In addition to working through the problem assets, Claffee said AmericanWest is focused on putting in place the types of systems and oversight that would allow the bank to grow.

"After closing on the [AmericanWest] deal, we've spent the last few months preparing the processes and technology to execute on our overall game plan, with a scalable platform," he said.

Now an SKBHC unit is set to buy Bank of the Northwest for $17 million in cash, or 1.14 times the bank's tangible book value. The deal is expected to close in the third quarter, at which point Bank of the Northwest would merge into AmericanWest.

Bank of the Northwest is a unit of Capitol Bancorp Ltd., a $3.2 billion-asset multibank holding company. It has been consolidating and selling operations over the past two years in a fight for its own survival.

Bank of the Northwest is healthy compared with several critically undercapitalized sister banks. By acquiring it, AmericanWest aims to expand beyond eastern Washington state and into the Puget Sound region.

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