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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q







|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2009

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 000-18561





AMERICANWEST BANCORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Washington                                                     |  | 91-1259511                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

41 West Riverside, Suite 400

Spokane, Washington 99201-0813

(Address of principal executive offices, including zip code)

(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 a check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files).    Yes   ̈    No   ̈

Indicate by a check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Act. (Check one):



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  | x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

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



|             |  |                                
|------------ |  | -------------------------------
|Class        |  | Number of Shares Outstanding   
|Common Stock |  | 17,213,288 at November 12, 2009









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##### Table of Contents

AMERICANWEST BANCORPORATION



INDEX TO QUARTERLY REPORT ON FORM 10-Q

September 30, 2009

Table of Contents



|        |  |                       |  |                                                                                                       |  |     
|------- |  | --------------------- |  | ----------------------------------------------------------------------------------------------------- |  | ----
|        |  |                       |  |                                                                                                       |  | Page
|        |  |                      
|Part I  |  | Financial Information |  |                                                                                                      
|        |  |                       | 
|        |  | Item 1.               |  | Financial Statements                                                                                  |  |     
|        |  |                       | 
|        |  |                       |  | Consolidated Statements of Condition as of September 30, 2009 and December 31, 2008                   |  | 3   
|        |  |                       | 
|        |  |                       |  | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 |  | 4   
|        |  |                       | 
|        |  |                       |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008           |  | 5   
|        |  |                       | 
|        |  |                       |  | Notes to Consolidated Financial Statements                                                            |  | 6   
|        |  |                       | 
|        |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 |  | 22  
|        |  |                       | 
|        |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                            |  | 39  
|        |  |                       | 
|        |  | Item 4.               |  | Controls and Procedures                                                                               |  | 40  
|        |  |                      
|Part II |  | Other Information     |  |                                                                                                      
|        |  |                       | 
|        |  | Item 1.               |  | Legal Proceedings                                                                                     |  | 41  
|        |  |                       | 
|        |  | Item 1A.              |  | Risk Factors                                                                                          |  | 41  
|        |  |                       | 
|        |  | Item 2.               |  | Unregistered Sales of Equity Securities and Use of Proceeds                                           |  | 41  
|        |  |                       | 
|        |  | Item 3.               |  | Defaults Upon Senior Securities                                                                       |  | 41  
|        |  |                       | 
|        |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                   |  | 41  
|        |  |                       | 
|        |  | Item 5.               |  | Other Information                                                                                     |  | 41  
|        |  |                       | 
|        |  | Item 6.               |  | Exhibits                                                                                              |  | 41  
|        |  |                      
|        |  | Signatures            |  | 42                                                                                                   



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AMERICANWEST BANCORPORATION



CONSOLIDATED STATEMENTS OF CONDITION

(unaudited)

(in
thousands)



|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                          |  | September 30,2009 |           |   | December 31,2008 |  
|ASSETS                                                                                                                                                                    | 
|Cash and due from banks                                                                                                                                                   |  | $                 | 35,335    |   |                  | $ | 40,927    |  
|Overnight interest bearing deposits with other banks                                                                                                                      |  |                   | 164,099   |   |                  |   | 26,058    |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|Cash and cash equivalents                                                                                                                                                 |  |                   | 199,434   |   |                  |   | 66,985    |  
|                                                                                                                                                                          |  |                  
|Securities, available-for-sale at fair value                                                                                                                              |  |                   | 52,841    |   |                  |   | 65,270    |  
|                                                                                                                                                                          |  |                  
|Loans, net of allowance for loan losses of $32,991 and $44,722, respectively                                                                                              |  |                   | 1,336,280 |   |                  |   | 1,577,106 |  
|                                                                                                                                                                          |  |                  
|Loans, held for sale                                                                                                                                                      |  |                   | 15,335    |   |                  |   | 12,265    |  
|Accrued interest receivable                                                                                                                                               |  |                   | 7,615     |   |                  |   | 8,193     |  
|FHLB stock                                                                                                                                                                |  |                   | 10,267    |   |                  |   | 8,286     |  
|Premises and equipment, net                                                                                                                                               |  |                   | 36,956    |   |                  |   | 41,385    |  
|Foreclosed real estate and other foreclosed assets                                                                                                                        |  |                   | 56,286    |   |                  |   | 15,781    |  
|Bank owned life insurance                                                                                                                                                 |  |                   | 30,958    |   |                  |   | 30,193    |  
|Goodwill                                                                                                                                                                  |  |                   |          |   |                  |   | 18,852    |  
|Intangible assets                                                                                                                                                         |  |                   | 11,319    |   |                  |   | 13,467    |  
|Other assets                                                                                                                                                              |  |                   | 6,140     |   |                  |   | 16,840    |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                                                                                              |  | $                 | 1,763,431 |   |                  | $ | 1,874,623 |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|                                                                                                                                                                         
|LIABILITIES                                                                                                                                                               | 
|Non-interest bearing demand deposits                                                                                                                                      |  | $                 | 291,683   |   |                  | $ | 321,552   |  
|Interest bearing deposits:                                                                                                                                                |  |                   |           |   |                  |   |           |  
|NOW, savings account and money market accounts                                                                                                                            |  |                   | 593,926   |   |                  |   | 559,666   |  
|Time, $100,000 and over                                                                                                                                                   |  |                   | 216,150   |   |                  |   | 342,022   |  
|Other time                                                                                                                                                                |  |                   | 450,561   |   |                  |   | 350,293   |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|TOTAL DEPOSITS                                                                                                                                                            |  |                   | 1,552,320 |   |                  |   | 1,573,533 |  
|                                                                                                                                                                          |  |                  
|Federal Home Loan Bank advances                                                                                                                                           |  |                   | 109,100   |   |                  |   | 139,668   |  
|Other borrowings and capital lease obligations                                                                                                                            |  |                   | 104       |   |                  |   | 3,294     |  
|Junior subordinated debt                                                                                                                                                  |  |                   | 41,239    |   |                  |   | 41,239    |  
|Accrued interest payable                                                                                                                                                  |  |                   | 6,775     |   |                  |   | 7,677     |  
|Other liabilities                                                                                                                                                         |  |                   | 16,354    |   |                  |   | 19,424    |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES                                                                                                                                                         |  |                   | 1,725,892 |   |                  |   | 1,784,835 |  
|                                                                                                                                                                         
|STOCKHOLDERS EQUITY                                                                                                                                                      | 
|Preferred stock, no par, shares authorized 5 million                                                                                                                      |  |                   |          |   |                  |   |          |  
|Common stock, no par, shares authorized 50 million; 17,250 issued and 17,213 outstanding at September 30, 2009; 17,259
issued and 17,213 outstanding at December 31, 2008 |  |                   | 253,426   |   |                  |   | 253,450   |  
|Accumulated deficit                                                                                                                                                       |  |                   | (217,219  | ) |                  |   | (163,764  | )
|Accumulated other comprehensive income, net of tax                                                                                                                        |  |                   | 1,332     |   |                  |   | 102       |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                |  |                   | 37,539    |   |                  |   | 89,788    |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                |  | $                 | 1,763,431 |   |                  | $ | 1,874,623 |  
|                                                                                                                                                                          |  |                   |           |   |                  |   |           |  

The accompanying notes are an integral part of these statements.



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AMERICANWEST BANCORPORATION



CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in
thousands, except per share amounts)



|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|---------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | -------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                           |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                                           |  | 2009                            |         |   | 2008                           |   |          | 2009 |  |   | 2008    |  
|Interest Income                                            |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Interest and fees on loans                                 |  | $                               | 21,056  |   |                                | $ | 28,149   |      |  | $ | 65,108  |   |  | $ | 90,717   |  
|Interest on securities                                     |  |                                 | 650     |   |                                |   | 805      |      |  |   | 2,093   |   |  |   | 2,494    |  
|Other interest income                                      |  |                                 | 88      |   |                                |   | 104      |      |  |   | 185     |   |  |   | 256      |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Total Interest Income                                      |  |                                 | 21,794  |   |                                |   | 29,058   |      |  |   | 67,386  |   |  |   | 93,467   |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Interest Expense                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Interest on deposits                                       |  |                                 | 5,995   |   |                                |   | 8,562    |      |  |   | 20,361  |   |  |   | 26,244   |  
|Interest on borrowings                                     |  |                                 | 1,409   |   |                                |   | 2,469    |      |  |   | 4,786   |   |  |   | 8,391    |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Total Interest Expense                                     |  |                                 | 7,404   |   |                                |   | 11,031   |      |  |   | 25,147  |   |  |   | 34,635   |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Net Interest Income                                        |  |                                 | 14,390  |   |                                |   | 18,027   |      |  |   | 42,239  |   |  |   | 58,832   |  
|Loan loss provision                                        |  |                                 | 9,000   |   |                                |   | 27,650   |      |  |   | 34,480  |   |  |   | 56,850   |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Net Interest Income After Loan Loss Provision              |  |                                 | 5,390   |   |                                |   | (9,623   | )    |  |   | 7,759   |   |  |   | 1,982    |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Non-interest Income                                        |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Fees and service charges on deposits                       |  |                                 | 2,468   |   |                                |   | 2,899    |      |  |   | 7,003   |   |  |   | 8,299    |  
|Fees on mortgage loan sales, net                           |  |                                 | 921     |   |                                |   | 1,063    |      |  |   | 5,999   |   |  |   | 3,183    |  
|Other                                                      |  |                                 | 1,289   |   |                                |   | 1,306    |      |  |   | 4,472   |   |  |   | 3,111    |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Total Non-interest Income                                  |  |                                 | 4,678   |   |                                |   | 5,268    |      |  |   | 17,474  |   |  |   | 14,593   |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Non-interest Expense                                       |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Salaries and employee benefits                             |  |                                 | 8,088   |   |                                |   | 9,906    |      |  |   | 25,844  |   |  |   | 30,838   |  
|Impairment of goodwill                                     |  |                                 | 18,852  |   |                                |   | 82,000   |      |  |   | 18,852  |   |  |   | 109,000  |  
|FDIC assessment                                            |  |                                 | 1,762   |   |                                |   | 312      |      |  |   | 6,093   |   |  |   | 676      |  
|Equipment expense                                          |  |                                 | 1,858   |   |                                |   | 2,035    |      |  |   | 5,730   |   |  |   | 6,019    |  
|Occupancy expense, net                                     |  |                                 | 1,623   |   |                                |   | 1,822    |      |  |   | 5,335   |   |  |   | 5,442    |  
|Foreclosed real estate and other foreclosed assets expense |  |                                 | 2,427   |   |                                |   | 73       |      |  |   | 4,482   |   |  |   | 369      |  
|Amortization of intangible assets                          |  |                                 | 716     |   |                                |   | 864      |      |  |   | 2,148   |   |  |   | 2,612    |  
|State business and occupation tax                          |  |                                 | 155     |   |                                |   | 266      |      |  |   | 495     |   |  |   | 858      |  
|Impairment of premises and securities                      |  |                                 | 75      |   |                                |   |         |      |  |   | 186     |   |  |   |         |  
|Other                                                      |  |                                 | 2,905   |   |                                |   | 4,010    |      |  |   | 9,523   |   |  |   | 10,498   |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Total Non-interest Expense                                 |  |                                 | 38,461  |   |                                |   | 101,288  |      |  |   | 78,688  |   |  |   | 166,312  |  
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Loss Before Income Tax Benefit                             |  |                                 | (28,393 | ) |                                |   | (105,643 | )    |  |   | (53,455 | ) |  |   | (149,737 | )
|                                                           |  |                                 |         |  
|Income Tax Benefit                                         |  |                                 |        |   |                                |   | (8,748   | )    |  |   |        |   |  |   | (15,073  | )
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Net Loss                                                   |  | $                               | (28,393 | ) |                                | $ | (96,895  | )    |  | $ | (53,455 | ) |  | $ | (134,664 | )
|                                                           |  |                                 |         |   |                                |   |          |      |  |   |         |   |  |   |          |  
|Basic loss per common share                                |  | $                               | (1.65   | ) |                                | $ | (5.63    | )    |  | $ | (3.11   | ) |  | $ | (7.82    | )
|Diluted loss per common share                              |  | $                               | (1.65   | ) |                                | $ | (5.63    | )    |  | $ | (3.11   | ) |  | $ | (7.82    | )
|Basic weighted average shares outstanding                  |  |                                 | 17,213  |   |                                |   | 17,213   |      |  |   | 17,213  |   |  |   | 17,210   |  
|Diluted weighted average shares outstanding                |  |                                 | 17,213  |   |                                |   | 17,213   |      |  |   | 17,213  |   |  |   | 17,210   |  

The accompanying notes are an integral part of these statements.



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AMERICANWEST BANCORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

($ in
thousands)



|                                                                                                                |  |                                |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                |  | Nine Months EndedSeptember 30, |         
|                                                                                                                |  | 2009                           |          |   | 2008 |  
|CASH FLOWS PROVIDED BY OPERATING ACTIVITIES                                                                     |  |                                |          |   |      |   |          |  
|Net Loss                                                                                                        |  | $                              | (53,455  | ) |      | $ | (134,664 | )
|Adjustments to reconcile net loss to net cash provided by operating activities:                                 |  |                                |          |   |      |   |          |  
|Provisions for loan losses, unfunded commitments and foreclosed real estate and other foreclosed assets         |  |                                | 38,381   |   |      |   | 56,590   |  
|Depreciation and amortization                                                                                   |  |                                | 5,398    |   |      |   | 5,986    |  
|Compensatory stock options and restricted stock expense, net of forfeitures                                     |  |                                | (24      | ) |      |   | 253      |  
|Impairment of goodwill                                                                                          |  |                                | 18,852   |   |      |   | 109,000  |  
|Gain on sale of other premises and equipment, securities and foreclosed real estate and other foreclosed assets |  |                                | (1,289   | ) |      |   | (638     | )
|Loss on impairment of premises                                                                                  |  |                                | 186      |   |      |   |         |  
|Stock dividends received                                                                                        |  |                                | (79      | ) |      |   | (77      | )
|Originations of loans held for sale                                                                             |  |                                | (269,501 | ) |      |   | (153,993 | )
|Proceeds from loans sold                                                                                        |  |                                | 263,426  |   |      |   | 160,402  |  
|Fair value adjustments on mortgage loan activities                                                              |  |                                | (143     | ) |      |   |         |  
|Changes in assets and liabilities:                                                                              |  |                                |          |   |      |   |          |  
|Accrued interest receivable                                                                                     |  |                                | 578      |   |      |   | 1,495    |  
|Bank owned life insurance                                                                                       |  |                                | (765     | ) |      |   | (826     | )
|Other assets                                                                                                    |  |                                | 10,777   |   |      |   | (13,230  | )
|Accrued interest payable                                                                                        |  |                                | (902     | ) |      |   | 1,196    |  
|Other liabilities                                                                                               |  |                                | (3,262   | ) |      |   | 637      |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                       |  |                                | 8,178    |   |      |   | 32,131   |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|CASH FLOWS PROVIDED BY/(USED IN) INVESTING ACTIVITIES                                                           |  |                                |          |   |      |   |          |  
|Securities available-for-sale:                                                                                  |  |                                |          |   |      |   |          |  
|Maturities, calls, sales and principal payments                                                                 |  |                                | 23,831   |   |      |   | 21,566   |  
|Purchases                                                                                                       |  |                                | (9,891   | ) |      |   | (22,484  | )
|Purchases of Federal Home Loan Bank stock                                                                       |  |                                | (1,981   | ) |      |   | (4,424   | )
|Redemptions of Federal Home Loan Bank stock                                                                     |  |                                |         |   |      |   | 2,215    |  
|Net decrease/(increase) in loans                                                                                |  |                                | 149,825  |   |      |   | (20,031  | )
|Purchases of premises and equipment                                                                             |  |                                | (371     | ) |      |   | (4,904   | )
|Proceeds from sale of premises and equipment                                                                    |  |                                | 2,174    |   |      |   | 3,575    |  
|Proceeds from sale of foreclosed real estate and other foreclosed assets                                        |  |                                | 15,655   |   |      |   | 8,105    |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES                                                             |  |                                | 179,242  |   |      |   | (16,382  | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|CASH FLOWS (USED IN)/PROVIDED BY FINANCING ACTIVITIES                                                           |  |                                |          |   |      |   |          |  
|Net (decrease)/increase in deposits                                                                             |  |                                | (21,213  | ) |      |   | 56,446   |  
|Proceeds from Federal Home Loan Bank advances                                                                   |  |                                |         |   |      |   | 510,000  |  
|Repayments of Federal Home Loan Bank advances and other borrowing activity                                      |  |                                | (33,758  | ) |      |   | (561,772 | )
|Proceeds from issuances of common stock under equity incentive plans                                            |  |                                |         |   |      |   | 57       |  
|Payment of cash dividend                                                                                        |  |                                |         |   |      |   | (688     | )
|                                                                                                                |  |                                |          |   |      |   |          |  
|NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES                                                             |  |                                | (54,971  | ) |      |   | 4,043    |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                         |  |                                | 132,449  |   |      |   | 19,792   |  
|                                                                                                                |  |                               
|Cash and cash equivalents, beginning of year                                                                    |  |                                | 66,985   |   |      |   | 47,089   |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                                                        |  | $                              | 199,434  |   |      | $ | 66,881   |  
|                                                                                                                |  |                                |          |   |      |   |          |  
|Supplemental Disclosures:                                                                                       |  |                                |          |   |      |   |          |  
|Cash paid during the period for:                                                                                |  |                                |          |   |      |   |          |  
|Interest                                                                                                        |  | $                              | 26,049   |   |      | $ | 33,439   |  
|Income taxes                                                                                                    |  | $                              | 42       |   |      | $ | 105      |  
|Non-cash Investing and Financing Activities:                                                                    |  |                                |          |   |      |   |          |  
|Foreclosed real estate acquired in settlement of loans                                                          |  | $                              | 59,526   |   |      | $ | 14,004   |  

The accompanying notes are an integral part of these statements.



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AMERICANWEST BANCORPORATION



NOTES TO 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
Articles 8 and 9 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 and the accompanying notes included in the annual report on Form
10-K for the year ended December 31, 2008. 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
presentation of the results for the interim periods presented. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the operating results for the full year. In preparing these
financial statements, AmericanWest Bancorporation (Company) has evaluated events and transactions for potential recognition or disclosure through November 13, 2009, the date the financial statements were issued.

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 the Companys 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 in the Companys consolidated financial position and results of operations. Material estimates that are particularly subject to significant
changes in the near term relate to the determination of the allowance for loan losses, fair value of investment securities, the valuation of foreclosed real estate and other foreclosed assets, and the valuation of goodwill and other intangibles.



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NOTE 2. Securities

Debt and equity securities have been classified according to managements intent to have them available-for-sale. The amortized cost of securities, their gross unrealized gains and losses, and their fair values at the respective dates
are shown in the following table:



|                                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       
|---------------------------------------------------------------- |  | ------------- | ------ | -------------------- | - | --------------------- |  | --------- | --- |  | - | ------
|September 30, 2009 ($ in thousands)                              |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|Obligations of federal government agencies                       |  | $             | 3,297  |                      | $ | 157                   |  | $         | 5   |  | $ | 3,449 
|Obligations of states, municipalities and political subdivisions |  |               | 20,898 |                      |   | 482                   |  |           | 26  |  |   | 21,354
|Mortgage-backed securities                                       |  |               | 26,314 |                      |   | 725                   |  |           | 8   |  |   | 27,031
|Other securities                                                 |  |               | 1,000  |                      |   | 28                    |  |           | 21  |  |   | 1,007 
|                                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       
|Total                                                            |  | $             | 51,509 |                      | $ | 1,392                 |  | $         | 60  |  | $ | 52,841
|                                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       
|December 31, 2008 ($ in thousands)                               |  | AmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|Obligations of federal government agencies                       |  | $             | 5,597  |                      | $ | 223                   |  | $         | 6   |  | $ | 5,814 
|Obligations of states, municipalities and political subdivisions |  |               | 21,845 |                      |   | 168                   |  |           | 562 |  |   | 21,451
|Mortgage-backed securities                                       |  |               | 36,311 |                      |   | 507                   |  |           | 212 |  |   | 36,606
|Other securities                                                 |  |               | 1,415  |                      |   |                      |  |           | 16  |  |   | 1,399 
|                                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       
|Total                                                            |  | $             | 65,168 |                      | $ | 898                   |  | $         | 796 |  | $ | 65,270
|                                                                 |  |               |        |                      |   |                       |  |           |     |  |   |       



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The following table includes information on investment securities with unrealized losses at the respective dates.



|                                                                 |  |                     |        |                     |   |           |  |                  |       |           |   |                  |  |   |        |  |   |    
|---------------------------------------------------------------- |  | ------------------- | ------ | ------------------- | - | --------- |  | ---------------- | ----- | --------- | - | ---------------- |  | - | ------ |  | - | ---
|                                                                 |  | Less than 12 months |        | 12 Months or Longer |   | Total    
|September 30, 2009 ($ in thousands)                              |  | FairValue           |        | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |       | FairValue |   | UnrealizedLosses
|Obligations of federal government agencies                       |  | $                   |       |                     | $ |          |  | $                | 164   |           | $ | 5                |  | $ | 164    |  | $ | 5  
|Obligations of states, municipalities and political subdivisions |  |                     | 1,454  |                     |   | 8         |  |                  | 1,156 |           |   | 18               |  |   | 2,610  |  |   | 26 
|Mortgage-backed securities                                       |  |                     |       |                     |   |          |  |                  | 872   |           |   | 8                |  |   | 872    |  |   | 8  
|Other securities                                                 |  |                     |       |                     |   |          |  |                  | 9     |           |   | 21               |  |   | 9      |  |   | 21 
|                                                                 |  |                     |        |                     |   |           |  |                  |       |           |   |                  |  |   |        |  |   |    
|Total                                                            |  | $                   | 1,454  |                     | $ | 8         |  | $                | 2,201 |           | $ | 52               |  | $ | 3,655  |  | $ | 60 
|                                                                 |  |                     |        |                     |   |           |  |                  |       |           |   |                  |  |   |        |  |   |    
|                                                                 |  |                     |       
|                                                                 |  | Less than 12 months |        | 12 Months or Longer |   | Total    
|December 31, 2008 ($ in thousands)                               |  | FairValue           |        | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |       | FairValue |   | UnrealizedLosses
|Obligations of federal government agencies                       |  | $                   |       |                     | $ |          |  | $                | 196   |           | $ | 6                |  | $ | 196    |  | $ | 6  
|Obligations of states, municipalities and political subdivisions |  |                     | 4,925  |                     |   | 193       |  |                  | 8,085 |           |   | 369              |  |   | 13,010 |  |   | 562
|Mortgage-backed securities                                       |  |                     | 11,210 |                     |   | 212       |  |                  |      |           |   |                 |  |   | 11,210 |  |   | 212
|Other securities                                                 |  |                     | 4      |                     |   | 16        |  |                  |      |           |   |                 |  |   | 4      |  |   | 16 
|                                                                 |  |                     |        |                     |   |           |  |                  |       |           |   |                  |  |   |        |  |   |    
|Total                                                            |  | $                   | 16,139 |                     | $ | 421       |  | $                | 8,281 |           | $ | 375              |  | $ | 24,420 |  | $ | 796
|                                                                 |  |                     |        |                     |   |           |  |                  |       |           |   |                  |  |   |        |  |   |    

Certain investment securities shown above have fair values less than amortized cost and therefore
contain unrealized losses. At September 30, 2009, the Company evaluated these securities for other than temporary impairment and determined the decline in value was temporary and primarily related to the change in market interest rates since
purchase. During the year ended December 31, 2008, the Company evaluated the securities shown above for other than temporary impairment and determined that one security was determined to be other than temporarily impaired at December 31,
2008. An impairment charge of $492 thousand was recognized in that year. The remaining securities were evaluated and the Company determined the decline in value was temporary and primarily related to the change in market interest rates since
purchase. There were 13 and 35 investment securities with unrealized losses at September 30, 2009 and December 31, 2008, respectively. The Company anticipates full recovery of amortized cost with respect to these securities at maturity or
sooner in the event of a more favorable market interest rate environment.

Taxable interest income on securities was $483 thousand and $580
thousand for the three months ended September 30, 2009 and 2008, respectively. Non-taxable interest income on securities was $141 thousand and $197 thousand for the three months ended September 30, 2009 and 2008, respectively. Dividend
income on securities was $26 thousand and $28 thousand for the three months ended September 30, 2009 and 2008, respectively. During the three months ended September 30, 2009, total proceeds from sales of securities were $9.7 million and
included gains of $229 thousand and losses of $48 thousand. During the three months ended September 30, 2008, total proceeds from sales of securities were $1.0 million and included gains of $11 thousand and no losses.

Taxable interest income on securities was $1.5 million and $1.8 million for the nine months ended September 30, 2009 and 2008, respectively.
Non-taxable interest income on securities was $515 thousand and $584 thousand for the nine months ended September 30, 2009 and 2008, respectively. Dividend income on securities was $79 thousand and $77 thousand for the nine months ended
September 30, 2009 and 2008, respectively. During the nine months ended September 30, 2009, total proceeds from sales of securities were $11.1 million and included gains of $236 thousand and losses of $48 thousand. During the nine months
ended September 30, 2008, total proceeds from sales of securities were $1.0 million and included gains of $19 thousand and no losses.

Securities with an amortized cost of $35.0 million and $53.2 million at September 30, 2009 and December 31, 2008, respectively, were pledged for borrowings and other purposes required or permitted by law. The market value of these
securities was $36.1 million and $53.2 million at September 30, 2009 and December 31, 2008, respectively.



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The amortized cost and fair value of securities by contractual scheduled maturity at September 30, 2009 were as follows:



|                             |  |               |        |           |   |       
|---------------------------- |  | ------------- | ------ | --------- | - | ------
|($ in thousands)             |  | AmortizedCost |        | FairValue
|Due in one year or less      |  | $             | 947    |           | $ | 952   
|Due from one to five years   |  |               | 6,110  |           |   | 6,308 
|Due from five to ten years   |  |               | 5,209  |           |   | 5,274 
|Due after ten years          |  |               | 11,929 |           |   | 12,269
|Mortgage backed securities   |  |               | 26,314 |           |   | 27,031
|Other nonmaturity securities |  |               | 1,000  |           |   | 1,007 
|                             |  |               |        |           |   |       
|Total                        |  | $             | 51,509 |           | $ | 52,841
|                             |  |               |        |           |   |       

Expected maturities will differ from contractual maturities as the issuers of certain debt securities
have the right to call or prepay their obligations without penalties.

NOTE 3. Loans and Allowance for Loan Losses

Aggregate loan balances by category as of September 30, 2009 and December 31, 2008 were as follows:



|                                              |  |                   |           |   |            |     |   |                  |   |           |            |  |     |  
|--------------------------------------------- |  | ----------------- | --------- | - | ---------- | --- | - | ---------------- | - | --------- | ---------- |  | --- | -
|($ in thousands)                              |  | September 30,2009 |           |   | % of Total |     |   | December 31,2008 |   |           | % of Total | 
|Commercial real estate                        |  | $                 | 620,169   |   |            | 45  | % |                  | $ | 630,540   |            |  | 39  | %
|Construction, land development and other land |  |                   | 229,420   |   |            | 17  | % |                  |   | 388,381   |            |  | 24  | %
|Residential real estate                       |  |                   | 189,651   |   |            | 14  | % |                  |   | 200,047   |            |  | 12  | %
|Agricultural                                  |  |                   | 163,895   |   |            | 12  | % |                  |   | 160,944   |            |  | 10  | %
|Commercial and industrial                     |  |                   | 147,548   |   |            | 11  | % |                  |   | 215,776   |            |  | 13  | %
|Installment and other                         |  |                   | 20,402    |   |            | 1   | % |                  |   | 28,777    |            |  | 2   | %
|                                              |  |                   |           |   |            |     |   |                  |   |           |            |  |     |  
|Total loans                                   |  |                   | 1,371,085 |   |            | 100 | % |                  |   | 1,624,465 |            |  | 100 | %
|                                              |  |                   |           |   |            |     |   |                  |   |           |            |  |     |  
|Allowance for loan losses                     |  |                   | (32,991   | ) |            |     |   |                  |   | (44,722   | )          |  |     |  
|Deferred loan fees, net of deferred costs     |  |                   | (1,814    | ) |            |     |   |                  |   | (2,637    | )          |  |     |  
|                                              |  |                   |           |   |            |     |   |                  |   |           |            |  |     |  
|Net loans                                     |  | $                 | 1,336,280 |   |            |     |   |                  | $ | 1,577,106 |            |  |     |  
|                                              |  |                   |           |   |            |     |   |                  |   |           |            |  |     |  



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The allowance for loan losses and reserve for unfunded commitments are maintained at levels considered adequate by management
to provide for probable loan losses as of the Consolidated Statements of Condition reporting dates. The allowance for loan losses and reserve for unfunded commitments are 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 and the reserve for unfunded commitments during the three
and nine months ended September 30, 2009 and 2008 were as follows:



|                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  
|---------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                             |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|($ in thousands)             |  | 2009                            |        |   | 2008                           |   |         | 2009 |  |   | 2008    |  
|Allowance for loan losses:   |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Balance, beginning of period |  | $                               | 32,690 |   |                                | $ | 31,768  |      |  | $ | 44,722  |   |  | $ | 25,258  |  
|Loan loss provision          |  |                                 | 9,000  |   |                                |   | 27,650  |      |  |   | 34,480  |   |  |   | 56,850  |  
|Loans charged-off            |  |                                 | (9,182 | ) |                                |   | (23,036 | )    |  |   | (47,354 | ) |  |   | (46,325 | )
|Recoveries                   |  |                                 | 483    |   |                                |   | 191     |      |  |   | 1,143   |   |  |   | 790     |  
|                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Balance, end of period       |  | $                               | 32,991 |   |                                | $ | 36,573  |      |  | $ | 32,991  |   |  | $ | 36,573  |  
|                             |  |                                 |        |   |                                |   |         |      |  |   |         |   |  |   |         |  



|                                  |  |                                 |     |   |                                |   |       |      |  |   |      |   |  |   |       |  
|--------------------------------- |  | ------------------------------- | --- | - | ------------------------------ | - | ----- | ---- |  | - | ---- | - |  | - | ----- | -
|                                  |  | Three Months EndedSeptember 30, |     |   | Nine Months EndedSeptember 30, |  
|($ in thousands)                  |  | 2009                            |     |   | 2008                           |   |       | 2009 |  |   | 2008 |  
|Reserve for Unfunded Commitments: |  |                                 |     |   |                                |   |       |      |  |   |      |   |  |   |       |  
|Balance, beginning of period      |  | $                               | 470 |   |                                | $ | 1,172 |      |  | $ | 660  |   |  | $ | 1,374 |  
|Unfunded commitments benefit      |  |                                 | (68 | ) |                                |   | (204  | )    |  |   | (258 | ) |  |   | (406  | )
|                                  |  |                                 |     |   |                                |   |       |      |  |   |      |   |  |   |       |  
|Balance, end of period            |  | $                               | 402 |   |                                | $ | 968   |      |  | $ | 402  |   |  | $ | 968   |  
|                                  |  |                                 |     |   |                                |   |       |      |  |   |      |   |  |   |       |  

The unfunded commitments benefit is included in other non-interest expense within the Consolidated
Statements of Operations and the reserve for unfunded commitments is included among other liabilities within the Consolidated Statements of Condition. The reductions in the reserve for unfunded commitments shown in the table above were
attributable to decreases in the underlying amount of unfunded commitments. Additional information on unfunded commitments is provided under the Loan Portfolio section of this Report.

Impaired loan information as of September 30, 2009 and December 31, 2008 was as follows:



|                                                            |  |                   |         |                  |   |       
|----------------------------------------------------------- |  | ----------------- | ------- | ---------------- | - | ------
|($ in thousands)                                            |  | September 30,2009 |         | December 31,2008
|Impaired loans without a specific allowance for loan losses |  | $                 | 101,444 |                  | $ | 88,110
|Impaired loans with a specific allowance for loan losses    |  |                   |        |                  |   |      

All of the Companys impaired loans in the table above were also classified as non-accrual.
Effective March 31, 2009, all non-performing loans were included as impaired loans in managements analysis, whereas, in prior periods only loan relationships greater than $500,000 were included. The Companys general practice of
recognizing charge-offs for the specific impairment on loans resulted in charge-offs of $6.8 million and $26.3 million during the three and nine months ended September 30, 2009, respectively, related to the impaired loans in the table above.
Charge-offs over the life of these loans total $30.1 million. There was $1.6 million of interest income recognized during the nine months ended September 30, 2009 on the impaired loans shown above. Had these loans been performing for the nine
months ended September 30, 2009, an additional $3.8 million would have been recognized in interest income.

At September 30, 2009
and December 31, 2008 there were $452.8 million and $533.4 million, respectively, of loans pledged for borrowings and other purposes required or permitted by law.



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NOTE 4. Goodwill

During the quarter ended September 30, 2009, management performed its annual analysis to evaluate potential impairment of goodwill. The analysis is a two step test and involves significant assumptions and judgment. The first step, used
to identify potential impairment, involves determining and comparing the fair value of the Company, including a control premium, with its carrying value, or stockholders equity. If the fair value of the Company exceeds its carrying value,
goodwill is not impaired. If the carrying value exceeds the fair value, there is an indication of impairment and the second step is performed to determine the amount of the impairment, if any. The fair value determined in the first test was
determined primarily based on the Companys market capitalization plus a control premium and, to a lesser extent, based on multiples of comparable bank sale transactions. Based on the results of the first step, the Company concluded that the
potential for goodwill impairment existed and, therefore, a second step was performed to determine if there was goodwill impairment and the amount of goodwill that might be impaired. The second step compared the fair value of the Company to the
aggregate fair values of its individual assets, liabilities and identified intangibles. Based on the second step, management concluded the remaining carrying value of goodwill was impaired. Accordingly, a charge of $18.9 million was recognized in
the Consolidated Statements of Operations for the three and nine months ended September 30, 2009.

During the quarter ended
March 31, 2008, the Company evaluated goodwill for potential impairment based on the occurrence of a triggering event. Goodwill carried within the Companys only reporting unit was determined to be impaired by $27.0 million. During the
quarter ended September 30, 2008, in connection with its annual analysis to evaluate potential impairment of goodwill, management engaged an independent valuation firm to assist with the impairment valuation of the remaining carrying value of
goodwill. At that time, goodwill was determined to be impaired by an additional $82.0 million.

At September 30, 2009, the Company had
$11.3 million of core deposit intangible assets which were recorded in connection with various business combinations. Generally accepted accounting principles require that core deposit intangible assets be amortized to expense over their estimated
useful lives. These intangibles were also evaluated as part of the annual 2009 and 2008 impairment analysis and there was no indication of impairment.

NOTE 5. Junior Subordinated Debt

As of September 30, 2009, the Company had four wholly-owned trusts (Trusts) that were
formed to issue trust preferred securities and related common securities of the Trusts. The Trusts are summarized as follows:



|                                 |  |                |  |                   |        |      |              |               |      |   |                |               |               |               
|-------------------------------- |  | -------------- |  | ----------------- | ------ | ---- | ------------ | ------------- | ---- | - | -------------- | ------------- | ------------- | --------------
|($ in thousands) Trust Name      |  | Issue Date     |  | OutstandingAmount |        | Rate |              | EffectiveRate |      |   | Next Call Date |               | Maturity Date
|AmericanWest Statutory Trust I   |  | September 2002 |  | $                 | 10,310 |      | Floating (1) |               | 3.68 | % |                | December 2009 |               | September 2032
|Columbia Trust Statutory Trust I |  | June 2003      |  |                   | 3,093  |      | Floating (2) |               | 3.38 | % |                | December 2009 |               | June 2033     
|AmericanWest Capital Trust II    |  | March 2006     |  |                   | 7,217  |      | 6.76%(3)     |               | 6.76 | % |                | March 2011    |               | March 2036    
|AmericanWest Capital Trust III   |  | March 2007     |  |                   | 20,619 |      | 6.53%(4)     |               | 6.53 | % |                | March 2012    |               | June 2037     
|                                 |  |                |  |                   |        |      |              |               |      |   |                |               |               |               
|                                 |  |                |  | $                 | 41,239 |      |              |               |      |   |                |               |               |               
|                                 |  |                |  |                   |        |      |              |               |      |   |                |               |               |               



|(1) | Rate based on LIBOR plus 3.40%, adjusted quarterly.
|--- | ---------------------------------------------------

|(2) | Rate based on LIBOR plus 3.10%, adjusted quarterly.
|--- | ---------------------------------------------------

|(3) | Rate fixed for 5 years from issuance, then adjusted quarterly thereafter based on LIBOR plus 1.50%.
|--- | ---------------------------------------------------------------------------------------------------

|(4) | Rate fixed for 5 years from issuance, then adjusted quarterly thereafter based on LIBOR plus 1.63%.
|--- | ---------------------------------------------------------------------------------------------------

All of the common securities of the Trusts are owned by the Company. The Trusts issued their preferred securities to investors, and used the proceeds to
purchase junior subordinated debt of the Company. The Company has fully and unconditionally guaranteed the trust preferred securities along with all obligations of the Trusts under the trust agreements. Interest income from the junior subordinated
debt is the source of revenues for these Trusts. In accordance with generally accepted accounting standards the Trusts are not consolidated in the Companys financial statements.



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In accordance with the provisions of the related indentures, the Company has notified the trustees of the Trusts each quarter
since the third quarter of 2008 that the payment of interest on the junior subordinated debt will be deferred. The Company has the right to defer payment of interest for up to 20 consecutive quarters, although it will continue to accrue the cost and
recognize the expense of the interest at the normal rate on a compounded basis until such time as the deferred arrearage has been paid current. As of September 30, 2009, interest totaling $3.4 million, which is included in accrued interest
payable on the Consolidated Statements of Condition, was deferred and in arrears.

As of September 30, 2009, $12.1 million of the $40.0
million junior subordinated debt (excluding the common stock of the Trusts) qualified as Tier I capital, under the guidance issued by the Board of Governors of the Federal Reserve Bank of San Francisco (FRB), with a portion of the balance qualifying
as Tier 2 capital. Effective April 11, 2005, the FRB adopted a rule that permits the inclusion of junior subordinated debt in Tier I capital, but with stricter quantitative limits. Under the FRB rule, after a five-year transition period
originally set to end on March 31, 2009 but extended by two years in light of continued stress in financial markets, the aggregate amount of junior subordinated debt and certain other restricted core capital elements is limited to 25% of Tier I
capital elements, net of goodwill. The amount of junior subordinated debt and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. Of the currently issued junior subordinated debt, $12.1 million
would qualify as Tier I capital if the new limitations were in effect at September 30, 2009. The new limitations go into effect as of March 31, 2011. There can be no assurance that the FRB will not further limit the amount of junior
subordinated debt permitted to be included in Tier I capital for regulatory capital purposes.

NOTE 6. Comprehensive Loss

Total comprehensive loss, which includes the net loss and unrealized gains and losses on the Companys available-for-sale securities, (net of tax,
where applicable), was $27.9 million and $52.2 million for the three and nine months ended September 30, 2009, respectively. Total comprehensive loss for the three and nine months ended September 30, 2008 was $97.1 million and $135.4
million, respectively.

NOTE 7. Cash Dividends

Pursuant to the provisions of an Order to Cease and Desist issued by the Federal Deposit Insurance Corporation (FDIC) and Washington Department of Financial Institutions (DFI) effective May 11, 2009,
AmericanWest Bank (Bank) is prohibited from paying any cash dividends without prior regulatory approval. Additionally, pursuant to the provisions of the Written Agreement with the FRB, the Company is prohibited from paying any cash dividends without
prior regulatory approval. No cash dividend payments were declared or paid by the Company during the nine months ended September 30, 2009. During the nine months ended September 30, 2008, the Company paid cash dividends of $0.04 per share.

NOTE 8. Loss Per Share

The
following is a reconciliation of the numerators and denominators for basic and diluted loss per share computations for the three and nine months ended September 30, 2009 and 2008:



|                                                                              |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | -------- | -
|                                                                              |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|(in thousands, except per share)                                              |  | 2009                            |         |   | 2008                           |   |         | 2009 |  |   | 2008    |  
|Numerator:                                                                    |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Net loss                                                                      |  | $                               | (28,393 | ) |                                | $ | (96,895 | )    |  | $ | (53,455 | ) |  | $ | (134,664 | )
|                                                                              |  |                                 |         |  
|Denominator:                                                                  |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |          |  
|Weighted average number of common shares outstanding                          |  |                                 | 17,213  |   |                                |   | 17,213  |      |  |   | 17,213  |   |  |   | 17,210   |  
|                                                                              |  |                                 |         |  
|Basic loss per common share                                                   |  | $                               | (1.65   | ) |                                | $ | (5.63   | )    |  | $ | (3.11   | ) |  | $ | (7.82    | )
|Diluted loss per common share                                                 |  | $                               | (1.65   | ) |                                | $ | (5.63   | )    |  | $ | (3.11   | ) |  | $ | (7.82    | )
|                                                                              |  |                                 |         |  
|Anti-dilutive stock options and awards not included in diluted loss per share |  |                                 | 294     |   |                                |   | 550     |      |  |   | 294     |   |  |   | 550      |  



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NOTE 9. Stock-Based Compensation

The AmericanWest Bancorporation 2006 Equity Incentive Plan (Plan) provides for the issuance of incentive stock options, nonqualified stock options, restricted stock awards and unrestricted stock awards to
key employees, officers and directors. The Plan was amended during 2008 to increase the number of authorized shares for issuance under all awards by 250,000 shares (plus any shares under the Companys 2001 Stock Option Plan as to which options
or other benefits granted and outstanding as of March 17, 2006 may lapse, expire, terminate or be canceled). The number of shares subject to stock options and restricted stock awards issued under the Plan as of September 30, 2009 was
663,220. The Board of Directors Compensation Committee administers the Plan. The maximum term of an incentive stock option granted under the Plan is ten years and the Plan will terminate on March 17, 2016.

Stock Options

Compensation expense related
to stock options is summarized in the table below including the impact on net loss and diluted loss per share for the three and nine months ended September 30, 2009 and 2008:



|                                 |  |                                 |   |                                |   |      |  |      |    |  |   |     
|-------------------------------- |  | ------------------------------- | - | ------------------------------ | - | ---- |  | ---- | -- |  | - | ----
|                                 |  | Three months endedSeptember 30, |   | Nine months endedSeptember 30,
|($ in thousands)                 |  | 2009                            |   | 2008                           |   | 2009 |  | 2008
|Stock option compensation cost   |  | $                               | 9 |                                | $ | 53   |  | $    | 25 |  | $ | 163 
|Impact on net loss               |  | $                               | 9 |                                | $ | 36   |  | $    | 25 |  | $ | 114 
|Impact on diluted loss per share |  | $                               |  |                                | $ |     |  | $    |   |  | $ | 0.01

The following table summarizes the stock option activity for the nine months ended September 30,
2009:



|                                  |  |         |   |  |                              |      
|--------------------------------- |  | ------- | - |  | ---------------------------- | -----
|                                  |  | Options |   |  | Weightedaverageexerciseprice
|Outstanding at December 31, 2008  |  | 320,701 |   |  | $                            | 13.38
|Granted                           |  |        |   |  |                              |     
|Exercised                         |  |        |   |  |                              |     
|Forfeited                         |  | (63,186 | ) |  |                              | 8.62 
|                                  |  |         |   |  |                              |      
|Outstanding at September 30, 2009 |  | 257,515 |   |  | $                            | 14.55
|                                  |  |         |   |  |                              |      
|Exercisable at September 30, 2009 |  | 188,233 |   |  | $                            | 16.52

There were no options issued during the three or nine months ended September 30, 2009. There
were no stock options issued during the three months ended September 30, 2008. The following table summarizes the weighted average assumptions for options issued for the nine months ended September 30, 2008:



|                        |  |                                    
|----------------------- |  | -----------------------------------
|                        |  | Nine months endedSeptember 30, 2008
|Expected volatility     |  | 42.2%                              
|Expected dividends      |  | 6.1%                               
|Expected term           |  | 5.0 years                          
|Risk free interest rate |  | 3.4%                               

The weighted average fair value of options issued during the nine months ended September 30,
2008 was $0.71. Total unrecognized compensation cost at September 30, 2009 was $71 thousand, which will be recognized through 2013. The amortization of stock-based compensation reflects estimated forfeitures adjusted for actual forfeiture
experience. Estimated forfeitures will be continually evaluated in subsequent periods and may change based on new facts and circumstances.



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The weighted average remaining term for outstanding and exercisable stock options at September 30, 2009 was 5.7 years and
4.9 years, respectively. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Companys common stock as of the reporting date. Since none of the stock options
outstanding and exercisable at September 30, 2009 had an exercise price lower than the market value of the Companys common stock, these options had no aggregate intrinsic value as of that date. No stock options were exercised during the
nine months ended September 30, 2009. The intrinsic value of stock options exercised during the nine months ended September 30, 2008 was $62 thousand.

Restricted Common Stock Awards

The Company has granted performance-based restricted common
stock awards to certain executives and employees. Outstanding performance-based awards vest between January 2010 and August 2012 and are expensed as compensation over the period earned. Certain agreements require that the Company or the individual
meet performance criteria and, for every year that the goal is not achieved, the award recipients forfeit 20% of their performance-based restricted common stock award. Awards are also forfeited if an employees employment with the Company or
the Bank is terminated prior to vesting other than pursuant to a change in control.

The purpose of these awards has been to promote the long
term interests of the Company and its shareholders by providing a financial incentive as a means for retaining certain key executives and employees. For the three months ended September 30, 2009 and 2008, compensation expense, pre-tax, related
to these grants was $3 thousand and $19 thousand, respectively. For the nine months ended September 30, 2009 and 2008, compensation expense, pre-tax, related to these grants was a credit of $49 thousand and an expense of $90 thousand,
respectively. Included in the compensation expense for the nine months ended September 30, 2009, was the reversal of $65 thousand of compensation expense related to the termination of an executives employment and the forfeiture of 5,000
shares of restricted common stock.

The following table summarizes both unvested performance restricted and unvested restricted common stock
activity for the nine months ended September 30, 2009:



|                                  |  |                       |   |  |                                     |      
|--------------------------------- |  | --------------------- | - |  | ----------------------------------- | -----
|                                  |  | RestrictedCommonStock |   |  | Weightedaveragegrant datefair value
|Unvested as of December 31, 2008  |  | 45,390                |   |  | $                                   | 21.46
|Granted                           |  |                      |   |  |                                     |     
|Vested                            |  |                      |   |  |                                     |     
|Forfeited                         |  | (9,090                | ) |  |                                     | 22.45
|                                  |  |                       |   |  |                                     |      
|Unvested as of September 30, 2009 |  | 36,300                |   |  | $                                   | 21.22
|                                  |  |                       |   |  |                                     |      

NOTE 10. Fair Value Measurement

The Company has adopted generally accepted accounting standards which provide enhanced guidance for measuring assets and liabilities using fair value, and apply to situations where other standards require
or permit assets or liabilities to be measured at fair value. The standards also require expanded disclosure of items that are measured at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.

Valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect the Companys market assumptions. These two types of inputs create a fair value hierarchy. Level 1 includes quoted prices for identical instruments in active markets. Level 2 includes quoted prices for
similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable. Level 3 includes instruments whose significant value input
assumptions are unobservable.



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The following table summarizes the Companys financial instruments that were measured at fair value on a recurring basis
at September 30, 2009:



|                               |  |            |        |   |                               |   |         |  |         |        |  |   |     |  
|------------------------------ |  | ---------- | ------ | - | ----------------------------- | - | ------- |  | ------- | ------ |  | - | --- | -
|                               |  |            |        |   | Fair Value Measurements Using |  
|($ in thousands)               |  | Fair Value |        |   | Level 1                       |   | Level 2 |  | Level 3 |       
|Recurring assets (liabilities) |  |            |        |   |                               |   |         |  |         |        |  |   |     |  
|Securities available-for-sale  |  | $          | 52,841 |   |                               | $ | 25,810  |  | $       | 27,031 |  | $ |    |  
|Rate lock commitments          |  | $          | 77     |   |                               | $ |        |  | $       |       |  | $ | 77  |  
|Forward sales commitments      |  | $          | (24    | ) |                               | $ |        |  | $       |       |  | $ | (24 | )

During the three and nine months ended September 30, 2009, the Company recorded a loss of $239
thousand and income of $144 thousand, respectively, related to the derivative loan commitments shown in the table above.

The following table
summarizes the changes during the nine months ended September 30, 2009 for recurring assets (liabilities) measured using level 3:



|                   |  |                      |    |                         |   |     |  
|------------------ |  | -------------------- | -- | ----------------------- | - | --- | -
|($ in thousands)   |  | Rate lockcommitments |    | Forwardsalescommitments |  
|December 31, 2008  |  | $                    |   |                         | $ | (91 | )
|Gains              |  |                      | 77 |                         |   | 67  |  
|                   |  |                      |    |                         |   |     |  
|September 30, 2009 |  | $                    | 77 |                         | $ | (24 | )
|                   |  |                      |    |                         |   |     |  

Gains shown in the table above are included in fees on mortgage loan sales, net on the Consolidated
Statements of Operations and included in the fair value adjustments on mortgage loan activities in the Consolidated Statements of Cash Flows.

Additionally, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value based on such non-recurring transactions generally result from the application of lower-of-cost-or-market accounting or write-downs
of individual assets due to impairment. The following table summarizes the Companys financial instruments that were measured at fair value on a non-recurring basis at September 30, 2009, and the total amount charged to operations
resulting from fair value adjustments for the nine months ended September 30, 2009:



|                                                   |  |            |         |                               |   |                                     |  |         |   |            |   |         |  |   |       
|-------------------------------------------------- |  | ---------- | ------- | ----------------------------- | - | ----------------------------------- |  | ------- | - | ---------- | - | ------- |  | - | ------
|                                                   |  |            |         | Fair Value Measurements Using |   | Nine months endedSeptember 30, 2009
|($ in thousands)                                   |  | Fair Value |         | Level 1                       |   | Level 2                             |  | Level 3 |   | Total Loss
|Non-Recurring                                      |  |            |         |                               |   |                                     |  |         |   |            |   |         |  |   |       
|Impaired loans                                     |  | $          | 101,444 |                               | $ |                                    |  | $       |  |            | $ | 101,444 |  | $ | 26,345
|Foreclosed real estate and other foreclosed assets |  | $          | 54,904  |                               | $ |                                    |  | $       |  |            | $ | 54,904  |  | $ | 3,643 
|Goodwill                                           |  | $          |        |                               | $ |                                    |  | $       |  |            | $ |        |  | $ | 18,852

Impaired loans included in the table above are collateral dependent and have been adjusted to fair
value based on the estimated fair value of the underlying collateral, less estimated selling costs. If the Bank determines that the value of an impaired loan is less than the recorded investment in the loan, the carrying value is adjusted through a
charge-off recorded through the allowance for loan losses. The Total Loss column shown above represents charge-offs related to the impaired loans recognized during the nine months ended September 30, 2009.

The foreclosed real estate and other foreclosed assets referenced in the table above have been adjusted to estimated fair value, less estimated selling
costs. At the time of foreclosure, foreclosed assets are recorded at the lower of the carrying amount of the loan or the estimated fair value less estimated selling costs. Any write-downs based on the assets fair value at the date of
acquisition are charged to the allowance for loan losses. After foreclosure, management periodically obtains updated valuations of the foreclosed assets and, if additional impairments are deemed necessary, the impairment is recorded in foreclosed
real estate and other foreclosed assets expense on the Consolidated Statements of Operations. The Total Loss column shown above represents impairments charged to the Consolidated Statements of Operations during the nine months ended
September 30, 2009.



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Goodwill included in the table above was evaluated as of September 30, 2009 for impairment as part of managements
annual analysis. Based on the estimated fair value the remaining carrying balance was deemed to be impaired, as further discussed in Note 3 to the Consolidated Financial Statements.

The following fair value table includes those financial instruments for which it is practical to estimate fair value. It does not include the value of premises and equipment and intangible assets such as
customer relationships and core deposit intangibles. The table summarizes carrying amounts, estimated fair values, and assumptions used by the Company to estimate fair value as of September 30, 2009 and December 31, 2008:



|                                                     |  |                                                                                                                                                                     |  |                |           |                     |   |          
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------- | - | ---------
|As of September 30, 2009: ($ in thousands)           |  | Assumptions Used in Estimating Fair Value                                                                                                                           |  | CarryingAmount |           | EstimatedFair Value
|Financial Assets:                                    |  |                                                                                                                                                                     |  |                |           |                     |   |          
|Cash and due from banks                              |  | Equal to carrying value                                                                                                                                             |  | $              | 35,335    |                     | $ | 35,335   
|Overnight interest bearing deposits with other banks |  | Equal to carrying value                                                                                                                                             |  |                | 164,099   |                     |   | 164,099  
|Securities                                           |  | Quoted market prices for similar or identical instruments                                                                                                           |  |                | 52,841    |                     |   | 52,841   
|Federal Home Loan Bank Stock                         |  | Par value                                                                                                                                                           |  |                | 10,267    |                     |   | 10,267   
|Loans, held for sale                                 |  | Equal to carrying value                                                                                                                                             |  |                | 15,335    |                     |   | 15,335   
|Loans                                                |  | Fixed-rate loans at discounted expected future cash flows, and variable-rate loans equal to carrying value, net of allowance for loan losses and liquidity discount |  |                | 1,336,280 |                     |   | 1,296,005
|Bank owned life insurance                            |  | Equal to carrying value                                                                                                                                             |  |                | 30,958    |                     |   | 30,958   
|Mortgage loan derivative instruments, net            |  | Equal to carrying value                                                                                                                                             |  |                | 53        |                     |   | 53       
|                                                     |  |                                                                                                                                                                     | 
|Financial Liabilities:                               |  |                                                                                                                                                                     |  |                |           |                     |   |          
|Deposits                                             |  | Fixed-rate certificate of deposits at discounted expected future cash flows and all other deposits equal to carrying value                                          |  |                | 1,552,320 |                     |   | 1,560,800
|Federal Home Loan Bank advances and other borrowings |  | Discounted expected future cash flows                                                                                                                               |  |                | 109,204   |                     |   | 110,795  
|Junior subordinated debentures                       |  | Discounted expected future cash flows                                                                                                                               |  |                | 41,239    |                     |   | 27,852   



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|                                                     |  |                                                                                                                                                                     |  |                |           |                     |   |          
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | --------- | ------------------- | - | ---------
|As of December 31, 2008: ($ in thousands)            |  | Assumptions Used in Estimating Fair Value                                                                                                                           |  | CarryingAmount |           | EstimatedFair Value
|Financial Assets:                                    |  |                                                                                                                                                                     |  |                |           |                     |   |          
|Cash and due from banks                              |  | Equal to carrying value                                                                                                                                             |  | $              | 40,927    |                     | $ | 40,927   
|Overnight interest bearing deposits with other banks |  | Equal to carrying value                                                                                                                                             |  |                | 26,058    |                     |   | 26,058   
|Securities                                           |  | Quoted market prices                                                                                                                                                |  |                | 65,270    |                     |   | 65,270   
|Federal Home Loan Bank Stock                         |  | Par value                                                                                                                                                           |  |                | 8,286     |                     |   | 8,286    
|Loans, held for sale                                 |  | Equal to carrying value                                                                                                                                             |  |                | 12,265    |                     |   | 12,265   
|Loans                                                |  | Fixed-rate loans at discounted expected future cash flows, and variable-rate loans equal to carrying value, net of allowance for loan losses and liquidity discount |  |                | 1,577,106 |                     |   | 1,556,756
|Bank owned life insurance                            |  | Equal to carrying value                                                                                                                                             |  |                | 30,193    |                     |   | 30,193   
|                                                     |  |                                                                                                                                                                     | 
|Financial Liabilities:                               |  |                                                                                                                                                                     |  |                |           |                     |   |          
|Deposits                                             |  | Fixed-rate certificate of deposits at discounted expected future cash flows and all other deposits equal to carrying value                                          |  |                | 1,573,533 |                     |   | 1,583,125
|Federal Home Loan Bank advances and other borrowings |  | Discounted expected future cash flows                                                                                                                               |  |                | 142,962   |                     |   | 145,465  
|Junior subordinated debentures                       |  | Discounted expected future cash flows                                                                                                                               |  |                | 41,239    |                     |   | 33,467   
|Mortgage loan derivative instruments, net            |  | Equal to carrying value                                                                                                                                             |  |                | 91        |                     |   | 91       

NOTE 11. Derivatives

The Company may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments and residential mortgage loans held for sale. These derivatives are accounted for as
free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy.

The Bank enters into forward delivery contracts to sell residential mortgage loans to investors at specific prices and dates in order to hedge the interest
rate risk in its portfolio of mortgage loans held for sale and its residential mortgage loan commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no
counterparty default losses on forward contracts in the three and nine months ended September 30, 2009. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in market
interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with investors. In the event the Company has forward delivery contract commitments in excess of available
mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the investors equal to the increase or decrease in the market value of the forward contract. At September 30, 2009, the Bank had commitments to
originate mortgage loans held for sale at pre-determined interest rates totaling $9.6 million and forward sales commitments of $4.7 million.



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The following table summarizes the types of derivatives, separately by assets and liabilities, their location on the
Consolidated Statements of Condition, and the fair values of such derivatives as of September 30, 2009 and December 31, 2008:



|                                          |  |                           |  |                       |  |                   |    |                  |   |   
|----------------------------------------- |  | ------------------------- |  | --------------------- |  | ----------------- | -- | ---------------- | - | --
|($ in thousands) Underlying Risk Exposure |  | Description               |  | Balance SheetLocation |  | September 30,2009 |    | December 31,2008
|Asset Derivatives                         |  |                           |  |                       |  |                   |    |                  |   |   
|Interest rate contracts                   |  | Rate lock commitments     |  | Other assets          |  | $                 | 77 |                  | $ |  
|Interest rate contracts                   |  | Forward sales commitments |  | Other assets          |  |                   |   |                  |   |  
|                                          |  |                           |  |                       |  |                   |    |                  |   |   
|Total asset derivatives                   |  |                           |  |                       |  | $                 | 77 |                  | $ |  
|                                          |  |                           |  |                       |  |                   |    |                  |   |   
|                                          |  |                           |  |                      
|Liability Derivatives                     |  |                           |  |                       |  |                   |    |                  |   |   
|Interest rate contracts                   |  | Rate lock commitments     |  | Other liabilities     |  | $                 |   |                  | $ |  
|Interest rate contracts                   |  | Forward sales commitments |  | Other liabilities     |  |                   | 24 |                  |   | 91
|                                          |  |                           |  |                       |  |                   |    |                  |   |   
|Total liability derivatives               |  |                           |  |                       |  | $                 | 24 |                  | $ | 91
|                                          |  |                           |  |                       |  |                   |    |                  |   |   

The following table summarizes the types of derivatives, and the gains (losses) recorded during the
three and nine months ended September 30, 2009 and 2008:



|                         |  |                           |  |                                     |      |                                |      |   |      |  |      |     |  |   |  
|------------------------ |  | ------------------------- |  | ----------------------------------- | ---- | ------------------------------ | ---- | - | ---- |  | ---- | --- |  | - | -
|($ in thousands)         |  |                           |  | Three Months Ended    September 30, |      | Nine Months EndedSeptember 30,
|Underlying Risk Exposure |  | Description               |  | 2009                                |      |                                | 2008 |   | 2009 |  | 2008
|Interest rate contracts  |  | Rate lock commitments     |  | $                                   | 89   |                                |      | $ |     |  | $    | 77  |  | $ | 
|Interest rate contracts  |  | Forward sales commitments |  |                                     | (328 | )                              |      |   |     |  |      | 67  |  |   | 
|                         |  |                           |  |                                     |      |                                |      |   |      |  |      |     |  |   |  
|Total                    |  |                           |  | $                                   | (239 | )                              |      | $ |     |  | $    | 144 |  | $ | 
|                         |  |                           |  |                                     |      |                                |      |   |      |  |      |     |  |   |  

NOTE 12. Federal Home Loan Bank of Seattle Stock (FHLB)

The Companys investment in the Federal Home Loan Banks (FHLB) of Seattle as of September 30, 2009 and December 31, 2008 was $10.3 million and
$8.3 million, respectively. FHLB stock is carried at par and does not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions, and can only be purchased and redeemed at par.

Due to ongoing turmoil in the capital and mortgage markets, the FHLB of Seattle remains classified as undercapitalized largely as a result of
write-downs on their private label mortgage-backed securities portfolios. However, as of September 30, 2009, the FHLB met all of its regulatory capital requirements, including its risk-based capital requirement. The FHLB has communicated that
it believes the calculation of risk-based capital significantly overstates the market risk of the FHLBs private-label mortgage-backed securities in the current market environment and that it has enough capital to cover the risks reflected in
the FHLBs balance sheet.

The Companys determination of whether FHLB stock is impaired is based on the assessment of the ultimate
recoverability of cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of cost is influenced by criteria such as (1) the significance of any decline in net
assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation
to the operating performance of the FHLB, (3) the impact of legislative and regulatory changes on financial institutions and, accordingly, the customer base of the FHLB, and (4) the liquidity position of the FHLB. The Company has
determined there is not an other-than-temporary or permanent impairment of its FHLB stock investment as of September 30, 2009.



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NOTE 13. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141 (revised), Business Combinations. SFAS No. 141R establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquired entity and the goodwill acquired in connection with an acquisition. Furthermore,
acquisition-related and other costs will now be expensed rather than treated as cost components of the acquisition. SFAS No. 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the
business combination. This standard applies prospectively to business combinations for which the acquisition date is on or after January 1, 2009. The adoption of SFAS No. 141R will increase the costs charged to operations for acquisitions
consummated on or after January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interest in Consolidated
Financial Statements, an amendment to ARB No 51. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The standard also requires additional
disclosures that clearly identify and distinguish between the interest of the parents owners and the interest of the noncontrolling owners of the subsidiary. This standard was effective on January 1, 2009 for the Company, to be applied
prospectively. The adoption of this standard did not have a material impact on the Companys consolidated financial statements.

In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of FASB Statement No. 133. SFAS No. 161 expands the disclosure requirements in SFAS No. 133 about an
entitys derivative instruments and hedging activities. This includes enhanced disclosures regarding how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash
flows. Provisions of this standard are to be applied prospectively, and comparative disclosures for earlier periods are encouraged. The Company adopted the provisions of SFAS No. 161 for the year ended December 31, 2008, and the impact was
not material to the consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168, FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles  a replacement of FAS No. 162, which became the source of authoritative U.S. Generally Accepted Accounting Principles (GAAP) recognized by the Financial
Accounting Standards Board. This standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of SFAS No. 168 did not have a material impact on the Companys
consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles. Under SFAS No. 162, the U.S. GAAP hierarchy will now reside in the accounting literature established by the FASB. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements in conformity with U.S. GAAP for nongovernmental entities. This standard is effective 60 days after the U.S. Securities and Exchange Commission approves the Public Company Accounting Oversight
Boards amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS No. 162 did not have a material impact on the Companys consolidated
financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities. FSP EITF 03-6-1 concludes that nonvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and shall be included in the
computation of EPS pursuant to the two-class method. This FSP is effective for fiscal years beginning after December 15, 2008, to be applied retrospectively. The adoption of this guidance did not have a material impact on the Companys
consolidated financial statements.

In October 2008, the FASB issued FSP No.157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active. FSP No.157-3 clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP does not change existing generally



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accepted accounting principles. This FSP was effective immediately upon issuance, including prior periods for which financial statements had not been issued. The adoption of this guidance did not
have a material impact on the Companys consolidated financial statements.

In January 2009, the FASB issued FSP EITF 99-20-1,
Amendments to the Impairment Guidance of EITF Issue No.99-20. FSP EITF 99-20-1 addresses certain practice issues in EITF No.99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests
That Continue to Be Held by a Transferor in Securitized Financial Assets, by making its other-than-temporary impairment assessment guidance consistent with SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities. FSP
EITF 99-20-1 removes the reference to the consideration of a market participants estimates of cash flows in EITF 99-20, and instead requires an assessment of whether it is probable, based on current information and events, that the holder of
the security will be unable to collect all amounts due according to the contractual terms. If it is probable that there has been an adverse change in estimated cash flows, an other-than-temporary impairment is deemed to exist, and a corresponding
loss shall be recognized in earnings equal to the entire difference between the investments carrying value and its fair value at the balance sheet date of the reporting period for which the assessment is made. This FSP became effective for
interim and annual reporting periods ending after December 15, 2008, and is applied prospectively. The adoption of this guidance did not have a material impact on the Companys consolidated financial statements.

On April 9, 2009, the FASB issued FSP FAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly. FSP FAS No. 157-4 provides guidance to help an entity determine whether the market for an asset is not active and when a price for a transaction is not
distressed. In this two-step model, an entity must first determine whether there are factors present that indicate that the market for the asset is not active at the measurement date. Second, an entity must evaluate whether a quoted price is
representative of a transaction that is not orderly. If determined that a quoted price is distressed (not orderly), and thereby not representative of fair value under SFAS No. 157, the entity must make adjustments to the quoted price or utilize
an alternative valuation technique (e.g. income approach or multiple valuation techniques) to determine fair value. Additionally, an entity must incorporate appropriate risk premium adjustments, reflective of an orderly transaction under current
market conditions, due to uncertainty in cash flows. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Company.

On April 9, 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments
(OTTI), that changes the OTTI model for debt securities. Under previous guidance, an entity was required to assess whether it had the intent and ability to hold a security to recovery in determining whether an impairment of that security is
other-than-temporary. If the security was deemed other-than-temporarily impaired, the investment was written-down to fair value through earnings. Under the new guidance, OTTI is triggered if an entity has the intent to sell the security, if it is
more likely than not that it will be required to sell the security before recovery, or if the entity does not expect to recover the entire amortized cost basis of the security. If the entity intends to sell the security or if it is more likely than
not that it will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If the entity does not intend to sell the security and it is not likely that the entity will
be required to sell the security before recovering its cost basis, only the portion of the impairment loss representing credit losses would be recognized in earnings as an OTTI. The remaining impairment loss would be recognized as a charge to other
comprehensive income (OCI). This FSP also results in a new category within OCI for the portion of the OTTI that is unrelated to credit losses for securities held to maturity. The impairment recognized in OCI would be amortized over the remaining
life of the debt security prospectively based on the amount and timing of future estimated cash flows, unless there is an indication of additional credit losses. The amortization of the OTTI amount recorded in OCI will increase the carrying value of
the investment, and would not affect earnings. Upon adoption of the FSP, the noncredit portion of previously recognized OTTI shall be reclassified to accumulated OCI by a cumulative-effect adjustment to the opening balance of retained earnings. This
FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on the Company.



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On April 9, 2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments. This FSP requires SFAS No. 107, Disclosures about Fair Value of Financial Instruments, disclosures in the notes of an entitys interim financial statements for all financial instruments, whether or not
recognized in the statement of financial position. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this guidance resulted in enhanced disclosures by the Company.

In August 2009, the FASB issued Accounting Standards Update (ASU) No. 2009-05 Fair Value Measurements and Disclosures (Topic 820), Measuring
Liabilities at Fair Value. This provides guidance on measuring liabilities at fair value when a quoted price in an active market for the identical liability is not available. This guidance is effective for the period ended September 30,
2009 and did not materially impact the Company.

In September 2009, the FASB issued ASU No. 2009-12 Fair Value Measurements and
Disclosures (Topic 820), Investments in Certain Entities that Calculate Net Asset Values per Share (or Its Equivalent). This applies to investments that are measured at a net asset value per share because the investments fair value is not
readily available, reducing the required steps in measuring fair value, and increasing associated disclosures and is effective for periods ending after December 15, 2009. The adoption of this guidance is not expected to have a material impact
on the Company.



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

Forward-Looking Statements

Certain matters discussed 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, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). Such forward-looking statements may include statements or forecasts about the Companys
financial condition and results of operations, expectations for future financial performance, and assumptions for those forecasts and expectations. The Company makes forward-looking statements about potential problem loans, cash flows, strategic
initiatives, capital initiatives, and the adequacy of the allowance for loan losses. Actual results might differ significantly from the Companys forecasts and expectations due to several factors. Some of these factors include, but are not
limited to, impact of the current national and regional economy (including real estate values) on loan demand and borrower financial capacity in the Companys market, changes in loan portfolio composition, the ability of the Company to comply
with the FDICs Order to Cease and Desist and Federal Reserve Written Agreement, the Companys ability to raise regulatory capital and the dilutive effect of capital raising, the Companys access to liquidity sources, the
Companys ability to attract and retain quality customers, interest rate movements and the impact on net interest margins such movement may cause, changes in the demographic make-up of the Companys market, the Companys products and
services, the Companys ability to attract and retain qualified employees, regulatory changes, and competition with other banks and financial institutions. Other factors are included in the Annual Report on Form 10-K for the year ended
December 31, 2008, filed with the US Securities and Exchange Commission (SEC) and available on the SECs website at www.sec.gov. Words such as targets, expects, anticipates, believes, and
other similar expressions, and 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 hereof. The Company 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 Company 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, 2009 and 2008. 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 the Companys Form 10-K for the year ended December 31, 2008, which contains additional information.

AmericanWest Bancorporation

AmericanWest
Bancorporation (Company), which was formed in 1983, is a Washington corporation registered as a bank holding company under the Bank Holding Company Act of 1956, and is headquartered in Spokane, Washington. The Companys wholly-owned subsidiary
is AmericanWest Bank (Bank), a Washington state chartered bank that operates in Eastern and Central Washington, Northern Idaho and in Utah doing business as Far West Bank. Unless otherwise indicated, reference to the Company shall
include the Bank and its Far West Bank division. The Companys unconsolidated information will be referred to as that of the Parent Company. The Bank provides a full range of banking services to small and medium-sized businesses, agricultural
businesses, professionals and consumers through 58 financial centers located in Washington, Northern Idaho and Utah.

The Company also has
four wholly-owned statutory trust subsidiaries which were formed for the sole purpose of issuing trust preferred securities. These include AmericanWest Statutory Trust I, Columbia Trust Statutory Trust I, AmericanWest Capital Trust II and
AmericanWest Capital Trust III (collectively Trusts). The investments in these Trusts are not consolidated within the consolidated financial statements in accordance with accounting guidance.

The Companys stock trades on the NASDAQ Global Select market under the symbol AWBC. The discussion in this Quarterly Report of the Company and its
financial statements reflects the Companys acquisitions of Far West Bancorporation (FWBC) and its subsidiary on April 1, 2007 and Columbia Trust Bancorp and its subsidiaries on



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March 15, 2006. Both acquisitions were accounted for by the purchase method of accounting and the results of the Companys operations prior to the respective acquisitions do not reflect
the activities of Far West Bancorporation or Columbia Trust Bancorp.

As a result of an interim examination, effective August 8, 2008,
the Bank was subject to a Supervisory Directive (Directive) of the Washington State Department of Financial Institutions, Division of Banks (DFI). The Directive required the Bank to provide periodic liquidity and credit quality reports, update the
DFI regarding the status of liquidity planning and previously announced capital raising initiatives, notify the DFI on significant changes in management and financial condition, retain a permanent Chief Executive Officer, and seek prior written
consent of the DFI before paying dividends. On September 17, 2009, the Company received written notification that the Directive was rescinded, because the Directive had been effectively replaced by the Order to Cease and Desist discussed below.

On May 8, 2009, the Bank entered into a Stipulation and Consent to the Issuance of an Order to Cease and Desist (Stipulation) with the
FDIC and DFI that was issued in connection with a routine regulatory examination of the Bank completed during December 2008 (Examination). Pursuant to the Stipulation, the FDIC and the DFI issued an Order to Cease and Desist (Order) on May 11,
2009. Neither the Bank nor the Company admitted any wrongdoing and no monetary penalties were imposed in connection with the Order. Copies of the Stipulation and the Order were included as Exhibits 10.1 and 10.2 of the Form 10-Q filed on
May 15, 2009.

The Order reaffirms certain restrictions that were included in the Supervisory Directive, including restrictions on the
payment of dividends and appointment of directors or senior executive officers without prior approval. Other material provisions of the Order require the Bank to:



| |  |  | Increase Tier 1 leverage ratio to 10.0% by September 8, 2009 and thereafter maintain such a level until such time as the Order is rescinded
(although Management and its financial advisor are continuing aggressive efforts with respect to enhancing the Banks regulatory capital ratios through sale of new equity securities to private investors and divestiture of selected assets, this
requirement was not achieved by the prescribed deadline);
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Charge-off all assets classified as loss and 50% of loans classified as doubtful as of the most recent report of examination by
June 10, 2009 (these actions were completed prior to June 30, 2009, with no additional material loss recognized);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce the level of assets classified as substandard or doubtful noted in the most recent report of examination to 75% of
capital by September 8, 2009 (as of September 30, 2009, the assets classified as substandard or doubtful were reduced by $93.9 million since the Report of Examination, and the related ratio was 125%; this target was
not achieved by the deadline); Develop a written asset disposition plan for all adversely classified assets of $1 million or more, and take other specified actions to strengthen the credit administration and collection processes by July 10,
2009 (an initial plan covering all such classified assets individually and any future loans meeting the requirements was approved by the Board of Directors on June 30, 2009 and a copy of that initial plan was furnished to the FDIC and DFI);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Develop policies for maintenance of an adequate level of liquidity and certify that pricing of deposits is in compliance with Section 337.6 of the
FDIC Rules and Regulations (policies and procedures were developed previously and a written certification that deposit pricing complies with the requirements of Section 337.6 was provided to the FDIC and DFI on June 4, 2009);
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Obtain an independent study of the Banks lending and credit functions to determine if additional personnel are necessary and develop and
implement enhanced policies and procedures for the monitoring and reporting of certain types of loans by July 10, 2009 (the independent study was completed on June 15, 2009 and a related plan to implement its recommendations was approved
by the Board of Directors on July 30, 2009; a plan and related amendments to the Banks lending policy designed to improve loan monitoring and other matters was approved by the Board of Directors on July 20, 2009 and a copy of these
plans were furnished to the FDIC and DFI); and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Formulate and implement a written profit plan and multi-year strategic plan by August 9, 2009 (these plans were approved by the Board of Directors
on August 7, 2009 and copies were furnished to the FDIC and DFI).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Although management has undertaken actions to comply with all aspects of the Order, there is no assurance that full compliance
will be achieved. As a result, the Bank could become subject to further restrictions and/or penalties.

On September 15, 2009, the
Company entered into a Written Agreement with the Federal Reserve Bank of San Francisco (FRB). Under the terms of the Written Agreement, the Company cannot do any of the following without prior written approval of the FRB:



| |  |  | Declare or pay any dividends
| | - |  | ----------------------------



| |  |  | Make any distributions of principal or interest on junior subordinated debentures
| | - |  | ---------------------------------------------------------------------------------



| |  |  | Incur, increase or guarantee any debt
| | - |  | -------------------------------------



| |  |  | Redeem any outstanding stock
| | - |  | ----------------------------

The agreement also requires the Company to:



| |  |  | Submit a written capital plan that provides for sufficient capitalization of both the Parent and the Bank
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | Comply with FRB regulations governing affiliate transactions
| | - |  | ------------------------------------------------------------



| |  |  | Comply with notice and approval requirements of the FDI Act related to the appointment of directors and senior executive officers or change in the
responsibility of any current senior executive officer
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Comply with restrictions on paying or agreeing to pay certain indemnification and severance payments without prior written approval
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Submit a quarterly progress report to the FRB
| | - |  | ---------------------------------------------

Substantially all of the requirements of the Written Agreement are similar to requirements imposed on the Company and the Bank pursuant to other regulatory orders and agreements, and the Company and the
Bank have been operating in a manner consistent with those requirements. In addition, the Company took various actions on its own initiative, such as ceasing payment of dividends on its common stock and deferring distributions on subordinated
debentures (trust preferred securities), before those actions were required by the regulators.

As of December 31, 2008, due to the
Companys significant net loss from operations in 2008, deterioration in the credit quality of the loan portfolio, and the decline in the level of its regulatory capital to support operations, there was substantial doubt about the
Companys ability to continue as a going concern. The financial statements have been prepared assuming the Company will continue as a going concern.

On August 6, 2009, the FDIC provided the Bank with its Community Reinvestment Act (CRA) performance evaluation. The Banks CRA rating as determined by this evaluation was
satisfactory.

Results of Operations

Overview

The Company reported a net loss (excluding a $18.9 million goodwill impairment
charge) of $9.5 million, or $0.55 per share, for the three months ended September 30, 2009 as compared to a net loss (excluding a $82.0 million goodwill impairment charge) of $14.9 million, or $0.87 per share, for the same period in 2008. The
Company reported a net loss (excluding a $18.9 million goodwill impairment charge) of $34.6 million, or $2.01 per share, for the nine months ended September 30, 2009 as compared to a net loss (excluding a $109.0 million goodwill impairment
charge) of $25.7 million, or $1.49 per share, for the same period in 2008. The net losses, inclusive of the goodwill impairment charges for the nine months ended September 30, 2009 and 2008, were $53.5 million and $134.7 million, respectively.

The negative return on average assets annualized, excluding the goodwill impairment charges, for the three months ended September 30,
2009 was 2.13% as compared to 2.84% for the three months ended September 30, 2008. The negative return on average assets, excluding the goodwill impairment charges, for the nine months ended September 30, 2009 was 2.55% as compared to
1.63% for the nine months ended September 30, 2008.



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AMERICANWEST BANCORPORATION



The Company recognized a provision for loan losses of $9.0 million, or 2.48% of average loans on an annualized basis, for the
three months ended September 30, 2009, as compared to $27.7 million, or 6.23% of average loans annualized, for the three months ended September 30, 2008. For the quarter ended September 30, 2009, net charge-offs were $8.7 million, or
2.40% of average gross loans annualized, as compared to $22.8 million, or 5.15%, for the third quarter of 2008. The Company recognized a provision for loan losses of $34.5 million, or 3.01%, of average loans on an annualized basis, for the nine
months ended September 30, 2009, as compared to $56.9 million, or 4.27% of average loans annualized, for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, net charge-offs were $46.2 million, or
4.04% of average loans annualized, as compared to $45.5 million, or 3.42% of average loans annualized, for the same period of the prior year.

The table below summarizes the Companys financial performance for the three and nine months ended September 30, 2009 and 2008:



|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|--------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | - | -------- | -------- |  | ---- | ---- |  | - | ------- | - |  | -------- | -------- | - |  | --- | -
|                                              |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|($ in thousands except per share data)        |  | 2009                             |         |   | 2008                            |   |          | % Change |  |      | 2009 |  |   | 2008    |   |  | % Change |         
|Interest Income                               |  | $                                | 21,794  |   |                                 | $ | 29,058   |          |  | -25  | %    |  | $ | 67,386  |   |  | $        | 93,467   |   |  | -28 | %
|Interest Expense                              |  |                                  | 7,404   |   |                                 |   | 11,031   |          |  | -33  | %    |  |   | 25,147  |   |  |          | 34,635   |   |  | -27 | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Net Interest Income                           |  |                                  | 14,390  |   |                                 |   | 18,027   |          |  | -20  | %    |  |   | 42,239  |   |  |          | 58,832   |   |  | -28 | %
|Loan Loss Provision                           |  |                                  | 9,000   |   |                                 |   | 27,650   |          |  | -67  | %    |  |   | 34,480  |   |  |          | 56,850   |   |  | -39 | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Net interest income after loan loss provision |  |                                  | 5,390   |   |                                 |   | (9,623   | )        |  | -156 | %    |  |   | 7,759   |   |  |          | 1,982    |   |  | 291 | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Non-interest Income                           |  |                                  | 4,678   |   |                                 |   | 5,268    |          |  | -11  | %    |  |   | 17,474  |   |  |          | 14,593   |   |  | 20  | %
|Non-interest Expense                          |  |                                  | 38,461  |   |                                 |   | 101,288  |          |  | -62  | %    |  |   | 78,688  |   |  |          | 166,312  |   |  | -53 | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Loss before income tax benefit                |  |                                  | (28,393 | ) |                                 |   | (105,643 | )        |  | 73   | %    |  |   | (53,455 | ) |  |          | (149,737 | ) |  | 64  | %
|Income tax benefit                            |  |                                  |        |   |                                 |   | (8,748   | )        |  | 100  | %    |  |   |        |   |  |          | (15,073  | ) |  | 100 | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Net Loss                                      |  | $                                | (28,393 | ) |                                 | $ | (96,895  | )        |  | 71   | %    |  | $ | (53,455 | ) |  | $        | (134,664 | ) |  | 60  | %
|                                              |  |                                  |         |   |                                 |   |          |          |  |      |      |  |   |         |   |  |          |          |   |  |     |  
|Basic loss per common share                   |  | $                                | (1.65   | ) |                                 | $ | (5.63    | )        |  | 71   | %    |  | $ | (3.11   | ) |  | $        | (7.82    | ) |  | 60  | %
|Diluted loss per common share                 |  | $                                | (1.65   | ) |                                 | $ | (5.63    | )        |  | 71   | %    |  | $ | (3.11   | ) |  | $        | (7.82    | ) |  | 60  | %



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AMERICANWEST BANCORPORATION



The selected financial ratios presented below in the non-GAAP column exclude the goodwill impairment charges of $18.9 million
recognized in the three and nine months ended September 30, 2009, the $82.0 million recognized during the three months ended September 30, 2008, and the $109.0 million recognized during the nine months ended September 30, 2008. The
presentation does not conform to accounting guidance; however, management believes these ratios are meaningful to investors in understanding the financial performance during the periods presented.



|                                                              |  |                                  |         |   |              |   |         |      |  |   |              |   |  |   |         |  
|------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------ | - | ------- | ---- |  | - | ------------ | - |  | - | ------- | -
|                                                              |  | Three Months Ended September 30, |        
|Selected Financial Information:                               |  | 2009                             |         |   | 2009         |   |         | 2008 |  |   | 2008         |  
|($ in thousands except per share data, ratios are annualized) |  | GAAP                             |         |   | Non-GAAP (1) |   |         | GAAP |  |   | Non-GAAP (1) |  
|Net loss                                                      |  | $                                | (28,393 | ) |              | $ | (9,541  | )    |  | $ | (96,895      | ) |  | $ | (14,895 | )
|Diluted loss per common share                                 |  | $                                | (1.65   | ) |              | $ | (0.55   | )    |  | $ | (5.63        | ) |  | $ | (0.87   | )
|Return on average assets                                      |  |                                  | -6.35   | % |              |   | -2.13   | %    |  |   | -18.48       | % |  |   | -2.84   | %
|Return on average equity                                      |  |                                  | -175.40 | % |              |   | -58.94  | %    |  |   | -159.24      | % |  |   | -24.48  | %
|Return on tangible average equity (2)                         |  |                                  | -332.28 | % |              |   | -111.66 | %    |  |   | -302.72      | % |  |   | -46.54  | %
|Efficiency ratio                                              |  |                                  | 86.35   | % |              |   |         |      |  |   | 78.79        | % |  |   |         |  
|Non-interest income to average assets                         |  |                                  | 1.05    | % |              |   |         |      |  |   | 1.00         | % |  |   |         |  
|Non-interest expenses to average assets                       |  |                                  | 8.60    | % |              |   |         |      |  |   | 19.32        | % |  |   |         |  
|Net interest margin (3)                                       |  |                                  | 3.54    | % |              |   |         |      |  |   | 3.89         | % |  |   |         |  
|                                                              | 
|                                                              |  | Nine Months Ended September 30,  |        
|                                                              |  | 2009                             |         |   | 2009         |   |         | 2008 |  |   | 2008         |  
|                                                              |  | GAAP                             |         |   | Non-GAAP (1) |   |         | GAAP |  |   | Non-GAAP (1) |  
|Net loss                                                      |  | $                                | (53,455 | ) |              | $ | (34,603 | )    |  | $ | (134,664     | ) |  | $ | (25,664 | )
|Diluted loss per common share                                 |  | $                                | (3.11   | ) |              | $ | (2.01   | )    |  | $ | (7.82        | ) |  | $ | (1.49   | )
|Return on average assets                                      |  |                                  | -3.95   | % |              |   | -2.55   | %    |  |   | -8.54        | % |  |   | -1.63   | %
|Return on average equity                                      |  |                                  | -95.98  | % |              |   | -62.13  | %    |  |   | -69.19       | % |  |   | -13.19  | %
|Return on tangible average equity (2)                         |  |                                  | -165.07 | % |              |   | -106.86 | %    |  |   | -133.62      | % |  |   | -25.47  | %
|Efficiency ratio                                              |  |                                  | 89.10   | % |              |   |         |      |  |   | 74.00        | % |  |   |         |  
|Non-interest income to average assets                         |  |                                  | 1.29    | % |              |   |         |      |  |   | 0.93         | % |  |   |         |  
|Non-interest expenses to average assets                       |  |                                  | 5.81    | % |              |   |         |      |  |   | 10.55        | % |  |   |         |  
|Net interest margin (3)                                       |  |                                  | 3.40    | % |              |   |         |      |  |   | 4.23         | % |  |   |         |  



|(1) | Excludes goodwill impariment charge, when applicable.
|--- | -----------------------------------------------------

|(2) | Tangible equity divided by tangible assets.
|--- | -------------------------------------------

|(3) | Presented on a tax equivalent basis for tax exempt securities. Average loans include loans held for sale and non-accrual loans.
|--- | -------------------------------------------------------------------------------------------------------------------------------

Net Interest Income

Three Months Ended
September 30, 2009 and 2008

Net interest income for the third quarter of 2009 was $14.4 million, a decrease of $3.6 million from the
third quarter of 2008. Interest income for the third quarter of 2009 was $21.8 million, a decrease of $7.3 million from the same period of the prior year. The decrease in interest income is related mainly to the decline in the average earning assets
of $234.2 million as well as a decline in the yield on average earning assets of 90 basis points. Interest expense for the third quarter of 2009 was $7.4 million, a decrease of $3.6 million from the similar period of the prior year. The decrease in
interest expense from the third quarter of 2008 is a result of a decrease in the cost of funds of 82 basis points and a decrease in average interest bearing liabilities of $104.3 million.

The tax equivalent net interest margin for the third quarter of 2009 was 3.54%, a decrease of 35 basis points from the same period in 2008. This decrease
was driven by the decline in yield on earning assets, offset in part by a reduction in the average cost of funds. The average yield on loans for the third quarter of 2009 was 5.80%, a decrease of 54 basis points from the same period in 2008, which
drove the yield on interest earning assets down to 5.36%. The decrease in the average yield on loans is in part related to a decline in index rates for certain variable rate loans tied to the prime rate. The average prime rate (the base index for
approximately 31% of the



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Companys loan portfolio) for the third quarter of 2009 was 3.25% as compared to 5.00% for the same period of the prior year. In addition, the impact of non-accrual loans on the net interest
margin for the three months ended September 30, 2009 was approximately 54 basis points. The reduction in the Companys cost of funds, inclusive of non-interest bearing demand deposits, to 1.74% in the third quarter of 2009 as compared to
2.41% the same period in the prior year, was a result of a reduction in the cost of interest bearing liabilities of 82 basis points offset in part by a reduction in average non-interest bearing demand deposits of $30.1 million, or 9.5%. The Company
has made an effort to maintain on-balance sheet liquidity through federal funds sold for contingency planning which negatively impacted the net interest margin by 38 basis points during the three months ended September 30, 2009. The Company
anticipates the loan portfolio will continue to decline over the next 12 months and, as a result, net interest income will continue to be negatively impacted as loans represent the largest and highest yielding category of earning assets.

The following table sets forth the Companys net interest margin for the three months ended September 30, 2009 and 2008:



|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|--------------------------------------------- |  | -------------------------------- | --------- | -------- | ---- | ------ |  | ---- | -------------- |  | -------- | --------- | - | - | ------ |  | ---- | -
|                                              |  | Three months ended September 30, |          
|                                              |  | 2009                             |           |          | 2008 |       
|($ in thousands)                              |  | AverageBalance                   |           | Interest |      | %      |  |      | AverageBalance |  | Interest |           | % |  
|Assets                                        |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Loans (1)                                     |  | $                                | 1,440,940 |          | $    | 21,056 |  | 5.80 | %              |  | $        | 1,765,229 |   | $ | 28,149 |  | 6.34 | %
|Taxable securities                            |  |                                  | 40,745    |          |      | 509    |  | 4.96 | %              |  |          | 48,739    |   |   | 608    |  | 4.96 | %
|Non-taxable securities (2)                    |  |                                  | 13,755    |          |      | 213    |  | 6.14 | %              |  |          | 19,728    |   |   | 298    |  | 6.01 | %
|FHLB Stock                                    |  |                                  | 10,267    |          |      |       |  | 0.00 | %              |  |          | 9,671     |   |   | 35     |  | 1.44 | %
|Overnight deposits with other banks and other |  |                                  | 113,394   |          |      | 88     |  | 0.31 | %              |  |          | 9,896     |   |   | 69     |  | 2.77 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest earning assets                 |  |                                  | 1,619,101 |          |      | 21,866 |  | 5.36 | %              |  |          | 1,853,263 |   |   | 29,159 |  | 6.26 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Non-interest earning assets                   |  |                                  | 156,225   |          |      |        |  |      |                |  |          | 232,148   |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total assets                                  |  | $                                | 1,775,326 |          |      |        |  |      |                |  | $        | 2,085,411 |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |       
|Liabilities                                   |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Interest bearing demand deposits              |  | $                                | 181,837   |          | $    | 203    |  | 0.44 | %              |  | $        | 134,861   |   | $ | 175    |  | 0.52 | %
|Savings and MMDA deposits                     |  |                                  | 392,484   |          |      | 1,262  |  | 1.28 | %              |  |          | 478,295   |   |   | 2,331  |  | 1.94 | %
|Time deposits                                 |  |                                  | 667,880   |          |      | 4,530  |  | 2.69 | %              |  |          | 646,773   |   |   | 6,056  |  | 3.73 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest bearing deposits               |  |                                  | 1,242,201 |          |      | 5,995  |  | 1.91 | %              |  |          | 1,259,929 |   |   | 8,562  |  | 2.70 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Overnight borrowings                          |  |                                  | 46,126    |          |      | 96     |  | 0.83 | %              |  |          | 76,570    |   |   | 508    |  | 2.64 | %
|Junior subordinated debt                      |  |                                  | 41,239    |          |      | 633    |  | 6.09 | %              |  |          | 41,239    |   |   | 670    |  | 6.46 | %
|Other borrowings                              |  |                                  | 68,530    |          |      | 680    |  | 3.94 | %              |  |          | 124,706   |   |   | 1,291  |  | 4.12 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest bearing liabilities            |  |                                  | 1,398,096 |          |      | 7,404  |  | 2.10 | %              |  |          | 1,502,444 |   |   | 11,031 |  | 2.92 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Non-interest bearing demand deposits          |  |                                  | 287,000   |          |      |        |  |      |                |  |          | 317,098   |   |   |        |  |      |  
|Other non-interest bearing liabilities        |  |                                  | 26,008    |          |      |        |  |      |                |  |          | 23,803    |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total liabilities                             |  |                                  | 1,711,104 |          |      |        |  |      |                |  |          | 1,843,345 |   |   |        |  |      |  
|Stockholders Equity                          |  |                                  | 64,222    |          |      |        |  |      |                |  |          | 242,066   |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total liabilities and stockholders equity    |  | $                                | 1,775,326 |          |      |        |  |      |                |  | $        | 2,085,411 |   |   |        |  |      |  
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Net interest income and spread                |  |                                  |           |          | $    | 14,462 |  | 3.26 | %              |  |          |           |   | $ | 18,128 |  | 3.34 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Net interest margin to average earning assets |  |                                  |           |          |      |        |  | 3.54 | %              |  |          |           |   |   |        |  | 3.89 | %
|                                              |  |                                  |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  



|(1) | Includes loans held for sale and non-accrual loans in average loans. Interest income includes loan fee income.
|--- | --------------------------------------------------------------------------------------------------------------

|(2) | Tax-exempt securities income has been presented using a tax equivalent basis and an assumed tax rate of 34%.
|--- | ------------------------------------------------------------------------------------------------------------



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The following table sets forth a summary of changes in the components of net interest income during the quarter ended
September 30, 2009, as compared to the quarter ended September 30, 2008, due to the changes in average interest earning assets and interest bearing liabilities and the resultant changes in interest income and interest expense:



|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|------------------------------------------------------------- |  | ----------------------------------------------------- | ------ | - | ---- | - | ------ | ----- |  | - | ------ | -
|                                                              |  | Three months ended September 30,2009 compared to 2008 |       
|($ in thousands)                                              |  | Decrease in net interest income dueto changes in:     |       
|                                                              |  | Volume                                                |        |   | Rate |   |        | Total | 
|Interest earning assets                                       |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Loans (1)                                                     |  | $                                                     | (5,112 | ) |      | $ | (1,981 | )     |  | $ | (7,093 | )
|Securities (2)                                                |  |                                                       | (182   | ) |      |   | (2     | )     |  |   | (184   | )
|Overnight deposits with other banks, and other and FHLB stock |  |                                                       | 546    |   |      |   | (562   | )     |  |   | (16    | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Total interest earning assets                                 |  | $                                                     | (4,748 | ) |      | $ | (2,545 | )     |  | $ | (7,293 | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|                                                              |  |                                                       |       
|Interest bearing liabilities                                  |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Interest bearing demand deposits                              |  | $                                                     | 61     |   |      | $ | (33    | )     |  | $ | 28     |  
|Savings and MMDA deposits                                     |  |                                                       | (414   | ) |      |   | (655   | )     |  |   | (1,069 | )
|Time deposits                                                 |  |                                                       | 196    |   |      |   | (1,722 | )     |  |   | (1,526 | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Total interest bearing deposits                               |  |                                                       | (157   | ) |      |   | (2,410 | )     |  |   | (2,567 | )
|Overnight borrowings                                          |  |                                                       | (200   | ) |      |   | (212   | )     |  |   | (412   | )
|Junior subordinated debt                                      |  |                                                       |       |   |      |   | (37    | )     |  |   | (37    | )
|Other borrowings                                              |  |                                                       | (575   | ) |      |   | (36    | )     |  |   | (611   | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Total interest bearing liabilities                            |  |                                                       | (932   | ) |      |   | (2,695 | )     |  |   | (3,627 | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  
|Total decrease in net interest income                         |  | $                                                     | (3,816 | ) |      | $ | 150    |       |  | $ | (3,666 | )
|                                                              |  |                                                       |        |   |      |   |        |       |  |   |        |  

| | 
| | 

| | (1) | Includes loans held for sale and non-accrual loans in average loans. Interest income includes loan fee income.
| | --- | --------------------------------------------------------------------------------------------------------------

| | (2) | Tax-exempt securities income has been presented using a tax equivalent basis and an assumed tax rate of 34%.
| | --- | ------------------------------------------------------------------------------------------------------------

Net Interest Income

Nine Months Ended
September 30, 2009 and 2008

Net interest income for the first nine months of 2009 was $42.2 million, a decrease of $16.6 million from
the first nine months of 2008. Interest income for the first nine months of 2009 was $67.4 million, a decrease of $26.1 million from the same period of the prior year. The decrease in interest income is related mainly to the decline in the yield on
earning assets of 130 basis points and a decline in average earning assets of $193.4 million. Interest expense for the first nine months of 2009 was $25.1 million, a decrease of $9.5 million from the similar period of the prior year. The decrease in
interest expense from the first nine months of 2008 is a result of a decrease in the cost of interest bearing liabilities of 71 basis points and a decrease in average interest bearing liabilities of $79.2 million.

The tax equivalent net interest margin for the first nine months of 2009 was 3.40%, a decrease of 83 basis points from the same period in 2008. This
decrease was driven by the decline in yield on earning assets, offset in part by a reduction in the cost of funds. The average yield on loans for the first nine months of 2009 was 5.69%, a decrease of 112 basis points from the same period in 2008.
The yield on interest earning assets declined to 5.41% as compared to 6.71% for the same period in 2008. The decrease in the average yield on loans is due in part to the variable rate loans as discussed above. In addition, the impact of non-accrual
loans on the net interest margin for the nine months ended September 30, 2009 was approximately 67 basis points. The yield on loans declined by 9 basis points due to decreasing loan fees as compared to the same period of the prior year. The



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reduction in the Companys cost of interest bearing liabilities, inclusive of non-interest bearing demand deposits, by 57 basis points in the first nine months of 2009 as compared to the
same period in the prior year was a result of a reduction in the cost of interest bearing liabilities of 71 basis points offset in part by a reduction in average non-interest bearing demand deposits of $33.1 million or 10.2%. The Company has made an
effort to maintain on-balance sheet liquidity through federal funds sold for contingency planning which negatively impacted the net interest margin by 8 basis points during the nine months ended September 30, 2009.

The following table sets forth the Companys net interest margin for the nine months ended September 30, 2009 and 2008:



|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|--------------------------------------------- |  | ------------------------------- | --------- | -------- | ---- | ------ |  | ---- | -------------- |  | -------- | --------- | - | - | ------ |  | ---- | -
|                                              |  | Nine months ended September 30, |          
|                                              |  | 2009                            |           |          | 2008 |       
|($ in thousands)                              |  | AverageBalance                  |           | Interest |      | %      |  |      | AverageBalance |  | Interest |           | % |  
|Assets                                        |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Loans (1)                                     |  | $                               | 1,531,133 |          | $    | 65,108 |  | 5.69 | %              |  | $        | 1,778,661 |   | $ | 90,717 |  | 6.81 | %
|Taxable securities                            |  |                                 | 42,080    |          |      | 1,577  |  | 5.01 | %              |  |          | 51,045    |   |   | 1,910  |  | 5.00 | %
|Non-taxable securities (2)                    |  |                                 | 17,027    |          |      | 781    |  | 6.13 | %              |  |          | 19,389    |   |   | 884    |  | 6.09 | %
|FHLB Stock                                    |  |                                 | 10,042    |          |      |       |  | 0.00 | %              |  |          | 9,525     |   |   | 97     |  | 1.36 | %
|Overnight deposits with other banks and other |  |                                 | 71,670    |          |      | 185    |  | 0.35 | %              |  |          | 6,730     |   |   | 159    |  | 3.16 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest earning assets                 |  |                                 | 1,671,952 |          |      | 67,651 |  | 5.41 | %              |  |          | 1,865,350 |   |   | 93,767 |  | 6.71 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Non-interest earning assets                   |  |                                 | 139,205   |          |      |        |  |      |                |  |          | 241,075   |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total assets                                  |  | $                               | 1,811,157 |          |      |        |  |      |                |  | $        | 2,106,425 |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |       
|Liabilities                                   |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Interest bearing demand deposits              |  | $                               | 155,670   |          | $    | 491    |  | 0.42 | %              |  | $        | 136,977   |   | $ | 547    |  | 0.53 | %
|Savings and MMDA deposits                     |  |                                 | 409,099   |          |      | 4,474  |  | 1.46 | %              |  |          | 518,336   |   |   | 7,793  |  | 2.01 | %
|Time deposits                                 |  |                                 | 673,329   |          |      | 15,396 |  | 3.06 | %              |  |          | 590,836   |   |   | 17,904 |  | 4.05 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest bearing deposits               |  |                                 | 1,238,098 |          |      | 20,361 |  | 2.20 | %              |  |          | 1,246,149 |   |   | 26,244 |  | 2.81 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Overnight borrowings                          |  |                                 | 61,686    |          |      | 418    |  | 0.91 | %              |  |          | 64,109    |   |   | 1,521  |  | 3.17 | %
|Junior subordinated debt                      |  |                                 | 41,239    |          |      | 1,916  |  | 6.21 | %              |  |          | 41,239    |   |   | 2,061  |  | 6.68 | %
|Other borrowings                              |  |                                 | 79,955    |          |      | 2,452  |  | 4.10 | %              |  |          | 148,704   |   |   | 4,809  |  | 4.32 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total interest bearing liabilities            |  |                                 | 1,420,978 |          |      | 25,147 |  | 2.37 | %              |  |          | 1,500,201 |   |   | 34,635 |  | 3.08 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Non-interest bearing demand deposits          |  |                                 | 289,548   |          |      |        |  |      |                |  |          | 322,603   |   |   |        |  |      |  
|Other non-interest bearing liabilities        |  |                                 | 26,166    |          |      |        |  |      |                |  |          | 23,648    |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total liabilities                             |  |                                 | 1,736,692 |          |      |        |  |      |                |  |          | 1,846,452 |   |   |        |  |      |  
|Stockholders Equity                          |  |                                 | 74,465    |          |      |        |  |      |                |  |          | 259,973   |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Total liabilities and stockholders equity    |  | $                               | 1,811,157 |          |      |        |  |      |                |  | $        | 2,106,425 |   |   |        |  |      |  
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Net interest income and spread                |  |                                 |           |          | $    | 42,504 |  | 3.04 | %              |  |          |           |   | $ | 59,132 |  | 3.63 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  
|Net interest margin to average earning assets |  |                                 |           |          |      |        |  | 3.40 | %              |  |          |           |   |   |        |  | 4.23 | %
|                                              |  |                                 |           |          |      |        |  |      |                |  |          |           |   |   |        |  |      |  



|(1) | Includes loans held for sale and non-accrual loans in average loans. Interest income includes loan fee income.
|--- | --------------------------------------------------------------------------------------------------------------

|(2) | Tax-exempt securities income has been presented using a tax equivalent basis and an assumed tax rate of 34%.
|--- | ------------------------------------------------------------------------------------------------------------



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The following table sets forth a summary of changes in the components of net interest income during the first nine months of
2009, as compared to the first nine months of 2008, due to the changes in average interest earning assets and interest bearing liabilities and the resultant changes in interest income and interest expense:



|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|------------------------------------------------------------- |  | ---------------------------------------------------- | ------- | - | ---- | - | ------- | ----- |  | - | ------- | -
|                                                              |  | Nine months ended September 30,2009 compared to 2008 |        
|($ in thousands)                                              |  | Decrease in net interest income due tochanges in:    |        
|                                                              |  | Volume                                               |         |   | Rate |   |         | Total | 
|Interest earning assets                                       |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Loans (1)                                                     |  | $                                                    | (12,608 | ) |      | $ | (13,001 | )     |  | $ | (25,609 | )
|Securities (2)                                                |  |                                                      | (448    | ) |      |   | 12      |       |  |   | (436    | )
|Overnight deposits with other banks, and other and FHLB stock |  |                                                      | 1,027   |   |      |   | (1,098  | )     |  |   | (71     | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Total interest earning assets                                 |  | $                                                    | (12,029 | ) |      | $ | (14,087 | )     |  | $ | (26,116 | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|                                                              |  |                                                      |        
|Interest bearing liabilities                                  |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Interest bearing demand deposits                              |  | $                                                    | 75      |   |      | $ | (131    | )     |  | $ | (56     | )
|Savings and MMDA deposits                                     |  |                                                      | (1,642  | ) |      |   | (1,677  | )     |  |   | (3,319  | )
|Time deposits                                                 |  |                                                      | 2,500   |   |      |   | (5,008  | )     |  |   | (2,508  | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Total interest bearing deposits                               |  |                                                      | 933     |   |      |   | (6,816  | )     |  |   | (5,883  | )
|Overnight borrowings                                          |  |                                                      | (57     | ) |      |   | (1,046  | )     |  |   | (1,103  | )
|Junior subordinated debt                                      |  |                                                      |        |   |      |   | (145    | )     |  |   | (145    | )
|Other borrowings                                              |  |                                                      | (2,223  | ) |      |   | (134    | )     |  |   | (2,357  | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Total interest bearing liabilities                            |  |                                                      | (1,347  | ) |      |   | (8,141  | )     |  |   | (9,488  | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  
|Total decrease in net interest income                         |  | $                                                    | (10,682 | ) |      | $ | (5,946  | )     |  | $ | (16,628 | )
|                                                              |  |                                                      |         |   |      |   |         |       |  |   |         |  

| | 
| | 

| | (1) | Includes loans held for sale and non-accrual loans in average loans. Interest income includes loan fee income.
| | --- | --------------------------------------------------------------------------------------------------------------

| | (2) | Tax-exempt securities income has been presented using a tax equivalent basis and an assumed tax rate of 34%.
| | --- | ------------------------------------------------------------------------------------------------------------

Loan Loss Provision

During the three
months ended September 30, 2009, the Company recognized a provision for loan losses of $9.0 million, or 2.48%, of average gross loans on an annualized basis. For the three months ended September 30, 2008, the Company recognized a provision
for loan losses of $27.7 million, or 6.23%, of average gross loans on an annualized basis. During the nine months ended September 30, 2009, the Company recognized a provision for loan losses of $34.5 million, or 3.01%, of average gross loans on
an annualized basis. For the nine months ended September 30, 2008, the Company recognized a provision for loan losses of $56.9 million, or 4.27%, of average gross loans on an annualized basis. For the three months ended September 30, 2009
and 2008, the annualized net charge-offs were 2.40% and 5.15% of average gross loans, respectively. For the nine months ended September 30, 2009 and 2008, the annualized net charge-offs were 4.04% and 3.42% of average gross loans, respectively.

The provision is determined based on a model which considers, among other things, specific loan risk characteristics in the portfolio and
internal loan risk rating classifications. Management regularly evaluates the adequacy of the level of the allowance for loan losses by considering changes in the nature of the loan portfolio, portfolio composition, overall portfolio quality,
industry concentrations, delinquency trends, current economic factors, and the estimated impact of current economic conditions that may affect a borrowers ability to pay. Management continually monitors the economic conditions of the markets
in which it currently operates, which include mainly Eastern and Central Washington, Northern Idaho and Utah. Management also considers general



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economic conditions in the analysis. In its evaluation of impaired loans, management considers collateral values if the loan is collateral dependent and discounted cash flows if the loan is not
collateral dependent. Substantially all of the Companys impaired loans are collateral dependent and it is the Companys general practice to charge-off the difference between the carrying value and the market value of all impaired loans.
The loan loss provision is a significant estimate and the use of different assumptions could produce different results.

Non-interest
Income

Three Months Ended September 30, 2009 and 2008

Non-interest income for the three months ended September 30, 2009 was $4.7 million, as compared to $5.3 million for the same period of 2008, a decrease of $590 thousand, or 11%. This decrease
consists of the following components:



| |  |  | Fees and service charges on deposits decreased $431 thousand, or 15%, largely due to lower transaction volumes and a reduction in overdraft fee income
of $406 thousand.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fees on mortgage loan sales decreased $142 thousand, or 13% largely due to a decline in the volume of loans sold in the secondary market as compared to
the same period of the prior year.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other non-interest income was substantially unchanged. Other non-interest income recognized during the third quarter of 2009 included a gain recorded
on a merchant bankcard portfolio sold during a prior period of $435 thousand and an increase in net securities gains of $170 thousand. Offsetting these increases were a reduction in net foreclosed asset gains of $406 thousand and $110 thousand of
income related to a sold bankcard portfolio in the prior year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Nine Months Ended September 30, 2009 and 2008

Non-interest income for the nine months ended September 30, 2009 was $17.5 million, as compared to $14.6 million for the same period of
2008, an increase of $2.9 million, or 20%. This increase consists of the following components:



| |  |  | Fees and service charges on deposits decreased $1.3 million, or 16%, largely due to lower transaction volumes and a reduction in overdraft fee income
which decreased $1.2 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fees on mortgage loan sales increased $2.8 million, or 88%, largely due to internal efforts to market these services to the Banks customers and
lower market interest rates which drove increased refinance activity. Originations increased $115.5 million, or 75%, as compared to the same period of the prior year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other non-interest income increased $1.4 million, or 44%, due mainly to a one-time excise tax refund of $1.3 million, net of the certain professional
fees received in connection with the amendment of prior years excise tax returns, and the merchant bankcard gain discussed above.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Non-interest Expense

Three Months Ended September 30, 2009 and 2008

Non-interest expense for the three months ended September 30, 2009 totaled $19.6 million (excluding a goodwill impairment charge of
$18.9 million), as compared to $19.3 million (excluding a goodwill impairment charge of $82.0 million) for the same quarter of the prior year. The change consists of the following components:



| |  |  | Salaries and benefits decreased $1.8 million, or 18%, in the third quarter of 2009 as compared to the third quarter of 2008, as a result of cost saving
initiatives that included a reduction in total staff of approximately 115 full-time equivalents from September 30, 2008.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FDIC deposit insurance assessments were $1.8 million in the third quarter of 2009 as compared to $312 thousand in the third quarter of 2008. The
increase was a result of increased assessments rates.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Equipment and occupancy expense decreased $376 thousand, or 10%, related mainly to cost savings associated with sales of buildings which occurred over
the last year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreclosed real estate and other foreclosed assets expense increased $2.4 million due mainly to charge-downs of properties during the third quarter of
2009 of $2.0 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Other non-interest expense decreased $1.1 million, or 28%, largely due to decreases in professional fees, legal costs and other cost savings
initiatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

Nine Months Ended September 30, 2009 and 2008

Non-interest expense for the nine months ended September 30, 2009 totaled $59.8 million (excluding a goodwill impairment charge of $18.9 million), as
compared to $57.3 million (excluding a goodwill impairment charge of $109.0 million) for the same period of the prior year. The change consists of the following components:



| |  |  | Salaries and benefits decreased $5.0 million, or 16%, in the first nine months of 2009 as compared to the first nine months of 2008, as a result of
cost saving initiatives that included a reduction in total staff as discussed above.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FDIC assessments were $6.1 million in the first nine months of 2009 as compared to $676 thousand in the first nine months of 2008. The increase was a
result of increased assessments rates and a special assessment of $850 thousand.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Foreclosed real estate and other foreclosed assets expense increased $4.1 million as compared to the prior year, due mainly to charge-downs of $3.6
million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Other non-interest expense decreased $975 thousand, or 9%, largely due to cost savings initiatives.
| | - |  | ---------------------------------------------------------------------------------------------------

Income Tax Benefit

As a result of the
Companys determination that future taxable income may not be available to absorb existing deferred tax assets, all tax benefits from operating losses in 2009 have been deferred and all deferred tax assets have been fully reserved. The Company
did not recognize any tax benefit for operating losses incurred during the first nine months of 2009. If the Company is successful in raising additional capital and achieving future operating profitability is probable, it is likely the valuation
reserve for the deferred tax asset may be reversed, significantly enhancing the regulatory capital and corresponding ratios of both the Bank and the Company.

Non-performing Assets

Non-performing assets include loans that are 90 or more days past
due or on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is
placed on non-accrual status. Any payments received for a loan that is on non-accrual status are applied to principal for accounting purposes. Interest income is not recognized until the loan is returned to accrual status, when all the principal and
interest amounts contractually due are brought current and future payments are reasonably assured.

Appraisals prepared by third parties are
periodically obtained on collateral dependent non-performing loans and foreclosed assets to evaluate the carrying value. The appraisals are reviewed by certified internal staff appraisers and discounted based on a standardized matrix as determined
by the property type and the age of the appraisal. On loans or foreclosed assets that include multiple residential lots or units, a bulk appraisal is obtained on the entire project and evaluated. Valuation adjustments are recorded as they are
identified and are determined based on the appraisal, less the discount from the standardized matrix and estimated selling costs. Substantially all impaired loans and foreclosed assets have had valuations in the past 6 months.



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The following table summarizes the non-performing assets at September 30, 2009, December 31, 2008 and
September 30, 2008:



|                                                        |  |                   |         |   |                  |   |         |                   |  |   |        |  
|------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | ----------------- |  | - | ------ | -
|($ in thousands)                                        |  | September 30,2009 |         |   | December 31,2008 |   |         | September 30,2008 | 
|Non-accrual loans (1)                                   |  | $                 | 100,068 |   |                  | $ | 91,744  |                   |  | $ | 81,383 |  
|Accruing loans over 90 days past due (1)                |  |                   |        |   |                  |   |        |                   |  |   |       |  
|                                                        |  |                   |         |   |                  |   |         |                   |  |   |        |  
|Total non-performing loans                              |  |                   | 100,068 |   |                  |   | 91,744  |                   |  |   | 81,383 |  
|Foreclosed real estate and other foreclosed assets      |  |                   | 56,286  |   |                  |   | 15,781  |                   |  |   | 7,362  |  
|                                                        |  |                   |         |   |                  |   |         |                   |  |   |        |  
|Total non-performing assets                             |  | $                 | 156,354 |   |                  | $ | 107,525 |                   |  | $ | 88,745 |  
|                                                        |  |                   |         |   |                  |   |         |                   |  |   |        |  
|Restructured loans (2)                                  |  | $                 |        |   |                  | $ | 260     |                   |  | $ | 260    |  
|                                                        |  |                   |        
|Non-performing loans to total gross loans (1)           |  |                   | 7.30    | % |                  |   | 5.65    | %                 |  |   | 4.72   | %
|Non-performing assets to total assets (1)               |  |                   | 8.87    | % |                  |   | 5.74    | %                 |  |   | 4.46   | %
|Allowance for loan loss to total gross loans            |  |                   | 2.41    | % |                  |   | 2.75    | %                 |  |   | 2.12   | %
|Allowance for credit losses to total gross loans        |  |                   | 2.44    | % |                  |   | 2.79    | %                 |  |   | 2.18   | %
|Allowance for credit losses to non-performing loans (1) |  |                   | 33.37   | % |                  |   | 49.47   | %                 |  |   | 46.13  | %

| | 
| | 

| | (1) | Amounts and ratios are shown net of government guarantees on non-performing loans of $1.4 million, $1.6 million, and $1.2 million, respectively.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Represents accruing restructured loans performing according to their restructured terms.
| | --- | ----------------------------------------------------------------------------------------

Total non-performing assets were $156.4 million, or 8.87%, of total assets at September 30, 2009 as compared to $107.5 million, or 5.74%, of total assets at December 31, 2008. Total
non-performing loans as of September 30, 2009 were $100.1 million, or 7.30%, of total gross loans. Non-performing loans consisted of the following categories as of September 30, 2009 and December 31, 2008:



|                                              |  |                   |         |                     |     |   |                  |   |                     |  |     |  
|--------------------------------------------- |  | ----------------- | ------- | ------------------- | --- | - | ---------------- | - | ------------------- |  | --- | -
|($ in thousands)                              |  | September 30,2009 |         | % of Non-performing |     |   | December 31,2008 |   | % of Non-performing | 
|Construction, land development and other land |  | $                 | 59,534  |                     | 60  | % |                  | $ | 73,729              |  | 80  | %
|Commercial real estate                        |  |                   | 19,036  |                     | 19  | % |                  |   | 11,097              |  | 12  | %
|Residential real estate                       |  |                   | 10,603  |                     | 11  | % |                  |   | 1,156               |  | 1   | %
|Commercial and industrial                     |  |                   | 6,452   |                     | 6   | % |                  |   | 5,214               |  | 6   | %
|Agricultural                                  |  |                   | 4,415   |                     | 4   | % |                  |   | 516                 |  | 1   | %
|Installment and other                         |  |                   | 28      |                     | 0   | % |                  |   | 32                  |  | 0   | %
|                                              |  |                   |         |                     |     |   |                  |   |                     |  |     |  
|Total non-performing loans                    |  | $                 | 100,068 |                     | 100 | % |                  | $ | 91,744              |  | 100 | %
|                                              |  |                   |         |                     |     |   |                  |   |                     |  |     |  

The following is a summary of the activity of the non-performing loans during the three and nine
months ended September 30, 2009 and 2008:



|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                   |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|($ in thousands)                                                   |  | 2009                            |         |   | 2008                           |   |         | 2009 |  |   | 2008    |  
|Beginning Balance                                                  |  | $                               | 122,246 |   |                                | $ | 69,632  |      |  | $ | 91,744  |   |  | $ | 39,098  |  
|Additions and other                                                |  |                                 | 20,379  |   |                                |   | 60,007  |      |  |   | 134,585 |   |  |   | 125,420 |  
|Charge-offs                                                        |  |                                 | (9,182  | ) |                                |   | (23,036 | )    |  |   | (47,354 | ) |  |   | (46,325 | )
|Paydowns and sales                                                 |  |                                 | (7,462  | ) |                                |   | (11,855 | )    |  |   | (19,381 | ) |  |   | (22,806 | )
|Reclassified to foreclosed real estate and other foreclosed assets |  |                                 | (25,913 | ) |                                |   | (13,365 | )    |  |   | (59,526 | ) |  |   | (14,004 | )
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Ending Balance                                                     |  | $                               | 100,068 |   |                                | $ | 81,383  |      |  | $ | 100,068 |   |  | $ | 81,383  |  
|                                                                   |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  



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As of September 30, 2009, cumulative charge-offs totaling $30.1 million had been recognized on the non-performing loans
shown in the table above, of which $6.8 million and $26.3 million were recognized during the three and nine months ended September 30, 2009, respectively. The cumulative charge-offs represent approximately 23% of the aggregate loan balance
prior to recognition of the charge-offs.

At September 30, 2009 and December 31, 2008, the Company had approximately $73.2 million,
or 5.3% of total loans, and $102.9 million, or 6.3% of total loans, respectively, that were not classified as non-performing that management considered to be potential problem loans. A loan is considered a potential problem loan if it has a
well-defined weakness, based on known information about the borrowers financial condition that causes management to have concerns about the borrowers ability to comply with the repayment terms of the loan if the weakness is not
corrected. Potential problem loans are classified as substandard, or risk grade 7 on the Companys internal 9 grade risk rating scale, but are not included in non-performing loans. A substandard loan is placed on non-accrual status
and included in non-performing loans when management determines, based on current information and events, that it is probable the borrower will be unable to repay both principal and interest in accordance with the original terms of the loan
agreement. These classifications are subject to managements judgment and management believes the classifications are appropriate at September 30, 2009. The decrease in potential problem loans from December 31, 2008 is primarily the
result of deterioration of prior potential problem loans to non-accrual status in the residential land development loan portfolio.

As of
September 30, 2009, foreclosed real estate owned (OREO) and foreclosed property totaled $56.3 million as compared to $15.8 million at December 31, 2008 and $7.4 million at September 30, 2008. Upon obtaining title to a property, a
transfer from loans to OREO is made for the estimated fair value of a property, net of estimated selling costs. In the event the net fair value of the property is less than the carrying value of the related loan, a loan charge-off is recorded at the
time of transfer to OREO for the shortfall. In the case of the properties held as OREO as of September 30, 2009, aggregate charge-offs of $47.9 million were recorded prior to the transfer to OREO. This represented 46% of the loan balance prior
to application of the charge-offs. Should the estimated fair value of a property decline based upon an updated appraisal or other evidence subsequent to its transfer into OREO and prior to sale to a third party, an adjustment is recorded through a
charge to foreclosed real estate and other foreclosed assets (charge-down) on the Consolidated Statements of Operations. Aggregate charge-downs of $2.0 million and $3.6 million were recognized during the three and nine month periods ended
September 30, 2009. At the time an OREO property is sold to a third party, any gain or loss resulting from the sale transaction is recorded against other non-interest income on the Consolidated Statements of Operations. For the three months
ended September 30, 2009, net losses on the sale of OREO were $85 thousand and for the nine months ended September 30, 2009, net gains on the sale of OREO was $277 thousand.

The following table sets forth the OREO balances by type as of September 30, 2009:



|                          |  |                          |        |        |   
|------------------------- |  | ------------------------ | ------ | ------ | --
|                          |  | As of September 30, 2009
|($ in thousands)          |  | Amount                   |        | Number
|Land development          |  | $                        | 27,219 |        | 17
|Commercial                |  |                          | 16,368 |        | 6 
|Multi-family              |  |                          | 10,017 |        | 10
|Single family residential |  |                          | 2,682  |        | 8 
|                          |  |                          |        |        |   
|Total                     |  | $                        | 56,286 |        | 41
|                          |  |                          |        |        |   



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The following table sets forth the OREO properties by state as of September 30, 2009:



|                 |  |                          |        |        |   
|---------------- |  | ------------------------ | ------ | ------ | --
|                 |  | As of September 30, 2009
|($ in thousands) |  | Amount                   |        | Number
|Utah             |  | $                        | 29,146 |        | 27
|Washington       |  |                          | 13,400 |        | 9 
|Arizona          |  |                          | 8,316  |        | 1 
|Idaho            |  |                          | 4,224  |        | 3 
|California       |  |                          | 1,200  |        | 1 
|                 |  |                          |        |        |   
|Total            |  | $                        | 56,286 |        | 41
|                 |  |                          |        |        |   

The Company pursues an active liquidation strategy designed to condense holding periods and carrying
costs associated with OREO. Marketing strategies commence during the foreclosure process, prior to ownership of the foreclosed asset. During the first nine months of 2009, the Company liquidated 37 properties as compared to 21 properties in the
first nine months of 2008 and 30 properties for the full year 2008.

The following table sets forth the major components of the changes in
OREO and foreclosed property during the first nine months of 2009 and 2008:



|                      |  |                                         |         |   |        |     |   |        |   |        |        |  |     |  
|--------------------- |  | --------------------------------------- | ------- | - | ------ | --- | - | ------ | - | ------ | ------ |  | --- | -
|                      |  | For the nine months ended September 30, |        
|                      |  | 2009                                    |         |   | 2008   |    
|($ in thousands)      |  | Amount                                  |         |   | Number |     |   | Amount |   |        | Number | 
|Beginning balance     |  | $                                       | 15,781  |   |        | 22  |   |        | $ | 1,230  |        |  | 4   |  
|Additions to OREO     |  |                                         | 59,526  |   |        | 56  |   |        |   | 14,004 |        |  | 32  |  
|Valuation adjustments |  |                                         | (3,643  | ) |        |    |   |        |   | (146   | )      |  |    |  
|Disposition of OREO   |  |                                         | (15,378 | ) |        | (37 | ) |        |   | (7,726 | )      |  | (21 | )
|                      |  |                                         |         |   |        |     |   |        |   |        |        |  |     |  
|Ending balance        |  | $                                       | 56,286  |   |        | 41  |   |        | $ | 7,362  |        |  | 15  |  
|                      |  |                                         |         |   |        |     |   |        |   |        |        |  |     |  

Investment Portfolio

The Companys investment portfolio decreased from $65.3 million at December 31, 2008 to $52.8 million at September 30, 2009 as a result of sales, maturities and pay-downs, partially offset
by purchases. During the first nine months of 2009, the Company purchased $9.9 million of securities. All securities are classified as available-forsale and recorded at fair value. Management believes that this classification provides greater
flexibility to respond to unexpected interest rate changes and liquidity needs. The Company did not hold any preferred securities issued by Fannie Mae or Freddie Mac as of September 30, 2009 or December 31, 2008.

Loan Portfolio

Total loans decreased
$253.4 million during the nine months ended September 30, 2009. The decrease includes a $159.0 million decrease in construction, land development and other land loans and a $68.2 million decrease in commercial and industrial loans. The decrease
in construction, land development and other land loans includes $54.3 million which has been transferred to OREO during the first nine months of 2009. At September 30, 2009, the Banks largest 20 credit relationships consisted of loans and
loan commitments ranging from $6.8 million to $20.4 million, with an aggregate total credit exposure of $186.7 million and outstanding balances of $166.1 million. Of this total, $79.7 million is related to commercial construction or land acquisition
and development related loans and $34.9 million of these loans were classified as non-performing.

The Banks portfolio consists of loans
extended to real estate developers and building contractors, small and medium-sized businesses, agricultural businesses, and professionals and consumers in the Banks principal market areas, and such loans are principally secured by residential
and commercial real estate, crops, business inventory and receivables. Management has assessed, and will continue to assess on an on-going basis, the effect of the economy within the Banks principal market areas on the credit risk in the loan
portfolio, and the effect of overall economic conditions on the entire balance sheet. Management is aware of recent downturns in



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the residential real estate economy which have adversely affected the credit quality of the loan portfolio. Additionally, management recognizes certain geographical concentrations in the market
areas serviced and continues to closely monitor the Banks credit quality and focus on identifying potential problem credits and any loss exposure in a timely manner. Management will continue to assess industry concentration and related limits
on an ongoing basis.

The major classifications of loans at September 30, 2009 and December 31, 2008 can be found in Note 3 to the
Consolidated Financial Statements. The following table summarizes additional information related to the construction, land development and other land category at September 30, 2009 and December 31, 2008:



|                                                    |  |                   |         |            |     |   |                  |   |            |  |     |  
|--------------------------------------------------- |  | ----------------- | ------- | ---------- | --- | - | ---------------- | - | ---------- |  | --- | -
|($ in thousands)                                    |  | September 30,2009 |         | % of Total |     |   | December 31,2008 |   | % of Total | 
|Residential land development                        |  | $                 | 92,920  |            | 41  | % |                  | $ | 173,065    |  | 45  | %
|Investor commercial construction                    |  |                   | 49,096  |            | 21  | % |                  |   | 87,241     |  | 22  | %
|Owner occupied commercial construction              |  |                   | 23,005  |            | 10  | % |                  |   | 42,922     |  | 11  | %
|Raw land                                            |  |                   | 21,811  |            | 10  | % |                  |   | 10,074     |  | 3   | %
|Residential consumer                                |  |                   | 14,232  |            | 6   | % |                  |   | 31,223     |  | 8   | %
|Builder spec                                        |  |                   | 12,631  |            | 5   | % |                  |   | 38,895     |  | 10  | %
|Other                                               |  |                   | 15,725  |            | 7   | % |                  |   | 4,961      |  | 1   | %
|                                                    |  |                   |         |            |     |   |                  |   |            |  |     |  
|Total construction, land development and other land |  | $                 | 229,420 |            | 100 | % |                  | $ | 388,381    |  | 100 | %
|                                                    |  |                   |         |            |     |   |                  |   |            |  |     |  

The following table summarizes the outstanding unfunded commitments as of September 30, 2009:



|                                              |  |                    |         |                   |   |        
|--------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|($ in thousands)                              |  | September 30, 2009 |         | December 31, 2008
|Commercial and industrial                     |  | $                  | 66,173  |                   | $ | 104,510
|Residential real estate                       |  |                    | 41,258  |                   |   | 54,484 
|Agricultural                                  |  |                    | 40,187  |                   |   | 59,297 
|Commercial real estate                        |  |                    | 18,447  |                   |   | 23,077 
|Construction, land development and other land |  |                    | 16,530  |                   |   | 61,858 
|Installment and other                         |  |                    | 9,149   |                   |   | 7,667  
|                                              |  |                    |         |                   |   |        
|Total                                         |  | $                  | 191,744 |                   | $ | 310,893
|                                              |  |                    |         |                   |   |        

As of September 30, 2009, approximately 32% of the total loans had a fixed rate of interest
including $101.4 million of nonaccrual loans. Had these loans been performing, 66% would have had variable rates. Additionally, approximately 31% of the total loans had variable rates, which provide for re-pricing immediately or within three months
of market index rate changes. The remaining 37% of the total loans bore adjustable rates subject to repricing on intervals ranging from three months to five years. The variable and adjustable rate loans are tied to the prime rate or another index.

Allowance for Loan Losses and Reserve for Unfunded Commitments

At September 30, 2009, the Banks allowance for loan losses was $33.0 million, or 2.4% of total loans. This compares to $44.7 million, or 2.8%, at December 31, 2008. The allowance for loan
losses is increased by charges to income through the provision for loan losses, and decreased by charge-offs, net of recoveries. Loans are charged to the allowance when management believes the collection of principal is unlikely. At
September 30, 2009 and December 31, 2008, the Banks reserve for unfunded commitments was $402 thousand and $660 thousand, respectively. The reserve for unfunded commitments is increased or decreased through charges to income included
in other non-interest expense on the Consolidated Statements of Operations.



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In assessing the adequacy of the allowance for loan losses and reserve for unfunded commitments, management objectively
analyzes recent historical loan loss experience and projects future allowance requirements. The analysis of credits provides an inherent loss rate by risk ratings. Each category of risk rating is assigned a projected loss value based upon general
historic valuations and current management expectations for future losses. Additionally, management utilizes an analysis of impaired loans to determine required specific reserves. Management also compares allowance requirements with current
non-performing loan conditions and historical loss statistics. Finally, management utilizes judgment based on individual loan evaluations, delay in receipt of customer financial information, related credit facilities, volatility of economic and
customer specific conditions or concentrations, and delinquency rates in assessing the allowance for loan losses.

Management believes that
the allowance for loan losses and reserve for unfunded commitments are adequate at September 30, 2009. Management uses currently available information to recognize losses on loans and foreclosed real estate and other foreclosed assets. In
addition, the Banks regulators, as an integral part of their examination process, review the Banks loans and allowance for loan losses. However, depending on economic conditions in the markets the Company serves, and other conditions,
there can be no assurance that significant additional loan loss provisions may not be necessary to supplement the allowance.

The following
table summarizes the loan charge-offs by loan type for the three and nine months ended September 30, 2009 and 2008:



|                                              |  |                                 |       |                                |   |        |  |      |        |  |   |       
|--------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                              |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|($ in thousands)                              |  | 2009                            |       | 2008                           |   | 2009   |  | 2008
|Construction, land development and other land |  | $                               | 2,447 |                                | $ | 22,396 |  | $    | 30,557 |  | $ | 43,313
|Commercial and industrial                     |  |                                 | 915   |                                |   | 89     |  |      | 4,864  |  |   | 989   
|Residential real estate                       |  |                                 | 3,160 |                                |   | 138    |  |      | 5,743  |  |   | 338   
|Commercial real estate                        |  |                                 | 2,323 |                                |   | 259    |  |      | 4,839  |  |   | 650   
|Agricultural                                  |  |                                 | 98    |                                |   |       |  |      | 670    |  |   | 608   
|Installment and other                         |  |                                 | 239   |                                |   | 154    |  |      | 681    |  |   | 427   
|                                              |  |                                 |       |                                |   |        |  |      |        |  |   |       
|Total                                         |  | $                               | 9,182 |                                | $ | 23,036 |  | $    | 47,354 |  | $ | 46,325
|                                              |  |                                 |       |                                |   |        |  |      |        |  |   |       

Deposits and Borrowings

To attract and retain deposits, the Bank offers a wide variety of account types and maturities, both interest bearing and non-interest bearing. Some account types have additional products bundled with
them, such as free checks and free or discounted access to other bank services. Interest rates on accounts are determined by management based on the Banks funding needs and market conditions and can change as frequently as daily.

Total deposits declined by $21.2 million during the nine months ended September 30, 2009, ending the period at $1.55 billion. Non-interest bearing
demand deposits fell $29.9 million, or 9%, during the first nine months of 2009 and certificates of deposits fell $25.6 million or 4%. NOW, savings and money market accounts increased $34.3 million or 6%. Non-interest bearing deposits were 18.8% of
total deposits as of September 30, 2009 as compared to 20.4% at December 31, 2008.

The Bank, due to its less than well capitalized
category, is subject to pricing restrictions on deposits by regulators. These restrictions prohibit the Bank from paying significantly higher than the average rate of deposits in its market regions. Additionally, effective January 1, 2010,
these pricing restrictions will be based on national average rates posted by the FDIC on a weekly basis.

The Bank participates in the
Transaction Account Guarantee Program which is part of the Temporary Liquidity Guarantee Program. Under this program, all non-interest bearing transaction accounts and NOW accounts with interest rates of no more than 50 basis points have unlimited
FDIC insurance through June 30, 2010.

Federal Home Loan Bank of Seattle (FHLB) advances and other borrowings decreased by $30.6 million
during the nine months ended September 30, 2009 to $109.1 million.



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Liquidity and Capital Resources

For the nine months ended September 30, 2009 and 2008, the net cash flows provided by operations were $8.2 million and $32.1 million, respectively. Additionally, the Company generated $179.2 million
in net cash from investing activities, primarily from loan repayments, and used $55.0 million in net cash from financing activities for the nine months ended September 30, 2009. The Company generated $4.0 million in net cash from financing
activities and used $16.4 million in investing activities during the same period of the previous year.

The Banks primary source of
funds is deposits. In addition, the Bank has the ability to borrow from the FHLB and the Federal Reserve Bank of San Francisco (FRB) Discount Window. At September 30, 2009, the Bank had $164.2 million of available credit from these sources as
compared to $251.5 million at December 31, 2008. The decline in available borrowings is due mainly to changes in available qualifying collateral. As of September 30, 2009 and December 31, 2008, the Bank did not have any Fed Funds
lines agreements with correspondent banks.

The Parent Company received no cash dividends from the Bank during the three and nine months ended
September 30, 2009. Similarly, the Parent Company declared no cash dividends during the nine months ended September 30, 2009, compared to the first nine months of 2008 when a cash dividend of $0.04 per share was declared. The decision to
suspend Parent Company cash dividends was made by the Board of Directors in March 2008 in accordance with the Companys capital and dividend policy. Subsequent to the decision to suspend payment of Parent Company cash dividends, the Company was
advised by the FRB that prior approval would be required before paying any future Parent Company cash dividends.

In accordance with the
provisions of the related indentures, the Company has notified the trustees of the Trusts each quarter since the third quarter of 2008 that the payment of interest on the junior subordinated debt will be deferred. The Company has the right to defer
payment of interest for up to 20 consecutive quarters, although it will continue to accrue the cost and recognize the expense of the interest at the normal rate on a compounded basis until such time as the deferred arrearage has been paid current.
This action will result in approximately $700 thousand of additional liquidity and capital being retained at the subsidiary bank level each quarter until payments are reinstated.

The Parent Companys ability to service its debt is generally dependent upon the availability of dividends from the Bank. The payment of dividends by the Bank is subject to limitations imposed by law
and governmental regulations. The Bank is currently prohibited by regulatory order from paying any dividends to the Company without prior regulatory approval.

The Companys total stockholders equity decreased to $37.5 million at September 30, 2009 as compared to $89.8 million at December 31, 2008. This decrease is mainly related to the net
loss for the first nine months of 2009 of $53.5 million, of which $18.9 million represents the impairment of the remaining goodwill. The Companys total stockholders equity to total assets ratio decreased to 2.13% as of September 30,
2009 from 4.79% as of December 31, 2008. As of September 30, 2009, the Companys tangible stockholders equity to ending tangible assets ratio decreased to 1.50%, or $1.52 per share, as compared to 3.12%, or $3.34 per share, at
December 31, 2008. At September 30, 2009 and December 31, 2008, the Company held cash and cash equivalent assets of $199.4 million and $67.0 million, respectively, for contingency liquidity planning.



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The Companys and the Banks actual capital amounts and ratios as of September 30, 2009 are presented in the
table below:



|                                                    |  |        |        |       |                        |   |        |                  |         |  |      |        |  |       |         |  |       |  
|--------------------------------------------------- |  | ------ | ------ | ----- | ---------------------- | - | ------ | ---------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                                    |  | Actual |        |       | Adequately Capitalized |   |        | Well Capitalized |        
|($ in thousands)                                    |  | Amount |        | Ratio |                        |   | Amount |                  | Ratio   |  |      | Amount |  | Ratio |        
|As of September 30, 2009:                           |  |        |        |       |                        |   |        |                  |         |  |      |        |  |       |         |  |       |  
|Total capital to risk weighted assets:              |  |        |        |       |                        |   |        |                  |         |  |      |        |  |       |         |  |       |  
|Company                                             |  | $      | 73,915 |       | 4.82                   | % |        | $                | 122,642 |  | 8.00 | %      |  |       | N/A     |  | N/A   |  
|Bank                                                |  |        | 87,382 |       | 5.71                   | % |        |                  | 122,512 |  | 8.00 | %      |  | $     | 153,140 |  | 10.00 | %
|                                                    |  |        |        |       |                        |  
|Tier I capital to risk weighted assets:             |  |        |        |       |                        |   |        |                  |         |  |      |        |  |       |         |  |       |  
|Company                                             |  |        | 36,957 |       | 2.41                   | % |        |                  | 61,321  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Bank                                                |  |        | 68,064 |       | 4.44                   | % |        |                  | 61,256  |  | 4.00 | %      |  |       | 91,884  |  | 6.00  | %
|                                                    |  |        |        |       |                        |  
|Leverage capital, Tier I capital to average assets: |  |        |        |       |                        |   |        |                  |         |  |      |        |  |       |         |  |       |  
|Company                                             |  |        | 36,957 |       | 2.10                   | % |        |                  | 70,560  |  | 4.00 | %      |  |       | N/A     |  | N/A   |  
|Bank                                                |  |        | 68,064 |       | 3.86                   | % |        |                  | 70,497  |  | 4.00 | %      |  |       | 88,121  |  | 5.00  | %

The amounts and corresponding ratios set forth in the table above for both adequately
capitalized and well capitalized information are based upon Federal banking regulations. As a result of the Bank being subject to the Order previously discussed, it will not be immediately considered well capitalized by
the FDIC upon attaining the corresponding ratios shown in the table.

During November 2008, the Company submitted an application for approval
to issue $57 million of preferred stock to the United States Department of the Treasury (Treasury) under the Troubled Asset Relief Programs Capital Purchase Program (TARP-CPP). This application reflected the Companys commitment to secure
a significant private equity investment coincident with receipt of any capital infusion from the Treasury under TARP-CPP. On April 28, 2009, the Company submitted a letter to the FDIC, which serves as the primary regulator for the Bank,
indicating its intention to withdraw its TARP-CPP application. The decision to withdraw the application was based upon a number of factors, including the expectation that the required private equity co-investment would not be consummated prior to
the deadline for the processing of final TARP-CPP investments.

Although the Company is continuing its efforts to improve its and the
Banks regulatory capital ratios through the issuance of new equity or qualifying debt securities (which would be contributed as common equity to the Bank), there is no assurance that such efforts will ultimately be successful.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

In managements opinion, there have been no material changes in reported market risks faced by the Company since the end of the most recent fiscal year.
Based upon modeling using parallel interest rate changes of an increase in rates of 100 basis points and 200 basis points over the next twelve months, the Companys net interest income is expected to increase slightly under rising interest
rates. These scenarios also include the assumptions that balances and current pricing spreads remain constant.



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The changes to net interest income over the next twelve months given the assumptions in the model are presented in the table
below as of September 30, 2009 and December 31, 2008 based on the rate changes evaluated at the time of the analysis.



|                                |  |                                                        |     |  |                  |    
|------------------------------- |  | ------------------------------------------------------ | --- |  | ---------------- | ---
|                                |  | Percentage Change in Net InterestIncome over 12 Months |    
|Rate Scenario                   |  | September 30,2009                                      |     |  | December 31,2008 |    
|Rates increase 200 basis points |  | 2.83                                                   | %   |  | 3.96             | %  
|Rates increase 100 basis points |  | 1.34                                                   | %   |  | 1.94             | %  
|Rates decrease 100 basis points |  | N/A                                                    | (1) |  | N/A              | (1)
|Rates decrease 200 basis points |  | N/A                                                    | (1) |  | N/A              | (1)

| | 
| | 

| | (1) | Market rates in effect were less than 1.0% thus these downward rate simulation scenarios are not applicable.
| | --- | ------------------------------------------------------------------------------------------------------------

Item 4. Controls and Procedures

During the nine months ended September 30, 2009, there were no changes in the Companys internal control over financial reporting that materially affected or are reasonably likely to materially
affect internal control over financial reporting.

The Company carried out an evaluation, under the supervision and with the participation of
the Companys management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, the Companys principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures
were effective, as of the end of the period covered by this report, in ensuring that material information relating to the Company, including its consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.



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AMERICANWEST BANCORPORATION



Part II. Other Information

Item 1. Legal Proceedings

Periodically and in the ordinary
course of business, various claims and lawsuits are brought against the Company or the Bank, such as claims to enforce liens on collateral in which the Bank holds a security interest, condemnation proceedings on real property in which the Bank holds
a security interest, claims involving the making and servicing of real property loans, actions relating to employee claims, and other issues incident to the business of the Company and the Bank. In the opinion of management, the ultimate liability,
if any, resulting from such claims or lawsuits currently pending or threatened will not have a material adverse effect on the financial position or results of operations of the Company.

Item 1A. Risk Factors

There have been no material changes in
the risk factors as presented in the Form 10-K for December 31, 2008.

Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds

The Company has a stock repurchase authorization for 250,000 common shares which was approved by the
Board of Directors during 2006. This authorization does not have an expiration date. No shares were repurchased under this authorization during the nine months ended September 30, 2009 or the year ended December 31, 2008.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of
Security Holders

Not applicable.

Item 5. Other Information

There is no other information to report.

Item 6. Exhibits

a. Exhibits. The exhibits filed as part of this report are as follows:



| | 3.1 | Amended and Restated Articles of Incorporation of AmericanWest Bancorporation (filed as Exhibit 3.1 to the Form 10-Q filed on August 11, 2008, and incorporated
herein by this reference).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3.2 | Amended and Restated Bylaws of AmericanWest Bancorporation (filed as Exhibit 3.2 to the Form 8-K filed on April 21, 2009, and incorporated herein by this
reference).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.1 | Written Agreement dated September 15, 2009 by and between AmericanWest Bancorporation and Federal Reserve Bank of San Francisco (filed as Exhibit 10.1 to the Form
8-K filed on September 21, 2009, and incorporated herein by this reference).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.+
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------



| | 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.+
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

| | + | Denotes items filed herewith.
| | - | -----------------------------



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AMERICANWEST BANCORPORATION



Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on
November 13, 2009.



AMERICANWEST BANCORPORATION/s/    PATRICK J. RUSNAKPatrick J. RusnakPresident, Chief Executive Officer and Director/s/    SHELLY L. KRASSELTPrincipal Accounting OfficerController and Vice President




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