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 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 increase market share, the Company's ability to attract quality customers, the Company's ability to realize cost savings from organizational changes, 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 Part II, Section 1A of this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2007, filed with the US Securities and Exchange Commission (SEC) available on the SEC's website at www.sec.gov. Words such as "targets," "expects," "anticipates," "believes," other similar expressions or 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, 2008 and 2007. 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, 2007, which contains additional information.

AmericanWest Bancorporation

AmericanWest Bancorporation, 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 64 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). Due to the adoption of Financial Interpretation Number 46R, Consolidation of Variable Interest Entities, the investments in these Trusts are not consolidated within the consolidated financial statements.

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 March 15, 2006. Both acquisitions were accounted for by the purchase method of accounting and the results of 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 is subject to a Supervisory Directive of the Washington State Department of Financial Institutions, Division of Banks (Department). The directive requires the Bank to provide periodic liquidity and credit quality reports; update the Department of the status of liquidity planning and the previously announced capital raising initiatives; notify the Department of significant changes in management and financial condition; retain a permanent Chief Executive Officer, and seek prior written consent of the Department before paying dividends. As of the date of this quarterly report, management believes it is in compliance with the Supervisory Directive.

Executive Management Appointments

The Company's board of directors has received regulatory approval for the appointment of Mr. Patrick J. Rusnak as permanent President and Chief Executive Officer. Mr. Rusnak joined AmericanWest Bancorporation in September 2006 as Executive Vice President and Chief Operating Officer, and has served as interim President and Chief Executive Officer since July 2008.

In addition, the board has hired Brad L. Smith as Executive Vice President and Chief Banking Officer for its Washington and Idaho markets and appointed Nicole Sherman to the position of Executive Vice President and Chief Banking Officer for its Utah markets.

Organizational Changes

The central focus of the Company's revised business model, launched in October of 2008, is the consolidation of its retail banking, commercial banking and private banking delivery channels into a single channel focused on community banking. This structure strengthens risk management and streamlines the management structure.

The Company expects that this streamlined business model will result in annualized pre-tax non-interest expense savings of approximately $4.9 million upon completion of the implementation, which is expected by year-end 2008. A pre-tax charge to cover employee severance related expenses of approximately $670 thousand is expected to be recognized, a majority of which will be during the fourth quarter of 2008.

Performance Improvement Initiatives

During the third quarter of 2008, management completed a review of the Company's 64 financial centers and identified six that did not currently meet, and were not likely to meet in the future, targeted performance levels or that were in such close proximity to other centers that the two could be combined and maintain service levels. As a result of this review, the Company has initiated the process to formally close the following financial centers: Edison, Latah, Oakesdale, Qualchan, St. Maries (in-store) and West Plains. All customer accounts currently domiciled in the affected financial centers will be automatically transferred to a nearby AmericanWest Bank financial center.

The closure of branches is subject to statutory notice periods and, accordingly, management expects the consolidations will be completed during the first quarter of 2009. The Company expects these consolidations will result in initial annualized pre-tax expense savings of approximately $650 thousand, with an additional $350 thousand of annual savings realized upon the disposition of related facilities. The Company expects to record a pre-tax charge to cover employee severance related expenses of approximately $80 thousand during the fourth quarter of 2008 related to these closures. In addition, the Company has consolidated office space in its headquarters building and entered into a sublease effective October 1, 2008 that will reduce annual occupancy expense by approximately $200 thousand.

Overview

The Company reported a net loss of $96.9 million or $5.63 per share for the three months ended September 30, 2008 compared to net income of $5.3 million or $0.31 per diluted share the same period in 2007. The Company reported a net loss of $134.7 million or $7.82 per diluted share for the nine months ended September 30, 2008 as compared to net income of $12.1 million, or $0.78 per diluted share for the nine months ended September 30, 2007. The results for the nine months ended September 30, 2008 include goodwill impairment charges in the aggregate of $109.0 million or $6.33 per diluted share. Excluding the goodwill impairment charges, the net loss for the nine months ended September 30, 2008 would have been $25.7 million, or $1.49 per diluted share.

The negative return on average assets annualized, for the three months ended September 30, 2008, was 18.48% as compared to an annualized return on average assets for the three months ended September 30, 2007 of 1.03%. The negative return on average assets annualized, excluding the goodwill impairment charges, for the nine months ended September 30, 2008 was 1.63%, as compared to a positive return on average assets annualized of 0.89% for the same period of the prior year. The negative return on average equity for the three months ended September 30, 2008, annualized, was 159.24% as compared to an annualized return on average equity for the similar period of the prior year of 7.40%. The annualized negative return on average equity, excluding the goodwill impairment charges, for the nine months ended September 30, 2008 was 13.19%, as compared to a positive annualized return on average equity of 6.68% for the same period of the prior year.

The Company recognized a provision for loan losses of $27.7 million, or 6.23% of average loans on an annualized basis, for the three months ended September 30, 2008 as compared to $1.2 million, or 0.29% of average loans annualized, for the three months ended September 30, 2007. The Company recognized a provision for loan losses of $56.9 million for the nine months ended September 30, 2008 as compared to $2.7 million for the same period of the prior year. For the quarter ended September 30, 2008, net charge-offs were $22.8 million, or 5.15% of average gross loans annualized, as compared to $2.0 million, or 0.47%, for the third quarter of 2007. The net charge-offs as a percentage of average gross loans for the nine months ended September 30, 2008, annualized, were 3.42% as compared to 0.38% for the same period of the prior year.

The table below summarize the Company's financial performance for the three and nine months ended September 30, 2008 and 2007:

                                                           Three Months Ended September 30,              Nine Months Ended September 30,
($ in thousands except per share data)                     2008              2007      % Change          2008              2007      % Change
Interest Income                                        $      29,058       $ 37,351       -22.2 %    $      93,467       $ 97,967        -4.6 %
Interest Expense                                              11,031         13,861       -20.4 %           34,635         36,742        -5.7 %

Net Interest Income                                           18,027         23,490       -23.3 %           58,832         61,225        -3.9 %
Loan Loss Provision                                           27,650          1,231      2146.1 %           56,850          2,736      1977.9 %

Net interest income after loan loss provision                 (9,623 )       22,259      -143.2 %            1,982         58,489       -96.6 %

Non-interest Income                                            5,268          4,450        18.4 %           14,593         11,542        26.4 %
Non-interest Expense                                         101,288         18,795       438.9 %          166,312         51,771       221.2 %

(Loss) Income before income tax (benefit) provision         (105,643 )        7,914     -1434.9 %         (149,737 )       18,260      -920.0 %
Income tax (benefit) provision                                (8,748 )        2,565      -441.1 %          (15,073 )        6,185      -343.7 %

Net (Loss) Income                                      $     (96,895 )     $  5,349     -1911.5 %    $    (134,664 )     $ 12,075     -1215.2 %

Basic (loss) earnings per common share                 $       (5.63 )     $   0.31     -1916.1 %    $       (7.82 )     $   0.79     -1089.9 %
Diluted (loss) earnings per common share               $       (5.63 )     $   0.31     -1916.1 %    $       (7.82 )     $   0.78     -1102.6 %

The selected financial ratios presented below in the non-GAAP column exclude the goodwill impairment charges of $82.0 million and $109.0 million taken during the three and nine months ended September 30, 2008, respectively. These calculations do not conform to generally accepted accounting principles (GAAP) measures; however, management believes these ratios are preferable as they represent a more meaningful comparison to the three and nine months ended September 30, 2007.

                                                    Three Months Ended September 30,             Nine Months Ended September 30,
Selected Financial Ratios, annualized:            2008              2008           2007         2008             2008          2007
                                                  GAAP          Non-GAAP (1)                    GAAP         Non-GAAP (1)
Return on average assets                          -18.48 %              -2.84 %     1.03 %       -8.54 %            -1.63 %     0.89 %
Return on average equity                         -159.24 %             -24.48 %     7.40 %      -69.19 %           -13.19 %     6.68 %
Return on tangible average equity                -302.72 %             -46.54 %    15.26 %     -133.62 %           -25.47 %    12.42 %
Efficiency ratio                                  431.10 %              79.09 %    63.46 %      222.95 %            74.50 %    67.82 %
Non-interest income to average assets               1.00 %               1.00 %     0.86 %        0.93 %             0.93 %     0.85 %
Non-interest expenses to average assets            19.32 %               3.68 %     3.63 %       10.55 %             3.63 %     3.81 %
Net interest margin (2)                             3.89 %               3.89 %     5.22 %        4.23 %             4.23 %     5.13 %

(1) Excludes goodwill impariment charge(s), when applicable.

(2) 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, 2008 and 2007

Net interest income for the third quarter of 2008 was $18.0 million, a decrease of $5.5 million from the third quarter of 2007. Interest income for the third quarter of 2008 was $29.1 million, a decrease of $8.3 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 202 basis points as compared to the prior year, which is partially offset by the increase in the average earning assets of $59.4 million. Interest expense for the third quarter of 2008 was $11.0 million, a decrease of $2.8 million from the similar period of the prior year. The decrease in interest expense is related to the cost of interest bearing liabilities declining 103 basis points, partially offset by the increase in average interest bearing liabilities of $110.0 million as compared to the same period of the prior year.

The tax equivalent net interest margin for the third quarter of 2008 was 3.89%, a decrease of 133 basis points from the same period in 2007. The average yield on loans for the third quarter of 2008 was 6.34%, a decrease of 211 basis points from the same period in 2007. The decrease in the average yield on loans is related mainly to the decline in index rates for certain variable rate loans tied to Prime as compared to the third quarter of 2008 as the average prime rate declined 318 basis points. In addition, the impact of non-accrual loans on the net interest margin for the three months ended September 30, 2008 was 41 basis points.

The Company's net interest margin for the third quarter of 2008 was positively impacted by the cost of interest bearing deposits, which decreased 94 basis points over the same period in 2007. This decrease was driven principally by lower rates paid on deposit products in response to market rate declines. This was partially offset by a shift in the Company's deposit mix. Compared to the similar quarter of the prior year, average non-interest bearing deposits decreased as a percentage of total deposits from 23% to 20%. In addition, average time deposits were 41% of the average deposits for the third quarter as compared to 34% for the same period of the prior year.

The following table sets forth the Company's net interest margin for the three months ended September 30, 2008 and 2007:

                                                         Three months ended September 30,
                                                      2008                               2007
                                           Average                            Average
($ in thousands)                           Balance     Interest     %         Balance     Interest     %
                Assets
Loans (1)                                $ 1,765,229   $  28,149   6.34 %   $ 1,707,745   $  36,378   8.45 %
Taxable securities                            48,739         608   4.96 %        46,506         609   5.20 %
Non-taxable securities (2)                    19,728         298   6.01 %        21,196         311   5.82 %
FHLB Stock                                     9,671          35   1.44 %         7,801          12   0.61 %
Overnight deposits with other banks
and other                                      9,896          69   2.77 %        10,635         147   5.48 %

Total interest earning assets              1,853,263      29,159   6.26 %     1,793,883      37,457   8.28 %

Non-interest earning assets                  232,148                            260,876

Total assets                             $ 2,085,411                        $ 2,054,759

Liabilities
Interest bearing demand deposits         $   134,861   $     175   0.52 %   $   143,054   $     313   0.87 %
Savings and MMDA deposits                    478,295       2,331   1.94 %       531,447       4,166   3.11 %
Time deposits                                646,773       6,056   3.73 %       529,283       6,575   4.93 %

Total interest bearing deposits            1,259,929       8,562   2.70 %     1,203,784      11,054   3.64 %

Overnight borrowings                          76,570         508   2.64 %        23,455         328   5.55 %
Junior subordinated debt                      41,239         670   6.46 %        41,239         774   7.45 %
Other borrowings                             124,706       1,291   4.12 %       124,004       1,705   5.45 %

Total interest bearing liabilities         1,502,444      11,031   2.92 %     1,392,482      13,861   3.95 %

Non-interest bearing demand deposits         317,098                            353,587
Other non-interest bearing liabilities        23,803                             21,919

Total liabilities                          1,843,345                          1,767,988
         Stockholders' Equity               242,066                            286,771

Total liabilities and stockholders'
equity                                   $ 2,085,411                        $ 2,054,759

Net interest income and spread                         $  18,128   3.34 %                 $  23,596   4.33 %

Net interest margin to average earning
assets                                                             3.89 %                             5.22 %

(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%.

The following table sets forth a summary of changes in the components of net interest income during the third quarter of 2008 as compared to the third quarter of 2007 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,
                                                                 2008 compared to 2007
                                                               Increase (decrease) in net
                                                           interest income due to changes in:
($ in thousands)                                         Volume             Rate           Total
Interest earning assets
Loans (1)                                             $      1,221       $    (9,450 )    $ (8,229 )
Securities (2)                                                  10               (24 )         (14 )
Overnight deposits with other banks, and other and
FHLB stock                                                      10               (65 )         (55 )

Total interest earning assets                         $      1,241       $    (9,539 )    $ (8,298 )

Interest bearing liabilities
Interest bearing demand deposits                      $        (18 )     $      (120 )    $   (138 )
Savings and MMDA deposits                                     (416 )          (1,419 )      (1,835 )
Time deposits                                                1,456            (1,975 )        (519 )

Total interest bearing deposits                              1,022            (3,514 )      (2,492 )
Overnight borrowings                                           741              (561 )         180
Junior subordinated debt                                        -               (104 )        (104 )
Other borrowings                                                10              (424 )        (414 )

Total interest bearing liabilities                           1,773            (4,603 )      (2,830 )

Total increase (decrease) in net interest income      $       (532 )     $    (4,936 )    $ (5,468 )

(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%.

Nine Months Ended September 30, 2008 and 2007

Net interest income for the nine months ended September 30, 2008 was $58.8 million, a decrease of $2.4 million from the nine months ended September 30, 2007. Interest income for the nine months ended September 30, 2008 was $93.5 million, a decrease of $4.5 million from the same period of the prior year. The average yield on loans for the nine months ended September 30, 2008 was 6.81% as compared to 8.35% in the prior year. This decrease is due mainly to the average prime rate for the nine months ended September 30, 2008 of 5.44% as compared to 8.23% for the similar period of the prior year. In addition, during the nine months ended September 30, 2008, there was $3.5 million of interest income not recognized related to non-accrual loans.

Interest expense for the nine months ended September 30, 2008 was $34.6 million, a decrease of $2.1 million from the similar period of the prior year. The average cost of interest bearing liabilities for the nine months ended September 30, 2008 was 3.08% as compared to 3.93% for the same period of the prior year. The average cost of interest bearing deposits has not declined as rapidly as the yield on earning assets as a result of increased competition for deposits.

The tax equivalent net interest margin for the nine months ended September 30, 2008 was 4.23%, a decrease of 90 basis points from the same period in 2007. The decrease from the prior year is due to a decline in the yield on earning assets of 149 basis points, partially offset by an 85 basis point reduction in the cost of interest bearing liabilities. These reductions are principally due to lower short-term market interest rates. In addition, the increase in non-accrual loans had a negative impact on the net interest margin of 25 basis points for the nine months ended September 30, 2008.

The following table sets forth the Company's net interest margin for the nine months ended September 30, 2008 and 2007:

                                                          Nine Months Ended September 30,
                                                      2008                               2007
                                           Average                            Average
($ in thousands)                           Balance     Interest     %         Balance     Interest     %
                Assets
Loans (1)                                $ 1,778,661   $  90,717   6.81 %   $ 1,528,993   $  95,532   8.35 %
Taxable securities                            51,045       1,910   5.00 %        41,609       1,603   5.15 %
Non-taxable securities (2)                    19,389         884   6.09 %        17,144         782   6.10 %
FHLB Stock                                     9,525          97   1.36 %         7,220          30   0.56 %
Overnight deposits with other banks
and other                                      6,730         159   3.16 %         6,760         285   5.64 %

Total interest earning assets              1,865,350      93,767   6.71 %     1,601,726      98,232   8.20 %

Non-interest earning assets                  241,075                            215,714

Total assets                             $ 2,106,425                        $ 1,817,440

             Liabilities
Interest bearing demand deposits         $   136,977   $     547   0.53 %   $   126,273   $     759   0.80 %
Savings and MMDA deposits                    518,336       7,793   2.01 %       480,336      11,233   3.13 %
Time deposits                                590,836      17,904   4.05 %       487,059      17,816   4.89 %

Total interest bearing deposits            1,246,149      26,244   2.81 %     1,093,668      29,808   3.64 %

. . .