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 Order to Cease and Desist, 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) 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 six months ended June 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). 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 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 is subject to a Supervisory Directive (Directive) of the Washington State Department of Financial Institutions, Division of Banks (DFI). The Directive requires the Bank to provide periodic liquidity and credit quality reports; update the DFI of the status of liquidity planning and the 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. As of the date of this quarterly report, management believes it is in compliance with the Directive.

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 the 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, it is unlikely that this requirement will be 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 material loss recognized during the three or six months ended June 30, 2009);

• 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 June 30, 2009, the assets classified as "substandard" or "doubtful' were reduced by $82.5 million since the Report of Examination, and the related ratio was 104%; although a substantial reduction is expected during the third quarter of 2009 mostly through the sale of related collateral, it is not likely this target will be 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).

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

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 of $10.5 million, or $0.61 per share, for the three months ended June 30, 2009 as compared to a net loss of $6.2 million, or $0.36 per share, for the same period in 2008. The Company reported a net loss of $25.1 million, or $1.46 per share, for the six months ended June 30, 2009 as compared to a net loss (excluding a $27.0 million goodwill impairment charge) of $10.8 million, or $0.63 per share, for the same period in 2008 and a net loss of $37.8 million, or $2.19 per share, inclusive of the goodwill impairment charge.

The negative return on average assets annualized, for the three months ended June 30, 2009 was 2.34% as compared to 1.18% for the three months ended June 30, 2008. The negative return on average assets for the six months ended June 30, 2009 was 2.76% as compared to 3.59% for the six months ended June 30, 2008. The negative return on average assets annualized, excluding the goodwill impairment charge, for the six months ended June 30, 2008 was 1.02%.

The Company recognized a provision for loan losses of $11.8 million, or 3.07% of average loans on an annualized basis, for the three months ended June 30, 2009, as compared to $16.4 million, or 3.68% of average loans annualized, for the three months ended June 30, 2008. For the quarter ended June 30, 2009, net charge-offs were $19.8 million, or 5.15% of average gross loans annualized, as compared to $11.7 million, or 2.63%, for the second quarter of 2008. The Company recognized a provision for loan losses of $25.5 million, or 3.26% of average loans on an annualized basis, for the six months ended June 30, 2009, as compared to $29.2 million, or 3.29% of average loans annualized, for the six months ended June 30, 2008. For the six months ended June 30, 2009, net charge-offs were $37.5 million, or 4.80% of average loans annualized, as compared to $22.7 million, or 2.56% 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 six months ended June 30, 2009 and 2008:

                                      Three Months Ended June 30,                  Six Months Ended June 30,
($ in thousands except per
share data)                        2009           2008         % Change        2009           2008         % Change
Interest Income                  $  22,341      $  30,739           -27 %    $  45,592      $  64,409           -29 %
Interest Expense                     8,429         11,221           -25 %       17,743         23,604           -25 %

Net Interest Income                 13,912         19,518           -29 %       27,849         40,805           -32 %
Loan Loss Provision                 11,800         16,400           -28 %       25,480         29,200           -13 %

Net interest income after loan
loss provision                       2,112          3,118           -32 %        2,369         11,605           -80 %

Non-interest Income                  6,996          5,105            37 %       12,796          9,325            37 %
Non-interest Expense                19,635         19,241             2 %       40,227         65,024           -38 %

Loss before income tax benefit     (10,527 )      (11,018 )           4 %      (25,062 )      (44,094 )          43 %
Income tax benefit                       0         (4,806 )         100 %            0         (6,325 )         100 %

Net Loss                         $ (10,527 )    $  (6,212 )         -69 %    $ (25,062 )    $ (37,769 )          34 %


Basic loss per common share      $   (0.61 )    $   (0.36 )         -69 %    $   (1.46 )    $   (2.19 )          33 %
Diluted loss per common share    $   (0.61 )    $   (0.36 )         -69 %    $   (1.46 )    $   (2.19 )          33 %

The selected financial ratios presented below in the non-GAAP column exclude the goodwill impairment charge of $27.0 million recognized during the six months ended June 30, 2008. The presentation does not conform to generally accepted accounting principles (GAAP) measures; however, management believes these ratios are useful as they represent a more meaningful comparison to the six months ended June 30, 2009.

                          AMERICANWEST BANCORPORATION



                                                      Three Months Ended June 30,                   Six Months Ended June 30,
Selected Financial Ratios, annualized:                 2009                 2008             2009              2008             2008
                                                                                                           Non-GAAP (1)         GAAP
Return on average assets                                  -2.34 %              -1.18 %        -2.76 %             -1.02 %       -3.59 %
Return on average equity                                 -59.45 %              -9.91 %       -63.45 %             -8.10 %      -28.40 %
Return on tangible average equity (2)                   -106.11 %             -18.43 %      -105.19 %            -15.79 %      -55.39 %
Efficiency ratio                                          90.49 %              74.64 %        95.45 %             72.36 %      126.22 %
Non-interest income to average assets                      1.55 %               0.97 %         1.41 %              0.89 %        0.89 %
Non-interest expenses to average assets                    4.36 %               3.66 %         4.43 %              3.61 %        6.18 %
Net interest margin (2)                                    3.35 %               4.19 %         3.33 %              4.41 %        4.41 %

(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 June 30, 2009 and 2008

Net interest income for the second quarter of 2009 was $13.9 million, a decrease of $5.6 million from the second quarter of 2008. Interest income for the second quarter of 2009 was $22.3 million, a decrease of $8.4 million from the same period of the prior year. The decrease in interest income is related mainly to the decline in the yield on average earning assets of 123 basis points as well as a decline in average earning assets of $203.5 million. Interest expense for the second quarter of 2009 was $8.4 million, a decrease of $2.8 million from the similar period of the prior year. The decrease in interest expense from the first quarter of 2008 is a result of a decrease in the cost of funds of 61 basis points and a decrease in average interest bearing liabilities of $90.8 million.

The tax equivalent net interest margin for the second quarter of 2009 was 3.35%, a decrease of 84 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 second quarter of 2009 was 5.62%, a decrease of 107 basis points from the same period in 2008, which drove the reduction in 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 Prime. The average prime rate (the base index for approximately 33% of the Company's loan portfolio) for the second quarter of 2009 was 3.25% as compared to 5.09% 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 June 30, 2009 was approximately 87 basis points.

The reduction in the Company's cost of funds, inclusive of non-interest bearing demand deposits, to 1.98% in the second quarter 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 61 basis points offset in part by a reduction in average non-interest bearing demand deposits of $38.3 million, or 11.8%.

                          AMERICANWEST BANCORPORATION



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



                                                            Three months ended June 30,
                                                      2009                                2008
                                           Average                             Average
($ in thousands)                           Balance     Interest     %          Balance     Interest     %
                Assets
Loans (1)                                $ 1,540,177   $  21,588   5.62 %    $ 1,791,902   $  29,784   6.69 %
Taxable securities                            39,960         507   5.09 %         52,572         655   5.01 %
Non-taxable securities (2)                    18,279         277   6.08 %         20,517         313   6.14 %
FHLB Stock                                    10,267          -    0.00 %          9,212          42   1.83 %
Overnight deposits with other banks
and other                                     69,634          62   0.36 %          7,603          51   2.70 %

Total interest earning assets              1,678,317      22,434   5.36 %      1,881,806      30,845   6.59 %

Non-interest earning assets                  126,367                             229,959

Total assets                             $ 1,804,684                         $ 2,111,765


             Liabilities
Interest bearing demand deposits         $   153,608   $     156   0.41 %    $   137,774   $     183   0.53 %
Savings and MMDA deposits                    408,872       1,444   1.42 %        530,890       2,508   1.90 %
Time deposits                                687,698       5,209   3.04 %        601,158       5,939   3.97 %

Total interest bearing deposits            1,250,178       6,809   2.18 %      1,269,822       8,630   2.73 %

Overnight borrowings                          45,219         108   0.96 %         30,194         191   2.54 %
Junior subordinated debt                      41,239         643   6.25 %         41,239         655   6.39 %
Other borrowings                              83,825         869   4.16 %        169,998       1,745   4.13 %

Total interest bearing liabilities         1,420,461       8,429   2.38 %      1,511,253      11,221   2.99 %

Non-interest bearing demand deposits         285,888                             324,142
Other non-interest bearing liabilities        27,311                              24,347

Total liabilities                          1,733,660                           1,859,742
         Stockholders' Equity                 71,024                             252,023

Total liabilities and stockholders'
equity                                   $ 1,804,684                         $ 2,111,765


Net interest income and spread                         $  14,005   2.98 %                  $  19,624   3.60 %


Net interest margin to average earning
assets                                                             3.35 %                              4.19 %

(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 quarter ended June 30, 2009, as compared to the quarter ended June 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 June 30, 2009
                                                                    compared to 2008
                                                          Decrease in net interest income due
                                                                     to changes in:
($ in thousands)                                         Volume               Rate         Total
Interest earning assets:
Loans (1)                                             $      (4,187 )       $ (4,009 )    $ (8,196 )
Securities (2)                                                 (196 )             12          (184 )
Overnight deposits with other banks, and other and
FHLB stock                                                      348             (379 )         (31 )

Total interest earning assets                         $      (4,035 )       $ (4,376 )    $ (8,411 )


Interest bearing liabilities:
Interest bearing demand deposits                      $          21         $    (48 )    $    (27 )
Savings and MMDA deposits                                      (576 )           (488 )      (1,064 )
Time deposits                                                   854           (1,584 )        (730 )

Total interest bearing deposits                                 299           (2,120 )      (1,821 )
Overnight borrowings                                             95             (178 )         (83 )
Junior subordinated debt                                         -               (12 )         (12 )
Other borrowings                                               (885 )              9          (876 )

Total interest bearing liabilities                             (491 )         (2,301 )      (2,792 )

Total decrease in net interest income                 $      (3,544 )       $ (2,075 )    $ (5,619 )

(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

Six Months Ended June 30, 2009 and 2008

Net interest income for the first six months of 2009 was $27.8 million, a decrease of $13.0 million from the first six months of 2008. Interest income for the first six months of 2009 was $45.6 million, a decrease of $18.8 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 150 basis points and a decline in average earning assets of $172.8 million. Interest expense for the first six months of 2009 was $17.7 million, a decrease of $5.9 million from the similar period of the prior year. The decrease in interest expense from the first six months of 2008 is a result of a decrease in the cost of funds of 67 basis points and a decrease in average interest bearing liabilities of $66.5 million.

The tax equivalent net interest margin for the first six months of 2009 was 3.33%, a decrease of 108 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 six months of 2009 was 5.63%, a decrease of 142 basis points from the same period in 2008, which drove the reduction in yield on interest earning assets down to 5.44%. 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 six months ended June 30, 2009 was approximately 74 basis points. Loan fees decreased the yield on loans by 12 basis points as compared to the same period of the prior year.

The reduction in the Company's cost of funds, inclusive of non-interest bearing demand deposits, to 2.08% in the first six 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 67 basis points offset in part by a reduction in average non-interest bearing demand deposits of $35.7 million or 10.9%.

The following table sets forth the Company's net interest margin for the six months ended June 30, 2009 and 2008:

                                                             Six months ended June 30,
                                                      2009                                2008
                                           Average                             Average
($ in thousands)                           Balance     Interest     %          Balance     Interest     %
                Assets
. . .