Americanwest Bancorporation (AWBC) 10-K 2001 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

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 0-18561

AMERICANWEST BANCORPORATION

(Exact name of registrant as specified in its charter)

Washington	91-1259511
(State or other jurisdiction of incorporation)	(IRS Employer Identification No.)

9506 North Newport Highway

Spokane, Washington 99218-1200

(Address of principal executive offices)

Registrant’s telephone number, including area code (509) 467-6949

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, no par value

Title of each class

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period as 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  ¨

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the stock closing prices on stock at February 15, 2002, was approximately $84,622,000. The number of shares of common stock outstanding at such date was 7,897,144.

Documents incorporated by reference. Portions of the AmericanWest Bancorporation definitive Proxy Statement for the annual meeting of shareholders to be held on April 23, 2002, are incorporated by reference into Part III of the Form 10-K.

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR

ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 2.	Properties	17
Item 3.	Legal Proceedings	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 8.	Financial Statements and Supplementary Data	25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	25
PART III
Item 10.	Directors and Executive Officers of the Registrant	25
Item 11.	Executive Compensation	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management	25
Item 13.	Certain Relationships and Related Transactions	25
PART IV
Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	26
SIGNATURES		26

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PART I

Item 1.    Business.

AmericanWest Bancorporation

AmericanWest Bancorporation (AWBC) is a one-bank holding company headquartered in Spokane, Washington. During 2001 AWBC merged its five affiliated banks United Security Bank, Home Security Bank, Bank of Pullman, Grant National Bank, and AmericanWest Bank to form AmericanWest Bank (AWB or Bank) (Washington). AWBC also sold its insurance agency USB Insurance during 2001. AWBC conducts its banking business through thirty-two branches located in communities throughout eastern Washington, including Spokane and one branch in Moscow, Idaho. AWBC focuses its banking and other services on individuals, professionals, and small to medium sized businesses in diversified industries throughout its service area. At December 31, 2001, AWBC had total assets of $659.3 million, loans of $587.5 million and deposits of $532.2 million. AWBC was founded in 1983 and has been profitable in every year since its inception. AWBC trades on NASDAQ under the symbol of AWBC.

Bank

AWB offers a full range of financial services to commercial and individual customers, including short-term and medium-term loans, revolving credit facilities, inventory and accounts receivable financing, equipment financing, residential and small commercial construction lending, agricultural lending, mortgage lending, equipment leasing, various savings programs, checking accounts, installment and personal loans, and bank credit cards. AWB also provides a broad range of depository and lending services to commercial, industrial and agricultural enterprises, governmental entities and individuals. AWB’s deposit taking and lending activities are primarily directed to the communities in which their branches are located. AWB’s primary marketing focus is on small to medium-sized businesses and professionals in these communities.

AWB’s loan portfolio consists primarily of commercial, agricultural, real estate (both mortgage and construction loans) and installment loans originated within the principal service areas. AWB is committed to the needs of the local communities it serves, and strives to provide a high level of personal and professional service to its customers. Management believes AWB’s involvement, its understanding of its service area and its local decision-making abilities give it a distinct advantage over larger banking institutions. AWB is well positioned to provide loans to small and medium sized businesses because of AWB’s direct knowledge of its customers’ businesses and the communities it serves. AWB provides personalized, quality financial service to its customers, which has enabled them to maintain a stable and relatively low-cost retail deposit base.

Business Strategy

AWB’s business strategy is to continue to build a growing, profitable community banking and financial services network by emphasizing high quality customer service and by focusing on the financial needs of consumers and small to medium-sized businesses. AWB intends to pursue an aggressive growth strategy, the key components of which include:

• Increasing market share in existing markets

• Expanding the markets served through new branch openings and acquisitions

• Providing superior customer service

AWBC completed a Strategic Plan.    It is the vision of AWBC to be, and to be recognized as, the premier financial services company in the markets we serve. It is the mission of AWBC to provide all employees with a positive environment in which to maximize their contribution to our success and attain their career goals; in order to be responsive to customer needs, and partner in helping

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individuals and businesses in our markets achieve their financial goals; in order to optimize long-term shareholder value and to provide a superior rate of return on shareholder investment.

Increase Market Share in Existing Markets.    Since its formation AWBC has focused on commercial banking to small and medium-sized businesses, professionals and other individuals. Management believes that AWBC can continue to gain market share by targeting products and services to these businesses.

AWBC emphasizes the development of long-term relationships with its customers, which enables the Banks to develop and offer new products that meet its customers’ needs. AWBC is oriented toward the communities it serves and is actively involved. AWBC believes this community orientation gives a competitive advantage in attracting and retaining targeted customers.

The consolidation of the banking industry in recent years has resulted in centralized loan approval in the larger financial institutions with which AWBC competes. This has resulted in inconvenience and reduced service to small business and individual customers of these institutions, and has created opportunities for smaller, locally-focused institutions, such as community banks, which can approve credit and offer other customized banking services within each branch. AWBC maintains local loan officers having the authority to approve large loans.

Expand Markets Served through New Branch Openings and Acquisitions.    AWBC intends to expand its presence in eastern and central Washington by opening new branches and possibly acquiring other financial institutions in markets not currently served by the Banks.

Management considers a variety of criteria in evaluating potential branch expansion, including the demographics and short and long-term growth prospects for the location, the management and other resources needed to integrate the branch into its existing operations, the degree to which the branch would enhance the geographic diversity of AWBC or would enhance the presence in an existing market, and the estimated cost of opening and operating the branch as compared to the cost of acquiring an existing office and deposit base.

In addition to internal growth, there may be attractive opportunities to grow AWBC through carefully selected acquisitions of other financial institutions or their branches in central and eastern Washington, eastern Oregon and northern Idaho.

Provide Superior Customer Service.    AWBC attributes it success to its efforts to offer superior, personal service through professional bankers at all of its branches. AWBC distinguishes itself in its markets by emphasizing a culture in which customers are the highest priority in all aspects. Ongoing employee training is focused on customer needs, responsiveness and courtesy to customers. AWBC’s marketing efforts and operating practices emphasize ties to the local communities it serves, and its commitment to providing the highest level of personalized service.

Lending Activities

AWBC’s loan portfolio consists primarily of commercial loans, agricultural loans, real estate mortgage loans, residential real estate and other construction loans, consumer installment loans and bankcard loans. At December 31, 2001, AWBC had total loans outstanding of $588 million, which equals 110.4% of AWBC’s deposits and 89.1% of its assets. Virtually all of the loans held by AWBC were to borrowers within the AWB’s principal market areas. See loan category amounts for five years in Item 6, selected financial data.

Commercial Loans.    Commercial loans primarily consist of loans to businesses for various purposes, including revolving lines of credit, equipment financing loans and letters of credit. These loans generally mature within five years, have adjustable rates and are secured by inventory, accounts receivable, equipment or real estate. AWB also classifies commercial construction loans as commercial loans.

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Agricultural Loans.    Agricultural loans primarily consist of farm loans to finance operating expenses. These loans generally mature within one year, have adjustable rates and are secured by farm real estate, equipment, crops or livestock. Since agricultural loans present certain risks not associated with other types of lending, the policy of AWB has been to make such loans generally only to agricultural producers with diverse crops, thereby mitigating the risk of loss attributable to a crop failure or the deterioration of commodity prices.

Mortgage Loans.    Mortgage loans include various types of loans for which AWB holds real property as collateral. These loans include adjustable and fixed rate first mortgage loans secured by one to four family residential properties, second mortgage loans secured by one to four family residential properties, and loans secured by multifamily (five or more) residential properties. Mortgage loans typically mature in one to five years and require payments on amortization schedules ranging from one year to twenty years.

Construction Loans.    Construction loans are made to individuals and contractors to construct primarily single-family principal residences. These loans have maturities of three months to six months. Interest rates are typically adjustable, although some fixed-rate loans are made. AWB’s policy is to require that a permanent financing commitment be in place before a construction loan is made to an individual borrower.

Installment and Other Loans.    Installment loans are primarily automobile and home equity loans. Consumer loans generally have maturities of five years or less, and fixed interest rates. Other loans consist of personal lines of credit and bankcard advances. Personal lines of credit generally have maturities of one year or less, and fixed interest rates. Bankcard advances are generally due within 30 days and bear interest at rates that vary from time-to-time.

Interest Rates.    The interest rates earned on loans vary with the degree of risk and amount of the loan, and are further subject to competitive pressures, money market rates, the availability of funds and government regulations. Approximately 39% of the loans in AWB’s portfolio have interest rates that float with the lending Bank’s reference rate, which is in turn based on various indices such as the rates of interest charged by money center banks.

Lending and Credit Management.    AWB follows loan policies. The policies establish levels of loan commitment by loan type, and credit review and grading criteria, and other matters such as loan administration, loans to affiliates, costs, problem loans and loan loss reserves, and related items. Loans are typically reviewed and graded on a monthly basis.

All loan applications are processed at AWB’s branch lending offices. Designated AWB officers follow approved guidelines and underwriting policies to approve all loan applications. Credit limits generally vary according to the type of loan and the individual loan officer’s experience. The maximum current loan limits available to any one individual vary from $25,000 to $6,500,000 per loan.

Under applicable federal and state law, permissible loans to one borrower by AWB are limited. The Bank, as a matter of policy, does not extend credit to any single borrower in excess of $10,000,000. At December 31, 2001, 2000 and 1999, the outstanding balance of loan participations sold outside AWB was $41.3 million, $51.2 million, and $17.1 million, respectively.

Secondary Mortgage Sales.    AWB sells mortgage loans in the secondary market as a correspondent and a broker. AWB offers a variety of products for refinance and purchases; and is approved to originate FHA and VA loans. The majority of loans originated in 2001 were fixed rate single-family loans. Such loans were sold on a servicing released basis and also a portion of the loans was sold with servicing retained. Total loans sold in 2001 were $38.0 million with $32.5 million servicing released and $5.5 million servicing retained.

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Nonperforming Assets.    The following table provides information for AWB’s nonperforming assets.

	Year ended December 31,
	2001			2000			1999			1998			1997
	($ in thousands)
Nonperforming loans:
Nonaccrual loans	$	11,023		$	5,458		$	5,875		$	1,481		$	2,220
Accrual loans 90 days or more past due		2,193			1,339			489			664			982
Total nonperforming loans		13,216			6,797			6,364			2,145			3,202
Other real estate owned and other repossessed assets		1,616			1,510			1,179			1,245			1,167
Total nonperforming assets	$	14,832		$	8,307		$	7,543		$	3,390		$	4,369
Allowance for loan losses	$	6,624		$	4,948		$	4,349		$	3,819		$	3,869
Ratio of total nonperforming assets to total assets		2.25	%		1.39	%		1.43	%		0.66	%		0.90	%
Ratio of total nonperforming loans to total loans		2.25	%		1.38	%		1.51	%		0.59	%		1.01	%
Ratio of allowance for loan losses to total nonperforming loans		50.1	%		72.8	%		68.3	%		178.0	%		120.8	%

AWB’s nonperforming loans consist of nonaccruing loans and accruing loans 90 days or more past due. Accruing loans 90 days or more past due remain on an accrual basis because they are adequately collateralized and in the process of collection. For nonaccrual loans no interest is taken into income unless received in cash or until such time as the borrower demonstrates an ability to resume payments of principal and interest. Interest previously accrued, but not collected is reversed and charged against income at the time a loan is placed in nonaccrual status. The majority of the nonperforming assets as of December 31, 2001 involve four borrowers. AWB is well secured on a $3.8 million retail/office complex near downtown Spokane and two ice skating complexes in Spokane for another $5.2 million. The fourth borrower of $800,000 is on two apple orchards in the Yakima Valley.

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Real estate properties and other repossessed assets of AWB had a book value of $1,616,000 as of December 31, 2001, consisting primarily of commercial and chattel property.

Analysis of Allowance for Loan Losses

The allowance for loan losses represents management’s recognition of the risks of extending credit and its evaluation of the quality of the loan portfolio of AWB. The allowance is maintained at levels considered adequate by management to provide for anticipated loan losses, and is based on management’s assessment of factors affecting the loan portfolios, including problem loans, business conditions and loss experience, an overall evaluation of the quality of the underlying collateral, and collateral selling costs. The allowance is increased by provisions charged to operations and is reduced by loans charged off, net of any recoveries.

In originating loans AWB recognizes that losses will be experienced and that the risk of loss will vary depending on the type of loan, the creditworthiness of the borrower over the term of the loan, general economic conditions, and the quality of the security for the loan. As a result, AWB maintains an allowance for loan losses by following generally accepted accounting principles outlined in SFAS No. 5, Accounting for Contingencies. AWB has established systematic methodologies for determination of the adequacy of the allowance for loan losses. The methodologies are set forth in a formal policy and take into consideration the need for an overall general valuation allowance and specific allowances for individual nonperforming loans. AWB adopted SFAS No. 114 and No. 118, Accounting by Creditors for Impairment of a Loan. These accounting pronouncements require specific identification of an allowance for loan loss for an impaired or nonperforming loan.

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AWB believes it has established its existing allowance for loan losses in accordance with generally accepted accounting principles. In addition banking regulators may request an additional allowance for loan losses based on their review of the loan portfolio. Also future events affecting borrowers and collateral cannot be predicted with certainty, which may result in an increase to the future allowance for loan losses as additional information becomes available. AWB management believes that the allowance for loan losses is adequate.

The following table sets forth information regarding changes in AWB’s allowance for loan losses as follows:

	Years ended December 31,
	2001			2000			1999			1998			1997
	($ in thousands)
Balance of allowance for loan losses at beginning of period	$	4,948		$	4,349		$	3,819		$	3,869		$	2,906
Charge-offs
Commercial		396			833			755			348			526
Agricultural		613									213			112
Real estate		96			97			210			157			272
Installment		188			164			199			220			191
Other		36			46			84			126			35
Total charge-offs		1,329			1,140			1,248			1,064			1,136
Recoveries
Commercial		112			51			119			167			293
Agricultural		2
Real estate		21			2			40			22			37
Installment		13			42			30			31			14
Other		2			1			12			10
Total recoveries		150			96			201			230			344
Net charge-offs		1,179			1,044			1,047			834			792
Provision for loan losses		2,855			1,643			1,577			784			1,055
Allowance acquired through acquisition														700
Balance of allowance for loan losses at end of period	$	6,624		$	4,948		$	4,349		$	3,819		$	3,869
Ratio of net charge-offs to average loans		0.22	%		0.23	%		0.27	%		0.24	%		0.29	%
Average loans outstanding during the period	$	540,159		$	450,901		$	394,132		$	344,470		$	276,180

The following table sets forth the allowance for loan losses by loan category, based on management’s assessment of the risk associated with such categories as of the dates indicated, and summarizes the percentage of gross loans in each category to total gross loans.

	December 31,
	2001 Amount of Allowance		%		2000 Amount of Allowance		%		1999 Amount of Allowance		%		1998 Amount of Allowance		%		1997 Amount of Allowance		%
	($ in thousands)
Commercial	$	4,632	70	%	$	3,167	64	%	$	2,535	58	%	$	2,040	53	%	$	1,863	48	%
Agricultural		993	15	%		742	15	%		688	16	%		658	17	%		691	18	%
Real estate-mortgage		452	7	%		643	13	%		685	16	%		662	17	%		813	21	%
Real estate-construction		194	3	%		99	2	%		152	3	%		149	4	%		104	3	%
Installment		296	4	%		247	5	%		218	5	%		214	6	%		265	7	%
Other		57	1	%		50	1	%		71	2	%		96	3	%		133	3	%
Total	$	6,624	100	%	$	4,948	100	%	$	4,349	100	%	$	3,819	100	%	$	3,869	100	%

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Investments

Management of the investment portfolio is by the Vice President and Chief Financial Officer and reviewed with the AWB Asset/Liability Committee, which consists of AWB’s President and Chief Executive Officer, Vice President and Chief Financial Officer, Senior Vice President and Loan Administrator, and the Vice President and Senior Operations Officer. The AWB investments are managed consistent with the Liquidity, Asset/Liability, and Investment Management Policy, which were approved by the Board of Directors.

The following table sets forth the carrying value, by type, of the securities in AWB’s portfolio at December 31, 2001, 2000 and 1999.

	December 31,
	2001		2000		1999
	($ in thousands)
U.S. Treasury and other U.S. Government agencies	$	7,896	$	26,507	$	27,611
States of the U.S. and political subdivisions		1,297		7,592		8,870
Other securities		6,357		13,786		16,660
Total securities	$	15,550	$	47,885	$	53,141

At December 31, 2001, the market value of AWB securities exceeded amortized cost by $124,000. At December 31, 2000 amortized cost exceeded market value by $128,000. No portion of AWB’s investment portfolio is invested in derivative securities (being securities whose value derives from the value of an underlying security or securities, or market index of underlying securities’ values).

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The following table sets forth the carrying values, maturities and approximate average aggregate yields of securities in AWB’s investment portfolio by type at December 31, 2001.

Type and Maturity	Yield		Amount
	($ in thousands)
U.S. Treasury and other U.S. government agencies and corporations:
1 year or less	6.12	%	$	1,039
Over 1 through 5 years	5.34	%		4,627
Over 5 through 10 years	6.68	%		2,230
Over 10 years
Total	5.82	%		7,896
States and political subdivisions
1 year or less	6.14	%		474
Over 1 through 5 years	7.49	%		566
Over 5 through 10 years
Over 10 Years	9.39	%		257
Total	7.37	%		1,297
Other securities:
1 year or less	6.60	%		4,173
Over 1 through 5 years	6.05	%		1,713
Over 5 through 10 years	6.20	%		471
Over 10 years
Total	6.42	%		6,357
Total investment securities:
1 year or less	6.30	%		5,686
Over 1 through 5 years	5.49	%		6,906
Over 5 through 10 years	6.60	%		2,701
Over 10 years	9.39	%		257
Total	6.20	%	$	15,550

The yields for tax-exempt securities have been computed on a tax equivalent basis using an assumed tax rate of 34%. Maturities are estimated using payment speeds as of December 31, 2001.

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Deposits

AWB’s primary source of funds has historically been customer deposits. AWB strives to maintain a high percentage of noninterest-bearing deposits, which are low cost funds and result in higher interest margins. At December 31, 2001, 2000, and 1999, AWB’s ratios of noninterest-bearing deposits to total deposits were 18.5%, 19.2%, and 18.2%, respectively.

AWB offers a variety of accounts designed to attract both short-term and long-term deposits from its customers. These accounts include negotiable order of withdrawal (“NOW”) accounts, money market investment accounts, savings accounts, and certificates of deposit and other time deposits. Interest-bearing accounts earn interest at rates established by management of AWB, based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits consistent with AWB policies.

The following table sets forth the average balances for each major category of deposit and the weighted-average interest rate paid for deposits in 2001, 2000 and 1999.

	Year Ended December 31,
	2001				2000				1999
	Average Balance		Interest Rate		Average Balance		Interest Rate		Average Balance		Interest Rate
	($ in thousands)
Interest-bearing demand deposits	$	156,683	2.85	%	$	153,327	3.92	%	$	146,190	3.62	%
Savings deposits		41,266	1.74	%		45,541	2.86	%		47,227	2.84	%
Time deposits		225,289	5.32	%		195,875	5.95	%		168,168	4.96	%
Noninterest-bearing demand deposits		92,008				83,920				79,050
Total	$	515,246			$	478,663			$	440,635

The following table shows the amounts and maturities of certificates of deposit that had balances of more than $100,000 at December 31, 2001, 2000 and 1999.

	December 31,
	2001		2000		1999
	($ in thousands)
Certificates of Deposit over $100,000 with remaining maturity:
Less than three months	$	30,050	$	39,595	$	31,705
Three months to one year		44,454		30,348		20,668
Over one year		7,004		1,792		4,057
Total	$	81,508	$	71,735	$	56,430

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Competition

While AWB encounters a great deal of competition in its lending activities, management believes there is less competition in AWB’s specialty middle market and neighborhood bank niche than there was a few years ago. AWB believes that its competitive position has been strengthened by the consolidation in the banking industry, which has resulted in a focus on the larger accounts with less contact between the bank officers and their customers. AWB’s strategy by contrast, is to remain a middle market lender, which maintains close long-term relationships with its customers.

AWB competes for deposits and banking business in central and eastern Washington from thirty-two locations including one in Moscow, Idaho. AWB’s market area encompasses Spokane, Stevens, Ferry, Lincoln, Pend Oreille, Franklin, Yakima, Benton, Whitman, Grant, Walla Walla, Columbia, and Latah County, Idaho Counties. AWB competes against commercial banks, mutual savings banks, credit unions, savings and loans, mortgage companies, and other financial institutions. The major commercial bank competitors are the regional banks that have a branch or branches within AWB’s primary trade areas.

Management believes that the principal competitive factors affecting AWB’s markets include interest rates paid on deposits and charged on loans, the range of banking products available, and customer service and support. Although management believes that AWB’s products currently compete favorably with respect to these factors, there can be no assurance that AWB can maintain its competitive position against current and potential competitors, especially those with significantly greater financial resources.

Employees

As of December 31, 2001, AWB had 300 employees. None of AWBC’s employees are covered by a collective bargaining agreement. Management believes relations with AWB’s employees are good. AWBC is located at 9506 N. Newport Hwy. Spokane, WA 99218 and the telephone number is 509-467-6949.

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Supervision and Regulation

The following generally refers to certain significant statutes and regulations affecting its subsidiary banking industry. These references are only intended to provide brief summaries and, therefore, are not complete and are qualified by the statutes and regulations referenced. Changes in applicable laws or regulations may have a material effect on the business and prospects of AWBC. The operations of AWBC may also be affected by changes in the policies of banking and other government regulators. AWBC cannot accurately predict the nature or extent of the effects on its business and earnings that fiscal or monetary policies, or new federal or state laws, may have in the future.

Changes in Banking Laws and Regulations

The laws and regulations that affect banks and bank holding companies have undergone changes. On November 12, 1999, the president signed into law the Financial Services Modernization Act of 1999. Generally, the act (i) repeals the historical restrictions on preventing banks from affiliating with securities firms, (ii) provides a uniform framework for the activities of banks, savings institutions and their holding companies, (iii) broadens the activities that may be conducted by national banks and banking subsidiaries of bank holding companies, (iv) provides an enhanced framework for protecting the privacy of consumers’ information and (v) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

Bank holding companies are permitted to engage in a wider variety of financial activities than permitted under previous law, particularly with respect to insurance and securities activities. In addition, in a change from previous law, bank holding companies will be in a position to be owned, controlled or acquired by any company engaged in financially related activities, so long as such company meets certain regulatory requirements. The act also permits national banks (and, in states with wildcard statutes, certain state banks), either directly or through operating subsidiaries, to engage in certain non-banking financial activities.

AWBC does not believe that the act will negatively affect the operations of it or its subsidiaries. However, to the extent the legislation permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This consolidation could result in a growing number of larger financial institutions that offer a wider variety of financial services than AWBC currently offers and that can aggressively compete in the markets currently served by AWBC and its subsidiary banks.

General.    As a bank holding company, AWBC is subject to the Bank Holding Company Act of 1956 (“BHCA”), as amended, which places AWBC under the supervision of the Board of Governors of the Federal Reserve (FRB). AWBC must file annual reports with the Federal Reserve and must provide it with such additional information as it may require. In addition, the Federal Reserve periodically examines AWBC and its subsidiary banks.

In general, the BHCA limits bank holding company business to owning or controlling banks and engaging in other banking-related activities. Bank holding companies must obtain the FRB’s approval before they: (1) acquire direct or indirect ownership or control of any voting shares of any bank that results in total ownership or control, directly or indirectly, of more than 5% of the voting shares of such bank; (2) merge or consolidate with another bank holding company; or (3) acquire substantially all of the assets of any additional banks. Subject to certain state laws, such as age and contingency laws, a bank holding company that is adequately capitalized and adequately managed may acquire the assets of both in-state and out-of-state banks. Under the Financial Modernization Act of 1999, a bank holding company may apply to the FRB to become a financial holding company, and thereby engage (directly or through a subsidiary) in certain activities deemed financial in nature, such as securities brokerage and insurance underwriting.

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Control of Nonbanks.    With certain exceptions, the BHCA prohibits bank holding companies from acquiring direct or indirect ownership or control of voting shares in any company that is not a bank or a bank holding company unless the FRB determines that the activities of such company are incidental or closely related to the business of banking. If a bank holding company is well capitalized and meets certain criteria specified by the FRB, it may engage de novo in certain permissible nonbanking activities without prior FRB approval.

Control Transactions.    The Change in Bank Control Act of 1978, as amended, requires a person (or group of persons acting in concert) acquiring "control" of a bank holding company to provide the FRB with 60 days’ prior written notice of the proposed acquisition. Following receipt of this notice, the FRB has 60 days within which to issue a notice disapproving the proposed acquisition, but the FRB may extend this time period for up to another 30 days. An acquisition may be completed before expiration of the disapproval period if the FRB issues written notice of its intent not to disapprove the transaction. In addition, any "company" must obtain the FRB’s approval before acquiring 25% (5% if the "company" is a bank holding company) or more of the outstanding shares or otherwise obtaining control over AWBC.

Transactions with Affiliates.    AWBC and its subsidiary banks are deemed affiliates within the meaning of the Federal Reserve Act, and transactions between affiliates are subject to certain restrictions. Accordingly, AWBC and its subsidiary banks must comply with Sections 23A and 23B of the Federal Reserve Act. Generally, Sections 23A and 23B (1) limit the extent to which a financial institution or its subsidiaries may engage in "covered transactions" with an affiliate, as defined, to an amount equal to 10% of such institution’s capital and surplus and an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital and surplus, and (2) require all transactions with an affiliate, whether or not "covered transactions," to be on terms substantially the same, or at least as favorable to the institution or subsidiary, as those provided to a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee and other similar types of transactions.

Regulation of Management.    Federal law (1) sets forth the circumstances under which officers or directors of a financial institution may be removed by the institution’s federal supervisory agency; (2) places restraints on lending by an institution to its executive officers, directors, principal stockholders, and their related interests; and (3) prohibits management personnel from serving as a director or in other management positions with another financial institution which has assets exceeding a specified amount or which has an office within a specified geographic area.

Tie-In Arrangements.    AWBC and its subsidiary bank cannot engage in certain tie-in arrangements in connection with any extension of credit, sale or lease of property or furnishing of services. For example, with certain exceptions, neither AWBC nor its subsidiary banks may condition an extension of credit on either (1) a requirement that the customer obtain additional services provided by it or (2) an agreement by the customer to refrain from obtaining other services from a competitor.

The FRB has adopted significant amendments to its anti-tying rules that: (1) removed FRB-imposed anti-tying restrictions on bank holding companies and their non-bank subsidiaries; (2) allow banks greater flexibility to package products with their affiliates; and (3) establish a safe harbor from the tying restrictions for certain foreign transactions. These amendments were designed to enhance competition in banking and nonbanking products and to allow banks and their affiliates to provide more efficient, lower cost service to their customers. However, the impact of the amendments on AWBC and its subsidiary banks is unclear at this time.

State Law Restrictions.    As a Washington business corporation, AWBC may be subject to certain limitations and restrictions as provided under applicable Washington corporate law. In addition, Washington banking law may restrict certain activities of its subsidiary bank.

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General.    AWB is subject to regulation by the State of Washington and the Federal Deposit Insurance Corporation (FDIC). The federal and state laws that apply to AWBC’s subsidiary bank regulate, among other things, the scope of its business, its investments, its reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for loans. The laws and regulations governing its subsidiary bank generally have been promulgated to protect depositors and not to protect stockholders of the subsidiary bank or its holding company.

CRA.    The Community Reinvestment Act (the “CRA”) requires that, in connection with examinations of financial institutions within their jurisdiction, regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility.

Insider Credit Transactions.    Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders, or any related interests of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with persons not covered above and who are not employees; and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on the affected bank or any officer, director, employee, agent, or other person participating in the conduct of the affairs of that bank, the imposition of a cease and desist order, and other regulatory sanctions.

FDICIA.    Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (the “FDICIA”), each federal banking agency has prescribed, by regulation, noncapital safety and soundness standards for institutions under its authority. These standards cover internal controls, information systems, and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, such other operational and managerial standards as the agency determines to be appropriate, and standards for asset quality, earnings and stock valuation. An institution, which fails to meet these standards, must develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. Management of AWBC believes that its subsidiary bank meets all such standards, and therefore, does not believe that these regulatory standards materially affect AWBC’s business operations.

Interstate Banking and Branching.    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”) permits nationwide interstate banking and branching under certain circumstances. This legislation generally authorizes interstate branching and relaxes federal law restrictions on interstate banking. Currently, bank holding companies may purchase banks in any state, and states may not prohibit such purchases. Additionally, banks are permitted to merge with banks in other states as long as the home state of neither merging bank has “opted out.” The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area.

Under recent FDIC regulations, banks are prohibited from using their interstate branches primarily for deposit production. The FDIC has accordingly implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition.

With regard to interstate bank mergers, Washington has "opted in" to the Interstate Act and allows in-state banks to merge with out-of-state banks subject to certain aging requirements. Washington law generally authorizes the acquisition of an in-state bank by an out-of-state bank through merger

14

with a Washington financial institution that has been in existence for at least 5 years prior to the acquisition. With regard to interstate bank branching, out-of-state banks that do not already operate a branch in Washington may not establish de novo branches in Washington or establish and operate a branch by acquiring a branch in Washington.

Deposit Insurance.    The deposits of its subsidiary banks are currently insured to a maximum of $100,000 per depositor through its subsidiary banks Insurance Fund (“BIF”) administered by the FDIC. All insured banks are required to pay semi-annual deposit insurance premium assessments to the FDIC.

The FDICIA included provisions to reform the Federal Deposit Insurance System, including the implementation of risk-based deposit insurance premiums. The FDICIA also permits the FDIC to make special assessments on insured depository institutions in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S. Treasury and other sources, or for any other purpose the FDIC deems necessary. The FDIC has implemented a risk-based insurance premium system under which banks are assessed insurance premiums based on how much risk they present to the BIF. Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or a higher degree of supervisory concern.

Dividends.    The principal source of AWBC’s cash revenues is dividends received from its subsidiary bank. The payment of dividends is subject to government regulation, in that regulatory authorities may prohibit banks and bank holding companies from paying dividends, which would constitute an unsafe or unsound banking practice. In addition, a bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. Other than the laws and regulations noted above, which apply to all banks and bank holding companies, neither AWBC nor its subsidiary bank are currently subject to any regulatory restrictions on its dividends.

Capital Adequacy.    Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. If capital falls below minimum guideline levels, the holding company or bank may be denied approval to acquire or establish additional banks or nonbank businesses or to open new facilities.

The FDIC and Federal Reserve use risk-based capital guidelines for banks and bank holding companies. These are designed to make such capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The guidelines are minimums, and the Federal Reserve has noted that bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimum. The current guidelines require all bank holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier I capital. Tier I capital for bank holding companies includes common shareholders' equity, certain qualifying perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less intangibles except as described above.

The Federal Reserve also employs a leverage ratio, which is Tier I capital as a percentage of total assets less intangibles, to be used as a supplement to risk-based guidelines. The principal objective of the leverage ratio is to constrain the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve requires a minimum leverage ratio of 3%. However, for all but the most highly rated bank holding companies and for bank holding companies seeking to expand, the Federal Reserve expects an additional cushion of at least 1% to 2%.

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FDICIA created a statutory framework of supervisory actions indexed to the capital level of the individual institution. Under regulations adopted by the FDIC, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors. Institutions which are deemed to be "undercapitalized" depending on the category to which they are assigned are subject to certain mandatory supervisory corrective actions. AWBC does not believe that these regulations have any material effect on its operations.

Effects of Government Monetary Policy.    The earnings and growth of AWBC are affected not only by general economic conditions, but also by the fiscal and monetary policies of the federal government, particularly the Federal Reserve. The Federal Reserve can and does implement national monetary policy for such purposes as curbing inflation and combating recession, but its open market operations in U.S. government securities, control of the discount rate applicable to borrowings from the Federal Reserve, and establishment of reserve requirements against certain deposits, influence the growth of bank loans, investments and deposits, and also affect interest rates charged on loans or paid on deposits. The nature and impact of future changes in monetary policies and their impact on AWBC and its subsidiary bank cannot be predicted with certainty.

Securities Registration and Reporting.    The common stock of AWBC is registered as a class with the SEC under the 1934 Act and thus is subject to the periodic reporting and proxy solicitation requirements and the insider-trading restrictions of that Act. In addition, the securities issued by AWBC are subject to the registration requirements of the 1933 Act and applicable state securities laws unless exemptions are available. The periodic reports, proxy statements, and other information filed by AWBC with the SEC are available at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. AWBC is an electronic filer with the SEC and the AWBC filings may be obtained at the SEC website (http://www.sec.gov).

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Item 2.    Properties.

At December 31, 2001, AWBC owned or leased facilities in thirty-three locations including thirty-two in eastern Washington and one in Moscow, Idaho and the Computer/Processing Center. AWBC’s main office is located in North Spokane, which is owned by AWB. About 1,400 square feet is used for the Administrative Offices. In addition AWBC leases approximately 9,000 square feet for its Computer/Processing Center located near the Spokane Airport. AWBC is separated into four separate Regions. As of January 1, 2002 these were the Inland Empire Region headquartered in Spokane, Washington, the Columbia River Region headquartered in Ephrata, Washington, the Blue Mountain Region headquartered in Walla Walla, Washington, and the Palouse Region headquartered in Pullman, Washington.

The thirty-two branch locations are in the State of Washington in Chewelah, Colton, Colville, Davenport, Dayton, Ephrata, Kettle Falls, Mabton, Moses Lake, Naches, Prosser, Pullman (2), Richland, Spokane (10), Sunnyside, Uniontown, Waitsburg, Walla Walla (2), and Yakima (2), and Moscow, Idaho.

Item 3.    Legal Proceedings.

Periodically and in the ordinary course of business, various claims and lawsuits are brought against AWBC or AWB, such as claims to enforce liens, condemnation proceedings on properties in which AWB held security interests, claims involving the making and servicing of real property loans and other issues incident to the business of AWBC and AWB. In the opinion of management, the ultimate liability, if any, resulting from such claims or lawsuits will not have a material adverse effect on the financial position or results of operations of AWBC.

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

No matters were submitted to a vote of AWBC’s shareholders during the fourth quarter of 2001.

PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters.

Market Information.    The Common Stock is quoted on the Nasdaq National Market System (NASDAQ) under the symbol “AWBC”. The following table sets out the high and low bid prices per share for the Common Stock for 2001 and 2000 as reported by NASDAQ.

	2001				2000
	High		Low		High		Low
First Quarter	$	10.46	$	8.78	$	11.15	$	7.55
Second Quarter	$	10.00	$	9.09	$	8.57	$	7.70
Third Quarter	$	10.91	$	9.86	$	8.24	$	7.95
Fourth Quarter	$	11.14	$	10.14	$	9.40	$	8.11

Per share amounts have been adjusted giving retroactive effect to stock dividends.

Holders.    The number of holders of common stock of record on February 15, 2002 was approximately 3,000.

Dividends.    AWBC has declared and paid the following dividends subsequent to January 1, 2000: On February 24, 2000, February 15, 2001, and February 1, 2002 AWBC paid 10% stock dividends. No cash dividends were paid.

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Item 6.    Selected Financial Data.

The following table sets forth certain selected consolidated financial data of AWBC at and for the years ended December 31:

	2001			2000			1999			1998			1997
	($ in thousands, except per share amounts)
Net interest income	$	34,424		$	30,356		$	28,474		$	26,475		$	21,696
Provision for loan losses		2,855			1,643			1,577			784			1,055
Noninterest income		4,702			4,029			5,912			4,977			4,833
Noninterest expense		22,276			21,328			19,209			19,764			14,905
Income before income tax expense		13,995			11,414			13,600			10,904			10,569
Income tax expense		4,788			3,379			3,888			3,521			3,346
Net income		9,207			8,035			9,712			7,383			7,223
Basic earnings per common share	$	1.12		$	0.91		$	1.05		$	0.81		$	0.79
Diluted earnings per common share	$	1.12		$	0.90		$	1.04		$	0.79		$	0.77
Return on average assets		1.46	%		1.44	%		1.90	%		1.49	%		1.78	%
Return on average equity		13.87	%		12.73	%		16.58	%		14.66	%		16.30	%
Assets	$	659,341		$	598,513		$	527,726		$	513,144		$	486,778
Securities		15,550			47,885			53,141			87,350			102,964
Loans:
Commercial and industrial		411,197			317,108			246,796			199,798			153,344
Agricultural		88,121			76,093			67,025			57,511			56,899
Real estate mortgage		40,084			62,173			66,690			63,127			66,959
Real estate construction		17,201			12,252			14,781			14,170			8,588
Installment		26,311			22,489			21,190			20,364			21,843
Other loans		5,062			3,972			6,939			9,149			10,962
Total loans		587,976			494,087			423,421			364,119			318,595
Allowance for loan loss to loans percentage		1.13	%		1.00	%		1.03	%		1.05	%		1.22	%
Deposits		532,237			501,426			452,899			452,913			425,094
Borrowings		53,601			27,367			8,198			1,348			11,284
Stockholders' equity		68,206			64,530			62,922			54,211			46,174
Equity to assets ratio		10.34	%		10.78	%		11.92	%		10.56	%		9.49	%
Basic weighted average shares		8,190,374			8,819,697			9,233,412			9,160,555			9,121,465

See Results of Operations for a description of the nonrecurring items in 2001, 2000 and 1999. In 1997, AWBC recovered from its insurance provider $796,000 for a theft by a former employee. After income taxes the recovery improved 1997 net income by $525,000 or $.06 per share.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

AWBC’s net income is derived primarily from net interest income of the Bank, which is the difference between interest earned on their loan and investment portfolios and their cost of funds, primarily interest paid on deposits and borrowings. For the years ended December 31, 2001, 2000, and 1999, AWBC’s average net interest margins were 6.0%, 6.0%, and 6.2%, respectively.

Net income is also affected by levels of provisions for loan losses, noninterest income (primarily service charges on deposits, insurance commissions, sale of securities gains or losses and other operating income) and noninterest expense (primarily salaries and benefits, occupancy expense, data processing cost, legal and professional services expense, business and occupation tax, and other operating expenses). For the three years ended December 31, 2001, 2000, and 1999, the provision for loan losses was $2,855,000, $1,643,000, and $1,577,000, respectively. Net charge-offs during the year ended December 31, 2001 was $1,179,000 as compared to $1,044,000 and $1,047,000 during 2000 and 1999, respectively.

Net Interest Income

The following table sets forth information with regard to average balances of assets and liabilities, and interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread (the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities), and the net interest margin.

	Year Ended December 31,
	2001						2000						1999
	Average Balance		Interest		%		Average Balance		Interest		%		Average Balance		Interest		%
	($ in thousands)
ASSETS
Loans	$	540,159	$	51,300	9.50	%	$	450,901	$	46,319	10.27	%	$	394,132	$	39,728	10.08	%
Taxable securities		30,533		1,868	6.12	%		41,237		2,790	6.77	%		52,505		3,237	6.17	%
Nontaxable securities		4,583		318	6.94	%		9,553		711	7.44	%		10,421		725	6.96	%
Overnight deposits with other banks		3,234		126	3.90	%		7,250		464	6.40	%		7,775		420	5.40	%
Total interest earning assets		578,509	$	53,612	9.27	%		508,941	$	50,284	9.88	%		464,833	$	44,110	9.49	%
Noninterest earning assets		51,622						48,384						46,007
Total assets	$	630,131					$	557,325					$	510,840
LIABILITIES
Interest-bearing demand deposits	$	156,683	$	4,471	2.85	%	$	153,327	$	6,018	3.92	%	$	146,190	$	5,286	3.62	%
Savings deposits		41,266		717	1.74	%		45,541		1,301	2.86	%		47,227		1,342	2.84	%
Time deposits		225,289		11,979	5.32	%		195,875		11,660	5.95	%		168,168		8,335	4.96	%
Total interest-bearing deposits		423,238		17,167	4.06	%		394,743		18,979	4.81	%		361,585		14,963	4.14	%
Short-term borrowings		42,461		1,850	4.36	%		10,050		639	6.36	%		6,503		401	6.17	%
Long-term borrowings		647		63	9.74	%		678		68	10.03	%		701		70	9.99	%
Total interest-bearing liabilities		466,346	$	19,080	4.09	%		405,471	$	19,686	4.86	%		368,789	$	15,434	4.19	%
Noninterest bearing demand deposits		92,008						83,920						79,050
Other noninterest bearing liabilities		5,389						4,842						4,407
Total liabilities		563,743						494,233						452,246
STOCKHOLDERS' EQUITY		66,388						63,092						58,594
Total liabilities and stockholders' equity	$	630,131					$	557,325					$	510,840
Net interest income			$	34,532	5.18	%			$	30,598	5.03	%			$	28,676	5.30	%
Net interest margin to average
earning assets					5.97	%					6.01	%					6.17	%

Nonaccrual loans are included with loan balances. In the above table 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 illustrates the changes in AWBC’s net interest income due to changes in volumes and interest rates.

The change in interest income and interest expense due to changes in both volume and rate, which cannot be segregated, has been allocated proportionately to the change due to volume and the change due to rate.

	2001 vs 2000									2000 vs 1999
	Increase (decrease) in net interest income due to changes in
	Volume			Rate			Total			Volume			Rate			Total
	($ in thousands)
INTEREST EARNING ASSETS
Loans	$	9,169		($	4,188	)	$	4,981		$	5,722		$	869		$	6,591
Securities		(1,080	)		(235	)		(1,315	)		(764	)		303			(461	)
Federal funds sold and overnight time deposits		(257	)		(81	)		(338	)		(28	)		72			44
Total interest earning assets		7,832			(4,504	)		3,328			4,930			1,244			6,174
INTEREST BEARING LIABILITIES
Interest-bearing demand deposits		132			(1,679	)		(1,547	)		258			474			732
Savings deposits		(122	)		(462	)		(584	)		(48	)		7			(41	)
Time deposits		1,751			(1,432	)		319			1,373			1,952			3,325
Total interest bearing deposits		1,761			(3,573	)		(1,812	)		1,583			2,433			4,016
Short-term borrowings		2,061			(850	)		1,211			219			19			238
Long-term borrowings		(3	)		(2	)		(5	)		(2	)					(2	)
Total interest bearing liabilities		3,819			(4,425	)		(606	)		1,800			2,452			4,252
Total increase (decrease) in net interest income	$	4,013		($	79	)	$	3,934		$	3,130		($	1,208	)	$	1,922

The following table presents the aggregate maturities of loans in each major category of the AWBC’s’ loan portfolio at December 31, 2001. Actual maturities may differ from the contractual maturities shown below as a result of renewals and prepayments.

	Less than one year		One to five years		Over five years		Total
	($ in thousands)
Commercial, financial and agricultural	$	154,502	$	182,287	$	162,529	$	499,318
Real estate-mortgage		7,261		22,860		9,963		40,084
Real estate-construction		15,850		1,272		79		17,201
Installment		3,341		14,382		8,588		26,311
Other		4,963		89		10		5,062
Total	$	185,917	$	220,890	$	181,169	$	587,976

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Results of Operations

Years Ended December 31, 2001, 2000, and 1999

Performance Summary

							% Change
	2001		2000		1999		2001		2000
	($ in thousands, except per share)
Interest income	$	53,504	$	50,042	$	43,908	6.92	%	13.97	%
Interest expense		19,080		19,686		15,434	-3.08	%	27.55	%
Net interest income		34,424		30,356		28,474	13.40	%	6.61	%
Provision for loan losses		2,855		1,643		1,577	73.77	%	4.19	%
Net interest income after provision for loan losses		31,569		28,713		26,897	9.95	%	6.75	%
Noninterest income		4,702		4,029		5,912	16.70	%	-31.85	%
Noninterest expense		22,276		21,328		19,209	4.44	%	11.03	%
Income before income taxes		13,995		11,414		13,600	22.61	%	-16.07	%
Income taxes		4,788		3,379		3,888	41.70	%	-13.09	%
Net income	$	9,207	$	8,035	$	9,712	14.59	%	-17.27	%
Basic earnings per common share	$	1.12	$	0.91	$	1.05	23.08	%	-13.33	%
Diluted earnings per common share	$	1.12	$	0.90	$	1.04	24.44	%	-13.46	%

AWBC’s net income was $9,207,000 in 2001, $8,035,000 in 2000, and $9,712,000 in 1999. Basic earnings per share were $1.12, $.91, and $1.05 for 2001, 2000, and 1999, respectively. Diluted earnings per share were $1.12, $.90, and $1.04 in 2001, 2000, and 1999, respectively.

2001 results include a gain of $392,000 on the sale of the Insurance Agency. This gain increased 2001 net income by $258,000 and $.03 per share. 2000 results included a rehabilitation tax credit of $283,000, loss on the sale of securities of $358,000, and a loss on the completion of the amortization of the Moses Lake Branch intangible asset of $505,000. 2000 net income was reduced by $290,000 and $.03 per share for these items.

AWBC completed its merger with AmericanWest Bank (AWB) effective February 1, 1999. At the time of the merger AWB was known as Bank of the West, but in June 1999 it received $1,250,000 for the sale of its name. The income from the sale of the name added $825,000 to net income or $.10 per share. As of February 1, 1999 AWB had approximately $103 million in total assets, $90 million in deposits, $68 million in loans, and $12 million in total equity. 1,749,300 AWBC shares were issued to AWB shareholders for the merger. The pooling-of-interests accounting method was used for the transaction.

Return on average assets was 1.46%, 1.44%, and 1.90% for 2001, 2000, and 1999, respectively. Return on average equity was 13.87%, 12.73%, and 16.58% for 2001, 2000, and 1999, respectively. Without the nonrecurring items described above, return on assets would have been 1.42%, 1.49%, and 1.74% for 2001, 2000, and 1999, respectively. Return on equity would have been 13.48%, 13.20%, and 15.17% for 2001, 2000, and 1999, respectively.

Net Interest Income.    Net interest income increased 13% to $34,424,000 in 2001 compared to 2000. The increase in 2000 was 7% to $30,356,000 over 1999 results. The net interest income improvements were primarily the result of loan volume increases in 2001 and 2000. AWBC’s net interest margin to average earning assets was 5.97%, 6.01%, and 6.17% in 2001, 2000, and 1999, respectively. As market interest rates decreased significantly during 2001 the yield on earning assets declined to 9.27% in 2001 after rising to 9.88% in 2000. Interest bearing liabilities also moved with market interest rates by declining to 4.09% in 2001 after rising to 4.86% in 2000. The overall result was a slight net interest margin decline from 6.01% to 5.97% in 2001 after declining from 6.17% in 2000. Average earning assets increased 13% to $579 million in 2001 after rising 9% to $509 million in 2000.

21

Noninterest Income.    Noninterest income, which consists of fees and service charges, insurance commissions, securities gains and losses, and other income, increased 17% in 2001 to $4.7 million. The increase was due to the gain on the sale of the Insurance Agency of $392,000 and gains on the sale of credit card servicing, securities, and a loan. In 2000 noninterest income declined 32% due to the nonrecurring gain on the sale of the Bank of the West name in 1999. Fees and service charges for banking services increased to $2.8 million in 2001 after remaining at $2.5 million in 2000 and 1999. Insurance commissions declined to $349,000 in 2001 due to the sale of the Insurance Agency at the beginning of the second quarter in 2001. Insurance commissions had remained at the same level for 2000 and 1999. AWBC sold securities in 2001 for a net gain of $188,000 after selling mutual fund securities for a net loss in 2000. Other income was higher in 2001 due to the items described above.

Noninterest Expense.    Noninterest expense increased by only 4% in 2001 due to loan officer incentive expense, nonperforming loan legal expense, and merger of the banks expense offset by lower expenses with the sale of the Insurance Agency and a business and occupation tax expense refund from an audit. Noninterest expense increased in 2000 due to the cost of new locations, higher incentive expense for employees and the write-off of the impaired intangible asset.

Income Tax Expense.    Income tax expense was reduced by $285,000 in 2000 and $400,000 in 1999 due to tax credits for the renovation of historical properties.

Liquidity and Capital Resources

Management believes that AWBC’s cash flow will be sufficient to support its existing operations for the foreseeable future. If AWBC needs additional liquidity, it would be required to borrow or issue additional capital stock. AWBC’s ability to incur indebtedness is limited by government regulations and its ability to service borrowings is 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. During 2001 AWB received $20,122,000 in certificates of deposit through the use of QwickRate Express Data and their Internet services.

The Bank may borrow on a short-term basis to compensate for reductions in other sources of funds. Bank borrowings may also be used on a longer-term basis to support expanded lending activities and to match the maturity of repricing intervals of assets. At December 31, 2001 AWBC had approximately $97 million of lines of credit available for liquidity purposes. Cash flows from operations also contribute significantly to liquidity as indicated in AWBC’s Consolidated Statement of Cash Flows, as well as proceeds from maturities of securities and increasing customer deposits.

AWBC’s total stockholders’ equity increased to $68,206,000 at December 31, 2001, from $64,530,000 at December 31, 2000 and $62,922,000 at December 31, 1999. At December 31, 2001, stockholders’ equity was 10.34% of total assets, compared to 10.78% at December 31, 2000. At December 31, 2001, AWBC held cash and cash-equivalent assets of $25.0 million.

The capital levels of AWBC and the Bank exceed applicable regulatory well-capitalized guidelines at December 31, 2001.

Effects of Inflation and Changing Prices.    The primary impact of inflation on AWBC’s operations is increased asset yields, deposit costs and operating overhead. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Although interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services, increases in inflation generally have resulted in increased interest rates. The effects of inflation

22

can magnify the growth of assets, and if significant, would require that equity capital increase at a faster rate than would otherwise be necessary.

New Accounting Pronouncements.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. AWBC will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $226,000 per year. During 2002, AWBC will perform the first of the required impairment tests of goodwill as of January 1, 2002 and does not expect the effect of these tests to have an impact on the earnings and financial position of AWBC.

In June 2001, the FASB issued Statement of Financial Accounting Standard No. 143, Accounting for Asset Retirement Obligations, addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and the normal operation of a long-lived asset, except for certain obligations of lessees. As used in this Statement, a legal obligation is an obligation that a party is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract, or by legal construction of a contract under the doctrine of promissory estoppel. This Statement amends FASB Statement No. 19, Financial Accounting and Reporting by Oil and Gas Producing Companies. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. AWBC does not expect the statement will result in a material impact on its financial position or results of operations.

In August 2001, the FASB issued Statement Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Dispose Of, and the accounting and reporting provisions of APB Opinion NO. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions for the disposal of a segment of a business. This Statement also amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. The provisions of this Statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. The provisions of this Statement generally are to be applied prospectively.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Management considers interest rate risk to be a market risk that could have a significant effect on the financial condition and results of operations of AWBC. AWBC does not use derivatives including forward and futures contracts, options, and swaps to manage its market and interest rate risks. All of AWBC’s transactions are denominated in U.S. dollars. Approximately 34% of AWBC’s loan portfolio has interest rates, which float with the Bank’s reference interest rate. Fixed rate loans are generally made with a term of five years or less. General economic conditions, regulatory policy and competition in the marketplace affect interest income and cost of funds. The Banks’ operating strategies focus on asset/liability management. The purpose of asset/liability

23

management (“ALM”) is to provide stable net interest income growth by protecting the AWBC’s earnings from undue interest rate risk. AWB follows an ALM policy for controlling exposure to interest rate risk. The ALM policy is designed to maintain an appropriate balance between rate-sensitive assets and liabilities in order to maximize interest rate spreads. AWB monitors the sensitivity of its assets and liabilities with respect to changes in interest rates and maturities, and direct the allocation of their funds accordingly. The strategy of AWB has been to maintain, to the extent possible, a balanced position between assets and liabilities, and to place emphasis on the sensitivity of its assets.

The following table presents estimated maturity or pricing information indicating AWBC’s exposure to interest rate changes as of December 31, 2001. The expected maturities take into consideration historical and estimated principal prepayments for loans and securities. Principal prepayments are the amounts of principal reduction in addition to contractual amortization. Fixed-rate and variable-rate loans are expected to have payment rates of 35%, 25%, 15%, 15%, and 10% for the following five years, respectively. Securities principal payments are based on payment speeds as of December 31, 2001. The expected maturities for financial liabilities with no stated maturity reflect historical and estimated future roll-off rates. The anticipated annual roll-off rates for noninterest bearing deposits, interest-bearing demand deposits and savings deposits are 15%. The interest rates disclosed are based on rates from 2001 results. Fair values are based on the calculations used in accordance with generally accepted accounting principles as disclosed in the financial statements.

	Expected maturity																	Fair Value
	2002			2003		2004		2005		2006		Thereafter		Total
Year ended December 31, 2001	($ in thousands)
Financial Assets
Cash and due from banks	$	24,421												$	24,421			$	24,421
Overnight interest bearing deposits with other banks		535													535				535
Weighted average interest rate															2.00	%
Securities		5,686													5,686				15,550
Weighted average interest rate															5.50	%
Fixed rate loans		123,061		87,901		52,740		52,740		35,161					351,603				380,696
Weighted average interest rate															8.25	%
Variable rate loans		80,254		57,324		34,394		34,394		22,930					229,296				229,296
Weighted average interest rate															7.50	%
Financial Liabilities
Noninterest bearing deposits		14,742		14,742		14,742		14,742		14,742		24,570			98,280				98,280
Interest-bearing demand deposits		25,058		25,058		25,058		25,058		25,058		41,765			167,055				167,055
Weighted average interest rate															2.25	%
Savings deposits		6,051		6,051		6,051		6,051		6,051		10,087			40,342				40,342
Weighted average interest rate															1.75	%
Time deposits		199,869		22,004		2,730		1,365		493		99			226,560				247,490
Weighted average interest rate															3.50	%
Short-term borrowings		52,974													52,974				52,974
															2.40	%
Net of financial assets and liabilities		(64,737	)	77,370		38,553		39,918		11,747		(76,521	)
Cumulative net amount		(64,737	)	12,633		51,186		91,104		102,851		26,330					��
Percentage of total assets		-9.82	%	1.92	%	7.76	%	13.82	%	15.60	%	3.99	%

The above table presents information about AWBC’s interest sensitivity; it does not predict future earnings. AWBC uses budgeting and earnings projections to forecast earnings. It requires assumptions about the projection of loan and securities prepayments, loan originations and liability funding sources, which may be inaccurate. Weighted average interest rates by expected maturity are not available.

Forward Looking Statements.    Statements contained in this Annual Report, which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. A forward-looking statement may contain words as “plan,” “hopes”, “believes”, “estimates”, “will continue to be”, “will be”, “continued to”, “expect to”, “anticipate that”, “to be”, or “can impact”. These forward-looking statements include statements

24

relating to AWBC’s expectations as to (i) the adequacy of provisions for loan losses, (ii) the sufficiency of existing cash balances and investments, together with cash flow from operating activities and available lines of credit to meet AWBC’s liquidity and capital spending requirements in future years, (iii) the effects of inflation and changing prices on AWBC’s operations, (iv) management’s assessment of interest rate risks, and (v) AWBC’s ability to continue to compete effectively with larger enterprises. Management cautions that forward-looking statements are subject to risk and uncertainties that could cause AWBC’s actual results to differ materially from those projected in such forward-looking statements. AWBC’s future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth below. Moreover, neither AWBC nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. AWBC is under no duty to update any of the forward-looking statements after the date of this Annual Report to conform such statements to actual results or to changes in our expectations.

Item 8.    Financial Statements and Supplementary Data.

The consolidated financial statements and supplementary data of AWBC and its subsidiary for the years ended December 31, 2001, 2000, and 1999, which have been audited except as indicated by Moss Adams LLP, are included as part of Item 14 of this report.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Not applicable.

PART III

Item 10.    Directors and Executive Officers of the Registrant.

The information requested by this item is contained in the registrant’s 2002 proxy statement under the headings “Election of Directors” and “Executive Officers who are not Directors”, and is incorporated by reference.

Item 11.    Executive Compensation.

The information requested by this item is contained in the registrant’s 2002 proxy statement under the headings “Executive Compensation” and “Report of the Compensation Committee”, and is incorporated by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management.

The information requested by this item is contained in the registrant’s 2002 proxy statement under the heading “Security Ownership of Certain Beneficial Owners and Management”, and is incorporated by reference.

Item 13.    Certain Relationships and Related Transactions.

The information requested by this item is contained in the registrant’s 2002 proxy statement under the heading “Related Party Transactions and Business Relations”, and is incorporated by reference.

25

PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a) (1)  Financial Statements

Independent Auditor’s Report on Consolidated Financial Statements

Consolidated Statements of Condition

Consolidated Statements of Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

(a) (2)  There are no financial statement schedules filed herewith.

(a) (3)  Exhibits

21 Subsidiary of Registrant. Reference is made to “Item 1. Business. AmericanWest Bancorporation and The Bank for the required information.

(b)  Reports on Form 8-K.

There were no Form 8-K Reports during fourth quarter 2001.

(c)  All schedules are omitted as the required information is not applicable or the information is presented in the Consolidated Financial Statements or related notes.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 26th of February 2002.

Principal Executive Officer:
By:	/s/    WES COLLEY         Wes Colley	President, Chief Executive Officer and Director
Principal Accounting Officer
By:	/s/    CHAD GALLOWAY         Chad Galloway	Vice President and Chief Financial Officer
Remaining Directors
By:	/s/    RAND ELLIOTT         Rand Elliott, Directors	By	/s/    DON SWARTZ          Don Swartz
By:	/s/    DAVE FRAME         Dave Frame, Director	By:	/s/    KEITH SATTER         Keith Sattler, Chairman and Director
By:	/s/    ROBERT J. GARDNER         Robert J. Gardner, Director	By:	/s/    MIKE TAYLOR         Mike Taylor

26

INDEPENDENT AUDITOR’S REPORT

Board of Directors and Shareholders

AmericanWest Bancorporation

Spokane, Washington

We have audited the accompanying consolidated statement of financial condition of AmericanWest Bancorporation and subsidiary as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AmericanWest Bancorporation and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/     Moss Adams LLP

Everett, Washington

January 24, 2002

27

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

CONSOLIDATED STATEMENTS OF CONDITION

DECEMBER 31, 2001 AND 2000

($ In thousands)

	2001		2000
ASSETS
Cash and due from banks	$	24,421	$	28,580
Overnight interest bearing deposits with other banks		535		1,247
Cash and cash equivalents		24,956		29,827
Securities		15,550		47,885
Loans, net of allowance for loan losses of $6,624 in 2001 and $4,948 in 2000		580,899		488,459
Accrued interest receivable		5,368		5,379
Premises and equipment, net		13,488		13,215
Foreclosed real estate and other foreclosed assets		1,616		1,510
Life insurance and salary continuation assets		10,519		4,304
Intangible assets		4,970		5,302
Other assets		1,975		2,632
TOTAL ASSETS	$	659,341	$	598,513
LIABILITIES
Noninterest bearing—demand deposits	$	98,280	$	96,087
Interest bearing deposits:
NOW and savings accounts		207,397		195,241
Time, $100,000 and over		81,508		71,735
Other time		145,052		138,363
TOTAL DEPOSITS		532,237		501,426
Short-term borrowings		52,974		26,701
Capital lease obligations		627		666
Accrued interest payable		1,439		1,980
Other liabilities		3,858		3,210
TOTAL LIABILITIES		591,135		533,983
STOCKHOLDERS' EQUITY
Common stock, no par, shares authorized 15 million; issued and outstanding 7,905,366 in 2001 and 6,974,012 in 2000		61,540		48,904
Retained earnings		6,584		15,710
Accumulated other comprehensive income, net of tax		82		(84	)
TOTAL STOCKHOLDERS' EQUITY		68,206		64,530
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY	$	659,341	$	598,513

The accompanying notes are an integral part of these financial statements.

28

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

($ In thousands, except per share amounts)

	2001		2000			1999
INTEREST INCOME
Interest and fees on loans	$	51,300	$	46,319		$	39,728
Interest on securities		2,078		3,259			3,760
Other interest income		126		464			420
TOTAL INTEREST INCOME		53,504		50,042			43,908
INTEREST EXPENSE
Interest on deposits		17,167		18,979			14,963
Interest on borrowings		1,913		707			471
TOTAL INTEREST EXPENSE		19,080		19,686			15,434
NET INTEREST INCOME		34,424		30,356			28,474
Provision for loan losses		2,855		1,643			1,577
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		31,569		28,713			26,897
NONINTEREST INCOME
Fees and service charges		2,802		2,467			2,482
Insurance commissions		349		964			985
Securities gains/(losses)		188		(327	)		66
Gain on sale of Bank of the West name							1,250
Other		1,363		925			1,129
TOTAL NONINTEREST INCOME		4,702		4,029			5,912
NONINTEREST EXPENSE
Salaries and employee benefits		13,115		12,685			11,450
Occupancy expense, net		1,849		1,804			1,562
Equipment expense		1,649		1,503			1,380
State business and occupation tax		571		608			579
Director fees		114		351			501
Intangible assets amortization		336		884			381
Other		4,642		3,493			3,356
TOTAL NONINTEREST EXPENSE		22,276		21,328			19,209
INCOME BEFORE INCOME TAX EXPENSE		13,995		11,414			13,600
INCOME TAX EXPENSE		4,788		3,379			3,888
NET INCOME	$	9,207	$	8,035		$	9,712
Basic earnings per common share	$	1.12	$	0.91		$	1.05
Diluted earnings per common share	$	1.12	$	0.90		$	1.04
Basic weighted average shares outstanding		8,190,374		8,819,697			9,233,412
Diluted weighted average shares outstanding		8,256,160		8,881,387			9,358,949

The accompanying notes are an integral part of these financial statements.

29

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2001, 2000, and 1999

	Common Stock					Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total			Comprehensive Income (Loss)
	Shares		Amount
	($ in thousands)
Balances, January 1, 1999	6,735,999		$	41,852		$	12,163		$	196		$	54,211
Common stock issued for options exercised	32,628			221									221
Net income							9,712						9,712		$	9,712
Redemption of fractional shares	(1,118	)		(17	)								(17	)
AmericanWest Bank portion of 10% stock dividend	174,930			2,415			(2,415	)
Net change in unrealized gain on available-for-sale securities, net of taxes										(1,205	)		(1,205	)		(1,205	)
Balances, December 31, 1999	6,942,439			44,471			19,460			(1,009	)		62,922		$	8,507
Common stock issued for options exercised	86,789			585									585
10% stock dividend	693,891			8,934			(8,934	)
Net income							8,035						8,035		$	8,035
Stock repurchase program	(749,107	)		(5,086	)		(2,851	)					(7,937	)
Net change in unrealized gain on available-for-sale securities, net of taxes										925			925			925
Balances, December 31, 2000	6,974,012			48,904			15,710			(84	)		64,530		$	8,960
Common stock issued for options exercised	75,005			504									504
10% stock dividend declared in January 2001	698,298			7,853			(7,853	)
10% stock dividend declared in December 2001	718,670			8,408			(8,408	)
Net income							9,207						9,207		$	9,207
Stock repurchase program	(560,619	)		(4,129	)		(2,072	)					(6,201	)
Net change in unrealized gain on available-for-sale securities, net of taxes										166			166			166
Balances, December 31, 2001	7,905,366		$	61,540		$	6,584		$	82		$	68,206		$	9,373

The accompanying notes are an integral part of these financial statements.

30

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

	2001			2000			1999
	($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income	$	9,207		$	8,035		$	9,712
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,855			1,643			1,577
Depreciation and amortization		1,234			1,129			930
Deferred income taxes		(814	)		(199	)		(465	)
(Gain)/loss on sale of premises and equipment		(16	)		84			(50	)
(Increase) decrease in assets:
Accrued interest receivable		11			(885	)		71
Life insurance and salary continuation assets		(115	)		(481	)		(611	)
Other assets		1,803			(8	)		743
Increase/(decrease) in liabilities:
Accrued interest payable		(541	)		613			(279	)
Other liabilities		648			870			(686	)
NET CASH FROM OPERATING ACTIVITIES		14,272			10,801			10,942
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Maturities		19,103			7,774			37,642
Sales		27,566			8,002			10,150
Purchases		(14,168	)		(9,595	)		(14,832	)
Securities held-to-maturity:
Maturities								44
Net increase in loans and leases		(95,295	)		(71,892	)		(60,255	)
Purchase of life insurance contracts		(6,100	)
Purchases of premises and equipment		(1,514	)		(2,055	)		(2,388	)
Proceeds from sale of premises and equipment		23			760			521
Foreclosed assets activity		(106	)		(331	)		66
NET CASH FROM INVESTING ACTIVITIES		(70,491	)		(67,337	)		(29,052	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase/(decrease) in deposits		30,811			48,527			(14	)
Short-term borrowings activity		26,273			19,193			6,872
Principal payments on capital lease obligations		(39	)		(24	)		(22	)
Proceeds from issuance of capital stock		504			585			221
Stock repurchase program		(6,201	)		(7,937	)
Cash dividends and fractional shares								(17	)
NET CASH FROM FINANCING ACTIVITIES		51,348			60,344			7,040
NET CHANGE IN CASH AND CASH EQUIVALENTS		(4,871	)		3,808			(11,070	)
Cash and cash equivalents at January 1		29,827			26,019			37,089
Cash and cash equivalents at December 31	$	24,956		$	29,827		$	26,019
Interest paid	$	19,621		$	19,073		$	15,713
Income taxes paid	$	4,852		$	3,726		$	3,981
Supplemental Schedule of Noncash Investing and Financing Activities
Foreclosed real estate acquired in settlement of loans	$	1,252		$	1,498		$	1,570
Transfers from securities at cost to securities at fair value				$	707

The accompanying notes are an integral part of these financial statements

31

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Business and Summary of Significant Accounting Policies

Basis of consolidation:

The consolidated financial statements include the accounts of AmericanWest Bancorporation (AWBC or Corporation) and its wholly owned subsidiary AmericanWest Bank (AWB or Bank) after eliminating all significant intercompany balances and transactions. During 2001 AWBC merged its five Banks into AWB and sold its insurance subsidiary.

Nature of business:

AWB is a state-chartered commercial bank under the laws of the State of Washington, and provides banking services primarily throughout eastern and central Washington and northern Idaho. AWBC is subject to competition from other financial institutions, as well as nonfinancial intermediaries and to the regulations of certain federal and state agencies and it undergoes periodic examinations by those regulatory agencies.

Basis of financial statement presentation:

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of certain assets and liabilities as of the date of the statement of financial condition and certain revenues and expenses for the period and the accompanying notes. Actual results could differ, either positively or negatively, from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in the satisfaction of loans. In connection with the determination of the allowance for loan losses and other real estate owned, management obtains independent appraisals for significant properties.

Management believes that the allowances for loan losses and other real estate owned are adequate. While management uses currently available information to recognize losses on loans and other real estate owned, future additions to the allowances may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the AWBC allowance for loan losses and other real estate owned. Such agencies may require AWBC to recognize additions to the allowances based on their judgments of information available to them at the time of their examination.

Securities:

All of the securities are classified available-for-sale. Securities consist primarily of obligations of the U.S. government and U.S. government agencies and state governments.

32

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 1.    Business and Summary of Significant Accounting Policies (Continued)

Unrealized holding gains and losses, net of tax, on available-for-sale securities are excluded from earnings and reported as a net amount in a separate component of stockholders’ equity until realized. Gains and losses on the sale of available-for-sale securities are determined using the specific-identification method. Premiums and discounts are recognized in interest income using the effective interest method over the period to maturity.

Loans and allowances for loan losses:

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Net deferred fees or costs are amortized using the interest method over the life of the loan. Effective July 1, 2001, net loan origination fees and costs are no longer deferred and amortized because the net difference is not significant.

The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received.

An allowance for probable losses on loans is maintained at a level deemed by management to be adequate to provide for potential loan losses through charges to operating expense. The allowance is based upon a continuing review of loans, which includes consideration of actual net loan loss experience, changes in the size and character of the loan portfolio, identification of individual problem situations which may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and evaluation of current economic conditions. Loan losses are recognized through charges to the allowance.

Foreclosed real estate:

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, management periodically performs valuations and the real estate is carried at the lower of carrying amount or fair value less cost to sell.

33

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 1.    Business and Summary of Significant Accounting Policies (Continued)

Premises and equipment:

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation over estimated useful lives, which range from 3 to 30 years. Depreciation expense is computed using primarily the straight-line method for financial statement purposes. Accelerated depreciation methods are used for federal income tax purposes. Normal costs of maintenance and repairs are charged to expense as incurred.

Intangibles:

Intangible assets acquired in the form of goodwill, customer lists and covenants to not compete, and core deposits purchased are being amortized using the straight-line method over five to twenty-five years. AWBC periodically evaluates these intangible assets for impairment.

Income taxes:

AWBC files a consolidated federal income tax return. The income tax related to the individual entities is generally computed as if each one had filed a separate tax return and is based on amounts reported in the statements of income (after exclusion of non-taxable permanent differences such as interest on state and municipal securities) and include deferred taxes on temporary differences in the recognition of income and expense for tax and financial statement purposes. Deferred taxes are computed using the asset and liability approach.

Per share amounts:

All per share amounts have been calculated on the basis of weighted average number of shares outstanding during each year. All share and per share amounts have been adjusted giving retroactive effect to stock dividends.

Cash and cash equivalents:

For the purposes of presentation in the consolidated financial statements of cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and overnight deposits with other banks. The Bank places its cash with high credit quality institutions. The amount on deposit fluctuates and at times exceeds the insured limit by the Federal Deposit Insurance Corporation, which potentially subjects the Bank to credit risk.

Stock options:

Employee stock options are accounted for under Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees”. Stock options are granted at exercise prices not less than the fair market value of common stock on the date of grant. Under APB No. 25, no compensation expense is recognized pursuant to AWBC’s stock option plans. AWBC has disclosed the proforma amounts of net income and earnings per share that would have been reported had it elected to follow the fair value recognition provisions of SFAS No. 123 (Note 14).

34

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 1.    Business and Summary of Significant Accounting Policies (Continued)

Other off-statement of condition instruments:

In the ordinary course of business AWBC has entered into off-statement of condition financial instruments consisting of commitments to extend credit, commitments under credit-card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are held for purposes other than trading and are recorded in the financial statements when they are funded or related fees are incurred or received.

Note 2.    Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. AWBC will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter 2002. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $226,000 per year. During 2002, AWBC will perform the first of the required impairment tests of goodwill as of January 1, 2002 and does not expect the effect of these tests to have an impact on the earnings and financial position of AWBC.

Note 3.    Cash and Cash Equivalents

The Bank is required to maintain cash reserves with the Federal Reserve Bank. Cash reserve requirements are computed by applying prescribed percentages to various types of deposits. When the Bank’s cash reserves are in excess of that required it might lend the excess to other banks on a daily basis. Conversely, when cash reserves are less than required, the Bank borrows funds on a daily basis. Such reserve requirements at December 31, 2001 and 2000 were approximately $2,762,000 and $2,708,000, respectively. The average amounts of federal funds sold and overnight interest bearing deposits with other banks for the years ended December 31, 2001 and 2000, were $4,196,000 and $6,172,000, respectively. Similarly, averages of short-term borrowings were $42,461,000 and $10,050,000 for 2001 and 2000, respectively. The balance of short-term borrowings at December 31, 2001 and 2000 was $52,974,000 and $26,701,000, respectively.

35

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4.    Securities

Debt and equity securities have been classified according to management’s intent. The amortized cost of securities and their fair values at December 31 were as follows:

December 31, 2001	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	($ in thousands)
Securities available-for-sale:
U.S. Treasury securities	$	1,001	$	42			$	1,043
Obligations of federal government agencies		4,531		53	$	20		4,564
Obligations of states, municipalities and political subdivisions		1,255		42				1,297
Mortgage backed securities		2,688		42				2,730
Other securities		5,951		34		69		5,916
Total	$	15,426	$	213	$	89	$	15,550

December 31, 2001	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	($ in thousands)
Securities available-for-sale:
U.S. Treasury securities	$	2,500	$	39	$	1	$	2,538
Obligations of federal government agencies		18,054		16		95		17,975
Obligations of states, municipalities and political subdivisions		7,458		134				7,592
Mortgage backed securities		9,246		16		169		9,093
Other securities		10,755		1		69		10,687
Total	$	48,013	$	206	$	334	$	47,885

36

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4.    Securities (Continued)

Securities taxable interest income was $1,596,000, $2,573,000, and $3,009,000 for 2001, 2000 and 1999, respectively. Securities nontaxable interest income was $210,000, $469,000 and $522,000 for 2001, 2000, and 1999, respectively. Dividend income was $272,000, $229,000, and $218,000 for 2001, 2000, and 1999, respectively. Securities with an amortized cost of $5,674,000 and $12,635,000 at December 31, 2001 and 2000, respectively, were pledged for purposes required or permitted by law. Market value of these securities was $5,790,000 and $12,872,000 at December 31, 2001 and 2000, respectively. Other securities includes Federal Home Loan Bank (FHLB) Stock of $4,173,000 in 2001 and $3,540,000 in 2000, which is carried at cost and can be sold back to the Federal Home Loan Bank at cost, but is restricted as to purchase and sale based on the level of AWBC business activity with the FHLB.

Gross realized gains on sales of securities available for sale were $267,000, $44,000, and $69,000 for 2001, 2000, and 1999, respectively. Gross realized losses were $79,000, $370,000, and $3,000 for 2001, 2000, and 1999, respectively.

The contractual scheduled maturity of securities at December 31, 2001 were as follows:

	Amortized Cost		Fair Value
	($ in thousands)
Due in one year or less	$	6,070	$	6,102
Due from one year to five years		3,658		3,716
Due from five to ten years		2,775		2,745
Due after ten years		316		339
Mortgage backed securities		2,607		2,648
	$	15,426	$	15,550

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

37

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5.    Loans and Allowance for Loan Losses

Loan categories as of December 31, 2001 and 2000 were as follows:

	2001			2000
	($ in thousands)
Commercial and industrial	$	411,197		$	317,108
Agricultural		88,121			76,093
Real estate mortgage		40,084			62,173
Real estate construction		17,201			12,252
Installment		26,311			22,489
Bank cards and other		5,062			3,972
Total loans		587,976			494,087
Allowance for loan losses		(6,624	)		(4,948	)
Deferred loan fees, net of deferred costs		(453	)		(680	)
Net loans	$	580,899		$	488,459

Variable rate loans were $229,296,000 and $185,345,000 as of December 31, 2001 and 2000, respectively. Remaining loans were fixed rate loans. A summary of loans by contractual maturity as of December 31, 2001 and 2000 is as follows:

	2001		2000
	($ in thousands)
Maturity within one year	$	185,917	$	124,644
One to five years		220,890		211,794
Over five years		181,169		157,649
	$	587,976	$	494,087

Changes in the allowance for loan losses are as follows:

	2001			2000			1999
	($ in thousands)
Balance, beginning of year	$	4,948		$	4,349		$	3,819
Provision charged to operations		2,855			1,643			1,577
Loans charged-off		(1,329	)		(1,140	)		(1,248	)
Recoveries		150			96			201
Balance, end of year	$	6,624		$	4,948		$	4,349

38

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 5.    Loans and Allowance for Loan Losses (Continued)

Impaired loan information as of December 31, 2001, 2000 and 1999 is as follows:

	2001		2000		1999
	($ in thousands)
Impaired loans with specific allowance for loan losses	$	1,679	$	177	$	1,157
Impaired loans without a specific allowance for loan losses		11,442		6,586		5,169
Total impaired loans	$	13,121	$	6,763	$	6,326
Impaired loans allowance for loan losses	$	444	$	50	$	539
Average impaired loans		11,767		6,414		3,544
Interest income recognized for impaired loans		269		41		306

Note 6.    Premises and Equipment

Major classifications of premises and equipment are summarized as of December 31, 2001 and 2000 as follows:

	2001			2000
	($ in thousands)
Premises	$	11,865		$	11,653
Furniture, fixtures, and equipment		6,314			5,408
Leasehold improvements		843			889
		19,022			17,950
Less accumulated depreciation		(7,672	)		(6,873	)
		11,350			11,077
Land		2,138			2,138
Premises and equipment, net	$	13,488		$	13,215

39

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 7.    Life Insurance and Salary Continuation Plan

The Bank maintains salary continuation plans for the benefit of certain of their directors, executive officers and other key employees. The plan provides for monthly payments to such persons, or their designated beneficiaries, for a period of ten years following retirement at age 65, or death prior to retirement. Amounts payable to eligible participants are determined by reference to such person’s salary or directors’ fee as of the date of each such person’s agreement under the plan.

The plan is generally available to most directors, executive officers and other key employees, and vests according to years of service. Persons employed for at least six continuous years following the effective date of the plan are deemed vested with respect to 20% of the salary continuation benefits available to them, and become vested in an additional 20% of such benefits for each succeeding year of employment thereafter until the employee becomes fully vested. Eligible persons employed for at least ten continuous years prior to the effective date of the plans are deemed fully vested. The Bank has invested funds in life insurance policies to protect the Bank from early payout of the obligations under the salary continuation plan due to the untimely death of plan participants. The Bank is the beneficiary of the life insurance policies. The Bank earns interest on these invested funds, which is classified with noninterest income.

Cash surrender values; salary continuance benefit obligations at age 65, and the recorded liability were as follows as of December 31, 2001 and 2000:

	2001		2000
	($ in thousands)
Cash surrender value	$	4,419	$	4,304
Present value at age 65 of all participants after full vesting is obtained		5,014		5,040
Present value at age 65 of the current fully vested participants		3,933		3,959
Recorded liability for future benefit obligation		1,428		1,123

Vested participants are eligible to receive benefits at age 65. The Bank invested an additional $6.1 million in life insurance contracts in late December 2001.

40

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8.    Income Taxes

The components of income tax expense for the years presented are as follows:

	2001			2000			1999
	($ in thousands)
Current expense	$	5,602		$	3,578		$	4,353
Deferred tax expense/(benefit)		(814	)		(199	)		(465	)
Income tax expense	$	4,788		$	3,379		$	3,888

The effective tax rate differs from the statutory tax rate as follows:

	2001			2000			1999
	($ in thousands)
Income tax at statutory rates	$	4,772		$	3,892		$	4,647
Effect of tax-exempt interest income		(104	)		(186	)		(204	)
Effect of tax credit					(283	)		(400	)
Effect of nondeductible expenses and other		120			(44	)		(155	)
Income tax expense	$	4,788		$	3,379		$	3,888

The following are the significant components of deferred tax assets and liabilities. The net amount is classified with other assets in the consolidated financial statements:

	2001		2000
	($ in thousands)
Deferred tax assets:
Allowance for loan losses	$	2,163	$	1,400
Deferred compensation expense		538		405
Other		296		148
Total deferred tax assets		2,997		1,953
Deferred tax liabilities:
Deferred loan costs		493		500
Lease financing		74		100
FHLB stock dividend income		579		486
Unrealized losses on available-for-sale securities		42		(43	)
Other		677		507
Total deferred tax liabilities		1,865		1,550
Net deferred tax assets	$	1,132	$	403

The applicable tax (benefit)/expense, net for securities gains and losses was $64,000, $(112,000), and $22,000 for 2001, 2000, and 1999, respectively.

41

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 9.    Time Deposit Maturities

At December 31, 2001, the scheduled maturities of time deposits were as follows:

	($ in thousands)
2002	$	199,869
2003		22,004
2004		2,730
2005		1,365
2006		493
Later years		99
Total	$	226,560

Note 10.    Commitments and Contingent Liabilities

In the ordinary course of business, AWBC has various outstanding commitments and contingent liabilities that are not reflected in the accompanying consolidated financial statements. In addition, AWBC is a defendant in certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the consolidated financial condition of AWBC.

The minimum annual rental commitments on capital and operating leases at December 31, 2001, exclusive of taxes and other charges, are summarized as follows:

	($ in thousands)
2002	$	613
2003		602
2004		551
2005		492
2006		456
Later years		3,936
Total minimum payments due		6,650
Less: Amount representing interest		(342	)
Present value of net minimum lease payments	$	6,308

AWBC rental expense for 2001, 2000, and 1999 was $669,000, $663,000, and $494,000, respectively.

Other commitments and contingent liabilities:

AWBC is a party to financial instruments with off-statement of condition risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of condition. The contract or notional amounts of those instruments reflect the extent of involvement AWBC has in particular classes of financial instruments.

42

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 10.    Commitments and Contingent Liabilities (Continued)

AWBC’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. AWBC uses the same credit policies in making commitments and conditional obligations as it does for statement of condition instruments.

	Contract or Notional Amount
	2001		2000
	($ in thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	104,783	$	93,051
Standby letters of credit and financial guarantees written		1,224		1,891
Unused commitments on bankcards		10,078		13,477
TOTAL	$	116,085	$	108,419

AWBC does not anticipate any material losses as a result of the commitments or guarantees.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. AWBC evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by AWBC upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income producing commercial properties.

Standby letters of credit and financial guarantees written are conditional commitments issued by AWBC to guarantee the performance of a customer of a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

43

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 10.    Commitments and Contingent Liabilities (Continued)

The Banks’ loans, commitments, and commercial and standby letters of credit have been granted to customers in the Banks’ market area. As such, significant changes in economic conditions in the State of Washington or within its primary industries could adversely affect the Bank’s ability to collect loans. Substantially all such customers are depositors of the Bank. The concentrations of credit by type of loan are set forth in Note 5. AWBC’s related party loans and deposits are disclosed in Note 16. The Bank, as a matter of policy, does not extend credit to any single borrower in excess of $10,000,000.

As of December 31, 2001 and 2000, AWBC had lines of credit available of $97,439,000 and $95,865,000, respectively. The lines were available for short-term and long-term borrowings.

Note 11.    Common Stock

The Board of Directors approved two stock repurchases in 2001 and 2000. In 2001 560,619 shares were repurchased for $6.2 million. In 2000 749,107 shares were repurchased for $7.9 million. In January and December 2001, January 2000 and January 1999 the Board of Directors declared 10% common stock dividends. AWBC recorded a transfer from retained earnings to common stock for the market value of the additional shares issued. Per share amounts and weighted average shares outstanding have been retroactively adjusted to reflect the stock dividends.

Note 12.    Restrictions on Dividends and Loans

The Bank is subject to banking regulations relating to the payment of dividends and the amount of loans that it may extend. The Bank is allowed to pay dividends out of retained earnings. As of December 31, 2001, the amount of retained earnings of AWB was $38,969,000. As of December 31, 2001 AWBC had $6,584,000 of retained earnings available for dividends.

Certain loans to any person, including liabilities of a firm or association, cannot exceed twenty percent of the capital and surplus of the Bank. Loans that are secured or covered by guarantees, or by commitments or agreements to take over or to purchase the same, made by any federal reserve bank or by the United States, including any corporation wholly owned directly or indirectly by the United States, are not subject to these restrictions. No loans can be made unless the Bank has more than the minimum available funds required by law.

44

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 13.    Employee Stock Ownership Plan (ESOP) and Profit Sharing 401(k) Plan

AWBC sponsors an ESOP. An ESOP is a form of retirement plan whereby AWBC receives a deduction for contributions to the Plan and the Plan invests all or a portion of the employer Trust contributions and Trust earnings in stock of AWBC. The Plan is qualified under Section 401(a) of the Internal Revenue Code as a stock bonus plan. Employees 21 years or older become eligible for participation after 1,000 hours or more of service in a plan year, and benefits fully vest after five years of service. Contributions to the ESOP plan totaled $183,000, $400,000 and $322,000 for 2001, 2000 and 1999, respectively and are based on a percentage of AWBC earnings. Contributions are allocated pro rata based on eligible annual compensation on December 31. AWBC has a Profit Sharing 401(k) Plan. Contributions to the 401(k) plan in 2001 were $167,000. There were no employer contributions to the plan in 2000 and 1999.

Note 14.    Stock Option Plans

The AWBC Shareholders and Board of Directors approved an Incentive Stock Plan (Plan) in 2001. The plan provides for the issuance of incentive stock options to directors, officers and key employees. The maximum aggregate number of authorized shares issued under this plan is 800,000. In any given year, no eligible participant may receive more than 10,000 shares. The exercise price of each option granted under the Plan may not be less than the fair market value of a share of AWBC’s common stock on the date of grant. 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 December 31, 2010. On June 1, 2001 128,370 common stock incentive stock options were issued under the new Plan. As of December 31, 2001 there were 357,742 stock options outstanding from prior approved Incentive Stock Option Plans. Future incentive stock options will be issued from the Plan approved in 2001.

45

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 14.    Stock Option Plans (Continued)

The status of the Plans as of December 31, 2001, 2000 and 1999 is as follows:

	2001			2000			1999
	Number		Weighted Average Exercise Price	Number		Weighted Average Exercise Price	Number		Weighted Average Exercise Price
Outstanding at beginning of year	445,201		8.39	449,770		8.07	451,515		7.50
Granted	128,370		9.73	149,617		8.15	44,029		10.55
Exercised	(82,506	)	5.95	(105,015	)	5.58	(45,774	)	4.77
Forfeited	(4,953	)	8.80	(49,171	)	12.23
Outstanding at year-end	486,112		9.17	445,201		8.39	449,770		8.07
Exercisable at year-end	227,985		8.87	337,659		7.57	281,212		6.81
Weighted average fair value of options granted during the year			9.73			8.15			10.31

The following table summarizes information about stock options outstanding at December 31, 2001:

		Options Outstanding		Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$5.48 – $6.05	31,649	.1 years	$5.73	31,649	$5.73
$6.35	33,983	1.1 years	$6.35	33,983	$6.35
$7.20	8,910	1.2 years	$7.20	8,910	$7.20
$7.85	121,000	2.1 years	$7.85	25,410	$7.85
$7.86	11,550	1.2 years	$7.86	11,550	$7.86
$9.39	28,622	3.1 years	$9.39	7,986	$9.39
$9.73	128,370	4.1 years	$9.73	55,000	$9.73
$10.50	35,463	2.1 years	$10.50
$10.59	2,928	1.9 years	$10.59	2,928	$10.59
$10.89	5,324	2.1 years	$10.89
$11.19	6,003	2.0 years	$11.19
$11.37	15,138	1.9 years	$11.37	15,138	$11.37
$12.88	57,172	1.1 years	$12.88	35,431	$12.88

46

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 14.    Stock Option Plans (Continued)

If the fair value based method of accounting under SFAS No. 123 had been used for 2001, 2000 and 1999 the results and related assumptions would have been as follows:

	2001			2000			1999
	( $ in thousands, except per share)
Results using fair value based method of accounting:
Net income	$	8,919		$	7,739		$	9,608
Basic earnings per common share	$	1.09		$	0.88		$	1.04
Diluted earnings per common share	$	1.08		$	0.87		$	1.03
Assumptions used to make the fair value calculation:
Risk free interest rate		4.25	%		5.00	%		5.50	%
Expected volatility		28.25	%		28.25	%		28.25	%
Expected cash dividends		0	%		0	%		0	%
Expected stock option life		5.0 years			5.0 years			5.0 years

Note 15.    Parent Company Only Statements

The following are the condensed statements of condition, income, and cash flows for the parent company only, AmericanWest Bancorporation. These statements are presented using the equity method of accounting; therefore, accounts of the subsidiaries have not been included. Intercompany transactions and balances have not been eliminated. The following information should be read in conjunction with the other notes to the consolidated financial statements.

Condensed Statements of Condition

	December 31,
	2001		2000
	($ in thousands)
Cash	$	1	$	348
Investment in:
Bank subsidiaries		63,918		62,211
Nonbank subsidiary				299
Premises and equipment				1,115
Other assets		4,287		1,165
TOTAL ASSETS	$	68,206	$	65,138
Accrued expenses and other liabilities			$	608
Stockholders' equity		68,206		64,530
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	68,206	$	65,138

47

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15.    Parent Company Only Statements (Continued)

Condensed Statements of Income

	Years Ended December 31,
	2001			2000		1999
	($ in thousands)
Income:
Bank subsidiaries dividends	$	4,471		$	6,318	$	3,099
Rent income					489		476
Other income		395			6		155
		4,866			6,813		3,730
Expenses:
Salaries and benefits					1,151		1,029
Interest expense		1			6
Depreciation and amortization		226			171		169
Other operating expenses					479		712
		227			1,807		1,910
Income/(loss) before tax benefit and equity in undistributed net income of subsidiaries		4,639			5,006		1,820
Income tax benefit/(expense)		(134	)		591		498
Income/(loss) before equity in undistributed net income of subsidiaries		4,505			5,597		2,318
Equity in undistributed net income of:
Bank subsidiaries		4,634			2,348		7,333
Nonbank subsidiaries		68			90		61
Net income	$	9,207		$	8,035	$	9,712

48

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15.    Parent Company Only Statements (Continued)

Condensed Statements of Cash Flows

	Years Ended December 31,
	2001			2000			1999
	($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	9,207		$	8,035		$	9,712
Adjustments to reconcile net income to cash provided by operating activities:
Equity in undistributed net income of subsidiaries		(4,702	)		(2,438	)		(7,394	)
Depreciation and amortization		226			171			169
Gain on sale		(391	)
(Increase) decrease in other assets		(2,966	)		(1,060	)		65
Increase (decrease) in other liabilities		(608	)		547			(82	)
NET CASH FROM OPERATING ACTIVITIES		766			5,255			2,470
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiaries		(294	)		(2,913	)
Return of investment in subsidiaries		4,097						52
Purchase of premises and equipment					(632	)		(612	)
Proceeds from sale of Insurance Agency		781
Sale of premises and equipment					3,585
NET CASH FROM INVESTING ACTIVITIES		4,584			40			(560	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of capital stock		504			585			124
Stock repurchase program		(6,201	)		(7,937	)
Cash paid for redemption of fractional shares								(17	)
NET CASH FROM FINANCING ACTIVITIES		(5,697	)		(7,352	)		107
NET CHANGE IN CASH		(347	)		(2,057	)		2,017
CASH, beginning of year		348			2,405			388
CASH, end of year	$	1		$	348		$	2,405

49

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 16.    Related Party Transactions

Loans to related parties:

Loans to AWBC’s officers and directors are on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. Such loans had the following balances and activity during 2001 and 2000:

	2001			2000
	($ in thousands)
Balance at beginning of year	$	15,104		$	20,515
New loans or advances		815			5,230
Repayments and adjustments		(11,897	)		(10,641	)
Balance at end of year	$	4,022		$	15,104

Deposits from related parties:

Deposits from related parties totaled $1,365,000 and $12,647,000 at December 31, 2001 and 2000, respectively.

Payments to related parties:

AWB paid $84,000 in 2001, 2000, and 1999 respectively to an Association including one of the Directors of AWBC and AWB for the rent of its Ephrata branch.

50

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 17.    Fair Value of Financial Instruments

SFAS No. 107, Disclosures about Fair Value of Financial Instruments requires disclosure of fair value information about financial instruments for which it is practicable to estimate fair value. As defined by SFAS No. 107, financial instruments include the categories listed below. It does not include the value of property, plant and equipment and intangible assets such as customer relationships and core deposit intangibles. Fair values of off-statement of condition lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties’ credit standing. The fair value of the fees at December 31, 2001 and 2000, were insignificant. See Note 10 for the notional amount of the commitments to extend credit. The following table summarizes carrying amounts, estimated fair values, and assumptions used by AWBC to estimate fair value as of December 31, 2001 and 2000:

As of December 31, 2001:	Assumptions Used in Estimating Fair Value	Carrying Amount		Estimated Fair Value
		($ in thousands)
Financial Assets:
Cash and due from banks	Equal to carrying value	$	24,421	$	24,421
Overnight interest bearing deposits with other banks	Equal to carrying value		535		535
Securities	Quoted market prices		15,550		15,550
Loans	Fixed-rate loans: Discounted expected future cash flows, variable-rate loans: equal to carrying value, net of allowance for loan losses		580,899		609,992
Financial Liabilities:
Deposits	Fixed-rate certificates of deposit: Discounted expected future cash flows
	All other deposits: Equal to carrying value		532,237		553,167
Short-term borrowings	Equal to carrying value		52,974		52,974

As of December 31, 2000:	Assumptions Used in Estimating Fair Value	Carrying Amount		Estimated Fair Value
		($ in thousands)
Financial Assets:
Cash and due from banks	Equal to carrying value	$	28,580	$	28,580
Overnight interest bearing deposits with other banks	Equal to carrying value		1,247		1,247
Securities	Quoted market prices		47,885		47,885
Loans	Fixed-rate loans: Discounted expected future cash flows, variable-rate loans: equal to carrying value, net of allowance for loan losses		488,459		488,116
Financial Liabilities:
Deposits	Fixed-rate certificates of deposit: Discounted expected future cash flows
	All other deposits: Equal to carrying value		501,426		501,860
Short-term borrowings	Equal to carrying value		26,701		26,701

51

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 18.    Regulatory Matters

The Bank is subject to various regulatory capital requirements administered by the banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that, if undertaken, could have a direct material effect on the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-statement of condition items.

The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios set forth in the following table of total and Tier I capital to risk-weighted and average assets. As of December 31, 2001 AWBC and AWB were considered well capitalized based on regulatory capital standards.

52

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2001 and 2000 the regulatory ratios for AWBC and AWB were as follows:

	Actual				Adequately Capitalized				Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
As of December 31, 2001:
Total capital to risk weighted assets:
AWBC	$	69,778	11.25	%	$	>49,633	8.00	%	$	>62,041	10.00	%
AWB		69,362	11.18	%		>49,620	8.00	%		>62,025	10.00	%
Tier I capital to risk weighted assets:
AWBC		63,154	10.18	%		>24,816	4.00	%		>37,225	6.00	%
AWB		62,738	10.12	%		>24,810	4.00	%		>37,215	6.00	%
Leverage capital, Tier I capital to average assets:
AWBC		63,154	9.84	%		>25,660	4.00	%		>32,075	5.00	%
AWB		62,738	9.92	%		>25,297	4.00	%		>31,622	5.00	%
As of December 31, 2000:
Total capital to risk weighted assets:
AWBC	$	64,260	12.18	%	$	>42,192	8.00	%	$	>52,740	10.00	%
USB		24,723	11.04	%		>17,911	8.00	%		>23,389	10.00	%
HSB		12,399	12.30	%		>8,064	8.00	%		>10,080	10.00	%
BOP		6,678	10.77	%		>4,960	8.00	%		>6,199	10.00	%
GNB		3,992	11.67	%		>2,736	8.00	%		>3,420	10.00	%
AWB		14,178	11.46	%		>9,901	8.00	%		>12,376	10.00	%
Tier I capital to risk weighted assets:
AWBC		59,312	11.25	%		>21,096	4.00	%		>31,644	6.00	%
USB		22,596	10.09	%		>8,956	4.00	%		>13,433	6.00	%
HSB		11,424	11.33	%		>4,032	4.00	%		>6,048	6.00	%
BOP		6,154	9.93	%		>2,480	4.00	%		>3,720	6.00	%
GNB		3,668	10.72	%		>1,368	4.00	%		>2,052	6.00	%
AWB		13,148	10.62	%		>4,950	4.00	%		>7,246	6.00	%
Leverage capital, Tier I capital to average assets:
AWBC		59,312	10.24	%		>23,176	4.00	%		>28,970	5.00	%
USB		22,596	10.04	%		>8,998	4.00	%		>11,248	5.00	%
HSB		11,424	10.19	%		>4,483	4.00	%		>5,604	5.00	%
BOP		6,154	9.16	%		>2,686	4.00	%		>3,358	5.00	%
GNB		3,668	8.02	%		>1,830	4.00	%		>2,288	5.00	%
AWB		13,148	10.84	%		>4,850	4.00	%		>6,062	5.00	%

53

AMERICANWEST BANCORPORATION AND AMERICANWEST BANK

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 19.    Earnings Per Share

The following is a reconciliation of the numerators and denominators for basic and diluted per-share computations for net income for 2001, 2000 and 1999:

	2001		2000		1999
	($ in thousands, except per share)
Numerator:
Net income	$	9,207	$	8,035	$	9,712
Denominator:
Weighted-average number of common shares outstanding		8,190,374		8,819,697		9,233,412
Incremental shares assumed for stock options		65,786		61,690		125,537
Total		8,256,160		8,881,387		9,358,949
Basic earnings per common share	$	1.12	$	0.91	$	1.05
Diluted earnings per common share	$	1.12	$	0.90	$	1.04
Potentially dilutive stock option shares		122,028		150,650		143,013

QUARTERLY FINANCIAL DATA

CONDENSED CONSOLIDATED STATEMENT OF INCOME-QUARTERLY

($ in thousands, except per share)

UNAUDITED

	2001, Quarter Ended								2000, Quarter Ended
	Dec. 31		Sept. 30		June 30		Mar. 31		Dec. 31		Sept. 30		June 30		Mar. 31
Interest income	$	13,229	$	13,616	$	13,340	$	13,319	$	13,727	$	13,055	$	12,022	$	11,238
Interest expense		3,802		4,555		5,162		5,561		5,385		5,271		4,719		4,311
Net Interest Income		9,427		9,061		8,178		7,758		8,342		7,784		7,303		6,927
Provision for loan losses		618		1,109		707		421		647		352		307		337
Net interest income after provision for loan losses		8,809		7,952		7,471		7,337		7,695		7,432		6,996		6,590
Noninterest income		1,055		1,070		1,326		1,251		1,018		925		1,043		1,043
Noninterest expense		5,548		5,545		5,322		5,861		5,837		5,123		5,148		5,220
Income before income taxes		4,316		3,477		3,475		2,727		2,876		3,234		2,891		2,413
Income tax		1,540		1,180		1,161		907		825		1,058		873		623
Net income	$	2,776	$	2,297	$	2,314	$	1,820	$	2,051	$	2,176	$	2,018	$	1,790
Basic earnings per common share	$	0.35	$	0.28	$	0.28	$	0.22	$	0.24	$	0.25	$	0.23	$	0.20
Diluted earnings per common share	$	0.35	$	0.28	$	0.28	$	0.21	$	0.24	$	0.25	$	0.23	$	0.19
Basic average shares		7,932,785		8,133,848		8,271,923		8,429,012		8,519,111		8,782,550		8,853,077		9,131,179
Diluted average shares		8,007,335		8,205,918		8,330,313		8,502,078		8,591,469		8,831,893		8,898,737		9,206,633

54