SECURITIES AND EXCHANGE
COMMISSIONWashington, D. C. 20549

FORM 10-Q

(Mark One)

/X/    Quarterly Report
Pursuant to Section 13 or 15(d) of theSecurities Exchange Act
of 1934

For the quarterly
period ended September 30, 2003

_________________

OR

/  /    Transition Report
Pursuant to Section 13 or 15(d) of theSecurities Exchange Act
of 1934

For the transition
period from          to

_________________

Commission File Number
000-50332_________________

PREMIERWEST BANCORP(Exact name of
registrant as specified in its charter)

| | OREGON                   |  | 93-1282171                             | 
| | ------------------------ |  | -------------------------------------- | 
| | (State of Incorporation) |  | (I.R.S. EmployerIdentification Number) | 

503 Airport RoadP.O. Box 40Medford, Oregon 97504(Address of principal executive offices)(Zip Code)

(541) 618-6003(Registrants telephone number, including area code)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes /X/      No /  /

Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).

Yes /X/     No /  /

Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of latest
practicable date: 12,161,026 shares as of November 7, 2003.

1

---

Disclosure Regarding
Forward-Looking Statements

This report includes forward-looking
statements within the meaning of the safe-harbor provisions of Section 21D and
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements
are based on the beliefs of PremierWest Bancorp's (the "Company's") management and on assumptions made by and information
currently available to management. Other than for statements of historical fact, all
statements about our financial position and results of operations, business strategy and
plans and objectives of management for future operations of the Company are
forward-looking statements. When used in this report, the words anticipate,
believe, estimate, expect, and intend and
words or phrases of similar meaning, as they relate to the Company or management, are
intended in part to help identify forward-looking statements. Examples of forward-looking
statements include, but are not limited to (i) statements that include projections or
managements expectations for revenues, income or expenses, earnings per share,
capital expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company, its management or its board of
directors, including the introduction of new products or services, plans for expansion,
acquisitions or future growth, or estimates or predictions of actions by customers,
vendors, competitors or regulatory authorities, (iii) statements about future economic
performance, and (iv) statements of assumptions underlying other statements about the
Company and its business. Although management believes that the expectations reflected in
such forward-looking statements are reasonable, we can make no assurance that such
expectations will prove correct. Forward-looking statements are subject to various risks
and uncertainties that could cause actual results to differ materially from those
indicated by the forward-looking statements. These risks and uncertainties include our
ability to conclude our previously announced merger with Mid Valley Bank; factors that
might increase the costs or delay or diminish the expected benefits of that merger;
factors that might inhibit our ability to maintain or expand our market share or our net
interest margins; and factors that could limit or delay implementation of our marketing
and growth strategies. Further, actual results may be affected by our ability to compete
on price and other factors with other financial institutions; customer acceptance of new
products and services; localized economic conditions and events that disproportionately
affect our business; and general trends in the banking industry, interest rate economy and
regulatory environment. In addition, we face various risks inherent in the banking
industry relating to collectibility of loans and changes in interest rates. Other risks
include those identified from time to time in our past and future filings with the
Securities and Exchange Commission. Please note that this list of risks is not exhaustive,
and risks identified are applicable as of the date made and cannot be updated.

2

---

Form 10-Q
                                                           Table of Contents

|Part I     | FINANCIAL INFORMATION                                                                 |   
|---------- | ------------------------------------------------------------------------------------- | --
|Item 1     | Financial Statements                                                                  | 4 
|Item 2     | Management's Discussion and Analysis of Financial Condition and Results of Operations | 15
|Item 3     | Quantitative and Qualitative Disclosures About Market Risk                            | 19
|Item 4     | Controls and Procedures                                                               | 19
|Part II    | OTHER INFORMATION                                                                    
|Item 1     | Legal Proceedings                                                                     | 20
|Item 2     | Changes in Securities and Use of Proceeds                                             | 20
|Item 3     | Defaults Upon Senior Securities                                                       | 20
|Item 4     | Submission of Matters to a Vote of Securities Holders                                 | 20
|Item 5     | Other Information                                                                     | 20
|Item 6     | Exhibits and Reports on Form 8-K                                                      | 21
|SIGNATURES |                                                                                       | 22

3

---

PART
I. FINANCIAL INFORMATION

ITEM
1. FINANCIAL STATEMENTS.

PREMIERWEST BANCORP AND
SUBSIDIARY                       CONSOLIDATED BALANCE SHEETS
                          (Dollars in 000's)

# ASSETS

|                                                               | (Unaudited)September 30,2003 | (Audited)December 31,2002
|-------------------------------------------------------------- | ---------------------------- | -------------------------
|Cash and cash equivalents:                                     |                              |                          
|Cash and due from banks                                        | $  19,593                    | $  28,952                
|Federal funds sold                                             | 52,650                       | 12,485                   
|Total cash and cash equivalents                                | 72,243                       | 41,437                   
|Interest-bearing deposits with Federal Home Loan Bank          | 313                          | 208                      
|Investment securities available-for-sale, at fair market value | 25,732                       | 41,598                   
|Federal Home Loan Bank stock                                   | 1,770                        | 1,696                    
|Other equity investments                                       | 11                           | --                       
|Loans, net of allowance for loan losses and deferred loan fees | 419,849                      | 392,274                  
|Premises and equipment, net of accumulated depreciation       
|and amortization                                               | 19,148                       | 18,725                   
|Goodwill, net of amortization                                  | 6,633                        | 6,633                    
|Accrued interest and other assets                              | 13,537                       | 12,513                   
|TOTAL ASSETS                                                   | $559,236                     | $515,084                 

# LIABILITIES AND
SHAREHOLDERS' EQUITY

|                                                           |          |           
|---------------------------------------------------------- | -------- | ----------
|LIABILITIES                                                |          |           
|Deposits:                                                 
|Non-interest-bearing demand                                | $109,434 | $   91,611
|Savings and interest-bearing demand                        | 226,641  | 195,750   
|Time                                                       | 134,685  | 140,976   
|Total deposits                                             | 470,760  | 428,337   
|Federal Home Loan Bank borrowings                          | 24,247   | 24,847    
|Securities sold under agreements to repurchase             | 5,491    | 8,890     
|ESOP notes payable                                         | --       | 16        
|Accrued interest and other liabilities                     | 5,118    | 3,822     
|Total liabilities                                          | 505,616  | 465,912   
|COMMITMENTS AND CONTINGENCIES (Note 5)                    
|SHAREHOLDERS' EQUITY                                      
|Common stock - no par value; 20,000,000 shares authorized;
|12,161,026 and 11,567,559 shares issued and outstanding   
|in 2003 and 2002, respectively                             | 38,255   | 33,875    
|Retained earnings                                          | 14,872   | 14,772    
|Unearned ESOP compensation                                 | --       | (16)      
|Accumulated other comprehensive income                     | 493      | 541       
|Total shareholders' equity                                 | 53,620   | 49,172    
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                 | $559,236 | $ 515,084 

4

See accompanying notes

---

PREMIERWEST BANCORP AND
SUBSIDIARY          CONSOLIDATED STATEMENTS OF INCOME (Dollars in 00O's, Except for
Earnings per Share Data)                     (UNAUDITED)

|                                                  | FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED
|------------------------------------------------- | -------------------------- | -------------------------
|
|INTEREST AND DIVIDEND INCOME                      |                            |                          
|Interest and fees on loans                        | $7,750                     | $7,489                   
|Taxable interest on investment securities         | 129                        | 292                      
|Nontaxable interest on investment securities      | 145                        | 172                      
|Interest on federal funds sold                    | 122                        | 83                       
|Federal Home Loan Bank stock dividends            | 23                         | 25                       
|Total interest income                             | 8,169                      | 8,061                    
|INTEREST EXPENSE                                 
|Deposits:                                        
|Interest-bearing demand and savings               | 360                        | 603                      
|Time                                              | 966                        | 1,203                    
|Federal funds purchased and securities sold under
|agreements to repurchase                          | 8                          | 35                       
|Federal Home Loan Bank borrowings and ESOP       
|notes payable                                     | 204                        | 183                      
|Total interest expense                            | 1,538                      | 2,024                    
|NET INTEREST INCOME                               | 6,631                      | 6,037                    
|LOAN LOSS PROVISION                               | 300                        | 225                      
|NET INTEREST INCOME AFTER LOAN                   
|LOSS PROVISION                                    | 6,331                      | 5,812                    
|NON-INTEREST INCOME                              
|Service charges on deposits accounts              | 565                        | 424                      
|Mortgage loan brokerage and other fees            | 533                        | 372                      
|Investment brokerage and annuity fees             | 185                        | 155                      
|Other commissions and fees                        | 191                        | 174                      
|Gains on sales of investment securities, net      | 1                          | 4                        
|Other non-interest income                         | 124                        | 171                      
|Total non-interest income                         | 1,599                      | 1,300                    
|NON-INTEREST EXPENSE                             
|Salaries and employee benefits                    | 3,156                      | 3,179                    
|Net occupancy and equipment                       | 1,001                      | 1,062                    
|Communications                                    | 270                        | 284                      
|Professional fees                                 | 156                        | 165                      
|Advertising                                       | 186                        | 122                      
|Other                                             | 695                        | 659                      
|Total non-interest expense                        | 5,464                      | 5,471                    
|INCOME BEFORE PROVISION FOR INCOME TAXES         
|AND CUMULATIVE EFFECT OF AN                      
|ACCOUNTING CHANGE                                 | 2,466                      | 1,641                    
|PROVISION FOR INCOME TAXES                        | 824                        | 552                      
|NET INCOME BEFORE CUMULATIVE EFFECT              
|OF AN ACCOUNTING CHANGE                           | 1,642                      | 1,089                    
|CUMULATIVE EFFECT OF AN ACCOUNTING               
|CHANGE, NET OF TAX                                | --                         | --                       
|NET INCOME                                        | $1,642                     | $1,089                   

5
See accompanying notes

---

PREMIERWEST BANCORP AND
SUBSIDIARY          CONSOLIDATED STATEMENTS OF INCOME (Dollars in 000's, Except for
Earnings per Share Data)                     (UNAUDITED)

|                                         | FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED
|---------------------------------------- | -------------------------- | -------------------------
|
|BASIC EARNINGS PER COMMON SHARE BEFORE  
|CUMULATIVE EFFECT OF AN                 
|ACCOUNTING CHANGE                        | $  0.13                    | $  0.09                  
|DILUTED EARNINGS PER COMMON SHARE BEFORE
|CUMULATIVE EFFECT OF AN                 
|ACCOUNTING CHANGE                        | $  0.13                    | $  0.09                  
|PER SHARE CUMULATIVE EFFECT OF AN       
|ACCOUNTING CHANGE, NET OF TAX            | $     --                   | $     --                 
|BASIC EARNINGS PER COMMON SHARE AFTER   
|CUMULATIVE EFFECT OF AN                 
|ACCOUNTING CHANGE                        | $  0.13                    | $  0.09                  
|DILUTED EARNINGS PER COMMON SHARE AFTER 
|CUMULATIVE EFFECT OF AN                 
|ACCOUNTING CHANGE                        | $  0.13                    | $  0.09                  

6 See accompanying notes

---

PREMIERWEST BANCORP AND
SUBSIDIARY        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
      (Dollars in 000's)           (UNAUDITED)

|                                       | Numberof shares | Commonstock | Retainedearnings | UnearnedESOPcompensation | Accumulatedothercomprehensiveincome (loss) | Totalshareholders'equity | Comprehensiveincome
|-------------------------------------- | --------------- | ----------- | ---------------- | ------------------------ | ------------------------------------------ | ------------------------ | -------------------
|BALANCE - JANUARY 1, 2002              | 10,854,732      | $29,480     | $ 14,008         | $(162)                   | $    368                                   | $ 43,694                 |                    
|Comprehensive income:                 
|Net income                             |                 | --          | 3,024            | --                       | --                                         | 3,024                    | $   3,024          
|Unrealized gain                       
|on investment securities              
|available-for-sale of $438            
|(net of taxes of $221)                 |                 | --          | --               | --                       | 438                                        | 438                      | 438                
|Reclassification adjustment           
|for net gains on sales of             
|investment securities                 
|available-for-sale included in        
|net income of $193 (net of            
|taxes of $97)                          |                 | --          | --               | --                       | (193)                                      | (193)                    | (193)              
|Comprehensive income                   |                 |             |                  |                          |                                            |                          | $         3,269    
|Stock dividend paid (5%)               | 548,519         | 3,541       | (3,541)          | --                       | --                                         | --                       |                    
|ESOP compensation expense              |                 | 69          |                  | 126                      | --                                         | 195                      |                    
|Stock options exercised                | 146,924         | 344         | --               | --                       | --                                         | 344                      |                    
|Tax benefit of stock options exercised |                 | 162         | --               | --                       | --                                         | 162                      |                    
|BALANCE - SEPTEMBER 30, 2002           | 11,550,175      | $33,596     | $ 13,491         | $(36)                    | $    613                                   | $ 47,664                 |                    
|BALANCE - JANUARY 1, 2003              | 11,567,559      | $33,875     | $ 14,772         | $(16)                    | $    541                                   | $ 49,172                 |                    
|Comprehensive income:                 
|Net income                             |                 | --          | 4,411            | --                       | --                                         | 4,411                    | $   4,411          
|Unrealized loss                       
|on investment securities              
|available-for-sale of $30             
|(net of taxes of $15)                  |                 | --          | --               | --                       | (30)                                       | (30)                     | (30)               
|Reclassification adjustment           
|for net gains on sales of             
|investment securities                 
|available-for-sale included in        
|net income of $18 (net of             
|taxes of $9)                           |                 | --          | --               | --                       | (18)                                       | (18)                     | (18)               
|Comprehensive income                   |                 |             |                  |                          |                                            |                          | $         4,363    
|Stock dividend paid (5%)               | 578,200         | 4,311       | (4,311)          | --                       | --                                         | --                       |                    
|ESOP compensation expense              |                 | 8           |                  | 16                       |                                            | 24                       |                    
|Stock options exercised                | 15,267          | 27          | --               | --                       |                                            | 27                       |                    
|Tax benefit of stock options exercised |                 | 34          | --               | --                       |                                            | 34                       |                    
|BALANCE - SEPTEMBER 30, 2003           | 12,161,026      | $38,255     | $ 14,872         | $   --                   | $    493                                   | $ 53,620                 |                    

7 See accompanying notes

---

PREMIERWEST BANCORP AND
SUBSIDIARY                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Dollars in 000's)
                                     (UNAUDITED)

|                                                                | FOR THE NINE MONTHS ENDED
|--------------------------------------------------------------- | -------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                           |                          
|Net income                                                      | $   4,411                
|Adjustments to reconcile net income to net cash provided       
|by operating activities:                                       
|Depreciation and amortization                                   | 1,442                    
|Amortization of premiums (accretion of discounts)              
|on investment securities, net                                   | (3)                      
|Dividends on Federal Home Loan Bank stock                       | (74)                     
|Net securities gains                                            | (27)                     
|Net loss (gain) on sale of premises and equipment               | 5                        
|Loan loss provision                                             | 900                      
|Recognition of deferred compensation relating to ESOP           | 24                       
|Decrease in accrued interest and other assets                   | 66                       
|Increase in accrued interest and other liabilities              | 1,296                    
|Net cash from operating activities                              | 8,040                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                          
|Purchases of investment securities available-for-sale           | (5,989)                  
|Proceeds from sales of investment securities available-for-sale | 1,024                    
|Proceeds from calls and maturities of investment               
|securities available-for-sale                                   | 20,782                   
|Increase in deposits with FHLB                                  | (105)                    
|Increase in other investments                                   | (11)                     
|Loan originations, net                                          | (29,532)                 
|Proceeds from sale of premises and equipment                    | 55                       
|Purchase of premises and equipment                              | (1,893)                  
|Net cash from investing activities                              | (15,669)                 
|CASH FLOWS FROM FINANCING ACTIVITIES:                          
|Net increase in deposits                                        | 42,423                   
|Net (repayments) borrowings                                     | (4,015)                  
|Proceeds from exercise of stock options                         | 27                       
|Net cash from financing activities                              | 38,435                   
|INCREASE IN CASH AND CASH EQUIVALENTS                           | 30,806                   
|CASH AND CASH EQUIVALENTS - Beginning of the period             | 41,437                   
|CASH AND CASH EQUIVALENTS - End of the period                   | $ 72,243                 

8 See accompanying
notes

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

| | NOTE
1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
| | --------------------------------------------------------------------

| | Organization -
The accompanying consolidated financial statements include the accounts of PremierWest
Bancorp and its wholly-owned subsidiary, PremierWest Bank (collectively,
PremierWest, the Company or the Bank). PremierWest
Banks wholly-owned subsidiaries include PremierWest Investment Services, Inc.,
Premier Finance Company, and Blue Star Properties, Inc.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Bank conducts a general banking business operating primarily in Jackson, Josephine,
Douglas, and Klamath counties of southern Oregon, and Siskiyou and Shasta counties of
northern California. Its activities include the usual lending and deposit functions of a
commercial bank  commercial, real estate, installment, and mortgage loans; checking,
time deposit, and savings accounts; mortgage loan brokerage services; and automated teller
machines (ATMs) and safe deposit facilities.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Basis
of presentation- The consolidated financial statements include the accounts of
PremierWest Bancorp and its wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
interim consolidated financial statements are not audited, but include all adjustments
that management considers necessary for a fair presentation of our financial position and
results of operations for such interim periods.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Balance
sheet data as of December 31, 2002 was derived from audited financial statements and does
not include all disclosures contained in the 2002 Annual Report to Shareholders. The
interim consolidated financial statements should be read in conjunction with our 2002
consolidated financial statements, including the notes thereto, included in the 2002
Annual Report to Shareholders. The reader should keep in mind that the results of
operations for the interim periods shown in the accompanying consolidated financial
statements are not necessarily indicative of results for any future interim periods or the
entire fiscal year.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Method
of accounting and use of estimates - The Bank prepares its consolidated financial
statements in conformity with accounting principles generally accepted in the United
States of America and prevailing practices within the banking industry. The Bank utilizes
the accrual method of accounting, which recognizes income when earned and expenses when
incurred.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of income and expenses during the reporting period. Actual results could
differ from those estimates.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Elements
of our accounting policies are inherently subject to estimation techniques, valuation
assumptions and other subjective assessments that management has identified as being
critical to an understanding of the consolidated financial statements. These policies
relate primarily to the determination of our allowance for loan losses and the valuation
of goodwill.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | There
are other complex accounting standards that require the Company to employ significant
judgment in interpreting and applying certain of the principles prescribed by those
standards. These judgments include the determination of whether a financial instrument or
other contract meets the definition of a derivative and qualifies for accounting in
accordance with Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities. These judgments also include
significant estimates and assumptions necessary to determine the disclosure requirements
of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation and Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
Amendment of FASB Statement No. 123. These policies and judgments, estimates and
assumptions are described in greater detail in the Notes to the consolidated financial
statements included in our 2002 Annual Report on Form 10-K. We believe that the judgments
and estimates and assumptions used in the preparation of our consolidated financial
statements are appropriate given the factual circumstances at the time. However, given the
sensitivity of our consolidated financial statements to these critical accounting
policies, the use of other judgments, estimates and assumptions could result in material
differences in our results of operations or financial condition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
dividends - On April 18, 2002, the Company declared a 5% stock dividend
payable on June 21, 2002 to its shareholders of record June 1, 2002. On March 27,
2003, the Company declared a 5% stock dividend payable on June 20, 2003 to its
shareholders of record May 30, 2003. Per share data for 2003 and 2002 in the accompanying
consolidated financial statements have been retroactively restated to reflect the stock
dividend.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
options  PremierWest applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock option plans. SFAS No. 123, Accounting for Stock-Based
Compensation, requires companies, such as the Bank, that use the intrinsic value
method to account for employee stock options, to provide pro forma disclosures of the net
income and earnings per share effect of applying the fair value-based method of accounting for stock options.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
effect of applying the fair value-based method to stock options granted during the nine
months ended September 30, 2003 and 2002, resulted in an estimated weighted-average grant
date fair value of $2.28 for the three months ended September 30, 2003 (there were no
options issued in the three months ended September 30, 2002) and $1.97 and $2.17 for the
nine months ended September 30, 2003 and 2002. Had compensation cost been determined
consistent with SFAS No. 123, our net
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

| | income
and earnings per common share, and diluted earnings per common share for the three and
nine months ended September 30, 2003 and 2002 , would have been as follows (in thousands,
except per share amounts):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED
|-------------------------------- | -------------------------- | -------------------------
|
|Net income:                      |                            |                          
|As reported                      | $     1,642                | $     1,089              
|Pro forma                        | $     1,635                | $     1,062              
|Basic earnings per common share:
|As reported                      | $     0.13                 | $     0.09               
|Pro forma                        | $     0.13                 | $     0.09               
|Diluted earnings per share:     
|As reported                      | $     0.13                 | $     0.09               
|Pro forma                        | $     0.13                 | $     0.09               

| | The
fair value of each option granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions for September 30, 2003
and 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                      | FOR THE THREE MONTHS ENDED | FOR THE NINE MONTHS ENDED
|--------------------- | -------------------------- | -------------------------
|
|Dividend yield        | 5.1%                       | 5.1%                     
|Expected life (years) | 3 years                    | 3 years                  
|Expected volatility   | 48%                        | 46%                      
|Risk-free rate        | 3.3%                       | 3.3%                     

| | The
effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of
future amounts.
| | -------------------------------------------------------------------------------------------------------

| | NOTE
2 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE
| | -------------------------------------------------

Investment securities available for
sale at September 30, 2003 and December 31, 2002 consisted of the following:

|                                        | 2003    
|--------------------------------------- | --------
|
|U.S. agency securities                  | $  5,993
|Mortgage-backed securities             
|and collateralized mortgage obligations | 651     
|Obligations of states and              
|political subdivisions                  | 13,995  
|Corporate bonds                         | 3,959   
|Other securities                        | 336     
|Total                                   | $24,934 

10

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

|                                        | 2002   
|--------------------------------------- | -------
|
|U.S. agency securities                  | $18,431
|Mortgage-backed securities             
|and collateralized mortgage obligations | 1,875  
|Obligations of states and              
|political subdivisions                  | 16,120 
|Corporate bonds                         | 3,964  
|Other securities                        | 331    
|Total                                   | $40,721

| | At
September 30, 2003, $22.2 million in investment securities available-for-sale were pledged
to secure public deposits, nonpublic deposits and borrowings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | NOTE
3 - LOANS, NON-PERFORMING LOANS AND ASSETS AND ALLOWANCE FOR LOAN LOSSES
| | -----------------------------------------------------------------------------

| | Loans
as of September 30, 2003 and December 31, 2002 consisted of the following:
| | --------------------------------------------------------------------------------

|(Dollars in 000's)        | 2003     | 2002    
|------------------------- | -------- | --------
|Real estate-commercial    | $264,955 | $255,172
|Real estate-construction  | 55,293   | 47,221  
|Real estate-residential   | 3,129    | 3,925   
|Commercial                | 51,077   | 46,797  
|Agricultural              | 9,692    | 7,410   
|Consumer                  | 34,149   | 34,648  
|Other                     | 8,077    | 3,177   
|                          | 426,372  | 398,350 
|Less:                    
|Allowance for loan losses | 5,367    | 4,838   
|Deferred loan fees        | 1,156    | 1,238   
|                          | 6,523    | 6,076   
|Loans, net                | $419,849 | $392,274

| | Transactions
in the allowance for loan losses for the nine months ended September 30, 2003 and
September 30, 2002 were as follows:
| | ----------------------------------------------------------------------------------------------------------------------------------

|(Dollars in 000's)                | 2003    | 2002   
|--------------------------------- | ------- | -------
|Balance - Beginning of the period | $ 4,838 | $ 4,825
|Loans charged-off                 | (414)   | (450)  
|Loan recoveries                   | 43      | 96     
|Loan loss provision               | 900     | 812    
|Balance - End of the period       | $ 5,367 | $ 5,283

11

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

| | The
following table sumarizes non performing assets as of September 30, 2003 and December 31,
2002:
| | ---------------------------------------------------------------------------------------------------

|(Dollars in 000's)                                  | 2003       | 2002      
|--------------------------------------------------- | ---------- | ----------
|Loans on non-accrual status                         | $    1,146 | $    3,410
|Loans past due greater than 90 days but            
|not on non accrual status                           | 31         | 59        
|Total non-performing loans                          | 1,177      | 3,469     
|Other real estate owned                             | 1,142      | 85        
|Total non-perfoming assets                          | $    2,319 | $    3,554
|Percentage of non-performing loans to total loans   | 0.28%      | 0.87%     
|Percentage of non-performing assets to total assets | 0.41%      | 0.69%     

| | NOTE 4 - LINE OF CREDIT AND OTHER BORROWINGS
| | --------------------------------------------

| | The
Company has a line of credit available with the Federal Home Loan Bank of Seattle (FHLB)
for up to approximately $83 million as of September 30, 2003. This line of credit is
secured by loans and securities, including restricted FHLB stock owned by the Company, and
is limited to 15% of the Banks total assets. Interest and principal payments are due
monthly on any outstanding borrowings. As of September 30, 2003 and December 31, 2002, the
Company had no outstanding balances on short-term advances from the FHLB under the line of
credit. The Company has borrowed long-term funds from the FHLB against this line of
credit, aggregating approximately $24.2 million and $24.8 million as of
September 30, 2003 and December 31, 2002, respectively. As of September 30, 2003, $20.0
million is due July 21, 2006, $3.0 million is due August 28, 2008 and the remaining $1.2
million is due at various times through February 2014. The Company is making monthly
principal payments of approximately $53,000 plus interest at rates of 2.77% to 7.63%, with
a weighted average interest rate of 3.33% at September 30, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Borrowings
of approximately $5.5 million and $8.9 million at September 30, 2003 and December 31,
2002, relate to repurchase agreements used for customer overnight sweep accounts. The cost
of these funds at September 30, 2003 is an average annual rate of interest of
approximately .93% for the nine months ended September 30, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certain
investment securities, as required, have been pledged as collateral to fully secure the
long-term debt and the repurchase agreements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

| | Additionally,
as of September 30, 2003, the Company has approximately $20 million in available
borrowings through lines of credit with correspondent banks and through the Federal
Reserve Banks discount window. No balances were outstanding as of September 30, 2003
and December 31, 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NOTE
5 - COMMITMENTS AND CONTINGENCIES
| | --------------------------------------

| | The
Company is a party to financial instruments with off-balance-sheet risk in the normal
course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit. These
instruments involve various levels and elements of credit and interest rate risk in excess
of the amount recognized in the accompanying consolidated financial statements. The
contract or notional amounts of those instruments reflect the extent of involvement the
Company has in particular classes of financial instruments. As of September 30, 2003, the
Company has $70.4 million of commitments to extend credit to customers and $5.6
million of standby letters of credit.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the ordinary course of business, the Bank becomes involved in various litigation matters
arising from normal banking activities. In the opinion of management, the ultimate
disposition of these actions will not have a material adverse effect on the Banks
consolidated financial position or results of operations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

| | NOTE
6 - EARNINGS PER SHARE
| | ---------------------------

| | Our
basic earnings per common share is computed by dividing net income by the weighted average
number of common shares outstanding during the period, retroactively adjusted for all
stock dividends. Our diluted earnings per common share is computed by dividing net income
by the weighted-average number of common shares outstanding plus dilutive common shares
related to stock options, retroactively adjusted for all stock dividends.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Three-months ended September 30:          | 2003       | 2002      
|----------------------------------------- | ---------- | ----------
|Weighted average number of common shares:
|Basic earnings per common share           | 12,157,282 | 12,104,400
|Diluted earnings per common share         | 12,292,065 | 12,176,850

|Nine-months ended September 30:           | 2003       | 2002      
|----------------------------------------- | ---------- | ----------
|Weighted average number of common shares:
|Basic earnings per common share           | 12,150,096 | 12,075,000
|Diluted earnings common per share         | 12,208,896 | 12,154,800

| | NOTE 7 - RECENTLY
ISSUED ACCOUNTING STANDARDS
| | ---------------------------------------------

| | In June
2003, the Financial Accounting Standards Board (FASB) issued SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. This statement establishes standards regarding
classification and measurement of certain financial instruments with characteristics of
both liabilities and equity. It requires financial instruments within the scope of this
statement to be classified as liabilities (or an asset in some circumstances). Many of
these financial instruments were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June
15, 2003. For financial instruments created before the issuance date of this statement and
still existing at the beginning of the interim period of adoption, transition is achieved
by reporting the cumulative effect of a change in an accounting principle by initially
measuring the financial instruments at fair value. Our management does not expect that the
application of the provisions of this statement will have a material impact on our
consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This statement amends and clarifies financial
accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under FASB Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement is effective for contracts entered into or modified after June 30, 2003, except
for hedging relationships designated after June 30, 2003. The provisions of this statement
relating to Statement 133 Implementation Issues, which have been effective for fiscal
quarters that began prior to June 15, 2003, should continue to be applied in accordance
with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which
relate to forward purchases or sales of when-issued securities or other securities that do
not yet exist, should be applied to both existing contracts and new contracts entered into
after June 30, 2003. Our management does not expect that the application of the provisions
of this statement will have a material impact on our consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
CompensationTransition and Disclosurean Amendment of FASB Statement No.
123. This statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary change to
the fair value-based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of Statement FASB No. 123 to
require prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the method
used on reported results. Our management intends to continue using the intrinsic value
method for stock-based employee compensation arrangements and, therefore, does not expect
that the application provisions of this statement will have a material impact on our
consolidated financial statements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial
Institutions. This statement provides guidance on the accounting for the acquisition
of a financial institution and applies to all acquisitions except those between two or
more mutual enterprises. Our management does not expect that the application of the
provisions of this statement will have a material impact on our consolidated financial
statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

PREMIERWEST BANCORP AND
SUBSIDIARYNOTES TO CONSOLIDATED
FINANCIAL STATEMENTS(UNAUDITED)

September 30, 2003

| | In
June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. This statement addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). This statement is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. Our management does
not expect that the application of the provisions of this statement will have a material
impact on our consolidated financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This
statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that statement, FASB Statement No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of
Motor Carriers. This statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. This statement
also amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed conditions.
Our management does not expect that the application of the provisions of this statement
will have a material impact on our consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities. This interpretation clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, and requires existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries if the entities do not effectively disperse
risks among parties involved. This interpretation explains how to identify variable
interest entities and how an enterprise assesses its interests in a variable interest
entity to decide whether to consolidate that entity. This interpretation applies
immediately to variable interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that date. It applies
in the first fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that is acquired before
February 1, 2003. The Interpretation applies to public enterprises as of the beginning of
the applicable interim or annual period, and it applies to nonpublic enterprises as of the
end of the applicable annual period. Our management does not expect that the application
of the provisions of this interpretation will have a material impact on our consolidated
financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. This interpretation elaborates on the
disclosures to be made by a guarantor in its financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing a guarantee. The disclosure requirements of FIN 45
are effective for financial statements of interim or annual periods ending after
December 31, 2002, and the initial recognition and initial measurement provisions
shall be applied on a prospective basis to guarantees issued or modified after December
31, 2002. Our management does not expect that the application of the provisions of this
interpretation will have a material impact on our consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NOTE 8 -  AGREEMENT
OF MERGER
| | -----------------------------

| | The
Company signed a definitive agreement of merger on September 15, 2003 with Mid Valley Bank
headquartered in Red Bluff, California. Under the terms of the agreement, Mid Valley Bank
will merge with and into the Company and Mid Valley Bank shareholders will receive
approximately $25 million in Company stock and cash. This translates into an estimated
1,715,000 shares of Company stock and $9,811,000 in cash. The agreement was unanimously
approved by the board of directors of both entities and the transaction is expected to
close early in the first quarter of 2004. The merger is subject to approval by the
shareholders of Mid Valley Bank.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Mid
Valley Bank, with $177 million in assets at June 30, 2003, presently has five locations in
the Northern California communities of Red Bluff, Redding, Corning and Chico. The addition
of Mid Valley Bank will expand the number of full service offices in Northern California
to fourteen. Following the acquisition, the Company will have thirty-one full-service
banking offices and is expected to have total assets exceeding $725 million and a market
capitalization in excess of $120 million.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14

---

| | ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
| | ----------------------------------------------------------------------------------------------

| | HIGHLIGHTS
| | ----------

| | As
more fully discussed in the following sections, the Company earned $1,642,000 for the
quarter ended September 30, 2003; an increase of 50.8% compared to $1,089,000 in net
income for the quarter ended September 30, 2002. For the nine months ended September 30,
2003, the Company earned $4,411,000, an increase of 45.9% compared to $3,024,000 in net
income the first nine months of 2002. The increase in net income for the third quarter of
2003 is due to an increase of $519,000 in net interest income after the provision for loan
losses, an increase of $299,000 in non-interest income and a $7,000 decrease in
non-interest expense, offset by an increase of $272,000 in the provision for income taxes.
The increase in net income the first nine months of 2003 is due to an increase of $1.2
million in net interest income after the provision for loan losses, an increase of
$584,000 in non-interest income and an $125,000 decrease in non-interest expense, offset
by an increase of $646,000 in the provision for income taxes. Our diluted earnings per
share was $0.13 and $0.09 for the quarters ended September 30, 2003 and 2002,
respectively, and was $0.36 and $0.25 for the nine months ended September 30, 2003 and
2002, respectively. Return on average shareholders equity was 12.39% and return on
average assets was 1.20% for the quarter ended September 30, 2003 compared to a
return on average shareholders equity of 9.23% and a return on average assets of
0.87% for the quarter ended September 30, 2002. Return on average shareholders
equity was 11.41% and return on average assets was 1.11% for the nine months ended
September 30, 2003 compared to a return on average shareholders equity of 8.64% and
a return on average assets of 0.82% for the nine months ended September 30, 2002.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
September 30, 2003 and December 31, 2002, gross loans totaled $426.4 and $398.4 million,
respectively, which, represents a 7.0% increase. The growth in loans at September also
represents a 9.4% increase over gross loans at September 30, 2002 of $389.9 million. This
increase in loans was achieved despite a continuing competitive market for loans during a
very low interest rate environment as the Company continues to build on its strong
customer relationships. Deposits were $470.8 million at September 30, 2003 compared to
$428.3 million at December 31, 2002 and $435.3 million at September 30, 2002,
representing increases of 9.9% and 8.2%, respectively. The increase in deposits is
attributed to our continued emphasis on improving the core deposit base and offering
attractive deposit products to customers.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
| | ----------------------------------------------------------------------------

| | The
Company recognized net income of $1,642,000 for the three months ended September 30, 2003,
which was an increase of $553,000 or 50.8% compared to the same period in 2002.
Contributing to the improvement in net income was an increase in interest income of
$108,000, a decline of $486,000 in interest expense and an increase of $299,000 in
non-interest income.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table presents information regarding yields on interest-earning assets, rates
paid on interest-bearing liabilities, net interest spreads, net yields on average
interest-earning assets, return on average assets and return on average equity for the
periods indicated (dollars in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Analysis for the three-month period endedSeptember 30, 2003 and 2002 | 2003           | 2002           | Increase(Decrease) | %Change
|-------------------------------------------------------------------- | -------------- | -------------- | ------------------ | -------
|Average fed funds sold and investments                               | $       75,254 | $       60,670 | $      14,584      | 24.0%  
|Average gross loans                                                  | 418,860        | 387,260        | 31,600             | 8.2%   
|Average interest earning assets                                      | 494,114        | 447,930        | 46,184             | 10.3%  
|Average interest bearing liabilities                                 | 383,794        | 360,921        | 22,873             | 6.3%   
|Average total assets                                                 | 545,864        | 499,483        | 46,381             | 9.3%   
|Average equity                                                       | 52,996         | 47,213         | 5,783              | 12.2%  
|                                                                     |                |                |                    |        
|Average yield earned (1)                                             | 6.69%          | 7.28%          | (0.59)             | -8.1%  
|Average rate paid                                                    | 1.26%          | 1.80%          | (0.54)             | -30.0% 
|Net interest spread                                                  | 5.43%          | 5.48%          | (0.05)             | -0.9%  
|Net interest income to average                                      
|interest earning assets (net interest margin) (1)                    | 5.44%          | 5.47%          | (0.03)             | -0.5%  
|Return on average assets                                             | 1.20%          | 0.87%          | 0.33               | 37.9%  
|Return on average equity                                             | 12.39%         | 9.23%          | 3.16               | 34.2%  
|Efficiency ratio (2)                                                 | 66.39%         | 74.57%         | (8.18)             | -11.0% 

| | Notes:
(1)  Tax equivalent at a 34% rate (2)  Non-interest expense divided by net interest
income plus non-interest income
| | --------------------------------------------------------------------------------------------------------------------------

| | NET
INTEREST INCOME-  Net interest income before the loan loss provision increased
$594,000 for the three-month period ended September 30, 2003 over the same period in 2002.
The increase was primarily due to a decline in interest expense of $486,000; $237,000 of
which was represented by a decrease in interest expense on time deposits and a $243,000
decrease in interest expense on interest-bearing demand and savings accounts. This
decrease in interest expense is the result of managements decision to reduce the
Banks concentration in higher priced time certificate accounts, an effort to
increase our share of non-interest bearing demand deposit accounts and a period of
continuing low interest rates for deposit products. While interest expense has declined,
deposits as of September 30, 2003, have increased 8.2% compared to deposit totals one year
ago and non-interest bearing demand deposits have increased 19.8% over the same time
period. Also contributing to the growth of net interest income was an improvement in
interest income of $108,000. Interest income grew as the result of a $261,000 increase in
loan interest income largely as the result of a $36.4 million increase in net loans from
September 30, 2002 to September 30, 2003. This increase was offset by a reduction of
$190,000 in interest income on investment securities as our volume of interest-earning
investments decreased approximately $11.4 million from September 30, 2002 to
September 30, 2003. This is the result of higher rate interest-bearing securities,
primarily US government agency debt securities, being called prior to
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15

---

| | maturity. Interest
income on federal funds sold also contributed to the growth in net interest income,
increasing $39,000 in the third quarter of 2003 compared to the third quarter of 2002 as
the balance in federal funds sold increased from $33.6 million at September 30, 2002 to
$52.6 million at September 30, 2003 where funds received from long-term investments that
were called were re-deployed into short-term investments. Overall, our average
interest-earning assets increased approximately $46.2 million in the third quarter of 2003
over the third quarter of 2002 and average interest-bearing liabilities increased
approximately $22.9 million over the same time frame. As a result, our tax-adjusted net
interest margin decreased 3 basis points from 5.47% to 5.44% for the third quarter of 2003
compared to the third quarter of 2002. Despite the low interest rates set by the Federal
Reserve, management does not believe potential changes in rates will have a material
impact on the net interest margin because, in their view, we have established a strong
core deposit base and quality credit portfolio in a very competitive market. Management
expects the net interest margin to remain fairly stable for the remainder of 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | LOAN
LOSS PROVISION; LOAN LOSS RESERVE -  The loan loss provision during the
three-month period ended September 30, 2003 was $300,000 compared to $225,000 for the
three-month period ended September 30, 2002. The Company had net charge-offs of $188,650
during the three-month period ended September 30, 2003, compared to net charge-offs of
$144,000 for the corresponding period in 2002. The allowance for loan losses remained
stable at $5.4 million as of September 30, 2003, compared to $5.3 million at September 30,
2002. Management believes that non-performing loans have been adequately provided for in
the allowance for loan losses. Our ratio of allowance for loan losses to total loans was
1.26% at September 30, 2003, compared to 1.36% at September 30, 2002. Non-performing
assets (defined as loans on non-accrual status, loans 90 days or more past due and other
real estate owned) either specifically reserved for potential losses or adequately
collateralized totaled $2.3 million and $5.5 million at September 30, 2003 and
2002, respectively. The ratio of non-performing assets to total assets improved from 1.05%
as of September 30, 2002, to 0.41% as of September 30, 2003. This improvement is the
result of our focus on reducing non-performing assets while growing the loan portfolio
without sacrificing credit quality or future earnings, and management believes the loan
loss reserve is adequate in light of their assessment of our credit quality generally and
specifically identified loans in our portfolio.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NON-INTEREST
INCOME -  Non-interest income increased 23.0 % to $1.6 million for the three
months ended September 30, 2003, as compared to $1.3 million for the same period in 2002.
Of this increase, $161,000 relates to an increase in mortgage brokerage fees, $141,000
relates to increases in account service fees and $30,000 relates to increases in income
from investment company activity. Mortgage brokerage fees increased as loans closed for
the third quarter improved to $46.0 million in 2003 from $27.9 million in 2002. Account
service fees increased as a result of the introduction of new products and services and by
the increase in non-interest bearing demand deposit accounts. These increases were offset
by a $47,000 decline in other income in the third quarter of 2003. A significant portion
of other income in the third quarter of 2002 came from gains of $110,000 recognized on the
sale of other real estate owned. Such gains were not experienced in 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NON-INTEREST
EXPENSE-  Non-interest expense decreased $7,000 for the three months ended
September 30, 2003 as compared to the corresponding period in 2002. Salaries and employee
benefits decreased $23,000 as a result of salary deferrals associated with loan
origination costs. Occupancy and equipment expenses decreased by $61,000 for the three
months ended September 30, 2003, as compared to the same period in 2002. This decline is
due to decreased depreciation on equipment that has become fully depreciated or disposed
of and due to our continued effort to reduce costs in areas such as repairs and
maintenance, especially in the area of computer hardware and software expenses. All other
non-interest expenses increased by $77,000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EFFICIENCY
RATIO- Our efficiency ratio was 66.39% during the third quarter of 2003 compared
to 74.57% for the third quarter of 2002. The improvement resulted primarily from increased
net interest income, increased non-interest income, particularly service charges and
mortgage loan brokerage fees, reduced occupancy and equipment costs and reduced legal fees
as the quality of our credit portfolio improved. These results were the product of
managements attention to controlling expenses and growing both core relationships
and non-interest income. This is the third consecutive quarter that we have shown
significant improvement over the prior year efficiency ratio. This positive trend is in
line with managements projection for an efficiency ratio in the 62% to 64% range for
the fourth quarter of 2003. This ratio, however, does not reflect the benefits of several
tax sensitive items. The tax equivalent efficiency ratio, adjusted for the effective tax
rate on interest earned on municipal bonds, tax-free loan interest income, tax credits
earned on certain equipment leases and income earned on the increase on the cash surrender
value of life insurance, was 64.88% for the third quarter of 2003 compared to 73.17% for
the third quarter of 2002.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
| | ---------------------------------------------------------------------------

| | The
Company had net income of $4,411,000 for the nine months ended September 30, 2003, an
increase of $1.3 million or 45.9% compared to the same period in 2002. This increase is
due mainly to a $1.3 million increase in net interest income, a $584,000 increase in
non-interest income and a $125,000 decrease in non-interest expense offset by an increase
of $646,000 in applicable income taxes over the comparative nine-month period ended
September 30, 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table presents information regarding yields on interest-earning assets, expense
on interest-bearing liabilities, net interest spread, net yields on average
interest-earning assets, return on average assets and return on average equity for the
nine month period ended September 30, 2003 and 2002 (dollars in thousands):
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16

---

|Analysis for the nine-month period endedSeptember 30, 2003 and 2002 | 2003           | 2002           | Increase(Decrease) | %Change
|------------------------------------------------------------------- | -------------- | -------------- | ------------------ | -------
|Average fed funds sold and investments                              | $       72,436 | $       64,330 | $  8,106           | 12.6%  
|Average gross loans                                                 | 406,309        | 375,787        | 30,522             | 8.1%   
|Average interest earning assets                                     | 478,745        | 440,117        | 38,628             | 8.8%   
|Average interest bearing liabilities                                | 378,061        | 358,494        | 19,567             | 5.5%   
|Average total assets                                                | 531,258        | 490,602        | 40,656             | 8.3%   
|Average equity                                                      | 51,530         | 46,670         | 4,860              | 10.4%  
|                                                                   
|Average yield earned (1)                                            | 6.74%          | 7.43%          | (0.69)             | -9.3%  
|Average rate paid                                                   | 1.40%          | 1.99%          | (0.59)             | -29.6% 
|Net interest spread                                                 | 5.34%          | 5.44%          | (0.10)             | -1.8%  
|Net interest income to average                                     
|interest earning assets (net interest margin)(1)                    | 5.36%          | 5.43%          | (0.07)             | -1.3%  
|Return on average assets                                            | 1.11%          | 0.82%          | 0.29               | 35.4%  
|Return on average equity                                            | 11.41%         | 8.64%          | 2.77               | 32.1%  
|Efficiency ratio (2)                                                | 67.94%         | 74.49%         | (6.55)             | -8.8%  

| | Notes:
                                              (1)  Tax equivalent at a 34% rate
                   (2)  Non-interest expense divided by net interest income plus
non-interest income
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NET
INTEREST INCOME  Net interest income before the loan loss provision increased
$1.3 million for the nine-month period ended September 30, 2003 over the same period in
2002. This is the result of a $1.6 million decrease in interest expense offset by a
$303,000 decrease in interest income. The decrease in interest expense is the result of
managements decision to reduce the Banks concentration in higher priced time
certificate accounts and a reflection of the continued low interest rate environment for
deposit products. Management has also concentrated on changing our core deposit mix by
increasing the percentage of non-interest bearing deposits, which grew from 21.0% of total
deposits at September 30, 2002 to 23.2% of total deposits at September 30, 2003. These
changes caused our cost of funds to decrease 59 basis points, from 1.99% for the nine
months ending September 30, 2002, to 1.40% for the nine months ending September 30, 2003.
The decline in interest income is due primarily to a $866,000 reduction in interest income
from investment securities for the first nine months of 2003 compared to 2002. This is the
result of a decrease in the balance of investment securities available for sale from $37.1
million at September 30, 2002 to $25.7 million at September 30, 2003 as higher interest
rate securities, mainly government agencies, continue to be called in the current interest
rate environment. Due to this current interest rate trend, management has decided to
reinvest proceeds from called securities into short-term federal funds. The decrease in
earnings from investment securities was offset by increases in loan interest income of
$386,000 and interest income on federal funds sold of $176,000 for the corresponding
periods in 2003 and 2002. These factors caused our tax adjusted net interest margin to
decrease 7 basis points from 5.43% to 5.36% for the comparative periods ending September
30, 2002 and September 30, 2003, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | LOAN
LOSS PROVISION; LOAN LOSS RESERVE  The loan loss provision during the nine-month
period ended September 30, 2003 was $900,000 compared to $812,000 for the nine-month
period ended September 30, 2002. The Company had net charge-offs of $414,000 during the
nine-month period ended September 30, 2003, compared to net charge-offs of $450,000 for
the corresponding period in 2002. The allowance for loan losses was $5.4 million at
September 30, 2003 compared to $5.3 million at September 30, 2002, and is considered
adequate by management to absorb potential losses in the loan portfolio.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NON-INTEREST
INCOME Non-interest income continued its double-digit growth in 2003 as it
increased 14.8% from $3.9 million for the nine months ended September 30, 2002 to $4.5
million for the same period in 2003. Of this increase, $265,000 relates to an increase in
mortgage loan brokerage fees, $90,000 relates to an increase in revenue from our
investment subsidiary, $74,000 relates to an increase in other commissions and fees,
$318,000 relates to increases in account service fees and $100,000 relates to increases in
other income. Mortgage loan brokerage fees increased as mortgage loans booked through
September 30 grew $26.1 million, from $92.8 million in 2002 to $118.9 million in 2003.
Revenue from the investment subsidiary grew as the performance of the stock market
continues to rebound from 2002. Deposit account fees contributed to the increase in
service charges due to the introduction of new services and products available to
customers and also an increase in non-interest bearing deposit accounts. The improvement
in other income was driven by the increase in the cash surrender value of life insurance
policies held by the Company on its top executives as policies totaling approximately $4.5
million were purchased in the fourth quarter of 2002. These increases were offset by a
$263,000 decrease in gains on sales of investment securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NON-INTEREST
EXPENSE  For the nine months ended September 30, 2003, non-interest expense
decreased $125,000 as compared to the same period in 2002. Salaries and employee benefits
decreased $217,000 as salary deferrals associated with loan origination costs offset
increases in other areas such salaries, bonus and commissions, and executive retirement
expenses. Despite putting two new full-service branches into operation during the last
year, occupancy and equipment expenses decreased $22,000 for the nine months ended
September 30, 2003 compared to the same period in 2002 due in part to decreased
depreciation on equipment that has become fully depreciated or disposed of and in part to
our continuing effort to reduce costs in areas such as repairs and maintenance. Other
non-interest expenses increased by $114,000.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | EFFICIENCY
RATIO  Our efficiency ratio continued to post significant improvement, dropping
from 74.49% for the nine-month period ended September 30, 2002 to 67.94% for the
comparative period of 2003. This improvement resulted from increased net interest income,
increased service charges and mortgage loan brokerage fees, reduced employee costs and
reduced legal fees as the quality of our credit portfolio improved. These results were the
product of managements attention to controlling expenses and growing both core
relationships and non-interest income. This ratio, however, does not reflect the benefits
of several tax sensitive items. The tax equivalent efficiency ratio, adjusted for the
effective tax rate on interest
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

---

| | earned on municipal bonds, tax-free loan interest income,
tax credits earned on certain equipment leases and income earned on the increase on the
cash surrender value of life insurance, was 66.31% for the nine months ended September 30,
2003 compared to 73.05% for the nine months ended September 30, 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FINANCIAL
CONDITION Total assets of $559.2 million at September 30, 2003 represents an
8.6% improvement over total assets as of December 31, 2002. The increase in total assets
was primarily in the area of federal funds sold and loans as the balance of investment
securities decreased. Federal funds sold increased from $12.5 million at December 31, 2002
to $52.6 million at September 30, 2003. Additional liquidity was generated from increased
deposits and the sales and calls of available-for-sale investment securities.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
September 30, 2003 net loans comprised 75.1% of total assets compared to 76.2% at December
31, 2002. The allowance for loan losses increased from $4.8 million at December 31, 2002
to $5.4 million at September 30, 2003. The increase in the allowance for loan losses is
primarily related to overall growth in the loan portfolio and specific and inherent losses
identified by management. Our ratio of allowance for loan losses to total loans was 1.26%
at September 30, 2003, compared to 1.21% at December 31, 2002. Non-performing assets
(defined as loans on non-accrual status, loans 90 days or more past due and other real
estate owned) either specifically reserved for potential losses or adequately
collateralized were $2.3 million and $3.6 million at September 30, 2003 and
December 31, 2002, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deposits
increased to $470.8 million at September 30, 2003 resulting in a loan-to-deposit ratio of
89.2% compared to 91.6% as of December 31, 2002. Management continues to concentrate on
reducing the number of higher-priced time certificate accounts and replacing them with
non-interest-bearing demand accounts. The percentage of non-interest-bearing deposits to
total deposits increased to 23.2% at September 30, 2003 compared to 21.4% at December 31,
2002, continuing a trend seen throughout the nine-month period.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table sets forth certain summary balance sheet information for September 30,
2003 and December 31, 2002.
| | ----------------------------------------------------------------------------------------------------------------------

|(Dollars in 000's)     | September 302003 | December 312002 | Increase (Decrease)9/30/03 - 12/31/02
|---------------------- | ---------------- | --------------- | -------------------------------------
|ASSETS                 |                  |                 |                                      
|Federal funds sold     | $ 52,650         | $ 12,485        | $ 40,165                             
|Investments            | 25,732           | 41,598          | (15,866)                             
|Federal Home Loan Bank
|deposits and stock     | 2,083            | 1,904           | 179                                  
|Loans, net             | 419,849          | 392,274         | 27,575                               
|Other assets (1)       | 58,922           | 66,823          | (7,901)                              
|Total assets           | $559,236         | $515,084        | $ 44,152                             
|LIABILITIES           
|Non-interest-bearing  
|deposits               | $109,434         | $ 91,611        | $ 17,823                             
|Interest-bearing      
|deposits               | 361,326          | 336,726         | 24,600                               
|Total deposits         | 470,760          | 428,337         | 42,423                               
|                      
|Other liabilities (2)  | 34,856           | 37,575          | (2,719)                              
|Total liabilities      | 505,616          | 465,912         | 39,704                               
|SHAREHOLDERS'         
|EQUITY                 | 53,620           | 49,172          | 4,448                                
|Total liabilities     
|and share-            
|holder's equity        | $559,236         | $515,084        | $ 44,152                             

(1)  Includes cash and due from
banks, other equity investments, property and equipment, goodwill        and accrued
interest receivable(2)  Includes borrowings, repurchase agreements, accrued interest
payable and other liabilities

18

---

| | LIQUIDITY AND CAPITAL RESOURCES
| | -------------------------------

| | LIQUIDITY
 Liquidity enables the Company to fund loan commitments and meet customer
withdrawals of deposits. The Company maintains its liquidity position through maintenance
of cash resources and the stability of its core deposit base. Liquidity increased during
the nine-month period ended September 30, 2003. Excess cash was invested on a short-term
basis in federal funds sold and interest-earning deposits with the FHLB. As of September
30, 2003, the Company had $52.6 million in federal funds sold.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
further source of liquidity is our ability to borrow funds by maintaining a secured
line-of-credit with the FHLB of up to 15% of the Banks total assets. As of September
30, 2003, $24.2 million had been advanced in long-term borrowings from the FHLB against
our credit line. Other borrowings of approximately $5.5 million relate to repurchase
agreements for customer overnight sweep accounts. The average cost of these two borrowings
was approximately 2.78% for the first nine months of 2003 compared to 3.01% for the same
period in 2002. The Company also has established secured credit lines of approximately $20
million through certain correspondent banks and the discount window with the Federal
Reserve Bank of San Francisco.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
September 30, 2003, the Company had approximately $70.4 million in outstanding commitments
to extend credit for newly approved loans and construction projects. Under the terms of
construction project commitments, completion of specified project benchmarks must be
certified before funds may be drawn. In addition, management expects that, as is common
within the banking industry, a portion of these commitments will expire or terminate
without funding. Management believes that our available resources will be sufficient to
fund these commitments in the normal course of business.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | CAPITAL
RESOURCES  Federal regulators require the measurement of various capital ratios,
including risk-based capital measurements. Risk-weighted ratios require an analysis that
weights balance sheet and off-balance sheet items for their inherent risk. It requires
minimum standards for risk-based capital by capital tier. As a minimum requirement, the
total risk-based capital ratio should be at least 8.00%, the Tier 1 capital ratio should
be at least 4.00%, and the leverage capital ratio should be at least 4.00%. At September
30, 2003, our regulatory capital ratios were as follows: total risk-based capital ratio of
10.59%, Tier 1 capital ratio of 9.47%, and a leverage capital ratio of 8.38%. If the
Company achieved only minimum regulatory capital levels, further growth could be
restricted to the level attainable through generation and retention of net income or the
Company may find it necessary to seek additional capital from outside sources. Management
continually focuses on current and projected capital adequacy and where deemed
appropriate, will seek approval from our board of directors to raise additional capital.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| | ------------------------------------------------------------------

| | Market
risk is the risk of loss from adverse changes in market prices and rates. Our market risk
arises principally from interest rate risk in its lending, deposit and borrowing
activities. The Company is experiencing a positive response to its interest rate
management through a reduction in the cost of deposits as non-interest-bearing deposits
increase and certificates of deposits with higher interest rates mature and are not
renewed. Management actively monitors and manages its interest rate risk exposure.
Although the Company manages other risks, such as credit quality and liquidity risk, in
the normal course of business, management considers interest rate risk to be a significant
risk factor, which could have the largest material effect on our financial condition and
results of operations. Other types of market risks, such as foreign currency exchange rate
risk and commodity price risk, do not arise in the normal course of our business
activities. The Company did not experience a significant change in market risk at
September 30, 2003 as compared to December 31, 2002.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
stated in the annual report on Form 10-K for 2002, the Company attempts to monitor
interest rate risk from the perspective of changes in the economic value of equity, also
referred to as net portfolio value (NPV), and changes in net interest income.
Changes to the NPV and net interest income are simulated using instant and permanent rate
shocks of plus and minus 200 basis points, in increments of 50 basis points. It is our
policy to manage interest rate risk to maximize long-term profitability under the range of
likely interest-rate scenarios. For additional information, refer to
Managements Discussion and Analysis of Financial Condition and Results of
Operations referenced in our annual report on Form 10-K for the year ended December
31, 2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ITEM 4. CONTROLS AND PROCEDURES
| | -------------------------------

| | As
of the end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the principal executive officer and
principal financial officer, of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
Exchange Act)). Based on this evaluation, our principal executive officer and
principal financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by the company in reports
that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms. There was no change in
our internal control over financial reporting during our most recently completed fiscal
quarter that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19

---

| | PART II. OTHER INFORMATION
| | --------------------------

| | ITEM
1. LEGAL PROCEEDINGS. In the normal course of business, PremierWest is a party to
various legal actions. Generally, these actions, if decided adversely to the Company,
would not have a material adverse impact on our business, financial condition or results
of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ITEM 2. CHANGES IN
SECURITIES AND USE OF PROCEEDS
| | -------------------------------------------------

| | (a)              [Not
applicable.]
| | ----------------------------------

| | (b)              [Not
applicable.]
| | ----------------------------------

| | (c)              [Not
applicable]
| | ---------------------------------

| | (d)              [Not
applicable.]
| | ----------------------------------

| | ITEM 3. DEFAULTS UPON SENIOR SECURITIES
| | ---------------------------------------

| | (a)              [Not
applicable.]
| | ----------------------------------

| | (b)              [Not
applicable.]
| | ----------------------------------

| | ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
| | -------------------------------------------------------------

| | No
matters were submitted to a vote of securities holders of PremierWest during the quarter
ended September 30, 2003.
| | ---------------------------------------------------------------------------------------------------------------------

| | ITEM
5. OTHER INFORMATION
| | -------------------------

| | [None.]
| | -------

20

---

|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
|----------------------------------------

|(a)    Exhibits |                                                                                                                                                                          
|--------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1             | Articles of Incorporation of PremierWest Bancorp*                                                                                                                        
|3.2             | Amended & Restated Bylaws of PremierWest Bancorp                                                                                                                         
|4.1             | Stock Certificate*                                                                                                                                                       
|10.10           | Agreement of Merger among the registrant, the Bank and Mid Valley Bank dated September 15, 2003.                                                                         
|31.1            | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a).                                                                                   
|31.2            | Certification of Chief Financial Officer required by Rule 13a-14(a) of Rule 15d-14(a).                                                                                   
|32.1            | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of
        the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. 
|32.2            | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and Section 906 of
         the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

* Incorporated by reference to the
registration statement on Form S-4 filed with the commission on February 4, 2000, and all
amendments thereto (commission file no. 333-96209).

|(b) |  | Reports
on Form 8-K
|--- |  | -------------------

| | On July
11, 2003, the Company filed a current report on Form 8-K to provide under Items 7 and 9 a
press release reporting the approval of our application with NASDAQ to list our common
stock on the NASDAQ SmallCap Market.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On July
14, 2003, the Company furnished a current report on Form 8-K to provide under Items 7, 9
and 12 a press release reporting the release of earnings for the second quarter of 2003.
Such information shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On July
31, 2003, the Company filed a current report on Form 8-K to furnish under Item 5 a press
release reporting the listing and trading of our common stock on the NASDAQ SmallCap
Market.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
September 19, 2003, the Company filed a current report on Form 8-K to furnish under Items
7 and 9 a press release announcing that the Company had entered into Agreement of Merger
with Mid Valley Bank, pursuant to which Mid Valley Bank will merge with and into the
Company subject to certain conditions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
October 9, 2003, the Company filed a current report on Form 8-K to provide under Items 7,
9 and 12 a press release reporting the release of earnings for the third quarter of 2003.
Such information shall not be deemed filed for purposes of Section 18 of the
Securities Exchange Act of 1934.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

| | SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | DATED:
November 7, 2003PREMIERWEST BANCORP
| | ------------------------------------------

| | /s/ John L. Anhorn
John L. Anhorn, President and Chief Executive Officer
| | ------------------------------------------------------------------------

| | /s/
Tom AndersonTom Anderson, Senior Vice President and Chief Financial Officer
| | -------------------------------------------------------------------------------

22

---

EXHIBIT 31.1

# CERTIFICATION

I, John Anhorn, certify
that:

1. I
have reviewed this report on Form 10-Q of PremierWest Bancorp;

2. Based on my           knowledge,
this report does not contain any untrue statement of a material fact           or omit to
state a material fact necessary to make the statements made, in light           of the
circumstances under which such statements were made, not misleading with
          respect to the period covered by this report;

3. Based on my knowledge, the
          financial statements, and other financial information included in this report,
          fairly present in all material respects the financial condition, results of
          operations and cash flows of the registrant as of, and for, the periods
          presented in this report;

4. Our other certifying officer(s)
and I are           responsible for establishing and maintaining disclosure controls and
procedures           (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant           and have:

a) Designed such disclosure controls
and procedures, or caused such           disclosure controls and procedures to be
designed under our supervision, to           ensure that material information relating to
the company, including its           consolidated subsidiaries, is made known to us by
others within those entities,           particularly during the period in which this
report is being prepared;

b)           Evaluated the
effectiveness of our disclosure controls and procedures and           presented in this
report our conclusions about the effectiveness of the           disclosure controls and
procedures, as of the end of the period covered by this           report based on such
evaluation; and

c) Disclosed in this report any
change in           our internal control over financial reporting that occurred during
our most           recent fiscal quarter that has materially affected, or is reasonably
likely to           materially affect, our internal control over financial reporting; and

5. Our           other certifying
officer(s) and I have disclosed, based on our most recent           evaluation of
internal control over financial reporting, to our auditors and the           audit
committee of our board of directors (or persons performing the equivalent
          functions):

(a) All significant deficiencies and
material weaknesses in the           design or operation of internal control over
financial reporting which are           reasonably likely to adversely affect our ability
to record, process, summarize           and report financial information; and

(b) Any fraud, whether or not
material,           that involves management or other employees who have a significant
role in our           internal control over financial reporting.

Date: November 7, 2003

/s/ John           Anhorn John
Anhorn President and Chief Executive Officer

23

---

EXHIBIT 31.2

# CERTIFICATION

I, Tom Anderson, certify that:

1.           I have reviewed this
report on Form 10-Q of PremierWest Bancorp;

2. Based on my           knowledge,
this report does not contain any untrue statement of a material fact           or omit to
state a material fact necessary to make the statements made, in light           of the
circumstances under which such statements were made, not misleading with
          respect to the period covered by this report;

3. Based on my knowledge, the
          financial statements, and other financial information included in this report,
          fairly present in all material respects the financial condition, results of
          operations and cash flows of the registrant as of, and for, the periods
          presented in this report;

4. Our other certifying officer(s)
and I are           responsible for establishing and maintaining disclosure controls and
procedures           (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant           and have:

a) Designed such disclosure controls
and procedures, or caused such           disclosure controls and procedures to be
designed under our supervision, to           ensure that material information relating to
the company, including its           consolidated subsidiaries, is made known to us by
others within those entities,           particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of
our disclosure controls and procedures and           presented in this report our
conclusions about the effectiveness of the           disclosure controls and procedures,
as of the end of the period covered by this           report based on such evaluation;
and

c) Disclosed in this report any
change in           our internal control over financial reporting that occurred during
our most           recent fiscal quarter that has materially affected, or is reasonably
likely to           materially affect, our internal control over financial reporting; and

5. Our           other certifying
officer(s) and I have disclosed, based on our most recent           evaluation of
internal control over financial reporting, to our auditors and the           audit
committee of our board of directors (or persons performing the equivalent
          functions):

(a) All significant deficiencies and
material weaknesses in the           design or operation of internal control over
financial reporting which are           reasonably likely to adversely affect our ability
to record, process, summarize           and report financial information; and

(b) Any fraud, whether or not
material,           that involves management or other employees who have a significant
role in our           internal control over financial reporting.

Date: November 7, 2003

/s/ Tom           Anderson Tom
AndersonSenior Vice President & Chief Financial Officer

24

---

EXHIBIT 32.1

# CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly
Report of PremierWest Bancorp (the Company) on Form 10-Q for the quarter
ended September 30, 2003, as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, John Anhorn, President and Chief Executive
Officer of the Company, herby certify, as of the date hereof, solely for purposes of 18
U.S.C. §1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that to the best of my knowledge:

|(1) |  | The
Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934; and
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
information contained in the Report fairly presents, in all material           respects,
the financial condition and result of operations of the Company at the           date and
for the periods indicated.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ John AnhornJohn Anhorn
President and Chief
Executive OfficerNovember 7, 2003

25

---

EXHIBIT 32.2

# CERTIFICATION PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly
Report of PremierWest Bancorp (the Company) on Form 10-Q for the quarter
ended September 30, 2003, as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Tom Anderson, Senior Vice-President and Chief
Financial Officer of the Company, hereby certify, as of the date hereof, solely for
purposes of 18 U.S.C. § 1350, as adopted pursuant to § 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

|(1) |  | The
Report fully complies with the requirements of section 13(a) or 15(d) of the
          Securities Exchange Act of 1934; and
|--- |  | -------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
information contained in the Report fairly presents, in all material           respects,
the financial condition and result of operations of the Company at the           date and
for the periods indicated.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/s/ Tom AndersonTom AndersonSenior
Vice President and Chief Financial OfficerNovember 7, 2003

26