##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2011



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 000-50332





LOGO

PREMIERWEST BANCORP

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 93-1282171                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

503 Airport Road  Suite 101

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

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  |  ̈
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller Reporting Company |  | x

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

The number
of shares outstanding of Registrants common stock as of May 5, 2011 was 10,035,741.









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##### Table of Contents

Form 10-Q

Table of Contents



|                                                                                              |  |  |    | 
|--------------------------------------------------------------------------------------------- |  |  | -- | 
|Part I FINANCIAL INFORMATION                                                                  |  |  |    | 
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  |  | 2  | 
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations |  |  | 27 | 
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 41 | 
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  |  | 41 | 
|                                                                                              | 
|Part II OTHER INFORMATION                                                                     |  |  |    | 
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  |  | 41 | 
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  |  | 41 | 
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  |  | 42 | 
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  |  | 42 | 
|                                                                                              | 
|Item 4. (Removed and Reserved)                                                                |  |  | 42 | 
|                                                                                              | 
|Item 5. Other Information                                                                     |  |  | 42 | 
|                                                                                              | 
|Item 6. Exhibits                                                                              |  |  | 43 | 
|                                                                                              | 
|SIGNATURES                                                                                    |  |  | 43 | 



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Dollars in 000s)

(UNAUDITED)



|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | ------------- |  | - | --------- | -
|                                                                                                                                                                                        |  | March 31,2011 |           |   | December 31,2010 |   |           | March 31,2010 | 
|ASSETS                                                                                                                                                                                  | 
|Cash and cash equivalents:                                                                                                                                                              |  |               |           |   |                  |   |           |               |  |   |           |  
|Cash and due from banks                                                                                                                                                                 |  | $             | 24,811    |   |                  | $ | 21,716    |               |  | $ | 54,882    |  
|Federal funds sold                                                                                                                                                                      |  |               | 3,215     |   |                  |   | 3,085     |               |  |   | 50,635    |  
|Interest-bearing deposits                                                                                                                                                               |  |               | 113,999   |   |                  |   | 114,173   |               |  |   | 45,265    |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Total cash and cash equivalents                                                                                                                                                         |  |               | 142,025   |   |                  |   | 138,974   |               |  |   | 150,782   |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Interest-bearing certificates of deposit (original maturities greater than 90 days)                                                                                                     |  |               | 1,500     |   |                  |   | 1,500     |               |  |   | 10,650    |  
|Investments:                                                                                                                                                                            |  |               |           |   |                  |   |           |               |  |   |           |  
|Investment securities available-for-sale, at fair market value                                                                                                                          |  |               | 201,641   |   |                  |   | 183,683   |               |  |   | 126,292   |  
|Investment securities held-to-maturity, at amortized cost (fair value of $26,693 at 3/31/11, $29,615 at 12/31/10, and $31,149 at
3/31/10)                                               |  |               | 26,264    |   |                  |   | 29,133    |               |  |   | 30,685    |  
|Investment securities - Community Reinvestment Act                                                                                                                                      |  |               | 2,000     |   |                  |   | 2,000     |               |  |   | 4,000     |  
|Restricted equity securities                                                                                                                                                            |  |               | 3,421     |   |                  |   | 3,474     |               |  |   | 3,643     |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Total investments                                                                                                                                                                       |  |               | 233,326   |   |                  |   | 218,290   |               |  |   | 164,620   |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Mortgage loans held-for-sale                                                                                                                                                            |  |               | 505       |   |                  |   | 929       |               |  |   | 353       |  
|                                                                                                                                                                                        |  |               |          
|Loans, net of deferred loan fees                                                                                                                                                        |  |               | 921,018   |   |                  |   | 976,795   |               |  |   | 1,118,214 |  
|Allowance for loan losses                                                                                                                                                               |  |               | (33,366   | ) |                  |   | (35,582   | )             |  |   | (46,518   | )
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Loans, net                                                                                                                                                                              |  |               | 887,652   |   |                  |   | 941,213   |               |  |   | 1,071,696 |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Premises and equipment, net of accumulated depreciation and amortization                                                                                                                |  |               | 47,754    |   |                  |   | 47,924    |               |  |   | 47,269    |  
|Core deposit intangibles, net of amortization                                                                                                                                           |  |               | 2,338     |   |                  |   | 2,489     |               |  |   | 3,208     |  
|Other real estate owned and foreclosed assets                                                                                                                                           |  |               | 29,757    |   |                  |   | 32,009    |               |  |   | 21,517    |  
|Accrued interest and other assets                                                                                                                                                       |  |               | 27,869    |   |                  |   | 27,892    |               |  |   | 34,483    |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|TOTAL ASSETS                                                                                                                                                                            |  | $             | 1,372,726 |   |                  | $ | 1,411,220 |               |  | $ | 1,504,578 |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|                                                                                                                                                                                       
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                    | 
|LIABILITIES                                                                                                                                                                             |  |               |           |   |                  |   |           |               |  |   |           |  
|Deposits:                                                                                                                                                                               |  |               |           |   |                  |   |           |               |  |   |           |  
|Demand                                                                                                                                                                                  |  | $             | 252,562   |   |                  | $ | 242,631   |               |  | $ | 247,256   |  
|Interest-bearing demand and savings                                                                                                                                                     |  |               | 459,241   |   |                  |   | 469,897   |               |  |   | 502,680   |  
|Time deposits                                                                                                                                                                           |  |               | 522,078   |   |                  |   | 553,721   |               |  |   | 612,005   |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Total deposits                                                                                                                                                                          |  |               | 1,233,881 |   |                  |   | 1,266,249 |               |  |   | 1,361,941 |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Federal Home Loan Bank borrowings                                                                                                                                                       |  |               | 20        |   |                  |   | 22        |               |  |   | 27        |  
|Securities sold under agreements to repurchase                                                                                                                                          |  |               | 1,894     |   |                  |   |          |               |  |   |          |  
|Junior subordinated debentures                                                                                                                                                          |  |               | 30,928    |   |                  |   | 30,928    |               |  |   | 30,928    |  
|Accrued interest and other liabilities                                                                                                                                                  |  |               | 17,461    |   |                  |   | 17,013    |               |  |   | 13,737    |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Total liabilities                                                                                                                                                                       |  |               | 1,284,184 |   |                  |   | 1,314,212 |               |  |   | 1,406,633 |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|COMMITMENTS AND CONTINGENCIES (Note 10)                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|SHAREHOLDERS EQUITY                                                                                                                                                                    |  |               |           |   |                  |   |           |               |  |   |           |  
|                                                                                                                                                                                        |  |               |          
|Preferred Stock, net of unamortized discount, no par value (liquidation preference $1,000 per share), 41,400 shares authorized,
issued and outstanding (41,400 at 12/31/10 and 3/31/10) |  |               | 40,043    |   |                  |   | 39,946    |               |  |   | 39,657    |  
|Common stock - no par value; 150,000,000 shares authorized; 10,035,741 shares issued and outstanding (10,034,830 at 12/31/10 and
8,107,735 at 3/31/10)                                  |  |               | 208,359   |   |                  |   | 208,324   |               |  |   | 205,065   |  
|Accumulated deficit                                                                                                                                                                     |  |               | (159,612  | ) |                  |   | (152,202  | )             |  |   | (148,012  | )
|Accumulated other comprehensive income (loss)                                                                                                                                           |  |               | (248      | ) |                  |   | 940       |               |  |   | 1,235     |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Total shareholders equity                                                                                                                                                              |  |               | 88,542    |   |                  |   | 97,008    |               |  |   | 97,945    |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                              |  | $             | 1,372,726 |   |                  | $ | 1,411,220 |               |  | $ | 1,504,578 |  
|                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  

See accompanying notes.



2



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PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in 000s, Except for Loss per Share Data)

(UNAUDITED)



|                                                                        |  |                            |        |   |               |   |        |  
|----------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------- | - | ------ | -
|                                                                        |  | For the Three Months Ended |       
|                                                                        |  | March 31,2011              |        |   | March 31,2010 |  
|INTEREST AND DIVIDEND INCOME                                            |  |                            |        |   |               |   |        |  
|Interest and fees on loans                                              |  | $                          | 13,611 |   |               | $ | 16,831 |  
|Interest on investments:                                                |  |                            |        |   |               |   |        |  
|Taxable                                                                 |  |                            | 1,291  |   |               |   | 1,195  |  
|Nontaxable                                                              |  |                            | 45     |   |               |   | 51     |  
|Interest on federal funds sold                                          |  |                            | 2      |   |               |   | 30     |  
|Other interest and dividends                                            |  |                            | 83     |   |               |   | 80     |  
|                                                                        |  |                            |        |   |               |   |        |  
|Total interest and dividend income                                      |  |                            | 15,032 |   |               |   | 18,187 |  
|                                                                        |  |                            |        |   |               |   |        |  
|                                                                        |  |                           
|INTEREST EXPENSE                                                        |  |                            |        |   |               |   |        |  
|Deposits:                                                               |  |                            |        |   |               |   |        |  
|Interest-bearing demand and savings                                     |  |                            | 367    |   |               |   | 748    |  
|Time                                                                    |  |                            | 2,297  |   |               |   | 2,147  |  
|Interest on securities sold under agreements to repurchase              |  |                            | 1      |   |               |   |       |  
|Junior subordinated debentures                                          |  |                            | 166    |   |               |   | 456    |  
|                                                                        |  |                            |        |   |               |   |        |  
|Total interest expense                                                  |  |                            | 2,831  |   |               |   | 3,351  |  
|                                                                        |  |                            |        |   |               |   |        |  
|Net interest income                                                     |  |                            | 12,201 |   |               |   | 14,836 |  
|                                                                        |  |                           
|LOAN LOSS PROVISION                                                     |  |                            | 6,300  |   |               |   | 6,100  |  
|                                                                        |  |                            |        |   |               |   |        |  
|Net interest income after loan loss provision                           |  |                            | 5,901  |   |               |   | 8,736  |  
|                                                                        |  |                            |        |   |               |   |        |  
|                                                                        |  |                           
|NON-INTEREST INCOME                                                     |  |                            |        |   |               |   |        |  
|Service charges on deposits accounts                                    |  |                            | 955    |   |               |   | 1,035  |  
|Other commissions and fees                                              |  |                            | 645    |   |               |   | 713    |  
|Investment brokerage and annuity fees                                   |  |                            | 500    |   |               |   | 348    |  
|Mortgage banking fees                                                   |  |                            | 125    |   |               |   | 131    |  
|Other non-interest income                                               |  |                            | 934    |   |               |   | 481    |  
|                                                                        |  |                            |        |   |               |   |        |  
|Total non-interest income                                               |  |                            | 3,159  |   |               |   | 2,708  |  
|                                                                        |  |                            |        |   |               |   |        |  
|                                                                        |  |                           
|NON-INTEREST EXPENSE                                                    |  |                            |        |   |               |   |        |  
|Salaries and employee benefits                                          |  |                            | 7,026  |   |               |   | 7,020  |  
|Net cost of operations of other real estate owned and foreclosed assets |  |                            | 2,212  |   |               |   | 716    |  
|Net occupancy and equipment                                             |  |                            | 1,878  |   |               |   | 1,904  |  
|FDIC and state assessments                                              |  |                            | 1,123  |   |               |   | 1,212  |  
|Professional fees                                                       |  |                            | 876    |   |               |   | 741    |  
|Communications                                                          |  |                            | 475    |   |               |   | 521    |  
|Advertising                                                             |  |                            | 245    |   |               |   | 174    |  
|Other non-interest expense                                              |  |                            | 1,963  |   |               |   | 1,847  |  
|                                                                        |  |                            |        |   |               |   |        |  
|Total non-interest expense                                              |  |                            | 15,798 |   |               |   | 14,135 |  
|                                                                        |  |                            |        |   |               |   |        |  
|                                                                        |  |                           
|LOSS BEFORE PROVISION FOR INCOME TAXES                                  |  |                            | (6,738 | ) |               |   | (2,691 | )
|                                                                        |  |                           
|PROVISION FOR INCOME TAXES                                              |  |                            | 16     |   |               |   |       |  
|                                                                        |  |                            |        |   |               |   |        |  
|NET LOSS                                                                |  |                            | (6,754 | ) |               |   | (2,691 | )
|                                                                        |  |                           
|PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION                        |  |                            | 656    |   |               |   | 611    |  
|                                                                        |  |                            |        |   |               |   |        |  
|NET LOSS APPLICABLE TO COMMON SHAREHOLDERS                              |  | $                          | (7,410 | ) |               | $ | (3,302 | )
|                                                                        |  |                            |        |   |               |   |        |  
|                                                                        |  |                           
|LOSS PER COMMON SHARE:                                                  |  |                            |        |   |               |   |        |  
|BASIC                                                                   |  | $                          | (0.74  | ) |               | $ | (1.02  | )
|                                                                        |  |                            |        |   |               |   |        |  
|DILUTED                                                                 |  | $                          | (0.74  | ) |               | $ | (1.02  | )
|                                                                        |  |                            |        |   |               |   |        |  

See accompanying notes.



3



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PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

AND COMPREHENSIVE LOSS

(Dollars in 000s, Except Share Amounts)

(UNAUDITED)



|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------ |  | --------------- | ------ |  | ------------ | - | ------ | ---------------- |  |  | ---------------- | - |  | -------------------- | ------- | - | -------------------------- | - | -------- | ------------------- |  | - | ----------------- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                           |  | Preferred Stock |        |  | Common Stock |   |        | RetainedEarnings |  |  | AccumulatedOther |   |  | Total                |         |   |                            |  
|                                                                                           |  | Shares          |        |  | Amount       |   |        | Shares           |  |  | Amount           |   |  | (AccumulatedDeficit) |         |   | ComprehensiveIncome (Loss) |   |          | ShareholdersEquity |  |   | ComprehensiveLoss |  
|BALANCE - December 31, 2009                                                                |  |                 | 41,400 |  |              | $ | 39,561 |                  |  |  | 2,477,193        |   |  | $                    | 175,449 |   |                            | $ | (144,710 | )                   |  | $ | 1,235             |   |  | $ | 71,535 |   |  |   |        |  
|Comprehensive loss:                                                                        |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Net loss                                                                                   |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   | (4,959   | )                   |  |   |                  |   |  |   | (4,959 | ) |  | $ | (4,959 | )
|Other comprehensive loss - Change in fair value of securities available-for-sale           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | (431              | ) |  |   | (431   | ) |  |   | (431   | )
|Adjustment for realized gains, net of $98 tax                                              |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | 146               |   |  |   | 146    |   |  |   | 146    |  
|Amortization of unrealized gains for investment securities transferred to held-to-maturity |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | (10               | ) |  |   | (10    | ) |  |   | (10    | )
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Comprehensive loss                                                                         |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  | $ | (5,254 | )
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Preferred stock dividend accrued                                                           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   | (2,148   | )                   |  |   |                  |   |  |   | (2,148 | ) |  |   |        |  
|Stock offering                                                                             |  |                 |       |  |              |   |       |                  |  |  | 7,557,637        |   |  |                      | 32,503  |   |                            |   |         |                     |  |   |                  |   |  |   | 32,503 |   |  |   |        |  
|Stock-based compensation expense                                                           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      | 372     |   |                            |   |         |                     |  |   |                  |   |  |   | 372    |   |  |   |        |  
|Accretion of discount from Series B preferred stock                                        |  |                 |       |  |              |   | 385    |                  |  |  |                 |   |  |                      |        |   |                            |   | (385     | )                   |  |   |                  |   |  |   |       |   |  |   |        |  
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|BALANCE - December 31, 2010                                                                |  |                 | 41,400 |  |              |   | 39,946 |                  |  |  | 10,034,830       |   |  |                      | 208,324 |   |                            |   | (152,202 | )                   |  |   | 940               |   |  |   | 97,008 |   |  |   |        |  
|Comprehensive loss:                                                                        |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Net loss                                                                                   |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   | (6,754   | )                   |  |   |                  |   |  |   | (6,754 | ) |  | $ | (6,754 | )
|Other comprehensive loss - Change in fair value of securities available-for-sale           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | (1,384            | ) |  |   | (1,384 | ) |  |   | (1,384 | )
|Adjustment for realized gains, net of $140 tax                                             |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | 209               |   |  |   | 209    |   |  |   | 209    |  
|Amortization of unrealized gains for investment securities transferred to held-to-maturity |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   |         |                     |  |   | (13               | ) |  |   | (13    | ) |  |   | (13    | )
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Comprehensive loss                                                                         |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  | $ | (7,942 | )
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|Preferred stock dividend accrued                                                           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      |        |   |                            |   | (559     | )                   |  |   |                  |   |  |   | (559   | ) |  |   |        |  
|Restricted stock issued                                                                    |  |                 |       |  |              |   |       |                  |  |  | 1,250            |   |  |                      |        |   |                            |   |         |                     |  |   |                  |   |  |   |       |   |  |   |        |  
|Cash paid for fractional shares in connection with 1-for-10 reverse stock split            |  |                 |       |  |              |   |       |                  |  |  | (339             | ) |  |                      | (1      | ) |                            |   |         |                     |  |   |                  |   |  |   | (1     | ) |  |   |        |  
|Stock-based compensation expense                                                           |  |                 |       |  |              |   |       |                  |  |  |                 |   |  |                      | 36      |   |                            |   |         |                     |  |   |                  |   |  |   | 36     |   |  |   |        |  
|Accretion of discount from Series B preferred stock                                        |  |                 |       |  |              |   | 97     |                  |  |  |                 |   |  |                      |        |   |                            |   | (97      | )                   |  |   |                  |   |  |   |       |   |  |   |        |  
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  
|BALANCE - March 31, 2011                                                                   |  |                 | 41,400 |  |              | $ | 40,043 |                  |  |  | 10,035,741       |   |  | $                    | 208,359 |   |                            | $ | (159,612 | )                   |  | $ | (248              | ) |  | $ | 88,542 |   |  |   |        |  
|                                                                                           |  |                 |        |  |              |   |        |                  |  |  |                  |   |  |                      |         |   |                            |   |          |                     |  |   |                   |   |  |   |        |   |  |   |        |  

See accompanying notes.



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##### Table of Contents

PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in 000s)

(UNAUDITED)



|                                                                                  |  |                            |         |   |               |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                  |  | For The Three Months Ended |        
|                                                                                  |  | March 31,2011              |         |   | March 31,2010 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|Net loss                                                                          |  | $                          | (6,754  | ) |               | $ | (2,691  | )
|Adjustments to reconcile net loss to net cash from operating activities:          |  |                            |         |   |               |   |         |  
|Depreciation and amortization                                                     |  |                            | 878     |   |               |   | 989     |  
|Loan loss provision                                                               |  |                            | 6,300   |   |               |   | 6,100   |  
|Amortization of premiums and accretion of discounts on investment securities, net |  |                            | 577     |   |               |   | 363     |  
|Gain on sale of investments                                                       |  |                            | (349    | ) |               |   | (244    | )
|Funding of loans held-for-sale                                                    |  |                            | (5,118  | ) |               |   | (4,767  | )
|Sale of loans held-for-sale                                                       |  |                            | 5,667   |   |               |   | 6,276   |  
|Gain on sale of loans held-for-sale                                               |  |                            | (125    | ) |               |   | (131    | )
|Change in BOLI value (net of benefit obligations)                                 |  |                            | 119     |   |               |   | 131     |  
|Stock-based compensation expense                                                  |  |                            | 36      |   |               |   | 104     |  
|Loss on sales of premises and equipment                                           |  |                            | 25      |   |               |   | 22      |  
|Gain on sale of other real estate owned and foreclosed assets                     |  |                            | (656    | ) |               |   | (317    | )
|Write down of other real estate owned due to impairment                           |  |                            | 2,076   |   |               |   | 546     |  
|Write down of low income housing tax credit investment                            |  |                            | 53      |   |               |   | 41      |  
|Changes in accrued interest receivable/payable and other assets/liabilities       |  |                            | 276     |   |               |   | 2,290   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash provided by operating activities                                         |  |                            | 3,005   |   |               |   | 8,712   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|Proceeds from interest-bearing certificates of deposit                            |  |                            |        |   |               |   | 40,000  |  
|Purchase of investment securities available-for-sale                              |  |                            | (68,308 | ) |               |   | (70,048 | )
|Proceeds from principal payments received on securities available-for-sale        |  |                            | 9,140   |   |               |   | 4,752   |  
|Proceeds from sale of securities available-for-sale                               |  |                            | 39,823  |   |               |   | 53,855  |  
|Proceeds from principal payments received on securities held-to-maturity          |  |                            |        |   |               |   | 451     |  
|Proceeds from maturities and calls of investment securities held-to-maturity      |  |                            | 2,840   |   |               |   | 12,215  |  
|Proceeds from FHLB stock redemption                                               |  |                            | 53      |   |               |   |        |  
|Loan (originations) payments, net                                                 |  |                            | 43,010  |   |               |   | 22,052  |  
|Purchase of premises and equipment                                                |  |                            | (586    | ) |               |   | (228    | )
|Proceeds from disposal of premises and equipment                                  |  |                            | 4       |   |               |   |        |  
|Purchase of low income housing tax credit investment                              |  |                            | (536    | ) |               |   | (162    | )
|Purchase of improvements for other real estate owned and foreclosed assets        |  |                            | (10     | ) |               |   | (249    | )
|Proceeds from sale of other real estate owned and foreclosed assets               |  |                            | 5,093   |   |               |   | 5,627   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash provided by investing activities                                         |  |                            | 30,523  |   |               |   | 68,265  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|Net decrease in deposits                                                          |  |                            | (32,368 | ) |               |   | (58,821 | )
|Net decrease in Federal Home Loan Bank borrowings                                 |  |                            | (2      | ) |               |   | (1      | )
|Net increase in securities sold under agreements to repurchase                    |  |                            | 1,894   |   |               |   |        |  
|Cash paid for fractional shares in connection with 1-for-10 reverse stock split   |  |                            | (1      | ) |               |   |        |  
|Cash received from stock offerings, net of costs                                  |  |                            |        |   |               |   | 29,512  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash used in financing activities                                             |  |                            | (30,477 | ) |               |   | (29,310 | )
|                                                                                  |  |                            |         |   |               |   |         |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                            | 3,051   |   |               |   | 47,667  |  
|                                                                                  |  |                           
|CASH AND CASH EQUIVALENTS - Beginning of the period                               |  |                            | 138,974 |   |               |   | 103,115 |  
|                                                                                  |  |                            |         |   |               |   |         |  
|CASH AND CASH EQUIVALENTS - End of the period                                     |  | $                          | 142,025 |   |               | $ | 150,782 |  
|                                                                                  |  |                            |         |   |               |   |         |  
|SUPPLEMENTAL DISCOSURE OF CASH FLOW INFORMATION                                   |  |                            |         |   |               |   |         |  
|Cash paid for interest                                                            |  | $                          | 2,716   |   |               | $ | 3,084   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Cash paid for taxes                                                               |  | $                          | 6       |   |               | $ |        |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:            |  |                            |         |   |               |   |         |  
|Transfers of loans to other real estate owned and foreclosed assets               |  | $                          | 4,251   |   |               | $ | 2,376   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Preferred stock dividend accrued but not yet paid                                 |  | $                          | 559     |   |               | $ | 515     |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Accretion of preferred stock discount                                             |  | $                          | 97      |   |               | $ | 96      |  
|                                                                                  |  |                            |         |   |               |   |         |  

See accompanying notes.



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NOTE 1  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization  The accompanying consolidated financial statements include the accounts of PremierWest Bancorp (the Company or
PremierWest) and its wholly-owned subsidiary, PremierWest Bank (the Bank).

The Bank offers a full range of financial
products and services through a network of 44 full service branch offices, 37 of which are located along the Interstate 5 freeway corridor between Roseburg, Oregon, and Sacramento, California. Of the 44 full service branch offices, 23 are located in
Oregon (Jackson, Josephine, Deschutes, Douglas and Klamath Counties) and 21 are located in California (Siskiyou, Shasta, Butte, Tehama, Sacramento, Nevada and Yolo Counties). The Banks activities include the usual lending and deposit functions
of a community-oriented commercial bank: commercial, real estate, installment and mortgage loans; checking, time deposit and savings accounts; mortgage loan brokerage services; and automated teller machines (ATM) and safe deposit
facilities. The Bank has three subsidiaries: Premier Finance Company, PremierWest Investment Services, Inc. and Blue Star Properties, Inc. Premier Finance Company has offices in Medford, Grants Pass, Redmond, Roseburg, Klamath Falls, Eugene and
Portland, Oregon and Redding, California and is engaged in the business of consumer lending. PremierWest Investment Services, Inc. operates throughout the Banks market area providing brokerage services for investment products including stocks,
bonds, mutual funds and annuities. Blue Star Properties, Inc. serves solely to hold real estate properties for the Company but is currently inactive.

In December 2004, the Company established PremierWest Statutory Trust I and II (the Trusts), as wholly-owned Delaware statutory business trusts, for the purpose of issuing guaranteed
individual beneficial interests in junior subordinated debentures (Trust Preferred Securities). The Trusts issued $15.5 million in Trust Preferred Securities for the purpose of providing additional funding for operations and enhancing
the Companys consolidated regulatory capital. A third trust, the Stockmans Financial Trust I, in the amount of $15.5 million, was added in 2008 pursuant to the acquisition of Stockmans Financial Group. In accordance with the Financial
Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) 810-10-05, Consolidation of Variable Interest Entities, the Company has not included the Trusts in its consolidated financial
statements. However, the junior subordinated debentures issued by the Company to the Trusts are reflected in the Companys consolidated balance sheets.

Basis of presentation  The consolidated financial statements include the accounts of PremierWest Bancorp and its wholly-owned subsidiary. All 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 consolidated financial condition and results of operations for the interim periods presented.

The balance sheet data as of December 31, 2010 were derived from audited financial statements and do not include all disclosures contained in the
2010 Annual Report to Shareholders. The interim consolidated financial statements should be read in conjunction with the Companys 2010 consolidated financial statements, including the notes thereto, included in the 2010 Annual Report to
Shareholders as filed with the Securities and Exchange Commission on Form 10-K. 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.

The Company announced on January 20, 2011, that it
intended to file an amendment to its Articles of Incorporation to complete a 1-for-10 reverse stock split effective February 10, 2011. The effects of the reverse stock split have been reflected in the financial statements and the footnotes.

Method of accounting and use of estimates  The Company 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. This 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 consolidated financial statements and the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Significant
estimates made by Management involve the calculation of the allowance for loan losses, impaired loans, the fair value of available-for-sale investment securities, deferred tax assets, and the value of other real estate owned and foreclosed assets.

The Company utilizes the accrual method of accounting, which recognizes income when earned and expenses when incurred.

In preparing these financial statements, the Company has evaluated events and transactions subsequent to March 31, 2011, for potential recognition
or disclosure in the financial statements. In Managements opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These
adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation.

Reclassifications 
Certain reclassifications have been made to the 2010 consolidated financial statements to conform to current quarter presentations. These reclassifications have no effect on previously reported shareholders equity, net loss or loss per share.



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Stock dividends  Share and per share data in the accompanying consolidated financial
statements reflect all previously declared and paid stock dividends. The Company did not declare a stock dividend in the quarter ended March 31, 2011.

Cash dividends  No quarterly common stock cash dividend was declared in the quarter ended March 31, 2011.

On August 17, 2009, a cash dividend of $517,500 was paid to the United States Department of the Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program for the 41,400 shares
of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series B, with cumulative dividends at a rate of 5.0% per annum for the first five years and 9.0% per annum thereafter. While payments have not been made since the
third quarter of 2009, in order to preserve capital, the Company has continued to accrue dividends through the first quarter of 2011. As of March 31, 2011, accrued dividends totaled approximately $3.5 million, of which approximately $2.9
million was accrued through December 31, 2010.

NOTE 2  REGULATORY AGREEMENT, ECONOMIC CONDITIONS AND MANAGEMENTS PLAN

Based on the results of an examination completed during the third quarter of 2009, effective April 6, 2010, the Bank stipulated to
the issuance of a formal regulatory Consent Order (the Agreement) with the Federal Deposit and Insurance Corporation (FDIC) and the Oregon Division of Finance and Corporate Securities (the DFCS), the Banks
principal regulators, primarily as a result of recent significant operating losses and increasing levels of adversely-classified loans. In addition to corrective actions described below, the Agreement imposes certain operating restrictions on the
Bank related to dividends, compliance with brokered deposit rules and extensions of credit to certain types of borrowers.

Among the
corrective actions required are for the Bank to retain qualified management, reduce adversely-classified loans, maintain an adequate allowance for loan losses, revise the strategic plan and various policies, and maintain elevated capital levels. In
addition, the Agreement provides timelines and thresholds from the date of issuance to achieve the aforementioned corrective actions. The Agreement requires that the Bank:



| |  |  | Increase and maintain its Tier 1 Capital in such an amount to ensure that the Banks leverage ratio equals or exceeds 10% by October 3, 2010,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce assets classified Substandard in the report of examination to not more than 100% of the Banks Tier 1 capital and allowance for
loan and lease loss reserve (ALLL) by November 2, 2010, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce assets classified Substandard in the report of examination to not more than 70% of the Banks Tier 1 capital plus ALLL by
April 1, 2011.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

As of the date of this report, the Company had not yet achieved these requirements. Prior to the
completing the Agreement with the FDIC in April 2010, we completed a common stock offering that raised $33.2 million in gross proceeds, which raised the Banks Tier 1 leverage from 5.70% at December 31, 2009 to 8.21% at March 31,
2010. Subsequently the Bank has engaged in balance sheet management activities, including loan and deposit reductions which have further increased its Tier 1 leverage ratio to its March 31, 2011, level of 8.59%. Similarly, the Company has
reduced its loans classified Substandard to 101.7% of Tier 1 capital plus ALLL as of March 31, 2011, compared to 178.4% as of June 30, 2009. As previously noted, the Company has demonstrated progress toward and is committed to
achieving all the requirements of the Agreement.

In order to proactively respond to the current regulatory environment and the Banks
credit issues, Management initiated measures intended to increase regulatory capital ratios prior to entering into the Agreement. Among the measures taken were the following:



| |  |  | Completion of equity issuances sufficient to raise the Companys regulatory capital ratios to levels in excess of those required to be considered
Well-Capitalized under the regulatory framework for prompt corrective action except for the 10.0% leverage ratio set by the Agreement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduction of assets and liabilities with primary emphasis on reducing non-performing assets through (1) sales of other real estate owned and
foreclosed assets, (2) aggressive out-management of classified loans through unfavorable renewal pricing, charge-offs and foreclosures as appropriate, and (3) reduced emphasis on public funds deposits and corresponding reductions in
collateral investment securities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Evaluation of all business lines within the organization for possible gains upon disposition or significant cost-savings opportunities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

We continue to focus on improving capital ratios and credit quality.



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On June 4, 2010, the Company entered into a Written Agreement (the Written Agreement) with
the Federal Reserve Bank of San Francisco and the DFCS, which routinely accompanies or follows an FDIC Consent Order, and is comparable to the Agreement described above. The Written Agreement provides that the Company will:



| |  |  | Provide quarterly progress reports as well as other reports and plans,
| | - |  | ----------------------------------------------------------------------



| |  |  | Take steps to ensure the Bank complies with the Agreement,
| | - |  | ----------------------------------------------------------



| |  |  | Obtain regulatory approval to pay dividends or to incur indebtedness, and
| | - |  | -------------------------------------------------------------------------



| |  |  | Obtain approvals for a variety of other routine items.
| | - |  | ------------------------------------------------------

The Banks regulatory capital ratios were adversely affected by losses that occurred as a result of credit losses associated with the adverse state of the economy, and depressed real estate
valuations on our commercial real estate concentrations. Also, as a result of the Banks operating results and financial condition, the Bank recognized an impairment to goodwill and established a valuation allowance against its deferred tax
assets. The Bank continues to have high loan concentrations in commercial real estate loans and in construction and development loans. If economic conditions were to worsen for these industry segments, our financial condition could suffer
significant deterioration. These circumstances led to Managements implementation of the measures summarized above.

There are no
assurances Managements plan, as developed and implemented to date, will successfully improve the Banks results of operation or financial condition or result in the termination of the Agreement and the Written Agreement. The economic
environment in the market areas and the duration of the downturn in the real estate market will have a significant impact on the implementation of the Banks business plans.

In anticipation of the requirements of the Agreement, on January 29, 2010, the Company filed an amendment to the Form S-1 Registration Statement with the United States Securities and Exchange
Commission announcing a proposed offering of up to 8,174,736 shares of the Companys common stock. A prospectus was filed on February 1, 2010, providing that prior to a public offering of the shares, existing shareholders of the Company
each received a subscription right to purchase 0.33 shares of the Companys common stock, for each shared owned, at a subscription price of $4.40 per share. The effects of the 1-for-10 reverse stock split have been reflected in this footnote.

On April 7, 2010, the Company concluded its rights offering and the related public offering and issued approximately 7.56 million
shares with net proceeds of approximately $32.5 million, net of estimated offering costs of approximately $700,000.

NOTE 3 
STOCK-BASED COMPENSATION

At March 31, 2011, PremierWest Bancorp had one active equity incentive plan  the 2002 Stock Incentive
Plan (2002 Plan). The 2002 Plan was initially established in May 2002 and approved by shareholders. The 2002 Plan was amended and restated in May 2005 to allow for the issuance of restricted stock grants in addition to stock options. The
2002 Plan was also amended and restated in May 2007 to increase the number of shares available for issuance under the plan by 1,000,000 shares. Both amendments were approved by shareholders. After the effect of the 1-for-10 reverse stock split, the
Plan authorizes the issuance of up to 214,012 shares of stock, of which 133,305 shares were available for issuance at March 31, 2011.

The amended and restated 2002 Plan allows for stock options to be granted at an exercise price of not less than the fair market value of PremierWest
Bancorp stock on the date of issuance, for a term not to exceed ten years. The Compensation Committee establishes the vesting schedule for each grant; historically the Committee has utilized graded vesting schedules over two, five and seven year
periods. Upon exercise of stock options or issuance of restricted stock grants, it is the Companys policy to issue new shares of common stock.

During the three month period ended March 31, 2011, stock option activity was as follows:



|                                      |  |                |        |   |                               |   |       |                                                  |  |  |                                        |  |  |   |   | 
|------------------------------------- |  | -------------- | ------ | - | ----------------------------- | - | ----- | ------------------------------------------------ |  |  | -------------------------------------- |  |  | - | - | 
|                                      |  | NumberofShares |        |   | Weighted AverageExercisePrice |   |       | Weighted AverageRemainingContractual Term(Years) |  |  | AggregateIntrinsic Value(in thousands) | 
|Stock options outstanding, 12/31/2010 |  |                | 85,376 |   |                               | $ | 91.33 |                                                  |  |  |                                        |  |  |   |   | 
|Issued                                |  |                |       |   |                               |   |      |                                                  |  |  |                                        |  |  |   |   | 
|Forfeited                             |  |                | (4,669 | ) |                               |   | 91.07 |                                                  |  |  |                                        |  |  |   |   | 
|                                      |  |                |        |   |                               |   |       |                                                  |  |  |                                        |  |  |   |   | 
|Stock options outstanding, 3/31/2011  |  |                | 80,707 |   |                               |   | 91.34 |                                                  |  |  | 4.67                                   |  |  | $ |  | 
|                                      |  |                |        |   |                               |   |       |                                                  |  |  |                                        |  |  |   |   | 
|Stock options exercisable, 3/31/2011  |  |                | 54,977 |   |                               | $ | 87.93 |                                                  |  |  | 3.70                                   |  |  | $ |  | 
|                                      |  |                |        |   |                               |   |       |                                                  |  |  |                                        |  |  |   |   | 



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PremierWest Bancorp follows accounting for Share-Based Payment. This standard requires companies
to measure and recognize as compensation expense the grant date fair market value for all share-based awards. That portion of the grant date fair market value that is ultimately expected to vest is recognized as expense over the requisite service
period, typically the vesting period, utilizing the straight-line attribution method. This standard requires companies to estimate the fair market value of stock-based payment awards on the date of grant using an option-pricing model. The Company
uses the Black-Scholes option-pricing model to value its stock options. The Black-Scholes model requires the use of assumptions regarding the historical volatility of the Companys stock price, its expected dividend yield, the risk-free
interest rate and the weighted average expected life of the options.

There were no stock options granted during the first quarter of 2011 or
2010. During the three months ended March 31, 2011, there were 750 restricted stock grants issued.

As of March 31, 2011, there were
1,250 restricted stock grants outstanding, 25 shares were vested, with the remaining 1,225 shares expected to fully vest between 2016 and 2018.

Accounting for Share-Based Payment requires that the cash flows from the tax benefits resulting from tax deductions in excess of the
compensation expense recognized for stock options (excess tax benefits) be reported as financing cash flows. There were no excess tax benefits classified as financing cash inflows for the three months ended March 31, 2011, and March 31,
2010, respectively.

Stock-based compensation expense recognized under the standard was $36,000 with a related tax benefit of $14,400 for the
quarter ended March 31, 2011, compared to stock-based compensation expense of $104,000, with a related tax benefit of $41,600, for the quarter ended March 31, 2010. At March 31, 2011, unrecognized stock-based compensation expense
totaled $432,000 and will be expensed over a weighted-average period of approximately 2.0 years.



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NOTE 4 - INVESTMENT SECURITIES

Investment securities at March 31, 2011 and December 31, 2010 consisted of the following:



|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|-------------------------------------------------------- |  | ----------------- | ------- |  | -------------------- | - | ----- | --------------------- |  | - | ------------------ | - |  | - | ------- | 
|(Dollars in 000s)                                       |  |                   |         |  |                      |   |       |                       |  |   |                    |  
|                                                         |  | March 31, 2011    |        
|                                                         |  | Amortizedcost     |         |  | Grossunrealizedgains |   |       | Grossunrealizedlosses |  |   | Estimatedfairvalue |  
|Available-for-sale:                                      |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Collateralized mortgage obligations                      |  | $                 | 115,767 |  |                      | $ | 680   |                       |  | $ | (775               | ) |  | $ | 115,672 | 
|Mortgage-backed securities                               |  |                   | 2,212   |  |                      |   | 4     |                       |  |   |                   |   |  |   | 2,216   | 
|U.S. Government and agency securities                    |  |                   | 69,489  |  |                      |   | 18    |                       |  |   | (248               | ) |  |   | 69,259  | 
|Obligations of states and political subdivisions         |  |                   | 14,440  |  |                      |   | 176   |                       |  |   | (122               | ) |  |   | 14,494  | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Total                                                    |  | $                 | 201,908 |  |                      | $ | 878   |                       |  | $ | (1,145             | ) |  | $ | 201,641 | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Held-to-maturity:                                        |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Mortgage-backed securities                               |  | $                 | 4,557   |  |                      | $ | 86    |                       |  | $ | (4                 | ) |  | $ | 4,639   | 
|U.S. Government and agency securities                    |  |                   | 10,328  |  |                      |   | 295   |                       |  |   |                   |   |  |   | 10,623  | 
|Obligations of states and political subdivisions         |  |                   | 11,379  |  |                      |   | 226   |                       |  |   | (174               | ) |  |   | 11,431  | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Total                                                    |  | $                 | 26,264  |  |                      | $ | 607   |                       |  | $ | (178               | ) |  | $ | 26,693  | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Investment securities - Other Community Reinvestment Act |  | $                 | 2,000   |  |                      | $ |      |                       |  | $ |                   |   |  | $ | 2,000   | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Restricted equity securities                             |  | $                 | 3,421   |  |                      | $ |      |                       |  | $ |                   |   |  | $ | 3,421   | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|                                                         | 
|                                                         |  | December 31, 2010 |        
|                                                         |  | Amortizedcost     |         |  | Grossunrealizedgains |   |       | Grossunrealizedlosses |  |   | Estimatedfairvalue |  
|Available-for-sale:                                      |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Collateralized mortgage obligations                      |  | $                 | 131,372 |  |                      | $ | 1,647 |                       |  | $ | (802               | ) |  | $ | 132,217 | 
|Mortgage-backed securities                               |  |                   | 9,023   |  |                      |   | 72    |                       |  |   | (39                | ) |  |   | 9,056   | 
|U.S. Government and agency securities                    |  |                   | 36,371  |  |                      |   | 24    |                       |  |   | (119               | ) |  |   | 36,276  | 
|Obligations of states and political subdivisions         |  |                   | 6,009   |  |                      |   | 125   |                       |  |   |                   |   |  |   | 6,134   | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Total                                                    |  | $                 | 182,775 |  |                      | $ | 1,868 |                       |  | $ | (960               | ) |  | $ | 183,683 | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Held-to-maturity:                                        |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Mortgage-backed securities                               |  | $                 | 4,781   |  |                      | $ | 108   |                       |  | $ |                   |   |  | $ | 4,889   | 
|U.S. Government and agency securities                    |  |                   | 12,151  |  |                      |   | 378   |                       |  |   |                   |   |  |   | 12,529  | 
|Obligations of states and political subdivisions         |  |                   | 12,201  |  |                      |   | 179   |                       |  |   | (183               | ) |  |   | 12,197  | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Total                                                    |  | $                 | 29,133  |  |                      | $ | 665   |                       |  | $ | (183               | ) |  | $ | 29,615  | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Investment securities - Other Community Reinvestment Act |  | $                 | 2,000   |  |                      | $ |      |                       |  | $ |                   |   |  | $ | 2,000   | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 
|Restricted equity securities                             |  | $                 | 3,474   |  |                      | $ |      |                       |  | $ |                   |   |  | $ | 3,474   | 
|                                                         |  |                   |         |  |                      |   |       |                       |  |   |                    |   |  |   |         | 



10



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##### Table of Contents

The table below presents the gross unrealized losses and fair value of the Banks investment
securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2011. Of these amounts, 37 available-for-sale investments comprised the less than 12
months category, and 7 held-to-maturity investments comprised the less than 12 months category.



|                                                |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|----------------------------------------------- |  | ------------------- | ------- |  | ----------------- | - | ------ | ---------- |  | - | ---------------- |  |  | ---------- | -- | - | ---------------- | - | ------- |  |  | - | ------ | -
|(Dollars in 000s)                              |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |  
|                                                |  | Less than 12 months |         |  | 12 months or more |   |        | Total      | 
|At March 31, 2011                               |  | Fair Value          |         |  | UnrealizedLosses  |   |        | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |    |   | UnrealizedLosses |  
|Available-for-sale:                             |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|Collateralized mortgage obligations             |  | $                   | 54,571  |  |                   | $ | (775   | )          |  | $ |                 |  |  | $          |   |   |                  | $ | 54,571  |  |  | $ | (775   | )
|U.S. Government and agency securities           |  |                     | 46,850  |  |                   |   | (248   | )          |  |   |                 |  |  |            |   |   |                  |   | 46,850  |  |  |   | (248   | )
|Obligations of state and political subdivisions |  |                     | 7,505   |  |                   |   | (122   | )          |  |   |                 |  |  |            |   |   |                  |   | 7,505   |  |  |   | (122   | )
|Held-to-maturity:                               |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|Mortgage-backed securities                      |  |                     | 3,359   |  |                   |   | (4     | )          |  |   |                 |  |  |            |   |   |                  |   | 3,359   |  |  |   | (4     | )
|Obligations of state and political subdivisions |  |                     | 3,613   |  |                   |   | (174   | )          |  |   |                 |  |  |            |   |   |                  |   | 3,613   |  |  |   | (174   | )
|                                                |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|                                                |  | $                   | 115,898 |  |                   | $ | (1,323 | )          |  | $ |                 |  |  | $          |   |   |                  | $ | 115,898 |  |  | $ | (1,323 | )
|                                                |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|                                                |  |                     |        
|                                                |  | Less than 12 months |         |  | 12 months or more |   |        | Total      | 
|At December 31, 2010                            |  | Fair Value          |         |  | UnrealizedLosses  |   |        | Fair Value |  |   | UnrealizedLosses |  |  | Fair Value |    |   | UnrealizedLosses |  
|Available-for-sale:                             |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|Collateralized mortgage obligations             |  | $                   | 43,239  |  |                   | $ | (802   | )          |  | $ | 2                |  |  | $          |   |   |                  | $ | 43,241  |  |  | $ | (802   | )
|Mortgage-backed securities                      |  |                     | 2,960   |  |                   |   | (39    | )          |  |   |                 |  |  |            |   |   |                  |   | 2,960   |  |  |   | (39    | )
|U.S. Government and agency securities           |  |                     | 19,974  |  |                   |   | (119   | )          |  |   |                 |  |  |            |   |   |                  |   | 19,974  |  |  |   | (119   | )
|Held-to-maturity:                               |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|Obligations of state and political subdivisions |  |                     | 3,593   |  |                   |   | (176   | )          |  |   | 553              |  |  |            | (7 | ) |                  |   | 4,146   |  |  |   | (183   | )
|                                                |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  
|                                                |  | $                   | 69,766  |  |                   | $ | (1,136 | )          |  | $ | 555              |  |  | $          | (7 | ) |                  | $ | 70,321  |  |  | $ | (1,143 | )
|                                                |  |                     |         |  |                   |   |        |            |  |   |                  |  |  |            |    |   |                  |   |         |  |  |   |        |  

Substantially all unrealized losses reflected above were the result of changes in interest rates subsequent to the purchase
of the securities. The investments with unrealized losses are not considered other-than-temporarily impaired because the decline in fair value is primarily attributable to the changes in interest rates rather than credit quality; the Bank does not
intend to sell the securities in this class; and it is not likely that the Bank will be required to sell these securities before recovery of their amortized cost bases, which may include holding each security until maturity.

The amortized cost and estimated fair value of investment securities at March 31, 2011, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                                       |  |                    |         |  |                     |   |         |               |  |   |                     |  |  |   |        | 
|-------------------------------------- |  | ------------------ | ------- |  | ------------------- | - | ------- | ------------- |  | - | ------------------- |  |  | - | ------ | 
|At March 31, 2011                      |  |                    |         |  |                     |   |         |               |  |   |                     | 
|(Dollars in 000s)                     |  |                    |         |  |                     |   |         |               |  |   |                     | 
|                                       |  | Available-for-sale |         |  | Held-to-maturity    |  
|                                       |  | AmortizedCost      |         |  | EstimatedFair Value |   |         | AmortizedCost |  |   | EstimatedFair Value | 
|Due in one year or less                |  | $                  | 9,073   |  |                     | $ | 9,074   |               |  | $ | 504                 |  |  | $ | 508    | 
|Due after one year through five years  |  |                    | 58,445  |  |                     |   | 58,243  |               |  |   | 11,128              |  |  |   | 11,429 | 
|Due after five years through ten years |  |                    | 14,282  |  |                     |   | 14,154  |               |  |   | 6,277               |  |  |   | 6,243  | 
|Due after ten years                    |  |                    | 120,108 |  |                     |   | 120,170 |               |  |   | 8,355               |  |  |   | 8,513  | 
|                                       |  |                    |         |  |                     |   |         |               |  |   |                     |  |  |   |        | 
|                                       |  | $                  | 201,908 |  |                     | $ | 201,641 |               |  | $ | 26,264              |  |  | $ | 26,693 | 
|                                       |  |                    |         |  |                     |   |         |               |  |   |                     |  |  |   |        | 

At March 31, 2011, investment securities with an estimated fair market value of $219.1 million were pledged to secure
public deposits.



11



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##### Table of Contents

As required of all members of the Federal Home Loan Bank (FHLB) system, the Company maintains an
investment in the capital stock of the FHLB in an amount equal to the greater of $500 or 0.5% of home mortgage loans and pass-through securities plus 5.0% of the outstanding balance of mortgage home loans sold to FHLB under the Mortgage Purchase
Program. The FHLB system, the largest government sponsored entity in the United States, is made up of 12 regional banks, including the FHLB of Seattle and the FHLB of San Francisco. Participating banks record the value of FHLB stock equal to its par
value at $100 per share. The Company is required to hold FHLBs stock in order to receive advances and views this investment as long-term. Thus, when evaluating it for impairment, the value is determined based on the recovery of the par value
through redemption by the FHLB or from the sale to another member, rather than by recognizing temporary declines in value. The FHLB of Seattle disclosed that it reported a net loss for the three month period ended March 31, 2011. On
October 25, 2010, the FHLB of Seattle entered into a Stipulation and Consent to the Issuance of a Consent Order with the Federal Housing Finance Agency (Finance Agency). The Finance Agency continues to deem the FHLB of Seattle
undercapitalized under the Finance Agencys Prompt Corrective Action rule. The Company has concluded that its investment in FHLB is not impaired as of March 31, 2011, and believes that it will ultimately recover the par value
of its investment in this stock.

NOTE 5  LOANS

Loans as of March 31, 2011 and December 31, 2010, consisted of the following:



|                                                    |  |                |         |   |                   |   |         |  
|--------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|(Dollars in 000s)                                  |  | March 31, 2011 |         |   | December 31, 2010 |  
|Construction, Land Dev & Other Land                 |  | $              | 55,533  |   |                   | $ | 62,666  |  
|Commercial & Industrial                             |  |                | 109,836 |   |                   |   | 119,077 |  
|Commercial Real Estate Loans                        |  |                | 606,616 |   |                   |   | 626,387 |  
|Secured Multifamily Residential                     |  |                | 23,156  |   |                   |   | 24,227  |  
|Other Commercial Loans Secured by RE                |  |                | 55,518  |   |                   |   | 59,284  |  
|Loans to Individuals, Family & Personal Expense     |  |                | 12,240  |   |                   |   | 12,472  |  
|Consumer/Finance                                    |  |                | 36,244  |   |                   |   | 36,859  |  
|Other Loans                                         |  |                | 23,359  |   |                   |   | 37,255  |  
|Overdrafts                                          |  |                | 309     |   |                   |   | 319     |  
|                                                    |  |                |         |   |                   |   |         |  
|Gross loans                                         |  |                | 922,811 |   |                   |   | 978,546 |  
|Less: allowance for loan losses                     |  |                | (33,366 | ) |                   |   | (35,582 | )
|Less: deferred fees and restructed loan concessions |  |                | (1,793  | ) |                   |   | (1,751  | )
|                                                    |  |                |         |   |                   |   |         |  
|Loans, net                                          |  | $              | 887,652 |   |                   | $ | 941,213 |  
|                                                    |  |                |         |   |                   |   |         |  

NOTE 6  ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The allowance for loan losses represents the Companys estimate as to the probable credit losses inherent in its loan portfolio. The allowance for
loan losses is increased through periodic charges to provision for loan losses and represents the aggregate amount, net of loans charged-off and recoveries on previously charged-off loans, that is needed to establish an appropriate reserve for
credit losses. The allowance is estimated based on a variety of factors and using a methodology as described below:



| |  |  | The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulatory guidelines for regulatory reporting purposes.
The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Pursuant to Accounting for Creditors for Impairment of a
Loan, the impaired portion of collateral dependent loans is charged-off. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



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##### Table of Contents

| |  |  | Analyses are performed to establish the loss factors based on a three-year historical experience, as well as expected losses based on qualitative
evaluations of such factors as the economic trends and conditions, industry conditions, levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, among others. The loss factors are applied to loan
category pools segregated by risk classification through the current period to estimate the loss inherent in the Companys loan portfolio pursuant to Accounting for Contingencies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with Accounting for Creditors for Impairment
of a Loan, and specific reserves are established based on thorough analysis of collateral values where loss potential exists. When an impaired loan is collateral dependent and a deficiency exists in the fair value of real estate
collateralizing the loan in comparison to the associated loan balance, the deficiency is charged-off at that time. Impaired loans are reviewed no less frequently than quarterly.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received,
but the Company believes that the collateral value is insufficient to support the loan amount, an impairment reserve is recorded. In these instances, the receipt of a current appraisal triggers an updated review of the collateral support for the
loan and any deficiency is charged-off or reserved at that time. In those instances where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date, the Companys internal appraisal review
department prepares a collateral valuation based on a number of factors including, but not limited to, property location, local price volatility, local economic conditions, and recent comparable sales. In all cases, the costs to sell the subject
property are deducted in arriving at the fair value of the collateral. Any unpaid property taxes or similar expenses are expensed at the time the property is acquired by the Bank.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13



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##### Table of Contents

Transactions in the allowance for loan losses for the three months ended March 31, 2011 and 2010 were
as follows:

Allowance for Credit Losses and Recorded Investment in Financing Receivables



|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|----------------------------------------------------- |  | --------------------- | ------- | - | ---------------- | - | ------- | --------------- |  | - | --------------------- | - |  | ----------------------- | ------ | - | ------------------- | - | ------ | --------------- |  | - | ------------------------- | - |  | ----- | ------ | - |  | - | ------ | - |  | - | --------- | -
|(Dollars in 000s)                                    |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |       
|                                                      |  | Construction,Land Dev |         |   | Comm &Industrial |   |         | Comm RealEstate |  |   | Comm RealEstate Multi |   |  | Comm RealEstate - Other |        |   | Loans toIndividuals |   |        | ConsumerFinance |  |   | Other Loansand Overdrafts |   |  | Total |       
|For the three months ended March 31, 2011             |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Allowance for credit losses:                          |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|                                                      |  |                       |         |   |                  |   |         |                 | 
|Beginning balance                                     |  | $                     | 4,703   |   |                  | $ | 8,051   |                 |  | $ | 14,419                |   |  | $                       | 126    |   |                     | $ | 4,623  |                 |  | $ | 973                       |   |  | $     | 2,376  |   |  | $ | 311    |   |  | $ | 35,582    |  
|Charge-offs                                           |  |                       | (5,484  | ) |                  |   | (1,052  | )               |  |   | (4,068                | ) |  |                         |       |   |                     |   | (1,659 | )               |  |   |                          |   |  |       | (265   | ) |  |   | (22    | ) |  |   | (12,550   | )
|Recoveries                                            |  |                       | 26      |   |                  |   | 3,365   |                 |  |   | 456                   |   |  |                         |       |   |                     |   | 92     |                 |  |   |                          |   |  |       | 84     |   |  |   | 11     |   |  |   | 4,034     |  
|Provision                                             |  |                       | 4,131   |   |                  |   | (3,287  | )               |  |   | 4,272                 |   |  |                         | 13     |   |                     |   | 1,285  |                 |  |   | (167                      | ) |  |       | 147    |   |  |   | (94    | ) |  |   | 6,300     |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance                                        |  | $                     | 3,376   |   |                  | $ | 7,077   |                 |  | $ | 15,079                |   |  | $                       | 139    |   |                     | $ | 4,341  |                 |  | $ | 806                       |   |  | $     | 2,342  |   |  | $ | 206    |   |  | $ | 33,366    |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: individually evaluated for impairment |  | $                     | 367     |   |                  | $ | 118     |                 |  | $ | 3,845                 |   |  | $                       |       |   |                     | $ | 2,884  |                 |  | $ | 4                         |   |  | $     |       |   |  | $ |       |   |  | $ | 7,218     |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: collectively evaluated for impairment |  | $                     | 3,009   |   |                  | $ | 6,959   |                 |  | $ | 11,234                |   |  | $                       | 139    |   |                     | $ | 1,457  |                 |  | $ | 802                       |   |  | $     | 2,342  |   |  | $ | 206    |   |  | $ | 26,148    |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Loans:                                                |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|                                                      |  |                       |         |   |                  |   |         |                 | 
|Ending balance                                        |  | $                     | 55,533  |   |                  | $ | 109,836 |                 |  | $ | 606,616               |   |  | $                       | 23,156 |   |                     | $ | 55,518 |                 |  | $ | 12,240                    |   |  | $     | 36,244 |   |  | $ | 23,668 |   |  | $ | 922,811   |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: individually evaluated for impairment |  | $                     | 24,207  |   |                  | $ | 2,026   |                 |  | $ | 72,287                |   |  | $                       |       |   |                     | $ | 8,673  |                 |  | $ | 23                        |   |  | $     | 91     |   |  | $ | 2,537  |   |  | $ | 109,844   |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: collectively evaluated for impairment |  | $                     | 31,326  |   |                  | $ | 107,810 |                 |  | $ | 534,329               |   |  | $                       | 23,156 |   |                     | $ | 46,845 |                 |  | $ | 12,217                    |   |  | $     | 36,153 |   |  | $ | 21,131 |   |  | $ | 812,967   |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|                                                      |  |                       |         |   |                  |   |         |                 | 
|                                                      |  | Construction,Land Dev |         |   | Comm &Industrial |   |         | Comm RealEstate |  |   | Comm RealEstate Multi |   |  | Comm RealEstate - Other |        |   | Loans toIndividuals |   |        | ConsumerFinance |  |   | Other Loansand Overdrafts |   |  | Total |       
|For the three months ended March 31, 2010             |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Allowance for credit losses:                          |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|                                                      |  |                       |         |   |                  |   |         |                 | 
|Beginning balance                                     |  | $                     | 15,033  |   |                  | $ | 6,409   |                 |  | $ | 20,923                |   |  | $                       | 506    |   |                     | $ | 531    |                 |  | $ | 231                       |   |  | $     | 1,150  |   |  | $ | 1,120  |   |  | $ | 45,903    |  
|Charge-offs                                           |  |                       | (3,473  | ) |                  |   | (912    | )               |  |   | (1,027                | ) |  |                         |       |   |                     |   | (496   | )               |  |   | (23                       | ) |  |       | (440   | ) |  |   | (30    | ) |  |   | (6,401    | )
|Recoveries                                            |  |                       | 35      |   |                  |   | 68      |                 |  |   | 278                   |   |  |                         |       |   |                     |   | 2      |                 |  |   |                          |   |  |       | 356    |   |  |   | 177    |   |  |   | 916       |  
|Provision                                             |  |                       | 557     |   |                  |   | 1,111   |                 |  |   | 3,635                 |   |  |                         | (12    | ) |                     |   | 789    |                 |  |   | (3                        | ) |  |       | (97    | ) |  |   | 120    |   |  |   | 6,100     |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance                                        |  | $                     | 12,152  |   |                  | $ | 6,676   |                 |  | $ | 23,809                |   |  | $                       | 494    |   |                     | $ | 826    |                 |  | $ | 205                       |   |  | $     | 969    |   |  | $ | 1,387  |   |  | $ | 46,518    |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: individually evaluated for impairment |  | $                     | 4,732   |   |                  | $ | 342     |                 |  | $ | 2,655                 |   |  | $                       |       |   |                     | $ | 261    |                 |  | $ |                          |   |  | $     |       |   |  | $ | 251    |   |  | $ | 8,241     |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: collectively evaluated for impairment |  | $                     | 7,420   |   |                  | $ | 6,334   |                 |  | $ | 21,154                |   |  | $                       | 494    |   |                     | $ | 565    |                 |  | $ | 205                       |   |  | $     | 969    |   |  | $ | 1,136  |   |  | $ | 38,277    |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Loans:                                                |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|                                                      |  |                       |         |   |                  |   |         |                 | 
|Ending balance                                        |  | $                     | 124,133 |   |                  | $ | 155,531 |                 |  | $ | 662,354               |   |  | $                       | 21,699 |   |                     | $ | 65,117 |                 |  | $ | 13,783                    |   |  | $     | 37,500 |   |  | $ | 36,573 |   |  | $ | 1,116,690 |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: individually evaluated for impairment |  | $                     | 43,657  |   |                  | $ | 2,740   |                 |  | $ | 48,719                |   |  | $                       |       |   |                     | $ | 6,646  |                 |  | $ | 3                         |   |  | $     | 828    |   |  | $ | 1,779  |   |  | $ | 104,372   |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  
|Ending balance: collectively evaluated for impairment |  | $                     | 80,476  |   |                  | $ | 152,791 |                 |  | $ | 613,635               |   |  | $                       | 21,699 |   |                     | $ | 58,471 |                 |  | $ | 13,780                    |   |  | $     | 36,672 |   |  | $ | 34,794 |   |  | $ | 1,012,318 |  
|                                                      |  |                       |         |   |                  |   |         |                 |  |   |                       |   |  |                         |        |   |                     |   |        |                 |  |   |                           |   |  |       |        |   |  |   |        |   |  |   |           |  



14



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##### Table of Contents

The following tables summarize the Companys loans past due by type as of March 31, 2011 and
December 31, 2010:



|                                                |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|----------------------------------------------- |  | ------------------ | ------ |  | ------------------ | - | ----- | ------------------ |  | - | ------------- |  |  | ------- | ------ |  | ---------- | - | ------- | ------------------------------------------------ |  | - | ------- |  |  | - | --- | 
|(Dollars in 000s)                              |  | 30-59 DaysPast Due |        |  | 60-89 DaysPast Due |   |       | GreaterThan90 Days |  |   | Total PastDue |  |  | Current |        |  | TotalLoans |   |         | RecordedInvestment >90 Days Past Dueand Accruing | 
|March 31, 2011                                  |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|                                                |  |                    |        |  |                    |   |      
|Construction, Land Dev & Other Land             |  | $                  | 5,793  |  |                    | $ | 1,961 |                    |  | $ | 5,090         |  |  | $       | 12,844 |  |            | $ | 42,689  |                                                  |  | $ | 55,533  |  |  | $ |    | 
|Commercial & Industrial                         |  |                    | 882    |  |                    |   |      |                    |  |   | 1,227         |  |  |         | 2,109  |  |            |   | 107,726 |                                                  |  |   | 109,835 |  |  |   |    | 
|Commercial Real Estate Loans                    |  |                    | 26,369 |  |                    |   | 627   |                    |  |   | 37,043        |  |  |         | 64,039 |  |            |   | 542,577 |                                                  |  |   | 606,616 |  |  |   |    | 
|Secured Multifamily Residential                 |  |                    | 200    |  |                    |   |      |                    |  |   |              |  |  |         | 200    |  |            |   | 22,956  |                                                  |  |   | 23,156  |  |  |   |    | 
|Other Commercial Loans Secured by RE            |  |                    |       |  |                    |   | 100   |                    |  |   | 950           |  |  |         | 1,050  |  |            |   | 54,469  |                                                  |  |   | 55,519  |  |  |   |    | 
|Loans to Individuals, Family & Personal Expense |  |                    | 250    |  |                    |   | 6     |                    |  |   |              |  |  |         | 256    |  |            |   | 11,984  |                                                  |  |   | 12,240  |  |  |   |    | 
|Consumer/Finance                                |  |                    | 492    |  |                    |   | 169   |                    |  |   | 91            |  |  |         | 752    |  |            |   | 35,492  |                                                  |  |   | 36,244  |  |  |   | 91  | 
|Other Loans and Overdrafts                      |  |                    |       |  |                    |   |      |                    |  |   | 2,538         |  |  |         | 2,538  |  |            |   | 21,130  |                                                  |  |   | 23,668  |  |  |   |    | 
|                                                |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|Total                                           |  | $                  | 33,986 |  |                    | $ | 2,863 |                    |  | $ | 46,939        |  |  | $       | 83,788 |  |            | $ | 839,023 |                                                  |  | $ | 922,811 |  |  | $ | 91  | 
|                                                |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|December 31, 2010                               |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|                                                |  |                    |        |  |                    |   |      
|Construction, Land Dev & Other Land             |  | $                  | 133    |  |                    | $ |      |                    |  | $ | 7,447         |  |  | $       | 7,580  |  |            | $ | 55,086  |                                                  |  | $ | 62,666  |  |  | $ |    | 
|Commercial & Industrial                         |  |                    | 222    |  |                    |   | 5     |                    |  |   | 1,298         |  |  |         | 1,525  |  |            |   | 117,552 |                                                  |  |   | 119,077 |  |  |   |    | 
|Commercial Real Estate Loans                    |  |                    | 8,011  |  |                    |   | 2,007 |                    |  |   | 36,396        |  |  |         | 46,414 |  |            |   | 579,973 |                                                  |  |   | 626,387 |  |  |   |    | 
|Secured Multifamily Residential                 |  |                    |       |  |                    |   |      |                    |  |   | 307           |  |  |         | 307    |  |            |   | 23,920  |                                                  |  |   | 24,227  |  |  |   |    | 
|Other Commercial Loans Secured by RE            |  |                    | 97     |  |                    |   | 224   |                    |  |   | 2,709         |  |  |         | 3,030  |  |            |   | 56,254  |                                                  |  |   | 59,284  |  |  |   |    | 
|Loans to Individuals, Family & Personal Expense |  |                    | 10     |  |                    |   |      |                    |  |   |              |  |  |         | 10     |  |            |   | 12,462  |                                                  |  |   | 12,472  |  |  |   |    | 
|Consumer/Finance                                |  |                    | 603    |  |                    |   | 188   |                    |  |   | 123           |  |  |         | 914    |  |            |   | 35,945  |                                                  |  |   | 36,859  |  |  |   | 123 | 
|Other Loans and Overdrafts                      |  |                    | 2,104  |  |                    |   |      |                    |  |   | 434           |  |  |         | 2,538  |  |            |   | 35,036  |                                                  |  |   | 37,574  |  |  |   |    | 
|                                                |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 
|Total                                           |  | $                  | 11,180 |  |                    | $ | 2,424 |                    |  | $ | 48,714        |  |  | $       | 62,318 |  |            | $ | 916,228 |                                                  |  | $ | 978,546 |  |  | $ | 123 | 
|                                                |  |                    |        |  |                    |   |       |                    |  |   |               |  |  |         |        |  |            |   |         |                                                  |  |   |         |  |  |   |     | 



15



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##### Table of Contents

Impaired loans by type for the three months ended March 31, 2011 and twelve months ended
December 31, 2010 were as follows:



|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|----------------------------------------------- |  | --------- | ------- |  | ---------- | - | ------- | --------- |  | - | ---------- |  |  | ---------- | ------- |  |  | - | - | 
|(Dollars in 000s)                              |  | Unpaid    |         |  |            |   |         |           |  |   | Average    |  |  | Interest   |        
|                                                |  | Principal |         |  | Recorded   |   |         | Related   |  |   | Recorded   |  |  | Income     |        
|                                                |  | Balance   |         |  | Investment |   |         | Allowance |  |   | Investment |  |  | Recognized |        
|March 31, 2011                                  |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|With no Related Allowance                       |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Construction, Land Dev & Other Land             |  | $         | 39,935  |  |            | $ | 22,603  |           |  | $ |           |  |  | $          | 24,055  |  |  | $ |  | 
|Commercial & Industrial                         |  |           | 2,296   |  |            |   | 1,728   |           |  |   |           |  |  |            | 1,569   |  |  |   |  | 
|Commercial Real Estate Loans                    |  |           | 75,227  |  |            |   | 60,203  |           |  |   |           |  |  |            | 64,107  |  |  |   |  | 
|Secured Multifamily Residential                 |  |           |        |  |            |   |        |           |  |   |           |  |  |            | 201     |  |  |   |  | 
|Other Commercial Loans Secured by RE            |  |           | 4,839   |  |            |   | 3,468   |           |  |   |           |  |  |            | 3,720   |  |  |   |  | 
|Loans to Individuals, Family & Personal Expense |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |  | 
|Consumer/Finance                                |  |           |        |  |            |   | 91      |           |  |   |           |  |  |            | 114     |  |  |   | 4 | 
|Other Loans                                     |  |           | 2,864   |  |            |   | 2,537   |           |  |   |           |  |  |            | 2,538   |  |  |   |  | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Total                                           |  | $         | 125,161 |  |            | $ | 90,630  |           |  | $ |           |  |  | $          | 96,304  |  |  | $ | 4 | 
|With a Related Allowance                        |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Construction, Land Dev & Other Land             |  | $         | 1,604   |  |            | $ | 1,604   |           |  | $ | 367        |  |  | $          | 4,836   |  |  | $ |  | 
|Commercial & Industrial                         |  |           | 775     |  |            |   | 298     |           |  |   | 118        |  |  |            | 724     |  |  |   |  | 
|Commercial Real Estate Loans                    |  |           | 17,617  |  |            |   | 12,084  |           |  |   | 3,845      |  |  |            | 12,237  |  |  |   |  | 
|Secured Multifamily Residential                 |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |  | 
|Other Commercial Loans Secured by RE            |  |           | 5,205   |  |            |   | 5,205   |           |  |   | 2,884      |  |  |            | 6,215   |  |  |   |  | 
|Loans to Individuals, Family & Personal Expense |  |           | 23      |  |            |   | 23      |           |  |   | 4          |  |  |            | 24      |  |  |   |  | 
|Consumer/Finance                                |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |  | 
|Other Loans                                     |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |  | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Total                                           |  | $         | 25,224  |  |            | $ | 19,214  |           |  | $ | 7,218      |  |  | $          | 24,036  |  |  | $ |  | 
|Total Impaired Loans:                           |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Construction, Land Dev & Other Land             |  | $         | 41,539  |  |            | $ | 24,207  |           |  | $ | 367        |  |  | $          | 28,891  |  |  | $ |  | 
|Commercial & Industrial                         |  |           | 3,071   |  |            |   | 2,026   |           |  |   | 118        |  |  |            | 2,293   |  |  |   |  | 
|Commercial Real Estate Loans                    |  |           | 92,844  |  |            |   | 72,287  |           |  |   | 3,845      |  |  |            | 76,344  |  |  |   |  | 
|Secured Multifamily Residential                 |  |           |        |  |            |   |        |           |  |   |           |  |  |            | 201     |  |  |   |  | 
|Other Commercial Loans Secured by RE            |  |           | 10,044  |  |            |   | 8,673   |           |  |   | 2,884      |  |  |            | 9,935   |  |  |   |  | 
|Loans to Individuals, Family & Personal Expense |  |           | 23      |  |            |   | 23      |           |  |   | 4          |  |  |            | 24      |  |  |   |  | 
|Consumer/Finance                                |  |           |        |  |            |   | 91      |           |  |   |           |  |  |            | 114     |  |  |   | 4 | 
|Other Loans                                     |  |           | 2,864   |  |            |   | 2,537   |           |  |   |           |  |  |            | 2,538   |  |  |   |  | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 
|Total Impaired Loans                            |  | $         | 150,385 |  |            | $ | 109,844 |           |  | $ | 7,218      |  |  | $          | 120,340 |  |  | $ | 4 | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |   | 

Included in the table above are $91,000 of consumer loans that are 90 days past due and still accruing interest. These loans
are charged-off according to policy after 120 days. The remaining loans are on non-accrual status at March 31, 2011.



16



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##### Table of Contents

|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|----------------------------------------------- |  | --------- | ------- |  | ---------- | - | ------- | --------- |  | - | ---------- |  |  | ---------- | ------- |  |  | - | -- | 
|(Dollars in 000s)                              |  | Unpaid    |         |  |            |   |         |           |  |   | Average    |  |  | Interest   |        
|                                                |  | Principal |         |  | Recorded   |   |         | Related   |  |   | Recorded   |  |  | Income     |        
|                                                |  | Balance   |         |  | Investment |   |         | Allowance |  |   | Investment |  |  | Recognized |        
|December 31, 2010                               |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|With no Related Allowance                       |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Construction, Land Dev & Other Land             |  | $         | 39,517  |  |            | $ | 26,007  |           |  | $ |           |  |  | $          | 25,675  |  |  | $ |   | 
|Commercial & Industrial                         |  |           | 2,598   |  |            |   | 1,682   |           |  |   |           |  |  |            | 2,654   |  |  |   |   | 
|Commercial Real Estate Loans                    |  |           | 76,316  |  |            |   | 66,917  |           |  |   |           |  |  |            | 57,839  |  |  |   |   | 
|Secured Multifamily Residential                 |  |           | 307     |  |            |   | 307     |           |  |   |           |  |  |            | 183     |  |  |   |   | 
|Other Commercial Loans Secured by RE            |  |           | 4,553   |  |            |   | 3,913   |           |  |   |           |  |  |            | 4,897   |  |  |   |   | 
|Loans to Individuals, Family & Personal Expense |  |           | 26      |  |            |   | 26      |           |  |   |           |  |  |            | 5       |  |  |   |   | 
|Consumer/Finance                                |  |           | 123     |  |            |   | 123     |           |  |   |           |  |  |            | 10      |  |  |   | 16 | 
|Other Loans                                     |  |           | 2,864   |  |            |   | 2,538   |           |  |   |           |  |  |            | 737     |  |  |   |   | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Total                                           |  | $         | 126,304 |  |            | $ | 101,513 |           |  | $ |           |  |  | $          | 92,000  |  |  | $ | 16 | 
|With a Related Allowance                        |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Construction, Land Dev & Other Land             |  | $         | 8,151   |  |            | $ | 6,577   |           |  | $ | 2,365      |  |  | $          | 11,324  |  |  | $ |   | 
|Commercial & Industrial                         |  |           | 1,027   |  |            |   | 1,027   |           |  |   | 295        |  |  |            | 782     |  |  |   |   | 
|Commercial Real Estate Loans                    |  |           | 19,321  |  |            |   | 13,687  |           |  |   | 3,554      |  |  |            | 8,800   |  |  |   |   | 
|Secured Multifamily Residential                 |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |   | 
|Other Commercial Loans Secured by RE            |  |           | 6,812   |  |            |   | 6,812   |           |  |   | 3,440      |  |  |            | 2,017   |  |  |   |   | 
|Loans to Individuals, Family & Personal Expense |  |           |        |  |            |   |        |           |  |   | 5          |  |  |            | 9       |  |  |   |   | 
|Consumer/Finance                                |  |           |        |  |            |   |        |           |  |   |           |  |  |            |        |  |  |   |   | 
|Other Loans                                     |  |           |        |  |            |   |        |           |  |   |           |  |  |            | 207     |  |  |   |   | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Total                                           |  | $         | 35,311  |  |            | $ | 28,103  |           |  | $ | 9,659      |  |  | $          | 23,139  |  |  | $ |   | 
|Total Impaired Loans:                           |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Construction, Land Dev & Other Land             |  | $         | 47,668  |  |            | $ | 32,584  |           |  | $ | 2,365      |  |  | $          | 36,999  |  |  | $ |   | 
|Commercial & Industrial                         |  |           | 3,625   |  |            |   | 2,709   |           |  |   | 295        |  |  |            | 3,436   |  |  |   |   | 
|Commercial Real Estate Loans                    |  |           | 95,637  |  |            |   | 80,604  |           |  |   | 3,554      |  |  |            | 66,639  |  |  |   |   | 
|Secured Multifamily Residential                 |  |           | 307     |  |            |   | 307     |           |  |   |           |  |  |            | 183     |  |  |   |   | 
|Other Commercial Loans Secured by RE            |  |           | 11,365  |  |            |   | 10,725  |           |  |   | 3,440      |  |  |            | 6,914   |  |  |   |   | 
|Loans to Individuals, Family & Personal Expense |  |           | 26      |  |            |   | 26      |           |  |   | 5          |  |  |            | 14      |  |  |   |   | 
|Consumer/Finance                                |  |           | 123     |  |            |   | 123     |           |  |   |           |  |  |            | 10      |  |  |   | 16 | 
|Other Loans                                     |  |           | 2,864   |  |            |   | 2,538   |           |  |   |           |  |  |            | 944     |  |  |   |   | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 
|Total Impaired Loans                            |  | $         | 161,615 |  |            | $ | 129,616 |           |  | $ | 9,659      |  |  | $          | 115,139 |  |  | $ | 16 | 
|                                                |  |           |         |  |            |   |         |           |  |   |            |  |  |            |         |  |  |   |    | 

Included in the table above are $123,000 of consumer loans that are 90 days past due and still accruing interest. These
loans are charged-off according to policy after 120 days. The remaining loans were on non-accrual status at December 31, 2010.

The
weighted average recorded investment in impaired loans was $120.3 million and $115.1 million at March 31, 2011, and December 31, 2010, respectively.

The Company assigns risk ratings to loans based on internal review. These risk ratings are grouped and defined as follows:

Pass The borrower is considered creditworthy and has the ability to repay the debt in the normal course of business.

Watch  This rating indicates that according to current information, the borrower has the capacity to perform according to terms; however, elements of uncertainty (an uncharacteristic negative
financial or other risk factor event) exist. Margins of debt service coverage are or have narrowed, and historical patterns of financial performance may be erratic although the overall trends are positive. If secured, collateral value and adequate
sources of repayment currently protect the loan. Material adverse trends have not developed at this time. Loans in this category can be to new and/or thinly capitalized companies with limited proven performance history.

Special Mention - A Special Mention asset has potential weaknesses that deserve managements close attention. If left uncorrected, these
potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institutions credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to
sufficient risk to warrant adverse classification. This rating is not a transitional grade by definition; however, an appropriate action plan is required to ensure timely risk rating change as circumstances warrant.



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Substandard  The loan is inadequately protected by the current worth and/or paying capacity of
the obligor or of the collateral pledged, if any. There are well-defined weaknesses that jeopardize the repayment of the debt. Although loss may not be imminent, if the weaknesses are not corrected, there is a good possibility that the Bank will
sustain a loss. Loss potential, while existing in the aggregate amount of Substandard assets, does not have to exist in individual assets classified Substandard.

Doubtful  The loan has the weaknesses of those in the classification of Substandard, one or more of which make collection or liquidation in full, on the basis of currently ascertainable
facts, conditions and values, highly questionable or improbable. The possibility of loss is extremely high, but certain identifiable contingencies that are reasonably likely to materialize may work to the advantage and strengthening of the loan,
such that it is reasonable to defer its classification as a Loss until its more exact status may be determined. Contingencies that may call for deferral of Loss classification include proposed merger, acquisition, or liquidation procedures, capital
injection, perfecting liens on additional collateral and refinancing plans. Loans in this classification are carried on nonaccrual and are considered impaired. Credits rated Doubtful are to be reviewed frequently to determine if event(s) that might
require a change in rating upward or downward have taken place.



|                                                                                                         |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ------ |  | ---------- | - | ------- | --------- |  | - | ------------ |  |  | -------------- | ------ |  | ----------- | - | ------ | ------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|(Dollars in 000s) Credit quality indicators as of March 31, 2011 and December 31, 2010 were as follows: | 
|                                                                                                         |  |               |        |  |            |   |         |          
|March 31, 2011                                                                                           |  | Construction, |        |  | Comm &     |   |         | Comm Real |  |   | Comm Real    |  |  | Comm Real      |        |  | Loans to    |   |        | Other Loans   |  |   |        | 
|                                                                                                         |  | Land Dev      |        |  | Industrial |   |         | Estate    |  |   | Estate Multi |  |  | Estate - Other |        |  | Individuals |   |        | and Overdraft |  |   | Total  | 
|Pass                                                                                                     |  | $             | 15,156 |  |            | $ | 54,039  |           |  | $ | 308,082      |  |  | $              | 9,182  |  |             | $ | 38,727 |               |  | $ | 11,391 |  |  | $ | 13,877 |  |  | $ | 450,454 | 
|Watch                                                                                                    |  |               | 3,754  |  |            |   | 4,899   |           |  |   | 43,220       |  |  |                |       |  |             |   | 2,085  |               |  |   |       |  |  |   | 202    |  |  |   | 54,160  | 
|Special Mention                                                                                          |  |               | 3,609  |  |            |   | 9,860   |           |  |   | 101,117      |  |  |                | 12,813 |  |             |   | 1,091  |               |  |   |       |  |  |   | 4,073  |  |  |   | 132,563 | 
|Substandard                                                                                              |  |               | 31,087 |  |            |   | 40,740  |           |  |   | 141,980      |  |  |                | 1,161  |  |             |   | 8,410  |               |  |   | 826    |  |  |   | 5,516  |  |  |   | 229,720 | 
|Doubtful                                                                                                 |  |               | 1,927  |  |            |   | 298     |           |  |   | 12,217       |  |  |                |       |  |             |   | 5,205  |               |  |   | 23     |  |  |   |       |  |  |   | 19,670  | 
|                                                                                                         |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total                                                                                                    |  | $             | 55,533 |  |            | $ | 109,836 |           |  | $ | 606,616      |  |  | $              | 23,156 |  |             | $ | 55,518 |               |  | $ | 12,240 |  |  | $ | 23,668 |  |  |   | 886,567 | 
|                                                                                                         |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total Consumer Credit                                                                                    |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   | 36,244  | 
|                                                                                                         |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total loans                                                                                              |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  | $ | 922,811 | 
|                                                                                                         |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity



|              |  |          |        | 
|------------- |  | -------- | ------ | 
|              |  | Consumer |       
|Performing    |  | $        | 36,153 | 
|Nonperforming |  |          | 91     | 
|              |  |          |        | 
|Total         |  | $        | 36,244 | 
|              |  |          |        | 



|                      |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|--------------------- |  | ------------- | ------ |  | ---------- | - | ------- | --------- |  | - | ------------ |  |  | -------------- | ------ |  | ----------- | - | ------ | ------------- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|December 31, 2010     |  | Construction, |        |  | Comm &     |   |         | Comm Real |  |   | Comm Real    |  |  | Comm Real      |        |  | Loans to    |   |        | Other Loans   |  |   |        | 
|                      |  | Land Dev      |        |  | Industrial |   |         | Estate    |  |   | Estate Multi |  |  | Estate - Other |        |  | Individuals |   |        | and Overdraft |  |   | Total  | 
|Pass                  |  | $             | 17,261 |  |            | $ | 58,567  |           |  | $ | 314,877      |  |  | $              | 9,215  |  |             | $ | 40,293 |               |  | $ | 11,620 |  |  | $ | 24,792 |  |  | $ | 476,625 | 
|Watch                 |  |               |       |  |            |   | 5,676   |           |  |   | 31,395       |  |  |                |       |  |             |   | 2,098  |               |  |   |       |  |  |   | 3,824  |  |  |   | 42,993  | 
|Special Mention       |  |               | 6,435  |  |            |   | 12,337  |           |  |   | 118,287      |  |  |                | 13,540 |  |             |   | 2,309  |               |  |   |       |  |  |   | 3,841  |  |  |   | 156,749 | 
|Substandard           |  |               | 35,893 |  |            |   | 41,404  |           |  |   | 147,513      |  |  |                | 1,472  |  |             |   | 7,772  |               |  |   | 826    |  |  |   | 5,117  |  |  |   | 239,997 | 
|Doubtful              |  |               | 3,077  |  |            |   | 1,093   |           |  |   | 14,315       |  |  |                |       |  |             |   | 6,812  |               |  |   | 26     |  |  |   |       |  |  |   | 25,323  | 
|                      |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total                 |  | $             | 62,666 |  |            | $ | 119,077 |           |  | $ | 626,387      |  |  | $              | 24,227 |  |             | $ | 59,284 |               |  | $ | 12,472 |  |  | $ | 37,574 |  |  |   | 941,687 | 
|                      |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total Consumer Credit |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   | 36,859  | 
|                      |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 
|Total loans           |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  | $ | 978,546 | 
|                      |  |               |        |  |            |   |         |           |  |   |              |  |  |                |        |  |             |   |        |               |  |   |        |  |  |   |        |  |  |   |         | 

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity



|              |  |          |        | 
|------------- |  | -------- | ------ | 
|              |  | Consumer |       
|Performing    |  | $        | 36,736 | 
|Nonperforming |  |          | 123    | 
|              |  |          |        | 
|Total         |  | $        | 36,859 | 
|              |  |          |        | 



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In some instances the Company has modified or restructured loans to amend the interest rate and/or extend
the maturity. Through March 31, 2011, any such amendments have generally been consistent with the terms of newly booked loans reflecting current standards for amortization and interest rate and do not represent concessions to such borrowers. In
those instances where concessions have been granted meeting the criteria for a troubled debt restructuring (TDR), the related loans have been recorded as TDRs and placed on non-accrual status. TDRs recorded by the Company at
March 31, 2011, totaled approximately $47.7 million and were comprised of 27 loans.

The Companys appraisal update procedures for
classified loans and OREO property units result in a significant number of appraisals completed as frequently as every six months with the remaining appraisals updated no less frequently than every twelve months.

NOTE 7  FEDERAL HOME LOAN BANK BORROWINGS AND OTHER BORROWINGS

The Bank had long-term borrowings outstanding with the FHLB totaling approximately $20,000 and $22,000 as of March 31, 2011, and December 31, 2010, respectively. The Bank makes monthly principal
and interest payments on the long-term borrowing, which matures by 2014 and bears a fixed interest rate of 6.53%. The Bank also participates in the Cash Management Advance (CMA) program with the FHLB. CMA borrowings are short-term
borrowings that mature within one year and accrue interest at the variable rate as published by the FHLB. As of March 31, 2011 and December 31, 2010, the Bank had no outstanding CMA borrowings. All outstanding borrowings with the FHLB are
collateralized as provided for under the Advances, Security and Deposit Agreement between the Bank and the FHLB and include the Banks FHLB stock and any funds or investment securities held by the FHLB that are not otherwise pledged for the
benefit of others. At March 31, 2011, the Bank maintained a line of credit with the FHLB of Seattle for $64.0 million and was in compliance with its related collateral requirements.

The Bank also had $20.0 million available for additional borrowing from a correspondent bank; and $13.5 million available for borrowing from the Federal Reserve discount window.

During the first quarter of 2011, the Company began a program to sell securities under agreements to repurchase. At March 31, 2011, the Bank had
$1.9 million securities sold under agreements to repurchase with a maximum balance at any month-end during the quarter of $1.9 million and an average quarterly balance of $1.5 million.

NOTE 8  JUNIOR SUBORDINATED DEBENTURES

On December 30, 2004, the Company
established two wholly-owned statutory business trusts (PremierWest Statutory Trust I and II) that were formed to issue junior subordinated debentures and related common securities. On August 25, 2005, Stockmans Financial Group
established a wholly-owned statutory business trust (Stockmans Financial Trust I) to issue junior subordinated debentures and related common securities. Following the acquisition of Stockmans Financial Group, the Company became the
successor-in-interest to Stockmans Financial Trust I. Common stock issued by each of the Trusts and held as an investment by the Company is recorded in other assets in the consolidated balance sheets.

Following are the terms of the junior subordinated debentures as of March 31, 2011.



|                                     |  |            |              |  |        |   |            |      |  |  |                   |  |  |            |               |  |  |  |               | 
|------------------------------------ |  | ---------- | ------------ |  | ------ | - | ---------- | ---- |  |  | ----------------- |  |  | ---------- | ------------- |  |  |  | ------------- | 
|                                     |  |            |              |  | Issued |   |            |      |  |  | Maturity          |  |  | Redemption |              
|Trust Name                           |  | Issue Date |              |  | Amount |   |            | Rate |  |  | Date              |  |  | Date       |              
|PremierWest    Statutory    Trust I  |  |            | December2004 |  |        | $ | 7,732,000  |      |  |  | LIBOR + 1.75% (1) |  |  |            | December2034  |  |  |  | December2009  | 
|PremierWest    Statutory    Trust II |  |            | December2004 |  |        |   | 7,732,000  |      |  |  | LIBOR + 1.79% (2) |  |  |            | March2035     |  |  |  | March2010     | 
|Stockmans    Financial    Trust I    |  |            | August2005   |  |        |   | 15,464,000 |      |  |  | LIBOR + 1.42% (3) |  |  |            | September2035 |  |  |  | September2010 | 
|                                     |  |            |              |  |        |   |            |      |  |  |                   |  |  |            |               |  |  |  |               | 
|                                     |  |            |              |  |        | $ | 30,928,000 |      |  |  |                   |  |  |            |               |  |  |  |               | 
|                                     |  |            |              |  |        |   |            |      |  |  |                   |  |  |            |               |  |  |  |               | 



|(1) | PremierWest Statutory Trust I was bearing interest at the fixed rate of 5.65% until mid-December 2009, at which time it changed to a variable rate of 3-month LIBOR
(0.31% at March 15, 2011) plus 1.75% or 2.06%, adjusted quarterly, through the final maturity date in December 2034.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | PremierWest Statutory Trust II was bearing interest at the fixed rate of 5.65% until March 2010, at which time it changed to the variable rate of 3-month LIBOR (0.31%
at March 15, 2011) plus 1.79% or 2.10%, adjusted quarterly, through the final maturity date in March 2035.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Stockmans Financial Trust I was bearing interest at the fixed rate of 5.93% until September 2010, at which time it changed to the variable rate of 3-month LIBOR (0.31%
at March 15, 2011) plus 1.42% or 1.73%, adjusted quarterly, through the final maturity date in September 2035.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The Oregon Department of Consumer and Business Services, which supervises banks and bank holding companies
through its Division of Finance and Corporate Securities, and the Federal Reserve have policies that encourage banks and bank holding companies to pay dividends from current earnings, and have the general authority to limit the dividends paid by
banks and bank holding companies, respectively. The Company does not expect to be in a position to pay interest payments on trust preferred securities without regulatory approval or until the Bank is well-capitalized and has satisfied
conditions in its recent regulatory agreement (see Note 2). The Company is permitted to defer such interest payments for up to 20 consecutive quarters, but during a deferral period it is prohibited from making dividend payments on its capital stock.
The amount of accrued and unpaid interest was approximately $1.8 million as of March 31, 2011. At March 31, 2011, the Company had deferred payment of interest for six consecutive quarters.

NOTE 9  PREFERRED STOCK

On
February 13, 2009, in exchange for an aggregate purchase price of $41.4 million, the Company issued and sold to the United States Department of the Treasury pursuant to the Troubled Asset Relief Program Capital Purchase Program
(TARP) the following: (i) 41,400 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series B, no par value per share, and liquidation preference of $1,000 per share and (ii) a Warrant to purchase up
to 109,039 shares of the Companys common stock, no par value per share, at an exercise price of $57.00 per share, subject to certain anti-dilution and other adjustments. The Warrant may be exercised for up to ten years after it is issued.

In connection with the issuance and sale of the Companys securities, the Company entered into a Letter Agreement including the
Securities Purchase Agreement-Standard Terms, dated February 13, 2009, with the United States Department of the Treasury (the TARP Agreement). The TARP Agreement contains limitations on the payment of quarterly cash dividends on the
Companys common stock in excess of $0.057 per share and on the Companys ability to repurchase its common stock. The TARP Agreement also grants the holders of the Series B Preferred Stock, the Warrant and the common stock to be issued
under the Warrant registration rights, and subjects the Company to executive compensation limitations included in the Emergency Economic Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009. Participants in the
TARP Capital Purchase Program are required to have in place limitations on the compensation of Senior Executive Officers and other employees.

The Series B Preferred Stock (Preferred Stock) will bear cumulative dividends at a rate of 5.0% per annum for the first five years and
9.0% per annum thereafter, in each case, applied to the $1,000 per share liquidation preference, but will only be paid when, as and if declared by the Companys Board of Directors out of funds legally available. The Preferred Stock has no
maturity date and ranks senior to the Companys common stock with respect to the payment of dividends and distributions and amounts payable in the event of liquidation, dissolution and winding up of the Company.

In February 2009, following passage of the American Recovery and Reinvestment Act of 2009, the program terms were changed and the Company is no longer
required to conduct a qualified equity offering prior to retirement of the Series B Preferred Stock; however, prior approval of the Companys primary federal regulator is required.

The Preferred Stock is not subject to any contractual restrictions on transfer. The holders of the Preferred Stock have no general voting rights, and have only limited class voting rights including
authorization or issuance of shares ranking senior to the Preferred Stock, any amendment to the rights of the Preferred Stock, or any merger, exchange or similar transaction which would adversely affect the rights of the Preferred Stock. If
dividends on the Preferred Stock are not paid in full for six dividend periods, whether or not consecutive, the Preferred Stock holders will have the right to elect two directors. The right to elect directors will end when full dividends have been
paid for four consecutive dividend periods. The Preferred Stock is not subject to sinking fund requirements and has no participation rights.

While payments have not been made since the third quarter of 2009, in order to preserve capital, the Company has continued to accrue dividends
through the first quarter of 2011. As of March 31, 2011, accrued and unpaid dividends totaled approximately $3.5 million.

NOTE
10  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
March 31, 2011, the Company had a total of $88.2 million of unfunded loan commitments consisting of $80.4 million of commitments to extend credit to customers and $7.5 million of standby letters related to extensions of credit. The Company also
had approximately $271,000 of other unsecured lines of credit related to overdraft protection for demand deposit accounts.

Standby letters of
credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan facilities to customers. Collateral held, if required, varies as specified above.



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The Bank also maintains a reserve against these off-balance sheet financial instruments of $92,000 and
$85,000 at March 31, 2011, and December 31, 2010, respectively.

In the ordinary course of business, the Bank may become involved in
litigation arising from normal banking activities. In the opinion of Management, the ultimate disposition of current actions will not have a material adverse effect on the Companys consolidated financial position or results of operations.

NOTE 11  BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE

The Companys basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders (net income (loss) less dividends declared and accretion of discount on
preferred stock) by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock dividends and splits. The Companys diluted earnings (loss) per common share is computed similar to basic
earnings (loss) per common share except that the numerator is equal to net income (loss) and the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been
issued. Included in the denominator is the dilutive effect of stock options computed under the treasury stock method and the dilutive effect of the U.S. Treasury Warrant as if converted to common stock.

The following summarizes the weighted average shares outstanding for computation of basic and diluted shares for the three months ended March 31,
2011 and 2010.



|                                          |  |      |            |  |      |  |           | 
|----------------------------------------- |  | ---- | ---------- |  | ---- |  | --------- | 
|Three months ended March 31:              |  | 2011 |            |  | 2010 | 
|Weighted average number of common shares: |  |      |            |  |      |  |           | 
|Average shares outstanding-basic          |  |      | 10,034,847 |  |      |  | 3,229,200 | 
|Average shares outstanding-diluted        |  |      | 10,034,847 |  |      |  | 3,229,200 | 

As of March 31, 2011 and 2010,
stock options of 80,700 and 94,200, respectively, were not included in the computation of diluted earnings per share, as well as the U.S. Treasury Warrant to purchase 109,039 shares of common stock, as their inclusion would have been anti-dilutive.
No common stock equivalents are considered when the Company reports a net loss, as their inclusion would also be anti-dilutive.

NOTE 12
 INCOME TAXES

As of March 31, 2011, December 31, 2010, and March 31, 2010, the Company had no recorded net deferred
tax assets. Under generally accepted accounting principles, a valuation analysis is required to be established if it is more likely than not that the deferred tax asset will not be realized. The determination of the realizability of the
deferred tax assets is highly subjective and dependent upon judgment concerning managements evaluation of both positive and negative evidence, including forecasts of future income, applicable tax planning strategies and assessments of current
and future economic and business conditions. Positive evidence includes the ability to implement tax planning strategies to accelerate taxable income recognition and the probability that taxable income will be generated in future periods. Negative
evidence includes the Companys cumulative loss in the prior three year period and the current general business and economic environment.

NOTE 13  FAIR VALUE MEASUREMENTS

The Company uses Statement of Financial Accounting Standards Fair Value Measurements to define fair value which establishes a framework for
measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not
expand the use of fair value in any new circumstances. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this
principle, the standard establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.

The fair value
hierarchy is as follows:

Level 1 inputs  Unadjusted quoted prices in active markets for identical assets or liabilities that the
entity has the ability to access at the measurement date.



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Level 2 inputs  Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and
yield curves that are observable at commonly quoted intervals.

Level 3 inputs  Unobservable inputs for determining the fair
values of assets or liabilities that reflect an entitys own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

The Company used the following methods and significant assumptions to estimate fair value for its assets measured and carried at fair value in the financial statements:

Investment securities available-for-sale Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs.
Fair values for investment securities are based on quoted market prices or the market values for comparable securities. The Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable
data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bonds terms and conditions, among other
things. Available-for-sale securities are the only balance sheet category the Company accounts for at fair value on a recurring basis. The following table presents information about these securities and indicates the fair value hierarchy of the
valuation techniques utilized by the Company to determine such fair value:



|                                                 |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|------------------------------------------------ |  | ----------------------- | ------- |  | ------------------------------------------------------------ | - | - | -------------------------------- |  | - | --------------------------------------- |  |  | - | - | 
|(Dollars in 000s)                               |  | Fair Value Measurements |        
|                                                 |  | At 03/31/11 Using       |        
|Description                                      |  | Fair Value3/31/2011     |         |  | Quoted Prices inActive 
Markets forIdentical Assets(Level 1) |   |   | Other ObservableInputs (Level
2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Available-for-sale securities:                   |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|Mortgage-backed securities                       |  | $                       | 2,216   |  |                                                              | $ |  |                                  |  | $ | 2,216                                   |  |  | $ |  | 
|Collaterialized mortgage obligations             |  |                         | 115,672 |  |                                                              |   |  |                                  |  |   | 115,672                                 |  |  |   |  | 
|U.S. Government and agency securities            |  |                         | 69,259  |  |                                                              |   |  |                                  |  |   | 69,259                                  |  |  |   |  | 
|Obligations of states and political subdivisions |  |                         | 14,494  |  |                                                              |   |  |                                  |  |   | 14,494                                  |  |  |   |  | 
|                                                 |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|Total assets measured at fair value              |  | $                       | 201,641 |  |                                                              | $ |  |                                  |  | $ | 201,641                                 |  |  | $ |  | 
|                                                 |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|                                                 | 
|                                                 |  | Fair Value Measurements |        
|                                                 |  | At 12/31/10 Using       |        
|Description                                      |  | Fair Value12/31/2010    |         |  | Quoted Prices inActive Markets forIdentical Assets(Level 1)  |   |   | Other ObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) | 
|Available-for-sale securities:                   |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|Mortgage-backed securities                       |  | $                       | 9,056   |  |                                                              | $ |  |                                  |  | $ | 9,056                                   |  |  | $ |  | 
|Collaterialized mortgage obligations             |  |                         | 132,217 |  |                                                              |   |  |                                  |  |   | 132,217                                 |  |  |   |  | 
|U.S. Government and agency securities            |  |                         | 36,276  |  |                                                              |   |  |                                  |  |   | 36,276                                  |  |  |   |  | 
|Obligations of states and political subdivisions |  |                         | 6,134   |  |                                                              |   |  |                                  |  |   | 6,134                                   |  |  |   |  | 
|                                                 |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 
|Total assets measured at fair value              |  | $                       | 183,683 |  |                                                              | $ |  |                                  |  | $ | 183,683                                 |  |  | $ |  | 
|                                                 |  |                         |         |  |                                                              |   |   |                                  |  |   |                                         |  |  |   |   | 

Impaired Loans  A loan is considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due (both interest and principal) according to the contractual terms of the loan agreement. Nonperforming loans are evaluated and valued at the time the loan is identified as impaired,
at the lower of cost or fair value less selling costs. As a practical expedient, fair value may be measured based on a loans observable market price or the underlying collateral securing the loan. Collateral may be real estate or business
assets including equipment. The value of collateral is generally determined based on independent appraisals.

Other Real Estate and
Foreclosed Assets Other real estate and foreclosed assets (OREO) acquired through foreclosure or deeds in lieu of foreclosure are carried at the lower of cost, less costs to sell, or estimated net realizable value utilizing
current property appraisal valuations. When property is acquired, any excess of the loan balance over the estimated net realizable value is charged to the allowance for loan losses. Holding costs, subsequent write-downs to net realizable value, if
any, or any disposition gains or losses are included in non-interest expense. The Bank had $29.8 million and $32.0 million in OREO at March 31, 2011 and December 31, 2010, respectively.



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The following table presents the fair value measurement for earning assets as of March 31, 2011 and
December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



|                                                        |  |                                            |        |  |                                                             |   |   |                                  |  |   |                                         |  |  |                                                |        |  |  |   |         |  
|------------------------------------------------------- |  | ------------------------------------------ | ------ |  | ----------------------------------------------------------- | - | - | -------------------------------- |  | - | --------------------------------------- |  |  | ---------------------------------------------- | ------ |  |  | - | ------- | -
|(Dollars in 000s)                                      |  | Fair Value Measurements                    |       
|                                                        |  | For the Three Months Ended 03/31/11 Using  |       
|Description                                             |  | Fair Value3/31/2011                        |        |  | Quoted Prices inActive
Marketsfor IdenticalAssets (Level 1) |   |   | Other ObservableInputs (Level
2) |  |   | SignificantUnobservableInputs (Level 3) |  |  | Total periodgains 
(losses)included inearnings |       
|Other real estate owned and foreclosed assets           |  | $                                          | 29,757 |  |                                                             | $ |  |                                  |  | $ |                                        |  |  | $                                              | 29,757 |  |  | $ | (2,076  | )
|Loans measured for impairment, net of specific reserves |  |                                            | 48,859 |  |                                                             |   |  |                                  |  |   |                                        |  |  |                                                | 48,859 |  |  |   | (6,075  | )
|                                                        |  |                                            |        |  |                                                             |   |   |                                  |  |   |                                         |  |  |                                                |        |  |  |   |         |  
|Total impaired assets measured at fair value            |  | $                                          | 78,616 |  |                                                             | $ |  |                                  |  | $ |                                        |  |  | $                                              | 78,616 |  |  | $ | (8,151  | )
|                                                        |  |                                            |        |  |                                                             |   |   |                                  |  |   |                                         |  |  |                                                |        |  |  |   |         |  
|                                                        | 
|                                                        |  | Fair Value Measurements                    |       
|                                                        |  | For the Twelve Months Ended 12/31/10 Using |       
|Description                                             |  | Fair Value12/31/2010                       |        |  | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) |   |   | Other ObservableInputs (Level 2) |  |   | SignificantUnobservableInputs (Level 3) |  |  | Total periodgains (losses)included inearnings  |       
|Other real estate owned and foreclosed assets           |  | $                                          | 32,009 |  |                                                             | $ |  |                                  |  | $ |                                        |  |  | $                                              | 32,009 |  |  | $ | (5,347  | )
|Loans measured for impairment, net of specific reserves |  |                                            | 46,863 |  |                                                             |   |  |                                  |  |   |                                        |  |  |                                                | 46,863 |  |  |   | (22,311 | )
|                                                        |  |                                            |        |  |                                                             |   |   |                                  |  |   |                                         |  |  |                                                |        |  |  |   |         |  
|Total impaired assets measured at fair value            |  | $                                          | 78,872 |  |                                                             | $ |  |                                  |  | $ |                                        |  |  | $                                              | 78,872 |  |  | $ | (27,658 | )
|                                                        |  |                                            |        |  |                                                             |   |   |                                  |  |   |                                         |  |  |                                                |        |  |  |   |         |  

As of March 31, 2011 and December 31, 2010, all nonperforming loans were considered impaired and were measured for
impairment. The table below shows the detail of the various categories of impaired loans:



|                                                                               |  |                     |        |   |                        |   |        |  
|------------------------------------------------------------------------------ |  | ------------------- | ------ | - | ---------------------- | - | ------ | -
|(Dollars in 000s)                                                             |  | As of March 31,2011 |        |   | As of December 31,2010 |  
|                                                                               |  | Carrying            |        |   | Carrying               |  
|                                                                               |  | Value               |        |   | Value                  |  
|Impaired loans with charge-offs loan-to-date (1)                               |  | $                   | 36,863 |   |                        | $ | 28,393 |  
|Impaired loans with specific reserves                                          |  |                     | 18,916 |   |                        |   | 27,832 |  
|Impaired loans with both specific reserves and charge-offs loan-to-date (1)    |  |                     | 298    |   |                        |   | 297    |  
|                                                                               |  |                     |        |   |                        |   |        |  
|Subtotal impaired loans with specific reserves and/or charge-offs loan-to-date |  |                     | 56,077 |   |                        |   | 56,522 |  
|Specific reserves associated with impaired loans                               |  |                     | (7,218 | ) |                        |   | (9,659 | )
|                                                                               |  |                     |        |   |                        |   |        |  
|Total loans measured for impairment, net of specific reserves                  |  | $                   | 48,859 |   |                        | $ | 46,863 |  
|                                                                               |  |                     |        |   |                        |   |        |  
|Impaired loans without charge-offs or specific reserves                        |  | $                   | 53,767 |   |                        | $ | 73,094 |  



|(1) | Total charge-offs incurred from inception of the loans
|--- | ------------------------------------------------------

The following methods and assumptions were used by the Bank in estimating fair values of assets and liabilities in accordance with the provisions of Financial Accounting Standards Board, Disclosures
about Fair Value of Financial Instruments ASC 825-10-50.

Cash and cash equivalents The carrying amounts of cash and
short-term instruments approximate their fair value.

Interest-bearing deposits with the Federal Home Loan Bank of Seattle
(FHLB) and restricted equity securities The carrying amount approximates the estimated fair value and expected redemption values.

Investment securities held-to-maturity Fair values for investment securities are based on quoted market prices or the market values for comparable securities.

Mortgage loans held-for-sale Mortgage loans held-for-sale are reported at the lower of cost or market value. Cost generally approximates
market value, given the short duration of these assets. Gains or losses on the sale of loans held-for-sale are recognized at the time of the sale and determined by the difference between net sale proceeds and the net book value of the loans less the
estimated fair value of any retained mortgage servicing rights.



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##### Table of Contents

Loans For variable rate loans that are tied to price and have no significant change in credit
risk, fair values are based on carrying values. Fair values for certain mortgage loans (for example, one-to-four family residential), credit card loans and other consumer loans are based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan characteristics. Fair values for commercial real estate and commercial loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values based on current market appraisals, less costs to sell, where applicable.

Deposit liabilities The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money market accounts, savings accounts and interest checking accounts approximate their fair values at the reporting date. Fair values for fixed-rate CDs
are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-term borrowings and securities sold under agreements to repurchase The carrying amounts of federal funds purchased, securities sold
under agreements to repurchase, and other short-term borrowings maturing within 90 days approximate their fair values. Fair values of other short-term borrowings are estimated using discounted cash flow analyses based on the Banks current
incremental borrowing rate for similar types of borrowing arrangements.

Long-term debt The fair values of the Banks
long-term debt is estimated using discounted cash flow analyses based on the Banks current incremental borrowing rate for similar types of borrowing arrangements.

Off-balance sheet instruments The Banks off-balance sheet instruments include unfunded commitments to extend credit and standby letters of credit. The fair value of these instruments
is not considered practicable to estimate because of the lack of quoted market prices and the inability to estimate fair value without incurring excessive costs.

The following disclosures are made in accordance with the provisions of Disclosures About Fair Value of Financial Instruments, which requires the disclosure of fair value information about
financial instruments where it is practicable to estimate that value. In cases where quoted market values are not available, the Bank primarily uses present value techniques to estimate the fair values of its financial instruments. Valuation methods
require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and methods used. Accordingly, the estimates provided herein do not necessarily indicate amounts that could be realized in
a current market exchange.

In addition, as the Bank normally intends to hold the majority of its financial instruments until maturity, it
does not expect to realize many of the estimated amounts disclosed. The disclosures also do not include estimated fair value amounts for items that are not defined as financial instruments but have significant value. These include such off-balance
sheet items as core deposit intangibles on acquired deposits. The Bank does not believe that it would be practicable to estimate a representational fair value for these types of items as of the periods presented.

As this standard excludes certain financial instruments and all non-financial instruments from its disclosure requirements, any aggregation of the fair
value amounts presented in the following table would not represent the underlying value of the Bank.



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##### Table of Contents

The estimated fair values of the Banks significant on-balance sheet financial instruments at
March 31, 2011, and December 31, 2010, were as follows:



|                                                                                    |  |                      |           |  |                         |   |           |          |  |   |            |  |  |   |           | 
|----------------------------------------------------------------------------------- |  | -------------------- | --------- |  | ----------------------- | - | --------- | -------- |  | - | ---------- |  |  | - | --------- | 
|(Dollars in 000s)                                                                  |  | As of March 31, 2011 |           |  | As of December 31, 2010 |  
|                                                                                    |  | Carrying             |           |  | Estimated               |   |           | Carrying |  |   | Estimated  | 
|                                                                                    |  | Value                |           |  | Fair Value              |   |           | Value    |  |   | Fair Value | 
|Financial assets:                                                                   |  |                      |           |  |                         |   |           |          |  |   |            |  |  |   |           | 
|Cash and cash equivalents                                                           |  | $                    | 142,025   |  |                         | $ | 142,025   |          |  | $ | 138,974    |  |  | $ | 138,974   | 
|Interest-bearing certificates of deposit (original maturities greater than 90 days) |  | $                    | 1,500     |  |                         | $ | 1,500     |          |  | $ | 1,500      |  |  | $ | 1,500     | 
|Investment securities available-for-sale                                            |  | $                    | 201,641   |  |                         | $ | 201,641   |          |  | $ | 183,683    |  |  | $ | 183,683   | 
|Investment securities held-to-maturity                                              |  | $                    | 26,264    |  |                         | $ | 26,693    |          |  | $ | 29,133     |  |  | $ | 29,615    | 
|Investment securities -Community Reinvestment Act                                   |  | $                    | 2,000     |  |                         | $ | 2,000     |          |  | $ | 2,000      |  |  | $ | 2,000     | 
|Restricted equity investments                                                       |  | $                    | 3,421     |  |                         | $ | 3,421     |          |  | $ | 3,474      |  |  | $ | 3,474     | 
|Loans held-for-sale                                                                 |  | $                    | 505       |  |                         | $ | 505       |          |  | $ | 929        |  |  | $ | 929       | 
|Loans                                                                               |  | $                    | 922,811   |  |                         | $ | 863,697   |          |  | $ | 978,546    |  |  | $ | 913,834   | 
|                                                                                    |  |                      |           | 
|Financial liabilities:                                                              |  |                      |           |  |                         |   |           |          |  |   |            |  |  |   |           | 
|Deposits                                                                            |  | $                    | 1,233,881 |  |                         | $ | 1,241,967 |          |  | $ | 1,266,249  |  |  | $ | 1,275,519 | 
|FHLB borrowings                                                                     |  | $                    | 20        |  |                         | $ | 20        |          |  | $ | 22         |  |  | $ | 22        | 
|Securities sold under agreements to repurchase                                      |  | $                    | 1,894     |  |                         | $ | 1,894     |          |  | $ |           |  |  | $ |          | 
|Junior subordinated debentures                                                      |  | $                    | 30,928    |  |                         | $ | 21,537    |          |  | $ | 30,928     |  |  | $ | 20,629    | 

NOTE 14  RECENTLY ISSUED
ACCOUNTING STANDARDS

In April 2011, the FASB issued Accounting Standards Update ASU No. 2011-02 Receivables (Topic 310)  A
Creditors Determination of Whether a Restructuring Is A Troubled Debt Restructuring.This Standard clarifies the accounting principles applied to loan modifications. ASU No. 2011-02 was issued to address the recording of an
impairment loss in FASB ASC 310, Receivables. The changes apply to a lender that modifies a receivable covered by Subtopic 310-40 Receivables  Troubled Debt Restructurings by Creditors.This standard is effective for the first
interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively. The adoption of ASU No. 2011-02 is not expected to have a material impact on the consolidated financial statements.

In January 2011, the FASB issued Accounting Standards Update ASU No. 2011-01Receivables (Topic 310)  Deferral of the Effective Date
of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. This standard temporarily delays the public entity effective date for disclosures related to troubled debt restructurings originally introduced in ASU
No. 2010-20. According to the current guidance in ASU No. 2010-20, public-entity creditors would have provided disclosures about troubled debt restructurings for periods beginning on or after December 15, 2010. That guidance is now
effective for interim and annual periods ending after June 15, 2011. This standard is effective upon issuance. This update requires a significant expansion of disclosures for troubled debt restructurings, but the adoption of these disclosures
is not expected to have a material impact on the consolidated financial statements.

In December 2010, the FASB issued Accounting Standards
Update ASU No. 2010-29 Business Combinations (Topic 805)  Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force). This Standard instructs that if
a public entity that was recently involved in a merger or acquisition presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity in the same fashion as would be customary if the business
combination had occurred as of the beginning of the prior annual reporting period only, and expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the reported pro forma revenue and earnings. These amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2010, and should be applied prospectively. The adoption of ASU No. 2010-29 did not have a material impact on the consolidated financial statements.

In December 2010, the FASB issued Accounting Standards Update ASU No. 2010-28Intangibles  Goodwill and Other (Topic 350)  When
to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts The changes to FASB ASC 350-25-35 modify Step 1 of the evaluation of goodwill impairment for reporting units with zero or negative
carrying amounts to require that Step 2 of the impairment test be performed to measure the amount of any impairment loss when it is more likely than not that a goodwill impairment exits. This change prevents the assertion made by some businesses
that Step 2 need not be taken when the carrying amount of a unit is zero or less. For public entities, the amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010, with early
adoption not permitted. The adoption of ASU No. 2010-28 did not have a material impact on the consolidated financial statements.



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In July 2010, the FASB issued Accounting Standards Update ASU No. 2010-20 Receivables (Topic
310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses to improve the quality of financial reports by lowering the threshold for disclosure of an entitys allowance for credit losses
and the credit quality of its financing receivables, the FASB says an entity should provide disclosures disaggregated into two levels: portfolio segment and class of financing receivable. Users of financial statements should be able to readily
evaluate the nature of credit risk inherent in an entitys portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses, and the changes and reasons for those changes in the allowance
for credit losses. Numerous additional disclosures relating to financing receivables are also being required, in order to shed further light on an entitys financial position. For public entities, the disclosures as of the end of a reporting
period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or
after December 15, 2010. This update required a significant expansion of credit related disclosures, but the adoption of ASU No. 2010- 20 did not have a material impact on the consolidated financial statements.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the safe-harbor provisions of Sections 21D and 21E of the
Securities Exchange Act of 1934, as amended. Other than statements of historical fact, all statements about our financial position and results of operations, business strategy and Managements plans and objectives for future operations 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 to help identify forward-looking statements. Examples of forward-looking statements include, but are not limited to: statements that include projections or Managements expectations for revenues, income or expenses,
earnings per share, capital expenditures, dividends, capital levels and structure and other financial items; 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 and estimates or predictions of actions by customers, vendors, competitors or regulatory authorities; statements about future economic performance; statements of assumptions underlying
other statements about the Company and its business; statements regarding the adequacy of the allowance for loan losses; statements regarding regulatory compliance; and descriptions of assumptions underlying or relating to any of the foregoing.
Although Management believes that the expectations reflected in 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. For a more comprehensive discussion of the risk factors impacting our business refer to Item 1A Risk Factors in the
Companys filed Form 10-K for the year ended December 31, 2010, as updated and supplemented by this Form 10-Q and other filings with the Securities and Exchange Commission. These risks and uncertainties include the effect of competition
and our ability to compete on price and other factors; deterioration in credit quality, or in the value of the collateral securing our loans, due to higher interest rates, increased unemployment, further or continued disruptions in the credit
markets, or other economic factors; customer acceptance of new products and services; economic conditions and events that disproportionately affect our business due to regional concentration; general business and economic conditions, including the
residential and commercial real estate markets; interest rate changes; regulatory and legislative changes; changes in the demand for loans and changes in consumer spending, borrowing and savings habits; changes in accounting policies; our ability to
maintain or expand our market share or our net interest margin; factors that could limit or delay implementation of our marketing and growth strategies; our ability to integrate acquired branches or banks; and our ability to achieve compliance with
regulatory agreements. You should not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we do not undertake to
update them to reflect changes that occur after the date they are made. This report includes information about our historical financial performance, and this information should not be considered as an indication or projection of future results.

OVERVIEW The following includes Managements discussion of the financial condition and results of operations for
PremierWest Bancorp and its wholly-owned subsidiary, PremierWest Bank, including the Banks wholly-owned subsidiaries, Premier Finance Company and PremierWest Investment Services, Inc., for the three month period ended March 31, 2011. This
discussion should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report as well as the Companys Form 10-K for the year ended December 31, 2010. For discussion purposes,
Management has made comparisons, as it deems appropriate, to comparable interim periods in 2010 and the fiscal year period ended December 31, 2010.

HIGHLIGHTS For the first quarter ended March 31, 2011, the Companys net loss applicable to common shareholders was $7.4 million or $0.74 per basic and fully diluted common
share, compared to net loss applicable to common shareholders of $3.3 million or $1.02 per basic and fully diluted common share for the quarter ended March 31, 2010. The decline in net income for the three months ended March 31, 2011 as
compared to the same period of the prior year is attributable to a reduction in net interest income primarily due to decreases in earning assets, primarily loans. The Company also experienced increases in non-interest expense, primarily expenses
associated with loan collection efforts and the handling and disposition of other real estate owned and foreclosed assets. However, noninterest income did improve as compared to the same period of the prior year, primarily from increases in
investment brokerage fees and other noninterest income.

At March 31, 2011, loans, net of deferred fees and restructured loan
concessions, decreased $55.8 million or 5.7% compared to December 31, 2010 as the weak economy continues to suppress the demand for borrowing. The decline in gross loans during this quarter reflects $38.9 million in loan payoffs net of
originations. This reduction also includes $12.6 million in gross loan charge-offs and $4.3 million transferred to OREO. New loans funded during the most recent quarter totaled approximately $7.6 million. At March 31, 2011, deposits decreased
$32.4 million or 2.6% from December 31, 2010. Non-interest bearing deposits increased by $9.9 million to $252.6 million, or 20.5% of total deposits, as compared to $242.6 million, or 19.2% as of December 31, 2010.



27



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The Companys overall loss applicable to common shareholders increased $4.1 million or 124.4% over the
three month period ending March 31, 2011, in comparison to the same period a year ago, principally due to reduced interest income and an increase in noninterest expense.

At March 31, 2011, the Companys allowance for loan losses totaled $33.4 million, representing 3.62% of gross loans. The $2.2 million decrease in the allowance from December 31, 2010, was
comprised of a $6.3 million increase from provision charged against earnings offset by $12.6 million in charge-offs and loan concessions netted against $4.1 million in recoveries of previously charged-off loans. Non-performing loans decreased to
$109.8 million at March 31, 2011, including $3.7 million placed on non-accrual during this quarterly period. This compares to non-performing loans of $129.6 million, including $33.9 million in loans placed on non-accrual, as of the quarterly
period ending December 31, 2010.

Non-performing assets totaled $139.6 million at March 31, 2011, a decrease of $22.0 million when
compared to $161.6 million in non-performing assets at December 31, 2010. The March 31, 2011 balance includes $29.8 million in OREO compared to $32.0 million at December 31, 2010.

The Banks gross loan to deposit ratio was 74.8% and 77.3% as of March 31, 2011 and December 31, 2010, respectively.

The Company continues to have excess liquidity and a substantial and stable core deposit base. Core deposits are the lowest cost and preferred source of
funds. Management will continue to emphasize core deposits as the preferred source of funding as part of the Banks overall funding strategy to support liquidity needs as well as continue to implement relationship-oriented strategies for
attracting additional core deposits. While the competitive environment for attracting deposits remains keen, PremierWest has been successful over time at retaining its core deposit base and continues to seek these local relationship-based deposits.
Managements broader business plan and strategy is to remain focused on reducing nonperforming assets and limiting new loan commitments to new borrowers who bring strategic relationship value to the Bank.



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##### Table of Contents

FINANCIAL HIGHLIGHTS

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, and
returns on average assets and returns on average equity for the periods indicated.



|                                                                                 |  |                |           |   |                |   |           |                    |  |   |          |   |  |  |         |  
|-------------------------------------------------------------------------------- |  | -------------- | --------- | - | -------------- | - | --------- | ------------------ |  | - | -------- | - |  |  | ------- | -
|(Dollars in 000s)
Analysis for the three-month period ended:                    |  | March 31, 2011 |           |   | March 31, 2010 |   |           | Increase(Decrease) |  |   | % Change |  
|Average fed funds sold and investments                                           |  | $              | 338,927   |   |                | $ | 278,181   |                    |  | $ | 60,746   |   |  |  | 21.84   | %
|Average gross loans                                                              |  |                | 960,326   |   |                |   | 1,138,058 |                    |  |   | (177,732 | ) |  |  | -15.62  | %
|Average mortgages held-for-sale                                                  |  |                | 722       |   |                |   | 704       |                    |  |   | 18       |   |  |  | 2.56    | %
|Average interest-earning assets                                                  |  |                | 1,299,975 |   |                |   | 1,416,943 |                    |  |   | (116,968 | ) |  |  | -8.25   | %
|Average interest-bearing liabilities                                             |  |                | 1,029,399 |   |                |   | 1,166,771 |                    |  |   | (137,372 | ) |  |  | -11.77  | %
|Average total assets                                                             |  |                | 1,397,755 |   |                |   | 1,509,351 |                    |  |   | (111,596 | ) |  |  | -7.39   | %
|Average stockholders equity                                                     |  |                | 96,836    |   |                |   | 75,458    |                    |  |   | 21,378   |   |  |  | 28.33   | %
|Average common equity                                                            |  |                | 56,836    |   |                |   | 35,843    |                    |  |   | 20,993   |   |  |  | 58.57   | %
|                                                                                 |  |                |           |  
|Average yield earned (1)                                                         |  |                | 4.71      | % |                |   | 5.23      | %                  |  |   | (0.52    | ) |  |  | -9.94   | %
|Average rate paid                                                                |  |                | 1.11      | % |                |   | 1.16      | %                  |  |   | (0.05    | ) |  |  | -4.31   | %
|Net interest spread                                                              |  |                | 3.60      | % |                |   | 4.07      | %                  |  |   | (0.47    | ) |  |  | -11.55  | %
|                                                                                 |  |                |           |  
|Net interest income to average interest-earning assets (net interest margin) (1) |  |                | 3.83      | % |                |   | 4.27      | %                  |  |   | (0.44    | ) |  |  | -10.30  | %
|Annualized return on average assets                                              |  |                | -2.15     | % |                |   | -0.89     | %                  |  |   | (1.26    | ) |  |  | -141.57 | %
|Annualized return on average common equity                                       |  |                | -52.87    | % |                |   | -37.36    | %                  |  |   | (15.51   | ) |  |  | -41.51  | %
|Efficiency ratio (2)                                                             |  |                | 102.80    | % |                |   | 80.53     | %                  |  |   | 22.27    |   |  |  | 27.65   | %

Notes:



|(1) | Tax equivalent
|--- | --------------

|(2) | Non-interest expense divided by net interest income plus non-interest income
|--- | ----------------------------------------------------------------------------

Reconciliation of Non-GAAP Measure:

Tax Equivalent Net Loss Applicable to Common
Shareholders



|                                                          |  |                |        |   |                |   |        |  
|--------------------------------------------------------- |  | -------------- | ------ | - | -------------- | - | ------ | -
|(Dollars in 000s) For
the three months ended             |  | March 31, 2011 |        |   | March 31, 2010 |  
|Net interest income                                       |  | $              | 12,201 |   |                | $ | 14,836 |  
|Tax equivalent adjustment for municipal loan interest     |  |                | 45     |   |                |   | 47     |  
|Tax equivalent adjustment for municipal bond interest     |  |                | 30     |   |                |   | 34     |  
|                                                          |  |                |        |   |                |   |        |  
|Tax equivalent net interest income                        |  |                | 12,276 |   |                |   | 14,917 |  
|Provision for loan losses                                 |  |                | 6,300  |   |                |   | 6,100  |  
|Noninterest income                                        |  |                | 3,159  |   |                |   | 2,708  |  
|Noninterest expense                                       |  |                | 15,798 |   |                |   | 14,135 |  
|Benefit for income taxes                                  |  |                | 16     |   |                |   |       |  
|                                                          |  |                |        |   |                |   |        |  
|Tax equivalent net loss                                   |  |                | (6,679 | ) |                |   | (2,610 | )
|Preferred stock dividends and discount accretion          |  |                | 656    |   |                |   | 611    |  
|                                                          |  |                |        |   |                |   |        |  
|Tax equivalent net loss applicable to common shareholders |  | $              | (7,335 | ) |                | $ | (3,221 | )
|                                                          |  |                |        |   |                |   |        |  

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited.
Management believes that presentation of this non-GAAP financial measure provides useful information frequently used by shareholders in the evaluation of a company. Non-GAAP financial measures have limitations as analytical tools should not be
considered in isolation or as a substitute for analyses of results as reported under GAAP.



29



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##### Table of Contents

REGULATORY AGREEMENT

In April 2010, the Company stipulated to the issuance of a Consent Order (the Agreement) with the FDIC and the DFCS, the Banks principal regulators, directing the Bank to take actions
intended to strengthen its overall condition, many of which were already or in the process of being implemented by the Bank. In June 2010, the Company entered into a Written Agreement with the Federal Reserve Bank of San Francisco and the DFCS,
which routinely accompanies or follows a Consent Order from the FDIC and provides for similar restrictions and requirements at the holding company level. For a more detailed discussion, please reference the Companys Forms 8-K filed
April 8, 2010 and June 4, 2010.

The Agreement required, among other things, that the Bank:



| |  |  | Increase and maintain its Tier 1 Capital in such an amount to ensure that the Banks leverage ratio equals or exceeds 10% by October 3, 2010,
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce assets classified Substandard in the report of examination to not more than 100% of the Banks Tier 1 capital and allowance for
loan and lease loss reserve (ALLL) by November 2, 2010, and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduce assets classified Substandard in the report of examination to not more than 70% of the Banks Tier 1 capital plus ALLL by
April 1, 2011.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------

As of the date of this report, the Company had not yet achieved these requirements. Prior to the
completing the Agreement with the FDIC in April 2010, we completed a common stock offering that raised $33.2 million in gross proceeds, which raised the Banks Tier 1 leverage from 5.70% at December 31, 2009, to 8.21% at March 31,
2010. Subsequently the Bank has engaged in balance sheet management activities, including loan and deposit reductions which have further increased its Tier 1 leverage ratio to its March 31, 2011 level of 8.59%. Similarly, the Company has
reduced its loans classified Substandard to 101.7% of Tier 1 capital plus ALLL as of March 31, 2011, compared to 178.4% as of June 30, 2009. As previously noted, the Company has demonstrated progress and is committed to
achieving all the requirements of the Agreement.

RESULTS OF OPERATIONS

QUARTER ENDED MARCH 31, 2011

NET INTEREST INCOME  Net interest income, the
Banks primary source of revenue, is the difference between the interest income generated from earning assets (loans and investments) and the interest expense paid on interest-bearing liabilities (interest-bearing deposits and borrowed funds).
Net interest income for the quarter ended March 31, 2011 decreased $2.6 million or down 17.8% from the same quarter one year earlier. This is a result of declining loan volumes and an increase in lower yielding investments offset by deposit
interest expense reductions. Market interest rates have been held at low levels during recent years by the Federal Reserve in an attempt to help stimulate the economy. This interest rate environment has affected our cost of interest-bearing deposits
and the reinvestment rates available on investment securities during the most recent quarter. In addition, the continued economic slowdown is dampening loan demand such that loan payoffs are outpacing new loan originations. Our yields have also been
negatively impacted by the ongoing burden of carrying non-performing loans without receiving interest income on these loans.

Net interest
income of $12.2 million declined $464,000, or 3.7%, for the quarter ended March 31, 2011 versus the quarter ended December 31, 2010. This decrease is primarily attributed to the decline in higher-yielding loan balances experienced during
the period caused by loan payoffs exceeding originations as a result of the continued downturn in the economy. However, the net interest margin increased by 5 basis points to 3.83% compared to 3.78% in the previous quarter. This increase was despite
interest income reversals of $65,000 during the current quarter, which reduced the net interest margin by 2 basis points. This compares to a 17 basis point reduction in net interest margin from $560,000 in interest reversals during the preceding
quarter. Net interest margin for the quarter ended March 31, 2011 declined 44 basis points from the net interest margin of 4.27% for the same period in 2010, in which 38 basis points of the decline is attributed to deposit accretion earned over
twelve months after the purchase of two branches in July 2009. The remainder is due to the decline in higher-yielding loan balances experienced during the period caused by loan payoffs exceeding originations as a result of the continued downturn in
the economy.

The yield on earning assets was 4.71%, down 4 basis points from the preceding quarter ending December 31, 2010. Loan
portfolio yields were 5.77%, up 9 basis points from the previous quarter due to declines in interest reversals noted above. Investment securities yields were 1.73%, down 9 basis points from the previous quarter as a result of some restructuring of
the portfolio to mitigate the impact of anticipated increases in interest rates. The cost of interest bearing liabilities decreased 11 basis points to 1.11% in the most recent quarter. These changes resulted in a net interest spread of 3.60% during
the current quarter ended March 31, 2011, up 7 basis points from 3.53% recorded during the preceding quarter. Net interest spread for the quarter ended March 31, 2011 declined 47 basis points from the net interest spread of 4.07% for the
same period in 2010, which was similarly impacted by the deposit accretion referenced above.



30



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##### Table of Contents

LOAN LOSS PROVISION  Charges made to the provision for loan losses were $6.3 million and $6.1
million for the three month periods ended March 31, 2011 and March 31, 2010, respectively. The Company had net charge-offs of $8.5 million during the first quarter of 2011 compared to net charge-offs of $5.5 million for the corresponding
period in 2010. Management believes that the March 31, 2011 balance in the allowance for loan losses is reasonable and appropriate to support inherent probable losses in the Companys loan portfolio. (Also see Allowance for Loan Losses
and Reserve for Unfunded Commitments  Note 6.)

NON-INTEREST INCOME  Non-interest income represents service charges,
fees, commissions and other income derived principally from general banking services, residential mortgage activity, sales of investment and insurance products and gains from the sales of other assets. During the first quarter of 2011, the Company
had non-interest income of $3.2 million, an increase of $451,000 from the corresponding period in 2010. The increase from the previous year was primarily related to a $152,000, or 43.7%, increase in investment brokerage and annuity fees, a $284,000
gain on a death benefit from bank-owned life insurance, $129,000, or 46.6%, increase in gains on sales of securities, offset by $80,000, or 7.8%, decrease in service charges on deposit accounts, and a $68,000, or 9.5%, decrease in other commissions
and fees. We have seen a general decrease in service charges as customers are more closely managing their account activity, especially relative to overdraft charges.

NON-INTEREST EXPENSE  Non-interest expense increased approximately $1.7 million or 11.8% for the three months ended March 31, 2011, as compared to the corresponding period in 2010. On a
summary basis, there was a $1.5 million or 208.9% increase in OREO write downs and expenses partially offset by gains on sales of OREO; a $135,000 or 18.2% increase in professional fees; offset by a $89,000 or 7.3% decrease in FDIC and state
assessments; a $46,000 or 8.8% decrease in communication costs; and a $26,000 or 1.4% decrease in net occupancy costs.

Salary and benefits
expense remained essentially unchanged for the three months ended March 31, 2011, as compared to the first quarter of 2010. Reduction in costs associated with a decline of 28 full-time equivalent positions were offset by lower deferred salary
costs of $180,000 due to declining loan production during the period and increases in health benefit expenses per employee incurred by the Company.

EFFICIENCY RATIO  The Companys efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, was 102.8% during the first quarter
of 2011 compared to 80.5% for the first quarter of 2010. This increase is primarily due to the combination of a decline in net interest income, as noted above, and recent increases in expenses associated with problem loan collection and the
disposition of other real estate owned (OREO). Management believes that once the wide-spread credit issues affecting the banking industry in general and the Company specifically are resolved, a ratio of approximately 65% is a reasonable and
sustainable target given the Banks longer-term strategies for both growth and customer service. Management continues to implement actions to carefully manage personnel and other controllable costs and to minimize costs related to problem loans
and OREO.

FINANCIAL CONDITION  Total assets of $1.37 billion at March 31, 2011, decreased $38.5 million or 2.7%
compared to total assets of $1.41 billion at December 31, 2010. This decrease occurred primarily as a result of the targeted reduction in transactional non-owner occupied commercial real estate, land development, and other non-performing loans
as noted above and an initiative by the Bank to reduce higher-cost certificates of deposits. The Bank has partially offset the decline in certificates of deposit with growth in non-interest bearing deposits. Non-interest bearing demand deposits
increased to $252.6 million, or 20.5% of total deposits, up from $242.6 million, or 19.2% of total deposits at the preceding quarter-end. Total deposits of $1.23 billion were down $32.4 million from December 31, 2010, reflecting the
Companys efforts to reduce the amount of higher-cost deposits, as previously noted.



31



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##### Table of Contents

The table below sets forth certain summary balance sheet information for March 31, 2011, and
December 31, 2010:



|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|------------------------------------------- |  | --------- | --------- |  | ------------ | - | --------- | ------------------- |  | - | ------- | - |  |  | ----- | -
|                                            |  | March 31, |           |  | December 31, |   |           | Increase (Decrease) | 
|                                            |  | 2011      |           |  | 2010         |   |           | 3/31/11  12/31/10  | 
|(Dollars in 000s)                          |  |           |           |  |              |   |           |                     |  |   |         |  
|                                            |  |           |           | 
|ASSETS                                      |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Federal funds sold                          |  | $         | 3,215     |  |              | $ | 3,085     |                     |  | $ | 130     |   |  |  | 4.21  | %
|Securities available-for-sale               |  |           | 201,641   |  |              |   | 183,683   |                     |  |   | 17,958  |   |  |  | 9.78  | %
|Securities held-to-maturity                 |  |           | 26,264    |  |              |   | 29,133    |                     |  |   | (2,869  | ) |  |  | -9.85 | %
|Other Community Reinvestment Act            |  |           | 2,000     |  |              |   | 2,000     |                     |  |   | 0       |   |  |  | 0.00  | %
|Restricted equity investments               |  |           | 3,421     |  |              |   | 3,474     |                     |  |   | (53     | ) |  |  | -1.53 | %
|Loans, net (1)                              |  |           | 887,652   |  |              |   | 941,213   |                     |  |   | (53,561 | ) |  |  | -5.69 | %
|Other assets (2)                            |  |           | 248,533   |  |              |   | 248,632   |                     |  |   | (99     | ) |  |  | -0.04 | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Total assets                                |  | $         | 1,372,726 |  |              | $ | 1,411,220 |                     |  | $ | (38,494 | ) |  |  | -2.73 | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|LIABILITIES                                 |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Noninterest-bearing deposits                |  | $         | 252,562   |  |              | $ | 242,631   |                     |  | $ | 9,931   |   |  |  | 4.09  | %
|Interest-bearing deposits                   |  |           | 981,319   |  |              |   | 1,023,618 |                     |  |   | (42,299 | ) |  |  | -4.13 | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Total deposits                              |  |           | 1,233,881 |  |              |   | 1,266,249 |                     |  |   | (32,368 | ) |  |  | -2.56 | %
|Other liabilities (3)                       |  |           | 50,303    |  |              |   | 47,963    |                     |  |   | 2,340   |   |  |  | 4.88  | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Total liabilities                           |  |           | 1,284,184 |  |              |   | 1,314,212 |                     |  |   | (30,028 | ) |  |  | -2.28 | %
|SHAREHOLDERS EQUITY                        |  |           | 88,542    |  |              |   | 97,008    |                     |  |   | (8,466  | ) |  |  | -8.73 | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  
|Total liabilities and share-holders equity |  | $         | 1,372,726 |  |              | $ | 1,411,220 |                     |  | $ | (38,494 | ) |  |  | -2.73 | %
|                                            |  |           |           |  |              |   |           |                     |  |   |         |   |  |  |       |  



|(1) | Net of deferred loan fees and restructured loan concessions and the allowance for loan losses
|--- | ---------------------------------------------------------------------------------------------

|(2) | Includes cash and due from banks, other equity investments, premises and equipment, core deposit intangible, accrued interest receivable, mortgage loans held-for-sale
and bank-owned life insurance.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes borrowings, accrued interest payable and other liabilities.
|--- | --------------------------------------------------------------------

Loans

Total gross loans at March 31, 2011, was $922.8 million, a decrease of $55.7
million from the December 31, 2010 balance. The decrease resulted from $46.5 million in payoffs, $4.2 million in transfers to OREO and $12.6 million in charge-offs outpacing $7.6 million in new loan production. During the three months ended
March 31, 2011, unfunded loan commitments increased $5.9 million. The table below presents the distribution of our loan portfolio by loan type at March 31, 2011 and December 31, 2010.



|                                                |  |                   |         |  |                          |   |        |                       |  |   |                   |  |  |                          |         |  |                       |   |        |  |  |   |           | 
|----------------------------------------------- |  | ----------------- | ------- |  | ------------------------ | - | ------ | --------------------- |  | - | ----------------- |  |  | ------------------------ | ------- |  | --------------------- | - | ------ |  |  | - | --------- | 
|Loan commitments                                |  |                   |         |  |                          |   |        |                       |  |   |                   |  |  |                          |         |  |                       |  
|(Dollars in 000s)                              |  |                   |         |  |                          |   |        |                       |  |   |                   |  |  |                          |         |  |                       |  
|                                                |  | March 31, 2011    |         |  | December 31, 2010        |  
|                                                |  | Funded LoanTotals |         |  | Unfunded LoanCommitments |   |        | Total LoanCommitments |  |   | Funded LoanTotals |  |  | Unfunded LoanCommitments |         |  | Total LoanCommitments |  
|Construction, Land Dev & Other Land             |  | $                 | 55,533  |  |                          | $ | 14     |                       |  | $ | 55,547            |  |  | $                        | 62,666  |  |                       | $ | 206    |  |  | $ | 62,872    | 
|Commercial & Industrial                         |  |                   | 109,836 |  |                          |   | 51,182 |                       |  |   | 161,018           |  |  |                          | 119,077 |  |                       |   | 51,232 |  |  |   | 170,309   | 
|Commercial Real Estate Loans                    |  |                   | 606,616 |  |                          |   | 2,202  |                       |  |   | 608,818           |  |  |                          | 626,387 |  |                       |   | 2,288  |  |  |   | 628,675   | 
|Secured Multifamily Residential                 |  |                   | 23,156  |  |                          |   |       |                       |  |   | 23,156            |  |  |                          | 24,227  |  |                       |   |       |  |  |   | 24,227    | 
|Other Commercial Loans Secured by RE            |  |                   | 55,518  |  |                          |   | 17,598 |                       |  |   | 73,116            |  |  |                          | 59,284  |  |                       |   | 17,534 |  |  |   | 76,818    | 
|Loans to Individuals, Family & Personal Expense |  |                   | 12,240  |  |                          |   | 2,474  |                       |  |   | 14,714            |  |  |                          | 12,472  |  |                       |   | 2,375  |  |  |   | 14,847    | 
|Consumer/Finance                                |  |                   | 36,244  |  |                          |   |       |                       |  |   | 36,244            |  |  |                          | 36,859  |  |                       |   |       |  |  |   | 36,859    | 
|Other Loans                                     |  |                   | 23,359  |  |                          |   | 14,420 |                       |  |   | 37,779            |  |  |                          | 37,255  |  |                       |   | 8,388  |  |  |   | 45,643    | 
|Overdrafts                                      |  |                   | 309     |  |                          |   |       |                       |  |   | 309               |  |  |                          | 319     |  |                       |   |       |  |  |   | 319       | 
|                                                |  |                   |         |  |                          |   |        |                       |  |   |                   |  |  |                          |         |  |                       |   |        |  |  |   |           | 
|Gross loans                                     |  | $                 | 922,811 |  |                          | $ | 87,890 |                       |  | $ | 1,010,701         |  |  | $                        | 978,546 |  |                       | $ | 82,023 |  |  | $ | 1,060,569 | 
|                                                |  |                   |         |  |                          |   |        |                       |  |   |                   |  |  |                          |         |  |                       |   |        |  |  |   |           | 

As indicated above, the Companys loan portfolio is and has been concentrated in commercial real estate loans during
recent years. Management has taken actions to decrease higher risk commercial real estate loan balances by minimizing emphasis on new commercial real estate loan production.



32



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##### Table of Contents

The current economic slowdown has resulted in business failures that have depressed demand which in turn
have also adversely affected commercial real estate valuations. Consequently, Management continues to mitigate credit risk and implement appropriate loan specific exit strategies for commercial real estate loans. These efforts have resulted in a
decline in commercial real estate loans outstanding during the first three months of 2011 totaling $19.8 million.

The table below shows total
funded and unfunded loan commitments by loan type and geographic region at March 31, 2011:



|                                                                                |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   |           | 
|------------------------------------------------------------------------------- |  | -------------- | ------- |  | ----------------- | - | ------- | ------------------ |  | - | ---------------- |  |  | ----- | ------- |  |  | - | --------- | 
|Total loan commitments (funded and unfunded) by loan type and geographic region |  |                |         |  |                   |   |         |                    |  |  
|(Dollars in thousands)                                                          |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |        
|                                                                                |  | March 31, 2011 |        
|                                                                                |  | SouthernOregon |         |  | Mid-CentralOregon |   |         | NorthernCalifornia |  |   | SacramentoValley |  |  | Total |        
|Construction, Land Dev & Other Land                                             |  | $              | 22,516  |  |                   | $ | 13,945  |                    |  | $ | 4,227            |  |  | $     | 14,859  |  |  | $ | 55,547    | 
|Commercial & Industrial                                                         |  |                | 80,632  |  |                   |   | 36,679  |                    |  |   | 24,140           |  |  |       | 19,567  |  |  |   | 161,018   | 
|Commercial Real Estate Loans                                                    |  |                | 284,546 |  |                   |   | 114,833 |                    |  |   | 64,026           |  |  |       | 145,413 |  |  |   | 608,818   | 
|Secured Multifamily Residential                                                 |  |                | 12,692  |  |                   |   | 7,207   |                    |  |   | 2,207            |  |  |       | 1,050   |  |  |   | 23,156    | 
|Other Commercial Loans Secured by RE                                            |  |                | 33,262  |  |                   |   | 9,630   |                    |  |   | 16,798           |  |  |       | 13,426  |  |  |   | 73,116    | 
|Loans to Individuals, Family & Personal Expense                                 |  |                | 10,657  |  |                   |   | 1,867   |                    |  |   | 1,867            |  |  |       | 943     |  |  |   | 14,714    | 
|Consumer/Finance                                                                |  |                | 10,609  |  |                   |   | 21,369  |                    |  |   | 4,266            |  |  |       |        |  |  |   | 36,244    | 
|Other Loans                                                                     |  |                | 14,912  |  |                   |   | 2,904   |                    |  |   | 2,768            |  |  |       | 17,195  |  |  |   | 37,779    | 
|                                                                                |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   |           | 
|Subtotal                                                                        |  | $              | 469,826 |  |                   | $ | 208,434 |                    |  | $ | 119,679          |  |  | $     | 212,453 |  |  |   | 1,010,392 | 
|                                                                                |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   |           | 
|Overdrafts                                                                      |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   | 309       | 
|                                                                                |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   |           | 
|Total                                                                           |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  | $ | 1,010,701 | 
|                                                                                |  |                |         |  |                   |   |         |                    |  |   |                  |  |  |       |         |  |  |   |           | 

Asset Quality and Non-Performing Assets

The following table summarizes the Companys non-performing assets as of March 31, 2011, and December 31, 2010:



|                                                        |  |                |         |   |                   |   |         |  
|------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|Non-performing assets                                   |  |                |         |   |                   |  
|(Dollars in 000s)                                      |  |                |         |   |                   |  
|                                                        |  | March 31, 2011 |         |   | December 31, 2010 |  
|                                                        |  | Amount         |         |   | Amount            |  
|Loans on non-accrual status                             |  | $              | 109,753 |   |                   | $ | 129,493 |  
|Loans past due 90 days or more but on accrual status    |  |                | 91      |   |                   |   | 123     |  
|                                                        |  |                |         |   |                   |   |         |  
|Total non-performing loans                              |  |                | 109,844 |   |                   |   | 129,616 |  
|Other real estate owned and foreclosed assets (OREO)  |  |                | 29,757  |   |                   |   | 32,009  |  
|                                                        |  |                |         |   |                   |   |         |  
|Total non-performing assets                             |  | $              | 139,601 |   |                   | $ | 161,625 |  
|                                                        |  |                |         |   |                   |   |         |  
|                                                        |  |               
|Applicable ratios:                                      |  |                |         |   |                   |   |         |  
|Allowance for loan losses to gross loans                |  |                | 3.62    | % |                   |   | 3.64    | %
|Allowance for loan losses to total non-performing loans |  |                | 30.38   | % |                   |   | 27.45   | %
|Non-performing loans to gross loans                     |  |                | 11.90   | % |                   |   | 13.25   | %
|Non-performing assets to total assets                   |  |                | 10.17   | % |                   |   | 11.45   | %

Non-performing loans, which include
non-accrual loans and accruing loans past due over 90 days, totaled $109.8 million, or 11.9% of gross loans at March 31, 2011, as compared to $129.6 million, or 13.3% of gross loans at December 31, 2010. At March 31, 2011, the
nonperforming loan total included $33.2 million, or 30.2% that was current as to payment of contractual principal and interest or was less than 30 days past due. The decline in nonperforming loan total current as to payment of contractual principal
and interest was primarily due to one borrower relationship that is no longer current and loan charge-offs during the period.

As of
March 31, 2011, non-performing assets, which include non-performing loans and OREO, totaled $139.6 million or 10.2% of total assets as compared to $161.6 million, or 11.5% of total assets as of December 31, 2010.



33



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Loans are classified as non-accrual when full collection of principal or interest is uncertain if
(1) they are past due as to maturity or payment of contractual principal or interest by 90 days or more, and (2) other circumstances create uncertainty as to such payment. In certain instances where the loans are well secured and in the
process of collection, such loans will not be placed on non-accrual status. In addition, loans that are impaired pursuant to ASC 310-10-35, Accounting by Creditors for the Impairment of a Loan, are classified as non-accrual consistent
with regulatory guidance. Loans placed on non-accrual status typically remain so until all principal and interest payments are brought current, and the potential for future payments, in accordance with associated loan agreements, appears reasonably
certain. Interest lost on non-accrual loans for the three months ended March 31, 2011 totaled $2.3 million.

Foreclosed properties
included as OREO are recorded at the net realizable value, which becomes the propertys new basis. Any write-downs based on the assets fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure,
management performs valuations no less frequently than annually such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell. Fair value adjustments on OREO are recorded as a net loss or gain,
as appropriate. These losses represent impairments on OREO for fair value adjustments based on the fair value of the real estate. OREO totaled $29.8 million at March 31, 2011, and was comprised of 93 property units. Approximately 66% of the
dollar volume of OREO held by the Company is located in Oregon with the remaining balance located in California.

The balance of OREO has
fluctuated during the three months ended March 31, 2011, as illustrated in the table below:



|                                                       |  |                             |        |   |      |   |        |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|Other real estate owned and foreclosed assets (OREO) |  |                             |        |   |      |  
|(Dollars in 000s)                                     |  |                             |        |   |      |  
|                                                       |  | Three Months EndedMarch 31, |       
|                                                       |  | 2011                        |        |   | 2010 |  
|Other real estate owned, beginning of period           |  | $                           | 32,009 |   |      | $ | 24,748 |  
|Transfers from outstanding loans                       |  |                             | 4,251  |   |      |   | 2,376  |  
|Improvements and other additions                       |  |                             | 10     |   |      |   | 249    |  
|Proceeds from sales                                    |  |                             | (5,093 | ) |      |   | (5,627 | )
|Net gain on sales                                      |  |                             | 656    |   |      |   | 317    |  
|Impairment charges                                     |  |                             | (2,076 | ) |      |   | (546   | )
|                                                       |  |                             |        |   |      |   |        |  
|Total other real estate owned                          |  | $                           | 29,757 |   |      | $ | 21,517 |  
|                                                       |  |                             |        |   |      |   |        |  

The Company has written down impaired, non-accrual loans at March 31, 2011, to their net realizable value or has
established impairment reserves as appropriate. Procedures to establish the fair value of collateral securing impaired, collateral-dependent loans rely primarily on third-party appraisals. When independent appraisals are not available on a timely
basis, other supporting evidence is used to estimate the net recoverable values pending receipt of the preferred third-party appraisal.

The
following table summarizes the Companys non-performing loans by loan type and geographic region as of March 31, 2011:



|                                                         |  |                      |         |   |                   |   |         |                    |  |   |                  |   |  |        |         |   |                   |   |         |                                            |  |   |         |  |  |  |      |  
|-------------------------------------------------------- |  | -------------------- | ------- | - | ----------------- | - | ------- | ------------------ |  | - | ---------------- | - |  | ------ | ------- | - | ----------------- | - | ------- | ------------------------------------------ |  | - | ------- |  |  |  | ---- | -
|Total non-performing loans by type and geographic region |  |                      |         |   |                   |   |         |                    |  |   |                  |   |  |        |         |   |                   |   |        
|(Dollars in 000s)                                       |  |                      |         |   |                   |   |         |                    |  |   |                  |   |  |        |         |   |                   |   |         |                                            | 
|                                                         |  | March 31, 2011       |        
|                                                         |  | Non-performing Loans |         |   |                   |   |         |                    | 
|                                                         |  | SouthernOregon       |         |   | Mid-CentralOregon |   |         | NorthernCalifornia |  |   | SacramentoValley |   |  | Totals |         |   | Funded LoanTotals |   |         | Percent NPLto FundedLoan Totalsby Category | 
|Construction, Land Dev & Other Land                      |  | $                    | 4,209   |   |                   | $ | 9,373   |                    |  | $ | 3,055            |   |  | $      | 7,570   |   |                   | $ | 24,207  |                                            |  | $ | 55,533  |  |  |  | 43.6 | %
|Commercial & Industrial                                  |  |                      | 1,058   |   |                   |   | 881     |                    |  |   | 87               |   |  |        |        |   |                   |   | 2,026   |                                            |  |   | 109,836 |  |  |  | 1.8  | %
|Commercial Real Estate Loans                             |  |                      | 48,142  |   |                   |   | 7,981   |                    |  |   | 5,947            |   |  |        | 10,217  |   |                   |   | 72,287  |                                            |  |   | 606,616 |  |  |  | 11.9 | %
|Secured Multifamily Residential                          |  |                      |        |   |                   |   |        |                    |  |   |                 |   |  |        |        |   |                   |   |        |                                            |  |   | 23,156  |  |  |  | 0.0  | %
|Other Commercial Loans Secured by RE                     |  |                      | 790     |   |                   |   | 386     |                    |  |   | 1,289            |   |  |        | 6,208   |   |                   |   | 8,673   |                                            |  |   | 55,518  |  |  |  | 15.6 | %
|Loans to Individuals, Family & Personal Expense          |  |                      | 23      |   |                   |   |        |                    |  |   |                 |   |  |        |        |   |                   |   | 23      |                                            |  |   | 12,240  |  |  |  | 0.2  | %
|Consumer/Finance                                         |  |                      | 19      |   |                   |   | 64      |                    |  |   | 8                |   |  |        |        |   |                   |   | 91      |                                            |  |   | 36,244  |  |  |  | 0.3  | %
|Other Loans                                              |  |                      | 383     |   |                   |   | 2,104   |                    |  |   | 50               |   |  |        |        |   |                   |   | 2,537   |                                            |  |   | 23,359  |  |  |  | 10.9 | %
|Overdrafts                                               |  |                      |        |   |                   |   |        |                    |  |   |                 |   |  |        |        |   |                   |   |        |                                            |  |   | 309     |  |  |  | 0.0  | %
|                                                         |  |                      |         |   |                   |   |         |                    |  |   |                  |   |  |        |         |   |                   |   |         |                                            |  |   |         |  |  |  |      |  
|Total non-performing loans                               |  | $                    | 54,624  |   |                   | $ | 20,789  |                    |  | $ | 10,436           |   |  | $      | 23,995  |   |                   | $ | 109,844 |                                            |  | $ | 922,811 |  |  |  |      |  
|                                                         |  |                      |         |   |                   |   |         |                    |  |   |                  |   |  |        |         |   |                   |   |         |                                            |  |   |         |  |  |  |      |  
|Non-performing loans to total funded loans               |  |                      | 12.8    | % |                   |   | 10.8    | %                  |  |   | 9.4              | % |  |        | 12.3    | % |                   |   | 11.9    | %                                          |  |   |         |  |  |  |      |  
|Total funded loans                                       |  | $                    | 425,247 |   |                   | $ | 192,197 |                    |  | $ | 110,913          |   |  | $      | 194,454 |   |                   | $ | 922,811 |                                            |  |   |         |  |  |  |      |  



34



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The balance of non-performing loans has fluctuated during the three months ended March 31, 2011 and
March 31, 2010, as illustrated in the table below:



|                                    |  |                             |         |   |      |   |         |  
|----------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|Nonperforming Loans                 |  |                             |         |   |      |  
|(Dollars in 000s)                  |  |                             |         |   |      |  
|                                    |  | Three Months EndedMarch 31, |        
|                                    |  | 2011                        |         |   | 2010 |  
|Balance beginning of period         |  | $                           | 129,616 |   |      | $ | 103,917 |  
|Transfers from performing loans     |  |                             | 2,723   |   |      |   | 24,718  |  
|Loans returned to performing status |  |                             |        |   |      |   | (10,949 | )
|Transfers to OREO                   |  |                             | (4,251  | ) |      |   | (2,376  | )
|Principal reduction from payment    |  |                             | (5,694  | ) |      |   | (4,537  | )
|Principal reduction from charge-off |  |                             | (12,550 | ) |      |   | (6,401  | )
|                                    |  |                             |         |   |      |   |         |  
|Total nonperforming loans           |  | $                           | 109,844 |   |      | $ | 104,372 |  
|                                    |  |                             |         |   |      |   |         |  

The Companys principal source of credit stress is real estate related loans, both commercial and residential.
Borrowers either involved in real estate or having secured loans with real estate have been vulnerable to both the ongoing economic downturn and the related declines in real estate values. Approximately 95.8% or $105.2 million of our non-performing
loan total of $109.8 million is directly related to real estate in the form of commercial or residential real estate development loans. At March 31, 2011 and December 31, 2010, $32.4 million and $70.1 million, respectively, of our real
estate related loans remain current as to contractual principal and interest payments, but were placed on non-accrual status due to the absence of evidence supporting the borrowers ongoing ability to discharge their loan obligations.

The following tables summarize the Companys troubled debt restructured loans by type and geographic region as of March 31, 2011:



|                                                 |  |                    |        |  |                   |   |       |                    |  |   |                  |  |  |        |       |  |  |   |        | 
|------------------------------------------------ |  | ------------------ | ------ |  | ----------------- | - | ----- | ------------------ |  | - | ---------------- |  |  | ------ | ----- |  |  | - | ------ | 
|Restructured loans by type and geographic region |  |                    |        |  |                   |   |       |                    |  |   |                  |  |  |        |      
|(Dollars in 000s)                               |  |                    |        |  |                   |   |       |                    |  |   |                  |  |  |        |      
|                                                 |  | March 31, 2011     |       
|                                                 |  | Restructured loans |       
|                                                 |  | SouthernOregon     |        |  | Mid-CentralOregon |   |       | NorthernCalifornia |  |   | SacramentoValley |  |  | Totals |      
|Construction, Land Dev & Other Land              |  | $                  | 25,922 |  |                   | $ |      |                    |  | $ |                 |  |  | $      | 2,559 |  |  | $ | 28,481 | 
|Commercial & Industrial                          |  |                    |       |  |                   |   | 488   |                    |  |   | 459              |  |  |        | 223   |  |  |   | 1,170  | 
|Commercial Real Estate Loans                     |  |                    | 9,612  |  |                   |   |      |                    |  |   |                 |  |  |        |      |  |  |   | 9,612  | 
|Other Commercial Loans Secured by RE             |  |                    |       |  |                   |   | 1,173 |                    |  |   | 229              |  |  |        | 7,020 |  |  |   | 8,422  | 
|                                                 |  |                    |        |  |                   |   |       |                    |  |   |                  |  |  |        |       |  |  |   |        | 
|Total restructured loans                         |  | $                  | 35,534 |  |                   | $ | 1,661 |                    |  | $ | 688              |  |  | $      | 9,802 |  |  | $ | 47,685 | 
|                                                 |  |                    |        |  |                   |   |       |                    |  |   |                  |  |  |        |       |  |  |   |        | 

The following table presents the Companys troubled debt restructured loans by year of maturity, according to the
restructured terms, as of March 31, 2011:



|                   |  |        |        | 
|------------------ |  | ------ | ------ | 
|(Dollars in 000s) |  |        |       
|Year               |  | Amount |       
|2011               |  | $      | 32,252 | 
|2012               |  |        | 12,644 | 
|2013               |  |        | 2,789  | 
|                   |  |        |        | 
|Total              |  | $      | 47,685 | 
|                   |  |        |        | 

Continuing actions taken to address the credit situation include:



| |  |  | Monitoring activities at all levels of the organization focusing on early detection and preemptive action to resolve credit deficiencies, as
applicable. The Companys Asset Recovery Group has been active in this effort interfacing directly with borrowers and with line managers of the Bank to expedite resolution of existing and potential troubled credits. In those instances where
alternatives have been exhausted or determined to be impractical and default under the terms of the loans has occurred, foreclosure actions are being pursued.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35



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##### Table of Contents

| |  |  | Continuing reviews by an independent firm to confirm the reliability of our internal credit risk rating system.
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Senior Managements high level scrutiny of lending activities with direct involvement in significant credit relationships.
| | - |  | --------------------------------------------------------------------------------------------------------------------------

The sustained decline in economic conditions in our market areas and nationally, as well as other factors, could adversely
impact individual borrowers or our loan portfolio in general. As a result, we can provide no assurance that additional loans will not become 90 days or more past due, become impaired or placed on non-accrual status, restructured or transferred to
OREO in the future. Additional information regarding our loan portfolio is provided in Notes 5 and 6 of the Notes to the Condensed Consolidated Financial Statements.

Allowance for Loan Losses and Reserve for Unfunded Commitments

The allowance for loan
losses (ALL) totaled $33.4 million as of March 31, 2011, a decrease of $2.2 million or 6.2% from the balance at December 31, 2010. This decrease occurred as a result of the overall loan balances declining and Managements
ongoing evaluation of the adequacy of the reserve and the credit quality of the loan portfolio over the three months ended March 31, 2011. This included the reduction of non-performing loans by $19.8 million, or 15.3%, to $109.8 million or
11.9% of gross loans at March 31, 2011, as compared to $129.6 million or 13.3% of gross loans at December 31, 2010. During the quarter just ended, $6.3 million in provision for loan losses was recorded offset by $8.5 million in net
charge-offs. These figures compare with $6.1 million in provision for loan losses and $5.5 million in net charge-offs for the quarter ended March 31, 2010. The loan loss allowance represents 30.4% and 44.6% of nonperforming loans at
March 31, 2011, and 2010, respectively.

The following is a summary of the Banks loan loss experience and selected ratios for the
three months ended March 31, 2011 and December 31, 2010:



|                                                                  |  |               |         |   |                  |   |           |  
|----------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | --------- | -
|(Dollars in thousands)                                            |  | March 31,2011 |         |   | December 31,2010 |  
|Gross loans outstanding at end of period                          |  | $             | 922,811 |   |                  | $ | 978,546   |  
|                                                                  |  |               |         |   |                  |   |           |  
|Average loans outstanding, gross                                  |  | $             | 960,326 |   |                  | $ | 1,013,339 |  
|                                                                  |  |               |         |   |                  |   |           |  
|Allowance for loan losses, beginning of period                    |  | $             | 35,582  |   |                  | $ | 42,120    |  
|Loans charged-off:                                                |  |               |         |   |                  |   |           |  
|Commercial                                                        |  |               | (1,052  | ) |                  |   | (561      | )
|Real estate                                                       |  |               | (11,211 | ) |                  |   | (6,571    | )
|Consumer                                                          |  |               | (265    | ) |                  |   | (348      | )
|Other                                                             |  |               | (22     | ) |                  |   | (383      | )
|                                                                  |  |               |         |   |                  |   |           |  
|Total loans charged-off                                           |  |               | (12,550 | ) |                  |   | (7,863    | )
|                                                                  |  |               |         |   |                  |   |           |  
|Recoveries:                                                       |  |               |         |   |                  |   |           |  
|Commercial                                                        |  |               | 3,365   |   |                  |   | 1,034     |  
|Real estate                                                       |  |               | 574     |   |                  |   | 71        |  
|Consumer                                                          |  |               | 84      |   |                  |   | 197       |  
|Other                                                             |  |               | 11      |   |                  |   | 23        |  
|                                                                  |  |               |         |   |                  |   |           |  
|Total recoveries                                                  |  |               | 4,034   |   |                  |   | 1,325     |  
|                                                                  |  |               |         |   |                  |   |           |  
|Net charge-offs                                                   |  |               | (8,516  | ) |                  |   | (6,538    | )
|Provision charged to income                                       |  |               | 6,300   |   |                  |   |          |  
|                                                                  |  |               |         |   |                  |   |           |  
|Allowance for loan losses, end of period                          |  | $             | 33,366  |   |                  | $ | 35,582    |  
|                                                                  |  |               |         |   |                  |   |           |  
|Ratio of net loans charged-off to average gross loans outstanding |  |               | 3.60    | % |                  |   | 2.56      | %
|                                                                  |  |               |         |   |                  |   |           |  
|Ratio of allowance for loan losses to gross loans outstanding     |  |               | 3.62    | % |                  |   | 3.64      | %
|                                                                  |  |               |         |   |                  |   |           |  

The allowance for loan losses represents the Companys estimate as to the probable credit losses inherent in its loan
portfolio. The allowance for loan losses is increased through periodic charges to earnings through provision for loan losses and represents the aggregate amount, net of loans charged-off and recoveries on previously charged-off loans, that is needed
to establish an appropriate reserve for credit losses. The allowance is estimated based on a variety of factors and using a methodology as described below:



| |  |  | The Company classifies loans into relatively homogeneous pools by loan type in accordance with regulatory guidelines for regulatory reporting purposes.
The Company regularly reviews all loans within each loan category to establish risk ratings for them that include Pass, Watch, Special Mention, Substandard, Doubtful and Loss. Pursuant to Accounting for Creditors for Impairment of a
Loan, the impaired portion of collateral dependent loans is charged-off. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential for provisioning purposes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



36



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##### Table of Contents

| |  |  | Analyses are performed to establish the loss factors based on historical experience, as well as, expected losses based on qualitative evaluations of
such factors as the economic trends and conditions, industry conditions, levels and trends in delinquencies and impaired loans, levels and trends in charge-offs and recoveries, among others. The loss factors are applied to loan category pools
segregated by risk classification to estimate the loss inherent in the Companys loan portfolio pursuant to Accounting for Contingencies.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with Accounting for Creditors for Impairment
of a Loan, and specific reserves are established based on thorough analysis of collateral values where loss potential exists. When an impaired loan is collateral dependent and a deficiency exists in the fair value of real estate
collateralizing the loan in comparison to the associated loan balance, the deficiency is charged-off at that time. Impaired loans are reviewed no less frequently than quarterly.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Generally, external appraisals on all adversely classified loans are updated every six to twelve months. We obtain appraisals from a pre-approved list
of independent, third party appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser:
(a) is currently licensed in the state in which the property is located, (b) is experienced in the appraisal of properties similar to the property being appraised, (c) is actively engaged in the appraisal work, (d) has knowledge
of the current real estate market conditions and financing trends, (e) is reputable, and (f) is not on the Banks exclusionary list of appraisers. Our Appraisal Review Department will either conduct a review of the appraisal, or will
outsource the review to a qualified approved third party appraiser. Upon receipt and review, an external appraisal is utilized to measure a loan for potential impairment. Our impairment analysis documents the date of the appraisal used in the
analysis, whether the preparer deems the appraisal to be current, and if not, allows for an internal valuation adjustments with justification. Adjustments may include discounts for continued market deterioration subsequent to appraisal date,
adjustments for the release of collateral contemplated in the appraisal, or the value of other collateral or consideration not contemplated in the appraisal. Any adjustments from appraised value to net realizable value are detailed and justified in
the impairment analysis and reflected in the allowance for loan losses, as appropriate. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale
agreements, negotiated short sales, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are
updated on a quarterly basis. Based on these processes, we do not believe there are significant time lapses for the recognition of additional loan loss provisions or charge-offs from the date they become known.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that a current appraisal to support the fair value of the real estate collateral underlying an impaired loan has not yet been received,
but the Company believes that the collateral value is insufficient to support the loan amount, an impairment reserve is recorded. In these instances, the receipt of a current appraisal triggers an updated review of the collateral support for the
loan and any deficiency is charged-off or reserved at that time. In those instances where a current appraisal is not available in a timely manner in relation to a financial reporting cut-off date, the Companys internal appraisal review
department prepares a collateral valuation based on a number of factors including, but not limited to, property location, local price volatility, local economic conditions, and recent comparable sales. In all cases, the costs to sell the subject
property are deducted in arriving at the fair value of the collateral. Any unpaid property taxes or similar expenses are expensed at the time the property is acquired by the Bank.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



37



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##### Table of Contents

The table below summarizes the Banks defined substandard loan totals, the ASC 310-10-35
defined impaired loan totals (collectively adversely classified loans) and other related data at quarter end since March 31, 2010:



|                                                                         |  |                |         |   |                   |   |         |                    |  |   |               |   |  |                |           |   |  |   |           |  
|------------------------------------------------------------------------ |  | -------------- | ------- | - | ----------------- | - | ------- | ------------------ |  | - | ------------- | - |  | -------------- | --------- | - |  | - | --------- | -
|(Dollars in 000s)                                                       |  |                |         |   |                   |   |         |                    |  |   |               |   |  |                |          
|                                                                         |  | March 31, 2011 |         |   | December 31, 2010 |   |         | September 30, 2010 |  |   | June 30, 2010 |   |  | March 31, 2010 |          
|Rated substandard                                                        |  | $              | 139,546 |   |                   | $ | 135,826 |                    |  | $ | 193,133       |   |  | $              | 186,627   |   |  | $ | 191,960   |  
|Impaired                                                                 |  |                | 109,844 |   |                   |   | 129,616 |                    |  |   | 115,103       |   |  |                | 129,703   |   |  |   | 104,372   |  
|                                                                         |  |                |         |   |                   |   |         |                    |  |   |               |   |  |                |           |   |  |   |           |  
|Total adversely classified loans                                         |  | $              | 249,390 |   |                   | $ | 265,442 |                    |  | $ | 308,236       |   |  | $              | 316,330   |   |  | $ | 296,332   |  
|                                                                         |  |                |         |   |                   |   |         |                    |  |   |               |   |  |                |           |   |  |   |           |  
|Gross loans                                                              |  | $              | 922,811 |   |                   | $ | 978,546 |                    |  | $ | 1,036,079     |   |  | $              | 1,091,860 |   |  | $ | 1,118,964 |  
|Adversely classified loans to gross loans                                |  |                | 27.03   | % |                   |   | 27.13   | %                  |  |   | 29.75         | % |  |                | 28.97     | % |  |   | 26.48     | %
|                                                                         |  |                |         |   |                  
|Loans 30-89 days past due and still accruing as a percent of gross loans |  |                | 0.77    | % |                   |   | 0.43    | %                  |  |   | 1.12          | % |  |                | 0.98      | % |  |   | 1.01      | %
|Allowance for loan losses                                                |  | $              | 33,366  |   |                   | $ | 35,582  |                    |  | $ | 42,120        |   |  | $              | 43,917    |   |  | $ | 46,518    |  
|Allowance for loan losses as a percentage of adversely classified loans  |  |                | 13.38   | % |                   |   | 13.40   | %                  |  |   | 13.66         | % |  |                | 13.88     | % |  |   | 15.70     | %



|* | Adversely classified loans are defined as loans having a well-defined weakness or weaknesses related to the borrowers financial capacity or to pledged collateral
that may jeopardize the repayment of the debt. They are characterized by the possibility that the Bank may sustain some loss if the deficiencies giving rise to the substandard classification are not corrected. Note that any loans internally rated
worse than substandard are included in the impaired loan totals.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As illustrated above, the Company experienced a 6.0% decrease
in adversely classified loans in the current quarter. Reserves for both loan categories were $33.4 million and $35.6 million at March 31, 2011 and December 31, 2010, respectively.

The allowance for loan losses as of March 31, 2011, declined to 3.62% of gross loans versus 3.64% as of December 31, 2010. Total non-performing loans decreased to $109.8 million as of
March 31, 2011, down from $129.6 million as of December 31, 2010. Adversely classified loans have declined to $249.4 million at March 31, 2011, down from the highpoint during 2010 of $316.3 million at June 30, 2010. Also, loans
30-89 days past due and still accruing as a percent of gross loans was 0.77% at March 31, 2011, as compared to 0.43% at December 31, 2010, and the highpoint during 2010 of 1.12% at September 30, 2010. The percentage of net charge-offs
to average gross loans was 3.60% for the three months ended March 31, 2011 compared to 2.56% for the three months ended December 31, 2010.

In some instances the Company has modified or restructured loans to amend the interest rate and/or to extend the maturity. Through December 31, 2010, any such amendments have generally been
consistent with the terms of newly booked loans reflecting current standards for amortization and interest rate and do not represent concessions to such borrowers. In those instances where concessions have met the criteria for a troubled debt
restructuring (TDR), the related loans have been recorded as TDRs, placed on non-accrual status and included in the impaired loan totals. TDRs recorded by the Company at March 31, 2011 totaled $47.7 million and were
comprised of 27 loans.

As of March 31, 2011, Management believes that the Companys total allowance for credit losses and its
reserve for off-balance sheet commitments are sufficient to absorb the losses inherent in the loan portfolio, related both to funded loans and unfunded commitments. The off-balance sheet commitments include commitments to extend credit and standby
letters of credit. The Banks exposure to credit loss in the event of non-performance for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. This assessment, based on both
historical levels of net charge-offs and continuing detailed reviews of the quality of the loan portfolio and current business, economic and regulatory conditions, involves uncertainty and judgment. As a result, the adequacy of the allowance for
loan losses and the reserve for unfunded commitments cannot be determined with inherent accuracy and may change in future periods. Additionally, bank regulatory authorities may require additional charges to the provision for loan losses as a result
of their periodic examinations of the Company and their judgment of information available to them at the time of their examination. If actual circumstances and losses differ substantially from Managements assumptions and estimates, the
allowance for loan losses might not be sufficient to absorb all future losses. Net earnings would be adversely affected if that were to occur. Total off-balance sheet financial instruments, consisting of commitments to extend credit and standby
letters of credit, were $88.2 million and $113.9 million as of March 31, 2011 and 2010, respectively.

Despite diligent assessment by
Management, there can be no assurance regarding the actual amount of charge-offs that will be incurred in the future. A further slowing in the Oregon and/or California economies, further declines in real estate values or increased unemployment could
result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in income.

Reductions in
real estate values continue to impact the valuations of our collateral-dependent loans, resulting in the need to increase our loan loss provision expense for this quarter. Approximately $11.7 million of the charge-offs in this quarter were related
to impairments of collateral-dependent loans incurred during the period. Once these charge-offs were incorporated into the Banks ALLL methodology, it resulted in the need to increase the provision during the quarter as compared to the prior
period.



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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, the stability of and growth in our core deposit base and through our ability to borrow funds from committed sources of credit. The Banks deposits currently exceed loans as reflected in its loan-to-deposit ratio at March 31,
2011 and December 31, 2010, of 74.8% and 77.3%, respectively.

As of March 31, 2011, the Companys overall liquidity position
improved slightly when compared to December 31, 2010. Liquidity in the form of cash and cash equivalents increased approximately $3.1 million from December 31, 2010, to $142.0 million at March 31, 2011. Borrowed funds in the form of
federal funds purchased and FHLB advances were zero as of both March 31, 2011 and December 31, 2010. Investment securities increased by $15.0 million from December 31, 2010, to March 31, 2011. Recently, we have reduced our public
funds deposits thereby reducing our pledging requirements. Cash and unencumbered securities totaled $259.4 million at March 31, 2011, providing a strong liquidity position. The Company anticipates retaining the additional unpledged investment
securities to enhance balance sheet liquidity or increase its collateralized federal funds lines of credit with its correspondent banks and FHLB.

Management maintains contingency plans for addressing the Companys ongoing liquidity needs and presently believes the Banks stable core deposit base, which has steadily grown to over 20% of
total deposits, provides for opportunity should Management decide to attract additional deposits by increasing the rate of interest offered on deposits, particularly certificates of deposit. The Bank is also maintaining a significant balance of cash
equivalents until such time as liquidity concerns within the community banking environment have subsided. Although the current economic environment has impeded significant loan growth, the Company could eliminate loan growth and related cash
utilization through various policy changes including increased pricing. Additionally, selling any unpledged investment securities is a source for additional liquidity.

The Company maintains secured lines-of-credit with the FHLB and with the Federal Reserve Bank of San Francisco. As of March 31, 2011, the Bank had $20,000 of borrowings advanced from the FHLB. The
Company also had immediate availability to borrow an additional $64.0 million under the Companys credit line with the FHLB, pursuant to collateralized credit arrangements.

The Bank also had $20.0 million available for additional borrowing from a correspondent bank; and $13.5 million available for borrowing from the Federal Reserve discount window.

During the first quarter of 2011, the Company began a program to sell securities under agreements to repurchase. At March 31, 2011, the Bank had
$1.9 million securities sold under agreements to repurchase with a maximum balance at any month-end during the quarter of $1.9 million and an average quarterly balance of $1.5 million.

At March 31, 2011, the Company had approximately $80.4 million in outstanding commitments to extend credit for loans. Under the terms of construction project commitments, completion of specified
project benchmarks must be certified before funds may be drawn. Additionally, we anticipate that a portion of these commitments will expire or terminate without funding. Management believes that the Companys available resources will be
sufficient to fund these commitments in the normal course of business.

In addition, as of March 31, 2011, the Company had $7.5 million
of standby letters related to extensions of credit and approximately $271,000 of other unsecured lines of credit related to overdraft protection for demand deposit accounts.

As disclosed in the Consolidated Statements of Cash Flows, net cash provided by operating activities totaled $3.0 million during the three months ended March 31, 2011, and net cash of $30.5 million
was provided by investing activities. Cash used in financing activities, totaling $30.5 million principally comprised of decrease in deposits.

CAPITAL RESOURCES  Federal bank regulatory agencies use risk-based capital adequacy guidelines in the examination and regulation
of banks and bank holding companies that are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies.

Under the guidelines, an institutions capital is divided into Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common stockholders equity, surplus and undivided profits.
Tier 2 capital generally consists of the allowance for loan losses, hybrid capital instruments and subordinated debt. The sum of Tier 1 capital and Tier 2 capital represents total capital.

The aggregate amount of restricted core capital elements that may be included in the Tier 1 capital is limited by regulatory guidelines. Any amount excluded from Tier 1 capital by this limitation
generally may be included in Tier 2 capital. At March 31, 2011, $887,000 of restricted core capital was excluded from the Companys Tier 1 capital. That amount was included in Tier 2 capital. This limitation resulted in a 6 basis point
reduction in leverage capital and a 9 basis point decrease in Tier 1 capital.

The adequacy of an institutions capital is determined
primarily by analyzing risk-weighted assets. The guidelines assign risk weightings to assets to quantify the relative risk of each asset and to determine the minimum capital required to support that risk. An institutions risk-weighted assets
are then compared with its Tier 1 capital and total capital to arrive at a Tier 1 risk-based ratio and a total risk-based ratio, respectively. The guidelines also utilize a leverage ratio, which is Tier 1 capital as a percentage of average total
assets, less intangibles.



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Under the guidelines, an institution is assigned to one of five capital categories depending on its total
risk-based capital ratio, Tier I risk-based capital ratio, and leverage ratio, together with certain subjective factors. The categories range from well capitalized to critically undercapitalized. Institutions that are
undercapitalized or lower are subject to certain mandatory supervisory corrective actions.

A bank is deemed to be
well-capitalizedif the bank:



| |  |  | has a total risk-based capital ratio of 10.0 percent or greater; and
| | - |  | --------------------------------------------------------------------



| |  |  | has a Tier 1 risk-based capital ratio of 6.0 percent or greater; and
| | - |  | --------------------------------------------------------------------



| |  |  | has a leverage ratio of 5.0 percent or greater; and
| | - |  | ---------------------------------------------------



| |  |  | is not subject to any written agreement or order issued by the FDIC.
| | - |  | --------------------------------------------------------------------

A bank is deemed to be adequately capitalizedif the bank:



| |  |  | has a total risk-based capital ratio of 8.0 percent or greater; and
| | - |  | -------------------------------------------------------------------



| |  |  | has a Tier 1 risk-based capital ratio of 4.0 percent or greater; and
| | - |  | --------------------------------------------------------------------



| |  |  | has a leverage ratio of 4.0 percent or greater (or 3.0 percent in certain circumstances); and
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | does not meet the definition of a well-capitalized bank.
| | - |  | --------------------------------------------------------

Although the Bank meets the quantitative guidelines set forth above to be deemed well-capitalized, the Bank remains subject to the Agreement with the FDIC and, therefore, is deemed to be
adequately capitalized. Pursuant to the Agreement with the FDIC, as discussed earlier, the Bank was required to increase and maintain its Tier 1 capital in such an amount as to ensure a leverage ratio of 10% or more by October 3,
2010, well in excess of the 5% requirement set forth in regulatory guidelines. As indicated below, the Company and the Bank have increased the leverage ratio significantly as of March 31, 2011. However as of March 31, 2011, the 10%
leverage ratio has not been achieved. Management believes that, while not achieving this target in the timeframe required, the Company has demonstrated progress, taken prudent actions and maintained a good-faith commitment to reaching the
requirements of the Agreement. We continue to work toward achieving all requirements contained in the regulatory agreements in as expeditious a manner as possible.

The following table reflects PremierWest Banks various capital ratios, as compared to regulatory minimums for capital adequacy purposes:



|                                |  |               |       |   |                  |  |       |               |  |  |                                                 |   |  |                                           |      |   |  |  |       |  
|------------------------------- |  | ------------- | ----- | - | ---------------- |  | ----- | ------------- |  |  | ----------------------------------------------- | - |  | ----------------------------------------- | ---- | - |  |  | ----- | -
|                                |  | March 31,2011 |       |   | December 31,2010 |  |       | March 31,2010 |  |  | RegulatoryMinimum to
beAdequately Capitalized |   |  | RegulatoryMinimum to beWell-Capitalized |     
|                                |  |               |       |   |                  |  |       |               |  |  | greater than or equal to                        |   |  | greater than or equal to                  |     
|Total risk-based capital ratio  |  |               | 12.51 | % |                  |  | 12.59 | %             |  |  | 11.01                                           | % |  |                                           | 8.00 | % |  |  | 10.00 | %
|Tier 1 risk-based capital ratio |  |               | 11.24 | % |                  |  | 11.31 | %             |  |  | 9.73                                            | % |  |                                           | 4.00 | % |  |  | 6.00  | %
|Leverage ratio                  |  |               | 8.59  | % |                  |  | 8.85  | %             |  |  | 8.21                                            | % |  |                                           | 4.00 | % |  |  | 5.00  | %

Similarly, the table below shows
PremierWest Bancorps capital ratios, as compared to regulatory minimums:



|                                |  |               |       |   |                  |  |       |               |  |  |                                                 |   |  |  |      |  
|------------------------------- |  | ------------- | ----- | - | ---------------- |  | ----- | ------------- |  |  | ----------------------------------------------- | - |  |  | ---- | -
|                                |  | March 31,2011 |       |   | December 31,2010 |  |       | March 31,2010 |  |  | RegulatoryMinimum to
beAdequately Capitalized |  
|                                |  |               |       |   |                  |  |       |               |  |  | greater than or equal to                        |  
|Total risk-based capital ratio  |  |               | 12.20 | % |                  |  | 12.36 | %             |  |  | 11.00                                           | % |  |  | 8.00 | %
|Tier 1 risk-based capital ratio |  |               | 10.84 | % |                  |  | 11.09 | %             |  |  | 9.72                                            | % |  |  | 4.00 | %
|Leverage ratio                  |  |               | 8.28  | % |                  |  | 8.66  | %             |  |  | 8.20                                            | % |  |  | 4.00 | %



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss from adverse changes in market prices and rates. The Companys market risk arises principally from
interest rate risk in its lending, deposit and borrowing activities. 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 market risk, which could have a material effect on the Companys 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 the Companys business activities. The Company did not experience a significant change in market risk at March 31, 2011, as compared to December 31,
2010.

As stated in the annual report on Form 10-K for 2010, 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 300 basis
points, in increments of 100 basis points. It is the Companys 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 in the Companys annual report on Form 10-K for the year ended December 31, 2010.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by
this report, PremierWest Bancorps Management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, Management, including our President & Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were
effective, including in timely alerting them to information relating to us that is required to be included in our periodic SEC filings.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have not been any changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent quarter ended
March 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, in the normal course of business, PremierWest may become party to various legal actions. Management is unaware of any existing legal actions against the Company or its subsidiaries that
Management believes will have a materially adverse impact on our business, financial condition or results of operations.

ITEM 1A. RISK FACTORS

The risks described below are not the only risks we face. If any of the events described in the
following risk factors actually occurs, or if additional risks and uncertainties not presently known to us or that we currently deem immaterial, materialize, then our business, results of operations and financial condition could be materially
adversely affected and could cause our actual results to differ materially from our historical results or the forward-looking statements contained in this report. You should carefully consider the Risk Factors section of our Form 10-K.

Other than the following risk factors, there were no material changes in the risk factors presented in the Companys Form 10-K
for the year ended December 31, 2010.

Risks Related to Our Company

We may be required to raise additional capital or sell assets in the future, but that capital or the opportunity to sell assets may not be
available, or may only be available on unfavorable terms.

We are required by federal and state regulatory authorities to maintain
adequate levels of capital to support our operations. The proceeds of our completed rights offering returned our status to published Well-Capitalized levels, including exceeding the 10.0% risk-based capital level. We are, however,
subject to a Consent Order that requires higher capital levels, as previously mentioned. Our Bank leverage ratio as of March 31, 2011, was 8.59%. If we are unable to increase our capital levels to the Consent Order requirements, we may be
subject to penalties or further restrictions on our operations. In addition, future losses could reduce our capital levels. We may need to raise additional capital to maintain or improve our capital position or to support our operations. Our ability
to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we may not be able to raise additional capital on terms acceptable
to us. Alternatively, we may be required to improve our capital ratios through the sale of assets. Market conditions for the sale of assets may not be favorable and we may not be able to lower asset levels sufficiently to meet the requirements of
the Consent Order or to maintain existing capital levels. If we cannot raise additional capital or improve capital ratios through other options, our financial condition, and our ability to maintain or improve our capital position to support our
operations and to continue as a going concern, could be materially impaired.



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##### Table of Contents

We are subject to regulatory agreements, which place limits on our operations and could result in
penalties or further restrictions if we fail to comply with their terms.

In light of the current challenging operating environment,
along with our elevated level of non-performing assets, delinquencies and adversely classified assets, the Bank is subject to a Consent Order with the FDIC and the DFCS and an agreement with the Federal Reserve Bank of San Francisco and the DFCS.
Both agreements place limitations on our business and could adversely affect our ability to implement our business plans, including potential growth strategies that we might otherwise pursue. We have limitations on our lending activities and on the
rates paid by the Bank to attract retail deposits in its local markets. We are required to reduce our levels of non-performing assets within specified time frames. These time frames could result in our inability to maximize the price that might
otherwise be received for underlying properties. In addition, if such restrictions were also imposed upon other institutions that operate in the Banks markets, multiple institutions disposing of properties at the same time could further
diminish the potential proceeds received from the sale of these properties. We are restricted from paying dividends from the Bank to the Holding Company during the life of the Consent Order, which restricts our ability to issue preferred stock
dividends and make junior subordinated debenture interest payments. If we fail to comply with the provisions of these agreements, we could be subject to additional restrictions or penalties.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) [Not applicable.]

(b) [Not applicable.]

(c) None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(a) [Not applicable.]

(b) For a discussion of preferred stock dividend payments, which are being
accrued but not paid, please see Note 9of the Notes to Financial Statements in Part I, Item 1 of this report and our Form 8-K filed October 28, 2009.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

[None.]



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##### Table of Contents

ITEM 6. EXHIBITS



|     |  |                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |  | Exhibits                                                                                                                                                                                                               
|     | 
|3.1  |  | Articles of Incorporation of PremierWest Bancorp (incorporated by reference to Exhibit 3.1 to Form 10-K filed March 16, 2011)                                                                                          
|     | 
|3.2  |  | Amended and Restated Bylaws of PremierWest Bancorp (incorporated by reference to Exhibit 3.2 to Form 10-K filed March 16, 2010)                                                                                        
|     | 
|31.1 |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|     | 
|31.2 |  | Certification of Chief Financial Officer (Principal Accounting and Principal Financial Officer) required by Rule 13a-14(a) or Rule 15d-14(a) and Section 302 of the Sarbanes-Oxley
Act of 2002.                        
|     | 
|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 (Principal Accounting and Principal 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.

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: May 10, 2011

PREMIERWEST BANCORP



|                                                    
|----------------------------------------------------
|/s/ James M. Ford                                   
|James M. Ford, President and Chief Executive Officer



|                     
|---------------------
|/s/ Douglas N. Biddle

|                                                                           
|---------------------------------------------------------------------------
|Douglas N. Biddle, Chief Financial Officer and Principal Accounting Officer



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