##### 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, 2010



| ̈ | 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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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 accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.

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

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 7, 2010 was 100,348,303.









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##### Table of Contents

Form 10-Q

Table of Contents



|                                                                                              |  |   
|--------------------------------------------------------------------------------------------- |  | --
|                                                                                              | 
|Part I    FINANCIAL INFORMATION                                                               |  |   
|                                                                                              | 
|Item 1. Financial Statements                                                                  |  | 1 
|                                                                                              | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 19
|                                                                                              | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  | 30
|                                                                                              | 
|Item 4. Controls and Procedures                                                               |  | 30
|                                                                                              | 
|Part II    OTHER INFORMATION                                                                  |  |   
|                                                                                              | 
|Item 1. Legal Proceedings                                                                     |  | 30
|                                                                                              | 
|Item 1A. Risk Factors                                                                         |  | 30
|                                                                                              | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 31
|                                                                                              | 
|Item 3. Defaults Upon Senior Securities                                                       |  | 31
|                                                                                              | 
|Item 4. Removed and Reserved                                                                  |  | 32
|                                                                                              | 
|Item 5. Other Information                                                                     |  | 32
|                                                                                              | 
|Item 6. Exhibits                                                                              |  | 33
|                                                                                              | 
|SIGNATURES                                                                                    |  | 33



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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)

ASSETS



|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | ------------- |  | - | --------- | -
|                                                                                                                                                                                                 |  | March 31,2010 |           |   | December 31,2009 |   |           | March 31,2009 | 
|Cash and cash equivalents:                                                                                                                                                                       |  |               |           |   |                  |   |           |               |  |   |           |  
|Cash and due from banks                                                                                                                                                                          |  | $             | 54,882    |   |                  | $ | 33,092    |               |  | $ | 28,602    |  
|Federal funds sold                                                                                                                                                                               |  |               | 50,635    |   |                  |   | 69,855    |               |  |   | 36,045    |  
|Interest-bearing deposits                                                                                                                                                                        |  |               | 45,265    |   |                  |   | 168       |               |  |   | 161       |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Total cash and cash equivalents                                                                                                                                                                  |  |               | 150,782   |   |                  |   | 103,115   |               |  |   | 64,808    |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Interest-bearing certificates of deposit (original maturities greater than 90 days)                                                                                                              |  |               | 10,650    |   |                  |   | 50,650    |               |  |   | 198       |  
|Investments:                                                                                                                                                                                     |  |               |           |   |                  |   |           |               |  |   |           |  
|Investment securities available-for-sale, at fair market value                                                                                                                                   |  |               | 126,292   |   |                  |   | 114,937   |               |  |   | 182       |  
|Investment securities held-to-maturity, at amortized cost (fair value of $31,149 at 3/31/10, $43,536 at 12/31/09, and
$35,154 at 3/31/09)                                                        |  |               | 30,685    |   |                  |   | 43,384    |               |  |   | 34,808    |  
|Investment securities - Community Reinvestment Act                                                                                                                                               |  |               | 4,000     |   |                  |   | 4,000     |               |  |   | 4,000     |  
|Restricted equity securities                                                                                                                                                                     |  |               | 3,643     |   |                  |   | 3,643     |               |  |   | 3,643     |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Total investments                                                                                                                                                                                |  |               | 164,620   |   |                  |   | 165,964   |               |  |   | 42,633    |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Mortgage loans held-for-sale                                                                                                                                                                     |  |               | 353       |   |                  |   | 1,731     |               |  |   | 1,769     |  
|                                                                                                                                                                                                 |  |               |          
|Loans, net of deferred loan fees                                                                                                                                                                 |  |               | 1,118,214 |   |                  |   | 1,148,127 |               |  |   | 1,237,518 |  
|Allowance for loan losses                                                                                                                                                                        |  |               | (46,518   | ) |                  |   | (45,903   | )             |  |   | (25,659   | )
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Loans, net                                                                                                                                                                                       |  |               | 1,071,696 |   |                  |   | 1,102,224 |               |  |   | 1,211,859 |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Premises and equipment, net of accumulated depreciation and amortization                                                                                                                         |  |               | 47,269    |   |                  |   | 47,812    |               |  |   | 47,446    |  
|Core deposit intangibles, net of amortization                                                                                                                                                    |  |               | 3,208     |   |                  |   | 3,448     |               |  |   | 2,274     |  
|Goodwill                                                                                                                                                                                         |  |               | -         |   |                  |   | -         |               |  |   | 70,437    |  
|Other real estate owned and foreclosed assets                                                                                                                                                    |  |               | 21,517    |   |                  |   | 24,748    |               |  |   | 9,362     |  
|Accrued interest and other assets                                                                                                                                                                |  |               | 34,483    |   |                  |   | 36,622    |               |  |   | 45,985    |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|TOTAL ASSETS                                                                                                                                                                                     |  | $             | 1,504,578 |   |                  | $ | 1,536,314 |               |  | $ | 1,496,771 |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|                                                                                                                                                                                                
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                             | 
|                                                                                                                                                                                                 |  |               |          
|LIABILITIES                                                                                                                                                                                      |  |               |           |   |                  |   |           |               |  |   |           |  
|Deposits:                                                                                                                                                                                        |  |               |           |   |                  |   |           |               |  |   |           |  
|Demand                                                                                                                                                                                           |  | $             | 247,256   |   |                  | $ | 256,167   |               |  | $ | 233,447   |  
|Interest-bearing demand and savings                                                                                                                                                              |  |               | 502,680   |   |                  |   | 520,719   |               |  |   | 432,269   |  
|Time $100,000 or greater                                                                                                                                                                         |  |               | 231,195   |   |                  |   | 221,941   |               |  |   | 205,812   |  
|Time less than $100,000                                                                                                                                                                          |  |               | 380,810   |   |                  |   | 421,935   |               |  |   | 367,784   |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Total deposits                                                                                                                                                                                   |  |               | 1,361,941 |   |                  |   | 1,420,762 |               |  |   | 1,239,312 |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Federal Home Loan Bank borrowings                                                                                                                                                                |  |               | 27        |   |                  |   | 28        |               |  |   | 37        |  
|Junior subordinated debentures                                                                                                                                                                   |  |               | 30,928    |   |                  |   | 30,928    |               |  |   | 30,928    |  
|Accrued interest and other liabilities                                                                                                                                                           |  |               | 13,737    |   |                  |   | 13,061    |               |  |   | 12,079    |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Total liabilities                                                                                                                                                                                |  |               | 1,406,633 |   |                  |   | 1,464,779 |               |  |   | 1,282,356 |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|COMMITMENTS AND CONTINGENCIES (Note 12)                                                                                                                                                          |  |               |           |   |                  |   |           |               |  |   |           |  
|SHAREHOLDERS EQUITY                                                                                                                                                                             |  |               |           |   |                  |   |           |               |  |   |           |  
|Series B 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 12/31/09 and 3/31/09) |  |               | 39,657    |   |                  |   | 39,561    |               |  |   | 39,317    |  
|Common stock - no par value; 150,000,000 shares authorized; 81,077,351 shares issued and outstanding (24,771,928 at 12/31/09 and
24,766,928 at 3/31/09)                                          |  |               | 205,065   |   |                  |   | 175,449   |               |  |   | 175,117   |  
|Accumulated deficit                                                                                                                                                                              |  |               | (148,012  | ) |                  |   | (144,710  | )             |  |   | (47       | )
|Accumulated other comprehensive income                                                                                                                                                           |  |               | 1,235     |   |                  |   | 1,235     |               |  |   | 28        |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|Total shareholders equity                                                                                                                                                                       |  |               | 97,945    |   |                  |   | 71,535    |               |  |   | 214,415   |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                       |  | $             | 1,504,578 |   |                  | $ | 1,536,314 |               |  | $ | 1,496,771 |  
|                                                                                                                                                                                                 |  |               |           |   |                  |   |           |               |  |   |           |  

See accompanying notes.



1



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##### Table of Contents

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 31,2010              |        |   | March 31,2009 |  
|INTEREST AND DIVIDEND INCOME                     |  |                            |        |   |               |   |        |  
|Interest and fees on loans                       |  | $                          | 16,831 |   |               | $ | 19,726 |  
|Interest on investments:                         |  |                            |        |   |               |   |        |  
|Taxable                                          |  |                            | 1,195  |   |               |   | 275    |  
|Nontaxable                                       |  |                            | 51     |   |               |   | 28     |  
|Interest on federal funds sold                   |  |                            | 30     |   |               |   | 15     |  
|Other interest and dividends                     |  |                            | 71     |   |               |   | 2      |  
|                                                 |  |                            |        |   |               |   |        |  
|Total interest and dividend income               |  |                            | 18,178 |   |               |   | 20,046 |  
|                                                 |  |                            |        |   |               |   |        |  
|INTEREST EXPENSE                                 |  |                            |        |   |               |   |        |  
|Deposits:                                        |  |                            |        |   |               |   |        |  
|Interest-bearing demand and savings              |  |                            | 748    |   |               |   | 1,046  |  
|Time                                             |  |                            | 2,147  |   |               |   | 4,139  |  
|Federal funds purchased                          |  |                            | -      |   |               |   | 14     |  
|Federal Home Loan Bank advances                  |  |                            | -      |   |               |   | 18     |  
|Junior subordinated debentures                   |  |                            | 456    |   |               |   | 449    |  
|                                                 |  |                            |        |   |               |   |        |  
|Total interest expense                           |  |                            | 3,351  |   |               |   | 5,666  |  
|                                                 |  |                            |        |   |               |   |        |  
|Net interest income                              |  |                            | 14,827 |   |               |   | 14,380 |  
|                                                 |  |                           
|LOAN LOSS PROVISION                              |  |                            | 6,100  |   |               |   | 10,700 |  
|                                                 |  |                            |        |   |               |   |        |  
|Net interest income after loan loss provision    |  |                            | 8,727  |   |               |   | 3,680  |  
|                                                 |  |                            |        |   |               |   |        |  
|NON-INTEREST INCOME                              |  |                            |        |   |               |   |        |  
|Service charges on deposits accounts             |  |                            | 1,035  |   |               |   | 1,252  |  
|Mortgage banking fees                            |  |                            | 131    |   |               |   | 162    |  
|Investment brokerage and annuity fees            |  |                            | 348    |   |               |   | 273    |  
|Other commissions and fees                       |  |                            | 722    |   |               |   | 586    |  
|Other non-interest income                        |  |                            | 481    |   |               |   | 239    |  
|                                                 |  |                            |        |   |               |   |        |  
|Total non-interest income                        |  |                            | 2,717  |   |               |   | 2,512  |  
|                                                 |  |                            |        |   |               |   |        |  
|NON-INTEREST EXPENSE                             |  |                            |        |   |               |   |        |  
|Salaries and employee benefits                   |  |                            | 7,020  |   |               |   | 7,046  |  
|Net occupancy and equipment                      |  |                            | 1,904  |   |               |   | 1,878  |  
|FDIC and state assessments                       |  |                            | 1,212  |   |               |   | 601    |  
|Communications                                   |  |                            | 521    |   |               |   | 502    |  
|Professional fees                                |  |                            | 741    |   |               |   | 668    |  
|Advertising                                      |  |                            | 174    |   |               |   | 194    |  
|Other non-interest expense                       |  |                            | 2,563  |   |               |   | 1,745  |  
|                                                 |  |                            |        |   |               |   |        |  
|Total non-interest expense                       |  |                            | 14,135 |   |               |   | 12,634 |  
|                                                 |  |                            |        |   |               |   |        |  
|                                                 |  |                           
|LOSS BEFORE BENEFIT FOR INCOME TAXES             |  |                            | (2,691 | ) |               |   | (6,442 | )
|BENEFIT FOR INCOME TAXES                         |  |                            | -      |   |               |   | (2,835 | )
|                                                 |  |                            |        |   |               |   |        |  
|NET LOSS                                         |  |                            | (2,691 | ) |               |   | (3,607 | )
|                                                 |  |                            |        |   |               |   |        |  
|PREFERRED STOCK DIVIDENDS AND DISCOUNT ACCRETION |  |                            | 611    |   |               |   | 372    |  
|                                                 |  |                            |        |   |               |   |        |  
|NET LOSS AVAILABLE TO COMMON SHAREHOLDERS        |  | $                          | (3,302 | ) |               | $ | (3,979 | )
|                                                 |  |                            |        |   |               |   |        |  
|LOSS PER COMMON SHARE:                           |  |                            |        |   |               |   |        |  
|BASIC                                            |  | $                          | (0.10  | ) |               | $ | (0.16  | )
|                                                 |  |                            |        |   |               |   |        |  
|DILUTED                                          |  | $                          | (0.10  | ) |               | $ | (0.16  | )
|                                                 |  |                            |        |   |               |   |        |  

See accompanying notes.



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##### Table of Contents

PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY

AND COMPREHENSIVE LOSS

(Dollars in 000s, Except Share Amounts)



|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|------------------------------------------------------------------------------------------ |  | --------------- |  | ------------ | ------ | ------------------------------------- | ---------- | ------ | ----------------------------------- | ------- |  | ------------------------ | -------- | - | ----------------- | - | ----- | - |  | - | -------- | - |  | - | -------- | -
|                                                                                           |  | Preferred Stock |  | Common Stock |        | RetainedEarnings(Accumulated
Deficit) |            |        | AccumulatedOtherComprehensiveIncome |         |  | TotalShareholdersEquity |          |   | ComprehensiveLoss |  
|                                                                                           |  | Shares          |  | Amount       |        | Shares                                |            | Amount |                                     |         |  |                         
|                                                                                           |  |                 |  |              |        |                                       |            |       
|BALANCE - DECEMBER 31, 2008                                                                |  | -               |  | $            | -      |                                       | 23,574,351 |        | $                                   | 168,032 |  | $                        | 8,913    |   |                   | $ | 39    |   |  | $ | 176,984  |   |  |   |          |  
|Comprehensive loss:                                                                        |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Net loss                                                                                   |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (146,472 | ) |                   |   | -     |   |  |   | (146,472 | ) |  | $ | (146,472 | )
|Other comprehensive income -                                                               |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Change in fair value of securities available-for-sale                                      |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | -        |   |                   |   | 787   |   |  |   | 787      |   |  |   | 787      |  
|Amortization of unrealized gains for investment securities transferred to held-to-maturity |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | -        |   |                   |   | 409   |   |  |   | 409      |   |  |   | 409      |  
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                         |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  | $ | (145,276 | )
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Preferred stock dividend declared                                                          |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (1,831   | ) |                   |   | -     |   |  |   | (1,831   | ) |  |   |          |  
|Common stock dividend (5%)                                                                 |  | -               |  |              | -      |                                       | 1,178,711  |        |                                     | 4,741   |  |                          | (4,741   | ) |                   |   | -     |   |  |   | -        |   |  |   |          |  
|Common stock cash dividend                                                                 |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (236     | ) |                   |   | -     |   |  |   | (236     | ) |  |   |          |  
|Cash paid for fractional shares                                                            |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (3       | ) |                   |   | -     |   |  |   | (3       | ) |  |   |          |  
|Stock-based compensation expense                                                           |  | -               |  |              | -      |                                       | -          |        |                                     | 448     |  |                          | -        |   |                   |   | -     |   |  |   | 448      |   |  |   |          |  
|Stock options exercised and issuance of restricted stock                                   |  | -               |  |              | -      |                                       | 18,866     |        |                                     | 48      |  |                          | -        |   |                   |   | -     |   |  |   | 48       |   |  |   |          |  
|Income tax benefit of stock options exercised                                              |  | -               |  |              | -      |                                       | -          |        |                                     | 1       |  |                          | -        |   |                   |   | -     |   |  |   | 1        |   |  |   |          |  
|Issuance of Series B preferred stock to U.S. Treasury, and accretion of discount           |  | 41,400          |  |              | 39,561 |                                       | -          |        |                                     | -       |  |                          | (340     | ) |                   |   | -     |   |  |   | 39,221   |   |  |   |          |  
|Issuance of warrant to U.S. Treasury                                                       |  | -               |  |              | -      |                                       | -          |        |                                     | 2,179   |  |                          | -        |   |                   |   | -     |   |  |   | 2,179    |   |  |   |          |  
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|BALANCE - December 31, 2009                                                                |  | 41,400          |  |              | 39,561 |                                       | 24,771,928 |        |                                     | 175,449 |  |                          | (144,710 | ) |                   |   | 1,235 |   |  |   | 71,535   |   |  |   |          |  
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Comprehensive loss:                                                                        |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Net loss                                                                                   |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (2,691   | ) |                   |   | -     |   |  |   | (2,691   | ) |  | $ | (2,691   | )
|Other comprehensive income -                                                               |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Change in fair value of securities available-for-sale                                      |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | -        |   |                   |   | 2     |   |  |   | 2        |   |  |   | 2        |  
|Amortization of unrealized gains for investment securities transferred to held-to-maturity |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | -        |   |                   |   | (2    | ) |  |   | (2       | ) |  |   | (2       | )
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Comprehensive loss                                                                         |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  | $ | (2,691   | )
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|Preferred stock dividend accrued                                                           |  | -               |  |              | -      |                                       | -          |        |                                     | -       |  |                          | (515     | ) |                   |   | -     |   |  |   | (515     | ) |  |   |          |  
|Stock offering                                                                             |  | -               |  |              | -      |                                       | 56,305,423 |        |                                     | 24,135  |  |                          | -        |   |                   |   | -     |   |  |   | 24,135   |   |  |   |          |  
|Subscription rights received not issued                                                    |  | -               |  |              | -      |                                       | -          |        |                                     | 5,377   |  |                          | -        |   |                   |   | -     |   |  |   | 5,377    |   |  |   |          |  
|Stock-based compensation expense                                                           |  | -               |  |              | -      |                                       | -          |        |                                     | 104     |  |                          | -        |   |                   |   | -     |   |  |   | 104      |   |  |   |          |  
|Accretion of discount from Series B preferred stock                                        |  | -               |  |              | 96     |                                       | -          |        |                                     | -       |  |                          | (96      | ) |                   |   | -     |   |  |   | -        |   |  |   |          |  
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  
|BALANCE - March 31, 2010                                                                   |  | 41,400          |  | $            | 39,657 |                                       | 81,077,351 |        | $                                   | 205,065 |  | $                        | (148,012 | ) |                   | $ | 1,235 |   |  | $ | 97,945   |   |  |   |          |  
|                                                                                           |  |                 |  |              |        |                                       |            |        |                                     |         |  |                          |          |   |                   |   |       |   |  |   |          |   |  |   |          |  

See accompanying notes.



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##### Table of Contents

PREMIERWEST BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in 000s)



|                                                                                  |  |                            |         |   |               |   |         |  
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                  |  | For The Three Months Ended |        
|                                                                                  |  | March 31,2010              |         |   | March 31,2009 |  
|                                                                                  |  |                           
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|Net loss                                                                          |  | $                          | (2,691  | ) |               | $ | (3,607  | )
|Adjustments to reconcile net loss to net cash from operating activities:          |  |                            |         |   |               |   |         |  
|Depreciation and amortization                                                     |  |                            | 989     |   |               |   | 962     |  
|Loan loss provision                                                               |  |                            | 6,100   |   |               |   | 10,700  |  
|Deferred income taxes                                                             |  |                            | -       |   |               |   | (786    | )
|Amortization of premiums and accretion of discounts on investment securities, net |  |                            | 363     |   |               |   | 80      |  
|Gain on sale of invesments                                                        |  |                            | (244    | ) |               |   | -       |  
|Funding of loans held-for-sale                                                    |  |                            | (4,767  | ) |               |   | (10,183 | )
|Sale of loans held-for-sale                                                       |  |                            | 6,276   |   |               |   | 8,884   |  
|Gain on sale of loans held-for-sale                                               |  |                            | (131    | ) |               |   | (162    | )
|Change in BOLI value (net of benefit obligations)                                 |  |                            | 131     |   |               |   | 89      |  
|Stock-based compensation expense                                                  |  |                            | 104     |   |               |   | 112     |  
|Loss on sales of premises and equipment                                           |  |                            | 22      |   |               |   | 4       |  
|Gain on sale of other real estate owned and foreclosed assets                     |  |                            | (317    | ) |               |   | -       |  
|Write down of other real estate owned due to impairment                           |  |                            | 546     |   |               |   | -       |  
|Write down of low income housing tax credit investment                            |  |                            | 41      |   |               |   | 23      |  
|Changes in accrued interest receivable/payable and other assets/liabilities       |  |                            | 2,290   |   |               |   | (12,842 | )
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash provided by (used in) operating activities                               |  |                            | 8,712   |   |               |   | (6,726  | )
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|Net investment in interest-bearing certificates of deposit                        |  |                            | 40,000  |   |               |   | -       |  
|Purchase of investment securities available-for-sale                              |  |                            | (70,048 | ) |               |   | -       |  
|Proceeds from principal payments received on securities available-for-sale        |  |                            | 4,752   |   |               |   | -       |  
|Proceeds from sale of securities available-for-sale                               |  |                            | 53,855  |   |               |   | 6       |  
|Purchase of investment securities held-to-maturity                                |  |                            | -       |   |               |   | (6,289  | )
|Proceeds from principal payments received on securities held-to-maturity          |  |                            | 451     |   |               |   | 3,606   |  
|Proceeds from maturities and calls of investment securities held-to-maturity      |  |                            | 12,215  |   |               |   | -       |  
|Loan repayments, net                                                              |  |                            | 22,052  |   |               |   | 11,796  |  
|Purchase of premises and equipment                                                |  |                            | (228    | ) |               |   | (122    | )
|Sale or disposal of premises and equipment                                        |  |                            | -       |   |               |   | 35      |  
|Purchase of low income housing tax credit investment                              |  |                            | (162    | ) |               |   | (497    | )
|Capital improvements of other real estate owned                                   |  |                            | (249    | ) |               |   | -       |  
|Proceeds from sale of other real estate and foreclosed assets                     |  |                            | 5,627   |   |               |   | -       |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash provided by investing activities                                         |  |                            | 68,265  |   |               |   | 8,535   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                            |         |   |               |   |         |  
|Net increase (decrease) in deposits                                               |  |                            | (58,821 | ) |               |   | 28,043  |  
|Net decrease in Federal Home Loan Bank borrowings                                 |  |                            | (1      | ) |               |   | (20,005 | )
|Net decrease in Federal Funds purchased                                           |  |                            | -       |   |               |   | (25,003 | )
|Cash received from stock offerings                                                |  |                            | 29,512  |   |               |   | -       |  
|Dividends paid on common stock                                                    |  |                            | -       |   |               |   | (236    | )
|Stock options exercised                                                           |  |                            | -       |   |               |   | 48      |  
|Proceeds from issuance of preferred stock                                         |  |                            | -       |   |               |   | 41,400  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Net cash provided by (used in) financing activities                               |  |                            | (29,310 | ) |               |   | 24,247  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                         |  |                            | 47,667  |   |               |   | 26,056  |  
|                                                                                  |  |                           
|CASH AND CASH EQUIVALENTS - Beginning of the period                               |  |                            | 103,115 |   |               |   | 38,752  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|CASH AND CASH EQUIVALENTS - End of the period                                     |  | $                          | 150,782 |   |               | $ | 64,808  |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|SUPPLEMENTAL DISCOSURE OF CASH FLOW INFORMATION                                   |  |                            |         |   |               |   |         |  
|Cash paid for interest                                                            |  | $                          | 3,084   |   |               | $ | 5,975   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|                                                                                  |  |                           
|SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:            |  |                            |         |   |               |   |         |  
|Transfers of loans to other real estate owned and foreclosed assets               |  | $                          | 2,376   |   |               | $ | 4,939   |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Income tax benefit of stock options exercised                                     |  | $                          | -       |   |               | $ | 1       |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Increase in goodwill resulting from acquisition of Stockmans Financial Group      |  | $                          | -       |   |               | $ | 37      |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Preferred cash dividend accrued but not yet paid                                  |  | $                          | 515     |   |               | $ | 276     |  
|                                                                                  |  |                            |         |   |               |   |         |  
|Accretion of preferred stock discount                                             |  | $                          | 96      |   |               | $ | 96      |  
|                                                                                  |  |                            |         |   |               |   |         |  

See accompanying notes.



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##### Table of Contents

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 48 full service branch offices, 41 of which are located along the Interstate 5 freeway corridor between Roseburg, Oregon, and Sacramento, California. This total
includes the two recently acquired Wachovia branches in Davis and Grass Valley, California (refer to Note 3). Of the 48 full service branch offices, 24 are located in Oregon (Jackson, Josephine, Deschutes, Douglas and Klamath Counties) and 24
are located in California (Siskiyou, Shasta, Butte, Tehama, Placer, 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.

Effective April 30, 2010, three
existing California branches (Natomas, Roseville and South Chico) and one existing Oregon branch (Stewart Parkway) closed and consolidated with existing PremierWest branches in close proximity.

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 significant intercompany accounts and transactions have been eliminated in consolidation.

The
interim consolidated financial statements are not audited, but include all adjustments that Management considers necessary for a fair presentation of consolidated financial condition and results of operations for the interim periods presented.

The balance sheet data as of December 31, 2009 were derived from audited financial statements and do not include all
disclosures contained in the 2009 Annual Report to Shareholders. The interim consolidated financial statements should be read in conjunction with the Companys 2009 consolidated financial statements, including the notes thereto, included in the
2009 Annual Report to Shareholders as filed with the Securities and Exchange Commission under 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.

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, the fair value of available-for-sale investment
securities, deferred tax assets, the value of other real estate owned and foreclosed assets, and the calculations involved in determining potential goodwill impairment.

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, 2010, 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 2009 consolidated financial statements to conform to
current year presentations. These reclassifications have no effect on previously reported net loss or loss per share.



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##### Table of Contents

Stock dividends  Share and per share data in the accompanying
consolidated financial statements reflect all previously declared and paid stock dividends. A 5% stock dividend was declared on January 8, 2009, and paid on April 15, 2009. The impact of this stock dividend has been reflected in the
statement of operations, statement of shareholders equity and comprehensive loss and all share and per share amounts for all periods presented. The Company did not declare a stock dividend in the quarter ended March 31, 2010.

Cash dividends  On January 8, 2009, the Company declared a $0.01 per share quarterly cash dividend on common
stock. The dividend was paid on February 17, 2009, to PremierWest Bancorp shareholders of record as of January 30, 2009. No quarterly common stock cash dividend was declared in the quarter ended March 31, 2010.

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 2010. As of March 31, 2010, accrued
dividends totaled approximately $1.3 million, of which approximately $515,000 was accrued during the first quarter of 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 FDIC and the Oregon Division of Finance and Corporate Securities, the
Banks principal regulators, primarily as a result of recent significant operating losses and increasing levels of non-performing assets. The Agreement imposes certain operating restrictions on the Bank, all of which have already been or are in
the process of being implemented by the Bank.

Among the corrective actions required are for the Bank to retain qualified
management, restrict dividends, reduce problem assets, maintain an adequate allowance for loan losses, revise the strategic plan and various policies, as well as maintain elevated capital levels. In addition, the Agreement provides timelines and
thresholds from the date of issuance to achieve the aforementioned corrective actions.

In order to proactively respond to the
current regulatory environment and the Banks credit issues, Management initiated measures intended to increase its capital and regulatory ratios prior to entering into the Agreement. Among the measures are 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reduction of assets and liabilities with primary emphasis on reducing non-performing assets through (1) sales of other real estate owned,
(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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continuing reductions in non-interest expense levels.
| | - |  | -----------------------------------------------------



| |  |  | Evaluation of all business lines within the organization for possible gains upon disposition or significant cost-savings opportunities, as evidenced
by the Companys recent consolidation of four of its branches (see Note 1).
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 significantly for these industry segments, our financial condition could suffer significant deterioration. These circumstances added
impetus 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. 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 sale to the public for
subscription rights to purchase up to 81,747,362 shares of the Companys common stock. A prospectus was filed on February 1, 2010, announcing each subscription right entitled the purchaser to 3.3 shares of the Companys common stock
at a subscription price of $0.44 per share.

On April 7, 2010, the Company concluded its rights offering and issued
approximately 75.6 million shares with proceeds of approximately $32.7 million, net of estimated offering costs of approximately $600,000.



6



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##### Table of Contents

NOTE 3  ACQUISITIONS

ACQUISITION OF WACHOVIA BRANCHES

On July 17, 2009, PremierWest Bank acquired two Wachovia Bank branches in Northern California, located in Davis and Grass Valley. By
bolstering its presence in Northern California, Management expects the Company to increase the availability of its services to existing customers throughout Northern California and to bring a healthy, community bank competitor to the Davis and Grass
Valley communities. Soon after the acquisition date, these offices and their employees commenced operating as branch offices of PremierWest Bank. The transaction was accounted for as a business combination.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:



|                                        |  |               |        
|--------------------------------------- |  | ------------- | -------
|(Dollars in 000s)                       |  |              
|                                        |  | July 17, 2009
|Fair value of assets acquired:          |  |               |        
|Cash                                    |  | $             | 334,718
|Loans                                   |  |               | 799    
|Premises and equipment                  |  |               | 928    
|Core deposit intangible                 |  |               | 1,812  
|Other assets                            |  |               | 5      
|                                        |  |               |        
|Total fair value of assets acquired     |  | $             | 338,262
|                                        |  |               |        
|                                        | 
|Fair value of liabilities assumed:      |  |               |        
|Deposits                                |  |               |        
|Demand                                  |  | $             | 3,982  
|Interest-bearing demand and savings     |  |               | 97,753 
|Time certificates                       |  |               | 240,649
|                                        |  |               |        
|Total deposits                          |  |               | 342,384
|Accrued interest                        |  |               | 361    
|                                        |  |               |        
|Total fair value of liabilities assumed |  |               | 342,745
|                                        |  |               |        
|Goodwill                                |  | $             | 4,483  
|                                        |  |               |        

The core deposit intangible asset of $1.8 million
represents the value ascribed to the long-term deposit relationships acquired. This intangible asset is being amortized on a straight-line basis over a weighted average estimated useful life of 7.4 years. The core deposit intangible asset is not
estimated to have a significant residual value. There is a negative CD premium of $4.0 million, or -1.75% of book value. This negative premium is being amortized over a weighted average estimated useful life of 11 months. The value is a result of
the current all-in cost of the CD portfolio being well above the cost of similar funding. Goodwill represents the excess of the total purchase price paid for the Wachovia branches over the fair values of the assets acquired, net of the fair value of
the liabilities assumed. Goodwill has been evaluated for possible impairment at least annually, and more frequently, if events and circumstances indicate that the asset might be impaired. Goodwill was evaluated for impairment and reduced to zero
through an impairment charge on December 31, 2009.

For tax purposes only, goodwill of approximately $4.5 million from
this business combination will be tax deductible and amortized over 15 years.

On October 5, 2009, the Securities and
Exchange Commission granted relief to the Company, allowing it to omit certain historical and pro-forma financial information of the two Wachovia Bank branches acquired, as required by Rule 3-05 of Regulation S-X and certain related pro-forma
financial information under Article 11 of Regulation S-X. After making every reasonable effort to do so, it was determined to be impractical for the Company to provide this information as separate, audited financial statements of the acquired
branches were never prepared and the acquired branches were not operated or accounted for as distinct, stand-alone entities.

NOTE 4 
FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards
ASC 820-10-05, Fair Value Measurements. ASC 820-10-05 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820-10-05
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, ASC 820-10-05 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.



7



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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.

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, as defined in the fair value
hierarchy of ASC 820-10-05. 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 MeasurementsAt 3/31/10 Using 
|Description                                      |  | Fair Value3/31/2010                      |         | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Other Observable Inputs(Level 2) |  | SignificantUnobservable Inputs(Level 3)
|                                                 |  |                                          |        
|Available-for-sale securities:                   |  |                                          |         |                                                             |   |                                  |  |                                         |         |  |   |  
|Mortgage-backed securities                       |  | $                                        | 155     |                                                             | $ | -                                |  | $                                       | 155     |  | $ | -
|Collaterialized mortgage obligations             |  |                                          | 119,986 |                                                             |   | -                                |  |                                         | 119,986 |  |   | -
|Obligations of states and political subdivisions |  |                                          | 6,151   |                                                             |   | -                                |  |                                         | 6,151   |  |   | -
|                                                 |  |                                          |        
|Total assets measured at fair value              |  | $                                        | 126,292 |                                                             | $ | -                                |  | $                                       | 126,292 |  | $ | -
|                                                 |  |                                          |        
|                                                 | 
|(Dollars in 000s)                               |  | Fair Value MeasurementsAt 12/31/09 Using
|Description                                      |  | Fair Value12/31/2009                     |         | Quoted Prices inActive Markets forIdentical Assets(Level 1) |   | Other Observable Inputs(Level 2) |  | SignificantUnobservable Inputs(Level 3)
|                                                 |  |                                          |        
|Available-for-sale securities:                   |  |                                          |         |                                                             |   |                                  |  |                                         |         |  |   |  
|Mortgage-backed securities                       |  | $                                        | 4,302   |                                                             | $ | -                                |  | $                                       | 4,302   |  | $ | -
|Collaterialized mortgage obligations             |  |                                          | 76,956  |                                                             |   |                                  |  |                                         | 76,956  |  |   |  
|U.S. Government and agency securities            |  |                                          | 27,794  |                                                             |   | -                                |  |                                         | 27,794  |  |   | -
|Obligations of states and political subdivisions |  |                                          | 5,885   |                                                             |   | -                                |  |                                         | 5,885   |  |   | -
|                                                 |  |                                          |        
|Total assets measured at fair value              |  | $                                        | 114,937 |                                                             | $ | -                                |  | $                                       | 114,937 |  | $ | -
|                                                 |  |                                          |        

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. 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.



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The following table presents the fair value measurement for non-recurring assets as of
March 31, 2010 and December 31, 2009, 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 MeasurementsFor the Three Months Ended 3/31/10 Using   |       
|Description                                             |  |  |  | Fair Value3/31/2010                                               |        | 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           |  |  |  | $                                                                 | 21,517 |                                                              | $ | -                                |  | $                                       | - |                                               | $ | 21,517 |  | $ | -        |  
|Loans measured for impairment, net of specific reserves |  |  |  |                                                                   | 54,853 |                                                              |   | -                                |  |                                         | - |                                               |   | 54,853 |  |   | (5,485   | )
|                                                        |  |  |  |                                                                   |        |                                                             
|Total impaired assets measured at fair value            |  |  |  | $                                                                 | 76,370 |                                                              |   | -                                |  |                                         | - |                                               | $ | 76,370 |  | $ | (5,485   | )
|                                                        |  |  |  |                                                                   |        |                                                             
|                                                        |  | 
|(Dollars in 000s)                                      |  |  |  | Fair Value MeasurementsFor the Twelve Months Ended 12/31/09 Using |       
|Description                                             |  |  |  | Fair Value12/31/2009                                              |        | Quoted Prices inActive Marketsfor IdenticalAssets (Level 1)  |   | Other ObservableInputs (Level 2) |  | SignificantUnobservableInputs (Level 3) |   | Total periodgains (losses)included inearnings |  
|Goodwill                                                |  |  |  | $                                                                 | -      |                                                              | $ | -                                |  | $                                       | - |                                               | $ | -      |  | $ | (74,920  | )
|Other real estate owned and foreclosed assets           |  |  |  |                                                                   | 24,748 |                                                              |   | -                                |  |                                         |   |                                               |   | 24,748 |  |   | (1,507   | )
|Loans measured for impairment, net of specific reserves |  |  |  |                                                                   | 50,561 |                                                              |   | -                                |  |                                         | - |                                               |   | 50,561 |  |   | (59,285  | )
|                                                        |  |  |  |                                                                   |        |                                                             
|Total impaired assets measured at fair value            |  |  |  | $                                                                 | 75,309 |                                                              | $ | -                                |  | $                                       | - |                                               | $ | 75,309 |  | $ | (135,712 | )
|                                                        |  |  |  |                                                                   |        |                                                             

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 $21.5 million and $24.7 million in OREO at
March 31, 2010 and December 31, 2009, respectively.

As of March 31, 2010 and December 31, 2009, 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 31,2010 |         | As of December 31,2009
|                                                                               |  | CarryingValue       |         | CarryingValue         
|Impaired loans with charge-offs loan to date                                   |  | $                   | 39,029  |                        | $ | 36,624 
|Impaired loans with specific reserves (1)                                      |  |                     | 19,022  |                        |   | 15,568 
|Impaired loans with specific reserves and charge-offs loan to date (1)         |  |                     | 5,043   |                        |   | 6,088  
|                                                                               |  |                     |         |                        |   |        
|Subtotal impaired loans with specific reserves and/or charge-offs loan to date |  |                     | 63,094  |                        |   | 58,280 
|Impaired loans without charge-offs or specific reserves                        |  |                     | 41,278  |                        |   | 45,637 
|                                                                               |  |                     |         |                        |   |        
|Total nonperforming loans considered impaired                                  |  | $                   | 104,372 |                        | $ | 103,917
|                                                                               |  |                     |         |                        |   |        
|(1) Specific reserves associated with impaired loans                           |  |                     | 8,241   |                        |   | 7,719  

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 on 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.



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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.

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 The carrying amounts of federal funds purchased, borrowings under repurchase agreements 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 ASC 825-10-50, 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 which 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 which are not defined as financial instruments but which have significant value. These include such off-balance sheet items as core deposit intangibles on non-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 ASC 825-10-50 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.



10



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The estimated fair values of the Banks significant on-balance sheet financial
instruments at March 31, 2010, and December 31, 2009, were as follows:



|                                                                                    |  |                      |           |                         |   |               |  |                     |           |  |   |          
|----------------------------------------------------------------------------------- |  | -------------------- | --------- | ----------------------- | - | ------------- |  | ------------------- | --------- |  | - | ---------
|(Dollars in 000s)                                                                  |  | As of March 31, 2010 |           | As of December 31, 2009
|                                                                                    |  | CarryingValue        |           | EstimatedFair Value     |   | CarryingValue |  | EstimatedFair Value
|Financial assets:                                                                   |  |                      |           |                         |   |               |  |                     |           |  |   |          
|Cash and cash equivalents                                                           |  | $                    | 150,782   |                         | $ | 150,782       |  | $                   | 103,115   |  | $ | 103,115  
|Interest-bearing certificates of deposit (original maturities greater than 90 days) |  | $                    | 10,650    |                         | $ | 10,650        |  | $                   | 50,650    |  | $ | 50,650   
|Investment securities available-for-sale                                            |  | $                    | 126,292   |                         | $ | 126,292       |  | $                   | 114,937   |  | $ | 114,937  
|Investment securities held-to-maturity                                              |  | $                    | 30,685    |                         | $ | 31,149        |  | $                   | 43,384    |  | $ | 43,536   
|Investment securities -                                                             |  |                      |           |                         |   |               |  |                     |           |  |   |          
|Community Reinvestment Act                                                          |  | $                    | 4,000     |                         | $ | 4,000         |  | $                   | 4,000     |  | $ | 4,000    
|Restricted equity investments                                                       |  | $                    | 3,643     |                         | $ | 3,643         |  | $                   | 3,643     |  | $ | 3,643    
|Loans held-for-sale                                                                 |  | $                    | 353       |                         | $ | 353           |  | $                   | 1,731     |  | $ | 1,731    
|Loans                                                                               |  | $                    | 1,071,696 |                         | $ | 989,105       |  | $                   | 1,102,224 |  | $ | 1,038,580
|                                                                                    |  |                      |           |                        
|Financial liabilities:                                                              |  |                      |           |                         |   |               |  |                     |           |  |   |          
|Deposits                                                                            |  | $                    | 1,361,941 |                         | $ | 1,303,577     |  | $                   | 1,420,762 |  | $ | 1,429,500
|Federal funds purchased                                                             |  | $                    | -         |                         | $ | -             |  | $                   | -         |  | $ | -        
|FHLB borrowings                                                                     |  | $                    | 27        |                         | $ | 27            |  | $                   | 28        |  | $ | 28       
|Junior subordinated debentures                                                      |  | $                    | 30,928    |                         | $ | 7,132         |  | $                   | 30,928    |  | $ | 7,132    

NOTE 5  STOCK-BASED
COMPENSATION

At March 31, 2010, 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 plan was amended and restated in May 2005 to allow for the issuance of restricted stock grants in addition to stock
options. The 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. The amended and restated 2002 Plan presently
authorizes the issuance of up to 2,140,123 shares of stock, of which 1,198,414 shares were available for issuance at March 31, 2010.

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, 2010, stock option activity was as follows:



|                                      |  |                |   |  |                               |      |                                                  |      |                                        |   |  
|------------------------------------- |  | -------------- | - |  | ----------------------------- | ---- | ------------------------------------------------ | ---- | -------------------------------------- | - | -
|                                      |  | NumberofShares |   |  | Weighted AverageExercisePrice |      | Weighted AverageRemainingContractual Term(Years) |      | AggregateIntrinsic Value(in thousands)
|Stock options outstanding, 12/31/2009 |  | 957,372        |   |  | $                             | 9.02 |                                                  |      |                                        |   |  
|Forfeited                             |  | (15,663        | ) |  | $                             | 8.74 |                                                  |      |                                        |   |  
|                                      |  |                |   |  |                               |      |                                                  |      |                                        |   |  
|Stock options outstanding, 3/31/2010  |  | 941,709        |   |  | $                             | 9.02 |                                                  | 5.59 |                                        | $ | -
|                                      |  |                |   |  |                               |      |                                                  |      |                                        |   |  
|Stock options exercisable, 3/31/2010  |  | 583,261        |   |  | $                             | 8.32 |                                                  | 4.31 |                                        | $ | -
|                                      |  |                |   |  |                               |      |                                                  |      |                                        |   |  



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PremierWest Bancorp follows Share-Based Payment ASC 718-10-10. ASC 718-10-10
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. ASC 718-10-10 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. The following schedule reflects the weighted-average assumptions included in this model as it relates to the valuation of options granted for the periods indicated:



|                         |  |                              |  |      
|------------------------ |  | ---------------------------- |  | -----
|                         |  | Three months ended March 31,
|                         |  | 2010                         |  | 2009 
|Risk-free interest rate  |  | N/A                          |  | 2.4% 
|Expected dividend        |  | N/A                          |  | 2.54%
|Expected lives, in years |  | N/A                          |  | 7.0  
|Expected volatility      |  | N/A                          |  | 29%  

There were no stock
options granted during the first quarter of 2010. The weighted-average grant date fair value of options granted during the three-month period ending March 31, 2009 was $0.80.

ASC 718-10-10 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, 2010 and 2009.

Stock-based compensation expense recognized under ASC 718-10-10 was $104,000 with a related tax benefit of $41,600 for the quarter ended
March, 2010, compared to stock-based compensation expense of $112,000, with a related tax benefit of $38,000, for the quarter ended March 31, 2009. At March 31, 2010, unrecognized stock-based compensation expense totaled $807,000 and will
be expensed over a weighted-average period of approximately 2.1 years.



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NOTE 6  INVESTMENT SECURITIES



|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|----------------------------------------------------------------------------------------- |  | ----------------- | ------- | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | -------
|Investment securities at March 31, 2010 and December 31, 2009 consisted of the following: |  |                   |         |                      |  
|(Dollars in 000s)                                                                        |  |                  
|                                                                                          |  | March 31, 2010   
|                                                                                          |  | Amortizedcost     |         | Grossunrealizedgains |   | Grossunrealizedlosses |  |   | Estimatedfairvalue
|Available-for-sale:                                                                       |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Mortgage-backed securities and collateralized mortgage obligations                        |  | $                 | 119,062 |                      | $ | 1,164                 |  | $ | (85                | ) |  | $ | 120,141
|Obligations of states and political subdivisions                                          |  |                   | 6,035   |                      |   | 116                   |  |   | -                  |   |  |   | 6,151  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                                                                                     |  | $                 | 125,097 |                      | $ | 1,280                 |  | $ | (85                | ) |  | $ | 126,292
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|                                                                                          |  |                   |         |                     
|Held-to-maturity:                                                                         |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Mortgage-backed securities and collateralized mortgage obligations                        |  | $                 | 5,352   |                      | $ | 82                    |  | $ | (49                | ) |  | $ | 5,385  
|U.S. Government and agency securities                                                     |  |                   | 16,219  |                      |   | 190                   |  |   | -                  |   |  |   | 16,409 
|Obligations of states and political subdivisions                                          |  |                   | 9,114   |                      |   | 252                   |  |   | (11                | ) |  |   | 9,355  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                                                                                     |  | $                 | 30,685  |                      | $ | 524                   |  | $ | (60                | ) |  | $ | 31,149 
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Investment securities -                                                                   |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Other Community Reinvestment Act                                                          |  | $                 | 4,000   |                      | $ | -                     |  | $ | -                  |   |  | $ | 4,000  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Restricted equity securities                                                              |  | $                 | 3,643   |                      | $ | -                     |  | $ | -                  |   |  | $ | 3,643  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|                                                                                          | 
|                                                                                          |  | December 31, 2009
|                                                                                          |  | Amortizedcost     |         | Grossunrealizedgains |   | Grossunrealizedlosses |  |   | Estimatedfairvalue
|Available-for-sale:                                                                       |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Mortgage-backed securities and collateralized mortgage obligations                        |  | $                 | 80,039  |                      | $ | 1,248                 |  | $ | (29                | ) |  | $ | 81,258 
|U.S. Government and agency securities                                                     |  |                   | 27,661  |                      |   | 133                   |  |   | -                  |   |  |   | 27,794 
|Obligations of states and political subdivisions                                          |  |                   | 6,044   |                      |   | -                     |  |   | (159               | ) |  |   | 5,885  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                                                                                     |  | $                 | 113,744 |                      | $ | 1,381                 |  | $ | (188               | ) |  | $ | 114,937
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|                                                                                          |  |                   |         |                     
|Held-to-maturity:                                                                         |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Mortgage-backed securities and collateralized mortgage obligations                        |  | $                 | 5,807   |                      | $ | 90                    |  | $ | (64                | ) |  | $ | 5,833  
|U.S. Government and agency securities                                                     |  |                   | 28,238  |                      |   | 208                   |  |   | (47                | ) |  |   | 28,399 
|Obligations of states and political subdivisions                                          |  |                   | 9,339   |                      |   | 111                   |  |   | (146               | ) |  |   | 9,304  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Total                                                                                     |  | $                 | 43,384  |                      | $ | 409                   |  | $ | (257               | ) |  | $ | 43,536 
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Investment securities -                                                                   |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Other Community Reinvestment Act                                                          |  | $                 | 4,000   |                      | $ | -                     |  | $ | -                  |   |  | $ | 4,000  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        
|Restricted equity securities                                                              |  | $                 | 3,643   |                      | $ | -                     |  | $ | -                  |   |  | $ | 3,643  
|                                                                                          |  |                   |         |                      |   |                       |  |   |                    |   |  |   |        



13



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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, 2010. Of these amounts, three available-for-sale and one held-to-maturity
investment comprised the less than 12 months category, and five held-to-maturity investments comprised the 12 months or more category.



|                                                                 |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  |  |   |        |  |   |      |  
|---------------------------------------------------------------- |  | ------------------- | ------ | ---------------- | ----------------- | ---- | ---------- | ----- | ---------------- | --- |  | ---------- | --- | ---------------- |  | - | ------ |  | - | ---- | -
|At March 31, 2010
(Dollars in 000s)                             |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  | 
|                                                                 |  | Less than 12 months |        |                  | 12 months or more |      |            | Total |                 
|                                                                 |  | Fair Value          |        | UnrealizedLosses |                   |      | Fair Value |       | UnrealizedLosses |     |  | Fair Value |     | UnrealizedLosses | 
|Available-for-sale:                                              |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  |  |   |        |  |   |      |  
|Mortgage-back securities and collateralized mortgage obligations |  | $                   | 9,152  |                  | $                 | (85  | )          |       | $                | 18  |  | $          | -   |                  |  | $ | 9,170  |  | $ | (85  | )
|Held-to-maturity:                                                |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  |  |   |        |  |   |      |  
|Mortgage-back securities and collateralized mortgage obligations |  |                     | 3,912  |                  |                   | (49  | )          |       |                  | -   |  |            | -   |                  |  |   | 3,912  |  |   | (49  | )
|Obligations of state and political subdivisions                  |  |                     | -      |                  |                   | -    |            |       |                  | 804 |  |            | (11 | )                |  |   | 804    |  |   | (11  | )
|                                                                 |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  |  |   |        |  |   |      |  
|                                                                 |  | $                   | 13,064 |                  | $                 | (134 | )          |       | $                | 822 |  | $          | (11 | )                |  | $ | 13,886 |  | $ | (145 | )
|                                                                 |  |                     |        |                  |                   |      |            |       |                  |     |  |            |     |                  |  |   |        |  |   |      |  

Substantially all unrealized losses reflected above were the result of changes in interest rates subsequent
to the purchase of the securities. Because the decline in fair value is primarily attributable to the changes in interest rates rather than credit quality, and because 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 unrealized losses on these investments are not considered
other-than-temporarily impaired.

The amortized cost and estimated fair value of investment securities at March 31, 2010,
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, 2010
(Dollars in 000s)   |  |                    |         |                     |   |               |  |                    
|                                       |  | Available-for-sale |         | Held-to-maturity   
|                                       |  | AmortizedCost      |         | EstimatedFair Value |   | AmortizedCost |  | EstimatedFair Value
|Due in one year or less                |  | $                  | -       |                     | $ | -             |  | $                   | 5,847  |  | $ | 5,903 
|Due after one year through five years  |  |                    | 1,050   |                     |   | 1,065         |  |                     | 12,300 |  |   | 12,479
|Due after five years through ten years |  |                    | 86      |                     |   | 87            |  |                     | 2,279  |  |   | 2,326 
|Due after ten years                    |  |                    | 123,961 |                     |   | 125,140       |  |                     | 10,259 |  |   | 10,441
|                                       |  |                    |         |                     |   |               |  |                     |        |  |   |       
|                                       |  | $                  | 125,097 |                     | $ | 126,292       |  | $                   | 30,685 |  | $ | 31,149
|                                       |  |                    |         |                     |   |               |  |                     |        |  |   |       

At March 31, 2010, investment securities with an
estimated fair market value of $157.4 million were pledged to secure public deposits, certain nonpublic deposits and borrowings.

As required of all members of the FHLB system, the Company maintains 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. 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 disclosed that it reported net income for the three months ended March 31, 2010. However, it remains classified as undercapitalized as of March 31, 2010, with suspended dividend payments to
its members. The Company has concluded that its investment in FHLB is not impaired as of March 31, 2010 and believes that it will ultimately recover the par value of its investment in this stock.



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NOTE 7  LOANS, NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES



|                                                                                                                           |  |      |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|Loans as of March 31, 2010 and December 31, 2009 consisted of the following:                                               |  |      |           |   |      |  
|(Dollars in 000s)                                                                                                         |  | 2010 |           |   | 2009 |  
|Real estate-commercial                                                                                                     |  | $    | 567,527   |   |      | $ | 564,016   |  
|Real estate-construction                                                                                                   |  |      | 190,979   |   |      |   | 211,732   |  
|Real estate-residential                                                                                                    |  |      | 33,345    |   |      |   | 31,991    |  
|Commercial                                                                                                                 |  |      | 203,366   |   |      |   | 209,538   |  
|Agricultural                                                                                                               |  |      | 36,573    |   |      |   | 43,418    |  
|Consumer                                                                                                                   |  |      | 82,886    |   |      |   | 81,575    |  
|Overdrafts                                                                                                                 |  |      | 2,469     |   |      |   | 4,929     |  
|Other                                                                                                                      |  |      | 1,819     |   |      |   | 1,828     |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Gross loans                                                                                                                |  |      | 1,118,964 |   |      |   | 1,149,027 |  
|Less: allowance for loan losses                                                                                            |  |      | (46,518   | ) |      |   | (45,903   | )
|Less: deferred loan fees                                                                                                   |  |      | (750      | ) |      |   | (900      | )
|                                                                                                                           |  |      |           |   |      |   |           |  
|Loans, net                                                                                                                 |  | $    | 1,071,696 |   |      | $ | 1,102,224 |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|                                                                                                                           |  |     
|Transactions in the allowance for loan losses for the three months ended March 31, 2010 and March 31,2009 were as follows: |  |      |           |   |      |  
|(Dollars in 000s)                                                                                                         |  | 2010 |           |   | 2009 |  
|BALANCE, beginning of the period                                                                                           |  | $    | 45,903    |   |      | $ | 17,157    |  
|Loans charged-off                                                                                                          |  |      | (6,401    | ) |      |   | (2,524    | )
|Loan recoveries                                                                                                            |  |      | 916       |   |      |   | 326       |  
|Loan loss provision                                                                                                        |  |      | 6,100     |   |      |   | 10,700    |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|BALANCE, end of the period                                                                                                 |  | $    | 46,518    |   |      | $ | 25,659    |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|                                                                                                                           |  |     
|The following table summarizes non-performing assets as of March 31, 2010 and December 31, 2009:                           |  |      |           |   |      |  
|(Dollars in 000s)                                                                                                         |  | 2010 |           |   | 2009 |  
|Non-accrual loans                                                                                                          |  | $    | 103,541   |   |      | $ | 98,497    |  
|Loans past due greater than 90 days on accrual status                                                                      |  |      | 831       |   |      |   | 5,420     |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total non-performing loans                                                                                                 |  |      | 104,372   |   |      |   | 103,917   |  
|Other real estate owned                                                                                                    |  |      | 21,517    |   |      |   | 24,748    |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total non-performing assets                                                                                                |  | $    | 125,889   |   |      | $ | 128,665   |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Non-performing loans to gross loans                                                                                        |  |      | 9.33%     |   |      |   | 9.04%     |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Non-performing assets to total assets                                                                                      |  |      | 8.37%     |   |      |   | 8.37%     |  
|                                                                                                                           |  |      |           |   |      |   |           |  

In some instances the Company has modified or restructured loans to amend the interest rate and/or extend
the maturity. Through March 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 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, 2010, totaled approximately $11.0 million and were comprised of 13 loans, of which there were approximately $154,000 of specific reserves associated with these loans. In addition, none of these TDRs had further commitments to
lend.

NOTE 8  GOODWILL

The Company performs a goodwill impairment analysis on an annual basis as of December 31 and on an interim basis when events or
circumstances suggest impairment may potentially exist. A significant amount of judgment is required in determining if indications of impairment have occurred including, but not limited to, a sustained and significant decline in the stock price and
market capitalization of the Company, a significant decline in the future cash flows expected by the Company, an adverse regulatory action, a significant adverse change in the Companys business operating environment and other events.

At December 31, 2009, the Company determined that a number of factors suggested that goodwill impairment might exist
and, accordingly engaged an independent third-party valuation consultant to perform an impairment analysis as had been done as of September 30, 2009, June 30, 2009, March 31, 2009, and December 31, 2008.

The Company recorded a goodwill impairment charge of $74.9 million at December 31, 2009, reducing the goodwill account on the
balance sheet to zero. The goodwill impairment charge had no effect on the Companys cash balances, liquidity or regulatory capital ratios.



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NOTE 9  LINE OF CREDIT AND OTHER BORROWINGS

The Bank had long-term borrowings outstanding with the FHLB totaling $27,000 and $28,000 as of March 31, 2010 and December 31,
2009, respectively. The Bank makes monthly principal and interest payments on the long-term borrowings, which mature by 2014 and bear a fixed interest rate of 6.53%. The Bank has the ability to participate 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, 2010 and December 31, 2009, 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. In addition, certain qualifying loans totaling approximately $43.9 million were pledged with the Federal Reserve Bank to support the Banks
outstanding advances and provided for an additional available borrowing capacity of approximately $18.3 million as of March 31, 2010.

NOTE 10  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, 2010.



|                              |  |              |  |              |            |      |                |              |               |                |              
|----------------------------- |  | ------------ |  | ------------ | ---------- | ---- | -------------- | ------------ | ------------- | -------------- | -------------
|Trust Name                    |  | Issue Date   |  | IssuedAmount |            | Rate |                | MaturityDate |               | RedemptionDate
|PremierWest StatutoryTrust I  |  | December2004 |  | $            | 7,732,000  |      | LIBOR+1.75%(1) |              | December2034  |                | December2009 
|PremierWest StatutoryTrust II |  | December2004 |  |              | 7,732,000  |      | LIBOR+1.79%(2) |              | March2035     |                | March2010    
|Stockmans FinancialTrust I    |  | August2005   |  |              | 15,464,000 |      | 5.93%(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 LIBOR plus 1.75%, 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
LIBOR plus 1.79%, adjusted quarterly, through the final maturity date in March 2035.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Stockmans Financial Trust I bears interest at the fixed rate of 5.93% until September 2010, at which time it converts to the variable rate of LIBOR
plus 1.42%, adjusted quarterly, through the final maturity date in September 2035.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 $968,000 as of March 31, 2010.

NOTE 11  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 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 1,090,385 shares of the Companys common stock, no par value per share, at an exercise price of $5.70 per share, subject to certain anti-dilution and other
adjustments. The Warrant may be exercised for up to ten years after it is issued.



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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 Agreement). The 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 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 upon 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 2010. As of March 31, 2010, accrued dividends totaled approximately $1.3 million.

NOTE 12
 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, 2010, the Company had a total of $113.9 million of unfunded loan commitments consisting of $91.6 million of commitments to extend credit to customers and $22.3 million of standby letters related to extensions of credit. The Company
also had approximately $300,000 of other unsecured lines of credit related to overdraft protection for demand deposit accounts.

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 13  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 preferred stock and/or the U.S.
Treasury Warrant as if converted to common stock.



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The following summarizes the weighted average shares outstanding for computation of basic
and diluted shares for the three months ended March 31, 2010 and 2009.



|                                          |  |            |  |           
|----------------------------------------- |  | ---------- |  | ----------
|Three months ended March 31:              |  | 2010       |  | 2009      
|Weighted average number of common shares: |  |            |  |           
|Average shares outstanding-basic          |  | 32,291,995 |  | 24,766,495
|Average shares outstanding-diluted        |  | 32,291,995 |  | 24,766,495

As of
March 31, 2010 and 2009, stock options of approximately 942,000 and 938,000, respectively, were not included in the computation of diluted earnings per share, as well as a warrant to purchase 1,090,385 shares of common stock, as their inclusion
would also 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 14  INCOME TAXES

As of March 31, 2010 and December 31, 2009, the Company had no recorded net deferred tax assets. As of March 31, 2009, the
Company had recorded a net deferred tax asset of $9.0 million, (which is included in the accompanying condensed consolidated balance sheets). 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. The Company considers both positive and negative evidence regarding the
ultimate realizability of deferred tax assets. 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.

Management determined after analysis of available evidence at December 31, 2009, that based on the Banks expected performance,
the deferred tax assets would not be recognized in the normal course of operations within the next business cycle and, accordingly, reduced the entire net deferred tax asset by a corresponding valuation allowance at that time.

NOTE 15  RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2010, the FASB issued Accounting Standards Update ASU No. 2010-12 Income Taxesto address changes in
accounting for income taxes resulting from recently issued Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act. The update explains that even though the bills were signed seven days apart, they
should be considered together for accounting purposes. If a registrants reporting period ends after the signing of the first bill, but before the signing of the second, they should take the effects of both bills into consideration when
measuring current and deferred tax liabilities and assets. The Company does not expect the adoption of ASU No. 2010-12 to have a material impact on the consolidated financial statements.

In March 2010, the FASB issued Accounting Standards Update ASU No. 2010-09 Amendments to Subsequent Events Requirements for
SEC Issuers to amend FASB ASC Topic 855 to exclude SEC reporting entities from the requirement to disclose the date on which subsequent events have been evaluated. In addition, it modifies the requirement to disclose the date on which
subsequent events have been evaluated in reissued financial statements to apply only to such statements that have been restated to correct an error or to apply U.S. GAAP retrospectively. The adoption of ASU No. 2010-09 did not have a material
impact on the consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update ASU
No. 2010-06 Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements to improve disclosures about fair value measurements. For each class of assets and liabilities,
reporting entities will have to provide additional disclosures describing the reasons for transfers of assets in and out of Levels 1 and 2 of the three-tier fair value hierarchy in accordance with FASB ASC Topic 820. For assets valued with the Level
3 method, the entity will have to separately present purchases, sales, issuances, and settlements in the reconciliation for fair value measurements. This update also states that an entity should provide fair value measurements for each class of
asset or liability, and explain the inputs and techniques used in calculating Levels 2 and 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of the effective portion of ASU No. 2010-06 did not have a material impact on the consolidated financial statements. The Company does not expect the
adoption of the remaining portion of ASU No. 2010-06 to have a material impact on the consolidated financial statements.



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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 for 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 in part 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 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; 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, 2009, as updated and supplemented by our filings on Form 10-Q and Form 8-K. 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; and our ability to integrate acquired branches or banks. Other risks include those identified from time to time in our past and future filings with the Securities and Exchange
Commission. Note that this list of risks is not exhaustive, and risks identified are applicable as of the date made and cannot be updated. 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 ending March 31, 2010. 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, 2009. For discussion purposes, Management has made comparisons, as it deems appropriate, to comparable interim periods in 2009 and the fiscal year period ended
December 31, 2009.

HIGHLIGHTS For the first quarter ending March 31, 2010, the Companys net
loss applicable to common shareholders was $3.3 million or $0.10 per basic and fully diluted common share, compared to net loss applicable to common shareholders of $4.0 million or $0.16 per basic and fully diluted common share for the quarter ended
March 31, 2009. Annualized return on average common shareholders equity was -37.36% and annualized return on average assets was -0.89% for the quarter ended March 31, 2010, as compared to an annualized return on average common
shareholders equity and return on average assets of -9.01% and -1.08%, respectively, for the quarter ended March 31, 2009.

During the second quarter of 2009, federal and state bank regulators initiated their annual regulatory examination and completed the
examination during the third quarter of 2009. In April 2010, the Company stipulated to the issuance of a Consent Order (the Agreement) with the Federal Deposit and Insurance Corporation and the Oregon Division of Finance and Corporate
Securities, the Banks principal regulators, directing the Bank to take actions intended to strengthen its overall condition, all of which were already or in the process of being implemented by the Bank. For a more detailed discussion, please
reference the Companys Form 8-K filed April 8, 2010.

In the first quarter of 2010, we began a common stock
offering, which was completed in April 2010, and raised $33.3 million in gross proceeds. Proceeds received through March 31, 2010, increased our Total Risk-Based Capital, Tier 1 Capital and Tier 1 Leverage Capital ratios, which now exceed
regulatory guidelines for Well-Capitalized financial institutions. However, pursuant to the Agreement with the FDIC, the Bank is required to increase and maintain its Tier 1 Capital in such an amount to ensure that the Banks
leverage ratio equals or exceeds 10%.



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At March 31, 2010, gross loans decreased $30.1 million or 3% compared to
December 31, 2009 as a result of normal principal repayments, foreclosures and credit charge-offs. New loans funded during the most recent quarter totaled approximately $17.5 million. At March 31, 2010, deposits decreased $58.8 million or
4% from December 31, 2009, primarily due to a planned reduction in brokered deposits.

PremierWests overall loss
declined over the three month period ending March 31, 2010, in comparison to the same period a year ago, principally due to reduced provision expense.

At March 31, 2010, the Companys allowance for loan losses totaled $46.5 million, representing 4.16% of gross loans. The
$615,000 increase in the allowance from December 31, 2009, was comprised of a $6.1 million increase from the provision charge against earnings partially offset by $6.4 million in charge-offs less $916,000 in recoveries of previously charged-off
loans.

Non-performing assets totaled $125.9 million at March 31, 2010, a decrease of $2.8 million when compared to
$128.7 million in non-performing assets at December 31, 2009. The March 31, 2010 balance includes $21.5 million in OREO compared to $24.7 million at December 31, 2009, a decrease of $3.2 million or 13%, reflecting continued active
management of foreclosure activities during the first quarter of 2010. Non-performing loans increased from $103.9 million at December 31, 2009, to $104.4 million at March 31, 2010. We believe that the decrease in non-performing assets this
period may suggest the early stages of stabilization in the credit quality of the loan portfolio.

The Banks gross loan
to deposit ratio was 82.16% and 80.87% as of March 31, 2010 and December 31, 2009, respectively. The increase is a result of a decline in deposits principally due to reduced brokered deposits.

The Company continues to have strong liquidity and a substantial and stable core deposit base. Core deposits are the lowest cost and
preferred source of funds and when loan volume exceeds the level of core deposits, the Bank must rely on higher cost borrowings and/or brokered deposits as a secondary source of funding to bridge the gap between deposit and loan volumes. 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.

Management continues to implement relationship-oriented strategies for attracting core deposits in order to reduce its reliance on higher
cost borrowings and brokered deposits and to maximize interest rate margins within the constraints of a highly competitive marketplace. While the competitive environment for attracting deposits remains keen, PremierWest has been successful over time
at growing its core deposit base and continues to seek these local relationship-based deposits.

The Banks
year-over-year loan volume changes and ongoing pipeline of new loan production is in line with Managements internal expectations at March 31, 2010, in light of general economic and credit quality considerations. Managements broader
business plan and strategy is to remain focused on reducing nonperforming assets and limiting new loan commitments to borrowers who bring strategic relationship value to the Bank.



20



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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, 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, 2010 |           | March 31, 2009 |   | Increase(Decrease) |  |   | % Change
|                                                                                 |  |                |           |               
|Average fed funds sold and investments                                           |  | $              | 227,042   |                | $ | 61,133             |  | $ | 165,909  |   |  | 271.39%
|Average gross loans                                                              |  |                | 1,138,058 |                |   | 1,266,886          |  |   | (128,828 | ) |  | -10.17%
|Average mortgages held-for-sale                                                  |  |                | 704       |                |   | 1,189              |  |   | (485     | ) |  | -40.79%
|Average interest-earning assets                                                  |  |                | 1,416,928 |                |   | 1,329,564          |  |   | 87,364   |   |  | 6.57%  
|Average interest-bearing liabilities                                             |  |                | 1,166,771 |                |   | 1,047,888          |  |   | 118,883  |   |  | 11.35% 
|Average total assets                                                             |  |                | 1,509,351 |                |   | 1,489,512          |  |   | 19,839   |   |  | 1.33%  
|Average stockholders equity                                                     |  |                | 75,458    |                |   | 199,666            |  |   | (124,208 | ) |  | -62.21%
|Average common equity                                                            |  |                | 35,843    |                |   | 179,183            |  |   | (143,340 | ) |  | -80.00%
|                                                                                 |  |                |           |               
|Average yield earned (1)                                                         |  |                | 5.23%     |                |   | 6.13%              |  |   | (0.90    | ) |  | -14.68%
|Average rate paid                                                                |  |                | 1.16%     |                |   | 2.19%              |  |   | (1.03    | ) |  | -47.03%
|Net interest spread                                                              |  |                | 4.07%     |                |   | 3.94%              |  |   | 0.13     |   |  | 3.30%  
|                                                                                 |  |                |           |               
|Net interest income to average interest-earning assets (net interest margin) (1) |  |                | 4.27%     |                |   | 4.40%              |  |   | (0.13    | ) |  | -2.95% 
|Annualized return on average assets                                              |  |                | -0.89%    |                |   | -1.08%             |  |   | 0.19     |   |  | -17.59%
|Annualized return on average common equity                                       |  |                | -37.36%   |                |   | -9.01%             |  |   | (28.35   | ) |  | 314.65%
|Efficiency ratio (2)                                                             |  |                | 80.57%    |                |   | 74.79%             |  |   | 5.78     |   |  | 7.73%  

Notes:

(1) Tax equivalent

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

RESULTS OF OPERATIONS

QUARTER ENDED
MARCH 31, 2010

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, 2010 increased $0.4 million or 3% from the quarter one year earlier. Market interest rates have been held at low levels during the current quarter by the Federal Reserve in an attempt to help stimulate the economy. The interest rate
environment affected both our yield on earning assets and our cost of interest-bearing deposits and was a principal factor in keeping our net interest income similar to the same period last year. Also affecting our yields was the increase in
non-performing loans that resulted in both interest reversals when these loans were placed on non-accrual status and the ongoing burden of including these non-performing loans in earning assets without the corresponding yield from accruing interest.

A key metric of our profitability is our net interest margin (net interest income divided by average interest-earning
assets), which relates to the relative stability in our net interest income over time, all other things being equal. Both our net interest income and net interest margin are affected by variables such as the volume and mix of our earning assets; the
volume and mix of both our interest-bearing and non-interest-bearing liabilities; the credit quality of our loan portfolio; and the general movement in the market rates of interest.

Our asset sensitive interest rate position was a significant factor in the year-over-year decline in the first quarter net interest
margin from 4.40% in 2009 to 4.27% in the most recently completed quarter, a decline of 13 basis points.

Also contributing to
the decline was the increasing volume of non-performing loans for which no interest income is recorded (see Loansbelow). Our yield on earning assets averaged 5.23%, down 90 basis points from the same quarter a year ago, while our cost of
interest-bearing liabilities similarly fell 103 basis points from 2.19% in the same quarter a year ago to 1.16% in the most recent quarter. However, these changes resulted in an interest spread of 4.07% during the current quarter ended
March 31, 2010, up 13 basis points from 3.94% recorded during the same period a year ago.

LOAN LOSS PROVISION
 Charges made to the provision for loan losses that translate to increases in our allowance for loan losses were $6.1 million and $10.7 million for the three month periods ended March 31, 2010 and March 31, 2009, respectively. The
Company



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had net charge-offs of $5.5 million during the first quarter of 2010 compared to net charge-offs of $2.2 million for the corresponding period in 2009. Management believes that the March 31,
2010 balance in the allowance for loan losses is reasonable and appropriate to support inherent potential losses in the Companys loan portfolio. (Also see Allowance for Loan Losses and Reserve for Unfunded Commitments.)

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 2010, PremierWest had non-interest income of $2.7 million, an increase of
$205,000 or 8% from the corresponding period in 2009. On a summary basis, the increase was primarily driven by a $136,000 or 23% increase in other commissions and fees; a $242,000 or 101% increase in gains on securities sold, in the
Other non-interest income category; offset by a $217,000 or 17% increase in service charges.

NON-INTEREST
EXPENSE  Non-interest expense increased approximately $1.5 million or 12% for the three months ended March 31, 2010, as compared to the corresponding period in 2009. On a summary basis, there was a $73,000 or 11% increase in
professional fees; a $611,000 or 102% increase in FDIC and state assessments; and a $818,000 or 47% increase in the Other category of non-interest expenses.

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 80.57% during the first quarter of 2010, which declined compared to 74.79% for the first quarter of 2009. Given current increases in regulatory assessment costs, Management believes that once credit deterioration
has subsided, a ratio in the 60% to 65% range is a reasonable and sustainable target given the Banks strategies for both growth and customer service and has implemented actions to carefully manage controllable costs pending resolution of
credit issues that currently exist.

FINANCIAL CONDITION  Total assets of $1.50 billion at March 31, 2010,
decreased $31.7 million or 2% compared to total assets of $1.54 billion at December 31, 2009. This decrease occurred primarily as a result of our planned reduction in brokered deposit volumes during the first quarter of 2010, thereby reducing
the Companys cash. On a consolidated basis during the same period, gross loans declined $30.1 million; the Allowance for Loan Losses increased $615,000; cash and other earning assets, less loans, increased $6.3 million; and accrued interest
and other assets, decreased $7.5 million.

Gross loans accounted for 74.37% of total assets at March 31, 2010, compared
to 74.79% at December 31, 2009. As of March 31, 2010, the allowance for loan losses increased to $46.5 million from $45.9 million at December 31, 2009. The allowance for loan losses was increased by a $6.1 million in provision charged
against earnings and decreased by $5.5 million in net charge-offs.

During the quarter ending March 31, 2010, we
continued to build our allowance for loan loss to position the Company to effectively mitigate loan portfolio stress associated with commercial real estate lending concentrations and potential risk rating changes. The loan loss reserve as a
percentage of gross loans was increased from 3.99% at December 31, 2009, to 4.16% at the end of the currently completed period. The ratio of loan loss reserve to non-performing loans concurrently grew from 44.17% at year end 2009, to 44.57% at
March 31, 2010.

Our credit teams are working diligently with borrowers to improve the general credit quality of the loan
portfolio.

Total non-performing assets were $125.9 million at March 31, 2010, down from $128.7 million as of
December 31, 2009, and represent 8.37% of total assets. The March 31, 2010 non-performing asset total includes $31.2 million in non-accrual loans that were current as to principal and interest payments and were less than 30 days past due.
The non-performing assets also include $21.5 million in OREO as of March 31, 2010, down $3.2 million as of December 31, 2009. For additional information regarding non-performing loans, see Asset Quality and Non-performing Assets
below.

Management maintains a strong liquidity position and the ability to borrow from the FHLB of Seattle, a correspondent
bank and the Federal Reserve Bank of San Francisco. For more information about liquidity refer to the Liquidity and Capital Resources section below.



22



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The table below sets forth certain summary balance sheet information for March 31, 2010, and
December 31, 2009:



|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|------------------------------------------ | ---- | --------- | --------- | ------------ | ------------------ | ------------------- |  | - | ------- | - |  | ------ | -
|                                           |      | March 31, |           | December 31, |                    | Increase (Decrease) | 
|                                           | 2010 |           | 2009      |              | 3/31/10  12/31/09 |                    
|(Dollars in 000s)                         |      |           |           |              |                    |                     |  |   |         |  
|                                           |      |           |           |             
|ASSETS                                     |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Federal funds sold                         |      | $         | 50,635    |              | $                  | 69,855              |  | $ | (19,220 | ) |  | -27.51 | %
|Securities available for sale              |      |           | 126,292   |              |                    | 114,937             |  |   | 11,355  |   |  | 9.88   | %
|Securities held to maturity                |      |           | 34,685    |              |                    | 47,384              |  |   | (12,699 | ) |  | -26.80 | %
|Restricted equity investments              |      |           | 3,643     |              |                    | 3,643               |  |   | -       |   |  | 0.00   | %
|Loans, net (1)                             |      |           | 1,071,696 |              |                    | 1,102,224           |  |   | (30,528 | ) |  | -2.77  | %
|Other assets (2)                           |      |           | 217,627   |              |                    | 198,271             |  |   | 19,356  |   |  | 9.76   | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Total assets                               |      | $         | 1,504,578 |              | $                  | 1,536,314           |  | $ | (31,736 | ) |  | -2.07  | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|                                           |      |           |           |             
|LIABILITIES                                |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Noninterest-bearing deposits               |      | $         | 247,256   |              | $                  | 256,167             |  | $ | (8,911  | ) |  | -3.48  | %
|Interest-bearing deposits                  |      |           | 1,114,685 |              |                    | 1,164,595           |  |   | (49,910 | ) |  | -4.29  | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Total deposits                             |      |           | 1,361,941 |              |                    | 1,420,762           |  |   | (58,821 | ) |  | -4.14  | %
|Other liabilities (3)                      |      |           | 44,692    |              |                    | 44,017              |  |   | 675     |   |  | 1.53   | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Total liabilities                          |      |           | 1,406,633 |              |                    | 1,464,779           |  |   | (58,146 | ) |  | -3.97  | %
|                                           |      |           |           |             
|SHAREHOLDERS EQUITY                       |      |           | 97,945    |              |                    | 71,535              |  |   | 26,410  |   |  | 36.92  | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  
|Total liabilities and shareholders equity |      | $         | 1,504,578 |              | $                  | 1,536,314           |  | $ | (31,736 | ) |  | -2.07  | %
|                                           |      |           |           |              |                    |                     |  |   |         |   |  |        |  



| | (1) | Net of deferred loan fees 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

Our primary
portfolio of loans, shown as gross loans below, at March 31, 2010 was $1.12 billion, a decrease of $30.1 million from the December 31, 2009 balance and a decrease of $119.9 million from March 31, 2009. The decrease occurred as
paydowns, foreclosures and charge-offs on non-performing loans outpaced new loan production, which has remained soft due to economic conditions. The table below presents the distribution of our loan portfolio by loan type at March 31, 2010 and
December 31, 2009. Note that the loan concentration classifications described below are categorized differently than as described in Note 7.



|                                              |  |                |           |                   |        |        |   |           |  |       
|--------------------------------------------- |  | -------------- | --------- | ----------------- | ------ | ------ | - | --------- |  | ------
|Funded loan concentrations
(Dollars in 000s) |  |                |           |                   |        |        |   |          
|                                              |  | March 31, 2010 |           | December 31, 2009
|                                              |  | Amount         |           | Percent           |        | Amount |   | Percent  
|Agricultural/Farm                             |  | $              | 36,573    |                   | 3.3%   |        | $ | 43,418    |  | 3.8%  
|C&I                                           |  |                | 204,227   |                   | 18.3%  |        |   | 210,392   |  | 18.3% 
|CRE                                           |  |                | 732,374   |                   | 65.4%  |        |   | 746,159   |  | 64.8% 
|Residential RE construction                   |  |                | 24,630    |                   | 2.2%   |        |   | 28,223    |  | 2.5%  
|Residential RE                                |  |                | 33,345    |                   | 3.0%   |        |   | 31,991    |  | 2.8%  
|Consumer RE                                   |  |                | 34,258    |                   | 3.0%   |        |   | 33,979    |  | 3.0%  
|Consumer                                      |  |                | 51,283    |                   | 4.6%   |        |   | 50,134    |  | 4.4%  
|                                              |  |                |           |                   |        |        |   |           |  |       
|Funded loans                                  |  |                | 1,116,690 |                   | 99.8%  |        |   | 1,144,296 |  | 99.6% 
|Other*                                        |  |                | 2,274     |                   | 0.2%   |        |   | 4,731     |  | 0.4%  
|                                              |  |                |           |                   |        |        |   |           |  |       
|Gross loans                                   |  | $              | 1,118,964 |                   | 100.0% |        | $ | 1,149,027 |  | 100.0%
|                                              |  |                |           |                   |        |        |   |           |  |       



| | * | Includes overdrafts, leases, credit cards and other adjustments such as loan premium outstanding.
| | - | -------------------------------------------------------------------------------------------------

As indicated above, the Companys loan portfolio is and has been concentrated in commercial real estate loans during recent years.
Since 2006, Management has taken actions to reduce higher risk commercial real estate loan volume by minimizing emphasis on new



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commercial real estate loan production and by reducing related concentration limits. However, the volume of commercial real estate loans remains above what Management would otherwise target,
particularly in light of current conditions.

Economic conditions have also produced significant reductions in real estate
values, and the slowdown has resulted in business failures that have also adversely affected commercial real estate valuations. Consequently, Management continues to mitigate credit risk and develop appropriate exit strategies for commercial real
estate loans that may encounter difficulties if the economic downturn continues. These efforts have resulted in a decline in commercial real estate loans outstanding during the first three months of 2010 totaling $13.8 million.

The table below summarizes funded and unfunded loan commitments by loan type for the periods ending March 31, 2010 and
December 31, 2009:



|                                    |  |                   |           |                     |   |                       |  |                   |           |                     |   |                       |  |   |         |  |   |          
|----------------------------------- |  | ----------------- | --------- | ------------------- | - | --------------------- |  | ----------------- | --------- | ------------------- | - | --------------------- |  | - | ------- |  | - | ---------
|Loan commitments (Dollars
in 000s) |  |                   |           |                     |   |                       |  |                   |           |                     |   |                      
|                                    |  | March 31, 2010    |           | December 31, 2009  
|                                    |  | Funded LoanTotals |           | Unfunded LoanTotals |   | Total LoanCommitments |  | Funded LoanTotals |           | Unfunded LoanTotals |   | Total LoanCommitments
|Agricultural/Farm                   |  | $                 | 36,573    |                     | $ | 6,789                 |  | $                 | 43,362    |                     | $ | 43,418                |  | $ | 6,084   |  | $ | 49,502   
|C&I                                 |  |                   | 204,227   |                     |   | 77,485                |  |                   | 281,712   |                     |   | 210,392               |  |   | 82,076  |  |   | 292,468  
|CRE                                 |  |                   | 732,374   |                     |   | 8,201                 |  |                   | 740,575   |                     |   | 746,159               |  |   | 12,761  |  |   | 758,920  
|Residential RE construction         |  |                   | 24,630    |                     |   | 1,248                 |  |                   | 25,878    |                     |   | 28,223                |  |   | 3,179   |  |   | 31,402   
|Residential RE                      |  |                   | 33,345    |                     |   | 178                   |  |                   | 33,523    |                     |   | 31,991                |  |   | 195     |  |   | 32,186   
|Consumer RE                         |  |                   | 34,258    |                     |   | 17,776                |  |                   | 52,034    |                     |   | 33,979                |  |   | 17,758  |  |   | 51,737   
|Consumer                            |  |                   | 51,283    |                     |   | 2,250                 |  |                   | 53,533    |                     |   | 50,134                |  |   | 3,510   |  |   | 53,644   
|                                    |  |                   |           |                     |   |                      
|                                    |  |                   | 1,116,690 |                     |   | 113,927               |  |                   | 1,230,617 |                     |   | 1,144,296             |  |   | 125,563 |  |   | 1,269,859
|Other*                              |  |                   | 2,274     |                     |   | 300                   |  |                   | 2,574     |                     |   | 4,731                 |  |   | 300     |  |   | 5,031    
|                                    |  |                   |           |                     |   |                      
|Gross loans                         |  | $                 | 1,118,964 |                     | $ | 114,227               |  | $                 | 1,233,191 |                     | $ | 1,149,027             |  | $ | 125,863 |  | $ | 1,274,890
|                                    |  |                   |           |                     |   |                      



| | * | Includes overdrafts, leases, credit cards and other adjustments such as loan premium outstanding.
| | - | -------------------------------------------------------------------------------------------------

Funded loan totals, excluding the Other category, declined by $27.6 million or 2% during the first three months of 2010,
primarily as a result of $6.4 million in loan charge-offs and $2.4 million in the net activity in foreclosure transfers to OREO. During the three months ended March 31, 2010, unfunded loan commitments declined $11.6 million and loan
disbursements totaled $22.1 million.

The table below shows total funded and unfunded loan commitments by loan type and geographic region at
March 31, 2010:



|                                                                        |  |                |         |                   |   |                    |  |                  |         |  |   |        
|----------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------------------ |  | ---------------- | ------- |  | - | -------
|Total loan commitments by type and geographic region
(Dollars in 000s) |  |                |         |                   |   |                    |  |                 
|                                                                        |  | March 31, 2010
|                                                                        |  | SouthernOregon |         | Mid-CentralOregon |   | NorthernCalifornia |  | SacramentoValley
|Agricultural/Farm                                                       |  | $              | 8,537   |                   | $ | 4,140              |  | $                | 4,209   |  | $ | 26,476 
|C&I                                                                     |  |                | 135,337 |                   |   | 55,252             |  |                  | 32,962  |  |   | 58,161 
|CRE                                                                     |  |                | 332,920 |                   |   | 156,101            |  |                  | 80,859  |  |   | 170,695
|Residential RE construction                                             |  |                | 9,177   |                   |   | 2,228              |  |                  | 6,353   |  |   | 8,120  
|Residential RE                                                          |  |                | 9,465   |                   |   | 3,511              |  |                  | 7,277   |  |   | 13,270 
|Consumer RE                                                             |  |                | 29,281  |                   |   | 8,828              |  |                  | 11,208  |  |   | 2,717  
|Consumer                                                                |  |                | 23,097  |                   |   | 23,870             |  |                  | 5,522   |  |   | 1,044  
|                                                                        |  |                |        
|Total                                                                   |  | $              | 547,814 |                   | $ | 253,930            |  | $                | 148,390 |  | $ | 280,483
|                                                                        |  |                |        



| | * | Excludes Other category comprised of overdrafts, leases, credit cards and other adjustments such as loan premium outstanding, in the amount of $2.6
million.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

Asset Quality and Non-Performing Assets

Non-performing loans, which include non-accrual loans and accruing loans past due over 90 days, totaled $104.4 million, or 9.33% of gross
loans at March 31, 2010, as compared to $103.9 million, or 9.04% of gross loans at December 31, 2009. At March 31, 2010, the nonperforming loan total included $31.2 million or 2.78% of gross loans current as to payment of contractual
principal and interest. As of March 31, 2010, non-performing assets, which include non-performing loans and OREO, totaled $125.9 million or 8.37% of total assets as compared to $128.7 million, or 8.37% of total assets as of December 31,
2009.

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



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some 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.

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 and lease losses. After foreclosure, Management periodically performs valuations 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 $21.5 million at March 31, 2009 and was comprised of 57 property units.

The balance of OREO
has fluctuated during the quarter ended March 31, 2010, as illustrated in the table below:



|                                                                         |  |                             |        |   |      |   |      
|------------------------------------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | -----
|Other Real Estate Owned and Foreclosed Assets (OREO)(Dollars in 000s) |  |                             |        |   |     
|                                                                         |  | Three Months EndedMarch 31,
|                                                                         |  | 2010                        |        |   | 2009
|Other real estate owned and foreclosed assets, beginning of period       |  | $                           | 24,748 |   |      | $ | 4,423
|Transfers from outstanding loans                                         |  |                             | 2,376  |   |      |   | 4,939
|Improvements and other additions                                         |  |                             | 249    |   |      |   | -    
|Sales                                                                    |  |                             | (5,627 | ) |      |   | -    
|Net gain on sales                                                        |  |                             | 317    |   |      |   |      
|Impairment charges                                                       |  |                             | (546   | ) |      |   | -    
|                                                                         |  |                             |        |   |      |   |      
|Total other real estate owned and foreclosed assets                      |  | $                           | 21,517 |   |      | $ | 9,362
|                                                                         |  |                             |        |   |      |   |      

The Company has written down impaired, non-accrual
loans at March 31, 2010, 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 assets as of March 31, 2010 and December 31, 2009:



|                                                             |  |                |         |                   |   |        
|------------------------------------------------------------ |  | -------------- | ------- | ----------------- | - | -------
|Non-performing assets
(Dollars in 000s)                     |  |                |         |                  
|                                                             |  | March 31, 2009 |         | December 31, 2009
|                                                             |  | Amount         |         | Amount           
|Loans on non-accrual status                                  |  | $              | 103,541 |                   | $ | 98,497 
|Loans past due 90 days or more but not on non-accrual status |  |                | 831     |                   |   | 5,420  
|                                                             |  |                |         |                   |   |        
|Total non-performing loans                                   |  |                | 104,372 |                   |   | 103,917
|Other real estate owned and foreclosed assets (OREO)       |  |                | 21,517  |                   |   | 24,748 
|                                                             |  |                |         |                   |   |        
|Total non-performing assets                                  |  | $              | 125,889 |                   | $ | 128,665
|                                                             |  |                |         |                   |   |        
|                                                             |  |               
|Applicable ratios:                                           |  |                |         |                   |   |        
|Allowance for loan losses to gross loans                     |  |                | 4.16%   |                   |   | 3.99%  
|Allowance for loan losses to total non-performing loans      |  |                | 44.57%  |                   |   | 44.17% 
|Non-performing loans to gross loans                          |  |                | 9.33%   |                   |   | 9.04%  
|Non-performing assets to total assets                        |  |                | 8.37%   |                   |   | 8.37%  

As discussed more
fully below, non-performing loans increased during the first quarter as a result of continuing stress to regional and national economies and continuing weakness in real estate prices in the Companys market regions.



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The following table summarizes the Companys non-performing loans by loan type and
geographic region as of March 31, 2010:



|                                                                            |  |                      |         |                   |   |                    |  |                  |         |        |   |                    |  |                                            |           |  |   |           |  |      
|--------------------------------------------------------------------------- |  | -------------------- | ------- | ----------------- | - | ------------------ |  | ---------------- | ------- | ------ | - | ------------------ |  | ------------------------------------------ | --------- |  | - | --------- |  | -----
|Total non-performing loans by type and geographic region
(Dollars in 000s) |  |                      |         |                   |   |                    |  |                 
|                                                                            |  | March 31, 2010      
|                                                                            |  | Non-performing Loans |         |                   |   |                   
|                                                                            |  | SouthernOregon       |         | Mid-CentralOregon |   | NorthernCalifornia |  | SacramentoValley |         | Totals |   | Funded LoanTotals* |  | Percent NPLto FundedLoan Totalsby Category
|Agricultural/Farm                                                           |  | $                    | 711     |                   | $ | -                  |  | $                | 659     |        | $ | 1,121              |  | $                                          | 2,491     |  | $ | 36,573    |  | 6.8% 
|C&I                                                                         |  |                      | 3,922   |                   |   | 644                |  |                  | 553     |        |   | 998                |  |                                            | 6,117     |  | $ | 204,227   |  | 3.0% 
|CRE                                                                         |  |                      | 32,119  |                   |   | 20,805             |  |                  | 6,107   |        |   | 13,821             |  |                                            | 72,852    |  | $ | 732,374   |  | 9.9% 
|Residential RE construction                                                 |  |                      | 2,319   |                   |   | 1,969              |  |                  | 5,943   |        |   | 5,575              |  |                                            | 15,806    |  | $ | 24,630    |  | 64.2%
|Residential RE                                                              |  |                      | 384     |                   |   | 1,467              |  |                  | 2,585   |        |   | 1,892              |  |                                            | 6,328     |  | $ | 33,345    |  | 19.0%
|Consumer RE                                                                 |  |                      | 467     |                   |   | -                  |  |                  | 191     |        |   | -                  |  |                                            | 658       |  | $ | 34,258    |  | 1.9% 
|Consumer                                                                    |  |                      | 28      |                   |   | 87                 |  |                  | 5       |        |   | -                  |  |                                            | 120       |  | $ | 51,283    |  | 0.2% 
|                                                                            |  |                      |         |                   |  
|                                                                            |  |                      | 39,950  |                   |   | 24,972             |  |                  | 16,043  |        |   | 23,407             |  |                                            | 104,372   |  |   | 1,116,690 |  |      
|Other*                                                                      |  |                      | -       |                   |   | -                  |  |                  | -       |        |   | -                  |  |                                            | -         |  |   | 2,274     |  |      
|                                                                            |  |                      |         |                   |  
|Total non-performing loans                                                  |  | $                    | 39,950  |                   | $ | 24,972             |  | $                | 16,043  |        | $ | 23,407             |  | $                                          | 104,372   |  | $ | 1,118,964 |  |      
|                                                                            |  |                      |         |                   |  
|Non-performing loans to total funded loans                                  |  |                      | 8.0%    |                   |   | 9.4%               |  |                  | 11.5%   |        |   | 10.9%              |  |                                            | 9.3%      |  |   |           |  |      
|Total funded loans                                                          |  | $                    | 501,038 |                   | $ | 264,297            |  | $                | 139,281 |        | $ | 214,348            |  | $                                          | 1,118,964 |  |   |           |  |      



| | * | Includes overdrafts, leases and other adjustments such as deferred loan fees, etc.
| | - | ----------------------------------------------------------------------------------

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 to declining real estate values. Approximately 91% or $95.0 million of our non-performing loan total of $104.4 million is
directly related to real estate in the form of commercial or residential real estate development loans. At March 31, 2010, $31.2 million 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.

Continuing actions taken to address the credit situation include:



| |  |  | Credit monitoring activities have continued at a heightened pace since the beginning of the fourth quarter of 2008 to provide early warning of
possible borrower distress that could lead to loan payment defaults. For those borrowers who have experienced payment problems and wish to seek a workable arrangement with the Company, Management and staff are actively involved in seeking loan
restructuring and other loan modification options and obtaining additional collateral coverage. In the third quarter of 2009, the Company reorganized and assigned a 13-person Asset Recovery Group to interface both directly with borrowers and with
line managers to expedite resolution of existing and potential troubled credits. We believe that these actions have and will continue to facilitate recovery strategies with cooperative borrowers. 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 pursued.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On-going evaluation to confirm the reliability of our internal credit reviews have continued quarterly on a significant portion of our loan
portfolio with rotation from one operating region to another. We continue to utilize the independent firm that began conducting similar reviews of segments of our loan portfolio during the fourth quarter of 2008.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Senior Management has continued its active guidance of activities related to resolution of non-performing asset issues.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

A continued 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 Note 7 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 $46.5 million as of March 31, 2010, an increase of $615,000 or 1% from the
balance at December 31, 2009. This increase occurred as a result of Managements ongoing evaluation of the adequacy of the reserve due to the deterioration in the credit quality of the loan portfolio over the three months ended
March 31, 2010. During the quarter just ended, $6.1 million in provision for loan losses was recorded partially offset by $5.5 million in net charge-offs. These figures compare with $10.7 million in provision for loan losses and $2.2 million in
net charge-offs for the quarter ended March 31, 2009.



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|                                               |  |                |        |   |                   |   |         |  
|---------------------------------------------- |  | -------------- | ------ | - | ----------------- | - | ------- | -
|Allowance for credit losses
(Dollars in 000s) |  |                |        |   |                   |  
|                                               |  | March 31, 2010 |        |   | December 31, 2009 |  
|ALL beginning balance                          |  | $              | 45,903 |   |                   | $ | 17,157  |  
|Loan loss provision                            |  |                | 6,100  |   |                   |   | 88,031  |  
|Loans charged-off                              |  |                | (6,401 | ) |                   |   | (61,067 | )
|Loan recoveries                                |  |                | 916    |   |                   |   | 1,782   |  
|                                               |  |                |        |   |                   |   |         |  
|ALL ending balance                             |  |                | 46,518 |   |                   |   | 45,903  |  
|Reserve for unfunded commitments               |  |                | 85     |   |                   |   | 130     |  
|                                               |  |                |        |   |                   |   |         |  
|Total allowance for credit losses              |  | $              | 46,603 |   |                   | $ | 46,033  |  
|                                               |  |                |        |   |                   |   |         |  
|                                               |  |               
|Applicable ratios:                             |  |                |        |   |                   |   |         |  
|Allowance for loan losses to gross loans       |  |                | 4.16%  |   |                   |   | 3.99%   |  
|Net charge-offs to average gross loans         |  |                | 1.95%  |   |                   |   | 4.85%   |  

The increase in the
allowance for loan losses as of March 31, 2010 as compared to December 31, 2009 is primarily due to further deterioration in the financial condition of borrowers and declines in real estate valuations principally involved in commercial and
residential real estate activities. The decline in the financial strength and liquidity of these borrowers correlates with the weakness in the general economy and in the regional economies in which the Company operates.

The economic weakness has also resulted in continued declines in the volume of residential real estate sales and in the market values for
these properties. This, in turn, has slowed the pace of housing inventory conversion to cash and planned reductions in borrowings by these debtors creating debtor payment issues and a rise in non-performing loans.

The general economic slowdown has also affected commercial real estate activity as development of malls, shopping centers and office
space has declined, as has related leasing activities by tenants. Continuation of these economic trends may result in the spread of business failures and further deterioration in the general economy.

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 ASC 310-10-35, the impaired portion of
collateral dependent loans rated Doubtful is charged-off and the remaining balance is upgraded to Substandard. Other risk-related loans not considered impaired have loss factors applied to the various loan pool balances to establish loss potential
for provisioning purposes.

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 the FASBs, Accounting for Contingencies ASC 450-10-05.

Additionally, impaired loans are evaluated for loss potential on an individual basis in accordance with FASBs Accounting for
Creditors for Impairment of a Loan ASC 310-10-35, 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 discounts the most recent third-party appraisal depending on a number of factors including, but not limited to, property location, local price
volatility, local economic conditions, recent comparable sales, etc. In all cases, the costs to sell the subject property are deducted in arriving at the net realizable value of the collateral. Any unpaid property taxes or similar expenses also
reduce the net realizable value of collateral.



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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 June 30, 2009:



|                                          |  |                |           |                   |   |                    |  |               |           |  |   |          
|----------------------------------------- |  | -------------- | --------- | ----------------- | - | ------------------ |  | ------------- | --------- |  | - | ---------
|(Dollars in 000s)                        |  |                |           |                   |   |                    |  |              
|                                          |  | March 31, 2010 |           | December 31, 2009 |   | September 30, 2009 |  | June 30, 2009
|Rated substandard                         |  | $              | 191,960   |                   | $ | 181,675            |  | $             | 182,763   |  | $ | 192,250  
|Impaired                                  |  |                | 104,372   |                   |   | 103,917            |  |               | 109,381   |  |   | 103,420  
|                                          |  |                |           |                   |   |                    |  |               |           |  |   |          
|Total adversely classified loans*         |  | $              | 296,332   |                   | $ | 285,592            |  | $             | 292,144   |  | $ | 295,670  
|                                          |  |                |           |                   |   |                    |  |               |           |  |   |          
|                                          |  |                |           |                  
|Gross loans                               |  | $              | 1,118,964 |                   | $ | 1,149,027          |  | $             | 1,184,464 |  | $ | 1,201,068
|Adversely classified loans to gross loans |  |                | 26.48%    |                   |   | 24.86%             |  |               | 24.66%    |  |   | 24.62%   



| | * | 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 4% increase in Adversely Classified Loans in the current quarter. Reserves of both loan categories were $37.7 million and $35.6 million at March 31, 2010 and December 31, 2009, respectively. The extended economic
downturn has shown its impact in the increase in loans rated substandard and impaired.

In addition, the loss activity of the
Company has increased the loss factors in our allowance methodology that are based on historical loss experience. Qualitative factors have improved since December 31, 2009, as a result of slow improvement in economic conditions; however, the
historical loss component changes have resulted in a net increase to the allowance of approximately $615,000 from December 31, 2009 to March 31, 2010.

In some instances the Company has modified or restructured loans to amend the interest rate and/or to extend the maturity. Through
March 31, 2010, loans with amendments that qualify these as TDRs totaled $11.0 million.

As of March 31, 2010,
Management believes that the Companys total allowance for credit losses and reserve for unfunded commitments is sufficient to absorb the losses inherent in the loan portfolio, related both to funded loans and unfunded commitments. This
assessment, based on both historical levels of net charge-offs and continuing detailed reviews of the quality of the loan portfolio, 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.

Goodwill

At March 31, 2010 and December 31, 2009, the Company had no recorded goodwill. The goodwill recorded in connection with
acquisitions, principally the Stockmans Financial Group acquisition completed in 2008 and the Wachovia branch acquisition in 2009, as well as acquisitions prior to 2008, represented the excess of the purchase price over the estimated fair value of
the net assets acquired. Goodwill and other intangible assets with indefinite lives are not amortized but are periodically tested for impairment. The Company performs a goodwill impairment analysis on an annual basis as of December 31 and on an
interim basis when events or circumstances suggested impairment may have potentially existed.

For each of the quarters ending
December 31, 2009, September 30, 2009, June 30, 2009, and March 31, 2009, the Company engaged a third-party valuation consultant to conduct an independent impairment analysis and to assist Management in its
determination of the existence of any goodwill impairment.

The Company recorded a goodwill impairment charge of $74.9 million
at December 31, 2009, reducing the goodwill account on the balance sheet to zero. The goodwill impairment charge had no effect on our cash balances, liquidity or regulatory capital ratios.

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 and/or source brokered deposits. The Banks
deposits currently exceed loans as reflected in its loan-to-deposit ratio at March 31, 2010 and December 31, 2009, of 82.16% and 80.87%, respectively.

As of March 31, 2010, the Companys overall liquidity position declined slightly when compared to December 31, 2009 and
March 2009, but remained strong. Liquidity in the form of excess cash and funds invested on a short-term basis (including federal funds sold and



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interest-earning deposits with the FHLB) increased approximately $25.9 million while borrowed funds in the form of federal funds purchased and FHLB advances were zero as of both March 31,
2010 and December 31, 2009. Investment securities decreased by a net $1.3 million. Historically, all of the Companys investment securities have been pledged for collateralization of public funds on deposit and, therefore, are not
available for purposes of liquidity. Our pledging requirements have been met through the use of our securities portfolio. The Company anticipates continuing to use its unpledged investment securities to collateralize fed funds lines of credit with
its correspondent banks.

Management maintains contingency plans for addressing the Companys ongoing liquidity needs and
presently believes the Banks stable core deposit base 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 any loan growth and any related cash utilization through various policy changes including increased pricing. Additionally, selling any unpledged investment securities is a source for additional cash equivalents.

The Company maintains secured lines-of-credit with the FHLB and with the Federal Reserve Bank of San Francisco. As of March 31,
2010, the Bank had $27,000 of borrowings advanced from the FHLB and an aggregate of $26.3 million in letters of credit issued by the FHLB on behalf of the Company to meet its excess deposit insurance requests from customers. The Company also had
immediate availability to borrow an additional $9.9 million under the Companys credit line with the FHLB. As of March 31, 2010, the Company also had the capability to draw up to $18.3 million from the Federal Reserve Bank of San Francisco
and $20.0 million from a correspondent bank, pursuant to collateralized credit arrangements.

At March 31, 2010, the
Company had approximately $91.6 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, 2010, the Company had $22.3 million of standby letters related to extensions of credit and
approximately $300,000 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 operating activities totaled $8.7 million during the three months ended March 31, 2010 and net cash of $68.3 million provided by investing activities. Cash used in
financing activities, totaling $29.3 million, was principally comprised of $58.8 million decrease in deposits offset by $29.5 million received for the Companys common stock offering.

CAPITAL RESOURCES  Federal regulators require the measurement of various capital ratios, including risk-based capital
measurements. Risk-weighted ratios require an analysis that weights balance sheet and off-balance sheet items for their inherent risk. It requires minimum standards for risk-based capital by capital tier.

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



|                                |  |               |  |                  |  |               |  |                                                 |  |                                          
|------------------------------- |  | ------------- |  | ---------------- |  | ------------- |  | ----------------------------------------------- |  | -----------------------------------------
|                                |  | March 31,2010 |  | December 31,2009 |  | March 31,2009 |  | 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  |  | 11.01%        |  | 8.53%            |  | 13.63%        |  | 8.00%                                           |  | 10.00%                                   
|Tier 1 risk-based capital ratio |  | 9.73%         |  | 7.25%            |  | 12.37%        |  | 4.00%                                           |  | 6.00%                                    
|Leverage ratio                  |  | 8.21%         |  | 5.70%            |  | 12.02%        |  | 4.00%                                           |  | 5.00%                                    

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



|                                |  |               |  |                  |  |               |  |                                                
|------------------------------- |  | ------------- |  | ---------------- |  | ------------- |  | -----------------------------------------------
|                                |  | March 31,2010 |  | December 31,2009 |  | March 31,2009 |  | RegulatoryMinimum to beAdequately Capitalized
|                                |  |               |  |                  |  |               |  | greater than or equal to                       
|Total risk-based capital ratio  |  | 11.00%        |  | 8.62%            |  | 13.73%        |  | 8.00%                                          
|Tier 1 risk-based capital ratio |  | 9.72%         |  | 6.84%            |  | 12.47%        |  | 4.00%                                          
|Leverage ratio                  |  | 8.20%         |  | 5.38%            |  | 12.11%        |  | 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, 2010, as compared to
December 31, 2009.

As stated in the annual report on Form 10-K for 2009, 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 referenced in the Companys annual report on Form 10-K for the year ended December 31, 2009.

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 are effective 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, 2010, 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. In that event, the
trading price of our common stock could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in
these forward-looking statements.

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, including a 10.0% leverage ratio. Our



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leverage ratio as of March 31, 2010, was 8.20%. 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 in 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, if needed, 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 when needed, 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.

We are subject to a Consent Order, which places limits on our operations and
could result in penalties or further restrictions if we fail to comply with its 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 Department of Finance and Corporate Securities
(DFCS) following a recent examination, and we expect to become subject to a similar agreement with the Federal Reserve. The Consent Agreement places 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
the Consent Agreement, we could be subject to additional restrictions or penalties.

The Companys common stock may no longer
qualify for listing on The NASDAQ Capital Market.

NASDAQ Marketplace Rule 5550(a)(2) requires that primary equity
securities listed on The NASDAQ Capital Market continue to have a minimum bid price of at least $1.00 per share. On March 15, 2010, we received notice that we did not meet the requirement for minimum bid price for 30 consecutive business days.
In accordance with NASDAQ rules, we received formal notice from NASDAQ and have a period of 180 calendar days to achieve compliance. Compliance can be achieved by meeting the bid price standard for a minimum of ten consecutive business days, unless
NASDAQ staff exercises discretion to extend such period. If we are not deemed in compliance before the expiration of the 180 day compliance period, we will be afforded an additional 180 day compliance period, provided that on the 180th day of the
first compliance period, we demonstrate that we meet all applicable standards for initial listing on the Capital Market (except the bid price requirement) based on our most recent public filings and market information. If we have publicly announced
information indicating that we no longer satisfy applicable initial listing criteria, we will not be eligible for the additional compliance period under this rule. Our stock price may not increase to the $1.00 level for ten consecutive business days
and, if it does not during the initial compliance period, we may not qualify for the additional compliance period, and our common stock would then be subject to delisting. Should our shares be subject to delisting from the Capital Market, there is
no assurance that a liquid and efficient market for our common stock will be available or develop. Although the shares may be eligible for trading on other exchanges, such as the OTC Bulletin Board, it is possible that the ability of a
selling shareholder to realize the best market price will be impeded as the result of wider bid-ask spreads.

Aside from the
risk factors above, there were no material changes in the risk factors presented in the Companys Form 10-K for the year ended December 31, 2009.

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) [Not applicable.]



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ITEM 4. REMOVED AND RESERVED

[None.]

ITEM 5. OTHER INFORMATION

[None.]



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ITEM 6. EXHIBITS



|     |  |                                                                                                                                                                                                                        
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a)  |  | Exhibits                                                                                                                                                                                                               
|     | 
|3.1  |  | Articles of Incorporation of PremierWest Bancorp (incorporated by reference to Exhibit 3.1 to Form 10-K filed March 16, 2010)                                                                                          
|3.2  |  | Amended and Restated Bylaws of PremierWest Bancorp (incorporated by reference to Exhibit 3.2 to Form 10-K filed March 16, 2010)                                                                                        
|10.1 |  | Consent Order with the FDIC and Oregon Division of Finance and Corporate Securities (incorporated by reference to Exhibit 99.1 to Form 8-K filed April 8, 2010)                                                        
|10.2 |  | Form of Compensation Modification Agreement dated January 6, 2010 with executive officers (incorporated by reference to Exhibit 10.1 to Form 8-K filed January 8,
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, 2010

PREMIERWEST BANCORP



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



|                                                                            |  | 
|--------------------------------------------------------------------------- |  | 
|/s/ Michael D. Fowler                                                       |  | 
|Michael D. Fowler, Chief Financial Officer and Principal Accounting Officer |  | 



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