10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended: December 31, 2008
Commission file number: 000-50332

PREMIERWEST BANCORP

(Exact name of registrant as specified in its charter)
Oregon	93-1282171
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
503 Airport Road – Suite 101
Medford, Oregon	97504
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (541) 618-6003
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
(title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [   ] No [ X ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [   ] No [ X ]

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [ X ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” 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 ]

As of June 30, 2008, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $118,447,423 based on the $5.84 closing price as reported on the National Association of Securities Dealers Automated Quotation System National Market System.

The number of shares outstanding of Registrant's common stock as of March 6, 2009 was 23,588,217.

Documents Incorporated by Reference

Portions of the definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held May 28, 2009 are incorporated by reference into Part III.

PREMIERWEST BANCORP  FORM 10-K  TABLE OF CONTENTS
		PAGE
Disclosure Regarding Forward Looking Statements		1
PART I
Item 1.	Business	1 - 9
Item 1A.	Risk Factors	9 - 12
Item 1B.	Unresolved Staff Comments	12
Item 2.	Properties	12
Item 3.	Legal Proceedings	13
Item 4.	Submission of Matters to a Vote of Security Holders	13
PART II
Item 5.	Market for Registrant's Common Equity and Related Stockholder Matters	14 - 15
Item 6.	Selected Financial Data	16
Item 7.	Management's Discussion and Analysis of Financial Condition
	and Results of Operations	17 - 38
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38 - 40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes In and Disagreements with Accountants on Accounting
	and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	42
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	43
Item 11.	Executive Compensation	43
Item 12.	Security Ownership of Certain Beneficial Owners and Management
	and Related Stockholder Matters	43
Item 13.	Certain Relationships and Related Transactions, and Director Independence	43
Item 14.	Principal Accounting Fees and Services	43
PART IV
Item 15.	Exhibits and Financial Statement Schedules	44 - 45
SIGNATURES		46 - 47

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 i mpacting our business refer to Item 1A Risk Factors in this report beginning on page 9. 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.

PART I

ITEM 1.      BUSINESS

INTRODUCTION

     PremierWest Bancorp, an Oregon corporation (the "Company"), is a bank holding company headquartered in Medford, Oregon. The Company operates primarily through its principal subsidiary, PremierWest Bank ("PremierWest Bank" or "Bank" and collectively with the Company, "PremierWest"), which offers a variety of financial services.

     PremierWest earned $648,000 for the year ended December 31, 2008, a 95.71% decrease compared to net income of $15.1 million for 2007. Net income of $15.1 million in 2007 was up 3.10% over 2006 earnings of $14.6 million. Our diluted earnings per share were $0.02, $0.82 and $0.79 for the years ended 2008, 2007 and 2006, respectively. Return on average shareholders' equity was 0.35% for the year ended December 31, 2008 compared to the return on average shareholders’ equity of 12.25% and 13.26% for 2007 and 2006, respectively.

SUBSIDIARIES

     PremierWest Bank conducts a general commercial banking business, gathering deposits from the general public and applying those funds to the origination of loans for commercial, real estate, consumer purposes and investments. The Bank was created from the merger of Bank of Southern Oregon and Douglas National Bank on May 8, 2000, and the simultaneous formation of a bank holding company for the resulting bank, PremierWest Bank.

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In April 2001, the Company acquired Timberline Bancshares, Inc., and its wholly-owned subsidiary, Timberline Community Bank ("Timberline"), with eight branch offices located in Siskiyou County in northern California. On January 23, 2004, the Company acquired Mid Valley Bank, with five branch offices located in the northern California counties of Shasta, Tehama and Butte. This acquisition was accounted for as a purchase; accordingly, the consolidated financial statements of PremierWest Bancorp include the results of operation of Mid Valley Bank since the date of acquisition. On January 26, 2008, the Company acquired Stockmans Financial Group and its wholly owned banking subsidiary, Stockmans Bank, with five branch offices located in the greater Sacramento, California area. This acquisition was accounted for as a purchase and is reflected in the 2008 consolidated financial statements of PremierWest from the date of acquisition forw ard.

     PremierWest Bank adheres to a community banking strategy by offering a full range of financial products and services through its network of branches encompassing a two state region between northern California and southern Oregon from Roseburg, Oregon, to the north; the markets situated around Sacramento, California, to the south; and the Bend/Redmond area of Deschutes County located in central Oregon. The Bank has three subsidiaries: Premier Finance Company, PremierWest Investment Services, Inc., and Blue Star Properties, Inc. Premier Finance Company originates consumer loans from offices located in Medford, Grants Pass, Klamath Falls, Roseburg, Coos Bay, Eugene and Portland, Oregon and Redding, California. PremierWest Investment Services, Inc., provides investment brokerage services to customers throughout the Bank's market. Blue Star Properties, Inc. serves solely to hold real estate properties for PremierWest and presently has no properties under its ownership.

PRODUCTS AND SERVICES

     PremierWest Bank offers a broad range of banking services to its customers, principally to small and medium-sized businesses, professionals and retail customers.

     Loan and lease products - PremierWest Bank makes commercial and real estate loans, construction loans for owner-occupied and investment properties, leases through a third-party vendor, and secured and unsecured consumer loans. Commercial and real estate-based lending has been the primary focus of the Bank's lending activities.

     Commercial lending - PremierWest Bank offers specialized loans for business and commercial customers, including equipment and inventory financing, accounts receivable financing, operating lines of credit and real estate construction loans. PremierWest Bank also makes certain Small Business Administration loans to qualified businesses. A substantial portion of the Bank's commercial loans are designated as real estate loans for regulatory reporting purposes because they are secured by mortgages and trust deeds on real property, even if the loans are made for the purpose of financing commercial activities, such as inventory and equipment purchases and leasing, and even if they are secured by other assets such as equipment or accounts receivable.

     One of the primary risks associated with commercial loans is the risk that the commercial borrower might not generate sufficient cash flows to repay the loan. PremierWest Bank’s underwriting guidelines require secondary sources of repayment, such as real estate collateral, and generally require personal guarantees from the borrower's principals.

     Real estate lending - Real estate is commonly a material component of collateral for PremierWest Bank's loans. Although the expected source of repayment for these loans is generally business or personal income, real estate collateral provides an additional measure of security. Risks associated with loans secured by real estate include fluctuating property values, changing local economic conditions, changes in tax policies and a concentration of real estate loans within a limited geographic area.

     Commercial real estate loans primarily include owner-occupied commercial properties and income-producing or farm properties. The primary risks of commercial real estate loans are the potential loss of income for the borrower and the ability of the market to sustain occupancy and rent levels. PremierWest Bank's underwriting standards limit the maximum loan-to-value ratio on real estate held as collateral and require a minimum debt service coverage ratio for each of its commercial real estate loans.

     Although commercial loans and commercial real estate loans generally are accompanied by somewhat greater risk than single-family residential mortgage loans, commercial loans and commercial real estate loans tend to be higher yielding, have shorter terms and generally provide for interest-rate adjustments as prevailing rates change. Accordingly, commercial loans and commercial real estate loans assist with interest-rate risk management while contributing to strong asset and income growth.

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     PremierWest Bank originates several different types of construction loans, including residential construction loans to borrowers who will occupy the premises upon completion of construction, residential construction loans to builders, commercial construction loans, and real estate acquisition and development loans. Because of the complex nature of construction lending, these loans have a higher degree of risk than other forms of real estate lending. Generally, the Bank mitigates its risk on construction loans by lending to customers who have been pre-qualified for long-term financing and who are using contractors acceptable to PremierWest Bank.

     Consumer lending - PremierWest Bank and Premier Finance Company, make secured and unsecured loans to individual borrowers for a variety of purposes including personal loans, revolving credit lines and home equity loans, as well as consumer loans secured by autos, boats and recreational vehicles. Besides targeting non-bank customers in PremierWest Bank's immediate markets, Premier Finance Company also makes loans to Bank customers where the loans may carry a higher risk than permitted under the Bank's lending criteria.

     Deposit products and other services - PremierWest Bank offers a variety of traditional deposit products to attract both commercial and consumer deposits through checking and savings accounts, money market accounts and certificates of deposit. The Bank also offers safe deposit facilities, traveler's checks, money orders and automated teller machines at most of its facilities.

     PremierWest Bank's investment subsidiary, PremierWest Investment Services, Inc., provides investment brokerage services to its customers through a third-party broker-dealer arrangement as well as through independent insurance companies allowing for the sale of investment and insurance products such as stocks, bonds, mutual funds, annuities and other insurance products.

MARKET AREA

     PremierWest Bank conducts a regional community banking business in southern and central Oregon and northern California through a network of 46 full service bank branches. The Bank has evolved over the past eight years through a combination of acquisitions and de novo branch openings and its geographic footprint can be subdivided into several key market areas that are generally identifiable by a specific community, county or combination thereof.

     The Company serves Jackson County, Oregon, from its main office facility in Medford with six branch offices in Medford and a branch office in each of the surrounding communities of Central Point, Eagle Point, Ashland and Shady Cove. Medford is the seventh largest city in Oregon and is the center for commerce, medicine and transportation in southwestern Oregon. PremierWest Bank also serves Josephine County with two full service branches in Grants Pass, Oregon. The principal industries in Jackson and Josephine Counties include forest products, manufacturing and agriculture. Other manufacturing segments include electrical equipment and supplies, computing equipment, printing and publishing, fabricated metal products and machinery, and stone and concrete products. In the non-manufacturing sector, significant industries include recreational services, wholesale and retail trades, as well as medical care, p articularly in connection with the area's growing retirement community.

     Another primary market area is in Douglas County with four branches in Roseburg, Oregon, and four branches located in the communities of Winston, Glide, Sutherlin and Drain. The economy in Douglas County has historically depended on the forest products industry, as compared to other market areas along the Interstate 5 corridor, including those in Medford and Grants Pass and those in northern California, which are somewhat more economically diversified.

     Also in Oregon and located inland from the Interstate 5 corridor, PremierWest Bank operates four branches. Two are located in Klamath Falls in Klamath County. Klamath County's principal industries include lumber and wood products, agriculture, transportation, recreation and government. Two other branch offices are located in Deschutes County, with a branch in both Bend and Redmond. This area’s principle businesses include recreation, tourism, education and manufacturing.

     The Bank has established offices within seven counties in California. In Siskiyou County there are eight branch locations in the communities of Dorris, Dunsmuir, Greenview, McCloud, Mt. Shasta, Tulelake, Weed and Yreka. In Shasta County there are three branch locations with two located in Redding and one in Anderson. In Tehama County there are two branches with one in Corning and one in Red Bluff. In Yolo County there is one branch office in Woodland. Placer County has a branch in Roseville and Butte County has two offices in Chico.

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The economy of northern California from Siskiyou County south to Butte County is primarily involved in government services, retail trade and services, education, healthcare, agriculture, recreation and tourism.

     As a result of the January 2008 acquisition of Stockmans Bank, the Company now has five branch locations in Sacramento County. These branches are located in the greater Sacramento area in the communities of Elk Grove, Folsom, Galt, Natomas and Rocklin. These branches have established PremierWest Bank’s most southern reach in California. In addition to wholesale and retail trade, the key industries include agriculture and food processing, manufacturing, transportation and distribution, education, healthcare and government services.

     While PremierWest Bank does business in many different communities, the geographic areas we serve make the Bank more reliant on local economies in contrast to super-regional and national banks. Nevertheless, Management considers the diversity of our customers, communities, and economic sectors a source of strength and competitive advantage in pursuing our community banking strategy.

INDUSTRY OVERVIEW

     The commercial banking industry continues to undergo increased competition, consolidation and change. In addition to traditional competitors such as banks and credit unions, noninsured financial service companies such as mutual funds, brokerage firms, insurance companies, mortgage companies and leasing companies now offer alternative investment opportunities for customers’ funds and lending sources for their needs. Banks have been granted extended powers to better compete with these financial service providers through the limited right to sell insurance, securities products and other services; however, the percentage of financial transactions handled by commercial banks continues to decline as the market penetration of other financial service providers has grown. The ultimate impact on the commercial banking industry of the economic downturn experienced in 2008 cannot be predicted with meaningfu l accuracy, but it is reasonable to assume that the pace of consolidation and the level of regulation will both increase in the short run.

     PremierWest Bank's business model is to compete on the basis of customer service, not solely on price, and to compete for deposits by offering a variety of accounts at rates generally competitive with other financial institutions in the area.

     PremierWest Bank's competition for loans comes principally from commercial banks, savings banks, mortgage companies, finance companies, insurance companies, credit unions and other traditional lenders. We compete for loans on the basis of interest rates and loan fees, our array of commercial and mortgage loan products and the efficiency and quality of our services. Lending activity can also be affected by our liquidity, local and national economic conditions, current interest rate levels and loan demand. As described above, PremierWest Bank competes with larger commercial banks by emphasizing a community bank orientation and personal service to both commercial and individual customers.

EMPLOYEES

     As of December 31, 2008, PremierWest Bank had 509 full-time equivalent employees compared to 445 at December 31, 2007. None of our employees are represented by a collective bargaining group. Management considers its relations with employees to be good.

WEBSITE ACCESS TO PUBLIC FILINGS

     PremierWest makes available all periodic and current reports, free of charge, in the “Investors” section of PremierWest Bank's website, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). PremierWest Bank's website address is www.PremierWestBank.com. The contents of our website are not incorporated into this report or into our other filings with the SEC.

GOVERNMENT POLICIES

     The operations of PremierWest and its subsidiaries are affected by state and federal legislative changes and by policies of various regulatory authorities, including those of the states of Oregon and California, the Federal Reserve Bank and the Federal Deposit Insurance Corporation. These policies include, for example, statutory

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maximum legal lending limits and rates, domestic monetary policies of the Board of Governors of the Federal Reserve System, United States fiscal policy, and capital adequacy and liquidity constraints imposed by national and state regulatory agencies.

SUPERVISION AND REGULATION

     General - In 2008, the banking industry, as well as other sectors of the United States economy, saw a number of unprecedented and wide sweeping changes in federal regulation. The most significant of these changes resulted from the passage of the Emergency Economic Stabilization Act of 2008 (“EESA”). The purpose of this legislation was to enable Congress to strengthen our financial markets and promote the flow of credit to businesses and consumers.

     PremierWest is extensively regulated under federal and state law. These laws and regulations are generally intended to protect depositors, not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory or regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company. The operations of the Company may be affected by legislative changes and by the policies of various regulatory authorities. The Company cannot accurately predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, or new federal or state legislation, may have in the future.

     Federal and State Bank Regulation - PremierWest Bank, as a state chartered bank with deposits insured by the Federal Deposit Insurance Corporation ("FDIC"), is subject to the supervision and regulation of the state of Oregon and the FDIC. These agencies may prohibit the Company from engaging in what they believe constitutes unsafe or unsound banking practices.

     The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC evaluate the record of financial institutions in meeting the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a new branch or facility. The Company's current CRA rating is "Satisfactory."

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

     Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), each federal banking agency has prescribed, by regulation, capital safety and soundness standards for institutions under its authority. These standards cover internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, and standards for asset quality, earnings and stock valuation. An institution that fails to meet these standards must develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. Management believes that the Company is in compliance with these standards.

     FDICIA included provisions to reform the federal deposit insurance system, including the implementation of risk-based deposit insurance premiums. FDICIA also permits the FDIC to make special assessments on insured depository institutions in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S. Treasury and other sources or for any other purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC implemented a transitional risk-based insurance premium system on January 1, 1993. Under this system, banks are assessed insurance premiums according to how much risk they are deemed to present to the Bank Insurance Fund (“BIF”). Banks with higher levels of capital and a low degree of supervisory concern are assessed lower premiums than banks with lower levels of capital or involving a higher degree of supervisory concern. Pre mierWest Bank qualifies for the lowest premium level, and currently pays only the statutory minimum rate.

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     In 2008, the banking industry, as well as other sectors of the United States economy, realized a number of changes in federal regulation due to the disruption in credit market operations. The most significant of these changes that affected the Company are discussed below.

     Temporary Liquidity Guarantee Program (“TLGP”) – On October 13, 2008, the FDIC announced the TLGP to strengthen confidence and encourage liquidity in the banking system. The TLGP consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in non-interest-bearing transaction and regular checking accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). On December 5, 2008, the Company elected to participate in both the Debt Guarantee Program and Transaction Account Guarantee Program. However, the Company declined the option of issuing certain non-guaranteed senior unsecured debt before issuing the maximum amount of guaranteed debt.

     Term Auction Facility Program (“TAF”) – On December 12, 2007, the Federal Reserve announced the TAF program. The TAF program allows a depository institution, judged to be in generally sound financial condition and eligible to borrow under the primary credit discount window program, to place a bid for an advance from its local Federal Reserve Bank at an interest rate that is determined as the result of an auction. These advances must be fully collateralized.

     By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, the Federal Reserve hopes to ensure that liquidity provisions can be disseminated efficiently even when the unsecured interbank markets are under stress.

     Troubled Asset Relief Program (“TARP”) – On October 14, 2008, the U.S. Department of Treasury announced the TARP Capital Purchase Program. The TARP Capital Purchase Program contemplates the U.S. Treasury purchasing senior preferred shares in qualified U.S. financial institutions. The program is intended to encourage participating financial institutions to build capital in order to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. Companies participating in the program must accept standardized terms as outlined by the U.S. Treasury and must adopt the Treasury Department’s standards for executive compensation and corporate governance. Additionally, participants must agree to accept future program requirements as may be promulgated by the U.S. Congress and regulatory authorities.

     Deposit Insurance – As part of the EESA, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009 by the FIDC. Deposit insurance coverage for retirement accounts was not changed and remains at $250,000. The deposits of PremierWest are currently insured to a maximum of $250,000 per depositor through the Bank Insurance Fund, administered by the FDIC. As part of this program, PremierWest is required to pay quarterly deposit insurance premium assessments to the FDIC. PremierWest opted to participate in the Transaction Account Guarantee Program, which provides unlimited deposit insurance for non-interest bearing transaction accounts and for regular savings accounts, resulting in a quarterly deposit insurance premium assessment paid to the FDIC.

     Dividends - Under the Oregon Bank Act, banks are subject to restrictions on the payment of cash dividends to their parent holding company. A bank may not pay cash dividends if that payment would reduce the amount of its capital below that necessary to meet minimum applicable regulatory capital requirements. In addition, the amount of the dividend may not be greater than its net unreserved retained earnings, after first deducting (i) to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six months; (ii) all other assets charged off as required by the state or federal examiner; and (iii) all accrued expenses, interest and taxes of the Company.

     In addition, the appropriate regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends constituting an unsafe or unsound banking practice. The Company is not currently subject to any regulatory restrictions on dividends other than those noted above.

     Capital Adequacy - The federal and state bank regulatory agencies use capital adequacy guidelines in their examination and regulation of financial holding companies and banks. If capital falls below the minimum levels established by these guidelines, a holding company or a bank may be denied approval to acquire or establish additional banks or non-bank businesses or to open new facilities.

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     The FDIC and Federal Reserve have adopted risk-based capital guidelines for banks and bank holding companies. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The current guidelines require all bank holding companies and federally regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier 1 capital. Generally, banking regulators expect banks to maintain capital ratios well in excess of the minimum.

     Tier 1 capital for banks includes common shareholders' equity, qualifying perpetual preferred stock (up to 25% of total Tier 1 capital, if cumulative; under a Federal Reserve rule, redeemable perpetual preferred stock may not be counted as Tier 1 capital unless the redemption is subject to the prior approval of the Federal Reserve) and minority interests in equity accounts of consolidated subsidiaries, less intangibles. Tier 2 capital includes: (i) the allowance for loan losses of up to 1.25% of risk-weighted assets; (ii) any qualifying perpetual preferred stock which exceeds the amount which may be included in Tier 1 capital; (iii) hybrid capital instruments (iv) perpetual debt; (v) mandatory convertible securities and (vi) subordinated debt and intermediate term preferred stock of up to 50% of Tier 1 capital. Total capital is the sum of Tier 1 and Tier 2 capital less reciprocal holdings of other ba nking organizations, capital instruments and investments in unconsolidated subsidiaries.

     Banks' assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets.

     Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property, which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of or obligations guaranteed by the U.S. Treasury or U.S. Government agencies, which have 0% risk-weight. In converting off-balance sheet items, direct credit substitutes, including general guarantees and standby letters of credit backing financial obligations, are given 100% conversion factor. The transaction-related contingencies such as bid bonds, other standby letters of credit and undrawn commitments, including commercial credit lines with an initial maturity of more than one year, have a 50% conversion factor. Short-term, self-liquidating trade contingencies are converted at 20%, and short-ter m commitments have a 0% factor.

     The FDIC also has implemented a leverage ratio, which is Tier 1 capital as a percentage of total assets less intangibles, to be used as a supplement to risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank may leverage its equity capital base. The FDIC requires a minimum leverage ratio of 3%. However, for all but the most highly rated bank holding companies and for banks seeking to expand or experiencing or anticipating significant growth, the FDIC requires a minimum leverage ratio of 4%.

     FDICIA created a statutory framework of supervisory actions indexed to the capital level of the individual institution. Under regulations adopted by the FDIC, an institution is assigned to one of five capital categories depending on its total risk-based capital ratio, Tier 1 risk-based capital ratio, and leverage ratio, together with certain subjective factors. Institutions deemed to be "undercapitalized" are subject to certain mandatory supervisory corrective actions. The Company does not believe that these regulations have any material effect on its operations.

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

     Changing Regulatory Structure of the Banking Industry - The laws and regulations affecting banks and bank holding companies frequently undergo significant changes. Pending bills, or bills that may be introduced in the future, may be expected to contain proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. If enacted into law, these bills could have the effect of increasing or decreasing the

7

cost of doing business, limiting or expanding permissible activities (including insurance and securities activities), or affecting the competitive balance among banks, savings associations and other financial institutions. Some of these bills could reduce the extent of federal deposit insurance, broaden the powers or the geographical range of operations of bank holding companies, alter the extent to which banks will be permitted to engage in securities activities, and realign the structure and jurisdiction of various financial institution regulatory agencies. Whether, or in what form, any such legislation may be adopted or the extent to which the business of the Company might be affected thereby cannot be predicted with certainty.

     Of particular note is legislation enacted by Congress in 1995 permitting interstate banking and branching, which allows banks to expand nationwide through acquisition, consolidation or merger. Under this law, an adequately capitalized bank holding company may acquire banks in any state or merge banks across state lines if permitted by state law. Further, banks may establish and operate branches in any state subject to the restrictions of applicable state law. Under Oregon law, an out-of-state bank or bank holding company may merge with or acquire an Oregon state chartered bank or bank holding company if the Oregon bank, or in the case of a bank holding company, the subsidiary bank, has been in existence for a minimum of three years, so long as the law of the state in which the acquiring bank is located permits such merger. Branches may not be acquired or opened separately, but once an out-of-state ba nk has acquired branches in Oregon, either through a merger with or acquisition of substantially all the assets of an Oregon bank, the acquirer may open additional branches.

     In December 1999, Congress enacted the Gramm-Leach-Bliley Act (the "GLB Act") and repealed the nearly 70-year prohibition on banks and bank holding companies engaging in the businesses of securities and insurance underwriting imposed by the Glass-Steagall Act.

     Under the GLB Act, a bank holding company may, if it meets certain criteria, elect to be a "financial holding company," which is permitted to offer, through a nonbank subsidiary, products and services that are "financial in nature" and to make investments in companies providing such services. A financial holding company may also engage in investment banking, and an insurance company subsidiary of a financial holding company may also invest in "portfolio" companies, without regard to whether the businesses of such companies are financial in nature.

     The GLB Act also permits eligible banks to engage in a broader range of activities through a "financial subsidiary," although a financial subsidiary of a bank is more limited than a financial holding company in the range of services it may provide. Financial subsidiaries of banks are not permitted to engage in insurance underwriting, real estate investment or development, merchant banking or insurance portfolio investing. Banks with financial subsidiaries must (i) separately state the assets, liabilities and capital of the financial subsidiary in financial statements; (ii) comply with operational safeguards to separate the subsidiary's activities from the bank; and (iii) comply with statutory restrictions on transactions with affiliates under Sections 23A and 23B of the Federal Reserve Act.

     Activities that are "financial in nature" include activities normally associated with banking, such as lending, exchanging, transferring and safeguarding money or securities and investing for customers. Financial activities also include the sale of insurance as agent (and as principal for a financial holding company, but not for a financial subsidiary of a bank), investment advisory services, underwriting, dealing or making a market in securities, and any other activities previously determined by the Federal Reserve to be permissible non-banking activities.

     Financial holding companies and financial subsidiaries of banks may also engage in any activities that are incidental to, or determined by order of the Federal Reserve to be complementary to, activities that are financial in nature.

     To be eligible to elect status as a financial holding company, a bank holding company must be well capitalized, under the Federal Reserve capital adequacy guidelines, and to be well managed, as indicated in the institution's most recent regulatory examination. In addition, each bank subsidiary must also be well capitalized and well managed, and must have received a rating of "satisfactory" in its most recent CRA examination. Failure to maintain eligibility would result in suspension of the institution's ability to commence new activities or acquire additional businesses until the deficiencies are corrected. The Federal Reserve could require a non-compliant financial holding company that has failed to correct noted deficiencies to divest one or more subsidiary banks, or to cease all activities other than those permitted to ordinary bank holding companies under the regulatory scheme in place prior to e nactment of the GLB Act.

8

     In addition to expanding the scope of financial services permitted to be offered by banks and bank holding companies, the GLB Act addressed the jurisdictional conflicts between the regulatory authorities that supervise various types of financial businesses. Historically, supervision was an entity-based approach, with the Federal Reserve regulating member banks and bank holding companies and their subsidiaries. As holding companies are now permitted to have insurance and broker-dealer subsidiaries, the supervisory scheme is oriented toward functional regulation. Thus, a financial holding company is subject to regulation and examination by the Federal Reserve, but a broker-dealer subsidiary of a financial holding company is subject to regulation by the Securities and Exchange Commission, while an insurance company subsidiary of a financial holding company would be subject to regulation and supervision by the applicable state insurance commission.

     The GLB Act also includes provisions to protect consumer privacy by prohibiting financial services providers, whether or not affiliated with a bank, from disclosing non-public, personal, financial information to unaffiliated parties without the consent of the customer, and by requiring annual disclosure of the provider's privacy policy. Each functional regulator is charged with promulgating rules to implement these provisions.

     The Company is also subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA Patriot Act"). Among other things, the USA Patriot Act requires financial institutions, such as the Company to adopt and implement specific policies and procedures designed to prevent and defeat money laundering. Management believes the Company is in compliance with the USA Patriot Act.

     The Sarbanes-Oxley Act ("Sarbanes-Oxley" or "Act") of 2002 implemented legislative reforms intended to address corporate and accounting fraud. Sarbanes-Oxley applies to publicly reporting companies including PremierWest Bancorp. The legislation established the Public Company Accounting Oversight Board whose duties include the registering of public accounting firms and the establishment of standards for auditing, quality control, ethics and independence relating to the preparation of public company audit reports by registered accounting firms. The Act includes numerous provisions, but in particular, Section 404 that requires PremierWest Bancorp's Management, to assess the adequacy and effectiveness of its internal controls over financial reporting. As of December 31, 2008, Management believes the Company is in full compliance with the requirements and provisions of Sarbanes-Oxley.

ITEM 1A.     RISK FACTORS

     The following are certain risk factors that Management believes are specific to PremierWest Bancorp. These risks are not all inclusive and should be read in conjunction with the other information contained in this report.

     Credit Risk - Our earnings depend to a large extent upon the ability of our borrowers to repay their loans and our inability to manage credit risk would negatively affect our business. A source of risk arises from the possibility that losses will be sustained if a significant number of our borrowers, guarantors and related parties fail to perform in accordance with the terms of their loans. We have adopted underwriting and credit monitoring procedures and a credit policy, including the establishment and review of the allowance for loan losses that Management believes are appropriate to minimize this risk by assessing the likelihood of nonperformance, tracking loan performance and diversifying our credit portfolio. These policies and procedures, however, involve subjective judgments and may not prevent unexpected loss es that could materially affect our results of operations. Moreover, bank regulators frequently monitor loan loss allowances, and if regulators were to determine that the allowance was inadequate, they may require us to increase the allowance, which also would adversely impact revenues and financial condition.

     Real Estate Collateral - Approximately 73% of our loan portfolio is secured by real estate, the majority of which is commercial real estate and continued market deterioration would lead to losses.  Declining real estate values have caused increasing levels of charge-offs and provisions for loan losses. Continued declines in real estate market values could require increased charge-offs and a further increase in the allowance for loan losses, which could have a material adverse effect on our business, financial condition and results of operations.

     Interest Rate Risk - Our earnings depend upon the spread between the interest rate we receive on loans and securities and the interest rates we pay on deposits and borrowings. Changes in interest rates could adversely impact our net interest margin, net interest income and net income. PremierWest Bancorp’s earnings are impacted by changing interest rates. Changes in interest rates affect the demand for new loans, the credit profile

9

of existing loans, the rates received on loans and securities and rates paid on deposits and borrowings. The relationship between the rates received on loans and securities and the rates paid on deposits and borrowings is known as interest rate spread. Given our current volume and mix of interest-bearing liabilities and interest-earning assets, our interest rate spread could be expected to increase during times of rising interest rates and, conversely, to decline during times of falling interest rates. Exposure to interest rate risk is managed by monitoring the re-pricing frequency of PremierWest Bank's rate-sensitive assets and rate-sensitive liabilities over any given period. Significant fluctuations in interest rates may have an adverse affect on our business, financial condition and results of operations.

     Regulatory Risk - Our business is heavily regulated and the creation of additional regulations may negatively affect our operations. We are subject to government regulation that could limit or restrict our activities, which in turn could adversely impact our operations. The financial services industry is regulated extensively. Federal and state regulations are designed primarily to protect the deposit insurance funds and consumers, and not to benefit our stockholders. These regulations can sometimes impose significant limitations on our operations as well as result in higher operation costs. In addition, these regulations are constantly evolving and may change significantly over time. Significant new regulation or changes in existing regulations or repeal of existing laws may cause our results to differ materially. F urther, federal monetary policy, particularly as implemented through the Federal Reserve System, significantly affects credit conditions for us.

     Liquidity Risk - Market conditions or regulatory constraints could restrict our access to funds necessary to meet liquidity demands. Liquidity measures the ability to meet loan demand and deposit withdrawals and to pay liabilities as they come due. A sharp reduction in deposits or rapid loan growth could force us to borrow heavily in the wholesale deposit market, purchase federal funds from correspondent banks, borrow at the Federal Home Loan Bank of Seattle or Federal Reserve discount window, raise deposit interest rates or reduce lending activity. Wholesale deposits, federal funds and sources for borrowings may not be available to us due to future regulatory constraints, market conditions or unfavorable terms.

     We rely on the Federal Home Loan Bank (“FHLB”) of Seattle as a source of liquidity. Recently, the FHLB of Seattle announced that it did not meet minimum regulatory capital requirements for the year ended December 31, 2008, due to the deterioration in the market value of their mortgage-backed securities portfolio. As a result, the FHLB of Seattle cannot pay a dividend on their common stock and it cannot repurchase or redeem common stock. While the FHLB of Seattle has announced it does not anticipate that additional capital is immediately necessary, nor does it believe that its capital level is inadequate to support realized losses in the future, the FHLB of Seattle could require its members, including the Company, to contribute additional capital in order to return the FHLB of Seattle to compliance with capi tal guidelines. At December 31, 2008, the Company held $381,567 of cash on deposit with the FHLB of Seattle. At December 31, 2008, the Company maintained a line of credit with the FHLB of Seattle for $44.4 million and was in compliance with its related collateral requirements. At December 31, 2008, $14.3 million of the line of credit was available for additional borrowings. The Company is highly dependent on the FHLB of Seattle to provide a source of wholesale funding for immediate liquidity and borrowing needs. Changes or disruptions to the FHLB of Seattle or the FHLB system in general, may materially impair the Company’s ability to meet its growth plans or to meet short and long term liquidity demands.

     Competition - The financial services industry is highly competitive. Competition may adversely affect our performance. The financial services industry is becoming increasingly competitive due to changes in regulation, technological advances, and the accelerating pace of consolidation among financial services providers. We face competition both in attracting deposits and in originating loans and providing transactional services.

     Dividend Restrictions - Our ability to pay dividends, repurchase shares or repay indebtedness depends primarily upon the results of operations of PremierWest Bank. We are a separate distinct legal entity from PremierWest Bank and receive substantially all of our revenue from dividends from the Bank. There are legal limitations on the extent to which the Bank may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, us. Our inability to receive dividends from the Bank would adversely affect our financial condition. The Bank’s ability to pay dividends is primarily dependent on net interest income, which is the income that remains after deducting from total income generated by earning assets the expense attributable to the acquisition of the funds required to support earning ass ets (primarily interest paid on deposits). The amount of interest income is dependent on many factors including the volume of earning assets, the general level of interest rates, the dynamics of changes in interest rates and the levels of nonperforming loans. Various statutory provisions restrict the amount of dividends the Bank can pay to us without regulatory approval. The Bank may not pay cash dividends if that payment could reduce the amount of its capital below that necessary to meet the “adequately capitalized” level in

10

accordance with regulatory capital requirements. It is also possible that, depending upon the financial condition of the Bank and other factors, regulatory authorities could assert that payment of dividends or other payments, including payments to us, is an unsafe or unsound practice. Under Oregon law, the amount of a dividend from the Bank may not be greater than net unreserved retained earnings, after first deducting to the extent not already charged against earnings or reflected in a reserve, all bad debts, which are debts on which interest is unpaid and past due at least six months; all other assets charged-off as required by the Oregon Division of Finance and Corporate Securities or state or federal examiner; and all accrued expenses, interest and taxes.

     Management Risk - We may not effectively manage our growth or future acquisitions which could adversely affect the quality of our operations and our costs. PremierWest Bancorp’s financial performance and profitability will depend on our ability to manage recent growth and implement our plans and strategies for future growth. Although Management believes that it has substantially integrated the business and operations of recent acquisitions, there can be no assurance that unforeseen issues relating to the acquisitions will not adversely affect us. In addition, any future acquisitions and continued growth may present operational or other problems that could have an adverse effect on our business, financial condition and results of operations. Accordingly, there can be no assurance that we will be able to execute o ur growth strategy or maintain the level of profitability that we have recently experienced.

     Industry Conditions - Difficult market conditions have adversely affected our industry. The capital and credit markets have been experiencing volatility and disruption for more than twelve months. Dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures and unemployment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities. These write-downs have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institution al investors have reduced or ceased providing funding to borrowers, including to other financial institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely affected our business, financial condition and results of operations. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and others in the financial services industry. In particular, we may face the following risks in connection with these events:

• We expect to face increased regulation of our industry, including the results of the EESA and the American Recovery and Reinvestment Act of 2009 (“ARRA”). Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities.

• Government stimulus packages and other responses to the financial crises may not stabilize the economy or financial system.

• Our ability to assess the creditworthiness of our customers may be impaired if the models and approaches we use to select, manage, and underwrite our customers become less predictive of future behaviors.

• The process we use to estimate losses inherent in its credit exposure requires difficult, subjective, and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of the Bank’s borrowers to repay their loans, which may no longer be capable of accurate estimation which may, in turn, impact the reliability of the process.

• We will be required to pay significantly higher Federal Deposit Insurance Corporation premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits.

• There may be downward pressure on our stock price.

• Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions and government sponsored entities.

• We may face increased competition due to intensified consolidation of the financial services industry.

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     If current levels of market disruption and volatility continue or worsen, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital, on our business, our financial condition and results of operations.

     Impairment Risk - A significant decline in the market value of our common stock could result in an impairment of goodwill. Our common stock has traded at prices below book value, including goodwill and other intangible assets, and the valuation of goodwill is determined using discounted cash flows of forecasted earnings, estimated sales price based on recent observable market transactions and market capitalization based on current stock price. We are required to test for goodwill impairment periodically and if goodwill impairment is deemed to exist, a write-down of the asset would occur with a charge to earnings.

     Technology Risk - We rely on technology to deliver products and serves and interact with our customers. We face operational risks as we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of loss of customers if technology fails to work as expected and risk of regulatory scrutiny if security breaches occur. Risk management programs are expensive to maintain and will not protect the company from all risks associated with maintaining the security of customer information, proprietary data, external and internal intrusions, disaster recovery and failures in the controls used by vendors.

     Accounting Standards - Changes in accounting standards may impact how we report our financial condition and results of operations. Our accounting policies and methods are fundamental to how we report our financial condition and results of operations. From time to time the Financial Accounting Standards Board (“FASB”) changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.

     Valuation Risk - The value of securities in our investment securities portfolio may be negatively affected by continued disruptions in securities markets. The market for some of the investment securities held in our portfolio has become extremely volatile over the past twelve months. Market conditions may negatively affect the value of securities. There can be no assurance that the declines in market value associated with these disruptions will not result in other-than-temporary impairments of these assets, which would lead to accounting charges that could have a material adverse effect on our net income and capital levels.

     Geographic Concentration - Our operations are geographically concentrated in southern Oregon and northern California and our business is sensitive to economic factors that relate to regional business conditions. Our geographic footprint is predominantly situated along the Interstate 5 corridor from just south of Eugene, Oregon to Sacramento, California. Our customers are directly and indirectly dependent upon the economies of these areas and upon the timber and tourism industries, which are significant employers and revenue sources in our markets—economic factors that affect these industries will have a disproportionately negative impact on our region and our customers. A deterioration in economic and business conditions in our market areas could have a material adverse impact on the quality of our loan portfoli o, the demand for our products and our results of operations.

ITEM 1B.     UNRESOLVED STAFF COMMENTS

None.

ITEM 2.     PROPERTIES

     As of December 31, 2008, the Company conducted business through 55 offices including the operations of PremierWest Bank, PremierWest Bank’s mortgage division, and also PremierWest Bank’s two subsidiaries – Premier Finance Company and PremierWest Investment Services, Inc. The 55 offices included 46 full service bank branches and 9 other office locations.

     PremierWest Bank’s 46 full service branch facilities are located in Oregon and California and more specifically broken down as follows: 24 branches are located in Jackson (10), Josephine (2), Deschutes (2), Douglas (8) and Klamath (2) counties of Oregon and 22 branches located in Siskiyou (8), Shasta (3), Butte (2),

12

Tehama (2), Placer (1), Yolo (1) and Sacramento (5) counties of California. Of the 46 branch locations, 32 are owned by PremierWest Bank, 12 are leased, and two locations involve long-term land leases where the Bank owns the building.

     The Company’s nine other locations house administrative and subsidiary operations. These facilities include one campus located in Medford, Oregon with two owned buildings housing the Company’s administrative head office, operations and data processing facilities; two owned administrative facilities - one in Redding, California housing regional administration, our Premier Finance Company subsidiary, and one in Red Bluff, California housing PremierWest Bank administrative functions; four leased locations housing stand-alone Premier Finance Company offices in Portland, Eugene, Coos Bay and Roseburg, Oregon; and, three buildings and two owned locations in Medford, Oregon occupied by a Premier Finance Company office, the Bank’s consumer lending group and the Bank’s internal audit department.

     In addition, to the above, four Premier Finance Company offices are housed within PremierWest Bank full service branch offices, as are various employees of PremierWest Investment Services, Inc., and the Bank’s mortgage division.

     As of December 31, 2008, the aggregate monthly rental expense on leased locations was $83,356.

ITEM 3.     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 would have a materially adverse impact on our business, financial condition or results of operations.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of securities holders of PremierWest during the quarter ended December 31, 2008.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 

     PremierWest common stock is quoted on the NASDAQ Capital Market ("NASDAQ") under the symbol "PRWT". The common stock is registered under the Securities Exchange Act of 1934. The table below sets forth the high and low sales prices of PremierWest common stock as reported on the NASDAQ. This information has been adjusted to reflect previous stock dividends paid in 2007, 2006 and 2005. No stock dividend was paid in 2008. Bid quotations reflect inter-dealer prices, without adjustment for mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions. On February 25, 2009, the Company had 23,588,217 shares of common stock issued and outstanding, which were held by approximately 740 shareholders of record, a number which does not include approximately 2,570 beneficial owners who hold shares in "street name." As of March 13, 2009, the most recent date prior to the date of this Re port, the closing price of the common stock was $3.93 per share.

				2008						2007						2006
		Closing				Cash		Closing				Cash		Closing				Cash
		Market Price				Dividends		Market Price				Dividends		Market Price				Dividends
		High		Low		Declared		High		Low		Declared		High		Low		Declared
1st Quarter	$	11.55	$	9.62	$	0.06	$	16.05	$	12.77	$	-	$	18.81	$	13.97	$	-
2nd Quarter	$	10.40	$	5.84	$	0.06	$	14.44	$	12.40	$	0.05	$	18.50	$	13.55	$	-
3rd Quarter	$	10.10	$	5.10	$	0.06	$	13.64	$	12.00	$	0.06	$	16.37	$	14.15	$	0.05
4th Quarter	$	8.38	$	5.15	$	-	$	12.90	$	11.16	$	0.06	$	16.98	$	15.25	$	0.05

     PremierWest declared its first cash dividend in the fourth quarter of 2005; declared two cash dividends during 2006; declared three cash dividends during 2007; and three cash dividends during 2008. In conjunction with declaring the fourth quarter 2007 cash dividend, the Company also announced its intention to institute a quarterly cash dividend program; however, the timing and amount of any future dividends PremierWest might pay will be determined by its Board of Directors and will depend on earnings, cash requirements and the financial condition of PremierWest and its subsidiaries, applicable government regulations and other factors deemed relevant by the Board of Directors.

There were no repurchases of common stock by the Company during the fourth quarter of 2008.

     The following table provides information about the number of outstanding options, the associated weighted average price and the number of options available for issuance as of December 31, 2008:

     Equity Compensation Plan Information 

			Number of securities
			remaining available for
			future issuance under
	Number of securities to	Weighted-average	equity compensation
	be issued upon exercise	exercise price of	plans (excluding
	of outstanding options,	outstanding options,	securities reflected in
	warrants and rights	warrants and rights	column (a))
Plan category	(a)	(b)	(c)
Equity compensation
plans approved by
security holders	999,428	$9.41	1,024,511
Equity compensation
plans not approved by
security holders	-	-	-
Total	999,428	$9.41	1,024,511

14

Performance Graph

     The following graph shows the cumulative total return for our common stock compared to the cumulative total returns for the SNL NASDAQ Bank index and the NASDAQ Composite index. All values were gathered by SNL Financial LC from sources deemed to be reliable. The comparison assumes that $100 was invested on December 31, 2003 in PremierWest Bancorp common stock and in each of the comparative indexes. The cumulative total return on each investment is as of December 31 for each of the subsequent five years and assumes the reinvestment of all cash dividends and the retention of all stock dividends. PremierWest Bancorp’s five-year cumulative total return was -16.94% compared to -30.12% and -21.28% for the SNL NASDAQ Bank and NASDAQ Composite indexes, respectively.

Total Return Performance

 

			Period Ending
Index	12/31/03	12/31/04	12/31/05	12/31/06	12/31/07	12/31/08
PremierWest Bancorp	100.00	131.42	150.59	181.46	138.19	83.06
NASDAQ Bank	100.00	110.99	106.18	117.87	91.85	69.88
NASDAQ Composite	100.00	108.59	110.08	120.56	132.39	78.72

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ITEM 6.

SELECTED FINANCIAL DATA

     The following table sets forth certain information concerning the consolidated financial condition, operating results and key operating ratios for PremierWest at the dates and for the periods indicated. This information does not purport to be complete, and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of PremierWest and Notes thereto.

(Dollars in thousands except per share data)
	Years Ended December 31,
		2008			2007			2006			2005			2004
Operating Results
Total interest income	$	89,262		$	82,455		$	73,252		$	57,527		$	42,835
Total interest expense		28,573			27,216			19,104			10,785			6,356
Net interest income		60,689			55,239			54,148			46,742			36,479
Provision for loan losses		23,150			686			800			150			800
Non-interest income		9,992			8,810			7,701			7,351			6,602
Non-interest expense		46,931			38,958			37,415			33,618			28,687
Income before provision for income taxes		600			24,405			23,634			20,325			13,594
Provision for income taxes		(48	)		9,303			8,986			7,136			4,486
Net income	$	648		$	15,102		$	14,648		$	13,189		$	9,108
Per Share Data (1)
Basic earnings per common share	$	0.02		$	0.87		$	0.85		$	0.76		$	0.52
Diluted earnings per common share	$	0.02		$	0.82		$	0.79		$	0.71		$	0.50
Dividends declared per common share	$	0.18		$	0.17		$	0.10		$	0.05		$	-
Ratio of dividends declared to net income		622.22	%		19.14	%		11.07	%		5.83	%		0.0	%
Financial Ratios
Return on average equity		0.35	%		12.25	%		13.26	%		13.59	%		10.74	%
Return on average assets		0.04	%		1.41	%		1.52	%		1.52	%		1.20	%
Efficiency ratio (2)		66.40	%		60.83	%		60.49	%		62.15	%		66.59	%
Net interest margin (3)		4.71	%		5.72	%		6.25	%		6.05	%		5.48	%
Balance Sheet Data at Year End
Gross loans	$	1,267,347		$	1,025,898		$	922,687		$	808,577		$	690,461
Allowance for loan losses	$	22,858		$	11,450		$	10,877		$	10,341		$	9,171
Allowance as percentage of loans		1.80	%		1.12	%		1.18	%		1.28	%		1.33	%
Total assets	$	1,484,141		$	1,157,961		$	1,034,511		$	913,661		$	804,445
Total deposits	$	1,211,269		$	935,315		$	879,350		$	768,419		$	688,985
Total equity	$	185,171		$	127,675		$	116,259		$	102,784		$	90,580

Notes:
(1)	Per share data has been restated for subsequent stock dividends.
(2)	Efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income plus non-interest income.
(3)	Tax adjusted at 34.00% for 2008, 38.25% for 2007, 38.00% for 2006 and 34.00% in prior years.

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ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

OVERVIEW

     The following discussion should be read in conjunction with PremierWest's audited consolidated financial statements and the notes thereto as of December 31, 2008 and 2007, and for each of the three years in the period ended December 31, 2008, that are included as exhibits in this report.

     PremierWest conducts a general commercial banking business, gathering deposits from the general public and applying those funds to the origination of loans for commercial, real estate, and consumer purposes and investments.

     PremierWest's profitability depends primarily on net interest income, which is the difference between interest income generated by interest-earning assets (principally loans and investments) and interest expense incurred on interest-bearing liabilities (principally customer deposits and borrowed funds). Net interest income is affected by the difference (the "interest rate spread") between interest rates earned on interest-earning assets and interest rates paid on interest-bearing liabilities, and by the relative volume of interest-earning assets and interest-bearing liabilities. Financial institutions have traditionally used interest rate spreads as a measure of net interest income. Another indication of an institution's net interest income is its "net yield on interest-earning assets" or "net interest margin," which is net interest income divided by average interest-earning assets.

     To a lesser extent, PremierWest's profitability is also affected by such factors as the level of non-interest income and expenses and the provision for income taxes. Non-interest income consists primarily of service charges on deposit accounts and fees generated through PremierWest's mortgage division and investment services subsidiary. Non-interest expense consists primarily of salaries, commissions and employee benefits, professional fees, equipment expenses, occupancy-related expenses, communications, advertising and other operating expenses.

FINANCIAL HIGHLIGHTS

     Net income for 2008 was $648,000, a 95.71% decline from 2007 net income of $15.1 million. Our diluted earnings per share were $0.02 and $0.82 for the years ended 2008 and 2007, respectively. This decline was primarily due to an increase in the loan loss provision of $22.5 million. Normal operating income continued to increase resulting in a $6.8 million increase in interest income and a $1.2 million increase in non-interest income and a $9.4 decline in income tax expense. Also affecting the year-to-year decline in net income were a $1.4 million increase in interest expense and an $8.0 million increase in non-interest expense. Return on average shareholders' equity was 0.35% and return on average assets was 0.04% for the year ended December 31, 2008. This compared with a return on average shareholders' equity of 12.25% and a return on average assets of 1.41% for 2007.

	Years Ended December 31,
		2008			2007			2006			2005			2004
(Dollars in thousands)
Net income	$	648		$	15,102		$	14,648		$	13,189		$	9,108
Average assets	$	1,457,230		$	1,073,571		$	966,786		$	867,532		$	755,945
RETURN ON AVERAGE ASSETS		0.04	%		1.41	%		1.52	%		1.52	%		1.20	%
Net income	$	648		$	15,102		$	14,648		$	13,189		$	9,108
Average equity	$	186,054		$	123,244		$	110,454		$	97,058		$	84,790
RETURN ON AVERAGE EQUITY		0.35	%		12.25	%		13.26	%		13.59	%		10.74	%
Cash dividends declared	$	4,032		$	2,891		$	1,621		$	769		$	-
Net income	$	648		$	15,102		$	14,648		$	13,189		$	9,108
PAYOUT RATIO		622.22	%		19.14	%		11.07	%		5.83	%		0.00	%
Average equity	$	186,054		$	123,244		$	110,454		$	97,058		$	84,790
Average assets	$	1,457,230		$	1,073,571		$	966,786		$	867,532		$	755,945
AVERAGE EQUITY TO ASSET RATIO		12.77	%		11.48	%		11.42	%		11.19	%		11.22	%

     Total loans outstanding, net of deferred loan fees, grew $241.6 million, or 23.6% in 2008 and totaled $1.27 billion at December 31, 2008 compared to $1.03 billion at December 31, 2007. Growth in loan volumes was largely

17

due to the acquisition of Stockmans Financial Group but also reflected growth across all of PremierWest Bank’s market areas. Over the past year, our allowance for loan loss increased 99.6% to $22.9 million totaling 1.81% of outstanding loans. The provision expense for loan losses was $23.2 million for 2008 compared to $686,000 in 2007. Management believes that an appropriate overall reserve exists based on our assessment of loan portfolio quality and our judgment of economic conditions that exist.

     Total deposits also grew to $1.21 billion at December 31, 2008, an increase of $276.0 million from $935.3 million at December 31, 2007, with $296.1 million attributable to the Stockmans Financial Group acquisition. Non-interest-bearing demand deposits totaled $228.8 million and accounted for 18.89% of total deposits at year end compared to 21.38% at December 31, 2007. The Bank continues to aggressively pursue non-interest-bearing deposit relationships from consumers and businesses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     This "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as disclosures included elsewhere in this Form 10-K, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires Management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, Management evaluates the estimates used, including the adequacy of the allowance for loan losses, impairment of intangible assets, contingencies and litigation. Estimates are based upon historical experience, current economic conditions and other factors that Management considers reasonable under the circumstances. These estimates result in judgments regarding the carrying values of a ssets and liabilities when these values are not readily available from other sources as well as assessing and identifying the accounting treatments of commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies involve the more significant judgments and assumptions used in the preparation of the consolidated financial statements.

     The allowance for loan losses is established to absorb known and inherent losses attributable to loans and leases outstanding and related off-balance sheet commitments. The adequacy of the allowance is monitored on an ongoing basis and is based on Management's evaluation of numerous factors. These factors include the quality of the current loan portfolio, the trend in the loan portfolio's risk ratings, current economic conditions, loan concentrations, loan growth rates, past-due and nonperforming trends, evaluation of specific loss estimates for all significant problem loans, historical charge-off and recovery experience and other pertinent information. As of December 31, 2008, approximately 73.11% of PremierWest's loan portfolio is secured by real estate. Accordingly, a significant decline in real estate values from current levels in Oregon and California could cause Management to increase the allow ance for loan losses.

     At December 31, 2008, PremierWest had approximately $70.4 million in goodwill as a result of previous business combinations. PremierWest adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002. Annual and periodic analysis of the fair value of recorded goodwill for impairment involves a substantial amount of judgment, as does establishing and monitoring estimated lives of other amortizable intangible assets.

     Effective January 1, 2006, PremierWest Bancorp adopted Financial Accounting Standards Board Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R requires companies to measure and recognize as compensation expense, the grant date fair market value for all share-based awards. SFAS 123R requires companies to estimate the fair market value of stock-based payment awards on the date of grant using an option-pricing model. We use the Black-Scholes option-pricing model to value our stock options. The Black-Scholes model requires the use of assumptions regarding the risk-free interest rate, our expected dividend yield, the weighted average expected life of the options and the historical volatility of our stock price.

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RESULTS OF OPERATIONS

Average Balances, Interest Rates and Yields

     The following tables set forth certain information relating to PremierWest's consolidated average interest-earning assets and interest-bearing liabilities and reflect the average yield on assets and average cost of liabilities for the years indicated. The yields and costs are derived by dividing income or expense by the average daily balance of assets or liabilities, respectively, for the periods presented. During the periods indicated, nonaccruing loans, if any, are included in the net loan category. The yields and costs include fees, premiums and discounts, which are considered adjustments to yield. The table reflects the effect of income taxes on nontaxable loans and securities.

	Years Ended December 31,
	2008							2007							2006
					Interest	Average						Interest	Average						Interest	Average
		Average			Income or	Yields or			Average			Income or	Yields or			Average			Income or	Yields or
		Balance			Expense	Rates			Balance			Expense	Rates			Balance			Expense	Rates
(Dollars in thousands)
INTEREST-EARNING ASSETS:
Loans (1) (2) (3)	$	1,254,837		$	88,082	7.02	%	$	962,419		$	82,313	8.55	%	$	855,562		$	72,830	8.51	%
Investment securities:
Taxable securities		33,144			1,128	3.40	%		2,730			66	2.42	%		5,735			98	1.71	%
Nontaxable securities (1)		3,487			227	6.51	%		5,649			372	6.59	%		7,896			521	6.60	%
Temporary investments		2,802			71	2.53	%		1,750			95	5.43	%		2,591			136	5.25	%
Total interest-earning assets		1,294,270			89,508	6.92	%		972,548			82,846	8.52	%		871,784			73,585	8.44	%
Cash and due from banks		33,655							28,073							30,453
Allowance for loan losses		(20,485	)						(11,174	)						(10,682	)
Other assets		149,790							84,124							75,231
Total assets	$	1,457,230						$	1,073,571						$	966,786
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and
savings accounts	$	427,646			6,912	1.62	%	$	377,550			9,691	2.57	%	$	342,221			5,896	1.72	%
Time deposits		545,329			19,432	3.56	%		329,912			15,454	4.68	%		248,887			10,035	4.03	%
Other borrowings		48,258			2,228	4.62	%		37,571			2,071	5.51	%		58,106			3,173	5.46	%
Total interest-bearing liabilities		1,021,233			28,572	2.80	%		745,033			27,216	3.65	%		649,214			19,104	2.94	%
Noninterest-bearing deposits		231,710							194,456							198,295
Other liabilities		18,233							10,838							8,823
Total liabilities		1,271,176							950,327							856,332
Shareholders' equity		186,054							123,244							110,454
Total liabilities and
shareholders' equity	$	1,457,230						$	1,073,571						$	966,786
Net interest income (1)				$	60,936						$	55,630						$	54,481
Net interest spread						4.12	%						4.87	%						5.50	%
Average yield on earning assets (1) (2)						6.92	%						8.52	%						8.44	%
Interest expense to earning assets						2.21	%						2.80	%						2.19	%
Net interest income to earning assets (1) (2)						4.71	%						5.72	%						6.25	%

(1)	Tax-exempt income has been adjusted to a tax equivalent basis at a 34.00% effective rate for 2008, 38.25% effective rate for 2007 and 38.00% for 2006. The amount of such adjustment was an addition to recorded pre-tax income of $246,000, $391,000 and $333,000 for 2008, 2007 and 2006, respectively.
(2)	Average non-accrual loans of approximately $63.0 million for 2008, $3.2 million for 2007 and $1.5 million for 2006 are included in the average loan balances.
(3)	Loan interest income includes loan fee income of $1.9 million, $2.6 million and $2.8 million for 2008, 2007 and 2006, respectively.

Net Interest Income

     PremierWest's profitability depends primarily on net interest income, which is the difference between interest income generated by interest-earning assets (principally loans and investments) and interest expense incurred on interest-bearing liabilities (principally customer deposits and borrowed funds). Net interest income is affected by the difference between rates of interest earned on interest-earning assets and rates of interest paid on interest-bearing liabilities (the "interest rate spread"), as well as the relative volumes of interest-earning assets and interest-bearing liabilities. Financial institutions have traditionally used interest rate spreads as a measure of net interest income. Another indication of an institution's net interest income is its "net yield on interest-earning assets" or "net interest margin," which is net interest income divided by average interest-earning assets.

     Net interest income on a tax equivalent basis, before provisions for loan losses, for the year ended December 31, 2008, was $60.9 million, an increase of 9.54% compared to tax equivalent net interest income of $55.6 million in 2007, which was an increase of 2.11% compared to tax equivalent net interest income of $54.5 million in 2006. The overall tax-equivalent earning asset yield was 6.92% in 2008 compared to 8.52% in 2007 and

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8.44% in 2006. For the years 2008, 2007 and 2006, the cost of interest-bearing liabilities was 2.80%, 3.65% and 2.94%, respectively.

     Total interest-earning assets averaged $1.29 billion for the year ended December 31, 2008, compared to $972.5 million for the corresponding period in 2007. The growth in earning assets was primarily the result of the Stockmans Financial Group acquisition in January, and was comprised of loan growth with additional growth in our investment security portfolio.

     Interest-bearing liabilities averaged $1.02 billion for the year ended December 31, 2008, compared to $745.0 million for the same period in 2007. Interest expense, as a percentage of average earning assets, decreased to 2.21% in 2008, compared to 2.80% in 2007 and 2.19% in 2006.

     Average loans, which generally carry a higher yield than investment securities and other earning assets, comprised 96.95% of average earning assets during 2008, compared to 98.96% in 2007 and 98.14% in 2006. During the same periods, average yields on loans were 7.02% in 2008, 8.55% in 2007 and 8.51% in 2006. Average investment securities comprised 2.83% of average earning assets in 2008, which was up from 0.86% in 2007 and 1.56% in 2006. Tax equivalent interest yields on investment securities were 3.62% for 2008, 5.26% for 2007 and 4.54% in 2006.

     The short-term interest rate environment, as measured by the Prime lending rate, remained stable from the end of the second quarter in 2006 until near the end of the third quarter of 2007. As was anticipated at the end of 2006, rates began to decline during the latter half of 2007 as actions to lower short term rates by the Federal Reserve resulted in a 50 basis point reduction in the Prime Rate on September 18, 2007, followed by separate 25 basis point reductions occurring on October 31 and December 11, 2007, respectively. During 2008, the Prime Rate dropped 400 basis points, including a 225 basis point drop in the first four months of 2008 and a 175 basis point drop during the last quarter of the year. As a result, our net interest spread decreased 101 basis points between 2007 and 2008. This decline was a result of decreasing interest rates and $1.7 million in interest reversals on loans placed on non-accrual status during 2008 and $2.7 million in interest lost once these loans were placed on non-accrual status. Our net interest margin for the fourth quarter was 4.36% compared to 4.67% for the third quarter, and was the result of not only the falling interest rate environment, but $420,000 in interest reversals on loans placed on non-accrual status, $1.1 million in interest lost on non-accruing loans and an unusually competitive core deposit interest rate environment. From a longer term perspective, our balance sheet is asset sensitive. Accordingly, a declining interest rate environment negatively impacts our net interest margin.

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Rate/Volume Analysis

     In the following table is an analysis of the net interest income on a tax equivalent basis indicating the impact of changes in the volume of interest-earning assets and interest-bearing liabilities and of changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities. The values in this table reflect the extent to which changes in interest income and changes in interest expense are attributable to changes in volume (changes in volume multiplied by the prior-year rate) and changes in rate (changes in rate multiplied by prior-year volume). Changes attributable to the combined impact of volume and rate have been allocated to rate.

	2008 vs. 2007									2007 vs. 2006
	Increase (Decrease) Due To									Increase (Decrease) Due To
								Net									Net
(in thousands)		Volume			Rate			Change			Volume			Rate			Change
Interest-earning assets:
Loans	$	25,002		$	(19,233	)	$	5,769		$	9,094		$	389		$	9,483
Investment securities:
Taxable securities		736			326			1,062			(51	)		19			(32	)
Nontaxable securities		(142	)		(3	)		(145	)		(148	)		(1	)		(149	)
Temporary investments		57			(81	)		(24	)		(44	)		3			(41	)
Total		25,653			(18,991	)		6,662			8,851			410			9,261
Interest-bearing liabilities:
Deposits:
Interest-bearing demand and savings	$	1,287			(4,066	)		(2,779	)	$	608			3,187			3,795
Time deposits		10,082			(6,104	)		3,978			3,265			2,154			5,419
Other borrowings		589			(432	)		157			(1,121	)		19			(1,102	)
Total		11,958			(10,602	)		1,356			2,752			5,360			8,112
Net increase (decrease) in net
interest income	$	13,695		$	(8,389	)	$	5,306		$	6,099		$	(4,950	)	$	1,149

Loan Loss Provision

     The loan loss provision represents charges made against earnings to maintain an adequate allowance for loan losses. The allowance is maintained at an amount believed to be sufficient to absorb losses in the loan portfolio and has two components: one of which represents estimated reserves based on assigned credit risk ratings for our entire loan portfolio, and the other represents specifically established reserves for individually classified loans. Factors considered in establishing an appropriate allowance include a careful assessment of the financial condition of the borrower; a realistic determination of the value and adequacy of underlying collateral; the condition of the local economy and the condition of the specific industry of the borrower; a comprehensive analysis of the levels and trends of loan categories; an assessment of pending legal action for collection of loans and related guarantees; and, a review of delinquent and classified loans. PremierWest applies a systematic process for determining the adequacy of the allowance for loan losses, including an internal loan review program and a quarterly analysis of the adequacy of the allowance. The quarterly analysis includes determination of specific potential loss factors on individual classified loans; historical potential loss factors derived from actual net charge-off experience and trends in nonperforming loans; and potential loss factors for other loan portfolio risks such as loan concentrations, the condition of the local economy, and the nature and volume of loans. The loan loss provision correlates to Management's judgment of the credit risk inherent in the loan portfolio. Although Management believes the loan loss provision has been sufficient to maintain an adequate allowance for loan losses, there can be no assurance that actual loan losses will not require significant additional charges to operations in the future.

     For the year ended December 31, 2008, the loan loss provision totaled $23.2 million, compared to $686,000 for 2007, and $800,000 for 2006. This represents an increase of 3,274.64% between 2007 and 2008 and a decrease of 14.25% between 2006 and 2007. During 2008, the Bank increased its provision for loan losses in response to credit issues experienced with a number of our borrowers, particularly those relying on stable real estate values as an integral component of their individual business strategies. The significant decline in economic activity and an attendant increase in problem credits was also reflected in an increase in foreclosure activity and a $4.4 million increase in the balance of other real estate owned at December 31, 2008. The breadth of the falloff in economic activity was felt throughout the geographic regions in which we conduct our business. In response, Management focused additiona l resources to proactively deal with credit relationships that showed indications of strain and sought and obtained independent validation of our internal evaluations of real estate collateral dependent loans. Management has progressively evolved

21

the Company’s loan policies and procedures, conducted an ongoing and comprehensive analysis of loan portfolio quality, increased the number of credit administration and internal audit personnel to oversee the consistent application and adherence to established loan policies and procedures and provided training to all lending personnel. A more detailed review of the loan loss provision is presented in the table on page 32.

     Loan "charge-offs" refer to the recorded values of loans actually removed from the consolidated balance sheet and, after netting out "recoveries" on previously charged-off loans, become "net charge-offs". PremierWest's policy is to charge-off loans when, in Management's opinion, the loan or a portion thereof is deemed uncollectible, although concerted efforts are made to maximize recovery after the charge-off. Management will continue to closely monitor the loan quality of new and existing relationships through strict review and evaluation procedures and by making loan officers accountable for collection efforts.

     For the years ended December 31, 2008 and December 31, 2007, loan charge-offs exceeded recoveries by $20.9 million and $294,000, respectfully. A more detailed review of charge-offs and recoveries are presented in the table on page 32.

Non-interest Income

     Non-interest income is primarily comprised of service charges on deposit accounts; mortgage origination fees; investment brokerage and annuity fees; other commissions and fees; and other non-interest income including gains on sales of investment securities. Deposit account related service charges and fees for other banking services have grown consistently over the past three years as a result of the Bank’s internal growth and also from increases made in our fee schedule for banking services.

     During 2008, non-interest income increased from $8.8 million in 2007 to $10.0 million, an increase of $1.2 million or 13.42%. Overall, deposit service charge income increased $1.1 million; other commissions and fees increased $475,000; and other non-interest income increased $20,000. The increases in total non-interest income were offset by a decline in mortgage origination income of $209,000 and a decline in investment brokerage and annuity fees of $214,000.

     For 2007, non-interest income increased from $7.7 million in 2006 to $8.8 million, an increase of $1.1 million or 14.40%. Overall, deposit service charge income increased $703,000; investment brokerage and annuity fees increased $506,000; other commissions and fees increased $222,000; and other non-interest income increased $45,000 while mortgage origination income decreased $365,000.

     In general, Management prices the Bank's deposit accounts at rates competitive with those offered by other commercial banks in its market area. Deposit and deposit fee growth have been generated by branch expansion, offering competitive deposit products, cultivating strong customer relationships through exceptional service and cross-selling deposit products to loan customers.

Non-interest Expense

     Non-interest expenses consist principally of salaries and employee benefits, occupancy and equipment costs, communication expenses, professional fees, advertising and other expenses.

     During 2008, non-interest expense increased $8.0 million or 20.47% from $39.0 million in 2007 to $46.9 million in 2008. Increased expenses were primarily associated with the acquired operations of Stockmans Financial Group. Increases in non-interest expense were salaries and employee benefits increasing $3.1 million or 12.95% . In addition, communications increased $356,000 or 20.67%; net occupancy expense increased $1.5 million or 25.42%; professional fees increased of $432,000 or 50.47%; and advertising expenditures increased $210,000 or 30.17% .

     During 2007, non-interest expense increased $1.6 million or 4.01% from $37.4 million in 2006 to $39.0 million in 2007. The main expenses contributing to this increase were generally part of the “other” non-interest expense category. This increase, $1.4 million, or 2.98%, was primarily driven by business development expenses of $451,000; other Bancorp expenses of $333,000; loss on the Low Income Housing Tax Credit (LIHTC) investment of $243,000; ATM expenses of $151,000; and corporate aircraft expenses of $120,000. Salaries and employee benefits increased $674,000, or 2.93%, and communications increased $44,000, or 2.62% . Net occupancy expense decreased $73,000, or 1.19%; professional fees decreased by $123,000, or 12.56%; and advertising expenditures decreased by $333,000, or 32.36% .

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Provision for Income Taxes

     The year-over-year decline in PremierWest's taxable income resulted in an effective tax rate of -8.00%, or -$48,000 in federal and state income taxes for 2008. This compares to an effective tax rate of 38.25% for 2007 and 38.0% for 2006.

Efficiency Ratio

     Banks use the term "efficiency ratio" to describe the relationship of administrative and other costs associated with generating revenues, a concept similar to a measurement of overhead. The efficiency ratio is computed by dividing non-interest expense by the sum of net interest income plus non-interest income. Management views the efficiency ratio as a measure of PremierWest's ability to control non-interest expenses.

     Expenses related to problem credits resulted in an increase in our efficiency ratio to a level in excess of our 60% target. For the year ended December 31, 2008, our efficiency ratio was 66.40%, as compared to 60.83% in 2007, and 60.49% in 2006.

     Generally, lower efficiency ratios reflect greater cost controls; however, the success of PremierWest’s community banking strategy necessitates a balance between heightened expense control and the need to maintain a high level of customer service in conjunction with effective risk management. Accordingly, PremierWest staffs its branches in a manner to support its high standards for delivering exceptional customer service and maintains the necessary administrative personnel to support the desired customer service while maintaining effective risk management through internal control functions such as credit administration, internal audit, and compliance.

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FINANCIAL CONDITION

     The table below sets forth certain summary balance sheet information for December 31, 2008, 2007 and 2006.

	December 31,									Increase (Decrease)
	2008		2007		2006		12/31/07 – 12/31/08					12/31/06 – 12/31/07
(Dollars in thousands)
ASSETS
Federal funds sold	$	165	$	10,350	$	-	$	(10,185	)	(98.41	%)	$	10,350		0.00	%
Investment securities		36,404		6,320		7,318		30,084		476.01	%		(998	)	(13.64	%)
Restricted equity
investments		3,643		1,865		1,865		1,778		95.34	%		-		0.00	%
Loans		1,242,766		1,012,269		908,652		230,497		22.77	%		103,617		11.40	%
Other assets (1)		201,163		127,157		116,676		74,006		58.20	%		10,481		8.98	%
Total assets	$	1,484,141	$	1,157,961	$	1,034,511	$	326,180		28.17	%	$	123,450		11.93	%
LIABILITIES
Noninterest-bearing
deposits	$	228,788	$	199,941	$	199,462	$	28,847		14.43	%	$	479		0.24	%
Interest-bearing
deposits		982,481		735,374		679,888		247,107		33.60	%		55,486		8.16	%
Total deposits		1,211,269		935,315		879,350		275,954		29.50	%		55,965		6.36	%
Other liabilities (2)		87,701		94,971		38,902		(7,270	)	(7.65	%)		56,069		144.13	%
Total liabilities		1,298,970		1,030,286		918,252		268,684		26.08	%		112,034		12.20	%
SHAREHOLDERS’
EQUITY		185,171		127,675		116,259		57,496		45.03	%		11,416		9.82	%
Total liabilities
and share-
holders’ equity	$	1,484,141	$	1,157,961	$	1,034,511	$	326,180		28.17	%	$	123,450		11.93	%

(1) Includes cash and due from banks, mortgage loans held-for-sale, property and equipment, goodwill, accrued interest receivable and other assets.

(2) Includes federal funds purchased, borrowings, accrued interest payable and other liabilities.

Investment Portfolio

     Investment securities provide a return on residual funds after lending activities. Investments may be in interest-bearing deposits, U.S. government and agency obligations, state and local government obligations or government-guaranteed, mortgage-backed securities. PremierWest generally does not invest in securities that are rated less than investment grade by a nationally recognized statistical rating organization. All securities-related investment activity is reported to the Board of Directors. Board review is required for significant changes in investment strategy. Certain senior executives have the authority to purchase and sell securities for our portfolio in accordance with PremierWest's stated Funds Management policy.

     Management determines the appropriate classification of securities at the time of purchase. If Management has the intent and PremierWest has the ability at the time of purchase to hold a security until maturity or on a long-term basis, the security is classified as "held-to-maturity" and is reflected on the balance sheet at historical cost. Securities to be held for indefinite periods and not intended to be held to maturity or on a long-term basis are classified as "available-for-sale." Available-for-sale securities are reflected on the balance sheet at their estimated fair market value.

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     The following table sets forth the carrying value of PremierWest's investment portfolio at the dates indicated.

	December 31,
(in thousands)	2008		2007		2006
Investment securities (available-for-sale)
Mortgage-backed securities and collateralized
mortgage obligations	$	188	$	222	$	263
		188		222		263
Investment securities (held-to-maturity)
Mortgage-backed securities and collateralized
mortgage obligations		1,799		-		-
U. S. Government and agency		27,496		1,484		-
Obligations of states and
political subdivisions		2,921		4,614		7,055
		32,216		6,098		7,055
Investment securities - CRA		4,000		-		-
Restricted equity securities		3,643		1,865		1,865
Total investment securities	$	40,047	$	8,185	$	9,183

     The contractual maturity of investment securities at December 31, 2008, excluding mortgage-related securities, investment securities - CRA and restricted equity securities for which contractual materials are diverse or nonexistent, is shown below. Expected maturities of investment securities could differ from contractual maturities because the borrower, or issuer, may have the right to call or prepay obligations with or without call or prepayment penalties.

		December 31,
		2008						2007						2006
		Amortized		Estimated	%			Amortized		Estimated	%			Amortized		Estimated	%
		Cost		Fair Value	Yield (1)			Cost		Fair Value	Yield (1)			Cost		Fair Value	Yield (1)
(Dollars in thousands)
U. S. Government and agency securities:
One year or less	$	12,133	$	12,309	2.85	%	$	1,484	$	1,484	-		$	-	$	-	-
One to five years		15,363		15,606	2.85	%		-		-	-			-		-	-
Five to ten years		-		-	-			-		-	-			-		-	-
Obligations of states and
political subdivisions:
One year or less		643		642	6.38	%		638		638	5.44	%		2,180		2,175	5.89	%
One to five years		906		904	5.68	%		1,437		1,428	5.73	%		2,002		1,980	6.72	%
Five to ten years		1,372		1,374	6.81	%		2,539		2,522	6.28	%		2,873		2,844	6.03	%
Over ten years		-		-	-			-		-	-			-		-	-
Corporate bonds:
One year or less		-		-	-			-		-	-			-		-	-
One to five years		-		-	-			-		-	-			-		-	-
Total debt securities		30,417		30,835				6,098		6,072				7,055		6,999
Mortgaged-backed securities
and collateralized mortgage
obligations		1,987		2,039	5.51	%		222		222	5.69	%		264		263	5.78	%
Investment securities - CRA		4,000		4,000	N/A			-		-	N/A			-		-	N/A
Restricted equity securities		3,643		3,643	N/A			1,865		1,865	N/A			1,865		1,865	N/A
Total securities	$	40,047	$	40,517			$	8,185	$	8,159			$	9,184	$	9,127

(1) For the purposes of this schedule, weighted average yields are stated on a federal tax-equivalent basis at a 34.00% rate.

25

     During 2008, we acquired $32.0 million in securities from the acquisition of Stockmans Bank and purchased $33.3 million in additional securities. During the same year, $30.1 million in securities matured, were called or were paid down. This compares to proceeds from sales, maturities and/or calls of investment securities of $3.4 million in 2007, and $7.5 million in 2006. No security gains were reported during 2008 and 2007, but we reported realized gains of $2,000 for the year ended December 31, 2006.

     At December 31, 2008, PremierWest's investment portfolio had total net unrealized gains of approximately $470,000. This compares to net unrealized losses of approximately $26,000 at December 31, 2007, and $57,000 at December 31, 2006. Unrealized gains and losses reflect the impact of security values from changes in market interest rates and do not represent the amount of actual profits or losses that may be recognized by the Bank. Actual realized gains and losses occur at the time investment securities are sold or called.

     Securities may be pledged from time-to-time to secure public deposits, FHLB borrowings, repurchase agreement deposit accounts, or for other purposes as required or permitted by law. At December 31, 2008, securities with a market value of $32.9 million were pledged for such purposes.

     As of December 31, 2008, PremierWest also held 15,881 shares of $100 par value Federal Home Loan Bank of Seattle (FHLB) stock, which is a restricted equity security. FHLB stock represents an equity interest in the FHLB, but it does not have a readily determinable market value. The stock can be sold at its par value only, and only to the FHLB or to another member institution. Member institutions are required to maintain a minimum stock investment in the FHLB based on specific percentages of their outstanding mortgages, total assets or FHLB advances. At December 31, 2008 and 2007, the Bank met its minimum required investment in FHLB. In addition to FHLB stock, PremierWest bank holds 15,170 shares of stock in the Federal Home Loan Bank of San Francisco. This stock was acquired pursuant to the acquisition of Stockmans Bank and reflects its required minimum stock investment in Federal Home Loan Bank of Sa n Francisco, which must be maintained for a five-year period.

     The Bank also owns stock in Pacific Coast Banker's Bank (PCBB). The investment in PCBB increased from $277,000 in 2007 to $529,000 in 2008 as a result of the acquisition of Stockmans Bank. This investment is carried at its fair market value at acquisition and is included in restricted equity investments on the balance sheet. PCBB operates under a special purpose charter to provide wholesale correspondent banking services to depository institutions. By statute, 100% of PCBB's outstanding stock is held by depository institutions that utilize its correspondent banking services.

Loan Portfolio

     The most significant asset on our balance sheet in terms of risk and the effect on our earnings is our loan portfolio. On our balance sheet, the term "net loans" refers to total loans outstanding, at their principal balance outstanding, net of the allowance for loan losses and deferred loan fees. PremierWest's loan policies and procedures establish the basic guidelines governing our lending operations. Generally, the guidelines address the types of loans that we seek, our target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. All loans or credit lines are subject to approval procedures and amount limitations. These limitations apply to the borrower's total outstanding indebtedness to the Bank, including the indebtedness of any guarantor. The policies are reviewed and approved by the Board of Directors of Premi erWest on a routine basis.

     Bank officers are charged with loan origination in compliance with underwriting standards overseen by the credit administration department and in conformity with established loan policies. On an as needed but not less than annual basis, the Board of Directors determines the lending authority of the Bank's loan officers. Such delegated authority may include authority related to loans, letters of credit, overdrafts, uncollected funds, and such other authority as determined by the Board, the President and Chief Executive Officer, or Chief Credit Officer within their own delegated authority.

     The Chief Credit Officer has the authority to approve loans up to a lending limit as set by the Board of Directors. All loans above the lending limit of the Chief Credit Officer, and up to a certain higher limit, may be approved jointly by the Chief Credit Officer along with one of the following: Chairman of PremierWest Bank, President and Chief Executive Officer or the Chief Banking Officer. Loans that exceed this limit are subject to the review and approval by the Board's Loan Committee. PremierWest's unsecured legal lending limit was approximately $23.7 million and our real estate secured lending limit was approximately $39.6 million at December

26

31, 2008. PremierWest seldom makes loans for an amount approaching its legal lending limits. The following table sets forth the composition of the loan portfolio including loans held-for-sale, as of December 31, 2004 through 2008.

	Years Ended December 31,
		2008				2007				2006				2005				2004
(Dollars in thousands)		Amount	Percentage			Amount	Percentage			Amount	Percentage			Amount	Percentage			Amount	Percentage
Commercial	$	200,559	15.83	%	$	186,536	18.18	%	$	175,292	19.00	%	$	131,819	16.30	%	$	94,560	13.70	%
Real estate - Construction		296,239	23.37	%		268,254	26.15	%		259,254	28.10	%		237,150	29.30	%		149,250	21.60	%
Real Estate - Commercial/
Residential		629,279	49.65	%		463,852	45.21	%		405,499	43.95	%		367,069	45.40	%		372,812	54.00	%
Consumer		90,215	7.12	%		75,395	7.35	%		53,542	5.80	%		49,520	6.10	%		43,039	6.20	%
Other		51,055	4.03	%		31,861	3.11	%		29,100	3.15	%		23,019	2.90	%		30,800	4.50	%
Total loans, gross	$	1,267,347	100.00	%	$	1,025,898	100.00	%	$	922,687	100.00	%	$	808,577	100.00	%	$	690,461	100.00	%

     Outstanding loans, net of deferred loan fees and the allowance for loan loss, totaled $1.24 billion at December 31, 2008, representing an increase of $230.5 million, or 22.77%, compared to $1.01 billion as of December 31, 2007. Unfunded loan commitments were $168.9 million as of December 31, 2008, representing a decrease of $3.4 million from total unfunded loan commitments at December 31, 2007. For a more detailed discussion of off-balance sheet arrangements, see Note 15 to the financial statements included in this report starting on page F-34.

     PremierWest's gross loan portfolio at December 31, 2008, is comprised of the following: 73.02% loans secured by real estate, 15.83% of commercial loans and 11.15% consumer and other loans. The greatest loan concentration is in real estate loans, a common characteristic among community banks due to focused lending for business and consumer needs in communities within the Bank's market area. Some commercial loans are secured by real estate, but funds are used for purposes other than financing the purchase of real property, such as inventory financing and equipment purchases, where real property serves as collateral for the loan. Loans of this type are characterized as real estate loans because of the real estate held as collateral.

     The following table presents maturity and re-pricing information for the loan portfolio at December 31, 2008. The table segments the loan portfolio between fixed-rate and adjustable rate loans and their respective repricing intervals based on fixed-rate loan maturity dates and variable-rate loan re-pricing dates for the periods indicated.

	December 31, 2008
	Within One		One to Five		After Five
(in thousands)	Year (1)		Years		Years		Total
FIXED-RATE LOAN MATURITIES
Commercial	$	17,669	$	16,702	$	452	$	34,823
Real estate – Construction		46,025		12,619		725		59,369
Real estate – Commercial/Residential		46,965		43,920		10,627		101,512
Consumer		10,240		21,370		25,572		57,182
Other		3,826		7,501		956		12,283
Total fixed rate loan maturities		124,725		102,112		38,332		265,169
ADJUSTABLE-RATE LOAN REPRICINGS
Commercial		113,659		45,405		6,673		165,737
Real estate – Construction		194,029		36,809		6,032		236,870
Real estate – Commercial/Residential		237,619		251,710		38,437		527,766
Consumer		24,470		1,078		23		25,571
Other		31,573		12,977		1,684		46,234
Total adjustable-rate loan repricings		601,350		347,979		52,849		1,002,178
Total maturities and repricings	$	726,075	$	450,091	$	91,181	$	1,267,347

(1)      Loans due on demand and overdrafts are included in the amount due in one year or less. PremierWest has no loans without a stated schedule for repayment or a stated maturity.

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Nonperforming Loans

     Management considers a loan to be nonperforming when it is 90 days or more past due, or sooner when the Bank has determined that repayment of the loan in full is unlikely. Generally, unless collateral for a loan is a one-to-four family residential dwelling, interest accrual ceases in 90 days (but no later than the date of acquisition by foreclosure, voluntary deed or other means) and the loan is classified as nonperforming. A loan placed on nonaccrual status may or may not be contractually past due at the time the determination is made to place the loan on nonaccrual status, and it may or may not be secured. When a loan is placed on nonaccrual status, it is the Bank's policy to reverse interest previously accrued but uncollected. Interest later collected on the nonaccrual loan, for book purposes, is credited to loan principal if, in Management's opinion, full collectibility of principal is doubtful.< /FONT>

     At December 31, 2008 and 2007, loans that were more than 90 days delinquent for which the accrual of interest had been discontinued included the following:

	December 31,
	2008					2007
			% of				% of
			Related				Related
(Dollars in thousands)		Amount	Portfolio			Amount	Portfolio
Commercial	$	1,278	0.64	%	$	1,638	0.88	%
Real estate – Construction		47,377	15.99	%		5,235	1.95	%
Real estate – Commercial/Residential		14,630	2.32	%		603	0.13	%
Consumer		1,656	1.84	%		810	1.07	%
Other		-	0 .00	%		82	0.26	%
Total	$	64,941	5.12	%	$	8,368	0.82	%

     Impaired loans include all nonaccrual and restructured commercial and real estate loans. Loan impairment is measured as the present value of expected future cash flows discounted at the loan's effective interest rate, the fair value of the collateral of an impaired collateral-dependent loan or an observable market price. Interest income on impaired loans is recognized by the cash basis method.

     When the Bank acquires real estate through foreclosure, voluntary deed, or similar means, it is classified as "other real estate owned" until it is sold. On December 31, 2008 there was $4.4 million in other real estate owned. On December 31, 2007 and 2006, there was no other real estate owned. When property is acquired in this manner, it is recorded at the lower of cost (the unpaid principal balance at the date of acquisition) or fair value less estimated selling costs. Any further write-down is charged to expense. All costs incurred from the date of acquisition to maintain the property are expensed as incurred. "Other real estate owned" is appraised during the foreclosure process, before acquisition. Losses are recognized against the allowance for loan losses in the amount by which the cost value of the related loan exceeds the estimated net realizable value of the property acquired. Subsequent writ e-downs are recorded as non-interest expense.

     At December 31, 2008 and 2007, nonperforming loans (loans more than 90 days delinquent and/or on nonaccrual status) totaled approximately $64.9 million and $8.4 million, respectively. The large dollar increase in nonperforming loans between 2008 and 2007 is concentrated primarily in real estate collateralized loans, both construction and commercial/residential for which Management believes adequate collateral coverage exists.

     Management is committed to a credit culture that emphasizes quality underwriting standards and that provides for the effective monitoring of loan quality and aggressive resolution to problem loans once they are identified. Nonperforming assets amounted to 4.67% of total assets outstanding at December 31, 2008, up from 0.73% at December 31, 2007, and are primarily a result of the economic disruption that occurred during 2008. Interest income that would have been recognized on nonaccrual loans if such loans had performed in accordance with contractual terms totaled $4.4 million for the year ended December 31, 2008, $516,000 for the year ended December 31, 2007, and $40,000 for the year ended December 31, 2006. Actual interest income recognized on such loans during all of the periods was not significant. At December 31, 2008 and 2007, the allowance for loan losses related to impaired loans was $11.2 mil lion and $372,000, respectively.

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The following table summarizes nonperforming assets by category:
	December 31,
(Dollars in thousands)	2008			2007			2006			2005			2004
Loans on nonaccrual status	$	63,004		$	8,221		$	1,430		$	2,273		$	1,890
Loans past due greater than 90 days but
not on nonaccrual status		1,937			147			24			2			26
Other real estate owned		4,423			-			-			-			483
Total nonperforming assets	$	69,364		$	8,368		$	1,454		$	2,275		$	2,399
Percentage of nonperforming assets
to total assets		4.67	%		0.73	%		0.14	%		0.25	%		0.30	%

     Total nonperforming assets were $69.4 million at December 31, 2008, up from $8.4 million at December 31, 2007. The nonperforming asset total includes $4.4 million in other real estate owned as of December 31, 2008, up from $0 at the previous year end. Nonperforming loans are concentrated in ten relationships comprising $53.8 million or 82.85% of the total.

     The first of these relationships consists of multiple loans secured by real estate in northern California that totaled $14.2 million originally. This relationship is now at $6.7 million as the result of a $1.2 million paydown and our decision to charge off $6.3 million during 2008. Foreclosure by another lender against our guarantor on an adjacent property and the borrower filing personal bankruptcy led to the actions we have taken. We intend to continue to work through foreclosure of the real estate and to ensure any bankruptcy proceeds available are properly applied to this relationship. A reserve for impairment on the remaining credit relationship was also established.

     The second nonperforming relationship is comprised of two purchased participation loans: the first is secured with approved residential lots and the second with unimproved land also in northern California. We purchased a minority position from two separate financial institutions, each with a national presence. The borrower is a well-known local real estate development company that was impacted by the decline in real estate activity in late 2007. Both of the guarantors have since filed for personal bankruptcy. The $5.0 million credit was reported as nonperforming with our December 31, 2007 Earnings Release. The related $7.3 million credit was placed on non-accrual status during the first quarter of 2008, at which time a new appraisal was obtained from the lead bank. As these two properties are in close proximity, a reserve for impairment was established in the second quarter of 2008 for both credits. During the third quarter, foreclosure was completed on the $5.0 million participation loan and, as a result of actions by the lead lender, $1.3 million was booked as other real estate owned with the balance being charged against the loan loss reserve. We continue to work with the lead bank on marketing this property. The second participation is in the final stages of foreclosure with a resolution expected during 2009.

     The third relationship consists of two loans originally totaling $6.8 million that were acquired at the time of our merger with Stockmans in January of this year. The relationship was secured with undeveloped property in central and northern California and was identified and discussed in detail during our pre-merger due diligence of Stockmans. The northern California property, comprising $2.3 million of the total, was foreclosed on in the second quarter of 2008 with a charge-off of $1.3 million and the remaining $1.0 million balance included as other real estate owned. The second credit consists of a $4.5 million credit secured by undeveloped real estate with a significant loan from a third-party investor group in second position behind our lien. The borrower continues to keep this loan current while both parties negotiate a workout. We had previously established a specific reserve for impairment on this credit, which Management believes is sufficient given the value of the property as well as guarantor support.

     The fourth relationship, totaling $3.0 million, is comprised of multiple loans secured by approved residential building lots and by completed and partially completed residential units, all situated in southern and central Oregon. The Bank has taken possession of the properties, and a stipulated deficiency was accepted by the borrower. The Bank is currently marketing the properties.

     The fifth credit relationship consists of notes totaling $2.8 million. The loans were for property acquisition and development as well as residential unit construction in central Oregon. We have established a specific reserve for impairment on this credit, which Management believes is sufficient.

29

     The sixth nonperforming credit relationship consists of multiple notes totaling $14.7 million, all secured by commercial property including two assisted living facilities, commercially zoned land and a non-owner occupied commercial building. Three of the properties are in Oregon and one in northern California. The borrowers have experienced severe cash flow difficulties and are attempting to sell assets, and the lead guarantor has filed personal bankruptcy. We have obtained updated appraisals on the properties and, as a result, have established an impairment. Negotiations with the borrower and parties interested in acquiring three of the properties are on-going.

     The seventh relationship consists of two notes totaling $6.3 million. This relationship is secured by two residential developments in central Oregon. Based on updated appraisals, a specific reserve for impairment has been established for these credits, and negotiations with the borrower continue.

     The eighth relationship consists of multiple notes totaling $6.3 million. This borrower has been impacted by a real estate related business that failed with the downturn of the mortgage lending industry. He has been working with all of his creditors to establish an orderly plan to sell assets. Our collateral consists of residential development lots, a utility system infrastructure and other commercial property in Southern Oregon. We have agreed to a restructure of this credit and will be monitoring it closely for performance. Based on current collateral values, we anticipate no loss at this time.

     The ninth credit relationship consists of notes totaling $4.8 million. The notes are secured by completed residential lots, bare land and two completed townhomes all which are located in central Oregon. Updated appraisals have been received, and a specific reserve for impairment has been established based on Management’s evaluation of the collateral value.

     The tenth credit relationship consists of three loans totaling $2.8 million. The borrower is deceased, and the estate has been uncooperative to date. Our collateral consists of residential lots and raw commercial land in northern California. Current appraisals have been received, and legal action was commenced during the first quarter of 2009.

     The Bank significantly increased its resources dedicated to dealing with nonperforming assets in late 2007 to provide a proactive, centralized and focused approach to expediting potential collections, recoveries, workouts and liquidations of criticized assets. The results from these actions continue to evolve with foreclosure actions commenced and liquidations scheduled or initiated. More importantly, this team is working closely with borrowers that are motivated to resolve their financial issues through properly collateralized restructures and workouts. This is evident in the decline in interest reversals necessary during the fourth quarter of 2008, which fell from $592,000 in the third quarter to $419,000 during the fourth quarter. In addition, the team is proactive in contacting distressed asset investors in anticipation of soliciting interest in acquiring notes or foreclosed property. The holding costs of certain other real estate owned are being reviewed as current volatile market conditions may warrant holding some foreclosed assets for future gains. With shareholder value in mind, our team will continue to evaluate these assets and act accordingly.

Allowance for Loan Losses

     The allowance for loan losses is established through the provision for loan losses charged to expense and represents the aggregate of the loan loss provision charged against earnings as described above, net of loans charged off and recoveries on previously charged-off loans. The provision charged to operating expense is based on loan loss experience and other factors that, in Management's judgment, should be recognized to estimate losses. Management monitors the loan portfolio to ensure that the reserve for loan losses remains adequate to absorb potential losses identified by the portfolio review process, including loans on nonaccrual status and current loans whose repayment according to the loan's repayment plan is considered by Management to be in serious doubt.

The amount of the allowance for loan losses is based on a variety of factors, including:

• Analysis of risks inherent in the various segments of the loan portfolio;

• Management's assessment of known or potential problem credits, which have come to Management's attention during the ongoing review of credit quality;

• Estimates of the value of underlying collateral and guarantees;

• Legal representation regarding the potential outcome of pending actions for collection of loans and related guarantees;

• Historical loss experience; and,

• Current local and national economic conditions and other factors.

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     If actual circumstances and losses differ substantially from Management's assumptions and estimates, the allowance for loan losses might not be sufficient to absorb all future losses. Net earnings would be adversely affected if that occurred. Loan loss estimates are reviewed periodically. Adjustments to the allowance, if any, are charged against or credited to earnings in the period in which the basis for the adjustment becomes known.

     A further slowing in the Oregon and/or California economies, further declines in real estate values or increased unemployment could result in increased levels of nonperforming assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review PremierWest's allowance for loan losses. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

     PremierWest's allowance for loan losses totaled $22.9 million at December 31, 2008, and $11.5 million at December 31, 2007, representing 1.80% of total loans at December 31, 2008 and 1.12% of total loans at December 31, 2007. The loan loss allowance represents 35.20% of nonperforming loans at December 31, 2008, and 135.89% of nonperforming loans at December 31, 2007. Although Management believes that it uses the best information available in providing for estimated loan losses and that the allowance was adequate at December 31, 2008, future adjustments could be necessary and net earnings could be affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the determinations of the adequacy of the allowance for loan losses.

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The following is a summary of PremierWest's loan loss experience and selected ratios for the periods presented:

		December 31,
(Dollars in thousands)		2008			2007			2006			2005		2004
Gross loans outstanding at end of year	$	1,267,347		$	1,025,898		$	922,687		$	808,577		$	690,461
Average loans outstanding	$	1,254,837		$	962,419		$	855,562		$	754,465		$	605,747
Allowance for loan losses, beginning
of year	$	11,450		$	10,877		$	10,341		$	9,171		$	5,466
Loans charged-off:
Commercial		(8,843	)		(134	)		(100	)		(13	)		(176	)
Real estate		(8,086	)		-			-			(500	)		(563	)
Consumer		(1,379	)		(539	)		(271	)		(147	)		(302	)
Other		(3,556	)		(154	)		(125	)		(111	)		(2,758	)
Total loans charged-off		(21,864	)		(827	)		(496	)		(771	)		(3,799	)
Recoveries:
Commercial		143			204			95			119			75
Real estate		216			-			-			-			3
Consumer		229			217			93			50			87
Other		422			112			44			1,622			454
Total recoveries		1,010			533			232			1,791			619
Net (charge-offs) or recoveries		(20,854	)		(294	)		(264	)		1,020			(3,180	)
Allowance for loan losses transferred from:
Mid Valley Bank		-			-			-			-			6,085
Stockmans Financial Group		9,112
Other adjustments (1)		-			181			-			-			-
Provision charged to income		23,150			686			800			150			800
Allowance for loan losses, end of year	$	22,858		$	11,450		$	10,877		$	10,341		$	9,171
Ratio of net loans charged-off to average
loans outstanding		1.66	%		0.03	%		0.03	%		n/a			0.52	%
Ratio of allowance for loan losses to
ending total loans		1.80	%		1.12	%		1.18	%		1.28	%		1.33	%

(1) Includes a balance sheet reclassification adjustment (decrease) of $255,000 from the allowance for loan losses to other liabilities in accordance with Financial Accounting Standard No. 5. The amount reclassified represents the off-balance sheet credit exposure related to unfunded commitments to lend and letters of credit; and a $436,000 increase resulting from the purchase of a consumer finance loan portfolio on June 29, 2007.

     The following table shows the allocation of PremierWest's allowance for loan losses by category and the percent of loans in each category to total loans at the dates indicated. PremierWest allocates its allowance for loan losses to each loan classification based on relative risk characteristics. General, Specific and Qualitative allocations are made based on estimated losses that are due to current credit circumstances and other available information for each loan category. General allocations are based on historical loss factors. Specific allocations are related to loans on nonaccrual status; estimated reserves based on individual credit risk ratings; loans for which Management believes the borrower might be unable to comply with loan repayment terms, even though the loans are not in nonaccrual status; and, loans for which supporting collateral might not be adequate to recover loan amounts if forecl osure and subsequent sale of collateral become necessary. Qualitative allocations include adjustments for economic conditions, concentrations, and other subjective factors, and are intended to compensate for the subjective nature of the determination of losses inherent in the overall loan portfolio. Because the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio, the portion of the allowance allocated to each loan category does not necessarily represent the inherent losses that may occur within that loan category.

32

		December 31,
		2008			2007				2006				2005				2004
		Allowance	As a			Allowance	As a			Allowance	As a			Allowance	As a			Allowance	As a
		for loan	% of			for loan	% of			for loan	% of			for loan	% of			for loan	% of
(Dollars in thousands)		losses	total loans			losses	total loans			losses	total loans			losses	total loans			losses	total loans
Type of loan:
Commercial	$	3,100	15.83	%	$	1,684	18.18	%	$	1,889	19.00	%	$	2,640	16.30	%	$	3,102	13.70	%
Real estate-
Construction		11,654	23.37	%		3,720	26.15	%		4,096	28.10	%		2,295	29.30	%		1,191	21.60	%
Real estate-
Commercial/
Residential		6,414	49.65	%		4,516	45.21	%		3,820	43.95	%		4,599	45.40	%		4,232	54.00	%
Consumer and Other		1,690	11.15	%		1,530	10.46	%		1,072	8.95	%		807	9.00	%		646	10.70	%
Total	$	22,858	100.00	%	$	11,450	100.00	%	$	10,877	100.00	%	$	10,341	100.00	%	$	9,171	100.00	%

     Despite diligent assessment by Management, there can be no assurance regarding the actual amount of charge-offs that will be incurred in the future.

Deposits

     Deposit accounts are PremierWest's primary source of funds. PremierWest offers a number of deposit products to attract commercial and consumer customers including regular checking and savings accounts, money market accounts, IRA accounts, NOW accounts, and a variety of fixed-maturity, fixed-rate time deposits with maturities ranging from seven days to 60 months. These accounts earn interest at rates established by Management based on competitive market factors and Management's desire to increase certain types or maturities of deposit liabilities.

The distribution of deposit accounts by type and rate is set forth in the following tables as of the indicated dates:

								Years Ended December 31,
	2008						2007						2006
		Average		Interest	Average			Average		Interest	Average			Average		Interest	Average
(Dollars in thousands)		Balance		Expense	Rate			Balance		Expense	Rate			Balance		Expense	Rate
Savings, money market and
interest-bearing demand	$	427,645	$	6,912	1.62	%	$	377,550	$	9,691	2.57	%	$	342,221	$	5,896	1.72	%
Time deposits		545,329		19,432	3.56	%		329,912		15,454	4.68	%		248,887		10,035	4.03	%
Total interest-bearing deposits		972,974	$	26,344	2.71	%		707,462	$	25,145	3.55	%		591,108	$	15,931	2.70	%
Non-interest-bearing deposits		231,711						194,456						198,295
Total interest-bearing and
non-interest-bearing deposits	$	1,204,685					$	901,918					$	789,403

 

       Total deposits grew $276.0 million during 2008, reaching $1.21 billion at December 31, 2008 compared to $935.3 million at December 31, 2007, a 29.5% increase, primarily due to the Stockmans Financial Group acquisition. At December 31, 2007, total deposits were $935.3 million, an increase of $55.9 million, or 6.4%, from total deposits of $879.4 million at December 31, 2006. During 2008, non-interest-bearing deposits increased $28.8 million, or 14.4%, from $199.9 million at December 31, 2007. At December 31, 2008, core deposits, which consist of all demand deposit accounts, savings accounts, and time deposits less than $100,000 (excluding brokered deposits), accounted for 72.7% of total deposits, a decrease from 79.80% as of December 31, 2007.

     Interest-bearing deposits consist of money market, NOW, savings, and time deposit accounts. Interest-bearing account balances tend to grow or decline as PremierWest adjusts its pricing and product strategies based on market conditions, including competing deposit products. At December 31, 2008, total interest-bearing deposit accounts were $982.5 million, an increase of $247.2 million, or 33.6%, from December 31, 2007.

     Management utilizes brokered deposits with maturities that are typically less than one year as a short-term funding source for loan growth. Brokered deposits are classified as time deposits that are greater than $100,000 but are not considered core deposits. At December 31, 2008, brokered deposits totaled $123.9 million, or 10.20% of total deposits; at December 31, 2007 brokered deposits totaled $59.3 million or 6.30% of total deposits. There were no brokered deposits as of December 31, 2006. At December 31, 2008, time deposits of $100,000 and over totaled

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$205.9 million, or 17.00% of total outstanding deposits, compared to $130.2 million, or 13.90% of total outstanding deposits at December 31, 2007, and $103.0 million, or 11.70% of total outstanding deposits at December 31, 2006. The following table sets forth time deposit accounts outstanding at December 31, 2008, by time remaining to maturity:

	Time Deposits of				Time Deposits Less
	$100,000 or More				Than $100,000
(Dollars in thousands)		Amount	Percentage			Amount	Percentage
Three months or less	$	75,527	36.68	%	$	127,918	35.54	%
Over three months through six months		51,766	25.14	%		78,479	21.80	%
Over six months through 12 months		32,637	15.85	%		97,430	27.07	%
Over 12 months		45,969	22.33	%		56,119	15.59	%
Total	$	205,899	100.00	%	$	359,946	100.00	%

Short-term and Long-term Borrowings and Other Contractual Obligations

     The following table sets forth certain information with respect to PremierWest's short-term borrowings from Federal Home Loan Bank (FHLB) Cash Management Advances (CMA) and federal funds purchased:

	Years Ended December 31,
	2008					2007					2006
		FHLB		Federal			FHLB		Federal			FHLB		Federal
		CMA		Funds			CMA		Funds			CMA		Funds
		Advances		Purchased			Advances		Purchased			Advances		Purchased
(Dollars in thousands)
Amount outstanding at end of period	$	20,000		25,003		$	13,500		54,019		$	5,000		6,835
Weighted average interest rate at
end of period		0.76	%	1.10	%		4.35	%	4.76	%		5.63	%	6.21	%
Maximum amount outstanding at any
month-end during the year	$	25,000		36,859		$	17,500		54,019		$	35,000		33,551
Average amount outstanding during
the period	$	4,183		15,261		$	8,230		13,082		$	24,973		16,236
Average weighted interest rate
during the period		1.37	%	2.78	%		5.28	%	5.47	%		5.31	%	5.46	%

     The Bank participates in the Cash Management Advance Program (CMA) with the FHLB. CMA borrowings outstanding were $20.0 million at December 31, 2008. At December 31, 2008, the Bank had total FHLB borrowings of $20.0 million against an available line of approximately $44.4 million. PremierWest also had long-term borrowings outstanding with the Federal Home Loan Bank of Seattle (FHLB) totaling $42,000, $508,000 and $1.1 million as of December 31, 2008, 2007 and 2006, respectively. The Bank makes monthly principal and interest payments on the long-term borrowings, which mature by 2014 and bear interest at rates ranging from 6.53% to 7.52% . All outstanding borrowings with the FHLB are collateralized by a blanket pledge agreement principally covering loans in the Bank's portfolio that are secured by 1^st < FONT face="TimesNewRomanPSMT,Times New Roman,Times,serif" size=2>liens against 1-4 family or multi-family residential properties as well as the Bank's FHLB stock and potentially any funds, investment securities or loans on deposit with the FHLB.

     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. Following the acquisition of Stockmans Financial Group, the Company became the successor in interest to Stockmans Financial Trust I, which was established on August 25, 2005. Common stock issued by the Trusts and held as an investment by the Company is recorded in other assets in the consolidated balance sheets.

     Trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in the indentures. The trusts used the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the "Debentures") of the Company. The Debentures are the sole assets of the trusts. The Company's

34

obligations under the Debentures and related documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trusts. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures, or upon earlier redemption as provided in the indentures. The Company has the right to redeem the Debentures in whole (but not in part) on or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date.

     By issuing Trust Preferred Securities the Company is able to secure a long-term source of borrowed funds in support of its growth needs with a debt instrument that is includable as capital for regulatory purposes in the calculation of its risk based capital ratios. Under current Federal Reserve Bank policy, all of the outstanding debentures, subject to certain limitations, have been included in the determination of Tier I capital for regulatory purposes.

     The following table is a summary of current trust preferred securities at December 31, 2008.

			Issue				Redemption
Trust Name	Issue Date		Amount	Rate Type	Rate	Maturity Date	Date
PremierWest Statutory Trust I	December 2004	$	7,732,000	Fixed (1)	5.65%	December 2034	December 2009
PremierWest Statutory Trust II	December 2004	$	7,732,000	Fixed (2)	5.65%	March 2035	March 2010
Stockmans Financial Trust I	August 2005	$	15,464,000	Fixed (3)	5.93%	September 2035	September 2010
		$	30,928,000

(1) PremierWest Statutory Trust I bears interest at the fixed rate of 5.65% until December 2009 at which time it converts to the variable rate of LIBOR +1.75%, adjusted quarterly, through the final maturity date in December 2034.

(2) PremierWest Statutory Trust II bears interest at the fixed rate of 5.65% until March 2010 at which time it converts to the variable rate of LIBOR +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 +1.42%, adjusted quarterly, through the final maturity date in September 2035.

PremierWest is a party to numerous contractual financial obligations including repayment of borrowings, operating lease payments and commitments to extend credit under off-balance sheet arrangements. The scheduled repayment of long-term borrowings and other contractual obligations is as follows (in thousands):

	Payments due by period
Contractual Obligations		Total		< 1 year		1-3 years		3-5 years		> 5 years
Borrowings	$	20,042	$	20,013	$	14	$	14	$	1
Operating lease obligations		6,123		819		1,313		1,016		2,975
Junior subordinated debentures		30,928		-		-		-		30,928
Other commitments (1)		7,743		-		-		-		7,743
Total	$	64,836	$	20,832	$	1,327	$	1,030	$	41,647

(1)         Employee benefits that include Deferred Compensation, Executive Supplemental Retirement Plans, Employee Life Benefit Plans and Split Dollar Benefit Obligations.

Off-Balance Sheet Arrangements

     Significant off-balance sheet commitments at December 31, 2008 include commitments to extend credit of $140.6 million and standby letters of credit of $28.2 million. See Note 15 on page F-34 of the Notes to Consolidated Financial Statements included with this report for a discussion on the nature, business purpose and importance of off-balance sheet arrangements.

LIQUIDITY AND CAPITAL RESOURCES; REGULATORY CAPITAL

     Shareholders' equity was $185.2 million at December 31, 2008, an increase of $57.5 million or 45.03% from December 31, 2007. The most significant factor, contributing $61.0 million to the increase in shareholders’ equity, is the acquisition of Stockmans Bank. The increase also reflects comprehensive income of $627,000, the exercise of stock options of $73,000 and related tax benefit of $138,000, and stock-based compensation expense of

35

$433,000. This was offset by the declaration of preferred and common stock dividends of $275,000 and $4.0 million, respectively, and the repurchase of common stock totaling $435,000.

     PremierWest has adopted policies to maintain a relatively liquid position to enable it to respond to changes in the financial environment and ensure sufficient funds are available to meet customers' needs for borrowing and deposit withdrawals. Generally, PremierWest's major sources of liquidity are customer deposits, sales and maturities of investment securities, the use of borrowings from the FHLB and correspondent banks, and net cash provided by operating activities. As of December 31, 2008, unused and available lines of credit totaled $14.3 million from FHLB's Cash Management Advance Program and $40.0 million from correspondent banks. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and unscheduled loan prepayments are not as stable because they are influenced by general interest rate levels, competing interest rates available on other investments, market co mpetition, economic conditions, and other factors. Liquid asset balances include cash, amounts due from other banks, federal funds sold, and investment securities available-for-sale. At December 31, 2008, these liquid assets totaled $39.0 million, or 2.63% of total assets, as compared to $48.9 million, or 4.20% of total assets, at December 31, 2007. Total liquid assets of $48.9 million as of December 31, 2007 compare to $36.8 million, or 3.55% of total assets, at December 31, 2006.

     Our liquidity continues to tighten as loan volumes have grown faster than our ability to build deposits as our preferred source of funding. Further, our securities portfolio has declined from calls and maturities to a point where virtually all of our securities portfolio is committed to satisfying pledging requirements for collateralizing public funds deposits that exceed the FDIC insurance limits. Additionally, general credit market conditions have resulted in a contraction in overall interbank credit availability. These factors and a highly competitive marketplace for local deposits will result in a continuing reliance on short-term borrowings and brokered deposits to augment core deposits as a stable source of funding. Management continues to focus on strategies to grow the Bank’s core deposit base, while exploring alternative wholesale funding avenu es. The Bank maintains contingency plans to address its liquidity needs including borrowing capacity through the Federal Home Loan Bank, other correspondent banks and the Federal Reserve Bank of San Francisco to support its funding needs that are not covered by our core deposit base. Management has elected to pursue strategies for building relationship-oriented core deposits over time rather than aggressively attracting higher cost transactional time deposits from within our local markets.

     An analysis of liquidity should encompass a review of the changes that appear in the consolidated statements of cash flows for the year ended December 31, 2008. The statement of cash flows includes operating, investing, and financing categories. Operating activities include net income of $648,000 and $11.3 million in adjustments for non-cash items and changes in cash due to changes in certain assets and liabilities. Investing activities consist primarily of proceeds from sold or matured securities and purchases of securities, the impact of the net growth in loans, and purchases of premises and equipment. Financing activities present the cash flows associated with the change in deposit accounts, changes in long-term and other borrowings and various shareholder transactions.

     At December 31, 2008, PremierWest had outstanding unfunded lending commitments of $168.9 million. Nearly all of these commitments represented unused portions of credit lines available to businesses. Many of these credit lines are not expected to be fully drawn upon and, accordingly, the aggregate commitments do not necessarily represent future cash requirements. Management believes that PremierWest's sources of liquidity are sufficient to meet likely calls on outstanding commitments, although there can be no assurance in this regard.

     The Federal Reserve Board and the Federal Deposit Insurance Corporation have established minimum requirements for capital adequacy for financial holding companies and member banks. The requirements address both risk-based capital and leveraged capital. The regulatory agencies may establish higher minimum requirements if, for example, a corporation has previously received special attention or has a high susceptibility to interest rate risk.

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The following table reflects PremierWest Bank's various capital ratios at December 31, as compared to regulatory minimums for capital adequacy purposes:

	2008	2007	Minimum to be	Minimum to be
	Actual	Actual	“Adequately Capitalized”	“Well-Capitalized”
Total risk-based capital ratio	11.43%	11.81%	>8.00%	>10.00%
Tier 1 risk-based capital ratio	10.18%	10.77%	>4.00%	>6.00%
Leverage ratio	10.02%	10.92%	>4.00%	>5.00%

The various capital ratios for PremierWest Bancorp at December 31, compared to regulatory minimums for capital adequacy purposes are as follows:

	2008	2007	Minimum to be
	Actual	Actual	“Adequately Capitalized”
Total risk-based capital ratio	11.58%	11.80%	>8.00%
Tier 1 risk-based capital ratio	10.33%	10.75%	>4.00%
Leverage ratio	10.18%	10.89%	>4.00%

RECENTLY ISSUED ACCOUNTING STANDARDS

     In December 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) 132(R)-1, “Employers Disclosures about Postretirement Benefit Plan Assets,” which provides additional guidance on an employers’ disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact the adoption of FSP 132(R)-1 will have on its consolidated financial statements.

     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163, “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60” (“SFAS 163”). SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement clarifies how SFAS 60 applies to financial guarantee insurance contracts by insurance enterprises. This statement also requires expanded disclosures about financial guarantee insurance contracts. The adoption of SFAS 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise’s risk-management activities. Managem ent does not expect the adoption of SFAS 163 to have a material impact on the consolidated financial statements.

     In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The adoption of SFAS 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” Management does not expect the adoption of SFAS 162 to have a material impact on the consolidated financial statements.

     In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset in FSP 142-3 is to be applied prospectively to intangible assets acquired after the effective date. The

37

disclosure requirements in FSP 142-3 are to be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. Management does not expect the adoption of FSP 142-3 to have a material impact on the consolidated financial statements.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for any quarter ending after February 28, 2009. Management does not expect the adoption of SFAS 161 to have a material impact on the consolidated financial statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. Management does not expect the adoption of SFAS 160 to have a material impact on the consolidated financial statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”), which replaces SFAS No. 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (on or after June 28, 2009 of fiscal 2010). Early adoption is not permitted. After the effective date, the Company will app ly the requirements of SFAS 141R to any future business combinations.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Like other financial institutions, PremierWest is subject to interest rate risk. Interest-earning assets could mature or re-price more rapidly than, or on a different basis from, interest-bearing liabilities (primarily borrowings and deposits with short- and medium-term maturities) in a period of declining interest rates. Although having assets that mature or re-price more frequently on average than liabilities will be beneficial in times of rising interest rates, such an asset/liability structure will result in lower net interest income during periods of declining interest rates. Interest rate sensitivity, or interest rate risk, relates to the effect of changing interest rates on net interest income. Interest-earning assets with interest rates tied to the prime rate for example, or that mature in relatively short periods of time, are considered interest rate sensitive. Interest-bearing liabilities w ith interest rates that can be re-priced in a discretionary manner, or that mature in relatively short periods of time, are also considered interest rate sensitive.

     The differences between interest-sensitive assets and interest-sensitive liabilities over various time horizons are commonly referred to as sensitivity gaps. As interest rates change, the sensitivity gap will have either a favorable or adverse effect on net interest income. A negative gap (with liabilities repricing more rapidly than assets) generally should have a favorable effect when interest rates are falling, and an adverse effect when rates are rising. A positive gap (with assets repricing more rapidly than liabilities) generally should have an adverse effect when rates are falling, and a favorable effect when rates are rising.

     The following table illustrates the maturities or repricing of PremierWest's assets and liabilities as of December 31, 2008, based upon the contractual maturity or contractual repricing dates of loans and the contractual maturities of time deposits and borrowings. Prepayment assumptions have not been applied to fixed-rate mortgage

38

loans. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

(Dollars in thousands)	BY REPRICING INTERVAL
	0 – 3 Months			4 – 12 Months			1 – 5 Years			Over 5 Years			Total
ASSETS
Interest-earning assets:
Federal funds sold and interest-earning
deposits	$	331		$	-		$	-		$	-		$	331
Investment securities		200			12,576			16,269			3,359			32,404
Loans		415,024			311,051			450,091			91,181			1,267,347
Total	$	415,555		$	323,627		$	466,360		$	94,540		$	1,300,082
LIABILITIES
Interest-bearing liabilities:
Interest-bearing demand and savings	$	194,729		$	42,451		$	147,973		$	31,483		$	416,636
Time deposits		203,450			260,356			101,985			104			565,895
Borrowings		45,008			15,472			15,492			1			75,973
Total	$	443,187		$	318,279		$	265,450		$	31,588		$	1,058,504
Interest rate sensitivity gap	$	(27,632	)	$	5,348		$	200,910		$	62,952		$	241,578
Cumulative	$	(27,632	)	$	(22,284	)	$	178,626		$	241,578
Cumulative gap as a % of
interest-earning assets		-2.1	%		-1.7	%		13.7	%		18.6	%

     For purposes of the gap analysis, loans are not reduced by the allowance for loan losses and nonperforming loans. Unearned discounts and deferred loan fees are also excluded.

     This analysis of interest-rate sensitivity has a number of limitations. The gap analysis above is based upon assumptions concerning such matters as when assets and liabilities will re-price in a changing interest rate environment. Because these assumptions are no more than estimates, certain assets and liabilities indicated as maturing or re-pricing within a stated period might actually mature or re-price at different times and at different volumes from those estimated. The actual prepayments and withdrawals after a change in interest rates could deviate significantly from those assumed in calculating the data shown in the table. Certain assets, adjustable-rate loans for example, commonly have provisions that limit changes in interest rates each time the interest rate changes and on a cumulative basis over the life of the loan. Also, the renewal or repricing of certain assets and liabilities can be discretionary and subject to competitive and other pressures. The ability of many borrowers to service their debt could diminish after an interest rate increase. Therefore, the gap table above does not and cannot necessarily indicate the actual future impact of general interest movements on net interest income.

     In addition to a static gap analysis of interest rate sensitivity, PremierWest also attempts to monitor interest rate risk from the perspective of changes in the economic value of equity, also referred to as net portfolio value (NPV), and changes in net interest income. Changes to the NPV and net interest income are simulated using instant and permanent rate shocks of plus and minus 200 basis points, in increments of 50 basis points. These results are then compared to prior periods to determine the effect of previously implemented strategies. If estimated changes to NPV or net interest income is not within acceptable limits, the Board may direct Management to adjust its asset and liability mix to bring interest rate risk within acceptable limits. The NPV calculations are based on the net present value of discounted cash flows, using market prepayment assumptions and market rates of interest for each asset and liability product type based on its characteristics. The theoretical projected change in NPV and net interest income over a 12-month period under each of the instantaneous and permanent rate shocks have been calculated by PremierWest using computer simulation.

     PremierWest's simulation analysis forecasts net interest income and earnings given unchanged interest rates (stable rate scenario). The model then estimates a percentage change from the stable rate scenario under scenarios of rising and falling market interest rates over various time horizons. The simulation model, based on December 31, 2008 data, estimates that if an immediate decline of 200 basis points occurs, net interest income during the subsequent twelve months could be unfavorably affected by approximately 0.52%, while a similar immediate increase in interest rates would result in an unfavorable change of approximately 1.31% indicative of a slightly

39

liability-sensitive position for the twelve months ending December 31, 2009. Because of uncertainties about customer behavior, refinance activity, absolute and relative loan and deposit pricing levels, competitor pricing and market behavior, product volumes and mix, and other unexpected changes in economic events affecting movements and volatility in market rates, there can be no assurance that simulation results are reliable indicators of earnings under such conditions.

	Net Increase (Decrease) in			Net		Change in
	Net Interest Income			Interest		Return on
	(in thousands) (1)			Margin (2)		Equity
As of December 31, 2008,
the prime rate was 3.25%	$	-		4.71	%	0.35	%
Prime rate increase of:
200 basis points to 5.25%	$	(792	)	4.65	%	-0.08	%
100 basis points to 4.25%	$	(410	)	4.68	%	0.13	%
Prime rate decrease of:
200 basis points to 1.25%	$	(315	)	4.68	%	0.18	%
100 basis points to 2.25%	$	585		4.75	%	0.66	%

(1)	PremierWest's interest rate sensitivity gap is slightly liability-sensitive, which in conjunction with the general level of interest rates, yields abnormal changes in net-interest income as further rate declines are modeled. This occurs due to a practical floor of zero for deposit interest rates.
(2)	Tax adjusted at a 34.00% rate.

     It is PremierWest's policy to manage interest rate risk to maximize long-term profitability under the range of likely interest rate scenarios.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements called for by this item are included in this report beginning on page F-3.

     The following tables set forth the Company's unaudited consolidated financial data regarding operations for each quarter of 2008 and 2007. This information, in the opinion of Management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been reclassified to conform to the current presentation. These reclassifications had no net impact on the results of operations.

	2008
(Dollars in thousands, except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
INCOME STATEMENT DATA
Total interest income	$	22,938	$	22,716	$	22,703	$	20,905
Total interest expense		7,871		6,977		7,149	$	6,576
Net interest income		15,067		15,739		15,554		14,329
Provision for loan losses		3,075		5,225		4,750	$	10,100
Net interest income after
provision for loan losses		11,992		10,514		10,804		4,229
Non-interest income		2,250		2,599		2,536	$	2,607
Non-interest expense		11,474		12,155		11,420	$	11,882
Income before income taxes		2,768		958		1,920		(5,046	)
Provision for income taxes		965		313		632	$	(1,958	)
Net income (loss)	$	1,803	$	645	$	1,288	$	(3,088	)
Basic earnings (loss) per common share	$	0.08	$	0.03	$	0.05	$	(0.14	)
Diluted earnings (loss) per common share	$	0.08	$	0.03	$	0.05	$	(0.14	)
	2007
(Dollars in thousands, except per share data)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
INCOME STATEMENT DATA
Total interest income	$	19,360	$	20,337	$	21,540	$	21,218
Total interest expense		6,018		6,531		7,250		7,417
Net interest income		13,342		13,806		14,290		13,801
Provision for loan losses		200		75		225		186
Net interest income after
provision for loan losses		13,142		13,731		14,065		13,615
Noninterest income		2,010		2,287		2,308		2,205
Noninterest expense		9,704		9,636		9,828		9,790
Income before income taxes		5,448		6,382		6,545		6,030
Provision for income taxes		2,080		2,441		2,502		2,280
Net income (loss)	$	3,368	$	3,941	$	4,043	$	3,750
Basic earnings (loss) per common share	$	0.19	$	0.23	$	0.23	$	0.22
Diluted earnings (loss) per common share	$	0.19	$	0.21	$	0.22	$	0.20

41

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.     CONTROLS AND PROCEDURES

MANAGEMENT'S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

     Our Management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in Exchange Act Rules 13a -15(f). Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our Management concluded that our internal controls over financial reporting were effective as of December 31, 2008.

     The effectiveness of our internal controls over financial reporting as of December 31, 2008, has been audited by Moss Adams LLP, an independent registered public accounting firm, as stated in their report which is included herein.

INTERNAL CONTROL OVER FINANCIAL REPORTING

     There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

DISCLOSURE CONTROLS AND PROCEDURES

     Our Management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

ITEM 9B.     OTHER INFORMATION

None.

42

PART III

ITEM 10.      DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

     The information provided in response to this Item is incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Company's 2009 Annual Meeting of Shareholders, which the Company expects first to be sent or given to security holders on or about April 13, 2009.

ITEM 11.     EXECUTIVE COMPENSATION

     The information provided in response to this Item is incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Company's 2009 Annual Meeting of Shareholders, which the Company expects first to be sent or given to security holders on or about April 13, 2009.

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

     The information provided in response to the Security Ownership of Certain Beneficial Owners and Management required by this Item is incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Company's 2009 Annual Meeting of Shareholders, which the Company expects first to be sent or given to security holders on or about April 13, 2009.

ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

     The information provided in response to this Item is incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Company's 2009 Annual Meeting of Shareholders, which the Company expects first to be sent or given to security holders on or about April 13, 2009.

ITEM 14.      PRINCIPAL ACCOUNTING FEES AND SERVICES

     The information provided in response to this item is incorporated by reference to the Definitive Proxy Statement on Schedule 14A for the Company's 2009 Annual Meeting of Shareholders, which the Company expects first to be sent or given to security holders on or about April 13, 2009.

43

PART IV

ITEM 15.      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

(a)	(1)	Financial Statements:
		The consolidated financial statements for the fiscal years ended December 31, 2008, 2007
		and 2006, are included in this report beginning on page F-1.
	(2)	Financial Statement Schedules:
		All schedules have been omitted because the information is not required, not applicable, not
		present in amounts sufficient to require submission of the schedule, or is included in the
		financial statements or notes thereto.
	(3)	The following exhibits are filed with, and incorporated into by reference, this report, and this list constitutes the exhibit index:

EXHIBIT INDEX

3.1			Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s
			Current Report on Form 8-K filed February 17, 2009)
3.2			Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant’s
			Registration Statement on Form S-4 (Registration No. 333-147460) filed November 16, 2007)
4.1			Form of Stock Certificate for Common Stock (incorporated by reference to Registrant’s statement
			on Form S-4/A (Registration No. 333-96209) filed March 17, 2000)
4.2			Form of Stock Certificate for Series B Preferred Stock (incorporated by reference to Exhibit 4.1 to
			the Registrant’s Current Report on Form 8-K filed February 17, 2009)
4.3			Warrant to purchase up to 1,038,462 shares of common stock, issued February 13, 2009
			(incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed
			February 17, 2009)
10.1			Letter Agreement, dated February 13, 2009, including Securities Purchase Agreement—Standard
			Terms, between the Registrant and the United States Department of the Treasury (incorporated by
			reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed February 17, 2009)
10.2.1	*		Employment Agreement with John Anhorn (incorporated by reference to Exhibit 10.1 to Form 10-
			K filed March 14, 2008)
10.2.2	*		Amendment to Employment Agreement for John Anhorn (incorporated by reference to Exhibit
			10.1 to Form 8-K filed April 25, 2008)
10.3.1	*		Employment Agreement with Rich Hieb (incorporated by reference to the substantially identical
			(other than base salary) form of employment agreement with Mr. Anhorn filed as Exhibit 10.1 to
			Form 10-K filed March 14, 2008)
10.3.2	*		Amendment to Employment Agreement for Rich Hieb (incorporated by reference to Exhibit 10.2 to
			Form 8-K filed April 25, 2008)
10.4.1	*		Employment Agreement with Tom Anderson (incorporated by reference to Exhibit 10.2 to Form
			10-K filed March 14, 2008)
10.4.2	*	#	Amendment to Employment Agreement with Tom Anderson
10.5	*		Employment Agreement with James Earley (incorporated by reference to the substantially identical
			(other than base salary) form of employment agreement with Mr. Anderson filed as Exhibit 10.2 to
			Form 10-K filed March 14, 2008)
10.6	*		Employment Agreement with James Ford (incorporated by reference to the substantially identical
			(other than base salary) form of employment agreement with Mr. Anderson filed as Exhibit 10.2 to
			Form 10-K filed March 14, 2008)
10.7.1	*		Employment Agreement with Joe Danelson (incorporated by reference to Exhibit 10.2 to Form 10-
			Q filed August 11, 2008)
10.7.2	*	#	Amendment to Employment Agreement with Joe Danelson
10.8	*		Employment Agreement with Michael Fowler (incorporated by reference to Exhibit 10.1 to Form
			10-Q filed August 11, 2008)
10.9	*		Supplemental Executive Retirement Plan Agreement with John Anhorn (incorporated by reference
			to Exhibit 10.3 to Form 10-K filed March 14, 2008)
10.10.1	*		Supplemental Executive Retirement Plan Agreement with Rich Hieb (incorporated by reference to
			Exhibit 10.4 to Form 10-K filed March 14, 2008)

44

10.10.2	*	#	Amendment to Supplemental Executive Retirement Plan with Rich Hieb
10.11.1	*		Supplemental Executive Retirement Plan Agreement with Tom Anderson (incorporated by
			reference to Exhibit 10.5 to Form 10-K filed March 14, 2008)
10.11.2	*	#	First Amendment to Supplemental Executive Retirement Plan Agreement with Tom Anderson
10.12.1	*		Supplemental Executive Retirement Plan Agreement with Jim Earley (incorporated by reference to
			the substantially identical form of SERP Agreement (except for retirement pay set at 40% of base
			salary) with Tom Anderson filed as Exhibit 10.5 to Form 10-K filed March 14, 2008)
10.12.2			First Amendment to Supplemental Executive Retirement Plan Agreement with Jim Earley
			(incorporated by reference to the substantially identical form of Amendment with Tom Anderson
			filed as Exhibit 10.12.2 hereto)
10.13.1	*	#	2002 Executive Survivor Income Agreement with John Anhorn
10.13.2	*		Amendment to Executive Survivor Income Agreement with John Anhorn (incorporated by
			reference to Exhibit 10.4 to Form 10-Q filed November 5, 2004)
10.14.1	*	#	2002 Executive Survivor Income Agreement with Rich Hieb
10.14.2	*		Amendment to Executive Survivor Income Agreement with Rich Hieb (incorporated by reference
			to a substantially identical (other than a pre-retirement death benefit of $150,000) amendment with
			John Anhorn filed as Exhibit 10.4 to Form 10-Q filed November 5, 2004)
10.15.1	*	#	Executive Survivor Income Agreement with Tom Anderson
10.15.2	*		Amendment to Executive Survivor Income with Tom Anderson (incorporated by reference to
			Exhibit 10.8 to Form 10-Q filed November 5, 2004)
10.16	*		Executive Deferred Compensation Agreement with John Anhorn (incorporated by reference to the
			substantially identical form attached as Exhibit 10.8 to Form 10-K filed March 14, 2008)
10.17	*		Executive Deferred Compensation Agreement with Rich Hieb (incorporated by reference to the
			substantially identical form attached as Exhibit 10.8 to Form 10-K filed March 14, 2008)
10.18	*		Executive Deferred Compensation Agreement with Tom Anderson (incorporated by reference to
			Exhibit 10.8 to Form 10-K filed March 14, 2008)
10.19	*		Executive Deferred Compensation Agreement with Jim Earley (incorporated by reference to a
			substantially identical form attached as Exhibit 10.8 to Form 10-K filed March 14, 2008)
10.20	*	#	Executive Deferred Compensation Agreement with Joe Danelson
10.21	*		2002 PremierWest Bancorp Stock Option Plan (incorporated by reference to the proxy statement
			(DEF 14A) filed April 13, 2005)
10.22	*		1992 Combined Incentive and Non-Qualified Stock Option Plan of Bank of Southern Oregon
10.23	*		United Bancorp Stock Option Plan, as amended Incorporated by reference to the registration
			statement on Form S-8 (File No. 333-40886)
10.24	*		Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit 10.12.2 to the
			Form 10-K filed March 15, 2006)
10.25	*		Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.12.1 to the
			Form 10-K filed March 15, 2006)
10.26	*		Director Deferred Compensation Agreement (with individual directors John B. Dickerson, John A.
			Duke, Dennis N. Hoffbuhr, Patrick G. Huycke, Brian Pargeter, James L. Patterson, Tom Becker
			and Rickar D. Watkins ) (incorporated by reference to Exhibit 10.10 to Form 10-K filed March 14,
			2008)
10.27	*		Continuing Benefits Agreement (with individual directors John B. Dickerson, John A. Duke,
			Dennis N. Hoffbuhr, Patrick G. Huycke, Brian Pargeter, James L. Patterson, Tom Becker and
			Rickar D. Watkins ) (incorporated by reference to Exhibit 10.9 to Form 10-K filed March 14, 2008)
21.1		#	Subsidiaries
23.1		#	Consent of Moss Adams LLP**
31.1		#	Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section
			302 of the Sarbanes-Oxley Act of 2002
31.2		#	Certification of Chief Financial Officer required by Rule 13a-14(b) 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(a) and Section
			906 of the Sarbanes-Oxley Act of 2002, 18 U. S. C. Section 1350
32.2		#	Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(a) and Section
			906 of the Sarbanes-Oxley Act of 2002, 18 U. S. C. Section 1350

#  filed herewith

*  compensatory plan or arrangement

45

Signatures

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

PREMIERWEST BANCORP
(Registrant)

By:	/s/ James M. Ford	Date: March 16, 2009
	James M. Ford, President and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ James M. Ford	Date: March 16, 2009
	James M. Ford, President and Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ John Duke	Date: March 16, 2009
	John Duke, Director
By:	/s/ Dennis Hoffbuhr	Date: March 16, 2009
	Dennis Hoffbuhr, Director
By:	/s/ Rickar Watkins	Date: March 16, 2009
	Rickar Watkins, Director
By:	/s/ James Patterson	Date: March 16, 2009
	James Patterson, Director
By:	/s/ John L. Anhorn	Date: March 16, 2009
	John L. Anhorn, Director and
	Chairman, PremierWest Bank
By:	/s/ Richard R. Hieb	Date: March 16, 2009
	Richard R. Hieb, Director and Chief Operating Officer
By:	/s/ Michael D. Fowler	Date: March 16, 2009
	Michael D. Fowler, Chief Financial Officer (Principal
	Financial Officer and Principal Accounting Officer)

46

Signatures - (continued)

By:	/s/ Tom Becker	Date: March 16, 2009
	Tom Becker, Director
By:	/s/ Brian Pargeter	Date: March 16, 2009
	Brian Pargeter, Director
By:	/s/ Patrick Huycke	Date: March 16, 2009
	Patrick Huycke, Director
By:	/s/ John Dickerson	Date: March 16, 2009
	John Dickerson, Director
By:	/s/ Gary Wright	Date: March 16, 2009
	Gary Wright, Director

47

PREMIERWEST BANCORP AND SUBSIDIARY
__________

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AND
CONSOLIDATED FINANCIAL STATEMENTS
__________

DECEMBER 31, 2008, 2007 AND 2006

CONTENTS
	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM	F1 – F2
CONSOLIDATED FINANCIAL STATEMENTS
Balance sheets	F3
Statements of income	F4
Statements of changes in shareholders’ equity and comprehensive income	F5
Statements of cash flows	F6 – F7
Notes to financial statements	F8 – F50

Note: These consolidated financial statements have not been reviewed, or confirmed for accuracy or relevance by the Federal Deposit Insurance Corporation.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
PremierWest Bancorp and Subsidiary

We have audited the accompanying consolidated balance sheets of PremierWest Bancorp and Subsidiary (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of income, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2008. We also have audited the Company’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Controls over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectivene ss of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

F - 1

Report of Independent Registered Public Accounting Firm
Page Two

A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PremierWest Bancorp and Subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, PremierWest Bancorp and Subsidiary maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Portland, Oregon
March 16, 2009

F - 2

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

ASSETS
	December 31,
		2008			2007
Cash and cash equivalents:
Cash and due from banks	$	38,421		$	38,281
Federal funds sold		165			10,350
Interest -bearing deposits with Federal Home Loan Bank		166			41
Total cash and cash equivalents		38,752			48,672
Interest -bearing CD's (greater than 90 days)		198			-
Investments:
Investment securities available-for-sale, at fair market value		188			222
Investment securities held-to-maturity, at amortized cost
(fair value of $32,686 in 2008 and $6,072 in 2007)		32,216			6,098
Investment securities CRA		4,000			-
Restricted equity securities		3,643			1,865
Total investments		40,047			8,185
Mortgage loans held-for-sale		308			569
Loans, net of deferred loan fees		1,265,624			1,023,719
Allowance for loan losses		(22,858	)		(11,450	)
Total loans		1,243,074			1,012,838
Premises and equipment, net of accumulated
depreciation and amortization		48,146			38,795
Core deposit intangibles, net of amortization		2,453			1,516
Goodwill		70,400			20,942
Other real estate owned		4,423			-
Accrued interest and other assets		36,648			27,013
TOTAL ASSETS	$	1,484,141		$	1,157,961
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Demand	$	228,788		$	199,941
Interest -bearing demand and savings		416,636			375,001
Time		565,845			360,373
Total deposits		1,211,269			935,315
Federal funds purchased		25,003			54,019
Federal Home Loan Bank borrowings		20,042			14,008
Junior subordinated debentures		30,928			15,464
Accrued interest and other liabilities		11,728			11,480
Total liabilities		1,298,970			1,030,286
COMMITMENTS AND CONTINGENCIES (Note 21)
SHAREHOLDERS’ EQUITY
Preferred Stock, no par value, 1,000,000 shares
authorized; 11,000 Series A shares issued and outstanding		-			9,590
Common stock, no par value, 50,000,000 shares
authorized; 23,574,351 shares issued
and outstanding (16,987,496 in 2007)		168,032			97,266
Retained earnings		17,100			20,759
Accumulated other comprehensive income		39			60
Total shareholders’ equity		185,171			127,675
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,484,141		$	1,157,961

F - 3
See accompanying notes.

PREMIERWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in 000’s, Except for Earnings Per Share)

	Years Ended December 31,
	2008			2007			2006
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	87,913		$	82,064	$	72,695
Interest on investments:
Taxable		996			42		88
Nontaxable		150			230		323
Interest on federal funds sold		69			93		136
Other interest and dividends		134			26		10
Total interest and dividend income		89,262			82,455		73,252
INTEREST EXPENSE
Deposits:
Interest-bearing demand and savings		6,912			9,691		5,896
Time		19,432			15,454		10,035
Federal funds purchased		424			715		887
Federal Home Loan Bank advances		80			482		1,412
Junior subordinated debentures		1,725			874		874
Total interest expense		28,573			27,216		19,104
NET INTEREST INCOME		60,689			55,239		54,148
LOAN LOSS PROVISION		23,150			686		800
Net interest income after loan loss provision		37,539			54,553		53,348
NON-INTEREST INCOME
Service charges on deposit accounts		5,129			4,019		3,316
Mortgage banking fees		462			671		1,036
Investment brokerage and annuity fees		1,454			1,668		1,162
Other commissions and fees		2,269			1,794		1,572
Other non-interest income		678			658		613
Net gains on sales of securities		-			-		2
Total non-interest income		9,992			8,810		7,701
NON-INTEREST EXPENSE
Salaries and employee benefits		26,782			23,712		23,038
Net occupancy and equipment		7,607			6,065		6,138
Communications		2,078			1,722		1,678
Professional fees		1,288			856		979
Advertising		906			696		1,029
Other		8,270			5,907		4,553
Total non-interest expense		46,931			38,958		37,415
INCOME BEFORE PROVISION FOR INCOME TAXES		600			24,405		23,634
PROVISION FOR INCOME TAXES		(48	)		9,303		8,986
NET INCOME	$	648		$	15,102	$	14,648
EARNINGS PER COMMON SHARE:
BASIC	$	0.02		$	0.87	$	0.85
DILUTED	$	0.02		$	0.82	$	0.79

F - 4
See accompanying notes.

PREMIERWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in 000’s, Except Share Amounts)

															Accumulated Other Comprehensive Income
																		Total Shareholders’ Equity
	Preferred Stock					Common Stock						Retained									Comprehensive
	Shares			Amount		Shares			Amount			Earnings									Income
BALANCE, December 31, 2005	11,000		$	9,590		15,373,431		$	73,234		$	19,836		$	124		$	102,784
Comprehensive income:
Net income	-			-		-			-			14,648			-			14,648		$	14,648
Other comprehensive income –
Amortization of unrealized gains
for investment securities
transferred to held-to-maturity	-			-		-			-			-			(79	)		(79	)		(79	)
Unrealized gain on investment
securities available-for-sale	-			-		-			-			-			55			55			55
Comprehensive income																				$	14,624
Preferred stock dividend declared	-			-		-			-			(275	)		-			(275	)
Common stock cash dividend declared	-			-		-			-			(1,621	)		-			(1,621	)
Stock-based compensation expense	-			-		-			226			-			-			226
5% stock dividend	-			-		769,145			11,914			(11,914	)		-			-
Cash paid for fractional shares	-			-		-			-			(11	)		-			(11	)
Stock options exercised	-			-		73,905			363			-			-			363
Income tax benefit of stock options
exercised	-			-		-			169			-			-			169
BALANCE, December 31, 2006	11,000		$	9,590		16,216,481		$	85,906		$	20,663		$	100		$	116,259
Comprehensive income:
Net income	-			-		-			-			15,102			-			15,102		$	15,102
Other comprehensive income –
Amortization of unrealized gains
for investment securities
transferred to held-to-maturity	-			-		-			-			-			(41	)		(41	)		(41	)
Unrealized gain on investment
securities available-for-sale	-			-		-			-			-			1			1			1
Comprehensive income																				$	15,062
Adjustment for change in accounting
principle related to EITF 06-04	-			-		-			-			(127	)		-			(127	)
Preferred stock dividend declared	-			-		-			-			(275	)		-			(275	)
Common stock cash dividend declared	-			-		-			-			(2,891	)		-			(2,891	)
Stock-based compensation expense	-			-		-			306			-			-			306
Repurchase of common stock	-			-		(84,800	)		(1,060	)		-			-			(1,060	)
5% stock dividend	-			-		810,457			11,703			(11,703	)		-			-
Cash paid for fractional shares	-			-		-			-			(10	)		-			(10	)
Stock options exercised	-			-		45,358			254			-			-			254
Income tax benefit of stock options
exercised	-			-		-			157			-			-			157
BALANCE, December 31, 2007	11,000		$	9,590		16,987,496		$	97,266		$	20,759		$	60		$	127,675
Comprehensive income:
Net income	-			-		-			-			648			-			648		$	648
Other comprehensive income –
Amortization of unrealized gains
for investment securities
transferred to held-to-maturity	-			-		-			-			-			(20	)		(20	)		(20	)
Unrealized losses on investment
securities available-for-sale	-			-		-			-			-			(1	)		(1	)		(1	)
Comprehensive income																				$	627
Preferred stock dividend declared	-			-		-			-			(275	)		-			(275	)
Common stock cash dividend declared	-			-		-			-			(4,032	)		-			(4,032	)
Stock-based compensation expense	-			-		-			433			-			-			433
Repurchase of common stock	-			-		(40,800	)		(435	)		-			-			(435	)
Stockmans Bank Acquisition	-			-		5,357,404			60,967			-			-			60,967
Stock options exercised	-			-		12,970			66			-			-			66
Stock options exercised (Note 20)	-			-		189,958			1,115			-			-			1,115
Shares exchanged in payment of
option exercise consideration (Note 20)	-			-		(102,599	)		(1,108	)		-			-			(1,108	)
Income tax benefit of stock options
exercised	-			-		-			138			-			-			138
Preferred stock converted to common	(11,000	)		(9,590	)	1,169,922			9,590			-			-			-
BALANCE, December 31, 2008	-		$	-		23,574,351		$	168,032		$	17,100		$	39		$	185,171

F - 5
See accompanying notes.

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

	Years Ended December 31,
		2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	648		$	15,102		$	14,648
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization		3,894			3,069			3,188
Loan loss expense		23,150			686			800
Deferred income taxes		(146	)		(1,098	)		(1,772	)
Net gains on sales of investment securities		-			-			(2	)
Amortization of premiums and accretion of discounts
on investment securities, net		104			(13	)		48
Funding of loans held-for-sale		(24,536	)		(28,042	)		(18,788	)
Sale of loans held-for-sale		25,251			28,770			18,728
Gain on sale of loans held-for-sale		(454	)		(304	)		(166	)
Gain on sale of other real estate owned		-			(5	)		(145	)
Change in BOLI value (net of benefit obligations)		730			779			(407	)
Stock-based compensation expense		433			306			226
Excess tax benefit from stock options exercised		(76	)		(69	)		(146	)
Gain on sales of premises and equipment		(30	)		(88	)		(18	)
Write-down of low income housing tax credit investment		197			269			26
Changes in accrued interest receivable/payable
and other assets/liabilities		(16,933	)		(3,186	)		402
Net cash provided by operating activities		12,232			16,176			16,622
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment
securities available-for-sale		34			42			5,062
Purchase of securities held-to-maturity		(29,632	)		(2,456	)		-
Proceeds from maturities and calls of investment
securities held-to-maturity		33,316			3,385			2,447
Proceeds from redemption of Federal Home Loan Bank		304			-			-
Purchase of Community Reinvestment Act investments		(4,000	)		-			-
Loan originations, net		(45,402	)		(93,686	)		(114,222	)
Purchase of premises and equipment, net		(2,950	)		(7,172	)		(6,189	)
Proceeds from the sale of other real estate owned		-			101			145
Purchase of low income housing tax credit investment		(1,008	)		(392	)		(223	)
Purchase of consumer loan finance business		-			(11,141	)		-
Cash received, net of cash paid for acquisition of Stockmans
Financial Group		95,438			-			-
Net cash provided by (used in) investing activities		46,100			(111,319	)		(112,980	)

F - 6
See accompanying notes.

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

	Years Ended December 31,
		2008			2007			2006
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	$	(21,040	)	$	55,965		$	110,931
Net increase (decrease) in Federal Home Loan Bank borrowings		(12,584	)		7,867			4,361
Net increase (decrease) in Federal Funds purchased		(29,016	)		47,184			(9,595		)
Repurchase of common stock		(435	)		(1,060	)			-
Dividends paid on common stock		(5,051	)		(2,683	)		(1,579		)
Dividends paid on preferred stock		(275	)		(275	)		(275		)
Stock options exercised		73			254				363
Excess tax benefit from stock options exercised		76			69				146
Cash paid for fractional shares relating to stock dividend		-			(10	)			(11	)
Net cash provided by (used in) financing activities		(68,252	)		107,311			104,341
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(9,920	)		12,168			7,983
Beginning of year
CASH AND CASH EQUIVALENTS,		48,672			36,504			28,521
End of year
CASH AND CASH EQUIVALENTS,	$	38,752		$	48,672		$	36,504
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest	$	28,428		$	26,603		$	18,693
Cash paid for taxes	$	4,885		$	10,677		$	10,517
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Transfers of loans to other real estate owned	$	4,423		$	101		$		-
Income tax benefit of stock options exercised	$	138		$	157		$		169
Preferred stock dividend declared	$	275		$	275		$		275
Cash dividends declared	$	-		$	1,019		$		811
Increase in goodwill resulting from acquisition of
Stockmans Financial Group	$	49,458		$	-		$		-
Stock issued for acquisition of Stockmans Financial Group	$	60,967		$	-		$		-

F - 7
See accompanying notes.

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 46 full service branch offices, 41 of which are located along the Interstate 5 freeway corridor between Roseburg, Oregon, and Sacramento, California. Of the 46 full service branch offices, 24 are located in Oregon (Jackson, Josephine, Deschutes, Douglas, and Klamath counties) and 22 are located in California (Siskiyou, Shasta, Butte, Tehama, Placer, Sacramento 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 (ATMs) 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 office s in Medford, Grants Pass, Roseburg, Klamath Falls, Coos Bay, Eugene and Portland, Oregon and Redding, California and is engaged in the business of consumer lending. PremierWest Investment Services, Inc. operates throughout the Bank’s market area providing brokerage services for investment products including stocks, bonds, mutual funds and annuities. Blue Star Properties, Inc. serves solely to hold real estate properties for the Company but is currently inactive.

In December 2004, the Company established PremierWest Statutory Trust I and II (the Trusts), as wholly-owned Delaware statutory business trusts, for the purpose of issuing guaranteed individual beneficial interests in junior subordinated debentures (Trust Preferred Securities). The Trusts issued $15.5 million in Trust Preferred Securities for the purpose of providing additional funding for operations and enhancing the Company’s consolidated regulatory capital. A third trust, the Stockmans Financial Trust I in the amount of $15.5 million, was added in 2008 pursuant to the acquisition of Stockmans Financial Group. In accordance with the Financial Accounting Standards Board’s FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities,” the Company has not included the Trusts in its consolidated financial statements but has recognized, as junior subordinated debt, the outstanding balance of the Trust Pre ferred Securities as of December 31, 2008 and 2007.

The Company did not declare a stock dividend in 2008. A 5% stock dividend was declared in June 2007, June 2006 and June 2005. All per share amounts and calculations in the accompanying consolidated financial statements have been restated to reflect the effects of these stock dividends.

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. The Company utilizes the accrual method of accounting which recognizes income when earned and expenses when incurred. In preparation of the consolidated financial statements, all significant intercompany accounts and transactions have been eliminated.

F - 8

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

The preparation of consolidated financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the 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, the value of other real estate owned, and the calculations involved in determining potential goodwill impairment.

Cash and cash equivalents – For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, amounts due from banks and federal funds sold. Generally, federal funds are sold for one-day periods.

The Bank maintains balances in correspondent bank accounts which at times may exceed federally insured limits. Management believes that its risk of loss associated with such balances is minimal due to the financial strength of correspondent banks. The Bank has not experienced any losses in such accounts.

Investment securities – The Bank is required to specifically identify its investment securities as “available-for-sale”, “held-to-maturity” or “trading accounts.”

Securities are classified as available-for-sale if the Bank intends to hold those debt securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors such as (1) changes in market interest rates and related changes in the prepayment risk, (2) needs for liquidity, (3) changes in the availability of and the yield on alternative instruments, and (4) changes in funding sources and terms. Unrealized holding gains and losses, net of tax, on available-for-sale securities are reported as other comprehensive income and carried as accumulated comprehensive income or loss within shareholders’ equity until realized. Fair values for these investment securities are based on quoted market prices. Premiums and discounts are recognized in interest income using the effective interest method. Realized gains and losses are determined using the specific-identification method and included in earnings.

Securities are classified as held-to-maturity if the Bank has both the intent and ability to hold those debt securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for amortization of premium or accretion of discount computed using the effective interest method.

F - 9

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

PremierWest Bancorp’s investment policy does not permit Management to purchase securities for the purpose of trading. Accordingly, no securities were classified as trading securities during the periods reported.

Upon transfers of securities from the available-for-sale classification to the held-to-maturity classification, the Bank ceases to recognize unrealized gains and losses, net of deferred taxes, in other comprehensive income, and records the unrealized gain or loss at the time of transfer, net of related deferred taxes, as a premium or discount on the related security. The unrealized gain or loss at the time of transfer is then amortized or accreted as an adjustment to yield from the date of transfer through the maturity date of each security transferred. The amortization or accretion of the unrealized gain or loss reported in shareholders’ equity will offset or mitigate the effect on interest income, of the amortization or accretion of the discount or premium resulting from the transfer of available-for-sale securities to the held-to-maturity classification.

At each financial statement date, Management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other-than-temporary based upon the positive and negative evidence available. Evidence evaluated includes, but is not limited to, industry analyst reports, credit market conditions, and interest rate trends. A decline in the market value of any security below cost that is deemed other-than-temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security.

Restricted equity securities – The Bank’s investment in Federal Home Loan Bank of Seattle (“FHLB”) stock is recorded as a restricted equity security and carried at par value, which approximates fair value. As a member of the FHLB system, the Bank is required to maintain a minimum level of investment in FHLB stock based on specific percentages of its outstanding mortgages, total assets, or FHLB advances. At December 31, 2008 and 2007, the Bank met its minimum required investment. The Bank may request redemption at par value of any FHLB stock in excess of the minimum required investment. Stock redemptions are at the discretion of the FHLB.

The Bank also owns stock in Pacific Coast Banker’s Bank (“PCBB”). The investment in PCBB is carried at cost. Pacific Coast Banker’s Bank operates under a special purpose charter to provide wholesale correspondent banking services to depository institutions. By statute, 100% of PCBB’s outstanding stock is held by depository institutions that utilize its correspondent banking services.

Investments in limited partnerships – The Bank has a minority interest (less than 10%) in two limited partnerships that own and operate affordable housing projects. Investments in these projects serve as an element of the Bank’s compliance with the Community Reinvestment Act, and the Bank receives tax benefits in the form of deductions for operating losses and tax credits. The tax credits may be used to reduce taxes currently payable or may be carried back one year or

F - 10

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

forward 20 years to recapture or reduce taxes. The Bank uses the equity method in accounting for its interest in the partnerships’ operating results. The credits are recorded in the years they become available to reduce income taxes.

Mortgage loans held-for-sale – Mortgage loans held-for-sale are reported at the lower of cost or market value. Gains or losses on the sale of loans that are held-for-sale are recognized at the time of 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. The Bank currently does not retain mortgage servicing rights.

Loans and the allowance for loan losses – Loans are stated at the amount of unpaid principal, reduced by the allowance for loan losses and deferred loan fees. The allowance for loan losses represents Management’s recognition of the assumed risks of extending credit and the quality of the existing loan portfolio. The allowance is established to absorb known and inherent losses in the loan portfolio as of the balance sheet date. The allowance is maintained at a level considered adequate to provide for estimated loan losses based on Management’s assessment of various factors affecting the portfolio. Such factors include historical loss experience; review of problem loans; underlying collateral values and guarantees; current economic conditions; legal representation regarding the outcome of pending legal action for collection of loans and related lo an guarantees; and an overall evaluation of the quality, risk characteristics, and concentration of loans in the portfolio. The allowance is based on estimates and ultimate losses may vary from the current estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in operations in the periods in which they become known. The allowance is increased by provisions charged to operations and reduced by loans charged-off, net of recoveries.

Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgment of the information available to them at the time of their examinations.

The Bank considers loans to be impaired when Management believes that it is probable that all amounts due will not be collected according to the contractual terms. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the loan’s underlying collateral or related guarantee. Since a significant portion of the Bank’s loans are collateralized by real estate, the Bank primarily measures impairment based on the estimated fair value of the underlying collateral or related guarantee. In certain other cases, impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. Amounts deemed impaired are either specifically allocated for in the allowance for loan losses or reflected as a partial charge-off o f the loan balance. Smaller balance

F - 11

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

homogeneous loans (typically, installment loans) are collectively evaluated for impairment. Accordingly, the Bank does not separately identify individual installment loans for impairment disclosures. Generally, the Bank evaluates a loan for impairment when it is placed on non-accrual status. A majority of the Bank’s impaired loans at December 31, 2008 and 2007, were on non-accrual status. After considering the borrower’s financial condition, the loan’s collateral position, collection efforts and other pertinent factors, impaired loans and other loans are charged to the allowance when the Bank believes that collection of future payments of principal is not probable.

Interest income on all loans is accrued as earned by the simple interest method. The accrual of interest on impaired loans is discontinued when, in Management’s opinion, the borrower may be unable to make payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is subsequently recognized only to the extent cash payments are received. Non-accrual loans are returned to accrual status when the loans are paid current as to principal and interest and future payments are expected to be made in accordance with the contractual terms of the loan.

Loan origination and commitment fees, net of certain direct loan origination costs, are capitalized as an offset to the outstanding loan balance and recognized as an adjustment of the yield of the related loan.

Premises and equipment – Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization of premises and equipment is computed by the straight-line method over the shorter of the estimated useful lives of the assets or terms of underlying leases. Estimated useful lives range from 3 to 15 years for furniture, equipment, and leasehold improvements, and up to 40 years for building premises. The required annual analysis of long-lived assets indicated that no impairment existed for the years ended December 31, 2008, 2007 and 2006.

Core deposit intangibles – Core deposit intangibles are amortized by the straight-line method over seven years. The required annual analysis of the core deposit intangibles indicated that no impairment existed for the years ended December 31, 2008, 2007 and 2006.

Goodwill – Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. Effective January 1, 2002, the Bank ceased amortization of goodwill upon application of the nonamortization provisions of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” Under this statement, impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The required annual analysis of goodwill indicated that no impairment existed for the years ended December 31, 2008, 2007 and 2006.

F - 12

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Other real estate – Other real estate, acquired through foreclosure or deeds in lieu of foreclosure, is carried at the lower of cost, less estimated costs of disposal, or estimated net realizable value. 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 income and expense. The Bank had $4.4 million in other real estate at December 31, 2008, including six relationships or nine properties acquired through foreclosure or deeds in lieu of foreclosure during 2008. The Bank held no other real estate at December 31, 2007 and 2006. In 2007, the Bank disposed of one other real estate property acquired during the year at a gain of approximate ly $5,000. In 2006, the Bank received proceeds totaling $145,000 relating to other real estate that had been written down to zero book value in previous years.

Advertising – Advertising and promotional costs are generally charged to expense during the period in which they are incurred. Advertising and promotional expenses were approximately $906,000, $696,000 and $1,029,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

Income taxes – Income taxes are accounted for using the asset and liability method. Deferred income tax assets and liabilities are determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not that all or some of the deferred tax asset will not be realized.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 clarifies the accounting for income taxes by prescribing a minimum threshold a tax position is required to meet before being recognized in the financial statements. In addition, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes. FIN 48 was effective as of the beginning of our 2007 fiscal year. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption. Adoption of this standard on January 1, 2007, did not have a material impact on the consolidated financial statements. The Company had no unrecognized tax benefits at January 1, 2007, or at

F - 13

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

December 31, 2008 or 2007. During the years ended December 31, 2008 and 2007, the Company recognized no interest and penalties. The Company files income tax returns in the U.S. Federal jurisdiction, California, and Oregon. The Company is no longer subject to U.S. or Oregon state examinations by tax authorities for years before 2004 and California state examinations for years before 2003.

Earnings per common share – Basic earnings per common share is computed by dividing net income available to common shareholders (net income less dividends declared on preferred stock) by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock dividends and splits. Diluted earnings per common share is computed similar to basic earnings per common share except that the numerator is equal to net income 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 as if converted to common stock.

Stock-Based Compensation – Effective January 1, 2006, PremierWest Bancorp adopted Financial Accounting Standards Board Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R 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.

SFAS 123R 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 stock options. The Black-Scholes model requires the use of assumptions regarding the risk-free interest rate, expected dividend yield, the weighted average expected life of the options and the historical stock price volatility.

The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield is based on Management’s estimate at the time of grant. PremierWest Bancorp declared its first cash dividend during fiscal year 2005; two cash dividends were declared during fiscal year 2006; three cash dividends were declared during fiscal year 2007; and three cash dividends were declared during fiscal year 2008. Going forward in fiscal 2009, the Board of Directors will review the dividend policy on a quarter-by-quarter basis. Cash dividends are not paid on unexercised options. The Company attempts to use historical data to estimate option exercise and employee termination behavior in order to estimate an expected life for each option grant. The expected life falls between the vesting period or requisite service period and the contractual term for the option. Two employee classes having similar exercise and termination behavior are used for valuation purposes. Those classes are “employees” and “executive officers and directors.”

F - 14

     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

During 2008, for options granted to the “employees” class, the Company estimated an expected life of 7 years based on the Security and Exchange Commission’s shortcut methodology as defined by Staff Accounting Bulletin No. 107. During 2008, for options granted to the “executive officers and directors” class, the Company estimated an expected life of 7.5 years based on Management’s historical analysis of exercise and forfeiture behavior for the Company’s executives and directors.

Stock-based compensation expense recognized under SFAS 123R for the year ended December 31, 2008, resulting from stock options that were granted during the current and previous periods that vested during the current period, totaled $433,454 with a related tax benefit of $174,118. At December 31, 2008, unrecognized stock-based compensation expense totaled $1,353,930 and will be expensed over a weighted average period of 2.2 years.

Prior to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123R 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. An excess tax benefit of $76,000 is classified as financing cash inflows for the year ended December 31, 2008. The excess tax benefits reported as operating cash flows for the years ended December 31, 2007 and 2006 were $69,000 and $146,000, respectively.

Comprehensive income – Comprehensive income for the Company includes net income reported on the consolidated statements of income, the amortization of unrealized gains for available-for-sale securities transferred to held-to-maturity, and changes in the fair value of available-for-sale investments which are reported as a component of shareholders’ equity.

Off-balance sheet financial instruments – In the ordinary course of business, the Bank enters into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. These financial instruments are recorded in the consolidated financial statements when they are funded or related fees are incurred or received.

Fair value of financial instruments –On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, (“SFAS 157”), “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 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, SFAS 157 established a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy is as follows:

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

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 – Fair values for investment securities are based on quoted market prices or the market values for comparable securities.

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. Impaired 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 determined based on independent appraisals.

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 Statement No. 107, “ Disclosures about Fair Value on Financial Instruments”, (“FAS 107”).

F - 15

PREMIERWEST BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

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

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

Interest-bearing deposits with FHLB and restricted equity securities – The carrying amount approximates the estimated fair value and expected redemption values.

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.

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

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.

Loans – For variable rate loans that reprice frequently 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, less costs to sell, where applicable.

Loans held-for-sale – Loans held-for-sale includes mortgage loans and 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 that are 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.

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.

F - 16

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

Recently issued accounting standards – In December 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) 132(R)-1, “Employers Disclosures about Postretirement Benefit Plan Assets,” which provides additional guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. This interpretation is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company is currently evaluating the impact the adoption of FSP 132(R)-1 will have on its consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163, “Accounting for Financial Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60” (“SFAS 163”). SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. This statement clarifies how SFAS 60 applies to financial guarantee insurance contracts by insurance enterprises. This statement also requires expanded disclosures about financial guarantee insurance contracts. The adoption of SFAS 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for some disclosures about the insurance enterprise’s risk-management activities. The Company does not expect the adoption of SFAS 163 to have a material impact on the consolidated financial statements.

F - 17

PREMIERWEST BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of non-governmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). The adoption of SFAS 162 will be effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS 162 to have a material impact on the consolidated financial statements.

In April 2008, the FASB issued FSP No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP 142-3”), which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The guidance for determining the useful life of a recognized intangible asset in FSP 142-3 is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements in FSP 142-3 are to be applied prospectively to all intangible assets recognized as of , and subsequent to, the effective date. The Company does not expect the adoption of FSP 142-3 to have a material impact on the consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS 161”). SFAS 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for any quarter ending after February 28, 2009. The Company does not expect the adoption of SFAS 161 to have a material impact on the consolidated financial statements.

F - 18

PREMIERWEST BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (continued)

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. SFAS 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, this statemen t requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company does not expect the adoption of SFAS 160 to have a material impact on the consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”), which replaces SFAS No. 141. SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The statement also establishes disclosure requirements that will enable users to evaluate the nature and financial effects of the business combination. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (on or after June 28, 2009 of fiscal 2010). Early adoption is not permitted. After the effective date, the Company will apply the requirements of SFAS 141R to an y future business combinations.

Reclassifications – Certain reclassifications have been made to the 2007 and 2006 consolidated financial statements to conform to current year presentations. These reclassifications have no effect on previously reported net income or earnings per share.

F - 19

PREMIERWEST BANCORP AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – MERGERS AND ACQUISITIONS

On January 26, 2008, PremierWest Bank acquired Stockmans Bank, consisting of five branches in the greater Sacramento, California area. As of the acquisition date, these offices and their employees commenced operating as branch offices of PremierWest Bank. The transaction was accounted for as a purchase for 5,357,404 shares of PremierWest common stock, cash of $22.8 million and transaction costs of $2.0 million, for total purchase price consideration of $85.8 million.

(Dollars in 000's)
Fair value of assets acquired:	January 26, 2008
Cash and cash equivalents	$	56,688
Investment securities		32,008
Fed funds sold		58,925
Loans, net		203,381
Premises and equipment, net		9,556
Core deposit intangibles		1,635
Other assets		8,918
Total fair value of assets acquired	$	371,111
Fair value of liabilities assumed:
Deposits	$	296,051
Borrowed funds		18,618
Junior subordinated debentures		15,464
Other liabilities		4,677
Total fair value of liabilities assumed	$	334,810
Net assets acquired	$	36,301
Shares of PremierWest common stock	$	60,967
Cash paid to common shareholders of
Stockmans Bank		22,769
Transaction costs		2,023
Total consideration		85,759
Goodwill	$	49,458

F - 20

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – MERGERS AND ACQUISITIONS – (continued)

The core deposit intangible asset 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 years. The core deposit intangible asset is not estimated to have a significant residual value. Goodwill represents the excess of the total purchase price paid for Stockmans Bank over the fair values of the assets acquired, net of the fair value of the liabilities assumed. Goodwill is not amortized, but is evaluated for possible impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. No impairment losses were recognized in connection with core deposit intangibles or goodwill during the period from acquisition to December 31, 2008.

The following table represents unaudited pro forma results of operations for the twelve months ended December 31, 2008 and 2007, as if the acquisition of Stockmans Bank had occurred at the beginning of the earliest period presented below. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results that would have been obtained had the acquisition actually occurred at the beginning of the earliest period presented. Management of the Company anticipates cost savings and operational synergies will be realized after the operations of Stockmans Bank are fully integrated in 2009.

(Dollars in 000's, except per share data)
		Twelve Months Ended December 31,
		2008			2007
Net interest income	$	61,199		$	67,115
Provision for loan losses		(23,150	)		(986	)
Non-interest income		10,206			9,418
Non-interest expense		(47,437	)		(44,849	)
Income before income taxes		818			30,698
Provision for income taxes		(26	)		(11,710	)
Net income	$	791		$	18,988
Earnings per share
Basic	$	0.04		$	0.85
Diluted	$	0.04		$	0.80
Weighted average shares outstanding
Basic		22,495,520			22,379,760
Diluted		22,537,360			23,869,925

F - 21

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – FAIR VALUE MEASUREMENTS

The Company’s available-for-sale securities is the only balance sheet category the Company accounts for at fair value on a recurring basis, as defined in the fair value hierarchy of SFAS 157, “Fair Value Measurements.” The table below presents information about these securities and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

(Dollars in 000's)		Fair Value Measurements
		At 12/31/08 Using
			Quoted Prices in
			Active Markets for			Significant
	Fair Value		Identical Assets	Other Observable Inputs		Unobservable Inputs
Description	12/31/2008		(Level 1)	(Level 2)		(Level 3)
Available-for-sale securities	$	188	-	$	188	-
Total Assets Measured at Fair Value	$	188	-	$	188	-

Securities classified as available-for-sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value of 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.

Certain assets and liabilities are measured at fair value on a non-recurring basis after initial recognition such as loans measured for impairment. The following table presents the fair value measurement of assets on a non-recurring basis as of December 31, 2008, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

(Dollars in 000's)		Fair Value Measurements
		At 12/31/08 Using
				Quoted Prices in
				Active Markets for			Significant
		Fair Value		Identical Assets	Other Observable Inputs		Unobservable Inputs
Description		12/31/2008		(Level 1)	(Level 2)		(Level 3)
Loans measured for impairment	$	64,059		-	-	$	64,059
Specific reserves		(11,156	)	-	-		(11,156	)
Total Impaired Loans Measured at Fair Value	$	52,903		-	-	$	52,903

F - 22

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – FAIR VALUE MEASUREMENTS – (continued)

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. Impaired loans are measured as a practical expedient, at the loan’s observable market price or the fair market value of the collateral if the loan is collateral dependent.

The following disclosures are made in accordance with the provisions of SFAS No. 107, “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 December 31, 2008 and 2007.

As SFAS No. 107 excludes certain financial instruments and all non-financial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Bank.

F - 23

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – FAIR VALUE MEASUREMENTS – (continued)

The estimated fair values of the Bank’s significant on-balance sheet financial instruments at December 31 were as follows (in thousands):

	2008				2007
		Carrying		Estimated		Carrying		Estimated
		Value		Fair Value		Value		Fair Value
Financial assets:
Cash and cash equivalents	$	38,752	$	38,752	$	48,672	$	48,672
Investment securities available-for-
sale	$	188	$	188	$	222	$	222
Investment securities held-to-
maturity	$	32 ,216	$	32 ,686	$	6,098	$	6,072
Investment securities - CRA	$	4,000	$	4,000
Restricted equity investments	$	3,643	$	3,643	$	1,865	$	1,865
Loans held-for-sale	$	308	$	308	$	569	$	569
Loans, net	$	1,242,766	$	1,150,922	$	1,012,269	$	1,014,597
Financial liabilities:
Deposits	$	1,211,319	$	1,217,591	$	935,315	$	936,723
Federal funds purchased	$	25,003	$	25,003	$	54,019	$	54,019
FHLB borrowings	$	20,042	$	20,048	$	14,008	$	13,966
Junior subordinated debentures	$	30,928	$	12,416	$	15,464	$	15,246

F - 24

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – CASH AND DUE FROM BANKS

The Bank was required to maintain an average reserve balance of approximately $3.9 million and $3.6 million at December 31, 2008 and 2007, respectively, with the Federal Reserve Bank or maintain such reserve balances in the form of cash. This requirement was met by holding cash and maintaining average reserve balances with the Federal Reserve Bank in excess of the held cash amounts.

NOTE 5 – INVESTMENT SECURITIES

Investment securities as of December 31 consisted of the following (in thousands):

				Gross		Gross			Estimated
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
2008
Available-for-sale:
Mortgage-backed securities and collateralized
mortgage obligations	$	188	$	1	$	(1	)	$	188
Held-to-maturity:
Mortgage-backed securities and collateralized
mortgage obligations	$	1,799	$	52	$	-		$	1,851
U.S. Government and agency securities		27,496		419		-			27,915
Obligations of state and political subdivisions		2,921		22		(23	)		2,920
	$	32,216	$	493	$	(23	)	$	32,686
Investment securities - CRA	$	4,000	$	-	$	-		$	4,000
Restricted equity securities	$	3,643	$	-	$	-		$	3,643
				Gross		Gross			Estimated
		Amortized		Unrealized		Unrealized			Fair
		Cost		Gains		Losses			Value
2007
Available-for-sale:
Mortgage-backed securities and collateralized
mortgage obligations	$	222	$	2	$	(2	)	$	222
Total	$	222	$	2	$	(2	)	$	222
Held-to-maturity:
U.S. Government and agency securities	$	1,484	$	-	$	-		$	1,484
Obligations of state and political subdivisions		4,614		8		(34	)		4,588
	$	6,098	$	8	$	(34	)	$	6,072
Restricted equity securities	$	1,865	$	-	$	-		$	1,865

F - 25

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – INVESTMENT SECURITIES – (continued)

During the third quarter of 2004, the Bank reclassified obligations of state and political subdivision securities from available-for-sale to held-to-maturity to more accurately reflect the purpose and intent in holding these securities for long-term pledging requirements. Unrealized holding gains at the time of transfer were $335,000, net of deferred taxes of $224,000, and are being amortized as an adjustment to yield. This is offset by a similar amount recorded in shareholders’ equity, within accumulated other comprehensive income, which is being amortized from the date of transfer through the maturity date of each security transferred.

The following table presents the gross unrealized losses and fair value (in thousands) 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 December 31, 2008 and 2007:

At December 31, 2008		Less Than 12 Months					12 Months or More				Total
				Unrealized					Unrealized					Unrealized
		Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Available-for-sale
Mortgage-backed securities
and collateralized
mortgage obligations	$	52	$	(1	)	$	28	$	-		$	80	$	(1	)
Held-to-maturity
Obligations of state and political
subdivisions		402		(6	)		1,180		(17	)		1,582		(23	)
	$	454	$	(7	)	$	1,208	$	(17	)	$	1,662	$	(24	)

At December 31, 2007		Less Than 12 Months					12 Months or More				Total
				Unrealized					Unrealized					Unrealized
Available-for-sale		Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Mortgage-backed securities
and collateralized
mortgage obligations
Held-to-maturity	$	-	$	-		$	91	$	(2	)	$	91	$	(2	)
Obligations of state and political
subdivisions		253		(2	)		3,187		(32	)		3,440		(34	)
	$	253	$	(2	)	$	3,278	$	(34	)	$	3,531	$	(36	)

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 attributable to the changes in interest rates and not credit quality, and because the Bank has the ability and intent to hold these investments until a market price recovery or to maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

F – 26

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – INVESTMENT SECURITIES– (continued)

The amortized cost and estimated fair value of investment securities at December 31, 2008, by contractual maturity are shown below (in thousands). 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.

		Available-for-Sale				Held-to-Maturity
	Amortized		Estimated			Amortized		Estimated
	Cost		Fair Value			Cost		Fair Value
Due in one year or less	$	-	$	-	$	12,776	$	12,950
Due after one year through
five years		188		188		16,269		16,510
Due after five years through
ten years		-		-		1,372		1,375
Due after ten years		-		-		1,799		1,851
	$	188	$	188	$	32,216	$	32,686

Investment securities with a carrying amount of $32.9 million and $6.3 million at December 31, 2008 and 2007, respectively, were pledged to secure public deposits, FHLB borrowings and for other purposes as required or permitted by law.

Realized gains on sales of investment securities were $0, $0 and $2,000 in 2008, 2007 and 2006, respectively.

F – 27

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – LOANS

Loans, including loans held-for-sale, as of December 31 consisted of the following (in thousands):

	2008			2007
Real estate – commercial	$	605,606		$	446,724
Real estate – construction		296,239			268,254
Real estate – residential		23,673			17,128
Commercial		200,559			186,536
Agricultural		48,695			28,833
Consumer		82,753			73,743
Overdrafts		7,462			1,652
Other		2,360			3,028
Total loans	$	1,267,347		$	1,025,898
Less allowance for loan losses		(22,858	)		(11,450	)
Less deferred loan fees		(1,415	)		(1,610	)
Loans, net of allowance for loan losses
and deferred loan fees	$	1,243,074		$	1,012,838

The Bank’s market area consists principally of Jackson, Josephine, Deschutes, Douglas and Klamath counties of Oregon, and Butte, Siskiyou, Shasta, Tehama, Placer, Sacramento and Yolo counties of northern California. A substantial portion of the Bank’s loans are collateralized by real estate in these geographic areas and, accordingly, the ultimate collectibility of a substantial portion of the Bank’s loan portfolio is susceptible to changes in the respective local market conditions.

In the normal course of business, the Bank participates portions of loans to third parties in order to extend the Bank’s lending capability or to mitigate risk. At December 31, 2008 and 2007, the portion of these loans participated to third parties (which are not included in the accompanying consolidated financial statements) totaled approximately $34.3 million and $40.0 million, respectively.

F - 28

     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – ALLOWANCE FOR LOAN LOSSES

Transactions in the allowance for loan losses for the years ended December 31 were as follows (in thousands):

		2008			2007			2006
BALANCE, beginning of year	$	11,450		$	10,877		$	10,341
Loan loss provision		23,150			686			800
Loans charged-off		(21,864	)		(827	)		(496	)
Recoveries of loans previously
charged-off		1,010			533			232
Acquired from Stockmans Bank merger		9,112			-			-
Balance sheet reclassification		-			(255	)		-
Finance portfolio purchased		-			436			-
BALANCE, end of year	$	22,858		$	11,450		$	10,877

Transactions for impaired loans for the years ended December 31 were as follows (in thousands):

		2008		2007		2006
Loans past due 90 days, still accruing	$	1,937	$	-	$		-
Loans on nonaccrual status	$	63,004	$	8,426	$	1,403
Recorded investment in impaired loans	$	63,004	$	8,426	$	1,403
Impaired loans with a specific allowance	$	25,671	$	5,871	$		433
Impaired loans without a specific allowance	$	37,333	$	2,555	$		970
Total allowance for loan losses on impaired loans	$	11,156	$	383	$		151
The average recorded investment in impaired loans	$	41,600	$	3,173	$	1,534
Interest income recognized on impaired loans	$	-	$	-	$		-
Interest income recognized on impaired loans - cash basis	$	626	$	429	$		347
Interest income not recognized on impaired loans	$	3,193	$	243	$		118

F-29

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – PREMISES AND EQUIPMENT

Premises and equipment at December 31 consisted of the following (in thousands):

		2008			2007
Land and improvements	$	12,295		$	8,475
Buildings and leasehold improvements		36,416			30,351
Furniture and equipment		19,424			17,975
		68,135			56,801
Less accumulated depreciation and amortization		(20,253	)		(18,312	)
		47,882			38,489
Construction in progress		264			306
Premises and equipment, net of accumulated
depreciation and amortization	$	48,146		$	38,795

Depreciation expense totaled $3.2 million, $2.6 million and $2.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

At December 31, 2008, there were no new construction contracts for new branches. Unpaid construction contracts related to branch facility improvements were approximately $264,000 at December 31, 2008.

NOTE 9 – CORE DEPOSIT INTANGIBLES

At December 31, 2008 and 2007, PremierWest had $2.5 million and $1.5 million of core deposit intangibles, respectively, net of accumulated amortization of $3.1 million and $2.4 million, respectively. For each of the years ending December 31, 2008, 2007 and 2006, PremierWest recorded amortization expense related to these core deposit intangibles totaling $698,000, $494,000 and $494,000, respectively.

The table below presents the estimated amortization expense for the core deposit intangibles acquired in all mergers for each of the next five years and thereafter:

 

(in thousands)
	Year		Estimated Amount
	2009	$	717
	2010	$	717
	2011	$	257
	2012	$	223
	2013	$	223
	Thereafter	$	316
		$	2,453

F - 30

     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – TIME DEPOSITS

Time deposits of $100,000 and over totaled approximately $205.9 million and $130.2 million at December 31, 2008 and 2007, respectively.

At December 31, 2008, the scheduled annual maturities for all time deposits were as follows (in thousands):

Years ending December 31,	2009	$	463,756
	2010		52,614
	2011		22,061
	2012		8,531
	2013		18,765
	Thereafter		118
		$	565,845

NOTE 11 – FEDERAL FUNDS PURCHASED

The Bank maintains Federal funds lines with correspondent banks as a backup source of liquidity. Federal funds purchased generally mature within one to four days from the transaction date. The balance outstanding as of December 31, 2008 was $25.0 million, on an unsecured basis, and are accruing interest at the weighted average rate of 1.10% . As of December 31, 2008, the Bank had approximately $54.3 million of Federal funds lines available to draw against on an unsecured basis. The balance outstanding as of December 31, 2007 was $54.0 million.

F - 31

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 – FEDERAL HOME LOAN BANK BORROWINGS

The Bank had long-term borrowings outstanding with the Federal Home Loan Bank totaling $42,000 and $508,000 as of December 31, 2008 and 2007, respectively. The Bank makes monthly principal and interest payments on the long-term borrowings which mature by 2014 and bear fixed interest at rates ranging from 6.52% to 7.52% . The Bank also participates in the Cash Management Advance (CMA) program with the FHLB. CMA borrowings are short-term borrowings that mature within one year and accrue interest at the variable Cash Management Advance rate as published by the FHLB. As of December 31, 2008, the Bank had $20.0 million in CMA borrowings outstanding at the variable interest rate of 0.76% . As of December 31, 2007, the Bank had $13.5 million in CMA borrowings outstanding at the variable interest rate of 4.35% . All outstanding borrowings with the FHLB are collateralized as provided for under the Advances, Security and Deposit Agreement be tween 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 $54.3 million were pledged to support the Bank’s outstanding advances and provided for an additional available borrowing capacity of approximately $14.3 million as of December 31, 2008.

The scheduled repayment of FHLB borrowings is as follows (in thousands):

Years ending December 31,	2009	$	20,013
	2010		7
	2011		7
	2012		7
	2013		7
	Thereafter		1
		$	20,042

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 – 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 the Trusts and held as an investment by the Company are recorded in other assets in the consolidated balance sheets. Following are the terms of the junior subordinated debentures as of December 31, 2008:

	Issue		Issued			Maturity	Redemption
Trust Name	Date		Amount	Rate		Date	Date
PremierWest Statutory	December					December	December
Trust I	2004	$	7,732,000	5.65	% (1)	2034	2009
PremierWest Statutory	December					March	March
Trust II	2004		7,732,000	5.65	% (2)	2035	2010
Stockmans Financial	August					September	September
Trust I	2005		15,464,000	5.93	% (3)	2035	2010
		$	30,928,000

(1)	PremierWest Statutory Trust I bears interest at the fixed rate of 5.65% until December 2009 at which time it converts to the variable rate of LIBOR + 1.75%, adjusted quarterly, through the final maturity date in December 2034.
(2)	PremierWest Statutory Trust II bears interest at the fixed rate of 5.65% until March 2010 at which time it converts to the variable rate of LIBOR + 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 + 1.42%, adjusted quarterly, through the final maturity date in September 2035.

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     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – PREFERRED STOCK

On November 17, 2008, the Series A Preferred Stock private offering, that was closed on November 17, 2003, automatically converted to common stock. This private offering involved 11,000 shares of Series A Preferred Stock to a group of private investors, including a director of PremierWest. The offering stipulated that the shares were to be automatically converted on the fifth anniversary of the issuance date. On November 17, 2008, a total of 1,169,922 shares of common stock were distributed to the holders of the 11,000 shares of Series A Preferred Stock.

NOTE 15 – OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

In the normal course of business, the Bank is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the accompanying consolidated balance sheets. The contractual amounts of these instruments reflect the extent of the Bank’s involvement in these particular classes of financial instruments. As of December 31, 2008 and 2007, the Bank had no commitments to extend credit at below-market interest rates and held no derivative financial instruments.

The Bank’s exposure to credit loss in the event of non-performance by another party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The distribution of commitments to extend credit approximates the distribution of loans outstanding.

A summary of the Bank’s off-balance sheet financial instruments at December 31 is as follows (in thousands):

		2008		2007
Commitments to extend credit	$	140,637	$	164,032
Stand by letters of credit		28,225		8,181
Total off-balance sheet financial instruments	$	168,862	$	172,213

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 – OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - (continued)

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

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

NOTE 16 – INCOME TAXES

The provision for income taxes for the years ended December 31 was as follows (in thousands):

		2008			2007			2006
Current expense:
Federal	$	98		$	8,506		$	8,772
State		-			1,895			1,986
		98			10,401			10,758
Deferred expense (benefit):
Federal		(18	)		(806	)		(1,401	)
State		(128	)		(292	)		(371	)
		(146	)		(1,098	)		(1,772	)
Provision for income taxes	$	(48	)	$	9,303		$	8,986

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – INCOME TAXES – (continued)

The provision for income taxes results in effective tax rates which are different than the federal income tax statutory rate. Differences for the years ended December 31 are as follows (in thousands):

	2008					2007					2006
		Amount		Rate			Amount		Rate			Amount		Rate
Expected federal income tax provision
at statutory rate	$	210		35.00	%	$	8,542		35.00	%	$	8,272		35.00	%
State income taxes, net of federal effect		(31	)	-5.17	%		1,208		4.95	%		1,200		5.08	%
Effect of non-taxable interest income, net		(152	)	-25.33	%		(199	)	-0.82	%		(174	)	-0.74	%
Effect of non-taxable increases in the cash
surrender value of life insurance		(244	)	-40.67	%		(188	)	-0.77	%		(150	)	-0.63	%
Stock compensation		184		30.67	%		212		0.87	%		195		0.83	%
Other, net		(15	)	-2.50	%		(272	)	-1.11	%		(357	)	-1.51	%
Provision for income taxes	$	(48	)	-8.00	%	$	9,303		38.12	%	$	8,986		38.03	%

The components of the net deferred tax assets as of December 31 were approximately as follows (in thousands):

	2008		2007
Assets:
Allowance for loan losses	$	9,183	$	4,701
Benefit plans		3,414		2,399
State tax credits		321		301
Other		281		448
Total deferred tax assets		13,199		7,849
Liabilities:
Net unrealized gains on investment
securities available-for-sale		20		-
FHLB stock dividends		353		353
Premises and equipment		3,293		1,407
Intangibles		1,184		648
Loan origination costs		1,166		949
Prepaids		286		230
Deferred revenue		99		174
Other		398		314
Total deferred tax liabilities		6,799		4,075
Net deferred tax asset	$	6,400	$	3,774

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – INCOME TAXES – (continued)

The state tax credits include purchased tax credits totaling $130,000 and $147,000 at December 31, 2008 and 2007, respectively. These purchased tax credits consist of State of Oregon Business Energy Tax Credits (BETC) that will be utilized to offset future Oregon income taxes. The Company made BETC purchases during both 2008 and 2007. The purchased credits expire after 8 years but are expected to be utilized within 5 years of purchase.

Management believes, based upon the Bank’s expected performance, that deferred tax assets will be recognized in the normal course of operations and, accordingly, Management has not reduced deferred tax assets by a valuation allowance.

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     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – BASIC AND DILUTED EARNINGS PER COMMON SHARE

The following summarizes the calculations for basic and diluted earnings per common share, after giving retroactive effect for stock dividends, for the years ended December 31, (in thousands, except per share amounts):

			Weighted Average
		Net Income	Shares		Per Share
		(Numerator)	(Denominator)		Amount
2008
Basic earnings per common share –
income available to common
shareholders (net of $275,000 declared
dividends to preferred shareholders)	$	373	22,129,577	$		0.02
Effect of assumed conversion of
stock options		-	41,840
Diluted earnings per common share	$	373	22,171,417	$		0.02
2007
Basic earnings per common share –
income available to common
shareholders (net of $275,000 declared
dividends to preferred shareholders)	$	14,827	17,014,873	$		0.87
Effect of assumed conversion of
stock options		-	308,187
Effect of assumed conversion of
Preferred Stock		-	1,169,925
Add back preferred stock dividend
declared		275	-
Diluted earnings per common share	$	15,102	18,492,985	$		0.82
2006
Basic earnings per common share –
income available to common
shareholders (net of $275,000 declared
dividends to preferred shareholders)	$	14,373	16,991,451	$		0.85
Effect of assumed conversion of
stock options		-	411,410
Effect of assumed conversion of
Preferred Stock		-	1,169,925
Add back preferred stock dividend
declared		275	-
Diluted earnings per common share	$	14,648	18,572,786	$		0.79

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17 – BASIC AND DILUTED EARNINGS PER COMMON SHARE – (continued)

As of December 31, 2008 and 2007, stock options of approximately 794,000 and 219,000, respectively, were not included in the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

NOTE 18 – TRANSACTIONS WITH RELATED PARTIES

Certain officers and directors (and the companies with which they are associated) are customers of, and have had banking transactions with, the Bank in the ordinary course of business. In addition, the Bank expects to continue to have such banking transactions in the future. All loans, and commitments to lend, to such parties are generally made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons. In the opinion of Management, these transactions do not involve more than the normal risk of collectibility or present any other unfavorable features.

An analysis of the activity with respect to loans outstanding to directors and executive officers of the Bank and their affiliates for the years ended December 31 is as follows (in thousands):

		2008			2007
Beginning balance	$	17,183		$	11,495
Additions		8,457			8,215
Repayments		(2,023	)		(2,527	)
Ending balance	$	23,617		$	17,183

Deposits held for executive officers and directors at December 31, 2008 and 2007, were approximately $14.2 million and $3.7 million, respectively.

NOTE 19 – BENEFIT PLANS

401(k) profit sharing plan – The Bank maintains a 401(k) profit sharing plan (the Plan) that covers substantially all full-time employees. Employees may make voluntary tax deferred contributions to the Plan, and the Bank’s contributions to the Plan are at the discretion of the Board of Directors, not to exceed the amount deductible for federal income tax purposes. Employees vest in the Bank’s contributions to the Plan over a period of six years. Total amounts charged to operations under the Plan were approximately $456,000, $506,000 and $366,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 – BENEFIT PLANS – (continued)

Executive supplemental retirement and severance plans – In connection with previous acquisitions of United Bancorp, Timberline Bancshares, Inc., Mid Valley Bank and Stockmans Bank, the Company entered into various severance, non-compete, and retirement agreements with previous executives and Board members of the acquired companies. As of December 31, 2008 and 2007, the Bank’s recorded liability pursuant to these collective agreements was $2.4 million and $889,000, respectively. Payments on these plans are generally made on a monthly or quarterly basis and will continue until all liabilities are paid in full. To support its obligations under these arrangements, the Bank acquired bank-owned life insurance policies which had aggregate cash surrender values of $7.1 million and $6.9 million as of December 31, 2008 and 2007, respectively. For the years end ed December 31, 2008, 2007 and 2006, the increase in the cash surrender value of the bank-owned life insurance policies was $609,000, $470,000 and $376,000, respectively; and the Bank recognized expenses relating to these agreements of $160,000, $144,000 and $123,000, respectively.

The Bank has entered into supplemental retirement plans with five key executive officers. These plans provide for retirement benefits which increase annually until each executive reaches retirement age and will be paid out over a period ranging from 15 years to life (for two executives) following the retirement of covered executives. To support its obligations under these plans and to provide death benefits to other selected employees, the Bank has acquired bank-owned life insurance with a cash surrender value of $8.4 million and $6.0 million at December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, the Bank’s liability pursuant to these supplemental retirement plans was $3.0 million and $2.6 million, respectively. For the years ended December 31, 2008, 2007 and 2006, related expenses of $593,000, $631,000 and $859,000, respectively, were recorded.

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 – STOCK OPTION PLAN

At December 31, 2008, PremierWest Bancorp had two outstanding stock option plans – the 1992 Stock Option Plan (“1992 Plan”) and the 2002 Stock Incentive Plan (“2002 Plan”). The 2002 Plan superseded the 1992 Plan; no additional grants may be made under the 1992 Plan. The 2002 Plan was initially established in May 2002 and was approved by shareholders. The 2002 Plan was subsequently amended and restated in May 2005 to allow for the issuance of restricted stock grants in addition to stock options. The 2002 Plan was also amended and restated in May 2007 to increase the number of shares available for issuance under the plan by 1,000,000 shares. The amended and restated 2002 Plan was approved by shareholders in May 2005 and 2007, and allows for the issuance of up to 1,963,415 shares of stock awards of which a total of 1,024,511 shares were available for issuance as either stock options or restricted stock grants as of December 31, 2008. As of December 31, 2008, there were no restricted stock grants outstanding.

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, or 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.

Stock option activity during the year ended December 31, 2008 was as follows:

					Weighted Average
					Remaining		Aggregate
	Number			Weighted Average	Contractual Term		Intrinsic Value
	of Options			Exercise Price	(years)		(in thousands)
Stock options outstanding, 12/31/07	987,247		$	8.68
Granted	282,575			9.63
Exercised	(202,928	)		5.86
Forfeited	(66,470	)		10.36
Expired	(996	)		5.06
Stock options outstanding, 12/31/08	999,428		$	9.41	6.59	$	(2,718	)
Stock options exercisable, 12/31/08	437,148		$	7.89	4.67	$	(525	)

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 – STOCK OPTION PLAN – (continued)

PremierWest Bancorp follows Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”). SFAS 123R 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. SFAS 123R 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 our stock options. The Black-Scholes model requires the use of assumptions regarding the historical volatility of our stock price, our expected dividend yield, the risk-free interest rate and the weighted average expected lif e 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:

	2008		2007		2006
Risk-free interest rate	3.3	%	4.6	%	4.8	%
Expected dividend	2.49	%	0.78	%	0.29	%
Expected life, in years	7.0		7.1		7.3
Expected volatility	28	%	28	%	27	%

The weighted-average grant date fair value of options granted during the years ended 2008, 2007 and 2006 was $2.54, $4.82, and $6.84, respectively.

The following table presents the intrinsic value of stock options exercised, cash received from stock options exercised, and the tax benefit realized for deductions related to stock options exercised for the years ended December 31, 2008, 2007 and 2006.

	2008		2007		2006
Intrinsic value of stock options exercised	$	977,000	$	328,000	$	778,000
Cash received from stock options exercised	$	73,000	$	254,000	$	363,000
Tax benefit realized from stock options exercised	$	138,000	$	157,000	$	169,000

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 20 – STOCK OPTION PLAN – (continued)

Information regarding the number, weighted-average exercise price, and weighted-average remaining contractual life of options by range of exercise price at December 31, 2008, is as follows:

	Options Outstanding				Exercisable Options
				Weighted -				Weighted-
			Weighted-	Average			Weighted-	Average
			Average	Remaining			Average	Remaining
Exercise	Number of		Exercise	Contractual	Number		Exercise	Contractual
Price Range	Options		Price	Life (Years)	of Options		Price	Life (Years)
$3.01 – $6.00	205,029	$	5.18	3.05	198,176	$	5.19	2.93
$6.01 – $9.00	109,212		8.41	5.81	78,396		8.49	5.27
$9.01 – $12.00	488,593		9.69	7.75	118,611		9.57	6.13
$12.01 – $15.00	141,469		12.51	8.07	19,915		12.62	7.99
$15.01 – $18.00	55,125		16.78	7.25	22,050		16.78	7.25
	999,428	$	9.41	6.59	437,148	$	7.89	4.67

NOTE 21 – COMMITMENTS AND CONTINGENCIES

Operating lease commitments – As of December 31, 2008, the Bank leased certain properties from unrelated third parties. Future minimum lease commitments pursuant to these operating leases are as follows (in thousands):

Years ending December 31,	2009	$	819
	2010		698
	2011		615
	2012		562
	2013		454
	Thereafter		2,975
		$	6,123

Rental expense for all operating leases was $1.0 million, $696,000 and $642,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

In March 2008, the Company’s Board of Directors approved a transaction involving the exchange of shares of the Company’s common stock in partial payment of the option exercise consideration paid by two officers to exercise vested options. On March 3, 2008, the two officers exercised 189,958 outstanding options using an aggregate of $7,000 of cash and 102,599 shares of common stock. The shares exchanged as option exercise consideration were priced at the market closing price of the Company’s common stock on that day.

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PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 21 – COMMITMENTS AND CONTINGENCIES – (continued)

Legal contingencies – We are currently a party to various claims and legal proceedings. If Management believes that a loss arising from these matters is probable and can reasonably be estimated, we record the amount of the loss, or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As additional information becomes available, any potential liability related to these matters is assessed and the estimates are revised, if necessary.

Based on currently available information, Management believes that the ultimate outcome of these matters, individual and in the aggregate, will not have a material adverse effect on our financial position or overall trends in results of operations. However, litigation is subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from selling one or more products. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on the financial position and results of operations of the period in which the ruling occurs, or future periods.

NOTE 22 – REGULATORY MATTERS

PremierWest and the Bank are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on PremierWest’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, PremierWest and the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. PremierWest’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require PremierWest and the Bank to maintain minimum amounts and ratios (set forth in the following tables) of Tier 1 capital to average assets, and Tier 1 and total capital to risk-weighted assets (all as defined in the regulations). Management believes that as of December 31, 2008 and 2007, PremierWest and the Bank met or exceeded all relevant capital adequacy requirements.

As of December 31, 2008, the most recent notification from the regulators categorized the Bank as well capitalized under the regulatory framework for prompt correction action. There are no conditions or events since the notification from the regulators that Management believes would change the Bank’s regulatory capital categorization. To be categorized as well capitalized, PremierWest and the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 – REGULATORY MATTERS – (continued)

PremierWest’s and the Bank’s actual and required capital amounts and ratios are presented in the following table (in thousands):

										Regulatory
										Minimum To Be
						Regulatory				Well Capitalized
						Minimum To Be				Under Prompt
						Adequately				Corrective
		Actual				Capitalized				Action Provisions
		Amount	Ratio			Amount	Ratio			Amount	Ratio
December 31, 2008
Tier 1 capital (to average assets)
Company	$	143,219	10.2	%	$	56,296	>4.0	%		N/A	N/A
Bank	$	140,895	10.0	%	$	56,220	>4.0	%	$	70,275	>5.0	%
Tier 1 capital (to risk-weighted assets)
Company	$	143,219	10.3	%	$	55,465	4.0	%		N/A	N/A
Bank	$	140,895	10.2	%	$	55,372	>4.0	%	$	83,057	>6.0	%
Total capital (to risk-weighted assets)
Company	$	160,622	11.6	%	$	110,930	>8.0	%		N/A	N/A
Bank	$	158,270	11.4	%	$	110,743	>8.0	%	$	138,429	>10.0	%

										Regulatory
										Minimum To Be
						Regulatory				Well Capitalized
						Minimum To Be				Under Prompt
						Adequately				Corrective
		Actual				Capitalized				Action Provisions
		Amount	Ratio			Amount	Ratio			Amount	Ratio
December 31, 2007
Tier 1 capital (to average assets)
Company	$	120,157	10.9	%	$	44,115	>4.0	%		N/A	N/A
Bank	$	120,251	10.9	%	$	44,067	>4.0	%	$	55,084	>5.0	%
Tier 1 capital (to risk-weighted assets)
Company	$	120,157	10.8	%	$	44,710	>4.0	%		N/A	N/A
Bank	$	120,251	10.8	%	$	44,676	>4.0	%	$	67,014	>6.0	%
Total capital (to risk-weighted assets)
Company	$	131,862	11.8	%	$	89,420	>8.0	%		N/A	N/A
Bank	$	131,956	11.8	%	$	89,353	>8.0	%	$	111,691	>10.0	%

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     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 22 – REGULATORY MATTERS – (continued)

In 2008, the banking industry, as well as other sectors of the United States economy, saw a number of unprecedented and wide sweeping changes in federal regulation. The most significant of these changes resulted from the passage of the Emergency Economic Stabilization Act of 2008 (“EESA”). The purpose of this legislation was to enable Congress to strengthen our financial markets and promote the flow of credit to businesses and consumers.

The Company participated in some of these new programs after year end, as discussed below.

Temporary Liquidity Guarantee Program (“TLGP”) – On October 13, 2008, the FDIC announced the TLGP to strengthen confidence and encourage liquidity in the banking system. The TLGP consists of two components: a temporary guarantee of newly-issued senior unsecured debt (the Debt Guarantee Program) and a temporary unlimited guarantee of funds in noninterest-bearing transaction accounts at FDIC-insured institutions (the Transaction Account Guarantee Program). On December 5, 2008, the Company elected to participate in the both the Debt Guarantee Program and Transaction Account Guarantee Program. However, the Company declined the option of issuing certain non-guaranteed senior unsecured debt before issuing the maximum amount of guaranteed debt.

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     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 – PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for PremierWest (parent company only) is presented as follows (in thousands):

CONDENSED BALANCE SHEETS
	December 31,
	2008		2007
ASSETS
Cash and cash equivalents	$	361	$	38
Investment in subsidiary		213,776		142,769
Advances made to subsidiary		238		62
Other assets		1,783		1,313
Total assets	$	216,158	$	144,182
LIABILITIES
Junior subordinated debentures	$	30,928	$	15,464
Other liabilities		59		1,043
Total liabilities		30,987		16,507
SHAREHOLDERS’ EQUITY		185,171		127,675
Total liabilities and shareholders’ equity	$	216,158	$	144,182

CONDENSED STATEMENTS OF INCOME
		Years Ended December 31,
		2008			2007			2006
Operating income	$	-		$	103		$	211
Cash dividends from bank subsidiary		7,230			2,525			-
Interest expense		(1,725	)		(874	)		(874	)
Other operating expense		(3,952	)		(546	)		(436	)
Provision for income taxes		838			-			-
Income (loss) before equity in undistributed
net earnings of subsidiary		2,391			1,208			(1,099	)
Equity (deficit) in undistributed net earnings of
subsidiary		(1,743	)		13,894			15,747
NET INCOME	$	648		$	15,102		$	14,648

F - 47

     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23 – PARENT COMPANY FINANCIAL INFORMATION – (continued)

CONDENSED STATEMENTS OF CASH FLOWS
		Years Ended December 31,
		2008			2007			2006
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income	$	648		$	15,102		$	14,648
Adjustments to reconcile net income to
net cash from operating activities:
Deficit (equity) in undistributed net
earnings of subsidiary		1,743			(13,894	)		(15,747	)
Excess tax benefit from stock options
excercised		(76	)		(69	)		(146	)
Other, net		308			502			406
Net cash from operating
activities		2,623			1,641			(839	)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of certificate of deposit on Bank subsidiary		(50	)		-			-
Repayment of advances made to Bank subsidiary		1,768			2,078			2,186
Net cash from investing
activities		1,718			2,078			2,186
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from stock options exercised		73			254			363
Dividends paid on common stock		(5,051	)		(2,683	)		(1,579	)
Dividends paid on preferred stock		(275	)		(275	)		(275	)
Excess tax benefit from stock options
excercised		76			69			146
Stock repurchased		(435	)		(1,060	)		-
Other, net		1,594			(10	)		(11	)
Net cash used in financing
activities		(4,018	)		(3,705	)		(1,356	)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS		323			14			(9	)
CASH AND CASH EQUIVALENTS,
Beginning of year		38			24			33
CASH AND CASH EQUIVALENTS,
End of year	$	361		$	38		$	24

F - 48

PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 24 – SUBSEQUENT EVENTS

On February 12, 2009, the Company received $25.0 million from the Federal Reserve as part of their Term Auction Facility Program (TAF) program. The TAF is a credit facility that allows a depository institution, judged to be in generally sound financial condition and eligible to borrow under the primary credit discount window program, to place a bid for an advance from its local Federal Reserve Bank at an interest rate that is determined as the result of an auction. These advances must then be fully collateralized.

By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, the Federal Reserve hopes to ensure that liquidity provisions can be disseminated efficiently even when the unsecured interbank markets are under stress.

The Company obtained $25.0 million for a 28-day period, at a rate of 0.25% . The funds were repaid on March 12, 2009.

On February 13, 2009, the Company received $41.4 million in funding pursuant to the U.S. Department of Treasury Troubled Asset Relief Program (TARP) Capital Purchase Program in the form of an investment in PremierWest Bancorp. The U.S. Department of Treasury received 41,400 shares of PremierWest’s Fixed Rate Cumulative Perpetual Preferred Stock Series B (Series B Preferred Stock) and a warrant to purchase 1,038,462 shares of the Company’s common stock pursuant to the terms of a Form Warrant to Purchase Common Stock issued and dated February 13, 2009. The Warrants have a term of 10 years and are exercisable at any time at an exercise price of $5.98 per share. The Series B Preferred Stock rank pari passu with or senior to all other series or classes of Preferred Stock issued on the Clo sing Date with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Company. The Series B Preferred Stock pays a compounding cumulative dividend, in cash, at a rate of 5% per annum for the first five years, and 9% per annum thereafter on the liquidation preference of $1,000 per share. The Series B Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Series B Preferred Stock.

The additional capital will be deployed in supporting growth and expansion throughout the regions of Oregon and California in which we serve our customers. The Capital Purchase Program is intended to promote and support confidence in the nation’s banking system and to promote a general resumption of lending. The Company's goal is to follow the intent of the Program through product innovation, lending to qualified borrowers and by continuing to provide quality service to all customers.

F – 49

     PREMIERWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 24 – SUBSEQUENT EVENTS – (continued)

On February 19, 2009, PremierWest Bank executed a purchase and assumption agreement with Wells Fargo Bank, which results in the transferring of two branches of Wachovia Bank, N.A. in Davis and Grass Valley, California. Wells Fargo & Company acquired Wachovia Corporation December 31, 2008. As of December 31, 2008, the deposit liabilities to be assumed by PremierWest through this transaction were approximately $499.0 million with loans to be assumed of approximately $1.0 million. The transaction is subject to customary closing conditions and is expected to be completed during the second quarter of 2009.

On February 27, 2009, the FDIC proposed adopting an interim rule to impose an emergency special assessment to financial institutions of $0.20 per $100 of insured deposits existing as of June 30, 2009, to be collected September 30, 2009. This interim rule also provides that the FDIC may impose an additional special assessment in any quarter after June 30, 2009, to support the Deposit Insurance Fund in an additional amount of up to $0.10 per $100 of insured deposits. While this interim rule is subject to a comment period and regulatory approval, it is scheduled to be effective on April 1, 2009, and Management considers these events to be reasonably possible to occur during 2009. Management estimates that the range of assessment to be paid in 2009 will be approximately $2.4 million to $2.5 million. No accrual for these events has been made in the financial statements as of December 31, 2008.

F – 50

EX-10.4.2

Exhibit 10.4.2

PREMIERWEST BANCORP

AMENDMENT TO EMPLOYMENT AGREEMENT FOR TOM ANDERSON

          This Amendment dated effective January 5, 2009 (this “Amendment”) amends the Employment
Agreement by and among PremierWest Bancorp, PremierWest Bank, and Tom Anderson dated as of July
29, 2004 (the “Employment Agreement”).

1.       Section 2.3 is amended in its entirety to read as follows:

          2.3       Termination Upon Retirement. Unless sooner terminated, Executive’s employment shall
          terminate upon his Retirement (defined below).

2.       Section 6.6 is amended in its entirety to read as follows:

          6.6        Retirement. Upon Executive providing 90 days notice of his termination of employment
          and Executive being at least 62 years old at the time of termination (“Retirement”).

3.       Except as specifically set forth herein, the Employment Agreement as previously executed shall
          continue in full force and effect as written. Terms not otherwise defined in this Amendment shall
          have the meanings set forth in the Employment Agreement.

        IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.

PREMIERWEST BANCORP	EXECUTIVE
By: _______________________________
James Ford	Tom Anderson
President / Chief Executive Officer
PREMIERWEST BANK
By: _______________________________
James Ford
President / Chief Executive Officer

- 1 -

EX-10.7.2

Exhibit 10.7.2

AMENDMENT TO EMPLOYMENT AGREEMENT
FOR T. JOE DANELSON

         This Amendment dated effective December 16, 2008 (this “Amendment”) amends the Employment Agreement by and among PremierWest Bancorp, PremierWest Bank, and T. Joe Danelson dated as of April 21, 2008 (the “Employment Agreement”).

             NOW, therefore, Executive and PremierWest agree as follows:

             1.           Section 5.8 of the Employment Agreement is amended to add the following provision:

             “In addition, PremierWest shall reimburse Executive for up to an additional $75,000 of costs
              related to the sale of Executive’s home in Salem, Oregon (“Additional Sale Expenses”), provided,
              however, that Executive shall immediately reimburse PremierWest for all amounts paid as
              Additional Sale Expenses in the event that, within 24 months following payment of any
              Additional Sale Expenses by PremierWest, Executive is terminated for Cause or Executive
              terminates his employment other than for Good Reason.”

              2.         Terms not otherwise defined in this Amendment shall have the meanings set forth in the
Employment Agreement.

              3.         Except as specifically set forth herein, the Employment Agreement as previously
executed shall continue in full force and effect as written.

              IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written
above.

PREMIERWEST BANCORP	EXECUTIVE
By:__________________________________	_______________________________
____________________________	T. Joe Danelson
PREMIERWEST BANK
By:______________________________
____________________________

- 1 -

EX-10.10.2

Exhibit 10.10.2

FIRST AMENDMENT TO
PREMIERWEST BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
 (SERP)

           This First Amendment dated December 18, 2008 (this “Amendment”), amends the Supplemental Executive Retirement Plan Agreement (SERP) by and between PremierWest Bancorp (“Bancorp”), PremierWest Bank (“Bank”, and together with Bancorp, “Company”) and Richard Hieb (the “Executive”) dated December 13, 2007 (the “Agreement”).

1.           Section 3.2 of the Agreement is amended to revise the two references to “15 years” to “15 years,
              7 months.”

2.           Except as specifically set forth herein, the Agreement as previously executed shall continue in
              full force and effect as written. Terms not otherwise defined in this Amendment shall have the
              meanings set forth in the Agreement.

          IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.

PREMIERWEST BANCORP	EXECUTIVE
By:__________________________________	______________________________
James Ford	Richard Hieb
President and Chief Executive Officer
PREMIERWEST BANK
By:_________________________________
James Ford
President and Chief Executive Officer

- 1 -

EX-10.11.2

Exhibit 10.11.2

FIRST AMENDMENT TO
PREMIERWEST BANK
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
(SERP)

          This First Amendment dated April 24, 2008 (this “Amendment”), amends the Supplemental Executive Retirement Plan Agreement (SERP) by and between PremierWest Bancorp (“Bancorp”), PremierWest Bank (“Bank”, and together with Bancorp, “Company”) and Tom Anderson (the “Executive”) dated December 13, 2007 (the “Agreement”).

RECITALS

A.         The parties discovered a typographical error in the Agreement related to the timing of
             commencement of Early Retirement payments.

B.          The parties desire to correct the error and amend the Agreement to conform to the initial
              understanding of the parties.

AGREEMENT

1.           Section 2.2.2 is amended in its entirety to read:

                              “2.2.2 Payment of Benefit. The payment of the benefits under this Section shall
               begin on the later of: (i) six months after Termination of Employment or (ii) Normal
               Retirement Date. The Bank shall pay the annual benefit to the Executive in 12 equal
               monthly installments on the first day of each month for a period of 15 years and, if clause
               2.2(i) applies, with six monthly payments accumulated and paid on the commencement
               date and one payment made each month thereafter for 14 years and six months. The
               monthly payments made hereunder shall be considered a series of separate payments for
               purposes of Code § 409A.”

2.           Except as specifically amended herein, the Agreement shall remain in full force and effect.
              Terms not otherwise defined in this Amendment shall have the meanings set forth in the Agreement.

              IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written
above.

Executive:	Bancorp:   PremierWest Bancorp
______________________________	By:____________________________________
Tom Anderson	___________________________________
	Bank:   PremierWest Bank
	By:____________________________________
	_______________________________

- 1 -

EX-10.13.1

Exhibit 10.13.1

PREMIERWEST BANK
EXECUTIVE SURVIVOR INCOME AGREEMENT

           THIS EXECUTIVE SURVIVOR INCOME AGREEMENT is made this 12th day of November, 2002, by and between PremierWest Bank, an Oregon-chartered, FDIC-insured bank with its main office in Medford, Oregon (the “Bank”), and John L. Anhorn, President & Chief Executive Officer (the “Executive”).

           WHEREAS, to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide benefits to the Executive’s beneficiary(ies) if (i) the Executive dies prior to terminating employment, or (ii) if the Executive dies after Termination of Employment provided the Executive terminated employment due to Disability, Change in Control, or attaining Normal Retirement Age. The Bank will pay the benefits from its general assets, but only so long as one of its general assets is a life insurance policy on the Executive’s life.

AGREEMENT

               The Executive and the Bank agree as follows:

Article 1
Definitions

                Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

                 1.1        “Change in Control” means if any one of the following events occurs:

                               (a) Merger. Premier West Bancorp (“Bancorp”) merges into or consolidates with another
                 corporation, or merges another corporation into Bancorp, and as a result less than 50% of the combined
                 voting power of the resulting corporation immediately after the merger or consolidation is held by persons
                 who were the holders of Bancorp’s voting securities immediately before the merger or consolidation,

                                (b) Acquisition of Significant Share Ownership. (1) a report on Schedule 13D or another form or
                  schedule (other than Schedule 13G) is filed or is required to be filed under sections 13(d) or 14(d) of the
                  Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in
                  concert has or have become the beneficial owner of 25% or more of a class of Bancorp’s voting securities,
                  or (2) a person or persons acting in concert has or have become the beneficial owner of 10% or more of a
                  class of Bancorp’s voting securities and the person or the person’s or group’s nominee becomes the
                  Chairman of the Board of Bancorp, but this paragraph (b) shall not apply to beneficial ownership of voting
                  shares of Bancorp held in a fiduciary capacity by an entity in which Bancorp directly or indirectly
                  beneficially owns 50% or more of the outstanding voting securities,

                                (c) Change in Board Composition. during any period of two consecutive years, individuals who
                  constitute Bancorp’s board of directors at the beginning of the two-year period cease for any reason to
                  constitute at least a majority thereof; provided, however, that — for purposes of this paragraph (c) — each
                  director who is first elected by the board (or first nominated by the board for election by stockholders) by a
                  vote of at least two-thirds (b) of the directors who were directors at the beginning of the period shall be
                  deemed to have been a director at the beginning of the two-year period, or

                                 (d) Sale of Assets. Bancorp sells to a third party all or substantially all of Bancorp’s assets. For
                   this purpose, sale of all or substantially all of Bancorp’s assets includes sale of the shares or assets of the
                   Bank.

               1.2         “Disability” means the Executive suffers a sickness, accident, or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive disabled. The Executive must submit proof to the Bank of the carrier’s or the Social Security Administration’s determination upon the request of the Bank.

1.3      “Good Reason” means the occurrence of any of the events or conditions described in clauses (a) through (f) hereof without the Executive’s express written consent –

              (a)        a material reduction in Executive’s title or responsibilities;

              (b)       a reduction in base salary as in effect on the date of a Change in Control;

              (c)        relocation of the Bank’s principal executive offices, or requiring the Executive to change his
              principal work location, to any location that is more than 15 miles from the location of the Bank’s principal
              executive offices on the date of this Agreement;

              (d)        the failure by the Bank to continue to provide the Executive with compensation and benefits
              substantially similar to those provided to him under any of the employee benefit plans in which the
              Executive becomes a participant, or the taking of any action by the Bank which would directly or indirectly
              materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by
              him at the time of the Change in Control; or

              (e)         the failure of the Bank to obtain a satisfactory agreement from any successor or assignee of the
              Bank to assume and agree to perform this Agreement.

              1.4         "Normal Retirement Age" means the Executive’s 65^nd birthday.

              1.5         "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment.

           1.6        “Termination for Cause” means the definition of termination for cause specified in any employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank. If the Executive is not a party to an employment agreement containing a definition of termination for cause, Termination for Cause means the Bank has terminated the Executive’s employment for any of the following reasons:

               (a)          Gross negligence or gross neglect of duties;

               (b)          Commission of a felony or of a gross misdemeanor involving moral turpitude; or

               (c)          Fraud, disloyalty, or willful violation of any law or significant Bank policy committed in
                              connection with the Executive’s employment and resulting in an adverse effect on the Bank.

                1.7         “Termination of Employment” with the Bank means that the Executive shall have ceased to be employed by the Bank for any reason whatsoever, excepting a leave of absence approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of termination of the Executive’s employment, the Bank shall have the sole and absolute right to decide the dispute, unless a Change in Control shall have occurred.

Article 2
Entitlement to Benefit

            2.1           Pre-Termination of Employment Survivor Income Benefit. If the Executive dies in active service to the Bank, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.1.

            2.2           Disability Continuation. If the Executive terminates employment due to Disability and then dies, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2.

2

          2.3        Change in Control Continuation. If the Executive’s employment with the Bank terminates involuntarily within 24 months after a Change in Control (excepting Termination for Cause) or in the event the Executive terminates employment voluntarily for Good Reason within 24 months after such Change in Control, the Bank shall pay the Executive’s designated beneficiary the survivor income benefit described in Section 2.5.2 following the Executive’s death.

          2.4        Normal Retirement Benefit. If the Executive terminates employment on or after Normal Retirement Age, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2 following the Executive’s death.

          2.5        Amount of Benefits. The Bank shall pay one of the following benefits to the Executive’s beneficiary in a single lump sum within 90 days following submission of a proof of a claim substantiating the Executive’s death.

             2.5.1      Pre-Retirement Death Benefit. If the Executive was employed by the Bank at the time of death,
                           the death benefit shall be $415,000.

             2.5.2      Post-Retirement Death Benefit. If the Executive was no longer employed by the Bank at the time
                           of death but had terminated employment
                           •        due to Disability,
                           •        involuntarily within two years after Change in Control, or in the event the Executive had
                                    terminated employment voluntarily for Good Reason within two years of such Change in
                                    Control, or
                           •       on or after Normal Retirement Age,
                                    the death benefit shall be $250,000.

Article 3
Beneficiaries

          3.1        Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.

          3.2        Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority, or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

Article 4
General Limitations

          4.1        Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement if Termination of Employment is due to the Executive’s actions resulting in Termination for Cause.

          4.2        Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Bank shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on any application or resume provided to the Bank, or on any application for any benefits provided by the Bank to the Executive.

             4.3         Removal. If the Executive is removed from office or permanently prohibited from participating in

3

the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

          4.4        Insolvency. If the Commissioner of the Oregon Department of Banking appoints the Federal Deposit Insurance Corporation as receiver for the Bank under Oregon Revised Statutes section 711.405, all obligations under this Agreement shall terminate as of the date of the Bank’s declared insolvency.

          4.5        Termination of Participation. The Executive’s rights under this Agreement shall cease if the Executive’s employment with the Bank is terminated prior to the Normal Retirement Age, except as provided in section 2.2 (termination because of Disability) or section 2.3 (termination within 24 months after a Change in Control).

Article 5
Claims and Review Procedures

              5.1        Claims Procedure. A participant or beneficiary (“claimant”) who has not received benefits under
the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

              5.1.1      Initiation – Written Claim. The claimant initiates a claim by submitting to the Bank a written
                            claim for the benefits.

              5.1.2      Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving
                            the claim. If the Bank determines that special circumstances require additional time for processing
                            the claim, the Bank can extend the response period by an additional 90 days by notifying the
                            claimant in writing, prior to the end of the initial 90-day period, that an additional period is
                            required. The notice of extension must set forth the special circumstances and the date by which
                            the Bank expects to render its decision.

              5.1.3      Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in
                            writing of such denial. The Bank shall write the notification in a manner calculated to be
                            understood by the claimant. The notification shall set forth:

                            (a) The specific reasons for the denial;

                            (b) A reference to the specific provisions of the Agreement on which the denial is based;

                            (c) A description of any additional information or material necessary for the claimant to perfect
                            the claim and an explanation of why it is needed;

                            (d) An explanation of the Agreement’s review procedures and the time limits applicable to such
                            procedures; and

                            (e) A statement of the claimant’s right to bring a civil action under ERISA (Employee Retirement
                            Income Security Act) Section 502(a) following an adverse benefit determination on review.

               5.2        Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the
               opportunity for a full and fair review by the Bank of the denial, as follows:

               5.2.1     Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving
               the Bank’s notice of denial, must file with the Bank a written request for review.

               5.2.2      Additional Submissions – Information Access. The claimant shall then have the opportunity to
               submit written comments, documents, records, and other information relating to the claim. The Bank
               shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all

4

                  documents, records, and other information relevant (as defined in applicable ERISA regulations) to the
                  claimant’s claim for benefits.

                  5.2.3      Considerations on Review. In considering the review, the Bank shall take into account all
                  materials and information the claimant submits relating to the claim, without regard to whether such
                  information was submitted or considered in the initial benefit determination.

                 5.2.4       Timing of Bank Response. The Bank shall respond in writing to such claimant within 60 days
                 after receiving the request for review. If the Bank determines that special circumstances require
                 additional time for processing the claim, the Bank can extend the response period by an additional 60
                 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional
                 period is required. The notice of extension must set forth the special circumstances and the date by which
                 the Bank expects to render its decision.

                 5.2.5       Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The
                 Bank shall write the notification in a manner calculated to be understood by the claimant. The
                 notification shall set forth:

                                (a) The specific reasons for the denial;

                                (b) A reference to the specific provisions of the Agreement on which the denial is based;

                                (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable
                                access to, and copies of, all documents, records, and other information relevant (as defined in
                                applicable ERISA regulations) to the claimant’s claim for benefits; and

                                (d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 6
Miscellaneous

              6.1         Amendments and Termination. The Bank may amend or terminate this Agreement at any time if, pursuant to legislative, judicial, or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Executive prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Bank (other than the financial impact of paying the benefits).

              6.2         Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

              6.3         No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

              6.4         Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

              6.5         Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform this Agreement if no such succession had occurred.

                   6.6          Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

5

                6.7      Applicable Law. Except to the extent preempted by the laws of the United States of America, the
                validity, interpretation, construction, and performance of this Agreement shall be governed by and
                construed in accordance with the laws of the State of Oregon, without giving effect to the principles of
                conflict of laws of such state.

                6.8      Unfunded Arrangement. The Executive’s beneficiary(ies) are general unsecured creditors of
                theBank for the payment of benefits under this Agreement. The benefits represent the mere promise by the
                Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation,
                sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on
                the Executive's life is a general asset of the Bank to which the Executive and the Executive’s
                beneficiary(ies) have no preferred or secured claim.

                6.9       Entire Agreement. This Agreement constitutes the entire agreement between the Bank and
                theExecutive as to the subject matter hereof. No rights are granted to the Executive’s beneficiary by virtue
                of this Agreement other than those specifically set forth herein.

                6.10     Administration. The Bank shall have all powers which are necessary to administer this
Agreement, including but not limited to:

                            (a) Interpreting the provisions of the Agreement;

                            (b) Establishing and revising the method of accounting for the Agreement;

                            (c) Maintaining a record of benefit payments; and

                            (d) Establishing rules and prescribing any forms necessary or desirable to administer the
                            Agreement.

                6.11     Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if
                            applicable, the Bank shall be the named fiduciary and plan administrator under this Agreement.
                            The named fiduciary may delegate to others certain aspects of the management and operation
                            responsibilities of the plan including the employment of advisors and the delegation of ministerial
                            duties to qualified individuals.

            6.12     Severability. If for any reason any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with the law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the remainder of such provision, not held so invalid and the remainder of such provision, together with all other provisions of this Agreement shall, to the full extent consistent with the law, continue in full force and effect.

            6.13     Headings. The headings of Sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

            6.14     Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

                                                   (a)      If to the Bank, to:

6

                                                              Board of Directors
                                                              PremierWest Bank
                                                              P.O.Box40
                                                              Medford, Oregon 97501-0003

                                               (b)          If to the Executive, to:
                                                              _________________________________
                                                              _________________________________
                                                              _________________________________

                                                              and to such other or additional person or persons as either party shall have
                                                              designated to the other party in writing by like notice.

              6.15      IRC §1035 Exchanges. The Executive recognizes and agrees that the Bank may after this Agreement is adopted wish to exchange the policy of life insurance on the Executive’s life for another contract of life insurance insuring the Executive’s life. Provided that the policy is replaced (or intended to be replaced) with a comparable policy of life insurance, the Executive agrees to provide medical information and cooperate with medical insurance-related testing required by a prospective insurer for implementing the policy or, if necessary, for modifying or updating to a comparable insurer.

IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement.

Executive:			Bank:
			PremierWest Bank
By _________________________		By:___________________________
John L. Anhorn	Its:______________________________
Title____________________________

             AGREEMENT TO COOPERATE WITH INSURANCE UNDERWRITING INCIDENT TO I.R.C. §1035 EXCHANGE

            I acknowledge that I have read the Executive Income Survivor Agreement and agree to be bound by its terms, particularly the covenant on my part set forth in section 6.15 of the Executive Income Survivor Agreement to provide medical information and cooperate with medical insurance-related testing required by an insurer to issue a comparable insurance policy to cover the benefit provided under this Executive Income Survivor Agreement.

_____________________________                                                                               _____________________________                                                                    &nb sp;            
Witness                                                                                                                                    Executive< /P>

7

Beneficiary Designation
PremierWest Bank
EXECUTIVE SURVIVOR INCOME AGREEMENT

                  I designate the following as beneficiary of benefits under this Agreement payable following my death:

                       Primary: ________________________________________________________________________
                       ______________________________________________________________________________

                       Contingent: _____________________________________________________________________
                        _____________________________________________________________________________

      Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date
                 of the trust agreement.

                  I understand that I may change these beneficiary designations by filing a new written designation with the
Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or
if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature________________________________

Date____________________________________

Received by the Bank this_________ day of ___________________, 2006. 

By_____________________________________

Title____________________________________

8

EX-10.14.1

Exhibit 10.14.1

PREMIERWEST BANK
EXECUTIVE SURVIVOR INCOME AGREEMENT

          THIS EXECUTIVE SURVIVOR INCOME AGREEMENT is made this 12th day of November, 2002, by and between PremierWest Bank, an Oregon-chartered, FDIC-insured bank with its main office in Medford, Oregon (the “Bank”), and Rich Hieb (the “Executive”).

          WHEREAS, to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide benefits to the Executive’s beneficiary(ies) if (i) the Executive dies prior to terminating employment, or (ii) if the Executive dies after Termination of Employment provided the Executive terminated employment due to Disability, Change in Control, or attaining Normal Retirement Age. The Bank will pay the benefits from its general assets, but only so long as one of its general assets is a life insurance policy on the Executive’s life.

AGREEMENT

              The Executive and the Bank agree as follows:

Article 1
Definitions

                  Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

                   1.1         “Change in Control” means if any one of the following events occurs:

                                  (a) Merger. Premier West Bancorp (“Bancorp”) merges into or consolidates with another
                   corporation, or merges another corporation into Bancorp, and as a result less than 50% of the combined
                   voting power of the resulting corporation immediately after the merger or consolidation is held by persons
                   who were the holders of Bancorp’s voting securities immediately before the merger or consolidation,

                                  (b) Acquisition of Significant Share Ownership. (1) a report on Schedule 13D or another form or
                   schedule (other than Schedule 13G) is filed or is required to be filed under sections 13(d) or 14(d) of the
                   Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in
                   concert has or have become the beneficial owner of 25% or more of a class of Bancorp’s voting securities,
                   or (2) a person or persons acting in concert has or have become the beneficial owner of 10% or more of a
                   class of Bancorp’s voting securities and the person or the person’s or group’s nominee becomes the
                   Chairman of the Board of Bancorp, but this paragraph (b) shall not apply to beneficial ownership of voting
                   shares of Bancorp held in a fiduciary capacity by an entity in which Bancorp directly or indirectly
                   beneficially owns 50% or more of the outstanding voting securities,

                                  (c) Change in Board Composition. during any period of two consecutive years, individuals who
                   constitute Bancorp’s board of directors at the beginning of the two-year period cease for any reason to
                   constitute at least a majority thereof; provided, however, that — for purposes of this paragraph (c) — each
                   director who is first elected by the board (or first nominated by the board for election by stockholders) by a
                   vote of at least two-thirds (b) of the directors who were directors at the beginning of the period shall be
                   deemed to have been a director at the beginning of the two-year period, or

                                 (d) Sale of Assets. Bancorp sells to a third party all or substantially all of Bancorp’s assets. For
                   this purpose, sale of all or substantially all of Bancorp’s assets includes sale of the shares or assets of the
                   Bank.

              1.2        “Disability” means the Executive suffers a sickness, accident, or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive disabled. The Executive must submit proof to the Bank of the carrier’s or the Social Security Administration’s determination upon the request of the Bank.

                   1.3      “Good Reason” means the occurrence of any of the events or conditions described in clauses (a)
through (f) hereof without the Executive’s express written consent –

                   (a)        a material reduction in Executive’s title or responsibilities;

                   (b)        a reduction in base salary as in effect on the date of a Change in Control;

                   (c)         relocation of the Bank’s principal executive offices, or requiring the Executive to change his
                   principal work location, to any location that is more than 15 miles from the location of the Bank’s principal
                   executive offices on the date of this Agreement;

                   (d)         the failure by the Bank to continue to provide the Executive with compensation and benefits
                   substantially similar to those provided to him under any of the employee benefit plans in which the
                   Executive becomes a participant, or the taking of any action by the Bank which would directly or indirectly
                   materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by
                   him at the time of the Change in Control; or

                   (e)         the failure of the Bank to obtain a satisfactory agreement from any successor or assignee of the
                   Bank to assume and agree to perform this Agreement.

                   1.4         "Normal Retirement Age" means the Executive’s 62^nd birthday.

                   1.5         "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment.

              1.6         “Termination for Cause” means the definition of termination for cause specified in any employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank. If the Executive is not a party to an employment agreement containing a definition of termination for cause, Termination for Cause means the Bank has terminated the Executive’s employment for any of the following reasons:

                   (a)           Gross negligence or gross neglect of duties;

                   (b)           Commission of a felony or of a gross misdemeanor involving moral turpitude; or

                   (c)           Fraud, disloyalty, or willful violation of any law or significant Bank policy committed in
                                  connection with the Executive’s employment and resulting in an adverse effect on the Bank.

                   1.7          “Termination of Employment” with the Bank means that the Executive shall have ceased to be employed by the Bank for any reason whatsoever, excepting a leave of absence approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of termination of the Executive’s employment, the Bank shall have the sole and absolute right to decide the dispute, unless a Change in Control shall have occurred.

Article 2
Entitlement to Benefit

               2.1           Pre-Termination of Employment Survivor Income Benefit. If the Executive dies in active service to the Bank, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.1.

               2.2           Disability Continuation. If the Executive terminates employment due to Disability and then dies, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2.

2

             2.3        Change in Control Continuation. If the Executive’s employment with the Bank terminates involuntarily within 24 months after a Change in Control (excepting Termination for Cause) or in the event the Executive terminates employment voluntarily for Good Reason within 24 months after such Change in Control, the Bank shall pay the Executive’s designated beneficiary the survivor income benefit described in Section 2.5.2 following the Executive’s death.

             2.4        Normal Retirement Benefit. If the Executive terminates employment on or after Normal Retirement Age, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2 following the Executive’s death.

             2.5        Amount of Benefits. The Bank shall pay one of the following benefits to the Executive’s beneficiary in a single lump sum within 90 days following submission of a proof of a claim substantiating the Executive’s death.

                  2.5.1     Pre-Retirement Death Benefit. If the Executive was employed by the Bank at the time of death,
                               the death benefit shall be $250,000.

                  2.5.2     Post-Retirement Death Benefit. If the Executive was no longer employed by the Bank at the time
                               of death but had terminated employment
                               •          due to Disability,
                               •           involuntarily within two years after Change in Control, or in the event the Executive had
                                           terminated employment voluntarily for Good Reason within two years of such Change in
                                           Control, or
                               •           on or after Normal Retirement Age,
                               the death benefit shall be $250,000.

Article 3
Beneficiaries

              3.1      Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.

              3.2      Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority, or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

Article 4
General Limitations

             4.1      Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement if Termination of Employment is due to the Executive’s actions resulting in Termination for Cause.

             4.2      Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Bank shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on any application or resume provided to the Bank, or on any application for any benefits provided by the Bank to the Executive.

                 4.3       Removal. If the Executive is removed from office or permanently prohibited from participating in

3

the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

                4.4            Insolvency. If the Commissioner of the Oregon Department of Banking appoints the Federal Deposit Insurance Corporation as receiver for the Bank under Oregon Revised Statutes section 711.405, all obligations under this Agreement shall terminate as of the date of the Bank’s declared insolvency.

                4.5            Termination of Participation. The Executive’s rights under this Agreement shall cease if the Executive’s employment with the Bank is terminated prior to the Normal Retirement Age, except as provided in section 2.2 (termination because of Disability) or section 2.3 (termination within 24 months after a Change in Control).

Article 5
Claims and Review Procedures

                5.1             Claims Procedure. A participant or beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

                      5.1.1          Initiation – Written Claim. The claimant initiates a claim by submitting to the Bank a written
                                        claim for the benefits.

                      5.1.2          Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving
                                        the claim. If the Bank determines that special circumstances require additional time for processing
                                        the claim, the Bank can extend the response period by an additional 90 days by notifying the
                                        claimant in writing, prior to the end of the initial 90-day period, that an additional period is
                                        required. The notice of extension must set forth the special circumstances and the date by which
                                        the Bank expects to render its decision.

                      5.1.3          Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in
                                        writing of such denial. The Bank shall write the notification in a manner calculated to be
                                        understood by the claimant. The notification shall set forth:

                                        (a) The specific reasons for the denial;

                                        (b) A reference to the specific provisions of the Agreement on which the denial is based;

                                        (c) A description of any additional information or material necessary for the claimant to perfect
                                         the claim and an explanation of why it is needed;

                                        (d) An explanation of the Agreement’s review procedures and the time limits applicable to such
                                         procedures; and

                                        (e) A statement of the claimant’s right to bring a civil action under ERISA (Employee Retirement
                                          Income Security Act) Section 502(a) following an adverse benefit determination on review.

                      5.2               Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as
                                          follows:

                      5.2.1            Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Bank’s notice of denial, must file with the Bank a written 
                                          request for review.

                      5.2.2            Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records, 
                                           and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all

4

documents, records, and other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.

5.2.3     Considerations on Review. In considering the review, the Bank shall take into account all
materials and information the claimant submits relating to the claim, without regard to whether such
information was submitted or considered in the initial benefit determination.

5.2.4     Timing of Bank Response. The Bank shall respond in writing to such claimant within 60 days
after receiving the request for review. If the Bank determines that special circumstances require
additional time for processing the claim, the Bank can extend the response period by an additional 60
days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional
period is required. The notice of extension must set forth the special circumstances and the date by which
the Bank expects to render its decision.

5.2.5     Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The
Bank shall write the notification in a manner calculated to be understood by the claimant. The
notification shall set forth:

             (a) The specific reasons for the denial;

             (b) A reference to the specific provisions of the Agreement on which the denial is based;

             (c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable
             access to, and copies of, all documents, records, and other information relevant (as defined in
             applicable ERISA regulations) to the claimant’s claim for benefits; and

             (d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 6
Miscellaneous

               6.1      Amendments and Termination. The Bank may amend or terminate this Agreement at any time if, pursuant to legislative, judicial, or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Executive prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Bank (other than the financial impact of paying the benefits).

               6.2      Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

               6.3      No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

               6.4      Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

               6.5      Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform this Agreement if no such succession had occurred.

                    6.6      Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from
                    thebenefits provided under this Agreement.

5

6.7      Applicable Law. Except to the extent preempted by the laws of the United States of America, the
validity, interpretation, construction, and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon, without giving effect to the principles of
conflict of laws of such state.

6.8      Unfunded Arrangement. The Executive’s beneficiary(ies) are general unsecured creditors of
theBank for the payment of benefits under this Agreement. The benefits represent the mere promise by the
Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on
the Executive's life is a general asset of the Bank to which the Executive and the Executive’s
beneficiary(ies) have no preferred or secured claim.

6.9      Entire Agreement. This Agreement constitutes the entire agreement between the Bank and
theExecutive as to the subject matter hereof. No rights are granted to the Executive’s beneficiary by virtue
of this Agreement other than those specifically set forth herein.

                 6.10    Administration. The Bank shall have all powers which are necessary to administer this
Agreement, including but not limited to:

           (a) Interpreting the provisions of the Agreement;

           (b) Establishing and revising the method of accounting for the Agreement;

           (c) Maintaining a record of benefit payments; and

           (d) Establishing rules and prescribing any forms necessary or desirable to administer the
           Agreement.

6.11     Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if
            applicable, the Bank shall be the named fiduciary and plan administrator under this Agreement
            The named fiduciary may delegate to others certain aspects of the management and operation
            responsibilities of the plan including the employment of advisors and the delegation of ministerial
            duties to qualified individuals.

                 6.12       Severability. If for any reason any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with the law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the remainder of such provision, not held so invalid and the remainder of such provision, together with all other provisions of this Agreement shall, to the full extent consistent with the law, continue in full force and effect.

                 6.13       Headings. The headings of Sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

                 6.14       Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

                                                   (a) If to the Bank, to:

6

             Board of Directors
             PremierWest Bank
             P.O.Box40
             Medford, Oregon 97501-0003

(b)        If to the Executive, to:
             _________________________________
             _________________________________
             _________________________________

            and to such other or additional person or persons as either party shall have
            designated to the other party in writing by like notice.

                    6.15     IRC §1035 Exchanges. The Executive recognizes and agrees that the Bank may after this
Agreement is adopted wish to exchange the policy of life insurance on the Executive’s life for another contract of
life insurance insuring the Executive’s life. Provided that the policy is replaced (or intended to be replaced) with a
comparable policy of life insurance, the Executive agrees to provide medical information and cooperate with
medical insurance-related testing required by a prospective insurer for implementing the policy or, if necessary, for
modifying or updating to a comparable insurer.

IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement.

Executive:			Bank:
			PremierWest Bank
By________________________________		By:_______________________________
John L. Anhorn	Its:__________________________________
Title______________________________

AGREEMENT TO COOPERATE WITH INSURANCE UNDERWRITING INCIDENT TO I.R.C. §1035 EXCHANGE

     I acknowledge that I have read the Executive Income Survivor Agreement and agree to be bound by its terms, particularly the covenant on my part set forth in section 6.15 of the Executive Income Survivor Agreement to provide medical information and cooperate with medical insurance-related testing required by an insurer to issue a comparable insurance policy to cover the benefit provided under this Executive Income Survivor Agreement.

___________________________                                                            ___________________________
 Witness                                                                                                             Executive

7

Beneficiary Designation
PremierWest Bank
EXECUTIVE SURVIVOR INCOME AGREEMENT

     I designate the following as beneficiary of benefits under this Agreement payable following my death:

          Primary: _______________________________________________________________________
          ________________________________________________________________________________

          Contingent: _____________________________________________________________________
          ________________________________________________________________________________

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date
          of the trust agreement.

          I understand that I may change these beneficiary designations by filing a new written designation with the
Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or
if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature_____________________________ 

Date_________________________________ 

Received by the Bank this_________ day of ___________________, 2006. 

By__________________________________ 

Title_________________________________ 

8

EX-10.15.1

Exhibit 10.15.1

PREMIERWEST BANK
EXECUTIVE SURVIVOR INCOME AGREEMENT

     THIS EXECUTIVE SURVIVOR INCOME AGREEMENT is made this 12th day of November, 2002, by and between PremierWest Bank, an Oregon-chartered, FDIC-insured bank with its main office in Medford, Oregon (the “Bank”), and Tom Anderson (the “Executive”).

     WHEREAS, to encourage the Executive to remain an employee of the Bank, the Bank is willing to provide benefits to the Executive’s beneficiary(ies) if (i) the Executive dies prior to terminating employment, or (ii) if the Executive dies after Termination of Employment provided the Executive terminated employment due to Disability, Change in Control, or attaining Normal Retirement Age. The Bank will pay the benefits from its general assets, but only so long as one of its general assets is a life insurance policy on the Executive’s life.

AGREEMENT

                The Executive and the Bank agree as follows:

Article 1
Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1      “Change in Control” means if any one of the following events occurs:

            (a) Merger. Premier West Bancorp (“Bancorp”) merges into or consolidates with another
corporation, or merges another corporation into Bancorp, and as a result less than 50% of the combined
voting power of the resulting corporation immediately after the merger or consolidation is held by persons
who were the holders of Bancorp’s voting securities immediately before the merger or consolidation,

            (b) Acquisition of Significant Share Ownership. (1) a report on Schedule 13D or another form or
schedule (other than Schedule 13G) is filed or is required to be filed under sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in
concert has or have become the beneficial owner of 25% or more of a class of Bancorp’s voting securities,
or (2) a person or persons acting in concert has or have become the beneficial owner of 10% or more of a
class of Bancorp’s voting securities and the person or the person’s or group’s nominee becomes the
Chairman of the Board of Bancorp, but this paragraph (b) shall not apply to beneficial ownership of voting
shares of Bancorp held in a fiduciary capacity by an entity in which Bancorp directly or indirectly
beneficially owns 50% or more of the outstanding voting securities,

            (c) Change in Board Composition. during any period of two consecutive years, individuals who
constitute Bancorp’s board of directors at the beginning of the two-year period cease for any reason to
constitute at least a majority thereof; provided, however, that — for purposes of this paragraph (c) — each
director who is first elected by the board (or first nominated by the board for election by stockholders) by a
vote of at least two-thirds (b) of the directors who were directors at the beginning of the period shall be
deemed to have been a director at the beginning of the two-year period, or

            (d) Sale of Assets. Bancorp sells to a third party all or substantially all of Bancorp’s assets. For
this purpose, sale of all or substantially all of Bancorp’s assets includes sale of the shares or assets of the
Bank.

                 1.2       “Disability” means the Executive suffers a sickness, accident, or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Executive, or by the Social Security Administration, to be a disability rendering the Executive disabled. The Executive must submit proof to the Bank of the carrier’s or the Social Security Administration’s determination upon the request of the Bank.

               1.3        “Good Reason” means the occurrence of any of the events or conditions described in clauses (a) through (f) hereof without the Executive’s express written consent –

(a)         a material reduction in Executive’s title or responsibilities;

(b)         a reduction in base salary as in effect on the date of a Change in Control;

(c)          relocation of the Bank’s principal executive offices, or requiring the Executive to change his
principal work location, to any location that is more than 15 miles from the location of the Bank’s principal
executive offices on the date of this Agreement;

(d)          the failure by the Bank to continue to provide the Executive with compensation and benefits
substantially similar to those provided to him under any of the employee benefit plans in which the
Executive becomes a participant, or the taking of any action by the Bank which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material fringe benefit enjoyed by
him at the time of the Change in Control; or

(e)          the failure of the Bank to obtain a satisfactory agreement from any successor or assignee of the
Bank to assume and agree to perform this Agreement.

1.4         "Normal Retirement Age" means the Executive’s 62^nd birthday.

1.5         "Normal Retirement Date" means the later of the Normal Retirement Age or Termination of Employment.

                1.6        “Termination for Cause” means the definition of termination for cause specified in any employment agreement existing on the date hereof or hereafter entered into between the Executive and the Bank. If the Executive is not a party to an employment agreement containing a definition of termination for cause, Termination for Cause means the Bank has terminated the Executive’s employment for any of the following reasons:

                      (a)           Gross negligence or gross neglect of duties;

                      (b)           Commission of a felony or of a gross misdemeanor involving moral turpitude; or

                      (c)           Fraud, disloyalty, or willful violation of any law or significant Bank policy committed in
                                     connection with the Executive’s employment and resulting in an adverse effect on the Bank.

                      1.7          “Termination of Employment” with the Bank means that the Executive shall have ceased to be
employed by the Bank for any reason whatsoever, excepting a leave of absence approved by the Bank. For purposes of this Agreement, if there is a dispute over the employment status of the Executive or the date of termination of the Executive’s employment, the Bank shall have the sole and absolute right to decide the dispute, unless a Change in Control shall have occurred.

Article 2
Entitlement to Benefit

                2.1          Pre-Termination of Employment Survivor Income Benefit. If the Executive dies in active service to the Bank, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.1.

                2.2          Disability Continuation. If the Executive terminates employment due to Disability and then dies, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2.

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                2.3           Change in Control Continuation. If the Executive’s employment with the Bank terminates involuntarily within 24 months after a Change in Control (excepting Termination for Cause) or in the event the Executive terminates employment voluntarily for Good Reason within 24 months after such Change in Control, the Bank shall pay the Executive’s designated beneficiary the survivor income benefit described in Section 2.5.2 following the Executive’s death.

                2.4           Normal Retirement Benefit. If the Executive terminates employment on or after Normal Retirement Age, the Bank shall pay to the Executive’s designated beneficiary in a single lump sum the survivor income benefit described in Section 2.5.2 following the Executive’s death.

                2.5           Amount of Benefits. The Bank shall pay one of the following benefits to the Executive’s beneficiary in a single lump sum within 90 days following submission of a proof of a claim substantiating the Executive’s death.

2.5.1        Pre-Retirement Death Benefit. If the Executive was employed by the Bank at the time of death,
the death benefit shall be $250,000.

2.5.2        Post-Retirement Death Benefit. If the Executive was no longer employed by the Bank at the time
                of death but had terminated employment
                •           due to Disability,
                •           involuntarily within two years after Change in Control, or in the event the Executive had
                            terminated employment voluntarily for Good Reason within two years of such Change in
                            Control, or
                •           on or after Normal Retirement Age, 
               the death benefit shall be $250,000.

Article 3
Beneficiaries

               3.1           Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designation, all payments shall be made to the Executive's estate.

               3.2           Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative, or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority, or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

Article 4
General Limitations

               4.1           Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement if Termination of Employment is due to the Executive’s actions resulting in Termination for Cause.

               4.2           Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement if the Executive commits suicide within three years after the date of this Agreement. In addition, the Bank shall not pay any benefit under this Agreement if the Executive has made any material misstatement of fact on any application or resume provided to the Bank, or on any application for any benefits provided by the Bank to the Executive.

                    4.3           Removal. If the Executive is removed from office or permanently prohibited from participating in

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the conduct of the Bank’s affairs by an order issued under Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. §1818(e)(4) or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective date of the order.

                4.4           Insolvency. If the Commissioner of the Oregon Department of Banking appoints the Federal Deposit Insurance Corporation as receiver for the Bank under Oregon Revised Statutes section 711.405, all obligations under this Agreement shall terminate as of the date of the Bank’s declared insolvency.

                4.5           Termination of Participation. The Executive’s rights under this Agreement shall cease if the Executive’s employment with the Bank is terminated prior to the Normal Retirement Age, except as provided in section 2.2 (termination because of Disability) or section 2.3 (termination within 24 months after a Change in Control).

Article 5
Claims and Review Procedures

5.1           Claims Procedure. A participant or beneficiary (“claimant”) who has not received benefits under the Agreement that he or she believes should be paid shall make a claim for such benefits as follows:

5.1.1        Initiation – Written Claim. The claimant initiates a claim by submitting to the Bank a written
                claim for the benefits.

5.1.2        Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving
                the claim. If the Bank determines that special circumstances require additional time for processing
                the claim, the Bank can extend the response period by an additional 90 days by notifying the
                claimant in writing, prior to the end of the initial 90-day period, that an additional period is
                required. The notice of extension must set forth the special circumstances and the date by which
                the Bank expects to render its decision.

5.1.3        Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in
                writing of such denial. The Bank shall write the notification in a manner calculated to be
                understood by the claimant. The notification shall set forth:

               (a) The specific reasons for the denial;

               (b) A reference to the specific provisions of the Agreement on which the denial is based;

               (c) A description of any additional information or material necessary for the claimant to perfect
               the claim and an explanation of why it is needed;

               (d) An explanation of the Agreement’s review procedures and the time limits applicable to such
               procedures; and

               (e) A statement of the claimant’s right to bring a civil action under ERISA (Employee Retirement
               Income Security Act) Section 502(a) following an adverse benefit determination on review.

5.2         Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the
opportunity for a full and fair review by the Bank of the denial, as follows:

5.2.1       Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving
the Bank’s notice of denial, must file with the Bank a written request for review.

5.2.2       Additional Submissions – Information Access. The claimant shall then have the opportunity to
submit written comments, documents, records, and other information relating to the claim. The Bank
shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all

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documents, records, and other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.

5.2.3      Considerations on Review. In considering the review, the Bank shall take into account all
materials and information the claimant submits relating to the claim, without regard to whether such
information was submitted or considered in the initial benefit determination.

5.2.4      Timing of Bank Response. The Bank shall respond in writing to such claimant within 60 days
after receiving the request for review. If the Bank determines that special circumstances require
additional time for processing the claim, the Bank can extend the response period by an additional 60
days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional
period is required. The notice of extension must set forth the special circumstances and the date by which
the Bank expects to render its decision.

5.2.5      Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The
Bank shall write the notification in a manner calculated to be understood by the claimant. The
notification shall set forth:

(a) The specific reasons for the denial;

(b) A reference to the specific provisions of the Agreement on which the denial is based;

(c) A statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant (as defined in
applicable ERISA regulations) to the claimant’s claim for benefits; and

(d) A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 6
Miscellaneous

                6.1           Amendments and Termination. The Bank may amend or terminate this Agreement at any time if, pursuant to legislative, judicial, or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Executive prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Bank (other than the financial impact of paying the benefits).

                6.2           Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

                6.3           No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

                6.4           Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

                6.5           Successors; Binding Agreement. By an assumption agreement in form and substance satisfactory to the Executive, the Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform this Agreement if no such succession had occurred.

                     6.6           Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from
                     thebenefits provided under this Agreement.

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6.7           Applicable Law. Except to the extent preempted by the laws of the United States of America, the
validity, interpretation, construction, and performance of this Agreement shall be governed by and
construed in accordance with the laws of the State of Oregon, without giving effect to the principles of
conflict of laws of such state.

6.8           Unfunded Arrangement. The Executive’s beneficiary(ies) are general unsecured creditors of
theBank for the payment of benefits under this Agreement. The benefits represent the mere promise by the
Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on
the Executive's life is a general asset of the Bank to which the Executive and the Executive’s
beneficiary(ies) have no preferred or secured claim.

6.9           Entire Agreement. This Agreement constitutes the entire agreement between the Bank and
theExecutive as to the subject matter hereof. No rights are granted to the Executive’s beneficiary by virtue
of this Agreement other than those specifically set forth herein.

                6.10         Administration. The Bank shall have all powers which are necessary to administer this Agreement, including but not limited to:

(a) Interpreting the provisions of the Agreement;

(b) Establishing and revising the method of accounting for the Agreement;

(c) Maintaining a record of benefit payments; and

(d) Establishing rules and prescribing any forms necessary or desirable to administer the
Agreement.

                    6.11           Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if
                                      applicable, the Bank shall be the named fiduciary and plan administrator under this Agreement.
                                      The named fiduciary may delegate to others certain aspects of the management and operation
                                      responsibilities of the plan including the employment of advisors and the delegation of ministerial
                                      duties to qualified individuals.

              6.12           Severability. If for any reason any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with the law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the remainder of such provision, not held so invalid and the remainder of such provision, together with all other provisions of this Agreement shall, to the full extent consistent with the law, continue in full force and effect.

              6.13           Headings. The headings of Sections herein are included solely for convenience of reference and shall not affect the meaning or interpretation of any provision of this Agreement.

              6.14           Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice.

                                                    (a) If to the Bank, to:

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             Board of Directors
             PremierWest Bank
             P.O.Box40
             Medford, Oregon 97501-0003

(b)       If to the Executive, to:
            _________________________________
            _________________________________
            _________________________________

           and to such other or additional person or persons as either party shall have
           designated to the other party in writing by like notice.

               6.15           IRC §1035 Exchanges. The Executive recognizes and agrees that the Bank may after this Agreement is adopted wish to exchange the policy of life insurance on the Executive’s life for another contract of life insurance insuring the Executive’s life. Provided that the policy is replaced (or intended to be replaced) with a comparable policy of life insurance, the Executive agrees to provide medical information and cooperate with medical insurance-related testing required by a prospective insurer for implementing the policy or, if necessary, for modifying or updating to a comparable insurer.

IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement.

Executive:			Bank:
			PremierWest Bank
By_______________________________		By:______________________________
John L. Anhorn	Its:______________________________
Title_____________________________

AGREEMENT TO COOPERATE WITH INSURANCE UNDERWRITING INCIDENT TO I.R.C. §1035 EXCHANGE

     I acknowledge that I have read the Executive Income Survivor Agreement and agree to be bound by its terms, particularly the covenant on my part set forth in section 6.15 of the Executive Income Survivor Agreement to provide medical information and cooperate with medical insurance-related testing required by an insurer to issue a comparable insurance policy to cover the benefit provided under this Executive Income Survivor Agreement.

___________________________                                                                      ___________________________ 
 Witness                                                                                                                      Executive

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Beneficiary Designation
PremierWest Bank
EXECUTIVE SURVIVOR INCOME AGREEMENT

         I designate the following as beneficiary of benefits under this Agreement payable following my death:

               Primary: _______________________________________________________________________
               ________________________________________________________________________________

              Contingent: _____________________________________________________________________
              ________________________________________________________________________________

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date
           of the trust agreement.

     I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature_________________________ 

Date_____________________________ 

Received by the Bank this_________ day of ___________________, 2006. 

By______________________________ 

Title_____________________________ 

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EX-10.20

Exhibit 10.20

PREMIERWEST BANK
EXECUTIVE DEFERRED COMPENSATION AGREEMENT

                THIS EXECUTIVE DEFERRED COMPENSATION AGREEMENT (this “Agreement”) is made this 22^nd day of January, 2009 by and among PremierWest Bancorp, an Oregon corporation (“Bancorp”), PremierWest Bank, an Oregon state-chartered bank (the “Bank,” and collectively with Bancorp, “PremierWest”), and T. Joe Danelson (“Executive”).

RECITALS

                To encourage the Executive to remain an employee of the Bank, the Bank is willing to provide to the Executive a deferred compensation opportunity. The Bank will pay the Executive’s benefits from the Bank’s general assets. This Agreement will govern any deferral of compensation by the Executive after the effective date hereof.

                This Agreement is intended to comply with Section 409A of the Internal Revenue Code. Any ambiguity hereunder shall be interpreted in such a way as to comply, to the extent necessary, with Section 409A and the regulations thereunder.

AGREEMENT

                      The Executive and the Bank agree as follows:

Article 1
Definitions

                 Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

                       1.1           “Change in Control” means any of the following events occur:

                              (a)           Merger. Bancorp merges into or consolidates with another corporation, or merges another corporation into Bancorp, and as a result less than 50% of the combined voting power of the resulting corporation immediately after the merger or consolidation is held by persons who were the holders of Bancorp’s voting securities immediately before the merger or consolidation. For purposes of this Agreement, the term “person” means an individual, corporation, partnership, trust, association, joint venture, pool, syndicate, sol e proprietorship, unincorporated organization or other entity,

                              (b)           Acquisition of Significant Share Ownership. A report on Schedule 13D or another form or schedule (other than Schedule 13G) is filed or is required to be filed under Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, if the schedule discloses that the filing person or persons acting in concert has or have become the beneficial owner of 30% or more of a class of Bancorp’s voting securities, but this paragraph (b) shall not apply to beneficial ownership of voting shares of Bancorp held in a fiduciary capacity by an entity i n which Bancorp directly or indirectly beneficially owns 50% or more of the outstanding voting securities,

                              (c)            Change in Board Composition. During any period of two consecutive years, individuals who constitute Bancorp's board of directors at the beginning of the two-year period cease for any reason to constitute at least a majority thereof; provided, however, that, for purposes of this paragraph

(c), each director who is first elected by the board (or first nominated by the board for election by stockholders) by a vote of at least two-thirds (2/3) of the directors who were directors at the beginning of the period shall be deemed to have been a director at the beginning of the two-year period, or

                            (d)        Sale of Assets. Bancorp sells to a third party all or substantially all of Bancorp's assets. For this purpose, sale of all or substantially all of Bancorp's assets includes sale of the shares or substantially all of the assets of the Bank.

                     1.2           “Code” means the Internal Revenue Code of 1986, as amended.

                1.3           “Compensation” means both salary and bonus compensation that would be paid to the Executive during a Plan Year.

                1.4            “Deferral Account” means the Bank's accounting of the Executive's accumulated Deferrals plus accrued interest.

                1.5            “Deferrals” means the amount of the Executive's Compensation that the Executive elects to defer according to this Agreement.

                1.6            “Disability” means the Executive (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering em ployees of PremierWest.

                      1.7            “Effective Date” means January 22, 2009.

                      1.8             “Election Form” means the Form attached as Exhibit 1.

                      1.9             “Normal Retirement Age” means the Executive’s 65^th birthday.

                1.10           “Normal Retirement Date” means the later of the Normal Retirement Age or Termination of Employment.

                     1.11           “Plan Year” means the calendar year.

                1.12           “Termination for Cause” means the definition of termination for cause specified in any employment agreement existing on the date hereof or hereafter entered into between the Executive and Bancorp or the Bank. If the Executive is not a party to an employment agreement containing a definition of termination for cause, Termination for Cause means the Bank has terminated the Executive's employment for any of the following reasons:

                                         (a) gross negligence or gross neglect of duties,

                               (b) commission of a felony or commission of a misdemeanor involving moral turpitude, or

                                (c) fraud, disloyalty or willful violation of any law or significant Bank policy committed in connection with the Executive's employment and resulting in an adverse effect on the Bank.

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                 1.13         “Termination of Employment” means a separation from service under Section 409A of the Code and the regulations thereunder, as such regulations may change from time to time, or any successor provision of the Internal Revenue Code and regulations.

                 1.14         “Unforeseeable Emergency” means severe financial hardship of the Executive resulting from an illness or accident of the Executive, the Executive’s spouse or a dependent (as defined in Section 152(a) of the Code), loss of the Executive’s property due to casualty (including the need to rebuild a home not otherwise covered by insurance), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Executive. Except as otherwise provided in this Section 1.14, the purchase of a home and the payment of college tuition are not unforeseeable emergencies.

Article 2
Deferral Election

                2.1           Initial Election. The Executive shall make an initial deferral election under this Agreement by filing with the Bank a signed Election Form within 30 days after the Effective Date of this Agreement. The Election Form shall set forth the amount of Compensation to be deferred and shall be effective to defer only Compensation earned after the date the Election Form is received by the Bank. In no event can the Executive's Deferrals for any Plan Year exceed 75% of the Executive's Compensation for that Plan Year.

                     2.2            Election Changes.

                             2.2.1      Generally. Upon the Bank’s approval, the Executive may modify the amount of Compensation to be deferred annually by filing a new Election Form with the Bank prior to the beginning of the Plan Year in which the Compensation is to be deferred. The modified deferral election shall not be effective until the calendar year following the year in which the subsequent Election Form is received and approved by the Bank.

                             2.2.2       Hardship. If an Unforeseeable Emergency occurs, the Executive, by written instructions to the Bank, may cancel future deferrals under this Agreement for the remainder of the calendar year in which the Unforeseeable Emergency arose as soon as is practically possible for the Bank to process such instruction.

               2.3             Change in Time and Form of Distribution. The timing of a distribution of the Deferral Account may not be accelerated except as set forth in Section 4.4. Any change which delays the timing of distributions or changes the form of distributions may only be made by a written agreement signed by the Bank and the Executive and only if the following requirements are met: 
                                      2.3.1 Any election to change the time and form of distribution may not take effect until at least 12 months after the date on which the election is made; 

                                      2.3.2 Other than in the event of death, Disability or Unforeseeable Emergency, the first payment with respect to such election must be deferred for a period of at least 5 years from the date such payment otherwise would have been made; and 

                                      2.3.3 Any election related to a payment to be made at a specified time may not be made less than 12 months prior to the date of the first scheduled payment.

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     Article 3
Deferral Account

                3.1            Establishing and Crediting. The Bank shall establish a Deferral Account on its books for the Executive and shall credit to the Deferral Account the following amounts:

                                       3.1.1        Deferrals. The portion of the Compensation deferred by the Executive as of the time the Compensation would have otherwise been paid to the Executive.

                             3.1.2         Interest. At the end of each Plan Year under this Agreement but only until commencement of the benefit payments under this Agreement or until a Change in Control has occurred, interest is to be credited on the account balance at an annual rate equal to the Bank’s ROE (return on equity) for that Plan Year, compounded monthly, with a maximum crediting rate of 18%. In the event the Executive and the Bank do not agree on what the Bank's ROE was for a particular Plan Year, the Executive and the Bank agree that the ROE shall be derived from the quarterly report of condition filed by the Bank with the Federal Deposit Insurance Corporation under Section 7(a) of the Federal Deposit Insurance Act for the fourth quarter of any year. If a Change in Control has occurred or if benefit payments have commenced, the Bank will not continue to credit interest pursuant to the ROE formula but rather will credit interest at an annual rate of interest, compounded monthly, on the remaining account balance during any applicable installment period, equal to the highest “Prime Rate” as published in the Wall Street Journal's “Money Rates” section. The interest credited each Plan Year shall be determined by reference to the “Prime Rate” as of the last business day of the preceding Plan Year.

                3.2            Statement of Accounts. Within 120 days after the end of each Plan Year, the Bank shall provide to the Executive a statement setting forth the Deferral Account balance.

                3.3            Accounting Device Only. The Deferral Account is solely a device for measuring amounts to be paid under this Agreement. The Deferral Account is not a trust fund of any kind. The Executive is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent the mere promise of the Bank to pay such benefits. The Executive's rights are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by the Executive’s creditors.

Article 4
Benefits During Lifetime

                4.1            Normal Retirement Benefit. Upon the Normal Retirement Date, the Bank shall pay to the Executive the benefit described in this Section 4.1 in lieu of any other benefit under this Agreement.

                             4.1.1        Amount of Benefit. The benefit under this Section 4.1 is the Deferral Account balance at the date of the Executive's Termination of Employment.

                             4.1.2         Payment of Benefit. The Bank shall pay the benefit to the Executive in the form elected by the Executive in the Election Form commencing on the first day of the seventh month following the Executive’s Normal Retirement Date. If the Executive elects payment of the benefit as other than a lump sum, the Bank will not continue to credit interest pursuant to the ROE formula of Section 3.1.2 but rather will credit interest at Prime Rate as defined in Section 3.1.2. In the event the Executive elects a fixed number of monthly installment payments, the first installment shall be six months of installments (that is, six times the monthly amount, with the remaining number of installments equal to the total number of monthly installments elected minus six). In the event the Executive elects a fixed

4

number of annual installments, the first installment shall be a single annual installment, and each subsequent installment shall be paid on each subsequent January 1. Initially, each installment payment will be calculated as a level principal and interest payment based on the Executive’s Deferral Account Balance on the commencement date, the interest rate on the commencement date, and the number of installments. Thereafter, the amount of an installment shall be redetermined each January 1 based on the Executive’s Deferral Account Balance on such January 1, the interest rate on such January 1, and the number of installments remaining. This procedure for determining installment payments shall be used wherever installments are required herein. Any installment payments made hereunder shall be considered a series of separate payments for purposes of Code Section 409A.

               4.2            Early Retirement Benefit. Upon Termination of Employment prior to the Normal Retirement Age for reasons other than death, or Disability, the Bank shall pay to the Executive the benefit described in this Section 4.2 in lieu of any other benefit under this Agreement.

                            4.2.1        Amount of Benefit. The benefit under this Section 4.2 is the Deferral Account balance at the Executive’s Termination of Employment.

                            4.2.2         Payment of Benefit. The Bank shall pay the benefit to the Executive in the form elected by the Executive in the Election Form commencing at the later of (i) the month following the last cash payment pursuant to Section 11 of the Employment Agreement between the Executive, Bancorp and the Bank dated April 21, 2008 (the “Employment Agreement”) is paid by the Bank or Bancorp to the Executive or (ii) the first day of the seventh month following Executive’s Termination of Employment. If the Executive elects payment of the benefit as other than a lump sum, the Bank will not continue to credit interest pursuant to the ROE formula of Section 3.1.2 but rather will credit interest at Prime Rate as defined in Section 3.1.2.

                4.3             Disability Benefit. If the Executive terminates employment due to Disability prior to Normal Retirement Age, the Bank shall pay to the Executive the benefit described in this Section 4.3 in lieu of any other benefit under this Agreement.

                             4.3.1         Amount of Benefit. The benefit under this Section 4.3 is the Deferral Account balance at the Executive’s Termination of Employment.

                             4.3.2         Payment of Benefit. The Bank shall pay the benefit to the Executive in the form elected by the Executive in the Election Form commencing with the month following the Executive’s Termination of Employment. If the Executive elects payment of the benefit as other than a lump sum, the Bank will not continue to credit interest pursuant to the ROE formula of Section 3.1.2 but rather will credit interest at Prime Rate as defined in Section 3.1.2.

                4.4             Hardship Distribution. Upon the Board of Director's determination (following petition by the Executive) that the Executive has suffered an Unforeseeable Emergency, the Bank shall distribute to the Executive all or a portion of the Deferral Account balance as determined by the Bank. The amount distributed may not exceed the amount necessary to satisfy the financial hardship plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwi se or by liquidation of the Executive’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship).

Article 5
Death Benefits

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                5.1          Death During Active Service. If the Executive dies while in the employment of the Bank, the Bank shall pay to the Executive's beneficiary the Early Retirement Benefit described in Section 4.2.1 commencing the month after the Executive’s death, in lieu of any other benefit under this Agreement.

                5.2           Death During Payment of a Benefit. If the Executive dies after any benefit payments have commenced under this Agreement but before receiving all such payments, the Bank shall pay the remaining benefits to the Executive’s beneficiary at the same time and in the same amounts they would have been paid to the Executive had the Executive survived.

                5.3           Death After Termination of Employment But Before Benefit Payments Commence. If the Executive is entitled to benefit payments under this Agreement, but dies prior to the commencement of said benefit payments, the Bank shall pay the same benefit payments to the Executive’s beneficiary that the Executive was entitled to prior to death except that the benefit payments shall commence on the first day of the month following the date of the Executive's death.

Article 6
Beneficiaries

                6.1           Beneficiary Designations. The Executive shall designate a beneficiary by filing a written designation with the Bank. The Executive may revoke or modify the designation at any time by filing a new designation. However, designations will only be effective if signed by the Executive and received by the Bank during the Executive’s lifetime. The Executive’s beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Executive or if the Executive names a spouse as beneficiary and the marriage is subsequently dissolved. If the Executive dies without a valid beneficiary designa tion, all payments shall be made to the Executive’s estate.

                6.2           Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent, or to a person incapable of handling the disposition of his or her property, the Bank may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incompetent person or incapable person. The Bank may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Bank from all liability with respect to such benefit.

Article 7
General Limitations

                7.1          Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Bank shall not pay any benefit under this Agreement that is in excess of the Executive’s Deferrals (i.e. no interest is paid) if Termination of Employment is due to the Executive’s actions resulting in Termination for Cause. The Executive’s Deferrals shall be paid to the Executive in a manner to be determined by the Bank. No interest shall be credited to the Deferrals during any applicable installment period.

Article 8
Claims and Review Procedures

                8.1           Claims Procedure. If the Executive or his beneficiary (“claimant”) has not received benefits under the Agreement that he or she believes should be paid, the claimant shall make a claim for such benefits as follows:

6

                            8.1.1        Initiation – Written Claim. The claimant initiates a claim by submitting to the Bank a written claim for the benefits.

                            8.1.2        Timing of Bank Response. The Bank shall respond to such claimant within 90 days after receiving the claim. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

                            8.1.3        Notice of Decision. If the Bank denies part or all of the claim, the Bank shall notify the claimant in writing of such denial. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

                                                     (a) the specific reasons for the denial,

                                        (b) a reference to the specific provisions of the Agreement on which the denial is based,

                                                      (c) a description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

                                        (d) an explanation of the Agreement's review procedures and the time limits applicable to such procedures, and

                                        (e) a statement of the claimant's right to bring a civil action under ERISA (Employee Retirement Income Security Act of 1974, 29 U.S.C. §1001, et. seq.) Section 502(a) following an adverse benefit determination on review.

                8.2           Review Procedure. If the Bank denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Bank of the denial, as follows:

                            8.2.1      Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Bank's notice of denial, must file with the Bank a written request for review.

                            8.2.2       Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Bank shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits.

                            8.2.3       Considerations on Review. In considering the review, the Bank shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

                            8.2.4       Timing of Bank Response. The Bank shall respond in writing to such claimant within 60 days after receiving the request for review. If the Bank determines that special circumstances require additional time for processing the claim, the Bank can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Bank expects to render its decision.

7

                             8.2.5         Notice of Decision. The Bank shall notify the claimant in writing of its decision on review. The Bank shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

                                                       (a) the specific reasons for the denial,

                                         (b) a reference to the specific provisions of the Agreement on which the denial is based,

                                                       (c) a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant's claim for benefits, and

                                                      (d) a statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 9
Amendments and Termination

     This Agreement may be amended or terminated only by a written agreement signed by the Bank and the Executive. Notwithstanding the foregoing, the Bank may terminate this Agreement at any time if, (1) pursuant to legislative, judicial or regulatory action, continuation of the Agreement would result in significant financial penalties or other significantly detrimental ramifications to the Bank (other than the financial impact of paying the benefits), and such penalty or detriment would be alleviated by termination of this Agreement, and (2) such termination of this Agreement complies with the restrictions on termination of arrangements specified in Regulations to Section 409A of the Code. In no event shall this Agreement be terminated under this section without payment to the Director of the Deferral Account balance attributable to the Director’s Deferrals and, except in the case of Termination for Cause, interest credited on such amounts.

Article 10
Miscellaneous

                10.1         Binding Effect. This Agreement shall bind the Executive and the Bank and their beneficiaries, survivors, executors, administrators and transferees.

                10.2         No Guarantee of Employment. This Agreement is not a contract for employment. It does not give the Executive the right to remain an employee of the Bank, nor does it interfere with the Bank's right to discharge the Executive. It also does not require the Executive to remain an employee nor interfere with the Executive's right to terminate employment at any time.

                10.3         Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

                10.4         Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

                10.5         Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of Oregon, except to the extent the laws of the United States of America otherwise require.

8

               10.6           Unfunded Arrangement. The Executive and the Executive's beneficiary are general unsecured creditors of the Bank for the payment of benefits under this Agreement. The benefits represent the mere promise by the Bank to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. In the event that Bancorp or the Bank purchase any policies of insurance for the purpose of defraying the cost to the Bank of providing benefits hereunder, any such insurance policies (whether or not on the Executive’s l ife) shall be a general asset of Bancorp or the Bank, as applicable, to which the Executive and the Executive’s beneficiary have no preferred or secured claim.

               10.7           Reorganization. The Bank shall not merge or consolidate into or with another bank, or reorganize, or sell substantially all of its assets to another bank, firm, or person unless such succeeding or continuing bank, firm, or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term “Bank” as used in this Agreement shall be deemed to refer to the successor or survivor bank.

               10.8           Entire Agreement. This Agreement constitutes the entire agreement between the Bank and the Executive as to the subject matter hereof. No rights are granted to the Executive by virtue of this Agreement other than those specifically set forth herein.

               10.9          Administration. The Bank shall have powers which are necessary to administer this Agreement, including but not limited to:

                                    (a)       interpreting the provisions of the Agreement,

                                    (b)      establishing and revising the method of accounting for the Agreement,

                                    (c)       maintaining a record of benefit payments, and

                                    (d)      establishing rules and prescribing any forms necessary or desirable to administer the Agreement.

                10.10      Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Bank shall be the named fiduciary and plan administrator under this Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals.

     IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have signed this Agreement.

Executive:	Bank:
	PremierWest Bank
______________________________	By:___________________________________
T. Joe Danelson	James Ford, President/Chief Executive Officer

9

 Bancorp:

 PremierWest Bancorp 

 By:__________________________________ 

      James Ford, President/Chief Executive Officer 

10

EXHIBIT 1
to
EXECUTIVE DEFERRED COMPENSATION AGREEMENT

DEFERRAL ELECTION

I elect to defer my Compensation pursuant to this Agreement with the Bank, as follows:

Amount of Deferral	Duration
[Initial and Complete one]	[Initial One]
____I elect to defer _____% of my	_____One Year only
Compensation annually.	_____For _____[Insert Number] Years
____I elect to defer $_____ of my	_____Until Termination of Employment
Compensation annually.	_____Until ___________,______ (Date)
____I elect not to defer any of my
Compensation.

I understand that I may change the amount of my deferrals by filing a new election form with the Bank; provided, however, that any subsequent election will not be effective until the calendar year following the year in which the new election is received and accepted by the Bank.

FORM OF DISTRIBUTION

I elect to have the benefits under the Agreement distributed to me in the following form:

[Initial One]

 ___ Lump Sum

 ___ Equal monthly installments for One Hundred Twenty (120) months

I understand that I may not change the form and timing of distribution elected without written approval of the Board of Directors of the Bank and that any change in the time and form of distribution must be in compliance with Section 2.3 of the Agreement.

Signature:___________________	Date:______________________
T. Joe Danelson
Received by the Bank this__________ day of ___________________, ______________.
By:_________________________
Title:________________________

11

BENEFICIARY DESIGNATION

     for
PremierWest Bank
EXECUTIVE DEFERRED COMPENSATION AGREEMENT

I designate the following as beneficiary of benefits under this Agreement payable following my death:

Primary:____________________________________________________________________________

Contingent:_________________________________________________________________________

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

I understand that I may change these beneficiary designations by filing a new written designation with the Bank. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature:_____________________

               T. Joe Danelson 

Date:_________________________ 

Received by the Bank this____________ day of ___________________, ______________. 

By: _______________________

Title:__________________________ 

12

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF PREMIERWEST BANCORP

Subsidiary of PremierWest Bancorp Subsidiaries of PremierWest Bank PremierWest Bank Premier Finance Company
PremierWest Investment Services, Inc.
Blue Star Properties, Inc.

EX-23.1

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
PremierWest Bancorp and Subsidiary

We consent to the incorporation by reference in the Annual Report on Form 10-K of PremierWest Bancorp
and Subsidiary (PremierWest Bancorp) of our report dated March 16, 2009, with respect to the consolidated
balance sheets of PremierWest Bancorp as of December 31, 2008 and 2007, and the related consolidated
statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for the
years ended December 31, 2008, 2007, and 2006, and in our same report, with respect to the effectiveness of
internal control over financial reporting, which report is included in this annual report on Form 10-K of
PremierWest Bancorp for the year ended December 31, 2008.

Portland, Oregon
March 16, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James M. Ford, certify that:

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

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

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

4.                The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
                   controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-(e)) for the registrant and
                   internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
                   for the registrant and have:

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

                    b)               Designed such internal control over financial reporting, or caused such internal control over
                                      financial reporting to be designed under our supervision, to provide reasonable assurance
                                      regarding the reliability of financial reporting and the preparation of financial statements for
                                      external purposes in accordance with generally accepted accounting principles;

                    c)               Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
                                       this report our conclusions about the effectiveness of the disclosure controls and procedures as of
                                       the end of the period covered by this annual report based on such evaluation; and

                    d)               Disclosed in this report any change in the registrant’s internal control over financial reporting that
                                       occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the
                                       case of an annual report) that has materially affected, or is reasonably likely to affect, the
                                       registrant’s internal control over financial reporting; and

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

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

                    b)               Any fraud, whether or not material, that involves Management or other employees who have a
                                       significant role in the registrant's internal control over financial reporting.

Date: March 16, 2009	/s/ JAMES M. FORD
	James M. Ford
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Fowler, certify that:

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

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

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

4.                   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
                      controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-(e)) for the registrant and
                      internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
                      for the registrant and have:

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

                      b)            Designed such internal control over financial reporting, or caused such internal control over
                                      financial reporting to be designed under our supervision, to provide reasonable assurance
                                      regarding the reliability of financial reporting and the preparation of financial statements for
                                      external purposes in accordance with generally accepted accounting principles;

                      c)             Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
                                      this report our conclusions about the effectiveness of the disclosure controls and procedures as of
                                      the end of the period covered by this annual report based on such evaluation; and

                      d)            Disclosed in this report any change in the registrant’s internal control over financial reporting that
                                      occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the
                                      case of an annual report) that has materially affected, or is reasonably likely to affect, the
                                      registrant’s internal control over financial reporting; and

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

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

                      b)           Any fraud, whether or not material, that involves Management or other employees who have a
                                     significant role in the registrant's internal control over financial reporting.

Date: March 16, 2009	/s/ MICHAEL D. FOWLER
	Michael D. Fowler
	Chief Financial Officer (Principal Financial
	Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

               In connection with the Annual Report of PremierWest Bancorp (the "Company") on Form 10-K for the year ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James M. Ford, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

                    2.                The information contained in the Report fairly presents, in all material respects, the financial
                                       condition and result of operations of the Company for the period certified.

              This certification is being furnished solely to comply with the requirements of 18 U.S.C. Section 1350, and shall not be incorporated by reference into any of the Company's filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, or otherwise be deemed to be filed as part of the Report or under such Acts.

Date: March 16, 2009	/s/ JAMES M. FORD
	James M. Ford
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

                 In connection with the Annual Report of PremierWest Bancorp (the "Company") on Form 10-K for the year ending December 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael D. Fowler, the Chief Financial Officer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

                       2.           The information contained in the Report fairly presents, in all material respects, the financial
                                     condition and result of operations of the Company for the period certified.

                 This certification is being furnished solely to comply with the requirements of 18 U.S.C. Section 1350, and shall not be incorporated by reference into any of the Company's filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, or otherwise be deemed to be filed as part of the Report or under such Acts.

Date: March 16, 2009	/s/ MICHAEL D. FOWLER
	Michael D. Fowler
	Chief Financial Officer (Principal Financial
	Officer and Principal Accounting Officer)