This report includes "forward-looking statements" within the meaning of the "safe-harbor" provisions of Sections 21D and 21E of the Securities Exchange Act of 1934, as amended. Other than for statements of historical fact, all statements about our financial position and results of operations, business strategy and Management's plans and objectives for future operations are forward-looking statements. When used in this report, the words "anticipate," "believe," "estimate," "expect," and "intend" and words or phrases of similar meaning, as they relate to the Company or Management, are intended in part to help identify forward-looking statements. Examples of forward-looking statements include, but are not limited to: statements that include projections or Management's expectations for revenues, income or expenses, earnings per share, capital expenditures, dividends, capital structure and other financial items; statements of the plans and objectives of the Company, its Management or its Board of Directors, including the introduction of new products or services, plans for expansion, acquisitions or future growth and estimates or predictions of actions by customers, vendors, competitors or regulatory authorities; statements about future economic performance; statements of assumptions underlying other statements about the Company and its business; statements regarding the adequacy of the allowance for loan losses; and descriptions of assumptions underlying or relating to any of the foregoing. Although Management believes that the expectations reflected in forward-looking statements are reasonable, we can make no assurance that such expectations will prove correct. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. For a more comprehensive discussion of the risk factors impacting our business refer to Item 1A Risk Factors in the Company's filed Form 10-K/A (Amendment No. 1) for the year ended December 31, 2008 as updated and supplemented by our filings on Form 10-Q and Form 8-K. These risks and uncertainties include the effect of competition and our ability to compete on price and other factors; deterioration in credit quality, or in the value of the collateral securing our loans, due to higher interest rates, increased unemployment, further or continued disruptions in the credit markets, or other economic factors; customer acceptance of new products and services; economic conditions and events that disproportionately affect our business due to regional concentration; general business and economic conditions, including the residential and commercial real estate markets; interest rate changes; regulatory and legislative changes; changes in the demand for loans and changes in consumer spending, borrowing and savings habits; changes in accounting policies; our ability to maintain or expand our market share or our net interest margin; factors that could limit or delay implementation of our marketing and growth strategies; and our ability to integrate acquired branches or banks. Other risks include those identified from time to time in our past and future filings with the Securities and Exchange Commission. Note that this list of risks is not exhaustive, and risks identified are applicable as of the date made and cannot be updated. You should not unduly rely on forward-looking statements. They give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made, and we do not undertake to update them to reflect changes that occur after the date they are made. This report includes information about our historical financial performance, and this information should not be considered as an indication or projection of future results.

OVERVIEW - The following includes Management's discussion of the financial condition and results of operations for PremierWest Bancorp and its wholly-owned subsidiary, PremierWest Bank, including the Bank's wholly-owned subsidiaries, Premier Finance Company and PremierWest Investment Services, Inc., for the three and nine month periods ending September 30, 2009. This discussion should be read in conjunction with the consolidated financial statements and accompanying notes contained in this report as well as the Company's Form 10-K/A (Amendment No. 1) for the year ended December 31, 2008. For discussion purposes, Management has made comparisons, as it deems appropriate, to comparable interim periods in 2008 and the fiscal year period ended December 31, 2008.

HIGHLIGHTS - For the third quarter ending September 30, 2009, the Company's net loss available to common shareholders was $5.6 million or $0.22 per fully diluted common share, compared to earnings available to common shareholders of $1.2 million or $0.05 per fully diluted common share for the quarter ended September 30, 2008. Annualized return on average common shareholders' equity was -15.30% and annualized return on average assets was -1.14% for the quarter ended September 30, 2009, as compared to an annualized return on average common shareholders' equity and return on average assets of 2.68% and 0.34%, respectively, for the quarter ended September 30, 2008.

During the second quarter of 2009, federal and state bank regulators initiated their annual regulatory examination and completed the examination during the third quarter of 2009. The Company has yet to receive its formal examination report. At September 30, 2009, the Company was below the "well capitalized" requirement for its risk-based capital ratio of 10.00%, with a recorded ratio of 9.72%. As a result, the Company is now classified as "adequately" capitalized and may be subject to regulatory restrictions as discussed below.

The Company also anticipates that it may be subject to some form of regulatory enforcement action. In anticipation of any such regulatory action, our Board of Directors is reviewing plans to increase our risk-based capital ratio to a level well above the regulatory minimum for "Well Capitalized." Additionally, Management is recommending that the following steps be taken:

º Deferring further dividend payments on the preferred stock issued pursuant to the U.S. Treasury's Capital Purchase Program on an interim basis to conserve capital, and

º Deferring further interest payments on the Company's trust preferred stock on an interim basis to conserve capital.

We do not expect to be in a position to pay dividends on our common or preferred stock or interest payments on trust preferred securities without regulatory approval or until we are "Well Capitalized" and have satisfied conditions in any regulatory agreement or action.

Any regulatory action related to the formal report associated with the Company's annual examination could subject the Company to mandatory restrictions including requirements to raise additional capital, to reduce non-performing asset totals, to restrict dividend payments, to limit deposit pricing, and to limit access to brokered deposits or other wholesale funding sources.

The Bank completed the purchase of certain assets and assumption of certain liabilities from Wachovia Bank related to the Davis and Grass Valley, California branches of Wachovia. The acquisition increased deposits by $342.4 million.

At September 30, 2009, gross loans decreased $63.5 million or 5.09% compared to December 31, 2008. At September 30, 2009, deposits increased $279.3 million or 23.06% from December 31, 2008 due primarily to the acquisition of two Wachovia branches.

PremierWest's overall earnings decline over the three month period ending September 30, 2009, in comparison to the same period a year ago, resulted principally from a charge to earnings of $10.3 million in loan loss provision.

At September 30, 2009, the Company's allowance for loan losses totaled $41.5 million, representing 3.50% of gross loans. The $24.4 million increase in the allowance from December 31, 2008, was comprised of a $71.4 million increase from the provision charge against earnings partially offset by $48.0 million in charge-offs less $974,000 in recoveries of previously charged-off loans.

Non-performing assets totaled $128.9 million at September 30, 2009, an increase of $41.9 million when compared to $87.0 million in non-performing assets at December 31, 2008. The September 30, 2009 balance includes $19.5 million in other real estate owned compared to $4.4 million at December 31, 2008, an increase of $15.1 million or 341.62%, reflecting foreclosure activities during the first three quarters of 2009. Non-performing loans increased from $82.6 million at December 31, 2008 to $109.4 million at September 30, 2009. The increase in non-performing loans this period is symptomatic of the distressed economy and its effect on certain of the Company's borrowers.

The Bank's loan to deposit ratio, based on gross loans, was 79.46% and 103.03% as of September 30, 2009 and December 31, 2008, respectively. The decline is a result of loan paydowns as borrowers have deleveraged, non-performing loans that have been charged-off and an increase in deposits associated with the acquisition of the Wachovia branches during the quarter just ended.

The Company continues to have strong liquidity and a substantial and stable core deposit base, in part as a result of its acquisition of former Wachovia Bank branches in Davis and Grass Valley, California during the third quarter. Core deposits are the lowest cost and preferred source of funds and when loan volume exceeds the level of core deposits, the Bank must rely on higher cost borrowings and/or brokered deposits as a secondary source of funding to bridge the gap between deposit and loan volumes. Historically, the Bank's funding gap has been supported by short-term borrowings; however, during 2007 the Bank began utilizing brokered certificates of deposit as a funding source. Brokered deposits comprised $79.2 million of total deposits at September 30, 2009. This represents a decrease of $44.7 million over the period ending December 31, 2008. Brokered deposits are historically a higher cost source of funding compared to core deposits but current interest rates for brokered deposits are less than many of the Bank's customer deposit rates. Management will continue to emphasize core deposits as the preferred source of funding as part of the Bank's overall funding strategy in order to support liquidity needs.

Management continues to implement relationship-oriented strategies for attracting core deposits in order to reduce its reliance on higher cost borrowings and brokered deposits in order to maximize interest rate margins within the constraints of a highly competitive marketplace. While the competitive environment for attracting deposits remains keen, PremierWest has been successful over time at growing its core deposit base and continues to aggressively seek local deposits. At the same time, PremierWest has historically operated within a geographic market with a robust and growing economy that has presented the opportunity to grow the Bank's loan portfolio while maintaining consistency in credit quality.

The Bank's year-over-year loan volume changes and ongoing pipeline of new loan production is in line with Management's internal expectations at September 30, 2009, in light of general economic and credit quality considerations. Management's broader business plan and strategy continues to be focused on driving maturation of business at existing de novo branches and acquired locations.

FINANCIAL HIGHLIGHTS

The following table presents information regarding yields on interest-earning
assets, rates paid on interest-bearing liabilities, net interest spreads, net
yields on average interest-earning assets, returns on average assets and returns
on average equity for the periods indicated.

(Dollars in 000's)                                                                 Increase
Analysis for the three-month period ended
September 30:                                   2009              2008            (Decrease)      % Change
Average fed funds sold and investments     $    326,996      $     44,100      $     282,896        641.49 %
Average gross loans, including mortgages
held for sale                                 1,204,684         1,286,174            (81,490 )       -6.34 %
Average interest-earning assets               1,531,680         1,330,274            201,406         15.14 %
Average interest-bearing liabilities          1,229,167         1,054,541            174,626         16.56 %
Average total assets                          1,721,385         1,495,529            225,856         15.10 %
Average equity                                  185,604           189,952             (4,348 )       -2.29 %
Average common equity                           144,002           180,362            (36,360 )      -20.16 %

Average yield earned (1)                           4.98 %            6.77 %            (1.79 )      -26.44 %
Average rate paid                                  1.63 %            2.70 %            (1.07 )      -39.63 %
Net interest spread                                3.35 %            4.07 %            (0.72 )      -17.69 %

Net interest income to average
      interest-earning assets (net
      interest margin) (1)                         3.64 %            4.66 %            (1.02 )      -21.89 %
Annualized return on average assets               -1.14 %            0.34 %            (1.48 )     -435.29 %
Annualized return on average common
equity                                           -15.30 %            2.68 %           (17.98 )     -670.90 %
Efficiency ratio (2)                              88.08 %           63.23 %            24.85         39.30 %

(Dollars in 000's)                                                                 Increase
Analysis for the nine-month period ended
September 30:                                   2009              2008            (Decrease)      %Change
Average fed funds sold and investments     $    160,399      $     38,434      $     121,965        317.34 %
Average gross loans, including mortgages
held for sale                                 1,237,726         1,250,709            (12,983 )       -1.04 %
Average interest-earning assets               1,398,125         1,289,143            108,982          8.45 %
Average interest-bearing liabilities          1,079,453         1,012,253             67,200          6.64 %
Average total assets                          1,573,231         1,449,040            124,191          8.57 %
Average equity                                  199,146           184,909             14,237          7.70 %
Average common equity                           164,156           175,319            (11,163 )       -6.37 %

Average yield earned (1)                           5.61 %            7.10 %            (1.49 )      -20.09 %
Average rate paid                                  1.89 %            2.90 %            (1.01 )      -34.83 %
Net interest spread                                3.72 %            4.20 %            (0.48 )      -11.48 %

Net interest income to average
      interest-earning assets (net
      interest margin) (1)                         4.10 %            4.82 %            (0.72 )      -14.94 %
Annualized return on average assets               -3.10 %            0.34 %            (3.44 )    -1011.76 %
Annualized return on average common
equity                                           -31.02 %            2.68 %           (33.70 )    -1257.46 %
Efficiency ratio (2)                              80.51 %           65.31 %            15.20         23.27 %

Notes:
(1) Tax equivalent
(2) Noninterest expense divided by net interest income plus noninterest income

RESULTS OF OPERATIONS

QUARTER ENDED SEPTEMBER 30, 2009

NET INTEREST INCOME - Net interest income, the Bank's primary source of revenue, is the difference between the interest income generated from earning assets (loans and investments) and the interest expense paid on interest-bearing liabilities (interest-bearing deposits and borrowed funds). Net interest income for the quarter ended September 30, 2009 declined $1.6 million or 10.09% from the quarter one year earlier. Market interest rates declined dramatically from the same period last year and were held at low levels during the current quarter by the Federal Reserve in an attempt to help stimulate the economy. The interest rate environment affected both our yield on earning assets and our cost of interest-bearing deposits and was a principal factor driving the decline in our net interest income from the same period last year. Initial investment of cash associated with the Wachovia branch acquisition into low rate fed funds investments provided minimal interest income as further discussed below. Also affecting our yields was the increase in non-performing loans that resulted in both interest reversals when these loans were placed on non-accrual status and the ongoing burden of including these non-performing loans in earning assets without the corresponding yield from accruing interest.

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

Our asset sensitive interest rate sensitivity position was a significant factor in the year-over-year decline in the third quarter net interest margin from 4.66% in 2008 to 3.64% in the most recently completed quarter, a fall of 102 basis points. The measured deployment of cash obtained from the acquisition of the two Wachovia branches also decreased net interest margin as that cash was largely placed in fed funds at interest rates averaging 0.27%, pending investment portfolio purchases at rates approaching 3.00%.

Also contributing to the decline was the increasing volume of non-performing loans for which no interest income is recorded (see Loans below). Our yield on earning assets averaged 4.98%, down 179 basis points from the same quarter a year ago, while our cost of interest-bearing liabilities similarly fell 107 basis points from 2.70% in the same quarter a year ago to 1.63% in the most recent quarter. These changes resulted in an interest spread of 3.35% during the current quarter ended September 30, 2009, down 72 basis points from 4.07% recorded during the same period a year ago.

LOAN LOSS PROVISION - Charges made to the provision for loan losses that translate to increases in our allowance for loan losses were $10.3 million and $4.8 million for the three month periods ended September 30, 2009 and September 30, 2008, respectively. The Company had net charge-offs of $9.0 million during the third quarter of 2009 compared to net charge-offs of $8.2 million for the corresponding period in 2008. Management believes that the September 30, 2009 balance in the allowance for loan losses is reasonable and appropriate to support inherent potential losses in the Company's loan portfolio. (Also see Allowance for Loan Losses and Reserve for Unfunded Commitments.)

NON-INTEREST INCOME - Non-interest income represents service charges, fees, commissions and other income derived principally from general banking services, residential mortgage activity, sales of investment and insurance products and gains from the sales of other assets. During the third quarter of 2009, PremierWest had non-interest income of $2.8 million, an increase of $252,000 or 9.71% from the corresponding period in 2008. On a summary basis, the increase was primarily driven by a $143,000 or 25.18% increase in other commissions and fees; a $64,000 or 32.99% increase in the other non-interest income category, including gains from other real estate owned and from the sale of premises and equipment; and a $42,000 or 44.68% increase in mortgage banking fees.

NON-INTEREST EXPENSE - Non-interest expense increased approximately $3.3 million or 29.20% for the three months ended September 30, 2009, as compared to the corresponding period in 2008. On a summary basis, a $293,000 or 145.77% increase in professional fees; a $393,000 or 5.83% increase in salary expenses of which $127,000 is directly related to the acquisition of the two Wachovia branches in July 2009; and a $1.6 million or 98.62% increase in the 'other' category of non-interest expenses. Included in this $1.6 million increase was a $1.0 million or 442.55% increase in FDIC and state assessments; a $661,000 non-recurring increase in merger expenses from the Wachovia acquisition; a $356,000 or 715.31% increase in problem loan expense; and a $280,000 or 25.62 fold increase in expenses related to other real estate owned.

EFFICIENCY RATIO - The Company's efficiency ratio, defined as non-interest expense divided by the sum of net interest income and non-interest income, was 88.08% during the third quarter of 2009, a 24.85% deterioration compared to 63.23% for the third quarter of 2008. Given current increases in regulatory assessment costs, Management believes that a ratio in the 60% to 65% range is a reasonable and sustainable target given the Bank's strategies for both growth and customer service and has implemented actions to carefully manage controllable costs pending resolution of credit issues that currently exist.

NINE MONTHS ENDED SEPTEMBER 30, 2009

NET INTEREST INCOME - For the nine months ended September 30, 2009, net interest income declined $3.7 million, or 7.93% compared to the same period in 2008. During the first nine months of 2009, our interest income declined $9.9 million or 14.50% while our interest expense declined $6.2 million or 28.33%.

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

Our asset sensitive interest rate position was a key factor in the year-over-year decline in net interest margin from 4.82% as of September 30, 2008 to 4.10% for the most recently completed nine month period. Our yield on earning assets averaged 5.61%, down 149 basis points from the same period last year, while our cost of interest-bearing liabilities similarly fell 101 basis points to 1.89% in 2009 from 2.90% in 2008. These changes resulted in a net interest spread of 3.72% for the nine months ended September 30, 2009, down 48 basis points from 4.20% recorded as of September 30, 2008.

LOAN LOSS PROVISION - Charges made to the provision for loan losses that translate to increases in our allowance for loan losses were $71.4 million and $13.1 million for the nine month periods ended September 30, 2009 and September 30, 2008, respectively. The Company had net charge-offs of $47.0 million during the first nine months of 2009 compared to net charge offs of $12.7 million for the corresponding period in 2008. Management believes that the September 30, 2009 balance in the allowance for loan losses is reasonable and appropriate to support inherent probable losses in the Company's loan portfolio. (Also see Allowance for Loan Losses and Reserve for Unfunded Commitments.)

NON-INTEREST INCOME - During the first nine months of 2009, PremierWest had non-interest income of $8.2 million, an increase of $657,000 or 8.68% from the corresponding period in 2008. On a summary basis, the increase during the nine month period was the result of a $255,000, or 6.80%, increase in service charges associated with general year-over-year deposit volume growth and a reduction in customer fee waivers; a $296,000, or 17.76%, increase in other commissions and fees; and a $174,000, or 27.93%, increase in the 'other' category of non-interest income that includes a $124,000 increase in gains on other real estate owned.

NON-INTEREST EXPENSE - Non-interest expense increased approximately $5.8 million or 16.37% for the nine months ended September 30, 2009, as compared to the corresponding period in 2008. On a summary basis, the increase over the nine month period was a result of a $1.3 million or 6.30% increase in salary expenses of which $127,000 is associated with the acquisition of the Wachovia branches; $2.3 million or 333.05% increase in FDIC and state assessments, a $725,000 non-recurring increase in merger expenses related to the acquisition of two Wachovia branches in July 2009; and a $282,000 increase in other real estate owned expenses.

EFFICIENCY RATIO - The Company's efficiency ratio was 80.51% during the first nine months of 2009, a 15.20% deterioration compared to 65.31% for the first nine months of 2008. Given current increases in regulatory assessment costs, Management believes that a ratio in the high 60% to 65% range is a reasonable and sustainable target given the Bank's strategies for both growth and customer service and has implemented actions to carefully manage controllable costs pending resolution of credit issues that currently exist.

FINANCIAL CONDITION - Total assets of $1.716 billion at September 30, 2009, increased $237.5 million or 16.07% compared to total assets of $1.478 billion at June 30, 2009. This increase occurred primarily as a result of the Wachovia branches acquisition. On a consolidated basis during the same period, gross loans declined $16.6 million; the Allowance for Loan Losses increased $1.2 million; cash and other earning assets, less loans, increased $237.4 million; and accrued interest and other assets, increased $18.8 million.

Gross loans accounted for 69.04% of total assets at September 30, 2009 compared to 81.26% at June 30, 2009. As of September 30, 2009, the allowance for loan losses increased to $41.5 million from $40.3 million at June 30, 2009. The allowance for loan losses was enhanced with $71.4 million in provision charged against earnings and decreased by $47.0 million in net charge-offs.

During the quarter ending September 30, 2009, due to a number of factors driven by the economy, we continued to build our allowance for loan loss to position the company in response to increased non-performing loan totals. The loan loss reserve as a percentage of gross loans was increased from 3.36% at June 30, 2009 to 3.50% at the end of the currently completed period. The ratio of loan loss reserve to non-performing loans concurrently grew from 20.77% at year end 2008 to 37.95% at September 30, 2009.

Our credit teams are working diligently with borrowers to assist them with their obligations until economic and real estate conditions improve. Additionally, during the third quarter, the Company reorganized and assigned a 13-person Asset Recovery Group to reduce its classified asset totals as expeditiously as possible.

Total non-performing assets were $128.9 million at September 30, 2009, up from $118.0 million as of June 30, 2009, and represent 7.51% of total assets. The September 30, 2009 non-performing total includes $34.8 million in non-accrual loans that were current as to principal and interest payments and $9.6 million in loans that were less than 30 days past due. The non-performing assets also include $19.5 million in other real estate owned as of September 30, 2009, up from $14.6 million as of June 30, 2009. For additional information regarding non-performing loans, see Asset Quality and Non-performing Assets below.

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