PremierWest Bancorp Announces Second Quarter Earnings

MEDFORD, Ore., July 22 /PRNewswire-FirstCall/ -- PremierWest Bancorp
(Nasdaq: PRWT) announced net income of $648 thousand for the quarter ended
June 30, 2008. Earnings per share on a fully diluted basis were $0.03.
Earnings for the six months ended June 30, 2008 were $2.5 million or $0.11 per
fully diluted share. PremierWest's Chief Executive Officer, John Anhorn,
stated, "Earnings for both the most recent quarter and for the year to date
are not acceptable. However, it is important to stress that the fundamental
earning power of the bank was sufficient to absorb a significant increase in
our loan loss reserve and still record income for the quarter."
Significant items for the second quarter include:
-- PremierWest Bancorp was added to the Russell 3000(R) Index;
-- The bank remained "Well Capitalized" with a risk-based capital ratio of
approximately 11.17 percent;
-- Net interest margin, on a tax equivalent basis, was 4.88 percent,
decreasing 4 basis points as compared to last quarter as a result of a
12 basis point reduction from interest income reversed and an
additional 18 basis point loss from interest that would have been
recorded during the quarter had the loans not been placed on nonaccrual
status;
-- Non-performing assets increased to $41.9 million, or 2.81 percent of
total assets, related primarily to loans affected by the real estate
downturn;
-- Provision for loan losses was $5.2 million, an increase of $2.2 million
over the prior quarter and representing lost earnings after tax of
$0.14 per fully diluted share; and
-- Charge-offs of non-performing loans totaled $4.8 million with
recoveries of previously charged-off loans of $340 thousand.

John Anhorn, Chief Executive Officer, stated, "Volatile real estate
valuations and uncertain economic conditions have led to our taking an
aggressive position in dealing with non-performing assets and in assessing
risk in our loan portfolio. Accordingly, we have charged off $4.8 million in
non-performing loans and have booked an additional $5.2 million loan loss
provision to restore and bolster our reserve for loan losses. Evaluation of a
previously disclosed credit acquired in the Stockmans Financial Group merger
required revision due to the volatile valuations evident, but undetermined, at
the time of the merger. Our initial estimate of the fair value of the credit
at the date of acquisition was decreased $3.1 million through an increase to
our reserve for loan loss and an offsetting entry to the goodwill valuation
for the merger."
Consistent with current industry trends and regulatory guidelines, the
bank has adopted a more aggressive policy regarding charge-offs of impairment
reserve. In those instances when collateral dependent loans are determined to
be impaired, the impairment is charged off immediately. Previously our policy
was to charge off any remaining impairment at the conclusion of efforts to
resolve the loan, to foreclose and transfer the collateral to OREO, or to sell
the loan. Our new procedure shortens the charge-off timeframe.
Anhorn added, "Since the end of 2007, we have pursued a proactive strategy
in dealing with credits about which we have developing concerns, which led to
our loan loss reserve additions and charge-offs during the most recent
quarter. With these financial adjustments to our loan loss reserve, we expect
to have dealt with the vast majority of our currently known problem credits."
Jim Ford, President, added, "Our business remains strong with our net
interest margin remaining in the top tier of our peer group of banks.
Additionally, our core deposits remain stable, and we continue to be 'Well
Capitalized' by all regulatory standards. We are cautiously optimistic that
the downturn we have witnessed during the last nine months is moderating, and
are confident in our ability to successfully address the credit issues
resulting from the current economic environment. We view this time as an
opportunity to fine tune the operations of the Stockmans Financial Group
acquisition and to position ourselves for profitable growth at such time as
the economic environment improves. Operating efficiencies and territorial
branding in Stockmans' footprint to provide the full value inherent in the
acquisition are expected to be fully implemented by the end of the year. In
the meantime, we are focused on improving our business processes and on
restoring our profitability to high performance levels."
CREDIT QUALITY
In recognition of the decline in underlying real estate collateral values,
primarily in northern and central California, $4.8 million in previously
identified non-performing loans were charged off during the quarter just
ended. The net increase in our allowance for loan losses was $4.2 million
during the quarter, bringing our reserve for loan and losses to 1.92 percent
of total loans.
Total non-performing assets were $41.9 million at June 30, 2008, up from
$24.8 million at March 31, 2008. Our non-performing assets are concentrated in
eight relationships with six of these relationships comprising $39.5 million
or 94.3 percent of the total. All of these credits had suffered impairment as
of the end of the quarter, based on recently obtained, updated appraisals that
affected our judgment as to the total ultimate recovery. Additionally,
management is taking a conservative approach in assessing risk in its existing
portfolio of loans as a result of the volatility in real estate valuations as
well as uncertain economic conditions.
The first relationship consists of multiple loans secured by real estate
situated in northern California that total $14.2 million. Foreclosure by
another lender to the same borrower on an adjacent property during the quarter
just ended resulted in PremierWest re-categorizing the loans as non-
performing. A reserve for impairment has been established for this credit
based on a recent appraisal.
The second of the six largest non-performing relationships is comprised of
two purchased participation loans: one of which is secured with approved
residential lots and the other of which is unimproved land also in the
northern California area. PremierWest purchased a minority position from two
separate institutions, each with a national presence. The $5.0 million credit
was reported as non-performing with the December 31, 2007 earnings release,
and based on a September 2007 appraisal was not considered "impaired" at
December 31, 2007. 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. The properties securing these two credits are in
close proximity; thus, a reserve for impairment was established for both
credits based on the new appraisal obtained for the larger credit and the
uncertainty of the ultimate realizable value for the properties.
The third relationship consists of two loans originally totaling $7.0
million that were acquired with the merger with Stockmans in January of this
year. The relationship is 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 credits, has been foreclosed with a
charge-off of $1.3 million with the remaining $1.0 million balance now
included in other real estate owned. Stockmans originally established a
reserve for this credit prior to the merger closing, consistent with normal
credit review procedures and internal policies. The estimate of impairment for
the central California collateral has been increased to $3.1 million by
management based on a recently received appraisal as of the acquisition date.
The fourth relationship consists of a $3.1 million credit secured with
Class A commercial office space in the Portland, Oregon area. The credit is
well secured with a loan to value ratio of less than 50 percent and also has a
substantial second lien behind our position. This credit was reported as non-
performing at the end of the first quarter, and foreclosure action was
initiated at that time. No loss is expected on this credit.
The fifth relationship totaling $3.0 million consists of multiple loans
secured by approved residential building lots and completed and partially
completed residential units situated in central Oregon. This credit was re-
categorized as non-performing following interest payment delinquencies. A
small portion of this credit has been charged off based on the deficiency in
collateral for the note involved.
The sixth credit was recently classified as non-performing and consists of
notes totaling $2.8 million. The loans were for property acquisition and
development as well as residential unit construction in central Oregon.
Updated appraisals have been ordered, and we do not anticipate an impairment.
As mentioned earlier, the bank has altered its concentration of resources
directed at dealing with non-performing assets in order to provide a
proactive, centralized and focused approach to expediting potential
collections and liquidations of special assets. The results from these actions
were felt during the current quarter with foreclosure actions commenced and
liquidations scheduled or initiated. For example, the bank foreclosed on the
northern California property previously mentioned and began marketing the
property during the quarter just ended. We believe that prompt and aggressive
moves to protect the bank's position are critical to minimizing the long-term
loss profile for non-performing assets.
Jim Ford, President, stated, "We continue to work aggressively at reducing
our non-performing loan balances, while actively pursuing previously charged-
off loans, as evidenced by the $340 thousand in recoveries this most recent
quarter. As John stated earlier, we are confident in our ability to
successfully work through these credits with positive results and are focused
on doing so." Ford continued, "Most importantly, we remain focused on
providing great service and growing profitable customer relationships
throughout our service territory."
NET INTEREST MARGIN
Net interest income totaled $15.7 million for the quarter ended June 30,
2008, up from $15.1 million for the previous quarter. The Company's tax
adjusted net interest margin for the quarter ended June 30, 2008 was 4.88
percent, compared to 4.92 percent for the quarter ended March 31, 2008. The
decline in the net interest margin is attributable to the reversal of
approximately $374 thousand of interest related to loans placed on non-accrual
during the quarter. This accounted for a 12 basis point decrease in what we
otherwise would have reported. Nonetheless, we are confident that second
quarter results from our peer group banks will, once again, demonstrate that
our net interest margin is among the best for our peer group of banks.
DEPOSIT & LOAN GROWTH
Gross outstanding loans at June 30, 2008 totaled $1.27 billion, an
increase of $12.1 million or 1.0 percent when compared to the previous
quarter's loan totals of $1.26 billion. Total deposits amounted to $1.22
billion at June 30, 2008, down slightly from the $1.23 billion at the end of
the previous quarter. Noninterest bearing checking account balances totaled
$235 million or 19.2 percent of total deposits. Rich Hieb, Senior Executive
Vice President and Chief Operating Officer, stated, "Although there is
continued competition for core deposits, our "People doing Business with
People" brand holds us in good stead. The number of core deposit accounts
continued to grow this quarter, and we believe that core deposits will show
further growth as our newer locations develop."
NONINTEREST EXPENSE
Noninterest expense increased $2.5 million from $9.6 million during the
second quarter of 2007 to $12.2 million during the quarter ending June 30,
2008, primarily as a result of the acquisition of Stockmans in January of
2008. On a sequential quarter basis, noninterest expense increased by $678
thousand, largely as a result of increased FDIC assessments and legal costs.
The Company's efficiency ratio remained relatively unchanged at 66.26 percent
during the quarter just ended compared to 66.36 percent during the preceding
quarter.
CAPITAL
At June 30, 2008, PremierWest remained "Well Capitalized" as measured by
regulatory standards. John Anhorn stated, "Our intention is twofold: to
re-establish and sustain our top-tier earnings performance and to maintain our
well-capitalized position, while continuing our cash dividend program."
ABOUT PREMIERWEST BANCORP
PremierWest Bancorp (Nasdaq: PRWT) is a financial services holding company
headquartered in Medford, Oregon, and operates primarily through its
subsidiary PremierWest Bank. PremierWest Bank offers expanded banking-related
services through two subsidiaries, Premier Finance Company and PremierWest
Investment Services, Inc.
PremierWest Bank was created following the merger of the Bank of Southern
Oregon and Douglas National Bank in May, 2000. In April, 2001, PremierWest
Bancorp acquired Timberline Bancshares, Inc. and its wholly-owned subsidiary,
Timberline Community Bank, with eight branch offices located in Siskiyou
County in northern California. In January, 2004, PremierWest acquired Mid
Valley Bank with five branch offices located in the northern California
counties of Shasta, Tehama and Butte. In January, 2008, PremierWest acquired
Stockmans Financial Group, and its wholly owned subsidiary, Stockmans Bank,
with five full service banking offices in the Sacramento, California area.
During the last several years, PremierWest expanded into the Klamath Falls and
Central Oregon communities of Bend and Redmond, and into Yolo, Butte, and
Placer counties in California.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This press release includes forward-looking statements within the meaning
of the "Safe-Harbor" provisions of the Private Securities Litigation Reform
Act of 1995, which management believes are a benefit to shareholders. These
statements are necessarily subject to risk and uncertainty and actual results
could differ materially due to certain risk factors, including those set forth
from time to time in PremierWest's filings with the SEC. You should not place
undue reliance on forward-looking statements and we undertake no obligation to
update any such statements. We make forward-looking statements in this press
release about the prospects for earnings growth, deposit and loan growth,
capital levels, our dividend program, expected peer rankings, the effective
management of our credit quality, the collectability of identified non-
performing loans and the adequacy of our Allowance for Loan Losses.

PREMIERWEST BANCORP
FINANCIAL HIGHLIGHTS
(All amounts in 000's, except per share data)
(unaudited)

EARNINGS AND PER SHARE DATA

For the Three Months Ended
June 30 2008 2007 Change % Change

Interest income $22,716 $20,337 $2,379 11.7%
Interest expense 6,977 6,531 446 6.8%
Net interest income 15,739 13,806 1,933 14.0%
Provision for possible loan losses 5,225 75 5,150 6866.7%
Non-interest income 2,600 2,287 313 13.7%
Non-interest expense 12,152 9,636 2,516 26.1%
Pre-tax income 962 6,382 (5,420) -84.9%
Provision for income taxes 314 2,441 (2,127) -87.1%

Net income $648 $3,941 $(3,293) -83.6%

Basic earnings per share $0.03 $0.23 $(0.20) -87.0%
Diluted earnings per share $0.03 $0.21 $(0.18) -85.7%

Average shares outstanding--
basic 22,390,198 17,032,090 5,358,108 31.5%
Average shares outstanding--
diluted (1) 22,396,475 18,554,696 3,841,779 20.7%

For the three
months ended
March 31,
2008 Change % Change

Interest income $22,938 $(222) -1.0%
Interest expense 7,871 (894) -11.4%
Net interest income 15,067 672 4.5%
Provision for possible loan losses 3,075 2,150 69.9%
Non-interest income 2,250 350 15.6%
Non-interest expense 11,474 678 5.9%
Pre-tax income 2,768 (1,806) -65.2%
Provision for income taxes 965 (651) -67.5%

Net income $1,803 $(1,155) -64.1%

Basic earnings per share $0.08 $(0.05) -62.5%
Diluted earnings per share $0.08 $(0.05) -62.5%

Average shares outstanding--basic 20,898,008 1,492,190 7.1%
Average shares outstanding--diluted(1) 22,236,025 160,450 0.7%

For the Six Months Ended
June 30
2008 2007 Change % Change
Interest income $45,654 $39,697 $5,957 15.0%
Interest expense 14,848 12,549 2,299 18.3%
Net interest income 30,806 27,148 3,658 13.5%
Provision for possible loan
losses 8,300 275 8,025 2918.2%
Non-interest income 4,850 4,297 553 12.9%
Non-interest expense 23,626 19,340 4,286 22.2%
Pre-tax income 3,730 11,830 (8,100) -68.5%
Provision for income taxes 1,279 4,521 (3,242) -71.7%
Net income $2,451 $7,309 $(4,858) -66.5%

Basic earnings per share $0.11 $0.42 $(0.31) -73.8%
Diluted earnings per share $0.11 $0.39 $(0.28) -71.8%

Average shares outstanding--
basic 21,656,207 17,029,725 4,626,482 27.2%
Average shares outstanding--
diluted (1) 21,704,533 18,551,187 3,153,346 17.0%

(1) Conversion of the Company's preferred stock would be antidilutive as
of June 30, 2008. Hence, fully diluted average shares outstanding have
been adjusted accordingly despite the fact that the preferred shares
are mandatorily convertible in November 2008.

SELECTED FINANCIAL RATIOS
(annualized)
For the three
months ended
For the Three Months Ended June March 31,
30 2008 2007 Change 2008 Change

Yield on average gross loans (1) 7.11% 8.64% (1.53) 7.58% (0.47)
Yield on average investments (1) 4.01% 5.70% (1.69) 3.74% 0.27
Total yield on average earning
assets (1) 7.03% 8.60% (1.57) 7.49% (0.46)
Cost of average interest bearing
deposits 2.65% 3.52% (0.87) 3.20% (0.55)
Cost of average borrowings 4.83% 5.69% (0.86) 6.15% (1.32)
Cost of average total deposits
and borrowings 2.23% 2.85% (0.62) 2.68% (0.45)
Cost of average interest bearing
liabilities 2.74% 3.62% (0.88) 3.31% (0.57)
Net interest spread 4.80% 5.75% (0.95) 4.81% (0.01)
Net interest margin (1) 4.88% 5.85% (0.97) 4.92% (0.04)

Net charge-offs to average loans 0.35% 0.01% 0.34 0.02% 0.33
Allowance for loan losses to
loans 1.92% 1.16% 0.76 1.61% 0.31
Allowance for loan losses to
non-performing loans 60.06% 317.85% (257.79) 82.25% (22.19)
Non-performing loans to total
loans 3.19% 0.36% 2.83 1.95% 1.24
Non-performing assets to total
assets 2.81% 0.33% 2.48 1.69% 1.12

Return on average equity 1.37% 12.95% (11.58) 4.18% (2.81)
Return on average assets 0.18% 1.50% (1.32) 0.52% (0.34)

Efficiency ratio (2) 66.26% 59.88% 6.38 66.36% (0.10)

For the Six Months Ended June 30

Yield on average gross loans (1) 7.35% 8.64% (1.29)
Yield on average investments (1) 3.88% 5.44% (1.56)
Total yield on average earning
assets (1) 7.26% 8.60% (1.34)
Cost of average interest-bearing
deposits 2.91% 3.47% (0.56)
Cost of average borrowings 5.40% 5.72% (0.32)
Cost of average total deposits
and borrowings 2.44% 2.80% (0.36)
Cost of average interest-bearing
liabilities 3.01% 3.56% (0.55)
Net interest spread 4.82% 5.80% (0.98)
Net interest margin (1) 4.91% 5.89% (0.98)

Return on average equity 2.70% 12.26% (9.56)
Return on average assets 0.34% 1.43% (1.09)

Efficiency ratio (2) 66.26% 61.50% 4.76

Notes:
(1) Tax equivalent
(2) Non-interest expense divided by net interest income plus non-interest
income

PREMIERWEST BANCORP
FINANCIAL HIGHLIGHTS
(All amounts in 000's, except per share data)
(unaudited)

BALANCE SHEET
At June 30 2008 2007 Change % Change
Fed funds sold and investments $38,708 $12,099 $26,609 219.9%
Gross loans 1,273,679 974,153 299,526 30.7%
Allowance for loan losses (24,423) (11,252) (13,171) 117.1%
Net loans 1,249,256 962,901 286,355 29.7%
Other assets 201,885 120,795 81,090 67.1%
Total assets $1,489,849 $1,095,795 $394,054 36.0%

Non-interest-bearing deposits $234,672 $201,065 $33,607 16.7%
Interest-bearing deposits 986,139 722,997 263,142 36.4%
Total deposits 1,220,811 924,062 296,749 32.1%
Borrowings 66,433 38,294 28,139 73.5%
Other liabilities 14,398 10,602 3,796 35.8%
Stockholders' equity 188,207 122,837 65,370 53.2%
Total liabilities and
stockholders' equity $1,489,849 $1,095,795 $394,054 36.0%

Period end shares
outstanding (1) 23,561,349 18,203,839 5,357,510 29.4%
Book value per share $7.99 $6.75 $1.24 18.4%
Tangible book value per share $4.67 $5.49 $(0.82) -14.9%

Allowance for loan losses:
Balance beginning of
period 1/1/08 $11,450 $10,877 $573 5.3%
Balance-sheet
reclassification (2) - (255) 255 -100.0%
Finance portfolio
purchased (3) - 436 (436) -100.0%
Acquired from Stockmans
Bank merger 9,112 - 9,112 nm
Provision for loan losses 8,300 275 8,025 2918.2%
Net (charge-offs)
recoveries (4,439) (81) (4,358) 5380.2%
Balance end of period
6/30/08 $24,423 $11,252 $13,171 117.1%

Non-performing assets:
Non-performing loans $40,662 $3,540 $37,122 1048.6%
Real estate owned 1,244 101 1,143 1131.7%
Total non-performing assets $41,906 $3,641 $38,265 1050.9%

Balance Sheet
at March 31,
2008 Change % Change
Fed funds sold and investments $38,672 $36 0.1%
Gross loans 1,261,614 12,065 1.0%
Allowance for loan losses (20,264) (4,159) 20.5%
Net loans 1,241,350 7,906 0.6%
Other assets 189,010 12,875 6.8%
Total assets $1,469,032 $20,817 1.4%

Non-interest-bearing deposits $235,293 $(621) -0.3%
Interest-bearing deposits 994,851 (8,712) -0.9%
Total deposits 1,230,144 (9,333) -0.8%
Borrowings 31,281 35,152 112.4%
Other liabilities 18,631 (4,233) -22.7%
Stockholders' equity 188,976 (769) -0.4%
Total liabilities and stockholders'
equity $1,469,032 $20,817 1.4%

Period end shares outstanding (1) 23,562,401 (1,052) 0.0%
Book value per share $8.02 $(0.03) -0.4%
Tangible book value per share $4.84 $(0.17) -3.5%

Allowance for loan losses:
Balance beginning of period
1/1/08 $11,450 $ - 0.0%
Balance-sheet reclassification (2) - - nm
Finance portfolio purchased (3) - - nm
Acquired from Stockmans Bank
merger 5,982 3,130 52.3%
Provision for loan losses 3,075 5,225 169.9%
Net (charge-offs) recoveries (243) (4196) 1726.7%
Balance end of period 6/30/08 $20,264 $4,159 20.5%

Non-performing assets:
Non-performing loans $24,637 $16,025 65.0%
Real estate owned 205 1039 506.8%
Total non-performing assets $24,842 $17,064 68.7%

Notes:
(1) Amount includes 11,000 shares of preferred stock issued November 17,
2003 as if converted into common stock at a conversion ratio of 106.35
to 1 for a total of 1,169,925 common shares.
(2) Amount reclassified 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.
(3) Amount resulting from the purchase of a consumer finance loan
portfolio on June 29, 2007.

For the Three Months Ended June 30 2008 2007 Change % Change

Average fed funds sold and
investments $36,971 $10,550 $26,421 250.4%
Average loans, gross 1,268,015 940,453 327,562 34.8%
Average total assets 1,474,619 1,050,511 424,108 40.4%
Average non-interest-bearing
deposits 238,714 194,242 44,472 22.9%
Average interest-bearing deposits 978,391 692,627 285,764 41.3%
Average total deposits 1,217,105 886,869 330,236 37.2%
Average total borrowings 45,580 31,707 13,873 43.8%
Average stockholders' equity 190,771 122,098 68,673 56.2%

For the three
months ended
March 31, 2008 Change % Change

Average fed funds sold and
investments $36,644 $327 0.9%
Average loans, gross 1,186,600 81,415 6.9%
Average total assets 1,383,294 91,325 6.6%
Average non-interest-bearing deposits 218,987 19,727 9.0%
Average interest-bearing deposits 909,499 68,892 7.6%
Average total deposits 1,128,486 88,619 7.9%
Average total borrowings 39,309 6,271 16.0%
Average stockholders' equity 173,692 17,079 9.8%

For the Six Months Ended June 30 2008 2007 Change % Change
Average fed funds sold and
investments $35,921 $11,158 $24,763 221.9%
Average loans, gross 1,233,537 922,650 310,887 33.7%
Average total assets 1,444,148 1,032,796 411,352 39.8%
Average non-interest-bearing
deposits 230,522 192,121 38,401 20.0%
Average interest-bearing deposits 950,961 681,985 268,976 39.4%
Average total deposits 1,181,483 874,106 307,377 35.2%
Average total borrowings 39,917 28,391 11,526 40.6%
Average stockholders' equity 182,291 120,271 62,020 51.6%

SOURCE PremierWest Bancorp

John Anhorn, Chief Executive Officer, John.Anhorn@PremierWestBank.com, or Jim
Ford, President, Jim.Ford@PremierWestBank.com, or Rich Hieb, Sr. Executive
Vice President & Chief Operating Officer, Rich.Hieb@PremierWestBank.com, all
+1-541-618-6020, or Mike Fowler, Executive Vice President & Chief Financial
Officer, +1-541-282-5291, Michael.Fowler@PremierWestBank.com, all of
PremierWest Bancorp