SOURCE: PremierWest Bancorp

January 20, 2011 09:30 ET

PremierWest Bancorp Announces Fourth Quarter and 2010 Results

MEDFORD, OR--(Marketwire - January 20, 2011) - PremierWest Bancorp (NASDAQ: PRWT) announced results for the fourth quarter of 2010 and twelve months ending December 31, 2010, as follows:

For the three months ended December 31, 2010:

--  Net loss applicable to common shareholders of $705,000 compared to a
    net loss of $1.4 million for the third quarter ended September 30,
    2010, and a net loss applicable to common shareholders of $110.6
    million for the quarter ended December 31, 2009.
--  Loss per common share remained the same at $0.01 for both the three
    months ended December 31, 2010 and September 30, 2010, and compares to
    a loss per common share of $4.46 for the quarter ended December 31,
    2009.
--  Total risk-based capital ratios for Bancorp and the Bank improved to
    12.36 percent and 12.59 percent, respectively.
--  Net interest margin was 3.78 percent compared to 4.00 percent for the
    quarter ended September 30, 2010, and had a 34 basis point decrease
    from the 4.12 percent recorded during the three months ended December
    31, 2009.
--  Loan loss reserve remained elevated at $35.6 million or 3.64 percent
    of gross loans at December 31, 2010, compared to $42.1 million or 4.07
    percent at September 30, 2010.
--  Charge-offs, net of recoveries, increased to $6.5 million compared to
    $3.4 million in the preceding quarter and $12.3 million for the quarter
    ended December 31, 2009.
--  Non-performing loans increased by $14.5 million to $129.6 million or
    13.25 percent of gross loans compared to $115.1 million or 11.11
    percent of gross loans at September 30, 2010. Approximately $71.5
    million or 55 percent of the non-performing loan total at December 31,
    2010 is current as to payment of principal and interest despite being
    on non-accrual status.
--  Other real estate owned (OREO) and foreclosed assets increased $2.1
    million to $32.0 million with sales for the quarter of $4.8 million at
    a net gain on sale of $125,000.
--  No provision for loan losses was recorded in the current quarter versus
    $1.6 million for the third quarter of 2010, and $16.7 million for the
    quarter ended December 31, 2009 reflecting either stability or
    improvement in a number of predictive credit metrics.
--  Total deposits of $1.27 billion were down $11.4 million from September
    30, 2010, with non-interest bearing demand deposits at 19 percent of
    total deposits.
--  Cash and unencumbered securities totaled $239.4 million, providing a
    strong liquidity position.

For the twelve months ended December 31, 2010:

--  Net loss applicable to common shareholders of $7.5 million compared to
    a net loss of $148.6 million for the twelve months ended December 31,
    2009.
--  Loss per common share of $0.09 versus a loss of $6.01 for the same
    period in 2009.
--  Net interest margin was 4.07 percent compared to 4.10 percent for the
    same period last year.
--  OREO and foreclosed assets increased $7.3 million from December 31,
    2009, on OREO additions of $31.1 million partially offset by sales of
    $20.2 million and downward valuation adjustments of $5.3 million with a
    year-to-date net gain on sale of $1.7 million.
--  Net charge-offs decreased to $20.4 million compared to $59.3 million
    for the same period in 2009.
--  Total deposits at period end of $1.27 billion were down $154.5 million
    from December 31, 2009.

James M. Ford, PremierWest's President & Chief Executive Officer, stated, "As we review the results of the fourth quarter and the full year of 2010, our progress is clearly evident in both the quarterly results and the year over year results. While non-performing loans did increase, many problem loans are migrating to OREO as anticipated and are expected to ultimately be liquidated from the balance sheet. We continue to aggressively pursue collection efforts resulting in less time between problem loan identification and ultimate resolution. We also recorded close to a breakeven bottom line for the fourth quarter before accruing for the TARP preferred dividend and TruPS interest expense, reduced aggregate CRE and construction acquisition & development loans, maintained a strong liquidity position, and sustained a high level of performing non-performing loans that remain current as to the contractual payments.

"We have defined very clearly the nature and extent of risk in our loan portfolio and have continued the improving trend in the number of loan risk rating upgrades. As we reported for the past two quarters, foreclosure activity has led to higher levels of incoming OREO, which is the last step before final resolution of a problem asset; i.e. the sale of the OREO. Our OREO sales increased this past quarter with total sales of $4.8 million and a twelve-month total of $20.2 million.

"As we move into 2011, we are expecting further improvement in our overall credit metrics, as well as our profitability. With loan demand at very low levels in our marketplace, we have continued to manage the balance sheet primarily by building our investment portfolio. While the continued low interest rate environment poses reinvestment challenges for deployment of our excess cash, we anticipate maintaining a short duration in our investment portfolio to better position the Bank for a rising rate environment that may impact the latter part of 2011.

"We believe that the discipline we have developed over the past two years will result in more efficient operations, improved profitability and an ability to adapt to changing economic circumstances. We thank our shareholders for their support."

CREDIT QUALITY

Non-performing assets were $161.6 million at December 31, 2010, up $16.6 million from the balance at September 30, 2010. Net OREO volumes increased from $29.9 million to $32.0 million during the quarter which included an addition of $8.3 million in foreclosed property. Non-performing loans increased from the $115.1 million recorded at September 30, 2010 to $129.6 million at the end of the fourth quarter. Our allowance for loan losses declined $6.5 million from September 30, 2010, with the reserve as a percentage of gross loans decreasing to 3.64 percent at December 31, 2010, as compared to 4.07 percent at the end of the preceding quarter. Charge-offs, net of recoveries, for the quarter ending December 31, 2010, were $6.5 million, up $3.1 million from the preceding quarter.

Internally classified assets that are not individually evaluated for impairment carry a substantial allocation of estimated loss within the general reserve portion of our allowance for loan losses methodology. As loans migrate to non-performing status, they are required to be removed from the general reserve population and be individually evaluated for impairment. The level of impairment is evaluated based on current appraisals, less estimated costs to dispose of the underlying collateral. On many of these loans, the impairment is substantially less than the reserve previously retained for these loans, prior to non-performing status. This has led to the decrease in overall allowance, despite the increase in non-performing assets.

Bill Yarbenet, Executive Vice President and Chief Credit Officer, commented, "We have come a long way since the fourth quarter of 2009 and yet we understand that much work remains in order to fully address the Bank's credit quality issues. The increase in non-performing loans and OREO was expected and is being proactively managed to ensure problem loans are resolved in the most efficient and effective manner. There will continue to be a transfer of non-performing loans to OREO as we come to resolution on the legal actions filed against non-paying borrowers. In addition, we are routinely reviewing all 'performing' non-performing loans, which totaled $71.5 million or 55 percent of total non-performing loans as of the end of the quarter, for a return to accrual status.

"OREO bookings during the fourth quarter totaled $8.3 million and are anticipated to escalate in 2011," continued Yarbenet. We expect that level to be approximately $24 million over the next two quarters. OREO sales totaled $4.8 million in the fourth quarter and $20.2 million for all of 2010. OREO sales are expected to escalate in 2011. Our net gain on sale of OREO of $125,000 in the fourth quarter and $1.7 million for 2010 demonstrates our ability to prudently value and dispose of these assets. The level of gains or losses on those sales is predicated on market conditions, availability of competing real estate product and investor sentiment regarding the economy in general.

LOANS AND DEPOSITS

Gross loans, net of deferred loan fees, as of December 31, 2010, were $976.8 million, down $57.8 million or 6 percent from September 30, 2010. The decline in gross loans during the most recently completed quarter reflects $41.6 million in loan pay offs net of loan originations, $7.9 million in gross loan charge-offs and $8.3 million transferred to OREO. New loan generation has been offset by loan pay downs and charge-offs.

Deposits at December 31, 2010 were $1.27 billion, decreasing $11.4 million or 1 percent from the September 30, 2010 total. Average non-interest bearing deposits totaled $252.0 million, 19 percent of total deposits, and was essentially unchanged compared to the prior quarter.

Joe Danelson, Executive Vice President & Chief Banking Officer, stated, "We continue to maintain significant liquidity that provides us with the flexibility to manage non-strategic deposit accounts to minimize our deposit costs. As a consequence in this low interest rate environment, we have been successful over an extended period of time in maintaining a low cost of funds in relation to our competitors. New customer acquisition continues throughout our territory as does cross-selling to existing customers to expand utilization of products with us.

"While non CRE loan demand continues to be weak we have a strong pipeline of loans in our new Government Guaranteed Lending Group and we believe that we will see good volume in that business during 2011. We are also seeing improved production in small business lending."

Danelson continued, "Our people have maintained a strong commitment to our customers during the challenging times we have faced during the past two years, and our customers have rewarded that commitment with their business."

NET INTEREST INCOME

Net interest income of $12.7 million declined 7 percent for the quarter ended December 31, 2010 versus the quarter ended September 30, 2010, and net interest margin declined by 22 basis points to 3.78 percent compared to 4.00 percent in the previous quarter. Interest income reversals of $560,000 for the current quarter accounted for 17 basis points of this reduction in net interest margin. This compares to a 5 basis point impact from $176,000 in interest reversals during the preceding quarter. Net interest margin for the quarter ended December 31, 2010 declined 34 basis points from the net interest margin of 4.12% for the same period in 2009.

Our yield on earning assets averaged 4.75 percent, down 31 basis points from the preceding quarter ended September 30, 2010. Our cost of interest bearing liabilities decreased 11 basis points to 1.22 percent in the most recent quarter. These changes resulted in a net interest spread of 3.53 percent during the current quarter ended December 31, 2010, down 20 basis points from 3.73 percent recorded during the preceding quarter. Net interest spread for the quarter ended December 31, 2010 declined 37 basis points from the net interest spread of 3.90% for the same period in 2009.

Doug Biddle, Executive Vice President & Chief Financial Officer, stated, "Net interest margin was under pressure during the fourth quarter due to in part to the increase in reversals of interest income from non-accrual loans but also, and more significantly, from a $57.8 million decline in loan balances. This reduction in higher-yielding earning assets was partially offset by a $43.9 million increase in lower-yielding investment securities, including Fed Funds. With no immediate sign of significant interest rate hikes on the near-term horizon, we expect that maintaining our current net interest margin will be a challenge over the next few quarters. With interest rates at historic lows, we see significant interest rate risk in extending maturities to the degree necessary to significantly offset the yield lost to declining loan volume. We do believe that the enhanced liquidity and short duration of our investment portfolio will begin to yield more favorable reinvestment opportunities toward the end of 2011 when we expect interest rates to begin to rise."

NON-INTEREST INCOME

During the fourth quarter of 2010, PremierWest had non-interest income of $3.4 million, an increase of $665,000 or 24 percent from the preceding quarter. The increase was primarily a result of gains on sales of securities that totaled $267,000 during the quarter a $540,000 gain on death benefit from bank-owned life insurance and $165,000 or 48 percent improvement on income from investment brokerage activities during the most recent quarter. These factors were partially offset by a $193,000 decline in service charges and other fees, all symptomatic of the impact of the slow economy on consumer economic behavior; and $114,000 in all other categories.

NON-INTEREST EXPENSE

Non-interest expense for the quarter ending December 31, 2010 was $16.0 million, an increase of $404,000 or 3 percent when compared to the preceding quarter. The increase was primarily a result of $1.2 million increase in net cost of OREO and other foreclosed assets, $175,000 increase in third-party loan costs, offset by a $735,000 decrease in salaries and employee benefits, and a $231,000 decrease in all other categories.

The decline in staff expense was largely due to a favorable adjustment to deferred compensation expense from fourth quarter interest rate changes in longer term rates that again affected the expense accrual rate. The increase in net cost of OREO reflects continued weakness in real property values. The increase in OREO sales volume and OREO expenses are a result of the high volume of OREO currently held by the Bank.

CAPITAL

PremierWest Bank has met the quantitative thresholds to be considered "Well-Capitalized" under published regulatory standards for total risk-based capital and Tier 1 risk-based capital at December 31, 2010, with ratios of 12.59 percent and 11.31 percent, respectively. However, we continue to be subject to the terms of the Consent Order with the FDIC and have not yet reached the 10.00 percent leverage ratio required. As such, we are not considered "Well-Capitalized" for all regulatory ratios.

                                                Regulatory     Regulatory
                                               Minimum to be  Minimum to be
                December  September  December  "Adequately      "Well-
                31, 2010  30, 2010   31, 2009  Capitalized"   Capitalized"
               ---------  ---------  --------  -------------  -------------
                                                greater than   greater than
                                                 or equal to    or equal to

Total risk-based
 capital ratio     12.59%   12.14%      8.53%          8.00%        10.00%
Tier 1 risk-based
 capital ratio     11.31%   10.86%      7.25%          4.00%         6.00%
Leverage ratio      8.85%    8.69%      5.70%          4.00%         5.00%

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 Nevada, Yolo and Butte 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, and risks that we are unable to increase capital levels as planned or effectively implement asset reduction and credit quality improvement strategies, unable to comply with regulatory agreements and the risk that market conditions deteriorate. 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 future profitability of the Company, net interest margin, regulatory compliance, loan demand, interest rate changes, loan upgrades, loan migration, the prospects for earnings growth, deposit and loan growth, capital levels, the effective management of our credit quality, the collectability of identified non-performing loans, real estate market conditions and the adequacy of our Allowance for Loan Losses.

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

STATEMENT OF OPERATIONS
AND LOSS PER COMMON SHARE DATA



For the Three Months   December 31,  December 31,
 Ended                      2010         2009       Change       % Change
                        -----------  -----------  -----------  -----------

Interest income         $    15,918  $    19,499  $    (3,581)       -18.4%
Interest expense              3,259        4,204         (945)       -22.5%
                        -----------  -----------  -----------
Net interest income          12,659       15,295       (2,636)       -17.2%
Loan loss provision               -       16,680      (16,680)      -100.0%
Non-interest income           3,401        3,618         (217)        -6.0%
Non-interest expense         15,966       89,553      (73,587)       -82.2%
                        -----------  -----------  -----------
Pre-tax income (loss)            94      (87,320)      87,414        100.1%
Provision for income
 taxes                          134       22,619      (22,485)       -99.4%
                        -----------  -----------  -----------

Net loss                $       (40) $  (109,939) $   109,899        100.0%
                        -----------  -----------  -----------
Less preferred dividend
 and discount accretion         665          617           48          7.8%
                        -----------  -----------  -----------
Net loss applicable to
 common shareholders    $      (705) $  (110,556) $   109,851         99.4%
                        ===========  ===========  ===========

Basic loss per common
 share (1)              $     (0.01) $     (4.46) $      4.45         99.8%
                        ===========  ===========  ===========
Diluted loss per common
 share (1)              $     (0.01) $     (4.46) $      4.45         99.8%
                        ===========  ===========  ===========

Average common shares
 outstanding--basic (1) 100,348,303   24,769,645   75,578,658        305.1%
Average common shares
 outstanding--diluted
 (1)                    100,348,303   24,769,645   75,578,658        305.1%





For the Three Months   September 30,
 Ended                      2010       Change       % Change
                        -----------  -----------  -----------

Interest income         $    17,261  $    (1,343)        -7.8%
Interest expense              3,636         (377)       -10.4%
                        -----------  -----------
Net interest income          13,625         (966)        -7.1%
Loan loss provision           1,600       (1,600)      -100.0%
Non-interest income           2,736          665         24.3%
Non-interest expense         15,562          404          2.6%
                        -----------  -----------
Pre-tax income (loss)          (801)         895        111.7%
Provision for income
 taxes                            -          134           nm
                        -----------  -----------
Net loss                $      (801) $       761         95.0%
                        -----------  -----------
Less preferred dividend
 and discount accretion         620           45          7.3%
                        -----------  -----------
Net loss applicable to
 common shareholders    $    (1,421) $       716         50.4%
                        ===========  ===========

Basic loss per common
 share (1)              $     (0.01) $         -          0.0%
                        ===========  ===========
Diluted loss per common
 share (1)              $     (0.01) $         -          0.0%
                        ===========  ===========

Average common shares
 outstanding--basic (1) 100,348,303            -          0.0%
Average common shares
 outstanding--diluted
 (1)                    100,348,303            -          0.0%







For the Twelve Months   December 31, December 31,
 Ended                      2010         2009       Change       % Change
                        -----------  -----------  -----------  -----------

Interest income         $    69,014  $    77,915  $    (8,901)       -11.4%
Interest expense             13,074       19,968       (6,894)       -34.5%
                        -----------  -----------  -----------
Net interest income          55,940       57,947       (2,007)        -3.5%
Loan loss provision          10,050       88,031      (77,981)       -88.6%
Non-interest income          11,299       11,052          247          2.2%
Non-interest expense         62,014      129,722      (67,708)       -52.2%
                        -----------  -----------  -----------
Pre-tax loss                 (4,825)    (148,754)     143,929         96.8%
Provision (benefit) for
 income taxes                   134       (2,282)       2,416        105.9%
                        -----------  -----------  -----------

Net loss                $    (4,959) $  (146,472) $   141,513         96.6%
                        -----------  -----------  -----------
Less preferred dividend
 and discount accretion       2,533        2,171          362         16.7%
                        -----------  -----------  -----------
Net loss applicable to
 common shareholders    $    (7,492) $  (148,643) $   141,151         95.0%
                        ===========  ===========  ===========

Basic loss per common
 share (1)              $     (0.09) $     (6.01) $      5.92         98.5%
                        ===========  ===========  ===========
Diluted loss per common
 share (1)              $     (0.09) $     (6.01) $      5.92         98.5%
                        ===========  ===========  ===========

Average common shares
 outstanding--basic (1)  83,180,417   24,744,835   58,435,582        236.2%
Average common shares
 outstanding--diluted
 (1)                     83,180,417   24,744,835   58,435,582        236.2%

  (1) As of December 31, 2010, September 30, 2010, and December 31, 2009,
   1,090,385 shares related to the U.S. Treasury Troubled Asset Relief
   Program (TARP) Capital Purchase Program were not included in the
   computation of diluted earnings per share as their inclusion would have
   been anti-dilutive.





SELECTED FINANCIAL RATIOS
(annualized) (unaudited)



For the Three       December 31, December 31,        September 30,
 Months ended           2010         2009     Change      2010     Change
                    -----------  -----------  ------- -----------  ------

Yield on average
 gross loans (1)           5.68%        6.12%   (0.44)        5.96%  (0.28)
Yield on average
 investments (1)           1.82%        1.85%   (0.03)        1.74%   0.08
Total yield on
 average earning
 assets (1)                4.75%        5.25%   (0.50)        5.06%  (0.31)
Cost of average
 interest bearing
 deposits                  1.20%        1.24%   (0.04)        1.27%  (0.07)
Cost of average
 borrowings                1.86%        5.72%   (3.86)        3.65%  (1.79)
Cost of average
 total deposits and
 borrowings                0.99%        1.12%   (0.13)        1.08%  (0.09)
Cost of average
 interest bearing
 liabilities               1.22%        1.35%   (0.13)        1.33%  (0.11)
Net interest spread        3.53%        3.90%   (0.37)        3.73%  (0.20)
Net interest margin
 (1)                       3.78%        4.12%   (0.34)        4.00%  (0.22)

Net charge-offs to
 average gross loans
 (3)                       0.65%        1.04%   (0.39)        0.32%   0.33
Allowance for loan
 losses to gross
 loans                     3.64%        3.99%   (0.35)        4.07%  (0.43)
Allowance for loan
 losses to
 non-performing
 loans                    27.45%       44.17%  (16.72)        36.59% (9.14)
Non-performing loans
 to gross loans           13.25%        9.04%    4.21        11.11%   2.14
Non-performing
 assets to total
 assets                   11.45%        8.37%    3.08        10.18%   1.27

Return on average
 common equity            -4.66%     -310.87%  306.21        -9.12%   4.46
Return on average
 assets                   -0.20%      -26.08%   25.88        -0.39%   0.19


Efficiency ratio (2)      99.41%      473.50% (374.09)       95.12%   4.29





                                     December 31,  December 31,
For the Twelve Months ended              2010          2009        Change
                                     ------------  ------------  ---------

Yield on average gross loans (1)             5.90%         6.14%     (0.24)
Yield on average investments (1)             1.84%         1.59%      0.25
Total yield on average earning
 assets (1)                                  5.02%         5.51%     (0.49)
Cost of average interest bearing
 deposits                                    1.11%         1.63%     (0.52)
Cost of average borrowings                   3.56%         5.11%     (1.55)
Cost of average total deposits and
 borrowings                                  0.96%         1.43%     (0.47)
Cost of average interest bearing
 liabilities                                 1.18%         1.74%     (0.56)
Net interest spread                          3.84%         3.77%      0.07
Net interest margin (1)                      4.07%         4.10%     (0.03)

Net charge-offs to average gross
 loans (3)                                   1.88%         4.85%     (2.97)
Allowance for loan losses to gross
 loans                                       3.64%         3.99%     (0.35)
Allowance for loan losses to
 non-performing loans                       27.45%        44.17%    (16.72)
Non-performing loans to gross loans         13.25%         9.04%      4.21
Non-performing assets to total
 assets                                     11.45%         8.37%      3.08

Return on average common equity            -13.69%       -93.07%     79.38
Return on average assets                    -0.51%        -9.29%      8.78

Efficiency ratio (2)                        92.23%       188.01%    (95.78)

(1) Tax equivalent
(2) Non-interest expense divided by net interest income plus non-interest
    income
(3) Not annualized





Reconciliation of Non-GAAP Measure:
Tax Equivalent Net Interest Income

                               December 31, December 31,      September 30,
For the Three Months ended         2010         2009               2010
                               ------------ ------------       ------------

Net interest income            $     12,659 $     15,295       $     13,625

Tax equivalent adjustment for
 municipal loan interest                 45           49                 47
Tax equivalent adjustment for
 municipal bond interest                 31           33                 33
                               ------------ ------------       ------------

Tax equivalent net interest
 income                        $     12,735 $     15,377       $     13,705
                               ============ ============       ============

                               December 31, December 31,
For the Twelve Months ended        2010         2009
                               ------------ ------------

Net interest income            $     55,940 $     57,947

Tax equivalent adjustment for
 municipal loan interest                187          185
Tax equivalent adjustment for
 municipal bond interest                131           93
                               ------------ ------------

Tax equivalent net interest
 income                        $     56,258 $     58,225
                               ============ ============

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






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


BALANCE SHEET

                    December 31,  December 31,
                        2010          2009         Change       % Change
                    ------------  ------------  ------------  ------------
Fed funds sold and
 investments        $    337,048  $    286,637  $     50,411          17.6%
                    ------------  ------------  ------------
Gross loans, net of
 deferred fees           976,795     1,148,127      (171,332)        -14.9%
Allowance for loan
 losses                  (35,582)      (45,903)       10,321         -22.5%
                    ------------  ------------  ------------
Net loans                941,213     1,102,224      (161,011)        -14.6%
Other assets             132,959       147,453       (14,494)         -9.8%
                    ------------  ------------  ------------
Total assets        $  1,411,220  $  1,536,314  $   (125,094)         -8.1%
                    ============  ============  ============

Non-interest-
 bearing deposits   $    242,631  $    256,167  $    (13,536)         -5.3%
Interest-bearing
 deposits              1,023,618     1,164,595      (140,977)        -12.1%
                    ------------  ------------  ------------               
Total deposits         1,266,249     1,420,762      (154,513)        -10.9%
Borrowings                30,950        30,956            (6)          0.0%
Other liabilities         17,013        13,061         3,952          30.3%
Stockholders'
 equity                   97,008        71,535        25,473          35.6%
                    ------------  ------------  ------------
Total liabilities
 and stockholders'
 equity             $  1,411,220  $  1,536,314  $   (125,094)         -8.1%
                    ============  ============  ============

Period end common
 shares outstanding  100,348,303    24,771,928    75,576,375         305.1%
Book value per
 common share (1)   $       0.57  $       1.29  $      (0.72)        -55.8%
Tangible book value
 per common share
 (2)                $       0.54  $       1.15  $      (0.61)        -53.0%

Non-performing
 assets:
   Loans on
    nonaccrual
    status          $    129,493  $     98,497  $     30,996          31.5%
   90-days past due
    and accruing             123         5,420        (5,297)        -97.7%
   Other real
    estate owned
    and foreclosed
    assets                32,009        24,748         7,261          29.3%
                    ------------  ------------  ------------
Total
 non-performing
 assets             $    161,625  $    128,665  $     32,960          25.6%
                    ============  ============  ============


BALANCE SHEET

                    September 30,
                        2010         Change       % Change
                    ------------  ------------  ------------
Fed funds sold and
 investments        $    293,126  $     43,922          15.0%
                    ------------  ------------
Gross loans, net of
 deferred fees         1,034,558       (57,763)         -5.6%
Allowance for loan
 losses                  (42,120)        6,538         -15.5%
                    ------------  ------------
Net loans                992,438       (51,225)         -5.2%
Other assets             139,115        (6,156)         -4.4%
                    ------------  ------------
Total assets        $  1,424,679  $    (13,459)         -0.9%
                    ============  ============

Non-interest-
 bearing deposits   $    247,016  $     (4,385)         -1.8%
Interest-bearing
 deposits              1,030,609        (6,991)         -0.7%
                    ------------  ------------
Total deposits         1,277,625       (11,376)         -0.9%
Borrowings                30,951            (1)          0.0%
Other liabilities         16,401           612           3.7%
Stockholders'
 equity                   99,702        (2,694)         -2.7%
                    ------------  ------------
Total liabilities
 and stockholders'
 equity             $  1,424,679  $    (13,459)         -0.9%
                    ============  ============

Period end common
 shares outstanding  100,348,303             -           0.0%
Book value per
 common share (1)   $       0.60  $      (0.03)         -5.0%
Tangible book value
 per common share
 (2)                $       0.57  $      (0.03)         -5.3%

Non-performing
 assets:
   Loans on
    nonaccrual
    status          $    114,990  $     14,503          12.6%
   90-days past due
    and accruing             113            10           8.8%
   Other real
    estate owned
    and foreclosed
    assets                29,902         2,107           7.0%
                    ------------  ------------
Total
 non-performing
 assets             $    145,005  $     16,620          11.5%
                    ============  ============

(1) Book value is calculated as the total common equity (less preferred
    stock and the discount on preferred stock) divided by the period ending
    number of common shares outstanding.
(2) Tangible book value is calculated as the total common equity (less
    preferred stock and the discount on preferred stock) less goodwill and
    core deposit intangibles divided by the period ending number of common
    shares outstanding.





QUARTERLY ACTIVITY

                    December 31,  December 31,
                        2010          2009         Change       % Change
                    ------------  ------------  ------------  ------------
Allowance for loan
 losses:
    Balance
     beginning of
     period         $     42,120  $     41,513  $        607           1.5%
       Provision
        for loan
        losses                 -        16,680       (16,680)       -100.0%
       Net
        (charge-offs)
        recoveries        (6,538)      (12,290)       (5,752)         46.8%
                    ------------  ------------
    Balance end of
     period         $     35,582  $     45,903  $     (10,321)       -22.5%
                    ============  ============


Other real estate
 owned (OREO) and
 foreclosed assets,
 beginning of
 period             $     29,902        19,533  $     10,369          53.1%
     Transfers from
      outstanding
      loans                8,251         9,847        (1,596)        -16.2%
     Improvements
      and other
      additions               46           319          (273)        -85.6%
     Sales                (4,667)       (3,631)        1,036         -28.5%
     Impairment
      charges             (1,523)       (1,320)          203         -15.4%
                    ------------  ------------
Total OREO and
 foreclosed assets,
 end of period      $     32,009  $     24,748  $      7,261          29.3%
                    ============  ============


QUARTERLY ACTIVITY

                    September 30,
                        2010         Change       % Change
                    ------------  ------------  ------------
Allowance for loan
 losses:
    Balance
     beginning of
     period         $     43,917  $     (1,797)         -4.1%
       Provision
        for loan
        losses             1,600        (1,600)       -100.0%
       Net
        (charge-offs)
        recoveries        (3,397)        3,141         -92.5%
                    ------------
    Balance end of
     period         $     42,120  $     (6,538)        -15.5%
                    ============


Other real estate
 owned (OREO) and
 foreclosed
     assets,
      beginning of
      period        $     15,084  $     14,818          98.2%
     Transfers from
      outstanding
      loans               17,259        (9,008)        -52.2%
     Improvements
      and other
      additions               95           (49)        -51.6%
     Sales                (1,807)        2,860        -158.3%
     Impairment
      charges               (729)          794        -108.9%
                    ------------
Total OREO and
 foreclosed assets,
 end of period      $     29,902  $      2,107           7.0%
                    ============



QUARTERLY AVERAGES

                    December 31,  December 31,
                        2010          2009         Change       % Change
                    ------------  ------------  ------------  ------------

Average fed funds
 sold and
 investments        $    321,558  $    302,391  $     19,167           6.3%
Average gross loans $  1,013,339  $  1,177,970  $   (164,631)        -14.0%
Average mortgages
 held for sale      $        623  $      1,098  $       (475)        -43.3%
Average total
 assets             $  1,429,602  $  1,681,698  $   (252,096)        -15.0%
Average
 non-interest-
 bearing deposits   $    252,028  $    253,085  $     (1,057)         -0.4%
Average
 interest-bearing
 deposits           $  1,029,168  $  1,202,637  $   (173,469)        -14.4%
Average total
 deposits           $  1,281,196  $  1,455,722  $   (174,526)        -12.0%
Average total
 borrowings         $     30,950  $     30,957  $         (7)          0.0%
Average
 stockholders'
 equity             $     99,911  $    180,616  $    (80,705)        -44.7%
Average common
 equity             $     60,007  $    141,096  $    (81,089)        -57.5%


QUARTERLY AVERAGES

                    September 30,
                        2010         Change       % Change
                    ------------  ------------  ------------

Average fed funds
 sold and
 investments        $    288,591  $     32,967          11.4%
Average gross loans $  1,070,369  $    (57,030)         -5.3%
Average mortgages
 held for sale      $        625  $         (2)         -0.3%
Average total
 assets             $  1,449,421  $    (19,819)         -1.4%
Average
 non-interest-
 bearing deposits   $    250,473  $      1,555           0.6%
Average
 interest-bearing
 deposits           $  1,049,939  $    (20,771)         -2.0%
Average total
 deposits           $  1,300,412  $    (19,216)         -1.5%
Average total
 borrowings         $     30,952  $         (2)          0.0%
Average
 stockholders'
 equity             $    101,641  $     (1,730)         -1.7%
Average common
 equity             $     61,833  $     (1,826)         -3.0%








YEAR-TO-DATE ACTIVITY


                          December 31,  December 31,
                              2010          2009        Change   % Change
                          ------------  ------------  ---------  ---------
Allowance for loan
 losses:
  Balance beginning of
   period                 $     45,903  $     17,157  $  28,746      167.5%
    Provision for loan
     losses                     10,050        88,031    (77,981)     -88.6%
    Net (charge-offs)
     recoveries                (20,371)      (59,285)   (38,914)      65.6%
                          ------------  ------------
  Balance end of period   $     35,582  $     45,903  $ (10,321)     -22.5%
                          ============  ============


Other real estate owned
 (OREO) and foreclosed
 assets, beginning of
 period                   $     24,748  $      4,423  $  20,325      459.5%
  Transfers from
   outstanding loans            30,619        28,303      2,316        8.2%
  Improvements and
   other additions                 465           671       (206)     -30.7%
  Sales                        (18,476)       (7,142)    11,334     -158.7%
  Impairment charges            (5,347)       (1,507)     3,840     -254.8%
                          ------------  ------------
Total OREO and foreclosed
 assets, end of period    $     32,009  $     24,748  $   7,261       29.3%
                          ============  ============



YEAR-TO-DATE AVERAGES

                          December 31,  December 31,
                              2010          2009        Change   % Change
                          ------------- ------------- ---------  ---------

Average fed funds sold
 and investments          $     296,840 $     196,189 $ 100,651       51.3%
Average gross loans       $   1,083,574 $   1,221,842 $(138,268)     -11.3%
Average mortgages held
 for sale                 $         615 $       1,100 $    (485)     -44.1%
Average total assets      $   1,470,807 $   1,600,572 $(129,765)      -8.1%
Average non-interest-
 bearing deposits         $     251,670 $     245,829 $   5,841        2.4%
Average interest-bearing
 deposits                 $   1,077,883 $   1,110,502 $ (32,619)      -2.9%
Average total deposits    $   1,329,554 $   1,356,332 $ (26,778)      -2.0%
Average total borrowings  $      30,953 $      35,737 $  (4,784)     -13.4%
Average stockholders'
 equity                   $      94,486 $     194,475 $ (99,989)     -51.4%
Average common equity     $      54,725 $     159,717 $(104,992)     -65.7%







LOANS BY CATEGORY
(All amounts in 000's)
(unaudited)


                     12/31/2010 9/30/2010  6/30/2010  3/31/2010  12/31/2009
                     ---------- ---------- ---------- ---------- ----------
Agricultural/Farm    $   37,194 $   41,309 $   38,984 $   36,573 $   43,418
Commercial and
 Industrial             157,281    168,217    192,119    204,227    210,392
Commercial Real
 Estate - Owner
 Occupied               230,156    240,880    249,642    246,419    248,144
Commercial Real
 Estate - Non-Owner
 Occupied               443,058    471,426    496,539    510,585    526,238
Consumer/Other          109,106    112,726    113,599    120,410    119,935
                     ---------- ---------- ---------- ---------- ----------
Gross loans, net of
 deferred fees       $  976,795 $1,034,558 $1,090,883 $1,118,214 $1,148,127
                     ========== ========== ========== ========== ==========

Commercial Real
 Estate
Owner Occupied
Commercial Term      $  224,646 $  232,437 $  240,952 $  238,675 $  230,923
Commercial
 Construction             2,595      5,047      5,343      4,597     12,103

Single Family
 Residential
 Construction
    Oregon                  999        821        758        538        459
    California            1,916      2,575      2,589      2,609      4,659
                     ---------- ---------- ---------- ---------- ----------
Total Owner Occupied $  230,156 $  240,880 $  249,642 $  246,419 $  248,144
                     ========== ========== ========== ========== ==========

Non-Owner Occupied
Commercial Term      $  324,982 $  341,429 $  326,882 $  328,070 $  332,318
Commercial
 Construction             5,321      5,967     27,411     26,125     30,241

Single Family
 Residential
 Construction
    Oregon
        Pre-Sold              -          -        172         95          -
        Speculative         281        599      1,719      1,543      1,460
        Builder
         Inventory        6,828      7,106      7,058      8,397     10,171
                     ---------- ---------- ---------- ---------- ----------
    Total Oregon          7,109      7,705      8,949     10,035     11,631
                     ---------- ---------- ---------- ---------- ----------

    California
        Pre-Sold              -          -        433        448        448
        Speculative         258        269      1,982      1,986      2,433
        Builder
         Inventory        7,395      9,976      8,872      9,013      8,593
                     ---------- ---------- ---------- ---------- ----------
    Total California      7,653     10,245     11,287     11,447     11,474
                     ---------- ---------- ---------- ---------- ----------

Commercial - Land
 Acquisition and
 Development              8,650      9,824     15,582     23,769     24,275
Commercial - Land
 Only                    62,783     65,162     70,633     68,612     68,946
Residential - Land
 Acquisition and
 Development             26,560     31,094     35,795     42,527     47,353
                     ---------- ---------- ---------- ---------- ----------
Total Non-Owner
 Occupied            $  443,058 $  471,426 $  496,539 $  510,585 $  526,238
                     ========== ========== ========== ========== ==========







NONPERFORMING ASSETS BY REGION AND TYPE
(All amounts in 000's)
(unaudited)


Other Real Estate
 Owned and
 Foreclosed Assets
By Geographic Region 12/31/2010 9/30/2010  6/30/2010  3/31/2010  12/31/2009
                     ---------- ---------- ---------- ---------- ----------

Mid-Central Oregon   $    6,044 $    4,484 $    5,264 $    4,917 $    6,143
Southern Oregon          15,715     13,058      6,804      9,629      9,729
Northern California       5,447      5,475      1,346      5,219      4,682
Greater Sacramento        3,487      3,519      1,046      1,095      3,537
Other                     1,316      3,366        624        657        657
                     ---------- ---------- ---------- ---------- ----------

Total Other Real
 Estate Owned and
 Foreclosed Assets   $   32,009 $   29,902 $   15,084 $   21,517 $   24,748
                     ========== ========== ========== ========== ==========




Non Performing Loans
By Geographic Region 12/31/2010  9/30/2010  6/30/2010  3/31/2010 12/31/2009
                     ---------- ---------- ---------- ---------- ----------

Mid-Central Oregon   $   31,734 $   21,673 $   24,594 $   24,971 $   32,984
Southern Oregon          58,084     54,293     62,097     39,950     26,369
Northern California      13,582     12,887     16,196     16,043     19,699
Greater Sacramento       26,216     26,250     26,816     23,407     24,865
                     ---------- ---------- ---------- ---------- ----------

Total Nonperforming
 Loans               $  129,616 $  115,103 $  129,703 $  104,371 $  103,917
                     ========== ========== ========== ========== ==========

By Loan Type

Agricultural/Farm    $    2,538 $      434 $      297 $    2,491 $      682
Commercial and
 Industrial               8,550      5,480      7,006      6,117      7,251
Commercial Real
 Estate - Owner
 Occupied
  Single Family
   Residential
   Construction
    Oregon                    -          -          -          -          -
    California            1,673      1,983      2,108      2,108      2,196
  Other                  14,768     10,004     10,701      6,967      5,139
Commercial Real
 Estate - Non-Owner
 Occupied
  Oregon                 18,163     22,846     23,480     25,079     20,202
  California              7,270      6,465      3,037      1,074      1,837
  Single Family
   Residential
   Construction
    Oregon               12,829      6,690      9,388      8,951     10,739
    California            4,813     12,990     14,455     16,184     18,654
  Commercial - Land
   Acquisition and
   Development            6,646      3,272      8,796      9,947     10,303
  Commercial -
   Land Only             32,727     34,883     35,616     12,321     10,279
  Residential - Land
   Acquisition and
   Development           10,518      4,596      4,987      6,281      6,624
  Commercial
   Construction -
   Multiplex (5+)           911        313        313          -          -
  Other                   7,052      4,095      8,416      6,074      9,779
Consumer/Other            1,158      1,052      1,103        777        232
                     ---------- ---------- ---------- ---------- ----------

Total Nonperforming
 Loans               $  129,616 $  115,103 $  129,703 $  104,371 $  103,917
                     ========== ========== ========== ========== ==========