SOURCE: PremierWest Bancorp

PremierWest Bancorp

October 21, 2010 09:30 ET

PremierWest Bancorp Announces Third Quarter Results

MEDFORD, OR--(Marketwire - October 21, 2010) - PremierWest Bancorp (NASDAQ: PRWT) announced results for the third quarter of 2010, as follows:

For the three months ended September 30, 2010:


--  Our total risk-based capital ratios for Bancorp and Bank improved to
    11.98 percent and 12.14 percent, respectively.
--  Net interest margin of 4.23 percent was unchanged from the quarter
    ended June 30, 2010, and had a 59 basis point improvement from the 3.64
    percent recorded during the three months ended September 30, 2009.
--  Loan loss reserve remained strong at $42.1 million or 4.07 percent of
    gross loans at September 30, 2010, compared to $43.9 million or 4.02
    percent at June 30, 2010.
--  Charge-offs, net of recoveries, were reduced to $3.4 million compared
    to $5.0 million in the preceding quarter.
--  Non-performing loans were reduced by $14.6 million to $115.1 million or
    11.11 percent of gross loans compared to $129.7 million or 11.88
    percent of gross loans at June 30, 2010. Approximately 47 percent of
    the non-performing loan total at September 30, 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 $14.8
    million to $29.9 million with sales for the quarter of $1.8 million at
    a net gain of $147 thousand.
--  Provision for loan losses of $1.6 million was booked in the current
    quarter versus $2.4 million for the second quarter of 2010, and $10.3
    million for the quarter ended September 30, 2009.
--  Total deposits of $1.28 billion were down $35.9 million from June 30,
    2010, with non-interest bearing demand deposits at 19 percent of total
    deposits.
--  Liquidity of $119.0 million in cash and cash equivalents.
--  Net loss applicable to common shareholders of $1.4 million compared to
    a net loss of $2.1 million for the second quarter ended June 30, 2010,
    and a net loss of $5.6 million for the quarter ended September 30,
    2009.
--  Loss per common share was reduced to $0.01 versus a loss of $0.02 per
    common share for the three months ended June 30, 2010, and loss per
    common share of $0.22 for the quarter ended September 30, 2009.

For the nine months ended September 30, 2010:


--  Net loss applicable to common shareholders declined to $6.8 million
    compared to a net loss of $38.1 million for the same period in 2009.
--  Loss per common share declined to $0.09 versus a loss of $1.54 for the
    nine months ended September 30, 2009.
--  Net interest margin improved to 4.30 percent compared to 4.10 percent
    for the same period last year.
--  OREO and foreclosed assets increased $5.2 million from December 31,
    2009, on OREO additions and improvements of $22.8 million partially
    offset by sales and impairment charges of $17.6 million with a
    year-to-date net gain on sales of $1.6 million.
--  Net charge-offs decreased to $13.8 million compared to $47.0 million
    for the same period in 2009.
--  Total deposits at period end of $1.28 billion were down $143.1 million
    from December 31, 2009.

James M. Ford, PremierWest's President & Chief Executive Officer, stated, "We have continued to focus on improving the credit profile of our loan portfolio. During the most recently completed quarter, our Federal and State regulators completed our annual safety and soundness examination. We believe this examination corroborates our current assessment that, while we have significant work to do on reducing problem assets, we are mitigating risks inherent in our balance sheet and that our credit metrics are trending in the right direction.

"We have seen a decline in loan volumes during the currently completed quarter; but in view of the state of the economy, this was expected. I am pleased that our underlying financial vitality as measured by our net interest margin has remained relatively stable despite the decrease in loans and an increase in lower yielding investment portfolio securities and short-term cash investments.

"We will continue to focus on reducing our non-interest expense run rate and operating more efficiently to meet the realities of the current business environment. A significant portion of the increase in expenses in the past year is associated with managing the high volume of non-performing assets. In addition, the changing regulatory environment with the recently enacted Dodd-Frank Act will require that we review our business model and practices to both streamline our processes and take advantage of the opportunities that will come with the changes occurring in the banking industry.

"For the immediate future, however, our key objectives are to build on the strengthened credit culture and to reduce our non-performing assets to acceptable levels. When we achieve the latter of these goals, we expect to see the return to profitability that our shareholders rightfully expect."

CREDIT QUALITY

Non-performing assets were $145.0 million at September 30, 2010, up $218 thousand from the balance at June 30, 2010. Net OREO volumes increased from $15.1 million to $29.9 million during the quarter with an addition of almost $17.3 million in foreclosed property. Non-performing loans decreased from the $129.7 million recorded at June 30, 2010 to $115.1 million at the end of the third quarter. Our allowance for loan losses declined $1.8 million from June 30, 2010, with the reserve as a percentage of gross loans increasing to 4.07 percent at September 30, 2010, as compared to 4.02 percent at the end of the preceding quarter. Charge-offs, net of recoveries, for the quarter ending September 30, 2010, were $3.4 million, down $1.6 million from the preceding quarter.

Bill Yarbenet, Executive Vice President and Chief Credit Officer, commented, "My expectations as to the increase in OREO volume during the quarter were realized as a number of foreclosures were cleared that had been stalled in bankruptcy or other legal proceedings. I believe accelerated foreclosure activity will continue for at least the next several quarters. However, we are seeing indications that the pace of deterioration in performing loans in the portfolio is slowing. Non-accrual loans that are current with respect to principal and interest payments totaled $54.5 million, or 47 percent of total non-performing loans as of the end of the quarter; and the $23.4 million loan that was added to non- performing loans at the end of the second quarter has been restructured and, although still on nonaccrual status, is performing to the restructured terms."

LOANS AND DEPOSITS

Gross loans, net of deferred loan fees, as of September 30, 2010, were $1.03 billion, down $56.3 million or 5 percent from June 30, 2010. The decline in gross loans during the most recently completed quarter reflects $35.3 million in loan pay offs net of loan originations, $3.7 million in loan charge-offs and $17.3 million transferred to OREO. New loan generation is continuing in the current environment; however, the effect is being offset by borrower loan paydowns.

Deposits at September 30, 2010 were $1.28 billion, decreasing $35.9 million or 3 percent from the June 30, 2010 total. Average non-interest bearing deposits totaled $250.5 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 are fortunate to have a strong base of deposits and significant unencumbered liquidity. This strong liquidity position has enabled us to reduce high-cost deposit relationships and non-strategic public deposit account balances. As a result of this strategy, we saw a deposit decline this quarter that was largely from these deposit categories.

"In the past two months we have launched a robust government guaranteed lending program as a complement to our consumer lending, Premier Business Banking and commercial lending programs that we believe will begin to show tangible results this year. Our optimism in this regard is due to our success in recruiting experienced small business lending talent that is providing momentum for this business sector.

Danelson continued, "Our personnel continue to maintain a strong customer service focus, which reflects our top-to-bottom commitment to doing everything possible to provide a positive banking experience at every customer contact point. We view this operating credo as the cornerstone of our People Doing Business with People approach to financial services."

NET INTEREST INCOME

Net interest income declined 8.1 percent for the quarter ended September 30, 2010 versus the quarter ended June 30, 2010, and net interest margin remained the same as the previous quarter at 4.23 percent. Interest reversals for the current quarter reduced our net interest margin by 5 basis points on a dollar total of $176 thousand in reversals. These figures compare to a 12 basis point impact from $426 thousand in interest reversals during the preceding quarter.

Our yield on earning assets averaged 5.36 percent, up 32 basis points from the preceding quarter ended June 30, 2010. Our cost of interest bearing liabilities increased 29 basis points to 1.33 percent in the most recent quarter as a result of the absence of negative intangible CD premium amortization associated with the Grass Valley and Davis, California branch acquisitions. These changes resulted in an interest spread of 4.03 percent during the current quarter ended September 30, 2010, up 3 basis points from 4.00 percent recorded during the preceding quarter.

Mike Fowler, Executive Vice President & Chief Financial Officer, stated, "We continue to expect some pressure on net interest margin in the quarters ahead as interest rates appear likely to remain at historically low levels for some time to come. The weak loan demand that we see in the economy in conjunction with the interest rate environment is resulting in a shift from higher yielding loans to lower yielding investment portfolio securities. While we would ordinarily extend the maturities in our investment portfolio, we believe that prudent interest rate risk management dictates discipline in maintaining a somewhat shorter average portfolio life than what we would in more normal circumstances."

NON-INTEREST INCOME

During the third quarter of 2010, PremierWest had non-interest income of $2.7 million, an increase of $291 thousand or 12 percent from the preceding quarter. The increase was primarily a result of a slight improvement of $32 thousand in fees related to deposit accounts, a $60 thousand improvement in mortgage loan sales, and a $25 thousand decrease in other fee income.

NON-INTEREST EXPENSE

Non-interest expense for the quarter ending September 30, 2010 was $15.6 million, a decrease of $789 thousand or 5 percent when compared to the preceding quarter. The principal components of the quarter-to-quarter decline included:

     (Dollars in thousands)
     Reduced OREO losses (appraisal write downs, net losses on sales)  954
     Reduced losses on sales of furniture and fixtures                 396
     Reduced occupancy expense                                         158
     Reduced advertising expense                                        50
     Increased staff expense                                          (636)
     Increased legal and professional fees                            (142)
     Other                                                               9
                                                                      ----
     Total                                                             789
                                                                      ====

The quarterly OREO loss related variation is expected to fluctuate from quarter to quarter based on appraisal and sales changes, while the loss on sales of furniture and fixtures from the second quarter branch closure program is expected to be a one-time event. The reduction in occupancy expense from the branch closures will be ongoing, while the reduction in problem loan expense will vary based on future problem loan activity as will legal and professional fees.

The increase in staff expense is predominantly associated with a revision ($549 thousand increase) to the expense accrual rate for long-standing deferred compensation arrangements that are inversely related to the general interest rate environment. An additional element of the current quarter increase in staff expense ($55 thousand increase) is due to the low level of new loan volume and the resulting decline in deferred loan generation expense offsets. Finally, the balance of the increased staff expense ($32 thousand increase) is largely related to problem loan/OREO management staffing changes.

CAPITAL

PremierWest Bank 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 September 30, 2010, with ratios of 12.14 percent and 10.86 percent, respectively. However, as we continue to be subject to the terms of the Consent Order with the FDIC, and we have not yet reached the 10.00 percent leverage ratio required, we are not considered "Well-Capitalized" for all regulatory ratios.

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

Total risk-based
 capital ratio     12.14%   11.65%      9.72%          8.00%         10.00%
Tier 1 risk-based
 capital ratio     10.86%   10.37%      8.44%          4.00%          6.00%
Leverage ratio      8.69%    8.43%      7.20%          4.00%          5.00%

James M. Ford stated, "We are striving to meet all requirements stipulated in the consent order to which we are subject and are assessing all options available to the Company to achieve full compliance in as timely a manner as possible."

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

                           September 30, September 30,           
For the Three Months Ended       2010         2009       Change    % Change
                             -----------  -----------  -----------  ------

Interest income              $    17,261  $    19,155  $    (1,894)   -9.9%
Interest expense                   3,636        5,178       (1,542)  -29.8%
                             -----------  -----------  -----------
Net interest income               13,625       13,977         (352)   -2.5%
Loan loss provision                1,600       10,261       (8,661)  -84.4%
Non-interest income                2,736        2,723           13     0.5%
Non-interest expense              15,562       14,695          867     5.9%
                             -----------  -----------  -----------
Pre-tax loss                        (801)      (8,256)       7,455    90.3%
Benefit for income taxes               -       (3,316)       3,316   100.0%
                             -----------  -----------  -----------
Net loss                     $      (801) $    (4,940) $     4,139    83.8%
                             -----------  -----------  -----------
Less preferred dividend and
 discount accretion                  620          614            6     1.0%
                             -----------  -----------  -----------
Net loss applicable to
 common shareholders         $    (1,421) $    (5,554) $     4,133    74.4%
                             ===========  ===========  ===========

Basic loss per common
 share (1)                   $     (0.01) $     (0.22) $      0.21    95.5%
                             ===========  ===========  ===========
Diluted loss per common
 share (1)                   $     (0.01) $     (0.22) $      0.21    95.5%
                             ===========  ===========  ===========

Average common shares
 outstanding--basic (1)      100,348,303   24,766,928   75,581,375   305.2%
Average common shares
 outstanding--diluted (1)    100,348,303   24,766,928   75,581,375   305.2%


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

Interest income              $    17,657  $      (396)  -2.2%
Interest expense                   2,828          808   28.6%
                             -----------  -----------
Net interest income               14,829       (1,204)  -8.1%
Loan loss provision                2,350         (750) -31.9%
Non-interest income                2,445          291   11.9%
Non-interest expense              16,351         (789)  -4.8%
                             -----------  -----------
Pre-tax loss                      (1,427)         626   43.9%
Benefit for income taxes               -            -     nm
                             -----------  -----------
Net loss                     $    (1,427) $       626   43.9%
                             -----------  -----------
Less preferred dividend and
 discount accretion                  636          (16)  -2.5%
                             -----------  -----------
Net loss applicable to
 common shareholders         $    (2,063) $       642   31.1%
                             ===========  ===========

Basic loss per common
 share (1)                   $     (0.02) $      0.01   50.0%
                             ===========  ===========
Diluted loss per common
 share (1)                   $     (0.02) $      0.01   50.0%
                             ===========  ===========

Average common shares
 outstanding--basic (1)       98,796,537    1,551,766    1.6%
Average common shares
 outstanding--diluted (1)     98,796,537    1,551,766    1.6%



                            September 30, September 30,
For the Nine Months Ended        2010        2009         Change   % Change
                             -----------  -----------  -----------  ------

Interest income              $    53,096  $    58,416  $    (5,320)   -9.1%
Interest expense                   9,815       15,765       (5,950)  -37.7%
                             -----------  -----------  -----------
Net interest income               43,281       42,651          630     1.5%
Loan loss provision               10,050       71,351      (61,301)  -85.9%
Non-interest income                7,898        8,102         (204)   -2.5%
Non-interest expense              46,048       40,836        5,212    12.8%
                             -----------  -----------  -----------
Pre-tax loss                      (4,919)     (61,434)      56,515    92.0%
Benefit for income taxes               -      (24,901)      24,901   100.0%
                             -----------  -----------  -----------
Net loss                     $    (4,919) $   (36,533) $    31,614    86.5%
                             -----------  -----------  -----------
Less preferred dividend and
 discount accretion                1,867        1,555          312    20.1%
                             -----------  -----------  -----------
Net loss applicable to
 common shareholders         $    (6,786) $   (38,088) $    31,302    82.2%
                             ===========  ===========  ===========

Basic loss per common
 share (1)                   $     (0.09) $     (1.54) $      1.45    94.2%
                             ===========  ===========  ===========
Diluted loss per common
 share (1)                   $     (0.09) $     (1.54) $      1.45    94.2%
                             ===========  ===========  ===========

Average common shares
 outstanding--basic (1)       77,394,902   24,736,473   52,658,429   212.9%
Average common shares
 outstanding--diluted (1)     77,394,902   24,736,473   52,658,429   212.9%


    (1) As of September 30, 2010, June 30, 2010, and September 30, 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)

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

Yield on average gross loans(1)     5.96%     6.01%  (0.05)   5.91%   0.05
Yield on average investments(1)     2.36%     1.18%   1.18    1.78%   0.58
Total yield on average earning
 assets (1)                         5.36%     4.98%   0.38    5.04%   0.32
Cost of average interest
 bearing deposits                   1.27%     1.53%  (0.26)   0.95%   0.32
Cost of average borrowings          3.65%     5.77%  (2.12)   4.06%  (0.41)
Cost of average total deposits
 and borrowings                     1.08%     1.36%  (0.28)   0.85%   0.23
Cost of average interest
 bearing liabilities                1.33%     1.63%  (0.30)   1.04%   0.29
Net interest spread                 4.03%     3.35%   0.68    4.00%   0.03
Net interest margin (1)             4.23%     3.64%   0.59    4.23%   0.00

Net charge-offs to average
 gross loans (3)                    0.32%     0.75%  (0.43)   0.44%  (0.12)
Allowance for loan losses to
 gross loans                        4.07%     3.50%   0.57    4.02%   0.05
Allowance for loan losses to
 non-performing loans              36.59%    37.95%  (1.36)  33.86%   2.73
Non-performing loans to gross
 loans                             11.11%     9.23%   1.88   11.88%  (0.77)
Non-performing assets to total
 assets                            10.18%     7.51%   2.67    9.91%   0.27

Return on average common equity    -9.12%   -15.07%   5.95  -13.59%   4.47
Return on average assets           -0.39%    -1.28%   0.89   -0.55%   0.16

Efficiency ratio (2)               95.12%    87.99%   7.13   94.66%   0.46


                               September  September
For the Nine Months ended       30, 2010  30, 2009  Change
                                --------  --------  ------
Yield on average gross loans(1)     5.96%     6.15%  (0.19)
Yield on average investments(1)     2.17%     1.42%   0.75
Total yield on average earning
 assets (1)                         5.27%     5.61%  (0.34)
Cost of average interest
 bearing deposits                   1.08%     1.78%  (0.70)
Cost of average borrowings          4.14%     4.94%  (0.80)
Cost of average total deposits
 and borrowings                     0.95%     1.55%  (0.60)
Cost of average interest
 bearing liabilities                1.17%     1.89%  (0.72)
Net interest spread                 4.10%     3.72%   0.38
Net interest margin (1)             4.30%     4.10%   0.20

Net charge-offs to average
 gross loans (3)                    1.25%     3.80%  (2.55)
Allowance for loan losses to
 gross loans                        4.07%     3.50%   0.57
Allowance for loan losses to
 non-performing loans              36.59%    37.95%  (1.36)
Non-performing loans to gross
 loans                             11.11%     9.23%   1.88
Non-performing assets to total
 assets                            10.18%     7.51%   2.67

Return on average common equity   -17.14%   -30.68%  13.54
Return on average assets           -0.61%    -3.24%   2.63

Efficiency ratio (2)               89.97%    80.46%   9.51

(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


                               September  September        June 30,
For the Three Months ended      30, 2010  30, 2009           2010
                                --------  --------          ------

Net interest income             $ 13,625  $ 13,977        $ 14,829

Interest and fees on loans      $ 16,027  $ 18,201        $ 16,365
Tax equivalent adjustment for
 municipal loan interest              47        49              47
                                --------  --------          ------
Interest income on loans - tax
 equivalent                       16,074    18,250          16,412
                                --------  --------          ------

Investment interest income         1,234       954           1,292
Tax equivalent adjustment for
 municipal bond interest              33        21              34
                                --------  --------          ------
Interest income on investment -
 tax equivalent                    1,267       975           1,326
                                --------  --------          ------
Tax equivalent net interest
 income                         $ 13,705  $ 14,047        $ 14,910
                                ========  ========        ========


                               September  September
For the Nine Months ended       30, 2010  30, 2009
                                --------  --------
Net interest income             $ 43,281  $ 42,651

Interest and fees on loans      $ 49,224  $ 56,771
Tax equivalent adjustment for
 municipal loan interest             141       137
                                --------  --------
Interest income on loans - tax
 equivalent                       49,365    56,908
                                --------  --------

Investment interest income         3,872     1,645
Tax equivalent adjustment for
 municipal bond interest             101        59
                                --------  --------
Interest income on investment -
 tax equivalent                    3,973     1,704
                                --------  --------

Tax equivalent net interest
 income                         $ 43,523  $ 42,847
                                ========  ========





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

BALANCE SHEET


                           September 30, September 30,
                                2010         2009       Change     % Change
                            -----------  -----------  -----------  -------
Fed funds sold and
 investments                $   207,708  $   329,098  $  (121,390)   -36.9%
                            -----------  -----------  -----------
Gross loans, net of
 deferred fees                1,034,558    1,183,386     (148,828)   -12.6%
Allowance for loan losses       (42,120)     (41,513)        (607)     1.5%
                            -----------  -----------  -----------
Net loans                       992,438    1,141,873     (149,435)   -13.1%
Goodwill                              -       74,920      (74,920)  -100.0%
Other assets                    224,533      169,659       54,874     32.3%
                            -----------  -----------  -----------
Total assets                $ 1,424,679  $ 1,715,550  $  (290,871)   -17.0%
                            ===========  ===========  ===========

Non-interest-bearing
 deposits                   $   247,016  $   251,752  $    (4,736)    -1.9%
Interest-bearing deposits     1,030,609    1,238,826     (208,217)   -16.8%
                            -----------  -----------  -----------
Total deposits                1,277,625    1,490,578     (212,953)   -14.3%
Borrowings                       30,951       30,958           (7)     0.0%
Other liabilities                16,401       12,931        3,470     26.8%
Stockholders' equity             99,702      181,083      (81,381)   -44.9%
                            -----------  -----------  -----------
Total liabilities and
 stockholders' equity       $ 1,424,679  $ 1,715,550  $  (290,871)   -17.0%
                            ===========  ===========  ===========

Period end common shares
 outstanding                100,348,303   24,766,928   75,581,375    305.2%
Book value per common
 share (1)                  $      0.60  $      5.72  $     (5.12)   -89.5%
Tangible book value per
 common share (2)           $      0.57  $      2.54  $     (1.97)   -77.6%

Non-performing assets:
   Loans on nonaccrual
    status                  $   114,990  $   106,792  $     8,198      7.7%
   90-days past due and
    accruing                        113        2,589       (2,476)   -95.6%
   Other real estate owned
    and foreclosed assets        29,902       19,533       10,369     53.1%
                            -----------  -----------  -----------
Total non-performing assets $   145,005  $   128,914  $    16,091     12.5%
                            ===========  ===========  ===========

Troubled debt restructures
 on accrual status          $       225  $         -  $       225       nm
                            ===========  ===========  ===========


                              June 30,
                                2010       Change       % Change
                            -----------  -----------  -----------
Fed funds sold and
 investments                $   281,745  $   (74,037)       -26.3%
                            -----------  -----------
Gross loans, net of
 deferred fees                1,090,883      (56,325)        -5.2%
Allowance for loan losses       (43,917)       1,797         -4.1%
                            -----------  -----------
Net loans                     1,046,966      (54,528)        -5.2%
Goodwill                              -            -           nm
Other assets                    132,182       92,351         69.9%
                            -----------  -----------
Total assets                $ 1,460,893  $   (36,214)        -2.5%
                            ===========  ===========

Non-interest-bearing
 deposits                   $   244,315  $     2,701          1.1%
Interest-bearing deposits     1,069,186      (38,577)        -3.6%
                            -----------  -----------
Total deposits                1,313,501      (35,876)        -2.7%
Borrowings                       30,953           (2)         0.0%
Other liabilities                15,279        1,122          7.3%
Stockholders' equity            101,160       (1,458)        -1.4%
                            -----------  -----------
Total liabilities and
 stockholders' equity       $ 1,460,893  $   (36,214)        -2.5%
                            ===========  ===========

Period end common shares
 outstanding                100,348,303            -          0.0%
Book value per common
 share (1)                  $      0.61  $     (0.01)        -1.6%
Tangible book value per
 common share (2)           $      0.58  $     (0.01)        -1.7%

Non-performing assets:
   Loans on nonaccrual
    status                  $   129,458  $   (14,468)       -11.2%
   90-days past due and
    accruing                        245         (132)       -53.9%
   Other real estate owned
    and foreclosed assets        15,084       14,818         98.2%
                            -----------  -----------
Total non-performing assets $   144,787  $       218          0.2%
                            ===========  ===========

Troubled debt restructures
 on accrual status          $         -  $       225           nm
                            ===========  ===========

(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

                                    September  September
                                       30,        30,
                                      2010       2009     Change   % Change
                                    ---------  ---------  -------  -------
Allowance for loan losses:
    Balance beginning of period     $  43,917  $  40,300  $ 3,617      9.0%
       Provision for loan losses        1,600     10,261   (8,661)   -84.4%
       Net (charge-offs) recoveries    (3,397)    (9,048)   5,651     62.5%
                                    ---------  ---------  -------
    Balance end of period           $  42,120  $  41,513  $   607      1.5%
                                    =========  =========  =======


Other real estate owned (OREO) and
 foreclosed assets, beginning of
 period                             $  15,084  $  14,588  $   496      3.4%
     Transfers from outstanding
      loans                            17,259      6,403   10,856    169.5%
     Improvements and other additions      95        119      (24)   -20.2%
     Sales                             (1,807)    (1,506)    (301)    20.0%
     Impairment charges                  (729)       (71)    (658)   926.8%
                                    ---------  ---------  -------
Total OREO and foreclosed assets,
 end of period                      $  29,902  $  19,533  $10,369     53.1%
                                    =========  =========  =======

                                    June 30,
                                      2010    Change  % Change
                                    -------  -------  -------
Allowance for loan losses:
    Balance beginning of period     $46,518  $(2,601)    -5.6%
       Provision for loan losses      2,350     (750)   -31.9%
       Net (charge-offs) recoveries  (4,951)   1,554     31.4%
                                    -------  -------
    Balance end of period           $43,917  $(1,797)    -4.1%
                                    =======  =======


Other real estate owned (OREO) and
 foreclosed assets, beginning of
 period                             $21,517  $(6,433)   -29.9%
     Transfers from outstanding
      loans                           2,733   14,526    531.5%
     Improvements and other additions    75       20     26.7%
     Sales                           (6,692)   4,885    -73.0%
     Impairment charges              (2,549)   1,820    -71.4%
                                    -------  -------
Total OREO and foreclosed assets,
 end of period                      $15,084  $14,818     98.2%
                                    =======  =======



QUARTERLY AVERAGES

                                September  September
                                 30, 2010   30, 2009    Change   % Change
                                ---------- ---------- ---------  ---------

Average fed funds sold and
 investments                    $  212,852 $  326,996 $(114,144)     -34.9%
Average gross loans             $1,070,369 $1,203,973 $(133,604)     -11.1%
Average mortgages held for sale $      625 $      711 $     (86)     -12.1%
Average total assets            $1,449,421 $1,721,385 $(271,964)     -15.8%
Average non-interest-bearing
 deposits                       $  250,473 $  254,923 $  (4,450)      -1.7%
Average interest-bearing
 deposits                       $1,049,939 $1,229,167 $(179,228)     -14.6%
Average total deposits          $1,300,412 $1,484,090 $(183,678)     -12.4%
Average total borrowings        $   30,952 $   30,959 $      (7)       0.0%
Average stockholders' equity    $  101,641 $  185,604 $ (83,963)     -45.2%
Average common equity           $   61,833 $  146,181 $ (84,348)     -57.7%


                                 June 30,
                                   2010      Change   % Change
                                ---------- ---------  ---------

Average fed funds sold and
 investments                    $  298,640 $ (85,788)     -28.7%
Average gross loans             $1,114,045 $ (43,676)      -3.9%
Average mortgages held for sale $      509 $     116       22.8%
Average total assets            $1,495,966 $ (46,545)      -3.1%
Average non-interest-bearing
 deposits                       $  250,566 $     (93)       0.0%
Average interest-bearing
 deposits                       $1,098,089 $ (48,150)      -4.4%
Average total deposits          $1,348,655 $ (48,243)      -3.6%
Average total borrowings        $   30,953 $      (1)       0.0%
Average stockholders' equity    $  100,585 $   1,056        1.0%
Average common equity           $   60,873 $     960        1.6%



YEAR-TO-DATE ACTIVITY

                                 September   September
                                  30, 2010    30, 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      71,351    (61,301)  -85.9%
       Net (charge-offs)
        recoveries                  (13,833)    (46,995)    33,162    70.6%
                                 ----------  ----------  ---------
    Balance end of period        $   42,120  $   41,513  $     607     1.5%
                                 ==========  ==========  =========


Other real estate owned (OREO)
 and foreclosed assets, beginning
 of period                       $   24,748  $    4,423  $  20,325   459.5%
     Transfers from outstanding
      loans                          22,368      18,456      3,912    21.2%
     Improvements and other
      additions                         419         352         67    19.0%
     Sales                          (13,809)     (3,511)   (10,298)  293.3%
     Impairment charges              (3,824)       (187)    (3,637) 1944.9%
                                 ----------  ----------  ---------
Total OREO and foreclosed
 assets, end of period           $   29,902  $   19,533  $  10,369    53.1%
                                 ==========  ==========  =========


YEAR-TO-DATE AVERAGES

                                 September   September
                                  30, 2010    30, 2009     Change  % Change
                                 ----------  ----------  ---------  ------

Average fed funds sold and
 investments                     $  245,185  $  160,399  $  84,786    52.9%
Average gross loans              $1,107,243  $1,236,626  $(129,383)  -10.5%
Average mortgages held for sale  $      613  $    1,100  $    (487)  -44.3%
Average total assets             $1,484,693  $1,573,232  $ (88,539)   -5.6%
Average non-interest-bearing
 deposits                        $  251,550  $  243,384  $   8,166     3.4%
Average interest-bearing
 deposits                        $1,094,300  $1,079,453  $  14,847     1.4%
Average total deposits           $1,345,850  $1,322,838  $  23,012     1.7%
Average total borrowings         $   30,953  $   37,348  $  (6,395)  -17.1%
Average stockholders' equity     $   92,658  $  199,146  $(106,488)  -53.5%
Average common equity            $   52,946  $  165,992  $(113,046)  -68.1%



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

                      9/30/2010  6/30/2010  3/31/2010  12/31/2009 9/30/2009
                     ---------- ---------- ---------- ---------- ----------
Agricultural/Farm    $   41,309 $   38,984 $   36,573 $   43,418 $   51,587
Commercial and
 Industrial             168,217    192,119    204,227    210,392    237,300
Commercial Real
 Estate - Owner
 Occupied               240,880    249,642    246,419    248,144    250,323
Commercial Real
 Estate - Non-Owner
 Occupied               471,426    496,539    510,585    526,238    522,517
Consumer/Other          112,726    113,599    120,410    119,935    121,659
                     ---------- ---------- ---------- ---------- ----------
Gross loans, net of
 deferred fees       $1,034,558 $1,090,883 $1,118,214 $1,148,127 $1,183,386
                     ========== ========== ========== ========== ==========

Commercial Real
 Estate
Owner Occupied
Commercial Term      $  232,437 $  240,952 $  238,675 $  230,923 $  225,760
Commercial
 Construction             5,047      5,343      4,597     12,103     19,070

Single Family
 Residential
 Construction
    Oregon                  821        758        538        459        769
    California            2,575      2,589      2,609      4,659      4,724
                     ---------- ---------- ---------- ---------- ----------
Total Owner Occupied $  240,880 $  249,642 $  246,419 $  248,144 $  250,323
                     ========== ========== ========== ========== ==========

Non-Owner Occupied
Commercial Term      $  341,429 $  326,882 $  328,070 $  332,318 $  332,371
Commercial
 Construction             5,967     27,411     26,125     30,241     33,429

Single Family
 Residential
 Construction
    Oregon
        Pre-Sold              -        172         95          -        221
        Speculative         599      1,719      1,543      1,460      1,120
        Builder
         Inventory        7,106      7,058      8,397     10,171     11,107
                     ---------- ---------- ---------- ---------- ----------
    Total Oregon          7,705      8,949     10,035     11,631     12,448
                     ---------- ---------- ---------- ---------- ----------

    California
        Pre-Sold              -        433        448        448      1,659
        Speculative         269      1,982      1,986      2,433      2,607
        Builder
         Inventory        9,976      8,872      9,013      8,593     12,394
                     ---------- ---------- ---------- ---------- ----------
    Total California     10,245     11,287     11,447     11,474     16,660
                     ---------- ---------- ---------- ---------- ----------

Commercial - Land
 Acquisition and
 Development              9,824     15,582     23,769     24,275     27,449
Commercial - Land
 Only                    65,162     70,633     68,612     68,946     46,285
Residential - Land
 Acquisition and
 Development             31,094     35,795     42,527     47,353     53,875
                     ---------- ---------- ---------- ---------- ----------
Total Non-Owner
 Occupied            $  471,426 $  496,539 $  510,585 $  526,238 $  522,517
                     ========== ========== ========== ========== ==========



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

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

Mid-Central Oregon       $   4,484 $   5,264 $   4,917 $    6,143 $   7,711
Southern Oregon             13,058     6,804     9,629      9,729     5,776
Northern California          5,475     1,346     5,219      4,682     1,223
Greater Sacramento           3,519     1,046     1,095      3,537     4,823
Other                        3,366       624       657        657         -
                         --------- --------- --------- ---------- ---------
Total Other Real Estate
 Owned and Foreclosed
 Assets                  $  29,902 $  15,084 $  21,517 $   24,748 $  19,533
                         ========= ========= ========= ========== =========


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

Mid-Central Oregon       $  21,673 $  24,594 $  24,971 $   32,984 $  28,716
Southern Oregon             54,293    62,097    39,950     26,369    29,412
Northern California         12,887    16,196    16,043     19,699    20,346
Greater Sacramento          26,250    26,816    23,407     24,865    30,907
                         --------- --------- --------- ---------- ---------
Total Nonperforming
 Loans                   $ 115,103 $ 129,703 $ 104,371 $  103,917 $ 109,381
                         ========= ========= ========= ========== =========

By Loan Type

Agricultural/Farm        $     434 $     297 $   2,491 $      682 $     539
Commercial and
 Industrial                  5,480     7,006     6,117      7,251     5,767
Commercial Real Estate -
 Owner Occupied
  Single Family
   Residential
   Construction
    Oregon                       -         -         -          -         -
    California               1,983     2,108     2,108      2,196     1,815
   Other                    10,004    10,701     6,967      5,139     4,115
Commercial Real Estate -
 Non-Owner Occupied
  Oregon                    22,846    23,480    25,079     20,202    16,866
  California                 6,465     3,037     1,074      1,837     3,140
  Single Family
   Residential
   Construction
    Oregon                   6,690     9,388     8,951     10,739    13,800
    California              12,990    14,455    16,184     18,654    22,415
  Commercial - Land
   Acquisition and
   Development               3,272     8,796     9,947     10,303    13,078
  Commercial - Land Only    34,883    35,616    12,321     10,279     8,596
  Residential - Land
   Acquisition and
   Development               4,596     4,987     6,281      6,624     8,365
  Commercial
   Construction -
   Multiplex (5+)              313       313         -          -     3,414
   Other                     4,095     8,416     6,074      9,779     6,880
Consumer/Other               1,052     1,103       777        232       591
                         --------- --------- --------- ---------- ---------
Total Nonperforming
 Loans                   $ 115,103 $ 129,703 $ 104,371 $  103,917 $ 109,381
                         ========= ========= ========= ========== =========