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Part I

PremierWest Bancorp ("PremierWest") was incorporated on November 26, 1999 for the purpose of becoming the holding company for PremierWest Bank, the resulting bank from the merger, completed in May 2000, of the Bank of Southern Oregon, based in Medford, Oregon, and Douglas National Bank, headquartered in Roseburg, Oregon. In April 2001, PremierWest acquired Timberline Bancshares, Inc. and its wholly owned subsidiary, Timberline Community Bank ("Timberline") with banking operations in northern California.

PremierWest conducts its business solely through PremierWest Bank (the "bank"), an Oregon state-chartered commercial bank with branch offices located mainly along the Interstate-5 corridor from Roseburg, Oregon to Redding, California. The bank has three subsidiaries: Premier Finance Company makes consumer loans; PremierWest Investment Services, Inc. offers insurance and investment products and services, and Blue Star Properties, Inc., serves solely to hold properties used as bank offices.

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

PremierWest makes commercial and real estate loans, construction loans for owner-occupied and rental properties, commercial and equipment leases, and secured and unsecured consumer installment loans. Commercial and real estate-based lending has been the primary focus of the bank's lending activities. Although PremierWest has made agricultural loans, it currently has no significant agricultural loans.

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

One of the primary risks associated with commercial loans is the risk that the commercial borrower might not generate sufficient income to repay the loan. The bank does not lend to start-up businesses, and the bank generally requires personal guarantees and secondary sources of repayment, such as real estate collateral.

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Real Estate Lending

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

Commercial real estate loans primarily include owner-occupied commercial properties and income-producing or farm properties. The primary risks of commercial real estate loans are loss of income of the borrower and the inability of the market to sustain rent levels. The bank mitigates commercial real estate risk by making the majority of commercial real estate loans on owner-occupied properties. PremierWest's underwriting standards also require a maximum loan-to-value ratio and a minimum period of time in which the borrower covers a minimum percentage of combined debt service, insurance and taxes.

Although commercial and commercial real estate loans generally bear somewhat more risk than single-family residential mortgage loans, commercial and commercial real estate loans tend to be higher yielding, have shorter terms and generally provide for interest-rate adjustments as prevailing rates change. Accordingly, commercial and commercial real estate loans increase the importance of interest-rate risk management while contributing to strong asset and income growth.

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

Consumer Lending

PremierWest, through both the bank and the finance company subsidiary, makes secured and unsecured loans to individual borrowers for a variety of purposes, including personal, home improvements, revolving credit lines, autos, boats, and recreational vehicles. Unsecured consumer loans carry significantly higher interest rates than secured loans. PremierWest maintains a higher allowance for loan loss for consumer loans, while maintaining strict credit guidelines when considering consumer loan applications.

PremierWest offers a variety of traditional bank deposit products to attract both commercial and consumer deposits through checking and savings accounts, money market accounts, and certificates of deposit. The bank also offers travelers' checks, money orders and automated teller machines at most of its facilities.

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The bank also has a finance company subsidiary, Premier Finance Company that originates consumer loans from its offices in Portland, Klamath Falls and Medford, Oregon. Premier Finance serves customers in these areas, as well as providing a source of loans to bank customers, where the loans may carry a higher risk than permitted under the bank's lending criteria. Through PremierWest Investment Services, Inc., a subsidiary of the bank, the company sells insurance and related financial products, including life and health insurance, and through a third-party registered broker-dealer, provides mutual funds, annuities and other investment products to its customers.

On October 2, 2000, PremierWest Bank acquired Motor Investment Company, a Klamath Falls, Oregon consumer finance company. Motor Investment Company is an 80-year-old firm and the fourth largest independent consumer finance company in Oregon, specializing in automobile and recreational vehicles financing, and equity and personal loans. It currently has approximately $4 million in consumer loans.

On December 15, 2000, PremierWest Bank purchased Leader Mortgage Loan Corporation, the largest independent mortgage brokerage in Southern Oregon with branches in Medford, Grants Pass and Klamath Falls, Oregon, specializing in residential mortgages including FHA, VA and conventional home loans. Leader Mortgage now operates under the name "PremierWest Mortgage," as a division of PremierWest Bank.

PremierWest conducts its business in several primary market areas in southern Oregon. The Company serves Jackson County from its main office in Medford, four (4) branch offices in Medford and one branch in Central Point. Medford is the fourth largest city in the state of Oregon and is the center for commerce, medicine and transportation in southwestern Oregon. It also has two (2) full-service branches in Grants Pass, (Josephine County) Oregon, which opened during 2001. The principal industries in these areas include lumber and wood products, manufacturing and agriculture. Other manufacturing segments include electrical equipment and supplies, computing equipment, printing and publishing, fabricated metal products and machinery, and stone and concrete products. In the non-manufacturing sector, significant industries include the recreation, wholesale and retail trades, as well as medical care, particularly in connection with the area's growing retirement community.

Another principal market area is centered in Roseburg, Oregon, and the surrounding communities in Douglas County, which the Company serves from its eight (8) branches in Roseburg, Winston, Glide, Sutherlin and Drain. The Company's presence in the Roseburg market area is the result of the merger with Douglas National Bank on May 8, 2000. The economy of Douglas County has historically depended on the forest products industry, which is generally a declining industry, resulting in little economic growth and lower per capita income levels compared to other market areas along the Interstate-5 corridor.

During 2001, the PremierWest Bank contracted with a commercial leasing management company to introduce commercial equipment lease financing to its customers. Commercial leasing is an alternative to finance business equipment that primarily secures such financing.

PremierWest acquired Timberline on April 16, 2001, with eight branch locations in the County of Siskiyou, northern California. Since the acquisition of Timberline, the Company opened a mortgage and commercial loan office in Redding, California. The Company anticipates building its banking network in these new areas in the coming year.

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The commercial banking industry continues to undergo increased competition, consolidation and change. Non-insured financial service companies such as mutual funds, brokerage firms, insurance companies, mortgage companies and leasing companies are offering alternative investment opportunities for customers' funds or lending sources for their needs. Banks have been granted extended powers to better compete including the limited right to sell insurance and securities products, but the percentage of financial transactions handled by commercial banks has dropped steadily. Although the amount of deposits in banks is remaining steady, such deposits represent less than 20% of household financial assets compared to over 35% twenty-five years ago. This trend represents a continuing shift to stocks, bonds, mutual funds and retirement accounts.

Nonetheless, commercial banks are reducing costs by consolidation and exploring alternative ways of providing bank products. Although new community banks continue to be organized, bank mergers substantially outstrip formations.

To more effectively and efficiently deliver its products, banks are opening in-store branches, installing more automated teller machines ("ATMs") and investing in technology to permit telephone, personal computer and internet banking. While all banks are experiencing the effects of the changing environment, the manner in which banks choose to compete is increasing the gap between larger super-regional banks, committed to becoming national or regional "brand names" providing a broad selection of products at low cost and with advanced technology, and community banks which provide most of the same products but with a commitment to personal service and with local ties to the customers and communities they serve.

PremierWest Bancorp is subject to the supervision of and is examined by the Federal Reserve Bank. Areas subject to regulation are merger and acquisition activities, capital adequacy and intercompany transactions.

PremierWest Bank is subject to the supervision and examination by, the State of Oregon Department of Consumer and Financial Services. PremierWest Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and is subject to examination by the FDIC. In practice, the primary state regulator makes regular examinations of the bank subject to its regulatory review or participates in joint examinations with federal regulator. Areas subject to review by federal authorities include the allowance for loan losses, investments, loans, mergers, payments of dividends, establishment of branches and other aspects of operations.

As of December 31, 2001, PremierWest had 270 full-time equivalent employees. None of the employees is represented by a collective bargaining group. Management considers its relations with employees to be excellent.

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The operations of PremierWest's subsidiaries are affected by state and federal legislative changes and by policies of various regulatory authorities, including those of the State of Oregon and the State of California. These policies include, for example, statutory maximum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System, Unites States fiscal policy, and capital adequacy and liquidity constraints imposed by national and state regulatory agencies.

PremierWest is a registered bank holding company subject to the supervision of, and regulation by, the Board of Governors of the Federal Reserve System (the "Federal Reserve").

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

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

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

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

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

Deposit Insurance - The deposits of the Company are currently insured to a maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"), administered by the FDIC. The Company is required to pay semi-annual deposit insurance premium assessments to the FDIC.

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

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

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

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

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

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

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

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

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

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

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

Changing Regulatory Structure of the Banking Industry - The laws and regulations affecting banks and bank holding companies are currently undergoing significant changes. Bills are now pending or expected to be introduced in the United States Congress that contain proposals for altering the structure, regulation, and competitive relationships of the nation's financial institutions. If enacted into law, these bills could have the effect of increasing or decreasing the cost of doing business, limiting or expanding permissible activities (including insurance and securities activities), or affecting the competitive balance among banks, savings associations, and other financial institutions. Some of these bills would reduce the extent of federal deposit insurance, broaden the powers or the geographical range of operations of bank holding companies, alter the extent of which banks will be permitted to engage in securities activities, and realign the structure and jurisdiction of various financial institution regulatory agencies. Whether or in what form any such legislation may be adopted or the extent to which the business of the Company might be affected thereby cannot be predicted with certainty.

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

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

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

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

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

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

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

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

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

Under the USA Patriot Act of 2001, adopted by the U.S. Congress on October 26, 2001 to combat terrorism, FDIC insured banks and commercial banks will be required to increase their due diligence efforts for correspondent accounts and private banking customers. The USA Patriot Act requires the bank to engage in additional record keeping or reporting, requiring identification of owners of accounts, or of the customers of foreign banks with accounts, and restricting or prohibiting certain correspondent accounts.

PremierWest conducts its banking business through 29 offices of PremierWest Bank; five are located in Jackson County, including the bank's main office, two in Josephine County, eight in Douglas County, Oregon, and nine in Siskiyou County, California. Further, the Company conducts business through PremierWest Finance Company in a leased office in Portland, and its investment company activities in southern Oregon, Motor Investment Company located in Klamath Falls, and PremierWest Mortgage Division located in Medford, Grants Pass and Klamath Falls, Oregon, and Yreka and Redding, California.

From time to time PremierWest is involved in various legal proceedings that are incident to its business. The following information is given with respect to the more significant pending matters.

Bernard J. Woodward, et al vs. Bank of Southern Oregon (nka PremierWest Bank), Black Oak Construction, Inc., et al; Jackson County Circuit Court, Oregon filed March 1, 2001.

This matter involves a claim by the plaintiff alleging that the bank deposited checks payable to the plaintiff and Black Oak Construction, a bank customer in the amount of $930,840.32, without plaintiff's consent. Plaintiff is seeking return of the proceeds, interest and costs and has indicated an intent to seek punitive damages. The bank has denied liability and filed a counterclaim for approximately $1.16 million for losses incurred on other loans to Black Oak Construction. The dispute involves the right of the bank to deposit the proceeds of checks payable to the plaintiff and Black Oak Construction to repay certain outstanding loans to Black Oak Construction in connection with a joint construction project between the plaintiff and Black Oak Construction. The bank's counterclaim alleges the plaintiff intentionally caused Black Oak Construction to under bid other construction contracts. Discovery in the case is not yet completed. A trial date is currently scheduled for May 2002. Management believes its actions were proper; however a favorable outcome in the litigation cannot be assured.

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The bank brought suit against the defendant borrowers and guarantors for collection of a loan owing to the bank. After a trial in 2001, the bank was awarded an amount of $1,200,000 plus interest and attorney fees. When the bank's borrowers failed to pay the loan, defendant Stanley Kelly, as guarantor, paid the total judgment in the amount of $1,475,000 but has appealed the Judgment as it applied to him arguing, among other things, that his guaranty was obtained by the bank fraudulently. Management believes the judgment will be confirmed although no assurances can be given that the appellate court will uphold the decision of the trial court judge.

None.

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PART II

Stock price quotations for the common stock of PremierWest appear on the OTC Bulletin Board, an electronic, screen-based market maintained by NASD Regulation, Inc., a subsidiary of the National Association of Securities Dealers, Inc., under the trading symbol "PRWT." The common stock is registered under the Securities Exchange Act of 1934, but is not currently eligible to be held in margin accounts. The following lists the high and low closing prices (the latest trade) for each period, as adjusted for subsequent stock dividends. Prior to May 8, 2000, the prices reflect the high and low closing prices during each period for PremierWest's predecessor company, the Bank of Southern Oregon, whose trading symbol was "BSOR." Prices do not include retail mark-ups, mark-downs or commissions. On March 15, 2002, the common stock was held of record by approximately 975 shareholders, a number which does not include beneficial owners who hold shares in "street name." As of March 15, 2002, the most recent date prior to the date of this proxy statement, the closing price of the common stock was $5.82 per share.

As of December 31, 2001, the Common Stock was held of record by approximately 970 shareholders.

Oregon and federal banking laws and regulations place restrictions on the payment of dividends by a bank to its shareholders. PremierWest does not currently pay cash dividends, but rather retains earnings to help fund its acquisition plans and internal growth. Any change in this policy will be dependent upon its future financial needs and economic situations.

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The following tables present, for the periods specified, selected unaudited consolidated financial data for PremierWest. The information is presented for illustrative purposes only and is not necessarily indicative of the financial positions or results of operations, nor is it necessarily indicative of future financial positions or results of operations.

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This Form 10K includes forward-looking statements containing assumptions and estimates of the management of PremierWest that are based upon currently available information. All statements other than statements of historical fact included in this Form 10K statement regarding the Company's financial position, business strategies, and management's plans and objectives for future operations, are forward-looking statements. The words "anticipate," "believe," "estimate," and "intend," and words or phrases of similar meaning, as they relate to the Company or management, are intended to help identify forward-looking statements. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove correct. Based upon changing conditions, the occurrence of certain risks or uncertainties, or if any underlying assumptions prove incorrect, actual results may vary materially and adversely from those expectations and intentions. The Company does not intend to update these forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company and/or persons acting on its behalf are expressly qualified in their entirety.

PremierWest conducts a general commercial banking business, gathering deposits from the general public and applying those funds to the origination of loans for commercial, real estate and consumer loans and investments. PremierWest was created from the merger of Bank of Southern Oregon and Douglas National Bank on May 8, 2000, and the simultaneous formation of a bank holding company for the resulting bank, PremierWest Bank. The merger was accounted for as a pooling of interests. Accordingly, the consolidated financial statements included elsewhere in this statement, and the following discussion, present the Company as if the merger had taken place prior to the periods presented.

On April 16, 2001, PremierWest acquired Timberline Bancshares, Inc. and its wholly owned subsidiary, Timberline Community Bank with eight branch locations in the County of Siskiyou, northern California. This acquisition was accounted for as a purchase; accordingly, the consolidated financial statements of PremierWest include the results of operations of Timberline since acquisition date.

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

To a lesser extent, PremierWest's profitability is also affected by such factors as the level of noninterest income and expenses, the provision for loan losses, and the provision for income taxes. Noninterest income consists primarily of service charges on deposit accounts. Noninterest expense consists primarily of salaries and employee benefits, professional fees, equipment, occupancy-related expenses, data processing, advertising and other operating expenses.

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For the year ended December 31, 2001, PremierWest earned $2.0 million compared with $1.8 million for 2000. Diluted earnings per share were $0.20 and $0.20 for the year ended 2001 and 2000, respectively. Return on average shareholders' equity was 5.12% and return on average assets was 0.46% for the year ended December 31, 2001 compared with a return on average shareholders' equity of 5.96% and a return on average assets of 0.56% for 2000.

Loans and deposits grew to record highs at December 31, 2001. Loans increased from $237 million at December 31, 2000 to $358 million at December 31, 2001. Deposits increased over $134 million, or 45% since December 31, 2000 to $430 million at December 31, 2001.

Net income was $1.8 million in 2000, up 4% over 1999 earnings of $1.7 million. Diluted earnings per share was stable at $0.20 in 2000 and 1999. The return on average shareholders' equity declined to 5.96% for 2000 compared with 6.12% for 1999. Total loans grew over 35% in 2000 to $237 million at year-end, while total deposits increased 29% to $296 million during the same period.

For the years ended December 31, 2001, 2000 and 1999, net income of $2.0 million in 2001 represents an increase of 13% over 2000. Net income of $1.8 million in 2000 represents a increase of 4.4% as compared to 1999. The increase in net income in 2001 is due to an increase of $5.2 million in net interest income and noninterest income offset by an increase of $494,000 in provision for loan losses and a $4.5 million increase in noninterest expense. Net income in 2000 increased compared to 1999 as a result of a $2.1 million increase in net interest income and noninterest income offset by a $1.8 million increase in noninterest expense.

2001 Compared to 2000. During the year ended December 31, 2001, net interest income increased by $3.4 million, ($1.4 million contributed by the Timberline operations), as compared to the same period in 2000.

Other than the increase contributed by the Timberline operations, this increase was primarily due to an increase in the volume of loans offset by a 9.3% decrease in related yields. There was also an increase in the volume of interest-bearing deposits. During 2001, the volume of average earning assets increased by approximately $100 million, while overall yields decreased approximately 83 basis points as compared to the corresponding period in the prior year. There was also an increase of $83 million in the volume of interest-bearing liabilities, including Timberline, while at the same time a 46 basis point decrease in rates paid, negatively impacting the Company's net interest margin by 45 basis points on a tax-equivalent basis.

2000 Compared to 1999. Net interest income before the loan loss provision increased 18% to $15 million for the year ended December 31, 2000, as compared to the same period in 1999.

The increase was primarily due to an increase in the volume of loans and related yields that more than offset an increase in the volume of interest-bearing deposits and borrowings and related rates paid. During the year 2000, the volume of average interest earning assets increased by approximately $39 million, while overall yields increased approximately 78 basis points as compared to the prior year. Such increases more than offset the $38 million increase in the volume of interest-bearing liabilities and 67 basis point increase in rates paid, positively impacting the company's net interest margin by 15 basis points on a tax-equivalent basis.

15

Average Balances, Interest Rates and Yields

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

The following table shows average balances and interest income or interest expense, with the resulting average yield or rates by category of average earning asset or interest-bearing liability:

17

Rate/Volume Analysis

The following tables analyze net interest income in terms of changes in the volume of interest-earning assets and interest-bearing liabilities, and changes in net interest income that are attributable to changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities. The table reflects the extent to which changes in interest income and changes in interest expense are attributable to changes in volume (changes in volume multiplied by the prior year rate) and changes in rate (changes in rate multiplied by prior year volume). Changes attributable to the combined impact of volume and rate have been allocated to rate.

The following table sets forth, on a tax-equivalent basis, a summary of the changes in net interest income resulting from changes in volumes and rates. Changes not due solely to volume or rate changes are allocated to rate.

The loan loss provision is based upon management's assessment of various relevant factors, including:

• types and amounts of non-performing loans;
• historical loss experience;
• collectibility of collateral values and guaranties;
• pending legal action for collection of loans and related guaranties; and
• current economic conditions.

18

The loan loss provision reflects management's judgment of the credit risk inherent in the loan portfolio. Although management believes the loan loss provision has been sufficient to maintain an adequate reserve for loan losses, there can be no assurance that actual loan losses will not exceed the amounts that have been charged to operations.

2001 Compared to 2000. The loan loss provision during the year ended December 31, 2001, was $1,163,000 as compared to $669,000 for 2000. The Company had net charge-offs of $1.2 million during the year 2001, compared to net charge-offs of $268,000 for 2000. The provision for loan losses increased primarily because of the increase in net charge-offs for the year in connection with merged bank loan portfolios.

2000 Compared to 1999. The loan loss provision during the year ended December 31, 2000, was $669,000 as compared to $835,000 for 1999. The Company had net charge-offs of $268,000 during the year 2000, compared to net charge-offs of $592,000 for 1999. The provision for loan losses decreased during the year primarily because of a decrease in net charge-offs and the improved credit quality of the overall loan portfolio.

The loan loss provisions in 2001, 2000 and 1999 were primarily related to commercial loans that were past due and not adequately collateralized. Management has since required adherence to stringent loan policies and procedures and may require real estate to serve as additional commercial loan collateral, reducing credit risk and, as a consequence, reducing the need for additional reserve allocations for commercial loans.

2001 Compared to 2000. Non-interest income doubled ($452,000 relates to the Timberline operations) to $3.8 million as compared to $1.9 million for 2000. Most of the remaining increase relates to mortgage loan brokerage fees earned during 2001. The increase in mortgage loan brokerage fees related to PremierWest's acquisition of Leader Mortgage and a decreasing interest rate environment.

2000 Compared to 1999. Noninterest income held fairly steady at $1.9 million for the year ended December 31, 2000, as compared to 1999.

In general, management prices deposits at rates competitive with rates offered by the leading commercial banks in PremierWest's market area, which tend to be somewhat lower than rates offered by thrift institutions and credit unions. To promote deposit growth and create cross-selling opportunities, PremierWest has not adopted an aggressive fee structure. Deposit growth has been generated by developing strong customer relationships and cross-selling deposit relationships to loan customers. Management intends to continue promoting demand deposit products, particularly noninterest bearing deposit products, in order to obtain additional interest-free lendable funds.

19

Noninterest Expense

2001 Compared to 2000. Non-interest expense increased to 17.9 million, including a $305,000 charge for goodwill amortization for 2001, as compared to $13.4 million, including $1.0 million of merger and data conversion costs for 2000. Salaries and employee benefits increased $3.3 million ($1.0 million relating to the Timberline operations) with the increase in full-time employees supporting the level of customer service and the greater volume of Company operations. Occupancy and equipment expenses increased $1.1 million ($371,000 relates to the Timberline operations) for 2001, as compared to 2000. This increase was attributed to costs associated with a new administration annex facility for data processing and operations support, a new branch office in Grants Pass, Oregon that opened in 2001, and computer system enhancements. Communications costs including telephone network, postage and courier services increased $165,000 related to Timberline's operations and $225,000 due to additional phone and data lines between all facility locations. While the size of the Company's operations expanded, costs in other non-interest expense have also increased though to a lesser degree. Management of the Company continually reviews areas to reduce duplication of operational processes in an effort to reduce other non-interest expenses.

2000 Compared to 1999. Non-interest expense increased to $13.4 million for the year ended 2000, including $1.0 million of merger and data conversion costs, as compared to $11.5 million for 1999. Salaries and employee benefits increased $474,000 with the increase in full-time employees supporting the high level of customer service and the greater volume of Company operations. Occupancy and equipment expenses increased $443,000 for the year ended December 31, 2000, as compared to the same period in 1999. This increase was attributed to costs associated with the new headquarters and loan production facility that opened in December 1999, including additional computer software and hardware equipment.

Provision For Income Taxes

2001 Compared to 2000 and 1999. The Company's taxable income resulted in an estimated $1,044,000 (an effective tax rate of 34%) in federal and state income taxes for 2001. This compares to an effective tax rate of 38% for 2000. The effective tax rate in 2000 was higher than 2001 because in accordance with provisions of the IRC, a significant portion of merger costs incurred in 2000 were not deductible for income tax purposes. The effective tax rate for 1999 was 29%, which was lower than the expected statutory rate primarily due to the proportion of non-taxable interest income.

Total assets at December 31, 2001, increased to $488 million since December 31, 2000, $102 million added with the acquisition of Timberline and $42 million due to growth, in primarily the loan area. Growth of $87 million in deposits with the Timberline acquisition and $47 million in new customer growth added $134 million, bringing deposits to $430 million. With the liquidation of $35 million of callable U.S. agency securities during 2001, federal funds sold increased by $11 million helping to make available funds for future loans. With the acquisition of Timberline in April 2001, the Company added approximately $8 million to capital resulting in the Company's capital to assets ratio of 8.95%.

20

Investment securities provide a return on residual funds after lending activities. Investments may be in interest-bearing deposits, U.S. Government and agency obligations, state and local government obligations and government-guaranteed, mortgage-backed securities. PremierWest generally does not invest in securities that are rated less than investment grade by a nationally recognized statistical rating organization. A goal of the bank's investment policy is to limit interest-rate risk.

All securities-related activity is reported to the Board of Directors. Board review and approval are required for general changes in investment strategy. Senior management can purchase and sell securities in accordance with PremierWest's stated investment policy.

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

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

The contractual maturity of investment securities at December 31, 2001 is shown below. Expected maturities of investment securities could differ from contractual maturities because the borrower, or issuer, may have the right to call or prepay obligations with or without call or prepayment penalties.

21

PremierWest sold approximately $18 million of U.S. agency mortgage-backed securities and municipal securities during 2001 realizing a net gain of $73,000. Approximately $40 million of mostly U.S. Government agency securities were called and matured during 2001.

Government securities may be pledged from time-to-time to secure public deposits. At December 31, 2001, $39 million of government securities classified as available-for-sale were pledged to secure public deposits.

As of December 31, 2001, PremierWest also held 15,950 shares of $100 par value Federal Home Loan Bank of Seattle stock, which are restricted securities. FHLB stock represents an equity interest in the FHLB, but it does not have a readily determinable market value. The stock can be sold at its par value only, and only to the FHLB or to another member institution. Member institutions are required to maintain a minimum stock investment in the FHLB, based on total assets, total mortgages and total mortgage-backed securities.

The following table sets forth the composition of the loan portfolio in dollar amounts and in percentages at December 31, 2001, 2000 and 1999.

The following table presents maturity information for the loan portfolio at December 31, 2001. The table does not include prepayments or scheduled principal repayments.

22

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

At December 31, 2001, commercial loans that were more than 90 days delinquent or nonaccruing totaled $67,000 in aggregate outstanding balances, or 0.08% of the commercial loan portfolio.

At December 31, 2001, real estate loans that were more than 90 days delinquent or nonaccruing totaled $1.2 million in aggregate outstanding balances or 0.7% of the commercial real estate portfolio.

At December 31, 2001, real estate construction loans with outstanding balances more than 90 days delinquent or nonaccruing amounted to $25,000 or 0.04% of the real estate construction loan portfolio.

At December 31, 2001, PremierWest had approximately $36 million in its consumer installment loan portfolio, representing 10.0% of total loans. Installment loans totaling approximately $106,000 were over 90 days delinquent or nonaccruing on that date.

A loan is considered by PremierWest to be non-performing when it is 90 days or more delinquent or, sooner, when the bank has determined that repayment of the loan in full is unlikely. Generally, unless loan collateral is a one to four-family residential dwelling, interest accrual ceases in 90 days (but no later than the date of acquisition by foreclosure, voluntary deed or other means) and the loan is classified as non-performing. A loan placed on nonaccrual status may or may not be contractually past due at the time the determination is made to place the loan on nonaccrual status, and it may or may not be secured. When a loan is placed on nonaccrual status, it is the bank's policy to reverse interest previously accrued but uncollected and charge it against current income. Interest later collected on the nonaccrual loan is credited to loan principal if, in management's opinion, full collectability of principal is doubtful.

23

When the bank acquires real estate through foreclosure, voluntary deed, or similar means, it is classified as "other real estate owned" until it is sold. On December 31, 2001, other real estate owned amounted to $1.3 million. When property is acquired in this manner, it is recorded at the lower of cost (the unpaid principal balance at the date of acquisition) or fair value. Any further write-down is charged to expense. All costs incurred from the date of acquisition to maintain the property are expensed. "Other real estate owned" is appraised during the foreclosure process, before acquisition. Losses are recognized for the amount by which the book value of the related mortgage loan exceeds the estimated net realizable value of the property.

Certain potential problem loans that management believes are adequately secured and for which no material loss is expected are not categorized as non-performing loans. Loans of this type are considered problem loans because certain circumstances known to management could cause the borrowers to be unable to comply with the existing loan repayment terms at some future date. At December 31, 2001 and 2000, potential problem loans totaled approximately $2.1 million and $4.8 million, respectively. PremierWest had nonaccrual loans of $2.1 million at December 31, 2001 and $4.8 million at December 31, 2000. Interest income that would have been recognized on nonaccrual loans if such loans had performed in accordance with contractual terms totaled $334,000 for the year ended December 31, 2001 and $539,000 for the year ended December 31, 2000. Interest income recognized on such loans during all of the periods was insignificant.

The following table summarizes non-performing assets by category:

Impaired loans include all nonaccrual and restructured commercial and real estate loans. Loan impairment is measured as the present value of expected future cash flows discounted at the loan's initial interest rate, the fair value of the collateral of an impaired collateral-dependent loan or an observable market price. Interest income on impaired loans is recognized on a cash-basis method. The investment in loans for which impairment had been recognized totaled $2.1 million as of December 31, 2001 and $4.8 million as of December 31, 2000. At December 31, 2001 and 2000, the valuation allowance for loan losses related to impaired loans was $556,000 and $720,000 respectively.

24

The loan loss provision represents a charge to earnings for maintaining an allowance for loan losses at a level management believes is adequate. The provision charged to operating expense is based on loan loss experience and other factors that, in management's judgment, should be recognized to estimate losses. Management monitors the loan portfolio to ensure that the reserve for loan losses remains adequate to absorb losses identified by the portfolio review process, including loans on nonaccrual status and current loans whose repayment according to the loan's repayment plan is considered by management to be in serious doubt. PremierWest takes into account loan growth and the level of delinquent and non-performing loans in its review of the portfolio, considering also such external factors as current economic conditions in the primary market area, collectibility of collateral values and guaranties and the current status of legal action for collection of loans and related guaranties .

PremierWest's allowance for loan losses totaled $4.8 million at December 31, 2001 and $3.5 million at December 31, 2000, representing 1.35% of total loans at December 31, 2001 and 1.5% of total loans at December 31, 2000. The loan loss allowance represents 69% of non-performing loans at December 31, 2001 and 52% of non-performing loans at December 31, 2000. Although management believes that it uses the best information available in providing for estimated loan losses and believes that the allowance was adequate at December 31, 2001, future adjustments could be necessary and net earnings could be negatively affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the initial determinations.

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

• analysis of risks inherent in the various segments the loan portfolio;
• management's assessment of known or potential problem credits have come to management's attention during the ongoing review of credit quality;
• estimates of the value of underlying collateral and guaranties;
• legal representation regarding the potential outcome of pending actions for collection of loans and related guaranties;
• historical loss experience; and
• current economic conditions and other factors.

If actual circumstances and losses differ substantially from management's assumptions and estimates, the allowance for loan losses might not be sufficient to absorb all future losses. Net earnings would be adversely affected if that occurred. Loan loss estimates are reviewed periodically. Adjustments, if any, are reported in earnings in the period in which they become known. In addition, PremierWest maintains a portion of the loan loss allowance to cover inherent losses that have not been specifically identified.

A downturn in the local Oregon and/or California economy and employment could result in increased levels of non-performing assets and charge-offs, increased loan loss provisions and reductions in income. Additionally, as an integral part of the examination process, bank regulatory agencies periodically review PremierWest's allowance for loan losses. The banking agencies could require the recognition of additions to the loan loss allowance based on their judgment of information available to them at the time of their examination.

25

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

The following table shows the allocation of PremierWest's allowance for loan losses by category and the percent of loans in each category to total loans at the dates indicated. PremierWest allocates its allowance for loan losses to each loan classification based on relative risk characteristics. Specific allocations represent estimated losses that are due to current credit circumstances and other available information. Unallocated portions of the allowance are intended to compensate for the subjective nature of the determination of losses inherent in the overall loan portfolio. Because the total loan loss allowance is a valuation reserve applicable to the entire loan portfolio, the portion of the allowance allocated to each loan category does not represent the total available for future losses that may occur within that loan category.

26

As of December 31, 2001, PremierWest's specific allocation of its allowance for loan losses for commercial and real estate construction loans related to loans on nonaccrual status and an overall reserve based on credit risk ratings. Specific allocation of loan loss reserves for other real estate loans relates to loans for which management believes the borrower might be unable to comply with loan repayment terms (even though the loans are not in nonaccrual status) and for which supporting collateral might not be adequate to recover loan amounts if foreclosure and subsequent sale of collateral become necessary.

Deposit accounts are PremierWest's primary source of funds. PremierWest offers a number of deposit products to attract both commercial and regular consumer checking and savings customers, including regular and money market savings accounts, NOW accounts, and a variety of fixed-maturity, fixed-rate certificates with maturities ranging from seven days to 60 months. These accounts earn interest at rates established by management based on competitive market factors and management's desire to increase certain types or maturities of deposit liabilities. The bank also provides travelers checks, official checks, money orders, ATM services and IRA accounts. PremierWest does not solicit or accept brokered deposits.

27

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

The following table sets forth the amount of time deposits as of December 31, 2001, including certificates of deposit, by time remaining until maturity.

Shareholders' equity was $43.7 million at December 31, 2001, an increase of $11.3 million or 34.7% from December 31, 2000. As of December 31, 2001, PremierWest was in compliance with applicable regulatory capital requirements, as shown in the following table.

Liquidity

Liquidity enables PremierWest to meet withdrawals of its deposits and borrowing needs of its loan customers. PremierWest maintains its liquidity position through maintenance of cash resources and the stability of its core deposit base. Liquidity has been relatively stable and adequate over its history. Short-term deposits, however, have grown while excess cash was invested on a short-term basis into federal funds sold and interest-earning deposits with the FHLB. As of December 31, 2001, PremierWest had $15.0 million in federal funds sold.

28

At December 31, 2001, certificates of deposit represented 37% of total deposits, while demand deposit accounts, or checking accounts represented 19%, and savings accounts and interest-bearing demand accounts represented 44%. Management believes that the bank will have sufficient sources of funds to meet the liquidity needs relating to deposit and savings accounts and maturing certificates of deposit for the next fiscal year.

A further source of liquidity is PremierWest's ability to borrow funds by maintaining a secured line-of-credit with the FHLB up to 15% of the Bank's total assets. As of December 31, 2001, there were $5.6 million advanced in long-term borrowings from the FHLB against PremierWest credit line. Other borrowings of approximately $5.5 million relate to repurchase agreements for customer overnight sweep accounts. The average cost of these funds is approximately 2.60%. PremierWest also has established secured credit lines of approximately $20 million through certain correspondent banks and the discount window with the Federal Reserve Bank of San Francisco.

At December 31, 2001, PremierWest had approximately $58 million in outstanding commitments to extend credit for newly approved loans and available funds for construction projects. Under the terms of such commitments, completion of specified project benchmarks must be certified before funds may be drawn. In addition, it is anticipated that a portion of other commitments will expire or terminate without funding. Management believes that PremierWest's available resources will be sufficient to fund these commitments in the normal course of business.

Like other financial institutions, PremierWest is subject to interest rate risk. Interest-earning assets could mature or reprice more rapidly than, or on a different basis from, interest-bearing liabilities (primarily borrowings and deposits with short- and medium-term maturities) in a period of declining interest rates. Although having assets that mature or reprice more frequently on average than liabilities will be beneficial in times of rising interest rates, such an asset/liability structure will result in lower net interest income during periods of declining interest rates. Interest rate sensitivity, or interest rate risk, relates to the effect of changing interest rates on net interest income. Interest-earning assets with interest rates tied to the prime rate for example, or that mature in relatively short periods of time, are considered interest-rate sensitive. Interest-bearing liabilities with interest rates that can be repriced in a discretionary manner, or that mature in relatively short periods of time, are also considered interest-rate sensitive. The differences between interest-sensitive assets and interest-sensitive liabilities over various time horizons are commonly referred to as sensitivity gaps. As interest rates change, the sensitivity gap will have either a favorable effect or an adverse effect on net interest income. A negative gap (with liabilities repricing more rapidly than assets) generally should have a favorable effect when interest rates are falling, and an adverse effect when rates are rising. A positive gap (with assets repricing more rapidly than liabilities) generally should have the opposite effect: an adverse effect when rates are falling and a favorable effect when rates are rising.

The following table illustrates the maturities or repricing of PremierWest's assets and liabilities at December 31, 2001, based upon the contractual maturity or contractual repricing dates of loans and the contractual maturities of time deposits. Prepayment assumptions have not been applied to fixed-rate mortgage loans. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. Allocation of deposits other than time deposits to the various maturity and repricing periods is based upon management's best estimate, taking into account, among other things, the policy statement issued by federal bank regulators on August 4, 1995.

29

For purposes of the gap analysis, loans are not reduced by the allowance for loan losses and non-performing loans, and premiums, unearned discounts and deferred loan fees are excluded.

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

In addition to a static gap analysis of interest rate sensitivity, PremierWest also attempts to monitor interest rate risk from the perspective of changes in the economic value of equity, also referred to as net portfolio value (NPV), and changes in net interest income. Changes to the NPV and net interest income are simulated using instant and permanent rate shocks of plus and minus 200 basis points, in increments of 100 basis points. These results are then compared to prior periods to determine the effect of previously implemented strategies. If estimated changes to NPV or net interest income are not within acceptable limits, the Board may direct management to adjust its asset and liability mix to bring interest rate risk within acceptable limits. The NPV calculations are based on the net present value of discounted cash flows, using market prepayment assumptions and market rates of interest for each asset and liability product type based on its characteristics. The theoretical projec ted change in NPV and net interest income over a 12-month period under each of the instantaneous and permanent rate shocks have been calculated by PremierWest using computer simulation.

30

PremierWest's simulation analysis forecasts net interest income and earnings given unchanged interest rates (stable rate scenario). The model then estimates a percentage change from the stable rate scenario under scenarios of rising and falling market interest rates over various time horizons. The simulation model based on December 31, 2001 data, estimates that if a decline of 200 basis points occurs, net interest income could be favorably affected up to approximately 0.5%, while a similar increase in market rates would also have a favorable impact of approximately 0.6%. Because of uncertainties about customer behavior, refinance activity, absolute and relative loan and deposit pricing levels, competitor pricing and market behavior, product volumes and mix, and other unexpected changes in economic events affecting movements and volatility in market rates, there can be no assurance that simulation results are reliable indicators of earnings under such conditions.

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

The financial statements called for by this item are included in this report beginning on page F-1.

The following tables set forth the company's unaudited consolidated financial data regarding operations for each quarter of 2001 and 2000. This information, in the opinion of management, includes all adjustments necessary, consisting only of normal and recurring adjustments, to state fairly the information set forth therein. Certain amounts previously reported have been reclassified to conform to the current presentation. These reclassifications had no net impact on the results of operations.

31

None.

PART III

The response to this item is incorporated by reference to PremierWest's Proxy Statement for the 2002 annual meeting of shareholders scheduled for May 23, 2002, under the captions "Information Regarding Directors and Executive Officers" and "Compliance with Section 16 Filing Requirements."

The response to this item is incorporated by reference to PremierWest's Proxy Statement for the 2002 annual meeting of shareholders scheduled for May 23, 2002, under the captions "Executive Compensation," "Stock Performance Graph," and "Director Compensation."

The response to this item is incorporated by reference to PremierWest's Proxy Statement for the 2002 annual meeting of shareholders scheduled to be held May 23, 2002, under the caption "Security Ownership of Management and Others."

The response to this item is incorporated by reference to PremierWest's Proxy Statement for the 2002 annual meeting of shareholders scheduled to be held May 23, 2002, under the caption "Transactions with Directors and Officers."

33

PART IV

(a)     (1)      Financial Statements:

The consolidated financial statements for the fiscal years ended December 31, 2001, 2000, and 1999 are included in this report beginning on page F-1.

         (2)      Financial Statement Schedules:

All schedules have been omitted because the information is not required, not applicable, not present in amounts sufficient to require submission of the schedule, or is included in the financial statements or notes thereto.

         (3)      The exhibits listed below are filed with, and incorporated into by reference, this report, and the list below constitutes the exhibit index.

(b)               The Company did not file any reports on Form 8-K during the quarter ended December 31, 2001.

Exhibits

3 (i) Articles of Incorporation of PremierWest Bancorp*

   (ii) Bylaws of PremierWest Bancorp*

4      Specimen Stock Certificate*

10.1 Employment Agreement between John L. Anhorn and Bank of Southern Oregon dated April 2, 1998*

10.2 Employment Agreement between Richard R. Heib and Bank of Southern Oregon dated April 2, 1998*

10.3 1992 Combined Incentive and Non-Qualified Stock Option Plan of Bank of Southern Oregon*

21    Subsidiaries of the PremierWest Bancorp

23    Consent of Symonds Evans & Company, P.C. (relating to the audited financial statements of the registrant)

*      Incorporated by reference to the registration statement on Form S-4, and all amendments thereto (commission file no. 333-96209)

**    Incorporated by reference to the registration statement on Form S-8 (commission file no. 333-40886)

35

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1992 Combined Incentive and Non-Qualified Stock Option Plan of Bank of Southern Oregon and the United Bancorp Stock Option Plan, as amended, of our report dated January 19, 2001, with respect to the consolidated financial statements of PremierWest Bancorp and subsidiaries (PremierWest) as of December 31, 2001 and 2000 and for the years then ended, included in the Annual Report (Form 10-K) for the year ended December 31, 2001. Our report states that we did not audit the consolidated financial statements of United Bancorp and subsidiaries (United) as of and for the year ended December 31, 1999, which were included in the consolidated financial statements of PremierWest. Those statements were audited by other auditors whose report was furnished to us, and our opinion, insofar as it related to the amounts included for United, was based solely on the report of the other auditors. Ou r report also contains an explanatory paragraph which states that "the consolidated financial statements for the year ended December 31, 1998, represent the combination of the consolidated financial statements of PremierWest and United, which were audited and reported on separately by other auditors. We have audited the combination of the accompanying consolidated financial statements for the year ended December 31, 1998, after restatement for the May 2000 pooling of interests." Insofar as our report related to the amounts included for PremierWest for the year ended December 31, 1998, prior to the restatement for the May 2000 pooling of interests, it was based solely on the report of Kosmatka Donnelly & Co. LLP. Insofar as our report related to the amounts included for United for the year ended December 31, 1998, it was based solely on the report of Knight Vale & Gregory PLLC.

Portland, Oregon